FinanceLooker

Excrept from filing document 2024-06-30

The aggregate market value of the voting and non voting common equity held by non affiliates of the Registrant on December 29 2023 the last business day of the Registrant s most recently completed second fiscal quarter was 528 6 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
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
inflation and or changes in the interest rate environment that reduce our margins and yields or reduce the fair value of financial instruments or reduce the origination levels in our lending business or increase the level of defaults losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets
our ability to successfully integrate any assets liabilities clients systems and management personnel we have acquired or may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto
changes in accounting policies and practices as may be adopted by bank regulatory agencies the Financial Accounting Standards Board the Securities and Exchange Commission or the Public Company Accounting Oversight Board
cyber attacks computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information and destroy data or disable our systems
The Company is a unitary savings and loan holding company regulated by the Board of Governors of the Federal Reserve Bank FRB and conducts no significant business or operations of its own The Bank s deposits are federally insured by the Deposit Insurance Fund as administered by the Federal Deposit Insurance Corporation FDIC and the Bank is primarily regulated by the New Jersey Department of Banking and Insurance NJDBI and as a nonmember bank the FDIC References in this Annual Report on Form 10 K to the Company or Kearny Financial generally refer to the Company and the Bank unless the context indicates otherwise References to we us or our refer to the Bank or Company or both as the context indicates
The Company s primary business is the ownership and operation of the Bank The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits together with other funds to originate or purchase loans for its portfolio and for sale into the secondary market Our loan portfolio is primarily comprised of loans collateralized by commercial and residential real estate augmented by secured and unsecured loans to businesses and consumers We also maintain a portfolio of investment securities primarily comprised of U S agency mortgage backed securities obligations of state and political subdivisions corporate bonds asset backed securities and collateralized loan obligations
We operate from our administrative headquarters in Fairfield New Jersey and other administrative locations throughout the State of New Jersey As of June 30 2024 we had 43 branch offices The Company maintains a website at www kearnybank com We make available through that website free of charge copies of our Annual Reports on Form 10 K Quarterly Reports on Form 10 Q Current Reports on Form 8 K amendments to those reports and proxy materials as soon as is reasonably practicable after the Company electronically files those materials with or furnishes them to the Securities and Exchange Commission You may access these materials by following the links under Investor Relations under the Financial Information tab at the Company s website Information on the Company s website is not and should not be considered a part of this Annual Report on Form 10 K
We have evolved our business model from that of a traditional thrift into that of a full service community bank This evolution has been accomplished by growing our commercial loans and deposits expanding our product and service offerings de novo branching and the acquisition of other financial institutions During this time our strategy has been largely focused on profitably deploying capital and enhancing earnings through a variety of balance sheet growth and diversification strategies The key components of our business strategy are as follows
As demonstrated by the June 30 2024 Common Equity Tier 1 Capital ratios of the Company and the Bank of 14 79 and 13 65 respectively we currently maintain and plan to continue to maintain capital levels in excess of regulatory minimums and internal capital adequacy guidelines
In addition to our robust capital levels we maintain significant sources of both on and off balance sheet liquidity and plan to continue to do so At June 30 2024 our liquid assets included 63 9 million of short term cash and equivalents
supplemented by 1 07 billion of investment securities classified as available for sale which can be readily sold or pledged as collateral if necessary In addition we had the capacity to borrow additional funds totaling 789 0 million via unsecured overnight borrowings from other financial institutions and 1 06 billion and 381 8 million from the Federal Home Loan Bank of New York and FRB respectively without pledging additional collateral
Given the ongoing evolution of our business towards digital channels we have invested significant human resources and capital towards enhancing both our internal and client facing technology systems Our ongoing technology transformation has and will continue to impact nearly every area of the Company including the residential and commercial lending functions retail deposit gathering risk management and back office operations In fiscal 2025 we will continue our digital strategy spearheaded by our recently adopted cloud based best in breed digital banking and online account opening platform and continue to serve our clients needs in an omnichannel environment while expanding our products and services into new markets in an efficient and cost effective manner
We focus on the acquisition and retention of core non maturity deposit accounts and expanding customer relationships Our philosophy is to provide superior personalized service to our clients In addition we intend to increase core non maturity deposit accounts by growing business banking relationships through the establishment of dedicated business development teams and expanded product lines tailored to meet our target business customers needs Core non maturity deposit accounts totaled 3 55 billion at June 30 2024 representing 68 8 of total deposits
We continue to focus on the diversification of our loan portfolio through the origination of higher yielding commercial and industrial C I owner occupied commercial real estate and home equity line of credit HELOC loans to improve net margins and manage interest rate risk To that end we have assembled a team of relationship managers with vast experience working with small to middle market businesses
We plan to continue to improve operating efficiency through organic means such as the increased use of technology and the continual evaluation of our branch network We plan to continue to evaluate and optimize the performance of our existing branch network through additional branch consolidations where appropriate Such efforts will take into consideration historical branch profitability market demographic trajectory technology geographic proximity of consolidating branches and the expected impact on the Bank s clients and communities served
In December 2022 we announced the adoption of a company wide operating efficiency initiative that included the optimization and reduction of vendor spend the automation or outsourcing of routine activities and the realignment of our workforce Excluding the impact of a non cash goodwill impairment and other non recurring items this operating efficiency initiative reduced our non interest expense by 4 4 million to 117 8 million for the year ended June 30 2024 from 122 2 million for the year ended June 30 2023
At June 30 2024 our primary market area consisted of the counties in which we currently operate branches including Bergen Essex Hudson Middlesex Monmouth Morris Ocean Passaic Somerset and Union counties in New Jersey and Kings Brooklyn and Richmond Staten Island counties in New York Our lending is concentrated in New Jersey and New York and our predominant sources of deposits are the communities in which our offices are located as well as the neighboring communities
We operate in a highly competitive market area with a large concentration of financial institutions and we face substantial competition in attracting deposits and in originating loans A number of our competitors are significantly larger institutions with greater financial and technological resources and lending limits Our ability to compete successfully is a significant factor affecting our growth potential and profitability Our competition for deposits and loans comes from other insured depository institutions located in our primary market area as well as out of market depository institutions operating via online channels and from non depository institutions including mortgage banks finance companies insurance companies brokerage firms and financial technology companies
Our loan portfolio is comprised of multi family mortgage loans nonresidential mortgage loans commercial business loans construction loans one to four family residential mortgage loans home equity loans and other consumer loans In recent years our lending strategies have placed increasing emphasis on the origination of commercial loans
The following table sets forth the maturities of our loan portfolio at June 30 2024 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
At June 30 2024 multi family mortgage loans totaled 2 65 billion or 46 0 of our loan portfolio while nonresidential mortgage loans totaled 948 1 million or 16 5 of our loan portfolio We originate commercial mortgage loans on a variety of multi family and nonresidential property types including loans on mixed use properties which combine residential and commercial space We generally offer fixed rate and adjustable rate balloon mortgage loans on multi family and nonresidential properties with final stated maturities ranging from three to 15 years with amortization terms which generally range from 15 to 30 years Our commercial mortgage loans are primarily secured by properties located in New Jersey New York and the surrounding states
At June 30 2024 commercial and industrial business loans totaled 142 7 million or 2 5 of our loan portfolio We originate commercial term loans and lines of credit to a variety of clients in our market area Our commercial term loans generally have terms of up to 10 years Our commercial lines of credit have terms of up to one year and are generally floating rate loans
At June 30 2024 construction loans totaled 209 2 million or 3 6 of our loan portfolio Our construction lending includes loans to individuals builders or developers for the construction of multi family residential buildings or commercial real estate or for the construction or renovation of one to four family residences Construction borrowers must hold title to the land free and clear of any liens Financing for construction loans is limited to 80 of the anticipated appraised value of the completed property Disbursements are made in accordance with inspection reports by our approved appraisal firms Terms of financing are generally limited to one year with an interest rate tied to the prime rate and may include a premium of one or more points In some cases we convert a construction loan to a permanent mortgage loan upon completion of construction We have no formal limits as to the number of projects a builder has under construction or development and make a case by case determination on loans to builders and developers who have multiple projects under development
At June 30 2024 one to four family residential mortgage loans totaled 1 76 billion or 30 5 of our loan portfolio At June 30 2024 1 63 billion or 92 7 of our one to four family residential mortgage loans were secured by properties located within New Jersey and New York with the remaining 129 1 million or 7 3 secured by properties in other states The fixed rate residential mortgage loans that we originate for portfolio generally meet the secondary mortgage market standards of the Federal Home Loan Mortgage Corporation Freddie Mac In addition we offer a first time homebuyer program which provides financial incentives for persons who have not previously owned real estate and are purchasing a one to four family property in our primary lending area for use as a primary residence
As a complement to our residential one to four family portfolio lending activities we operate a mortgage banking platform which supports the origination of one to four family mortgage loans for sale into the secondary market The loans we originate for sale generally meet the secondary mortgage market standards of Freddie Mac Such loans are generally originated by and sourced from the same resources and markets as those loans originated and held in our portfolio Our mortgage banking business strategy resulted in the recognition of 602 000 in gains associated with the sale of 79 1 million of mortgage loans held for sale during the year ended June 30 2024 As of that date an additional 6 0 million of loans were held and committed for sale into the secondary market
At June 30 2024 home equity loans totaled 44 1 million or 0 8 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
At June 30 2024 other consumer loans totaled 2 7 million or 0 05 of our loan portfolio Our consumer loan portfolio includes unsecured overdraft lines of credit and personal loans as well as loans secured by savings accounts and certificates of deposit on deposit with the Bank
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 2024 our legal loans to one borrower limit was approximately 103 3 million
At June 30 2024 our largest single borrower had an aggregate outstanding loan exposure of approximately 96 9 million comprising six multi family mortgage loans At June 30 2024 this lending relationship was current and performing in accordance with the terms of their loan agreements
Senior management recommends and the Board of Directors approves our lending policies and loan approval limits The Bank s Loan Committee consists of the Chief Executive Officer Chief Lending Officer Chief Credit Officer Chief Risk Officer and other members of senior management Loans which exceed certain thresholds as defined within our policies are submitted to the Bank s Loan Committee and or Board of Directors for approval
We regularly monitor the payment status of all loans within our portfolio and promptly initiate collection efforts on past due loans in accordance with applicable policies and procedures Delinquent borrowers are notified when a loan is 30 days past due If the delinquency continues subsequent efforts are made to contact the delinquent borrower and additional collection notices are sent All reasonable attempts are made to collect from borrowers prior to referral to an attorney for collection However when a residential loan is 120 days delinquent and a commercial loan is 90 days delinquent it is our general practice to refer it to an attorney for repossession foreclosure or other form of collection action as appropriate In certain instances we may modify the loan or grant a limited moratorium on loan payments to enable the borrower to reorganize their financial affairs as we attempt to work with the borrower to establish a repayment schedule to cure the delinquency
As to mortgage loans if a foreclosure action is taken and the loan is not reinstated paid in full or refinanced the property is sold at judicial sale at which we may be the buyer if there are no adequate offers to satisfy the debt Any property acquired as
the result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned until it is sold or otherwise disposed of When other real estate owned is acquired it is recorded at its fair market value less estimated selling costs The initial write down of the property if necessary is charged to the allowance for credit losses Adjustments to the carrying value of the properties that result from subsequent declines in value are charged to operations in the period in which the declines are identified
A loan s past due status is generally determined based upon its principal and interest P I payment delinquency status in conjunction with its past maturity status where applicable A loan s P I payment delinquency status is based upon the number of calendar days between the date of the earliest P I payment due and the as of measurement date A loan s past maturity status where applicable is based upon the number of calendar days between a loan s contractual maturity date and the as of measurement date Based upon the larger of these criteria loans are categorized into the following past due tiers for financial statement reporting and disclosure purposes Current including 1 29 days past due 30 59 days past due 60 89 days past due and 90 or more days past due
Loans are generally placed on nonaccrual status when contractual payments become 90 or more days past due or when we do not expect to receive all P I payments owed substantially in accordance with the terms of the loan agreement regardless of past due status Loans that become 90 days past due but are well secured and in the process of collection may remain on accrual status Nonaccrual loans are generally returned to accrual status when all payments due are brought current and we expect to receive all remaining P I payments owed substantially in accordance with the terms of the loan agreement Payments received in cash on nonaccrual loans including both the principal and interest portions of those payments are generally applied to reduce the carrying value of the loan
PCD loans are acquired loans that as of the acquisition date have experienced a more than insignificant deterioration in credit quality since origination Non PCD loans are acquired loans that have experienced no or insignificant deterioration in credit quality since origination To distinguish between the two types of acquired loans we evaluate risk characteristics that have been determined to be indicators of deteriorated credit quality The determining criteria may involve loan specific characteristics such as payment status debt service coverage or other changes in creditworthiness since the loan was originated while others are relevant to recent economic conditions such as borrowers in industries impacted by the pandemic
As part of our acquisition of MSB Financial Corp we acquired PCD loans with a par value of 69 4 million and an allowance for credit losses of 3 9 million Additional information about our PCD loans is presented in Note 4 to the audited consolidated financial statements
The following table provides information regarding our nonperforming assets which are comprised of nonaccrual loans accruing loans 90 days or more past due nonaccrual loans held for sale and other real estate owned
Total nonperforming assets decreased by 15 7 million to 39 9 million at June 30 2024 from 55 6 million at June 30 2023 For those same comparative periods the number of nonperforming loans increased to 48 loans from 45 loans There was one property in other real estate owned OREO at 2023 which was subsequently sold in January 2024 There were no properties in OREO at June 30 2024 All nonaccrual loans held for sale at June 30 2023 were sold during the year ended June 30 2024
We maintain a loan review system consisting of several related functions including but not limited to classification of assets calculation of the allowance for credit losses independent credit file review as well as internal audit and lending compliance reviews We utilize both internal and external resources where appropriate to perform the various loan review functions all of which operate in accordance with a scope and frequency determined by senior management and the Audit and Compliance Committee of the Board of Directors
As one component of our loan review system we engage a third party firm which specializes in loan review and analysis functions As part of their review process our third party review firm compares their review results with their client base to evaluate our risk assessment among our peers This firm assists senior management and the Board of Directors in identifying potential credit weaknesses in reviewing and confirming risk ratings or adverse classifications internally ascribed to loans by management in identifying relevant trends that affect the collectability of the portfolio and identifying segments of the portfolio that are potential problem areas in verifying the appropriateness of the allowance for credit losses in evaluating the activities of lending personnel including compliance with lending policies and the quality of their loan approval monitoring and risk assessment and by providing an objective assessment of the overall quality of the loan portfolio Currently third party loan reviews are being conducted quarterly and include non performing loans as well as samples of performing loans of varying types within our portfolio
In addition our loan review system includes functions performed by internal audit and compliance personnel Internal audit resources perform credit review functions utilizing guidance from regulatory and Institute of Internal Auditors standards in addition to assessing the adequacy of and adherence to internal credit policies and loan administration procedures and adherence to regulatory guidance Our compliance resources monitor adherence to relevant lending related and consumer protection related laws and regulations
In compliance with the regulatory guidelines our loan review system includes an evaluation process through which certain loans exhibiting adverse credit quality characteristics are classified as Substandard Doubtful or Loss An asset is classified as Substandard if it is inadequately protected by the paying capacity and net worth of the obligor or the collateral pledged if any Substandard assets include those characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected Assets classified as Doubtful have all of the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts conditions and values Assets or portions thereof classified as Loss are considered uncollectible or of so little value that their continuance as assets is not warranted Assets which do not currently expose us to a sufficient degree of risk to warrant an adverse classification but have some credit deficiencies or other potential weaknesses are designated as Special Mention by management Adversely classified assets together with those rated as Special Mention are generally referred to as Classified Assets Non classified assets are internally rated within one of four Pass categories or as Watch with the latter denoting a potential deficiency or concern that warrants increased oversight or tracking by management until remediated
On a case by case basis we may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics When we determine that a loan no longer shares similar risk characteristics with other loans in the portfolio the allowance will be determined on an individual basis using the present value of expected cash flows or for collateral dependent loans the fair value of the collateral as of the reporting date less estimated selling costs as applicable If the fair value of the collateral is less than the amortized cost basis of the loan we will establish an allowance for the difference between the fair value of the collateral less costs to sell at the reporting date and the amortized cost basis of the loan
A description of our methodology in establishing our allowance for credit losses is set forth in the section Management s Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies Allowance for Credit Losses
Our allowance for credit losses is maintained at a level necessary to cover lifetime expected credit losses in financial assets at the balance sheet date The following table presents allowance for credit losses ratios along with the components of their calculation for the periods indicated
The following table sets forth the allowance for credit losses ACL allocated by loan category and the percent of loans in each category to total loans receivable at the dates indicated The ACL allocated to each category is the estimated amount considered necessary to cover lifetime expected credit losses inherent in any particular category as of the balance sheet date and does not restrict the use of the allowance to absorb losses in other categories
At June 30 2024 the ACL totaled 44 9 million or 0 78 of total loans reflecting a decrease of 3 8 million from 48 7 million or 0 83 of total loans at June 30 2023 The decrease was largely attributable to a reduction in reserves for individually evaluated loans primarily driven by the charge offs of three related non performing commercial real estate loans transferred to held for sale and sold during the year ended June 30 2024
The ACL at June 30 2024 is maintained at a level that is management s best estimate of lifetime expected credit losses inherent in loans at the balance sheet date The ACL is subject to estimates and assumptions that are susceptible to significant revisions as more information becomes available and as events or conditions effecting individual borrowers and the marketplace as a whole change over time Additions to the ACL may be necessary if the future economic environment deteriorates from forecasted conditions In addition the banking regulators as an integral part of their examination process periodically review our loan and foreclosed real estate portfolios related ACL and valuation allowance for foreclosed real estate The regulators may require the ACL to be increased based on their review of information available at the time of the examination which may negatively affect our earnings
At June 30 2024 our investment securities portfolio totaled 1 21 billion and comprised 15 7 of our total assets By comparison at June 30 2023 our securities portfolio totaled 1 37 billion and comprised 17 0 of our total assets Additional information about our investment securities at June 30 2024 is presented in Note 3 to the audited consolidated financial statements
The year over year net decrease in the securities portfolio totaled 165 6 million which largely reflected repayments and sales that were partially offset by purchases The decrease in the portfolio included a 25 5 million increase in the fair value of the available for sale securities portfolio to an unrealized loss of 130 7 million at June 30 2024 from an unrealized loss of 156 1 million at June 30 2023
Our investment policy which is approved by the Board of Directors is designed to foster earnings and manage cash flows within prudent interest rate risk and credit risk guidelines taking into consideration our liquidity needs asset liability management goals and performance objectives Our Chief Executive Officer Chief Financial Officer Chief Risk Officer and Treasurer Chief Investment Officer are the senior management members of our Capital Markets Committee that are designated by the Board of Directors as the officers primarily responsible for securities portfolio management and all transactions require the approval of at least two of these designated officers
The investments authorized for purchase under the investment policy approved by our Board of Directors include U S government and agency mortgage backed securities U S government agency debentures municipal obligations corporate bonds asset backed securities collateralized loan obligations and subordinated debt
The carrying value of our mortgage backed securities totaled 593 9 million at June 30 2024 and comprised 49 1 of total investments and 7 7 of total assets as of that date We generally invest in mortgage backed securities issued by U S government agencies or government sponsored entities Mortgage backed securities issued or sponsored by U S government agencies and government sponsored entities are guaranteed as to the payment of principal and interest to investors
The carrying value of our securities representing obligations of state and political subdivisions totaled 12 9 million at June 30 2024 and comprised 1 1 of total investments and less than 1 0 of total assets as of that date Such securities primarily included highly rated fixed rate bank qualified securities representing general obligations of municipalities located within the U S or the obligations of their related entities such as boards of education or school districts Each of our municipal obligations were consistently rated by Moody s and S P well above the thresholds that generally support our investment grade assessment with such ratings equaling A or higher by S P or A2 or higher by Moody s where rated by those agencies In the absence of or as a complement to such ratings we rely upon our own internal analysis of the issuer s financial condition to validate its investment grade assessment
The carrying value of our asset backed securities totaled 80 4 million at June 30 2024 and comprised 6 7 of total investments and 1 0 of total assets as of that date This category of securities is comprised entirely of structured floating rate securities representing securitized federal education loans with 97 U S government guarantees Our securities represent the highest credit quality tranches within the overall structures with each being rated AA or higher by S P or Aa1 or higher by Moody s where rated by those agencies
The outstanding balance of our collateralized loan obligations totaled 389 5 million at June 30 2024 and comprised 32 2 of total investments and 5 1 of total assets as of that date This category of securities is comprised entirely of structured floating rate securities representing securitized commercial loans to large U S corporations At June 30 2024 each of our collateralized loan obligations were consistently rated by Moody s and or S P well above the thresholds that generally support our investment grade assessment with such ratings equaling AAA by S P or Aaa by Moody s where rated by those agencies
The carrying value of our corporate bonds totaled 131 8 million at June 30 2024 and comprised 10 9 of total investments and 1 7 of total assets as of that date This category of securities is comprised of two floating rate corporate debt obligations issued by large financial institutions and subordinated debt representing small to mid sized community banks located mainly in the mid Atlantic region of the U S At June 30 2024 corporate bonds issued by large financial institutions were consistently rated by Moody s and S P well above the thresholds that generally support our investment grade assessment with such ratings equaling BBB or higher by S P or Baa3 or higher by Moody s where rated by those agencies
Current accounting standards require that debt securities be categorized as held to maturity or available for sale based on management s intent as to the ultimate disposition of each security These standards allow debt securities to be classified as held to maturity and reported in financial statements at amortized cost only if the reporting entity has the positive intent and ability to hold these securities to maturity Securities that might be sold in response to changes in market interest rates changes in the security s prepayment risk increases in loan demand or other similar factors cannot be classified as held to maturity
We do not currently use or maintain a trading account Securities not classified as held to maturity are classified as available for sale These securities are reported at fair value and unrealized gains and losses on the securities are excluded from earnings and reported net of deferred taxes as adjustments to accumulated other comprehensive income loss a separate component of equity As of June 30 2024 our available for sale securities portfolio had a carrying value of 1 07 billion or 88 8 of our total securities with the remaining 135 7 million or 11 2 of securities were classified as held to maturity
Other than securities issued or guaranteed by the U S government or its agencies we did not hold securities of any one issuer having an aggregate book value in excess of 10 of our equity at June 30 2024 All of our securities carry market risk insofar as increases in market interest rates have caused and may continue to cause a decrease in their market value We believe that unrealized and unrecognized losses on securities held at June 30 2024 are a function of changes in market interest rates and credit spreads not changes in credit quality Therefore no allowance for credit losses was recorded at that time
During the year ended June 30 2024 proceeds from sales of securities available for sale totaled 104 1 million and resulted in no gross gains and gross losses of 18 1 million During the year ended June 30 2023 proceeds from sales of securities available for sale totaled 105 2 million and resulted in no gross gains and gross losses of 15 2 million During the year ended June 30 2022 proceeds from sales of securities available for sale totaled 100 3 million and resulted in no gross gains and gross losses of 565 000 There were no sales of held to maturity securities during the years ended June 30 2024 2023 and 2022
The following table sets forth certain information regarding the carrying values weighted average yields and maturities of our securities portfolio at June 30 2024 This table shows contractual maturities and does not reflect re pricing or the effect of prepayments Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties At June 30 2024 securities with a carrying value of 31 8 million are callable within one year
Retail deposits are our primary source of funds for lending and other investment purposes In addition we derive funds from principal repayments of loan and investment securities Loan and securities payments are a relatively stable source of funds while deposit inflows are significantly influenced by general interest rates and money market conditions Wholesale funding sources including but not limited to borrowings from the Federal Home Loan Bank of New York FHLB wholesale deposits and other short term borrowings are also used to supplement the funding for loans and investments
Our current deposit products include interest bearing and non interest bearing checking accounts money market deposit accounts savings accounts and certificates of deposit accounts ranging in terms from 30 days to five years Certificates of deposit with terms ranging from six months to five years are available for individual retirement account plans Deposit account terms such as interest rate earned applicability of certain fees and service charges and funds accessibility will vary based upon several factors including but not limited to minimum balance term to maturity and transaction frequency and form requirements
Deposits are obtained primarily from within New Jersey and New York through the Bank s network of retail branches business relationship officers treasury management officers and digital banking channels We maintain a robust suite of commercial deposit products designed to appeal to small and mid size businesses non profit organizations and government entities Our team of experienced and dedicated business relationship officers serve as the primary points of contact for these commercial clients and act as both new business originators and relationship managers
The determination of interest rates on retail deposits is based upon a number of factors including 1 our need for funds based on loan demand current maturities of deposits and other cash flow needs 2 a current survey of a selected group of competitors rates for similar products 3 our current cost of funds yield on assets and asset liability position and 4 the alternate cost of funds on a wholesale basis Interest rates are reviewed by senior management on a regular basis with deposit product and pricing updated as appropriate during recurring and ad hoc senior management meetings
Our liquidity could be reduced if a significant amount of certificates of deposit maturing within a short period were not renewed At June 30 2024 and 2023 certificates of deposit maturing within one year were 1 49 billion and 1 90 billion respectively Historically a significant portion of the certificates of deposit remain with us after they mature
At June 30 2024 1 10 billion or 68 2 of our certificates of deposit were certificates of 100 000 or more compared to 1 42 billion or 70 6 at June 30 2023 Excluding brokered certificates of deposit 688 3 million or 57 4 of our certificates of deposit were certificates of 100 000 or more at June 30 2024 The general level of market interest rates and money market conditions significantly influence deposit inflows and outflows The effects of these factors are particularly pronounced on deposit accounts with larger balances In particular certificates of deposit with balances of 100 000 or greater are traditionally viewed as being a more volatile source of funding than comparatively lower balance certificates of deposit or non maturity transaction accounts In order to retain certificates of deposit with balances of 100 000 or more we may have to pay a premium rate resulting in an increase in our cost of funds To the extent that such deposits do not remain with us they may need to be replaced with wholesale funding
Our sources of wholesale funding included brokered certificates of deposit whose balances totaled approximately 408 2 million or 7 9 of total deposits at June 30 2024 We utilize brokered certificates of deposit and as an alternative to other forms of wholesale funding including borrowings when interest rates and market conditions favor the use of such deposits For a portion of our short term brokered certificates of deposit we utilized interest rate contracts to effectively extend their duration and to fix their cost
As of June 30 2024 and 2023 the aggregate amount of certificates of deposit of 250 000 and over was 633 0 million and 883 7 million respectively The following table presents the time remaining until maturity of those certificates of deposit as of June 30 2024
The sources of wholesale funding we utilize include borrowings in the form of advances from the FHLB as well as other forms of borrowings We generally use wholesale funding to manage our exposure to interest rate risk and liquidity risk in conjunction with our overall asset liability management process
Advances from the FHLB are typically secured by our FHLB capital stock and certain investment securities as well as residential and commercial mortgage loans that we choose to utilize as collateral for such borrowings Additional information about our FHLB advances is included under Note 10 to the audited consolidated financial statements
At June 30 2024 we had 1 54 billion of FHLB advances outstanding excluding a net fair value adjustment of 211 000 at a weighted average interest rate of 5 07 At June 30 2023 we had 1 28 billion of FHLB advances outstanding excluding a net fair value adjustment of 688 000 at a weighted average interest rate of 4 92
Based upon the market value of investment securities and mortgage loans that are posted as collateral for FHLB advances at June 30 2024 we are eligible to borrow up to an additional 1 06 billion of advances from the FHLB as of that date We are further authorized to post additional collateral in the form of other unencumbered investments securities and eligible mortgage loans that may expand our borrowing capacity with the FHLB up to 30 of our total assets Additional borrowing capacity up to 50 of our total assets may be authorized with the approval of the FHLB s Board of Directors or Executive Committee
In addition we had the capacity to borrow additional funds totaling 789 0 million via unsecured overnight borrowings from other financial institutions and 381 8 million from the FRB without pledging additional collateral
The balance of borrowings at June 30 2024 included overnight line of credit borrowings from the FHLB totaling 175 0 million There were no unsecured overnight borrowings from other financial institutions at June 30 2024
We utilize derivative instruments in the form of interest rate swaps caps and floors to hedge our exposure to interest rate risk in conjunction with our overall asset liability management process In accordance with accounting requirements we formally designate all of our hedging relationships as either fair value hedges or cash flow hedges and document the strategy for undertaking the hedge transactions and its method of assessing ongoing effectiveness
At June 30 2024 our derivative instruments were comprised of interest rate swaps caps and a floor with a total notional amount of 2 75 billion These instruments are intended to manage the interest rate exposure relating to certain wholesale funding positions and assets that were outstanding at June 30 2024
At June 30 2024 Kearny Bank was the only wholly owned operating subsidiary of Kearny Financial Corp As of that date Kearny Bank had three wholly owned subsidiaries CJB Investment Corp 189 245 Berdan Avenue LLC and Kearny Wealth Management LLC CJB Investment Corp is a New Jersey Investment Company and remained active through the three year period ended June 30 2024 189 245 Berdan Avenue LLC was formed during the year ended June 30 2023 for the purpose of ownership and operation of commercial real estate In February 2024 the Bank formed the Kearny Wealth Management LLC subsidiary for the purpose of providing wealth management and insurance brokerage services via a third party service provider
Empowering prosperity connecting community and delivering trust are the essence of who we are at Kearny Bank and what differentiates us from others We adhere to these core principles by employing and developing an outstanding team We cultivate premier performance through consistent training monitoring and coaching
Guided by unwavering principles of ethics and integrity we serve our clients and shareholders while actively contributing to our communities Our commitment extends beyond financial transactions we foster an environment where employees thrive and customers choose to bank
We recognize the unique value each individual brings to our organization As part of our commitment to diversity equity and inclusion we appointed a Senior Vice President Director of Diversity Equity and Inclusion in the fourth quarter of fiscal year 2023 This role serves as a bridge between business lines and management promoting diversity across various aspects of our operations
Additionally the Kearny Bank ChangeMakers initiative which was launched in 2023 in partnership with Rutgers University has expanded with 35 employees now having successfully completed the program This initiative focuses on gender and leadership training engaging in meaningful dialogue and teaching transferable skills to local women owned businesses in our communities
We invest in our employees personal and professional growth by providing career advancement opportunities Our commitment to promoting from within allows us to leverage employee expertise and organizational knowledge Furthermore we offer educational initiatives and support for certifications to enhance our employees professional development
We offer our employees competitive compensation including incentive programs together with a comprehensive benefits package designed to enhance the employee experience Such benefits include medical dental vision long term disability benefits AD D and group life insurance additional supplement plans Health Advocacy and Employee Assistance programs generous paid time off and the ability to participate in charitable events during work time In addition our employees share in our financial success while preparing for their retirement via participation in our 401 k Plan which includes a competitive company match and our Employee Stock Ownership Plan ESOP which is 100 funded by the Company
We are committed to providing programs that support the needs of our employees and their families and provide access to a variety of health and wellness programs including benefits that support their physical mental and financial wellbeing Additionally the Company operates in a hybrid work environment where applicable one which promotes a work life balance and allows for certain flexibility while maintaining productivity and efficiency
Kearny Bank and Kearny Financial operate in a highly regulated industry This regulation establishes a comprehensive framework of activities in which a savings and loan holding company and New Jersey savings bank may engage and is intended primarily for the protection of the deposit insurance fund and depositors Set forth below is a brief description of certain laws that relate to the regulation of Kearny Bank and Kearny Financial The description does not purport to be complete and is qualified in its entirety by reference to applicable laws and regulations
Regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities and examination policies including the imposition of restrictions on the operation of an institution and its holding company the classification of assets by the institution and the adequacy of an institution s allowance for credit losses Any change in such regulation and oversight whether in the form of regulatory policy regulations or legislation including changes in the regulations governing savings and loan holding companies could have a material adverse impact on Kearny Financial Kearny Bank and their operations The adoption of regulations or the enactment of laws that restrict the operations of Kearny Bank and or Kearny Financial or impose burdensome requirements upon one or both of them could reduce their profitability and could impair the value of Kearny Bank s franchise resulting in negative effects on the trading price of our common stock
As a nonmember New Jersey savings bank with federally insured deposits Kearny Bank is subject to extensive regulation by the NJDBI and the FDIC The activities of New Jersey savings banks are subject to extensive regulation including restrictions or requirements with respect to loans to one borrower dividends permissible investments and lending activities liquidity transactions with affiliates and community reinvestment Both state and federal law regulate a savings bank s relationship with its depositors and borrowers especially in such matters as the ownership of savings accounts and the form and content of Kearny Bank s mortgage documents
Kearny Bank must file reports with the NJDBI and FDIC concerning its activities and financial condition and obtain regulatory approvals prior to entering into certain transactions such as establishing new branches and mergers with or acquisitions of other depository institutions The NJDBI and FDIC regularly examine Kearny Bank and prepare reports to Kearny Bank s Board of Directors on any deficiencies found in its operations The agencies have substantial discretion to take enforcement action with respect to an institution that fails to comply with applicable regulatory requirements or engages in violations of law or unsafe and unsound practices Such actions can include among others the issuance of a cease and desist order assessment of civil money penalties removal of officers and directors and appointment of a receiver or conservator
Kearny Bank derives its lending investment and other powers primarily from the applicable provisions of the New Jersey Banking Act and the related regulations Under these laws and regulations New Jersey savings banks including Kearny Bank generally may invest in real estate mortgages consumer and commercial loans specific types of debt securities including certain corporate debt securities and obligations of federal state and local governments and agencies certain types of corporate equity securities and other specified assets
A savings bank may also invest pursuant to a leeway power that permits investments not otherwise permitted by the New Jersey Banking Act Leeway investments must comply with a number of limitations on individual and aggregate amounts of investments New Jersey savings banks may also exercise those powers rights benefits or privileges authorized for national banks federal savings banks or federal savings associations or either directly or through a subsidiary New Jersey savings banks may exercise powers rights benefits and privileges of out of state banks savings banks and savings associations or either directly or through a subsidiary provided that prior approval by the NJDBI is required before exercising any such power right benefit or privilege The exercise of these lending investment and activity powers is further limited by federal law and the related regulations See
Federal law and FDIC regulations generally limit the activities as principal and equity investments of state chartered FDIC insured banks and their subsidiaries to those permissible for national banks and their subsidiaries except such activities and investments that are specifically exempted by law or regulation or approved by the FDIC
Before engaging as principal in a new activity that is not permissible for a national bank or otherwise permissible under federal law or FDIC regulations an insured bank must seek approval from the FDIC subject to certain specified exceptions The FDIC will not approve the activity unless the bank meets its minimum capital requirements and the FDIC determines that the activity does not present a significant risk to the FDIC s Deposit Insurance Fund Certain activities of subsidiaries that are engaged in activities permitted for national banks only through a financial subsidiary are subject to additional requirements
Additionally New Jersey parity provisions authorize New Jersey savings banks subject to certain limitations to exercise the powers rights benefits and privileges authorized for national or out of state banks or federal or out of state savings banks or savings associations
The FDIC assesses insured depository institutions to maintain the Deposit Insurance Fund DIF Under the FDIC s risk based assessment system institutions deemed less risky pay lower assessments Assessments for institutions of less than 10 billion of assets such as Kearny Bank are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution s failure within three years Effective January 1 2023 the assessment range for insured institutions of less than 10 billion of total assets is 2 5 to 32 basis points of total assets less tangible equity
The FDIC has authority to increase insurance assessments Any significant increases would have an adverse effect on the operating expenses and results of operations of Kearny Bank Management cannot predict what assessment rates will be in the future
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices is in an unsafe or unsound condition to continue operations or has violated any applicable law regulation rule order or condition imposed by the FDIC We do not currently know of any practice condition or violation that may lead to termination of our deposit insurance
FDIC regulations require nonmember banks to meet several minimum capital standards a common equity Tier 1 capital to risk based assets ratio of 4 5 a Tier 1 capital to risk based assets ratio of 6 0 a total capital to risk based assets of 8 0 and a 4 0 Tier 1 capital to total assets leverage ratio The current requirements implement recommendations of the Basel Committee on Banking Supervision and certain requirements of federal law
For purposes of the regulatory capital standards common equity Tier 1 capital is generally defined as common stockholders equity and retained earnings Tier 1 capital is generally defined as common equity Tier 1 capital and additional Tier 1 capital Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries Total capital includes Tier 1 capital common equity Tier 1 capital plus additional Tier 1 capital and Tier 2 capital Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements and may include cumulative preferred stock and long term perpetual preferred stock mandatory convertible securities intermediate preferred stock and subordinated debt
Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1 25 of risk weighted assets and for institutions that have exercised an opt out election regarding the treatment of Accumulated Other Comprehensive Income up to 45 of net unrealized gains on available for sale equity securities with readily determinable fair market values Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations At June 30 2024 Kearny Bank has exercised the opt out election regarding the treatment of Accumulated Other Comprehensive Income
In determining the amount of risk weighted assets for purposes of calculating risk based capital ratios all assets including certain off balance sheet assets are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset Higher levels of capital are required for asset categories believed to present greater risk For example a risk weight of 0 is assigned to cash and U S government securities a risk weight of 50 is generally assigned to prudently underwritten first lien one to four family residential mortgages a risk weight of 100 is assigned to commercial and consumer loans a risk weight of 150 is assigned to certain past due loans and a risk weight of between 0 to 600 is assigned to equity interests depending on certain specified factors
In addition to establishing the minimum regulatory capital requirements the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a capital conservation buffer consisting of 2 5 of common equity Tier 1 capital to risk weighted assets above the amount necessary to meet its minimum risk based capital requirements At June 30 2024 Kearny Bank exceeded all regulatory capital requirements
In assessing an institution s capital adequacy the FDIC takes into consideration not only these numeric factors but also qualitative factors The FDIC has the authority to establish higher capital requirements for individual institutions where deemed necessary
Depository institutions and their holding companies that have less than 10 billion in total consolidated assets and meet other qualifying criteria may elect to use the optional community bank leverage ratio framework which requires maintaining a leverage ratio of greater than 9 0 to satisfy the regulatory capital requirements including the risk based requirements A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report Kearny Bank did not opt into the community bank leverage ratio framework as of June 30 2024
Federal law requires that federal bank regulatory authorities take prompt corrective action with respect to institutions that do not meet minimum capital requirements For these purposes the law establishes five capital categories well capitalized adequately capitalized undercapitalized significantly undercapitalized and critically undercapitalized Qualifying banks that elect and comply with the community bank leverage ratio as established by the regulatory agencies are considered well capitalized under the prompt corrective action regulations
The FDIC has adopted regulations to implement the prompt corrective action legislation An institution is deemed to be well capitalized if it has a total risk based capital ratio of 10 0 or greater a Tier 1 risk based capital ratio of 8 0 or greater a leverage ratio of 5 0 or greater and a common equity Tier 1 ratio of 6 5 or greater Further the institution must not be subject to any written agreement order or capital directive or prompt corrective action directive issued by the FDIC to meet and maintain a specific capital level for any capital measure An institution is adequately capitalized if it has a total risk based capital ratio of 8 0 or greater a Tier 1 risk based capital ratio of 6 0 or greater a leverage ratio of 4 0 or greater and a common equity Tier 1 ratio of 4 5 or greater
An institution is undercapitalized if it has a total risk based capital ratio of less than 8 0 a Tier 1 risk based capital ratio of less than 6 0 a leverage ratio of less than 4 0 or a common equity Tier 1 ratio of less than 4 5 An institution is categorized as significantly undercapitalized if it has a total risk based capital ratio of less than 6 0 a Tier 1 risk based capital ratio of less than 4 0 a leverage ratio of less than 3 0 or a common equity Tier 1 ratio of less than 3 0 Critically undercapitalized status is triggered if an institution has a ratio of tangible equity as defined in the regulations to total assets that is equal to or less than 2 0
Undercapitalized banks must adhere to growth capital distribution including dividend and other limitations and are required to submit a capital restoration plan A bank s compliance with such a plan must be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5 0 of the institution s total assets when deemed undercapitalized or the amount necessary to achieve the adequately capitalized status If an undercapitalized bank fails to submit an acceptable plan it is treated as if it is significantly undercapitalized Significantly undercapitalized banks must comply with one or more of a number of additional measures including but not limited to a required sale of sufficient voting stock to become adequately capitalized a requirement to reduce total assets cessation of taking deposits from correspondent banks the dismissal of directors or officers and restrictions on interest rates paid on deposits compensation of executive officers and capital distributions by the parent holding company Critically undercapitalized institutions are subject to additional measures including subject to a narrow exception the appointment of a receiver or conservator within 270 days after such status is triggered These actions are in addition to other discretionary supervisory or enforcement actions that the FDIC may take
Federal regulations impose various restrictions or requirements on Kearny Bank to pay dividends to Kearny Financial An institution that is a subsidiary of a savings and loan holding company such as Kearny Bank must file notice with the Federal Reserve Board at least thirty days before paying a dividend The Federal Reserve Board may disapprove a notice if i the savings institution would be undercapitalized following the capital distribution ii the proposed capital distribution raises safety and soundness concerns or iii the capital distribution would violate a prohibition contained in any statute regulation enforcement action or agreement or condition imposed in connection with an application
New Jersey law specifies that no dividend may be paid if the dividend would impair the capital stock of the savings bank In addition no dividend may be paid unless the savings bank would after payment of the dividend have a surplus of at least 50 of its capital stock or if the payment of dividend would not reduce surplus
Transactions between a depository institution and generally its subsidiaries and its related parties or affiliates are limited by Sections 23A and 23B of the Federal Reserve Act An affiliate of an institution is any company or entity that controls is controlled by or is under common control with the institution In a holding company context the parent holding company and any companies that are controlled by such parent holding company are affiliates of the institution Generally Section 23A of the Federal Reserve Act limits the extent to which the institution or its subsidiaries may engage in covered transactions with any one affiliate to 10 of such institution s capital stock and surplus and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20 of such institution s capital stock and surplus The term covered transaction includes an extension of credit purchase of assets issuance of a guarantee or letter of credit and similar transactions In addition loans or other extensions of credit by the institution to the affiliate are required to be collateralized in accordance with specified requirements
The law also requires that affiliate transactions generally be on terms and conditions that are substantially the same as or at least as favorable to the institution as those provided to non affiliates
Kearny Bank s authority to extend credit to its directors executive officers and 10 stockholders as well as to entities controlled by such persons is governed by the requirements of Sections 22 g and 22 h of the Federal Reserve Act and Regulation O of the Federal Reserve Board Among other things subject to certain exceptions these provisions generally require that extensions of credit to insiders
be made on terms that are substantially the same as and follow credit underwriting procedures that are not less stringent than those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features and
In addition extensions of credit in excess of certain limits must be approved by Kearny Bank s Board of Directors Extensions of credit to executive officers are subject to additional limits based on the type of extension involved
Under the Community Reinvestment Act the CRA every insured depository institution including Kearny Bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community including low and moderate income neighborhoods The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution s discretion to develop the types of products and services that it believes are best suited to its particular community The CRA requires the FDIC to assess the depository institution s record of meeting the credit needs of its community and consider that record in its consideration of certain applications by the institution such as for a merger or the establishment of a branch office The FDIC may use an unsatisfactory CRA examination rating as the basis for denying such an application Kearny Bank received a satisfactory CRA rating from the FDIC in its most recent CRA evaluation
On October 24 2023 the FDIC the Federal Reserve Board and the Office of the Comptroller of the Currency issued a final rule to strengthen and modernize the CRA regulations and the related regulatory framework Under the final rule banks with assets of at least 2 billion as of December 31 for each of the prior two calendar years such as Kearny Bank are classified as a large bank The federal agencies will evaluate large banks under four performance tests the Retail Lending Test Although the effective date of the final rule is April 2 2024 the applicability date for the majority of the provisions in the new CRA regulations is January 1 2026 and additional requirements will be applicable on January 1 2027
The federal banking agencies have issued guidance on sound risk management practices for concentrations in commercial real estate lending The particular focus is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be sensitive to conditions in the commercial real estate market as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution The purpose of the guidance is not to limit a bank s commercial real estate lending but to guide banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations The guidance directs the FDIC and other federal bank regulatory agencies to focus their supervisory resources on institutions that may have significant commercial real estate loan concentration risk A bank that has experienced rapid growth in commercial real estate lending has notable exposure to a specific type of commercial real estate loan or is approaching or exceeding the following supervisory criteria may be identified for further supervisory analysis with respect to real estate concentration risk
Total commercial real estate loans as defined in the guidance represent 300 or more of the bank s total capital or the outstanding balance of the bank s commercial real estate loan portfolio has increased 50 or more during the prior 36 months
The guidance provides that the strength of an institution s lending and risk management practices with respect to such concentrations will be taken into account in supervisory guidance on evaluation of capital adequacy
Kearny Bank is a member of the FHLB of New York which is one of eleven regional Federal Home Loan Banks Each FHLB serves as a reserve or central bank for its members within its assigned region It is funded primarily from funds deposited by financial institutions and proceeds derived from the sale of consolidated obligations of the FHLB System It makes loans to members pursuant to policies and procedures established by the Board of Directors of the FHLB
As a member Kearny Bank is required to purchase and maintain stock in the FHLB of New York in specified amounts The FHLB imposes various limitations on advances such as limiting the amount of certain types of real estate related collateral and limiting total advances to a member
The FHLB of New York may pay periodic dividends to members These dividends are affected by factors such as the FHLB s operating results and statutory responsibilities that may be imposed such as providing certain funding for affordable housing and interest subsidies on advances targeted for low and moderate income housing projects The payment dividends or any particular amount of dividend cannot be assumed
Interest and other charges collected or contracted for by Kearny Bank are subject to state usury laws and federal laws concerning interest rates Kearny Bank s operations are also subject to federal laws and their implementing regulations applicable to credit transactions such as the
Real Estate Settlement Procedures Act requiring that borrowers for mortgage loans for one to four family residential real estate receive various disclosures including good faith estimates of settlement costs lender servicing and escrow account practices and prohibiting certain practices that increase the cost of settlement services
Home Mortgage Disclosure Act requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves
Electronic Funds Transfer Act and Regulation E promulgated thereunder governing automatic deposits to and withdrawals from deposit accounts and customers rights and liabilities arising from the use of automated teller machines and other electronic banking services
USA PATRIOT Act which requires institutions operating to among other things establish broadened anti money laundering compliance programs due diligence policies and controls to ensure the detection and reporting of money laundering Such required compliance programs are intended to supplement existing
Gramm Leach Bliley Act which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties Specifically the Gramm Leach Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution s privacy policy and provide such customers the opportunity to opt out of the sharing of certain personal financial information with unaffiliated third parties and
Regulations requiring banking organizations to notify their primary federal regulator as soon as possible and no later than 36 hours of determining that a computer security incident that arises to the level of a notification incident has occurred A notification incident is a computer security incident that has materially disrupted or degraded or is reasonably likely to materially disrupt or degrade the banking organization s ability to deliver services to a material portion of its customer base jeopardize the viability of key operations of the banking organization or impact the stability of the financial sector Bank service providers are also required to notify any affected bank to or on behalf of which the service provider provides services as soon as possible after determining that it has experienced an incident that materially disrupts or degrades or is reasonably likely to materially disrupt or degrade covered services provided to such bank for four or more hours
Kearny Financial is a savings and loan holding company within the meaning of federal law Kearny Financial maintained its savings and loan holding company status rather than becoming a bank holding company notwithstanding the June 2017 conversion of Kearny Bank to a New Jersey savings bank charter through Kearny Bank exercising an election available to it under federal law Kearny Financial is required to file reports with and is subject to regulation and examination by the Federal Reserve Board Kearny Financial must also obtain regulatory approval from the Federal Reserve Board before engaging in certain transactions such as mergers with or acquisitions of other depository institutions
In addition the Federal Reserve Board has enforcement authority over Kearny Financial and any non depository subsidiaries That permits the Federal Reserve Board to restrict or prohibit activities that are determined to pose a serious risk to Kearny Bank This regulatory structure is intended primarily for protection of Kearny Bank s depositors and not for the benefit of stockholders of Kearny Financial
The Federal Reserve Board has indicated that to the greatest extent possible taking into account any unique characteristics of savings and loan holding companies and the requirements of federal law its approach is to apply to savings and loan holding companies the supervisory principles applicable to the supervision of bank holding companies The stated objective of the Federal Reserve Board is to ensure the savings and loan holding company and its non depository subsidiaries are effectively supervised can serve as a source of strength for and do not threaten the safety and soundness of the subsidiary depository institution
As a savings and loan holding company Kearny Financial is permitted to engage in those activities permissible under federal law for financial holding companies if certain criteria are met and an election is submitted and for multiple savings and loan holding companies A financial holding company may engage in activities that are financial in nature including underwriting equity securities and insurance as well as activities that are incidental to financial activities or complementary to a financial activity A multiple savings and loan holding company is generally limited to activities permissible for bank holding companies under Section 4 c 8 of the Bank Holding Company Act and certain additional activities authorized by federal regulations subject to the approval of the Federal Reserve Board
Kearny Financial must generally obtain approval from the Federal Reserve Board before acquiring directly or indirectly more than 5 of the voting stock of another savings institution or savings and loan holding company or acquiring such an institution or holding company by merger consolidation or purchase of its assets Federal law also prohibits a savings and loan holding company from acquiring more than 5 of a company engaged in activities other than those authorized for savings and loan holding companies by federal law or acquiring or retaining control of a depository institution that is not insured by the FDIC In evaluating an application for Kearny Financial to acquire control of a savings institution the Federal Reserve Board considers factors such as the financial and managerial resources and future prospects of Kearny Financial and the target institution the effect of the acquisition on the risk to the deposit insurance fund the convenience and the needs of the community served and competitive factors A merger of another depository institution into Kearny Bank requires the prior approval of the NJDBI and FDIC based on similar considerations
Consolidated regulatory capital requirements identical to those applicable to the subsidiary depository institutions including the community bank leverage ratio alternative apply to savings and loan holding companies with 3 billion or more of consolidated assets including Kearny Financial Kearny Financial was in compliance with the holding company capital requirements and the capital conservation buffer as of June 30 2024
Federal law extended the source of strength doctrine which has long applied to bank holding companies to savings and loan holding companies The Federal Reserve Board has promulgated regulations implementing the source of strength policy which requires holding companies to act as a source of strength to their subsidiary depository institutions by providing capital liquidity and other support in times of financial distress Further the Federal Reserve Board has issued a policy statement regarding the payment of dividends by bank holding companies that it has also applied to savings and loan holding companies In general the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization s capital needs asset quality and overall financial condition Regulatory guidance provides for prior consultation with Federal Reserve supervisory staff as to dividends in certain circumstances such as when the dividend is not covered by earnings for the period for which it is being paid when net income for the past four quarters net of dividends previously paid over that period is insufficient to fully fund the dividend or when the prospective rate of earnings retention by the holding company is inconsistent with its capital needs and overall financial condition The ability of a holding company to pay dividends may be restricted if a subsidiary depository institution becomes undercapitalized In addition a subsidiary institution of a savings and loan holding company must file prior notice with the Federal Reserve Board and receive its non objection before paying a dividend to the parent savings and loan holding company Federal Reserve Board guidance also provides for regulatory review of certain stock redemption and repurchase proposals by holding companies These regulatory policies could affect the ability of Kearny Financial to pay dividends engage in stock redemptions or repurchases or otherwise engage in capital distributions
In order for Kearny Financial to be regulated by the Federal Reserve Board as a savings and loan holding company rather than as a bank holding company Kearny Bank must remain a qualified thrift lender under applicable law or satisfy the domestic building and loan association test under the Internal Revenue Code Under the qualified thrift lender test an institution is generally required to maintain at least 65 of its portfolio assets total assets less i specified liquid assets up to 20 of total assets ii intangible assets including goodwill and iii the value of property used to conduct business in certain qualified thrift investments primarily residential mortgages and related investments including certain mortgage backed and related securities in at least nine months out of each 12 month period As of June 30 2024 Kearny Bank met the qualified thrift lender test
Under the federal Change in Bank Control Act a notice must be submitted to the Federal Reserve Board if any person including a company or group acting in concert seeks to acquire control of a savings and loan holding company An acquisition of control can occur upon the acquisition of 10 or more of a class of voting stock of a savings and loan holding company or as otherwise defined by the Federal Reserve Board Under the Change in Bank Control Act the Federal Reserve Board has 60 days from the filing of a complete notice to act taking into consideration certain factors including the financial condition of the acquirer and future prospects of the proposed acquirer the competence and integrity of the proposed acquirer and the effects of the acquisition on competition Any company that seeks to acquire control of Kearny Financial or Kearny Bank within the meaning of the Savings and Loan Holding Company Act must file an application and receive the Federal Reserve Board s prior approval under that statute The Company would then be subject to regulation as a savings and loan holding company
In October 2022 the SEC adopted a final rule implementing the incentive based compensation recovery clawback provisions of the Dodd Frank Act The final rule directs national securities exchanges and associations including NASDAQ to require listed companies to develop and implement clawback policies to recover erroneously awarded incentive based compensation from current or former executive officers in the event of a required accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws and to disclose their clawback policies and any actions taken under these policies On June 9 2023 the SEC approved the NASDAQ proposed clawback listing standards including the amendments that delay the effective date of the rules to October 2 2023 The Board of Directors of Kearny Financial approved the adoption of a clawback policy in October 2023 pursuant to the NASDAQ clawback listing standards A copy of the Company s clawback policy is included as an exhibit to this Annual Report on Form 10 K
An investment in our securities is subject to risks inherent in our business and the industry in which we operate Before making an investment decision you should carefully consider the risks and uncertainties described below and all other information included in this Annual Report on Form 10 K The risks described below may adversely affect our business financial condition and operating results In addition to these risks and any other risks or uncertainties described in Item 1 Business Forward Looking Statements and Item 7 Management s Discussion and Analysis of Financial Condition and Results of Operations there may be additional risks and uncertainties that are not currently known to us or that we currently deem to be immaterial that could materially and adversely affect our business financial condition or operating results The value or market price of our securities could decline due to any of these identified or other risks Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods
We derive our income mainly from the difference or spread between the interest earned on loans securities and other interest earning assets and interest paid on deposits borrowings and other interest bearing liabilities In general the larger the spread the more we earn When market rates of interest change the interest we receive on our assets and the interest we pay on our liabilities will fluctuate This can cause decreases in our spread and can adversely affect our income
Beginning in March 2022 in response to rising inflation the Federal Reserve Board s Federal Open Market Committee systemically increased the target rate from 0 00 0 25 to 5 25 5 50 in July 2023 In addition at June 30 2024 the yield curve has remained inverted as short term rates remain higher than long term rates Our net interest spread and net interest margin have been and may in the future be reduced by potential increases in our cost of funds that may outpace any increases in our yield on interest earnings assets
In addition it may take longer for our assets to reprice to adjust to a new rate environment because fixed rate loans do not fluctuate with interest rate changes and adjustable rate loans often have a specified initial fixed rate period before reset As a result a flattening or an inversion of the yield curve is likely to have a negative impact on our net interest income
Interest rates also affect how much money we lend For example when interest rates rise the cost of borrowing increases and loan originations tend to decrease In addition changes in interest rates can affect the average life of loans and securities For example a reduction in interest rates generally results in increased prepayments of loans and mortgage backed securities as borrowers refinance their debt in order to reduce their borrowing cost Changes in market interest rates also impact the value of our interest earning assets and interest bearing liabilities as well as the value of our derivatives portfolios In particular the unrealized gains and losses on securities available for sale and changes in the fair value of interest rate derivatives serving as cash flows hedges are reported net of tax in accumulated other comprehensive income which is a component of stockholders equity Consequently declines in the fair value of these instruments resulting from changes in market interest rates have and may continue to adversely affect stockholders equity
A significant portion of our assets consists of investment securities which generally have lower yields than loans and we classify a significant portion of our investment securities as available for sale which creates potential volatility in our equity and may have an adverse impact on our net income
As of June 30 2024 our securities portfolio totaled 1 21 billion or 15 7 of our total assets Investment securities typically have lower yields than loans For the year ended June 30 2024 the weighted average yield of our investment securities portfolio was 4 38 as compared to 4 45 for our loan portfolio
Accordingly our net interest margin is lower than it would have been if a higher proportion of our interest earning assets consisted of loans Additionally at June 30 2024 1 07 billion or 88 8 of our investment securities are classified as available for sale and reported at fair value with unrealized gains or losses excluded from earnings and reported in other comprehensive income which affects our reported equity Accordingly given the significant size of the investment securities portfolio classified as available for sale and due to possible mark to market adjustments of that portion of the portfolio resulting from market conditions we may experience greater volatility in the value of reported equity Moreover given that we actively manage our investment securities portfolio classified as available for sale we may sell securities which could result in a realized loss thereby reducing our net income
We make various assumptions and judgments about the collectability of our loan portfolio including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans In determining the required amount of the allowance for credit losses we evaluate loans individually and establish credit loss allowances for specifically identified impairments For loans not individually analyzed we estimate losses and establish reserves based on reasonable and supportable forecasts and adjustments for qualitative factors If the assumptions used in our calculation methodology are incorrect our allowance for credit losses may not be sufficient to cover losses inherent in our loan portfolio resulting in further additions to our allowance Our allowance for credit losses on loans was 0 78 of total loans at June 30 2024 and significant additions to our allowance could materially decrease our net income
In addition bank regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or recognize further loan charge offs Any increase in our allowance for credit losses or loan charge offs as required by these regulatory authorities might have a material adverse effect on our financial condition and results of operations
Over the past several years we have increased our focus on commercial lending Our increased commercial lending however exposes us to greater risks than one to four family residential lending Unlike single family owner occupied residential mortgage loans which generally are made on the basis of the borrower s ability to make repayment from employment and other income sources and are secured by real property whose value tends to be more easily ascertainable and realizable the repayment of commercial loans typically is dependent on the successful operation and income stream of the borrower which can be significantly affected by economic conditions and are secured if at all by collateral that is more difficult to value or sell or by collateral which may depreciate in value In addition commercial loans generally carry larger balances to single borrowers or related groups of borrowers than one to four family mortgage loans which increases the financial impact of a borrower s default
The risk exposure from our increased commercial lending is also a function of the markets in which we operate Our commercial lending activity is generally focused on borrowers domiciled and real estate located within the states of New Jersey and New York Regional risk factors and changes to local laws and regulations including changes to rent regulations or foreclosure laws may present greater risk than a more geographically diversified portfolio
We have increased our originations of commercial business and construction loans which generally have more risk than both one to four family residential and commercial mortgage loans Since repayment of commercial business and construction loans may depend on the successful operation of the borrower s business or the successful completion of a construction project repayment of such loans can be affected by adverse conditions in the real estate market or the local economy If we continue to increase our originations of these loans it may be necessary to increase the level of our allowance for credit losses because of the increased risk characteristics associated with these types of loans Any such increase to our allowance for credit losses would adversely affect our earnings
We have a significant concentration in commercial real estate loans If our regulators were to curtail our commercial real estate lending activities our earnings and or dividend paying capacity could be adversely affected
In 2006 the FDIC the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System issued joint guidance entitled Concentrations in Commercial Real Estate Lending Sound Risk Management Practices the Guidance The Guidance provides that a bank s commercial real estate lending exposure may receive increased supervisory scrutiny when total non owner occupied commercial real estate loans including loans secured by multi family property non owner occupied commercial real estate and construction loans represent 300 or more of an institution s total risk based capital and the outstanding balance of the commercial real estate loan portfolio has increased by 50 or more during the preceding 36 months Our level of non owner occupied commercial real estate equaled 537 of Bank total risk based capital at June 30 2024 however our commercial real estate loan portfolio increased by only 19 during the preceding 36 months
A component of our business strategy is to sell a portion of residential mortgage loans originated into the secondary market earning non interest income in the form of gains on sale For the year ended June 30 2024 gains attributable to the sale of residential mortgage loans totaled 602 000 a decline of 158 000 from 760 000 for the year ended June 30 2023 When interest rates rise as they have in the current environment the demand for mortgage loans tends to fall and may reduce the
number of loans we can originate for sale Weak or deteriorating economic conditions also tend to reduce loan demand If the residential mortgage loan demand decreases or we are unable to sell such loans for an adequate profit then our non interest income will likely decline which would adversely affect our earnings
We review our securities portfolio at the end of each quarter to determine whether the fair value is below the current carrying value When the fair value of any of our investment securities has declined below its carrying value we are required to assess whether we intend to sell or it is more than likely than not that we will be required to sell the security before recovery of its amortized cost basis If this assessment indicates that a credit loss exists we would be required to record an impairment charge
We elected the practical expedient of zero loss estimates for securities issued by U S government entities and agencies A possible future downgrade of the sovereign credit ratings of the U S government and a decline in the perceived creditworthiness of U S government related obligations could adversely impact the value of our investment securities portfolio We cannot predict if when or how any changes to the credit ratings or perceived creditworthiness of these organizations will affect economic conditions A downgrade of the sovereign credit ratings of the U S government or the credit ratings of related institutions agencies or instruments would significantly exacerbate the other risks to which we are subject and any related adverse effects on the business financial condition and results of operations
At June 30 2024 we had investment securities with fair values of approximately 1 19 billion on which we had approximately 150 1 million in gross unrealized losses and 2 9 million of gross unrealized gains The valuation and liquidity of our securities could be adversely impacted by reduced market liquidity increased normal bid asked spreads and increased uncertainty of market participants which could reduce the market value of our securities including those with no apparent credit exposure The valuation of our securities requires judgment and as market conditions change security values may also change Significant negative changes to valuations could result in impairments in the value of our securities portfolio which could have an adverse effect on our financial condition or results of operations
The composition and allocation of our investment portfolio has historically emphasized U S agency mortgage backed securities and U S agency debentures While such assets remain a significant component of our investment portfolio at June 30 2024 prior enhancements to our investment policies strategies and infrastructure have enabled us to diversify the composition and allocation of our securities portfolio Such diversification has included investing in corporate debt municipal obligations subordinated debt securities issued by financial institutions and collateralized loan obligations With the exception of collateralized loan obligations these securities are generally backed only by the credit of their issuers while investments in collateralized loan obligations generally rely on the structural characteristics of an individual tranche within a larger investment vehicle to protect the investor from credit losses arising from borrowers defaulting on the underlying securitized loans
While we have invested primarily in investment grade securities these securities are not backed by the federal government and expose us to a greater degree of credit risk than U S agency securities Any decline in the credit quality of these securities exposes us to the risk that the market value of the securities could decrease which may require us to write down their value and could lead to a possible default in payment
Our business is directly impacted by factors such as economic political and market conditions broad trends in industry and finance legislative and regulatory changes changes in government monetary and fiscal policies and inflation all of which are beyond our control Any deterioration in economic conditions whether caused by national or local concerns in particular any further economic slowdown in the markets we operate in could result in the following consequences any of which could hurt our business materially loan delinquencies may increase problem assets and foreclosures may increase demand for our products and services may decrease low cost or non interest bearing deposits may decrease and collateral for loans made by us especially real estate may decline in value in turn reducing customers borrowing power and reducing the value of assets and collateral associated with our existing loans
Our success significantly depends upon the growth in population income levels deposits and housing starts in our markets If the communities in which we operate do not grow or if prevailing economic conditions locally or nationally are unfavorable our business may not succeed An economic downturn or prolonged recession may result in the deterioration of the
quality of our loan portfolio and reduce our level of deposits which in turn would hurt its business If we experience an economic downturn or a prolonged economic recession occurs in the economy as a whole borrowers will be less likely to repay their loans as scheduled Unlike many larger institutions we are not able to spread the risks of unfavorable local economic conditions across a large number of diversified economies An economic downturn could therefore result in losses that materially and adversely affect our business
Inflation rose sharply at the end of 2021 and has remained at an elevated level through the first half of calendar 2024 Small to medium sized businesses may be impacted more during periods of high inflation as they are not able to leverage economics of scale to mitigate cost pressures compared to larger businesses Consequently the ability of our business customers to repay their loans may deteriorate and in some cases this deterioration may occur quickly which would adversely impact our results of operations and financial condition Furthermore a prolonged period of inflation could cause wages and other costs to the Company to increase which has and could continue to adversely affect our results of operations and financial condition
Weather related events including those that may result from climate change can disrupt our operations result in damage to our properties reduce or destroy the value of the collateral for our loans and negatively affect the local economies in which we operate which could have a material adverse effect on our results of operations and financial condition The occurrence of a natural disaster could result in one or more of the following i an increase in loan delinquencies ii an increase in problem assets and foreclosures iii a decrease in the demand for our products and services or iv a decrease in the value of the collateral for loans especially real estate in turn reducing clients borrowing power the value of assets associated with problem loans and collateral coverage Weather related events may cause significant flooding and other storm related damage and these outcomes may become more common in the future
Financial institutions have been and continue to be targets of terrorist threats aimed at compromising operating and communication systems Additionally the metropolitan New York area and northern New Jersey remain central targets for potential acts of terrorism Such events could cause significant damage impact the stability of our facilities and result in additional expenses impair the ability of our borrowers to repay their loans reduce the value of collateral securing repayment of our loans and result in the loss of revenue While we have established and regularly test disaster recovery procedures the occurrence of any such event could have a material adverse effect on our business operations and financial condition
Additionally global markets may be adversely affected by the emergence of widespread health emergencies or pandemics cyber attacks or campaigns military conflicts terrorism or other geopolitical events including the military conflict between Russia and Ukraine The impact of global market fluctuations may affect our business liquidity Also any sudden or prolonged market downturn in the U S or abroad as a result of the above factors or otherwise could result in a decline in revenues and adversely affect our results of operations and financial condition including capital and liquidity levels
We face intense competition in all of its markets and geographic regions We expect competitive pressures to intensify in the future especially in light of legislative and regulatory initiatives arising out of the recent global economic crisis technological innovations that alter the barriers to entry current economic and market conditions and government monetary and fiscal policies Competition with financial services technology companies or technology companies partnering with financial services companies may be particularly intense due to among other things differing regulatory environments Competitive pressures may drive us to take actions that we might otherwise eschew such as lowering the interest rates or fees on loans or raising the interest rates on deposits in order to keep or attract high quality clients These pressures also may accelerate actions that we might otherwise elect to defer such as substantial investments in technology or infrastructure The actions that we take in response to competition may adversely affect its results of operations and financial condition These consequences could be exacerbated if we are not successful in introducing new products and other services achieving market acceptance of its products and other services developing and maintaining a strong client base or prudently managing expenses
Among other sources of funds we rely on wholesale funding including short and long term borrowings and brokered deposits to provide funds with which to make loans purchase investment securities and provide for other liquidity needs On June 30 2024 wholesale funding totaled 2 12 billion or approximately 27 6 of total assets
In the future this funding may not be readily replaced as it matures or we may have to pay a higher rate of interest to maintain it Not being able to maintain or replace those funds as they mature would adversely affect our liquidity Paying higher interest rates to maintain or replace funding would adversely affect our net interest margin and operating results
Liquidity is essential to our business We rely on our ability to gather deposits make investments and effectively manage the repayment and maturity schedules of loans to ensure that there is adequate liquidity to fund our operations and pay our obligations An inability to raise funds through deposits borrowings the sale and maturities of loans and securities and other sources could have a substantial negative effect on liquidity Our most important source of funds is deposits Deposit balances can decrease when customers perceive alternative investments as providing a better risk return tradeoff which are strongly influenced by external factors such as changes in interest rates local and national economic conditions the availability and attractiveness of alternative investments and perceptions of the stability of the financial services industry generally and of our institution specifically Further the demand for deposits may be reduced due to a variety of factors such as demographic patterns changes in customer preferences reductions in consumers disposable income the monetary policy of the FRB or regulatory actions that decrease customer access to particular products If customers move money out of bank deposits and into other investments such as money market funds we would lose a relatively low cost source of funds which would increase our funding costs and reduce net interest income Any changes made to the rates offered on deposits to remain competitive with other financial institutions may also adversely affect profitability and liquidity
Other primary sources of funds consist of cash flows from operations maturities and sales of investment securities and borrowings from the FHLB We have the capacity to borrow additional funds from the FHLB as well as from the FRB without pledging additional collateral and via unsecured overnight borrowings from other financial institutions Our access to funding sources in amounts adequate to finance or capitalize our activities or on terms that are acceptable could be impaired by factors that affect us directly or the financial services industry or economy in general such as disruptions in the financial markets changes in the value of investment securities negative views and expectations about the prospects for the financial services industry a decrease in our business activity as a result of a downturn in markets or adverse regulatory actions against us
Any decline in available funding could adversely impact our ability to originate loans invest in securities meet expenses or to fulfill obligations such as repaying borrowings or meeting deposit withdrawal demands any of which could have a material adverse impact on our liquidity business financial condition and results of operations
A lack of liquidity could also attract increased regulatory scrutiny and potential restraints imposed on us by regulators Depending on the capitalization status and regulatory treatment of depository institutions including whether an institution is subject to a supervisory prompt corrective action directive certain additional regulatory restrictions and prohibitions may apply including restrictions on growth restrictions on interest rates paid on deposits restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits
Public funds deposits are a notable source of funds for our lending and investment activities At June 30 2024 531 5 million or 10 3 of our total deposits consisted of public funds deposits from local government entities in the state of New Jersey such as townships counties school districts and charter schools These deposits are collateralized by letters of credit from the FHLB or through the pledge of eligible investment securities Given our reliance on these typically high average balance public funds deposits as a source of funds our inability to retain such funds could adversely affect our liquidity Further our public funds deposits are primarily floating rate interest bearing demand deposit accounts and therefore their pricing is more sensitive to changes in interest rates If we are forced to pay higher rates on our public funds accounts to retain those funds or if we are unable to retain such funds and we are forced to rely on other sources of funds for our lending and investment activities such as borrowings from the FHLB the interest expense associated with these other funding sources may be higher than the rates we are currently paying on our public funds deposits which would adversely affect our net interest income
Information technology systems are critical to our business We use various technology systems to manage our client relationships general ledger securities investments deposits and loans We have established policies and procedures to prevent or limit the effect of system failures service interruptions or other performance exceptions but such events may still occur or may not be adequately addressed if they do occur In addition performance failures or other exceptions of our client facing technologies could deter clients from using our products and services
We rely on certain external vendors to provide products and services necessary to maintain our day to day operations These third party vendors are sources of operational and informational security risk to us including risks associated with operational errors information system interruptions or breaches and unauthorized disclosures of sensitive or confidential client or customer information If these vendors encounter any of these issues or if we have difficulty communicating with them we could be exposed to disruption of operations loss of service or connectivity to customers reputational damage and litigation risk that could have a material adverse effect on our business and in turn our financial condition and results of operations
The financial services industry has experienced an increase in both the number and severity of reported cyber attacks aimed at gaining unauthorized access to bank systems as a way to misappropriate assets and sensitive information corrupt and destroy data or cause operational disruptions We have established policies and procedures to prevent or limit the impact of security breaches but such events may still occur or may not be adequately addressed if they do occur Although we rely on security safeguards to secure our data these safeguards may not fully protect our systems from compromises or breaches We also rely on the integrity and security of a variety of third party processors payment clearing and settlement systems as well as the various participants involved in these systems many of which have no direct relationship with us Failure by these participants or their systems to protect our clients transaction data may put us at risk for possible losses due to fraud or operational disruption
Our clients are also the target of cyber attacks and identity theft Large scale identity theft could result in clients accounts being compromised and fraudulent activities being performed in their name We have implemented certain safeguards against these types of activities but they may not fully protect us from fraudulent financial losses The occurrence of a breach of security involving our clients information regardless of its origin could damage our reputation and result in a loss of clients and business and subject us to additional regulatory scrutiny and could expose us to litigation and possible financial liability Any of these events could have a material adverse effect on our financial condition and results of operations
Our Board of Directors takes an active role in the cybersecurity risk tolerance of the Company and all members receive cybersecurity training annually The Board reviews the annual risk assessments and approves information technology policies which include cybersecurity Furthermore our Audit Committee is responsible for reviewing all audit findings related to information technology general controls internal and external vulnerability and penetration testing The Board receives an annual information security report and the Enterprise Risk Management Committee receives an annual presentation from our Information Security Officer as it relates to cybersecurity and related issues We also engage outside consultants to support our cybersecurity efforts However our directors do not have significant experience in cybersecurity risk management outside of the Company and therefore its ability to fulfill its oversight function remains dependent on the input it receives from management and outside consultants
The financial services industry is extensively regulated Federal and state banking regulations are designed primarily to protect the deposit insurance funds and consumers not to benefit a company s shareholders These regulations may sometimes impose significant limitations on operations The significant federal and state banking regulations that affect us are described under the heading Item 1 Business Regulation These regulations along with the currently existing tax accounting securities insurance and monetary laws regulations rules standards policies and interpretations control the methods by which financial institutions conduct business implement strategic initiatives and tax compliance and govern financial reporting and disclosures New proposals for legislation continue to be introduced in the U S Congress that could further alter the regulation of the bank and non bank financial services industries and the manner in which companies within the industry conduct business
In addition federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied Future changes in federal policy and at regulatory agencies may occur over time through policy and personnel changes which could lead to changes involving the level of oversight and focus on the financial services industry These changes may require us to invest significant management attention and resources to make any necessary changes to operations to comply and could have an adverse effect on our business financial condition and results of operations
Multi family loans generally involve risk of legislation and government regulations involving rent control and rent stabilization which are outside the control of the borrower or the Company and could impair the value of the collateral for the loan or the future cash flows of such properties As a result of these restrictions it is possible that rental income on certain rent regulated properties might not rise sufficiently over time to satisfy increases in the loan rate at repricing or increases in overhead expenses e g utilities taxes etc
Changes in tax laws and or regulatory requirements could be enacted These changes in the law may be retroactive to previous periods and as a result could negatively affect our current and future financial performance An increase in our corporate tax rate could have an unfavorable impact on our earnings and capital generation abilities Similarly the Bank s clients could experience varying effects from changes in tax laws and such effects whether positive or negative may have a corresponding impact on our business and the economy as a whole In addition changes to regulatory requirements could increase our costs of regulatory compliance and may significantly affect the markets in which we do business the markets for and value of our loans and investments and our ongoing operations costs and profitability
We hold certain intangible assets including goodwill which have been partially impaired and could become further impaired in the future If these assets are further or fully impaired in the future our earnings would decrease
At June 30 2024 we had approximately 115 5 million in intangible assets on our balance sheet comprised of 113 5 million of goodwill and 1 9 million of core deposit intangibles We are required to periodically test our goodwill and identifiable intangible assets for impairment The impairment testing process considers a variety of factors including the current market price of our common stock the estimated net present value of our assets and liabilities and information concerning the terminal valuation of similarly situated insured depository institutions If an impairment determination is made in a future reporting period our earnings and the book value of these intangible assets will be reduced by the amount of the impairment If an impairment loss is recorded it will have little or no impact on the tangible book value of our common stock or our regulatory capital levels but recognition of such an impairment loss could significantly restrict Kearny Bank s ability to make dividend payments to Kearny Financial and therefore adversely impact our ability to pay dividends to stockholders
Our business plan calls for us to execute a variety of strategies to allocate and deploy any excess capital including but not limited to continued organic balance sheet growth and diversification and payment of regular cash dividends Additionally we will carefully consider acquisition opportunities to further deploy capital when we expect such opportunities to significantly enhance long term shareholder value If we are unable to effectively and timely deploy capital through these strategies it may constrain growth in earnings and return on equity and thereby diminish potential growth in stockholder value
Our acquisitions and the integration of acquired businesses subject us to various risks and may not result in all of the cost savings and benefits anticipated which could adversely affect our financial condition or results of operations
We have in the past and may in the future seek to grow our business by acquiring other businesses There is risk that our acquisitions may not have the anticipated positive results including results relating to correctly assessing the asset quality of the assets being acquired the total cost and time required to complete the integration successfully being able to profitably deploy funds acquired in an acquisition or the overall performance of the combined entity
Acquisitions may also result in business disruptions that could cause clients to remove their accounts from us and move their business to competing financial institutions It is possible that the integration process related to acquisitions could result in the disruption of our ongoing businesses or inconsistencies in standards controls procedures and policies that could adversely affect our ability to maintain relationships with clients and employees The loss of key employees in connection with an acquisition could adversely affect our ability to successfully conduct our business Acquisition and integration efforts could divert management attention and resources which could have an adverse effect on our financial condition and results of operations Additionally the operation of the acquired branches may adversely affect our existing profitability and we may not be able to
We operate in diverse markets and rely on the ability of our employees and systems to process a high number of transactions Operational risk is the risk of loss resulting from our operations including but not limited to the risk of fraud by employees or persons outside the Company the execution of unauthorized transactions by employees errors relating to transaction processing and technology breaches of the internal control system and compliance requirements and business continuation and disaster recovery Insurance coverage may not be available for such losses or where available such losses may exceed insurance limits This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards adverse business decisions or their implementation and client attrition due to potential negative publicity In the event of a breakdown in the internal control system improper operation of systems or improper employee actions we could suffer financial loss face regulatory action and suffer damage to our reputation
Our risk management framework is designed to effectively manage and mitigate risk while minimizing exposure to potential losses We seek to identify measure monitor report and control our exposure to risk including strategic market liquidity compliance and operational risks While we use a broad and diversified set of risk monitoring and mitigation techniques these techniques are inherently limited because they cannot anticipate the existence or future development of currently unanticipated or unknown risks Recent economic conditions and heightened legislative and regulatory scrutiny of the financial services industry among other developments have increased our level of risk Accordingly we could suffer losses as a result of our failure to properly anticipate and manage these risks
A failure in our internal controls could have a significant negative impact not only on our earnings but also on the perception that clients regulators and investors may have of us We continue to devote a significant amount of effort time and resources to continually strengthening our controls and ensuring compliance with complex accounting standards and banking regulations
The successful execution of our business strategy is partially dependent on our ability to attract and retain experienced and qualified personnel Failure to do so could adversely affect our strategy client relationships and internal operations
We structure our information security program around the Federal Financial Institutions Examinations Council FFIEC Information Security program guidance including the FFIEC Cybersecurity Assessment Toolkit regulatory guidance and other industry standards We leverage industry and government associations third party benchmarking audits and threat intelligence feeds to promote program effectiveness Our Chief Technology and Innovation Officer CTIO along with key members of their team regularly collaborate with peer banks industry groups and policymakers
We employ an in depth layered defensive strategy with respect to our products services and technology We leverage people processes and technology to manage and maintain cybersecurity controls We employ a variety of preventative and detective tools designed to monitor block and provide alerts regarding suspicious activity as well as to report on any suspected advanced persistent threats
We have established processes and systems to mitigate cyber risk including regular education and training preparedness simulations and tabletop exercises and recovery and resilience tests Our processes systems and controls are reviewed periodically by internal and external auditors Federal and State bank examiners and independent external partners to assess design and operating effectiveness We also maintain information security risk insurance coverage
We engage third party security experts to supplement our internal Information Security team as well as for assessments penetration tests and program enhancements including vulnerability assessments security framework maturity assessments and
identification of areas for continued focus and improvement In addition our third party experts work with us to conduct cybersecurity tabletop exercises and internal phishing awareness campaigns We use the findings of these exercises to improve our practices procedures and technologies We also engage third party security experts to support our cybersecurity threat and incident response management and maintain information security risk insurance coverage
We engage with a range of external experts including cybersecurity assessors consultants auditors and legal counsel in evaluating and testing our risk management systems This enables us to leverage specialized knowledge and insights ensuring our cybersecurity strategies and processes remain current
In the past three years we have not experienced any material computer data security breaches as a result of a compromise of our information systems and we are not aware and have not had a significant cybersecurity breach or attack that had a material impact on our business or operating results to date
Our Board is actively engaged in the oversight of our cybersecurity program Specifically the Risk Committee is responsible for overseeing our information security program including management s actions to identify assess mitigate and remediate material cyber issues and risks Our CTIO provides quarterly reports to the Risk Committee regarding information security programs key enterprise cyber initiatives and significant cybersecurity and privacy incidents
Our CTIO is part of the risk management function reporting directly to our Chief Executive Officer CEO Various management committees provide oversight of the information security and technology programs These committees generally meet quarterly and summaries of key issues discussed and actions taken are provided to the Risk Committee
The Company and the Bank conduct business from their corporate headquarters at 120 Passaic Avenue in Fairfield New Jersey and from administrative offices located in Fairfield Clifton and Oakhurst New Jersey
At June 30 2024 the Company operated 43 branch offices located in Bergen Essex Hudson Middlesex Monmouth Morris Ocean Passaic Somerset and Union counties New Jersey and Kings and Richmond counties New York At June 30 2024 18 of our branch offices are leased with remaining terms between seven months and nine years At June 30 2024 our net investment in property and equipment totaled 44 9 million
We are from time to time party to routine litigation which arises in the normal course of business such as claims to enforce liens condemnation proceedings on properties in which we hold security interests claims involving the making and servicing of real property loans and other issues incident to our business At June 30 2024 there were no lawsuits pending or known to be contemplated against us that would be expected to have a material effect on operations or income
Declarations of dividends by the Board of Directors depend on a number of factors including investment opportunities growth objectives financial condition profitability tax considerations minimum capital requirements regulatory limitations stock market characteristics and general economic conditions The timing frequency and amount of dividends are determined by the Board of Directors
The Company s ability to pay dividends may also depend on the receipt of dividends from the Bank which is subject to a variety of limitations under federal banking regulations regarding the payment of dividends For discussion of corporate and regulatory limitations applicable to the payment of dividends see Item 1 Business Regulation
As of August 19 2024 there were 4 040 registered holders of record of the Company s common stock Certain shares of the Company are held in street name and accordingly the number of beneficial owners of such shares is not known or included in the foregoing number
The following graph compares the cumulative total shareholder return on the Company s common stock with the cumulative total return on the NASDAQ Composite Index and a peer group of the S P U S SmallCap Banks Index in each case assuming an investment of 100 as of June 30 2019 Total return assumes the reinvestment of all dividends
The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market The S P U S SmallCap Banks Index includes all major exchange NYSE NYSE American and NASDAQ traded banks under 15 billion in market capitalization in S P s coverage universe There can be no assurance that the Company s future stock performance will be the same or similar to the historical stock performance shown in the graph above The Company neither makes nor endorses any predictions as to stock performance
This discussion and analysis reflects Kearny Financial Corp s consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations You should read the information in this section in conjunction with the business and financial information regarding Kearny Financial Corp and the audited consolidated financial statements and notes thereto contained in this Annual Report on Form 10 K
Our accounting policies are integral to understanding the results reported We describe them in detail in Note 1 to our audited consolidated financial statements In preparing the audited consolidated financial statements management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the Consolidated Statements of Financial Condition and revenues and expenses for the periods then ended Actual results could differ significantly from those estimates Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for credit losses and goodwill
The determination of our allowance for credit losses on loans ACL is considered a critical accounting estimate by management because of the high degree of judgment involved in determining qualitative loss factors the subjectivity of the assumptions used and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded ACL See Note 1 to our audited consolidated financial statements for a detailed discussion of our accounting policies and methodologies for establishing the ACL
Management believes the following information may enable investors to better understand the changes in our ACL Our ACL totaled 44 9 million and 48 7 million at June 30 2024 and 2023 respectively The 3 8 million decrease in our ACL was largely attributable to a reduction in reserves for individually evaluated loans primarily driven by the charge off on three related non performing commercial real estate loans transferred to held for sale and sold during the year ended June 30 2024 The quantitative component of our ACL which is largely based on the national unemployment rate forecast increased 4 0 million which largely resulted from slower prepayment speeds The qualitative component of our ACL which is largely based on management s judgment of qualitative loss factors decreased 5 3 million
Our ACL totaled 44 9 million at June 30 2024 and the amount allocated to our collectively evaluated multi family and nonresidential mortgage loans was 29 7 million of which 19 7 million was attributable to qualitative loss factors Changes in managements judgement of qualitative loss factors could result in a significant change to the ACL As described in Note 1 qualitative loss factors are applied to each portfolio segment with the amounts judgmentally determined by the relative risk to the most severe loss periods identified in the historical loan charge offs of a peer group of similar sized regional banks At June 30 2024 the most severe historical loss rate for multi family and nonresidential mortgages loans was 1 69
Management performed a hypothetical sensitivity analysis to understand the impact of a change in a key input on our ACL At June 30 2024 if the four quarter national unemployment rate forecast had been 9 rather than an average of approximately 4 0 our ACL as a percent of total loans would have increased 37 basis points from 0 78 to 1 15 This sensitivity analysis includes the impact to both the quantitative and qualitative components of our ACL Changes in quantitative inputs and qualitative loss factors may not occur in the same direction or magnitude across all segments of our loan portfolio and deterioration in some quantitative inputs and qualitative loss factors may offset improvement in others This sensitivity analysis does not represent a change to our expectations of the economic environment but provides a hypothetical result to assess the sensitivity of the ACL to a change in a key input This sensitivity analysis does not incorporate changes to management s judgment of qualitative loss factors
Our ACL on individually analyzed loans is determined on an individual basis using the present value of expected cash flows discounted using the loan s effective interest rate or for collateral dependent loans the fair value of the collateral less estimated selling costs as applicable Our ACL on individually analyzed loans decreased 2 6 million during the year ended June 30 2024
Goodwill arises from business combinations and is generally determined as the excess of the fair value of the consideration transferred plus the fair value of any noncontrolling interests in the acquiree over the fair value of the net assets acquired and liabilities assumed as of the acquisition date Goodwill is not amortized but is tested for impairment at least annually or more frequently if events and circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount
In assessing impairment we have the option to perform a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of our single reporting unit is less than its carrying amount Due to the continued impact of higher interest rates and a sustained decline in the banking industry share prices including our own we performed a quantitative goodwill impairment during the fourth quarter of the year ended June 30 2024 The quantitative goodwill impairment test compares the estimated fair value of the reporting unit with its carrying amount including goodwill If the estimated fair value of the reporting unit exceeds its carrying amount goodwill of the reporting unit is considered not impaired However if the carrying amount of the reporting unit were to exceed its estimated fair value and impairment loss would be recorded
The quantitative assessment of goodwill for our single reporting unit was performed utilizing a discounted cash flow analysis income approach and estimates of selected market information market approaches The result of the income approach was weighted at 50 and the results of the market approaches comprised the remaining 50 in determining the fair value of our single reporting unit The carrying value of our single reporting unit exceeded its respective fair value resulting in the recognition of a non cash pre tax goodwill impairment of 97 4 million for the year ended June 30 2024 As a result the Company s goodwill decreased from 210 9 million at June 30 2023 to 113 5 million at June 30 2024 Determining fair value of our single reporting unit is subject to uncertainty as it is reliant on projected future cash flows discount rate assumption and market estimates In the future changes in projected future cash flows discount rate assumption or market estimates may result in further impairment of goodwill
Total assets decreased by 381 4 million or 4 7 to 7 68 billion at June 30 2024 from 8 06 billion at June 30 2023 The decrease primarily reflected decreases in investment securities net loans receivable and goodwill
Investment securities available for sale decreased by 154 9 million to 1 07 billion at June 30 2024 from 1 23 billion at June 30 2023 This decrease was largely the result of principal repayments of 133 0 million and sales of 122 2 million partially offset by purchases of 74 0 million and a 25 5 million increase in the fair value of the portfolio to a net unrealized loss of 130 7 million
Investment securities held to maturity decreased by 10 7 million to 135 7 million at June 30 2024 from 146 5 million at June 30 2023 The decrease was largely the result of principal repayments of 10 9 million partially offset by purchases of 300 000
Additional information regarding investment securities at June 30 2024 is presented under Item 1 Business of this Annual Report on Form 10 K as well as in Note 3 to the audited consolidated financial statements
Loans held for sale totaled 6 0 million at June 30 2024 as compared to 9 6 million at June 30 2023 and are reported separately from the balance of net loans receivable Loans held for sale consisted of residential mortgage loans of 6 0 million at June 30 2024 as compared to residential mortgage loans of 9 6 million at June 30 2023 During the year ended June 30 2024 we sold 79 1 million of residential mortgage loans resulting in a net gain on sale of 602 000 and 10 8 million of commercial mortgage loans resulting in a net loss on sale of 884 000
Commercial loan origination volume for the year ended June 30 2024 totaled 287 8 million comprised of 103 7 million of commercial mortgage loan originations 98 5 million of commercial business loan originations and construction loan disbursements of 85 6 million
One to four family residential mortgage loan origination volume excluding loans held for sale totaled 131 5 million for the year ended June 30 2024 and was supplemented with loan purchases totaling 60 3 million Home equity loan and line of credit origination volume for the same period totaled 18 0 million
Nonperforming loans decreased by 2 7 million to 39 9 million or 0 70 of total loans at June 30 2024 from 42 6 million or 0 73 of total loans at June 30 2023 The decrease in nonperforming loans was largely attributable to a decrease of 6 7 million in nonperforming nonresidential mortgage loans partially offset by an increase of 3 5 million in nonperforming multi family mortgage loans
Additional information about nonperforming loans and reportable loan modifications at June 30 2024 is presented under Item 1 Business of this Annual Report on Form 10 K as well as in Note 4 to the audited consolidated financial statements
At June 30 2024 the ACL totaled 44 9 million or 0 78 of total loans reflecting a decrease of 3 8 million from 48 7 million or 0 83 of total loans at June 30 2023 The decrease was largely attributable to a provision for credit losses of 6 2 million primarily driven by an increase in the provision for individually evaluated loans Partially offsetting the provision for credit losses were net charge offs of 10 0 million of which 3 4 million had been individually reserved for within the ACL at June 30 2023
Additional information about the allowance for credit losses at June 30 2024 is presented under Item 1 Business of this Annual Report on Form 10 K as well as in Note 1 and Note 5 to the audited consolidated financial statements
The aggregate balance of other assets including premises and equipment FHLB stock interest receivable goodwill core deposit intangibles bank owned life insurance deferred income taxes OREO and other assets decreased by 112 7 million to 717 1 million at June 30 2024 from 829 8 million at June 30 2023 The decrease in other assets largely reflected the recognition of a non cash pre tax goodwill impairment of 97 4 million and a 13 0 million decrease in OREO The decrease in OREO was a result of the sale of our sole OREO asset in January 2024 The remaining change generally reflected normal operating fluctuations within these line items
Total deposits decreased by 471 1 million or 8 4 to 5 16 billion at June 30 2024 from 5 63 billion at June 30 2023 Included in total deposits are brokered and listing service time deposits of 408 2 million and 640 5 million at June 30 2024 and 2023 respectively The following table sets forth the distribution of and changes in deposits by type at the dates indicated
Uninsured deposits totaled 1 77 billion as of June 30 2024 unchanged from June 30 2023 Excluding collateralized deposits of state and local governments and deposits of the Bank s wholly owned subsidiary and holding company uninsured deposits totaled 764 4 million or 14 8 of total deposits at June 30 2024 compared to 710 4 million or 12 6 of total deposits at June 30 2023
The balance of borrowings increased by 203 0 million or 13 5 to 1 71 billion at June 30 2024 from 1 51 billion at June 30 2023 which included overnight borrowings totaling 175 0 million and 225 0 million at June 30 2024 and 2023 respectively The increase was primarily driven by a net increase in advances from the FHLB and the Federal Reserve Bank of New York FRBNY FRBNY advances consisted of 100 0 million in borrowings under the Bank Term Funding Program BTFP which included favorable terms and conditions as compared to FHLB advances and brokered deposits
The balance of other liabilities including advance payments by borrowers for taxes and other miscellaneous liabilities increased by 2 4 million to 62 0 million at June 30 2024 from 59 5 million at June 30 2023 The change in the balance of other liabilities generally reflected normal operating fluctuations within these line items
Stockholders equity decreased by 115 7 million to 753 6 million at June 30 2024 from 869 3 million at June 30 2023 The decrease in stockholders equity during the year ended June 30 2024 reflected a net loss of 86 7 million primarily driven by a non cash after tax goodwill impairment of 95 3 million dividends totaling 27 6 million and share repurchases totaling 11 2 million partially offset by other comprehensive income net of tax of 6 3 million Other comprehensive income during the year ended June 30 2024 reflected the reclassification of a net realized loss on the sale of securities available for sale out of accumulated other comprehensive loss due to an investment securities repositioning and an increase in the fair value of our available for sale securities partially offset by a decrease in the fair value of our derivatives portfolio
During the year ended June 30 2024 we repurchased 1 504 747 shares of common stock at a cost of 11 2 million or 7 40 per share On November 7 2023 we announced the completion of our ninth repurchase plan which authorized the repurchase of 4 000 000 shares Such shares were repurchased at a cost of 34 9 million or 8 74 per share
Net loss for the year ended June 30 2024 was 86 7 million or 1 39 per diluted share a decrease of 127 5 million from net income of 40 8 million or 0 63 per diluted share for the year ended June 30 2023 The net loss was primarily attributable to a non cash after tax goodwill impairment charge of 95 3 million The net loss also reflected a decrease in net interest income a decrease in non interest income and an increase in the provision for credit losses partially offset by a decrease in non interest expense excluding goodwill impairment and a decrease in income tax expense Results for the years ended June 30 2024 and June 30 2023 were impacted by various non recurring items as described in further detail below
Net interest income decreased by 33 3 million to 142 6 million for the year ended June 30 2024 The decrease between the comparative periods resulted from an increase of 68 4 million in interest expense partially offset by an increase of 35 1 million in interest income Included in net interest income for the years ended June 30 2024 and 2023 respectively was purchase accounting accretion of 2 6 million and 5 3 million and loan prepayment penalty income of 879 000 and 895 000
Net interest margin decreased 40 basis points to 1 94 for the year ended June 30 2024 from 2 34 for the year ended June 30 2023 The decrease reflected increases in the cost of interest bearing liabilities increases in the average balances of interest bearing borrowings and decreases in the average balances of interest earning assets partially offset by higher yields on interest earning assets and decreases in the average balances of interest bearing deposits
Details surrounding the composition of and changes to net interest income are presented in the table below which reflects the components of the average balance sheet and of net interest income for the periods indicated We derived the average yields and costs by dividing income or expense by the average balance of assets or liabilities respectively for the periods presented with daily balances used to derive average balances No tax equivalent adjustments have been made to yield or costs Non accrual loans were included in the calculation of average balances however interest receivable on these loans has been fully reserved for and therefore not included in interest income The yields and costs set forth below include the effect of deferred fees discounts and premiums that are amortized or accreted to interest income or expense and exclude the impact of prepayment penalties which are recorded to non interest income
Loans held for sale and non accruing loans have been included in loans receivable and the effect of such inclusion was not material Allowance for credit losses has been included in non interest earning assets
The following table reflects the dollar amount of changes in interest income and interest expense to changes in volume and in prevailing interest rates during the periods indicated Each category reflects the 1 changes in volume changes in volume multiplied by old rate 2 changes in rate changes in rate multiplied by old volume and 3 net change The net change attributable to the combined impact of volume and rate has been allocated proportionally to the absolute dollar amounts of change in each
The provision for credit losses increased by 3 7 million to a provision for credit losses of 6 2 million for the year ended June 30 2024 compared to provision for credit losses of 2 5 million for the year ended June 30 2023 The provision for credit losses for the year ended June 30 2024 was largely attributable to charge offs of three related commercial real estate loans and the charge off of one non performing commercial and industrial loan relationship The provision for credit losses for the year ended June 30 2023 was largely attributable to loan growth partially offset by a reduction in the expected life of the loan portfolio
Additional information regarding the allowance for credit losses and the associated provision recognized during the year ended June 30 2024 is presented under Item 1 Business on this Annual Report on Form 10 K as well as in Note 1 and Note 5 to the audited consolidated financial statements as well as the Comparison of Financial Condition at June 30 2024
Loss on sale and call of securities was 18 1 million during the year ended June 30 2024 compared to a loss of 15 2 million recorded during the earlier comparative period The current year loss was the result of our securities portfolio repositioning that involved the sale of 122 2 million of available for sale securities in December 2023 Proceeds of the sale were utilized to retire higher cost wholesale funding and to reinvest in loans yielding approximately 7 0
Loss on sale of loans was 282 000 for the year ended June 30 2024 compared to a loss of 1 6 million during the earlier comparative period The decrease in loan sale losses was largely attributable to a loss of 2 4 million on the sale of a non performing commercial mortgage loan held for sale in the prior comparative period The loss in the current period was primarily the result of the sale of three related nonperforming commercial real estate loans held for sale resulting in a net loss on sale of 884 000
We recognized a non recurring loss of 974 000 attributable to the write down of one other real estate owned OREO property during the quarter ended December 31 2023 while there were no such losses recorded in the prior period This OREO asset was subsequently sold during the quarter ended March 31 2024
Income from bank owned life insurance BOLI increased 431 000 to 9 1 million for the year ended June 30 2024 The increase primarily reflected improved income as a result of the BOLI restructure initiated in December 2023 partially offset by a decrease of 551 000 in payouts on life insurance policies compared to the prior year period and non recurring exchange charges of 965 000 in the current year period related to the BOLI restructure
Other non interest income decreased 2 9 million to 3 4 million for the year ended June 30 2024 The decrease was primarily attributable to a non recurring gain of 2 9 million from the sale of a former branch location in the earlier comparative period
Electronic banking fees and charges increased 598 000 to 2 4 million for the year ended June 30 2024 The increase was primarily driven by a non recurring contract renewal bonus of 750 000 recorded in the current period related to a licensing agreement with a third party vendor
Non interest expense increased by 91 4 million to 215 2 million for the year ended June 30 2024 from 123 8 million for the year ended June 30 2023 driven by a pre tax non cash goodwill impairment of 97 4 million recognized in the current year period Excluding the goodwill impairment non interest expense decreased 6 0 million compared to the prior year period
Salaries and employee benefits expense decreased by 6 4 million to 69 2 million for the year ended June 30 2024 reflecting lower average headcount and a decrease in incentive payments tied to origination volume partially offset by annual merit increases Included in salaries and employee benefits for the year ended June 30 2023 was 757 000 of severance expense from a workforce realignment
Net occupancy expense of premises decreased by 1 0 million to 11 0 million for the year ended June 30 2024 This decrease was primarily due to decreases in rent expense depreciation expense and building repairs and maintenance expense These decreases are a result of the consolidation of two branch locations during the quarter ended June 30 2023
Advertising and marketing expense decreased 726 000 to 1 4 million for the year ended June 30 2024 This decrease in advertising expense resulted from the adoption of lower cost in house digital campaigns supporting our loan and deposit growth initiatives
For the year ended June 30 2023 the Company recorded 800 000 in branch consolidation expense of which 250 000 was recorded in occupancy expense and 550 000 was recorded in other expense No such expenses were recorded during the year ended June 30 2024
Provision for income taxes decreased by 5 7 million to 5 9 million for the year ended June 30 2024 from 11 6 million for the year ended June 30 2023 The decrease in income tax expense was due to lower pre tax income partially offset by 5 7 million of tax expense related to the surrender of BOLI policies during the year ended June 30 2024
A comparison of our operating results for the years ended June 30 2023 and June 30 2022 can be found in our Annual Report on Form 10 K for the year ended June 30 2023 filed with the SEC on August 25 2023
Liquidity represented by cash and cash equivalents is a product of operating investing and financing activities Our primary sources of funds are deposits borrowings cash flows from investment securities and loans receivable and funds provided from operations While scheduled payments from the amortization and maturity of loans and investment securities are relatively predictable sources of funds general interest rates economic conditions and competition greatly influence deposit flows and prepayments on loans and securities
Liquidity at June 30 2024 included 63 9 million of short term cash and equivalents and 1 07 billion of investment securities available for sale which can readily be sold or pledged as collateral if necessary In addition we have the capacity to borrow additional funds from the FHLB FRB or via unsecured overnight borrowings As of June 30 2024 we had the capacity to borrow additional funds totaling 1 06 billion and 381 8 million from the FHLB and FRB respectively without pledging additional collateral We had the ability to pledge additional securities to borrow an additional 381 4 million at June 30 2024 As of that same date we also had access to unsecured overnight borrowings with other financial institutions totaling 789 0 million of which none was outstanding
Deposits decreased 471 1 million to 5 16 billion at June 30 2024 from 5 63 billion at June 30 2023 The decrease in deposit balances reflected a 459 4 million decrease in interest bearing deposits coupled with a 11 6 million decrease in non interest bearing deposits Borrowings from the FHLB and other sources are generally available to supplement our liquidity position or to replace maturing deposits As of June 30 2024 our outstanding balance of FHLB advances excluding fair value adjustments totaled 1 54 billion As of the same date we had 175 0 million outstanding via our overnight line of credit with the FHLB
In addition to the loan commitments noted above the pipeline of loans held for sale included 16 0 million of in process loans whose terms included interest rate locks to borrowers that were paired with a best efforts commitment to sell the loan to a buyer at a fixed price and within a predetermined timeframe after the sale commitment is established
In addition to the commitments noted above we are party to standby letters of credit totaling approximately 160 000 at June 30 2024 through which we guarantee certain specific business obligations of our commercial customers
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments We use the same credit policies in making commitments and conditional obligations as we do for on balance sheet instruments Since many of the commitments are expected to expire without being drawn upon the total commitment amounts do not necessarily represent future cash requirements
At June 30 2024 outstanding loan commitments relating to loans held in portfolio totaled 280 9 million compared to 251 2 million at June 30 2023 Since some of the commitments are expected to expire without being drawn upon the total commitment amounts do not necessarily represent future cash requirements For additional information regarding our outstanding lending commitments at June 30 2024 see Note 16 to the audited consolidated financial statements
Consistent with our goals to operate as a sound and profitable financial organization Kearny Financial and Kearny Bank actively seek to maintain our well capitalized status in accordance with regulatory standards As of June 30 2024 Kearny Financial and Kearny Bank exceeded all capital requirements of the federal banking regulators and were considered well capitalized
The financial statements included in this document have been prepared in accordance with accounting principles generally accepted in the United States of America These principles require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation
Our primary assets and liabilities are monetary in nature As a result interest rates have a more significant impact on our performance than the effects of general levels of inflation Interest rates however do not necessarily move in the same direction or with the same magnitude as the price of goods and services since such prices are affected by inflation In a period of rapidly rising interest rates the liquidity and maturities of our assets and liabilities are critical to the maintenance of acceptable performance levels
The principal effect of inflation on earnings as distinct from levels of interest rates is in the area of non interest expense Expense items such as employee compensation employee benefits and occupancy and equipment costs may be subject to increases as a result of inflation An additional effect of inflation is the possible increase in the dollar value of the collateral securing loans that we have made We are unable to determine the extent if any to which properties securing our loans have appreciated in dollar value due to inflation
The majority of our assets and liabilities are sensitive to changes in interest rates and as such interest rate risk is a significant form of market risk that we must manage Interest rate risk is generally defined in regulatory nomenclature as the risk to earnings or capital arising from the movement of interest rates and arises from several risk factors including re pricing risk basis risk yield curve risk and option risk
We maintain an Asset Liability Management ALM program in order to manage our interest rate risk The program is overseen by the Board of Directors through its Interest Rate Risk Management Committee which has assigned the responsibility for the operational aspects of the ALM program to our Asset Liability Management Committee ALCO which is comprised of various members of the senior and executive management team
The quantitative analysis that we conduct measures interest rate risk from both a capital and earnings perspective With regard to earnings movements in interest rates and the shape of the yield curve significantly influence the amount of net interest income NII that we recognize Movements in market interest rates and the effect of such movements on the risk factors noted above significantly influence the spread between the interest earned on our interest earning assets and the interest paid on our interest bearing liabilities Our internal interest rate risk analysis calculates the sensitivity of our projected NII over a one year period utilizing a static balance sheet assumption through which incoming and outgoing asset and liability cash flows are reinvested into similar instruments Product pricing and earning asset prepayment speeds are appropriately adjusted for each rate scenario
With regard to capital our internal interest rate risk analysis calculates the sensitivity of our Economic Value of Equity EVE to movements in interest rates EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off balance sheet instruments EVE attempts to quantify our economic value using a discounted cash flow methodology The degree to which our EVE changes for any hypothetical interest rate scenario from its base case measurement is a reflection of an institution s sensitivity to interest rate risk
For both earnings and capital at risk our interest rate risk analysis calculates a base case scenario that assumes no change in interest rates The model then measures changes throughout a series of interest rate scenarios representing immediate and permanent parallel shifts in the yield curve up and down 100 200 and 300 basis points with additional scenarios modeled where appropriate The model requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the modeling of certain falling rate scenarios during periods of lower market interest rates
There are numerous internal and external factors that may contribute to changes in our EVE and its sensitivity Changes in the composition and allocation of our balance sheet or utilization of off balance sheet instruments such as derivatives can significantly alter the exposure to interest rate risk as quantified by the changes in the EVE sensitivity measures Changes to certain external factors most notably changes in the level of market interest rates and overall shape of the yield curve can also alter the projected cash flows of our interest earning assets and interest costing liabilities and the associated present values thereof
Notwithstanding the rate change scenarios presented in the EVE and NII based analyses above future interest rates and their effect on net interest income are not predictable Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative levels of market interest rates prepayments and deposit run offs and should not be relied upon as indicative of actual results Certain shortcomings are inherent in this type of computation Although certain assets and liabilities may have similar maturities or periods of re pricing they may react at different times and in different degrees to changes in market interest rates The interest rate on certain types of assets and liabilities such as demand deposits and savings accounts may fluctuate in advance of changes in market interest rates while rates on other types of assets and liabilities may lag behind changes in market interest rates Certain assets such as adjustable rate mortgages generally have features which restrict changes in interest rates on a short term basis and over the life of the asset In the event of a change in interest rates prepayments and early withdrawal levels could deviate significantly from those assumed in the analyses set forth above Additionally an increase in credit risk may result as the ability of borrowers to service their debt may decrease in the event of an interest rate increase
Based on their evaluation of the Company s disclosure controls and procedures as defined in Rules 13a 15 e and 15d 15 e under the Securities Exchange Act of 1934 the Exchange Act the Company s principal executive officer and principal financial officer have concluded that as of the end of the period covered by this Annual Report on Form 10 K such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded processed summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to the Company s management including the principal executive and principal financial officer as appropriate to allow timely decisions regarding required disclosures
Management s report on the Company s internal control over financial reporting appears in the Company s consolidated financial statements that are contained in this Annual Report on Form 10 K immediately following Item 16 Such report is incorporated herein by reference
The report of Crowe LLP an independent registered public accounting firm on the Company s internal control over financial reporting appears in the Company s consolidated financial statements that are contained in this Annual Report on Form 10 K immediately following Item 16 Such report is incorporated herein by reference
During the last quarter of the year under report there was no change in the Company s internal control over financial reporting that has materially affected or is reasonably likely to materially affect the Company s internal control over financial reporting
During the fiscal quarter ended June 30 2024 none of the Company s directors or executive officers adopted or terminated any contract instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5 1 c or any non Rule 10b5 1 trading arrangement
The information that appears under the headings included under Proposal I Election of Directors and Corporate Governance Matters in the Registrant s definitive proxy statement for the Registrant s 2024 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the Registrant s fiscal year end the Proxy Statement is incorporated herein by reference
The Company has adopted a code of ethics that applies to its principal executive officer and principal financial and accounting officer A copy of the code of ethics referred to as Conflicts of Interest Code of Conduct is available on our website at www kearnybank com under the Investors Relations link then within the Corporate Overview drop down and under the link Governance Documents or without charge upon request to the Corporate Secretary Kearny Financial Corp 120 Passaic Avenue Fairfield New Jersey 07004
Management of the Company knows of no arrangements including any pledge by any person of securities of the Company the operation of which may at a subsequent date result in a change in control of the registrant
The number of securities includes 2 751 902 vested options outstanding as of June 30 2024 No non vested options were outstanding as of June 30 2024 In addition to these options 21 486 restricted stock awards and 689 252 restricted stock units were also non vested as of June 30 2024 The restricted stock awards are earned at a rate of 20 annually The non vested restricted stock units are earned at a rate of 33 annually
The information that appears under the sections captioned Corporate Governance Matters Transactions with Certain Related Persons and Board Independence in the Proxy Statement is incorporated herein by reference
The information relating to this item is incorporated herein by reference to the information contained under the section captioned Proposal II Ratification of Appointment of Independent Auditor in the Proxy Statement
Form of Common Stock Certificate of Kearny Financial Corp Incorporated by reference to Kearny Financial Corp s Registration Statement on Form S 1 File No 333 198602 originally filed on September 5 2014
Description of Capital Stock of Kearny Financial Corp Incorporated by reference to Exhibit 4 2 to Kearny Financial Corp s Annual Report on Form 10 K File No 001 37399 originally filed on August 28 2020
Amended and Restated Employment Agreement between Kearny Bank and Craig Montanaro dated May 18 2015 Incorporated by reference to Exhibit 10 1 to Kearny Financial Corp s Annual Report on Form 10 K File No 001 37399 originally filed on September 14 2015
Amended and Restated Employment Agreement between Kearny Financial Corp and Craig Montanaro dated May 18 2015 Incorporated by reference to Exhibit 10 2 to Kearny Financial Corp s Annual Report on Form 10 K File No 001 37399 originally filed on September 14 2015
Employment Agreement between Kearny Bank and Patrick M Joyce dated May 18 2015 Incorporated by reference to Exhibit 10 4 to Kearny Financial Corp s Annual Report on Form 10 K File No 001 37399 originally filed on September 14 2015
Employment Agreement between Kearny Bank and Keith Suchodolski dated June 15 2022 Incorporated by reference to Exhibit 10 1 to Kearny Financial Corp s Current Report on Form 8 K File No 001 37399 originally filed on June 16 2022
Amendment Number One to Employment Agreement between Kearny Bank and Keith Suchodolski dated July 1 2024 Incorporated by reference to Exhibit 10 1 to Kearny Financial Corp s Current Report on Form 8 K File No 001 37399 originally filed on June 20 2024
Employment Agreement between Kearny Bank and Thomas D DeMedici dated June 21 2017 Incorporated by reference to Exhibit 10 8 to Kearny Financial Corp s Annual Report on Form 10 K File No 001 37399 originally filed on August 28 2019
Change in Control Agreement between Kearny Bank and Anthony V Bilotta Jr dated July 1 2018 Incorporated by reference to Exhibit 10 9 to Kearny Financial Corp s Annual Report on Form 10 K File No 001 37399 originally filed on August 28 2019
Two Year Change in Control Agreement between Kearny Bank and Sean Byrnes Incorporated by reference to Exhibit 10 2 to Kearny Financial Corp s Current Report on Form 8 K File No 001 37399 originally filed on June 20 2024
Directors Consultation and Retirement Plan as Amended and Restated Incorporated by reference to Exhibit 10 8 to Kearny Financial Corp s Annual Report on Form 10 K File No 001 37399 originally filed on September 14 2015
Amended and Restated Benefit Equalization Plan for Pension Plan Incorporated by reference to Exhibit 10 9 to Kearny Financial Corp s Annual Report on Form 10 K File No 001 37399 originally filed on September 14 2015
Amended and Restated Benefits Equalization Plan Related to the Employee Stock Ownership Plan Incorporated by reference to Exhibit 10 10 to Kearny Financial Corp s Annual Report on Form 10 K File No 001 37399 originally filed on September 14 2015
Form of Amendment to Kearny Bank Director Life Insurance Agreement Incorporated by reference to Exhibit 10 14 to Kearny Financial Corp s Annual Report on Form 10 K File No 001 37399 originally filed on September 14 2015
Kearny Bank Amended and Restated Executive Life Insurance Agreement with Craig Montanaro Incorporated by reference to Exhibit 10 2 to Kearny Financial Corp s Current Report on Form 8 K File No 001 37399 originally filed on June 16 2022
Form of Kearny Bank Executive Life Insurance Agreement with Keith Suchodolski Patrick M Joyce and Thomas D DeMedici Incorporated by reference to Exhibit 10 2 to Kearny Financial Corp s Current Report on Form 8 K File No 000 51093 originally filed on August 18 2005
Form of Amendment to Kearny Bank Executive Life Insurance Agreement with Keith Suchodolski Patrick M Joyce and Thomas D DeMedici Incorporated by reference to Exhibit 10 16 to Kearny Financial Corp s Annual Report on Form 10 K File No 001 37399 originally filed on September 14 2015
Kearny Bank Amended and Restated Change in Control Severance Pay Plan Incorporated by reference to Exhibit 10 1 to Kearny Financial Corp s Quarterly Report on Form 10 Q File No 001 37399 originally filed on May 6 2022
Kearny Bank Amended and Restated Executive Management Incentive Compensation Plan Incorporated by reference to Exhibit 10 3 to Kearny Financial Corp s Current Report on Form 8 K File No 001 37399 originally filed on June 20 2024
Amendment to Freeze Benefit Accruals Under the Kearny Financial Corp Directors Consultation and Retirement Plan Incorporated by reference to Exhibit 10 1 to Kearny Financial Corp s Current Report on Form 8 K File No 001 37399 originally filed on December 23 2015
Supplemental Executive Retirement Plan by and between Kearny Bank and Craig L Montanaro effective as of July 1 2021 Incorporated by reference to Exhibit 10 1 to Kearny Financial Corp s Current Report on Form 8 K File No 001 37399 originally filed on June 21 2021
Amendment to Freeze the Benefit Under the Supplemental Executive Retirement Plan by and between Kearny Bank and Craig L Montanaro effective as of December 21 2022 Incorporated by reference to Exhibit 10 1 to Kearny Financial Corp s Current Report on Form 8 K File No 001 37399 originally filed on December 22 2022
The following materials from the Company s Annual Report to Stockholders on Form 10 K for the year ended June 30 2024 formatted in Inline XBRL Extensible Business Reporting Language i the Consolidated Statements of Financial Condition ii the Consolidated Statements of Operations iii the Consolidated Statements of Comprehensive Income iv the Consolidated Statements of Changes in Stockholder s Equity v the Consolidated Statements of Cash Flows and vi the Notes to Consolidated Financial Statements
The management of Kearny Financial Corp and Subsidiaries collectively the Company is responsible for establishing and maintaining adequate internal control over financial reporting The Company s internal control system is a process designed to provide reasonable assurance to the management and board of directors regarding the preparation and fair presentation of published consolidated financial statements
The Company s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect transactions and dispositions of assets provide reasonable assurances that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U S generally accepted accounting principles and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the Company s assets that could have a material effect on our consolidated financial statements
All internal control systems no matter how well designed have inherent limitations Therefore even those systems determined to be effective can provide only reasonable assurance with respect to consolidated financial statement preparation and presentation Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
The Company s management assessed the effectiveness of internal control over financial reporting as of June 30 2024 In making this assessment management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated Framework 2013 Based on its assessment management believes that as of June 30 2024 the Company s internal control over financial reporting is effective based on those criteria
The Company s independent registered public accounting firm that audited the consolidated financial statements has issued an audit report on the effective operation of the Company s internal control over financial reporting as of June 30 2024 a copy of which is included in this annual report
We have audited the accompanying consolidated statements of financial condition of Kearny Financial Corp and Subsidiaries the Company as of June 30 2024 and 2023 the related consolidated statements of income loss comprehensive income loss changes in stockholders equity and cash flows for each of the years in the three year period ended June 30 2024 and the related notes collectively referred to as the financial statements We also have audited the Company s internal control over financial reporting as of June 30 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission COSO
In our opinion the financial statements referred to above present fairly in all material respects the financial position of the Company as of June 30 2024 and 2023 and the results of its operations and its cash flows for each of the years in the three year period ended June 30 2024 in conformity with accounting principles generally accepted in the United States of America Also in our opinion the Company maintained in all material respects effective internal control over financial reporting as of June 30 2024 based on criteria established in Internal Control Integrated Framework 2013 issued by COSO
The Company s management is responsible for these financial statements for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management s Report on Internal Control over Financial Reporting Our responsibility is to express an opinion on the Company s financial statements and an opinion on the Company s internal control over financial reporting based on our audits We are a public accounting firm registered with the Public Company Accounting Oversight Board United States PCAOB and are required to be independent with respect to the Company in accordance with the U S federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud and whether effective internal control over financial reporting was maintained in all material respects
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements whether due to error or fraud and performing procedures that respond to those risks Such procedures included examining on a test basis evidence regarding the amounts and disclosures in the financial statements Our audits also included evaluating the accounting principles used and significant estimates made by management as well as evaluating the overall presentation of the financial statements Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting assessing the risk that a material weakness exists and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk Our audits also included performing such other procedures as we considered necessary in the circumstances We believe that our audits provide a reasonable basis for our opinions
A company s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles A company s internal control over financial reporting includes those policies and procedures that 1 pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company 2 provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company and 3 provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition use or disposition of the company s assets that could have a material effect on the financial statements
Because of its inherent limitations internal control over financial reporting may not prevent or detect misstatements Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that 1 relate to accounts or disclosures that are material to the financial statements and 2 involve our especially challenging subjective or complex judgments The communication of the critical audit matters does not alter in any way our opinion on the financial statements taken as a whole and we are not by communicating the critical audit matters below providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate
As described in Note 1 to the consolidated financial statements the Company accounts for credit losses under ASC 326 Financial Instruments Credit Losses ASC 326 requires the measurement of expected lifetime credit losses for financial assets measured at amortized cost at the reporting date As of June 30 2024 the balance of the allowance for credit losses on loans was 44 9 million
Management employs a process and methodology to estimate the allowance for credit losses ACL on loans that evaluates both quantitative and qualitative factors The methodology for evaluating quantitative factors involves pooling loans into portfolio segments for loans that share similar risk characteristics Pooled loan portfolio segments include multi family nonresidential mortgage commercial business construction one to four family residential mortgage home equity and consumer loans
For pooled loans the Company primarily utilizes a discounted cash flow DCF methodology to estimate credit losses over the expected life of the loan The DCF methodology combines the probability of default the loss given default remaining life of the loan and prepayment and curtailment speed assumptions to estimate a reserve for each loan The loss rates are adjusted by current and forecasted macroeconomic assumptions and return to the mean after the forecasted periods These quantitative factors are supplemented by qualitative factors reflecting management s view of how losses may vary from those represented by quantitative loss rates Qualitative factors are applied to each portfolio segment with the amounts determined by correlation of credit stress to the maximum loss factors of a peer group s historical charge offs Changes in these assumptions could have a material effect on the Company s financial results
We identified auditing the qualitative component of the ACL on pooled loans in the multi family nonresidential mortgage and one to four family residential mortgage loan segments as a critical audit matter because the methodology to determine the estimate of credit losses uses subjective judgments by management and is subject to material variability Performing audit procedures to evaluate the qualitative factors on the multi family nonresidential mortgage and one to four family residential mortgage loan segments involved a high degree of auditor judgment and required significant effort including the need to involve more experienced audit personnel including the use of internal specialists
Testing the completeness and accuracy of data used in the calculation including utilizing internal specialists to assist in testing the accuracy of the underlying peer data used to develop the maximum loss factors
Evaluation of the reasonableness of management s judgments related to qualitative factors to determine if they are calculated to conform with management s policies and were consistently applied period over period Our evaluation considered evidence from internal and external sources and loan portfolio composition and performance
As described in Notes 1 and 8 to the consolidated financial statements the Company s consolidated goodwill balance was 113 5 million as of June 30 2024 which is allocated to the Company s single reporting unit Goodwill is tested for impairment at the reporting unit level at least annually or more frequently if events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount The Company performed its annual quantitative assessment of goodwill during the fourth quarter of its fiscal year ended June 30 2024 The annual quantitative assessment of goodwill for the Company s single reporting unit was performed utilizing a discounted cash flow analysis income approach and estimates of selected market information market approaches The result of the income approach was weighted at 50 and the results of the market approaches comprised the remaining 50 in determining the fair value of the Company s single reporting unit The fair value of the Company s single reporting unit was below the reporting unit s carrying value resulting in a pre tax goodwill impairment charge of 97 4 million for the year ended June 30 2024
We identified the goodwill impairment assessment of the Company as a critical audit matter The principal considerations for this determination were the degree of auditor judgment in performing procedures over the key assumptions which include discount rate cost savings rate expected future cash flows control premium and weighting allocation to valuation methodologies
Management s evaluation of assumptions and inputs used including discount rate cost savings rate control premium comparable companies data and allocated weightings incorporated into the methodologies used to determine fair value
Utilization of an internal specialist to evaluate appropriateness of valuation methodologies the discount rate assumption cost savings rate comparable companies data and overall reasonableness of the fair value
The consolidated financial statements include the accounts of Kearny Financial Corp the Company its wholly owned subsidiary Kearny Bank the Bank and the Bank s wholly owned subsidiaries CJB Investment Corp 189 245 Berdan Avenue LLC and Kearny Wealth Management LLC The Company conducts its business principally through the Bank Management prepared the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America GAAP including the elimination of all significant inter company accounts and transactions during consolidation
In preparing the consolidated financial statements management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the Consolidated Statements of Financial Condition and revenues and expenses for the periods then ended Actual results could differ significantly from those estimates
The Company s primary business is the ownership and operation of the Bank The Bank is principally engaged in the business of attracting deposits from the general public and using those deposits together with other funds to originate or purchase loans for its portfolio and invest in securities Loans originated or purchased by the Bank generally include loans collateralized by residential and commercial real estate augmented by secured and unsecured loans to businesses and consumers The investment securities purchased by the Bank generally include U S agency mortgage backed securities U S government and agency debentures obligations of state and political subdivisions corporate bonds asset backed securities collateralized loan obligations and subordinated debt
At June 30 2024 the Bank had three wholly owned subsidiaries CJB Investment Corp 189 245 Berdan Avenue LLC and Kearny Wealth Management LLC CJB Investment Corp was organized under New Jersey law as a New Jersey Investment Company and remained active through the three year period ended June 30 2024 189 245 Berdan Avenue LLC was formed during the year ended June 30 2023 for the purpose of ownership and operation of commercial real estate In February 2024 the Bank formed the Kearny Wealth Management LLC subsidiary for the purpose of providing wealth management and insurance brokerage services via a third party service provider
The Company has evaluated events and transactions occurring subsequent to the statement of financial condition date of June 30 2024 for items that should potentially be recognized or disclosed in these consolidated financial statements The evaluation was conducted through the date this document was filed
Cash and cash equivalents include cash deposits with other financial institutions with maturities fewer than 90 days and federal funds sold Net cash flows are reported for customer loan and deposit transactions interest bearing deposits in other financial institutions and borrowings with original maturities fewer than 90 days
The Company classifies its investment securities as either available for sale or held to maturity The Company does not use or maintain a trading account Investment securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and reported at amortized cost Investment securities not classified as held to maturity are classified as available for sale and reported at fair value with unrealized holding gains or losses net of deferred income taxes reported in the accumulated other comprehensive income OCI component of stockholders equity
Premiums on callable securities are amortized to the earliest call date whereas discounts on such securities are accreted to the maturity date utilizing the level yield method Premiums and discounts on all other securities are generally amortized or accreted to the maturity date utilizing the level yield method taking into consideration the impact of principal
Pursuant to the Financial Accounting Standards Board FASB Accounting Standards Codification ASC Topic 326 for available for sale securities in an unrealized loss position the Company first assesses whether it intends to sell or it is more than likely than not that it will be required to sell the security before recovery of its amortized cost basis If either of the criteria regarding intent or requirement to sell is met the security s amortized cost basis is written down to fair value through income For securities available for sale that do not meet the above criteria the Company evaluates whether the decline in fair value has resulted from credit losses or other factors In making this assessment the Company considers the extent to which fair value is less than amortized cost any changes to the rating by a rating agency and adverse conditions related to the security among other factors If this assessment indicates that a credit loss exists the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security If the present value of the cash flows expected to be collected is less than the amortized cost basis a credit loss exists and an allowance for credit losses is recorded for the credit loss limited by the amount that the fair value is less than the amortized cost Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income net of tax The Company elected the practical expedient of zero loss estimates for securities issued by U S government entities and agencies These securities are either explicitly or implicitly guaranteed by the U S government are highly rated by major agencies and have a long history of no credit losses
Under ASC 326 changes in the allowance for credit losses are recorded as provision for or reversal of credit loss expense Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met
Financial instruments which potentially subject the Company and its subsidiaries to concentrations of credit risk consist of cash and cash equivalents investment securities and loans receivable Cash and cash equivalents include deposits placed in other financial institutions
Securities include concentrations of investments backed by U S government agencies and U S government sponsored enterprises GSEs including the Federal National Mortgage Association Fannie Mae the Federal Home Loan Mortgage Corporation Freddie Mac and the Government National Mortgage Association Ginnie Mae Additional concentration risk exists in the Company s municipal and corporate obligations asset backed securities and collateralized loan obligations
The Company s lending activity is primarily concentrated in loans collateralized by real estate in the states of New Jersey and New York As a result credit risk is broadly dependent on the real estate market and general economic conditions in these states Additionally the Company s lending policies limit the amount of credit extended to any single borrower and their related interests thereby limiting the concentration of credit risk to any single borrower
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at unpaid principal balances net of deferred loan origination fees and costs purchase discounts and premiums purchase accounting fair value adjustments and the allowance for credit losses Interest income is accrued on the unpaid principal balance Certain direct loan origination costs net of loan origination fees are deferred and amortized using the level yield method as an adjustment of yield over the contractual lives of the related loans Unearned premiums and discounts are amortized or accreted utilizing the level yield method over the contractual lives of the related loans
Loans held for sale are carried at the lower of cost or estimated fair value as determined on an aggregate basis Net unrealized losses if any are recognized in a valuation allowance through a charge to earnings Premiums and discounts and origination fees and costs on loans held for sale are deferred and recognized as a component of the gain or loss on sale Gains and losses on sales of loans held for sale are recognized on settlement dates and are determined by the difference between the sale proceeds and the carrying value of the loans These transactions are accounted for as sales
A loan s past due status is generally determined based upon its principal and interest P I payment delinquency status in conjunction with its past maturity status where applicable A loan s P I payment delinquency status is based upon the number of calendar days between the date of the earliest P I payment due and the as of measurement date A loan s past maturity status where applicable is based upon the number of calendar days between a loan s contractual maturity date and the as of measurement date Based upon the larger of these criteria loans are categorized into the following past due tiers for financial statement reporting and disclosure purposes Current including 1 29 days 30 59 days 60 89 days and 90 or more days
Loans are generally placed on nonaccrual status when contractual payments become 90 or more days past due or when the Company does not expect to receive all P I payments owed substantially in accordance with the terms of the loan agreement regardless of past due status Loans that become 90 day past due but are well secured and in the process of collection may remain on accrual status Nonaccrual loans are generally returned to accrual status when all payments due are brought current and the Company expects to receive all remaining P I payments owed substantially in accordance with the terms of the loan agreement
In compliance with the regulatory guidelines the Company s loan review system includes an evaluation process through which certain loans exhibiting adverse credit quality characteristics are classified as Special Mention Substandard Doubtful or Loss
An asset is classified as Substandard if it is inadequately protected by the paying capacity and net worth of the obligor or the collateral pledged if any Substandard assets include those characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected Assets classified as Doubtful have all of the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts conditions and values Assets or portions thereof classified as Loss are considered uncollectible or of so little value that their continuance as assets is not warranted
Assets which do not currently expose the Company to a sufficient degree of risk to warrant an adverse classification but have some credit deficiencies or other potential weaknesses are designated as Special Mention by management Adversely classified assets together with those rated as Special Mention are generally referred to as Classified Assets Non classified assets are internally rated within one of four Pass categories or as Watch with the latter denoting a potential deficiency or concern that warrants increased oversight or tracking by management until remediated
Management generally performs a classification of assets review including the regulatory classification of assets on an ongoing basis The results of the classification of assets review are validated by the Company s third party loan review firm during their quarterly independent review In the event of a difference in rating or classification between those assigned by the internal and external resources the Company will generally utilize the more critical or conservative rating or classification Final loan ratings and regulatory classifications are presented monthly to the Board of Directors and are reviewed by regulators during the examination process
Pursuant to ASC 326 the allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date The measurement of expected credit losses is applicable to loans receivable and securities measured at amortized cost It also applies to off balance sheet credit exposures such as loan commitments and unused lines of credit The allowance is established through a provision for credit losses that is charged against income The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved the subjectivity of the assumptions used and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses
The allowance for credit losses is reported separately as a contra asset on the Consolidated Statements of Financial Condition The expected credit losses for unfunded lending commitments and unfunded loan commitments is reported on the Consolidated Statements of Financial Condition in other liabilities while the provision for credit losses related to unfunded commitments is reported in other non interest expense
The allowance for credit losses on loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected Expected losses are evaluated and calculated on a collective or pooled basis for those loans which share similar risk characteristics At each reporting period the Company evaluates whether loans within a pool continue to exhibit similar risk characteristics If the risk characteristics of a loan change such that they are no longer similar to other loans in the pool the Company will evaluate the loan with a different pool of loans that share similar risk characteristics If the loan does not share risk characteristics with other loans the Company will evaluate the loan on an individual basis The Company evaluates the pooling methodology at least annually Loans are charged off against the allowance for credit losses when the Company believes the balances to be uncollectible Expected recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off
The Company has chosen to segment its portfolio consistent with the manner in which it manages credit risk Such segments include multi family mortgage nonresidential mortgage commercial business construction one to four family residential mortgage home equity and consumer For most segments the Company calculates estimated credit losses using a probability of default and loss given default methodology the results of which are applied to the aggregated discounted cash flow of each individual loan within the segment The point in time probability of default and loss given default are then conditioned by macroeconomic scenarios to incorporate reasonable and supportable forecasts that affect the collectability of the reported amount
The Company estimates the allowance for credit losses on loans via a quantitative analysis which considers relevant available information from internal and external sources related to past events and current conditions as well as the incorporation of reasonable and supportable forecasts The Company evaluates a variety of factors including third party economic forecasts industry trends and other available published economic information in arriving at its forecasts After the reasonable and supportable forecast period the Company reverts on a straight line basis to the historical average economic variables Expected credit losses are estimated over the contractual term of the loans adjusted for expected prepayments when appropriate The contractual term excludes expected extensions renewals and modifications
Also included in the allowance for credit losses on loans are qualitative reserves to cover losses that are expected but in the Company s assessment may not be adequately represented in the quantitative analysis or the forecasts described above Factors that the Company considers include changes in lending policies and procedures business conditions the nature and size of the portfolio portfolio concentrations the volume and severity of past due loans and non accrual loans the effect of external factors such as competition legal and regulatory requirements among others Qualitative loss factors are applied to each portfolio segment with the amounts judgmentally determined by the relative risk to the most severe loss periods identified in the historical loan charge offs of a peer group of similar sized regional banks
On a case by case basis the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio the allowance will be determined on an individual basis using the present value of expected
cash flows or for collateral dependent loans the fair value of the collateral as of the reporting date less estimated selling costs as applicable If the fair value of the collateral is less than the amortized cost basis of the loan the Company will charge off the difference between the fair value of the collateral less costs to sell at the reporting date and the amortized cost basis of the loan
Acquired loans are included in the Company s calculation of the allowance for credit losses How the allowance on an acquired loan is recorded depends on whether or not it has been classified as a Purchased Credit Deteriorated PCD loan PCD loans are loans acquired at a discount that is due in part to credit quality PCD loans are accounted for in accordance with ASC Subtopic 326 20 and are initially recorded at fair value as determined by the sum of the present value of expected future cash flows and an allowance for credit losses at acquisition
The allowance for PCD loans is recorded through a gross up effect while the allowance for acquired non PCD loans is recorded through provision expense consistent with originated loans Thus the determination of which loans are PCD and non PCD can have a significant impact on the accounting for these loans Subsequent to acquisition the allowance for PCD loans will generally follow the same estimation provision and charge off process as non PCD acquired and originated loans
The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance calculation other than those that are unconditionally cancelable To arrive at that reserve the reserve percentage for each applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected funding rate To determine the expected funding rate the Company uses a historical utilization rate for each segment As noted above the allowance for credit losses on unfunded loan commitments is included in other liabilities on the Consolidated Statements of Financial Condition and the related credit expense is recorded in other non interest expense in the Consolidated Statements of Income
Prior to July 1 2023 a troubled debt restructuring TDR occurred when the terms of a loan were modified because of deterioration in the financial condition of the borrower TDRs could include but were not limited to the modification of loan terms such as the reduction of the loan s stated interest rate extension of the maturity date and or reduction or deferral of amounts owed under the terms of the loan agreement In measuring the impairment associated with restructured loans that qualified as TDRs the Company compared the present value of the cash flows that were expected to be received in accordance with the loan s modified terms discounted at the loan s original contractual interest rate with the pre modification carrying value to measure impairment
ASU 2022 02 which replaced the accounting and recognition of TDRs ASU 2022 02 eliminated the accounting guidance on troubled debt restructurings for creditors in ASC 310 40 and amends the guidance on vintage disclosures to require disclosure of current period gross write offs by year of origination ASU 2022 02 also updates the requirements related to accounting for credit losses under ASC 326 and adds enhanced disclosures for creditors with respect to loan refinancings and restructurings for borrowers experiencing financial difficulty
Under ASU 2022 02 the Company assesses all loan modifications to determine whether one is granted to a borrower experiencing financial difficulty regardless of whether the modified loan terms include a concession Modifications granted to borrowers experiencing financial difficulty may be in the form of an interest rate reduction an other than insignificant payment delay a term extension principal forgiveness or a combination thereof
All modified loans to borrowers experiencing financial difficulty are placed on nonaccrual status for a period of no less than six months after modification Modified loans may be returned to accrual status and a non adverse classification if 1 the borrower has paid timely P I payments in accordance with the terms of the modified loan agreement for no less than six consecutive months after modification due to a borrower experiencing financial difficulty and 2 the Company expects to receive all P I payments owed substantially in accordance with the terms of the modified loan agreement
Land is carried at cost Office buildings leasehold improvements and furniture fixtures and equipment are carried at cost less accumulated depreciation and amortization Office buildings and furniture fixtures and equipment are depreciated using the straight line method over their estimated useful lives of the respective assets Leasehold improvements are amortized using the straight line method over the terms of the respective leases or lives of the assets whichever is shorter
Construction in progress primarily represents facilities under construction for future use in our business and includes all costs to acquire land and construct buildings as well as capitalized interest during the construction period Interest is capitalized at the Company s average cost of interest bearing liabilities
Properties and other assets acquired through foreclosure deed in lieu of foreclosure or repossession are carried at estimated fair value less estimated selling costs The estimated fair value of real estate property and other repossessed assets is generally based on independent appraisals When an asset is acquired the excess of the loan balance over fair value less estimated selling costs is charged to the allowance for credit losses Thereafter decreases in the properties estimated fair value are charged to income along with any additional property maintenance and protection expenses incurred in owning the properties
Federal law requires a member institution of the FHLB system to hold restricted stock of its district FHLB according to a predetermined formula The restricted stock is carried at cost less any applicable impairment Both cash and stock dividends are reported as income
Goodwill arises from business combinations and is generally determined as the excess of the fair value of the consideration transferred plus the fair value of any noncontrolling interests in the acquiree over the fair value of the net assets acquired and liabilities assumed as of the acquisition date Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized but tested for impairment at least annually or more frequently if events and circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount The Company performed its annual impairment test during the fourth quarter of its fiscal year ended June 30 2024 Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values Goodwill is the only intangible asset with an indefinite life on our audited Consolidated Statements of Financial Condition
In assessing impairment the Company has the option to perform a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the reporting unit is less than its carrying amount If after assessing the totality of such events or circumstances the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount then the Company would not be required to perform a quantitative impairment test
For the year ended June 30 2024 the annual quantitative assessment of goodwill for our single reporting unit was performed utilizing a discounted cash flow analysis income approach and estimates of selected market information market approaches The income approach measures the fair value of an interest in a business by discounting expected future cash flows to present value The market approaches take into consideration fair values of comparable companies operating in similar lines of business that are potentially subject to similar economic and environmental factors and could be considered reasonable investment alternatives The result of the income approach was weighted at 50 and the results of the market approaches comprised the remaining 50 in determining the fair value of our single reporting unit The results of the annual quantitative impairment analysis indicated that the fair value did not exceed the carrying value for our single reporting unit
A pre tax goodwill impairment of 97 4 million was required to be recorded as a non cash expense in the Consolidated Statements of Income Loss for the year ended June 30 2024 No impairment charges were required to be recorded in the years ended June 30 2023 or 2022 See Note 8 Goodwill and Other Intangible Assets for additional information
The balance of other intangible assets at June 30 2024 and 2023 totaled 1 9 million and 2 5 million respectively representing the remaining unamortized balance of the core deposit intangibles ascribed to the value of deposits acquired by the Bank through the acquisition of Clifton Bancorp Inc in April 2018 and MSB Financial Corp in July 2020
Bank owned life insurance is accounted for using the cash surrender value method and is recorded at its net realizable value The change in the net asset value is recorded as a component of non interest income A deferred liability has been recorded for the estimated cost of postretirement life insurance benefits accruing to applicable employees and directors covered by an endorsement split dollar life insurance arrangement
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered Control over transferred assets is deemed to be surrendered when 1 the assets have been isolated from the Company put presumptively beyond the reach of the transferor and its creditors even in bankruptcy or other receivership 2 the transferee obtains the right free of conditions that constrain it from taking advantage of that right to pledge or exchange the transferred assets and 3 the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return specific assets
The Company and its subsidiaries file consolidated federal income tax returns Federal income taxes are allocated to each entity based on their respective contributions to the taxable income of the consolidated income tax returns Separate state income tax returns are filed for the Company and its subsidiaries on either a consolidated or unconsolidated basis as required by the jurisdiction The federal income tax rate of 21 was applicable for the years ended June 30 2024 2023 and 2022
Federal and state income taxes have been provided on the basis of the Company s income or loss as reported in accordance with GAAP The amounts reflected on the Company s state and federal income tax returns differ from these provisions due principally to temporary differences in the reporting of certain items for financial statement reporting and income tax reporting purposes The tax effect of these temporary differences is accounted for as deferred taxes applicable to future periods Deferred income tax expense or benefit is determined by recognizing deferred tax assets and liabilities for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date The realization of deferred tax assets is assessed and a valuation allowance provided for the full amount which is not more likely than not to be realized
The Company identified no significant income tax uncertainties through the evaluation of its income tax positions as of June 30 2024 and 2023 Therefore the Company has no unrecognized income tax benefits as of those dates Our policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the Consolidated Statements of Income Loss The Company recognized no material interest and penalties during the years ended June 30 2024 2023 or 2022 The tax years subject to examination by the taxing authorities are the years ended June 30 2023 2022 and 2021
Pension expense is the net of service and interest cost return on plan assets and amortization of gains and losses not immediately recognized Employee 401 k and profit sharing plan expense is the amount of matching contributions Deferred compensation plan expense allocates the benefits over years of service
The cost of shares issued to the Employee Stock Ownership Plan the ESOP but not yet allocated to participants is shown as a reduction of shareholders equity Compensation expense is based on the market price of shares as they are committed to be released to participant accounts Dividends on allocated and unallocated ESOP shares either reduce retained earnings or reduce debt and accrued interest as determined by the ESOP Plan Administrator
Comprehensive income is comprised of net income and other comprehensive income loss Other comprehensive income loss includes items recorded in equity such as unrealized gains and losses on securities available for sale unrealized gains and losses on derivatives and amortization related to post retirement obligations Comprehensive income is presented in a separate Consolidated Statement of Comprehensive Income Loss
Loss contingencies including claims and legal actions arising in the ordinary course of business are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated Management does not believe there now are such matters that will have a material effect on the financial statements
Financial instruments include off balance sheet credit instruments such as commitments to make loans and commercial letters of credit issued to meet customer financing needs The face amount for these items represents the exposure to loss before considering customer collateral or ability to repay Such financial instruments are recorded when they are funded See Note 16 Commitments for additional information
The Company utilizes derivative instruments in the form of interest rate swaps caps and floors to hedge its exposure to interest rate risk in conjunction with its overall asset liability management process In accordance with accounting requirements the Company formally designates all of its hedging relationships as either fair value hedges intended to offset the changes in the value of certain financial instruments due to movements in interest rates or cash flow hedges intended to offset changes in the cash flows of certain financial instruments due to movement in interest rates and documents the strategy for undertaking the hedge transactions and its method of assessing ongoing effectiveness The Company does not use derivative instruments for speculative purposes
All derivatives are recognized as either assets or liabilities in the Consolidated Statements of Financial Condition at their fair values For a derivative designated as a cash flow hedge the gain or loss on the derivative is recorded in other comprehensive income and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings For a derivative designated as a fair value hedge the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings
Derivative instruments qualify for hedge accounting treatment only if they are designated as such on the date on which the derivative contract is entered and are expected to be and are effective in substantially reducing interest rate risk arising from the assets and liabilities identified as exposing the Company to risk Those derivative financial instruments that do not meet the hedging criteria discussed below would be classified as undesignated derivatives and would be recorded at fair value with changes in fair value recorded in income
The Company discontinues hedge accounting when a it determines that a derivative is no longer effective in offsetting changes in cash flows of a hedged item b the derivative expires or is sold terminated or exercised c probability exists that the forecasted transaction will no longer occur or d management determines that designating the derivative as a hedging instrument is no longer appropriate In all cases in which hedge accounting is discontinued and a derivative remains outstanding the Company will carry the derivative at fair value in the Consolidated Financial Statements recognizing changes in fair value in current period income in the Consolidated Statements of Income
In accordance with the applicable accounting guidance the Company takes into account the impact of collateral and master netting agreements that allow it to settle all derivative contracts held with a single counterparty on a net basis and to offset the net derivative position with the related collateral when recognizing derivative assets and liabilities As a result the Company s Statements of Financial Condition could reflect derivative contracts with negative fair values included in derivative assets and contracts with positive fair values included in derivative liabilities
The Company s interest rate derivatives are comprised of interest rate swaps and caps hedging variable rate wholesale funding and accounted for as cash flow hedges The carrying value of interest rate derivatives is included in the balance of other assets or other liabilities and comprises the remaining unamortized cost of interest rate caps and the cumulative changes in the fair value of interest rate derivatives Such changes in fair value are offset against accumulated other comprehensive income net of deferred income tax
In general the cash flows received and or exchanged with counterparties for those derivatives qualifying as interest rate hedges are generally classified in the financial statements in the same category as the cash flows of the items being hedged
Interest differentials paid or received under the swap agreements are reflected as adjustments to interest expense The notional amounts of the interest rate swaps are not exchanged and do not represent exposure to credit loss In the event of default by a counter party the risk in these transactions is the cost of replacing the agreements at current market rates
Basic EPS is based on the weighted average number of common shares actually outstanding adjusted for the ESOP shares not yet committed to be released Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock such as outstanding stock options or restricted stock units were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company Diluted EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts or securities exercisable or which could be converted into common stock if dilutive using the treasury stock method Shares issued and reacquired during any period are weighted for the portion of the period they were outstanding
Fair values of financial instruments are estimated using relevant market information and other assumptions as more fully disclosed in Note 17 Fair Value of Financial Instruments Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates credit risk prepayments and other factors especially in the absence of broad markets for particular items Changes in assumptions or in market conditions could significantly affect these estimates
Public companies are required to report certain financial information about significant revenue producing segments of the business for which such information is available and utilized by the chief operating decision makers Substantially all of the Company s operations occur through the Bank and involve the delivery of loan and deposit products to customers Management makes operating decisions and assesses performance based on an ongoing review of its banking operation which constitutes the Company s only operating segment for financial reporting purposes
Compensation expense related to stock options non vested stock awards and non vested stock units is based on the fair value of the award on the measurement date with expense recognized on a straight line basis over the service period of the award The fair value of stock options is estimated using the Black Scholes valuation model The fair value of non vested stock awards and stock units is generally the closing market price of the Company s common stock on the date of grant The Company accounts for forfeitures as they occur
to improve reportable segment disclosures by requiring public entities to disclose significant expense categories and amounts for each reportable segment where significant expense categories are defined as those that are regularly reported to an entity s chief operating decision maker and included in a segment s reported measures of profit or loss For public companies the requirements will become effective for fiscal years beginning after December 15 2023 and
interim periods within fiscal years beginning after December 15 2024 with early adoption permitted As the Company has only one reportable segment this ASU is not expected to have a material effect on the Company s consolidated financial statements
which requires reporting companies to improve the transparency of certain income tax related disclosures including the rate reconciliation and taxes paid disclosures For public companies the requirements will become effective for fiscal years beginning after December 15 2024 with early adoption permitted The Company does not expect this ASU to have a material effect on the Company s consolidated financial statements
ASU 2022 02 to improve the usefulness of information provided to investors about certain loan refinancings restructurings and writeoffs ASU 2022 02 eliminates the accounting guidance for troubled debt restructurings by creditors and enhances disclosure requirements for certain modifications made to borrowers experiencing financial difficulty In addition ASU 2022 02 requires public business entities to disclose current period gross writeoffs for financing receivables and net investments in leases by year of origination in the vintage disclosures For entities that have adopted ASU 2016 13 the amendments in ASU 2022 02 are effective for fiscal years and interim periods within those fiscal years beginning after December 15 2022
Effective July 1 2023 the Company adopted ASU 2022 02 Under ASU 2022 02 the Company assesses all loan modifications to determine whether one is granted to a borrower experiencing financial difficulty regardless of whether the modified loan terms include a concession Modifications granted to borrowers experiencing financial difficulty may be in the form of an interest rate reduction an other than insignificant payment delay a term extension principal forgiveness or a combination thereof
Prior to the adoption of ASU 2022 02 a TDR occurred when the terms of a loan were modified because of deterioration in the financial condition of the borrower Modifications could include extension of the repayment terms of the loan reduced interest rates or forgiveness of accrued interest and or principal
The following tables present the amortized cost gross unrealized gains and losses and estimated fair values for available for sale securities and the amortized cost gross unrecognized gains and losses and estimated fair values for held to maturity securities as of the dates indicated
Excluding the balances of mortgage backed securities the following tables present the amortized cost and estimated fair values of debt securities available for sale and held to maturity by contractual maturity at June 30 2024
The following tables present the gross unrealized losses on securities and the estimated fair value of the related securities aggregated by investment category and length of time that securities have been in a continuous unrealized loss position within the available for sale portfolio at June 30 2024 and 2023
The following table presents the gross unrecognized losses on securities and the estimated fair value of the related securities aggregated by investment category and length of time that securities have been in a continuous unrecognized loss position within the held to maturity portfolio at June 30 2024 and 2023
Available for sale securities are evaluated to determine if a decline in fair value below the amortized cost basis has resulted from a credit loss or from other factors An impairment related to credit factors would be recorded through an allowance for credit losses The allowance is limited to the amount by which the security s amortized cost basis exceeds the fair value An impairment that has not been recorded through an allowance for credit losses shall be recorded through other comprehensive income net of applicable taxes Investment securities will be written down to fair value through the Consolidated Statement of Income Loss if management intends to sell or may be required to sell the securities before they recover in value The issuers of these securities continue to make timely principal and interest payments and none of these securities were past due or were placed in nonaccrual status at June 30 2024 Management believes that the unrealized losses on these securities are a function of changes in market interest rates and credit spreads not changes in credit quality No allowance for credit losses was recorded at June 30 2024 on available for sale securities
The sales of available for sale securities during the years ended June 30 2024 and June 30 2023 were part of wholesale restructurings and the proceeds were reinvested in higher yielding securities The Company was not required to sell these securities
At June 30 2024 the held to maturity securities portfolio consisted of agency mortgage backed securities and obligations of state and political subdivisions The mortgage backed securities are issued by U S government agencies and are implicitly guaranteed by the U S government The obligations of state and political subdivisions in the portfolio are highly rated by major rating agencies and have a long history of no credit losses The Company regularly monitors the obligations of state and political subdivisions sector of the market and reviews collectability including such factors as the financial condition of the issuers as well as credit ratings in effect as of the reporting period No allowance for credit losses was recorded at June 30 2024 on held to maturity securities
The Bank has granted loans to officers and directors of the Company and its subsidiaries and to their associates As of June 30 2024 and 2023 such loans totaled approximately 2 4 million and 2 5 million respectively During the fiscal years ended June 30 2024 and June 30 2023 the Bank granted no new loans to related parties
Loans are generally placed on nonaccrual status when contractual payments become 90 or more days past due or when the Company does not expect to receive all P I payment owed substantially in accordance with the terms of the loan agreement regardless of past due status Loans that become 90 days past due but are well secured and in the process of collection may remain on accrual status Nonaccrual loans are generally returned to accrual status when all payments due are brought current and the Company expects to receive all remaining P I payments owed substantially in accordance with the terms of the loan agreement Payments received in cash on nonaccrual loans including both the principal and interest portions of those payments are generally applied to reduce the carrying value of the loan The Company did not recognize interest income on non accrual loans during the years ended June 30 2024 2023 and 2022
Effective July 1 2023 the Company adopted ASU 2022 02 which eliminated the accounting for TDRs while expanding loan modification and vintage disclosure requirements See Note 2 to the consolidated financial statements for further information
The following tables presents the amortized cost basis at June 30 2024 of loan modifications made to borrowers experiencing financial difficulty during the year ended June 30 2024 by type of modification
No modifications involved forgiveness of principal or interest rate reductions There were no commitments to lend additional funds to borrowers experiencing financial difficulty whose terms have been restructured at June 30 2024
During the year ended June 30 2024 since adoption of ASU 2022 02 two residential mortgage loans with a carrying value of 514 000 were modified and subsequently defaulted on payment For restructured loans a subsequent payment default is defined in terms of delinquency when a principal or interest payment is 90 days past due or classified into non accrual status during the reporting period
Prior to the adoption of ASU 2022 02 the Company classified certain loans as TDRs when credit terms to a borrower in financial difficulty were modified in accordance with ASC 310 40 With the adoption of ASU 2022 02 the Company has ceased to recognize or measure for new TDRs but those existing at June 30 2023 will remain until settled
Loan modifications generally involve a reduction in interest rates and or extension of maturity dates and also may include step up interest rates in their modified terms which will impact their weighted average yield in the future The loans which were modified due to borrowers experiencing financial difficulty during the year ended June 30 2024 and loans restructured under the previous TDR guidelines capitalized prior past due amounts reduced the interest rate or modified the repayment terms
Individually analyzed loans include loans which do not share similar risk characteristics with other loans As of June 30 2024 the carrying value of individually analyzed loans including loans acquired with deteriorated credit quality that were individually analyzed totaled 39 9 million of which 32 6 million were considered collateral dependent
For collateral dependent loans where management has determined that foreclosure of the collateral is probable or where the borrower is experiencing financial difficulty and repayment of the loan is to be provided substantially through the operation or sale of the collateral the allowance for credit losses is measured based on the difference between the fair value of the collateral
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information historical payment experience credit documentation public information and current economic trends among other factors The Company analyzes loans individually to classify the loans as to credit risk The Company uses the following definitions for risk ratings
Loans that are well protected by the current net worth and paying capacity of the obligor or guarantors if any or by the fair value less cost to acquire and sell of any underlying collateral in a timely manner
Loans which are inadequately protected by the paying capacity and net worth of the obligor or the collateral pledged if any Substandard assets include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected
Loans which have all of the weaknesses inherent in those classified as Substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable on the basis of currently existing facts conditions and values
PCD loans are acquired loans that as of the acquisition date have experienced a more than insignificant deterioration in credit quality since origination Non PCD loans are acquired loans that have experienced no or insignificant deterioration in credit quality since origination To distinguish between the two types of acquired loans the Company evaluates risk characteristics that have been determined to be indicators of deteriorated credit quality The determining criteria may involve loan specific characteristics such as payment status debt service coverage or other changes in creditworthiness since the loan was originated while others are relevant to recent economic conditions such as borrowers in industries impacted by the pandemic
As of June 30 2024 the carrying amount of PCD loans was 15 7 million and a related allowance for credit losses of 141 000 As of June 30 2023 the carrying amount of PCD loans was 18 9 million and a related allowance for credit losses of 215 000
The Company may obtain physical possession of one to four family real estate collateralizing a residential mortgage loan or nonresidential real estate collateralizing a nonresidential mortgage loan via foreclosure or through an in substance repossession As of June 30 2024 the Company held no nonresidential property in other real estate owned that was acquired through foreclosure on a nonresidential mortgage loan As of that same date the Company held three residential mortgage loans with aggregate carrying values totaling 1 2 million and six commercial mortgage loans with aggregate carrying values totaling 13 6 million which were in the process of foreclosure As of June 30 2023 the Company held one nonresidential property in other real estate owned with a carrying value of 13 0 million that was acquired through foreclosure on a nonresidential mortgage loan As of that same date the Company held three residential mortgage loans with aggregate carrying values totaling 1 0 million which were in the process of foreclosure
The following tables present the balance of the allowance for credit losses ACL at June 30 2024 and 2023 The balance of the ACL is based on the CECL methodology as noted above The tables identify the valuation allowances attributable to specifically identified impairments on individually analyzed loans including those acquired with deteriorated credit quality as well as valuation allowances for impairments on loans collectively evaluated The tables include the underlying balance of loans receivable applicable to each category as of those dates
The Company leases certain premises and equipment under operating leases As of June 30 2024 the Company had right of use assets totaling 14 5 million and lease liabilities totaling 15 3 million which were recorded in other assets and other liabilities respectively on the Statement of Financial Condition By comparison at June 30 2023 the Company had right of use assets of totaling 16 1 million and lease liabilities of totaling 17 2 million
The Company performed the annual quantitative goodwill impairment analyses in the fourth quarter of its fiscal year ended June 30 2024 Based on the results of the impairment analyses the Company concluded that the carrying value of its single reporting unit exceeded its respective fair value resulting in the recognition of a non cash pre tax goodwill impairment of 97 4 million for the fiscal year ended June 30 2024 The fair value of the single reporting unit was estimated using the income approach and a market based approaches weighted 50 and 50 respectively The goodwill impairment was primarily due to the continued impact of higher interest rates and discount rates on the Company s reporting unit and a sustained decline in the banking industry share prices including the Company s Based on the quantitative assessment performed the Company concluded that the fair value of its single reporting unit was below its respective carrying amount as of the date on which the quantitative impairment test was conducted The goodwill impairment has no impact on the Company s liquidity regulatory capital ratios
Certificates of deposit with balances of 250 000 or more at June 30 2024 and 2023 totaled approximately 633 0 million and 883 7 million respectively The Bank s deposits are insurable to applicable limits by the FDIC
At June 30 2024 represented 175 0 million of FHLB overnight line of credit borrowings At June 30 2023 represented 125 0 million of FHLB overnight line of credit borrowings and 100 0 million of unsecured overnight borrowings from other financial institutions
At June 30 2024 FHLB advances and overnight line of credit borrowings were collateralized by the FHLB capital stock owned by the Bank and mortgage loans with carrying values totaling approximately 4 38 billion At June 30 2023 FHLB advances and
overnight line of credit borrowings were collateralized by the FHLB capital stock owned by the Bank and mortgage loans with carrying values totaling approximately 4 60 billion Based on this collateral and the Company s holding of FHLB stock the Company maintained available borrowing capacity of 1 82 billion at June 30 2024
At June 30 2024 BTFP borrowings were secured by agency mortgage backed securities with a par value of 113 5 million At June 30 2023 the Company had no BTFP borrowings The BTFP allows depository institutions to borrow up to the par value of eligible securities pledged at the Federal Reserve Bank
The Company uses various financial instruments including derivatives to manage its exposure to interest rate risk The Company s derivative financial instruments are used to manage differences in the amount timing and duration of the Company s known or expected cash receipts and its known or expected cash payments principally related to specific wholesale funding positions and assets
The Company uses derivatives to add stability to interest expense and to manage its exposure to interest rate movements To accomplish this objective the Company has entered into interest rate swaps interest rate caps and an interest rate floor as part of its interest rate risk management strategy These interest rate products are designated as cash flow hedges As of June 30 2024 the Company had a total of 12 interest rate swaps and caps with a total notional amount of 1 43 billion hedging specific wholesale funding positions and six interest rate floor with a notional amount of 600 0 million hedging floating rate available for sale securities
For derivatives designated as cash flow hedges the gain or loss on the derivatives is recorded in other comprehensive income loss net of tax and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings
For cash flow hedges on the Company s wholesale funding positions amounts reported in accumulated other comprehensive income loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company s hedged variable rate wholesale funding positions During the year ended June 30 2024 the Company reclassified 37 2 million as
For cash flow hedges on the Company s assets amounts reported in accumulated other comprehensive income loss related to derivatives will be reclassified to interest income as interest payments are received on the Company s hedged variable rate assets During the year ended June 30 2024 the Company reclassified 248 000 as a reduction in interest income During the next twelve months the Company estimates that 725 000 will be reclassified as a reduction in interest income
The table below presents the pre tax effects of the Company s derivative instruments designated as cash flow hedges on the Consolidated Statements of Income for the years ended June 30 2024 2023 and 2022
The Company is exposed to changes in the fair value of certain of its fixed rate assets due to changes in benchmark interest rates The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate Interest rate swaps designated as fair value hedges involve the payment of fixed rate amounts to a counterparty in exchange for the Company receiving variable rate payments over the life of the agreements without the exchange of the underlying notional amount Such derivatives are used to hedge the changes in fair value of certain of its pools of fixed rate assets As of June 30 2024 the Company had five interest rate swaps with a notional amount of 725 0 million hedging fixed rate residential mortgage loans
For derivatives designated and that qualify as fair value hedges the gain or loss on the derivatives as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income
This amount includes the amortized cost basis of the closed portfolios of loans receivable used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period At June 30 2024 and June 30 2023 the amortized cost basis of the closed portfolios used in these hedging relationships was 1 29 billion and 1 10 billion respectively
The tables below present a gross presentation the effects of offsetting and a net presentation of the Company s derivatives in the Consolidated Statement of Financial Condition as of June 30 2024 and 2023 respectively The net amounts presented for derivative assets or liabilities can be reconciled to the tabular disclosure of fair value The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Consolidated Statement of Financial Condition
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness then the Company could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty The Company also has agreements with its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well capitalized institution then the Company could be required to terminate its derivative positions with the counterparty As of June 30 2024 none of the Company s derivatives were in a net liability position
In addition to the derivative instruments noted above the Company s pipeline of loans held for sale at June 30 2024 and 2023 included 16 0 million and 11 7 million respectively of in process loans whose terms included interest rate locks to borrowers which are considered free standing derivative instruments whose fair values are not material to our financial condition or results of operations
The following table sets forth the aggregate net periodic benefit expense for the Bank s Benefit Equalization Plan Postretirement Welfare Plan Directors Consultation and Retirement Plan Atlas Bank Retirement Income Plan and Supplemental Executive Retirement Plan
The other components of net periodic benefit cost are required to be presented in the Consolidated Statements of Income separately from the service cost component The table above details the affected line items within the Consolidated Statements of Income related to the net periodic benefit costs for the periods noted
In conjunction to the Company s initial public stock offering in February 2005 the Bank established an ESOP for all eligible employees The ESOP purchased 2 409 764 shares of Company s common stock with proceeds of a loan from the Company to the ESOP In connection with the completion of the Company s mutual to stock conversion in May 2015 the ESOP purchased an additional 3 612 500 shares of the Company s common stock at a price of 10 00 per share with the proceeds of a new loan from the Company to the ESOP The Company refinanced the outstanding principal and interest balance of 3 8 million and borrowed an additional 36 1 million to purchase the additional shares The Company makes discretionary contributions to the ESOP equaling principal and interest payments owed on the ESOP s loan to the Company Such payments may be reduced by the amount of dividends paid on shares of the Company s common stock held by the ESOP The outstanding loan principal balance at June 30 2024 was 24 5 million
ESOP shares pledged as collateral are initially recorded as unearned ESOP shares in the Consolidated Statements of Financial Condition ESOP compensation expense was approximately 2 8 million 1 9 million and 2 5 million for the years ended June 30 2024 2023 and 2022 respectively representing the fair value of shares allocated or committed to be released during the year
The Bank has a non qualified plan to compensate its executive officers who participate in the Bank s ESOP for certain benefits lost under such plan by reason of benefit limitations imposed by the Internal Revenue Code IRC The ESOP BEP expense was approximately 12 000 17 000 and 40 000 for the years ended June 30 2024 2023 and 2022 respectively The liability totaled approximately 13 000 and 16 000 at June 30 2024 and 2023 respectively
The Bank sponsors the Employees Savings and Profit Sharing Plan and Trust the Plan pursuant to Section 401 k of the Internal Revenue Code for all eligible employees Employees may elect to contribute up to 75 of their compensation subject to the limitations imposed by the Internal Revenue Code The Bank will contribute a matching contribution up to 3 5 of an eligible employee s salary deferral contribution provided the eligible employee has contributed 6 The Plan expense amounted to approximately 1 4 million for the years ended June 30 2024 2023 and 2022 respectively
The Bank participates in the Pentegra Defined Benefit Plan for Financial Institutions The Pentegra DB Plan a tax qualified defined benefit pension plan The Pentegra DB Plan s Employer Identification Number is 13 5645888 and the Plan Number is 001 The Pentegra DB Plan operates as a multi employer plan for accounting purposes and as a multiple employer plan under the Employee Retirement Income Security Act of 1974 and the IRC There are no collective bargaining agreements in place that require contributions to the Pentegra DB Plan
The Pentegra DB Plan is a single plan under Internal Revenue Code Section 413 c and as a result all of the assets stand behind all of the liabilities Accordingly under the Pentegra DB Plan contributions made by a participating employer may be used to provide benefits to participants of other participating employers
The Pentegra DB Plan is non contributory and covers all eligible employees In April 2007 the Board of Directors of the Bank approved effective July 1 2007 freezing all future benefit accruals under the Pentegra DB Plan
Funded status market value of plan assets divided by funding target of the Pentegra DB Plan based on valuation reports as of July 1 2023 and 2022 was 98 87 and 103 17 respectively Total contributions made to the Pentegra DB Plan which include contributions from all participating employers and not just the Company as reported on Form 5500 were 151 8 million and 142 4 million for the plan years ended June 30 2023 and 2022 respectively The Bank s contributions to the Pentegra DB Plan were not more than 5 of the total contributions to the Pentegra DB Plan During the years ended June 30 2024 2023 and 2022 the total expense recorded for the Pentegra DB Plan was approximately 172 000 180 000 and 372 000 respectively
Through the merger with Atlas Bank the Company acquired a non contributory defined benefit pension plan covering all eligible employees of Atlas Bank Effective January 31 2013 the ABRIP was frozen by Atlas Bank All benefits for eligible participants accrued in the ABRIP to the freeze date have been retained The benefits are based on years of service and employee s compensation The ABRIP is funded in conformity with funding requirements of applicable government regulations
The assets of the ABRIP are invested in a Guaranteed Deposit Fund GDF with Prudential Financial Inc The GDF is a group annuity fund invested in public and private issue debt securities through various sub accounts The underlying assets are valued based on quoted prices for similar assets with similar terms and other observable market data and have no redemption restrictions The investments in the plan were monitored to ensure that they complied with the investment policies set forth in the plan document The plan s assets were reviewed periodically by management which included an analysis of the asset allocation and the performance of the GDF prepared by Prudential Financial Inc
The overall investment objective of the ABRIP is to ensure safety of principal and seek an attractive rate of return The GDF utilizes a full spectrum of fixed income asset classes to provide the opportunity to maximize portfolio returns and diversification
The Bank has an unfunded non qualified plan to compensate executive officers of the Bank who participate in the Bank s qualified defined benefit plan for certain benefits lost under such plans by reason of benefit limitations imposed by Sections 415 and 401 of the IRC There were approximately 246 000 244 000 and 241 000 in contributions made to and benefits paid under the BEP during each of the years ended June 30 2024 2023 and 2022 respectively
The Bank has an unfunded postretirement group term life insurance plan covering all eligible employees The benefits are based on age and years of service During the years ended June 30 2024 2023 and 2022 contributions and benefits paid totaled 13 000 13 000 and 12 000 respectively
The Bank has an unfunded retirement plan for non employee directors The benefits are payable based on term of service as a director In December 2015 the Board of Directors of the Bank approved freezing all future benefit accruals under the DCRP effective December 31 2015
On June 16 2021 the Bank approved the SERP effective as of July 1 2021 The SERP is a non qualified deferred compensation plan which provides participants with a retirement benefit equal to the present value of an annual benefit of 50 of the participant s highest annual base salary In December 2022 the Board of Directors of the Bank approved freezing all future benefit accruals under the SERP effective December 31 2022
At the Company s 2021 Annual Meeting of Stockholders held on October 28 2021 the stockholders approved the 2021 Plan which provides for the grant of stock options restricted stock and restricted stock units RSUs The 2021 Plan authorized the issuance of up to 7 500 000 shares the Share Limit provided however that the Share Limit is reduced on a one for one basis for each share of common stock subject to a stock option grant and on a three for one basis for each share of common stock issued pursuant to restricted stock awards or RSUs
During the years ended June 30 2024 and 2023 the Company granted 349 257 RSUs comprised of 255 062 service based RSUs and 94 195 performance based RSUs and 323 218 RSUs comprised of 238 121 service based RSUs and 85 097 performance based RSUs respectively The service based RSUs generally vest in three tranches over a period of 3 0 years and the performance based RSUs will cliff vest upon the achievement of performance measures over a three year period The total number of performance based RSUs that will vest if any will depend on whether and to what extent the performance measures are achieved Common stock will be issued from authorized shares upon the vesting of the RSUs At June 30 2024 there were 4 851 915 shares remaining available for future grants of stock options restricted stock or RSUs under the 2021 Plan subject to the limitations noted above
Stock options granted under the 2016 Plan vest in equal installments over a five year service period Stock options were granted at an exercise price equal to the fair value of the Company s common stock on the grant date based on the closing market price and have an expiration period of 10 years No stock options were granted during the years ended June 30 2024 2023 and 2022
Restricted shares awarded under the 2016 Plan generally vest in equal installments over a five year service period In addition to the requisite service period the vesting of certain restricted shares awarded to management are also conditioned upon the achievement of one or more objective performance factors established by the Compensation Committee of the Company s Board of Directors In accordance with the terms of the 2016 Plan such factors may be based on the performance of the Company as a whole or on any one or more business units of the Company or its subsidiaries Performance factors may be measured relative to a peer group an index or certain financial targets established in the Company s strategic business plan and budget
The performance factors and underlying cost basis of the remaining unvested performance based restricted shares are generally expected to be determined annually concurrent with the anniversary date of the original grants
For service based awards management recognizes compensation expense for the fair value of restricted shares on a straight line basis over the requisite service period For performance vesting awards management recognizes compensation expense for the fair
value of restricted shares on a straight line basis over the requisite service period however if the corporate performance goals to which the vesting of such shares are tied are not achieved recognized compensation expense is adjusted accordingly
During the years ended June 30 2024 2023 and 2022 the total fair value of vested restricted shares were 767 000 767 000 and 4 3 million respectively Expected future compensation expense relating to the 21 486 non vested restricted shares at June 30 2024 is 193 000 over a weighted average period of 1 9 years
RSUs awarded under the 2021 Plan generally vest in equal installments over a specified service period In addition to the requisite service period the vesting of certain RSUs are also conditioned upon the achievement of one or more objective performance measures established by the Compensation Committee of the Company s Board of Directors In accordance with the terms of the 2021 Plan such measures may be based on the performance of the Company as a whole or on any one or more business units of the Company or its subsidiaries Performance measures may be measured relative to a peer group an index or certain financial targets established in the Company s strategic business plan and budget
For service based RSUs the Company recognizes compensation expense for the fair value of RSUs on a straight line basis over the requisite service period of each tranche For performance based RSUs the Company recognizes compensation expense for the fair value of RSUs on a straight line basis over the requisite service period however the compensation will be adjusted accordingly based on the achievement of the performance measures
The Bank and the Company are subject to various regulatory capital requirements administered by federal banking agencies Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that if undertaken could have a direct material effect on the Company s consolidated financial statements Under capital adequacy guidelines and the regulatory framework for prompt corrective action the Bank and consolidated Company must meet specific capital guidelines that involve quantitative measures of their respective assets liabilities and certain off balance sheet items as calculated under regulatory accounting practices The Bank s and consolidated Company s capital amounts and classification are also subject to qualitative judgments by the regulators about components risk weighting and other factors
The minimum capital level requirements applicable to both the Bank and the consolidated Company include i a common equity Tier 1 capital ratio of 4 5 ii a Tier 1 capital ratio of 6 iii a total capital ratio of 8 and iv a Tier 1 leverage ratio of 4 for all institutions The Bank and the consolidated Company are also required to maintain a capital conservation buffer of 2 5 above the regulatory minimum capital ratios which results in the following minimum ratios i a common equity Tier 1 capital ratio of 7 0 ii a Tier 1 capital ratio of 8 5 and iii a total capital ratio of 10 5 An institution will be subject to limitations on paying dividends engaging in share repurchases and paying discretionary bonuses if its capital level falls below the buffer amount These limitations will establish a maximum percentage of eligible retained income that could be utilized for such actions
At June 30 2024 and 2023 the regulatory capital ratios of both the Company and the Bank were in excess of the levels required by federal banking regulators to be classified as well capitalized under regulatory guidelines
Federal banking regulators impose various restrictions or requirements on the ability of savings institutions to make capital distributions including cash dividends A savings institution that is a subsidiary of a savings and loan holding company such as the Bank must file an application or a notice with federal banking regulators at least 30 days before making a capital distribution A savings institution must file an application for prior approval of a capital distribution if i it is not eligible for expedited treatment under the applications processing rules of federal banking regulators ii the total amount of all capital distributions including the proposed capital distribution for the applicable calendar year would exceed an amount equal to the savings institution s net income for that year to date plus the institution s retained net income for the preceding two years iii it would not adequately be capitalized after the capital distribution or iv the distribution would violate an agreement with federal banking regulators or applicable regulations Federal banking regulators may disapprove a notice or deny an application for a capital distribution if i the savings institution would be undercapitalized following the capital distribution ii the proposed capital distribution raises safety and soundness concerns or iii the capital distribution would violate a prohibition contained in any statute regulation or agreement
During the fiscal year ended June 30 2024 an application for quarterly capital distributions from the Bank to the Company was approved by federal banking regulators The amount of dividends payable is based on 70 percent of quarterly net income of the Bank
During the years ended June 30 2024 2023 and 2022 dividends paid by the Bank to the Company in conjunction with quarterly capital distributions as discussed above totaled 19 3 million 26 3 million and 56 7 million respectively
During the year ended June 30 2024 the Company repurchased a total of 1 504 747 shares of its common stock at a total cost of 11 2 million or 7 40 per share On November 7 2023 the Company announced the completion of its ninth stock repurchase plan with a total of 4 000 000 shares repurchased at a cost of 34 9 million or 8 74 per share
The following table presents a reconciliation between the reported income taxes for the periods presented and the income taxes which would be computed by applying the federal income tax rates applicable to those periods The federal income tax rate of 21 was applicable for the years ended June 30 2024 2023 and 2022
pursuant to the IRC for which income taxes have not been provided If such amount is used for purposes other than to absorb bad debts including distributions in liquidation it will be subject to income tax at the then current rate
A tax position is recognized if it is more likely than not based on the technical merits that the tax position will be realized or sustained upon examination The term more likely than not means a likelihood of more than 50 percent the terms examined and upon examination also include resolution of the related appeals or litigation process if any A tax position that meets the more likely than not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater
than 50 percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information The determination of whether or not a tax position has met the more likely than not recognition threshold considers the facts circumstances and information available at the reporting date and is subject to management s judgment
Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the carryover period A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized In assessing the need for a valuation allowance management considers the scheduled reversal of the deferred tax liabilities the level of historical taxable income and the projected future taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible Based on its assessments as of June 30 2024 and 2023 the Company determined it is more likely than not that all deferred tax assets will be realized
The Company and its subsidiaries are subject to U S federal income tax as well as income tax of the state of New Jersey and various other states The Company is generally no longer subject to examination by federal state and local taxing authorities for tax years prior to June 30 2021
The Bank is a party to financial instruments with off balance sheet risk in the normal course of business to meet the financing needs of its customers These financial instruments include commitments to extend credit These transactions involve elements of credit and interest rate risk in excess of the amounts recognized in the Consolidated Statements of Financial Condition The Bank s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments The Bank uses the same credit policies in making commitments and conditional obligations as it does for on balance sheet instruments
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee Since many of the commitments are expected to expire without being drawn upon the total commitment amounts do not necessarily represent future cash requirements The Bank evaluates each customer s creditworthiness on a case by case basis The amount of collateral obtained if deemed necessary by the Bank upon extension of credit is based on management s credit evaluation of the borrower At June 30 2024 and 2023 the Bank had 280 9 million and 251 2 million in commitments to originate loans including unused lines of credit
The Bank is party to standby letters of credit through which it guarantees certain specific business obligations of its commercial customers The balance of standby letters of credit at June 30 2024 and 2023 were approximately 160 000 and 115 000 respectively
In addition to the commitments noted above at June 30 2024 the Company s pipeline of loans held for sale included 16 0 million of in process loans whose terms included interest rate locks to borrowers that were paired with a best efforts commitment to sell the loan to a buyer at a fixed price within a predetermined timeframe after the sale commitment is established
The Company and subsidiaries are also party to litigation which arises primarily in the ordinary course of business In the opinion of management the ultimate disposition of such litigation should not have a material adverse effect on the consolidated financial position of the Company
Fair value is the exchange price that would be received for an asset or paid to transfer a liability exit price in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date There are three levels of inputs that may be used to measure fair values
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability either directly or indirectly These might include quoted prices for similar assets or liabilities in active markets quoted prices for identical or similar assets or liabilities in markets that are not active inputs other than quoted prices that are observable for the asset or liability or inputs that are derived principally from or corroborated by market data by correlation or other means
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities Level 3 assets and liabilities include financial instruments whose value is determined using pricing models discounted cash flow methodologies or similar techniques as well as instruments for which the determination of fair value requires significant management judgment or estimation
The Company s available for sale investment securities are reported at fair value utilizing Level 2 inputs For these securities the Company obtains fair value measurements from an independent pricing service The fair value measurements consider observable data that may include dealer quotes market spreads cash flows the U S Treasury yield curve live trading levels trade execution data market consensus prepayment speeds credit information and the securities terms and conditions among other things From time to time the Company validates prices supplied by the independent pricing service by comparison to prices obtained from third party sources or derived using internal models
The Company has contracted with a third party vendor to provide periodic valuations for its interest rate derivatives to determine the fair value of its interest rate caps and swaps The vendor utilizes standard valuation methodologies applicable to interest rate derivatives such as discounted cash flow analysis and extensions of the Black Scholes model Such valuations are based upon readily observable market data and are therefore considered Level 2 valuations by the Company
The fair value of collateral dependent loans that are individually analyzed is determined based upon the appraised fair value of the underlying collateral less costs to sell Such collateral primarily consists of real estate and to a lesser extent other business assets Management may also adjust appraised values to reflect estimated changes in market values or apply other adjustments to appraised values resulting from its knowledge of the collateral Internal valuations may be utilized to determine the fair value of other business assets For non collateral dependent loans management estimates fair value using discounted cash flows based on inputs that are largely unobservable and instead reflect management s own estimates of the assumptions as a market participant would in pricing such loans Individually analyzed collateral dependent loans are considered a Level 3 valuation by the Company
Other real estate owned is recorded at estimated fair value less estimated selling costs when acquired thus establishing a new cost basis Fair value is generally based on independent appraisals These appraisals include adjustments to comparable assets based on the appraisers market knowledge and experience When an asset is acquired the excess of the loan balance over fair value less estimated selling costs is charged to the allowance for credit losses If further declines in the estimated fair value of the asset occur a write down is recorded through expense The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions
The following table presents additional quantitative information about assets measured at fair value on a non recurring basis and for which the Company has utilized adjusted Level 3 inputs to determine fair value
2 The fair value basis of collateral dependent loans and other real estate owned is adjusted to reflect management estimates of selling costs including but not limited to real estate brokerage commissions and title transfer fees
3 The fair value basis of other real estate owned is generally determined based upon the lower of an independent appraisal of the property s fair value or the applicable listing price or contracted sales price
At June 30 2024 collateral dependent loans valued using Level 3 inputs comprised loans with principal balance totaling 7 4 million and valuation allowance of 508 000 reflecting an aggregate fair value of 6 9 million By comparison at June 30 2023 collateral dependent loans valued using Level 3 inputs comprised loans with principal balance totaling 21 0 million and valuation allowances of 3 3 million reflecting an aggregate fair value of 17 7 million
Once a loan is foreclosed the fair value of the other real estate owned continues to be evaluated based upon the fair value of the repossessed real estate originally securing the loan At June 30 2024 the Company had no other real estate owned assets At June 30 2023 the Company held other real estate owned totaling 13 0 million whose carrying value was written down utilizing Level 3 inputs
The fair value of commitments to fund credit lines and originate or participate in loans held in portfolio or loans held for sale is estimated using fees currently charged to enter into similar agreements taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties For fixed rate loan commitments including those relating to loans held for sale that are considered derivative instruments for financial statement reporting purposes the fair value also considers the difference between current levels of interest and the committed rates The carrying value represented by the net deferred fee arising from the unrecognized commitment and the fair value determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk is not considered material for disclosure
Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire holdings of a particular financial instrument Because no fair value exists for a significant portion of the financial instruments fair value estimates are based on judgments regarding future expected loss experience current economic conditions risk characteristics of various financial instruments and other factors These estimates are subjective in nature involve uncertainties and matters of judgment and therefore cannot be determined with precision Changes in assumptions could significantly affect the estimates
The fair value estimates are based on existing on and off balance sheet financial instruments without attempting to value anticipated future business and the value of assets and liabilities that are not considered financial instruments Other significant assets and liabilities that are not considered financial assets and liabilities include premises and equipment and advances from borrowers for taxes and insurance In addition the ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates
Finally reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates which must be made given the absence of active secondary markets for many of the financial instruments This lack of uniform valuation methodologies introduces a greater degree of subjectivity to these estimated fair values
All of the Company s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income The following table presents the Company s sources of noninterest income for the years ended June 30 2024 2023 and 2022 Sources of revenue outside the scope of ASC 606 are noted as such
The Company earns fees from deposit customers for transaction based account maintenance and overdraft services Transaction based fees which include services such as ATM use fees stop payment charges statement rendering and ACH fees are recognized at the time the transaction is executed at the point in the time the Company fulfills the customer s request Account maintenance fees which relate primarily to monthly maintenance are earned over the course of a month representing the period over which the Company satisfies the performance obligation Overdraft fees are recognized at the point in time that the overdraft occurs Service charges on deposits are withdrawn from the customer s account balance
The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer which generally occurs at the time of an executed deed Gain Losses on the sales of OREO falls within the scope of ASC 606 if the Company finances the transaction Under ASC 606 if the Company finances the sale of OREO to the buyer the Company is required to assess whether the buyer is committed to perform their obligations under the contract and whether the collectability of the transaction price is probable Once these criteria are met the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer In determining the gain or loss on the sale the Company adjusts the transaction price and related loss gain on sale if a significant financing component is present
The Company earns interchange fees from debit and credit card holder transactions conducted through various payment networks Interchange fees from cardholder transactions are recognized daily concurrently with the transaction processing services provided by an outsourced technology solution
Kearny Financial Corp operates its wholly owned subsidiary Kearny Bank and the Bank s wholly owned subsidiaries CJB Investment Corp 189 245 Berdan Avenue LLC and Kearny Wealth Management LLC The consolidated earnings of the subsidiaries are recognized by the Company using the equity method of accounting Accordingly the consolidated earnings of the subsidiaries are recorded as increases in the Company s investment in the subsidiaries The following are the condensed financial statements for Kearny Financial Corp Parent Company only as of June 30 2024 and 2023 and for each of the years in the three year period ended June 30 2024
Basic EPS is based on the weighted average number of common shares actually outstanding including both vested and unvested restricted stock awards adjusted for ESOP shares not yet committed to be released Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock such as outstanding stock options or unvested RSUs were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company Diluted EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts or securities exercisable or which could be converted into common stock if dilutive using the treasury stock method Shares issued and reacquired during any period are weighted for the portion of the period they were outstanding
Stock options for 2 751 902 2 983 530 and 3 115 000 shares of common stock were not considered in computing diluted earnings per share at June 30 2024 2023 and 2022 respectively because they were considered anti dilutive In addition 689 252 and 497 664 RSUs were not considered in computing diluted earnings per share at June 30 2024 and 2023 respectively because they were considered anti dilutive
Pursuant to the requirements of Section 13 or 15 d of the Securities Exchange Act of 1934 the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized
Pursuant to the requirement of the Securities Exchange Act of 1934 this Report has been signed below by the following persons on August 23 2024 on behalf of the Registrant and in the capacities indicated

Company Name	Kearny Financial Corp. Vist SEC web-site
Category	SAVINGS INSTITUTION, FEDERALLY CHARTERED
Trading Symbol	KRNY