Kearny Financial Corp. - Quarter Report: 2022 December (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________

FORM 10-Q

__________________________________________

(Mark One)


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

For the quarterly period ended December 31, 2022


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

For the transition period from ________to

Commission File Number 001-37399

__________________________________________

KEARNY FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

__________________________________________


Maryland			30-0870244
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

120 Passaic Ave., Fairfield, New Jersey			07004
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code

973-244-4500

__________________________________________

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

KRNY

The NASDAQ Stock Market LLC

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

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

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

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: January 31, 2023.

$0.01 par value common stock — 67,378,274 shares outstanding

Index

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

INDEX


		Page Number
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Statements of Financial Condition at December 31, 2022 (Unaudited) and June 30, 2022	1

	Consolidated Statements of Income for the Three and Six Months Ended December 31, 2022 and December 31, 2021 (Unaudited)	2

	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31, 2022 and December 31, 2021 (Unaudited)	3

	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended December 31, 2022 and December 31, 2021 (Unaudited)	4

	Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2022 and December 31, 2021 (Unaudited)	6

	Notes to Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	49

Item 4.	Controls and Procedures	50

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51

Item 3.	Defaults Upon Senior Securities	51

Item 4.	Mine Safety Disclosures	51

Item 5.	Other Information	51

Item 6.	Exhibits	52

SIGNATURES		53

Index

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In Thousands, Except Share and Per Share Data)


	December 31, 2022		June 30, 2022
	(Unaudited)
Assets
Cash and amounts due from depository institutions	$	21,029	$	26,094
Interest-bearing deposits in other banks	54,631		75,521
Cash and cash equivalents	75,660		101,615
Investment securities available for sale (amortized cost of $1,437,195 and $1,462,124, respectively)	1,286,354		1,344,093
Investment securities held to maturity (fair value of $138,393 and $108,118, respectively)	153,786		118,291
Loans held-for-sale	12,940		28,874
Loans receivable	5,984,133		5,417,845
Less: allowance for credit losses on loans	(48,877)		(47,058)
Net loans receivable	5,935,256		5,370,787
Premises and equipment	50,953		53,281
Federal Home Loan Bank (“FHLB”) of New York stock	69,022		47,144
Accrued interest receivable	27,368		20,466
Goodwill	210,895		210,895
Core deposit intangibles	2,732		3,020
Bank owned life insurance	289,673		289,177
Deferred income tax assets, net	51,107		49,350
Other real estate owned	13,410		178
Other assets	110,162		82,712
Total Assets	$	8,289,318	$	7,719,883

Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest-bearing	$	650,950	$	653,899
Interest-bearing	5,320,421		5,208,357
Total deposits	5,971,371		5,862,256
Borrowings	1,383,573		901,337
Advance payments by borrowers for taxes	17,307		16,746
Other liabilities	44,427		45,544
Total Liabilities	7,416,678		6,825,883

Stockholders' Equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized; none issued and outstanding	—		—
Common stock, $0.01 par value; 800,000,000 shares authorized; 67,387,871 shares and 68,666,323 shares issued and outstanding, respectively	674		687
Paid-in capital	515,332		528,396
Retained earnings	449,489		445,451
Unearned employee stock ownership plan shares; 2,458,547 shares and 2,558,895 shares, respectively	(23,834)		(24,807)
Accumulated other comprehensive loss	(69,021)		(55,727)
Total Stockholders' Equity	872,640		894,000
Total Liabilities and Stockholders' Equity	$	8,289,318	$	7,719,883

See notes to unaudited consolidated financial statements.

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Index

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)

(Unaudited)


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Interest Income
Loans	$	57,996	$	47,575	$	110,931	$	95,805
Taxable investment securities	13,221		7,595		23,660		15,807
Tax-exempt investment securities	219		327		504		660
Other interest-earning assets	1,005		415		1,766		846
Total Interest Income	72,441		55,912		136,861		113,118

Interest Expense
Deposits	18,822		3,663		29,691		7,728
Borrowings	8,836		3,562		13,856		7,113
Total Interest Expense	27,658		7,225		43,547		14,841
Net Interest Income	44,783		48,687		93,314		98,277
Provision for (reversal of) credit losses	1,671		(2,420)		2,341		(7,820)
Net Interest Income after Provision for (Reversal of) Credit Losses	43,112		51,107		90,973		106,097

Non-Interest Income
Fees and service charges	734		698		1,497		1,305
(Loss) gain on sale and call of securities	(15,227)		—		(15,227)		1
Gain on sale of loans	134		970		529		1,976

Income from bank owned life insurance	1,761		1,562		5,459		3,123
Electronic banking fees and charges	397		421		903		828

Other income	3,723		482		4,278		700
Total Non-Interest Income	(8,478)		4,133		(2,561)		7,933

Non-Interest Expense
Salaries and employee benefits	19,921		18,096		40,269		36,713
Net occupancy expense of premises	2,987		3,156		6,077		7,703
Equipment and systems	3,867		3,723		7,529		7,548
Advertising and marketing	731		448		1,478		840
Federal deposit insurance premium	1,226		721		2,132		1,213
Directors' compensation	339		649		679		1,452


Other expense	3,579		2,877		6,474		6,004
Total Non-Interest Expense	32,650		29,670		64,638		61,473
Income before Income Taxes	1,984		25,570		23,774		52,557
Income tax expense	33		6,801		5,288		14,073
Net Income	$	1,951	$	18,769	$	18,486	$	38,484

Net Income per Common Share (EPS)
Basic	$	0.03	$	0.26	$	0.28	$	0.53
Diluted	$	0.03	$	0.26	$	0.28	$	0.53
Weighted Average Number of Common Shares Outstanding
Basic	65,030		72,011		65,383		73,274
Diluted	65,038		72,037		65,393		73,297

See notes to unaudited consolidated financial statements.

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Index

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands, Unaudited)


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
Net Income	$	1,951	$	18,769	$	18,486	$	38,484
Other Comprehensive Income (Loss), net of tax:
Net unrealized gain (loss) on securities available for sale	977		(5,451)		(34,202)		(10,432)
Net realized loss (gain) on sale and call of securities available for sale	10,811		—		10,811		(1)
Fair value adjustments on derivatives	(4,465)		4,675		10,125		5,840
Benefit plan adjustments	(4)		14		(28)		23
Total Other Comprehensive Income (Loss)	7,319		(762)		(13,294)		(4,570)
Total Comprehensive Income	$	9,270	$	18,007	$	5,192	$	33,914

See notes to unaudited consolidated financial statements.

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Index

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In Thousands, Except Per Share Data, Unaudited)


	Common Stock			Paid-In Capital		Retained Earnings		Unearned ESOP Shares		Accumulated Other Comprehensive Income		Total
	Shares	Amount
Balance - September 30, 2021	75,800	$	758	$	616,894	$	420,701	$	(26,266)	$	2,336	$	1,014,423
Net income	—	—		—		18,769		—		—		18,769
Other comprehensive loss, net of income tax	—	—		—		—		—		(762)		(762)
ESOP shares committed to be released (50 shares)	—	—		173		—		486		—		659

Share repurchases	(2,290)	(22)		(29,980)		—		—		—		(30,002)
Stock-based compensation expense	—	—		1,023		—		—		—		1,023
Cancellation of shares issued for restricted stock awards	(57)	(1)		(718)		—		—		—		(719)
Cash dividends declared ($0.11 per common share)	—	—		—		(7,921)		—		—		(7,921)
Balance - December 31, 2021	73,453	$	735	$	587,392	$	431,549	$	(25,780)	$	1,574	$	995,470


	Common Stock			Paid-In Capital		Retained Earnings		Unearned ESOP Shares		Accumulated Other Comprehensive Income		Total
	Shares	Amount
Balance - June 30, 2021	78,965	$	790	$	654,396	$	408,367	$	(26,753)	$	6,144	$	1,042,944
Net income	—	—		—		38,484		—		—		38,484
Other comprehensive loss, net of income tax	—	—		—		—		—		(4,570)		(4,570)
ESOP shares committed to be released (100 shares)	—	—		306		—		973		—		1,279

Stock repurchases	(5,448)	(54)		(68,944)		—		—		—		(68,998)
Stock-based compensation expense	—	—		2,441		—		—		—		2,441
Cancellation of shares issued for restricted stock awards	(64)	(1)		(807)		—		—		—		(808)
Cash dividends declared ($0.21 per common share)	—	—		—		(15,302)		—		—		(15,302)
Balance - December 31, 2021	73,453	$	735	$	587,392	$	431,549	$	(25,780)	$	1,574	$	995,470

See notes to unaudited consolidated financial statements.

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Index

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In Thousands, Except Per Share Data, Unaudited)


	Common Stock			Paid-In Capital		Retained Earnings		Unearned ESOP Shares		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance - September 30, 2022	67,938	$	680	$	520,245	$	454,710	$	(24,321)	$	(76,340)	$	874,974
Net income	—	—		—		1,951		—		—		1,951
Other comprehensive income, net of income tax	—	—		—		—		—		7,319		7,319
ESOP shares committed to be released (50 shares)	—	—		16		—		487		—		503
Stock repurchases	(550)	(6)		(5,739)		—		—		—		(5,745)

Stock-based compensation expense	—	—		810		—		—		—		810

Cash dividends declared ($0.11 per common share)	—	—		—		(7,172)		—		—		(7,172)
Balance - December 31, 2022	67,388	$	674	$	515,332	$	449,489	$	(23,834)	$	(69,021)	$	872,640


	Common Stock			Paid-In Capital		Retained Earnings		Unearned ESOP Shares		Accumulated Other Comprehensive Loss		Total
	Shares	Amount
Balance - June 30, 2022	68,666	$	687	$	528,396	$	445,451	$	(24,807)	$	(55,727)	$	894,000
Net income	—	—		—		18,486		—		—		18,486
Other comprehensive loss, net of income tax	—	—		—		—		—		(13,294)		(13,294)
ESOP shares committed to be released (100 shares)	—	—		106		—		973		—		1,079
Stock repurchases	(1,310)	(14)		(14,424)		—		—		—		(14,438)
Issuance of stock under stock benefit plans	61	1		(1)		—		—		—		—
Stock-based compensation expense	—	—		1,596		—		—		—		1,596
Cancellation of shares issued for restricted stock awards	(29)	—		(341)		—		—		—		(341)
Cash dividends declared ($0.22 per common share)	—	—		—		(14,448)		—		—		(14,448)
Balance - December 31, 2022	67,388	$	674	$	515,332	$	449,489	$	(23,834)	$	(69,021)	$	872,640

See notes to unaudited consolidated financial statements.

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Index

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands, Unaudited)


	Six Months Ended December 31,
	2022		2021
Cash Flows from Operating Activities:
Net income	$	18,486	$	38,484
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment	2,931		2,999
Net accretion of yield adjustments	(3,352)		(3,108)
Deferred income taxes	3,536		5,484

Amortization of intangible assets	288		361
(Accretion) amortization of benefit plans’ unrecognized net (gain) loss	(39)		39
Provision for (reversal of) credit losses	2,341		(7,820)

Loans originated for sale	(56,456)		(127,458)
Proceeds from sale of mortgage loans held-for-sale	75,492		133,285
Gain on sale of mortgage loans held-for-sale, net	(474)		(1,884)
Realized loss (gain) on sale/call of investment securities available for sale	15,227		(1)

Realized gain on sale of loans receivable	(55)		(92)
Realized gain on disposition of premises and equipment	(2,886)		(356)
Increase in cash surrender value of bank owned life insurance	(5,459)		(3,123)
ESOP and stock-based compensation expense	2,675		3,720
(Increase) decrease in interest receivable	(6,902)		867
(Increase) decrease in other assets	(5,511)		4,391
Increase in interest payable	6,268		50
Decrease in other liabilities	(10,053)		(19,319)
Net Cash Provided by Operating Activities	36,057		26,519

Cash Flows from Investing Activities:
Purchases of:
Investment securities available for sale	(166,483)		(140,550)
Investment securities held to maturity	(40,398)		(16,162)
Proceeds from:
Repayments/calls/maturities of investment securities available for sale	70,793		209,742
Repayments/calls/maturities of investment securities held to maturity	4,855		1,086
Sales of investment securities available for sale	105,199		—
Purchase of loans	(656)		(72,345)
Net (increase) decrease in loans receivable	(583,893)		98,554
Proceeds from sale of loans receivable	706		1,126
Purchase of interest rate contracts	(758)		—

Additions to premises and equipment	(668)		(728)
Proceeds from death benefit of bank owned life insurance	4,963		—
Proceeds from cash settlement of premises and equipment	3,480		599
Purchase of FHLB stock	(64,638)		(7)
Redemption of FHLB stock	42,760		—

Net Cash (Used in) Provided by Investing Activities	(624,738)		81,315

See notes to unaudited consolidated financial statements.

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Index

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands, Unaudited)


	Six Months Ended December 31,
	2022		2021
Cash Flows from Financing Activities:
Net increase (decrease) in deposits	109,294		(30,866)
Repayment of term FHLB advances	(2,865,000)		(780,000)
Proceeds from term FHLB advances	3,470,000		780,000
Net decrease in other short-term borrowings	(123,000)		—
Net increase in advance payments by borrowers for taxes	561		1,020
Repurchase and cancellation of common stock of Kearny Financial Corp.	(14,438)		(68,998)
Cancellation of shares repurchased on vesting to pay taxes	(341)		(808)

Dividends paid	(14,350)		(15,585)
Net Cash Provided by (Used in) Financing Activities	562,726		(115,237)
Net Decrease in Cash and Cash Equivalents	(25,955)		(7,403)
Cash and Cash Equivalents - Beginning	101,615		67,855
Cash and Cash Equivalents - Ending	$	75,660	$	60,452

Supplemental Disclosures of Cash Flows Information:
Cash paid during the period for:
Income taxes, net of refunds	$	8,318	$	9,631
Interest	$	37,279	$	14,791

Non-cash investing and financing activities:
Acquisition of other real estate owned in settlement of loans	$	13,232	$	480
Transfers from loans receivable to loans receivable held-for-sale	$	2,628	$	—

See notes to unaudited consolidated financial statements.

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Index

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and Regulation S-X and do not include the information or footnotes necessary for a complete presentation of financial condition, income, comprehensive income, changes in stockholders’ equity and cash flows in conformity with GAAP. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the unaudited consolidated financial statements have been included. The results of operations for the three months and six months ended December 31, 2022 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other period.

The data in the Consolidated Statement of Financial Condition at June 30, 2022 was derived from the Company’s 2022 Annual Report on Form 10-K. That data, along with the interim unaudited financial information presented in the Consolidated Statements of Financial Condition, Income, Comprehensive Income, Changes in Stockholders’ Equity and Cash Flows should be read in conjunction with the audited consolidated financial statements, including the notes thereto, included in the Company’s 2022 Annual Report on Form 10-K.

The accounting and reporting policies of the Company conform to U.S. GAAP and to general practice within the financial services industry. A discussion of these policies can be found in Note 1, Summary of Significant Accounting Policies, included in the Company’s 2022 Annual Report on Form 10-K. There have been no material changes to the Company’s significant accounting policies since June 30, 2022.

2. SUBSEQUENT EVENTS

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

On January 26, 2023, the Company declared a quarterly cash dividend of $0.11 per share, payable on February 22, 2023 to stockholders of record as of February 8, 2023.

3. RECENT ACCOUNTING PRONOUNCEMENTS

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

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Index

Adoption of New Accounting Standards

In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848” that extends the period of time preparers can utilize the reference rate reform relief guidance. In 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” which provides optional guidance to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when LIBOR would cease being published. In 2021, the UK Financial Conduct Authority delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. For all entities, the amendments in ASU 2022-06 are effective upon issuance. The Company adopted this ASU on December 21, 2022 on a prospective basis; therefore, there was no impact to its consolidated financial statements upon adoption.

In March 2022, the FASB issued ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging - Portfolio Layer Method” which clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets. This ASU amends the guidance in ASU 2017-12 (released in August 2017) that, among other things, established the last-of-layer method to enable fair value hedge accounting for these portfolios to be more accessible. ASU 2022-01 expands the current last-of-layer method to allow multiple hedged layers of a single closed portfolio under this method. To reflect that expansion, the last-of-layer method is renamed the portfolio layer method. The scope of last-of-layer hedging will be expanded so that the portfolio layer method can be utilized for nonprepayable financial assets. In addition, ASU 2022-01 specifies eligible hedging instruments in a single-layer hedge, provides additional guidance on the accounting for and disclosure of hedge basis adjustments under the portfolio layer method, and specifies how hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio. For public business entities, the amendments in ASU 2022-01 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted on any date on or after the issuance of ASU 2022-01 for any entity that has adopted the amendments in ASU 2017-12 for the corresponding period. The Company adopted this ASU on July 1, 2022 on a prospective basis; therefore, there was no impact to its consolidated financial statements upon adoption.

4. SECURITIES

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


	December 31, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(In Thousands)
Available for sale:
Debt securities:

Asset-backed securities	$	161,509	$	—	$	2,886	$	—	$	158,623
Collateralized loan obligations	393,027		31		8,999		—		384,059
Corporate bonds	159,769		3		14,817		—		144,955
Total debt securities	714,305		34		26,702		—		687,637

Mortgage-backed securities:

Residential pass-through securities (1)	557,294		8		107,146		—		450,156
Commercial pass-through securities (1)	165,596		—		17,035		—		148,561
Total mortgage-backed securities	722,890		8		124,181		—		598,717

Total securities available for sale	$	1,437,195	$	42	$	150,883	$	—	$	1,286,354

___________________________

(1)Government-sponsored enterprises.

- 9 -

Index


	June 30, 2022
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Fair Value
	(In Thousands)
Available for sale:
Debt securities:
Obligations of state and political subdivisions	$	28,485	$	39	$	89	$	—	$	28,435
Asset-backed securities	169,506		—		2,949		—		166,557
Collateralized loan obligations	315,693		—		7,880		—		307,813
Corporate bonds	159,871		175		6,649		—		153,397
Total debt securities	673,555		214		17,567		—		656,202

Mortgage-backed securities:
Collateralized mortgage obligations (1)	7,451		—		329		—		7,122
Residential pass-through securities (1)	595,337		45		80,624		—		514,758
Commercial pass-through securities (1)	185,781		1		19,771		—		166,011
Total mortgage-backed securities	788,569		46		100,724		—		687,891

Total securities available for sale	$	1,462,124	$	260	$	118,291	$	—	$	1,344,093

___________________________

(1)Government-sponsored enterprises.


	December 31, 2022
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Allowance for Credit Losses		Fair Value
	(In Thousands)
Held to maturity:
Debt securities:
Obligations of state and political subdivisions	$	18,806	$	—	$	285	$	—	$	18,521
Total debt securities	18,806		—		285		—		18,521

Mortgage-backed securities:
Residential pass-through securities (1)	122,715		—		12,898		—		109,817
Commercial pass-through securities (1)	12,265		—		2,210		—		10,055
Total mortgage-backed securities	134,980		—		15,108		—		119,872

Total securities held to maturity	$	153,786	$	—	$	15,393	$	—	$	138,393

___________________________

(1)Government-sponsored enterprises.

- 10 -

Index


	June 30, 2022
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Allowance for Credit Losses		Fair Value
	(In Thousands)
Held to maturity:
Debt securities:
Obligations of state and political subdivisions	$	21,159	$	44	$	78	$	—	$	21,125
Total debt securities	21,159		44		78		—		21,125

Mortgage-backed securities:
Residential pass-through securities (1)	84,851		—		8,587		—		76,264
Commercial pass-through securities (1)	12,281		—		1,552		—		10,729
Total mortgage-backed securities	97,132		—		10,139		—		86,993

Total securities held to maturity	$	118,291	$	44	$	10,217	$	—	$	108,118

___________________________

(1)Government-sponsored enterprises.

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


	December 31, 2022
	Amortized Cost		Fair Value
	(In Thousands)
Available for sale debt securities:
Due in one year or less	$	—	$	—
Due after one year through five years	11,865		11,783
Due after five years through ten years	342,467		326,847
Due after ten years	359,973		349,007
Total	$	714,305	$	687,637


	December 31, 2022
	Amortized Cost		Fair Value
	(In Thousands)
Held to maturity debt securities:
Due in one year or less	$	4,160	$	4,143
Due after one year through five years	12,946		12,713
Due after five years through ten years	1,700		1,665
Due after ten years	—		—
Total	$	18,806	$	18,521

- 11 -

Index

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


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
	(In Thousands)
Available for sale securities sold:
Proceeds from sales of securities	$	105,199	$	—	$	105,199	$	—

Gross realized gains	$	—	$	—	$	—	$	—
Gross realized losses	(15,227)		—		(15,227)		—
Net loss on sales of securities	$	(15,227)	$	—	$	(15,227)	$	—

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


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
	(In Thousands)
Available for sale securities called:
Gross realized gains	$	—	$	—	$	—	$	1
Gross realized losses	—		—		—		—
Net gain on calls of securities	$	—	$	—	$	—	$	1

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


	December 31, 2022		June 30, 2022
	(In Thousands)
Securities pledged:
Pledged for borrowings at the FHLB of New York	$	—	$	178,048
Pledged to secure public funds on deposit	397,855		357,841
Pledged for potential borrowings at the Federal Reserve Bank of New York	410,481		378,071
Total carrying value of securities pledged	$	808,336	$	913,960

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 December 31, 2022 and June 30, 2022:


	December 31, 2022
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
	(Dollars in Thousands)
Securities Available for Sale:

Asset-backed securities	$	137,203	$	2,406	$	21,420	$	480	15	$	158,623	$	2,886
Collateralized loan obligations	177,907		3,631		192,556		5,368		28	370,463		8,999
Corporate bonds	87,731		7,972		50,356		6,845		29	138,087		14,817

Commercial pass-through securities	93,772		4,262		54,789		12,773		12	148,561		17,035
Residential pass-through securities	50,897		5,161		398,511		101,985		106	449,408		107,146
Total	$	547,510	$	23,432	$	717,632	$	127,451	190	$	1,265,142	$	150,883

- 12 -

Index


	June 30, 2022
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
	(Dollars in Thousands)
Securities Available for Sale:
Obligations of state and political subdivisions	$	11,310	$	89	$	—	$	—	30	$	11,310	$	89
Asset-backed securities	161,303		2,928		5,254		21		15	166,557		2,949
Collateralized loan obligations	236,967		6,435		70,846		1,445		24	307,813		7,880
Corporate bonds	129,407		6,464		3,815		185		27	133,222		6,649
Collateralized mortgage obligations	7,122		329		—		—		6	7,122		329
Commercial pass-through securities	63,045		3,194		102,817		16,577		21	165,862		19,771
Residential pass-through securities	237,928		26,566		274,197		54,058		106	512,125		80,624
Total	$	847,082	$	46,005	$	456,929	$	72,286	229	$	1,304,011	$	118,291

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 December 31, 2022 and June 30, 2022:


	December 31, 2022
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Number of Securities	Fair Value		Unrecognized Losses
	(Dollars in Thousands)
Securities Held to Maturity:
Obligations of state and political subdivisions	$	18,057	$	285	$	—	$	—	36	$	18,057	$	285
Commercial pass-through securities	—		—		10,055		2,210		1	10,055		2,210
Residential pass-through securities	93,068		9,092		16,749		3,806		9	109,817		12,898

Total	$	111,125	$	9,377	$	26,804	$	6,016	46	$	137,929	$	15,393


	June 30, 2022
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrecognized Losses		Fair Value		Unrecognized Losses		Number of Securities	Fair Value		Unrecognized Losses
	(Dollars in Thousands)
Securities Held to Maturity:
Obligations of state and political subdivisions	$	8,681	$	78	$	—	$	—	15	$	8,681	$	78
Commercial pass-through securities	10,729		1,552		—		—		1	10,729		1,552
Residential pass-through securities	76,264		8,587		—		—		8	76,264		8,587

Total	$	95,674	$	10,217	$	—	$	—	24	$	95,674	$	10,217

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

- 13 -

Index

The sale of available for sale securities during the three months ended December 31, 2022 was part of a wholesale restructuring and the proceeds were reinvested in higher yielding securities. The Company was not required to sell these securities.

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

5. LOANS RECEIVABLE

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


	December 31, 2022		June 30, 2022
	(In Thousands)
Commercial loans:
Multi-family mortgage	$	2,851,721	$	2,409,090
Nonresidential mortgage	1,017,341		1,019,838
Commercial business	177,530		176,807
Construction	186,663		140,131
Total commercial loans	4,233,255		3,745,866

One- to four-family residential mortgage	1,719,514		1,645,816

Consumer loans:
Home equity loans	45,690		42,028
Other consumer	2,648		2,866
Total consumer loans	48,338		44,894

Total loans	6,001,107		5,436,576

Unaccreted yield adjustments (1)	(16,974)		(18,731)

Total loans receivable, net of yield adjustments	$	5,984,133	$	5,417,845

___________________________

(1)At December 31, 2022, included a fair value adjustment to the carrying amount of hedged one- to four-family residential mortgage loans.

Past Due Loans

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


	Payment Status December 31, 2022
	30-59 Days		60-89 Days		90 Days and Over		Total Past Due		Current		Total
	(In Thousands)
Multi-family mortgage	$	—	$	—	$	7,663	$	7,663	$	2,844,058	$	2,851,721
Nonresidential mortgage	204		—		5,696		5,900		1,011,441		1,017,341
Commercial business	204		—		265		469		177,061		177,530
Construction	—		—		—		—		186,663		186,663
One- to four-family residential mortgage	3,634		1,775		1,979		7,388		1,712,126		1,719,514
Home equity loans	151		4		23		178		45,512		45,690
Other consumer	—		—		—		—		2,648		2,648
Total loans	$	4,193	$	1,779	$	15,626	$	21,598	$	5,979,509	$	6,001,107

- 14 -

Index


	Payment Status June 30, 2022
	30-59 Days		60-89 Days		90 Days and Over		Total Past Due		Current		Total
	(In Thousands)
Multi-family mortgage	$	3,148	$	3,056	$	7,788	$	13,992	$	2,395,098	$	2,409,090
Nonresidential mortgage	4,026		—		18,132		22,158		997,680		1,019,838
Commercial business	98		57		155		310		176,497		176,807
Construction	—		—		—		—		140,131		140,131
One- to four-family residential mortgage	1,525		253		3,455		5,233		1,640,583		1,645,816
Home equity loans	28		35		—		63		41,965		42,028
Other consumer	—		—		—		—		2,866		2,866
Total loans	$	8,825	$	3,401	$	29,530	$	41,756	$	5,394,820	$	5,436,576

Nonperforming Loans

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

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


	Performance Status December 31, 2022
	90 Days and Over Past Due Accruing		Nonaccrual Loans with Allowance for Credit Losses		Nonaccrual Loans with no Allowance for Credit Losses		Total Nonperforming		Performing		Total
	(In Thousands)
Multi-family mortgage	$	—	$	7,890	$	8,381	$	16,271	$	2,835,450	$	2,851,721
Nonresidential mortgage	—		12,187		5,696		17,883		999,458		1,017,341
Commercial business	—		262		10		272		177,258		177,530
Construction	—		—		—		—		186,663		186,663
One- to four-family residential mortgage	—		2,916		3,121		6,037		1,713,477		1,719,514
Home equity loans	—		—		86		86		45,604		45,690
Other consumer	—		—		—		—		2,648		2,648
Total loans	$	—	$	23,255	$	17,294	$	40,549	$	5,960,558	$	6,001,107

- 15 -

Index


	Performance Status June 30, 2022
	90 Days and Over Past Due Accruing		Nonaccrual Loans with Allowance for Credit Losses		Nonaccrual Loans with no Allowance for Credit Losses		Total Nonperforming		Performing		Total
	(In Thousands)
Multi-family mortgage	$	—	$	8,367	$	18,286	$	26,653	$	2,382,437	$	2,409,090
Nonresidential mortgage	—		12,602		19,292		31,894		987,944		1,019,838
Commercial business	—		212		81		293		176,514		176,807
Construction	—		—		1,561		1,561		138,570		140,131
One- to four-family residential mortgage	—		3,543		4,946		8,489		1,637,327		1,645,816
Home equity loans	—		302		1,129		1,431		40,597		42,028
Other consumer	—		—		—		—		2,866		2,866
Total loans	$	—	$	25,026	$	45,295	$	70,321	$	5,366,255	$	5,436,576

Troubled Debt Restructurings (“TDRs”)

TDRs are loans where the Company has modified the contractual terms of the loan as a result of the financial condition of the borrower. Subsequent to their modification, TDRs are placed on non-accrual until such time as satisfactory payment performance has been demonstrated, at which time the loan may be returned to accrual status. On a case-by-case basis, the Company may agree to modify the contractual terms of a loan to assist a borrower who may be experiencing financial difficulty, as well as to preserve the Company’s position in the loan. If the borrower is experiencing financial difficulties and a concession has been made at the time of such modification, the loan is classified as a TDR. The Company had TDRs totaling $18.4 million and $22.2 million as of December 31, 2022 and June 30, 2022, respectively. The allowance for credit losses associated with the TDRs presented in the tables below totaled $331,000 and $365,000 as of December 31, 2022 and June 30, 2022, respectively. As of December 31, 2022, the Company had commitments to lend additional funds totaling $69,000 to borrowers whose loans had been restructured in a TDR.

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


	December 31, 2022
	Accrual			Non-accrual			Total
	# of Loans	Amount		# of Loans	Amount		# of Loans	Amount
	(Dollars In Thousands)
Commercial loans:
Multi-family mortgage	—	$	—	2	$	5,539	2	$	5,539
Nonresidential mortgage	3	184		1	390		4	574
Commercial business	4	3,529		1	7		5	3,536

Total commercial loans	7	3,713		4	5,936		11	9,649

One- to four-family residential mortgage	35	6,394		11	1,921		46	8,315

Consumer loans:
Home equity loans	5	374		1	35		6	409
Total	47	$	10,481	16	$	7,892	63	$	18,373

- 16 -

Index


	June 30, 2022
	Accrual			Non-accrual			Total
	# of Loans	Amount		# of Loans	Amount		# of Loans	Amount
	(Dollars In Thousands)
Commercial loans:
Multi-family mortgage	—	$	—	2	$	5,626	2	$	5,626
Nonresidential mortgage	4	389		2	1,565		6	1,954
Commercial business	5	3,631		2	82		7	3,713
Construction	—	—		1	1,561		1	1,561
Total commercial loans	9	4,020		7	8,834		16	12,854

One- to four-family residential mortgage	29	4,488		16	3,314		45	7,802

Consumer loans:
Home equity loans	5	164		2	1,364		7	1,528
Total	43	$	8,672	25	$	13,512	68	$	22,184

The following tables present information regarding TDRs that occurred during the three months and six months ended December 31, 2022 and 2021:


	Three Months Ended December 31, 2022					Three Months Ended December 31, 2021
	# of Loans	Pre- modification Recorded Investment		Post- modification Recorded Investment		# of Loans	Pre- modification Recorded Investment		Post- modification Recorded Investment
	(Dollars In Thousands)

Commercial business	1	$	7	$	7	—	$	—	$	—
One- to four-family residential mortgage	1	273		270		2	261		261

Total	2	$	280	$	277	2	$	261	$	261


	Six Months Ended December 31, 2022					Six Months Ended December 31, 2021
	# of Loans	Pre- modification Recorded Investment		Post- modification Recorded Investment		# of Loans	Pre- modification Recorded Investment		Post- modification Recorded Investment
	(Dollars In Thousands)
Multi-family mortgage	—	$	—	$	—	1	$	2,987	$	2,972
Commercial business	1	7		7		—	—		—
One- to four-family residential mortgage	2	708		705		2	261		261
Home equity loans	1	35		35		—	—		—
Total	4	$	750	$	747	3	$	3,248	$	3,233

During the three months and six months ended December 31, 2022, there were charge-offs of $5,000 and $15,000, respectively, related to TDRs. During the three months and six months ended December 31, 2021, there were no charge-offs related to TDRs. During the three months and six months ended December 31, 2022, there were two TDR defaults totaling $170,000. During the three months and six months ended December 31, 2021, there were no defaults of TDRs.

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

- 17 -

Index

Individually Analyzed Loans

Individually analyzed loans include loans which do not share similar risk characteristics with other loans. TDRs will generally be evaluated for individual impairment, however, after a period of sustained repayment performance which permits the credit to be returned to accrual status, a TDR would generally be removed from individual impairment analysis and returned to its corresponding pool. As of December 31, 2022, the carrying value of individually analyzed loans, including loans acquired with deteriorated credit quality that were individually analyzed, totaled $40.5 million, of which $36.9 million were considered collateral dependent.

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

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


	December 31, 2022				June 30, 2022
	Carrying Value		Related Allowance		Carrying Value		Related Allowance
	(In Thousands)
Commercial loans:
Multi-family mortgage	$	16,271	$	352	$	26,653	$	849
Nonresidential mortgage (1)	17,529		2,392		30,733		2,696

Construction	—		—		1,561		—
Total commercial loans	33,800		2,744		58,947		3,545

One- to four-family residential mortgage (2)	3,082		26		4,305		77

Consumer loans:
Home equity loans (2)	—		—		35		—

Total	$	36,882	$	2,770	$	63,287	$	3,622

___________________________

(1)Secured by income-producing nonresidential property.

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

Credit Quality Indicators

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

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

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

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

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

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

- 18 -

Index

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


	Term Loans by Origination Year for Fiscal Years ended June 30,
	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
	(In Thousands)
Multi-family mortgage:
Pass	$	593,864	$	957,401	$	246,580	$	202,298	$	246,991	$	562,005	$	—	$	2,809,139
Special Mention	—		—		—		—		6,091		7,445		—		13,536
Substandard	—		—		—		—		9,545		19,501		—		29,046
Doubtful	—		—		—		—		—		—		—		—
Total multi-family mortgage	593,864		957,401		246,580		202,298		262,627		588,951		—		2,851,721
Nonresidential mortgage:
Pass	96,016		229,684		85,982		53,084		59,951		462,184		6,000		992,901
Special Mention	—		—		—		—		—		579		—		579
Substandard	—		—		714		—		931		22,216		—		23,861
Doubtful	—		—		—		—		—		—		—		—
Total nonresidential mortgage	96,016		229,684		86,696		53,084		60,882		484,979		6,000		1,017,341
Commercial business:
Pass	11,522		37,850		35,453		9,529		2,540		9,968		65,504		172,366
Special Mention	—		—		—		55		180		2,898		—		3,133
Substandard	—		—		35		473		48		1,371		104		2,031
Doubtful	—		—		—		—		—		—		—		—
Total commercial business	11,522		37,850		35,488		10,057		2,768		14,237		65,608		177,530
Construction loans:
Pass	13,628		27,363		117,830		11,854		3,000		7,253		5,735		186,663
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—
Total construction loans	13,628		27,363		117,830		11,854		3,000		7,253		5,735		186,663
Residential mortgage:
Pass	151,323		463,800		506,856		83,231		47,554		453,552		—		1,706,316
Special Mention	—		—		—		—		1,184		493		—		1,677
Substandard	—		270		—		—		82		11,169		—		11,521
Doubtful	—		—		—		—		—		—		—		—
Total residential mortgage	151,323		464,070		506,856		83,231		48,820		465,214		—		1,719,514
Home equity loans:
Pass	7,560		2,794		658		1,439		2,665		8,221		21,752		45,089
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		116		358		127		601
Doubtful	—		—		—		—		—		—		—		—
Total home equity loans	7,560		2,794		658		1,439		2,781		8,579		21,879		45,690
Other consumer loans
Pass	232		287		171		457		335		1,041		41		2,564
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		84		84
Other consumer loans	232		287		171		457		335		1,041		125		2,648
Total loans	$	874,145	$	1,719,449	$	994,279	$	362,420	$	381,213	$	1,570,254	$	99,347	$	6,001,107

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Index

The following table presents the risk category of loans as of June 30, 2022 by loan segment and vintage year:


	Term Loans by Origination Year for Fiscal Years ended June 30,
	2022		2021		2020		2019		2018		Prior		Revolving Loans		Total
	(In Thousands)
Multi-family mortgage:
Pass	$	963,263	$	250,385	$	211,101	$	264,174	$	248,058	$	438,642	$	—	$	2,375,623
Special Mention	—		—		—		—		—		6,814		—		6,814
Substandard	—		—		—		9,821		5,935		10,897		—		26,653
Doubtful	—		—		—		—		—		—		—		—
Total multi-family mortgage	963,263		250,385		211,101		273,995		253,993		456,353		—		2,409,090
Nonresidential mortgage:
Pass	231,777		87,309		53,983		60,714		49,285		491,849		6,052		980,969
Special Mention	—		—		—		—		—		591		—		591
Substandard	—		720		—		933		4,026		32,599		—		38,278
Doubtful	—		—		—		—		—		—		—		—
Total nonresidential mortgage	231,777		88,029		53,983		61,647		53,311		525,039		6,052		1,019,838
Commercial business:
Pass	46,888		38,791		12,155		3,581		4,861		6,455		58,662		171,393
Special Mention	—		—		62		186		2,173		873		215		3,509
Substandard	—		38		319		—		1,347		61		58		1,823
Doubtful	—		—		—		—		—		80		2		82
Total commercial business	46,888		38,829		12,536		3,767		8,381		7,469		58,937		176,807
Construction loans:
Pass	16,407		95,526		10,337		3,039		6,509		1,017		5,735		138,570
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		1,561		—		1,561
Doubtful	—		—		—		—		—		—		—		—
Total construction loans	16,407		95,526		10,337		3,039		6,509		2,578		5,735		140,131
Residential mortgage:
Pass	472,160		524,163		88,645		49,316		55,139		442,517		374		1,632,314
Special Mention	—		—		—		1,205		—		621		—		1,826
Substandard	—		—		—		83		—		11,593		—		11,676
Doubtful	—		—		—		—		—		—		—		—
Total residential mortgage	472,160		524,163		88,645		50,604		55,139		454,731		374		1,645,816
Home equity loans:
Pass	3,197		692		1,681		3,117		2,027		7,321		22,334		40,369
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		120		—		1,539		—		1,659
Doubtful	—		—		—		—		—		—		—		—
Total home equity loans	3,197		692		1,681		3,237		2,027		8,860		22,334		42,028
Other consumer loans
Pass	442		308		471		375		258		895		34		2,783
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		83		83
Other consumer loans	442		308		471		375		258		895		117		2,866
Total loans	$	1,734,134	$	997,932	$	378,754	$	396,664	$	379,618	$	1,455,925	$	93,549	$	5,436,576

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Index

Mortgage Loans in Foreclosure

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 December 31, 2022, the Company held two single-family properties with an aggregate carrying value of $454,000 and one nonresidential property with a carrying value of $13.0 million in other real estate owned that were acquired through foreclosure on residential mortgage loans and a nonresidential mortgage loan, respectively. As of that same date, the Company held five residential mortgage loans with aggregate carrying values totaling $951,000 and six commercial mortgage loans with aggregate carrying values totaling $9.3 million which were in the process of foreclosure. As of June 30, 2022, the Company held one single-family property in other real estate owned with an aggregate carrying value of $178,000 that was acquired through a foreclosure on a residential mortgage loan. As of that same date, the Company held seven residential mortgage loans with aggregate carrying values totaling $1.5 million which were in the process of foreclosure.

6. ALLOWANCE FOR CREDIT LOSSES

Allowance for Credit Losses on Loans Receivable

The following tables present the balance of the allowance for credit losses at December 31, 2022 and June 30, 2022. The balance of the allowance for credit losses is based on an expected loss methodology, referred to as the “CECL” methodology. The tables identify the valuation allowances attributable to specifically identified impairments on individually analyzed loans, including those acquired with deteriorated credit quality, as well as valuation allowances for impairments on loans collectively evaluated. The tables include the underlying balance of loans receivable applicable to each category as of those dates.


	Allowance for Credit Losses December 31, 2022
	Loans acquired with deteriorated credit quality individually analyzed		Loans acquired with deteriorated credit quality collectively evaluated		Loans individually analyzed		Loans collectively evaluated		Total allowance for credit losses
	(In Thousands)
Multi-family mortgage	$	—	$	—	$	352	$	27,146	$	27,498
Nonresidential mortgage	—		80		2,392		6,121		8,593
Commercial business	—		5		17		1,797		1,819
Construction	—		—		—		1,201		1,201
One- to four-family residential mortgage	22		161		68		9,104		9,355
Home equity loans	—		—		—		339		339
Other consumer	—		—		—		72		72
Total loans	$	22	$	246	$	2,829	$	45,780	$	48,877


	Balance of Loans Receivable December 31, 2022
	Loans acquired with deteriorated credit quality individually analyzed		Loans acquired with deteriorated credit quality collectively evaluated		Loans individually analyzed		Loans collectively evaluated		Total loans
	(In Thousands)
Multi-family mortgage	$	—	$	—	$	16,271	$	2,835,450	$	2,851,721
Nonresidential mortgage	353		3,696		17,530		995,762		1,017,341
Commercial business	—		3,964		272		173,294		177,530
Construction	—		5,735		—		180,928		186,663
One- to four-family residential mortgage	385		5,019		5,652		1,708,458		1,719,514
Home equity loans	25		55		61		45,549		45,690
Other consumer	—		—		—		2,648		2,648
Total loans	$	763	$	18,469	$	39,786	$	5,942,089	$	6,001,107
Unaccreted yield adjustments									(16,974)
Loans receivable, net of yield adjustments									$	5,984,133

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Index


	Allowance for Credit Losses June 30, 2022
	Loans acquired with deteriorated credit quality individually analyzed		Loans acquired with deteriorated credit quality collectively evaluated		Loans individually analyzed		Loans collectively evaluated		Total allowance for credit losses
	(In Thousands)
Multi-family mortgage	$	—	$	—	$	849	$	24,472	$	25,321
Nonresidential mortgage	—		73		2,696		7,821		10,590
Commercial business	—		9		16		1,767		1,792
Construction	—		—		—		1,486		1,486
One- to four-family residential mortgage	—		229		148		7,163		7,540
Home equity loans	26		—		—		219		245
Other consumer	—		—		—		84		84
Total loans	$	26	$	311	$	3,709	$	43,012	$	47,058


	Balance of Loans Receivable June 30, 2022
	Loans acquired with deteriorated credit quality individually analyzed		Loans acquired with deteriorated credit quality collectively evaluated		Loans individually analyzed		Loans collectively evaluated		Total loans
	(In Thousands)
Multi-family mortgage	$	—	$	—	$	26,653	$	2,382,437	$	2,409,090
Nonresidential mortgage	377		5,033		31,517		982,911		1,019,838
Commercial business	—		1,267		293		175,247		176,807
Construction	—		5,735		1,561		132,835		140,131
One- to four-family residential mortgage	87		6,460		8,402		1,630,867		1,645,816
Home equity loans	329		58		1,102		40,539		42,028
Other consumer	—		—		—		2,866		2,866
Total loans	$	793	$	18,553	$	69,528	$	5,347,702	$	5,436,576
Unaccreted yield adjustments									(18,731)
Loans receivable, net of yield adjustments									$	5,417,845

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


	Changes in the Allowance for Credit Losses Three Months Ended December 31, 2022
	Balance at September 30, 2022		Charge-offs		Recoveries		Provision for (reversal of) credit losses		Balance at December 31, 2022
	(In Thousands)
Multi-family mortgage	$	26,246	$	(395)	$	—	$	1,647	$	27,498
Nonresidential mortgage	9,152		(5)		—		(554)		8,593
Commercial business	1,972		(15)		5		(143)		1,819
Construction	1,120		—		—		81		1,201
One- to four-family residential mortgage	8,801		—		—		554		9,355
Home equity loans	244		—		—		95		339
Other consumer	78		—		3		(9)		72
Total loans	$	47,613	$	(415)	$	8	$	1,671	$	48,877

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Index


	Changes in the Allowance for Credit Losses Six Months Ended December 31, 2022
	Balance at June 30, 2022		Charge-offs		Recoveries		Provision for (reversal of) credit losses		Balance at December 31, 2022
	(In Thousands)
Multi-family mortgage	$	25,321	$	(395)	$	—	$	2,572	$	27,498
Nonresidential mortgage	10,590		(15)		—		(1,982)		8,593
Commercial business	1,792		(133)		17		143		1,819
Construction	1,486		—		—		(285)		1,201
One- to four-family residential mortgage	7,540		—		—		1,815		9,355
Home equity loans	245		—		—		94		339
Other consumer	84		—		4		(16)		72
Total loans	$	47,058	$	(543)	$	21	$	2,341	$	48,877


	Changes in the Allowance for Credit Losses Three Months Ended December 31, 2021
	Balance at September 30, 2021		Charge-offs		Recoveries		Provision for (reversal of) credit losses		Balance at December 31, 2021
	(In Thousands)
Multi-family mortgage	$	24,982	$	—	$	—	$	813	$	25,795
Nonresidential mortgage	13,845		(1,284)		—		(2,483)		10,078
Commercial business	1,994		(15)		4		(80)		1,903
Construction	1,430		—		—		11		1,441
One- to four-family residential mortgage	9,129		—		145		(673)		8,601
Home equity loans	318		—		1		(11)		308
Other consumer	87		—		—		3		90
Total loans	$	51,785	$	(1,299)	$	150	$	(2,420)	$	48,216


	Changes in the Allowance for Credit Losses Six Months Ended December 31, 2021
	Balance at June 30, 2021		Charge-offs		Recoveries		(Reversal of) provision for credit losses		Balance at December 31, 2021
	(In Thousands)
Multi-family mortgage	$	28,450	$	(104)	$	—	$	(2,551)	$	25,795
Nonresidential mortgage	16,243		(2,097)		—		(4,068)		10,078
Commercial business	2,086		(175)		101		(109)		1,903
Construction	1,170		—		—		271		1,441
One- to four-family residential mortgage	9,747		—		147		(1,293)		8,601
Home equity loans	433		—		1		(126)		308
Other consumer	36		(2)		—		56		90
Total loans	$	58,165	$	(2,378)	$	249	$	(7,820)	$	48,216

Allowance for Credit Losses on Off Balance Sheet Commitments

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


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
	(In Thousands)				(In Thousands)
Balance at beginning of the period	$	753	$	1,584	$	1,041	$	1,708
Provision for (reversal of) credit losses	66		(436)		(222)		(560)
Balance at end of the period	$	819	$	1,148	$	819	$	1,148

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Index

7. DEPOSITS

Deposits at December 31, 2022 and June 30, 2022 are summarized as follows:


	December 31, 2022		June 30, 2022
	(In Thousands)
Non-interest-bearing demand	$	650,950	$	653,899
Interest-bearing demand	2,316,485		2,265,597
Savings	901,514		1,053,198
Certificates of deposits	2,102,422		1,889,562
Total deposits	$	5,971,371	$	5,862,256

8. BORROWINGS

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


	December 31, 2022		June 30, 2022
	(In Thousands)
FHLB advances	$	1,256,573	$	651,337
Overnight borrowings (1)	127,000		250,000
Total borrowings	$	1,383,573	$	901,337

___________________________

(1)At December 31, 2022 and June 30, 2022, represents FHLB overnight line of credit borrowings.

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


	December 31, 2022				June 30, 2022
	Balance		Weighted Average Interest Rate		Balance		Weighted Average Interest Rate
	(Dollars in Thousands)
By remaining period to maturity:
Less than one year	$	1,125,000	4.64	%	$	520,000	2.04	%
One to two years	103,500		2.65		22,500		2.63
Two to three years	29,000		2.77		103,500		2.68
Three to four years	—		—		6,500		2.82
Four to five years	—		—		—		—
Greater than five years	—		—		—		—
Total advances	1,257,500		4.43	%	652,500		2.17	%
Unamortized fair value adjustments	(927)				(1,163)
Total advances, net of fair value adjustments	$	1,256,573			$	651,337

At December 31, 2022, 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, 2022, FHLB advances and overnight line of credit borrowings were collateralized by the FHLB capital stock owned by the Bank and mortgage loans and securities with carrying values totaling approximately $3.58 billion and $178.0 million, respectively.

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Index

9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

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

Fair Values of Derivative Instruments on the Statement of Financial Condition

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

December 31, 2022

Asset Derivatives

Liability Derivatives

Location

Fair Value

Location

Fair Value

(In Thousands)

Derivatives designated as hedging instruments:

Interest rate contracts

Other assets

63,617

Other liabilities

2,500

Total

63,617

2,500

June 30, 2022

Asset Derivatives

Liability Derivatives

Location

Fair Value

Location

Fair Value

(In Thousands)

Derivatives designated as hedging instruments:

Interest rate contracts

Other assets

41,223

Other liabilities

—

Total

41,223

—

Cash Flow Hedges of Interest Rate Risk

The Company’s uses derivatives to add stability to interest expense and interest income and to manage its exposure to interest rate movements. 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 December 31, 2022, the Company had a total of 12 interest rate swaps and caps with a total notional amount of $1.33 billion hedging specific wholesale funding and one interest rate floor with a notional amount of $100.0 million hedging floating-rate available for sale securities.

For derivatives designated as cash flow hedges, the gain or loss on the derivative 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 three months and six months ended December 31, 2022, the Company reclassified $4.1 million and $5.7 million, respectively, as a reduction in interest expense. During the next twelve months, the Company estimates that $28.2 million will be reclassified as a reduction in interest expense.

For cash flow hedges on the Company’s assets, amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest income as interest payments are received on the Company’s hedged variable rate assets. During the three months and six months ended December 31, 2022, the Company did not reclassify any amount to interest income. During the next twelve months, the Company estimates that $81,000 will be reclassified as additional interest income.

- 25 -

Index

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 three months and six months ended December 31, 2022 and 2021:


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
	(In Thousands)
Amount of (loss) gain recognized in other comprehensive income	$	(2,183)	$	5,110	$	19,987	$	5,264
Amount of gain (loss) reclassified from accumulated other comprehensive income to interest expense	4,104		(1,506)		5,724		(3,003)

Fair Value Hedges of Interest Rate Risk

The Company is exposed to changes in the fair value of certain of its fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. Such derivatives are used to hedge the changes in fair value of certain of its pools of fixed rate assets. As of December 31, 2022, the Company had three interest rate swaps with a notional amount of $500.0 million hedging fixed-rate residential mortgage loans.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivatives as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in interest income.

The table below presents the effects of the Company’s derivative instruments designated as fair value hedges on the Consolidated Statements of Income for the three months and six months ended December 31, 2022. There were no fair value hedges for the three months and six months ended December 31, 2021:


	Three Months Ended December 31,		Six Months Ended December 31,
	2022			2022
	(In Thousands)
Loss on hedged items recorded in interest income on loans	$	(995)		$	(5,028)
Gain on hedge recorded in interest income on loans	1,183			5,110

As of December 31, 2022, the following amounts were recorded on the Statement of Financial Condition related to cumulative basis adjustment for fair value hedges. There were no fair value hedges at June 30, 2022:


	December 31, 2022
	(In Thousands)
Loans receivable:
Carrying amount of the hedged assets(1)	$	494,972
Fair value hedging adjustment included in the carrying amount of the hedged assets	(5,028)

___________________________________

(1)This amount includes the amortized cost basis of the closed portfolios of loans receivable used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolios anticipated to be outstanding for the designated hedge period. At December 31, 2022, the amortized cost basis of the closed portfolios used in these hedging relationships was $852.4 million.

- 26 -

Index

Offsetting Derivatives

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


	December 31, 2022
							Gross Amounts Not Offset
	Gross Amount Recognized		Gross Amounts Offset		Net Amounts Presented		Financial Instruments		Cash Collateral Received		Net Amount
	(In Thousands)
Assets:
Interest rate contracts	$	64,641	$	(1,024)	$	63,617	$	—	$	—	$	63,617
Total	$	64,641	$	(1,024)	$	63,617	$	—	$	—	$	63,617

Liabilities:
Interest rate contracts	$	3,524	$	(1,024)	$	2,500	$	—	$	(2,500)	$	—
Total	$	3,524	$	(1,024)	$	2,500	$	—	$	(2,500)	$	—


	June 30, 2022
							Gross Amounts Not Offset
	Gross Amount Recognized		Gross Amounts Offset		Net Amounts Presented		Financial Instruments		Cash Collateral Received		Net Amount
	(In Thousands)
Assets:
Interest rate contracts	$	41,223	$	—	$	41,223	$	—	$	—	$	41,223
Total	$	41,223	$	—	$	41,223	$	—	$	—	$	41,223

Credit Risk-Related Contingent Features

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty. The Company also has agreements with its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well-capitalized institution, then the Company could be required to terminate its derivative positions with the counterparty. At December 31, 2022, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to those agreements was $2.9 million. As required under the enforceable master netting arrangement with its derivatives counterparties, at December 31, 2022, the Company posted financial collateral of $2.5 million that was not included as an offsetting amount.

In addition to the derivative instruments noted above, the Company’s pipeline of loans held for sale at December 31, 2022 and June 30, 2022, included $10.2 million and $20.3 million, respectively, of in process loans whose terms included interest rate locks to borrowers, which are considered free-standing derivative instruments whose fair values are not material to the Company’s financial condition or results of operations.

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Index

10. BENEFIT PLANS

Components of Net Periodic Expense

The following table sets forth the aggregate net periodic benefit expense for the Bank’s Benefit Equalization Plan, Postretirement Welfare Plan, Directors’ Consultation and Retirement Plan, Atlas Bank Retirement Income Plan and Supplemental Executive Retirement Plan:


	Three Months Ended December 31,				Six Months Ended December 31,				Affected Line Item in the Consolidated Statements of Income
	2022		2021		2022		2021
	(In Thousands)
Service cost	$	117	$	138	$	234	$	276	Salaries and employee benefits
Interest cost	96		69		192		138		Other expense
(Accretion) amortization of unrecognized (gain) loss	(6)		20		(12)		40		Other expense
Expected return on assets	(25)		(28)		(50)		(56)		Other expense
Net periodic benefit cost	$	182	$	199	$	364	$	398

2021 Equity Incentive Plan

During the six months ended December 31, 2022, the Company granted 323,218 restricted stock units (“RSUs”) comprised of 238,121 service-based RSUs and 85,097 performance-based RSUs. The service-based RSUs will vest in three tranches over a period of three years and the performance-based RSUs will cliff vest upon the achievement of performance measures over the three-year period ending June 30, 2025. The number of performance-based RSUs that will vest, if any, will depend on whether, and to what extent, the performance measures are achieved. Common stock will be issued from authorized shares upon the vesting of the RSUs.

11. INCOME TAXES

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


	Three Months Ended December 31,						Six Months Ended December 31,
	2022			2021			2022			2021
	(Dollars in Thousands)						(Dollars in Thousands)
Income before income taxes	$	1,984		$	25,570		$	23,774		$	52,557
Statutory federal tax rate	21		%	21		%	21		%	21		%
Federal income tax expense at statutory rate	$	417		$	5,370		$	4,993		$	11,037
(Reduction) increase in income taxes resulting from:
Tax exempt interest	(46)			(68)			(105)			(138)
State tax, net of federal tax effect	(124)			1,990			1,296			4,118
Incentive stock option compensation expense	3			16			6			39
Income from bank-owned life insurance	(362)			(328)			(1,137)			(656)


Other items, net	145			(179)			235			(327)


Total income tax expense	$	33		$	6,801		$	5,288		$	14,073
Effective income tax rate	1.66		%	26.60		%	22.24		%	26.78		%

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Index

12. FAIR VALUE OF FINANCIAL INSTRUMENTS

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


Level 1:			Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2:			Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability or inputs that are derived principally from, or corroborated by, market data by correlation or other means.

Level 3:			Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

Assets Measured on a Recurring Basis:

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

Investment Securities Available for Sale

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

Derivatives

The Company has contracted with a third party vendor to provide periodic valuations for its interest rate derivatives to determine the fair value of its interest rate contracts. 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.

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Index

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


	December 31, 2022
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In Thousands)
Assets:
Debt securities available for sale:

Asset-backed securities	$	—	$	158,623	$	—	$	158,623
Collateralized loan obligations	—		384,059		—		384,059
Corporate bonds	—		144,955		—		144,955
Total debt securities	—		687,637		—		687,637

Mortgage-backed securities available for sale:

Residential pass-through securities	—		450,156		—		450,156
Commercial pass-through securities	—		148,561		—		148,561
Total mortgage-backed securities	—		598,717		—		598,717
Total securities available for sale	$	—	$	1,286,354	$	—	$	1,286,354

Interest rate contracts	$	—	$	63,617	$	—	$	63,617

Total assets	$	—	$	1,349,971	$	—	$	1,349,971

Liabilities:
Interest rate contracts	$	—	$	2,500	$	—	$	2,500
Total liabilities	$	—	$	2,500	$	—	$	2,500

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Index


	June 30, 2022
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In Thousands)
Assets:
Debt securities available for sale:
Obligations of state and political subdivisions	$	—	$	28,435	$	—	$	28,435
Asset-backed securities	—		166,557		—		166,557
Collateralized loan obligations	—		307,813		—		307,813
Corporate bonds	—		153,397		—		153,397
Total debt securities	—		656,202		—		656,202

Mortgage-backed securities available for sale:
Collateralized mortgage obligations	—		7,122		—		7,122
Residential pass-through securities	—		514,758		—		514,758
Commercial pass-through securities	—		166,011		—		166,011
Total mortgage-backed securities	—		687,891		—		687,891
Total securities available for sale	$	—	$	1,344,093	$	—	$	1,344,093

Interest rate contracts	$	—	$	41,223	$	—	$	41,223

Total assets	$	—	$	1,385,316	$	—	$	1,385,316

Assets Measured on a Non-Recurring Basis:

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

Individually Analyzed Collateral Dependent Loans

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

Other Real Estate Owned

Other real estate owned is recorded at estimated fair value, less estimated selling costs when acquired, thus establishing a new cost basis. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for credit losses. If further declines in the estimated fair value of the asset occur, a write-down is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions. Other real estate owned is considered a Level 3 valuation by the Company.

- 31 -

Index

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


	December 31, 2022
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In Thousands)
Collateral dependent loans:
Residential mortgage	$	—	$	—	$	2,030	$	2,030
Multi-family mortgage	—		—		7,538		7,538
Nonresidential mortgage	—		—		10,975		10,975
Total	$	—	$	—	$	20,543	$	20,543

Other real estate owned, net:
Residential	$	—	$	—	$	454	$	454
Nonresidential	—		—		12,956		12,956
Total	$	—	$	—	$	13,410	$	13,410


	June 30, 2022
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In Thousands)
Collateral dependent loans:
Residential mortgage	$	—	$	—	$	2,035	$	2,035
Multi-family mortgage	—		—		7,517		7,517
Nonresidential mortgage	—		—		11,479		11,479
Total	$	—	$	—	$	21,031	$	21,031

Other real estate owned, net:
Residential	$	—	$	—	$	178	$	178
Total	$	—	$	—	$	178	$	178

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Index

The following tables present 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:


	December 31, 2022
	Fair Value		Valuation Techniques		Unobservable Input		Range	Weighted Average
	(Dollars in Thousands)
Collateral dependent loans:
Residential mortgage	$	2,030	Market valuation of underlying collateral	(1)	Adjustments to reflect current conditions/selling costs	(2)	7% - 10%	9.14	%
Multi-family mortgage	7,538		Market valuation of underlying collateral	(1)	Adjustments to reflect current conditions/selling costs	(2)	10% - 12%	10.93	%
Nonresidential mortgage	10,975		Market valuation of underlying collateral	(1)	Adjustments to reflect current conditions/selling costs	(2)	9% - 19%	13.95	%
Total	$	20,543

Other real estate owned, net:
Residential	$	454	Market valuation of underlying collateral	(3)	Adjustments to reflect current conditions/selling costs	(2)	6.00%	6.00	%
Nonresidential	12,956		Market valuation of underlying collateral	(1)	Adjustments to reflect current conditions/selling costs	(2)	4.00%	4.00	%
Total	$	13,410


	June 30, 2022
	Fair Value		Valuation Techniques		Unobservable Input		Range	Weighted Average
	(Dollars in Thousands)
Collateral dependent loans:
Residential mortgage	$	2,035	Market valuation of underlying collateral	(1)	Adjustments to reflect current conditions/selling costs	(2)	7% - 10%	8.97	%
Multi-family mortgage	7,517		Market valuation of underlying collateral	(1)	Adjustments to reflect current conditions/selling costs	(2)	10% - 12%	11.06	%
Nonresidential mortgage	11,479		Market valuation of underlying collateral	(1)	Adjustments to reflect current conditions/selling costs	(2)	9% - 18%	12.72	%
Total	$	21,031

Other real estate owned, net:
Residential	$	178	Market valuation of underlying collateral	(3)	Adjustments to reflect current conditions/selling costs	(2)	6.00%	6.00	%
Total	$	178

___________________________________

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

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

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

At December 31, 2022, collateral dependent loans valued using Level 3 inputs comprised loans with principal balance totaling $23.3 million and valuation allowance of $2.8 million reflecting an aggregate fair value of $20.5 million. By comparison, at June 30, 2022, collateral dependent loans valued using Level 3 inputs comprised loans with principal balance totaling $24.6 million and valuation allowance of $3.6 million reflecting an aggregate fair value of $21.0 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 December 31, 2022 and June 30, 2022, the Company held other real estate owned totaling $13.4 million and $178,000, respectively, whose carrying value was written down utilizing Level 3 inputs.

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Index

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


	December 31, 2022
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	75,660	$	75,660	$	75,660	$	—	$	—
Investment securities available for sale	1,286,354		1,286,354		—		1,286,354		—
Investment securities held to maturity	153,786		138,393		—		138,393		—
Loans held-for-sale	12,940		12,975		—		12,975		—
Net loans receivable	5,935,256		5,540,440		—		—		5,540,440
FHLB Stock	69,022		—		—		—		—
Interest receivable	27,368		27,368		10		8,369		18,989
Interest rate contracts	63,617		63,617		—		63,617		—

Financial liabilities:
Deposits other than certificates of deposits	3,868,949		3,868,949		3,868,949		—		—
Certificates of deposits	2,102,422		2,060,954		—		—		2,060,954
Borrowings	1,383,573		1,379,640		—		—		1,379,640
Interest payable on deposits	4,937		4,937		1,506		—		3,431
Interest payable on borrowings	3,664		3,664		—		—		3,664
Interest rate contracts	2,500		2,500		—		2,500		—

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Index


	June 30, 2022
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In Thousands)
Financial assets:
Cash and cash equivalents	$	101,615	$	101,615	$	101,615	$	—	$	—
Investment securities available for sale	1,344,093		1,344,093		—		1,344,093		—
Investment securities held to maturity	118,291		108,118		—		108,118		—
Loans held-for-sale	28,874		28,831		—		28,831		—
Net loans receivable	5,370,787		5,215,079		—		—		5,215,079
FHLB Stock	47,144		—		—		—		—
Interest receivable	20,466		20,466		2		5,210		15,254
Interest rate contracts	41,223		41,223		—		41,223		—

Financial liabilities:
Deposits other than certificates of deposits	3,972,694		3,972,694		3,972,694		—		—
Certificates of deposits	1,889,562		1,866,341		—		—		1,866,341
Borrowings	901,337		900,505		—		—		900,505
Interest payable on deposits	722		722		147		—		575
Interest payable on borrowings	1,611		1,611		—		—		1,611

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

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

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

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

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Index

13. COMPREHENSIVE INCOME (LOSS)

The components of accumulated other comprehensive loss included in stockholders’ equity at December 31, 2022 and June 30, 2022 are as follows:


	December 31, 2022		June 30, 2022
	(In Thousands)
Net unrealized loss on securities available for sale	$	(150,841)	$	(118,031)
Tax effect	43,523		34,104
Net of tax amount	(107,318)		(83,927)

Fair value adjustments on derivatives	54,068		39,805
Tax effect	(15,680)		(11,542)
Net of tax amount	38,388		28,263

Benefit plan adjustments	(128)		(89)
Tax effect	37		26
Net of tax amount	(91)		(63)

Total accumulated other comprehensive loss	$	(69,021)	$	(55,727)

Other comprehensive loss and related tax effects for the three months and six months ended December 31, 2022 and 2021 are presented in the following table:


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
	(In Thousands)
Net unrealized holding gain (loss) on securities available for sale	$	1,328	$	(7,700)	$	(48,037)	$	(14,746)

Net realized loss (gain) on sale and call of securities available for sale (1)	15,227		—		15,227		(1)

Fair value adjustments on derivatives	(6,287)		6,616		14,263		8,267

Benefit plans:
(Accretion) amortization of net actuarial (gain) loss (2)	(6)		20		(12)		40
Net actuarial loss	—		—		(27)		—
Net change in benefit plan accrued expense	(6)		20		(39)		40

Other comprehensive gain (loss) before taxes	10,262		(1,064)		(18,586)		(6,440)
Tax effect	(2,943)		302		5,292		1,870
Total other comprehensive income (loss)	$	7,319	$	(762)	$	(13,294)	$	(4,570)

___________________________________

(1)Represents amounts reclassified out of accumulated other comprehensive (loss) income and included in gain on sale of securities on the Consolidated Statements of Income.

(2)Represents amounts reclassified out of accumulated other comprehensive (loss) income and included in the computation of net periodic pension expense. See Note 10 - Benefit Plans for additional information.

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Index

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

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


	Three Months Ended December 31,				Six Months Ended December 31,
	2022		2021		2022		2021
	(In Thousands, Except Per Share Data)
Net income	$	1,951	$	18,769	$	18,486	$	38,484

Weighted average number of common shares outstanding - basic	65,030		72,011		65,383		73,274
Effect of dilutive securities	8		26		10		23
Weighted average number of common shares outstanding - diluted	65,038		72,037		65,393		73,297

Basic earnings per share	$	0.03	$	0.26	$	0.28	$	0.53
Diluted earnings per share	$	0.03	$	0.26	$	0.28	$	0.53

Stock options for 3,096,138 and 3,115,000 shares of common stock were not considered in computing diluted earnings per share for the three months ended December 31, 2022 and 2021, respectively, and stock options for 2,965,000 and 3,115,000 shares of common stock were not considered in computing diluted earnings per share for the six months ended December 31, 2022 and 2021, respectively, because they were considered anti-dilutive. In addition, 427,347 RSUs were not considered in computing diluted earnings per share for the three months and six months ended December 31, 2022, respectively, because they were considered anti-dilutive.

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Index

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q may include certain forward-looking statements based on current management expectations. Such forward-looking statements may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may”, “will”, “believe”, “expect”, “estimate”, “anticipate”, “continue”, or similar terms or variations on those terms, or the negative of those terms. The actual results of the Company could differ materially from those management expectations. This includes statements regarding general economic conditions, public health crisis such as the governmental, social and economic effects of the novel coronavirus, legislative and regulatory changes, monetary and fiscal policies of the federal government, changes in tax policies, rates and regulations of federal, state and local tax authorities and failure to integrate or profitably operate acquired businesses. Additional potential factors include changes in interest rates, the rate of inflation, deposit flows, cost of funds, demand for loan products and financial services, competition and changes in the quality or composition of loan and investment portfolios of the Company. Other factors that could cause future results to vary from current management expectations include changes in accounting principles, policies or guidelines, and other economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services and prices. Further description of the risks and uncertainties to the business are included in the Company’s other filings with the Securities and Exchange Commission.

In addition, the COVID-19 pandemic has had, and may continue to have, an adverse impact on the Company, its clients and the communities it serves. Given its dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business. Reference is made to Item 1A “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022.

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

Critical Accounting Policies

Our accounting policies are integral to understanding the results reported. We consider accounting policies that require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. At December 31, 2022, there have been no material changes to our critical accounting policies as compared to the critical accounting policies disclosed in our most recent Annual Report on Form 10-K. Reference is made to Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended June 30, 2022.

Comparison of Financial Condition at December 31, 2022 and June 30, 2022

Executive Summary. Total assets increased $569.4 million to $8.29 billion at December 31, 2022 from $7.72 billion at June 30, 2022. The increase primarily reflected an increase in net loans receivable.

Investment Securities. Investment securities available for sale decreased $57.7 million to $1.29 billion at December 31, 2022, from $1.34 billion at June 30, 2022. This decrease was largely the result of sales of $120.4 million, principal repayments of $70.8 million and a fair value decrease of $32.8 million, partially offset by purchases of $166.5 million.

Investment securities held to maturity increased $35.5 million to $153.8 million at December 31, 2022 from $118.3 million at June 30, 2022. This increase was the result of purchases of $40.4 million, partially offset by principal repayments of $4.9 million.

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

Loans Held-for-Sale. Loans held-for-sale totaled $12.9 million at December 31, 2022 as compared to $28.9 million at June 30, 2022 and are reported separately from the balance of net loans receivable. Loans held-for-sale consisted of residential mortgage loans and commercial mortgage loans of $4.3 million and $8.7 million, respectively, at December 31, 2022 as compared to $7.1 million and $21.7 million, respectively, at June 30, 2022. During the six months ended December 31, 2022, we sold $59.3 million of residential mortgage loans, resulting in a gain on sale of $446,000, and $15.7 million of commercial mortgage loans, resulting in a net gain on sale of $28,000.

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Index

Net Loans Receivable. Net loans receivable increased $564.5 million, or 10.5%, to $5.94 billion at December 31, 2022 from $5.37 billion at June 30, 2022. Details regarding the change in the loan portfolio, by loan segment, is presented below:


	December 31, 2022		June 30, 2022		Increase/ (Decrease)
	(In Thousands)
Commercial loans:
Multi-family mortgage	$	2,851,721	$	2,409,090	$	442,631
Nonresidential mortgage	1,017,341		1,019,838		(2,497)
Commercial business	177,530		176,807		723
Construction	186,663		140,131		46,532
Total commercial loans	4,233,255		3,745,866		487,389

One- to four-family residential mortgage	1,719,514		1,645,816		73,698

Consumer loans:
Home equity loans	45,690		42,028		3,662
Other consumer	2,648		2,866		(218)
Total consumer loans	48,338		44,894		3,444

Total loans	6,001,107		5,436,576		564,531

Unaccreted yield adjustments	(16,974)		(18,731)		1,757
Allowance for credit losses	(48,877)		(47,058)		(1,819)

Net loans receivable	$	5,935,256	$	5,370,787	$	564,469

Commercial loan origination volume for the six months ended December 31, 2022 totaled $798.1 million, comprised of $690.3 million of commercial mortgage loan originations, $54.2 million of commercial business loan originations and construction loan disbursements of $53.5 million.

One- to four-family residential mortgage loan origination volume, excluding loans held-for-sale, totaled $150.7 million for the six months ended December 31, 2022 and was supplemented with the purchase of loans totaling $656,000. Home equity loan and line of credit origination volume for the same period totaled $18.1 million.

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


	December 31, 2022				June 30, 2022
	Balance		LTV		Balance		LTV
	(Dollars in Thousands)
Commercial mortgage loans:
Multi-family mortgage	$	2,851,721	64	%	$	2,409,090	64	%
Nonresidential mortgage	1,017,341		54		1,019,838		54
Construction	186,663		60		140,131		61
Total commercial mortgage loans	4,055,725		61		3,569,059		61

One- to four-family residential mortgage	1,719,514		63		1,645,816		62

Consumer loans:
Home equity loans	45,690		48		42,028		46

Total mortgage loans	$	5,820,929	62	%	$	5,256,903	61	%

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

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Index

Nonperforming Assets and TDRs. Nonperforming assets decreased by $29.6 million to $62.6 million, or 0.76% of total assets, at December 31, 2022, from $92.2 million, or 1.19% of total assets, at June 30, 2022. At December 31, 2022, we had accruing TDRs totaling $10.5 million, an increase of $1.8 million from $8.7 million at June 30, 2022. At December 31, 2022, we had non-accrual TDRs totaling $7.9 million, a decrease of $5.6 million from $13.5 million at June 30, 2022.

At December 31, 2022, nonperforming assets consisted of $40.5 million of nonperforming loans, $8.7 million of non-accrual commercial loans held for sale and $13.4 million of other real estate owned (“OREO”). At June 30, 2022, nonperforming assets consisted of $70.3 million of nonperforming loans, $21.7 million of non-accrual commercial loans held for sale and $178,000 of OREO.

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

Allowance for Credit Losses (“ACL”). At December 31, 2022, the ACL totaled $48.9 million, or 0.81% of total loans, reflecting an increase of $1.8 million from $47.1 million, or 0.87% of total loans, at June 30, 2022. The increase during the six months ended December 31, 2022 was largely attributable to a provision for credit losses of $2.3 million, primarily driven by loan growth, partially offset by a reduction in the expected life of the loan portfolio and a reduction in the qualitative component of our ACL.

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

Other Assets. The aggregate balance of other assets, including premises and equipment, FHLB stock, interest receivable, goodwill, core deposit intangibles, bank owned life insurance, deferred income taxes, OREO and other assets, increased $69.1 million to $825.3 million at December 31, 2022 from $756.2 million at June 30, 2022. The increase in the balance of these other assets during the six months ended December 31, 2022 largely reflected a $22.4 million increase in the fair value of our derivative assets, a $21.9 million increase in FHLB stock and a $13.2 million increase in OREO. The increase in OREO was a result of our acquisition of a $13.0 million nonresidential real estate property through foreclosure during the quarter ended December 31, 2022. The remaining change generally reflected normal operating fluctuations within these line items.

Deposits. Total deposits increased $109.1 million, or 1.9%, to $5.97 billion at December 31, 2022 from $5.86 billion at June 30, 2022. Included in total deposits are brokered and listing service time deposits of $747.5 million at December 31, 2022 and $773.5 million at June 30, 2022. The following table sets forth the distribution of, and changes in, deposits, by type, for the periods indicated:


	December 31, 2022		June 30, 2022		Increase/ (Decrease)
	(In Thousands)
Non-interest-bearing deposits	$	650,950	$	653,899	$	(2,949)

Interest-bearing deposits:
Interest-bearing demand	2,316,485		2,265,597		50,888
Savings	901,514		1,053,198		(151,684)
Certificates of deposit	2,102,422		1,889,562		212,860
Interest-bearing deposits	5,320,421		5,208,357		112,064
Total deposits	$	5,971,371	$	5,862,256	$	109,115

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

Borrowings. The balance of borrowings increased by $482.2 million to $1.38 billion at December 31, 2022 from $901.3 million at June 30, 2022. The growth in borrowings complemented the growth in deposits and collectively were used to fund our balance sheet growth.

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

Other Liabilities. The balance of other liabilities, including advance payments by borrowers for taxes and other miscellaneous liabilities, decreased $556,000 to $61.7 million at December 31, 2022 from $62.3 million at June 30, 2022. The change in the balance of these other liabilities generally reflected normal operating fluctuations during the period.

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Index

Stockholders’ Equity. Stockholders’ equity decreased $21.4 million to $872.6 million at December 31, 2022 from $894.0 million at June 30, 2022. The decrease in stockholders’ equity during the six months ended December 31, 2022 largely reflected share repurchases of $14.4 million and cash dividends of $14.4 million. In addition, other comprehensive loss, net of income tax, was $13.3 million, which was driven by a decline in the fair value of our available for sale securities, partially offset by an increase in the fair value of our derivatives portfolio. These items were partially offset by net income of $18.5 million.

Book value per share decreased by $0.07 to $12.95 at December 31, 2022 while tangible book value per share decreased by $0.12 to $9.78 at December 31, 2022.

On August 1, 2022, we announced that the Board of Directors had authorized a new stock repurchase plan to repurchase up to 4,000,000 shares, and the completion of our previous stock repurchase plan, which authorized the repurchase of 7,602,021 shares. During the six months ended December 31, 2022, we repurchased 1,309,606 shares of common stock at a cost of $14.4 million, or $11.02 per share, including 984,461 shares, or 24.6% of the shares authorized for repurchase under the current repurchase program, at a total cost of $10.8 million or $10.98 per share.

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

Net Income. Net income for the quarter ended December 31, 2022 was $2.0 million, or $0.03 per diluted share, compared to $18.8 million, or $0.26 per diluted share for the quarter ended December 31, 2021. The decrease in net income reflected a decrease in net interest income, an increase in the provision for credit losses, a decrease in non-interest income and an increase in non-interest expense, partially offset by a decrease in income tax expense. The primary driver of the decrease in net income was the $15.2 million loss on the sale of securities that resulted from a previously announced wholesale restructuring.

Net Interest Income. Net interest income decreased by $3.9 million to $44.8 million for the quarter ended December 31, 2022 compared to $48.7 million for the quarter ended December 31, 2021. The decrease between the comparative periods resulted from an increase of $20.4 million in interest expense, partially offset by an increase of $16.5 million in interest income. Included in net interest income for the quarters ended December 31, 2022 and 2021, respectively, was purchase accounting accretion of $1.9 million and $2.6 million, and loan prepayment penalty income of $166,000 and $1.5 million.

Net interest margin decreased 58 basis points to 2.38% for the quarter ended December 31, 2022, from 2.96% for the quarter ended December 31, 2021 and reflected increases in the cost and average balance of interest-bearing liabilities, partially offset by increases in the average balance and yield on interest-earning assets. The increased cost of interest-bearing liabilities and yield on interest-earning assets is the result of higher market interest rates that were caused by an increase in the federal funds target rate from 0% - 0.25% in March 2022 to 4.25% - 4.50% in December 2022.

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Index

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.


	Three Months Ended December 31,
	2022						2021
	Average Balance		Interest		Average Yield/ Cost		Average Balance		Interest		Average Yield/ Cost
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1)	$	5,839,903	$	57,996	3.97	%	$	4,822,959	$	47,575	3.95	%
Taxable investment securities (2)	1,527,578		13,221		3.46		1,610,395		7,595		1.89
Tax-exempt securities (2)	37,917		219		2.32		57,686		327		2.26
Other interest-earning assets (3)	114,175		1,005		3.52		77,811		415		2.13
Total interest-earning assets	7,519,573		72,441		3.85		6,568,851		55,912		3.40
Non-interest-earning assets	550,519						611,390
Total assets	$	8,070,092					$	7,180,241

Interest-bearing liabilities:
Interest-bearing demand	$	2,359,977	9,625		1.63		$	2,027,021	1,134		0.22
Savings	931,584		953		0.41		1,086,903		288		0.11
Certificates of deposit	2,192,722		8,244		1.50		1,693,423		2,241		0.53
Total interest-bearing deposits	5,484,283		18,822		1.37		4,807,347		3,663		0.30
Federal Home Loan Bank advances	997,148		8,836		3.54		666,029		3,556		2.14
Other borrowings	—		—		—		26,033		6		0.09
Borrowings	997,148		8,836		3.54		692,062		3,562		2.06
Total interest-bearing liabilities	6,481,431		27,658		1.71		5,499,409		7,225		0.53
Non-interest-bearing liabilities (4)	723,567						675,070
Total liabilities	7,204,998						6,174,479
Stockholders' equity	865,094						1,005,762
Total liabilities and stockholders' equity	$	8,070,092					$	7,180,241

Net interest income			$	44,783					$	48,687
Interest rate spread (5)					2.14	%					2.87	%
Net interest margin (6)					2.38	%					2.96	%
Ratio of interest-earning assets to interest-bearing liabilities	1.16						1.19

___________________________________

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

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

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

(4)Includes average balances of non-interest-bearing deposits of $666.8 million and $624.2 million for the quarter ended December 31, 2022 and 2021, respectively.

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

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

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Index

Provision for Credit Losses. The provision for credit losses increased $4.1 million to a provision for credit losses of $1.7 million for the quarter ended December 31, 2022, compared to a provision for credit losses reversal of $2.4 million for the quarter ended December 31, 2021. The provision for the quarter ended December 31, 2022 was largely attributable to loan growth, partially offset by a reduction in the qualitative component of our ACL. By comparison, the provision reversal for the quarter ended December 31, 2021 was largely attributable to a net reduction in reserves on individually evaluated loans and a reduction in the expected life of various segments of the loan portfolio.

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

Non-Interest Income. Total non-interest income decreased $12.6 million to a loss of $8.5 million for the quarter ended December 31, 2022.

Loss on sale and call of securities was $15.2 million during the quarter ended December 31, 2022 compared to no gain or loss recorded during the prior period. The loss was the result of a previously announced wholesale restructuring that involved the sale of $120.4 million of available for sale securities during the quarter. The proceeds of the sale were reinvested in higher yielding securities.

Gain on sale of loans decreased $836,000 to $134,000 for the quarter ended December 31, 2022. The decrease in loan sale gains largely reflected a decrease in the volume of loans sold between comparative periods.

Other non-interest income increased $3.2 million to $3.7 million for the quarter ended December 31, 2022. The increase in other non-interest income was primarily attributable to a non-recurring gain of $2.9 million from the sale of a former branch location and a $660,000 increase in income from investment services. These increases were partially offset by $356,000 of non-recurring gains on asset disposals in the prior comparative period.

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

Non-Interest Expense. Total non-interest expense increased $3.0 million to $32.7 million for the quarter ended December 31, 2022.

Salaries and employee benefits increased $1.8 million to $19.9 million for quarter ended December 31, 2022. This increase was largely due to higher salary expense, an increase in incentive payments tied to loan origination volume and non-recurring severance expense resulting from a workforce realignment. Partially offsetting these increases was a decrease in incentive compensation expense.

FDIC insurance premiums increased $505,000 to $1.2 million for the quarter ended December 31, 2022. The increase was largely driven by asset growth.

Other non-interest expense increased $702,000 to $3.6 million for the quarter ended December 31, 2022. This increase was primarily due to a $502,000 increase in the provision for credit losses on unfunded commitments.

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

Provision for Income Taxes. Provision for income taxes decreased $6.8 million to $33,000 for the quarter ended December 31, 2022 from $6.8 million for the quarter ended December 31, 2021.

The decrease in income tax expense reflected a lower level of pre-tax income as compared to the prior period.

Effective tax rates for the quarter ended December 31, 2022 and 2021 were 1.7% and 26.6%, respectively. The decrease in the effective tax rate was primarily due to a year-to-date tax rate true-up which resulted from the loss on the sale of securities during the current quarter. The loss lowered our full year projected taxable income and income tax provision.

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Index

Comparison of Operating Results for the Six Months Ended December 31, 2022 and December 31, 2021

Net Income. Net income for the six months ended December 31, 2022 was $18.5 million, or $0.28 per diluted share, compared to $38.5 million, or $0.53 per diluted share for the six months ended December 31, 2021. The decrease in net income reflected a decrease in net interest income, an increase in the provision for credit losses, a decrease in non-interest income and an increase in non-interest expense, partially offset by a decrease in income tax expense.

Net Interest Income. Net interest income decreased by $5.0 million to $93.3 million for the six months ended December 31, 2022 compared to $98.3 million for the six months ended December 31, 2021. The decrease between the comparative periods resulted from an increase of $28.7 million in interest expense, partially offset by an increase of $23.7 million in interest income. Included in net interest income for the six months ended December 31, 2022 and 2021, respectively, was purchase accounting accretion of $3.7 million and $5.5 million, and loan prepayment penalty income of $607,000 and $3.2 million.

Net interest margin decreased 45 basis points to 2.53% for the six months ended December 31, 2022, from 2.98% for the six months ended December 31, 2021 and reflected increases in the cost and average balance of interest-bearing liabilities, partially offset by increases in the average balance and yield on interest-earning assets. The increased cost of interest-bearing liabilities and yield on interest-earning assets is the result of higher market interest rates that were caused by an increase in the federal funds target rate from 0% - 0.25% in March 2022 to 4.25% - 4.50% in December 2022.

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Index


	Six Months Ended December 31,
	2022						2021
	Average Balance		Interest		Average Yield/ Cost		Average Balance		Interest		Average Yield/ Cost
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable(1)	$	5,696,949	$	110,931	3.89	%	$	4,829,318	$	95,805	3.97	%
Taxable investment securities(2)	1,522,276		23,660		3.11		1,630,174		15,807		1.94
Tax-exempt securities(2)	43,445		504		2.32		58,400		660		2.26
Other interest-earning assets(3)	101,107		1,766		3.49		81,780		846		2.07
Total interest-earning assets	7,363,777		136,861		3.72		6,599,672		113,118		3.43
Non-interest-earning assets	560,372						614,062
Total assets	$	7,924,149					$	7,213,734

Interest-bearing liabilities:
Interest-bearing demand	$	2,357,159	$	15,016	1.27		$	1,990,646	$	2,280	0.23
Savings	975,463		1,549		0.32		1,094,884		622		0.11
Certificates of deposit	2,103,822		13,126		1.25		1,745,948		4,826		0.55
Total interest-bearing deposits	5,436,444		29,691		1.09		4,831,478		7,728		0.32
Federal Home Loan Bank advances	819,773		13,138		3.21		665,972		7,101		2.13
Other borrowings	63,728		718		2.26		27,283		12		0.09
Borrowings	883,501		13,856		3.14		693,255		7,113		2.05
Total interest-bearing liabilities	6,319,945		43,547		1.38		5,524,733		14,841		0.54
Non-interest-bearing liabilities(4)	723,811						671,116
Total liabilities	7,043,756						6,195,849
Stockholders' equity	880,393						1,017,885
Total liabilities and stockholders' equity	$	7,924,149					$	7,213,734

Net interest income			$	93,314					$	98,277
Interest rate spread(5)					2.34	%					2.89	%
Net interest margin(6)					2.53	%					2.98	%
Ratio of interest-earning assets to interest-bearing liabilities	1.17						1.19

___________________________________

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

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

(4)Includes average balances of non-interest-bearing deposits of $667.2 million and $617.2 million for the six months ended December 31, 2022 and 2021, respectively.

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

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

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Index

Provision for Credit Losses. The provision for credit losses increased $10.2 million to a provision for credit losses of $2.3 million for the six months ended December 31, 2022, compared to a provision for credit losses reversal of $7.8 million for the six months ended December 31, 2021. The provision for the six months ended December 31, 2022 was largely attributable to loan growth, partially offset by a reduction in the qualitative component of our ACL and a reduction in the expected life of the loan portfolio. By comparison, the provision reversal for the six months ended December 31, 2021 was largely attributable to a release of reserves, which reflected improvement in our credit risk outlook and a reduction in the expected life of various segments of the loan portfolio.

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

Non-Interest Income. Total non-interest income decreased $10.5 million to a loss of $2.6 million for the six months ended December 31, 2022.

Loss on sale and call of securities was $15.2 million during the six months ended December 31, 2022 compared to a gain of $1,000 recorded during the prior comparative period. The loss was the result of a previously announced wholesale restructuring that involved the sale of $120.4 million of available for sale securities during the six months ended December 31, 2022. The proceeds of the sale were reinvested in higher yielding securities.

Gain on sale of loans decreased $1.4 million to $529,000 for the six months ended December 31, 2022. The decrease in loan sale gains largely reflected a decrease in the volume of loans sold between comparative periods.

Income from bank owned life insurance increased $2.3 million to $5.5 million for the six months ended December 31, 2022. The increase is the result of payouts on life insurance policies.

Other non-interest income increased $3.6 million to $4.3 million for the six months ended December 31, 2022. The increase in other non-interest income was primarily attributable to a non-recurring gain of $2.9 million from the sale of a former branch location and a $1.1 million increase in income from investment services. These increases were partially offset by $356,000 of non-recurring gains on asset disposals in the prior comparative period.

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

Non-Interest Expense. Total non-interest expense increased $3.2 million to $64.6 million for the six months ended December 31, 2022.

Salaries and employee benefits increased $3.6 million to $40.3 million for the six months ended December 31, 2022. This increase was largely due to higher salary expense, an increase in incentive payments tied to loan origination volume and non-recurring severance expense resulting from a workforce realignment. Partially offsetting these increases was a decrease in incentive compensation expense.

Net occupancy expense of premises decreased $1.6 million to $6.1 million for the six months ended December 31, 2022. This decrease was primarily due to $1.5 million of non-recurring expenses related to the consolidation of three retail branch locations and a leased office facility recognized in the prior period.

FDIC insurance premiums increased $919,000 to $2.1 million for the six months ended December 31, 2022. The increase was largely driven by asset growth.

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

Provision for Income Taxes. Provision for income taxes decreased $8.8 million to $5.3 million for the six months ended December 31, 2022 from $14.1 million for the six months ended December 31, 2021.

The decrease in income tax expense reflected a lower level of pre-tax income as compared to the prior period.

Effective tax rates for the six months ended December 31, 2022 and 2021 were 22.2% and 26.8%, respectively. The decrease in the effective tax rate was primarily due to lower full year projected taxable income, noted above, as well as non-taxable payouts on life insurance policies, noted above, during the six months ended December 31, 2022.

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Index

Liquidity and Capital Resources

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

At December 31, 2022, liquidity included $75.7 million of short-term cash and equivalents and $1.29 billion of investment securities available for sale. In addition, as of December 31, 2022, we had the capacity to borrow additional funds totaling $1.68 billion and $307.2 million from the FHLB of New York and FRB, respectively, without pledging additional collateral. As of that same date, we also had access to unsecured overnight borrowings with other financial institutions totaling $995.0 million of which none was outstanding.

At December 31, 2022, we had outstanding commitments to originate and purchase loans totaling $31.5 million while such commitments totaled $242.1 million at June 30, 2022. As of those same dates, our pipeline of loans held for sale included $10.2 million and $20.3 million, respectively, of loans in process 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.

Construction loans in process and unused lines of credit were $93.7 million and $162.3 million, respectively, at December 31, 2022 compared to $109.0 million and $159.3 million, respectively, at June 30, 2022. We are also subject to the contingent liabilities resulting from letters of credit whose outstanding balances totaled $115,000 and $130,000, at December 31, 2022 and June 30, 2022, respectively.

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

Consistent with its goals to operate a sound and profitable financial organization, the Bank actively seeks to maintain its status as a well-capitalized institution in accordance with regulatory standards.

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


	At December 31, 2022
	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
Total capital (to risk-weighted assets)	$	678,149	12.09	%	$	448,818	8.00	%	$	561,023	10.00	%
Tier 1 capital (to risk-weighted assets)	642,389		11.45	%	336,614		6.00	%	448,818		8.00	%
Common equity tier 1 capital (to risk-weighted assets)	642,389		11.45	%	252,460		4.50	%	364,665		6.50	%
Tier 1 capital (to adjusted total assets)	642,389		8.00	%	321,241		4.00	%	401,551		5.00	%


	At June 30, 2022
	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
Total capital (to risk-weighted assets)	$	672,274	13.10	%	$	410,429	8.00	%	$	513,036	10.00	%
Tier 1 capital (to risk-weighted assets)	642,336		12.52	%	307,822		6.00	%	410,429		8.00	%
Common equity tier 1 capital (to risk-weighted assets)	642,336		12.52	%	230,866		4.50	%	333,473		6.50	%
Tier 1 capital (to adjusted total assets)	642,336		8.70	%	295,163		4.00	%	368,954		5.00	%

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Index

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


	At December 31, 2022
	Actual				For Capital Adequacy Purposes
	Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
Total capital (to risk-weighted assets)	$	773,450	13.78	%	$	448,956	8.00	%
Tier 1 capital (to risk-weighted assets)	737,690		13.14	%	336,717		6.00	%
Common equity tier 1 capital (to risk-weighted assets)	737,690		13.14	%	252,538		4.50	%
Tier 1 capital (to adjusted total assets)	737,690		9.18	%	321,429		4.00	%


	At June 30, 2022
	Actual				For Capital Adequacy Purposes
	Amount		Ratio		Amount		Ratio
	(Dollars in Thousands)
Total capital (to risk-weighted assets)	$	778,253	15.17	%	$	410,515	8.00	%
Tier 1 capital (to risk-weighted assets)	748,315		14.58	%	307,886		6.00	%
Common equity tier 1 capital (to risk-weighted assets)	748,315		14.58	%	230,914		4.50	%
Tier 1 capital (to adjusted total assets)	748,315		10.14	%	295,290		4.00	%

In March 2020, the federal banking agencies announced an interim final rule to delay the estimated impact on regulatory capital stemming from the implementation of CECL. The interim final rule provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss method, followed by a three-year transition period established in the previous rule (five-year transition option). We have adopted the capital transition relief over the permissible five-year period. The two-year delay ended for us as of June 30, 2022 and we then began the three-year transition period.

Off-Balance Sheet Arrangements

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

Recent Accounting Pronouncements

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

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Index

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

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

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

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

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


	December 31, 2022
					1 to 12 Months				13 to 24 Months
Change in Interest Rates	EVE		% Change in EVE		NII		% Change in NII		NII		% Change in NII
	(Dollars in Thousands)
+300 bps	$	830,790	(20.84)	%	$	185,330	(4.97)	%	$	209,714	(2.29)	%
+200 bps	892,121		(15.00)	%	187,257		(3.99)	%	208,469		(2.87)	%
+100 bps	985,070		(6.14)	%	192,078		(1.51)	%	213,876		(0.36)	%
0 bps	1,049,516		—		195,031		—		214,638		—
-100 bps	1,071,202		2.07	%	193,352		(0.86)	%	208,256		(2.97)	%
-200 bps	1,053,122		0.34	%	188,401		(3.40)	%	195,638		(8.85)	%
-300 bps	1,053,873		0.42	%	181,755		(6.81)	%	179,183		(16.52)	%


	June 30, 2022
					1 to 12 Months				13 to 24 Months
Change in Interest Rates	EVE		% Change in EVE		NII		% Change in NII		NII		% Change in NII
	(Dollars in Thousands)
+300 bps	$	1,089,795	(15.37)	%	$	178,865	(13.62)	%	$	214,839	(1.68)	%
+200 bps	1,156,219		(10.21)	%	187,601		(9.40)	%	215,528		(1.36)	%
+100 bps	1,239,935		(3.71)	%	198,126		(4.32)	%	219,594		0.50	%
0 bps	1,287,700		—		207,069		—		218,501		—
-100 bps	1,272,203		(1.20)	%	205,241		(0.88)	%	204,568		(6.38)	%

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Index

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

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

ITEM 4.

CONTROLS AND PROCEDURES

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

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

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Index

PART II

ITEM 1. Legal Proceedings

At December 31, 2022, neither the Company nor the Bank were involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business, which involve amounts in the aggregate believed by management to be immaterial to the financial condition of the Company and the Bank.

ITEM 1A. Risk Factors

There have been no material changes to the Risk Factors previously disclosed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended June 30, 2022, previously filed with the Securities and Exchange Commission.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities:

The following table reports information regarding repurchases of the Company’s common stock during the quarter ended December 31, 2022:


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 1-31, 2022	369,900	$	10.75	369,900	3,195,439
November 1-30, 2022	179,900	$	9.82	179,900	3,015,539
December 1-31, 2022	—	$	—	—	3,015,539

Total	549,800	$	10.45	549,800	3,015,539

On August 1, 2022, the Company announced the authorization of a new stock repurchase plan to repurchase up to 4,000,000 shares. This current plan has no expiration date.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

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Index

ITEM 6. Exhibits

The following Exhibits are filed as part of this report:


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

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Index

SIGNATURES

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


	KEARNY FINANCIAL CORP.

Date: February 7, 2023	By:	/s/ Craig L. Montanaro
		Craig L. Montanaro
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: February 7, 2023	By:	/s/ Keith Suchodolski
		Keith Suchodolski
		Senior Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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