UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑K

(Mark One)

For the Fiscal Year Ended June 30, 20182020

orOr

For the transition period fromto

Commission File Number: 001-37399

KEARNY FINANCIAL CORP.

(Exact name of Registrant as specified in its Charter)

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

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  ☒  YES    ☐  NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  ☐  YES    ☒  NO

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

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

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

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

Emerging growth company☐

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

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

The aggregate market value of the voting and non-voting common equity held by non‑affiliates of the Registrant on December 31, 20172019 (the last business day of the Registrant’s most recently completed second fiscal quarter) was $1.02$1.07 billion.  Solely for purposes of this calculation, shares held by directors, executive officers and greater than 10% stockholders are treated as shares held by affiliates.

As of August 20, 201821, 2020 there were outstanding 98,243,20089,517,003 shares of the Registrant’s Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

KEARNY FINANCIAL CORP.

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended June 30, 20182020

INDEX

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PART I

Item 1. Business

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.  We are under no duty to and do not take any obligation to update any forward-looking statements after the date of the Annual Report on Form 10-K.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

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Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Impact of COVID-19

As the Company’s business is primarily conducted within the states of New Jersey and New York, and those states have been significantly impacted by COVID-19, the operations and operating results of the Company have been similarly impacted.

Employee Matters.  As the COVID-19 pandemic has unfolded, and stay-at-home orders were mandated by government officials, the majority of our non-branch personnel have transitioned to working remotely, and have continued to do so through June 30, 2020. Our information technology infrastructure has afforded us the ability to work remotely with little interruption as we continue to service the needs of our clients. For those essential employees who are unable to work from home, we have provided personal protective equipment, established guidelines to maintain appropriate social distancing and have initiated enhanced cleaning of our facilities to ensure a safe working environment.

Retail Branches.  At the outset of the pandemic we modified our branch hours and access to ensure the safety of our employees and clients. Where possible, branch lobbies were transitioned to appointment-only access, with the majority of branch operations being conducted via our drive-up windows. As certain branches did not have drive-up capabilities, or suitable alternatives, we temporarily closed six of our 46 branches. In the months following, we have outfitted our branches with protective barriers and continued to provide our staff with personal protective equipment. In addition, we have instituted policies requiring our clients to wear face masks and to adhere to social distancing protocols while visiting our branch locations. With these modifications, as of June 30, 2020, all of our branches had re-opened their lobbies and were fully operational.

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

The CARES Act authorized the Small Business Administration (“SBA”) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program.  As part of this program the SBA will guarantee 100% of the PPP loans made to eligible borrowers. As a qualified SBA lender, the Bank is automatically authorized to originate PPP loans. On April 16, 2020, the original authorization of $349 billion in funding for the PPP program was exhausted. On April 23, 2020, the PPP Enhancement Act was signed into law and provided an additional $310 billion in funding for the PPP program. As of June 30, 2020 we had approximately 749 loans with total outstanding balances of $69.0 million under the PPP.

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Under Section 4013 of the CARES Act, and based upon regulatory guidance promulgated by federal banking regulators, qualifying short-term loan modifications resulting in payment deferrals that are attributable to the adverse impact of COVID-19, are not considered to be troubled debt restructurings (“TDRs”). As such, the applicable loans are reported as current with regard to payment status and continue to accrue interest during the payment deferral period. Additional information regarding loans modified in accordance with this guidance are provided in the tables below.

The CARES Act included multiple provisions which impacted the tax code. One such provision restored net operating loss (“NOL”) carrybacks that were eliminated by the 2017 Tax Cuts and Jobs Act. The new carryback provision allows for a five year carryback of NOLs incurred by corporations in the 2018, 2019 and 2020 tax years. As a result of this provision the Company was able to carry back NOLs, which had been recorded at the current statutory federal rate of 21%, at the prior statutory rate of 34%. The difference between these two rates, multiplied by the amount of the NOL, totaled $1.6 million and was recorded as a credit to income tax expense during the year ended June 30, 2020.

Loan Portfolio.  The government-mandated closure of certain businesses and the curtailment of non-essential travel has created an increased level of risk to certain segments of the loan portfolio. Additional disclosures surrounding portfolio-wide loan-to-value ratios for real estate secured loans, exposures to certain loan sectors and non-TDR loan modifications granted under section 4013 of the CARES Act are provided below.

The following table sets forth the composition of our real estate secured loans indicating the loan-to-value, by loan category, at June 30, 2020:

The following table identifies our exposure to certain loan sectors at June 30, 2020:

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Through June 30, 2020, the Company had modified a total of 711 non-TDR loans with an aggregate principal balance of $781.3 million, representing 17.2% of total loans. Further details regarding these modifications are provided in the table below. As of June 30, 2020, 351 of the modified loans with an aggregate principal balance of $374.9 million had reached the expiration of their initial three-month deferral period.  Of these loans, 69.5%, or $260.6 million, had returned to their regular payment schedules by August 14, 2020.  Through that same date, 30.3%, or $113.5 million had been granted a second 90-day extension while the remaining 0.2%, or $780,000, had not yet made their July payment.

In addition to the loans reported above, the Company acquired 144 loans with aggregate principal balances of $114.8 million in conjunction with the Company’s acquisition of MSB Financial Corp. (“MSB”) on July 10, 2020 that had been previously modified in accordance with the guidance discussed above.

General

Kearny Financial Corp. (the “Company,” or “Kearny Financial”), is a Maryland corporation that is the holding company for Kearny Bank (the “Bank” or “Kearny Bank”), a nonmember New Jersey stock savings bank.  The Bank converted its charter to that of a New Jersey savings bank on June 29, 2017 having previously been chartered as a federally chartered stock savings bank.

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

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

Each outstanding share held by the public stockholders of Kearny Financial Corp., a federal corporation, immediately prior to the closing of the conversion and stock offering was converted into 1.3804 shares of the Company’s new common stock while the shares previously held by Kearny MHC, the former mutual holding company, were cancelled concurrent with the closing of the transaction.  As a result of the completion of the second-step conversion and stock offering, all historical share and per share information has been revised to reflect the 1.3804-to-one exchange ratio.  At June 30, 2018, the Company had 99,626,400 shares outstanding.

The Company is a unitary savings and loan holding company, regulated by the Board of Governors of the Federal Reserve Bank (“FRB”) and conducts no significant business or operations of its own.  The Bank’s deposits are federally insured by the Deposit Insurance Fund as administered by the Federal Deposit Insurance Corporation (“FDIC”) and the Bank is primarily regulated by the New Jersey Department of Banking and Insurance (“NJDBI”) and, as a nonmember bank, the FDIC.  References in this Annual Report on Form 10‑K to the Company or Kearny Financial generally refer to the Company and the Bank, unless the context indicates otherwise. References to “we”, “us”, or “our” refer to the Bank or Company, or both, as the context indicates.  

The Company’s primary business is the ownership and operation of the Bank.  The Bank is principally engaged in the business of attracting deposits from the general public in New Jersey and New York and using these deposits, together with other funds, to originate or purchase loans for its portfolio and invest in securities.  Our loan portfolio is primarily comprised of loans collateralized by commercial and residential real estate augmented by secured and unsecured loans to businesses and consumers.  We also maintain a portfolio of investment securities, primarily comprised of U.S. agency mortgage-backed securities, U.S. government and agency debentures, bank-qualified municipal obligations, corporate bonds, asset-backed securities, collateralized loan obligations and subordinated debt.

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

We operate from our administrative headquarters in Fairfield, New Jersey and had 54 branch offices asother administrative locations throughout the state of New Jersey. As of June 30, 2018.2020, had 46 branch offices. The Company maintains a website at www.kearnybank.com.  We make available through that website, free of charge, copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, amendments to those reports and proxy materials as soon as is reasonably practicalpracticable after the Company electronically files those materials with, or furnishes them to, the Securities and Exchange Commission.  You may access these materials by following the links under “Investor Relations” under the “Company Info”“Financial Information” tab at the Company’s website. Information on the Company’s website is not and should not be considered a part of this Annual Report on Form 10-K.

Acquisition of Clifton Bancorp Inc.

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

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

Acquisition of MSB Financial Corp.

On July 10, 2020, the Company completed its acquisition of MSB and its subsidiary, Millington Bank. In accordance with the merger agreement, approximately $9.8 million in cash and 5,853,811 shares of Company common stock was distributed to former MSB shareholders in exchange for their shares of MSB common stock.  As a result of the merger, the Company acquired approximately $500 million in loans, assumed approximately $400 million in deposits and acquired four branch offices located in Somerset and Morris counties. Given the initial accounting for this business combination is incomplete, management is not yet able to disclose the preliminary fair value of the assets acquired and liabilities assumed.

Business Strategy

Our goal is to continue to evolveIn recent years we have evolved our business model from that of a traditional thrift business model toward that of a full service community bank,bank. This evolution has been accomplished by growing our commercial loans and deposits, expanding our product and service offerings, de-novo branching and the acquisition of other financial institutions. During this time, our strategy has been largely focused on profitably deploying capital and enhancing earnings through a variety of balance sheet growth and diversification strategies. While many of our long-term growth strategies remain intact, the uncertainty presented by the COVID-19 pandemic has resulted in a change to our near-term business strategy.  The key strategic initiativescomponents of ourthis business planstrategy are presented below accompaniedas follows:

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

During fiscal 2018, our commercial mortgage loan portfolio, including multi-family and nonresidential mortgage loans, increased by 22.6%, or $563.9 million, to $3.06 billion atthe June 30, 2018 from $2.50 billion at June 30, 2017. This increase reflected commercial mortgage loan originations2020 Tier 1 Leverage ratios of the Company and the Bank of 13.27% and 11.95%, respectively, we maintain capital levels in fiscal 2018 totaling $458.8 million. Additionally, we acquired commercial mortgage loans with fair values totaling approximately $397.0 million pursuant to our acquisitionexcess of Clifton. At June 30, 2018, our commercial mortgage loan portfolio comprised 67.0% of total loans compared to 77.0% of total loans at June 30, 2017.

regulatory minimums, internal capital adequacy guidelines and peer medians. We plan to continue to increasemaintain robust capital reserves, in part due to the risks and uncertainties associated with the COVID-19 pandemic. For those same reasons, on March 25, 2020, we temporarily suspended our portfoliostock repurchase program.

In addition to our robust capital levels, we maintain significant sources of commercial mortgage loansboth on- and off-balance sheet liquidity and plan to continue to do so.  At June 30, 2020, our liquid assets included $181.0 million of short-term cash and equivalents supplemented by continuing$1.39 billion of investment securities classified as available for sale which can be readily sold or pledged as collateral, if necessary. In addition, we had the capacity to acquire loans through all available channels, including retailborrow additional funds totaling $615.0 million via unsecured lines of credit and broker originations, which may be supplemented with individual$1.53 billion and pooled loan purchases$318.7 million, without pledging additional collateral, from the Federal Home Loan Bank of New York and participations.  Additionally,Federal Reserve Bank, respectively.

At this time the economic implications of the COVID-19 pandemic, and the resulting impact on our asset quality, remain unclear. Notwithstanding this uncertainty we intend to continuemaintain an allowance for credit losses which, upon adoption of ASU 2016-13, will allow us to expandabsorb all of the expected lifetime losses within our commercial lending infrastructure and resources, which will be supported by new product and pricing strategies designed to increase origination volume in a very competitive marketplace.portfolios of assets measured at amortized cost.

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We plan to continue to focus on growing and diversifying our effortsretail non-maturity deposit base with an emphasis on expanding our commercial non-real estate secured and unsecured business lending activities through all available channels.growth in core non-maturity deposits.  During fiscal 2018, our commercial business loan origination2020 we successfully grew these deposits by $646.7 million and purchase volume totaled $54.2 million, reflecting retail originations of $25.9 million augmented by the acquisition of commercial and industrial (“C&I”) loans through wholesale channels totaling $28.3 million. Additionally, we acquired commercial business loans with fair values totaling approximately $5.4 million pursuant to our acquisition of Clifton.

We continued the realignment and expansion of our commercial business lending infrastructure during fiscal 2018 which contributed to a modest increase in aggregate commercial business loan origination and purchase volume for the year.  As a result of those enhancements, we anticipate that the outstanding balance of this loan segmentretail non-maturity deposits will continue to increase in fiscal 20192021 and thereafter.  Our business lending strategies will continue to be undertaken within a larger set of strategic

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

We plan to increasemaintain the outstanding balance of our residential mortgage loans, including one- to four-family first mortgage loans and home equity loans and home equity lines of credit, while generally maintaining the allocation of such loans as a percentage of the total loan portfolio.  Notwithstanding, a significant portion of one- to four-family first mortgage loans originated will continue to be sold into the secondary market, as discussed below.  During fiscal 2018, our aggregate portfolio of one-commercial and residential loans, replacing repayments and with new loan originations. Our focus, as it relates to four-family mortgagenew originations, will be on high quality loans increasedwith strong sponsors and favorable credit metrics.

For our existing borrowers who have been adversely impacted by $738.1 millionCOVID-19, we plan to $1.39 billion, or 30.4% of total loans, from $650.1 million or 20.1% of total loansuse the resources at June 30, 2017.  During the year ended June 30, 2018, we originatedour disposal, including loan modifications and purchased $53.0 million and $26.3 million, respectively, of one-payment deferrals, to four-family first mortgage loans heldaid such borrowers in portfolio.  Additionally, we acquired residential mortgage loans totaling approximately $713.9 million pursuant to our acquisition of Clifton.remaining current on their loan payments.

We plan to expand and enhancecontinue to leverage our residential mortgage lendingbanking infrastructure to support the continuing origination of residential mortgage loans for sale into the secondary market.  Our mortgage banking business strategy resulted in the recognition of $742,000 in gains on the sale of $78.8 million of mortgage loans held for sale during the year ended June 30, 2018, compared to recorded gains of $713,000 on the sale of $84.4 million of mortgage loans during the year ended June 30, 2017. We anticipate that residential mortgage loan origination and sale activity will continue to support long-term growth in our non-interest income, through the recognition of recurring loan sale gains, while also serving to help manage the Company’s exposure to interest rate risk through the sale of longer-duration, fixed-rate loans into the secondary market.

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

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

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

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

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

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

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At June 30, 2018,2020, we had a total of 54 branches comprising 52 branches located in northern and central New Jersey with two additional branches located in Brooklyn and Staten Island, New York.46 branches. We plan to selectively evaluate branch network expansion opportunities with a particular focus on limited branch expansion in Brooklyn and Staten Island.  We will also continuewhile continuing to evaluate additional de novo branch opportunities to contiguously expand our existing New Jersey branch network with an emphasis on “fill-ins” between our northern and central New Jersey locations.

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

We also plan to continue to evaluate and optimize the performance of our existing branch network, while also considering selecttaking into consideration historical branch consolidation opportunities to optimize that network. We continue to develop and deploy strategies to promote the “relationship banking” business model throughout our branch network with an emphasis on expanding business customer relationships linked to business lending initiatives.

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

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

In conjunction with our effortsrecent years the Company’s operating efficiency has improved both organically and via economies of scale gained from merger and acquisition activity. Exclusive of potential future acquisitions we plan to continue to improve operating efficiency through organic means, such as the increased use of technology and control operating expenses, while expandingthe continual evaluation of branch consolidation opportunities.

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

The Company’s operating efficiency is also expected to be enhanced as a resultOur ongoing technology transformation will impact nearly every area of the Clifton acquisition through whichCompany including the Company’s primary sources of revenue, including net interest incomeresidential and non-interest income, are expected to increase proportionately greater than the increase in non-interest expenses arising from the acquisition.

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

Market Area.At June 30, 2018,2020, our primary market area consisted of the counties in which we currently operate branches, including Bergen, Essex, Hudson, Middlesex, Monmouth, Morris, Ocean, Passaic and Union counties in New Jersey and Kings (Brooklyn) and Richmond (Staten Island) counties in New York.  Our lending is concentrated in these markets and our predominant sources of deposits are the communities in which our offices are located as well as the neighboring communities.

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

Competition.  We operate in a highly competitive market area with a highlarge concentration of banking and financial institutions and we face substantial competition in attracting deposits and in originating loans. A number of our competitors are significantly larger institutions with greater financial and managerialtechnological resources and lending limits.  Our ability to compete successfully is a significant factor affecting our growth potential and profitability.

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Our competition for deposits and loans historically has comecomes primarily from other insured financialdepository institutions such as local and regional commercial banks, savings institutions and credit unions located in our primary market area. We also compete withface competition from out-of-market depository institutions operating via online channels and from non-depository institutions including mortgage banking andbanks, finance companies, forinsurance companies and brokerage firms.

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General.  Our loan portfolio is comprised of multi-family loans, commercial real estate loans, residential mortgage loans, commercial business loans, construction loans and with commercial banksconsumer and savings institutions for consumerother loans.  We also face competition for attracting funds from providers of alternative investment products such as equity and fixed income investments, including securities such as corporate, agency and government securities, as well as the mutual funds that invest in these instruments.

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

Lending Activities

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

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

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Loan Portfolio Composition.  The following table sets forth the composition of our loan portfolio in dollar amounts and as a percentage of the total portfolio at the dates indicated.

Loan Maturity Schedule.  The following table sets forth the maturities of our loan portfolio at June 30, 2018.2020.  Demand loans, loans having no stated maturity and overdrafts are shown as due in one year or less. Loans are stated in the following table at contractual maturity and actual maturities could differ due to prepayments.

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The following table shows the dollar amount of loans as of June 30, 20182020 due after June 30, 20192021 according to rate type and loan category.category:

Multi-Family and Nonresidential Real Estate Mortgage Loans.  We originate commercial mortgage loans on multi-family and nonresidential properties, including loans on apartment buildings, retail/service properties and land as well as other income-producing properties, such as mixed-use properties combining residential and commercial space.  Our continued strategic emphasis in commercial lending resulted in the origination ofWe originated approximately $458.8$258.5 million of multi-family and nonresidential real estate mortgages during the year ended June 30, 2018. We originated $727.42020, compared to $437.3 million of multi-family and nonresidential real estate mortgages during the year ended June 30, 2017.  Additionally, we acquired multi-family and nonresidential real estate mortgage loans with fair values totaling approximately $397.0 million in conjunction with2019.  Supplementing our acquisition of Clifton.

Our commercial mortgage acquisition strategies also includedorganic originations were purchases of whole loans and participations totaling $126.7$55.5 million during the year ended June 30, 2017.  However, there were no such purchases during fiscal 2018.  The loan purchases in fiscal 2017 were funded2020, compared to $68.6 million during the first quarteryear ended September 30, 2016 and reflected the deployment of excess liquidity that had accumulated through June 30, 2016 due to an increase in loan prepayments during the fourth quarter of fiscal 2016.

In total, commercial mortgage loan acquisition volume, including the loans acquired in conjunction with the Clifton acquisition, outpaced loan repayments during fiscal 2018, resulting in the reported net increase in the outstanding balance of this segment of the loan portfolio.  Our business plan continues to call for maintaining our strategic emphasis on commercial mortgage lending by increasing this segment of the portfolio on a dollar basis while maintaining its basis as a percentage of total loans.

We generally require no less than a 25% down payment or equity position for mortgage loans on multi-family and nonresidential properties.  For such loans, we generally require personal guarantees.  However, the Bank may consider multi-family and nonresidential real estate mortgages for approval on a non-personally guaranteed (non-recourse) basis when the overall strengths of a proposed loan asset sufficiently mitigates the risk of exculpating the principal owners from their personal guarantee. In such cases, the Bank generally requires borrowers to execute an indemnification agreement which personally obligates those individuals in the circumstances of fraud, negligence, environmental issues, improper conveyance, condemnation, bankruptcy or other additional provisions deemed appropriate by the Bank.2019.  

We generally offer fixed-rate and adjustable-rate balloon mortgage loans on multi-family and non-residential properties with final stated maturities ranging from five to twelvefifteen years and initial interest rate reset terms ranging from five to seven years, where applicable.  Our balloon mortgage loans within this category generally have payments based onwith amortization terms which generally range from 2515 to 30 years.  We also offer fully amortizing fixed-rate and adjustable-rate mortgage loans on multi-family and non-residential properties with terms up to 25 years. Our commercial mortgage loans are primarily secured by properties located in New Jersey, and New York and to a lesser extent, properties located in eastern Pennsylvania.the surrounding states.

Commercial Business (C&I) Loans.  We originate commercial term loans and lines of credit to a variety of professionals, sole proprietorships and small businesses in our market area.  Our business loan products include our Small Business Express Loan, which offers customersclients a simplified and expedited application and approval process for term loans and lines of credit up to $100,000,$250,000, as well as loans originated through the SBA in which Kearny Bank participates as a Preferred Lender.Lender and is authorized to originate PPP loans, as discussed earlier.  We originated approximately $25.9$108.5 million of commercial business loans during the year ended June 30, 2018 compared to $34.12020, of which $69.7 million were originated under the SBA PPP program. By comparison, we originated approximately $21.9 million during the year ended June 30, 2017.  Additionally, we acquired2019.  

Supplementing our organic origination of commercial business loans with fair values totaling approximately $5.4 million in our acquisitionwas the funding of Clifton.

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Ourwholesale commercial business loan acquisition strategies included purchases of wholesale C&I loan participations totaling $28.3$2.7 million and $17.0 million duringfor both of the fiscal years ended June 30, 20182020 and 2017,2019, respectively.  Our C&I loan participations at June 30, 2018 included 24 loans with an outstanding balance of $35.3 million.  These participations were comprised entirely of our pro ratapro-rata interest in the obligations of 16nine separate commercial borrowers that were acquired through Kearny Bank’sour membership in BancAlliance, a cooperative network of lending institutions that serves as a conduit for institutional investors to participate in middle-market commercial credits.  The BancAlliance network is supported and managed on a day-to-day basis by Alliance Partners and its wholly-owned subsidiary AP Commercial LLC which acts as investment advisor and asset manager for loans acquired throughDuring fiscal 2018 we opted to discontinue the BancAlliance network while retaining a portionpurchase of such loans as an investor.  At June 30, 2017, our C&Iwholesale commercial business loan participations had anand thus all of the wholesale commercial business loans funded during fiscal 2020 were comprised of advances on previously committed lines of credit.  Our outstanding balance of $27.4 million representing our pro rata interest in 13 loans.