UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended December 31, 2020

OR

☐ 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 ☒    No ☐

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 ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated 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.     ☐

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

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: February 2, 2021.

$0.01 par value common stock — 84,200,261 shares outstanding

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

INDEX

		Page Number
PART I—FINANCIAL INFORMATION
Item 1:	Financial Statements
	Consolidated Statements of Financial Condition at December 31, 2020 (Unaudited) and June 30, 2020	1
	Consolidated Statements of Income for the Three and Six Months Ended December 31, 2020 and December 31, 2019 (Unaudited)	2
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31, 2020 and December 31, 2019 (Unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended December 31, 2020 and December 31, 2019 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2020 and December 31, 2019 (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	9
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49
Item 3:	Quantitative and Qualitative Disclosure About Market Risk	65
Item 4:	Controls and Procedures	67
PART II—OTHER INFORMATION
Item 1:	Legal Proceedings	68
Item 1A:	Risk Factors	68
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 3:	Defaults Upon Senior Securities	68
Item 4:	Mine Safety Disclosures	68
Item 5:	Other Information	68
Item 6:	Exhibits	69
SIGNATURES		70

KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In Thousands, Except Share and Per Share Data)

	December 31,			June 30,
	2020			2020
	(Unaudited)
Assets
Cash and amounts due from depository institutions	$	23,968		$	20,391
Interest-bearing deposits in other banks		105,726			160,576
Cash and cash equivalents		129,694			180,967
Investment securities available for sale, at fair value (amortized cost $1,671,935), net of allowance for credit losses of $0 at December 31, 2020		1,695,893			1,385,703
Investment securities held to maturity (fair value $31,063 and $34,069), respectively, net of allowance for credit losses of $0 at December 31, 2020		29,549			32,556
Loans held-for-sale		12,601			20,789
Loans receivable		4,828,634			4,498,397
Less: allowance for credit losses on loans		(63,386	)		(37,327	)
Net loans receivable		4,765,248			4,461,070
Premises and equipment		61,181			57,389
Federal Home Loan Bank ("FHLB") of New York stock		45,578			58,654
Accrued interest receivable		19,826			17,373
Goodwill		210,895			210,895
Core deposit intangibles		4,151			3,995
Bank owned life insurance		280,235			262,380
Deferred income tax assets, net		30,846			25,480
Other real estate owned		178			178
Other assets		49,278			40,746
Total Assets	$	7,335,153		$	6,758,175
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest-bearing	$	518,828		$	419,138
Interest-bearing		4,793,785			4,011,144
Total deposits		5,312,613			4,430,282
Borrowings		865,651			1,173,165
Advance payments by borrowers for taxes		16,100			16,569
Other liabilities		48,448			53,982
Total Liabilities		6,242,812			5,673,998
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;   84,938,272 shares and 83,663,192 shares issued and outstanding, respectively		849			837
Paid-in capital		724,389			722,871
Retained earnings		388,376			387,911
Unearned employee stock ownership plan shares;   2,859,940 shares and 2,960,289 shares, respectively		(27,726	)		(28,699	)
Accumulated other comprehensive income		6,453			1,257
Total Stockholders' Equity		1,092,341			1,084,177
Total Liabilities and Stockholders' Equity	$	7,335,153		$	6,758,175

See notes to unaudited consolidated financial statements.

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Data)

(Unaudited)

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2020			2019			2020		2019
Interest Income
Loans	$	49,466		$	45,608		$	101,646	$	94,208
Taxable investment securities		7,707			9,698			15,043		19,026
Tax-exempt investment securities		433			666			887		1,359
Other interest-earning assets		787			1,210			1,701		2,488
Total Interest Income		58,393			57,182			119,277		117,081
Interest Expense
Deposits		8,647			15,590			19,709		31,645
Borrowings		5,193			6,985			10,853		14,142
Total Interest Expense		13,840			22,575			30,562		45,787
Net Interest Income		44,553			34,607			88,715		71,294
(Reversal of) provision for credit losses		(1,365	)		(1,465	)		2,694		(2,247	)
Net Interest Income after (Reversal of) Provision for Credit Losses		45,918			36,072			86,021		73,541
Non-Interest Income
Fees and service charges		1,896			2,145			2,972		3,613
Gain (loss) on sale and call of securities		813			11			436		(3	)
Gain on sale of loans		2,378			668			4,268		1,273
Loss on sale and write down of other real estate owned		-			(28	)		-		(28	)
Income from bank owned life insurance		1,596			1,576			3,192		3,156
Electronic banking fees and charges		404			293			809		611
Bargain purchase gain		-			-			3,053		-
Other income		67			(111	)		157		(106	)
Total Non-Interest Income		7,154			4,554			14,887		8,516
Non-Interest Expense
Salaries and employee benefits		17,081			15,174			34,058		30,951
Net occupancy expense of premises		3,120			3,082			6,242		6,051
Equipment and systems		3,902			3,046			7,472		6,135
Advertising and marketing		513			890			1,013		1,425
Federal deposit insurance premium		490			-			962		-
Directors' compensation		748			769			1,496		1,539
Merger-related expenses		-			219			4,349		219
Debt extinguishment expenses		796			-			796		-
Other expense		3,860			3,247			7,695		6,351
Total Non-Interest Expense		30,510			26,427			64,083		52,671
Income before Income Taxes		22,562			14,199			36,825		29,386
Income tax expense		5,614			3,547			8,498		7,364
Net Income	$	16,948		$	10,652		$	28,327	$	22,022

See notes to unaudited consolidated financial statements.

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (Continued)

(In Thousands, Except Per Share Data)

(Unaudited)

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2020		2019		2020		2019
Net Income per Common Share (EPS)
Basic	$	0.20	$	0.13	$	0.33	$	0.26
Diluted	$	0.20	$	0.13	$	0.33	$	0.26
Weighted Average Number of Common Shares Outstanding
Basic		85,120		82,831		85,564		83,794
Diluted		85,123		82,876		85,566		83,835

See notes to unaudited consolidated financial statements.

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands, Unaudited)

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2020			2019			2020			2019
Net Income	$	16,948		$	10,652		$	28,327		$	22,022
Other Comprehensive Income (Loss), net of tax:
Net unrealized gain (loss) on securities available for sale		504			(2,030	)		1,292			5,263
Amortization of net unrealized loss on securities available for sale transferred to held to maturity		-			-			-			421
Net realized (gain) loss on sale and call of securities available for sale		(571	)		(8	)		(306	)		1
Fair value adjustments on derivatives		2,531			1,300			4,176			(907	)
Benefit plan adjustments		15			3			34			338
Total Other Comprehensive Income (Loss)		2,479			(735	)		5,196			5,116
Total Comprehensive Income	$	19,427		$	9,917		$	33,523		$	27,138

See notes to unaudited consolidated financial statements.

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In Thousands, Except Share and Per Share Data, Unaudited)

	Common Stock						Paid-In			Retained			Unearned ESOP			Accumulated Other Comprehensive
	Shares			Amount			Capital			Earnings			Shares			Income			Total
Balance - September 30, 2019		86,786		$	868		$	758,385		$	373,004		$	(30,158	)	$	8,690		$	1,110,789
Net income		-			-			-			10,652			-			-			10,652
Other comprehensive loss, net   of income tax		-			-			-			-			-			(735	)		(735	)
ESOP shares committed to be   released (50 shares)		-			-			207			-			487			-			694
Stock option expense		-			-			466			-			-			-			466
Share repurchases		(1,574	)		(16	)		(21,656	)		-			-			-			(21,672	)
Restricted stock plan shares   earned (70 shares)		-			-			1,014			-			-			-			1,014
Cancellation of shares issued for   restricted stock awards		(62	)		(1	)		(877	)		-			-			-			(878	)
Cash dividends declared   ($0.07 per common share)		-			-			-			(5,760	)		-			-			(5,760	)
Balance - December 31, 2019		85,150		$	851		$	737,539		$	377,896		$	(29,671	)	$	7,955		$	1,094,570

	Common Stock						Paid-In			Retained			Unearned ESOP			Accumulated Other Comprehensive
	Shares			Amount			Capital			Earnings			Shares			Income		Total
Balance - June 30, 2019		89,126		$	891		$	787,394		$	366,679		$	(30,644	)	$	2,839	$	1,127,159
Net income		-			-			-			22,022			-			-		22,022
Other comprehensive income, net   of income tax		-			-			-			-			-			5,116		5,116
ESOP shares committed to be   released (100 shares)		-			-			380			-			973			-		1,353
Stock option expense		-			-			917			-			-			-		917
Share repurchases		(3,900	)		(39	)		(52,215	)		-			-			-		(52,254	)
Restricted stock plan shares   earned (138 shares)		-			-			1,999			-			-			-		1,999
Cancellation of shares issued for   restricted stock awards		(76	)		(1	)		(936	)		-			-			-		(937	)
Cash dividends declared   ($0.13 per common share)		-			-			-			(10,805	)		-			-		(10,805	)
Balance - December 31, 2019		85,150		$	851		$	737,539		$	377,896		$	(29,671	)	$	7,955	$	1,094,570

See notes to unaudited consolidated financial statements.

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In Thousands, Except Share and Per Share Data, Unaudited)

	Common Stock						Paid-In			Retained			Unearned ESOP			Accumulated Other Comprehensive
	Shares			Amount			Capital			Earnings			Shares			Income		Total
Balance - September 30, 2020		89,510		$	895		$	769,269		$	378,134		$	(28,212	)	$	3,974	$	1,124,060
Net income		-			-			-			16,948			-			-		16,948
Other comprehensive income, net   of income tax		-			-			-			-			-			2,479		2,479
ESOP shares committed to be   released (50 shares)		-			-			(12	)		-			486			-		474
Stock option expense		-			-			455			-			-			-		455
Share repurchases		(4,509	)		(45	)		(45,659	)		-			-			-		(45,704	)
Restricted stock plan shares   earned (69 shares)		-			-			975			-			-			-		975
Cancellation of shares issued for   restricted stock awards		(63	)		(1	)		(639	)		-			-			-		(640	)
Cash dividends declared   ($0.08 per common share)		-			-			-			(6,706	)		-			-		(6,706	)
Balance - December 31, 2020		84,938		$	849		$	724,389		$	388,376		$	(27,726	)	$	6,453	$	1,092,341

	Common Stock						Paid-In			Retained			Unearned ESOP			Accumulated Other Comprehensive
	Shares			Amount			Capital			Earnings			Shares			Income		Total
Balance - June 30, 2020		83,663		$	837		$	722,871		$	387,911		$	(28,699	)	$	1,257		1,084,177
Cumulative effect of change in accounting principle - Topic 326		-			-			-			(14,239	)		-			-		(14,239	)
Balance - July 1, 2020 as adjusted for change in accounting principle		83,663			837			722,871			373,672			(28,699	)		1,257		1,069,938
Net income		-			-			-			28,327			-			-		28,327
Other comprehensive income, net   of income tax		-			-			-			-			-			5,196		5,196
ESOP shares committed to be   released (100 shares)		-			-			(112	)		-			973			-		861
Stock option expense		-			-			911			-			-			-		911
Share repurchases		(4,509	)		(45	)		(45,659	)		-			-			-		(45,704	)
Restricted stock plan shares   earned (138 shares)		-			-			1,991			-			-			-		1,991
Cancellation of shares issued for   restricted stock awards		(70	)		(1	)		(688	)		-			-			-		(689	)
Shares issued in conjunction with the acquisition of MSB Financial Corp.		5,854			58			45,075			-			-			-		45,133
Cash dividends declared   ($0.16 per common share)					-			-			(13,623	)		-					(13,623	)
Balance - December 31, 2020		84,938		$	849		$	724,389		$	388,376		$	(27,726	)	$	6,453	$	1,092,341

See notes to unaudited consolidated financial statements.

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands, Unaudited)

	Six Months Ended
	December 31,
	2020			2019
Cash Flows from Operating Activities:
Net income	$	28,327		$	22,022
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment		2,883			2,263
Net accretion of premiums, discounts and loan fees and costs		(7,620	)		(4,575	)
Deferred income taxes and valuation allowance		2,262			2,940
Realized gain on bargain purchase		(3,053	)		-
Amortization of intangible assets		534			615
Amortization of benefit plans’ unrecognized net gain		42			480
Provision for (reversal of) credit losses		2,694			(2,247	)
Loss on write-down and sales of other real estate owned		-			28
Loans originated for sale		(212,037	)		(120,091	)
Proceeds from sale of mortgage loans held-for-sale		224,141			127,678
Gain on sale of mortgage loans held-for-sale, net		(3,916	)		(1,273	)
Realized (gain) loss on sale and call of investment securities available for sale		(436	)		3
Realized loss on debt extinguishment		796			-
Realized gain on sale of loans receivable		(352	)		-
Realized loss on disposition of premises and equipment		26			342
Increase in cash surrender value of bank owned life insurance		(3,192	)		(3,156	)
ESOP, stock option plan and restricted stock plan expenses		3,763			4,269
(Increase) decrease in interest receivable		(752	)		1,099
Increase in other assets		(3,225	)		(20,227	)
Decrease in interest payable		(237	)		(3,094	)
Increase in other liabilities		172			17,663
Net Cash Provided by Operating Activities		30,820			24,739
Cash Flows from Investing Activities:
Purchases of:
Investment securities available for sale		(604,971	)		(216,015	)
Proceeds from:
Repayments/calls/maturities of investment securities available for sale		253,802			70,213
Repayments/calls/maturities of investment securities held to maturity		2,930			2,745
Sales of investment securities available for sale		44,842			3,646
Purchase of loans		(23,508	)		(34,249	)
Net decrease in loans receivable		192,081			224,895
Proceeds from sale of loans receivable		43,931			-
Purchase of interest rate caps		-			(1,476	)
Additions to premises and equipment		(2,224	)		(2,688	)
Proceeds from cash settlement of premises and equipment		-			395
Redemption of FHLB stock		16,421			1,352
Net cash acquired in acquisition		4,296			-
Net Cash (Used in) Provided by Investing Activities	$	(72,400	)	$	48,818

See notes to unaudited consolidated financial statements.

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KEARNY FINANCIAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands, Unaudited)

	Six Months Ended
	December 31,
	2020			2019
Cash Flows from Financing Activities:
Net increase in deposits		423,187			41,832
Repayment of term FHLB advances		(1,667,796	)		(1,680,059	)
Proceeds from term FHLB advances		1,365,000			1,650,000
Net decrease in other short-term borrowings		(68,635	)		(17,680	)
Net decrease in advance payments by borrowers for taxes		(1,263	)		(302	)
Repurchase and cancellation of common stock of Kearny Financial Corp.		(45,704	)		(52,254	)
Cancellation of shares repurchased on vesting to pay taxes		(689	)		(937	)
Dividends paid		(13,793	)		(11,296	)
Net Cash Used in Financing Activities		(9,693	)		(70,696	)
Net (Decrease) Increase in Cash and Cash Equivalents		(51,273	)		2,861
Cash and Cash Equivalents - Beginning		180,967			38,935
Cash and Cash Equivalents - Ending	$	129,694		$	41,796
Supplemental Disclosures of Cash Flows Information:
Cash paid during the period for:
Income taxes, net of refunds	$	9,189		$	6,379
Interest	$	30,798		$	48,881
Non-cash investing and financing activities:
Transfers from loans receivable to loans receivable held-for-sale	$	43,579		$	-
Acquisition of other real estate owned in settlement of loans	$	-		$	206
Fair value of assets acquired, net of cash and cash equivalents acquired	$	567,816		$	-
Fair value of liabilities assumed	$	523,926		$	-
In conjunction with the adoption of ASU 2019-04, the following qualifying held to maturity securities were transferred to available for sale:
Debt securities transferred from held to maturity to available for sale	$	-		$	537,732
In conjunction with the adoption of ASU 2016-02, the following assets and liabilities were recognized:
Operating lease right-of-use assets	$	-		$	17,243
Operating lease liabilities	$	-		$	17,758

See notes to unaudited consolidated financial statements.

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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, CJB Investment Corp., KFS Insurance Services, Inc. and Millington Savings Service Corp. 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 information or footnotes necessary for a complete presentation of financial condition, income, comprehensive (loss) 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-month and six-month periods ended December 31, 2020 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 for June 30, 2020 was derived from the Company’s 2020 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 2020 Annual Report on Form 10-K.

Risks and Uncertainties

As previously disclosed, on March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. The COVID-19 pandemic has adversely affected, and may continue to adversely affect, local, national and global economic activity. The spread of the outbreak has caused significant disruptions to the U.S. economy, significant reductions in the targeted federal funds rate and has disrupted banking and other financial activity in the areas in which the Company operates. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted to, among other provisions, provide emergency assistance for individuals, families and businesses affected by the COVID-19 pandemic. On December 27, 2020 the 2021 Consolidated Appropriations Act, was enacted as part of an omnibus spending bill for the 2021 federal fiscal year, included provisions intended to provide additional aid to those impacted by the pandemic.

 Reductions in interest rates and other effects of the COVID-19 pandemic may continue to materially and adversely affect the Company's financial condition and results of operations in future periods. It is unknown how long the adverse conditions associated with the COVID-19 pandemic will last and what the complete financial effect will be to the Company. It is possible that estimates made in the financial statements could be materially and adversely impacted as a result of these conditions, including estimates regarding expected credit losses on loans receivable, impairment of investment securities and impairment of goodwill. Although the Company continues to operate while taking steps to ensure the safety of employees and clients, COVID-19 could also potentially create widespread business continuity issues for the Company.

The extent to which the COVID-19 pandemic will continue to impact the Company’s business, financial condition and results of operations in future periods will depend on future developments, including the scope and duration of the pandemic, the efficacy and adoption of COVID-19 vaccines and actions taken by governmental authorities and other third parties in response to the pandemic, as well as further actions the Company may take as may be required by government authorities or that the Company determines is in the best interests of its employees and clients. There is no certainty that such measures will be sufficient to mitigate the risks posed by the pandemic.

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Adoption of New Accounting Standards

On July 1, 2020, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology.  The Company adopted ASU 2016-13 using a modified retrospective approach. Results for reporting periods beginning after July 1, 2020 are presented under Topic 326, while prior period amounts continue to be reported in accordance with previously applicable GAAP.  At adoption, the Company increased its allowance for credit losses by $20.2 million, comprised of $19.6 million for loans receivable and $536,000 for unfunded commitments. Upon adoption the Company recorded a cumulative effect adjustment that reduced stockholders’ equity by $14.2 million, net of tax.

Allowance for Credit Losses

The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for credit losses that is charged against income. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses. The allowance for credit losses is reported separately as a contra-asset on the consolidated statement of financial condition. The expected credit loss for unfunded lending commitments and unfunded loan commitments is reported on the Consolidated Statement of Financial Condition in other liabilities while the provision for credit losses related to unfunded commitments is reported in other non-interest expense.

Allowance for Credit Losses on Loans Receivable

The allowance for credit losses on loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected. Expected losses are evaluated and calculated on a collective, or pooled, basis for those loans which share similar risk characteristics. At each reporting period, the Company evaluates whether loans within a pool continue to exhibit similar risk characteristics. If the risk characteristics of a loan change, such that they are no longer similar to other loans in the pool, the Company will evaluate the loan with a different pool of loans that share similar risk characteristics.  If the loan does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis. The Company evaluates the pooling methodology at least annually. Loans are charged off against the allowance for credit losses when the Company believes the balances to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged off or expected to be charged off.

The Company has chosen to segment its portfolio consistent with the manner in which it manages credit risk. Such segments include multi-family, nonresidential mortgage, commercial business, construction, one- to four-family residential, home equity and consumer. For most segments the Company calculates estimated credit losses using a probability of default and loss given default methodology, the results of which are applied to the aggregated discounted cash flow of each individual loan within the segment. The point in time probability of default and loss given default are then conditioned by macroeconomic scenarios to incorporate reasonable and supportable forecasts that affect the collectability of the reported amount.

The Company estimates the allowance for credit losses on loans via a quantitative analysis which considers relevant available information from internal and external sources related to past events and current conditions, as well as the incorporation of reasonable and supportable forecasts. The Company evaluates a variety of factors including third party economic forecasts, industry trends and other available published economic information in arriving at its forecasts. After the reasonable and supportable forecast period, the Company reverts, on a straight-line basis, to average historical losses. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled debt restructuring will be executed with an individual borrower or the renewal option is included in the original or modified contract at the reporting date and are not unconditionally cancelable by the Company.

Also included in the allowance for credit losses on loans are qualitative reserves to cover losses that are expected but, in the Company’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above. Factors that the Company considers include changes in lending policies and procedures, business conditions, the nature and size of the portfolio, portfolio concentrations, the volume and severity of past due loans and non-accrual loans, the effect of external factors such as competition, legal and regulatory requirements, among others. Furthermore, the Company considers the inherent uncertainty in quantitative models that are built upon historical data.

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Individually Evaluated Loans

On a case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics. When the Company determines that a loan no longer shares similar risk characteristics with other loans in the portfolio, the allowance will be determined on an individual basis using the present value of expected cash flows or, for collateral-dependent loans, the fair value of the collateral as of the reporting date, less estimated selling costs, as applicable. If the fair value of the collateral is less than the amortized cost basis of the loan, the Company will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.

Acquired Loans

Acquired loans are included in the Company's calculation of the allowance for credit losses. How the allowance on an acquired loan is recorded depends on whether or not it has been classified as a Purchased Credit Deteriorated (“PCD”) loan. PCD loans are loans acquired at a discount that is due, in part, to credit quality. PCD loans are accounted for in accordance with ASC Subtopic 326-20 and are initially recorded at fair value as determined by the sum of the present value of expected future cash flows and an allowance for credit losses at acquisition. The allowance for PCD loans is recorded through a gross-up effect, while the allowance for acquired non-PCD loans is recorded through provision expense, consistent with originated loans. Thus, the determination of which loans are PCD and non-PCD can have a significant impact on the accounting for these loans. Subsequent to acquisition, the allowance for PCD loans will generally follow the same estimation, provision and charge-off process as non-PCD acquired and originated loans.

Allowance for Credit Losses on Off-Balance Sheet Commitments

The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance calculation, other than those that are unconditionally cancelable. To arrive at that reserve, the reserve percentage for each applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected funding rate. To determine the expected funding rate, the Company uses a historical utilization rate for each segment. As noted above, the allowance for credit losses on unfunded loan commitments is included in other liabilities on the consolidated statement of financial condition and the related credit expense is recorded in other non-interest expense in the consolidated statements of income.

Allowance for Credit Losses on Held to Maturity Securities

The Company’s entire portfolio of held to maturity securities consists of municipal bonds which are highly rated by major rating agencies and have a long history of no credit losses. In estimating the net amount expected to be collected for held to maturity securities in an unrealized loss position, a historical loss based method is utilized.

Allowance for Credit Losses on Available for Sale Securities

For available for sale securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more than likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For securities available for sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating by a rating agency, and adverse conditions related to the security, among other factors.  If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of tax. The Company elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rate by major agencies and have a long history of no credit losses.

Changes in the allowance for credit losses are recorded as provision for, or reversal of, credit loss expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

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Accrued Interest Receivable

The Company made an accounting policy election to exclude accrued interest receivable from the amortized cost basis of loans, available for sale securities, and held to maturity securities. Accrued interest receivable on loans is reported as a component of accrued interest receivable on the Consolidated Statement of Financial Condition, totaled $15.5 million at December 31, 2020 and is excluded from the estimate of credit losses. Accrued interest receivable on available of sale securities and held to maturity securities, also a component of accrued interest receivable on the Consolidated Statement of Financial Condition, totaled $4.1 million and $202,000, respectively, at December 31, 2020 and is excluded from the estimate of credit losses.  There were no material accrued interest balances for loans on deferral under the CARES Act.

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

Basic EPS is based on the weighted average number of common shares actually outstanding, including both vested and unvested restricted stock awards, adjusted for Employee Stock Ownership Plan (“ESOP”) shares not yet committed to be released. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as outstanding stock options, were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. Diluted EPS is calculated by adjusting the weighted average number of shares of common stock outstanding to include the effect of contracts or securities exercisable or which could be converted into common stock, if dilutive, using the treasury stock method. Shares issued and reacquired during any period are weighted for the portion of the period they were outstanding.

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,
	2020		2019		2020		2019
Net income	$	16,948	$	10,652	$	28,327	$	22,022
Weighted average number of common shares outstanding - basic		85,120		82,831		85,564		83,794
Effect of dilutive securities		3		45		2		41
Weighted average number of common shares outstanding - diluted		85,123		82,876		85,566		83,835
Basic earnings per share	$	0.20	$	0.13	$	0.33	$	0.26
Diluted earnings per share	$	0.20	$	0.13	$	0.33	$	0.26

Stock options for 3,280,648 and 3,115,000 shares of common stock were not considered in computing diluted earnings per share at December 31, 2020 and December 31, 2019, respectively, because they were considered anti-dilutive.

3.     SUBSEQUENT EVENTS

The Company has evaluated events and transactions occurring subsequent to the statement of financial condition date of December 31, 2020, 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.

4.    ACQUISITION OF MSB FINANCIAL CORP.

On July 10, 2020, the Company completed its acquisition of MSB Financial Corp. (“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 were distributed to former MSB shareholders in exchange for their shares of MSB common stock.

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The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities, both tangible and intangible, were recorded at their fair values as of July 10, 2020 based on management’s best estimate using the information available as of the merger date.  The application of the acquisition method of accounting resulted in the recognition of bargain purchase gain of $3.1 million and a core deposit intangible of $690,000. During the quarter ended December 31, 2020 the Company completed all MSB tax returns and determined that there were no material adjustments to the balance of deferred income tax assets or bargain purchase gain associated with the MSB acquisition.

The Company recorded the assets acquired and liabilities assumed through the merger at fair value as summarized in the following table:

	As Recorded by MSB			Fair Value Adjustments				As Recorded at Acquisition
	(In Thousands)
Cash paid for acquisition								$	9,830
Value of stock issued									45,133
Total purchase price								$	54,963
Cash and cash equivalents	$	14,126		$	-			$	14,126
Investment securities		4,000			(510	)	(a)		3,490
Loans receivable		537,589			(7,345	)	(b)		530,244
Allowance for loan losses		(6,037	)		6,037		(c)		-
Premises and equipment		7,698			(3,221	)	(d)		4,477
FHLB stock		3,345			-				3,345
Accrued interest receivable		1,701			-				1,701
Core deposit intangibles		-			690		(e)		690
Bank owned life insurance		14,663			-				14,663
Deferred income taxes, net		1,729			2,152		(f)		3,881
Other assets		4,830			495		(g)		5,325
Total assets acquired	$	583,644		$	(1,702	)		$	581,942
Deposits	$	458,392		$	1,786		(h)	$	460,178
FHLB borrowings		62,900			-				62,900
Advance payments by borrowers for taxes		794			-				794
Other liabilities		810			(756	)	(i)		54
Total liabilities assumed	$	522,896		$	1,030			$	523,926
Net assets acquired								$	58,016
Bargain purchase gain								$	(3,053	)

Explanation of certain fair value related adjustments:

(a) Represents the fair value adjustments on investment securities.

(b) Represents the fair value adjustments on the net book value of loans, which includes an interest rate mark and credit mark adjustment and the reversal of deferred fees/costs and premiums.

(c) Represents the elimination of MSB’s allowance for loan losses.

(d) Represents the fair value adjustments to reflect the fair value of land and buildings and premises and equipment, which will be amortized on a straight-line basis over the estimated useful lives of the individual assets.

(e) Represents the intangible assets recorded to reflect the fair value of core deposits.  The core deposit asset was recorded as an identifiable intangible asset and will be amortized on an accelerated basis over the estimated average life of the deposit base.

(f) Represents an adjustment to net deferred tax assets resulting from the fair value adjustments related to the acquired assets, liabilities assumed and identifiable intangible assets recorded.

(g) Represents an adjustment to other assets acquired.

(h) Represents fair value adjustments on time deposits, which will be treated as a reduction of interest expense over the remaining term of the time deposits.

(i) Represents an adjustment to other liabilities assumed.

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The fair value of loans acquired from MSB was estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. There was no carryover of MSB’s allowance for loan losses associated with the loans that were acquired.  For information regarding purchased loans which have been determined to be PCD, refer to Note 8, Loans Receivable.

The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years utilizing the sum-of-the-years digits method.

The fair value of retail demand and interest bearing deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities.

5.    MERGER RELATED EXPENSES

Merger-related expenses were recorded in the Consolidated Statements of Income as a component of non-interest expense and include costs relating to the Company’s acquisition of MSB, as described above.  These charges represent one-time costs associated with acquisition activities and do not represent ongoing costs of the fully integrated combined organization.  Accounting guidance requires that acquisition-related transactional and restructuring costs incurred by the Company be charged to expense as incurred. Direct acquisition and other charges incurred in connection with the MSB merger totaled $4.3 million for the three months ended September 30, 2020 and $951,000 for the fiscal year ended June 30, 2020.  Direct acquisition and other charges were recorded in merger-related expense on the consolidated statements of income.

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6.     RECENT ACCOUNTING PRONOUNCEMENTS

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU 2019-12, “Income taxes (Topic 740); Simplifying the Accounting for Income Taxes”. ASU 2019-12 provides amendments intended to reduce the cost and complexity in accounting for income taxes while maintaining or improving the usefulness of the information provided to users of financial statements.  ASU 2019-12 removes the following exceptions from ASC 740, Income Taxes: (i) exceptions to the incremental approach for intraperiod tax allocation; (ii) exceptions to accounting for basis differences when a foreign subsidiary becomes an equity method investment or a foreign equity method investment become a subsidiary; and (iii) exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 provides the following amendments that simplify and improve guidance with Topic 740: (i) franchise taxes that are based partially on income; (ii) transactions that result in a step up in the tax basis of goodwill; (iii) separate financial statements of legal entities that are not subject to tax; (iv) enacted changes in tax laws in interim periods; and (v) employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. For public business entities, the amendments in the ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

Adoption of New Accounting Standards

On July 1, 2020 the Company adopted ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  This ASU replaced the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology.  The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost including loan receivables and held to maturity debt securities.  This ASU also applies to off-balance exposures.  In addition, this ASU made certain changes to the accounting for available for sale securities debt securities. Credit losses are required to be presented as an allowance rather than as a write-down on available for sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell. The Company adopted Topic 326 and all its related updates on July 1, 2020, using the modified retrospective approach for financial assets measured at amortized cost.  Results for reporting periods after July 1, 2020 are presented in accordance to the guidance under Topic 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.  Upon adoption the Company recorded a cumulative effect adjustment that reduced stockholders’ equity by $14.2 million, net of tax. Additional information regarding the adoption of ASU 2016-13 is presented in Note 1, Summary of Significant Accounting Policies.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies subsequent measurement of goodwill by eliminating Step 2 of the impairment test while retaining the option to perform the qualitative assessment for a reporting unit to determine whether the quantitative impairment test is necessary. The ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform a quantitative goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. For public entities, ASU 2017-04 is effective for fiscal years beginning after December 15, 2019 with early adoption permitted for interim or annual goodwill impairment testing dates beginning after January 1, 2017. The Company is applying the amendments of ASU 2017-04 prospectively for goodwill impairment testing conducted after July 1, 2020.

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7.     SECURITIES

At December 31, 2020, there was no allowance for credit losses on available for sale 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, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
Available for sale:
Debt securities:
Obligations of state and political subdivisions	$	46,665	$	1,098	$	-	$	47,763
Asset-backed securities		254,920		1,454		967		255,407
Collateralized loan obligations		197,515		79		909		196,685
Corporate bonds		166,097		1,547		476		167,168
Trust preferred securities		2,967		-		101		2,866
Total debt securities		668,164		4,178		2,453		669,889
Mortgage-backed securities:
Collateralized mortgage obligations (1)		20,021		489		-		20,510
Residential pass-through securities (1)		693,655		12,336		-		705,991
Commercial pass-through securities (1)		290,095		9,597		189		299,503
Total mortgage-backed securities		1,003,771		22,422		189		1,026,004
Total securities available for sale	$	1,671,935	$	26,600	$	2,642	$	1,695,893

(1) Government-sponsored enterprises.

	June 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
Available for sale:
Debt securities:
Obligations of state and political subdivisions	$	52,843	$	1,211	$	-		54,054
Asset-backed securities		177,413		-		4,966		172,447
Collateralized loan obligations		198,619		-		4,831		193,788
Corporate bonds		142,942		1,267		570		143,639
Trust preferred securities		2,967		-		340		2,627
Total debt securities		574,784		2,478		10,707		566,555
Mortgage-backed securities:
Collateralized mortgage obligations (1)		30,043		860		-		30,903
Residential pass-through securities (1)		543,819		18,135		-		561,954
Commercial pass-through securities (1)		214,575		11,716		-		226,291
Total mortgage-backed securities		788,437		30,711		-		819,148
Total securities available for sale	$	1,363,221	$	33,189	$	10,707	$	1,385,703

(1) Government-sponsored enterprises.

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	December 31, 2020
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
	(In Thousands)
Held to maturity:
Debt securities:
Obligations of state and political subdivisions	$	29,549	$	1,514	$	-	$	31,063
Total debt securities		29,549		1,514		-		31,063
Total securities held to maturity	$	29,549	$	1,514	$	-	$	31,063

	June 30, 2020
	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Fair Value
	(In Thousands)
Held to maturity:
Debt securities:
Obligations of state and political subdivisions	$	32,556	$	1,513	$	-	$	34,069
Total debt securities		32,556		1,513		-		34,069
Total securities held to maturity	$	32,556	$	1,513	$	-	$	34,069

Excluding the balances of mortgage-backed securities, the following table presents the amortized cost and estimated fair values of debt securities available for sale and held to maturity, by contractual maturity, at December 31, 2020:

	December 31, 2020
	Amortized Cost		Fair Value
	(In Thousands)
Debt securities:
Due in one year or less	$	5,163	$	5,180
Due after one year through five years		88,106		89,216
Due after five years through ten years		341,569		343,661
Due after ten years		262,875		262,895
Total	$	697,713	$	700,952

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

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2020		2019		2020			2019
	(In Thousands)				(In Thousands)
Available for sale securities sold:
Proceeds from sales of securities	$	25,242	$	-	$	44,842		$	3,646
Gross realized gains	$	800	$	-	$	800		$	12
Gross realized losses		-		-		(385	)		(28	)
Net gain (loss) on sales of securities	$	800	$	-	$	415		$	(16	)

Calls of securities available for sale during the three months ended December 31, 2020 and December 31, 2019 resulted in gross gains of $13,000 and $11,000, respectively.  Calls of securities available for sale during the six months ended December 31, 2020 and December 31, 2019 resulted in gross gains of $21,000 and $13,000, respectively.  During the three and six months ended December 31, 2020 and December 31, 2019, there were no gains or losses recorded on sales and calls of securities held to maturity.

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,		June 30,
	2020		2020
	(In Thousands)
Securities pledged:
Pledged for borrowings at the FHLB of New York	$	155,620	$	155,288
Pledged to secure public funds on deposit		104,434		19,944
Pledged for potential borrowings at the Federal Reserve Bank of New York		338,152		366,482
Pledged as collateral for depositor sweep accounts		-		7,830
Total carrying value of securities pledged	$	598,206	$	549,544

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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, 2020 and June 30, 2020:

	December 31, 2020
	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	$	46,989	$	529	$	44,103	$	438		10	$	91,092	$	967
Collateralized loan obligations		61,440		110		126,755		799		18		188,195		909
Corporate bonds		41,548		401		19,925		75		7		61,473		476
Trust preferred securities		-		-		2,866		101		2		2,866		101
Commercial pass-through securities		81,056		189		-		-		4		81,056		189
Total	$	231,033	$	1,229	$	193,649	$	1,413		41	$	424,682	$	2,642

	June 30, 2020
	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	$	146,494	$	3,962	$	25,954	$	1,004		16	$	172,448	$	4,966
Collateralized loan obligations		71,282		1,245		122,506		3,586		19		193,788		4,831
Corporate bonds		24,764		236		39,651		334		8		64,415		570
Trust preferred securities		-		-		2,626		340		2		2,626		340
Total	$	242,540	$	5,443	$	190,737	$	5,264		45	$	433,277	$	10,707

At December 31, 2020 and June 30, 2020, there were no held to maturity securities with unrecognized losses.

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 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 when 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, 2020. 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. Therefore, no allowance for credit losses was recorded at December 31, 2020.

At December 31, 2020, the Company’s entire portfolio of held to maturity securities consists of municipal bonds which are highly rated by major rating agencies and have a long history of no credit losses.  None of the securities in the Company’s portfolio of held to maturity municipal bonds were in an unrealized loss position. The Company continually monitors the municipal bond sector of the market and reviews collectability including such factors as the financial condition of the issuers including credit ratings in effect as of the reporting period.  

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8.     LOANS RECEIVABLE

The following table sets forth the composition of the Company’s loan portfolio at December 31, 2020 and June 30, 2020:

	December 31,			June 30,
	2020			2020
	(In Thousands)
Commercial loans:
Multi-family mortgage	$	2,076,483		$	2,059,568
Nonresidential mortgage		1,123,695			960,853
Commercial business (1)		202,010			138,788
Construction		90,398			20,961
Total commercial loans		3,492,586			3,180,170
One- to four-family residential mortgage		1,305,351			1,273,022
Consumer loans:
Home equity loans		65,298			82,920
Other consumer		4,123			3,991
Total consumer loans		69,421			86,911
Total loans		4,867,358			4,540,103
Unaccreted yield adjustments		(38,724	)		(41,706	)
Total loans receivable, net of yield adjustments	$	4,828,634		$	4,498,397

(1) Includes Paycheck Protection Program (“PPP”) loans of $39.2 million and $69.0 million as of December 31, 2020 and June 30, 2020, respectively. The balance of PPP loans at December 31, 2020 includes loans acquired in conjunction with the Company’s acquisition of MSB on July 10, 2020.

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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, 2020 and June 30, 2020, by loan segment:

	December 31, 2020
	Multi-Family Mortgage		Non- Residential Mortgage		Commercial Business		Construction		Residential Mortgage		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Current	$	2,060,012	$	1,083,879	$	201,527	$	90,398	$	1,297,164	$	65,182	$	4,110	$	4,802,272
Past due:
30-59 days		2,971		2,713		183		-		2,718		-		2		8,587
60-89 days		3,274		14,529		-		-		271		-		6		18,080
90 days and over		10,226		22,574		300		-		5,198		116		5		38,419
Total past due		16,471		39,816		483		-		8,187		116		13		65,086
Total loans	$	2,076,483	$	1,123,695	$	202,010	$	90,398	$	1,305,351	$	65,298	$	4,123	$	4,867,358

	June 30, 2020
	Multi-Family Mortgage		Non- Residential Mortgage		Commercial Business		Construction		Residential Mortgage		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Current	$	2,059,568	$	941,714	$	138,439	$	20,961	$	1,264,267	$	82,358	$	3,981	$	4,511,288
Past due:
30-59 days		-		-		-		-		3,211		169		-		3,380
60-89 days		-		14,478		-		-		1,038		13		5		15,534
90 days and over		-		4,661		349		-		4,506		380		5		9,901
Total past due		-		19,139		349		-		8,755		562		10		28,815
Total loans	$	2,059,568	$	960,853	$	138,788	$	20,961	$	1,273,022	$	82,920	$	3,991	$	4,540,103

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 (“P&I”) owed substantially in accordance with the terms of the loan agreement, regardless of past due status. Loans that become 90 days past due, but are well secured and in the process of collection, may remain on accrual status. Nonaccrual loans are generally returned to accrual status when all payments due are brought current and we expect to receive all remaining P&I payments owed substantially in accordance with the terms of the loan agreement.  Payments received in cash on nonaccrual loans, including both the principal and interest portions of those payments, are generally applied to reduce the carrying value of the loan. The Company did not recognize interest income on non-accrual loans during the three and six months ended December 31, 2020 and December 31, 2019.

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The following tables present information relating to the Company’s nonperforming loans as of December 31, 2020 and June 30, 2020:

	December 31, 2020
	Multi-Family Mortgage		Non- Residential Mortgage		Commercial Business		Construction		Residential Mortgage		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Performing	$	2,060,087	$	1,084,413	$	201,483	$	87,884	$	1,292,826	$	65,075	$	4,118	$	4,795,886
Nonperforming:
90 days and over past due accruing		-		-		-		-		-		-		-		-
Nonaccrual loans with allowance for credit losses		-		1,635		121		-		2,770		-		5		4,531
Nonaccrual loans with no allowance for credit losses		16,396		37,647		406		2,514		9,755		223		-		66,941
Total nonperforming		16,396		39,282		527		2,514		12,525		223		5		71,472
Total loans	$	2,076,483	$	1,123,695	$	202,010	$	90,398	$	1,305,351	$	65,298	$	4,123	$	4,867,358

	June 30, 2020
	Multi-Family Mortgage		Non- Residential Mortgage		Commercial Business		Construction		Residential Mortgage		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Performing	$	2,056,606	$	936,917	$	138,196	$	20,961	$	1,264,663	$	82,078	$	3,986	$	4,503,407
Nonperforming:
90 days and over past due accruing		-		-		-		-		-		-		5		5
Nonaccrual		2,962		23,936		592		-		8,359		842		-		36,691
Total nonperforming		2,962		23,936		592		-		8,359		842		5		36,696
Total loans	$	2,059,568	$	960,853	$	138,788	$	20,961	$	1,273,022	$	82,920	$	3,991	$	4,540,103

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Troubled Debt Restructurings (“TDRs”)

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.  At December 31, 2020, the Company had TDRs totaling $19.6 million. The allowance for credit losses associated with the TDRs presented in the tables below totaled $209,000 and $8,000 as of December 31, 2020 and June 30, 2020, respectively. As of December 31, 2020, there were no significant commitments to lend additional funds to borrowers whose loans had been restructured in a TDR.

The following tables present total TDR loans at December 31, 2020 and June 30, 2020:

	December 31, 2020
	Accrual				Non-accrual				Total
	# of Loans		Amount		# of Loans		Amount		# of Loans		Amount
	(Dollars In Thousands)
Commercial loans:
Multi-family mortgage loans		-	$	-		1	$	2,896		1	$	2,896
Nonresidential mortgage		1		108		7		2,505		8		2,613
Commercial business		5		5,083		5		422		10		5,505
Construction		-		-		1		2,514		1		2,514
Total commercial loans		6		5,191		14		8,337		20		13,528
One- to four-family residential mortgage		16		2,400		17		3,091		33		5,491
Consumer loans:
Home equity loans		8		528		1		95		9		623
Total		30	$	8,119		32	$	11,523		62	$	19,642

	June 30, 2020
	Accrual				Non-accrual				Total
	# of Loans		Amount		# of Loans		Amount		# of Loans		Amount
	(Dollars In Thousands)
Commercial loans:
Multi-family mortgage loans		-	$	-		1	$	2,962		1	$	2,962
Nonresidential mortgage		1		112		9		5,442		10		5,554
Commercial business		5		5,179		6		446		11		5,625
Total commercial loans		6		5,291		16		8,850		22		14,141
One- to four-family residential mortgage		14		2,407		20		3,811		34		6,218
Consumer loans:
Home equity loans		12		715		2		448		14		1,163
Total		32	$	8,413		38	$	13,109		70	$	21,522

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The following tables present information regarding the restructuring of the Company’s troubled debts during the three and six months ended December 31, 2020 and December 31, 2019:

	Three Months Ended December 31, 2020						Six Months Ended December 31, 2020
	# of Loans		Pre-modification Recorded Investment		Post-modification Recorded Investment		# of Loans		Pre-modification Recorded Investment		Post-modification Recorded Investment
	(Dollars In Thousands)
One- to four-family residential mortgage		-	$	-	$	-		1	$	309	$	308
Total		-	$	-	$	-		1	$	309	$	308

	Three Months Ended December 31, 2019						Six Months Ended December 31, 2019
	# 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	$	92	$	92		4	$	1,867	$	1,921
One- to four-family residential mortgage		1		44		44		3		1,046		982
Home equity loans		-		-		-		1		82		81
Total		2	$	136	$	136		8	$	2,995	$	2,984

During the three and six months ended December 31, 2020 and December 31 2019, there were no charge-offs related to TDRs. During the three months ended December 31, 2020 there was one troubled debt restructuring default totaling $488,000.  During the three and six months ended December 31, 2019, there were no troubled debt restructuring defaults..

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 residential mortgage loan which qualified as a TDR during the six months ended December 31, 2020, capitalized prior past due amounts and modified the loan’s repayment terms.

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In March 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System (the “FRB”) and the Federal Deposit Insurance Corporation (the “FDIC”), issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The interagency statement was effective immediately and impacted accounting for loan modifications.  The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extension of repayment terms, or other delays in payment that are insignificant. Provisions of the CARES Act largely mirrored the provisions of the interagency statement, providing that modified loans were not to be considered TDRs if they were performing at December 31, 2019 and other considerations set forth in the interagency statements were met. Borrowers considered current are those that are less than 30 days past due at the time a modification program is implemented or at December 31, 2019.

On December 27, 2020, the 2021 Consolidated Appropriations Act was signed into law. The $900 billion relief package includes legislation that extends certain relief provisions of the CARES Act that were set to expire on December 31, 2020.  The CARES Act permitted financial institutions to suspend TDR assessment and reporting requirements under GAAP for loan modifications.  This new legislation extends this relief to the earlier of 60 days after the national emergency declared by the President is terminated or January 1, 2022. As of December 31, 2020, the Company had 37 non-TDR modified loans totaling approximately $33.2 million.

The following table sets forth the composition of these loans by loan segments as of December 31, 2020:

	December 31, 2020
	# of Loans (1)		Balance (1)
	(Dollars In Thousands)
Commercial loans:
Multi-family mortgage loans		9	$	18,247
Nonresidential mortgage		2		5,913
Commercial business		5		1,314
Total commercial loans		16		25,474
One- to four-family residential mortgage		20		7,664
Consumer loans:
Home equity loans		1		39
Total		37	$	33,177

(1) Includes loans acquired in conjunction with the Company’s acquisition of MSB on July 10, 2020.

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Individually Analyzed Loans

Effective July 1, 2020, individually analyzed loans include loans which do not share similar risk characteristics with other loans. TDR’s 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, 2020, the carrying value of individually analyzed loans totaled $71.5 million, of which $58.7 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 ACL 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 15 for additional disclosure regarding fair value of individually analyzed collateral dependent loans.

The following table presents the carrying value of collateral dependent individually analyzed loans:

	December 31, 2020
	Carrying Value		Related Allowance
	(In Thousands)
Commercial loans:
Multi-family mortgage	$	13,500	$	-
Nonresidential mortgage (1)		38,249		518
Commercial business (2)		195		-
Construction		-		-
Total commercial loans		51,944		518
One- to four-family residential mortgage (3)		6,598		206
Consumer loans:
Home equity loans (3)		116		-
Total	$	58,658	$	724

(1) Secured by income-producing property.

(2) Secured by business assets.

(3) Secured by one- to four-family properties.

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The following table presents, under previously applicable GAAP, loans individually evaluated for impairment by portfolio segment as of June 30, 2020:

	June 30, 2020
	Multi-Family Mortgage		Non- Residential Mortgage			Commercial Business			Construction		Residential Mortgage			Home Equity Loans		Other Consumer		Total
	(In Thousands)
Carrying value of impaired loans:
Non-impaired loans	$	2,056,606	$	936,805		$	132,999		$	20,961	$	1,262,256		$	81,363	$	3,991	$	4,494,981
Impaired loans:
Impaired loans with no allowance   for impairment		2,962		22,516			5,622			-		10,659			1,557		-		43,316
Impaired loans with allowance   for impairment:
Recorded investment		-		1,532			167			-		107			-		-		1,806
Allowance for impairment		-		(41	)		(47	)		-		(1	)		-		-		(89	)
Balance of impaired loans net   of allowance for impairment		-		1,491			120			-		106			-		-		1,717
Total impaired loans, excluding   allowance for impairment:		2,962		24,048			5,789			-		10,766			1,557		-		45,122
Total loans	$	2,059,568	$	960,853		$	138,788		$	20,961	$	1,273,022		$	82,920	$	3,991	$	4,540,103
Unpaid principal balance   of impaired loans:
Total impaired loans	$	3,544	$	25,898		$	8,778		$	73	$	12,908		$	1,950	$	-	$	53,151

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 considered uncollectible or of so little value that their continuance as assets is not warranted.

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The following table presents the risk category of loans as of December 31, 2020 by loan segment and vintage year:

	Term Loans by Origination Year for Fiscal Years ended June 30,
	2021		2020		2019		2018		2017		Prior		Revolving Loans		Total
	(In Thousands)
Multi-family mortgage:
Pass	$	129,953	$	260,622	$	412,587	$	402,970	$	383,315	$	458,752	$	-	$	2,048,199
Special Mention		-		-		-		-		1,851		1,070		-		2,921
Substandard		-		-		-		6,170		10,226		8,967		-		25,363
Doubtful		-		-		-		-		-		-		-		-
Total multi-family mortgage		129,953		260,622		412,587		409,140		395,392		468,789		-		2,076,483
Non-residential mortgage:
Pass		41,110		86,629		56,444		69,847		276,965		512,294		6,238		1,049,527
Special Mention		-		-		23,520		-		980		4,524		-		29,024
Substandard		-		-		-		9,165		24,903		11,076		-		45,144
Doubtful		-		-		-		-		-		-		-		-
Total non-residential mortgage		41,110		86,629		79,964		79,012		302,848		527,894		6,238		1,123,695
Commercial business:
Pass		29,506		47,411		4,466		20,468		7,093		14,342		68,640		191,926
Special Mention		1,115		1,640		267		2,370		978		15		166		6,551
Substandard		-		124		216		1,597		105		1,334		157		3,533
Doubtful		-		-		-		-		-		-		-		-
Total commercial business		30,621		49,175		4,949		24,435		8,176		15,691		68,963		202,010
Construction loans:
Pass		6,534		20,680		17,702		21,449		14,239		1,523		5,735		87,862
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		2,536		-		2,536
Doubtful		-		-		-		-		-		-		-		-
Total construction loans		6,534		20,680		17,702		21,449		14,239		4,059		5,735		90,398
Residential mortgage:
Pass		154,973		181,649		98,598		98,970		157,949		591,450		375		1,283,964
Special Mention		-		-		1,246		-		-		708		-		1,954
Substandard		952		1,408		683		-		570		15,820		-		19,433
Doubtful		-		-		-		-		-		-		-		-
Total residential mortgage		155,925		183,057		100,527		98,970		158,519		607,978		375		1,305,351
Home equity loans:
Pass		356		3,754		6,516		3,805		3,189		19,166		27,556		64,342
Special Mention		-		-		-		-		-		166		-		166
Substandard		-		-		-		-		66		724		-		790
Doubtful		-		-		-		-		-		-		-		-
Total home equity loans		356		3,754		6,516		3,805		3,255		20,056		27,556		65,298
Other consumer loans
Pass		504		536		775		266		145		1,717		72		4,015
Special Mention		-		-		-		-		-		-		-		-
Substandard		-		-		-		-		-		-		1		1
Doubtful		-		-		-		-		-		5		102		107
Other consumer loans		504		536		775		266		145		1,722		175		4,123
Total loans	$	365,003	$	604,453	$	623,020	$	637,077	$	882,574	$	1,646,189	$	109,042	$	4,867,358

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The following table presents, under previously applicable GAAP, the risk category of loans as of June 30, 2020 by loan segment:

	June 30, 2020
	Multi-Family Mortgage		Non- Residential Mortgage		Commercial Business		Construction		Residential Mortgage		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Pass	$	2,055,520	$	932,202	$	132,818	$	20,961	$	1,258,246	$	81,120	$	3,979	$	4,484,846
Special Mention		1,086		4,373		2,585		-		981		157		5		9,187
Substandard		2,962		24,278		3,385		-		13,795		1,643		6		46,069
Doubtful		-		-		-		-		-		-		1		1
Total loans	$	2,059,568	$	960,853	$	138,788	$	20,961	$	1,273,022	$	82,920	$	3,991	$	4,540,103

Purchased Credit Deteriorated Loans

Loans acquired in a business combination after July 1, 2020 are recorded in accordance with ASC Topic 326, after which acquired loans are separated into two types. PCD loans are acquired loans that, as of the acquisition date, have experienced a more-than-insignificant deterioration in credit quality since origination. Non-PCD loans are acquired loans that have experienced no or insignificant deterioration in credit quality since origination. To distinguish between the two types of acquired loans, the Company evaluates risk characteristics that have been determined to be indicators of deteriorated credit quality. The determining criteria may involve loan specific characteristics such as payment status, debt service coverage or other changes in creditworthiness since the loan was originated, while others are relevant to recent economic conditions, such as borrowers in industries impacted by the pandemic.

As part of the acquisition of MSB, the Company purchased loans, for which there was, at acquisition, evidence of more than insignificant deterioration of credit quality since origination.  The carrying amount of those loans is as follows:

	At July 10, 2020
	(In Thousands)
Purchase price of PCD loans at acquisition	$	69,415
Allowance for credit losses at acquisition		(3,901	)
Non-credit discount at acquisition		(167	)
Amortized cost of acquired PCD loans at acquisition	$	65,347

Residential Mortgage Loans in Foreclosure

We may obtain physical possession of one- to four-family real estate collateralizing a residential mortgage loan via foreclosure or through an in-substance repossession. As of December 31, 2020, we 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, we held nine residential mortgage loans with aggregate carrying values totaling $1.7 million which were in the process of foreclosure.

As of June 30, 2020, we 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, we held nine residential mortgage loans with aggregate carrying values totaling $1.9 million which were in the process of foreclosure.

The States of New Jersey and New York have issued executive orders and enacted legislation declaring moratoriums on removing individuals from a residential property as a result of an eviction or foreclosure proceeding. The New Jersey order will be in effect until two months after the Governor has declared an end to the COVID-19 health crisis. The New York law, which places a moratorium on evictions for tenants who have endured COVID-related hardship and on foreclosures, will be in effect until at least May 1, 2021.  As a result, since March 28, 2020, the Company has temporarily suspended residential property foreclosure sales and evictions.

On September 4, 2020, the Centers for Disease Control and Prevention (“CDC”) imposed a nationwide temporary federal moratorium on residential evictions due to nonpayment of rent, for qualified tenants. The national eviction moratorium took effect after the expiration of eviction protections established by the CARES Act and was scheduled to extend through December 31, 2020, but was extended legislatively through January 31, 2021.  On January 20, 2021, the CDC announced its intent to extend the existing eviction moratorium order through March 31, 2021.

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9.     ALLOWANCE FOR CREDIT LOSSES

Adoption of Topic 326

On July 1, 2020, the Company adopted ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, which replaces the incurred loss methodology with an expected loss methodology, referred to as the “CECL” methodology.  See Note 1, Summary of Significant Accounting Policies for additional information on the adoption of Topic 326.

Allowance for Credit Losses on Loans Receivable

The following tables present the balance of the allowance for credit losses at December 31, 2020 and June 30, 2020.  For the three months and six months ended December 31, 2020, the balance of the allowance for credit losses is based on the CECL methodology, as noted above. For the year ended June 30, 2020, the allowance for loan losses is based upon the calculation methodology as described in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020. The tables identify the valuation allowances attributable to specifically identified impairments on individually evaluated loans, including those acquired with deteriorated credit quality, as well as valuation allowances for impairments on loans evaluated collectively. The tables include the underlying balance of loans receivable applicable to each category as of those dates.

Allowance for Credit Losses
December 31, 2020
	Multi-Family Mortgage		Non- Residential Mortgage		Commercial Business		Construction		Residential Mortgage		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Balance of allowance for credit losses:
Loans acquired with deteriorated   credit quality individually   analyzed	$	-	$	518	$	-	$	-	$	206	$	-	$	-	$	724
Loans acquired with deteriorated   credit quality collectively   analyzed		187		994		72		109		221		19		-		1,602
Loans individually   evaluated for impairment		-		1		683		-		68		-		-		752
Loans collectively   evaluated for impairment		29,313		14,420		2,593		1,096		12,130		706		50		60,308
Total allowance for credit losses	$	29,500	$	15,933	$	3,348	$	1,205	$	12,625	$	725	$	50	$	63,386

Balance of Loans Receivable
December 31, 2020
	Multi-Family Mortgage		Non- Residential Mortgage		Commercial Business		Construction		Residential Mortgage		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Balance of loans receivable:
Loans acquired with deteriorated   credit quality  individually   evaluated	$	-	$	1,635	$	195	$	-	$	3,853	$	-	$	-	$	5,683
Loans acquired with deteriorated   credit quality collectively   evaluated		5,660		31,593		4,081		11,493		4,850		362		5		58,044
Loans individually   evaluated for impairment		16,396		37,647		332		2,514		8,672		223		-		65,784
Loans collectively   evaluated for impairment		2,054,427		1,052,820		197,402		76,391		1,287,976		64,713		4,118		4,737,847
Total loans	$	2,076,483	$	1,123,695	$	202,010	$	90,398	$	1,305,351	$	65,298	$	4,123	$	4,867,358
Unaccreted yield adjustments																(38,724	)
Loans receivable, net of yield adjustments															$	4,828,634

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Allowance for Loan Losses
June 30, 2020
	Multi-Family Mortgage		Non- Residential Mortgage		Commercial Business		Construction		Residential Mortgage		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Balance of allowance for loan losses:
Loans acquired with deteriorated   credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Loans individually   evaluated for impairment		-		41		47		-		1		-		-		89
Loans collectively   evaluated for impairment		20,916		8,722		1,879		236		4,859		568		58		37,238
Total allowance for loan losses	$	20,916	$	8,763	$	1,926	$	236	$	4,860	$	568	$	58	$	37,327

Balance of Loans Receivable
June 30, 2020
	Multi-Family Mortgage		Non- Residential Mortgage		Commercial Business		Construction		Residential Mortgage		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Balance of loans receivable:
Loans acquired with deteriorated   credit quality	$	-	$	-	$	222	$	-	$	77	$	-	$	-		299
Loans individually   evaluated for impairment		2,962		24,048		5,567		-		10,689		1,557		-		44,823
Loans collectively   evaluated for impairment		2,056,606		936,805		132,999		20,961		1,262,256		81,363		3,991		4,494,981
Total loans	$	2,059,568	$	960,853	$	138,788	$	20,961	$	1,273,022	$	82,920	$	3,991	$	4,540,103
Unaccreted yield adjustments																(41,706	)
Loans receivable, net of yield adjustments															$	4,498,397

The following tables present the activity in the ACL on loans for the three and six months ended December 31, 2020:

	Three Months Ended December 31, 2020
	Multi-Family Mortgage		Non- Residential Mortgage			Commercial Business			Construction		Residential Mortgage			Home Equity Loans			Other Consumer			Total
	(In Thousands)
Changes in the allowance for credit   losses for the three months ended   December 31, 2020:
At September 30, 2020:	$	28,566	$	15,094		$	4,355		$	1,105	$	14,835		$	858		$	47		$	64,860
Charge offs		-		(66	)		-			-		(13	)		(32	)		(4	)		(115	)
Recoveries		-		-			3			-		-			-			3			6
Provision for (reversal of) credit losses		934		905			(1,010	)		100		(2,197	)		(101	)		4			(1,365	)
Total allowance for credit losses	$	29,500	$	15,933		$	3,348		$	1,205	$	12,625		$	725		$	50		$	63,386

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	Six Months Ended December 31, 2020
	Multi-Family Mortgage			Non- Residential Mortgage			Commercial Business			Construction		Residential Mortgage			Home Equity Loans			Other Consumer			Total
	(In Thousands)
Changes in the allowance for credit   losses for the six months ended   December 31, 2020:
At June 30, 2020 (prior to adoption of ASC 326):	$	20,916		$	8,763		$	1,926		$	236	$	4,860		$	568		$	58		$	37,327
Impact of adopting Topic 326		8,408			2,390			(421	)		80		9,106			92			(15	)		19,640
Charge offs		-			(66	)		(64	)		-		(13	)		(32	)		(13	)		(188	)
Recoveries		-			-			5			-		-			-			7			12
Initial allowance on PCD loans		250			1,720			1,007			99		720			105			-			3,901
(Reversal of) provision for credit losses		(74	)		3,126			895			790		(2,048	)		(8	)		13			2,694
Total allowance for credit losses	$	29,500		$	15,933		$	3,348		$	1,205	$	12,625		$	725		$	50		$	63,386

For the accounting policy on the allowance for loan losses that was in effect prior to the adoption of Topic 326, see Note 1 to our Annual Report on Form 10-K for the fiscal year ended June 30, 2020. The following tables present the activity in the allowance for loan losses for the three and six months ended December 31, 2019:

	Three Months Ended December 31, 2019
	Multi-Family Mortgage			Non- Residential Mortgage			Commercial Business			Construction		Residential Mortgage		Home Equity Loans			Other Consumer			Total
	(In Thousands)
Changes in the allowance for loan   losses for the three months ended   December 31, 2019:
At September 30, 2019:	$	16,702		$	9,371		$	2,293		$	140	$	3,307	$	478		$	141		$	32,432
Total charge offs		-			-			-			-		-		-			(44	)		(44	)
Total recoveries		-			-			-			-		-		-			14			14
(Reversal of) provision for loan losses		(642	)		(687	)		(285	)		2		171		(22	)		(2	)		(1,465	)
Total allowance for loan losses	$	16,060		$	8,684		$	2,008		$	142	$	3,478	$	456		$	109		$	30,937

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	Six Months Ended December 31, 2019
	Multi-Family Mortgage			Non- Residential Mortgage			Commercial Business			Construction		Residential Mortgage		Home Equity Loans			Other Consumer			Total
	(In Thousands)
Changes in the allowance for loan   losses for the six months ended   December 31, 2019:
At June 30, 2019:	$	16,959		$	9,672		$	2,467		$	136	$	3,377	$	491		$	172		$	33,274
Total charge offs		-			-			-			-		-		-			(108	)		(108	)
Total recoveries		-			-			-			-		-		-			18			18
(Reversal of) provision for loan losses		(899	)		(988	)		(459	)		6		101		(35	)		27			(2,247	)
Total allowance for loan losses	$	16,060		$	8,684		$	2,008		$	142	$	3,478	$	456		$	109		$	30,937

Allowance for Credit Losses on Off Balance Sheet Commitments

The following tables present the activity in the ACL on off balance sheet commitments for the three and six months ended December 31, 2020:

	Three Months Ended
	December 31, 2020
	(In Thousands)
Changes in the allowance for credit   losses for the three months ended   December 31, 2020:
At September 30, 2020:	$	1,004
Provision recorded in other non-interest expense		54
Total allowance for credit losses on off balance sheet commitments	$	1,058

	Six Months Ended
	December 31, 2020
	(In Thousands)
Changes in the allowance for credit   losses for the six months ended   December 31, 2020:
At June 30, 2020:	$	-
Impact of adopting Topic 326 (1)		536
Provision recorded in other non-interest expense		522
Total allowance for credit losses on off balance sheet commitments	$	1,058

(1) Adoption of CECL accounting standard effective July 1, 2020.

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10.     DEPOSITS

Deposits are summarized as follows:

	December 31,		June 30,
	2020			2020
	(In Thousands)
Non-interest-bearing demand	$	518,828	$	419,138
Interest-bearing demand		1,752,699		1,264,151
Savings		1,075,122		906,597
Certificates of deposits		1,965,964		1,840,396
Total deposits	$	5,312,613	$	4,430,282

11.     BORROWINGS

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

	December 31, 2020						June 30, 2020
	Balance			Weighted Average Interest Rate			Balance			Weighted Average Interest Rate
	(Dollars in Thousands)
By remaining period to maturity:
Less than one year	$	590,000			0.35	%	$	865,000			0.45	%
One to two years		-			-			27,000			2.85
Two to three years		145,000			3.04			145,000			3.04
Three to four years		103,500			2.65			22,500			2.63
Four to five years		29,000			2.77			103,500			2.68
Greater than five years		-			-			6,500			2.82
Total advances		867,500			1.15	%		1,169,500			1.08	%
Unamortized fair value adjustments		(1,849	)					(2,071	)
Total advances, net of   fair value adjustments	$	865,651					$	1,167,429

At December 31, 2020, FHLB advances were collateralized by the FHLB capital stock owned by the Bank and mortgage loans and securities with carrying values totaling approximately $3.09 billion and $155.6 million, respectively. At June 30, 2020, FHLB advances were collateralized by the FHLB capital stock owned by the Bank and mortgage loans and securities with carrying values totaling approximately $3.21 billion and $155.3 million, respectively.

Borrowings at June 30, 2020 also included overnight borrowings in the form of depositor sweep accounts totaling $5.7 million, while there were no such borrowings at December 31, 2020.

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12.     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.

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 Statement of Financial Condition as of December 31, 2020 and June 30, 2020:

	December 31, 2020
	Asset Derivatives			Liability Derivatives
	Location	Fair Value		Location	Fair Value
	(In Thousands)
Derivatives designated as hedging    instruments:
Interest rate contracts	Other assets	$	216	Other liabilities	$	12,293
Total		$	216		$	12,293

	June 30, 2020
	Asset Derivatives			Liability Derivatives
	Location	Fair Value		Location	Fair Value
	(In Thousands)
Derivatives designated as hedging    instruments:
Interest rate contracts	Other assets	$	235	Other liabilities	$	18,177
Total		$	235		$	18,177

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using derivatives are primarily to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company has entered into interest rate swaps and caps as part of its interest rate risk management strategy.  These interest rate products are designated as cash flow hedges.  As of December 31, 2020, the Company had a total of 13 interest rate swaps and caps with a total notional amount of $1.19 billion hedging specific wholesale funding positions.

For derivatives designated as cash flow hedges, the gain or loss on the derivative is recorded in other comprehensive income, net of tax, and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable rate wholesale funding positions.  During the three and six months ended December 31, 2020, the Company had $2.2 million and $4.6 million, respectively, of reclassifications to interest expense.  During the next twelve months, the Company estimates that $6.6 million will be reclassified as an increase in interest expense.

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The tables below present the pre-tax effects of the Company’s derivative instruments on the Consolidated Statements of Income for the three and six months ended December 31, 2020 and 2019:

	Three Months Ended December 31, 2020
	Amount of Gain (Loss) Recognized in OCI on Derivatives		Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
	(In Thousands)
Derivatives in cash flow    hedging relationships:
Interest rate contracts	$	1,389	Interest expense	$	(2,217	)
Total	$	1,389		$	(2,217	)

	Six Months Ended December 31, 2020
	Amount of Gain (Loss) Recognized in OCI on Derivatives		Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
	(In Thousands)
Derivatives in cash flow    hedging relationships:
Interest rate contracts	$	1,278	Interest expense	$	(4,589	)
Total	$	1,278		$	(4,589	)

	Three Months Ended December 31, 2019
	Amount of Gain (Loss) Recognized in OCI on Derivatives		Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
	(In Thousands)
Derivatives in cash flow    hedging relationships:
Interest rate contracts	$	2,679	Interest expense	$	836
Total	$	2,679		$	836

	Six Months Ended December 31, 2019
	Amount of Gain (Loss) Recognized in OCI on Derivatives		Location of Gain (Loss) Reclassified from Accumulated OCI into Income	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income
	(In Thousands)
Derivatives in cash flow    hedging relationships:
Interest rate contracts	$	920	Interest expense	$	2,207
Total	$	920		$	2,207

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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, 2020 and June 30, 2020, 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, 2020
								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	$	1,003	$	(787	)	$	216	$	-	$	-		$	216
Total	$	1,003	$	(787	)	$	216	$	-	$	-		$	216
								Gross Amounts Not Offset
	Gross Amount Recognized		Gross Amounts Offset			Net Amounts Presented		Financial Instruments		Cash Collateral Posted			Net Amount
	(In Thousands)
Liabilities:
Interest rate contracts	$	13,080	$	(787	)	$	12,293	$	-	$	(12,293	)	$	-
Total	$	13,080	$	(787	)	$	12,293	$	-	$	(12,293	)	$	-

	June 30, 2020
								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	$	592	$	(357	)	$	235	$	-	$	-		$	235
Total	$	592	$	(357	)	$	235	$	-	$	-		$	235
								Gross Amounts Not Offset
	Gross Amount Recognized		Gross Amounts Offset			Net Amounts Presented		Financial Instruments		Cash Collateral Posted			Net Amount
	(In Thousands)
Liabilities:
Interest rate contracts	$	18,534	$	(357	)	$	18,177	$	-	$	(18,177	)	$	-
Total	$	18,534	$	(357	)	$	18,177	$	-	$	(18,177	)	$	-

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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.  As of December 31, 2020, 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 $13.0 million.  

As required under the enforceable master netting arrangement with its derivatives counterparties, at December 31, 2020, the Company posted financial collateral of $12.3 million that was not included as offsetting amount.

In addition to the derivative instruments noted above, the Company’s pipeline of loans held for sale at December 31, 2020 and June 30, 2020, included $62.3 million and $127.2 million, respectively, of in process loans whose terms included interest rate locks to borrowers, which are considered free-standing derivative instruments whose fair values are not material to our financial condition or results of operations.

13.     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 and Atlas Bank Retirement Income Plan:

	Three Months Ended						Six Months Ended						Affected Line Item in the Consolidated
	December 31,						December 31,						Statements of Income
	2020			2019			2020			2019
	(In Thousands)						(In Thousands)
Service cost	$	27		$	19		$	53		$	39		Salaries and employee benefits
Interest cost		65			82			131			163		Miscellaneous non-interest  expense
Amortization of unrecognized loss		21			5			42			10		Miscellaneous non-interest  expense
Expected return on assets		(29	)		(28	)		(57	)		(56	)	Miscellaneous non-interest  expense
Net periodic benefit cost	$	84		$	78		$	169		$	156

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14.     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 and six months ended December 31, 2020 and December 31, 2019:

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2020			2019			2020			2019
	(Dollars in Thousands)						(Dollars in Thousands)
Income before income taxes	$	22,562		$	14,199		$	36,825		$	29,386
Statutory federal tax rate		21	%		21	%		21	%		21	%
Federal income tax expense at statutory rate	$	4,738		$	2,982		$	7,733		$	6,171
(Reduction) increase in income taxes resulting from:
Tax exempt interest		(91	)		(138	)		(185	)		(282	)
State tax, net of federal tax effect		1,456			809			2,240			2,050
Incentive stock option compensation expense		20			20			40			37
Income from bank-owned life insurance		(338	)		(333	)		(665	)		(666	)
Non-deductible merger-related expenses		-			20			49			20
Bargain purchase gain		-			-			(641	)		-
Utilization of capital loss carryforward		(375	)		-			(375	)		-
Other items, net		727			187			825			34
		6,137			3,547			9,021			7,364
Reversal of valuation allowance		(523	)		-			(523	)		-
Total income tax expense	$	5,614		$	3,547		$	8,498		$	7,364
Effective income tax rate		24.88	%		24.98	%		23.08	%		25.06	%

15.     FAIR VALUE OF FINANCIAL INSTRUMENTS

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments”. This guidance amends existing guidance to improve accounting standards for financial instruments including clarification and simplification of accounting and disclosure requirements and the requirement for public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The Company adopted the guidance effective July 1, 2018.  Upon adoption, the fair value of the Company’s loan portfolio is now presented using an exit price method.

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.

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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, 2020 and June 30, 2020:

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 caps and swaps. The vendor utilizes standard valuation methodologies applicable to interest rate derivatives such as discounted cash flow analysis and extensions of the Black-Scholes model. Such valuations are based upon readily observable market data and are therefore considered Level 2 valuations by the Company.

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

	December 31, 2020
	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		-		47,763		-		47,763
Asset-backed securities		-		255,407		-		255,407
Collateralized loan obligations		-		196,685		-		196,685
Corporate bonds		-		167,168		-		167,168
Trust preferred securities		-		2,866		-		2,866
Total debt securities		-		669,889		-		669,889
Mortgage-backed securities available for sale:
Collateralized mortgage obligations		-		20,510		-		20,510
Residential pass-through securities		-		705,991		-		705,991
Commercial pass-through securities		-		299,503		-		299,503
Total mortgage-backed securities		-		1,026,004		-		1,026,004
Total securities available for sale	$	-	$	1,695,893	$	-	$	1,695,893
Interest rate contracts		-		216		-		216
Total assets	$	-	$	1,696,109	$	-	$	1,696,109
Liabilities:
Interest rate contracts	$	-	$	12,293	$	-	$	12,293
Total liabilities	$	-	$	12,293	$	-	$	12,293

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	June 30, 2020
	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		-		54,054		-		54,054
Asset-backed securities		-		172,447		-		172,447
Collateralized loan obligations		-		193,788		-		193,788
Corporate bonds		-		143,639		-		143,639
Trust preferred securities		-		2,627		-		2,627
Total debt securities		-		566,555		-		566,555
Mortgage-backed securities available for sale:
Collateralized mortgage obligations		-		30,903		-		30,903
Residential pass-through securities		-		561,954		-		561,954
Commercial pass-through securities		-		226,291		-		226,291
Total mortgage-backed securities		-		819,148		-		819,148
Total securities available for sale		-		1,385,703		-		1,385,703
Interest rate contracts		-		235		-		235
Total assets	$	-	$	1,385,938	$	-	$	1,385,938
Liabilities:
Interest rate contracts	$	-	$	18,177	$	-	$	18,177
Total liabilities	$	-	$	18,177	$	-	$	18,177

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, 2020 and June 30, 2020:

Collateral Dependent Individually Analyzed / Impaired Loans:

The fair value of collateral dependent loans that are individually analyzed or were previously deemed impaired 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 market value declines or apply other discounts 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. Collateral dependent individually analyzed / impaired loans are considered a Level 3 valuation by the Company.

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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.

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

	December 31, 2020
	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	$	-	$	-	$	1,900	$	1,900
Non-residential mortgage		-		-		3,375		3,375
Total	$	-	$	-	$	5,275	$	5,275
Other real estate owned, net:
Residential mortgage	$	-	$	-	$	178	$	178
Total	$	-	$	-	$	178	$	178

	June 30, 2020
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In Thousands)
Impaired loans:
Residential mortgage	$	-	$	-	$	2,339	$	2,339
Non-residential mortgage		-		-		2,282		2,282
Commercial business		-		-		129		129
Total	$	-	$	-	$	4,750	$	4,750
Other real estate owned, net:
Residential mortgage		-		-		178		178
Total	$	-	$	-	$	178	$	178

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The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized adjusted Level 3 inputs to determine fair value:

	December 31, 2020
	Fair Value		Valuation Techniques		Unobservable Input		Range	Weighted Average
	(In Thousands)
Collateral dependent loans:
Residential mortgage	$	1,900	Market valuation of underlying collateral	(1)	Adjustments to reflect current conditions/selling costs	(2)	7% - 11%		8.50	%
Non-residential mortgage		3,375	Market valuation of underlying collateral	(1)	Adjustments to reflect current conditions/selling costs	(2)	9% - 11%		9.93	%
Total	$	5,275
Other real estate owned, net:
Residential mortgage	$	178	Market valuation of underlying collateral	(3)	Adjustments to reflect current conditions/selling costs	(2)	6.00%		6.00	%
Total	$	178

	June 30, 2020
	Fair Value		Valuation Techniques		Unobservable Input		Range	Weighted Average
	(In Thousands)
Impaired loans:
Residential mortgage	$	2,339	Market valuation of underlying collateral	(1)	Adjustments to reflect current conditions/selling costs	(2)	7% - 9%		8.17	%
Non-residential mortgage		2,282	Market valuation of underlying collateral	(1)	Adjustments to reflect current conditions/selling costs	(2)	9% - 12%		10.27	%
Commercial business		129	Market valuation of underlying collateral	(1)	Adjustments to reflect current conditions/selling costs	(2)	0% - 0%		0.00	%
Total	$	4,750
Other real estate owned, net:
Residential mortgage		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 impaired 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 impaired loans and other real estate owned is adjusted to reflect management’s estimates of selling costs including, but not necessarily limited to, real estate brokerage commissions and title transfer fees.

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

At December 31, 2020, collateral dependent loans valued using Level 3 inputs comprised loans with principal balances totaling $6.0 million and valuation allowances of $725,000 reflecting fair values of $5.3 million. By comparison, at June 30, 2020, under previously applicable GAAP, impaired loans valued using Level 3 inputs comprised loans with principal balances totaling $4.8 million and valuation allowances of $89,000 reflecting fair values of $4.8 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, 2020 and June 30, 2020, the Company held other real estate owned totaling $178,000 whose carrying value was written down utilizing Level 3 inputs.

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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, 2020 and June 30, 2020:

	December 31, 2020
	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	$	129,694	$	129,694	$	129,694	$	-	$	-
Investment securities available for sale		1,695,893		1,695,893		-		1,695,893		-
Investment securities held to maturity		29,549		31,063		-		31,063		-
Loans held-for-sale		12,601		13,129		-		13,129		-
Net loans receivable		4,765,248		4,808,589		-		-		4,808,589
FHLB Stock		45,578		-		-		-		-
Interest receivable		19,826		19,826		-		4,301		15,525
Interest rate contracts		216		216		-		216		-
Financial liabilities:
Deposits		5,312,613		5,325,183		3,346,649		-		1,978,534
Borrowings		865,651		899,960		-		-		899,960
Interest payable on deposits		327		327		190		-		137
Interest payable on borrowings		1,554		1,554		-		-		1,554
Interest rate contracts		12,293		12,293		-		12,293		-

	June 30, 2020
	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	$	180,967	$	180,967	$	180,967	$	-	$	-
Investment securities available for sale		1,385,703		1,385,703		-		1,385,703		-
Investment securities held to maturity		32,556		34,069		-		34,069		-
Loans held-for-sale		20,789		21,550		-		21,550		-
Net loans receivable		4,461,070		4,462,232		-		-		4,462,232
FHLB Stock		58,654		-		-		-		-
Interest receivable		17,373		17,373		4		4,154		13,215
Interest rate contracts		235		235		-		235		-
Financial liabilities:
Deposits		4,430,282		4,449,877		2,589,886		-		1,859,991
Borrowings		1,173,165		1,215,529		-		-		1,215,529
Interest payable on deposits		395		395		295		-		100
Interest payable on borrowings		1,723		1,723		-		-		1,723
Interest rate contracts		18,177		18,177		-		18,177		-

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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.

16.     COMPREHENSIVE INCOME

The components of accumulated other comprehensive income included in stockholders’ equity at December 31, 2020 and June 30, 2020 are as follows:

	December 31,			June 30,
	2020			2020
	(In Thousands)
Net unrealized gain on securities available for sale	$	23,958		$	22,482
Tax effect		(7,031	)		(6,541	)
Net of tax amount		16,927			15,941
Fair value adjustments on derivatives		(13,551	)		(19,418	)
Tax effect		4,039			5,730
Net of tax amount		(9,512	)		(13,688	)
Benefit plan adjustments		(1,370	)		(1,412	)
Tax effect		408			416
Net of tax amount		(962	)		(996	)
Total accumulated other comprehensive income	$	6,453		$	1,257

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Other comprehensive income and related tax effects for the three and six months ended December 31, 2020 and December 31, 2019 are presented in the following table:

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2020			2019			2020			2019
	(In Thousands)						(In Thousands)
Net unrealized holding gain (loss) on securities   available for sale	$	730		$	(2,844	)	$	1,912		$	7,313
Amortization of net unrealized holding loss on   securities available for sale transferred to held   to maturity (1)		-			-			-			596
Net realized (gain) loss on sale and call of securities   available for sale (2)		(813	)		(11	)		(436	)		2
Fair value adjustments on derivatives		3,606			1,844			5,867			(1,286	)
Benefit plans:
Amortization of actuarial loss		21			5			42			10
Net actuarial gain (3)		-			-			-			470
Net change in benefit plan accrued expense		21			5			42			480
Other comprehensive income (loss) before taxes		3,544			(1,006	)		7,385			7,105
Tax effect		(1,065	)		271			(2,189	)		(1,989	)
Total other comprehensive income (loss)	$	2,479		$	(735	)	$	5,196		$	5,116

(1) Represents amounts reclassified out of accumulated other comprehensive income and included in interest income on taxable securities.

(2) Represents amounts reclassified out of accumulated other comprehensive income and included in gain on sale of securities on the consolidated statements of income.

(3) Represents amounts reclassified out of accumulated other comprehensive income and included in the computation of net periodic pension expense.  See Note 13 – Benefit Plans for additional information.

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17.     REVENUE RECOGNITION

Effective July 1, 2018, the Company adopted ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, "ASC 606”), which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope and (ii) revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Company’s revenues come from interest income and other sources, including loans, leases, securities, and derivatives that are outside the scope of ASC 606. The Company’s services that fall within the scope of ASC 606 are presented within non-interest income and are recognized as revenue as the Company satisfies its obligation to the customer. Services within the scope of ASC 606 include deposit service charges on deposits, interchange income, and the sale of OREO.

The Company, using a modified retrospective transition approach, determined that there was no cumulative effect adjustment to retained earnings as a result of adopting the new standard, nor did the standard have a material impact on our consolidated financial statements including the timing or amounts of revenue recognized.

All of the Company’s revenue from contracts with customers within the scope of ASC 606 is recognized within non-interest income. The following table presents the Company’s sources of non-interest income for the three and six months ended December 31, 2020 and 2019.  Sources of revenue outside the scope of ASC 606 are noted as such.

	Three Months Ended					Six Months Ended
	December 31,					December 31,
	2020		2019			2020		2019
	(In Thousands)					(In Thousands)
Non-interest income:
Deposit-related fees and charges	$	385	$	463		$	734	$	939
Loan-related fees and charges (1)		1,511		1,682			2,238		2,674
Gain (loss) on sale and call of securities (1)		813		11			436		(3	)
Gain on sale of loans (1)		2,378		668			4,268		1,273
Loss on sale and write down of other real estate owned		-		(28	)		-		(28	)
Income from bank owned life insurance (1)		1,596		1,576			3,192		3,156
Electronic banking fees and charges (interchange income)		404		293			809		611
Bargain purchase gain (1)		-		-			3,053		-
Other income (1)		67		(111	)		157		(106	)
Total non-interest income	$	7,154	$	4,554		$	14,887	$	8,516

(1) Not within the scope of ASC 606.

A description of the Company’s revenue streams accounted for under ASC 606 is as follows:

Service Charges on Deposit Accounts

The Company earns fees from deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed at the point in the time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.

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Gains/Losses on Sales of OREO

The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. Gain/Losses on the sales of OREO falls within the scope of ASC 606, if the Company finances the transaction.  Under ASC 606, if the Company finances the sale of OREO to the buyer, the Company is required to assess whether the buyer is committed to perform their obligations under the contract and whether the collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. Generally, the Company does not finance the sale of OREO properties.

Interchange Income

The Company earns interchange fees from debit and credit card holder transactions conducted through various payment networks. Interchange fees from cardholder transactions are recognized daily, concurrently with the transaction processing services provided by an outsourced technology solution.

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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, 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.

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.

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 December 31, 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 certain locations. In the months following and in accordance with the protocols recommended by the CDC, 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 December 31, 2020, all of our branches had re-opened their lobbies and were fully operational.

CARES Act, Paycheck Protection Program and Health Care Enhancement Act (“PPP Enhancement Act”). On March 27, 2020 the CARES Act was signed into law. Among the more significant components of the CARES Act, as it pertains to the Company, was the creation of the 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 guarantees 100% of the PPP loans made to eligible borrowers. As a qualified SBA lender, the Bank is automatically authorized to originate PPP loans. On April 16, 2020, the original authorization of $349 billion in funding for the PPP 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 December 31, 2020 and including loans acquired in conjunction with the Company’s acquisition of MSB, we had approximately 72 loans with total outstanding balances of $39.2 million under the PPP.

- 49 -

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

2021 Consolidated Appropriations Act. As noted earlier, the 2021 Consolidated Appropriations Act was signed into law on December 27, 2020.  This new legislation is a $900 billion relief package that includes legislation extending certain relief provisions from the CARES Act that were set to expire on December 31, 2020.  Of note for financial institutions, $286 billion was approved for additional PPP loans. As it relates to TDRs, the CARES Act permitted financial institutions to suspend TDR assessment and reporting requirements under GAAP for loan modifications.  Set to expire on December 31, 2020, this new legislation extends this relief to the earlier of 60 days after the national emergency declared by the President is terminated or January 1, 2022.

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 December 31, 2020:

	December 31, 2020
	Balance (1)		LTV
	(In Thousands)
Commercial mortgage loans:
Multi-family mortgage loans	$	2,076,483	63%
Nonresidential mortgage loans		1,123,695	53%
Total commercial mortgage loans		3,200,178	59%
One- to four-family residential mortgage		1,305,351	58%
Consumer loans:
Home equity loans		65,298	44%
Total mortgage loans	$	4,570,827	59%

(1) Includes loans acquired in conjunction with the Company’s acquisition of MSB on July 10, 2020.

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The following table identifies our exposure to various loan sectors at December 31, 2020:

	December 31, 2020
	Real-Estate Secured (1)							Non-Real Estate Secured (1)				Total
	# of Loans		Balance		LTV			# of Loans		Balance		# of Loans		Balance
	(Dollars In Thousands)
Hotel		3	$	3,862		59	%		6	$	1,362		9	$	5,224
Restaurant		15		9,668		50	%		34		3,672		49		13,340
Retail shopping center		125		321,575		52	%		2		53		127		321,628
Entertainment & recreation		4		4,076		54	%		14		1,799		18		5,875
Wholesale commercial business		-		-	N/A				13		18,339		13		18,339
Wholesale consumer unsecured		-		-	N/A				49		80		49		80
Total		147	$	339,181		52	%		118	$	25,305		265	$	364,486

(1) Includes loans acquired in conjunction with the Company’s acquisition of MSB on July 10, 2020.

Loan modifications in the table below reflect those loans whose modification includes a deferral that was still in effect at December 31, 2020.  As of December 31, 2020, the Company had modifications on 37 loans totaling $33.2 million in principal balances, representing 0.68% of total loans.

The following table sets forth the composition of loans with modifications by loan segment as of December 31, 2020:

	December 31, 2020
	# of Loans (1)		Balance (1)		% of Total Loans
	(Dollars In Thousands)
Commercial loans:
Multi-family mortgage loans		9	$	18,247	0.37%
Nonresidential mortgage		2		5,913	0.12%
Commercial business		5		1,314	0.03%
Total commercial loans		16		25,474	0.52%
One- to four-family residential mortgage		20		7,664	0.16%
Consumer loans:
Home equity loans		1		39	0.00%
Total		37	$	33,177	0.68%

(1) Includes loans acquired in conjunction with the Company’s acquisition of MSB on July 10, 2020.

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Comparison of Financial Condition at December 31, 2020 and June 30, 2020

Executive Summary.  Total assets increased by $577.0 million to $7.34 billion at December 31, 2020 from $6.76 billion at June 30, 2020. As described in greater detail below, the net increase in total assets was due, in part, to the Company’s July 10, 2020 acquisition of MSB. The increase primarily reflected increases in investment securities, net loans receivable and other assets, partially offset by decreases in cash and equivalents and loans held-for-sale.

Investment Securities.  Investment securities available for sale increased by $310.2 million, to $1.70 billion at December 31, 2020, from $1.39 billion at June 30, 2020. The net increase in the portfolio during the six months ended December 31, 2020 reflected security purchases totaling $605.0 million and a $1.5 million increase in the fair value of the portfolio to a net unrealized gain of $24.0 million. The net increase in the portfolio was partially offset by security sales totaling $44.4 million and $255.3 million in principal repayment, net of premium amortization and discount accretion. Also included in this increase were securities acquired from MSB with fair values of $3.5 million at the time of acquisition.

Investment securities held to maturity decreased by $3.0 million to $29.5 million at December 31, 2020 from $32.6 million at June 30, 2020. This decrease was attributable to principal repayment, net of discount accretion and premium amortization.

Additional information regarding investment securities as of those dates is presented in Note 7 to the unaudited consolidated financial statements.

Loans Held-for-Sale. Loans held-for-sale totaled $12.6 million at December 31, 2020 as compared to $20.8 million at June 30, 2020 and are reported separately from the balance of net loans receivable. During the six months ended December 31, 2020, $220.2 million of residential mortgage loans were sold, resulting in net gains on sale of $3.9 million.

Net Loans Receivable.  Net loans receivable increased by $304.2 million to $4.77 billion at December 31, 2020 from $4.46 billion at June 30, 2020. The increase reflected loans with fair values totaling $530.2 million that were acquired in conjunction with the acquisition of MSB, partially offset by a net decrease in non-acquired loans. This decrease in non-acquired loans was the result of elevated levels of loan prepayment activity, largely concentrated within the one- to four-family residential portfolio, and the sale of $43.6 million of PPP loans. Detail regarding the changes in the loan portfolio is presented below:

	December 31,			June 30,			Increase/
	2020			2020			(Decrease)
	(In Thousands)
Commercial loans:
Multi-family mortgage	$	2,076,483		$	2,059,568		$	16,915
Nonresidential mortgage		1,123,695			960,853			162,842
Commercial business		202,010			138,788			63,222
Construction		90,398			20,961			69,437
Total commercial loans		3,492,586			3,180,170			312,416
One- to four-family residential mortgage		1,305,351			1,273,022			32,329
Consumer loans:
Home equity loans		65,298			82,920			(17,622	)
Other consumer		4,123			3,991			132
Total consumer		69,421			86,911			(17,490	)
Total loans		4,867,358			4,540,103			327,255
Unaccreted yield adjustments		(38,724	)		(41,706	)		2,982
Allowance for credit losses		(63,386	)		(37,327	)		(26,059	)
Net loans receivable	$	4,765,248		$	4,461,070		$	304,178

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Commercial loan origination volume for the six months ended December 31, 2020 totaled $221.6 million, which comprised $149.1 million of commercial mortgage loan originations augmented by $54.9 million of commercial business loan originations and construction loan disbursements of $17.6 million. Commercial loan originations for the period were augmented with the funding of purchased loans totaling $21.6 million. Additionally, in conjunction with the acquisition of MSB, the Company acquired commercial loans with fair values totaling approximately $389.3 million.

As noted earlier, the Company sold $43.6 million of PPP loans during the quarter ended December 31, 2020. At December 31, 2020, the balance of commercial loans included PPP loans totaling $39.2 million.

One- to four-family residential mortgage loan origination volume for the six months ended December 31, 2020, excluding loans held-for-sale, totaled $179.7 million and was augmented with the funding of purchased loans totaling $1.9 million. Home equity loan and line of credit origination volume for the same period totaled $7.8 million. Additionally, in conjunction with the acquisition of MSB, the Company acquired one- to four-family residential mortgage loans and home equity loans and lines of credit with fair values totaling approximately $121.7 million and $19.1 million, respectively.

Additional information about the Company’s loans at December 31, 2020 and June 30, 2020 is presented in Note 8 to the unaudited consolidated financial statements.

Nonperforming Loans and TDRs.  Nonperforming loans increased by $34.8 million to $71.5 million, or 1.48% of total loans at December 31, 2020, from $36.7 million, or 0.82% of total loans at June 30, 2020.  This increase was largely attributable to two commercial mortgage loans and two multi-family mortgage loans, secured by various properties located in New York City, which were placed on non-accrual status during the quarter ended December 31, 2020. All four loans are well secured and currently require no specific impairment reserve. In addition, the increase reflected $5.8 million of non-performing loans acquired from MSB, whose fair values at acquisition reflected various levels of impairment. Non-performing loans at December 31, 2020 did not include $58.0 million of performing PCD loans acquired from MSB.

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. As noted above, based on Section 4013 of the CARES Act, the 2021 Consolidated Appropriations Act and related regulatory guidance promulgated by federal banking regulators, qualifying loan modifications, including short-term payment deferrals, are not considered to be TDRs. At December 31, 2020, the Company had accruing TDRs totaling $8.1 million, a decrease of $294,000 from $8.4 million at June 30, 2020. At December 31, 2020, the Company had non-accrual TDRs totaling $11.5 million, a decrease of $1.6 million from $13.1 million at June 30, 2020.

Additional information about the Company’s nonperforming loans at December 31, 2020 and June 30, 2020 is presented in Note 8 to the unaudited consolidated financial statements.

Allowance for Credit Losses (“ACL”). At December 31, 2020, the ACL totaled $63.4 million, or 1.30% of total loans, reflecting an increase of $26.1 million from $37.3 million, or 0.82% of total loans, at June 30, 2020. This increase resulted from the adoption of CECL, which increased the ACL for loans receivable by $19.6 million, and the establishment of an ACL for loans acquired from MSB totaling $9.0 million, partially offset by a reduction in ACL attributable to the effects of a decrease in the overall balance of the portion of the loan portfolio that was collectively evaluated for impairment and net charge-offs.

See Note 1 to the unaudited consolidated financial statements regarding the process and methodology employed to estimate the ACL.  Additional information about the ACL at December 31, 2020 and June 30, 2020 is presented in Note 9 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, other real estate owned and other assets, increased by $25.1 million to $702.2 million at December 31, 2020 from $677.1 million at June 30, 2020.  

The increase in other assets primarily reflected the impact of the MSB acquisition through which the Company acquired other assets with fair values totaling $34.1 million.  The increase in other assets was partially offset by a decrease in the balance of FHLB stock during the six months ended December 31, 2020.

The remaining increases and decreases in other assets for the six months ended December 31, 2020 generally reflected normal operating fluctuations in their respective balances.

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Deposits.  Total deposits increased by $882.3 million to $5.31 billion at December 31, 2020 from $4.43 billion at June 30, 2020.  The increase in deposits reflected the impact of the MSB acquisition through which the Company assumed deposits with fair values totaling $460.2 million coupled with organic growth in deposits of $422.1 million. The increase in deposits also reflected core non-maturity deposit growth of $756.8 million, inclusive of core non-maturity deposits acquired from MSB with fair values totaling $305.2 million. The following table sets forth the distribution of total deposits, by type, at the dates indicated:

	December 31,		June 30,
	2020			2020	Increase
	(In Thousands)
Non-interest-bearing deposits	$	518,828	$	419,138	$	99,690
Interest-bearing deposits:
Interest-bearing demand		1,752,699		1,264,151		488,548
Savings		1,075,122		906,597		168,525
Certificates of deposit		1,965,964		1,840,396		125,568
Interest-bearing deposits		4,793,785		4,011,144		782,641
Total deposits	$	5,312,613	$	4,430,282	$	882,331

Additional information about the Company’s deposits at December 31, 2020 and June 30, 2020 is presented in Note 10 to the unaudited consolidated financial statements.

Borrowings.  The balance of borrowings decreased by $307.5 million to $865.7 million at December 31, 2020 from $1.17 billion at June 30, 2020 and reflected the repayment of maturing FHLB advances totaling $275.0 million, the pre-payment of FHLB advances totaling $27.0 million and a decrease in depositor sweep accounts totaling $5.6 million. In conjunction with the acquisition of MSB, the Company assumed overnight FHLB advances with fair values totaling $62.9 million, which were immediately repaid.  

Additional information about the Company’s borrowings at December 31, 2020 and June 30, 2020 is presented in Note 11 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 by $6.0 million to $64.6 million at December 31, 2020 from $70.6 million at June 30, 2020. The change in the balance of other liabilities reflected the adoption of CECL, as noted above. At adoption the Company increased its ACL by $536,000 for unfunded loan commitments while also recording a provision for ACL of $522,000 during the six months ended December 31, 2020. The remaining change generally reflected normal operating fluctuations in the balances of other liabilities during the period.

Stockholders’ Equity.  Stockholders’ equity increased by $8.2 million to $1.09 billion at December 31, 2020 from $1.08 billion at June 30, 2020. The increase in stockholders’ equity during the six months ended December 31, 2020 largely reflected $45.1 million of capital stock issued by the Company in conjunction with the acquisition of MSB, net income of $28.3 million and an increase of $5.2 million in accumulated other comprehensive income. Largely offsetting these increases were share repurchases totaling $45.7 million, cash dividends totaling $13.6 million and a $14.2 million cumulative effect adjustment related to the adoption of CECL.

Book value per share decreased by $0.10 to $12.86 at December 31, 2020 while tangible book value per share decreased by $0.06 to $10.33 at December 31, 2020. These decreases were largely attributable to the combined effects of the July 1, 2020 adoption of CECL and the July 10, 2020 acquisition of MSB.

In March 2019 the Company announced its fourth share repurchase plan which authorized the repurchase of 9,218,324 shares, or 10%, of the outstanding shares as of that date. On March 25, 2020 that plan was temporarily suspended due to the risks and uncertainties associated with the COVID-19 pandemic. On October 19, 2020, the Company announced the resumption of that plan which had, as of that date, 761,030 shares of common stock remained to be repurchased. In addition, the Company announced the approval of a fifth repurchase plan totaling 4,475,523 shares, or 5% of the Company’s outstanding common stock which was implemented upon the completion of the fourth stock repurchase plan.

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During the six months ended December 31, 2020, the Company repurchased 4,508,689 shares of its common stock. Of these shares repurchased, 761,030 shares were repurchased in conjunction with the Company’s fourth repurchase plan, as noted above. Coupled with the 8,457,294 shares previously repurchased, the shares associated with the fourth program were repurchased at a total cost of $117.9 million and at an average cost of $12.79 per share.

The remaining 3,747,659 shares repurchased during the six months ended December 31, 2020, were repurchased in conjunction with the Company’s fifth share repurchase plan, as noted above. Such shares were repurchased at a total cost of $38.9 million and at an average cost of $10.38 per share.

On January 22, 2021, the Company announced the completion of its fifth stock repurchase plan and the authorization of a sixth stock repurchase plan to repurchase up to 4,210,520 shares, or 5%, of the Company’s outstanding common stock.

Comparison of Operating Results for the Quarter ended December 31, 2020 and December 31, 2019

Net Income.  Net income for the quarter ended December 31, 2020 was $16.9 million, or $0.20 per diluted share, compared to $10.7 million, or $0.13 per diluted share for the quarter ended December 31, 2019. The increase in net income reflected increases in net interest income and non-interest income that was partially offset by increases in provision for credit losses, non-interest expense and income tax expense.

Net Interest Income.  Net interest income increased by $9.9 million to $44.6 million for the quarter ended December 31, 2020. The increase between the comparative periods resulted from a decrease of $8.7 million in interest expense coupled with an increase of $1.2 million in interest income.

The decrease in interest expense for the quarter ended December 31, 2020, reflected a 78 basis points decrease in the average cost of interest-bearing liabilities to 0.97%, partially offset by a $550.1 million increase in the average balance of interest-bearing liabilities to $5.70 billion. For the same period, interest expense on deposits decreased by $6.9 million to $8.6 million and was attributable to an 87 basis points decrease in the cost of interest-bearing deposits, partially offset by a $782.4 million increase in their average balance. For the quarter ended December 31, 2020, interest expense on borrowings decreased by $1.8 million to $5.2 million and was attributable to a decrease of $232.4 million in the average balance of borrowings coupled with a 21 basis points decrease in their cost.

The increase in interest income of $1.2 million reflected an increase to the average balance of interest-earning assets of $725.9 million to $6.76 billion, partially offset by a 34 basis points decrease in their yield to 3.45%. Interest income on loans increased by $3.9 million to $49.5 million for the quarter ended December 31, 2020 and was primarily attributable to a $324.1 million increase in the average balance of loans to $4.87 billion. For the same period, the average yield on loans increased five basis points to 4.06%. The decrease in interest income on interest-earning assets, excluding loans, was due to decreases in interest income on taxable securities, tax-exempt securities and other interest-earning assets.

Net interest spread increased by 44 basis points to 2.48% for the quarter ended December 31, 2020, from 2.04% for the quarter ended December 31, 2019. Net interest margin increased 35 basis points to 2.64%, from 2.29%, for the same comparative periods. The increase in the spread and margin reflected a decrease in the average cost of interest-bearing liabilities that was partially offset by a decrease in the average yield on interest-earning assets.

Additional details surrounding the composition of, and changes to, net interest income are presented in the table below which reflects the components of the average balance sheet and of net interest income for the periods indicated. We derived the average yields and costs by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented with daily balances used to derive average balances. No tax equivalent adjustments have been made to yield or costs. Non-accrual loans were included in the calculation of average balances, however interest receivable on these loans has been fully reserved for and therefore not included in interest income. The yields and costs set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense and exclude the impact of prepayment penalties, which are recorded to non-interest income.

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	For the Quarter Ended December 31,
	2020								2019
	Average Balance			Interest		Average Yield/ Cost			Average Balance			Interest		Average Yield/ Cost
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1)	$	4,871,268		$	49,466		4.06	%	$	4,547,126		$	45,608		4.01	%
Taxable investment securities (2)		1,544,095			7,707		2.00			1,244,475			9,698		3.12
Tax-exempt securities (2)		79,044			433		2.19			125,187			666		2.13
Other interest-earning assets (3)		266,114			787		1.18			117,811			1,210		4.11
Total interest-earning assets		6,760,521			58,393		3.45			6,034,599			57,182		3.79
Non-interest-earning assets		632,084								590,746
Total assets	$	7,392,605							$	6,625,345
Interest-bearing liabilities:
Interest-bearing demand	$	1,683,222		$	1,987		0.47		$	982,163		$	3,172		1.29
Savings		1,058,675			872		0.33			813,626			1,652		0.81
Certificates of deposit		1,899,406			5,788		1.22			2,063,066			10,766		2.09
Total interest-bearing deposits		4,641,303			8,647		0.75			3,858,855			15,590		1.62
Borrowings		1,057,958			5,193		1.96			1,290,330			6,985		2.17
Total interest-bearing liabilities		5,699,261			13,840		0.97			5,149,185			22,575		1.75
Non-interest-bearing liabilities (4)		576,162								373,640
Total liabilities		6,275,423								5,522,825
Stockholders' equity		1,117,182								1,102,520
Total liabilities and stockholders'   equity	$	7,392,605							$	6,625,345
Net interest income				$	44,553							$	34,607
Interest rate spread (5)							2.48	%							2.04	%
Net interest margin (6)							2.64	%							2.29	%
Ratio of interest-earning assets   to interest-bearing liabilities		1.19	X							1.17	X

(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 $502,480,000 and $320,161,000, for the quarter ended December 31, 2020, and 2019, 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.

Provision for Credit Losses.  For the quarter ended December 31, 2020 there was a provision reversal of $1.4 million as compared to a provision reversal of $1.5 million for the quarter ended December 31, 2019. The provision reversal for both comparative periods was primarily the result of a reduction in the balance of loans collectively evaluated for impairment.

Additional information regarding the allowance for credit losses and the associated provisions recognized during the quarter ended December 31, 2020 and 2019 is presented in Note 9 to the unaudited consolidated financial statements as well as the Comparison of Financial Condition at December 31, 2020 and June 30, 2020.  

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Non-Interest Income.  Non-interest income increased by $2.6 million to $7.2 million for the quarter ended December 31, 2020.

Fees and service charges decreased by $249,000 to $1.9 million for the quarter ended December 31, 2020 and primarily reflected a decline in loan-related fees related to commercial loan prepayment activity.

Gain (loss) on sale and call of securities reflected a net gain of $813,000 during the quarter ended December 31, 2020 compared to a net gain of $11,000 during the earlier comparative period.

Gain on sale of loans increased by $1.7 million to $2.4 million for the quarter ended December 31, 2020. The increase in loan sale gains reflected an increase in the volume of loans originated and sold between comparative periods coupled with an increase in the margin at which such loans were sold. Also included in gain on sale of loans, for the quarter ended December 31, 2020, was $352,000 attributable to the sale of $43.6 million of PPP loans, as noted earlier.

The Company recognized a net loss of $28,000 related to the write down and sale of other real estate owned (“OREO”) during the quarter ended December 31, 2019, while there were no such losses recognized in the current period.

Other non-interest income increased by $178,000 to $67,000 for the quarter ended December 31, 2020. The increase primarily reflected $236,000 of non-recurring losses on asset disposals recognized 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 Expenses. Total non-interest expense increased by $4.1 million to $30.5 million for the quarter ended December 31, 2020.

Salaries and employee benefits increased by $1.9 million to $17.1 million for the quarter ended December 31, 2020. The increase in salaries and employees benefits reflected increases associated with employees retained in conjunction with the MSB acquisition and new hires who were largely concentrated within the lending and retail banking lines of business. These increases were partially offset by decreases in employee severance and ESOP compensation expense.

Net occupancy expense of premises increased by $38,000 to $3.1 million for the quarter ended December 31, 2020 and was partially impacted by $331,000 of lease termination costs incurred in the prior comparative period for which no such costs were recorded in the current period. This increase was largely attributable to ongoing operating expense associated with the addition of four office locations and the acquisition of five office locations from MSB. Partially offsetting these increases were expense reductions associated with the consolidation of 11 office locations during the period.

Equipment and systems expense increased by $856,000 to $3.9 million for the quarter ended December 31, 2020. This increase was largely attributable to increases in equipment, technology infrastructure, core processing and electronic banking delivery channel expense associated with the Company’s growth in clients and accounts, a portion of which was attributable to the acquisition of MSB.

Advertising and marketing expense decreased by $377,000 to $513,000 for the quarter ended December 31, 2020.  This decrease largely reflected changes in advertising expense across a variety of advertising formats reflecting normal fluctuations in the timing of certain campaigns supporting our loan and deposit growth initiatives.

FDIC insurance premiums totaled $490,000 for the quarter ended December 31, 2020 for which no comparable expense was recorded during the prior comparative period. No expense was recorded in the prior comparative period as a result of credits available to the Bank under the FDIC’s Small Bank Assessment Credit program.

Merger-related expenses, associated with the Company’s acquisition of MSB, totaled $219,000 for the quarter ended December 31, 2019 for which no such costs were recorded in the current period.

Debt extinguishment expenses increased by $796,000 and were related to the pre-payment of one FHLB advance, as noted earlier, for which no such expense was recorded during the earlier comparative period.

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Other non-interest expense increased by $613,000 to $3.9 million for the quarter ended December 31, 2020. The increase in other expense was primarily attributable to non-recurring items recorded in both comparative periods. For the quarter ended December 31, 2020 an asset impairment charge of $347,000, related to a branch closure, was recognized while, for the quarter ended December 31, 2019 the recovery of an asset write-down totaling $288,000 was recorded.

Provision for Income Taxes.  Provision for income taxes increased by $2.1 million to $5.6 million for the quarter ended December 31, 2020, from $3.5 million for the quarter ended December 31, 2019. The increase in income tax expense reflected a higher level of pre-tax net income, as compared to the prior period, resulting in a higher provision for income tax expense.

The effects of a higher level of pre-tax net income was partially offset by the reversal of a valuation allowance totaling $523,000 which was associated with the realization of a capital loss carryforward.  

Effective tax rates for the quarter ended December 31, 2020 and December 31, 2019 were 24.9% and 25.0% which, in relation to statutory income tax rates, reflected the effects of recurring sources of tax-favored income included in pre-tax income. In addition, the effective tax rate for the quarter ended December 31, 2020 further reflected the effects of the reversal of a valuation allowance recognized during the period, as discussed above.

Comparison of Operating Results for the Six Months ended December 31, 2020 and December 31, 2019

Net Income.  Net income for the six months ended December 31, 2020 was $28.3 million, or $0.33 per diluted share, compared to $22.0 million, or $0.26 per diluted share for the six months ended December 31, 2019. The increase in net income reflected increases in net interest income and non-interest income that was partially offset by increases in the provision for credit losses, non-interest expense and income tax expense. Net income for the six months ended December 31, 2020 also reflected various non-recurring items recognized in conjunction with the Company’s acquisition of MSB.

Net Interest Income.  Net interest income increased by $17.4 million to $88.7 million for the six months ended December 31, 2020. The increase between the comparative periods resulted from a decrease of $15.2 million in interest expense coupled with an increase of $2.2 million in interest income.

The decrease in interest expense for the six months ended December 31, 2020, reflected a 70 basis points decrease in the average cost of interest-bearing liabilities to 1.08%, partially offset by a $497.0 million increase in the average balance of interest-bearing liabilities to $5.65 billion. For the same period, interest expense on deposits decreased by $11.9 million to $19.8 million and was attributable to a 77 basis points decrease in the cost of interest-bearing deposits partially offset by a $689.5 million increase in their average balance. For the six months ended December 31, 2020, interest expense on borrowings decreased by $3.3 million to $10.9 million and was attributable to a decrease of $192.6 million in the average balance of borrowings coupled with a 21 basis points decrease in their cost.

The increase in interest income of $2.2 million reflected an increase to the average balance of interest-earning assets of $653.3 million to $6.70 billion, partially offset by a 31 basis points decrease in their yield to 3.56%. Interest income on loans increased by $7.4 million to $101.6 million for the six months ended December 31, 2020 and was primarily attributable to a $313.1 million increase in the average balance of loans to $4.91 billion. For the same period, the average yield on loans increased five basis points to 4.14%. The decrease in interest income on interest-earning assets, excluding loans, was due to decreases in interest income on taxable securities, tax-exempt securities and other interest-earning assets.

Net interest spread increased by 39 basis points to 2.48% for the six months ended December 31, 2020, from 2.09% for the six months ended December 31, 2019. Net interest margin increased 29 basis points to 2.65%, from 2.36%, for the same comparative periods. The increase in the spread and margin reflected a decrease in the average cost of interest-bearing liabilities that was partially offset by a decrease in the average yield on interest-earning assets.

Additional details surrounding the composition of, and changes to, net interest income are presented in the table below which reflects the components of the average balance sheet and of net interest income for the periods indicated. We derived the average yields and costs by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods presented with daily balances used to derive average balances.  No tax equivalent adjustments have been made to yield or costs. Non-accrual loans were included in the calculation of average balances, however interest receivable on these loans has been fully reserved for and therefore not included in interest income. The yields and costs set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense and exclude the impact of prepayment penalties, which are recorded to non-interest income.

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	For the Six Months Ended December 31,
	2020								2019
	Average Balance			Interest		Average Yield/ Cost			Average Balance			Interest		Average Yield/ Cost
	(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1)	$	4,914,780		$	101,646		4.14	%	$	4,601,659		$	94,208		4.09	%
Taxable investment securities (2)		1,447,303			15,043		2.08			1,196,087			19,026		3.18
Tax-exempt securities (2)		80,824			887		2.19			127,263			1,359		2.14
Other interest-earning assets (3)		256,828			1,701		1.32			121,462			2,488		4.10
Total interest-earning assets		6,699,735			119,277		3.56			6,046,471			117,081		3.87
Non-interest-earning assets		628,168								588,286
Total assets	$	7,327,903							$	6,634,757
Interest-bearing liabilities:
Interest-bearing demand	$	1,573,730		$	4,169		0.53		$	933,003		$	6,053		1.30
Savings		1,032,375			2,317		0.45			806,404			3,182		0.79
Certificates of deposit		1,944,047			13,223		1.36			2,121,199			22,410		2.11
Total interest-bearing deposits		4,550,152			19,709		0.87			3,860,606			31,645		1.64
Borrowings		1,096,181			10,853		1.98			1,288,744			14,142		2.19
Total interest-bearing liabilities		5,646,333			30,562		1.08			5,149,350			45,787		1.78
Non-interest-bearing liabilities (4)		567,462								377,179
Total liabilities		6,213,795								5,526,529
Stockholders' equity		1,114,108								1,108,228
Total liabilities and stockholders'   equity	$	7,327,903							$	6,634,757
Net interest income				$	88,715							$	71,294
Interest rate spread (5)							2.48	%							2.09	%
Net interest margin (6)							2.65	%							2.36	%
Ratio of interest-earning assets   to interest-bearing liabilities		1.19	X							1.17	X

(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 $490,810,000 and $320,401,000, for the six months ended December 31, 2020, and 2019, 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.

Provision for Credit Losses.  The provision for credit losses increased by $4.9 million to $2.7 million for the six months ended December 31, 2020 as compared to a provision reversal of $2.2 million for the six months ended December 31, 2019. This increase was largely attributable to $5.1 million of provision expense on non-PCD loans acquired in connection with the acquisition of MSB.

Additional information regarding the allowance for credit losses and the associated provisions recognized during the six months ended December 31, 2020 and 2019 is presented in Note 9 to the unaudited consolidated financial statements as well as the Comparison of Financial Condition at December 31, 2020 and June 30, 2020.  

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Non-Interest Income.  Non-interest income increased by $6.4 million to $14.9 million for the six months ended December 31, 2020.

Fees and service charges decreased by $641,000 to $3.0 million for the six months ended December 31, 2020. The decrease primarily reflected a decrease in loan-related fees attributable to a decrease in commercial loan prepayment activity.

Gain (loss) on sale and call of securities reflected a net gain of $436,000 during the six months ended December 31, 2020 compared to a net loss of $3,000 during the earlier comparative period.

Gain on sale of loans increased by $3.0 million to $4.3 million for the six months ended December 31, 2020. The increase in loan sale gains reflected an increase in the volume of loans originated and sold between comparative periods coupled with an increase in the margin at which such loans were sold. The increase for the six months ended December 31, 2020 also included gains recognized on the sale of $43.6 million of PPP loans, which resulted in a gain on sale of $352,000, as noted earlier.

The Company recognized a net loss of $28,000 related to the write down and sale of OREO during the six months ended December 31, 2019, while there was no such loss during the current period.

Bargain purchase gain, recognized in conjunction with the acquisition of MSB, totaled $3.1 million for the six months ended December 31, 2020. There was no comparable gain recorded in the prior comparable period.

Other non-interest income increased by $263,000 to $157,000 for the six months ended December 31, 2020. The increase primarily reflected $342,000 of non-recurring losses on asset disposals recognized 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 Expenses. Non-interest expense increased by $11.4 million to $64.1 million for the six months ended December 31, 2020.

Salaries and employee benefits expense increased by $3.1 million to $34.1 million for the six months ended December 31, 2020.  The increase in salaries and employees benefits expense generally reflected increases associated with the additional employees retained in conjunction with the MSB acquisition while also reflecting increases in certain compensation and benefit expenses attributable to the Company’s existing roster of employees. These increases were partially offset by decreases in employee severance and ESOP expense.

Net occupancy expense of premises increased by $191,000 to $6.2 million for the six months ended December 31, 2020. This increase was largely attributable to the ongoing operating expenses associated with the owned and leased office facilities acquired by the Company in conjunction with the MSB acquisition. The change in net occupancy expense also reflected $517,000 of lease termination costs incurred in the prior comparative period for which no such costs were recorded in the current period.

Equipment and systems expense increased by $1.4 million to $7.5 million for the six months ended December 31, 2020. This increase was largely attributable to increases in technology infrastructure expense coupled with additional core processing and electronic banking delivery channel expense associated with the growth in clients and accounts associated with the acquisition of MSB.

Advertising and marketing expense decreased by $412,000 to $1.0 million for the six months ended December 31, 2020.  This decrease largely reflected changes in advertising expense across a variety of advertising formats reflecting normal fluctuations in the timing of certain campaigns supporting our loan and deposit growth initiatives.

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FDIC insurance premiums totaled $962,000 for the six months ended December 31, 2020 for which no comparable expense was recorded during the prior comparative period. No expense was recorded in the prior comparative period as a result of credits available to the Bank under the FDIC’s Small Bank Assessment Credit program.

Merger-related expenses, associated with the Company’s acquisition of MSB, increased by $4.1 million to $4.3 million for the six months ended December 31, 2020.

Debt extinguishment expenses increased by $796,000 related to the pre-payment of one FHLB advance, as noted earlier, for which no such expense was recorded during the earlier comparative period.

Other expense increased by $1.3 million to $7.7 million for the six months ended December 31, 2020. The increase in other expense was primarily attributable to non-recurring items recorded in both comparative periods. For the quarter ended December 31, 2020 an asset impairment charge of $347,000, related to a branch closure, was recognized as was $522,000 of credit loss expense for off-balance sheet exposures required in connection with the Company’s adoption of CECL. For the quarter ended December 31, 2019 the recovery of an asset write-down totaling $288,000 was recorded.

Provision for Income Taxes.  Provision for income taxes increased by $1.1 million to $8.5 million for the six months ended December 31, 2020, from $7.4 million for the six months ended December 31, 2019. The increase in income tax expense reflected a higher level of pre-tax net income, as compared to the prior period, resulting in a higher provision for income tax expense.

The effects of a higher level of pre-tax net income was partially offset by the reversal of a valuation allowance totaling $523,000 which was associated with the realization of a capital loss carryforward.

Effective tax rates for the six months ended December 31, 2020 and December 31, 2019 were 23.1% and 25.1%. This decrease in effective tax rates reflected the effects of various non-recurring items recorded in conjunction with the Company’s acquisition of MSB, including a non-taxable bargain purchase gain and non-deductible merger related expenses, whose effects collectively decreased the effective tax rate. In addition, the effective tax rate for the six months ended December 31, 2020 further reflected the effects of the reversal of valuation allowances recognized during the period, as discussed above.

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Liquidity and Capital Resources

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

Liquidity, at December 31, 2020, included $129.7 million of short-term cash and equivalents supplemented by $1.70 billion of investment securities classified as available for sale. In addition, as of December 31, 2020, the Company had the capacity to borrow additional funds totaling $1.75 billion and $292.0 million, without pledging additional collateral, from the FHLB of New York and FRB, respectively. The Company also had the capacity to borrow, as of December 31, 2020, $615.0 million of additional funds, on an unsecured basis, via lines of credit established with other financial institutions.

At December 31, 2020, the Company had outstanding commitments to originate and purchase loans totaling approximately $157.1 million while such commitments totaled $45.6 million at June 30, 2020.  As of those same dates, the Company’s pipeline of loans held for sale included $62.3 million and $127.2 million of loans in process whose terms included interest rate locks to borrowers that were paired with a non-binding, 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 $51.0 million and $171.4 million, respectively, at December 31, 2020 compared to $17.0 million and $82.5 million, respectively, at June 30, 2020. The Company is also subject to the contingent liabilities resulting from letters of credit whose outstanding balances totaled $774,000 and $217,000 at December 31, 2020 and June 30, 2020, 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.

Deposits increased $882.3 million to $5.31 billion at December 31, 2020 from $4.43 billion at June 30, 2020.  The increase in deposit balances reflected a $782.6 million increase in interest-bearing deposits coupled with a $99.7 million increase in non-interest-bearing deposits. Borrowings from the FHLB of New York and other sources are generally available to supplement the Bank’s liquidity position or to replace maturing deposits. As of December 31, 2020, the Bank’s outstanding balance of FHLB advances, excluding fair value adjustments, totaled $867.5 million.  

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. As of December 31, 2020, the Company and the Bank exceeded all capital requirements of federal banking regulators.

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The following table sets forth the Bank’s capital position at December 31, 2020 and June 30, 2020, as compared to the minimum regulatory capital requirements that were in effect as of those dates:

	At December 31, 2020
	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)	$	848,353		19.23	%	$	352,861		8.00	%	$	441,077		10.00	%
Tier 1 capital (to risk-weighted assets)		808,147		18.32	%		264,646		6.00	%		352,861		8.00	%
Common equity tier 1 capital (to risk-weighted assets)		808,147		18.32	%		198,484		4.50	%		286,700		6.50	%
Tier 1 capital (to adjusted total assets)		808,147		11.30	%		286,008		4.00	%		357,510		5.00	%

	At June 30, 2020
	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)	$	816,577		21.38	%	$	305,562		8.00	%	$	381,953		10.00	%
Tier 1 capital (to risk-weighted assets)		779,250		20.40	%		229,172		6.00	%		305,562		8.00	%
Common equity tier 1 capital (to risk-weighted assets)		779,250		20.40	%		171,879		4.50	%		248,269		6.50	%
Tier 1 capital (to adjusted total assets)		779,250		11.95	%		260,893		4.00	%		326,116		5.00	%

The following table sets forth the Company’s capital position at December 31, 2020 and June 30, 2020, as compared to the minimum regulatory capital requirements that were in effect as of those dates:

	At December 31, 2020
	Actual					For Capital Adequacy Purposes
	Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
Total capital (to risk-weighted assets)	$	927,874		20.96	%	$	354,185		8.00	%
Tier 1 capital (to risk-weighted assets)		887,668		20.05	%		265,639		6.00	%
Common equity tier 1 capital (to risk-weighted assets)		887,668		20.05	%		199,229		4.50	%
Tier 1 capital (to adjusted total assets)		887,668		12.38	%		286,911		4.00	%

	At June 30, 2020
	Actual					For Capital Adequacy Purposes
	Amount		Ratio			Amount		Ratio
	(Dollars in Thousands)
Total capital (to risk-weighted assets)	$	906,058		23.61	%	$	306,958		8.00	%
Tier 1 capital (to risk-weighted assets)		868,731		22.64	%		230,219		6.00	%
Common equity tier 1 capital (to risk-weighted assets)		868,731		22.64	%		172,664		4.50	%
Tier 1 capital (to adjusted total assets)		868,731		13.27	%		261,783		4.00	%

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As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have adopted a rule to establish for institutions with assets of less than $10 billion that meet other specified criteria a community bank leverage ratio (“CBLR”) that such institutions may elect to utilize in lieu of the generally applicable leverage and risk-based capital requirements noted above.   The federal banking agencies have adopted 9% as the applicable ratio, effective March 31, 2020, and as a result of the CARES Act, temporarily reduced the ratio to 8% in response to COVID-19. Institutions with capital meeting the specified requirements and electing to follow the alternative framework will be considered compliant with all applicable regulatory capital and leverage requirements, including the requirement to be “well capitalized.”  The Company has elected not to utilize the CBLR framework.

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 maintains the three-year transition option in the previous rule and provides banks the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period (five-year transition option). The Company has adopted the capital transition relief over the permissible five-year 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, 2020.

Recent Accounting Pronouncements

For a discussion of the expected impact of recently issued accounting pronouncements that have yet to be adopted by the Company, please refer to Note 6 to the unaudited consolidated financial statements.

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ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The majority of our assets and liabilities are sensitive to changes in interest rates. Consequently, interest rate risk is a significant form of business 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. The Board of Directors has assigned the responsibility for the operational aspects of the ALM program to our Asset/Liability Management Committee (“ALCO”).  The ALCO is a management committee comprising the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Chief Lending Officer, Chief Credit Officer, Chief Banking Officer, Chief Risk Officer and Treasurer/Chief Investment Officer. Additional members of our management team may be asked to participate on the ALCO, as appropriate.

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”) ratio 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 while the EVE ratio reflects that value as a form of capital ratio. The degree to which the EVE ratio changes for any hypothetical interest rate scenario from its base case measurement is a reflection of an institution’s sensitivity to interest rate risk.

For both earnings and capital at risk our interest rate risk analysis calculates a base case scenario that assumes no change in interest rates. The model then measures changes throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve up and down 100, 200 and 300 basis points with additional scenarios modeled where appropriate. The model requires that interest rates remain positive for all points along the yield curve for each rate scenario which may preclude the modeling of certain falling rate scenarios during periods of lower market interest rates. The relatively low level of interest rates prevalent at December 31, 2020 and June 30, 2020 precluded the modeling of certain falling rate scenarios.

The following tables present the results of our internal EVE analysis as of December 31, 2020 and June 30, 2020, respectively:

	December 31, 2020
	Economic Value of Equity ("EVE")									EVE as a % of Present Value of Assets
Change in Interest Rates	$ Amount of EVE		$ Change in EVE			% Change in EVE				EVE Ratio			Change in EVE Ratio
	(Dollars in Thousands)
+300 bps		1,071,372		(32,401	)		(3	)	%		15.96	%		62		bps
+200 bps		1,111,917		8,144			1		%		16.13	%		79		bps
+100 bps		1,134,480		30,707			3		%		16.06	%		72		bps
0 bps		1,103,773	-			-					15.34	%	-
-100 bps		971,543		(132,230	)		(12	)	%		13.44	%		(190	)	bps

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	June 30, 2020
	Economic Value of Equity ("EVE")									EVE as a % of Present Value of Assets
Change in Interest Rates	$ Amount of EVE		$ Change in EVE			% Change in EVE				EVE Ratio			Change in EVE Ratio
	(Dollars in Thousands)
+300 bps		961,579		11,882			1		%		15.57	%		113		bps
+200 bps		988,278		38,581			4		%		15.61	%		117		bps
+100 bps		988,410		38,713			4		%		15.28	%		84		bps
0 bps		949,697	-			-					14.44	%	-
-100 bps		829,775		(119,922	)		(13	)	%		12.60	%		(184	)	bps

There are numerous internal and external factors that may contribute to changes in our EVE ratio 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.

The following tables present the results of our internal NII analysis as of December 31, 2020 and June 30, 2020, respectively:

			December 31, 2020
			Net Interest Income ("NII")
Change in Interest Rates	Balance Sheet Composition	Measurement Period	$ Amount of NII		$ Change in NII			% Change in NII
			(Dollars In Thousands)
+300 bps	Static	One Year	$	174,073	$	(9,694	)		(5.28	)	%
+200 bps	Static	One Year		179,043		(4,724	)		(2.57	)
+100 bps	Static	One Year		183,545		(222	)		(0.12	)
0 bps	Static	One Year		183,767		-			-
-100 bps	Static	One Year		179,393		(4,374	)		(2.38	)

			June 30, 2020
			Net Interest Income ("NII")
Change in Interest Rates	Balance Sheet Composition	Measurement Period	$ Amount of NII		$ Change in NII			% Change in NII
			(Dollars In Thousands)
+300 bps	Static	One Year	$	146,062	$	(9,010	)		(5.81	)	%
+200 bps	Static	One Year		150,502		(4,570	)		(2.95	)
+100 bps	Static	One Year		154,612		(460	)		(0.30	)
0 bps	Static	One Year		155,072		-			-
-100 bps	Static	One Year		162,070		6,998			4.51

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.

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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, 2020, 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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PART II

ITEM 1. Legal Proceedings

At December 31, 2020, 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, 2020, 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, 2020:

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, 2020		-	$	-		-		5,236,553
November 1-30, 2020		2,172,758	$	9.74		2,172,758		3,063,795
December 1-31, 2020		2,335,931	$	10.51		2,335,931		727,864
Total		4,508,689	$	10.14		4,508,689		727,864

On March 13, 2019, the Company announced the authorization of a fourth repurchase plan for up to 9,218,324 shares or 10% of shares then outstanding.  On March 25, 2020 the Company temporarily suspended its stock repurchase program due to the risks and uncertainties associated with the COVID-19 pandemic.  

On October 19, 2020, the Company announced the resumption of its fourth stock repurchase plan and completed that plan during the quarter ended December 31, 2020. Also on October 19, 2020, the Company announced the authorization of a fifth stock repurchase plan totaling 4,475,523 shares, or 5% of the shares then outstanding. This plan has no expiration date.  The plan commenced upon the completion of the fourth stock repurchase plan.

On January 22, 2021, the Company announced the completion of its fifth stock repurchase plan and the authorization of a sixth stock repurchase plan to repurchase up to 4,210,520 shares, or 5%, of the Company’s outstanding common stock.

ITEM 3. Defaults Upon Senior Securities

Not applicable.

ITEM 4. Mine Safety Disclosures

Not applicable.

ITEM 5. Other Information

None.

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 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, 2020, 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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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 8, 2021	By:	/s/ Craig L. Montanaro
		Craig L. Montanaro
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: February 8, 2021	By:	/s/ Keith Suchodolski
		Keith Suchodolski
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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