krny-10q_20161231.htm

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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 6, 2017.

	December 31,			June 30,
	2016			2016
	(Unaudited)
Assets
Cash and amounts due from depository institutions	$	17,541		$	21,328
Interest-bearing deposits in other banks		19,491			177,872
Cash and cash equivalents		37,032			199,200
Debt securities available for sale (amortized cost $408,666 and $402,137)		399,456			389,910
Mortgage-backed securities available for sale (amortized cost $273,751 and $276,111)		271,825			283,627
Securities available for sale		671,281			673,537
Debt securities held to maturity (fair value $136,730 and $169,794)		137,681			167,171
Mortgage-backed securities held to maturity (fair value $380,401 and $422,690)		380,138			410,115
Securities held to maturity		517,819			577,286
Loans held-for-sale		6,686			3,316
Loans receivable, including unamortized yield adjustments of $3,289 and $2,606		2,973,931			2,673,987
Less allowance for loan losses		(26,060	)		(24,229	)
Net loans receivable		2,947,871			2,649,758
Premises and equipment		38,341			38,385
Federal Home Loan Bank of New York ("FHLB") stock		34,525			30,612
Accrued interest receivable		11,809			11,212
Goodwill		108,591			108,591
Bank owned life insurance		178,656			176,016
Deferred income tax assets, net		16,098			25,973
Other assets		16,599			6,173
Total Assets	$	4,585,308		$	4,500,059

Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest-bearing	$	240,367		$	238,751
Interest-bearing		2,505,650			2,456,082
Total deposits		2,746,017			2,694,833
Borrowings		701,849			614,423
Advance payments by borrowers for taxes		7,618			7,906
Other liabilities		15,172			35,268
Total Liabilities		3,470,656			3,352,430

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; 89,176,477 shares and 91,821,910 shares issued and outstanding, respectively		892			918
Paid-in capital		795,773			849,173
Retained earnings		357,540			350,806
Unearned employee stock ownership plan shares; 3,662,730 shares and 3,763,078 shares, respectively		(35,508	)		(36,481	)
Accumulated other comprehensive loss, net		(4,045	)		(16,787	)
Total Stockholders' Equity		1,114,652			1,147,629
Total Liabilities and Stockholders' Equity	$	4,585,308		$	4,500,059

	Three Months Ended					Six Months Ended
	December 31,					December 31,
	2016		2015			2016			2015
Interest Income
Loans	$	27,407	$	24,641		$	53,104		$	46,673
Mortgage-backed securities		3,779		4,409			7,716			8,923
Debt securities:
Taxable		2,146		1,845			4,186			3,741
Tax-exempt		562		555			1,113			1,089
Other interest-earning assets		421		374			1,002			813
Total Interest Income		34,315		31,824			67,121			61,239

Interest Expense
Deposits		5,410		4,529			10,771			8,601
Borrowings		3,289		3,357			6,713			6,344
Total Interest Expense		8,699		7,886			17,484			14,945
Net Interest Income		25,616		23,938			49,637			46,294
Provision for Loan Losses		1,255		3,414			2,384			6,055
Net Interest Income after Provision for Loan Losses		24,361		20,524			47,253			40,239

Non-Interest Income
Fees and service charges		1,289		709			1,952			1,382
Gain on sale and call of securities		21		2			21			2
Gain on sale of loans		459		76			759			148
Gain (loss) on sale and write down of real estate owned		12		(113	)		(3	)		(113	)
Income from bank owned life insurance		1,321		1,409			2,640			2,799
Electronic banking fees and charges		270		277			553			563
Miscellaneous		74		50			153			122
Total Non-Interest Income		3,446		2,410			6,075			4,903

Non-Interest Expense
Salaries and employee benefits		11,592		10,381			22,501			21,006
Net occupancy expense of premises		1,976		1,774			3,917			3,683
Equipment and systems		2,030		1,614			4,078			3,592
Advertising and marketing		387		563			936			991
Federal deposit insurance premium		339		675			644			1,337
Directors' compensation		379		181			604			363
Miscellaneous		2,670		2,516			5,353			5,114
Total Non-Interest Expense		19,373		17,704			38,033			36,086
Income before Income Taxes		8,434		5,230			15,295			9,056
Income taxes		2,970		1,433			5,164			2,283
Net Income	$	5,464	$	3,797		$	10,131		$	6,773

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2016		2015			2016		2015
Net Income per Common Share (EPS)
Basic	$	0.06	$	0.04	$	0.12	$	0.08
Diluted	$	0.06	$	0.04	$	0.12	$	0.08
Weighted Average Number of Common Shares Outstanding
Basic		85,174		89,640		85,710		89,615
Diluted		85,258		89,674		85,782		89,647

Dividends Declared Per Common Share	$	0.02	$	0.02	$	0.04	$	0.04

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2016			2015			2016			2015
Net Income	$	5,464		$	3,797		$	10,131		$	6,773

Other Comprehensive Income:

Net unrealized loss on securities available for sale, net of deferred income tax benefit of:
2016 $2,924, $2,182;
2015 $2,548, $3,317		(5,314	)		(3,871	)		(4,241	)		(4,554	)

Net (loss) gain on securities transferred from available for sale to held to maturity, net of deferred income tax (benefit) expense of:
2016 $(18), $(15);
2015 $11, $(2)		(25	)		14			(21	)		(4	)

Net realized loss (gain) on securities available for sale, net of income tax benefit (expense) of:
2016 $4, $4;
2015 $(1), $(1)		6			(1	)		6			(1	)

Fair value adjustments on derivatives, net of deferred income tax expense (benefit) of:
2016 $9,704, $11,887;
2015 $2,769, $(291)		14,051			4,008			17,212			(423	)

Benefit plan adjustments, net of deferred income tax expense (benefit) of:
2016 $6, $(148);
2015 $8, $(357)		10			11			(214	)		(517	)

Total Other Comprehensive Income (Loss)		8,728			161			12,742			(5,499	)

Total Comprehensive Income	$	14,192		$	3,958		$	22,873		$	1,274

	Common Stock				Paid-In		Retained			Unearned ESOP			Accumulated Other Comprehensive
	Shares		Amount		Capital		Earnings			Shares			Loss			Total
Balance - June 30, 2015		93,528	$	935	$	870,480	$	342,148		$	(38,427	)	$	(7,761	)	$	1,167,375

Net income		-		-		-		6,773			-			-			6,773
Other comprehensive loss, net of income tax benefit		-		-		-		-			-			(5,499	)		(5,499	)
ESOP shares committed to be released (100 shares)		-		-		211		-			973			-			1,184
Stock option expense		-		-		80		-			-			-			80
Restricted stock plan shares earned (16 shares)		-		-		141		-			-			-			141
Cash dividends declared ($0.04 per common share)		-		-		-		(3,578	)		-			-			(3,578	)

Balance - December 31, 2015		93,528	$	935	$	870,912	$	345,343		$	(37,454	)	$	(13,260	)	$	1,166,476

	Common Stock						Paid-In			Retained			Unearned ESOP			Accumulated Other Comprehensive
	Shares			Amount			Capital			Earnings			Shares			Loss			Total
Balance - June 30, 2016		91,822		$	918		$	849,173		$	350,806		$	(36,481	)	$	(16,787	)	$	1,147,629

Net income		-			-			-			10,131			-			-			10,131
Other comprehensive income, net of income tax expense		-			-			-			-			-			12,742			12,742
ESOP shares committed to be released (100 shares)		-			-			434			-			973			-			1,407
Stock option expense		-			-			231			-			-			-			231
Share repurchases		(4,033	)		(40	)		(54,478	)		-			-			-			(54,518	)
Issuance of shares for stock benefit plan		1,387			14			(14	)		-			-			-			-
Restricted stock plan shares earned (30 shares)		-			-			427			-			-			-			427
Cash dividends declared ($0.04 per common share)		-			-			-			(3,397	)		-			-			(3,397	)

Balance - December 31, 2016		89,176		$	892		$	795,773		$	357,540		$	(35,508	)	$	(4,045	)	$	1,114,652

	Six Months Ended
	December 31,
	2016			2015
Cash Flows from Operating Activities:
Net income	$	10,131		$	6,773
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment		1,471			1,488
Net amortization of premiums, discounts and loan fees and costs		2,785			2,143
Deferred income taxes		342			(1,457	)
Amortization of intangible assets		72			86
Amortization of benefit plans’ unrecognized net loss (gain)		33			(439	)
Provision for loan losses		2,384			6,055
Loss on write-down and sales of real estate owned		3			113
Loans originated for sale		(58,305	)		-
Proceeds from sale of loans held-for-sale		55,344			-
Realized gain on sale of loans held-for-sale, net		(409	)		-
Realized gain on sale of loans		(350	)		(148	)
Proceeds from sale of loans		4,217			1,811
Realized loss on call of debt securities available for sale		10			-
Realized gain on call of debt securities held to maturity		(31	)		(2	)
Realized gain on disposition of premises and equipment		(11	)		(14	)
Increase in cash surrender value of bank owned life insurance		(2,640	)		(2,799	)
ESOP, stock option plan and restricted stock plan expenses		2,065			1,405
Increase in interest receivable		(597	)		(1,056	)
Decrease (increase) in other assets		154			(53	)
Increase in interest payable		100			117
(Increase) decrease in other liabilities		(1,319	)		2,788
Net Cash Provided by Operating Activities		15,449			16,811

Cash Flows from Investing Activities:
Purchases of debt securities available for sale		(36,926	)		-
Proceeds from repayments of debt securities available for sale		30,476			389
Purchases of mortgage-backed securities available for sale		(30,663	)		-
Principal repayments on mortgage-backed securities available for sale		32,446			36,985
Purchase of debt securities held to maturity		(22,793	)		(9,488	)
Proceeds from repayments of debt securities held to maturity		52,198			61,914
Purchases of mortgage-backed securities held to maturity		-			(11,958	)
Principal repayments on mortgage-backed securities held to maturity		28,902			23,277
Purchase of loans		(133,101	)		(321,176	)
Net increase in loans receivable		(173,739	)		(182,700	)
Proceeds from sale of real estate owned		505			435
Additions to premises and equipment		(1,416	)		(1,464	)
Proceeds from cash settlement of premises and equipment		-			14
Purchase of FHLB stock		(10,080	)		(2,475	)
Redemption of FHLB stock		6,167			272
Net Cash Used in Investing Activities	$	(258,024	)	$	(405,975	)

	Six Months Ended
	December 31,
	2016			2015
Cash Flows from Financing Activities:
Net increase in deposits	$	51,189		$	117,556
Repayment of term FHLB advances		(853,051	)		(801,048	)
Proceeds from term FHLB advances		850,000			850,000
Net change in overnight borrowings		90,000			-
Net increase (decrease) in other short-term borrowings		472			(32	)
Net decrease in advance payments by borrowers for taxes		(288	)		(1,006	)
Repurchase and cancellation of common stock of Kearny Financial Corp.		(54,518	)		-
Cash dividends paid		(3,397	)		(3,578	)
Net Cash Provided by Financing Activities		80,407			161,892
Net Decrease in Cash and Cash Equivalents		(162,168	)		(227,272	)
Cash and Cash Equivalents - Beginning		199,200			340,136
Cash and Cash Equivalents - Ending	$	37,032		$	112,864

Supplemental Disclosures of Cash Flows Information:
Cash paid during the year for:
Income taxes, net of refunds	$	3,934		$	2,834
Interest	$	17,385		$	14,828

Non-cash investing and financing activities:
Acquisition of real estate owned in settlement of loans	$	1,719		$	1,920

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. and KFS Financial Services, Inc. and its wholly-owned subsidiary, KFS Insurance Services, Inc. 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.

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 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, 2016 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, 2016 was derived from the Company’s 2016 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 2016 annual report on Form 10-K.

Basic EPS is based on the weighted average number of common shares actually outstanding including 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 is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations:

	Three Months Ended						Six Months Ended
	December 31, 2016						December 31, 2016
	Income (Numerator)		Shares (Denominator)		Per Share Amount		Income (Numerator)		Shares (Denominator)		Per Share Amount
	(In Thousands, Except Per Share Data)						(In Thousands, Except Per Share Data)

Net income	$	5,464					$	10,131
Basic earnings per share, income available to common stockholders	$	5,464		85,174	$	0.06	$	10,131		85,710	$	0.12
Effect of dilutive securities:
Stock options				84						72
	$	5,464		85,258	$	0.06	$	10,131		85,782	$	0.12

	Three Months Ended December 31, 2015						Six Months Ended December 31, 2015
	Income (Numerator)		Shares (Denominator)		Per Share Amount		Income (Numerator)		Shares (Denominator)		Per Share Amount
	(In Thousands, Except Per Share Data)						(In Thousands, Except Per Share Data)

Net income	$	3,797					$	6,773
Basic earnings per share, income available to common stockholders	$	3,797		89,640	$	0.04	$	6,773		89,615	$	0.08
Effect of dilutive securities:
Stock options				34						32
	$	3,797		89,674	$	0.04	$	6,773		89,647	$	0.08

During the three and six months ended December 31, 2016, the average number of options which were considered anti-dilutive totaled approximately 1,108,587 and 554,293, respectively. During the three months and six months ended December 31, 2015, the average number of options which were considered anti-dilutive totaled approximately 264,077 and 270,078, respectively.

The Company has evaluated events and transactions occurring subsequent to the statement of financial condition date of December 31, 2016, for items that should potentially be recognized or disclosed in these consolidated financial statements. The evaluation was conducted through the date this document was filed.

On May 18, 2015, the Company completed its second-step conversion and stock offering as outlined in the Plan of Conversion and Reorganization (the “Plan”). Pursuant to the Plan, Kearny MHC converted from the mutual holding company form of organization to the fully public form. Kearny MHC was merged into the prior holding company and no longer exists. The prior holding company was then merged into a new Maryland corporation, also named Kearny Financial Corp., which became the holding company for the Bank.

In conjunction with that transaction, the Company sold 71,750,000 shares of its common stock at $10.00 per share, resulting in gross proceeds of $717.5 million. The new shares issued included 3,612,500 shares sold to the Bank’s Employee Stock Ownership Plan (“ESOP”) with an aggregate value of $36.1 million based on the sales price of $10.00 per share. Concurrent with the closing of the transaction, the Company also issued an additional 500,000 shares of its common stock with an aggregate value of $5.0 million and contributed these shares with an additional $5.0 million in cash to the newly established KearnyBank Foundation.

The Company recognized direct stock offering costs of approximately $10.7 million in conjunction with the transaction which reduced the net proceeds credited to capital. After adjusting for transaction costs and the value of the shares issued to the Bank’s ESOP, the Company recognized a net increase in equity capital of approximately $670.7 million, of which approximately $353.4 million was contributed to the Bank by the Company as an additional investment in the Bank’s common equity.

The outstanding shares held by the Company’s public stockholders immediately prior to the closing of the conversion and stock offering were “exchanged” or converted into 1.3804 shares of the Company’s new common stock. All shares previously held by Kearny MHC, the former mutual holding company, as well as the remaining shares previously repurchased by the Company and held in treasury were cancelled concurrent with the closing of the transaction.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The ASU’s core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. For public entities, the

guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

In September 2015, the FASB issued ASU 2015-16, Business Combination (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The ASU requires adjustments to provisional amounts that are identified during the measurement period to be recognized in the reporting period in which the adjustment amounts are determined. This includes any effect on earnings of changes in depreciation, amortization, or other income effects as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.

In addition, the amendments in the ASU would require an entity to disclose (either on the face of the income statement or in the notes) the nature and amount of measurement-period adjustments recognized in the current period, including separately the amounts in current-period income statement line items that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015 and its adoption did not have a significant impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in OCI the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price and; (v) assess a valuation allowance on deferred tax assets related to unrealized losses of AFS debt securities in combination with other deferred tax assets. The Update provides an election to subsequently measure certain nonmarketable equity investments at cost less any impairment and adjusted for certain observable price changes. The Update also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The ASU applies a right-of-use (ROU) model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset and a liability to make lease payments. For leases with a term of 12 months or less, a practical expedient is available whereby a lessee may elect, by class of underlying asset, not to recognize an ROU asset or lease liability. At inception, lessees must classify all leases as either finance or operating based on five criteria. Balance sheet recognition of finance and operating leases is similar, but the pattern of expense recognition in the income statement, as well as the effect on the statement of cash flows, differs depending on the lease classification.

The new leases standard requires a lessor to classify leases as either sales-type, direct financing or operating, similar to existing U.S. GAAP. Classification depends on the same five criteria used by lessees plus certain additional factors. The subsequent accounting treatment for all three lease types is substantially equivalent to existing U.S. GAAP for sales-type leases, direct financing leases, and operating leases. However, the new standard updates certain aspects of the lessor accounting model to align it with the new lessee accounting model, as well as with the new revenue standard under Topic 606.

Lessees and lessors are required to provide certain qualitative and quantitative disclosures to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The new leases standard addresses other considerations including identification of a lease, separating lease and non-lease components of a contract, sale and leaseback transactions, modifications, combining contracts, reassessment of the lease term, and re-measurement of lease payments. It also contains comprehensive implementation guidance with practical examples. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. The ASU requires an entity to discontinue a designated hedging relationship in certain circumstances, including termination of the derivative hedging instrument or if the entity wishes to change any of the critical terms of the hedging relationship. ASU 2016-05 amends Topic 815 to clarify that novation of a derivative (replacing one of the parties to a derivative instrument with a new party) designated as the hedging instrument would not, in and of itself, be considered a termination of the derivative instrument or a change in critical terms requiring discontinuation of the designated hedging relationship. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments. The ASU addresses how an entity should assess whether contingent call (put) options that can accelerate the payment of debt instruments are clearly and closely related to their debt hosts. This assessment is necessary to determine if the option(s) must be separately accounted for as a derivative. The ASU clarifies that an entity is required to assess the embedded call (put) options solely in accordance with a specific four-step decision sequence. This means entities are not also required to assess whether the contingency for exercising the option(s) is indexed to interest rates or credit risk. For example, when evaluating debt instruments puttable upon a change in control, the event triggering the change in control is not relevant to the assessment. Only the resulting settlement of debt is subject to the four-step decision sequence. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The ASU introduces targeted amendments intended to simplify the accounting for stock compensation. Specifically, the ASU requires all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) to be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits, and assess the need for a valuation allowance, regardless of whether the benefit reduces taxes payable in the current period. That is, off balance sheet accounting for net operating losses stemming from excess tax benefits would no longer be required and instead such net operating losses would be recognized when they arise. Existing net operating losses that are currently tracked off balance sheet would be recognized, net of a valuation allowance if required, through an adjustment to opening retained earnings in the period of adoption. Entities will no longer need to maintain and track an “APIC pool.” The ASU also requires excess tax benefits to be classified along with other income tax cash flows as an operating activity in the statement of cash flows.

In addition, the ASU elevates the statutory tax withholding threshold to qualify for equity classification up to the maximum statutory tax rates in the applicable jurisdiction(s). The ASU also clarifies that cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity.

The ASU provides an optional accounting policy election (with limited exceptions), to be applied on an entity-wide basis, to either estimate the number of awards that are expected to vest (consistent with existing U.S. GAAP) or account for forfeitures when they occur.

For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this ASU effective October 1, 2016 and its adoption did not have a significant impact on the Company’s consolidated financial statements.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in ASU 2016-10 provide more detailed guidance, including additional implementation guidance and examples for identifying performance obligations and revenue recognition for licenses of intellectual property.

The effective date and transition requirements for ASU 2016-10 are the same as the effective date and transition requirements of Topic 606 which, for public entities, is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

In May 2016, the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09 and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting. ASU 2016-11 codifies the SEC’s rescission of certain SEC Staff Observer comments that were codified in Topic 605 and Topic 932. In addition, the ASU codifies SEC’s rescission of SEC Staff Announcement, “Determining the Nature of a Host Contract Related to a Hybrid Instrument Issued in the Form of a Share under Topic 815,” which was previously codified in paragraph 815-10-S99-3.

The amendments within Topics 605 and 932 are effective upon adoption of Topic 606 which, for public entities, is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Paragraph 815-10-S99-3 is rescinded to coincide with the effective date of Update 2014-16. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments do not alter the core principle of the new revenue standard, but make certain targeted changes to clarify the following topics: assessing collectability, presenting sales taxes and other similar taxes collected

from customers, non-cash consideration, contract modifications and transition, completed contracts at transition and disclosing the accounting change in the period of adoption.

The effective date and transition requirements for ASU 2016-12 are the same as the effective date and transition requirements of Topic 606 which, for public entities, is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instrument. The ASU requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than insignificant amount of credit deterioration since origination (“PCD assets”), should be determined in a similar manner to other financial assets measured on an amortized cost basis. However, upon initial recognition, the allowance for credit losses is added to the purchase price (“gross up approach”) to determine the initial amortized cost basis. The subsequent accounting for PCD financial assets is the same expected loss model described above.

Further, the ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.

For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

On August 26, 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), a consensus of the FASB’s Emerging Issues Task Force. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The new guidance addresses eight classification issues related to the statement of cash flows, which include proceeds from settlement of corporate-owned and bank-owned life insurance policies. For a public entity, ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

On December 14, 2016, the FASB issued ASU 2016-19, Technical Corrections and Improvements to clarify and amend key areas in Generally Accepted Accounting Principles (GAAP). Most of the amendments go into effect immediately, while others take effect for interim and annual reporting periods beginning after December 15, 2016. For a public entity, ASU 2016-19 is effective for annual and interim periods in fiscal years beginning after December 15, 2016. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

The amortized cost, gross unrealized gains and losses and fair values of debt and mortgage-backed securities available for sale at December 31, 2016 and June 30, 2016 and stratification by contractual maturity of debt securities available for sale at December 31, 2016 are presented below:

	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
Securities available for sale:
Debt securities:
U.S. agency securities	$	5,810	$	17	$	18	$	5,809
Obligations of state and political subdivisions		27,477		37		424		27,090
Asset-backed securities		124,754		129		3,438		121,445
Collateralized loan obligations		98,695		144		392		98,447
Corporate bonds		143,022		410		4,868		138,564
Trust preferred securities		8,908		-		807		8,101
Total debt securities		408,666		737		9,947		399,456

Mortgage-backed securities:
Collateralized mortgage obligations:
Federal Home Loan Mortgage Corporation		17,507		51		222		17,336
Federal National Mortgage Association		35,909		2		1,027		34,884
Non-agency securities		114		-		1		113
Total collateralized mortgage obligations		53,530		53		1,250		52,333

Mortgage pass-through securities:
Residential pass-through securities:
Government National Mortgage Association		1,521		130		-		1,651
Federal Home Loan Mortgage Corporation		132,460		1,070		2,422		131,108
Federal National Mortgage Association		78,054		1,449		1,004		78,499
Total residential pass-through securities		212,035		2,649		3,426		211,258

Commercial pass-through securities:
Federal National Mortgage Association		8,186		48		-		8,234
Total commercial pass-through securities		8,186		48		-		8,234

Total mortgage-backed securities		273,751		2,750		4,676		271,825

Total securities available for sale	$	682,417	$	3,487	$	14,623	$	671,281

	June 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
Securities available for sale:
Debt securities:
U.S. agency securities	$	6,307	$	146	$	13	$	6,440
Obligations of state and political subdivisions		27,489		909		-		28,398
Asset-backed securities		87,746		-		5,121		82,625
Collateralized loan obligations		128,664		24		1,314		127,374
Corporate bonds		143,027		7		5,630		137,404
Trust preferred securities		8,904		25		1,260		7,669
Total debt securities		402,137		1,111		13,338		389,910

Mortgage-backed securities:
Collateralized mortgage obligations:
Federal Home Loan Mortgage Corporation		20,944		380		-		21,324
Federal National Mortgage Association		38,992		226		89		39,129
Non-agency securities		126		-		2		124
Total collateralized mortgage obligations		60,062		606		91		60,577

Mortgage pass-through securities:
Residential pass-through securities:
Government National Mortgage Association		1,789		171		-		1,960
Federal Home Loan Mortgage Corporation		126,415		3,557		-		129,972
Federal National Mortgage Association		79,583		3,011		-		82,594
Total residential pass-through securities		207,787		6,739		-		214,526

Commercial pass-through securities:
Federal National Mortgage Association		8,262		262		-		8,524
Total commercial pass-through securities		8,262		262		-		8,524

Total mortgage-backed securities		276,111		7,607		91		283,627

Total securities available for sale	$	678,248	$	8,718	$	13,429	$	673,537

There were no sales of securities available for sale during the three months and six months ended December 31, 2016 and December 31, 2015.

At December 31, 2016 and June 30, 2016, securities available for sale with carrying values of approximately $38.3 million and $45.0 million, respectively, were utilized as collateral for borrowings through the FHLB of New York. As of those same dates, securities available for sale with total carrying values of approximately $872,000 and $983,000, respectively, were pledged to secure public funds on deposit.

The amortized cost, gross unrealized gains and losses and fair values of debt and mortgage-backed securities held to maturity at December 31, 2016 and June 30, 2016 and stratification by contractual maturity of debt securities held to maturity at December 31, 2016 are presented below:

	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
Securities held to maturity:
Debt securities:
U.S. agency securities	$	34,999	$	-	$	41	$	34,958
Obligations of state and political subdivisions		87,682		87		997		86,772
Subordinated debt		15,000		-		-		15,000
Total debt securities		137,681		87		1,038		136,730

Mortgage-backed securities:
Collateralized mortgage obligations:
Government National Mortgage Association		2,471		-		57		2,414
Federal Home Loan Mortgage Corporation		17,867		2		382		17,487
Federal National Mortgage Association		178		19		-		197
Non-agency securities		27		-		1		26
Total collateralized mortgage obligations		20,543		21		440		20,124

Mortgage pass-through securities:
Residential pass-through securities:
Government National Mortgage Association		8		1		-		9
Federal Home Loan Mortgage Corporation		39,472		6		391		39,087
Federal National Mortgage Association		160,922		642		328		161,236
Total residential pass-through securities		200,402		649		719		200,332

Commercial pass-through securities:
Government National Mortgage Association		4,981		-		22		4,959
Federal National Mortgage Association		154,212		992		218		154,986
Total commercial pass-through securities		159,193		992		240		159,945

Total mortgage-backed securities		380,138		1,662		1,399		380,401

Total securities held to maturity	$	517,819	$	1,749	$	2,437	$	517,131

	June 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In Thousands)
Securities held to maturity:
Debt securities:
U.S. agency securities	$	84,992	$	31	$	1	$	85,022
Obligations of state and political subdivisions		82,179		2,602		9		84,772
Total debt securities		167,171		2,633		10		169,794

Mortgage-backed securities:
Collateralized mortgage obligations:
Government National Mortgage Association		2,787		25		-		2,812
Federal Home Loan Mortgage Corporation		20,067		92		-		20,159
Federal National Mortgage Association		194		24		-		218
Non-agency securities		33		-		1		32
Total collateralized mortgage obligations		23,081		141		1		23,221

Mortgage pass-through securities:
Residential pass-through securities:
Government National Mortgage Association		8		1		-		9
Federal Home Loan Mortgage Corporation		43,716		470		-		44,186
Federal National Mortgage Association		179,908		4,132		4		184,036
Total residential pass-through securities		223,632		4,603		4		228,231

Commercial pass-through securities:
Government National Mortgage Association		7,756		22		-		7,778
Federal National Mortgage Association		155,646		7,814		-		163,460
Total commercial pass-through securities		163,402		7,836		-		171,238

Total mortgage-backed securities		410,115		12,580		5		422,690

Total securities held to maturity	$	577,286	$	15,213	$	15	$	592,484

There were no sales of securities held to maturity during the three and six months ended December 31, 2016 and December 31, 2015.

At December 31, 2016 and June 30, 2016, securities held to maturity with carrying values of approximately $124.8 million and $148.8 million, respectively, were utilized as collateral for borrowings from the FHLB of New York. As of those same dates, securities held to maturity with total carrying values of approximately $7.0 million and $7.5 million, respectively, were pledged to secure public funds on deposit.

The following two tables summarize the fair values and gross unrealized losses within the available for sale and held to maturity portfolios at December 31, 2016 and June 30, 2016. The gross unrealized losses, presented by security type, represent temporary impairments of value within each portfolio as of the dates presented. Temporary impairments within the available for sale portfolio have been recognized through other comprehensive income as reductions in stockholders’ equity on a tax-effected basis.

The tables are followed by a discussion that summarizes the Company’s rationale for recognizing impairments, where applicable, as “temporary” versus those identified as “other-than-temporary”. Such rationale is presented by investment type and generally applies consistently to both the “available for sale” and “held to maturity” portfolios, except where specifically noted.

	December 31, 2016
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Securities Available for Sale:
U.S. agency securities	$	2,064	$	4	$	1,927	$	14	$	3,991	$	18
Obligations of state and political subdivisions		19,776		424		-		-		19,776		424
Asset-backed securities		31,481		744		60,594		2,694		92,075		3,438
Collateralized loan obligations		19,917		10		59,576		382		79,493		392
Corporate bonds		-		-		110,163		4,868		110,163		4,868
Trust preferred securities		-		-		7,101		807		7,101		807
Collateralized mortgage obligations		36,860		858		9,933		392		46,793		1,250
Residential pass-through securities		117,476		3,426		-		-		117,476		3,426

Total	$	227,574	$	5,466	$	249,294	$	9,157	$	476,868	$	14,623

	June 30, 2016
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Securities Available for Sale:
U.S. agency securities	$	-	$	-	$	2,053	$	13	$	2,053	$	13
Asset-backed securities		45,564		2,726		37,061		2,395		82,625		5,121
Collateralized loan obligations		18,227		119		98,743		1,195		116,970		1,314
Corporate bonds		18,938		61		113,482		5,569		132,420		5,630
Trust preferred securities		-		-		6,644		1,260		6,644		1,260
Collateralized mortgage obligations		672		3		10,485		88		11,157		91

Total	$	83,401	$	2,909	$	268,468	$	10,520	$	351,869	$	13,429

The number of available for sale securities with unrealized losses at December 31, 2016 totaled 132 and included seven U.S. agency securities, 52 municipal obligations, nine asset-backed securities, 12 collateralized loan obligations, nine corporate obligations, four trust preferred securities, ten collateralized mortgage obligations and 29 residential pass-through securities. The number of available for sale securities with unrealized losses at June 30, 2016 totaled 52 and included five U.S. agency securities, eight asset-backed securities, 18 collateralized loan obligations, 14 corporate obligations, four trust preferred securities and three collateralized mortgage obligations.

	December 31, 2016
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Securities Held to Maturity:
U.S. agency securities	$	24,976	$	24	$	9,983	$	17	$	34,959	$	41
Obligations of state and political subdivisions		66,782		984		403		13		67,185		997
Collateralized mortgage obligations		19,881		439		27		1		19,908		440
Residential pass-through securities		134,611		660		1,951		59		136,562		719
Commercial pass-through securities		26,807		240		-		-		26,807		240

Total	$	273,057	$	2,347	$	12,364	$	90	$	285,421	$	2,437

	June 30, 2016
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(In Thousands)
Securities Held to Maturity:
U.S. agency securities	$	-	$	-	$	10,000	$	1	$	10,000	$	1
Obligations of state and political subdivisions		1,904		5		669		4		2,573		9
Collateralized mortgage obligations		-		-		32		1		32		1
Residential pass-through securities		-		-		2,026		4		2,026		4

Total	$	1,904	$	5	$	12,727	$	10	$	14,631	$	15

The number of held to maturity securities with unrealized losses at December 31, 2016 totaled 198 and included two U.S. agency securities, 145 municipal obligations, eight collateralized mortgage obligations, 36 residential pass-through security and seven commercial pass-through securities. The number of held to maturity securities with unrealized losses at June 30, 2016 totaled 13 and included one U.S. agency security, seven municipal obligations, four collateralized mortgage obligations, and one residential pass-through security.

In general, if the fair value of a debt security is less than its amortized cost basis at the time of evaluation, the security is “impaired” and the impairment is to be evaluated to determine if it is other than temporary. The Company evaluates the impaired securities in its portfolio for possible other than temporary impairment (OTTI) on at least a quarterly basis. The following represents the circumstances under which an impaired security is determined to be other than temporarily impaired:

In the first two circumstances noted above, the amount of OTTI recognized in earnings is the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. In the third circumstance, however, the OTTI is to be separated into the amount representing the credit loss from the amount related to all other factors. The credit loss component is to be recognized in earnings while the non-credit loss component is to be recognized in other comprehensive income. In these cases, OTTI is generally predicated on an adverse change in cash flows (e.g. principal and/or interest payment deferrals or losses) versus those expected at the time of purchase. The absence of an adverse change in expected cash flows generally indicates that a security’s impairment is related to other “non-credit loss” factors and is thereby generally not recognized as OTTI.

The Company considers a variety of factors when determining whether a credit loss exists for an impaired security including, but not limited to:

At December 31, 2016 and June 30, 2016, the Company held no securities for which credit-related OTTI had been recognized in earnings based on the Company’s analysis and determination that the impairment reported in the tables above was “temporary” in nature as of both dates.

The rationale for making that determination is based on several factors which are generally shared among the various sectors represented in the Company’s available for sale and held to maturity portfolios. The most significant of these is the general mitigation of credit risk arising from the U.S. government, agency and GSE guarantees supporting the Company’s mortgage-backed securities, U.S. agency debt securities and asset-backed securities.

While not supported by such guarantees, the Company’s collateralized loan obligations represent tranches within a larger investment vehicle that reallocate cash flows and credit risk among the individual tranches comprised within that vehicle. Through this structure, the Company is afforded significant protection against the risk that the securities within this sector will be adversely impacted by borrowers defaulting on the underlying loans.

In the absence of the guarantor or structural protections noted above, the securities within the other sectors of the Company’s securities portfolio, including its municipal obligations, corporate bonds and single-issuer trust preferred securities are generally issued by credit-worthy entities with the ability and resources to fully meet their financial obligations. The Company regularly monitors the historical cash flows and financial strength of all issuers and/or guarantors to confirm that security impairment, where applicable, is not due to an actual or expected adverse change in security cash flows that would result in the recognition of credit-related OTTI.

With credit risk being mitigated in the manner outlined above, the unrealized losses on the Company’s securities are due largely to the combined effects of several market-related factors including, most notably, changes in market interest rates and changing market conditions which affect the supply and demand for such securities. Those market conditions may fluctuate over time resulting in certain securities being impaired for periods in excess of 12 months. However, the longevity of such impairment is not necessarily reflective of an expectation for an adverse change in cash flows signifying a credit loss. Consequently, the impairments of value resulting directly from these changing market conditions are considered “noncredit-related” and “temporary” in nature.

The Company has the stated ability and intent to “hold to maturity” those securities so designated at December 31, 2016 and does not intend to sell the temporarily impaired available for sale securities prior to the recovery of their fair value to a level equal to or greater than the Company’s amortized cost. Furthermore, the Company has concluded that the possibility of being required to sell the securities prior to their anticipated recovery is unlikely based upon its strong liquidity, asset quality and capital position as of that

date. In light of the factors noted, the Company does not consider its balance of securities with unrealized losses at December 31, 2016 to be “other-than-temporarily” impaired as of that date.

Acquired Credit-Impaired Loans. At December 31, 2016, the remaining outstanding principal balance and carrying amount of acquired credit-impaired loans totaled approximately $1,445,000 and $1,112,000, respectively. By comparison, at June 30, 2016, the remaining outstanding principal balance and carrying amount of acquired credit-impaired loans totaled approximately $1,605,000 and $1,168,000, respectively.

The carrying amount of acquired credit-impaired loans for which interest is not being recognized due to the uncertainty of the cash flows relating to such loans totaled $388,000 and $436,000 at December 31, 2016 and June 30, 2016, respectively.

The balance of the allowance for loan losses at June 30, 2016 included approximately $13,000 of valuation allowances for specifically identified impairment attributable to acquired credit-impaired loans. The valuation allowances were attributable to additional impairment recognized on the applicable loans subsequent to their acquisition, net of any charge offs recognized during that time. There were no valuation allowances for specifically identified impairment attributable to acquired credit-impaired loans at December 31, 2016.

The following table presents the changes in the accretable yield relating to the acquired credit-impaired loans for the three months ended December 31, 2016 and December 31, 2015.

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, 2016, we held two single-family properties in real estate owned with an aggregage carrying value of $830,000 that were acquired through foreclosures on residential mortgage loans. As of that same date, we held 20 residential mortgage loans with aggregate carrying values totaling $4.5 million which were in the process of foreclosure.

Loan Quality. The following tables present the balance of the allowance for loan losses at December 31, 2016 and June 30, 2016 based upon the calculation methodology as described in the Company’s Form 10-K for the fiscal year ended June 30, 2016. 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 as well as the activity in the allowance for loan losses for the three months and six months ended December 31, 2016 and December 31, 2015. Unless otherwise noted, the balance of loans reported in the tables below excludes yield adjustments and the allowance for loan loss.

Allowance for Loan Losses and Loans Receivable
At December 31, 2016

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		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		45		-		23		-		8		57		-		133
Loans collectively evaluated for impairment		2,385		12,226		8,332		29		1,771		499		685		25,927

Total allowance for loan losses	$	2,430	$	12,226	$	8,355	$	29	$	1,779	$	556	$	685	$	26,060

Allowance for Loan Losses and Loans Receivable
At December 31, 2016

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Balance of loans receivable:

Loans acquired with deteriorated credit quality	$	101	$	-	$	296	$	-	$	715	$	-	$	-	$	1,112
Loans individually evaluated for impairment		13,061		181		5,855		259		2,444		2,040		-		23,840
Loans collectively evaluated for impairment		549,304		1,295,026		926,465		668		72,481		81,265		20,481		2,945,690

Total loans	$	562,466	$	1,295,207	$	932,616	$	927	$	75,640	$	83,305	$	20,481	$	2,970,642
Unamortized yield adjustments																3,289
Loans receivable, net of yield adjustments															$	2,973,931

Allowance for Loan Losses and Loans Receivable
Period ended December 31, 2016

	Residential Mortgage			Multi-Family Mortgage		Non- Residential Mortgage			Construction			Commercial Business			Home Equity Loans			Other Consumer			Total
	(In Thousands)
Changes in the allowance for loan losses for the three months ended December 31, 2016:

At September 30, 2016:	$	2,806		$	10,269	$	8,316		$	39		$	2,319		$	534		$	720		$	25,003

Total charge offs		(41	)		-		(37	)		-			-			(74	)		(241	)		(393	)
Total recoveries		182			-		-			-			1			1			11			195
Total provisions		(517	)		1,957		76			(10	)		(541	)		95			195			1,255

Total allowance for loan losses	$	2,430		$	12,226	$	8,355		$	29		$	1,779		$	556		$	685		$	26,060

Allowance for Loan Losses and Loans Receivable
Period ended December 31, 2016

	Residential Mortgage			Multi-Family Mortgage		Non- Residential Mortgage			Construction		Commercial Business			Home Equity Loans			Other Consumer			Total
	(In Thousands)
Changes in the allowance for loan losses for the six months ended December 31, 2016:

At June 30, 2016	$	2,370		$	9,995	$	7,846		$	24	$	2,784		$	432		$	778		$	24,229

Total charge offs		(64	)		-		(78	)		-		(194	)		(95	)		(336	)		(767	)
Total recoveries		182			-		-			-		16			1			15			214
Total provisions		(58	)		2,231		587			5		(827	)		218			228			2,384

Total allowance for loan losses	$	2,430		$	12,226	$	8,355		$	29	$	1,779		$	556		$	685		$	26,060

Allowance for Loan Losses and Loans Receivable
Period ended December 31, 2015

	Residential Mortgage			Multi-Family Mortgage		Non- Residential Mortgage			Construction		Commercial Business			Home Equity Loans			Other Consumer			Total
	(In Thousands)
Changes in the allowance for loan losses for the three months ended December 31, 2015:

At September 30, 2015:	$	2,469		$	6,855	$	6,326		$	29	$	1,578		$	406		$	27		$	17,690

Total charge offs		(615	)		-		(97	)		-		(548	)		(36	)		(3	)		(1,299	)
Total recoveries		9			-		-			-		700			-			-			709
Total provisions		535			1,658		710			6		211			31			263			3,414

Total allowance for loan losses	$	2,398		$	8,513	$	6,939		$	35	$	1,941		$	401		$	287		$	20,514

Allowance for Loan Losses and Loans Receivable
Period Ended December 31, 2015

	Residential Mortgage			Multi-Family Mortgage		Non- Residential Mortgage			Construction		Commercial Business			Home Equity Loans			Other Consumer			Total
	(In Thousands)
Changes in the allowance for loan losses for the six months ended December 31, 2015:

At June 30, 2015	$	2,210		$	6,354	$	4,766		$	34	$	1,860		$	366		$	16		$	15,606

Total charge offs		(1,153	)		-		(97	)		-		(644	)		(60	)		(3	)		(1,957	)
Total recoveries		9			-		-			-		759			41			1			810
Total provisions		1,332			2,159		2,270			1		(34	)		54			273			6,055

Total allowance for loan losses	$	2,398		$	8,513	$	6,939		$	35	$	1,941		$	401		$	287		$	20,514

Allowance for Loan Losses and Loans Receivable
at June 30, 2016

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Balance of allowance for loan losses:

Loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	13	$	-	$	-	$	13
Loans individually evaluated for impairment		77		-		53		-		387		78		-		595
Loans collectively evaluated for impairment		2,293		9,995		7,793		24		2,384		354		778		23,621

Total allowance for loan losses	$	2,370	$	9,995	$	7,846	$	24	$	2,784	$	432	$	778	$	24,229

Allowance for Loan Losses and Loans Receivable
at June 30, 2016

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Balance of loans receivable:

Loans acquired with deteriorated credit quality	$	104	$	-	$	304	$	-	$	760	$	-	$	-		1,168
Loans individually evaluated for impairment		12,806		205		6,773		357		1,647		2,180		-		23,968
Loans collectively evaluated for impairment		592,293		1,040,088		813,596		1,681		85,800		87,386		25,401		2,646,245

Total loans	$	605,203	$	1,040,293	$	820,673	$	2,038	$	88,207	$	89,566	$	25,401	$	2,671,381
Unamortized yield adjustments																2,606
Loans receivable, net of yield adjustments															$	2,673,987

The following tables present key indicators of credit quality regarding the Company’s loan portfolio based upon loan classification and contractual payment status at December 31, 2016 and June 30, 2016 based upon the methodology for identifying and reporting such loans as described in the Company’s Form 10-K for the fiscal year ended June 30, 2016.

Credit-Rating Classification of Loans Receivable
At December 31, 2016

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Non-classified	$	545,574	$	1,295,026	$	924,495	$	-	$	69,220	$	80,480	$	20,273	$	2,935,068
Classified:
Special Mention		948		-		-		668		54		392		112		2,174
Substandard		15,944		181		8,121		259		6,366		2,433		93		33,397
Doubtful		-		-		-		-		-		-		3		3
Loss		-		-		-		-		-		-		-		-
Total classified loans		16,892		181		8,121		927		6,420		2,825		208		35,574

Total loans	$	562,466	$	1,295,207	$	932,616	$	927	$	75,640	$	83,305	$	20,481	$	2,970,642

Credit-Rating Classification of Loans Receivable
at June 30, 2016

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Non-classified	$	588,992	$	1,040,088	$	811,621	$	1,063	$	81,902	$	86,835	$	25,298	$	2,635,799
Classified:
Special Mention		859		-		-		618		681		309		61		2,528
Substandard		15,352		205		9,052		357		5,624		2,422		40		33,052
Doubtful		-		-		-		-		-		-		2		2
Loss		-		-		-		-		-		-		-		-
Total classified loans		16,211		205		9,052		975		6,305		2,731		103		35,582

Total loans	$	605,203	$	1,040,293	$	820,673	$	2,038	$	88,207	$	89,566	$	25,401	$	2,671,381

Contractual Payment Status of Loans Receivable
At December 31, 2016

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Current	$	553,429	$	1,295,207	$	930,097	$	319	$	73,234	$	82,286	$	20,170	$	2,954,742
Past due:
30-59 days		802		-		40		349		719		823		110		2,843
60-89 days		939		-		340		-		7		83		109		1,478
90+ days		7,296		-		2,139		259		1,680		113		92		11,579
Total past due		9,037		-		2,519		608		2,406		1,019		311		15,900

Total loans	$	562,466	$	1,295,207	$	932,616	$	927	$	75,640	$	83,305	$	20,481	$	2,970,642

Contractual Payment Status of Loans Receivable
at June 30, 2016

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Current	$	596,548	$	1,040,293	$	817,539	$	1,681	$	87,328	$	88,657	$	25,301	$	2,657,347
Past due:
30-59 days		1,524		-		-		-		-		503		22		2,049
60-89 days		940		-		376		-		411		75		40		1,842
90+ days		6,191		-		2,758		357		468		331		38		10,143
Total past due		8,655		-		3,134		357		879		909		100		14,034

Total loans	$	605,203	$	1,040,293	$	820,673	$	2,038	$	88,207	$	89,566	$	25,401	$	2,671,381

The following tables present information relating to the Company’s nonperforming and impaired loans at December 31, 2016 and June 30, 2016 based upon the methodology for identifying and reporting such loans as described in the Company’s Form 10-K for the fiscal year ended June 30, 2016. Loans reported as “90+ days past due accruing” in the table immediately below are also reported in the preceding contractual payment status table under the heading “90+ days past due”.

Performance Status of Loans Receivable
At December 31, 2016

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Performing	$	551,235	$	1,295,026	$	926,787	$	668	$	72,920	$	82,052	$	20,389	$	2,949,077
Nonperforming:
90+ days past due accruing		-		-		-		-		-		-		92		92
Nonaccrual		11,231		181		5,829		259		2,720		1,253		-		21,473
Total nonperforming		11,231		181		5,829		259		2,720		1,253		92		21,565

Total loans	$	562,466	$	1,295,207	$	932,616	$	927	$	75,640	$	83,305	$	20,481	$	2,970,642

Performance Status of Loans Receivable
at June 30, 2016

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Performing	$	594,471	$	1,040,088	$	814,085	$	1,681	$	86,242	$	88,396	$	25,363	$	2,650,326
Nonperforming:
90+ days past due accruing		-		-		-		-		-		-		38		38
Nonaccrual		10,732		205		6,588		357		1,965		1,170		-		21,017
Total nonperforming		10,732		205		6,588		357		1,965		1,170		38		21,055

Total loans	$	605,203	$	1,040,293	$	820,673	$	2,038	$	88,207	$	89,566	$	25,401	$	2,671,381

Impairment Status of Loans Receivable
At December 31, 2016

	Residential Mortgage			Multi-Family Mortgage		Non- Residential Mortgage			Construction		Commercial Business			Home Equity Loans			Other Consumer		Total
	(In Thousands)
Carrying value of impaired loans:

Non-impaired loans	$	549,304		$	1,295,026	$	926,465		$	668	$	72,481		$	81,265		$	20,481	$	2,945,690
Impaired loans:
Impaired loans with no allowance for impairment		12,332			181		5,931			259		3,148			1,964			-		23,815
Impaired loans with allowance for impairment:
Recorded investment		830			-		220			-		11			76			-		1,137
Allowance for impairment		(45	)		-		(23	)		-		(8	)		(57	)		-		(133	)
Balance of impaired loans net of allowance for impairment		785			-		197			-		3			19			-		1,004
Total impaired loans, excluding allowance for impairment:		13,162			181		6,151			259		3,159			2,040			-		24,952

Total loans	$	562,466		$	1,295,207	$	932,616		$	927	$	75,640		$	83,305		$	20,481	$	2,970,642

Unpaid principal balance of impaired loans:
Total impaired loans	$	16,567		$	837	$	7,506		$	365	$	4,596		$	2,458		$	-	$	32,329

Impairment Status of Loans Receivable
at June 30, 2016

	Residential Mortgage			Multi-Family Mortgage		Non- Residential Mortgage			Construction		Commercial Business			Home Equity Loans			Other Consumer		Total
	(In Thousands)
Carrying value of impaired loans:

Non-impaired loans	$	592,293		$	1,040,088	$	813,596		$	1,681	$	85,800		$	87,386		$	25,401	$	2,646,245
Impaired loans:
Impaired loans with no allowance for impairment		10,876			205		6,473			357		1,900			2,101					21,912
Impaired loans with allowance for impairment:
Recorded investment		2,034			-		604					507			79					3,224
Allowance for impairment		(77	)		-		(53	)				(400	)		(78	)				(608	)
Balance of impaired loans net of allowance for impairment		1,957			-		551			-		107			1			-		2,616
Total impaired loans, excluding allowance for impairment:		12,910			205		7,077			357		2,407			2,180			-		25,136

Total loans	$	605,203		$	1,040,293	$	820,673		$	2,038	$	88,207		$	89,566		$	25,401	$	2,671,381

Unpaid principal balance of impaired loans:
Total impaired loans	$	16,571		$	849	$	8,269		$	458	$	3,736		$	2,505		$	-	$	32,388

Impairment Status of Loans Receivable
Period ended December 31, 2016 and 2015

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		Home Equity Loans		Other Consumer		Total
	(In Thousands)
For the three months ended December 31, 2016:
Average balance of impaired loans	$	13,262	$	187	$	6,263	$	282	$	3,225	$	2,072	$	-	$	25,291
Interest earned on impaired loans	$	28	$	-	$	7	$	-	$	2	$	10	$	-	$	47

For the six months ended December 31, 2016:
Average balance of impaired loans	$	13,140	$	193	$	6,515	$	313	$	3,166	$	2,117	$	-	$	25,444
Interest earned on impaired loans	$	49	$	-	$	19	$	-	$	6	$	24	$	-	$	98

For the three months ended December 31, 2015:
Average balance of impaired loans	$	12,608	$	319	$	7,756	$	809	$	8,952	$	2,405	$	-	$	32,849
Interest earned on impaired loans	$	33	$	-	$	11	$	-	$	204	$	10	$	-	$	258

For the six months ended December 31, 2015:
Average balance of impaired loans	$	11,485	$	378	$	7,633	$	1,332	$	9,659	$	2,444	$	-	$	32,931
Interest earned on impaired loans	$	101	$	-	$	21	$	-	$	421	$	16	$	-	$	559

The following table presents information regarding the restructuring of the Company’s troubled debts during the three and six months ended December 31, 2016 and 2015 and any defaults during those periods of TDRs that were restructured within 12 months of the date of default.

Troubled Debt Restructurings of Loans Receivable
Period ended December 31, 2016

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Troubled debt restructuring activity for the three months ended December 31, 2016:

Number of loans		1		-		-		-		-		1		-		2
Pre-modification outstanding recorded investment	$	197	$	-	$	-	$	-	$	-	$	87	$	-	$	284
Post-modification outstanding recorded investment		186		-		-		-		-		95		-		281
Charge offs against the allowance for loan loss recognized at modification		14		-		-		-		-		9		-		23

Troubled debt restructuring defaults for the three months ended December 31, 2016:

Number of loans		-		-		-		-		-		-		-		-
Outstanding recorded investment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Troubled Debt Restructurings of Loans Receivable
Period ended December 31, 2016

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Troubled debt restructuring activity for the six months ended December 31, 2016:

Number of loans		1		-		1		-		-		2		-		4
Pre-modification outstanding recorded investment	$	197	$	-	$	244	$	-	$	-	$	271	$	-	$	712
Post-modification outstanding recorded investment		186		-		223		-		-		279		-		688
Charge offs against the allowance for loan loss recognized at modification		14		-		27		-		-		12		-		53

Troubled debt restructuring defaults for the six months ended December 31, 2016:

Number of loans		-		-		-		-		-		-		-		-
Outstanding recorded investment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Troubled Debt Restructurings of Loans Receivable
Period ended December 31, 2015

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Troubled debt restructuring activity for the three months ended December 31, 2015:

Number of loans		1		-		-		-		-		2		-		3
Pre-modification outstanding recorded investment	$	404	$	-	$	-	$	-	$	-	$	110	$	-	$	514
Post-modification outstanding recorded investment		354		-		-		-		-		87		-		441
Charge offs against the allowance for loan loss recognized at modification		61		-		-		-		-		24		-		85

Troubled debt restructuring defaults for the three months ended December 31, 2015:

Number of loans		-		-		-		-		-		-		-		-
Outstanding recorded investment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Troubled Debt Restructurings of Loans Receivable
Period ended December 31, 2015

	Residential Mortgage		Multi-Family Mortgage		Non- Residential Mortgage		Construction		Commercial Business		Home Equity Loans		Other Consumer		Total
	(In Thousands)
Troubled debt restructuring activity for the six months ended December 31, 2015:

Number of loans		3		-		3		-		-		2		-		8
Pre-modification outstanding recorded investment	$	1,097	$	-	$	2,285	$	-	$	-	$	110	$	-	$	3,492
Post-modification outstanding recorded investment		785		-		2,290		-		-		87		-		3,162
Charge offs against the allowance for loan loss recognized at modification		292		-		-		-		-		24		-		316

Troubled debt restructuring defaults for the six months ended December 31, 2015:

Number of loans		-		-		-		-		-		-		-		-
Outstanding recorded investment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

The manner in which the terms of a loan are modified through a troubled debt restructuring generally includes one or more of the following changes to the loan’s repayment terms:


	December 31, 2016						June 30, 2016
	Balance			Weighted Average Interest Rate			Balance			Weighted Average Interest Rate
	(Dollars in Thousands)
Maturing in years ending June 30:
2017	$	515,000			0.66	%	$	428,000			0.69	%
2018		5,225			1.18			5,225			1.18
2021		521			4.94			572			4.94
2023		145,000			3.04			145,000			3.04
Total borrowings		665,746			1.19	%		578,797			1.29	%
Fair value adjustments		(4	)					(9	)
Total borrowings, net of fair value adjustments	$	665,742					$	578,788

At December 31, 2016, $515.0 million in advances are due within one year while the remaining $150.7 million in advances are due after one year of which $145.0 million are callable in April 2018.

At December 31, 2016, FHLB advances were collateralized by the FHLB capital stock owned by the Bank and mortgage loans and securities with carrying values totaling approximately $1.5 billion and $163.2 million, respectively. At June 30, 2016, FHLB advances were collateralized by the FHLB capital stock owned by the Bank and mortgage loans and securities with carrying values totaling approximately $970.5 million and $193.8 million, respectively.

Borrowings at December 31, 2016 and June 30, 2016 also included overnight borrowings in the form of depositor sweep accounts totaling $36.1 million and $35.6 million, respectively. Depositor sweep accounts are short term borrowings representing funds that are withdrawn from a customer’s noninterest-bearing deposit account and invested in an uninsured overnight investment account that is collateralized by specified investment securities owned by the Bank.

At December 31, 2016 and June 30, 2016, the Company was subject to the terms of certain interest rate derivative agreements that were utilized by the Company to manage the interest rate exposure arising from specific wholesale funding positions. Such wholesale funding sources include floating-rate brokered money market deposits indexed to one-month LIBOR as well as a number of 90 day fixed-rate FHLB advances that are forecasted to be periodically redrawn at maturity for the same 90 day term as the original advance. The derivatives were designated as cash flow hedges with changes in their fair value recorded as an adjustment through other comprehensive income on an after-tax basis.

The effects of derivative instruments on the statements of condition included in the Consolidated Financial Statements at December 31, 2016 and June 30, 2016 and for the three and six months ended December 31, 2016 and December 31, 2015 are as follows:

	December 31, 2016
	Notional/ Contract Amount		Fair Value			Balance Sheet Location	Expiration Date
	(Dollars in Thousands)
Derivatives designated as hedging instruments
Interest rate swaps by effective date:
July 1, 2013	$	165,000	$	(329	)	Other assets	July 1, 2018
August 19, 2013		75,000		(515	)	Other assets	August 20, 2018
October 9, 2013		50,000		(152	)	Other assets	October 9, 2018
March 28, 2014		75,000		(732	)	Other assets	March 28, 2019
June 5, 2015		60,000		(1,221	)	Other assets	June 5, 2020
July 28, 2015		50,000		(1,291	)	Other assets	July 28, 2020
September 28, 2015		40,000		(1,117	)	Other assets	September 28, 2020
December 28, 2015		35,000		(1,161	)	Other assets	December 28, 2020
June 5, 2018		40,000		1,377		Other assets	June 5, 2022
July 2, 2018		200,000		6,385		Other assets	July 1, 2021
August 20, 2018		75,000		2,647		Other assets	August 19, 2022
October 9, 2018		50,000		2,169		Other assets	October 9, 2023
March 28, 2019		75,000		3,231		Other assets	March 28, 2024
		990,000		9,291
Interest rate caps by effective date:
June 5, 2013		40,000		83		Other assets	June 5, 2018
July 1, 2013		35,000		68		Other assets	July 1, 2018
		75,000		151
Total	$	1,065,000	$	9,442

	June 30, 2016
	Notional/ Contract Amount		Fair Value			Balance Sheet Location	Expiration Date
	(Dollars in Thousands)
Derivatives designated as hedging instruments
Interest rate swaps by effective date:
July 1, 2013	$	165,000	$	(2,280	)	Other liabilities	July 1, 2018
August 19, 2013		75,000		(1,627	)	Other liabilities	August 20, 2018
October 9, 2013		50,000		(911	)	Other liabilities	October 9, 2018
March 28, 2014		75,000		(2,364	)	Other liabilities	March 28, 2019
June 5, 2015		60,000		(3,412	)	Other liabilities	June 5, 2020
July 28, 2015		50,000		(3,243	)	Other liabilities	July 28, 2020
September 28, 2015		40,000		(2,765	)	Other liabilities	September 28, 2020
December 28, 2015		35,000		(2,715	)	Other liabilities	December 28, 2020
		550,000		(19,317	)
Interest rate caps by effective date:
June 5, 2013		40,000		33		Other liabilities	June 5, 2018
July 1, 2013		35,000		27		Other liabilities	July 1, 2018
		75,000		60
Total	$	625,000	$	(19,257	)

	Three Months Ended December 31, 2016
	Amount of Gain Recognized in OCI on Derivatives, net of Tax (Effective Portion)		Location of Gain (Loss) Recognized in Income of Derivatives (Ineffective Portion)	Amount of Gain (Loss) Recognized in Income of Derivatives (Ineffective Portion)
	(Dollars in Thousands)
Derivatives in cash flow hedges
Interest rate swaps by effective date:
July 1, 2013	$	660	Not applicable	$	-
August 19, 2013		345	Not applicable		-
October 9, 2013		246	Not applicable		-
March 28, 2014		569	Not applicable		-
June 5, 2015		876	Not applicable		-
July 28, 2015		789	Not applicable		-
September 28, 2015		677	Not applicable		-
December 28, 2015		653	Not applicable		-
June 5, 2018		856	Not applicable		-
July 2, 2018		3,162	Not applicable
August 20, 2018		1,627	Not applicable
October 9, 2018		1,364	Not applicable
March 28, 2019		2,066	Not applicable
		13,890			-
Interest rate caps by effective date:
June 5, 2013		82	Not applicable		-
July 1, 2013		79	Not applicable		-
		161			-
Total	$	14,051		$	-

	Six Months Ended December 31, 2016
	Amount of Gain Recognized in OCI on Derivatives, net of Tax (Effective Portion)		Location of Gain (Loss) Recognized in Income of Derivatives (Ineffective Portion)	Amount of Gain (Loss) Recognized in Income of Derivatives (Ineffective Portion)
	(Dollars in Thousands)
Derivatives in cash flow hedges
Interest rate swaps by effective date:
July 1, 2013	$	1,154	Not applicable	$	-
August 19, 2013		658	Not applicable		-
October 9, 2013		449	Not applicable		-
March 28, 2014		966	Not applicable		-
June 5, 2015		1,296	Not applicable		-
July 28, 2015		1,154	Not applicable		-
September 28, 2015		975	Not applicable		-
December 28, 2015		919	Not applicable		-
June 5, 2018		814	Not applicable		-
July 2, 2018		3,777	Not applicable		-
August 20, 2018		1,566	Not applicable		-
October 9, 2018		1,283	Not applicable		-
March 28, 2019		1,911	Not applicable		-
		16,922			-
Interest rate caps by effective date:
June 5, 2013		150	Not applicable		-
July 1, 2013		140	Not applicable		-
		290			-
Total	$	17,212		$	-

	Three Months Ended December 31, 2015
	Amount of Gain Recognized in OCI on Derivatives, net of Tax (Effective Portion)		Location of Gain (Loss) Recognized in Income of Derivatives (Ineffective Portion)	Amount of Gain (Loss) Recognized in Income of Derivatives (Ineffective Portion)
	(Dollars in Thousands)
Derivatives in cash flow hedges
Interest rate swaps by effective date:
July 1, 2013	$	846	Not applicable	$	-
August 19, 2013		483	Not applicable		-
October 9, 2013		322	Not applicable		-
March 28, 2014		578	Not applicable		-
June 5, 2015		555	Not applicable		-
July 28, 2015		479	Not applicable		-
September 28, 2015		392	Not applicable		-
December 28, 2015		239	Not applicable		-
		3,894			-
Interest rate caps by effective date:
June 5, 2013		64	Not applicable		-
July 1, 2013		50	Not applicable		-
		114			-
Total	$	4,008		$	-

	Six Months Ended December 31, 2015
	Amount of Gain (Loss) Recognized in OCI on Derivatives, net of Tax (Effective Portion)			Location of Gain (Loss) Recognized in Income of Derivatives (Ineffective Portion)	Amount of Gain (Loss) Recognized in Income of Derivatives (Ineffective Portion)
	(Dollars in Thousands)
Derivatives in cash flow hedges
Interest rate swaps by effective date:
July 1, 2013	$	112		Not applicable	$	-
August 19, 2013		129		Not applicable		-
October 9, 2013		47		Not applicable		-
March 28, 2014		75		Not applicable		-
June 5, 2015		(80	)	Not applicable		-
July 28, 2015		(116	)	Not applicable		-
September 28, 2015		(193	)	Not applicable		-
December 28, 2015		(307	)	Not applicable		-
		(333	)			-
Interest rate caps by effective date:
June 5, 2013		(46	)	Not applicable		-
July 1, 2013		(44	)	Not applicable		-
		(90	)			-
Total	$	(423	)		$	-

The Company has in place enforceable master netting arrangements with all counterparties. All master netting arrangements include rights to offset associated with the Company’s recognized derivative assets, derivative liabilities, and cash collateral received and pledged.

At December 31, 2016, seven of the Company’s derivatives were in an asset position totaling $16.0 million while the remaining eight derivatives were in a liability position totaling $6.5 million. In total, the Company’s derivatives were in a net asset position of $9.4 million at December 31, 2016 and included in other assets as of that date. As required under the enforceable master netting arrangement with its derivatives counterparties, the Company received financial collateral from two counterparties totaling $10.3 million at December 31, 2016 that was not included as an offsetting amount.

At June 30, 2016, two of the Company’s derivatives were in an asset position totaling $60,000 while the remaining eight derivatives were in a liability position totaling $19.3 million. In total, the Company’s derivatives were in a net liability position of $19.3 million at June 30, 2016 and included in other liabilities as of that date. As required under the enforceable master netting arrangement with its derivatives counterparty, the Company posted financial collateral in the amount of $19.7 million at June 30, 2016 that was not included as an offsetting amount.

In addition to the derivatives noted above, the Company had outstanding commitments to originate loans held-for-sale totaling $10.0 million and $16.7 million at December 31, 2016 and June 30, 2016, respectively, which are considered free-standing derivative instruments whose fair values are not material to our financial condition or results of operations.

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

On December 23, 2015, the Company amended its Directors Consultation and Retirement Plan (the “DCRP”) to freeze the DCRP such that no additional DCRP benefits will accrue to any participant after December 31, 2015 and to revise the minimum age requirement for benefit vesting purposes. Accordingly, the benefits payable to participating directors under the DCRP will not increase after December 31, 2015.

The guidance on fair value measurement establishes a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy describes three levels of inputs that may be used to measure fair value:

In addition, the guidance requires the Company to disclose the fair value for assets and liabilities on both a recurring and non-recurring basis.

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

	December 31, 2016
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
	(In Thousands)
Debt securities available for sale:
U.S. agency securities	$	-	$	5,809	$	-	$	5,809
Obligations of state and political subdivisions		-		27,090		-		27,090
Asset-backed securities		-		121,445		-		121,445
Collateralized loan obligations		-		98,447		-		98,447
Corporate bonds		-		138,564		-		138,564
Trust preferred securities		-		7,101		1,000		8,101
Total debt securities		-		398,456		1,000		399,456

Mortgage-backed securities available for sale:
Collateralized mortgage obligations		-		52,333		-		52,333
Residential pass-through securities		-		211,258		-		211,258
Commercial pass-through securities		-		8,234		-		8,234
Total mortgage-backed securities		-		271,825		-		271,825

Total securities available for sale	$	-	$	670,281	$	1,000	$	671,281

Derivative instruments
Interest rate swaps	$	-	$	9,291	$	-	$	9,291
Interest rate caps		-		151		-		151
Total derivatives	$	-	$	9,442	$	-	$	9,442

	June 30, 2016
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
	(In Thousands)
Debt securities available for sale:
U.S. agency securities	$	-	$	6,440		$	-	$	6,440
Obligations of state and political subdivisions		-		28,398			-		28,398
Asset-backed securities		-		82,625			-		82,625
Collateralized loan obligations		-		127,374			-		127,374
Corporate bonds		-		137,404			-		137,404
Trust preferred securities		-		7,669			-		7,669
Total debt securities		-		389,910			-		389,910

Mortgage-backed securities available for sale:
Collateralized mortgage obligations		-		60,577			-		60,577
Residential pass-through securities		-		214,526			-		214,526
Commercial pass-through securities		-		8,524			-		8,524
Total mortgage-backed securities		-		283,627			-		283,627

Total securities available for sale	$	-	$	673,537		$	-	$	673,537

Derivative instruments
Interest rate swaps	$	-	$	(19,317	)	$	-	$	(19,317	)
Interest rate caps		-		60			-		60
Total derivatives	$	-	$	(19,257	)	$	-	$	(19,257	)

The fair values of securities available for sale (carried at fair value) or held to maturity (carried at amortized cost) are primarily determined by obtaining matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

The Company held one trust preferred security whose fair value of $1.0 million at December 31, 2016 was determined using Level 3 inputs. By comparison, the security’s fair value of $1.0 million at June 30, 2016 had been determined using Level 2 inputs based on the availability of matrix pricing at that time. Matrix pricing was no longer available for the security at December 31, 2016 requiring the use of Level 3 inputs to determine the fair value of the security as of that date.

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.

In addition to the derivative instruments noted above, the Company had outstanding commitments to fund loans held-for sale totaling $10.0 million and $16.7 million at December 31, 2016 and June 30, 2016, respectively, which are considered free-standing derivative instruments, the fair values of which are not material to our financial condition or results of operations.

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

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:

An impaired loan is evaluated and valued at the time the loan is identified as impaired at the lower of cost or market value. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the

loan agreement are considered impaired. Market value is measured based on the value of the collateral securing the loan and is classified at a Level 3 in the fair value hierarchy. Once a loan is identified as individually impaired, management measures impairment in accordance with the FASB’s guidance on accounting by creditors for impairment of a loan with the fair value estimated using the market value of the collateral reduced by estimated disposal costs. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceeds the recorded investments in such loans. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly.

At December 31, 2016, impaired loans valued using Level 3 inputs comprised loans with principal balances totaling $9.2 million and valuation allowances of $133,000 reflecting fair values of $9.1 million. By comparison, at June 30, 2016, impaired loans valued using Level 3 inputs comprised loans with principal balances totaling $11.1 million and valuation allowances of $608,000 reflecting fair values of $10.5 million.

Once a loan is foreclosed, the fair value of the real estate owned continues to be evaluated based upon the market value of the repossessed real estate originally securing the loan. At December 31, 2016, the Company held no real estate owned whose carrying value was written down utilizing Level 3 inputs during the first six months of fiscal 2017. At June 30, 2016, the Company held real estate owned totaling $280,000 whose carrying value was written down utilizing Level 3 inputs during fiscal 2016.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments at December 31, 2016 and June 30, 2016:

Cash and Cash Equivalents, Interest Receivable and Interest Payable. The carrying amounts for cash and cash equivalents, interest receivable and interest payable approximate fair value because they mature in three months or less.

Securities. See the discussion presented above concerning assets measured at fair value on a recurring basis.

Loans Receivable. Except for certain impaired loans as previously discussed, the fair value of loans receivable is estimated by discounting the future cash flows, using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities, of such loans.

FHLB of New York Stock. The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.

Deposits. The fair value of demand, savings and club accounts is equal to the amount payable on demand at the reporting date. The fair value of certificates of deposit is estimated using rates currently offered for deposits of similar remaining maturities. The fair value estimates do not include the benefit that results from the low-cost funding provided by deposit liabilities compared to the cost of borrowing funds in the market.

Advances from FHLB. Fair value is estimated using rates currently offered for advances of similar remaining maturities.

Interest Rate Derivatives. See the discussion presented above concerning assets measured at fair value on a recurring basis.

Commitments. The fair value of commitments to fund credit lines and originate or participate in loans 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, 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. The contractual amounts of unfunded commitments are presented in Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading Liquidity and Capital Resources.

	December 31, 2016
	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	$	37,032	$	37,032	$	37,032	$	-	$	-
Debt securities available for sale		399,456		399,456		-		398,456		1,000
Mortgage-backed securities available for sale		271,825		271,825		-		271,825		-
Debt securities held to maturity		137,681		136,730		-		136,730		-
Mortgage-backed securities held to maturity		380,138		380,401		-		380,401		-
Loans held-for-sale		6,686		6,686		-		6,686		-
Net loans receivable		2,947,871		2,912,793		-		-		2,912,793
FHLB Stock		34,525		34,525		-		-		34,525
Interest receivable		11,809		11,809		11,809		-		-

Financial liabilities:
Deposits⁽¹⁾		2,746,017		2,760,322		1,528,180		-		1,232,142
Borrowings		701,849		720,148		-		-		720,148
Interest payable on borrowings		1,382		1,382		1,382		-		-

Derivative instruments:
Interest rate swaps		9,291		9,291		-		9,291		-
Interest rate caps		151		151		-		151		-

	June 30, 2016
	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	$	199,200		$	199,200		$	199,200	$	-		$	-
Debt securities available for sale		389,910			389,910			-		389,910			-
Mortgage-backed securities available for sale		283,627			283,627			-		283,627			-
Debt securities held to maturity		167,171			169,794			-		169,794			-
Mortgage-backed securities held to maturity		410,115			422,690			-		422,690			-
Loans held-for-sale		3,316			3,316			-		3,316			-
Net loans receivable		2,649,758			2,652,736			-		-			2,652,736
FHLB Stock		30,612			30,612			-		-			30,612
Interest receivable		11,212			11,212			11,212		-			-

Financial liabilities:
Deposits⁽¹⁾		2,694,833			2,709,779			1,487,408		-			1,222,371
Borrowings		614,423			634,855			-		-			634,855
Interest payable on borrowings		1,226			1,226			1,226		-			-

Derivative instruments:
Interest rate swaps		(19,317	)		(19,317	)		-		(19,317	)		-
Interest rate caps		60			60			-		60			-

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 market 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. 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.

The components of accumulated other comprehensive loss included in stockholders’ equity at December 31, 2016 and June 30, 2016 are as follows:

	December 31,			June 30,
	2016			2016
	(In Thousands)
Net unrealized loss on securities available for sale	$	(11,137	)	$	(4,711	)
Tax effect		4,145			1,954
Net of tax amount		(6,992	)		(2,757	)

Net unrealized loss on securities available for sale transferred to held to maturity		(1,092	)		(1,056	)
Tax effect		446			431
Net of tax amount		(646	)		(625	)

Fair value adjustments on derivatives		7,780			(21,317	)
Tax effect		(3,178	)		8,708
Net of tax amount		4,602			(12,609	)

Benefit plan adjustments		(1,707	)		(1,346	)
Tax effect		698			550
Net of tax amount		(1,009	)		(796	)

Total accumulated other comprehensive loss	$	(4,045	)	$	(16,787	)

Other comprehensive income and related tax effects for the three months ended December 31, 2016 and December 31, 2015 are presented in the following table:

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2016			2015			2016			2015
	(In Thousands)						(In Thousands)
Net unrealized holding loss on securities available for sale	$	(8,251	)	$	(6,419	)	$	(6,436	)	$	(7,871	)

Amortization of net unrealized holding (loss) gain on securities available for sale transferred to held to maturity⁽³⁾		(43	)		25			(36	)		(6	)

Net realized gain (loss) on securities available for sale		10			(2	)		10			(2	)

Net unrealized gain (loss) on derivatives		23,755			6,777			29,099			(714	)

Benefit plans:
Amortization of:
Actuarial loss ⁽¹⁾		16			10			32			19
Past service cost⁽¹⁾		-			9			-			18
New actuarial loss		-			-			(394	)		(911	)
Net change in benefit plan accrued expense		16			19			(362	)		(874	)

Other comprehensive income (loss) before taxes		15,487			400			22,275			(9,467	)
Tax effect⁽²⁾		(6,759	)		(239	)		(9,533	)		3,968
Total other comprehensive income (loss)	$	8,728		$	161		$	12,742		$	(5,499	)

This 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. Factors that could cause future results to vary from current management expectations include, but are not limited to, general economic conditions, legislative and regulatory changes, monetary and fiscal policies of the federal government and changes in tax policies, rates and regulations of federal, state and local tax authorities. 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.

General. Total assets increased $85.2 million to $4.59 billion at December 31, 2016 from $4.50 billion at June 30, 2016. The net increase in total assets reflected an increase in net loans receivable that was partially offset by decreases in balances of securities and cash and cash equivalents. The net increase in total assets was largely funded by increases in deposits and borrowings that were partially offset by a net decrease in stockholders’ equity.

Cash and Cash Equivalents. Cash and cash equivalents, which consist primarily of interest-earning and non-interest-earning deposits in other banks, decreased by $162.2 million to $37.0 million at December 31, 2016 from $199.2 million at June 30, 2016. The variance between periods partly reflected the effects of a temporary accumulation of short-term, liquid assets arising from an increase in loan prepayments during the quarter ended June 30, 2016. The Company reinvested a significant portion of that excess liquidity back into the loan portfolio during the prior quarter ended September 30, 2016. However, the variance also reflects the Company’s ongoing effort to enhance earnings by generally reducing the level of lower-yielding, short-term liquid assets to only the amount needed to fund the Company’s strategic initiatives while meeting its performance and risk management objectives.

Debt Securities Available for Sale. Debt securities classified as available for sale increased by $9.6 million to $399.5 million at December 31, 2016 from $389.9 million at June 30, 2016. The increase partly reflected security purchases totaling $36.9 million for the six months ended December 31, 2016 coupled with a $3.0 million decrease in the net unrealized loss of the portfolio to a net unrealized loss of $9.2 million at December 31, 2016 from a net unrealized loss of $12.2 million at June 30, 2016. The decrease in the net unrealized loss reflected changes in the fair value of various sectors within the portfolio arising from movements in market interest rates coupled with a tightening of pricing spreads within certain sectors in the portfolio. The noted increases in the portfolio were partially offset by principal repayments, net of premium amortization and discount accretion, totaling $30.5 million during the six months ended December 31, 2016.

The net unrealized loss on debt securities available for sale was primarily reflected within the applicable “credit sectors” of the portfolio which include asset-backed securities, collateralized loan obligations, corporate bonds and non-pooled trust preferred securities. The net unrealized loss on this subset of securities decreased by $4.5 million to a net unrealized loss of $8.8 million at December 31, 2016 from a net unrealized loss of $13.3 million at June 30, 2016. The decrease in the unrealized loss largely reflected a general tightening of pricing spreads in the marketplace resulting in an overall increase in the market price of such securities. The decrease in the net unrealized loss on the noted securities was partially offset by a $1.4 million decline in the fair value of government and agency securities, including U.S. agency debentures and municipal obligations, to an unrealized loss of $388,000 at December 31, 2016 from an unrealized gain of $1.0 million at June 30, 2016.

Based on its evaluation, management has concluded that no other-than-temporary impairment is present within this segment of the investment portfolio as of December 31, 2016. However, volatility in the financial markets may result in additional decreases in the fair value of the Company’s available for sale securities. Such volatility may impact the fair value of the securities within the

“credit sectors” of the portfolio more adversely than the Company’s government and agency securities. The adverse effects of such volatility on the current and prospective financial strength of specific corporate issuers, and the resulting impact on the fair value of the related securities held by the Company, will be carefully monitored by management.

Mortgage-backed Securities Available for Sale. Mortgage-backed securities available for sale decreased by $11.8 million to $271.8 million at December 31, 2016 from $283.6 million at June 30, 2016. The net decrease reflected cash repayment of principal, net of discount accretion and premium amortization, totaling $33.0 million coupled with a $9.4 million decrease in the fair value of the portfolio to a net unrealized loss of $1.9 million at December 31, 2016 from a net unrealized gain of $7.5 million at June 30, 2016. These decreases were partially offset by security purchases totaling $30.7 million during the six months ended December 31, 2016.

At December 31, 2016, the available for sale mortgage-backed securities portfolio primarily included agency pass-through securities and agency collateralized mortgage obligations. As of that date, we also held one non-agency mortgage-backed security within the available for sale portfolio whose aggregate carrying value totaled $113,000. Based on its evaluation, management has concluded that no other-than-temporary impairment is present within this segment of the investment portfolio as of that date.

Additional information regarding securities available for sale at December 31, 2016 is presented in Note 7 and Note 9 to the unaudited consolidated financial statements.

Debt Securities Held to Maturity. Debt securities classified as held to maturity decreased by $29.5 million to $137.7 million at December 31, 2016 from $167.2 million at June 30, 2016. The net decrease in the portfolio largely reflected principal repayments, net of premium amortization and discount accretion, totaling $52.3 million during the six months ended December 31, 2016. The net decrease was partially offset by debt security purchases totaling $22.8 million during the same period which included the purchase of $15.0 million in subordinated debt issued by a New Jersey-based community bank during the quarter ended December 31, 2016. The subordinated notes, which were acquired through a privately negotiated transaction, have a maturity date of December 22, 2026 and bear interest at the rate of 5.75% per annum, payable quarterly, for the first five years of the term, and then at a variable rate that will reset quarterly to a level equal to the then current 3-month LIBOR plus 350 basis points over the remainder of the term. The notes are redeemable after five years subject to satisfaction of certain conditions. The indebtedness evidenced by the subordinated notes, including principal and interest, is unsecured and subordinate and junior to the issuer’s general and secured creditors and depositors.

At December 31, 2016, the held to maturity debt securities portfolio also included U.S. agency debentures and municipal obligations, a small portion of which represent non-rated, short term, bond anticipation notes (“BANs”) issued by New Jersey municipalities. Based on its evaluation, management has concluded that no other-than-temporary impairment is present within this segment of the investment portfolio as of that date.

Mortgage-backed Securities Held to Maturity. Mortgage-backed securities held to maturity decreased by $30.0 million to $380.1 million at December 31, 2016 from $410.1 million at June 30, 2016. The decrease in the portfolio fully reflected cash repayment of principal, net of discount accretion and premium amortization, during the six months ended December 31, 2016.

At December 31, 2016, the held to maturity mortgage-backed securities portfolio primarily included agency pass-through securities and agency collateralized mortgage obligations. As of that date, we also held four non-agency mortgage-backed securities in the held to maturity portfolio whose aggregate carrying value and fair value totaled $28,000 and $27,000, respectively. Based on its evaluation, management has concluded that no other-than-temporary impairment is present within this segment of the investment portfolio as of that date.

Additional information regarding securities held to maturity at December 31, 2016 is presented in Note 8 and Note 9 to the unaudited consolidated financial statements.

Loans Held-for-Sale. The Company continues to expand its residential lending infrastructure to support strategies focused on increasing the origination volume of residential mortgage loans for sale into the secondary market. The increase in residential mortgage loan origination and sale activity has increased the Company’s level of non-interest income through the recognition of additional sources of recurring loan sale gains while serving to help manage the Company’s exposure to interest rate risk. During the six months ended December 31, 2016, we sold $54.9 million of residential mortgage loans resulting in net sale gains totaling $409,000 for the period. Loans held for sale totaled $6.7 million at December 31, 2016 compared to $3.3 million at June 30, 2016 and are reported separately from balance of net loans receivable as of those dates.

Loans Receivable. Loans receivable, net of unamortized premiums, deferred costs and the allowance for loan losses, increased by $298.1 million, or 11.3%, to $2.95 billion at December 31, 2016 from $2.65 billion at June 30, 2016. The increase in net loans receivable was primarily attributable to new loan origination and purchase volume outpacing loan repayments during the six months ended December 31, 2016.

Residential mortgage loans held in portfolio, including home equity loans and lines of credit, decreased by $49.0 million to $645.8 million at December 31, 2016 from $694.8 million at June 30, 2016. The decrease was primarily attributable to a decrease in the balance of one-to-four family first mortgage loans of $42.7 million to $562.5 million at December 31, 2016 from $605.2 million at June 30, 2016. The decrease also reflected an aggregate decrease of $6.3 million in the balance of home equity loans and home equity lines of credit to $83.3 million at December 31, 2016 from $89.6 million at June 30, 2016.

Notwithstanding the decrease in their balance during the six months ended December 31, 2016, the Company generally intends to modestly increase the outstanding balance of residential mortgage loans held in portfolio while allowing the segment to continue to decline as a percentage of total loans and earning assets. In total, the origination volume of portfolio residential mortgage loans for the six months ended December 31, 2016 totaled $21.3 million while aggregate originations of home equity loans and home equity lines of credit totaled $7.1 million for that same period.

Commercial loans, in aggregate, increased by $354.3 million to $2.30 billion at December 31, 2016 from $1.95 billion at June 30, 2016. The components of the aggregate increase included an increase in commercial mortgage loans totaling $366.9 million that was partially offset by a $12.6 million decrease in commercial business loans. The ending balances of commercial mortgage loans and commercial business loans at December 31, 2016 were $2.23 billion and $75.6 million, respectively.

Commercial loan origination volume for the six months ended December 31, 2016 totaled $361.7 million, comprised of $350.0 million and $11.7 million of commercial mortgage and commercial business loan originations, respectively. Commercial loan originations were augmented with the purchase of commercial mortgage loans and participations totaling $126.7 million coupled with the purchase of commercial business loans totaling $6.4 million during the six months ended December 31, 2016. Commercial loan purchases during the six months ended December 31, 2016 were largely funded with the excess liquidity that had accumulated during the fourth quarter of the prior fiscal year ended June 30, 2016 due to an increase in loan prepayments during that period.

The outstanding balance of construction loans, net of loans-in-process, decreased by $1.1 million to $927,000 at December 31, 2016 from $2.0 million at June 30, 2016. Construction loan disbursements for the six months ended December 31, 2016 totaled $56,000.

Other loans, primarily account loans, deposit account overdraft lines of credit and other consumer loans, decreased by $4.9 million to $20.5 million at December 31, 2016 from $25.4 million at June 30, 2016. The balance of other consumer loans at December 31, 2016 included loans with outstanding balances totaling $17.2 million that were acquired through the Company’s relationship with Lending Club, an established peer-to-peer (i.e. marketplace) lender. Through this relationship, the Company has purchased high-quality, unsecured consumer loans originated through Lending Club’s online platform. The Company has limited its investment of Lending Club loan portfolio to an initial threshold of approximately $25.0 million in aggregate outstanding balances while continuing to independently monitor and validate the performance of the portfolio in relation to Company’s expectations as well as those of Lending Club’s proprietary credit risk model. Additional investment in Lending Club loans up to this initial threshold may be considered by the Company while it continues to monitor and assess the performance of the portfolio and quality of loan servicing and reporting rendered by Lending Club.

The Company originated $648,000 of consumer loans during the six months ended December 31, 2016 while no additional consumer loans were purchased during the period.

Nonperforming Loans. Nonperforming loans increased by $510,000 to $21.6 million, or 0.72% of total loans at December 31, 2016, from $21.1 million, or 0.79% of total loans at June 30, 2016. Nonperforming loans generally include loans reported as “accruing loans over 90 days past due” and loans reported as “nonaccrual” with such balances totaling $92,000 and $21.5 million, respectively, at December 31, 2016.

Additional information about the Company’s nonperforming loans at December 31, 2016 is presented in Note 10 to the unaudited consolidated financial statements.

Allowance for Loan Losses. During the six months ended December 31, 2016, the balance of the allowance for loan losses increased by $1.8 million to $26.1 million or 0.88% of total loans at December 31, 2016 from $24.2 million or 0.91% of total loans at June 30, 2016. The increase resulted from provisions of $2.4 million during the six months ended December 31, 2016 that were partially offset by charge-offs, net of recoveries, totaling $552,000 during that same period.

With regard to loans individually evaluated for impairment, the balance of our allowance for loan losses attributable to such loans decreased by $475,000 to $133,000 at December 31, 2016 from $608,000 at June 30, 2016. The balance at December 31, 2016 reflected the allowance for impairment identified on $1.1 million of impaired loans while an additional $23.8 million of impaired loans had no allowance for impairment as of that date. By comparison, the balance at June 30, 2016 reflected the allowance for

impairment identified on $3.2 million of impaired loans while an additional $21.9 million of impaired loans had no allowance for impairment as of that date. The outstanding balances of impaired loans reflect the cumulative effects of various adjustments including, but not limited to, purchase accounting valuations and prior charge-offs, where applicable, which are considered in the evaluation of impairment.

With regard to loans evaluated collectively for impairment, the balance of our allowance for loan losses attributable to such loans increased by $2.3 million to $25.9 million at December 31, 2016 from $23.6 million at June 30, 2016. The increase in valuation was partly attributable to a $299.4 million increase in the aggregate outstanding balance of loans collectively evaluated for impairment to $2.95 billion at December 31, 2016 from $2.65 billion at June 30, 2016, as well as the ongoing reallocation of loans within the portfolio in favor of commercial loans against, which we generally assign comparatively higher historical and environmental loss factors in our ALLL calculation. The increase in the allowance also reflected updates to certain environmental and historical loss factors during the six months ended December 31, 2016.

With regard to historical loss factors, our loan portfolio experienced a net annualized average charge-off rate of 0.04% for the six months ended December 31, 2016 representing a decrease of four basis points from the 0.08% of average charge offs reported for the year ended June 30, 2016. The annual average net charge off rate for June 30, 2016 had previously decreased by eight basis points from 0.16% for the prior year ended June 30, 2015. The historical loss factors used in our allowance for loan loss calculation methodology were updated to reflect the effect of these changes by individual loan segment reflecting the two year look-back period used by that methodology.

In addition to reflecting the trend of a decreasing average net charge off rate on the aggregate loan portfolio, the decrease in historical loss factors for the six months ended December 31, 2016 also reflected a decrease in estimated historical loss factors applicable to our wholesale C&I loan participations for which a full, two-year charge-off history is not yet available. In such cases, we generally utilize estimated annual charge-off rates to develop the historical loss factors applicable to such loans. As discussed in greater detail below, the Company refined its methodology for developing the estimated net charge off rates used in determining the historical loss factors applicable to its C&I loans during fiscal 2017. In doing so, a more precise estimate of credit losses was developed for specific segments of the Company’s wholesale C&I loan participations based on the specific businesses or industry types in which the underlying borrowers conduct business.

The effects of the net decrease in historical loss factors arising from the changes noted above more than offset the effect of the increase in the overall balance of the unimpaired portion of the loan portfolio during the six months ended December 31, 2016. Consequently, the applicable portion of the allowance attributable to these factors decreased by approximately $1.4 million to $2.1 million at December 31, 2016 from $3.5 million at June 30, 2016.

The enhancements to the historical loss factors applicable to the Company’s wholesale C&I loans discussed above were undertaken to expand and enhance the overall segmentation of its loan portfolio to support its larger credit risk management program which includes, but is not limited to, the allowance for loan loss calculation and loan concentration reporting regimens. These efforts generally reflect the Company’s increased strategic focus in commercial lending and the growing diversity and complexity of the risk characteristics inherent in such loans.

In support of these objectives, certain categories traditionally used by the Company to define and evaluate its loan portfolio for allowance for loan loss calculation purposes were delineated into more granular “segments” during fiscal 2017 to better reflect their common, underlying credit risk characteristics. For example, loans within the multi-family mortgage loan category were further segmented based on the number of dwelling units while commercial mortgage loans secured by non-residential real estate were further segmented by property type/business use (e.g. office/professional, retail, mixed use, warehouse). Similarly, each of the categories of the Company’s commercial business loans, including its traditional business and SBA loans originated through retail channels, as well as its wholesale C&I participations, were further segmented based on the specific business or industry type in which the borrower operates for allowance for loan loss calculation purposes.

As noted above, the “re-segmentation” of the loan portfolio enabled the Company to adopt a more precise methodology to derive its historical loss factors based on actual net charge offs by detailed loan segment while supporting a better basis upon which to develop estimates for such loss factors in the absence of sufficient historical data. However, the re-segmentation also enabled the Company to enhance the precision by which it estimates credit losses through the use of qualitative, environmental loss factors. Where applicable, such loss factors were re-evaluated and re-allocated during fiscal 2017 to reflect the more granular segmentation of loans in the allowance for loan losses calculation. Where appropriate, the specific criteria and/or basis upon which the Company derives the environmental loss factors ascribed to loans was revised or enhanced in conjunction with the segmentation changes noted.

impairment. However, the Company did update certain environmental loss factors during fiscal 2017 to reflect an increase in the level of estimated credit losses attributable to the increased concentration and decreased seasoning in the Company’s multi-family loan sectors. Consequently, the $3.7 million increase in the portion of the allowance for loan losses attributable to environmental loss factors to $23.9 million at December 31, 2016 from $20.2 million at June 30, 2016 was attributable to the growth in the unimpaired portion of the loan portfolio as well as the noted changes to environmental loss factors during the period.

Additional information about the allowance for loan losses at December 31, 2016 is presented in Note 10 to the unaudited consolidated financial statements.

Other Assets. The aggregate balance of other assets, including premises and equipment, FHLB stock, interest receivable, goodwill, bank owned life insurance, deferred income taxes and other miscellaneous assets, increased by $7.7 million to $404.6 million at December 31, 2016 from $397.0 million at June 30, 2016.

The increase in other assets partly reflected an increase in the fair value of the Company’s interest rate derivatives portfolio to net asset value of $9.4 million, included in other assets at December 31, 2016, compared to a net liability value of $19.3 million, included in other liabilities at June 30, 2016. The increase in other assets also included a $3.9 million increase in FHLB stock resulting from an increase in short-term advances drawn during the six months ended December 31, 2016 coupled with a $2.6 million increase in the cash surrender value of the Company’s bank-owned life insurance policies for the same period. The noted increases in other assets were partially offset by a $9.9 million decrease in deferred income tax assets arising primarily from changes in the fair value of the Company’s available for sale securities and derivatives portfolios.

The noted increases in other assets included a $1.2 million increase in the balance of real estate owned (“REO”) to $2.0 million representing the carrying value of six properties at December 31, 2016, from $826,000, representing the carrying value of three properties at June 30, 2016.

The remaining increases and decreases in other assets for the six months ended December 31, 2016 generally comprised normal operating fluctuations in their respective balances.

Deposits. Total deposits increased by $51.2 million to $2.75 billion at December 31, 2016 from $2.69 billion at June 30, 2016. The increase in deposit balances reflected a $49.6 million increase in interest-bearing deposits coupled with a $1.6 million increase in non-interest-bearing deposits. The increase in interest-bearing deposits included an increase in the balance of interest-bearing checking accounts totaling $35.9 million as well as increases in balances of certificates of deposit and savings and club accounts totaling $10.4 million and $3.2 million, respectively.

The noted increase in non-interest-bearing deposits partly reflected fluctuating balances within certain large commercial deposit accounts. Notwithstanding these day-to-day fluctuations, the average balance of non-interest-bearing deposits for the first six months of fiscal 2017 increased by $19.5 million to $244.9 million compared to $225.4 million for the prior fiscal year ended June 30, 2016.

The change in deposit balances for the period reflected changes in the balances of retail deposits as well as “non-retail” deposits acquired through various wholesale channels. The $35.9 million increase in the balance of interest-bearing checking accounts primarily reflected an increase in the balance of retail accounts while the balance of brokered money market deposits acquired through Promontory Interfinancial Network’s (“Promontory”) Insured Network Deposits (“IND”) program remained substantially unchanged at $224.1 million, or 8.2% of total deposits at December 31, 2016 compared to $224.1 million, or 8.3% of total deposits at June 30, 2016. The terms of the IND program generally establish a reciprocal commitment for Promontory to deliver and for us to accept such deposits for a period of no less than five years during which time total aggregate balances shall be maintained within a range of $200.0 million to $230.0 million. Such deposits are generally sourced by Promontory from large retail and institutional brokerage firms whose individual clients seek to have a portion of their investments held in interest-bearing accounts at FDIC-insured institutions.

We continued to utilize a deposit listing service through which we attract “non-brokered” wholesale time deposits targeting institutional investors with an original investment horizon of two-to-five years. We generally prohibit the withdrawal of our listing service deposits prior to maturity. The balance of the Bank’s listing service time deposits increased to $96.5 million, or 3.5% of total deposits at December 31, 2016, compared to $89.9 million, or 3.3% of total deposits at June 30, 2016.

We also maintain a small portfolio of longer-term, brokered certificates of deposit that were originally acquired during fiscal 2014 whose balances decreased by approximately $118,000 to $8.3 million at December 31, 2016 from $8.4 million at June 30, 2016. In combination with our Promontory IND money market deposits, our brokered deposits totaled $232.5 million, or 8.5% of deposits at December 31, 2016 compared to $232.5 million, or 8.6% of deposits at June 30, 2016.

Borrowings. The balance of borrowings increased by $87.4 million to $701.8 million at December 31, 2016 from $614.4 million at June 30, 2016. The increase in borrowings primarily reflected a $90.0 million increase in short-term FHLB advances drawn for liquidity management purposes coupled with a $472,000 increase in outstanding overnight “sweep account” balances linked to customer demand deposits that generally reflected normal operating fluctuations in such balances.

The noted increases in borrowings were partially offset by the repayment of a $3.0 million FHLB term advance that matured during the period coupled with principal payments that reduced the outstanding balance of one amortizing advance.

Other Liabilities. The balance of other liabilities, including advance payments by borrowers for taxes and other miscellaneous liabilities, decreased by $20.4 million to $22.8 million at December 31, 2016 from $43.2 million at June 30, 2016. As noted earlier, the decrease primarily reflected changes in the fair value of the Company’s derivatives coupled with normal operating fluctuations in the balances of other liabilities.

During the first six months of fiscal 2017, the Company executed a total of five interest rate derivative transactions with an aggregate notional value of $440.0 million. Each of the transactions represent an interest rate swap with a “forward” effective date that corresponds to the expiration date of one or more existing derivatives with the same aggregate notional value. As such, each new derivative effectively extends the interest rate risk protection provided by one or more existing derivatives that currently serve as cash flow hedges against existing sources of wholesale funding.

Stockholders’ Equity. Stockholders’ equity decreased by $33.0 million to $1.11 billion at December 31, 2016 from $1.15 billion at June 30, 2016. The decrease in stockholders’ equity largely reflected the impact of the Company’s share repurchases during the first six months of fiscal 2017. The Company initiated a share repurchase program in May 2016 through which it intends to repurchase a total of 9,352,809 shares, or 10%, of its outstanding shares. During the six months ended December 31, 2016, the Company repurchased 4,032,823 shares at a total cost of $54.5 million or an average cost of $13.52 per share. Cumulatively, the Company has repurchased a total of 5,739,005 shares, or 61.4% of the shares to be repurchased under the current program through December 31, 2016 at a total cost of $76.8 million, or an average cost of $13.38 per share. The cumulative cost of the Company’s repurchased shares has directly reduced the balance of stockholders’ equity at December 31, 2016.

The net decrease in stockholders’ equity was partially offset by net income of $10.1 million for the six months ended December 31, 2016, from which cash dividends of $3.4 million were paid to shareholders during the period. The change in stockholders’ equity also reflected a $12.7 million decrease in accumulated other comprehensive loss, due primarily to changes in the fair value of the Company’s available for sale securities portfolio and outstanding derivatives, and a $973,000 reduction of unearned ESOP shares for plan shares earned during the six months ended December 31, 2016.

Comparison of Operating Results for the Three Months Ended December 31, 2016 and December 31, 2015

General. Net income for the three months ended December 31, 2016 was $5.5 million or $0.06 per diluted share; an increase of $1.7 million from $3.8 million or $0.04 per diluted share for the three months ended December 31, 2015. The increase in net income reflected increases in net interest income and non-interest income coupled with a decrease in the provision for loan losses that were partially offset by an increase in non-interest expense. These factors contributed to an overall increase in pre-tax net income and a corresponding increase in the provision for income taxes.

Net Interest Income. Net interest income for the three months ended December 31, 2016 was $25.6 million; an increase of $1.7 million from $23.9 million for the three months ended December 31, 2015. The increase in net interest income between the comparative periods resulted from an increase in interest income that was partially offset by an increase in interest expense. The increase in interest income was attributable to an increase in the average balance of interest-earning assets coupled with an increase in their average yield. The increase in interest expense resulted from an increase in the average balance of interest-bearing liabilities coupled with an increase in their average cost.

As a result of these factors, our net interest rate spread increased nine basis points to 2.18% for the three months ended December 31, 2016 from 2.09% for the three months ended December 31, 2015. The increase in the net interest rate spread reflected a 13 basis points increase in the average yield on interest-earning assets to 3.29% for three months ended December 31, 2016 from 3.16% for the three months ended December 31, 2015. For those same comparative periods, the average cost of interest-bearing liabilities increased to 1.11% from 1.07%. A discussion of the factors contributing to changes in the average yield and average cost of categories within interest-earning assets and interest-bearing liabilities, respectively, is presented in the separate discussion and analysis of interest income and interest expense below.

The factors resulting in the reported increase in our net interest rate spread also affected our net interest margin. In total, the Company’s net interest margin increased seven basis points to 2.45% for the three months ended December 31, 2016 compared to 2.38% for the three months ended December 31, 2015.

Interest Income. Total interest income increased $2.5 million to $34.3 million for the three months ended December 31, 2016 from $31.8 million for the three months ended December 31, 2015. The increase in interest income partly reflected a $153.7 million increase in the average balance of interest-earning assets to $4.18 billion for the three months ended December 31, 2016 from $4.02 billion for the three months ended December 31, 2015. For those same comparative periods, the yield on earning assets increased by 13 basis points to 3.29% from 3.16%.

Interest income from loans increased $2.8 million to $27.4 million for the three months ended December 31, 2016 from $24.6 million for the three months ended December 31, 2015. The increase in interest income on loans was attributable to a net increase in the average balance of loans that was partially offset by a decline in their average yield.

The average balance of loans increased by $403.5 million to $2.90 billion for the three months ended December 31, 2016 from $2.50 billion for the three months ended December 31, 2015. The reported increase in the average balance of loans primarily reflected an aggregate increase of $445.1 million in the average balance of commercial loans to $2.21 billion for the three months ended December 31, 2016 from $1.76 billion for the three months ended December 31, 2015. Our commercial loans generally comprise commercial mortgage loans, including multi-family and nonresidential mortgage loans, as well as secured and unsecured commercial business loans.

For those same comparative periods, the average balance of other loans, primarily comprising unsecured consumer term loans, account loans and deposit account overdraft lines of credit, increased by $10.7 million to $21.7 million from $11.0 million. The increase in the average balance of other loans primarily reflected the increased balance of unsecured consumer term loans acquired through Lending Club, as described earlier.

The increase in the average balance of commercial and consumer loans was partially offset by a $50.7 million decrease in the average balance of residential mortgage loans to $663.9 million for the three months ended December 31, 2016 from $714.6 million for the three months ended December 31, 2015. Our residential mortgages generally comprise one- to four-family first mortgage loans, home equity loans and home equity lines of credit. For those same comparative periods, the average balance of construction loans decreased by $2.2 million to $1.5 million for the three months ended December 31, 2016 from $3.7 million for the three months ended December 31, 2015.

The effect on interest income attributable to the net increase in the average balance of loans was partially offset by the noted decrease in their average yield. The average yield on loans decreased by 17 basis points to 3.78% for the three months ended December 31, 2016 from 3.95% for the three months ended December 31, 2015. The reduction in the overall yield on our loan portfolio largely reflected the effect of the comparatively lower average yield on most newly originated loans in relation to that of the portfolio of existing loans which has reduced the overall yield of the aggregate portfolio. To a lesser extent, the decline in the average yield generally reflects the effects of low market interest rates that provide “rate reduction” refinancing incentive to existing borrowers while also contributing to the downward re-pricing of adjustable rate loans.

Interest income from mortgage-backed securities decreased by $630,000 to $3.8 million for the three months ended December 31, 2016 from $4.4 million for the three months ended December 31, 2015. The decrease in interest income reflected a decrease in the average balance of mortgage-backed securities coupled with a decrease in their average yield.

The average balance of mortgage-backed securities decreased by $78.0 million to $673.6 million for the three months ended December 31, 2016 from $751.6 million for the three months ended December 31, 2015. The decrease in the average balance of mortgage-backed securities largely reflected the level of aggregate principal repayments and security sales between comparative periods outpacing aggregate security purchases.

For those same comparative periods, the average yield on mortgage-backed securities decreased by 11 basis points to 2.24% for the three months ended December 31, 2016 from 2.35% for the three months ended December 31, 2015. The reduction in the overall yield on mortgage-backed securities largely reflected the effect of the comparatively lower average yield on purchased securities in relation to that of the existing portfolio coupled with the continuing repayment of comparatively higher yielding securities within the portfolio.

Interest income from debt securities increased by $308,000 to $2.7 million for the three months ended December 31, 2016 from $2.4 million for the three months ended December 31, 2015. The increase in interest income reflected an increase in the average yield of debt securities that was partially offset by a decrease in their average balance. The average yield on debt securities increased by 46

basis points to 2.04% for the three months ended December 31, 2016 from 1.58% for the three months ended December 31, 2015. For those same comparative periods, the average balance of debt securities decreased $75.4 million to $532.2 million from $607.6 million.

The increase in the average yield on debt securities reflected a 55 basis points increase in the yield on taxable securities to 2.04% during the three months ended December 31, 2016 from 1.49% during the three months ended December 31, 2015. For those same comparative periods, the yield on tax-exempt securities increased by one basis point to 2.00% from 1.99%.

The decrease in the average balance of debt securities was largely attributable to a $76.0 million decrease in the average balance of taxable securities to $420.0 million for the three months ended December 31, 2016 from $496.0 million for the three months ended December 31, 2015. The decrease in taxable securities was partially offset by a $610,000 increase in the average balance of tax-exempt securities to $112.2 million from $111.6 million.

Interest income from other interest-earning assets increased by $47,000 to $421,000 for the three months ended December 31, 2016 from $374,000 for the three months ended December 31, 2015 reflecting an increase in their average yield that was partially offset by a decrease in their average balance. The average yield on other interest-earning assets increased by 147 basis points to 2.37% for the three months ended December 31, 2016 from 0.90% for the three months ended December 31, 2015. For those same comparative periods, the average balance of other interest-earning assets decreased by $96.4 million to $71.1 million from $167.5 million. The increase in average yield and decrease in the average balance of other interest earning assets largely reflected the Company’s efforts to reduce the opportunity cost of maintaining excess liquidity by reinvesting a portion of cash and cash equivalents into the loan portfolio during the current fiscal year.

Interest Expense. Total interest expense increased by $812,000 to $8.7 million for the three months ended December 31, 2016 from $7.9 million for the three months ended December 31, 2015. The increase in interest expense resulted from an increase in the average balance of interest-bearing liabilities coupled with an increase in their average cost. The average balance of interest-bearing liabilities increased by $181.3 million to $3.13 billion for the three months ended December 31, 2016 from $2.95 billion for the three months ended December 31, 2015. For those same comparative periods, the average cost of interest-bearing liabilities increased four basis points to 1.11% from 1.07%.

Interest expense attributed to deposits increased by $880,000 to $5.4 million for the three months ended December 31, 2016 from $4.5 million for the three months ended December 31, 2015. The increase in interest expense was attributable to increases in the average cost and average balance of interest-bearing deposits.

The average cost of interest-bearing deposits increased by eight basis points to 0.86% for the three months ended December 31, 2016 from 0.78% for the three months ended December 31, 2015. The net increase in the average cost largely reflected an increase in the average cost of certificates of deposit which increased 13 basis points to 1.33% for the three months ended December 31, 2016 from 1.20% for the three months ended December 31, 2015. For those same comparative periods, the average cost of interest-bearing checking accounts increased five basis points to 0.62% from 0.57% while the average cost of savings and club accounts decreased five basis points to 0.12% from 0.17%.

The average balance of interest-bearing deposits increased by $178.1 million to $2.50 billion for the three months ended December 31, 2016 from $2.33 billion for the three months ended December 31, 2015. The increase in the average balance was reflected across all categories of interest-bearing deposits. For the comparative periods noted, the average balance of certificates of deposit increased by $125.0 million to $1.22 billion from $1.10 billion, the average balance of interest-bearing checking accounts increased by $45.8 million to $761.8 million from $716.0 million and the average balance of savings and club accounts increased by $7.4 million to $518.2 million from $510.8 million.

Interest expense attributed to borrowings decreased by $68,000 to $3.3 million for the three months ended December 31, 2016 from $3.4 million for the three months ended December 31, 2015. The decrease in interest expense on borrowings reflected a decrease in their average cost that was partially offset by an increase in their average balance. The average cost of borrowings decreased by five basis points to 2.09% for the three months ended December 31, 2016 from 2.14% for the three months ended December 31, 2015. For those same comparative periods, the average balance of borrowings increased by $3.2 million to $629.5 million from $626.3 million.

The increase in the average balance of borrowings partly reflected a $7.9 million increase in the average balance of FHLB advances to $594.2 million for the three months ended December 31, 2016 from $586.3 million for the three months ended December 31, 2015. For those same comparative periods, the average cost of FHLB advances decreased five basis points to 2.20% from 2.25% largely reflecting the Company’s greater use of lower-costing, overnight borrowings to temporarily fund a portion of loan growth during the quarter ended December 31, 2016.

The noted increase in the average balance of FHLB advances was partially offset by a $4.7 million decrease in the average balance of other borrowings, comprised primarily of depositor sweep accounts, to $35.3 million from $40.0 million. The average cost of sweep accounts decreased by 24 basis points to 0.29% from 0.53% between the same comparative periods.

Provision for Loan Losses. The provision for loan losses decreased by $2.1 million to $1.3 million for the three months ended December 31, 2016 from $3.4 million for the three months ended December 31, 2015. The decrease was largely attributable to a lower provision on non-impaired loans evaluated collectively for impairment coupled with a decrease in specific losses recognized on nonperforming loans individually reviewed for impairment.

Regarding the provision on non-impaired loans, the noted decrease partly reflected the effects of a comparatively lower level of growth in the unimpaired portion of the loan portfolio between comparative periods. The decrease also reflected the comparative effects of updates to historical and environmental loss factors between periods. As previously discussed, the changes to historical loss factors generally reflected the impact of a decreased level of net charge offs recognized during the three months ended December 31, 2016 on the two-year lookback period used to calculate the Company’s historical loss factors coupled with the “roll off” of the net charge offs from the same period two years earlier. The Company also updated certain environmental loss factors during the three months ended December 31, 2016 to reflect an increase in the level of estimated credit losses attributable to the increased concentration and decreased seasoning in the Company’s multi-family loan sectors.

Additional information regarding the allowance for loan losses and the associated provisions recognized during the three months ended December 31, 2016 is presented in Note 10 to the unaudited consolidated financial statements as well as the Comparison of Financial Condition at December 31, 2016 and June 30, 2016 presented earlier.

Non-Interest Income. Non-interest income, excluding gains and losses on the sale and write-down of real estate owned, increased by $912,000 to $3.4 million for the three month period ended December 31, 2016 from $2.5 million for the three months ended December 31, 2015. The increase was partly attributable to a $383,000 increase in the gain on sale of loans. The increase in loan sale gains included an $88,000 increase in gains associated with the sale of SBA loans arising from an increase in loans originated and sold. The increase in loan sale gains also included $297,000 in gains on sale of residential mortgage loans during the three months ended December 31, 2016 for which no such gains were recognized during the earlier comparative period due to the recent implementation and continuing expansion of the Company’s mortgage banking business strategy. The increase in non-interest income also reflected a $580,000 increase in fees and service charges that largely reflected an increase in loan prepayment penalties recognized between comparative periods.

The noted increase in non-interest income was partially offset by an $87,000 decrease in the income recognized on bank-owned life insurance that largely reflected the continuing effects of lower market interest rates on the yields earned by the Company on its underlying policies.

We also recognized net gains totaling $11,000 arising from the write down and sale of REO during the three months ended December 31, 2016 compared to net losses of $113,000 recognized during the earlier comparative period.

The changes in 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 $1.7 million to $19.4 million for the three months ended December 31, 2016 from $17.7 million for the three months ended December 31, 2015. The net increase in non-interest expense partly reflected increases in salary and employee benefits expense and director compensation expense as well as increases in premises occupancy expense and equipment and system expense. These increases were partially offset by decreases in advertising and marketing expense and deposit insurance expense. A less noteworthy variance in miscellaneous expense reflected normal growth and operating fluctuations within that category.

Salaries and employee benefits expense increased by $1.2 million to $11.6 million for the three months ended December 31, 2016 from $10.4 million for the three months ended December 31, 2015. The increase partly reflected the effects of annual increases in non-executive wages and salaries for fiscal 2017 and the cost of staffing additions within the lending and business development functions, coupled with lesser increases in employee incentive compensation and commissions expenses. The increase in employee-compensation related expenses also reflected an increase in employee benefits expenses due to an increase in the cost of employee health insurance and retirement plan benefits and an increase in ESOP expense arising from an increase in the market value of the Company’s capital stock between comparative periods.

The increase in salaries and employee benefits expense also reflected the recognition of additional costs associated with the granting of benefits to employees and directors under the terms of the Company’s 2016 Equity Incentive Plan approved by shareholders in October 2016. Specifically, the noted grants comprised 1,387,390 shares of restricted stock and 3,290,000 stock options issued on December 1, 2016 that will be earned and vested by plan participants over a five-year period with the vesting of certain restricted stock benefits further subject to “performance-based” metrics. The noted shares of restricted stock were issued from authorized shares during the quarter ended December 31, 2016 and are included in the number of the Company’s outstanding shares reported as of that date.

Based on the Company’s closing stock price on the date of grant and other assumptions supporting the Company’s valuation of the stock options granted under a Black-Scholes calculation methodology, the Company expects the annual pre-tax cost of the grants issued on December 1, 2016 to total approximately $6.2 million with an annual “after-tax” estimated cost of $4.3 million. Given the grant date of December 1, 2016, the Company recognized 8.33% (one-twelfth), or approximately $517,000, in pre-tax expense associated with the noted grants resulting in an “after-tax” charge to net income of approximately $356,000 during the quarter ended December 31, 2016. Beginning with the quarter ending March 31, 2017, the ongoing quarterly “pre-tax” and “after-tax” expense associated with the noted grants is expected to total $1.6 million and $1.1 million, respectively.

In addition to noted costs associated with the granting of restricted stock and stock option benefits noted above, the increase in director compensation expense also reflected the quarterly retainers paid to the Company’s two newest members of the Board of Directors who joined the Company in December 2015.

The increase in premises occupancy expense partly reflected an increase in facility rent expense due to the revised terms of certain facility leases renewed during the period coupled with the additional cost of a new ground lease associated with a forthcoming branch relocation. The increase in premises occupancy expense also reflected an increase in facility repairs and maintenance expenses relating to the Company’s branch and administrative facilities.

The increase in equipment and systems expense largely reflected the recognition of a non-recurring recovery of certain historical data network charges that reduced technology service provider expenses during the earlier comparative quarter ended December 31, 2015.

Advertising and marketing expense decreased by $175,000 to $388,000 for the three months ended December 31, 2016 from $563,000 for the three months ended December 31, 2015. The decrease largely reflected decreases in advertising expenses across a variety of advertising formats including outdoor, print and electronic media reflecting normal fluctuations in the timing of certain advertising campaigns supporting the Company’s loan and deposit growth initiatives.

Finally, deposit insurance expense decreased by $336,000 to $339,000 for the three months ended December 31, 2016 from $675,000 for the three months ended December 31, 2015. The decrease primarily reflected a reduction in the Bank’s FDIC assessment rate that went into effect on July 1, 2016.

Provision for Income Taxes. The provision for income taxes increased by $1.6 million to $3.0 million for the three months ended December 31, 2016 from $1.4 million for the three months ended December 31, 2015. The increase in income tax expense primarily reflected the underlying differences in the level of the taxable portion of pre-tax income between comparative periods.

Our effective tax rates during the three month periods ended December 31, 2016 and December 31, 2015 were 35.2% and 27.4% which, in relation to statutory income tax rates, reflected the effects of recurring sources of tax-favored income included in pre-tax income.

Comparison of Operating Results for the Six Months Ended December 31, 2016 and December 31, 2015

General. Net income for the six months ended December 31, 2016 was $10.1 million or $0.12 per diluted share, an increase of $3.4 million from $6.8 million or $0.08 per diluted share for the six months ended December 31, 2015. The increase in net income reflected increases in net interest income and non-interest income coupled with a decrease in the provision for loan losses that were partially offset by an increase in non-interest expense. These factors contributed to an overall increase in pre-tax net income and a corresponding increase in the provision for income taxes.

Net Interest Income. Net interest income for the six months ended December 31, 2016 was $49.6 million; an increase of $3.3 million from $46.3 million for the six months ended December 31, 2015. The increase in net interest income between the comparative periods resulted from an increase in interest income that was partially offset by an increase in interest expense. The increase in interest income was attributable to an increase in the average balance of interest-earning assets coupled with an increase in their average yield.

The increase in interest expense resulted from an increase in the average balance of interest-bearing liabilities coupled with an increase in their average cost.

As a result of these factors, our net interest rate spread increased five basis points to 2.10% for the six months ended December 31, 2016 from 2.05% for the six months ended December 31, 2015. The increase in the net interest rate spread reflected a 14 basis points increase in the average yield on interest-earning assets to 3.22% for the six months ended December 31, 2016 from 3.08% for the six months ended December 31, 2015. For those same comparative periods, the average cost of interest-bearing liabilities increased to 1.12% from 1.03%. A discussion of the factors contributing to changes in the average yield and average cost of categories within interest-earning assets and interest-bearing liabilities, respectively, is presented in the separate discussion and analysis of interest income and interest expense below.

The factors resulting in the reported increase in our net interest rate spread also affected our net interest margin. In total, the Company’s net interest margin increased five basis points to 2.38% for the six months ended December 31, 2016 compared to 2.33% for the six months ended December 31, 2015.

Interest Income. Total interest income increased $5.9 million to $67.1 million for the six months ended December 31, 2016 from $61.2 million for the six months ended December 31, 2015. As noted above, the increase in interest income partly reflected a $189.2 million increase in the average balance of interest-earning assets to $4.16 billion for the six months ended December 31, 2016 from $3.97 billion for the six months ended December 31, 2015. For those same comparative periods, the yield on earning assets increased by 14 basis points to 3.22% from 3.08%.

Interest income from loans increased $6.4 million to $53.1 million for the six months ended December 31, 2016 from $46.7 million for the six months ended December 31, 2015. The increase in interest income on loans was attributable to a net increase in the average balance of loans that was partially offset by a decline in their average yield.

The average balance of loans increased by $441.0 million to $2.80 billion for the six months ended December 31, 2016 from $2.36 billion for the six months ended December 31, 2015. The reported increase in the average balance of loans primarily reflected an aggregate increase of $457.2 million in the average balance of commercial loans to $2.10 billion for the six months ended December 31, 2016 from $1.64 billion for the six months ended December 31, 2015. Our commercial loans generally comprise commercial mortgage loans, including multi-family and nonresidential mortgage loans, as well as secured and unsecured commercial business loans.

For those same comparative periods, the average balance of other loans, primarily comprising unsecured consumer term loans, account loans and deposit account overdraft lines of credit, increased by $15.5 million to $23.0 million from $7.5 million. The increase in the average balance of other loans primarily reflected the increased balance of unsecured consumer term loans acquired through Lending Club, as described earlier.

The increase in the average balance of commercial and consumer loans was partially offset by a $29.5 million decrease in the average balance of residential mortgage loans to $675.8 million for the six months ended December 31, 2016 from $705.3 million for the six months ended December 31, 2015. Our residential mortgages generally comprise one- to four-family first mortgage loans, home equity loans and home equity lines of credit. For those same comparative periods, the average balance of construction loans decreased by $3.0 million to $1.8 million for the six months ended December 31, 2016 from $4.8 million for the six months ended December 31, 2015.

The effect on interest income attributable to the net increase in the average balance of loans was partially offset by the noted decrease in their average yield. The average yield on loans decreased by 16 basis points to 3.80% for the six months ended December 31, 2016 from 3.96% for the six months ended December 31, 2015. The reduction in the overall yield on our loan portfolio largely reflected the effect of the comparatively lower average yield on most newly originated loans in relation to that of the portfolio of existing loans which has reduced the overall yield of the aggregate portfolio. To a lesser extent, the decline in the average yield generally reflects the effects of low market interest rates that provide “rate reduction” refinancing incentive to existing borrowers while also contributing to the downward re-pricing of adjustable rate loans.

Interest income from mortgage-backed securities decreased by $1.2 million to $7.7 million for the six months ended December 31, 2016 from $8.9 million for the six months ended December 31, 2015. The decrease in interest income reflected a decrease in the average balance of mortgage-backed securities coupled with a decrease in their average yield.

The average balance of mortgage-backed securities decreased by $79.0 million to $684.7 million for the six months ended December 31, 2016 from $763.7 million for the six months ended December 31, 2015. The decrease in the average balance of

mortgage-backed securities largely reflected the level of aggregate principal repayments and security sales between comparative periods outpacing aggregate security purchases.

For those same comparative periods, the average yield on mortgage-backed securities decreased by nine basis points to 2.25% for the six months ended December 31, 2016 from 2.34% for the six months ended December 31, 2015. The reduction in the overall yield on mortgage-backed securities largely reflected the effect of the comparatively lower average yield on purchased securities in relation to that of the existing portfolio coupled with the continuing repayment of comparatively higher yielding securities within the portfolio.

Interest income from debt securities increased by $469,000 to $5.3 million for the six months ended December 31, 2016 from $4.8 million for the six months ended December 31, 2015. The increase in interest income reflected an increase in the average yield on debt securities that was partially offset by a decrease in their average balance. The average yield on debt securities increased 42 basis points to 1.96% for the six months ended December 31, 2016 from 1.54% for the six months ended December 31, 2015. For those same comparative periods, the average balance of debt securities decreased $85.6 million to $542.0 million from $627.6 million.

The increase in the average yield on debt securities reflected a 49 basis points increase in the yield on taxable securities to 1.94% during the six months ended December 31, 2016 from 1.45% during the six months ended December 31, 2015. For those same comparative periods, the yield on tax-exempt securities increased three basis points to 2.01% from 1.98%.

The decrease in the average balance of debt securities was largely attributable to a $86.2 million decrease in the average balance of taxable securities to $431.1 million for the six months ended December 31, 2016 from $517.3 million for the six months ended December 31, 2015. The decrease in taxable securities was partially offset by a $624,000 increase in the average balance of tax-exempt securities to $110.9 million from $110.3 million.

Interest income from other interest-earning assets increased by $189,000 to $1.0 million for the six months ended December 31, 2016 from $813,000 for the six months ended December 31, 2015 reflecting an increase in their average yield that was partially offset by a decrease in their average balance. The average yield on other interest-earning assets increased by 73 basis points to 1.45% for the six months ended December 31, 2016 from 0.72% for the six months ended December 31, 2015. For those same comparative periods, the average balance of other interest-earning assets decreased by $87.3 million to $137.8 million from $225.1 million.

Interest Expense. Total interest expense increased by $2.6 million to $17.5 million for the six months ended December 31, 2016 from $14.9 million for the six months ended December 31, 2015. As noted earlier, the increase in interest expense resulted from an increase in the average balance of interest-bearing liabilities coupled with an increase in their average cost. The average balance of interest-bearing liabilities increased by $213.1 million to $3.11 billion for the six months ended December 31, 2016 from $2.90 billion for the six months ended December 31, 2015. For those same comparative periods, the average cost of interest-bearing liabilities increased nine basis points to 1.12% from 1.03%.

Interest expense attributed to deposits increased by $2.2 million to $10.8 million for the six months ended December 31, 2016 from $8.6 million for the six months ended December 31, 2015. The increase in interest expense was attributable to increases in the average cost and average balance of interest-bearing deposits.

The average cost of interest-bearing deposits increased by 11 basis points to 0.86% for the six months ended December 31, 2016 from 0.75% for the six months ended December 31, 2015. The net increase in the average cost largely reflected an increase in the average cost of certificates of deposit which increased 15 basis points to 1.32% for the six months ended December 31, 2016 from 1.17% for the six months ended December 31, 2015. For those same comparative periods, the average cost of interest-bearing checking accounts increased seven basis points to 0.63% from 0.56% while the average cost of savings and club accounts decreased three basis points to 0.14% from 0.17%.

The average balance of interest-bearing deposits increased by $210.3 million to $2.49 billion for the six months ended December 31, 2016 from $2.28 billion for the six months ended December 31, 2015. The increase in the average balance was reflected across all categories of interest-bearing deposits. For the comparative periods noted, the average balance of certificates of deposit increased by $174.3 million to $1.22 billion from $1.05 billion, the average balance of interest-bearing checking accounts increased by $34.6 million to $755.1 million from $720.6 million and the average balance of savings and club accounts increased by $1.5 million to $516.9 million from $515.4 million.

Interest expense attributed to borrowings increased by $369,000 to $6.7 million for the six months ended December 31, 2016 from $6.3 million for the six months ended December 31, 2015. The increase in interest expense on borrowings reflected an increase in their average balance coupled with an increase in their average cost. The average balance of borrowings increased by $2.8 million

to $620.2 million for the six months ended December 31, 2016 from $617.4 million for the six months ended December 31, 2015. For those same comparative periods, the average cost of borrowings increased by 11 basis points to 2.16% from 2.05%.

The increase in the average balance of borrowings largely reflected a $6.7 million increase in the average balance of FHLB advances to $585.8 million for the six months ended December 31, 2016 from $579.1 million for the six months ended December 31, 2015. For those same comparative periods, the average cost of FHLB advances increased 11 basis points to 2.27% from 2.16%. The increase in the average cost of FHLB advances largely reflects the effects of an increase in interest rate hedging costs between comparative periods.

The noted increase in the average balance of FHLB advances was partially offset by a $4.0 million decrease in the average balance of other borrowings, comprised primarily of depositor sweep accounts, to $34.4 million from $38.4 million. The average cost of sweep accounts decreased by 17 basis points to 0.35% from 0.52% between the same comparative periods.

Provision for Loan Losses. The provision for loan losses decreased by $3.7 million to $2.4 million for the six months ended December 31, 2016 from $6.1 million for the six months ended December 31, 2015. The decrease was largely attributable to a lower provision on non-impaired loans evaluated collectively for impairment coupled with a decrease in specific losses recognized on nonperforming loans individually reviewed for impairment.

Regarding the provision on non-impaired loans, the noted decrease partly reflected the effects of a comparatively lower level of growth in the unimpaired portion of the loan portfolio between comparative periods. The decrease also reflected the comparative effects of updates to historical and environmental loss factors between periods. As previously discussed, the changes to historical loss factors generally reflected the impact of a decreased level of net charge offs recognized during the six months ended December 31, 2016 on the two-year lookback period used to calculate the Company’s historical loss factors coupled with the “roll off” of the net charge offs from the same period two years earlier. Such changes also reflected a decrease in estimated historical loss factors applicable to our wholesale C&I loan participations for which a full, two-year charge-off history is not yet available. The Company also updated certain environmental loss factors during the six months ended December 31, 2016 to reflect an increase in the level of estimated credit losses attributable to the increased concentration and decreased seasoning in the Company’s multi-family loan sectors.

The prior discussion regarding the allowance for loan losses also highlighted the impact of the “re-segmentation” of the loan portfolio on the Company’s qualitative, environmental loss factors. As noted therein, such loss factors were re-evaluated and re-allocated, where appropriate, to reflect the more granular segmentation of loans in the allowance for loan loss calculation during the first quarter of fiscal 2017. Where appropriate, the specific criteria and/or basis upon which the Company derives the environmental loss factors ascribed to loans was also revised or enhanced in conjunction with the segmentation changes noted.

The implementation of the segmentation changes within the loan portfolio in the calculation of the allowance for loan loss did not result in a significant change in the required, aggregate balance of the allowance attributable to loans evaluated collectively for impairment. Consequently, the decrease in the provision for loan losses during the six months ended December 31, 2016 largely reflected the updates to the historical and environmental loss factors discussed earlier coupled with the noted effects of a comparatively lower level of growth in the unimpaired portion of the loan portfolio between comparative periods. As noted above, the decrease in provision also reflected a decrease in losses recognized on specific loans individually reviewed for impairment.

Additional information regarding the allowance for loan losses and the associated provisions recognized during the six months ended December 31, 2016 is presented in Note 10 to the unaudited consolidated financial statements as well as the Comparison of Financial Condition at December 31, 2016 and June 30, 2016 presented earlier.

Non-Interest Income. Non-interest income, excluding gains and losses on the sale and write-down of real estate owned, increased by $1.1 million to $6.1 million for the six months ended December 31, 2016 from $5.0 million for the six months ended December 31, 2015. The increase was partly attributable to a $611,000 increase in the gain on sale of loans. The increase in loan sale gains included an $202,000 increase in gains associated with the sale of SBA loans arising from an increase in loans originated and sold. The increase in loan sale gains also included $409,000 in gains on sale of residential mortgage loans during the six months ended December 31, 2016 for which no such gains were recognized during the earlier comparative period due to the recent implementation and continuing expansion of the Company’s mortgage banking business strategy. The increase in non-interest income also reflected a $570,000 increase in fees and service charges that largely reflected an increase in loan prepayment penalties recognized between comparative periods.

The noted increase in non-interest income was partially offset by an $159,000 decrease in the income recognized on bank-owned life insurance that largely reflected the continuing effects of lower market interest rates on the yields earned by the Company on its underlying policies.

We also recognized net losses totaling $3,000 arising from the write down and sale of REO during the six months ended December 31, 2016 compared to net losses of $113,000 recognized during the earlier comparative period.

The changes in 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 $1.9 million to $38.0 million for the six months ended December 31, 2016 from $36.1 million for the six months ended December 31, 2015. The net increase in non-interest expense partly reflected increases in salary and employee benefits expense and director compensation expense as well as increases in premises occupancy expense and equipment and system expense. These increases were partially offset by a decrease in deposit insurance expense. Less noteworthy variances in advertising and marketing expense and miscellaneous expense reflected normal growth and operating fluctuations within these categories.

Salaries and employee benefits expense increased by $1.5 million to $22.5 million for the six months ended December 31, 2016 from $21.0 million for the six months ended December 31, 2015. The increase partly reflected the effects of annual increases in non-executive wages and salaries for fiscal 2017 and the cost of staffing additions within the lending and business development functions coupled with lesser increases in employee incentive compensation and commissions expenses. The increase in employee-compensation related expenses also reflected an increase in employee benefits expenses due to an increase in the cost of employee health insurance and retirement plan benefits and an increase in ESOP expense arising from an increase in the market value of the Company’s capital stock between comparative periods.

Based on the Company’s closing stock price on the date of grant and other assumptions supporting the Company’s valuation of the stock options granted under a Black-Scholes calculation methodology, the Company expects the annual pre-tax cost of the grants issued on December 1, 2016 to total approximately $6.2 million with an annual “after-tax” estimated cost of $4.3 million. Given the grant date of December 1, 2016, the Company recognized 8.33% (one-twelfth) or approximately $517,000 in pre-tax expense associated the with noted grants resulting in an “after-tax” charge to net income of approximately $356,000 during the quarter ended December 31, 2016. Beginning with the next quarter ending March 31, 2017, the ongoing quarterly “pre-tax” and “after-tax” expense associated with the noted grants is expected to total $1.6 million and $1.1 million, respectively.

The increase in premises occupancy expense partly reflected an increase in facility rent expense due to the revised terms of certain facility leases renewed during the period coupled with the additional cost of a new ground lease associated with a forthcoming branch relocation. The increase in premises occupancy expense also reflected and an increase in facility repairs and maintenance expenses and real estate tax expenses relating to the Company’s branch and administrative facilities.

Finally, deposit insurance expense decreased by $693,000 to $644,000 for the six months ended December 31, 2016 from $1.3 million for the six months ended December 31, 2015. The decrease primarily reflected a reduction in the Bank’s FDIC assessment rate that went into effect on July 1, 2016.

Provision for Income Taxes. The provision for income taxes increased by $2.9 million to $5.2 million for the six months ended December 31, 2016 from $2.3 million for the six months ended December 31, 2015. The increase in income tax expense primarily reflected the underlying differences in the level of the taxable portion of pre-tax income between comparative periods.

Our effective tax rates during the six month periods ended December 31, 2016 and December 31, 2015 were 33.8% and 25.2% which, in relation to statutory income tax rates, reflected the effects of recurring sources of tax-favored income included in pre-tax income.

Our liquidity, represented by cash and cash equivalents, is a product of our operating, investing and financing activities. Our primary sources of funds are deposits, borrowings, amortization, prepayments and maturities of mortgage-backed securities and outstanding loans, maturities and calls of debt securities and funds provided from operations. In addition to cash and cash equivalents, we invest excess funds in short-term interest-earning assets such as overnight deposits or U.S. agency securities, which provide liquidity to meet lending requirements. While scheduled payments from the amortization of loans and mortgage-backed securities and maturing securities and short-term investments are relatively predictable sources of funds, general interest rates, economic conditions and competition greatly influence deposit flows and prepayments on loans and mortgage-backed securities.

The Bank is required to have enough investments that qualify as liquid assets in order to maintain sufficient liquidity to ensure a safe operation. Toward that end, we generally maintain cash and cash equivalents whose balances decreased by $162.2 million to $37.0 million at December 31, 2016 from $199.2 million at June 30, 2016. The decrease in cash and cash equivalents partly reflected the effects of a temporary accumulation of short-term, liquid assets arising from an increase in loan prepayments during the quarter ended June 30, 2016. The Company reinvested a significant portion of that excess liquidity back into the loan portfolio during the prior quarter ended September 30, 2016. However, the variance also reflected the Company’s ongoing effort to enhance earnings by generally reducing the level of lower-yielding, short-term liquid assets to only the amount needed to fund the Company’s strategic initiatives while meeting its performance and risk management objectives.

Investments that formally qualify as liquid assets are supplemented by our portfolio of securities classified as available for sale whose balances at December 31, 2016 included $271.8 million of mortgage-backed securities and $399.5 million of debt securities that can readily be sold if necessary.

At December 31, 2016, the Company had outstanding commitments to originate and purchase loans held in portfolio totaling approximately $67.1 million while outstanding commitments to originate loans held for sale totaled $10.0 million as of that same date. By comparison, the Company had outstanding commitments to originate and purchase loans held in portfolio totaling $35.6 million at June 30, 2016 while outstanding commitments to originate loans held for sale totaled $16.7 million as of that same date. Origination commitments on loans held for sale whose terms include interest rate locks to borrowers are generally 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 $14,000 and $59.5 million, respectively, at December 31, 2016 compared to $73,000 and $55.4 million, respectively, at June 30, 2016. The Company is also subject to the contingent liabilities resulting from letters of credit whose outstanding balances totaled $546,000 and $514,000 at December 31, 2016 and June 30, 2016, 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.

As noted earlier, for the six months ended December 31, 2016, the balance of total deposits increased by $51.2 million to $2.75 billion from $2.69 billion at June 30, 2016. The net increase in deposits reflected a net increase in interest-bearing deposits totaling $49.6 million coupled with an increase in non-interest-bearing checking accounts totaling $1.6 million. The increase in interest-bearing deposits included an increase in the balance of interest-bearing checking accounts totaling $35.9 million as well as increases in balances of certificates of deposit and savings and club accounts totaling $10.4 million and $3.2 million, respectively. The balance of certificates of deposit with maturities within one year increased to $669.3 million at December 31, 2016 compared to $666.1 million at June 30, 2016 with such balances representing 55.0% and 55.1% of total certificates of deposit at the close of each period, respectively.

Advances from the FHLB of New York are available to supplement the Company’s liquidity position and, to the extent that maturing deposits do not remain with the Company, management may replace such funds with advances. As of December 31, 2016, the Company’s outstanding balance of FHLB advances, excluding fair value adjustments, totaled $665.7 million. Of these advances,

$145.0 million represent long-term, fixed-rate advances maturing in 2023 that have terms enabling the FHLB to call the borrowing at their option prior to maturity. The remaining balance of long-term, fixed rate advances totaled $5.2 million representing a single advance maturing during fiscal 2018. Short-term FHLB advances at December 31, 2016 included $425.0 million of fixed-rate borrowings which have been effectively converted to longer duration funding sources through the use of interest rate derivatives coupled with one overnight advance totaling $90.0 million drawn for short-term, liquidity management purpose. The remaining $521,000 of advances represents one fixed-rate, amortizing advance maturing in 2021.

The Company has the capacity to borrow additional funds from the FHLB, through a line of credit or by taking additional short-term or long-term advances. Such borrowings are an option available to management if funding needs change or to lengthen the duration of liabilities. Most of the Bank’s mortgage-backed and debt securities are held in safekeeping at the FHLB of New York with a majority being available as collateral if necessary. In addition to the FHLB advances, the Bank has other borrowings totaling $36.1 million at December 31, 2016 representing overnight “sweep account” balances linked to customer demand deposits.

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, 2016, the Company and the Bank exceeded all capital requirements of federal banking regulators.

The following table sets forth the Bank’s capital position at December 31, 2016 and June 30, 2016, as compared to the minimum regulatory capital requirements that were in effect as of those dates:

The following table sets forth the Company’s capital position at December 31, 2016 and June 30, 2016, as compared to the minimum regulatory capital requirements that were in effect as of those dates:

In July 2013, the OCC and the other federal bank regulatory agencies issued a final rule that revised the risk-based and leverage capital requirements and the method for calculating risk-weighted assets, to make them consistent with the agreements that were reached by the international Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. The final rule applies to all depository institutions, top-tier bank holding companies and top-tier savings and loan holding companies with total consolidated assets of $1.0 billion or more (“banking organizations”). Among other things, the rule established a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), set the minimum leverage ratio for all banking organizations at a uniform 4% of total assets, increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigned a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The final rule also required unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt out is exercised which the Company and the Bank intend to exercise. The final rule limits a banking organization’s dividends, stock repurchases and other capital distributions, and certain discretionary bonus payments to executive officers, if the bank organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above regulatory minimum risk-based requirements. The final rule became effective for us on January 1, 2015. The capital conservation buffer requirement is being phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective. The Bank and Company each meet the fully phased in capital conservation buffer requirement at December 31, 2016.

We are a party to financial instruments with off-balance-sheet risk in the normal course of our business of investing in loans and securities as well as in the normal course of maintaining and improving Kearny Bank’s facilities. These financial instruments include significant purchase commitments, such as commitments related to capital expenditure plans and commitments to purchase securities or mortgage-backed securities and commitments to extend credit to meet the financing needs of our customers. At December 31, 2016, we had no significant off-balance sheet commitments to purchase securities or for capital expenditures.

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.

Qualitative Analysis. 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 our earnings or capital arising from the movement of interest rates. It arises from several risk factors including: the differences between the timing of rate changes and the timing of cash flows (re-pricing risk); the changing rate relationships among different yield curves that affect bank activities (basis risk); the changing rate relationships across the spectrum of maturities (yield curve risk); and the interest-rate-related options embedded in bank products (option risk).

Regarding the risk to our earnings, movements in interest rates significantly influence the amount of net interest income we recognized. Net interest income is the difference between:

Net interest income is, by far, our largest revenue source to which we add our non-interest income and from which we deduct our provision for loan losses, non-interest expense and income taxes to calculate net income. 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 loans, securities and other interest-earning assets and the interest paid on our deposits and borrowings. Movements in interest rates that increase, or “widen”, that net interest spread enhance our net income. Conversely, movements in interest rates that reduce, or “tighten”, that net interest spread adversely impact our net income.

For any given movement in interest rates, the resulting degree of movement in an institution’s yield on interest-earning assets compared with that of its cost of interest-bearing liabilities determines if an institution is deemed “asset sensitive” or “liability sensitive”. An asset sensitive institution is one whose yield on interest-earning assets reacts more quickly to movements in interest rates than its cost of interest-bearing liabilities. In general, the earnings of asset sensitive institutions are enhanced by upward movements in interest rates through which the yield on its interest-earning assets increases faster than its cost of interest-bearing liabilities resulting in a widening of its net interest spread. Conversely, the earnings of asset sensitive institutions are adversely impacted by downward movements in interest rates through which the yield on its interest-earning assets decreases faster than its cost of interest-bearing liabilities resulting in a tightening of its net interest spread.

In contrast, a liability sensitive institution is one whose cost of interest-bearing liabilities reacts more quickly to movements in interest rates than its yield on interest-earning assets. In general, the earnings of liability sensitive institutions are enhanced by downward movements in interest rates through which the cost of interest-bearing liabilities decreases faster than its yield on its interest-earning assets resulting in a widening of its net interest spread. Conversely, the earnings of liability sensitive institutions are adversely impacted by upward movements in interest rates through which the cost of interest-bearing liabilities increases faster than its yield on its interest-earning assets resulting in a tightening of its net interest spread.

The degree of an institution’s asset or liability sensitivity is traditionally represented by its “gap position”. In general, gap is a measurement that describes the net mismatch between the balance of an institution’s interest-earning assets that are maturing and/or re-pricing over a selected period of time compared to that of its interest-costing liabilities. Positive gaps represent the greater dollar amount of interest-earning assets maturing or re-pricing over the selected period of time than interest-costing liabilities. Conversely, negative gaps represent the greater dollar amount of interest-costing liabilities than interest-earning assets maturing or re-pricing over the selected period of time. The degree to which an institution is asset or liability sensitive is reported as a negative or positive percentage of assets, respectively. The industry commonly focuses on cumulative one-year and three-year gap percentages as fundamental indicators of interest rate risk sensitivity.

Based upon the findings of our internal interest rate risk analysis, we are considered to be liability sensitive. Liability sensitivity is generally attributable to the comparatively shorter contractual maturity and/or re-pricing characteristics of the institution’s deposits and borrowings versus those of its loans and investment securities.

With respect to the maturity and re-pricing of our interest-bearing liabilities, at December 31, 2016, $669.3 million, or 55.0%, of our certificates of deposit mature within one year with an additional $223.3 million, or 18.3%, of our certificates of deposit maturing after one year but within two years. The remaining $325.2 million or 26.7% of certificates, at December 31, 2016 have remaining terms to maturity exceeding two years.

Excluding fair value adjustments, the balance of FHLB advances totaled $665.7 million at December 31, 2016 and comprised both short-term and long-term advances with fixed rates of interest. Short-term FHLB advances generally have original maturities of

less than one year and may include overnight borrowings which the Bank typically utilizes to address short term funding needs as they arise. At December 31, 2016, the Bank had a total of $515.0 million of short-term FHLB advances which included $425.0 million of 90-day FHLB term advances that are generally forecasted to be periodically redrawn at maturity for the same 90 day term as the original advance. Based on this presumption, the Bank has utilized interest rate swaps to effectively extend the duration of each of these advances at the time they were drawn to effectively fix their cost for a period of five years. The balance of short-term advances at December 31, 2016 also included $90.0 million of overnight FHLB advances drawn for liquidity management purposes

Long-term advances generally include advances with original maturities of greater than one year. At December 31, 2016, our outstanding balance of long-term FHLB advances totaled $150.7 million. Such advances included $145.0 million of fixed-rate, callable term advances and $5.2 million of fixed-rate, non-callable term advances as well as a $521,000 fixed-rate amortizing advance.

With respect to the maturity and re-pricing of our interest-earning assets, at December 31, 2016, $25.6 million, or 0.9% of our total loans, will reach their contractual maturity dates within one year with the remaining $2.95 billion, or 99.1% of total loans having remaining terms to contractual maturity in excess of one year. Of loans maturing after one year, $1.40 billion had fixed rates of interest while the remaining $1.54 billion had adjustable rates of interest, with such loans representing 47.6% and 52.4% of total loans, respectively.

At December 31, 2016, $39.4 million, or 3.3% of our total securities, will reach their contractual maturity dates within one year with the remaining $1.15 billion, or 96.7% of total securities, having remaining terms to contractual maturity in excess of one year. Of the latter category, $765.8 million comprising 64.4% of our total securities had fixed rates of interest while the remaining $383.9 million comprising 32.3% of our total securities had adjustable or floating rates of interest.

At December 31, 2016, mortgage-related assets, including mortgage loans and mortgage-backed securities, totaled $3.53 billion and comprised 77.0% of total assets. In addition to remaining term to maturity and interest rate type as discussed above, other factors contribute significantly to the level of interest rate risk associated with mortgage-related assets. In particular, the scheduled amortization of principal and the borrower’s option to prepay any or all of a mortgage loan’s principal balance, where applicable, have a significant effect on the average lives of such assets and, therefore, the interest rate risk associated with them. In general, the prepayment rate on lower yielding assets tends to slow as interest rates rise due to the reduced financial incentive for borrowers to refinance their loans. By contrast, the prepayment rate of higher yielding assets tends to accelerate as interest rates decline due to the increased financial incentive for borrowers to prepay or refinance their loans to comparatively lower interest rates. These characteristics tend to diminish the benefits of falling interest rates to liability sensitive institutions while exacerbating the adverse impact of rising interest rates.

We generally retained our liability sensitivity during the first six months of fiscal 2017 while the degree of that sensitivity, as measured internally by the institution’s one-year and three-year gap percentages increased during the period. Specifically, our cumulative one-year gap percentage changed to (14.5)% at December 31, 2016 from (9.31)% at June 30, 2016 while our cumulative three-year gap percentage changed to (6.54)% from (6.02)% over those same comparative periods. Our one-year and three-year gap measures do not currently reflect the effect of our interest rate derivatives and the effective extension of liability duration arising from their use as cash flow hedges. The increase in the gap percentages between periods partly reflected the effects of a decrease in short-term liquid assets attributable to the deployment of the excess liquidity that was temporarily held in cash and cash equivalents at June 30, 2016. The excess liquidity had temporarily accumulated during the quarter ended June 30, 2016 due to an increase in loan prepayments and was subsequently reinvested into the loan portfolio during the quarter ended September 30, 2016. The increase in the gap percentages also reflected a $90.0 million increase in short-term FHLB advances drawn for liquidity management purposes. Such overnight borrowings are generally expected to be replaced by one or more funding sources whose effective duration will be similar to that of the commercial mortgage loans comprising a significant portion of the Company’s recent loan growth.

As a liability-sensitive institution, our net interest spread is generally expected to benefit from overall reductions in market interest rates. Conversely, our net interest spread is generally expected to be adversely impacted by overall increases in market interest rates. However, the general effects of movements in market interest rates can be diminished or exacerbated by “nonparallel” movements in interest rates across a yield curve. Nonparallel movements in interest rates generally occur when shorter term and longer term interest rates move disproportionately in a directionally consistent manner. For example, shorter term interest rates may decrease faster than longer term interest rates which would generally result in a “steeper” yield curve. Alternately, nonparallel movements in interest rates may also occur when shorter term and longer term interest rates move in a directionally inconsistent manner. For example, shorter term interest rates may rise while longer term interest rates remain steady or decline which would generally result in a “flatter” yield curve.

In general, the interest rates paid on our deposits tend to be determined based upon the level of shorter term interest rates. By contrast, the interest rates earned on our loans and investment securities generally tend to be based upon the level of comparatively longer term interest rates to the extent such assets are fixed-rate in nature. As such, the overall “spread” between shorter term and

longer term interest rates when earning assets and costing liabilities re-price greatly influences our overall net interest spread over time. In general, a wider spread between shorter term and longer term interest rates, implying a “steeper” yield curve, is beneficial to our net interest spread. By contrast, a narrower spread between shorter term and longer term interest rates, implying a “flatter” yield curve, or a negative spread between those measures, implying an inverted yield curve, adversely impacts our net interest spread.

We continue to execute various strategies to mitigate the risk to our net interest rate spread and margin arising from adverse changes in interest rates and the shape of the yield curve. Such strategies include deploying excess liquidity in higher yielding interest-earning assets, such as commercial loans and investment securities, while continuing to generally maintain our cost of interest-bearing liabilities at low levels while extending their duration through various deposit pricing strategies. For example, we have extended the duration of our wholesale funding sources through cost effective use of interest rate derivatives that effectively converted short-term wholesale funding sources into longer-term, fixed-rate funding sources.

Notwithstanding these efforts, the risk of further net interest rate spread and margin compression is significant as the yield on our interest-earning assets continues to reflect the impact of the greater declines in longer term market interest rates in recent years compared to the lesser concurrent reductions in shorter term market interest rates that affect the cost of our interest-bearing liabilities. In particular, our ability to further reduce the cost of our interest-bearing deposits is increasingly limited since many of our deposit offering rates are already well below 1.00% at December 31, 2016. Moreover, our liability sensitivity may adversely affect net income in the future as market interest rates continue to increase from their prior historical lows and our cost of interest-bearing liabilities may rise faster than our yield on interest-earning assets.

Given the inherent liability sensitivity of our balance sheet, our business plan also calls for greater expansion into C&I and construction lending. Toward that end, we are continuing to expand our retail lending resources with an experienced team of business lenders focused on the origination of floating-rate and shorter-term fixed-rate loans and the corresponding core deposit account balances typically associated with such relationships. As a complement to this retail business lending strategy, we have implemented strategies through which floating-rate and other shorter-term fixed-rate C&I and consumer loans are acquired through wholesale resources.

We maintain an Asset/Liability Management (“ALM”) Program to address all matters relating to the management of interest rate risk and liquidity risk. The program is overseen by the Board of Directors through our Interest Rate Risk Management Committee comprising five members of the Board with our Chief Operating Officer, Chief Financial Officer and Chief Risk Officer participating as management’s liaison to the committee. The committee meets quarterly to address management of our assets and liabilities, including review of our liquidity and interest rate risk profiles, loan and deposit pricing and production volumes, investment and wholesale funding strategies, and a variety of other asset and liability management topics. The results of the committee’s quarterly review are reported to the full Board, which adjusts our ALM policies and strategies, as it considers necessary and appropriate.

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, Branch Administrator, Chief Risk Officer, Treasurer/Chief Investment Officer and Controller. Additional members of our management team may be asked to participate on the ALCO, as appropriate.

Quantitative Analysis. The quantitative analysis regularly conducted by management measures interest rate risk from both a capital and earnings perspective. 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 contracts. The EVE ratio represents the dollar amount of our EVE divided by the present value of our total assets for a given interest rate scenario. In essence, 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.

Our EVE ratio is first calculated in a “base case” scenario that assumes no change in interest rates as of the measurement date. The model then measures the change in the EVE ratio 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 “down rate” scenarios during periods of lower market interest rates. Our interest rate risk management policy establishes acceptable floors for the EVE ratio and caps for the maximum change in the EVE ratio throughout the scenarios modeled.

As illustrated in the tables below, our EVE would be negatively impacted by an increase in interest rates. This result is expected given our liability sensitivity noted earlier. Specifically, based upon the comparatively shorter maturity and/or re-pricing characteristics of our interest-bearing liabilities compared with that of our interest-earning assets, an upward movement in interest rates would have a disproportionately adverse impact on the present value of our assets compared to the beneficial impact arising from the reduced present value of our liabilities. Hence, our EVE and EVE ratio decline in the increasing interest rate scenarios. The low level of interest rates at December 31, 2016 and June 30, 2016 precluded the modeling of certain scenarios as parallel downward shifts in the yield curve of 100 basis points or more would result in negative interest rates for many points along that curve.

The following tables present the results of our internal EVE analysis as of December 31, 2016 and June 30, 2016, respectively.

	At June 30, 2016
	Economic Value of Equity ("EVE")									EVE as a % of Present Value of Assets
Change in Interest Rates⁽¹⁾	$ Amount of EVE		$ Change in EVE			% Change in EVE				EVE Ratio			Change in EVE Ratio
	(Dollars in Thousands)
+300 bps		893,389		(205,041	)		(19	)	%		21.94	%		(282	)	bps
+200 bps		970,045		(128,385	)		(12	)	%		23.12	%		(164	)	bps
+100 bps		1,040,292		(58,138	)		(5	)	%		24.08	%		(68	)	bps
0 bps		1,098,430	-			-					24.76	%	-

As seen in the table above, the dollar amount of EVE and the EVE ratio have declined between comparative periods across most scenarios modeled while the sensitivity of those measures to movements in interest rates between comparative periods decreased. The decrease in the EVE ratios across all rate scenarios partly reflected the overall decrease in stockholders’ equity arising from the Company’s repurchase of its shares of common stock during the six months ended December 31, 2016. By contrast, the decrease in the sensitivity of EVE to movements in interest rates between comparative periods largely reflects the effects of the additional interest rate derivatives executed during the six months ended December 31, 2016 that effectively extended the duration of the Bank’s wholesale funding sources. These benefits were partially offset by the effects of the reduction in short-term liquid assets and increase in overnight borrowings noted earlier. As modeled in our EVE-based analysis, short-term liquid assets and overnight borrowings are generally expected to retain their market value throughout all rate change scenarios. As such, the noted decrease in the balance of

such funds increased the overall sensitivity of earning assets, costing liabilities and EVE to movements in interest rates at December 31, 2016 compared to June 30, 2016.

In addition to the specific considerations noted above, there are numerous internal and external factors that may also contribute to changes in an institution’s EVE ratio and its sensitivity. Internally, changes in the composition and allocation of an institution’s balance sheet and the interest rate risk characteristics of its components can significantly alter the exposure to interest rate risk as quantified by the changes in the EVE sensitivity measures. Toward that end, the reported increase in EVE sensitivity also reflects the aggregate effects of the various balance sheet management strategies we have undertaken to deploy capital through profitable growth and diversification strategies while managing our exposure to interest rate risk. 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 the institution’s interest-earning assets and interest-costing liabilities and the associated present values thereof. Changes in internal and external factors from period to period can complement one another’s effects to reduce overall sensitivity, partly or wholly offset one another’s effects, or exacerbate one another’s adverse effects and thereby increase the institution’s exposure to interest rate risk as quantified by EVE sensitivity measures.

Our internal interest rate risk analysis also includes an “earnings-based” component. A quantitative, earnings-based approach to measuring interest rate risk is strongly encouraged by bank regulators as a complement to the “EVE-based” methodology. However, there are no commonly accepted “industry best practices” that specify the manner in which “earnings-based” interest rate risk analysis should be performed with regard to certain key modeling variables. Such variables include, but are not limited to, those relating to rate scenarios (e.g., immediate and permanent rate “shocks” versus gradual rate change “ramps”, “parallel” versus “nonparallel” yield curve changes), measurement periods (e.g., one year versus two year, cumulative versus noncumulative), measurement criteria (e.g., net interest income versus net income) and balance sheet composition and allocation (“static” balance sheet, reflecting reinvestment of cash flows into like instruments, versus “dynamic” balance sheet, reflecting internal budget and planning assumptions).

The absence of a commonly shared, industry-standard set of analysis criteria and assumptions on which to base an “earnings-based” analysis could result in inconsistent or misinterpreted disclosure concerning an institution’s level of interest rate risk. Consequently, we limit the presentation of our earnings-based interest rate risk analysis to the scenarios presented in the table below. Consistent with the EVE analysis above, such scenarios utilize immediate and permanent rate “shocks” that result in parallel shifts in the yield curve. For each scenario, projected net interest income is measured over a one year period utilizing a static balance sheet assumption through which incoming and outgoing asset and liability cash flows are reinvested into the same instruments. Product pricing and earning asset prepayment speeds are appropriately adjusted for each rate scenario.

As illustrated in the tables below, at December 31, 2016, our net interest income (“NII”) would have been adversely impacted by a parallel upward shift in the yield curve. The “liability sensitivity” as measured from an NII perspective at December 31, 2016 is generally consistent with the “liability sensitivity” exhibited in the Company’s EVE-based analysis.

As noted earlier, the excess liquidity that had previously accumulated in cash equivalents through June 30, 2016 was re-invested into the loan portfolio during the quarter ended September 30, 2016. Similarly, the increase in overnight borrowings at December 31, 2016 was largely drawn to temporarily fund growth in loans through that date. Together, these factors contributed to an increase in the forecasted level of net interest income across most the scenarios presented below. However, the sensitivity of interest income to movements in interest rates increased as a result of those factors. The changes in the sensitivity of net interest income to movements in interest rates also reflect the aggregate impact of the various balance sheet management strategies we have undertaken to deploy capital through profitable growth and diversification strategies while also reflecting the effects of changes in the level of market interest rates and overall shape of the yield curve.

The level and direction of risk exposure assessed by the NII-based and EVE-based methodologies may differ based on the comparative terms over which risk exposure is measured by those methodologies, as they did at June 30, 2016. As noted earlier, EVE-based analysis generally takes a longer-term view of interest rate risk by measuring changes in the present value of cash flows of interest-earning assets and interest-bearing liabilities over their expected lives. By contrast, the NII-based analysis presented below takes a comparatively shorter-term view of interest rate risk by measuring the forecasted changes in the net interest income generated by those interest-earning assets and interest-bearing liabilities over a one-year period.

Notwithstanding the rate change scenarios presented in the EVE and earnings-based analyses above, future interest rates and their effect on net portfolio value or 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 maturity 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 making calculations set forth above. Additionally, an increased credit risk may result as the ability of many borrowers to service their debt may decrease in the event of an interest rate increase.

As of the end of the period covered by the 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 and 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, 2016, 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.

At December 31, 2016, 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.

Management of the Company does not believe there have been any material changes with regard to the Risk Factors previously disclosed under Item 1A of the Company’s Form 10-K for the year ended June 30, 2016 previously filed with the Securities and Exchange Commission.

The following table reports information regarding repurchases of the Company’s common stock during the quarter ended December 31, 2016.

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.

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)

		Page Number
PART I—FINANCIAL INFORMATION

Item 1:	Financial Statements

	Consolidated Statements of Financial Condition at December 31, 2016 (Unaudited) and June 30, 2016	1

	Consolidated Statements of Income for the Three and Six Months Ended December 31, 2016 and December 31, 2015 (Unaudited)	2

	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31, 2016 and December 31, 2015 (Unaudited)	4

	Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended December 31, 2016 and December 31, 2015 (Unaudited)	5

	Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2016 and December 31, 2015 (Unaudited)	7

	Notes to Consolidated Financial Statements (Unaudited)	9

Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46

Item 3:	Quantitative and Qualitative Disclosure About Market Risk	63

Item 4:	Controls and Procedures	69

PART II—OTHER INFORMATION

Item 1:	Legal Proceedings	70

Item 1A:	Risk Factors	70

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	70

Item 3:	Defaults Upon Senior Securities	70

Item 4:	Mine Safety Disclosures	70

Item 5:	Other Information	70

SIGNATURES		72

	December 31, 2016
	Amortized Cost		Fair Value
	(In Thousands)
Debt securities available for sale:
Due in one year or less	$	-	$	-
Due after one year through five years		52,648		51,529
Due after five years through ten years		208,893		205,096
Due after ten years		147,125		142,831
Total	$	408,666	$	399,456

	December 31, 2016
	Amortized Cost		Fair Value
	(In Thousands)
Debt securities held to maturity:
Due in one year or less	$	39,284	$	39,242
Due after one year through five years		18,834		18,634
Due after five years through ten years		68,012		67,425
Due after ten years		11,551		11,429
Total	$	137,681	$	136,730

	Six Months Ended December 31,
	2016			2015
	(In Thousands)
Beginning balance	$	335		$	1,189
Accretion to interest income		(4	)		(319	)
Disposals		(19	)		(26	)
Reclassifications from nonaccretable difference		-			-
Ending balance	$	312		$	844

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐

	Three Months Ended December 31,
	2016			2015
	(In Thousands)
Beginning balance	$	314		$	1,084
Accretion to interest income		(2	)		(214	)
Disposals		-			(26	)
Reclassifications from nonaccretable difference		-			-
Ending balance	$	312		$	844

	December 31, 2016
	Fair Value		Valuation Techniques		Unobservable Input		Range	Weighted Average
	(In Thousands)

Impaired loans	$	9,104	Market valuation of underlying collateral	(1)	Direct disposal costs	(3)	6% - 10%		8.95	%

	At December 31, 2016
	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)	$	736,975		24.60	%	$	239,624		8.00	%	$	299,530		10.00	%
Tier 1 capital (to risk-weighted assets)		710,915		23.73	%		179,718		6.00	%		239,624		8.00	%
Common equity tier 1 capital (to risk-weighted assets)		710,915		23.73	%		134,788		4.50	%		194,694		6.50	%
Tier 1 capital (to adjusted total assets)		710,915		16.09	%		176,742		4.00	%		220,927		5.00	%

			At December 31, 2016
			Net Interest Income ("NII")
Change in Interest Rates⁽¹⁾	Balance Sheet Composition	Measurement Period	$ Amount of NII		$ Change in NII			% Change in NII
			(Dollars In Thousands)
+300 bps	Static	One Year	$	96,574	$	(8,333	)		(7.94	)	%
+200 bps	Static	One Year		99,408		(5,499	)		(5.24	)
+100 bps	Static	One Year		102,074		(2,833	)		(2.70	)
0 bps	Static	One Year		104,907		-			-

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽¹⁾		Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 1-31, 2016		509,442	$	13.72		509,442		4,390,895
November 1-30, 2016		318,117	$	14.49		318,117		4,072,778
December 1-31, 2016		458,974	$	15.50		458,974		3,613,804

Total		1,286,533	$	14.55		1,286,533		3,613,804

	KEARNY FINANCIAL CORP.

Date: February 8, 2017	By:	/s/ Craig L. Montanaro
		Craig L. Montanaro
		President and Chief Executive Officer
		(Duly authorized officer and principal executive officer)

Date: February 8, 2017	By:	/s/ Eric B. Heyer
		Eric B. Heyer
		Executive Vice President and
		Chief Financial Officer
		(Principal financial and accounting officer)