Risk Factors Dashboard
Once a year, publicly traded companies issue a comprehensive report of their business, called a 10-K. A component mandated in the 10-K is the ‘Risk Factors’ section, where companies disclose any major potential risks that they may face. This dashboard highlights all major changes and additions in new 10K reports, allowing investors to quickly identify new potential risks and opportunities.
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Risk Factors - KRNY
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Item 1A. Risk Factors
We have established processes and systems to identify and mitigate information security risk, including regular education and training, preparedness simulations and tabletop exercises, and recovery and resilience tests. Our processes, systems and controls are reviewed periodically by internal and external auditors, Federal and State bank examiners, and independent external partners to assess design and operating effectiveness. We also maintain cyber risk insurance coverage commensurate for an institution of our size and complexity. In the past three years, we have not experienced any material computer data security breaches as a result of a compromise of our information systems and we are not aware and have not had a significant cybersecurity breach or attack that had a material impact on our business or operating results to date.
An investment in our securities is subject to risks inherent in our business and the industry in which we operate. Before making an investment decision, you should carefully consider the risks and uncertainties described below and all other information included in this Annual Report on Form 10-K. The risks described below may adversely affect our business, financial condition and operating results. In addition to these risks and any other risks or uncertainties described in “Item 1. Business—Forward-Looking Statements” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” there may be additional risks and uncertainties that are not currently known to us or that we currently deem to be immaterial that could materially and adversely affect our business, financial condition or operating results. The value or market price of our securities could decline due to any of these identified or other risks. Past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.
Interest Rate
Changes in market interest rates and the interest rate environment may adversely affect our business, financial condition and results of operations.
We derive our income mainly from the difference or spread between the interest earned on loans, securities and other interest-earning assets and interest paid on deposits, borrowings and other interest-bearing liabilities. As such, our earnings are highly sensitive to changes in market interest rates, which directly influence the relationship between the yields on our interest-earning assets and the costs of our interest-bearing liabilities. Because the repricing characteristics of our interest-earning assets and interest-bearing liabilities are not perfectly matched, changes in market interest rates may alter the spread between asset yields and funding costs, resulting in fluctuations in net interest margin.
In particular, if funding costs increase more rapidly than asset yields, or if asset yields decline more rapidly than funding costs, our net interest margin and net interest income could be adversely affected.We have established processes and systems to identify and mitigate information security risk, including regular education and training, preparedness simulations and tabletop exercises, and recovery and resilience tests. Changes in interest rates may also affect the economic value of our assets, liabilities and stockholders’ equity, which could adversely impact our financial condition and results of operations.
We are unable to predict changes in market interest rates, which are affected by many factors beyond our control, including inflation, unemployment, money supply, governmental policy, monetary policy actions of the Federal Open Market Committee ("FOMC"), the imposition of tariffs, domestic and international events and changes in the United States and other financial markets.
A significant portion of our assets consists of investment securities, which generally yield less than loans and are classified as available for sale, potentially contributing to increased volatility in our equity.
Our net interest margin is lower than it would have been if a higher proportion of our interest-earning assets consisted of loans. Additionally, at June 30, 2026, $964.4 million, or 90.0% of our investment securities, are classified as available for sale and reported at fair value with unrealized gains or losses excluded from earnings and reported in other comprehensive income, which affects our reported equity. Additionally, at June 30, 2025, $1.01 billion, or 89.4% of our investment securities, are classified as available for sale and reported at fair value with unrealized gains or losses excluded from earnings and reported in other comprehensive income, which affects our reported equity. Accordingly, given the significant size of the investment securities portfolio classified as available for sale and due to possible mark-to-market adjustments of that portion of the portfolio resulting from market conditions, we may experience greater volatility in the value of reported equity. Moreover, given that we actively manage our investment securities portfolio classified as available for sale, we may sell securities which could result in a realized loss, thereby reducing our net income.
Changes in market interest rates also impact the value of our interest-earning assets and interest-bearing liabilities as well as the value of our derivatives portfolios. In particular, the unrealized gains and losses on securities available for sale and changes in the fair value of interest rate derivatives serving as cash flows hedges are reported, net of tax, in accumulated other comprehensive income which is a component of stockholders’ equity. Consequently, declines in the fair value of these instruments resulting from changes in market interest rates have, and may continue to, adversely affect stockholders’ equity.
Loan repricing and refinancing risk may adversely affect borrower performance.
As of June 30, 2026, a significant portion of our loan portfolio is scheduled to reset or mature during fiscal 2027. Many of these loans were originated in calendar 2021 and 2022 at interest rates below current market levels.As of June 30, 2025, a significant portion of our loan portfolio is scheduled to reset or mature during fiscal 2026 and 2027. Many of these loans were originated in calendar 2021 and 2022 at interest rates below current market levels. As these loans reprice, mature, or require refinancing, borrowers may face higher borrowing costs and increased debt service obligations. As a result, borrowers may face higher interest rates upon reset or refinancing, which could increase their debt service obligations. Higher interest rates and tighter credit conditions may adversely affect borrowers' cash flows, financial condition, and ability to obtain replacement financing on acceptable terms. As a result, some borrowers may experience difficulty meeting their repayment obligations, which could lead to increased delinquencies or defaults. Any such deterioration in borrower performance could adversely affect our asset quality and operating results. Any such deterioration in borrower performance could negatively affect our asset quality and operating results.
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Asset Quality
If our allowance for credit losses is not sufficient to cover actual loan losses, our earnings will decrease.
We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. In determining the required amount of the allowance for credit losses, we evaluate loans individually and establish credit loss allowances for specifically identified impairments. For loans not individually analyzed, we estimate losses and establish reserves based on reasonable and supportable forecasts and adjustments for qualitative factors. If the assumptions used in our calculation methodology are inaccurate, our allowance for credit losses may be insufficient to cover losses inherent in our loan portfolio, resulting in further additions to our allowance. Significant additions to our allowance could materially decrease our net income.
In addition, bank regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or recognize further loan charge-offs. Any increase in our allowance for credit losses or loan charge-offs as required by these regulatory authorities might have a material adverse effect on our financial condition and results of operations.
Our commercial real estate lending exposes us to additional risk.Our commercial lending exposes us to additional risk.
Our commercial real estate (“CRE”) lending exposes us to greater risks than one- to four-family residential lending.Our commercial lending exposes us to greater risks than one- to four-family residential lending. Unlike single-family, owner-occupied residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from employment and other income sources, and are secured by real property whose value tends to be more easily ascertainable and realizable, the repayment of commercial real estate loans typically is dependent on the successful operation, occupancy levels, rental income and cash flows generated by the underlying property, all of which can be significantly affected by economic conditions. Unlike single-family, owner-occupied residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from employment and other income sources, and are secured by real property whose value tends to be more easily ascertainable and realizable, the repayment of commercial loans typically is dependent on the successful operation and income stream of the borrower, which can be significantly affected by economic conditions, and are secured, if at all, by collateral that is more difficult to value or sell or by collateral which may depreciate in value.
In addition, commercial real estate loans generally carry larger balances to single borrowers or related groups of borrowers than one- to four-family mortgage loans, which increases the financial impact of a borrower’s default. In addition, commercial loans generally carry larger balances to single borrowers or related groups of borrowers than one- to four-family mortgage loans, which increases the financial impact of a borrower’s default.
The risk exposure from our increased commercial real estate lending is also a function of the markets in which we operate. Our commercial real estate lending activity is generally focused on borrowers domiciled, and real estate located, within the states of New Jersey and New York. Our commercial lending activity is generally focused on borrowers domiciled, and real estate located, within the states of New Jersey and New York. Regional risk factors and changes to local laws and regulations, including changes to rent regulations or foreclosure laws, may present greater risk than a more geographically diversified portfolio.
Our increased commercial and industrial and construction loan originations exposes us to increased credit risk.Our increased commercial business and construction loan originations exposes us to increased credit risk.
We have increased our originations of commercial and industrial and construction loans, which generally have more risk than both one- to four-family residential and commercial mortgage loans.We have increased our originations of commercial business and construction loans, which generally have more risk than both one- to four-family residential and commercial mortgage loans. Since repayment of commercial and industrial and construction loans may depend on the successful operation of the borrower’s business or the successful completion of a construction project, repayment of such loans can be affected by adverse conditions in the real estate market or the local economy. Since repayment of commercial business and construction loans may depend on the successful operation of the borrower’s business or the successful completion of a construction project, repayment of such loans can be affected by adverse conditions in the real estate market or the local economy. If we continue to increase our originations of these loans, it may be necessary to increase the level of our allowance for credit losses because of the increased risk characteristics associated with these types of loans. Any such increase to our allowance for credit losses would adversely affect our earnings.
We have a significant concentration in commercial real estate loans. If our regulators were to curtail our commercial real estate lending activities, our earnings and/or dividend paying capacity could be adversely affected.
In 2006, the FDIC, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “Guidance”). The Guidance provides that a bank’s commercial real estate lending exposure may receive increased supervisory scrutiny when total non-owner occupied commercial real estate loans, including loans secured by multi-family property, and construction loans, represent 300% or more of an institution’s total risk-based capital and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months. The Guidance provides that a bank’s commercial real estate lending exposure may receive increased supervisory scrutiny when total non-owner occupied commercial real estate loans, including loans secured by multi-family property, non-owner occupied commercial real estate and construction loans, represent 300% or more of an institution’s total risk-29Table of Contentsbased capital and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months. Our level of non-owner occupied commercial real estate equaled 515% of Bank total risk-based capital at June 30, 2026, however our commercial real estate loan portfolio has decreased during the preceding 36 months. Our level of non-owner occupied commercial real estate equaled 535% of Bank total risk-based capital at June 30, 2025, however our commercial real estate loan portfolio increased by only 7% during the preceding 36 months.
We may be required to record impairment charges with respect to our investment securities portfolio.
We review our securities portfolio at the end of each quarter to determine whether the fair value is below the current carrying value. When the fair value of any of our investment securities has declined below its carrying value, we are required to assess whether we intend to sell, or it is more than likely than not that we will be required to sell the security before recovery of its amortized cost basis. If this assessment indicates that a credit loss exists, we would be required to record an impairment charge.
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We elected the practical expedient of zero loss estimates for securities issued by U.S. government entities and agencies. A possible future downgrade of the sovereign credit ratings of the U.S. government and a decline in the perceived creditworthiness of U.S. government-related obligations could adversely impact the value of our investment securities portfolio. We cannot predict if, when or how any changes to the credit ratings or perceived creditworthiness of these organizations will affect economic conditions. A downgrade of the sovereign credit ratings of the U.S. government or the credit ratings of related institutions, agencies or instruments would significantly exacerbate the other risks to which we are subject and any related adverse effects on the business, financial condition and results of operations.
At June 30, 2026, we had investment securities with fair values of approximately $1.06 billion. The valuation and liquidity of our securities could be adversely impacted by reduced market liquidity, increased normal bid-asked spreads and increased uncertainty of market participants, which could reduce the market value of our securities, including those with no apparent credit exposure. The valuation of our securities requires judgment and as market conditions change security values may also change. Significant negative changes to valuations could result in impairments in the value of our securities portfolio, which could have an adverse effect on our financial condition or results of operations.
Our investments in corporate and municipal debt securities, subordinated debt securities and collateralized loan obligations expose us to additional credit risks.
The composition and allocation of our investment portfolio has historically emphasized U.S. agency mortgage-backed securities and U.S. agency debentures. While such assets remain a significant component of our investment portfolio at June 30, 2026, prior enhancements to our investment policies, strategies and infrastructure have enabled us to diversify the composition and allocation of our securities portfolio. Such diversification has included investing in corporate debt, municipal obligations, subordinated debt securities issued by financial institutions and collateralized loan obligations. With the exception of collateralized loan obligations, these securities are generally backed only by the credit of their issuers while investments in collateralized loan obligations generally rely on the structural characteristics of an individual tranche within a larger investment vehicle to protect the investor from credit losses arising from borrowers defaulting on the underlying securitized loans.
While we have invested primarily in investment grade securities, these securities are not backed by the federal government and expose us to a greater degree of credit risk than U.S. agency securities. Any decline in the credit quality of these securities exposes us to the risk that the market value of the securities could decrease which may require us to write down their value and could lead to a possible default in payment.
Funding
Our reliance on wholesale funding could adversely affect our liquidity and operating results.
Among other sources of funds, we rely on wholesale funding, including short- and long-term borrowings and brokered deposits, to provide funds with which to make loans, purchase investment securities and provide for other liquidity needs. On June 30, 2026, wholesale funding totaled $1.9 billion, or approximately 24.8% of total assets. On June 30, 2025, wholesale funding totaled $2.0 billion, or approximately 26.0% of total assets.
In the future, this funding may not be readily replaceable as it matures, or we may have to pay a higher rate of interest to maintain it. Not being able to maintain or replace those funds as they mature would adversely affect our liquidity. Paying higher interest rates to maintain or replace funding would adversely affect our net interest margin and operating results.
A lack of liquidity could adversely affect our financial condition and results of operations and result in regulatory limits being placed on the Company.
Liquidity is essential to our business. We rely on our ability to gather deposits, make investments and effectively manage the repayment and maturity schedules of loans to ensure that there is adequate liquidity to fund our operations and pay our obligations. An inability to raise funds through deposits, borrowings, the sale and maturities of loans and securities and other sources could have a substantial negative effect on liquidity. Our most important source of funds is deposits. Deposit balances can decrease when customers perceive alternative investments, cash management solutions or payment technologies as providing a more attractive risk/return, convenience or utility proposition. Such preferences may be influenced by changes in interest rates, local and national economic conditions, the availability and attractiveness of competing products, including U.S. dollar-denominated stablecoins and other digital asset-based alternatives, and perceptions regarding the stability of the financial services industry generally and our institution specifically. Further, the demand for deposits may be reduced due to a variety of factors such as demographic patterns, changes in customer preferences, reductions in consumers’ disposable income, the monetary policy of the FRB, regulatory actions that decrease customer access to particular products, or the emergence and increased adoption of alternative payment, savings and transaction platforms. Further, the demand for deposits may be reduced due to a variety of factors such as demographic patterns, changes in customer preferences, reductions in consumers’ disposable income, the monetary policy of the FRB, or regulatory actions that decrease customer access to particular products. In particular, the growing acceptance of U.S. dollar-denominated stablecoins and other digital asset-based payment technologies may provide consumers and businesses with alternatives to traditional bank deposits for storing value and conducting transactions. To the extent customers shift funds from bank deposits to stablecoins, money market funds or other competing cash management products, we could experience deposit outflows, increased funding competition and higher funding costs. Such developments could reduce a relatively low-cost source of funding,
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negatively affect net interest income, liquidity and profitability, and require us to offer more competitive deposit rates or seek alternative funding sources.
Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities. We have the capacity to borrow additional funds from the FHLB as well as from the FRB without pledging additional collateral, and via unsecured overnight borrowings from other financial institutions. Our access to funding sources in amounts adequate to finance or capitalize our activities, or on terms that are acceptable, could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets, changes in the value of investment securities, negative views and expectations about the prospects for the financial services industry, a decrease in our business activity as a result of a downturn in markets, or adverse regulatory actions against us.
Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet expenses, or to fulfill obligations such as repaying borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.
A lack of liquidity could also attract increased regulatory scrutiny and potential restraints imposed on us by regulators. Depending on the capitalization status and regulatory treatment of depository institutions, including whether an institution is subject to a supervisory prompt corrective action directive, certain additional regulatory restrictions and prohibitions may apply, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on payment of dividends and restrictions on the acceptance of brokered deposits.
Public funds deposits are a notable source of funds for us and a reduced level of those deposits may hurt our profits and liquidity position.
Public funds deposits are a notable source of funds for our lending and investment activities. At June 30, 2026, $638.8 million, or 11.2% of our total deposits, consisted of public funds deposits from local government entities in the state of New Jersey, such as townships, counties, school districts and charter schools. These deposits are collateralized by letters of credit from the FHLB or through the pledge of eligible investment securities. Given our reliance on these typically high-average balance public funds deposits as a source of funds, our inability to retain such funds could adversely affect our liquidity. Further, our public funds deposits are primarily floating rate interest-bearing demand deposit accounts and therefore their pricing is more sensitive to changes in interest rates. If we are forced to pay higher rates on our public funds accounts to retain those funds, or if we are unable to retain such funds and we are forced to rely on other sources of funds for our lending and investment activities, such as borrowings from the FHLB, the interest expense associated with these other funding sources may be higher than the rates we are currently paying on our public funds deposits, which would adversely affect our net interest income.
Economic and Market Area
Changes in economic conditions, in particular an economic slowdown in the markets we operate in, could materially and negatively affect our business.
Our business is directly impacted by factors such as economic, political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government monetary and fiscal policies and inflation, all of which are beyond our control. Any deterioration in economic conditions, whether caused by national or local concerns, in particular any further economic slowdown in the markets we operate in, could result in the following consequences, any of which could hurt our business materially: loan delinquencies may increase; problem assets and foreclosures may increase; demand for our products and services may decrease; low cost or non-interest bearing deposits may decrease; and collateral for loans made by us, especially real estate, may decline in value, in turn reducing customers’ borrowing power, and reducing the value of assets and collateral associated with our existing loans.
Our success significantly depends upon the growth in population, income levels, deposits, and housing starts in our markets. If the communities in which we operate do not grow or if prevailing economic conditions locally or nationally are unfavorable, our business may not succeed. An economic downturn or prolonged recession may result in the deterioration of the quality of our loan portfolio and reduce our level of deposits, which in turn would hurt its business. If we experience an economic downturn or a prolonged economic recession occurs in the economy as a whole, borrowers will be less likely to repay their loans as scheduled. Unlike many larger institutions, we are not able to spread the risks of unfavorable local economic conditions across a large number of diversified economies. An economic downturn could, therefore, result in losses that materially and adversely affect our business.
Inflation has had, and may continue to have a negative effect on our results of operations and financial condition.31Table of ContentsInflation has had, and may continue to have a negative effect on our results of operations and financial condition.
Although inflation has decreased significantly from the elevated levels experienced at the end of 2021 and through the first half of calendar 2024, inflation levels continue to exceed the Federal Reserve’s long-term target of 2.0%. Small to medium-sized businesses may be impacted more during periods of high inflation as they are not able to leverage economics of scale to mitigate cost pressures compared to larger businesses. Consequently, the ability of our business customers to repay their loans
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may deteriorate, and in some cases this deterioration may occur quickly, which would adversely impact our results of operations and financial condition. Furthermore, a prolonged period of inflation could cause wages and other costs to the Company to increase, which has and could continue to adversely affect our results of operations and financial condition.
Interruption of our customers’ supply chains and federal funding could negatively impact their business and operations and impact their ability to repay their loans.
Any material interruption in our customers’ supply chains, such as a material interruption of the resources required to conduct their business, such as those resulting from interruptions in service by third-party providers, trade restrictions, such as increased tariffs or quotas, embargoes or customs restrictions, reductions in federal subsidies or grants, social or labor unrest, natural disasters, epidemics or pandemics or political disputes and military conflicts, that cause a material disruption in our customers’ supply chains, could have a negative impact on their business and ability to repay their borrowings with us. In the event of disruptions in our customers’ supply chains, the labor and materials they rely on in the ordinary course of business may not be available at reasonable rates or at all. Additionally, changes in distribution of federal funds or freezing of federal funds, including reductions in federal workforce causing unemployment, could have an adverse effect on the ability of consumers and businesses to pay debts and/or affect the demand for loans and deposits.
Acts of terrorism, severe weather, public health issues, geopolitical events and other external factors could impact our ability to conduct business.Acts of terrorism, public health issues, and geopolitical and other external events could impact our ability to conduct business.
Financial institutions have been, and continue to be, targets of terrorist threats and other malicious activities designed to disrupt operations, compromise information systems and impair communications.Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and communication systems. In addition, the metropolitan New York area and northern New Jersey remain central targets for acts of terrorism and other disruptive events. Additionally, the metropolitan New York area and northern New Jersey remain central targets for potential acts of terrorism. Severe weather events, natural disasters, public health emergencies, military conflicts, geopolitical tensions and other external events may disrupt our operations, damage our facilities, impair access to critical infrastructure and technology systems, and adversely affect the communities and local economies in which we operate.
These events may also impair the ability of our borrowers to repay their loans, increase loan delinquencies, nonperforming assets and foreclosures, reduce demand for our products and services, and decrease the value of collateral securing our loans, particularly real estate collateral. Such events may also result in increased expenses, operational disruptions, reductions in revenue and adverse impacts on our capital and liquidity levels.
While we maintain business continuity and disaster recovery plans and regularly test our recovery procedures, there can be no assurance that such measures will be sufficient to prevent or mitigate the effects of these events. The occurrence of any such event, including a sudden or prolonged downturn in domestic or global markets resulting from these factors, could have a material adverse effect on our business, financial condition and results of operations.
We face intense competition from other financial services and financial services technology companies, and competitive pressures could adversely affect our business or financial performance.
We face intense competition in all of our markets and geographic regions and expect it to intensify in the future. Competition with financial services technology companies, or technology companies partnering with financial services companies, may be particularly intense, due to, among other things, differing regulatory environments. Competitive pressures may drive us to take actions that we might otherwise eschew, such as lowering the interest rates or fees on loans or raising the interest rates on deposits in order to keep or attract high-quality clients. These pressures also may accelerate actions that we might otherwise elect to defer, such as substantial investments in technology or infrastructure. The actions that we take in response to competition may adversely affect our results of operations and financial condition. These consequences could be exacerbated if we are not successful in introducing new products and other services, achieving market acceptance of our products and other services, developing and maintaining a strong client base, or prudently managing expenses.
Information Security and Use of Artificial Intelligence Technologies
Cybersecurity threats, technology failures and information security risks could result in operational disruptions, financial losses and reputational harm.
Information technology systems are critical to our business and support key functions, including client relationship management, financial reporting, securities investments, deposit processing, loan servicing and other operational activities. Despite the controls, policies and procedures we maintain to monitor and mitigate technology, operational and information security risks, our systems, as well as those of our third-party service providers, remain vulnerable to cybersecurity incidents, system failures, service interruptions, processing errors and other performance disruptions. The financial services industry has experienced an increase in the frequency and sophistication of cyber-attacks, including attempts to gain unauthorized access to systems, misappropriate assets or confidential information, corrupt data, disrupt operations and facilitate fraud.
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We rely on third-party service providers, including core processors, cloud service providers, payment, clearing and settlement networks, and other technology partners, many of which are beyond our direct control. We also rely on senior management, information security personnel and external consultants to support the identification, assessment, monitoring and management of cybersecurity and information security risks, and our Board of Directors' oversight of such risks depends in part on information, analysis and recommendations provided by these individuals.
Failures, disruptions, security breaches or unauthorized disclosures involving our systems, those of our third-party service providers, or deficiencies in the oversight, assessment or management of cybersecurity risks could impair our operations, disrupt client access to products and services, compromise sensitive information and expose us to fraud losses. In addition, our clients are increasingly targeted by cyber-attacks, identity theft and other fraudulent activity, which could result in account compromise, financial loss and reputational harm to us, regardless of whether the underlying event originates within our systems or those of third parties. Any such event could result in operational disruption, loss of customers, reputational damage, litigation, regulatory scrutiny, remediation costs and other liabilities, any of which could have a material adverse effect on our business, financial condition and results of operations. Such events could cause significant damage, impact the stability of our facilities and result in additional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing repayment of our loans, and result in the loss of revenue.
Our use of artificial intelligence, robotic process automation, and other emerging technologies may increase operational, compliance, cybersecurity, and third-party risks.
We have made and expect to continue to make investments to integrate artificial intelligence (“AI”), including generative artificial intelligence, machine learning technologies, robotic process automation (“RPA”), and other emerging technologies into our solutions to enhance operational efficiency, scalability, customer service, and decision making.We have made and expect to continue to make investments to integrate artificial intelligence tools into our solutions, including generative artificial intelligence, machine learning, and similar tools and technologies that collect, aggregate, analyze or generate data or other contents (collectively, “AI”), and we expect to continue to adopt such tools responsibly and as appropriate. We also rely on third-party vendors, service providers, and business partners that use or support these technologies in delivering services to us. The use of AI and RPA introduces operational, compliance, cybersecurity, model risk, and third-party risks. These technologies may generate inaccurate, incomplete, biased, or unreliable outputs, experience design or programming errors, fail to operate as intended, or be improperly implemented, monitored, or governed. Such failures could result in processing errors, data inaccuracies, ineffective internal controls, customer service disruptions, regulatory compliance issues, reporting errors, or adverse customer outcomes. In addition, the use of AI and automation may increase risks related to data privacy, information security, fraud, and unauthorized access to confidential information.
Our dependence on third-party technology providers exposes us to risks associated with vendor performance, operational resiliency, cybersecurity practices, service disruptions, and the availability of specialized technology providers. Furthermore, the legal and regulatory framework governing AI and other emerging technologies continues to evolve, and new laws, regulations, or supervisory expectations could increase compliance costs, restrict the use of certain technologies, or require changes to our governance and risk management practices. Failure to effectively manage these risks, whether by us or our third-party providers, could result in financial loss, regulatory scrutiny, litigation, reputational harm, or other adverse effects on our business and results of operations.
As AI technologies continue to evolve, we may be required to invest in enhanced governance, monitoring, and compliance frameworks to manage these risks effectively.As AI technologies continue to develop, we may be required to invest in enhanced governance, monitoring, and compliance frameworks to manage these risks effectively.
Regulatory Matters
We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations.
The financial services industry is extensively regulated. Federal and state banking regulations are designed primarily to protect the deposit insurance funds and consumers, not to benefit a company’s shareholders. These regulations may sometimes impose significant limitations on operations. The significant federal and state banking regulations that affect us are described under the heading “Item 1. Business—Regulation.” These regulations, along with the currently existing tax, accounting, securities, insurance, and monetary laws, regulations, rules, standards, policies, and interpretations control the methods by which financial institutions conduct business, implement strategic initiatives and tax compliance, and govern financial reporting and disclosures. New proposals for legislation continue to be introduced in the U.S. Congress that could further alter the regulation of the bank and non-bank financial services industries and the manner in which companies within the industry conduct business.
In addition, federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied. Future changes in federal policy and at regulatory agencies may occur over time through policy and personnel changes, which could lead to changes involving the level of oversight and focus on the financial services industry. These changes may require us to invest significant management attention and resources to make any necessary changes to operations to comply and could have an adverse effect on our business, financial condition and results of operations.
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The performance of our multi-family loans could be adversely impacted by regulation.
Multifamily loans generally involve risks associated with legislation and government regulations involving rent control, rent stabilization and tenant protection measures, which are outside of our control and could impair the value of the collateral securing such loans or the future cash flows of such properties.Multi-family loans generally involve risk of legislation and government regulations involving rent control and rent stabilization, which are outside the control of the borrower or the Company, and could impair the value of the collateral for the loan or the future cash flows of such properties. In particular, certain of our multifamily loans are secured by properties located in New York City, where rent-regulation laws and related housing policies may limit a property owner's ability to increase rents, recover rising operating costs or otherwise enhance property cash flow.
In addition, future legislative, regulatory or policy changes affecting rent-regulated housing, including expanded tenant protections or additional limitations on rent increases, could adversely affect the operating performance and value of multifamily properties. As a result, rental income may not increase sufficiently to offset rising expenses, including taxes, insurance, utilities and maintenance costs. Any reduction in borrower cash flows or collateral values could impair a borrower's ability to repay its loan obligations and adversely affect our business, financial condition and results of operations.
Changes to tax laws and regulations could adversely affect our financial condition or results of operations.
Changes in tax laws and/or regulatory requirements could be enacted. These changes in the law may be retroactive to previous periods and as a result could negatively affect our current and future financial performance. An increase in our corporate tax rate could have an unfavorable impact on our earnings and capital generation abilities. Similarly, the Bank’s clients could experience varying effects from changes in tax laws and such effects, whether positive or negative, may have a corresponding impact on our business and the economy as a whole. In addition, changes to regulatory requirements could increase our costs of regulatory compliance and may significantly affect the markets in which we do business, the markets for and value of our loans and investments, and our ongoing operations, costs and profitability.
Business Issues
We may be required to recognize goodwill impairment charges in future periods.
At June 30, 2026, our goodwill totaled $113.5 million. We are required to periodically test our goodwill for impairment. The impairment testing process considers a variety of factors, including the current market price of our common stock, the estimated net present value of our assets and liabilities, and information concerning the terminal valuation of similarly situated insured depository institutions. If an impairment determination is made in a future reporting period, our earnings and the book value of goodwill will be reduced by the amount of the impairment. If an impairment loss is recorded, it will have little or no impact on the tangible book value of our common stock or our regulatory capital levels, but recognition of such an impairment loss could significantly restrict Kearny Bank’s ability to make dividend payments to Kearny Financial and therefore adversely impact our ability to pay dividends to stockholders.
We cannot guarantee that our allocation of capital to various alternatives will enhance long-term stockholder value.
Our business plan calls for us to execute a variety of strategies to allocate and deploy any excess capital including, but not limited to, continued organic balance sheet growth and diversification, and payment of regular cash dividends. Additionally, we will carefully consider acquisition opportunities to further deploy capital when we expect such opportunities to significantly enhance long-term shareholder value. If we are unable to effectively and timely deploy capital through these strategies, it may constrain growth in earnings and return on equity and thereby diminish potential growth in stockholder value.
Our acquisitions and the integration of acquired businesses, may not result in all of the cost savings and benefits anticipated, which could adversely affect our financial condition or results of operations.34Table of ContentsOur acquisitions and the integration of acquired businesses, may not result in all of the cost savings and benefits anticipated, which could adversely affect our financial condition or results of operations.
We have in the past, and may in the future, seek to grow our business by acquiring other businesses. There is risk that our acquisitions may not have the anticipated positive results, including results relating to: correctly assessing the asset quality of the assets being acquired; the total cost and time required to complete the integration successfully; being able to profitably deploy funds acquired in an acquisition; or the overall performance of the combined entity.
Acquisitions may also result in business disruptions that could cause clients to remove their accounts from us and move their business to competing financial institutions. It is possible that the integration process related to acquisitions could result in the disruption of our ongoing businesses or inconsistencies in standards, controls, procedures and policies that could adversely affect our ability to maintain relationships with clients and employees. The loss of key employees in connection with an acquisition could adversely affect our ability to successfully conduct our business. Acquisition and integration efforts could divert management attention and resources, which could have an adverse effect on our financial condition and results of operations. Additionally, the operation of the acquired branches may adversely affect our existing profitability, and we may not be able to achieve results in the future similar to those achieved by the existing banking business or manage growth resulting from the acquisition effectively.
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Because the nature of the financial services business involves a high volume of transactions, we face significant operational risks.
We operate in diverse markets and rely on the ability of our employees and systems to process a high number of transactions. Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by employees or persons outside the Company, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of the internal control system and compliance requirements, and business continuation and disaster recovery. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and client attrition due to potential negative publicity. In the event of a breakdown in the internal control system, improper operation of systems or improper employee actions, we could suffer financial loss, face regulatory action, and suffer damage to our reputation.
Our risk management framework may not be effective in mitigating risk and reducing the potential for significant losses.
Our risk management framework is designed to effectively manage and mitigate risk while minimizing exposure to potential losses. We seek to identify, measure, monitor, report and control our exposure to risk, including strategic, market, liquidity, compliance and operational risks. While we use a broad and diversified set of risk monitoring and mitigation techniques, these techniques are inherently limited because they cannot anticipate the existence or future development of currently unanticipated or unknown risks. Recent economic conditions and heightened legislative and regulatory scrutiny of the financial services industry, among other developments, have increased our level of risk. Accordingly, we could suffer losses as a result of our failure to properly anticipate and manage these risks.
We could be adversely affected by failure in our internal controls.
A failure in our internal controls could have a significant negative impact not only on our earnings, but also on the perception that clients, regulators and investors may have of us. We continue to devote a significant amount of effort, time and resources to continually strengthening our controls and ensuring compliance with complex accounting standards and banking regulations.
The inability to attract and retain key personnel could adversely affect our business.
The successful execution of our business strategy is partially dependent on our ability to attract and retain experienced and qualified personnel. Failure to do so could adversely affect our strategy, client relationships and internal operations.
Item 1B. Unresolved Staff Comments
Not applicable.
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Item 1C. Cybersecurity
Risk Management and Strategy
We structure our information security program around Federal Financial Institutions Examinations Council (“FFIEC”) and Federal Deposit Insurance Corporation (“FDIC”) regulatory guidance, along with other applicable industry standards. We leverage industry and government associations, third-party benchmarking, audits and threat intelligence feeds to evaluate program effectiveness. Our Chief Technology and Innovation Officer ("CTIO"), along with key members of their team, regularly collaborate with peer banks, industry groups, and policymakers.
We employ an in-depth, layered, defensive strategy with respect to our products, services and technology. We leverage people, processes and technology to manage and maintain information security controls. We employ a variety of preventative and detective tools designed to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats.
We engage third party security experts to supplement our internal Information Security team for assessments, penetration tests and program enhancements, including vulnerability assessments, security framework maturity assessments and identification of areas for continued focus and improvement. In addition, our third-party experts work with us to conduct cybersecurity tabletop exercises and internal phishing awareness campaigns. We use the findings of these exercises to improve our practices, procedures, and technologies. We also engage third party security experts to support our cybersecurity threat and incident response management and maintain information security risk insurance coverage.
The secure maintenance and transmission of confidential information, as well as execution of transactions over the systems of our third-party service providers, is essential to protect us and our customers against fraud and security breaches and to maintain customer confidence. Information security and risk management are an integral part of our new product and service implementation and vendor relationship management to confirm that they all meet the minimum standards and policies established and approved by our Board. We have developed processes to identify and oversee risks from cybersecurity threats associated with our third-party service providers, which includes the information security team assisting with and assessing cybersecurity robustness during vendor selection and onboarding as well as risk-based monitoring of vendors on an ongoing basis.
We engage with a range of external experts, including cybersecurity assessors, consultants, auditors, and legal counsel in evaluating and testing our information security risk management systems. This enables us to leverage specialized knowledge and insights, ensuring our cybersecurity strategies and processes remain current.
Governance
Our Board is actively engaged in the oversight of our information security program. In 2025 the Board created an Information Security Committee, which is responsible for overseeing our information security program, including management’s actions to identify, assess, mitigate, and remediate material information security issues and risks. Our CTIO provides reports, at least quarterly, to the Information Security Committee regarding information security programs, key enterprise information security initiatives, and significant cybersecurity and privacy incidents. Our CTIO is part of the risk management function, reporting directly to our Chief Executive Officer (“CEO”).
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