Oritani Financial Corp - FORM 10-Q - November 7, 2014

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File No. 001-34786
 
 
Oritani Financial Corp.
(Exact name of registrant as specified in its charter)
 
Delaware
 
30-0628335
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
370 Pascack Road, Township of Washington, New Jersey 07676
(Address of Principal Executive Offices)
(201) 664-5400
(Registrant’s telephone number)
N/A
(Former name or former address, if changed since last report)
 
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 requirements for the past 90 days.
    YES  ý    NO  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
    YES  ý    NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
¨
  
Accelerated filer
 
x
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller Reporting company
 
¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
    YES  ¨    NO  x
As of November 7, 2014, there were 56,245,065 shares of the Registrant’s common stock, par value $0.01 per share, issued and 44,822,700 shares outstanding.



Oritani Financial Corp.
FORM 10-Q
Index
 
 
 
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
Consolidated Balance Sheets as of September 30, 2014 (unaudited) and June 30, 2014
 
 
 
 
Consolidated Statements of Income for the Three Months Ended September 30, 2014 and 2013 (unaudited)
 
 
 
 
Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2014 and 2013 (unaudited)
 
 
 
 
Consolidated Statements of Stockholders’ Equity for the Three Months Ended September 30, 2014 and 2013 (unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2014 and 2013 (unaudited)
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

2

Part I. Financial Information
Item 1. Financial Statements
Oritani Financial Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
 
 
September 30, 2014
 
June 30, 2014
 
(unaudited)
 
(audited)
Assets
 
 
 
Cash on hand and in banks
$
11,279

 
$
17,490

Federal funds sold and short term investments
7,389

 
1,441

Cash and cash equivalents
18,668

 
18,931

Loans, net
2,579,162

 
2,503,894

Securities available for sale, at fair value
340,787

 
384,137

Securities held to maturity, fair value of $79,285 and $32,539, respectively
79,712

 
32,422

Bank Owned Life Insurance (at cash surrender value)
68,566

 
68,054

Federal Home Loan Bank of New York stock (“FHLB”), at cost
47,288

 
49,046

Accrued interest receivable
11,134

 
10,214

Investments in real estate joint ventures, net
6,836

 
6,391

Real estate held for investment
959

 
917

Real estate owned
3,850

 
3,850

Office properties and equipment, net
14,520

 
14,675

Deferred tax assets, net
35,849

 
34,705

Other assets
9,643

 
12,964

Total Assets
$
3,216,974

 
$
3,140,200

Liabilities
 
 
 
Deposits
$
1,678,685

 
$
1,580,975

Borrowings
957,956

 
967,443

Advance payments by borrowers for taxes and insurance
16,121

 
16,105

Other liabilities
44,363

 
49,385

Total Liabilities
2,697,125

 
2,613,908

Stockholders’ Equity
 
 
 
Common stock, $0.01 par value; 150,000,000 shares authorized; 56,245,065 shares issued; 44,819,654 shares outstanding at September 30, 2014 and 45,499,332 shares outstanding at June 30, 2014
562

 
562

Additional paid-in capital
502,837

 
504,434

Unallocated common stock held by the employee stock ownership plan
(24,007
)
 
(24,331
)
Restricted Stock Awards
(8,292
)
 
(12,086
)
Treasury stock, at cost; 11,425,411 shares at September 30, 2014 and 10,745,733 shares at June 30, 2014
(150,615
)
 
(140,451
)
Retained income
198,683

 
195,970

Accumulated other comprehensive income, net of tax
681

 
2,194

Total Stockholders’ Equity
519,849

 
526,292

Total Liabilities and Stockholders’ Equity
$
3,216,974

 
$
3,140,200

See accompanying notes to unaudited consolidated financial statements.


3

Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
 
 
Three months ended September 30,
 
 
2014
 
2013
 
 
(unaudited)
 
Interest income:
 
 
 
 
Interest on mortgage loans
$
29,727

 
$
30,061

 
Interest on securities available for sale
1,800

 
1,392

 
Interest on securities held to maturity
364

 
242

 
Dividends on FHLB stock
476

 
439

 
Interest on federal funds sold and short term investments
2

 
5

 
Total interest income
32,369

 
32,139

 
Interest expense:
 
 
 
 
Deposits
2,614

 
2,024

 
Borrowings
5,805

 
5,522

 
Total interest expense
8,419

 
7,546

 
Net interest income before provision for loan losses
23,950

 
24,593

 
Provision for loan losses
200

 
300

 
Net interest income after provision for loan losses
23,750

 
24,293

 
Other income:
 
 
 
 
Service charges
223

 
272

 
Real estate operations, net
353

 
373

 
Income from investments in real estate joint ventures
848

 
290

 
Bank-owned life insurance
512

 
500

 
Net loss on sale of assets
—

 
(44
)
 
Net (loss) gain on sale of securities
(2
)
 
97

 
Other income
73

 
75

 
Total other income
2,007

 
1,563

 
Other expenses:
 
 
 
 
Compensation, payroll taxes and fringe benefits
7,224

 
7,075

 
Advertising
90

 
90

 
Office occupancy and equipment expense
729

 
729

 
Data processing service fees
463

 
435

 
Federal insurance premiums
388

 
315

 
Net expense (income) from real estate operations
139

 
(77
)
 
Other expenses
1,024

 
1,003

 
Total operating expenses
10,057

 
9,570

 
Income before income tax expense
15,700

 
16,286

 
Income tax expense
5,539

 
5,912

 
Net income
$
10,161

 
$
10,374

 
Earnings per basic common share
$
0.24

 
$
0.24

 
Earnings per diluted common share
$
0.24

 
$
0.24

 
See accompanying notes to unaudited consolidated financial statements.



4

Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
 
 
Three months ended September 30,
 
 
2014
 
2013
 
 
(unaudited)
 
Net income
$
10,161

 
$
10,374

 
Other comprehensive income, net of tax:
 
 
 
 
Change in unrealized holding (loss) gain on securities available for sale
(1,204
)
 
23

 
Reclassification adjustment for security losses included in net income
84

 
1

 
Amortization related to post-retirement obligations
13

 
12

 
Change in unrealized (loss) gain on interest rate swaps
(406
)
 
45

 
Total other comprehensive (loss) income
(1,513
)
 
81

 
Total comprehensive income
$
8,648

 
$
10,455

 
See accompanying notes to unaudited consolidated financial statements.


5

Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
Three months ended September 30, 2014 and 2013 (unaudited)
(In thousands, except share data)
 
Shares
Outstanding
 
Common
stock
 
Additional
paid-in
capital
 
Restricted
Stock
Awards
 
Treasury
stock
 
Un-
allocated
common
stock
held by
ESOP
 
Retained
income
 
Accumu-
lated
other
compre-
hensive
income,
net of tax
 
Total
stock-
holders’
equity
Balance at June 30, 2013
45,391,031

 
$
562

 
$
499,961

 
$
(15,730
)
 
$
(141,142
)
 
$
(25,887
)
 
$
196,516

 
$
4,430

 
$
518,710

Net income
—

 
—

 
—

 
—

 
—

 
—

 
10,374

 
—

 
10,374

Other comprehensive income, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
—

 
81

 
81

Cash dividends declared
—

 
—

 
—

 
—

 
—

 
—

 
(7,414
)
 
—

 
(7,414
)
Purchase of treasury stock
(98,270
)
 
—

 
—

 
—

 
(1,568
)
 
—

 
—

 
—

 
(1,568
)
Compensation cost for stock options and restricted stock
—

 
—

 
1,529

 
—

 
—

 
—

 
—

 
—

 
1,529

ESOP shares allocated or committed to be released
—

 
—

 
298

 
—

 
—

 
318

 
—

 
—

 
616

Exercise of stock options
369,912

 
—

 
—

 
—

 
4,815

 
—

 
(937
)
 
—

 
3,878

Vesting of restricted stock awards
—

 
—

 
(3,784
)
 
3,818

 
—

 
—

 
(34
)
 
—

 
—

Forfeiture of restricted stock awards
(9,600
)
 
 
 
 
 
116

 
(116
)
 
 
 
 
 
 
 
—

Tax benefit from stock-based compensation
—

 
—

 
459

 
—

 
—

 
—

 
—

 
—

 
459

Balance at September 30, 2013
45,653,073

 
$
562

 
$
498,463

 
$
(11,796
)
 
$
(138,011
)
 
$
(25,569
)
 
$
198,505

 
$
4,511

 
$
526,665

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2014
45,499,332

 
$
562

 
$
504,434

 
$
(12,086
)
 
$
(140,451
)
 
$
(24,331
)
 
$
195,970

 
$
2,194

 
$
526,292

Net income
—

 
—

 
—

 
—

 
—

 
—

 
10,161

 
—

 
10,161

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,513
)
 
(1,513
)
Cash dividends declared
—

 
—

 
—

 
—

 
—

 
—

 
(7,391
)
 
—

 
(7,391
)
Purchase of treasury stock
(682,078
)
 
—

 
—

 
—

 
(10,195
)
 
—

 
—

 
—

 
(10,195
)
Compensation cost for stock options and restricted stock
—

 
—

 
1,532

 
—

 
—

 
—

 
—

 
—

 
1,532

ESOP shares allocated or committed to be released
—

 
—

 
255

 
—

 
—

 
324

 
—

 
—

 
579

Exercise of stock options
2,400

 
—

 
—

 
—

 
31

 
—

 
(3
)
 
—

 
28

Vesting of restricted stock awards
—

 
—

 
(3,740
)
 
3,794

 
—

 
—

 
(54
)
 
—

 
—

Tax benefit from stock-based compensation
—

 
—

 
356

 
—

 
—

 
—

 
—

 
—

 
356

Balance at September 30, 2014
44,819,654

 
$
562

 
$
502,837

 
$
(8,292
)
 
$
(150,615
)
 
$
(24,007
)
 
$
198,683

 
$
681

 
$
519,849

See accompanying notes to unaudited consolidated financial statements.


6

Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
 
 
Three months ended September 30,
 
2014
 
2013
 
(unaudited)
Cash flows from operating activities:
 
Net income
$
10,161

 
$
10,374

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
ESOP and stock-based compensation expense
2,111

 
2,145

Depreciation of premises and equipment
245

 
240

Net amortization and accretion of premiums and discounts on securities
337

 
380

Provision for losses on loans
200

 
300

Amortization and accretion of deferred loan fees, net
(664
)
 
(910
)
Increase in deferred taxes
(36
)
 
(1,019
)
Loss on loans available for sale
—

 
45

Loss (gain) on sale of investment securities
2

 
(97
)
Gain on sale of real estate owned
—

 
(1
)
Proceeds from sale of real estate owned
—

 
201

Increase in cash surrender value of bank owned life insurance
(512
)
 
(500
)
Increase in accrued interest receivable
(920
)
 
(706
)
Decrease in other assets
2,637

 
2,042

Increase in other liabilities
(4,989
)
 
(1,331
)
Net cash provided by operating activities
8,572

 
11,163

Cash flows from investing activities:
 
 
 
Net increase in loans receivable
(74,804
)
 
(9,065
)
Purchase of securities available for sale
—

 
(24,080
)
Purchase of securities held to maturity
(52,099
)
 
—

Proceeds from payments, calls and maturities of securities available for sale
23,722

 
30,744

Proceeds from payments, calls and maturities of securities held to maturity
1,539

 
1,498

Proceeds from sales of securities available for sale
17,246

 
3,380

Proceeds from sales of securities held to maturity
3,375

 
8,938

Purchase of Bank Owned Life Insurance
—

 
(6,040
)
Net decrease in Federal Home Loan Bank of New York stock
1,758

 
843

Net increase in real estate held for investment
(55
)
 
(33
)
Net increase in real estate joint ventures
(464
)
 
(142
)
Purchase of fixed assets
(90
)
 
(116
)
Net cash (used in) provided by investing activities
(79,872
)
 
5,927

Cash flows from financing activities:
 
 
 
Net increase in deposits
97,710

 
4,964

Purchase of treasury stock
(10,195
)
 
(1,568
)
Dividends paid to shareholders
(7,391
)
 
(7,414
)
Exercise of stock options
28

 
3,878

Increase (decrease) in advance payments by borrowers for taxes and insurance
16

 
(1,087
)
Proceeds from borrowed funds
54,313

 
70,000

Repayment of borrowed funds
(63,800
)
 
(88,700
)
Tax benefit from stock based compensation
356

 
459

Net cash provided (used in) by financing activities
71,037

 
(19,468
)
Net decrease in cash and cash equivalents
(263
)
 
(2,378
)
Cash and cash equivalents at beginning of period
18,931

 
12,065

Cash and cash equivalents at end of period
$
18,668

 
$
9,687

Supplemental cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
8,539

 
$
7,744

Income taxes
$
3,045

 
$
6,529

Noncash transfer
 
 
 
Loans receivable transferred to real estate owned
$
—

 
$
350

See accompanying notes to unaudited consolidated financial statements.

7
Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements


1. Basis of Presentation
The consolidated financial statements are composed of the accounts of Oritani Financial Corp., its wholly owned subsidiaries, Oritani Bank (“the Bank”); Hampshire Financial, LLC, and Oritani, LLC, and the wholly owned subsidiaries of Oritani Bank; Oritani Finance Company, Ormon LLC (“Ormon”), and Oritani Investment Corp., as well as its wholly owned subsidiary, Oritani Asset Corporation (a real estate investment trust) (collectively, the "Company"). Intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, all of the adjustments (consisting of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the three month period ended September 30, 2014 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending June 30, 2015.
Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for the preparation of the Form 10-Q. The consolidated financial statements presented should be read in conjunction with the Company’s audited consolidated financial statements and notes to consolidated financial statements included in the Company’s June 30, 2014 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 15, 2014.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities presented in the Consolidated Balance Sheets at September 30, 2014 and June 30, 2014 and in the Consolidated Statements of Income for the three months ended September 30, 2014 and 2013. Actual results could differ significantly from those estimates.
A material estimate that is particularly susceptible to significant changes relates to the determination of the allowance for loan losses. The allowance for loan losses represents management’s best estimate of losses known and inherent in the portfolio that are both probable and reasonable to estimate. While management uses the most current information available to estimate losses on loans, actual losses are dependent on future events and, as such, increases in the allowance for loan losses may be necessary.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.


8
Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

2. Earnings Per Share
Basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. The weighted average common shares outstanding includes the average number of shares of common stock outstanding and allocated or committed to be released Employee Stock Ownership Plan shares.
Diluted earnings per share is computed using the same method as basic earnings per share, but reflects the potential dilution that could occur if stock options were exercised and converted into common stock. These potentially dilutive shares would then be included in the weighted average number of shares outstanding for the period using the treasury stock method. When applying the treasury stock method, we add: (1) the assumed proceeds from option exercises; (2) the tax benefit that would have been credited to additional paid-in capital assuming exercise of non-qualified stock options and vesting of shares of restricted stock; and (3) the average unamortized compensation costs related to stock options. We then divide this sum by our average stock price to calculate shares assumed to be repurchased. The excess of the number of shares issuable over the number of shares assumed to be repurchased is added to basic weighted average common shares to calculate diluted earnings per share.
The following is a summary of the Company’s earnings per share calculations and reconciliation of basic to diluted earnings per share.
 
 
Three months ended September 30,
 
 
2014
 
2013
 
 
(In thousands, except per share data)
 
Net income
$
10,161

 
$
10,374

 
Weighted average common shares outstanding—basic
42,232

 
42,396

 
Effect of dilutive stock options outstanding
952

 
1,119

 
Weighted average common shares outstanding—diluted
43,184

 
43,515

 
Earnings per share-basic
$
0.24

 
$
0.24

 
Earnings per share-diluted
$
0.24

 
$
0.24

 

For the three months ended September 30, 2014 and 2013 there were 19,251 and 3,370 option shares, respectively, that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for those periods.

3. Stock Repurchase Program
On June 27, 2011, the Board of Directors of the Company authorized a stock repurchase plan pursuant to which the Company repurchased 5,624,506 shares, representing approximately 10% of its then outstanding shares. A second stock repurchase plan, for 10% of the outstanding shares, or 5,062,056 shares, was announced on September 14, 2011 and a third repurchase plan for 5% of the outstanding shares, or 2,278,776 shares, was announced on November 14, 2011. At September 30, 2014, a total of 12,210,723 shares were acquired under these repurchase programs at a weighted average cost of $13.17 per share. The timing of the repurchases depend on certain factors, including but not limited to, market conditions and prices, the Company’s liquidity and capital requirements, and alternative uses of capital. Repurchased shares will be held as treasury stock and will be available for general corporate purposes. The Company may also conduct repurchases through a Rule 10b5-1 trading plan. At September 30, 2014, there are 750,358 shares yet to be purchased under the current plans.


9
Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

4. Equity Incentive Plans
The 2007 Equity Incentive Plan (“the 2007 Equity Plan”) was approved by the Company’s stockholders on April 22, 2008, which authorized the issuance of up to 4,172,817 shares of Company common stock pursuant to grants of incentive and non-statutory stock options, stock appreciation rights, and restricted stock awards. The 2011 Equity Incentive Plan (“2011 Equity Plan”) was approved by the Company’s stockholders on July 26, 2011. The 2011 Equity Plan authorized the issuance of up to 5,790,849 shares of the Company’s common stock pursuant to grants of stock options, restricted stock awards and restricted stock units, with no more than 1,654,528 of the shares to be issued as restricted stock awards or restricted stock units. Employees and outside directors of the Company or Oritani Bank are eligible to receive awards under the Equity Plans.
Stock options are granted at an exercise price equal to the market price of our common stock on the grant date, based on quoted market prices. Stock options generally vest over a five-year service period and expire ten years from issuance. The vesting of the options accelerate upon death or disability, retirement or a change in control and expire 90 days after termination of service, excluding disability or retirement. The Company recognizes compensation expense for all option grants over the awards’ respective requisite service periods. Management estimated the fair values of all option grants using the Black-Scholes option-pricing model. Management estimated the expected life of the options using the simplified method. The Treasury yield in effect at the time of the grant provides the risk-free rate for periods within the contractual life of the option. The Company classified share-based compensation for employees and outside directors within “compensation, payroll taxes and fringe benefits” in the consolidated statements of income to correspond with the same line item as the cash compensation paid. There were no options issued during the three months ended September 30, 2014 and 2013.
The following is a summary of the Company’s stock option activity and related information for its options plan as of September 30, 2014 and changes therein during the three months then ended:
 
Number of
Stock Options
 
Weighted
Average
Grant
Date Fair
Value
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (years)
Outstanding at June 30, 2014
5,983,674

 
$
2.57

 
$
11.50

 
6.8
Exercised
(2,400
)
 
2.71

 
11.95

 
7.0
Outstanding at September 30, 2014
5,981,274

 
$
2.57

 
$
11.50

 
6.5
Exercisable at September 30, 2014
4,313,573

 
$
2.52

 
$
11.24

 
5.3
The Company recorded $550,000 and $567,000 of share based compensation expense related to the options granted for the three months ended September 30, 2014 and 2013, respectively. Expected future expense related to the non-vested options outstanding at September 30, 2014 is $4.1 million over a weighted average period of 1.9 years. Upon exercise of vested options, management expects to draw on treasury stock as the source of the shares.
Restricted stock shares vest over a five-year service period on the anniversary date of the grant. Vesting of the restricted stock shares accelerate upon death or disability, retirement or a change in control. The product of the number of shares granted and the grant date market price of the Company’s common stock determines the fair value of restricted shares under the Company’s restricted stock plan. The Company recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period.
The following is a summary of the status of the Company’s restricted stock shares as of September 30, 2014 and changes therein during the three months then ended: 
 
Number of
Shares
Awarded
 
Weighted
Average Grant
Date Fair Value
Non-vested at June 30, 2014
997,060

 
$
12.14

Vested
(313,020
)
 
11.95

Non-vested at September 30, 2014
684,040

 
$
12.23

The Company recorded $982,000 and $961,000 of share based compensation expense related to the restricted stock shares vested during the three months ended September 30, 2014 and 2013, respectively. Expected future expense related to the non-vested restricted shares at September 30, 2014 is $7.7 million over a weighted average period of 2.0 years.


10
Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

5. Post-retirement Benefits
The Company provides several post-retirement benefit plans to directors and to certain active and retired employees. The Company has a nonqualified Directors’ Retirement Plan (the Retirement Plan), a nonqualified Benefit Equalization Plan (BEP Plan), which provides benefits to employees who are disallowed certain benefits under the Company’s qualified benefit plans, and a Post Retirement Medical Plan (the Medical Plan) for directors and certain eligible employees. Net periodic benefit costs for the three months ended September 30, 2014 and 2013 are presented in the following tables.
 
Retirement Plan
 
BEP Plan
 
Medical Plan
 
Three months ended September 30,
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Service cost
$
37

 
$
37

 
$
—

 
$
—

 
$
31

 
$
18

Interest cost
51

 
53

 
10

 
10

 
45

 
48

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
15

 
15

 
—

 
—

 
—

 
—

Net loss
—

 
—

 
6

 
5

 
2

 
—

Total
$
103

 
$
105

 
$
16

 
$
15

 
$
78

 
$
66

 
 
 
 
 
 
 
 
 
 
 
 


6. Loans
Net Loans are summarized as follows:
 
September 30, 2014
 
June 30, 2014
 
(In thousands)
Residential
$
163,151

 
$
138,909

Multifamily
895,855

 
880,638

Commercial real estate
1,516,563

 
1,453,164

Second mortgage and equity loans
22,490

 
21,692

Construction and land loans
8,040

 
34,951

Other loans
15,722

 
15,992

Total loans
2,621,821

 
2,545,346

Less:
 
 
 
Deferred loan fees, net
11,090

 
10,051

Allowance for loan losses
31,569

 
31,401

Net loans
$
2,579,162

 
$
2,503,894

The Company’s allowance for loan losses is analyzed quarterly and many company specific and market factors are considered, including growth in the portfolio, delinquencies, nonaccrual loan levels, and other environmental factors. There have been no material changes to the allowance for loan loss methodology as disclosed in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 15, 2014.

11
Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

The activity in the allowance for loan losses for the three months ended September 30, 2014 and 2013 is summarized as follows:
 
Three months ended September 30,
 
 
(In thousands)
 
2014
 
2013
 
Balance at beginning of period
$
31,401

 
$
31,381

 
Provisions for loan losses
200

 
300

 
Recoveries of loans previously charged off
1

 
12

 
Loans charged off
(33
)
 
(29
)
 
Balance at end of period
$
31,569

 
$
31,664

 
The following table provides the three month activity in the allowance for loan losses allocated by loan category at September 30, 2014 and 2013. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
 
Three months ended September 30, 2014
 
Residential
 
Multifamily
 
Commercial
Real Estate
 
Second
mortgage
and equity
loans
 
Construction
and land
loans
 
Other
loans
 
Unallocated
 
Total
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
1,285

 
$
4,873

 
$
21,005

 
$
299

 
$
1,108

 
$
80

 
$
2,751

 
$
31,401

Charge-offs
—

 
—

 
(33
)
 
—

 
—

 
—

 
—

 
(33
)
Recoveries
—

 
—

 
—

 
—

 
1

 
—

 
—

 
1

Provisions
594

 
247

 
1,270

 
11

 
(808
)
 
(3
)
 
(1,111
)
 
200

Ending balance
$
1,879

 
$
5,120

 
$
22,242

 
$
310

 
$
301

 
$
77

 
$
1,640

 
$
31,569

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30, 2013
 
Residential
 
Multifamily
 
Commercial
Real Estate
 
Second
mortgage
and equity
loans
 
Construction
and land
loans
 
Other
loans
 
Unallocated
 
Total
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
2,224

 
$
5,175

 
$
19,339

 
$
394

 
$
1,233

 
$
406

 
$
2,610

 
$
31,381

Charge-offs
(4
)
 
—

 
(4
)
 
(21
)
 
—

 
—

 
—

 
(29
)
Recoveries
—

 
—

 
11

 
—

 
1

 
—

 
—

 
12

Provisions
(186
)
 
295

 
624

 
(5
)
 
(44
)
 
(19
)
 
(365
)
 
300

Ending balance
$
2,034

 
$
5,470

 
$
19,970

 
$
368

 
$
1,190

 
$
387

 
$
2,245

 
$
31,664

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

12
Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

The following table details the amount of loans receivables that are evaluated individually, and collectively, for impairment, and the related portion of allowance for loan loss that is allocated to each loan portfolio segment at September 30, 2014 and June 30, 2014.
 
At September 30, 2014
 
Residential
 
Multifamily
 
Commercial
Real Estate
 
Second
mortgage and
equity loans
 
Construction
and land 
loans
 
Other loans
 
Unallocated
 
Total
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
266

 
$
27

 
$
1,555

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,848

Collectively evaluated for impairment
1,613

 
5,093

 
20,687

 
310

 
301

 
77

 
1,640

 
29,721

Total
$
1,879

 
$
5,120

 
$
22,242

 
$
310

 
$
301

 
$
77

 
$
1,640

 
$
31,569

Loans receivable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
5,405

 
$
2,912

 
$
11,538

 
$
—

 
$
—

 
$
—

 
 
 
$
19,855

Collectively evaluated for impairment
157,746

 
892,943

 
1,505,025

 
22,490

 
8,040

 
15,722

 
 
 
2,601,966

Total
$
163,151

 
$
895,855

 
$
1,516,563

 
$
22,490

 
$
8,040

 
$
15,722

 
 
 
$
2,621,821

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2014
 
Residential
 
Multifamily
 
Commercial
Real Estate
 
Second
mortgage and
equity loans
 
Construction
and land loans
 
Other loans
 
Unallocated
 
Total
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
266

 
$
27

 
$
1,121

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,414

Collectively evaluated for impairment
1,019

 
4,846

 
19,884

 
299

 
1,108

 
80

 
2,751

 
29,987

Total
$
1,285

 
$
4,873

 
$
21,005

 
$
299

 
$
1,108

 
$
80

 
$
2,751

 
$
31,401

Loans receivable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
4,702

 
$
2,930

 
$
11,795

 
$
—

 
$
—

 
$
—

 
 
 
$
19,427

Collectively evaluated for impairment
134,207

 
877,708

 
1,441,369

 
21,692

 
34,951

 
15,992

 
 
 
2,525,919

Total
$
138,909

 
$
880,638

 
$
1,453,164

 
$
21,692

 
$
34,951

 
$
15,992

 
 
 
$
2,545,346


13
Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

The Company continuously monitors the credit quality of its loans receivable. In addition to internal staff, the Company utilizes the services of a third party loan review firm to evaluate the credit quality ratings of its loan receivables. Credit quality is monitored by reviewing certain credit quality indicators. Assets classified as “Satisfactory” are deemed to possess average to superior credit quality, requiring no more than normal attention. Assets classified as “Pass/Watch” have generally acceptable asset quality yet possess higher risk characteristics/circumstances than satisfactory assets. Such characteristics may include strained liquidity, slow pay, stale financial statements or other circumstances requiring greater attention from bank staff. We classify an asset as “Special Mention” if the asset has a potential weakness that warrants management’s close attention. Such weaknesses, if left uncorrected, may result in the deterioration of the repayment prospects of the asset. An asset is considered “Substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as “Doubtful” have all of the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Included in the Substandard caption are all loans that were past due 90 days (or more) and all impaired loans. The following table provides information about the loan credit quality at September 30, 2014 and June 30, 2014:
 
 
Credit Quality Indicators at September 30, 2014
 
Satisfactory
 
Pass/Watch
 
Special
Mention
 
Substandard
 
Doubtful
 
Total
 
(In thousands)
Residential
$
137,436

 
$
19,140

 
$
594

 
$
5,981

 
$
—

 
$
163,151

Multifamily
864,808

 
21,325

 
5,056

 
4,666

 
—

 
895,855

Commercial real estate
1,366,681

 
83,111

 
12,509

 
54,262

 
—

 
1,516,563

Second mortgage and equity loans
22,246

 
150

 
94

 
—

 
—

 
22,490

Construction and land loans
7,642

 
—

 
—

 
398

 
—

 
8,040

Other loans
15,635

 
84

 
—

 
3

 
—

 
15,722

Total
$
2,414,448

 
$
123,810

 
$
18,253

 
$
65,310

 
$
—

 
$
2,621,821

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Quality Indicators at June 30, 2014
 
Satisfactory
 
Pass/Watch
 
Special
Mention
 
Substandard
 
Doubtful
 
Total
 
(In thousands)
Residential
$
132,822

 
$
523

 
$
214

 
$
5,350

 
$
—

 
$
138,909

Multifamily
850,937

 
24,245

 
1,948

 
3,508

 
—

 
880,638

Commercial real estate
1,320,993

 
59,443

 
18,737

 
53,991

 
—

 
1,453,164

Second mortgage and equity loans
21,330

 
362

 
—

 
—

 
—

 
21,692

Construction and land loans
16,112

 
18,395

 
—

 
444

 
—

 
34,951

Other loans
15,898

 
87

 
—

 
7

 
—

 
15,992

Total
$
2,358,092

 
$
103,055

 
$
20,899

 
$
63,300

 
$
—

 
$
2,545,346


14
Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements


The following table provides information about loans past due at September 30, 2014 and June 30, 2014:
 
At September 30, 2014
 
30-59
Days Past
Due
 
60-89
Days Past
Due
 
90 days or More Past Due
 
Total Past
Due
 
Current
 
Total Loans
 
Nonaccrual (1)
 
(In thousands)
Residential
$
895

 
$
594

 
$
2,372

 
$
3,861

 
$
159,290

 
$
163,151

 
$
2,460

Multifamily
1,107

 
—

 
3,002

 
4,109

 
891,746

 
895,855

 
3,490

Commercial real estate
3,838

 
—

 
3,326

 
7,164

 
1,509,399

 
1,516,563

 
12,632

Second mortgage and equity loans
150

 
94

 
—

 
244

 
22,246

 
22,490

 
—

Construction and land loans
—

 
—

 
398

 
398

 
7,642

 
8,040

 
398

Other loans
—

 
—

 
—

 
—

 
15,722

 
15,722

 
3

Total
$
5,990

 
$
688

 
$
9,098

 
$
15,776

 
$
2,606,045

 
$
2,621,821

 
$
18,983

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2014
 
30-59
Days Past
Due
 
60-89
Days Past
Due
 
90 days or More Past Due
 
Total Past
Due
 
Current
 
Total Loans
 
Nonaccrual (2)
 
(In thousands)
Residential
$
541

 
$
214

 
$
2,374

 
$
3,129

 
$
135,780

 
$
138,909

 
$
5,350

Multifamily
—

 
—

 
3,007

 
3,007

 
877,631

 
880,638

 
3,508

Commercial real estate
3,525

 
—

 
3,580

 
7,105

 
1,446,059

 
1,453,164

 
8,663

Second mortgage and equity loans
362

 
—

 
—

 
362

 
21,330

 
21,692

 
—

Construction and land loans
—

 
—

 
444

 
444

 
34,507

 
34,951

 
444

Other loans
—

 
—

 
—

 
—

 
15,992

 
15,992

 
7

Total
$
4,428

 
$
214

 
$
9,405

 
$
14,047

 
$
2,531,299

 
$
2,545,346

 
$
17,972

(1)
Included in nonaccrual loans at September 30, 2014 are residential loans totaling $88,000 and commercial real estate loans totaling $1.0 million that were 30-59 days past due; multifamily loans totaling $488,000; commercial real estate loans totaling $8.3 million; and other loans totaling $3,000 that were less than 30 days past due.
(2)
Included in nonaccrual loans at June 30, 2014 are residential loans totaling $17,000 and commercial real estate loans totaling $1.0 million that were 30-59 days past due; residential loans totaling $3.0 million, multifamily loans totaling $501,000, commercial real estate loans totaling $4.1 million and other loans totaling $7,000 that were less than 30 days past due.
The Company defines an impaired loan as a loan for which it is probable, based on current information, that the Company will not collect all amounts due under the contractual terms of the loan agreement. At September 30, 2014 impaired loans were primarily collateral-dependent and totaled $19.9 million, of which $10.5 million had a specific allowance for loan losses of $1.8 million and $9.4 million of impaired loans had no related allowance for loan losses. At June 30, 2014 impaired loans were primarily collateral-dependent and totaled $19.4 million, of which $6.2 million had a related allowance for loan losses of $1.4 million and $13.2 million of impaired loans had no related allowance for loan losses.


15
Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

The following table provides information about the Company’s impaired loans at September 30, 2014 and June 30, 2014: 
 
Impaired Loans
 
At September 30, 2014
 
Three months ended September 30, 2014
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
(In thousands)
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
Residential
$
3,592

 
$
3,592

 
$
—

 
$
3,063

 
$
36

Multifamily
2,424

 
2,424

 
—

 
2,427

 
42

Commercial real estate
3,380

 
3,380

 
—

 
3,389

 
—

 
9,396

 
9,396

 
—

 
8,879

 
78

With an allowance recorded:
 
 
 
 
 
 
 
 
 
Residential
$
1,547

 
$
1,813

 
$
266

 
$
1,548

 
$
1

Multifamily
461

 
488

 
27

 
465

 
—

Commercial real estate
6,603

 
8,158

 
1,555

 
6,862

 
47

 
8,611

 
10,459

 
1,848

 
8,875

 
48

Total:
 
 
 
 
 
 
 
 
 
Residential
$
5,139

 
$
5,405

 
$
266

 
$
4,611

 
$
37

Multifamily
2,885

 
2,912

 
27

 
2,892

 
42

Commercial real estate
9,983

 
11,538

 
1,555

 
10,251

 
47

 
$
18,007

 
$
19,855

 
$
1,848

 
$
17,754

 
$
126

 
 
 
 
 
 
 
 
 
 
 
Impaired Loans
 
At June 30, 2014
 
Year ended June 30, 2014
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
(In thousands)
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
Residential
$
2,887

 
$
2,887

 
$
—

 
$
2,995

 
$
465

Multifamily
2,429

 
2,429

 
—

 
2,442

 
173

Commercial real estate
7,878

 
7,878

 
—

 
7,993

 
214

 
13,194

 
13,194

 
—

 
13,430

 
852

With an allowance recorded:
 
 
 
 
 
 
 
 
 
Residential
$
1,548

 
$