Oritani Financial Corp - FORM 10-Q - February 9, 2015

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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 December 31, 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 February 9, 2015, there were 56,245,065 shares of the Registrant’s common stock, par value $0.01 per share, issued and 44,138,770 shares outstanding.



Oritani Financial Corp.
FORM 10-Q
Index
 
 
 
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
Consolidated Balance Sheets as of December 31, 2014 (unaudited) and June 30, 2014
 
 
 
 
Consolidated Statements of Income for the Three and Six Months Ended December 31, 2014 and 2013 (unaudited)
 
 
 
 
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31, 2014 and 2013 (unaudited)
 
 
 
 
Consolidated Statements of Stockholders’ Equity for the Six Months Ended December 31, 2014 and 2013 (unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the Six Months Ended December 31, 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)
 
 
December 31, 2014
 
June 30, 2014
 
(unaudited)
 
(audited)
Assets
 
 
 
Cash on hand and in banks
$
9,274

 
$
17,490

Federal funds sold and short term investments
426

 
1,441

Cash and cash equivalents
9,700

 
18,931

Loans, net
2,617,313

 
2,503,894

Securities available for sale, at fair value
319,664

 
384,137

Securities held to maturity, market value of $87,669 and $32,539, respectively.
87,667

 
32,422

Bank Owned Life Insurance (at cash surrender value)
89,246

 
68,054

Federal Home Loan Bank of New York stock (“FHLB”), at cost
44,046

 
49,046

Accrued interest receivable
9,174

 
10,214

Investments in real estate joint ventures, net
6,907

 
6,391

Real estate held for investment
957

 
917

Real estate owned
4,368

 
3,850

Office properties and equipment, net
14,422

 
14,675

Deferred tax assets, net
37,184

 
34,705

Other assets
10,286

 
12,964

Total Assets
$
3,250,934

 
$
3,140,200

Liabilities
 
 
 
Deposits
$
1,792,867

 
$
1,580,975

Borrowings
885,956

 
967,443

Advance payments by borrowers for taxes and insurance
16,754

 
16,105

Other liabilities
47,644

 
49,385

Total Liabilities
2,743,221

 
2,613,908

Stockholders’ Equity
 
 
 
Common stock, $0.01 par value; 150,000,000 shares authorized; 56,245,065 shares issued; 44,454,385 shares outstanding at December 31, 2014 and 45,499,332 shares outstanding at June 30, 2014.
562

 
562

Additional paid-in capital
504,725

 
504,434

Unallocated common stock held by the employee stock ownership plan
(23,462
)
 
(24,331
)
Restricted Stock Awards
(8,112
)
 
(12,086
)
Treasury stock, at cost; 11,790,680 shares at December 31, 2014 and 10,745,733 shares at June 30, 2014.
(155,978
)
 
(140,451
)
Retained income
190,965

 
195,970

Accumulated other comprehensive (loss) income, net of tax
(987
)
 
2,194

Total Stockholders’ Equity
507,713

 
526,292

Total Liabilities and Stockholders’ Equity
$
3,250,934

 
$
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 December 31,
 
Six months ended December 31,
 
2014
 
2013
 
2014
 
2013
 
(unaudited)
Interest income:
 
 
 
 
 
 
 
Interest on mortgage loans
$
31,041

 
$
29,988

 
$
60,768

 
$
60,049

Interest on securities available for sale
1,671

 
1,531

 
3,471

 
2,923

Interest on securities held to maturity
450

 
189

 
814

 
431

Dividends on FHLB stock
500

 
427

 
976

 
866

Interest on federal funds sold and short term investments
1

 
1

 
3

 
6

Total interest income
33,663

 
32,136

 
66,032

 
64,275

Interest expense:
 
 
 
 
 
 
 
Deposits
2,843

 
2,055

 
5,457

 
4,079

Borrowings
5,756

 
5,769

 
11,561

 
11,291

Total interest expense
8,599

 
7,824

 
17,018

 
15,370

Net interest income before provision for loan losses
25,064

 
24,312

 
49,014

 
48,905

Provision for loan losses
—

 
200

 
200

 
500

Net interest income after provision for loan losses
25,064

 
24,112

 
48,814

 
48,405

Other income:
 
 
 
 
 
 
 
Service charges
240

 
357

 
463

 
629

Real estate operations, net
315

 
305

 
668

 
678

Income from investments in real estate joint ventures
487

 
158

 
1,335

 
448

Bank-owned life insurance
680

 
509

 
1,192

 
1,009

Net (loss) gain on sale of assets
(10
)
 
207

 
(10
)
 
163

Net (loss) gain on sale of securities
—

 
(46
)
 
(2
)
 
51

Other income
69

 
74

 
142

 
149

Total other income
1,781

 
1,564

 
3,788

 
3,127

Other expenses:
 
 
 
 
 
 
 
Compensation, payroll taxes and fringe benefits
7,730

 
7,477

 
14,954

 
14,552

Advertising
105

 
90

 
195

 
180

Office occupancy and equipment expense
692

 
722

 
1,421

 
1,451

Data processing service fees
472

 
438

 
935

 
873

Federal insurance premiums
390

 
330

 
778

 
645

Net expense (income) from real estate operations
990

 
22

 
1,129

 
(55
)
Other expenses
930

 
997

 
1,954

 
2,000

Total operating expenses
11,309

 
10,076

 
21,366

 
19,646

Income before income tax expense
15,536

 
15,600

 
31,236

 
31,886

Income tax expense
5,490

 
5,617

 
11,029

 
11,529

Net income
$
10,046

 
$
9,983

 
$
20,207

 
$
20,357

Earnings per basic common share
$
0.24

 
$
0.23

 
$
0.48

 
$
0.48

Earnings per diluted common share
$
0.24

 
$
0.23

 
$
0.47

 
$
0.47

See accompanying notes to unaudited consolidated financial statements.


4

Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
 
 
Three months ended December 31,
 
Six months ended December 31,
 
2014
 
2013
 
2014
 
2013
 
(unaudited)
Net income
$
10,046

 
$
9,983

 
$
20,207

 
$
20,357

Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
Change in unrealized holding gain (loss) on securities available for sale
191

 
(2,459
)
 
(1,013
)
 
(2,435
)
Reclassification adjustment for security losses included in net income
—

 
28

 
84

 
28

Amortization related to post-retirement obligations
14

 
12

 
27

 
24

Change in unrealized (loss) gain on interest rate swaps
(1,873
)
 
530

 
(2,279
)
 
573

Total other comprehensive loss
(1,668
)
 
(1,889
)
 
(3,181
)
 
(1,810
)
Total comprehensive income
$
8,378

 
$
8,094

 
$
17,026

 
$
18,547

See accompanying notes to unaudited consolidated financial statements.


5

Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
Six months ended December 31, 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 (loss),
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
—

 
—

 
—

 
—

 
—

 
—

 
20,357

 
—

 
20,357

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,810
)
 
(1,810
)
Cash dividends declared
—

 
—

 
—

 
—

 
—

 
—

 
(25,481
)
 
—

 
(25,481
)
Purchase of treasury stock
(99,401
)
 
—

 
—

 
—

 
(1,586
)
 
—

 
—

 
—

 
(1,586
)
Issuance of restricted stock awards
18,000

 
—

 
—

 
(234
)
 
234

 
—

 
—

 
—

 
—

Compensation cost for stock options and restricted stock
—

 
—

 
3,018

 
—

 
—

 
—

 
—

 
—

 
3,018

ESOP shares allocated or committed to be released
—

 
—

 
838

 
—

 
—

 
907

 
—

 
—

 
1,745

Exercise of stock options
404,280

 
—

 
—

 
—

 
5,263

 
—

 
(1,014
)
 
—

 
4,249

Vesting of restricted stock awards
—

 
—

 
(3,856
)
 
3,878

 
—

 
—

 
(22
)
 
—

 
—

Forfeiture of restricted stock awards
(9,600
)
 
—

 
—

 
116

 
(116
)
 
—

 
—

 
—

 
—

Tax benefit from stock-based compensation
—

 
—

 
588

 
—

 
—

 
—

 
—

 
—

 
588

Balance at December 31, 2013
45,704,310

 
$
562

 
$
500,549

 
$
(11,970
)
 
$
(137,347
)
 
$
(24,980
)
 
$
190,356

 
$
2,620

 
$
519,790

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
—

 
—

 
—

 
—

 
—

 
—

 
20,207

 
—

 
20,207

Other comprehensive loss, net of tax
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,181
)
 
(3,181
)
Cash dividends declared
—

 
—

 
—

 
—

 
—

 
—

 
(25,073
)
 
—

 
(25,073
)
Purchase of treasury stock
(1,082,361
)
 
—

 
—

 
—

 
(16,023
)
 
—

 
—

 
—

 
(16,023
)
Compensation cost for stock options and restricted stock
—

 
—

 
3,027

 
—

 
—

 
—

 
—

 
—

 
3,027

ESOP shares allocated or committed to be released
—

 
—

 
675

 
—

 
—

 
869

 
—

 
—

 
1,544

Exercise of stock options
43,814

 
—

 
—

 
—

 
577

 
—

 
(103
)
 
—

 
474

Vesting of restricted stock awards
—

 
—

 
(3,857
)
 
3,893

 
—

 
—

 
(36
)
 
—

 
—

Forfeiture of restricted stock awards
(6,400
)
 
—

 
—

 
81

 
(81
)
 
—

 
—

 
—

 
—

Tax benefit from stock-based compensation
—

 
—

 
446

 
—

 
—

 
—

 
—

 
—

 
446

Balance at December 31, 2014
44,454,385

 
$
562

 
$
504,725

 
$
(8,112
)
 
$
(155,978
)
 
$
(23,462
)
 
$
190,965

 
$
(987
)
 
$
507,713

See accompanying notes to unaudited consolidated financial statements.


6

Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
 
 
Six months ended December 31,
 
2014
 
2013
 
(unaudited)
Cash flows from operating activities:
 
Net income
$
20,207

 
$
20,357

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
ESOP and stock-based compensation expense
4,571

 
4,763

Depreciation of premises and equipment
483

 
480

Net amortization and accretion of premiums and discounts on securities
667

 
660

Provision for losses on loans
200

 
500

Amortization and accretion of deferred loan fees, net
(1,655
)
 
(1,599
)
(Increase) decrease in deferred taxes
(434
)
 
609

Loss on loans available for sale
—

 
58

Loss (gain) on sale of investment securities
2

 
(51
)
Loss (gain) on sale of real estate owned
10

 
(221
)
Writedown of real estate owned
900

 
—

Proceeds from sale of real estate owned
65

 
1,191

Increase in cash surrender value of bank owned life insurance
(1,192
)
 
(1,009
)
Decrease in accrued interest receivable
1,040

 
1,367

(Increase) decrease in other assets
(943
)
 
3,584

Decrease in other liabilities
(1,688
)
 
(2,874
)
Net cash provided by operating activities
22,233

 
27,815

Cash flows from investing activities:
 
 
 
Net increase in loans receivable
(113,457
)
 
(94,646
)
Purchase of securities available for sale
—

 
(97,998
)
Purchase of securities held to maturity
(62,850
)
 
—

Proceeds from payments, calls and maturities of securities available for sale
44,911

 
52,075

Proceeds from payments, calls and maturities of securities held to maturity
4,273

 
2,368

Proceeds from sales of securities available for sale
17,245

 
18,129

Proceeds from sales of securities held to maturity
3,375

 
8,938

Purchase of Bank Owned Life Insurance
(20,000
)
 
(6,040
)
Net decrease (increase) in Federal Home Loan Bank of New York stock
5,000

 
(3,190
)
Net increase in real estate held for investment
(99
)
 
(14
)
Net increase in real estate joint ventures
(510
)
 
(134
)
Purchase of fixed assets
(230
)
 
(253
)
Net cash used by investing activities
(122,342
)
 
(120,765
)
Cash flows from financing activities:
 
 
 
Net increase in deposits
211,892

 
43,254

Purchase of treasury stock
(16,023
)
 
(1,586
)
Dividends paid to shareholders
(25,073
)
 
(25,481
)
Exercise of stock options
474

 
4,249

Increase (decrease) in advance payments by borrowers for taxes and insurance
649

 
(1,980
)
Proceeds from borrowed funds
54,313

 
159,650

Repayment of borrowed funds
(135,800
)
 
(88,700
)
Tax benefit from stock based compensation
446

 
588

Net cash provided by financing activities
90,878

 
89,994

Net decrease in cash and cash equivalents
(9,231
)
 
(2,956
)
Cash and cash equivalents at beginning of period
18,931

 
12,065

Cash and cash equivalents at end of period
$
9,700

 
$
9,109

Supplemental cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
17,090

 
$
15,527

Income taxes
$
8,245

 
$
8,863

Noncash transfer
 
 
 
Loans receivable transferred to real estate owned
$
1,493

 
$
3,350

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 six month period ended December 31, 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 December 31, 2014 and June 30, 2014 and in the Consolidated Statements of Income for the three and six months ended December 31, 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.

2. Earnings Per Share ("EPS")
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 EPS.

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


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 December 31,
 
Six months ended December 31,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except per share data)
Net income
$
10,046

 
$
9,983

 
$
20,207

 
$
20,357

Weighted average common shares outstanding—basic
41,785

 
42,626

 
42,008

 
42,511

Effect of dilutive stock options outstanding
910

 
1,101

 
932

 
1,131

Weighted average common shares outstanding—diluted
42,695

 
43,727

 
42,940

 
43,642

Earnings per share-basic
$
0.24

 
$
0.23

 
$
0.48

 
$
0.48

Earnings per share-diluted
$
0.24

 
$
0.23

 
$
0.47

 
$
0.47


For the three months ended December 31, 2014 and 2013 there were 20,954 and 3,493 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. Anti-dilutive shares for the six months ended December 31, 2014 and 2013 were 19,960 and 3,724, respectively.


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 December 31, 2014, a total of 12,611,006 shares were acquired under these repurchase programs at a weighted average cost of $13.22 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 conduct repurchases in accordance with a Rule 10b5-1 trading plan. At December 31, 2014, there are 350,075 shares yet to be purchased under the current plans.

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 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

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

statements of income to correspond with the same line item as the cash compensation paid. There were no options issued during the six months ended December 31, 2014.
 
Six months ended December 31, 2013
Option shares granted
 
36,000

Expected dividend yield
 
6.25
%
Expected volatility
 
31.57
%
Risk-free interest rate
 
1.87
%
Expected option life
 
6.5


The following is a summary of the Company’s stock option activity and related information for its options plan as of December 31, 2014 and changes therein during the six 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
(43,814
)
 
2.39

 
10.80

 
7.0
Forfeited
(12,800
)
 
2.67

 
13.58

 
7.7
Expired
(2,000
)
 
2.65

 
14.55

 
8.2
Outstanding at December 31, 2014
5,925,060

 
$
2.57

 
$
11.50

 
6.3
Exercisable at December 31, 2014
4,291,358

 
$
2.52

 
$
11.26

 
5.1
The Company recorded $533,000 and $532,000 of share based compensation expense related to the options granted for the three months ended December 31, 2014 and 2013, respectively. The Company recorded $1.1 million and $1.1 million of share based compensation expense related to the options granted for the six months ended December 31, 2014 and 2013, respectively. Expected future expense related to the non-vested options outstanding at December 31, 2014 is $3.6 million over a weighted average period of 1.7 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 December 31, 2014 and changes therein during the six months then ended:
 
 
Number of
Shares
Awarded
 
Weighted
Average Grant
Date Fair Value
Non-vested at June 30, 2014
997,060

 
$
12.14

Vested
(320,620
)
 
12.01

Forfeited
(6,400
)
 
13.58

Non-vested at December 31, 2014
670,040

 
$
12.18

The Company recorded $962,000 and $957,000 of share based compensation expense related to the restricted stock shares for the three months ended December 31, 2014 and 2013, respectively. The Company recorded $1.9 million and $1.9 million of share based compensation expense related to the restricted stock shares for the six months ended December 31, 2014 and 2013, respectively. Expected future expense related to the non-vested restricted shares at December 31, 2014 is $6.7 million over a weighted average period of 1.8 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 ("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 ("Medical Plan") for directors and certain eligible employees. Net periodic benefit costs for the three and six months ended December 31, 2014 and 2013 are presented in the following tables.
 
Retirement Plan
 
BEP Plan
 
Medical Plan
 
Three months ended December 31,
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Service cost
$
37

 
$
36

 
$
—

 
$
—

 
$
31

 
$
18

Interest cost
51

 
54

 
10

 
12

 
45

 
48

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
15

 
15

 
—

 
—

 
—

 
—

Net loss
—

 
—

 
6

 
5

 
2

 
—

Total
$
103

 
$
105

 
$
16

 
$
17

 
$
78

 
$
66

 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended December 31,
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Service cost
$
74

 
$
71

 
$
—

 
$
—

 
$
62

 
$
36

Interest cost
102

 
109

 
20

 
22

 
91

 
96

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
30

 
30

 
—

 
—

 
—

 
—

Net loss
—

 
—

 
12

 
11

 
4

 
—

Total
$
206

 
$
210

 
$
32

 
$
33

 
$
157

 
$
132




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

6. Loans
Net Loans are summarized as follows:
 
December 31, 2014
 
June 30, 2014
 
(In thousands)
Residential
$
161,409

 
$
138,909

Multifamily
901,612

 
880,638

Commercial real estate
1,548,479

 
1,453,164

Second mortgage and equity loans
22,155

 
21,692

Construction and land loans
10,691

 
34,951

Other loans
15,449

 
15,992

Total loans
2,659,795

 
2,545,346

Less:
 
 
 
Deferred loan fees, net
11,216

 
10,051

Allowance for loan losses
31,266

 
31,401

Net loans
$
2,617,313

 
$
2,503,894

The Company’s allowance for loan losses is analyzed quarterly and many 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.
The activity in the allowance for loan losses for the three and six months ended December 31, 2014 and 2013 is summarized as follows:
 
Three months ended December 31,
 
Six months ended December 31,
 
(In thousands)
 
2014
 
2013
 
2014
 
2013
Balance at beginning of period
$
31,569

 
$
31,664

 
$
31,401

 
$
31,381

Provisions for loan losses
—

 
200

 
200

 
500

Recoveries of loans previously charged off
1

 
1

 
2

 
13

Loans charged off
(304
)
 
(1,225
)
 
(337
)
 
(1,254
)
Balance at end of period
$
31,266

 
$
30,640

 
$
31,266

 
$
30,640

The following table provides the three and six month activity in the allowance for loan losses allocated by loan category at December 31, 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.

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

 
Three months ended December 31, 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
$
1,879

 
$
5,120

 
$
22,242

 
$
310

 
$
301

 
$
77

 
$
1,640

 
$
31,569

Charge-offs
(304
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(304
)
Recoveries
—

 
—

 
—

 
—

 
1

 
—

 
—

 
1

Provisions
416

 
3,239

 
(3,418
)
 
(68
)
 
25

 
(6
)
 
(188
)
 
—

Ending balance
$
1,991

 
$
8,359

 
$
18,824

 
$
242

 
$
327

 
$
71

 
$
1,452

 
$
31,266

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended December 31, 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
(304
)
 
—

 
(33
)
 
—

 
—

 
—

 
—

 
(337
)
Recoveries
—

 
—

 
—

 
—

 
2

 
—

 
—

 
2

Provisions
1,010

 
3,486

 
(2,148
)
 
(57
)
 
(783
)
 
(9
)
 
(1,299
)
 
200

Ending balance
$
1,991

 
$
8,359

 
$
18,824

 
$
242

 
$
327

 
$
71

 
$
1,452

 
$
31,266

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended December 31, 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
$
2,034

 
$
5,470

 
$
19,970

 
$
368

 
$
1,190

 
$
387

 
$
2,245

 
$
31,664

Charge-offs
—

 
(1,225
)
 
—

 
—

 
—

 
—

 
—

 
(1,225
)
Recoveries
—

 
—

 
—

 
—

 
1

 
—

 
—

 
1

Provisions
(137
)
 
716

 
(880
)
 
(40
)
 
(24
)
 
(4
)
 
569

 
200

Ending balance
$
1,897

 
$
4,961

 
$
19,090

 
$
328

 
$
1,167

 
$
383

 
$
2,814

 
$
30,640

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended December 31, 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
)
 
(1,225
)
 
(4
)
 
(21
)
 
—

 
—

 
—

 
(1,254
)
Recoveries
—

 
—

 
11

 
—

 
2

 
—

 
—

 
13

Provisions
(323
)
 
1,011

 
(256
)
 
(45
)
 
(68
)
 
(23
)
 
204

 
500

Ending balance
$
1,897

 
$
4,961

 
$
19,090

 
$
328

 
$
1,167

 
$
383

 
$
2,814

 
$
30,640


13
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 December 31, 2014 and June 30, 2014.
 
At December 31, 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
$
20

 
$
27

 
$
1,555

 
$
—

 
$
—

 
$
—

 
$
—

 
$
1,602

Collectively evaluated for impairment
1,971

 
8,332

 
17,269

 
242

 
327

 
71

 
1,452

 
29,664

Total
$
1,991

 
$
8,359

 
$
18,824

 
$
242

 
$
327

 
$
71

 
$
1,452

 
$
31,266

Loans receivable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
3,782

 
$
2,907

 
$
11,282

 
$
—

 
$
—

 
$
—

 
 
 
$
17,971

Collectively evaluated for impairment
157,627

 
898,705

 
1,537,197

 
22,155

 
10,691

 
15,449

 
 
 
2,641,824

Total
$
161,409

 
$
901,612

 
$
1,548,479

 
$
22,155

 
$
10,691

 
$
15,449

 
 
 
$
2,659,795

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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


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

The Company continuously monitors the credit quality of its loan portfolio. 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 December 31, 2014 and June 30, 2014:
 
 
Credit Quality Indicators at December 31, 2014
 
Satisfactory
 
Pass/Watch
 
Special
Mention
 
Substandard
 
Doubtful
 
Total
 
(In thousands)
Residential
$
137,052

 
$
19,281

 
$
204

 
$
4,872

 
$
—

 
$
161,409

Multifamily
867,731

 
24,203

 
758

 
8,920

 
—

 
901,612

Commercial real estate
1,442,955

 
69,689

 
12,727

 
23,108

 
—

 
1,548,479

Second mortgage and equity loans
21,946

 
116

 
—

 
93

 
—

 
22,155

Construction and land loans
10,349

 
—

 
—

 
342

 
—

 
10,691

Other loans
15,288

 
161

 
—

 
—

 
—

 
15,449

Total
$
2,495,321

 
$
113,450

 
$
13,689

 
$
37,335

 
$
—

 
$
2,659,795