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EX-32 - EXHIBIT 32 - Oritani Financial Corpexhibit32.htm
EX-31.2 - EXHIBIT 31.2 - Oritani Financial Corpexhibit31_2.htm
EX-31.1 - EXHIBIT31.1 - Oritani Financial Corpexhibit31_1.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________

FORM 10-Q
______________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2016
 
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      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      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
 
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  
 
As of May 9, 2016, there were 56,245,065 shares of the Registrant's common stock, par value $0.01 per share, issued and 45,118,333 shares outstanding.


Oritani Financial Corp.
FORM 10-Q
 
Index

 
 
 
 
Part I. Financial Information
  Page
 
 
 
Item 1.
Financial Statements
3
 
 
 
 
Consolidated Balance Sheets as of March 31, 2016 (unaudited) and June 30, 2015
3
 
 
 
 
Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2016 and 2015 (unaudited)
4
 
 
 
 
Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended March 31, 2016 and 2015 (unaudited)
5
 
 
 
 
Consolidated Statements of Stockholders' Equity for the Nine Months Ended March 31, 2016 and 2015 (unaudited)
6
 
 
 
 
Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2016 and 2015 (unaudited)
7
 
 
 
 
8
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
30
 
 
 
Item 3.
42
 
 
 
Item 4.
43
 
 
 
 
Part II. Other Information
 
 
 
 
Item 1.
44
 
 
 
Item 1A.
44
 
 
 
Item 2.
44
 
 
 
Item 3.
44
 
 
 
Item 4.
44
 
 
 
Item 5.
44
 
 
 
Item 6.
45
 
 
 
 
46
 
Part I. Financial Information
Item 1. Financial Statements
 
Oritani Financial Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)

 
 
March 31, 2016
   
June 30, 2015
 
 
 
(unaudited)
   
(audited)
 
Assets
 
   
 
Cash on hand and in banks
 
$
9,454
   
$
11,380
 
Federal funds sold and short term investments
   
1,637
     
3,749
 
Cash and cash equivalents
   
11,091
     
15,129
 
Loans, net
   
3,017,736
     
2,756,212
 
Securities available for sale, at fair value
   
215,856
     
258,963
 
Securities held to maturity, fair value of $153,577 and $107,749, respectively.
   
152,029
     
107,990
 
Bank Owned Life Insurance (at cash surrender value)
   
92,653
     
90,609
 
Federal Home Loan Bank of New York stock ("FHLB"), at cost
   
36,712
     
39,898
 
Accrued interest receivable
   
9,906
     
9,266
 
Investments in real estate joint ventures, net
   
4,708
     
6,658
 
Real estate held for investment
   
     
655
 
Real estate owned
   
487
     
4,059
 
Office properties and equipment, net
   
14,489
     
14,431
 
Deferred tax assets, net
   
44,481
     
41,356
 
Other assets
   
3,226
     
7,839
 
Total Assets
 
$
3,603,374
   
$
3,353,065
 
Liabilities
               
Deposits
 
$
2,224,643
   
$
1,962,737
 
Borrowings
   
762,515
     
796,372
 
Advance payments by borrowers for taxes and insurance
   
22,612
     
20,445
 
Other liabilities
   
64,887
     
55,841
 
Total Liabilities
   
3,074,657
     
2,835,395
 
Stockholders' Equity
               
Common stock, $0.01 par value; 150,000,000 shares authorized; 56,245,065 shares issued;
45,066,727 shares outstanding at March 31, 2016 and 44,012,239 shares outstanding at June 30, 2015.
   
562
     
562
 
Additional paid-in capital
   
511,849
     
508,999
 
Restricted Stock Awards
   
(4,242
)
   
(8,088
)
Treasury stock, at cost; 11,178,338 shares at March 31, 2016 and 12,232,826 shares at June 30, 2015.
   
(148,574
)
   
(162,344
)
Unallocated common stock held by the employee stock ownership plan
   
(20,819
)
   
(22,803
)
Retained income
   
197,274
     
203,192
 
Accumulated other comprehensive loss, net of tax
   
(7,333
)
   
(1,848
)
Total Stockholders' Equity
   
528,717
     
517,670
 
Total Liabilities and Stockholders' Equity
 
$
3,603,374
   
$
3,353,065
 

See accompanying notes to unaudited consolidated financial statements.

Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)

 
 
Three months ended March 31,
   
Nine months ended March 31,
 
 
 
2016
   
2015
   
2016
   
2015
 
 
 
(unaudited)
 
Interest income:
 
   
   
   
 
Interest on mortgage loans
 
$
31,061
   
$
30,772
   
$
92,998
   
$
91,540
 
Interest on securities available for sale
   
1,146
     
1,509
     
3,503
     
4,980
 
Interest on securities held to maturity
   
738
     
451
     
1,972
     
1,265
 
Dividends on FHLB stock
   
401
     
499
     
1,193
     
1,475
 
Interest on federal funds sold and short term investments
   
2
     
2
     
4
     
5
 
Total interest income
   
33,348
     
33,233
     
99,670
     
99,265
 
Interest expense:
                               
Deposits
   
4,628
     
3,029
     
12,746
     
8,486
 
Borrowings
   
3,569
     
5,583
     
12,330
     
17,144
 
Total interest expense
   
8,197
     
8,612
     
25,076
     
25,630
 
Net interest income before provision for loan losses
   
25,151
     
24,621
     
74,594
     
73,635
 
Provision for loan losses
   
     
     
     
200
 
Net interest income after provision for loan losses
   
25,151
     
24,621
     
74,594
     
73,435
 
Other income:
                               
Service charges
   
151
     
219
     
617
     
682
 
Real estate operations, net
   
23
     
273
     
294
     
941
 
Income from investments in real estate joint ventures
   
267
     
120
     
985
     
1,455
 
Bank-owned life insurance
   
670
     
677
     
2,044
     
1,869
 
Net gain on sale of assets
   
2,009
     
2,001
     
31,875
     
1,991
 
Net gain on sale of securities
   
     
770
     
604
     
768
 
Other income
   
70
     
69
     
238
     
211
 
Total other income
   
3,190
     
4,129
     
36,657
     
7,917
 
Other expenses:
                               
Compensation, payroll taxes and fringe benefits
   
7,573
     
7,318
     
25,332
     
22,272
 
Advertising
   
91
     
100
     
271
     
295
 
Office occupancy and equipment expense
   
817
     
889
     
2,224
     
2,310
 
Data processing service fees
   
506
     
485
     
1,520
     
1,420
 
Federal insurance premiums
   
402
     
397
     
1,200
     
1,175
 
Net expense from real estate operations
   
15
     
358
     
356
     
1,487
 
FHLBNY prepayment fees
   
     
806
     
13,873
     
806
 
Other expenses
   
948
     
1,213
     
3,242
     
3,167
 
Total operating expenses
   
10,352
     
11,566
     
48,018
     
32,932
 
Income before income tax expense
   
17,989
     
17,184
     
63,233
     
48,420
 
Income tax expense
   
6,676
     
6,227
     
23,887
     
17,256
 
Net income
 
$
11,313
   
$
10,957
   
$
39,346
   
$
31,164
 
Earnings per basic common share
 
$
0.27
   
$
0.26
   
$
0.95
   
$
0.75
 
Earnings per diluted common share
 
$
0.26
   
$
0.26
   
$
0.92
   
$
0.73
 
 
See accompanying notes to unaudited consolidated financial statements.

Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)

 
 
Three months ended March 31,
   
Nine months ended March 31,
 
 
 
2016
   
2015
   
2016
   
2015
 
 
 
(unaudited)
 
Net income
 
$
11,313
   
$
10,957
   
$
39,346
   
$
31,164
 
Other comprehensive loss:
                               
Change in unrealized holding gain (loss) on securities available for sale
   
1,721
     
956
     
517
     
(57
)
Reclassification adjustment for security gains included in net income
   
     
(496
)
   
(343
)
   
(412
)
Amortization related to post-retirement obligations
   
31
     
14
     
96
     
40
 
Change in unrealized loss on interest rate swaps
   
(4,858
)
   
(1,375
)
   
(5,755
)
   
(3,653
)
Total other comprehensive loss
   
(3,106
)
   
(901
)
   
(5,485
)
   
(4,082
)
Total comprehensive income
 
$
8,207
   
$
10,056
   
$
33,861
   
$
27,082
 
 
See accompanying notes to unaudited consolidated financial statements.

Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Nine months ended March 31, 2016 and 2015 (unaudited)
(In thousands, except share data)

 
 
Shares Outstanding
   
Common stock
   
Additional paid-in capital
   
Restricted Stock Awards
   
Treasury stock
   
Unallocated common stock held by ESOP
   
Retained income
   
Accumulated other comprehensive income (loss), net of tax
   
Total stockholders' equity
 
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
   
     
     
     
     
     
     
31,164
     
     
31,164
 
Other comprehensive loss, net of tax
   
     
     
     
     
     
     
     
(4,082
)
   
(4,082
)
Cash dividends declared
   
     
     
     
     
     
     
(32,307
)
   
     
(32,307
)
Purchase of treasury stock
   
(1,507,803
)
   
     
     
     
(22,123
)
   
     
     
     
(22,123
)
Compensation cost for stock options and restricted stock
   
     
     
4,539
     
     
     
     
     
     
4,539
 
ESOP shares allocated or committed to be released
   
     
     
919
     
     
     
1,198
     
     
     
2,117
 
Exercise of stock options
   
58,710
     
     
     
     
775
     
     
(123
)
   
     
652
 
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
   
     
     
483
     
     
     
     
     
     
483
 
Balance at March 31, 2015
   
44,043,839
   
$
562
   
$
506,518
   
$
(8,112
)
 
$
(161,880
)
 
$
(23,133
)
 
$
194,668
   
$
(1,888
)
 
$
506,735
 
 
                                                                       
Balance at June 30, 2015
   
44,012,239
   
$
562
   
$
508,999
   
$
(8,088
)
 
$
(162,344
)
 
$
(22,803
)
 
$
203,192
   
$
(1,848
)
 
$
517,670
 
Net income
   
     
     
     
     
     
     
39,346
     
     
39,346
 
Other comprehensive loss, net of tax
   
     
     
     
     
     
     
     
(5,485
)
   
(5,485
)
Cash dividends declared
   
     
     
     
     
     
     
(42,556
)
   
     
(42,556
)
Purchase of treasury stock
   
(100,978
)
   
     
     
     
(1,593
)
   
     
     
     
(1,593
)
Issuance of restricted stock awards
   
10,000
     
     
     
(133
)
   
133
     
     
     
     
 
Compensation cost for stock options and restricted stock
   
     
     
4,483
     
     
     
     
     
     
4,483
 
ESOP shares allocated or committed to be released
   
     
     
1,756
     
     
     
1,984
     
     
     
3,740
 
Exercise of stock options
   
1,151,466
     
     
     
     
15,303
     
     
(2,689
)
   
     
12,614
 
Vesting of restricted stock awards
   
     
     
(3,887
)
   
3,906
     
     
     
(19
)
   
     
 
Forfeiture of restricted stock awards
   
(6,000
)
   
     
     
73
     
(73
)
   
     
     
     
 
Tax benefit from stock-based compensation
   
     
     
498
     
     
     
     
     
     
498
 
Balance at March 31, 2016
   
45,066,727
   
$
562
   
$
511,849
   
$
(4,242
)
 
$
(148,574
)
 
$
(20,819
)
 
$
197,274
   
$
(7,333
)
 
$
528,717
 
 
See accompanying notes to unaudited consolidated financial statements.

Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)

 
 
Nine months ended March 31,
 
 
 
2016
   
2015
 
 
 
(unaudited)
 
Cash flows from operating activities:
 
 
Net income
 
$
39,346
   
$
31,164
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
ESOP and stock-based compensation expense
   
8,223
     
6,656
 
Depreciation of premises and equipment
   
673
     
712
 
Net amortization and accretion of premiums and discounts on securities
   
879
     
953
 
Provision for loan losses
   
     
200
 
Amortization and accretion of deferred loan fees, net
   
(2,659
)
   
(2,713
)
Decrease (increase) in deferred taxes
   
1,051
     
(1,588
)
Gain on sale of investment securities
   
(604
)
   
(768
)
Gain on sale of real estate joint ventures and real estate investments
   
(31,547
)
   
(2,000
)
(Gain) loss  on sale of real estate owned
   
(328
)
   
9
 
Writedown of real estate owned
   
250
     
1,130
 
Proceeds from sale of real estate owned
   
3,967
     
66
 
Increase in cash surrender value of bank owned life insurance
   
(2,044
)
   
(1,869
)
(Increase) decrease in accrued interest receivable
   
(640
)
   
875
 
Increase in other assets
   
(5,298
)
   
(1,495
)
Increase in other liabilities
   
10,292
     
4,784
 
Net cash provided by operating activities
   
21,561
     
36,116
 
Cash flows from investing activities:
               
Net increase in loans receivable
   
(196,162
)
   
(210,894
)
Purchase of mortgage loans
   
(63,020
)
   
 
Purchase of securities available for sale
   
(42,213
)
   
 
Purchase of securities held to maturity
   
(60,102
)
   
(62,850
)
Proceeds from payments, calls and maturities of securities available for sale
   
46,662
     
64,231
 
Proceeds from payments, calls and maturities of securities held to maturity
   
15,727
     
6,631
 
Proceeds from sales of securities available for sale
   
38,985
     
37,912
 
Proceeds from sales of securities held to maturity
   
     
3,375
 
Purchase of Bank Owned Life Insurance
   
     
(20,000
)
Net decrease in Federal Home Loan Bank of New York stock
   
3,186
     
10,017
 
Proceeds from sales of real estate joint ventures and real estate investments
   
32,590
     
1,875
 
Net increase in real estate held for investment
   
(21
)
   
(98
)
Net decrease  (increase) in real estate joint ventures
   
337
     
(227
)
Purchase of fixed assets
   
(747
)
   
(307
)
Net cash used in investing activities
   
(224,778
)
   
(170,335
)
Cash flows from financing activities:
               
Net increase in deposits
   
261,906
     
369,454
 
Purchase of treasury stock
   
(1,593
)
   
(22,123
)
Dividends paid to shareholders
   
(42,556
)
   
(32,307
)
Exercise of stock options
   
12,614
     
652
 
Increase in advance payments by borrowers for taxes and insurance
   
2,167
     
4,769
 
Proceeds from borrowed funds
   
161,143
     
100,801
 
Repayment of borrowed funds
   
(195,000
)
   
(293,750
)
Tax benefit from stock based compensation
   
498
     
483
 
Net cash provided by financing activities
   
199,179
     
127,979
 
Net decrease in cash and cash equivalents
   
(4,038
)
   
(6,240
)
Cash and cash equivalents at beginning of period
   
15,129
     
18,931
 
Cash and cash equivalents at end of period
 
$
11,091
   
$
12,691
 
Supplemental cash flow information:
               
Cash paid during the period for:
               
Interest
 
$
25,480
   
$
26,665
 
Income taxes
 
$
21,554
   
$
13,908
 
Noncash transfer
               
Loans receivable transferred to real estate owned
 
$
317
   
$
2,949
 

See accompanying notes to unaudited consolidated financial statements.
7

Oritani Financial Corp. and subsidiaries
Notes to Unaudited 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 nine month period ended March 31, 2016 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending June 30, 2016.

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, 2015 Annual Report on Form 10-K, filed with the SEC on September 14, 2015.

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 March 31, 2016 and June 30, 2015 and in the Consolidated Statements of Income for the three and nine months ended March 31, 2016 and 2015.  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 is 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.

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 March 31,
   
Nine months ended March 31,
 
 
 
2016
   
2015
   
2016
   
2015
 
 
 
(In thousands, except per share data)
 
Net income
 
$
11,313
   
$
10,957
   
$
39,346
   
$
31,164
 
Weighted average common shares outstanding—basic
   
42,030
     
41,391
     
41,595
     
41,806
 
Effect of dilutive stock options outstanding
   
1,169
     
922
     
1,159
     
932
 
Weighted average common shares outstanding—diluted
   
43,199
     
42,313
     
42,754
     
42,738
 
Earnings per share-basic
 
$
0.27
   
$
0.26
   
$
0.95
   
$
0.75
 
Earnings per share-diluted
 
$
0.26
   
$
0.26
   
$
0.92
   
$
0.73
 
 
For the three months ended March 31, 2016 and 2015 there were 4,007 and 19,880 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 nine months ended March 31, 2016 and 2015 were 5,250 and 20,111, respectively.

3. Stock Repurchase Program
 
On March 4, 2015, the Board of Directors of the Company authorized a fourth stock repurchase plan pursuant to which the Company is authorized to repurchase up to 5% of the outstanding shares, or 2,205,451 shares.   At March 31, 2016, there are 1,987,506 shares yet to be purchased under the current plans.  At  March 31, 2016, a total of  13,179,026  shares were acquired under repurchase programs at a weighted average cost of  $13.28 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.  
8

Oritani Financial Corp. and subsidiaries
Notes to Unaudited 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 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.

 The fair value of the options issued during the nine months ended March 31, 2016 was estimated using the Black-Scholes options-pricing model with the assumptions in the following table.  There were no options issued during the nine months ended March 31, 2015.

 
Nine months ended March 31, 2016
Option shares granted
 
20,000
Expected dividend yield
 
6.75%
Expected volatility
 
26.10%
Risk-free interest rate
 
2.03%
Expected option life
 
6.5

The following is a summary of the Company's stock option activity and related information as of March 31, 2016 and changes therein during the nine 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, 2015
   
5,900,164
   
$
2.57
   
$
11.50
     
5.8
 
Granted
   
20,000
     
1.64
     
15.89
     
10.0
 
Exercised
   
(1,151,466
)
   
2.43
     
10.95
     
3.4
 
Forfeited
   
(20,000
)
   
2.69
     
12.65
     
6.2
 
Outstanding at March 31, 2016
   
4,748,698
   
$
2.59
   
$
11.64
     
5.5
 
Exercisable at March 31, 2016
   
3,910,912
   
$
2.58
   
$
11.50
     
4.4
 
 
The Company recorded $522,000 and $536,000 of share based compensation expense related to the options granted for the three months ended March 31, 2016 and 2015, respectively.  The Company recorded $1.6 million of share based compensation expense related to the options granted for both nine month periods ended March 31, 2016 and 2015.   Expected future expense related to the non-vested options outstanding at March 31, 2016 is $911,000 over a weighted average period of 0.5 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 March 31, 2016 and changes therein during the nine months then ended:

 
 
Number of Shares Awarded
   
Weighted Average Grant Date Fair Value
 
Non-vested at June 30, 2015
   
668,040
   
$
12.17
 
Granted
   
10,000
     
15.89
 
Vested
   
(322,553
)
   
12.05
 
Forfeited
   
(6,000
)
   
11.95
 
Non-vested at March 31, 2016
   
349,487
   
$
12.38
 
 
The Company recorded $966,000 and $976,000 of share based compensation expense related to the restricted stock shares for both of the three month ended March 31, 2016 and 2015, respectively.  The Company recorded $2.9 million of share based compensation expense related to the restricted stock shares for both nine month periods ended March 31, 2016 and 2015, respectively.   Expected future expense related to the non-vested restricted shares at March 31, 2016 is $1.9 million over a weighted average period of 0.7 years.
9

Oritani Financial Corp. and subsidiaries
Notes to Unaudited 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 nine months ended March 31, 2016 and 2015 are presented in the following tables.

 
Retirement Plan
   
BEP Plan
   
Medical Plan
 
 
Three months ended March 31,
 
 
2016
   
2015
   
2016
   
2015
   
2016
   
2015
 
 
(In thousands)
 
Service cost
 
$
44
   
$
37
   
$
   
$
   
$
19
   
$
31
 
Interest cost
   
57
     
51
     
12
     
10
     
59
     
45
 
Amortization of unrecognized:
                                               
Prior service cost
   
     
15
     
     
     
     
 
Net loss
   
7
     
     
10
     
6
     
39
     
2
 
Total
 
$
108
   
$
103
   
$
22
   
$
16
   
$
117
   
$
78
 

 
 
Nine months ended March 31,
 
 
 
2016
   
2015
   
2016
   
2015
   
2016
   
2015
 
 
 
(In thousands)
 
Service cost
 
$
131
   
$
111
   
$
   
$
   
$
58
   
$
93
 
Interest cost
   
170
     
152
     
36
     
30
     
176
     
136
 
Amortization of unrecognized:
                                               
Prior service cost
   
     
45
     
     
     
     
 
Net loss
   
22
     
     
30
     
18
     
116
     
5
 
Total
 
$
323
   
$
308
   
$
66
   
$
48
   
$
350
   
$
234
 
 
6. Loans, net
 
Loans, net are summarized as follows:

 
 
March 31, 2016
   
June 30, 2015
 
 
 
(In thousands)
 
Residential
 
$
217,270
   
$
186,342
 
Residential commercial real estate
   
1,486,911
     
1,229,816
 
Credit/grocery retail commercial real estate
   
458,025
     
481,216
 
Other commercial real estate
   
889,353
     
894,016
 
Construction and land loans
   
4,651
     
6,132
 
Total loans
   
3,056,210
     
2,797,522
 
Less:
               
Deferred loan fees, net
   
8,526
     
10,421
 
Allowance for loan losses
   
29,948
     
30,889
 
Loans, net
 
$
3,017,736
   
$
2,756,212
 
 
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 14, 2015.

The activity in the allowance for loan losses for the three and nine months ended March 31, 2016 and 2015 is summarized as follows:

 
Three months ended March 31,
 
Nine months ended March 31,
 
 
(In thousands)
 
 
2016
 
2015
 
2016
 
2015
 
Balance at beginning of period
 
$
30,635
   
$
31,266
   
$
30,889
   
$
31,401
 
Provisions for loan losses
   
     
     
     
200
 
Recoveries of loans previously charged off
   
5
     
     
6
     
1
 
Loans charged off
   
(692
)
   
(377
)
   
(947
)
   
(713
)
Balance at end of period
 
$
29,948
   
$
30,889
   
$
29,948
   
$
30,889
 
 
10

Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

The following table provides the three and nine month activity in the allowance for loan losses allocated by loan category at March 31, 2016 and 2015.  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 March 31, 2016
 
 
Residential
 
Residential commercial real estate
 
Credit/grocery retail commercial real estate
 
Other commercial real estate
 
Construction and land loans
 
Unallocated
 
Total
 
 
(In thousands)
 
Allowance for loan losses:
 
 
 
 
 
 
 
Beginning balance
 
$
1,518
   
$
10,893
   
$
3,654
   
$
13,858
   
$
712
   
$
   
$
30,635
 
Charge-offs
   
     
     
     
(692
)
   
     
     
(692
)
Recoveries
   
     
     
     
5
     
     
     
5
 
Provisions
   
(143
)
   
962
     
14
     
(431
)
   
(402
)
   
     
 
Ending balance
 
$
1,375
   
$
11,855
   
$
3,668
   
$
12,740
   
$
310
   
$
   
$
29,948
 

 
 
Nine months ended March 31, 2016
 
 
 
Residential
   
Residential commercial real estate
   
Credit/grocery retail commercial real estate
   
Other commercial real estate
   
Construction
and land loans
   
Unallocated
   
Total
 
 
 
(In thousands)
 
Allowance for loan losses:
 
   
   
   
   
   
   
 
Beginning balance
 
$
1,521
   
$
10,814
   
$
4,042
   
$
13,943
   
$
569
   
$
   
$
30,889
 
Charge-offs
   
(98
)
   
     
     
(849
)
   
     
     
(947
)
Recoveries
   
     
     
     
6
     
     
     
6
 
Provisions
   
(48
)
   
1,041
     
(374
)
   
(360
)
   
(259
)
   
     
 
Ending balance
 
$
1,375
   
$
11,855
   
$
3,668
   
$
12,740
   
$
310
   
$
   
$
29,948
 

 
 
Three months ended March 31, 2015
 
 
 
Residential
   
Residential commercial real estate
   
Credit/grocery retail commercial real estate
   
Other commercial real estate
   
Construction
and land loans
   
Unallocated
   
Total
 
 
 
(In thousands)
 
Allowance for loan losses:
 
   
   
   
   
   
   
 
Beginning balance
 
$
2,213
   
$
9,211
   
$
3,166
   
$
14,897
   
$
327
   
$
1,452
   
$
31,266
 
Charge-offs
   
(29
)
   
     
     
(348
)
   
     
     
(377
)
Recoveries
   
     
     
     
     
     
     
 
Provisions
   
526
     
(82
)
   
23
     
(392
)
   
(85
)
   
10
     
 
Ending balance
 
$
2,710
   
$
9,129
   
$
3,189
   
$
14,157
   
$
242
   
$
1,462
   
$
30,889
 

   
Nine months ended March 31, 2015
 
 
 
Residential
   
Residential commercial real estate
   
Credit/grocery retail commercial real estate
   
Other commercial real estate
   
Construction and land loans
   
Unallocated
   
Total
 
 
 
(In thousands)
 
Allowance for loan losses:
 
   
   
   
   
   
   
 
Beginning balance
 
$
1,568
   
$
5,327
   
$
2,652
   
$
17,995
   
$
1,108
   
$
2,751
   
$
31,401
 
Charge-offs
   
(333
)
   
     
     
(380
)
   
     
     
(713
)
Recoveries
   
     
     
     
     
1
     
     
1
 
Provisions
   
1,475
     
3,802
     
537
     
(3,458
)
   
(867
)
   
(1,289
)
   
200
 
Ending balance
 
$
2,710
   
$
9,129
   
$
3,189
   
$
14,157
   
$
242
   
$
1,462
   
$
30,889
 
11

Oritani Financial Corp. and subsidiaries
Notes to Unaudited 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 March 31, 2016 and June 30, 2015.

   
At March 31, 2016
 
 
 
Residential
   
Residential commercial real estate
   
Credit/grocery retail commercial real estate
   
Other commercial real estate
   
Construction and land loans
   
Total
 
   
(In thousands)
 
Allowance for loan losses:
 
   
   
   
   
   
 
Individually evaluated for impairment
 
$
20
   
$
27
   
$
   
$
598
   
$
47
   
$
692
 
Collectively evaluated for impairment
   
1,355
     
11,828
     
3,668
     
12,142
     
263
     
29,256
 
Total
 
$
1,375
   
$
11,855
   
$
3,668
   
$
12,740
   
$
310
   
$
29,948
 
Loans receivable:
                                               
Individually evaluated for impairment
 
$
3,631
   
$
314
   
$
   
$
9,406
   
$
56
   
$
13,407
 
Collectively evaluated for impairment
   
213,639
     
1,486,597
     
458,025
     
879,947
     
4,595
     
3,042,803
 
Total
 
$
217,270
   
$
1,486,911
   
$
458,025
   
$
889,353
   
$
4,651
   
$
3,056,210
 
 
                                               

   
At June 30, 2015
 
 
 
Residential
   
Residential commercial real estate
   
Credit/grocery retail commercial real estate
   
Other commercial real estate
   
Construction
and land loans
   
Total
 
   
(In thousands)
 
Allowance for loan losses:
 
   
   
   
   
   
 
Individually evaluated for impairment
 
$
20
   
$
27
   
$
   
$
1,290
   
$
28
   
$
1,365
 
Collectively evaluated for impairment
   
1,501
     
10,787
     
4,042
     
12,653
     
541
     
29,524
 
Total
 
$
1,521
   
$
10,814
   
$
4,042
   
$
13,943
   
$
569
   
$
30,889
 
Loans receivable:
                                               
Individually evaluated for impairment
 
$
3,780
   
$
311
   
$
   
$
11,439
   
$
224
   
$
15,754
 
Collectively evaluated for impairment
   
182,562
     
1,229,505
     
481,216
     
882,577
     
5,908
     
2,781,768
 
Total
 
$
186,342
   
$
1,229,816
   
$
481,216
   
$
894,016
   
$
6,132
   
$
2,797,522
 
 
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.
12

Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

The following table provides information about the loan credit quality at March 31, 2016 and June 30, 2015:

 
 
At March 31, 2016
 
 
 
Satisfactory
   
Pass/Watch
   
Special Mention
   
Substandard
   
Doubtful
   
Total
 
 
 
(In thousands)
 
Residential
 
$
193,151
   
$
18,599
   
$
757
   
$
4,763
   
$
   
$
217,270
 
Residential commercial real estate
   
1,476,405
     
8,033
     
2,159
     
314
     
     
1,486,911
 
Credit/grocery retail commercial real estate
   
442,502
     
15,523
     
     
     
     
458,025
 
Other commercial real estate
   
795,682
     
55,798
     
18,853
     
19,020
     
     
889,353
 
Construction and land loans
   
4,595
     
     
     
56
     
     
4,651
 
Total
 
$
2,912,335
   
$
97,953
   
$
21,769
   
$
24,153
   
$
   
$
3,056,210
 

 
 
At June 30, 2015
 
 
 
Satisfactory
   
Pass/Watch
   
Special Mention
   
Substandard
   
Doubtful
   
Total
 
 
 
(In thousands)
 
Residential
 
$
162,769
   
$
18,236
   
$
416
   
$
4,921
   
$
   
$
186,342
 
Residential commercial real estate
   
1,203,514
     
18,487
     
2,125
     
5,690
     
     
1,229,816
 
Credit/grocery retail commercial real estate
   
477,351
     
3,865
     
     
     
     
481,216
 
Other commercial real estate
   
790,076
     
68,689
     
15,366
     
19,885
     
     
894,016
 
Construction and land loans
   
5,908
     
     
     
224
     
     
6,132
 
Total
 
$
2,639,618
   
$
109,277
   
$
17,907
   
$
30,720
   
$
   
$
2,797,522
 
 
The following table provides information about loans past due at March 31, 2016 and June 30, 2015:

 
 
At March 31, 2016
 
 
 
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
 
$
1,398
   
$
756
   
$
684
   
$
2,838
   
$
214,432
   
$
217,270
   
$
1,317
 
Residential commercial real estate
   
     
     
     
     
1,486,911
     
1,486,911
     
314
 
Credit/grocery retail commercial real estate
   
     
     
     
     
458,025
     
458,025
     
 
Other commercial real estate
   
2,019
     
428
     
1,047
     
3,494
     
885,859
     
889,353
     
8,302
 
Construction and land loans
   
     
     
56
     
56
     
4,595
     
4,651
     
56
 
Total
 
$
3,417
   
$
1,184
   
$
1,787
   
$
6,388
   
$
3,049,822
   
$
3,056,210
   
$
9,989
 

 
 
At June 30, 2015
 
 
 
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
 
$
340
   
$
432
   
$
888
   
$
1,660
   
$
184,682
   
$
186,342
   
$
1,329
 
Residential commercial real estate
   
     
311
     
     
311
     
1,229,505
     
1,229,816
     
311
 
Credit/grocery retail commercial real estate
   
     
     
     
     
481,216
     
481,216
     
 
Other commercial real estate
   
3,278
     
     
3,569
     
6,847
     
887,169
     
894,016
     
10,711
 
Construction and land loans
   
     
     
224
     
224
     
5,908
     
6,132
     
224
 
Total
 
$
3,618
   
$
743
   
$
4,681
   
$
9,042
   
$
2,788,480
   
$
2,797,522
   
$
12,575
 

(1)
Included in nonaccrual loans at March 31, 2016 are residential loans totaling $266,000 and other commercial real estate loans totaling $221,000 that were 30-59 days past due; residential loans totaling $367,000, residential commercial real estate loans totaling $314,000 and other commercial real estate loans totaling $7.0 million that were current.
(2)
Included in nonaccrual loans at June 30, 2015 are other commercial real estate loans totaling $1.1 million that were 30-59 days past due; residential loans totaling $16,000 and residential commercial real estate loans totaling $311,000 that were 60-89 days past due; residential loans totaling $425,000 and other commercial real estate loans totaling $6.1 million that were current.

13

Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

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.  Loans we individually classify as impaired include multifamily, commercial mortgage and construction loans with balances of $1.0 million or more, unless a condition exists for loans less than $1.0 million that would increase the Bank's potential loss exposure.  At March 31, 2016 impaired loans were primarily collateral-dependent and totaled $13.4 million, of which $4.9 million had a specific allowance for credit losses of $692,000 and $8.5 million of impaired loans had no related allowance for credit losses.  At June 30, 2015 impaired loans were primarily collateral-dependent and totaled $15.8 million, of which $7.3 million  had a related allowance for credit losses of $1.4 million and $8.5 million of impaired loans had no related allowance for credit losses.

The following table provides information about the Company's impaired loans at March 31, 2016 and June 30, 2015:

 
 
Impaired Loans
 
 
 
At March 31, 2016
   
Nine months ended March 31, 2016
 
 
 
Recorded Investment
   
Unpaid Principal Balance
   
Allowance
   
Average Recorded Investment
   
Interest Income Recognized
 
 
 
(In thousands)
 
With no related allowance recorded:
 
   
   
   
   
 
Residential
 
$
3,447
   
$
3,447
   
$
   
$
3,525
   
$
106
 
Other commercial real estate
   
5,024
     
5,024
     
     
5,497
     
184
 
 
   
8,471
     
8,471
     
     
9,022
     
290
 
With an allowance recorded:
                                       
Residential
 
$
164
   
$
184
   
$
20
   
$