Oritani Financial Corp - FORM 10-Q

Attached files

file	filename
EX-32 - EXHIBIT 32 - Oritani Financial Corp	exhibit32.htm
EX-31.2 - EXHIBIT 31.2 - Oritani Financial Corp	exhibit31_2.htm
EX-31.1 - EXHIBIT31.1 - Oritani Financial Corp	exhibit31_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 September 30, 2017



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) (Zip Code)

(201) 664-5400

(Registrant's telephone number, including area code)

N/A

(Former name, former address, and former fiscal year, 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, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer", "smaller reporting company", and "emerging growth 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	
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES  NO 

As of November 9, 2017, there were 56,245,065 shares of the Registrant's common stock, par value $0.01 per share, issued and 46,279,865 shares outstanding.

Oritani Financial Corp.

FORM 10-Q

Index


	Part I. Financial Information	Page

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of September 30, 2017 (unaudited) and June 30, 2017	3

	Consolidated Statements of Income for the Three Months Ended September 30, 2017 and 2016 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2017 and 2016 (unaudited)	5

	Consolidated Statements of Stockholders' Equity for the Three Months Ended September 30, 2017 and 2016 (unaudited)	6

	Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2017 and 2016 (unaudited)	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4.	Controls and Procedures	47

	Part II. Other Information

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	47

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	Mine Safety Disclosures	47

Item 5.	Other Information	47

Item 6.	Exhibits	48

	Signature Page	49

Index

Part I. Financial Information

Item 1. Financial Statements

Oritani Financial Corp. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)

	September 30, 2017			June 30, 2017
	(unaudited)			(audited)
Assets
Cash on hand and in banks	$	30,701		$	33,252
Federal funds sold and short term investments		403			326
Cash and cash equivalents		31,104			33,578
Loans, net		3,561,902			3,566,703
Securities available for sale, at fair value		90,348			97,930
Securities held to maturity, fair value of $236,711 and $237,204, respectively		238,770			239,631
Bank Owned Life Insurance (at cash surrender value)		96,592			95,946
Federal Home Loan Bank of New York ("FHLB") stock , at cost		27,813			32,504
Accrued interest receivable		11,371			10,620
Real estate owned		—			140
Office properties and equipment, net		13,713			13,909
Deferred tax assets, net		38,888			37,693
Other assets		9,107			9,030
Total Assets	$	4,119,608		$	4,137,684
Liabilities
Deposits	$	2,920,046		$	2,856,478
Borrowings		546,277			642,059
Advance payments by borrowers for taxes and insurance		23,383			23,496
Other liabilities		63,509			56,428
Total Liabilities		3,553,215			3,578,461
Stockholders' Equity
Common stock, $0.01 par value; 150,000,000 shares authorized; 56,245,065 shares issued; 46,176,504 shares outstanding at September 30, 2017 and 45,992,366 shares outstanding at June 30, 2017.		562			562
Additional paid-in capital		512,693			512,337
Non-vested restricted stock awards		(347	)		(458	)
Treasury stock, at cost; 10,068,561 shares at September 30, 2017 and 10,252,699 shares at June 30, 2017.		(134,061	)		(136,517	)
Unallocated common stock held by the employee stock ownership plan		(18,061	)		(18,407	)
Retained earnings		202,196			198,186
Accumulated other comprehensive income, net of tax		3,411			3,520
Total Stockholders' Equity		566,393			559,223
Total Liabilities and Stockholders' Equity	$	4,119,608		$	4,137,684

See accompanying notes to unaudited consolidated financial statements.

Index

Oritani Financial Corp. and Subsidiaries

Consolidated Statements of Income

(In thousands, except per share data)

	Three months ended September 30,
	2017			2016
	(unaudited)
Interest income:
Interest on loans	$	35,837		$	31,973
Dividends on FHLB stock		485			457
Interest on securities available for sale		496			826
Interest on securities held to maturity		1,099			803
Interest on federal funds sold and short term investments		3			1
Total interest income		37,920			34,060
Interest expense:
Deposits		7,353			5,739
Borrowings		2,923			3,021
Total interest expense		10,276			8,760
Net interest income before provision for loan losses		27,644			25,300
Provision for loan losses		—			—
Net interest income after provision for loan losses		27,644			25,300
Other income:
Service charges		228			182
Income from investments in real estate joint ventures		—			316
Bank-owned life insurance		646			679
Net loss on sale of assets		(2	)		—
Other income		71			81
Total other income		943			1,258
Other expenses:
Compensation, payroll taxes and fringe benefits		6,556			7,358
Advertising		142			90
Office occupancy and equipment expense		749			800
Data processing service fees		544			544
Federal insurance premiums		300			450
Net expense from real estate operations		1			55
Other expenses		1,192			971
Total operating expenses		9,484			10,268
Income before income tax expense		19,103			16,290
Income tax expense		7,107			5,679
Net income	$	11,996		$	10,611
Earnings per basic common share	$	0.27		$	0.25
Earnings per diluted common share	$	0.27		$	0.24

See accompanying notes to unaudited consolidated financial statements.

Index

Oritani Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

	Three months ended September 30,
	2017			2016
	(unaudited)
Net of tax:
Net income	$	11,996		$	10,611
Other comprehensive (loss) income
Change in unrealized holding loss on securities available for sale		(4	)		(392	)
Amortization related to post-retirement obligations		5			72
Net change in unrealized (loss) gain on interest rate swaps		(110	)		1,300
Total other comprehensive (loss) income		(109	)		980
Total comprehensive income	$	11,887		$	11,591

See accompanying notes to unaudited consolidated financial statements.

Index

Oritani Financial Corp. and Subsidiaries

Consolidated Statements of Stockholders' Equity

Three months ended September 30, 2017 and 2016 (unaudited)

(In thousands, except share data)

	Shares Outstanding			Common stock		Additional paid-in capital			Non-vested restricted stock awards			Treasury stock			Unallocated common stock held by ESOP			Retained earnings			Accumulated other comprehensive income (loss), net of tax			Total stockholders' equity
Balance at June 30, 2016		45,247,420		$	562	$	513,177		$	(4,242	)	$	(146,173	)	$	(20,481	)	$	202,429		$	(10,072	)	$	535,200
Net income		—			—		—			—			—			—			10,611			—			10,611
Other comprehensive income, net of tax		—			—		—			—			—			—			—			980			980
Cash dividends declared ($0.175 per share)		—			—		—			—			—			—			(7,480	)		—			(7,480	)
Purchase of treasury stock		(94,953	)		—		—			—			(1,508	)		—			—			—			(1,508	)
Compensation cost for stock options and restricted stock		—			—		775			—			—			—			—			—			775
ESOP shares allocated or committed to be released		—			—		314			—			—			339			—			—			653
Exercise of stock options		35,672			—		—			—			474			—			(47	)		—			427
Vesting of restricted stock awards		—			—		(3,718	)		3,762			—			—			(44	)		—			—
Balance at September 30, 2016		45,188,139		$	562	$	510,548		$	(480	)	$	(147,207	)	$	(20,142	)	$	205,469		$	(9,092	)	$	539,658

Balance at June 30, 2017		45,992,366		$	562	$	512,337		$	(458	)	$	(136,517	)	$	(18,407	)	$	198,186		$	3,520		$	559,223
Net income		—			—		—			—			—			—			11,996			—			11,996
Other comprehensive loss, net of tax		—			—		—			—			—			—			—			(109	)		(109	)
Cash dividends declared ($0.175 per share)		—			—		—			—			—			—			(7,657	)		—			(7,657	)
Purchase of treasury stock		(763	)		—		—			—			(13	)		—			—			—			(13	)
Compensation cost for stock options and restricted stock		—			—		51			—			—			—			—			—			51
ESOP shares allocated or committed to be released		—			—		337			—			—			346			—			—			683
Exercise of stock options		191,901			—		—			—			2,556			—			(337	)		—			2,219
Vesting of restricted stock awards		—			—		(32	)		24			—			—			8			—			—
Forfeiture of restricted stock awards		(7,000	)		—		—			87			(87	)		—			—			—			—
Balance at September 30, 2017		46,176,504		$	562	$	512,693		$	(347	)	$	(134,061	)	$	(18,061	)	$	202,196		$	3,411		$	566,393

See accompanying notes to unaudited consolidated financial statements.

Index

Oritani Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

	Three months ended September 30,
	2017			2016
	(unaudited)
Cash flows from operating activities:
Net income	$	11,996		$	10,611
Adjustments to reconcile net income to net cash provided by operating activities:
ESOP and stock-based compensation expense		734			1,428
Tax benefit from stock-based compensation		3			350
Depreciation of premises and equipment		196			232
Net amortization and accretion of premiums and discounts on securities		297			269
Provision for loan losses		—			—
Amortization and accretion of deferred loan fees, net		(661	)		(550	)
(Increase) decrease in deferred taxes		(756	)		97
Loss on sale of real estate owned		2			—
Writedown of real estate owned		—			38
Increase in cash surrender value of bank owned life insurance		(646	)		(679	)
Increase in accrued interest receivable		(751	)		(47	)
(Increase) decrease in other assets		(617	)		1,509
Increase in other liabilities		7,091			213
Net cash provided by operating activities		16,888			13,471
Cash flows from investing activities:
Net decrease (increase) in loans receivable		5,462			(49,939	)
Purchase of mortgage loans		—			(26,657	)
Purchase of securities available for sale		—			(46,000	)
Purchase of securities held to maturity		(10,623	)		(17,615	)
Purchase of Federal Home Loan Bank stock		(10,736	)		(11,421	)
Proceeds from payments, calls and maturities of securities available for sale		7,500			10,775
Proceeds from payments, calls and maturities of securities held to maturity		11,261			7,729
Proceeds from redemption of Federal Home Loan Bank stock		15,427			16,543
Proceeds from sale of real estate owned		138			—
Net decrease in real estate joint ventures		—			94
Purchase of fixed assets		—			(12	)
Net cash provided by (used in) investing activities		18,429			(116,503	)
Cash flows from financing activities:
Net increase in deposits		63,568			236,277
Purchase of treasury stock		(13	)		(1,508	)
Dividends paid to shareholders		(7,657	)		(7,480	)
Exercise of stock options		2,219			427
Decrease in advance payments by borrowers for taxes and insurance		(113	)		(455	)
Proceeds from borrowed funds		32,870			12,000
Repayment of borrowed funds		(128,652	)		(126,031	)
Payment of employee taxes withheld from shared-based awards		(13	)		(1,508	)
Net cash (used in) provided by financing activities		(37,791	)		111,722
Net (decrease) increase in cash and cash equivalents		(2,474	)		8,690
Cash and cash equivalents at beginning of period		33,578			16,571
Cash and cash equivalents at end of period	$	31,104		$	25,261
Supplemental cash flow information:
Cash paid during the period for:
Interest	$	10,255		$	8,731
Income taxes	$	755		$	7,249

See accompanying notes to unaudited consolidated financial statements.

Index

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 subsidiary, Oritani Bank (the "Bank") 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, 2017 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending June 30, 2018.

Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") 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, 2017 Annual Report on Form 10-K, filed with the SEC on August 29, 2017.

The consolidated financial statements have been prepared in conformity with 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, 2017 and June 30, 2017 and in the Consolidated Statements of Income for the three months ended September 30, 2017 and 2016. 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.

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

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 the assumed proceeds from option exercises and 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 September 30,
	2017		2016
	(In thousands, except per share data)
Net income	$	11,996	$	10,611
Weighted average common shares outstanding—basic		43,897		42,775
Effect of dilutive stock options outstanding		1,043		1,233
Weighted average common shares outstanding—diluted		44,940		44,008
Earnings per share-basic	$	0.27	$	0.25
Earnings per share-diluted	$	0.27	$	0.24

For the three months ended September 30, 2017 and 2016 there were 1,322 and 4,438 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 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 September 30, 2017, there are 1,888,088 shares yet to be purchased under the current plan. At September 30, 2017, a total of 13,278,444 shares had been acquired under repurchase programs at a weighted average cost of $13.30 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.

Index

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.

There were no options granted during the three months ended September 30, 2017 and 2016.

The following is a summary of the Company's stock option activity and related information as of September 30, 2017 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, 2017		3,729,033		$	2.59	$	11.70		3.4
Exercised		(191,901	)		2.60		11.56		3.2
Forfeited		(12,000	)		1.64		15.89		7.8
Outstanding at September 30, 2017		3,525,132		$	2.59	$	11.69		3.2
Exercisable at September 30, 2017		3,469,259		$	2.60	$	11.63		3.1

The Company recorded $11,000 and $266,000 of share based compensation expense related to options for the three months ended September 30, 2017 and 2016, respectively. Expected future expense related to the non-vested options outstanding at September 30, 2017 is $61,000 over a weighted average period of 2.0 years. Upon exercise of vested options, management expects to draw on treasury stock as the source of the shares.

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

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, 2017 and changes therein during the three months then ended:

	Number of Shares Awarded			Weighted Average Grant Date Fair Value
Non-vested at June 30, 2017		35,934		$	15.60
Vested		(2,000	)		15.89
Forfeited		(6,000	)		15.89
Non-vested at September 30, 2017		27,934		$	15.51

The Company recorded $40,000 and $509,000 of share based compensation expense related to the restricted stock shares for the three months ended September 30, 2017 and 2016, respectively. Expected future expense related to the non-vested restricted shares at September 30, 2017 is $254,000 over a weighted average period of 2.0 years.

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 months ended September 30, 2017 and 2016 are presented in the following table.

	Retirement Plan					BEP Plan				Medical Plan
	Three months ended September 30,
	2017			2016		2017		2016		2017		2016
	(In thousands)
Service cost		$	33	$	38	$	—	$	—	$	15	$	14
Interest cost			52		45		11		10		52		59
Amortization of unrecognized:
Net loss			—		—		9		13		—		87
Total		$	85	$	83	$	20	$	23	$	67	$	160

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

6. Loans, net

Loans, net are summarized as follows:

	September 30, 2017		June 30, 2017
	(In thousands)
Residential	$	254,973	$	253,310
Residential commercial real estate		1,914,088		1,945,297
Grocery/credit retail commercial real estate		544,209		535,567
Other commercial real estate		881,808		866,826
Construction and land loans		5,177		4,210
Total loans		3,600,255		3,605,210
Less:
Deferred loan fees, net		7,951		8,235
Allowance for loan losses		30,402		30,272
Loans, net	$	3,561,902	$	3,566,703

The Company's allowance for loan losses is analyzed quarterly and many factors are considered, including changes 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 August 29, 2017.

The activity in the allowance for loan losses for the three months ended September 30, 2017 and 2016 is summarized as follows:

	Three months ended September 30,
	(In thousands)
	2017				2016
Balance at beginning of period		$	30,272			$	29,951
Provisions for loan losses			—				—
Recoveries of loans previously charged off			152				2
Loans charged off			(22	)			(75	)
Balance at end of period		$	30,402			$	29,878

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

The following table provides the three month activity in the allowance for loan losses allocated by loan category at September 30, 2017 and 2016. 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, 2017
	Residential				Residential commercial real estate				Grocery/credit retail commercial real estate			Other commercial real estate				Construction and land loans				Total
	(In thousands)
Allowance for loan losses:
Beginning balance		$	1,261			$	15,794			$	3,000		$	10,017			$	200			$	30,272
Charge-offs			(22	)			—				—			—				—				(22	)
Recoveries			120				—				—			—				32				152
Provisions			(73	)			(32	)			196			(80	)			(11	)			—
Ending balance		$	1,286			$	15,762			$	3,196		$	9,937			$	221			$	30,402

	Three months ended September 30, 2016
	Residential			Residential commercial real estate		Grocery/credit retail commercial real estate			Other commercial real estate			Construction and land loans			Total
	(In thousands)
Allowance for loan losses:
Beginning balance	$	1,300		$	12,837	$	3,646		$	11,850		$	318		$	29,951
Charge-offs		(75	)		—		—			—			—			(75	)
Recoveries		—			—		—			2			—			2
Provisions		569			773		(174	)		(1,009	)		(159	)		—
Ending balance	$	1,794		$	13,610	$	3,472		$	10,843		$	159		$	29,878

Index

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 September 30, 2017 and June 30, 2017.

	At September 30, 2017
	Residential		Residential commercial real estate		Grocery/credit retail commercial real estate		Other commercial real estate		Construction and land loans		Total
	(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	8	$	—	$	8
Collectively evaluated for impairment		1,286		15,762		3,196		9,929		221		30,394
Total	$	1,286	$	15,762	$	3,196	$	9,937	$	221	$	30,402
Loans receivable:
Individually evaluated for impairment	$	3,624	$	—	$	—	$	9,909	$	—	$	13,533
Collectively evaluated for impairment		251,349		1,914,088		544,209		871,899		5,177		3,586,722
Total	$	254,973	$	1,914,088	$	544,209	$	881,808	$	5,177	$	3,600,255

	At June 30, 2017
	Residential		Residential commercial real estate		Grocery/credit retail commercial real estate		Other commercial real estate		Construction and land loans		Total
	(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	—	$	—	$	—	$	43	$	—	$	43
Collectively evaluated for impairment		1,261		15,794		3,000		9,974		200		30,229
Total	$	1,261	$	15,794	$	3,000	$	10,017	$	200	$	30,272
Loans receivable:
Individually evaluated for impairment	$	3,684	$	—	$	—	$	10,173	$	—	$	13,857
Collectively evaluated for impairment		249,626		1,945,297		535,567		856,653		4,210		3,591,353
Total	$	253,310	$	1,945,297	$	535,567	$	866,826	$	4,210	$	3,605,210

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited 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 September 30, 2017 and June 30, 2017:

	At September 30, 2017
	Satisfactory		Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Residential	$	231,340	$	17,054	$	1,656	$	4,923	$	—	$	254,973
Residential commercial real estate		1,884,751		27,732		1,605		—		—		1,914,088
Grocery/credit retail commercial real estate		541,141		—		3,068		—		—		544,209
Other commercial real estate		727,844		122,600		13,378		17,986		—		881,808
Construction and land loans		5,177		—		—		—		—		5,177
Total	$	3,390,253	$	167,386	$	19,707	$	22,909	$	—	$	3,600,255

	At June 30, 2017
	Satisfactory		Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Residential	$	229,481	$	17,256	$	1,571	$	5,002	$	—	$	253,310
Residential commercial real estate		1,915,526		27,778		1,753		240		—		1,945,297
Grocery/credit retail commercial real estate		532,472		—		3,095		—		—		535,567
Other commercial real estate		725,714		107,249		15,551		18,312		—		866,826
Construction and land loans		4,210		—		—		—		—		4,210
Total	$	3,407,403	$	152,283	$	21,970	$	23,554	$	—	$	3,605,210

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

The following table provides information about loans past due at September 30, 2017 and June 30, 2017:

	At September 30, 2017
	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	$	980	$	1,922	$	489	$	3,391	$	251,582	$	254,973	$	1,477
Residential commercial real estate		—		—		—		—		1,914,088		1,914,088		—
Grocery/credit retail commercial real estate		—		—		—		—		544,209		544,209		—
Other commercial real estate		1,704		1,052		1,797		4,553		877,255		881,808		8,429
Construction and land loans		—		—		—		—		5,177		5,177		—
Total	$	2,684	$	2,974	$	2,286	$	7,944	$	3,592,311	$	3,600,255	$	9,906

	At June 30, 2017
	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	$	1,243	$	1,776	$	614	$	3,633	$	249,677	$	253,310	$	1,556
Residential commercial real estate		240		—		—		240		1,945,057		1,945,297		—
Grocery/credit retail commercial real estate		—		—		—		—		535,567		535,567		—
Other commercial real estate		606		—		1,897		2,503		864,323		866,826		8,667
Construction and land loans		—		—		—		—		4,210		4,210		—
Total	$	2,089	$	1,776	$	2,511	$	6,376	$	3,598,834	$	3,605,210	$	10,223

(1)

Included in nonaccrual loans at September 30, 2017 are residential loans totaling $266,000 and other commercial real estate loans totaling $1.1 million that were 60-89 days past due; residential loans totaling $549,000 and other commercial real estate loans totaling $1.1 million that were 30-59 days past due; residential loans totaling $173,000 and other commercial real estate loans totaling $4.4 million that were less than 30 days past due.

(2)

Included in nonaccrual loans at June 30, 2017 are residential loans totaling $716,000 that were 30-59 days past due; residential loans totaling $205,000 that were 60-89 days past due; and residential loans totaling $21,000 and other commercial real estate loans totaling $6.8 million that were less than 30 days past due.

Index

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 September 30, 2017 impaired loans were primarily collateral-dependent and totaled $13.5 million, of which $372,000 had a related allowance for credit losses of $8,000 and $13.2 million of impaired loans had no related allowance for credit losses. At June 30, 2017 impaired loans were primarily collateral-dependent and totaled $13.9 million, of which $538,000 had a related allowance for credit losses of $43,000 and $13.3 million of impaired loans had no related allowance for credit losses.

The following table provides information about the Company's impaired loans at September 30, 2017 and June 30, 2017:

	At September 30, 2017						At June 30, 2017
	Recorded Investment		Unpaid Principal Balance		Allowance		Recorded Investment		Unpaid Principal Balance		Allowance
	(In thousands)
With no related allowance recorded:
Residential	$	3,634	$	3,624	$	—	$	3,684	$	3,684	$	—
Other commercial real estate		9,518		9,537		—		9,635		9,635		—
		13,152		13,161		—		13,319		13,319		—
With an allowance recorded:
Other commercial real estate		372		372		8		495		538		43
		372		372		8		495		538		43
Total:
Residential		3,634		3,624		—		3,684		3,684		—
Other commercial real estate		9,890		9,909		8		10,130		10,173		43
	$	13,524	$	13,533	$	8	$	13,814	$	13,857	$	43

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

The following tables present the average recorded investment and interest income recognized on impaired loans for the three months ended September 30, 2017 and 2016:

	Three months ended September 30,
	2017				2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
With no related allowance recorded:
Residential	$	3,625	$	36	$	3,462	$	34
Other commercial real estate		9,664		115		9,089		121
		13,289		151		12,551		155
With an allowance recorded:
Residential		—		—		164		2
Other commercial real estate		363		—		196		—
Construction and land loans		—		—		9		—
		363		—		369		2
Total:
Residential		3,625		36		3,626		36
Other commercial real estate		10,027		115		9,285		121
Construction and land loans		—		—		9		—
	$	13,652	$	151	$	12,920	$	157
Cash basis interest income			$	128			$	133

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

Troubled debt restructured loans ("TDRs") are those loans whose terms have been modified because of deterioration in the financial condition of the borrower. The Company has selectively modified certain borrower's loans to enable the borrower to emerge from delinquency and keep their loans current. The eligibility of a borrower for a TDR modification depends upon the facts and circumstances of each transaction, which may change from period to period, and involve judgment by management regarding the likelihood that the modification will result in the maximum recovery by the Company. Modifications could include extension of the terms of the loan, reduced interest rates, and forgiveness of accrued interest and/or principal. Once an obligation has been restructured because of such credit problems, it continues to be considered restructured until paid in full or, if the obligation yields a market rate (a rate equal to or greater than the rate the Company was willing to accept at the time of the restructuring for a new loan with comparable risk), until the year subsequent to the year in which the restructuring takes place, provided the borrower has performed under the modified terms for a six month period. Management classifies all TDRs as impaired loans. Included in impaired loans at September 30, 2017 and June 30, 2017, are $4.5 million and $4.6 million, respectively of loans which are deemed TDRs.

The following table presents additional information regarding the Company's TDRs as of September 30, 2017 and June 30, 2017:

	Troubled Debt Restructurings at September 30, 2017
	Performing			Nonperforming			Total
	(In thousands)
Residential		$	—		$	177		$	177
Other commercial real estate			353			3,939			4,292
Total		$	353		$	4,116		$	4,469
Allowance		$	—		$	8		$	8

	Troubled Debt Restructurings at June 30, 2017
	Performing			Nonperforming			Total
	(In thousands)
Residential		$	—		$	178		$	178
Other commercial real estate			362			4,070			4,432
Total		$	362		$	4,248		$	4,610
Allowance		$	—		$	43		$	43

There were no loan relationships modified in a troubled debt restructuring during the three months ended September 30, 2017 and 2016, respectively.

There have been no loans that were modified as TDR during the last twelve months that have subsequently defaulted (90 days or more past due) during the current quarter ended September 30, 2017.

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

7. Investment Securities

Securities Held to Maturity

The following is a comparative summary of securities held to maturity at September 30, 2017 and June 30, 2017:

	At September 30, 2017
	Amortized cost		Gross unrecognized gains		Gross unrecognized losses		Fair value
	(In thousands)

U.S. Government and Federal agency obligations
Due in one to five years	$	6,750	$	—	$	54	$	6,696
Mortgage-backed securities:
Residential MBS		146,033		94		1,074		145,053
Commercial MBS		13,366		101		84		13,383
CMO		72,621		—		1,042		71,579
	$	238,770	$	195	$	2,254	$	236,711

	At June 30, 2017
	Amortized cost		Gross unrecognized gains		Gross unrecognized losses		Fair value
	(In thousands)
U.S. Government and Federal agency obligations
Due in one to five years	$	6,750	$	—	$	54	$	6,696
Mortgage-backed securities:
Residential MBS		141,990		81		1,391		140,680
Commercial MBS		13,473		112		83		13,502
CMO		77,418		—		1,092		76,326
	$	239,631	$	193	$	2,620	$	237,204

The contractual maturities of mortgage-backed securities held to maturity generally exceed 20 years; however, the effective lives are expected to be shorter due to anticipated prepayments and, in the case of CMOs, cash flow priorities. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

The Company did not sell any securities held to maturity during the three months ended September 30, 2017 and 2016. Securities with fair values of $25.7 million and $27.2 million at September 30, 2017 and June 30, 2017, respectively, were pledged for advances. The fair value of securities held to maturity pledged for cash flow hedge interest rate swaps totaled $8.0 million and $8.5 million at September 30, 2017 and June 30, 2017, respectively. Held to maturity securities with fair values of $126.5 million and $132.5 million were pledged for municipal deposits at September 30, 2017 and June 30, 2017, respectively. The Company did not record other-than-temporary impairment charges on securities held to maturity during the three months ended September 30, 2017 and 2016.

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

Gross unrecognized losses on securities held to maturity and the fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrecognized loss position at September 30, 2017 and June 30, 2017 were as follows:

	At September 30, 2017
	Less than 12 months					Greater than 12 months				Total
	Fair value			Gross unrecognized losses		Fair value		Gross unrecognized losses		Fair value		Gross unrecognized losses
	(In thousands)
U.S. Government and federal agency obligations
Due in one to five years		$	—	$	—	$	6,696	$	54	$	6,696	$	54
Mortgage-backed securities:
Residential MBS			117,738		580		22,905		494		140,643		1,074
Commercial MBS			7,059		84		—		—		7,059		84
CMO			25,271		180		46,308		862		71,579		1,042
		$	150,068	$	844	$	75,909	$	1,410	$	225,977	$	2,254

	At June 30, 2017
	Less than 12 months					Greater than 12 months				Total
	Fair value			Gross unrecognized losses		Fair value		Gross unrecognized losses		Fair value		Gross unrecognized losses
	(In thousands)
U.S. Government and federal agency obligations
Due in one to five years		$	1,737	$	13	$	4,959	$	41	$	6,696	$	54
Mortgage-backed securities:
Residential MBS			128,040		1,265		3,020		126		131,060		1,391
Commercial MBS			7,120		83		—		—		7,120		83
CMO			76,326		1,092		—		—		76,326		1,092
		$	213,223	$	2,453	$	7,979	$	167	$	221,202	$	2,620

Management evaluated the securities in the above tables and concluded that none of the securities with losses has impairments that are other-than-temporary. The unrecognized losses on investments in mortgage-backed securities were caused by interest rate changes and market conditions. Because the decline in fair value is attributable to changes in interest rates and market conditions and not credit quality, and because the Company has no intent to sell and believes it is not more than likely than not that it will be required to sell these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

Securities Available for Sale

The following is a comparative summary of securities available for sale at September 30, 2017 and June 30, 2017:

	At September 30, 2017
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
	(In thousands)
Equity securities	$	601	$	956	$	—	$	1,557
Mortgage-backed securities:
Residential MBS		6,393		6		28		6,371
Commercial MBS		4,185		174		—		4,359
CMO		78,479		105		523		78,061
	$	89,658	$	1,241	$	551	$	90,348

	At June 30, 2017
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
	(In thousands)
Equity securities	$	601	$	897	$	—	$	1,498
Mortgage-backed securities:
Residential MBS		6,974		9		62		6,921
Commercial MBS		4,220		186		—		4,406
CMO		85,437		152		484		85,105
	$	97,232	$	1,244	$	546	$	97,930

The contractual maturities of mortgage-backed securities available for sale generally exceed 20 years; however, the effective lives are expected to be shorter due to anticipated prepayments and, in the case of CMOs, cash flow priorities. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

The Company did not sell any securities available for sale during the three months ended September 30, 2017 and 2016. The Equity securities caption relates to holdings of shares in financial institutions common stock. Available for sale securities with fair values of $30.0 million and $31.6 million at September 30, 2017 and June 30, 2017, respectively, were pledged for advances. There were no securities available for sale pledged for cash flow hedge interest rate swaps at September 30, 2017 and June 30, 2017, respectively. Available for sale securities with fair values of $54.3 million and $59.5 million were pledged for municipal deposits at September 30, 2017 and June 30, 2017, respectively. There were no other-than-temporary impairment charges on available for sale securities for the three months ended September 30, 2017 and 2016.

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

Gross unrealized losses on securities available for sale and the fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2017 and June 30, 2017 were as follows:

	At September 30, 2017
	Less than 12 months						Greater than 12 months						Total
	Fair value			Gross unrealized losses			Fair value			Gross unrealized losses			Fair value			Gross unrealized losses
	(In thousands)
Mortgage-backed securities:
Residential MBS		$	6,095		$	28		$	—		$	—		$	6,095		$	28
CMO			48,899			274			13,518			249			62,417			523
		$	54,994		$	302		$	13,518		$	249		$	68,512		$	551

	At June 30, 2017
	Less than 12 months						Greater than 12 months						Total
	Fair value			Gross unrealized losses			Fair value			Gross unrealized losses			Fair value			Gross unrealized losses
	(In thousands)
Mortgage-backed securities:
Residential MBS		$	6,521		$	62		$	—		$	—		$	6,521		$	62
CMO			53,880			406			4,877			78			58,757			484
		$	60,401		$	468		$	4,877		$	78		$	65,278		$	546

Management evaluated the securities in the above tables and concluded that none of the securities with losses has impairments that are other-than-temporary. The unrealized losses on investments in mortgage-backed securities were caused by interest rate changes and market conditions. Because the decline in fair value is attributable to changes in interest rates and market conditions and not credit quality, and because the Company has no intent to sell and believes it is not more than likely than not that it will be required to sell these investments until a market price recovery or maturity, these investments are not considered other-than-temporarily impaired.

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

8. Deposits

Deposits include checking (non-interest and interest-bearing demand deposits), money market, savings and time deposits. We had brokered deposits totaling $532.1 million and $510.4 million at September 30, 2017 and June 30, 2017, respectively. Total municipal deposits were $356.9 million and $334.1 million at September 30, 2017 and June 30, 2017, respectively. See Note 7. "Investment Securities" for the aggregate amount of securities that were pledged for municipal deposits. As of September 30, 2017 and June 30, 2017, the aggregate amount of outstanding time deposits in amounts greater than $250,000 was $204.0 million and $221.8 million, respectively.

Deposit balances are summarized as follows:

	September 30, 2017		June 30, 2017
	(In thousands)
Checking accounts	$	728,272	$	706,554
Money market deposit accounts		855,176		847,888
Savings accounts		177,183		177,896
Time deposits		1,159,415		1,124,140
	$	2,920,046	$	2,856,478

9. Derivatives and Hedging Activities

Oritani is exposed to certain risks regarding its ongoing business operations. Derivative instruments are used to offset a portion of the Company's interest rate risk. Specifically, the Company has utilized interest rate swaps to partially offset the interest rate risk inherent in the Company's balance sheet. Oritani recognizes interest rate swaps as either assets or liabilities at fair value in the statement of financial condition with an offset recorded in Other Comprehensive Income and any ineffectiveness is recorded in earnings. The interest rate swaps have been designed as cash flow hedges. For all cash flow hedges that are currently effective, the balance sheet item that has been hedged is brokered deposits. For all cash flow hedges that are are not yet effective, it is anticipated that the balance sheet item that will be hedged is brokered deposits.

Oritani is exposed to credit-related losses in the event of nonperformance by the counterparties to the agreements. Oritani controls the credit risk through monitoring procedures and does not expect the counterparty to fail their obligations. Oritani only deals with primary dealers and believes that the credit risk inherent in these contracts was not significant during and at period end. Oritani has the right to demand that the counterparty post collateral to cover any market value shortfall of the counterparty regarding the transaction.

At September 30, 2017, Oritani had twenty five interest rate swap agreements with a total notional outstanding of $425.0 million. These agreements all feature exchanges of fixed for variable payments covering various hedging periods maturing between January 2018 and June 2025. The Company is paying fixed rates on these swaps ranging from 0.53% to 1.90%, in exchange for receiving variable payments linked to one month LIBOR.

The following table presents amounts included in the consolidated balance sheets related to the fair value of derivative financial instruments at September 30, 2017 and June 30, 2017.

		At September 30, 2017					At June 30, 2017
	Balance Sheet Line Item	Notional Amount			Fair Value		Notional Amount			Fair Value
Cash flow hedge interest rate swaps
Gross unrealized gain	Other Assets	$	425,000		$	6,239	$	450,000		$	6,437
Gross notional / net fair value		$	425,000		$	6,239	$	450,000		$	6,437
Average rate paid			1.44	%				1.26	%
Average rate received			1.25	%				0.72	%
Weighted average maturity			4.4					4.4

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

Gains (losses) included in the consolidated statements of income and in comprehensive income, on a pre-tax basis, related to cash flow hedge interest rate swaps are as follows:

	Three Months Ended September 30,
	2017				2016
	(in thousands)
Amount of (loss) gain recognized in other comprehensive income		$	(426	)	$	1,647
Amount of unrealized (loss) gain reclassified from accumulated other comprehensive loss to interest expense			(228	)		(627	)
Net change in unrealized (loss) gain on interest rate swaps, before taxes		$	(198	)	$	2,274

Ineffectiveness recognized during the three months ended September 30, 2017 and 2016 was immaterial. There were no accumulated net after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss at September 30, 2017 and June 30, 2017, respectively. Amounts reported in accumulated other comprehensive loss related to cash flow interest rate swaps are reclassified to interest expense as interest payments are made. The fair value of securities pledged as collateral for the swaps at September 30, 2017 and June 30, 2017 was $8.0 million and $8.5 million, respectively.

10. Income Taxes

The Company files income tax returns in the United States federal jurisdiction and in New Jersey, Pennsylvania and New York state and local jurisdictions.

The Company is no longer subject to federal and state income tax examinations by tax authorities for years prior to 2013. The Company's federal return for the tax year ended December 31, 2012 was audited during fiscal 2016. Our state and city tax returns are not currently under audit and have not been subject to an audit during the past five years. The Company did not have any uncertain tax positions at September 30, 2017 and June 30, 2017. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, where applicable, in income tax expense.

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

11. Fair Value Measurements

The Company adopted FASB ASC 820, "Fair Value Measurements and Disclosures," on July 1, 2008. Under ASC 820, fair value measurements are not adjusted for transaction costs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described below:

Basis of Fair Value Measurement:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Price or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported with little or no market activity).

A financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Following are descriptions of the valuation methodologies and key inputs used to measure assets recorded at fair value, as well as a description of the methods and significant assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring basis. The descriptions include an indication of the level of the fair value hierarchy in which the assets or liabilities are classified.

Cash and Cash Equivalents

Due to their short-term nature, the carrying amount of these instruments approximates fair value.

Securities

The Company records securities held to maturity at amortized cost and securities available for sale at fair value on a recurring basis. The majority of the Company's securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. The estimated fair values for securities are obtained from an independent nationally recognized third-party pricing service. Our independent pricing service provides us with prices which are primarily categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the majority of securities in our portfolio. Pricing services may employ modeling techniques in determining pricing. Inputs to these models include market spreads, dealer quotes, prepayment speeds, credit information and the instrument's terms and conditions, among other things. Management compares the pricing to a second independent pricing source for reasonableness. Equity securities are reported at Level 1 based on quoted market prices for identical securities in active markets.

FHLB of New York Stock

FHLB of New York Stock is recorded at cost (par value) and evaluated for impairment based on the ultimate recoverability of the par value. There is no active market for this stock and no significant observable market data is available for this instrument. The Company considers the profitability and asset quality of FHLB, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. The Company believes its investment in FHLB stock is ultimately recoverable at par. The carrying amount of FHLB stock approximates fair value, since this is the amount for which it could be redeemed.

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

Loans

The Company does not record loans at fair value on a recurring basis. However, periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements. The estimated fair value for significant nonperforming loans and impaired loans are valued utilizing independent appraisals of the collateral securing such loans that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments to comparable assets based on the appraisers' market knowledge and experience. The appraisals may be adjusted downward by management (0-20% adjustment rate and 0-10% risk premium rate), as necessary, for changes in relevant valuation factors subsequent to the appraisal date and the timing of anticipated cash flows (0-8% discount rate). The Company classifies impaired loans as Level 3.

Fair value for loans held for investment is estimated using portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential, multifamily, commercial real estate, construction, land and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming/impaired categories. Fair value of performing loans is estimated using a discounted cash flow model that employs a discount rate that reflects the current market pricing for loans with similar characteristics and remaining maturity, adjusted by an amount for estimated credit losses inherent in the portfolio at the balance sheet date. The rates take into account the expected yield curve. Fair values estimated in this manner do not fully incorporate an exit-price approach to fair value. The Company classifies the estimated fair value of loans held for investment as Level 3.

Real Estate Owned

Assets acquired through foreclosure or deed in lieu of foreclosure are recorded at fair value less estimated selling costs when acquired, thus establishing a new cost basis. Subsequently, real estate owned is carried at the lower of cost or fair value, less estimated selling costs. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers' market knowledge and experience, and are considered Level 3. When an asset is acquired, the excess of the loan balance over fair value, less estimated liquidation costs (5%-20% discount rate), is charged to the allowance for loan losses. If the estimated fair value of the asset declines, a write-down is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in the economic conditions.

Deposit Liabilities

The estimated fair value of deposits with no stated maturity, such as checking, savings, and money market accounts, is equal to the amount payable on demand at the balance sheet date. The estimated fair value of term deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. The Company classifies the estimated fair value of term deposits as Level 2.

Borrowings

The book value of overnight borrowings approximates the estimated fair value. The estimated fair value of term borrowings is calculated based on the discounted cash flow of contractual amounts due, using market rates currently available for borrowings of similar amount and remaining maturity. The Company classifies the estimated fair value of term borrowings as Level 2.

Derivatives

The fair value of our interest rate swaps was estimated using Level 2 inputs. The fair value was determined using third party prices that are based on discounted cash flow analyses using observed market interest rate curves and volatilities.

Commitments to Extend Credit and to Purchase or Sell Securities

The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of commitments to purchase or sell securities is estimated based on bid quotations received from securities dealers. The fair value of off-balance-sheet commitments approximates book value.

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of September 30, 2017 and June 30, 2017 by level within the fair value hierarchy. There were no transfers between levels within the fair value hierarchy during the three months ended September 30, 2017.

	Fair Value as of September 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In thousands)
Assets:
Equity Securities	$	1,557	$	1,557	$	—	$	—
Mortgage-backed securities available for sale
Residential MBS		6,371		—		6,371		—
Commercial MBS		4,359		—		4,359		—
CMO		78,061		—		78,061		—
Total securities available for sale		90,348		1,557		88,791		—

Interest rate swaps		6,239		—		6,239		—
Total assets measured on a recurring basis	$	96,587	$	1,557	$	95,030	$	—

	Fair Value as of June 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In thousands)
Assets:
Equity Securities	$	1,498	$	1,498	$	—	$	—
Mortgage-backed securities available for sale
Residential MBS		6,921		—		6,921		—
Commercial MBS		4,406		—		4,406		—
CMO		85,105		—		85,105		—
Total securities available for sale		97,930		1,498		96,432		—

Interest rate swaps		6,437		—		6,437		—
Total assets measured on a recurring basis	$	104,367	$	1,498	$	102,869	$	—

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

Assets Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure the fair value of certain other financial assets on a nonrecurring basis in accordance with U.S. GAAP. The adjustments to fair value usually result from the application of lower-of-cost-or-fair value accounting or write downs of individual assets.

The following tables present the recorded amount of assets measured at fair value on a nonrecurring basis as of September 30, 2017 and June 30, 2017 by level within the fair value hierarchy.

	Fair Value as of September 30, 2017			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)
	(In thousands)
Assets:
Impaired loans:
Other commercial real estate		$	2,769		$	—		$	—		$	2,769
Total impaired loans			2,769			—			—			2,769
Total assets measured on a non-recurring basis		$	2,769		$	—		$	—		$	2,769

	Fair Value as of June 30, 2017			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)
	(In thousands)
Assets:
Impaired loans:
Residential		$	59		$	—		$	—		$	59
Other commercial real estate			2,907			—			—			2,907
Total impaired loans			2,966			—			—			2,966
Real estate owned
Other commercial real estate			140			—			—			140
Total real estate owned			140			—			—			140
Total assets measured on a non-recurring basis		$	3,106		$	—		$	—		$	3,106

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

Estimated Fair Value of Financial Instruments

The following tables present the carrying amount, estimated fair value, and placement in the fair value hierarchy of financial instruments not recorded at fair values in their entirety on a recurring basis on the Company's balance sheet at September 30, 2017 and June 30, 2017. These tables exclude financial instruments for which the carrying amount approximates fair value. Financial instruments for which the carrying amount approximates fair value include cash and cash equivalents, FHLB stock, non-maturity deposits, and overnight borrowings.

	September 30, 2017
	Carrying Amount			Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)
	(In thousands)
Financial assets:
Securities held to maturity		$	238,770		$	236,711		$	—		$	236,711		$	—
Loans, net (1)			3,561,902			3,531,067			—			—			3,531,067
Financial liabilities:
Time deposits			1,159,415			1,170,007			—			1,170,007			—
Term borrowings			495,977			492,359			—			492,359			—

_____________

(1)

Comprised of loans (including impaired loans), net of deferred loan fees and the allowance for loan losses.

	June 30, 2017
	Carrying Amount			Fair Value			Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Unobservable Inputs (Level 3)
	(In thousands)
Financial assets:
Securities held to maturity		$	239,631		$	237,204		$	—		$	237,204		$	—
Loans, net (1)			3,566,703			3,532,998			—			—			3,532,998
Financial liabilities:
Time deposits			1,124,140			1,134,628			—			1,134,628			—
Term borrowings			489,859			487,305			—			487,305			—

______________

(1)

Comprised of loans (including impaired loans), net of deferred loan fees and the allowance for loan losses.

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial assets or liabilities include the mortgage banking operation, deferred tax assets, and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

12. Other Comprehensive Income

The components of comprehensive income, both gross and net of tax, are presented for the periods below (in thousands):

	Three months ended September 30,
	2017			2016
Gross:
Net income	$	19,103		$	16,290
Other comprehensive (loss) income
Change in unrealized holding loss on securities available for sale		(8	)		(689	)
Amortization related to post-retirement obligations		9			100
Net change in unrealized (loss) gain on interest rate swaps		(198	)		2,274
Total other comprehensive (loss) income		(197	)		1,685
Total comprehensive income		18,906			17,975
Tax applicable to:
Net income		7,107			5,679
Other comprehensive (loss) income
Change in unrealized holding loss on securities available for sale		(4	)		(297	)
Amortization related to post-retirement obligations		4			28
Net change in unrealized (loss) gain on interest rate swaps		(88	)		974
Total other comprehensive (loss) income		(88	)		705
Total comprehensive income		7,019			6,384
Net of tax:
Net income		11,996			10,611
Other comprehensive (loss) income
Change in unrealized holding loss on securities available for sale		(4	)		(392	)
Amortization related to post-retirement obligations		5			72
Net change in unrealized (loss) gain on interest rate swaps		(110	)		1,300
Total other comprehensive (loss) income		(109	)		980
Total comprehensive income	$	11,887		$	11,591

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

The following table presents the changes in the components of accumulated other comprehensive (loss) income, net of tax, for the three months ended September 30, 2017 and 2016 (in thousands):

	Unrealized Holding Gain on Securities Available for Sale			Post Retirement Obligations			Unrealized Holding Gain (Loss) on Interest Rate Swaps			Accumulated Other Comprehensive Income (Loss), Net of Tax
Balance at June 30, 2017	$	438		$	(569	)	$	3,651		$	3,520
Net change		(4	)		5			(110	)		(109	)
Balance at September 30, 2017	$	434		$	(564	)	$	3,541		$	3,411

Balance at June 30, 2016	$	1,529		$	(1,657	)	$	(9,944	)	$	(10,072	)
Net change		(392	)		72			1,300			980
Balance at September 30, 2016	$	1,137		$	(1,585	)	$	(8,644	)	$	(9,092	)

The following table sets forth information about the amount reclassified from accumulated other comprehensive income (loss) to the consolidated statement of income and the affected line item in the statement where net income is presented (in thousands).

Accumulated Other Comprehensive Income (Loss) Component	Affected line item in the Consolidated Statement of Income	Three months ended September 30, 2017		Three months ended September 30, 2016
Amortization related to post-retirement obligations (1)
Net loss		$	9	$	100
Compensation, payroll taxes and fringe benefits			9		100

Total before tax			9		100
Income tax benefit			4		28
Net of tax		$	5	$	72

(1) These accumulated other comprehensive income (loss) components are included in the computations of net periodic benefit cost. See Note 5. Post-retirement Benefits.

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

13. Recent Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-12, "Targeted Improvements to Accounting for Hedging Activities". The purpose of this updated guidance is to better align a company's financial reporting for hedging activities with the economic objectives of those activities. The update is effective for fiscal years beginning after December 15, 2018. The update requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The Company does not expect the adoption of this guidance will have a significant impact on the Company's consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting". This update provides guidance about changes to terms or conditions of a share based payment award which would require modification accounting. In particular, an entity is required to account for the effects of a modification if the fair value, vesting condition or the equity/liability classification of the modified award is not the same immediately before and after a change to the terms and conditions of the award. This update is effective on a prospective basis for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company does not expect the adoption of this guidance will have a significant impact on the Company's consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, "Compensation – Retirement Benefits, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost." This update will require employers that sponsor defined benefit pension plans to present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost will be presented separately from the service cost component. This update will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company does not expect the adoption of this guidance will have a significant impact on the Company's consolidated financial statements.

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory". This update requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This update is effective for fiscal years beginning after December 31, 2017, including interim periods within that year. The Company does not expect the adoption of this guidance will have a significant impact on the Company's consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cashflows (Topic 230): Classification of Certain Cash Receipts and Cash Payments". This update addresses eight specific cash flow issue with the objective of reducing existing diversity in practice. This update is effective for fiscal years beginning after December 31, 2017, including interim periods within that year. The Company does not expect the update to materially impact the Company's statement of cash flows, although the classification of certain items could shift relative to past presentation.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". This update revises the methodology for estimating credit losses on loans receivable, held-to-maturity debt securities, unfunded loan commitments, and certain other financial assets measured at amortized cost. Under ASU 2016-13, the current expected credit losses ("CECL") model is based on lifetime expected losses, rather than incurred losses, and requires the recognition of credit loss expense in the statement of income and a related allowance for credit losses on the balance sheet at the time of origination or purchase of a loan receivable or held-to-maturity debt security. Subsequent changes in this estimate are recorded through credit loss expense and related allowance. The CECL model requires the use of not only relevant historical experience and current conditions, but also reasonable and supportable forecasts of future events and circumstances, thus incorporating a broad range of information in developing credit loss estimates, which could result in significant changes to both the timing and amount of credit loss expense and allowance. Under ASU 2016-13, available-for-sale debt securities are evaluated for impairment if fair value is less than amortized cost. Estimated credit losses are recorded through a credit loss expense and an allowance, rather than a write-down of the investment. Changes in fair value that are not credit-related will continue to be recorded in other comprehensive income. Certain additional disclosures are required, including further disaggregation of credit quality indicators for loans receivable by year of origination. This update is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is evaluating the impact of this update on its consolidated financial statements.

Index

Oritani Financial Corp. and subsidiaries

Notes to Unaudited Consolidated Financial Statements

In March 2016, the FASB issued ASU 2016-07, "Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting". This ASU requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this Update require that an entity that has an available for sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The ASU was effective for all entities in fiscal years, and interim periods in those fiscal years, beginning after December 15, 2016. Early adoption was permitted. The new guidance will be applied prospectively to changes in ownership (or influence) after the adoption date. We adopted this guidance on July 1, 2017 with no significant impact on the Company's consolidated financial statements..

In March 2016, the FASB issued ASU 2016-05, "Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the Emerging Issues Task Force))". This ASU clarifies that a change in the counterparty to a derivative instrument (novation), that has been designated as a hedging instrument does not, on its own, require dedesignation of that hedge accounting relationship provided that all other hedge accounting criteria continue to be met. This ASU was effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods therein. Early adoption was permitted, including adoption in an interim period. We adopted this guidance on July 1, 2017 with no significant impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)". This ASU requires lessees to put most leases on their balance sheets but recognize expenses in the income statement in a manner similar to current accounting treatment. This ASU changes the guidance on sale-leaseback transactions, initial direct costs and lease execution costs, and, for lessors, modifies the classification criteria and the accounting for sales-type and direct financing leases. For public business entities, this ASU is effective for annual periods beginning after December 15, 2018, and interim periods therein. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating the impact of the adoption of this guidance on the Company's consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities", which is intended to improve the recognition and measurement of financial instruments. The ASU revises an entity's accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company does not expect the adoption of this guidance will have a significant impact on the Company's consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are in the scope of other standards. In August 2015, the FASB issued ASU 2015-14 to defer for one year the effective date of the new revenue standard. The requirements are effective for annual periods and interim periods within fiscal years beginning after December 15, 2017. During 2016, the FASB issued further implementation guidance regarding revenue recognition. This additional guidance included clarification on certain principal versus agent considerations within the implementation of the guidance as well as clarification related to identifying performance obligations and licensing, assessing collectibility, presenting sales taxes, measuring noncash consideration, and certain transition matters. The Company does not expect the adoption of this guidance will have a significant impact on the Company's consolidated financial statements.

Index

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This Quarterly Report contains certain "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward looking statements may be identified by reference to a future period or periods, or by use of forward looking terminology, such as "may," "will," "believe," 'expect," "estimate," 'anticipate," "continue," or similar terms or variations on those terms, or the negative of those terms. Forward looking statements are subject to numerous risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements in addition to those risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended June 30, 2017, include, but are not limited to, those related to the economic environment, particularly in the market areas in which Oritani Financial Corp. (the "Company") operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.

The Company wishes to caution readers not to place undue reliance on any such forward looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions, which may be made to any forward looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Overview

Oritani Financial Corp. (the "Company") is a Delaware corporation that was incorporated in March 2010. The Company is the stock holding company of Oritani Bank. The Company owns 100% of the outstanding shares of common stock of the Bank. The Company has engaged primarily in the business of holding the common stock of the Bank and two limited liability companies. The two limited liability companies previously owned a variety of real estate investments but the majority of such investments have now been sold. The Bank's principal business consists of attracting retail, commercial and municipal bank deposits from the general public and investing those deposits, together with funds generated from operations and borrowed funds, in multifamily and commercial real estate loans, one- to four-family residential mortgage loans as well as in second mortgage and equity loans, construction loans, business loans, other consumer loans, and investment securities. The Bank originates loans primarily for investment and holds such loans in its portfolio. Occasionally, the Bank will also enter into loan participations. The Bank's primary sources of funds are deposits, borrowings, investment maturities and principal and interest payments on loans and securities. The Bank's revenues are derived principally from interest on loans and securities. The Bank also generates revenue from fees and service charges and other income. The Bank's results of operations depend significantly on its net interest income; which is the difference between the interest earned on interest-earning assets and the interest paid on interest-bearing liabilities. The Bank's net interest income is primarily affected by the market interest rate environment, the shape of the U.S. Treasury yield curve, the timing of the re-pricing of interest-earning assets and interest-bearing liabilities, and the prepayment rate on its mortgage-related assets. Provisions for loan losses and asset impairment charges can also have a significant impact on results of operations. Other factors that may affect the Bank's results of operations are general and local economic and competitive conditions, government policies and actions of regulatory authorities.

The Bank's business strategy is to operate as a well-capitalized and profitable financial institution dedicated to providing exceptional personal service to its individual, business, and municipal customers. The Bank's primary focus has been, and will continue to be, organic growth in multifamily and commercial real estate lending.

Index

Comparison of Financial Condition at September 30, 2017 and June 30, 2017

Total Assets. Total assets decreased $18.1 million to $4.12 billion at September 30, 2017, from $4.14 billion at June 30, 2017. Asset growth is typically driven by loan growth. As discussed below, loan balances decreased this quarter.

Cash and Cash Equivalents. Cash and cash equivalents (which include fed funds and short term investments) decreased $2.5 million to $31.1 million at September 30, 2017, from $33.6 million at June 30, 2017.

Net Loans. Loans, net decreased $4.8 million to $3.56 billion at September 30, 2017, from $3.57 billion at June 30, 2017. Loan balances were particularly impacted by loan principal payments. Management considers these results to be an anomaly primarily caused by the loan principal payments and anticipates meaningful loan growth in prospective periods. The Company's primary strategic business objective is the organic growth of multifamily and commercial real estate loans. Loan originations and principal payments totaled $147.5 million and $153.0 million, respectively, for the three months ended September 30, 2017. There were no loan purchases in the 2017 period.. The Company has not had any recent significant changes regarding its underwriting standards. Delinquency and non performing asset information is provided below:

	9/30/2017			6/30/2017			3/31/2017			12/31/2016			9/30/2016
	(Dollars in thousands)
Delinquency Totals
30—59 days past due	$	987		$	1,374		$	1,266		$	3,133		$	1,686
60—89 days past due		1,656			1,571			371			1,196			1,060
Nonaccrual		9,906			10,223			10,310			10,393			10,537
Total	$	12,549		$	13,168		$	11,947		$	14,722		$	13,283
Non Performing Asset Totals
Nonaccrual loans, per above	$	9,906		$	10,223		$	10,310		$	10,393		$	10,537
Real Estate Owned		—			140			140			266			449
Total	$	9,906		$	10,363		$	10,450		$	10,659		$	10,986
Nonaccrual loans to total loans		0.28	%		0.28	%		0.29	%		0.30	%		0.32	%
Delinquent loans to total loans		0.35	%		0.37	%		0.33	%		0.43	%		0.41	%
Non performing assets to total assets		0.24	%		0.25	%		0.25	%		0.27	%		0.29	%

Delinquent loan and non performing asset totals continue to illustrate minimal credit issues at the Company. Further, of the $9.9 million in loans classified as nonaccrual at September 30, 2017, $4.6 million were current.

Index

Securities available for sale. Securities AFS decreased $7.6 million to $90.3 million at September 30, 2017, from $97.9 million at June 30, 2017. The decrease is primarily due to principal payments.

Securities held to maturity. Securities HTM decreased $861,000 to $238.8 million at September 30, 2017, from $239.6 million at June 30, 2017. The decrease is primarily due to principal payments partially offset by purchases totaling $10.6 million.

Federal Home Loan Bank of New York ("FHLB") stock. FHLB stock decreased $4.7 million to $27.8 million at September 30, 2017, from $32.5 million at June 30, 2017. FHLB stock holdings are required depending on several factors, including the level of borrowings with the FHLB. As FHLB borrowings decreased over the quarter, excess FHLB stock was redeemed.

Deposits. Deposits increased $63.6 million to $2.92 billion at September 30, 2017, from $2.86 billion at June 30, 2017. The $63.6 million increase in deposits was primarily in time deposits. Growth was strong during the quarter though a significant portion of the growth in this period was due to brokered and municipal deposits, which increased $42.3 million.

Borrowings. Borrowings decreased $95.8 million to $546.3 million at September 30, 2017, from $642.1 million at June 30, 2017. The decrease in borrowings is primarily in overnight borrowings. Deposit growth has enabled the Company to reduce borrowings.

Stockholders' Equity. Stockholders' equity increased $7.2 million to $566.4 million at September 30, 2017, from $559.2 million at June 30, 2017. The increase was primarily due to net income and the release of treasury shares in conjunction with stock option exercises, partially offset by dividends. Based on our September 30, 2017 closing price of $16.80 per share, the Company stock was trading at 137.0% of book value.

Index

Average Balance Sheet for the Three Months Ended September 30, 2017 and 2016

The following table presents certain information regarding Oritani Financial Corp.'s financial condition and net interest income for the three months ended September 30, 2017 and 2016. The table presents the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. We derived average balances from daily balances over the periods indicated. Interest income includes fees that we consider adjustments to yields, including prepayment penalties.

	Average Balance Sheet and Yield/Rate Information For the Three Months Ended (unaudited)
	September 30, 2017							September 30, 2016
	Average Outstanding Balance		Interest Earned/Paid		Average Yield/Rate			Average Outstanding Balance		Interest Earned/ Paid		Average Yield/Rate
	(Dollars in thousands)
Interest-earning assets:
Loans ⁽¹⁾	$	3,565,102	$	35,837		4.02	%	$	3,151,514	$	31,973		4.06	%
Federal Home Loan Bank Stock		29,989		485		6.47	%		33,167		457		5.51	%
Securities available for sale		95,364		496		2.08	%		166,857		826		1.98	%
Securities held to maturity		236,499		1,099		1.86	%		171,904		803		1.87	%
Federal funds sold and short term investments		959		3		1.25	%		808		1		0.50	%
Total interest-earning assets		3,927,913		37,920		3.86	%		3,524,250		34,060		3.87	%
Non-interest-earning assets		195,611							187,055
Total assets	$	4,123,524						$	3,711,305
Interest-bearing liabilities:
Savings deposits		177,223		101		0.23	%		166,963		96		0.23	%
Money market		855,127		2,382		1.11	%		714,355		1,885		1.06	%
Checking accounts		715,034		972		0.54	%		550,886		548		0.40	%
Time deposits		1,135,565		3,898		1.37	%		972,335		3,210		1.32	%
Total deposits		2,882,949		7,353		1.02	%		2,404,539		5,739		0.95	%
Borrowings		593,005		2,923		1.97	%		674,088		3,021		1.79	%
Total interest-bearing liabilities		3,475,954		10,276		1.18	%		3,078,627		8,760		1.14	%
Non-interest-bearing liabilities		84,070							94,250
Total liabilities		3,560,024							3,172,877
Stockholders' equity		563,500							538,428
Total liabilities and stockholders' equity	$	4,123,524						$	3,711,305
Net interest income			$	27,644						$	25,300
Net interest rate spread ⁽²⁾						2.68	%						2.73	%
Net interest-earning assets ⁽³⁾	$	451,959						$	445,623
Net interest margin ⁽⁴⁾						2.82	%						2.87	%
Average of interest-earning assets to interest-bearing liabilities						113.00	%						114.47	%

(1)

Average outstanding balance includes nonaccrual loans and interest earned includes prepayment income.

(2)

Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

(3)

Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.

(4)

Net interest margin represents net interest income divided by average total interest-earning assets.

Index

Comparison of Operating Results for the Three Months Ended September 30, 2017 and 2016

Net Income. Net income increased $1.4 million, or 13.1%, to $12.0 million for the quarter ended September 30, 2017, from $10.6 million for the corresponding 2016 quarter. The primary cause of the increased net income in 2017 was increased net interest income of $2.3 million. A portion of the increased net interest income was due to a $658,000 increase in prepayment penalty income. Our annualized return on average assets was 1.16% for the quarter ended September 30, 2017, and 1.14% for the quarter ended September 30, 2016.

Interest Income. Total interest income increased $3.9 million to $37.9 million for the three months ended September 30, 2017, from $34.1 million for the three months ended September 30, 2016. The components of interest income for the three months ended September 30, 2017 and 2016, changed as follows:

	Three months ended September 30,										Increase / (decrease)
	2017					2016
	Interest Income		Yield			Interest Income		Yield			Interest Income			Average Balance			Yield
	(Dollars in thousands)
Interest on mortgage loans	$	35,837		4.02	%	$	31,973		4.06	%	$	3,864		$	413,588			(0.04	)%
Dividends on FHLB stock		485		6.47	%		457		5.51	%		28			(3,178	)		0.96	%
Interest on securities AFS		496		2.08	%		826		1.98	%		(330	)		(71,493	)		0.10	%
Interest on securities HTM		1,099		1.86	%		803		1.87	%		296			64,595			(0.01	)%
Interest on federal funds sold and short term investments		3		1.25	%		1		0.50	%		2			151			0.75	%
Total interest income	$	37,920		3.86	%	$	34,060		3.87	%	$	3,860		$	403,663			(0.01	)%

The Company's primary strategic business objective remains the organic growth of multifamily and commercial real estate loans. The average balance of the loan portfolio increased $413.6 million, or 13.1%, for the three months ended September 30, 2017 versus the comparable 2016 period. On a linked quarter basis (September 30, 2017 versus June 30, 2017), loan balances were particularly impacted by loan principal payments. The annualized growth rate of the portfolio was 3.5% when measured based on average balance.

The yield on the loan portfolio decreased 4 basis points for the quarter ended September 30, 2017 versus the comparable 2016 period. On a linked quarter basis (September 30, 2017 versus June 30, 2017), the yield on the loan portfolio increased 12 basis points. The increased level of prepayment income impacted these results. Exclusive of prepayment penalties, the yield on the loan portfolio decreased 10 basis points versus the quarter ended September 30, 2016 and increased 1 basis point on a linked quarter basis. Prepayment penalties totaled $1.3 million, $236,000 and $631,000 for the quarters ended September 30, 2017, June 30, 2017 and September 30, 2016, respectively. Prepayment penalty income boosted annualized loan yield by 14, 3 and 8 basis points for the quarters ended September 30, 2017, June 30, 2017 and September 30, 2016, respectively. See additional information regarding loans in "Comparison of Financial Condition at September 30, 2017 and June 30, 2017-Net Loans."

The average balance of securities available for sale decreased $71.5 million for the three months ended September 30, 2017 versus the comparable 2016 period, while the average balance of securities held to maturity increased $64.6 million over the same period. The Company has been classifying the majority of new purchases as held to maturity. These balances were also impacted by purchases and sales.

Index

Interest Expense. Total interest expense increased $1.5 million to $10.3 million for the three months ended September 30, 2017, from $8.8 million for the three months ended September 30, 2016. The components of interest expense for the three months ended September 30, 2017 and 2016, changed as follows:

	Three months ended September 30,											Increase / (decrease)
	2017						2016
	Interest Expense			Cost			Interest Expense		Cost			Interest Expense			Average Balance			Cost
	(Dollars in thousands)
Savings deposits		$	101		0.23	%	$	96		0.23	%	$	5		$	10,260			—	%
Money market			2,382		1.11	%		1,885		1.06	%		497			140,772			0.05	%
Checking accounts			972		0.54	%		548		0.40	%		424			164,148			0.14	%
Time deposits			3,898		1.37	%		3,210		1.32	%		688			163,230			0.05	%
Total deposits			7,353		1.02	%		5,739		0.95	%		1,614			478,410			0.07	%
Borrowings			2,923		1.97	%		3,021		1.79	%		(98	)		(81,083	)		0.18	%
		$	10,276		1.18	%	$	8,760		1.14	%	$	1,516		$	397,327			0.04	%

Strong deposit growth remains a strategic objective of the Company. As detailed above, the average balance of deposits increased $478.4 million, or 19.9%, for the quarter ended September 30, 2017 versus the comparable 2016 period. The overall cost of deposits increased 7 basis points for the quarter ended September 30, 2017 versus the comparable 2016 period, and 4 basis points on a linked quarter comparison basis. The increased cost of money market and checking accounts is primarily attributable to the costs of interest rate swaps that are being reflected as interest expense on these accounts. The situation occurred as a result of balance sheet transactions executed during the quarters ended June 30, 2017, June 30, 2016 and December 31, 2015. The restructures executed during the quarters ended June 30, 2016 and December 31, 2015 impacted the results for both the quarter ended September 30, 2017 and the quarter ended September 30, 2016. The restructure executed during the quarter ended June 30, 2017 only impacted the results for the quarter ended September 30, 2017. The balance sheet restructures are discussed in the Company's Form 10-K for the annual periods ended June 30, 2017 and 2016. The increase in the cost of time deposits is primarily due to the impact of market pressures.

As detailed in the table above, the average balance of borrowings decreased $81.1 million for the three months ended September 30, 2017 versus the comparable 2016 period, while the cost increased 18 basis points. The increase in the average balance of deposits allowed the Company to reduce borrowings while still funding growth. The cost of borrowings has been impacted by the increased cost of overnight and short term borrowings. The cost of borrowings was also affected by the balance sheet restructures referenced above. On a linked quarter basis, the average balance of borrowings decreased $117.8 million and the cost of borrowings decreased 3 basis points. The impact of the balance sheet restructure on borrowing costs was partially offset by the increased cost of overnight borrowings as well as the decreased level of overnight borrowings. Despite the increased cost of such borrowings, they remain a lower cost of funding than longer term borrowings.

Index

Net Interest Income Before Provision for Loan Losses. Net interest income increased by $2.3 million to $27.6 million for the three months ended September 30, 2017, from $25.3 million for the three months ended September 30, 2016. The Company's net interest income, spread and margin over the period are detailed in the chart below.

	Net Interest Income Before			Prepayment Penalty		Net Interest Income Before Provision, Excluding Prepayment		Including Prepayment Penalties						Excluding Prepayment Penalties
Quarter Ended	Provision			Income		Penalties		Spread			Margin			Spread			Margin
	(Dollars in thousands)
September 30, 2017		$	27,644	$	1,289	$	26,355		2.68	%		2.82	%		2.55	%		2.68	%
June 30, 2017			26,287		236		26,051		2.54	%		2.68	%		2.52	%		2.66	%
March 31, 2017			26,795		821		25,974		2.63	%		2.75	%		2.54	%		2.67	%
December 31, 2016			26,229		1,199		25,030		2.72	%		2.86	%		2.59	%		2.73	%
September 30, 2016			25,300		631		24,669		2.73	%		2.87	%		2.65	%		2.80	%

The Company's spread and margin have been significantly impacted by prepayment penalties. Due to this situation, the chart above details results with and without the impact of prepayment penalties. Net interest income before provision for loan losses, excluding prepayment penalties, is a non-GAAP financial measure since it excludes a component (prepayment penalty income) of net interest income and therefore differs from the most directly comparable measure calculated in accordance with GAAP. The Company believes the presentation of this non-GAAP financial measure is useful because it provides information to assess the underlying performance of the loan portfolio since prepayment penalty income can be expected to change as interest rates change. While prepayment penalty income is expected to continue, fluctuations in the level of prepayment income are also expected. The level of prepayment income is generally expected to decrease as external interest rates increase since borrowers would have less of an incentive to refinance existing loans. However, the time period when these events could occur may not align, and the specific behavior of borrowers is difficult to predict. The level of loan prepayments and prepayment income increased during the quarter ended September 30, 2017 despite a period of generally increasing interest rates.

The Company's spread and margin remain under pressure due to several factors. These factors were discussed in the Company's Form 10-K for the annual period ended June 30, 2017, and in other prior filings. Despite the spread and margin compression, the Company's net interest income excluding prepayment penalties has been expanding. The Company undertook the balance sheet restructures referenced above, in part, to counter some of the spread and margin compression that is occurring. Recently, the rate of compression has abated and the spread and margin, absent prepayment penalties, expanded for the quarter ended September 30, 2017 (versus the quarter ended June 30, 2017). While expansion was primarily due to the balance sheet restructure that was executed during the quarter ended June 30, 2017, increased loan yields have offset some of the compression pressures. Management does not expect continued expansion of the spread and margin in the coming quarter.

The Company's net interest income and net interest rate spread were both negatively impacted in all periods due to the reversal of accrued interest income on loans delinquent more than 90 days. The total of such income reversed was $78,000 for the three months ended September 30, 2017 and $119,000 for the three months ended September 30, 2016..

Index

Provision for Loan Losses. The Company recorded no provision for loan losses for both the three months ended September 30, 2017 and the three months ended September 30, 2016. A rollforward of the allowance for loan losses for the three months ended September 30, 2017 and 2016 is presented below:

	Three months ended September 30,
	2017			2016
	(Dollars in thousands)
Balance at beginning of period	$	30,272		$	29,951
Provisions charged to operations		—			—
Recoveries of loans previously charged off		152			2
Loans charged off		(22	)		(75	)
Balance at end of period	$	30,402		$	29,878
Allowance for loan losses to total loans		0.84	%		0.92	%
Net annualized (recoveries) charge-offs to average loans outstanding		(0.02	)%		0.01	%

The improving delinquency and nonaccrual trends, changes in loan risk ratings, loan growth, charge-offs and economic and business conditions continue to have a meaningful impact on the current level of provision for loan losses. In addition, improvements in general economic and business conditions have also impacted the level of provisioning by decreasing the necessary level of general allowances. See additional information regarding the allowance for loan losses in Note 6 of the financial statements and "Comparison of Financial Condition at September 30, 2017 and June 30, 2017-Net Loans."

Other Income. Other income decreased $315,000 to $943,000 for the three months ended September 30, 2017, from $1.3 million for the three months ended September 30, 2016. The primary change was a decrease of $316,000 in net income from investments in real estate joint ventures. Income from this category decreased to zero for the three months ended September 30, 2017 as the Company has disposed of all such properties.

Other Expenses. Other expenses decreased $784,000 to $9.5 million for the three months ended September 30, 2017, from $10.3 million for the three months ended September 30, 2016. Compensation, payroll taxes and fringe benefits decreased $802,000 to $6.6 million for the three months ended September 30, 2017, from $7.4 million for the three months ended September 30, 2016. The cost for the majority of the stock awards and stock options granted in conjunction with the Company's 2011 Equity Plan fully amortized in August 2016. The 2016 period included a portion of the amortization expense related to this plan while the 2017 period had significantly less expenses related to the amortization of this plan. This situation reduced expenses in the 2017 period by $724,000.

Income Tax Expense. Income tax expense for the three months ended September 30, 2017 was $7.1 million on pre-tax income of $19.1 million, resulting in an effective tax rate of 37.2%. Income tax expense for the three months ended September 30, 2016 was $5.7 million on pre-tax income of $16.3 million, resulting in an effective tax rate of 34.9%. The Company's effective rate in the 2016 period was positively affected by the vesting of stock awards and the exercise of nonqualified stock options and disqualified incentive stock options. There were minimal such events in the 2017 period. The 2017 period was also negatively impacted by certain changes in State tax rates.

Index

Liquidity and Capital Resources

The Company's primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, Federal Home Loan Bank ("FHLB") borrowings and investment maturities. While scheduled amortization of loans is a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company has other sources of liquidity if a need for additional funds arises, including advances from the FHLB and Federal Reserve Bank of New York.

At September 30, 2017 and June 30, 2017, the Company had $50.3 million and $152.2 million in overnight borrowings from the FHLB, respectively. The Company had total borrowings of $546.3 million at September 30, 2017 and $642.1 million at June 30, 2017. The Company's total borrowings at September 30, 2017 include $461.1 million in longer term borrowings with the FHLB. In the normal course of business, the Company routinely enters into various commitments, primarily relating to the origination of loans. At September 30, 2017, outstanding commitments to originate loans totaled $52.3 million and outstanding commitments to extend credit totaled $17.4 million. The Company expects to have sufficient funds available to meet current commitments in the normal course of business.

Time deposits scheduled to mature in one year or less totaled $619.4 million at September 30, 2017. Based upon historical experience, management estimates that a large portion of such deposits will remain with the Company. The portion that remains will be significantly impacted by the renewal rates offered by the Company.

The management of liquidity described in the above paragraphs primarily pertains to Oritani Bank. The Company, on an unconsolidated basis, also has liquidity sources and uses. The Company's primary, recurring source of funds has been dividends from Oritani Bank. As a wholly owned subsidiary of the Company, the Bank will typically distribute its net income to the Company as a dividend. Under the New Jersey Banking Act, a stock savings bank may declare and pay a dividend on its capital stock only to the extent that the payment of the dividend would not impair the capital stock of the savings bank. In addition, a stock savings bank may not pay a dividend unless the savings bank would, after the payment of the dividend, have a surplus of not less than 50% of its capital stock, or alternatively, the payment of the dividend would not reduce the surplus. Additionally, Oritani Bank must notify the Federal Reserve Board thirty days before declaring any dividend to the Company. The Federal Reserve Board may object to the payment of the dividend if it deems it to be unsafe or unsound or a violation of a law, regulation or order or if the institution will be undercapitalized after the dividend. An inability of Oritani Bank to pay dividends may restrict the Company's ability to pay dividends.

The Company's primary use of funds has been dividends to shareholders and repurchases of common stock. The declarations of such dividends are at the discretion of the Company and the dividend amount could be reduced or eliminated if the payment of a dividend to shareholders would result in a liquidity concern. The Company's loan portfolio was an additional source and use of funds. The Company periodically originated loans which were a significant use of funds. The principal and interest payments from these loans provided a recurring source of funds. The majority of the Company's loans were directly or indirectly related to entities in the Company's investment in real estate joint ventures and real estate held for investment portfolios. The Company announced its intention to explore the strategic disposition of the properties and interests in these portfolios. As of June 30, 2016, the properties and interests in these portfolios were disposed, the related loans were repaid and the sales activity and loan repayments were a significant, but transitory, source of funds. In addition, the Company secured external financing, a source of funds independent of the Bank. At June 30, 2017, the Company had $12.5 million in borrowings outstanding from another financial institution. In addition, at September 30, 2017 and June 30, 2017 , the Company, on an unconsolidated basis, had cash and cash equivalents of $6.2 million and $57.4 million, respectively.

In July 2013, the Federal Reserve Board and the FDIC issued final rules implementing the Basel III regulatory capital framework and related Dodd-Frank Act changes. The rules revise minimum capital requirements and adjust prompt corrective action thresholds. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Company and the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5 percent and a common equity Tier 1 capital conservation buffer of 2.5 percent of risk-weighted assets. The final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0 percent to 6.0 percent and require a minimum leverage ratio of 4.0 percent. The final rule became effective January 1, 2015, subject to a transition period for various components of the rule that require full compliance for the Company by January 1, 2019, including a capital conservation buffer of 2.5 percent of risk-weighted assets for which the transitional period began on January 1, 2016.

As of September 30, 2017 and June 30, 2017, the Company and Bank exceeded all regulatory capital requirements as follows:

	September 30, 2017
	Actual						Required
	Amount			Ratio			Amount			Ratio
	(Dollars in thousands)
Company:
Common Equity Tier 1 ("CET1") (to risk-weighted assets)		$	562,982		15.25	%		$	166,146		4.50	%
Tier 1capital (to risk-weighted assets)			562,982		15.25	%			221,528		6.00	%
Total capital (to risk-weighted assets)			593,384		16.07	%			295,370		8.00	%
Tier 1 leverage capital (to average assets)			562,982		13.66	%			164,819		4.00	%
Capital Conservation Buffer			298,014		8.07	%			46,152		1.25	%

Index

	June 30, 2017
	Actual						Required
	Amount			Ratio			Amount			Ratio
	(Dollars in thousands)
Company:
Common Equity Tier 1 ("CET1") (to risk-weighted assets)		$	555,703		15.02	%		$	166,443		4.50	%
Tier 1capital (to risk-weighted assets)			555,703		15.02	%			221,924		6.00	%
Total capital (to risk-weighted assets)			585,975		15.84	%			295,898		8.00	%
Tier 1 leverage capital (to average assets)			555,703		13.51	%			164,562		4.00	%
Capital Conservation Buffer			290,077		7.84	%			46,234		1.25	%

	September 30, 2017
	Actual						Required					Well-Capitalized
	Amount			Rate			Amount		Rate			Amount		Rate
	(Dollars in thousands)
Bank:
Common Equity Tier 1 ("CET1") (to risk weighted assets)		$	534,346		14.47	%		166,119		4.50	%	$	239,949		6.50	%
Tier 1 capital (to risk-weighted assets)			534,346		14.47	%		221,492		6.00	%		295,322		8.00	%
Total capital (to risk-weighted assets)			564,748		15.30	%		295,322		8.00	%		369,153		10.00	%
Tier 1 Leverage capital (to average assets)			534,346		12.97	%		164,789		4.00	%		205,986		5.00	%
Capital conservation buffer			269,426		7.30	%		46,144		1.250	%

	June 30, 2017
	Actual						Required					Well-Capitalized
	Amount			Rate			Amount		Rate			Amount		Rate
	(Dollars in thousands)
Bank:
Common Equity Tier 1 ("CET1") (to risk weighted assets)		$	521,414		14.10	%	$	166,440		4.50	%	$	240,413		6.50	%
Tier 1 capital (to risk-weighted assets)			521,414		14.10	%		221,919		6.00	%		295,893		8.00	%
Total capital (to risk-weighted assets)			551,686		14.92	%		295,893		8.00	%		369,866		10.00	%
Tier 1 Leverage capital (to average assets)			521,414		12.68	%		164,533		4.00	%		205,666		5.00	%
Capital conservation buffer			255,793		6.92	%		46,233		1.250	%

Critical Accounting Policies

Note 1 to the Company's Audited Consolidated Financial Statements for the year ended June 30, 2017, included in the Company's Annual Report on Form 10-K, as supplemented by this report, contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets and liabilities are carried in the consolidated Balance Sheets at fair value or the lower of cost or fair value. Policies with respect to the methodologies used to determine the allowance for loan losses and judgments regarding the valuation of securities and derivatives as well as the valuation allowance against deferred tax assets are the most critical accounting policies because they are important to the presentation of the Company's financial condition and results of operations, involve a higher degree of complexity, and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition. These critical accounting policies and their application are reviewed periodically and, at least annually, with the Audit Committee of the Board of Directors. For a further discussion of the critical accounting policies of the Company, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K, for the year ended June 30, 2017.

Index

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, our Board of Directors has the authority and responsibility for managing interest rate risk. Oritani Bank has established an Asset/Liability Management Committee, comprised of various members of its senior management, which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for recommending to the Board the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. The Asset/Liability Management Committee reports its activities to the Board on a monthly basis. An interest rate risk analysis is presented to the Board on a quarterly basis.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. As part of our ongoing asset-liability management, we currently use the following strategies to manage our interest rate risk:

(i)	originating multifamily and commercial real estate loans that generally tend to have shorter interest duration and generally have interest rates that reset in five years or less. The chart below provides maturity/repricing information for the entire loan portfolio, the majority of which is comprised of multifamily and commercial real estate loans;
(ii)	investing in shorter duration securities and mortgage-backed securities;
(iii)	obtaining general financing through FHLB advances with a fixed long term; and
(iv)	utilizing interest rate swaps or other derivative instruments

Loan Portfolio by Reprice/Maturity Date
At September 30, 2017
(Dollars in thousands)
Repricing or Maturing Within:	Amount			Weighted Average Rate			% of Total Loans			Cumulative % of Total Loans
1 Year or less		$	488,898		3.79	%		13.58	%		13.58	%
1 - 3 years			1,452,390		3.48	%		40.34	%		53.92	%
3 - 5 years			893,899		3.78	%		24.83	%		78.75	%
5 - 7 years			300,557		3.98	%		8.35	%		87.10	%
7 to 10 years			108,111		4.48	%		3.00	%		90.10	%
Greater than 10 years			356,400		4.58	%		9.90	%		100.00	%
Total		$	3,600,255		3.78	%		100.00	%

At September 30, 2017, 53.92 % of the loan portfolio matured or repriced in 3 years or less, and 78.75% matured or repriced in 5 years or less.

Shortening the average maturity of our interest-earning assets by increasing our investments in shorter-term loans and securities, as well as loans and securities with variable rates of interest, helps to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. In addition, if changes occur that cause the estimated duration of a security to lengthen significantly, management will consider the sale of such security. By following these strategies, we believe that we are well-positioned to react to changes in market interest rates.

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Net Portfolio Value. We compute the amounts by which the net present value of cash flow from assets, liabilities and off balance sheet items (the institution's net portfolio value or "NPV") would change in the event of a range of assumed changes in market interest rates. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the "Change in Interest Rates" column below.

The table below sets forth, as of September 30, 2017, the estimated changes in our net portfolio value that would result from the designated instantaneous changes in the United States Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates and loan prepayment and deposit decay rates, and should not be relied upon as indicative of actual results.

					Estimated Increase (Decrease) in NPV						NPV as a Percentage of Present Value of Assets (3)
Change in Interest Rates (basis points) (1)			Estimated NPV (2)		Amount			Percent			NPV Ratio (4)			Increase (Decrease) basis points
			(Dollars in thousands)
	+200		$	529,419	$	(72,546	)		(12.1	)%		13.4	%		(124	)
	+100			568,726		(33,239	)		(5.5	)%		14.1	%		(55	)
	—			601,965		—			—	%		14.6	%		—
	(100	)		637,944		35,979			6.0	%		15.2	%		53

(1)

Assumes an instantaneous uniform change in interest rates at all maturities.

(2)

NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3)

Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4)

NPV Ratio represents NPV divided by the present value of assets.

The table above indicates that at September 30, 2017, in the event of a 100 basis point decrease in interest rates, we would experience a 6.0% increase in net portfolio value. In the event of a 200 basis point increase in interest rates, we would experience a 12.1% decrease in net portfolio value. These changes in net portfolio value are within the limitations established in our asset and liability management policies.

Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in net portfolio value require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net portfolio value table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net portfolio value table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

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Item 4. Controls and Procedures

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

There were no changes made in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting during the period covered by this report.

Part II – Other Information

Item 1. Legal Proceedings

The Company and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company's financial condition or results of operations.

Item 1A. Risk Factors

There have been no material changes from those risk factors previously disclosed in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on August 29, 2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)

Unregistered Sale of Equity Securities. There were no sales of unregistered securities during the period covered by this report.

(b)

Use of Proceeds. Not applicable.

(c)

Repurchase of Our Equity Securities. The following table shows the Company's repurchases of its common stock for each calendar month in the three months ended September 30, 2017 and the stock repurchase plan approved by our Board of Directors.

Period	Total Number of Shares Repurchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan		Maximum Number of Shares That May Yet Be Purchased Under the Plan
July 31, 2017		763	$	17.15		763		1,888,088
August 31, 2017		—		—		—		1,888,088
September 30, 2017		—		—		—		1,888,088
		763				763

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. As of November 9, 2017, the Company has repurchased, under the repurchase plans approved since the second step transaction, 13,279,083 shares of its stock at an average price of $13.30 per share.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

The following exhibits are either filed as part of this report or are incorporated herein by reference:

3.1		Certificate of Incorporation of Oritani Financial Corp. *
3.2		Bylaws of Oritani Financial Corp. *
4		Form of Common Stock Certificate of Oritani Financial Corp. *
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101		Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders' Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*	Incorporated by reference to the Registration Statement on Form S-1 of Oritani Financial Corp. (file no. 333-165226), as amended, filed with the Securities and Exchange Commission on April 16, 2010.

Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		ORITANI FINANCIAL CORP.

Date:	November 9, 2017	/s/ Kevin J. Lynch
		Kevin J. Lynch
		President and Chief Executive Officer

Date:	November 9, 2017	/s/ John M. Fields, Jr.
		John M. Fields, Jr.
		Executive Vice President and Chief Financial Officer

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