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

FORM 10-Q
______________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2017
 
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from   to
Commission File No. 001-34786
   
Oritani Financial Corp.
(Exact name of registrant as specified in its charter)
   

Delaware
 
30-0628335
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
370 Pascack Road, Township of Washington, New Jersey 07676
(Address of Principal Executive Offices) (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 February 9, 2018, there were 56,245,065 shares of the Registrant's common stock, par value $0.01 per share, issued and 46,321,258 shares outstanding.




Oritani Financial Corp.
FORM 10-Q
 
Index

 
 
 
 
  Page
 
 
 
3
 
 
 
 
Consolidated Balance Sheets as of December 31, 2017 (unaudited) and June 30, 2017
3
 
 
 
 
Consolidated Statements of Income for the Three and Six Months Ended December 31, 2017 and 2016 (unaudited)
4
 
 
 
 
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31, 2017 and 2016 (unaudited)
5
 
 
 
 
Consolidated Statements of Stockholders' Equity for the Six Months Ended December 31, 2017 and 2016 (unaudited)
6
 
 
 
 
Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2017 and 2016 (unaudited)
8
 
 
 
 
Notes to Unaudited Consolidated Financial Statements
9
 
 
 
Management's Discussion and Analysis of Financial Condition and Results of Operations
36
 
 
 
50
 
 
 
52
 
 
 
 
 
 
 
 
52
 
 
 
52
 
 
 
52
 
 
 
Defaults Upon Senior Securities
52
 
 
 
Mine Safety Disclosures
52
 
 
 
Other Information
52
 
 
 
53
 
 
 
 
54
 
Part I. Financial Information
Item 1. Financial Statements
 
Oritani Financial Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)

 
 
December 31, 2017
   
June 30, 2017
 
 
 
(unaudited)
   
(audited)
 
Assets
           
Cash on hand and in banks
 
$
38,373
   
$
33,252
 
Federal funds sold and short term investments
   
598
     
326
 
Cash and cash equivalents
   
38,971
     
33,578
 
Loans, net
   
3,586,243
     
3,566,703
 
Securities available for sale, at fair value
   
52,908
     
97,930
 
Securities held to maturity, fair value of $247,376 and $237,204, respectively
   
251,254
     
239,631
 
Bank Owned Life Insurance (at cash surrender value)
   
97,221
     
95,946
 
Federal Home Loan Bank of New York ("FHLB") stock , at cost
   
27,519
     
32,504
 
Accrued interest receivable
   
10,868
     
10,620
 
Real estate owned
   
     
140
 
Office properties and equipment, net
   
13,621
     
13,909
 
Deferred tax assets, net
   
26,764
     
37,693
 
Other assets
   
17,022
     
9,030
 
Total Assets
 
$
4,122,391
   
$
4,137,684
 
Liabilities
               
Deposits
 
$
2,945,593
   
$
2,856,478
 
Borrowings
   
539,516
     
642,059
 
Advance payments by borrowers for taxes and insurance
   
22,389
     
23,496
 
Other liabilities
   
67,348
     
56,428
 
Total Liabilities
   
3,574,846
     
3,578,461
 
Stockholders' Equity
               
Common stock, $0.01 par value; 150,000,000 shares authorized; 56,245,065 shares issued;
46,304,550 shares outstanding at December 31, 2017 and 45,992,366 shares outstanding at June 30, 2017.
   
562
     
562
 
Additional paid-in capital
   
513,316
     
512,337
 
Non-vested restricted stock awards
   
(201
)
   
(458
)
Treasury stock, at cost; 9,940,515 shares at December 31, 2017 and 10,252,699 shares at June 30, 2017.
   
(132,371
)
   
(136,517
)
Unallocated common stock held by the employee stock ownership plan
   
(17,331
)
   
(18,407
)
Retained earnings
   
178,484
     
198,186
 
Accumulated other comprehensive income, net of tax
   
5,086
     
3,520
 
Total Stockholders' Equity
   
547,545
     
559,223
 
Total Liabilities and Stockholders' Equity
 
$
4,122,391
   
$
4,137,684
 

See accompanying notes to unaudited consolidated financial statements.
3


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

 
 
Three months ended December 31,
   
Six months ended December 31,
 
 
 
2017
   
2016
   
2017
   
2016
 
 
 
(unaudited)
 
Interest income:
                       
Interest on loans
 
$
35,891
   
$
33,135
   
$
71,728
   
$
65,108
 
Interest on securities available for sale
   
457
     
826
     
953
     
1,652
 
Interest on securities held to maturity
   
1,145
     
871
     
2,244
     
1,674
 
Dividends on FHLB stock
   
451
     
417
     
936
     
874
 
Interest on federal funds sold and short term investments
   
108
     
2
     
111
     
3
 
Total interest income
   
38,052
     
35,251
     
75,972
     
69,311
 
Interest expense:
                               
Deposits
   
7,788
     
5,964
     
15,141
     
11,703
 
Borrowings
   
2,656
     
3,058
     
5,579
     
6,079
 
Total interest expense
   
10,444
     
9,022
     
20,720
     
17,782
 
Net interest income before provision for loan losses
   
27,608
     
26,229
     
55,252
     
51,529
 
Provision for loan losses
   
     
     
     
 
Net interest income after provision for loan losses
   
27,608
     
26,229
     
55,252
     
51,529
 
Other income:
                               
Service charges
   
196
     
176
     
424
     
358
 
Real estate operations, net
   
3
     
     
3
     
 
Income from investments in real estate joint ventures
   
     
260
     
     
576
 
Bank-owned life insurance
   
630
     
666
     
1,276
     
1,345
 
Net loss on sale of assets
   
     
     
(2
)
   
 
Net loss on sale of securities
   
(324
)
   
     
(324
)
   
 
Other income
   
73
     
81
     
144
     
162
 
Total other income
   
578
     
1,183
     
1,521
     
2,441
 
Other expenses:
                               
Compensation, payroll taxes and fringe benefits
   
7,483
     
8,207
     
14,039
     
15,565
 
Advertising
   
143
     
125
     
285
     
215
 
Office occupancy and equipment expense
   
780
     
781
     
1,529
     
1,581
 
Data processing service fees
   
420
     
559
     
964
     
1,103
 
Federal insurance premiums
   
300
     
300
     
600
     
750
 
Other expenses
   
1,042
     
1,086
     
2,235
     
2,112
 
Total operating expenses
   
10,168
     
11,058
     
19,652
     
21,326
 
Income before income tax expense
   
18,018
     
16,354
     
37,121
     
32,644
 
Income tax expense
   
14,048
     
4,978
     
21,155
     
10,657
 
Net income
 
$
3,970
   
$
11,376
   
$
15,966
   
$
21,987
 
Earnings per basic common share
 
$
0.09
   
$
0.26
   
$
0.36
   
$
0.51
 
Earnings per diluted common share
 
$
0.09
   
$
0.26
   
$
0.35
   
$
0.50
 
 
See accompanying notes to unaudited consolidated financial statements.
4


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

 
 
Three months ended December 31,
   
Six months ended December 31,
 
 
 
2017
   
2016
   
2017
   
2016
 
 
 
(unaudited)
 
Net of tax:
                       
Net income
 
$
3,970
   
$
11,376
   
$
15,966
   
$
21,987
 
Other comprehensive income:
                               
Change in unrealized holding loss on securities available for sale
   
(361
)
   
(1,062
)
   
(365
)
   
(1,454
)
Reclassification adjustment for security loss included in net income
   
184
     
     
184
     
 
Amortization related to post-retirement obligations
   
5
     
57
     
10
     
130
 
Net change in unrealized gain on interest rate swaps
   
1,847
     
7,889
     
1,737
     
9,188
 
Total other comprehensive income
   
1,675
     
6,884
     
1,566
     
7,864
 
Total comprehensive income
 
$
5,645
   
$
18,260
   
$
17,532
   
$
29,851
 
 
See accompanying notes to unaudited consolidated financial statements.
5


Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Six months ended December 31, 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
   
     
     
     
     
     
     
21,987
     
     
21,987
 
Other comprehensive income , net of tax
   
     
     
     
     
     
     
     
7,864
     
7,864
 
Cash dividends declared ($0.85 per share)
   
     
     
     
     
     
     
(36,598
)
   
     
(36,598
)
Purchase of treasury stock
   
(98,655
)
   
     
     
     
(1,574
)
   
     
     
     
(1,574
)
Issuance of restricted stock awards
   
10,000
     
     
     
(133
)
   
133
     
     
     
     
 
Compensation cost for stock options and restricted stock
   
     
     
849
     
     
     
     
     
     
849
 
ESOP shares allocated or committed to be released
   
     
     
1,340
     
     
     
1,382
     
     
     
2,722
 
Exercise of stock options
   
701,301
     
     
     
     
9,334
     
     
(1,320
)
   
     
8,014
 
Vesting of restricted stock awards
   
     
     
(3,879
)
   
3,892
     
     
     
(13
)
   
     
 
Balance at December 31, 2016
   
45,860,066
   
$
562
   
$
511,487
   
$
(483
)
 
$
(138,280
)
 
$
(19,099
)
 
$
186,485
   
$
(2,208
)
 
$
538,464
 

Continued on next page
6

Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Six months ended December 31, 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, 2017
   
45,992,366
   
$
562
   
$
512,337
   
$
(458
)
 
$
(136,517
)
 
$
(18,407
)
 
$
198,186
   
$
3,520
   
$
559,223
 
Net income
   
     
     
     
     
     
     
15,966
     
     
15,966
 
Other comprehensive income, net of tax
   
     
     
     
     
     
     
     
1,566
     
1,566
 
Cash dividends declared ($0.80 per share)
   
     
     
     
     
     
     
(35,159
)
   
     
(35,159
)
Purchase of treasury stock
   
(4,787
)
   
     
     
     
(81
)
   
     
     
     
(81
)
Compensation cost for stock options and restricted stock
   
     
     
101
     
     
     
     
     
     
101
 
ESOP shares allocated or committed to be released
   
     
     
1,088
     
     
     
1,076
     
     
     
2,164
 
Exercise of stock options
   
323,971
     
     
     
     
4,314
     
     
(549
)
   
     
3,765
 
Vesting of restricted stock awards
   
     
     
(210
)
   
170
     
     
     
40
     
     
 
Forfeiture of restricted stock awards
   
(7,000
)
   
     
     
87
     
(87
)
   
     
     
     
 
Balance at December 31, 2017
   
46,304,550
   
$
562
   
$
513,316
   
$
(201
)
 
$
(132,371
)
 
$
(17,331
)
 
$
178,484
   
$
5,086
   
$
547,545
 
 
See accompanying notes to unaudited consolidated financial statements.
7


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

 
 
Six months ended December 31,
 
 
 
2017
   
2016
 
 
 
(unaudited)
 
Cash flows from operating activities:
     
Net income
 
$
15,966
   
$
21,987
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
ESOP and stock-based compensation expense
   
2,265
     
3,571
 
Tax benefit from stock-based compensation
   
331
     
1,286
 
Depreciation of premises and equipment
   
388
     
454
 
Net amortization and accretion of premiums and discounts on securities
   
584
     
625
 
Amortization and accretion of deferred loan fees, net
   
(1,246
)
   
(1,129
)
Decrease in deferred taxes
   
11,198
     
1,082
 
Loss on sale of real estate owned
   
2
     
 
Loss on sale of investment securities
   
324
     
 
Writedown of real estate owned
   
     
89
 
Increase in cash surrender value of bank owned life insurance
   
(1,276
)
   
(1,345
)
Increase in accrued interest receivable
   
(248
)
   
(304
)
(Increase) decrease in other assets
   
(6,377
)
   
7,554
 
Increase (decrease) in other liabilities
   
10,670
     
(9,185
)
Net cash provided by operating activities
   
32,581
     
24,685
 
Cash flows from investing activities:
               
Proceeds from sales of securities available for sale
   
29,506
     
 
Net decrease (increase) in loans receivable
   
34,472
     
(184,187
)
Purchase of mortgage loans
   
(52,766
)
   
(65,925
)
Purchase of securities available for sale
   
     
(66,222
)
Purchase of securities held to maturity
   
(34,134
)
   
(49,649
)
   Purchase of Federal Home Loan Bank stock
   
(19,890
)
   
(35,243
)
Proceeds from payments, calls and maturities of securities available for sale
   
14,735
     
25,004
 
Proceeds from payments, calls and maturities of securities held to maturity
   
22,067
     
15,637
 
Proceeds from redemption of Federal Home Loan Bank stock
   
24,875
     
34,368
 
   Proceeds from sale of real estate owned
   
138
     
132
 
Net increase in real estate joint ventures
   
     
(57
)
Purchase of fixed assets
   
(100
)
   
(40
)
Net cash provided by (used in) investing activities
   
18,903
     
(326,182
)
Cash flows from financing activities:
               
Net increase in deposits
   
89,115
     
331,071
 
Purchase of treasury stock
   
(81
)
   
(1,574
)
Dividends paid to shareholders
   
(35,159
)
   
(36,598
)
Exercise of stock options
   
3,765
     
8,014
 
Decrease in advance payments by borrowers for taxes and insurance
   
(1,107
)
   
(1,043
)
Proceeds from borrowed funds
   
32,870
     
19,500
 
Repayment of borrowed funds
   
(135,413
)
   
(488
)
Payment of employee taxes withheld from shared-based awards
   
(81
)
   
(1,574
)
Net cash (used in) provided by financing activities
   
(46,091
)
   
317,308
 
Net increase in cash and cash equivalents
   
5,393
     
15,811
 
Cash and cash equivalents at beginning of period
   
33,578
     
16,571
 
Cash and cash equivalents at end of period
 
$
38,971
   
$
32,382
 
Supplemental cash flow information:
               
Cash paid during the period for:
               
Interest
 
$
20,650
   
$
17,746
 
Income taxes
 
$
8,787
   
$
15,787
 

See accompanying notes to unaudited consolidated financial statements.

 
8

 
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 six month period ended December 31, 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 December 31, 2017 and June 30, 2017 and in the Consolidated Statements of Income for the three and six months ended December 31, 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.
9

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 December 31,
   
Six months ended December 31,
 
 
 
2017
   
2016
   
2017
   
2016
 
 
 
(In thousands, except per share data)
 
Net income
 
$
3,970
   
$
11,376
   
$
15,966
   
$
21,987
 
Weighted average common shares outstanding—basic
   
44,104
     
43,024
     
44,000
     
42,899
 
Effect of dilutive stock options outstanding
   
1,052
     
1,294
     
1,054
     
1,216
 
Weighted average common shares outstanding—diluted
   
45,156
     
44,318
     
45,054
     
44,115
 
Earnings per share-basic
 
$
0.09
   
$
0.26
   
$
0.36
   
$
0.51
 
Earnings per share-diluted
 
$
0.09
   
$
0.26
   
$
0.35
   
$
0.50
 
 
For the three months ended December 31, 2016 there were 787 option shares, 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 the period.  There were no anti-dilutive shares for the three months ended December 31, 2017.  Anti-dilutive shares for the six months ended December 31, 2017 and 2016 were 489 and 2,733, respectively.

3. Stock Repurchase Program
 
On March 4, 2015, the Board of Directors of the Company authorized a fourth stock repurchase plan pursuant to which the Company is authorized to repurchase up to 5% of the outstanding shares, or 2,205,451 shares.   At December 31, 2017, there are 1,884,064 shares yet to be purchased under the current plan.  At  December 31, 2017, a total of  13,282,468  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.  
  
10

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 six months ended December 31, 2017. The fair value of options granted during the six months ended December 31, 2016 was estimated using the Black-Scholes options-pricing model with the assumptions in the following table.


 
Six months ended December 31, 2016
 
Options shares granted
 
20,000
 
Expected dividend yield
 
5.35%
 
Expected volatility
 
20.81%
 
Risk-free interest rate
 
1.39%
 
Expected option life
 
6.5
 
 

The following is a summary of the Company's stock option activity and related information as of December 31, 2017 and changes therein during the six months then ended:

 
 
Number of Stock Options
   
Weighted Average Grant Date Fair Value
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contractual Life (years)
 
Outstanding at June 30, 2017
   
3,729,034
   
$
2.59
   
$
11.70
     
3.4
 
Exercised
   
(323,971
)
   
2.61
     
11.62
     
3.2
 
Forfeited
   
(12,000
)
   
1.64
     
15.89
     
7.8
 
Expired
   
(8,000
)
   
1.64
     
15.89
     
7.6
 
Outstanding at December 31, 2017
   
3,385,063
   
$
2.59
   
$
11.67
     
2.9
 
Exercisable at December 31, 2017
   
3,352,657
   
$
2.60
   
$
11.63
     
2.8
 
 
The Company recorded $11,000 and $17,000 of share based compensation expense related to options for the three months ended December 31, 2017 and 2016, respectively. The Company recorded $23,000 and $283,000 of share based compensation expense related to options for the six months ended December 31, 2017 and 2016, respectively. Expected future expense related to the non-vested options outstanding at December 31, 2017 is $47,000 over a weighted average period of 2.4 years.  Upon exercise of vested options, management expects to draw on treasury stock as the source of the shares.



11

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 December 31, 2017 and changes therein during the six months then ended:

 
 
Number of Shares Awarded
   
Weighted Average Grant Date Fair Value
 
Non-vested at June 30, 2017
   
35,934
   
$
15.60
 
Vested
   
(13,734
)
   
15.31
 
Forfeited
   
(6,000
)
   
15.89
 
Non-vested at December 31, 2017
   
16,200
   
$
15.73
 
 
The Company recorded $39,000 and $60,000 of share based compensation expense related to the restricted stock shares for the three months ended December 31, 2017 and 2016, respectively.  The Company recorded $79,000 and $569,000 of share based compensation expense related to the restricted stock shares for the six months ended December 31, 2017 and 2016, respectively. Expected future expense related to the non-vested restricted shares at December 31, 2017 is $209,000 over a weighted average period of 2.4 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 and six months ended December 31, 2017 and 2016 are presented in the following tables.

 
Retirement Plan
   
BEP Plan
   
Medical Plan
 
 
Three months ended December 31,
 
 
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
 

 
Six months ended December 31,
 
 
 
2017
   
2016
   
2017
   
2016
   
2017
   
2016
 
 
(In thousands)
 
Service cost
 
$
65
   
$
76
   
$
   
$
   
$
30
   
$
29
 
Interest cost
   
104
     
91
     
22
     
20
     
105
     
117
 
Amortization of unrecognized:
                                               
Net loss
   
     
     
18
     
26
     
     
174
 
Total
 
$
169
   
$
167
   
$
40
   
$
46
   
$
135
   
$
320
 
 

12

Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements
6. Loans, net
 
Loans, net are summarized as follows:

 
 
December 31, 2017
   
June 30, 2017
 
 
 
(In thousands)
 
Residential
 
$
257,716
   
$
253,310
 
Residential commercial real estate
   
1,995,144
     
1,945,297
 
Grocery/credit retail commercial real estate
   
517,796
     
535,567
 
Other commercial real estate
   
845,536
     
866,826
 
Construction and land loans
   
8,091
     
4,210
 
Total loans
   
3,624,283
     
3,605,210
 
Less:
               
Deferred loan fees, net
   
7,638
     
8,235
 
Allowance for loan losses
   
30,402
     
30,272
 
Loans, net
 
$
3,586,243
   
$
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 and six months ended December 31, 2017 and 2016 is summarized as follows:

 
Three months ended December 31,
 
Six months ended December 31,
 
 
(In thousands)
 
 
2017
 
2016
 
2017
 
2016
 
Balance at beginning of period
 
$
30,402
   
$
29,878
   
$
30,272
   
$
29,951
 
Provisions for loan losses
   
     
     
     
 
Recoveries of loans previously charged off
   
     
     
152
     
2
 
Loans charged off
   
     
(1
)
   
(22
)
   
(76
)
Balance at end of period
 
$
30,402
   
$
29,877
   
$
30,402
   
$
29,877
 
 
13

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

The following table provides the three and six month activity in the allowance for loan losses allocated by loan category at December 31, 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 December 31, 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
 
$
1,286
   
$
15,762
   
$
3,196
   
$
9,937
   
$
221
   
$
30,402
 
Charge-offs
   
     
     
     
     
     
 
Recoveries
   
     
     
     
     
     
 
Provisions
   
616
     
713
     
(296
)
   
(1,154
)
   
121
     
 
Ending balance
 
$
1,902
   
$
16,475
   
$
2,900
   
$
8,783
   
$
342
   
$
30,402
 

 
Six months ended December 31, 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
   
543
     
681
     
(100
)
   
(1,234
)
   
110
     
 
Ending balance
 
$
1,902
   
$
16,475
   
$
2,900
   
$
8,783
   
$
342
   
$
30,402
 

 
Three months ended December 31, 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
 
$
1,794
   
$
13,610
   
$
3,472
   
$
10,843
   
$
159
   
$
29,878
 
Charge-offs
   
     
     
     
(1
)
   
     
(1
)
Recoveries
   
     
     
     
     
     
 
Provisions
   
(168
)
   
814
     
(145
)
   
(476
)
   
(25
)
   
 
Ending balance
 
$
1,626
   
$
14,424
   
$
3,327
   
$
10,366
   
$
134
   
$
29,877
 

 
Six months ended December 31, 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
)
   
     
     
(1
)
   
     
(76
)
Recoveries
   
     
     
     
2
     
     
2
 
Provisions
   
401
     
1,587
     
(319
)
   
(1,485
)
   
(184
)
   
 
Ending balance
 
$
1,626
   
$
14,424
   
$
3,327
   
$
10,366
   
$
134
   
$
29,877
 

14

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 December 31, 2017 and June 30, 2017.

   
At December 31, 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
 
$
100
   
$
   
$
   
$
   
$
   
$
100
 
Collectively evaluated for impairment
   
1,802
     
16,475
     
2,900
     
8,783
     
342
     
30,302
 
Total
 
$
1,902
   
$
16,475
   
$
2,900
   
$
8,783
   
$
342
   
$
30,402
 
Loans receivable:
                                               
Individually evaluated for impairment
 
$
5,131
   
$
   
$
   
$
8,208
   
$
   
$
13,339
 
Collectively evaluated for impairment
   
252,585
     
1,995,144
     
517,796
     
837,328
     
8,091
     
3,610,944
 
Total
 
$
257,716
   
$
1,995,144
   
$
517,796
   
$
845,536
   
$
8,091
   
$
3,624,283
 
 
                                               

   
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
 
 
15

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 December 31, 2017 and June 30, 2017:

 
 
At December 31, 2017
 
 
 
Satisfactory
   
Pass/Watch
   
Special Mention
   
Substandard
   
Doubtful
   
Total
 
 
 
(In thousands)
 
Residential
 
$
232,637
   
$
18,447
   
$
142
   
$
6,490
   
$
   
$
257,716
 
Residential commercial real estate
   
1,966,707
     
26,841
     
1,596
     
     
     
1,995,144
 
Grocery/credit retail commercial real estate
   
514,756
     
     
3,040
     
     
     
517,796
 
Other commercial real estate
   
705,820
     
115,890
     
13,192
     
10,634
     
     
845,536
 
Construction and land loans
   
8,091
     
     
     
     
     
8,091
 
Total
 
$
3,428,011
   
$
161,178
   
$
17,970
   
$
17,124
   
$
   
$
3,624,283
 

 
 
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
 

16

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

The following table provides information about loans past due at December 31, 2017 and June 30, 2017:

 
 
At December 31, 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
 
$
1,849
   
$
814
   
$
5,614
   
$
8,277
   
$
249,439
   
$
257,716
   
$
6,489
 
Residential commercial real estate
   
     
     
     
     
1,995,144
     
1,995,144
     
 
Grocery/credit retail commercial real estate
   
     
     
     
     
517,796
     
517,796
     
 
Other commercial real estate
   
2,459
     
     
3,562
     
6,021
     
839,515
     
845,536
     
8,000
 
Construction and land loans
   
     
     
     
     
8,091
     
8,091
     
 
Total
 
$
4,308
   
$
814
   
$
9,176
   
$
14,298
   
$
3,609,985
   
$
3,624,283
   
$
14,489
 

 
 
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 December 31, 2017 are residential loans totaling $672,000 that were 60-89 days past due; other commercial real estate loans totaling $1.1 million that were 30-59 days past due; residential loans totaling $203,000 and other commercial real estate loans totaling $3.3 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.
 

17

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 December 31, 2017 impaired loans were primarily collateral-dependent and totaled $13.3 million, of which $1,509,000 had a related allowance for credit losses of $100,000 and $11.8 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 which had no related allowance for credit losses.


The following table provides information about the Company's impaired loans at December 31, 2017 and June 30, 2017:

   
At December 31, 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
 
$
3,621
   
$
3,622
   
$
   
$
3,684
   
$
3,684
   
$
 
Other commercial real estate
   
8,079
     
8,208
     
     
9,635
     
9,635
     
 
 
   
11,700
     
11,830
     
     
13,319
     
13,319
     
 
With an allowance recorded:
                                               
Residential
   
1,409
     
1,509
     
100
     
     
     
 
Other commercial real estate
   
     
     
     
495
     
538
     
43
 
 
   
1,409
     
1,509
     
100
     
495
     
538
     
43
 
Total:
                                               
Residential
   
5,030
     
5,131
     
100
     
3,684
     
3,684
     
 
Other commercial real estate
   
8,079
     
8,208
     
     
10,130
     
10,173
     
43
 
 
 
$
13,109
   
$
13,339
   
$
100
   
$
13,814
   
$
13,857
   
$
43
 
18

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 and six months ended December 31, 2017 and 2016:

   
Three months ended December 31,
 
   
2017
   
2016
 
   
Average Recorded Investment
   
Interest Income Recognized
   
Average Recorded Investment
   
Interest Income Recognized
 
   
(In thousands)
 
With no related allowance recorded:
                       
Residential
 
$
3,639
   
$
1
   
$
3,505
   
$
34
 
Other commercial real estate
   
8,189
     
126
     
9,356
     
146
 
 
   
11,828
     
127
     
12,861
     
180
 
With an allowance recorded:
                               
Residential
   
1,107
     
13
     
162
     
2
 
Other commercial real estate
   
     
     
587
     
 
Construction and land loans
   
     
     
2
     
 
 
   
1,107
     
13
     
751
     
2
 
Total:
                               
Residential
   
4,746
     
14
     
3,667
     
36
 
Other commercial real estate
   
8,189
     
126
     
9,943
     
146
 
Construction and land loans
   
     
     
2
     
 
 
 
$
12,935
   
$
140
   
$
13,612
   
$
182
 
Cash basis interest income
         
$
109
           
$
158
 



   
Six months ended December 31,
 
   
2017
   
2016
 
   
Average Recorded Investment
   
Interest Income Recognized
   
Average Recorded Investment
   
Interest Income Recognized
 
   
(In thousands)
 
With no related allowance recorded:
                       
Residential
 
$
3,638
   
$
37
   
$
3,480
   
$
69
 
Other commercial real estate
   
8,227
     
226
     
8,954
     
267
 
 
   
11,865
     
263
     
12,434
     
336
 
With an allowance recorded:
                               
Residential
   
632
     
13