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

FORM 10-Q
______________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2018
 
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 May 10, 2018, there were 56,245,065 shares of the Registrant's common stock, par value $0.01 per share, issued and 46,616,646 shares outstanding.




Oritani Financial Corp.
FORM 10-Q
 
Index

 
 
 
 
  Page
 
 
 
3
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
 
6
 
 
 
 
8
 
 
 
 
9
 
 
 
36
 
 
 
48
 
 
 
50
 
 
 
 
 
 
 
 
50
 
 
 
50
 
 
 
50
 
 
 
50
 
 
 
50
 
 
 
50
 
 
 
51
 
 
 
 
52
 
Part I. Financial Information
Item 1. Financial Statements
 
Oritani Financial Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)

 
 
March 31, 2018
   
June 30, 2017
 
 
 
(unaudited)
   
(audited)
 
Assets
           
Cash on hand and in banks
 
$
22,543
   
$
33,252
 
Federal funds sold and short term investments
   
966
     
326
 
Cash and cash equivalents
   
23,509
     
33,578
 
Loans, net
   
3,566,193
     
3,566,703
 
Securities available for sale, at fair value
   
48,198
     
97,930
 
Securities held to maturity, fair value of $295,236 and $237,204, respectively
   
302,851
     
239,631
 
Bank Owned Life Insurance (at cash surrender value)
   
97,824
     
95,946
 
Federal Home Loan Bank of New York ("FHLB") stock , at cost
   
25,835
     
32,504
 
Accrued interest receivable
   
11,438
     
10,620
 
Real estate owned
   
636
     
140
 
Office properties and equipment, net
   
13,533
     
13,909
 
Deferred tax assets, net
   
25,584
     
37,693
 
Other assets
   
26,584
     
9,030
 
Total Assets
 
$
4,142,185
   
$
4,137,684
 
Liabilities
               
Deposits
 
$
2,954,476
   
$
2,856,478
 
Borrowings
   
532,114
     
642,059
 
Advance payments by borrowers for taxes and insurance
   
26,653
     
23,496
 
Other liabilities
   
74,310
     
56,428
 
Total Liabilities
   
3,587,553
     
3,578,461
 
Stockholders' Equity
               
Common stock, $0.01 par value; 150,000,000 shares authorized; 56,245,065 shares issued;
46,604,276 shares outstanding at March 31, 2018 and 45,992,366 shares outstanding at June 30, 2017.
   
562
     
562
 
Additional paid-in capital
   
513,679
     
512,337
 
Non-vested restricted stock awards
   
(201
)
   
(458
)
Treasury stock, at cost; 9,640,789 shares at March 31, 2018 and 10,252,699 shares at June 30, 2017.
   
(129,600
)
   
(136,517
)
Unallocated common stock held by the employee stock ownership plan
   
(16,981
)
   
(18,407
)
Retained earnings
   
177,461
     
198,186
 
Accumulated other comprehensive income, net of tax
   
9,712
     
3,520
 
Total Stockholders' Equity
   
554,632
     
559,223
 
Total Liabilities and Stockholders' Equity
 
$
4,142,185
   
$
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 March 31,
   
Nine months ended March 31,
 
 
 
2018
   
2017
   
2018
   
2017
 
 
 
(unaudited)
 
Interest income:
                       
Interest on loans
 
$
35,398
   
$
34,407
   
$
107,126
   
$
99,515
 
Interest on securities available for sale
   
284
     
799
     
1,237
     
2,451
 
Interest on securities held to maturity
   
1,419
     
909
     
3,663
     
2,583
 
Dividends on FHLB stock
   
432
     
469
     
1,368
     
1,343
 
Interest on federal funds sold and short term investments
   
28
     
2
     
139
     
5
 
Total interest income
   
37,561
     
36,586
     
113,533
     
105,897
 
Interest expense:
                               
Deposits
   
7,887
     
6,244
     
23,028
     
17,947
 
Borrowings
   
2,721
     
3,547
     
8,300
     
9,626
 
Total interest expense
   
10,608
     
9,791
     
31,328
     
27,573
 
Net interest income before provision for loan losses
   
26,953
     
26,795
     
82,205
     
78,324
 
Provision for loan losses
   
     
     
     
 
Net interest income after provision for loan losses
   
26,953
     
26,795
     
82,205
     
78,324
 
Other income:
                               
Service charges
   
302
     
235
     
799
     
664
 
Income from investments in real estate joint ventures
   
     
193
     
     
769
 
Bank-owned life insurance
   
603
     
634
     
1,878
     
1,979
 
Net loss on sale of assets
   
     
20,621
     
(2
)
   
20,621
 
Net loss on sale of securities
   
     
     
(324
)
   
 
Other income
   
74
     
87
     
222
     
249
 
Total other income
   
979
     
21,770
     
2,573
     
24,282
 
Other expenses:
                               
Compensation, payroll taxes and fringe benefits
   
6,627
     
6,801
     
20,666
     
22,366
 
Advertising
   
143
     
143
     
428
     
358
 
Office occupancy and equipment expense
   
862
     
834
     
2,391
     
2,415
 
Data processing service fees
   
499
     
538
     
1,463
     
1,641
 
Federal insurance premiums
   
300
     
300
     
900
     
1,050
 
Other expenses
   
1,329
     
1,306
     
3,637
     
3,489
 
Total operating expenses
   
9,760
     
9,922
     
29,485
     
31,319
 
Income before income tax expense
   
18,172
     
38,643
     
55,293
     
71,287
 
Income tax expense
   
4,747
     
14,377
     
25,902
     
25,034
 
Net income
 
$
13,425
   
$
24,266
   
$
29,391
   
$
46,253
 
Earnings per basic common share
 
$
0.30
   
$
0.56
   
$
0.67
   
$
1.07
 
Earnings per diluted common share
 
$
0.30
   
$
0.54
   
$
0.65
   
$
1.04
 
 
See accompanying notes to unaudited consolidated financial statements.
4


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

 
 
Three months ended March 31,
   
Nine months ended March 31,
 
 
 
2018
   
2017
   
2018
   
2017
 
 
 
(unaudited)
 
Net of tax:
                       
Net income
 
$
13,425
   
$
24,266
   
$
29,391
   
$
46,253
 
Other comprehensive income:
                               
Change in unrealized holding loss on securities available for sale
   
(261
)
   
(3
)
   
(626
)
   
(1,457
)
Reclassification adjustment for security loss included in net income
   
     
     
184
     
 
Amortization related to post-retirement obligations
   
(108
)
   
57
     
(98
)
   
188
 
Net change in unrealized gain on interest rate swaps
   
4,995
     
536
     
6,732
     
9,723
 
Total other comprehensive income
   
4,626
     
590
     
6,192
     
8,454
 
Total comprehensive income
 
$
18,051
   
$
24,856
   
$
35,583
   
$
54,707
 
 
See accompanying notes to unaudited consolidated financial statements.
5


Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Nine months ended March 31, 2018 and 2017 (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
   
     
     
     
     
     
     
46,253
     
     
46,253
 
Other comprehensive income , net of tax
   
     
     
     
     
     
     
     
8,454
     
8,454
 
Cash dividends declared ($1.025 per share)
   
     
     
     
     
     
     
(44,223
)
   
     
(44,223
)
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
   
     
     
927
     
     
     
     
     
     
927
 
ESOP shares allocated or committed to be released
   
     
     
1,710
     
     
     
1,728
     
     
     
3,438
 
Exercise of stock options
   
717,301
     
     
     
     
9,547
     
     
(1,355
)
   
     
8,192
 
Vesting of restricted stock awards
   
     
     
(3,879
)
   
3,892
     
     
     
(13
)
   
     
 
Balance at March 31, 2017
   
45,876,066
   
$
562
   
$
511,935
   
$
(483
)
 
$
(138,067
)
 
$
(18,753
)
 
$
203,091
   
$
(1,618
)
 
$
556,667
 

Continued on next page
6

Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Nine months ended March 31, 2018 and 2017 (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
   
     
     
     
     
     
     
29,391
     
     
29,391
 
Other comprehensive income, net of tax
   
     
     
     
     
     
     
     
5,092
     
5,092
 
Cash dividends declared ($1.05 per share)
   
     
     
     
     
     
     
(46,219
)
   
     
(46,219
)
Purchase of treasury stock
   
(492,458
)
   
     
     
     
(7,834
)
   
     
     
     
(7,834
)
Compensation cost for stock options and restricted stock
   
     
     
138
     
     
     
     
     
     
138
 
ESOP shares allocated or committed to be released
   
     
     
1,414
     
     
     
1,426
     
     
     
2,840
 
Exercise of stock options
   
1,111,368
     
     
     
     
14,838
     
     
(2,837
)
   
     
12,001
 
Vesting of restricted stock awards
   
     
     
(210
)
   
170
     
     
     
40
     
     
 
Forfeiture of restricted stock awards
   
(7,000
)
   
     
     
87
     
(87
)
   
     
     
     
 
Tax Cuts and Jobs Act of 2017, Reclassification from AOCI to Retained Earnings, Tax Effect
   
     
     
     
     
     
     
(1,100
)
   
1,100
     
 
Balance at March 31, 2018
   
46,604,276
   
$
562
   
$
513,679
   
$
(201
)
 
$
(129,600
)
 
$
(16,981
)
 
$
177,461
   
$
9,712
   
$
554,632
 
 
See accompanying notes to unaudited consolidated financial statements.
7


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

 
 
Nine months ended March 31,
 
 
 
2018
   
2017
 
 
 
(unaudited)
 
Cash flows from operating activities:
     
Net income
 
$
29,391
   
$
46,253
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
ESOP and stock-based compensation expense
   
2,978
     
4,365
 
Tax benefit from stock-based compensation
   
1,120
     
1,289
 
Depreciation of premises and equipment
   
583
     
664
 
Net amortization and accretion of premiums and discounts on securities
   
873
     
995
 
Amortization and accretion of deferred loan fees, net
   
(1,865
)
   
(1,757
)
Decrease (increase) in deferred taxes
   
10,581
     
(509
)
Loss on sale of real estate owned
   
2
     
 
Loss on sale of investment securities
   
324
     
 
Writedown of real estate owned
   
     
215
 
Gain on sale of real estate joint ventures and real estate investments
   
     
(20,621
)
Increase in cash surrender value of bank owned life insurance
   
(1,878
)
   
(1,979
)
Increase in accrued interest receivable
   
(818
)
   
(906
)
(Increase) decrease in other assets
   
(10,193
)
   
14,290
 
Increase in other liabilities
   
16,843
     
1,994
 
Net cash provided by operating activities
   
47,941
     
44,293
 
Cash flows from investing activities:
               
Proceeds from sales of securities available for sale
   
29,505
     
 
Net decrease (increase) in loans receivable
   
54,505
     
(331,560
)
Purchase of mortgage loans
   
(52,766
)
   
(65,925
)
Purchase of securities available for sale
   
     
(66,222
)
Purchase of securities held to maturity
   
(97,980
)
   
(51,150
)
    Purchase of Federal Home Loan Bank stock
   
(31,692
)
   
(52,071
)
Proceeds from payments, calls and maturities of securities available for sale
   
18,989
     
38,114
 
Proceeds from payments, calls and maturities of securities held to maturity
   
34,060
     
28,196
 
Proceeds from redemption of Federal Home Loan Bank stock
   
38,361
     
51,610
 
    Proceeds from sale of real estate owned
   
138
     
132
 
    Proceeds from sales of real estate joint ventures and real estate investments
   
     
25,083
 
Net increase in real estate joint ventures
   
     
(155
)
Purchase of fixed assets
   
(207
)
   
(337
)
Net cash used in investing activities
   
(7,087
)
   
(424,285
)
Cash flows from financing activities:
               
Net increase in deposits
   
97,998
     
420,193
 
Purchase of treasury stock
   
(7,834
)
   
(1,574
)
Dividends paid to shareholders
   
(46,219
)
   
(44,223
)
Exercise of stock options
   
12,001
     
8,192
 
Increase in advance payments by borrowers for taxes and insurance
   
3,157
     
3,941
 
Proceeds from borrowed funds
   
57,870
     
119,130
 
Repayment of borrowed funds
   
(167,815
)
   
(109,596
)
Payment of employee taxes withheld from shared-based awards
   
(81
)
   
(1,574
)
Net cash (used in) provided by financing activities
   
(50,923
)
   
394,489
 
Net (decrease) increase in cash and cash equivalents
   
(10,069
)
   
14,497
 
Cash and cash equivalents at beginning of period
   
33,578
     
16,571
 
Cash and cash equivalents at end of period
 
$
23,509
   
$
31,068
 
Supplemental cash flow information:
               
Cash paid during the period for:
               
Interest
 
$
31,186
   
$
27,180
 
Income taxes
 
$
9,611
   
$
16,712
 
Noncash transfer
               
Loans receivable transferred to real estate owned
 
$
636
   
$
 

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 nine month period ended March 31, 2018 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 March 31, 2018 and June 30, 2017 and in the Consolidated Statements of Income for the three and nine months ended March 31, 2018 and 2017.  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 March 31,
   
Nine months ended March 31,
 
 
 
2018
   
2017
   
2018
   
2017
 
 
 
(In thousands, except per share data)
 
Net income
 
$
13,425
   
$
24,266
   
$
29,391
   
$
46,253
 
Weighted average common shares outstanding—basic
   
44,319
     
43,585
     
44,105
     
43,125
 
Effect of dilutive stock options outstanding
   
785
     
1,234
     
879
     
1,255
 
Weighted average common shares outstanding—diluted
   
45,104
     
44,819
     
44,984
     
44,380
 
Earnings per share-basic
 
$
0.30
   
$
0.56
   
$
0.67
   
$
1.07
 
Earnings per share-diluted
 
$
0.30
   
$
0.54
   
$
0.65
   
$
1.04
 
 
For the three months ended March 31, 2018 there were 1,730 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 those periods. There were no anti-dilutive shares for the three months ended March 31, 2017. Anti-dilutive shares for the nine months ended March 31, 2018 and 2017 were 1,052 and 1,405, respectively.

3. Stock Repurchase Program
 
On March 4, 2015, the Board of Directors of the Company authorized a fourth stock repurchase plan pursuant to which the Company is authorized to repurchase up to 5% of the outstanding shares, or 2,205,451 shares.   At March 31, 2018, there are 1,396,393 shares yet to be purchased under the current plan.  At  March 31, 2018, a total of  13,770,139  shares had been acquired under repurchase programs at a weighted average cost of  $13.39 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 nine months ended March 31, 2018. The fair value of options granted during the nine months ended March 31, 2017 was estimated using the Black-Scholes options-pricing model with the assumptions in the following table.


 
Nine months ended March 31, 2017
 
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 March 31, 2018 and changes therein during the nine months then ended:

 
 
Number of Stock Options
   
Weighted Average Grant Date Fair Value
   
Weighted Average Exercise Price
   
Weighted Average Remaining Contractual Life (years)
 
Outstanding at June 30, 2017
   
3,729,034
   
$
2.59
   
$
11.70
     
3.4
 
Exercised
   
(1,111,368
)
   
2.39
     
10.80
     
1.1
 
Forfeited
   
(12,000
)
   
1.64
     
15.89
     
7.8
 
Expired
   
(30,779
)
   
2.26
     
12.34
     
3.2
 
Outstanding at March 31, 2018
   
2,574,887
   
$
2.68
   
$
12.06
     
3.4
 
Exercisable at March 31, 2018
   
2,542,486
   
$
2.70
   
$
12.02
     
3.4
 
 
The Company recorded $8,000 and $17,000 of share based compensation expense related to options for the three months ended March 31, 2018 and 2017, respectively. The Company recorded $30,000 and $298,000 of share based compensation expense related to options for the nine months ended March 31, 2018 and 2017, respectively. Expected future expense related to the non-vested options outstanding at March 31, 2018 is $40,000 over a weighted average period of 2.2 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 March 31, 2018 and changes therein during the nine 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 March 31, 2018
   
16,200
   
$
15.73
 
 
The Company recorded $29,000 and $60,000 of share based compensation expense related to the restricted stock shares for the three months ended March 31, 2018 and 2017, respectively.  The Company recorded $108,000 and $629,000 of share based compensation expense related to the restricted stock shares for the nine months ended March 31, 2018 and 2017, respectively. Expected future expense related to the non-vested restricted shares at March 31, 2018 is $180,000 over a weighted average period of 2.2 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 nine months ended March 31, 2018 and 2017 are presented in the following tables.

 
Retirement Plan
   
BEP Plan
   
Medical Plan
 
 
Three months ended March 31,
 
 
2018
   
2017
   
2018
   
2017
   
2018
   
2017
 
 
(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
 

 
Nine months ended March 31,
 
 
 
2018
   
2017
   
2018
   
2017
   
2018
   
2017
 
 
(In thousands)
 
Service cost
 
$
98
   
$
113
   
$
   
$
   
$
44
   
$
43
 
Interest cost
   
156
     
136
     
33
     
30
     
158
     
176
 
Amortization of unrecognized:
                                               
Net loss
   
     
     
27
     
39
     
     
262
 
Total
 
$
254
   
$
249
   
$
60
   
$
69
   
$
202
   
$
481
 
 

12

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

 
 
March 31, 2018
   
June 30, 2017
 
 
 
(In thousands)
 
Residential
 
$
259,134
   
$
253,310
 
Residential commercial real estate
   
2,010,717
     
1,945,297
 
Grocery/credit retail commercial real estate
   
516,831
     
535,567
 
Other commercial real estate
   
807,684
     
866,826
 
Construction and land loans
   
9,744
     
4,210
 
Total loans
   
3,604,110
     
3,605,210
 
Less:
               
Deferred loan fees, net
   
7,444
     
8,235
 
Allowance for loan losses
   
30,473
     
30,272
 
Loans, net
 
$
3,566,193
   
$
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 nine months ended March 31, 2018 and 2017 is summarized as follows:

 
Three months ended March 31,
 
Nine months ended March 31,
 
 
(In thousands)
 
 
2018
 
2017
 
2018
 
2017
 
Balance at beginning of period
 
$
30,402
   
$
29,877
   
$
30,272
   
$
29,951
 
Provisions for loan losses
   
     
     
     
 
Recoveries of loans previously charged off
   
166
     
     
318
     
2
 
Loans charged off
   
(95
)
   
     
(117
)
   
(76
)
Balance at end of period
 
$
30,473
   
$
29,877
   
$
30,473
   
$
29,877
 
 
13

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

The following table provides the three and nine month activity in the allowance for loan losses allocated by loan category at March 31, 2018 and 2017.  The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
 
 
Three months ended March 31, 2018
 
 
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
 
$
1,902
   
$
16,475
   
$
2,900
   
$
8,783
   
$
342
   
$
30,402
 
Charge-offs
   
(95
)
   
     
     
     
     
(95
)
Recoveries
   
19
     
     
     
147
     
     
166
 
Provisions
   
77
     
570
     
57
     
(760
)
   
56
     
 
Ending balance
 
$
1,903
   
$
17,045
   
$
2,957
   
$
8,170
   
$
398
   
$
30,473
 

 
Nine months ended March 31, 2018
 
 
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
   
(117
)
   
     
     
     
     
(117
)
Recoveries
   
139
     
     
     
147
     
32
     
318
 
Provisions
   
620
     
1,251
     
(43
)
   
(1,994
)
   
166
     
 
Ending balance
 
$
1,903
   
$
17,045
   
$
2,957
   
$
8,170
   
$
398
   
$
30,473
 

 
Three months ended March 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
 
$
1,626
   
$
14,424
   
$
3,327
   
$
10,366
   
$
134
   
$
29,877
 
Charge-offs
   
     
     
     
     
     
 
Recoveries
   
     
     
     
     
     
 
Provisions
   
(503
)
   
940
     
(551
)
   
88
     
26
     
 
Ending balance
 
$
1,123
   
$
15,364
   
$
2,776
   
$
10,454
   
$
160
   
$
29,877
 

 
Nine months ended March 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
 
$
1,300
   
$
12,837
   
$
3,646
   
$
11,850
   
$
318
   
$
29,951
 
Charge-offs
   
(75
)
   
     
     
(1
)
   
     
(76
)
Recoveries
   
     
     
     
2
     
     
2
 
Provisions
   
(102
)
   
2,527
     
(870
)
   
(1,397
)
   
(158
)
   
 
Ending balance
 
$
1,123
   
$
15,364
   
$
2,776
   
$
10,454
   
$
160
   
$
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 March 31, 2018 and June 30, 2017.

   
At March 31, 2018
 
 
 
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
 
$
   
$
   
$
   
$
   
$
   
$
 
Collectively evaluated for impairment
   
1,903
     
17,045
     
2,957
     
8,170
     
398
     
30,473
 
Total
 
$
1,903
   
$
17,045
   
$
2,957
   
$
8,170
   
$
398
   
$
30,473
 
Loans receivable:
                                               
Individually evaluated for impairment
 
$
5,045
   
$
   
$
   
$
5,691
   
$
   
$
10,736
 
Collectively evaluated for impairment
   
254,089
     
2,010,717
     
516,831
     
801,993
     
9,744
     
3,593,374
 
Total
 
$
259,134
   
$
2,010,717
   
$
516,831
   
$
807,684
   
$
9,744
   
$
3,604,110
 
 
                                               

   
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 March 31, 2018 and June 30, 2017:

 
 
At March 31, 2018
 
 
 
Satisfactory
   
Pass/Watch
   
Special Mention
   
Substandard
   
Doubtful
   
Total
 
 
 
(In thousands)
 
Residential
 
$
235,047
   
$
17,557
   
$
134
   
$
6,396
   
$
   
$
259,134
 
Residential commercial real estate
   
1,985,768
     
23,361
     
1,588
     
     
     
2,010,717
 
Grocery/credit retail commercial real estate
   
513,818
     
     
3,013
     
     
     
516,831
 
Other commercial real estate
   
687,104
     
103,200
     
10,591
     
6,789
     
     
807,684
 
Construction and land loans
   
9,744
     
     
     
     
     
9,744
 
Total
 
$
3,431,481
   
$
144,118
   
$
15,326
   
$
13,185
   
$
   
$
3,604,110
 

 
 
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 March 31, 2018 and June 30, 2017:

 
 
At March 31, 2018
 
 
 
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
 
$
1,526
   
$
1,550
   
$
4,736
   
$
7,812
   
$
251,322
   
$
259,134
   
$
6,395
 
Residential commercial real estate
   
     
     
     
     
2,010,717
     
2,010,717
     
 
Grocery/credit retail commercial real estate
   
     
     
     
     
516,831
     
516,831
     
 
Other commercial real estate
   
9,605
     
337
     
1,182
     
11,124
     
796,560
     
807,684
     
5,492
 
Construction and land loans
   
     
     
     
     
9,744
     
9,744
     
 
Total
 
$
11,131
   
$
1,887
   
$
5,918
   
$
18,936
   
$
3,585,174
   
$
3,604,110
   
$
11,887
 

 
 
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 March 31, 2018 are residential loans totaling $1.4 million that were 60-89 days past due; residential loans totaling $224,000 and other commercial real estate loans totaling $1.1 million that were 30-59 days past due; residential loans totaling $19,000 and other commercial real estate loans totaling $3.2 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 March 31, 2018 impaired loans were primarily collateral-dependent and totaled $10.7 million, and 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 March 31, 2018 and June 30, 2017:

   
At March 31, 2018
   
At June 30, 2017
 
   
Recorded Investment
   
Unpaid Principal Balance
   
Allowance
   
Recorded Investment
   
Unpaid Principal Balance
   
Allowance
 
   
(In thousands)
 
With no related allowance recorded:
                                   
Residential
 
$
5,044
   
$
5,045
   
$
   
$
3,684
   
$
3,684
   
$
 
Other commercial real estate
   
5,600
     
5,691
     
     
9,635
     
9,635
     
 
 
   
10,644
     
10,736
     
     
13,319
     
13,319
     
 
With an allowance recorded:
                                               
Other commercial real estate
   
     
     
     
495
     
538
     
43
 
 
   
     
     
     
495
     
538
     
43
 
Total:
                                               
Residential
   
5,044
     
5,045
     
     
3,684
     
3,684
     
 
Other commercial real estate
   
5,600
     
5,691
     
     
10,130
     
10,173
     
43
 
 
 
$
10,644
   
$
10,736
   
$
   
$
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 nine months ended March 31, 2018 and 2017:

   
Three months ended March 31,
 
   
2018
   
2017
 
   
Average Recorded Investment
   
Interest Income Recognized
   
Average Recorded Investment
   
Interest Income Recognized
 
   
(In thousands)
 
With no related allowance recorded:
                       
Residential
 
$
4,746
   
$
12
   
$
3,505
   
$
34
 
Other commercial real estate
   
8,189
     
105
     
9,809
     
142
 
 
   
12,935
     
117
     
13,314
     
176
 
With an allowance recorded:
                               
Residential
   
     
     
160
     
2
 
Other commercial real estate
   
     
     
490
     
 
Construction and land loans
   
     
     
     
 
 
   
     
     
650
     
2
 
Total:
                               
Residential
   
4,746
     
12
     
3,665
     
36
 
Other commercial real estate
   
8,189
     
105
     
10,299
     
142
 
Construction and land loans
   
     
     
     
 
 
 
$
12,935
   
$
117
   
$
13,964
   
$
178
 
Cash basis interest income
         
$
108
           
$
155
 



   
Nine months ended March 31,
 
   
2018
   
2017
 
   
Average Recorded Investment
   
Interest Income Recognized
   
Average Recorded Investment
   
Interest Income Recognized
 
   
(In thousands)
 
With no related allowance recorded:
                       
Residential
 
$
4,507
   
$
62
   
$
3,487
   
$
103
 
Other commercial real estate
   
7,744
     
329
     
9,210
     
409