Attached files

file filename
EX-31.2 - CFO CERT. PER SECTION 302 - Oritani Financial Corpex312-ceocertpersection302.htm
EX-32 - CERT. PER SECTION 906 - Oritani Financial Corpex32-ceocfocertpersection9.htm
EX-31.1 - CEO CERT. PER SECTION 302 - Oritani Financial Corpex311-cfocertpersection302.htm
EXCEL - IDEA: XBRL DOCUMENT - Oritani Financial CorpFinancial_Report.xls

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File No. 001-34786
 
 
Oritani Financial Corp.
(Exact name of registrant as specified in its charter)
 
Delaware
 
30-0628335
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
370 Pascack Road, Township of Washington, New Jersey 07676
(Address of Principal Executive Offices)
(201) 664-5400
(Registrant’s telephone number)
N/A
(Former name or former address, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days.
    YES  ý    NO  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
    YES  ý    NO  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
¨
  
Accelerated filer
 
x
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller Reporting company
 
¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
    YES  ¨    NO  x
As of February 9, 2015, there were 56,245,065 shares of the Registrant’s common stock, par value $0.01 per share, issued and 44,138,770 shares outstanding.




Oritani Financial Corp.
FORM 10-Q
Index
 
 
 
 
 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
Consolidated Balance Sheets as of December 31, 2014 (unaudited) and June 30, 2014
 
 
 
 
Consolidated Statements of Income for the Three and Six Months Ended December 31, 2014 and 2013 (unaudited)
 
 
 
 
Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31, 2014 and 2013 (unaudited)
 
 
 
 
Consolidated Statements of Stockholders’ Equity for the Six Months Ended December 31, 2014 and 2013 (unaudited)
 
 
 
 
Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2014 and 2013 (unaudited)
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
 

2


Part I. Financial Information
Item 1. Financial Statements
Oritani Financial Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
 
 
December 31, 2014
 
June 30, 2014
 
(unaudited)
 
(audited)
Assets
 
 
 
Cash on hand and in banks
$
9,274

 
$
17,490

Federal funds sold and short term investments
426

 
1,441

Cash and cash equivalents
9,700

 
18,931

Loans, net
2,617,313

 
2,503,894

Securities available for sale, at fair value
319,664

 
384,137

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

 
32,422

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

 
68,054

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

 
49,046

Accrued interest receivable
9,174

 
10,214

Investments in real estate joint ventures, net
6,907

 
6,391

Real estate held for investment
957

 
917

Real estate owned
4,368

 
3,850

Office properties and equipment, net
14,422

 
14,675

Deferred tax assets, net
37,184

 
34,705

Other assets
10,286

 
12,964

Total Assets
$
3,250,934

 
$
3,140,200

Liabilities
 
 
 
Deposits
$
1,792,867

 
$
1,580,975

Borrowings
885,956

 
967,443

Advance payments by borrowers for taxes and insurance
16,754

 
16,105

Other liabilities
47,644

 
49,385

Total Liabilities
2,743,221

 
2,613,908

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

 
562

Additional paid-in capital
504,725

 
504,434

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

 
195,970

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

Total Stockholders’ Equity
507,713

 
526,292

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

 
$
3,140,200

See accompanying notes to unaudited consolidated financial statements.


3


Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
 
 
Three months ended December 31,
 
Six months ended December 31,
 
2014
 
2013
 
2014
 
2013
 
(unaudited)
Interest income:
 
 
 
 
 
 
 
Interest on mortgage loans
$
31,041

 
$
29,988

 
$
60,768

 
$
60,049

Interest on securities available for sale
1,671

 
1,531

 
3,471

 
2,923

Interest on securities held to maturity
450

 
189

 
814

 
431

Dividends on FHLB stock
500

 
427

 
976

 
866

Interest on federal funds sold and short term investments
1

 
1

 
3

 
6

Total interest income
33,663

 
32,136

 
66,032

 
64,275

Interest expense:
 
 
 
 
 
 
 
Deposits
2,843

 
2,055

 
5,457

 
4,079

Borrowings
5,756

 
5,769

 
11,561

 
11,291

Total interest expense
8,599

 
7,824

 
17,018

 
15,370

Net interest income before provision for loan losses
25,064

 
24,312

 
49,014

 
48,905

Provision for loan losses

 
200

 
200

 
500

Net interest income after provision for loan losses
25,064

 
24,112

 
48,814

 
48,405

Other income:
 
 
 
 
 
 
 
Service charges
240

 
357

 
463

 
629

Real estate operations, net
315

 
305

 
668

 
678

Income from investments in real estate joint ventures
487

 
158

 
1,335

 
448

Bank-owned life insurance
680

 
509

 
1,192

 
1,009

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

 
(10
)
 
163

Net (loss) gain on sale of securities

 
(46
)
 
(2
)
 
51

Other income
69

 
74

 
142

 
149

Total other income
1,781

 
1,564

 
3,788

 
3,127

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

 
7,477

 
14,954

 
14,552

Advertising
105

 
90

 
195

 
180

Office occupancy and equipment expense
692

 
722

 
1,421

 
1,451

Data processing service fees
472

 
438

 
935

 
873

Federal insurance premiums
390

 
330

 
778

 
645

Net expense (income) from real estate operations
990

 
22

 
1,129

 
(55
)
Other expenses
930

 
997

 
1,954

 
2,000

Total operating expenses
11,309

 
10,076

 
21,366

 
19,646

Income before income tax expense
15,536

 
15,600

 
31,236

 
31,886

Income tax expense
5,490

 
5,617

 
11,029

 
11,529

Net income
$
10,046

 
$
9,983

 
$
20,207

 
$
20,357

Earnings per basic common share
$
0.24

 
$
0.23

 
$
0.48

 
$
0.48

Earnings per diluted common share
$
0.24

 
$
0.23

 
$
0.47

 
$
0.47

See accompanying notes to unaudited consolidated financial statements.


4


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

 
$
9,983

 
$
20,207

 
$
20,357

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

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

 
28

 
84

 
28

Amortization related to post-retirement obligations
14

 
12

 
27

 
24

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

 
(2,279
)
 
573

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

 
$
8,094

 
$
17,026

 
$
18,547

See accompanying notes to unaudited consolidated financial statements.


5


Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
Six months ended December 31, 2014 and 2013 (unaudited)
(In thousands, except share data)
 
Shares
Outstanding
 
Common
stock
 
Additional
paid-in
capital
 
Restricted
Stock
Awards
 
Treasury
stock
 
Un-
allocated
common
stock
held by
ESOP
 
Retained
income
 
Accumu-
lated
other
compre-
hensive
income (loss),
net of tax
 
Total
stock-
holders’
equity
Balance at June 30, 2013
45,391,031

 
$
562

 
$
499,961

 
$
(15,730
)
 
$
(141,142
)
 
$
(25,887
)
 
$
196,516

 
$
4,430

 
$
518,710

Net income

 

 

 

 

 

 
20,357

 

 
20,357

Other comprehensive loss, net of tax

 

 

 

 

 

 

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

 

 

 

 

 

 
(25,481
)
 

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

 

 

 
(1,586
)
 

 

 

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

 

 

 
(234
)
 
234

 

 

 

 

Compensation cost for stock options and restricted stock

 

 
3,018

 

 

 

 

 

 
3,018

ESOP shares allocated or committed to be released

 

 
838

 

 

 
907

 

 

 
1,745

Exercise of stock options
404,280

 

 

 

 
5,263

 

 
(1,014
)
 

 
4,249

Vesting of restricted stock awards

 

 
(3,856
)
 
3,878

 

 

 
(22
)
 

 

Forfeiture of restricted stock awards
(9,600
)
 

 

 
116

 
(116
)
 

 

 

 

Tax benefit from stock-based compensation

 

 
588

 

 

 

 

 

 
588

Balance at December 31, 2013
45,704,310

 
$
562

 
$
500,549

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

 
$
2,620

 
$
519,790

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2014
45,499,332

 
$
562

 
$
504,434

 
$
(12,086
)
 
$
(140,451
)
 
$
(24,331
)
 
$
195,970

 
$
2,194

 
$
526,292

Net income

 

 

 

 

 

 
20,207

 

 
20,207

Other comprehensive loss, net of tax

 

 

 

 

 

 

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

 

 

 

 

 

 
(25,073
)
 

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

 

 

 
(16,023
)
 

 

 

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

 

 
3,027

 

 

 

 

 

 
3,027

ESOP shares allocated or committed to be released

 

 
675

 

 

 
869

 

 

 
1,544

Exercise of stock options
43,814

 

 

 

 
577

 

 
(103
)
 

 
474

Vesting of restricted stock awards

 

 
(3,857
)
 
3,893

 

 

 
(36
)
 

 

Forfeiture of restricted stock awards
(6,400
)
 

 

 
81

 
(81
)
 

 

 

 

Tax benefit from stock-based compensation

 

 
446

 

 

 

 

 

 
446

Balance at December 31, 2014
44,454,385

 
$
562

 
$
504,725

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

 
$
(987
)
 
$
507,713

See accompanying notes to unaudited consolidated financial statements.


6


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

 
$
20,357

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

 
4,763

Depreciation of premises and equipment
483

 
480

Net amortization and accretion of premiums and discounts on securities
667

 
660

Provision for losses on loans
200

 
500

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

Loss on loans available for sale

 
58

Loss (gain) on sale of investment securities
2

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

 
(221
)
Writedown of real estate owned
900

 

Proceeds from sale of real estate owned
65

 
1,191

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

 
1,367

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

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

 
27,815

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

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

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

 
52,075

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

 
2,368

Proceeds from sales of securities available for sale
17,245

 
18,129

Proceeds from sales of securities held to maturity
3,375

 
8,938

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

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

 
43,254

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

 
4,249

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

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

 
159,650

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

 
588

Net cash provided by financing activities
90,878

 
89,994

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

 
12,065

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

 
$
9,109

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

 
$
15,527

Income taxes
$
8,245

 
$
8,863

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

 
$
3,350

See accompanying notes to unaudited consolidated financial statements.

7

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements


1. Basis of Presentation
The consolidated financial statements are composed of the accounts of Oritani Financial Corp., its wholly owned subsidiaries, Oritani Bank (“the Bank”); Hampshire Financial, LLC, and Oritani, LLC, and the wholly owned subsidiaries of Oritani Bank; Oritani Finance Company, Ormon LLC (“Ormon”), and Oritani Investment Corp., as well as its wholly owned subsidiary, Oritani Asset Corporation (a real estate investment trust), (collectively, the "Company"). Intercompany balances and transactions have been eliminated in consolidation.
In the opinion of management, all of the adjustments (consisting of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the six month period ended December 31, 2014 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending June 30, 2015.
Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for the preparation of the Form 10-Q. The consolidated financial statements presented should be read in conjunction with the Company’s audited consolidated financial statements and notes to consolidated financial statements included in the Company’s June 30, 2014 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 15, 2014.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities presented in the Consolidated Balance Sheets at December 31, 2014 and June 30, 2014 and in the Consolidated Statements of Income for the three and six months ended December 31, 2014 and 2013. Actual results could differ significantly from those estimates.
A material estimate that is particularly susceptible to significant changes relates to the determination of the allowance for loan losses. The allowance for loan losses represents management’s best estimate of losses known and inherent in the portfolio that are both probable and reasonable to estimate. While management uses the most current information available to estimate losses on loans, actual losses are dependent on future events and, as such, increases in the allowance for loan losses may be necessary.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

2. Earnings Per Share ("EPS")
Basic earnings per share are computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. The weighted average common shares outstanding includes the average number of shares of common stock outstanding and allocated or committed to be released Employee Stock Ownership Plan shares.
Diluted earnings per share is computed using the same method as basic earnings per share, but reflects the potential dilution that could occur if stock options were exercised and converted into common stock. These potentially dilutive shares would then be included in the weighted average number of shares outstanding for the period using the treasury stock method. When applying the treasury stock method, we add: (1) the assumed proceeds from option exercises; (2) the tax benefit that would have been credited to additional paid-in capital assuming exercise of non-qualified stock options and vesting of shares of restricted stock; and (3) the average unamortized compensation costs related to stock options. We then divide this sum by our average stock price to calculate shares assumed to be repurchased. The excess of the number of shares issuable over the number of shares assumed to be repurchased is added to basic weighted average common shares to calculate diluted EPS.

8

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements


The following is a summary of the Company’s earnings per share calculations and reconciliation of basic to diluted earnings per share.
 
 
Three months ended December 31,
 
Six months ended December 31,
 
2014
 
2013
 
2014
 
2013
 
(In thousands, except per share data)
Net income
$
10,046

 
$
9,983

 
$
20,207

 
$
20,357

Weighted average common shares outstanding—basic
41,785

 
42,626

 
42,008

 
42,511

Effect of dilutive stock options outstanding
910

 
1,101

 
932

 
1,131

Weighted average common shares outstanding—diluted
42,695

 
43,727

 
42,940

 
43,642

Earnings per share-basic
$
0.24

 
$
0.23

 
$
0.48

 
$
0.48

Earnings per share-diluted
$
0.24

 
$
0.23

 
$
0.47

 
$
0.47


For the three months ended December 31, 2014 and 2013 there were 20,954 and 3,493 option shares, respectively, that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for those periods. Anti-dilutive shares for the six months ended December 31, 2014 and 2013 were 19,960 and 3,724, respectively.


3. Stock Repurchase Program
On June 27, 2011, the Board of Directors of the Company authorized a stock repurchase plan pursuant to which the Company repurchased 5,624,506 shares, representing approximately 10% of its then outstanding shares. A second stock repurchase plan, for 10% of the outstanding shares, or 5,062,056 shares, was announced on September 14, 2011 and a third repurchase plan for 5% of the outstanding shares, or 2,278,776 shares, was announced on November 14, 2011. At December 31, 2014, a total of 12,611,006 shares were acquired under these repurchase programs at a weighted average cost of $13.22 per share. The timing of the repurchases depend on certain factors, including but not limited to, market conditions and prices, the Company’s liquidity and capital requirements, and alternative uses of capital. Repurchased shares will be held as treasury stock and will be available for general corporate purposes. The Company may conduct repurchases in accordance with a Rule 10b5-1 trading plan. At December 31, 2014, there are 350,075 shares yet to be purchased under the current plans.

4. Equity Incentive Plans
The 2007 Equity Incentive Plan (“the 2007 Equity Plan”) was approved by the Company’s stockholders on April 22, 2008, which authorized the issuance of up to 4,172,817 shares of Company common stock pursuant to grants of incentive and non-statutory stock options, stock appreciation rights, and restricted stock awards. The 2011 Equity Incentive Plan (“2011 Equity Plan”) was approved by the Company’s stockholders on July 26, 2011. The 2011 Equity Plan authorized the issuance of up to 5,790,849 shares of the Company’s common stock pursuant to grants of stock options, restricted stock awards and restricted stock units, with no more than 1,654,528 of the shares issued as restricted stock awards or restricted stock units. Employees and outside directors of the Company or Oritani Bank are eligible to receive awards under the Equity Plans.
Stock options are granted at an exercise price equal to the market price of our common stock on the grant date, based on quoted market prices. Stock options generally vest over a five-year service period and expire ten years from issuance. The vesting of the options accelerate upon death or disability, retirement or a change in control and expire 90 days after termination of service, excluding disability or retirement. The Company recognizes compensation expense for all option grants over the awards’ respective requisite service periods. Management estimated the fair values of all option grants using the Black-Scholes option-pricing model. Management estimated the expected life of the options using the simplified method. The Treasury yield in effect at the time of the grant provides the risk-free rate for periods within the contractual life of the option. The Company classified share-based compensation for employees and outside directors within “compensation, payroll taxes and fringe benefits” in the consolidated

9

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

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

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


The following is a summary of the Company’s stock option activity and related information for its options plan as of December 31, 2014 and changes therein during the six months then ended:
 
Number of
Stock Options
 
Weighted
Average
Grant
Date Fair
Value
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Life (years)
Outstanding at June 30, 2014
5,983,674

 
$
2.57

 
$
11.50

 
6.8
Exercised
(43,814
)
 
2.39

 
10.80

 
7.0
Forfeited
(12,800
)
 
2.67

 
13.58

 
7.7
Expired
(2,000
)
 
2.65

 
14.55

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

 
$
2.57

 
$
11.50

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

 
$
2.52

 
$
11.26

 
5.1
The Company recorded $533,000 and $532,000 of share based compensation expense related to the options granted for the three months ended December 31, 2014 and 2013, respectively. The Company recorded $1.1 million and $1.1 million of share based compensation expense related to the options granted for the six months ended December 31, 2014 and 2013, respectively. Expected future expense related to the non-vested options outstanding at December 31, 2014 is $3.6 million over a weighted average period of 1.7 years. Upon exercise of vested options, management expects to draw on treasury stock as the source of the shares.
Restricted stock shares vest over a five-year service period on the anniversary date of the grant. Vesting of the restricted stock shares accelerate upon death or disability, retirement or a change in control. The product of the number of shares granted and the grant date market price of the Company’s common stock determines the fair value of restricted shares under the Company’s restricted stock plan. The Company recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period.
The following is a summary of the status of the Company’s restricted stock shares as of December 31, 2014 and changes therein during the six months then ended:
 
 
Number of
Shares
Awarded
 
Weighted
Average Grant
Date Fair Value
Non-vested at June 30, 2014
997,060

 
$
12.14

Vested
(320,620
)
 
12.01

Forfeited
(6,400
)
 
13.58

Non-vested at December 31, 2014
670,040

 
$
12.18

The Company recorded $962,000 and $957,000 of share based compensation expense related to the restricted stock shares for the three months ended December 31, 2014 and 2013, respectively. The Company recorded $1.9 million and $1.9 million of share based compensation expense related to the restricted stock shares for the six months ended December 31, 2014 and 2013, respectively. Expected future expense related to the non-vested restricted shares at December 31, 2014 is $6.7 million over a weighted average period of 1.8 years.

10

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

5. Post-retirement Benefits
The Company provides several post-retirement benefit plans to directors and to certain active and retired employees. The Company has a nonqualified Directors’ Retirement Plan ("Retirement Plan"), a nonqualified Benefit Equalization Plan ("BEP Plan"), which provides benefits to employees who are disallowed certain benefits under the Company’s qualified benefit plans, and a Post Retirement Medical Plan ("Medical Plan") for directors and certain eligible employees. Net periodic benefit costs for the three and six months ended December 31, 2014 and 2013 are presented in the following tables.
 
Retirement Plan
 
BEP Plan
 
Medical Plan
 
Three months ended December 31,
 
2014
 
2013
 
2014
 
2013
 
2014
 
2013
 
(In thousands)
Service cost
$
37

 
$
36

 
$

 
$

 
$
31

 
$
18

Interest cost
51

 
54

 
10

 
12

 
45

 
48

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
15

 
15

 

 

 

 

Net loss

 

 
6

 
5

 
2

 

Total
$
103

 
$
105

 
$
16

 
$
17

 
$
78

 
$
66

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

 
$
71

 
$

 
$

 
$
62

 
$
36

Interest cost
102

 
109

 
20

 
22

 
91

 
96

Amortization of unrecognized:
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
30

 
30

 

 

 

 

Net loss

 

 
12

 
11

 
4

 

Total
$
206

 
$
210

 
$
32

 
$
33

 
$
157

 
$
132




11

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

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

 
$
138,909

Multifamily
901,612

 
880,638

Commercial real estate
1,548,479

 
1,453,164

Second mortgage and equity loans
22,155

 
21,692

Construction and land loans
10,691

 
34,951

Other loans
15,449

 
15,992

Total loans
2,659,795

 
2,545,346

Less:
 
 
 
Deferred loan fees, net
11,216

 
10,051

Allowance for loan losses
31,266

 
31,401

Net loans
$
2,617,313

 
$
2,503,894

The Company’s allowance for loan losses is analyzed quarterly and many factors are considered, including growth in the portfolio, delinquencies, nonaccrual loan levels, and other environmental factors. There have been no material changes to the allowance for loan loss methodology as disclosed in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 15, 2014.
The activity in the allowance for loan losses for the three and six months ended December 31, 2014 and 2013 is summarized as follows:
 
Three months ended December 31,
 
Six months ended December 31,
 
(In thousands)
 
2014
 
2013
 
2014
 
2013
Balance at beginning of period
$
31,569

 
$
31,664

 
$
31,401

 
$
31,381

Provisions for loan losses

 
200

 
200

 
500

Recoveries of loans previously charged off
1

 
1

 
2

 
13

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

 
$
30,640

 
$
31,266

 
$
30,640

The following table provides the three and six month activity in the allowance for loan losses allocated by loan category at December 31, 2014 and 2013. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

12

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

 
Three months ended December 31, 2014
 
Residential
 
Multifamily
 
Commercial
Real Estate
 
Second
mortgage
and equity
loans
 
Construction
and land
loans
 
Other
loans
 
Unallocated
 
Total
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
1,879

 
$
5,120

 
$
22,242

 
$
310

 
$
301

 
$
77

 
$
1,640

 
$
31,569

Charge-offs
(304
)
 

 

 

 

 

 

 
(304
)
Recoveries

 

 

 

 
1

 

 

 
1

Provisions
416

 
3,239

 
(3,418
)
 
(68
)
 
25

 
(6
)
 
(188
)
 

Ending balance
$
1,991

 
$
8,359

 
$
18,824

 
$
242

 
$
327

 
$
71

 
$
1,452

 
$
31,266

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended December 31, 2014
 
Residential
 
Multifamily
 
Commercial
Real Estate
 
Second
mortgage
and equity
loans
 
Construction
and land
loans
 
Other
loans
 
Unallocated
 
Total
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
1,285

 
$
4,873

 
$
21,005

 
$
299

 
$
1,108

 
$
80

 
$
2,751

 
$
31,401

Charge-offs
(304
)
 

 
(33
)
 

 

 

 

 
(337
)
Recoveries

 

 

 

 
2

 

 

 
2

Provisions
1,010

 
3,486

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

Ending balance
$
1,991

 
$
8,359

 
$
18,824

 
$
242

 
$
327

 
$
71

 
$
1,452

 
$
31,266

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended December 31, 2013
 
Residential
 
Multifamily
 
Commercial
Real Estate
 
Second
mortgage
and equity
loans
 
Construction
and land
loans
 
Other
loans
 
Unallocated
 
Total
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
2,034

 
$
5,470

 
$
19,970

 
$
368

 
$
1,190

 
$
387

 
$
2,245

 
$
31,664

Charge-offs

 
(1,225
)
 

 

 

 

 

 
(1,225
)
Recoveries

 

 

 

 
1

 

 

 
1

Provisions
(137
)
 
716

 
(880
)
 
(40
)
 
(24
)
 
(4
)
 
569

 
200

Ending balance
$
1,897

 
$
4,961

 
$
19,090

 
$
328

 
$
1,167

 
$
383

 
$
2,814

 
$
30,640

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six months ended December 31, 2013
 
Residential
 
Multifamily
 
Commercial
Real Estate
 
Second
mortgage
and equity
loans
 
Construction
and land
loans
 
Other
loans
 
Unallocated
 
Total
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
2,224

 
$
5,175

 
$
19,339

 
$
394

 
$
1,233

 
$
406

 
$
2,610

 
$
31,381

Charge-offs
(4
)
 
(1,225
)
 
(4
)
 
(21
)
 

 

 

 
(1,254
)
Recoveries

 

 
11

 

 
2

 

 

 
13

Provisions
(323
)
 
1,011

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

 
500

Ending balance
$
1,897

 
$
4,961

 
$
19,090

 
$
328

 
$
1,167

 
$
383

 
$
2,814

 
$
30,640


13

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

The following table details the amount of loans receivables that are evaluated individually, and collectively, for impairment, and the related portion of allowance for loan loss that is allocated to each loan portfolio segment at December 31, 2014 and June 30, 2014.
 
At December 31, 2014
 
Residential
 
Multifamily
 
Commercial
Real Estate
 
Second
mortgage and
equity loans
 
Construction
and land 
loans
 
Other loans
 
Unallocated
 
Total
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
20

 
$
27

 
$
1,555

 
$

 
$

 
$

 
$

 
$
1,602

Collectively evaluated for impairment
1,971

 
8,332

 
17,269

 
242

 
327

 
71

 
1,452

 
29,664

Total
$
1,991

 
$
8,359

 
$
18,824

 
$
242

 
$
327

 
$
71

 
$
1,452

 
$
31,266

Loans receivable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
3,782

 
$
2,907

 
$
11,282

 
$

 
$

 
$

 
 
 
$
17,971

Collectively evaluated for impairment
157,627

 
898,705

 
1,537,197

 
22,155

 
10,691

 
15,449

 
 
 
2,641,824

Total
$
161,409

 
$
901,612

 
$
1,548,479

 
$
22,155

 
$
10,691

 
$
15,449

 
 
 
$
2,659,795

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2014
 
Residential
 
Multifamily
 
Commercial
Real Estate
 
Second
mortgage and
equity loans
 
Construction
and land loans
 
Other loans
 
Unallocated
 
Total
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
266

 
$
27

 
$
1,121

 
$

 
$

 
$

 
$

 
$
1,414

Collectively evaluated for impairment
1,019

 
4,846

 
19,884

 
299

 
1,108

 
80

 
2,751

 
29,987

Total
$
1,285

 
$
4,873

 
$
21,005

 
$
299

 
$
1,108

 
$
80

 
$
2,751

 
$
31,401

Loans receivable:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
4,702

 
$
2,930

 
$
11,795

 
$

 
$

 
$

 
 
 
$
19,427

Collectively evaluated for impairment
134,207

 
877,708

 
1,441,369

 
21,692

 
34,951

 
15,992

 
 
 
2,525,919

Total
$
138,909

 
$
880,638

 
$
1,453,164

 
$
21,692

 
$
34,951

 
$
15,992

 
 
 
$
2,545,346


14

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

The Company continuously monitors the credit quality of its loan portfolio. In addition to internal staff, the Company utilizes the services of a third party loan review firm to evaluate the credit quality ratings of its loan receivables. Credit quality is monitored by reviewing certain credit quality indicators. Assets classified as “Satisfactory” are deemed to possess average to superior credit quality, requiring no more than normal attention. Assets classified as “Pass/Watch” have generally acceptable asset quality yet possess higher risk characteristics/circumstances than satisfactory assets. Such characteristics may include strained liquidity, slow pay, stale financial statements or other circumstances requiring greater attention from bank staff. We classify an asset as “Special Mention” if the asset has a potential weakness that warrants management’s close attention. Such weaknesses, if left uncorrected, may result in the deterioration of the repayment prospects of the asset. An asset is considered “Substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Assets classified as “Doubtful” have all of the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Included in the Substandard caption are all loans that were past due 90 days (or more) and all impaired loans. The following table provides information about the loan credit quality at December 31, 2014 and June 30, 2014:
 
 
Credit Quality Indicators at December 31, 2014
 
Satisfactory
 
Pass/Watch
 
Special
Mention
 
Substandard
 
Doubtful
 
Total
 
(In thousands)
Residential
$
137,052

 
$
19,281

 
$
204

 
$
4,872

 
$

 
$
161,409

Multifamily
867,731

 
24,203

 
758

 
8,920

 

 
901,612

Commercial real estate
1,442,955

 
69,689

 
12,727

 
23,108

 

 
1,548,479

Second mortgage and equity loans
21,946

 
116

 

 
93

 

 
22,155

Construction and land loans
10,349

 

 

 
342

 

 
10,691

Other loans
15,288

 
161

 

 

 

 
15,449

Total
$
2,495,321

 
$
113,450

 
$
13,689

 
$
37,335

 
$

 
$
2,659,795

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Quality Indicators at June 30, 2014
 
Satisfactory
 
Pass/Watch
 
Special
Mention
 
Substandard
 
Doubtful
 
Total
 
(In thousands)
Residential
$
132,822

 
$
523

 
$
214

 
$
5,350

 
$

 
$
138,909

Multifamily
850,937

 
24,245

 
1,948

 
3,508

 

 
880,638

Commercial real estate
1,320,993

 
59,443

 
18,737

 
53,991

 

 
1,453,164

Second mortgage and equity loans
21,330

 
362

 

 

 

 
21,692

Construction and land loans
16,112

 
18,395

 

 
444

 

 
34,951

Other loans
15,898

 
87

 

 
7

 

 
15,992

Total
$
2,358,092

 
$
103,055

 
$
20,899

 
$
63,300

 
$

 
$
2,545,346


15

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements


The following table provides information about loans past due at December 31, 2014 and June 30, 2014:
 
At December 31, 2014
 
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
$
1,360

 
$
205

 
$
1,072

 
$
2,637

 
$
158,772

 
$
161,409

 
$
1,279

Multifamily

 

 
3,001

 
3,001

 
898,611

 
901,612

 
3,485

Commercial real estate
3,673

 

 
3,717

 
7,390

 
1,541,089

 
1,548,479

 
12,334

Second mortgage and equity loans
231

 

 

 
231

 
21,924

 
22,155

 
93

Construction and land loans

 

 
342

 
342

 
10,349

 
10,691

 
342

Other loans
58

 

 

 
58

 
15,391

 
15,449

 

Total
$
5,322

 
$
205

 
$
8,132

 
$
13,659

 
$
2,646,136

 
$
2,659,795

 
$
17,533

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2014
 
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
$
541

 
$
214

 
$
2,374

 
$
3,129

 
$
135,780

 
$
138,909

 
$
5,350

Multifamily

 

 
3,007

 
3,007

 
877,631

 
880,638

 
3,508

Commercial real estate
3,525

 

 
3,580

 
7,105

 
1,446,059

 
1,453,164

 
8,663

Second mortgage and equity loans
362

 

 

 
362

 
21,330

 
21,692

 

Construction and land loans

 

 
444

 
444

 
34,507

 
34,951

 
444

Other loans

 

 

 

 
15,992

 
15,992

 
7

Total
$
4,428

 
$
214

 
$
9,405

 
$
14,047

 
$
2,531,299

 
$
2,545,346

 
$
17,972

(1)
Included in nonaccrual loans at December 31, 2014 are residential loans totaling $207,000, commercial real estate loans totaling $1.2 million and second mortgage and equity loans totaling $93,000 that were 30-59 days past due; multifamily loans totaling $484,000 and commercial real estate loans totaling $7.4 million that were less than 30 days past due.
(2)
Included in nonaccrual loans at June 30, 2014 are residential loans totaling $17,000 and commercial real estate loans totaling $1.0 million that were 30-59 days past due; residential loans totaling $3.0 million, multifamily loans totaling $501,000, commercial real estate loans totaling $4.1 million and other loans totaling $7,000 that were less than 30 days past due.
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. At December 31, 2014 impaired loans were primarily collateral-dependent and totaled $18.0 million, of which $8.6 million had a specific allowance for credit losses of $1.6 million and $9.4 million of impaired loans had no related allowance for credit losses. At June 30, 2014 impaired loans were primarily collateral-dependent and totaled $19.4 million, of which $6.2 million had a related allowance for credit losses of $1.4 million and $13.2 million of impaired loans had no related allowance for credit losses.


16

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

The following table provides information about the Company’s impaired loans at December 31, 2014 and June 30, 2014: 
 
Impaired Loans
 
At December 31, 2014
 
Six months ended December 31, 2014
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
(In thousands)
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
Residential
$
3,592

 
$
3,592

 
$

 
$
3,290

 
$
72

Multifamily
2,423

 
2,423

 

 
2,425

 
54

Commercial real estate
3,363

 
3,363

 

 
3,380

 

 
9,378

 
9,378

 

 
9,095

 
126

With an allowance recorded:
 
 
 
 
 
 
 
 
 
Residential
$
170

 
$
190

 
$
20

 
$
172

 
$
3

Multifamily
457

 
484

 
27

 
462

 

Commercial real estate
6,364

 
7,919

 
1,555

 
6,682

 
47

 
6,991

 
8,593

 
1,602

 
7,316

 
50

Total:
 
 
 
 
 
 
 
 
 
Residential
$
3,762

 
$
3,782

 
$
20

 
$
3,462

 
$
75

Multifamily
2,880

 
2,907

 
27

 
2,887

 
54

Commercial real estate
9,727

 
11,282

 
1,555

 
10,062

 
47

 
$
16,369

 
$
17,971

 
$
1,602

 
$
16,411

 
$
176

 
 
 
 
 
 
 
 
 
 
 
Impaired Loans
 
At June 30, 2014
 
Year ended June 30, 2014
 
Recorded
Investment
 
Unpaid
Principal
Balance
 
Allowance
 
Average
Recorded
Investment
 
Interest
Income
Recognized
 
(In thousands)
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
Residential
$
2,887

 
$
2,887

 
$

 
$
2,995

 
$
465

Multifamily
2,429

 
2,429

 

 
2,442

 
173

Commercial real estate
7,878

 
7,878

 

 
7,993

 
214

 
13,194

 
13,194

 

 
13,430

 
852

With an allowance recorded:
 
 
 
 
 
 
 
 
 
Residential
$
1,548

 
$
1,814

 
$
266

 
$
1,551

 
$
6

Multifamily
474

 
501

 
27

 
422

 
40

Commercial real estate
2,797

 
3,918

 
1,121

 
2,952

 
76

 
4,819

 
6,233

 
1,414

 
4,925

 
122

Total:
 
 
 
 
 
 
 
 
 
Residential
$
4,435

 
$
4,701

 
$
266

 
$
4,546

 
$
471

Multifamily
2,903

 
2,930

 
27

 
2,864

 
213

Commercial real estate
10,675

 
11,796

 
1,121

 
10,945

 
290

 
$
18,013

 
$
19,427

 
$
1,414

 
$
18,355

 
$
974

Troubled debt restructured loans (“TDRs”) are those loans whose terms have been modified because of deterioration in the financial condition of the borrower. The Company has selectively modified certain borrower’s loans to enable the borrower to emerge from delinquency and keep their loans current. The eligibility of a borrower for a TDR modification depends upon the facts and circumstances of each transaction, which may change from period to period, and involve judgment by management regarding the

17

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

likelihood that the modification will result in the maximum recovery by the Company. Modifications could include extension of the terms of the loan, reduced interest rates, and forgiveness of accrued interest and/or principal. Once an obligation has been restructured because of such credit problems, it continues to be considered restructured until paid in full or, if the obligation yields a market rate (a rate equal to or greater than the rate the Company was willing to accept at the time of the restructuring for a new loan with comparable risk), until the year subsequent to the year in which the restructuring takes place, provided the borrower has performed under the modified terms for a six month period. Management classifies all TDRs as impaired loans. Included in impaired loans at December 31, 2014 are $4.9 million of loans which are deemed TDRs. At June 30, 2014, TDRs totaled $8.0 million.
The following table presents additional information regarding the Company’s TDRs as of December 31, 2014 and June 30, 2014:
 
Troubled Debt Restructurings at December 31, 2014
 
Performing
 
Nonperforming
 
Total
 
(In thousands)
Residential
$

 
$
190

 
$
190

Multifamily

 
484

 
484

Commercial real estate

 
4,194

 
4,194

Total
$

 
$
4,868

 
$
4,868

Allowance
$

 
$
1,185

 
$
1,185

 
 
 
 
 
 
 
Troubled Debt Restructurings at June 30, 2014
 
Performing
 
Nonperforming
 
Total
 
(In thousands)
Residential
$

 
$
3,080

 
$
3,080

Multifamily

 
501

 
501

Commercial real estate

 
4,386

 
4,386

Total
$

 
$
7,967

 
$
7,967

Allowance
$

 
$
1,168

 
$
1,168


The following tables present information about TDRs for the periods presented:
 
Three months ended December 31,
 
2014
 
2013
 
Number of
Relationships
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment
 
Number of
Relationships
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment
 
(Dollars in thousands)
 
(Dollars in thousands)
Commercial real estate

 
$

 
$

 
1

 
$
968

 
$
835

Total

 
$

 
$

 
1

 
$
968

 
$
835

There were no loan relationships modified in a troubled debt restructuring during the three months ended December 31, 2014. The loan relationship modified during the three months ended December 31, 2013 was granted a reduced rate and extended maturity.


18

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

 
Six months ended December 31,
 
2014
 
2013
 
Number of
Relationships
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment
 
Number of
Relationships
 
Pre-Modification
Outstanding
Recorded
Investment
 
Post-Modification
Outstanding
Recorded
Investment
 
(Dollars in thousands)
 
(Dollars in thousands)
Residential

 
$

 
$

 
1

 
$
3,188

 
$
2,888

Commercial real estate

 

 

 
1

 
968

 
835

Total

 
$

 
$

 
2

 
$
4,156

 
$
3,723

There were no loan relationships modified in a troubled debt restructuring during the six months ended December 31, 2014. The loan relationships modified during the six months ended December 31, 2013 were granted a reduced rate and extended maturity.
There have been no loans that were modified as TDR during the last twelve months that have subsequently defaulted (90 days or more past due) during the current quarter ended December 31, 2014.


19

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

7. Investment Securities
Securities Held to Maturity
The following is a comparative summary of securities held to maturity at December 31, 2014 and June 30, 2014: 
 
December 31, 2014
 
Amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
 
(In thousands)
U.S. Government and federal agency obligations
 
 
 
 
 
 
 
Due in one to five years
$
10,750

 
$

 
$
89

 
$
10,661

Mortgage-backed securities:
 
 
 
 
 
 
 
FHLMC
1,713

 
141

 

 
1,854

FNMA
27,449

 
333

 
332

 
27,450

GNMA
2,123

 
110

 

 
2,233

CMO
45,632

 
12

 
173

 
45,471

 
$
87,667

 
$
596

 
$
594

 
$
87,669

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2014
 
Amortized cost
 
Gross
unrealized gains
 
Gross
unrealized losses
 
Fair value
 
(In thousands)
Mortgage-backed securities:
 
 
 
 
 
 
 
FHLMC
$
2,315

 
$
145

 
$

 
$
2,460

FNMA
27,896

 
423

 
564

 
27,755

GNMA
2,211

 
113

 

 
2,324

 
$
32,422

 
$
681

 
$
564

 
$
32,539


The contractual maturities of mortgage-backed securities held-to-maturity generally exceed 20 years; however, the effective lives are expected to be shorter due to anticipated prepayments and, in the case of CMOs, cash flow priorities. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
The Company did not sell any securities held to maturity during the three months ended December 31, 2014 and 2013. Proceeds from the sale of securities held to maturity for the six months ended December 31, 2014 were $3.4 million on securities with an amortized cost of $3.2 million, resulting in gross gains of $143,800 and no gross losses. Proceeds from the sale of securities held to maturity for the six months ended December 31, 2013 were $8.9 million on securities with an amortized cost of $8.8 million, resulting in gross gains and gross losses of $117,400 and $16,700, respectively. The held to maturity securities sold were mortgage-backed securities with 15% or less of their original purchased balances remaining. Securities with fair values of $25.6 million and $29.4 million at December 31, 2014 and June 30, 2014, respectively, were pledged as collateral for advances. The Company did not record other-than-temporary impairment charges on securities held to maturity during the three and six months ended December 31, 2014 and 2013.

20

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

Gross unrealized losses on securities held to maturity and the fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2014 and June 30, 2014 were as follows:

December 31, 2014
 
Less than 12 months

Greater than 12 months

Total
 
Fair value
 
Gross
unrealized
losses
 
Fair value
 
Gross
unrealized
losses
 
Fair value
 
Gross
unrealized
losses
 
(In thousands)
U.S. Government and federal agency obligations
$
10,661

 
$
89

 
$

 
$

 
$
10,661

 
$
89

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
FNMA

 

 
9,755

 
332

 
9,755

 
332

CMO
26,943

 
173

 

 

 
26,943

 
173


$
37,604

 
$
262

 
$
9,755

 
$
332

 
$
47,359

 
$
594

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2014
 
Less than 12 months
 
Greater than 12 months
 
Total
 
Fair value
 
Gross
unrealized
losses
 
Fair value
 
Gross
unrealized
losses
 
Fair value
 
Gross
unrealized
losses
 
(In thousands)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
FNMA
$

 
$

 
$
14,615

 
$
564

 
$
14,615

 
$
564

 
$

 
$

 
$
14,615

 
$
564

 
$
14,615

 
$
564


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

21

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements


Securities Available for Sale
The following is a comparative summary of securities available for sale at December 31, 2014 and June 30, 2014: 
 
December 31, 2014
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair value
 
(In thousands)
Equity securities
$
1,208

 
$
862

 
$

 
$
2,070

Mortgage-backed securities:
 
 
 
 
 
 
 
FHLMC
6,101

 
199

 

 
6,300

FNMA
60,808

 
1,402

 
22

 
62,188

CMO
248,513

 
1,262

 
669

 
249,106

 
$
316,630

 
$
3,725

 
$
691

 
$
319,664

 
 
 
 
 
 
 
 
 
June 30, 2014
 
Amortized
cost
 
Gross
unrealized
gains
 
Gross
unrealized
losses
 
Fair value
 
(In thousands)
U.S. Government and federal agency obligations
 
 
 
 
 
 
 
Due in one to five years
$
4,996

 
$
91

 
$

 
$
5,087

Equity securities
1,208

 
763

 

 
1,971

Mortgage-backed securities:

 

 

 
 
FHLMC
6,883

 
267

 

 
7,150

FNMA
67,543

 
1,623

 
71

 
69,095

CMO
298,868

 
2,511

 
545

 
300,834

 
$
379,498

 
$
5,255

 
$
616

 
$
384,137

The contractual maturities of mortgage-backed securities available for sale generally exceed 20 years; however, the effective lives are expected to be shorter due to anticipated prepayments and, in the case of CMOs, cash flow priorities. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
The Company did not sell any securities available for sale during the three months ended December 31, 2014. Proceeds from the sale of securities available for sale for the three months ended December 31, 2013 were $14.7 million on securities available for sale with an amortized cost of $14.8 million, resulting in gross gains and gross losses of $121,200 and $168,000, respectively. Proceeds from the sale of securities available for sale for the six months ended December 31, 2014 were $17.2 million on securities available for sale with an amortized cost of $17.4 million, resulting in gross gains and gross losses of $90,500 and $236,100, respectively. Proceeds from the sale of securities available for sale for the six months ended December 31, 2013 were $18.1 million on securities available for sale with an amortized cost of $18.2 million, resulting in gross gains and gross losses of $136,300 and $185,600, respectively. There were no other-than-temporary impairment charges on available for sale securities for the three and six months ended December 31, 2014 and 2013. The Equity securities caption relates to holdings of shares in financial institutions common stock. Available for sale securities with fair values of $251.6 million and $251.4 million at December 31, 2014 and June 30, 2014, respectively, were pledged as collateral for advances.

22

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

Gross unrealized losses on securities available for sale and the fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2014 and June 30, 2014 were as follows: 
 
December 31, 2014
 
Less than 12 months
 
Greater than 12 months
 
Total
 
Fair value
 
Gross
unrealized
losses
 
Fair value
 
Gross
unrealized
losses
 
Fair value
 
Gross
unrealized
losses
 
(In thousands)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
FNMA
$

 
$

 
$
6,962

 
$
22

 
$
6,962

 
$
22

CMO
75,997

 
395

 
16,337

 
274

 
92,334

 
669

 
$
75,997

 
$
395

 
$
23,299

 
$
296

 
$
99,296

 
$
691

 
 
June 30, 2014
 
Less than 12 months
 
Greater than 12 months
 
Total
 
Fair value
 
Gross
unrealized
losses
 
Fair value
 
Gross
unrealized
losses
 
Fair value
 
Gross
unrealized
losses
 
(In thousands)
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
FNMA
$
21,516

 
$
71

 
$

 
$

 
$
21,516

 
$
71

CMO
99,627

 
545

 

 

 
99,627

 
545

 
$
121,143

 
$
616

 
$

 
$

 
$
121,143

 
$
616

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

8. Deposits
Deposits include checking (non-interest and interest-bearing demand deposits), money market, savings and time deposits. We had brokered deposits totaling $202.2 million and $27.8 million at December 31, 2014 and June 30, 2014, respectively. Deposit balances are summarized as follows:

 
December 31, 2014
 
June 30, 2014
 
Amount
 
Amount
 
(In thousands)
Checking accounts
$
453,955

 
$
444,239

Money market deposit accounts
494,279

 
427,909

Savings accounts
159,866

 
161,813

Time deposits
684,767

 
547,014

 
$
1,792,867

 
$
1,580,975




23

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

9. Derivatives and Hedging Activities
Oritani is exposed to certain risks regarding its ongoing business operations. Derivative instruments are used to offset a portion of the Company's interest rate risk. Specifically, the Company has utilized interest rate swaps to partially offset the interest rate risk inherent in the Company's balance sheet. Oritani recognizes interest rate swaps as either assets or liabilities at fair value in the statement of financial condition with an offset recorded in Other Comprehensive Income and any ineffectiveness would be recorded in earnings. The interest rate swaps have been designed as cash flow hedges. The specific balance sheet item that is being hedged will be determined prior to the effective date of the transactions, though it is currently anticipated that the Company’s short term borrowing position is the item that will be hedged.
Oritani is exposed to credit-related losses in the event of nonperformance by the counterparties to the agreements. Oritani controls the credit risk through monitoring procedures and does not expect the counterparty to fail their obligations. Oritani only deals with primary dealers and believes that the credit risk inherent in these contracts was not significant during and at period end. Oritani has the right to demand that the counterparty post collateral to cover any market value shortfall of the counterparty regarding the transaction.
At December 31, 2014, Oritani had entered into three interest rate swap agreements. These agreements feature an extended period of time where no cash flows are exchanged, an “Effective Date” that indicates the commencement of the exchange of cash flows, followed by a seven year period where Oritani will receive 3 month LIBOR from the counterparty and pay interest to the counterparty at a fixed rate. The first agreement has a notional amount of $50 million at a fixed rate of 2.63% with an effective date of April 11, 2016 and a maturity date of April 11, 2023. The second agreement has a notional amount of $25 million at a fixed rate of 3.56% with an effective date of January 11, 2017 and a maturity date of January 11, 2024. The third agreement has a notional amount of $25 million at a fixed rate of 3.67% with an effective date of July 11, 2017 and a maturity date of July 11, 2024. The fair value of securities pledged as collateral for the swaps at December 31, 2014 was $7.0 million and $1.5 million at June 30, 2014. The following table presents information regarding our derivative financial instruments at December 31, 2014 and June 30, 2014.
 
 
 
 
At December 31, 2014
 
 
 
Balance Sheet Line Item
 
Notional Amount
 
Fair Value
 
Liability derivatives
 
 
 
 
 
 
 
Cash flow hedge interest rate swaps-Gross unrealized loss
 
Other Liabilities
 
$
100,000

 
$
3,851

 
 
 
 
 
 
 
 
 
 
 
 
 
At June 30, 2014
 
 
 
Balance Sheet Line Item
 
Notional Amount
 
Fair Value
 
Asset derivatives
 
 
 
 
 
 
 
Cash flow hedge interest rate swaps-Gross unrealized gain
 
 
 
$
50,000

 
$
1,052

 
Cash flow hedge interest rate swaps-Gross unrealized loss
 
 
 
50,000

 
(953
)
 
 
 
Other Assets
 
$
100,000

 
$
99

 


10. Income Taxes
The Company files income tax returns in the United States federal jurisdiction and in New Jersey, Pennsylvania and New York state jurisdictions.
The Company is no longer subject to federal and state income tax examinations by tax authorities for years prior to 2010. Currently, the Company is not under examination by any taxing authority. The Company did not have any uncertain tax positions at December 31, 2014 and June 30, 2014. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, where applicable, in income tax expense.


24

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

11. Real Estate Joint Ventures, net and Real Estate Held for Investment
The Company accounts for investments in joint ventures under the equity method. The balance reflects the cost basis of investments, plus the Company’s share of income earned on the joint venture operations, less cash distributions, including excess cash distributions, and the Company’s share of losses on joint venture operations. Cash received in excess of the Company’s recorded investment in a joint venture is recorded as unearned revenue in other liabilities. The net book value of real estate joint ventures was $6.3 million and $5.8 million at December 31, 2014 and June 30, 2014, respectively.

Real estate held for investment includes the Company’s undivided interest in real estate properties accounted for under the equity method and properties held for investment purposes. Cash received in excess of the Company’s recorded investment for an undivided interest in real estate property is recorded as unearned revenue in other liabilities. The operations of the properties held for investment purposes are reflected in the financial results of the Company and included in the Other Income caption in the Income Statement. Properties held for investment purposes are carried at cost less accumulated depreciation. The net book value of real estate held for investment was $72,000 and ($26,000) at December 31, 2014 and June 30, 2014, respectively.

12. Fair Value Measurements
The Company adopted FASB ASC 820, “Fair Value Measurements and Disclosures”, on July 1, 2008. Under ASC 820, fair value measurements are not adjusted for transaction costs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under FASB ASC 820 are described below:
Basis of Fair Value Measurement:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted
assets or liabilities;
Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for
substantially the full term of the asset or liability;
Level 3: Price or valuation techniques that require inputs that are both significant to the fair value measurement and
unobservable (i.e. supported with little or no market activity).
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Following are descriptions of the valuation methodologies and key inputs used to measure assets recorded at fair value, as well as a description of the methods and significant assumptions used to estimate fair value disclosures for financial instruments not recorded at fair value in their entirety on a recurring basis. The descriptions include an indication of the level of the fair value hierarchy in which the assets or liabilities are classified.
Cash and Cash Equivalents
Due to their short-term nature, the carrying amount of these instruments approximates fair value.
Securities
The Company records securities held to maturity at amortized cost and securities available for sale at fair value on a recurring basis. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. The estimated fair values for securities are obtained from an independent nationally recognized third-party pricing service. Our independent pricing service provides us with prices which are primarily categorized as Level 2, as quoted prices in active markets for identical assets are generally not available for the majority of securities in our portfolio. Pricing services may employ modeling techniques in determining pricing. Inputs to these models include market spreads, dealer quotes, prepayment speeds, credit information and the instrument’s terms and conditions, among other things. Management compares the pricing to a second independent pricing source for reasonableness. Equity securities are reported at Level 1 based on quoted market prices for identical securities in active markets.

25

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements


FHLB of New York Stock
FHLB of New York Stock is recorded at cost (par value) and evaluated for impairment based on the ultimate recoverability of the par value. There is no active market for this stock and no significant observable market data is available for this instrument. The Company considers the profitability and asset quality of FHLB, dividend payment history and recent redemption experience, when determining the ultimate recoverability of the par value. The Company believes its investment in FHLB stock is ultimately recoverable at par. The carrying amount of FHLB stock approximates fair value, since this is the amount for which it could be redeemed.
Loans
The Company does not record loans at fair value on a recurring basis. However, periodically, the Company records nonrecurring adjustments to the carrying value of loans based on fair value measurements. The estimated fair value for significant nonperforming loans and impaired loans are valued utilizing independent appraisals of the collateral securing such loans that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience. The appraisals are adjusted downward by management (0-20% adjustment rate and 0-10% risk premium rate), as necessary, for changes in relevant valuation factors subsequent to the appraisal date and the timing of anticipated cash flows (0-8% discount rate). The Company classifies impaired loans as Level 3.
Fair value for loans held for investment is estimated using portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential, multifamily, commercial real estate, construction, land and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming/impaired categories. Fair value of performing loans is estimated using a discounted cash flow model that employs a discount rate that reflects the current market pricing for loans with similar characteristics and remaining maturity, adjusted by an amount for estimated credit losses inherent in the portfolio at the balance sheet date. The rates take into account the expected yield curve. Fair values estimated in this manner do not fully incorporate an exit-price approach to fair value. The Company classifies the estimated fair value of loans held for investment as Level 3.
Real Estate Owned
Assets acquired through foreclosure or deed in lieu of foreclosure are recorded at fair value less estimated selling costs when acquired, thus establishing a new cost basis. Subsequently, real estate owned is carried at the lower of cost or fair value, less estimated selling costs. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are considered Level 3. When an asset is acquired, the excess of the loan balance over fair value, less estimated liquidation costs (5-20% discount rate), is charged to the allowance for loan losses. If the estimated fair value of the asset declines, a write-down is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in the economic conditions.
Deposit Liabilities
The estimated fair value of deposits with no stated maturity, such as checking, savings, and money market accounts, is equal to the amount payable on demand at the balance sheet date. The estimated fair value of term deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. The Company classifies the estimated fair value of term deposits as Level 2.

Borrowings
The book value of overnight borrowings approximates the estimated fair value. The estimated fair value of term borrowings is calculated based on the discounted cash flow of contractual amounts due, using market rates currently available for borrowings of similar amount and remaining maturity. The Company classifies the estimated fair value of term borrowings as Level 2.
Derivatives
The fair value of our interest rate swaps was estimated using Level 2 inputs. The fair value was determined using third party prices that are based on discounted cash flow analyses using observed market interest rate curves and volatilities.


26

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

Commitments to Extend Credit and to Purchase or Sell Securities
The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of commitments to purchase or sell securities is estimated based on bid quotations received from securities dealers. The fair value of off-balance-sheet commitments approximates book value.
Assets Recorded at Fair Value on a Recurring Basis
The following tables present the recorded amount of assets measured at fair value on a recurring basis as of December 31, 2014 and June 30, 2014 by level within the fair value hierarchy. There were no transfers between levels within the fair value hierarchy during the six months ended December 31, 2014.
 
 
Fair Value as of December 31, 2014
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Equity Securities
$
2,070

 
$
2,070

 
$

 
$

Mortgage-backed securities available for sale
 
 
 
 
 
 
 
FHLMC
6,300

 

 
6,300

 

FNMA
62,188

 

 
62,188

 

CMO
249,106

 

 
249,106

 

Total securities available for sale
$
319,664

 
$
2,070

 
$
317,594

 
$

 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
Interest rate swaps
$
3,851

 
$

 
$
3,851

 
$

 
 
Fair Value as of June 30, 2014
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
(In thousands)
Assets:
 
 
 
 
 
 
 
U.S. Government and federal agency obligations
$
5,087

 
$

 
$
5,087

 
$

Equity Securities
1,971

 
1,971

 

 

Mortgage-backed securities available for sale
 
 
 
 
 
 
 
FHLMC
7,150

 

 
7,150

 

FNMA
69,095

 

 
69,095

 

CMO
300,834

 

 
300,834

 

Total securities available for sale
384,137

 
1,971

 
382,166

 

 
 
 
 
 
 
 
 
Interest rate swap
99

 

 
99

 

Total assets measured on a recurring basis
$
384,236

 
$
1,971

 
$
382,265

 
$


27

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

Assets Recorded at Fair Value on a Nonrecurring Basis
The Company may be required, from time to time, to measure the fair value of certain other financial assets on a nonrecurring basis in accordance with U.S. GAAP. The adjustments to fair value usually result from the application of lower-of-cost-or-fair value accounting or write downs of individual assets. The following tables present the recorded amount of assets measured at fair value on a nonrecurring basis as of December 31, 2014 and June 30, 2014 by level within the fair value hierarchy.
 
 
Fair Value as of December 31, 2014
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
Residential
$
170

 
$

 
$

 
$
170

Multifamily
457

 

 

 
457

Commercial real estate
9,294

 

 

 
9,294

Total impaired loans
9,921

 

 

 
9,921

Real estate owned
 
 
 
 
 
 
 
Residential
1,493

 

 

 
1,493

Multifamily
2,100

 

 

 
2,100

Commercial real estate
775

 

 

 
775

Total real estate owned
4,368

 

 

 
4,368

Total assets measured on a non-recurring basis
$
14,289

 
$

 
$

 
$
14,289

 
 
Fair Value as of June 30, 2014
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
(In thousands)
Assets:
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
Residential
$
1,548

 
$

 
$

 
$
1,548

Multifamily
474

 

 

 
474

Commercial real estate
5,727

 

 

 
5,727

Total impaired loans
7,749

 

 

 
7,749

Real estate owned
 
 
 
 
 
 
 
Multifamily
3,000

 

 

 
3,000

Commercial real estate
850

 

 

 
850

Total real estate owned
3,850

 

 

 
3,850

Total assets measured on a non-recurring basis
$
11,599

 
$

 
$

 
$
11,599



28

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

Estimated Fair Value of Financial Instruments
The following tables present the carrying amount, estimated fair value, and placement in the fair value hierarchy of financial instruments not recorded at fair values in their entirety on a recurring basis on the Company’s balance sheet at December 31, 2014 and June 30, 2014. These tables exclude financial instruments for which the carrying amount approximates fair value. Financial instruments for which the carrying amount approximates fair value include cash and cash equivalents, FHLB stock, non-maturity deposits, and overnight borrowings.
 
 
December 31, 2014
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Carrying Amount
 
Fair Value
 
 
(In thousands)
Financial assets:
 
 
 
 
 
 
 
 
 
Securities held to maturity
$
87,667

 
$
87,669

 
$

 
$
87,669

 
$

Loans, net (1)
2,617,313

 
2,639,941

 

 

 
2,639,941

Financial liabilities:
 
 
 
 
 
 
 
 
 
Time deposits
684,767

 
691,595

 

 
691,595

 

Term borrowings
674,756

 
696,443

 

 
696,443

 

         
(1)
Comprised of loans (including impaired loans), net of deferred loan fees and the allowance for loan losses.
 
June 30, 2014
 
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Unobservable
Inputs
(Level 3)
 
Carrying Amount
 
Fair Value
 
 
(In thousands)
Financial assets:
 
 
 
 
 
 
 
 
 
Securities held to maturity
$
32,422

 
$
32,539

 
$

 
$
32,539

 
$

Loans, net (1)
2,503,894

 
2,510,776

 

 

 
2,510,776

Financial assets:
 
 
 
 
 
 
 
 
 
Time deposits
547,013

 
552,579

 

 
552,579

 

Term borrowings
630,443

 
656,459

 

 
656,459

 

         
(1)
Comprised of loans (including impaired loans), net of deferred loan fees and the allowance for loan losses.
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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

29

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements


13. Other Comprehensive Income
The components of comprehensive income, both gross and net of tax, are presented for the periods below (in thousands):
 
Three months ended December 31,
 
Six months ended December 31,
 
2014
 
2013
 
2014
 
2013
Gross:
 
 
 
 
 
 
 
Net income
$
15,536

 
$
15,600

 
$
31,236

 
$
31,886

Other comprehensive (loss) income
 
 
 
 
 
 
 
Change in unrealized holding gain (loss) on securities available for sale
333

 
(4,181
)
 
(1,752
)
 
(4,139
)
Reclassification adjustment for security losses included in net income

 
47

 
146

 
49

Amortization related to post-retirement obligations
23

 
20

 
46

 
40

Change in unrealized (loss) gain on interest rate swaps
(3,246
)
 
899

 
(3,950
)
 
975

Total other comprehensive loss
(2,890
)
 
(3,215
)
 
(5,510
)
 
(3,075
)
Total comprehensive income
12,646

 
12,385

 
25,726

 
28,811

Tax applicable to:
 
 
 
 
 
 
 
Net income
5,490

 
5,617

 
11,029

 
11,529

Other comprehensive (loss) income
 
 
 
 
 
 
 
Change in unrealized holding gain (loss) on securities available for sale
142

 
(1,722
)
 
(739
)
 
(1,704
)
Reclassification adjustment for security losses included in net income

 
19

 
62

 
21

Amortization related to post-retirement obligations
9

 
8

 
19

 
16

Change in unrealized (loss) gain on interest rate swaps
(1,373
)
 
369

 
(1,671
)
 
402

Total other comprehensive loss
(1,222
)
 
(1,326
)
 
(2,329
)
 
(1,265
)
Total comprehensive income
4,268

 
4,291

 
8,700

 
10,264

Net of tax:
 
 
 
 
 
 
 
Net income
10,046

 
9,983

 
20,207

 
20,357

Other comprehensive (loss) income
 
 
 
 
 
 
 
Change in unrealized holding gain (loss) on securities available for sale
191

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

 
28

 
84

 
28

Amortization related to post-retirement obligations
14

 
12

 
27

 
24

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

 
(2,279
)
 
573

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

 
$
8,094

 
$
17,026

 
$
18,547


30

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

The following table presents the changes in the components of accumulated other comprehensive income (loss), net of tax, for the six months ended December 31, 2014 and 2013 (in thousands):

 
 
Unrealized Holding Gains on Securities Available for Sale
 
Post Retirement Obligations
 
Unrealized Holding Gains on Interest Rate Swaps
 
Accumulated Other Comprehensive (Loss) Income, Net of Tax
Balance at June 30, 2014
 
$
2,728

 
$
(617
)
 
$
83

 
$
2,194

Net change
 
(929
)
 
27

 
(2,279
)
 
(3,181
)
Balance at December 31, 2014
 
$
1,799

 
$
(590
)
 
$
(2,196
)
 
$
(987
)
 
 
 
 
 
 
 
 
 
Balance at June 30, 2013
 
$
3,487

 
$
(577
)
 
$
1,520

 
$
4,430

Net change
 
(2,407
)
 
24

 
573

 
(1,810
)
Balance at December 31, 2013
 
$
1,080

 
$
(553
)
 
$
2,093

 
$
2,620


The following table sets forth information about the amount reclassified from accumulated other comprehensive income (loss) to the consolidated statement of income and the affected line item in the statement where net income is presented (in thousands).
Accumulated Other Comprehensive Income (Loss) Component
 
Affected line item in the Consolidated Statement of Income
 
Three months ended December 31,
 
Six months ended December 31,
 
 
2014
 
2013
 
2014
 
2013
Reclassification adjustment for security losses included in net income
 
Net loss on sale of securities available for sale
 
$

 
$
47

 
$
146

 
$
49

 
 
 
 
 
 
 
 
 
 
 
Amortization related to post-retirement obligations (1)
 
 
 
 
 
 
 
 
 
 
Prior service cost
 
 
 
15

 
15

 
30

 
30

Net loss (gain)
 
 
 
8

 
5

 
16

 
10

 
 
Compensation, payroll taxes and fringe benefits
 
23

 
20

 
46

 
40

 
 
 
 
 
 
 
 
 
 
 
 
 
Total before tax
 
23

 
67

 
192

 
89

 
 
Income tax benefit
 
9

 
27

 
81

 
37

 
 
Net of tax
 
14

 
40

 
111

 
52

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





31

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements

14. Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-14, "Receivable-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure". This update requires a mortgage loan to be derecognized and a separate receivable to be recognized upon foreclosure if the loan has a government guarantee that is non-separable from the loan before foreclosure, the creditor has the ability and intent to convey the real estate property to the guarantor, and any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Additionally, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor upon foreclosure. The amendments in this update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2014 (July 1, 2015 for the Company). The Company does not expect that the adoption of this guidance will have a significant impact on the Company’s consolidated financial statements.
In June 2014, the FASB issued ASU No. 2014-12, "Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period". This update requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This update is effective for interim and annual periods beginning after December 15, 2015. The amendments can be applied prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented and to all new or modified awards thereafter. Early adoption is permitted. The Company does not expect that the adoption of this guidance will have a significant impact on the Company’s consolidated financial statements.
In January 2014, the FASB issued ASU No. 2014-04, "Receivables-Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force"), which clarifies that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014 (July 1, 2015 for the Company). Early adoption is permitted. The adoption of this amendment is not expected to have a significant impact on the Company's consolidated financial statements.
In July 2013, the FASB issued ASU No. 2013-11, "Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (a consensus of the FASB Emerging Issues Task Force)", which provides guidance on the presentation of unrecognized tax benefits and the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU is effective for fiscal years, and interim reporting periods within those years, beginning after December 31, 2013. We adopted this guidance on July 1, 2014 with no significant impact on the Company’s consolidated financial statements.

32

Oritani Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements




Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
This Quarterly Report contains certain “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward looking statements may be identified by reference to a future period or periods, or by use of forward looking terminology, such as “may,” “will,” “believe,” ‘expect,” “estimate,” ‘anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward looking statements are subject to numerous risks and uncertainties. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements in addition to those risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended June 30, 2014, include, but are not limited to, those related to the economic environment, particularly in the market areas in which Oritani Financial Corp. (the “Company”) operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.
The Company wishes to caution readers not to place undue reliance on any such forward looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions, which may be made to any forward looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
Overview
Oritani Financial Corp. (the "Company”) is a Delaware corporation that was incorporated in March 2010. The Company is the stock holding company of Oritani Bank. The Company owns 100% of the outstanding shares of common stock of the Bank. The Company has engaged primarily in the business of holding the common stock of the Bank and two limited liability companies that own a variety of real estate investments. In addition, the Company has engaged in limited lending to the real estate investment properties in which (either directly or through one of its subsidiaries) it maintains an ownership interest. The Bank’s principal business consists of attracting retail, commercial and municipal bank deposits from the general public and investing those deposits, together with funds generated from operations, in multi-family and commercial real estate loans, one- to four-family residential mortgage loans as well as in second mortgage and equity loans, construction loans, business loans, other consumer loans, and investment securities. The Bank originates loans primarily for investment and holds such loans in its portfolio. Occasionally, the Bank will also enter into loan participations. The Bank’s primary sources of funds are deposits, borrowings, investment maturities and principal and interest payments on loans and securities. The Bank’s revenues are derived principally from interest on loans and securities as well as our investments in real estate and real estate joint ventures. The Bank also generates revenue from fees and service charges and other income. The Bank’s results of operations depend significantly on its net interest income; which is the difference between the interest earned on interest-earning assets and the interest paid on interest-bearing liabilities. The Bank’s net interest income is primarily affected by the market interest rate environment, the shape of the U.S. Treasury yield curve, the timing of the re-pricing of interest-earning assets and interest-bearing liabilities, and the prepayment rate on its mortgage-related assets. Provisions for loan losses and asset impairment charges can also have a significant impact on results of operations. Other factors that may affect the Bank’s results of operations are general and local economic and competitive conditions, government policies and actions of regulatory authorities.
The Bank’s business strategy is to operate as a well-capitalized and profitable financial institution dedicated to providing exceptional personal service to its individual and business customers. The Bank’s primary focus has been, and will continue to be, growth in multi-family and commercial real estate lending.
Comparison of Financial Condition at December 31, 2014 and June 30, 2014
Total Assets.  Total assets increased $110.7 million to $3.25 billion at December 31, 2014, from $3.14 billion at June 30, 2014, an annualized growth rate of 7.1%.
Cash and Cash Equivalents. Cash and cash equivalents (which include fed funds and short term investments) decreased $9.2 million to $9.7 million at December 31, 2014, from $18.9 million at June 30, 2014.

Net Loans. Loans, net increased $113.4 million to $2.62 billion at December 31, 2014, from $2.50 billion at June 30, 2014. The annualized growth rate for the period was 9.1%. Loan originations totaled $146.8 million and $340.5 million for the three and

33


six months ended December 31, 2014. Loan originations totaled $184.4 million and $286.2 million for the three and six months ended December 31, 2013.
Delinquency and non performing asset information is provided below:
 
12/31/2014
 
9/30/2014
 
6/30/2014
 
3/31/2014
 
12/31/2013
 
(Dollars in thousands)
Delinquency Totals
 
 
 
 
 
 
 
 
 
30—59 days past due
$
3,824

 
$
4,926

 
$
3,411

 
$
2,755

 
$
8,912

60—89 days past due
205

 
689

 
214

 
1,256

 
1,601

Nonaccrual
17,533

 
18,983

 
17,972

 
16,937

 
19,866

Total
$
21,562

 
$
24,598

 
$
21,597

 
$
20,948

 
$
30,379

Non Performing Asset Totals
 
 
 
 
 
 
 
 
 
Nonaccrual loans, per above
$
17,533

 
$
18,983

 
$
17,972

 
$
16,937

 
$
19,866

Real Estate Owned
4,368

 
3,850

 
3,850

 
3,965

 
4,033

Total
$
21,901

 
$
22,833

 
$
21,822

 
$
20,902

 
$
23,899

Nonaccrual loans to total loans
0.66
%
 
0.72
%
 
0.71
%
 
0.70
%
 
0.82
%
Delinquent loans to total loans
0.81
%
 
0.94
%
 
0.85
%
 
0.86
%
 
1.26
%
Non performing assets to total assets
0.67
%
 
0.71
%
 
0.69
%
 
0.70
%
 
0.81
%

Delinquent loan and non performing asset totals realized further improvement as of December 31, 2014. In addition, of the $17.5 million in loans classified as nonaccrual at December 31, 2014, $7.9 million were fully current and $1.5 million were less than 90 days past due.

At December 31, 2014, there are five nonaccrual loans with balances greater than $1.0 million. These loans are discussed below:
A $4.2 million loan on a self storage facility in Orange County, NY. The loan is classified as impaired. In accordance with the results of the impairment analysis for this loan, a $417,000 impairment reserve was maintained against this loan as of December 31, 2014. This loan is currently paying as agreed.
A $2.4 million loan on a multifamily property in New York City. The loan is classified as impaired. In accordance with the results of the impairment analysis for this loan, no reserve was required as of December 31, 2014. The borrower is in bankruptcy. The bankruptcy court auctioned the property and the winning bid was for $4.65 million. The Company continues to expect that all amounts due will be paid in full in conjunction with the sale. The timing of the sale is controlled by the bankruptcy court.
A $1.5 million loan on a retail building in Morris County, NJ. The loan is classified as impaired. A total of $163,000 was previously charged off against this loan. In accordance with the results of the impairment analysis for this loan as of December 31, 2014, no impairment reserve was necessary. The Company continues to pursue legal remedies. A sheriff’s sale is currently scheduled for the first calendar quarter of 2015.
A $1.4 million loan on an office building in Somerset County, NJ. The loan is classified as impaired. A total of $292,000 was previously charged off against this loan. In accordance with the results of the impairment analysis for this loan as of December 31, 2014, no impairment reserve was necessary. This loan and the loan described directly above have the same borrower. The Company continues to pursue legal remedies on this loan also. A sheriff’s sale is currently scheduled for the first calendar quarter of 2015.
A $1.1 million loan on a lot and auto showroom in Bergen County, NJ. The loan is classified as an impaired TDR. A modification/extension agreement was reached with the borrower during the quarter ended December 31, 2013. The loan has paid as agreed since the agreement. In accordance with the results of the impairment analysis for this loan, a $407,000 impairment reserve was maintained against this loan as of December 31, 2014.
There are nineteen other multifamily/commercial real estate loans, totaling $5.5 million, classified as nonaccrual at December 31, 2014. The largest of these loans has a balance of $952,000.
There are nine other residential loans, totaling $1.4 million, classified as nonaccrual at December 31, 2014. The largest of these loans has a balance of $385,000.
Securities Available For Sale ("AFS"). Securities AFS decreased $64.5 million to $319.7 million at December 31, 2014, from $384.1 million at June 30, 2014. The Company has been classifying the majority of new purchases as held to maturity. During

34


the six months ended December 31, 2014, securities with an amortized cost of $17.4 million were sold, resulting in gross gains and gross losses of $90,500 and $236,100, respectively.
Securities Held To Maturity ("HTM"). Securities HTM increased $55.2 million to $87.7 million at December 31, 2014, from $32.4 million at June 30, 2014. Purchases of $62.9 million were partially offset by sales, payments, calls and maturities of $7.5 million. During the six months ended December 31, 2014, securities with an amortized cost of $3.2 million were sold, resulting in gross gains of $143,800. The securities sold had low principal balances remaining.
Bank Owned Life Insurance ("BOLI"). BOLI increased $21.2 million to $89.2 million at December 31, 2014, from $68.1 million at June 30, 2014. The increase is primarily due to additional investments of $20.0 million during the quarter.
Investments in real estate joint ventures, net and real estate held for investment. The combined balance in these two categories was $7.9 million at December 31, 2014 and $7.3 million at June 30, 2014. These balances represent the Company’s book balance of 20 separate investments in real estate and joint ventures that own income producing real estate. The Company had updated appraisals performed on the income producing real estate held by these entities. The current fair value of the Company’s percentage of the income producing real estate, based on these recent appraisals, was $65.4 million in excess of the related book value at December 31, 2014. The Company cautions that the updated appraisals were performed on the income producing real estate, and not the value of its ownership interests. The value of the Company’s ownership interests may be less than the fair value of the Company’s ownership percentage of the underlying real estate.
Real Estate Owned ("REO"). REO increased $518,000 to $4.4 million at December 31, 2014, from $3.9 million at June 30, 2014. The December 31, 2014 balance consisted of 6 properties and the balance June 30, 2014 consisted of 4 properties. The balance at December 31, 2014 was also impacted by a $900,000 valuation adjustment recognized on the Company’s largest REO property. The property is currently being marketed for sale.
Deposits. Deposits increased $211.9 million to $1.79 billion at December 31, 2014, from $1.58 billion at June 30, 2014. The annualized growth rate for the period was 26.8%. A substantial portion of the growth over the period was due to brokered deposits. Such funds increased $174.4 million over the six months ended December 31, 2014.
Borrowings. Borrowings decreased $81.5 million to $886.0 million at December 31, 2014, from $967.4 million at June 30, 2014.
Stockholders’ Equity. Stockholders’ equity decreased $18.6 million to $507.7 million at December 31, 2014, from $526.3 million at June 30, 2014. The decrease was primarily due to repurchases and dividends (including a special dividend of $0.25 per share), partially offset by net income and the proceeds from the exercise of stock options. During the six months ended December 31, 2014, 1,082,361 shares of stock were repurchased at a total cost of $16.0 million and an average cost of $14.80 per share. Based on our December 31, 2014 closing price of $15.40 per share, the Company stock was trading at 135.9% of book value.


35




Average Balance Sheet for the Three Months Ended December 31, 2014 and 2013
The following tables present certain information regarding Oritani Financial Corp.’s financial condition and net interest income for the three and six months ended December 31, 2014 and 2013. The tables present the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. We derived average balances from daily balances over the periods indicated. Interest income includes fees that we consider adjustments to yields, including prepayment penalties. 
 
Average Balance Sheet and Yield/Rate Information
For the Three Months Ended (unaudited)
 
December 31, 2014
 
December 31, 2013
 
Average
Outstanding
Balance
 
Interest
Earned/Paid
 
Average
Yield/Rate
 
Average
Outstanding
Balance
 
Interest
Earned/
Paid
 
Average
Yield/Rate
 
(Dollars in thousands)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans (1) 
$
2,580,019

 
$
31,041

 
4.81
%
 
$
2,312,350

 
$
29,988

 
5.19
%
Federal Home Loan Bank Stock
43,025

 
500

 
4.65
%
 
42,233

 
427

 
4.04
%
Securities available for sale
334,187

 
1,671

 
2.00
%
 
313,582

 
1,531

 
1.95
%
Securities held to maturity
87,731

 
450

 
2.05
%
 
31,106

 
189

 
2.43
%
Federal funds sold and short term investments
1,635

 
1

 
0.25
%
 
2,045

 
1

 
0.25
%
Total interest-earning assets
3,046,597

 
33,663

 
4.42
%
 
2,701,316

 
32,136

 
4.76
%
Non-interest-earning assets
181,083

 
 
 
 
 
150,906

 
 
 
 
Total assets
$
3,227,680

 
 
 
 
 
$
2,852,222

 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Savings deposits
159,932

 
96

 
0.24
%
 
168,095

 
97

 
0.23
%
Money market
457,078

 
557

 
0.49
%
 
408,484

 
480

 
0.47
%
Checking accounts
457,185

 
440

 
0.38
%
 
426,393

 
508

 
0.48
%
Time deposits
705,787

 
1,750

 
0.99
%
 
444,116

 
970

 
0.87
%
Total deposits
1,779,982

 
2,843

 
0.64
%
 
1,447,088

 
2,055

 
0.57
%
Borrowings
863,254

 
5,756

 
2.67
%
 
819,949

 
5,769

 
2.81
%
Total interest-bearing liabilities
2,643,236

 
8,599

 
1.30
%
 
2,267,037

 
7,824

 
1.38
%
Non-interest-bearing liabilities
64,448

 
 
 
 
 
55,476

 
 
 
 
Total liabilities
2,707,684

 
 
 
 
 
2,322,513

 
 
 
 
Stockholders’ equity
519,996

 
 
 
 
 
529,709

 
 
 
 
Total liabilities and stockholders’ equity
$
3,227,680

 
 
 
 
 
$
2,852,222

 
 
 
 
Net interest income
 
 
$
25,064

 
 
 
 
 
$
24,312

 
 
Net interest rate spread (2)
 
 
 
 
3.12
%
 
 
 
 
 
3.38
%
Net interest-earning assets (3)
$
403,361

 
 
 
 
 
$
434,279

 
 
 
 
Net interest margin (4)
 
 
 
 
3.29
%
 
 
 
 
 
3.60
%
Average of interest-earning assets to interest-bearing liabilities
 
 
 
 
115.26
%
 
 
 
 
 
119.16
%
(1)
Average Outstanding Balance includes nonaccrual loans and interest earned includes prepayment income.
(2)
Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(3)
Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(4)
Net interest margin represents net interest income divided by average total interest-earning assets.

36


 
 
 
 
 
 
 
 
 
 
 
 
 
Average Balance Sheet and Yield/Rate Information
For the Six Months Ended (unaudited)
 
December 31, 2014
 
December 31, 2013
 
Average
Outstanding
Balance
 
Interest
Earned/Paid
 
Average
Yield/
Rate
 
Average
Outstanding
Balance
 
Interest
Earned/
Paid
 
Average
Yield/
Rate
 
(Dollars in thousands)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans (1) 
$
2,564,943

 
$
60,768

 
4.74
%
 
2,294,272

 
$
60,049

 
5.23
%
Federal Home Loan Bank Stock
45,998

 
976

 
4.24
%
 
42,294

 
866

 
4.10
%
Securities available for sale
348,671

 
3,471

 
1.99
%
 
311,629

 
2,923

 
1.88
%
Securities held to maturity
76,376

 
814

 
2.13
%
 
35,791

 
431

 
2.41
%
Federal funds sold and short term investments
2,354

 
3

 
0.25
%
 
4,896

 
6

 
0.25
%
Total interest-earning assets
3,038,342

 
66,032

 
4.35
%
 
2,688,882

 
64,275

 
4.78
%
Non-interest-earning assets
171,444

 
 
 
 
 
148,308

 
 
 
 
Total assets
$
3,209,786

 
 
 
 
 
2,837,190

 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Savings deposits
160,528

 
192

 
0.24
%
 
168,392

 
196

 
0.23
%
Money market
441,786

 
1,081

 
0.49
%
 
414,414

 
977

 
0.47
%
Checking accounts
453,757

 
918

 
0.40
%
 
401,003

 
945

 
0.47
%
Time deposits
644,428

 
3,266

 
1.01
%
 
448,587

 
1,961

 
0.87
%
Total deposits
1,700,499

 
5,457

 
0.64
%
 
1,432,396

 
4,079

 
0.57
%
Borrowings
924,323

 
11,561

 
2.50
%
 
822,137

 
11,291

 
2.75
%
Total interest-bearing liabilities
2,624,822

 
17,018

 
1.30
%
 
2,254,533

 
15,370

 
1.36
%
Non-interest-bearing liabilities
63,176

 
 
 
 
 
55,791

 
 
 
 
Total liabilities
2,687,998

 
 
 
 
 
2,310,324

 
 
 
 
Stockholders’ equity
521,788

 
 
 
 
 
526,866

 
 
 
 
Total liabilities and stockholders’ equity
$
3,209,786

 
 
 
 
 
$
2,837,190

 
 
 
 
Net interest income
 
 
$
49,014

 
 
 
 
 
$
48,905

 
 
Net interest rate spread (2)
 
 
 
 
3.05
%
 
 
 
 
 
3.42
%
Net interest-earning assets (3)
$
413,520

 
 
 
 
 
$
434,349

 
 
 
 
Net interest margin (4)
 
 
 
 
3.23
%
 
 
 
 
 
3.64
%
Average of interest-earning assets to interest-bearing liabilities
 
 
 
 
115.75
%
 
 
 
 
 
119.27
%
(1)
Average Outstanding Balance includes nonaccrual loans and interest earned includes prepayment income.
(2)
Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(3)
Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(4)
Net interest margin represents net interest income divided by average total interest-earning assets.


37


Comparison of Operating Results for the Three Months Ended December 31, 2014 and 2013
Net Income. Net income increased $63,000 to $10.0 million for the quarter ended December 31, 2014, from $10.0 million for the corresponding 2013 quarter. The 2014 period featured slightly higher net interest income, lower provisions for loan losses, higher other income, higher other expenses and lower income taxes, versus the corresponding 2013 period. Our annualized return on average assets was 1.24% for the three months ended December 31, 2014, and 1.40% for the three months ended December 31, 2013.
Interest Income. Total interest income increased $1.5 million to $33.7 million for the three months ended December 31, 2014 from $32.1 million for the three months ended December 31, 2013. The components of interest income for the three months ended December 31, 2014 and 2013, changed as follows:
 
Three months ended December 31,
 
Increase / (decrease)
 
2014
 
2013
 
 
 
Average
 
 
 
$
 
Yield
 
$
 
Yield
 
$
 
Balance
 
Yield
 
(Dollars in thousands)
Interest on mortgage loans
$
31,041

 
4.81
%
 
$
29,988

 
5.19
%
 
$
1,053

 
$
267,669

 
(0.38
)%
Dividends on FHLB stock
500

 
4.65
%
 
427

 
4.04
%
 
73

 
792

 
0.61
 %
Interest on securities AFS
1,671

 
2.00
%
 
1,531

 
1.95
%
 
140

 
20,605

 
0.05
 %
Interest on securities HTM
450

 
2.05
%
 
189

 
2.43
%
 
261

 
56,625

 
(0.38
)%
Interest on federal funds sold and short term investments
1

 
0.25
%
 
1

 
0.25
%
 

 
(410
)
 
 %
Total interest income
$
33,663

 
4.42
%
 
$
32,136

 
4.76
%
 
$
1,527

 
$
345,281

 
(0.34
)%

The Company’s primary strategic business objective remains the organic growth of multifamily and commercial real estate loans. The average balance of the loan portfolio increased $267.7 million for the three months ended December 31, 2014 versus the comparable 2013 period. On a linked quarter basis (December 31, 2014 versus September 30, 2014), loan growth was somewhat muted due to very high prepayments. On a linked quarter basis, the period ending balance of loans grew $38.2 million, an annualized growth rate of 5.9%, and the average balance of loans grew $30.2 million, an annualized growth rate of 4.7%. The annualized growth rate for the six months ended December 31, 2014, based on period end balances, was 9.1%. Growth was achieved through originations. Loan originations totaled $193.7 million for the three months ended December 31, 2014. The yield on the loan portfolio decreased 38 basis points for the quarter ended December 31, 2014 versus the comparable 2013 period. On a linked quarter basis, the yield on the loan portfolio increased 15 basis points but this was primarily due to prepayments. Absent prepayments, the yield on the loan portfolio decreased 3 basis points over the period. These decreases continued a trend of decreased yield on loans and were primarily attributable to the impact of current market rates on new originations as well as refinancings, prepayments and repricings. Competition for multifamily and commercial real estate loan originations remains brisk and the spread has decreased versus alternative costs of funds. The market rates on new originations are below the average yield of the loan portfolio. The vast majority of our multifamily and commercial real estate loan originations reprice in five years or less. This discipline offers greater interest rate risk protection but provides lower yields than loans with longer fixed rate terms. The pace of the decrease in yield subsided during the quarter ended December 31, 2014. The recent further decrease in market rates of interest may cause this abatement to be a temporary situation. Prepayment penalties significantly impacted both periods but were higher in the 2014 period. Prepayment penalties totaled $2.2 million in the 2014 period versus $1.9 million in the 2013 period. Prepayment penalties boosted annualized loan yield by 33 basis points in both the 2014 and 2013 periods. The Company has increased its level of investments since the 2013 period. The combined average balances of the securities portfolios (available for sale and held to maturity) increased $77.2 million for the three months ended December 31, 2014, versus the comparable 2013 period, and the yield increased 1 basis point over that same period.


38


Interest Expense. Total interest expense increased $775,000 to $8.6 million for the three months ended December 31, 2014 from $7.8 million for the three months ended December 31, 2013. The components of interest expense for the three months ended December 31, 2014 and 2013, changed as follows:
 
 
Three months ended December 31,
 
Increase / (decrease)
 
2014
 
2013
 
 
 
Average
 
 
 
$
 
Cost
 
$
 
Cost
 
$
 
Balance
 
Cost
 
(Dollars in thousands)
Savings deposits
$
96

 
0.24
%
 
$
97

 
0.23
%
 
$
(1
)
 
$
8,174

 
0.01
 %
Money market
557

 
0.49
%
 
480

 
0.47
%
 
77

 
48,594

 
0.02
 %
Checking accounts
440

 
0.38
%
 
508

 
0.48
%
 
(68
)
 
30,792

 
(0.10
)%
Time deposits
1,750

 
0.99
%
 
970

 
0.87
%
 
780

 
245,334

 
0.12
 %
Total deposits
2,843

 
0.64
%
 
2,055

 
0.57
%
 
788

 
332,894

 
0.07
 %
Borrowings
5,756

 
2.67
%
 
5,769

 
2.81
%
 
(13
)
 
43,305

 
(0.14
)%
Total interest expense
$
8,599

 
1.30
%
 
$
7,824

 
1.38
%
 
$
775

 
$
376,199

 
(0.08
)%

Strong deposit growth remains a strategic objective of the Company. As detailed above, the average balance of deposits increased significantly for the quarter ended December 31, 2014 versus the comparable 2013 period. The average balance of deposits increased $159.0 million when measured versus the quarter ended September 30, 2014, and $231.6 million when measured versus the quarter ended June 30, 2014. The most significant increases have been in time deposits. The Company has implemented a strategy whereby premium deposit rates are paid on certain time deposits if the customer has a core account relationship with the Company. This strategy has also allowed the Company to extend the duration of certain time deposit accounts. The overall cost of deposits increased 7 basis points for the quarter ended December 31, 2014 versus the comparable 2013 period. The increase was largely due to the time deposit program. On a linked quarter basis, the cost of deposits decreased one basis point. A component of the growth in fiscal 2015 has been brokered deposits. The period end balance of such funds at December 31, 2014 was $202.2 million, which represented increases of $118.6 million, $174.4 million and $179.3 million versus the period end balances at September 30, 2014, June 30, 2014 and December 31, 2013, respectively.

As detailed in table above, the average balance of borrowings increased $43.3 million for the three months ended December 31, 2014 versus the comparable 2013 period, while the cost decreased 14 basis points. The increased level of borrowing was necessary as asset growth exceeded deposits growth during the period. On a linked quarter basis, the average balance of borrowings decreased $122.1 million. The significant increase in deposits allowed the Company to pay down borrowings.

Net Interest Income Before Provision for Loan Losses. Net interest income increased by $752,000 to $25.1 million for the three months ended December 31, 2014, from $24.3 million for the three months ended December 31, 2013. The Company’s net interest income, spread and margin over the period are detailed in the chart below. 
 
 
Including Prepayment Penalties
 
Excluding Prepayment Penalties
 
 
Net Interest
 
 
 
 
 
Net Interest
 
 
 
 
For the Three Months Ended
 
Income Before
 
 
 
 
 
Income Before
 
 
 
 
 
Provision
 
Spread
 
Margin
 
Provision
 
Spread
 
Margin
 
 
(Dollars in thousands)
December 31, 2014
 
$
25,064

 
3.12
%
 
3.29
%
 
$
22,894

 
2.83
%
 
3.01
%
September 30, 2014
 
23,950

 
2.98
%
 
3.16
%
 
23,003

 
2.86
%
 
3.04
%
June 30, 2014
 
23,756

 
3.08
%
 
3.27
%
 
22,871

 
2.96
%
 
3.15
%
March 31, 2014
 
24,462

 
3.28
%
 
3.48
%
 
23,258

 
3.11
%
 
3.31
%
December 31, 2013
 
24,312

 
3.38
%
 
3.60
%
 
22,418

 
3.10
%
 
3.32
%

The Company’s spread and margin have been significantly impacted by prepayment penalties. Due to this situation, the chart above details results with and without the impact of prepayment penalties. While prepayment penalty income is expected to continue, significant fluctuations in the level of prepayment income are also expected. The spread and margin increased over the quarter ended December 31, 2014 (versus the preceding quarter). The increase was primarily due to an increase in prepayment penalty income. The Company feels the chart above that excludes prepayment penalties provides a truer representation of what is occurring in the portfolio. Excluding prepayment penalties, the spread and margin experienced compression (versus the preceding

39


quarter) however, the rate of compression abated. The Company’s spread and margin remain under pressure due to several factors, including: the recent flattening in the treasury yield curve; rates on new loan originations and investment purchases; modifications of loans within the existing loan portfolio; prepayments of higher yielding loans and investments; limited ability to reduce deposit and borrowing costs and promotional interest costs to attract new deposit customers. The rates on new loan originations are being impacted by increased competition. The spread on new loan rates versus external sources of funds have decreased over the past year. In addition, the Company typically originates loans that have a reset period of five years or less. Such loans generally bear a lower rate of interest versus loans with a longer reset period.

The Company’s net interest income and net interest rate spread were both negatively impacted in all periods due to the reversal of accrued interest income on loans delinquent more than 90 days. The total of such income reversed was $256,000 and $55,000 for the three months ended December 31, 2014 and 2013, respectively.

Provision for Loan Losses. The Company recorded no provision for loan losses for the three months ended December 31, 2014 as compared to $200,000 for the three months ended December 31, 2013. A rollforward of the allowance for loan losses for the three months ended December 31, 2014 and 2013 is presented below:
 
Three months ended December 31,
 
2014
 
2013
 
(Dollars in thousands)
Balance at beginning of period
$
31,569

 
$
31,664

Provisions charged to operations

 
200

Recoveries of loans previously charged off
1

 
1

Loans charged off
304

 
1,225

Balance at end of period
$
31,266

 
$
30,640

Allowance for loan losses to total loans
1.18
%
 
1.27
%
Net charge-offs (annualized) to average loans outstanding
0.05
%
 
0.21
%

Delinquency and nonaccrual trends, changes in loan risk ratings, loan growth, charge-offs and economic and business conditions continue to have a meaningful impact on the level of provision for loan losses. In addition, improvements in general economic and business conditions have impacted the level of provisioning by decreasing the necessary level of general allowances. See additional information regarding the allowance for loan losses in Note 6 of the financial statements and “Comparison of Financial Condition at December 31, 2014 and June 30, 2014-Net Loans.”
Other Income. Other income increased $217,000 to $1.8 million for the three months ended December 31, 2014, from $1.6 million for the three months ended December 31, 2013.  The increase is primarily due to a $329,000 increase on income from investments in joint ventures. As discussed in prior filings, issues related to flooding at one commercial property had decreased occupancy and income. This situation impacted the December 2013 results. These issues have been resolved as a new grocery anchor tenant is currently in place and fully operational. Income from bank-owned life insurance increased $171,000 to $680,000 for the three months ended December 31, 2014, from $509,000 for the three months ended December 31, 2013.  The increase is primarily due to income earned on additional purchases of bank-owned life insurance. Net gain on sale of assets was a loss of $10,000 for the three months ended December 31, 2014, versus a gain of $207,000 for the three months ended December 31, 2013.  The activity in this caption in both periods was primarily due to sales of REO properties.
Other Expenses. Other expenses increased $1.2 million to $11.3 million for the three months ended December 31, 2014, from $10.1 million for the three months ended December 31, 2013. The increase was primarily due to real estate owned operations, which increased $968,000 to $990,000 for the three months ended December 31, 2014, from $22,000 for the three months ended December 31, 2013. See additional information regarding real estate owned operations in “Comparison of Financial Condition at December 31, 2014 and June 30, 2014-Real Estate Owned.” The overall increase in Other Expenses was also partially due to compensation, payroll taxes and fringe benefits, which increased $253,000 to $7.7 million for the three months ended December 31, 2014, from $7.5 million for the three months ended December 31, 2013.  The increase was primarily due increases in direct compensation, due to additional staffing and salary adjustments, and an increase in ESOP expense.
Income Tax Expense. Income tax expense for the three months ended December 31, 2014 was $5.5 million on pre-tax income of $15.5 million, resulting in an effective tax rate of 35.3%.  Income tax expense for the three months ended December 31, 2013

40


was $5.6 million on pre-tax income of $15.6 million, resulting in an effective tax rate of 36.0%.  The slightly reduced rate in 2014 is primarily due to the furtherance of various tax planning strategies.

Comparison of Operating Results for the Six Months Ended December 31, 2014 and 2013
Net Income. Net income decreased $150,000 to $20.2 million for the six months ended December 31, 2014, from $20.4 million for the corresponding 2013 period. The 2014 period featured slightly higher net interest income, lower provisions for loan losses, higher other income, higher other expenses and lower income taxes, versus the corresponding 2013 period. Our annualized return on average assets was 1.26% for the six months ended December 31, 2014, and 1.44% for the six months ended December 31, 2013.
Interest Income. Total interest income increased $1.8 million to $66.0 million for the six months ended December 31, 2014, from $64.3 million for the six months ended December 31, 2013. The components of interest income for the six months ended December 31, 2014 and 2013, changed as follows:
 
Six months ended December 31,
 
Increase / (decrease)
 
2014
 
2013
 
 
 
Average
 
 
 
$
 
Yield
 
$
 
Yield
 
$
 
Balance
 
Yield
 
(Dollars in thousands)
Interest on mortgage loans
$
60,768

 
4.74
%
 
$
60,049

 
5.23
%
 
$
719

 
$
270,671

 
(0.49
)%
Dividends on FHLB stock
976

 
4.24
%
 
866

 
4.10
%
 
110

 
3,704

 
0.14
 %
Interest on securities AFS
3,471

 
1.99
%
 
2,923

 
1.88
%
 
548

 
37,042

 
0.11
 %
Interest on securities HTM
814

 
2.13
%
 
431

 
2.41
%
 
383

 
40,585

 
(0.28
)%
Interest on federal funds sold and short term investments
3

 
0.25
%
 
6

 
0.25
%
 
(3
)
 
(2,542
)
 
 %
Total interest income
$
66,032

 
4.35
%
 
$
64,275

 
4.78
%
 
$
1,757

 
$
349,460

 
(0.43
)%

The explanations provided in “Comparison of Operating Results for the Three Months Ended December 31, 2014 and 2013, Interest Income” regarding changes for the three month period comparison are also applicable to the six month period comparison. Loan originations for the six months ended December 31, 2014 totaled $340.5 million. Prepayment penalties totaled $3.1 million in the 2014 period versus $3.7 million in the 2013 period, and boosted annualized loan yield by 24 basis points in the 2014 period versus 32 basis points in the 2013 period.

Interest Expense. Total interest expense increased $1.6 million, to $17.0 million for the six months ended December 31, 2014, from $15.4 million for the six months ended December 31, 2013. The components of interest expense for the six months ended December 31, 2014 and 2013, changed as follows:
 
Six months ended December 31,
 
Increase / (decrease)
 
2014
 
2013
 
 
 
Average
 
 
 
$
 
Cost
 
$
 
Cost
 
$
 
Balance
 
Cost
 
(Dollars in thousands)
Savings deposits
$
192

 
0.24
%
 
$
196

 
0.23
%
 
$
(4
)
 
$
(7,864
)
 
0.01
 %
Money market
1,081

 
0.49
%
 
977

 
0.47
%
 
104

 
27,372

 
0.02
 %
Checking accounts
918

 
0.40
%
 
945

 
0.47
%
 
(27
)
 
52,754

 
(0.07
)%
Time deposits
3,266

 
1.01
%
 
1,961

 
0.87
%
 
1,305

 
195,840

 
0.14
 %
Total deposits
5,457

 
0.64
%
 
4,079

 
0.57
%
 
1,378

 
248,594

 
0.07
 %
Borrowings
11,561

 
2.50
%
 
11,291

 
2.75
%
 
270

 
102,186

 
(0.25
)%
Total interest expense
$
17,018

 
1.30
%
 
$
15,370

 
1.36
%
 
$
1,648

 
$
350,780

 
(0.06
)%

The explanations provided in “Comparison of Operating Results for the Three Months Ended December 31, 2014 and 2013, Interest Expense” regarding changes for the three month period comparison are also applicable to the six month period comparison.


41


Net Interest Income Before Provision for Loan Losses. Net interest income increased by $109,000 to $49.0 million for the six months ended December 31, 2014, from $48.9 million for the six months ended December 31, 2013. The Company’s net interest rate spread and margin decreased to 3.05% and 3.23% for the six months ended December 31, 2014, from 3.42% and 3.64% for the six months ended December 31, 2013, respectively. The factors described in “Comparison of Operating Results for the Three Months Ended December 31, 2014 and 2013, Net Interest Income Before Provision for Loan Losses” also impacted the six month periods. The Company’s net interest income and net interest rate spread were negatively impacted in both periods due to the reversal of accrued interest income on loans delinquent more than 90 days. The Company’s net interest income was reduced $505,000 and $358,000 for the six months ended December 31, 2014 and 2013, respectively, due to the impact of nonaccrual loans.
Provision for Loan Losses. The Company recorded provisions for loan losses of $200,000 for the six months ended December 31, 2014 as compared to $500,000 for the six months ended December 31, 2013. A rollforward of the allowance for loan losses for the six months ended December 31, 2014 and 2013 is presented below:
 
Six months ended December 31,
 
2014
 
2013
 
(Dollars in thousands)
Balance at beginning of period
$
31,401

 
$
31,381

Provisions charged to operations
200

 
500

Recoveries of loans previously charged off
2

 
13

Loans charged off
337

 
1,254

Balance at end of period
$
31,266

 
$
30,640

Allowance for loan losses to total loans
1.18
%
 
1.27
%
Net charge-offs (annualized) to average loans outstanding
0.03
%
 
0.11
%
See discussion of the allowance for loan losses in “Comparison of Financial Condition at December 31, 2014 and June 30, 2014” and footnote 6 of the financial statements.
Other Income. Other income increased $661,000 to $3.8 million for the six months ended December 31, 2014 from $3.1 million for the six months ended December 31, 2013. Net income from investments in real estate joint ventures increased by $887,000 to $1.3 million for the six months ended December 31, 2014, from $448,000 for the six months ended December 31, 2013. The six month period was also impacted by the issue described in “Comparison of Operating Results for the Three Months Ended December 31, 2014 and 2013, Other Income” regarding the commercial property that incurred flood damage.  
Other Expenses. Other expenses increased $1.7 million to $21.4 million for the six months ended December 31, 2014, from $19.6 million for the six months ended December 31, 2013. The explanations provided in “Comparison of Operating Results for the Three Months Ended December 31, 2014 and 2013, Other Expenses” regarding changes for the three month period comparison are also applicable to the six month period comparison, though to a slightly larger extent.
Income Tax Expense. Income tax expense for the six months ended December 31, 2014, was $11.0 million, due to pre-tax income of $31.2 million, resulting in an effective tax rate of 35.3%. For the six months ended December 31, 2013, income tax expense was $11.5 million, due to pre-tax income of $31.9 million, resulting in an effective tax rate of 36.2%. The slightly reduced rate in 2014 is primarily due to the furtherance of various tax planning strategies.

Liquidity and Capital Resources
The Company’s primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, Federal Home Loan Bank (“FHLB”) borrowings and investment maturities. While scheduled amortization of loans is a predictable source of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. The Company has other sources of liquidity if a need for additional funds arises, including advances from the FHLB and Federal Reserve Bank of New York.
At December 31, 2014 and June 30, 2014, the Company had $211.2 million and $82.0 million in overnight borrowings from the FHLB, respectively. In addition, the Company had additional short term borrowings of $255.0 million at June 30, 2014. There were no short term borrowings at December 31, 2014. The Company had total borrowings of $886.0 million at December 31, 2014 and $967.4 million at June 30, 2014. The Company’s total borrowings at December 31, 2014 include $674.8 million in

42


longer term borrowings with the FHLB. In the normal course of business, the Company routinely enters into various commitments, primarily relating to the origination of loans. At December 31, 2014, outstanding commitments to originate loans totaled $93.9 million and outstanding commitments to extend credit totaled $24.7 million. The Company expects to have sufficient funds available to meet current commitments in the normal course of business.
Time deposits scheduled to mature in one year or less totaled $437.5 million at December 31, 2014. Based upon historical experience, management estimates that a large portion of such deposits will remain with the Company. The portion that remains will be significantly impacted by the renewal rates offered by the Company.
In July 2013, the Federal Reserve Board and the FDIC issued final rules implementing the Basel III regulatory capital framework and related Dodd-Frank Act changes. The rules revise minimum capital requirements and adjust prompt corrective action thresholds. Under the final rules, minimum requirements will increase for both the quantity and quality of capital held by the Company and the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5 percent and a common equity Tier 1 capital conservation buffer of 2.5 percent of risk-weighted assets. The final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0 percent to 6.0 percent and require a minimum leverage ratio of 4.0 percent. The final rule will become effective January 1, 2015, subject to a transition period.
As of December 31, 2014 and June 30, 2014, the Company and Bank exceeded all regulatory capital requirements as follows:
 
 
December 31, 2014
 
Actual
 
Required
 
Amount
 
Ratio
 
Amount
 
Ratio
 
(Dollars in thousands)
Company:
 
Total capital (to risk-weighted assets)
$
537,771

 
19.0
%
 
$
226,188

 
8.0
%
Tier I capital (to risk-weighted assets)
506,505

 
17.9

 
113,094

 
4.0

Tier I capital (to average assets)
506,505

 
15.7

 
129,107

 
4.0

 
 
 
 
 
 
 
 
 
Actual
 
Required
 
Amount
 
Ratio
 
Amount
 
Ratio
 
(Dollars in thousands)
Bank:
 
Total capital (to risk-weighted assets)
$
471,457

 
16.9
%
 
$
223,223

 
8.0
%
Tier I capital (to risk-weighted assets)
440,421

 
15.8

 
111,612

 
4.0

Tier I capital (to average assets)
440,421

 
13.7

 
128,508

 
4.0

 
June 30, 2014
 
Actual
 
Required
 
Amount
 
Ratio
 
Amount
 
Ratio
 
(Dollars in thousands)
Company:
 
 
 
 
 
 
 
Total capital (to risk-weighted assets)
$
555,499

 
20.19
%
 
$
220,090

 
8.0
%
Tier I capital (to risk-weighted assets)
524,098

 
19.05

 
110,045

 
4.0

Tier I capital (to average assets)
524,098

 
17.11

 
122,504

 
4.0

 
 
 
 
 
 
 
 
 
Actual
 
Required
 
Amount
 
Ratio
 
Amount
 
Ratio
 
(Dollars in thousands)
Bank:
 
 
 
 
 
 
 
Total capital (to risk-weighted assets)
$
476,614

 
17.54
%
 
$
217,408

 
8.0
%
Tier I capital (to risk-weighted assets)
445,403

 
16.39

 
108,704

 
4.0

Tier I capital (to average assets)
445,403

 
14.34

 
124,250

 
4.0

Critical Accounting Policies

43


Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended June 30, 2014, included in the Company’s Annual Report on Form 10-K, as supplemented by this report, contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets are carried in the consolidated Balance Sheets at estimated fair value or the lower of cost or estimated fair value. Policies with respect to the methodologies used to determine the allowance for loan losses and judgments regarding the valuation of securities as well as the valuation allowance against deferred tax assets are the most critical accounting policies because they are important to the presentation of the Company’s financial condition and results of operations, involve a higher degree of complexity, and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition. These critical accounting policies and their application are reviewed periodically and, at least annually, with the Audit Committee of the Board of Directors. For a further discussion of the critical accounting policies of the Company, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K, for the year ended June 30, 2014.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, our Board of Directors has the authority and responsibility for managing interest rate risk. Oritani Bank has established an Asset/Liability Management Committee, comprised of various members of its senior management, which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for recommending to the Board the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors. The Asset/Liability Management Committee reports its activities to the Board on a monthly basis. An interest rate risk analysis is presented to the Board on a quarterly basis.
We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. As part of our ongoing asset-liability management, we currently use the following strategies to manage our interest rate risk:
(i)
originating multifamily and commercial real estate loans that generally tend to have shorter interest duration and generally have interest rates that reset primarily at five years (see chart below);
(ii)
investing in shorter duration securities and mortgage-backed securities;
(iii)
obtaining general financing through FHLB advances with a fixed long term: and
(iv)
utilizing interest rate swaps or other derivative instruments.

Loan Originations by Reprice/Maturity Date
 
Six Months Ended December 31, 2014
 
(dollars in thousands)
 
 
 
 
 
% of total
Repricing or Maturing Within:
Amount
Originations
 
1 Year or less
 $ 12,404
3.64%
 
1 - 3 years
        100,427
29.50%
 
3 - 5 years
         156,173
45.87%
 
5 - 7 years
           51,429
15.11%
 
Greater than 7 years
          20,030
5.88%
Total Originations
 $ 340,463
100.00%
 
 
 
 
For the six months ended December 31, 2014, 79.0% of total originations matured or repriced in 5 years or less.
Shortening the average maturity of our interest-earning assets by increasing our investments in shorter-term loans and securities, as well as loans and securities with variable rates of interest, helps to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. In addition, if changes occur that cause the estimated duration of a security to lengthen significantly, management will consider the sale of such security. By following these strategies, we believe that we are well-positioned to react to changes in market interest rates.

44


Net Portfolio Value. We compute the amounts by which the net present value of cash flow from assets, liabilities and off balance sheet items (the institution’s net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.
The table below sets forth, as of December 31, 2014, the estimated changes in our net portfolio value that would result from the designated instantaneous changes in the United States Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates and loan prepayment and deposit decay rates, and should not be relied upon as indicative of actual results.
 
Change in Interest Rates (basis points) (1)
 
Estimated
NPV (2)
 
Estimated Increase
(Decrease) in NPV
 
NPV as a Percentage of
Present Value of Assets (3)
NPV Ratio (4)
 
Increase
(Decrease)
basis points
Amount
 
Percent
 
(Dollars in thousands)
+200
 
$
478,719

 
$
(63,643
)
 
(11.7
)%
 
15.2
%
 
(124
)
+100
 
514,432

 
(27,930
)
 
(5.2
)
 
16.0

 
(50
)
 
542,362

 

 

 
16.5

 

(100)
 
595,111

 
52,749

 
9.7

 
17.6

 
114

(1)
Assumes an instantaneous uniform change in interest rates at all maturities.
(2)
NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.
(3)
Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.
(4)
NPV Ratio represents NPV divided by the present value of assets.
The table above indicates that at December 31, 2014, in the event of a 100 basis point decrease in interest rates, we would experience an 9.7% increase in net portfolio value. In the event of a 200 basis point increase in interest rates, we would experience a 11.7% decrease in net portfolio value. These changes in net portfolio value are within the limitations established in our asset and liability management policies.
Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in net portfolio value require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net portfolio value table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net portfolio value table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
There were no changes made in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting during the period covered by this report.

45



Part II – Other Information
Item 1. Legal Proceedings
The Company and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.
Item 1A. Risk Factors
There have been no material changes from those risk factors previously disclosed in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 15, 2014.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)
Unregistered Sale of Equity Securities. There were no sales of unregistered securities during the period covered by this report.
(b)
Use of Proceeds. Not applicable.
(c)
Repurchase of Our Equity Securities. The following table shows the Company's repurchases of its common stock for each calendar month in the quarter ended December 31, 2014 and the stock repurchase plans approved by our Board of Directors.
Period
 
Total Number of Shares Repurchased
 
 
Average Price Paid Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans
 
Maximum Number of Shares That May Yet Be Purchased Under the Plans
October 31, 2014
 

 
 
 
 

 
750,358

November 30, 2014
 
372,039

 
 
14.56

 
372,039

 
378,319

December 31, 2014
 
28,244

 
 
14.58

 
28,244

 
350,075

 
 
400,283

 
 
$
14.56

 
400,283

 
 

As of February 9, 2015, the Company has repurchased, under the repurchase plans approved since the second step transaction, 12,926,621 shares of its stock at an average price of $13.24 per share.

 
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.

46




Item 6. Exhibits
The following exhibits are either filed as part of this report or are incorporated herein by reference: 
 
 
 
3.1

  
Certificate of Incorporation of Oritani Financial Corp. *
3.2

  
Bylaws of Oritani Financial Corp. *
4

  
Form of Common Stock Certificate of Oritani Financial Corp. *
10.1

  
Employment Agreement between Oritani Financial Corp. and Kevin J. Lynch**, ****
10.2

  
Form of Employment Agreement between Oritani Financial Corp. and executive officers**,****
10.3

  
Oritani Bank Director Retirement Plan**, ****
10.4

  
Oritani Bank Benefit Equalization Plan**, ****
10.5

  
Oritani Bank Executive Supplemental Retirement Income Agreement**, ****
10.6

  
Form of Employee Stock Ownership Plan**, ****
10.7

  
Director Deferred Fee Plan**, ****
10.8

  
Oritani Financial Corp. 2007 Equity Incentive Plan**, ****
10.9

  
Oritani Financial Corp. 2011 Equity Incentive Plan***, ****
21

  
Subsidiaries of Registrant**
31.1

  
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2

  
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32

  
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101

  
Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) the Notes to Consolidated Financial Statements
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema Document
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
 
XBRL Taxonomy Extension Defintion Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
*
Incorporated by reference to the Registration Statement on Form S-1 of Oritani Financial Corp. (file no. 333-165226), originally filed with the Securities and Exchange Commission on March 5, 2011.
**
Incorporated by reference to the Registration Statement on Form S-1 of Oritani Financial Corp. (file no. 333-137309), originally filed with the Securities and Exchange Commission on September 14, 2006.
***
Incorporated by reference to the Company’s Proxy Statement for the 2011 Special Meeting of Stockholders filed with the Securities and Exchange Commission on June 27, 2011 (file No. 001-34786).
****
Available on our website www.oritani.com
*****
Management contract, compensatory plan or arrangement.


47


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ORITANI FINANCIAL CORP.
 
 
 
 
Date:
February 9, 2015
 
 
 
 
/s/ Kevin J. Lynch
 
 
 
 
 
 
Kevin J. Lynch
 
 
 
 
 
 
President and Chief Executive Officer
 
 
 
 
Date:
February 9, 2015
 
 
 
 
/s/ John M. Fields, Jr.
 
 
 
 
 
 
John M. Fields, Jr.
 
 
 
 
 
 
Executive Vice President and Chief Financial Officer

48