Oritani Financial Corp - FORM 10-Q - May 9, 2016

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EX-32 - EXHIBIT 32 - Oritani Financial Corpexhibit32.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________

FORM 10-Q
______________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2016
 
OR

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

Delaware
 
30-0628335
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
 
370 Pascack Road, Township of Washington, New Jersey 07676
(Address of Principal Executive Offices)
 
(201) 664-5400
(Registrant's telephone number)
 
N/A
(Former name or former address, if changed since last report)
   
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days.
 
    YES      NO  
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
    YES      NO  
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer
 
 
Accelerated filer
 
Non-accelerated filer
 
  (Do not check if a smaller reporting company)
 
Smaller Reporting company
 
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
    YES      NO  
 
As of May 9, 2016, there were 56,245,065 shares of the Registrant's common stock, par value $0.01 per share, issued and 45,118,333 shares outstanding.

Oritani Financial Corp.
FORM 10-Q
 
Index

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

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

See accompanying notes to unaudited consolidated financial statements.

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

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

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

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

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

 
  
Shares Outstanding
    
Common stock
    
Additional paid-in capital
    
Restricted Stock Awards
    
Treasury stock
    
Unallocated common stock held by ESOP
    
Retained income
    
Accumulated other comprehensive income (loss), net of tax
    
Total stockholders' equity
  
Balance at June 30, 2014
    
45,499,332
    
$
562
    
$
504,434
    
$
(12,086
)
  
$
(140,451
)
  
$
(24,331
)
  
$
195,970
    
$
2,194
    
$
526,292
  
Net income
    
—
      
—
      
—
      
—
      
—
      
—
      
31,164
      
—
      
31,164
  
Other comprehensive loss, net of tax
    
—
      
—
      
—
      
—
      
—
      
—
      
—
      
(4,082
)
    
(4,082
)
Cash dividends declared
    
—
      
—
      
—
      
—
      
—
      
—
      
(32,307
)
    
—
      
(32,307
)
Purchase of treasury stock
    
(1,507,803
)
    
—
      
—
      
—
      
(22,123
)
    
—
      
—
      
—
      
(22,123
)
Compensation cost for stock options and restricted stock
    
—
      
—
      
4,539
      
—
      
—
      
—
      
—
      
—
      
4,539
  
ESOP shares allocated or committed to be released
    
—
      
—
      
919
      
—
      
—
      
1,198
      
—
      
—
      
2,117
  
Exercise of stock options
    
58,710
      
—
      
—
      
—
      
775
      
—
      
(123
)
    
—
      
652
  
Vesting of restricted stock awards
    
—
      
—
      
(3,857
)
    
3,893
      
—
      
—
      
(36
)
    
—
      
—
  
Forfeiture of restricted stock awards
    
(6,400
)
    
—
      
—
      
81
      
(81
)
    
—
      
—
      
—
      
—
  
Tax benefit from stock-based compensation
    
—
      
—
      
483
      
—
      
—
      
—
      
—
      
—
      
483
  
Balance at March 31, 2015
    
44,043,839
    
$
562
    
$
506,518
    
$
(8,112
)
  
$
(161,880
)
  
$
(23,133
)
  
$
194,668
    
$
(1,888
)
  
$
506,735
  
 
                                                                        
Balance at June 30, 2015
    
44,012,239
    
$
562
    
$
508,999
    
$
(8,088
)
  
$
(162,344
)
  
$
(22,803
)
  
$
203,192
    
$
(1,848
)
  
$
517,670
  
Net income
    
—
      
—
      
—
      
—
      
—
      
—
      
39,346
      
—
      
39,346
  
Other comprehensive loss, net of tax
    
—
      
—
      
—
      
—
      
—
      
—
      
—
      
(5,485
)
    
(5,485
)
Cash dividends declared
    
—
      
—
      
—
      
—
      
—
      
—
      
(42,556
)
    
—
      
(42,556
)
Purchase of treasury stock
    
(100,978
)
    
—
      
—
      
—
      
(1,593
)
    
—
      
—
      
—
      
(1,593
)
Issuance of restricted stock awards
    
10,000
      
—
      
—
      
(133
)
    
133
      
—
      
—
      
—
      
—
  
Compensation cost for stock options and restricted stock
    
—
      
—
      
4,483
      
—
      
—
      
—
      
—
      
—
      
4,483
  
ESOP shares allocated or committed to be released
    
—
      
—
      
1,756
      
—
      
—
      
1,984
      
—
      
—
      
3,740
  
Exercise of stock options
    
1,151,466
      
—
      
—
      
—
      
15,303
      
—
      
(2,689
)
    
—
      
12,614
  
Vesting of restricted stock awards
    
—
      
—
      
(3,887
)
    
3,906
      
—
      
—
      
(19
)
    
—
      
—
  
Forfeiture of restricted stock awards
    
(6,000
)
    
—
      
—
      
73
      
(73
)
    
—
      
—
      
—
      
—
  
Tax benefit from stock-based compensation
    
—
      
—
      
498
      
—
      
—
      
—
      
—
      
—
      
498
  
Balance at March 31, 2016
    
45,066,727
    
$
562
    
$
511,849
    
$
(4,242
)
  
$
(148,574
)
  
$
(20,819
)
  
$
197,274
    
$
(7,333
)
  
$
528,717
  
 
See accompanying notes to unaudited consolidated financial statements.

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

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

See accompanying notes to unaudited consolidated financial statements.
7
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements
1. Basis of Presentation

The consolidated financial statements are composed of the accounts of Oritani Financial Corp., its wholly owned subsidiaries, Oritani Bank ("the Bank"); Hampshire Financial, LLC, and Oritani, LLC, and the wholly owned subsidiaries of Oritani Bank; Oritani Finance Company, Ormon LLC ("Ormon"), and Oritani Investment Corp., as well as its wholly owned subsidiary, Oritani Asset Corporation (a real estate investment trust), (collectively, the "Company").  Intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, all of the adjustments (consisting of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included.  The results of operations and other data presented for the nine month period ended March 31, 2016 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending June 30, 2016.

Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for the preparation of the Form 10-Q.  The consolidated financial statements presented should be read in conjunction with the Company's audited consolidated financial statements and notes to consolidated financial statements included in the Company's June 30, 2015 Annual Report on Form 10-K, filed with the SEC on September 14, 2015.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities presented in the Consolidated Balance Sheets at March 31, 2016 and June 30, 2015 and in the Consolidated Statements of Income for the three and nine months ended March 31, 2016 and 2015.  Actual results could differ significantly from those estimates.

A material estimate that is particularly susceptible to significant changes relates to the determination of the allowance for loan losses. The allowance for loan losses represents management's best estimate of losses known and inherent in the portfolio that are both probable and reasonable to estimate. While management uses the most current information available to estimate losses on loans, actual losses are dependent on future events and, as such, increases in the allowance for loan losses may be necessary.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's allowance for loan losses. Such agencies may require the Bank to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

2. Earnings Per Share ("EPS")

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

The following is a summary of the Company's earnings per share calculations and reconciliation of basic to diluted earnings per share.

 
  
Three months ended March 31,
    
Nine months ended March 31,
  
 
  
2016
    
2015
    
2016
    
2015
  
 
  
(In thousands, except per share data)
  
Net income
  
$
11,313
    
$
10,957
    
$
39,346
    
$
31,164
  
Weighted average common shares outstanding—basic
    
42,030
      
41,391
      
41,595
      
41,806
  
Effect of dilutive stock options outstanding
    
1,169
      
922
      
1,159
      
932
  
Weighted average common shares outstanding—diluted
    
43,199
      
42,313
      
42,754
      
42,738
  
Earnings per share-basic
  
$
0.27
    
$
0.26
    
$
0.95
    
$
0.75
  
Earnings per share-diluted
  
$
0.26
    
$
0.26
    
$
0.92
    
$
0.73
  
 
For the three months ended March 31, 2016 and 2015 there were 4,007 and 19,880 option shares, respectively, that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for those periods.  Anti-dilutive shares for the nine months ended March 31, 2016 and 2015 were 5,250 and 20,111, respectively.

3. Stock Repurchase Program
 
On March 4, 2015, the Board of Directors of the Company authorized a fourth stock repurchase plan pursuant to which the Company is authorized to repurchase up to 5% of the outstanding shares, or 2,205,451 shares.   At March 31, 2016, there are 1,987,506 shares yet to be purchased under the current plans.  At  March 31, 2016, a total of  13,179,026  shares were acquired under repurchase programs at a weighted average cost of  $13.28 per share.  The timing of the repurchases depend on certain factors, including but not limited to, market conditions and prices, the Company's liquidity and capital requirements, and alternative uses of capital.  Repurchased shares will be held as treasury stock and will be available for general corporate purposes.  The Company may conduct repurchases in accordance with a Rule 10b5-1 trading plan.  
8
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

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

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

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

The following is a summary of the Company's stock option activity and related information as of March 31, 2016 and changes therein during the nine months then ended:

 
  
Number of Stock Options
    
Weighted Average Grant Date Fair Value
    
Weighted Average Exercise Price
    
Weighted Average Remaining Contractual Life (years)
  
Outstanding at June 30, 2015
    
5,900,164
    
$
2.57
    
$
11.50
      
5.8
  
Granted
    
20,000
      
1.64
      
15.89
      
10.0
  
Exercised
    
(1,151,466
)
    
2.43
      
10.95
      
3.4
  
Forfeited
    
(20,000
)
    
2.69
      
12.65
      
6.2
  
Outstanding at March 31, 2016
    
4,748,698
    
$
2.59
    
$
11.64
      
5.5
  
Exercisable at March 31, 2016
    
3,910,912
    
$
2.58
    
$
11.50
      
4.4
  
 
The Company recorded $522,000 and $536,000 of share based compensation expense related to the options granted for the three months ended March 31, 2016 and 2015, respectively.  The Company recorded $1.6 million of share based compensation expense related to the options granted for both nine month periods ended March 31, 2016 and 2015.   Expected future expense related to the non-vested options outstanding at March 31, 2016 is $911,000 over a weighted average period of 0.5 years. Upon exercise of vested options, management expects to draw on treasury stock as the source of the shares.


Restricted stock shares vest over a five-year service period on the anniversary date of the grant. Vesting of the restricted stock shares accelerate upon death or disability, retirement or a change in control. The product of the number of shares granted and the grant date market price of the Company's common stock determines the fair value of restricted shares under the Company's restricted stock plan. The Company recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period.
 
The following is a summary of the status of the Company's restricted stock shares as of March 31, 2016 and changes therein during the nine months then ended:

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

5. Post-retirement Benefits
 
The Company provides several post-retirement benefit plans to directors and to certain active and retired employees. The Company has a nonqualified Directors' Retirement Plan ("Retirement Plan"), a nonqualified Benefit Equalization Plan ("BEP Plan"), which provides benefits to employees who are disallowed certain benefits under the Company's qualified benefit plans, and a Post Retirement Medical Plan ("Medical Plan") for directors and certain eligible employees.

Net periodic benefit costs for the three and nine months ended March 31, 2016 and 2015 are presented in the following tables.

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

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

 
  
March 31, 2016
    
June 30, 2015
  
 
  
(In thousands)
  
Residential
  
$
217,270
    
$
186,342
  
Residential commercial real estate
    
1,486,911
      
1,229,816
  
Credit/grocery retail commercial real estate
    
458,025
      
481,216
  
Other commercial real estate
    
889,353
      
894,016
  
Construction and land loans
    
4,651
      
6,132
  
Total loans
    
3,056,210
      
2,797,522
  
Less:
                
Deferred loan fees, net
    
8,526
      
10,421
  
Allowance for loan losses
    
29,948
      
30,889
  
Loans, net
  
$
3,017,736
    
$
2,756,212
  
 
The Company's allowance for loan losses is analyzed quarterly and many factors are considered, including growth in the portfolio, delinquencies, nonaccrual loan levels, and other environmental factors.  There have been no material changes to the allowance for loan loss methodology as disclosed in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 14, 2015.

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

 
Three months ended March 31,
  
Nine months ended March 31,
  
 
(In thousands)
  
 
2016
  
2015
  
2016
  
2015
  
Balance at beginning of period
  
$
30,635
    
$
31,266
    
$
30,889
    
$
31,401
  
Provisions for loan losses
    
—
      
—
      
—
      
200
  
Recoveries of loans previously charged off
    
5
      
—
      
6
      
1
  
Loans charged off
    
(692
)
    
(377
)
    
(947
)
    
(713
)
Balance at end of period
  
$
29,948
    
$
30,889
    
$
29,948
    
$
30,889
  
 
10
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

The following table provides the three and nine month activity in the allowance for loan losses allocated by loan category at March 31, 2016 and 2015.  The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
 
 
Three months ended March 31, 2016
  
 
Residential
  
Residential commercial real estate
  
Credit/grocery retail commercial real estate
  
Other commercial real estate
  
Construction and land loans
  
Unallocated
  
Total
  
 
(In thousands)
  
Allowance for loan losses:
 
 
 
 
 
 
 
Beginning balance
  
$
1,518
    
$
10,893
    
$
3,654
    
$
13,858
    
$
712
    
$
—
    
$
30,635
  
Charge-offs
    
—
      
—
      
—
      
(692
)
    
—
      
—
      
(692
)
Recoveries
    
—
      
—
      
—
      
5
      
—
      
—
      
5
  
Provisions
    
(143
)
    
962
      
14
      
(431
)
    
(402
)
    
—
      
—
  
Ending balance
  
$
1,375
    
$
11,855
    
$
3,668
    
$
12,740
    
$
310
    
$
—
    
$
29,948
  

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

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

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

The following table details the amount of loans receivables that are evaluated individually, and collectively, for impairment, and the related portion of allowance for loan loss that is allocated to each loan portfolio segment at March 31, 2016 and June 30, 2015.

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

   
At June 30, 2015
  
 
  
Residential
    
Residential commercial real estate
    
Credit/grocery retail commercial real estate
    
Other commercial real estate
    
Construction
and land loans
    
Total
  
   
(In thousands)
  
Allowance for loan losses:
  
   
   
   
   
   
 
Individually evaluated for impairment
  
$
20
    
$
27
    
$
—
    
$
1,290
    
$
28
    
$
1,365
  
Collectively evaluated for impairment
    
1,501
      
10,787
      
4,042
      
12,653
      
541
      
29,524
  
Total
  
$
1,521
    
$
10,814
    
$
4,042
    
$
13,943
    
$
569
    
$
30,889
  
Loans receivable:
                                                
Individually evaluated for impairment
  
$
3,780
    
$
311
    
$
—
    
$
11,439
    
$
224
    
$
15,754
  
Collectively evaluated for impairment
    
182,562
      
1,229,505
      
481,216
      
882,577
      
5,908
      
2,781,768
  
Total
  
$
186,342
    
$
1,229,816
    
$
481,216
    
$
894,016
    
$
6,132
    
$
2,797,522
  
 
The Company continuously monitors the credit quality of its loan portfolio.  In addition to internal staff, the Company utilizes the services of a third party loan review firm to evaluate the credit quality ratings of its loan receivables.  Credit quality is monitored by reviewing certain credit quality indicators.  Assets classified as "Satisfactory" are deemed to possess average to superior credit quality, requiring no more than normal attention.  Assets classified as "Pass/Watch" have generally acceptable asset quality yet possess higher risk characteristics/circumstances than satisfactory assets.  Such characteristics may include strained liquidity, slow pay, stale financial statements or other circumstances requiring greater attention from bank staff.  We classify an asset as "Special Mention" if the asset has a potential weakness that warrants management's close attention.  Such weaknesses, if left uncorrected, may result in the deterioration of the repayment prospects of the asset.  An asset is considered "Substandard" if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Substandard assets include those characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected.  Assets classified as "Doubtful" have all of the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.  Included in the Substandard caption are all loans that were past due 90 days (or more) and all impaired loans.
12
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

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

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

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

 
  
At March 31, 2016
  
 
  
30-59 Days Past Due
    
60-89 Days Past Due
    
90 days or More Past Due
    
Total Past Due
    
Current
    
Total Loans
    
Nonaccrual (1)
  
 
  
(In thousands)
  
Residential
  
$
1,398
    
$
756
    
$
684
    
$
2,838
    
$
214,432
    
$
217,270
    
$
1,317
  
Residential commercial real estate
    
—
      
—
      
—
      
—
      
1,486,911
      
1,486,911
      
314
  
Credit/grocery retail commercial real estate
    
—
      
—
      
—
      
—
      
458,025
      
458,025
      
—
  
Other commercial real estate
    
2,019
      
428
      
1,047
      
3,494
      
885,859
      
889,353
      
8,302
  
Construction and land loans
    
—
      
—
      
56
      
56
      
4,595
      
4,651
      
56
  
Total
  
$
3,417
    
$
1,184
    
$
1,787
    
$
6,388
    
$
3,049,822
    
$
3,056,210
    
$
9,989
  

 
  
At June 30, 2015
  
 
  
30-59 Days Past Due
    
60-89 Days Past Due
    
90 days or More Past Due
    
Total Past Due
    
Current
    
Total Loans
    
Nonaccrual (2)
  
 
  
(In thousands)
  
Residential
  
$
340
    
$
432
    
$
888
    
$
1,660
    
$
184,682
    
$
186,342
    
$
1,329
  
Residential commercial real estate
    
—
      
311
      
—
      
311
      
1,229,505
      
1,229,816
      
311
  
Credit/grocery retail commercial real estate
    
—
      
—
      
—
      
—
      
481,216
      
481,216
      
—
  
Other commercial real estate
    
3,278
      
—
      
3,569
      
6,847
      
887,169
      
894,016
      
10,711
  
Construction and land loans
    
—
      
—
      
224
      
224
      
5,908
      
6,132
      
224
  
Total
  
$
3,618
    
$
743
    
$
4,681
    
$
9,042
    
$
2,788,480
    
$
2,797,522
    
$
12,575
  

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

13
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

The Company defines an impaired loan as a loan for which it is probable, based on current information, that the Company will not collect all amounts due under the contractual terms of the loan agreement.  Loans we individually classify as impaired include multifamily, commercial mortgage and construction loans with balances of $1.0 million or more, unless a condition exists for loans less than $1.0 million that would increase the Bank's potential loss exposure.  At March 31, 2016 impaired loans were primarily collateral-dependent and totaled $13.4 million, of which $4.9 million had a specific allowance for credit losses of $692,000 and $8.5 million of impaired loans had no related allowance for credit losses.  At June 30, 2015 impaired loans were primarily collateral-dependent and totaled $15.8 million, of which $7.3 million  had a related allowance for credit losses of $1.4 million and $8.5 million of impaired loans had no related allowance for credit losses.

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

 
  
Impaired Loans
  
 
  
At March 31, 2016
    
Nine months ended March 31, 2016
  
 
  
Recorded Investment
    
Unpaid Principal Balance
    
Allowance
    
Average Recorded Investment
    
Interest Income Recognized
  
 
  
(In thousands)
  
With no related allowance recorded:
  
   
   
   
   
 
Residential
  
$
3,447
    
$
3,447
    
$
—
    
$
3,525
    
$
106
  
Other commercial real estate
    
5,024
      
5,024
      
—
      
5,497
      
184
  
 
    
8,471
      
8,471
      
—
      
9,022
      
290
  
With an allowance recorded:
                                        
Residential
  
$
164
    
$
184
    
$
20
    
$
166
    
$
—
  
Residential commercial real estate
    
287
      
314
      
27
      
291
      
—
  
Other commercial real estate
    
3,784
      
4,382
      
598
      
3,866
      
—
  
Construction and land loans
    
9
      
56
      
47
      
90
      
—
  
 
    
4,244
      
4,936
      
692
      
4,413
      
—
  
Total:
                                        
Residential
  
$
3,611
    
$
3,631
    
$
20
    
$
3,691
    
$
106
  
Residential commercial real estate
    
287
      
314
      
27
      
291
      
—
  
Other commercial real estate
    
8,808
      
9,406
      
598
      
9,363
      
184
  
Construction and land loans
    
9
      
56
      
47
      
90
      
—
  
 
  
$
12,715
    
$
13,407
    
$
692
    
$
13,435
    
$
290
  

 
  
Impaired Loans
  
 
  
At June 30, 2015
    
Year ended June 30, 2015
  
 
  
Recorded Investment
    
Unpaid Principal Balance
    
Allowance
    
Average Recorded Investment
    
Interest Income Recognized
  
 
  
(In thousands)
  
With no related allowance recorded:
  
   
   
   
   
 
Residential
  
$
3,592
    
$
3,592
    
$
—
    
$
3,429
    
$
144
  
Other commercial real estate
    
4,892
      
4,892
      
—
      
4,912
      
82
  
 
    
8,484
      
8,484
      
—
      
8,341
      
226
  
With an allowance recorded:
                                        
Residential
  
$
168
    
$
188
    
$
20
    
$
171
    
$
8
  
Residential commercial real estate
    
284
      
311
      
27
      
432
      
—
  
Other commercial real estate
    
5,257
      
6,547
      
1,290
      
5,719
      
46
  
Construction and land loans
    
196
      
224
      
28
      
275
      
—
  
 
    
5,905
      
7,270
      
1,365
      
6,597
      
54
  
Total:
                                        
Residential
  
$
3,760
    
$
3,780
    
$
20
    
$
3,600
    
$
152
  
Residential commercial real estate
    
284
      
311
      
27
      
432
      
—
  
Other commercial real estate
    
10,149
      
11,439
      
1,290
      
10,631
      
128
  
Construction and land loans
    
196
      
224
      
28
      
275
      
—
  
 
  
$
14,389
    
$
15,754
    
$
1,365
    
$
14,938
    
$
280
  
 
14
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

Troubled debt restructured loans ("TDRs") are those loans whose terms have been modified because of deterioration in the financial condition of the borrower.  The Company has selectively modified certain borrower's loans to enable the borrower to emerge from delinquency and keep their loans current.  The eligibility of a borrower for a TDR modification depends upon the facts and circumstances of each transaction, which may change from period to period, and involve judgment by management regarding the likelihood that the modification will result in the maximum recovery by the Company.  Modifications could include extension of the terms of the loan, reduced interest rates, and forgiveness of accrued interest and/or principal.  Once an obligation has been restructured because of such credit problems, it continues to be considered restructured until paid in full or, if the obligation yields a market rate (a rate equal to or greater than the rate the Company was willing to accept at the time of the restructuring for a new loan with comparable risk), until the year subsequent to the year in which the restructuring takes place, provided the borrower has performed under the modified terms for a six month period.  Management classifies all TDRs as impaired loans.  Included in impaired loans at March 31, 2016 are $5.1 million of loans which are deemed TDRs.  At June 30, 2015, TDRs totaled $3.9 million.
 
The following table presents additional information regarding the Company's TDRs as of March 31, 2016 and June 30, 2015:

 
Troubled Debt Restructurings at March 31, 2016
  
 
Performing
  
Nonperforming
  
Total
  
 
(In thousands)
  
Residential
  
$
—
    
$
184
    
$
184
  
Residential commercial real estate
    
—
      
314
      
314
  
Other commercial real estate
    
394
      
4,148
      
4,542
  
Construction and land loans
    
—
      
56
      
56
  
Total
  
$
394
    
$
4,702
    
$
5,096
  
Allowance
  
$
—
    
$
275
    
$
275
  
 
                        
 
Troubled Debt Restructurings at June 30, 2015
  
 
Performing
  
Nonperforming
  
Total
  
 
(In thousands)
  
Residential
  
$
—
    
$
188
    
$
188
  
Residential commercial real estate
    
—
      
311
      
311
  
Other commercial real estate
    
418
      
2,710
      
3,128
  
Construction and land loans
    
—
      
224
      
224
  
Total
  
$
418
    
$
3,433
    
$
3,851
  
Allowance
  
$
—
    
$
948
    
$
948
  
 
 
There were no loan relationships modified in a troubled debt restructuring during the three months ended March 31, 2016  and 2015.
 
 
Nine months ended March 31,
  
 
2016
  
2015
  
 
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)
  
Other commercial real estate
    
1
      
3,385
      
2,280
      
—
      
—
      
—
  
Total
    
1
    
$
3,385
    
$
2,280
      
—
    
$
—
    
$
—
  

The relationship modified during the nine months ended March 31, 2016, was granted an extended maturity in conjunction with a principal paydown.  There were no loan relationships modified in a troubled debt restructuring during the nine months ended March 31, 2015.

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 March 31, 2016.
 
15
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

7. Investment Securities
 
Securities Held to Maturity
 
The following is a comparative summary of securities held to maturity at March 31, 2016 and June 30, 2015:

 
  
At March 31, 2016
  
 
  
Amortized cost
    
Gross
unrealized gains
    
Gross
unrealized losses
    
Fair value
  
 
  
(In thousands)
  
Mortgage-backed securities:
  
   
   
   
 
FHLMC
  
$
2,461
    
$
111
    
$
—
    
$
2,572
  
FNMA
    
76,870
      
1,003
      
47
      
77,826
  
GNMA
    
1,432
      
60
      
—
      
1,492
  
CMO
    
71,266
      
456
      
35
      
71,687
  
 
  
$
152,029
    
$
1,630
    
$
82
    
$
153,577
  

 
  
At June 30, 2015
  
 
  
Amortized cost
    
Gross
unrealized gains
    
Gross
unrealized losses
    
Fair value
  
 
  
(In thousands)
  
Mortgage-backed securities:
  
   
   
   
 
FHLMC
  
$
1,638
    
$
132
    
$
—
    
$
1,770
  
FNMA
    
55,808
      
269
      
637
      
55,440
  
GNMA
    
1,928
      
84
      
—
      
2,012
  
CMO
    
48,616
      
98
      
187
      
48,527
  
 
  
$
107,990
    
$
583
    
$
824
    
$
107,749
  
 
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 March 31, 2016 and 2015.  The Company did not sell any securities held to maturity during the nine months ended March 31, 2016.  Proceeds from the sale of securities held to maturity for the nine months ended March 31, 2015 were $3.4 million on securities with an amortized cost of $3.2 million, resulting in gross gains of $143,800 and no losses.  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 $89.3 million and $54.2 million at March 31, 2016 and June 30, 2015, respectively, were pledged as collateral for advances.  The fair value of securities pledged as collateral for cash flow hedge interest rate swaps totaled $14.0 million and $1.8 million at March 31, 2016 and June 30, 2015, respectively. The Company did not record other-than-temporary impairment charges on securities held to maturity during the three and nine months ended March 31, 2016 and 2015.
16
Oritani Financial Corp. and subsidiaries
Notes to Unaudited 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 March 31, 2016 and June 30, 2015 were as follows:

 
At March 31, 2016
  
 
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
  
$
—
    
$
—
    
$
3,254
    
$
47
    
$
3,254
    
$
47
  
CMO
    
16,392
      
35
      
—
      
—
      
16,392
      
35
  
 
  
$
16,392
    
$
35
    
$
3,254
    
$
47
    
$
19,646
    
$
82
  

 
At June 30, 2015
  
 
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
  
$
32,925
    
$
380
    
$
6,891
    
$
257
    
$
39,816
    
$
637
  
CMO
    
31,433
      
187
      
—
      
—
      
31,433
      
187
  
 
  
$
64,358
    
$
567
    
$
6,891
    
$
257
    
$
71,249
    
$
824
  

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.
17
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements
Securities Available for Sale

The following is a comparative summary of securities available for sale at March 31, 2016 and June 30, 2015:

 
  
At March 31, 2016
  
 
  
Amortized
cost
    
Gross
unrealized
gains
    
Gross
unrealized
losses
    
Fair value
  
 
  
(In thousands)
  
Equity securities
  
$
601
    
$
527
    
$
—
    
$
1,128
  
Mortgage-backed securities:
                                
FHLMC
    
934
      
46
      
—
      
980
  
FNMA
    
72,388
      
935
      
—
      
73,323
  
CMO
    
139,078
      
1,420
      
73
      
140,425
  
 
  
$
213,001
    
$
2,928
    
$
73
    
$
215,856
  

 
  
At June 30, 2015
  
 
  
Amortized
cost
    
Gross
unrealized
gains
    
Gross
unrealized
losses
    
Fair value
  
 
  
(In thousands)
  
Equity securities
  
$
1,208
    
$
902
    
$
—
    
$
2,110
  
Mortgage-backed securities:
                                
FHLMC
    
5,162
      
163
      
—
      
5,325
  
FNMA
    
36,432
      
537
      
114
      
36,855
  
CMO
    
213,569
      
1,580
      
476
      
214,673
  
 
  
$
256,371
    
$
3,182
    
$
590
    
$
258,963
  
 
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 for the three months ended March 31, 2016.  Proceeds from the sale of securities available for sale for the three months ended March 31, 2015 were $20.7 million on securities with an amortized cost of $19.9 million, resulting in gross gains of $770,000 and no losses.  Proceeds from the sale of securities available for sale for the nine months ended March 31, 2016 were $39.0 million on securities with an amortized cost of $38.4 million, resulting in gross gains and gross losses of $607,000 and $3,000, respectively.  Proceeds from the sale of securities available for sale for the nine months ended March 31, 2015 were $37.9 million on securities with an amortized cost of $37.3 million, resulting in gross gains and gross losses of $861,000 and $236,000, respectively.  The Equity securities caption relates to holdings of shares in financial institutions common stock.  Available for sale securities with fair values of $85.5 million and $197.4 million at March 31, 2016 and June 30, 2015, respectively, were pledged as collateral for advances.  The fair value of securities pledged as collateral for cash flow hedge interest rate swaps totaled $7.0 million and $6.4 million at March 31, 2016 and June 30, 2015, respectively. There were no other-than-temporary impairment charges on available for sale securities for the three and nine months ended March 31, 2016 and 2015.  
18
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements


Gross unrealized losses on securities available for sale and the fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2016 and June 30, 2015 were as follows:

 
At March 31, 2016
  
 
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:
 
 
 
 
 
 
CMO
    
—
      
—
      
25,043
      
73
      
25,043
      
73
  
 
  
$
—
    
$
—
    
$
25,043
    
$
73
    
$
25,043
    
$
73
  

 
At June 30, 2015
  
 
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
  
$
17,185
    
$
114
    
$
—
    
$
—
    
$
17,185
    
$
114
  
CMO
    
42,463
      
296
      
9,947
      
180
      
52,410
      
476
  
 
  
$
59,648
    
$
410
    
$
9,947
    
$
180
    
$
69,595
    
$
590
  
 
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.
19
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

8. Deposits

Deposits include checking (non-interest and interest-bearing demand deposits), money market, savings and time deposits. We had brokered deposits totaling $285.4 million and $248.4 million at March 31, 2016 and June 30, 2015, respectively.

 Deposit balances are summarized as follows:

 
March 31, 2016
    
June 30, 2015
  
 
Amount
    
Amount
  
 
(In thousands)
  
Checking accounts
  
$
469,035
    
$
436,172
  
Money market deposit accounts
    
654,117
      
589,012
  
Savings accounts
    
163,989
      
160,020
  
Time deposits
    
937,502
      
777,533
  
 
  
$
2,224,643
    
$
1,962,737
  

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. The Company's interest rate derivatives are comprised entirely of interest rate swaps hedging floating-rate and forecasted issuances of floating rate liabilities and have been designed and accounted for as cash flow hedges.  Oritani recognizes interest rate swaps at fair value in the consolidated balance sheet with an offset recorded in Other Comprehensive Income and any hedging ineffectiveness is recorded in earnings.  The carrying value of interest rate derivatives is included in the balance of other assets or other liabilities and comprises the cumulative changes in the fair value of interest rate derivatives.  Such changes in fair value are offset against accumulated other comprehensive income.  These interest rate swaps are generally designated to hedge current and future brokered deposits or other variable rate wholesale funding obtained by the Company.

The Company formally assesses, both at the hedges' inception, and on an on-going basis, whether derivatives used in hedging transactions have been highly effective in offsetting changes in cash flows of hedged items and whether those derivatives are expected to remain highly effective in subsequent periods.  The Company discontinues hedge accounting when (a) it determines that a derivative is no longer effective in offsetting changes in cash flows of a hedged item; (b) the derivative expires or is sold, terminated or exercised; (c) probability exists that the forecasted transaction will no longer occur; or (d) management determines that designating the derivative as a hedging instrument is no longer appropriate.  In all cases in which hedge accounting is discontinued and a derivative remains outstanding, the Company will carry the derivative at fair value in the consolidated balance sheet, recognizing changes in fair value in current period income in the consolidated statement of income.

Oritani is exposed to credit-related losses in the event of nonperformance by the counterparties to the agreements.  Oritani controls the credit risk through selecting highly rated swap counterparties and monitoring procedures, and does not expect the swap counterparties to fail in meeting their contractual obligations.  Oritani only deals with primary swap 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 counterparties post collateral to cover any significant market value exposure to the counterparties in the portfolio of transactions in place with them.

At March 31, 2016, Oritani had 11 interest rate swap agreements with a total notional outstanding of $330.0 million.  These agreements all feature exchanges of fixed for variable payments covering various hedging periods maturing between 4/11/2016 and 7/11/2024.  The Company is paying fixed rates on these swaps ranging from 0.28 % to 3.67 %, in exchange for receiving variable payments linked to 1 month or 3 month LIBOR.  The fair value of securities pledged as collateral for the swaps at March 31, 2016 and June 30, 2015 was $21.0 million and $8.2 million, respectively.

The following table presents information regarding our derivative financial instruments at March 31, 2016 and June 30, 2015.

 
  
At March 31, 2016
  
    
Notional Amount
    
Fair Value
  
Asset derivatives
 Balance Sheet Line Item
 
(In thousands)
 
Cash flow hedge interest rate swaps-Gross unrealized gain
Other Assets
  
$
100,000
    
$
42
  
     
Liability derivatives
 
  
Cash flow hedge interest rate swaps-Gross unrealized loss
Other Liabilities
  
$
230,000
    
$
13,720
  

 
  
At June 30, 2015
  
    
Notional Amount
  
Fair Value
  
Liability derivatives
 Balance Sheet Line Item
 
  
(In thousands)
 
Cash flow hedge interest rate swaps-Gross unrealized loss
Other Liabilities
  
$
100,000
    
$
3,560
  
20
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

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 2011. Oritani Financial Corp.'s federal tax return for the tax year ended December 31, 2012 is currently under audit.  Our state and city tax returns are not currently under audit and have not been subject to an audit during the past five years.  The Company did not have any uncertain tax positions at March 31, 2016 and June 30, 2015.  The Company recognizes accrued interest and penalties related to unrecognized tax benefits, where applicable, in income tax expense.

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 $4.7 million and $6.1 million at March 31, 2016 and June 30, 2015, respectively.  Proceeds from the sale of three joint ventures for the three months ended March 31, 2016 were $2.9 million resulting in gross gains of $2.0 million.   Proceeds from the sale of ten joint ventures for the nine months ended March 31, 2016 were $16.6 million resulting in gross gains of $15.5 million.  Proceeds from the sale of one joint ventures for the three and nine months ended March 31, 2015 were $1.9 million resulting in gross gains of $2.0 million.  

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 $(31,000) and $(86,000) at March 31, 2016 and June 30, 2015, respectively.  There were no real estate held for investment sales during the three months ended March 31, 2016.   Proceeds from the sale of four real estate held for investment properties for the nine months ended March 31, 2016 were $16.0 million resulting in gross gains of $16.0 million.  There were no real estate held for investment sales during the three and nine months ended March 31, 2015. 

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.
21
Oritani Financial Corp. and subsidiaries
Notes to Unaudited 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 may be  adjusted downward by management (0-20% adjustment rate and 0-10%  risk premium rate), as necessary, for changes in relevant valuation factors subsequent to the appraisal date and the timing of anticipated cash flows (0-8% discount rate).  The Company classifies impaired loans as Level 3.
 
Fair value for loans held for investment is estimated using portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential, multifamily, commercial real estate, construction, land and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and nonperforming/impaired categories. Fair value of performing loans is estimated using a discounted cash flow model that employs a discount rate that reflects the current market pricing for loans with similar characteristics and remaining maturity, adjusted by an amount for estimated credit losses inherent in the portfolio at the balance sheet date. The rates take into account the expected yield curve. Fair values estimated in this manner do not fully incorporate an exit-price approach to fair value. The Company classifies the estimated fair value of loans held for investment as Level 3.
 
Real Estate Owned
 
Assets acquired through foreclosure or deed in lieu of foreclosure are recorded at fair value less estimated selling costs when acquired, thus establishing a new cost basis. Subsequently, real estate owned is carried at the lower of cost or fair value, less estimated selling costs. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers' market knowledge and experience, and are considered Level 3. When an asset is acquired, the excess of the loan balance over fair value, less estimated liquidation costs (5%-20% discount rate), is charged to the allowance for loan losses.  If the estimated fair value of the asset declines, a write-down is recorded through expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in the economic conditions.
 
Deposit Liabilities
 
The estimated fair value of deposits with no stated maturity, such as checking, savings, and money market accounts, is equal to the amount payable on demand at the balance sheet date. The estimated fair value of term deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. The Company classifies the estimated fair value of term deposits as Level 2.
 
Borrowings
 
The book value of overnight borrowings approximates the estimated fair value. The estimated fair value of term borrowings is calculated based on the discounted cash flow of contractual amounts due, using market rates currently available for borrowings of similar amount and remaining maturity. The Company classifies the estimated fair value of term borrowings as Level 2.

Derivatives
 
The fair value of our interest rate swaps was estimated using Level 2 inputs.  The fair value was determined using third party prices that are based on discounted cash flow analyses using observed market interest rate curves and volatilities.
 
Commitments to Extend Credit and to Purchase or Sell Securities
 
The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of commitments to purchase or sell securities is estimated based on bid quotations received from securities dealers. The fair value of off-balance-sheet commitments approximates book value.
22
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of March 31, 2016 and June 30, 2015 by level within the fair value hierarchy. There were no transfers between levels within the fair value hierarchy during the nine months ended March 31, 2016.

 
  
Fair Value as of March 31, 2016
    
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
    
Significant
Other
Observable
Inputs
(Level 2)
    
Unobservable
Inputs
(Level 3)
  
 
  
(In thousands)
  
Assets:
  
   
   
   
 
Equity Securities
  
$
1,128
    
$
1,128
    
$
—
    
$
—
  
Mortgage-backed securities available for sale
                                
FHLMC
    
980
      
—
      
980
      
—
  
FNMA
    
73,323
      
—
      
73,323
      
—
  
CMO
    
140,425
      
—
      
140,425
      
—
  
Total securities available for sale
    
215,856
      
1,128
      
214,728
      
—
  
                                 
Interest rate swaps
    
42
      
—
      
42
      
—
  
Total assets
  
$
215,898
    
$
1,128
    
$
214,770
    
$
—
  
                                 
 
                                
Liabilities:
                                
Interest rate swaps
  
$
13,720
    
$
—
    
$
13,720
    
$
—
  

 
  
Fair Value as of June 30, 2015
    
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
  
$
2,110
    
$
2,110
    
$
—
    
$
—
  
Mortgage-backed securities available for sale
                                
FHLMC
    
5,325
      
—
      
5,325
      
—
  
FNMA
    
36,855
      
—
      
36,855
      
—
  
CMO
    
214,673
      
—
      
214,673
      
—
  
Total securities available for sale
  
$
258,963
    
$
2,110
    
$
256,853
    
$
—
  
 
                                
Liabilities:
                                
Interest rate swaps
  
$
3,560
    
$
—
    
$
3,560
    
$
—
  
 
23
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

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

The following tables present the recorded amount of assets measured at fair value on a nonrecurring basis as of March 31, 2016 and June 30, 2015 by level within the fair value hierarchy.

   
Fair Value as of March 31, 2016
    
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
  
$
164
    
$
—
    
$
—
    
$
164
  
Residential commercial real estate
    
287
      
—
      
—
      
287
  
Other commercial real estate
    
6,905
      
—
      
—
      
6,905
  
Construction and land loans
    
9
      
—
      
—
      
9
  
Total impaired loans
    
7,365
      
—
      
—
      
7,365
  
Real estate owned
                                
Other commercial real estate
    
487
      
—
      
—
      
487
  
Total real estate owned
    
487
      
—
      
—
      
487
  
Total assets measured on a non-recurring basis
  
$
7,852
    
$
—
    
$
—
    
$
7,852
  

   
Fair Value as of June 30, 2015
    
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
  
$
168
    
$
—
    
$
—
    
$
168
  
Residential commercial real estate
    
284
      
—
      
—
      
284
  
Other commercial real estate
    
8,187
      
—
      
—
      
8,187
  
Total impaired loans
    
8,639
      
—
      
—
      
8,639
  
Real estate owned
                                
Residential
    
1,435
      
—
      
—
      
1,435
  
Residential commercial real estate
    
1,202
      
—
      
—
      
1,202
  
Other commercial real estate
    
1,422
      
—
      
—
      
1,422
  
Total real estate owned
    
4,059
      
—
      
—
      
4,059
  
Total assets measured on a non-recurring basis
  
$
12,698
    
$
—
    
$
—
    
$
12,698
  
24
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

Estimated Fair Value of Financial Instruments
 
The following tables present the carrying amount, estimated fair value, and placement in the fair value hierarchy of financial instruments not recorded at fair values in their entirety on a recurring basis on the Company's balance sheet at March 31, 2016 and June 30, 2015. 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.
 
 
March 31, 2016
 
 
Carrying Amount
  
Fair Value
  
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Unobservable
Inputs
(Level 3)
  
 
(In thousands)
  
Financial assets:
 
 
 
 
 
Securities held to maturity
  
$
152,029
    
$
153,577
    
$
—
    
$
153,577
    
$
—
  
Loans, net (1)
    
3,017,736
      
3,042,594
      
—
      
—
      
3,042,594
  
Financial liabilities:
                                        
Time deposits
    
937,502
      
946,298
      
—
      
946,298
      
—
  
Term borrowings
    
571,515
      
582,436
      
—
      
582,436
      
—
  
 _____________
(1) Comprised of loans (including impaired loans), net of deferred loan fees and the allowance for loan losses.
 
 
June 30, 2015
  
 
Carrying Amount
  
Fair Value
  
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
  
Significant
Other
Observable
Inputs
(Level 2)
  
Unobservable
Inputs
(Level 3)
  
 
(In thousands)
  
Financial assets:
 
 
 
 
 
Securities held to maturity
  
$
107,990
    
$
107,749
    
$
—
    
$
107,749
    
$
—
  
Loans, net (1)
    
2,756,212
      
2,774,448
      
—
      
—
      
2,774,448
  
Financial liabilities:
                                        
Time deposits
    
777,533
      
785,466
      
—
      
785,466
      
—
  
Term borrowings
    
636,372
      
654,450
      
—
      
654,450
      
—
  
 ______________
(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.
25
Oritani Financial Corp. and subsidiaries
Notes to Unaudited 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 March 31,
    
Nine months ended March 31,
  
 
  
2016
    
2015
    
2016
    
2015
  
Gross:
  
   
   
   
 
Net income
  
$
17,989
    
$
17,184
    
$
63,233
    
$
48,420
  
Other comprehensive loss:
                                
Change in unrealized holding gain (loss) on securities available for sale
    
3,025
      
1,650
      
869
      
(102
)
Reclassification adjustment for security gains included in net income
    
—
      
(770
)
    
(604
)
    
(624
)
Amortization related to post-retirement obligations
    
56
      
23
      
168
      
68
  
Change in unrealized loss on interest rate swaps
    
(8,542
)
    
(2,384
)
    
(10,119
)
    
(6,333
)
Total other comprehensive loss
    
(5,461
)
    
(1,481
)
    
(9,686
)
    
(6,991
)
Total comprehensive income
    
12,528
      
15,703
      
53,547
      
41,429
  
Tax applicable to:
                                
Net income
    
6,676
      
6,227
      
23,887
      
17,256
  
Other comprehensive loss:
                                
Change in unrealized holding gain (loss) on securities available for sale
    
1,304
      
694
      
352
      
(45
)
Reclassification adjustment for security gains included in net income
    
—
      
(274
)
    
(261
)
    
(212
)
Amortization related to post-retirement obligations
    
25
      
9
      
72
      
28
  
Change in unrealized loss on interest rate swaps
    
(3,684
)
    
(1,009
)
    
(4,364
)
    
(2,680
)
Total other comprehensive loss
    
(2,355
)
    
(580
)
    
(4,201
)
    
(2,909
)
Total comprehensive income
    
4,321
      
5,647
      
19,686
      
14,347
  
Net of tax:
                                
Net income
    
11,313
      
10,957
      
39,346
      
31,164
  
Other comprehensive loss:
                                
Change in unrealized holding gain (loss) on securities available for sale
    
1,721
      
956
      
517
      
(57
)
Reclassification adjustment for security gains included in net income
    
—
      
(496
)
    
(343
)
    
(412
)
Amortization related to post-retirement obligations
    
31
      
14
      
96
      
40
  
Change in unrealized loss on interest rate swaps
    
(4,858
)
    
(1,375
)
    
(5,755
)
    
(3,653
)
Total other comprehensive loss
    
(3,106
)
    
(901
)
    
(5,485
)
    
(4,082
)
Total comprehensive income
  
$
8,207
    
$
10,056
    
$
33,861
    
$
27,082
  
 
26
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

The following table presents the changes in the components of accumulated other comprehensive (loss) income, net of tax, for the nine months ended March 31, 2016 and 2015 (in thousands):

 
  
Unrealized Holding Loss on Securities Available for Sale
    
Post Retirement Obligations
    
Unrealized Holding Loss on Interest Rate Swaps
    
Accumulated Other Comprehensive (Loss), Net of Tax
  
Balance at June 30, 2015
  
$
1,496
    
$
(1,316
)
  
$
(2,028
)
  
$
(1,848
)
Net change
    
174
      
96
      
(5,755
)
    
(5,485
)
Balance at March 31, 2016
  
$
1,670
    
$
(1,220
)
  
$
(7,783
)
  
$
(7,333
)
 
                                
Balance at June 30, 2014
  
$
2,728
    
$
(617
)
  
$
83
    
$
2,194
  
Net change
    
(469
)
    
40
      
(3,653
)
    
(4,082
)
Balance at March 31, 2015
  
$
2,259
    
$
(577
)
  
$
(3,570
)
  
$
(1,888
)

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).
 
   
Three months ended March 31,
    
Nine months ended March 31,
  
 Accumulated Other Comprehensive Income (Loss) Component
 Affected line item in the Consolidated Statement of Income
  
2016
    
2015
    
2016
    
2015
  
Reclassification adjustment for security gains included in net income
Net gain on sale of securities available for sale
  
$
—
    
$
(770
)
  
$
(604
)
  
$
(624
)
 
 
                                
Amortization related to post-retirement obligations (1)
 
                                
Prior service cost
 
    
—
      
15
      
—
      
45
  
Net loss
 
    
56
      
8
      
168
      
23
  
 
  Compensation, payroll taxes and fringe benefits    
56
      
23
      
168
      
68
  
 
 
                                
 
  Total before tax    
56
      
(747
)
    
(436
)
    
(556
)
 
  Income tax benefit (expense)    
25
      
(265
)
    
(189
)
    
(184
)
 
  Net of tax    
31
      
(482
)
    
(247
)
    
(372
)
 
(1) These accumulated other comprehensive income (loss) components are included in the computations of net periodic benefit cost.  See Note 5. Postretirement Benefits.
27
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

14. Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09 - Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.  This ASU simplifies several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods therein.  The Company is currently evaluating the impact of the adoption of this guidance on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07, "Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting." This ASU requires that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting.  Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.  The amendments in this Update require that an entity that has an available for sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method.  The ASU is effective for all entities in fiscal years, and interim periods in those fiscal years, beginning after December 15, 2016.  Early adoption is permitted.  The new guidance will be applied prospectively to changes in ownership (or influence) after the adoption date.   The Company does not expect that the adoption of this guidance will have a significant impact on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU 2016-05, " Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships (a consensus of the Emerging Issues Task Force))."  This ASU clarifies that a change in the counterparty to a derivative instrument (novation), that has been designated as a hedging instrument does not, on its own, require dedesignation of that hedge accounting relationship provided that all other hedge accounting criteria continue to be met.  This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods therein. Early adoption is permitted, including adoption in an interim period.  The Company does not expect that the adoption of this guidance will have a significant impact on the Company's consolidated financial statements.

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

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

28
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements
In January 2015, the FASB issued ASU 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, which eliminates from U.S. GAAP the concept of an extraordinary item.  The Board released the new guidance as part of its simplification initiative, which, as explained in the ASU, is intended to "identify, evaluate and improve areas of U.S. GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to the users of financial statements". To be considered an extraordinary item under existing U.S. GAAP, an event or transaction must be unusual in nature and must occur infrequently. As a result, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; and (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. However, the ASU does not affect the reporting and disclosure requirements for an event that is unusual in nature or that occurs infrequently. For all entities, the ASU is effective for annual periods beginning after December 15, 2015, and interim periods within those annual periods. Entities may apply the guidance prospectively or retrospectively to all prior periods presented in the financial statements. If an entity chooses to apply the guidance prospectively, it must disclose whether amounts included in income from continuing operations after adoption of the ASU are related to events and transactions previously recognized and classified as extraordinary items before the date of adoption. Early adoption is permitted if the guidance is applied as of the beginning of the annual period of adoption.  The Company does not expect that the adoption of this guidance will have a significant impact on the Company's consolidated financial statements.

In August 2014, the FASB issued ASU 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.  We adopted this guidance on July 1, 2015 with no significant impact on the Company's consolidated financial statements.

In June 2014, the FASB issued ASU 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.  We adopted this guidance on January 1, 2016 with no significant impact on the Company's consolidated financial statements.

In January 2014, the FASB issued ASU 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.  Early adoption is permitted.  We adopted this guidance on July 1, 2015 with no significant impact on the Company's 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, 2015, 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 and borrowed funds, in multifamily and commercial real estate loans, one- to four-family residential mortgage loans as well as in second mortgage and equity loans, construction loans, business loans, other consumer loans, and investment securities.  The Bank originates loans primarily for investment and holds such loans in its portfolio.  Occasionally, the Bank will also enter into loan participations.  The Bank's primary sources of funds are deposits, borrowings, investment maturities and principal and interest payments on loans and securities.  The Bank's revenues are derived principally from interest on loans and securities 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, business, and municipal customers. The Bank's primary focus has been, and will continue to be, organic growth in multifamily and commercial real estate lending.
 
Comparison of Financial Condition at March 31, 2016 and June 30, 2015
 
Total Assets. Total assets increased $250.3 million to $3.60 billion at March 31, 2016, from $3.35 billion at June 30, 2015.

Cash and Cash Equivalents. Cash and cash equivalents (which include fed funds and short term investments) decreased $4.0 million to $11.1 million at March 31, 2016, from $15.1 million at June 30, 2015.

Net Loans. Loans, net increased $261.5 million to $3.02 billion at March 31, 2016, from $2.76 billion at June 30, 2015.  The annualized growth rate for the period was 12.7%.  The increase in loans was primarily in residential commercial real estate (multifamily) which increased $257.1 million over the period.  The Company's primary strategic business objective is the organic growth of multifamily and commercial real estate loans.  Loan originations and purchases for the nine months ended March 31, 2016 totaled $522.7 million and $63.0 million, respectively.  Loan originations for the nine months ended March 31, 2015 totaled $520.8 million and there were no loan purchases over that period.  The Company continues to limit the origination of loans with certain features that are desirable to borrowers in the current market (primarily fixed rate periods greater than 5 years and interest only periods greater than one year). In addition, the Company recently elevated its underwriting standards regarding certain aspects of commercial real estate lending.  These decisions have a negative impact on loan growth however; management believes these restraints are in the best long term interests of the Company.
 

Delinquency and non performing asset information is provided below:

 
  
3/31/2016
    
12/31/2015
    
9/30/2015
    
6/30/2015
    
3/31/2015
  
 
  
(Dollars in thousands)
  
Delinquency Totals
  
   
   
   
   
 
30—59 days past due
  
$
2,930
    
$
6,320
    
$
8,188
    
$
2,535
    
$
5,126
  
60—89 days past due
    
1,184
      
404
      
190
      
416
      
291
  
Nonaccrual
    
9,989
      
10,880
      
10,879
      
12,575
      
13,191
  
Total
  
$
14,103
    
$
17,604
    
$
19,257
    
$
15,526
    
$
18,608
  
Non Performing Asset Totals
                                        
Nonaccrual loans, per above
  
$
9,989
    
$
10,880
    
$
10,879
    
$
12,575
    
$
13,191
  
Real Estate Owned
    
487
      
487
      
2,926
      
4,059
      
5,594
  
Total
  
$
10,476
    
$
11,367
    
$
13,805
    
$
16,634
    
$
18,785
  
Nonaccrual loans to total loans
    
0.33
%
    
0.37
%
    
0.39
%
    
0.45
%
    
0.48
%
Delinquent loans to total loans
    
0.46
%
    
0.60
%
    
0.69
%
    
0.55
%
    
0.68
%
Non performing assets to total assets
    
0.29
%
    
0.32
%
    
0.41
%
    
0.50
%
    
0.57
%

Delinquent loan and non performing asset totals continue to illustrate minimal credit issues at the Company.  In addition, of the $10.0 million in loans classified as nonaccrual at March 31, 2016, $7.7 million were fully current.

Securities Available For Sale ("AFS"). Securities AFS decreased $43.1 million to $215.9 million at March 31, 2016, from $259.0 million at June 30, 2015. The Company sold securities AFS totaling $38.4 million and purchased securities totaling $42.2 million.  The overall decrease in Securities AFS was due to principal payments that occurred over the period.
 
Securities Held To Maturity ("HTM").  Securities HTM increased $44.0 million to $152.0 million at March 31, 2016, from $108.0 million at June 30, 2015.  Purchases over the period totaled $60.1 million.

Investments in real estate joint ventures, net and real estate held for investment.  The Company previously announced its intention to explore the sale of the properties and interests in these portfolios.  The table below details the properties that have been sold:

           
Book
      
Entity
  
Type
    
Proceeds
    
Value
    
Gain
  
Oaklyn Associates
     a 
 
  
$
1,963
    
$
(125
)
  
$
2,088
  
Palisades Park
     b 
 
    
9,833
      
304
      
9,529
  
2015 Fiscal year
            
11,796
      
179
      
11,617
  
                                 
Madison Associates
     a 
 
    
2,453
      
(45
)
    
2,498
  
Van Buren Apartments
     a 
 
    
1,811
      
145
      
1,666
  
34 Grant LLC
     a 
 
    
342
      
297
      
45
  
Quarter Ended 9/30/2015
          
4,606
      
397
      
4,209
  
                                 
Hampshire Realty
     a 
 
    
1,469
      
(26
)
    
1,495
  
10 Landing Lane
     a 
 
    
5,807
      
(586
)
    
6,393
  
River Villa Mews, LLC
     a 
 
    
578
      
274
      
304
  
Marine View
     b 
 
    
4,697
      
648
      
4,049
  
Brighton Court Associates
     a 
 
    
1,206
      
80
      
1,126
  
Park Lane
     b 
 
    
7,021
      
(161
)
    
7,182
  
Parkway East
     b 
 
    
1,701
      
(360
)
    
2,061
  
Park View
     b 
 
    
2,555
      
(162
)
    
2,717
  
Quarter Ended 12/31/2015
            
25,034
      
(293
)
    
25,327
  
                                 
                                 
Hampshire Realty
     a 
 
    
1,621
      
140
      
1,481
  
Hampshire Realty
     a 
 
    
987
      
437
      
550
  
Hampshire Realty
     a 
 
    
340
      
362
      
(22
)
Quarter Ended 3/31/2016
            
2,948
      
939
      
2,009
  
                                 
2016 Fiscal Year
            
32,589
      
1,043
      
31,546
  
                                 
Total Sales
          
$
44,385
    
$
1,222
    
$
43,163
  
                                 

a - Investment in real estate joint venture
    
b - Real estate held for investment
    

As of March 31, 2016, there were four entities remaining in the portfolios.  Three of these entities are under contract for sale and the remaining one is being marketed for sale.
 
Real Estate Owned ("REO"). REO decreased $3.6 million to $487,000 at March 31, 2016, from $4.1 million at June 30, 2015.  The balance at March 31, 2016 consisted of 2 properties and the balance at June 30, 2015 consisted of 8 properties.
 
Deposits. Deposits increased $261.9 million to $2.22 billion at March 31, 2016, from $1.96 billion at June 30, 2015.  The annualized growth rate for the period was 17.8%.  A substantial portion of the growth over the period was due to growth in time deposits and money markets, as such funds increased $160.0 million and $65.1 million, respectively, over the nine months ended March 31, 2016.  The Company has a strategy whereby premium deposits 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.
 
Borrowings.  Borrowings decreased $33.9 million to $762.5 million at March 31, 2016, from $796.4 million at June 30, 2015.  Borrowings decreased as an increase in deposits allowed the Company to pay down borrowings as well as the impact of the balance sheet restructure, which is discussed in detail in the Company's Form 10-Q for the quarterly period ended December 31, 2015.

Stockholders' Equity.  Stockholders' equity increased $11.0 million to $528.7 million at March 31, 2016, from $517.7 million at June 30, 2015.  The increase was primarily due to the release of treasury stock in conjunction with the exercise of stock options, net income and the net impact of the amortization of stock based compensation plans, partially offset by dividends and the market value adjustments for securities available for sale and derivatives.  Dividends paid over the nine month period include three regular dividends, totaling $0.525 per share, as well as a $0.50 per share special dividend.  During the nine months ended March 31, 2016, 100,978 shares of stock were repurchased at a total cost of $1.6 million and an average cost of $15.77 per share.  Based on our March 31, 2016 closing price of $16.97 per share, the Company stock was trading at 144.7% of book value.

Average Balance Sheet for the Three and Nine months ended March 31, 2016 and 2015
 
The following tables present certain information regarding Oritani Financial Corp.'s financial condition and net interest income for the three and nine months ended March 31, 2016 and 2015.  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)
  
 
  
March 31, 2016
    
March 31, 2015
  
 
  
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)
  
$
2,923,374
    
$
31,061
      
4.25
%
  
$
2,664,046
    
$
30,772
      
4.62
%
Federal Home Loan Bank Stock
    
35,317
      
401
      
4.54
%
    
42,790
      
499
      
4.66
%
Securities available for sale
    
222,053
      
1,146
      
2.06
%
    
303,621
      
1,509
      
1.99
%
Securities held to maturity
    
156,053
      
738
      
1.89
%
    
86,814
      
451
      
2.08
%
Federal funds sold and short term investments
    
3,174
      
2
      
0.25
%
    
3,176
      
2
      
0.25
%
Total interest-earning assets
    
3,339,971
      
33,348
      
3.99
%
    
3,100,447
      
33,233
      
4.29
%
Non-interest-earning assets
    
179,556
                      
184,409
                  
Total assets
  
$
3,519,527
                    
$
3,284,856
                  
Interest-bearing liabilities:
                                                
Savings deposits
    
160,233
      
94
      
0.23
%
    
160,234
      
94
      
0.23
%
Money market
    
667,438
      
1,267
      
0.76
%
    
510,126
      
660
      
0.52
%
Checking accounts
    
453,202
      
417
      
0.37
%
    
454,567
      
415
      
0.37
%
Time deposits
    
924,317
      
2,850
      
1.23
%
    
724,803
      
1,860
      
1.03
%
Total deposits
    
2,205,190
      
4,628
      
0.84
%
    
1,849,730
      
3,029
      
0.66
%
Borrowings
    
707,474
      
3,569
      
2.02
%
    
858,059
      
5,583
      
2.60
%
Total interest-bearing liabilities
    
2,912,664
      
8,197
      
1.13
%
    
2,707,789
      
8,612
      
1.27
%
Non-interest-bearing liabilities
    
84,689
                      
69,424
                  
Total liabilities
    
2,997,353
                      
2,777,213
                  
Stockholders' equity
    
522,174
                      
507,643
                  
Total liabilities and stockholders' equity
  
$
3,519,527
                    
$
3,284,856
                  
Net interest income
          
$
25,151
                    
$
24,621
          
Net interest rate spread (2)
                    
2.86
%
                    
3.02
%
Net interest-earning assets (3)
  
$
427,307
                    
$
392,658
                  
Net interest margin (4)
                    
3.01
%
                    
3.18
%
Average of interest-earning assets to interest-bearing liabilities
                    
114.67
%
                    
114.50
%
 
(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.

 
  
Average Balance Sheet and Yield/Rate Information
For the Nine Months Ended (unaudited)
  
 
  
March 31, 2016
    
March 31, 2015
  
 
  
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)
  
$
2,831,404
    
$
92,998
      
4.38
%
    
2,597,496
    
$
91,540
      
4.70
%
Federal Home Loan Bank Stock
    
35,782
      
1,193
      
4.45
%
    
44,944
      
1,475
      
4.38
%
Securities available for sale
    
235,568
      
3,503
      
1.98
%
    
333,874
      
4,980
      
1.99
%
Securities held to maturity
    
134,718
      
1,972
      
1.95
%
    
79,804
      
1,265
      
2.11
%
Federal funds sold and short term investments
    
2,160
      
4
      
0.25
%
    
2,604
      
5
      
0.25
%
Total interest-earning assets
    
3,239,632
      
99,670
      
4.10
%
    
3,058,722
      
99,265
      
4.33
%
Non-interest-earning assets
    
182,471
                      
175,722
                  
Total assets
  
$
3,422,103
                    
$
3,234,444
                  
Interest-bearing liabilities:
                                                
Savings deposits
    
158,710
      
283
      
0.24
%
    
160,431
      
286
      
0.24
%
Money market
    
652,377
      
3,454
      
0.71
%
    
464,233
      
1,742
      
0.50
%
Checking accounts
    
445,890
      
1,231
      
0.37
%
    
454,023
      
1,333
      
0.39
%
Time deposits
    
848,378
      
7,778
      
1.22
%
    
670,829
      
5,125
      
1.02
%
Total deposits
    
2,105,355
      
12,746
      
0.81
%
    
1,749,516
      
8,486
      
0.65
%
Borrowings
    
709,244
      
12,330
      
2.32
%
    
902,558
      
17,144
      
2.53
%
Total interest-bearing liabilities
    
2,814,599
      
25,076
      
1.19
%
    
2,652,074
      
25,630
      
1.29
%
Non-interest-bearing liabilities
    
81,600
                      
65,229
                  
Total liabilities
    
2,896,199
                      
2,717,303
                  
Stockholders' equity
    
525,904
                      
517,141
                  
Total liabilities and stockholders' equity
  
$
3,422,103
                    
$
3,234,444
                  
Net interest income
          
$
74,594
                    
$
73,635
          
Net interest rate spread (2)
                    
2.91
%
                    
3.04
%
Net interest-earning assets (3)
  
$
425,033
                    
$
406,648
                  
Net interest margin (4)
                    
3.07
%
                    
3.21
%
Average of interest-earning assets to interest-bearing liabilities
                    
115.10
%
                    
115.33
%
 
(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.


Comparison of Operating Results for the Three months ended March 31, 2016 and 2015
 
Net Income.  Net income increased $356,000 to $11.3 million for the quarter ended March 31, 2016, from $11.0 million for the corresponding 2015 quarter.    Our annualized return on average assets was 1.29 % for the three months ended March 31, 2016, and 1.33 % for the three months ended March 31, 2015.
 
Interest Income. Total interest income increased $115,000 to $33.3 million for the three months ended March 31, 2016, from $33.2 million for the three months ended March 31, 2015.  The components of interest income for the three months ended March 31, 2016 and 2015, changed as follows:

 
  
Three months ended March 31,
    
Increase / (decrease)
  
 
  
2016
    
2015
    
   
   
 
 
  
Interest Income
    
Yield
    
Interest Income
    
Yield
    
Interest Income
    
Average
Balance
   
Yield
 
 
  
(Dollars in thousands)
  
Interest on mortgage loans
  
$
31,061
      
4.25
%
  
$
30,772
      
4.62
%
  
$
289
    
$
259,328
      
(0.37
)%
Dividends on FHLB stock
    
401
      
4.54
%
    
499
      
4.66
%
    
(98
)
    
(7,473
)
    
(0.12
)%
Interest on securities AFS
    
1,146
      
2.06
%
    
1,509
      
1.99
%
    
(363
)
    
(81,568
)
    
0.07
%
Interest on securities HTM
    
738
      
1.89
%
    
451
      
2.08
%
    
287
      
69,239
      
(0.19
)%
Interest on federal funds sold and short term investments
    
2
      
0.25
%
    
2
      
0.25
%
    
—
      
(2
)
    
0.00
%
Total interest income
  
$
33,348
      
3.99
%
  
$
33,233
      
4.29
%
  
$
115
    
$
239,524
      
(0.30
)%

The Company's primary strategic business objective is the organic growth of multifamily and commercial real estate loans.  The average balance of the loan portfolio increased $259.3 million, or 9.7%, for the three months ended March 31, 2016 versus the comparable 2015 period.  On a linked quarter basis (March 31, 2016 versus December 31, 2015), the annualized growth rates of the portfolio were 15.8% and 14.6%, when measured based on average and period end balances, respectively.  Loan originations and purchases totaled $187.0 million and $25.1 million, respectively, for the three months ended March 31, 2016.  See additional information under "Comparison of Financial Condition at March 31, 2016 and June 30, 2015 – Net Loans."

The yield on the loan portfolio decreased 37 basis points for the quarter ended March 31, 2016 versus the comparable 2015 period.  A portion of the decrease in yield is due to the impact of decreased prepayment penalties.  Absent prepayment penalties, the yield on the loan portfolio decreased 32 basis points over the periods.  Prepayment penalties totaled $997,000 for the quarter ended March 31, 2016 versus $1.3 million for the quarter ended March 31, 2015.  Prepayment penalties increased annualized loan yield by 14 basis points in the 2016 period versus 19 basis points in the 2015 period.  On a linked quarter basis, absent prepayment penalties, the yield on the loan portfolio decreased 10 basis points.  Prepayment penalties totaled $1.6 million for the quarter ended December 31, 2015.  The decreases continue a trend of decreased yield on loans and was 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 elevated and the spread to alternative costs of funds remains lower than historical levels.  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.  Total principal repayments of loans totaled $106.7 million for the quarter ended March 31, 2016 versus $112.4 million for the quarter ended December 31, 2015.  In addition to the prepayment penalty income frequently realized in conjunction with principal repayments, deferred fee income is also generally realized in conjunction with such repayments.  This income represents, primarily, origination fees that are recognized over the life of the loan.  Deferred fee amortization is accelerated and recognized as interest income when a loan is paid in full.   Prior period earnings included higher levels of principal repayments and deferred fee amortization, which positively impacted the yield on loans in those periods.  While principal repayments decreased marginally during the quarter ended March 31, 2016, the deferred fee earnings associated with these payments decreased to a greater extent as the loans that prepaid during the quarter ended December 31, 2015 had a higher level of remaining deferred fees.

The average balance of securities available for sale decreased $81.6 million for the three months ended March 31, 2016 versus the comparable 2015 period, while the average balance of securities held to maturity increased $69.2 million over the same period.  The Company has been classifying the majority of new purchases as held to maturity and $38.4 million of securities available for sale were sold over the preceding 12 months.  The overall level of securities was slightly reduced due to loan growth and the low rates of return available on investments.

Interest Expense.  Total interest expense decreased $415,000 to $8.2 million for the three months ended March 31, 2016, from $8.6 million for the three months ended March 31, 2015.  The components of interest expense for the three months ended March 31, 2016 and 2015, changed as follows:

 
Three months ended March 31,
    
Increase / (decrease)
  
 
2016
    
2015
    
   
Average
    
 
 
Interest Expense
    
Cost
    
Interest Expense
    
Cost
    
Interest Expense
    
Balance
    
Cost
  
 
(Dollars in thousands)
  
Savings deposits
  
$
94
      
0.23
%
  
$
94
      
0.23
%
  
$
—
    
$
(1
)
    
0.00
%
Money market
    
1,267
      
0.76
%
    
660
      
0.52
%
    
607
      
157,312
      
0.24
%
Checking accounts
    
417
      
0.37
%
    
415
      
0.37
%
    
2
      
(1,365
)
    
0.00
%
Time deposits
    
2,850
      
1.23
%
    
1,860
      
1.03
%
    
990
      
199,514
      
0.20
%
Total deposits
    
4,628
      
0.84
%
    
3,029
      
0.66
%
    
1,599
      
355,460
      
0.18
%
Borrowings
    
3,569
      
2.02
%
    
5,583
      
2.60
%
    
(2,014
)
    
(150,585
)
    
(0.58
)%
   
$
8,197
      
1.13
%
  
$
8,612
      
1.27
%
  
$
(415
)
  
$
204,875
      
(0.14
)%

Strong deposit growth remains a priority for the Company.  As detailed above, the average balance of deposits increased $355.5 million for the quarter ended March 31, 2016 versus the comparable 2015 period, representing growth of 19.2%.  On a linked quarter comparison basis, the average balance of deposits increased $89.8 million, representing annualized growth of 17.0%.  A portion of the growth was due to brokered deposits.  However, absent the impact of brokered funds, the average balance of non-brokered deposits increased $267.9 million (growth rate of 16.6%) and $57.2 million (annualized growth rate of 12.5%) versus the quarters ended March 31, 2015, and December 31, 2015, respectively.  The overall cost of deposits increased 18 basis points for the quarter ended March 31, 2016 versus the comparable 2015 period.  The increased cost is primarily due to the costs of certain interest rate swaps that are now being reflected as interest expense on money market accounts.  The situation occurred as result of a balance sheet restructure that is discussed in detail in the Company's Form 10-Q for the quarterly period ended December 31, 2015.  On a linked quarter basis, deposit costs were flat.

As detailed in table above, the average balance of borrowings decreased $150.6 million for the three months ended March 31, 2016 versus the comparable 2015 period, while the cost decreased 58 basis points.  The average balance of borrowings decreased due to an increase in the average balance of deposits as well as the impact of the balance sheet restructure, which is discussed in detail in the Company's Form 10-Q for the quarterly period ended December 31, 2015.  The cost of borrowings was also affected by the balance sheet restructure.  On a linked quarter basis, the average balance increased $38.5 million and the cost of borrowings decreased 14 basis points.

Net Interest Income Before Provision for Loan Losses.  Net interest income increased by $530,000 to $25.2 million for the three months ended March 31, 2016, from $24.6 million for the three months ended March 31, 2015  The Company's net interest income, spread and margin over the period are detailed in the chart below.
 
 
  
Including Prepayment Penalties
    
Excluding Prepayment Penalties*
  
For the Three Months Ended
  
Net Interest
Income Before
Provision
    
Spread
    
Margin
    
Net Interest
Income Before
Provision
    
Spread
    
Margin
  
 
  
(Dollars in thousands)
  
March 31, 2016
  
$
25,151
      
2.86
%
    
3.01
%
  
$
24,154
      
2.74
%
    
2.89
%
December 31, 2015
    
25,294
      
2.99
%
    
3.14
%
    
23,744
      
2.79
%
    
2.95
%
September 30, 2015
    
24,149
      
2.89
%
    
3.05
%
    
22,567
      
2.69
%
    
2.85
%
June 30, 2015
    
23,921
      
2.89
%
    
3.05
%
    
23,091
      
2.78
%
    
2.95
%
March 31, 2015
    
24,621
      
3.02
%
    
3.18
%
    
23,363
      
2.86
%
    
3.01
%
* Prepayment penalties on loans are excluded.
  

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.  As discussed in "Total Interest Income," the decreased level of prepayments in the quarter ended March 31, 2016 also impacted the "Excluding Prepayment Penalties" result as the level of realized deferred fees, a yield enhancement, also decreased.

The Company's spread and margin remain under pressure due to several factors, including: the further flattening of 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 (without substantial penalty); 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 5 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 $120,000 and $174,000 for the three months ended March 31, 2016 and 2015, respectively.

Provision for Loan Losses. The Company recorded no provision for loan losses for both the three months ended March 31, 2016 and the three months ended March 31, 2015.  A rollforward of the allowance for loan losses for the three months ended March 31, 2016 and 2015 is presented below:

 
  
Three months ended March 31,
  
 
  
2016
    
2015
  
 
  
(Dollars in thousands)
  
Balance at beginning of period
  
$
30,635
    
$
31,266
  
Provisions charged to operations
    
—
      
—
  
Recoveries of loans previously charged off
    
5
      
—
  
Loans charged off
    
(692
)
    
(377
)
Balance at end of period
  
$
29,948
    
$
30,889
  
Allowance for loan losses to total loans
    
0.98
%
    
1.12
%
Net charge-offs (annualized) to average loans outstanding
    
0.09
%
    
0.06
%

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 determination of the level of provision for loan losses.  See additional information regarding the allowance for loan losses in Note 6 of the consolidated financial statements and "Comparison of Financial Condition at March 31, 2016 and June 30, 2015-Net Loans."
 
Other Income. Other income decreased $939,000 to $3.2 million for the three months ended March 31, 2016, from $4.1 million for the three months ended March 31, 2015.   The results for both periods were somewhat elevated as the Company continued its previously announced intention as to the strategic disposition of its investments in real estate joint ventures and real estate held for investment portfolios.  The pretax gain realized on such dispositions for each of the quarterly periods was $2.0 million.  See additional information under "Comparison of Financial Condition at March 31, 2016 and June 30, 2015-Investments in real estate joint ventures, net and real estate held for investment," regarding the sales of investments in real estate joint ventures and real estate held for investment.  Also, in the 2015 period, the Company sold $19.9 million of securities available for sale and realized a pretax gain of $770,000 on the transaction.  Net income from investments in real estate joint ventures increased by $147,000 for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015, the increase is primarily due to a nonrecurring adjustment that decreased income in the 2015 period at one commercial property.  Income from real estate operations, net decreased by $250,000 for the three months ended March 31, 2016 as compared to the three months ended March 31, 2015.  Earnings from these two categories are expected to decrease as the Company continues to dispose of such properties.
 
Other Expenses. Other expenses decreased $1.2 million to $10.4 million for the three months ended March 31, 2016, from $11.6 million for the three months ended March 31, 2015.  The Company incurred an $806,000 prepayment penalty in connection with the prepayment of a FHLB advance in the 2015 period.  There was no similar expense for the three months ended March 31, 2016.  In addition, there was an increase of $255,000 in compensation, payroll taxes and fringe benefits which was offset by a decrease of $343,000 in real estate owned operations and a $265,000 decrease in other expenses.  The increase in compensation, payroll taxes and fringe benefits was predominantly due to increases in direct compensation, primarily due to additional staffing and salary adjustments.  The decrease in real estate owned operations was principally due to a valuation adjustment in the 2015 period on a property being marketed for sale that had attracted little potential purchaser interest.  The decrease in other expenses was primarily due to decreased costs associated with problem loans and collection efforts.
 
Income Tax Expense.  Income tax expense for the three months ended March 31, 2016 was $6.7 million on pre-tax income of $18.0 million, resulting in an effective tax rate of 37.1%.  Income tax expense for the three months ended March 31, 2015 was $6.2 million on pre-tax income of $17.2 million, resulting in an effective tax rate of 36.2%.   The increased effective tax rate in 2016 versus 2015 is attributable to increased taxable income generated by the sales of investments in real estate joint ventures and real estate held for investment during the 2016 period.

Comparison of Operating Results for the Nine months ended March 31, 2016 and 2015
 
Net Income.  Net income increased $8.2 million to $39.3 million for the nine months ended March 31, 2016, from $31.2 million for the corresponding 2015 period.  The primary cause of the increase in the nine month period was profits on the sale of investments in real estate joint ventures, partially offset by prepayment fees on the prepayment of FHLB advances.  Our annualized return on average assets was 1.53 % for the nine months ended March 31, 2016, and 1.28 % for the nine months ended March 31, 2015.
 
Interest Income. Total interest income increased $405,000 to $99.7 million for the nine months ended March 31, 2016, from $99.3 million for the nine months ended March 31, 2015.  The components of interest income for the nine months ended March 31, 2016 and 2015, changed as follows:
 
 
  
Nine months ended March 31,
    
Increase / (decrease)
  
 
  
2016
    
2015
    
   
   
 
 
  
Interest Income
    
Yield
    
Interest Income
    
Yield
    
Interest Income
    
Average
Balance
    
Yield
  
 
  
(Dollars in thousands)
  
Interest on mortgage loans
  
$
92,998
      
4.38
%
  
$
91,540
      
4.70
%
  
$
1,458
    
$
233,908
      
(0.32
)%
Dividends on FHLB stock
    
1,193
      
4.45
%
    
1,475
      
4.38
%
    
(282
)
    
(9,162
)
    
0.07
%
Interest on securities AFS
    
3,503
      
1.98
%
    
4,980
      
1.99
%
    
(1,477
)
    
(98,306
)
    
(0.01
)%
Interest on securities HTM
    
1,972
      
1.95
%
    
1,265
      
2.11
%
    
707
      
54,914
      
(0.16
)%
Interest on federal funds sold and short term investments
    
4
      
0.25
%
    
5
      
0.25
%
    
(1
)
    
(444
)
    
0.00
%
   
$
99,670
      
4.10
%
  
$
99,265
      
4.33
%
  
$
405
    
$
180,910
      
(0.23
)%

The explanations provided in "Comparison of Operating Results for the Three Months Ended March 31, 2016 and 2015, Interest Income" regarding changes for the three month period comparison are also applicable to the nine month period comparison.  Prepayment penalties totaled $4.1 million for the nine months ended March 31, 2016 versus $4.4 million for the nine months ended March 31, 2015.   Prepayment penalties boosted annualized loan yield by 20 basis points in the 2016 period versus 23 basis points in the 2015 period.

Interest Expense. Total interest expense decreased $554,000 to $25.1 million for the nine months ended March 31, 2016, from $25.6 million for the nine months ended March 31, 2015.  The components of interest expense for the nine months ended March 31, 2016 and March 31, 2015, changed as follows:

 
Nine months ended March 31,
    
Increase / (decrease)
  
 
2016
    
2015
    
   
Average
    
 
 
Interest Expense
    
Cost
    
Interest Expense
    
Cost
    
Interest Expense
    
Balance
    
Cost
  
 
(Dollars in thousands)
  
Savings deposits
  
$
283
      
0.24
%
  
$
286
      
0.24
%
  
$
(3
)
  
$
(1,721
)
    
0.00
%
Money market
    
3,454
      
0.71
%
    
1,742
      
0.50
%
    
1,712
      
188,144
      
0.21
%
Checking accounts
    
1,231
      
0.37
%
    
1,333
      
0.39
%
    
(102
)
    
(8,133
)
    
(0.02
)%
Time deposits
    
7,778
      
1.22
%
    
5,125
      
1.02
%
    
2,653
      
177,549
      
0.20
%
Total deposits
    
12,746
      
0.81
%
    
8,486
      
0.65
%
    
4,260
      
355,839
      
0.16
%
Borrowings
    
12,330
      
2.32
%
    
17,144
      
2.53
%
    
(4,814
)
    
(193,314
)
    
(0.21
)%
   
$
25,076
      
1.19
%
  
$
25,630
      
1.29
%
  
$
(554
)
  
$
162,525
      
(0.10
)%
 
The explanations provided in "Comparison of Operating Results for the Three Months Ended March 31, 2016 and 2015, Interest Expense" for the three month period comparison regarding deposits and borrowings are also applicable to the nine month period comparison, however, the impact of the balance sheet restructure is mitigated due to the longer time period that is being measured.

Net Interest Income Before Provision for Loan Losses.  Net interest income increased by $959,000 to $74.6 million for the nine months ended March 31, 2016, from $73.6 million for the nine months ended March 31, 2015.     The Company's net interest rate spread and margin decreased to 2.91% and 3.07% for the nine months ended March 31, 2016, from 3.04% and 3.21% for the nine months ended March 31, 2015, respectively.   The factors described in "Comparison of Operating Results for the Three Months Ended March 31, 2016 and 2015, Net Interest Income Before Provision for Loan Losses" also impacted the nine 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 $419,000 and $702,000 for the nine months ended March 31, 2016 and 2015, respectively, due to the impact of nonaccrual loans.

Provision for Loan Losses. The Company recorded no provisions for loan losses for the nine months ended March 31, 2016 as compared to $200,000 for the nine months ended March 31, 2015.  A rollforward of the allowance for loan losses for the nine months ended March 31, 2016 and 2015 is presented below:

 
  
Nine months ended March 31,
  
 
  
2016
    
2015
  
 
  
(Dollars in thousands)
  
Balance at beginning of period
  
$
30,889
    
$
31,401
  
Provisions charged to operations
    
—
      
200
  
Recoveries of loans previously charged off
    
6
      
1
  
Loans charged off
    
(947
)
    
(713
)
Balance at end of period
  
$
29,948
    
$
30,889
  
Allowance for loan losses to total loans
    
0.98
%
    
1.12
%
Net charge-offs (annualized) to average loans outstanding
    
0.04
%
    
0.04
%
 
See discussion of the allowance for loan losses in "Comparison of Financial Condition at March 31, 2016 and June 30, 2015-Net Loans" and footnote 6 of the consolidated financial statements.
 
Other Income. Other income increased $28.7 million to $36.7 million for the nine months ended March 31, 2016 from $7.9 million for the nine months ended March 31, 2015.   While the nine month period was also impacted by the factors described in "Comparison of Operating Results for the Three Months Ended March 31, 2016 and 2015, Other Income", the magnitude of the net gain on sales of investments in real estate joint ventures and real estate held for investment was much greater.  Such sales realized a pretax gain of $31.5 million for the nine months ended March 31, 2016 versus $2.0 million for the comparable 2015 period.
 
Other Expenses.  Other expenses increased $15.1 million to $48.0 million for the nine months ended March 31, 2016, from $32.9 million for the nine months ended March 31, 2015.  The increase was primarily due to $13.9 million of prepayment fees incurred in connection with the prepayment of various FHLB advances in the 2016 period, versus $806,000 in the 2015 period.  The 2016 fees were incurred in conjunction with a balance sheet restructure, which is discussed in detail in the Company's Form 10-Q for the quarterly period ended December 31, 2015.  Compensation, payroll taxes and fringe benefits increased $3.1 million to $25.3 million for the nine months ended March 31, 2016, from $22.3 million for the nine months ended March 31, 2015.  In addition to the factors described in "Comparison of Operating Results for the Three Months Ended March 31, 2016 and 2015, Other Expenses" which are also applicable to the nine month period, there was an increase in ESOP expense.  The increase in ESOP expense was due to the impact of the special dividend and an increase in the cost for the plan which is based on the average stock price of the Company for the period.   Real estate owned operations decreased $1.1 million to $356,000 for the nine months ended March 31, 2016, from $1.5 million for the nine months ended March 31, 2015.  In addition to the factor described in "Comparison of Operating Results for the Three Months Ended March 31, 2016 and 2015, Other Expenses", a $900,000 valuation adjustment was recognized on a REO property in the December 2014 quarter.
 
Income Tax Expense. Income tax expense for the nine months ended March 31, 2016, was $23.9 million, due to pre-tax income of $63.2 million, resulting in an effective tax rate of 37.8%.  For the nine months ended March 31, 2015, income tax expense was $17.3 million, due to pre-tax income of $48.4 million, resulting in an effective tax rate of 35.6%.  The factor described in "Comparison of Operating Results for the Three Months Ended March 31, 2016 and 2015 - Income Tax Expense" regarding the increased effective tax rate is also applicable to the nine month period.
 

Liquidity and Capital Resources
 
The Company's primary sources of funds are deposits, principal and interest payments on loans and mortgage-backed securities, 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 March 31, 2016 and June 30, 2015, the Company had $191.0 million and $160.0 million in overnight borrowings from the FHLB, respectively.  The Company had total borrowings of $762.5 million at March 31, 2016 and $796.4 million at June 30, 2015.  The Company's total borrowings at March 31, 2016 include $571.5 million in longer term borrowings, $522.6 million with the FHLB and $48.9 million with other financial institutions.  In the normal course of business, the Company routinely enters into various commitments, primarily relating to the origination of loans.  At March 31, 2016, outstanding commitments to originate loans totaled $49.7 million and outstanding commitments to extend credit totaled $20.0 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 $632.5 million at March 31, 2016.  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% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets.  The final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%.  The final rule became effective January 1, 2015, subject to a transition period for various components of the rule that require full compliance for the Company by January 1, 2019, including a capital conservation buffer of 2.5% of risk-weighted assets for which the transitional period begins at 0.625% on January 1, 2016, and will increase to 1.25% on January 1, 2017, 1.875% on January 1, 2018 and 2.50% on January 1, 2019.  The final capital rules impose restrictions on capital distributions and certain discretionary bonus payments if the minimum capital conservation buffer is not met.
 
As of March 31, 2016 and June 30, 2015, the Company and Bank exceeded all regulatory capital requirements, including the currently applicable capital conservation buffer of 0.625%, as follows:

 
March 31, 2016
  
 
Actual
  
Required
  
 
Amount
  
Ratio
  
Amount
  
Ratio
  
 
(Dollars in thousands)
  
Company:
        
Common Equity Tier 1 (CET1) (to risk-weighted assets)
  
$
536,050
      
17.01
%
  
$
141,837
      
4.500
%
Tier 1capital (to risk-weighted assets)
    
536,050
      
17.01
%
    
189,116
      
6.000
%
Total capital (to risk-weighted assets)
    
565,998
      
17.96
%
    
252,154
      
8.000
%
Tier 1 leverage capital (to average assets)
    
536,050
      
15.23
%
    
140,781
      
4.000
%
Capital Conservation Buffer
    
233,491
      
7.43
%
    
19,631
      
0.625
%

   
Actual
    
Required
  
   
Amount
    
Ratio
    
Amount
    
Ratio
  
   
(Dollars in thousands)
  
Bank:
                
Common Equity Tier 1 (CET1) (to risk-weighted assets)
  
$
454,910
      
14.48
%
  
$
141,346
      
4.500
%
Tier 1 capital (to risk-weighted assets)
    
454,910
      
14.48
%
    
188,461
      
6.000
%
Total capital (to risk-weighted assets)
    
484,772
      
15.43
%
    
251,281
      
8.000
%
Tier 1 leverage capital (to average assets)
    
454,910
      
13.02
%
    
139,710
      
4.000
%
Capital Conservation Buffer
    
313,844
      
9.96
%
    
19,700
      
0.625
%

 
June 30, 2015
  
 
Actual
  
Required
  
 
Amount
  
Ratio
  
Amount
  
Ratio
  
 
(Dollars in thousands)
  
Company:
 
 
 
 
Common Equity Tier 1 (CET1) (to risk-weighted assets)
  
$
519,518
      
17.79
%
  
$
131,428
      
4.50
%
Tier 1 capital (to risk-weighted assets)
    
519,518
      
17.79
%
    
175,238
      
6.00
%
Total capital (to risk-weighted assets)
    
550,408
      
18.85
%
    
233,651
      
8.00
%
Tier 1 leverage capital (to average assets)
    
519,518
      
15.67
%
    
132,641
      
4.00
%

 
  
   
   
   
 
 
Actual
    
Required
  
 
Amount
    
Ratio
    
Amount
    
Ratio
  
 
(Dollars in thousands)
  
Bank:
  
   
   
   
 
Common Equity Tier 1 (CET1) (to risk-weighted assets)
  
$
441,531
      
15.31
%
  
$
129,811
      
4.50
%
Tier 1 capital (to risk-weighted assets)
    
441,531
      
15.31
%
    
173,082
      
6.00
%
Total capital (to risk-weighted assets)
    
472,151
      
16.37
%
    
230,776
      
8.00
%
Tier 1 leverage capital (to average assets)
    
441,531
      
13.47
%
    
131,105
      
4.00
%
 

Critical Accounting Policies
 
Note 1 to the Company's Audited Consolidated Financial Statements for the year ended June 30, 2015, included in the Company's Annual Report on Form 10-K, as supplemented by this report, contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets and liabilities are carried in the consolidated Balance Sheets at fair value or the lower of cost or fair value. Policies with respect to the methodologies used to determine the allowance for loan losses and judgments regarding the valuation of securities and derivatives  as well as the valuation allowance against deferred tax assets are the most critical accounting policies because they are important to the presentation of the Company's financial condition and results of operations, involve a higher degree of complexity, and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition. These critical accounting policies and their application are reviewed periodically and, at least annually, with the Audit Committee of the Board of Directors. For a further discussion of the critical accounting policies of the Company, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K, for the year ended June 30, 2015.

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

 
Loan Portfolio by Reprice/Maturity Date
At March 31, 2016
(Dollars in thousands)

Repricing or Maturing Within:
  
Amount
    
Weighted Average Rate
    
% of Total Loans
    
Cumulative % of Total Loans
  
1 Year or less
  
$
293,521
      
3.78
%
    
9.60
%
    
9.60
%
1 - 3 years
    
931,467
      
3.70
%
    
30.48
%
    
40.08
%
3 - 5 years
    
961,535
      
3.85
%
    
31.46
%
    
71.54
%
5 - 7 years
    
343,507
      
3.91
%
    
11.24
%
    
82.78
%
7 to 10 years
    
186,120
      
4.40
%
    
6.09
%
    
88.87
%
Greater than 10 years
    
340,060
      
4.83
%
    
11.13
%
    
100.00
%
Total
  
$
3,056,210
      
3.95
%
    
100.00
%
        
 
 At March 31, 2016 40.08 % of the loan portfolio matured or repriced in 3 years or less, and 71.54% 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.
 

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 March 31, 2016, the estimated changes in our net portfolio value that would result from the designated instantaneous changes in the United States Treasury yield curve. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates and loan prepayment and deposit decay rates, and should not be relied upon as indicative of actual results.
 
    
   
Estimated Increase
(Decrease) in NPV
    
NPV as a Percentage of
Present Value of Assets (3)
  
Change in Interest Rates (basis points) (1)
    
Estimated
NPV (2)
    
Amount
    
Percent
    
NPV Ratio (4)
    
Increase
(Decrease)
basis points
  
   
(Dollars in thousands)
  
 
+200
    
$
507,685
    
$
(79,062
)
    
(13.5
)%
    
14.6
%
    
(148
)
 
+100
      
548,727
      
(38,020
)
    
(6.5
)%
    
15.4
%
    
(65
)
 
—
      
586,747
      
—
      
0.0
%
    
16.0
%
    
—
  
 
(100
)
    
659,180
      
72,433
      
12.3
%
    
17.4
%
    
140
  
 
(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 March 31, 2016, in the event of a 100 basis point decrease in interest rates, we would experience an 12.3% increase in net portfolio value. In the event of a 200 basis point increase in interest rates, we would experience a 13.5% 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 Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
 
There were no changes made in the Company's internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting during the period covered by this report.

Part II – Other Information

Item 1. Legal Proceedings
 
The Company and its subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company's financial condition or results of operations.
 
Item 1A. Risk Factors

There have been no material changes from those risk factors previously disclosed in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on September 14, 2015.
 
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. There were no repurchases of our equity securities during the period covered by this report.



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

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 Definition Linkbase Document
101.LAB
 
XBRL Taxonomy Extension Labels Linkbase Document
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document

*
Incorporated by reference to the Registration Statement on Form S-1 of Oritani Financial Corp. (file no. 333-165226), 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.

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:
May 09, 2016
/s/ Kevin J. Lynch
 
 
 
Kevin J. Lynch
 
 
 
President and Chief Executive Officer
 
 
 
 
 
Date:
May 09, 2016
/s/ John M. Fields, Jr.
 
 
 
John M. Fields, Jr.
 
 
 
Executive Vice President and Chief Financial Officer
 


46

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