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Section 1: 10-Q

 
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, 2019
 
OR

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

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

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

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
    YES       NO   
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange on which registered
Common
 
ORIT
 
The NASDAQ Stock Market
 
As of May 10, 2019, there were 56,245,065 shares of the Registrant’s common stock, par value $0.01 per share, issued and 45,083,052 shares outstanding.

Oritani Financial Corp.
FORM 10-Q
 
Index

 
 
 
 
  Page
 
 
 
Item 1.
3
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
 
6
 
 
 
 
10
 
 
 
 
11
 
 
 
Item 2.
39
 
 
 
Item 3.
51
 
 
 
Item 4.
53
 
 
 
 
 
 
 
 
Item 1.
53
 
 
 
Item 1A.
53
 
 
 
Item 2.
53
 
 
 
Item 3.
53
 
 
 
Item 4.
53
 
 
 
Item 5.
53
 
 
 
Item 6.
54
 
 
 
 
55
 

Part I. Financial Information
Item 1. Financial Statements
 
Oritani Financial Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)

 
 
March 31, 2019
   
June 30, 2018
 
 
 
(unaudited)
   
(audited)
 
Assets
           
Cash on hand and in banks
 
$
14,982
   
$
23,613
 
Federal funds sold and short term investments
   
2,513
     
11,235
 
Cash and cash equivalents
   
17,495
     
34,848
 
Loans, net
   
3,495,388
     
3,540,903
 
Equity securities
   
1,378
     
1,565
 
Debt securities available for sale, at market value
   
35,013
     
43,126
 
Debt securities held to maturity, fair value of $333,066 and $326,511, respectively
   
335,579
     
335,374
 
Bank Owned Life Insurance (at cash surrender value)
   
100,266
     
98,438
 
Federal Home Loan Bank of New York (“FHLB”) stock at cost
   
26,074
     
30,365
 
Accrued interest receivable
   
11,985
     
11,261
 
Real estate owned
   
636
     
1,564
 
Office properties and equipment, net
   
13,039
     
13,455
 
Deferred tax assets, net
   
28,952
     
25,864
 
Other assets
   
8,897
     
30,276
 
Total Assets
 
$
4,074,702
   
$
4,167,039
 
Liabilities
               
Deposits
 
$
2,898,638
   
$
2,915,128
 
Borrowings
   
548,775
     
596,372
 
Advance payments by borrowers for taxes and insurance
   
28,095
     
24,169
 
Other liabilities
   
68,477
     
72,024
 
Total Liabilities
   
3,543,985
     
3,607,693
 
Stockholders’ Equity
               
Common stock, $0.01 par value; 150,000,000 shares authorized; 56,245,065 shares issued;
45,080,139 shares outstanding at March 31, 2019 and 46,616,646 shares outstanding at June 30, 2018
   
562
     
562
 
Additional paid-in capital
   
515,138
     
514,002
 
Non-vested restricted stock awards
   
(241
)
   
(176
)
Treasury stock, at cost; 11,164,926 shares at March 31, 2019 and 9,628,419 shares at June 30, 2018
   
(153,324
)
   
(129,433
)
Unallocated common stock held by the employee stock ownership plan
   
(15,437
)
   
(16,631
)
Retained earnings
   
180,007
     
179,799
 
Accumulated other comprehensive income, net of tax
   
4,012
     
11,223
 
Total Stockholders’ Equity
   
530,717
     
559,346
 
Total Liabilities and Stockholders’ Equity
 
$
4,074,702
   
$
4,167,039
 

See accompanying notes to unaudited consolidated financial statements.
3


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

 
 
Three Months ended March 31,
   
Nine Months ended March 31,
 
 
 
2019
   
2018
   
2019
   
2018
 
 
 
(unaudited)
 
Interest income:
                       
Interest on loans
 
$
35,323
   
$
35,398
   
$
107,360
   
$
107,126
 
Dividends on FHLB stock
   
467
     
432
     
1,396
     
1,368
 
    Dividends on equity securities
   
15
     
10
     
37
     
34
 
Interest on debt securities available for sale
   
211
     
274
     
673
     
1,203
 
Interest on debt securities held to maturity
   
2,178
     
1,419
     
6,109
     
3,663
 
Interest on federal funds sold and short term investments
   
29
     
28
     
331
     
139
 
Total interest income
   
38,223
     
37,561
     
115,906
     
113,533
 
Interest expense:
                               
Deposits
   
10,827
     
7,887
     
29,803
     
23,028
 
Borrowings
   
3,287
     
2,721
     
9,672
     
8,300
 
Total interest expense
   
14,114
     
10,608
     
39,475
     
31,328
 
Net interest income before provision for loan losses
   
24,109
     
26,953
     
76,431
     
82,205
 
Reversal of provision for loan losses
   
     
     
(2,000
)
   
 
Net interest income after provision for loan losses
   
24,109
     
26,953
     
78,431
     
82,205
 
Non-interest income:
                               
Fees and service charges
   
405
     
371
     
1,044
     
1,010
 
Bank-owned life insurance
   
594
     
603
     
1,828
     
1,879
 
Gains (losses) on sale of OREO
   
     
     
855
     
(2
)
Change in fair value of equity securities
   
87
     
     
(187
)
   
 
Net losses on sale of debt securities available for sale
   
     
     
     
(324
)
Other income
   
9
     
7
     
18
     
16
 
Total non-interest income
   
1,095
     
981
     
3,558
     
2,579
 
Non-interest expense:
                               
Compensation, payroll taxes and fringe benefits
   
5,958
     
6,277
     
17,470
     
19,619
 
Advertising
   
143
     
143
     
428
     
428
 
Office occupancy and equipment expense
   
820
     
862
     
2,315
     
2,391
 
Data processing service fees
   
527
     
499
     
1,545
     
1,463
 
Federal insurance premiums
   
270
     
300
     
855
     
900
 
Other expenses
   
1,423
     
1,681
     
6,903
     
4,690
 
Total non-interest expense
   
9,141
     
9,762
     
29,516
     
29,491
 
Income before income tax expense
   
16,063
     
18,172
     
52,473
     
55,293
 
Income tax expense
   
3,613
     
4,747
     
13,197
     
25,902
 
Net income
 
$
12,450
   
$
13,425
   
$
39,276
   
$
29,391
 
Earnings per basic common share
 
$
0.29
   
$
0.30
   
$
0.90
   
$
0.67
 
Earnings per diluted common share
 
$
0.28
   
$
0.30
   
$
0.89
   
$
0.65
 
 
See accompanying notes to unaudited consolidated financial statements.
4


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

 
 
Three Months ended March 31,
   
Nine Months ended March 31,
 
 
 
2019
   
2018
   
2019
   
2018
 
 
 
(unaudited)
 
Net of tax:
                       
Net income
 
$
12,450
   
$
13,425
   
$
39,276
   
$
29,391
 
Other comprehensive income:
                               
Change in unrealized holding gain (loss) on debt securities available for sale
   
159
     
(298
)
   
318
     
(663
)
Reclassification adjustment for security loss included in net income
   
     
     
     
184
 
Amortization related to post-retirement obligations
   
6
     
5
     
20
     
15
 
Net change in unrealized (loss) gain on interest rate swaps
   
(2,898
)
   
3,819
     
(6,891
)
   
5,556
 
Total other comprehensive (loss) income
   
(2,733
)
   
3,526
     
(6,553
)
   
5,092
 
Total comprehensive income
 
$
9,717
   
$
16,951
   
$
32,723
   
$
34,483
 
 
See accompanying notes to unaudited consolidated financial statements.
5



Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Three Months ended March 31, 2019 and 2018 (unaudited)
(In thousands, except share data)

 
 
Shares Outstanding
   
Common stock
   
Additional paid-in capital
   
Non-vested restricted stock awards
   
Treasury stock
   
Unallocated common stock held by ESOP
   
Retained earnings
   
Accumulated other comprehensive income (loss), net of tax
   
Total stockholders' equity
 
Balance at December 31, 2017
   
46,304,550
   
$
562
   
$
513,316
   
$
(201
)
 
$
(132,371
)
 
$
(17,331
)
 
$
178,484
   
$
5,086
   
$
547,545
 
    Net income
   
     
     
     
     
     
     
13,425
     
     
13,425
 
Other comprehensive income , net of tax
   
     
     
     
     
     
     
     
3,526
     
3,526
 
Cash dividends declared ($0.25 per share)
   
     
     
     
     
     
     
(11,060
)
   
     
(11,060
)
Purchase of treasury stock
   
(487,671
)
   
     
     
     
(7,753
)
   
     
     
     
(7,753
)
Compensation cost for stock options and restricted stock
   
     
     
37
     
     
     
     
     
     
37
 
ESOP shares allocated or committed to be released
   
     
     
326
     
     
     
350
     
     
     
676
 
Exercise of stock options
   
787,397
     
     
     
     
10,524
     
     
(2,288
)
   
     
8,236
 
Tax Cuts and Jobs Act of 2017, Reclassification from AOCI to Retained Earnings, Tax Effect
   
     
     
     
     
     
     
(1,100
)
   
1,100
     
 
Balance at March 31, 2018
   
46,604,276
   
$
562
   
$
513,679
   
$
(201
)
 
$
(129,600
)
 
$
(16,981
)
 
$
177,461
   
$
9,712
   
$
554,632
 

Continued on next page
6

 Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Three Months ended March 31, 2019 and 2018 (unaudited)
(In thousands, except share data)

   
Shares Outstanding
   
Common stock
   
Additional paid-in capital
   
Non-vested restricted stock awards
   
Treasury stock
   
Unallocated common stock held by ESOP
   
Retained earnings
   
Accumulated other comprehensive income (loss), net of tax
   
Total stockholders' equity
 
Balance at December 31, 2018
   
44,751,879
   
$
562
   
$
514,744
   
$
(241
)
 
$
(157,831
)
 
$
(15,789
)
 
$
178,865
   
$
6,745
   
$
527,055
 
    Net income
   
     
     
     
     
     
     
12,450
     
     
12,450
 
Other comprehensive loss, net of tax
   
     
     
     
     
     
     
     
(2,733
)
   
(2,733
)
Cash dividends declared ($0.25 per share)
   
     
     
     
     
     
     
(10,773
)
   
     
(10,773
)
Compensation cost for stock options and restricted stock
   
     
     
35
     
     
     
     
     
     
35
 
ESOP shares allocated or committed to be released
   
     
     
359
     
     
     
352
     
     
     
711
 
Exercise of stock options
   
328,260
     
     
     
     
4,507
     
     
(535
)
   
     
3,972
 
Balance at March 31, 2019
   
45,080,139
   
$
562
   
$
515,138
   
$
(241
)
 
$
(153,324
)
 
$
(15,437
)
 
$
180,007
   
$
4,012
   
$
530,717
 

See accompanying notes to unaudited consolidated financial statements.


7


Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Nine Months ended March 31, 2019 and 2018 (unaudited)
(In thousands, except share data)

 
 
Shares Outstanding
   
Common stock
   
Additional paid-in capital
   
Non-vested restricted stock awards
   
Treasury stock
   
Unallocated common stock held by ESOP
   
Retained earnings
   
Accumulated other comprehensive income (loss), net of tax
   
Total stockholders' equity
 
Balance at June 30, 2017
   
45,992,366
   
$
562
   
$
512,337
   
$
(458
)
 
$
(136,517
)
 
$
(18,407
)
 
$
198,186
   
$
3,520
   
$
559,223
 
    Net income
   
     
     
     
     
     
     
29,391
     
     
29,391
 
Other comprehensive income , net of tax
   
     
     
     
     
     
     
     
5,092
     
5,092
 
Cash dividends declared ($1.05 per share)
   
     
     
     
     
     
     
(46,219
)
   
     
(46,219
)
Purchase of treasury stock
   
(492,458
)
   
     
     
     
(7,834
)
   
     
     
     
(7,834
)
Compensation cost for stock options and restricted stock
   
     
     
138
     
     
     
     
     
     
138
 
ESOP shares allocated or committed to be released
   
     
     
1,414
     
     
     
1,426
     
     
     
2,840
 
Exercise of stock options
   
1,111,368
     
     
     
     
14,838
     
     
(2,837
)
   
     
12,001
 
Forfeiture of restricted stock awards
   
(7,000
)
   
     
     
87
     
(87
)
   
     
     
     
 
Vesting of restricted stock awards
   
     
     
(210
)
   
170
     
     
     
40
     
     
 
Tax Cuts and Jobs Act of 2017, Reclassification from AOCI to Retained Earnings, Tax Effect
   
     
     
     
     
     
     
(1,100
)
   
1,100
     
 
Balance at March 31, 2018
   
46,604,276
   
$
562
   
$
513,679
   
$
(201
)
 
$
(129,600
)
 
$
(16,981
)
 
$
177,461
   
$
9,712
   
$
554,632
 

Continued on next page
8

Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Nine Months ended March 31, 2019 and 2018 (unaudited)
(In thousands, except share data)

 
 
Shares Outstanding
   
Common stock
   
Additional paid-in capital
   
Non-vested restricted stock awards
   
Treasury stock
   
Unallocated common stock held by ESOP
   
Retained earnings
   
Accumulated other comprehensive income (loss), net of tax
   
Total stockholders' equity
 
Balance at June 30, 2018
   
46,616,646
   
$
562
   
$
514,002
   
$
(176
)
 
$
(129,433
)
 
$
(16,631
)
 
$
179,799
   
$
11,223
   
$
559,346
 
Net income
   
     
     
     
     
     
     
39,276
     
     
39,276
 
Other comprehensive loss, net of tax
   
     
     
     
     
     
     
     
(6,553
)
   
(6,553
)
Cash dividends declared ($0.90 per share)
   
     
     
     
     
     
     
(39,198
)
   
     
(39,198
)
Purchase of treasury stock
   
(1,890,767
)
   
     
     
     
(28,747
)
   
     
     
     
(28,747
)
Issuance of restricted stock awards
   
10,000
     
     
     
(134
)
   
134
     
     
     
     
 
Compensation cost for stock options and restricted stock
   
     
     
121
     
     
     
     
     
     
121
 
ESOP shares allocated or committed to be released
   
     
     
1,101
     
     
     
1,194
     
     
     
2,295
 
Exercise of stock options
   
344,260
     
     
     
     
4,722
     
     
(545
)
   
     
4,177
 
Vesting of restricted stock awards
   
     
     
(86
)
   
69
     
     
     
17
     
     
 
Reclassification due to the adoption of ASU No. 2016-01
   
     
     
     
     
     
     
658
     
(658
)
   
 
Balance at March 31, 2019
   
45,080,139
   
$
562
   
$
515,138
   
$
(241
)
 
$
(153,324
)
 
$
(15,437
)
 
$
180,007
   
$
4,012
   
$
530,717
 
 
See accompanying notes to unaudited consolidated financial statements.
9


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

 
 
Nine Months ended March 31,
 
 
 
2019
   
2018
 
 
 
(unaudited)
 
Cash flows from operating activities:
     
Net income
 
$
39,276
   
$
29,391
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
ESOP and stock-based compensation expense
   
2,416
     
2,978
 
Tax benefit from stock-based compensation
   
260
     
1,120
 
Depreciation of premises and equipment
   
561
     
583
 
Net amortization and accretion of premiums and discounts on securities
   
872
     
873
 
Reversal of provision for loan losses
   
(2,000
)
   
 
Amortization and accretion of deferred loan fees, net
   
(1,837
)
   
(1,865
)
(Increase) decrease in deferred taxes
   
(323
)
   
10,581
 
Net losses on sale of debt securities available for sale
   
     
324
 
Fair value adjustment for equity securities
   
187
     
 
(Gain) loss on sale of real estate owned
   
(855
)
   
2
 
Increase in cash surrender value of bank owned life insurance
   
(1,828
)
   
(1,878
)
Increase in accrued interest receivable
   
(724
)
   
(818
)
Decrease (increase) in other assets
   
11,595
     
(10,193
)
(Decrease) increase in other liabilities
   
(3,777
)
   
16,843
 
Net cash provided by operating activities
   
43,823
     
47,941
 
Cash flows from investing activities:
               
Net decrease in loans receivable
   
160,361
     
54,505
 
Purchase of mortgage loans
   
(119,069
)
   
(52,766
)
Proceeds from sale of loans receivable
   
8,060
     
 
Purchase of debt securities held to maturity
   
(53,369
)
   
(97,980
)
   Purchase of Federal Home Loan Bank stock
   
(17,624
)
   
(31,692
)
Proceeds from payments, calls and maturities of debt securities available for sale
   
8,506
     
18,989
 
Proceeds from payments, calls and maturities of debt securities held to maturity
   
52,365
     
34,060
 
Proceeds from sales of debt securities available for sale
   
     
29,505
 
Proceeds from redemption of Federal Home Loan Bank stock
   
21,915
     
38,361
 
   Proceeds from sale of real estate owned
   
1,783
     
138
 
Purchase of fixed assets
   
(145
)
   
(207
)
Net cash provided by (used in )investing activities
   
62,783
     
(7,087
)
Cash flows from financing activities:
               
Net (decrease) increase in deposits
   
(16,490
)
   
97,998
 
Purchase of treasury stock
   
(28,747
)
   
(7,834
)
Dividends paid to shareholders
   
(39,198
)
   
(46,219
)
Exercise of stock options
   
4,177
     
12,001
 
Increase in advance payments by borrowers for taxes and insurance
   
3,926
     
3,157
 
Proceeds from borrowed funds
   
70,627
     
57,870
 
Repayment of borrowed funds
   
(118,224
)
   
(167,815
)
Payment of employee taxes withheld from shared-based awards
   
(30
)
   
(81
)
Net cash used in financing activities
   
(123,959
)
   
(50,923
)
Net decrease in cash and cash equivalents
   
(17,353
)
   
(10,069
)
Cash and cash equivalents at beginning of period
   
34,848
     
33,578
 
Cash and cash equivalents at end of period
 
$
17,495
   
$
23,509
 
Supplemental cash flow information:
               
Cash paid during the period for:
               
Interest
 
$
39,194
   
$
31,186
 
Income taxes
 
$
9,709
   
$
9,611
 
Noncash transfer
               
   Loans receivable transferred to real estate owned
 
$
   
$
636
 

See accompanying notes to unaudited consolidated financial statements.

10

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

1. Basis of Presentation

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

In the opinion of management, all of the adjustments (consisting of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included.  The results of operations and other data presented for the nine month period ended March 31, 2019 are not necessarily indicative of the results of operations that may be expected for the fiscal year ending June 30, 2019.

Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for the preparation of the Form 10-Q.  The consolidated financial statements presented should be read in conjunction with the Company’s audited consolidated financial statements and notes to consolidated financial statements included in the Company’s June 30, 2018 Annual Report on Form 10-K, filed with the SEC on August 29, 2018.

The consolidated financial statements have been prepared in conformity with GAAP. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities presented in the Consolidated Balance Sheets at March 31, 2019 and June 30, 2018 and in the Consolidated Statements of Income for the Three and Nine Months Ended March 31, 2019 and 2018.  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 incurred 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.
11



2. Earnings Per Share ("EPS")

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

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

 
 
Three Months ended March 31,
   
Nine Months ended March 31,
 
 
 
2019
   
2018
   
2019
   
2018
 
 
 
(In thousands, except per share data)
 
Net income
 
$
12,450
   
$
13,425
   
$
39,276
   
$
29,391
 
Weighted average common shares outstanding—basic
   
43,078
     
44,319
     
43,732
     
44,105
 
Effect of dilutive stock options outstanding
   
660
     
785
     
576
     
879
 
Weighted average common shares outstanding—diluted
   
43,738
     
45,104
     
44,308
     
44,984
 
Earnings per share-basic
 
$
0.29
   
$
0.30
   
$
0.90
   
$
0.67
 
Earnings per share-diluted
 
$
0.28
   
$
0.30
   
$
0.89
   
$
0.65
 
 
For the three months ended March 31, 2019 there were 46 option shares that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for those periods. For the three months ended March 31, 2018 there were 1,730 option shares that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for those periods. Anti-dilutive shares for the nine months ended March 31, 2019 and 2018 were 3,178 and 1,052, 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 was authorized to repurchase up to 5% of the outstanding shares, or 2,205,451 shares. During the nine months ended March 31, 2019, a total of 1,888,851  shares had been acquired under the fourth repurchase plan at a weighted average cost of  $15.20 per share.  With these purchases, the fourth repurchase plan has been completed.  Repurchased shares are held as treasury stock and will be available for general corporate purposes.  
  
12


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 options granted during the nine months ended March 31, 2019 was estimated using the Black-Scholes options-pricing model with the assumptions in the following table.
 
       
 
 
Nine Months ended
March 31, 2019
 
Option shares granted
   
20,000
 
Expected dividend yield
   
7.47
%
Expected volatility
   
17.68
%
Risk-free interest rate
   
2.82
%
Expected option life (in years)
   
6.5
 

There were no options granted during the nine months ended March 31, 2018.


The following is a summary of the Company’s stock option activity and related information as of March 31, 2019 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, 2018
   
2,599,864
   
$
2.64
   
$
12.16
     
3.4
 
Granted
   
20,000
     
0.78
     
16.15
     
10.0
 
Exercised
   
(344,260
)
   
2.69
     
12.13
     
3.8
 
Forfeited
   
(20,000
)
   
0.89
     
15.40
     
9.3
 
Expired
   
(16,000
)
   
2.70
     
12.60
     
3.2
 
Outstanding at March 31, 2019
   
2,239,604
   
$
2.63
   
$
12.19
     
2.7
 
Exercisable at March 31, 2019
   
2,152,004
   
$
2.70
   
$
12.05
     
2.5
 
 
The Company recorded $8,000 of share based compensation expense related to options for both the three months ended March 31, 2019 and 2018, respectively. The Company recorded $28,000 and $30,000 of share based compensation expense related to options for the nine months ended March 31, 2019 and 2018, respectively. Expected future expense related to the non-vested options outstanding at March 31, 2019 is $73,000 over a weighted average period of 3.7 years.  Upon exercise of vested options, management expects to draw on treasury stock as the source of the shares.



13

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, 2019 and changes therein during the nine months then ended:

 
 
Number of Shares Awarded
   
Weighted Average Grant Date Fair Value
 
Non-vested at June 30, 2018
   
14,200
   
$
15.78
 
Granted
   
10,000
     
16.15
 
Vested
   
(5,400
)
   
15.99
 
Non-vested at March 31, 2019
   
18,800
   
$
15.91
 
 
The Company recorded $27,000 and $29,000 of share based compensation expense related to the restricted stock shares for the three months ended March 31, 2019 and 2018, respectively.  The Company recorded $93,000 and $108,000 of share based compensation expense related to the restricted stock shares for the nine months ended March 31, 2019 and 2018, respectively. Expected future expense related to the non-vested restricted shares at March 31, 2019 is $232,000 over a weighted average period of 3.1 years.
14

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, 2019 and 2018 are presented in the following tables.

 
Retirement Plan
   
BEP Plan
   
Medical Plan
 
 
Three Months ended March 31,
 
 
2019
   
2018
   
2019
   
2018
   
2019
   
2018
 
 
(In thousands)
 
Service cost
 
$
31
   
$
33
   
$
   
$
   
$
11
   
$
15
 
Interest cost
   
54
     
52
     
13
     
11
     
59
     
52
 
Amortization of unrecognized:
                                               
Net loss
   
     
     
8
     
9
     
     
 
Total
 
$
85
   
$
85
   
$
21
   
$
20
   
$
70
   
$
67
 

 
 
Retirement Plan
   
BEP Plan
   
Medical Plan
 
 
Nine Months ended March 31,
 
 
2019
   
2018
   
2019
   
2018
   
2019
   
2018
 
 
(In thousands)
 
Service cost
 
$
92
   
$
98
   
$
   
$
   
$
34
   
$
44
 
Interest cost
   
164
     
156
     
39
     
33
     
176
     
158
 
Amortization of unrecognized:
                                               
Net loss
   
     
     
25
     
27
     
     
 
Total
 
$
256
   
$
254
   
$
64
   
$
60
   
$
210
   
$
202
 

The service cost component of net periodic benefit cost is included in compensation and employee benefits on the Statements of Income. The other components of net periodic benefit cost, including interest cost and amortization of actuarial gain/loss are included in other expenses on the Statements of Income.


15

6. Loans, net
 
Loans, net are summarized as follows:

 
 
March 31, 2019
   
June 30, 2018
 
 
 
(In thousands)
 
Residential
 
$
269,521
   
$
267,771
 
Residential commercial real estate
   
2,053,654
     
2,005,315
 
Grocery/credit retail commercial real estate
   
498,908
     
497,708
 
Other commercial real estate
   
703,066
     
796,589
 
Construction and land loans
   
8,244
     
10,960
 
Total loans
   
3,533,393
     
3,578,343
 
Less:
               
Unearned deferred fees and discounts, net
   
9,415
     
6,878
 
Allowance for loan losses
   
28,590
     
30,562
 
Loans, net
 
$
3,495,388
   
$
3,540,903
 
 
The Company’s allowance for loan losses is analyzed quarterly and many factors are considered, including changes in the portfolio, delinquencies, nonaccrual loan levels, and other environmental factors.  There have been no material changes to the allowance for loan loss methodology as disclosed in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on August 29, 2018.

The activity in the allowance for loan losses for the three and nine months ended March 31, 2019 and 2018 is summarized as follows:

 
Three Months ended March 31,
 
Nine Months ended March 31,
 
 
(In thousands)
 
 
2019
 
2018
 
2019
 
2018
 
Balance at beginning of period
 
$
28,639
   
$
30,402
   
$
30,562
   
$
30,272
 
Reversal of provision for loan losses
   
     
     
(2,000
)
   
 
Recoveries of loans previously charged off
   
16
     
166
     
93
     
318
 
Loans charged off
   
(65
)
   
(95
)
   
(65
)
   
(117
)
Balance at end of period
 
$
28,590
   
$
30,473
   
$
28,590
   
$
30,473
 
 
16


The following tables provide the three and nine month activity in the allowance for loan losses allocated by loan category at March 31, 2019 and 2018.  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, 2019
 
 
Residential
 
Residential commercial real estate
 
Grocery/credit retail commercial real estate
 
Other commercial real estate
 
Construction and land loans
 
Total
 
 
(In thousands)
 
Allowance for loan losses:
                       
Beginning balance
 
$
2,002
   
$
15,259
   
$
3,274
   
$
7,780
   
$
324
   
$
28,639
 
Charge-offs
   
(65
)
   
     
     
     
     
(65
)
Recoveries
   
16
     
     
     
     
     
16
 
Provisions (reversal)
   
177
     
319
     
65
     
(552
)
   
(9
)
   
 
Ending balance
 
$
2,130
   
$
15,578
   
$
3,339
   
$
7,228
   
$
315
   
$
28,590
 

 
Nine Months ended March 31, 2019
 
 
Residential
 
Residential commercial real estate
 
Grocery/credit retail commercial real estate
 
Other commercial real estate
 
Construction and land loans
 
Total
 
 
(In thousands)
 
Allowance for loan losses:
                       
Beginning balance
 
$
1,990
   
$
17,259
   
$
3,015
   
$
7,828
   
$
470
   
$
30,562
 
Charge-offs
   
(65
)
   
     
     
     
     
(65
)
Recoveries
   
34
     
     
     
59
     
     
93
 
Provisions (reversal)
   
171
     
(1,681
)
   
324
     
(659
)
   
(155
)
   
(2,000
)
Ending balance
 
$
2,130
   
$
15,578
   
$
3,339
   
$
7,228
   
$
315
   
$
28,590
 

 
Three Months ended March 31, 2018
 
 
Residential
 
Residential commercial real estate
 
Grocery/credit retail commercial real estate
 
Other commercial real estate
 
Construction and land loans
 
Total
 
 
(In thousands)
 
Allowance for loan losses:
                       
Beginning balance
 
$
1,902
   
$
16,475
   
$
2,900
   
$
8,783
   
$
342
   
$
30,402
 
Charge-offs
   
(95
)
   
     
     
     
     
(95
)
Recoveries
   
19
     
     
     
147
     
     
166
 
Provisions (reversal)
   
77
     
570
     
57
     
(760
)
   
56
     
 
Ending balance
 
$
1,903
   
$
17,045
   
$
2,957
   
$
8,170
   
$
398
   
$
30,473
 

 
Nine Months ended March 31, 2018
 
 
Residential
 
Residential commercial real estate
 
Grocery/credit retail commercial real estate
 
Other commercial real estate
 
Construction and land loans
 
Total
 
 
(In thousands)
 
Allowance for loan losses:
                       
Beginning balance
 
$
1,261
   
$
15,794
   
$
3,000
   
$
10,017
   
$
200
   
$
30,272
 
Charge-offs
   
(117
)
   
     
     
     
     
(117
)
Recoveries
   
139
     
     
     
147
     
32
     
318
 
Provisions (reversal)
   
620
     
1,251
     
(43
)
   
(1,994
)
   
166
     
 
Ending balance
 
$
1,903
   
$
17,045
   
$
2,957
   
$
8,170
   
$
398
   
$
30,473
 

17


The following tables detail 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, 2019 and June 30, 2018.

   
At March 31, 2019
 
 
 
Residential
   
Residential commercial real estate
   
Grocery/credit retail commercial real estate
   
Other commercial real estate
   
Construction and land loans
   
Total
 
   
(In thousands)
 
Allowance for loan losses:
                                   
Individually evaluated for impairment
 
$
   
$
   
$
   
$
   
$
   
$
 
Collectively evaluated for impairment
   
2,130
     
15,578
     
3,339
     
7,228
     
315
     
28,590
 
Total
 
$
2,130
   
$
15,578
   
$
3,339
   
$
7,228
   
$
315
   
$
28,590
 
Loans receivable:
                                               
Individually evaluated for impairment
 
$
5,640
   
$
   
$
   
$
3,546
   
$
   
$
9,186
 
Collectively evaluated for impairment
   
263,881
     
2,053,654
     
498,908
     
699,520
     
8,244
     
3,524,207
 
Total
 
$
269,521
   
$
2,053,654
   
$
498,908
   
$
703,066
   
$
8,244
   
$
3,533,393
 
 
                                               

   
At June 30, 2018
 
 
 
Residential
   
Residential commercial real estate
   
Grocery/credit retail commercial real estate
   
Other commercial real estate
   
Construction
and land loans
   
Total
 
   
(In thousands)
 
Allowance for loan losses:
                                   
Individually evaluated for impairment
 
$
   
$
   
$
   
$
   
$
   
$
 
Collectively evaluated for impairment
   
1,990
     
17,259
     
3,015
     
7,828
     
470
     
30,562
 
Total
 
$
1,990
   
$
17,259
   
$
3,015
   
$
7,828
   
$
470
   
$
30,562
 
Loans receivable:
                                               
Individually evaluated for impairment
 
$
5,022
   
$
   
$
   
$
4,181
   
$
   
$
9,203
 
Collectively evaluated for impairment
   
262,749
     
2,005,315
     
497,708
     
792,408
     
10,960
     
3,569,140
 
Total
 
$
267,771
   
$
2,005,315
   
$
497,708
   
$
796,589
   
$
10,960
   
$
3,578,343
 
 
18


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

The following tables provide information about the loan credit quality at March 31, 2019 and June 30, 2018:

 
 
At March 31, 2019
 
 
 
Satisfactory
   
Pass/Watch
   
Special Mention
   
Substandard
   
Doubtful
   
Total
 
 
 
(In thousands)
 
Residential
 
$
244,946
   
$
16,652
   
$
1,170
   
$
6,753
   
$
   
$
269,521
 
Residential commercial real estate
   
2,036,153
     
15,948
     
1,553
     
     
     
2,053,654
 
Grocery/credit retail commercial real estate
   
496,010
     
2,898
     
     
     
     
498,908
 
Other commercial real estate
   
618,699
     
75,945
     
4,279
     
4,143
     
     
703,066
 
Construction and land loans
   
8,244
     
     
     
     
     
8,244
 
Total
 
$
3,404,052
   
$
111,443
   
$
7,002
   
$
10,896
   
$
   
$
3,533,393
 

 
 
At June 30, 2018
 
 
 
Satisfactory
   
Pass/Watch
   
Special Mention
   
Substandard
   
Doubtful
   
Total
 
 
 
(In thousands)
 
Residential
 
$
242,534
   
$
18,731
   
$
171
   
$
6,335
   
$
   
$
267,771
 
Residential commercial real estate
   
1,981,781
     
21,952
 </