Oritani Financial Corp. (the “Company” or “Oritani”) (NASDAQ:
ORIT), the holding company for Oritani Bank (the “Bank”), reported
net income of $13.4 million, or $0.31 per basic and diluted common
share, for the three months ended December 31, 2018, and $26.8
million, or $0.61 per basic (and $0.60 diluted) common share, for
the six months ended December 31, 2018. Net income was $4.0
million, or $0.09 per basic and diluted common share, for the three
months ended December 31, 2017, and $16.0 million, or $0.36 per
basic (and $0.35 diluted) common share, for the six months ended
December 31, 2017.
The Company also reported that its Board of
Directors has declared a $0.25 quarterly cash dividend on the
Company’s common stock. The record date for the dividend will
be February 8, 2019 and the payment date will be February 22,
2019.
“I am pleased to report the results for the
quarter ended December 31, 2018,” said Kevin J. Lynch, the
Company’s Chairman, President and CEO. “Despite a
difficult and competitive environment of increased short term
rates and declining longer term rates, we continue to generate
robust income and control our expenses. Oritani has
adjusted to current conditions and implemented strategies
that I feel will enhance shareholder value, including loan
purchases and stock repurchases.” Mr. Lynch continued: “While
lending conditions are generally unchanged, we have
made headway in this market. I have been encouraged by recent
developments and believe they can enable us to return to loan
portfolio growth.”
Comparison of Operating Results for the Periods
Ended December 31, 2018 and 2017
Net Income. Net income
increased $9.5 million to $13.4 million for the quarter ended
December 31, 2018, from $4.0 million for the corresponding 2017
quarter. Net income increased $10.9 million to $26.8 million
for the six months ended December 31, 2018, from $16.0 million for
the corresponding 2017 period. The most significant factor
regarding the increased income in the 2018 periods is changes in
income tax expense as pretax income was relatively consistent
between the periods. Results in the 2017 periods were
impacted by the Tax Cuts and Jobs Act (the “Act”) that was signed
into law on December 22, 2017. The Act lowered the Company’s
prospective tax rate. The Act also required the Company to
revalue its deferred tax assets and deferred tax liabilities to
account for the future impact of lower corporate tax rates on these
deferred amounts. The revaluation resulted in a one-time charge of
$10.2 million in the December 31, 2017 period. Excluding the
impact of this non-recurring charge, net income for the quarter
ended December 31, 2017 was $12.9 million, or $0.29 per basic (and
$0.28 diluted) common share.
Total Interest Income.
The components of interest income for the three months ended
December 31, 2018 and 2017, changed as follows:
| |
|
|
Three Months Ended December 31, |
Increase / (decrease) |
| |
|
|
|
2018 |
|
|
2017 |
|
|
Average |
|
| |
|
|
Income |
Yield |
Income |
|
Yield |
Income |
Balance |
Yield |
| |
|
|
| Interest
Income on: |
|
(Dollars in thousands) |
| Loans |
|
$ |
36,085 |
4.21 |
% |
$ |
35,891 |
|
4.05 |
% |
$ |
194 |
|
$ |
(115,318 |
) |
0.16 |
% |
| Dividends
on FHLB stock |
|
|
481 |
7.16 |
% |
|
451 |
|
6.85 |
% |
|
30 |
|
|
507 |
|
0.31 |
% |
| Equity
securities |
|
|
12 |
3.40 |
% |
|
12 |
|
3.04 |
% |
|
- |
|
|
(166 |
) |
0.36 |
% |
| Debt
securities AFS |
|
|
222 |
2.29 |
% |
|
445 |
|
2.09 |
% |
|
(223 |
) |
|
(46,260 |
) |
0.20 |
% |
| Debt
securities HTM |
|
|
2,002 |
2.38 |
% |
|
1,145 |
|
1.89 |
% |
|
857 |
|
|
94,106 |
|
0.49 |
% |
| Federal
funds sold and |
|
|
|
|
|
|
|
|
|
| short term
investments |
|
|
280 |
2.29 |
% |
|
108 |
|
1.29 |
% |
|
172 |
|
|
15,477 |
|
1.00 |
% |
| |
Total interest
income |
|
$ |
39,082 |
4.03 |
% |
$ |
38,052 |
|
3.87 |
% |
$ |
1,030 |
|
$ |
(51,654 |
) |
0.16 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s primary strategic business
objective remains the organic growth of multifamily and commercial
real estate loans. As discussed in the Company’s Form 10-Q
for the period ended September 30, 2018, the market to originate
such loans has been particularly challenging in recent
periods. The market did not change significantly over the
past quarter and the Company continued to experience decreased loan
balances, an elevated level of loan prepayments and robust
prepayment fee income.
Despite present conditions, the Company
generated increased originations in the December 2018 quarter
versus the September 2018 quarter. However, loan principal
payments increased further over the elevated total for the
September quarter. The Company also purchased $114.4 million
of loans in the December quarter to partially mitigate the impact
of the prepayment level. The loans purchased were multifamily
loans within its CRE lending area which fully comported with the
Company’s underwriting standards. The Company will continue
to purchase loans opportunistically in order to maintain, and
ultimately increase, loan balances. The average balance of
the loan portfolio decreased $99.0 million for the three months
ended December 31, 2018 versus the three months ended September 30,
2018. Loan originations, purchases and principal payments
totaled $107.6 million, $114.4 million and $241.7 million,
respectively, for the three months ended December 31, 2018, versus
$82.0 million, $0 and $123.5 million, respectively, for the three
months ended September 30, 2018. There were no loan purchases
in the September 2018 quarter. The decrease in the average
balance ($99.0 million) was much greater than the decrease in the
period end balance ($18.8 million) as the loan purchases occurred
toward the end of the December period and the majority of the
originations also occurred in December. The Company’s loan
pipeline was $106.3 million at December 31, 2018 versus $79.8
million as of September 30, 2018.
The average balance of the loan portfolio
decreased $115.3 million, or 3.3%, for the three months ended
December 31, 2018 versus the comparable 2017 period. Loan
originations, purchases and principal payments totaled $109.3
million, $52.8 million and $138.3 million, respectively, for the
three months ended December 31, 2017.
The yield on the loan portfolio increased 16
basis points for the quarter ended December 31, 2018 versus the
comparable 2017 period. On a linked quarter basis (December
31, 2018 versus September 30, 2018), the yield on the loan
portfolio increased 13 basis points. The level of prepayment
income impacted these results. Exclusive of prepayment
penalties, the yield on the loan portfolio increased 14 basis
points versus the quarter ended December 31, 2017 and 6 basis
points versus the September 30, 2018 quarter. Prepayment
penalties totaled $1.7 million, $1.2 million and $1.6 million for
the quarters ended December 31, 2018, September 30, 2018 and
December 31, 2017, respectively. In addition to
prepayment penalties, the prepayment level also impacted the loan
yield through the realization of deferred loan fees. While
loan fees are regularly amortized into income, loan prepayments
accelerate the recognition of these fees as income. Deferred
loan fees recognized as interest income totaled $687,000, $468,000
and $496,000 for the quarters ended December 31, 2018, September
30, 2018 and December 31, 2017, respectively.
The average balance of debt securities available
for sale decreased $46.3 million for the three months ended
December 31, 2018 versus the comparable 2017 period, while the
average balance of debt securities held to maturity increased $94.1
million over the same period. The Company has been
classifying the majority of new purchases as held to
maturity. The high level of loan prepayments caused the
Company to carry an elevated level of federal funds sold during the
quarter ended December 31, 2018. By period end, these funds
had been largely absorbed through loan originations and purchases,
and the level of federal funds sold was minimal.
The components of interest income for the six
months ended December 31, 2018 and 2017, changed as follows:
| |
|
|
Six Months Ended December 31, |
Increase / (decrease) |
|
| |
|
|
|
2018 |
|
|
2017 |
|
|
Average |
|
|
| |
|
|
Income |
Yield |
Income |
Yield |
Income |
Balance |
Yield |
|
| Interest
Income on: |
|
(Dollars in thousands) |
|
|
|
|
|
|
| Loans |
|
$ |
72,037 |
4.14 |
% |
$ |
71,728 |
4.04 |
% |
$ |
309 |
|
$ |
(76,668 |
) |
0.10 |
% |
|
|
|
|
|
|
| Dividends
on FHLB stock |
|
|
22 |
2.99 |
% |
|
24 |
3.13 |
% |
|
(2 |
) |
|
(65 |
) |
(0.14 |
)% |
|
|
|
|
|
|
| Debt
securities available for sale |
|
|
929 |
6.82 |
% |
|
936 |
6.65 |
% |
|
(7 |
) |
|
(917 |
) |
0.17 |
% |
|
|
|
|
|
|
| Debt
securities AFS |
|
|
462 |
2.29 |
% |
|
929 |
2.08 |
% |
|
(467 |
) |
|
(49,077 |
) |
0.21 |
% |
|
|
|
|
|
|
| Debt
securities HTM |
|
|
3,931 |
2.35 |
% |
|
2,244 |
1.88 |
% |
|
1,687 |
|
|
95,799 |
|
0.47 |
% |
|
|
|
|
|
|
| Federal
funds sold and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| short term
investments |
|
|
302 |
2.27 |
% |
|
111 |
1.28 |
% |
|
191 |
|
|
9,296 |
|
0.99 |
% |
|
|
|
|
|
|
| |
Total interest
income |
|
$ |
77,683 |
3.98 |
% |
$ |
75,972 |
3.87 |
% |
$ |
1,711 |
|
$ |
(21,632 |
) |
0.11 |
% |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The explanations for changes described above for
the three month period are also applicable to the six month
period. Loan originations, purchases and principal payments
for the six months ended December 31, 2018 totaled $189.7 million,
$114.4 million and $365.2 million, respectively. Loan
originations, purchases and principal payments for the six months
ended December 31, 2017 totaled $256.8 million, $52.8 million and
$291.3 million, respectively. Prepayment penalties totaled
$2.9 million for both the six months ended December 31, 2018 and
2017. Prepayment penalties boosted annualized loan yield by
16 basis points in the 2018 period versus 17 basis points in the
2017 period.
Total Interest Expense. The
components of interest expense for the three months ended December
31, 2018 and 2017, changed as follows:
| |
|
|
Three Months Ended December 31, |
Increase / (decrease) |
| |
|
|
|
2018 |
|
|
2017 |
|
|
Average |
|
| |
|
|
Expense |
Cost |
Expense |
Cost |
Expense |
Balance |
Cost |
| Interest
Expense on: |
|
(Dollars in thousands) |
| Savings
deposits |
|
$ |
641 |
0.90 |
% |
$ |
104 |
0.23 |
% |
$ |
537 |
|
$ |
105,223 |
|
0.67 |
% |
| Money
market |
|
|
1,863 |
1.10 |
% |
|
2,354 |
1.12 |
% |
|
(491 |
) |
|
(163,450 |
) |
(0.02 |
)% |
| Checking
accounts |
|
|
2,116 |
1.15 |
% |
|
1,111 |
0.59 |
% |
|
1,005 |
|
|
(14,885 |
) |
0.56 |
% |
| Time
deposits |
|
|
5,319 |
1.74 |
% |
|
4,219 |
1.42 |
% |
|
1,100 |
|
|
29,602 |
|
0.32 |
% |
| Total
deposits |
|
|
9,939 |
1.36 |
% |
|
7,788 |
1.05 |
% |
|
2,151 |
|
|
(43,510 |
) |
0.31 |
% |
|
Borrowings |
|
|
3,116 |
2.41 |
% |
|
2,656 |
2.07 |
% |
|
460 |
|
|
3,667 |
|
0.34 |
% |
| |
Total interest
expense |
|
$ |
13,055 |
1.52 |
% |
$ |
10,444 |
1.20 |
% |
$ |
2,611 |
|
$ |
(39,843 |
) |
0.32 |
% |
| |
|
|
|
|
|
|
|
|
|
Strong deposit growth remains a strategic
objective of the Company. As discussed in the Company’s Form
10-Q for the period ended September 30, 2018, growth has been
particularly difficult to attain in the current environment.
The Company has increased the rate of interest offered on various
deposit products in order to maintain balances. The Company
has been largely successful in minimizing the outflow of deposits
however, sizeable growth was not obtained. As compared to the
quarter ended September 30, 2018, the average balance of deposits
increased $10.8 million and period end balances decreased $20.8
million. The period end balances were impacted by a decrease
in brokered funds of $41.6 million. Absent the effect of
brokered funds, period end balances increased $20.8 million.
The Company recently upwardly adjusted pricing on its municipal
deposit checking portfolio and offered a premium rate savings
account. These actions significantly contributed to an
overall increase of 12 basis points in the cost of deposits for the
quarter ended December 31, 2018 versus the quarter ended September
30, 2018.
As detailed above, the average balance of
deposits decreased $43.5 million for the quarter ended December 31,
2018 versus the comparable 2017 period. The average balance
of brokered deposits decreased $100.3 million between the
periods. The growth between the periods, excluding the impact
of brokered deposits, was $56.8 million. The overall cost of
deposits increased 31 basis points for the quarter ended December
31, 2018 versus the comparable 2017 period. The increased
costs are primarily due to the impact of market pressures including
the specific rate increases described above.
The average balance of borrowings was relatively
stable for the three months ended December 31, 2018 versus the
comparable 2017 period, increasing $3.7 million, while the cost
increased 34 basis points. The cost of borrowings has been
impacted by the overall increase in interest rates, particularly
overnight and short term borrowings.
The components of interest expense for the six
months ended December 31, 2018 and 2017, changed as follows:
| |
|
|
Six Months Ended December 31, |
Increase / (decrease) |
|
| |
|
|
|
2018 |
|
|
2017 |
|
|
Average |
|
|
| |
|
|
Expense |
Cost |
Expense |
Cost |
Expense |
Balance |
Cost |
|
| Interest
Expense on: |
|
(Dollars in thousands) |
|
|
|
|
|
|
| Savings
deposits |
|
$ |
831 |
0.69 |
% |
$ |
205 |
0.23 |
% |
$ |
626 |
|
$ |
64,149 |
|
0.46 |
% |
|
|
|
|
|
|
| Money
market |
|
|
3,920 |
1.09 |
% |
|
4,736 |
1.12 |
% |
|
(816 |
) |
|
(131,065 |
) |
(0.03 |
)% |
|
|
|
|
|
|
| Checking
accounts |
|
|
3,775 |
1.03 |
% |
|
2,083 |
0.57 |
% |
|
1,692 |
|
|
(3,257 |
) |
0.46 |
% |
|
|
|
|
|
|
| Time
deposits |
|
|
10,450 |
1.71 |
% |
|
8,117 |
1.40 |
% |
|
2,333 |
|
|
61,889 |
|
0.31 |
% |
|
|
|
|
|
|
| Total
deposits |
|
|
18,976 |
1.30 |
% |
|
15,141 |
1.04 |
% |
|
3,835 |
|
|
(8,284 |
) |
0.26 |
% |
|
|
|
|
|
|
|
Borrowings |
|
|
6,385 |
2.35 |
% |
|
5,579 |
2.02 |
% |
|
806 |
|
|
(9,163 |
) |
0.33 |
% |
|
|
|
|
|
|
| |
Total
interest expense |
$ |
25,361 |
1.47 |
% |
$ |
20,720 |
1.19 |
% |
$ |
4,641 |
|
$ |
(17,447 |
) |
0.28 |
% |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The explanations for changes described above for
the three month period regarding deposits and borrowings are also
largely applicable to the six month period.
Net Interest Income Before Provision for
Loan Losses. Net interest income decreased by $1.6 million
to $26.0 million for the three months ended December 31, 2018, from
$27.6 million for the three months ended December 31, 2017.
Net interest income decreased by $2.9 million to $52.3 million for
the six months ended December 31, 2018, from $55.3 million for the
six months ended December 31, 2017. The Company’s net
interest income, spread and margin over the period are detailed in
the chart below.
| |
|
|
|
NII Before |
|
|
|
|
|
| |
|
Net Interest |
|
Provision |
Including |
Excluding |
|
|
|
|
Income ("NII") |
Prepayment |
Excluding |
Prepayment |
Prepayment |
|
|
|
|
Before |
Penalty |
Prepayment |
Penalties |
Penalties |
|
|
Quarter Ended |
|
Provision |
Income |
Penalties |
Spread |
Margin |
Spread |
Margin |
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
| December 31, 2018 |
|
$ |
26,027 |
$ |
1,727 |
$ |
24,300 |
2.51 |
% |
2.68 |
% |
2.33 |
% |
2.51 |
% |
|
|
|
|
|
|
| September 30, 2018 |
|
|
26,295 |
|
1,154 |
|
25,141 |
2.51 |
% |
2.67 |
% |
2.40 |
% |
2.55 |
% |
|
|
|
|
|
|
| June 30, 2018 |
|
|
27,721 |
|
1,836 |
|
25,885 |
2.65 |
% |
2.81 |
% |
2.47 |
% |
2.63 |
% |
|
|
|
|
|
|
| March 31, 2018 |
|
|
26,953 |
|
553 |
|
26,400 |
2.60 |
% |
2.74 |
% |
2.54 |
% |
2.68 |
% |
|
|
|
|
|
|
| December 31, 2017 |
|
|
27,608 |
|
1,638 |
|
25,970 |
2.67 |
% |
2.81 |
% |
2.50 |
% |
2.64 |
% |
|
|
|
|
|
|
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. Net interest income before
provision for loan losses, excluding prepayment penalties, is a
non-GAAP financial measure since it excludes a component
(prepayment penalty income) of net interest income and therefore
differs from the most directly comparable measure calculated in
accordance with GAAP. The Company believes the presentation of this
non-GAAP financial measure is useful because it provides
information to assess the underlying performance of the loan
portfolio since prepayment penalty income can be expected to change
as interest rates change. While prepayment penalty income is
expected to continue, fluctuations in the level of prepayment
income are also expected. The level of prepayment income is
generally expected to decrease as external interest rates increase
since borrowers would have less of an incentive to refinance
existing loans. However, the time period when these events
could occur may not align, and the specific behavior of borrowers
is difficult to predict. Borrowers can be driven to prepay
their loans based on factors other than interest rates. The
level of loan prepayments and prepayment income experienced by the
Company has been elevated (versus historical levels) despite
generally increased interest rates during the majority of the
period.
The Company’s spread and margin have been under
pressure due to several factors, including a flattening
treasury yield curve, modifications of loans within the existing
loan portfolio, prepayments of higher yielding loans and
investments, and increased funding costs. The Company executed a
previously disclosed balance sheet restructuring partially to
counter a portion of the spread and margin compression resulting
from these factors. While spread and margin have been under
pressure for an extended period, the competitive market for
deposits increased substantially in fiscal 2019. As described
above, the Company has recently realized increases in both the cost
of funds and the yield on interest earning assets. The level
of loan prepayments contributed to the increase in the yield on
interest earning assets.
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
$62,000 and $135,000 for the three and six months ended December
31, 2018, respectively, and $128,000 and $206,000 for the three and
six months ended December 31, 2017, respectively.
Provision for Loan
Losses. The Company recorded no provision for loan
losses for the three months ended December 31, 2018 and the three
and six months ended December 31, 2017. The Company recorded
a reversal of provision for loan losses of $2.0 million for the six
months ended December 31, 2018. A rollforward of the
allowance for loan losses for the three and six months ended
December 31, 2018 and 2017 is presented below:
| |
Three months ended |
|
Six months ended |
| |
December 31, |
|
December 31, |
| |
|
2018 |
|
|
2017 |
|
|
|
2018 |
|
|
2017 |
|
|
|
|
| |
(Dollars in thousands) |
| Balance at beginning of
period |
$ |
28,565 |
|
$ |
30,402 |
|
|
$ |
30,562 |
|
$ |
30,272 |
|
| Reversal of provision
for loan losses |
|
- |
|
|
- |
|
|
|
(2,000 |
) |
|
- |
|
| Recoveries of loans
previously charged off |
|
74 |
|
|
- |
|
|
|
77 |
|
|
152 |
|
| Loans charged off |
|
- |
|
|
- |
|
|
|
- |
|
|
22 |
|
| Balance at end of
period |
$ |
28,639 |
|
$ |
30,402 |
|
|
$ |
28,639 |
|
$ |
30,402 |
|
| |
|
|
|
|
|
| Allowance for loan
losses to total loans |
|
0.81 |
% |
|
0.84 |
% |
|
|
0.81 |
% |
|
0.84 |
% |
| Net charge-offs
(annualized) to average |
|
|
|
|
|
| loans outstanding |
|
-0.01 |
% |
|
- |
% |
|
|
- |
% |
|
-0.01 |
% |
Delinquency and non performing asset information
is provided below:
| |
12/31/2018 |
9/30/2018 |
6/30/2018 |
3/31/2018 |
12/31/2017 |
| |
(Dollars in thousands) |
| Delinquency
Totals |
|
|
|
|
|
| 30 - 59 days past
due |
$ |
2,890 |
|
$ |
15,261 |
|
$ |
5,253 |
|
$ |
9,772 |
|
$ |
3,166 |
|
| 60 - 89 days past
due |
|
8,431 |
|
|
356 |
|
|
171 |
|
|
472 |
|
|
142 |
|
| Nonaccrual |
|
10,706 |
|
|
9,083 |
|
|
7,877 |
|
|
11,887 |
|
|
14,489 |
|
| Total |
$ |
22,027 |
|
$ |
24,700 |
|
$ |
13,301 |
|
$ |
22,131 |
|
$ |
17,797 |
|
| |
|
|
|
|
|
| Non Performing
Asset Totals |
|
|
|
|
|
| Nonaccrual loans, per
above |
$ |
10,706 |
|
$ |
9,083 |
|
$ |
7,877 |
|
$ |
11,887 |
|
$ |
14,489 |
|
| Real Estate Owned |
|
636 |
|
|
1,564 |
|
|
1,564 |
|
|
636 |
|
|
- |
|
| Total |
$ |
11,342 |
|
$ |
10,647 |
|
$ |
9,441 |
|
$ |
12,523 |
|
$ |
14,489 |
|
| |
|
|
|
|
|
| Nonaccrual loans to
total loans |
|
0.30 |
% |
|
0.26 |
% |
|
0.22 |
% |
|
0.33 |
% |
|
0.40 |
% |
| Delinquent loans to
total loans |
|
0.63 |
% |
|
0.70 |
% |
|
0.37 |
% |
|
0.61 |
% |
|
0.49 |
% |
| Non performing assets
to total assets |
|
0.28 |
% |
|
0.26 |
% |
|
0.23 |
% |
|
0.30 |
% |
|
0.35 |
% |
The $2.0 million reversal of provision for loan
losses recorded for the six month period ended December 31, 2018
was due primarily to loan portfolio contraction and reduced
qualitative factors within the allowance calculation as determined
as part of our quarterly reassessment. Overall,
non-performing asset totals and charge-offs continue to illustrate
minimal credit issues at the Company. Subsequent to December
31, 2018, an $8.1 million loan included in the 60-89 days past due
total above, was sold at par plus accrued interest.
Non-interest Income.
Non-interest income increased $1.0 million to $1.6 million for the
three months ended December 31, 2018, from $623,000 for the three
months ended December 31, 2017. The increase is
primarily due to a gain of $855,000 on the sale of a foreclosed
property. This increase was partially offset by a $155,000
decrease in fair value of equity securities held by the
Company. The 2017 period includes a loss of $324,000 on the
sale of certain AFS investment securities. There were no
sales of securities in the 2018 period.
Non-interest income increased $870,000 to $2.5
million for the six months ended December 31, 2018 from $1.6
million for the six months ended December 31, 2017. The six
month period was also impacted by the items described above.
The decrease in fair value of equity securities was more pronounced
in the six month period, totaling $274,000.
Non-interest Expense.
Non-interest expenses decreased $465,000 to $9.7 million for the
three months ended December 31, 2018, from $10.2 million for the
three months ended December 31, 2017. The decrease was
primarily due to compensation, payroll taxes and fringe benefits,
which decreased $1.7 million to $5.5 million for the three months
ended December 31, 2018, from $7.1 million for the three months
ended December 31, 2017. The decrease was primarily due
to decreased ESOP related expenses as well as decreased costs
associated with the incentive and non-qualified benefit
plans. These decreases were partially offset by an increase
in other expenses, which increased $1.2 million to $2.6 million for
the three months ended December 31, 2018, from $1.4 million for the
three months ended December 31, 2017. The increase in
other expenses is due to increased pension contribution costs and
costs associated with Bank Secrecy Act and Anti-Money Laundering
compliance matters as discussed in previous releases. The
Company has incurred expenses associated with the remediation of
these matters of $400,000 for the three months ended December 31,
2018. There was no corresponding expense in the 2017
period.
Non-interest expenses increased $651,000 to
$20.4 million for the six months ended December 31, 2018, from
$19.7 million for the six months ended December 31, 2017. The
six month period was also affected by the items described above for
the three month period. The increase in other expenses was
more pronounced in the six month period. The Company has
incurred expenses associated with Bank Secrecy Act and Anti-Money
Laundering matters of $1.3 million for the year ended June 30, 2018
and $1.5 million for the six months ended December 31, 2018.
The Company believes that significant progress has been made
regarding the remediation of these matters and that the majority of
the associated costs have been expended and expensed.
Income Tax Expense.
Income tax expense for the three months ended December 31, 2018 was
$4.5 million on pre-tax income of $17.9 million, resulting in an
effective tax rate of 25.1%. Income tax expense for the
six months ended December 31, 2018, was $9.6 million, due to
pre-tax income of $36.4 million, resulting in an effective tax rate
of 26.3%. Income tax expense for the three and six month
periods ended December 31, 2017 was $14.0 million and $21.2
million, respectively. Income tax expense for the 2017
periods was significantly impacted by the Act, as previously
discussed in “Comparison of Operating Results, Net Income.”
The decrease in effective tax rate in the 2018 period was the
result of the enactment of the Act. The benefit of the lower
federal tax rate in 2018 was partially offset by the impact of New
Jersey (“NJ”) tax legislation enacted on July 1, 2018 that imposes
a temporary surtax of 2.5% for tax years beginning on or after
January 1, 2018 through December 31, 2019, and 1.5% for tax years
beginning on or after January 1, 2020 through December 31,
2021. The legislation also requires mandatory unitary
combined filing for members of an affiliated group for tax years
beginning on or after January 1, 2019. The Company reports
earnings on a fiscal year basis and the increased income tax
implications of the NJ legislation are partially recognized by the
Company ratably over the course of the fiscal year ending June 30,
2019. The full impact of the legislation will be recognized
in the fiscal year ending June 30, 2020. The Company’s
estimated effective tax rate for the fiscal year ending June 30,
2019 is 25.0%. The Company’s estimated effective tax rate is
expected to increase subsequent to the fiscal year ending June 30,
2019. The legislation required a revaluation of our deferred
tax assets/liabilities based on the rates at which they are
expected to reverse in the future. The revaluation of the
Company's deferred tax balances resulted in a one-time non-cash
charge of $477,000 which is included in income tax expense for the
six months ended December 31, 2018. The Company’s effective
rate in the 2017 periods was positively affected by the vesting of
stock awards and the exercise of nonqualified stock options and
disqualified incentive stock options.
Comparison of Financial
Condition at December 31, 2018 and June 30,
2018
Total Assets. Total
assets decreased $77.0 million to $4.09 billion at December 31,
2018, from $4.17 billion at June 30, 2018. The primary
contributor to the decreased asset level was the contraction in
loan balances.
Cash and Cash Equivalents. Cash and cash
equivalents (which include fed funds and short term investments)
decreased $15.7 million to $19.1 million at December 31, 2018, from
$34.8 million at June 30, 2018.
Net Loans. Loans, net
decreased $57.7 million to $3.48 billion at December 31, 2018, from
$3.54 billion at June 30, 2018. Loans, net decreased $18.8
million over the quarter ended December 31, 2018. As
discussed in “Total Interest Income,” our origination volume is
below historical levels and loan principal payments remain
elevated.
Debt securities available for
sale. Debt securities AFS decreased $7.4 million to
$37.3 million at December 31, 2018, from $44.7 million at June 30,
2018. The decrease is primarily due to principal
payments.
Debt securities held to
maturity. Debt securities HTM increased $13.4
million to $348.8 million at December 31, 2018, from $335.4 million
at June 30, 2018. The increase is primarily due to purchases
of $43.5 million exceeding principal payments of $30.1 million.
Federal Home Loan Bank of New York
(“FHLB”) stock. FHLB stock decreased $2.0 million to
$28.3 million at December 31, 2018, from $30.4 million at June 30,
2018. FHLB stock holdings are required depending on several
factors, including the level of borrowings with the FHLB. As
FHLB borrowings decreased over the period, excess FHLB stock was
redeemed.
Deposits. Deposits
decreased $11.9 million to $2.90 billion at December 31, 2018, from
$2.92 billion at June 30, 2018. See “Total Interest Expense”
for discussion regarding deposit balances. The Company’s loan
to deposit ratio decreased to 120.0% at December 31, 2018.
Borrowings. Borrowings
decreased $27.7 million to $568.7 million at December 31, 2018,
from $596.4 million at June 30, 2018. See “Total Interest
Expense” for discussion regarding borrowing amounts.
Stockholders’ Equity.
Stockholders’ equity decreased $32.3 million to $527.1 million at
December 31, 2018, from $559.3 million at June 30, 2018. The
decrease was primarily due to dividends and stock repurchases,
partially offset by net income and the release of treasury shares
in conjunction with stock option exercises. During the
quarter ended December 31, 2018, the Company repurchased 1,871,979
shares of its common at a total cost of $28.5 million for an
average price of $15.20 per share. Based on our December 31,
2018 closing price of $14.75 per share, the Company stock was
trading at 125.2% of book value.
About the CompanyOritani
Financial Corp. is the holding company for Oritani Bank, a New
Jersey state chartered bank offering a full range of retail and
commercial loan and deposit products. Oritani Bank is
dedicated to providing exceptional personal service to its
individual and business customers. The Bank currently
operates its main office and 25 full service branches in the New
Jersey Counties of Bergen, Hudson, Essex and Passaic. For
additional information about Oritani Bank, please visit
www.oritani.com.
Forward Looking StatementsCertain statements
contained herein are "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 the 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, including those risk factors
disclosed in the Company’s Annual Report on Form 10-K for the year
ended June 30, 2018 (as supplemented by our quarterly reports), and
the following: those related to the economic environment,
particularly in the market areas in which 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, 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 result 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.
For further information contact:Kevin J. LynchChairman,
President and Chief Executive OfficerOritani Financial Corp.(201)
664-5400
| Oritani Financial Corp. and
Subsidiaries |
| Consolidated Balance Sheets |
| (In thousands, except share data) |
| |
|
|
|
|
|
| |
December 31, |
|
June 30, |
|
Assets |
2018 |
|
2018 |
| |
|
(unaudited) |
|
|
(audited) |
| Cash on hand and in
banks |
$ |
18,660 |
|
|
$ |
23,613 |
|
| Federal funds sold and
short term investments |
|
457 |
|
|
|
11,235 |
|
| Cash and
cash equivalents |
|
19,117 |
|
|
|
34,848 |
|
| |
|
|
|
|
|
| Loans, net |
|
3,483,174 |
|
|
|
3,540,903 |
|
| Equity securities |
|
1,291 |
|
|
|
— |
|
| Debt securities
available for sale, at fair value |
|
37,294 |
|
|
|
44,691 |
|
| Debt securities held to
maturity, |
|
|
|
|
|
| fair
value of $343,166 and $326,511, respectively. |
|
348,768 |
|
|
|
335,374 |
|
| Bank Owned Life
Insurance (at cash surrender value) |
|
99,672 |
|
|
|
98,438 |
|
| Federal Home Loan Bank
of New York stock ("FHLB"), at cost |
|
28,325 |
|
|
|
30,365 |
|
| Accrued interest
receivable |
|
11,491 |
|
|
|
11,261 |
|
| Real estate owned |
|
636 |
|
|
|
1,564 |
|
| Office properties and
equipment, net |
|
13,143 |
|
|
|
13,455 |
|
| Deferred tax
assets |
|
27,437 |
|
|
|
25,864 |
|
| Other assets |
|
19,725 |
|
|
|
30,276 |
|
| Total
Assets |
$ |
4,090,073 |
|
|
$ |
4,167,039 |
|
| |
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
| Deposits |
$ |
2,903,205 |
|
|
$ |
2,915,128 |
|
| Borrowings |
|
568,654 |
|
|
|
596,372 |
|
| Advance payments by
borrowers for taxes and |
|
|
|
|
|
|
insurance |
|
22,312 |
|
|
|
24,169 |
|
| Official checks
outstanding |
|
4,119 |
|
|
|
5,454 |
|
| Other liabilities |
|
64,728 |
|
|
|
66,570 |
|
| Total
liabilities |
|
3,563,018 |
|
|
|
3,607,693 |
|
| |
|
|
|
|
|
|
Stockholders' Equity |
|
|
|
|
|
| Common stock, $0.01 par
value; 150,000,000 shares authorized; |
|
|
|
|
|
|
56,245,065 shares issued; 44,751,879 shares outstanding at |
|
|
|
|
|
| December
31, 2018 and 46,616,646 shares outstanding at |
|
|
|
|
|
| June 30,
2018. |
|
562 |
|
|
|
562 |
|
| Additional paid-in
capital |
|
514,744 |
|
|
|
514,002 |
|
| Unallocated common
stock held by the employee stock |
|
|
|
|
|
| ownership
plan |
|
(15,789 |
) |
|
|
(16,631 |
) |
| Non-vested restricted
stock awards |
|
(241 |
) |
|
|
(176 |
) |
| Treasury stock, at
cost; 11,493,186 shares at December 31, 2018 and |
|
|
|
|
|
| 9,628,419
shares at June 30, 2018. |
|
(157,831 |
) |
|
|
(129,433 |
) |
| Retained earnings |
|
178,865 |
|
|
|
179,799 |
|
| Accumulated other
comprehensive income, net of tax |
|
6,745 |
|
|
|
11,223 |
|
| Total
stockholders' equity |
|
527,055 |
|
|
|
559,346 |
|
| |
|
|
|
|
|
| Total Liabilities and
Stockholders' Equity |
$ |
4,090,073 |
|
|
$ |
4,167,039 |
|
| |
|
|
|
|
|
| Oritani Financial Corp. and
Subsidiaries |
| Consolidated Statements of Income |
| Three and Six Months Ended December 31, 2018 and
2017 |
| (In thousands, except share data) |
| |
|
|
|
|
|
|
|
|
|
|
| |
Three months ended |
|
Six months ended |
| |
December 31, |
|
December 31, |
| |
2018 |
|
|
2017 |
|
|
2018 |
|
|
2017 |
|
|
|
|
|
|
|
|
| |
|
unaudited |
|
|
unaudited |
| Interest income: |
|
|
|
|
|
|
|
|
|
|
|
Loans |
$ |
36,085 |
|
|
$ |
35,891 |
|
|
$ |
72,037 |
|
$ |
71,728 |
|
| Dividends
on FHLB stock |
|
481 |
|
|
|
451 |
|
|
|
929 |
|
|
936 |
|
| Equity
securities |
|
12 |
|
|
|
12 |
|
|
|
22 |
|
|
24 |
|
| Debt
securities available for sale |
|
222 |
|
|
|
445 |
|
|
|
462 |
|
|
929 |
|
| Debt
securities held to maturity |
|
2,002 |
|
|
|
1,145 |
|
|
|
3,931 |
|
|
2,244 |
|
| Federal
funds sold and short term investments |
|
280 |
|
|
|
108 |
|
|
|
302 |
|
|
111 |
|
| Total
Interest Income |
|
39,082 |
|
|
|
38,052 |
|
|
|
77,683 |
|
|
75,972 |
|
| |
|
|
|
|
|
|
|
|
|
|
| Interest expense: |
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
9,939 |
|
|
|
7,788 |
|
|
|
18,976 |
|
|
15,141 |
|
|
Borrowings |
|
3,116 |
|
|
|
2,656 |
|
|
|
6,385 |
|
|
5,579 |
|
| Total
interest expense |
|
13,055 |
|
|
|
10,444 |
|
|
|
25,361 |
|
|
20,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
interest income before provision for loan losses |
|
26,027 |
|
|
|
27,608 |
|
|
|
52,322 |
|
|
55,252 |
|
| |
|
|
|
|
|
|
|
|
|
|
| Reversal of provision
for loan losses |
|
— |
|
|
|
— |
|
|
|
(2,000 |
) |
|
— |
|
| Net
interest income after provision for loan losses |
|
26,027 |
|
|
|
27,608 |
|
|
|
54,322 |
|
|
55,252 |
|
| |
|
|
|
|
|
|
|
|
|
|
| Non-interest
income: |
|
|
|
|
|
|
|
|
|
|
| Fees and
service charges for customer services |
|
327 |
|
|
|
313 |
|
|
|
639 |
|
|
635 |
|
|
Bank-owned life insurance |
|
610 |
|
|
|
630 |
|
|
|
1,234 |
|
|
1,276 |
|
| Net gain
on sale of assets |
|
855 |
|
|
|
— |
|
|
|
855 |
|
|
— |
|
| Change in
fair value of equity securities |
|
(155 |
) |
|
|
— |
|
|
|
(274 |
) |
|
— |
|
| Net
losses on sale of debt securities AFS |
|
— |
|
|
|
(324 |
) |
|
|
— |
|
|
(324 |
) |
| Other
income |
|
5 |
|
|
|
4 |
|
|
|
9 |
|
|
6 |
|
| Total
non-interest income |
|
1,642 |
|
|
|
623 |
|
|
|
2,463 |
|
|
1,593 |
|
| |
|
|
|
|
|
|
|
|
|
|
| Non-interest
expense: |
|
|
|
|
|
|
|
|
|
|
|
Compensation, payroll taxes and fringe benefits |
|
5,471 |
|
|
|
7,134 |
|
|
|
11,512 |
|
|
13,341 |
|
|
Advertising |
|
142 |
|
|
|
143 |
|
|
|
285 |
|
|
286 |
|
| Office
occupancy and equipment expense |
|
735 |
|
|
|
780 |
|
|
|
1,495 |
|
|
1,529 |
|
| Data
processing service fees |
|
519 |
|
|
|
420 |
|
|
|
1,018 |
|
|
964 |
|
| Federal
insurance premiums |
|
285 |
|
|
|
300 |
|
|
|
585 |
|
|
600 |
|
| Other
expenses |
|
2,596 |
|
|
|
1,436 |
|
|
|
5,480 |
|
|
3,004 |
|
| Total
non-interest expense |
|
9,748 |
|
|
|
10,213 |
|
|
|
20,375 |
|
|
19,724 |
|
| |
|
|
|
|
|
|
|
|
|
|
| Income
before income tax expense |
|
17,921 |
|
|
|
18,018 |
|
|
|
36,410 |
|
|
37,121 |
|
| Income tax
expense |
|
4,492 |
|
|
|
14,048 |
|
|
|
9,584 |
|
|
21,155 |
|
| Net
income |
$ |
13,429 |
|
|
$ |
3,970 |
|
|
$ |
26,826 |
|
$ |
15,966 |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| Income per basic
common share |
$ |
0.31 |
|
|
$ |
0.09 |
|
|
$ |
0.61 |
|
$ |
0.36 |
|
| Income per diluted
common share |
$ |
0.31 |
|
|
$ |
0.09 |
|
|
$ |
0.60 |
|
$ |
0.35 |
|
| |
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Oritani Financial (NASDAQ:ORIT)
Historical Stock Chart
From Mar 2024 to Apr 2024
Oritani Financial (NASDAQ:ORIT)
Historical Stock Chart
From Apr 2023 to Apr 2024
