Quarterly Report (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 December 31, 2018

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 ☒

As of February 11, 2019, there were 56,245,065 shares of the Registrant’s common stock, par value $0.01 per share, issued and 44,985,539 shares outstanding.

Oritani Financial Corp.

FORM 10-Q

Index


	Part I. Financial Information	Page

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of December 31, 2018 (unaudited) and June 30, 2018	3

	Consolidated Statements of Income for the Three and Six Months Ended December 31, Months Ended December 31, 2018 and 2017 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended December 31, Months Ended December 31, 2018 and 2017 (unaudited)	5

	Consolidated Statements of Stockholders’ Equity for the Six Months Ended December 31, 2018 and 2017 (unaudited)	6

	Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2018 and 2017 (unaudited)	8

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48

Item 4.	Controls and Procedures	50

	Part II. Other Information

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3.	Defaults Upon Senior Securities	50

Item 4.	Mine Safety Disclosures	50

Item 5.	Other Information	50

Item 6.	Exhibits	51

	Signature Page	52

Part I. Financial Information

Item 1. Financial Statements

Oritani Financial Corp. and Subsidiaries

Consolidated Balance Sheets

(In thousands, except share data)

	December 31, 2018			June 30, 2018
	(unaudited)			(audited)
Assets
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 market 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 (“FHLB”) stock 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, net		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
Other liabilities		68,847			72,024
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
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	)
Unallocated common stock held by the employee stock ownership plan		(15,789	)		(16,631	)
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

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 December 31,						Six Months ended December 31,
	2018			2017			2018			2017
	(unaudited)
Interest income:
Interest on loans	$	36,085		$	35,891		$	72,037		$	71,728
Dividends on FHLB stock		481			451			929			936
Equity securities		12			12			22			24
Interest on debt securities available for sale		222			445			462			929
Interest on debt securities held to maturity		2,002			1,145			3,931			2,244
Interest on 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		327			313			639			635
Bank-owned life insurance		610			630			1,234			1,276
Gains (losses) on sale of OREO		855			—			855			—
Change in fair value of equity securities		(155	)		—			(274	)		—
Net losses on sale of debt securities available for sale		—			(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
Earnings per basic common share	$	0.31		$	0.09		$	0.61		$	0.36
Earnings per diluted common share	$	0.31		$	0.09		$	0.60		$	0.35

See accompanying notes to unaudited consolidated financial statements.

Oritani Financial Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income

(In thousands)

	Three months ended December 31,						Six months ended December 31,
	2018			2017			2018			2017
	(unaudited)
Net of tax:
Net income	$	13,429		$	3,970		$	26,826		$	15,966
Other comprehensive income:
Change in unrealized holding gain (loss) on debt securities available for sale		279			(361	)		160			(365	)
Reclassification adjustment for security loss included in net income		—			184			—			184
Amortization related to post-retirement obligations		5			5			13			10
Net change in unrealized (loss) gain on interest rate swaps		(4,867	)		1,847			(3,993	)		1,737
Total other comprehensive (loss) income		(4,583	)		1,675			(3,820	)		1,566
Total comprehensive income	$	8,846		$	5,645		$	23,006		$	17,532

See accompanying notes to unaudited consolidated financial statements.

Oritani Financial Corp. and Subsidiaries

Consolidated Statements of Stockholders' Equity

Six months ended December 31, 2018 and 2017 (unaudited)

(In thousands, except share data)

	Shares Outstanding			Common stock		Additional paid-in capital			Non-vested restricted stock awards			Treasury stock			Unallocated common stock held by ESOP			Retained earnings			Accumulated other comprehensive income (loss), net of tax		Total stockholders' equity
Balance at June 30, 2017		45,992,366		$	562	$	512,337		$	(458	)	$	(136,517	)	$	(18,407	)	$	198,186		$	3,520	$	559,223
Net income		—			—		—			—			—			—			15,966			—		15,966
Other comprehensive income , net of tax		—			—		—			—			—			—			—			1,566		1,566
Cash dividends declared ($0.80 per share)		—			—		—			—			—			—			(35,159	)		—		(35,159	)
Purchase of treasury stock		(4,787	)		—		—			—			(81	)		—			—			—		(81	)
Compensation cost for stock options and restricted stock		—			—		101			—			—			—			—			—		101
ESOP shares allocated or committed to be released		—			—		1,088			—			—			1,076			—			—		2,164
Exercise of stock options		323,971			—		—			—			4,314			—			(549	)		—		3,765
Forfeiture of restricted stock awards		(7,000	)		—		—			87			(87	)		—			—			—		—
Vesting of restricted stock awards		—			—		(210	)		170			—			—			40			—		—
Balance at December 31, 2017		46,304,550		$	562	$	513,316		$	(201	)	$	(132,371	)	$	(17,331	)	$	178,484		$	5,086	$	547,545

Continued on next page

Oritani Financial Corp. and Subsidiaries

Consolidated Statements of Stockholders' Equity

Six months ended December 31, 2018 and 2017 (unaudited)

(In thousands, except share data)

	Shares Outstanding			Common stock		Additional paid-in capital			Non-vested restricted stock awards			Treasury stock			Unallocated common stock held by ESOP			Retained earnings			Accumulated other comprehensive income (loss), net of tax			Total stockholders' equity
Balance at June 30, 2018		46,616,646		$	562	$	514,002		$	(176	)	$	(129,433	)	$	(16,631	)	$	179,799		$	11,223		$	559,346
Net income		—			—		—			—			—			—			26,826			—			26,826
Other comprehensive loss, net of tax		—			—		—			—			—			—			—			(3,820	)		(3,820	)
Cash dividends declared ($0.65 per share)		—			—		—			—			—			—			(28,425	)		—			(28,425	)
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		—			—		86			—			—			—			—			—			86
ESOP shares allocated or committed to be released		—			—		742			—			—			842			—			—			1,584
Exercise of stock options		16,000			—		—			—			215			—			(10	)		—			205
Vesting of restricted stock awards		—			—		(86	)		69			—			—			17			—			—
Reclassification due to the adoption of ASU No. 2016-01		—			—		—			—			—			—			658			(658	)		—
Balance at December 31, 2018		44,751,879		$	562	$	514,744		$	(241	)	$	(157,831	)	$	(15,789	)	$	178,865		$	6,745		$	527,055

See accompanying notes to unaudited consolidated financial statements.

Oritani Financial Corp. and Subsidiaries

Consolidated Statements of Cash Flows

(In thousands)

	Six Months ended December 31,
	2018			2017
	(unaudited)
Cash flows from operating activities:
Net income	$	26,826		$	15,966
Adjustments to reconcile net income to net cash provided by operating activities:
ESOP and stock-based compensation expense		1,670			2,265
Tax benefit from stock-based compensation		4			331
Depreciation of premises and equipment		383			388
Net amortization and accretion of premiums and discounts on securities		629			584
Reversal of provision for loan losses		(2,000	)		—
Amortization and accretion of deferred loan fees, net		(1,308	)		(1,246	)
Decrease in deferred taxes		98			11,198
Net losses on sale of debt securities available for sale		—			324
Fair value adjustment for equity securities		274			—
Gain on sale of real estate owned		(855	)		—
Increase in cash surrender value of bank owned life insurance		(1,234	)		(1,276	)
Increase in accrued interest receivable		(230	)		(248	)
Decrease (increase) in other assets		4,819			(6,375	)
(Decrease) increase in other liabilities		(3,151	)		10,670
Net cash provided by operating activities		25,925			32,581
Cash flows from investing activities:
Net decrease in loans receivable		175,476			34,472
Purchase of mortgage loans		(114,439	)		(52,766	)
Purchase of debt securities held to maturity		(43,508	)		(34,134	)
Purchase of Federal Home Loan Bank stock		(14,315	)		(19,890	)
Proceeds from payments, calls and maturities of debt securities available for sale		6,021			14,735
Proceeds from payments, calls and maturities of debt securities held to maturity		29,537			22,067
Proceeds from sales of debt securities available for sale		-			29,506
Proceeds from redemption of Federal Home Loan Bank stock		16,355			24,875
Proceeds from sale of real estate owned		1,783			138
Purchase of fixed assets		(71	)		(100	)
Net cash provided by investing activities		56,839			18,903
Cash flows from financing activities:
Net (decrease) increase in deposits		(11,923	)		89,115
Purchase of treasury stock		(28,747	)		(81	)
Dividends paid to shareholders		(28,425	)		(35,159	)
Exercise of stock options		205			3,765
Decrease in advance payments by borrowers for taxes and insurance		(1,857	)		(1,107	)
Proceeds from borrowed funds		70,627			32,870
Repayment of borrowed funds		(98,345	)		(135,413	)
Payment of employee taxes withheld from shared-based awards		(30	)		(81	)
Net cash used in financing activities		(98,495	)		(46,091	)
Net (decrease) increase in cash and cash equivalents		(15,731	)		5,393
Cash and cash equivalents at beginning of period		34,848			33,578
Cash and cash equivalents at end of period	$	19,117		$	38,971
Supplemental cash flow information:
Cash paid during the period for:
Interest	$	25,193		$	20,650
Income taxes	$	8,709		$	8,787

See accompanying notes to unaudited consolidated financial statements.

Index

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 six month period ended December 31, 2018 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 December 31, 2018 and June 30, 2018 and in the Consolidated Statements of Income for the Three and Six Months Ended December 31, 2018 and 2017. Actual results could differ significantly from those estimates.

A material estimate that is particularly susceptible to significant changes relates to the determination of the allowance for loan losses. The allowance for loan losses represents management’s best estimate of losses known and 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.

Index

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 December 31,				Six months ended December 31,
	2018		2017		2018		2017
	(In thousands, except per share data)
Net income	$	13,429	$	3,970	$	26,826	$	15,966
Weighted average common shares outstanding—basic		43,464		44,104		44,052		44,000
Effect of dilutive stock options outstanding		505		1,052		571		1,054
Weighted average common shares outstanding—diluted		43,969		45,156		44,623		45,054
Earnings per share-basic	$	0.31	$	0.09	$	0.61	$	0.36
Earnings per share-diluted	$	0.31	$	0.09	$	0.60	$	0.35

For the three months ended December 31, 2018 there were 12,181 option shares that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive for those periods. There were no anti-dilutive shares for the three months ended December 31, 2017. Anti-dilutive shares for the six months ended December 31, 2018 and 2017 were 6,345 and 489, 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. During the six months ended December 31, 2018, 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.

Index

4. Equity Incentive Plans

The 2007 Equity Incentive Plan (“the 2007 Equity Plan”) was approved by the Company’s stockholders on April 22, 2008, which authorized the issuance of up to 4,172,817 shares of Company common stock pursuant to grants of incentive and non-statutory stock options, stock appreciation rights, and restricted stock awards. The 2011 Equity Incentive Plan (“2011 Equity Plan”) was approved by the Company’s stockholders on July 26, 2011. The 2011 Equity Plan authorized the issuance of up to 5,790,849 shares of the Company’s common stock pursuant to grants of stock options, restricted stock awards and restricted stock units, with no more than 1,654,528 of the shares issued as restricted stock awards or restricted stock units. Employees and outside directors of the Company or Oritani Bank are eligible to receive awards under the Equity Plans.

Stock options are granted at an exercise price equal to the market price of our common stock on the grant date, based on quoted market prices. Stock options generally vest over a five-year service period and expire ten years from issuance. The vesting of the options accelerate upon death or disability, retirement or a change in control and expire 90 days after termination of service, excluding disability or retirement. The Company recognizes compensation expense for all option grants over the awards’ respective requisite service periods. Management estimated the fair values of all option grants using the Black-Scholes option-pricing model. Management estimated the expected life of the options using the simplified method. The Treasury yield in effect at the time of the grant provides the risk-free rate for periods within the contractual life of the option. The Company classified share-based compensation for employees and outside directors within “compensation, payroll taxes and fringe benefits” in the consolidated statements of income to correspond with the same line item as the cash compensation paid.

There were no options granted during the six months ended December 31, 2017. The fair value of options granted during the six months ended December 31, 2018 was estimated using the Black-Scholes options-pricing model with the assumptions in the following table.


		Six months ended December 31, 2018
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

The following is a summary of the Company’s stock option activity and related information as of December 31, 2018 and changes therein during the six months then ended:

	Number of Stock Options			Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)
Outstanding at June 30, 2018		2,599,864		$	2.64	$	12.16		3.4
Granted		20,000			0.78		16.15		10.0
Exercised		(16,000	)		2.61		12.82		3.6
Forfeited		(10,000	)		0.89		15.40		9.4
Expired		(10,000	)		2.69		12.99		3.6
Outstanding at December 31, 2018		2,583,864		$	2.64	$	12.19		2.9
Exercisable at December 31, 2018		2,486,264		$	2.70	$	12.06		2.7

The Company recorded $9,000 and $11,000 of share based compensation expense related to options for the three months ended December 31, 2018 and 2017, respectively. The Company recorded $20,000 and $23,000 of share based compensation expense related to options for the six months ended December 31, 2018 and 2017, respectively. Expected future expense related to the non-vested options outstanding at December 31, 2018 is $81,000 over a weighted average period of 3.9 years. Upon exercise of vested options, management expects to draw on treasury stock as the source of the shares.

Index

Restricted stock shares vest over a five-year service period on the anniversary date of the grant. Vesting of the restricted stock shares accelerate upon death or disability, retirement or a change in control. The product of the number of shares granted and the grant date market price of the Company’s common stock determines the fair value of restricted shares under the Company’s restricted stock plan. The Company recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period.

The following is a summary of the status of the Company’s restricted stock shares as of December 31, 2018 and changes therein during the six 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 December 31, 2018		18,800		$	15.91

The Company recorded $34,000 and $39,000 of share based compensation expense related to the restricted stock shares for the three months ended December 31, 2018 and 2017, respectively. The Company recorded $66,000 and $79,000 of share based compensation expense related to the restricted stock shares for the six months ended December 31, 2018 and 2017, respectively. Expected future expense related to the non-vested restricted shares at December 31, 2018 is $259,000 over a weighted average period of 3.4 years.

5. Post-retirement Benefits

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

Net periodic benefit costs for the three and six months ended December 31, 2018 and 2017 are presented in the following tables.

	Retirement Plan					BEP Plan				Medical Plan
	Three months ended December 31,
	2018			2017		2018		2017		2018		2017
	(In thousands)
Service cost		$	31	$	33	$	—	$	—	$	12	$	15
Interest cost			54		52		13		11		58		52
Amortization of unrecognized:
Net loss			—		—		9		9		—		—
Total		$	85	$	85	$	22	$	20	$	70	$	67

	Retirement Plan					BEP Plan				Medical Plan
	Six months ended December 31,
	2018			2017		2018		2017		2018		2017
	(In thousands)
Service cost		$	61	$	65	$	—	$	—	$	23	$	30
Interest cost			109		104		26		22		117		105
Amortization of unrecognized:
Net loss			—		—		17		18		—		—
Total		$	170	$	169	$	43	$	40	$	140	$	135

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.

Index

6. Loans, net

Loans, net are summarized as follows:

	December 31, 2018		June 30, 2018
	(In thousands)
Residential	$	268,644	$	267,771
Residential commercial real estate		2,033,679		2,005,315
Grocery/credit retail commercial real estate		495,442		497,708
Other commercial real estate		715,350		796,589
Construction and land loans		8,489		10,960
Total loans		3,521,604		3,578,343
Less:
Unearned deferred fees and discounts, net		9,791		6,878
Allowance for loan losses		28,639		30,562
Loans, net	$	3,483,174	$	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 six months ended December 31, 2018 and 2017 is summarized as follows:

	Three months ended December 31,						Six Months ended December 31,
	(In thousands)
	2018			2017			2018				2017
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

Index

The following tables provide the three and six month activity in the allowance for loan losses allocated by loan category at December 31, 2018 and 2017. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

	Three months ended December 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		$	2,100			$	15,434			$	3,133		$	7,776			$	122		$	28,565
Charge-offs			—				—				—			—				—			—
Recoveries			15				—				—			59				—			74
Provisions (reversal)			(113	)			(175	)			141			(55	)			202			—
Ending balance		$	2,002			$	15,259			$	3,274		$	7,780			$	324		$	28,639

	Six Months ended December 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		$	1,990			$	17,259			$	3,015		$	7,828			$	470			$	30,562
Charge-offs			—				—				—			—				—				—
Recoveries			18				—				—			59				—				77
Provisions (reversal)			(6	)			(2,000	)			259			(107	)			(146	)			(2,000	)
Ending balance		$	2,002			$	15,259			$	3,274		$	7,780			$	324			$	28,639

	Three months ended December 31, 2017
	Residential			Residential commercial real estate			Grocery/credit retail commercial real estate				Other commercial real estate				Construction and land loans			Total
	(In thousands)
Allowance for loan losses:
Beginning balance		$	1,286		$	15,762		$	3,196			$	9,937			$	221		$	30,402
Charge-offs			—			—			—				—				—			—
Recoveries			—			—			—				—				—			—
Provisions (reversal)			616			713			(296	)			(1,154	)			121			—
Ending balance		$	1,902		$	16,475		$	2,900			$	8,783			$	342		$	30,402

	Six Months ended December 31, 2017
	Residential				Residential commercial real estate			Grocery/credit retail commercial real estate				Other commercial real estate				Construction and land loans			Total
	(In thousands)
Allowance for loan losses:
Beginning balance		$	1,261			$	15,794		$	3,000			$	10,017			$	200		$	30,272
Charge-offs			(22	)			—			—				—				—			(22	)
Recoveries			120				—			—				—				32			152
Provisions (reversal)			543				681			(100	)			(1,234	)			110			—
Ending balance		$	1,902			$	16,475		$	2,900			$	8,783			$	342		$	30,402

Index

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 December 31, 2018 and June 30, 2018.

	At December 31, 2018
	Residential		Residential commercial real estate		Grocery/credit retail commercial real estate		Other commercial real estate		Construction and land loans		Total
	(In thousands)
Allowance for loan losses:
Individually evaluated for impairment	$	65	$	—	$	—	$	—	$	—	$	65
Collectively evaluated for impairment		1,937		15,259		3,274		7,780		324		28,574
Total	$	2,002	$	15,259	$	3,274	$	7,780	$	324	$	28,639
Loans receivable:
Individually evaluated for impairment	$	5,821	$	—	$	—	$	3,842	$	—	$	9,663
Collectively evaluated for impairment		262,823		2,033,679		495,442		711,508		8,489		3,511,941
Total	$	268,644	$	2,033,679	$	495,442	$	715,350	$	8,489	$	3,521,604

	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

Index

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 December 31, 2018 and June 30, 2018:

	At December 31, 2018
	Satisfactory		Pass/Watch		Special Mention		Substandard		Doubtful		Total
	(In thousands)
Residential	$	244,573	$	16,730	$	356	$	6,985	$	—	$	268,644
Residential commercial real estate		2,014,401		17,713		1,565		—		—		2,033,679
Grocery/credit retail commercial real estate		492,514		2,928		—		—		—		495,442
Other commercial real estate		621,785		77,411		11,707		4,447		—		715,350
Construction and land loans		8,489		—		—		—		—		8,489
Total	$	3,381,762	$	114,782	$	13,628	$	11,432	$	—	$	3,521,604

	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		1,582		—		—		2,005,315
Grocery/credit retail commercial real estate		494,723		—		2,985		—		—		497,708
Other commercial real estate		688,725		92,430		10,164		5,270		—		796,589
Construction and land loans		10,960		—		—		—		—		10,960
Total	$	3,418,723	$	133,113	$	14,902	$	11,605	$	—	$	3,578,343

Index

The following tables provide information about loans past due at December 31, 2018 and June 30, 2018:

	At December 31, 2018
	30-59 Days Past Due		60-89 Days Past Due		90 days or More Past Due		Total Past Due		Current		Total Loans		Nonaccrual (1)
	(In thousands)
Residential	$	1,239	$	719	$	6,223	$	8,181	$	260,463	$	268,644	$	6,984
Residential commercial real estate		1,565		—		—		1,565		2,032,114		2,033,679		—
Grocery/credit retail commercial real estate		—		—		—		—		495,442		495,442		—
Other commercial real estate		409		8,074		2,491		10,974		704,376		715,350		3,721
Construction and land loans		—		—		—		—		8,489		8,489		—
Total	$	3,213	$	8,793	$	8,714	$	20,720	$	3,500,884	$	3,521,604	$	10,705

	At June 30, 2018
	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	$	2,696	$	753	$	5,213	$	8,662	$	259,109	$	267,771	$	6,335
Residential commercial real estate		1,582		—		—		1,582		2,003,733		2,005,315		—
Grocery/credit retail commercial real estate		—		—		—		—		497,708		497,708		—
Other commercial real estate		1,009		—		136		1,145		795,444		796,589		1,542
Construction and land loans		—		—		—		—		10,960		10,960		—
Total	$	5,287	$	753	$	5,349	$	11,389	$	3,566,954	$	3,578,343	$	7,877

(1)	Included in nonaccrual loans at December 31, 2018 are residential loans totaling $202,000 and other commercial real estate loans totaling $121,000 that were 30-59 days past due; and residential loans totaling $362,000 that were 60-89 days past due; and residential loans totaling $197,000 and other commercial real estate loans totaling $1.1 million that were less than 30 days past due.
(2)	Included in nonaccrual loans at June 30, 2018 are residential loans totaling $35,000 that were 30-59 days past due; residential loans totaling $582,000 that were 60-89 days past due; and residential loans totaling $504,000 and other commercial real estate loans totaling $1.4 million that were less than 30 days past due.

Index

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 December 31, 2018 impaired loans were primarily collateral-dependent and totaled $9.7 million, of which $65,000 had a related allowance for credit losses of $65,000 and $9.6 million of impaired loans had no related allowance for credit losses. At June 30, 2018 impaired loans were primarily collateral-dependent and totaled $9.2 million, with no related allowance for credit losses.

The following table provides information about the Company’s impaired loans at December 31, 2018 and June 30, 2018:

	At December 31, 2018						At June 30, 2018
	Recorded Investment		Unpaid Principal Balance		Allowance		Recorded Investment		Unpaid Principal Balance		Allowance
	(In thousands)
With no related allowance recorded:
Residential	$	5,763	$	5,756	$	—	$	5,021	$	5,022	$	—
Other commercial real estate		3,680		3,842		—		4,018		4,181		—
Total		9,443		9,598		—		9,039		9,203		—
With an allowance recorded:
Residential	$	—	$	65	$	65	$	—	$	—	$	—

Residential	$	5,763	$	5,821	$	65	$	5,021	$	5,022	$	—
Other commercial real estate		3,680		3,842		—		4,018		4,181		—
Total	$	9,443	$	9,663	$	65	$	9,039	$	9,203	$	—

Index

The following tables present the average recorded investment and interest income recognized on impaired loans for the three and six months ended December 31, 2018 and 2017:

	Three months ended December 31,
	2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
With no related allowance recorded:
Residential	$	5,767	$	57	$	3,639	$	1
Other commercial real estate		3,736		51		8,189		126
		9,503		108		11,828		127
With an allowance recorded:
Residential		—		—		1,107		13

Total:
Residential		5,767		57		4,746		14
Other commercial real estate		3,736		51		8,189		126
	$	9,503	$	108	$	12,935	$	140
Cash basis interest income			$	84			$	109

	Six months ended December 31,
	2018				2017
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(In thousands)
With no related allowance recorded:
Residential	$	5,440	$	75	$	3,638	$	37
Other commercial real estate		3,770		120		8,227		226
		9,210		195		11,865		263
With an allowance recorded:
Residential		—		—		632		13

Total:
Residential		5,440		75		4,270		50
Other commercial real estate		3,770		120		8,227		226
	$	9,210	$	195	$	12,497	$	276
Cash basis interest income			$	129			$	236

Index

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 December 31, 2018 and June 30, 2018, are $1.7 million and $1.9 million, respectively of loans which are deemed TDRs.

The following table presents additional information regarding the Company’s TDRs as of December 31, 2018 and June 30, 2018:

	Troubled Debt Restructurings at December 31, 2018							Troubled Debt Restructurings at June 30, 2018
	Performing			Nonperforming		Total		Performing		Nonperforming		Total
	(In thousands)							(In thousands)
Residential		$	—	$	171	$	171	$	—	$	174	$	174
Other commercial real estate			257		1,230		1,487		309		1,407		1,716
Total		$	257	$	1,401	$	1,658	$	309	$	1,581	$	1,890
Allowance		$	—	$	—	$	—	$	—		—	$	—

The following tables present information about TDRs for the periods presented:

	Three and Six Months Ended December 31,
	2018								2017
	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		$	271		$	249
Total		—		$	—		$	—		1		$	271		$	249

There were no loan relationships modified in a troubled debt restructuring during the three and six months ended December 31, 2018. The relationship modified during the three and six months ended December 31, 2017 was restructured from interest only to a principal and interest amortizing loan through maturity.

There were no payment defaults on loans modified as troubled debt restructurings within twelve months of modification during the three and six months ended December 31, 2018 and 2017.

Index

7. Debt Securities

Debt Securities Held to Maturity

The following is a comparative summary of debt securities held to maturity at December 31, 2018 and June 30, 2018:

	At December 31, 2018
	Amortized cost		Gross unrecognized gains		Gross unrecognized losses		Fair value
	(In thousands)
U.S. Government and Federal agency obligations
Due in less than one year	$	6,750	$	—	$	82	$	6,668
Due in five to ten years		10,000		—		—		10,000
Mortgage-backed securities:
Residential MBS		227,624		330		4,217		223,737
Commercial MBS		12,811		—		228		12,583
CMO		76,544		182		1,678		75,048
Corporate Note
Due in five to ten years		15,039		91		—		15,130
	$	348,768	$	603	$	6,205	$	343,166

	At June 30, 2018
	Amortized cost		Gross unrecognized gains		Gross unrecognized losses		Fair value
	(In thousands)
U.S. Government and Federal agency obligations
Due in less than one year	$	1,750	$	—	$	23	$	1,727
Due in one to five years		5,000		—		94		4,906
Mortgage-backed securities:
Residential MBS		220,057		23		5,965		214,115
Commercial MBS		13,035		—		421		12,614
CMO		85,488		35		2,398		83,125
Corporate Note
Due in five to ten years		10,044		—		20		10,024
	$	335,374	$	58	$	8,921	$	326,511

The contractual maturities of mortgage-backed securities held to maturity generally exceed 20 years; however, the effective lives are expected to be significantly shorter due to scheduled principal payments, 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 debt securities held to maturity during the three and six months ended December 31, 2018 and 2017. Debt securities with fair values of $8.2 million and $9.1 million at December 31, 2018 and June 30, 2018, respectively, were pledged for advances. There were no debt securities held to maturity pledged for cash flow hedge interest rate swaps at December 31, 2018 and June 30, 2018. Debt securities held to maturity with fair values of $20.7 million were pledged for municipal deposits at December 31, 2018 and none were pledged at June 30, 2018. The Company did not record other-than-temporary impairment charges on debt securities held to maturity during the three and six months ended December 31, 2018 and 2017.

Index

Gross unrecognized losses on debt 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 unrecognized loss position at December 31, 2018 and June 30, 2018 were as follows:

	At December 31, 2018
	Less than 12 months					Greater than 12 months				Total
	Fair value			Gross unrecognized losses		Fair value		Gross unrecognized losses		Fair value		Gross unrecognized losses
	(In thousands)
U.S. Government and Federal agency obligations
Due in less than one year		$	—	$	—	$	6,668	$	82	$	6,668	$	82
Mortgage-backed securities:
Residential MBS			39,799		82		157,204		4,135		197,003		4,217
Commercial MBS			1,536		2		11,047		226		12,583		228
CMO			—		—		50,382		1,678		50,382		1,678
		$	41,335	$	84	$	225,301	$	6,121	$	266,636	$	6,205

	At June 30, 2018
	Less than 12 months				Greater than 12 months				Total
	Fair value		Gross unrecognized losses		Fair value		Gross unrecognized losses		Fair value		Gross unrecognized losses
	(In thousands)
U.S. Government and Federal agency obligations
Due in less than one year	$	—	$	—	$	1,727	$	23	$	1,727	$	23
Due in one to five years		—		—		4,906		94		4,906		94
Mortgage-backed securities:
Residential MBS		188,281		4,646		24,712		1,319		212,993		5,965
Commercial MBS		8,290		224		4,324		197		12,614		421
CMO		9,106		279		48,211		2,119		57,317		2,398
Corporate Note
Due in five to ten years		10,024		20		—		—		10,024		20
	$	215,701	$	5,169	$	83,880	$	3,752	$	299,581	$	8,921

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 unrecognized losses on 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 securities until a market price recovery or maturity, these securities are not considered other-than-temporarily impaired.

Index

Debt Securities Available for Sale

The following is a comparative summary of debt securities available for sale at December 31, 2018 and June 30, 2018:

	At December 31, 2018
	Amortized cost			Gross unrealized gains		Gross unrealized losses		Fair value
	(In thousands)
Mortgage-backed securities:
Residential MBS		$	32	$	1	$	—	$	33
Commercial MBS			3,999		38		—		4,037
CMO			34,146		—		922		33,224
		$	38,177	$	39	$	922	$	37,294

	At June 30, 2018
	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value
	(In thousands)
Mortgage-backed securities:
Residential MBS	$	70	$	1	$	—	$	71
Commercial MBS		4,074		63		—		4,137
CMO		40,106		—		1,188		38,918
Equity securities		601		964		—		1,565
	$	44,851	$	1,028	$	1,188	$	44,691

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 debt securities available for sale for the three and six months ended December 31, 2018. Proceeds from the sale of debt securities available for sale for both the three and six months ended December 31, 2017 were $29.5 million on securities with an amortized cost of $29.8 million, resulting in gross losses of $324,000. Available for sale debt securities with fair values of $14.1 million and $15.5 million at December 31, 2018 and June 30, 2018, respectively, were pledged for advances. There were no debt securities available for sale securities pledged for cash flow hedge interest rate swaps at December 31, 2018 and June 30, 2018, respectively. There were no available for sale debt securities pledged for municipal deposits at December 31, 2018 and June 30, 2018. There were no other-than-temporary impairment charges on available for sale debt securities for the three and six months ended December 31, 2018 and 2017.

Index

Gross unrealized losses on debt securities available for sale and the fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2018 and June 30, 2018 were as follows:

	At December 31, 2018
	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		$	2,170		$	7		$	31,054		$	915		$	33,224		$	922
		$	2,170		$	7		$	31,054		$	915		$	33,224		$	922

	At June 30, 2018
	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		$	20,651		$	444		$	18,267		$	744		$	38,918		$	1,188
		$	20,651		$	444		$	18,267		$	744		$	38,918		$	1,188

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 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 securities until a market price recovery or maturity, these securities are not considered other-than-temporarily impaired.

Equity Securities

Equity Securities are reported at fair value on the Company's Consolidated Balance Sheets. The Company's portfolio of equity securities had an estimated fair value of $1.3 million at December 31, 2018. There were no sales of equity securities for the three and six months ended December 31, 2018. Realized gains and losses from sales of equity securities as well as changes in fair value of equity securities still held at the reporting date are recognized in the Consolidated Statements of Income. The Company adopted FASB Accounting Standard Update ("ASU") 2016-01 on July 1, 2018 resulting in the cumulative-effect adjustment of $658,000 reflected in the consolidated statement of stockholders' equity. The Company recorded a net decrease in fair value of equity securities of $155,000 and $274,000 for the three and six months ended December 31, 2018, respectively. The update supersedes the guidance to classify equity securities with readily determinable fair values into different categories and requires equity securities to be measured at fair value with changes in the fair value recognized through net income rather than other comprehensive income.

Index

8. Deposits

Deposits include checking (non-interest and interest-bearing demand deposits), money market, savings and time deposits. We had brokered deposits totaling $420.5 million and $450.4 million at December 31, 2018 and June 30, 2018, respectively. Total municipal deposits were $538.0 million and $535.7 million at December 31, 2018 and June 30, 2018, respectively. Municipal deposits are secured by a Federal Home Loan Bank of New York municipal deposit letter of credit in the amount of $157.0 million and $217.0 million at December 31, 2018 and June 30, 2018, respectively. Municipal deposits are also secured by debt securities held to maturity with fair values of $20.7 million at December 31, 2018. As of December 31, 2018 and June 30, 2018, the aggregate amount of outstanding time deposits in amounts greater than $250,000 was $222.2 million and $244.7 million, respectively.

Deposit balances are summarized as follows:

	December 31, 2018		June 30, 2018
	(In thousands)
Checking accounts	$	718,318	$	751,735
Money market deposit accounts		654,219		763,003
Savings accounts		323,517		188,859
Time deposits		1,207,151		1,211,531
	$	2,903,205	$	2,915,128

9. Derivatives and Hedging Activities

Oritani is exposed to certain risks regarding its ongoing business operations. Derivative instruments are used to offset a portion of the Company's interest rate risk. Specifically, the Company has utilized interest rate swaps to partially offset the interest rate risk inherent in the Company's balance sheet. Oritani recognizes interest rate swaps as either assets or liabilities at fair value in the statement of financial condition with an offset recorded in Other Comprehensive Income and any ineffectiveness is recorded in earnings. The interest rate swaps have been designed as cash flow hedges. For all cash flow hedges the balance sheet item that has been hedged is brokered deposits.

Oritani is exposed to credit-related losses in the event of nonperformance by the counterparties to the agreements. Oritani controls the credit risk through monitoring procedures and does not expect the counterparty to fail their obligations. Oritani only deals with primary dealers and believes that the credit risk inherent in these contracts was not significant during and at period end. Oritani has the right to demand that the counterparty post collateral to cover any market value shortfall of the counterparty regarding the transaction.

At December 31, 2018, Oritani had twenty one interest rate swap agreements with a total notional outstanding of $375.0 million . These agreements all feature exchanges of fixed for variable payments covering various hedging periods maturing between June 2019 and June 2025. The Company is paying fixed rates on these swaps ranging from 0.68% to 1.90%, in exchange for receiving variable payments linked to one month LIBOR .

The following table presents amounts included in the consolidated balance sheets related to the fair value of derivative financial instruments at December 31, 2018 and June 30, 2018 (dollars in thousands):

		At December 31, 2018					At June 30, 2018
Balance Sheet Line Item		Notional Amount			Fair Value		Notional Amount			Fair Value
Cash flow hedge interest rate swaps
Gross unrealized gain	Other Assets	$	375,000		$	11,135	$	405,000		$	16,789
Gross notional / net fair value		$	375,000		$	11,135	$	405,000		$	16,789
Average rate paid			1.51	%				1.96	%
Average rate received			2.25	%				2.06	%
Weighted average maturity (years)			3.6					3.9

Index

Gains (losses) included in the consolidated statements of income and in comprehensive income, on a pre-tax basis, related to cash flow hedge interest rate swaps are as follows:

	Three months ended December 31,							Six months ended December 31,
	2018				2017			2018			2017
	(in thousands)
Amount of (loss) gain recognized in other comprehensive income		$	(6,124	)	$	3,071		$	(4,273	)	$	2,646
Amount of unrealized gain (loss) reclassified from accumulated other comprehensive loss to interest expense			765			(176	)		1,381			(403	)
Net change in unrealized (loss) gain on interest rate swaps, before taxes		$	(6,889	)	$	3,247		$	(5,654	)	$	3,049

Ineffectiveness recognized during the three and six months ended December 31, 2018 and 2017 was immaterial. There were no accumulated net after-tax losses related to effective cash flow hedges included in accumulated other comprehensive loss at December 31, 2018 and June 30, 2018, respectively. Amounts reported in accumulated other comprehensive income related to cash flow interest rate swaps are reclassified to interest expense as interest payments are made. There were no securities pledged for the swaps at December 31, 2018 and June 30, 2018.

10. Income Taxes

The Company files income tax returns in the United States federal jurisdiction and in New Jersey, and New York city and state jurisdictions. The Company is no longer subject to federal and state income tax examinations by tax authorities for years prior to 2014. The Company's federal return for the tax year ended December 31, 2015 is currently under audit.

The enactment of the Tax Cuts and Jobs Act on December 22, 2017 lowered the federal corporate income tax rate to 21% beginning in 2018 from a maximum rate of 35% in 2017. The benefit of the lower federal tax rate 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 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 was included in income tax expense for the six months ended December 31, 2018. Because the Company has a fiscal year end of June 30, the reduced corporate tax rate resulted in the application of a blended federal statutory tax rate of 28% for its fiscal year 2018. Applying the blended statutory tax rate to the results for the September 30, 2017 quarterly period resulted in a $1.3 million reduction recognized in the December 31, 2017 quarterly period.

While the Act will lower the Company's future tax rate, in accordance with ASC 740 companies are required to re-measure deferred tax balances using the new enacted tax rates to account for the future impact of lower corporate tax rates on these deferred amounts. The Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The tax expense recorded in December 31, 2017 quarterly period relating to the remeasurement of the Company's deferred tax balances was $10.2 million.

Index

11. 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.

Equity Securities

Our equity securities portfolio is carried at estimated fair value on a recurring basis, with any gains and losses reported in the Consolidated Statements of Income. The fair value of equity securities are based on quoted market prices (Level 1). The Company adopted FASB ASU 2016-01 on July 1, 2018.

Debt Securities

The Company records debt securities held to maturity at amortized cost and debt 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.

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.

Index

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.

In connection with the adoption of ASU 2016-01 on July 1, 2018, the Company refined the methodology used to estimate the fair value of the loan portfolio using an exit price notion resulting in prior periods no longer being comparable. The exit price notion requires determination of the price at which willing market participants would transact at the measurement date under current market conditions depending on facts and circumstances, such as origination rates, credit risk, transaction costs, liquidity, and other adjustments. The application of an exit price notion requires the use of significant judgment. Estimated fair value for loans is determined 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. At December 31, 2018, estimated fair value of loans is determined using a discounted cash flow model that employs an exit discount rate that reflects the current market pricing for loans with similar characteristics and remaining maturity, adjusted by underwriting uncertainty, liquidity and credit discounts. The June 30, 2018 estimated fair value of loans was determined using an entrance price methodology based only on the discounted value of contracted cash flows based on prevailing interest rates for loans with similar characteristics and remaining maturity. 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.

Index

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 December 31, 2018 and June 30, 2018 by level within the fair value hierarchy. There were no transfers between levels within the fair value hierarchy during the six months ended December 31, 2018.

	Fair Value as of December 31, 2018		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	$	1,291	$	1,291	$	—	$	—
Mortgage-backed securities available for sale
Residential MBS		33		—		33		—
Commercial MBS		4,037		—		4,037		—
CMO		33,224		—		33,224		—
Total debt securities available for sale		37,294		—		37,294		—

Interest rate swaps		11,135		—		11,135		—
Total assets measured on a recurring basis	$	49,720	$	1,291	$	48,429	$	—

	Fair Value as of June 30, 2018		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	$	1,565	$	1,565	$	—	$	—
Mortgage-backed securities available for sale
Residential MBS		71		—		71		—
Commercial MBS		4,137		—		4,137		—
CMO		38,918		—		38,918		—
Total debt securities available for sale		44,691		1,565		43,126		—

Interest rate swaps		16,789		—		16,789		—
Total assets measured on a recurring basis	$	61,480	$	1,565	$	59,915	$	—

Index

Assets Recorded at Fair Value on a Nonrecurring Basis

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

The following tables present the recorded amount of assets measured at fair value on a nonrecurring basis as of December 31, 2018 and June 30, 2018 by level within the fair value hierarchy.

	Fair Value as of December 31, 2018			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:
Other commercial real estate		$	1,041		$	—		$	—		$	1,041
Total impaired loans			1,041			—			—			1,041
Real estate owned
Other commercial real estate			636			—			—			636
Total real estate owned			636			—			—			636
Total assets measured on a non-recurring basis		$	1,677		$	—		$	—		$	1,677

	Fair Value as of June 30, 2018			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:
Other commercial real estate		$	1,056		$	—		$	—		$	1,056
Total impaired loans			1,056			—			—			1,056
Real estate owned
Other commercial real estate			1,564			—			—			1,564
Total real estate owned			1,564			—			—			1,564
Total assets measured on a non-recurring basis		$	2,620		$	—		$	—		$	2,620

Index

Estimated Fair Value of Financial Instruments

The following tables present the carrying amount, estimated fair value, and placement in the fair value hierarchy of financial instruments not recorded at fair values in their entirety on a recurring basis on the Company’s balance sheet at December 31, 2018 and June 30, 2018. 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, overnight borrowings, and accrued interest.

	December 31, 2018
	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:
Debt securities held to maturity		$	348,768		$	343,166		$	—		$	343,166		$	—
Loans, net			3,483,174			3,398,255			—			—			3,398,255
Financial liabilities:
Time deposits			1,207,151			1,213,151			—			1,213,151			—
Term borrowings			529,654			522,038			—			522,038			—

	June 30, 2018
	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:
Debt securities held to maturity		$	335,374		$	326,511		$	—		$	326,511		$	—
Loans, net			3,540,903			3,470,434			—			—			3,470,434
Financial liabilities:
Time deposits			1,211,531			1,219,558			—			1,219,558			—
Term borrowings			497,372			486,278			—			486,278			—

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.

Index

12. Other Comprehensive Income

The components of comprehensive income, both gross and net of tax, are presented for the periods below (in thousands):

	Three months ended December 31,						Six months ended December 31,
	2018			2017			2018			2017
Gross:
Net income	$	17,921		$	18,018		$	36,410		$	37,121
Other comprehensive income:
Change in unrealized holding gain (loss) on debt securities available for sale		394			(634	)		241			(642	)
Reclassification adjustment for security loss included in net income		—			324			—			324
Amortization related to post-retirement obligations		9			9			17			18
Net change in unrealized (loss) gain on interest rate swaps		(6,889	)		3,247			(5,654	)		3,049
Total other comprehensive (loss) income		(6,486	)		2,946			(5,396	)		2,749
Total comprehensive income		11,435			20,964			31,014			39,870
Tax applicable to:
Net income		4,492			14,048			9,584			21,155
Other comprehensive income:
Change in unrealized holding gain (loss) on debt securities available for sale		115			(273	)		81			(277	)
Reclassification adjustment for security loss included in net income		—			140			—			140
Amortization related to post-retirement obligations		4			4			4			8
Net change in unrealized (loss) gain on interest rate swaps		(2,022	)		1,400			(1,661	)		1,312
Total other comprehensive (loss) income		(1,903	)		1,271			(1,576	)		1,183
Total comprehensive income		2,589			15,319			8,008			22,338
Net of tax:
Net income		13,429			3,970			26,826			15,966
Other comprehensive income:
Change in unrealized holding gain (loss) on debt securities available for sale		279			(361	)		160			(365	)
Reclassification adjustment for security loss included in net income		—			184			—			184
Amortization related to post-retirement obligations		5			5			13			10
Net change in unrealized (loss) gain on interest rate swaps		(4,867	)		1,847			(3,993	)		1,737
Total other comprehensive (loss) income		(4,583	)		1,675			(3,820	)		1,566
Total comprehensive income	$	8,846		$	5,645		$	23,006		$	17,532

Index

The following table presents the changes in the components of accumulated other comprehensive income (loss), net of tax, for the six months ended December 31, 2018 and 2017 (in thousands):

	Unrealized Holding (Loss) Gain on Debt Securities Available for Sale			Post Retirement Obligations			Unrealized Holding Gain (Loss) on Interest Rate Swaps			Accumulated Other Comprehensive Income (Loss), Net of Tax
Balance at June 30, 2018	$	(86	)	$	(314	)	$	11,623		$	11,223
Net change		160			13			(3,993	)		(3,820	)
Reclassification due to the adoption of ASU No. 2016-01		(658	)		—			—			(658	)
Balance at December 31, 2018	$	(584	)	$	(301	)	$	7,630		$	6,745

Balance at June 30, 2017	$	438		$	(569	)	$	3,651		$	3,520
Net change		(181	)		10			1,737			1,566
Balance at December 31, 2017	$	257		$	(559	)	$	5,388		$	5,086

The following table sets forth information about the amount reclassified from accumulated other comprehensive (loss) income to the consolidated statement of income and the affected line item in the statement where net income is presented (in thousands).

		Three months ended December 31,				Six months ended December 31,
Accumulated Other Comprehensive (Loss) Income Component	Affected line item in the Consolidated Statement of Income	2018		2017		2018		2017
Reclassification adjustment for security losses included in net income	Net loss on sale of debt securities available for sale	$	—	$	324	$	—	$	324

Amortization related to post-retirement obligations (1)
Net loss	Other expenses		9		9		17		18
Total before tax			9		333		17		342
Income tax benefit			4		144		4		148
Net of tax			5		189		13		194

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

Index

13. Revenue Recognition

Effective July 1, 2018 the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers ("Topic 606") and all subsequent ASUs that modified Topic 606. For further details on ASU No. 2014-09 see Note 14 - "Recent Accounting Pronouncements." The adoption of ASU No. 2014-09 did not have a material impact on the measurement or recognition of revenue as it does not apply to revenue associated with financial instruments, including revenue from loans and investment securities, which is the Company's primary source of revenue. In addition, certain non-interest income streams such as income on bank owned life insurance, gains on securities transactions, and other non-interest income are not in the scope of the guidance. The Company's revenue streams that are within the scope of Topic 606 include service charges on deposit accounts, ATM and card interchange fees, and sales of OREO. However, the revenue recognition of these revenue streams did not change upon adoption of Topic 606 as our customer contracts generally do not have performance obligations and fees are assessed and collected as the transaction occurs.

The following table summarizes non-interest income for the periods indicated (in thousands):

	Three Months Ended December 31,						Six Months Ended December 31,
	2018			2017			2018			2017

Fees and service charges for customer services:
Service charges on deposits	$	133		$	129		$	258		$	251
ATM and card interchange fees		137			130			267			249
Service charges on loans		57			54			114			135
Total fees and service charges	$	327		$	313		$	639		$	635
Income on bank owned life insurance		610			630			1,234			1,276
Gains (losses) on sale of OREO		855			—			855			—
Net losses on sale of debt securities available for sale		—			(324	)		—			(324	)
Change in fair value of equity securities		(155	)		—			(274	)		—
Other		5			4			9			6
Total non-interest income	$	1,642		$	623		$	2,463		$	1,593

Service charges on deposit accounts include account maintenance fees, overdraft fees, insufficient fund fees, wire fees, and other deposit related fees.

ATM and card interchange fees, which include fees generated when a Bank cardholder uses a non-Bank ATM or a non-Bank cardholder uses a Bank ATM, and fees earned whenever the Bank's debit cards are processed through card payment networks such as Visa; as well as fees earned through partnering with a third party service firm to provide Oritani branded credit cards. The Company's performance obligation for service charges on deposit accounts and ATM and card interchange fees is satisfied as services are rendered and related revenue is recognized immediately or in the month of performance of services.

Out-of-scope non-interest income primarily consists of gains and losses on the sale of investments, loans, and derivatives, and service charges on loans such as loan prepayment fees and loan servicing fees.

Index

14. Recent Accounting Pronouncements

In August 2017, the FASB issued ASU 2017-12, "Targeted Improvements to Accounting for Hedging Activities". The purpose of this updated guidance is to better align a company's financial reporting for hedging activities with the economic objectives of those activities. The update is effective for fiscal years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. The update requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The Company adopted ASU 2017-12 on July 1, 2018. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting". This update provides guidance about changes to terms or conditions of a share based payment award which would require modification accounting. In particular, an entity is required to account for the effects of a modification if the fair value, vesting condition or the equity/liability classification of the modified award is not the same immediately before and after a change to the terms and conditions of the award. This update is effective on a prospective basis for fiscal years beginning after December 15, 2017, with early adoption permitted. The Company adopted this standard effective July 1, 2018. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, "Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost." This update will require employers that sponsor defined benefit pension plans to present the service cost component of net periodic benefit cost in the same income statement line item as other employee compensation costs arising from services rendered during the period. Other components of the net periodic benefit cost will be presented separately from the service cost component. This update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. The Company adopted this guidance effective July 1, 2018. The other components of net periodic benefit cost are presented as a component of other non-interest expense. The adoption resulted in a reclassification of $349,000 and $698,000 for the three and six months ended December 31, 2017, respectively, from compensation and employee benefits to other expenses.

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory". This update requires that an entity recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. This update is effective for fiscal years beginning after December 31, 2017, including interim periods within that year. The Company adopted this standard effective July 1, 2018. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, "Statement of Cashflows (Topic 230): Classification of Certain Cash Receipts and Cash Payments". This update addresses eight specific cash flow issue with the objective of reducing existing diversity in practice. This update is effective for fiscal years beginning after December 31, 2017, including interim periods within that year. The Company adopted this standard effective July 1, 2018. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements, nor was additional disclosure deemed necessary.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". This update revises the methodology for estimating credit losses on loans receivable, held-to-maturity debt securities, unfunded loan commitments, and certain other financial assets measured at amortized cost. Under ASU 2016-13, the current expected credit losses ("CECL") model is based on lifetime expected losses, rather than incurred losses, and requires the recognition of credit loss expense in the statement of income and a related allowance for credit losses on the balance sheet at the time of origination or purchase of a loan receivable or held-to-maturity debt security. Subsequent changes in this estimate are recorded through credit loss expense and related allowance. The CECL model requires the use of not only relevant historical experience and current conditions, but also reasonable and supportable forecasts of future events and circumstances, thus incorporating a broad range of information in developing credit loss estimates, which could result in significant changes to both the timing and amount of credit loss expense and allowance. Under ASU 2016-13, available-for-sale debt securities are evaluated for impairment if fair value is less than amortized cost. Estimated credit losses are recorded through a credit loss expense and an allowance, rather than a write-down of the investment. Changes in fair value that are not credit-related will continue to be recorded in other comprehensive income. Certain additional disclosures are required, including further disaggregation of credit quality indicators for loans receivable by year of origination. This update is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is evaluating the impact of this update on its consolidated financial statements, the extent of which is indeterminable at this time as it will be dependent upon various factors at the date of adoption, including but not limited to portfolio composition, credit quality, economic conditions and forecasts at that time.

Index

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. The Company expects a gross-up of its consolidated balance sheet as a result of recognizing lease liabilities and right of use assets; the extent of such gross-up is under evaluation. As such, no conclusions have yet been reached regarding the potential impact upon adoption on the Company's consolidated financial statements, regulatory capital, and risk weighted assets; however, the Company does not expect the amendment to have a material impact on its results of operations.

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 disclosure of fair value of the loan portfolio will be impacted as the fair value will be calculated using an exit price. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company adopted this standard effective July 1, 2018. The Company recorded a cumulative effect adjustment for its equity instruments to the balance sheet as of July 1, 2018 in the amount of $658,000, representing the unrealized gain, net of tax at June 30, 2018. Going forward the fair value will be realized in the statement of income.

In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers." The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are in the scope of other standards. In August 2015, the FASB issued ASU 2015-14 to defer for one year the effective date of the new revenue standard. During 2016, the FASB issued further implementation guidance regarding revenue recognition. This additional guidance included clarification on certain principal versus agent considerations within the implementation of the guidance as well as clarification related to identifying performance obligations and licensing, assessing collectibility, presenting sales tax, measuring noncash consideration, and certain transaction matters. The requirements are effective for annual periods and interim periods within fiscal years beginning after December 15, 2017. The Company's primary revenue source is net interest income on financial instruments and, to a lesser extent, non-interest income. The guidance does not apply to revenue associated with loans (ASC310 Receivables) securities (ASC320 Debt and Equity Securities), derivatives (ASC 815 Derivatives and Hedging), leases (ASC 840/842), and bank owned life insurance ("BOLI") (ASC 325 Investments in insurance contracts), which are accounted for under U.S. GAAP. The Company adopted this standard effective July 1, 2018. The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements, but resulted in additional footnote disclosures, including a disaggregation of certain categories of revenue (see Note 13 - "Revenue Recognition").

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides guidance on accounting for the tax effects of H.R. 1, commonly known as the Tax Cuts and Jobs Act of 2017 (the "Tax Act"), which was signed into law on December 22, 2017. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic 740, Income Taxes.

Index

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward Looking Statements

This Quarterly Report on Form 10-Q 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 Oritani Financial Corp's (the Company's) Annual Report on Form 10-K for the year ended June 30, 2018, include, but are not limited to, 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, 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

The Company is a Delaware corporation that was incorporated in March 2010. The Company is the stock holding company of Oritani Bank (the "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. The Company had previously engaged in limited lending to the real estate investment properties in which (either directly or through a subsidiary) it maintained an ownership interest. The Company no longer has any lending activities or ownership of investment properties.

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 purchase loans or 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. The Bank also generates revenue from fees, 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 valuation 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.

In December 2017, Oritani Bank (the "Bank"), the wholly owned subsidiary of Oritani Financial Corp. (the "Company"), entered into an informal agreement ("Informal Agreement") with the Federal Deposit Insurance Corporation ("FDIC") and the New Jersey Department of Banking and Insurance ("NJDOBI") with regard to Bank Secrecy Act ("BSA") and Anti-Money Laundering ("AML") compliance matters. The Company has incurred expenses associated with the remediation of these matters of $400,000 and $1.5 million for the three and six months ended December 31, 2018, respectively. There was minimal corresponding expense in the 2017 periods. 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.

Index

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. 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 average balance of the loan portfolio decreased $76.7 million for the six months ended December 31, 2018 versus the comparable 2017 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. 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	%

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.

Index

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. The Company has been classifying the majority of new purchases as held to maturity.

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. 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, deposit growth has been particularly difficult to attain in the current environment. The Company has increased the rates 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. 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. The decrease is primarily a function of the Company’s decreased total assets at December 31, 2018, particularly decreased loan balances.

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.

Index

Average Balance Sheet for the Three and Six Months ended December 31, 2018 and 2017

The following tables present certain information regarding Oritani Financial Corp.’s financial condition and net interest income for the three and six months ended December 31, 2018 and 2017. The tables present the annualized average yield on interest-earning assets and the annualized average cost of interest-bearing liabilities. We derived the yields and costs by dividing annualized income or expense by the average balance of interest-earning assets and interest-bearing liabilities, respectively, for the periods shown. We derived average balances from daily balances over the periods indicated. Interest income includes fees that we consider adjustments to yields, including prepayment penalties.

	Average Balance Sheet and Yield/Rate Information For the Three Months Ended (unaudited)
	December 31, 2018							December 31, 2017
	Average Outstanding Balance		Interest Earned/Paid		Average Yield/Rate			Average Outstanding Balance		Interest Earned/ Paid		Average Yield/Rate
Interest-earning assets:					(Dollars in thousands)
Loans ⁽¹⁾	$	3,428,120	$	36,085		4.21	%	$	3,543,438	$	35,891		4.05	%
Federal Home Loan Bank Stock		26,859		481		7.16	%		26,352		451		6.85	%
Equity securities		1,412		12		3.40	%		1,578		12		3.04	%
Securities available for sale		38,708		222		2.29	%		84,968		445		2.09	%
Securities held to maturity		335,958		2,002		2.38	%		241,852		1,145		1.89	%
Federal funds sold and short term investments		48,914		280		2.29	%		33,437		108		1.29	%
Total interest-earning assets		3,879,971		39,082		4.03	%		3,931,625		38,052		3.87	%
Non-interest-earning assets		207,260							219,737
Total assets	$	4,087,231						$	4,151,362
Interest-bearing liabilities:
Savings deposits		284,417		641		0.90	%		179,194		104		0.23	%
Money market		680,221		1,863		1.10	%		843,671		2,354		1.12	%
Checking accounts		736,647		2,116		1.15	%		751,532		1,111		0.59	%
Time deposits		1,219,376		5,319		1.74	%		1,189,774		4,219		1.42	%
Total deposits		2,920,661		9,939		1.36	%		2,964,171		7,788		1.05	%
Borrowings		517,461		3,116		2.41	%		513,794		2,656		2.07	%
Total interest-bearing liabilities		3,438,122		13,055		1.52	%		3,477,965		10,444		1.20	%
Non-interest-bearing liabilities		103,617							104,699
Total liabilities		3,541,739							3,582,664
Stockholders’ equity		545,492							568,698
Total liabilities and stockholders’ equity	$	4,087,231						$	4,151,362
Net interest income			$	26,027						$	27,608
Net interest rate spread ⁽²⁾						2.51	%						2.67	%
Net interest-earning assets ⁽³⁾	$	441,849						$	453,660
Net interest margin ⁽⁴⁾						2.68	%						2.81	%
Average of interest-earning assets to interest-bearing liabilities						112.85	%						113.04	%

(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.

Index

	Average Balance Sheet and Yield/Rate Information For the Six Months Ended (unaudited)
	December 31, 2018							December 31, 2017
	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⁾	$	3,477,602	$	72,037		4.14	%		3,554,270	$	71,728		4.04	%
Federal Home Loan Bank Stock		27,253		929		6.82	%		28,170		936		6.65	%
Equity securities		1,470		22		2.99	%		1,535		24		3.13	%
Securities available for sale		40,343		462		2.29	%		89,420		929		2.08	%
Securities held to maturity		334,974		3,931		2.35	%		239,175		2,244		1.88	%
Federal funds sold and short term investments		26,627		302		2.27	%		17,331		111		1.28	%
Total interest-earning assets		3,908,269		77,683		3.98	%		3,929,901		75,972		3.87	%
Non-interest-earning assets		206,004							207,554
Total assets	$	4,114,273						$	4,137,455
Interest-bearing liabilities:
Savings deposits		242,358		831		0.69	%		178,209		205		0.23	%
Money market		718,334		3,920		1.09	%		849,399		4,736		1.12	%
Checking accounts		730,026		3,775		1.03	%		733,283		2,083		0.57	%
Time deposits		1,224,558		10,450		1.71	%		1,162,669		8,117		1.40	%
Total deposits		2,915,276		18,976		1.30	%		2,923,560		15,141		1.04	%
Borrowings		544,237		6,385		2.35	%		553,400		5,579		2.02	%
Total interest-bearing liabilities		3,459,513		25,361		1.47	%		3,476,960		20,720		1.19	%
Non-interest-bearing liabilities		101,584							94,396
Total liabilities		3,561,097							3,571,356
Stockholders’ equity		553,176							566,099
Total liabilities and stockholders’ equity	$	4,114,273						$	4,137,455
Net interest income			$	52,322						$	55,252
Net interest rate spread ⁽²⁾						2.51	%						2.68	%
Net interest-earning assets ⁽³⁾	$	448,756						$	452,941
Net interest margin ⁽⁴⁾						2.68	%						2.81	%
Average of interest-earning assets to interest-bearing liabilities						112.97	%						113.03	%

(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.

Index

Comparison of Operating Results for the Three Months 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. The most significant factor regarding the increased income is changes in income tax expense as pretax income was relatively consistent between the periods. Results in the 2017 period 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.

Interest Income. Total interest income increased $1.0 million to $39.1 million for the three months ended December 31, 2018, from $38.1 million for the three months ended December 31, 2017. Interest income on loans increased $194,000 to $36.1 million for the three months ended December 31, 2018, from $35.9 million for the three months ended December 31, 2017. The decrease in the average balance of loans, as discussed in “Comparison of Financial Condition at December 31, 2018 and June 30, 2018, Net Loans,” impacted loan interest income.

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.

Interest income on debt securities AFS decreased $223,000 to $222,000 for the three months ended December 31, 2018, from $445,000 for the three months ended December 31, 2017. Interest income on debt securities HTM increased $857,000 to $2.0 million for the three months ended December 31, 2018, from $1.1 million for the three months ended December 31, 2017. 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.

Interest Expense. Total interest expense increased $2.6 million to $13.1 million for the three months ended December 31, 2018, from $10.4 million for the three months ended December 31, 2017. The average balance of deposits, as discussed in “Comparison of Financial Condition at December 31, 2018 and June 30, 2018, Deposits,” impacted interest expense on deposits. 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. In response to market pressures, the Company recently upwardly adjusted pricing on its municipal deposit checking portfolio and offered a premium rate savings account.

Interest expense on borrowings increased $460,000 to $3.1 million for the three months ended December 31, 2018, from $2.7 million for the three months ended December 31, 2017. The cost of borrowings increased 34 basis points. The cost of borrowings has been impacted by the overall increase in interest rates, particularly overnight and short term borrowings.

Index

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. The Company’s net interest income, spread and margin over the period are detailed in the chart below.

	Net Interest Income Before			Prepayment Penalty		Net Interest Income Before Provision, Excluding Prepayment		Including Prepayment Penalties						Excluding Prepayment 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 due to the reversal of accrued interest income on loans delinquent 90 days or more. The total of such income reversed was $62,000 and $128,000 for the three months ended December 31, 2018 and 2017, respectively.

Index

Provision for Loan Losses. The Company recorded no provision for loan losses for the three months ended December 31, 2018 and December 31, 2017. A rollforward of the allowance for loan losses for the three months ended December 31, 2018 and 2017 is presented below:

	Three months ended December 31,
	2018			2017
	(Dollars in thousands)
Balance at beginning of period	$	28,565		$	30,402
Provisions charged to operations		—			—
Recoveries of loans previously charged off		74			—
Loans charged off		—			—
Balance at end of period	$	28,639		$	30,402
Allowance for loan losses to total loans		0.81	%		0.84	%
Net charge-offs (annualized) to average loans outstanding		(0.01	)%		—

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 Expenses. 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 was due to increased pension contribution costs and costs associated with Bank Secrecy Act ("BSA") and Anti-Money Laundering ("AML") compliance matters as discussed in previous releases. The Company incurred expenses associated with the remediation of these matters of $400,000 for the three months ended December 31, 2018. There was minimal corresponding expense in the 2017 period.

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 three months ended December 31, 2017 was $14.0 million. Income tax expense for the 2017 period was significantly impacted by the Act, as previously discussed in “Comparison of Operating Results for the Three months ended December 31, 2018 and 2017, 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.

Index

Comparison of Operating Results for the Six Months ended December 31, 2018 and 2017

Net Income. 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. Results for the 2017 period were also significantly impacted by the Act, as discussed in "Comparison of Operating Results for the Three Months ended December 31, 2018 and 2017, Net Income."

Interest Income. Total interest income increased $1.7 million to $77.7 million for the six months ended December 31, 2018, from $76.0 million for the six months ended December 31, 2017. The explanations provided in "Comparison of Operating Results for the Three Months ended December 31, 2018 and 2017, Interest Income" are also largely applicable to the six month period comparison. 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.

Interest Expense. Total interest expense increased $4.6 million to $25.4 million for the six months ended December 31, 2018, from $20.7 million for the six months ended December 31, 2017. The explanations provided in “Comparison of Operating Results for the Three Months ended December 31, 2018 and 2017, Interest Expense" regarding deposits and borrowings are also largely applicable to the six month period comparison.

Net Interest Income Before Provision for Loan Losses. 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 explanations and information contained in "Comparison of Operating Results for the Three Months ended December 31, 2018 and 2017, Net Interest Income Before Provision for Loan Losses" are also applicable to the six month comparison. The total reversal of accrued interest income on loans delinquent 90 days or more was $135,000 and $206,000 for the six months ended December 31, 2018 and 2017, respectively.

Provision for Loan Losses. The Company recorded a reversal of provision for loan losses of $2.0 million for the six months ended December 31, 2018 and no provision for loan losses for the six months ended December 31, 2017. A rollforward of the allowance for loan losses for the six months ended December 31, 2018 and 2017 is presented below:

	Six Months ended December 31,
	2018			2017
	(Dollars in thousands)
Balance at beginning of period	$	30,562		$	30,272
Provisions charged to operations		(2,000	)		—
Recoveries of loans previously charged off		77			152
Loans charged off		—			(22	)
Balance at end of period	$	28,639		$	30,402
Allowance for loan losses to total loans		0.81	%		0.84	%
Net charge-offs (annualized) to average loans outstanding		—			(0.01	)%

The $2.0 million reversal of provision for loan losses recorded for the 2018 period was due primarily to loan portfolio contraction and reduced qualitative factors within the allowance calculation as determined as part of our quarterly reassessment.

See also delinquency information contained in “Comparison of Financial Condition at December 31, 2018 and June 30, 2018, Net Loans” and footnote 6 of the consolidated financial statements.

Non-interest Income. 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. Results were impacted by the factors described in "Comparison of Operating Results for the Three Months ended December 31, 2018 and 2017, Non-interest Income." 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 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. Results were impacted by the factors described in "Comparison of Operating Results for the Three Months ended December 31, 2018 and 2017, Non-interest Expense." The increase in other expenses was more pronounced in the six month period. The Company has incurred expenses associated with BSA and AML matters of $1.5 million for the six months ended December 31, 2018. There was no corresponding expense in the 2017 period. 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 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 six months ended December 31, 2017 was $21.2 million. Please see “Comparison of Operating Results for the Three Months ended December 31, 2018 and 2017, Net Income and Income Tax Expense" for commentary on items that impacted both the six month periods. In addition, the NJ tax legislation enacted on July 1, 2018 required a revaluation of the Company's deferred tax balances which resulted in a one-time non-cash charge of $477,000 and is included in income tax expense for the six months ended December 31, 2018.

Index

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 December 31, 2018 and June 30, 2018, the Company had $39.0 million and $99.0 million in overnight borrowings, respectively. The Company had total borrowings of $568.7 million at December 31, 2018 and $596.4 million at June 30, 2018. The Company’s total borrowings at December 31, 2018 include $529.7 million in longer term borrowings, $500.6 million with the FHLB and $29.0 million with another financial institution.

In the normal course of business, the Company routinely enters into various commitments, primarily relating to the origination of loans. At December 31, 2018, outstanding commitments to originate loans totaled $30.3 million and outstanding commitments to extend credit totaled $30.4 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 $860.4 million at December 31, 2018. 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.

The management of liquidity described in the above paragraphs primarily pertains to Oritani Bank. The Company, on an unconsolidated basis, also has liquidity sources and uses. The Company’s primary, recurring source of funds has been dividends from Oritani Bank. As a wholly owned subsidiary of the Company, the Bank will typically distribute its net income to the Company as a dividend. Under the New Jersey Banking Act, a stock savings bank may declare and pay a dividend on its capital stock only to the extent that the payment of the dividend would not impair the capital stock of the savings bank. In addition, a stock savings bank may not pay a dividend unless the savings bank would, after the payment of the dividend, have a surplus of not less than 50% of its capital stock, or alternatively, the payment of the dividend would not reduce the surplus. Additionally, Oritani Bank must notify the Federal Reserve Board thirty days before declaring any dividend to the Company. The Federal Reserve Board may object to the payment of the dividend if it deems it to be unsafe or unsound or a violation of a law, regulation or order or if the institution will be undercapitalized after the dividend. An inability of Oritani Bank to pay dividends may restrict the Company's ability to pay dividends.

The Company’s primary use of funds has been dividends to shareholders and repurchases of common stock. The declarations of such dividends are at the discretion of the Company and the dividend amount could be reduced or eliminated if the payment of a dividend to shareholders would result in a liquidity concern. At December 31, 2018 and June 30, 2018, the Company, on an unconsolidated basis, had cash and cash equivalents of $1.8 million and $56.6 million, respectively.

Index

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 began on January 1, 2016.

As of December 31, 2018 and June 30, 2018, the Company and Bank exceeded all regulatory capital requirements, including the currently applicable capital conservation buffer of 1.88%, as follows:

	December 31, 2018
	Actual						Required
	Amount			Ratio			Amount			Ratio
	(Dollars in thousands)
Company:
Common Equity Tier 1 (CET1) (to risk-weighted assets)		$	520,309		14.31	%		$	163,672		4.50	%
Tier 1capital (to risk-weighted assets)			520,309		14.31	%			218,229		6.00	%
Total capital (to risk-weighted assets)			548,949		15.09	%			290,972		8.00	%
Tier 1 leverage capital (to average assets)			520,309		12.76	%			163,055		4.00	%
Capital Conservation Buffer			257,976		7.09	%			68,197		1.88	%

	June 30, 2018
	Actual						Required
	Amount			Ratio			Amount			Ratio
	(Dollars in thousands)
Company:
Common Equity Tier 1 (CET1) (to risk-weighted assets)		$	555,703		15.02	%		$	166,443		4.50	%
Tier 1 capital (to risk-weighted assets)			555,703		15.02	%			221,924		6.00	%
Total capital (to risk-weighted assets)			585,975		15.84	%			295,898		8.00	%
Tier 1 leverage capital (to average assets)			555,703		13.51	%			164,562		4.00	%
Capital Conservation Buffer			290,077		7.84	%			46,234		1.25	%

	December 31, 2018
	Actual					Required					Well-Capitalized
	Amount		Rate			Amount		Rate			Amount		Rate
	(Dollars in thousands)
Bank:
Common Equity Tier 1 ("CET1") (to risk weighted assets)	$	499,356		13.73	%	$	163,648		4.50	%	$	236,380		6.50	%
Tier 1 capital (to risk-weighted assets)		499,356		13.73	%		218,197		6.00	%		290,930		8.00	%
Total capital (to risk-weighted assets)		527,994		14.52	%		290,930		8.00	%		363,662		10.00	%
Tier 1 Leverage capital (to average assets)		499,356		12.25	%		163,029		4.00	%		203,786		5.00	%
Capital conservation buffer		237,064		6.52	%		68,187		1.88	%

	June 30, 2018
	Actual					Required					Well-Capitalized
	Amount		Rate			Amount		Rate			Amount		Rate
	(Dollars in thousands)
Bank:
Common Equity Tier 1 ("CET1") (to risk weighted assets)	$	521,414		14.10	%	$	166,440		4.50	%	$	240,413		6.50	%
Tier 1 capital (to risk-weighted assets)		521,414		14.10	%		221,919		6.00	%		295,893		8.00	%
Total capital (to risk-weighted assets)		551,686		14.92	%		295,893		8.00	%		369,866		10.00	%
Tier 1 Leverage capital (to average assets)		521,414		12.68	%		164,533		4.00	%		205,666		5.00	%
Capital conservation buffer		255,793		6.92	%		46,233		1.25	%

Index

Critical Accounting Policies

Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended June 30, 2018, 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, 2018.

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 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 in five years or less. 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 December 31, 2018
(Dollars in thousands)
Repricing or Maturing Within:	Amount			Weighted Average Rate			% of Total Loans			Cumulative % of Total Loans
1 Year or less		$	725,964		3.76	%		20.61	%		20.61	%
1 - 3 years			1,176,466		3.56	%		33.41	%		54.02	%
3 - 5 years			915,685		4.10	%		26.00	%		80.02	%
5 - 7 years			196,035		4.18	%		5.57	%		85.59	%
7 to 10 years			171,843		4.77	%		4.88	%		90.47	%
Greater than 10 years			335,611		4.46	%		9.53	%		100.00	%
Total		$	3,521,604		3.92	%		100.00	%

At December 31, 2018, 54.02 % of the loan portfolio matures or reprices in 3 years or less, and 80.02% matures or reprices 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.

Index

Net Portfolio Value . We compute the amounts by which the net present value of cash flow from assets, liabilities and off balance sheet items (the institution’s net portfolio value or “NPV”) would change in the event of a range of assumed changes in market interest rates. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.

The table below sets forth, as of December 31, 2018, 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		$	481,039	$	(83,547	)		(14.8	)%		12.4	%		(157	)
	+100			525,627		(38,959	)		(6.9	)%		13.2	%		(71	)
	—			564,586		—			—	%		13.9	%		—
	(100	)		592,353		27,767			4.9	%		14.4	%		44
	(200	)		616,926		52,340			9.3	%		14.7	%		75

(1)

Assumes an instantaneous uniform change in interest rates at all maturities.

(2)

NPV is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3)

Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4)

NPV Ratio represents NPV divided by the present value of assets.

The table above indicates that at December 31, 2018, in the event of a 200 basis point decrease in interest rates, we would experience a 9.3% increase in net portfolio value. In the event of a 200 basis point increase in interest rates, we would experience a 14.8% 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.

Index

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 August 29, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)

Unregistered Sale of Equity Securities . There were no sales of unregistered securities during the period covered by this report.

(b)

Use of Proceeds . Not applicable.

(c)

Repurchase of Our Equity Securities . The following table shows the Company's repurchases of its common stock for each calendar month in the three months ended December 31, 2018 and the stock repurchase plan approved by our Board of Directors.

Period	Total Number of Shares Repurchased (1)		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan		Maximum Number of Shares That May Yet Be Purchased Under the Plan (2)
October 31, 2018		871,955	$	15.31		871,298		998,765
November 30, 2018		781,314		15.14		780,055		218,710
December 31, 2018		218,710		15.00		218,710		—
		1,871,979				1,870,063

(1) Includes shares purchased upon restricted stock awards vesting for payment of withholding taxes.

(2) 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. During the quarter ended December 31, 2018, the Company repurchased 1,870,063 shares of its common stock at a total cost of $28.4 million for an average price of $15.20 per share.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Index

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. *
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), as amended, filed with the Securities and Exchange Commission on April 16, 2010.

Index

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		ORITANI FINANCIAL CORP.

Date:	February 11, 2019	/s/ Kevin J. Lynch
		Kevin J. Lynch
		President and Chief Executive Officer

Date:	February 11, 2019	/s/ John M. Fields, Jr.
		John M. Fields, Jr.
		Executive Vice President and Chief Financial Officer