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
OR
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission File No. 001-34786
Oritani Financial Corp.
(Exact name of registrant as specified in its charter)
Delaware
|
|
30-0628335
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification Number)
|
370 Pascack Road, Township of Washington, New Jersey 07676
(Address of Principal Executive Offices) (Zip Code)
(201) 664-5400
(Registrant’s telephone number, including area code)
N/A
(Former name, former address, and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such requirements for the past 90 days.
YES
☒
NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES
☒
NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller
reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
|
|
☒
|
|
Accelerated filer
|
|
☐
|
Non-accelerated filer
|
|
☐
|
|
Smaller Reporting company
|
|
☐
|
|
|
|
|
Emerging growth company
|
|
☐
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES
☐
NO
☒
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.
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.
Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements
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.
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.
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.
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.
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
|
|
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
|
|
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
|
|
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
|
|
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.
|
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
|
|
|
$
|
—
|
|
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
|
|
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.
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.
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.
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.
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.
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
|
|
|
|
|
|
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.
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.
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.
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
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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.
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
|
|
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.
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.
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.
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.
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.
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.
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.
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.
|
|
|
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.
|
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.
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.
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.
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.
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.
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
|
%
|
|
|
|
|
|
|
|
|
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.
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.
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.
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.
The following exhibits are either filed as part of this report or are incorporated herein by reference:
3.1
|
|
|
3.2
|
|
|
4
|
|
|
31.1
|
|
|
31.2
|
|
|
32
|
|
|
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.
|
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
|
|
52
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