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Oritani Financial Corp. Announces Dividend and Quarterly Results

TOWNSHIP OF WASHINGTON, N.J., Oct. 26, 2016 (GLOBE NEWSWIRE) -- Oritani Financial Corp. (the “Company” or “Oritani”) (NASDAQ:ORIT), the holding company for Oritani Bank (the “Bank”), reported net income of $10.6 million, or $0.25 per basic (and $0.24 diluted) common share, for the three months ended September 30, 2016. Net income was $12.6 million, or $0.31 per basic (and $0.30 diluted) common share, for the corresponding 2015 period.

The Company also reported that its Board of Directors has declared a $0.175 quarterly cash dividend on the Company’s common stock. The record date for the dividend will be November 4, 2016 and the payment date will be November 18, 2016.

“I am pleased to report another successful quarter for Oritani,” said Kevin J. Lynch, the Company’s Chairman, President and CEO. “I was particularly satisfied with the strong results of our deposit initiatives. Our deposits totals, excluding brokered deposits, grew 5.3% for the quarter. This represents an annualized growth rate of 21.1%. Brokered deposits continue to contribute to our overall deposit growth and our loan to deposit ratio decreased to 129% at September 30 from 139% at June 30.” Mr. Lynch continued: “In addition, despite the relatively flat treasury curve, we were able to expand net interest income by over $1.1 million versus the comparable 2015 quarter.”

Comparison of Operating Results

Net Income

Net income decreased $2.0 million to $10.6 million for the quarter ended September 30, 2016, from $12.6 million for the corresponding 2015 quarter. The primary cause of the decreased net income in 2016 was due to profits on the sale of real estate joint ventures in 2015. The Company realized pretax gains of $4.3 million on the sales of real estate joint ventures in the 2015 period that were not replicated in the 2016 period. The impact was partially offset by increased net interest income in the 2016 period. Our annualized return on average assets was 1.14% for the quarter ended September 30, 2016, and 1.51% for the quarter ended September 30, 2015.

Interest Income

The components of interest income changed as follows: Three Months Ended
September 30,
Increase / (decrease)
2016 2015 Average
IncomeYieldIncomeYieldIncomeBalanceYield
(Dollars in thousands)
Interest on mortgage loans$31,973 4.06%$30,789 4.46%$1,184 $392,169 (0.40)%
Dividends on FHLB stock 457 5.51% 401 4.24% 56 (4,703) 1.27%
Interest on securities AFS 826 1.98% 1,203 1.91% (377) (84,586) 0.07%
Interest on securities HTM 803 1.87% 571 2.05% 232 60,225 (0.18)%
Interest on federal funds sold
and short term investments 1 0.50% 1 0.25% - (816) 0.25%
Total interest income$34,060 3.87%$32,965 4.17%$1,095 $362,289 (0.30)%

The Company’s primary strategic business objective remains the organic growth of multifamily and commercial real estate loans. The average balance of the loan portfolio increased $392.2 million, or 14.2%, for the three months ended September 30, 2016 versus the comparable 2015 period. On a linked quarter basis (September 30, 2016 versus June 30, 2016), the annualized growth rates of the portfolio were 12.0% and 9.9%, when measured based on average and period end balances, respectively. Loan originations and purchases totaled $152.6 million and $26.7 million, respectively, for the three months ended September 30, 2016 and loan principal payments totaled $102.6 million over that same period. For the comparable 2015 period, loan originations and loan principal payments totaled $114.6 million and $106.9 million, respectively. There were no loan purchases in the 2015 period. The Company continues to limit the origination of loans with fixed rate periods greater than 5 years and also continues to utilize the elevated underwriting standards regarding certain aspects of commercial real estate lending implemented in the first calendar quarter of 2016.

The yield on the loan portfolio decreased 40 basis points for the quarter ended September 30, 2016 versus the comparable 2015 period. On a linked quarter basis (September 30, 2016 versus June 30, 2016), the yield on the loan portfolio decreased 18 basis points. Decreases in the level of prepayment income impacted these results. Exclusive of prepayment penalties, the yield on the loan portfolio decreased 26 basis points versus the quarter ended September 30, 2015 and decreased 6 basis points on a linked quarter basis. The decreases continue a trend of decreased yield on loans. The primary causes of the decreases have been discussed in previous releases. Prepayment penalties totaled $631,000, $1.5 million and $1.6 million for the quarters ended September 30, 2016, June 30, 2016 and September 30, 2015, respectively. Prepayment penalty income boosted annualized loan yield by 8, 20 and 23 basis points for the quarters ended September 30, 2016, June 30, 2016 and September 30, 2015, respectively.

The average balance of securities available for sale decreased $84.6 million for the three months ended September 30, 2016 versus the comparable 2015 period, while the average balance of securities held to maturity increased $60.2 million over the same period. The Company has been classifying the majority of new purchases as held to maturity.

Interest Expense

The components of interest expense changed as follows:

Three Months Ended September 30,Increase / (decrease)
2016 2015 Average
ExpenseCostExpenseCostExpenseBalanceCost
(Dollars in thousands)
Savings deposits$ 96 0.23%$ 95 0.24%$ 1 $ 8,076 (0.01)%
Money market 1,885 1.06% 839 0.54% 1,046 94,738 0.52%
Checking accounts 548 0.40% 396 0.36% 152 114,424 0.04%
Time deposits 3,210 1.32% 2,332 1.19% 878 190,689 0.13%
Total deposits 5,739 0.95% 3,662 0.73% 2,077 407,927 0.22%
Borrowings 3,021 1.79% 5,154 2.74% (2,133) (77,167) (0.95)%
Total interest expense$ 8,760 1.14%$ 8,816 1.28%$ (56)$ 330,760 (0.14)%

Strong deposit growth remains a strategic objective of the Company. As detailed above, the average balance of deposits increased $407.9 million, or 20.4%, for the quarter ended September 30, 2016 versus the comparable 2015 period. Growth was particularly strong when measured on a linked quarter comparison basis. The average balance of deposits increased $175.9 million, representing quarterly growth of 7.9% and annualized growth of 31.6%, for the quarter ended September 30, 2016 versus the quarter ended June 30, 2016. A portion of the growth achieved in the September 2016 quarter is attributable to increases in brokered deposits. The average balance of brokered deposits increased $71.0 million and $87.6 million versus the quarters ended June 30, 2016 and September 30, 2015, respectively. The overall cost of deposits increased 22 basis points for the quarter ended September 30, 2016 versus the comparable 2015 period, and 3 basis points on a linked quarter comparison basis. The increased cost is primarily attributable to the costs of interest rate swaps that are being reflected as interest expense on money market accounts. The situation occurred as a result of two balance sheet restructures that are discussed in detail in the Company’s Form 10-Q for the quarterly period ended December 31, 2015, and the Company’s Form 10-K for the annual period ended June 30, 2016. The increased cost of the money market accounts is partially offset by the decrease in cost of borrowings.

As detailed in the table above, the average balance of borrowings decreased $77.2 million for the three months ended September 30, 2016 versus the comparable 2015 period, while the cost decreased 95 basis points. The increase in the average balance of deposits allowed the Company to reduce borrowings while still funding growth. The cost of borrowings was also affected by the balance sheet restructures referenced above. On a linked quarter basis, the average balance of borrowings decreased $123.0 million and the cost of borrowings decreased 12 basis points.

Net Interest Income Before Provision for Loan Losses

Net interest income increased by $1.2 million to $25.3 million for the three months ended September 30, 2016, from $24.1 million for the three months ended September 30, 2015. The Company’s net interest income, spread and margin over the period are detailed in the chart below.

Including Prepayment PenaltiesExcluding Prepayment Penalties *
Net Interest Net Interest
Income Before Income Before
Quarter EndedProvisionSpreadMarginProvisionSpreadMargin
(dollars in thousands)
September 30, 2016$ 25,300 2.73% 2.87%$ 24,669 2.65% 2.80%
June 30, 2016 25,707 2.82% 2.97% 24,169 2.64% 2.79%
March 31, 2016 25,151 2.86% 3.01% 24,154 2.74% 2.89%
December 31, 2015 25,294 2.99% 3.14% 23,744 2.79% 2.95%
September 30, 2015 24,149 2.89% 3.05% 22,567 2.69% 2.85%
* - Prepayment penalties on loans are excluded.

The Company’s spread and margin have been significantly impacted by prepayment penalties. The chart above details results with and without the impact of prepayment penalties. While prepayment penalty income is expected to continue, significant fluctuations in the level of prepayment income are also expected.

The Company’s spread and margin remain under pressure due to several factors. These factors were discussed in the Company’s Form 10-Q for the quarterly period ended December 31, 2015, and in other prior public releases. Despite the spread and margin compression, the Company’s net interest income excluding prepayment penalties has been expanding. The Company undertook the balance sheet restructures referenced above, in part, to counter some of the spread and margin compression that is occurring. The benefits of the balance sheet restructures can be seen most prominently in the results (excluding prepayment penalties) for the quarters December 31, 2015 and September 30, 2016. The results for the quarter ended September 30, 2016 show expansion of the spread and margin by one basis point versus the quarter ended June 30, 2016. The positive impact of the balance sheet restructure that is discussed in the Company’s Form 10-K for the annual period ended June 30, 2016, was almost fully offset by the compression that occurred over the September 30, 2016 quarter.

The Company’s net interest income and net interest rate spread were both negatively impacted in all periods due to the reversal of accrued interest income on loans delinquent more than 90 days. The total of such income reversed was $119,000 for the three months ended September 30, 2016 and $177,000 for the three months ended September 30, 2015.

Provision for Loan Losses

The Company recorded no provision for loan losses for both the three months ended September 30, 2016 and the three months ended September 30, 2015. A rollforward of the allowance for loan losses for the three months ended September 30, 2016 and 2015 is presented below:

Three months ended
Sept. 30,
2016 2015
(Dollars in thousands)
Balance at beginning of period$29,951 $30,889
Provisions charged to operations - -
Recoveries of loans previously charged off 2 -
Loans charged off 75 255
Balance at end of period$29,878 $30,634
Allowance for loan losses to total loans 0.92% 1.09%
Net charge-offs (annualized) to average
loans outstanding-% -%

Delinquency and non performing asset information is provided below:

9/30/20166/30/20163/31/201612/31/20159/30/2015
(Dollars in thousands)
Delinquency Totals
30 - 59 days past due$ 1,686 $ 8,912 $ 2,930 $ 6,320 $ 8,188
60 - 89 days past due 1,060 1,698 1,184 404 190
Nonaccrual 10,537 9,968 9,989 10,880 10,879
Total$ 13,283 $ 20,578 $ 14,103 $ 17,604 $ 19,257
Non Performing Asset Totals
Nonaccrual loans, per above$ 10,537 $ 9,968 $ 9,989 $ 10,880 $ 10,879
Real Estate Owned 449 487 487 487 2,926
Total$ 10,986 $ 10,455 $ 10,476 $ 11,367 $ 13,805
Nonaccrual loans to total loans 0.32% 0.31% 0.33% 0.37% 0.39%
Delinquent loans to total loans 0.41% 0.65% 0.46% 0.60% 0.69%
Non performing assets to total assets 0.29% 0.28% 0.29% 0.32% 0.41%

Delinquent loan and non performing asset totals continue to illustrate minimal credit issues at the Company. Further, of the $10.5 million in loans classified as nonaccrual at September 30, 2016, $6.7 million were current.

Other Income

Other income decreased $4.7 million to $1.3 million for the three months ended September 30, 2016, from $6.0 million for the three months ended September 30, 2015. In the 2015 period, the Company sold three of its investments in real estate joint ventures and the total pretax gain was $4.3 million. There were no comparable sales in the 2016 period. See additional information under “Comparison of Financial Condition at September 30, 2016 and June 30, 2016,” regarding the sales of investments in real estate joint ventures and real estate held for investment. Net income from investments in real estate joint ventures and income from real estate operations, net, decreased by a combined $326,000 for the three months ended September 30, 2016 as compared to the three months ended September 30, 2015. Earnings from these two categories have decreased as the Company has disposed of the majority of such properties.

Other Expenses

Other expenses decreased $469,000 to $10.3 million for the three months ended September 30, 2016, from $10.7 million for the three months ended September 30, 2015. Compensation, payroll taxes and fringe benefits decreased $345,000 to $7.4 million for the three months ended September 30, 2016, from $7.7 million for the three months ended September 30, 2015. The cost for the majority of the stock awards and stock options granted in conjunction with the Company’s 2011 Equity Plan fully amortized in August 2016. The 2015 period included the amortization expense related to these plans for a full quarter while the 2016 period only had half of such expenses. This situation reduced expenses in the 2016 period by $735,000. After adjusting for this situation, expenses increased $390,000. The increase was primarily due to increases in direct compensation, due to additional staffing and salary adjustments and increases in the cost of a nonqualified benefit plan. Real estate owned operations decreased $275,000 to $55,000 for the three months ended September 30, 2016, from $330,000 for the three months ended September 30, 2015. The majority of the decrease was due to a valuation adjustment made on a property in the 2015 period. In addition, the lower level of REO assets has also decreased the cost of REO operations in the 2016 period.

Income Tax Expense

Income tax expense for the three months ended September 30, 2016 was $5.7 million on pre-tax income of $16.3 million, resulting in an effective tax rate of 34.9%. Income tax expense for the three months ended September 30, 2015 was $6.8 million on pre-tax income of $19.4 million, resulting in an effective tax rate of 35.0%. The Company’s effective rate in both periods was positively affected by the adoption of Accounting Standards Codification (“ASC”) 718, “Compensation—Stock Compensation,” as well as Accounting Standards Update (“ASU”) 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which simplified certain aspects of accounting for share-based compensation.

Comparison of Financial Condition at September 30, 2016 and June 30, 2016

Total Assets. Total assets increased $125.3 million to $3.79 billion at September 30, 2016, from $3.67 billion at June 30, 2016.

Cash and Cash Equivalents. Cash and cash equivalents (which include fed funds and short term investments) increased $8.7 million to $25.3 million at September 30, 2016, from $16.6 million at June 30, 2016.

Net Loans. Loans, net increased $77.1 million, or 2.5%, to $3.21 billion at September 30, 2016, from $3.13 billion at June 30, 2016. The annualized growth rate was 9.9%. See “Interest Income” for discussion regarding loans balances.

Securities available for sale. Securities AFS increased $34.4 million to $176.3 million at September 30, 2016, from $141.9 million at June 30, 2016. Although the Company had been classifying the majority of new purchases as held to maturity, $46.0 million of adjustable rate mortgage backed securities were purchased that were classified as AFS.

Securities held to maturity. Securities HTM increased $9.7 million to $177.8 million at September 30, 2016, from $168.1 million at June 30, 2016.

Investments in Real Estate Joint Ventures, Net and Real Estate Held for Investment. The Company previously announced its intention to investigate the sale of the properties and interests in these portfolios. As of September 30, 2016, all but one such property had been sold and closed. This remaining property is being marketed, and significant progress regarding disposition of the property has been attained. Management will provide additional updates as greater certainty regarding the results of the marketing efforts are realized.

Federal Home Loan Bank of New York (“FHLB”) stock. FHLB stock decreased $5.1 million to $32.9 million at September 30, 2016, from $38.0 million at June 30, 2016. FHLB stock holdings are required depending on several factors, including the level of borrowings with the FHLB. As FHLB borrowings decreased over the quarter, excess FHLB stock was redeemed.

Deposits. Deposits increased $236.3 million to $2.50 billion at September 30, 2016, from $2.26 billion at June 30, 2016. See “Interest Expense” for discussion regarding deposit balances.

Borrowings. Borrowings decreased $114.0 million to $667.6 million at September 30, 2016, from $781.6 million at June 30, 2016. See “Interest Expense” for discussion regarding borrowing amounts.

Stockholders’ Equity. Stockholders’ equity increased $4.5 million to $539.7 million at September 30, 2016, from $535.2 million at June 30, 2016. The increase was primarily due to net income and the net impact of the amortization of stock based compensation plans, partially offset by dividends and repurchases. During the September 30, 2016 quarter, 94,953 shares of stock were repurchased at a total cost of $1.5 million and an average cost of $15.88 per share. The shares repurchased were shares redeemed by employees, in lieu of payroll taxes due, in conjunction with the vesting of stock awards from the 2011 Equity Plan. Based on our September 30, 2016 closing price of $15.72 per share, the Company stock was trading at 131.6% of book value.

About the Company

Oritani Financial Corp. is the holding company for Oritani Bank, a New Jersey state chartered bank offering a full range of retail and commercial loan and deposit products. Oritani Bank is dedicated to providing exceptional personal service to its individual and business customers. The Bank currently operates its main office and 25 full service branches in the New Jersey Counties of Bergen, Hudson, Essex and Passaic. For additional information about Oritani Bank, please visit www.oritani.com.

Forward Looking Statements

Certain statements contained herein are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "estimate," "anticipate," "continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risks and uncertainties, including those risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016 (as supplemented by our quarterly reports), and the following: those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, credit risk management, asset-liability management, the financial and securities markets and the availability of and costs associated with sources of liquidity.

The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company wishes to advise readers that the factors listed above could affect the Company's financial performance and could cause the Company's actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not undertake and specifically declines any obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.

Oritani Financial Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)
September 30, June 30,
Assets 2016 2016
(unaudited) (audited)
Cash on hand and in banks $ 25,079 $ 16,243
Federal funds sold and short term investments 182 328
Cash and cash equivalents 25,261 16,571
Loans, net 3,209,103 3,131,957
Securities available for sale, at fair value 176,261 141,850
Securities held to maturity,
fair value of $179,774 and $170,706, respectively. 177,849 168,107
Bank Owned Life Insurance (at cash surrender value) 94,007 93,327
Federal Home Loan Bank of New York stock ("FHLB"), at cost 32,881 38,003
Accrued interest receivable 9,990 9,943
Investments in real estate joint ventures, net 4,213 4,307
Real estate owned 449 487
Office properties and equipment, net 14,095 14,338
Deferred tax assets 46,550 47,360
Other assets 3,983 3,088
Total Assets $ 3,794,642 $ 3,669,338
Liabilities
Deposits $ 2,496,280 $ 2,260,003
Borrowings 667,592 781,623
Advance payments by borrowers for taxes and
insurance 20,960 21,415
Official checks outstanding 3,400 3,084
Other liabilities 66,752 68,013
Total liabilities 3,254,984 3,134,138
Stockholders' Equity
Common stock, $0.01 par value; 150,000,000 shares authorized;
56,245,065 shares issued; 45,188,139 shares outstanding at
September 30, 2016 and 45,247,420 shares outstanding at
June 30, 2016. 562 562
Additional paid-in capital 510,548 513,177
Unallocated common stock held by the employee stock
ownership plan (20,142) (20,481)
Restricted Stock Awards (480) (4,242)
Treasury stock, at cost; 11,056,926 shares at September 30, 2016 and
10,997,645 shares at June 30, 2016. (147,207) (146,173)
Retained income 205,469 202,429
Accumulated other comprehensive loss, net of tax (9,092) (10,072)
Total stockholders' equity 539,658 535,200
Total Liabilities and Stockholders' Equity $ 3,794,642 $ 3,669,338



Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Income
Three Months Ended September 30, 2016 and 2015
(In thousands, except share data)
Three months ended
September 30,
2016 2015
unaudited
Interest income:
Mortgage loans $31,973 $30,789
Dividends on FHLB stock 457 401
Securities available for sale 826 1,203
Securities held to maturity 803 571
Federal funds sold and short term investments 1 1
Total interest income 34,060 32,965
Interest expense:
Deposits 5,739 3,662
Borrowings 3,021 5,154
Total interest expense 8,760 8,816
Net interest income before provision for loan losses 25,300 24,149
Provision for loan losses
Net interest income after provision for loan losses 25,300 24,149
Other income:
Service charges 182 258
Real estate operations, net 235
Net income from investments in real estate joint ventures 316 407
Bank-owned life insurance 679 696
Net gain on sale of assets 4,312
Other income 81 77
Total other income 1,258 5,985
Other expenses:
Compensation, payroll taxes and fringe benefits 7,358 7,703
Advertising 90 90
Office occupancy and equipment expense 800 718
Data processing service fees 544 518
Federal insurance premiums 450 399
Real estate owned operations 55 330
Other expenses 971 979
Total other expenses 10,268 10,737
Income before income tax expense 16,290 19,397
Income tax expense 5,679 6,782
Net income $10,611 $12,615
Income per basic common share$ 0.25 $ 0.31
Income per diluted common share$ 0.24 $ 0.30


For further information contact: Kevin J. Lynch Chairman, President and Chief Executive Officer Oritani Financial Corp. (201) 664-5400

Source:Oritani Financial Corp.