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ORIT > SEC Filings for ORIT > Form 10-Q on 10-Feb-2014All Recent SEC Filings

Show all filings for ORITANI FINANCIAL CORP

Form 10-Q for ORITANI FINANCIAL CORP


10-Feb-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
This Quarterly Report 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 the Company's Annual Report on Form 10-K for the year ended June 30, 2013, include, but are not limited to, those related to the economic environment, particularly in the market areas in which Oritani Financial Corp. (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
Oritani Financial Corp. (the "Company") is a Delaware corporation that was incorporated in March 2010. The Company is the stock holding company of Oritani 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 and two limited liability companies that own a variety of real estate investments. In addition, the Company has engaged in limited lending to the real estate investment properties in which (either directly or through one of its subsidiaries) it maintains an ownership interest. 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, in multi-family 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 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 as well as our investments in real estate and real estate joint ventures. The Bank also generates revenue from fees and 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 placement of interest-earning assets and interest-bearing liabilities, and the prepayment rate on its mortgage-related assets. Provisions for loan losses and asset impairment 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 and business customers. The Bank's primary focus has been, and will continue to be, growth in multi-family and commercial real estate lending. Comparison of Financial Condition at December 31, 2013 and June 30, 2013 Total Assets. Total assets increased $110.4 million to $2.94 billion at December 31, 2013, from $2.83 billion at June 30, 2013.
Cash and Cash Equivalents. Cash and cash equivalents (which include fed funds and short term investments) decreased $3.0 million to $9.1 million at December 31, 2013, from $12.1 million at June 30, 2013.
Net Loans. Loans, net increased $92.3 million to $2.37 billion at December 31, 2013, from $2.28 billion at June 30, 2013. The majority of the growth occurred over the quarter ended December 31, 2013. Net loan balances grew $83.1 million over this period, an annualized growth rate of 14.5%. Loan originations totaled $184.4 million and $286.2 million for the three and six months ended December 31, 2013, respectively. However, the growth rate of the loan portfolio continues to be negatively impacted by an elevated level of prepayments.


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Delinquency and non performing asset information is provided below:

                             12/31/2013       9/30/2013       6/30/2013       3/31/2013      12/31/2012
                                                       (Dollars in thousands)
Delinquency Totals
30-59 days past due         $     8,912     $    13,465     $     7,416     $     7,241     $     8,169
60-89 days past due               1,601           1,105           2,643           3,948           7,005
Nonaccrual                       19,866          23,760          23,910          24,304          29,401
Total                       $    30,379     $    38,330     $    33,969     $    35,493     $    44,575
Non Performing Asset Totals
Nonaccrual loans, per above $    19,866     $    23,760     $    23,910     $    24,304     $    29,401
Real Estate Owned                 4,033           1,937           1,742           4,361           2,817
Total                       $    23,899     $    25,697     $    25,652     $    28,665     $    32,218
Nonaccrual loans to total
loans                              0.82 %          1.02 %          1.03 %          1.07 %          1.32 %
Delinquent loans to total
loans                              1.26 %          1.65 %          1.47 %          1.57 %          2.01 %
Non performing assets to
total assets                       0.81 %          0.91 %          0.91 %          1.02 %          1.15 %

Total delinquent loans continued a general trend that is evident since December 31, 2012 (and prior). Other than for the September 30, 2013 period, total delinquent loans have decreased steadily. As further described below, the metrics in the nonaccrual total continue to show improvement. Nonaccrual loans totaled $19.9 million at December 31, 2013. However, $7.8 million of this total consisted of loans that were current at December 31, 2013 and were included in the nonaccrual total as they had not yet demonstrated sufficient recent satisfactory performance to qualify for an updated status . There are two other loans, totaling $1.5 million, included in the nonaccrual total whose delinquency status was 30 days or less.

At December 31, 2013, there are eight nonaccrual loans with balances greater than $1.0 million. These loans are discussed below:
A $3.2 million loan for a luxury home in Morris County, New Jersey. The loan is classified as impaired. In accordance with the results of the impairment analysis for this loan, no reserve was required as of December 31, 2013, primarily due to a low estimated loan to value. Over the quarter ended December 31, 2013, a modification and extension agreement, with terms satisfactory to Oritani, was reached. This agreement has been classified as a troubled debt restructuring ("TDR"). If the loan demonstrates six months of satisfactory performance it will be returned to accrual status (although there can be no assurances that this will occur). The loan has paid as agreed since the agreement.

A $1.6 million residential loan on a single family residence in Bergen County, New Jersey. A foreclosure action was initiated when loan payments became delinquent. The loan is classified as impaired. In accordance with the results of the impairment analysis for this loan, a $246,000 impairment reserve remains against this loan as of December 31, 2013. Oritani is pursuing legal remedies.

A $1.1 million loan on a mixed use property in Bergen County, New Jersey. The loan is classified as impaired. In accordance with the results of the impairment analysis for this loan, a $265,000 impairment reserve remains against this loan as of December 31, 2013. A forbearance agreement had previously been executed and the borrower has generally complied with the payment demands of the Company but not to the extent where the Company believes long term issues with the loan have been resolved. The loan is classified as nonaccrual as of December 31, 2013 and was 30 days delinquent at that time. The Company will continue to monitor the performance of this loan to determine if it is appropriate to remove it from the nonaccrual classification (there can be no assurances that this will occur and it is presently at least six month away).

A $2.5 million loan on a multifamily property in New York City. The loan is classified as impaired. In accordance with the results of the impairment analysis for this loan, no reserve was required as of December 31, 2013. The borrower is in bankruptcy and the bankruptcy court has approved a plan for the sale of the property, and such plan is in process. There is a pending contract for sale of this property for $3.7 million. Regular payments have resumed on this loan including a small amount toward the delinquent balance.

A $2.4 million loan on a warehouse/light industrial building in Bergen County, NJ. The loan is classified as impaired. In accordance with the results of the impairment analysis for this loan, no reserve was required as of December 31, 2013, primarily due to a low estimated loan to value. During the quarter ended September 30, 2013, a modification and extension agreement, with terms satisfactory to Oritani, was reached. This agreement includes a new guarantor and other credit enhancements and carries a market rate of interest. It is not considered a TDR. If the loan demonstrates six months of satisfactory performance


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it will be returned to accrual status (although there can be no assurances that this will occur). The loan has paid as agreed since the agreement.
A $1.7 million loan on a retail building in Morris County, NJ. The loan is classified as impaired. In accordance with the results of the impairment analysis for this loan, a $163,000 impairment reserve remains against this loan as of December 31, 2013. Over the quarter ended September 30, 2013, an agreement was reached regarding the total late fees and legal fee reimbursement to be paid to the Bank in conjunction with the delinquency. The Company currently expects that the loan will be brought fully current during the quarter ending March 31, 2014 (although there can be no assurances that this will occur). If this occurs, the performance of the loan will then be monitored to see if it can appropriately be returned to accrual status.

A $1.7 million loan on an office building in Somerset County, NJ. The loan is classified as impaired. In accordance with the results of the impairment analysis for this loan, a $292,000 impairment reserve remains against this loan as of December 31, 2013. This loan and the loan described directly above have the same borrower, and the same agreement was reached for this loan.

A $1.2 million loan on a lot and auto showroom in Bergen County, NJ. There had been no payment issues with the loan until it matured and extension terms could not be agreed upon. Over the quarter ended December 31, 2013, an extension agreement, with terms satisfactory to Oritani, was reached with the borrower. The extension agreement is considered a TDR and is therefore classified as impaired as of December 31, 2013. In accordance with the results of the impairment analysis for this loan, a $407,000 impairment reserve was established against this loan as of December 31, 2013.

There are eight other multifamily/commercial real estate loans, totaling $3.4 million, classified as nonaccrual at December 31, 2013. The largest of these loans has a balance of $698,000 (and was current at December 31, 2013). There are seven other residential loans, totaling $847,000, classified as nonaccrual at December 31, 2013. The largest of these loans has a balance of $334,000.
Securities Available For Sale. Securities available for sale increased $23.0 million to $341.3 million at December 31, 2013, from $318.3 million at June 30, 2013. Purchases of $98.0 million were partially offset by sales, payments, calls and maturities of $70.2 million. During the six months ended December 31, 2013, securities with an amortized cost of $18.2 million were sold, resulting in gross gains and gross losses of $136,300 and $185,600, respectively. The securities sold had low principal balances remaining.
Securities held to maturity. Mortgage-backed securities HTM decreased $11.2 million to $30.6 million at December 31, 2013, from $41.9 million at June 30, 2013 During the six months ended December 31, 2013, securities with an amortized cost of $8.8 million were sold, resulting in gross gains and gross losses of $117,400 and $16,700, respectively. The securities sold had low principal balances remaining.
Bank Owned Life Insurance ("BOLI"). BOLI increased $7.0 million, or 11.7%, to $67.0 million at December 31, 2013, from $60.0 million at June 30, 2013, as additional BOLI investments have been made over the fiscal year. Real Estate Owned. Real estate owned ("REO") increased $2.3 million to $4.0 million at December 31, 2013, from $1.7 million at June 30, 2013. During the 2014 fiscal year, the Company has taken title to three properties and disposed of two properties. During the quarter ended December 31, 2013, the Company disposed of its then largest REO component realizing a recovery of $219,000, and also acquired title to two properties (one loan) through a deed in lieu of foreclosure. The loans had a principal balance of $4.2 million and were transferred into REO with a value of $3.0 million. The $4.0 million balance at December 31, 2013 consists of 5 properties.
Deposits. Deposits increased $43.3 million to $1.46 billion at December 31, 2013, from $1.42 billion at June 30, 2013. The majority of the growth occurred over the quarter ended December 31, 2013. Deposits grew $38.3 million over this period, an annualized growth rate of 10.8%.
Borrowings. Borrowings increased $71.0 million to $904.6 million at December 31, 2013, from $833.7 million at June 30, 2013.
Stockholders' Equity. Stockholders' equity increased $1.1 million to $519.8 million at December 31, 2013, from $518.7 million at June 30, 2013. The increase was primarily due to net income and the proceeds from the exercise of stock options, partially offset by dividends, including a $0.25 special dividend paid in December, 2013. Based on our December 31, 2013 closing price of $16.05 per share, the Company stock was trading at 141.1% of book value.


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Average Balance Sheet for the Three Months Ended December 31, 2013 and 2012 The following table presents certain information regarding Oritani Financial Corp.'s financial condition and net interest income for the three and six months ended December 31, 2013 and 2012. 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, 2013                              December 31, 2012
                                    Average                                          Average        Interest
                                  Outstanding        Interest         Average      Outstanding       Earned/       Average
                                    Balance         Earned/Paid     Yield/Rate       Balance          Paid       Yield/Rate
                                                                   (Dollars in thousands)
Interest-earning assets:
Loans (1)                        $  2,312,350     $      29,988          5.19 %   $  2,117,712     $  29,079          5.49 %
Federal Home Loan Bank Stock           42,233               427          4.04 %         41,836           437          4.18 %
Securities available for sale           8,697                37          1.70 %         11,934            58          1.94 %
Mortgage backed securities held
to maturity                            31,106               189          2.43 %         34,869           225          2.58 %
Mortgage backed securities
available for sale                    304,885             1,494          1.96 %        414,692         1,807          1.74 %
Federal funds sold and short
term investments                        2,045                 1          0.25 %          1,573             1          0.25 %
Total interest-earning assets       2,701,316            32,136          4.76 %      2,622,616        31,607          4.82 %
Non-interest-earning assets           150,906                                          133,044
Total assets                     $  2,852,222                                     $  2,755,660
Interest-bearing liabilities:
Savings deposits                      168,095                97          0.23 %        137,876            97          0.28 %
Money market                          408,484               480          0.47 %        448,852           550          0.49 %
Checking accounts                     426,393               508          0.48 %        247,570           138          0.22 %
Time deposits                         444,116               970          0.87 %        520,796         1,350          1.04 %
Total deposits                      1,447,088             2,055          0.57 %      1,355,095         2,135          0.63 %
Borrowings                            819,949             5,769          2.81 %        825,163         5,401          2.62 %
Total interest-bearing
liabilities                         2,267,037             7,824          1.38 %      2,180,258         7,536          1.38 %
Non-interest-bearing liabilities       55,476                                           57,939
Total liabilities                   2,322,513                                        2,238,197
Stockholders' equity                  529,709                                          517,463
Total liabilities and
stockholders' equity             $  2,852,222                                     $  2,755,660
Net interest income                               $      24,312                                    $  24,071
Net interest rate spread (2)                                             3.38 %                                       3.44 %
Net interest-earning assets (3)  $    434,279                                     $    442,358
Net interest margin (4)                                                  3.60 %                                       3.67 %
Average of interest-earning
assets to interest-bearing
liabilities                                                            119.16 %                                     120.29 %

(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.


Table of Contents

                                                Average Balance Sheet and Yield/Rate Information
                                                      For the Six Months Ended (unaudited)
                                           December 31, 2013                           December 31, 2012
                                 Average                         Average       Average        Interest     Average
                               Outstanding        Interest        Yield/     Outstanding       Earned/      Yield/
                                 Balance         Earned/Paid       Rate        Balance          Paid         Rate
                                                             (Dollars in thousands)
Interest-earning assets:
Loans (1)                     $  2,294,272     $      60,049       5.23 %      2,068,595     $  58,161       5.62 %
Federal Home Loan Bank Stock        42,294               866       4.10 %         40,210           844       4.20 %
Securities available for sale       10,385                88       1.69 %         16,056           132       1.64 %
Mortgage backed securities
held to maturity                    35,791               431       2.41 %         35,349           459       2.60 %
Mortgage backed securities
available for sale                 301,244             2,835       1.88 %        436,818         3,831       1.75 %
Federal funds sold and short
term investments                     4,896                 6       0.25 %          1,584             2       0.25 %
Total interest-earning assets    2,688,882            64,275       4.78 %      2,598,612        63,429       4.88 %
Non-interest-earning assets        148,308                                       128,022
Total assets                  $  2,837,190                                     2,726,634
Interest-bearing liabilities:
Savings deposits                   168,392               196       0.23 %        137,929           195       0.28 %
Money market                       414,414               977       0.47 %        446,129         1,109       0.50 %
Checking accounts                  401,002               945       0.47 %        243,894           273       0.22 %
Time deposits                      448,588             1,961       0.87 %        536,470         2,892       1.08 %
Total deposits                   1,432,396             4,079       0.57 %      1,364,421         4,469       0.66 %
Borrowings                         822,137            11,291       2.75 %        789,192        10,699       2.71 %
Total interest-bearing
liabilities                      2,254,533            15,370       1.36 %      2,153,613        15,168       1.41 %
Non-interest-bearing
liabilities                         55,791                                        56,666
Total liabilities                2,310,324                                     2,210,279
Stockholders' equity               526,866                                       516,355
Total liabilities and
stockholders' equity          $  2,837,190                                  $  2,726,634
Net interest income                            $      48,905                                 $  48,261
Net interest rate spread (2)                                       3.42 %                                    3.47 %
Net interest-earning assets
(3)                           $    434,349                                  $    444,999
Net interest margin (4)                                            3.64 %                                    3.71 %
Average of interest-earning
assets to interest-bearing
liabilities                                                      119.27 %                                  120.66 %

(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.


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Comparison of Operating Results for the Three Months Ended December 31, 2013 and 2012
Net Income. Net income increased $1.2 million, or 14.1%, to $10.0 million for the quarter ended December 31, 2013, from $8.7 million for the corresponding 2012 quarter. The primary cause of the increased income in the 2013 period was a decrease in the provision for loan losses and increased other income. Our annualized return on average assets was 1.40% for the quarter ended December 31, 2013, and 1.27% for the quarter ended December 31, 2012.
Interest Income. Total interest income increased $529,000, to $32.1 million for the three months ended December 31, 2013, from $31.6 million for the three months ended December 31, 2012. The components of interest income changed as follows:

                                  Three months ended December 31,                    Increase / (decrease)
                                    2013                      2012                          Average
                                $           Yield         $         Yield         $         Balance       Yield
                                                          (Dollars in thousands)
Interest on mortgage
loans                    $   29,988          5.19 %   $ 29,079       5.49 %   $   909     $ 194,638       (0.30 )%
Dividends on FHLB stock         427          4.04 %        437       4.18 %       (10 )         397       (0.14 )%
Interest on securities
AFS                              37          1.70 %         58       1.94 %       (21 )      (3,237 )     (0.24 )%
Interest on MBS HTM             189          2.43 %        225       2.58 %       (36 )      (3,763 )     (0.15 )%
Interest on MBS AFS           1,494          1.96 %      1,807       1.74 %      (313 )    (109,807 )      0.22  %
Interest on federal
funds sold and short
term investments                  1          0.25 %          1       0.25 %         -           472           -  %
Total interest income    $   32,136          4.76 %   $ 31,607       4.82 %   $   529     $  78,700       (0.06 )%

The Company continues to focus on organic growth of the multifamily and commercial real estate loan portfolios. The average balance of the loan . . .

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