Oritani Financial Corp. Reports Increased Earnings Per Share and Increased Dividend

TOWNSHIP OF WASHINGTON, N.J., April 24, 2013 (GLOBE NEWSWIRE) -- Oritani Financial Corp. (the "Company" or "Oritani") (Nasdaq:ORIT), the holding company for Oritani Bank (the "Bank"), reported net income of $9.9 million, or $0.23 per basic and diluted common share, for the three months ended March 31, 2013, and $27.9 million, or $0.66 per basic (and $0.65 diluted) common share, for the nine months ended March 31, 2013. This compares to net income of $8.4 million, or $0.20 per basic and diluted common share, for the three months ended March 31, 2012, and $23.4 million, or $0.53 per basic (and $0.52 diluted) common share, for the nine months ended March 31, 2012.

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 May 3, 2013 and the payment date will be May 17, 2013. The $0.175 per share dividend represents a 16.7% increase over the Company previous rate of $0.15 per share. The Company has steadily increased dividends in conjunction with increasing earnings per share. After the second step transaction in June, 2010, the Company's dividend rate was $0.075 per share. In just under three years, the Company has increased its dividend rate by 133%. Based on the recent trading range of the Company's common stock, the dividend yield is approximately 4.65%.

"It is truly a pleasure to report yet another quarter of record income for Oritani and yet another dividend increase for our shareholders," said Kevin J. Lynch, the Company's Chairman, President and CEO. "We remain steadfast in our strategic objective to achieve organic growth through origination of high quality loans and growth in core deposits. We believe that this plan will continue to deliver solid benefits to our shareholders."

Comparison of Operating Results for the Periods Ended March 31, 2013 and 2012

Net Income. Net income increased $1.5 million, or 17.8%, to $9.9 million for the quarter ended March 31, 2013, from $8.4 million for the corresponding 2012 quarter. Net income increased $4.5 million, or 19.2%, to $27.9 million for the nine months ended March 31, 2013, from $23.4 million for the corresponding 2012 period. The primary causes of the increased net income in the 2013 periods were increased net interest income and decreased provision for loan losses, partially offset by decreased other income and increased other expenses.

Total Interest Income

The components of interest income for the three months ended March 31, 2013 and 2012, changed as follows:

As discussed in previous public releases, the evidence of the impact of two of the Company's strategic business decisions is provided in the average balance changes. The Company's primary focus is organic growth of multifamily and commercial real estate loans. The average balance of loans increased $337.7 million over the periods. On a linked quarter basis (March 31, 2013 versus December 31, 2012), the average balance of loans grew $70.3 million. The growth was primarily achieved through originations. Loan originations totaled $150.9 million for the three months ended March 31, 2013. The yield on the loan portfolio decreased 37 basis points for the quarter ended March 31, 2013 versus the comparable 2012 period. The decreased yield was primarily due to the impact of current market rates on new originations, refinancings, prepayments and modifications. The decrease would have been larger; however, prepayment penalties were higher in the 2013 period. Prepayment penalties are recognized as interest on loans. Prepayment penalties totaled $1.5 million in the 2013 period versus $219,000 in the 2012 period. Prepayment penalty provisions are incorporated into all of the Company's multifamily and commercial real estate loan documents. The penalties are intended to provide the Company with compensation if the loan is prepaid. Notwithstanding the prepayment penalties, the current interest rate environment provides an economic incentive for many of our existing loans to refinance. Prepayment penalties boosted annualized loan yield by 28 basis points in the 2013 period versus 5 basis points in the 2012 period. The second strategic business decision evidenced in the table was the determination to no longer deploy the cash flows from the investment portfolio back into new investments. This decision impacted the periods subsequent to September 30, 2012 and was made because the Company determined that the risk/reward profiles of permissible securities no longer warranted additional investment. The average balance of the primary investment category, mortgage-backed securities available for sale, decreased $174.9 million over the periods. The decision has aided overall yield on interest earning assets as the Company now has a lower percentage of its interest earning assets in lower yielding instruments like mortgage backed securities, investment securities and federal funds sold.   The limited increase in yield on interest earnings assets that occurred in 2013 versus 2012 (1 basis point), despite a much lower interest rate environment, is partially attributable to these strategic decisions. 

The components of interest income for the nine months ended March 31, 2013 and 2012, changed as follows:

The explanations for changes described above for the three month period are also applicable to the nine month period. Loan originations for the nine months ended March 31, 2013 totaled $510.6 million versus $397.3 million for the 2012 period. Prepayment penalties totaled $4.1 million in the 2013 period versus $703,000 in the 2012 period, and boosted annualized loan yield by 26 basis points in the 2013 period versus 6 basis points in the 2012 period. 

Total Interest Expense.

The components of interest expense for the three months ended March 31, 2013 and 2012, changed as follows:

The current interest rate environment has provided an opportunity for the Company to reduce its cost of interest bearing liabilities. The Company has continued its strategic objective of increasing core deposits. However, increases in core account balances have been offset by decreases in time deposits. While the Company remains concerned with the overall deposit total, management believes time deposits can be cost effectively replaced by borrowings in the current environment. During the March, 2013 quarter, strategies to further increase core deposits were deployed. On a linked quarter basis (March 31, 2013 versus December 31, 2012), growth in core deposits (net increase in the average balance of $26.3 million) was largely able to offset outflows in time deposits (decrease in the average balance of $26.4 million) as the average balance of the two periods was essentially static. Management believes this trend can continue. The average balance of borrowings increased significantly ($199.9 million) for the three months ended March 31, 2013 versus the three months ended March 31, 2012, while the cost decreased significantly (64 basis points). Overnight and other short term borrowings totaled $286.7 million at March 31, 2013. These borrowings had a very low cost associated with them and the rate of interest on these borrowings is expected to remain low for the foreseeable future. However, the Company is aware of the risk inherent in short term borrowings. As discussed in prior public filings, the Company has taken steps to mitigate the risk associated with its borrowing position and began deploying strategies to mitigate this risk in April, 2013. On April 9, 2013, $20.0 million in short term advances were replaced with 10 year fixed rate advances with a rate of 2.11%. On April 11, the Company committed to a deferred interest rate hedge in a notional amount of $50.0 million. The Company will begin exchanging cash flows under this hedge in April, 2016. The Company will receive Libor and pay 2.634%. Cash flows will be exchanged for seven years and cease in April, 2023.

The components of interest expense for the nine months ended March 31, 2013 and 2012, changed as follows:

The explanations for changes described above for the three month period are also applicable to the nine month period. 

Net Interest Income Before Provision for Loan Losses. Net interest income increased by $3.0 million, or 13.4%, to $25.3 million for the three months ended March 31, 2013, from $22.3 million for the three months ended March 31, 2012. Net interest income increased by $8.2 million, or 12.6%, to $73.6 million for the nine months ended March 31, 2013, from $65.3 million for the nine months ended March 31, 2012. The Company's net interest income, spread and margin over the period are detailed in the table below.

A component of the strong performance of net interest income has been prepayment penalties (discussed in Total Interest Income). The impact of the prepayment penalties has been significant and the results exclusive of prepayment penalties are also presented above. Spread and margin were relatively stable early in the fiscal year but declined somewhat in the December, 2012 quarter. The increases realized in the March, 2013 quarter are due to reduced level of nonaccrual loans as well as non-recurring income and deferred fees realized in conjunction with the resolution of nonaccrual loans. The spread and margin for the March, 2013 quarter exclusive of these non-recurring items (and prepayment penalties) were 3.22% and 3.44%, respectively.

As previously stated, the Company expects that its spread and margin will remain under pressure in the current interest rate environment due to several factors, including: rates on new loan originations and investment purchases; modifications of loans within the existing loan portfolio; prepayments of higher yielding loans and investments; limited ability to further reduce deposit and borrowing costs; promotional interest costs to attract new deposit customers and increases in borrowing costs which may be necessary to reduce interest rate risk.   The Company has been able to largely offset these pressures. Several factors have contributed to this result. One such factor has been the utilization of short term borrowings.  The shifting of assets out of investments and into higher yielding loans also contributed to increased spread, margin and net interest income. In addition, the Company has been able to lower the cost of overall deposits.  The Company believes that the most effective means for it to offset the impact of decreased spread and margin is loan growth, through quality loan originations. The Company has been able to achieve quality loan growth which remains one of its strategic goals. The Company's largest interest rate risk exposure is to a flat or inverted yield curve

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 $223,000 and $1.5 million for the three and nine months ended March 31, 2013, respectively, and $293,000 and $943,000 for the three and nine months ended March 31, 2012, respectively. 

Provision for Loan Losses.  The Company recorded provisions for loan losses of $600,000 for the three months ended March 31, 2013 as compared to $1.5 million for the three months ended March 31, 2012. The Company recorded provisions for loan losses of $3.6 million for the nine months ended March 31, 2013 as compared to $7.0 million for the nine months ended March 31, 2012. A rollforward of the allowance for loan losses for the three and nine months ended March 31, 2013 and 2012 is presented below:

The primary contributors to the current level of provision for loan losses are the delinquency and nonaccrual totals, changes in loan risk ratings, loan growth, charge-offs and economic factors. 

Delinquency and non performing asset information is provided below:

All three categories of delinquent loans decreased from the December 31, 2012 total but, in management's opinion, remain at an elevated level. There was a net reduction in nonaccrual loans over the quarter. The title was obtained to a $2.0 million mixed use building and it was transferred to REO. In addition, a $2.5 million construction loan paid in full. While pleased with these developments, management was disappointed that further progress could not be reported at this time. Management continues to work diligently to remedy these matters. 

At March 31, 2013, there are seven nonaccrual loans with balances greater than $1.0 million, as well as one related group of seven nonaccrual loans totaling $3.5 million. These loans are discussed below:

• A $3.2 million construction 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 March 31, 2013, primarily due to a low estimated loan to value. The loan had paid as agreed, but the collateral for the loan remained unsold upon maturity. The borrower verbally agreed to extension terms acceptable to the Company in January, 2013. However, execution of this agreement did not occur, the borrower has not honored the negotiated terms and the Company has resumed pursuit of a legal remedy.
• A $1.7 million construction loan for a luxury home in Morris County, New Jersey. The Company reached a settlement and forbearance agreement with the borrower on this matter during the quarter ended March 31, 2012. As part of the agreement, the borrower is completing the home with no additional funding from Oritani, which serves to further lower the loan to value on this loan. The loan is classified as a nonaccrual troubled debt restructuring ("TDR") as of March 31, 2013. As such, this loan is included in the nonaccrual loan total at March 31, 2013. However, the borrower has complied with all facets of the new agreement since its origination, including interest payments, and is fully current. The home is approximately 90% complete and will be marketed for sale shortly.
• 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 $205,000 impairment reserve remains against this loan as of March 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 March 31, 2013. The borrower fully complied with the payment demands of the Company over the quarter; the loan is less than 60 days delinquent as of March 31, 2013. While it currently appears likely that the borrower will agree to the forbearance terms demanded by the Company (including the pledge of additional collateral) and that the foreclosure action will be held in abeyance as long as borrower is in compliance with the agreement, there can be no assurances that this will occur.
• 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 March 31, 2013. There is a pending contract for sale of this property for $3.7 million. The closing is being delayed due to legal matters related to the seller, including bankruptcy. 
• 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 March 31, 2013, primarily due to a low estimated loan to value. Oritani is pursuing legal remedies as well as other avenues to secure repayment in full.
• A $2.3 million loan on a student housing facility in Luzerne County, Pennsylvania. The loan is classified as impaired. In accordance with the results of the impairment analysis for this loan, a $458,000 impairment reserve was established as of March 31, 2013. Oritani is pursuing legal remedies as well as other avenues to secure repayment in full.
• A $3.5 million loan relationship encompassing seven loans on six properties. All of the properties are in Bergen County, New Jersey. Each of the loans comprising the relationship is classified as impaired. Five of the properties are commercial real estate buildings and one is a single family home. In accordance with the results of the impairment analysis for this loan, an $832,000 impairment reserve was established as of March 31, 2013. A rent receiver has been appointed and Oritani is receiving the net rents from the properties. Oritani is pursuing legal remedies as well as other avenues to secure repayment in full.

There are ten other multifamily/commercial real estate loans, totaling $3.6 million, classified as nonaccrual at March 31, 2013. The largest of these loans has a balance of $780,000. 

There are ten other residential loans, totaling $2.6 million, classified as nonaccrual at March 31, 2013. The largest of these loans has a balance of $740,000.

Other Income. Other income decreased $508,000 to $1.0 million for the three months ended March 31, 2013, from $1.5 million for the three months ended March 31, 2012.  The decrease is primarily due to a $483,000 decrease on income from investments in joint ventures. The reason primarily relates to one commercial property that incurred flood damage in 2011 (fiscal 2012). Repairs on this property were extensive and the situation has caused changes in the tenant base. An overall loss of $41,000 was incurred on investments in real estate joint ventures for the quarter ended March 31, 2013, primarily due to the results at the commercial property. However, a nonrecurring insurance claim of $488,000 pertaining to this 2011 flood was received and recognized as income the March, 2012 quarter. This is the primary reason for the income fluctuation between the periods. As discussed in prior public releases, income is expected to be below historical levels for (at least) the next six months. 

Other income decreased $1.2 million to $3.1 million for the nine months ended March 31, 2013 from $4.3 million for the nine months ended March 31, 2012. The nine month period was also impacted by the issue described above regarding income from investments in joint ventures. In addition, a net gain on sale of assets of $630,000 was realized in 2012. This net gain primarily pertained to the sale of a loan classified as held for sale. Gains on sale of assets totaled $131,000 in the 2013 period (primarily due to gains in conjunction with REO disposals and loan sales) resulting in a decrease of $499,000 between the periods.

Operating Expenses. Operating expenses increased $1.1 million to $9.9 million for the three months ended March 31, 2013, from $8.8 million for the three months ended March 31, 2012. The increase was primarily due to compensation, payroll taxes and fringe benefits, which increased $849,000 to $7.1 million for the three months ended March 31, 2013, from $6.3 million for the three months ended March 31, 2012.  The increase was primarily due to expenses associated with the Company's qualified and nonqualified benefit plans as well as health insurance expense. Increases in the trading price of Company's common stock caused an increase in ESOP expense. There were also increases totaling $198,000 in direct compensation due to additional staffing and salary adjustments.

Operating expenses increased $2.6 million to $28.6 million for the nine months ended March 31, 2013, from $26.1 million for the nine months ended March 31, 2012. The increase was primarily due to compensation, payroll taxes and fringe benefits, which increased $2.7 million to $21.0 million for the nine months ended March 31, 2013, from $18.3 million for the nine months ended March 31, 2012.  The nine month period was affected by the items described above for the three month period but further impacted by costs associated with stock based compensation.  Stock awards and options were granted under the Company's 2011 Equity Incentive Plan ("the Equity Plan") on August 18, 2011. The 2012 period contains 7.5 months of amortization of Equity Plan costs versus 9 months in the 2013 period.  Expenses associated with the Equity Plan were $765,000 greater in the 2013 period versus the 2012 period. 

Income Tax Expense. Income tax expense for the three months ended March 31, 2013 was $5.9 million due to pre-tax income of $15.8 million, resulting in an effective tax rate of 37.2%.  Income tax expense for the three months ended March 31, 2012 was $5.1 million due to pre-tax income of $13.5 million, resulting in an effective tax rate of 37.6%.  Income tax expense for the nine months ended March 31, 2013, was $16.6 million, due to pre-tax income of $44.4 million, resulting in an effective tax rate of 37.3%. For the nine months ended March 31, 2012, income tax expense was $13.2 million, due to pre-tax income of $36.6 million, resulting in an effective tax rate of 36.1%. 

Comparison of Financial Condition at March 31, 2013 and June 30, 2012

Total Assets.  Total assets increased $114.2 million, or 4.2%, to $2.82 billion at March 31, 2013, from $2.70 billion at June 30, 2012. The primary investing activity was in loans funded by increases in short term borrowings and cash flows from the investment portfolio. 

Cash and Cash Equivalents. Cash and cash equivalents (which include fed funds and short term investments) decreased $2.7 million to $8.7 million at March 31, 2013, from $11.4 million at June 30, 2012.

Net Loans. Loans, net increased $229.5 million, or 11.5%, to $2.22 billion at March 31, 2013, from $1.99 billion at June 30, 2012. The Company continues its emphasis on loan originations, particularly multifamily and commercial real estate loans. Loan originations totaled $510.6 million for the nine months ended March 31, 2013 versus $397.3 million for the nine months ended March 31, 2012.

Mortgage-backed Securities Available For Sale. Mortgage-backed securities AFS decreased $125.8 million to $348.1 million at March 31, 2013, from $473.9 million at June 30, 2012. Management continues to view mortgage-backed securities as an unappealing investment in the current climate.

Real Estate Owned. Real estate owned totaled $4.4 million at March 31, 2013 and consisted of six properties. Five of these properties are presently under contract for sale at amounts that exceed the current book value of the properties. The only property that is not under contract at this time has a book value of $552,000.

Deposits. Deposits decreased $23.7 million, or 1.7%, to $1.37 billion at March 31, 2013, from $1.39 billion at June 30, 2012. Growth in core deposit accounts was offset by outflows of time deposits. 

Borrowings. Borrowings increased $131.2 million, or 17.6%, to $877.1 million at March 31, 2013, from $745.9 million at June 30, 2012. 

Stockholders' Equity. Stockholders' equity increased $857,000 to $511.6 million at March 31, 2013, from $510.7 million at June 30, 2012.  The increase was primarily due to net income plus the release of ESOP and Equity Plan shares, partially offset by dividends, including a $0.40 special dividend paid in December, 2012. Based on our March 31, 2013 closing price of $15.49 per share, the Company stock was trading at 137.4% 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 24 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, but 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 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.