Oritani Financial Corp. Announces Dividend and Quarterly Results

TOWNSHIP OF WASHINGTON, N.J., Oct. 24, 2019 (GLOBE NEWSWIRE) — Oritani Financial Corp. (the “Company” or “Oritani”) (NASDAQ: ORIT), the holding company for Oritani Bank (the “Bank”), reported net income of $12.3 million, or $0.28 per basic and diluted common share, for the three months ended September 30, 2019.  This compares to net income of $13.4 million, or $0.30 per basic and diluted common share, for the corresponding 2018 period. 
The Company also reported that its Board of Directors has declared a $0.18 quarterly cash dividend on the Company’s common stock.  The record date for the dividend will be November 4, 2019 and the payment date will be November 13, 2019. On June 26, 2019, the Company announced that it had entered into a merger agreement with Valley National Bancorp (“Valley”). Common shareholders of Oritani will receive 1.60 shares of Valley common stock for each Oritani common stock they hold. The transaction is expected to close in the fourth quarter of 2019, subject to standard regulatory approvals, shareholder approvals from Valley and Oritani, as well as other customary conditions.  Oritani shareholders will vote on the merger agreement at a special meeting of shareholders to be held on November 14, 2019.“It is with both gratitude and satisfaction that I provide this, likely final, report of Oritani’s results,” said Kevin J. Lynch, the Company’s Chairman, President and CEO.  “Oritani has provided its owners with solid returns and unparalleled dividends throughout our existence as a public company.” Mr. Lynch continued: “Our strengths remain evident in this quarter’s operations.  Even with an inverted yield curve, we delivered an annualized ROA of 1.22%, and annualized ROE of 9.29%, an efficiency ratio of 34.7% and an even lower level of problem assets.”Comparison of Operating ResultsNet IncomeNet income decreased $1.1 million to $12.3 million for the quarter ended September 30, 2019, from $13.4 million for the corresponding 2018 quarter.  The primary causes of the decreased net income in 2019 was an increase in interest expense largely offset by decreased non-interest expenses, and a $2.0 million reversal of provision for loan losses in the 2018 period.Interest IncomeThe components of interest income changed as follows:As discussed in prior public releases, the market to originate multifamily and commercial real estate loans has been particularly challenging in recent periods.  Proposed changes to rent regulations in New York and their potentially negative impact on rent regulated multifamily properties depressed sales volume in calendar 2019.  Such legislation was passed in June 2019 and contained many tenant friendly provisions.  Activity has remained sluggish in the current quarter as investors appear wary of the current environment.  In addition, the decreased external interest rate environment has lowered the market rates on new multifamily and commercial real estate loan originations. The Company’s loan balances decreased $70.1 million during the quarter ended September 30, 2019, versus June 30, 2019.  Originations for the quarter were $129.4 million; however, principal repayments were elevated and totaled $200.1 million.  The Company’s loan pipeline was $147.6 million at September 30, 2019.  The Company’s announced merger with Valley has likely impacted volume.The average balance of the loan portfolio decreased $67.2 million for the three months ended September 30, 2019 versus the comparable 2018 period.  Loan originations and principal payments for the three months ended September 30, 2019 are above.  For the comparable 2018 period, loan originations and principal payments totaled $82.0 million and $123.5 million, respectively.  There were no loan purchases in either period.The yield on the loan portfolio increased 23 basis points for the quarter ended September 30, 2019 versus the comparable 2018 period.  On a linked quarter basis (September 30, 2019 versus June 30, 2019), the yield on the loan portfolio increased 7 basis points.  The level of prepayment income impacted these results.  Exclusive of prepayment penalties, the yield on the loan portfolio increased 20 basis points versus the quarter ended September 30, 2018 and 7 basis points versus the June 30, 2019 quarter.  Prepayment penalties totaled $1.4 million, $1.4 million and $1.2 million for the quarters ended September 30, 2019, June 30, 2019 and September 30, 2018, respectively.   Interest ExpenseThe components of interest expense changed as follows:As discussed in recent public releases, deposit growth has been difficult to attain in the current environment.  Competitors have offered deposit products with rates that exceed an alternative cost of funds.  The Company increased the rate of interest offered on various deposit products in order to maintain balances.  Recently, the Company has reduced the interest rates on such products and intends to continue to reduce interest rates.  The Company has been largely successful in minimizing the outflow of deposits however; sizeable growth has not been achieved.  On a linked quarter comparison basis (versus the quarter ended June 30, 2019), the average balance of deposits increased $8.5 million, period end balances increased $13.3 million and the cost of deposits increased 6 basis points. As detailed above, the average balance of deposits increased $30.1 million for the quarter ended September 30, 2019 versus the comparable 2018 period.  The overall cost of deposits increased 43 basis points over the periods.  The increased costs are primarily due to the impact of market pressures.  Customer migration is largely responsible for some of the significant shifts in the average balance of products detailed above.The average balance of borrowings decreased $106.5 million for the three months ended September 30, 2019 versus the comparable 2018 period, while the cost increased 42 basis points.  The increase in the average balance of deposits and contraction of loan balances allowed the Company to reduce borrowings.  The cost of borrowings has been impacted by the overall increase in interest rates, particularly overnight and short-term borrowings, and the maturities of lower cost borrowings. Net Interest Income Before Provision for Loan LossesNet interest income decreased by $1.8 million to $24.5 million for the three months ended September 30, 2019, from $26.3 million for the three months ended September 30, 2018.  The Company’s net interest income, spread and margin over the period are detailed in the chart below.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 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 a period of generally increasing interest rates.Factors affecting the Company’s spread and margin have been discussed in recent public releases. Recent reductions in the discount rate by the Federal Open Market Committee have been reflected in the competitive environment and allowed the Company to reduce rates on certain deposit without a significant outflow of balances.  This factor contributed to the 2 basis point expansion of spread and margin (excluding prepayment penalties) that was realized in the September 30, 2019 quarter, versus the preceding quarter.  The Company intends to continue to strategically reduce the rates on its deposit offerings.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 $61,000 for the three months ended September 30, 2019 and $73,000 for the three months ended September 30, 2018.Provision for Loan LossesThe Company recorded no provision for loan losses for the three months ended September 30, 2019 and a reversal of provision for loan losses of $2.0 million for the three months ended September 30, 2018.  A rollforward of the allowance for loan losses for the three months ended September 30, 2019 and 2018 is presented below:Delinquency and non-performing asset information is provided below:Overall, non-performing asset totals and charge-off levels continue to illustrate minimal credit issues at the Company.  The $2.0 million reversal of provision for loan losses in 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. Non-Interest IncomeNon-interest income increased $181,000 to $1.0 million for the three months ended September 30, 2019, from $821,000 for the three months ended September 30, 2018.   The primary change was an $119,000 decrease in value of equity securities held by the Company that was reflected in the 2018 period. Non-Interest ExpenseNon-interest expense decreased $1.8 million to $8.8 million for the three months ended September 30, 2019, from $10.6 million for the three months ended September 30, 2018.  The primary change was a decrease in other expenses, which decreased $1.7 million to $1.2 million for the three months ended September 30, 2019, from $2.9 million for the three months ended September 30, 2018.   The reduction is primarily due to decreased professional fees associated with the remediation of Bank Secrecy Act and Anti-Money Laundering compliance matters (discussed in previous public releases).  In addition, there was no expense for federal deposit insurance premiums in the 2019 period, versus $300,000 in the 2018 period.  Assessment credits were awarded to small banks (with total consolidated assets of less than $10 billion) when the Deposit Insurance Fund Reserve Ratio reached 1.38%.  The Company’s credit for the 2019 period fully offset its assessment.Income Tax ExpenseIncome tax expense for the three months ended September 30, 2019 was $4.3 million on pre-tax income of $16.6 million, resulting in an effective tax rate of 26.0%.   Income tax expense for the three months ended September 30, 2018 was $5.1 million on pre-tax income of $18.5 million, resulting in an effective tax rate of 27.5%.  The effective tax rate for the 2018 period includes the impact of the 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 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 three months ended September 30, 2018. Excluding the impact of the revaluation, the effective tax rate for the 2018 period was 25.0%.   The increase in effective tax rate in the 2019 period was the result of the NJ tax legislation. The Company reports earnings on a fiscal year basis and the increased income tax implications of the NJ legislation were 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, 2020 is 26.0%. Comparison of Financial Condition at September 30, 2019 and June 30, 2019