0001483195-18-000019.txt : 20181109 0001483195-18-000019.hdr.sgml : 20181109 20181109163241 ACCESSION NUMBER: 0001483195-18-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 84 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181109 DATE AS OF CHANGE: 20181109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Oritani Financial Corp CENTRAL INDEX KEY: 0001483195 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-34786 FILM NUMBER: 181173531 BUSINESS ADDRESS: STREET 1: 370 PASCACK ROAD CITY: TOWNSHIP OF WASHINGTON STATE: NJ ZIP: 07676 BUSINESS PHONE: (201) 664-5400 MAIL ADDRESS: STREET 1: 370 PASCACK ROAD CITY: TOWNSHIP OF WASHINGTON STATE: NJ ZIP: 07676 10-Q 1 form10q.htm  
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 September 30, 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 November 9, 2018, there were 56,245,065 shares of the Registrant's common stock, par value $0.01 per share, issued and 45,492,935 shares outstanding.




Oritani Financial Corp.
FORM 10-Q
 
Index

 
 
 
 
  Page
 
 
 
3
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
 
6
 
 
 
 
7
 
 
 
 
8
 
 
 
35
 
 
 
44
 
 
 
46
 
 
 
 
 
 
 
 
46
 
 
 
46
 
 
 
46
 
 
 
46
 
 
 
46
 
 
 
46
 
 
 
47
 
 
 
 
48
 
Part I. Financial Information
Item 1. Financial Statements
 
Oritani Financial Corp. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except share data)

 
 
September 30, 2018
   
June 30, 2018
 
 
 
(unaudited)
   
(audited)
 
Assets
           
Cash on hand and in banks
 
$
24,241
   
$
23,613
 
Federal funds sold and short term investments
   
4,322
     
11,235
 
Cash and cash equivalents
   
28,563
     
34,848
 
Loans, net
   
3,501,985
     
3,540,903
 
Equity securities
   
1,446
     
 
Debt securities available for sale, at market value
   
39,662
     
44,691
 
Debt securities held to maturity, fair value of $317,158 and $326,511, respectively
   
327,591
     
335,374
 
Bank Owned Life Insurance (at cash surrender value)
   
99,061
     
98,438
 
Federal Home Loan Bank of New York ("FHLB") stock at cost
   
27,304
     
30,365
 
Accrued interest receivable
   
11,892
     
11,261
 
Real estate owned
   
1,564
     
1,564
 
Office properties and equipment, net
   
13,323
     
13,455
 
Deferred tax assets, net
   
25,236
     
25,864
 
Other assets
   
32,663
     
30,276
 
Total Assets
 
$
4,110,290
   
$
4,167,039
 
Liabilities
               
Deposits
 
$
2,924,025
   
$
2,915,128
 
Borrowings
   
526,159
     
596,372
 
Advance payments by borrowers for taxes and insurance
   
24,604
     
24,169
 
Other liabilities
   
72,558
     
72,024
 
Total Liabilities
   
3,547,346
     
3,607,693
 
Stockholders' Equity
               
Common stock, $0.01 par value; 150,000,000 shares authorized; 56,245,065 shares issued;
46,619,858 shares outstanding at September 30, 2018 and 46,616,646 shares outstanding at June 30, 2018.
   
562
     
562
 
Additional paid-in capital
   
514,373
     
514,002
 
Non-vested restricted stock awards
   
(311
)
   
(176
)
Treasury stock, at cost; 9,625,207 shares at September 30, 2018 and 9,628,419 shares at June 30, 2018.
   
(129,429
)
   
(129,433
)
Unallocated common stock held by the employee stock ownership plan
   
(16,281
)
   
(16,631
)
Retained earnings
   
182,702
     
179,799
 
Accumulated other comprehensive income, net of tax
   
11,328
     
11,223
 
Total Stockholders' Equity
   
562,944
     
559,346
 
Total Liabilities and Stockholders' Equity
 
$
4,110,290
   
$
4,167,039
 

See accompanying notes to unaudited consolidated financial statements.
3


Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)

   
Three months ended September 30,
 
   
2018
   
2017
 
   
(unaudited)
 
Interest income:
           
Interest on loans
 
$
35,952
   
$
35,837
 
Dividends on FHLB stock
   
448
     
485
 
Equity securities
   
10
     
12
 
Interest on debt securities available for sale
   
240
     
484
 
Interest on debt securities held to maturity
   
1,929
     
1,099
 
Interest on federal funds sold and short term investments
   
22
     
3
 
Total interest income
   
38,601
     
37,920
 
Interest expense:
               
Deposits
   
9,037
     
7,353
 
Borrowings
   
3,269
     
2,923
 
Total interest expense
   
12,306
     
10,276
 
Net interest income before provision for loan losses
   
26,295
     
27,644
 
Reversal of provision for loan losses
   
(2,000
)
   
 
Net interest income after provision for loan losses
   
28,295
     
27,644
 
Non-interest income:
               
Fees and service charges
   
312
     
322
 
Bank-owned life insurance
   
624
     
646
 
Net losses recognized on equity securities
   
(119
)
   
 
Other income
   
4
     
3
 
Total non-interest income
   
821
     
971
 
Non-interest expense:
               
Compensation and employee benefits
   
6,331
     
6,134
 
Advertising
   
143
     
142
 
Office occupancy and equipment expense
   
760
     
749
 
Data processing service fees
   
499
     
544
 
Federal insurance premiums
   
300
     
300
 
Other expenses
   
2,594
     
1,643
 
Total non-interest expense
   
10,627
     
9,512
 
Income before income tax expense
   
18,489
     
19,103
 
Income tax expense
   
5,092
     
7,107
 
Net income
 
$
13,397
   
$
11,996
 
Earnings per basic common share
 
$
0.30
   
$
0.27
 
Earnings per diluted common share
 
$
0.30
   
$
0.27
 

See accompanying notes to unaudited consolidated financial statements.
4


Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)

   
Three months ended September 30,
 
   
2018
   
2017
 
   
(unaudited)
 
Net of tax:
           
Net income
 
$
13,397
   
$
11,996
 
Other comprehensive income
               
Change in unrealized holding loss on debt securities available for sale
   
(119
)
   
(4
)
Amortization related to post-retirement obligations
   
8
     
5
 
Net change in unrealized gain (loss) on interest rate swaps
   
874
     
(110
)
Total other comprehensive income (loss)
   
763
     
(109
)
Total comprehensive income
 
$
14,160
   
$
11,887
 

See accompanying notes to unaudited consolidated financial statements.
5

                                                                                                                                                                        
                                                                                                                                                                     
Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Three months ended September 30, 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
   
     
     
     
     
     
     
11,996
     
     
11,996
 
Other comprehensive loss , net of tax
   
     
     
     
     
     
     
     
(109
)
   
(109
)
Cash dividends declared ($0.175 per share)
   
     
     
     
     
     
     
(7,657
)
   
     
(7,657
)
Purchase of treasury stock
   
(763
)
   
     
     
     
(13
)
   
     
     
     
(13
)
Compensation cost for stock options and restricted stock
   
     
     
51
     
     
     
     
     
     
51
 
ESOP shares allocated or committed to be released
   
     
     
337
     
     
     
346
     
     
     
683
 
Exercise of stock options
   
191,901
     
     
     
     
2,556
     
     
(337
)
   
     
2,219
 
Vesting of restricted stock awards
   
     
     
(32
)
   
24
     
     
     
8
     
     
 
Forfeiture of restricted stock awards
   
(7,000
)
   
     
     
87
     
(87
)
   
     
     
     
 
Balance at September 30, 2017
   
46,176,504
   
$
562
   
$
512,693
   
$
(347
)
 
$
(134,061
)
 
$
(18,061
)
 
$
202,196
   
$
3,411
   
$
566,393
 
 
                                                                       
Balance at June 30, 2018
   
46,616,646
   
$
562
   
$
514,002
   
$
(176
)
 
$
(129,433
)
 
$
(16,631
)
 
$
179,799
   
$
11,223
   
$
559,346
 
Net income
   
     
     
     
     
     
     
13,397
     
     
13,397
 
Other comprehensive income, net of tax
   
     
     
     
     
     
     
     
763
     
763
 
Cash dividends declared ($0.250 per share)
   
     
     
     
     
     
     
(11,134
)
   
     
(11,134
)
Purchase of treasury stock
   
(18,788
)
   
     
     
     
(292
)
   
     
     
     
(292
)
Issuance of restricted stock awards
   
10,000
     
     
     
(135
)
   
135
     
     
     
     
 
Compensation cost for stock options and restricted stock
   
     
     
43
     
     
     
     
     
     
43
 
ESOP shares allocated or committed to be released
   
     
     
328
     
     
     
350
     
     
     
678
 
Exercise of stock options
   
12,000
     
     
     
     
161
     
     
(18
)
   
     
143
 
Reclassification due to the adoption of ASU No. 2016-01
   
     
     
     
     
     
     
658
     
(658
)
   
 
Balance at September 30, 2018
   
46,619,858
   
$
562
   
$
514,373
   
$
(311
)
 
$
(129,429
)
 
$
(16,281
)
 
$
182,702
   
$
11,328
   
$
562,944
 
 
See accompanying notes to unaudited consolidated financial statements.
6


Oritani Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)

 
 
Three months ended September 30,
 
 
 
2018
   
2017
 
 
 
(unaudited)
 
Cash flows from operating activities:
     
Net income
 
$
13,397
   
$
11,996
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
ESOP and stock-based compensation expense
   
721
     
734
 
Tax benefit from stock-based compensation
   
1
     
3
 
Depreciation of premises and equipment
   
196
     
196
 
Net amortization and accretion of premiums and discounts on securities
   
324
     
297
 
Reversal of provision for loan losses
   
(2,000
)
   
 
Amortization and accretion of deferred loan fees, net
   
(551
)
   
(661
)
Decrease (increase) in deferred taxes
   
595
     
(756
)
Fair value adjustment for equity securities
   
119
     
 
Increase in cash surrender value of bank owned life insurance
   
(623
)
   
(646
)
Increase in accrued interest receivable
   
(631
)
   
(751
)
Increase in other assets
   
(1,438
)
   
(615
)
Increase in other liabilities
   
533
     
7,091
 
Net cash provided by operating activities
   
10,643
     
16,888
 
Cash flows from investing activities:
               
Net decrease in loans receivable
   
41,469
     
5,462
 
Purchase of debt securities held to maturity
   
(7,896
)
   
(10,623
)
    Purchase of Federal Home Loan Bank stock
   
(12,563
)
   
(10,736
)
Proceeds from payments, calls and maturities of debt securities available for sale
   
3,285
     
7,500
 
Proceeds from payments, calls and maturities of debt securities held to maturity
   
15,381
     
11,261
 
Proceeds from redemption of Federal Home Loan Bank stock
   
15,624
     
15,427
 
    Proceeds from sale of real estate owned
   
     
138
 
Purchase of fixed assets
   
(64
)
   
 
Net cash provided by investing activities
   
55,236
     
18,429
 
Cash flows from financing activities:
               
Net increase in deposits
   
8,897
     
63,568
 
Purchase of treasury stock
   
(292
)
   
(13
)
Dividends paid to shareholders
   
(11,134
)
   
(7,657
)
Exercise of stock options
   
143
     
2,219
 
Increase (decrease) in advance payments by borrowers for taxes and insurance
   
435
     
(113
)
Proceeds from borrowed funds
   
45,000
     
32,870
 
Repayment of borrowed funds
   
(115,213
)
   
(128,652
)
Payment of employee taxes withheld from shared-based awards
   
     
(13
)
Net cash used in financing activities
   
(72,164
)
   
(37,791
)
Net decrease in cash and cash equivalents
   
(6,285
)
   
(2,474
)
Cash and cash equivalents at beginning of period
   
34,848
     
33,578
 
Cash and cash equivalents at end of period
 
$
28,563
   
$
31,104
 
Supplemental cash flow information:
               
Cash paid during the period for:
               
Interest
 
$
12,210
   
$
10,255
 
Income taxes
 
$
5,079
   
$
755
 
                 

See accompanying notes to unaudited consolidated financial statements.

7

Oritani Financial Corp. and subsidiaries
Notes to Unaudited Consolidated Financial Statements

1. Basis of Presentation

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 three month period ended September 30, 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 September 30, 2018 and June 30, 2018 and in the Consolidated Statements of Income for the three months ended September 30, 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.
8



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 September 30,
 
   
2018
   
2017
 
   
(In thousands, except per share data)
 
Net income
 
$
13,397
   
$
11,996
 
Weighted average common shares outstanding—basic
   
44,640
     
43,897
 
Effect of dilutive stock options outstanding
   
632
     
1,043
 
Weighted average common shares outstanding—diluted
   
45,272
     
44,940
 
Earnings per share-basic
 
$
0.30
   
$
0.27
 
Earnings per share-diluted
 
$
0.30
   
$
0.27
 

For the three months ended September 30, 2018 and 2017 there were 1,677 and 1,322 option shares, respectively, 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. 

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.   As of September 30, 2018, there are 1,870,063 shares yet to be purchased under the current plan.   At  September 30, 2018, a total of  13,296,469  shares had been acquired under repurchase programs at a weighted average cost of  $13.30 per share.  The timing of the repurchases depend on certain factors, including but not limited to, market conditions and prices, the Company's liquidity and capital requirements, and alternative uses of capital.  Repurchased shares will be held as treasury stock and will be available for general corporate purposes.  The Company may conduct repurchases in accordance with a Rule 10b5-1 trading plan. 
9


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 three months ended September 30, 2017. The fair value of options granted during the three months ended September 30, 2018 was estimated using the Black-Scholes options-pricing model with the assumptions in the following table.

 
       
 
 
Three Months Ended
September 30, 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 September 30, 2018 and changes therein during the three 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
     
10.00
 
Exercised
   
(12,000
)
   
2.71
     
11.95
     
3.0
 
Expired
   
(4,000
)
   
2.65
     
14.55
     
4.4
 
Outstanding at September 30, 2018
   
2,603,864
   
$
2.63
   
$
12.21
     
3.2
 
Exercisable at September 30, 2018
   
2,485,464
   
$
2.70
   
$
12.05
     
2.9
 
 
The Company recorded $11,000 of share based compensation expense related to options for both the three months ended September 30, 2018 and 2017.  Expected future expense related to the non-vested options outstanding at September 30, 2018 is $96,000 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.



10

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 September 30, 2018 and changes therein during the three 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
 
Non-vested at September 30, 2018
   
24,200
   
$
15.93
 
 
The Company recorded $32,000 and $40,000 of share based compensation expense related to the restricted stock shares for the three months ended September 30, 2018 and 2017, respectively.  Expected future expense related to the non-vested restricted shares at September 30, 2018 is $280,000 over a weighted average period of 3.1 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 months ended September 30, 2018 and 2017 are presented in the following table:

 
Retirement Plan
   
BEP Plan
   
Medical Plan
 
 
Three months ended September 30,
 
 
2018
   
2017
   
2018
   
2017
   
2018
   
2017
 
 
(In thousands)
 
Service cost
 
$
31
   
$
33
   
$
   
$
   
$
11
   
$
15
 
Interest cost
   
54
     
52
     
13
     
11
     
59
     
52
 
Amortization of unrecognized:
                                               
Net loss
   
     
     
8
     
9
     
     
 
Total
 
$
85
   
$
85
   
$
21
   
$
20
   
$
70
   
$
67
 

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.

11

6. Loans, net
 
Loans, net are summarized as follows:

 
 
September 30, 2018
   
June 30, 2018
 
 
 
(In thousands)
 
Residential
 
$
272,291
   
$
267,771
 
Residential commercial real estate
   
2,001,687
     
2,005,315
 
Grocery/credit retail commercial real estate
   
504,048
     
497,708
 
Other commercial real estate
   
755,966
     
796,589
 
Construction and land loans
   
3,176
     
10,960
 
Total loans
   
3,537,168
     
3,578,343
 
Less:
               
Deferred loan fees, net
   
6,618
     
6,878
 
Allowance for loan losses
   
28,565
     
30,562
 
Loans, net
 
$
3,501,985
   
$
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 months ended September 30, 2018 and 2017 is summarized as follows:

   
Three months ended September 30,
 
   
(In thousands)
 
   
2018
   
2017
 
Balance at beginning of period
 
$
30,562
   
$
30,272
 
Reversal of provision for loan losses
   
(2,000
)
   
 
Recoveries of loans previously charged off
   
3
     
152
 
Loans charged off
   
     
(22
)
Balance at end of period
 
$
28,565
   
$
30,402
 

12


The following table provides the three month activity in the allowance for loan losses allocated by loan category at September 30, 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 September 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:
                                   
Beginning balance
 
$
1,990
   
$
17,259
   
$
3,015
   
$
7,828
   
$
470
   
$
30,562
 
Charge-offs
   
     
     
     
     
     
 
Recoveries
   
3
     
     
     
     
     
3
 
Provisions
   
107
     
(1,825
)
   
118
     
(52
)
   
(348
)
   
(2,000
)
Ending balance
 
$
2,100
   
$
15,434
   
$
3,133
   
$
7,776
   
$
122
   
$
28,565
 
                                                 

   
Three months ended September 30, 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
   
(73
)
   
(32
)
   
196
     
(80
)
   
(11
)
   
 
Ending balance
 
$
1,286
   
$
15,762
   
$
3,196
   
$
9,937
   
$
221
   
$
30,402
 
13


The following table details 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 September 30, 2018 and June 30, 2018.

   
At September 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
   
2,100
     
15,434
     
3,133
     
7,776
     
122
     
28,565
 
Total
 
$
2,100
   
$
15,434
   
$
3,133
   
$
7,776
   
$
122
   
$
28,565
 
Loans receivable:
                                               
Individually evaluated for impairment
 
$
5,762
   
$
   
$
   
$
4,058
   
$
   
$
9,820
 
Collectively evaluated for impairment
   
266,529
     
2,001,687
     
504,048
     
751,908
     
3,176
     
3,527,348
 
Total
 
$
272,291
   
$
2,001,687
   
$
504,048
   
$
755,966
   
$
3,176
   
$
3,537,168
 
 
                                               

   
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
 
 
14


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 table provides information about the loan credit quality at September 30, 2018 and June 30, 2018:

 
 
At September 30, 2018
 
 
 
Satisfactory
   
Pass/Watch
   
Special Mention
   
Substandard
   
Doubtful
   
Total
 
 
 
(In thousands)
 
Residential
 
$
247,180
   
$
17,755
   
$
356
   
$
7,000
   
$
   
$
272,291
 
Residential commercial real estate
   
1,976,397
     
23,719
     
1,571
     
     
     
2,001,687
 
Grocery/credit retail commercial real estate
   
500,415
     
3,633
     
     
     
     
504,048
 
Other commercial real estate
   
660,427
     
77,899
     
11,776
     
5,864
     
     
755,966
 
Construction and land loans
   
3,176
     
     
     
     
     
3,176
 
Total
 
$
3,387,595
   
$
123,006
   
$
13,703
   
$
12,864
   
$
   
$
3,537,168
 

 
 
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
 

15


The following table provides information about loans past due at September 30, 2018 and June 30, 2018:

 
 
At September 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 (1)
 
 
 
(In thousands)
 
Residential
 
$
2,123
   
$
717
   
$
6,389
   
$
9,229
   
$
263,062
   
$
272,291
   
$
7,000
 
Residential commercial real estate
   
1,914
     
     
     
1,914
     
1,999,773
     
2,001,687
     
 
Grocery/credit retail commercial real estate
   
     
     
     
     
504,048
     
504,048
     
 
Other commercial real estate
   
11,474
     
     
692
     
12,166
     
743,800
     
755,966
     
2,083
 
Construction and land loans
   
     
     
     
     
3,176
     
3,176
     
 
Total
 
$
15,511
   
$
717
   
$
7,081
   
$
23,309
   
$
3,513,859
   
$
3,537,168
   
$
9,083
 

 
 
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 September 30, 2018 are residential loans totaling $361,000 that were 60-89 days past due; residential loans totaling $250,000 that were 30-59 days past due; and other commercial real estate loans totaling $1.4 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.
 
16


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 September 30, 2018 impaired loans were primarily collateral-dependent and totaled $9.8 million, with 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 September 30, 2018 and June 30, 2018:

   
At September 30, 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
 
$
5,769
   
$
5,762
   
$
   
$
5,021
   
$
5,022
   
$
 
Other commercial real estate
   
3,921
     
4,058
     
     
4,018
     
4,181
     
 
                     Total
 
$
9,690
   
$
9,820
   
$
   
$
9,039
   
$
9,203
   
$
 


The following tables present the average recorded investment and interest income recognized on impaired loans for the three months ended September 30, 2018 and 2017:

   
Three months ended September 30,
 
   
2018
   
2017
 
   
Average Recorded Investment
   
Interest Income Recognized
   
Average Recorded Investment
   
Interest Income Recognized
 
   
(In thousands)
 
With no related allowance recorded:
                       
Residential
 
$
5,197
   
$
18
   
$
3,625
   
$
36
 
Other commercial real estate
   
3,956
     
73
     
9,664
     
115
 
 
   
9,153
     
91
     
13,289
     
151
 
With an allowance recorded:
                               
Other commercial real estate
   
     
     
363
     
 
                                 
Total:
                               
Residential
   
5,197
     
18
     
3,625
     
36
 
Other commercial real estate
   
3,956
     
73
     
10,027
     
115
 
 
 
$
9,153
   
$
91
   
$
13,652
   
$
151
 
Cash basis interest income
         
$
49
           
$
128
 
17


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 September 30, 2018 and June 30, 2018, are $1.8 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 September 30, 2018 and June 30, 2018:

 
 
Troubled Debt Restructurings at September 30, 2018
 
 
 
Performing
   
Nonperforming
   
Total
 
 
 
(In thousands)
 
Residential
 
$
   
$
172
   
$
172
 
Other commercial real estate
   
275
     
1,391
     
1,666
 
Total
 
$
275
   
$
1,563
   
$
1,838
 
Allowance
 
$
   
$
   
$
 
 
                       
 
 
Troubled Debt Restructurings at June 30, 2018
 
 
 
Performing
   
Nonperforming
   
Total
 
 
 
(In thousands)
 
Residential
 
$
   
$
174
   
$
174
 
Other commercial real estate
   
309
     
1,407
     
1,716
 
Total
 
$
309
   
$
1,581
   
$
1,890
 
Allowance
 
$
   
$
   
$
 
 
There were no loan relationships modified in a troubled debt restructuring during the three months ended September 30, 2018 and September 30, 2017.

There were no payment defaults on loans modified as troubled debt restructurings within twelve months of modification during the three months ended September 30, 2018 and 2017.
18



7. Debt Securities 

Debt Securities Held to Maturity

The following is a comparative summary of debt securities held to maturity at September 30, 2018 and June 30, 2018:

 
 
At September 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
   
$
   
$
19
   
$
1,731
 
Due in one to five years
   
5,000
     
     
93
     
4,907
 
Mortgage-backed securities:
                               
Residential MBS
   
212,036
     
14
     
7,086
     
204,964
 
Commercial MBS
   
12,925
     
     
483
     
12,442
 
CMO
   
80,839
     
     
2,644
     
78,195
 
Corporate Note
                               
         Due in five to ten years
   
15,041
     
     
122
     
14,919
 
 
 
$
327,591
   
$
14
   
$
10,447
   
$
317,158
 

 
 
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 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 held to maturity during the three months ended September 30, 2018 and 2017.  Debt securities with fair values of $8.5 million and $9.1 million at September 30, 2018 and June 30, 2018, respectively, were pledged for advances.  There were no held to maturity debt securities pledged for cash flow hedge interest rate swaps at September 30, 2018 and June 30, 2018. There were no held to maturity debt securities pledged for municipal deposits at September 30, 2018 and June 30, 2018. The Company did not record other-than-temporary impairment charges on debt securities held to maturity during the three months ended September 30, 2018 and 2017.

19

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 September 30, 2018 and June 30, 2018 were as follows:

 
 
At September 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
 
$
   
$
   
$
1,731
   
$
19
   
$
1,731
   
$
19
 
Due in one to five years
   
     
     
4,907
     
93
     
4,907
     
93
 
Mortgage-backed securities:
                                               
Residential MBS
   
91,585
     
2,033
     
112,275
     
5,053
     
203,860
     
7,086
 
Commercial MBS
   
5,891
     
138
     
6,551
     
345
     
12,442
     
483
 
CMO
   
24,997
     
124
     
53,198
     
2,520
     
78,195
     
2,644
 
Corporate Note
                                               
         Due in five to ten years
   
14,919
     
122
     
     
     
14,919
     
122
 
 
 
$
137,392
   
$
2,417
   
$
178,662
   
$
8,030
   
$
316,054
   
$
10,447
 

 
 
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.

20

Debt Securities Available for Sale

The following is a comparative summary of debt securities available for sale at September 30, 2018 and June 30, 2018:

 
At September 30, 2018
 
 
Amortized
cost
   
Gross
unrealized
gains
   
Gross
unrealized
losses
   
Fair value
 
 
(In thousands)
 
Mortgage-backed securities:
                       
Residential MBS
   
49
     
1
     
     
50
 
Commercial MBS
   
4,037
     
45
     
     
4,082
 
CMO
   
36,853
     
     
1,323
     
35,530
 
 
 
$
40,939
   
$
46
   
$
1,323
   
$
39,662
 

 
 
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 during the three months ended September 30, 2018 and 2017.   Available for sale debt securities with fair values of $14.7 million and $15.5 million at September 30, 2018 and June 30, 2018, respectively, were pledged for advances.  There were no available for sale debt securities pledged for cash flow hedge interest rate swaps at September 30, 2018 and June 30, 2018, respectively.  There were no available for sale debt securities pledged for municipal deposits at September 30, 2018 and June 30, 2018. There were no other-than-temporary impairment charges on available for sale debt securities for the three months ended September 30, 2018 and 2017.


21

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 September 30, 2018 and June 30, 2018 were as follows:

 
 
At September 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
 
$
3,932
   
$
20
   
$
31,598
   
$
1,303
   
$
35,530
   
$
1,323
 
 
 
$
3,932
   
$
20
   
$
31,598
   
$
1,303
   
$
35,530
   
$
1,323
 

 
 
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 $1.4 million as of September 30, 2018. There were no sales of equity securities at September 30, 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 $119,000 for the three months ended September 30, 2018. 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.

22



8. Deposits

Deposits include checking (non-interest and interest-bearing demand deposits), money market, savings and time deposits. We had brokered deposits totaling $462.1 million and $450.4 million at September 30, 2018 and June 30, 2018, respectively.   Total municipal deposits were $516.4 million and $535.7 million at September 30, 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 $181.6 million and $217.0 million at September 30, 2018 and June 30, 2018, respectively.  As of September 30, 2018 and June 30, 2018, the aggregate amount of outstanding time deposits in amounts greater than $250,000 was $220.7 million and $244.7 million, respectively. 

 Deposit balances are summarized as follows:

 
 
September 30, 2018
   
June 30, 2018
 
 
 
(In thousands)
 
Checking accounts
 
$
731,043
   
$
751,735
 
Money market deposit accounts
   
715,286
     
763,003
 
Savings accounts
   
238,347
     
188,859
 
Time deposits
   
1,239,349
     
1,211,531
 
 
 
$
2,924,025
   
$
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 September 30, 2018, Oritani had twenty two interest rate swap agreements with a total notional outstanding of $395.0 million.  These agreements all feature exchanges of fixed for variable payments covering various hedging periods maturing between December 2018 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 September 30, 2018 and June 30, 2018.

        
At September 30, 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
 
$
395,000
   
$
18,024