Oritani Financial Corp. (Nasdaq: ORIT), the holding company for Oritani Savings Bank reported net income of $1.4 million, or $0.04 per basic and fully diluted share, for the three months ended June 30, 2008, as compared to net income of $7.7 million, or $0.20 per basic share, for the corresponding 2007 period.
The Company also reported net income of $9.0 million, or $0.23 per basic and fully diluted share, for the twelve months ended June 30, 2008, as compared to net income of $11.0 million for the corresponding 2007 period.
As further described below, there were several non-recurring items that affected the Company's results of operations. The items primarily impacting the three month period ended June 30, 2008 were:
-- Provision for loan losses totaling $2.6 million.
-- A pre-tax charge of $646,000 as a result of an other than temporary impairment in the value of a mutual fund investment.
-- A $1.1 million gain on the sale of a Real Estate Held for Investment property
Also, the results for the corresponding 2007 period were increased by the reversal of a $3.2 million valuation allowance related to certain New Jersey State deferred tax assets.
In addition to the items above, the results for the twelve month period ended June 30, 2008 were impacted by an additional impairment charge, totaling $352,000, recorded during the March 31, 2008 period. In addition to the $3.2 million valuation allowance reversal, the results for the twelve month period ended June 30, 2007 were also positively impacted by the reinvestment of the proceeds related to the subscription stock offering and a gain of $514,000 regarding the sale of our former headquarters; and offset by a $9.1 million pre-tax charitable contribution to the OritaniSavingsBank Charitable Foundation.
"As the strategic plan for capital management has shifted to organic growth, we have seized opportunities in the marketplace to achieve substantial, high quality, loan growth. Our annual loan growth was nearly $250 million with almost $100 million coming in the last quarter alone. These results brought our ending balance in loans to over $1.0 billion." said Kevin J. Lynch, the Company's Chairman, President and CEO. "We believe that we are poised to continue considerable loan growth and we will continue to focus on positioning the Company for strong organic growth throughout the balance sheet." Mr. Lynch also commented on the $2.6 million loan loss provision recorded during the quarter. "Although we have made a sizeable provision to the allowance for loan losses, we have not experienced a loss in over ten years. We continue to work closely with the borrower of our impaired loans and I am cautiously optimistic that we will resolve these loans without a loss."
Comparison of Operating Results
Interest Income
Total interest income increased by $2.0 million, or 12.2%, to $18.5 million for the three months ended June 30, 2008, from $16.5 million for the three months ended June 30, 2007. The largest increase was in interest on mortgage loans. A critical component of the Company's strategic plan is sound loan growth. The average balance of loans, net increased to $943.0 million for the 3 months ended June 30, 2008 from $734.8 million for the corresponding 2007 period. Interest on mortgage loans increased by $2.8 million, or 23.2%, to $14.6 million for the three months ended June 30, 2008, from $11.9 million for the three months ended June 30, 2007. Interest on federal funds sold and short term investments decreased to $303,000 for the three months ended June 30, 2008, from $1.6 million for the three months ended June 30, 2007. Liquid funds were primarily deployed in loans and mortgage-backed securities ("MBS") available for sale ("AFS"). Interest on MBS AFS increased by $1.3 million to $1.6 million for the three months ended June 30, 2008, from $240,000 for the three months ended June 30, 2007. Funds were deployed in this investment type as spreads and structures were considered attractive. Interest on the other investment related captions of securities held to maturity ("HTM"), securities AFS and MBS HTM decreased by $762,000, or 27.5%, to $2.0 million for the three months ended June 30, 2008, from $2.8 million for the three months ended June 30, 2007. The cash flows from these investments were also primarily deployed into loans and MBS AFS.
For the twelve months ended June 30, 2008, total interest income increased by $8.2 million, or 13.0%, to $71.6 million, from $63.3 million for the twelve months ended June 30, 2007. The largest increase was in interest on mortgage loans as the patterns described above for the quarterly results affected the entire year. Interest on mortgage loans increased by $10.8 million, or 24.3%, to $55.1 million for the twelve months ended June 30, 2008, from $44.3 million for the twelve months ended June 30, 2007. Interest on federal funds sold and short term investments decreased by $5.1 million to $1.7 million for the twelve months ended June 30, 2008, from $6.8 million for the twelve months ended June 30, 2007. Interest on MBS AFS increased by $3.9 million to $4.7 million for the twelve months ended June 30, 2008, from $813,000 for the twelve months ended June 30, 2007. Interest on the other investment related captions of securities HTM, securities AFS and MBS HTM decreased by $1.3 million, or 11.3%, to $10.1 million for the twelve months ended June 30, 2008, from $11.4 million for the twelve months ended June 30, 2007.
Interest Expense
Total interest expense increased by $1.0 million, or 12.3%, to $9.5 million for the three months ended June 30, 2008, from $8.5 million for the three months ended June 30, 2007. Interest expense on deposits decreased by $777,000, or 12.6%, to $5.4 million for the three months ended June 30, 2008, from $6.2 million for the three months ended June 30, 2007. The average balance of deposits increased to $704.8 million for the three months ended June 30, 2008 from $698.1 million for the three months ended June 30, 2007. However, the interest rate environment allowed the Bank to reprice most maturing certificates at a lower rate. The cost of deposits decreased to 3.07% for the three months ended June 30, 2008 from 3.54% for the three months ended June 30, 2007. Interest expense on borrowings was affected by a significant increase in the average balance as additional borrowings were used to fund much of the asset growth. Interest expense on borrowings increased by $1.8 million to $4.1 million for the three months ended June 30, 2008, from $2.3 million for the three months ended June 30, 2007.
Total interest expense increased by $4.4 million, or 13.3%, to $37.2 million for the twelve months ended June 30, 2008, from $32.8 million for the twelve months ended June 30, 2007. Interest expense on deposits and stock subscription proceeds was relatively stable, increasing by $183,000 in fiscal 2008 versus fiscal 2007. Results for the 2007 period were enhanced by the lower rate of interest paid on stock subscription proceeds. Interest expense on borrowings increased by $4.2 million to $13.3 million for the twelve months ended June 30, 2008, from $9.1 million for the twelve months ended June 30, 2007. The average balance of borrowings increased by $99.6 million over the periods.
Net Interest Income
Net interest income increased by $967,000, or 12.1%, to $9.0 million for the three months ended June 30, 2008, from $8.0 million for the three months ended June 30, 2007. On a trailing quarter basis, net interest income increased by $253,000, or 2.9%, from $8.7 million for the three months ended March 31, 2008. The Company's net interest rate spreads for the three months ended June 30, 2008, March 31, 2008 and June 30, 2007 were 2.05%, 2.06% and 2.07%, respectively. Net interest income increased by $3.9 million, or 12.7%, to $34.4 million for the twelve months ended June 30, 2008, from $30.5 million for the twelve months ended June 30, 2007. The Company's net interest income and net interest rate spread were both negatively impacted in the three month period ended June 30, 2008 due to the reversal of accrued interest income on loans delinquent more than 90 days. The Company's net interest rate spreads for the twelve months ended June 30, 2008 and June 30, 2007 were 2.05% and 2.23%, respectively.
Provision for Loan Losses
The Company recorded provisions for loan losses of $2.6 million for the three months ended June 30, 2008 as compared to $435,000 for the three months ended June 30, 2007. The Company recorded provisions for loan losses of $4.7 million for the twelve months ended June 30, 2008 as compared to $1.2 million for the twelve months ended June 30, 2007. There were no recoveries or charge-offs in any of the periods.
The Company's allowance for loan losses is analyzed quarterly and many factors are considered, including comparison to peer reserve levels. A significant component of the increased 2008 provisions was loan growth during the periods. Loans, net increased $96.7 million and $248.5 million during the three and twelve months ended June 30, 2008, respectively. This compares to growth of $36.2 million and $115.5 million during the three and twelve months ended June 30, 2007, respectively. -- Oritani Financial Corp.
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