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Oritani Financial Corp. proves that some banks out there are still making loans.

Oritani, which operates 23 bank branches in New Jersey, continues to focus on growing its loan portfolio while maintaining solid credit quality, which should continue to drive EPS higher over the next several years.

This was on display in the third quarter, where the company delivered a solid earnings beat on strong loan growth and margin expansion.

The company also continues to return value to shareholders through aggressive stock buybacks and dividend hikes. It currently yields 3.8%.

Third Quarter Results

Oritani reported better than expected results for the third quarter of 2011 on October 28. Earnings per share came in at 15 cents, beating the Zacks Consensus Estimate by a penny. It was a 7% increase over the same quarter in 2010.

Net interest income rose 9% year-over-year as the net interest margin expanded 17 basis points to 3.42%. While the average interest rate on loans and securities declined, the interest paid out on deposits declined even more.

Total loans rose 10%, as loan growth remains a strategic objective for the company. Meanwhile, non-interest income increased 10%, driven by a 14% jump in service charges.

The allowance for loan losses decreased 20 basis points to 1.56% as the amount of delinquent loans fell 29%. Net charge-offs to average loans did increase 35 basis points, however, to 0.58% of average loans. But this is still manageable.


Analysts revised their estimates higher for both 2011 and 2012 off the solid quarter, sending the stock to a Zacks #2 Rank (Buy).

Based on current consensus estimates, analysts expect continued growth from Oritani over the next couple of years. The Zacks Consensus Estimate for 2011 is now $0.60, representing 12% EPS growth. The 2012 consensus estimate is currently $0.70, corresponding with 16% EPS growth.

Analysts expect Oritani to continue growing its loan portfolio while improving its credit quality in the coming. This, coupled with the leveraging of its operating expenses, should drive EPS at double-digit rates over the next couple of years.

Returning Value to Shareholders

Oritani continues to return value to shareholders through aggressive stock buy backs and dividend hikes.

Through October 26, the company spent $135.7 million buying back 10.4 million shares of its stock.

Oritani also recently announced a 25% hike in its regular quarterly dividend to 12.5 cents per share. It currently yields an attractive 3.8%...about 170 basis points more than a 10-year Treasury note.


Shares trade at 20.9x 12-month forward earnings, a premium to industry average but a discount to its historical median of 38.2x.

Its price to book ratio of 1.3 is also well below its historical median of 2.1.

The Bottom Line

With rising earnings estimates, strong growth projections, aggressive stock buybacks and a 3.8% dividend yield, Oritani offers growth and income investors plenty to like.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.

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