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Northfield Bancorp, Inc. - Quarter Report: 2013 September (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,  D.C. 20549 

 

 

 

FORM 10-Q

 

 

 

 

 

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

or

[   ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For transition period from               to 

 

 

 

Commission File Number

 

1-35791

 

 

 

 

 

NORTHFIELD BANCORP, INC.

(Exact name of registrant as specified in its charter) 

 

 

 

 

 

 

 

 

 

Delaware

 

 

 

80-0882592

(State or other jurisdiction of incorporation)

 

 

 

(I.R.S. Employer Identification No.)

 

 

 

 

 

581 Main Street, Woodbridge, New Jersey

 

07095

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (732) 499-7200

 

Not Applicable

(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 filing requirements for the past 90 days.  Yes x    No o.

Indicate by check mark whether the registrant has submitted electronically and posted on it corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required and post such files).  Yes x    No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer  o 

Accelerated filer  x

         Non-accelerated filer  o (Do not check if smaller reporting company)

Smaller reporting company  o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

57,939,498 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of November 1, 2013.

 

 

 

 

 


 

Table of Contents

NORTHFIELD BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents

 

 

 

 

 

Page

PART I - FINANCIAL INFORMATION 

Item 1.

Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

41 

Item 4.

Controls and Procedures

43 

 

 

 

PART II - OTHER INFORMATION 

Item 1.

Legal Proceedings

44 

Item 1A.

Risk Factors

44 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44 

Item 3.

Defaults Upon Senior Securities

44 

Item 4.

Mine Safety Disclosures

44 

Item 5.

Other Information

44 

Item 6.

Exhibits

44 

 

SIGNATURES

45 

 

 

 

2


 

Table of Contents

PART I

ITEM1.FINANCIAL STATEMENTS

NORTHFIELD BANCORP, INC.

CONSOLIDATED BALANCE SHEETS
September 30, 2013,  and December 31, 2012

(Unaudited)

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

September 30, 2013

 

December 31, 2012

ASSETS:

 

 

 

Cash and due from banks

$             13,549

 

$            25,354

Interest-bearing deposits in other financial institutions

80,104 

 

103,407 

Total cash and cash equivalents

93,653 

 

128,761 

Trading securities

5,706 

 

4,677 

Securities available-for-sale, at estimated fair value

 

 

 

(encumbered $239,099 in 2013 and $254,190 in 2012)

1,023,055 

 

1,275,631 

Securities held-to-maturity, at amortized cost (estimated fair value of $2,309 in 2012)

 

 

 

(encumbered $0 in 2012)

 -

 

2,220 

Loans held-for-sale

3,945 

 

5,447 

Purchased credit-impaired (PCI) loans held-for-investment

62,802 

 

75,349 

Loans acquired

81,784 

 

101,433 

Originated loans held-for-investment, net

1,253,281 

 

1,066,200 

Loans held-for-investment, net

1,397,867 

 

1,242,982 

Allowance for loan losses

(27,114)

 

(26,424)

Net loans held-for-investment

1,370,753 

 

1,216,558 

Accrued interest receivable

7,733 

 

8,154 

Bank owned life insurance

124,094 

 

93,042 

Federal Home Loan Bank of New York stock, at cost

16,882 

 

12,550 

Premises and equipment, net

29,836 

 

29,785 

Goodwill

16,159 

 

16,159 

Other real estate owned

664 

 

870 

Other assets

34,739 

 

19,347 

Total assets

$        2,727,219

 

$       2,813,201

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY:

 

 

 

LIABILITIES:

 

 

 

Deposits

$        1,492,586

 

$       1,956,860

Securities sold under agreements to repurchase

216,000 

 

226,000 

Other borrowings

276,181 

 

193,122 

Advance payments by borrowers for taxes and insurance

6,683 

 

3,488 

Accrued expenses and other liabilities

19,489 

 

18,858 

Total liabilities

2,010,939 

 

2,398,328 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued or outstanding

 -

 

 -

Common stock, $0.01 par value: 150,000,000 shares authorized, 58,212,409 and 46,904,286

 

 

 

shares issued at September 30, 2013, and December 31, 2012, respectively, 57,939,498

 

 

 

and 41,486,819 outstanding at September 30, 2013 and December 31, 2012, respectively

582 

 

469 

Additional paid-in-capital

507,464 

 

230,253 

Unallocated common stock held by employee stock ownership plan

(27,407)

 

(13,965)

Retained earnings

240,512 

 

249,892 

Accumulated other comprehensive (loss) income

(1,591)

 

18,231 

Treasury stock at cost; 272,911 and 5,417,467 shares at September 30, 2013 and December 31, 2012, respectively

(3,280)

 

(70,007)

Total stockholders’ equity

716,280 

 

414,873 

Total liabilities and stockholders’ equity

$        2,727,219

 

$       2,813,201

 

See accompanying notes to consolidated financial statements.

 

 

3


 

Table of Contents

NORTHFIELD BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME 
Three and nine months ended September 30, 2013, and 2012

(Unaudited)

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2013

 

2012

 

2013

 

2012

Interest income:

 

 

 

 

 

 

 

Loans

$                17,827 

 

$                15,162 

 

$                51,021 

 

$                45,187 

Mortgage-backed securities

5,097 

 

6,799 

 

17,095 

 

20,418 

Other securities

325 

 

559 

 

1,268 

 

2,102 

Federal Home Loan Bank of New York dividends

124 

 

151 

 

398 

 

435 

Deposits in other financial institutions

 

19 

 

68 

 

47 

Total interest income

23,380 

 

22,690 

 

69,850 

 

68,189 

Interest expense:

 

 

 

 

 

 

 

Deposits

1,442 

 

2,447 

 

5,180 

 

7,432 

Borrowings

2,618 

 

3,244 

 

7,830 

 

9,820 

Total interest expense

4,060 

 

5,691 

 

13,010 

 

17,252 

Net interest income

19,320 

 

16,999 

 

56,840 

 

50,937 

Provision for loan losses

817 

 

502 

 

1,511 

 

1,661 

Net interest income after provision for loan losses

18,503 

 

16,497 

 

55,329 

 

49,276 

Non-interest income:

 

 

 

 

 

 

 

Fees and service charges for customer services

801 

 

720 

 

2,285 

 

2,285 

Income on bank owned life insurance

999 

 

710 

 

2,588 

 

2,139 

Gain on securities transactions, net

743 

 

428 

 

2,941 

 

2,488 

Other-than-temporary impairment losses on securities

 -

 

 -

 

(434)

 

 -

Portion recognized in other comprehensive income (before taxes)

 -

 

 -

 

 -

 

 -

Net impairment losses on securities recognized in earnings

 -

 

 -

 

(434)

 

 -

Other

45 

 

(148)

 

162 

 

203 

Total non-interest income

2,588 

 

1,710 

 

7,542 

 

7,115 

Non-interest expense:

 

 

 

 

 

 

 

Compensation and employee benefits

6,756 

 

5,950 

 

20,270 

 

17,881 

Occupancy

2,479 

 

2,201 

 

7,339 

 

6,230 

Furniture and equipment

432 

 

375 

 

1,315 

 

1,064 

Data processing

874 

 

826 

 

3,424 

 

2,829 

Professional fees

753 

 

684 

 

2,221 

 

2,480 

FDIC insurance

379 

 

409 

 

1,131 

 

1,218 

Other

1,636 

 

1,583 

 

5,184 

 

4,769 

Total non-interest expense

13,309 

 

12,028 

 

40,884 

 

36,471 

Income before income tax expense

7,782 

 

6,179 

 

21,987 

 

19,920 

Income tax expense

2,682 

 

2,285 

 

7,796 

 

7,130 

Net income

$                  5,100 

 

$                  3,894 

 

$                14,191 

 

$                12,790 

Net income per common share:

 

 

 

 

 

 

 

Basic

$                    0.09 

 

$                    0.07 

 

$                    0.26 

 

$                    0.24 

Diluted

$                    0.09 

 

$                    0.07 

 

$                    0.26 

 

$                    0.23 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

Unrealized (losses) gains on securities:

 

 

 

 

 

 

 

Net unrealized holding (losses) gains on securities

$                (4,670)

 

$                  3,657 

 

$              (30,800)

 

$                  7,622 

Less: reclassification adjustment for gains included in net income (included in gain on securities transactions, net)

(353)

 

(225)

 

(2,245)

 

(2,032)

Net unrealized (losses) gains

(5,023)

 

3,432 

 

(33,045)

 

5,590 

Reclassification adjustment for OTTI impairment included in net income (included OTTI losses on securities)

 -

 

 -

 

434 

 

 -

Other comprehensive (loss) income , before tax

(5,023)

 

3,432 

 

(32,611)

 

5,590 

Income tax (benefit) expense related to net unrealized holding (losses) gains on securities

(1,873)

 

1,463 

 

(12,065)

 

3,049 

Income tax expense related to reclassification adjustment for gains included in net income

(141)

 

(90)

 

(898)

 

(813)

Income tax benefit related to reclassification adjustment for OTTI impairment included in net income

 -

 

 -

 

174 

 

 -

Other comprehensive (loss) income, net of tax

(3,009)

 

2,059 

 

(19,822)

 

3,354 

Comprehensive (loss) income

$                  2,091 

 

$                  5,953 

 

$                (5,631)

 

$                16,144 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

 

4


 

Table of Contents

 

NORTHFIELD BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Nine months ended September 30, 2013, and 2012

(Unaudited)

(In thousands, except share data) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

Other

 

 

 

 

 

Common Stock

 

Additional

 

Held by the

 

 

 

Comprehensive

 

 

 

Total

 

 

 

Par

 

Paid-in

 

Employee Stock

 

Retained

 

Income (Loss),

 

Treasury

 

Stockholders'

 

Shares

 

Value

 

Capital

 

Ownership Plan

 

Earnings

 

Net of tax

 

Stock

 

Equity

 

 

Balance at December 31, 2011

45,632,611 

 

$               456 

 

$        209,302 

 

$                       (14,570)

 

$        235,776 

 

$                       17,470 

 

$       (65,784)

 

$                  382,650 

Net income

 

 

 

 

 

 

 

 

12,790 

 

 

 

 

 

12,790 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

3,354 

 

 

 

3,354 

ESOP shares allocated or committed to be released

 

 

 

 

192 

 

437 

 

 

 

 

 

 

 

629 

Stock compensation expense

 

 

 

 

2,299 

 

 

 

 

 

 

 

 

 

2,299 

Additional tax benefit on equity awards

 

 

 

 

204 

 

 

 

 

 

 

 

 

 

204 

Exercise of stock options

 

 

 

 

 

 

 

 

(187)

 

 

 

121 

 

(66)

Cash dividends declared ($0.12 per common share)

 

 

 

 

 

 

 

 

(1,722)

 

 

 

 

 

(1,722)

Treasury stock (average cost of $9.84 per share)

 

 

 

 

 

 

 

 

 

 

 

 

(4,344)

 

(4,344)

Balance at September 30, 2012

45,632,611 

 

$               456 

 

$        211,997 

 

$                       (14,133)

 

$        246,657 

 

$                       20,824 

 

$       (70,007)

 

$                  395,794 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2012

46,904,286 

 

$               469 

 

$        230,253 

 

$                       (13,965)

 

$        249,892 

 

$                       18,231 

 

$       (70,007)

 

$                  414,873 

Net income

 

 

 

 

 

 

 

 

14,191 

 

 

 

 

 

14,191 

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

(19,822)

 

 

 

(19,822)

ESOP shares allocated or committed to be released

 

 

 

 

334 

 

782 

 

 

 

 

 

 

 

1,116 

Stock compensation expense

 

 

 

 

2,354 

 

 

 

 

 

 

 

 

 

2,354 

Additional tax benefit on equity awards

 

 

 

 

296 

 

 

 

 

 

 

 

 

 

296 

Corporate reorganization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merger of Northfield Bancorp, MHC

(24,641,684)

 

(246)

 

370 

 

 

 

 

 

 

 

 

 

124 

Exchange of common stock

(16,845,135)

 

(169)

 

169 

 

 

 

 

 

 

 

 

 

Treasury stock retired

(5,417,467)

 

(54)

 

(69,953)

 

 

 

 

 

 

 

70,007 

 

Proceeds of stock offering, net of costs

58,199,819 

 

582 

 

329,396 

 

 

 

 

 

 

 

 

 

329,978 

Purchase of common stock by ESOP

 

 

 

 

14,224 

 

(14,224)

 

 

 

 

 

 

 

Exercise of stock options

12,590 

 

 

 

21 

 

 

 

 

 

 

 

 

 

21 

Cash dividends declared ($0.43 per common share)

 

 

 

 

 

 

 

 

(23,571)

 

 

 

 

 

(23,571)

Treasury stock (average cost of $12.02 per share)

(272,911)

 

 

 

 

 

 

 

 

 

 

 

(3,280)

 

(3,280)

Balance at September 30, 2013

57,939,498 

 

$               582 

 

$        507,464 

 

$                       (27,407)

 

$        240,512 

 

$                       (1,591)

 

$         (3,280)

 

$                  716,280 

 

See accompanying notes to consolidated financial statements.

 

 

5


 

Table of Contents

NORTHFIELD BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30, 2013, and 2012

(Unaudited) (In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

2013

 

2012

 

Cash flows from operating activities:

 

 

 

 

Net income

$     14,191

 

$     12,790

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Provision for loan losses

1,511 

 

1,661 

 

ESOP and stock compensation expense

3,470 

 

2,928 

 

Depreciation

2,690 

 

2,076 

 

Amortization of premiums, and deferred loan costs, net of (accretion) of discounts, and deferred loan fees

1,592 

 

277 

 

Amortization intangible assets

332 

 

273 

 

Income on bank owned life insurance

(2,588)

 

(2,139)

 

Net (gain) loss on sale of loans held-for-sale

(35)

 

111 

 

Proceeds from sale of loans held-for-sale

8,513 

 

13,303 

 

Origination of  loans held-for-sale

(3,638)

 

(10,370)

 

Gain on securities transactions, net

(2,941)

 

(2,488)

 

Net purchases of trading securities

(333)

 

(135)

 

Decrease in accrued interest receivable

421 

 

1,264 

 

(Increase) decrease in other assets

(2,377)

 

1,192 

 

Increase (decrease)  in accrued expenses and other liabilities

631 

 

(1,098)

 

Net cash provided by operating activities

21,439 

 

19,645 

 

Cash flows from investing activities:

 

 

 

 

Net increase in loans receivable

(159,531)

 

(28,538)

 

Purchases of Federal Home Loan Bank of New York stock, net

(4,332)

 

(1,801)

 

Purchases of securities available-for-sale

(264,562)

 

(606,140)

 

Principal payments and maturities on securities available-for-sale

285,933 

 

318,165 

 

Principal payments and maturities on securities held-to-maturity

2,219 

 

1,079 

 

Proceeds from sale of securities available-for-sale

199,302 

 

176,586 

 

Purchases of bank owned life insurance

(28,657)

 

 -

 

Death benefits received from bank owned life insurance

193 

 

 -

 

Proceeds from sale of other real estate owned

81 

 

2,706 

 

Purchases and improvements of premises and equipment

(2,741)

 

(6,162)

 

Net cash provided by (used in) investing activities

27,905 

 

(144,105)

 

Cash flows from financing activities:

 

 

 

 

Net (decrease) increase in deposits

(174,720)

 

77,254 

 

Dividends paid

(23,571)

 

(1,722)

 

Net proceeds from sale of common stock

54,648 

 

 -

 

Merger of Northfield Bancorp, MHC

124 

 

 -

 

Purchase of common stock for ESOP

(14,224)

 

 -

 

Exercise of stock options

21 

 

16 

 

Purchase of treasury stock

(3,280)

 

(4,344)

 

Additional tax benefit on equity awards

296 

 

204 

 

Increase in advance payments by borrowers for taxes and insurance

3,195 

 

1,794 

 

Repayments under capital lease obligations

(214)

 

(186)

 

Proceeds from securities sold under agreements to repurchase and other borrowings

474,970 

 

351,186 

 

Repayments related to securities sold under agreements to repurchase and other borrowings

(401,697)

 

(333,000)

 

Net cash (used in) provided by financing activities

(84,452)

 

91,202 

 

Net decrease in cash and cash equivalents

(35,108)

 

(33,258)

 

Cash and cash equivalents at beginning of period

128,761 

 

65,269 

 

Cash and cash equivalents at end of period

$     93,653

 

$     32,011

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

Cash paid during the period for:

 

 

 

 

Interest

$     13,082

 

$     17,490

 

Income taxes

13,541 

 

5,334 

 

Non-cash transactions:

 

 

 

 

Loans charged-off, net

821 

 

1,428 

 

Other real estate owned write-downs

124 

 

437 

 

Transfers of loans to other real estate owned

 -

 

306 

 

Increase in due to broker for purchases of securities available-for-sale

 -

 

5,099 

 

Increase in due from broker for sales of securities available-for-sale

 -

 

(13,779)

 

Deposits utilized to purchase common stock

289,554 

 

 -

 

 

See accompanying notes to consolidated financial statements.

 

 

6


 

Table of Contents

 

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Basis of Presentation

The consolidated financial statements are comprised of the accounts of Northfield Bancorp, Inc. (the “Company”) and its wholly owned subsidiaries, Northfield Investments, Inc. and Northfield Bank (the Bank) and the Bank’s wholly-owned significant subsidiaries, NSB Services Corp. and NSB Realty Trust. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

In the opinion of management, all adjustments (consisting solely 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 and nine months ended September 30, 2013, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2013.  Certain prior year amounts have been reclassified to conform to the current year presentation.

In preparing the unaudited consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”); management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated.  Material estimates that are particularly susceptible to change are: the allowance for loan losses; the evaluation of goodwill and other intangible assets, impairment on investment securities, fair value measurements of assets and liabilities, and income taxes.  Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual amounts or results could differ significantly from those estimates. The current economic environment has increased the degree of uncertainty inherent in these material estimates.

 

Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for the preparation of interim financial statements.  The consolidated financial statements presented should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2012, of Northfield Bancorp, Inc. as filed with the SEC.

 

On January 24, 2013, Northfield Bancorp, Inc. completed its conversion from the mutual holding company to the stock holding company form of organization. A total of 35,558,927 shares of common stock were sold in the subscription and community offerings at a price of $10.00 per share, including 1,422,357 shares of common stock purchased by the Northfield Bank Employee Stock Ownership Plan. As part of the conversion, each existing share of Northfield Bancorp, Inc., a Federal Corporation, (“Northfield-Federal”) common stock held by public shareholders was converted into the right to receive 1.4029 shares of Northfield Bancorp, Inc., a Delaware Corporation, (“Northfield-Delaware”) common stock. The exchange ratio ensured that, after the conversion and offering, the public shareholders of Northfield-Federal maintained approximately the same ownership interest in Northfield-Delaware as they owned previously. 58,199,819 shares of Northfield-Delaware common stock were outstanding after the completion of the offering and the exchange. The Company incurred costs of approximately $11.5 million related to the conversion. 

 

Share amounts at December 31, 2012, have been restated to reflect the conversion at a rate of 1.4029-to-one, unless noted otherwise.

 

Note 2 – Securities

The following is a comparative summary of mortgage-backed securities and other securities available-for-sale at September 30, 2013, and December 31, 2012 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2013

 

 

 

Gross

 

Gross

 

Estimated

 

Amortized

 

unrealized

 

unrealized

 

fair

 

cost

 

gains

 

losses

 

value

Mortgage-backed securities:

 

 

 

 

 

 

 

Pass-through certificates:

 

 

 

 

 

 

 

Government sponsored enterprises (GSE)

$          385,973

 

$         10,773

 

$          3,541

 

$          393,205

Real estate mortgage investment conduits (REMICs):

 

 

 

 

 

 

 

GSE

521,132 

 

1,043 

 

10,254 

 

511,921 

Non-GSE

5,007 

 

146 

 

53 

 

5,100 

 

912,112 

 

11,962 

 

13,848 

 

910,226 

Other securities:

 

 

 

 

 

 

 

GSE bonds

30,495 

 

 -

 

134 

 

30,361 

Equity investments-mutual funds

2,189 

 

 -

 

 -

 

2,189 

Corporate bonds

80,450 

 

 

174 

 

80,279 

 

113,134 

 

 

308 

 

112,829 

Total securities available-for-sale

$       1,025,246

 

$         11,965

 

$        14,156

 

$       1,023,055

 

 

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December 31, 2012

 

 

 

Gross

 

Gross

 

Estimated

 

Amortized

 

unrealized

 

unrealized

 

fair

 

cost

 

gains

 

losses

 

value

Mortgage-backed securities:

 

 

 

 

 

 

 

Pass-through certificates:

 

 

 

 

 

 

 

GSE

$          456,441

 

$         22,996

 

$              99

 

$          479,338

Real estate mortgage investment conduits (REMICs):

 

 

 

 

 

 

 

GSE

694,087 

 

7,092 

 

62 

 

701,117 

Non-GSE

7,543 

 

266 

 

33 

 

7,776 

 

1,158,071 

 

30,354 

 

194 

 

1,188,231 

Other securities:

 

 

 

 

 

 

 

Equity investments-mutual funds

12,998 

 

— 

 

— 

 

12,998 

Corporate bonds

73,708 

 

694 

 

— 

 

74,402 

 

86,706 

 

694 

 

— 

 

87,400 

Total securities available-for-sale

$       1,244,777

 

$         31,048

 

$            194

 

$       1,275,631

 

The following is a summary of the expected maturity distribution of debt securities available-for-sale, other than mortgage-backed securities, at September 30, 2013 (in thousands):

 

 

 

 

 

 

 

 

 

Available-for-sale

Amortized cost

 

Estimated fair value

Due in one year or less

$                   -

 

$                   -

Due after one year through five years

110,944 

 

110,639 

 

$       110,944

 

$        110,639

 

Expected maturities on mortgage-backed securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties.

 

For the three months and nine months ended September 30, 2013, the Company had gross proceeds of $52.8 million and $199.3 million, respectively, on sales of securities available-for-sale with gross realized gains of approximately $394,000 and $2.5 million, respectively, and gross realized losses of $42,000 and $219,000, respectivelyFor the three and nine months ended September 30, 2012, the Company had gross proceeds of $46.3 million and $176.6 million, respectively, on sales of securities available-for-sale with gross realized gains of approximately $715,000 and $2.0 million, respectively, and gross realized losses of $490,000 for the three and nine months ended September 30, 2012.    The Company recognized $390,000 and $696,000 in gains on its trading securities portfolio during the three and nine months ended September 30, 2013, respectively.  The Company recognized $203,000 and $456,000 in gains on its trading securities portfolio during the three and nine months ended September 30, 2012, respectively.  The Company recognized $0 and $434,000  of  other-than-temporary impairment charges during the three and nine months ended September 30, 2013, respectively, and did not recognize any other-than-temporary impairment charges during the three and nine months ended September 30, 2012

 

Activity related to the credit component recognized in earnings on debt securities for which a portion of other-than-temporary impairment was recognized in accumulated other comprehensive income for the three and nine months ended September 30, 2013 and 2012, is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

September 30,

 

September 30,

 

2013

 

2012

 

2013

 

2012

Balance, beginning of period

$                -

 

$            578

 

$                -

 

$            578

Additions to the credit component on debt securities in which other-than-temporary

 

 

 

 

 

 

 

impairment was not previously recognized

 -

 

 -

 

 -

 

 -

Reductions due to sales

 

 

(578)

 

 -

 

(578)

Cumulative pre-tax credit losses, end of period

$                -

 

$                -

 

$                -

 

$                -

 

 

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Gross unrealized losses on mortgage-backed securities, equity investments, and corporate bonds available-for-sale, and the estimated 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, 2013, and December 31, 2012, were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2013

 

Less than 12 months

 

12 months or more

 

Total

 

Unrealized

 

Estimated

 

Unrealized

 

Estimated

 

Unrealized

 

Estimated

 

losses

 

fair value

 

losses

 

fair value

 

losses

 

fair value

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

Pass-through certificates:

 

 

 

 

 

 

 

 

 

 

 

GSE

$          3,493

 

$      156,702

 

$               48

 

$        5,375

 

$          3,541

 

$      162,077

REMICs:

 

 

 

 

 

 

 

 

 

 

 

GSE

9,479 

 

314,923 

 

775 

 

48,508 

 

10,254 

 

363,431 

Non-GSE

24 

 

1,246 

 

29 

 

482 

 

53 

 

1,728 

Other securities:

 

 

 

 

 

 

 

 

 

 

 

GSE bonds

134 

 

30,361 

 

 -

 

 -

 

134 

 

30,361 

Corporate bonds

174 

 

68,784 

 

 -

 

 -

 

174 

 

68,784 

Total

$        13,304

 

$      572,016

 

$             852

 

$      54,365

 

$        14,156

 

$      626,381

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

Less than 12 months

 

12 months or more

 

Total

 

Unrealized

 

Estimated

 

Unrealized

 

Estimated

 

Unrealized

 

Estimated

 

losses

 

fair value

 

losses

 

fair value

 

losses

 

fair value

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

Pass-through certificates:

 

 

 

 

 

 

 

 

 

 

 

GSE

$              99

 

$        14,156

 

$                 -

 

$               -

 

$              99

 

$        14,156

REMICs:

 

 

 

 

 

 

 

 

 

 

 

GSE

58 

 

100,310 

 

 

7,633 

 

62 

 

107,943 

Non-GSE

 -

 

 -

 

33 

 

604 

 

33 

 

604 

Total

$            157

 

$      114,466

 

$              37

 

$       8,237

 

$            194

 

$      122,703

 

The Company held 37 REMIC pass-through mortgage-backed securities issued or guaranteed by GSEs, 7 REMIC mortgage-backed securities issued or guaranteed by GSEs and one REMIC mortgage-backed security not issued or guaranteed by GSEs that were in a continuous unrealized loss position of greater than twelve months at September 30, 2013.  There were 20 pass-through mortgage-backed securities issued or guaranteed by GSEs,  20 REMIC mortgage-backed securities issued or guaranteed by GSEs, one GSE bond, one REMIC mortgage-backed security not issued or guaranteed by GSEs and 13 corporate bonds that were in an unrealized loss position of less than twelve months, and rated investment grade at September 30, 2013.  The declines in value relate to the general interest rate environment and are considered temporary.  The securities cannot be prepaid in a manner that would result in the Company not receiving substantially all of its amortized cost.  The Company neither has an intent to sell, nor is it more likely than not that the Company will be required to sell, the securities before the recovery of their amortized cost basis or, if necessary, maturity.

 

The fair values of our investment securities could decline in the future if the underlying performance of the collateral for the collateralized mortgage obligations or other securities deteriorates and our credit enhancement levels do not provide sufficient protections to our contractual principal and interest. 

 

Note 3 – Loans

 

Net loans held-for-investment is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

2013

 

2012

Real estate loans:

 

Multifamily

$                   756,469 

 

$                   610,129 

Commercial mortgage

349,610 

 

315,450 

One-to-four family residential mortgage

63,260 

 

64,733 

Home equity and lines of credit

45,346 

 

33,573 

Construction and land

19,029 

 

23,243 

Total real estate loans

1,233,714 

 

1,047,128 

Commercial and industrial loans

14,639 

 

14,786 

Other loans

1,834 

 

1,830 

Total commercial and industrial and other loans

16,473 

 

16,616 

Deferred loan cost, net

3,094 

 

2,456 

Originated loans held-for-investment, net

1,253,281 

 

1,066,200 

PCI Loans

62,802 

 

75,349 

Loans acquired:

 

 

 

Multifamily

3,963 

 

5,763 

Commercial mortgage

13,748 

 

17,053 

One-to-four family residential mortgage

63,700 

 

78,237 

Construction and land

373 

 

380 

Total loans acquired, net

81,784 

 

101,433 

Loans held-for-investment, net

1,397,867 

 

1,242,982 

Allowance for loan losses

(27,114)

 

(26,424)

Net loans held-for-investment

$                1,370,753 

 

$                1,216,558 

 

 

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Loans held-for-sale amounted to $3.9 million and  $5.4 million at September 30, 2013, and December 31, 2012, respectively.    

PCI loans, primarily acquired as part of a Federal Deposit Insurance Corporation-assisted transaction, totaled $62.8 million at September 30, 2013, as compared to $75.3 million at December 31, 2012.   The Company accounts for PCI loans utilizing generally accepting accounting principles applicable to loans acquired with deteriorated credit quality.  PCI loans consist of approximately 38% commercial real estate and 47% commercial and industrial loans, with the remaining balance in residential and home equity loans.  The following details the accretion of interest income for the periods indicated: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

September 30,

 

September 30,

 

2013

 

2012

 

2013

 

2012

Balance at the beginning of period

$       40,454

 

$       39,311

 

$       43,431

 

$       42,493

Accretion into interest income

(1,385)

 

(1,499)

 

(4,362)

 

(4,681)

Balance at end of period

$       39,069

 

$       37,812

 

$       39,069

 

$       37,812

 

 

Activity in the allowance for loan losses is as follows (in thousands):

 

 

 

 

 

 

 

 

 

At or for the nine months ended September 30,

 

2013

 

2012

Beginning balance

$            26,424

 

$            26,836

Provision for loan losses

1,511 

 

1,661 

Charge-offs, net

(821)

 

(1,428)

Ending balance

$            27,114

 

$            27,069

 

The following tables set forth activity in our allowance for loan losses, by loan type, for the nine months ended September 30, 2013, and the year ended December 31, 2012.  The following tables also detail the amount of originated and acquired loans held-for-investment, net of deferred loan fees and costs, that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for loan losses that is allocated to each loan portfolio segment, as of September 30, 2013, and December 31, 2012 (in thousands). There was no related allowance for acquired loans as of September 30, 2013, and December 31, 2012.

 

 

 

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September 30, 2013

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

One-to-Four Family

 

Construction and Land

 

Multifamily

 

Home Equity and Lines of Credit

 

Commercial and Industrial

 

Other

 

Unallocated

 

Originated Loans Total

 

Purchased Credit-Impaired

 

Total

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

$              13,343 

 

$                  623 

 

$                    994 

 

$              7,086 

 

$                        623 

 

$                  2,297 

 

$          21 

 

$               1,201 

 

$              26,188 

 

$                      236 

 

$           26,424 

Charge-offs

(854)

 

(320)

 

 -

 

(187)

 

(96)

 

(40)

 

(26)

 

 -

 

(1,523)

 

 -

 

(1,523)

Recoveries

21 

 

 -

 

567 

 

13 

 

 -

 

81 

 

20 

 

 -

 

702 

 

 -

 

702 

Provisions

819 

 

493 

 

(954)

 

754 

 

428 

 

(189)

 

54 

 

106 

 

1,511 

 

 -

 

1,511 

Ending Balance

$              13,329 

 

$                  796 

 

$                    607 

 

$              7,666 

 

$                        955 

 

$                  2,149 

 

$          69 

 

$               1,307 

 

$              26,878 

 

$                      236 

 

$           27,114 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: individually evaluated for impairment

$                2,380 

 

$                    18 

 

$                         - 

 

$                 130 

 

$                        150 

 

$                     113 

 

$            - 

 

$                      - 

 

$                2,791 

 

$                          - 

 

$             2,791 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: collectively evaluated for impairment

$              10,949 

 

$                  778 

 

$                    607 

 

$              7,536 

 

$                        805 

 

$                  2,036 

 

$          69 

 

$               1,307 

 

$              24,087 

 

$                      236 

 

$           24,323 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated loans, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance

$            349,913 

 

$            63,779 

 

$               19,043 

 

$          758,149 

 

$                   45,895 

 

$                14,668 

 

$     1,834 

 

$                      - 

 

$         1,253,281 

 

$                          - 

 

$     1,253,281 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: individually evaluated for impairment

$              32,858 

 

$               1,121 

 

$                    109 

 

$              2,093 

 

$                     1,740 

 

$                  1,620 

 

$            - 

 

$                      - 

 

$              39,541 

 

$                          - 

 

$           39,541 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: collectively evaluated for impairment

$            317,055 

 

$            62,658 

 

$               18,934 

 

$          756,056 

 

$                   44,155 

 

$                13,048 

 

$     1,834 

 

$                      - 

 

$         1,213,740 

 

$                          - 

 

$     1,213,740 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

One-to-Four Family

 

Construction and Land

 

Multifamily

 

Home Equity and Lines of Credit

 

Commercial and Industrial

 

Other

 

Unallocated

 

Total

 

Purchased Credit-Impaired

 

Total

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

$              14,120 

 

$                  967 

 

$                  1,189 

 

$              6,772 

 

$                        418 

 

$                  2,035 

 

$        226 

 

$               1,109 

 

$              26,836 

 

$                          - 

 

$           26,836 

Charge-offs

(1,828)

 

(1,300)

 

(43)

 

(729)

 

(2)

 

(90)

 

(201)

 

 -

 

(4,193)

 

 -

 

(4,193)

Recoveries

107 

 

 -

 

 -

 

 

 -

 

86 

 

43 

 

 -

 

245 

 

 -

 

245 

Provisions

944 

 

956 

 

(152)

 

1,034 

 

207 

 

266 

 

(47)

 

92 

 

3,300 

 

236 

 

3,536 

Ending Balance

$              13,343 

 

$                  623 

 

$                     994 

 

$              7,086 

 

$                        623 

 

$                  2,297 

 

$          21 

 

$               1,201 

 

$              26,188 

 

$                      236 

 

$           26,424 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: individually evaluated for impairment

$                1,617 

 

$                      5 

 

$                          - 

 

$                 317 

 

$                        123 

 

$                  1,553 

 

$            - 

 

$                      - 

 

$                3,615 

 

$                          - 

 

$             3,615 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: collectively evaluated for impairment

$              11,726 

 

$                  618 

 

$                     994 

 

$              6,769 

 

$                        500 

 

$                     744 

 

$          21 

 

$               1,201 

 

$              22,573 

 

$                      236 

 

$           22,809 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originated loans, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance

$            315,603 

 

$            65,354 

 

$                23,255 

 

$          611,469 

 

$                   33,879 

 

$                14,810 

 

$     1,830 

 

$                      - 

 

$         1,066,200 

 

$                          - 

 

$     1,066,200 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: individually evaluated for impairment

$              41,568 

 

$               2,061 

 

$                          - 

 

$              2,040 

 

$                     1,943 

 

$                  4,087 

 

$            - 

 

$                      - 

 

$              51,699 

 

$                          - 

 

$           51,699 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending balance: collectively evaluated for impairment

$            274,035 

 

$            63,293 

 

$                23,255 

 

$          609,429 

 

$                   31,936 

 

$                10,723 

 

$     1,830 

 

$                      - 

 

$         1,014,501 

 

$                          - 

 

$     1,014,501 

 

 

 

 

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The Company monitors the credit quality of its loans  by reviewing certain key credit quality indicators.  Management has determined that loan-to-value ratios (at period end) and internally assigned credit risk ratings by loan type are the key credit quality indicators that best help management monitor the credit quality of the Company’s loans.  Loan-to-value (LTV) ratios used by management in monitoring credit quality are based on current period loan balances and original values at time of origination (unless a more current appraisal has been obtained).  In calculating the provision for loan losses, management has determined that commercial real estate loans and multifamily loans having loan-to-value ratios of less than 35%, and one-to-four family loans having loan-to-value ratios of less than 60%, require less of a loss factor than those with higher loan-to-value ratios.

The Company maintains a credit risk rating system as part of the risk assessment of its loan portfolio.  The Company’s lending officers are required to assign a credit risk rating to each loan in their portfolio at origination.  When the lending officer learns of important financial developments, the risk rating is reviewed and adjusted if necessary.  Periodically, management presents monitored assets to the Board Loan Committee.  In addition, the Company engages a third party independent loan reviewer that performs semi-annual reviews of a sample of loans, validating the credit risk ratings assigned to such loans.  The credit risk ratings play an important role in the establishment of the loan loss provision and in confirming the adequacy of the allowance for loan losses.  After determining the general reserve loss factor for each portfolio segment, the portfolio segment balance collectively evaluated for impairment is multiplied by the general reserve loss factor for the respective portfolio segment in order to determine the general reserve.  Loans collectively evaluated for impairment that have an internal credit rating of special mention or substandard are multiplied by a multiple of the general reserve loss factors for each portfolio segment, in order to determine the general reserve.

 

When assigning a risk rating to a loan, management utilizes the Bank’s internal nine-point credit risk rating system. 

 

1.

Strong

2.

Good

3.

Acceptable

4.

Adequate

5.

Watch

6.

Special Mention

7.

Substandard

8.

Doubtful

9.

Loss

 

Loans rated 1 through 5 are considered pass ratings.  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 have well defined weaknesses based on objective evidence, and are characterized by the distinct possibility the Company 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 highly questionable and improbable based on current circumstances.  Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted.  Assets which do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses, are designated special mention.

 

The following tables detail the recorded investment of originated loans held-for-investment, net of deferred fees and costs, by loan type and credit quality indicator at September 30, 2013, and December 31, 2012 (in thousands): 

 

 

 

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Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2013

 

Real Estate

 

 

 

 

 

 

 

Multifamily

 

Commercial

 

One-to-Four Family

 

Construction and Land

 

Home Equity and Lines of Credit

 

Commercial and Industrial

 

Other

 

Total

 

< 35% LTV

 

=> 35% LTV

 

< 35% LTV

 

=> 35% LTV

 

< 60% LTV

 

=> 60% LTV

 

 

 

 

 

 

 

 

 

 

Internal Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$           33,640 

 

$           707,204 

 

$           41,995 

 

$           249,870 

 

$           28,983 

 

$             27,877 

 

$               13,811 

 

$         43,689 

 

$             10,622 

 

$    1,834 

 

$    1,159,525 

Special Mention

314 

 

11,128 

 

1,779 

 

12,687 

 

1,391 

 

1,620 

 

5,124 

 

516 

 

1,496 

 

 -

 

36,055 

Substandard

 -

 

5,863 

 

1,726 

 

41,856 

 

1,268 

 

2,640 

 

108 

 

1,690 

 

2,550 

 

 -

 

57,701 

Originated loans held-for-investment, net

$           33,954 

 

$           724,195 

 

$           45,500 

 

$           304,413 

 

$           31,642 

 

$             32,137 

 

$               19,043 

 

$         45,895 

 

$             14,668 

 

$    1,834 

 

$    1,253,281 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2012

 

Real Estate

 

 

 

 

 

 

 

Multifamily

 

Commercial

 

One-to-Four Family

 

Construction and Land

 

Home Equity and Lines of Credit

 

Commercial and Industrial

 

Other

 

Total

 

< 35% LTV

 

=> 35% LTV

 

< 35% LTV

 

=> 35% LTV

 

< 60% LTV

 

=> 60% LTV

 

 

 

 

 

 

 

 

 

 

Internal Risk Rating

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pass

$           19,438 

 

$           575,434 

 

$           30,284 

 

$           211,679 

 

$           32,120 

 

$             28,091 

 

$               12,536 

 

$         31,526 

 

$             10,992 

 

$    1,804 

 

$       953,904 

Special Mention

115 

 

10,444 

 

185 

 

23,521 

 

1,422 

 

384 

 

5,137 

 

659 

 

753 

 

 -

 

42,620 

Substandard

510 

 

5,528 

 

1,699 

 

48,235 

 

1,066 

 

2,271 

 

5,582 

 

1,694 

 

3,065 

 

26 

 

69,676 

Originated loans held-for-investment, net

$           20,063 

 

$           591,406 

 

$           32,168 

 

$           283,435 

 

$           34,608 

 

$             30,746 

 

$               23,255 

 

$         33,879 

 

$             14,810 

 

$    1,830 

 

$    1,066,200 

 

 

 

 

 

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Included in originated and acquired loans receivable (including held-for-sale) are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers.  The recorded investment of these nonaccrual loans was $19.5 million and $34.9 million at September 30, 2013, and December 31, 2012, respectively.  Generally, loans are placed on non-accruing status when they become 90 days or more delinquent, and remain on non-accrual status until they are brought current, have six months of performance under the loan terms, and factors indicating reasonable doubt about the timely collection of payments no longer exist.  Therefore, loans may be current in accordance with their loan terms, or may be less than 90 days delinquent and still be on a non-accruing status.    

These non-accrual amounts included loans deemed to be impaired of $13.2 million and $26.0 million at September 30, 2013, and December 31, 2012, respectively.  Loans on non-accrual status with principal balances less than $500,000, and therefore not meeting the Company’s definition of an impaired loan, amounted to $4.7 million and $4.1 million at September 30, 2013, and December 31, 2012, respectively.   Non-accrual amounts included in loans held-for-sale were $1.7 million and $5.4 million at September 30, 2013 and December 31, 2012, respectively.    Loans past due 90 days or more and still accruing interest were $18,000 and $621,000 at September 30, 2013, and December 31, 2012, respectively, and consisted of loans that are considered well secured and in the process of collection.     

The following tables set forth the detail, and delinquency status, of non-performing loans (non-accrual loans and loans past due 90 or more and still accruing), net of deferred fees and costs, at September 30, 2013, and December 31, 2012 (in thousands).  The following table excludes PCI loans at September 30, 2013, and December 31, 2012, which have been segregated into pools in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 310-30.  Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. At September 30, 2013, expected future cash flows of each PCI loan pool were consistent with those estimated in our most recent recast of the cash flows.

 

14


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2013

 

Total Non-Performing Loans

 

Non-Accruing Loans

 

 

 

 

 

0-29 Days Past Due

 

30-89 Days Past Due

 

90 Days or More Past Due

 

Total

 

90 Days or More Past Due and Accruing

 

Total Non-Performing Loans

Loans held-for-investment:

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

LTV < 35%

 

 

 

 

 

 

 

 

 

 

 

Substandard

$          353

 

$                -

 

$               -

 

$          353

 

$               -

 

$            353

Total

353 

 

 -

 

 -

 

353 

 

 -

 

353 

LTV => 35%

 

 

 

 

 

 

 

 

 

 

 

Substandard

2,454 

 

8,753 

 

785 

 

11,992 

 

 -

 

11,992 

Total

2,454 

 

8,753 

 

785 

 

11,992 

 

 -

 

11,992 

Total commercial

2,807 

 

8,753 

 

785 

 

12,345 

 

 -

 

12,345 

One-to-four family residential

 

 

 

 

 

 

 

 

 

 

 

LTV < 60%

 

 

 

 

 

 

 

 

 

 

 

Special Mention

151 

 

16 

 

114 

 

281 

 

 -

 

281 

Substandard

180 

 

242 

 

186 

 

608 

 

 -

 

608 

Total

331 

 

258 

 

300 

 

889 

 

 -

 

889 

LTV => 60%

 

 

 

 

 

 

 

 

 

 

 

Substandard

191 

 

 -

 

1,834 

 

2,025 

 

 -

 

2,025 

Total

191 

 

 -

 

1,834 

 

2,025 

 

 -

 

2,025 

Total one-to-four family residential

522 

 

258 

 

2,134 

 

2,914 

 

 -

 

2,914 

Construction and land

 

 

 

 

 

 

 

 

 

 

 

Substandard

108 

 

 -

 

 -

 

108 

 

 -

 

108 

Total construction and land

108 

 

 -

 

 -

 

108 

 

 -

 

108 

Multifamily

 

 

 

 

 

 

 

 

 

 

 

LTV => 35%

 

 

 

 

 

 

 

 

 

 

 

Substandard

 -

 

 -

 

73 

 

73 

 

 -

 

73 

Total multifamily

 -

 

 -

 

73 

 

73 

 

 -

 

73 

Home equity and lines of credit

 

 

 

 

 

 

 

 

 

 

 

Special Mention

 -

 

 -

 

43 

 

43 

 

 -

 

43 

Substandard

104 

 

 -

 

1,586 

 

1,690 

 

 -

 

1,690 

Total home equity and lines of credit

104 

 

 -

 

1,629 

 

1,733 

 

 -

 

1,733 

Commercial and industrial loans

 

 

 

 

 

 

 

 

 

 

 

Pass

 -

 

 -

 

 -

 

 -

 

 

Special Mention

 -

 

 -

 

11 

 

11 

 

 -

 

11 

Substandard

70 

 

447 

 

245 

 

762 

 

 -

 

762 

Total commercial and industrial loans

70 

 

447 

 

256 

 

773 

 

 

774 

Other loans

 

 

 

 

 

 

 

 

 

 

 

Pass

 -

 

 -

 

 -

 

 -

 

17 

 

17 

Total other loans

 -

 

 -

 

 -

 

 -

 

17 

 

17 

Total non-performing loans held-for-investment

3,611 

 

9,458 

 

4,877 

 

17,946 

 

18 

 

17,964 

Loans acquired:

 

 

 

 

 

 

 

 

 

 

 

One-to-four family residential

 

 

 

 

 

 

 

 

 

 

 

LTV < 60%

 

 

 

 

 

 

 

 

 

 

 

Substandard

 -

 

 -

 

103 

 

103 

 

 -

 

103 

Total

 -

 

 -

 

103 

 

103 

 

 -

 

103 

LTV => 60%

 

 

 

 

 

 

 

 

 

 

 

Substandard

305 

 

 -

 

1,127 

 

1,432 

 

 -

 

1,432 

Total

305 

 

 -

 

1,127 

 

1,432 

 

 -

 

1,432 

Total one-to-four family residential

305 

 

 -

 

1,230 

 

1,535 

 

 -

 

1,535 

Total non-performing loans acquired

305 

 

 -

 

1,230 

 

1,535 

 

 -

 

1,535 

Total non-performing loans

$       3,916

 

$         9,458

 

$       6,107

 

$     19,481

 

$            18

 

$       19,499

 

 

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Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2012

 

Total Non-Performing Loans

 

Non-Accruing Loans

 

 

 

 

 

0-29 Days Past Due

 

30-89 Days Past Due

 

90 Days or More Past Due

 

Total

 

90 Days or More Past Due and Accruing

 

Total Non-Performing Loans

Loans held-for-investment:

 

 

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

LTV < 35%

 

 

 

 

 

 

 

 

 

 

 

Substandard

$       1,699

 

$                -

 

$               -

 

$       1,699

 

$               -

 

$         1,699

Total

1,699 

 

 -

 

 -

 

1,699 

 

 -

 

1,699 

LTV => 35%

 

 

 

 

 

 

 

 

 

 

 

Substandard

13,947 

 

442 

 

5,565 

 

19,954 

 

349 

 

20,303 

Total

13,947 

 

442 

 

5,565 

 

19,954 

 

349 

 

20,303 

Total commercial

15,646 

 

442 

 

5,565 

 

21,653 

 

349 

 

22,002 

One-to-four family residential

 

 

 

 

 

 

 

 

 

 

 

LTV < 60%

 

 

 

 

 

 

 

 

 

 

 

Special Mention

 -

 

19 

 

229 

 

248 

 

119 

 

367 

Substandard

 -

 

429 

 

 -

 

429 

 

 -

 

429 

Total

 -

 

448 

 

229 

 

677 

 

119 

 

796 

LTV => 60%

 

 

 

 

 

 

 

 

 

 

 

Substandard

233 

 

201 

 

1,437 

 

1,871 

 

151 

 

2,022 

Total

233 

 

201 

 

1,437 

 

1,871 

 

151 

 

2,022 

Total one-to-four family residential

233 

 

649 

 

1,666 

 

2,548 

 

270 

 

2,818 

Construction and land

 

 

 

 

 

 

 

 

 

 

 

Substandard

2,070 

 

 -

 

 -

 

2,070 

 

 -

 

2,070 

Total construction and land

2,070 

 

 -

 

 -

 

2,070 

 

 -

 

2,070 

Multifamily

 

 

 

 

 

 

 

 

 

 

 

LTV => 35%

 

 

 

 

 

 

 

 

 

 

 

Substandard

 

 

 

 

279 

 

279 

 

 -

 

279 

Total multifamily

 -

 

 -

 

279 

 

279 

 

 -

 

279 

Home equity and lines of credit

 

 

 

 

 

 

 

 

 

 

 

Substandard

107 

 

 -

 

1,587 

 

1,694 

 

 -

 

1,694 

Total home equity and lines of credit

107 

 

 -

 

1,587 

 

1,694 

 

 -

 

1,694 

Commercial and industrial loans

 

 

 

 

 

 

 

 

 

 

 

Substandard

532 

 

 -

 

724 

 

1,256 

 

 -

 

1,256 

Total commercial and industrial loans

532 

 

 -

 

724 

 

1,256 

 

 -

 

1,256 

Other loans

 

 

 

 

 

 

 

 

 

 

 

Pass

 -

 

 -

 

 -

 

 -

 

 

Total other loans

 -

 

 -

 

 -

 

 -

 

 

Total non-performing loans held-for-investment

18,588 

 

1,091 

 

9,821 

 

29,500 

 

621 

 

30,121 

Loans held-for-sale:

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

LTV => 35%

 

 

 

 

 

 

 

 

 

 

 

Substandard

 -

 

 

 

773 

 

773 

 

 -

 

773 

Total commercial

 -

 

 -

 

773 

 

773 

 

 -

 

773 

One-to-four family residential

 

 

 

 

 

 

 

 

 

 

 

LTV => 60%

 

 

 

 

 

 

 

 

 

 

 

Substandard

122 

 

 -

 

3,662 

 

3,784 

 

 -

 

3,784 

Total one-to-four family residential

122 

 

 -

 

3,662 

 

3,784 

 

 -

 

3,784 

Multifamily

 

 

 

 

 

 

 

 

 

 

 

LTV => 35%

 

 

 

 

 

 

 

 

 

 

 

Substandard

 -

 

 -

 

890 

 

890 

 

 -

 

890 

Total multifamily

 -

 

 -

 

890 

 

890 

 

 -

 

890 

Total non-performing loans held-for-sale

122 

 

 -

 

5,325 

 

5,447 

 

 -

 

5,447 

Total non-performing loans

$     18,710

 

$         1,091

 

$     15,146

 

$     34,947

 

$          621

 

$       35,568

 

 

16


 

Table of Contents

The following tables set forth the detail and delinquency status of originated and acquired loans held-for-investment, net of deferred fees and costs, by performing and non-performing loans at September 30, 2013 and December 31, 2012 (in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2013

 

Performing (Accruing) Loans

 

 

 

 

 

0-29 Days Past Due

 

30-89 Days Past Due

 

Total

 

Non-Performing Loans

 

Total Loans Receivable, net

Loans held-for-investment:

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

LTV < 35%

 

 

 

 

 

 

 

 

 

Pass

$           41,995

 

$                 -

 

$         41,995

 

$                        -

 

$             41,995

Special Mention

1,315 

 

464 

 

1,779 

 

 -

 

1,779 

Substandard

1,373 

 

 -

 

1,373 

 

353 

 

1,726 

Total

44,683 

 

464 

 

45,147 

 

353 

 

45,500 

LTV > 35%

 

 

 

 

 

 

 

 

 

Pass

249,192 

 

678 

 

249,870 

 

 -

 

249,870 

Special Mention

10,994 

 

1,693 

 

12,687 

 

 -

 

12,687 

Substandard

27,445 

 

2,419 

 

29,864 

 

11,992 

 

41,856 

Total

287,631 

 

4,790 

 

292,421 

 

11,992 

 

304,413 

Total commercial

332,314 

 

5,254 

 

337,568 

 

12,345 

 

349,913 

One-to-four family residential

 

 

 

 

 

 

 

 

 

LTV < 60%

 

 

 

 

 

 

 

 

 

Pass

28,522 

 

461 

 

28,983 

 

 -

 

28,983 

Special Mention

693 

 

417 

 

1,110 

 

281 

 

1,391 

Substandard

341 

 

319 

 

660 

 

608 

 

1,268 

Total

29,556 

 

1,197 

 

30,753 

 

889 

 

31,642 

LTV > 60%

 

 

 

 

 

 

 

 

 

Pass

25,237 

 

2,640 

 

27,877 

 

 -

 

27,877 

Special Mention

1,620 

 

 -

 

1,620 

 

 -

 

1,620 

Substandard

369 

 

246 

 

615 

 

2,025 

 

2,640 

Total

27,226 

 

2,886 

 

30,112 

 

2,025 

 

32,137 

Total one-to-four family residential

56,782 

 

4,083 

 

60,865 

 

2,914 

 

63,779 

Construction and land

 

 

 

 

 

 

 

 

 

Pass

13,811 

 

 -

 

13,811 

 

 -

 

13,811 

Special Mention

5,124 

 

 -

 

5,124 

 

 -

 

5,124 

Substandard

 -

 

 -

 

 -

 

108 

 

108 

Total construction and land

18,935 

 

 -

 

18,935 

 

108 

 

19,043 

Multifamily

 

 

 

 

 

 

 

 

 

LTV < 35%

 

 

 

 

 

 

 

 

 

Pass

33,640 

 

 -

 

33,640 

 

 -

 

33,640 

Special Mention

99 

 

215 

 

314 

 

 -

 

314 

Total

33,739 

 

215 

 

33,954 

 

 -

 

33,954 

LTV > 35%

 

 

 

 

 

 

 

 

 

Pass

706,414 

 

790 

 

707,204 

 

 -

 

707,204 

Special Mention

9,736 

 

1,392 

 

11,128 

 

 -

 

11,128 

Substandard

4,960 

 

830 

 

5,790 

 

73 

 

5,863 

Total

721,110 

 

3,012 

 

724,122 

 

73 

 

724,195 

Total multifamily

754,849 

 

3,227 

 

758,076 

 

73 

 

758,149 

Home equity and lines of credit

 

 

 

 

 

 

 

 

 

Pass

43,689 

 

 -

 

43,689 

 

 -

 

43,689 

Special Mention

380 

 

93 

 

473 

 

43 

 

516 

Substandard

 -

 

 -

 

 -

 

1,690 

 

1,690 

Total home equity and lines of credit

44,069 

 

93 

 

44,162 

 

1,733 

 

45,895 

Commercial and industrial loans

 

 

 

 

 

 

 

 

 

Pass

10,486 

 

135 

 

10,621 

 

 

10,622 

Special Mention

983 

 

502 

 

1,485 

 

11 

 

1,496 

Substandard

218 

 

1,570 

 

1,788 

 

762 

 

2,550 

Total commercial and industrial loans

11,687 

 

2,207 

 

13,894 

 

774 

 

14,668 

Other loans

 

 

 

 

 

 

 

 

 

Pass

1,807 

 

10 

 

1,817 

 

17 

 

1,834 

Total other loans

1,807 

 

10 

 

1,817 

 

17 

 

1,834 

Total loans held-for-investment

1,220,443 

 

14,874 

 

1,235,317 

 

17,964 

 

1,253,281 

 

 

 

17


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

Loans acquired:

 

 

 

 

 

 

 

 

 

One-to-four family residential

 

 

 

 

 

 

 

 

 

LTV < 60%

 

 

 

 

 

 

 

 

 

Pass

45,601 

 

693 

 

46,294 

 

 -

 

46,294 

Special Mention

415 

 

 -

 

415 

 

 -

 

415 

Substandard

138 

 

 

144 

 

103 

 

247 

Total one-to-four family residential

46,154 

 

699 

 

46,853 

 

103 

 

46,956 

LTV => 60%

 

 

 

 

 

 

 

 

 

Pass

14,667 

 

144 

 

14,811 

 

 -

 

14,811 

Special Mention

235 

 

 -

 

235 

 

 -

 

235 

Substandard

266 

 

 -

 

266 

 

1,432 

 

1,698 

Total

15,168 

 

144 

 

15,312 

 

1,432 

 

16,744 

Total one-to-four family residential

61,322 

 

843 

 

62,165 

 

1,535 

 

63,700 

Commercial

 

 

 

 

 

 

 

 

 

LTV < 35%

 

 

 

 

 

 

 

 

 

Pass

2,837 

 

531 

 

3,368 

 

 -

 

3,368 

Special Mention

190 

 

 -

 

190 

 

 -

 

190 

Total

3,027 

 

531 

 

3,558 

 

 -

 

3,558 

LTV > 35%

 

 

 

 

 

 

 

 

 

Pass

9,248 

 

 -

 

9,248 

 

 -

 

9,248 

Substandard

942 

 

 -

 

942 

 

 -

 

942 

Total

10,190 

 

 -

 

10,190 

 

 -

 

10,190 

Total commercial

13,217 

 

531 

 

13,748 

 

 -

 

13,748 

Construction and land

 

 

 

 

 

 

 

 

 

Substandard

373 

 

 -

 

373 

 

 -

 

373 

Total construction and land

373 

 

 -

 

373 

 

 -

 

373 

Multifamily

 

 

 

 

 

 

 

 

 

LTV < 35%

 

 

 

 

 

 

 

 

 

Pass

597 

 

 -

 

597 

 

 -

 

597 

Substandard

490 

 

 -

 

490 

 

 -

 

490 

Total

1,087 

 

 -

 

1,087 

 

 -

 

1,087 

LTV => 35%

 

 

 

 

 

 

 

 

 

Pass

2,276 

 

 -

 

2,276 

 

 -

 

2,276 

Special Mention

600 

 

 -

 

600 

 

 -

 

600 

Total

2,876 

 

 -

 

2,876 

 

 -

 

2,876 

Total multifamily

3,963 

 

 -

 

3,963 

 

 -

 

3,963 

Total loans acquired

78,875 

 

1,374 

 

80,249 

 

1,535 

 

81,784 

 

$      1,299,318

 

$         16,248

 

$     1,315,566

 

$                19,499

 

$        1,335,065

 

 

18


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

Performing (Accruing) Loans

 

 

 

 

 

0-29 Days Past Due

 

30-89 Days Past Due

 

Total

 

Non-Performing Loans

 

Total Loans Receivable, net

Loans held-for-investment:

 

 

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

 

 

Commercial

 

 

 

 

 

 

 

 

 

LTV < 35%

 

 

 

 

 

 

 

 

 

Pass

$         29,424

 

$           860

 

$         30,284

 

$                      -

 

$           30,284

Special Mention

185 

 

 -

 

185 

 

 -

 

185 

Substandard

 -

 

 -

 

 -

 

1,699 

 

1,699 

Total

29,609 

 

860 

 

30,469 

 

1,699 

 

32,168 

LTV > 35%

 

 

 

 

 

 

 

 

 

Pass

208,908 

 

2,771 

 

211,679 

 

 -

 

211,679 

Special Mention

22,416 

 

1,105 

 

23,521 

 

 -

 

23,521 

Substandard

27,932 

 

 -

 

27,932 

 

20,303 

 

48,235 

Total

259,256 

 

3,876 

 

263,132 

 

20,303 

 

283,435 

Total commercial

288,865 

 

4,736 

 

293,601 

 

22,002 

 

315,603 

One-to-four family residential

 

 

 

 

 

 

 

 

 

LTV < 60%

 

 

 

 

 

 

 

 

 

Pass

29,154 

 

2,966 

 

32,120 

 

 -

 

32,120 

Special Mention

1,055 

 

 -

 

1,055 

 

367 

 

1,422 

Substandard

448 

 

189 

 

637 

 

429 

 

1,066 

Total

30,657 

 

3,155 

 

33,812 

 

796 

 

34,608 

LTV > 60%

 

 

 

 

 

 

 

 

 

Pass

26,963 

 

1,128 

 

28,091 

 

 -

 

28,091 

Special Mention

384 

 

 -

 

384 

 

 -

 

384 

Substandard

249 

 

 -

 

249 

 

2,022 

 

2,271 

Total

27,596 

 

1,128 

 

28,724 

 

2,022 

 

30,746 

Total one-to-four family residential

58,253 

 

4,283 

 

62,536 

 

2,818 

 

65,354 

Construction and land

 

 

 

 

 

 

 

 

 

Pass

12,377 

 

159 

 

12,536 

 

 -

 

12,536 

Special Mention

5,137 

 

 -

 

5,137 

 

 -

 

5,137 

Substandard

3,512 

 

 -

 

3,512 

 

2,070 

 

5,582 

Total construction and land

21,026 

 

159 

 

21,185 

 

2,070 

 

23,255 

Multifamily

 

 

 

 

 

 

 

 

 

LTV < 35%

 

 

 

 

 

 

 

 

 

Pass

19,438 

 

 -

 

19,438 

 

 -

 

19,438 

Special Mention

 -

 

115 

 

115 

 

 -

 

115 

Substandard

510 

 

 -

 

510 

 

 -

 

510 

Total

19,948 

 

115 

 

20,063 

 

 -

 

20,063 

LTV > 35%

 

 

 

 

 

 

 

 

 

Pass

574,686 

 

748 

 

575,434 

 

 -

 

575,434 

Special Mention

9,134 

 

1,310 

 

10,444 

 

 -

 

10,444 

Substandard

4,909 

 

340 

 

5,249 

 

279 

 

5,528 

Total

588,729 

 

2,398 

 

591,127 

 

279 

 

591,406 

Total multifamily

608,677 

 

2,513 

 

611,190 

 

279 

 

611,469 

Home equity and lines of credit

 

 

 

 

 

 

 

 

 

Pass

31,482 

 

44 

 

31,526 

 

 -

 

31,526 

Special Mention

659 

 

 -

 

659 

 

 -

 

659 

Substandard

 -

 

 -

 

 -

 

1,694 

 

1,694 

Total home equity and lines of credit

32,141 

 

44 

 

32,185 

 

1,694 

 

33,879 

Commercial and industrial loans

 

 

 

 

 

 

 

 

 

Pass

10,356 

 

636 

 

10,992 

 

 -

 

10,992 

Special Mention

753 

 

 -

 

753 

 

 -

 

753 

Substandard

978 

 

831 

 

1,809 

 

1,256 

 

3,065 

Total commercial and industrial loans

12,087 

 

1,467 

 

13,554 

 

1,256 

 

14,810 

Other loans

 

 

 

 

 

 

 

 

 

Pass

1,743 

 

59 

 

1,802 

 

 

1,804 

Substandard

26 

 

 -

 

26 

 

 -

 

26 

Total other loans

1,769 

 

59 

 

1,828 

 

 

1,830 

 

$    1,022,818

 

$      13,261

 

$    1,036,079

 

$            30,121

 

$      1,066,200

 

19


 

Table of Contents

The following tables summarize impaired loans as of September 30, 2013, and December 31, 2012 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2013

 

Recorded Investment

 

Unpaid Principal Balance

 

Related Allowance

With No Allowance Recorded:

 

 

 

 

 

Real estate loans:

 

 

 

 

 

Commercial

 

 

 

 

 

LTV => 35%

 

 

 

 

 

Pass

$          3,428

 

$      3,565

 

$               -

Substandard

10,440 

 

11,424 

 

 -

Construction and land

 

 

 

 

 

Substandard

109 

 

91 

 

 

 -

One-to-four family residential

 

 

 

 

 

LTV < 60%

 

 

 

 

 

Special Mention

510 

 

510 

 

 -

Substandard

271 

 

271 

 

 -

Multifamily

 

 

 

 

 

LTV > 35%

 

 

 

 

 

Substandard

599 

 

1,070 

 

 -

Commercial and industrial loans

 

 

 

 

 

Special Mention

212 

 

221 

 

 -

Substandard

865 

 

865 

 

 -

With a Related Allowance Recorded:

 

 

 

 

 

Real estate loans:

 

 

 

 

 

Commercial

 

 

 

 

 

LTV < 35%

 

 

 

 

 

Substandard

353 

 

353 

 

(73)

LTV => 35%

 

 

 

 

 

Special Mention

2,312 

 

2,696 

 

(76)

Substandard

16,325 

 

17,134 

 

(2,231)

One-to-four family residential

 

 

 

 

 

LTV > 60%

 

 

 

 

 

Pass

340 

 

340 

 

(18)

Multifamily

 

 

 

 

 

LTV => 35%

 

 

 

 

 

Substandard

1,494 

 

1,494 

 

(130)

Home equity and lines of credit

 

 

 

 

 

Special Mention

345 

 

345 

 

(10)

Substandard

1,395 

 

1,395 

 

(140)

Commercial and industrial loans

 

 

 

 

 

Substandard

543 

 

581 

 

(113)

Total:

 

 

 

 

 

Real estate loans

 

 

 

 

 

Commercial

32,858 

 

35,172 

 

(2,380)

One-to-four family residential

1,121 

 

1,121 

 

(18)

Construction and land

109 

 

91 

 

 -

Multifamily

2,093 

 

2,564 

 

(130)

Home equity and lines of credit

1,740 

 

1,740 

 

(150)

Commercial and industrial loans

1,620 

 

1,667 

 

(113)

 

$        39,541

 

$    42,355

 

$      (2,791)

 

 

20


 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2012

 

Recorded Investment

 

Unpaid Principal Balance

 

Related Allowance

With No Allowance Recorded:

 

 

 

 

 

Real estate loans:

 

 

 

 

 

Commercial

 

 

 

 

 

LTV < 35%

 

 

 

 

 

Substandard

$          1,699

 

$      1,699

 

$               -

LTV => 35%

 

 

 

 

 

Pass

2,774 

 

2,774 

 

 

Special Mention

1,037 

 

1,045 

 

 -

Substandard

24,691 

 

25,897 

 

 -

Construction and land

 

 

 

 

 

Substandard

2,373 

 

3,031 

 

 -

One-to-four family residential

 

 

 

 

 

LTV < 60%

 

 

 

 

 

Substandard

49 

 

49 

 

 -

LTV => 60%

 

 

 

 

 

Substandard

2,841 

 

4,141 

 

 -

Multifamily

 

 

 

 

 

LTV < 35%

 

 

 

 

 

Substandard

510 

 

510 

 

 -

Commercial and industrial loans

 

 

 

 

 

Special Mention

38 

 

38 

 

 -

Substandard

1,527 

 

1,527 

 

 -

With a Related Allowance Recorded:

 

 

 

 

 

Real estate loans:

 

 

 

 

 

Commercial

 

 

 

 

 

LTV => 35%

 

 

 

 

 

Special Mention

637 

 

664 

 

(57)

Substandard

11,645 

 

12,045 

 

(1,560)

One-to-four family residential

 

 

 

 

 

LTV < 60%

 

 

 

 

 

Special Mention

520 

 

520 

 

(5)

Multifamily

 

 

 

 

 

LTV => 35%

 

 

 

 

 

Substandard

1,640 

 

2,111 

 

(317)

Home equity and lines of credit

 

 

 

 

 

Special Mention

356 

 

356 

 

(18)

Substandard

1,587 

 

1,589 

 

(105)

Commercial and industrial loans

 

 

 

 

 

Substandard

491 

 

491 

 

(1,553)

Total:

 

 

 

 

 

Real estate loans

 

 

 

 

 

Commercial

42,483 

 

44,124 

 

(1,617)

One-to-four family residential

3,410 

 

4,710 

 

(5)

Construction and land

2,373 

 

3,031 

 

 -

Multifamily

2,150 

 

2,621 

 

(317)

Home equity and lines of credit

1,943 

 

1,945 

 

(123)

Commercial and industrial loans

2,056 

 

2,056 

 

(1,553)

 

$        54,415

 

$    58,487

 

$      (3,615)

 

 

21


 

Table of Contents

 

Included in the table above at September 30, 2013, are loans with carrying balances of $10.9 million that were not written down by either charge-offs or specific reserves in our allowance for loan losses.  Included in the table above at December 31, 2012, are loans with carrying balances of $24.9 million that were not written down by either charge-offs or specific reserves in our allowance for loan losses.  Loans not written down by charge-offs or specific reserves at September 30, 2013, and December 31, 2012,  are considered to have sufficient collateral values, less costs to sell, to support the carrying balances of the loans.    

 

The average recorded balance of originated impaired loans for the nine months ended September 30, 2013 and 2012, was $47.0 million and $55.0 million, respectivelyThe Company recorded $424,000 and $1.5 million of interest income on impaired loans for the three and nine months ended September 30, 2013, respectively, as compared to $938,000 and $2.2 million of interest income on impaired loans for the three and nine months ended September 30, 2012, respectively.

    

The following tables summarize loans that were modified in troubled debt restructurings during the nine months ended September 30, 2013, and year ended December 31, 2012.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2013

 

 

 

Pre-Modification

 

Post-Modification

 

Number of

 

Outstanding Recorded

 

Outstanding Recorded

 

Relationships

 

Investment

 

Investment

 

(in thousands)

Troubled Debt Restructurings

 

 

 

 

 

One-to-four Family

 

 

 

 

 

Special Mention

 2

 

$                           404

 

$                           404

Total Troubled Debt Restructurings

 2

 

$                           404

 

$                           404

Both of the relationships in the table above were restructured to receive reduced interest rates.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2012

 

 

 

Pre-Modification

 

Post-Modification

 

Number of

 

Outstanding Recorded

 

Outstanding Recorded

 

Relationships

 

Investment

 

Investment

 

(in thousands)

Troubled Debt Restructurings

 

 

 

 

 

Commercial real estate loans

 

 

 

 

 

Substandard

 1

 

$                        6,251

 

$                        6,251

One-to-four Family

 

 

 

 

 

Substandard

 2

 

489 

 

489 

Home equity and lines of credit

 

 

 

 

 

Special Mention

 2

 

356 

 

356 

Total Troubled Debt Restructurings

 5

 

$                        7,096

 

$                        7,096

All five of the relationships in the table above were restructured to receive reduced interest rates.

 

At September 30, 2013, and December 31, 2012, we had troubled debt restructurings of $37.2 million and $45.0 million, respectively.

Management classifies all troubled debt restructurings as impaired loans.  Impaired loans are individually assessed to determine that the loan’s carrying value is not in excess of the estimated fair value of the collateral (less cost to sell) if the loan is collateral dependent, or the present value of the expected future cash flows if the loan is not collateral dependent.  Management performs a detailed evaluation of each impaired loan and generally obtains updated appraisals as part of the evaluation.  In addition, management adjusts estimated fair values down to appropriately consider recent market conditions, our willingness to accept a  lower sales price to effect a quick sale, and costs to dispose of any supporting collateral.  Determining the estimated fair value of underlying collateral (and related costs to sell) can be difficult in illiquid real estate markets and is subject to significant assumptions and estimates.  Management employs an independent third party expert in appraisal preparation and review to ascertain the reasonableness of updated appraisals.  Projecting the expected cash flows under troubled debt restructurings is inherently subjective and requires, among other things, an evaluation of the borrower’s current and projected financial condition.  Actual results may be significantly different than our projections and our established allowance for loan losses on these loans, which could have a material effect on our financial results.

No loan that was restructured during the twelve months ended September 30, 2013 has subsequently defaulted.

 

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Note 4 – Deposits

 

 

 

 

 

 

 

 

Deposits account balances are summarized  as follows (in thousands):

 

 

 

 

September 30,

 

December 31,

 

2013

 

2012

 

 

 

 

Non-interest-bearing demand

$             221,605

 

$             209,639

Interest-bearing negotiable orders of withdrawal (NOW)

110,302 

 

117,762 

Savings-passbook, statement, tiered, and money market

835,185 

 

1,137,067 

Certificates of deposit

325,494 

 

492,392 

Total deposits

$          1,492,586

 

$          1,956,860

 

Interest expense on deposit accounts is summarized for the periods indicated (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Nine months ended

 

September 30,

 

September 30,

 

2013

 

2012

 

2013

 

2012

Negotiable order of withdrawal, savings-passbook, statement, tiered, and money market

$          862

 

$          996

 

$       3,047

 

$       3,115

Certificates of deposit

580 

 

1,451 

 

2,133 

 

4,317 

Total interest expense on deposit accounts

$       1,442

 

$       2,447

 

$       5,180

 

$       7,432

 

 

Note 5 Equity Incentive Plan

 

The following table is a summary of the Company’s stock options outstanding as of September 30, 2013, and changes therein during the nine months then ended:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Stock Options

 

Weighted Average Grant Date Fair Value

 

Weighted Average Exercise Price

 

Weighted Average Contractual Life (years)

Outstanding - December 31, 2012

2,805,912 

 

$           2.30

 

$         7.09

 

6.07 

Granted

20,900 

 

3.06 

 

11.97 

 

9.83 

Forfeited

 -

 

 -

 

 -

 

 -

Exercised

(30,033)

 

2.30 

 

7.09 

 

 -

Outstanding - September 30, 2013

2,796,779 

 

$           2.30

 

$         7.09

 

5.34 

Exercisable - September 30, 2013

2,279,981 

 

$           2.30

 

$         7.13

 

5.40 

 

Expected future stock option expense related to the non-vested options outstanding as of September 30, 2013, is $491,000 over an average period of 0.4 years.

The following is a summary of the status of the Company’s restricted share awards as of September 30, 2013, and changes therein during the nine months then ended.

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares Awarded

 

Weighted Average Grant Date Fair Value

Non-vested at December 31, 2012

 

454,904 

 

$           7.11

Granted

 

13,300 

 

11.97 

Vested

 

(226,829)

 

7.10 

Forfeited

 

 -

 

 -

Non-vested at September 30, 2013

 

241,375 

 

$           7.35

 

Expected future stock award expense related to the non-vested restricted share awards as of September 30, 2013 is $700,000 over an average period of 0.4 years.    

 

 

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During the three and nine months ended September 30, 2013, the Company recorded $785,000 and $2.4 million of stock-based compensation related to the above plans, respectively.  During the three and nine months ended September 30, 2012, the Company recorded $800,000 and $2.3 million of stock-based compensation related to the above plans, respectively.

 

Note 6 – Fair Value Measurements

The following tables present the assets reported on the consolidated balance sheet at their estimated fair value as of September 30, 2013, and December 31, 2012, by level within the fair value hierarchy as required by the Fair Value Measurements and Disclosures Topic of the FASB ASCFinancial assets and liabilities are classified in their entirety based on the level of input that is significant to the fair value measurement.    The fair value hierarchy is as follows:

 

·

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

·

Level 2 Inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlations or other means.

·

Level 3 Inputs – Significant unobservable inputs that reflect the Company’s own assumptions that market participants would use in pricing the assets or liabilities.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date Using:

 

September 30, 2013

 

Quoted Prices in Active Markets for Identical Assets (Level 1)

 

Significant Other Observable Inputs        (Level 2)

 

Significant Unobservable Inputs        (Level 3)

 

(in thousands)

Measured on a recurring basis:

 

Assets:

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

Mortgage-backed securities

 

 

 

 

 

 

 

GSE

$                   905,126

 

$                            -

 

$                 905,126

 

$                   -

Non-GSE

5,100 

 

 -

 

5,100 

 

 -

Other securities

 

 

 

 

 

 

 

GSE bonds

30,361 

 

 -

 

30,361 

 

 

Corporate bonds

80,279 

 

 -

 

80,279 

 

 -

Equities

2,189 

 

2,189 

 

 -

 

 -

Total available-for-sale

1,023,055 

 

2,189 

 

1,020,866 

 

 -

Trading securities

5,706 

 

5,706 

 

 -

 

 -

Total

$                1,028,761

 

$                    7,895

 

$              1,020,866

 

$                   -

Measured on a non-recurring basis:

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

Commercial real estate

$                     24,166

 

$                            -

 

$                             -

 

$          24,166

One-to-four family residential mortgage

340 

 

 -

 

 -

 

340 

Construction and land

108 

 

 -

 

 -

 

108 

Multifamily

1,596 

 

 -

 

 -

 

1,596 

Home equity and lines of credit

1,740 

 

 -

 

 -

 

1,740 

Total impaired real estate loans

27,950 

 

 -

 

 -

 

27,950 

Commercial and industrial loans

719 

 

 -

 

 -

 

719 

Other real estate owned

664 

 

 -

 

 -

 

664 

Total

$                     29,333

 

$                            -

 

$                             -

 

$          29,333

 

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Fair Value Measurements at Reporting Date Using:

 

December 31, 2012

 

Quoted Prices in Active Markets for Identical Assets (Level 1)

 

Significant Other Observable Inputs        (Level 2)

 

Significant Unobservable Inputs        (Level 3)

 

(in thousands)

Measured on a recurring basis:

 

Assets:

 

 

 

 

 

 

 

Investment securities:

 

 

 

 

 

 

 

Available-for-sale:

 

 

 

 

 

 

 

Mortgage-backed securities

 

 

 

 

 

 

 

GSE

$                1,180,455

 

$                            -

 

$              1,180,455

 

$                   -

Non-GSE

7,776 

 

 -

 

7,776 

 

 -

Other securities

 

 

 

 

 

 

 

Corporate bonds

74,402 

 

 -

 

74,402 

 

 -

Equities

12,998 

 

12,998 

 

 -

 

 -

Total available-for-sale

1,275,631 

 

12,998 

 

1,262,633 

 

 -

Trading securities

4,677 

 

4,677 

 

 -

 

 -

Total

$                1,280,308

 

$                  17,675

 

$              1,262,633

 

$                   -

Measured on a non-recurring basis:

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

Commercial real estate

$                     29,109

 

$                            -

 

$                             -

 

$          29,109

One-to-four family residential mortgage

1,827 

 

 -

 

 -

 

1,827 

Construction and land

2,070 

 

 -

 

 -

 

2,070 

Multifamily

1,530 

 

 -

 

 -

 

1,530 

Home equity and lines of credit

1,943 

 

 -

 

 -

 

1,943 

Total impaired real estate loans

36,479 

 

 -

 

 -

 

36,479 

Commercial and industrial loans

452 

 

 -

 

 -

 

452 

Other real estate owned

870 

 

 -

 

 -

 

870 

Total

$                     37,801

 

$                            -

 

$                             -

 

$          37,801

 

 

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The following table presents qualitative information for Level 3 assets measured at fair value on a non-recurring basis at September 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

Valuation Methodology

 

Unobservable Inputs       

 

Range of Inputs

 

(in thousands)

 

 

 

 

 

 

Impaired loans

$           28,669

 

Appraisals

 

Discount for costs to sell

 

7.0%

 

 

 

 

 

Discount for quick sale

 

10.0% - 25.0%

 

 

 

 

 

Discount for dated appraisal utilizing changes in real estate indexes

 

Varies

 

 

 

Discounted cash flows

 

Interest rates

 

Varies

Other real estate owned

$                664

 

Appraisals

 

Discount for costs to sell

 

7.0%

 

 

 

 

 

Discount for dated appraisal utilizing changes in real estate indexes

 

Varies

 

Available for Sale Securities: The estimated fair values for mortgage-backed, GSE and corporate securities are obtained from an independent nationally recognized third-party pricing service.  The estimated fair values are derived primarily from cash flow models, which include assumptions for interest rates, credit losses, and prepayment speeds.  Broker/dealer quotes are utilized as well when such quotes are available and deemed representative of the market.  The significant inputs utilized in the cash flow models are based on market data obtained from sources independent of the Company (Observable Inputs), and are therefore classified as Level 2 within the fair value hierarchy.  The estimated fair values of equity securities, classified as Level 1, are derived from quoted market prices in active markets.  Equity securities consist of mutual funds.  There were no transfers of securities between Level 1 and Level 2 during the three months ended September 30, 2013.     

Trading Securities: Fair values are derived from quoted market prices in active markets.  The assets consist of publicly traded mutual funds.

 

In addition, the Company may be required, from time to time, to measure the fair value of certain other financial assets on a nonrecurring basis in accordance with U.S. generally accepted accounting principles.  The adjustments to fair value usually result from the application of lower-of-cost-or-market accounting or write downs of individual assets.

 

Impaired Loans: At September 30, 2013, and December 31, 2012, the Company had originated impaired loans held-for-investment and held-for-sale with outstanding principal balances of $31.5 million and $43.7 million, respectively, which were recorded at their estimated fair value of $28.7 million and  $36.9 million, respectively.  The Company recorded net impairment recoveries of $824,000 for the nine months ended September 30, 2013 and net impairment charges of $58,000 for the nine months ended September 30, 2012, and charge-offs of $821,000 and $1.6 million for the nine months ended September 30, 2013 and 2012, respectively, utilizing Level 3 inputs.  For purposes of estimating fair value of impaired loans, management utilizes independent appraisals, if the loan is collateral dependent, adjusted downward by management, as necessary, for changes in relevant valuation factors subsequent to the appraisal date, or the present value of expected future cash flows for non-collateral dependent loans and troubled debt restructurings.

 

Other Real Estate Owned:  At September 30, 2013, and December 31, 2012, the Company had assets acquired through foreclosure, or deed in lieu of foreclosure, of $664,000 and $870,000, respectively.  These assets were recorded at estimated fair value, less estimated selling costs when acquired, establishing a new cost basis.  Estimated fair value is generally based on independent appraisals.  These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are considered Level 3 inputs.  When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses.  If the estimated fair value of the asset declines, a write-down is recorded through non-interest expense.  The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions. 

 

There were no  subsequent valuation adjustments to other real estate owned (REO) for the three months ended September 30, 2013.  Operating costs after acquisition are expensed.    

 

Fair Value of Financial Instruments

 

The FASB ASC Topic for Financial Instruments requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis.  The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above.  The following methods and assumptions were used to estimate

 

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the fair value of other financial assets and financial liabilities not already discussed above:

 

(a)Cash, Cash Equivalents, and Certificates of Deposit

Cash and cash equivalents are short-term in nature with original maturities of six months or less; the carrying amount approximates fair value.  Certificates of deposit having original terms of six-months or less; carrying value generally approximates fair value.  Certificates of deposit with an original maturity of six months or greater, the fair value is derived from discounted cash flows.

 

(b)Securities (Held to Maturity)

The estimated fair values for substantially all of our securities are obtained from an independent nationally recognized pricing service.  The independent pricing service utilizes market prices of same or similar securities whenever such prices are available.  Prices involving distressed sellers are not utilized in determining fair value.  Where necessary, the independent third-party pricing service estimates fair value using models employing techniques such as discounted cash flow analyses.  The assumptions used in these models typically include assumptions for interest rates, credit losses, and prepayments, utilizing market observable data where available.

 

(c)Federal Home Loan Bank of New York Stock

The fair value for Federal Home Loan Bank of New York (FHLB) stock is its carrying value, since this is the amount for which it could be redeemed and there is no active market for this stock.

 

(d)Loans (Held-for-Investment)

Fair values are estimated for portfolios of loans with similar financial characteristics.  Loans are segregated by type such as originated and purchased, and further segregated by residential mortgage, construction, land, multifamily, commercial and consumer.  Each loan category is further segmented into amortizing and non-amortizing and fixed and adjustable rate interest terms and by performing and nonperforming categories.  The fair value of loans is estimated by discounting the future cash flows using current prepayment assumptions and current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.  This method of estimating fair value does not incorporate the exit price concept of fair value prescribed by the FASB ASC Topic for Fair Value Measurements and Disclosures.

 

(e)Loans (Held-for-Sale)

Held-for-sale loans are carried at the lower of aggregate cost or estimated fair value, less costs to sell, and therefore fair value is equal to carrying value.

 

(f)Deposits

The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings, NOW and money market accounts, is equal to the amount payable on demand.  The fair value of certificates of deposit is based on the discounted value of contractual cash flows.  The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

 

(g)Commitments to Extend Credit and Standby Letters of Credit

The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. 

The fair value of off‑balance sheet commitments is insignificant and therefore not included in the following table.

 

(h)Borrowings

The fair value of borrowings is estimated by discounting future cash flows based on rates currently available for debt with similar terms and remaining maturity.

 

(i)Advance Payments by Borrowers

Advance payments by borrowers for taxes and insurance have no stated maturity; the fair value is equal to the amount currently payable.

 

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The estimated fair value of the Company’s significant financial instruments at September 30, 2013, and December 31, 2012, are presented in the following tables (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2013

 

 

 

Estimated Fair Value

 

Carrying Value

 

Level 1

 

Level 2

 

    Level 3

 

Total

Financial assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$       93,653

 

$       93,653

 

$                -

 

$               -

 

$       93,653

Trading securities

5,706 

 

5,706 

 

 -

 

 -

 

5,706 

Securities available-for-sale

1,023,055 

 

2,189 

 

1,020,866 

 

 -

 

1,023,055 

Federal Home Loan Bank of New York stock, at cost

16,882 

 

 -

 

16,882 

 

 -

 

16,882 

Net loans held-for-investment

1,370,753 

 

 -

 

 -

 

1,393,111 

 

1,393,111 

Financial liabilities:

 

 

 

 

 

 

 

 

 

Deposits

$  1,492,586

 

$                 -

 

$  1,496,242

 

$               -

 

$  1,496,242

Repurchase agreements and other borrowings

492,181 

 

 -

 

500,276 

 

 -

 

500,276 

Advance payments by borrowers

6,683 

 

 -

 

6,683 

 

 -

 

6,683 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

 

Estimated Fair Value

 

Carrying Value

 

Level 1

 

Level 2

 

    Level 3

 

Total

Financial assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$      128,761

 

$      128,761

 

$                -

 

$               -

 

$     128,761

Trading securities

4,677 

 

4,677 

 

 -

 

 -

 

4,677 

Securities available-for-sale

1,275,631 

 

12,998 

 

1,262,633 

 

 -

 

1,275,631 

Securities held-to-maturity

2,220 

 

 -

 

2,309 

 

 -

 

2,309 

Federal Home Loan Bank of New York stock, at cost

12,550 

 

 -

 

12,550 

 

 -

 

12,550 

Loans held-for-sale

5,447 

 

 -

 

 -

 

5,447 

 

5,447 

Net loans held-for-investment

1,216,558 

 

 -

 

 -

 

1,289,599 

 

1,289,599 

Financial liabilities:

 

 

 

 

 

 

 

 

 

Deposits

$   1,956,860

 

$                  -

 

$  1,962,053

 

$               -

 

$  1,962,053

Repurchase agreements and other borrowings

419,122 

 

 -

 

432,719 

 

 -

 

432,719 

Advance payments by borrowers

3,488 

 

 -

 

3,488 

 

 -

 

3,488 

 

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on‑ and off‑balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.  In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

 

Note 7 – Earnings Per Share

 

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding during the period.  For purposes of calculating  basic earnings per share, weighted average common shares outstanding excludes unallocated employee stock ownership plan (ESOP) shares that have not been committed for release and unvested restricted stock.

 

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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 and unvested shares of restricted stock were exercised and converted into common stock.  These potentially dilutive shares are 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: (1) the assumed proceeds from option exercises; (2) the tax benefit, if any, that would have been credited to additional paid-in capital assuming exercise of non-qualified stock options and vesting of shares of restricted stock; and (3) the average unamortized compensation costs related to unvested shares of restricted stock and stock options.  We then divide this sum by our average stock price for the period to calculate assumed shares 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 earnings per share.

 

The following is a summary of the Company’s earnings per share calculations and reconciliation of basic to diluted earnings per share for the periods indicated (dollars in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended

 

For the nine months ended

 

September 30,

 

September 30,

 

2013

 

2012

 

2013

 

2012

Net income available to common stockholders

$          5,100

 

$          3,894

 

$        14,191

 

$        12,790

Weighted average shares outstanding-basic

54,567,526 

 

53,951,231 

 

54,705,569 

 

54,065,697 

Effect of non-vested restricted stock and stock options outstanding

931,654 

 

837,050 

 

894,635 

 

722,000 

Weighted average shares outstanding-diluted

55,499,180 

 

54,788,281 

 

55,600,204 

 

54,787,696 

Earnings per share-basic

$            0.09

 

$            0.07

 

$            0.26

 

$            0.24

Earnings per share-diluted

$            0.09

 

$            0.07

 

$            0.26

 

$            0.23

 

 

 

Note 8 – Recent Accounting Pronouncements

 

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU adds new disclosure requirements for items reclassified out of accumulated other comprehensive income to be in a single location in the financial statements. The Companys disclosures of the components of accumulated other comprehensive income are disclosed in its Statements of Comprehensive Income. For the nine months ended September 30, 2013, we reclassified $2.5 million of securities gains included in net income out of accumulated other comprehensive income. The new guidance became effective for all interim and annual periods beginning January 1, 2013, and is to be applied prospectivelyThe adoption of these pronouncements resulted in a change to the presentation of the Company’s financial statements but did not have an impact on the Company’s financial condition or results of operations.

 

 

 

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report contains certain “forward-looking statements,” which can be identified by the use of such words as “estimate”, “project,” “believe,” “intend,” “anticipate,” “plan”, “seek”, “expect” and words of similar meaning.  These forward looking statements include, but are not limited to: 

·

statements of our goals, intentions, and expectations;

·

statements regarding our business plans, prospects, growth and operating strategies;

·

statements regarding the quality of our loan and investment portfolios; and

·

estimates of our risks and future costs and benefits. 

 

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control.  In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. 

 

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

 

·

general economic conditions, either nationally or in our market areas, that are worse than expected;

·

competition among depository and other financial institutions;

·

inflation and changes in the interest rate environment that reduce our margins and yields or reduce the fair value of financial instruments;

·

adverse changes in the securities markets;

·

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

·

effect of shut down of the federal government

·

our ability to manage operations in the current economic conditions;

·

our ability to enter new markets successfully and capitalize on growth opportunities;

·

our ability to successfully integrate acquired entities;

·

changes in consumer spending, borrowing and savings habits;

·

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;

·

changes in our organization, compensation and benefit plans;

·

changes in the level of government support for housing finance;

·

significant increases in our loan losses; and

·

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

 

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.  Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements after the date of this Form 10-Q, whether as a result of new information, future events or otherwise. 

 

Critical Accounting Policies

 

Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2012, included in the Company’s Annual Report on Form 10-K, as supplemented by this report, contains a summary of significant accounting policies.  Various elements of these accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments.  Certain assets are carried in the Consolidated Balance Sheets at estimated fair value or the lower of cost or estimated fair value.  Policies with respect to the methodologies used to determine the allowance for loan losses, estimated cash flows of our PCI loans, and judgments regarding the valuation of intangible assets and securities as well as the valuation allowance against deferred tax assets are the most critical accounting policies because they are important to the presentation of the Company’s financial condition and results of operations, involve a higher degree of complexity, and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition.  These critical accounting policies and their application are reviewed periodically and, at least annually, with the Audit Committee of the

 

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Board of Directors.  For a further discussion of the critical accounting policies of the Company, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Overview

This overview highlights selected information and may not contain all the information that is important to you in understanding our performance during the period.  For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources, and critical accounting estimates, you should read this entire document carefully, as well as our Annual Report on Form 10-K for the year ended December 31, 2012.

 

Net income amounted to $5.1 million and $14.2 million for the three and nine months ended September 30, 2013, respectively, as compared to $3.9 million and $12.8 million for the three and nine months ended September 30, 2012, respectivelyBasic and diluted earnings per common share were $0.09 and $0.26 for the quarter and nine months ended September 30, 2013, respectively, compared to basic earnings per common share of $0.07 and $0.24 for the quarter and nine months ended September 30, 2012, respectively, and diluted earnings per common share of $0.07 and $0.23 for the quarter and nine months ended September 30, 2012, respectively.  For the three and nine months ended September 30, 2013, our return on average assets was 0.76% and 0.69%, respectively, as compared to 0.63% and 0.70% for the three and nine months ended September 30, 2012, respectively.  For the three and nine months ended September 30, 2013, our return on average stockholders’ equity was 2.82% and 2.69%, respectively, as compared to 3.95% and 4.41% for the three and nine months ended September 30, 2012, respectively. Stockholders’ equity during the nine months ended September 30, 2013, was increased by $330.1 million from net proceeds related to the stock conversion completed on January 24, 2013.  

 

Comparison of Financial Condition at September 30, 2013, and December 31, 2012

Total assets decreased $86.0 million, or 3.1%, to $2.73 billion at September 30, 2013, from $2.81 billion at December 31, 2012.  The decrease was primarily attributable to decreases in cash and cash equivalents of $35.1 million and securities available-for-sale of $252.6 million, partially offset by increases in net loans held-for-investment of $154.2 million, bank owned life insurance of $31.1 million, and other assets of $15.4 million.

 

Cash and cash equivalents decreased $35.1 million, or 27.3%, to $93.7 million at September 30, 2013, from $128.8 million at December 31, 2012.  The decrease is a resulted from the Company deploying the proceeds of the stock conversion that were received in December of 2012 and held in escrow, into higher yielding assets.

 

The Company’s securities available-for-sale portfolio totaled $1.02 billion at September 30, 2013, compared to $1.28 billion at December 31, 2012.  At September 30, 2013, $905.1 million of the portfolio consisted of residential mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.  The Company also held residential mortgage-backed securities not guaranteed by these three entities, referred to as “private label securities.”  The private label securities had an amortized cost of $5.0 million and an estimated fair value of $5.1 million at September 30, 2013.  In addition to the above mortgage-backed securities, the Company held $80.3 million in corporate bonds which were all rated investment grade at September 30, 2013, $30.4 million of bonds issued by the Federal Home Loan Bank system, and $2.2 million of equity investments in mutual funds. The effective duration of the securities portfolio at September 30, 2013 was 3.75 years.

 

Originated loans held-for-investment, net, totaled $1.25 billion at September 30, 2013, as compared to $1.07 billion at December 31, 2012.  The increase was primarily due to an increase in multifamily real estate loans of $146.4 million, or 24.0%, to $756.5 million at September 30, 2013, from $610.1 million at December 31, 2012.  In the current economic environment, management is primarily focused on originating multifamily loans, with less emphasis on other loan types.  The following table details our multifamily originations for the nine months ended September 30, 2013 (dollars in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Originations

 

Weighted Average Interest Rate

 

Weighted Average Loan-to-Value Ratio

 

(F)ixed or (V)ariable

 

Weighted Average Months to Next Rate Change or Maturity for Fixed Rate Loans

 

Amortization Term

$       219,148

 

3.56%

 

62%

 

V

 

100

 

25 to 30 Years

25,948 

 

3.99%

 

34%

 

F

 

173

 

10 to 15 Years

245,096 

 

3.61%

 

59%

 

 

 

 

 

 

 

Purchased credit-impaired (PCI) loans, primarily acquired as part of a transaction with the Federal Deposit Insurance Corporation, totaled $62.8 million at September 30, 2013, as compared to $75.3 million at December 31, 2012.  The Company accreted interest income of $4.4 million for the nine months ended September 30, 2013, compared to $4.7 million for the nine months ended September 30, 2012.    

 

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Bank owned life insurance increased $31.1 million, or 33.4%, to $124.1 million at September 30, 2013, from $93.0 million at December 31, 2012.  The increase resulted primarily from purchases of $28.7 million and $2.6 million of income earned on bank owned life insurance for the nine months ended September 30, 2013, which was partially offset by death benefits received.

 

Federal Home Loan Bank of New York stock, at cost, increased $4.3 million, or 34.5%, to $16.9 million at September 30, 2013, from $12.6 million at December 31, 2012.  This increase was attributable to increased requirements on borrowings outstanding with the Federal Home Loan Bank of New York.

 

Premises and equipment, net, increased $51,000, or 0.2%, to $29.8 million at September 30, 2013, from $29.8 million at December 31, 2012.  This increase was primarily attributable to the renovation of existing branches, which was partially offset by depreciation. 

 

Other real estate owned was $664,000 and $870,000 at September 30, 2013, and December 31, 2012, respectively.       

 

Other assets increased $15.4 million, or 79.6%, to $34.7 million at September 30, 2013, from $19.4 million at December 31, 2012.  The increase in other assets was primarily attributable to an increase in net deferred tax assets as a result of the decline in the unrealized market value of securities available for sale    

 

Deposits decreased $174.7 million, or 10.5%, at September 30, 2013 from December 31, 2012, after excluding the deposits of $289.6 million used to purchase stock in our conversion stock offering in the first quarter of 2013.  The decrease was attributable to decreases of $157.7 million in certificates of deposit accounts and $43.7 million in money market accounts, partially offset by increases of $14.2 million in transaction accounts and $12.5 million in savings accounts.  The decline in deposits resulted from the Company’s decision not to retain higher cost time deposits.

 

Borrowings increased by $73.1 million, or 17.4%, to $492.2 million at September 30, 2013, from $419.1 million at December 31, 2012.  Management utilizes borrowings to mitigate interest rate risk, for short-term liquidity needs, and to a lesser extent as part of leverage strategies.  The following is a table of term borrowing maturities (excluding capitalized leases and short-term borrowings) and the weighted average rate by year (dollars in thousands):  

 

 

 

 

 

 

 

 

 

 

Year

 

Amount

 

Weighted Avg. Rate

2013 

 

$        43,000

 

3.85% 
2014 

 

99,168 

 

2.04% 
2015 

 

114,500 

 

2.63% 
2016 

 

108,910 

 

2.18% 
2017 

 

80,003 

 

1.40% 
2018 

 

42,000 

 

1.97% 

 

 

$      487,581

 

2.26% 

 

 

 

 

 

 

Accrued expenses and other liabilities increased $631,000 to $19.5 million at September 30, 2013, from $18.9 million at December 31, 2012.  

 

Total stockholders’ equity increased by $301.4 million to $716.3 million at September 30, 2013, from $414.9 million at December 31, 2012.  This increase was primarily attributable to a $330.1 million increase related to the net proceeds from the stock conversion, net income of $14.2 million for the nine months ended September 30, 2013, and a $3.8 million increase related to ESOP and equity award activity.  These increases were partially offset by a $19.8 million decrease in accumulated other comprehensive income as a result of an increased interest rate environment, treasury share repurchases of $3.3 million and dividend payments of $23.6 million, which included a special dividend of $14.5 million paid on May 22, 2013.

 

Comparison of Operating Results for the Three Months Ended September 30, 2013 and 2012

 

Net income.    Net income was $5.1 million and $3.9 million for the quarters ended September 30, 2013 and 2012, respectively.  Significant variances from the comparable prior year period are as follows: a $2.3 million increase in net interest income, a $315,000 increase in the provision for loan losses, an $878,000 increase in non-interest income, a $1.3 million increase in non-interest expense, and a $397,000 increase in income tax expense.    

 

Interest income.  Interest income increased $690,000, or 3.0%, to $23.4 million for the three months ended September 30, 2013, from $22.7 million for the three months ended September 30, 2012.  Interest income on loans increased by $2.7 million, which was primarily attributable to an increase in the average balance of $279.5 million, which was partially offset by a decrease of 37 basis

 

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points in the yield earned on loans.  The Company accreted interest income related to its PCI loans of $1.4 million for the quarter ended September 30, 2013, as compared to $1.5 million for the quarter ended September 30, 2012. Interest income on loans for the quarter ended September 30, 2013, reflected prepayment loan income of $1.1 million compared to $542,000 for the quarter ended September 30, 2012. Interest income on mortgage backed securities decreased by $1.7 million primarily due to a decrease in the average balance of $111.2 million and a decrease of 42 basis points in the yield earned.

 

Interest expense.   Interest expense decreased $1.6 million, or 28.7%, to $4.1 million for the three months ended September 30, 2013, from $5.7 million for the three months ended September 30, 2012. The decrease consisted of a decrease of $1.0 million in interest expense on deposits and a decrease in interest expense on borrowings of $626,000.  The decrease in interest expense on deposits was attributed to a decrease in the cost of interest bearing deposits of 26 basis points to 0.44% from 0.70%, and to a  decrease in the average balance of interest bearing deposit accounts of $105.1 million to $1.29 billion for the three months ended September 30, 2013, from $1.39 billion for the three months ended September 30, 2012.  The decrease in interest expense on borrowings resulted from a decrease of 16 basis points in the cost to 2.44% for the three months ended September 30, 2013, from 2.60% for the three months ended September 30, 2012, and a decrease in average balances of borrowings of $71.1 million, or 14.3%, to $425.4 million for the three months ended September 30, 2013, from $496.6 million for the three months ended September 30, 2012. 

Net Interest Income.    Net interest income for the quarter ended September 30, 2013, increased $2.3 million, or 13.7%, due primarily to a $165.9 million, or 7.1%, increase in our interest-earning assets and a 17 basis point, or 5.8%, increase in our net interest margin to 3.08%.  The increase in average interest-earning assets was due primarily to increases in average loans outstanding of $279.5 million and other securities of $17.3 million, which were partially offset by decreases in mortgage-backed securities of $111.2 million and deposits in financial institutions of $19.7 million.  The 2013 third quarter included loan prepayment income of $1.1 million, as compared to $542,000 for the quarter ended September 30, 2012.  Rates paid on average interest-bearing liabilities decreased 26 basis points to 0.94% for the current quarter, as compared to 1.20% for the comparable prior year period.  This was partially offset by a 16 basis point decrease in our yield earned on average interest earning assets to 3.72% for the quarter ended September 30, 2013 from 3.88% for the comparable quarter in 2012.

 

Provision for Loan Losses.    The provision for loan losses increased $315,000, or 62.7%, to $817,000 for the quarter ended September 30, 2013, from $502,000 for the quarter ended September 30, 2012.  The increase in the provision for loan losses resulted primarily from increased general reserves due to an increase in loan balances from the comparable prior year period, which was partially offset by a decrease in non-performing loans.  Originated loan growth was approximately 6.9% for the quarter ended September 30, 2013, compared to 3.3% for the quarter ended September 30, 2012.  Net charge-offs were $523,000 for the quarter ended September 30, 2013, compared to net charge-offs of $475,000 for the quarter ended September 30, 2012.

 

Non-interest Income.    Non-interest income increased $878,000, or 51.3%, to $2.6 million for the quarter ended September 30, 2013, from $1.7 million for the quarter ended September 30, 2012.  This increase was primarily a result of a $315,000 increase in gain on securities transactions, net, a $289,000 increase in income on bank owned life insurance, and a $193,000 increase in other non-interest income. Securities gains in the third quarter of 2013 included $390,000 related to the Company’s trading portfolio, while the third quarter of 2012 included securities losses of $203,000 related to the Company’s trading portfolio.  The trading portfolio is utilized to fund the Company’s deferred compensation obligation to certain employees and directors participating in the plan.  The participants of this plan, at their election, defer a portion of their compensation.  Gains and losses on trading securities have no effect on net income since participants benefit from, and bear the full risk of, changes in the trading securities market values.  Therefore, the Company records an equal and offsetting amount in compensation expense, reflecting the change in the Company’s obligations under the plan.

 

Non-interest Expense.    Non-interest expense increased $1.3 million, or 10.7%, for the quarter ended September 30, 2013, compared to the quarter ended September 30, 2012.  This is due primarily to an $806,000 increase in compensation and employee benefits related to increased staff due to branch openings, the Flatbush Federal Bancorp, Inc. merger (the Merger), and to a lesser extent, salary adjustments effective January 1, 2013, and includes an increase of $187,000 in expense related to the Company’s deferred compensation plan which is described above. The expense related to the deferred compensation plan had no effect on net income.  Additionally, there was a $278,000 increase in occupancy expense primarily related to new branches and the renovation of existing branches, a $48,000 increase in data processing fees as a result of increased data and maintenance related to the Merger, and a $53,000 increase in other expenses.    

 

Income Tax ExpenseThe Company recorded income tax expense of $2.7 million for the quarter ended September 30, 2013, compared to $2.3 million for the quarter ended September 30, 2012.  The effective tax rate for the quarter ended September 30, 2013, was 34.5%, as compared to 37.0% for the quarter ended September 30, 2012.  The comparable prior year effective tax rate was negatively affected by non-deductible merger-related costs.

 

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NORTHFIELD BANCORP, INC.

ANALYSIS OF NET INTEREST INCOME

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30,

 

 

2013

 

 

2012

 

 

Average Outstanding Balance

 

Interest

 

Average Yield/ Rate (1)

 

 

Average Outstanding Balance

 

Interest

 

Average Yield/ Rate (1)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (5)

$    1,367,814

 

$       17,827

 

5.17 

%

 

$    1,088,268

 

$       15,162

 

5.54 

%

Mortgage-backed securities

949,677 

 

5,097 

 

2.13 

 

 

1,060,837 

 

6,799 

 

2.55 

 

Other securities

133,612 

 

325 

 

0.97 

 

 

116,274 

 

559 

 

1.91 

 

Federal Home Loan Bank of New York stock

13,682 

 

124 

 

3.60 

 

 

13,796 

 

151 

 

4.35 

 

Interest-earning deposits in other financial institutions

26,439 

 

 

0.11 

 

 

46,103 

 

19 

 

0.16 

 

   Total interest-earning assets

2,491,224 

 

23,380 

 

3.72 

 

 

2,325,278 

 

22,690 

 

3.88 

 

Non-interest-earning assets

188,356 

 

 

 

 

 

 

151,529 

 

 

 

 

 

Total assets

$    2,679,580

 

 

 

 

 

 

$    2,476,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings, NOW, and money market accounts

$       955,544

 

$            509

 

0.21 

 

 

$       913,561

 

$            996

 

0.43 

 

Certificates of deposit

334,062 

 

933 

 

1.11 

 

 

481,187 

 

1,451 

 

1.20 

 

Total interest-bearing deposits

1,289,606 

 

1,442 

 

0.44 

 

 

1,394,748 

 

2,447 

 

0.70 

 

Borrowed funds

425,442 

 

2,618 

 

2.44 

 

 

496,591 

 

3,244 

 

2.60 

 

    Total interest-bearing liabilities

1,715,048 

 

4,060 

 

0.94 

 

 

1,891,339 

 

5,691 

 

1.20 

 

Non-interest bearing deposit accounts

230,401 

 

 

 

 

 

 

176,752 

 

 

 

 

 

Accrued expenses and other liabilities

17,107 

 

 

 

 

 

 

16,578 

 

 

 

 

 

Total liabilities

1,962,556 

 

 

 

 

 

 

2,084,669 

 

 

 

 

 

Stockholders' equity

717,024 

 

 

 

 

 

 

392,138 

 

 

 

 

 

Total liabilities and stockholders' equity

$    2,679,580

 

 

 

 

 

 

$    2,476,807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

$       19,320

 

 

 

 

 

 

$       16,999

 

 

 

Net interest rate spread (2)

 

 

 

 

2.78 

%

 

 

 

 

 

2.68 

%

Net interest-earning assets (3)

$       776,176

 

 

 

 

 

 

$       433,939

 

 

 

 

 

Net interest margin (4)

 

 

 

 

3.08 

%

 

 

 

 

 

2.91 

%

Average interest-earning assets to interest-bearing liabilities

 

 

 

 

145.26 

%

 

 

 

 

 

122.94 

%

 

(1)

Average yields and rates for the three months ended September 30, 2013 and 2012 are annualized.

(2)

Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(3)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(4)

Net interest margin represents net interest income divided by average total interest-earning assets.

(5)

Loans include non-accrual loans.

 

Comparison of Operating Results for the Nine Months Ended September 30, 2013 and 2012

 

Net income.    Net income was $14.2 million and $12.8 million for the nine months ended September 30, 2013 and 2012, respectively.  Significant variances from the comparable prior year period are as follows: a $5.9 million increase in net interest income, a $150,000 decrease in the provision for loan losses, a $427,000 increase in non-interest income, a $4.4 million increase in non-interest expense, and a $666,000 increase in income tax expense.     

 

Interest income.  Interest income increased $1.7 million, or 2.4%, to $69.9 million for the nine months ended September 30, 2013, from $68.2 million for the nine months ended September 30, 2012.  Interest income on loans increased by $5.8 million, primarily attributable to an increase in the average balances of $223.4 million, partially offset by a decrease of 37 basis points in the yield earned.  The Company accreted interest income of $4.4 million for the nine months ended September 30, 2013, as compared to

 

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$4.7 million for the nine months ended September 30, 2012, related to its PCI loans. Interest income on loans for the nine months ended September 30, 2013, reflected prepayment loan income of $1.9 million compared to $956,000 for the nine months ended September 30, 2012.  The nine months ended September 30, 2013 also included a recovery of $256,000 of interest income that was previously applied to principal on non-accruing loans.  Interest income on mortgage backed securities decreased by $3.3 million, primarily attributable to a decrease of 50 basis points in the yield earned, which was partially offset by an increase in the average balance of $29.9 million.

 

Interest expense.   Interest expense decreased $4.2 million, or 24.6%, to $13.0 million for the nine months ended September 30, 2013, from $17.3 million for the nine months ended September 30, 2012. The decrease was comprised of a decrease of $2.3 million in interest expense on deposits and a decrease of $2.0 million in interest expense on borrowings.  The decrease in interest expense on deposits resulted from a decrease in the cost of interest bearing deposits of 23 basis points to 0.50% from 0.73%, which was partially offset by an increase in average balance of interest bearing deposits of $24.3 million, or 1.8%, to $1.39 billion for the nine months ended September 30, 2013, from $1.36 billion for the nine months ended September 30, 2012.  The decrease in interest expense on borrowings resulted from a decrease of 12 basis points in the cost to 2.55% for the nine months ended September 30, 2013, from 2.67% for the nine months ended September 30, 2012, and a decrease in average balances of borrowings of $80.6 million, or 16.4%, to $411.3 million for the nine months ended September 30, 2013, from $491.9 million for the nine months ended September 30, 2012. 

Net Interest Income.    Net interest income for the nine months ended September 30, 2013, increased $5.9 million, or 11.6%, as the $275.5 million, or 12.1%, increase in our interest-earning assets more than offset the one basis point decrease in our net interest margin to 2.98%.  The increase in average interest-earning assets was due primarily to increases in average net loans outstanding of $223.4 million, mortgage-backed securities of $29.9 million, other securities of $14.2 million, and deposits in financial institutions of $8.6 million.  The September 30, 2013 period included loan prepayment income of $1.9 million compared to $956,000 for the nine months ended September 30, 2012.  The nine months ended September 30, 2013, also included a recovery of $256,000 of interest that was previously applied to principal.  Rates paid on interest-bearing liabilities decreased 27 basis points to 0.97% for the current nine months from 1.24% for the comparable prior year period.  This was offset by a 34 basis point decrease in yields earned on interest earning assets to 3.66% for the nine months ended September 30, 2013, from 4.00% for the comparable nine months in 2012.

 

Provision for Loan Losses. The provision for loan losses decreased $150,000, or 9.0%, to $1.5 million for the nine months ended September 30, 2013, from $1.7 million for the nine months ended September 30, 2012.  The decrease in the provision for loan losses was due primarily to a decrease in net charge-offs to $821,000 (consisting of gross charge-offs of $1.5 million and gross recoveries of $702,000), compared to net charge-offs of $1.4 million for the nine months ended September 30, 2012, which was partially offset by an increase in loan originations from the comparable prior year.

 

Non-interest Income. Non-interest income increased $427,000, or 6.0%, to $7.5 million for the nine months ended September 30, 2013, from $7.1 million for the nine months ended September 30, 2012.  This increase was primarily a result of an increase of $453,000 in gain on securities transactions, net, and a $449,000 increase in income on bank owned life insurance, which was partially offset by an increase of $434,000 in other-than-temporary impairment losses on securities.  Securities gains in the nine months of 2013 included $696,000 related to the Company’s trading portfolio, while the nine months of 2012 included securities gains of $456,000 related to the Company’s trading portfolio.

 

Non-interest Expense.    Non-interest expense increased $4.4 million, or 12.1%, for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012.  This was due primarily to a $2.4 million increase in compensation and employee benefits related to increased staff due to branch openings, the Merger, and to a lesser extent salary adjustments effective January 1, 2013, and includes an increase of $240,000 in expense related to the Company’s deferred compensation plan which is described above, which had no effect on net income.  Additionally, occupancy expense increased $1.1 million primarily related to new branches, the Merger, and the renovation of existing branches, a $595,000 increase in data processing fees due to data conversion charges related to the Merger, and a $415,000 increase in other expenses driven by loan commitment reserves.  This increase was partially offset by a $259,000 decrease in professional fees.    

 

Income Tax ExpenseThe Company recorded income tax expense of $7.8 million for the nine months ended September 30, 2013 compared to $7.1 million for the nine months ended September 30, 2012.  The effective tax rate for the nine months ended September 30, 2013 was 35.5%, as compared to 35.8% for the nine months ended September 30, 2012. 

 

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NORTHFIELD BANCORP, INC.

ANALYSIS OF NET INTEREST INCOME

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30,

 

 

2013

 

 

2012

 

 

Average Outstanding Balance

 

Interest

 

Average Yield/ Rate (1)

 

 

Average Outstanding Balance

 

Interest

 

Average Yield/ Rate (1)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans (5)

$    1,296,365

 

$       51,021

 

5.26 

%

 

$    1,072,993

 

$       45,187

 

5.63 

%

Mortgage-backed securities

1,056,279 

 

17,095 

 

2.16 

 

 

1,026,377 

 

20,418 

 

2.66 

 

Other securities

138,923 

 

1,268 

 

1.22 

 

 

124,720 

 

2,102 

 

2.25 

 

Federal Home Loan Bank of New York stock

12,672 

 

398 

 

4.20 

 

 

13,322 

 

435 

 

4.36 

 

Interest-earning deposits in financial institutions

49,666 

 

68 

 

0.18 

 

 

41,042 

 

47 

 

0.15 

 

   Total interest-earning assets

2,553,905 

 

69,850 

 

3.66 

 

 

2,278,454 

 

68,189 

 

4.00 

 

Non-interest-earning assets

189,035 

 

 

 

 

 

 

146,908 

 

 

 

 

 

Total assets

$    2,742,940

 

 

 

 

 

 

$    2,425,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Savings, NOW, and money market accounts

$       997,811

 

$         2,134

 

0.29 

 

 

$       885,067

 

$         3,115

 

0.47 

 

Certificates of deposit

388,832 

 

3,046 

 

1.05 

 

 

477,236 

 

4,317 

 

1.21 

 

Total interest-bearing deposits

1,386,643 

 

5,180 

 

0.50 

 

 

1,362,303 

 

7,432 

 

0.73 

 

Borrowed funds

411,267 

 

7,830 

 

2.55 

 

 

491,884 

 

9,820 

 

2.67 

 

    Total interest-bearing  liabilities

1,797,910 

 

13,010 

 

0.97 

 

 

1,854,187 

 

17,252 

 

1.24 

 

Non-interest bearing deposit accounts

220,692 

 

 

 

 

 

 

167,353 

 

 

 

 

 

Accrued expenses and other liabilities

19,165 

 

 

 

 

 

 

16,033 

 

 

 

 

 

Total liabilities

2,037,767 

 

 

 

 

 

 

2,037,573 

 

 

 

 

 

Stockholders' equity

705,173 

 

 

 

 

 

 

387,789 

 

 

 

 

 

Total liabilities and stockholders' equity

$    2,742,940

 

 

 

 

 

 

$    2,425,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

$       56,840

 

 

 

 

 

 

$       50,937

 

 

 

Net interest rate spread (2)

 

 

 

 

2.69 

%

 

 

 

 

 

2.75 

%

Net interest-earning assets (3)

$       755,995

 

 

 

 

 

 

$       424,267

 

 

 

 

 

Net interest margin (4)

 

 

 

 

2.98 

%

 

 

 

 

 

2.99 

%

Average interest-earning assets to interest-bearing liabilities

 

 

 

 

142.05 

%

 

 

 

 

 

122.88 

%

 

(1)

Average yields and rates for the nine months ended September 30, 2013 and 2012 are annualized.

(2)

Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(3)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(4)

Net interest margin represents net interest income divided by average total interest-earning assets.

(5)

Loans include non-accrual loans.

 

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Asset Quality

 

Purchased Credit Impaired Loans

 

PCI loans were recorded at estimated fair value using expected future cash flows deemed to be collectible on the date acquired.  Based on our review of PCI loans and experience in loan workouts, management believes it has a reasonable expectation of the amount and timing of future cash flows, and accordingly, has classified PCI loans ($62.8 million at September 30, 2013 and $75.3 million at December 31, 2012) as accruing, even though they may be contractually past due.  At September 30, 2013, based on recorded contractual principal, 5.5% of PCI loans were past due 30 to 89 days, and 14.3% were past due 90 days or more.  At December 31, 2012, based on recorded contractual principal, 5.4% of PCI loans were past due 30 to 89 days, and 11.4% were past due 90 days or more.  The amount and timing of expected cash flows as of September 30, 2013, did not change significantly from our latest cash flow recast

 

Originated and Acquired loans

 

The discussion that follows includes originated and acquired loans, both held-for-investment and held-for-sale.

 

The following table shows total non-performing assets for the current and previous four quarters and also shows, for the same dates, non-performing originated loans to total loans, Troubled Debt Restructurings (TDR) on which interest is accruing, and accruing loans delinquent 30 to 89 days (dollars in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

2013

 

2013

 

2013

 

2012

 

2012

Non-accruing loans:

 

 

 

 

 

 

 

 

 

Held-for-investment

$            7,192

 

$   10,717

 

$     10,191

 

$          10,348

 

$          12,231

Held-for-sale

1,493 

 

 -

 

 -

 

5,325 

 

 -

Non-accruing loans subject to restructuring agreements:

 

 

 

 

 

 

 

 

 

Held-for-investment

10,609 

 

11,870 

 

16,289 

 

19,152 

 

20,990 

Held-for-sale

187 

 

 -

 

 -

 

122 

 

 -

Total non-accruing loans

19,481 

 

22,587 

 

26,480 

 

34,947 

 

33,221 

Loans 90 days or more past due and still accruing:

 

 

 

 

 

 

 

 

 

Held-for-investment

18 

 

806 

 

1,469 

 

621 

 

37 

Total loans 90 days or more past due and still accruing

18 

 

806 

 

1,469 

 

621 

 

37 

Total non-performing loans

19,499 

 

23,393 

 

27,949 

 

35,568 

 

33,258 

Other real estate owned

664 

 

776 

 

870 

 

870 

 

633 

Total non-performing assets

$          20,163

 

$   24,169

 

$     28,819

 

$          36,438

 

$          33,891

Loans subject to restructuring agreements and still accruing

$          26,426

 

$   26,670

 

$     25,891

 

$          25,697

 

$          24,099

Accruing loans 30 to 89 days delinquent

$          16,248

 

$   24,642

 

$     20,589

 

$          14,780

 

$            9,998

 

Total Non-accruing Loans

 

Total non-accruing loans decreased $15.5 million to $19.5 million at September 30, 2013, from $35.0 million at December 31, 2012.  This decrease resulted from the sale of $5.4 million of loans held-for-sale being sold, $2.8 million of loan pay-offs and principal pay-downs, $261,000 of charge-offs, $4.6 million of loans returning to accrual status, and the sale of $5.1 million of loans held-for-investment.  The above decreases in non-accruing loans were partially offset by $2.7 million of loans being placed on non-accrual status during the nine months ended September 30, 2013.

 

Loans Subject to Restructuring Agreements

 

Included in non-accruing loans are loans subject to TDR agreements totaling $10.8 million and $19.3 million at September 30, 2013, and December 31, 2012, respectively.  At September 30, 2013, $7.9 million, or 73.0% of the $10.8 million were not performing in accordance with their restructured terms, as compared to $3.3 million, or 17.0%, at December 31, 2012. One relationship accounts for $7.7 million, or 97.6%, of the $7.9 million of loans not performing in accordance with their restructured terms at September 30, 2013. The relationship is made up of several loans with an aggregate appraised value of $9.7 million. The loans are personally guaranteed by the principals.

 

 

 

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The Company also holds loans subject to restructuring agreements that are on accrual status, totaling $26.4 million and $25.7 million at September 30, 2013 and December 31, 2012, respectively.  At September 30, 2013, loans of $3.7 million, or 13.9% of the $26.4 million were not performing in accordance with the restructured terms, as compared to none at December 31, 2012. Loans not performing in accordance with the restructured terms were all 30 days past due at September 30, 2013.

 

The following table details the amounts and categories of the loans subject to restructuring agreements by loan type as of September 30, 2013 and December 31, 2012 (dollars in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At September 30, 2013

 

At December 31, 2012

 

Non-Accruing

 

Accruing

 

Non-Accruing

 

Accruing

Troubled debt restructurings:

 

 

 

 

 

 

 

Real estate loans:

 

 

 

 

 

 

 

Commercial

$            9,958

 

$          21,725

 

$          16,046

 

$          21,785

One-to-four family residential

131 

 

1,185 

 

612 

 

569 

Construction and land

108 

 

 -

 

2,070 

 

 -

Multifamily

 -

 

2,093 

 

 -

 

2,041 

Home equity and lines of credit

56 

 

345 

 

96 

 

356 

Commercial and industrial loans

543 

 

1,078 

 

451 

 

946 

Total

$          10,796

 

$          26,426

 

$          19,275

 

$          25,697

Not performing in accordance with  restructured terms

72.99% 

 

13.93% 

 

17.04% 

 

0.00% 

 

 

 

 

 

 

 

 

 

Loans 90 Days or More Past Due and Still Accruing and Other Real Estate Owned

 

Loans 90 days or more past due and still accruing decreased $603,000 to $18,000 at September 30, 2013, from $621,000 at December 31, 2012. The decrease resulted from improved loan performance and to certain loans being transferred to non-accrual status.

 

Other real estate owned was $664,000 and $870,000 at September 30, 2013 and December 31, 2012, respectively.

 

Accruing Loans 30 to 89 Days Delinquent

 

Loans 30 to 89 days delinquent and on accrual status at September 30, 2013, totaled $16.3 million, an increase of $1.5 million from the December 31, 2012, balance of $14.8 million.  The following tables set forth delinquencies for accruing loans by type and by amount at September 30, 2013, and December 31, 2012 (dollars in thousands).   

 

 

 

 

 

 

 

 

 

 

September 30, 2013

 

December 31, 2012

Real estate loans:

 

 

 

Commercial

$                     5,786

 

$                    4,736

One-to-four family residential

4,925 

 

5,584 

Construction and land

 -

 

159 

Multifamily

3,227 

 

2,731 

Home equity and lines of credit

93 

 

44 

Commercial and industrial loans

2,207 

 

1,467 

Other loans

10 

 

59 

Total delinquent accruing loans

$                   16,248

 

$                  14,780

 

 

 

 

Liquidity and Capital Resources

Liquidity.  The overall objective of our liquidity management is to ensure the availability of sufficient funds to meet financial commitments and to take advantage of lending and investment opportunities.  We manage liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.

Our primary sources of funds are deposits, principal and interest payments on loans and securities, borrowed funds, the proceeds from maturing securities and short-term investments, and to a lesser extent the proceeds from the sales of loans and securities and wholesale borrowings.  The scheduled amortization of loans and securities, as well as proceeds from borrowed funds, are

 

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predictable sources of funds.  Other funding sources, however, such as deposit inflows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition.  Northfield Bank is a member of the Federal Home Loan Bank of New York, which provides an additional source of short-term and long-term funding.  Northfield Bank also has borrowing capabilities with the Federal Reserve on a short-term basis.  The Bank’s borrowed funds, excluding capitalized lease obligations and floating rate advances, were $487.6 million at September 30, 2013, and had a  weighted average interest rate of 2.26%.  A total of $113.5 million of these borrowings will mature in less than one year.  Borrowed funds, excluding capitalized lease obligations and floating rate advances, were $414.3 million at December 31, 2012.  The Company has the ability to obtain additional funding from the FHLB and Federal Reserve Bank discount window of approximately $734.7 million utilizing unencumbered securities of $542.1 million and multifamily loans of $268.7 million at September 30, 2013.  The Company expects to have sufficient funds available to meet current commitments in the normal course of business.

Capital Resources.  At September 30, 2013, and December 31, 2012, Northfield Bank exceeded all of its regulatory capital requirements to which it is subject.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actual Ratio

 

 

Minimum Required for Capital Adequacy Purposes

 

 

Minimum Required to Be Well Capitalized under Prompt Corrective Action Provisions

 

As of September 30, 2013:

 

 

 

 

 

 

 

 

Tangible capital to tangible assets

19.41 

%

 

1.50 

%

 

NA  

 

Tier 1 capital (core) – (to adjusted assets)

19.41 

 

 

4.00 

 

 

5.00 

%

Total capital (to risk-weighted assets)

29.08 

 

 

8.00 

 

 

10.00 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2012:

 

 

 

 

 

 

 

 

Tangible capital to tangible assets

12.65 

%

 

1.50 

%

 

NA  

 

Tier 1 capital (core) – (to adjusted assets)

12.65 

 

 

4.00 

 

 

5.00 

%

Total capital (to risk-weighted assets)

22.30 

 

 

8.00 

 

 

10.00 

 

 

In July 2013, the OCC and the other federal bank regulatory agencies issued a final rule that will revise their leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act.  Among other things, the new rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on nonaccrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property.  The final rule also requires unrealized gains and losses on certain "available-for-sale" securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised.  The rule limits a banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a "capital conservation buffer" consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. 

 

The final rule becomes effective for the Bank on January 1, 2015.  The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective.  The final rule also implements consolidated capital requirements for savings and loan holding companies, such as the Company, effective January 1, 2015. The Bank and the Company currently comply with the final rule.

 

Off-Balance Sheet Arrangements and Contractual Obligations

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in the financial statements.  These transactions primarily relate to lending commitments.

The following table shows the contractual obligations of the Company by expected payment period as of September 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

Contractual Obligation

 

Total

 

Less than One Year

 

One to less than Three Years

 

Three to less than Five Years

 

Five Years and greater

 

 

(in thousands)

Debt obligations (excluding capitalized leases)

 

$   487,581

 

$   113,500

 

$     214,168

 

$    159,913

 

$               -

Commitments to originate loans

 

$   125,369

 

$   125,369

 

$                -

 

$                -

 

$               -

Commitments to fund unused lines of credit

 

$     45,854

 

$     45,854

 

$                -

 

$                -

 

$               -

 

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Commitments to originate loans and commitments to fund unused lines of credit are agreements to lend additional funds to customers as long as there have been no violations of any of the conditions established in the agreements (original or restructured).  Commitments generally have a fixed expiration or other termination clauses which may or may not require payment of a fee.  Since some of these loan commitments are expected to expire without being drawn upon, total commitments do not necessarily represent future cash requirements.

 

For further information regarding our off-balance sheet arrangements and contractual obligations, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

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ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A majority of our assets and liabilities are monetary in nature.  Consequently, our most significant form of market risk is interest rate risk.  Our assets, consisting primarily of mortgage-related assets and loans, generally have longer maturities than our liabilities, which consist primarily of deposits and wholesale borrowings.  As a result, a principal part of our business strategy involves managing interest rate risk and limiting the exposure of our net interest income to changes in market interest rates.  Accordingly, our board of directors has established a management risk committee, comprised of our Chief Investment Officer, who chairs this Committee, our Chief Executive Officer, our President/Chief Operating Officer, our Chief Financial Officer, our Chief Lending Officer, and our Executive Vice President of Operations.  This committee is responsible for, among other things, evaluating the interest rate risk inherent in our assets and liabilities, for recommending to the risk management committee of our board of directors the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.

The management risk committee aims to manage interest risk by structuring the balance sheet to maximize net interest income while maintaining an acceptable level of risk exposure to changes in market interest rates.  Liquidity, interest rate risk, and profitability are all considered to reach such a goal.  Various asset/liability strategies are used to manage and control the interest rate sensitivity of our assets and liabilities.  These strategies include pricing of loans and deposit products, adjusting the terms of loans and borrowings, and managing the deployment of our securities and short-term assets to manage mismatches in interest rate re-pricing.

Net Portfolio Value Analysis.  We compute amounts by which the net present value of our assets and liabilities (net portfolio value or “NPV”) would change in the event market interest rates change over an assumed range of rates.  Our simulation model uses a discounted cash flow analysis to measure the interest rate sensitivity of NPV.  Depending on current market interest rates, we estimate the economic value of these assets and liabilities under the assumption that interest rates experience an instantaneous and sustained increase of 100, 200, 300, or 400 basis points, or a decrease of 100 and 200 basis points, which is based on the current interest rate environment.  A basis point equals one-hundredth of one percent, and 100 basis points equals one percent.  An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below. 

 

Net Interest Income Analysis.  In addition to NPV calculations, we analyze our sensitivity to changes in interest rates through our net interest income model.  Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings.  In our model, we estimate what our net interest income would be for a twelve-month period.  Depending on current market interest rates we then calculate what the net interest income would be for the same period under the assumption that interest rates experience an instantaneous and sustained increase or decrease of 100, 200, 300, or 400 basis points, or a decrease of 100 and 200 basis points, which is based on the current interest rate environment.   

The table below sets forth, as of September 30, 2013, our calculation of the estimated changes in our NPV, NPV ratio, and percent change in net interest income that would result from the designated instantaneous and sustained changes in interest rates.  Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied on as indicative of actual results (dollars in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NPV

 

 

 

 

 

 

 

 

Change in Interest Rates (basis points)

 

Estimated Present Value of Assets

 

Estimated Present Value of Liabilities

 

Estimated NPV

 

Estimated Change In NPV

 

Estimated NPV/Present Value of Assets Ratio

 

 

Net Interest Income Percent Change

 

+400

 

$      2,396,469

 

$      1,861,720

 

$   534,749

 

$  (227,984)

 

22.31 

%

 

(9.63)

%

+300

 

2,466,203 

 

1,890,969 

 

575,234 

 

(187,499)

 

23.32 

 

 

(7.12)

 

+200

 

2,551,370 

 

1,921,118 

 

630,252 

 

(132,481)

 

24.70 

 

 

(4.55)

 

+100

 

2,648,007 

 

1,952,204 

 

695,803 

 

(66,930)

 

26.28 

 

 

(2.09)

 

0

 

2,747,003 

 

1,984,270 

 

762,733 

 

 -

 

27.77 

 

 

0.00 

 

(100)

 

2,835,487 

 

2,015,212 

 

820,275 

 

57,542 

 

28.93 

 

 

(0.30)

 

(200)

 

2,889,679 

 

2,030,559 

 

859,120 

 

96,387 

 

29.73 

 

 

(3.41)

 

 

The table above indicates that at September 30, 2013, in the event of a 400 basis point increase in interest rates, we would experience a 546 basis point decrease in NPV ratio (27.77% versus 22.31%), and a 9.63% decrease in net interest income.  In the event of a 200 basis point decrease in interest rates, we would experience a 196 basis point increase in NPV ratio (27.77% versus 29.73%) and a 3.41% decrease in net interest income.  Our policies provide that, in the event of a 400 basis point increase or less in interest rates, our net present value ratio should decrease by no more than 600 basis points and our projected net interest income

 

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should decrease by no more than 44%.  Additionally, our policy states that our net portfolio value should be at least 8% of total assets before and after such shock. At September 30, 2013, we were in compliance with all board approved policies with respect to interest rate risk management.

 

The duration of a financial instrument changes as market interest rates change. Potential movements in the duration of our investment portfolio, as well as the duration of the loan portfolio may have a positive or negative effect on our net interest income.

 

Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in NPV and net interest income.  Modeling requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates.  In this regard, the NPV and net interest income information presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured, and also assume that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities.  Accordingly, although interest rate risk calculations provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

 

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ITEM 4.CONTROLS AND PROCEDURES 

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of September 30, 2013.  Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

 

During the nine months ended September 30, 2013, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II

ITEM 1.     LEGAL PROCEEDINGS

The Company and subsidiaries are subject to various legal actions arising in the normal course of business.  In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

ITEM 1A.  RISK FACTORS

During the nine months ended September 30, 2013, there have been no material changes to the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC.

 

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)

Unregistered Sale of Equity Securities.  There were no sales of unregistered securities during the period covered by this report.

(b)

Use of Proceeds.  Not applicable

(c)

Repurchases of Our Equity Securities.  

The following table shows the Company’s repurchase of its common stock for the three months ended September  30, 2012:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

 

(a) Total Number of Shares Purchased

 

(b) Average Price Paid per Share

 

(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)

 

(d) Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs (1)

August 1, 2013, through August 31, 2013

 

238,411 

 

$            12.02

 

238,411 

 

61,682 

September 1, 2013, through September 30, 2013

 

34,500 

 

12.03 

 

34,500 

 

27,182 

Total

 

272,911 

 

$            12.02

 

272,911 

 

 

 

(1)

On July 31, 2013, Northfield Bancorp, Inc.’s (the “Company”) Board of Directors authorized the repurchase of up to 300,093 shares of common stock to fund grants of restricted stock under its 2008 Equity Incentive Plan.  The Company received a non-objection letter from the Federal Reserve Board with respect to these repurchases, and conducted such repurchases in accordance with a Rule 10b5-1 trading plan.  Federal Reserve Board regulations permit a company to repurchase shares of common stock within one year of a mutual-to-stock conversion to fund an existing restricted stock plan.

 

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

None

ITEM  4.     MINE SAFETY DISCLOSURES

Not applicable

ITEM 5.     OTHER INFORMATION

None

ITEM 6.      EXHIBITS

The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q and are listed on the “Index to Exhibits” immediately following the Signatures.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

NORTHFIELD BANCORP, INC.

(Registrant)

 

 

Date: November 12, 2013

 

/s/   John W. Alexander

John W. Alexander

Chairman and Chief Executive Officer

 

 

 

 

 

/s/   William R. Jacobs

William R. Jacobs

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

 

 

 

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INDEX TO EXHIBITS

 

 

 

 

 

Exhibit

 

 

Number

 

Description

 

 

 

 

 

31.1

 

Certification of John W. Alexander, Chairman, President and Chief Executive Officer,                           Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

 

 

 

31.2

 

Certification of William R. Jacobs, Chief Financial Officer,

Pursuant to Rule 13a-14(a) and Rule 15d-14(a)

 

 

 

32

 

Certification of John W. Alexander, Chairman and Chief Executive Officer, and William R. Jacobs, Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101

 

The following materials from the Company’s Report on Form 10-Q for the quarter ended September 30, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements

 

 

 

 

 

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