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Northfield Bancorp, Inc. - Quarter Report: 2014 June (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 June 30, 2014
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 ý    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 ý    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 ý.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
51,602,791 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of August 7, 2014.



NORTHFIELD BANCORP, INC.
Form 10-Q Quarterly Report
Table of Contents
 
 
Page
Item 1.
Item 2.
Item 3.
Item 4.
 
 
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 



Table of Contents

PART I
ITEM1.        FINANCIAL STATEMENTS
NORTHFIELD BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2014, and December 31, 2013
(Unaudited)
(In thousands, except share amounts)
 
June 30, 2014
 
December 31, 2013
ASSETS:
 
 
 
Cash and due from banks
$
11,778

 
$
15,348

Interest-bearing deposits in other financial institutions
24,005

 
45,891

Total cash and cash equivalents
35,783

 
61,239

Trading securities
6,340

 
5,998

Securities available-for-sale, at estimated fair value
 
 
 
(encumbered $237,482 in 2014 and $197,896 in 2013)
857,296

 
937,085

Securities held-to-maturity, at amortized cost (estimated fair value of $4,101 in 2014 and $0 in 2013)
4,037

 

Loans held-for-sale
471

 
471

Purchased credit-impaired (PCI) loans held-for-investment
49,547

 
59,468

Loans acquired
75,727

 
77,817

Originated loans held-for-investment, net
1,448,217

 
1,352,191

Loans held-for-investment, net
1,573,491

 
1,489,476

Allowance for loan losses
(26,267
)
 
(26,037
)
Net loans held-for-investment
1,547,224

 
1,463,439

Accrued interest receivable
8,485

 
8,137

Bank owned life insurance
127,081

 
125,113

Federal Home Loan Bank of New York stock, at cost
19,241

 
17,516

Premises and equipment, net
27,609

 
29,057

Goodwill
16,159

 
16,159

Other real estate owned
640

 
634

Other assets
39,476

 
37,916

Total assets
$
2,689,842

 
$
2,702,764

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
 
 
 
LIABILITIES:
 

 
 

Deposits
$
1,480,947

 
$
1,492,689

Securities sold under agreements to repurchase
206,000

 
181,000

Other borrowings
328,333

 
289,325

Advance payments by borrowers for taxes and insurance
7,842

 
6,441

Accrued expenses and other liabilities
17,892

 
17,201

Total liabilities
2,041,014

 
1,986,656

 
 
 
 
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, 58,226,326
 

 
 

shares issued at June 30, 2014, and December 31, 2013, 53,039,074
 
 
 
and 57,926,233 outstanding at June 30, 2014 and December 31, 2013, respectively
582

 
582

Additional paid-in-capital
497,088

 
508,609

Unallocated common stock held by employee stock ownership plan
(26,460
)
 
(26,985
)
Retained earnings
245,634

 
242,180

Accumulated other comprehensive loss
(1,792
)
 
(4,650
)
Treasury stock at cost; 5,187,252 and 300,093 shares at June 30, 2014 and December 31, 2013, respectively
(66,224
)
 
(3,628
)
Total stockholders’ equity
648,828

 
716,108

Total liabilities and stockholders’ equity
$
2,689,842

 
$
2,702,764

See accompanying notes to consolidated financial statements.

3

Table of Contents

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) 
Three and Six months ended June 30, 2014 and 2013
(Unaudited)
(In thousands, except share data) 

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Interest income:
 
 
 
 
 
 
 
Loans
$
17,466

 
$
16,707

 
$
35,262

 
$
33,194

Mortgage-backed securities
4,343

 
5,606

 
8,932

 
11,998

Other securities
157

 
502

 
314

 
943

Federal Home Loan Bank of New York dividends
172

 
118

 
382

 
274

Deposits in other financial institutions
13

 
21

 
25

 
61

Total interest income
22,151

 
22,954

 
44,915

 
46,470

Interest expense:
 

 
 

 
 

 
 

Deposits
1,254

 
1,600

 
2,492

 
3,738

Borrowings
2,377

 
2,599

 
4,788

 
5,212

Total interest expense
3,631

 
4,199

 
7,280

 
8,950

Net interest income
18,520

 
18,755

 
37,635

 
37,520

(Recovery) of / provision for loan losses
(146
)
 
417

 
271

 
694

Net interest income after provision for loan losses
18,666

 
18,338

 
37,364

 
36,826

Non-interest income:
 

 
 

 
 

 
 

Fees and service charges for customer services
1,030

 
773

 
2,059

 
1,484

Income on bank owned life insurance
984

 
824

 
1,968

 
1,589

Gain on securities transactions, net
319

 
385

 
443

 
2,198

Other-than-temporary impairment losses on securities

 
(362
)
 

 
(434
)
Net impairment losses on securities recognized in earnings

 
(362
)
 

 
(434
)
Other
54

 
78

 
89

 
117

Total non-interest income
2,387

 
1,698

 
4,559

 
4,954

Non-interest expense:
 

 
 

 
 

 
 

Compensation and employee benefits
6,538

 
6,602

 
11,773

 
13,514

Occupancy
2,280

 
2,458

 
4,902

 
4,860

Furniture and equipment
417

 
454

 
836

 
883

Data processing
996

 
954

 
1,967

 
2,550

Professional fees
680

 
722

 
1,206

 
1,468

FDIC insurance
311

 
365

 
620

 
752

Other
1,476

 
1,654

 
3,457

 
3,548

Total non-interest expense
12,698

 
13,209

 
24,761

 
27,575

Income before income tax expense
8,355

 
6,827

 
17,162

 
14,205

Income tax expense
2,915

 
2,528

 
6,503

 
5,114

Net income
$
5,440

 
$
4,299

 
$
10,659

 
$
9,091

Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.11

 
$
0.08

 
$
0.21

 
$
0.17

Diluted
$
0.11

 
$
0.08

 
$
0.20

 
$
0.16

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

4

Table of Contents

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - (Continued)
Three and Six months ended June 30, 2014 and 2013
(Unaudited)
(In thousands, except share data) 

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2014
 
2013
 
2014
 
2013
Other comprehensive income:
 
 
 
 
 
 
 
Unrealized gains (losses) on securities:
 
 
 
 
 
 
 
Net unrealized holding gains (losses) on securities
$
2,759

 
$
(21,216
)
 
$
6,099

 
$
(26,130
)
Less: reclassification adjustment for gains included in net income (included in gain on securities transactions, net)
(144
)
 
(322
)
 
(199
)
 
(1,892
)
Net unrealized gains (losses)
2,615

 
(21,538
)
 
5,900

 
(28,022
)
Post retirement benefit adjustment

 

 
(1,141
)
 
 
Reclassification adjustment for OTTI impairment included in net income (included OTTI losses on securities)

 
362

 

 
434

Other comprehensive income (loss), before tax
2,615

 
(21,176
)
 
4,759

 
(27,588
)
Income tax expense (benefit) related to net unrealized holding gains (losses) on securities
1,103

 
(8,269
)
 
2,439

 
(10,192
)
Income tax expense related to reclassification adjustment for gains included in net income
(58
)
 
(129
)
 
(80
)
 
(757
)
Income tax expense related to post retirement benefit adjustment

 

 
(458
)
 
 
Income tax benefit related to reclassification adjustment for OTTI impairment included in net income

 
145

 

 
174

Other comprehensive income (loss), net of tax
$
1,570

 
(12,923
)
 
2,858

 
(16,813
)
Comprehensive income (loss)
$
7,010

 
$
(8,624
)
 
$
13,517

 
$
(7,722
)


See accompanying notes to consolidated financial statements.

5

Table of Contents

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Six Months Ended June 30, 2014, and 2013
(Unaudited)
(In thousands, except share data) 
 
 
 
 
 
 
 
Unallocated
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
Other
 
 
 
 
 
Common Stock
 
Additional
 
Held by the
 
 
 
Comprehensive
 
 
 
Total
 
Shares
 
Par
 
Paid-in
 
Employee Stock
 
Retained
 
Income (Loss),
 
Treasury
 
Stockholders'
 
Issued
 
Value
 
Capital
 
Ownership Plan
 
Earnings
 
Net of tax
 
Stock
 
Equity
Balance at December 31, 2012
46,904,286

 
$
469

 
$
230,253

 
$
(13,965
)
 
$
249,892

 
$
18,231

 
$
(70,007
)
 
$
414,873

Net income
 

 
 

 
 

 
 

 
9,091

 
 

 
 

 
9,091

Other comprehensive loss, net of tax
 

 
 

 
 

 
 

 
 

 
(16,813
)
 
 

 
(16,813
)
ESOP shares allocated or committed to be released
 

 
 

 
207

 
507

 
 

 
 

 
 

 
714

Stock compensation expense
 

 
 

 
1,567

 
 

 
 

 
 

 
 

 
1,567

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
12,785

 
 

 
21

 
 

 


 
 

 


 
21

Cash dividends declared ($0.37 per common share)
 

 
 

 
 

 
 

 
(20,276
)
 
 

 
 

 
(20,276
)
Balance at June 30, 2013
58,212,604

 
$
582

 
$
506,550

 
$
(27,682
)
 
$
238,707

 
$
1,418

 
$

 
$
719,575

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2013
58,226,326

 
$
582

 
$
508,609

 
$
(26,985
)
 
$
242,180

 
$
(4,650
)
 
$
(3,628
)
 
$
716,108

Net income
 

 
 

 
 

 
 

 
10,659

 
 

 
 

 
10,659

Other comprehensive income, net of tax
 

 
 

 
 

 
 

 
 

 
2,858

 
 

 
2,858

ESOP shares allocated or committed to be released
 

 
 

 
298

 
525

 
 

 
 

 
 

 
823

Stock compensation expense
 

 
 

 
510

 
 

 
 

 
 

 
 

 
510

Additional tax benefit on equity awards
 

 
 

 
388

 
 

 
 

 
 

 
 

 
388

Issuance of restricted stock
 

 
 

 
(12,717)

 
 

 
 

 
 

 
12,717

 

Exercise of stock options


 
 

 


 
 

 
(621
)
 
 

 
799

 
178

Cash dividends declared ($0.12 per common share)
 

 
 

 
 

 
 

 
(6,584
)
 
 

 
 

 
(6,584
)
Treasury stock (average cost of $12.80 per share)


 
 

 
 

 
 

 
 

 
 

 
(76,112
)
 
(76,112
)
Balance at June 30, 2014
58,226,326

 
$
582

 
$
497,088

 
$
(26,460
)
 
$
245,634

 
$
(1,792
)
 
$
(66,224
)
 
$
648,828

 
See accompanying notes to consolidated financial statements.

6

Table of Contents

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2014, and 2013
(Unaudited) (In thousands)

 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income
$
10,659

 
$
9,091

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
271

 
694

ESOP and stock compensation expense
1,333

 
2,281

Depreciation
1,853

 
1,756

Amortization of premiums, and deferred loan costs, net of (accretion) of discounts, and deferred loan fees
694

 
1,175

Amortization intangible assets
211

 
223

Income on bank owned life insurance
(1,968
)
 
(1,589
)
Net (gain) on sale of loans held-for-sale
(13
)
 
(9
)
Proceeds from sale of loans held-for-sale
822

 
7,183

Origination of loans held-for-sale
(809
)
 
(2,284
)
Gain on securities transactions, net
(443
)
 
(2,198
)
Loss on sale of other real estate owned
19

 

Net purchases of trading securities
(98
)
 
(285
)
(Increase) decrease in accrued interest receivable
(348
)
 
7

Increase in other assets
(3,351
)
 
(1,835
)
Increase (decrease) in accrued expenses and other liabilities
691

 
(176
)
Net cash provided by operating activities
9,523

 
14,034

Cash flows from investing activities:
 
 
 
Net increase in loans receivable
(84,332
)
 
(90,451
)
Purchases of Federal Home Loan Bank of New York stock, net
(1,725
)
 
(297
)
Purchases of securities available-for-sale
(436
)
 
(264,594
)
Principal payments and maturities on securities available-for-sale
76,731

 
224,662

Principal payments and maturities on securities held-to-maturity

 
2,219

Purchases of securities held-to-maturity
(4,037
)
 

Proceeds from sale of securities available-for-sale
7,270

 
146,490

Purchases of bank owned life insurance

 
(16,000
)
Death benefits received from bank owned life insurance

 
193

Proceeds from sale of other real estate owned
418

 
94

Purchases and improvements of premises and equipment
(405
)
 
(2,392
)
Net cash used in investing activities
(6,516
)
 
(76
)
Cash flows from financing activities:
 
 
 
Net decrease in deposits
(11,742
)
 
(133,355
)
Dividends paid
(6,584
)
 
(20,276
)
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
178

 
21

Purchase of treasury stock
(76,112
)
 

Additional tax benefit on equity awards
388

 
296

Increase in advance payments by borrowers for taxes and insurance
1,401

 
2,185

Repayments under capital lease obligations
(158
)
 
(140
)
Proceeds from securities sold under agreements to repurchase and other borrowings
159,166

 
56,301

Repayments related to securities sold under agreements to repurchase and other borrowings
(95,000
)
 
(62,946
)
Net cash used in financing activities
(28,463
)
 
(117,366
)
Net decrease in cash and cash equivalents
(25,456
)
 
(103,408
)
Cash and cash equivalents at beginning of period
61,239

 
128,761

Cash and cash equivalents at end of period
$
35,783

 
$
25,353

 
 
 
 

7

Table of Contents

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
Six Months Ended June 30, 2014, and 2013 
(Unaudited) (In thousands)

Supplemental cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
7,304

 
$
8,865

Income taxes
11,585

 
9,449

Non-cash transactions:
 
 
 
Loans charged-off, net
41

 
298

Other real estate owned write-downs
47

 

Transfers of loans to other real estate owned
490

 

Increase in due from broker for sales of securities available-for-sale
1,909

 

Deposits utilized to purchase common stock
$

 
$
289,554

 
See accompanying notes to consolidated financial statements.

8

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 six months ended June 30, 2014, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2014.  Whenever necessary, certain prior year amounts are 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.
 
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/A for the year ended December 31, 2013, of Northfield Bancorp, Inc. as filed with the SEC. 

Note 2 – Securities
The following is a comparative summary of mortgage-backed securities and other securities available-for-sale at June 30, 2014, and December 31, 2013 (in thousands):
 
June 30, 2014
 
 
 
Gross
 
Gross
 
Estimated
 
Amortized
 
unrealized
 
unrealized
 
fair
 
cost
 
gains
 
losses
 
value
Mortgage-backed securities:
 

 
 

 
 

 
 

Pass-through certificates:
 

 
 

 
 

 
 

Government sponsored enterprises (GSE)
$
329,988

 
$
9,682

 
$
1,885

 
$
337,785

Real estate mortgage investment conduits (REMICs):
 

 
 

 
 

 
 

GSE
451,738

 
1,396

 
12,359

 
440,775

Non-GSE
1,712

 
25

 
40

 
1,697

 
783,438

 
11,103

 
14,284

 
780,257

Other securities:
 
 
 
 
 
 
 
Equity investments-mutual funds
647

 

 

 
647

Corporate bonds
76,161

 
231

 

 
76,392

 
76,808

 
231

 

 
77,039

Total securities available-for-sale
$
860,246

 
$
11,334

 
$
14,284

 
$
857,296



9

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


 
December 31, 2013
 
 
 
Gross
 
Gross
 
Estimated
 
Amortized
 
unrealized
 
unrealized
 
fair
 
cost
 
gains
 
losses
 
value
Mortgage-backed securities:
 

 
 

 
 

 
 

Pass-through certificates:
 

 
 

 
 

 
 

GSE
$
366,884

 
$
8,573

 
$
5,113

 
$
370,344

Real estate mortgage investment conduits (REMICs):
 

 
 

 
 

 
 

GSE
497,575

 
1,699

 
14,047

 
485,227

Non-GSE
4,474

 
126

 
48

 
4,552

 
868,933

 
10,398

 
19,208

 
860,123

Other securities:
 
 
 
 
 
 
 
Equity investments-mutual funds
510

 

 

 
510

Corporate bonds
76,491

 
66

 
105

 
76,452

 
77,001

 
66

 
105

 
76,962

Total securities available-for-sale
$
945,934

 
$
10,464

 
$
19,313

 
$
937,085

 
The following is a summary of the expected maturity distribution of debt securities available-for-sale, other than mortgage-backed securities, at June 30, 2014 (in thousands):
Available-for-sale
Amortized cost
 
Estimated fair value
Due in one year or less
$
10,039

 
$
10,058

Due after one year through five years
66,122


66,334

 
$
76,161

 
$
76,392

 
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 and six months ended June 30, 2014, the Company had gross proceeds of $6.4 million and $7.3 million, respectively, on sales of securities available-for-sale with gross realized gains of approximately $144,000 and $199,000, respectively, and no gross realized losses for the three and six months ended June 30, 2014. For the three and six months ended June 30, 2013, the Company had gross proceeds of $121.4 million and $146.5 million, respectively, on sales of securities available-for-sale with gross realized gains of approximately $363,000 and $2.1 million, respectively, and gross realized losses of $41,000 and $177,000.  The Company recognized $175,000 and $244,000 in gains on its trading securities portfolio during the three and six months ended June 30, 2014. The Company recognized $63,000 and $306,000 in gains on its trading securities portfolio during the three and six months ended June 30, 2013.  The Company did not recognize any other-than-temporary impairment charges during the three and six months ended June 30, 2014, and recognized $362,000 and $434,000 of other-than-temporary impairment charges during the three and six months ended June 30, 2013
 

10

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


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 June 30, 2014, and December 31, 2013, were as follows (in thousands):
 
June 30, 2014
 
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
$
1

 
$
109

 
$
1,884

 
$
65,519

 
$
1,885

 
$
65,628

REMICs:
 
 
 
 
 
 
 
 
 
 
 
GSE
511

 
32,876

 
11,848

 
289,180

 
12,359

 
322,056

Non-GSE
15

 
816

 
25

 
405

 
40

 
1,221

Total
$
527

 
$
33,801

 
$
13,757

 
$
355,104

 
$
14,284

 
$
388,905

 
 
December 31, 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
$
5,087

 
$
150,473

 
$
26

 
$
4,482

 
$
5,113

 
$
154,955

REMICs:
 
 
 
 
 
 
 
 
 
 
 
GSE
12,923

 
283,419

 
1,124

 
44,606

 
14,047

 
328,025

Non-GSE
23

 
1,092

 
25

 
442

 
48

 
1,534

Other Securities:
 
 
 
 
 
 
 
 
 
 
 
  Corporate Bonds
$
105

 
$
44,763

 
$

 
$

 
$
105

 
$
44,763

Total
$
18,138

 
$
479,747

 
$
1,175

 
$
49,530

 
$
19,313

 
$
529,277

 
The Company held 14 pass-through mortgage-backed securities issued or guaranteed by GSEs, 19 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 June 30, 2014.  There was one pass-through mortgage-backed security issued or guaranteed by GSEs, five REMIC mortgage-backed securities issued or guaranteed by GSEs, and one REMIC mortgage-backed security not issued or guaranteed by GSEs that were in an unrealized loss position of less than twelve months. All securities referred to above were rated investment grade at June 30, 2014.  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, which may result in other-than-temporary impairment in the future. 
 

11

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


 
Note 3 – Loans
 
Net loans held-for-investment is as follows (in thousands):
 
June 30,
 
December 31,
 
2014
 
2013
Real estate loans:
 
Multifamily
$
933,832

 
$
870,951

Commercial mortgage
353,846

 
340,174

One-to-four family residential mortgage
77,051

 
64,753

Home equity and lines of credit
48,635

 
46,231

Construction and land
15,590

 
14,152

Total real estate loans
1,428,954

 
1,336,261

Commercial and industrial loans
12,932

 
10,162

Other loans
2,325

 
2,310

Total commercial and industrial and other loans
15,257

 
12,472

Deferred loan cost, net
4,006

 
3,458

Originated loans held-for-investment, net
1,448,217

 
1,352,191

PCI Loans
49,547

 
59,468

Loans acquired:
 
 
 
Multifamily
7,722

 
3,930

Commercial mortgage
11,674

 
13,254

One-to-four family residential mortgage
55,963

 
60,262

Construction and land
368

 
371

Total loans acquired, net
75,727

 
77,817

Loans held-for-investment, net
1,573,491

 
1,489,476

Allowance for loan losses
(26,267
)
 
(26,037
)
Net loans held-for-investment
$
1,547,224

 
$
1,463,439


Loans held-for-sale amounted to $471,000 at June 30, 2014, and December 31, 2013.    

Purchased credit-impaired (PCI) loans, primarily acquired as part of a Federal Deposit Insurance Corporation-assisted transaction, totaled $49.5 million at June 30, 2014, as compared to $59.5 million at December 31, 2013.   The Company accounts for PCI loans utilizing GAAP applicable to loans acquired with deteriorated credit quality.  PCI loans consist of approximately 33% commercial real estate and 51% 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: 
 
Six months ended
 
June 30,
 
2014
 
2013
Balance at the beginning of period
$
32,464

 
$
43,431

Accretion into interest income
(2,518
)
 
(2,977
)
Net reclassification from non-accretable difference
374

 

Balance at end of period
$
30,320

 
$
40,454

 
Activity in the allowance for loan losses is as follows (in thousands):
 
At or for the six months ended June 30,
 
2014
 
2013
Beginning balance
$
26,037

 
$
26,424

Provision for loan losses
271

 
694

Charge-offs, net
(41
)
 
(298
)
Ending balance
$
26,267

 
$
26,820


12

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


The following tables set forth activity in our allowance for loan losses, by loan type, as of and for the six months ended June 30, 2014, and as of and for the year ended December 31, 2013.  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, at June 30, 2014, and December 31, 2013 (in thousands). There was a $40,000 related allowance for acquired loans at June 30, 2014, and $0 at December 31, 2013.
 
June 30, 2014
 
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
 
Acquired Loans
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning Balance
$
12,619

 
$
875

 
$
205

 
$
9,374

 
$
860

 
$
425

 
$
67

 
$
1,024

 
$
25,449

 
$
588

 
$

 
$
26,037

Charge-offs

 
(22
)
 
(1
)
 

 
(294
)
 

 

 

 
(317
)
 

 

 
(317
)
Recoveries

 

 
246

 

 

 

 
30

 

 
276

 

 

 
276

Provisions
(737
)
 
159

 
(294
)
 
506

 
427

 
106

 
(32
)
 
284

 
419

 
(188
)
 
40

 
271

Ending Balance
$
11,882

 
$
1,012

 
$
156

 
$
9,880

 
$
993

 
$
531

 
$
65

 
$
1,308

 
$
25,827

 
$
400

 
$
40

 
$
26,267

Ending balance: individually evaluated for impairment
$
2,469

 
$
7

 
$

 
$
90

 
$
3

 
$
91

 
$

 
$

 
$
2,660

 
$

 
$

 
$
2,660

Ending balance: collectively evaluated for impairment
$
9,413

 
$
1,005

 
$
156

 
$
9,790

 
$
990

 
$
440

 
$
65

 
$
1,308

 
$
23,167

 
$
400

 
$
40

 
$
23,607

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans held-for-investment, net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending Balance
$
354,330

 
$
77,644

 
$
15,613

 
$
935,900

 
$
49,431

 
$
12,974

 
$
2,325

 
$

 
$
1,448,217

 
$
49,547

 
$
75,727

 
$
1,573,491

Ending balance: individually evaluated for impairment
$
29,901

 
$
730

 
$

 
$
2,980

 
$
335

 
$
1,015

 
$

 
$

 
$
34,961

 
$

 
$
596

 
$
35,557

Ending balance: collectively evaluated for impairment
$
324,429

 
$
76,914

 
$
15,613

 
$
932,920

 
$
49,096

 
$
11,959

 
$
2,325

 
$

 
$
1,413,256

 
$
49,547

 
$
75,131

 
$
1,537,934

 

13

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


 
December 31, 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
$
14,480

 
$
623

 
$
994

 
$
7,086

 
$
623

 
$
1,160

 
$
21

 
$
1,201

 
$
26,188

 
$
236

 
$
26,424

Charge-offs
(1,208
)
 
(414
)
 

 
(657
)
 
(491
)
 
(379
)
 
(25
)
 

 
(3,174
)
 

 
(3,174
)
Recoveries
1

 
18

 
567

 

 

 
201

 
73

 

 
860

 

 
860

Provisions
(654
)
 
648

 
(1,356
)
 
2,945

 
728

 
(557
)
 
(2
)
 
(177
)
 
1,575

 
352

 
1,927

Ending Balance
$
12,619

 
$
875

 
$
205

 
$
9,374

 
$
860

 
$
425

 
$
67

 
$
1,024

 
$
25,449

 
$
588

 
$
26,037

Ending balance: individually evaluated for impairment
$
2,385

 
$
19

 
$

 
$
117

 
$
7

 
$
104

 
$

 
$

 
$
2,632

 
$

 
$
2,632

Ending balance: collectively evaluated for impairment
$
10,234

 
$
856

 
$
205

 
$
9,257

 
$
853

 
$
321

 
$
67

 
$
1,024

 
$
22,817

 
$
588

 
$
23,405

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Originated loans, net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
340,534

 
$
65,289

 
$
14,161

 
$
872,901

 
$
46,825

 
$
10,202

 
$
2,279

 
$

 
$
1,352,191

 
$

 
$
1,352,191

Ending balance: individually evaluated for impairment
$
32,194

 
$
1,115

 
$
109

 
$
2,074

 
$
1,341

 
$
1,504

 
$

 
$

 
$
38,337

 
$

 
$
38,337

Ending balance: collectively evaluated for impairment
$
308,340

 
$
64,174

 
$
14,052

 
$
870,827

 
$
45,484

 
$
8,698

 
$
2,279

 
$

 
$
1,313,854

 
$

 
$
1,313,854



14

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


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 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.
 

15

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


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 June 30, 2014, and December 31, 2013 (in thousands): 
 
At June 30, 2014
 
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
$
37,169

 
$
885,615

 
$
42,795

 
$
256,278

 
$
43,732

 
$
28,021

 
$
15,027

 
$
48,750

 
$
10,695

 
$
2,325

 
$
1,370,407

Special Mention
296

 
5,335

 
1,282

 
10,170

 
2,159

 
366

 
586

 
368

 
208

 

 
20,770

Substandard
811

 
6,674

 
1,250

 
42,555

 
1,679

 
1,687

 

 
313

 
2,071

 

 
57,040

Originated loans held-for-investment, net
$
38,276

 
$
897,624

 
$
45,327

 
$
309,003

 
$
47,570

 
$
30,074

 
$
15,613

 
$
49,431

 
$
12,974

 
$
2,325

 
$
1,448,217

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 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
$
40,966

 
$
817,923

 
$
42,995

 
$
240,472

 
$
28,595

 
$
30,241

 
$
13,458

 
$
45,117

 
$
7,488

 
$
2,279

 
$
1,269,534

Special Mention
309

 
7,866

 
1,304

 
12,938

 
2,289

 
703

 
595

 
469

 
962

 

 
27,435

Substandard
821

 
5,016

 
1,333

 
41,492

 
1,388

 
2,073

 
108

 
1,239

 
1,752

 

 
55,222

Originated loans held-for-investment, net
$
42,096

 
$
830,805

 
$
45,632

 
$
294,902

 
$
32,272

 
$
33,017

 
$
14,161

 
$
46,825

 
$
10,202

 
$
2,279

 
$
1,352,191


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 $15.8 million and $17.8 million at June 30, 2014, and December 31, 2013, 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 consecutive 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 $11.6 million and $13.5 million at June 30, 2014, and December 31, 2013, 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 $3.7 million and $3.8 million at June 30, 2014, and December 31, 2013, respectively.  Non-accrual amounts included in loans held-for-sale were $471,000 at June 30, 2014, and December 31, 2013.  Loans past due 90 days or more and still accruing interest were $605,000 and $32,000 at June 30, 2014, and December 31, 2013, 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 June 30, 2014, and December 31, 2013, excluding loans held-for-sale (in thousands).  The following table excludes PCI loans at June 30, 2014, and December 31, 2013, 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 June 30, 2014, expected future cash flows of each PCI loan pool were consistent with those estimated in our most recent recast of the cash flows.





16

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)



 
At June 30, 2014
 
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
406

 
2,425

 
8,068

 
10,899

 

 
10,899

Total
406

 
2,425

 
8,068

 
10,899

 

 
10,899

Total commercial
406

 
2,425

 
8,068

 
10,899

 

 
10,899

One-to-four family residential
 

 
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Pass

 

 

 

 
357

 
357

Special Mention

 
14

 
77

 
91

 
26

 
117

Substandard

 
416

 
179

 
595

 

 
595

Total

 
430

 
256

 
686

 
383

 
1,069

LTV => 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
1,168

 
1,168

 
155

 
1,323

Total

 

 
1,168

 
1,168

 
155

 
1,323

Total one-to-four family residential

 
430

 
1,424

 
1,854

 
538

 
2,392

Multifamily
 

 
 

 
 

 
 

 
 

 
 

LTV => 35%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
1,023

 
1,023

 

 
1,023

Total multifamily

 

 
1,023

 
1,023

 

 
1,023

Home equity and lines of credit
 

 
 

 
 

 
 

 
 

 
 

Substandard

 
101

 
120

 
221

 

 
221

Total home equity and lines of credit

 
101

 
120

 
221

 

 
221

Commercial and industrial loans
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
408

 
408

 
37

 
445

Total commercial and industrial loans

 

 
408

 
408

 
37

 
445

Other loans
 
 
 
 
 
 
 
 
 
 
 
Pass

 

 

 

 
30

 
30

Total other loans

 

 

 

 
30

 
30

Total non-performing loans held-for-investment
406

 
2,956

 
11,043

 
14,405

 
605

 
15,010

Loans acquired:
 

 
 

 
 

 
 

 
 

 
 

One-to-four family residential
 

 
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard
297

 

 
313

 
610

 

 
610

Total
297

 

 
313

 
610

 

 
610

LTV => 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard
299

 

 

 
299

 

 
299

Total
299

 

 

 
299

 

 
299

Total one-to-four family residential
596

 

 
313

 
909

 

 
909

Total non-performing loans acquired
596

 

 
313

 
909

 

 
909

Total non-performing loans
$
1,002

 
$
2,956

 
$
11,356

 
$
15,314

 
$
605

 
$
15,919


17

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


 
At December 31, 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%
 

 
 

 
 

 
 

 
 

 
 

Special Mention

 

 
335

 
335

 

 
335

Substandard
3,606

 
421

 
7,836

 
11,863

 

 
11,863

Total
3,606

 
421

 
8,171

 
12,198

 

 
12,198

Total commercial
3,606

 
421

 
8,171

 
12,198

 

 
12,198

One-to-four family residential
 

 
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Special Mention

 
16

 
114

 
130

 

 
130

Substandard

 
418

 
186

 
604

 

 
604

Total

 
434

 
300

 
734

 

 
734

LTV => 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 
189

 
993

 
1,182

 

 
1,182

Total

 
189

 
993

 
1,182

 

 
1,182

Total one-to-four family residential

 
623

 
1,293

 
1,916

 

 
1,916

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
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
1,239

 
1,239

 

 
1,239

Total home equity and lines of credit

 

 
1,239

 
1,239

 

 
1,239

Commercial and industrial loans
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
441

 
441

 

 
441

Total commercial and industrial loans

 

 
441

 
441

 

 
441

Other loans
 
 
 
 
 
 
 
 
 
 
 
Pass

 

 

 

 
32

 
32

Total other loans

 

 

 

 
32

 
32

Total non-performing loans held-for-investment
3,714

 
1,044

 
11,217

 
15,975

 
32

 
16,007

Loans acquired:
 

 
 

 
 

 
 

 
 

 
 

One-to-four family residential
 

 
 

 
 

 
 

 
 

 
 

LTV => 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard
607

 

 
466

 
1,073

 

 
1,073

Total one-to-four family residential
607

 

 
466

 
1,073

 

 
1,073

Commercial
 

 
 

 
 

 
 

 
 

 
 

LTV => 35%
 

 
 

 
 

 
 

 
 

 
 

Special Mention

 

 
252

 
252

 

 
252

Total commercial

 

 
252

 
252

 

 
252

Total non-performing loans acquired:
607

 

 
718

 
1,325

 

 
1,325

Total non-performing loans
$
4,321

 
$
1,044

 
$
11,935

 
$
17,300

 
$
32

 
$
17,332


18

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)



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 June 30, 2014 and December 31, 2013 (in thousands).
 
June 30, 2014
 
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
$
42,795

 
$

 
$
42,795

 
$

 
$
42,795

Special Mention

 
1,282

 
1,282

 

 
1,282

Substandard
1,250

 

 
1,250

 

 
1,250

Total
44,045

 
1,282

 
45,327

 

 
45,327

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
254,691

 
1,587

 
256,278

 

 
256,278

Special Mention
10,170

 

 
10,170

 

 
10,170

Substandard
30,352

 
1,304

 
31,656

 
10,899

 
42,555

Total
295,213

 
2,891

 
298,104

 
10,899

 
309,003

Total commercial
339,258

 
4,173

 
343,431

 
10,899

 
354,330

One-to-four family residential
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

Pass
43,039

 
336

 
43,375

 
357

 
43,732

Special Mention
1,661

 
381

 
2,042

 
117

 
2,159

Substandard
841

 
243

 
1,084

 
595

 
1,679

Total
45,541

 
960

 
46,501

 
1,069

 
47,570

LTV => 60%
 

 
 

 
 

 
 

 
 

Pass
25,334

 
2,687

 
28,021

 

 
28,021

Special Mention
366

 

 
366

 

 
366

Substandard

 
364

 
364

 
1,323

 
1,687

Total
25,700

 
3,051

 
28,751

 
1,323

 
30,074

Total one-to-four family residential
71,241

 
4,011

 
75,252

 
2,392

 
77,644

Construction and land
 

 
 

 
 

 
 

 
 

Pass
15,027

 

 
15,027

 

 
15,027

Special Mention
586

 

 
586

 

 
586

Total construction and land
15,613

 

 
15,613

 

 
15,613

Multifamily
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 

 
 

Pass
37,169

 

 
37,169

 

 
37,169

Special Mention
296

 

 
296

 

 
296

Substandard
811

 

 
811

 

 
811

Total
38,276

 

 
38,276

 

 
38,276

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
885,615

 

 
885,615

 

 
885,615

Special Mention
4,229

 
1,106

 
5,335

 

 
5,335

Substandard
3,983

 
1,668

 
5,651

 
1,023

 
6,674

Total
893,827

 
2,774

 
896,601

 
1,023

 
897,624

Total multifamily
932,103

 
2,774

 
934,877

 
1,023

 
935,900


19

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


 
June 30, 2014
 
Performing (Accruing) Loans
 
 
 
 
 
0-29 Days Past Due
 
30-89 Days Past Due
 
Total
 
Non-Performing Loans
 
Total Loans Receivable, net
Home equity and lines of credit
 

 
 

 
 

 
 

 
 

Pass
48,325

 
425

 
48,750

 

 
48,750

Special Mention
368

 

 
368

 

 
368

Substandard
92

 

 
92

 
221

 
313

Total home equity and lines of credit
48,785

 
425

 
49,210

 
221

 
49,431

Commercial and industrial loans
 

 
 

 
 

 
 

 
 

Pass
10,684

 
11

 
10,695

 

 
10,695

Special Mention
208

 

 
208

 

 
208

Substandard
1,452

 
174

 
1,626

 
445

 
2,071

Total commercial and industrial loans
12,344

 
185

 
12,529

 
445

 
12,974

Other loans
 

 
 

 
 

 
 

 
 

Pass
2,295

 

 
2,295

 
30

 
2,325

Total other loans
2,295

 

 
2,295

 
30

 
2,325

Total loans held-for-investment
1,421,639

 
11,568

 
1,433,207

 
15,010

 
1,448,217

 
June 30, 2014
 
Performing (Accruing) Loans
 
 
 
 
 
0-29 Days Past Due
 
30-89 Days Past Due
 
Total
 
Non-Performing Loans
 
Total Loans Receivable, net
Loans acquired:
 

 
 

 
 

 
 

 
 

One-to-four family residential
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

Pass
45,175

 
1,005

 
46,180

 

 
46,180

Special Mention
527

 
94

 
621

 

 
621

Substandard
134

 
1

 
135

 
610

 
745

Total one-to-four family residential
45,836

 
1,100

 
46,936

 
610

 
47,546

LTV => 60%
 

 
 

 
 

 
 

 
 

Pass
7,479

 
379

 
7,858

 

 
7,858

Special Mention

 

 

 

 

Substandard

 
260

 
260

 
299

 
559

Total
7,479

 
639

 
8,118

 
299

 
8,417

Total one-to-four family residential
53,315

 
1,739

 
55,054

 
909

 
55,963

Commercial
 

 
 

 
 

 
 
 
 
LTV < 35%
 

 
 

 
 

 
 
 
 
Pass
2,565

 

 
2,565

 

 
2,565

Special Mention
713

 

 
713

 

 
713

Total
3,278

 

 
3,278

 

 
3,278

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
5,374

 

 
5,374

 

 
5,374

Special Mention
1,855

 

 
1,855

 

 
1,855

Substandard
1,167

 

 
1,167

 

 
1,167

Total
8,396

 

 
8,396

 

 
8,396

Total commercial
11,674

 

 
11,674

 

 
11,674

Construction and land
 

 
 

 
 

 
 

 
 

Substandard
368

 

 
368

 

 
368

Total construction and land
368

 

 
368

 

 
368

Multifamily
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 
 
 
Pass
4,909

 

 
4,909

 

 
4,909

Special Mention
176

 
 
 
176

 
 
 
176

Substandard
489

 

 
489

 

 
489

Total
5,574

 

 
5,574

 

 
5,574

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
1,760

 

 
1,760

 

 
1,760

Special Mention
388

 

 
388

 

 
388

Total
2,148

 

 
2,148

 

 
2,148

Total multifamily
7,722

 

 
7,722

 

 
7,722

Total loans acquired
73,079

 
1,739

 
74,818

 
909

 
75,727

 
$
1,494,718

 
$
13,307

 
$
1,508,025

 
$
15,919

 
$
1,523,944


20

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


 
December 31, 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
$
42,995

 
$

 
$
42,995

 

 
$
42,995

Special Mention
1,304

 

 
1,304

 

 
1,304

Substandard
1,333

 

 
1,333

 

 
1,333

Total
45,632

 

 
45,632

 

 
45,632

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
239,544

 
928

 
240,472

 

 
240,472

Special Mention
10,927

 
1,676

 
12,603

 
335

 
12,938

Substandard
28,949

 
680

 
29,629

 
11,863

 
41,492

Total
279,420

 
3,284

 
282,704

 
12,198

 
294,902

Total commercial
325,052

 
3,284

 
328,336

 
12,198

 
340,534

One-to-four family residential
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

Pass
28,216

 
379

 
28,595

 

 
28,595

Special Mention
1,746

 
413

 
2,159

 
130

 
2,289

Substandard
269

 
515

 
784

 
604

 
1,388

Total
30,231

 
1,307

 
31,538

 
734

 
32,272

LTV => 60%
 

 
 

 
 

 
 

 
 

Pass
27,575

 
2,666

 
30,241

 

 
30,241

Special Mention
703

 

 
703

 

 
703

Substandard
522

 
369

 
891

 
1,182

 
2,073

Total
28,800

 
3,035

 
31,835

 
1,182

 
33,017

Total one-to-four family residential
59,031

 
4,342

 
63,373

 
1,916

 
65,289

Construction and land
 

 
 

 
 

 
 

 
 

Pass
13,458

 

 
13,458

 

 
13,458

Special Mention
595

 

 
595

 

 
595

Substandard

 

 

 
108

 
108

Total construction and land
14,053

 

 
14,053

 
108

 
14,161

Multifamily
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 

 
 

Pass
40,638

 
328

 
40,966

 

 
40,966

Special Mention
94

 
215

 
309

 

 
309

Substandard
821

 

 
821

 

 
821

Total
41,553

 
543

 
42,096

 

 
42,096

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
817,923

 

 
817,923

 

 
817,923

Special Mention
6,751

 
1,115

 
7,866

 

 
7,866

Substandard
4,118

 
825

 
4,943

 
73

 
5,016

Total
828,792

 
1,940

 
830,732

 
73

 
830,805

Total multifamily
870,345

 
2,483

 
872,828

 
73

 
872,901

Home equity and lines of credit
 

 
 

 
 

 
 

 
 

Pass
45,116

 
1

 
45,117

 

 
45,117

Special Mention
376

 
93

 
469

 

 
469

Substandard

 

 

 
1,239

 
1,239

Total home equity and lines of credit
45,492

 
94

 
45,586

 
1,239

 
46,825

Commercial and industrial loans
 

 
 

 
 

 
 

 
 


21

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


 
December 31, 2013
 
Performing (Accruing) Loans
 
 
 
 
 
0-29 Days Past Due
 
30-89 Days Past Due
 
Total
 
Non-Performing Loans
 
Total Loans Receivable, net
Pass
7,415

 
73

 
7,488

 

 
7,488

Special Mention
962

 

 
962

 

 
962

Substandard
570

 
741

 
1,311

 
441

 
1,752

Total commercial and industrial loans
8,947

 
814

 
9,761

 
441

 
10,202

Other loans
 

 
 

 
 

 
 

 
 

Pass
2,226

 
21

 
2,247

 
32

 
2,279

Total other loans
2,226

 
21

 
2,247

 
32

 
2,279

 
$
1,325,146

 
$
11,038

 
$
1,336,184

 
$
16,007

 
$
1,352,191

Loans Acquired
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
 
 
Pass
43,112

 
1,195

 
44,307

 

 
44,307

Special Mention
306

 
104

 
410

 

 
410

Substandard
136

 
4

 
140

 

 
140

Total
43,554

 
1,303

 
44,857

 

 
44,857

LTV => 60%
 
 
 
 
 
 
 
 
 
Pass
13,838

 

 
13,838

 

 
13,838

Special Mention
232

 

 
232

 

 
232

Substandard
262

 

 
262

 
1,073

 
1,335

Total
14,332

 

 
14,332

 
1,073

 
15,405

Total one-to-four family residential
57,886

 
1,303

 
59,189

 
1,073

 
60,262

Commercial
 
 
 
 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
Pass
2,143

 

 
2,143

 

 
2,143

Special Mention
189

 

 
189

 

 
189

Substandard
937

 
529

 
1,466

 

 
1,466

Total
3,269

 
529

 
3,798

 

 
3,798

LTV => 35%
 
 
 
 
 
 
 
 
 
Pass
8,742

 
461

 
9,203

 

 
9,203

Substandard

 

 

 
252

 
252

Total
8,742

 
461

 
9,203

 
252

 
9,455

Total commercial
12,011

 
990

 
13,001

 
252

 
13,253

Construction and land
 
 
 
 
 
 
 
 
 
Substandard
372

 

 
372

 

 
372

Total construction and land
372

 

 
372

 

 
372

Multifamily
 
 
 
 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
Pass
588

 

 
588

 

 
588

Substandard
490

 

 
490

 

 
490

Total
1,078

 

 
1,078

 

 
1,078

LTV => 35%
 
 
 
 
 
 
 
 
 
Pass
2,262

 

 
2,262

 

 
2,262

Special Mention
590

 

 
590

 

 
590

Total
2,852

 

 
2,852

 

 
2,852

Total multifamily
3,930

 

 
3,930

 

 
3,930

Total Loans Acquired
74,199

 
2,293

 
76,492

 
1,325

 
77,817

 
$
1,399,345

 
$
13,331

 
$
1,412,676

 
$
17,332

 
$
1,430,008


22

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)



The following tables summarize originated impaired loans as of June 30, 2014, and December 31, 2013 (in thousands):
 
At June 30, 2014
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
With No Allowance Recorded:
 
 
 
 
 
Real estate loans:
 

 
 

 
 

Commercial
 

 
 

 
 

LTV => 35%
 

 
 

 
 

Pass
$
3,358

 
$
3,495

 
$

Substandard
10,341

 
11,447

 

One-to-four family residential
 

 
 

 
 

LTV < 60%
 

 
 

 
 

Special Mention
140

 
140

 

Substandard
266

 
266

 

Multifamily
 

 
 

 
 

LTV => 35%
 

 
 

 
 

Pass
92

 
562

 

Substandard
1,435

 
1,435

 

Commercial and industrial loans
 

 
 

 
 

Special Mention
33

 
33

 

Substandard
574

 
582

 

With a Related Allowance Recorded:
 

 
 

 
 

Real estate loans:
 

 
 

 
 

Commercial
 

 
 

 
 

LTV => 35%
 

 
 

 
 

Substandard
16,202

 
17,372

 
(2,469
)
One-to-four family residential
 

 
 

 
 

LTV < 60%
 
 
 
 
 
Special Mention
325

 
325

 
(7
)
Multifamily
 

 
 

 
 

LTV => 35%
 
 
 
 
 
Substandard
1,454

 
1,454

 
(90
)
Home equity and lines of credit
 

 
 

 
 

Special Mention
335

 
335

 
(3
)
Commercial and industrial loans
 

 
 

 
 

Substandard
408

 
530

 
(91
)
Total:
 

 
 

 
 

Real estate loans
 

 
 

 
 

Commercial
29,901

 
32,314

 
(2,469
)
One-to-four family residential
731

 
731

 
(7
)
Multifamily
2,981

 
3,451

 
(90
)
Home equity and lines of credit
335

 
335

 
(3
)
Commercial and industrial loans
1,015

 
1,145

 
(91
)
 
$
34,963

 
$
37,976

 
$
(2,660
)

23

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


 
At December 31, 2013
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
With No Allowance Recorded:
 
 
 
 
 
Real estate loans:
 

 
 

 
 

Commercial
 

 
 

 
 

LTV < 35%
 

 
 

 
 

Pass
$
3,405

 
$
3,542

 
$

Substandard

 
706

 

LTV => 35%
 

 
 

 
 

Pass
19,689

 
21,383

 

Construction and land
 

 
 

 
 

Substandard
108

 
91

 

One-to-four family residential
 

 
 

 
 

LTV < 60%
 

 
 

 
 

Special Mention
507

 
507

 

Substandard
269

 
269

 

Multifamily
 

 
 

 
 

LTV < 35%
 

 
 

 
 

Substandard
593

 
1,064

 

Commercial and industrial loans
 

 
 

 
 

Special Mention
210

 
219

 

Substandard
853

 
1,008

 

With a Related Allowance Recorded:
 

 
 

 
 

Real estate loans:
 

 
 

 
 

Commercial
 

 
 

 
 

LTV => 35%
 

 
 

 
 

Special Mention
2,289

 
2,672

 
(52
)
Substandard
6,810

 
6,937

 
(2,333
)
One-to-four family residential
 

 
 

 
 

LTV => 60%
 
 
 
 
 
Substandard
340

 
340

 
(19
)
Multifamily
 

 
 

 
 

LTV => 35%
 
 
 
 
 
Substandard
1,481

 
1,481

 
(117
)
Home equity and lines of credit
 

 
 

 
 

Special Mention
342

 
342

 
(7
)
Substandard
1,000

 
1,395

 

Commercial and industrial loans
 

 
 

 
 

Substandard
441

 
485

 
(104
)
Total:
 

 
 

 
 

Real estate loans
 

 
 

 
 

Commercial
32,193

 
35,240

 
(2,385
)
One-to-four family residential
1,116

 
1,116

 
(19
)
Construction and land
108

 
91

 

Multifamily
2,074

 
2,545

 
(117
)
Home equity and lines of credit
1,342

 
1,737

 
(7
)
Commercial and industrial loans
1,504

 
1,712

 
(104
)
 
$
38,337

 
$
42,441

 
$
(2,632
)

Included in the table at June 30, 2014, are loans with carrying balances of $11.5 million that were not written down by either charge-offs or specific reserves in our allowance for loan losses.  Included in the table at December 31, 2013, are loans with carrying balances of $21.8 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 June 30, 2014, and December 31, 2013, are considered to have sufficient collateral values, less costs to sell, to support the carrying balances of the loans.    
 

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NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


The average recorded balance of originated impaired loans for the six months ended June 30, 2014 and 2013, was $36.0 million and $49.2 million, respectively.  The Company recorded $405,000 and $862,000 of interest income on impaired loans for the three and six months ended June 30, 2014, respectively, as compared to $516,000 and $1.1 million of interest income on impaired loans for the three and six months ended June 30, 2013, respectively.
    
There were no loans modified as troubled debt restructurings during the six months ended June 30, 2014. The following tables summarize loans that were modified as troubled debt restructurings during the six months ended June 30, 2013.
 
June 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
 
$
408

 
$
408

Total Troubled Debt Restructurings
2
 
$
408

 
$
408


All of the relationships in the table above were restructured to receive reduced interest rates.
 
At June 30, 2014, and December 31, 2013, we had troubled debt restructurings of $34.7 million and $36.8 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 consider recent market conditions appropriately, 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.

At June 30, 2014, no TDR loan that was restructured during the twelve months ended June 30, 2014 had subsequently defaulted.

Note 4 – Deposits

Deposits account balances are summarized  as follows (in thousands):
 
June 30,
 
December 31,
 
2014
 
2013
Non-interest-bearing demand
$
235,778

 
$
235,355

Interest-bearing negotiable orders of withdrawal (NOW)
126,996

 
129,955

Savings and money market
832,869

 
819,477

Certificates of deposit
285,304

 
307,902

Total deposits
$
1,480,947

 
$
1,492,689

 

25

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


Interest expense on deposit accounts is summarized for the periods indicated (in thousands):
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Negotiable orders of withdrawal, savings, and money market
$
508

 
$
667

 
$
987

 
$
1,554

Certificates of deposit
746

 
933

 
1,505

 
2,184

Total interest expense on deposit accounts
$
1,254

 
$
1,600

 
$
2,492

 
$
3,738


Note 5 Equity Incentive Plan
 
In June 2014, the Company granted to directors and employees a total of 998,200 restricted shares, and 2,496,600 stock options to purchase Company stock. These shares and options were issued out of the 2014 Equity Incentive Plan ("the Plan"), which allows the Company to grant common stock or options to purchase common stock at specific prices to directors and employees of the Company. The Plan provides for the issuance or delivery of up to 4,978,249 shares (1,422,357 restricted shares and 3,555,892 stock options) of Northfield Bancorp, Inc. common stock subject to certain Plan limitations. All stock options and restricted stock granted to date vest in equal installments over a five-year period beginning one year from the date of grant. The vesting of options and restricted stock awards may accelerate in accordance with terms of the Plan. Stock options were granted at an exercise price equal to the fair value of the Company’s common stock on the grant date based on quoted market prices and all have an expiration period of ten years. The fair value of stock options granted on June 11, 2014, was estimated utilizing the Black-Scholes option pricing model using the following assumptions: an expected life of 6.5 years, risk-free rate of return of 1.92%, volatility of 33.83% and a dividend yield of 1.83%.

The following table is a summary of the Company’s stock options outstanding as of June 30, 2014, and changes therein during the six 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, 2013
2,800,305

 
$
2.30

 
$
7.13

 
5.16

Granted
2,496,600

 
3.91

 
13.13

 
9.96

Forfeited

 

 

 

Exercised
(102,173
)
 
$
2.30

 
$
7.12

 

Outstanding - June 30, 2014
5,194,732

 
$
3.08

 
$
10.02

 
7.93

Exercisable - June 30, 2014
2,676,390

 
$
2.30

 
$
7.13

 
4.59

 
Expected future stock option expense related to the non-vested options outstanding as of June 30, 2014, is $9.9 million over an average period of 4.93 years.
The following is a summary of the status of the Company’s restricted share awards as of June 30, 2014, and changes therein during the six months then ended.
 
Number of Shares Awarded
 
Weighted Average Grant Date Fair Value
Non-vested at December 31, 2013
240,083

 
$
7.29

Granted
998,200

 
13.13

Vested
(225,549
)
 
7.10

Non-vested at June 30, 2014
1,012,734

 
$
13.11

 
Expected future stock award expense related to the non-vested restricted share awards as of June 30, 2014 is $13.1 million over an average period of 4.94 years.    


26

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NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


During the six months ended June 30, 2014, the Company recorded $510,000 of stock-based compensation related to the above plans.  
 
Note 6 – Fair Value Measurements
The following tables present the assets reported on the consolidated balance sheet at their estimated fair value as of June 30, 2014, and December 31, 2013, by level within the fair value hierarchy as required by the Fair Value Measurements and Disclosures Topic of the FASB ASC.  Financial 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.  


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Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


 
Fair Value Measurements at Reporting Date Using:
 
June 30, 2014
 
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
$
778,560

 
$

 
$
778,560

 
$

Non-GSE
1,697

 

 
1,697

 

Other securities
 
 
 
 
 
 
 
Corporate bonds
76,392

 

 
76,392

 

Equities
647

 
647

 

 

Total available-for-sale
857,296

 
647

 
856,649

 

Trading securities
6,340

 
6,340

 

 

Total
$
863,636

 
$
6,987

 
$
856,649

 
$

Measured on a non-recurring basis:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
Commercial real estate
$
20,703

 
$

 
$

 
$
20,703

One-to-four family residential mortgage
324

 

 

 
324

Multifamily
1,545

 

 

 
1,545

Home equity and lines of credit
334

 

 

 
334

Total impaired real estate loans
22,906

 

 

 
22,906

Commercial and industrial loans
582

 

 

 
582

Other real estate owned
640

 

 

 
640

Total
$
24,128

 
$

 
$

 
$
24,128


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Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


 
Fair Value Measurements at Reporting Date Using:
 
December 31, 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
$
855,571

 
$

 
$
855,571

 
$

Non-GSE
4,552

 

 
4,552

 

Other securities
 
 
 
 
 
 
 
Corporate bonds
76,452

 

 
76,452

 

Equities
510

 
510

 

 

Total available-for-sale
937,085

 
510

 
936,575

 

Trading securities
5,998

 
5,998

 

 

Total
$
943,083

 
$
6,508

 
$
936,575

 
$

Measured on a non-recurring basis:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
Commercial real estate
$
23,572

 
$

 
$

 
$
23,572

One-to-four family residential mortgage
340

 

 

 
340

Construction and land
109

 

 

 
109

Multifamily
1,579

 

 

 
1,579

Home equity and lines of credit
1,342

 

 

 
1,342

Total impaired real estate loans
26,942

 

 

 
26,942

Commercial and industrial loans
616

 

 

 
616

Other real estate owned
634

 

 

 
634

Total
$
28,192

 
$

 
$

 
$
28,192


The following table presents qualitative information for Level 3 assets measured at fair value on a non-recurring basis at June 30, 2014 (dollars in thousands):
 
Fair Value
 
Valuation Methodology
 
Unobservable Inputs       
 
Range of Inputs
 
June 30, 2014
 
December 31, 2013
 
 
 
 
 
June 30, 2014
 
December 31, 2013
Impaired loans
$
23,488

 
$
27,558

 
Appraisals
 
Discount for costs to sell
 
7.00%
 
7.00%
 
 
 
 
 
 
 
Discount for quick sale
 
10.0% - 25.0%
 
10.0% - 25.0%
 
 
 
 
 
Discounted cash flows
 
Interest rates
 
4.6% to 7.5%
 
4.6% to 7.5%
Other real estate owned
$
640

 
$
634

 
Appraisals
 
Discount for costs to sell
 
7.00%
 
7.00%

Available for Sale Securities: The estimated fair values for mortgage-backed and corporate securities are obtained from an independent nationally recognized third-party pricing service.  The estimated fair values are derived primarily from

29

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NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


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 publicly traded mutual funds.  There were no transfers of securities between Level 1 and Level 2 during the three months ended June 30, 2014.     
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 GAAP.  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 June 30, 2014, and December 31, 2013, the Company had originated impaired loans held-for-investment and held-for-sale with outstanding principal balances of $27.2 million and $31.7 million, respectively, that were recorded at their estimated fair value of $24.0 million and $27.6 million, respectively.  The Company recorded net impairment recoveries of $28,000 for the six months ended June 30, 2014 and net impairment recoveries of $561,000 for the six months ended June 30, 2013, and net (recoveries) charge-offs of $41,000 and $298,000 for the six months ended June 30, 2014 and 2013, 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 June 30, 2014, and December 31, 2013, the Company had assets acquired through foreclosure, or deed in lieu of foreclosure, of $640,000 and $634,000, 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 (OREO) for the three months ended June 30, 2014.  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 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; the 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

30

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NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


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.


31

Table of Contents
NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


The estimated fair value of the Company’s significant financial instruments at June 30, 2014, and December 31, 2013, is presented in the following tables (in thousands):
 
June 30, 2014
 
 
 
Estimated Fair Value
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
35,783

 
$
35,783

 
$

 
$

 
$
35,783

Trading securities
6,340

 
6,340

 

 

 
6,340

Securities available-for-sale
857,296

 
647

 
856,649

 

 
857,296

Federal Home Loan Bank of New York stock, at cost
19,241

 

 
19,241

 

 
19,241

Loans held-for-sale
471

 

 

 
471

 
471

Loans held-for-investment, net
1,573,491

 

 

 
1,593,474

 
1,593,474

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
$
1,480,947

 
$

 
$
1,483,286

 
$

 
$
1,483,286

Repurchase agreements and other borrowings
534,333

 

 
539,896

 

 
539,896

Advance payments by borrowers
7,842

 

 
7,842

 

 
7,842

 
 
December 31, 2013
 
 
 
Estimated Fair Value
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
61,239

 
$
61,239

 
$

 
$

 
$
61,239

Trading securities
5,998

 
5,998

 

 

 
5,998

Securities available-for-sale
937,085

 
510

 
936,575

 

 
937,085

Federal Home Loan Bank of New York stock, at cost
17,516

 

 
17,516

 

 
17,516

Loans held-for-sale
471

 

 

 
471

 
471

Loans held-for-investment, net
1,489,476

 

 

 
1,472,096

 
1,472,096

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
$
1,492,689

 
$

 
$
1,495,810

 
$

 
$
1,495,810

Repurchase agreements and other borrowings
470,325

 

 
476,893

 

 
476,893

Advance payments by borrowers
6,441

 

 
6,441

 

 
6,441

 
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 losses, 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.
 

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NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements - (Continued)


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.

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 six months ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
Net income available to common stockholders
$
5,440

 
$
4,299

 
$
10,659

 
$
9,091

Weighted average shares outstanding-basic
49,956,790

 
54,642,689

 
51,759,595

 
54,775,892

Effect of non-vested restricted stock and stock options outstanding
954,435

 
873,747

 
1,000,195

 
876,125

Weighted average shares outstanding-diluted
50,911,225

 
55,516,436

 
52,759,790

 
55,652,017

Earnings per share-basic
$
0.11

 
$
0.08

 
$
0.21

 
$
0.17

Earnings per share-diluted
$
0.11

 
$
0.08

 
$
0.20

 
$
0.16

Anti-dilutive shares
802,908

 

 
418,554

 

 
Note 8 – Recent Accounting Pronouncements

 In January 2014, the FASB issued ASU No. 2014-04, “Receivables - Troubled Debt Restructurings by Creditors (subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.” This ASU clarifies that if an in-substance repossession occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure, or the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal arrangement. This ASU will require interim and annual disclosure of both, the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for annual and interim periods beginning after December 15, 2014. The Company’s adoption of this pronouncement is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. This update will be effective for interim and annual periods beginning after December 15, 2016. The Company is still assessing the impact of this pronouncement, but does not expect the guidance to have a material impact on the Company's consolidated financial statements.

For the three and six months ended June 30, 2014, there were no other new accounting pronouncements that would materially impact the Company or its subsidiaries.

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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, 2013, included in the Company’s Annual Report on Form 10-K/A, 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

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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 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/A for the year ended December 31, 2013.
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/A for the year ended December 31, 2013.
 
Net income amounted to $10.7 million for the six months ended June 30, 2014, as compared to $9.1 million for the six months ended June 30, 2013.  Diluted earnings per common share were $0.20 for the six months ended June 30, 2014, compared to basic and diluted earnings per common share of $0.16 for the six months ended June 30, 2013. Earnings for the six months ended June 30, 2014, included a reduction of compensation and benefits of $937,000 ($560,000, after tax), or $0.01 per share, related to the settlement of the former Flatbush Federal Savings & Loan Association pension plan. Earnings for the six months ended June 30, 2014, also included a charge of $570,000, or $0.01 per share, related to the write-down of deferred assets as a result of tax laws enacted in the State of New York during the first quarter. For the six months ended June 30, 2014, our return on average assets was 0.80%, as compared to 0.66% for the six months ended June 30, 2013.  For the six months ended June 30, 2014, our return on average stockholders’ equity was 3.06% as compared to 2.62% for the six months ended June 30, 2013.
 
Comparison of Financial Condition at June 30, 2014, and December 31, 2013
Total assets decreased $12.9 million, or 0.5%, to $2.69 billion at June 30, 2014, from $2.70 billion at December 31, 2013.  The decrease was primarily attributable to decreases in securities available-for-sale of $79.8 million and cash and cash equivalents of $25.5 million, partially offset by increases in total loans held-for-investment, net of $84.0 million, bank owned life insurance of $2.0 million, and FHLB stock of $1.7 million.
 
Cash and cash equivalents decreased $25.5 million, or 41.6%, to $35.8 million at June 30, 2014 from $61.2 million at December 31, 2013
 
The securities available-for-sale portfolio totaled $857.3 million at June 30, 2014, compared to $937.1 million at December 31, 2013.  At June 30, 2014, $778.6 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 and estimated fair value of $1.7 million at June 30, 2014.  In addition to the above mortgage-backed securities, the Company held $76.4 million in corporate bonds which were all rated investment grade at June 30, 2014, and $647,000 of equity investments in mutual funds. The effective duration of the securities portfolio at June 30, 2014 was 4.03 years.
 
Total loans held-for-investment, net, increased $84.0 million to $1.57 billion at June 30, 2014, as compared to $1.49 billion at December 31, 2013

Originated loans held-for-investment, net, totaled $1.45 billion at June 30, 2014, as compared to $1.35 billion at December 31, 2013.  The increase was primarily due to an increase in multifamily real estate loans of $62.9 million, or 7.2%, to $933.8 million at June 30, 2014, from $871.0 million at December 31, 2013. In the current economic environment, management is primarily focused on originating multifamily real estate and home equity loans, with less emphasis on other loan types.  The following table details our multifamily real estate originations for the six months ended June 30, 2014 (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
$
116,746

 
3.65%
 
64%
 
78
 
V
 
20 to 30 Years
2,107

 
5.14%
 
43%
 
180
 
F
 
15 Years
$
118,853

 
3.68%
 
63%
 
 
 
 
 
 

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PCI loans, primarily acquired as part of a transaction with the Federal Deposit Insurance Corporation, totaled $49.5 million at June 30, 2014, as compared to $59.5 million at December 31, 2013.  The Company accreted interest income of $2.5 million for the six months ended June 30, 2014, compared to $3.0 million for the six months ended June 30, 2013.    
    
Total liabilities increased $54.4 million, or 2.7%, to $2.04 billion at June 30, 2014, from $1.99 billion at December 31, 2013.  The increase was primarily attributable to increased borrowings of $39.0 million, securities sold under agreements to repurchase of $25.0 million, and advancements by borrowers for taxes and insurance of $1.4 million, partially offset by decreased deposits of $11.7 million.
    
Deposits decreased $11.7 million to $1.48 billion, at June 30, 2014 from $1.49 billion at December 31, 2013. The decrease was attributable to decreases of $22.6 million in certificates of deposit accounts and $2.5 million in transaction accounts, partially offset by increases of $13.4 million in savings and money market accounts. The decline in deposits resulted, in part, from the Company’s decision not to retain higher cost time deposits.
 
Borrowings and securities sold under agreements to repurchase increased by $64.0 million, or 13.6%, to $534.3 million at June 30, 2014, from $470.3 million at December 31, 2013.  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
2014
 
$113,668
 
1.17%
2015
 
127,363
 
2.39%
2016
 
108,910
 
2.18%
2017
 
80,003
 
1.40%
2018
 
87,715
 
1.67%
2019
 
13,502
 
1.88%
 
 
$531,161
 
1.81%
 
Total stockholders’ equity decreased by $67.3 million to $648.8 million at June 30, 2014, from $716.1 million at December 31, 2013.  This decrease was primarily attributable to stock repurchases of $76.1 million and dividend payments of $6.6 million. These decreases were partially offset by net income of $10.7 million for the six months ended June 30, 2014, and a decrease of $2.9 million in accumulated other comprehensive loss as a result of a decrease in the interest rate environment from December 31, 2013.
 
Comparison of Operating Results for the Three Months Ended June 30, 2014 and 2013
 
Net income.    Net income was $5.4 million and $4.3 million for the quarters ended June 30, 2014 and 2013, respectively.  Significant variances from the comparable prior year period are as follows: a $235,000 decrease in net interest income, a $563,000 decrease in the provision for loan losses, a $689,000 increase in non-interest income, a $511,000 decrease in non-interest expense, and a $387,000 increase in income tax expense.
 
Interest income.  Interest income decreased $803,000, or 3.5%, to $22.2 million for the three months ended June 30, 2014, from $23.0 million for the three months ended June 30, 2013.  Interest income on loans increased by $759,000, primarily attributable to an increase in the average balance of $237.1 million, which was partially offset by a decrease of 61 basis points in the yield earned on loans.  The Company accreted interest income related to its PCI loans of $1.2 million for the quarter ended June 30, 2014, as compared to $1.5 million for the quarter ended June 30, 2013.  Interest income on loans for the quarter ended June 30, 2014, reflected prepayment loan income of $199,000 compared to $292,000 for the quarter ended June 30, 2013. Interest income on mortgage backed securities decreased by $1.3 million primarily due to a decrease in the average balance of $206.2 million and a decrease of seven basis points in the yield earned.
 
Interest expense.   Interest expense decreased $568,000, or 13.5%, to $3.6 million for the three months ended June 30, 2014, from $4.2 million for the three months ended June 30, 2013. The decrease consisted of a decrease of $346,000 in interest expense on deposits and a decrease in interest expense on borrowings of $222,000.  The decrease in interest expense on deposits was attributed to a decrease in the cost of interest bearing deposits of seven basis points to 0.40% from 0.47%, and to a decrease in the average balance of interest bearing deposit accounts of $109.4 million to $1.25 billion for the three months ended June 30, 2014, from $1.36 billion for the three months ended June 30, 2013.  The decrease in interest expense on borrowings resulted from

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a decrease of 67 basis points in the cost to 1.91% for the three months ended June 30, 2014, from 2.58% for the three months ended June 30, 2013, which was partially offset by an increase in average balances of borrowings of $95.1 million, or 23.6%, to $498.6 million for the three months ended June 30, 2014, from $403.5 million for the three months ended June 30, 2013
Net Interest Income.    Net interest income for the quarter ended June 30, 2014, decreased $235,000, or 1.3%, due primarily to a decrease in average interest-earning assets of $63.3 million partially offset by a four basis point increase in our net interest margin to 2.98%.   The 2014 second quarter included loan prepayment income of $199,000, as compared to $292,000 for the quarter ended June 30, 2013.  The cost on interest-bearing liabilities decreased 13 basis points to 0.83% for the current quarter, as compared to 0.96% for the prior year period.  Additionally, yields earned on interest-earning assets decreased four basis points to 3.56% for the quarter ended June 30, 2014, as compared to 3.60% for the comparable quarter in 2013.

Provision for Loan Losses.    The provision for loan losses decreased $563,000 to $(146,000) for the quarter ended June 30, 2014, from $417,000 for the quarter ended June 30, 2013.  The decrease in the provision for loan losses resulted primarily from improved results from the Company's PCI portfolio, resulting in the reversal of previously recorded impairment and continued improvements in asset quality indicators.  Originated loans grew approximately $63.3 million for the quarter ended June 30, 2014, compared to $86.9 million for the quarter ended June 30, 2013. Net charge-offs were $158,000 for the quarter ended June 30, 2014, compared to net recoveries of $87,000 for the quarter ended June 30, 2013.

Non-interest Income. Non-interest income increased $689,000, or 40.6%, to $2.4 million for the quarter ended June 30, 2014, from $1.7 million for the quarter ended June 30, 2013.  This increase was primarily a result of a $257,000 increase in fees and service charges for customer services, an increase of $160,000 in income earned on bank owned life insurance, and no other-than-temporary impairment losses recognized on securities. Securities gains in the second quarter of 2014 included $175,000 related to the Company’s trading portfolio, while the second quarter of 2013 included securities gains of $63,000 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 of 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 decreased $511,000, or 3.9%, for the quarter ended June 30, 2014, compared to the quarter ended June 30, 2013.  This is due primarily to a $179,000 decrease in other expenses, a $177,000 decrease in occupancy expense, a $64,000 decrease in compensation and employee benefits which is related to the reduction of staff as a result of the Flatbush Federal Savings & Loan Association merger (the Merger), a decrease in stock compensation expense of $321,000, and the mark-to-market adjustment related to the Company's deferred compensation plan which is described above.

Income Tax Expense The Company recorded income tax expense of $2.9 million for the quarter ended June 30, 2014, compared to $2.5 million for the quarter ended June 30, 2013.  The effective tax rate for the quarter ended June 30, 2014, was 34.9%, as compared to 37.0% for the quarter ended June 30, 2013.



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NORTHFIELD BANCORP, INC.
ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
 
For the Three Months Ended
 
June 30, 2014
 
June 30, 2013
 
Average Outstanding Balance
 
Interest
 
Average Yield/ Rate (1)
 
Average Outstanding Balance
 
Interest
 
Average Yield/ Rate (1)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans (5)
$
1,517,788

 
$
17,466

 
4.62
%
 
$
1,280,726

 
$
16,707

 
5.23
%
Mortgage-backed securities (6)
838,444

 
4,343

 
2.08

 
1,044,661

 
5,606

 
2.15

Other securities (6)
83,334

 
157

 
0.76

 
172,640

 
502

 
1.17

Federal Home Loan Bank of New York stock
18,177

 
172

 
3.80

 
12,419

 
118

 
3.81

Interest-earning deposits in financial institutions
36,862

 
13

 
0.14

 
47,431

 
21

 
0.18

Total interest-earning assets
2,494,605

 
22,151

 
3.56

 
2,557,877

 
22,954

 
3.60

Non-interest-earning assets
205,486

 
 
 
 
 
184,769

 
 
 
 
Total assets
$
2,700,091

 
 
 
 
 
$
2,742,646

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Savings, NOW, and money market accounts
$
949,311

 
$
508

 
0.21

 
$
983,400

 
$
667

 
0.27

Certificates of deposit
300,640

 
746

 
0.99

 
375,972

 
933

 
1.00

Total interest-bearing deposits
1,249,951

 
1,254

 
0.40

 
1,359,372

 
1,600

 
0.47

Borrowed funds
498,611

 
2,377

 
1.91

 
403,492

 
2,599

 
2.58

Total interest-bearing liabilities
1,748,562

 
3,631

 
0.83

 
1,762,864

 
4,199

 
0.96

Non-interest bearing deposit accounts
223,094

 
 
 
 
 
226,540

 
 
 
 
Accrued expenses and other liabilities
37,104

 
 
 
 
 
15,925

 
 
 
 
Total liabilities
2,008,760

 
 
 
 
 
2,005,329

 
 
 
 
Stockholders' equity
691,331

 
 
 
 
 
737,317

 
 
 
 
Total liabilities and stockholders' equity
$
2,700,091

 
 
 
 
 
$
2,742,646

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
$
18,520

 
 
 
 
 
$
18,755

 
 
Net interest rate spread (2)
 
 
 
 
2.73
%
 
 
 
 
 
2.64
%
Net interest-earning assets (3)
$
746,043

 
 
 
 
 
$
795,013

 
 
 
 
Net interest margin (4)
 
 
 
 
2.98
%
 
 
 
 
 
2.94
%
Average interest-earning assets to 
 
 
 
 
 
 
 
 
 
 
 
interest-bearing liabilities
 
 
 
 
142.67
%
 
 
 
 
 
145.10
%

(1)
Average yields and rates for the three months ended June 30, 2014 and 2013, 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.
(6)
Securities available-for-sale are at amortized cost.
 


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Comparison of Operating Results for the Six Months Ended June 30, 2014 and 2013

Net income.    Net income was $10.7 million and $9.1 million for the six months ended June 30, 2014, and June 30, 2013, respectively.  Significant variances from the comparable period are as follows: a $115,000 increase in net interest income, a $423,000 decrease in the provision for loan losses, a $395,000 decrease in non-interest income, a $2.8 million decrease in non-interest expense, and a $1.4 million increase in income tax expense.

Interest Income.  Interest income decreased $1.6 million, or 3.3%, to $44.9 million for the six months ended June 30, 2014, from $46.5 million for the six months ended June 30, 2013.  Interest income on loans increased by $2.1 million, primarily attributable to an increase in the average balance of $251.5 million, which was partially offset by a decrease of 61 basis points in the yield earned on loans.  The Company accreted interest income related to its PCI loans of $2.5 million for the six months ended June 30, 2014, as compared to $3.0 million for the six months ended June 30, 2013.  Interest income on loans for the six months ended June 30, 2014, reflected prepayment loan income of $734,000 compared to $782,000 for the six months ended June 30, 2013. The six months ended June 30, 2014, also included a recovery of $246,000 of interest income that was previously charged-off related to a loan payoff. Interest income on mortgage backed securities decreased by $3.1 million primarily due to a decrease in the average balance of $263.5 million and a decrease of five basis points in the yield earned.

Interest Expense.   Interest expense decreased $1.7 million, or 18.7%, to $7.3 million for the six months ended June 30, 2014, from $9.0 million for the six months ended June 30, 2013. The decrease consisted of a decrease of $1.2 million in interest expense on deposits and a decrease in interest expense on borrowings of $424,000.  The decrease in interest expense on deposits was attributed to a decrease in the cost of interest bearing deposits of 12 basis points to 0.40% from 0.52%, and to a decrease in the average balance of interest bearing deposit accounts of $185.1 million to $1.25 billion for the six months ended June 30, 2014, from $1.44 billion for the six months ended June 30, 2013.  The decrease in interest expense on borrowings resulted from a decrease of 63 basis points in the cost to 1.97% for the six months ended June 30, 2014, from 2.60% for the six months ended June 30, 2013, which was partially offset by an increase in average balances of borrowings of $85.3 million to $489.3 million for the six months ended June 30, 2014, from $404.1 million for the six months ended June 30, 2013
Net Interest Income.    Net interest income for the six months ended June 30, 2014increased $115,000 as our net interest margin increased by 11 basis points to 3.04%, partially offset by interest-earning assets decreasing by $88.5 million.  The June 30, 2014 period included loan prepayment income of $734,000 compared to $782,000 for the six months ended June 30, 2013.  The six months ended June 30, 2014, also included a recovery of $246,000 of interest income that was previously charged-off related to a loan payoff. The cost of interest-bearing liabilities decreased 14 basis points to 0.84% for the current six months as compared to 0.98% for the prior year period.  Yields earned on interest-earning assets increased one basis point to 3.63% for the six months ended June 30, 2014 from 3.62% at June 30, 2013.  

Provision for Loan Losses.    The provision for loan losses decreased $423,000, or 61.0%, to $271,000 for the six months ended June 30, 2014, compared to $694,000 for the six months ended June 30, 2013. This primarily was a result of the Company's PCI portfolio, resulting in the reversal of previously recorded impairment, continued improvement in asset quality indicators, and to a lesser extent, loan growth of $96.0 million compared to $106.2 million, respectively.

Non-interest Income. Non-interest income decreased $395,000, or 8.0%, to $4.6 million for the six months ended June 30, 2014, from $5.0 million for the six months ended June 30, 2013.  Significant variances from the prior period were a $1.8 million decrease in gain on securities transactions, net, partially offset by an increase of $575,000 in fees and service charges and an increase of $379,000 in bank owned life insurance income.  Securities gains in 2014, included $244,000 related to the Company’s trading portfolio described above, while the comparable period of 2013 included securities gains of $306,000 related to the Company’s trading portfolio.   

Non-interest Expense. Non-interest expense decreased $2.8 million, or 10.2%, for the six months ended June 30, 2014, compared to the six months ended June 30, 2013. This was due primarily to a $1.7 million decrease in compensation and employee benefits related to the benefit recorded on the settlement of a pension plan acquired in the Merger, a decrease in stock compensation expense of $642,000, and the mark-to-market adjustment related to the Company's deferred compensation plan which is described above, a $583,000 decrease in data processing costs due to conversion costs related to the Merger, and a $262,000 decrease in professional fees.

Income Tax Expense The Company recorded income tax expense of $6.5 million for the six months ended June 30, 2014 compared to $5.1 million for the six months ended June 30, 2013.  The effective tax rate for the six months ended June 30, 2014 was 37.9% as a result of the deferred tax asset write-down of $570,000 related to the New York State tax law change enacted on March 31, 2014, as compared to 36.0% for the six months ended June 30, 2013.  The tax reform lowered future marginal tax rates and changed apportionment factors, resulting in a reduction of the Company's net deferred tax assets.  

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NORTHFIELD BANCORP, INC.
ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
 
For the Six Months Ended
 
June 30, 2014
 
June 30, 2013
 
Average Outstanding Balance
 
Interest
 
Average Yield/ Rate (1)
 
Average Outstanding Balance
 
Interest
 
Average Yield/ Rate (1)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans (5)
$
1,511,512

 
$
35,262

 
4.70
%
 
$
1,260,048

 
$
33,194

 
5.31
%
Mortgage-backed securities (6)
846,954

 
8,932

 
2.13

 
1,110,464

 
11,998

 
2.18

Other securities (6)
83,067

 
314

 
0.76

 
141,623

 
943

 
1.34

Federal Home Loan Bank of New York stock
18,000

 
382

 
4.28

 
12,158

 
274

 
4.54

Interest-earning deposits in financial institutions
37,763

 
25

 
0.13

 
61,472

 
61

 
0.20

Total interest-earning assets
2,497,296

 
44,915

 
3.63

 
2,585,765

 
46,470

 
3.62

Non-interest-earning assets
204,760

 
 
 
 
 
189,379

 
 
 
 
Total assets
$
2,702,056

 
 
 
 
 
$
2,775,144

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Savings, NOW, and money market accounts
$
947,876

 
$
987

 
0.21

 
$
1,019,296

 
$
1,554

 
0.31

Certificates of deposit
303,028

 
1,505

 
1.00

 
416,670

 
2,184

 
1.06

Total interest-bearing deposits
1,250,904

 
2,492

 
0.40

 
1,435,966

 
3,738

 
0.52

Borrowed funds
489,314

 
4,788

 
1.97

 
404,061

 
5,212

 
2.60

Total interest-bearing liabilities
1,740,218

 
7,280

 
0.84

 
1,840,027

 
8,950

 
0.98

Non-interest bearing deposit accounts
223,281

 
 
 
 
 
215,757

 
 
 
 
Accrued expenses and other liabilities
36,965

 
 
 
 
 
20,211

 
 
 
 
Total liabilities
2,000,464

 
 
 
 
 
2,075,995

 
 
 
 
Stockholders' equity
701,592

 
 
 
 
 
699,149

 
 
 
 
Total liabilities and stockholders' equity
$
2,702,056

 
 
 
 
 
$
2,775,144

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
$
37,635

 
 
 
 
 
$
37,520

 
 
Net interest rate spread (2)
 
 
 
 
2.78
%
 
 
 
 
 
2.64
%
Net interest-earning assets (3)
$
757,078

 
 
 
 
 
$
745,738

 
 
 
 
Net interest margin (4)
 
 
 
 
3.04
%
 
 
 
 
 
2.93
%
Average interest-earning assets to 
 
 
 
 
 
 
 
 
 
 
 
interest-bearing liabilities
 
 
 
 
143.50
%
 
 
 
 
 
140.53
%

(1)
Average yields and rates for the six months ended June 30, 2014 and 2013 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.
(6)
Securities available-for-sale are at amortized cost.


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Table of Contents

Asset Quality
 
Purchased Credit Impaired Loans
 
At June 30, 2014, based on contractual principal, 4.2% of PCI loans were past due 30 to 89 days, and 22.7% were past due 90 days or more, as compared to 6.6% and 14.9%, respectively, at December 31, 2013.  The increase in the percentage of delinquencies resulted primarily from declining PCI principal balances of $9.9 million to $49.5 million at June 30, 2014, from December 31, 2013.
 
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). 
 
June 30,
 
March 31,
 
December 31,
 
September 30,
 
June 30,
 
2014
 
2014
 
2013
 
2013
 
2013
Non-accruing loans:

 
 
 
 
 
 
 
 
Held-for-investment
$
4,932

 
$
6,247

 
$
6,649

 
$
7,192

 
$
10,717

Held-for-sale
471

 
471

 
471

 
1,493

 

Non-accruing loans subject to restructuring agreements:


 
 

 
 

 
 
 
 
Held-for-investment
10,382

 
10,476

 
10,651

 
10,609

 
11,870

Held-for-sale

 

 

 
187

 

Total non-accruing loans
15,785

 
17,194

 
17,771

 
19,481

 
22,587

Loans 90 days or more past due and still accruing:


 
 

 
 

 
 
 
 
Held-for-investment
605

 
584

 
32

 
18

 
806

Total non-performing loans
16,390

 
17,778

 
17,803

 
19,499

 
23,393

Other real estate owned
640

 
150

 
634

 
664

 
776

Total non-performing assets
17,030

 
17,928

 
18,437

 
20,163

 
24,169

Non-performing loans to total loans
1.04
%
 
1.17
%
 
1.19
%
 
1.39
%
 
1.76
%
Non-performing assets to total assets
0.63
%
 
0.67
%
 
0.68
%
 
0.73
%
 
0.90
%
Loans subject to restructuring agreements and still accruing
$
24,292

 
$
25,619

 
$
26,190

 
$
26,426

 
$
26,670

Accruing loans 30 to 89 days delinquent
$
13,307

 
$
12,888

 
$
13,331

 
$
16,248

 
$
24,642

 
Total Non-accruing Loans
 
Total non-accruing loans decreased $2.0 million to $15.8 million at June 30, 2014, from $17.8 million at December 31, 2013.   The following table details the decrease (dollars in thousands):  

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Table of Contents

 
At or for the Six Months Ended
 
June 30, 2014
Balance at beginning of period
$
17,771

Additions
1,263

Sales of held-for-investment loans
(1,467
)
Pay-offs and principal pay-downs
(227
)
Returned to accrual status
(1,415
)
Charge-offs
(140
)
Balance at end of period
$
15,785


Loans Subject to TDR Agreements
 
Included in non-accruing loans are loans subject to TDR agreements totaling $10.4 million and $10.7 million at June 30, 2014, and December 31, 2013, respectively.  At June 30, 2014, $9.8 million, or 94.2% of the $10.4 million were not performing in accordance with their restructured terms, as compared to $7.5 million, or 70.4%, at December 31, 2013.  Three relationships account for the $9.8 million of loans not performing in accordance with their restructured terms at June 30, 2014, of which one relationship is made of up of several loans totaling $7.4 million collateralized by real estate, with an aggregate appraised value of $9.5 million as of November 2013.

The Company also holds loans subject to restructuring agreements that are on accrual status, totaling $24.3 million and $26.2 million at June 30, 2014, and December 31, 2013, respectively.  At June 30, 2014, loans of $1.3 million, or 5.4% of the $24.3 million were not performing in accordance with the restructured terms, as compared to $3.6 million or 13.7% of $26.2 million at December 31, 2013. These loans were less than 90 days delinquent at June 30, 2014.  
 
The following table details the amounts and categories of the loans subject to restructuring agreements by loan type as of June 30, 2014, and December 31, 2013 (dollars in thousands). 
 
At June 30, 2014
 
At December 31, 2013
 
Non-Accruing
 
Accruing
 
Non-Accruing
 
Accruing
Troubled Debt Restructurings:
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
Commercial
$
9,378

 
$
20,522

 
$
9,496

 
$
21,536

One-to-four family residential
596

 
798

 
607

 
1,176

Construction and land

 

 
108

 

Multifamily

 
2,030

 

 
2,074

Home equity and lines of credit

 
335

 

 
341

Commercial and industrial loans
408

 
607

 
441

 
1,063

 
$
10,382

 
$
24,292

 
$
10,652

 
$
26,190

Performing in accordance with restructured terms
5.8
%
 
94.6
%
 
29.7
%
 
86.3
%
 
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 increased $573,000 to $605,000 at June 30, 2014, from $32,000 at December 31, 2013.  The increase primarily relates to several residential loans that are considered well secured and in the process of collection.
 
Other real estate owned was $640,000 and $605,000 at June 30, 2014, and December 31, 2013, respectively.

Accruing Loans 30 to 89 Days Delinquent
 
Loans 30 to 89 days delinquent and on accrual status at June 30, 2014, and December 31, 2013 totaled $13.3 million. The following tables set forth delinquencies for accruing loans by type and by amount at June 30, 2014, and December 31, 2013 (dollars in thousands).   

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Table of Contents

 
June 30, 2014
 
December 31, 2013
Real estate loans:
 
 
 
Commercial
$
4,176

 
$
4,274

One-to-four family residential
5,748

 
5,644

Multifamily
2,773

 
2,483

Home equity and lines of credit
425

 
94

Commercial and industrial loans
185

 
815

Other loans

 
21

Total delinquent accruing loans
$
13,307

 
$
13,331


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.  Northfield Bank manages 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.
Northfield Bank's 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 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 FHLB, which provides an additional source of short-term and long-term funding.  Northfield Bank also has short-term borrowing capabilities with the Federal Reserve Bank.  Northfield Bank’s borrowed funds, excluding capitalized lease obligations and floating rate advances, were $531.1 million at June 30, 2014, and had a weighted average interest rate of 1.81%.  A total of $210.0 million of these borrowings will mature in less than one year.  Borrowed funds, excluding capitalized lease obligations and floating rate advances, were $470.3 million at December 31, 2013.  Northfield Bank has the ability to obtain additional funding from the FHLB and Federal Reserve Bank discount window of approximately $569.2 million utilizing unencumbered securities of $404.6 million and multifamily loans of $164.6 million at June 30, 2014.  Northfield Bank expects to have sufficient funds available to meet current commitments in the normal course of business.
Northfield Bancorp, Inc. (stand alone) is a separate legal entity from Northfield Bank and must provide for its own liquidity to pay dividends, repurchase its stock, and for other corporate purposes. Northfield Bancorp, Inc.'s primary source of liquidity is dividend payments from Northfield Bank and proceeds from its 2013 stock offering. At June 30, 2014, Northfield Bancorp, Inc. (stand alone) had liquid assets of approximately $105.6 million.
Capital Resources.  At June 30, 2014, and December 31, 2013, Northfield Bank exceeded all of the regulatory capital requirements to which it is subject.
 
Actual
 
For Capital Adequacy Purposes
 
For Well Capitalized Under Prompt Corrective Action Provisions
As of June 30, 2014:
 
 
 
 
 
Tangible capital to tangible assets
18.74
%
 
1.50
%
 
NA

Tier I capital (core) (to adjusted total assets)
18.74
%
 
4.00
%
 
5.00
%
Total capital (to risk-weighted assets)
26.16
%
 
8.00
%
 
10.00
%
As of December 31, 2013:
 
 
 
 
 
Tangible capital to tangible assets
19.88
%
 
1.50
%
 
NA

Tier I capital (core) (to adjusted total assets)
19.88
%
 
4.00
%
 
5.00
%
Total capital (to risk-weighted assets)
28.94
%
 
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

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Table of Contents

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 June 30, 2014:
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)
 
$
531,161

 
$
210,031

 
$
187,913

 
$
133,217

 
$

Commitments to originate loans
 
82,862

 
82,862

 

 

 

Commitments to fund unused lines of credit
 
53,629

 
53,629

 

 

 


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 to originate loans 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/A for the year ended December 31, 2013.


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Table of Contents

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A majority of our assets and liabilities are monetary in nature.  Consequently, a policy 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 rate 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 of 100, 200, 300, or 400 basis points, or a decrease of 100 or 200 basis points, which is based on the current interest rate environment.   
The table below sets forth, as of June 30, 2014, 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 Change In NPV %
 
Estimated NPV/Present Value of Assets Ratio
 
Net Interest Income Percent Change
+400
 
$
2,359,199

 
$
1,881,700

 
$
477,499

 
$
(221,589
)
 
(31.70
)%
 
20.24
%
 
(12.38
)%
+300
 
2,435,406

 
1,912,089

 
523,316

 
(175,772
)
 
(25.14
)
 
21.49

 
(9.15
)%
+200
 
2,520,129

 
1,943,483

 
576,647

 
(122,441
)
 
(17.51
)
 
22.88

 
(5.89
)%
+100
 
2,610,901

 
1,975,927

 
634,974

 
(64,114
)
 
(9.17
)
 
24.32

 
(2.81
)%
0
 
2,708,563

 
2,009,475

 
699,088

 

 

 
25.81

 

(100)
 
2,803,791

 
2,041,960

 
761,831

 
62,743

 
8.97

 
27.17

 
(0.60
)%
(200)
 
2,905,553

 
2,058,068

 
847,485

 
148,397

 
21.23

 
29.17

 
(3.40
)%
 

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Table of Contents

The table above indicates that at June 30, 2014, in the event of a 200 basis point decrease in interest rates, we would experience a 21.23% increase in estimated net portfolio value and a 3.40% decrease in net interest income. In the event of a 400 basis point increase in interest rates, we would experience a 31.70% decrease in estimated net portfolio value and a 12.38% decrease in net interest income. Our policies provide that, in the event of a 200 basis point decrease in interest rates, our projected NPV should increase by no more than 400 basis points, and in the event of a 400 basis point increase in interest rates, our projected NPV should decrease by no more than 1000 basis points.  Additionally, our policy states that our net portfolio value should be at least 8% of total assets before and after such shock at June 30, 2014.  At June 30, 2014, 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.

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 June 30, 2014.  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 three months ended June 30, 2014, 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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Table of Contents

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 three months ended June 30, 2014, there have been no material changes to the risk factors as previously disclosed in our Annual Report on Form 10-K/A for the year ended December 31, 2013, 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 June 30, 2014:
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)
April 1, 2014 through April 30, 2014
 
1,302,100

 
$
12.77

 
1,302,100

 
1,348,299

May 1, 2014 through May 31, 2014
 
1,189,386

 
$
12.91

 
1,188,971

 
2,772,109

June 1, 2014 through June 30, 2014
 
409,845

 
$
13.06

 
402,243

 
2,369,866

Total
 
2,901,331

 
$
12.87

 
2,893,314

 
 

 (1) On March 7, 2014, Northfield Bancorp, Inc. announced that it had effectively completed its initial repurchase program, and that its Board of Directors had adopted a second repurchase program. Under this repurchase program, the Company may repurchase up to 2,751,460 shares of its common stock. On May 20, 2014, Northfield Bancorp, Inc.'s Board of Directors adopted a third repurchase program. Under the new repurchase program, the Company may repurchase up to 2,612,781 shares of its common stock. Repurchases under each plan were conducted in accordance with a Rule 10b5-1 trading 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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Table of Contents

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: August 11, 2014
/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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Table of Contents

INDEX TO EXHIBITS
  
Exhibit
 
 
Number
 
Description
 
10.1

 
Form of Employee Stock Option Award Agreement under the 2014 Equity Incentive Plan with the Exception of John W. Alexander and Steven M. Klein
 
 
 
10.2

 
Form of Employee Stock Option Award Agreement under the 2014 Equity Incentive Plan with John W. Alexander and Steven M. Klein
 
 
 
10.3

 
Form of Director Non-Statutory Stock Option Award Agreement under the 2014 Equity Incentive
 
 
 
10.4

 
Form of Employee Restricted Stock Award Agreement under the 2014 Equity Incentive Plan with the exception of John W. Alexander and Steven M. Klein
 
 
 
10.5

 
Form of Employee Restricted Stock Award Agreement under the 2014 Equity Incentive Plan with John W. Alexander and Steven M. Klein
 
 
 
10.6

 
Form of Director Restricted Stock Award Agreement under the 2014 Equity Incentive Plan
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 June 30, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements
 


49