Northfield Bancorp, Inc. - Quarter Report: 2016 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016


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

SECURITIES EXCHANGE ACT OF 1934

For transition period from to



Commission File Number		001-35791

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 its 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):
Large accelerated filer o	Accelerated filer ý
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.

48,332,763 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of October 31, 2016.

NORTHFIELD BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents



		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	56

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
Item 3.	Defaults Upon Senior Securities	57
Item 4.	Mine Safety Disclosures	57
Item 5.	Other Information	57
Item 6.	Exhibits	57
	SIGNATURES	58

Table of Contents

PART I

ITEM1. FINANCIAL STATEMENTS

NORTHFIELD BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except share amounts)



	September 30, 2016			December 31, 2015
ASSETS:
Cash and due from banks	$	13,790		$	15,324
Interest-bearing deposits in other financial institutions	22,346			36,529
Total cash and cash equivalents	36,136			51,853
Trading securities	7,547			6,713
Securities available-for-sale, at estimated fair value
(encumbered $14,926 at September 30, 2016 and $65,051 at December 31, 2015)	548,393			541,595
Securities held-to-maturity, at amortized cost	10,198			10,346
(estimated fair value of $10,417 at September 30, 2016, and $10,369 at December 31, 2015) (encumbered of $4,720 at September 30, 2016, and $5,619 at December 31, 2015)
Originated loans held-for-investment, net	2,069,820			1,931,585
Loans acquired	813,636			409,015
Purchased credit-impaired (PCI) loans held-for-investment	32,793			33,115
Loans held-for-investment, net	2,916,249			2,373,715
Allowance for loan losses	(24,340		)	(24,770		)
Net loans held-for-investment	2,891,909			2,348,945
Accrued interest receivable	9,184			8,263
Bank owned life insurance	147,051			132,782
Federal Home Loan Bank of New York stock, at cost	25,974			25,803
Premises and equipment, net	27,558			23,643
Goodwill	38,411			16,159
Other real estate owned	—			45
Other assets	42,267			36,437
Total assets	$	3,784,628		$	3,202,584

LIABILITIES AND STOCKHOLDERS’ EQUITY:
LIABILITIES:
Deposits	$	2,629,001		$	2,052,929
Borrowed funds	494,430			558,129
Advance payments by borrowers for taxes and insurance	11,937			10,862
Accrued expenses and other liabilities	28,760			20,885
Total liabilities	3,164,128			2,642,805

STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 25,000,000 shares authorized, none issued or outstanding	—			—
Common stock, $0.01 par value: 150,000,000 shares authorized, 60,933,707 and 58,226,326 shares
issued at September 30, 2016, and December 31, 2015, respectively, 48,337,147 and 45,565,540 outstanding at September 30, 2016, and December 31, 2015, respectively	609			582
Additional paid-in-capital	547,999			501,540
Unallocated common stock held by employee stock ownership plan	(23,887		)	(24,664		)
Retained earnings	263,659			256,170
Accumulated other comprehensive income (loss)	2,514			(2,986		)
Treasury stock at cost; 12,596,560 and 12,660,786 shares at September 30, 2016, and December 31, 2015, respectively	(170,394		)	(170,863		)
Total stockholders’ equity	620,500			559,779
Total liabilities and stockholders’ equity	$	3,784,628		$	3,202,584

See accompanying notes to unaudited consolidated financial statements.

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NORTHFIELD BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited) (In thousands, except per share data)



	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016		2015
Interest income:
Loans	$	28,222	$	22,077		$	82,792	$	64,034
Mortgage-backed securities	2,665		3,134			8,322		10,036
Other securities	252		64			662		292
Federal Home Loan Bank of New York dividends	302		265			861		905
Deposits in other financial institutions	84		30			225		93
Total interest income	31,525		25,570			92,862		75,360
Interest expense:
Deposits	3,545		2,841			10,672		7,373
Borrowings	1,729		2,156			5,570		7,145
Total interest expense	5,274		4,997			16,242		14,518
Net interest income	26,251		20,573			76,620		60,842
Provision for loan losses	472		200			355		472
Net interest income after provision for loan losses	25,779		20,373			76,265		60,370
Non-interest income:
Fees and service charges for customer services	1,255		1,047			3,627		2,948
Income on bank owned life insurance	1,008		947			3,001		2,829
Gains/(losses) on securities transactions, net	362		(388		)	612		(334		)
Other	42		60			189		333
Total non-interest income	2,667		1,666			7,429		5,776
Non-interest expense:
Compensation and employee benefits	9,565		7,265			30,891		22,506
Occupancy	2,828		2,524			8,597		7,605
Furniture and equipment	349		349			1,074		1,098
Data processing	1,674		881			4,919		2,839
Professional fees	684		953			2,621		2,246
FDIC insurance	256		366			1,218		1,152
Other	2,021		2,509			7,050		6,215
Total non-interest expense	17,377		14,847			56,370		43,661
Income before income tax expense	11,069		7,192			27,324		22,485
Income tax expense	3,782		2,515			9,392		8,511
Net income	$	7,287	$	4,677		$	17,932	$	13,974
Net income per common share:
Basic	$	0.16	$	0.11		$	0.40	$	0.33
Diluted	$	0.16	$	0.11		$	0.39	$	0.32








See accompanying notes to unaudited consolidated financial statements.

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NORTHFIELD BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - (Continued) (Unaudited) (In thousands)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net Income	$	7,287		$	4,677		$	17,932		$	13,974
Other comprehensive income:
Unrealized (losses) gains on securities:
Net unrealized holding (losses) gains on securities	(850		)	3,463			9,405			2,188
Less: reclassification adjustment for net gains included in net income (included in gains (losses) on securities transactions, net)	(17		)	(13		)	(223		)	(56		)
Net unrealized (losses) gains	(867		)	3,450			9,182			2,132
Other comprehensive (loss) income, before tax	(867		)	3,450			9,182			2,132
Income tax benefit (expense) related to net unrealized holding (losses) gains on securities	340			(1,385		)	(3,771		)	(872		)
Income tax expense related to reclassification adjustment for gains included in net income	7			6			89			23
Other comprehensive (loss) income, net of tax	(520		)	2,071			5,500			1,283
Comprehensive income	$	6,767		$	6,748		$	23,432		$	15,257

See accompanying notes to unaudited consolidated financial statements.

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NORTHFIELD BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Nine Months Ended September 30, 2016 and 2015

(Unaudited) (In thousands, except share data)





	Common Stock
	Shares Outstanding		Par Value		Additional Paid-in Capital			Unallocated Common Stock Held by the Employee Stock Ownership Plan			Retained Earnings			Accumulated Other Comprehensive Income (loss) Net of tax			Treasury Stock			Total Stockholders' Equity
Balance at December 31, 2014	48,402,083		$	582	$	499,606		$	(25,782	)	$	248,908		$	(765	)	$	(128,621	)	$	593,928
Net income											13,974									13,974
Other comprehensive income, net of tax														1,283						1,283
ESOP shares allocated or committed to be released					637			788												1,425
Stock compensation expense					4,664															4,664
Additional tax benefit on equity awards					119															119
Net issuance of restricted stock	388,720				(5,074		)										5,074			—
Exercise of stock options	71,325				(746		)				(85		)				712			(119		)
Cash dividends declared ($0.21 per common share)											(9,210		)							(9,210		)
Treasury stock (average cost of $14.62 per share)	(3,293,420	)															(47,966		)	$	(47,966	)
Balance at September 30, 2015	45,568,708		$	582	$	499,206		$	(24,994	)	$	253,587		$	518		$	(170,801	)	$	558,098

Balance at December 31, 2015	45,565,540		$	582	$	501,540		$	(24,664	)	$	256,170		$	(2,986	)	$	(170,863	)	$	559,779
Net income											17,932									17,932
Other comprehensive income, net of tax														5,500						5,500
Acquisition of Hopewell Valley Community Bank	2,707,381		27		41,694															41,721
ESOP shares allocated or committed to be released					698			777												1,475
Stock compensation expense					5,658															5,658
Additional tax benefit on equity awards					895															895
Forfeitures of restricted stock	(7,640	)			106												(106		)	—
Exercise of stock options, net	205,560				(2,592		)										2,712			120
Cash dividends declared ($0.24 per common share)											(10,443		)							(10,443		)
Treasury stock (average cost of $15.98 per share)	(133,694	)															(2,137		)	(2,137		)
Balance at September 30, 2016	48,337,147		$	609	$	547,999		$	(23,887	)	$	263,659		$	2,514		$	(170,394	)	$	620,500

See accompanying notes to unaudited consolidated financial statements.

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NORTHFIELD BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)



	Nine Months Ended September 30,
	2016			2015
Cash flows from operating activities:
Net income	$	17,932		$	13,974
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	355			472
ESOP and stock compensation expense	7,133			6,089
Depreciation	2,717			2,572
Amortization of premiums, and deferred loan costs, net of (accretion) of discounts, and deferred loan fees	1,580			1,390
Amortization intangible assets	337			186
Income on bank owned life insurance	(3,001		)	(2,829		)
Net gain on sale of loans held-for-sale	—			(9		)
Proceeds from sale of loans held-for-sale	—			2,126
Origination of loans held-for-sale	—			(2,123		)
(Gain) loss on securities transactions, net	(612		)	334
Gain on sale of other real estate owned, net	—			(128		)
Net purchases of trading securities	(445		)	(330		)
Decrease in accrued interest receivable	531			278
(Increase) decrease in other assets	(2,446		)	2,251
(Decrease) increase in accrued expenses and other liabilities	(443		)	375
Net cash provided by operating activities	23,638			24,628
Cash flows from investing activities:
Net increase in loans receivable	(42,182		)	(213,098		)
Purchase of loans	(159,531		)	(135,938		)
Redemptions of Federal Home Loan Bank of New York stock, net	305			7,016
Purchases of securities available-for-sale	(105,558		)	—
Principal payments and maturities on securities available-for-sale	126,348			141,909
Principal payments and maturities on securities held-to-maturity	136			831
Purchases of securities held-to-maturity	—			(5,882		)
Proceeds from sale of securities available-for-sale	42,842			51,148
Proceeds from sale of other real estate owned	45			554
Purchases and improvements of premises and equipment	(706		)	(733		)
Net cash acquired in business combination	55,479			—
Net cash used in investing activities	(82,822		)	(154,193		)
Cash flows from financing activities:
Net increase in deposits	119,869			462,882
Dividends paid	(10,443		)	(9,210		)
Exercise of stock options	120			(119		)
Purchase of treasury stock	(2,137		)	(47,966		)
Additional tax benefit on equity awards	895			119
Increase in advance payments by borrowers for taxes and insurance	1,075			3,173
Repayments under capital lease obligations	(153		)	(132		)
Proceeds from securities sold under agreements to repurchase and other borrowings	177,241			129,761
Repayments related to securities sold under agreements to repurchase and other borrowings	(243,000		)	(399,664		)
Net cash provided by financing activities	43,467			138,844
Net (decrease) increase in cash and cash equivalents	(15,717		)	9,279
Cash and cash equivalents at beginning of period	51,853			76,709
Cash and cash equivalents at end of period	$	36,136		$	85,988

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NORTHFIELD BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) (Unaudited) (In thousands)
	Nine Months Ended September 30,
	2016			2015
Supplemental cash flow information:
Cash paid during the period for:
Interest	$	16,729		$	14,571
Income taxes	9,336			6,698
Non-cash transactions:
Loans charged-off, net	785			1,109
Other real estate owned write-downs	—			71
Acquisition:
Non-cash assets acquired, at fair value:
Securities available for sale	$	61,633		$	—
Loans	342,566			—
Accrued interest receivable	1,452			—
Bank-owned life insurance	11,269			—
Premises and equipment	5,926			—
Federal Home Loan Bank of New York stock, at cost	476			—
Goodwill and other intangible assets	24,265			—
Other assets	5,389			—
Total non-cash assets acquired	452,976			—
Non-cash liabilities assumed at fair value:
Deposits	$	456,203		—
Borrowings	2,213			—
Other liabilities	8,318			—
Total non-cash liabilities assumed	466,734			—
Net non-cash liabilities assumed	(13,758		)	—
Net cash and cash equivalents acquired	55,479			—
Common stock issued in acquisition	$	41,721		$	—

See accompanying notes to unaudited consolidated financial statements.

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Basis of Presentation

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

In the opinion of management, all adjustments (consisting solely of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the three and nine months ended September 30, 2016, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2016. 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 (U.S. 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 for the year ended December 31, 2015, of Northfield Bancorp, Inc. as filed with the SEC.

Note 2 – Business Combinations

On January 8, 2016, the Company completed its acquisition of Hopewell Valley Community Bank (“Hopewell Valley”), which after purchase accounting adjustments added $508.5 million to total assets, $342.6 million to loans, and $456.2 million to deposits, and nine branch offices in the Hunterdon and Mercer counties of New Jersey. Total consideration paid for Hopewell Valley was $55.4 million, consisting of $13.7 million in cash and 2,707,381 shares of common stock valued at $41.7 million based upon the $15.41 per share closing price of Northfield Bancorp, Inc.'s common stock on January 8, 2016.

The transaction was accounted for under the acquisition method of accounting. Under this method of accounting, the purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair values, net of tax. The excess of consideration paid over the fair value of the net assets acquired has been recorded as goodwill.

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition for Hopewell Valley (in thousands):



ASSETS ACQUIRED:	January 8, 2016
Cash and cash equivalents, net	$	55,479
Securities available for sale	61,633
Loans	342,566
Accrued interest receivable	1,452
Bank-owned life insurance	11,269
Premises and equipment	5,926
Federal Home Loan Bank of New York stock, at cost	476
Goodwill	22,252
Other intangible assets	2,013
Other assets	5,389
Total assets acquired	$	508,455
LIABILITIES ASSUMED:
Deposits	$	456,203
Other borrowings	2,213
Other liabilities	8,318
Total liabilities assumed	$	466,734
Net assets acquired	$	41,721

The calculation of goodwill is subject to change for up to one year after the date of acquisition as additional information relative to the closing date estimates and uncertainties become available. As the Company finalizes its review of the acquired assets and liabilities, certain adjustments to the recorded carrying values may be required.

Fair Value Measurement of Assets Assumed and Liabilities Assumed

The methods used to determine the fair value of the assets acquired and liabilities assumed in the Hopewell Valley acquisition were as follows:

Cash and cash equivalents

The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or have short-term maturities.

Securities Available-for-Sale

The estimated fair values of the investment securities classified as available-for-sale were calculated utilizing Level 1 and Level 2 inputs. Management reviewed the data and assumptions used by its third party provider in pricing the securities to ensure the highest level of significant inputs is derived from observable market data. These prices were validated against other pricing sources and broker-dealer indications.

Loans

The acquired loan portfolio was valued based on current guidance which defines fair value as the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Level 3 inputs were utilized to value the portfolio and included the use of present value techniques employing cash flow estimates and the incorporated assumptions that marketplace participants would use in estimating fair values. In instances where reliable market information was not available, the Company used its own assumptions in an effort to determine reasonable fair value. Specifically, management utilized three separate fair value analyses which a market participant would employ in estimating the total fair value adjustment. The three separate fair valuation methodologies used were: 1) interest rate loan fair value analysis; 2) general credit fair value adjustment; and 3) specific credit fair value adjustment.

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

To prepare the interest rate fair value analysis, loans were grouped by characteristics such as loan type, term, collateral and rate. Market rates for similar loans were obtained from various external data sources and reviewed by Company management for reasonableness. The average of these rates was used as the fair value interest rate a market participant would utilize. A present value approach was utilized to calculate the interest rate fair value adjustment.

The general credit fair value adjustment was calculated using a two part general credit fair value analysis: 1) expected lifetime losses; and 2) estimated fair value adjustment for qualitative factors. The expected lifetime losses were calculated using an average of historical losses of the Company, the acquired bank and peer banks. The adjustment related to qualitative factors was impacted by general economic conditions and the risk related to lack of familiarity with the originator's underwriting process.

To calculate the specific credit fair value adjustment, management reviewed the acquired loan portfolio for loans meeting the definition of an impaired loan with deteriorated credit quality. Loans meeting this definition were reviewed by comparing the contractual cash flows to expected collectible cash flows. The aggregate expected cash flows less the acquisition date fair value resulted in an accretable yield amount. The accretable yield amount will be recognized over the life of the loans on a level yield basis as an adjustment to yield.

Other intangible assets

Other intangible assets consisting of core deposit premium represents the value assigned to demand, interest checking, money market and savings accounts acquired as part of an acquisition. The core deposit premium value represents the future economic benefit, including the present value of future tax benefits, of the potential cost savings from acquiring core deposits as part of an acquisition compared to the cost of alternative funding sources. The core deposit premium is being amortized over an estimated useful life of 10 years to approximate the existing deposit relationships acquired.

Deposits

The fair values of deposit liabilities with no stated maturity (i.e., non-interest bearing demand accounts, interest-bearing negotiable orders of withdrawal (NOW), savings and money market accounts) are equal to the carrying amounts payable on demand. The fair values of certificates of deposit represent contractual cash flows, discounted to present value using interest rates currently offered on deposits with similar characteristics and remaining maturities.

Other borrowings

Other borrowings consist of securities sold under agreements to repurchase. The carrying amounts approximate their fair values because they frequently re-price to a market rate.

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

Note 3 – Securities Available-for-Sale

The following is a comparative summary of mortgage-backed securities, other debt securities, and other securities available-for-sale at September 30, 2016, and December 31, 2015 (in thousands):



	September 30, 2016
			Gross		Gross		Estimated
	Amortized		unrealized		unrealized		fair
	cost		gains		losses		value
Mortgage-backed securities:
Pass-through certificates:
Government sponsored enterprises (GSE)	$	241,166	$	6,590	$	235	$	247,521
Real estate mortgage investment conduits (REMICs):
GSE	251,955		1,197		3,004		250,148
Non-GSE	344		—		11		333
	493,465		7,787		3,250		498,002
Other debt securities:
Municipal bonds	1,907		17		5		1,919
Corporate bonds	45,900		253		64		46,089
	47,807		270		69		48,008
Other securities
Equity investments-mutual funds	1,114		15		—		1,129
Other	1,254		—		—		1,254
Total securities available-for-sale	$	543,640	$	8,072	$	3,319	$	548,393



	December 31, 2015
			Gross		Gross		Estimated
	Amortized		unrealized		unrealized		fair
	cost		gains		losses		value
Mortgage-backed securities:
Pass-through certificates:
GSE	$	228,557	$	4,673	$	1,530	$	231,700
REMICs:
GSE	305,387		647		8,210		297,824
Non-GSE	597		—		18		579
	534,541		5,320		9,758		530,103
Other debt securities:
Corporate bonds	11,002		9		—		11,011

Other securities
Equity investments-mutual funds	481		—		—		481

Total securities available-for-sale	$	546,024	$	5,329	$	9,758	$	541,595

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following is a summary of the expected maturity distribution of debt securities available-for-sale, other than mortgage-backed securities, at September 30, 2016 (in thousands):



Available-for-sale	Amortized cost		Estimated fair value
Due in one year or less	$	1,385	$	1,380
Due after one year through five years	40,831		41,006
Due after five years through ten years	5,093		5,187
Due after ten years	498		435
	$	47,807	$	48,008

Contractual maturities for mortgage-backed securities are not included above, as 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 nine months ended September 30, 2016, the Company had gross proceeds of $525,000 and $42.8 million, respectively, on sales of securities available-for-sale, with gross realized gains of approximately $18,000 and $352,000, and gross realized losses of approximately $1,000 and $129,000, for the three and nine months ended September 30, 2016. For the three and nine months ended September 30, 2015, the Company had gross proceeds of $11.9 million and $51.1 million, respectively, on sales of securities available-for-sale, with gross realized gains of approximately $13,000 and $59,000, respectively, and gross realized losses of $0 and $3,000, for the three and nine months ended September 30, 2015, respectively. The Company recognized net gains of $345,000 and $389,000, on its trading securities portfolio during the three and nine months ended September 30, 2016, respectively. The Company recognized net losses of $401,000, and $390,000, on its trading securities portfolio during the three and nine months ended September 30, 2015, respectively. The Company did not recognize any other-than-temporary impairment charges during the three and nine months ended September 30, 2016, or September 30, 2015.

Gross unrealized losses on mortgage-backed and other debt securities available-for-sale, and the estimated fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2016, and December 31, 2015, were as follows (in thousands):



	September 30, 2016
	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	$	12	$	5,051	$	223	$	8,392	$	235	$	13,443
REMICs:
GSE	26		20,327		2,978		106,713		3,004		127,040
Non-GSE	—		—		11		333		11		333
Other debt securities:
Municipal bonds	5		1,380		—		—		5		1,380
Corporate bonds	64		435		—		—		64		435
Total	$	107	$	27,193	$	3,212	$	115,438	$	3,319	$	142,631

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	December 31, 2015
	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	$	115	$	14,424	$	1,415	$	52,120	$	1,530	$	66,544
REMICs:
GSE	338		31,937		7,872		164,666		8,210		196,603
Non-GSE	—		—		18		579		18		579
Total	$	453	$	46,361	$	9,305	$	217,365	$	9,758	$	263,726

The Company held thirteen pass-through mortgage-backed securities issued or guaranteed by GSEs, eight REMIC mortgage-backed securities issued or guaranteed by GSEs, and two REMIC mortgage-backed securities not issued or guaranteed by GSEs that were in a continuous unrealized loss position of twelve months or greater at September 30, 2016. There were 10 pass-through mortgage-backed securities issued or guaranteed by GSEs, three REMIC mortgage-backed securities issued or guaranteed by a GSE, one municipal bond, and one corporate bond that were in an unrealized loss position of less than twelve months at September 30, 2016. All securities referred to above were rated investment grade at September 30, 2016. 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.

Note 4 – Securities Held-to-Maturity

The following is a summary of mortgage-backed securities held-to-maturity at September 30, 2016, and December 31, 2015 (in thousands):



	September 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities:
Pass-through certificates:
GSEs	$	10,198	$	219	$	—	$	10,417
Total securities held-to-maturity	$	10,198	$	219	$	—	$	10,417



	December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities:
Pass-through certificates:
GSEs	$	10,346	$	53	$	30	$	10,369
Total securities held-to-maturity	$	10,346	$	53	$	30	$	10,369

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

Contractual maturities for mortgage-backed securities are not presented, as 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. There were no sales of held-to-maturity securities for the three and nine months ended September 30, 2016, or September 30, 2015. The Company had no held-to-maturity securities at September 30, 2016, that were in an unrealized loss position.

Gross unrealized losses on mortgage-backed securities held-to-maturity, 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 December 31, 2015, were as follows (in thousands):



	December 31, 2015
	Less than 12 months
	Unrealized Losses		Estimated Fair Value
Mortgage-backed securities:
Pass-through certificates:
GSEs	$	30	$	3,901
Total securities held-to-maturity	$	30	$	3,901

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. As a result, there is a risk that significant other-than-temporary impairments may occur in the future given the current economic environment.

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

Note 5 – Loans

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



	September 30,			December 31,
	2016			2015
Real estate loans:
Multifamily	$	1,438,651		$	1,318,461
Commercial mortgage	414,390			402,073
One-to-four family residential mortgage	103,606			98,332
Home equity and lines of credit	64,650			61,413
Construction and land	13,921			18,652
Total real estate loans	2,035,218			1,898,931
Commercial and industrial loans	26,423			25,554
Other loans	1,708			2,256
Total commercial and industrial and other loans	28,131			27,810
Deferred loan cost, net	6,471			4,844
Originated loans held-for-investment, net	2,069,820			1,931,585
PCI Loans	32,793			33,115
Loans acquired:
One-to-four family residential mortgage	334,386			330,672
Commercial mortgage	185,957			11,160
Multifamily	216,912			64,779
Home equity and lines of credit	27,002			2,404
Construction and land	23,022			—
Total real estate loans	787,279			409,015
Commercial and industrial loans	25,990			—
Other loans	367			—
Total loans acquired, net	813,636			409,015
Loans held-for-investment, net	2,916,249			2,373,715
Allowance for loan losses	(24,340		)	(24,770		)
Net loans held-for-investment	$	2,891,909		$	2,348,945

PCI loans totaled $32.8 million at September 30, 2016, as compared to $33.1 million at December 31, 2015 and included $4.9 million of loans acquired as part of the Hopewell Valley acquisition. The remaining balance of PCI loans is primarily attributable to those acquired as part of an FDIC-assisted transaction. The Company accounts for PCI loans utilizing U.S. GAAP applicable to loans acquired with deteriorated credit quality. At September 30, 2016, PCI loans consist of approximately 36.5% commercial real estate loans and 44.0% commercial and industrial loans, with the remaining balance in residential and home equity loans. At December 31, 2015, PCI loans consist of approximately 27.9% commercial real estate loans and 52.4% commercial and industrial loans, with the remaining balance in residential and home equity loans.

The following table sets forth information regarding the estimates of the contractually required payments, the cash flows expected to be collected, and the estimated fair value of the PCI loans acquired from Hopewell Valley at January 8, 2016 (in thousands):



	January 8, 2016
Contractually required principal and interest	$	16,580
Contractual cash flows not expected to be collected (non-accretable discount)	(9,929		)
Expected cash flows to be collected at acquisition	6,651
Interest component of expected cash flows (accretable yield)	(845		)
Fair value of acquired loans	$	5,806

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following table details the accretion of interest income for PCI loans for the three and nine months ended September 30, 2016 and September 30, 2015 (in thousands):



	At or for the three months ended September 30,						At or for the nine months ended September 30,
	2016			2015			2016			2015
Balance at the beginning of period	$	20,979		$	25,706		$	22,853		$	27,943
Acquisition	—			—			845			—
Accretion into interest income	(1,294		)	(1,031		)	(4,013		)	(3,268		)
Net reclassification from non-accretable difference	—			(697		)	—			(697		)
Balance at end of period	$	19,685		$	23,978		$	19,685		$	23,978

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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 three and nine months ended September 30, 2016, and September 30, 2015 (in thousands):



	Three Months Ended September 30, 2016
	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	$	6,621		$	762		$	193		$	13,552	$	510	$	1,266		$	77	$	441	$	23,422		$	783	$	112		$	24,317
Charge-offs	(405		)	—			—			—		—		(65		)	—		—		(470		)	—		—			(470		)
Recoveries	17			1			—			—		1		1			1		—		21			—		—			21
Provisions/(credit)	(38		)	(3		)	(26		)	43		70		326			32		70		474			—		(2		)	472
Ending balance	$	6,195		$	760		$	167		$	13,595	$	581	$	1,528		$	110	$	511	$	23,447		$	783	$	110		$	24,340



	Three Months Ended September 30, 2015
	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	$	7,341		$	1,107		$	185	$	13,208		$	941		$	1,011	$	129		$	1,135		$	25,057		$	400	$	59	$	25,516
Charge-offs	(6		)	(1		)	—		—			(115		)	—		(1		)	—			(123		)	—		—		(123		)
Recoveries	2			—			—		25			—			34		1			—			62			—		—		62
Provisions/(credit)	(710		)	(355		)	278		(245		)	322			706		(56		)	(50		)	(110		)	298		12		200
Ending balance	$	6,627		$	751		$	463	$	12,988		$	1,148		$	1,751	$	73		$	1,085		$	24,886		$	698	$	71	$	25,655

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	Nine Months Ended September 30, 2016
	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	$	7,106		$	787		$	261		$	12,387		$	795		$	1,288		$	155		$	1,093		$	23,872		$	783	$	115		$	24,770
Charge-offs	(596		)	(20		)	—			(277		)	—			(66		)	—			—			(959		)	—		—			(959		)
Recoveries	163			2			1			—			1			3			4			—			174			—		—			174
Provisions/(credit)	(478		)	(9		)	(95		)	1,485			(215		)	303			(49		)	(582		)	360			—		(5		)	355
Ending balance	$	6,195		$	760		$	167		$	13,595		$	581		$	1,528		$	110		$	511		$	23,447		$	783	$	110		$	24,340



	Nine Months Ended September 30, 2015
	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	$	9,309		$	951		$	266	$	12,219		$	901		$	841		$	134		$	1,209		$	25,830		$	400	$	62	$	26,292
Charge-offs	(836		)	(127		)	—		(113		)	(115		)	(32		)	(1		)	—			(1,224		)	—		—		(1,224		)
Recoveries	2			—			—		25			42			34			12			—			115			—		—		115
Provisions/(credit)	(1,848		)	(73		)	197		857			320			908			(72		)	(124		)	165			298		9		472
Ending balance	$	6,627		$	751		$	463	$	12,988		$	1,148		$	1,751		$	73		$	1,085		$	24,886		$	698	$	71	$	25,655

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following tables detail the amount of loans receivable 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 September 30, 2016, and December 31, 2015 (in thousands):



	September 30, 2016
	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:
Ending balance: individually evaluated for impairment	$	518	$	84	$	—	$	110	$	38	$	7	$	—	$	—	$	757	$	—	$	110	$	867
Ending balance: collectively evaluated for impairment	$	5,677	$	676	$	167	$	13,485	$	543	$	1,521	$	110	$	511	$	22,690	$	783	$	—	$	23,473
Loans, net:
Ending balance	$	415,003	$	104,263	$	13,939	$	1,442,445	$	65,942	$	26,520	$	1,708	$	—	$	2,069,820	$	32,793	$	813,636	$	2,916,249
Ending balance: individually evaluated for impairment	$	22,085	$	2,239	$	—	$	1,671	$	341	$	105	$	—	$	—	$	26,441	$	—	$	3,497	$	29,938
Ending balance: collectively evaluated for impairment	$	392,918	$	102,024	$	13,939	$	1,440,774	$	65,601	$	26,415	$	1,708	$	—	$	2,043,379	$	32,793	$	810,139	$	2,886,311



	December 31, 2015
	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:
Ending balance: individually evaluated for impairment	$	394	$	167	$	—	$	158	$	51	$	4	$	—	$	—	$	774	$	—	$	115	$	889
Ending balance: collectively evaluated for impairment	$	6,712	$	620	$	261	$	12,229	$	744	$	1,284	$	155	$	1,093	$	23,098	$	783	$	—	$	23,881
Loans, net:
Ending balance	$	402,714	$	99,010	$	18,677	$	1,320,724	$	62,594	$	25,610	$	2,256	$	—	$	1,931,585	$	33,115	$	409,015	$	2,373,715
Ending balance: individually evaluated for impairment	$	20,465	$	2,344	$	—	$	2,458	$	354	$	116	$	—	$	—	$	25,737	$	—	$	3,250	$	28,987
Ending balance: collectively evaluated for impairment	$	382,249	$	96,666	$	18,677	$	1,318,266	$	62,240	$	25,494	$	2,256	$	—	$	1,905,848	$	33,115	$	405,765	$	2,344,728

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

The Company monitors the credit quality of its loan portfolio on a regular basis. Credit quality is monitored by reviewing certain 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 measure the credit quality of the Company’s loan receivables. Loan-to-value (LTV) ratios used by management in monitoring credit quality are based on current period loan balances and original appraised values at time of origination (unless a current appraisal has been obtained as a result of the loan being deemed impaired). In calculating the provision for loan losses, based on past loan loss experience, management has determined that commercial real estate loans and multifamily loans having loan-to-value ratios, as described above, of less than 35%, and one-to-four family loans having loan-to-value ratios, as described above, 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. This risk rating is reviewed periodically and adjusted if necessary. Monthly, management presents monitored assets to the 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 the allowance for loan losses for originated loans held-for-investment. After determining the general reserve loss factor for each originated portfolio segment held-for-investment, the originated portfolio segment held-for-investment 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.

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 to 5 are considered pass ratings. An asset is classified 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 that 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 required to be designated special mention.

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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 September 30, 2016, and December 31, 2015 (in thousands):



	At September 30, 2016
	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	$	125,835	$	1,310,881	$	65,354	$	324,315	$	54,876	$	45,317	$	13,939	$	65,620	$	26,124	$	1,708	$	2,033,969
Special Mention	31		3,728		—		2,886		709		—		—		70		248		—		7,672
Substandard	41		1,929		1,194		21,254		1,906		1,455		—		252		148		—		28,179
Originated loans held-for-investment, net	$	125,907	$	1,316,538	$	66,548	$	348,455	$	57,491	$	46,772	$	13,939	$	65,942	$	26,520	$	1,708	$	2,069,820



	At December 31, 2015
	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	$	124,678	$	1,188,916	$	52,253	$	319,733	$	48,429	$	46,578	$	18,677	$	61,935	$	24,846	$	2,256	$	1,888,301
Special Mention	51		3,832		974		2,966		504		—		—		75		316		—		8,718
Substandard	775		2,472		1,233		25,555		2,112		1,387		—		584		448		—		34,566
Originated loans held-for-investment, net	$	125,504	$	1,195,220	$	54,460	$	348,254	$	51,045	$	47,965	$	18,677	$	62,594	$	25,610	$	2,256	$	1,931,585

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

Included in loans receivable 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 non-accrual loans was $8.8 million at both September 30, 2016 and December 31, 2015. Generally, loans are placed on non-accrual status when they become 90 days or more delinquent, or sooner if considered appropriate by management, 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 $7.2 million and $6.7 million at September 30, 2016, and December 31, 2015, 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 $1.6 million and $2.1 million at September 30, 2016, and December 31, 2015, respectively. There were no loans held-for-sale at September 30, 2016, or December 31, 2015. Loans past due 90 days or more and still accruing interest were $1.8 million and $15,000 at September 30, 2016, and December 31, 2015, respectively, and consisted of loans that are considered well secured and in the process of collection.

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following tables set forth the detail, and delinquency status, of non-performing loans (non-accrual loans and loans past due 90 days or more and still accruing), net of deferred fees and costs, at September 30, 2016, and December 31, 2015, excluding loans held-for-sale and PCI loans which have been segregated into pools. For PCI loans, each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows (in thousands):



	At September 30, 2016
	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	$	348	$	—	$	6,120	$	6,468	$	—	$	6,468
Total commercial	348		—		6,120		6,468		—		6,468
One-to-four family residential
LTV < 60%
Substandard	—		517		699		1,216		10		1,226
Total one-to-four family residential	—		517		699		1,216		10		1,226
Multifamily
LTV < 35%
Substandard	41		—		—		41		—		41
LTV => 35%
Substandard	—		—		281		281		—		281
Total multifamily	41		—		281		322		—		322
Home equity and lines of credit
Substandard	97		—		—		97		—		97
Total home equity and lines of credit	97		—		—		97		—		97
Other loans
Pass	—		—		—		—		—		—
Total other	—		—		—		—		—		—
Total non-performing loans held-for-investment	486		517		7,100		8,103		10		8,113
Loans acquired:
Commercial
LTV < 35%
Substandard	—		—		237		237		—		237
LTV => 35%
Substandard	—		—		—		—		1,834		1,834
Total commercial	—		—		237		237		1,834		2,071
One-to-four family residential
LTV < 60%
Substandard	422		—		—		422		—		422
Total one-to-four family residential	422		—		—		422		—		422
Total one-to-four family residential	422		—		—		422		—		422
Commercial and industrial loans
Substandard	—		—		13		13		—		13
Total commercial and industrial loans	—		—		13		13		—		13
Total non-performing loans acquired	422		—		250		672		1,834		2,506
Total non-performing loans	$	908	$	517	$	7,350	$	8,775	$	1,844	$	10,619

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	At December 31, 2015
	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	$	344	$	372	$	4,516	$	5,232	$	—	$	5,232
Total	344		372		4,516		5,232		—		5,232
Total commercial	344		372		4,516		5,232		—		5,232
One-to-four family residential
LTV < 60%
Substandard	364		180		565		1,109		—		1,109
Total	364		180		565		1,109		—		1,109
LTV => 60%
Substandard	901		135		—		1,036		—		1,036
Total	901		135		—		1,036		—		1,036
Total one-to-four family residential	1,265		315		565		2,145		—		2,145
Construction and land
Substandard	—		—		113		113		—		113
Total construction and land	—		—		113		113		—		113
Multifamily
LTV => 35%
Substandard	—		—		559		559		—		559
Total multifamily	—		—		559		559		—		559
Home equity and lines of credit
Substandard	—		—		329		329		—		329
Total home equity and lines of credit	—		—		329		329		—		329
Commercial and industrial loans
Substandard	—		—		—		—		15		15
Total commercial and industrial loans	—		—		—		—		15		15
Total non-performing loans held-for-investment	1,609		687		6,082		8,378		15		8,393
Loans acquired:
One-to-four family residential
LTV < 60%
Substandard	429		—		—		429		—		429
Total one-to-four family residential	429		—		—		429		—		429
Total non-performing loans acquired:	429		—		—		429		—		429
Total non-performing loans	$	2,038	$	687	$	6,082	$	8,807	$	15	$	8,822

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 September 30, 2016, and December 31, 2015 (in thousands):



	September 30, 2016
	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	$	64,312	$	1,042	$	65,354	$	—	$	65,354
Substandard	1,194		—		1,194		—		1,194
Total	65,506		1,042		66,548		—		66,548
LTV => 35%
Pass	322,986		1,329		324,315		—		324,315
Special Mention	2,886		—		2,886		—		2,886
Substandard	13,729		1,057		14,786		6,468		21,254
Total	339,601		2,386		341,987		6,468		348,455
Total commercial	405,107		3,428		408,535		6,468		415,003
One-to-four family residential
LTV < 60%
Pass	52,247		2,628		54,875		—		54,875
Special Mention	494		215		709		—		709
Substandard	377		304		681		1,226		1,907
Total	53,118		3,147		56,265		1,226		57,491
LTV => 60%
Pass	45,066		251		45,317		—		45,317
Substandard	1,455		—		1,455		—		1,455
Total	46,521		251		46,772		—		46,772
Total one-to-four family residential	99,639		3,398		103,037		1,226		104,263
Construction and land
Pass	13,939		—		13,939				13,939
Total construction and land	13,939		—		13,939		—		13,939
Multifamily
LTV < 35%
Pass	125,835		—		125,835		—		125,835
Special Mention	31		—		31		—		31
Substandard	—		—		—		41		41
Total	125,866		—		125,866		41		125,907
LTV => 35%
Pass	1,309,469		1,412		1,310,881		—		1,310,881
Special Mention	3,728		—		3,728		—		3,728
Substandard	1,648		—		1,648		281		1,929
Total	1,314,845		1,412		1,316,257		281		1,316,538
Total multifamily	1,440,711		1,412		1,442,123		322		1,442,445
Home equity and lines of credit
Pass	65,127		493		65,620		—		65,620
Special Mention	70		—		70		—		70
Substandard	155		—		155		97		252
Total home equity and lines of credit	65,352		493		65,845		97		65,942
Commercial and industrial
Pass	25,845		279		26,124		—		26,124
Special Mention	184		64		248		—		248
Substandard	148		—		148		—		148
Total commercial and industrial	26,177		343		26,520		—		26,520

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	September 30, 2016
	Performing (Accruing) Loans
	0-29 Days Past Due		30-89 Days Past Due		Total		Non-Performing Loans		Total Loans Receivable, net
Other loans - Pass	1,675		33		1,708		—		1,708
Total originated loans held-for-investment	$	2,052,600	$	9,107	$	2,061,707	$	8,113	$	2,069,820
Acquired loans:
One-to-four family residential
LTV < 60%
Pass	300,584		353		300,937		—		300,937
Special Mention	474		44		518		—		518
Substandard	888		—		888		422		1,310
Total	301,946		397		302,343		422		302,765
LTV => 60%
Pass	31,151		—		31,151		—		31,151
Substandard	470		—		470		—		470
Total	31,621		—		31,621		—		31,621
Total one-to-four family residential	333,567		397		333,964		422		334,386
Commercial
LTV < 35%
Pass	55,086		491		55,577		—		55,577
Special Mention	289		—		289		—		289
Substandard	41		1,205		1,246		237		1,483
Total	55,416		1,696		57,112		237		57,349
LTV => 35%
Pass	122,070		1,052		123,122		—		123,122
Special Mention	2,129		140		2,269		—		2,269
Substandard	1,383		—		1,383		1,834		3,217
Total	125,582		1,192		126,774		1,834		128,608
Total commercial	180,998		2,888		183,886		2,071		185,957
Construction and land
Pass	23,022		—		23,022		—		23,022
Total construction and land	23,022		—		23,022		—		23,022
Multifamily
LTV < 35%
Pass	206,569		—		206,569		—		206,569
Special Mention	314		—		314		—		314
Substandard	156		—		156		—		156
Total	207,039		—		207,039		—		207,039
LTV => 35%
Pass	9,443		—		9,443		—		9,443
Substandard	430		—		430		—		430
Total	9,873		—		9,873		—		9,873
Total multifamily	216,912		—		216,912		—		216,912
Home equity and lines of credit
Pass	26,822		76		26,898		—		26,898
Substandard	104		—		104		—		104
Total home equity and lines of credit	26,926		76		27,002		—		27,002
Commercial and industrial
Pass	25,916		—		25,916		—		25,916
Special Mention	—		61		61		—		61
Substandard	—		—		—		13		13
Total commercial and industrial	25,916		61		25,977		13		25,990
Other - Pass	364		3		367		—		367
Total loans acquired	807,705		3,425		811,130		2,506		813,636
	$	2,860,305	$	12,532	$	2,872,837	$	10,619	$	2,883,456

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	December 31, 2015
	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	$	50,974	$	1,279	$	52,253	—	$	52,253
Special Mention	974		—		974		—	974
Substandard	1,233		—		1,233		—	1,233
Total	53,181		1,279		54,460		—	54,460
LTV => 35%
Pass	319,411		322		319,733		—	319,733
Special Mention	2,966		—		2,966		—	2,966
Substandard	8,696		11,627		20,323		5,232	25,555
Total	331,073		11,949		343,022		5,232	348,254
Total commercial	384,254		13,228		397,482		5,232	402,714
One-to-four family residential
LTV < 60%
Pass	45,737		2,692		48,429		—	48,429
Special Mention	134		370		504		—	504
Substandard	696		307		1,003		1,109	2,112
Total	46,567		3,369		49,936		1,109	51,045
LTV => 60%
Pass	46,578		—		46,578		—	46,578
Substandard	—		351		351		1,036	1,387
Total	46,578		351		46,929		1,036	47,965
Total one-to-four family residential	93,145		3,720		96,865		2,145	99,010
Construction and land
Pass	18,564		—		18,564		113	18,677
Total construction and land	18,564		—		18,564		113	18,677
Multifamily
LTV < 35%
Pass	124,678		—		124,678		—	124,678
Special Mention	—		51		51		—	51
Substandard	775		—		775		—	775
Total	125,453		51		125,504		—	125,504
LTV => 35%
Pass	1,187,147		1,769		1,188,916		—	1,188,916
Special Mention	2,687		1,145		3,832		—	3,832
Substandard	1,913		—		1,913		559	2,472
Total	1,191,747		2,914		1,194,661		559	1,195,220
Total multifamily	1,317,200		2,965		1,320,165		559	1,320,724
Home equity and lines of credit
Pass	61,561		374		61,935		—	61,935
Special Mention	75		—		75		—	75
Substandard	255		—		255		329	584
Total home equity and lines of credit	61,891		374		62,265		329	62,594
Commercial and industrial loans
Pass	24,780		51		24,831		15	24,846
Special Mention	316		—		316		—	316
Substandard	395		53		448		—	448
Total commercial and industrial loans	25,491		104		25,595		15	25,610
Other loans - Pass	2,245		11		2,256		—	2,256

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	December 31, 2015
	Performing (Accruing) Loans
	0-29 Days Past Due		30-89 Days Past Due		Total		Non-Performing Loans		Total Loans Receivable, net
Total originated loans held-for-investment	$	1,902,790	$	20,402	$	1,923,192	$	8,393	$	1,931,585
Loans Acquired
Real estate loans:
One-to-four family residential
LTV < 60%
Pass	313,425		312		313,737		—		313,737
Special Mention	549		—		549		—		549
Substandard	737		177		914		429		1,343
Total	314,711		489		315,200		429		315,629
LTV => 60%
Pass	14,759		—		14,759		—		14,759
Substandard	284		—		284		—		284
Total	15,043		—		15,043		—		15,043
Total one-to-four family residential	329,754		489		330,243		429		330,672
Commercial
LTV < 35%
Pass	2,164		—		2,164		—		2,164
Substandard	—		729		729		—		729
Total	2,164		729		2,893		—		2,893
LTV => 35%
Pass	5,536		—		5,536		—		5,536
Special Mention	883		—		883		—		883
Substandard	1,848		—		1,848		—		1,848
Total	8,267		—		8,267		—		8,267
Total commercial	10,431		729		11,160		—		11,160
Multifamily
LTV < 35%
Pass	4,695		—		4,695		—		4,695
Special Mention	138		—		138		—		138
Total	4,833		—		4,833		—		4,833
LTV => 35%
Pass	59,632		—		59,632		—		59,632
Special Mention	314		—		314		—		314
Total	59,946		—		59,946		—		59,946
Total multifamily	64,779		—		64,779		—		64,779
Home equity and lines of credit
Pass	2,404		—		2,404		—		2,404
Total home equity and lines of credit	2,404		—		2,404		—		2,404
Total loans acquired	407,368		1,218		408,586		429		409,015
	$	2,310,158	$	21,620	$	2,331,778	$	8,822	$	2,340,600

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following table summarizes originated and acquired impaired loans as of September 30, 2016, and December 31, 2015 (in thousands):



	At September 30, 2016							At December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance			Recorded Investment		Unpaid Principal Balance		Related Allowance
With No Allowance Recorded:
Real estate loans:
Commercial
LTV < 35%
Substandard	$	—	$	139	$	—		—		139		—
LTV => 35%
Pass	3,946		4,083		—			4,051		4,188		—
Substandard	13,714		15,905		—			13,371		14,748		—
One-to-four family residential
LTV < 60%
Pass	641		641		—			221		221		—
Special Mention	184		184		—			—		—		—
Substandard	—		—		—			234		234		—
LTV => 60%
Substandard	627		851		—			150		167		—
Multifamily
LTV < 35%
Substandard	156		156		—			—		—		—
LTV => 35%
Pass	66		537		—			75		545
Substandard	281		559		—			1,012		1,012		—
Commercial and industrial loans
Substandard	78		78		—			87		87		—
With a Related Allowance Recorded:
Real estate loans:
Commercial
LTV => 35%
Substandard	6,259		6,495		(518		)	4,891		5,430		(394		)
One-to-four family residential
LTV < 60%
Pass	60		60		(7		)	503		503		(33		)
Substandard	1,572		1,572		(123		)	1,604		1,604		(152		)
LTV => 60%
Pass	277		277		(17		)
Substandard	385		385		(47		)	1,034		1,081		(97		)
Multifamily
LTV => 35%
Pass	1,324		1,324		(110		)	—		—		—
Substandard	—		—		—			1,371		1,371		(158		)
Home equity and lines of credit
Pass	261		261		(7		)	269		269		(11		)
Special Mention	41		41		(15		)	44		44		(19		)
Substandard	39		39		(16		)	41		41		(21		)
Commercial and industrial loans
Special Mention	27		27		(7		)	29		29		(4		)
Total:
Real estate loans
Commercial	23,919		26,622		(518		)	22,313		24,505		(394		)
One-to-four family residential	3,746		3,970		(194		)	3,746		3,810		(282		)
Multifamily	1,827		2,576		(110		)	2,458		2,928		(158		)
Home equity and lines of credit	341		341		(38		)	354		354		(51		)
Commercial and industrial loans	105		105		(7		)	116		116		(4		)
	$	29,938	$	33,614	$	(867	)	$	28,987	$	31,713	$	(889	)

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

Included in the above table at September 30, 2016, are impaired loans with carrying balances of $13.4 million that were not written down by charge-offs or for which there are no specific reserves in our allowance for loan losses. Included in impaired loans at December 31, 2015, are loans with carrying balances of $14.5 million that were not written down by charge-offs or for which there are no specific reserves in our allowance for loan losses. Loans not written down by charge-offs or specific reserves at September 30, 2016, and December 31, 2015, are considered to have sufficient collateral values, less costs to sell, to support the carrying balances of the loans.

The following table summarizes the average recorded investment in originated and acquired impaired loans (excluding PCI loans) and interest recognized on impaired loans as of, and for, the three months ended September 30, 2016 and September 30, 2015 (in thousands):



	Three Months Ended								Nine Months Ended
	September 30, 2016				September 30, 2015				September 30, 2016				September 30, 2015
	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
With No Allowance Recorded:
Real estate loans:
Commercial
LTV => 35%
Pass	$	3,962	$	44	$	2,434	$	24	$	3,997	$	144	$	2,660	$	71
Special Mention	—		—		—		—		—		—		136		—
Substandard	13,908		130		13,051		147		13,621		369		12,398		517
Construction and land
Substandard	—		—		—		—		—				—		—
One-to-four family residential
LTV < 60%
Pass	645		4		363		5		541		13		203		14
Special Mention	—		—		—		—		—		—		69		—
Substandard	208		—		92		7		220		1		176		7
LTV => 60%
Substandard	387		7		178		3		268		19		89		17
Multifamily
LTV < 35%
Substandard	78		2		—				39		5		—		—
LTV => 35%
Pass	68		4		79		4		70		12		82		13
Substandard	583		—		739		10		728		8		607		20
Home equity and lines of credit
Special Mention	—		—		24		—		—		—		36		—
Substandard	—		—		—		—		—		—		—		—
Commercial and industrial loans
Special Mention	—		—		15		—		—		—		74		—
Substandard	80		—		92		—		83		—		95		—
With a Related Allowance Recorded:
Real estate loans:
Commercial
LTV => 35%
Pass	—		—		1,670		22		—		—		835		67
Substandard	6,972		16		10,717		92		6,745		54		11,724		201
One-to-four family residential
LTV < 60%
Pass	61		4		374		2		171		12		203		8
Special Mention	—		—		—		—		—		—		159		—
Substandard	1,577		7		874		3		1,588		18		870		10
LTV => 60%
Pass	139		1		—		—		69		4		—		—
Substandard	772		1		649		4		900		3		471		40
Multifamily
LTV => 35%

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	Three Months Ended								Nine Months Ended
	September 30, 2016				September 30, 2015				September 30, 2016				September 30, 2015
Pass	1,332		12		—		—		666		38		—		—
Substandard	—		—		1,392		13		682		—		1,406		39
Home equity and lines of credit
Pass	263		2		272		2		265		6		136		6
Special Mention	42		1		23		1		43		2		150		2
Substandard	39		—		43		—		40		1		21		2
Commercial and industrial loans
Special Mention	27		—		15		1		28		1		23		1
Substandard	—		—		—		—		—		—		102		—
Total:
Real estate loans
Commercial	24,842		190		27,872		285		24,363		567		27,753		856
One-to-four family residential	3,789		24		2,530		24		3,757		70		2,240		96
Multifamily	2,061		18		2,210		27		2,185		63		2,095		72
Home equity and lines of credit	344		3		362		3		348		9		343		10
Commercial and industrial loans	107		—		122		1		111		1		294		1
	$	31,143	$	235	$	33,096	$	340	$	30,764	$	710	$	32,725	$	1,035

There were no loans modified as troubled debt restructurings (TDRs) during the three or nine months ended September 30, 2016. The following table summarizes loans that were modified as troubled debt restructurings during the three and nine months ended September 30, 2015:



	Three Months Ended			Nine Months Ended
	September 30, 2015
	Number of Relationships	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment	Number of Relationships	Pre-Modification Outstanding Recorded Investment	Post-Modification Outstanding Recorded Investment
		(in thousands)			(in thousands)
TDR's
Commercial real estate loans
Substandard	—	—	—	3	8,457	8,457
One-to-four family residential
Pass	—	—	—	1	20	20
Substandard	1	136	136	4	697	697
Home equity and lines of credit	—	—	—	1	43	43
TDR's	1	136	136	9	$9,217	$9,217

At September 30, 2016, and December 31, 2015, we had TDRs of $25.4 million and $26.6 million, respectively.

Management classifies all TDRs as impaired loans. Impaired loans are individually assessed to determine that the loan’s carrying value is not in excess of the estimated fair value of the collateral less cost to sell, if the loan is collateral dependent, or the present value of the expected future cash flows, if the loan is not collateral dependent. Management performs a detailed evaluation of each impaired loan and generally obtains updated appraisals as part of the evaluation. In addition, management adjusts estimated fair values down to appropriately consider recent market conditions, our willingness to accept a lower sales price to effect a quick sale, and costs to dispose of any supporting collateral. Determining the estimated fair value of underlying collateral (and related costs to sell) can be difficult in illiquid real estate markets and is subject to significant assumptions and estimates. Management employs an independent third-party expert in appraisal preparation and review to ascertain the reasonableness of updated appraisals. Projecting the expected cash flows under troubled debt restructurings which are not collateral dependent 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.

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

At September 30, 2016, there were three TDR loans that were restructured during the twelve months ended September 30, 2016, that subsequently defaulted. The loans consisted of one commercial real estate loan with a recorded investment of $1.8 million, which was 90 days or more past due and on accrual status, and two one-to-four family residential loans with a recorded investment of $361,000, which were 90 days or more past due and on non-accrual status. At September 30, 2015, no TDR loan that was restructured during the twelve months ended September 30, 2015, had subsequently defaulted.

Note 6 – Deposits

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



	September 30,		December 31,
	2016		2015
Non-interest-bearing demand	$	395,731	$	263,073
Interest-bearing negotiable orders of withdrawal (NOW)	359,915		217,813
Savings and money market	1,319,297		1,072,175
Certificates of deposit	554,058		499,868
Total deposits	$	2,629,001	$	2,052,929

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



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Negotiable orders of withdrawal, savings, and money market	$	1,877	$	1,360	$	5,773	$	3,416
Certificates of deposit	1,668		1,481		4,899		3,957
Total interest expense on deposit accounts	$	3,545	$	2,841	$	10,672	$	7,373

Note 7 – Equity Incentive Plan

The following table is a summary of the Company’s stock options outstanding as of September 30, 2016, and changes therein during the nine months then ended.



	Number of Stock Options		Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Contractual Life (years)
Outstanding - December 31, 2015	6,011,861		$	3.30	$	10.93	6.41
Forfeited	(25,720	)	3.96		13.61		—
Exercised	(371,807	)	2.37		7.37		—
Outstanding - September 30, 2016	5,614,334		3.35		11.15		5.85
Exercisable - September 30, 2016	3,304,136		$	2.90	$	9.34	4.31

Expected future stock option expense related to the non-vested options outstanding as of September 30, 2016, is $7.5 million over an average period of 3.06 years.

The following is a summary of the status of the Company’s restricted share awards as of September 30, 2016, and changes therein during the nine months then ended.



	Number of Shares Awarded		Weighted Average Grant Date Fair Value
Non-vested at December 31, 2015	1,193,862		$	13.70
Vested	(277,580	)	13.61
Forfeited	(7,640	)	13.69
Non-vested at September 30, 2016	908,642		$	13.72

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

Expected future stock award expense related to the non-vested restricted share awards as of September 30, 2016, is $10.3 million over an average period of 3.08 years.

During the three months ended September 30, 2016 and 2015, the Company recorded $1.5 million and $2.1 million respectively, of stock-based compensation related to the above plans. During the nine months ended September 30, 2016 and 2015, the Company recorded $5.7 million and $4.7 million, respectively, of stock-based compensation related to the above plans.

Note 8 – Fair Value Measurements

The following tables present the assets reported on the consolidated balance sheet at their estimated fair value as of September 30, 2016, and December 31, 2015, by level within the fair value hierarchy as required by the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (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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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	Fair Value Measurements at September 30, 2016 Using:
	Carrying Value		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	497,669		$	—	497,669		$	—
Non-GSE	333		—		333		—
Other securities:
GSE bonds	—		—		—
Municipal bonds	1,919		—		1,919
Corporate bonds	46,089		—		46,089		—
Equities	1,129		158		971		—
Other	1,254		—		1,254
Total available-for-sale	548,393		158		548,235		—
Trading securities	7,547		7,547		—		—
Total	$	555,940	$	7,705	$	548,235	$	—
Measured on a non-recurring basis:
Assets:
Impaired loans:
Real estate loans:
Commercial real estate	$	11,584	$	—	$	—	$	11,584
One-to-four family residential mortgage	2,540		—		—		2,540
Multifamily	1,561		—		—		1,561
Home equity and lines of credit	303		—		—		303
Total impaired real estate loans	15,988		—		—		15,988
Commercial and industrial loans	19		—		—		19
Total	$	16,007	$	—	$	—	$	16,007

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	Fair Value Measurements at December 31, 2015 Using:
	Carrying Value		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	$	529,524	$	—	$	529,524	$	—
Non-GSE	579		—		579		—
Other securities:
Corporate bonds	11,011		—		11,011		—
Equities	481		481		—		—
Total available-for-sale	541,595		481		541,114		—
Trading securities	6,713		6,713		—		—
Total	$	548,308	$	7,194	$	541,114	$	—
Measured on a non-recurring basis:
Assets:
Impaired loans:
Real estate loans:
Commercial real estate	$	9,091	$	—	$	—	$	9,091
One-to-four family residential mortgage	2,873		—		—		2,873
Multifamily	1,288		—		—		1,288
Home equity and lines of credit	303		—		—		303
Total impaired real estate loans	13,555		—		—		13,555
Commercial and industrial loans	25		—		—		25
Other real estate owned	45		—		—		45
Total	$	13,625	$	—	$	—	$	13,625

The following table presents qualitative information for Level 3 assets measured at fair value on a non-recurring basis at September 30, 2016, and December 31, 2015 (dollars in thousands):



	Fair Value				Valuation Methodology	Unobservable Inputs	Range of Inputs
	September 30, 2016		December 31, 2015				September 30, 2016	December 31, 2015
Impaired loans	$	16,007	$	13,580	Appraisals	Discount for costs to sell	7.0%	7.0%
						Discount for quick sale	10.0%	10.0%
					Discounted cash flows	Interest rates	4.75% to 7.5%	4.75% to 7.5%
Other real estate owned	$	—	$	45	Appraisals	Discount for costs to sell	7.0%	7.0%

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

Available for Sale Securities: The estimated fair values for mortgage-backed securities, corporate and other debt securities, and certain less liquid equity securities are obtained from an independent nationally recognized third-party pricing service. The estimated fair values are derived primarily from cash flow models, which include assumptions for interest rates, credit losses, and prepayment speeds. Broker/dealer quotes are utilized as well, when such quotes are available and deemed representative of the market. The significant inputs utilized in the cash flow models are based on market data obtained from sources independent of the Company (Observable Inputs), and are therefore classified as Level 2 within the fair value hierarchy. The estimated fair values of equity securities consisting of publicly traded mutual funds are classified as Level 1 and are derived from quoted market prices in active markets. There were no transfers of securities between Level 1 and Level 2 during the nine months ended September 30, 2016.

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

Impaired Loans: At September 30, 2016, and December 31, 2015, the Company had impaired loans held-for-investment (excluding PCI loans) with outstanding principal balances of $20.3 million and $17.0 million, respectively, which were recorded at their estimated fair value of $16.0 million and $13.6 million, respectively. The Company recorded a net decrease in the specific reserve for impaired loans of $24,000 for the nine months ended September 30, 2016, 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 (OREO): At September 30, 2016, the Company had no assets acquired through foreclosure, or deed in lieu of foreclosure, as compared to $45,000 at December 31, 2015. These assets are 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.

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

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.

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)


(b)	Securities (Held to Maturity)

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


(c)	Federal Home Loan Bank of New York Stock

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


(d)	Loans (Held-for-Investment)

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


(e)	Loans (Held-for-Sale)

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


(f)	Deposits

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


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

The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of off‑balance sheet commitments is insignificant and therefore not included in the following table.


(h)	Borrowed Funds

The fair value of borrowed funds 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 for Taxes and Insurance

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

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

The estimated fair value of the Company’s significant financial instruments at September 30, 2016, and December 31, 2015, is presented in the following tables (in thousands):



	September 30, 2016
			Estimated Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	36,136	$	36,136	$	—	$	—	$	36,136
Trading securities	7,547		7,547		—		—		7,547
Securities available-for-sale	548,393		158		548,235		—		548,393
Securities held-to-maturity	10,198		—		10,417		—		10,417
Federal Home Loan Bank of New York stock, at cost	25,974		—		25,974		—		25,974
Net loans held-for-investment	2,891,909		—		—		2,889,562		2,889,562
Financial liabilities:
Deposits	$	2,629,001	$	—	$	2,636,441	$	—	$	2,636,441
Borrowed funds	494,430		—		497,342		—		497,342
Advance payments by borrowers for taxes and insurance	11,937		—		11,937		—		11,937



	December 31, 2015
			Estimated Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	51,853	$	51,853	$	—	$	—	$	51,853
Trading securities	6,713		6,713		—		—		6,713
Securities available-for-sale	541,595		481		541,114		—		541,595
Securities held-to-maturity	10,346		—		10,369		—		10,369
Federal Home Loan Bank of New York stock, at cost	25,803		—		25,803		—		25,803
Net loans held-for-investment	2,348,945		—		—		2,375,028		2,375,028
Financial liabilities:
Deposits	$	2,052,929	$	—	$	2,058,894	$	—	$	2,058,894
Borrowed funds	558,129		—		557,537		—		557,537
Advance payments by borrowers for taxes and insurance	10,862		—		10,862		—		10,862

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 9 – 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):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Net income available to common stockholders	$	7,287	$	4,677	$	17,932	$	13,974
Weighted average shares outstanding-basic	44,556,682		41,495,862		44,282,476		42,562,396
Effect of non-vested restricted stock and stock options outstanding	1,164,070		1,148,923		1,272,785		1,158,949
Weighted average shares outstanding-diluted	45,720,752		42,644,785		45,555,261		43,721,345
Earnings per share-basic	$	0.16	$	0.11	$	0.40	$	0.33
Earnings per share-diluted	$	0.16	$	0.11	$	0.39	$	0.32
Anti-dilutive shares	1,020,340		3,281,500		1,021,273		3,223,900

Note 10 – Recent Accounting Pronouncements

In August 2016, the FASB issued Accounting Standards Update (ASU) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which provides guidance on the classification of certain cash receipts and payments within the statement of cash flows. ASU No. 2016-15 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and is required to be applied retrospectively to all periods presented beginning in the year of adoption. Since the ASU only impacts classification on the statements of cash flows, adoption will not affect the Company's consolidated financial statements or its cash and cash equivalents.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. Current US GAAP is based on an incurred loss model that delays recognition of credit losses until it is probable the loss has been incurred. Accordingly, it is anticipated that credit losses will be recognized earlier under the CECL model than under the incurred loss model. ASU 2016-13 is effective for public business entities that are SEC filers for fiscal years and for interim periods within those fiscal years beginning after December 15, 2019. The Company is currently evaluating the potential effect of adoption of this pronouncement on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which includes provisions to simplify certain aspects related to the accounting for share-based awards and the related financial statement presentation. The ASU includes a requirement that the tax effect related to the settlement of share-based awards be recorded in income tax benefit or expense in the statements of earnings. This change is required to be adopted prospectively in the period of adoption. In addition, the ASU modifies the classification of

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NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

certain share-based payment activities within the statements of cash flows and these changes are required to be applied retrospectively to all periods presented, or in certain cases prospectively, beginning in the period of adoption. ASU No. 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The impact of ASU No. 2016-09 could be material to the Company's results of operations and cash flows in future periods depending upon, among other things, the level of earnings and stock price of the Company.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability of accounting for lease transactions. The ASU will require all leases to be recognized on the balance sheet as lease assets and lease liabilities and will require both quantitative and qualitative disclosures regarding key information about leasing arrangements. Lessor accounting is largely unchanged. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within that reporting period. The Company is currently evaluating the potential effect of adoption of this pronouncement on its consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The guidance primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. ASU No. 2016-01 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The adoption of this pronouncement is not expected to have a material effect on the Company's consolidated financial statements.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805) - Simplifying the Accounting for Measurement-Period Adjustments, which requires that adjustments to provisional amounts that are identified during the measurement period of a business combination be recognized in the reporting period in which the adjustment amounts are determined. Furthermore, the income statement effects of such adjustments, if any, must be calculated as if the accounting had been completed at the acquisition date. Under previous guidance, adjustments to provisional amounts identified during the measurement period were to be recognized retrospectively. ASU 2015-16 was effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. The adoption of this pronouncement did not have a material effect on the Company's consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which 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 the adoption of this pronouncement on its consolidated financial statements, but does not expect the adoption of the guidance to have a material effect on its consolidated financial statements.

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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 or credit markets;


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


•	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, including Hopewell Valley Community Bank (“Hopewell Valley”), which we acquired on January 8, 2016;


•	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;


•	cyber attacks, computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information and destroy data or disable our systems;


•	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 Quarterly Report on Form 10-Q, whether as a result of new information, future events or otherwise.

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Critical Accounting Policies

Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K, as supplemented by this report, contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets are carried in the Consolidated Balance Sheets at estimated fair value or the lower of cost or estimated fair value. Policies with respect to the methodologies used to determine the allowance for loan losses, estimated cash flows of our PCI loans, and judgments regarding the valuation of intangible assets and securities as well as the valuation allowance against deferred tax assets are the most critical accounting policies because they are important to the presentation of the Company’s financial condition and results of operations, involve a higher degree of complexity, and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition. These critical accounting policies and their application are reviewed periodically and, at least annually, with the Audit Committee of the Board of Directors. For a further discussion of the critical accounting policies of the Company, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Overview

This overview highlights selected information and may not contain all the information that is important to you in understanding our performance during the period. For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources, and critical accounting estimates, you should read this entire document carefully, as well as our Annual Report on Form 10-K for the year ended December 31, 2015.

On January 8, 2016, the Company acquired Hopewell Valley, which after purchase accounting adjustments added $508.5 million of assets, $342.6 million of loans, and $456.2 million of deposits, and nine branch offices in Hunterdon and Mercer Counties, New Jersey. Total consideration paid for Hopewell Valley was $55.4 million, consisting of $13.7 million in cash and 2,707,381 shares of common stock valued at $41.7 million based upon the $15.41 per share closing price of Northfield Bancorp, Inc.'s common stock on January 8, 2016.

Net income was $17.9 million for the nine months ended September 30, 2016, as compared to $14.0 million for the nine months ended September 30, 2015. Basic and diluted earnings per common share were $0.40 and $0.39, respectively, for the nine months ended September 30, 2016, compared to basic and diluted earnings per common share of $0.33 and $0.32, respectively, for the nine months ended September 30, 2015. Earnings for the nine months ended September 30, 2016, reflect merger-related expenses of approximately $2.4 million, net of tax, or $0.05 per basic and diluted share, related to the acquisition of Hopewell Valley. Earnings for the nine months ended September 30, 2015 included a charge of $795,000, or, $0.02 per share, related to the write-down of deferred tax assets as a result of New York City tax reforms enacted in April 2015 and merger expenses of $437,000, or $0.01 per share, related to Hopewell Valley. For the nine months ended September 30, 2016, our return on average assets was 0.65%, as compared to 0.60% for the nine months ended September 30, 2015. For the nine months ended September 30, 2016, our return on average stockholders’ equity was 3.92% as compared to 3.24% for the nine months ended September 30, 2015.

Comparison of Financial Condition at September 30, 2016, and December 31, 2015

Total assets increased $582.0 million, or 18.2%, to $3.78 billion at September 30, 2016, from $3.20 billion at December 31, 2015, primarily due to an increase in loans held-for-investment, net, of $542.5 million and an increase in goodwill of $22.3 million associated with the acquisition of Hopewell Valley.

Cash and cash equivalents decreased $15.7 million, or 30.3%, to $36.1 million at September 30, 2016, from $51.9 million at December 31, 2015. Balances fluctuate based on the timing of receipt of security and loan repayments and the redeployment of cash into other asset classes, or the funding of deposit or borrowing obligations.

The available-for-sale securities portfolio totaled $548.4 million at September 30, 2016, compared to $541.6 million at December 31, 2015. At September 30, 2016, $497.7 million of the portfolio consisted of residential mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. In addition, the Company held $46.1 million in corporate bonds, all of which were considered investment grade at September 30, 2016, and other securities of $4.6 million (including $1.1 million of equity investments in money market mutual funds).

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Loans held-for-investment, net, increased $542.5 million, or 22.9%, to $2.92 billion at September 30, 2016, as compared to $2.37 billion at December 31, 2015, primarily due to the addition of $342.6 million of loans acquired from Hopewell Valley, two loan pool purchases totaling $158.1 million, which consisted primarily of multifamily loans, and to a lesser extent, loan originations.

As of September 30, 2016, our commercial real estate concentration (as defined by regulatory guidance) to total risk-based capital was approximately 370%. Management believes that the Bank has implemented appropriate risk management practices including risk assessments, board approved underwriting policies and related procedures, monitoring bank portfolio performance, market analysis (economic and real estate) and stress testing of the Bank’s commercial real estate portfolio under severe adverse economic conditions. Although management believes the Bank has implemented appropriate policies and procedures to manage our commercial real estate concentration risk, the Bank’s regulators could require us to implement additional policies and procedures or could require us to maintain higher levels of regulatory capital, which might adversely affect our loan originations, ability to pay dividends, and profitability.

Originated loans held-for-investment, net, totaled $2.07 billion at September 30, 2016, as compared to $1.93 billion at December 31, 2015. The increase was primarily due to an increase in multifamily real estate loans of $120.2 million, or 9.1%, to $1.44 billion at September 30, 2016, from $1.32 billion at December 31, 2015. The following table details our multifamily real estate originations for the nine months ended September 30, 2016 and 2015 (dollars in thousands):



For the Nine Months Ended September 30, 2016
Originations		Weighted Average Interest Rate	Weighted Average Loan-to-Value Ratio	Weighted Average Months to Next Rate Change or Maturity for Fixed Rate Loans	(F)ixed or (V)ariable	Amortization Term
$	219,975	3.42%	63%	81	V	30 Years
7,075		3.66%	41%	131	F	7- 15 Years
$	227,050	3.43%	62%

For the Nine Months Ended September 30, 2015
Originations		Weighted Average Interest Rate	Weighted Average Loan-to-Value Ratio	Weighted Average Months to Next Rate Change or Maturity for Fixed Rate Loans	(F)ixed or (V)ariable	Amortization Term
$	315,059	3.37%	65%	76	V	30 Years
2,829		4.14%	24%	180	F	15 Years
$	317,888	3.38%	64%

Acquired loans increased by $404.6 million to $813.6 million at September 30, 2016, from $409.0 million at December 31, 2015, due to $342.6 million of loans acquired from Hopewell Valley, and two loan pool purchases totaling approximately $158.1 million, which consisted primarily of multifamily loans located in New York and Eastern Pennsylvania. The following table provides the details of the loans purchased during the nine months ended September 30, 2016 (dollars in thousands):



Purchases		Weighted Average Interest Rate	Weighted Average Loan-to-Value Ratio	Weighted Average Months to Next Rate Change or Maturity for Fixed Rate Loans	(F)ixed or (V)ariable	Amortization Term
$	27,415	3.98%	30%	120	F	30 Years
48,445		2.95%	53%	46	V	30 Years
82,242		2.93%	49%	33	V	30 Years
$	158,102	3.12%	47%

Purchased credit-impaired (“PCI”) loans totaled $32.8 million at September 30, 2016, as compared to $33.1 million at December 31, 2015, and include $4.9 million of PCI loans acquired as part of the Hopewell Valley acquisition. The remaining $27.9 million of PCI loans were primarily acquired as part of a transaction with the Federal Deposit Insurance Corporation. The Company accreted interest income of $4.0 million for the nine months ended September 30, 2016, compared to $3.3 million for the nine months ended September 30, 2015 related to the PCI loans.

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Total liabilities increased $521.3 million, or 19.7%, to $3.16 billion at September 30, 2016, from $2.64 billion at December 31, 2015. The increase was primarily attributable to an increase in deposits of $576.1 million, partially offset by decreases in borrowed funds of $63.7 million, due to a shift in our balance sheet funding strategy. The increase in deposits was primarily due to $456.2 million of deposits acquired from Hopewell Valley.

Deposits increased $576.1 million, or 28.1%, to $2.63 billion at September 30, 2016, as compared to $2.05 billion at December 31, 2015. The increase was attributable to increases of $54.2 million in certificates of deposit accounts, $43.4 million in savings accounts, $203.7 million in money market accounts, and $274.8 million in transaction accounts.

Borrowings and securities sold under agreements to repurchase decreased by $63.7 million, or 11.4%, to $494.4 million at September 30, 2016, from $558.1 million at December 31, 2015. Management utilizes borrowings to mitigate interest rate risk, for short-term liquidity, and to a lesser extent as part of leverage strategies. The following is a table of term borrowing maturities (excluding capitalized leases and overnight borrowings) and the weighted average rate by year at September 30, 2016 (dollars in thousands):



Year	Amount	Weighted Average Rate
2016	$37,910	1.51%
2017	165,003	1.22%
2018	142,715	1.66%
2019	93,502	1.47%
2020	45,000	1.79%
	$484,130	1.48%

Total stockholders’ equity increased by $60.7 million to $620.5 million at September 30, 2016, from $559.8 million at December 31, 2015, primarily due to common stock issued for the purchase of Hopewell Valley, net income earned for the period, and an increase in unrealized gains on our securities-available-for sale portfolio, partially offset by dividends paid to stockholders. The Company issued 2,707,381 shares of common stock in the Hopewell Valley acquisition at a price of $15.41, which resulted in a $41.7 million increase in stockholders' equity.

Comparison of Operating Results for the Nine Months Ended September 30, 2016 and 2015

Net income. Net income was $17.9 million and $14.0 million for the nine months ended September 30, 2016, and September 30, 2015, respectively. Net income for the nine months ended September 30, 2016, included merger-related expenses of $3.9 million ($2.4 million after tax) associated with the acquisition of Hopewell Valley, which was completed on January 8, 2016. Net income for the nine months ended September 30, 2015, included a tax charge of $795,000 related to the write-down of deferred tax assets as a result of New York City tax reforms enacted in April 2015, and merger expenses of $437,000 related to Hopewell Valley. Other significant variances from the comparable prior year period are as follows: a $15.8 million increase in net interest income, a $117,000 decrease in the provision for loan losses, a $1.7 million increase in non-interest income, a $12.7 million increase in non-interest expense, and a $881,000 increase in income tax expense.

Interest Income. Interest income increased $17.5 million, or 23.2%, to $92.9 million for the nine months ended September 30, 2016, from $75.4 million for the nine months ended September 30, 2015, due to an increase in the average balance of interest-earning assets of $555.0 million, or 19.3%, and an 11 basis point increase in yields earned on interest-earning assets. Interest income on loans increased by $18.8 million, primarily attributable to an increase in the average loan balances of $652.8 million, which was partially offset by a seven basis point decrease in the yield. The increase in average loans was largely due to $342.6 million of loans added through the Hopewell Valley acquisition, $158.1 million in loan pool purchases of primarily multifamily loans, and to a lesser extent, originated loan growth. The Company accreted interest income related to its PCI loans of $4.0 million for the nine months ended September 30, 2016, as compared to $3.3 million for the nine months ended September 30, 2015. Interest income on loans for the nine months ended September 30, 2016, reflected loan prepayment income of $1.4 million compared to $1.7 million for the nine months ended September 30, 2015.

Interest Expense. Interest expense increased $1.7 million, or 11.9%, to $16.2 million for the nine months ended September 30, 2016, from $14.5 million for the nine months ended September 30, 2015. The increase was due to an increase of $3.3 million in interest expense on deposits, partially offset by a decrease of $1.6 million in interest expense on borrowings. The increase in interest expense on deposits was attributed to an increase in the average balance of interest-bearing deposits of $590.1 million, or 37.3%, to $2.17 billion for the nine months ended September 30, 2016, from $1.58 billion for the nine months ended September 30, 2015, and a four basis point increase in the cost of interest-bearing deposits to 0.66% from 0.62%.

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The decrease in interest expense on borrowings was attributed to a decrease in the average balances of borrowings of $141.9 million, or 22.5%, to $489.3 million for the nine months ended September 30, 2016, from $631.2 million for the nine months ended September 30, 2015, partially offset by a one basis point increase in the cost of borrowings to 1.52% for the nine months ended September 30, 2015.

Net Interest Income. Net interest income for the nine months ended September 30, 2016 increased $15.8 million, or 25.9%, primarily due to a $555.0 million, or 19.3%, increase in our average interest-earning assets and a 16 basis point increase in our net interest margin to 2.99%. The increase in average interest-earning assets was primarily attributable to an increase in the average balance of loans outstanding of $652.8 million, partially offset by a decrease in average mortgage-backed securities of $107.0 million. Yields earned on interest-earning assets increased eleven basis points to 3.62% for the nine months ended September 30, 2016, from 3.51% for the nine months ended September 30, 2015. The cost of interest-bearing liabilities decreased seven basis points to 0.81% for the nine months ended September 30, 2016 as compared to 0.88% for the comparable prior year period.

Provision for Loan Losses. The provision for loan losses decreased by $117,000 to $355,000 for the nine months ended September 30, 2016, from $472,000 for the nine months ended September 30, 2015, primarily due to an improvement in asset quality, including declines in non-performing and delinquent loans. Acquired loans, including those acquired from Hopewell Valley, are valued at estimated fair value on the date of acquisition, with no initial related allowance for loan losses. Net charge-offs were $785,000 for the nine months ended September 30, 2016, compared to net charge-offs of $1.1 million for the nine months ended September 30, 2015. Net charge-offs in the nine months ended September 30, 2015, were primarily related to five previously impaired loans to one borrower that were restructured during the first quarter of 2015 and subsequently sold in the fourth quarter of 2015. These loans had existing specific reserves associated with them that adequately covered the charge-offs, resulting in no material effect on the provision for loan losses for the nine months ended September 30, 2015.

Non-interest Income. Non-interest income increased $1.7 million, or 28.6%, to $7.4 million for the nine months ended September 30, 2016, from $5.8 million for the nine months ended September 30, 2015, primarily due to increases in fees and service charges for customers of $679,000, income on bank owned life insurance of $172,000, and gains on securities transactions, net, of $946,000. These increases were partially offset by a decrease in other income of $144,000, primarily related to a realized gain on the sale of an other real estate owned property (OREO) during the nine months ended September 30, 2015. Securities gains, net, in the nine months ended September 30, 2016, included gains of $389,000 related to the Company’s trading portfolio, while the comparative 2015 period included losses of $390,000 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 Company's deferred compensation plan (the Plan). The participants of this Plan, at their election, defer a portion of their compensation. Gains and losses on trading securities have no effect on net income since participants benefit from, and bear the full risk of, changes in the trading securities market values. Therefore, the Company records an equal and offsetting amount in compensation expense, reflecting the change in the Company’s obligations under the Plan.

Non-interest Expense. Non-interest expense increased $12.7 million, or 29.1%, to $56.4 million for the nine months ended September 30, 2016, from $43.7 million for the nine months ended September 30, 2015, primarily due to: (1) an $8.4 million increase in compensation and employee benefits largely driven by increased salary and benefit expenses attributable to the addition of Hopewell Valley employees and general merit-related salary increases effective January 1, 2016, charges of $2.3 million related to severance, retention, and change-in-control compensation associated with the Hopewell Valley acquisition, and an increase in stock compensation expense related to the 2014 Equity Incentive Plan (the "2014 EIP"); (2) a $992,000 increase in occupancy expense due to the addition of nine Hopewell Valley branches; (3) a $2.1 million increase in data processing costs, of which approximately $1.1 million was due to conversion costs associated with the Hopewell Valley acquisition; (4) an increase in professional fees of $375,000, primarily related to the Hopewell Valley acquisition; and (5) an $835,000 increase in other expense, largely due to an increase in Directors’ equity awards associated with the 2014 EIP, and increases in core deposit premium amortization and general office expenses related to the Hopewell Valley acquisition. These increases were partially offset by a decrease in OREO expenses.

Income Tax Expense. The Company recorded income tax expense of $9.4 million for the nine months ended September 30, 2016, compared to $8.5 million for the nine months ended September 30, 2015. The effective tax rate for the nine months ended September 30, 2016 was 34.4% compared to 37.9% for the nine months ended September 30, 2015. Income tax expense for the nine months ended September 30, 2015 included a deferred tax asset write-down of $795,000 related to New York City tax reforms enacted in April 2015 and $437,000 in non-deductible merger-related expenses.

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The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated.

ANALYSIS OF NET INTEREST INCOME

(Dollars in thousands)



	For the Nine Months Ended
	September 30, 2016						September 30, 2015
	Average Outstanding Balance		Interest		Average Yield/ Rate ⁽¹⁾		Average Outstanding Balance		Interest		Average Yield/ Rate ⁽¹⁾
Interest-earning assets:
Loans ⁽²⁾	$	2,730,006	$	82,792	4.05	%	$	2,077,241	$	64,034	4.12	%
Mortgage-backed securities ⁽³⁾	538,568		8,322		2.06		645,543		10,036		2.08
Other securities ⁽³⁾	57,030		662		1.55		52,026		292		0.75
Federal Home Loan Bank of New York stock	25,159		861		4.57		26,521		905		4.56
Interest-earning deposits in financial institutions	77,035		225		0.39		71,479		93		0.17
Total interest-earning assets	3,427,798		92,862		3.62		2,872,810		75,360		3.51
Non-interest-earning assets	262,748						219,555
Total assets	$	3,690,546					$	3,092,365

Interest-bearing liabilities:
Savings, NOW, and money market accounts	$	1,594,088	$	5,773	0.48	%	$	1,097,582	$	3,416	0.42	%
Certificates of deposit	579,227		4,899		1.13		485,647		3,957		1.09
Total interest-bearing deposits	2,173,315		10,672		0.66		1,583,229		7,373		0.62
Borrowed funds	489,300		5,570		1.52		631,245		7,145		1.51
Total interest-bearing liabilities	2,662,615		16,242		0.81		2,214,474		14,518		0.88
Non-interest bearing deposit accounts	367,454						262,804
Accrued expenses and other liabilities	49,825						39,309
Total liabilities	3,079,894						2,516,587
Stockholders' equity	610,652						575,778
Total liabilities and stockholders' equity	$	3,690,546					$	3,092,365

Net interest income			$	76,620					$	60,842
Net interest rate spread ⁽⁴⁾					2.80	%					2.63	%
Net interest-earning assets ⁽⁵⁾	$	765,183					$	658,336
Net interest margin ⁽⁶⁾					2.99	%					2.83	%
Average interest-earning assets to interest-bearing liabilities					128.74	%					129.73	%




(1)	Average yields and rates are annualized.
(2)	Includes non-accruing loans.
(3)	Securities available-for-sale are reported at amortized cost.
(4)	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.
(5)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(6)	Net interest margin represents net interest income divided by average total interest-earning assets.

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Comparison of Operating Results for the Three Months Ended September 30, 2016 and 2015

Net income. Net income was $7.3 million and $4.7 million for the quarters ended September 30, 2016 and September 30, 2015, respectively. Significant variances from the comparable prior year period are as follows: a $5.7 million increase in net interest income, a $1.0 million increase in non-interest income, a $2.5 million increase in non-interest expense, and a $1.3 million increase in income tax expense.

Interest Income. Interest income increased $6.0 million, or 23.3%, to $31.5 million for the quarter ended September 30, 2016, from $25.6 million for the quarter September 30, 2015, due to an increase in the average balance of interest-earning assets of $577.7 million, or 19.7%, and an 11 basis point increase in yields earned on interest-earning assets. Interest income on loans increased by $6.1 million, primarily attributable to an increase in the average loan balances of $635.0 million, which was partially offset by a four basis point decrease in the yield. The increase in average loans was largely due to $342.6 million of loans added through the Hopewell Valley acquisition, $158.1 million in loan pool purchases of primarily multifamily loans, and to a lesser extent, originated loan growth. The Company accreted interest income related to its PCI loans of $1.3 million for the quarter ended September 30, 2016, as compared to $1.0 million for the quarter ended September 30, 2015. Interest income on loans for the quarter ended September 30, 2016, reflected loan prepayment income of $459,000 compared to $489,000 for the quarter ended September 30, 2015.

Interest Expense. Interest expense increased $277,000, or 5.5%, to $5.3 million for the quarter ended September 30, 2016, from $5.0 million for the quarter ended September 30, 2015. The increase was due to an increase of $704,000 in interest expense on deposits, partially offset by a decrease of $427,000 in interest expense on borrowings. The increase in interest expense on deposits was attributed to an increase in the average balance of interest-bearing deposits of $524.9 million, or 30.6%, to $2.24 billion for the quarter ended September 30, 2016, from $1.71 billion for the quarter ended September 30, 2015, partially offset by a three basis point decrease in the cost of interest-bearing deposits to 0.63% from 0.66%. The decrease in interest expense on borrowings was attributed to a decrease in the average balances of borrowings of $98.4 million, or 17.4%, to $466.5 million for the quarter ended September 30, 2016, from $564.9 million for the quarter ended September 30, 2015, and a four basis point decrease in the cost of borrowings to 1.47%, from 1.51% for the quarter ended September 30, 2015.

Net Interest Income. Net interest income for the quarter ended September 30, 2016, increased $5.7 million, or 27.6%, primarily due to a $577.7 million, or 19.7%, increase in average interest-earning assets and a 19 basis point increase in our net interest margin to 2.98%. The increase in average interest-earning assets was primarily attributable to an increase in average loans outstanding of $635.0 million and an increase in average other securities of $22.3 million, partially offset by a decrease in average mortgage-backed securities of $86.8 million. Yields earned on interest-earning assets increased 11 basis points to 3.58% for the quarter ended September 30, 2016, from 3.47% for the quarter ended September 30, 2015. The cost of interest-bearing liabilities decreased nine basis points to 0.78% for the current quarter as compared to 0.87% for the comparable prior year quarter.

Provision for Loan Losses. The provision for loan losses increased by $272,000 to $472,000 for the quarter ended September 30, 2016, from $200,000 for the quarter ended September 30, 2015, primarily due to loan growth and higher net charge-offs during the quarter ended September 30, 2016. Net charge-offs were $449,000 for the quarter ended September 30, 2016, compared to net charge-offs of $61,000 for the quarter ended September 30, 2015. Acquired loans, including those acquired from Hopewell Valley, were valued at estimated fair value on the date of acquisition, with no initial related allowance for loan losses.

Non-interest Income. Non-interest income increased $1.0 million, or 60.1%, to $2.7 million for the quarter ended September 30, 2016, from $1.7 million for the quarter ended September 30, 2015, primarily due to increases in fees and service charges for customers of $208,000, and gains on securities transactions, net, of $750,000. Securities gains, net, in the quarter ended September 30, 2016, included gains of $344,000 related to the Company’s trading portfolio described above, while the comparative 2015 quarter included losses of $401,000 related to the Company’s trading portfolio.

Non-interest Expense. Non-interest expense increased $2.5 million, or 17.0%, to $17.4 million for the quarter ended September 30, 2016, from $14.8 million for the quarter ended September 30, 2015, due primarily to: (1) a $2.3 million increase in compensation and employee benefits due to the addition of Hopewell Valley employees and general merit-related salary increases effective January 1, 2016; (2) a $304,000 increase in occupancy costs associated with the addition of nine Hopewell Valley branches; (3) a $793,000 increase in data processing costs of which $477,000 relate to contract termination and other conversion costs associated with the Hopewell Valley acquisition; and (4) a $488,000 decrease in other expenses, primarily due to lower Directors’ equity awards expense.

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Income Tax Expense. The Company recorded income tax expense of $3.8 million for the quarter ended September 30, 2016, compared to $2.5 million for the quarter ended September 30, 2015. The effective tax rate for the quarter ended September 30, 2016, was 34.2% compared to 35.0% for the quarter ended September 30, 2015. The quarter ended September 30, 2015 included $437,000 in non-deductible merger-related expenses.

The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated.

ANALYSIS OF NET INTEREST INCOME

(Dollars in thousands)



	For the Three Months Ended
	September 30, 2016						September 30, 2015
	Average Outstanding Balance		Interest		Average Yield/ Rate ⁽¹⁾		Average Outstanding Balance		Interest		Average Yield/ Rate ⁽¹⁾
Interest-earning assets:
Loans ⁽²⁾	$	2,810,377	28,222		3.99	%	$	2,175,407	$	22,077	4.03	%
Mortgage-backed securities ⁽³⁾	525,487		2,665		2.02		612,301		3,134		2.03
Other securities ⁽³⁾	60,373		252		1.66		38,100		64		0.67
Federal Home Loan Bank of New York stock	24,667		302		4.87		24,285		265		4.33
Interest-earning deposits in financial institutions	82,016		84		0.41		75,148		30		0.16
Total interest-earning assets	3,502,920		31,525		3.58		2,925,241		25,570		3.47
Non-interest-earning assets	283,900						220,794
Total assets	$	3,786,820					$	3,146,035

Interest-bearing liabilities:
Savings, NOW, and money market accounts	$	1,654,778	$	1,877	0.45	%	$	1,164,887	$	1,360	0.46	%
Certificates of deposit	583,488		1,668		1.14		548,488		1,481		1.07
Total interest-bearing deposits	2,238,266		3,545		0.63		1,713,375		2,841		0.66
Borrowed funds	466,476		1,729		1.47		564,898		2,156		1.51
Total interest-bearing liabilities	2,704,742		5,274		0.78		2,278,273		4,997		0.87
Non-interest bearing deposits	400,856						258,476
Accrued expenses and other liabilities	62,104						44,840
Total liabilities	3,167,702						2,581,589
Stockholders' equity	619,118						564,446
Total liabilities and stockholders' equity	$	3,786,820					$	3,146,035

Net interest income			$	26,251					$	20,573
Net interest rate spread ⁽⁴⁾					2.80	%					2.60	%
Net interest-earning assets ⁽⁵⁾	$	798,178					$	646,968
Net interest margin ⁽⁶⁾					2.98	%					2.79	%
Average interest-earning assets to interest-bearing liabilities					129.51	%					128.40	%




(1)	Average yields and rates are annualized.
(2)	Includes non-accruing loans.
(3)	Securities available-for-sale are reported at amortized cost.
(4)	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.
(5)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(6)	Net interest margin represents net interest income divided by average total interest-earning assets.

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Asset Quality

PCI Loans

At September 30, 2016, 5.0% of PCI loans were past due 30 to 89 days, and 21.8% were past due 90 days or more, as compared to 7.9% and 21.4%, respectively, at December 31, 2015.

Originated and Acquired loans

The following table details total originated and acquired (but excluding PCI) non-accruing loans, non-performing loans, non-performing assets, troubled debt restructurings on which interest is accruing, and accruing loans 30 to 89 days delinquent at September 30, 2016, and December 31, 2015 (dollars in thousands):



	September 30, 2016			December 31, 2015
Non-accrual loans:
Real estate loans:
Commercial	$	6,705		$	5,232
One-to-four family residential	1,638			2,574
Construction and land	—			113
Multifamily	322			559
Home equity and lines of credit	97			329
Commercial and industrial	13			—
Total non-accrual loans:	8,775			8,807
Loans delinquent 90 days or more and still accruing:
Real estate loans:
Commercial	1,834			—
One-to-four family residential	10			—
Commercial and industrial	—			15
Total loans delinquent 90 days or more and still accruing	1,844			15
Total non-performing loans	10,619			8,822
Other real estate owned	—			45
Total non-performing assets	$	10,619		$	8,867
Non-performing loans to total loans held-for-investment, net	0.36		%	0.37		%
Non-performing assets to total assets	0.28		%	0.28		%
Loans subject to restructuring agreements and still accruing	$	22,732		$	22,284
Accruing loans 30 to 89 days delinquent	12,532			21,620

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Accruing Loans 30 to 89 Days Delinquent

Loans 30 to 89 days delinquent and on accrual status totaled $12.5 million and $21.6 million at September 30, 2016, and December 31, 2015, respectively. The following table sets forth delinquencies for accruing loans by type and by amount at September 30, 2016, and December 31, 2015 (dollars in thousands):



	September 30, 2016		December 31, 2015
Real estate loans:
Commercial	$	6,317	$	13,957
One-to-four family residential	3,795		4,209
Multifamily	1,412		2,965
Home equity and lines of credit	569		374
Commercial and industrial loans	403		104
Other loans	36		11
Total delinquent accruing loans	$	12,532	$	21,620

The decrease in the delinquent loans was primarily attributable to one commercial real estate loan with a balance of $5.6 million at December 31, 2015, which was 31 days delinquent, and became current during the first quarter of 2016. This loan had a balance of $5.5 million at September 30, 2016, was classified as impaired, and adequately covered by collateral with a recent appraised value of $9.3 million.

Loans Subject to TDR Agreements

Included in non-accruing loans are loans subject to TDR agreements totaling $2.7 million and $4.4 million at September 30, 2016 and December 31, 2015, respectively. At September 30, 2016, $2.2 million, or 84.1%, of the $2.7 million were not performing in accordance with their restructured terms, as compared to $2.3 million, or 53.2%, of the $4.4 million at December 31, 2015. Four separate relationships account for the loans not performing in accordance with their restructured terms at September 30, 2016, of which three of the loans are primarily collateralized by real estate with an aggregate appraised value of $2.9 million.

The Company also holds loans subject to restructuring agreements that are on accrual status totaling $22.7 million and $22.3 million at September 30, 2016, and December 31, 2015, respectively. At September 30, 2016, all these loans were performing in accordance with the restructured terms as compared to loans totaling $7.2 million, or 32.3%, of the $22.3 million at December 31, 2015, that were not performing in accordance with their restructured terms. The majority of the $7.2 million at December 31, 2015, was attributable to one commercial real estate loan with a balance of $5.6 million which was 31 days delinquent and became current in the first quarter of 2016.

The following table details the amounts and categories of the loans subject to restructuring agreements by loan type as of September 30, 2016, and December 31, 2015 (in thousands):



	September 30, 2016				At December 31, 2015
	Non-Accruing		Accruing		Non-Accruing		Accruing
Troubled Debt Restructurings:
Real estate loans:
Commercial	$	1,878	$	17,799	$	2,657	$	17,885
One-to-four family residential	783		2,963		1,694		2,053
Multifamily	—		1,524		—		1,876
Home equity and lines of credit	—		341		—		354
Commercial and industrial loans	—		105		—		116
	$	2,661	$	22,732	$	4,351	$	22,284

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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 $484.1 million at September 30, 2016, and had a weighted average interest rate of 1.48%. A total of $165.9 million of these borrowings will mature in less than one year. Borrowed funds, excluding capitalized lease obligations and floating rate advances, were $551.1 million at December 31, 2015. Northfield Bank has the ability to obtain additional funding from the FHLB and Federal Reserve Bank discount window of approximately $787.7 million utilizing unencumbered securities of $166.4 million and loans of $700.0 million at September 30, 2016. Northfield Bank expects to have sufficient funds available to meet current commitments in the normal course of business.

Northfield Bancorp, Inc. (standalone) 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. At September 30, 2016, Northfield Bancorp, Inc. (stand alone) had liquid assets of approximately $12.8 million.

Capital Resources. At September 30, 2016, and December 31, 2015, as set forth in the following table, Northfield Bank exceeded all of its regulatory capital requirements to which it was subject at such dates.



	Actual	For Capital Adequacy Purposes ⁽¹⁾	For Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2016:
Common equity Tier 1 capital (to risk-weighted assets)	17.57%	5.125%	6.50%
Tier 1 leverage	14.49%	4.000%	5.00%
Tier I capital (to risk-weighted assets)	17.57%	6.625%	8.00%
Total capital (to risk-weighted assets)	18.37%	8.625%	10.00%
As of December 31, 2015:
Common equity Tier 1 capital (to risk-weighted assets)	20.19%	4.50%	6.50%
Tier 1 leverage	15.72%	4.00%	5.00%
Tier I capital (to risk-weighted assets)	20.19%	6.00%	8.00%
Total capital (to risk-weighted assets)	21.21%	8.00%	10.00%

(1) Includes capital conservation buffer at September 30, 2016

On January 1, 2015, a final rule issued by the federal bank regulatory agencies became effective which revised the leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the new rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on non-accrual 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 election 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 capital conservation buffer requirement is being phased in incrementally, starting at 0.625% on January 1, 2016, and increasing to 1.25% on January 1, 2017, 1.875% on January 1, 2018, and 2.5% on January 1, 2019, when the full capital conservation buffer requirement will be effective. The

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final rule also implemented consolidated capital requirements for savings and loan holding companies, such as the Company, effective January 1, 2015.

At September 30, 2016, and December 31, 2015, as set forth in the following table, Northfield Bancorp, Inc. exceeded all of its regulatory capital requirements to which it was subject at such dates.



	Actual	For Capital Adequacy Purposes ⁽¹⁾	For Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2016:
Common equity Tier 1 capital (to risk-weighted assets)	18.77%	5.125%	6.50%
Tier 1 leverage	15.48%	4.000%	5.00%
Tier I capital (to risk-weighted assets)	18.77%	6.625%	8.00%
Total capital (to risk-weighted assets)	19.58%	8.625%	10.00%
As of December 31, 2015:
Common equity Tier 1 capital (to risk-weighted assets)	22.15%	4.50%	6.50%
Tier 1 leverage	17.25%	4.00%	5.00%
Tier I capital (to risk-weighted assets)	22.15%	6.00%	8.00%
Total capital (to risk-weighted assets)	23.17%	8.00%	10.00%

(1) Includes capital conservation buffer at September 30, 2016

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. GAAP, are not recorded in the financial statements. These transactions primarily relate to lending commitments. These arrangements are not expected to have a material impact on the Company's results of operations or financial condition.

The following table shows the contractual obligations of the Company by expected payment period as of September 30, 2016:



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)	$	484,130	$	165,913	$	238,217	$	80,000	$	—
Commitments to originate loans	72,458		72,458		—		—		—
Commitments to fund unused lines of credit	73,083		73,083		—		—		—

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 for the year ended December 31, 2015.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management of Market Risk

General. A majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage-related assets and loans, generally have longer maturities than our liabilities, which consist primarily of deposits and wholesale borrowings. As a result, a principal part of our business strategy involves managing interest rate risk and limiting the exposure of our net interest income to changes in market interest rates. Accordingly, our board of directors has established a management risk committee, comprised of our Chief Investment Officer, who chairs this Committee, our Chief Executive Officer, our President/Chief Operating Officer, our Chief Financial Officer, our Chief Lending Officer, our Executive Vice President of Operations and our Executive Vice President of Branch Administration and Business Development. 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.

We seek to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. As part of our ongoing asset-liability management, we currently use the following strategies to manage our interest rate risk:


•	originating multifamily loans and commercial real estate loans that generally tend to have shorter maturities than one-to-four family residential real estate loans and have higher interest rates that generally reset from five to ten years;


•	investing in shorter term investment grade corporate securities and mortgage-backed securities; and


•	obtaining general financing through lower-cost core deposits and longer-term FHLB advances and repurchase agreements.

Shortening the average term of our interest-earning assets by increasing our investments in shorter-term assets, as well as originating loans with variable interest rates, helps to match the maturities and interest rates of our assets and liabilities better, thereby reducing the exposure of our net interest income to changes in market interest rates.

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

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

The following tables set forth, as of September 30, 2016, and December 31, 2015, 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 (dollars in thousands). 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 repricing characteristics including decay rates, and correlations to movements in interest rates, and should not be relied on as indicative of actual results.

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	NPV at September 30, 2016
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	$	3,371,438	$	2,842,418	$	529,020	$	(173,094	)	(24.65	)%	15.69	%	(16.75	)%
+300	3,465,504		2,898,387		567,117		(134,997		)	(19.23	)	16.36		(12.33	)
+200	3,570,609		2,956,858		613,751		(88,363		)	(12.59	)	17.19		(7.89	)
+100	3,674,336		3,017,987		656,349		(45,765		)	(6.52	)	17.86		(3.78	)
—	3,784,054		3,081,940		702,114		—			—		18.55		—
(100)	3,930,009		3,152,413		777,596		75,482			10.75		19.79		0.05
(200)	4,135,453		3,197,038		938,415		236,301			33.66		22.69		(2.23	)



	NPV at December 31, 2015
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	$	2,831,359	$	2,325,221	$	506,138	$	(177,510	)	(25.97	)%	17.88	%	(19.87	)%
+300	2,919,176		2,375,931		543,245		(140,403		)	(20.54	)	18.61		(14.74	)
+200	3,015,892		2,428,896		586,996		(96,652		)	(14.14	)	19.46		(9.61	)
+100	3,116,363		2,484,252		632,111		(51,537		)	(7.54	)	20.28		(4.73	)
—	3,225,792		2,542,144		683,648		—			—		21.19		—
(100)	3,364,070		2,606,262		757,808		74,160			10.85		22.53		0.77
(200)	3,541,395		2,659,965		881,430		197,782			28.93		24.89		(0.84	)

At September 30, 2016, in the event of a 200 basis point decrease in interest rates, we would experience a 33.66% increase in estimated net portfolio value and a 2.23% decrease in net interest income. In the event of a 400 basis point increase in interest rates, we would experience a 24.65% decrease in estimated net portfolio value and a 16.75% decrease in net interest income. Our policies provide that, in the event of a 200 basis point decrease or less in interest rates, our net present value ratio should decrease by no more than 400 basis points and in the event of a 400 basis point increase or less, our net present value ratio should decrease by no more than 750 basis points. In the event of a 200 basis point decrease or less, our projected net interest income should decrease by no more than 15% in year one, and in the event of a 400 basis point increase or less, our projected net interest income should decrease by no more than 37% in year one. Additionally, our policy states that our net portfolio value should be at least between 8% and 10% of total assets before and after such shock. However, when the federal funds rate is low and negative rate shocks do not produce meaningful results, management may temporarily suspend use of guidelines for negative rate shocks. At September 30, 2016, we were in compliance with all board approved policies with respect to interest rate risk management.

Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in net portfolio value and net interest income. Our model requires us to make certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. However, we also apply consistent parallel yield curve shifts (in both directions) to determine possible changes in net interest income if the theoretical yield curve shifts occurred gradually. Net interest income analysis also adjusts the asset and liability repricing analysis based on changes in prepayment rates resulting from the parallel yield curve shifts. In addition, the net portfolio value 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 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 portfolio value or net interest income and will differ from actual results.

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ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of September 30, 2016. 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 September 30, 2016, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

During the three months ended September 30, 2016, there have been no material changes to the risk factors as previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 and our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, each as filed with the SEC.

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


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


(b)	Use of Proceeds. Not applicable


(c)	Repurchases of Our Equity Securities.

The following table shows the Company’s repurchase of its common stock for the three months ended September 30, 2016.



Period	(a) Total Number of Shares Purchased⁽¹⁾	(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾	(d) Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs ⁽²⁾
July 1, 2016 through July 31, 2016	—	$	—	—	—
August 1, 2016 through August 31, 2016	365	$	15.05	—	—
September 1, 2016 through September 30, 2016	404	$	15.92	—	—
Total	769	$	15.51	—

(1) Share repurchases are due to net settlement arrangements whereby shares are withheld to pay taxes incurred upon exercise of options or upon vesting of restricted shares, or to pay the exercise price of the stock option.

(2) The repurchase program permits shares to be repurchased in open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. There were no shares remaining to be purchased at September 30, 2016.

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 Quarterly Report on Form 10-Q and are listed on the “Index to Exhibits” immediately following the Signatures.

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SIGNATURES

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

NORTHFIELD BANCORP, INC.

(Registrant)

Date: November 9, 2016

/s/ John W. Alexander

John W. Alexander

Chairman and Chief Executive Officer

/s/ William R. Jacobs

William R. Jacobs

Chief Financial Officer

(Principal Financial and Accounting Officer)

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INDEX TO EXHIBITS



Exhibit
Number		Description



31.1			Certification of John W. Alexander, Chairman 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, 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