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Northfield Bancorp, Inc. - Quarter Report: 2017 June (Form 10-Q)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,  D.C. 20549 
 
FORM 10-Q
 
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
or
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For transition period from               to 
Commission File Number
 
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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth 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
 
Emerging growth company  o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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.
48,855,272 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of July 31, 2017.



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


Table of Contents

PART I
ITEM 1.        FINANCIAL STATEMENTS

NORTHFIELD BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands, except share amounts)
 
June 30, 2017
 
December 31, 2016
ASSETS:
 
 
 
Cash and due from banks
$
15,136

 
$
18,412

Interest-bearing deposits in other financial institutions
35,163

 
77,673

Total cash and cash equivalents
50,299

 
96,085

Trading securities
8,808

 
7,857

Securities available-for-sale, at estimated fair value
 
 
 
(encumbered $7,283 at June 30, 2017, and $11,786 at December 31, 2016)
473,009

 
498,897

Securities held-to-maturity, at amortized cost
10,039

 
10,148

(estimated fair value of $10,021 at June 30, 2017, and $10,118 at December 31, 2016) (encumbered of $0 at June 30, 2017, and $2,108 at December 31, 2016)
 
 
 
Loans held-for-sale
2,009

 

Originated loans held-for-investment, net
2,300,632

 
2,144,346

Loans acquired
719,248

 
793,240

Purchased credit-impaired (PCI) loans held-for-investment
28,035

 
30,498

Loans held-for-investment, net
3,047,915

 
2,968,084

Allowance for loan losses
(25,605
)
 
(24,595
)
Net loans held-for-investment
3,022,310

 
2,943,489

Accrued interest receivable
9,766

 
9,714

Bank owned life insurance
148,695

 
148,047

Federal Home Loan Bank of New York stock, at cost
26,855

 
25,123

Premises and equipment, net
25,890

 
26,910

Goodwill
38,411

 
38,411

Other real estate owned
850

 
850

Other assets
42,695

 
44,563

Total assets
$
3,859,636

 
$
3,850,094

 

 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
 
 
 
LIABILITIES:
 

 
 

Deposits
$
2,678,473

 
$
2,713,587

Borrowed funds
500,690

 
473,206

Advance payments by borrowers for taxes and insurance
15,293

 
12,331

Accrued expenses and other liabilities
26,661

 
29,774

Total liabilities
3,221,117

 
3,228,898

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 shares issued at
 

 
 

June 30, 2017 and December 31, 2016, 48,856,796 and 48,526,658 outstanding at June 30, 2017, and December 31, 2016, respectively
609

 
609

Additional paid-in-capital
544,462

 
547,910

Unallocated common stock held by employee stock ownership plan
(22,955
)
 
(23,466
)
Retained earnings
282,134

 
268,226

Accumulated other comprehensive loss
(2,447
)
 
(4,332
)
Treasury stock at cost; 12,076,911 and 12,407,049 shares at June 30, 2017, and December 31, 2016, respectively
(163,284
)
 
(167,751
)
Total stockholders’ equity
638,519

 
621,196

Total liabilities and stockholders’ equity
$
3,859,636

 
$
3,850,094


See accompanying notes to unaudited consolidated financial statements.

3

Table of Contents

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
(Unaudited) (In thousands, except per share data) 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Interest income:
 
 
 
 
 
 
 
Loans
$
29,653

 
$
27,682

 
$
58,661

 
$
54,570

Mortgage-backed securities
2,260

 
2,888

 
4,616

 
5,657

Other securities
283

 
237

 
535

 
410

Federal Home Loan Bank of New York dividends
325

 
282

 
696

 
559

Deposits in other financial institutions
139

 
79

 
221

 
141

Total interest income
32,660

 
31,168

 
64,729

 
61,337

Interest expense:
 
 
 
 
 

 
 

Deposits
3,899

 
3,703

 
7,519

 
7,127

Borrowings
1,852

 
1,824

 
3,624

 
3,841

Total interest expense
5,751

 
5,527

 
11,143

 
10,968

Net interest income
26,909

 
25,641

 
53,586

 
50,369

Provision (recovery) for loan losses
511

 
14

 
883

 
(117
)
Net interest income after provision for loan losses
26,398

 
25,627

 
52,703

 
50,486

Non-interest income:
 
 
 
 
 

 
 

Fees and service charges for customer services
1,107

 
1,174

 
2,325

 
2,372

Income on bank owned life insurance
1,010

 
1,004

 
3,468

 
1,993

Gains on securities transactions, net
256

 
247

 
664

 
249

Other
64

 
108

 
127

 
148

Total non-interest income
2,437

 
2,533

 
6,584

 
4,762

Non-interest expense:
 
 
 
 
 

 
 

Compensation and employee benefits
9,774

 
9,627

 
19,746

 
21,326

Occupancy
2,696

 
2,707

 
5,653

 
5,769

Furniture and equipment
287

 
371

 
592

 
725

Data processing
1,120

 
1,386

 
2,281

 
3,245

Professional fees
595

 
696

 
1,465

 
1,937

FDIC insurance
258

 
487

 
516

 
962

Other
1,888

 
2,220

 
3,909

 
5,029

Total non-interest expense
16,618

 
17,494

 
34,162

 
38,993

Income before income tax expense
12,217

 
10,666

 
25,125

 
16,255

Income tax expense
3,807

 
3,681

 
6,767

 
5,610

Net income
$
8,410

 
$
6,985

 
$
18,358

 
$
10,645

Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.19

 
$
0.16

 
$
0.41

 
$
0.24

Diluted
$
0.18

 
$
0.15

 
$
0.39

 
$
0.23

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.

4

Table of Contents

 
NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - (Continued)
(Unaudited) (In thousands) 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net Income
$
8,410

 
$
6,985

 
$
18,358

 
$
10,645

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized gains (losses) on securities:
 
 
 
 
 
 
 
Net unrealized holding gains on securities
2,107

 
2,978

 
3,086

 
10,255

Less: reclassification adjustment for net losses (gains) included in net income (included in gains on securities transactions, net)
4

 
(155
)
 
4

 
(206
)
Net unrealized gains
2,111

 
2,823

 
3,090

 
10,049

Post retirement benefit adjustment
27

 

 
54

 

Other comprehensive income, before tax
2,138

 
2,823

 
3,144

 
10,049

Income tax expense related to net unrealized holding gains on securities
(844
)
 
(1,196
)
 
(1,235
)
 
(4,111
)
Income tax (benefit) expense related to reclassification adjustment for (losses) gains included in net income
(2
)
 
62

 
(2
)
 
82

Income tax expense related to post retirement benefit adjustment
(11
)
 

 
(22
)
 

Other comprehensive income, net of tax
1,281

 
1,689

 
1,885

 
6,020

Comprehensive income
$
9,691

 
$
8,674

 
$
20,243

 
$
16,665


See accompanying notes to unaudited consolidated financial statements.

5

Table of Contents

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Six Months Ended June 30, 2017 and 2016
(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, 2015
45,565,540

 
$
582

 
$
501,540

 
$
(24,664
)
 
$
256,170

 
$
(2,986
)
 
$
(170,863
)
 
$
559,779

Net income
 

 
 

 
 

 
 

 
10,645

 
 

 
 

 
10,645

Other comprehensive income, net of tax
 

 
 

 
 

 
 

 
 

 
6,020

 
 

 
6,020

Acquisition of Hopewell Valley Community Bank
2,707,381

 
27

 
41,694

 
 
 
 
 
 
 
 
 
41,721

ESOP shares allocated or committed to be released
 

 
 

 
466

 
516

 
 

 
 

 
 

 
982

Stock compensation expense
 

 
 

 
4,158

 
 

 
 

 
 

 
 

 
4,158

Additional tax benefit on equity awards
 

 
 

 
890

 
 

 
 

 
 

 
 

 
890

Exercise of stock options, net
182,209

 
 

 
(2,296
)
 
 

 


 
 

 
2,396

 
100

Cash dividends declared ($0.15 per common share)
 

 
 

 
 

 
 

 
(6,810
)
 
 

 
 

 
(6,810
)
Treasury stock (average cost of $16.20 per share)
(132,925
)
 
 

 
 

 
 

 
 

 
 

 
(2,124
)
 
$
(2,124
)
Balance at June 30, 2016
48,322,205

 
$
609

 
$
546,452

 
$
(24,148
)
 
$
260,005

 
$
3,034

 
$
(170,591
)
 
$
615,361

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
48,526,658

 
$
609

 
$
547,910

 
$
(23,466
)
 
$
268,226

 
$
(4,332
)
 
$
(167,751
)
 
$
621,196

Net income
 

 
 

 
 

 
 

 
18,358

 
 

 
 

 
18,358

Other comprehensive income, net of tax
 

 
 

 
 

 
 

 
 

 
1,885

 
 

 
1,885

Cumulative effect of change in accounting principle - adoption of ASU No. 2016-09
 
 
 
 
(2,898
)
 
 
 
2,898

 
 
 
 
 

ESOP shares allocated or committed to be released
 

 
 

 
608

 
511

 
 

 
 

 
 

 
1,119

Stock compensation expense
 

 
 

 
3,217

 
 

 
 

 
 

 
 
 
3,217

Forfeitures of restricted stock
(3,600
)
 
 

 
47

 
 

 
 

 
 

 
(47
)
 

Exercise of stock options, net
333,738

 
 

 
(4,422
)
 
 

 
 
 
 

 
4,514

 
92

Cash dividends declared ($0.16 per common share)
 

 
 

 
 

 
 

 
(7,348
)
 
 

 
 

 
(7,348
)
Balance at June 30, 2017
48,856,796

 
$
609

 
$
544,462

 
$
(22,955
)
 
$
282,134

 
$
(2,447
)
 
$
(163,284
)
 
$
638,519



See accompanying notes to unaudited consolidated financial statements.

6

Table of Contents

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands)

 
Six Months Ended June 30,
 
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
18,358

 
$
10,645

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision (recovery) for loan losses
883

 
(117
)
ESOP and stock compensation expense
4,336

 
5,140

Excess tax benefit on equity awards
2,300

 

Depreciation
1,661

 
1,838

Amortization of premiums, and deferred loan costs, net of (accretion) of discounts, and deferred loan fees
994

 
956

Amortization intangible assets
196

 
226

Income on bank owned life insurance
(3,468
)
 
(1,993
)
Gains on securities transactions, net
(664
)
 
(249
)
Net purchases of trading securities
(283
)
 
(349
)
(Increase) decrease in accrued interest receivable
(52
)
 
469

Increase in other assets
(1,053
)
 
(3,815
)
Decrease in accrued expenses and other liabilities
(3,113
)
 
(475
)
Net cash provided by operating activities
20,095

 
12,276

Cash flows from investing activities:
 
 
 
Net increase in loans receivable
(82,339
)
 
(6,008
)
Purchase of loans

 
(76,714
)
Purchases of Federal Home Loan Bank of New York stock
(10,170
)
 
(3,970
)
Redemptions of Federal Home Loan Bank of New York stock
8,438

 
4,950

Purchases of securities available-for-sale
(17,746
)
 
(105,458
)
Principal payments and maturities on securities available-for-sale
45,390

 
77,058

Principal payments and maturities on securities held-to-maturity
101

 
89

Proceeds from sale of securities available-for-sale
967

 
42,317

Proceeds from bank owned life insurance
2,043

 

Purchases and improvements of premises and equipment
(641
)
 
(409
)
Net cash acquired in business combination

 
55,479

Net cash used in investing activities
(53,957
)
 
(12,666
)
Cash flows from financing activities:
 
 
 
Net (decrease) increase in deposits
(35,114
)
 
97,303

Dividends paid
(7,348
)
 
(6,810
)
Exercise of stock options
92

 
100

Purchase of employee restricted shares to fund statutory tax withholding

 
(2,124
)
Additional tax benefit on equity awards

 
890

Increase in advance payments by borrowers for taxes and insurance
2,962

 
734

Repayments under capital lease obligations
(109
)
 
(98
)
Proceeds from securities sold under agreements to repurchase and other borrowings
179,725

 
110,064

Repayments related to securities sold under agreements to repurchase and other borrowings
(152,132
)
 
(191,000
)
Net cash (used in) provided by financing activities
(11,924
)
 
9,059

Net (decrease) increase in cash and cash equivalents
(45,786
)
 
8,669

Cash and cash equivalents at beginning of period
96,085

 
51,853

Cash and cash equivalents at end of period
$
50,299

 
$
60,522

 
 
 
 
 
 
 
 
 
 
 
 

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Table of Contents


NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited) (In thousands)
 
Three Months Ended June 30,
 
2017
 
2016
Supplemental cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
10,927

 
$
10,988

Income taxes
4,500

 
6,035

Non-cash transactions:
 
 
 
Loans charged-off/(recoveries), net
(127
)
 
336

Transfer of originated loans held-for-investment to loans held-for-sale at fair value
2,009

 

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.

8

Table of Contents

NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements
Note 1 – Basis of Presentation
The consolidated financial statements are comprised of the accounts of Northfield Bancorp, Inc. (the Company) and its wholly owned subsidiaries, Northfield Investments, Inc. and Northfield Bank (the Bank), and the Bank’s wholly-owned significant subsidiaries, NSB Services Corp. and NSB Realty Trust. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
In the opinion of management, all adjustments (consisting solely of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the three and six months ended June 30, 2017, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2017 or for any other period. 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, 2016, of the Company 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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Table of Contents
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 purchase accounting for the Hopewell Valley transaction is complete, and is reflected in both the table above and the Company's Consolidated Financial Statements.
 
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.

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

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


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.

11

Table of Contents
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 June 30, 2017, and December 31, 2016 (in thousands):
 
June 30, 2017
 
 
 
Gross
 
Gross
 
Estimated
 
Amortized
 
unrealized
 
unrealized
 
fair
 
cost
 
gains
 
losses
 
value
Mortgage-backed securities:
 
 
 
 
 
 
 
Pass-through certificates:
 

 
 

 
 

 
 

Government sponsored enterprises (GSE)
$
195,505

 
$
2,414

 
$
1,990

 
$
195,929

Real estate mortgage investment conduits (REMICs):
 

 
 

 
 

 
 

GSE
216,332

 
213

 
4,705

 
211,840

Non-GSE
148

 

 
6

 
142

 
411,985

 
2,627

 
6,701

 
407,911

Other debt securities:
 
 
 
 
 
 
 
Municipal bonds
749

 
10

 

 
759

Corporate bonds
62,812

 
322

 
109

 
63,025

 
63,561

 
332

 
109

 
63,784

Other securities
 
 
 
 
 
 
 
Equity investments-mutual funds
314

 

 

 
314

Other
1,000

 

 

 
1,000

Total securities available-for-sale
$
476,860

 
$
2,959

 
$
6,810

 
$
473,009


 
December 31, 2016
 
 
 
Gross
 
Gross
 
Estimated
 
Amortized
 
unrealized
 
unrealized
 
fair
 
cost
 
gains
 
losses
 
value
Mortgage-backed securities:
 

 
 

 
 

 
 

Pass-through certificates:
 

 
 

 
 

 
 

GSE
$
225,047

 
$
2,800

 
$
3,298

 
$
224,549

REMICs:
 

 
 

 
 

 
 

GSE
230,500

 
259

 
6,466

 
224,293

Non-GSE
280

 

 
10

 
270

 
455,827

 
3,059

 
9,774

 
449,112

Other debt securities:
 
 
 
 
 
 
 
Municipal bonds
2,151

 
13

 
6

 
2,158

Corporate bonds
45,373

 
150

 
364

 
45,159

 
47,524

 
163

 
370

 
47,317

Other securities:
 
 
 
 
 
 
 
Equity investments - mutual funds
1,233

 

 
15

 
1,218

Other
1,250

 

 

 
1,250

 
2,483

 

 
15

 
2,468

Total securities available-for-sale
$
505,834

 
$
3,222

 
$
10,159

 
$
498,897


12

Table of Contents
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 June 30, 2017 (in thousands):
Available-for-sale
Amortized cost
 
Estimated fair value
Due in one year or less
$
350

 
$
350

Due after one year through five years
58,118

 
58,254

Due after five years through ten years
5,093

 
5,180

 
$
63,561

 
$
63,784

 
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 six months ended June 30, 2017, the Company had gross proceeds $967,000 on sales of securities available-for-sale, with no gross realized gains and gross realized losses of approximately $4,000. For the three and six months ended June 30, 2016, the Company had gross proceeds of $15.2 million and $42.3 million, respectively, on sales of securities available-for-sale, with gross realized gains of approximately $260,000 and $334,000, respectively, and gross realized losses of approximately $105,000 and $128,000, respectively. The Company recognized net gains of $260,000 and $668,000, on its trading securities portfolio during the three and six months ended June 30, 2017, respectively. The Company recognized net gains of $92,000 and $43,000, on its trading securities portfolio during the three and six months ended June 30, 2016, respectively. The Company did not recognize any other-than-temporary impairment charges during the three and six months ended June 30, 2017 or June 30, 2016

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 June 30, 2017, and December 31, 2016, were as follows (in thousands):
 
June 30, 2017
 
Less than 12 months
 
12 months or more
 
Total
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
losses
 
fair value
 
losses
 
fair value
 
losses
 
fair value
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Pass-through certificates:
 
 
 
 
 
 
 
 
 
 
 
GSE
$
1,829

 
$
87,686

 
$
161

 
$
7,868

 
$
1,990

 
$
95,554

REMICs:
 
 
 
 
 
 
 
 
 
 
 
GSE
1,306

 
83,025

 
3,399

 
86,057

 
4,705

 
169,082

Non-GSE

 

 
6

 
142

 
6

 
142

Other debt securities:
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
109

 
38,725

 

 

 
109

 
38,725

Total
$
3,244

 
$
209,436

 
$
3,566

 
$
94,067

 
$
6,810

 
$
303,503


13

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


 
December 31, 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
$
2,703

 
$
121,878

 
$
595

 
$
8,402

 
$
3,298

 
$
130,280

REMICs:
 
 
 
 
 
 
 
 
 
 
 
GSE
1,622

 
75,586

 
4,844

 
97,726

 
6,466

 
173,312

Non-GSE

 

 
10

 
270

 
10

 
270

Other debt securities:
 
 
 
 
 
 
 
 
 
 
 
Municipal bonds
6

 
1,679

 

 

 
6

 
1,679

Corporate bonds
364

 
26,022

 

 

 
364

 
26,022

Equity investments - mutual funds
15

 
947

 

 

 
15

 
947

Total
$
4,710

 
$
226,112

 
$
5,449

 
$
106,398

 
$
10,159

 
$
332,510

 
The Company held 19 pass-through mortgage-backed securities issued or guaranteed by GSEs, eight REMIC mortgage-backed securities issued or guaranteed by GSEs, and one REMIC mortgage-backed security not issued or guaranteed by a GSE that were in a continuous unrealized loss position of twelve months or greater at June 30, 2017. There were 19 pass-through mortgage-backed securities issued or guaranteed by GSEs, 16 REMIC mortgage-backed securities issued or guaranteed by a GSE, and seven corporate bonds that were in an unrealized loss position of less than twelve months at June 30, 2017. All securities referred to above were rated investment grade at June 30, 2017.  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.

14

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


Note 4 – Securities Held-to-Maturity
The following is a summary of mortgage-backed securities held-to-maturity at June 30, 2017, and December 31, 2016 (in thousands): 
 
June 30, 2017
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Mortgage-backed securities:
 

 
 

 
 

 
 

Pass-through certificates:
 

 
 

 
 

 
 

GSEs
$
10,039

 
$
27

 
$
45

 
$
10,021

Total securities held-to-maturity
$
10,039

 
$
27

 
$
45

 
$
10,021

 
December 31, 2016
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Mortgage-backed securities:
 

 
 

 
 

 
 

Pass-through certificates:
 

 
 

 
 

 
 

GSEs
$
10,148

 
$
29

 
$
59

 
$
10,118

Total securities held-to-maturity
$
10,148

 
$
29

 
$
59

 
$
10,118

    
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 six months ended June 30, 2017, or June 30, 2016. The Company did not recognize any other-than-temporary impairment charges in earnings on securities held-to-maturity during the three and six months ended June 30, 2017, or June 30, 2016.

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 June 30, 2017 and December 31, 2016, were as follows (in thousands):
 
June 30, 2017
 
December 31, 2016
 
Less than 12 months
 
Less than 12 months
 
Unrealized Losses
 
Estimated Fair Value
 
Unrealized Losses
 
Estimated Fair Value
Mortgage-backed securities:
 
 
 
 
 
 
 
Pass-through certificates:
 
 
 
 
 
 
 
GSEs
$
45

 
$
7,343

 
$
59

 
$
7,466

Total securities held-to-maturity
$
45

 
$
7,343

 
$
59

 
$
7,466


The Company held four pass-through mortgage-backed securities held-to-maturity, issued or guaranteed by GSE's that were in a continuous unrealized loss position of less than twelve months at June 30, 2017. Management evaluated these securities and concluded that 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.  As a result, there is a risk that significant other-than-temporary impairments may occur in the future given the current economic environment.

15

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


Note 5 – Loans
 
Net loans held-for-investment are as follows (in thousands):
 
June 30,
 
December 31,
 
2017
 
2016
Real estate loans:
 
 
 
Multifamily
$
1,658,244

 
$
1,506,335

Commercial mortgage
416,222

 
412,667

One-to-four family residential mortgage
102,393

 
105,968

Home equity and lines of credit
66,823

 
65,437

Construction and land
17,581

 
14,065

Total real estate loans
2,261,263

 
2,104,472

Commercial and industrial loans
31,525

 
31,906

Other loans
1,507

 
1,497

Total commercial and industrial and other loans
33,032

 
33,403

Deferred loan cost, net
6,337

 
6,471

Originated loans held-for-investment, net
2,300,632

 
2,144,346

PCI Loans
28,035

 
30,498

Loans acquired:
 
 
 
One-to-four family residential mortgage
277,336

 
317,639

Multifamily
207,855

 
215,389

Commercial mortgage
172,221

 
188,001

Home equity and lines of credit
22,873

 
25,522

Construction and land
17,909

 
20,887

Total acquired real estate loans
698,194

 
767,438

Commercial and industrial loans
20,741

 
25,443

Other loans
313

 
359

Total loans acquired, net
719,248

 
793,240

Loans held-for-investment, net
3,047,915

 
2,968,084

Allowance for loan losses
(25,605
)
 
(24,595
)
Net loans held-for-investment
$
3,022,310

 
$
2,943,489

Loans held-for-sale amounted to $2.0 million at June 30, 2017. There were no loans held-for-sale at December 31, 2016.
PCI loans totaled $28.0 million at June 30, 2017, as compared to $30.5 million at December 31, 2016. The majority of the PCI loan balance is attributable to those loans acquired as part of a Federal Deposit Insurance Corporation-assisted transaction. The Company accounts for PCI loans utilizing U.S. GAAP applicable to loans acquired with deteriorated credit quality. At June 30, 2017, PCI loans consist of approximately 32% commercial real estate loans and 48% commercial and industrial loans, with the remaining balance in residential and home equity loans. At December 31, 2016, PCI loans consist of approximately 30% commercial real estate loans and 40% commercial and industrial loans, with the remaining balance in residential and home equity loans.


16

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


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



The following table details the accretion of interest income for PCI loans for the three and six months ended June 30, 2017 and June 30, 2016 (in thousands): 
 
At or for the three months ended June 30,
 
At or for the six months ended June 30,
 
2017
 
2016
 
2017
 
2016
Balance at the beginning of period
$
22,763

 
$
22,418

 
$
24,215

 
$
22,853

Acquisition

 

 

 
845

Accretion into interest income
(1,321
)
 
(1,439
)
 
(2,773
)
 
(2,719
)
Balance at end of period
$
21,442

 
$
20,979

 
$
21,442

 
$
20,979


17

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


The following tables set forth activity in our allowance for loan losses, by loan type, as of and for the three and six months ended June 30, 2017, and June 30, 2016 (in thousands):  
 
Three Months Ended June 30, 2017
 
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
$
5,231

 
$
649

 
$
165

 
$
16,184

 
$
492

 
$
1,561

 
$
72

 
$

 
$
24,354

 
$
896

 
$
34

 
$
25,284

Charge-offs

 

 

 
(178
)
 
(104
)
 

 

 

 
(282
)
 

 
(8
)
 
(290
)
Recoveries
17

 

 

 

 
64

 
17

 

 

 
98

 

 
2

 
100

Provisions (credit)
(12
)
 
(99
)
 
64

 
630

 
(89
)
 
(46
)
 
25

 

 
473

 

 
38

 
511

Ending balance
$
5,236

 
$
550

 
$
229

 
$
16,636

 
$
363

 
$
1,532

 
$
97

 
$

 
$
24,643

 
$
896

 
$
66

 
$
25,605


 
Three Months Ended June 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
$
6,197

 
$
798

 
$
521

 
$
13,328

 
$
781

 
$
1,311

 
$
88

 
$
466

 
$
23,490

 
$
783

 
$
105

 
$
24,378

Charge-offs
(78
)
 
(20
)
 

 

 

 
(1
)
 

 

 
(99
)
 

 

 
(99
)
Recoveries
19

 
1

 

 

 
1

 

 
3

 

 
24

 

 

 
24

Provisions (credit)
483

 
(17
)
 
(328
)
 
224

 
(272
)
 
(44
)
 
(14
)
 
(25
)
 
7

 

 
7

 
14

Ending balance
$
6,621

 
$
762

 
$
193

 
$
13,552

 
$
510

 
$
1,266

 
$
77

 
$
441

 
$
23,422

 
$
783

 
$
112

 
$
24,317


18

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


 
Six Months Ended June 30, 2017
 
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
$
5,432

 
$
664

 
$
172

 
$
14,952

 
$
588

 
$
1,720

 
$
96

 
$

 
$
23,624

 
$
896

 
$
75

 
$
24,595

Charge-offs
(4
)
 

 

 
(178
)
 
(104
)
 

 

 

 
(286
)
 

 
(31
)
 
(317
)
Recoveries
34

 

 

 
278

 
64

 
64

 

 

 
440

 

 
4

 
444

Provisions/(credit)
(226
)
 
(114
)
 
57

 
1,584

 
(185
)
 
(252
)
 
1

 

 
865

 

 
18

 
883

Ending balance
$
5,236

 
$
550

 
$
229

 
$
16,636

 
$
363

 
$
1,532

 
$
97

 
$

 
$
24,643

 
$
896

 
$
66

 
$
25,605

 
Six Months Ended June 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
(191
)
 
(20
)
 

 
(277
)
 

 
(1
)
 

 

 
(489
)
 

 

 
(489
)
Recoveries
147

 
1

 

 

 
1

 
1

 
3

 

 
153

 

 

 
153

Provisions/(credit)
(441
)
 
(6
)
 
(68
)
 
1,442

 
(286
)
 
(22
)
 
(81
)
 
(652
)
 
(114
)
 

 
(3
)
 
(117
)
Ending balance
$
6,621

 
$
762

 
$
193

 
$
13,552

 
$
510

 
$
1,266

 
$
77

 
$
441

 
$
23,422

 
$
783

 
$
112

 
$
24,317


    

19

Table of Contents
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 June 30, 2017, and December 31, 2016 (in thousands):
 
June 30, 2017
 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
One-to-Four Family
 
Construction and Land
 
Multifamily
 
Home Equity and Lines of Credit
 
Commercial and Industrial
 
Other
 
Originated Loans Total
 
Purchased Credit-Impaired
 
Acquired Loans
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
$

 
$
47

 
$

 
$
70

 
$
14

 
$
4

 
$

 
$
135

 
$

 
$
66

 
$
201

Ending balance: collectively evaluated for impairment
$
5,236

 
$
503

 
$
229

 
$
16,566

 
$
349

 
$
1,528

 
$
97

 
$
24,508

 
$
896

 
$

 
$
25,404

Loans, net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
416,854

 
$
102,926

 
$
17,622

 
$
1,661,910

 
$
68,194

 
$
31,618

 
$
1,508

 
$
2,300,632

 
$
28,035

 
$
719,248

 
$
3,047,915

Ending balance: individually evaluated for impairment
$
18,300

 
$
2,037

 
$

 
$
1,341

 
$
326

 
$
166

 
$

 
$
22,170

 
$

 
$
1,567

 
$
23,737

Ending balance: collectively evaluated for impairment
$
398,554

 
$
100,889

 
$
17,622

 
$
1,660,569

 
$
67,868

 
$
31,452

 
$
1,508

 
$
2,278,462

 
$
28,035

 
$
717,681

 
$
3,024,178


 
December 31, 2016
 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
One-to-Four Family
 
Construction and Land
 
Multifamily
 
Home Equity and Lines of Credit
 
Commercial and Industrial
 
Other
 
Originated Loans Total
 
Purchased Credit-Impaired
 
Acquired Loans
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
$
64

 
$
66

 
$

 
$
95

 
$
23

 
$
5

 
$

 
$
253

 
$

 
$
75

 
$
328

Ending balance: collectively evaluated for impairment
$
5,368

 
$
598

 
$
172

 
$
14,857

 
$
565

 
$
1,715

 
$
96

 
$
23,371

 
$
896

 
$

 
$
24,267

Loans, net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
413,352

 
$
106,524

 
$
14,092

 
$
1,510,100

 
$
66,767

 
$
32,013

 
$
1,498

 
$
2,144,346

 
$
30,498

 
$
793,240

 
$
2,968,084

Ending balance: individually evaluated for impairment
$
20,710

 
$
2,180

 
$

 
$
1,372

 
$
336

 
$
101

 
$

 
$
24,699

 
$

 
$
1,591

 
$
26,290

Ending balance: collectively evaluated for impairment
$
392,642

 
$
104,344

 
$
14,092

 
$
1,508,728

 
$
66,431

 
$
31,912

 
$
1,498

 
$
2,119,647

 
$
30,498

 
$
791,649

 
$
2,941,794


20

Table of Contents
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.

21

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


The following tables detail the recorded investment of originated loans held-for-investment, net of deferred fees and costs, by loan type and credit quality indicator at June 30, 2017, and December 31, 2016 (in thousands):
 
June 30, 2017
 
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
$
134,577

 
$
1,523,114

 
$
60,771

 
$
339,713

 
$
59,336

 
$
40,317

 
$
17,622

 
$
67,928

 
$
30,792

 
$
1,508

 
$
2,275,678

Special Mention
12

 
4,085

 

 
1,847

 
693

 

 

 
29

 
637

 

 
7,303

Substandard
38

 
84

 

 
14,523

 
1,834

 
746

 

 
237

 
189

 

 
17,651

Originated loans held-for-investment, net
$
134,627

 
$
1,527,283

 
$
60,771

 
$
356,083

 
$
61,863

 
$
41,063

 
$
17,622

 
$
68,194

 
$
31,618

 
$
1,508

 
$
2,300,632


 
December 31, 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
$
122,525

 
$
1,381,231

 
$
65,612

 
$
323,842

 
$
59,214

 
$
43,316

 
$
14,092

 
$
66,489

 
$
31,173

 
$
1,498

 
$
2,108,992

Special Mention
25

 
4,636

 

 
3,852

 
705

 

 

 
29

 
696

 

 
9,943

Substandard
40

 
1,643

 
1,179

 
18,867

 
1,807

 
1,482

 

 
249

 
144

 

 
25,411

Originated loans held-for-investment, net
$
122,590

 
$
1,387,510

 
$
66,791

 
$
346,561

 
$
61,726

 
$
44,798

 
$
14,092

 
$
66,767

 
$
32,013

 
$
1,498

 
$
2,144,346


22

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


Included in loans receivable (including loans held-for-sale) are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The recorded investment of these non-accrual loans was $6.0 million and $7.3 million at June 30, 2017, and December 31, 2016, respectively. 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 $3.1 million and $5.7 million at June 30, 2017, and December 31, 2016, 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 $2.4 million and $1.7 million at June 30, 2017, and December 31, 2016, respectively. Non-accrual amounts included in loans held-for-sale were $494,000 at June 30, 2017. There were no loans held-for-sale at December 31, 2016. Loans past due 90 days or more and still accruing interest were $291,000 and $60,000 at June 30, 2017, and December 31, 2016, respectively, and consisted of loans that are considered well secured and in the process of collection.

23

Table of Contents
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 June 30, 2017, and December 31, 2016, 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):
 
June 30, 2017
 
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%
 

 
 

 
 

 
 

 
 

 
 

Pass
$

 
$

 
$

 
$

 
$
84

 
$
84

LTV => 35%
 

 
 

 
 

 
 

 
 

 
 

Substandard
463

 
331

 
2,305

 
3,099

 

 
3,099

Total commercial
463

 
331

 
2,305

 
3,099

 
84

 
3,183

One-to-four family residential
 

 
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Pass

 

 

 

 
108

 
108

Substandard

 

 
544

 
544

 
8

 
552

Total




544

 
544

 
116

 
660

LTV => 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 

 

 
41

 
41

Total one-to-four family residential

 

 
544

 
544

 
157

 
701

Multifamily
 

 
 

 
 

 
 

 
 

 
 

LTV => 35%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 
422

 

 
422

 

 
422

Total multifamily

 
422

 

 
422

 

 
422

Home equity and lines of credit
 

 
 

 
 

 
 

 
 

 
 

Substandard
88

 

 

 
88

 

 
88

Total home equity and lines of credit
88

 

 

 
88

 

 
88

Commercial and industrial loans
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
72

 
72

 

 
72

Total commercial and industrial loans

 

 
72

 
72

 

 
72

Other loans
 
 
 
 
 
 
 
 
 
 
 
Pass

 

 

 

 
47

 
47

Total other

 

 

 

 
47

 
47

Total non-performing loans held-for-investment, originated
551

 
753

 
2,921

 
4,225

 
288

 
4,513

Loans acquired:
 

 
 

 
 

 
 

 
 

 
 

Commercial
 

 
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 
39

 
216

 
255

 

 
255

LTV => 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard

 
742

 
58

 
800

 

 
800

Total commercial

 
781

 
274

 
1,055

 

 
1,055

One-to-four family residential
 

 
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 
203

 

 
203

 

 
203

Total one-to-four family residential

 
203

 

 
203

 

 
203

Home equity and lines of credit
 

 
 

 
 

 
 

 
 

 
 

Substandard
29

 

 

 
29

 
3

 
32

Total home equity and lines of credit
29

 

 

 
29

 
3

 
32

Commercial and industrial loans
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
4

 
4

 

 
4

Total commercial and industrial loans

 

 
4

 
4

 

 
4

Total non-performing loans acquired
29

 
984

 
278

 
1,291

 
3

 
1,294

Total non-performing loans
$
580


$
1,737

 
$
3,199

 
$
5,516

 
$
291

 
$
5,807


24

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


 
December 31, 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
 

 
 

 
 

 
 

 
 

 
 

Substandard
$
341

 
$

 
$
4,882

 
$
5,223

 
$

 
$
5,223

Total commercial
341

 

 
4,882

 
5,223

 

 
5,223

One-to-four family residential
 

 
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard
384

 
383

 
442

 
1,209

 
9

 
1,218

Total
384

 
383

 
442

 
1,209

 
9

 
1,218

LTV => 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 

 

 
43

 
43

Total

 

 

 

 
43

 
43

Total one-to-four family residential
384

 
383

 
442

 
1,209

 
52

 
1,261

Multifamily
 

 
 

 
 

 
 

 
 

 
 

LTV < 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard
40

 

 

 
40

 

 
40

LTV => 35%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
3

 
3

 

 
3

Total multifamily
40

 

 
3

 
43

 

 
43

Home equity and lines of credit
 
 
 
 
 
 
 
 
 
 
 
Substandard

 
96

 

 
96

 

 
96

Total home equity and lines of credit

 
96

 

 
96

 

 
96

Other loans
 
 
 
 
 
 
 
 
 
 
 
Pass

 

 

 

 

 

Total other loans

 

 

 

 

 

Total non-performing loans held-for-investment, originated
765

 
479

 
5,327

 
6,571

 
52

 
6,623

Loans acquired:
 

 
 

 
 

 
 

 
 

 
 

Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard

 

 
231

 
231

 

 
231

LTV => 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard

 

 
59

 
59

 

 
59

Total commercial

 

 
290

 
290

 

 
290

One-to-four family residential
 
 
 
 
 
 
 
 
 
 
 
LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard
420

 

 

 
420

 

 
420

Total one-to-four family residential
420

 




420




420

Home equity and lines of credit

 

 
31

 
31

 
8

 
39

Commercial and industrial

 

 
9

 
9

 

 
9

Total non-performing loans acquired:
420

 

 
330

 
750

 
8

 
758

Total non-performing loans
$
1,185

 
$
479

 
$
5,657

 
$
7,321

 
$
60

 
$
7,381



25

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


The following tables set forth the detail and delinquency status of originated and acquired loans held-for-investment, net of deferred fees and costs, by performing and non-performing loans at June 30, 2017, and December 31, 2016 (in thousands):
 
June 30, 2017
 
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
$
60,272

 
$
415

 
$
60,687

 
$
84

 
$
60,771

Substandard

 

 

 

 

Total
60,272

 
415

 
60,687

 
84

 
60,771

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
337,757

 
1,956

 
339,713

 

 
339,713

Special Mention
1,847

 

 
1,847

 

 
1,847

Substandard
8,957

 
2,468

 
11,425

 
3,098

 
14,523

Total
348,561

 
4,424

 
352,985

 
3,098

 
356,083

Total commercial
408,833

 
4,839

 
413,672

 
3,182

 
416,854

One-to-four family residential
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

Pass
56,935

 
2,293

 
59,228

 
108

 
59,336

Special Mention
127

 
566

 
693

 

 
693

Substandard
1,028

 
254

 
1,282

 
552

 
1,834

Total
58,090

 
3,113

 
61,203

 
660

 
61,863

LTV => 60%
 

 
 

 
 

 
 

 
 

Pass
40,317

 

 
40,317

 

 
40,317

Substandard
705

 

 
705

 
41

 
746

Total
41,022

 

 
41,022

 
41

 
41,063

Total one-to-four family residential
99,112

 
3,113

 
102,225

 
701

 
102,926

Construction and land
 

 
 

 
 

 
 

 
 

Pass
17,622

 

 
17,622

 

 
17,622

Total construction and land
17,622

 

 
17,622

 

 
17,622

Multifamily
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 

 
 

Pass
134,268

 
309

 
134,577

 

 
134,577

Special Mention
12

 

 
12

 

 
12

Substandard
38

 

 
38

 

 
38

Total
134,318

 
309

 
134,627

 

 
134,627

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
1,521,588

 
1,526

 
1,523,114

 

 
1,523,114

Special Mention
3,432

 
653

 
4,085

 

 
4,085

Substandard
84

 

 
84

 

 
84

Total
1,525,104

 
2,179

 
1,527,283

 

 
1,527,283

Total multifamily
1,659,422

 
2,488

 
1,661,910

 

 
1,661,910

Home equity and lines of credit
 

 
 

 
 

 
 

 
 

Pass
67,725

 
202

 
67,927

 
1

 
67,928

Special Mention
29

 

 
29

 

 
29

Substandard
149

 

 
149

 
88

 
237

Total home equity and lines of credit
67,903

 
202

 
68,105

 
89

 
68,194

Commercial and industrial
 

 
 

 
 

 
 

 
 

Pass
30,510

 
282

 
30,792

 

 
30,792

Special Mention
637

 

 
637

 

 
637

Substandard
117

 

 
117

 
72

 
189

Total commercial and industrial
31,264

 
282

 
31,546

 
72

 
31,618


26

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


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2017
 
Performing (Accruing) Loans (Continued)
 
 
 
 
 
0-29 Days Past Due
 
30-89 Days Past Due
 
Total
 
Non-Performing Loans
 
Total Loans Receivable, net
Other loans - Pass
1,461

 

 
1,461

 
47

 
1,508

Total originated loans held-for-investment
$
2,285,617

 
$
10,924

 
$
2,296,541

 
$
4,091

 
$
2,300,632

Acquired loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
 
 
Pass
250,094

 
223

 
250,317

 

 
250,317

Special Mention
480

 

 
480

 

 
480

Substandard
1,269

 
160

 
1,429

 
203

 
1,632

Total
251,843

 
383

 
252,226

 
203

 
252,429

LTV => 60%
 

 
 

 
 

 
 

 
 

Pass
24,770

 

 
24,770

 

 
24,770

Substandard
137

 

 
137

 

 
137

Total
24,907

 

 
24,907

 

 
24,907

Total one-to-four family residential
276,750

 
383

 
277,133

 
203

 
277,336

Commercial
 

 
 

 
 

 
 
 
 
LTV < 35%
 

 
 

 
 

 
 
 
 
Pass
53,402

 
3

 
53,405

 

 
53,405

Special Mention
94

 
185

 
279

 

 
279

Substandard

 

 

 
255

 
255

Total
53,496

 
188

 
53,684

 
255

 
53,939

LTV => 35%
 
 
 
 
 
 
 
 
 
Pass
112,850

 
291

 
113,141

 

 
113,141

Special Mention

 
577

 
577

 

 
577

Substandard
3,764

 

 
3,764

 
800

 
4,564

Total
116,614

 
868

 
117,482

 
800

 
118,282

Total commercial
170,110

 
1,056

 
171,166

 
1,055

 
172,221

Construction and land
 

 
 

 
 

 
 

 
 

Pass
17,909

 

 
17,909

 

 
17,909

Total construction and land
17,909

 

 
17,909

 

 
17,909

Multifamily
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 
 
 
Pass
197,743

 

 
197,743

 

 
197,743

Special Mention

 
96

 
96

 

 
96

Substandard
154

 

 
154

 

 
154

Total
197,897

 
96

 
197,993

 

 
197,993

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
9,440

 

 
9,440

 

 
9,440

Substandard

 

 

 
422

 
422

Total
9,440

 

 
9,440

 
422

 
9,862

Total multifamily
207,337

 
96

 
207,433

 
422

 
207,855

Home equity and lines of credit
 
 
 
 
 
 
 
 
 
Pass
22,742

 
8

 
22,750

 

 
22,750

Substandard

 
91

 
91

 
32

 
123

Total home equity and lines of credit
22,742

 
99

 
22,841

 
32

 
22,873

Commercial and industrial
 
 
 
 
 
 
 
 
 
Pass
20,723

 
14

 
20,737

 

 
20,737

Substandard

 

 

 
4

 
4

Total commercial and industrial
20,723

 
14

 
20,737

 
4

 
20,741

Other - Pass
313

 

 
313

 

 
313

Total loans acquired
715,884

 
1,648

 
717,532

 
1,716

 
719,248

 
$
3,001,501

 
$
12,572

 
$
3,014,073

 
$
5,807

 
$
3,019,880


27

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


 
December 31, 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
$
65,189

 
$
423

 
$
65,612

 

 
$
65,612

Substandard
1,179

 

 
1,179

 

 
1,179

Total
66,368

 
423

 
66,791

 

 
66,791

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
322,307

 
1,535

 
323,842

 

 
323,842

Special Mention
3,852

 

 
3,852

 

 
3,852

Substandard
12,600

 
1,044

 
13,644

 
5,223

 
18,867

Total
338,759

 
2,579

 
341,338

 
5,223

 
346,561

Total commercial
405,127

 
3,002

 
408,129

 
5,223

 
413,352

One-to-four family residential
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

Pass
56,787

 
2,427

 
59,214

 

 
59,214

Special Mention

 
705

 
705

 

 
705

Substandard
589

 

 
589

 
1,218

 
1,807

Total
57,376

 
3,132

 
60,508

 
1,218

 
61,726

LTV => 60%
 

 
 

 
 

 
 

 
 

Pass
43,316

 

 
43,316

 

 
43,316

Substandard
1,439

 

 
1,439

 
43

 
1,482

Total
44,755

 

 
44,755

 
43

 
44,798

Total one-to-four family residential
102,131

 
3,132

 
105,263

 
1,261

 
106,524

Construction and land
 

 
 

 
 

 
 

 
 

Pass
14,092

 

 
14,092

 

 
14,092

Total construction and land
14,092

 

 
14,092

 

 
14,092

Multifamily
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 

 
 

Pass
122,525

 

 
122,525

 

 
122,525

Special Mention
25

 

 
25

 

 
25

Substandard

 

 

 
40

 
40

Total
122,550

 

 
122,550

 
40

 
122,590

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
1,380,331

 
900

 
1,381,231

 

 
1,381,231

Special Mention
4,636

 

 
4,636

 

 
4,636

Substandard
1,640

 

 
1,640

 
3

 
1,643

Total
1,386,607

 
900

 
1,387,507

 
3

 
1,387,510

Total multifamily
1,509,157

 
900

 
1,510,057

 
43

 
1,510,100

Home equity and lines of credit
 

 
 

 
 

 
 

 
 

Pass
66,369

 
120

 
66,489

 

 
66,489

Special Mention
29

 

 
29

 

 
29

Substandard
153

 

 
153

 
96

 
249

Total home equity and lines of credit
66,551

 
120

 
66,671

 
96

 
66,767

Commercial and industrial loans
 

 
 

 
 

 
 

 
 

Pass
31,040

 
133

 
31,173

 

 
31,173

Special Mention
696

 

 
696

 

 
696

Substandard
144

 

 
144

 

 
144

Total commercial and industrial loans
31,880

 
133

 
32,013

 

 
32,013

Other loans
 

 
 

 
 

 
 

 
 

Pass
1,452

 
46

 
1,498

 

 
1,498

Other loans - Pass
1,452

 
46

 
1,498

 

 
1,498


28

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


 
December 31, 2016
 
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
$
2,130,390

 
$
7,333

 
$
2,137,723

 
$
6,623

 
$
2,144,346

Loans Acquired
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
 
 
Pass
285,116

 
21

 
285,137

 

 
285,137

Special Mention
502

 

 
502

 

 
502

Substandard
654

 
261

 
915

 
420

 
1,335

Total
286,272

 
282

 
286,554

 
420

 
286,974

LTV => 60%
 
 
 
 
 
 
 
 
 
Pass
30,199

 

 
30,199

 

 
30,199

Substandard
259

 
207

 
466

 

 
466

Total
30,458

 
207

 
30,665

 

 
30,665

Total one-to-four family residential
316,730

 
489

 
317,219

 
420

 
317,639

Commercial
 
 
 
 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
Pass
61,646

 
7

 
61,653

 

 
61,653

Special Mention
286

 

 
286

 

 
286

Substandard
406

 
1,040

 
1,446

 
231

 
1,677

Total
62,338

 
1,047

 
63,385

 
231

 
63,616

LTV => 35%
 
 
 
 
 
 
 
 
 
Pass
119,932

 
132

 
120,064

 

 
120,064

Special Mention
446

 
138

 
584

 

 
584

Substandard
3,419

 
259

 
3,678

 
59

 
3,737

Total
123,797

 
529

 
124,326

 
59

 
124,385

Total commercial
186,135

 
1,576

 
187,711

 
290

 
188,001

Construction and land
 
 
 
 
 
 
 
 
 
Pass
20,887

 

 
20,887

 

 
20,887

Total construction and land
20,887

 

 
20,887

 

 
20,887

Multifamily
 
 
 
 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
Pass
205,025

 

 
205,025

 

 
205,025

Special Mention
99

 
111

 
210

 

 
210

Substandard
156

 

 
156

 

 
156

Total
205,280

 
111

 
205,391

 

 
205,391

LTV => 35%
 
 
 
 
 
 
 
 
 
Pass
9,569

 

 
9,569

 

 
9,569

Substandard

 
429

 
429

 

 
429

Total
9,569

 
429

 
9,998

 

 
9,998

Total multifamily
214,849

 
540

 
215,389

 

 
215,389

Home equity and lines of credit
 
 
 
 
 
 
 
 
 
Pass
25,340

 
45

 
25,385

 

 
25,385

Substandard

 
98

 
98

 
39

 
137

Total home equity and lines of credit
25,340

 
143

 
25,483

 
39

 
25,522

Commercial and industrial loans
 
 
 
 
 
 
 
 
 
Pass
25,419

 

 
25,419

 

 
25,419

Substandard

 
15

 
15

 
9

 
24

Total commercial and industrial loans
25,419

 
15

 
25,434

 
9

 
25,443

Other
355

 
4

 
359

 

 
359

Total loans acquired
789,715

 
2,767

 
792,482

 
758

 
793,240

 
$
2,920,105

 
$
10,100

 
$
2,930,205

 
$
7,381

 
$
2,937,586


29

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


The following table summarizes originated and acquired impaired loans as of June 30, 2017, and December 31, 2016 (in thousands):
 
June 30, 2017
 
December 31, 2016
 
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
5,803

 
5,940

 

 
3,911

 
4,047

 

Substandard
12,497

 
14,062

 

 
14,780

 
16,868

 

One-to-four family residential
 

 
 

 
 

 
 
 
 
 
 
LTV < 60%
 

 
 

 
 

 
 
 
 
 
 
Pass
619

 
619

 

 
633

 
633

 

Substandard
582

 
642

 

 
184

 
184

 

LTV => 60%
 
 
 
 
 
 
 
 
 
 
 
Substandard
277

 
451

 

 
620

 
848

 

Multifamily
 

 
 

 
 

 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard
154

 
154

 

 
156

 
156

 

LTV => 35%
 

 
 

 
 

 
 
 
 
 
 
Pass
57

 
528

 

 
63

 
534

 
 
Home equity and lines of credit
 
 
 
 
 
 
 
 
 
 
 
Pass
37

 
37

 
 
 
39

 
39

 

Commercial and industrial loans
 

 
 

 
 

 
 
 
 
 
 
Substandard
141

 
141

 

 
75

 
75

 

With a Related Allowance Recorded:
 

 
 

 
 

 
 
 
 
 
 
Real estate loans:
 

 
 

 
 

 
 
 
 
 
 
Commercial
 

 
 

 
 

 
 
 
 
 
 
LTV => 35%
 

 
 

 
 

 
 
 
 
 
 
Substandard

 

 

 
2,019

 
2,019

 
(64
)
One-to-four family residential
 

 
 

 
 

 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
 
 
 
 
Substandard
1,701

 
1,701

 
(108
)
 
1,522

 
1,522

 
(97
)
LTV => 60%
 
 
 
 
 
 
 
 
 
 
 
Pass
271

 
271

 
(5
)
 
275

 
275

 
(3
)
Substandard

 

 

 
381

 
381

 
(41
)
Multifamily
 

 
 

 
 

 
 
 
 
 
 
LTV => 35%
 
 
 
 
 
 
 
 
 
 
 
Pass
1,284

 
1,284

 
(70
)
 
1,309

 
1,309

 
(95
)
Home equity and lines of credit
 

 
 

 
 

 
 
 
 
 
 
Pass
252

 
252

 
(1
)
 
258

 
258

 
(5
)
Substandard
37

 
37

 
(13
)
 
39

 
39

 
(18
)
Commercial and industrial loans
 

 
 

 
 

 
 
 
 
 
 
Special Mention
25

 
25

 
(4
)
 
26

 
26

 
(5
)
Total:
 

 
 

 
 

 
 
 
 
 
 
Real estate loans
 

 
 

 
 

 
 
 
 
 
 
Commercial
18,300

 
20,141

 

 
20,710

 
23,073

 
(64
)
One-to-four family residential
3,450

 
3,684

 
(113
)
 
3,615

 
3,843

 
(141
)
Multifamily
1,495

 
1,966

 
(70
)
 
1,528

 
1,999

 
(95
)
Home equity and lines of credit
326

 
326

 
(14
)
 
336

 
336

 
(23
)
Commercial and industrial loans
166

 
166

 
(4
)
 
101

 
101

 
(5
)
 
$
23,737

 
$
26,283

 
$
(201
)
 
$
26,290

 
$
29,352

 
$
(328
)

30

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


Included in the above table at June 30, 2017, are impaired loans with carrying balances of $15.2 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, 2016, are loans with carrying balances of $11.5 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 June 30, 2017, and December 31, 2016, are considered to have sufficient collateral values, less costs to sell, to support the carrying balances of the loans.


31

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


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 June 30, 2017 and June 30, 2016 (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30, 2017
 
June 30, 2016
 
June 30, 2017
 
June 30, 2016
 
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%
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
Substandard
$

 
$
16

 
$

 
$

 
$

 
$
22

 
$

 
$

LTV => 35%
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
Pass
5,836

 
68

 
3,996

 
54

 
5,194

 
132

 
4,014

 
99

Substandard
12,557

 
129

 
13,699

 
166

 
13,298

 
256

 
13,590

 
350

One-to-four family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
622

 
8

 
651

 
7

 
626

 
15

 
508

 
16

Substandard
585

 
6

 
231

 
1

 
451

 
12

 
232

 
1

LTV => 60%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Substandard
278

 
5

 
148

 
1

 
392

 
10

 
149

 
2

Multifamily
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Substandard
154

 
2

 

 

 
155

 
3

 

 

LTV => 35%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
58

 
4

 
70

 
4

 
60

 
8

 
71

 
8

Substandard

 

 
809

 
7

 

 

 
877

 
11

Home equity and lines of credit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
37

 

 

 

 
38

 
1

 

 

Commercial and industrial loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Substandard
143

 

 
83

 

 
120

 

 
84

 

With a Related Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LTV => 35%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Substandard

 

 
7,915

 
16

 
673

 

 
6,907

 
31

One-to-four family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass

 

 
61

 
1

 

 

 
208

 
1

Substandard
1,398

 
9

 
1,588

 
5

 
1,439

 
19

 
1,593

 
11

LTV => 60%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
272

 
6

 

 

 
273

 
10

 

 

Substandard
189

 

 
1,091

 
11

 
253

 

 
1,072

 
15

Multifamily
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LTV => 35%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
1,289

 
8

 
670

 
13

 
1,296

 
20

 
446

 
25

Substandard
450

 

 
679

 

 
300

 

 
909

 

Home equity and lines of credit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
254

 
2

 
265

 
2

 
255

 
3

 
266

 
4

Special Mention

 

 
43

 
1

 

 

 
43

 
1

Substandard
38

 

 
40

 

 
38

 
1

 
40

 
1

Commercial and industrial loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Special Mention
26

 

 
28

 

 
26

 

 
28

 
1

Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
18,393

 
213

 
25,610

 
236

 
19,165

 
410

 
24,511

 
480

One-to-four family residential
3,344

 
34

 
3,770

 
26

 
3,434

 
66

 
3,762

 
46

Multifamily
1,951

 
14

 
2,228

 
24

 
1,811

 
31

 
2,303

 
44

Home equity and lines of credit
329

 
2

 
348

 
3

 
331

 
5

 
349

 
6

Commercial and industrial loans
169

 

 
111

 

 
146

 

 
112

 
1

 
$
24,186

 
$
263

 
$
32,067

 
$
289

 
$
24,887

 
$
512

 
$
31,037

 
$
577

    

32

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



There were no loans modified as troubled debt restructurings (TDRs) during the three months ended June 30, 2017. There was one one-to-four family residential loan modified as a TDR during the six months ended June 30, 2017. This loan had a pre- and post-modification balance of $256,000 as of the date of modification, and was restructured to receive a reduced interest rate. There were no loans modified as TDRs during the three or six months ended June 30, 2016.

At June 30, 2017, and December 31, 2016, we had TDRs of $22.2 million and $22.4 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.

At June 30, 2017, there was one TDR loan that was restructured during the preceding twelve months ended June 30, 2017, that subsequently defaulted. The loan was a one-to-four family residential loan, with a recorded investment of $254,000, which was 90 days or more past due and on non-accrual status at June 30, 2017. At June 30, 2016, there were three TDR loans that were restructured during the twelve months ended June 30, 2016, that subsequently defaulted. The loans consisted of one commercial real estate loan with a recorded investment of $1.8 million, which was less than 90 days delinquent 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.

Note 6 – Deposits

Deposits account balances are summarized as follows (in thousands):
 
June 30,
 
December 31,
 
2017
 
2016
Non-interest-bearing demand
$
383,158

 
$
390,484

Interest-bearing negotiable orders of withdrawal (NOW)
379,785

 
467,440

Savings and money market
1,293,036

 
1,319,586

Certificates of deposit
622,494

 
536,077

Total deposits
$
2,678,473

 
$
2,713,587

 
Interest expense on deposit accounts is summarized for the periods indicated (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Negotiable orders of withdrawal, savings, and money market
$
2,079

 
$
2,020

 
$
4,109

 
$
3,896

Certificates of deposit
1,820

 
1,683

 
3,410

 
3,231

Total interest expense on deposit accounts
$
3,899

 
$
3,703

 
$
7,519

 
$
7,127



33

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


Note 7 Equity Incentive Plan
 
The following table is a summary of the Company’s stock options outstanding as of June 30, 2017, and changes therein during the six months then ended.
 
Number of Stock Options
 
Weighted Average Grant Date Fair Value
 
Weighted Average Exercise Price
 
Weighted Average Contractual Life (years)
Outstanding - December 31, 2016
5,328,670

 
$
3.41

 
$
11.36

 
5.78

Granted

 

 

 

Forfeited
(12,800
)
 
3.99

 
13.89

 

Exercised
(554,723
)
 
$
2.40

 
$
7.49

 

Outstanding - June 30, 2017
4,761,147

 
$
3.52

 
$
11.81

 
5.66

Exercisable - June 30, 2017
3,120,770

 
$
3.25

 
$
10.72

 
4.75

 
Expected future stock option expense related to the non-vested options outstanding as of June 30, 2017, is $5.7 million over a weighted average period of 2.40 years.
The following is a summary of the status of the Company’s restricted stock awards as of June 30, 2017, and changes therein during the six months then ended.
 
Number of Shares Awarded
 
Weighted Average Grant Date Fair Value
Non-vested at December 31, 2016
924,002

 
$
13.82

Vested
(271,960
)
 
13.63

Forfeited
(3,600
)
 
13.13

Non-vested at June 30, 2017
648,442

 
$
13.91

 
Expected future stock award expense related to the non-vested restricted share awards as of June 30, 2017, is $7.9 million over a weighted average period of 2.44 years.    

During the three months ended June 30, 2017 and 2016, the Company recorded $1.6 million and $2.1 million, respectively, of stock-based compensation related to the above plans. During the six months ended June 30, 2017 and 2016, the Company recorded $3.2 million and $4.2 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 June 30, 2017, and December 31, 2016, 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.

34

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


 
Fair Value Measurements at June 30, 2017 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
$
407,769

 
$

 
$
407,769

 
$

Non-GSE
142

 

 
142

 

Other securities:
 
 
 
 
 
 
 
Municipal bonds
759

 

 
759

 

Corporate bonds
63,025

 

 
63,025

 

Equities
314

 
314

 

 

Other
1,000

 

 
1,000

 

Total available-for-sale
473,009

 
314

 
472,695

 

Trading securities
8,808

 
8,808

 

 

Total
$
481,817

 
$
9,122

 
$
472,695

 
$

Measured on a non-recurring basis:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
Commercial real estate
$
4,801

 
$

 
$

 
$
4,801

One-to-four family residential mortgage
1,996

 

 

 
1,996

Multifamily
1,270

 

 

 
1,270

Home equity and lines of credit
276

 

 

 
276

Total impaired real estate loans
8,343

 

 

 
8,343

Commercial and industrial loans
21

 

 

 
21

Other real estate owned
850

 

 

 
850

Total
$
9,214

 
$

 
$

 
$
9,214


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


 
Fair Value Measurements at December 31, 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
$
448,842

 
$

 
$
448,842

 
$

Non-GSE
270

 

 
270

 

Other securities:
 
 
 
 
 
 
 
Municipal bonds
2,158

 

 
2,158

 

Corporate bonds
45,159

 

 
45,159

 

Equities
1,218

 
271

 
947

 

Other
1,250

 

 
1,250

 

Total available-for-sale
498,897

 
271

 
498,626

 

Trading securities
7,857

 
7,857

 

 

Total
$
506,754

 
$
8,128

 
$
498,626

 
$

Measured on a non-recurring basis:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
Commercial real estate
$
10,730

 
$

 
$

 
$
10,730

One-to-four family residential mortgage
2,177

 

 

 
2,177

Multifamily
1,276

 

 

 
1,276

Home equity and lines of credit
274

 

 

 
274

Total impaired real estate loans
14,457

 

 

 
14,457

Commercial and industrial loans
21

 

 

 
21

Other real estate owned
850

 

 

 
850

Total
$
15,328

 
$

 
$

 
$
15,328


The following table presents qualitative information for Level 3 assets measured at fair value on a non-recurring basis at June 30, 2017, and December 31, 2016 (dollars in thousands):
 
Fair Value
 
Valuation Methodology
 
Unobservable Inputs       
 
Range of Inputs
 
June 30, 2017
 
December 31, 2016
 
 
 
 
 
June 30, 2017
 
December 31, 2016
Impaired loans
$
8,364

 
$
14,478

 
Appraisals
 
Discount for costs to sell
 
7.0%
 
7.0%
 
 
 
 
 
 
 
Discount for quick sale
 
10.0%
 
10.0%
 
 
 
 
 
Discounted cash flows
 
Interest rates
 
3.125% to 6.75%
 
4.75% to 7.5%
Other real estate owned
$
850

 
$
850

 
Appraisals
 
Discount for costs to sell
 
7.0%
 
7.0%

36

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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 six months ended June 30, 2017.     
Trading Securities: Fair values are derived from quoted market prices in active markets.  The assets consist of publicly traded mutual funds.
 
Impaired Loans: At June 30, 2017, and December 31, 2016, the Company had impaired loans held-for-investment (excluding PCI loans) with outstanding principal balances of $10.9 million and $17.7 million, respectively, which were recorded at their estimated fair value of $8.4 million and $14.5 million, respectively. The Company recorded a net decrease in the specific reserve for impaired loans of $127,000 for the six months ended June 30, 2017, and a net increase in the specific reserve for impaired loans of $117,000 for the six months ended June 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 both June 30, 2017 and December 31, 2016, the Company had assets acquired through foreclosure, or deed in lieu of foreclosure, of $850,000. 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 June 30, 2017, and December 31, 2016, is presented in the following tables (in thousands):
 
June 30, 2017
 
 
 
Estimated Fair Value
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
50,299

 
$
50,299

 
$

 
$

 
$
50,299

Trading securities
8,808

 
8,808

 

 

 
8,808

Securities available-for-sale
473,009

 
314

 
472,695

 

 
473,009

Securities held-to-maturity
10,039

 

 
10,021

 

 
10,021

Federal Home Loan Bank of New York stock, at cost
26,855

 

 
26,855

 

 
26,855

Loans held-for-sale
2,009

 

 

 
2,009

 
2,009

Net loans held-for-investment
3,022,310

 

 

 
3,020,974

 
3,020,974

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
$
2,678,473

 
$

 
$
2,681,014

 
$

 
$
2,681,014

Borrowed funds
500,690

 

 
499,220

 

 
499,220

Advance payments by borrowers for taxes and insurance
15,293

 

 
15,293

 

 
15,293


 
December 31, 2016
 
 
 
Estimated Fair Value
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
96,085

 
$
96,085

 
$

 
$

 
$
96,085

Trading securities
7,857

 
7,857

 

 

 
7,857

Securities available-for-sale
498,897

 
271

 
498,626

 

 
498,897

Securities held-to-maturity
10,148

 

 
10,118

 

 
10,118

Federal Home Loan Bank of New York stock, at cost
25,123

 

 
25,123

 

 
25,123

Net loans held-for-investment
2,943,489

 

 

 
2,970,438

 
2,970,438

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
$
2,713,587

 
$

 
$
2,720,176

 
$

 
$
2,720,176

Borrowed funds
473,206

 

 
472,387

 

 
472,387

Advance payments by borrowers for taxes and insurance
12,331

 

 
12,331

 

 
12,331

 
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 would then be included in the weighted average number of shares outstanding for the period using the treasury stock method. In March 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, a new standard that simplifies certain aspects of accounting for share-based payments. The Company adopted ASU No. 2016-09 effective for the first quarter of 2017. The update amended the diluted earnings per share calculation in that excess tax benefits are no longer included in assumed proceeds when determining average diluted shares outstanding under the treasury stock method. This guidance is required to be applied prospectively upon adoption. For further discussion, see Note 10 - “Recently Issued and Adopted Accounting Pronouncements”.

When applying the treasury stock method for the three and six months ended June 30, 2017, we added (1) the assumed proceeds from option exercises and (2) the average unamortized compensation costs related to unvested shares of restricted stock and stock options. We then divided 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. For the three and six months ended June 30, 2016, we added (1) the assumed proceeds from option exercises; (2) the tax benefit, 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 divided 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 June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Net income available to common stockholders
$
8,410

 
$
6,985

 
$
18,358

 
$
10,645

 
 
 
 
 
 
 
 
Weighted average shares outstanding-basic
45,252,136

 
44,350,458

 
45,137,791

 
44,144,434

Effect of non-vested restricted stock and stock options outstanding
1,579,226

 
1,302,740

 
1,741,467

 
1,327,143

Weighted average shares outstanding-diluted
46,831,362

 
45,653,198

 
46,879,258

 
45,471,577

Earnings per share-basic
$
0.19

 
$
0.16

 
$
0.41

 
$
0.24

Earnings per share-diluted
$
0.18

 
$
0.15

 
$
0.39

 
$
0.23

Anti-dilutive shares
50,000

 
1,032,080

 
45,000

 
1,021,740

 
Note 10 – Recently Issued and Adopted Accounting Pronouncements

Accounting Pronouncements Adopted

In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, a new standard that simplifies certain aspects of accounting for share-based payments. The amendments include the following:

Excess tax benefits and deficiencies resulting from exercise or vesting of stock awards are recorded as income tax expense or benefit on the income statement. Previously, excess tax benefits and certain tax deficiencies were recorded as equity in additional paid-in capital. This update is required to be applied prospectively upon adoption.

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


For diluted earnings per share calculations, excess tax benefits are no longer included in assumed proceeds when determining average diluted shares outstanding under the treasury stock method, resulting in changes to average diluted shares outstanding. This update is required to be applied prospectively upon adoption.
Excess tax benefits or deficiencies are included as income tax expense as discrete items in the period in which they occur, which impact the effective tax rate in each reporting period; however, these discrete items are not included in the projected annual effective tax rate calculation. This update is required to be applied prospectively upon adoption.
Excess tax benefits are presented as cash flows from operating activities. Previously, excess tax benefits were included as a cash inflow from financing activities. This update may be applied either prospectively or retrospectively upon adoption. The Company applied this update prospectively upon adoption and prior periods have not been adjusted.
Cash paid by an employer to taxing authorities when withholding shares for tax withholding purposes is presented as cash outflows from financing activities, which is consistent with the manner in which we have presented such employee withholding taxes in the past. Accordingly, no reclassification for prior periods is required. Beginning in 2017, the Company no longer withholds shares for tax withholding purposes and employees pay their own taxes.
An accounting policy election, using a modified retrospective transition method, to account for forfeitures as they occur or estimate the number of awards expected to be forfeited. The Company elected to account for forfeitures as they occur.
The Company adopted ASU No. 2016-09 effective for the first quarter of 2017 and upon adoption recorded a cumulative effect adjustment of $2.9 million to the opening balances of retained earnings and additional paid-in-capital. Adoption of ASU No. 2016-09 resulted in the recognition of a $593,000 and $2.3 million benefit within income tax expense for the three and six months ended June 30, 2017, respectively, which resulted in a corresponding increase to net income and earnings per share ($0.01 and $0.05 per diluted share, for the three and six months ended June 30, 2017, respectively). In addition, the guidance increases average diluted shares, since the Company no longer includes such excess tax benefits in the calculation of diluted shares. Adoption of this update does not affect the Company's or the Bank's total equity, book value per share, or regulatory capital ratios.
    
Accounting Pronouncements Not yet Adopted

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment. The ASU simplifies the subsequent measurement of goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill (i.e., the current Step 2 of the goodwill impairment test) to measure a goodwill impairment charge. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim and annual goodwill impairment testing dates after January 1, 2017. The adoption of this pronouncement is not expected to have a material effect on the Company's consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that entities include restricted cash and restricted cash equivalents with cash and cash equivalents in the beginning-of-period and end-of-period total amounts shown on the Statement of Cash Flows. Prior to this pronouncement there was no guidance on how to present restricted cash and cash equivalents in the Statement of Cash Flows. ASU No. 2016-18 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. The adoption of this pronouncement is not expected to have a material effect on the Company's consolidated financial statements.

In August 2016, the FASB issued ASU No. 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 position, results of operations or its cash and cash equivalents.

In June 2016, the FASB issued No. ASU No. 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

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


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 No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the potential effect of adoption of this pronouncement on its consolidated financial statements, but the extent of the effect is indeterminable at this time as it will depend upon the nature and characteristics of the Company's loan portfolio at the adoption date, as well as economic conditions and forecasts at that date.

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. The guidance 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 by reviewing its existing lease contracts and service contracts that may include embedded leases. The Company expects a gross-up of its consolidated balance sheet as a result of recognizing lease liabilities and right of use assets; the extent of such gross-up is under evaluation. The Company does not expect material changes to the recognition of operating lease expense in its consolidated statements of comprehensive income.

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 May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will be effective for interim and annual periods beginning after December 15, 2017 and will replace most existing revenue recognition guidance in U.S. GAAP. The Company does not expect the guidance to have a material effect on its consolidated financial statements as the ASU is not applicable to financial instruments and, therefore, will not affect the majority of the Company's revenues.

Note 11 – Subsequent Event

On July 17, 2017, the Company entered into an amendment to the operating lease for its premises in Woodbridge, New Jersey, to lease an additional 6,919 square feet of office space in the same building and extend the lease term by 10 years and eight months from July 1, 2018 through February 28, 2029. Pursuant to the lease amendment, we estimate our total additional future rent payments to be approximately $9.9 million.



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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:   
adverse changes in general economic conditions, either nationally or in our market areas;
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, tax policies, or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
our ability to manage operations in the current or future economic conditions;
our ability to enter new markets successfully and capitalize on growth opportunities;
our ability to successfully integrate acquired entities;
changes in consumer spending, borrowing and savings habits;
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, or 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, 2016 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 purchased credit-impaired (“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, 2016.
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, 2016.
 
Net income was $18.4 million for the six months ended June 30, 2017, as compared to $10.6 million for the six months ended June 30, 2016. Basic and diluted earnings per common share were $0.41 and $0.39 for the six months ended June 30, 2017, respectively, compared to basic and diluted earnings per common share of $0.24 and $0.23 for the six months ended June 30, 2016, respectively. Earnings for the six months ended June 30, 2017, reflect the adoption of Accounting Standards Update (“ASU”) No. 2016-09, Compensation - Stock Compensation (Topic 718) (“ASU 2016-09”) which resulted in a $2.3 million, or $0.05 per diluted share, reduction in income tax expense, and also reflect $1.5 million, or $0.03 per diluted share, of tax-exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies, recorded in the first quarter of 2017. Earnings for the six months ended June 30, 2016, included merger-related expenses associated with the acquisition of Hopewell Valley Community Bank (“Hopewell Valley”) of approximately $2.1 million, net of tax, or $0.05 per diluted share. For the six months ended June 30, 2017, our return on average assets was 0.95%, as compared to 0.59% for the six months ended June 30, 2016. For the six months ended June 30, 2017, our return on average stockholders’ equity was 5.86% as compared to 3.54% for the six months ended June 30, 2016.

Comparison of Financial Condition at June 30, 2017, and December 31, 2016
Total assets increased $9.5 million, or 0.2%, to $3.86 billion at June 30, 2017, from $3.85 billion at December 31, 2016. The increase was primarily due to an increase in loans held-for-investment, net, of $79.8 million, partially offset by decreases in cash and cash equivalents of $45.8 million and securities available-for-sale of $25.9 million.
 
Cash and cash equivalents decreased $45.8 million, or 47.7%, to $50.3 million at June 30, 2017, from $96.1 million at December 31, 2016. 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 $473.0 million at June 30, 2017, compared to $498.9 million at December 31, 2016, a decrease of $25.9 million, or 5.2%, primarily attributable to paydowns. At June 30, 2017, $407.8 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 $63.0 million in corporate bonds, all of which were considered investment grade at June 30, 2017, and other securities of $2.1 million (including $314,000 of equity investments in mutual funds).

 As of June 30, 2017, our non-owner occupied commercial real estate concentration (as defined by regulatory guidance issued in 2006) to total risk-based capital was 386%. Management believes that Northfield Bank (the Bank) has implemented appropriate risk management practices including risk assessments, board approved underwriting policies and related procedures which include, monitoring bank portfolio performance, performing market analysis (economic and real estate), and stressing of the Bank’s commercial real estate portfolio under severe adverse economic conditions. Although management believes the

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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.

Loans held-for-investment, net, increased $79.8 million, or 2.69%, to $3.05 billion at June 30, 2017, from $2.97 billion at December 31, 2016. The increase was primarily due to originated loan growth. Originated loans held-for-investment, net, totaled $2.30 billion at June 30, 2017, as compared to $2.14 billion at December 31, 2016.  The increase was primarily due to an increase in multifamily real estate loans of $151.9 million, or 10.1%, to $1.66 billion at June 30, 2017, from $1.51 billion at December 31, 2016. The following table details our multifamily real estate originations for the six months ended June 30, 2017 and 2016 (dollars in thousands):
For the Six Months Ended June 30, 2017
Multifamily 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
$
192,407

 
3.55%
 
60%
 
80
 
V
 
15 to 30 Years
750

 
5.00%
 
48%
 
1
 
V
 
Line of Credit (2-Year Term)
7,640

 
3.89%
 
27%
 
180
 
F
 
15 Years
$
200,797

 
3.57%
 
59%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Six Months Ended June 30, 2016
Multifamily 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
$
110,265

 
3.46%
 
61%
 
82
 
V
 
30 Years
3,075

 
4.07%
 
36%
 
180
 
F
 
15 Years
$
113,340

 
3.48%
 
60%
 
 
 
 
 
 
Acquired loans decreased by $74.0 million to $719.2 million at June 30, 2017, from $793.2 million at December 31, 2016. The decrease was primarily due to paydowns.
PCI loans totaled $28.0 million at June 30, 2017, as compared to $30.5 million at December 31, 2016. The majority of the PCI loan balance consists of loans acquired as part of a Federal Deposit Insurance Corporation-assisted transaction. The Company accreted interest income of $1.3 million and $2.8 million attributable to PCI loans for the three and six months ended June 30, 2017, respectively, as compared to $1.4 million and $2.7 million for the three and six months ended June 30, 2016, respectively.
   
Total liabilities decreased $7.8 million, or 0.2%, to $3.22 billion at June 30, 2017, from $3.23 billion at December 31, 2016. The decrease was primarily attributable to decreases in deposits of $35.1 million and securities sold under agreements to repurchase totaling $4.0 million, partially offset by an increase in other borrowings of $31.5 million.
    
Deposits decreased $35.1 million, or 1.3%, to $2.68 billion at June 30, 2017, as compared to $2.71 billion at December 31, 2016. The decrease was attributable to decreases of $95.0 million in transaction accounts and $38.4 million in savings accounts, partially offset by increases of $11.9 million in money market accounts and $86.4 million in certificates of deposit accounts.
 
Borrowings and securities sold under agreements to repurchase increased by $27.5 million, or 5.8%, to $500.7 million at June 30, 2017, from $473.2 million at December 31, 2016.  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 June 30, 2017 (dollars in thousands): 

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Year
 
Amount
 
Weighted Average Rate
2017
 
$85,000
 
1.27%
2018
 
140,715
 
1.64%
2019
 
123,502
 
1.48%
2020
 
90,000
 
1.65%
2021
 
46,725
 
1.80%
 
 
$485,942
 
1.55%
 
Total stockholders’ equity increased by $17.3 million to $638.5 million at June 30, 2017, from $621.2 million at December 31, 2016. The increase was primarily attributable to net income of $18.4 million for the six months ended June 30, 2017, and to a lesser extent a $4.4 million increase related to equity award activity, and a $1.9 million reduction in unrealized losses on our securities available-for-sale portfolio. These increases were partially offset by dividend payments of $7.4 million.
 
Comparison of Operating Results for the Six Months Ended June 30, 2017 and 2016
 
Net income. Net income was $18.4 million and $10.6 million for the six months ended June 30, 2017, and June 30, 2016, respectively. Significant variances from the comparable prior year period are as follows: a $3.2 million increase in net interest income, a $1.0 million increase in the provision for loan losses, a $1.8 million increase in non-interest income, a $4.8 million decrease in non-interest expense, and a $1.2 million increase in income tax expense.

Interest Income. Interest income increased $3.4 million, or 5.5%, to $64.7 million for the six months ended June 30, 2017, from $61.3 million for the six months ended June 30, 2016, due to an increase in the average balance of interest-earning assets of $189.0 million, or 5.5%, and a one basis point increase in yields earned on interest-earning assets. Interest income on loans increased by $4.1 million, primarily attributable to an increase in the average loan balances of $307.3 million, which was partially offset by a 13 basis point decrease in the yield. The Company accreted interest income related to its PCI loans of $2.8 million for the six months ended June 30, 2017, as compared to $2.7 million for the six months ended June 30, 2016. Interest income on loans for the six months ended June 30, 2017, reflected loan prepayment income of $520,000 compared to $935,000 for the six months ended June 30, 2016.

Interest Expense. Interest expense remained relatively stable at $11.1 million for the six months ended June 30, 2017, as compared to $11.0 million for June 30, 2016, as the $142.6 million increase in the average balance of interest-bearing liabilities was offset by a three basis point decrease in the cost of interest-bearing liabilities to 0.80% for the current period as compared to 0.83% for the comparable prior year period, primarily due to lower rates on borrowed funds.
Net Interest Income. Net interest income for the six months ended June 30, 2017increased $3.2 million, or 6.4%, to $53.6 million, from $50.4 million for the six months ended June 30, 2016, primarily due to a $189.0 million, or 5.5%, increase in our average interest-earning assets and a four basis point increase in our net interest margin to 3.01%. The increase in average interest-earning assets was due primarily to an increase in average loans outstanding of $307.3 million, partially offset by decreases in average mortgage-backed securities of $105.3 million and interest-earning deposits in financial institutions of $15.9 million. The increase in average loans was primarily due to originated loan growth. Yields earned on interest-earning assets increased one basis point to 3.63% for the six months ended June 30, 2017, from 3.62% for the six months ended June 30, 2016. The cost of interest-bearing liabilities decreased three basis points to 0.80% for the six months ended June 30, 2017, from 0.83% for the six months ended June 30, 2016.
 
Provision for Loan Losses. The provision for loan losses increased by $1.0 million to $883,000 for the six months ended June 30, 2017, from a negative provision of $117,000 for the six months ended June 30, 2016, primarily due to growth in the loan portfolio, partially offset by declines in non-performing loans and net recoveries during the six months ended June 30, 2017. Net recoveries, primarily resulting from insurance proceeds received related to a previously impaired loan, were $127,000 for the six months ended June 30, 2017, compared to net charge-offs of $336,000 for the six months ended June 30, 2016.

Non-interest Income. Non-interest income increased $1.8 million, or 38.3%, to $6.6 million for the six months ended June 30, 2017, from $4.8 million for the six months ended June 30, 2016, primarily due to an increase of $1.5 million in income on bank owned life insurance, attributable to insurance proceeds in excess of the related cash surrender value of the policies, and an increase of $415,000 in gains on securities transactions, net. Securities gains, net, during the six months ended June 30, 2017, included gains of $668,000 related to the Company’s trading portfolio, compared to gains of $44,000 in the comparative prior year period. The trading portfolio is utilized to fund the Company’s deferred compensation obligation to

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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 decreased $4.8 million, or 12.4%, to $34.2 million for the six months ended June 30, 2017, from $39.0 million for the six months ended June 30, 2016. The decrease was primarily due to a $3.5 million reduction in merger-related expenses associated with the Hopewell Valley acquisition reflected in earnings for the first six months of 2016. Compensation and employee benefits expense decreased $1.6 million, due primarily to a reduction in severance, retention, and change-in-control compensation associated with the Hopewell Valley acquisition in the prior year period, partially offset by annual merit-related salary increases and an increase in expense related to the Company’s deferred compensation plan, which is described above, and which has no effect on net income. Data processing fees decreased $964,000, primarily due to non-recurring conversion costs associated with the Hopewell Valley acquisition incurred in the prior year period. Professional fees decreased $472,000 due to $557,000 of non-recurring merger-related professional fees associated with the Hopewell Valley acquisition incurred in the prior year period, partially offset by an increase in other professional fees. FDIC insurance expense decreased by $446,000 due to a reduction in the FDIC's assessment rates for depository institutions with less than $10.0 billion in assets, which became effective in the quarter ended September 30, 2016. Other expense decreased by $1.1 million, primarily due to lower Directors' equity award expense, related to the retirement of three directors, and lower advertising expense, due in part to lower printing and production costs associated with Hopewell Valley customer communications and data conversion mailings in the first six months of 2016.
 
Income Tax Expense. The Company recorded income tax expense of $6.8 million for the six months ended June 30, 2017, compared to $5.6 million for the six months ended June 30, 2016. The effective tax rate for the six months ended June 30, 2017, was 26.9% compared to 34.5% for the six months ended June 30, 2016. The Company adopted ASU 2016-09 in the first quarter of 2017, which resulted in, among other things, a $2.3 million reduction in income tax expense related to the exercise or vesting of equity awards during the six months ended June 30, 2017. Previously, these tax benefits were recorded through equity as an adjustment to additional paid in capital. In addition, the effective tax rate for the six months ended June 30, 2017, was affected by $1.5 million of tax-exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies. In accordance with applicable accounting standards, the tax effect will be recognized evenly throughout the year.

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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 Six Months Ended
 
June 30, 2017
 
June 30, 2016
 
Average Outstanding Balance
 
Interest
 
Average Yield/ Rate (1)
 
Average Outstanding Balance
 
Interest
 
Average Yield/ Rate (1)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans (2)
$
3,008,361

 
$
58,661

 
3.93
%
 
$
2,701,109

 
$
54,570

 
4.06
%
Mortgage-backed securities (3)
440,111

 
4,616

 
2.12

 
545,450

 
5,657

 
2.09

Other securities (3)
59,723

 
535

 
1.81

 
57,831

 
410

 
1.43

Federal Home Loan Bank of New York stock
26,476

 
696

 
5.30

 
25,408

 
559

 
4.42

Interest-earning deposits in financial institutions
60,381

 
221

 
0.74

 
76,278

 
141

 
0.37

Total interest-earning assets
3,595,052

 
64,729

 
3.63

 
3,406,076

 
61,337

 
3.62

Non-interest-earning assets
283,165

 
 
 
 
 
247,603

 
 
 
 
Total assets
$
3,878,217

 
 
 
 
 
$
3,653,679

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Savings, NOW, and money market accounts
$
1,733,794

 
$
4,109

 
0.48
%
 
$
1,569,664

 
$
3,896

 
0.50
%
Certificates of deposit
563,902

 
3,410

 
1.22

 
580,762

 
3,231

 
1.12

Total interest-bearing deposits
2,297,696

 
7,519

 
0.66

 
2,150,426

 
7,127

 
0.67

Borrowed funds
496,301

 
3,624

 
1.47

 
501,021

 
3,841

 
1.54

Total interest-bearing liabilities
2,793,997

 
11,143

 
0.80

 
2,651,447

 
10,968

 
0.83

Non-interest bearing deposits
382,689

 
 
 
 
 
354,001

 
 
 
 
Accrued expenses and other liabilities
70,237

 
 
 
 
 
43,787

 
 
 
 
Total liabilities
3,246,923

 
 
 
 
 
3,049,235

 
 
 
 
Stockholders' equity
631,294

 
 
 
 
 
604,444

 
 
 
 
Total liabilities and stockholders' equity
$
3,878,217

 
 
 
 
 
$
3,653,679

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
$
53,586

 
 
 
 
 
$
50,369

 
 
Net interest rate spread (4)
 
 
 
 
2.83
%
 
 
 
 
 
2.79
%
Net interest-earning assets (5)
$
801,055

 
 
 
 
 
$
754,629

 
 
 
 
Net interest margin (6)
 
 
 
 
3.01
%
 
 
 
 
 
2.97
%
Average interest-earning assets to interest-bearing liabilities
 
 
 
 
128.67
%
 
 
 
 
 
128.46
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(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 June 30, 2017 and 2016
 
Net income. Net income was $8.4 million and $7.0 million for the quarters ended June 30, 2017, and June 30, 2016, respectively. Significant variances from the comparable prior year quarter are as follows: a $1.3 million increase in net interest income, a $497,000 increase in the provision for loan losses, a $96,000 decrease in non-interest income, an $876,000 decrease in non-interest expense, and a $126,000 increase in income tax expense.

Interest Income. Interest income increased $1.5 million, or 4.8%, to $32.7 million for the quarter ended June 30, 2017, from $31.2 million for the quarter June 30, 2016, due to an increase in the average balance of interest-earning assets of $193.1 million, or 5.6%, partially offset by a four basis point decrease in yields earned on interest-earning assets. Interest income on loans increased by $2.0 million, primarily attributable to an increase in the average loan balances of $320.8 million, which was partially offset by an 18 basis point decrease in the yield. The increase in average loans was primarily due to originated loan growth. The Company accreted interest income related to its PCI loans of $1.3 million for the quarter ended June 30, 2017, as compared to $1.4 million for the quarter ended June 30, 2016. Interest income on loans for the quarter ended June 30, 2017, reflected loan prepayment income of $193,000 compared to $691,000 for the quarter ended June 30, 2016.

Interest Expense. Interest expense increased $224,000, or 4.1%, to $5.8 million for the quarter ended June 30, 2017, from $5.5 million for the quarter ended June 30, 2016. The increase was due to an increase of $196,000 in interest expense on deposits and a $28,000 increase 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 $145.4 million, or 6.7%, to $2.32 billion for the quarter ended June 30, 2017, from $2.18 billion for the quarter ended June 30, 2016, partially offset by a one basis point decrease in the cost of interest-bearing deposits. Interest expense on borrowings marginally increased by $28,000 due to a $9.4 million, or 1.9%, increase in average balances of borrowings partially offset by a one basis point decrease in the cost of borrowings. 
Net Interest Income. Net interest income for the quarter ended June 30, 2017increased $1.3 million, or 4.9%, primarily due to a $193.1 million, or 5.6%, increase in our average interest-earning assets, partially offset by a three basis point decrease in our net interest margin to 2.97%. The increase in average interest-earning assets was primarily attributable to an increase in average loans outstanding of $320.8 million, partially offset by decreases in average mortgage-backed securities of $124.0 million and interest-earning deposits in financial institutions of $3.3 million. Yields earned on interest-earning assets decreased four basis points to 3.61% for the quarter ended June 30, 2017, from 3.65% for the quarter ended June 30, 2016. The cost of interest-bearing liabilities decreased one basis point to 0.82% for the current quarter as compared to 0.83% for the comparable prior year quarter.
 
Provision for Loan Losses. The provision for loan losses increased by $497,000 to $511,000 for the quarter ended June 30, 2017, from $14,000 for the quarter ended June 30, 2016, primarily due to growth in the loan portfolio and higher net charge-offs, partially offset by declines in non-performing loans. Net charge-offs were $190,000 for the quarter ended June 30, 2017, compared to net charge-offs of $75,000 for the quarter ended June 30, 2016.

Non-interest Income. Non-interest income remained relatively stable at $2.4 million for the quarter ended June 30, 2017, as compared to $2.5 million for the quarter ended June 30, 2016.
   
Non-interest Expense. Non-interest expense decreased $876,000, or 5.0%, to $16.6 million for the quarter ended June 30, 2017, from $17.5 million for the quarter ended June 30, 2016. The decrease was due primarily to decreases of $266,000 in data processing fees, $101,000 in other professional fees, $229,000 in FDIC insurance expense due to a reduction in the FDIC's assessment rates for depository institutions with less than $10.0 billion in assets, which became effective in the quarter ended September 30, 2016, and $332,000 in other expense, primarily due to lower Directors' equity award expense related to the retirement of three directors.
 
Income Tax Expense. The Company recorded income tax expense of $3.8 million for the quarter ended June 30, 2017, compared to $3.7 million for the quarter ended June 30, 2016. The effective tax rate for the quarter ended June 30, 2017, was 31.2% compared to 34.5% for the quarter ended June 30, 2016. The Company adopted ASU 2016-09 in the first quarter of 2017, the effect of which was a $593,000 reduction in income tax expense related to the exercise or vesting of equity awards during the quarter ended June 30, 2017, which was previously recorded through equity as an adjustment to additional paid in capital.


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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 Three Months Ended
 
June 30, 2017
 
June 30, 2016
 
Average Outstanding Balance
 
Interest
 
Average Yield/ Rate (1)
 
Average Outstanding Balance
 
Interest
 
Average Yield/ Rate (1)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans (2)
$
3,041,774

 
29,653

 
3.91
%
 
$
2,720,983

 
$
27,682

 
4.09
%
Mortgage-backed securities (3)
428,757

 
2,260

 
2.11

 
552,738

 
2,888

 
2.10

Other securities (3)
61,202

 
283

 
1.85

 
62,595

 
237

 
1.52

Federal Home Loan Bank of New York stock
26,600

 
325

 
4.90

 
25,635

 
282

 
4.42

Interest-earning deposits in financial institutions
69,928

 
139

 
0.80

 
73,211

 
79

 
0.43

Total interest-earning assets
3,628,261

 
32,660

 
3.61

 
3,435,162

 
31,168

 
3.65

Non-interest-earning assets
282,492

 
 
 
 
 
254,230

 
 
 
 
Total assets
$
3,910,753

 
 
 
 
 
$
3,689,392

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Savings, NOW, and money market accounts
$
1,731,451

 
$
2,079

 
0.48
%
 
$
1,606,415

 
$
2,020

 
0.51
%
Certificates of deposit
593,492

 
1,820

 
1.23

 
573,081

 
1,683

 
1.18

Total interest-bearing deposits
2,324,943

 
3,899

 
0.67

 
2,179,496

 
3,703

 
0.68

Borrowed funds
495,656

 
1,852

 
1.50

 
486,252

 
1,824

 
1.51

Total interest-bearing liabilities
2,820,599

 
5,751

 
0.82

 
2,665,748

 
5,527

 
0.83

Non-interest bearing deposits
382,353

 
 
 
 
 
366,506

 
 
 
 
Accrued expenses and other liabilities
71,853

 
 
 
 
 
52,264

 
 
 
 
Total liabilities
3,274,805

 
 
 
 
 
3,084,518

 
 
 
 
Stockholders' equity
635,948

 
 
 
 
 
604,874

 
 
 
 
Total liabilities and stockholders' equity
$
3,910,753

 
 
 
 
 
$
3,689,392

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
$
26,909

 
 
 
 
 
$
25,641

 
 
Net interest rate spread (4)
 
 
 
 
2.79
%
 
 
 
 
 
2.82
%
Net interest-earning assets (5)
$
807,662

 
 
 
 
 
$
769,414

 
 
 
 
Net interest margin (6)
 
 
 
 
2.97
%
 
 
 
 
 
3.00
%
Average interest-earning assets to interest-bearing liabilities
 
 
 
 
128.63
%
 
 
 
 
 
128.86
%
 
 
 
(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
 
Purchased Credit Impaired Loans
    
PCI loans are recorded at estimated fair value using discounted expected future cash flows deemed to be collectible on the date acquired. Based on its detailed review of PCI loans and experience in loan workouts, management believes it has a reasonable expectation about the amount and timing of future cash flows and accordingly has classified PCI loans ($28.0 million at June 30, 2017 and $30.5 million at December 31, 2016) as accruing, even though they may be contractually past due. At June 30, 2017, 8.4% of PCI loans were past due 30 to 89 days, and 15.1% were past due 90 days or more, as compared to 6.6% and 19.3%, respectively, at December 31, 2016.
 
Originated and Acquired loans
 
The following table details total originated and acquired (including held-for-sale, but excluding PCI) non-accruing loans, non-performing loans, non-performing assets, troubled debt restructurings (TDRs) on which interest is accruing, and accruing loans 30 to 89 days delinquent at June 30, 2017, and December 31, 2016 (dollars in thousands):  

 
June 30, 2017
 
December 31, 2016
Non-accrual loans:
 
 
 
Held-for-investment
 
 
 
Real estate loans:
 
 
 
Commercial
$
4,154

 
$
5,513

One-to-four family residential
747

 
1,629

Multifamily
422

 
43

Home equity and lines of credit
117

 
127

Commercial and industrial
76

 
9

Total non-accrual loans held-for-investment
5,516

 
7,321

Held-for-sale
 
 
 
Commercial
494

 

Total non-accrual loans
6,010

 
7,321

Loans delinquent 90 days or more and still accruing:
 
 
 
Held-for-investment
 
 
 
Real estate loans:
 
 
 
Commercial
84

 

One-to-four family residential
157

 
52

Home equity and lines of credit
3

 
8

Other
47

 

Total loans delinquent 90 days or more and still accruing
291

 
60

Total non-performing loans
6,301

 
7,381

Other real estate owned
850

 
850

Total non-performing assets
$
7,151

 
$
8,231

Non-performing loans to total loans
0.21
%
 
0.25
%
Non-performing assets to total assets
0.19
%
 
0.21
%
Loans subject to restructuring agreements and still accruing
$
20,644

 
$
20,628

Accruing loans 30 to 89 days delinquent
$
14,087

 
$
10,100



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Table of Contents

Accruing Loans 30 to 89 Days Delinquent
 
Loans 30 to 89 days delinquent and on accrual status totaled $14.1 million and $10.1 million at June 30, 2017, and December 31, 2016, respectively. The following table sets forth delinquencies for accruing loans by type and by amount at June 30, 2017, and December 31, 2016 (dollars in thousands):     
 
June 30, 2017
 
December 31, 2016
Held-for-investment
 
 
 
Real estate loans:
 
 
 
Commercial
$
5,895

 
$
4,578

One-to-four family residential
3,496

 
3,621

Multifamily
2,584

 
1,440

Home equity and lines of credit
301

 
263

Commercial and industrial loans
296

 
148

Other loans

 
50

Total delinquent accruing loans held-for-investment
$
12,572

 
$
10,100

Held-for-sale
 
 
 
Multifamily
1,515

 

Total delinquent accruing loans
$
14,087

 
$
10,100


Loans Subject to TDR Agreements
 
Included in non-accruing loans are loans subject to TDR agreements totaling $254,000 and $1.8 million at June 30, 2017 and December 31, 2016, respectively. At June 30, 2017, the $254,000 non-accruing TDR was not performing in accordance with its restructured terms and consisted of one one-to-four family residential loan which was 91 days delinquent at June 30, 2017, and collateralized by real estate with a recent appraised value of $629,000. At December 31, 2016, $1.4 million, or 76.4%, of the $1.8 million TDRs were not performing in accordance with their restructured terms.

The Company also holds loans subject to restructuring agreements that are on accrual status totaling $20.6 million at June 30, 2017, and December 31, 2016, respectively. At June 30, 2017, $2.7 million, or 13.2%, of the $20.6 million accruing TDRs were not performing in accordance with their restructured terms. The $2.7 million is comprised of two loans, both of which were 30 days delinquent at June 30, 2017, and collateralized by real estate with an aggregate recent appraised value of $3.5 million.

The following table details the amounts and categories of the loans subject to restructuring agreements by loan type as of June 30, 2017, and December 31, 2016 (in thousands): 
 
June 30, 2017
 
December 31, 2016
 
Non-Accruing
 
Accruing
 
Non-Accruing
 
Accruing
TDRs:
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
Commercial
$

 
$
15,533

 
$
1,000

 
$
15,828

One-to-four family residential
254

 
3,196

 
783

 
2,835

Multifamily

 
1,495

 

 
1,527

Home equity and lines of credit

 
326

 

 
336

Commercial and industrial loans

 
94

 

 
102

 
$
254

 
$
20,644

 
$
1,783

 
$
20,628


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Table of Contents

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. The 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.
The 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. The Bank is a member of the Federal Home Loan Bank of New York (“FHLB”), which provides an additional source of short-term and long-term funding. The Bank also has short-term borrowing capabilities with the Federal Reserve Bank of New York. The Bank’s borrowed funds, excluding capitalized lease obligations and floating rate advances, were $485.9 million at June 30, 2017, and had a weighted average interest rate of 1.55%. A total of $128.6 million of these borrowings will mature in less than one year. Borrowed funds, excluding capitalized lease obligations and floating rate advances, were $462.0 million at December 31, 2016. The Bank has the ability to obtain additional funding from the FHLB and Federal Reserve Bank of New York's discount window of approximately $823.3 million utilizing unencumbered securities of $37.9 million and loans of $867.7 million at June 30, 2017. The 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 the 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 the Bank. At June 30, 2017, Northfield Bancorp, Inc. (stand alone) had liquid assets of approximately $10.6 million.

During the first quarter of 2017, the Company enhanced its liquidity position by arranging for a municipal line of credit from the FHLB to be used, if needed, to collateralize our municipal deposits.
Capital Resources. Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. These capital requirements were effective January 1, 2015, and are the result of a final rule implementing recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Act. In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement was phased in beginning January 1, 2016, at 0.625% of risk-weighted assets and increases each year until fully implemented at 2.5% on January 1, 2019.

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At June 30, 2017, and December 31, 2016, as set forth in the following table, both the Bank and Northfield Bancorp, Inc. exceeded all of the regulatory capital requirements to which they were subject at such dates.    
 
The Bank
 
Northfield Bancorp, Inc.
 
For Capital Adequacy Purposes (1)
 
For Well Capitalized Under Prompt Corrective Action Provisions
As of June 30, 2017:
 
 
 
 
 
 
 
Common equity Tier 1 capital (to risk-weighted assets)
17.46%
 
18.55%
 
5.75%
 
6.50%
Tier 1 leverage
14.68%
 
15.59%
 
4.00%
 
5.00%
Tier I capital (to risk-weighted assets)
17.46%
 
18.55%
 
7.25%
 
8.00%
Total capital (to risk-weighted assets)
18.27%
 
19.35%
 
9.25%
 
10.00%
As of December 31, 2016:
 
 
 
 
 
 
 
Common equity Tier 1 capital (to risk-weighted assets)
17.75%
 
18.79%
 
5.125%
 
6.50%
Tier 1 leverage
14.55%
 
15.40%
 
4.000%
 
5.00%
Tier I capital (to risk-weighted assets)
17.75%
 
18.79%
 
6.625%
 
8.00%
Total capital (to risk-weighted assets)
18.56%
 
19.60%
 
8.625%
 
10.00%
 
 
 
 
 
 
 
 
(1) Includes capital conservation buffer at June 30, 2017, and December 31, 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 June 30, 2017:
Contractual Obligation
 
Total
 
Less than One Year
 
One to less than Three Years
 
Three to less than Five Years
 
More than Five Years
 
 
(in thousands)
Debt obligations (excluding capitalized leases)
 
$
485,942

 
$
128,635

 
$
285,582

 
$
71,725

 
$

Commitments to originate loans
 
62,751

 
62,751

 

 

 

Commitments to fund unused lines of credit
 
83,204

 
83,204

 

 

 


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, 2016.

Recent Accounting Standards and Interpretations

See Note 10 of the Notes to the Unaudited Consolidated Financial Statements for information about recent accounting developments.

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Table of Contents

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 June 30, 2017, and December 31, 2016, 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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Table of Contents

 
 
NPV at June 30, 2017
 
 
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 (Year 1)
+400
 
$
3,464,923

 
$
2,866,631

 
$
598,292

 
$
(166,999
)
 
(21.82
)%
 
17.27
%
 
(14.13
)%
+300
 
3,555,150

 
2,919,443

 
635,707

 
(129,584
)
 
(16.93
)
 
17.88

 
(10.40
)
+200
 
3,654,976

 
2,974,573

 
680,403

 
(84,888
)
 
(11.09
)
 
18.62

 
(6.60
)
+100
 
3,754,646

 
3,032,166

 
722,480

 
(42,811
)
 
(5.59
)
 
19.24

 
(3.15
)
 
3,857,667

 
3,092,376

 
765,291

 

 

 
19.84

 

(100)
 
3,963,294

 
3,162,099

 
801,195

 
35,904

 
4.69

 
20.22

 
1.65

(200)
 
4,073,754

 
3,229,334

 
844,420

 
79,129

 
10.34

 
20.73

 
0.19

     
 
 
NPV at December 31, 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 (Year 1)
+400
 
$
3,453,451

 
$
2,884,031

 
$
569,420

 
$
(200,567
)
 
(26.05
)%
 
16.49
%
 
(15.85
)%
+300
 
3,551,355

 
2,936,326

 
615,029

 
(154,958
)
 
(20.12
)
 
17.32

 
(11.67
)
+200
 
3,657,218

 
2,990,913

 
666,305

 
(103,682
)
 
(13.47
)
 
18.22

 
(7.53
)
+100
 
3,765,179

 
3,047,933

 
717,246

 
(52,741
)
 
(6.85
)
 
19.05

 
(3.68
)
 
3,877,525

 
3,107,538

 
769,987

 

 

 
19.86

 

(100)
 
4,011,261

 
3,171,899

 
839,362

 
69,375

 
9.01

 
20.93

 
1.10

(200)
 
4,179,973

 
3,227,571

 
952,402

 
182,415

 
23.69

 
22.78

 
(1.89
)

At June 30, 2017, in the event of a 200 basis point decrease in interest rates, we would experience a 10.34% increase in estimated net portfolio value and a 0.19% increase in net interest income. In the event of a 400 basis point increase in interest rates, we would experience a 21.82% decrease in estimated net portfolio value and a 14.13% 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 300 basis points and 10%, and in the event of a 400 basis point increase or less, our net present value should decrease by no more than 475 basis points and 35%. In the event of a 200 basis point decrease or less, our projected net interest income should decrease by no more than 10% 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 30% in year one. 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 June 30, 2017, 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.


56

Table of Contents

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 June 30, 2017.  Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
 
During the three months ended June 30, 2017, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Table of Contents

PART II

ITEM 1.     LEGAL PROCEEDINGS
The Company and subsidiaries are subject to various legal actions arising in the normal course of business.  In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s consolidated financial condition or results of operations.

ITEM 1A.  RISK FACTORS
During the six months ended June 30, 2017, there have been no material changes to the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, 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 Company’s did not repurchase any of its common stock for the three months ended June 30, 2017. 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 June 30, 2017.

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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Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
NORTHFIELD BANCORP, INC.
(Registrant)
 
 
Date: August 9, 2017
/s/   John W. Alexander
John W. Alexander
Chairman and Chief Executive Officer
 
/s/   William R. Jacobs
William R. Jacobs
Chief Financial Officer
(Principal Financial and Accounting Officer)

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Table of Contents

INDEX TO EXHIBITS
  
Exhibit
 
 
Number
 
Description
 
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 June 30, 2017, 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

60