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Northfield Bancorp, Inc. - Quarter Report: 2019 March (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 March 31, 2019
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 or organization)
 
(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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required to submit 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 the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
 
 
Large accelerated filer  ý
Accelerated filer  o
Non-accelerated filer  o 
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.



Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol
 
Name of exchange on which registered
Common stock, par value $0.01 per share
 
NFBK
 
The NASDAQ Stock Market LLC

As of April 30, 2019, the registrant had 49,777,675 shares of Common Stock, par value $0.01 per share, issued and outstanding.





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.
 

3

Table of Contents

PART I
ITEM 1.     FINANCIAL STATEMENTS

NORTHFIELD BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands, except share amounts)
 
March 31, 2019
 
December 31, 2018
ASSETS:
 
 
 
Cash and due from banks
$
14,166

 
$
15,147

Interest-bearing deposits in other financial institutions
71,659

 
62,615

Total cash and cash equivalents
85,825

 
77,762

Trading securities
9,759

 
8,968

Debt securities available-for-sale, at estimated fair value
894,272

 
808,031

Debt securities held-to-maturity, at amortized cost
9,448

 
9,505

(estimated fair value of $9,320 at March 31, 2019, and $9,249 at December 31, 2018)
 
 
 
Equity securities
1,465

 
1,280

Originated loans held-for-investment, net
2,727,852

 
2,678,877

Loans acquired
509,116

 
546,150

Purchased credit-impaired (“PCI”) loans held-for-investment
18,892

 
20,143

Loans held-for-investment, net
3,255,860

 
3,245,170

Allowance for loan losses
(27,486
)
 
(27,497
)
Net loans held-for-investment
3,228,374

 
3,217,673

Accrued interest receivable
13,205

 
12,959

Bank owned life insurance
155,031

 
154,135

Federal Home Loan Bank of New York stock, at cost
22,517

 
22,517

Premises and equipment, net
25,211

 
25,605

Goodwill
38,411

 
38,411

Operating lease right-of-use assets
43,500

 

Other assets
28,429

 
31,586

Total assets
$
4,555,447

 
$
4,408,432

 

 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
 
 
 
LIABILITIES:
 

 
 

Deposits
$
3,375,205

 
$
3,286,512

Borrowed funds
409,244

 
408,891

Operating lease liabilities
47,414

 

Advance payments by borrowers for taxes and insurance
20,723

 
18,007

Accrued expenses and other liabilities
23,421

 
28,583

Total liabilities
3,876,007

 
3,741,993

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
 

 
 

March 31, 2019 and December 31, 2018, 49,773,796 and 49,635,673 outstanding at March 31, 2019, and December 31, 2018, respectively
609

 
609

Additional paid-in-capital
546,861

 
546,219

Unallocated common stock held by employee stock ownership plan
(20,743
)
 
(20,992
)
Retained earnings
306,588

 
302,544

Accumulated other comprehensive loss
(2,949
)
 
(9,147
)
Treasury stock at cost; 11,159,911 and 11,298,034 shares at March 31, 2019, and December 31, 2018, respectively
(150,926
)
 
(152,794
)
Total stockholders’ equity
679,440

 
666,439

Total liabilities and stockholders’ equity
$
4,555,447

 
$
4,408,432


See accompanying notes to unaudited consolidated financial statements.

4

Table of Contents

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
(Unaudited) (In thousands, except per share data) 
 
Three Months Ended March 31,
 
2019
 
2018
Interest income:
 
 
 
Loans
$
32,590

 
$
30,787

Mortgage-backed securities
4,074

 
2,726

Other securities
1,865

 
502

Federal Home Loan Bank of New York dividends
402

 
414

Deposits in other financial institutions
535

 
253

Total interest income
39,466

 
34,682

Interest expense:
 

 
 

Deposits
10,247

 
5,211

Borrowings
1,889

 
1,927

Total interest expense
12,136

 
7,138

Net interest income
27,330

 
27,544

Provision for loan losses
59

 
34

Net interest income after provision for loan losses
27,271

 
27,510

Non-interest income:
 

 
 

Fees and service charges for customer services
1,140

 
1,214

Income on bank owned life insurance
896

 
954

Gains on securities transactions, net
1,241

 
161

Other
37

 
76

Total non-interest income
3,314

 
2,405

Non-interest expense:
 

 
 

Compensation and employee benefits
11,020

 
9,117

Occupancy
3,282

 
3,096

Furniture and equipment
259

 
256

Data processing
1,263

 
1,224

Professional fees
747

 
763

Advertising
764

 
611

FDIC insurance
277

 
297

Other
1,592

 
1,762

Total non-interest expense
19,204

 
17,126

Income before income tax expense
11,381

 
12,789

Income tax expense
2,610

 
2,344

Net income
$
8,771

 
$
10,445

Net income per common share:
 
 
 
Basic
$
0.19

 
$
0.23

Diluted
$
0.19

 
$
0.22

 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.

5

Table of Contents

 
NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - (Continued)
(Unaudited) (In thousands) 
 
Three Months Ended March 31,
 
2019
 
2018
Net Income
$
8,771

 
$
10,445

Other comprehensive income (loss):
 
 
 
Unrealized gains (losses) on debt securities:
 
 
 
Net unrealized holding gains (losses) on debt securities
8,763

 
(6,153
)
Less: reclassification adjustment for net gains included in net income (included in gains on securities transactions, net)
(155
)
 
(55
)
Net unrealized gains (losses)
8,608

 
(6,208
)
Income tax (expense) benefit related to net unrealized holding gains (losses) on debt securities
(2,453
)
 
1,729

Income tax benefit related to reclassification adjustment for gains included in net income
43

 
15

Other comprehensive income (loss), net of tax
6,198

 
(4,464
)
Comprehensive income
$
14,969

 
$
5,981






































See accompanying notes to unaudited consolidated financial statements.

6

Table of Contents

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Three Months Ended March 31, 2019 and 2018
(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, 2017
48,803,885

 
$
609

 
$
548,864

 
$
(22,244
)
 
$
281,138

 
$
(5,451
)
 
$
(164,039
)
 
$
638,877

Net income
 

 
 

 
 

 
 

 
10,445

 
 

 
 

 
10,445

Other comprehensive loss, net of tax
 

 
 

 
 

 
 

 
 

 
(4,464
)
 
 

 
(4,464
)
ESOP shares allocated or committed to be released
 

 
 

 
251

 
252

 
 

 
 

 
 

 
503

Stock compensation expense
 

 
 

 
1,373

 
 

 
 

 
 

 
 

 
1,373

Forfeitures of restricted stock
(600
)
 
 
 
8

 
 
 
 
 
 
 
(8
)
 

Exercise of stock options, net
323,594

 
 

 
(3,652
)
 
 

 
 
 
 

 
4,377

 
725

Cash dividends declared and paid ($0.10 per common share)
 

 
 

 
 

 
 

 
(4,641
)
 
 

 
 

 
(4,641
)
Balance at March 31, 2018
49,126,879

 
$
609

 
$
546,844

 
$
(21,992
)
 
$
286,942

 
$
(9,915
)
 
$
(159,670
)
 
$
642,818

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
49,635,673

 
$
609

 
$
546,219

 
$
(20,992
)
 
$
302,544

 
$
(9,147
)
 
$
(152,794
)
 
$
666,439

Net income
 

 
 

 
 

 
 

 
8,771

 
 

 
 

 
8,771

Other comprehensive income, net of tax
 

 
 

 
 

 
 

 
 

 
6,198

 
 

 
6,198

ESOP shares allocated or committed to be released
 

 
 

 
187

 
249

 
 

 
 

 
 

 
436

Stock compensation expense
 

 
 

 
1,328

 
 

 
 

 
 

 
 
 
1,328

Exercise of stock options, net
138,123

 
 

 
(873
)
 
 

 
 
 
 

 
1,868

 
995

Cash dividends declared and paid ($0.10 per common share)
 

 
 

 
 

 
 

 
(4,727
)
 
 

 
 

 
(4,727
)
Balance at March 31, 2019
49,773,796

 
$
609

 
$
546,861

 
$
(20,743
)
 
$
306,588

 
$
(2,949
)
 
$
(150,926
)
 
$
679,440










See accompanying notes to unaudited consolidated financial statements.

7

Table of Contents

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

 
Three Months Ended March 31,
 
2019
 
2018
 
 
 
 
Net income
$
8,771

 
$
10,445

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
59

 
34

ESOP and stock compensation expense
1,764

 
1,876

Depreciation
771

 
768

Amortization of premiums, and deferred loan costs, net of (accretion) of discounts, and deferred loan fees
861

 
616

Amortization of intangible assets
69

 
84

Amortization of operating lease right-of-use assets
1,057

 

Accretion of operating lease liabilities
409

 

Income on bank owned life insurance
(896
)
 
(954
)
Gains on securities transactions, net
(1,241
)
 
(161
)
Net sales (purchases) of trading securities
295

 
(119
)
Increase in accrued interest receivable
(246
)
 
(412
)
Decrease in other assets
3,118

 
3,410

Decrease in accrued expenses and other liabilities
(5,162
)
 
(1,985
)
Net cash provided by operating activities
9,629

 
13,602

Cash flows from investing activities:
 
 
 
Net (increase) decrease in loans receivable
(11,156
)
 
31,471

Purchase of loans

 
(37,593
)
Purchases of Federal Home Loan Bank of New York stock
(1,125
)
 
(5,850
)
Redemptions of Federal Home Loan Bank of New York stock
1,125

 
6,463

Purchases of debt securities available-for-sale
(150,074
)
 
(111,726
)
Purchases of equity securities
(177
)
 

Principal payments and maturities on debt securities available-for-sale
42,972

 
26,801

Principal payments and maturities on debt securities held-to-maturity
53

 
54

Proceeds from sale of debt securities available-for-sale
29,163

 
19,508

Purchases and improvements of premises and equipment
(377
)
 
(307
)
Net cash used in investing activities
(89,596
)
 
(71,179
)
Cash flows from financing activities:
 
 
 
Net increase in deposits
88,693

 
68,097

Dividends paid
(4,727
)
 
(4,641
)
Exercise of stock options
995

 
725

Increase in advance payments by borrowers for taxes and insurance
2,716

 
3,408

Repayments under capital lease obligations
(44
)
 
(60
)
Proceeds from securities sold under agreements to repurchase and other borrowings
25,397

 
275,418

Repayments related to securities sold under agreements to repurchase and other borrowings
(25,000
)
 
(290,635
)
Net cash provided by financing activities
88,030

 
52,312

Net increase (decrease) in cash and cash equivalents
8,063

 
(5,265
)
Cash and cash equivalents at beginning of period
77,762

 
57,839

Cash and cash equivalents at end of period
$
85,825

 
$
52,574

 
 
 
 
See accompanying notes to unaudited consolidated financial statements.

8

Table of Contents


NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited) (In thousands)
 
Three Months Ended March 31,
 
2019
 
2018
Supplemental cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
11,683

 
$
6,895

Income taxes
401

 
667

Non-cash transactions:
 
 
 
Loans charge-offs, net
70

 
22

Securities purchased, not yet settled

 
19,608

Initial recognition of operating lease right-of use assets
43,560

 

Initial recognition of operating lease liabilities
47,328

 







































See accompanying notes to unaudited consolidated financial statements.

9

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 months ended March 31, 2019 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2019 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, estimated cash flows of our purchased credit-impaired (“PCI”) loans 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, 2018, of the Company as filed with the SEC. 

Note 2 – Debt Securities Available-for-Sale
The following is a comparative summary of mortgage-backed and other debt securities available-for-sale at March 31, 2019, and December 31, 2018 (in thousands):
 
March 31, 2019
 
 
 
Gross
 
Gross
 
Estimated
 
Amortized
 
unrealized
 
unrealized
 
fair
 
cost
 
gains
 
losses
 
value
Mortgage-backed securities:
 
 
 
 
 
 
 
Pass-through certificates:
 

 
 

 
 

 
 

Government sponsored enterprises (GSE)
$
404,108

 
$
2,656

 
$
2,227

 
$
404,537

Real estate mortgage investment conduits (REMICs):
 

 
 

 
 

 
 

GSE
268,399

 
565

 
5,472

 
263,492

Non-GSE
58

 

 
1

 
57

 
672,565

 
3,221

 
7,700

 
668,086

Other debt securities:
 
 
 
 
 
 
 
Municipal bonds
270

 
4

 

 
274

Corporate bonds
225,599

 
727

 
414

 
225,912

 
225,869

 
731

 
414

 
226,186

Total debt securities available-for-sale
$
898,434

 
$
3,952

 
$
8,114

 
$
894,272



10

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

 
December 31, 2018
 
 
 
Gross
 
Gross
 
Estimated
 
Amortized
 
unrealized
 
unrealized
 
fair
 
cost
 
gains
 
losses
 
value
Mortgage-backed securities:
 

 
 

 
 

 
 

Pass-through certificates:
 

 
 

 
 

 
 

GSE
$
317,530

 
$
800

 
$
3,542

 
$
314,788

REMICs:
 

 
 

 
 

 
 

GSE
258,050

 
92

 
7,979

 
250,163

Non-GSE
59

 

 
1

 
58

 
575,639

 
892

 
11,522

 
565,009

Other debt securities:
 
 
 
 
 
 
 
Municipal bonds
270

 
3

 

 
273

Corporate bonds
244,892

 
72

 
2,215

 
242,749

 
245,162

 
75

 
2,215

 
243,022

Total debt securities available-for-sale
$
820,801

 
$
967

 
$
13,737

 
$
808,031


The following is a summary of the expected maturity distribution of debt securities available-for-sale, other than mortgage-backed securities, at March 31, 2019 (in thousands):
Available-for-sale
Amortized cost
 
Estimated fair value
Due in one year or less
$
44,901

 
$
44,947

Due after one year through five years
176,033

 
176,354

Due after five years through ten years
4,935

 
4,885

 
$
225,869

 
$
226,186

 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.

Certain securities available-for-sale are pledged or encumbered to secure borrowings under Pledge Agreements and Repurchase Agreements and for other purposes required by law.  At March 31, 2019, the fair value of debt securities available-for-sale that were pledged to secure borrowings and deposits was $484.7 million.

For the three months ended March 31, 2019, the Company had gross proceeds of $29.2 million on sales of debt securities available-for-sale, with gross realized gains of $155,000 and no gross realized losses. For the three months ended March 31, 2018, the Company had gross proceeds of $19.5 million on sales of debt securities available-for-sale, with gross realized gains of $60,000 and gross realized losses of $5,000. The Company recognized net gains of $1.1 million and $106,000, on its trading securities portfolio during the three months ended March 31, 2019, and March 31, 2018, respectively.

11

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

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 March 31, 2019, and December 31, 2018, were as follows (in thousands):
 
March 31, 2019
 
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
$
170

 
$
34,164

 
$
2,057

 
$
96,411

 
$
2,227

 
$
130,575

REMICs:
 
 
 
 
 
 
 
 
 
 
 
GSE
8

 
19,136

 
5,464

 
170,787

 
5,472

 
189,923

Non-GSE

 

 
1

 
57

 
1

 
57

Other debt securities:
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
124

 
53,417

 
290

 
35,806

 
414

 
89,223

Total
$
302

 
$
106,717

 
$
7,812

 
$
303,061

 
$
8,114

 
$
409,778

 
December 31, 2018
 
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
$
404

 
$
82,781

 
$
3,138

 
$
100,109

 
$
3,542

 
$
182,890

REMICs:
 
 
 
 
 
 
 
 
 
 
 
GSE
269

 
46,921

 
7,710

 
181,512

 
7,979

 
228,433

Non-GSE

 

 
1

 
58

 
1

 
58

Other debt securities:
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
1,703

 
173,219

 
512

 
25,675

 
2,215

 
198,894

Total
$
2,376

 
$
302,921

 
$
11,361

 
$
307,354

 
$
13,737

 
$
610,275

 
The Company held 50 pass-through mortgage-backed securities issued or guaranteed by GSEs, 45 REMIC mortgage-backed securities issued or guaranteed by GSEs, one REMIC mortgage-backed security not issued or guaranteed by a GSE, and seven corporate bonds that were in a continuous unrealized loss position of twelve months or greater at March 31, 2019. There were five pass-through mortgage-backed securities issued or guaranteed by GSEs, one REMIC mortgage-backed security issued or guaranteed by a GSE, and eight corporate bonds that were in an unrealized loss position of less than twelve months at March 31, 2019. All securities referred to above, other than one corporate security with a fair value of $5.0 million and an unrealized loss of $13,000, were rated investment grade at March 31, 2019.  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 debt securities available-for-sale 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. The Company did not recognize any other-than-temporary impairment charges during the three months ended March 31, 2019, or March 31, 2018
    

12

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

Note 3 – Debt Securities Held-to-Maturity
The following is a summary of debt securities held-to-maturity at March 31, 2019, and December 31, 2018 (in thousands): 
 
March 31, 2019
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Mortgage-backed securities:
 

 
 

 
 

 
 

Pass-through certificates:
 

 
 

 
 

 
 

GSEs
$
9,448

 
$

 
$
128

 
$
9,320

Total securities held-to-maturity
$
9,448

 
$

 
$
128

 
$
9,320

 
December 31, 2018
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Mortgage-backed securities:
 

 
 

 
 

 
 

Pass-through certificates:
 

 
 

 
 

 
 

GSEs
$
9,505

 
$

 
$
256

 
$
9,249

Total securities held-to-maturity
$
9,505

 
$

 
$
256

 
$
9,249

    
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 months ended March 31, 2019, or March 31, 2018.

At March 31, 2019, debt securities held-to-maturity with a carrying value of $6.4 million were pledged to secure borrowings and deposits.

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 March 31, 2019 and December 31, 2018, were as follows (in thousands):
 
March 31, 2019
 
Less than 12 months
 
12 months or more
 
Total
 
Unrealized losses
 
Estimated fair value
 
Unrealized losses
 
Estimated fair value
 
Unrealized losses
 
Estimated fair value
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Pass-through certificates:
 
 
 
 
 
 
 
 
 
 
 
GSEs
$

 
$

 
$
128

 
$
9,320

 
$
128

 
$
9,320

Total securities held-to-maturity
$

 
$

 
$
128

 
$
9,320

 
$
128

 
$
9,320

 
December 31, 2018
 
Less than 12 months
 
12 months or more
 
Total
 
Unrealized losses
 
Estimated fair value
 
Unrealized losses
 
Estimated fair value
 
Unrealized losses
 
Estimated fair value
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Pass-through certificates:
 
 
 
 
 
 
 
 
 
 
 
GSEs
$
34

 
$
2,133

 
$
222

 
$
7,116

 
$
256

 
$
9,249

Total securities held-to-maturity
$
34

 
$
2,133

 
$
222

 
$
7,116

 
$
256

 
$
9,249





13

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

The Company held six pass-through mortgage-backed securities held-to-maturity, issued or guaranteed by GSEs, all of which were in a continuous unrealized loss position of greater than twelve months at March 31, 2019. 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 debt securities held-to-maturity 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. The Company did not recognize any other-than-temporary impairment charges in earnings on securities held-to-maturity during the three months ended March 31, 2019, or March 31, 2018.

Note 4 – Equity Securities
At March 31, 2019, and December 31, 2018, equity securities totaled $1.5 million and $1.3 million, respectively. Equity securities consist of money market mutual funds, recorded at fair value of $414,000 and $237,000, at March 31, 2019, and December 31, 2018, respectively, and an investment in a private Small Business Administration (“SBA”) Loan Fund recorded at net asset value of $1.1 million at March 31, 2019, and $1.0 million at December 31, 2018. As the SBA Loan Fund operates as a private fund, its shares are not publicly traded and therefore have no readily determinable market value. The investment in the fund is recorded at net asset value as a practical expedient for reporting fair market value.


14

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):
 
March 31,
 
December 31,
 
2019
 
2018
Real estate loans:
 
 
 
Multifamily
$
1,978,070

 
$
1,930,535

Commercial mortgage
502,294

 
499,311

One-to-four family residential mortgage
90,825

 
91,371

Home equity and lines of credit
79,374

 
78,593

Construction and land
30,181

 
26,552

Total real estate loans
2,680,744

 
2,626,362

Commercial and industrial loans
38,924

 
44,104

Other loans
1,335

 
1,519

Total commercial and industrial and other loans
40,259

 
45,623

Deferred loan cost, net
6,849

 
6,892

Originated loans held-for-investment, net
2,727,852

 
2,678,877

PCI Loans
18,892

 
20,143

Loans acquired:
 
 
 
One-to-four family residential mortgage
208,461

 
225,877

Multifamily
132,649

 
145,485

Commercial mortgage
134,488

 
133,263

Home equity and lines of credit
15,292

 
17,583

Construction and land
8,142

 
12,003

Total acquired real estate loans
499,032

 
534,211

Commercial and industrial loans
10,083

 
11,933

Other loans
1

 
6

Total loans acquired, net
509,116

 
546,150

Loans held-for-investment, net
3,255,860

 
3,245,170

Allowance for loan losses
(27,486
)
 
(27,497
)
Net loans held-for-investment
$
3,228,374

 
$
3,217,673

    
There were no loans held-for-sale at March 31, 2019, or December 31, 2018.

PCI loans totaled $18.9 million at March 31, 2019, as compared to $20.1 million at December 31, 2018. 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 March 31, 2019, PCI loans consist of approximately 27% commercial real estate loans and 47% commercial and industrial loans, with the remaining balance in residential and home equity loans. At December 31, 2018, PCI loans consist of approximately 27% commercial real estate loans and 50% commercial and industrial loans, with the remaining balance in residential and home equity loans.

The following table details the accretion of interest income for PCI loans for the three months ended March 31, 2019 and March 31, 2018 (in thousands): 
 
At or for the three months ended March 31,
 
2019
 
2018
Balance at the beginning of period
$
21,846

 
$
24,502

Accretion into interest income
(1,049
)
 
(1,090
)
Balance at end of period
$
20,797

 
$
23,412


15

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 months ended March 31, 2019, and March 31, 2018 (in thousands):  
 
Three Months Ended March 31, 2019
 
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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
5,630

 
$
342

 
$
463

 
$
18,084

 
$
291

 
$
1,569

 
$
108

 
$
26,487

 
$
1,010

 
$

 
$
27,497

Charge-offs
(6
)
 

 

 

 

 
(26
)
 

 
(32
)
 

 
(60
)
 
(92
)
Recoveries
13

 

 

 

 

 

 

 
13

 

 
9

 
22

Provisions (credit)
(255
)
 
28

 
111

 
262

 
45

 
(167
)
 
(16
)
 
8

 

 
51

 
59

Ending balance
$
5,382

 
$
370

 
$
574

 
$
18,346

 
$
336

 
$
1,376

 
$
92

 
$
26,476

 
$
1,010

 
$

 
$
27,486


 
Three Months Ended March 31, 2018
 
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:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
5,196

 
$
503

 
$
610

 
$
17,374

 
$
122

 
$
1,273

 
$
94

 
$
25,172

 
$
951

 
$
37

 
$
26,160

Charge-offs
(3
)
 

 

 

 
(60
)
 

 

 
(63
)
 

 
(1
)
 
(64
)
Recoveries
16

 

 

 

 

 
20

 

 
36

 

 
6

 
42

Provisions (credit)
4

 
(48
)
 
(147
)
 
38

 
163

 
44

 
19

 
73

 

 
(39
)
 
34

Ending balance
$
5,213

 
$
455

 
$
463

 
$
17,412

 
$
225

 
$
1,337

 
$
113

 
$
25,218

 
$
951

 
$
3

 
$
26,172

 
 


    

16

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 March 31, 2019, and December 31, 2018 (in thousands):
 
March 31, 2019
 
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
$
100

 
$
10

 
$

 
$

 
$
7

 
$
3

 
$

 
$
120

 
$

 
$

 
$
120

Ending balance: collectively evaluated for impairment
$
5,282

 
$
360

 
$
574

 
$
18,346

 
$
329

 
$
1,373

 
$
92

 
$
26,356

 
$
1,010

 
$

 
$
27,366

Loans, net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
502,849

 
$
91,873

 
$
30,199

 
$
1,981,444

 
$
81,136

 
$
39,016

 
$
1,335

 
$
2,727,852

 
$
18,892

 
$
509,116

 
$
3,255,860

Ending balance: individually evaluated for impairment
$
14,573

 
$
1,873

 
$

 
$
1,261

 
$
59

 
$
66

 
$

 
$
17,832

 
$

 
$
3,669

 
$
21,501

Ending balance: collectively evaluated for impairment
$
488,276

 
$
90,000

 
$
30,199

 
$
1,980,183

 
$
81,077

 
$
38,950

 
$
1,335

 
$
2,710,020

 
$
18,892

 
$
505,447

 
$
3,234,359


 
December 31, 2018
 
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
$

 
$
18

 
$

 
$

 
$
5

 
$
3

 
$

 
$
26

 
$

 
$

 
$
26

Ending balance: collectively evaluated for impairment
$
5,630

 
$
324

 
$
463

 
$
18,084

 
$
286

 
$
1,566

 
$
108

 
$
26,461

 
$
1,010

 
$

 
$
27,471

Loans, net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
499,860

 
$
92,433

 
$
26,613

 
$
1,933,946

 
$
80,315

 
$
44,190

 
$
1,520

 
$
2,678,877

 
$
20,143

 
$
546,150

 
$
3,245,170

Ending balance: individually evaluated for impairment
$
15,252

 
$
1,893

 
$

 
$
1,268

 
$
61

 
$
73

 
$

 
$
18,547

 
$

 
$
3,782

 
$
22,329

Ending balance: collectively evaluated for impairment
$
484,608

 
$
90,540

 
$
26,613

 
$
1,932,678

 
$
80,254

 
$
44,117

 
$
1,520

 
$
2,660,330

 
$
20,143

 
$
542,368

 
$
3,222,841


17

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.

18

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 March 31, 2019, and December 31, 2018 (in thousands):
 
March 31, 2019
 
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
$
197,675

 
$
1,777,587

 
$
79,101

 
$
412,573

 
$
55,956

 
$
33,751

 
$
30,199

 
$
80,902

 
$
38,449

 
$
1,335

 
$
2,707,528

Special Mention

 
607

 
391

 
1,125

 
740

 

 

 
26

 
420

 

 
3,309

Substandard

 
5,575

 

 
9,659

 
1,088

 
338

 

 
208

 
147

 

 
17,015

Originated loans held-for-investment, net
$
197,675

 
$
1,783,769

 
$
79,492

 
$
423,357

 
$
57,784

 
$
34,089

 
$
30,199

 
$
81,136

 
$
39,016

 
$
1,335

 
$
2,727,852


 
December 31, 2018
 
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
$
170,832

 
$
1,756,882

 
$
78,917

 
$
409,155

 
$
54,912

 
$
34,808

 
$
26,613

 
$
80,077

 
$
43,640

 
$
1,520

 
$
2,657,356

Special Mention

 
613

 
395

 
1,137

 
747

 

 

 
27

 
430

 

 
3,349

Substandard

 
5,619

 

 
10,256

 
1,406

 
560

 

 
211

 
120

 

 
18,172

Originated loans held-for-investment, net
$
170,832

 
$
1,763,114

 
$
79,312

 
$
420,548

 
$
57,065

 
$
35,368

 
$
26,613

 
$
80,315

 
$
44,190

 
$
1,520

 
$
2,678,877


19

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

Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The recorded investment of these non-accrual loans was $8.4 million and $9.2 million at March 31, 2019, and December 31, 2018, 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 $5.3 million and $5.9 million at March 31, 2019, and December 31, 2018, respectively. Loans on non-accrual status with principal balances less than $500,000, and therefore not meeting the Company’s definition of an impaired loan, amounted to $3.2 million at both March 31, 2019, and December 31, 2018. There were no non-accrual loans held-for-sale at both March 31, 2019 and December 31, 2018. Loans past due 90 days or more and still accruing interest were $33,000 at both March 31, 2019 and December 31, 2018, and consisted of loans that are considered well-secured and in the process of collection.

20

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 March 31, 2019, and December 31, 2018, excluding 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):
 
March 31, 2019
 
Total Non-Performing Loans
 
Non-Accruing Loans
 
 
 
 
 
0-29 Days Past Due
 
30-89 Days Past Due
 
90 Days or More Past Due
 
Total
 
90 Days or More Past Due and Accruing
 
Total Non-Performing Loans
Loans held-for-investment:
 
 
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial
 

 
 

 
 

 
 

 
 

 
 

LTV => 35%
 

 
 

 
 

 
 

 
 

 
 

Substandard
$

 
$

 
$
2,308

 
$
2,308

 
$

 
$
2,308

Total commercial

 

 
2,308

 
2,308

 

 
2,308

One-to-four family residential
 

 
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 
428

 
77

 
505

 

 
505

Total


428


77

 
505

 

 
505

LTV => 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
31

 
31

 

 
31

Total one-to-four family residential

 
428

 
108

 
536

 

 
536

Home equity and lines of credit
 

 
 

 
 

 
 

 
 

 
 

Substandard
72

 

 

 
72

 

 
72

Total home equity and lines of credit
72

 

 

 
72

 

 
72

Commercial and industrial loans
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
55

 
55

 

 
55

Total commercial and industrial loans

 

 
55

 
55

 

 
55

Total non-performing loans held-for-investment, originated
72

 
428

 
2,471

 
2,971

 

 
2,971

Loans acquired:
 

 
 

 
 

 
 

 
 

 
 

Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial
 

 
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 

 
 

 
 

Substandard
85

 

 
193

 
278

 

 
278

LTV => 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard
3,590

 

 
533

 
4,123

 

 
4,123

Total commercial
3,675

 

 
726

 
4,401

 

 
4,401

One-to-four family residential
 

 
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard
195

 

 
110

 
305

 
6

 
311

LTV => 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard
125

 

 
93

 
218

 
27

 
245

Total one-to-four family residential
320

 

 
203

 
523

 
33

 
556

Multifamily
 
 
 
 
 
 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard
48

 

 

 
48

 

 
48

LTV => 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard
408

 

 

 
408

 

 
408

Total multifamily
456

 

 

 
456

 

 
456

Home equity and lines of credit
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
77

 
77

 

 
77

Total home equity and lines of credit

 

 
77

 
77

 

 
77

Total non-performing loans acquired
4,451

 

 
1,006

 
5,457

 
33

 
5,490

Total non-performing loans
$
4,523


$
428

 
$
3,477

 
$
8,428

 
$
33

 
$
8,461


21

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


 
December 31, 2018
 
Total Non-Performing Loans
 
Non-Accruing Loans
 
 
 
 
 
0-29 Days Past Due
 
30-89 Days Past Due
 
90 Days or More Past Due
 
Total
 
90 Days or More Past Due and Accruing
 
Total Non-Performing Loans
Loans held-for-investment:
 
 
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial
 

 
 

 
 

 
 

 
 

 
 

LTV => 35%
 

 
 

 
 

 
 

 
 

 
 

Substandard
$

 
$
287

 
$
2,588

 
$
2,875

 
$

 
$
2,875

Total commercial

 
287

 
2,588

 
2,875

 

 
2,875

One-to-four family residential
 

 
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 
432

 
77

 
509

 

 
509

LTV => 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 
32

 

 
32

 

 
32

Total one-to-four family residential

 
464

 
77

 
541

 

 
541

Home equity and lines of credit
 
 
 
 
 
 
 
 
 
 
 
Substandard
75

 

 

 
75

 

 
75

Total home equity and lines of credit
75

 

 

 
75

 

 
75

Commercial and industrial loans
 
 
 
 
 
 
 
 
 
 
 
Substandard

 

 
25

 
25

 

 
25

Total commercial and industrial loans

 

 
25

 
25

 

 
25

Total non-performing loans held-for-investment, originated
75

 
751

 
2,690

 
3,516

 

 
3,516

Loans acquired:
 

 
 

 
 

 
 

 
 

 
 

Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard
87

 

 
194

 
281

 

 
281

LTV => 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard

 
764

 
3,371

 
4,135

 

 
4,135

Total commercial
87

 
764

 
3,565

 
4,416

 

 
4,416

One-to-four family residential
 
 
 
 
 
 
 
 
 
 
 
LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 
199

 
169

 
368

 
6

 
374

LTV => 60%
 
 
 
 
 
 
 
 
 
 
 
Substandard
126

 

 
93

 
219

 
27

 
246

Total one-to-four family residential
126

 
199


262


587


33


620

Multifamily
 

 
 

 
 

 
 

 
 

 
 

LTV < 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard
152

 

 

 
152

 

 
152

LTV => 35%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 
414

 

 
414

 

 
414

Total multifamily
152

 
414

 

 
566

 

 
566

Home equity and lines of credit
 
 
 
 
 
 
 
 
 
 
 
Substandard

 

 
77

 
77

 

 
77

Total home equity and lines of credit

 

 
77

 
77

 

 
77

Total non-performing loans acquired
365

 
1,377

 
3,904

 
5,646

 
33

 
5,679

Total non-performing loans
$
440

 
$
2,128

 
$
6,594

 
$
9,162

 
$
33

 
$
9,195


22

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 March 31, 2019, and December 31, 2018 (in thousands):
 
March 31, 2019
 
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
$
78,884

 
$
217

 
$
79,101

 
$

 
$
79,101

Special Mention

 
391

 
391

 

 
391

Total
78,884

 
608

 
79,492

 

 
79,492

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
412,254

 
320

 
412,574

 

 
412,574

Special Mention
1,125

 

 
1,125

 

 
1,125

Substandard
6,033

 
1,317

 
7,350

 
2,308

 
9,658

Total
419,412

 
1,637

 
421,049

 
2,308

 
423,357

Total commercial
498,296

 
2,245

 
500,541

 
2,308

 
502,849

One-to-four family residential
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

Pass
53,527

 
2,429

 
55,956

 

 
55,956

Special Mention
118

 
622

 
740

 

 
740

Substandard
583

 


 
583

 
505

 
1,088

Total
54,228

 
3,051

 
57,279

 
505

 
57,784

LTV => 60%
 

 
 

 
 

 
 

 
 

Pass
33,521

 
230

 
33,751

 

 
33,751

Substandard
307

 

 
307

 
31

 
338

Total
33,828

 
230

 
34,058

 
31

 
34,089

Total one-to-four family residential
88,056

 
3,281

 
91,337

 
536

 
91,873

Construction and land
 

 
 

 
 

 
 

 
 

Pass
30,199

 

 
30,199

 

 
30,199

Total construction and land
30,199

 

 
30,199

 

 
30,199

Multifamily
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 

 
 

Pass
197,675

 

 
197,675

 

 
197,675

Total
197,675

 

 
197,675

 

 
197,675

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
1,777,587

 

 
1,777,587

 

 
1,777,587

Special Mention
607

 

 
607

 

 
607

Substandard
5,575

 

 
5,575

 

 
5,575

Total
1,783,769

 

 
1,783,769

 

 
1,783,769

Total multifamily
1,981,444

 

 
1,981,444

 

 
1,981,444

Home equity and lines of credit
 

 
 

 
 

 
 

 
 

Pass
80,561

 
341

 
80,902

 

 
80,902

Special Mention
26

 

 
26

 

 
26

Substandard
136

 

 
136

 
72

 
208

Total home equity and lines of credit
80,723

 
341

 
81,064

 
72

 
81,136

Commercial and industrial
 

 
 

 
 

 
 

 
 

Pass
38,333

 
115

 
38,448

 

 
38,448

Special Mention
393

 
27

 
420

 

 
420

Substandard
93

 

 
93

 
55

 
148

Total commercial and industrial
38,819

 
142

 
38,961

 
55

 
39,016

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

23

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

 
March 31, 2019
 
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
1,327

 
8

 
1,335

 

 
1,335

Total originated loans held-for-investment
2,718,864

 
6,017

 
2,724,881

 
2,971

 
2,727,852

Acquired loans:
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
 
 
Pass
189,354

 
562

 
189,916

 

 
189,916

Substandard
6

 

 
6

 
311

 
317

Total
189,360

 
562

 
189,922

 
311

 
190,233

LTV => 60%
 

 
 

 
 

 
 

 
 

Pass
17,983

 

 
17,983

 

 
17,983

Substandard

 

 

 
245

 
245

Total
17,983

 

 
17,983

 
245

 
18,228

Total one-to-four family residential
207,343

 
562

 
207,905

 
556

 
208,461

Commercial
 

 
 

 
 

 
 
 
 
LTV < 35%
 

 
 

 
 

 
 
 
 
Pass
39,794

 
190

 
39,984

 

 
39,984

Special Mention
1,078

 

 
1,078

 

 
1,078

Substandard
1,176

 
554

 
1,730

 
278

 
2,008

Total
42,048

 
744

 
42,792

 
278

 
43,070

LTV => 35%
 
 
 
 
 
 
 
 
 
Pass
75,688

 
150

 
75,838

 

 
75,838

Special Mention
4,308

 
127

 
4,435

 

 
4,435

Substandard
6,015

 
1,007

 
7,022

 
4,123

 
11,145

Total
86,011

 
1,284

 
87,295

 
4,123

 
91,418

Total commercial
128,059

 
2,028

 
130,087

 
4,401

 
134,488

Construction and land
 

 
 

 
 

 
 

 
 

Pass
8,142

 

 
8,142

 

 
8,142

Total construction and land
8,142

 

 
8,142

 

 
8,142

Multifamily
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 
 
 
Pass
128,090

 

 
128,090

 

 
128,090

Special Mention

 
25

 
25

 

 
25

Substandard

 

 

 
48

 
48

Total
128,090

 
25

 
128,115

 
48

 
128,163

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
4,078

 

 
4,078

 

 
4,078

Substandard

 

 

 
408

 
408

Total
4,078

 

 
4,078

 
408

 
4,486

Total multifamily
132,168

 
25

 
132,193

 
456

 
132,649

Home equity and lines of credit
 
 
 
 
 
 
 
 
 
Pass
15,118

 
20

 
15,138

 

 
15,138

Substandard
77

 

 
77

 
77

 
154

Total home equity and lines of credit
15,195

 
20

 
15,215

 
77

 
15,292

Commercial and industrial
 
 
 
 
 
 
 
 
 
Pass
10,083

 

 
10,083

 

 
10,083

Total commercial and industrial
10,083

 

 
10,083

 

 
10,083

Other loans - Pass
1

 

 
1

 

 
1

Total loans acquired
500,991

 
2,635

 
503,626

 
5,490

 
509,116

 
$
3,219,855

 
$
8,652

 
$
3,228,507

 
$
8,461

 
$
3,236,968


24

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

 
December 31, 2018
 
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
$
78,699

 
$
218

 
$
78,917

 

 
$
78,917

Special Mention

 
395

 
395

 

 
395

Total
78,699

 
613

 
79,312

 

 
79,312

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
408,830

 
325

 
409,155

 

 
409,155

Special Mention
1,137

 

 
1,137

 

 
1,137

Substandard
7,381

 

 
7,381

 
2,875

 
10,256

Total
417,348

 
325

 
417,673

 
2,875

 
420,548

Total commercial
496,047

 
938

 
496,985

 
2,875

 
499,860

One-to-four family residential
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

Pass
54,576

 
336

 
54,912

 

 
54,912

Special Mention

 
747

 
747

 

 
747

Substandard
896

 

 
896

 
510

 
1,406

Total
55,472

 
1,083

 
56,555

 
510

 
57,065

LTV => 60%
 

 
 

 
 

 
 

 
 

Pass
34,576

 
232

 
34,808

 

 
34,808

Substandard
528

 

 
528

 
32

 
560

Total
35,104

 
232

 
35,336

 
32

 
35,368

Total one-to-four family residential
90,576

 
1,315

 
91,891

 
542

 
92,433

Construction and land
 

 
 

 
 

 
 

 
 

Pass
26,613

 

 
26,613

 

 
26,613

Total construction and land
26,613

 

 
26,613

 

 
26,613

Multifamily
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 

 
 

Pass
170,534

 
298

 
170,832

 

 
170,832

Total
170,534

 
298

 
170,832

 

 
170,832

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
1,756,443

 
439

 
1,756,882

 

 
1,756,882

Special Mention
613

 

 
613

 

 
613

Substandard
4,390

 
1,229

 
5,619

 

 
5,619

Total
1,761,446

 
1,668

 
1,763,114

 

 
1,763,114

Total multifamily
1,931,980

 
1,966

 
1,933,946

 

 
1,933,946

Home equity and lines of credit
 

 
 

 
 

 
 

 
 

Pass
80,077

 

 
80,077

 

 
80,077

Special Mention
27

 

 
27

 

 
27

Substandard
137

 

 
137

 
74

 
211

Total home equity and lines of credit
80,241

 

 
80,241

 
74

 
80,315

Commercial and industrial loans
 

 
 

 
 

 
 

 
 

Pass
43,640

 

 
43,640

 

 
43,640

Special Mention
430

 

 
430

 

 
430

Substandard
95

 

 
95

 
25

 
120

Total commercial and industrial loans
44,165

 

 
44,165

 
25

 
44,190

Other loans - Pass
1,518

 
2

 
1,520

 

 
1,520

Total originated loans held-for-investment
$
2,671,140

 
$
4,221

 
$
2,675,361

 
$
3,516

 
$
2,678,877

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

25

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

 
December 31, 2018
 
Performing (Accruing) Loans
 
 
 
 
 
0-29 Days Past Due
 
30-89 Days Past Due
 
Total
 
Non-Performing Loans
 
Total Loans Receivable, net
Loans Acquired
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
 
 
Pass
202,471

 
2,799

 
205,270

 

 
205,270

Special Mention
415

 

 
415

 

 
415

Substandard
62

 
6

 
68

 
374

 
442

Total
202,948

 
2,805

 
205,753

 
374

 
206,127

LTV => 60%
 
 
 
 
 
 
 
 
 
Pass
19,504

 

 
19,504

 

 
19,504

Substandard

 

 

 
246

 
246

Total
19,504

 

 
19,504

 
246

 
19,750

Total one-to-four family residential
222,452

 
2,805

 
225,257

 
620

 
225,877

Commercial
 
 
 
 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
Pass
41,071

 

 
41,071

 

 
41,071

Special Mention
1,079

 

 
1,079

 

 
1,079

Substandard
1,185

 
151

 
1,336

 
281

 
1,617

Total
43,335

 
151

 
43,486

 
281

 
43,767

LTV => 35%
 
 
 
 
 
 
 
 
 
Pass
73,986

 
749

 
74,735

 

 
74,735

Special Mention
4,315

 
128

 
4,443

 

 
4,443

Substandard
5,772

 
411

 
6,183

 
4,135

 
10,318

Total
84,073

 
1,288

 
85,361

 
4,135

 
89,496

Total commercial
127,408

 
1,439

 
128,847

 
4,416

 
133,263

Construction and land
 
 
 
 
 
 
 
 
 
Pass
12,003

 

 
12,003

 

 
12,003

Total construction and land
12,003

 

 
12,003

 

 
12,003

Multifamily
 
 
 
 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
Pass
137,141

 

 
137,141

 

 
137,141

Special Mention

 
52

 
52

 

 
52

Substandard

 

 

 
152

 
152

Total
137,141

 
52

 
137,193

 
152

 
137,345

LTV => 35%
 
 
 
 
 
 
 
 
 
Pass
7,726

 

 
7,726

 

 
7,726

Substandard

 

 

 
414

 
414

Total
7,726

 

 
7,726

 
414

 
8,140

Total multifamily
144,867

 
52

 
144,919

 
566

 
145,485

Home equity and lines of credit
 
 
 
 
 
 
 
 
 
Pass
17,427

 

 
17,427

 

 
17,427

Substandard
79

 

 
79

 
77

 
156

Total home equity and lines of credit
17,506

 

 
17,506

 
77

 
17,583

Commercial and industrial loans
 
 
 
 
 
 
 
 
 
Pass
11,888

 
45

 
11,933

 

 
11,933

Substandard

 

 

 

 

Total commercial and industrial loans
11,888

 
45

 
11,933

 

 
11,933

Other
6

 

 
6

 

 
6

Total loans acquired
536,130

 
4,341

 
540,471

 
5,679

 
546,150

 
$
3,207,270

 
$
8,562

 
$
3,215,832

 
$
9,195

 
$
3,225,027


26

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

The following table summarizes originated and acquired impaired loans as of March 31, 2019, and December 31, 2018 (in thousands):
 
March 31, 2019
 
December 31, 2018
 
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
5,844

 
6,730

 

 
5,931

 
6,817

 

Substandard
11,047

 
11,863

 

 
12,160

 
15,028

 

One-to-four family residential
 

 
 

 
 

 
 
 
 
 
 
LTV < 60%
 

 
 

 
 

 
 
 
 
 
 
Pass
1,822

 
1,899

 

 
1,532

 
1,606

 

Substandard
238

 
238

 

 
241

 
241

 

LTV => 60%
 
 
 
 
 
 
 
 
 
 
 
Pass
127

 
157

 

 
129

 
158

 

Substandard
125

 
276

 

 
126

 
278

 

Multifamily
 

 
 

 
 

 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard
48

 
48

 

 
152

 
152

 

LTV => 35%
 

 
 

 
 

 
 
 
 
 
 
Pass
35

 
507

 

 
38

 
509

 

Substandard
1,225

 
1,225

 

 
1,229

 
1,229

 

Home equity and lines of credit
 
 
 
 
 
 
 
 
 
 
 
Pass
26

 
26

 

 
28

 
28

 

Commercial and industrial loans
 

 
 

 
 

 
 
 
 
 
 
Substandard
48

 
119

 

 
52

 
119

 

With a Related Allowance
Recorded:
 

 
 

 
 

 
 
 
 
 
 
Real estate loans:
 

 
 

 
 

 
 
 
 
 
 
Commercial
 

 
 

 
 

 
 
 
 
 
 
LTV => 35%
 

 
 

 
 

 
 
 
 
 
 
Substandard
517

 
1,770

 
(100
)
 

 

 

One-to-four family residential
 

 
 

 
 

 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
 
 
 
 
Substandard
346

 
346

 
(10
)
 
657

 
657

 
(18
)
LTV => 60%
 
 
 
 
 
 
 
 
 
 
 
Home equity and lines of credit
 

 
 

 
 

 
 
 
 
 
 
Substandard
33

 
33

 
(7
)
 
33

 
33

 
(5
)
Commercial and industrial loans
 

 
 

 
 

 
 
 
 
 
 
Special Mention
20

 
20

 
(3
)
 
21

 
21

 
(3
)
Total:
 

 
 

 
 

 
 
 
 
 
 
Real estate loans
 

 
 

 
 

 
 
 
 
 
 
Commercial
17,408

 
20,502

 
(100
)
 
18,091

 
21,984

 

One-to-four family residential
2,658

 
2,916

 
(10
)
 
2,685

 
2,940

 
(18
)
Multifamily
1,308

 
1,780

 

 
1,419

 
1,890

 

Home equity and lines of credit
59

 
59

 
(7
)
 
61

 
61

 
(5
)
Commercial and industrial loans
68

 
139

 
(3
)
 
73

 
140

 
(3
)
 
$
21,501

 
$
25,396

 
$
(120
)
 
$
22,329

 
$
27,015

 
$
(26
)

27

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

Included in the above table at March 31, 2019, are impaired loans with carrying balances of $16.2 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, 2018, are loans with carrying balances of $16.6 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 March 31, 2019, and December 31, 2018, are considered to have sufficient collateral values, less costs to sell, to support the carrying balances of the loans.

The following table summarizes the average recorded investment in originated and acquired impaired loans (excluding PCI loans) and interest recognized on impaired loans as of, and for, the three and three months ended March 31, 2019, and March 31, 2018 (in thousands):
 
Three Months Ended
 
March 31, 2019
 
March 31, 2018
 
Average Recorded Investment
 
Interest Income
 
Average Recorded Investment
 
Interest Income
With No Allowance Recorded:
 
 
 
 
 
 
 
Real estate loans:
 

 
 

 
 
 
 
Commercial
 

 
 

 
 
 
 
LTV => 35%
 
 
 
 
 
 
 
Pass
5,888

 
78

 
5,479

 
64

Substandard
11,604

 
72

 
9,718

 
75

One-to-four family residential
 
 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
Pass
1,677

 
22

 
1,183

 
13

Substandard
240

 
3

 
252

 
1

LTV => 60%
 
 
 
 
 
 
 
Pass
128

 
1

 
269

 
4

Substandard
125

 
3

 
134

 
3

Multifamily
 
 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
Substandard
100

 
1

 
152

 
1

LTV => 35%
 
 
 
 
 
 
 
Pass
37

 
4

 
679

 
4

Substandard
1,227

 
20

 
622

 
11

Home equity and lines of credit
 
 
 
 
 
 
 
Pass
27

 

 
33

 
1

Commercial and industrial loans
 
 
 
 
 
 
 
Substandard
50

 

 
134

 

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

 

 
743

 
20

Substandard
259

 

 

 

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

 

 
409

 
2

Substandard
502

 
5

 
837

 
4

LTV => 60%
 
 
 
 
 
 
 
Pass

 

 
134

 

Substandard
33

 
1

 
35

 

Commercial and industrial loans
 
 
 
 
 
 
 
Special Mention
21

 

 
24

 

Total:
 
 
 
 
 
 
 
Real estate loans
 
 
 
 
 
 
 
Commercial
17,751

 
150

 
15,940

 
159

One-to-four family residential
2,672

 
34

 
3,218

 
27

Multifamily
1,364

 
25

 
1,453

 
16

Home equity and lines of credit
60

 
1

 
68

 
1

Commercial and industrial loans
71

 

 
158

 

 
$
21,918

 
$
210

 
$
20,837

 
$
203

    

28

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

The following table summarizes loans that were modified in a troubled debt restructuring (TDR) during the three months ended March 31, 2019:
 
March 31, 2019
 
Number of Relationships
 
Pre-Modification Outstanding Recorded Investment
 
Post-Modification Outstanding Recorded Investment(1)
 
(in thousands)
Troubled Debt Restructurings
 
 
 
 
 
Consumer
1
 
$
2

 
$
2

Commercial real estate
1
 
2,834

 
2,834

Total Troubled Debt Restructurings
2
 
$
2,836

 
$
2,836

 
 
 
 
 
 
(1) Amounts are at time of modification
 
 
 
 
 

The two loans modified as TDR's during the three months ended March 31, 2019, were modified to restructure payment terms. There were no loans modified as TDR's during the three months ended March 31, 2018.

At March 31, 2019, and December 31, 2018, we had TDRs of $19.5 million and $16.9 million, respectively.

Management classifies all TDR's 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 an 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 management firm that specializes 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 March 31, 2019, and March 31, 2018, there were no TDR loans that were restructured during the preceding twelve months that subsequently defaulted.

29

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

Note 6 – Deposits

Deposits account balances are summarized as follows (in thousands):
 
March 31, 2019
 
December 31, 2018
Non-interest-bearing demand
$
380,681

 
$
395,375

Interest-bearing negotiable orders of withdrawal (NOW)
529,610

 
458,012

Savings and money market
1,400,522

 
1,336,229

Certificates of deposit
1,064,392

 
1,096,896

Total deposits
$
3,375,205

 
$
3,286,512

 
Interest expense on deposit accounts is summarized for the periods indicated (in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Negotiable orders of withdrawal, savings, and money market
$
4,794

 
$
2,143

Certificates of deposit
5,453

 
3,068

Total interest expense on deposit accounts
$
10,247

 
$
5,211


Note 7 Equity Incentive Plan

The following table is a summary of the Company’s stock options outstanding as of March 31, 2019, and changes therein during the three 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, 2018
3,251,595

 
$
3.93

 
$
13.51

 
5.62

Exercised
(138,123
)
 
2.33

 
7.21

 

Outstanding - March 31, 2019
3,113,472

 
4.00

 
13.79

 
5.61

Exercisable - March 31, 2019
2,302,759

 
3.98

 
13.64

 
5.52

 Expected future stock option expense related to the non-vested options outstanding as of March 31, 2019, is $1.1 million over a weighted average period of 0.99 years.
The following is a summary of the status of the Company’s restricted stock awards as of March 31, 2019, and changes therein during the three months then ended.
 
Number of Shares Awarded
 
Weighted Average Grant Date Fair Value
Non-vested at December 31, 2018
328,962

 
$
14.31

Vested
(5,000
)
 
16.48

Non-vested at March 31, 2019
323,962

 
$
14.27

 
Expected future stock award expense related to the non-vested restricted share awards as of March 31, 2019, is $1.7 million over a weighted average period of 1.03 years.    
During the three months ended March 31, 2019 and 2018, the Company recorded $1.3 million and $1.4 million, respectively, of stock-based compensation related to the above plans.

30

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

Note 8 – Fair Value Measurements
The following tables present the assets reported on the consolidated balance sheets at their estimated fair value as of March 31, 2019, and December 31, 2018, 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.

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 15 to the Consolidated Financial Statements of the Company’s 2018 Annual Report on Form 10-K.

31

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

 
Fair Value Measurements at March 31, 2019 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:
 
 
 
 
 
 
 
Debt securities available-for-sale:
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
Pass-through certificates:
 
 
 
 
 
 
 
GSE
$
404,537

 
$

 
$
404,537

 
$

REMICs:
 
 
 
 
 
 
 
GSE
263,492

 

 
263,492

 

Non-GSE
57

 

 
57

 

 
668,086

 

 
668,086

 

Other debt securities
 
 
 
 
 
 
 
Municipal bonds
274

 

 
274

 

Corporate bonds
225,912

 

 
225,912

 

 
226,186

 

 
226,186

 

Total debt securities available-for-sale
894,272

 

 
894,272

 

Trading securities
9,759

 
9,759

 

 

Equity securities
414

 
414

 

 

Total
$
904,445

 
$
10,173

 
$
894,272

 
$

Measured on a non-recurring basis:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
Commercial real estate
$
4,679

 
$

 
$

 
$
4,679

One-to-four family residential mortgage
461

 

 

 
461

Multifamily
35

 

 

 
35

Home equity and lines of credit
26

 

 

 
26

Total impaired real estate loans
5,201

 

 

 
5,201

Commercial and industrial loans
15

 

 

 
15

Total
$
5,216

 
$

 
$

 
$
5,216


32

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

 
Fair Value Measurements at December 31, 2018 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:
 
 
 
 
 
 
 
Debt securities available-for-sale:
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
Pass-through certificates:
 
 
 
 
 
 
 
GSE
$
314,788

 
$

 
$
314,788

 
$

REMICs:
 
 
 
 
 
 
 
GSE
250,163

 

 
250,163

 

Non-GSE
58

 

 
58

 

 
565,009

 

 
565,009

 

Other debt securities
 
 
 
 
 
 
 
Municipal bonds
273

 

 
273

 

Corporate bonds
242,749

 

 
242,749

 

 
243,022

 

 
243,022

 

Total debt securities available-for-sale
808,031

 

 
808,031

 

Trading securities
8,968

 
8,968

 

 

Equity securities
237

 
237

 

 

Total
$
817,236

 
$
9,205

 
$
808,031

 
$

Measured on a non-recurring basis:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
Commercial real estate
$
4,847

 
$

 
$

 
$
4,847

One-to-four family residential mortgage
765

 

 

 
765

Multifamily
39

 

 

 
39

Home equity and lines of credit
28

 

 

 
28

Total impaired real estate loans
5,679

 

 

 
5,679

Commercial and industrial loans
18

 

 

 
18

Total
$
5,697

 
$

 
$

 
$
5,697


The following table presents qualitative information for Level 3 assets measured at fair value on a non-recurring basis at March 31, 2019, and December 31, 2018 (dollars in thousands):
 
Fair Value
 
Valuation Methodology
 
Unobservable Inputs       
 
Range of Inputs
 
March 31, 2019
 
December 31, 2018
 
 
 
 
 
March 31, 2019
 
December 31, 2018
Impaired loans
$
5,216

 
$
5,697

 
Appraisals
 
Discount for costs to sell
 
7.0%
 
7.0%
 
 
 
 
 
 
 
Discount for quick sale
 
10% to 15%
 
10.0%
 
 
 
 
 
Discounted cash flows
 
Interest rates
 
4.13% to 6.25%
 
4.13% to 6.25%

33

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

The valuation techniques described below were used to measure fair value of financial instruments in the tables below on a recurring basis and a non-recurring basis as of March 31, 2019, and December 31, 2018.
Debt Securities Available for Sale: The estimated fair values for mortgage-backed securities, corporate, and other debt 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. There were no transfers of securities between Level 1 and Level 2 during the three months ended March 31, 2019.     
Trading Securities: Fair values are derived from quoted market prices in active markets. The assets consist of publicly traded mutual funds.

Equity Securities: Fair values of equity securities consisting of publicly traded mutual funds are derived from quoted market prices in active markets.
 
Impaired Loans: At March 31, 2019, and December 31, 2018, the Company had impaired loans held-for-investment (excluding PCI loans) with outstanding principal balances of $9.0 million and $10.2 million, respectively, which were recorded at their estimated fair value of $5.2 million and $5.7 million, respectively. The Company recorded a net increase in the specific reserve for impaired loans of $94,000 for the three months ended March 31, 2019, and a net decrease in the specific reserve for impaired loans of $27,000 for the three months ended March 31, 2018, and net charge-offs of $70,000 and $22,000 for the three months ended March 31, 2019 and 2018, respectively, utilizing level 3 inputs. For purposes of estimating the 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 March 31, 2019, and December 31, 2018, the Company had no assets acquired through foreclosure, or deed in lieu of foreclosure. These assets, when held, 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 and Cash Equivalents
Cash and cash equivalents are short-term in nature with original maturities of three 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.

34

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

(b)
Debt 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 analysis. The assumptions used in these models typically include assumptions for interest rates, credit losses, and prepayments, utilizing market observable data where available.
(c)
Investments in Equity Securities at Net Asset Value Per Share

The Company uses net asset value as a practical expedient to record its investment in a private SBA Loan Fund since the shares in the fund are not publicly traded, do not have a readily determinable fair value and the net asset value per share is calculated in a manner consistent with the measurement principles of an investment company.
 
(d)
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.
 
(e)
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 using a discounted cash flow analysis. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans.
 
(f)
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.
 
(g)
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.
 
(h)
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.

35

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

 (i)
Borrowings
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.
 
(j)
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.

The estimated fair value of the Company’s financial instruments at March 31, 2019, and December 31, 2018, is presented in the following tables (in thousands):
 
March 31, 2019
 
 
 
Estimated Fair Value
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
85,825

 
$
85,825

 
$

 
$

 
$
85,825

Trading securities
9,759

 
9,759

 

 

 
9,759

Debt securities available-for-sale
894,272

 

 
894,272

 

 
894,272

Debt securities held-to-maturity
9,448

 

 
9,320

 

 
9,320

Equity securities (1)
414

 
414

 

 

 
414

Federal Home Loan Bank of New York stock, at cost
22,517

 

 
22,517

 

 
22,517

Net loans held-for-investment
3,228,374

 

 

 
3,251,646

 
3,251,646

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
$
3,375,205

 
$

 
$
3,379,925

 
$

 
$
3,379,925

Borrowed funds
409,244

 

 
407,588

 

 
407,588

Advance payments by borrowers for taxes and insurance
20,723

 

 
20,723

 

 
20,723


 
December 31, 2018
 
 
 
Estimated Fair Value
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
77,762

 
$
77,762

 
$

 
$

 
$
77,762

Trading securities
8,968

 
8,968

 

 

 
8,968

Debt securities available-for-sale
808,031

 

 
808,031

 

 
808,031

Debt securities held-to-maturity
9,505

 

 
9,249

 

 
9,249

Equity securities (1)
237

 
237

 

 
 
 
237

Federal Home Loan Bank of New York stock, at cost
22,517

 

 
22,517

 

 
22,517

Net loans held-for-investment
3,217,673

 

 

 
3,236,136

 
3,236,136

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
$
3,286,512

 
$

 
$
3,291,085

 
$

 
$
3,291,085

Borrowed funds
408,891

 

 
403,476

 

 
403,476

Advance payments by borrowers for taxes and insurance
18,007

 

 
18,007

 

 
18,007

 (1) Excludes investments measured at net asset value of $1.1 million at March 31, 2019 and $1.0 million at December 31, 2018, which have not been classified in the fair value hierarchy.



36

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

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.

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. When applying the treasury stock method we added the assumed proceeds from option exercises and 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 March 31,
 
2019
 
2018
Net income available to common stockholders
$
8,771

 
$
10,445

 
 
 
 
Weighted average shares outstanding-basic
46,940,903

 
45,780,027

Effect of non-vested restricted stock and stock options outstanding
347,257

 
1,219,748

Weighted average shares outstanding-diluted
47,288,160

 
46,999,775

Earnings per share-basic
$
0.19

 
$
0.23

Earnings per share-diluted
$
0.19

 
$
0.22

Anti-dilutive shares
1,075,747

 
885,774


37

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

Note 10 – Leases

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) and all subsequent ASU's that modified Topic 842, as further explained in Note 12, Recent Accounting Pronouncements. The Company’s leases primarily relate to real estate property for branches and office space with terms extending from 18 months up to 36 years. At March 31, 2019, all of the Company's leases are classified as operating leases.

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets and operating lease liabilities in the consolidated balance sheets. Right-of-use assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recorded at the present value of lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate in determining the present value of lease payments. Certain leases include options to renew, with one or more renewal terms ranging from five to ten years. As these extension options are not generally considered reasonably certain of renewal, they are not included in the lease term.

At March 31, 2019, the Company’s operating lease right-of-use assets and related lease liabilities included in the consolidated balance sheet were $43.5 million and $47.4 million, respectively. During the three months ended March 31, 2019, right-of-use assets obtained in exchange for new lease obligations were $1.0 million. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are recognized as incurred. Variable lease payments include common area maintenance charges, real estate taxes, repairs and maintenance costs and utilities. Operating and variable lease expenses are recorded in occupancy expense in the consolidated statements of income.
Supplemental lease information at or for the three months ended March 31, 2019 is as follows (dollars in thousands):
Operating lease cost
$
1,466

Variable lease cost
778

Net lease cost
$
2,244

Cash paid for amounts included in measurement of operating lease liabilities
$
1,327

Weighted average remaining lease term
13.05 years

Weighted average discount rate
3.60
%

The following table summarizes lease payment obligations for each of the next five years and thereafter in addition to a reconcilement to the Company's current lease liability (dollars in thousands):
Year
Amount
2019
$
4,574

2020
6,156

2021
5,730

2022
5,068

2023
4,975

Thereafter
35,287

Total lease payments
$
61,790

Less: imputed interest
(14,376
)
Present value of lease liabilities
$
47,414


As of March 31, 2019, the Company had not entered into any leases that have not yet commenced.
    

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

The following table summarizes projected minimum annual rental payments for operating leases under FASB ASC 840 “Leases” as of December 31, 2018 (dollars in thousands): 
 
Rental Payments Operating Leases
Year ending December 31:
 
2019
$
5,735

2020
5,949

2021
5,512

2022
4,844

2023
4,744

Thereafter
35,260

Total minimum lease payments
$
62,044


Net rental expense included in occupancy expense under FASB ASC 840 was $1.4 million for the quarter ended March 31, 2018.

Note 11 – Revenue Recognition
    
The Company records revenue from contracts with customers in accordance with ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities, which comprise the majority of the Company’s revenue.
The Company’s revenue streams that are within the scope of Topic 606 include service charges on deposit accounts, ATM and card interchange fees, investment services fees, and other miscellaneous income. Fees and service charges for customer services include: (i) service charges on deposit accounts, including account maintenance fees, overdraft fees, insufficient funds fees, wire fees, and other deposit related fees; (ii) ATM and card interchange fees, which include fees generated when a Bank cardholder uses a non-Bank ATM or a non-Bank cardholder uses a Bank ATM, and fees earned whenever the Bank's debit cards are processed through card payment networks such as Visa; and (iii) investment services fees earned through partnering with a third party investment and brokerage service firm to provide insurance and investment products to customers. The Company's performance obligation for fees and service charges is satisfied and related revenue recognized immediately or in the month of performance of services. Other income includes rental income from subleasing one of the Company's branches to a third party and income and gains or losses, net, related to OREO. For these transactions, revenue is recognized at the time the transaction occurs.
The following table summarizes non-interest income for the periods indicated (dollars in thousands):
 
Three Months Ended
 
March 31,
 
2019
 
2018
Fees and service charges for customer services:
 
 
 
Service charges
$
782

 
841

ATM and card interchange fees
301

 
267

Investment fees
57

 
106

Total fees and service charges for customer services
1,140

 
1,214

Income on bank owned life insurance (1)
896

 
954

Gains on securities transactions, net (1)
1,241

 
161

Other
37

 
76

Total non-interest income
$
3,314

 
$
2,405

(1) Not in scope of Topic 606


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

Note 12 – Recent Accounting Pronouncements

Accounting Pronouncements Adopted

ASU No. 2016-02. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires all lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date for leases classified as operating leases as well as finance leases. Under this guidance, lessor accounting is largely unchanged. This ASU became effective for annual and interim periods for the Company on January 1, 2019. The Company adopted the standard by applying the alternative transition method whereby comparative periods were not restated, and no cumulative effect adjustment to the opening balance of retained earnings was recognized as of January 1, 2019. The Company also elected the ASU’s package of three practical expedients, which allowed the Company to forego a reassessment of (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) the initial direct costs for any existing leases. The Company also elected not to apply the recognition requirements of the ASU to any short-term leases (as defined by related accounting guidance) and will account for lease and non-lease components separately because such amounts are readily determinable under most lease contracts. The adoption of this standard resulted in the Company recognizing operating lease right-of-use assets and related operating lease liabilities totaling $43.6 million and $47.3 million respectively, as of January 1, 2019. The adoption of this ASU did not have a material impact on the Company’s consolidated results of operations. See Note 10, Leases, for further disclosures.

ASU No. 2017-08. In March 2017, the FASB issued ASU No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this update require the premium on callable debt securities to be amortized to the earliest call date rather than the maturity date; however, securities held at a discount continue to be amortized to maturity. The amendments apply only to debt securities purchased at a premium that are callable at fixed prices and on preset dates. The amendments more closely align interest income recorded on debt securities held at a premium or discount with the economics of the underlying instrument. This ASU became effective for the Company on January 1, 2019, and did not have a material impact on the Company's consolidated financial statements.

ASU No. 2018-07. In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which is intended to align the accounting for share-based payment awards issued to employees and nonemployees. The guidance applies to nonemployee awards issued in exchange for goods or services used or consumed in an entity’s own operations and to awards granted by an investor to employees and nonemployees of an equity method investee for goods or services used or consumed in the investee’s operations. There are no new disclosure requirements. This ASU became effective for the Company on January 1, 2019. Adoption of this ASU did not have an impact on the Company's consolidated financial statements, as share-based payment awards to nonemployee Directors are accounted for in the same manner as share-based payment awards for employees.

Accounting Pronouncements Not Yet Adopted
    
ASU No. 2018-15. In August 2018, the FASB issued ASU No. 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” This guidance aligns the accounting for implementation costs related to a hosting arrangement that is a service contract with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, where a cloud computing arrangement includes a license to internal-use software, the software license is accounted for by the customer in accordance with Subtopic 350-40, “Intangibles - Goodwill and Other-Internal-Use Software”. ASU No. 2018-15 is effective for fiscal years beginning after December 15, 2019, with early adoption permitted. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. ASU No. 2018-15 is not expected to have a material impact on the Company’s Consolidated Financial Statements.
    
ASU No. 2018-14. In August 2018, the FASB issued ASU No. 2018-14, “Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans.”  This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020; early adoption is permitted. As ASU 2018-14 only revises disclosure requirements, it will not have an impact on the Company’s Consolidated Financial Statements.
    

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

ASU No 2017-04. 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 an effect on the Company's consolidated financial statements.

ASU No. 2016-13. 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 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; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. The Company continues to evaluate the potential effect of adoption of this pronouncement on its consolidated financial statements by identifying key interpretive issues, assessing its processes, portfolio segmentation, model development, and identifying the data and system requirements against the guidance to determine what modifications may be required. As part of the evaluation process, the Company has established a CECL cross-function working group that includes individuals from various functional areas to assess processes and has also contracted with a third-party vendor to implement enhanced modeling techniques that incorporate the loss measurement requirements in these amendments as part of adopting the ASU. The adoption of ASU No. 2016-13 may result in an increase in the allowance for loan losses as a result of changing from an incurred loss model, which encompasses allowances for current known and inherent losses within the portfolio, to an expected losses model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. However, as the impact of adopting the new guidance is expected to be heavily influenced by an assessment of the composition, characteristics, and credit quality of the Company’s loan portfolio as well as the economic conditions in effect at the adoption date, management is currently unable to reasonably estimate the impact of adopting the new standard.

Note 13 – Subsequent Event

On April 24, 2019, the Company's Board of Directors approved a $37.2 million stock repurchase program under which the Company is authorized to repurchase shares and anticipates conducting such repurchases in accordance with Rule 10b5-1 of the Securities and Exchange Commission. The timing of the repurchases will depend on certain factors, including but not limited to, market conditions and prices, the Company’s liquidity and capital requirements, and alternative uses of capital. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. The repurchases may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. These factors may also affect the timing and amount of share repurchases. The Company is not obligated to purchase any particular number of shares.

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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,” “annualized,” “could,” “may,” “should,” “will,” 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 the current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control.  In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. 

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:   
general economic conditions, either nationally or in our market areas, including employment prospects, real estate values and conditions, that are worse than expected;
competition among depository and other financial institutions;
inflation and changes in the interest rate environment that reduce our margins and yields or reduce the fair value of financial instruments;
adverse changes in the securities, credit markets or real estate values;
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 economic conditions;
our ability to enter new markets successfully and capitalize on growth opportunities;
our ability to successfully integrate acquired entities;
changes in consumer demand, 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;
technological changes that may be more difficult or expensive than expected;
changes in our organization, compensation, and benefit plans;
changes in the level of government support for housing finance;
changes in monetary or fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board (“FRB”);
the ability of third-party providers to perform their obligations to us;
the ability of the U.S. Government to manage federal debt limits;
the effects of any U.S. Government shutdowns;
significant increases in our loan losses, including increases that may result from the new authoritative accounting guidance (known as the current expected credit loss (“CECL”) model which may increase the required level of our allowance for loan losses after adoption effective January 1, 2020; 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. Accordingly, you should not place undue reliance on such 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, 2018, 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 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, 2018.
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, 2018.
 
Net income was $8.8 million for the three months ended March 31, 2019, as compared to $10.4 million for the three months ended March 31, 2018. Basic and diluted earnings per common share were $0.19 for the three months ended March 31, 2019, compared to basic and diluted earnings per common share of $0.23 and $0.22, respectively, for the three months ended March 31, 2018. Earnings for the three months ended March 31, 2018 benefited from excess tax benefits of $869,000, or $0.02 per diluted share, related to the exercise or vesting of equity awards, whereas there were no material tax benefits for the three months ended March 31, 2019. For the three months ended March 31, 2019, our return on average assets was 0.79%, as compared to 1.04% for the three months ended March 31, 2018. For the three months ended March 31, 2019, our return on average stockholders’ equity was 5.29% as compared to 6.61% for the three months ended March 31, 2018.

Assets increased by $147.0 million, or 3.3%, to $4.56 billion at March 31, 2019, from $4.41 billion at December 31, 2018. Liabilities increased $134.0 million, or 3.6%, to $3.88 billion at March 31, 2019, from $3.74 billion at December 31, 2018.

Comparison of Financial Condition at March 31, 2019, and December 31, 2018
Total assets increased $147.0 million, or 3.3%, to $4.56 billion at March 31, 2019, from $4.41 billion at December 31, 2018. The increase was primarily due to increases in cash and cash equivalents of $8.1 million, or 10.4%, available-for sale debt securities of $86.2 million, or 10.7%, loans held-for-investment, net, of $10.7 million, or 0.3%, and the recording of our operating leased assets of $43.5 million from the adoption of Accounting Standards Update (“ASU”) No. 2016-02 Leases (Topic 842) on January 1, 2019, which requires us to recognize on the balance sheet right-of-use assets, which approximate the present value of our remaining lease payments.
 
The Company’s available-for-sale debt securities portfolio increased by $86.2 million, or 10.7%, to $894.3 million at March 31, 2019, from $808.0 million at December 31, 2018. The increase was primarily attributable to purchases of mortgage-backed and corporate securities, utilizing excess cash from deposit growth to invest in high quality shorter-term securities, partially offset by paydowns and sales. At March 31, 2019, $668.0 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 $225.9 million in corporate bonds, the majority of which were considered investment grade at March 31, 2019, and $274,000 in municipal bonds. The effective duration of the securities portfolio at March 31, 2019 was 2.57 years.


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 As of March 31, 2019, our commercial real estate concentration (as defined by regulatory guidance) to total risk-based capital was 414%. 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 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 $10.7 million to $3.26 billion at March 31, 2019, from $3.25 billion at December 31, 2018. Originated loans held-for-investment, net, totaled $2.73 billion at March 31, 2019, as compared to $2.68 billion at December 31, 2018. The increase was primarily due to an increase in multifamily real estate loans of $47.5 million, or 2.5%, to $1.98 billion at March 31, 2019, from $1.93 billion at December 31, 2018, partially offset by decreases in acquired loans of $37.0 million.

The following tables detail our multifamily real estate originations for the three months ended March 31, 2019 and 2018 (dollars in thousands):
For the Three Months Ended March 31, 2019
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
$
90,743

 
4.26%
 
57%
 
75
 
V
 
30 Years
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2018
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
$
57,471

 
3.72%
 
51%
 
80
 
V
 
30 Years
1,400

 
3.93%
 
44%
 
180
 
F
 
15 Years
$
58,871

 
3.72%
 
51%
 
 
 
 
 
 
Acquired loans decreased by $37.0 million to $509.1 million at March 31, 2019, from $546.2 million at December 31, 2018, primarily due to paydowns of one-to-four family residential and multifamily loans with weighted average interest rates (net of the servicing fee retained by the originating bank) of 3.53% and 2.85%, respectively.
There were no loan purchases during the three months ended March 31, 2019. The following table provides the details of the loan pools purchased during the three months ended March 31, 2018 (dollars in thousands):
Principal Amounts Purchased
 
Loan Type
 
Weighted Average Interest Rate(1)
 
Weighted Average Loan-to-Value Ratio
 
Weighted Average Months to Next Rate Change or Maturity for Fixed Rate Loans
 
(F)ixed or (V)ariable
 
Original Amortization Term
$
29,963

 
Residential
 
2.30%
 
55%
 
1
 
V
 
30 Years
4,368

 
Residential
 
3.67%
 
58%
 
346
 
F
 
15 - 30 Years
3,178

 
Residential
 
3.68%
 
60%
 
330
 
F
 
15 - 30 Years
$
37,509

 
 
 
2.58%
 
56%
 
 
 
 
 
 
(1) Net of servicing fee retained by the originating bank    

The geographic locations of the properties collateralizing the loans purchased are as follows: 32.7% in New York, 29.9% in California, and 27.1% in Massachusetts, with the majority of the remaining balance in New Jersey.

PCI loans totaled $18.9 million at March 31, 2019, as compared to $20.1 million at December 31, 2018. The majority of the PCI loan balance consists of loans acquired as part of a Federal Deposit Insurance Corporation-assisted transaction.

Total liabilities increased $134.0 million, or 3.6%, to $3.88 billion at March 31, 2019, from $3.74 billion at December 31, 2018. The increase was primarily attributable to an increase in deposits of $88.7 million and lease liabilities of $47.4

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million, attributable to capitalization of our operating leases as a result of adoption of ASU No. 2016-02, effective January 1, 2019.
 
Deposits increased $88.7 million, or 2.7%, to $3.38 billion at March 31, 2019, as compared to $3.29 billion at December 31, 2018. The increase was attributable to increases of $56.9 million in transaction accounts and $84.4 million in savings accounts, partially offset by decreases of $20.1 million in money market accounts, and $32.5 million in certificates of deposit.

Borrowings and securities sold under agreements to repurchase increased modestly to $409.2 million at March 31, 2019, from $408.9 million at December 31, 2018. 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 March 31, 2019 (dollars in thousands):
Year
 
Amount
 
Weighted Average Rate
2019
 
$98,502
 
1.48%
2020
 
90,000
 
1.65%
2021
 
70,000
 
1.80%
2022
 
45,000
 
2.29%
2023
 
87,500
 
2.89%
Thereafter
 
12,500
 
3.00%
 
 
$403,502
 
2.02%

Total stockholders’ equity increased by $13.0 million to $679.4 million at March 31, 2019, from $666.4 million at December 31, 2018. The increase was attributable to net income of $8.8 million for the three months ended March 31, 2019, a $6.2 million decrease in unrealized losses on our debt securities available-for-sale portfolio, and a $2.7 million increase related to ESOP and equity award activity, partially offset by dividend payments of $4.7 million.
 
Comparison of Operating Results for the Three Months Ended March 31, 2019 and 2018
 
Net Income. Net income was $8.8 million and $10.4 million for the three months ended March 31, 2019, and March 31, 2018, respectively. Significant variances from the comparable prior year period are: a $214,000 decrease in net interest income, a $909,000 increase in non-interest income, a $2.1 million increase in non-interest expense, and a $266,000 increase in income tax expense.

Interest Income. Interest income increased $4.8 million, or 13.8%, to $39.5 million for the three months ended March 31, 2019, from $34.7 million for the three months ended March 31, 2018, due to an increase in the average balance of interest-earning assets of $390.1 million, or 10.2%, and an 11 basis point increase in the yields earned on average interest-earning assets. Interest income on loans increased by $1.8 million, primarily attributable to an increase in the average loan balances of $86.1 million and a 12 basis point increase in the yield earned. The Company accreted interest income related to its PCI loans of $1.0 million for the three months ended March 31, 2019, as compared to $1.1 million for the three months ended March 31, 2018. Interest income on loans for the three months ended March 31, 2019 reflected loan prepayment income of $420,000 compared to $628,000 for the three months ended March 31, 2018. Interest income on securities increased by $2.7 million, attributable to an increase in the average securities balances of $296.9 million and a 49 basis point increase in yields earned. The increased yields primarily reflect the higher interest rate environment.

Interest Expense. Interest expense increased $5.0 million, or 70.0%, to $12.1 million for the three months ended March 31, 2019, as compared to $7.1 million for three months ended March 31, 2018, due to a $5.0 million increase in interest expense on deposits. The increase in interest expense on deposits was attributed to a 56 basis point increase in the cost of interest-bearing deposits to 1.40% for the three months ended March 31, 2019, as compared to 0.84% for the three months ended March 31, 2018 and a $455.3 million, or 18.2%, increase in the average balance of interest-bearing deposit accounts. The increase in the cost of interest-bearing deposits reflects the higher interest rate environment and increased competition for deposits.
Net Interest Income.  Net interest income for the three months ended March 31, 2019, decreased $214,000, or 0.8%, to $27.3 million, from $27.5 million for the three months ended March 31, 2018, as a 30 basis point decrease in our net interest margin to 2.63% more than offset a $390.1 million, or 10.2%, increase in our average interest-earning assets. The decrease in net interest margin was primarily due to the increased cost of our interest-bearing liabilities, which increased 49 basis points to

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1.47% for the three months ended March 31, 2019, from 0.98% for the three months ended March 31, 2018. The increase in our average interest-earning assets was due to increases in average loans outstanding of $86.1 million, average mortgage-backed securities of $141.3 million, average other securities of $155.5 million, and average interest-earning deposits in financial institutions of $10.2 million, partially offset by a decrease in average Federal Home Loan Bank of New York (“FHLBNY”) stock of $3.1 million. Yields earned on interest-earning assets increased 11 basis points to 3.80% for the three months ended March 31, 2019, from 3.69% for the three months ended March 31, 2018, driven by higher yields in all asset classes. The cost of interest-bearing liabilities increased 49 basis points to 1.47% for the current quarter as compared to 0.98% for the prior year quarter, primarily due to higher rates on interest-bearing deposits.
 
Provision for Loan Losses. The provision for loan losses remained relatively stable at $59,000 for the three months ended March 31, 2019, compared to $34,000 for the three months ended March 31, 2018, as an improvement in qualitative factors offset an increase in provision from loan growth. Net charge-offs for the three months ended March 31, 2019 were $70,000 compared to net charge-offs of $22,000 for the three months ended March 31, 2018.

Non-interest Income. Non-interest income increased $909,000, or 37.8%, to $3.3 million for the three months ended March 31, 2019, from $2.4 million for the three months ended March 31, 2018, primarily due to a $1.1 million increase in gains on securities transactions, net. For the three months ended March 31, 2019, securities gains, net, included gains of $1.1 million related to the Company’s trading portfolio, compared to gains of $106,000 in the comparative prior year period. The trading portfolio is utilized to fund the Company’s deferred compensation obligation to certain employees and directors of the Company's deferred compensation plan (the Plan). The participants of this Plan, at their election, defer a portion of their compensation. Gains and losses on trading securities have no effect on net income since participants benefit from, and bear the full risk of, changes in the trading securities market values. Therefore, the Company records an equal and offsetting amount in compensation expense, reflecting the change in the Company’s obligations under the Plan.

Non-interest Expense. Non-interest expense increased $2.1 million, or 12.1%, to $19.2 million for the three months ended March 31, 2019, compared to $17.1 million for the three months ended March 31, 2018. This is due primarily to a $1.9 million increase in employee compensation and benefits, $1.0 million of which is related to the Company's deferred compensation plan which is described above and has no effect on net income, with the remainder attributable to increased costs associated with new hires related to branch openings and new lending personnel, merit increases effective January 1, 2019, and higher medical benefit costs.

Income Tax Expense. The Company recorded income tax expense of $2.6 million for the three months ended March 31, 2019, compared to $2.3 million for the three months ended March 31, 2018. The effective tax rate for the three months ended March 31, 2019, was 22.9% compared to 18.3% for the three months ended March 31, 2018, the increase being primarily due to lower excess tax benefits related to the exercise or vesting of equity awards. Excess tax benefits were $93,000 and $869,000 for the quarters ended March 31, 2019, and March 31, 2018, respectively.

    

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The following table sets forth average balances, 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
 
March 31, 2019
 
March 31, 2018
 
Average Outstanding Balance
 
Interest
 
Average Yield/ Rate (1)
 
Average Outstanding Balance
 
Interest
 
Average Yield/ Rate (1)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans (2)
$
3,218,277

 
$
32,590

 
4.11
%
 
$
3,132,162

 
$
30,787

 
3.99
%
Mortgage-backed securities (3)
627,377

 
4,074

 
2.63

 
486,045

 
2,726

 
2.27

Other securities (3)
246,802

 
1,865

 
3.06

 
91,268

 
502

 
2.23

Federal Home Loan Bank of New York stock
21,729

 
402

 
7.50

 
24,820

 
414

 
6.76

Interest-earning deposits in financial institutions
92,538

 
535

 
2.34

 
82,341

 
253

 
1.25

Total interest-earning assets
4,206,723

 
39,466

 
3.80

 
3,816,636

 
34,682

 
3.69

Non-interest-earning assets
286,313

 
 
 
 
 
243,054

 
 
 
 
Total assets
$
4,493,036

 
 
 
 
 
$
4,059,690

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Savings, NOW, and money market accounts
$
1,857,654

 
$
4,794

 
1.05
%
 
$
1,682,346

 
$
2,143

 
0.52
%
Certificates of deposit
1,101,865

 
5,453

 
2.01

 
821,860

 
3,068

 
1.51

Total interest-bearing deposits
2,959,519

 
10,247

 
1.40

 
2,504,206

 
5,211

 
0.84

Borrowed funds
391,365

 
1,889

 
1.96

 
464,750

 
1,927

 
1.68

Total interest-bearing liabilities
3,350,884

 
12,136

 
1.47

 
2,968,956

 
7,138

 
0.98

Non-interest bearing deposits
379,642

 
 
 
 
 
404,990

 
 
 
 
Accrued expenses and other liabilities
90,012

 
 
 
 
 
44,608

 
 
 
 
Total liabilities
3,820,538

 
 
 
 
 
3,418,554

 
 
 
 
Stockholders' equity
672,498

 
 
 
 
 
641,136

 
 
 
 
Total liabilities and stockholders' equity
$
4,493,036

 
 
 
 
 
$
4,059,690

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
$
27,330

 
 
 
 
 
$
27,544

 
 
Net interest rate spread (4)
 
 
 
 
2.33
%
 
 
 
 
 
2.71
%
Net interest-earning assets (5)
$
855,839

 
 
 
 
 
$
847,680

 
 
 
 
Net interest margin (6)
 
 
 
 
2.63
%
 
 
 
 
 
2.93
%
Average interest-earning assets to interest-bearing liabilities
 
 
 
 
125.54
%
 
 
 
 
 
128.55
%
 
 
 
(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 ($18.9 million at March 31, 2019 and $20.1 million at December 31, 2018) as accruing, even though they may be contractually past due. At March 31, 2019, 7.7% of PCI loans were past due 30 to 89 days, and 27.0% were past due 90 days or more, as compared to 10.0% and 23.3%, respectively, at December 31, 2018.
 
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 March 31, 2019, and December 31, 2018 (dollars in thousands):  

 
March 31, 2019
 
December 31, 2018
Non-accrual loans:
 
 
 
Held-for-investment
 
 
 
Real estate loans:
 
 
 
Commercial
$
6,708

 
$
7,291

One-to-four family residential
1,059

 
1,129

Multifamily
456

 
566

Home equity and lines of credit
150

 
151

Commercial and industrial
55

 
25

Total non-accrual loans
8,428

 
9,162

Loans delinquent 90 days or more and still accruing:
 
 
 
Held-for-investment
 
 
 
Real estate loans:
 
 
 
One-to-four family residential
33

 
33

Total loans delinquent 90 days or more and still accruing
33

 
33

Total non-performing loans
8,461

 
9,195

Total non-performing assets
$
8,461

 
$
9,195

Non-performing loans to total loans
0.26
%
 
0.28
%
Non-performing assets to total assets
0.19
%
 
0.21
%
Loans subject to restructuring agreements and still accruing
$
16,243

 
$
16,390

Accruing loans 30 to 89 days delinquent
$
8,652

 
$
8,562


    

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Accruing Loans 30 to 89 Days Delinquent
 
Loans 30 to 89 days delinquent and on accrual status totaled $8.7 million and $8.6 million at March 31, 2019 and December 31, 2018, respectively. The following table sets forth delinquencies for accruing loans by type and by amount at March 31, 2019 and December 31, 2018 (in thousands):     
 
March 31, 2019
 
December 31, 2018
Held-for-investment
 
 
 
Real estate loans:
 
 
 
Commercial
$
4,272

 
$
2,377

One-to-four family residential
3,843

 
4,120

Multifamily
25

 
2,018

Home equity and lines of credit
362

 

Commercial and industrial loans
142

 
45

Other loans
8

 
2

Total delinquent accruing loans
$
8,652

 
$
8,562


Loans Subject to TDR Agreements
 
Included in non-accruing loans are loans subject to TDR agreements totaling $3.2 million and $513,000 at March 31, 2019 and December 31, 2018, respectively. The increase in non-accruing TDR loans was primarily due to one impaired commercial real estate loan with a net carrying balance of approximately $2.8 million, designated a performing TDR during the quarter ended March 31, 2019, as payment terms of the loan were modified. At March 31, 2019, and December 31, 2018, one of the non-accruing TDRs totaling $232,000 and $235,000, respectively, was not performing in accordance with its restructured terms. The loan is a one one-to-four family residential loan which is collateralized by real estate with an estimated fair value of $672,000.

The Company also holds loans subject to restructuring agreements that are on accrual status totaling $16.2 million and $16.4 million at March 31, 2019 and December 31, 2018, respectively. At March 31, 2019, $14.5 million, or 89.4%, of the $16.2 million of accruing loans subject to restructuring agreements were performing in accordance with their restructured terms. At December 31, 2018, $14.8 million, or 90.1%, of the $16.4 million of accruing loans subject to restructuring agreements were performing in accordance with their restructured terms. Generally, the types of concessions that we make to troubled borrowers include both temporary and permanent reductions to interest rates, extensions of payment terms, and, to a lesser extent, forgiveness of principal and interest. 

The following table details the amounts and categories of the loans subject to restructuring agreements by loan type as of March 31, 2019 and December 31, 2018 (in thousands): 
 
March 31, 2019
 
December 31, 2018
 
Non-Accruing
 
Accruing
 
Non-Accruing
 
Accruing
Real estate loans:
 
 
 
 
 
 
 
Commercial
$
2,834

 
$
12,552

 
$

 
$
12,664

One-to-four family residential
357

 
2,301

 
361

 
2,324

Multifamily
48

 
1,261

 
152

 
1,268

Home equity and lines of credit

 
60

 

 
61

Commercial and industrial loans

 
69

 

 
73

 
$
3,239

 
$
16,243

 
$
513

 
$
16,390

 
 
 
 
 
 
 
 
Performing in accordance with restructured terms
92.8
%
 
89.4
%
 
54.2
%
 
90.1
%

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Liquidity and Capital Resources
Liquidity. The 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, 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 FHLBNY, 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 lease obligations and floating rate advances, were $403.5 million at March 31, 2019, and had a weighted average interest rate of 2.02%. A total of $144.2 million of these borrowings will mature in less than one year. Borrowed funds, excluding floating rate advances and overnight line of credit, were $403.5 million at December 31, 2018. The Bank has the ability to obtain additional funding from the FHLB and Federal Reserve Bank of New York's discount window of approximately $1.54 billion utilizing unencumbered securities of $535.8 million and loans of $1.00 billion at March 31, 2019. The Bank also has a Letter of Credit (“LOC”) of up to $50.0 million with the FHLBNY for the purpose of collateralizing municipal deposits. Any amount pledged for such deposits under the LOC reduces the Bank's available borrowing amount under the FHLB advance agreement. 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 March 31, 2019, Northfield Bancorp, Inc. (standalone) had liquid assets of $17.0 million.

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. 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 assets in addition to the amount necessary to meet its minimum risk-based capital requirements.
As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies are required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion.  A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes.  The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%.  The federal banking agencies have proposed 9% as the minimum capital for the Community Bank Leverage Ratio. A financial institution can elect to be subject to this new definition.


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At March 31, 2019 and December 31, 2018, 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.    
 
Northfield Bank
 
Northfield Bancorp, Inc.
 
For Capital Adequacy Purposes (1)
 
For Well Capitalized Under Prompt Corrective Action Provisions
As of March 31, 2019:
 
 
 
 
 
 
 
Common equity Tier 1 capital (to risk-weighted assets)
15.99%
 
17.05%
 
7.000%
 
6.50%
Tier 1 leverage
13.55%
 
14.44%
 
4.000%
 
5.00%
Tier I capital (to risk-weighted assets)
15.99%
 
17.05%
 
8.500%
 
8.00%
Total capital (to risk-weighted assets)
16.74%
 
17.80%
 
10.500%
 
10.00%
As of December 31, 2018:
 
 
 
 
 
 
 
Common equity Tier 1 capital (to risk-weighted assets)
16.00%
 
17.17%
 
6.375%
 
6.50%
Tier 1 leverage
13.81%
 
14.82%
 
4.000%
 
5.00%
Tier I capital (to risk-weighted assets)
16.00%
 
17.17%
 
7.875%
 
8.00%
Total capital (to risk-weighted assets)
16.76%
 
17.93%
 
9.875%
 
10.00%
 
 
 
 
 
 
 
 
(1) Includes capital conservation buffer at March 31, 2019 and December 31, 2018.
 
 
 
 
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 March 31, 2019 (in thousands):
Contractual Obligations
 
Total
 
Less than One Year
 
One to less than Three Years
 
Three to less than Five Years
 
More than Five Years
Borrowings
 
$
409,244

 
$
144,244

(1) 
$
145,000

 
$
107,500

 
$
12,500

Operating lease liabilities
 
61,790

 
6,119

 
11,677

 
9,924

 
34,070

Commitments to originate loans
 
39,123

 
39,123

 

 

 

Commitments to fund unused lines of credit
 
142,150

 
142,150

 

 

 

 
 
 
 
 
 
 
 
 
 
 
(1) Includes $5.7 million of floating rate advances.
 
 
 
 
 
 

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, 2018.

Recent Accounting Standards

See Note 12 of the Notes to the Unaudited Consolidated Financial Statements for information about recent accounting developments.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management of Market Risk
General.  A majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage-related securities 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 Asset-Liability Committee, comprised of our SVP & Chief Investment Officer and Treasurer, who chairs this Committee, our President and Chief Executive Officer, our EVP & Chief Administrative Officer, EVP & Chief Financial Officer, EVP & Chief Lending Officer, EVP Operations, EVP Branch Administration and Business Development, SVP and Chief Risk Officer, and SVP & Director of Marketing, and other officers and staff as necessary or appropriate to manage interest rate risk. 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 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 investment grade corporate securities and mortgage-backed securities; and
obtaining general financing through lower-cost core deposits, brokered 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 March 31, 2019 and December 31, 2018, 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 March 31, 2019
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
 
Next 12 Months Net Interest Income Percent Change
 
Months 13-24 Net Interest Income Percent Change
+400
 
$
4,178,988

 
$
3,475,428

 
$
703,560

 
$
(145,769
)
 
(17.16
)%
 
16.84
%
 
(18.35
)%
 
(0.49
)%
+300
 
4,272,762

 
3,535,003

 
737,759

 
(111,570
)
 
(13.14
)
 
17.27

 
(13.61
)
 
(0.16
)
+200
 
4,373,565

 
3,596,740

 
776,825

 
(72,504
)
 
(8.54
)
 
17.76

 
(8.66
)
 
0.63

+100
 
4,476,382

 
3,661,298

 
815,084

 
(34,245
)
 
(4.03
)
 
18.21

 
(3.98
)
 
0.89

 
4,578,780

 
3,729,451

 
849,329

 

 

 
18.55

 

 

(100)
 
4,680,736

 
3,806,035

 
874,701

 
25,372

 
2.99

 
18.69

 
1.19

 
(3.33
)
(200)
 
4,794,822

 
3,884,906

 
909,916

 
60,587

 
7.13

 
18.98

 
2.19

 
(4.71
)
     
 
 
NPV at December 31, 2018
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
 
Next 12 Months Net Interest Income Percent Change
 
Months 13-24 Net Interest Income Percent Change
+400
 
$
4,031,597

 
$
3,319,312

 
$
712,285

 
$
(149,277
)
 
(17.33
)%
 
17.67
%
 
(16.59
)%
 
(3.47
)%
+300
 
4,124,540

 
3,376,794

 
747,746

 
(113,816
)
 
(13.21
)
 
18.13

 
(12.38
)
 
(2.56
)
+200
 
4,223,771

 
3,436,264

 
787,507

 
(74,055
)
 
(8.60
)
 
18.64

 
(7.84
)
 
(0.97
)
+100
 
4,324,514

 
3,498,443

 
826,071

 
(35,491
)
 
(4.12
)
 
19.10

 
(3.71
)
 
(0.11
)
 
4,425,777

 
3,564,215

 
861,562

 

 

 
19.47

 

 

(100)
 
4,527,603

 
3,637,211

 
890,392

 
28,830

 
3.35

 
19.67

 
1.27

 
(2.13
)
(200)
 
4,633,379

 
3,712,989

 
920,390

 
58,828

 
6.83

 
19.86

 
2.03

 
(3.03
)

At March 31, 2019, in the event of a 200 basis point decrease in interest rates, we would experience a 7.13% increase in estimated net portfolio value and a 2.19% increase in net interest income in year one and a 4.71% decrease in net interest income in year two. In the event of a 400 basis point increase in interest rates, we would experience a 17.16% decrease in estimated net portfolio value and an 18.35% decrease in net interest income in year one and a 0.49% decrease in net interest income in year two. 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 and 22% in year two. 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 interest rate shocks. At March 31, 2019, we were in compliance with all board approved policies with respect to interest rate risk management.

Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in net portfolio value and net interest income.  Our model requires us to make certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates.  However, we also apply consistent parallel yield curve shifts (in both directions) to determine possible changes in net interest income if the theoretical yield curve shifts occurred gradually.  Net interest income analysis also adjusts the asset and liability repricing analysis based on changes in prepayment rates resulting from the parallel yield curve shifts.  In addition, the net portfolio value and net interest income information presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assume that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities.  Accordingly, although interest rate risk calculations provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net portfolio value or net interest income and will differ from actual results.


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ITEM 4.    CONTROLS AND PROCEDURES 
An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and 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 March 31, 2019.  Based on that evaluation, the Company’s management, including the President and Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
 
During the three months ended March 31, 2019, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

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

ITEM 1A.  RISK FACTORS
During the quarter ended March 31, 2019, 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, 2018, as filed with the Securities and Exchange Commission.
 
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 did not repurchase any of its common stock during the three months ended March 31, 2019, and there were no shares remaining to be purchased under previous stock repurchase programs at March 31, 2019. On April 24, 2019, the Company's Board of Directors approved a new $37.2 million stock repurchase program under which the Company is authorized to repurchase shares and anticipates conducting such repurchases in accordance with Rule 10b5-1 of the Securities and Exchange Commission. The timing of the repurchases will depend on certain factors, including but not limited to, market conditions and prices, the Company’s liquidity and capital requirements, and alternative uses of capital. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. The repurchases may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. These factors may also affect the timing and amount of share repurchases. The Company is not obligated to purchase any particular number of shares.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES
None

ITEM 4.     MINE SAFETY DISCLOSURES
Not applicable

ITEM 5.     OTHER INFORMATION
None


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ITEM 6.      EXHIBITS
The following exhibits required by Item 601 of Regulation S-K are included with this Quarterly Report on Form 10-Q.
Exhibit Number
 
Description
 
Management Cash Incentive Governing Plan, Amended January 30, 2019 (Incorporated by reference to Northfield Bancorp Inc.’s Current Report on Form 8-K dated January 30, 2019, filed with the Securities and Exchange Commission on February 5, 2019 (File Number 001-35791)).
 
2019 Management Cash Incentive Plan, Amended January 30, 2019 (Incorporated by reference to Northfield Bancorp Inc.’s Current Report on Form 8-K dated January 30, 2019, filed with the Securities and Exchange Commission on February 5, 2019 (File Number 001-35791)).
 
First Amendment to Employment Agreement, dated March 28, 2019, as of December 17, 2018, by and between Northfield Bank and Kenneth J. Doherty (Incorporated by reference to Northfield Bancorp Inc.’s Current Report on Form 8-K dated March 28, 2019, filed with the Securities and Exchange Commission on March 29, 2019 (File Number 001-35791)).
 
Certification of Steven M. Klein, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
 
Certification of William R. Jacobs, Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
 
Certification of Steven M. Klein, President 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 March 31, 2019, 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


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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
NORTHFIELD BANCORP, INC.
(Registrant)
 
 
Date: May 10, 2019
/s/   Steven M. Klein
Steven M. Klein
President and Chief Executive Officer
 
/s/   William R. Jacobs
William R. Jacobs
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

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