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EX-32 - EXHIBIT 32 - Northfield Bancorp, Inc.nfbk2016930ex32.htm
EX-31.2 - EXHIBIT 31.2 - Northfield Bancorp, Inc.nfbk2016930ex312.htm
EX-31.1 - EXHIBIT 31.1 - Northfield Bancorp, Inc.nfbk2016930ex311.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,  D.C. 20549 
 
FORM 10-Q
 
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
or
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For transition period from               to 
Commission File Number
 
001-35791
 
NORTHFIELD BANCORP, INC.
(Exact name of registrant as specified in its charter) 
 
Delaware
 
80-0882592
(State or other jurisdiction of incorporation)
 
(I.R.S. Employer Identification No.)
581 Main Street, Woodbridge, New Jersey
 
07095
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code: (732) 499-7200
 
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ý    No o.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required and post such files).  Yes ý    No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer  o 
Accelerated filer  ý
Non-accelerated filer  o  (Do not check if smaller reporting company)
Smaller reporting company  o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No ý.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
48,332,763 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of October 31, 2016.



NORTHFIELD BANCORP, INC.
Form 10-Q Quarterly Report
Table of Contents




PART I
ITEM1.        FINANCIAL STATEMENTS
NORTHFIELD BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands, except share amounts)
 
September 30, 2016
 
December 31, 2015
ASSETS:
 
 
 
Cash and due from banks
$
13,790

 
$
15,324

Interest-bearing deposits in other financial institutions
22,346

 
36,529

Total cash and cash equivalents
36,136

 
51,853

Trading securities
7,547

 
6,713

Securities available-for-sale, at estimated fair value
 
 
 
(encumbered $14,926 at September 30, 2016 and $65,051 at December 31, 2015)
548,393

 
541,595

Securities held-to-maturity, at amortized cost
10,198

 
10,346

(estimated fair value of $10,417 at September 30, 2016, and $10,369 at December 31, 2015) (encumbered of $4,720 at September 30, 2016, and $5,619 at December 31, 2015)
 
 
 
Originated loans held-for-investment, net
2,069,820

 
1,931,585

Loans acquired
813,636

 
409,015

Purchased credit-impaired (PCI) loans held-for-investment
32,793

 
33,115

Loans held-for-investment, net
2,916,249

 
2,373,715

Allowance for loan losses
(24,340
)
 
(24,770
)
Net loans held-for-investment
2,891,909

 
2,348,945

Accrued interest receivable
9,184

 
8,263

Bank owned life insurance
147,051

 
132,782

Federal Home Loan Bank of New York stock, at cost
25,974

 
25,803

Premises and equipment, net
27,558

 
23,643

Goodwill
38,411

 
16,159

Other real estate owned

 
45

Other assets
42,267

 
36,437

Total assets
$
3,784,628

 
$
3,202,584

 

 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY:
 
 
 
LIABILITIES:
 

 
 

Deposits
$
2,629,001

 
$
2,052,929

Borrowed funds
494,430

 
558,129

Advance payments by borrowers for taxes and insurance
11,937

 
10,862

Accrued expenses and other liabilities
28,760

 
20,885

Total liabilities
3,164,128

 
2,642,805

 
 
 
 
STOCKHOLDERS’ EQUITY:
 

 
 

Preferred stock, $0.01 par value; 25,000,000 shares authorized, none issued or outstanding

 

Common stock, $0.01 par value: 150,000,000 shares authorized, 60,933,707 and 58,226,326 shares
 

 
 

issued at September 30, 2016, and December 31, 2015, respectively, 48,337,147 and 45,565,540 outstanding at September 30, 2016, and December 31, 2015, respectively
609

 
582

Additional paid-in-capital
547,999

 
501,540

Unallocated common stock held by employee stock ownership plan
(23,887
)
 
(24,664
)
Retained earnings
263,659

 
256,170

Accumulated other comprehensive income (loss)
2,514

 
(2,986
)
Treasury stock at cost; 12,596,560 and 12,660,786 shares at September 30, 2016, and December 31, 2015, respectively
(170,394
)
 
(170,863
)
Total stockholders’ equity
620,500

 
559,779

Total liabilities and stockholders’ equity
$
3,784,628

 
$
3,202,584


See accompanying notes to unaudited consolidated financial statements.

3


NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
(Unaudited) (In thousands, except per share data) 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Interest income:
 
 
 
 
 
 
 
Loans
$
28,222

 
$
22,077

 
$
82,792

 
$
64,034

Mortgage-backed securities
2,665

 
3,134

 
8,322

 
10,036

Other securities
252

 
64

 
662

 
292

Federal Home Loan Bank of New York dividends
302

 
265

 
861

 
905

Deposits in other financial institutions
84

 
30

 
225

 
93

Total interest income
31,525

 
25,570

 
92,862

 
75,360

Interest expense:
 

 
 

 
 

 
 

Deposits
3,545

 
2,841

 
10,672

 
7,373

Borrowings
1,729

 
2,156

 
5,570

 
7,145

Total interest expense
5,274

 
4,997

 
16,242

 
14,518

Net interest income
26,251

 
20,573

 
76,620

 
60,842

Provision for loan losses
472

 
200

 
355

 
472

Net interest income after provision for loan losses
25,779

 
20,373

 
76,265

 
60,370

Non-interest income:
 

 
 

 
 

 
 

Fees and service charges for customer services
1,255

 
1,047

 
3,627

 
2,948

Income on bank owned life insurance
1,008

 
947

 
3,001

 
2,829

Gains/(losses) on securities transactions, net
362

 
(388
)
 
612

 
(334
)
Other
42

 
60

 
189

 
333

Total non-interest income
2,667

 
1,666

 
7,429

 
5,776

Non-interest expense:
 

 
 

 
 

 
 

Compensation and employee benefits
9,565

 
7,265

 
30,891

 
22,506

Occupancy
2,828

 
2,524

 
8,597

 
7,605

Furniture and equipment
349

 
349

 
1,074

 
1,098

Data processing
1,674

 
881

 
4,919

 
2,839

Professional fees
684

 
953

 
2,621

 
2,246

FDIC insurance
256

 
366

 
1,218

 
1,152

Other
2,021

 
2,509

 
7,050

 
6,215

Total non-interest expense
17,377

 
14,847

 
56,370

 
43,661

Income before income tax expense
11,069

 
7,192

 
27,324

 
22,485

Income tax expense
3,782

 
2,515

 
9,392

 
8,511

Net income
$
7,287

 
$
4,677

 
$
17,932

 
$
13,974

Net income per common share:
 
 
 
 
 
 
 
Basic
$
0.16

 
$
0.11

 
$
0.40

 
$
0.33

Diluted
$
0.16

 
$
0.11

 
$
0.39

 
$
0.32

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.

4


 
NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - (Continued)
(Unaudited) (In thousands) 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net Income
$
7,287

 
$
4,677

 
$
17,932

 
$
13,974

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized (losses) gains on securities:
 
 
 
 
 
 
 
Net unrealized holding (losses) gains on securities
(850
)
 
3,463

 
9,405

 
2,188

Less: reclassification adjustment for net gains included in net income (included in gains (losses) on securities transactions, net)
(17
)
 
(13
)
 
(223
)
 
(56
)
Net unrealized (losses) gains
(867
)
 
3,450

 
9,182

 
2,132

Other comprehensive (loss) income, before tax
(867
)
 
3,450

 
9,182

 
2,132

Income tax benefit (expense) related to net unrealized holding (losses) gains on securities
340

 
(1,385
)
 
(3,771
)
 
(872
)
Income tax expense related to reclassification adjustment for gains included in net income
7

 
6

 
89

 
23

Other comprehensive (loss) income, net of tax
(520
)
 
2,071

 
5,500

 
1,283

Comprehensive income
$
6,767

 
$
6,748

 
$
23,432

 
$
15,257










































See accompanying notes to unaudited consolidated financial statements.


5


NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2016 and 2015
(Unaudited) (In thousands, except share data) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares Outstanding
 
 Par Value
 
Additional Paid-in Capital
 
Unallocated Common Stock Held by the Employee Stock Ownership Plan
 
Retained Earnings
 
Accumulated Other Comprehensive Income (loss) Net of tax
 
Treasury Stock
 
Total Stockholders' Equity
Balance at December 31, 2014
48,402,083

 
$
582

 
$
499,606

 
$
(25,782
)
 
$
248,908

 
$
(765
)
 
$
(128,621
)
 
$
593,928

Net income
 

 
 

 
 

 
 

 
13,974

 
 

 
 

 
13,974

Other comprehensive income, net of tax
 

 
 

 
 

 
 

 
 

 
1,283

 
 

 
1,283

ESOP shares allocated or committed to be released
 

 
 

 
637

 
788

 
 

 
 

 
 

 
1,425

Stock compensation expense
 

 
 

 
4,664

 
 

 
 

 
 

 
 

 
4,664

Additional tax benefit on equity awards
 

 
 

 
119

 
 

 
 

 
 

 
 

 
119

Net issuance of restricted stock
388,720

 
 
 
(5,074
)
 
 
 
 
 
 
 
5,074

 

Exercise of stock options
71,325

 
 

 
(746
)
 
 

 
(85
)
 
 

 
712

 
(119
)
Cash dividends declared ($0.21 per common share)
 

 
 

 
 

 
 

 
(9,210
)
 
 

 
 

 
(9,210
)
Treasury stock (average cost of $14.62 per share)
(3,293,420
)
 
 

 
 

 
 

 
 

 
 

 
(47,966
)
 
$
(47,966
)
Balance at September 30, 2015
45,568,708

 
$
582

 
$
499,206

 
$
(24,994
)
 
$
253,587

 
$
518

 
$
(170,801
)
 
$
558,098

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
45,565,540

 
$
582

 
$
501,540

 
$
(24,664
)
 
$
256,170

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

Net income
 

 
 

 
 

 
 

 
17,932

 
 

 
 

 
17,932

Other comprehensive income, net of tax
 

 
 

 
 

 
 

 
 

 
5,500

 
 

 
5,500

Acquisition of Hopewell Valley Community Bank
2,707,381

 
27

 
41,694

 
 
 
 
 
 
 
 
 
41,721

ESOP shares allocated or committed to be released
 

 
 

 
698

 
777

 
 

 
 

 
 

 
1,475

Stock compensation expense
 

 
 

 
5,658

 
 

 
 

 
 

 
 

 
5,658

Additional tax benefit on equity awards
 

 
 

 
895

 
 

 
 

 
 

 
 

 
895

Forfeitures of restricted stock
(7,640
)
 
 

 
106

 
 

 
 

 
 

 
(106
)
 

Exercise of stock options, net
205,560

 
 

 
(2,592
)
 
 

 
 
 
 

 
2,712

 
120

Cash dividends declared ($0.24 per common share)
 

 
 

 
 

 
 

 
(10,443
)
 
 

 
 

 
(10,443
)
Treasury stock (average cost of $15.98 per share)
(133,694
)
 
 

 
 
 
 

 
 

 
 

 
(2,137
)
 
(2,137
)
Balance at September 30, 2016
48,337,147

 
$
609

 
$
547,999

 
$
(23,887
)
 
$
263,659

 
$
2,514

 
$
(170,394
)
 
$
620,500



See accompanying notes to unaudited consolidated financial statements.


6


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

 
Nine Months Ended September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
17,932

 
$
13,974

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Provision for loan losses
355

 
472

ESOP and stock compensation expense
7,133

 
6,089

Depreciation
2,717

 
2,572

Amortization of premiums, and deferred loan costs, net of (accretion) of discounts, and deferred loan fees
1,580

 
1,390

Amortization intangible assets
337

 
186

Income on bank owned life insurance
(3,001
)
 
(2,829
)
Net gain on sale of loans held-for-sale

 
(9
)
Proceeds from sale of loans held-for-sale

 
2,126

Origination of loans held-for-sale

 
(2,123
)
(Gain) loss on securities transactions, net
(612
)
 
334

Gain on sale of other real estate owned, net

 
(128
)
Net purchases of trading securities
(445
)
 
(330
)
Decrease in accrued interest receivable
531

 
278

(Increase) decrease in other assets
(2,446
)
 
2,251

(Decrease) increase in accrued expenses and other liabilities
(443
)
 
375

Net cash provided by operating activities
23,638

 
24,628

Cash flows from investing activities:
 
 
 
Net increase in loans receivable
(42,182
)
 
(213,098
)
Purchase of loans
(159,531
)
 
(135,938
)
Redemptions of Federal Home Loan Bank of New York stock, net
305

 
7,016

Purchases of securities available-for-sale
(105,558
)
 

Principal payments and maturities on securities available-for-sale
126,348

 
141,909

Principal payments and maturities on securities held-to-maturity
136

 
831

Purchases of securities held-to-maturity

 
(5,882
)
Proceeds from sale of securities available-for-sale
42,842

 
51,148

Proceeds from sale of other real estate owned
45

 
554

Purchases and improvements of premises and equipment
(706
)
 
(733
)
Net cash acquired in business combination
55,479

 

Net cash used in investing activities
(82,822
)
 
(154,193
)
Cash flows from financing activities:
 
 
 
Net increase in deposits
119,869

 
462,882

Dividends paid
(10,443
)
 
(9,210
)
Exercise of stock options
120

 
(119
)
Purchase of treasury stock
(2,137
)
 
(47,966
)
Additional tax benefit on equity awards
895

 
119

Increase in advance payments by borrowers for taxes and insurance
1,075

 
3,173

Repayments under capital lease obligations
(153
)
 
(132
)
Proceeds from securities sold under agreements to repurchase and other borrowings
177,241

 
129,761

Repayments related to securities sold under agreements to repurchase and other borrowings
(243,000
)
 
(399,664
)
Net cash provided by financing activities
43,467

 
138,844

Net (decrease) increase in cash and cash equivalents
(15,717
)
 
9,279

Cash and cash equivalents at beginning of period
51,853

 
76,709

Cash and cash equivalents at end of period
$
36,136

 
$
85,988


7



NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited) (In thousands)
 
Nine Months Ended September 30,
 
2016
 
2015
Supplemental cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
16,729

 
$
14,571

Income taxes
9,336

 
6,698

Non-cash transactions:
 
 
 
Loans charged-off, net
785

 
1,109

Other real estate owned write-downs

 
71

Acquisition:
 
 
 
Non-cash assets acquired, at fair value:
 
 
 
Securities available for sale
$
61,633

 
$

Loans
342,566

 

Accrued interest receivable
1,452

 

Bank-owned life insurance
11,269

 

Premises and equipment
5,926

 

Federal Home Loan Bank of New York stock, at cost
476

 

Goodwill and other intangible assets
24,265

 

Other assets
5,389

 

Total non-cash assets acquired
452,976

 

Non-cash liabilities assumed at fair value:
 
 
 
Deposits
$
456,203

 

Borrowings
2,213

 

Other liabilities
8,318

 

Total non-cash liabilities assumed
466,734

 

Net non-cash liabilities assumed
(13,758
)
 

Net cash and cash equivalents acquired
55,479

 

Common stock issued in acquisition
$
41,721

 
$





















See accompanying notes to unaudited consolidated financial statements.


8


NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements
Note 1 – Basis of Presentation
The consolidated financial statements are comprised of the accounts of Northfield Bancorp, Inc. (the Company) and its wholly owned subsidiaries, Northfield Investments, Inc. and Northfield Bank (the Bank), and the Bank’s wholly-owned significant subsidiaries, NSB Services Corp. and NSB Realty Trust. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
In the opinion of management, all adjustments (consisting solely of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included.  The results of operations and other data presented for the three and nine months ended September 30, 2016, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2016.  Whenever necessary, certain prior year amounts are reclassified to conform to the current year presentation.
In preparing the unaudited consolidated financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP), management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated.  Material estimates that are particularly susceptible to change are: the allowance for loan losses, the evaluation of goodwill and other intangible assets, impairment on investment securities, fair value measurements of assets and liabilities, and income taxes.  Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual amounts or results could differ significantly from those estimates.
 
Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for the preparation of interim financial statements.  The consolidated financial statements presented should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2015, of Northfield Bancorp, Inc. as filed with the SEC. 

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

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


9

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


The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition for Hopewell Valley (in thousands):
ASSETS ACQUIRED:
January 8, 2016
Cash and cash equivalents, net
$
55,479

Securities available for sale
61,633

Loans
342,566

Accrued interest receivable
1,452

Bank-owned life insurance
11,269

Premises and equipment
5,926

Federal Home Loan Bank of New York stock, at cost
476

Goodwill
22,252

Other intangible assets
2,013

Other assets
5,389

Total assets acquired
$
508,455

LIABILITIES ASSUMED:
 
Deposits
$
456,203

Other borrowings
2,213

Other liabilities
8,318

Total liabilities assumed
$
466,734

Net assets acquired
$
41,721


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

Fair Value Measurement of Assets Assumed and Liabilities Assumed

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

Cash and cash equivalents

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

Securities Available-for-Sale

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

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


10

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


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

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

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

Other intangible assets

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

Deposits

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

Other borrowings

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


11

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


Note 3 – Securities Available-for-Sale
The following is a comparative summary of mortgage-backed securities, other debt securities, and other securities available-for-sale at September 30, 2016, and December 31, 2015 (in thousands):
 
September 30, 2016
 
 
 
Gross
 
Gross
 
Estimated
 
Amortized
 
unrealized
 
unrealized
 
fair
 
cost
 
gains
 
losses
 
value
Mortgage-backed securities:
 
 
 
 
 
 
 
Pass-through certificates:
 

 
 

 
 

 
 

Government sponsored enterprises (GSE)
$
241,166

 
$
6,590

 
$
235

 
$
247,521

Real estate mortgage investment conduits (REMICs):
 

 
 

 
 

 
 

GSE
251,955

 
1,197

 
3,004

 
250,148

Non-GSE
344

 

 
11

 
333

 
493,465

 
7,787

 
3,250

 
498,002

Other debt securities:
 
 
 
 
 
 
 
Municipal bonds
1,907

 
17

 
5

 
1,919

Corporate bonds
45,900

 
253

 
64

 
46,089

 
47,807

 
270

 
69

 
48,008

Other securities
 
 
 
 
 
 
 
Equity investments-mutual funds
1,114

 
15

 

 
1,129

Other
1,254

 

 

 
1,254

Total securities available-for-sale
$
543,640

 
$
8,072

 
$
3,319

 
$
548,393


 
December 31, 2015
 
 
 
Gross
 
Gross
 
Estimated
 
Amortized
 
unrealized
 
unrealized
 
fair
 
cost
 
gains
 
losses
 
value
Mortgage-backed securities:
 

 
 

 
 

 
 

Pass-through certificates:
 

 
 

 
 

 
 

GSE
$
228,557

 
$
4,673

 
$
1,530

 
$
231,700

REMICs:
 

 
 

 
 

 
 

GSE
305,387

 
647

 
8,210

 
297,824

Non-GSE
597

 

 
18

 
579

 
534,541

 
5,320

 
9,758

 
530,103

Other debt securities:
 
 
 
 
 
 
 
Corporate bonds
11,002

 
9

 

 
11,011

 
 
 
 
 
 
 
 
Other securities
 
 
 
 
 
 
 
Equity investments-mutual funds
481

 

 

 
481

 


 


 


 


Total securities available-for-sale
$
546,024

 
$
5,329

 
$
9,758

 
$
541,595


 

12

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


The following is a summary of the expected maturity distribution of debt securities available-for-sale, other than mortgage-backed securities, at September 30, 2016 (in thousands):
Available-for-sale
Amortized cost
 
Estimated fair value
Due in one year or less
$
1,385

 
$
1,380

Due after one year through five years
40,831

 
41,006

Due after five years through ten years
5,093

 
5,187

Due after ten years
498

 
435

 
$
47,807

 
$
48,008

 
Contractual maturities for mortgage-backed securities are not included above, as expected maturities on mortgage-backed securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties.

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

Gross unrealized losses on mortgage-backed and other debt securities available-for-sale, and the estimated fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2016, and December 31, 2015, were as follows (in thousands):
 
September 30, 2016
 
Less than 12 months
 
12 months or more
 
Total
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
losses
 
fair value
 
losses
 
fair value
 
losses
 
fair value
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Pass-through certificates:
 
 
 
 
 
 
 
 
 
 
 
GSE
$
12

 
$
5,051

 
$
223

 
$
8,392

 
$
235

 
$
13,443

REMICs:
 
 
 
 
 
 
 
 
 
 
 
GSE
26

 
20,327

 
2,978

 
106,713

 
3,004

 
127,040

Non-GSE

 

 
11

 
333

 
11

 
333

Other debt securities:
 
 
 
 
 
 
 
 
 
 
 
Municipal bonds
5

 
1,380

 

 

 
5

 
1,380

Corporate bonds
64

 
435

 

 

 
64

 
435

Total
$
107

 
$
27,193

 
$
3,212

 
$
115,438

 
$
3,319

 
$
142,631

 

13

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


 
December 31, 2015
 
Less than 12 months
 
12 months or more
 
Total
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
Unrealized
 
Estimated
 
losses
 
fair value
 
losses
 
fair value
 
losses
 
fair value
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
 
 
Pass-through certificates:
 
 
 
 
 
 
 
 
 
 
 
GSE
$
115

 
$
14,424

 
$
1,415

 
$
52,120

 
$
1,530

 
$
66,544

REMICs:
 
 
 
 
 
 
 
 
 
 
 
GSE
338

 
31,937

 
7,872

 
164,666

 
8,210

 
196,603

Non-GSE

 

 
18

 
579

 
18

 
579

Total
$
453

 
$
46,361

 
$
9,305

 
$
217,365

 
$
9,758

 
$
263,726

 
The Company held thirteen pass-through mortgage-backed securities issued or guaranteed by GSEs, eight REMIC mortgage-backed securities issued or guaranteed by GSEs, and two REMIC mortgage-backed securities not issued or guaranteed by GSEs that were in a continuous unrealized loss position of twelve months or greater at September 30, 2016.  There were 10 pass-through mortgage-backed securities issued or guaranteed by GSEs, three REMIC mortgage-backed securities issued or guaranteed by a GSE, one municipal bond, and one corporate bond that were in an unrealized loss position of less than twelve months at September 30, 2016. All securities referred to above were rated investment grade at September 30, 2016.  The declines in value relate to the general interest rate environment and are considered temporary.  The securities cannot be prepaid in a manner that would result in the Company not receiving substantially all of its amortized cost.  The Company neither has an intent to sell, nor is it more likely than not that the Company will be required to sell, the securities before the recovery of their amortized cost basis or, if necessary, maturity.
 
The fair values of our investment securities could decline in the future if the underlying performance of the collateral for the collateralized mortgage obligations or other securities deteriorates and our credit enhancement levels do not provide sufficient protections to our contractual principal and interest, which may result in other-than-temporary impairment in the future.  

Note 4 – Securities Held-to-Maturity
The following is a summary of mortgage-backed securities held-to-maturity at September 30, 2016, and December 31, 2015 (in thousands): 
 
September 30, 2016
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Mortgage-backed securities:
 

 
 

 
 

 
 

Pass-through certificates:
 

 
 

 
 

 
 

GSEs
$
10,198

 
$
219

 
$

 
$
10,417

Total securities held-to-maturity
$
10,198

 
$
219

 
$

 
$
10,417

 
December 31, 2015
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Mortgage-backed securities:
 

 
 

 
 

 
 

Pass-through certificates:
 

 
 

 
 

 
 

GSEs
$
10,346

 
$
53

 
$
30

 
$
10,369

Total securities held-to-maturity
$
10,346

 
$
53

 
$
30

 
$
10,369

    
    

14

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


Contractual maturities for mortgage-backed securities are not presented, as expected maturities on mortgage‑backed securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. There were no sales of held-to-maturity securities for the three and nine months ended September 30, 2016, or September 30, 2015. The Company had no held-to-maturity securities at September 30, 2016, that were in an unrealized loss position.

Gross unrealized losses on mortgage-backed securities held-to-maturity, and the estimated fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2015, were as follows (in thousands):
 
December 31, 2015
 
Less than 12 months
 
Unrealized Losses
 
Estimated Fair Value
Mortgage-backed securities:
 
 
 
Pass-through certificates:
 
 
 
GSEs
$
30

 
$
3,901

Total securities held-to-maturity
$
30

 
$
3,901


The fair values of our investment securities could decline in the future if the underlying performance of the collateral for the collateralized mortgage obligations or other securities deteriorates and our credit enhancement levels do not provide sufficient protections to our contractual principal and interest.  As a result, there is a risk that significant other-than-temporary impairments may occur in the future given the current economic environment.

 

15

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


Note 5 – Loans
 
Net loans held-for-investment are as follows (in thousands):
 
September 30,
 
December 31,
 
2016
 
2015
Real estate loans:
 
 
 
Multifamily
$
1,438,651

 
$
1,318,461

Commercial mortgage
414,390

 
402,073

One-to-four family residential mortgage
103,606

 
98,332

Home equity and lines of credit
64,650

 
61,413

Construction and land
13,921

 
18,652

Total real estate loans
2,035,218

 
1,898,931

Commercial and industrial loans
26,423

 
25,554

Other loans
1,708

 
2,256

Total commercial and industrial and other loans
28,131

 
27,810

Deferred loan cost, net
6,471

 
4,844

Originated loans held-for-investment, net
2,069,820

 
1,931,585

PCI Loans
32,793

 
33,115

Loans acquired:
 
 
 
One-to-four family residential mortgage
334,386

 
330,672

Commercial mortgage
185,957

 
11,160

Multifamily
216,912

 
64,779

Home equity and lines of credit
27,002

 
2,404

Construction and land
23,022

 

Total real estate loans
787,279

 
409,015

Commercial and industrial loans
25,990

 

Other loans
367

 

Total loans acquired, net
813,636

 
409,015

Loans held-for-investment, net
2,916,249

 
2,373,715

Allowance for loan losses
(24,340
)
 
(24,770
)
Net loans held-for-investment
$
2,891,909

 
$
2,348,945


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

The following table sets forth information regarding the estimates of the contractually required payments, the cash flows expected to be collected, and the estimated fair value of the PCI loans acquired from Hopewell Valley at January 8, 2016 (in thousands):
 
 
January 8, 2016
Contractually required principal and interest
 
$
16,580

Contractual cash flows not expected to be collected (non-accretable discount)
 
(9,929
)
Expected cash flows to be collected at acquisition
 
6,651

Interest component of expected cash flows (accretable yield)
 
(845
)
Fair value of acquired loans
 
$
5,806


16

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




The following table details the accretion of interest income for PCI loans for the three and nine months ended September 30, 2016 and September 30, 2015 (in thousands): 
 
At or for the three months ended September 30,
 
At or for the nine months ended September 30,
 
2016
 
2015
 
2016
 
2015
Balance at the beginning of period
$
20,979

 
$
25,706

 
$
22,853

 
$
27,943

Acquisition

 

 
845

 

Accretion into interest income
(1,294
)
 
(1,031
)
 
(4,013
)
 
(3,268
)
Net reclassification from non-accretable difference

 
(697
)
 

 
(697
)
Balance at end of period
$
19,685

 
$
23,978

 
$
19,685

 
$
23,978

 

17

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


The following tables set forth activity in our allowance for loan losses, by loan type, as of and for the three and nine months ended September 30, 2016, and September 30, 2015 (in thousands):  
 
Three Months Ended September 30, 2016
 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
One-to-Four Family
 
Construction and Land
 
Multifamily
 
Home Equity and Lines of Credit
 
Commercial and Industrial
 
Other
 
Unallocated
 
Originated Loans Total
 
Purchased Credit-Impaired
 
Acquired Loans
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
6,621

 
$
762

 
$
193

 
$
13,552

 
$
510

 
$
1,266

 
$
77

 
$
441

 
$
23,422

 
$
783

 
$
112

 
$
24,317

Charge-offs
(405
)
 

 

 

 

 
(65
)
 

 

 
(470
)
 

 

 
(470
)
Recoveries
17

 
1

 

 

 
1

 
1

 
1

 

 
21

 

 

 
21

Provisions/(credit)
(38
)
 
(3
)
 
(26
)
 
43

 
70

 
326

 
32

 
70

 
474

 

 
(2
)
 
472

Ending balance
$
6,195

 
$
760

 
$
167

 
$
13,595

 
$
581

 
$
1,528

 
$
110

 
$
511

 
$
23,447

 
$
783

 
$
110

 
$
24,340


 
Three Months Ended September 30, 2015
 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
One-to-Four Family
 
Construction and Land
 
Multifamily
 
Home Equity and Lines of Credit
 
Commercial and Industrial
 
Other
 
Unallocated
 
Originated Loans Total
 
Purchased Credit-Impaired
 
Acquired Loans
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
7,341

 
$
1,107

 
$
185

 
$
13,208

 
$
941

 
$
1,011

 
$
129

 
$
1,135

 
$
25,057

 
$
400

 
$
59

 
$
25,516

Charge-offs
(6
)
 
(1
)
 

 

 
(115
)
 

 
(1
)
 

 
(123
)
 

 

 
(123
)
Recoveries
2

 

 

 
25

 

 
34

 
1

 

 
62

 

 

 
62

Provisions/(credit)
(710
)
 
(355
)
 
278

 
(245
)
 
322

 
706

 
(56
)
 
(50
)
 
(110
)
 
298

 
12

 
200

Ending balance
$
6,627

 
$
751

 
$
463

 
$
12,988

 
$
1,148

 
$
1,751

 
$
73

 
$
1,085

 
$
24,886

 
$
698

 
$
71

 
$
25,655


18

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



 
Nine Months Ended September 30, 2016
 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
One-to-Four Family
 
Construction and Land
 
Multifamily
 
Home Equity and Lines of Credit
 
Commercial and Industrial
 
Other
 
Unallocated
 
Originated Loans Total
 
Purchased Credit-Impaired
 
Acquired Loans
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
7,106

 
$
787

 
$
261

 
$
12,387

 
$
795

 
$
1,288

 
$
155

 
$
1,093

 
$
23,872

 
$
783

 
$
115

 
$
24,770

Charge-offs
(596
)
 
(20
)
 

 
(277
)
 

 
(66
)
 

 

 
(959
)
 

 

 
(959
)
Recoveries
163

 
2

 
1

 

 
1

 
3

 
4

 

 
174

 

 

 
174

Provisions/(credit)
(478
)
 
(9
)
 
(95
)
 
1,485

 
(215
)
 
303

 
(49
)
 
(582
)
 
360

 

 
(5
)
 
355

Ending balance
$
6,195

 
$
760

 
$
167

 
$
13,595

 
$
581

 
$
1,528

 
$
110

 
$
511

 
$
23,447

 
$
783

 
$
110

 
$
24,340


 
Nine Months Ended September 30, 2015
 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
One-to-Four Family
 
Construction and Land
 
Multifamily
 
Home Equity and Lines of Credit
 
Commercial and Industrial
 
Other
 
Unallocated
 
Originated Loans Total
 
Purchased Credit-Impaired
 
Acquired Loans
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
9,309

 
$
951

 
$
266

 
$
12,219

 
$
901

 
$
841

 
$
134

 
$
1,209

 
$
25,830

 
$
400

 
$
62

 
$
26,292

Charge-offs
(836
)
 
(127
)
 

 
(113
)
 
(115
)
 
(32
)
 
(1
)
 

 
(1,224
)
 

 

 
(1,224
)
Recoveries
2

 

 

 
25

 
42

 
34

 
12

 

 
115

 

 

 
115

Provisions/(credit)
(1,848
)
 
(73
)
 
197

 
857

 
320

 
908

 
(72
)
 
(124
)
 
165

 
298

 
9

 
472

Ending balance
$
6,627

 
$
751

 
$
463

 
$
12,988

 
$
1,148

 
$
1,751

 
$
73

 
$
1,085

 
$
24,886

 
$
698

 
$
71

 
$
25,655



19

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


The following tables detail the amount of loans receivable held-for-investment, net of deferred loan fees and costs, that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for loan losses that is allocated to each loan portfolio segment, at September 30, 2016, and December 31, 2015 (in thousands):
 
September 30, 2016
 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
One-to-Four Family
 
Construction and Land
 
Multifamily
 
Home Equity and Lines of Credit
 
Commercial and Industrial
 
Other
 
Unallocated
 
Originated Loans Total
 
Purchased Credit-Impaired
 
Acquired Loans
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
$
518

 
$
84

 
$

 
$
110

 
$
38

 
$
7

 
$

 
$

 
$
757

 
$

 
$
110

 
$
867

Ending balance: collectively evaluated for impairment
$
5,677

 
$
676

 
$
167

 
$
13,485

 
$
543

 
$
1,521

 
$
110

 
$
511

 
$
22,690

 
$
783

 
$

 
$
23,473

Loans, net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
415,003

 
$
104,263

 
$
13,939

 
$
1,442,445

 
$
65,942

 
$
26,520

 
$
1,708

 
$

 
$
2,069,820

 
$
32,793

 
$
813,636

 
$
2,916,249

Ending balance: individually evaluated for impairment
$
22,085

 
$
2,239

 
$

 
$
1,671

 
$
341

 
$
105

 
$

 
$

 
$
26,441

 
$

 
$
3,497

 
$
29,938

Ending balance: collectively evaluated for impairment
$
392,918

 
$
102,024

 
$
13,939

 
$
1,440,774

 
$
65,601

 
$
26,415

 
$
1,708

 
$

 
$
2,043,379

 
$
32,793

 
$
810,139

 
$
2,886,311


 
December 31, 2015
 
Real Estate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
One-to-Four Family
 
Construction and Land
 
Multifamily
 
Home Equity and Lines of Credit
 
Commercial and Industrial
 
Other
 
Unallocated
 
Originated Loans Total
 
Purchased Credit-Impaired
 
Acquired Loans
 
Total
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
$
394

 
$
167

 
$

 
$
158

 
$
51

 
$
4

 
$

 
$

 
$
774

 
$

 
$
115

 
$
889

Ending balance: collectively evaluated for impairment
$
6,712

 
$
620

 
$
261

 
$
12,229

 
$
744

 
$
1,284

 
$
155

 
$
1,093

 
$
23,098

 
$
783

 
$

 
$
23,881

Loans, net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending balance
$
402,714

 
$
99,010

 
$
18,677

 
$
1,320,724

 
$
62,594

 
$
25,610

 
$
2,256

 
$

 
$
1,931,585

 
$
33,115

 
$
409,015

 
$
2,373,715

Ending balance: individually evaluated for impairment
$
20,465

 
$
2,344

 
$

 
$
2,458

 
$
354

 
$
116

 
$

 
$

 
$
25,737

 
$

 
$
3,250

 
$
28,987

Ending balance: collectively evaluated for impairment
$
382,249

 
$
96,666

 
$
18,677

 
$
1,318,266

 
$
62,240

 
$
25,494

 
$
2,256

 
$

 
$
1,905,848

 
$
33,115

 
$
405,765

 
$
2,344,728


20

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


The Company monitors the credit quality of its loan portfolio on a regular basis.  Credit quality is monitored by reviewing certain credit quality indicators.  Management has determined that loan-to-value ratios (at period end) and internally assigned credit risk ratings by loan type are the key credit quality indicators that best measure the credit quality of the Company’s loan receivables.  Loan-to-value (LTV) ratios used by management in monitoring credit quality are based on current period loan balances and original appraised values at time of origination (unless a current appraisal has been obtained as a result of the loan being deemed impaired).  In calculating the provision for loan losses, based on past loan loss experience, management has determined that commercial real estate loans and multifamily loans having loan-to-value ratios, as described above, of less than 35%, and one-to-four family loans having loan-to-value ratios, as described above, of less than 60%, require less of a loss factor than those with higher loan to value ratios.
 
The Company maintains a credit risk rating system as part of the risk assessment of its loan portfolio. The Company’s lending officers are required to assign a credit risk rating to each loan in their portfolio at origination. This risk rating is reviewed periodically and adjusted if necessary. Monthly, management presents monitored assets to the loan committee. In addition, the Company engages a third-party independent loan reviewer that performs semi-annual reviews of a sample of loans, validating the credit risk ratings assigned to such loans. The credit risk ratings play an important role in the establishment of the loan loss provision and the allowance for loan losses for originated loans held-for-investment. After determining the general reserve loss factor for each originated portfolio segment held-for-investment, the originated portfolio segment held-for-investment balance collectively evaluated for impairment is multiplied by the general reserve loss factor for the respective portfolio segment in order to determine the general reserve.

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

1.
Strong
2.
Good
3.
Acceptable
4.
Adequate
5.
Watch
6.
Special Mention
7.
Substandard
8.
Doubtful
9.
Loss
 
Loans rated 1 to 5 are considered pass ratings.  An asset is classified substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Substandard assets have well defined weaknesses based on objective evidence, and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.  Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable based on current circumstances.  Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted.  Assets which do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses, are required to be designated special mention.


21

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


The following tables detail the recorded investment of originated loans held-for-investment, net of deferred fees and costs, by loan type and credit quality indicator at September 30, 2016, and December 31, 2015 (in thousands):
 
At September 30, 2016
 
Real Estate
 
 
 
 
 
 
 
Multifamily
 
Commercial
 
One-to-Four Family
 
Construction and Land
 
Home Equity and Lines of Credit
 
Commercial and Industrial
 
Other
 
Total
 
< 35% LTV
 
=> 35% LTV
 
< 35% LTV
 
=> 35% LTV
 
< 60% LTV
 
=> 60% LTV
 
 
 
 
 
 
 
 
 
 
Internal Risk Rating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
125,835

 
$
1,310,881

 
$
65,354

 
$
324,315

 
$
54,876

 
$
45,317

 
$
13,939

 
$
65,620

 
$
26,124

 
$
1,708

 
$
2,033,969

Special Mention
31

 
3,728

 

 
2,886

 
709

 

 

 
70

 
248

 

 
7,672

Substandard
41

 
1,929

 
1,194

 
21,254

 
1,906

 
1,455

 

 
252

 
148

 

 
28,179

Originated loans held-for-investment, net
$
125,907

 
$
1,316,538

 
$
66,548

 
$
348,455

 
$
57,491

 
$
46,772

 
$
13,939

 
$
65,942

 
$
26,520

 
$
1,708

 
$
2,069,820


 
At December 31, 2015
 
Real Estate
 
 
 
 
 
 
 
Multifamily
 
Commercial
 
One-to-Four Family
 
Construction and Land
 
Home Equity and Lines of Credit
 
Commercial and Industrial
 
Other
 
Total
 
< 35% LTV
 
=> 35% LTV
 
< 35% LTV
 
=> 35% LTV
 
< 60% LTV
 
=> 60% LTV
 
 
 
 
 
 
 
 
 
 
Internal Risk Rating
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
124,678

 
$
1,188,916

 
$
52,253

 
$
319,733

 
$
48,429

 
$
46,578

 
$
18,677

 
$
61,935

 
$
24,846

 
$
2,256

 
$
1,888,301

Special Mention
51

 
3,832

 
974

 
2,966

 
504

 

 

 
75

 
316

 

 
8,718

Substandard
775

 
2,472

 
1,233

 
25,555

 
2,112

 
1,387

 

 
584

 
448

 

 
34,566

Originated loans held-for-investment, net
$
125,504

 
$
1,195,220

 
$
54,460

 
$
348,254

 
$
51,045

 
$
47,965

 
$
18,677

 
$
62,594

 
$
25,610

 
$
2,256

 
$
1,931,585



22

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


Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers.  The recorded investment of these non-accrual loans was $8.8 million at both September 30, 2016 and December 31, 2015. Generally, loans are placed on non-accrual status when they become 90 days or more delinquent, or sooner if considered appropriate by management, and remain on non-accrual status until they are brought current, have six consecutive months of performance under the loan terms, and factors indicating reasonable doubt about the timely collection of payments no longer exist.  Therefore, loans may be current in accordance with their loan terms, or may be less than 90 days delinquent and still be on a non-accruing status.    

These non-accrual amounts included loans deemed to be impaired of $7.2 million and $6.7 million at September 30, 2016, and December 31, 2015, respectively.  Loans on non-accrual status with principal balances less than $500,000, and therefore not meeting the Company’s definition of an impaired loan, amounted to $1.6 million and $2.1 million at September 30, 2016, and December 31, 2015, respectively.  There were no loans held-for-sale at September 30, 2016, or December 31, 2015. Loans past due 90 days or more and still accruing interest were $1.8 million and $15,000 at September 30, 2016, and December 31, 2015, respectively, and consisted of loans that are considered well secured and in the process of collection.  
    

23

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


The following tables set forth the detail, and delinquency status, of non-performing loans (non-accrual loans and loans past due 90 days or more and still accruing), net of deferred fees and costs, at September 30, 2016, and December 31, 2015, excluding loans held-for-sale and PCI loans which have been segregated into pools. For PCI loans, each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows (in thousands):
 
At September 30, 2016
 
Total Non-Performing Loans
 
Non-Accruing Loans
 
 
 
 
 
0-29 Days Past Due
 
30-89 Days Past Due
 
90 Days or More Past Due
 
Total
 
90 Days or More Past Due and Accruing
 
Total Non-Performing Loans
Loans held-for-investment:
 
 
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial
 

 
 

 
 

 
 

 
 

 
 

LTV => 35%
 

 
 

 
 

 
 

 
 

 
 

Substandard
$
348

 
$

 
$
6,120

 
$
6,468

 
$

 
$
6,468

Total commercial
348

 

 
6,120

 
6,468

 

 
6,468

One-to-four family residential
 

 
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 
517

 
699

 
1,216

 
10

 
1,226

Total one-to-four family residential

 
517

 
699

 
1,216

 
10

 
1,226

Multifamily
 

 
 

 
 

 
 

 
 

 
 

LTV < 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard
41

 

 

 
41

 

 
41

LTV => 35%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
281

 
281

 

 
281

Total multifamily
41

 

 
281

 
322

 

 
322

Home equity and lines of credit
 

 
 

 
 

 
 

 
 

 
 

Substandard
97

 

 

 
97

 

 
97

Total home equity and lines of credit
97

 

 

 
97

 

 
97

Other loans
 
 
 
 
 
 
 
 
 
 
 
Pass

 

 

 

 

 

Total other

 

 

 

 

 

Total non-performing loans held-for-investment
486

 
517

 
7,100

 
8,103

 
10

 
8,113

Loans acquired:
 

 
 

 
 

 
 

 
 

 
 

Commercial
 

 
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
237

 
237

 

 
237

LTV => 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard

 

 

 

 
1,834

 
1,834

Total commercial

 

 
237

 
237

 
1,834

 
2,071

One-to-four family residential
 

 
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard
422

 

 

 
422

 

 
422

Total one-to-four family residential
422

 

 

 
422

 

 
422

Total one-to-four family residential
422

 

 

 
422

 

 
422

Commercial and industrial loans
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
13

 
13

 

 
13

Total commercial and industrial loans

 

 
13

 
13

 

 
13

Total non-performing loans acquired
422

 

 
250

 
672

 
1,834

 
2,506

Total non-performing loans
$
908

 
$
517

 
$
7,350

 
$
8,775

 
$
1,844

 
$
10,619


24

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


 
At December 31, 2015
 
Total Non-Performing Loans
 
Non-Accruing Loans
 
 
 
 
 
0-29 Days Past Due
 
30-89 Days Past Due
 
90 Days or More Past Due
 
Total
 
90 Days or More Past Due and Accruing
 
Total Non-Performing Loans
Loans held-for-investment:
 
 
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
Commercial
 

 
 

 
 

 
 

 
 

 
 

LTV => 35%
 

 
 

 
 

 
 

 
 

 
 

Substandard
$
344

 
$
372

 
$
4,516

 
$
5,232

 
$

 
$
5,232

Total
344

 
372

 
4,516

 
5,232

 

 
5,232

Total commercial
344

 
372

 
4,516

 
5,232

 

 
5,232

One-to-four family residential
 

 
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard
364

 
180

 
565

 
1,109

 

 
1,109

Total
364

 
180

 
565

 
1,109

 

 
1,109

LTV => 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard
901

 
135

 

 
1,036

 

 
1,036

Total
901

 
135

 

 
1,036

 

 
1,036

Total one-to-four family residential
1,265

 
315

 
565

 
2,145

 

 
2,145

Construction and land
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
113

 
113

 

 
113

Total construction and land

 

 
113

 
113

 

 
113

Multifamily
 

 
 

 
 

 
 

 
 

 
 

LTV => 35%
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
559

 
559

 

 
559

Total multifamily

 

 
559

 
559

 

 
559

Home equity and lines of credit
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 
329

 
329

 

 
329

Total home equity and lines of credit

 

 
329

 
329

 

 
329

Commercial and industrial loans
 

 
 

 
 

 
 

 
 

 
 

Substandard

 

 

 

 
15

 
15

Total commercial and industrial loans

 

 

 

 
15

 
15

Total non-performing loans held-for-investment
1,609

 
687

 
6,082

 
8,378

 
15

 
8,393

Loans acquired:
 

 
 

 
 

 
 

 
 

 
 

One-to-four family residential
 

 
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

 
 

Substandard
429

 

 

 
429

 

 
429

Total one-to-four family residential
429

 




429




429

Total non-performing loans acquired:
429

 

 

 
429

 

 
429

Total non-performing loans
$
2,038

 
$
687

 
$
6,082

 
$
8,807

 
$
15

 
$
8,822



25

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


The following tables set forth the detail and delinquency status of originated and acquired loans held-for-investment, net of deferred fees and costs, by performing and non-performing loans at September 30, 2016, and December 31, 2015 (in thousands):
 
September 30, 2016
 
Performing (Accruing) Loans
 
 
 
 
 
0-29 Days Past Due
 
30-89 Days Past Due
 
Total
 
Non-Performing Loans
 
Total Loans Receivable, net
Loans held-for-investment:
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
Commercial
 

 
 

 
 

 
 
 
 
LTV < 35%
 

 
 

 
 

 
 
 
 
Pass
$
64,312

 
$
1,042

 
$
65,354

 
$

 
$
65,354

Substandard
1,194

 

 
1,194

 

 
1,194

Total
65,506

 
1,042

 
66,548

 

 
66,548

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
322,986

 
1,329

 
324,315

 

 
324,315

Special Mention
2,886

 

 
2,886

 

 
2,886

Substandard
13,729

 
1,057

 
14,786

 
6,468

 
21,254

Total
339,601

 
2,386

 
341,987

 
6,468

 
348,455

Total commercial
405,107

 
3,428

 
408,535

 
6,468

 
415,003

One-to-four family residential
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

Pass
52,247

 
2,628

 
54,875

 

 
54,875

Special Mention
494

 
215

 
709

 

 
709

Substandard
377

 
304

 
681

 
1,226

 
1,907

Total
53,118

 
3,147

 
56,265

 
1,226

 
57,491

LTV => 60%
 

 
 

 
 

 
 

 
 

Pass
45,066

 
251

 
45,317

 

 
45,317

Substandard
1,455

 

 
1,455

 

 
1,455

Total
46,521

 
251

 
46,772

 

 
46,772

Total one-to-four family residential
99,639

 
3,398

 
103,037

 
1,226

 
104,263

Construction and land
 

 
 

 
 

 
 

 
 

Pass
13,939

 

 
13,939

 


 
13,939

Total construction and land
13,939

 

 
13,939

 

 
13,939

Multifamily
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 

 
 

Pass
125,835

 

 
125,835

 

 
125,835

Special Mention
31

 

 
31

 

 
31

Substandard

 

 

 
41

 
41

Total
125,866

 

 
125,866

 
41

 
125,907

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
1,309,469

 
1,412

 
1,310,881

 

 
1,310,881

Special Mention
3,728

 

 
3,728

 

 
3,728

Substandard
1,648

 

 
1,648

 
281

 
1,929

Total
1,314,845

 
1,412

 
1,316,257

 
281

 
1,316,538

Total multifamily
1,440,711

 
1,412

 
1,442,123

 
322

 
1,442,445

Home equity and lines of credit
 

 
 

 
 

 
 

 
 

Pass
65,127

 
493

 
65,620

 

 
65,620

Special Mention
70

 

 
70

 

 
70

Substandard
155

 

 
155

 
97

 
252

Total home equity and lines of credit
65,352

 
493

 
65,845

 
97

 
65,942

Commercial and industrial
 

 
 

 
 

 
 

 
 

Pass
25,845

 
279

 
26,124

 

 
26,124

Special Mention
184

 
64

 
248

 

 
248

Substandard
148

 

 
148

 

 
148

Total commercial and industrial
26,177

 
343

 
26,520

 

 
26,520

 
 
 
 
 
 
 
 
 
 

26

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


 
September 30, 2016
 
Performing (Accruing) Loans
 
 
 
 
 
0-29 Days Past Due
 
30-89 Days Past Due
 
Total
 
Non-Performing Loans
 
Total Loans Receivable, net
Other loans - Pass
1,675

 
33

 
1,708

 

 
1,708

Total originated loans held-for-investment
$
2,052,600

 
$
9,107

 
$
2,061,707

 
$
8,113

 
$
2,069,820

Acquired loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
 
 
Pass
300,584

 
353

 
300,937

 

 
300,937

Special Mention
474

 
44

 
518

 

 
518

Substandard
888

 

 
888

 
422

 
1,310

Total
301,946

 
397

 
302,343

 
422

 
302,765

LTV => 60%
 

 
 

 
 

 
 

 
 

Pass
31,151

 

 
31,151

 

 
31,151

Substandard
470

 

 
470

 

 
470

Total
31,621

 

 
31,621

 

 
31,621

Total one-to-four family residential
333,567

 
397

 
333,964

 
422

 
334,386

Commercial
 

 
 

 
 

 
 
 
 
LTV < 35%
 

 
 

 
 

 
 
 
 
Pass
55,086

 
491

 
55,577

 

 
55,577

Special Mention
289

 

 
289

 

 
289

Substandard
41

 
1,205

 
1,246

 
237

 
1,483

Total
55,416

 
1,696

 
57,112

 
237

 
57,349

LTV => 35%
 
 
 
 
 
 
 
 
 
Pass
122,070

 
1,052

 
123,122

 

 
123,122

Special Mention
2,129

 
140

 
2,269

 

 
2,269

Substandard
1,383

 

 
1,383

 
1,834

 
3,217

Total
125,582

 
1,192

 
126,774

 
1,834

 
128,608

Total commercial
180,998

 
2,888

 
183,886

 
2,071

 
185,957

Construction and land
 

 
 

 
 

 
 

 
 

Pass
23,022

 

 
23,022

 

 
23,022

Total construction and land
23,022

 

 
23,022

 

 
23,022

Multifamily
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 
 
 
Pass
206,569

 

 
206,569

 

 
206,569

Special Mention
314

 

 
314

 

 
314

Substandard
156

 

 
156

 

 
156

Total
207,039

 

 
207,039

 

 
207,039

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
9,443

 

 
9,443

 

 
9,443

Substandard
430

 

 
430

 

 
430

Total
9,873

 

 
9,873

 

 
9,873

Total multifamily
216,912

 

 
216,912

 

 
216,912

Home equity and lines of credit
 
 
 
 
 
 
 
 
 
Pass
26,822

 
76

 
26,898

 

 
26,898

Substandard
104

 

 
104

 

 
104

Total home equity and lines of credit
26,926

 
76

 
27,002

 

 
27,002

Commercial and industrial
 
 
 
 
 
 
 
 
 
Pass
25,916

 

 
25,916

 

 
25,916

Special Mention

 
61

 
61

 

 
61

Substandard

 

 

 
13

 
13

Total commercial and industrial
25,916

 
61

 
25,977

 
13

 
25,990

Other - Pass
364

 
3

 
367

 

 
367

Total loans acquired
807,705

 
3,425

 
811,130

 
2,506

 
813,636

 
$
2,860,305

 
$
12,532

 
$
2,872,837

 
$
10,619

 
$
2,883,456


27

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


 
December 31, 2015
 
Performing (Accruing) Loans
 
 
 
 
 
0-29 Days Past Due
 
30-89 Days Past Due
 
Total
 
Non-Performing Loans
 
Total Loans Receivable, net
Loans held-for-investment:
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
Commercial
 

 
 

 
 

 
 
 
 
LTV < 35%
 

 
 

 
 

 
 
 
 
Pass
$
50,974

 
$
1,279

 
$
52,253

 

 
$
52,253

Special Mention
974

 

 
974

 

 
974

Substandard
1,233

 

 
1,233

 

 
1,233

Total
53,181

 
1,279

 
54,460

 

 
54,460

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
319,411

 
322

 
319,733

 

 
319,733

Special Mention
2,966

 

 
2,966

 

 
2,966

Substandard
8,696

 
11,627

 
20,323

 
5,232

 
25,555

Total
331,073

 
11,949

 
343,022

 
5,232

 
348,254

Total commercial
384,254

 
13,228

 
397,482

 
5,232

 
402,714

One-to-four family residential
 

 
 

 
 

 
 

 
 

LTV < 60%
 

 
 

 
 

 
 

 
 

Pass
45,737

 
2,692

 
48,429

 

 
48,429

Special Mention
134

 
370

 
504

 

 
504

Substandard
696

 
307

 
1,003

 
1,109

 
2,112

Total
46,567

 
3,369

 
49,936

 
1,109

 
51,045

LTV => 60%
 

 
 

 
 

 
 

 
 

Pass
46,578

 

 
46,578

 

 
46,578

Substandard

 
351

 
351

 
1,036

 
1,387

Total
46,578

 
351

 
46,929

 
1,036

 
47,965

Total one-to-four family residential
93,145

 
3,720

 
96,865

 
2,145

 
99,010

Construction and land
 

 
 

 
 

 
 

 
 

Pass
18,564

 

 
18,564

 
113

 
18,677

Total construction and land
18,564

 

 
18,564

 
113

 
18,677

Multifamily
 

 
 

 
 

 
 

 
 

LTV < 35%
 

 
 

 
 

 
 

 
 

Pass
124,678

 

 
124,678

 

 
124,678

Special Mention

 
51

 
51

 

 
51

Substandard
775

 

 
775

 

 
775

Total
125,453

 
51

 
125,504

 

 
125,504

LTV => 35%
 

 
 

 
 

 
 

 
 

Pass
1,187,147

 
1,769

 
1,188,916

 

 
1,188,916

Special Mention
2,687

 
1,145

 
3,832

 

 
3,832

Substandard
1,913

 

 
1,913

 
559

 
2,472

Total
1,191,747

 
2,914

 
1,194,661

 
559

 
1,195,220

Total multifamily
1,317,200

 
2,965

 
1,320,165

 
559

 
1,320,724

Home equity and lines of credit
 

 
 

 
 

 
 

 
 

Pass
61,561

 
374

 
61,935

 

 
61,935

Special Mention
75

 

 
75

 

 
75

Substandard
255

 

 
255

 
329

 
584

Total home equity and lines of credit
61,891

 
374

 
62,265

 
329

 
62,594

Commercial and industrial loans
 

 
 

 
 

 
 

 
 

Pass
24,780

 
51

 
24,831

 
15

 
24,846

Special Mention
316

 

 
316

 

 
316

Substandard
395

 
53

 
448

 

 
448

Total commercial and industrial loans
25,491

 
104

 
25,595

 
15

 
25,610

Other loans - Pass
2,245

 
11

 
2,256

 

 
2,256


28

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


 
December 31, 2015
 
Performing (Accruing) Loans
 
 
 
 
 
0-29 Days Past Due
 
30-89 Days Past Due
 
Total
 
Non-Performing Loans
 
Total Loans Receivable, net
Total originated loans held-for-investment
$
1,902,790

 
$
20,402

 
$
1,923,192

 
$
8,393

 
$
1,931,585

Loans Acquired
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 
One-to-four family residential
 
 
 
 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
 
 
Pass
313,425

 
312

 
313,737

 

 
313,737

Special Mention
549

 

 
549

 

 
549

Substandard
737

 
177

 
914

 
429

 
1,343

Total
314,711

 
489

 
315,200

 
429

 
315,629

LTV => 60%
 
 
 
 
 
 
 
 
 
Pass
14,759

 

 
14,759

 

 
14,759

Substandard
284

 

 
284

 

 
284

Total
15,043

 

 
15,043

 

 
15,043

Total one-to-four family residential
329,754

 
489

 
330,243

 
429

 
330,672

Commercial
 
 
 
 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
Pass
2,164

 

 
2,164

 

 
2,164

Substandard

 
729

 
729

 

 
729

Total
2,164

 
729

 
2,893

 

 
2,893

LTV => 35%
 
 
 
 
 
 
 
 
 
Pass
5,536

 

 
5,536

 

 
5,536

Special Mention
883

 

 
883

 

 
883

Substandard
1,848

 

 
1,848

 

 
1,848

Total
8,267

 

 
8,267

 

 
8,267

Total commercial
10,431

 
729

 
11,160

 

 
11,160

Multifamily
 
 
 
 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
Pass
4,695

 

 
4,695

 

 
4,695

Special Mention
138

 

 
138

 

 
138

Total
4,833

 

 
4,833

 

 
4,833

LTV => 35%
 
 
 
 
 
 
 
 
 
Pass
59,632

 

 
59,632

 

 
59,632

Special Mention
314

 

 
314

 

 
314

Total
59,946

 

 
59,946

 

 
59,946

Total multifamily
64,779

 

 
64,779

 

 
64,779

Home equity and lines of credit
 
 
 
 
 
 
 
 
 
Pass
2,404

 

 
2,404

 

 
2,404

Total home equity and lines of credit
2,404

 

 
2,404

 

 
2,404

Total loans acquired
407,368

 
1,218

 
408,586

 
429

 
409,015

 
$
2,310,158

 
$
21,620

 
$
2,331,778

 
$
8,822

 
$
2,340,600


29

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


The following table summarizes originated and acquired impaired loans as of September 30, 2016, and December 31, 2015 (in thousands):
 
At September 30, 2016
 
At December 31, 2015
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
With No Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
Real estate loans:
 

 
 

 
 

 
 
 
 
 
 
Commercial
 

 
 

 
 

 
 
 
 
 
 
LTV < 35%
 

 
 

 
 

 
 
 
 
 
 
Substandard
$

 
$
139

 
$

 

 
139

 

LTV => 35%
 

 
 

 
 

 
 
 
 
 
 
Pass
3,946

 
4,083

 

 
4,051

 
4,188

 

Substandard
13,714

 
15,905

 

 
13,371

 
14,748

 

One-to-four family residential
 

 
 

 
 

 
 
 
 
 
 
LTV < 60%
 

 
 

 
 

 
 
 
 
 
 
Pass
641

 
641

 

 
221

 
221

 

Special Mention
184

 
184

 

 

 

 

Substandard

 

 

 
234

 
234

 

LTV => 60%
 
 
 
 
 
 
 
 
 
 
 
Substandard
627

 
851

 

 
150

 
167

 

Multifamily
 

 
 

 
 

 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
 
 
Substandard
156

 
156

 

 

 

 

LTV => 35%
 

 
 

 
 

 
 
 
 
 
 
Pass
66

 
537

 

 
75

 
545

 
 
Substandard
281

 
559

 

 
1,012

 
1,012

 

Commercial and industrial loans
 

 
 

 
 

 
 
 
 
 
 
Substandard
78

 
78

 

 
87

 
87

 

With a Related Allowance Recorded:
 

 
 

 
 

 
 
 
 
 
 
Real estate loans:
 

 
 

 
 

 
 
 
 
 
 
Commercial
 

 
 

 
 

 
 
 
 
 
 
LTV => 35%
 

 
 

 
 

 
 
 
 
 
 
Substandard
6,259

 
6,495

 
(518
)
 
4,891

 
5,430

 
(394
)
One-to-four family residential
 

 
 

 
 

 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
 
 
 
 
Pass
60

 
60

 
(7
)
 
503

 
503

 
(33
)
Substandard
1,572

 
1,572

 
(123
)
 
1,604

 
1,604

 
(152
)
LTV => 60%
 
 
 
 
 
 
 
 
 
 
 
Pass
277

 
277

 
(17
)
 
 
 
 
 
 
Substandard
385

 
385

 
(47
)
 
1,034

 
1,081

 
(97
)
Multifamily
 

 
 

 
 

 
 
 
 
 
 
LTV => 35%
 
 
 
 
 
 
 
 
 
 
 
Pass
1,324

 
1,324

 
(110
)
 

 

 

Substandard

 

 

 
1,371

 
1,371

 
(158
)
Home equity and lines of credit
 

 
 

 
 

 
 
 
 
 
 
Pass
261

 
261

 
(7
)
 
269

 
269

 
(11
)
Special Mention
41

 
41

 
(15
)
 
44

 
44

 
(19
)
Substandard
39

 
39

 
(16
)
 
41

 
41

 
(21
)
Commercial and industrial loans
 

 
 

 
 

 
 
 
 
 
 
Special Mention
27

 
27

 
(7
)
 
29

 
29

 
(4
)
Total:
 

 
 

 
 

 
 
 
 
 
 
Real estate loans
 

 
 

 
 

 
 
 
 
 
 
Commercial
23,919

 
26,622

 
(518
)
 
22,313

 
24,505

 
(394
)
One-to-four family residential
3,746

 
3,970

 
(194
)
 
3,746

 
3,810

 
(282
)
Multifamily
1,827

 
2,576

 
(110
)
 
2,458

 
2,928

 
(158
)
Home equity and lines of credit
341

 
341

 
(38
)
 
354

 
354

 
(51
)
Commercial and industrial loans
105

 
105

 
(7
)
 
116

 
116

 
(4
)
 
$
29,938

 
$
33,614

 
$
(867
)
 
$
28,987

 
$
31,713

 
$
(889
)

30

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


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

The following table summarizes the average recorded investment in originated and acquired impaired loans (excluding PCI loans) and interest recognized on impaired loans as of, and for, the three months ended September 30, 2016 and September 30, 2015 (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
 
Average Recorded Investment
 
Interest Income
 
Average Recorded Investment
 
Interest Income
 
Average Recorded Investment
 
Interest Income
 
Average Recorded Investment
 
Interest Income
With No Allowance Recorded:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
Commercial
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
LTV => 35%
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
Pass
$
3,962

 
$
44

 
$
2,434

 
$
24

 
$
3,997

 
$
144

 
$
2,660

 
$
71

Special Mention

 

 

 

 

 

 
136

 

Substandard
13,908

 
130

 
13,051

 
147

 
13,621

 
369

 
12,398

 
517

Construction and land
 
 
 
 
 
 
 
 
 

 
 

 
 
 
 
Substandard

 

 

 

 

 


 

 

One-to-four family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
645

 
4

 
363

 
5

 
541

 
13

 
203

 
14

Special Mention

 

 

 

 

 

 
69

 

Substandard
208

 

 
92

 
7

 
220

 
1

 
176

 
7

LTV => 60%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Substandard
387

 
7

 
178

 
3

 
268

 
19

 
89

 
17

Multifamily
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LTV < 35%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Substandard
78

 
2

 

 
 
 
39

 
5

 

 

LTV => 35%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
68

 
4

 
79

 
4

 
70

 
12

 
82

 
13

Substandard
583

 

 
739

 
10

 
728

 
8

 
607

 
20

Home equity and lines of credit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Special Mention

 

 
24

 

 

 

 
36

 

Substandard

 

 

 

 

 

 

 

Commercial and industrial loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Special Mention

 

 
15

 

 

 

 
74

 

Substandard
80

 

 
92

 

 
83

 

 
95

 

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

 

 
1,670

 
22

 

 

 
835

 
67

Substandard
6,972

 
16

 
10,717

 
92

 
6,745

 
54

 
11,724

 
201

One-to-four family residential
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LTV < 60%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
61

 
4

 
374

 
2

 
171

 
12

 
203

 
8

Special Mention

 

 

 

 

 

 
159

 

Substandard
1,577

 
7

 
874

 
3

 
1,588

 
18

 
870

 
10

LTV => 60%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
139

 
1

 

 

 
69

 
4

 

 

Substandard
772

 
1

 
649

 
4

 
900

 
3

 
471

 
40

Multifamily
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LTV => 35%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

31

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


 
Three Months Ended
 
Nine Months Ended
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Pass
1,332

 
12

 

 

 
666

 
38

 

 

Substandard

 

 
1,392

 
13

 
682

 

 
1,406

 
39

Home equity and lines of credit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
263

 
2

 
272

 
2

 
265

 
6

 
136

 
6

Special Mention
42

 
1

 
23

 
1

 
43

 
2

 
150

 
2

Substandard
39

 

 
43

 

 
40

 
1

 
21

 
2

Commercial and industrial loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Special Mention
27

 

 
15

 
1

 
28

 
1

 
23

 
1

Substandard

 

 

 

 

 

 
102

 

Total:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate loans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
24,842

 
190

 
27,872

 
285

 
24,363

 
567

 
27,753

 
856

One-to-four family residential
3,789

 
24

 
2,530

 
24

 
3,757

 
70

 
2,240

 
96

Multifamily
2,061

 
18

 
2,210

 
27

 
2,185

 
63

 
2,095

 
72

Home equity and lines of credit
344

 
3

 
362

 
3

 
348

 
9

 
343

 
10

Commercial and industrial loans
107

 

 
122

 
1

 
111

 
1

 
294

 
1

 
$
31,143

 
$
235

 
$
33,096

 
$
340

 
$
30,764

 
$
710

 
$
32,725

 
$
1,035

    

There were no loans modified as troubled debt restructurings (TDRs) during the three or nine months ended September 30, 2016. The following table summarizes loans that were modified as troubled debt restructurings during the three and nine months ended September 30, 2015:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2015
 
Number of Relationships
 
Pre-Modification Outstanding Recorded Investment
 
Post-Modification Outstanding Recorded Investment
 
Number of Relationships
 
Pre-Modification Outstanding Recorded Investment
 
Post-Modification Outstanding Recorded Investment
 
 
 
(in thousands)
 
 
 
(in thousands)
TDR's
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate loans
 
 
 
 
 
 
 
 
 
 
 
Substandard
 
 
 
3
 
8,457
 
8,457
One-to-four family residential
 
 
 
 
 
 
 
 
 
 
 
Pass
 
 
 
1
 
20
 
20
Substandard
1
 
136
 
136
 
4
 
697
 
697
Home equity and lines of credit
 
 
 
1
 
43
 
43
TDR's
1
 
136
 
136
 
9
 
$9,217
 
$9,217

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

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


32

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


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

Note 6 – Deposits

Deposits account balances are summarized as follows (in thousands):
 
September 30,
 
December 31,
 
2016
 
2015
Non-interest-bearing demand
$
395,731

 
$
263,073

Interest-bearing negotiable orders of withdrawal (NOW)
359,915

 
217,813

Savings and money market
1,319,297

 
1,072,175

Certificates of deposit
554,058

 
499,868

Total deposits
$
2,629,001

 
$
2,052,929

 
Interest expense on deposit accounts is summarized for the periods indicated (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Negotiable orders of withdrawal, savings, and money market
$
1,877

 
$
1,360

 
$
5,773

 
$
3,416

Certificates of deposit
1,668

 
1,481

 
4,899

 
3,957

Total interest expense on deposit accounts
$
3,545

 
$
2,841

 
$
10,672

 
$
7,373


Note 7 Equity Incentive Plan
 
The following table is a summary of the Company’s stock options outstanding as of September 30, 2016, and changes therein during the nine months then ended.
 
Number of Stock Options
 
Weighted Average Grant Date Fair Value
 
Weighted Average Exercise Price
 
Weighted Average Contractual Life (years)
Outstanding - December 31, 2015
6,011,861

 
$
3.30

 
$
10.93

 
6.41

Forfeited
(25,720
)
 
3.96

 
13.61

 

Exercised
(371,807
)
 
2.37

 
7.37

 

Outstanding - September 30, 2016
5,614,334

 
3.35

 
11.15

 
5.85

Exercisable - September 30, 2016
3,304,136

 
$
2.90

 
$
9.34

 
4.31

 
Expected future stock option expense related to the non-vested options outstanding as of September 30, 2016, is $7.5 million over an average period of 3.06 years.
The following is a summary of the status of the Company’s restricted share awards as of September 30, 2016, and changes therein during the nine months then ended.
 
Number of Shares Awarded
 
Weighted Average Grant Date Fair Value
Non-vested at December 31, 2015
1,193,862

 
$
13.70

Vested
(277,580
)
 
13.61

Forfeited
(7,640
)
 
13.69

Non-vested at September 30, 2016
908,642

 
$
13.72


33

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


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

During the three months ended September 30, 2016 and 2015, the Company recorded $1.5 million and $2.1 million respectively, of stock-based compensation related to the above plans. During the nine months ended September 30, 2016 and 2015, the Company recorded $5.7 million and $4.7 million, respectively, of stock-based compensation related to the above plans.  
 
Note 8 – Fair Value Measurements
The following tables present the assets reported on the consolidated balance sheet at their estimated fair value as of September 30, 2016, and December 31, 2015, by level within the fair value hierarchy as required by the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC).  Financial assets and liabilities are classified in their entirety based on the level of input that is significant to the fair value measurement.  The fair value hierarchy is as follows:

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

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

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


34

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


 
Fair Value Measurements at September 30, 2016 Using:
 
Carrying Value
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
(in thousands)
Measured on a recurring basis:
 
Assets:
 
 
 
 
 
 
 
Investment securities:
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
GSE
497,669

 
$

 
497,669

 
$

Non-GSE
333

 

 
333

 

Other securities:
 
 
 
 
 
 
 
GSE bonds

 

 

 
 
Municipal bonds
1,919

 

 
1,919

 
 
Corporate bonds
46,089

 

 
46,089

 

Equities
1,129

 
158

 
971

 

Other
1,254

 

 
1,254

 
 
Total available-for-sale
548,393

 
158

 
548,235

 

Trading securities
7,547

 
7,547

 

 

Total
$
555,940

 
$
7,705

 
$
548,235

 
$

Measured on a non-recurring basis:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
Commercial real estate
$
11,584

 
$

 
$

 
$
11,584

One-to-four family residential mortgage
2,540

 

 

 
2,540

Multifamily
1,561

 

 

 
1,561

Home equity and lines of credit
303

 

 

 
303

Total impaired real estate loans
15,988

 

 

 
15,988

Commercial and industrial loans
19

 

 

 
19

Total
$
16,007

 
$

 
$

 
$
16,007


35

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


 
Fair Value Measurements at December 31, 2015 Using:
 
Carrying Value
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
(in thousands)
Measured on a recurring basis:
 
Assets:
 
 
 
 
 
 
 
Investment securities:
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
GSE
$
529,524

 
$

 
$
529,524

 
$

Non-GSE
579

 

 
579

 

Other securities:
 
 
 
 
 
 
 
Corporate bonds
11,011

 

 
11,011

 

Equities
481

 
481

 

 

Total available-for-sale
541,595

 
481

 
541,114

 

Trading securities
6,713

 
6,713

 

 

Total
$
548,308

 
$
7,194

 
$
541,114

 
$

Measured on a non-recurring basis:
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Impaired loans:
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
Commercial real estate
$
9,091

 
$

 
$

 
$
9,091

One-to-four family residential mortgage
2,873

 

 

 
2,873

Multifamily
1,288

 

 

 
1,288

Home equity and lines of credit
303

 

 

 
303

Total impaired real estate loans
13,555

 

 

 
13,555

Commercial and industrial loans
25

 

 

 
25

Other real estate owned
45

 

 

 
45

Total
$
13,625

 
$

 
$

 
$
13,625


The following table presents qualitative information for Level 3 assets measured at fair value on a non-recurring basis at September 30, 2016, and December 31, 2015 (dollars in thousands):
 
Fair Value
 
Valuation Methodology
 
Unobservable Inputs       
 
Range of Inputs
 
September 30, 2016
 
December 31, 2015
 
 
 
 
 
September 30, 2016
 
December 31, 2015
Impaired loans
$
16,007

 
$
13,580

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

 
$
45

 
Appraisals
 
Discount for costs to sell
 
7.0%
 
7.0%

    

36

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


Available for Sale Securities: The estimated fair values for mortgage-backed securities, corporate and other debt securities, and certain less liquid equity securities are obtained from an independent nationally recognized third-party pricing service.  The estimated fair values are derived primarily from cash flow models, which include assumptions for interest rates, credit losses, and prepayment speeds.  Broker/dealer quotes are utilized as well, when such quotes are available and deemed representative of the market.  The significant inputs utilized in the cash flow models are based on market data obtained from sources independent of the Company (Observable Inputs), and are therefore classified as Level 2 within the fair value hierarchy.  The estimated fair values of equity securities consisting of publicly traded mutual funds are classified as Level 1 and are derived from quoted market prices in active markets. There were no transfers of securities between Level 1 and Level 2 during the nine months ended September 30, 2016.     
Trading Securities: Fair values are derived from quoted market prices in active markets.  The assets consist of publicly traded mutual funds.
 
Impaired Loans: At September 30, 2016, and December 31, 2015, the Company had impaired loans held-for-investment (excluding PCI loans) with outstanding principal balances of $20.3 million and $17.0 million, respectively, which were recorded at their estimated fair value of $16.0 million and $13.6 million, respectively.  The Company recorded a net decrease in the specific reserve for impaired loans of $24,000 for the nine months ended September 30, 2016, utilizing Level 3 inputs.  For purposes of estimating fair value of impaired loans, management utilizes independent appraisals, if the loan is collateral dependent, adjusted downward by management, as necessary, for changes in relevant valuation factors subsequent to the appraisal date, or the present value of expected future cash flows for non-collateral dependent loans and troubled debt restructurings.
 
Other Real Estate Owned (OREO):  At September 30, 2016, the Company had no assets acquired through foreclosure, or deed in lieu of foreclosure, as compared to $45,000 at December 31, 2015. These assets are recorded at estimated fair value, less estimated selling costs when acquired, establishing a new cost basis.  Estimated fair value is generally based on independent appraisals.  These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are considered Level 3 inputs.  When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses.  If the estimated fair value of the asset declines, a write-down is recorded through non-interest expense.  The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions. 

In addition, the Company may be required, from time to time, to measure the fair value of certain other financial assets on a nonrecurring basis in accordance with U.S. GAAP.  The adjustments to fair value usually result from the application of lower-of-cost-or-market accounting or write downs of individual assets.
 
Fair Value of Financial Instruments
 
The FASB ASC Topic for Financial Instruments requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis.  The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above.  The following methods and assumptions were used to estimate the fair value of other financial assets and financial liabilities not already discussed above:
 
(a)
Cash, Cash Equivalents, and Certificates of Deposit
Cash and cash equivalents are short-term in nature with original maturities of six months or less; the carrying amount approximates fair value.  Certificates of deposit having original terms of six-months or less; the carrying value generally approximates fair value.  Certificates of deposit with an original maturity of six months or greater; the fair value is derived from discounted cash flows.
 

37

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


(b)
Securities (Held to Maturity)
The estimated fair values for substantially all of our securities are obtained from an independent nationally recognized pricing service.  The independent pricing service utilizes market prices of same or similar securities whenever such prices are available.  Prices involving distressed sellers are not utilized in determining fair value.  Where necessary, the independent third-party pricing service estimates fair value using models employing techniques such as discounted cash flow analyses.  The assumptions used in these models typically include assumptions for interest rates, credit losses, and prepayments, utilizing market observable data where available.
 
(c)
Federal Home Loan Bank of New York Stock
The fair value for Federal Home Loan Bank of New York (FHLB) stock is its carrying value, since this is the amount for which it could be redeemed and there is no active market for this stock.
 
(d)
Loans (Held-for-Investment)
Fair values are estimated for portfolios of loans with similar financial characteristics.  Loans are segregated by type such as originated and purchased, and further segregated by residential mortgage, construction, land, multifamily, commercial and consumer.  Each loan category is further segmented into amortizing and non-amortizing and fixed and adjustable rate interest terms and by performing and nonperforming categories.  The fair value of loans is estimated by discounting the future cash flows using current prepayment assumptions and current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.  This method of estimating fair value does not incorporate the exit price concept of fair value prescribed by the FASB ASC Topic for Fair Value Measurements and Disclosures.
 
(e)
Loans (Held-for-Sale)
Held-for-sale loans are carried at the lower of aggregate cost or estimated fair value, less costs to sell, and therefore fair value is equal to carrying value.
 
(f)
Deposits
The fair value of deposits with no stated maturity, such as non-interest bearing demand deposits, savings, NOW and money market accounts, is equal to the amount payable on demand.  The fair value of certificates of deposit is based on the discounted value of contractual cash flows.  The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.
 
(g)
Commitments to Extend Credit and Standby Letters of Credit
The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of off‑balance sheet commitments is insignificant and therefore not included in the following table.
 
(h)
Borrowed Funds
The fair value of borrowed funds is estimated by discounting future cash flows based on rates currently available for debt with similar terms and remaining maturity.
 
(i)
Advance Payments by Borrowers for Taxes and Insurance
Advance payments by borrowers for taxes and insurance have no stated maturity; the fair value is equal to the amount currently payable.


38

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


The estimated fair value of the Company’s significant financial instruments at September 30, 2016, and December 31, 2015, is presented in the following tables (in thousands):
 
September 30, 2016
 
 
 
Estimated Fair Value
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
36,136

 
$
36,136

 
$

 
$

 
$
36,136

Trading securities
7,547

 
7,547

 

 

 
7,547

Securities available-for-sale
548,393

 
158

 
548,235

 

 
548,393

Securities held-to-maturity
10,198

 

 
10,417

 

 
10,417

Federal Home Loan Bank of New York stock, at cost
25,974

 

 
25,974

 

 
25,974

Net loans held-for-investment
2,891,909

 

 

 
2,889,562

 
2,889,562

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
$
2,629,001

 
$

 
$
2,636,441

 
$

 
$
2,636,441

Borrowed funds
494,430

 

 
497,342

 

 
497,342

Advance payments by borrowers for taxes and insurance
11,937

 

 
11,937

 

 
11,937


 
 
December 31, 2015
 
 
 
Estimated Fair Value
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
51,853

 
$
51,853

 
$

 
$

 
$
51,853

Trading securities
6,713

 
6,713

 

 

 
6,713

Securities available-for-sale
541,595

 
481

 
541,114

 

 
541,595

Securities held-to-maturity
10,346

 

 
10,369

 

 
10,369

Federal Home Loan Bank of New York stock, at cost
25,803

 

 
25,803

 

 
25,803

Net loans held-for-investment
2,348,945

 

 

 
2,375,028

 
2,375,028

Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
$
2,052,929

 
$

 
$
2,058,894

 
$

 
$
2,058,894

Borrowed funds
558,129

 

 
557,537

 

 
557,537

Advance payments by borrowers for taxes and insurance
10,862

 

 
10,862

 

 
10,862

 
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected losses, current economic conditions, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments.  In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
 

39

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


Note 9 – Earnings Per Share
 
Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding during the period.  For purposes of calculating basic earnings per share, weighted average common shares outstanding excludes unallocated employee stock ownership plan (ESOP) shares that have not been committed for release and unvested restricted stock.

Diluted earnings per share is computed using the same method as basic earnings per share, but reflects the potential dilution that could occur if stock options and unvested shares of restricted stock were exercised and converted into common stock.  These potentially dilutive shares are included in the weighted average number of shares outstanding for the period using the treasury stock method.  When applying the treasury stock method, we add: (1) the assumed proceeds from option exercises; (2) the tax benefit, if any, that would have been credited to additional paid-in capital assuming exercise of non-qualified stock options and vesting of shares of restricted stock; and (3) the average unamortized compensation costs related to unvested shares of restricted stock and stock options.  We then divide this sum by our average stock price for the period to calculate assumed shares repurchased.  The excess of the number of shares issuable over the number of shares assumed to be repurchased is added to basic weighted average common shares to calculate diluted earnings per share.
 
The following is a summary of the Company’s earnings per share calculations and reconciliation of basic to diluted earnings per share for the periods indicated (dollars in thousands, except per share data):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net income available to common stockholders
$
7,287

 
$
4,677

 
$
17,932

 
$
13,974

Weighted average shares outstanding-basic
44,556,682

 
41,495,862

 
44,282,476

 
42,562,396

Effect of non-vested restricted stock and stock options outstanding
1,164,070

 
1,148,923

 
1,272,785

 
1,158,949

Weighted average shares outstanding-diluted
45,720,752

 
42,644,785

 
45,555,261

 
43,721,345

Earnings per share-basic
$
0.16

 
$
0.11

 
$
0.40

 
$
0.33

Earnings per share-diluted
$
0.16

 
$
0.11

 
$
0.39

 
$
0.32

Anti-dilutive shares
1,020,340

 
3,281,500

 
1,021,273

 
3,223,900

 
Note 10 – Recent Accounting Pronouncements

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

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

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

40

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


certain share-based payment activities within the statements of cash flows and these changes are required to be applied retrospectively to all periods presented, or in certain cases prospectively, beginning in the period of adoption. ASU No. 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The impact of ASU No. 2016-09 could be material to the Company's results of operations and cash flows in future periods depending upon, among other things, the level of earnings and stock price of the Company.
    
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability of accounting for lease transactions. The ASU will require all leases to be recognized on the balance sheet as lease assets and lease liabilities and will require both quantitative and qualitative disclosures regarding key information about leasing arrangements. Lessor accounting is largely unchanged. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within that reporting period. The Company is currently evaluating the potential effect of adoption of this pronouncement on its consolidated financial statements.

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

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

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. This update will be effective for interim and annual periods beginning after December 15, 2016. The Company is still assessing the impact of the adoption of this pronouncement on its consolidated financial statements, but does not expect the adoption of the guidance to have a material effect on its consolidated financial statements.

    


41


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report contains certain “forward-looking statements,” which can be identified by the use of such words as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” and words of similar meaning.  These forward looking statements include, but are not limited to: 

statements of our goals, intentions, and expectations;
statements regarding our business plans, prospects, growth and operating strategies;
statements regarding the quality of our loan and investment portfolios; and
estimates of our risks and future costs and benefits. 

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control.  In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. 
 
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
general economic conditions, either nationally or in our market areas, that are worse than expected;
competition among depository and other financial institutions;
inflation and changes in the interest rate environment that reduce our margins and yields or reduce the fair value of financial instruments;
adverse changes in the securities or credit markets;
changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
our ability to manage operations in the current economic conditions;
our ability to enter new markets successfully and capitalize on growth opportunities;
our ability to successfully integrate acquired entities, including Hopewell Valley Community Bank (“Hopewell Valley”), which we acquired on January 8, 2016;
changes in consumer spending, borrowing and savings habits;
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission, or the Public Company Accounting Oversight Board;
cyber attacks, computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information and destroy data or disable our systems;
changes in our organization, compensation, and benefit plans;
changes in the level of government support for housing finance;
significant increases in our loan losses; and
changes in the financial condition, results of operations, or future prospects of issuers of securities that we own.
 
Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.  Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements after the date of this Quarterly Report on Form 10-Q, whether as a result of new information, future events or otherwise. 
 

42


Critical Accounting Policies
 
Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K, as supplemented by this report, contains a summary of significant accounting policies.  Various elements of these accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments.  Certain assets are carried in the Consolidated Balance Sheets at estimated fair value or the lower of cost or estimated fair value.  Policies with respect to the methodologies used to determine the allowance for loan losses, estimated cash flows of our PCI loans, and judgments regarding the valuation of intangible assets and securities as well as the valuation allowance against deferred tax assets are the most critical accounting policies because they are important to the presentation of the Company’s financial condition and results of operations, involve a higher degree of complexity, and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition.  These critical accounting policies and their application are reviewed periodically and, at least annually, with the Audit Committee of the Board of Directors.  For a further discussion of the critical accounting policies of the Company, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.
Overview
This overview highlights selected information and may not contain all the information that is important to you in understanding our performance during the period.  For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources, and critical accounting estimates, you should read this entire document carefully, as well as our Annual Report on Form 10-K for the year ended December 31, 2015.
 
On January 8, 2016, the Company acquired Hopewell Valley, which after purchase accounting adjustments added $508.5 million of assets, $342.6 million of loans, and $456.2 million of deposits, and nine branch offices in Hunterdon and Mercer Counties, New Jersey. Total consideration paid for Hopewell Valley was $55.4 million, consisting of $13.7 million in cash and 2,707,381 shares of common stock valued at $41.7 million based upon the $15.41 per share closing price of Northfield Bancorp, Inc.'s common stock on January 8, 2016.

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

Comparison of Financial Condition at September 30, 2016, and December 31, 2015
Total assets increased $582.0 million, or 18.2%, to $3.78 billion at September 30, 2016, from $3.20 billion at December 31, 2015, primarily due to an increase in loans held-for-investment, net, of $542.5 million and an increase in goodwill of $22.3 million associated with the acquisition of Hopewell Valley.
 
Cash and cash equivalents decreased $15.7 million, or 30.3%, to $36.1 million at September 30, 2016, from $51.9 million at December 31, 2015. Balances fluctuate based on the timing of receipt of security and loan repayments and the redeployment of cash into other asset classes, or the funding of deposit or borrowing obligations.
   
The available-for-sale securities portfolio totaled $548.4 million at September 30, 2016, compared to $541.6 million at December 31, 2015. At September 30, 2016, $497.7 million of the portfolio consisted of residential mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. In addition, the Company held $46.1 million in corporate bonds, all of which were considered investment grade at September 30, 2016, and other securities of $4.6 million (including $1.1 million of equity investments in money market mutual funds).


43


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

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

Originated loans held-for-investment, net, totaled $2.07 billion at September 30, 2016, as compared to $1.93 billion at December 31, 2015.  The increase was primarily due to an increase in multifamily real estate loans of $120.2 million, or 9.1%, to $1.44 billion at September 30, 2016, from $1.32 billion at December 31, 2015. The following table details our multifamily real estate originations for the nine months ended September 30, 2016 and 2015 (dollars in thousands):
For the Nine Months Ended September 30, 2016
Originations
 
Weighted Average Interest Rate
 
Weighted Average Loan-to-Value Ratio
 
Weighted Average Months to Next Rate Change or Maturity for Fixed Rate Loans
 
(F)ixed or (V)ariable
 
Amortization Term
$
219,975

 
3.42%
 
63%
 
81
 
V
 
30 Years
7,075

 
3.66%
 
41%
 
131
 
F
 
7- 15 Years
$
227,050

 
3.43%
 
62%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2015
Originations
 
Weighted Average Interest Rate
 
Weighted Average Loan-to-Value Ratio
 
Weighted Average Months to Next Rate Change or Maturity for Fixed Rate Loans
 
(F)ixed or (V)ariable
 
Amortization Term
$
315,059

 
3.37%
 
65%
 
76
 
V
 
30 Years
2,829

 
4.14%
 
24%
 
180
 
F
 
15 Years
$
317,888

 
3.38%
 
64%
 
 
 
 
 
 
Acquired loans increased by $404.6 million to $813.6 million at September 30, 2016, from $409.0 million at December 31, 2015, due to $342.6 million of loans acquired from Hopewell Valley, and two loan pool purchases totaling approximately $158.1 million, which consisted primarily of multifamily loans located in New York and Eastern Pennsylvania. The following table provides the details of the loans purchased during the nine months ended September 30, 2016 (dollars in thousands):
Purchases
 
Weighted Average Interest Rate
 
Weighted Average Loan-to-Value Ratio
 
Weighted Average Months to Next Rate Change or Maturity for Fixed Rate Loans
 
(F)ixed or (V)ariable
 
Amortization Term
$
27,415

 
3.98%
 
30%
 
120
 
F
 
30 Years
48,445

 
2.95%
 
53%
 
46
 
V
 
30 Years
82,242

 
2.93%
 
49%
 
33
 
V
 
30 Years
$
158,102

 
3.12%
 
47%
 
 
 
 
 
 
Purchased credit-impaired (“PCI”) loans totaled $32.8 million at September 30, 2016, as compared to $33.1 million at December 31, 2015, and include $4.9 million of PCI loans acquired as part of the Hopewell Valley acquisition. The remaining $27.9 million of PCI loans were primarily acquired as part of a transaction with the Federal Deposit Insurance Corporation. The Company accreted interest income of $4.0 million for the nine months ended September 30, 2016, compared to $3.3 million for the nine months ended September 30, 2015 related to the PCI loans.
   

44


Total liabilities increased $521.3 million, or 19.7%, to $3.16 billion at September 30, 2016, from $2.64 billion at December 31, 2015.  The increase was primarily attributable to an increase in deposits of $576.1 million, partially offset by decreases in borrowed funds of $63.7 million, due to a shift in our balance sheet funding strategy. The increase in deposits was primarily due to $456.2 million of deposits acquired from Hopewell Valley.
    
Deposits increased $576.1 million, or 28.1%, to $2.63 billion at September 30, 2016, as compared to $2.05 billion at December 31, 2015. The increase was attributable to increases of $54.2 million in certificates of deposit accounts, $43.4 million in savings accounts, $203.7 million in money market accounts, and $274.8 million in transaction accounts.  
 
Borrowings and securities sold under agreements to repurchase decreased by $63.7 million, or 11.4%, to $494.4 million at September 30, 2016, from $558.1 million at December 31, 2015.  Management utilizes borrowings to mitigate interest rate risk, for short-term liquidity, and to a lesser extent as part of leverage strategies.  The following is a table of term borrowing maturities (excluding capitalized leases and overnight borrowings) and the weighted average rate by year at September 30, 2016 (dollars in thousands): 
Year
 
Amount
 
Weighted Average Rate
2016
 
$37,910
 
1.51%
2017
 
165,003
 
1.22%
2018
 
142,715
 
1.66%
2019
 
93,502
 
1.47%
2020
 
45,000
 
1.79%
 
 
$484,130
 
1.48%
 
Total stockholders’ equity increased by $60.7 million to $620.5 million at September 30, 2016, from $559.8 million at December 31, 2015, primarily due to common stock issued for the purchase of Hopewell Valley, net income earned for the period, and an increase in unrealized gains on our securities-available-for sale portfolio, partially offset by dividends paid to stockholders. The Company issued 2,707,381 shares of common stock in the Hopewell Valley acquisition at a price of $15.41, which resulted in a $41.7 million increase in stockholders' equity.
 
Comparison of Operating Results for the Nine Months Ended September 30, 2016 and 2015
 
Net income. Net income was $17.9 million and $14.0 million for the nine months ended September 30, 2016, and September 30, 2015, respectively. Net income for the nine months ended September 30, 2016, included merger-related expenses of $3.9 million ($2.4 million after tax) associated with the acquisition of Hopewell Valley, which was completed on January 8, 2016. Net income for the nine months ended September 30, 2015, included a tax charge of $795,000 related to the write-down of deferred tax assets as a result of New York City tax reforms enacted in April 2015, and merger expenses of $437,000 related to Hopewell Valley. Other significant variances from the comparable prior year period are as follows: a $15.8 million increase in net interest income, a $117,000 decrease in the provision for loan losses, a $1.7 million increase in non-interest income, a $12.7 million increase in non-interest expense, and a $881,000 increase in income tax expense.

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

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

45


The decrease in interest expense on borrowings was attributed to a decrease in the average balances of borrowings of $141.9 million, or 22.5%, to $489.3 million for the nine months ended September 30, 2016, from $631.2 million for the nine months ended September 30, 2015, partially offset by a one basis point increase in the cost of borrowings to 1.52% for the nine months ended September 30, 2015
Net Interest Income. Net interest income for the nine months ended September 30, 2016 increased $15.8 million, or 25.9%, primarily due to a $555.0 million, or 19.3%, increase in our average interest-earning assets and a 16 basis point increase in our net interest margin to 2.99%. The increase in average interest-earning assets was primarily attributable to an increase in the average balance of loans outstanding of $652.8 million, partially offset by a decrease in average mortgage-backed securities of $107.0 million. Yields earned on interest-earning assets increased eleven basis points to 3.62% for the nine months ended September 30, 2016, from 3.51% for the nine months ended September 30, 2015. The cost of interest-bearing liabilities decreased seven basis points to 0.81% for the nine months ended September 30, 2016 as compared to 0.88% for the comparable prior year period.
 
Provision for Loan Losses. The provision for loan losses decreased by $117,000 to $355,000 for the nine months ended September 30, 2016, from $472,000 for the nine months ended September 30, 2015, primarily due to an improvement in asset quality, including declines in non-performing and delinquent loans. Acquired loans, including those acquired from Hopewell Valley, are valued at estimated fair value on the date of acquisition, with no initial related allowance for loan losses. Net charge-offs were $785,000 for the nine months ended September 30, 2016, compared to net charge-offs of $1.1 million for the nine months ended September 30, 2015. Net charge-offs in the nine months ended September 30, 2015, were primarily related to five previously impaired loans to one borrower that were restructured during the first quarter of 2015 and subsequently sold in the fourth quarter of 2015. These loans had existing specific reserves associated with them that adequately covered the charge-offs, resulting in no material effect on the provision for loan losses for the nine months ended September 30, 2015.

Non-interest Income. Non-interest income increased $1.7 million, or 28.6%, to $7.4 million for the nine months ended September 30, 2016, from $5.8 million for the nine months ended September 30, 2015, primarily due to increases in fees and service charges for customers of $679,000, income on bank owned life insurance of $172,000, and gains on securities transactions, net, of $946,000. These increases were partially offset by a decrease in other income of $144,000, primarily related to a realized gain on the sale of an other real estate owned property (OREO) during the nine months ended September 30, 2015. Securities gains, net, in the nine months ended September 30, 2016, included gains of $389,000 related to the Company’s trading portfolio, while the comparative 2015 period included losses of $390,000 related to the Company’s trading portfolio. The trading portfolio is utilized to fund the Company’s deferred compensation obligation to certain employees and directors of the Company's deferred compensation plan (the Plan). The participants of this Plan, at their election, defer a portion of their compensation. Gains and losses on trading securities have no effect on net income since participants benefit from, and bear the full risk of, changes in the trading securities market values. Therefore, the Company records an equal and offsetting amount in compensation expense, reflecting the change in the Company’s obligations under the Plan.
   
Non-interest Expense. Non-interest expense increased $12.7 million, or 29.1%, to $56.4 million for the nine months ended September 30, 2016, from $43.7 million for the nine months ended September 30, 2015, primarily due to: (1) an $8.4 million increase in compensation and employee benefits largely driven by increased salary and benefit expenses attributable to the addition of Hopewell Valley employees and general merit-related salary increases effective January 1, 2016, charges of $2.3 million related to severance, retention, and change-in-control compensation associated with the Hopewell Valley acquisition, and an increase in stock compensation expense related to the 2014 Equity Incentive Plan (the "2014 EIP"); (2) a $992,000 increase in occupancy expense due to the addition of nine Hopewell Valley branches; (3) a $2.1 million increase in data processing costs, of which approximately $1.1 million was due to conversion costs associated with the Hopewell Valley acquisition; (4) an increase in professional fees of $375,000, primarily related to the Hopewell Valley acquisition; and (5) an $835,000 increase in other expense, largely due to an increase in Directors’ equity awards associated with the 2014 EIP, and increases in core deposit premium amortization and general office expenses related to the Hopewell Valley acquisition. These increases were partially offset by a decrease in OREO expenses.

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

46


The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated.
ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
 
For the Nine Months Ended
 
September 30, 2016
 
September 30, 2015
 
Average Outstanding Balance
 
Interest
 
Average Yield/ Rate (1)
 
Average Outstanding Balance
 
Interest
 
Average Yield/ Rate (1)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans (2)
$
2,730,006

 
$
82,792

 
4.05
%
 
$
2,077,241

 
$
64,034

 
4.12
%
Mortgage-backed securities (3)
538,568

 
8,322

 
2.06

 
645,543

 
10,036

 
2.08

Other securities (3)
57,030

 
662

 
1.55

 
52,026

 
292

 
0.75

Federal Home Loan Bank of New York stock
25,159

 
861

 
4.57

 
26,521

 
905

 
4.56

Interest-earning deposits in financial institutions
77,035

 
225

 
0.39

 
71,479

 
93

 
0.17

Total interest-earning assets
3,427,798

 
92,862

 
3.62

 
2,872,810

 
75,360

 
3.51

Non-interest-earning assets
262,748

 
 
 
 
 
219,555

 
 
 
 
Total assets
$
3,690,546

 
 
 
 
 
$
3,092,365

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Savings, NOW, and money market accounts
$
1,594,088

 
$
5,773

 
0.48
%
 
$
1,097,582

 
$
3,416

 
0.42
%
Certificates of deposit
579,227

 
4,899

 
1.13

 
485,647

 
3,957

 
1.09

Total interest-bearing deposits
2,173,315

 
10,672

 
0.66

 
1,583,229

 
7,373

 
0.62

Borrowed funds
489,300

 
5,570

 
1.52

 
631,245

 
7,145

 
1.51

Total interest-bearing liabilities
2,662,615

 
16,242

 
0.81

 
2,214,474

 
14,518

 
0.88

Non-interest bearing deposit accounts
367,454

 
 
 
 
 
262,804

 
 
 
 
Accrued expenses and other liabilities
49,825

 
 
 
 
 
39,309

 
 
 
 
Total liabilities
3,079,894

 
 
 
 
 
2,516,587

 
 
 
 
Stockholders' equity
610,652

 
 
 
 
 
575,778

 
 
 
 
Total liabilities and stockholders' equity
$
3,690,546

 
 
 
 
 
$
3,092,365

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
$
76,620

 
 
 
 
 
$
60,842

 
 
Net interest rate spread (4)
 
 
 
 
2.80
%
 
 
 
 
 
2.63
%
Net interest-earning assets (5)
$
765,183

 
 
 
 
 
$
658,336

 
 
 
 
Net interest margin (6)
 
 
 
 
2.99
%
 
 
 
 
 
2.83
%
Average interest-earning assets to interest-bearing liabilities
 
 
 
 
128.74
%
 
 
 
 
 
129.73
%
 
 
 
(1)
Average yields and rates are annualized.
(2)
Includes non-accruing loans.
(3)
Securities available-for-sale are reported at amortized cost.
(4)
Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(5)
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(6)
Net interest margin represents net interest income divided by average total interest-earning assets.


47


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

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

Interest Expense. Interest expense increased $277,000, or 5.5%, to $5.3 million for the quarter ended September 30, 2016, from $5.0 million for the quarter ended September 30, 2015. The increase was due to an increase of $704,000 in interest expense on deposits, partially offset by a decrease of $427,000 in interest expense on borrowings.  The increase in interest expense on deposits was attributed to an increase in the average balance of interest-bearing deposits of $524.9 million, or 30.6%, to $2.24 billion for the quarter ended September 30, 2016, from $1.71 billion for the quarter ended September 30, 2015, partially offset by a three basis point decrease in the cost of interest-bearing deposits to 0.63% from 0.66%. The decrease in interest expense on borrowings was attributed to a decrease in the average balances of borrowings of $98.4 million, or 17.4%, to $466.5 million for the quarter ended September 30, 2016, from $564.9 million for the quarter ended September 30, 2015, and a four basis point decrease in the cost of borrowings to 1.47%, from 1.51% for the quarter ended September 30, 2015
Net Interest Income. Net interest income for the quarter ended September 30, 2016increased $5.7 million, or 27.6%, primarily due to a $577.7 million, or 19.7%, increase in average interest-earning assets and a 19 basis point increase in our net interest margin to 2.98%. The increase in average interest-earning assets was primarily attributable to an increase in average loans outstanding of $635.0 million and an increase in average other securities of $22.3 million, partially offset by a decrease in average mortgage-backed securities of $86.8 million. Yields earned on interest-earning assets increased 11 basis points to 3.58% for the quarter ended September 30, 2016, from 3.47% for the quarter ended September 30, 2015. The cost of interest-bearing liabilities decreased nine basis points to 0.78% for the current quarter as compared to 0.87% for the comparable prior year quarter.
 
Provision for Loan Losses. The provision for loan losses increased by $272,000 to $472,000 for the quarter ended September 30, 2016, from $200,000 for the quarter ended September 30, 2015, primarily due to loan growth and higher net charge-offs during the quarter ended September 30, 2016. Net charge-offs were $449,000 for the quarter ended September 30, 2016, compared to net charge-offs of $61,000 for the quarter ended September 30, 2015. Acquired loans, including those acquired from Hopewell Valley, were valued at estimated fair value on the date of acquisition, with no initial related allowance for loan losses.

Non-interest Income. Non-interest income increased $1.0 million, or 60.1%, to $2.7 million for the quarter ended September 30, 2016, from $1.7 million for the quarter ended September 30, 2015, primarily due to increases in fees and service charges for customers of $208,000, and gains on securities transactions, net, of $750,000. Securities gains, net, in the quarter ended September 30, 2016, included gains of $344,000 related to the Company’s trading portfolio described above, while the comparative 2015 quarter included losses of $401,000 related to the Company’s trading portfolio.
   
Non-interest Expense. Non-interest expense increased $2.5 million, or 17.0%, to $17.4 million for the quarter ended September 30, 2016, from $14.8 million for the quarter ended September 30, 2015, due primarily to: (1) a $2.3 million increase in compensation and employee benefits due to the addition of Hopewell Valley employees and general merit-related salary increases effective January 1, 2016; (2) a $304,000 increase in occupancy costs associated with the addition of nine Hopewell Valley branches; (3) a $793,000 increase in data processing costs of which $477,000 relate to contract termination and other conversion costs associated with the Hopewell Valley acquisition; and (4) a $488,000 decrease in other expenses, primarily due to lower Directors’ equity awards expense.
 

48


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

The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated.
ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
 
For the Three Months Ended
 
September 30, 2016
 
September 30, 2015
 
Average Outstanding Balance
 
Interest
 
Average Yield/ Rate (1)
 
Average Outstanding Balance
 
Interest
 
Average Yield/ Rate (1)
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Loans (2)
$
2,810,377

 
28,222

 
3.99
%
 
$
2,175,407

 
$
22,077

 
4.03
%
Mortgage-backed securities (3)
525,487

 
2,665

 
2.02

 
612,301

 
3,134

 
2.03

Other securities (3)
60,373

 
252

 
1.66

 
38,100

 
64

 
0.67

Federal Home Loan Bank of New York stock
24,667

 
302

 
4.87

 
24,285

 
265

 
4.33

Interest-earning deposits in financial institutions
82,016

 
84

 
0.41

 
75,148

 
30

 
0.16

Total interest-earning assets
3,502,920

 
31,525

 
3.58

 
2,925,241

 
25,570

 
3.47

Non-interest-earning assets
283,900

 
 
 
 
 
220,794

 
 
 
 
Total assets
$
3,786,820

 
 
 
 
 
$
3,146,035

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Savings, NOW, and money market accounts
$
1,654,778

 
$
1,877

 
0.45
%
 
$
1,164,887

 
$
1,360

 
0.46
%
Certificates of deposit
583,488

 
1,668

 
1.14

 
548,488

 
1,481

 
1.07

Total interest-bearing deposits
2,238,266

 
3,545

 
0.63

 
1,713,375

 
2,841

 
0.66

Borrowed funds
466,476

 
1,729

 
1.47

 
564,898

 
2,156

 
1.51

Total interest-bearing liabilities
2,704,742

 
5,274

 
0.78

 
2,278,273

 
4,997

 
0.87

Non-interest bearing deposits
400,856

 
 
 
 
 
258,476

 
 
 
 
Accrued expenses and other liabilities
62,104

 
 
 
 
 
44,840

 
 
 
 
Total liabilities
3,167,702

 
 
 
 
 
2,581,589

 
 
 
 
Stockholders' equity
619,118

 
 
 
 
 
564,446

 
 
 
 
Total liabilities and stockholders' equity
$
3,786,820

 
 
 
 
 
$
3,146,035

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net interest income
 
 
$
26,251

 
 
 
 
 
$
20,573

 
 
Net interest rate spread (4)
 
 
 
 
2.80
%
 
 
 
 
 
2.60
%
Net interest-earning assets (5)
$
798,178

 
 
 
 
 
$
646,968

 
 
 
 
Net interest margin (6)
 
 
 
 
2.98
%
 
 
 
 
 
2.79
%
Average interest-earning assets to interest-bearing liabilities
 
 
 
 
129.51
%
 
 
 
 
 
128.40
%
 
 
 
(1)
Average yields and rates are annualized.
(2)
Includes non-accruing loans.
(3)
Securities available-for-sale are reported at amortized cost.
(4)
Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.
(5)
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(6)
Net interest margin represents net interest income divided by average total interest-earning assets.




49




Asset Quality
 
PCI Loans
 
At September 30, 2016, 5.0% of PCI loans were past due 30 to 89 days, and 21.8% were past due 90 days or more, as compared to 7.9% and 21.4%, respectively, at December 31, 2015.
 
Originated and Acquired loans
 
The following table details total originated and acquired (but excluding PCI) non-accruing loans, non-performing loans, non-performing assets, troubled debt restructurings on which interest is accruing, and accruing loans 30 to 89 days delinquent at September 30, 2016, and December 31, 2015 (dollars in thousands):    
 
September 30, 2016
 
December 31, 2015
Non-accrual loans:
 
 
 
Real estate loans:
 
 
 
Commercial
$
6,705

 
$
5,232

One-to-four family residential
1,638

 
2,574

Construction and land

 
113

Multifamily
322

 
559

Home equity and lines of credit
97

 
329

Commercial and industrial
13

 

Total non-accrual loans:
8,775

 
8,807

Loans delinquent 90 days or more and still accruing:
 
 
 
Real estate loans:
 
 
 
Commercial
1,834

 

One-to-four family residential
10

 

Commercial and industrial

 
15

Total loans delinquent 90 days or more and still accruing
1,844

 
15

Total non-performing loans
10,619

 
8,822

Other real estate owned

 
45

Total non-performing assets
$
10,619

 
$
8,867

Non-performing loans to total loans held-for-investment, net
0.36
%
 
0.37
%
Non-performing assets to total assets
0.28
%
 
0.28
%
Loans subject to restructuring agreements and still accruing
$
22,732

 
$
22,284

Accruing loans 30 to 89 days delinquent
12,532

 
21,620

 
    


50


Accruing Loans 30 to 89 Days Delinquent
 
Loans 30 to 89 days delinquent and on accrual status totaled $12.5 million and $21.6 million at September 30, 2016, and December 31, 2015, respectively. The following table sets forth delinquencies for accruing loans by type and by amount at September 30, 2016, and December 31, 2015 (dollars in thousands):     
 
September 30, 2016
 
December 31, 2015
Real estate loans:
 
 
 
Commercial
$
6,317

 
$
13,957

One-to-four family residential
3,795

 
4,209

Multifamily
1,412

 
2,965

Home equity and lines of credit
569

 
374

Commercial and industrial loans
403

 
104

Other loans
36

 
11

Total delinquent accruing loans
$
12,532

 
$
21,620


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

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

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

The following table details the amounts and categories of the loans subject to restructuring agreements by loan type as of September 30, 2016, and December 31, 2015 (in thousands): 
 
September 30, 2016
 
At December 31, 2015
 
Non-Accruing
 
Accruing
 
Non-Accruing
 
Accruing
Troubled Debt Restructurings:
 
 
 
 
 
 
 
Real estate loans:
 
 
 
 
 
 
 
Commercial
$
1,878

 
$
17,799

 
$
2,657

 
$
17,885

One-to-four family residential
783

 
2,963

 
1,694

 
2,053

Multifamily

 
1,524

 

 
1,876

Home equity and lines of credit

 
341

 

 
354

Commercial and industrial loans

 
105

 

 
116

 
$
2,661

 
$
22,732

 
$
4,351

 
$
22,284

 


51


Liquidity and Capital Resources
Liquidity.  The overall objective of our liquidity management is to ensure the availability of sufficient funds to meet financial commitments and to take advantage of lending and investment opportunities.  Northfield Bank manages liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.
Northfield Bank's primary sources of funds are deposits, principal and interest payments on loans and securities, borrowed funds, the proceeds from maturing securities and short-term investments, and to a lesser extent the proceeds from the sales of loans and securities and wholesale borrowings.  The scheduled amortization of loans and securities, as well as proceeds from borrowed funds, are predictable sources of funds.  Other funding sources, however, such as deposit inflows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition.  Northfield Bank is a member of the FHLB, which provides an additional source of short-term and long-term funding.  Northfield Bank also has short-term borrowing capabilities with the Federal Reserve Bank.  Northfield Bank’s borrowed funds, excluding capitalized lease obligations and floating rate advances, were $484.1 million at September 30, 2016, and had a weighted average interest rate of 1.48%.  A total of $165.9 million of these borrowings will mature in less than one year.  Borrowed funds, excluding capitalized lease obligations and floating rate advances, were $551.1 million at December 31, 2015.  Northfield Bank has the ability to obtain additional funding from the FHLB and Federal Reserve Bank discount window of approximately $787.7 million utilizing unencumbered securities of $166.4 million and loans of $700.0 million at September 30, 2016.  Northfield Bank expects to have sufficient funds available to meet current commitments in the normal course of business.
Northfield Bancorp, Inc. (standalone) is a separate legal entity from Northfield Bank and must provide for its own liquidity to pay dividends, repurchase its stock, and for other corporate purposes. Northfield Bancorp, Inc.'s primary source of liquidity is dividend payments from Northfield Bank. At September 30, 2016, Northfield Bancorp, Inc. (stand alone) had liquid assets of approximately $12.8 million.
Capital Resources.  At September 30, 2016, and December 31, 2015, as set forth in the following table, Northfield Bank exceeded all of its regulatory capital requirements to which it was subject at such dates.    
 
Actual
 
For Capital Adequacy Purposes (1)
 
For Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2016:
 
 
 
 
 
Common equity Tier 1 capital (to risk-weighted assets)
17.57%
 
5.125%
 
6.50%
Tier 1 leverage
14.49%
 
4.000%
 
5.00%
Tier I capital (to risk-weighted assets)
17.57%
 
6.625%
 
8.00%
Total capital (to risk-weighted assets)
18.37%
 
8.625%
 
10.00%
As of December 31, 2015:
 
 
 
 
 
Common equity Tier 1 capital (to risk-weighted assets)
20.19%
 
4.50%
 
6.50%
Tier 1 leverage
15.72%
 
4.00%
 
5.00%
Tier I capital (to risk-weighted assets)
20.19%
 
6.00%
 
8.00%
Total capital (to risk-weighted assets)
21.21%
 
8.00%
 
10.00%
 
 
 
 
 
 
(1) Includes capital conservation buffer at September 30, 2016
 
 
 
 
 
  On January 1, 2015, a final rule issued by the federal bank regulatory agencies became effective which revised the leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act.  Among other things, the new rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on non-accrual status, and to certain commercial real estate facilities that finance the acquisition, development, or construction of real property.  The final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out election is exercised.  The rule limits a banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement is being phased in incrementally, starting at 0.625% on January 1, 2016, and increasing to 1.25% on January 1, 2017, 1.875% on January 1, 2018, and 2.5% on January 1, 2019, when the full capital conservation buffer requirement will be effective.  The

52


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

At September 30, 2016, and December 31, 2015, as set forth in the following table, Northfield Bancorp, Inc. exceeded all of its regulatory capital requirements to which it was subject at such dates. 
 
Actual
 
For Capital Adequacy Purposes (1)
 
For Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2016:
 
 
 
 
 
Common equity Tier 1 capital (to risk-weighted assets)
18.77%
 
5.125%
 
6.50%
Tier 1 leverage
15.48%
 
4.000%
 
5.00%
Tier I capital (to risk-weighted assets)
18.77%
 
6.625%
 
8.00%
Total capital (to risk-weighted assets)
19.58%
 
8.625%
 
10.00%
As of December 31, 2015:
 
 
 
 
 
Common equity Tier 1 capital (to risk-weighted assets)
22.15%
 
4.50%
 
6.50%
Tier 1 leverage
17.25%
 
4.00%
 
5.00%
Tier I capital (to risk-weighted assets)
22.15%
 
6.00%
 
8.00%
Total capital (to risk-weighted assets)
23.17%
 
8.00%
 
10.00%
 
 
 
 
 
 
(1) Includes capital conservation buffer at September 30, 2016
 
 
 
 
 

Off-Balance Sheet Arrangements and Contractual Obligations
In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with U.S. GAAP, are not recorded in the financial statements.  These transactions primarily relate to lending commitments. These arrangements are not expected to have a material impact on the Company's results of operations or financial condition.
The following table shows the contractual obligations of the Company by expected payment period as of September 30, 2016:
Contractual Obligation
 
Total
 
Less than One Year
 
One to less than Three Years
 
Three to less than Five Years
 
Five Years and greater
 
 
(in thousands)
Debt obligations (excluding capitalized leases)
 
$
484,130

 
$
165,913

 
$
238,217

 
$
80,000

 
$

Commitments to originate loans
 
72,458

 
72,458

 

 

 

Commitments to fund unused lines of credit
 
73,083

 
73,083

 

 

 


Commitments to fund unused lines of credit are agreements to lend additional funds to customers as long as there have been no violations of any of the conditions established in the agreements (original or restructured).  Commitments to originate loans generally have a fixed expiration or other termination clauses, which may or may not require payment of a fee.  Since some of these loan commitments are expected to expire without being drawn upon, total commitments do not necessarily represent future cash requirements.
 
For further information regarding our off-balance sheet arrangements and contractual obligations, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

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ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management of Market Risk
General.  A majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage-related assets and loans, generally have longer maturities than our liabilities, which consist primarily of deposits and wholesale borrowings. As a result, a principal part of our business strategy involves managing interest rate risk and limiting the exposure of our net interest income to changes in market interest rates. Accordingly, our board of directors has established a management risk committee, comprised of our Chief Investment Officer, who chairs this Committee, our Chief Executive Officer, our President/Chief Operating Officer, our Chief Financial Officer, our Chief Lending Officer, our Executive Vice President of Operations and our Executive Vice President of Branch Administration and Business Development. This committee is responsible for, among other things, evaluating the interest rate risk inherent in our assets and liabilities, for recommending to the risk management committee of our board of directors the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.
 
We seek to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates.  As part of our ongoing asset-liability management, we currently use the following strategies to manage our interest rate risk:

originating multifamily loans and commercial real estate loans that generally tend to have shorter maturities than one-to-four family residential real estate loans and have higher interest rates that generally reset from five to ten years;
investing in shorter term investment grade corporate securities and mortgage-backed securities; and
obtaining general financing through lower-cost core deposits and longer-term FHLB advances and repurchase agreements.
 
Shortening the average term of our interest-earning assets by increasing our investments in shorter-term assets, as well as originating loans with variable interest rates, helps to match the maturities and interest rates of our assets and liabilities better, thereby reducing the exposure of our net interest income to changes in market interest rates.
 
Net Portfolio Value Analysis.  We compute amounts by which the net present value of our assets and liabilities (net portfolio value or NPV) would change in the event market interest rates changed over an assumed range of rates.  Our simulation model uses a discounted cash flow analysis to measure the interest rate sensitivity of NPV.  Depending on current market interest rates, we estimate the economic value of these assets and liabilities under the assumption that interest rates experience an instantaneous and sustained increase of 100, 200, 300, or 400 basis points, or a decrease of 100 and 200 basis points, which is based on the current interest rate environment.  A basis point equals one-hundredth of one percent, and 100 basis points equals one percent.  An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below. 
 
Net Interest Income Analysis.  In addition to NPV calculations, we analyze our sensitivity to changes in interest rates through our net interest income model.  Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings.  In our model, we estimate what our net interest income would be for a twelve-month period.  Depending on current market interest rates we then calculate what the net interest income would be for the same period under the assumption that interest rates experience an instantaneous and sustained increase or decrease of 100, 200, 300, or 400 basis points, or a decrease of 100 and 200 basis points, which is based on the current interest rate environment.

The following tables set forth, as of September 30, 2016, and December 31, 2015, our calculation of the estimated changes in our NPV, NPV ratio, and percent change in net interest income that would result from the designated instantaneous and sustained changes in interest rates (dollars in thousands).  Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit repricing characteristics including decay rates, and correlations to movements in interest rates, and should not be relied on as indicative of actual results.

54


 
 
NPV at September 30, 2016
 
 
Change in Interest Rates (basis points)
 
Estimated Present Value of Assets
 
Estimated Present Value of Liabilities
 
Estimated NPV
 
Estimated Change in NPV
 
Estimated Change in NPV %
 
Estimated NPV/Present Value of Assets Ratio
 
Net Interest Income Percent Change
+400
 
$
3,371,438

 
$
2,842,418

 
$
529,020

 
$
(173,094
)
 
(24.65
)%
 
15.69
%
 
(16.75
)%
+300
 
3,465,504

 
2,898,387

 
567,117

 
(134,997
)
 
(19.23
)
 
16.36

 
(12.33
)
+200
 
3,570,609

 
2,956,858

 
613,751

 
(88,363
)
 
(12.59
)
 
17.19

 
(7.89
)
+100
 
3,674,336

 
3,017,987

 
656,349

 
(45,765
)
 
(6.52
)
 
17.86

 
(3.78
)
 
3,784,054

 
3,081,940

 
702,114

 

 

 
18.55

 

(100)
 
3,930,009

 
3,152,413

 
777,596

 
75,482

 
10.75

 
19.79

 
0.05

(200)
 
4,135,453

 
3,197,038

 
938,415

 
236,301

 
33.66

 
22.69

 
(2.23
)
     
 
 
NPV at December 31, 2015
 
 
Change in Interest Rates (basis points)
 
Estimated Present Value of Assets
 
Estimated Present Value of Liabilities
 
Estimated NPV
 
Estimated Change In NPV
 
Estimated Change in NPV %
 
Estimated NPV/Present Value of Assets Ratio
 
Net Interest Income Percent Change
+400
 
$
2,831,359

 
$
2,325,221

 
$
506,138

 
$
(177,510
)
 
(25.97
)%
 
17.88
%
 
(19.87
)%
+300
 
2,919,176

 
2,375,931

 
543,245

 
(140,403
)
 
(20.54
)
 
18.61

 
(14.74
)
+200
 
3,015,892

 
2,428,896

 
586,996

 
(96,652
)
 
(14.14
)
 
19.46

 
(9.61
)
+100
 
3,116,363

 
2,484,252

 
632,111

 
(51,537
)
 
(7.54
)
 
20.28

 
(4.73
)
 
3,225,792

 
2,542,144

 
683,648

 

 

 
21.19

 

(100)
 
3,364,070

 
2,606,262

 
757,808

 
74,160

 
10.85

 
22.53

 
0.77

(200)
 
3,541,395

 
2,659,965

 
881,430

 
197,782

 
28.93

 
24.89

 
(0.84
)

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

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


55


ITEM 4.    CONTROLS AND PROCEDURES 
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of September 30, 2016.  Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
 
During the three months ended September 30, 2016, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

56


PART II

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

ITEM 1A.  RISK FACTORS
During the three months ended September 30, 2016, there have been no material changes to the risk factors as previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 and our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, each as filed with the SEC.
 
ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a)
Unregistered Sale of Equity Securities.  There were no sales of unregistered securities during the period covered by this report.
(b)
Use of Proceeds.  Not applicable
(c)
Repurchases of Our Equity Securities.  
The following table shows the Company’s repurchase of its common stock for the three months ended September 30, 2016.
Period
 
(a) Total Number of Shares Purchased (1)
 
(b) Average Price Paid per Share
 
(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
 
(d) Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs (2)
July 1, 2016 through July 31, 2016
 

 
$

 

 

August 1, 2016 through August 31, 2016
 
365

 
$
15.05

 

 

September 1, 2016 through September 30, 2016
 
404

 
$
15.92

 

 

Total
 
769

 
$
15.51

 

 
 
(1) Share repurchases are due to net settlement arrangements whereby shares are withheld to pay taxes incurred upon exercise of options or upon vesting of restricted shares, or to pay the exercise price of the stock option.
(2) The repurchase program permits shares to be repurchased in open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. There were no shares remaining to be purchased at September 30, 2016.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES
None

ITEM  4.     MINE SAFETY DISCLOSURES
Not applicable

ITEM 5.     OTHER INFORMATION
None

ITEM 6.      EXHIBITS
The exhibits required by Item 601 of Regulation S-K are included with this Quarterly Report on Form 10-Q and are listed on the “Index to Exhibits” immediately following the Signatures.

57


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
NORTHFIELD BANCORP, INC.
(Registrant)
 
 
Date: November 9, 2016
/s/   John W. Alexander
John W. Alexander
Chairman and Chief Executive Officer
 
/s/   William R. Jacobs
William R. Jacobs
Chief Financial Officer
(Principal Financial and Accounting Officer)

58


INDEX TO EXHIBITS
  
Exhibit
 
 
Number
 
Description
 
31.1

 
Certification of John W. Alexander, Chairman and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
 
 
 
31.2

 
Certification of William R. Jacobs, Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
 
 
 
32

 
Certification of John W. Alexander, Chairman and Chief Executive Officer, and William R. Jacobs, Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
101

 
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements
 


59