Northfield Bancorp, Inc. - FORM 10-Q

Attached files

file	filename
EX-32 - EXHIBIT 32 - Northfield Bancorp, Inc.	nfbk2017-3x31ex32.htm
EX-31.2 - EXHIBIT 31.2 - Northfield Bancorp, Inc.	nfbk2017-3x31ex312.htm
EX-31.1 - EXHIBIT 31.1 - Northfield Bancorp, Inc.	nfbk2017-3x31ex311.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 March 31, 2017


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

SECURITIES EXCHANGE ACT OF 1934

For transition period from to



Commission File Number		001-35791

NORTHFIELD BANCORP, INC.

(Exact name of registrant as specified in its charter)



Delaware		80-0882592
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)



581 Main Street, Woodbridge, New Jersey		07095
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (732) 499-7200

Not Applicable

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required and post such files). Yes ý No o.



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o	Accelerated filer ý
Non-accelerated filer o (Do not check if smaller reporting company)	Smaller reporting company o
	Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

48,850,503 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of April 28, 2017.

NORTHFIELD BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents



		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	52
Item 4.	Controls and Procedures	54

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	55
	SIGNATURES	56

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

NORTHFIELD BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited) (In thousands, except share amounts)



	March 31, 2017			December 31, 2016
ASSETS:
Cash and due from banks	$	14,312		$	18,412
Interest-bearing deposits in other financial institutions	36,994			77,673
Total cash and cash equivalents	51,306			96,085
Trading securities	8,396			7,857
Securities available-for-sale, at estimated fair value
(encumbered $7,860 at March 31, 2017, and $11,786 at December 31, 2016)	471,165			498,897
Securities held-to-maturity, at amortized cost	10,092			10,148
(estimated fair value of $10,040 at March 31, 2017, and $10,118 at December 31, 2016) (encumbered of $0 at March 31, 2017, and $2,108 at December 31, 2016)
Originated loans held-for-investment, net	2,243,870			2,144,346
Loans acquired	760,698			793,240
Purchased credit-impaired (PCI) loans held-for-investment	29,717			30,498
Loans held-for-investment, net	3,034,285			2,968,084
Allowance for loan losses	(25,284		)	(24,595		)
Net loans held-for-investment	3,009,001			2,943,489
Accrued interest receivable	9,794			9,714
Bank owned life insurance	147,752			148,047
Federal Home Loan Bank of New York stock, at cost	26,293			25,123
Premises and equipment, net	26,183			26,910
Goodwill	38,411			38,411
Other real estate owned	850			850
Other assets	44,713			44,563
Total assets	$	3,843,956		$	3,850,094

LIABILITIES AND STOCKHOLDERS’ EQUITY:
LIABILITIES:
Deposits	$	2,676,270		$	2,713,587
Borrowed funds	495,443			473,206
Advance payments by borrowers for taxes and insurance	15,309			12,331
Accrued expenses and other liabilities	26,553			29,774
Total liabilities	3,213,575			3,228,898

STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 25,000,000 shares authorized, none issued or outstanding	—			—
Common stock, $0.01 par value: 150,000,000 shares authorized, 60,933,707 shares issued at
March 31, 2017 and December 31, 2016, 48,843,879 and 48,526,658 outstanding at March 31, 2017, and December 31, 2016, respectively	609			609
Additional paid-in-capital	542,852			547,910
Unallocated common stock held by employee stock ownership plan	(23,212		)	(23,466		)
Retained earnings	277,406			268,226
Accumulated other comprehensive loss	(3,728		)	(4,332		)
Treasury stock at cost; 12,089,828 and 12,407,049 shares at March 31, 2017, and December 31, 2016, respectively	(163,546		)	(167,751		)
Total stockholders’ equity	630,381			621,196
Total liabilities and stockholders’ equity	$	3,843,956		$	3,850,094

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

NORTHFIELD BANCORP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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



	Three Months Ended March 31,
	2017		2016
Interest income:
Loans	$	29,008	$	26,888
Mortgage-backed securities	2,356		2,769
Other securities	252		173
Federal Home Loan Bank of New York dividends	371		277
Deposits in other financial institutions	82		62
Total interest income	32,069		30,169
Interest expense:
Deposits	3,620		3,424
Borrowings	1,772		2,017
Total interest expense	5,392		5,441
Net interest income	26,677		24,728
Provision (recovery) for loan losses	372		(131		)
Net interest income after provision for loan losses	26,305		24,859
Non-interest income:
Fees and service charges for customer services	1,218		1,198
Income on bank owned life insurance	2,458		989
Gains on securities transactions, net	408		2
Other	63		40
Total non-interest income	4,147		2,229
Non-interest expense:
Compensation and employee benefits	9,972		11,699
Occupancy	2,957		3,062
Furniture and equipment	305		354
Data processing	1,161		1,859
Professional fees	870		1,241
FDIC insurance	258		475
Other	2,021		2,809
Total non-interest expense	17,544		21,499
Income before income tax expense	12,908		5,589
Income tax expense	2,960		1,929
Net income	$	9,948	$	3,660
Net income per common share:
Basic	$	0.22	$	0.08
Diluted	$	0.21	$	0.08








See accompanying notes to unaudited consolidated financial statements.

Table of Contents




NORTHFIELD BANCORP, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - (Continued) (Unaudited) (In thousands)
	Three Months Ended March 31,
	2017			2016
Net Income	$	9,948		$	3,660
Other comprehensive income:
Unrealized gains (losses) on securities:
Net unrealized holding gains on securities	979			7,277
Less: reclassification adjustment for net gains included in net income (included in gains (losses) on securities transactions, net)	—			(51		)
Net unrealized gains	979			7,226
Post retirement benefit adjustment	27			—
Other comprehensive income, before tax	1,006			7,226
Income tax expense related to net unrealized holding gains on securities	(391		)	(2,915		)
Income tax expense related to reclassification adjustment for gains included in net income	—			20
Income tax expense related to post retirement benefit adjustment	(11		)	—
Other comprehensive income, net of tax	604			4,331
Comprehensive income	$	10,552		$	7,991

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

NORTHFIELD BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2017 and 2016

(Unaudited) (In thousands, except share data)





	Common Stock
	Shares Outstanding		Par Value		Additional Paid-in Capital			Unallocated Common Stock Held by the Employee Stock Ownership Plan			Retained Earnings			Accumulated Other Comprehensive Income (loss) Net of tax			Treasury Stock			Total Stockholders' Equity
Balance at December 31, 2015	45,565,540		$	582	$	501,540		$	(24,664	)	$	256,170		$	(2,986	)	$	(170,863	)	$	559,779
Net income											3,660									3,660
Other comprehensive income, net of tax														4,331						4,331
Acquisition of Hopewell Valley Community Bank	2,707,381		27		41,694															41,721
ESOP shares allocated or committed to be released					232			258												490
Stock compensation expense					2,224															2,224
Additional tax benefit on equity awards					695															695
Exercise of stock options, net	148,548				(2,031		)										2,031			—
Cash dividends declared ($0.07 per common share)											(3,175		)							(3,175		)
Treasury stock (average cost of $16.20 per share)	(59,413	)															(990		)	$	(990	)
Balance at March 31, 2016	48,362,056		$	609	$	544,354		$	(24,406	)	$	256,655		$	1,345		$	(169,822	)	$	608,735

Balance at December 31, 2016	48,526,658		$	609	$	547,910		$	(23,466	)	$	268,226		$	(4,332	)	$	(167,751	)	$	621,196
Net income											9,948									9,948
Other comprehensive income, net of tax														604						604
Cumulative effect of change in accounting principle - adoption of ASU No. 2016-09					(2,898		)				2,898									—
ESOP shares allocated or committed to be released					317			254												571
Stock compensation expense					1,636															1,636
Exercise of stock options, net	317,221				(4,113		)										4,205			92
Cash dividends declared ($0.08 per common share)											(3,666		)							(3,666		)
Balance at March 31, 2017	48,843,879		$	609	$	542,852		$	(23,212	)	$	277,406		$	(3,728	)	$	(163,546	)	$	630,381

See accompanying notes to unaudited consolidated financial statements.

Table of Contents

NORTHFIELD BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited) (In thousands)



	Three Months Ended March 31,
	2017			2016
Cash flows from operating activities:
Net income	$	9,948		$	3,660
Adjustments to reconcile net income to net cash provided by operating activities:
Provision (recovery) for loan losses	372			(131		)
ESOP and stock compensation expense	2,207			2,714
Excess tax benefit on equity awards	1,708			—
Depreciation	838			885
Amortization of premiums, and deferred loan costs, net of (accretion) of discounts, and deferred loan fees	500			526
Amortization intangible assets	98			114
Income on bank owned life insurance	(2,458		)	(989		)
Gains on securities transactions, net	(408		)	(2		)
Net purchases of trading securities	(131		)	(449		)
(Increase) decrease in accrued interest receivable	(80		)	488
Decrease in other assets	422			158
Decrease in accrued expenses and other liabilities	(3,221		)	(1,239		)
Net cash provided by operating activities	9,795			5,735
Cash flows from investing activities:
Net increase in loans receivable	(66,192		)	(17,233		)
Purchases of Federal Home Loan Bank of New York stock	(5,400		)	(2,250		)
Redemptions of Federal Home Loan Bank of New York stock	4,230			3,600
Purchases of securities available-for-sale	(4		)	—
Principal payments and maturities on securities available-for-sale	28,527			38,559
Principal payments and maturities on securities held-to-maturity	52			44
Proceeds from sale of securities available-for-sale	—			26,916
Purchases and improvements of premises and equipment	(111		)	(161		)
Net cash acquired in business combination	—			55,479
Net cash (used in) provided by investing activities	(38,898		)	104,954
Cash flows from financing activities:
Net (decrease) increase in deposits	(37,317		)	34,633
Dividends paid	(3,666		)	(3,175		)
Exercise of stock options	92			—
Purchase of employee restricted shares to fund statutory tax withholding	—			(990		)
Additional tax benefit on equity awards	—			695
Increase in advance payments by borrowers for taxes and insurance	2,978			2,104
Repayments under capital lease obligations	(54		)	(48		)
Proceeds from securities sold under agreements to repurchase and other borrowings	98,294			51,735
Repayments related to securities sold under agreements to repurchase and other borrowings	(76,003		)	(132,843		)
Net cash used in financing activities	(15,676		)	(47,889		)
Net (decrease) increase in cash and cash equivalents	(44,779		)	62,800
Cash and cash equivalents at beginning of period	96,085			51,853
Cash and cash equivalents at end of period	$	51,306		$	114,653

Table of Contents



NORTHFIELD BANCORP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued) (Unaudited) (In thousands)
	Three Months Ended March 31,
	2017			2016
Supplemental cash flow information:
Cash paid during the period for:
Interest	$	5,506		$	5,743
Income taxes	2,900			1,015
Non-cash transactions:
Loans charged-off/(recoveries), net	(316		)	261
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.

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Basis of Presentation

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

In the opinion of management, all adjustments (consisting solely of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the three months ended March 31, 2017, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2017 or for any other period. Whenever necessary, certain prior year amounts are reclassified to conform to the current year presentation.

In preparing the unaudited consolidated financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP), management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated statements of financial condition and results of operations for the periods indicated. Material estimates that are particularly susceptible to change are: the allowance for loan losses, the evaluation of goodwill and other intangible assets, impairment on investment securities, fair value measurements of assets and liabilities, and income taxes. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period they are deemed necessary. While management uses its best judgment, actual amounts or results could differ significantly from those estimates.

Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for the preparation of interim financial statements. The consolidated financial statements presented should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2016, of 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.

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

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



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

The purchase accounting for the Hopewell Valley transaction is complete, and is reflected in both the table above and the Company's Consolidated Financial Statements.

Fair Value Measurement of Assets Assumed and Liabilities Assumed

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

Cash and cash equivalents

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

Securities Available-for-Sale

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

Loans

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

To prepare the interest rate fair value analysis, loans were grouped by characteristics such as loan type, term, collateral and rate. Market rates for similar loans were obtained from various external data sources and reviewed by Company

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

management for reasonableness. The average of these rates was used as the fair value interest rate a market participant would utilize. A present value approach was utilized to calculate the interest rate fair value adjustment.

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

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

Other intangible assets

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

Deposits

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

Other borrowings

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

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

Note 3 – Securities Available-for-Sale

The following is a comparative summary of mortgage-backed securities, other debt securities, and other securities available-for-sale at March 31, 2017, and December 31, 2016 (in thousands):



	March 31, 2017
			Gross		Gross		Estimated
	Amortized		unrealized		unrealized		fair
	cost		gains		losses		value
Mortgage-backed securities:
Pass-through certificates:
Government sponsored enterprises (GSE)	$	210,840	$	2,623	$	2,710	$	210,753
Real estate mortgage investment conduits (REMICs):
GSE	216,041		248		6,112		210,177
Non-GSE	152		—		7		145
	427,033		2,871		8,829		421,075
Other debt securities:
Municipal bonds	2,151		12		2		2,161
Corporate bonds	45,345		237		232		45,350
	47,496		249		234		47,511
Other securities
Equity investments-mutual funds	1,344		—		15		1,329
Other	1,250		—		—		1,250
Total securities available-for-sale	$	477,123	$	3,120	$	9,078	$	471,165



	December 31, 2016
			Gross		Gross		Estimated
	Amortized		unrealized		unrealized		fair
	cost		gains		losses		value
Mortgage-backed securities:
Pass-through certificates:
GSE	$	225,047	$	2,800	$	3,298	$	224,549
REMICs:
GSE	230,500		259		6,466		224,293
Non-GSE	280		—		10		270
	455,827		3,059		9,774		449,112
Debt securities:
Municipal bonds	2,151		13		6		2,158
Corporate bonds	45,373		150		364		45,159
	47,524		163		370		47,317
Other securities:
Equity investments - mutual funds	1,233		—		15		1,218
Other	1,250		—		—		1,250
	2,483		—		15		2,468
Total securities available-for-sale	$	505,834	$	3,222	$	10,159	$	498,897

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following is a summary of the expected maturity distribution of debt securities available-for-sale, other than mortgage-backed securities, at March 31, 2017 (in thousands):



Available-for-sale	Amortized cost		Estimated fair value
Due in one year or less	$	1,735	$	1,733
Due after one year through five years	40,659		40,589
Due after five years through ten years	5,102		5,189
	$	47,496	$	47,511

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 months ended March 31, 2017, the Company had no gross proceeds on sales of securities available-for-sale. For the three months ended March 31, 2016, the Company had gross proceeds of $26.9 million on sales of securities available-for-sale, with gross realized gains of approximately $74,000 and gross realized losses of approximately $23,000. The Company recognized net gains of $408,000 on its trading securities portfolio during the three months ended March 31, 2017. The Company recognized net losses of $49,000 on its trading securities portfolio during the three months ended March 31, 2016. The Company did not recognize any other-than-temporary impairment charges during the three months ended March 31, 2017 or March 31, 2016.

Gross unrealized losses on mortgage-backed and other debt securities available-for-sale, and the estimated fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2017, and December 31, 2016, were as follows (in thousands):



	March 31, 2017
	Less than 12 months				12 months or more				Total
	Unrealized		Estimated		Unrealized		Estimated		Unrealized		Estimated
	losses		fair value		losses		fair value		losses		fair value
Mortgage-backed securities:
Pass-through certificates:
GSE	$	2,340	$	90,681	$	370	$	7,913	$	2,710	$	98,594
REMICs:
GSE	1,635		77,658		4,477		89,234		6,112		166,892
Non-GSE	—		—		7		144		7		144
Debt securities:
Municipal bonds	2		1,683		—		—		2		1,683
Corporate bonds	232		26,131		—		—		232		26,131
Equity investments - mutual funds	15		952		—		—		15		952
Total	$	4,224	$	197,105	$	4,854	$	97,291	$	9,078	$	294,396

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	December 31, 2016
	Less than 12 months				12 months or more				Total
	Unrealized		Estimated		Unrealized		Estimated		Unrealized		Estimated
	losses		fair value		losses		fair value		losses		fair value
Mortgage-backed securities:
Pass-through certificates:
GSE	$	2,703	$	121,878	$	595	$	8,402	$	3,298	$	130,280
REMICs:
GSE	1,622		75,586		4,844		97,726		6,466		173,312
Non-GSE	—		—		10		270		10		270
Debt securities:
Municipal bonds	6		1,679		—		—		6		1,679
Corporate bonds	364		26,022		—		—		364		26,022
Equity investments - mutual funds	15		947		—		—		15		947
Total	$	4,710	$	226,112	$	5,449	$	106,398	$	10,159	$	332,510

The Company held 20 pass-through mortgage-backed securities issued or guaranteed by GSEs, eight REMIC mortgage-backed securities issued or guaranteed by GSEs, and one REMIC mortgage-backed security not issued or guaranteed by a GSE that were in a continuous unrealized loss position of twelve months or greater at March 31, 2017. There were 17 pass-through mortgage-backed securities issued or guaranteed by GSEs, 12 REMIC mortgage-backed securities issued or guaranteed by a GSE, two municipal bonds, and five corporate bonds that were in an unrealized loss position of less than twelve months at March 31, 2017. All securities referred to above were rated investment grade at March 31, 2017. The declines in value relate to the general interest rate environment and are considered temporary. The securities cannot be prepaid in a manner that would result in the Company not receiving substantially all of its amortized cost. The Company neither has an intent to sell, nor is it more likely than not that the Company will be required to sell, the securities before the recovery of their amortized cost basis or, if necessary, maturity.

The fair values of our investment securities could decline in the future if the underlying performance of the collateral for the collateralized mortgage obligations or other securities deteriorates and our credit enhancement levels do not provide sufficient protections to our contractual principal and interest, which may result in other-than-temporary impairment in the future.

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

Note 4 – Securities Held-to-Maturity

The following is a summary of mortgage-backed securities held-to-maturity at March 31, 2017, and December 31, 2016 (in thousands):



	March 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities:
Pass-through certificates:
GSEs	$	10,092	$	22	$	74	$	10,040
Total securities held-to-maturity	$	10,092	$	22	$	74	$	10,040



	December 31, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Mortgage-backed securities:
Pass-through certificates:
GSEs	$	10,148	$	29	$	59	$	10,118
Total securities held-to-maturity	$	10,148	$	29	$	59	$	10,118

Contractual maturities for mortgage-backed securities are not presented, as expected maturities on mortgage‑backed securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. There were no sales of held-to-maturity securities for the three months ended March 31, 2017, or March 31, 2016. The Company did not recognize any other-than-temporary impairment charges in earnings on securities held-to-maturity during the three months ended March 31, 2017, or March 31, 2016.

Gross unrealized losses on mortgage-backed securities held-to-maturity, and the estimated fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2017 and December 31, 2016, were as follows (in thousands):



	March 31, 2017				December 31, 2016
	Less than 12 months				Less than 12 months
	Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value
Mortgage-backed securities:
Pass-through certificates:
GSEs	$	74	$	7,352	$	59	$	7,466
Total securities held-to-maturity	$	74	$	7,352	$	59	$	7,466

The Company held four pass-through mortgage-backed securities held-to-maturity, issued or guaranteed by GSE's that were in a continuous unrealized loss position of less than twelve months at March 31, 2017. Management evaluated these securities and concluded that the declines in value relate to the general interest rate environment and are considered temporary. The securities cannot be prepaid in a manner that would result in the Company not receiving substantially all of its amortized cost. The Company neither has an intent to sell, nor is it more likely than not that the Company will be required to sell, the securities before the recovery of their amortized cost basis or, if necessary, maturity.

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

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

Note 5 – Loans

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



	March 31,			December 31,
	2017			2016
Real estate loans:
Multifamily	$	1,608,722		$	1,506,335
Commercial mortgage	409,075			412,667
One-to-four family residential mortgage	105,731			105,968
Home equity and lines of credit	66,575			65,437
Construction and land	13,467			14,065
Total real estate loans	2,203,570			2,104,472
Commercial and industrial loans	32,656			31,906
Other loans	1,159			1,497
Total commercial and industrial and other loans	33,815			33,403
Deferred loan cost, net	6,485			6,471
Originated loans held-for-investment, net	2,243,870			2,144,346
PCI Loans	29,717			30,498
Loans acquired:
One-to-four family residential mortgage	300,250			317,639
Multifamily	211,692			215,389
Commercial mortgage	181,690			188,001
Home equity and lines of credit	24,853			25,522
Construction and land	21,316			20,887
Total acquired real estate loans	739,801			767,438
Commercial and industrial loans	20,567			25,443
Other loans	330			359
Total loans acquired, net	760,698			793,240
Loans held-for-investment, net	3,034,285			2,968,084
Allowance for loan losses	(25,284		)	(24,595		)
Net loans held-for-investment	$	3,009,001		$	2,943,489

PCI loans totaled $29.7 million at March 31, 2017, as compared to $30.5 million at December 31, 2016. The majority of the PCI loan balance is attributable to those loans acquired as part of a Federal Deposit Insurance Corporation-assisted transaction. The Company accounts for PCI loans utilizing U.S. GAAP applicable to loans acquired with deteriorated credit quality. At March 31, 2017, PCI loans consist of approximately 29% commercial real estate loans and 48% commercial and industrial loans, with the remaining balance in residential and home equity loans. At December 31, 2016, PCI loans consist of approximately 30% commercial real estate loans and 48% 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

Table of Contents

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 months ended March 31, 2017 and March 31, 2016 (in thousands):



	At or for the three months ended March 31,
	2017			2016
Balance at the beginning of period	$	24,215		$	22,853
Acquisition	—			845
Accretion into interest income	(1,452		)	(1,280		)
Balance at end of period	$	22,763		$	22,418

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following tables set forth activity in our allowance for loan losses, by loan type, as of and for the three months ended March 31, 2017, and March 31, 2016 (in thousands):



	Three Months Ended March 31, 2017
	Real Estate
	Commercial			One-to-Four Family			Construction and Land			Multifamily		Home Equity and Lines of Credit			Commercial and Industrial			Other			Unallocated		Originated Loans Total			Purchased Credit-Impaired		Acquired Loans			Total
Allowance for loan losses:
Beginning balance	$	5,432		$	664		$	172		$	14,952	$	588		$	1,720		$	96		$	—	$	23,624		$	896	$	75		$	24,595
Charge-offs	(4		)	—			—			—		—			—			—			—		(4		)	—		(23		)	(27		)
Recoveries	17			—			—			278		—			47			—			—		342			—		2			344
Provisions (credit)	(214		)	(15		)	(7		)	954		(96		)	(206		)	(24		)	—		392			—		(20		)	372
Ending balance	$	5,231		$	649		$	165		$	16,184	$	492		$	1,561		$	72		$	—	$	24,354		$	896	$	34		$	25,284



	Three Months Ended March 31, 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	(113		)	—		—		(277		)	—			—		—			—			(390		)	—		—			(390		)
Recoveries	127			—		—		—			—			2		—			—			129			—		—			129
Provisions (credit)	(923		)	11		260		1,218			(14		)	21		(67		)	(627		)	(121		)	—		(10		)	(131		)
Ending balance	$	6,197		$	798	$	521	$	13,328		$	781		$	1,311	$	88		$	466		$	23,490		$	783	$	105		$	24,378

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following tables detail the amount of loans receivable held-for-investment, net of deferred loan fees and costs, that are evaluated individually, and collectively, for impairment, and the related portion of the allowance for loan losses that is allocated to each loan portfolio segment, at March 31, 2017, and December 31, 2016 (in thousands):



	March 31, 2017
	Real Estate
	Commercial		One-to-Four Family		Construction and Land		Multifamily		Home Equity and Lines of Credit		Commercial and Industrial		Other		Originated Loans Total		Purchased Credit-Impaired		Acquired Loans		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	—	$	55	$	—	$	152	$	19	$	4	$	—	$	230	$	—	$	34	$	264
Ending balance: collectively evaluated for impairment	$	5,231	$	594	$	165	$	16,032	$	473	$	1,557	$	72	$	24,124	$	896	$	—	$	25,020
Loans, net:
Ending balance	$	409,765	$	106,286	$	13,502	$	1,612,500	$	67,926	$	32,732	$	1,159	$	2,243,870	$	29,717	$	760,698	$	3,034,285
Ending balance: individually evaluated for impairment	$	18,487	$	2,231	$	—	$	2,254	$	331	$	170	$	—	$	23,473	$	—	$	1,162	$	24,635
Ending balance: collectively evaluated for impairment	$	391,278	$	104,055	$	13,502	$	1,610,246	$	67,595	$	32,562	$	1,159	$	2,220,397	$	29,717	$	759,536	$	3,009,650



	December 31, 2016
	Real Estate
	Commercial		One-to-Four Family		Construction and Land		Multifamily		Home Equity and Lines of Credit		Commercial and Industrial		Other		Originated Loans Total		Purchased Credit-Impaired		Acquired Loans		Total
Allowance for loan losses:
Ending balance: individually evaluated for impairment	$	64	$	66	$	—	$	95	$	23	$	5	$	—	$	253	$	—	$	75	$	328
Ending balance: collectively evaluated for impairment	$	5,368	$	598	$	172	$	14,857	$	565	$	1,715	$	96	$	23,371	$	896	$	—	$	24,267
Loans, net:
Ending balance	$	413,352	$	106,524	$	14,092	$	1,510,100	$	66,767	$	32,013	$	1,498	$	2,144,346	$	30,498	$	793,240	$	2,968,084
Ending balance: individually evaluated for impairment	$	20,710	$	2,180	$	—	$	1,372	$	336	$	101	$	—	$	24,699	$	—	$	1,591	$	26,290
Ending balance: collectively evaluated for impairment	$	392,642	$	104,344	$	14,092	$	1,508,728	$	66,431	$	31,912	$	1,498	$	2,119,647	$	30,498	$	791,649	$	2,941,794

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

The Company monitors the credit quality of its loan portfolio on a regular basis. Credit quality is monitored by reviewing certain credit quality indicators. Management has determined that loan-to-value ratios (at period end) and internally assigned credit risk ratings by loan type are the key credit quality indicators that best measure the credit quality of the Company’s loan receivables. Loan-to-value (LTV) ratios used by management in monitoring credit quality are based on current period loan balances and original appraised values at time of origination (unless a current appraisal has been obtained as a result of the loan being deemed impaired). In calculating the provision for loan losses, based on past loan loss experience, management has determined that commercial real estate loans and multifamily loans having loan-to-value ratios, as described above, of less than 35%, and one-to-four family loans having loan-to-value ratios, as described above, of less than 60%, require less of a loss factor than those with higher loan to value ratios.

The Company maintains a credit risk rating system as part of the risk assessment of its loan portfolio. The Company’s lending officers are required to assign a credit risk rating to each loan in their portfolio at origination. This risk rating is reviewed periodically and adjusted if necessary. Monthly, management presents monitored assets to the loan committee. In addition, the Company engages a third-party independent loan reviewer that performs semi-annual reviews of a sample of loans, validating the credit risk ratings assigned to such loans. The credit risk ratings play an important role in the establishment of the loan loss provision and the allowance for loan losses for originated loans held-for-investment. After determining the general reserve loss factor for each originated portfolio segment held-for-investment, the originated portfolio segment held-for-investment balance collectively evaluated for impairment is multiplied by the general reserve loss factor for the respective portfolio segment in order to determine the general reserve.

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


1.	Strong


2.	Good


3.	Acceptable


4.	Adequate


5.	Watch


6.	Special Mention


7.	Substandard


8.	Doubtful


9.	Loss

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

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

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



	March 31, 2017
	Real Estate
	Multifamily				Commercial				One-to-Four Family				Construction and Land		Home Equity and Lines of Credit		Commercial and Industrial		Other		Total
	< 35% LTV		=> 35% LTV		< 35% LTV		=> 35% LTV		< 60% LTV		=> 60% LTV
Internal Risk Rating
Pass	$	128,554	$	1,477,231	$	65,194	$	324,908	$	57,466	$	45,051	$	13,502	$	67,653	$	31,851	$	1,159	$	2,212,569
Special Mention	19		4,117		—		3,828		699		—		—		29		670		—		9,362
Substandard	42		2,537		1,169		14,666		1,939		1,131		—		244		211		—		21,939
Originated loans held-for-investment, net	$	128,615	$	1,483,885	$	66,363	$	343,402	$	60,104	$	46,182	$	13,502	$	67,926	$	32,732	$	1,159	$	2,243,870



	December 31, 2016
	Real Estate
	Multifamily				Commercial				One-to-Four Family				Construction and Land		Home Equity and Lines of Credit		Commercial and Industrial		Other		Total
	< 35% LTV		=> 35% LTV		< 35% LTV		=> 35% LTV		< 60% LTV		=> 60% LTV
Internal Risk Rating
Pass	$	122,525	$	1,381,231	$	65,612	$	323,842	$	59,214	$	43,316	$	14,092	$	66,489	$	31,173	$	1,498	$	2,108,992
Special Mention	25		4,636		—		3,852		705		—		—		29		696		—		9,943
Substandard	40		1,643		1,179		18,867		1,807		1,482		—		249		144		—		25,411
Originated loans held-for-investment, net	$	122,590	$	1,387,510	$	66,791	$	346,561	$	61,726	$	44,798	$	14,092	$	66,767	$	32,013	$	1,498	$	2,144,346

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

Included in loans receivable are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The recorded investment of these non-accrual loans was $5.5 million and $7.3 million at March 31, 2017, and December 31, 2016, respectively. Generally, loans are placed on non-accrual status when they become 90 days or more delinquent, or sooner if considered appropriate by management, and remain on non-accrual status until they are brought current, have six consecutive months of performance under the loan terms, and factors indicating reasonable doubt about the timely collection of payments no longer exist. Therefore, loans may be current in accordance with their loan terms, or may be less than 90 days delinquent and still be on a non-accruing status.

These non-accrual amounts included loans deemed to be impaired of $4.2 million and $5.7 million at March 31, 2017, and December 31, 2016, respectively. Loans on non-accrual status with principal balances less than $500,000, and therefore not meeting the Company’s definition of an impaired loan, amounted to $1.3 million and $1.7 million at March 31, 2017, and December 31, 2016, respectively. There were no loans held-for-sale at March 31, 2017, or December 31, 2016. Loans past due 90 days or more and still accruing interest were $922,000 and $60,000 at March 31, 2017, and December 31, 2016, respectively, and consisted of loans that are considered well secured and in the process of collection.

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

The following tables set forth the detail, and delinquency status, of non-performing loans (non-accrual loans and loans past due 90 days or more and still accruing), net of deferred fees and costs, at March 31, 2017, and December 31, 2016, excluding loans held-for-sale and PCI loans which have been segregated into pools. For PCI loans, each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows (in thousands):



	March 31, 2017
	Total Non-Performing Loans
	Non-Accruing Loans
	0-29 Days Past Due		30-89 Days Past Due		90 Days or More Past Due		Total		90 Days or More Past Due and Accruing		Total Non-Performing Loans
Loans held-for-investment:
Real estate loans:
Commercial
LTV => 35%
Substandard	$	2,240	$	339	$	541	$	3,120	$	—	$	3,120
Total commercial	2,240		339		541		3,120		—		3,120
One-to-four family residential
LTV < 60%
Pass	—		—		—		—		2		2
Substandard	504		254		255		1,013		8		1,021
Total one-to-four family residential	504		254		255		1,013		10		1,023
Multifamily
LTV < 35%
Substandard	—		—		4		4		—		4
LTV => 35%
Substandard	—		—		900		900		—		900
Total multifamily	—		—		904		904		—		904
Home equity and lines of credit
Substandard	92		—		—		92		—		92
Total home equity and lines of credit	92		—		—		92		—		92
Commercial and industrial loans
Substandard	72		—		—		72		—		72
Total commercial and industrial loans	72		—		—		72		—		72
Other loans
Pass	—		—		—		—		17		17
Total other	—		—		—		—		17		17
Total non-performing loans held-for-investment, originated	2,908		593		1,700		5,201		27		5,228
Loans acquired:
Commercial
LTV < 35%
Substandard	—		—		225		225		—		225
LTV => 35%
Substandard	—		—		59		59		258		317
Total commercial	—		—		284		284		258		542
One-to-four family residential
LTV < 60%
Substandard	—		—		—		—		206		206
Total one-to-four family residential	—		—		—		—		206		206
Multifamily
LTV => 35%
Substandard	—		—		—		—		428		428
Total multifamily	—		—		—		—		428		428
Home equity and lines of credit
Substandard	—		—		31		31		3		34
Total home equity and lines of credit	—		—		31		31		3		34
Commercial and industrial loans
Substandard	—		—		9		9		—		9
Total commercial and industrial loans	—		—		9		9		—		9
Total non-performing loans acquired	—		—		324		324		895		1,219
Total non-performing loans	$	2,908	$	593	$	2,024	$	5,525	$	922	$	6,447

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	December 31, 2016
	Total Non-Performing Loans
	Non-Accruing Loans
	0-29 Days Past Due		30-89 Days Past Due		90 Days or More Past Due		Total		90 Days or More Past Due and Accruing		Total Non-Performing Loans
Loans held-for-investment:
Real estate loans:
Commercial
Substandard	$	341	$	—	$	4,882	$	5,223	$	—	$	5,223
Total commercial	341		—		4,882		5,223		—		5,223
One-to-four family residential
LTV < 60%
Substandard	384		383		442		1,209		9		1,218
Total	384		383		442		1,209		9		1,218
LTV => 60%
Substandard	—		—		—		—		43		43
Total	—		—		—		—		43		43
Total one-to-four family residential	384		383		442		1,209		52		1,261
Multifamily
LTV < 35%
Substandard	40		—		—		40		—		40
LTV => 35%
Substandard	—		—		3		3		—		3
Total multifamily	40		—		3		43		—		43
Home equity and lines of credit	—		96		—		96		—		96
Total non-performing loans held-for-investment, originated	765		479		5,327		6,571		52		6,623
Loans acquired:
Real estate loans:
Commercial
LTV < 35%
Substandard	—		—		231		231		—		231
LTV => 35%
Substandard	—		—		59		59		—		59
Total commercial	—		—		290		290		—		290
One-to-four family residential
LTV < 60%
Substandard	420		—		—		420		—		420
Total one-to-four family residential	420		—		—		420		—		420
Home equity and lines of credit	—		—		31		31		8		39
Commercial and industrial	—		—		9		9		—		9
Total non-performing loans acquired:	420		—		330		750		8		758
Total non-performing loans	$	1,185	$	479	$	5,657	$	7,321	$	60	$	7,381

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

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



	March 31, 2017
	Performing (Accruing) Loans
	0-29 Days Past Due		30-89 Days Past Due		Total		Non-Performing Loans		Total Loans Receivable, net
Loans held-for-investment:
Real estate loans:
Commercial
LTV < 35%
Pass	$	64,572	$	622	$	65,194	$	—	$	65,194
Substandard	—		1,169		1,169		—		1,169
Total	64,572		1,791		66,363		—		66,363
LTV => 35%
Pass	323,601		1,307		324,908		—		324,908
Special Mention	3,828		—		3,828		—		3,828
Substandard	9,048		2,498		11,546		3,120		14,666
Total	336,477		3,805		340,282		3,120		343,402
Total commercial	401,049		5,596		406,645		3,120		409,765
One-to-four family residential
LTV < 60%
Pass	55,283		2,181		57,464		2		57,466
Special Mention	129		570		699		—		699
Substandard	663		255		918		1,021		1,939
Total	56,075		3,006		59,081		1,023		60,104
LTV => 60%
Pass	45,051		—		45,051		—		45,051
Substandard	713		418		1,131		—		1,131
Total	45,764		418		46,182		—		46,182
Total one-to-four family residential	101,839		3,424		105,263		1,023		106,286
Construction and land
Pass	13,502		—		13,502		—		13,502
Total construction and land	13,502		—		13,502		—		13,502
Multifamily
LTV < 35%
Pass	128,554		—		128,554		—		128,554
Special Mention	19		—		19		—		19
Substandard	38		—		38		4		42
Total	128,611		—		128,611		4		128,615
LTV => 35%
Pass	1,477,023		208		1,477,231		—		1,477,231
Special Mention	4,117		—		4,117		—		4,117
Substandard	86		1,551		1,637		900		2,537
Total	1,481,226		1,759		1,482,985		900		1,483,885
Total multifamily	1,609,837		1,759		1,611,596		904		1,612,500
Home equity and lines of credit
Pass	67,393		260		67,653		—		67,653
Special Mention	29		—		29		—		29
Substandard	152		—		152		92		244
Total home equity and lines of credit	67,574		260		67,834		92		67,926
Commercial and industrial
Pass	31,755		96		31,851		—		31,851
Special Mention	670		—		670		—		670
Substandard	139		—		139		72		211
Total commercial and industrial	32,564		96		32,660		72		32,732

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	March 31, 2017
	Performing (Accruing) Loans (Continued)
	0-29 Days Past Due		30-89 Days Past Due		Total		Non-Performing Loans		Total Loans Receivable, net
Other loans - Pass	1,142		—		1,142		17		1,159
Total originated loans held-for-investment	$	2,227,507	$	11,135	$	2,238,642	$	5,228	$	2,243,870
Acquired loans:
One-to-four family residential
LTV < 60%
Pass	268,349		2,455		270,804		—		270,804
Special Mention	492		—		492		—		492
Substandard	1,283		163		1,446		206		1,652
Total	270,124		2,618		272,742		206		272,948
LTV => 60%
Pass	27,164		—		27,164		—		27,164
Substandard	138		—		138		—		138
Total	27,302		—		27,302		—		27,302
Total one-to-four family residential	297,426		2,618		300,044		206		300,250
Commercial
LTV < 35%
Pass	58,943		72		59,015		—		59,015
Special Mention	95		187		282		—		282
Substandard	—		543		543		225		768
Total	59,038		802		59,840		225		60,065
LTV => 35%
Pass	116,313		130		116,443		—		116,443
Special Mention	—		581		581		—		581
Substandard	3,792		492		4,284		317		4,601
Total	120,105		1,203		121,308		317		121,625
Total commercial	179,143		2,005		181,148		542		181,690
Construction and land
Pass	21,316		—		21,316		—		21,316
Total construction and land	21,316		—		21,316		—		21,316
Multifamily
LTV < 35%
Pass	201,464		—		201,464		—		201,464
Special Mention	141		—		141		—		141
Substandard	155		—		155		—		155
Total	201,760		—		201,760		—		201,760
LTV => 35%
Pass	9,504		—		9,504		—		9,504
Substandard	—		—		—		428		428
Total	9,504		—		9,504		428		9,932
Total multifamily	211,264		—		211,264		428		211,692
Home equity and lines of credit
Pass	24,701		26		24,727		—		24,727
Substandard	92		—		92		34		126
Total home equity and lines of credit	24,793		26		24,819		34		24,853
Commercial and industrial
Pass	20,558		—		20,558		—		20,558
Substandard	—		—		—		9		9
Total commercial and industrial	20,558		—		20,558		9		20,567
Other - Pass	330		—		330		—		330
Total loans acquired	754,830		4,649		759,479		1,219		760,698
	$	2,982,337	$	15,784	$	2,998,121	$	6,447	$	3,004,568

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	December 31, 2016
	Performing (Accruing) Loans
	0-29 Days Past Due		30-89 Days Past Due		Total		Non-Performing Loans		Total Loans Receivable, net
Loans held-for-investment:
Real estate loans:
Commercial
LTV < 35%
Pass	$	65,189	$	423	$	65,612	—		$	65,612
Substandard	1,179		—		1,179		—		1,179
Total	66,368		423		66,791		—		66,791
LTV => 35%
Pass	322,307		1,535		323,842		—		323,842
Special Mention	3,852		—		3,852		—		3,852
Substandard	12,600		1,044		13,644		5,223		18,867
Total	338,759		2,579		341,338		5,223		346,561
Total commercial	405,127		3,002		408,129		5,223		413,352
One-to-four family residential
LTV < 60%
Pass	56,787		2,427		59,214		—		59,214
Special Mention	—		705		705		—		705
Substandard	589		—		589		1,218		1,807
Total	57,376		3,132		60,508		1,218		61,726
LTV => 60%
Pass	43,316		—		43,316		—		43,316
Substandard	1,439		—		1,439		43		1,482
Total	44,755		—		44,755		43		44,798
Total one-to-four family residential	102,131		3,132		105,263		1,261		106,524
Construction and land
Pass	14,092		—		14,092		—		14,092
Total construction and land	14,092		—		14,092		—		14,092
Multifamily
LTV < 35%
Pass	122,525		—		122,525		—		122,525
Special Mention	25		—		25		—		25
Substandard	—		—		—		40		40
Total	122,550		—		122,550		40		122,590
LTV => 35%
Pass	1,380,331		900		1,381,231		—		1,381,231
Special Mention	4,636		—		4,636		—		4,636
Substandard	1,640		—		1,640		3		1,643
Total	1,386,607		900		1,387,507		3		1,387,510
Total multifamily	1,509,157		900		1,510,057		43		1,510,100
Home equity and lines of credit
Pass	66,369		120		66,489		—		66,489
Special Mention	29		—		29		—		29
Substandard	153		—		153		96		249
Total home equity and lines of credit	66,551		120		66,671		96		66,767
Commercial and industrial loans
Pass	31,040		133		31,173		—		31,173
Special Mention	696		—		696		—		696
Substandard	144		—		144		—		144
Total commercial and industrial loans	31,880		133		32,013		—		32,013
Other loans
Pass	1,452		46		1,498		—		1,498
Other loans - Pass	1,452		46		1,498		—		1,498
Total originated loans held-for-investment	$	2,130,390	$	7,333	$	2,137,723	$	6,623	$	2,144,346

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	December 31, 2016
	Performing (Accruing) Loans
	0-29 Days Past Due		30-89 Days Past Due		Total		Non-Performing Loans		Total Loans Receivable, net
Loans Acquired
Real estate loans:
One-to-four family residential
LTV < 60%
Pass	285,116		21		285,137		—		285,137
Special Mention	502		—		502		—		502
Substandard	654		261		915		420		1,335
Total	286,272		282		286,554		420		286,974
LTV => 60%
Pass	30,199		—		30,199		—		30,199
Special Mention	—		—		—		—		—
Substandard	259		207		466		—		466
Total	30,458		207		30,665		—		30,665
Total one-to-four family residential	316,730		489		317,219		420		317,639
Commercial
LTV < 35%
Pass	61,646		7		61,653		—		61,653
Special Mention	286		—		286		—		286
Substandard	406		1,040		1,446		231		1,677
Total	62,338		1,047		63,385		231		63,616
LTV => 35%
Pass	119,932		132		120,064		—		120,064
Special Mention	446		138		584		—		584
Substandard	3,419		259		3,678		59		3,737
Total	123,797		529		124,326		59		124,385
Total commercial	186,135		1,576		187,711		290		188,001
Construction and land
Pass	20,887		—		20,887		—		20,887
Total construction and land	20,887		—		20,887		—		20,887
Multifamily
LTV < 35%
Pass	205,025		—		205,025		—		205,025
Special Mention	99		111		210		—		210
Substandard	156		—		156		—		156
Total	205,280		111		205,391		—		205,391
LTV => 35%
Pass	9,569		—		9,569		—		9,569
Substandard	—		429		429		—		429
Total	9,569		429		9,998		—		9,998
Total multifamily	214,849		540		215,389		—		215,389
Home equity and lines of credit
Pass	25,340		45		25,385		—		25,385
Substandard	—		98		98		39		137
Total home equity and lines of credit	25,340		143		25,483		39		25,522
Commercial and industrial loans
Pass	25,419		—		25,419		—		25,419
Substandard	—		15		15		9		24
Total commercial and industrial loans	25,419		15		25,434		9		25,443
Other	355		4		359		—		359
Total loans acquired	789,715		2,767		792,482		758		793,240
	$	2,920,105	$	10,100	$	2,930,205	$	7,381	$	2,937,586

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

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



	March 31, 2017							December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance			Recorded Investment		Unpaid Principal Balance		Related Allowance
With No Allowance Recorded:
Real estate loans:
Commercial
LTV < 35%
Substandard	$	—	$	139	$	—		$	—	$	139	$	—
LTV => 35%
Pass	5,869		6,006		—			3,911		4,047		—
Substandard	12,618		14,387		—			14,780		16,868		—
One-to-four family residential
LTV < 60%
Pass	626		626		—			633		633		—
Substandard	587		645		—			184		184		—
LTV => 60%
Substandard	280		453		—			620		848		—
Multifamily
LTV < 35%
Substandard	155		155		—			156		156		—
LTV => 35%
Pass	60		531		—			63		534
Home equity and lines of credit
Pass	38		38					39		39		—
Commercial and industrial loans
Substandard	144		144		—			75		75		—
With a Related Allowance Recorded:
Real estate loans:
Commercial
LTV => 35%
Substandard	—		—		—			2,019		2,019		(64		)
One-to-four family residential
LTV < 60%
Substandard	1,095		1,095		(48		)	1,522		1,522		(97		)
LTV => 60%
Pass	273		273		(4		)	275		275		(3		)
Substandard	377		377		(37		)	381		381		(41		)
Multifamily
LTV => 35%
Pass	1,294		1,294		(80		)	1,309		1,309		(95		)
Substandard	900		900		(72		)	—		—		—
Home equity and lines of credit
Pass	255		255		(2		)	258		258		(5		)
Substandard	38		38		(17		)	39		39		(18		)
Commercial and industrial loans
Special Mention	26		26		(4		)	26		26		(5		)
Total:
Real estate loans
Commercial	18,487		20,532		—			20,710		23,073		(64		)
One-to-four family residential	3,238		3,469		(89		)	3,615		3,843		(141		)
Multifamily	2,409		2,880		(152		)	1,528		1,999		(95		)
Home equity and lines of credit	331		331		(19		)	336		336		(23		)
Commercial and industrial loans	170		170		(4		)	101		101		(5		)
	$	24,635	$	27,382	$	(264	)	$	26,290	$	29,352	$	(328	)

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

Included in the above table at March 31, 2017, are impaired loans with carrying balances of $15.3 million that were not written down by charge-offs or for which there are no specific reserves in our allowance for loan losses. Included in impaired loans at December 31, 2016, are loans with carrying balances of $11.5 million that were not written down by charge-offs or for which there are no specific reserves in our allowance for loan losses. Loans not written down by charge-offs or specific reserves at March 31, 2017, and December 31, 2016, 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 March 31, 2017 and March 31, 2016 (in thousands):

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	Three Months Ended
	March 31, 2017				March 31, 2016
	Average Recorded Investment		Interest Income		Average Recorded Investment		Interest Income
With No Allowance Recorded:
Real estate loans:
Commercial
LTV < 35%
Substandard	$	—	$	5	$	—	$	—
LTV => 35%
Pass	4,890		64		4,033		45
Substandard	13,699		128		13,334		181
One-to-four family residential
LTV < 60%
Pass	630		8		438		5
Substandard	386		8		233		1
LTV => 60%
Substandard	450		5		150		1
Multifamily
LTV < 35%
Substandard	155		1		—		—
LTV => 35%
Pass	61		4		73		4
Substandard	—		—		873		4
Home equity and lines of credit
Pass	38		1		—		—
Commercial and industrial loans
Substandard	110		—		86		—
With a Related Allowance Recorded:
Real estate loans:
Commercial
LTV => 35%
Substandard	1,010		—		6,518		18
One-to-four family residential
LTV < 60%
Pass	—		—		282		4
Substandard	1,308		7		1,599		6
LTV => 60%
Pass	274		4		—		—
Substandard	379		1		1,029		4
Multifamily
LTV => 35%
Pass	1,302		12		—		—
Substandard	450		—		1,364		13
Home equity and lines of credit
Pass	257		2		268		2
Special Mention	—		—		44		1
Substandard	38		—		41		—
Commercial and industrial loans
Special Mention	26		—		29		—
Total:
Real estate loans
Commercial	19,599		197		23,885		244
One-to-four family residential	3,427		33		3,731		21
Multifamily	1,968		17		2,310		21
Home equity and lines of credit	333		3		353		3
Commercial and industrial loans	136		—		115		—
	$	25,463	$	250	$	30,394	$	289

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

There was one one-to-four family residential loan modified as a troubled debt restructuring (TDR) during the three months ended March 31, 2017. This loan had a pre- and post-modification balance of $256,000, and was restructured to receive a reduced interest rate. There were no loans modified as TDRs during the three months ended March 31, 2016.

At March 31, 2017, and December 31, 2016, we had TDRs of $22.6 million and $22.4 million, respectively.

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

At March 31, 2017 and March 31, 2016, no TDR loan that was restructured during the preceding twelve months had subsequently defaulted.

Note 6 – Deposits

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



	March 31,		December 31,
	2017		2016
Non-interest-bearing demand	$	383,808	$	390,484
Interest-bearing negotiable orders of withdrawal (NOW)	386,096		467,440
Savings and money market	1,338,643		1,319,586
Certificates of deposit	567,723		536,077
Total deposits	$	2,676,270	$	2,713,587

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



	Three Months Ended
	March 31,
	2017		2016
Negotiable orders of withdrawal, savings, and money market	$	2,030	$	2,128
Certificates of deposit	1,590		1,296
Total interest expense on deposit accounts	$	3,620	$	3,424

Note 7 – Equity Incentive Plan

The following table is a summary of the Company’s stock options outstanding as of March 31, 2017, and changes therein during the three months then ended.



	Number of Stock Options		Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Contractual Life (years)
Outstanding - December 31, 2016	5,328,670		$	3.41	$	11.36	5.78
Exercised	(516,931	)	$	2.35	$	7.30	—
Outstanding - March 31, 2017	4,811,739		$	3.52	$	11.80	5.90
Exercisable - March 31, 2017	2,468,341		$	3.04	$	9.89	4.29

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

Expected future stock option expense related to the non-vested options outstanding as of March 31, 2017, is $6.4 million over an average period of 2.63 years.

The following is a summary of the status of the Company’s restricted stock awards as of March 31, 2017, and changes therein during the three months then ended.



	Number of Shares Awarded	Weighted Average Grant Date Fair Value
Non-vested at December 31, 2016	924,002	$	13.82
Vested	—	—
Forfeited	—	—
Non-vested at March 31, 2017	924,002	$	13.82

Expected future stock award expense related to the non-vested restricted share awards as of March 31, 2017, is $8.9 million over an average period of 2.67 years.

During the three months ended March 31, 2017 and 2016, the Company recorded $1.6 million and $2.1 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 March 31, 2017, and December 31, 2016, by level within the fair value hierarchy as required by the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). Financial assets and liabilities are classified in their entirety based on the level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:


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

•

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


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

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	Fair Value Measurements at March 31, 2017 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Measured on a recurring basis:
Assets:
Investment securities:
Available-for-sale:
Mortgage-backed securities:
GSE	$	420,930	$	—	$	420,930	$	—
Non-GSE	145		—		145		—
Other securities:
Municipal bonds	2,161		—		2,161		—
Corporate bonds	45,350		—		45,350		—
Equities	1,329		377		952		—
Other	1,250		—		1,250		—
Total available-for-sale	471,165		377		470,788		—
Trading securities	8,396		8,396		—		—
Total	$	479,561	$	8,773	$	470,788	$	—
Measured on a non-recurring basis:
Assets:
Impaired loans:
Real estate loans:
Commercial real estate	$	4,867	$	—	$	—	$	4,867
One-to-four family residential mortgage	1,794		—		—		1,794
Multifamily	2,102		—		—		2,102
Home equity and lines of credit	275		—		—		275
Total impaired real estate loans	9,038		—		—		9,038
Commercial and industrial loans	21		—		—		21
Other real estate owned	850		—		—		850
Total	$	9,909	$	—	$	—	$	9,909

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)



	Fair Value Measurements at December 31, 2016 Using:
	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Measured on a recurring basis:
Assets:
Investment securities:
Available-for-sale:
Mortgage-backed securities:
GSE	$	448,842	$	—	$	448,842	$	—
Non-GSE	270		—		270		—
Other securities:
Municipal bonds	2,158		—		2,158		—
Corporate bonds	45,159		—		45,159		—
Equities	1,218		271		947		—
Other	1,250		—		1,250		—
Total available-for-sale	498,897		271		498,626		—
Trading securities	7,857		7,857		—		—
Total	$	506,754	$	8,128	$	498,626	$	—
Measured on a non-recurring basis:
Assets:
Impaired loans:
Real estate loans:
Commercial real estate	$	10,730	$	—	$	—	$	10,730
One-to-four family residential mortgage	2,177		—		—		2,177
Multifamily	1,276		—		—		1,276
Home equity and lines of credit	274		—		—		274
Total impaired real estate loans	14,457		—		—		14,457
Commercial and industrial loans	21		—		—		21
Other real estate owned	850		—		—		850
Total	$	15,328	$	—	$	—	$	15,328

The following table presents qualitative information for Level 3 assets measured at fair value on a non-recurring basis at March 31, 2017, and December 31, 2016 (dollars in thousands):



	Fair Value				Valuation Methodology	Unobservable Inputs	Range of Inputs
	March 31, 2017		December 31, 2016				March 31, 2017	December 31, 2016
Impaired loans	$	9,059	$	14,478	Appraisals	Discount for costs to sell	7.0%	7.0%
						Discount for quick sale	10.0%	10.0%
					Discounted cash flows	Interest rates	4.75% to 7.5%	4.75% to 7.5%
Other real estate owned	$	850	$	850	Appraisals	Discount for costs to sell	7.0%	7.0%

Table of Contents

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 three months ended March 31, 2017.

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

Impaired Loans: At March 31, 2017, and December 31, 2016, the Company had impaired loans held-for-investment (excluding PCI loans) with outstanding principal balances of $11.5 million and $17.7 million, respectively, which were recorded at their estimated fair value of $9.1 million and $14.5 million, respectively. The Company recorded a net decrease in the specific reserve for impaired loans of $64,000 for the three months ended March 31, 2017, and a net increase in the specific reserve for impaired loans of $203,000 for the three months ended March 31, 2016, utilizing level 3 inputs. For purposes of estimating fair value of impaired loans, management utilizes independent appraisals, if the loan is collateral dependent, adjusted downward by management, as necessary, for changes in relevant valuation factors subsequent to the appraisal date, or the present value of expected future cash flows for non-collateral dependent loans and troubled debt restructurings.

Other Real Estate Owned (OREO): At both March 31, 2017 and December 31, 2016, the Company had assets acquired through foreclosure, or deed in lieu of foreclosure, of $850,000. These assets are recorded at estimated fair value, less estimated selling costs when acquired, establishing a new cost basis. Estimated fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are considered Level 3 inputs. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses. If the estimated fair value of the asset declines, a write-down is recorded through non-interest expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions.

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

Fair Value of Financial Instruments

The FASB ASC Topic for Financial Instruments requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The following methods and assumptions were used to estimate the fair value of other financial assets and financial liabilities not already discussed above:


(a)	Cash, Cash Equivalents, and Certificates of Deposit

Cash and cash equivalents are short-term in nature with original maturities of six months or less; the carrying amount approximates fair value. Certificates of deposit having original terms of six-months or less; the carrying value generally approximates fair value. Certificates of deposit with an original maturity of six months or greater; the fair value is derived from discounted cash flows.

Table of Contents

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.

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

The estimated fair value of the Company’s significant financial instruments at March 31, 2017, and December 31, 2016, is presented in the following tables (in thousands):



	March 31, 2017
			Estimated Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	51,306	$	51,306	$	—	$	—	$	51,306
Trading securities	8,396		8,396		—		—		8,396
Securities available-for-sale	471,165		377		470,788		—		471,165
Securities held-to-maturity	10,092		—		10,040		—		10,040
Federal Home Loan Bank of New York stock, at cost	26,293		—		26,293		—		26,293
Net loans held-for-investment	3,009,001		—		—		3,000,146		3,000,146
Financial liabilities:
Deposits	$	2,676,270	$	—	$	2,682,853	$	—	$	2,682,853
Borrowed funds	495,443		—		494,111		—		494,111
Advance payments by borrowers for taxes and insurance	15,309		—		15,309		—		15,309



	December 31, 2016
			Estimated Fair Value
	Carrying Value		Level 1		Level 2		Level 3		Total
Financial assets:
Cash and cash equivalents	$	96,085	$	96,085	$	—	$	—	$	96,085
Trading securities	7,857		7,857		—		—		7,857
Securities available-for-sale	498,897		271		498,626		—		498,897
Securities held-to-maturity	10,148		—		10,118		—		10,118
Federal Home Loan Bank of New York stock, at cost	25,123		—		25,123		—		25,123
Net loans held-for-investment	2,943,489		—		—		2,970,438		2,970,438
Financial liabilities:
Deposits	$	2,713,587	$	—	$	2,720,176	$	—	$	2,720,176
Borrowed funds	473,206		—		472,387		—		472,387
Advance payments by borrowers for taxes and insurance	12,331		—		12,331		—		12,331

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected losses, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on-and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

Note 9 – Earnings Per Share

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

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

When applying the treasury stock method for the quarter ended March 31, 2017, we added the assumed proceeds from option exercises and the average unamortized compensation costs related to unvested shares of restricted stock and stock options. We then divided this sum by our average stock price for the period to calculate assumed shares repurchased. The excess of the number of shares issuable over the number of shares assumed to be repurchased is added to basic weighted average common shares to calculate diluted earnings per share. For the quarter ended March 31, 2016, we added (1) the assumed proceeds from option exercises; (2) the tax benefit, that would have been credited to additional paid-in capital assuming exercise of non-qualified stock options and vesting of shares of restricted stock; and (3) the average unamortized compensation costs related to unvested shares of restricted stock and stock options. We then divided this sum by our average stock price for the period to calculate assumed shares repurchased. The excess of the number of shares issuable over the number of shares assumed to be repurchased is added to basic weighted average common shares to calculate diluted earnings per share.

The following is a summary of the Company’s earnings per share calculations and reconciliation of basic to diluted earnings per share for the periods indicated (dollars in thousands, except per share data):



	Three Months Ended March 31,
	2017		2016
Net income available to common stockholders	$	9,948	$	3,660
Weighted average shares outstanding-basic	45,022,365		43,919,402
Effect of non-vested restricted stock and stock options outstanding	1,903,709		1,351,546
Weighted average shares outstanding-diluted	46,926,074		45,270,948
Earnings per share-basic	$	0.22	$	0.08
Earnings per share-diluted	$	0.21	$	0.08
Anti-dilutive shares	40,000		1,011,400

Note 10 – Recently Issued and Adopted Accounting Pronouncements

Accounting Pronouncements Adopted

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


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


•	For diluted earnings per share calculations, excess tax benefits are no longer included in assumed proceeds when determining average diluted shares outstanding under the treasury stock method, resulting in changes to average diluted shares outstanding. This update is required to be applied prospectively upon adoption.

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)


•	Excess tax benefits or deficiencies are included as income tax expense as discrete items in the period in which they occur, which impact the effective tax rate in each reporting period; however, these discrete items are not included in the projected annual effective tax rate calculation. This update is required to be applied prospectively upon adoption.


•	Excess tax benefits are presented as cash flows from operating activities. Previously, excess tax benefits were included as a cash inflow from financing activities. This update may be applied either prospectively or retrospectively upon adoption. The Company applied this update prospectively upon adoption and prior periods have not been adjusted.

•

Cash paid by an employer to taxing authorities when withholding shares for tax withholding purposes is presented as cash outflows from financing activities, which is consistent with the manner in which we have presented such employee withholding taxes in the past. Accordingly, no reclassification for prior periods is required. Beginning in 2017, the Company no longer withholds shares for tax withholding purposes and employees pay their own taxes.


•	An accounting policy election, using a modified retrospective transition method, to account for forfeitures as they occur or estimate the number of awards expected to be forfeited. The Company elected to account for forfeitures as they occur.

The Company adopted ASU No. 2016-09 effective for the first quarter of 2017 and upon adoption recorded a cumulative effect adjustment of $2.9 million to the opening balances of retained earnings and additional paid-in-capital. The most significant impact of the guidance resulted in the recognition of $1.7 million of excess tax benefits within income tax expense, which resulted in an increase to net income and earnings per share ($0.04 per diluted share). In addition, the guidance increases average diluted shares, since the Company no longer includes such excess tax benefits in the calculation of diluted shares. Adoption of this update does not affect the Company's or the Bank's total equity, book value per share, or regulatory capital ratios.

Accounting Pronouncements Not yet Adopted

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying

the Test for Goodwill Impairment. The ASU simplifies the subsequent measurement of goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill (i.e., the current Step 2 of the goodwill impairment test) to measure a goodwill impairment charge. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. A goodwill impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim and annual goodwill impairment testing dates after January 1, 2017. The adoption of this pronouncement is not expected to have a material effect on the Company's consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that entities include restricted cash and restricted cash equivalents with cash and cash equivalents in the beginning-of-period and end-of-period total amounts shown on the Statement of Cash Flows. Prior to this pronouncement there was no guidance on how to present restricted cash and cash equivalents in the Statement of Cash Flows. ASU No. 2016-18 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and is required to be applied retrospectively to all periods presented beginning in the year of adoption. The adoption of this pronouncement is not expected to have a material effect on the Company's consolidated financial statements.

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

In June 2016, the FASB issued No. ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. Current US GAAP is based on an incurred loss model that delays recognition of credit losses until it is probable the loss has been incurred. Accordingly, it is anticipated that credit losses will be recognized earlier under the CECL model than under the incurred loss model. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the potential effect of

Table of Contents

NORTHFIELD BANCORP, INC.

Notes to Unaudited Consolidated Financial Statements - (Continued)

adoption of this pronouncement on its consolidated financial statements, but the extent of the effect is indeterminable at this time as it will depend upon the nature and characteristics of the Company's loan portfolio at the adoption date, as well as economic conditions and forecasts at that date.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability of accounting for lease transactions. The ASU will require all leases to be recognized on the balance sheet as lease assets and lease liabilities and will require both quantitative and qualitative disclosures regarding key information about leasing arrangements. Lessor accounting is largely unchanged. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that reporting period. The Company is currently evaluating the potential effect of adoption of this pronouncement on its consolidated financial statements by reviewing its existing lease contracts and service contracts that may include embedded leases. The Company expects a gross-up of its consolidated balance sheet as a result of recognizing lease liabilities and right of use assets; the extent of such gross-up is under evaluation. The Company does not expect material changes to the recognition of operating lease expense in its consolidated statements of comprehensive income.

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

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

Table of Contents


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report contains certain “forward-looking statements,” which can be identified by the use of such words as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” and words of similar meaning. These forward looking statements include, but are not limited to:


•	statements of our goals, intentions, and expectations;


•	statements regarding our business plans, prospects, growth and operating strategies;


•	statements regarding the quality of our loan and investment portfolios; and


•	estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:


•	adverse changes in general economic conditions, either nationally or in our market areas;


•	competition among depository and other financial institutions;


•	inflation and changes in the interest rate environment that reduce our margins and yields or reduce the fair value of financial instruments;


•	adverse changes in the securities or credit markets;


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


•	our ability to manage operations in the current or future economic conditions;


•	our ability to enter new markets successfully and capitalize on growth opportunities;


•	our ability to successfully integrate acquired entities;


•	changes in consumer spending, borrowing and savings habits;


•	changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, or the Securities and Exchange Commission, or the Public Company Accounting Oversight Board;


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


•	changes in our organization, compensation, and benefit plans;


•	changes in the level of government support for housing finance;


•	significant increases in our loan losses; and


•	changes in the financial condition, results of operations, or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements after the date of this Quarterly Report on Form 10-Q, whether as a result of new information, future events or otherwise.

Table of Contents

Critical Accounting Policies

Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2016 included in the Company’s Annual Report on Form 10-K, as supplemented by this report, contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets are carried in the Consolidated Balance Sheets at estimated fair value or the lower of cost or estimated fair value. Policies with respect to the methodologies used to determine the allowance for loan losses, estimated cash flows of our purchased credit-impaired (“PCI”) loans, and judgments regarding the valuation of intangible assets and securities as well as the valuation allowance against deferred tax assets are the most critical accounting policies because they are important to the presentation of the Company’s financial condition and results of operations, involve a higher degree of complexity, and require management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition. These critical accounting policies and their application are reviewed periodically and, at least annually, with the Audit Committee of the Board of Directors. For a further discussion of the critical accounting policies of the Company, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Overview

This overview highlights selected information and may not contain all the information that is important to you in understanding our performance during the period. For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources, and critical accounting estimates, you should read this entire document carefully, as well as our Annual Report on Form 10-K for the year ended December 31, 2016.

Net income was $9.9 million for the three months ended March 31, 2017, as compared to $3.7 million for the three months ended March 31, 2016. Basic and diluted earnings per common share were $0.22 and $0.21, respectively, for the three months ended March 31, 2017, compared to basic and diluted earnings per common share of $0.08 for the three months ended March 31, 2016. Earnings for the three months ended March 31, 2017, reflect the adoption of Accounting Standards Update (“ASU”) No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”) that resulted in a $1.7 million, or $0.04 per diluted share, reduction in income tax expense, and also reflects $1.5 million, or $0.02 per diluted share, of tax-exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies. Earnings for the quarter ended March 31, 2016, included merger-related expenses associated with the acquisition of Hopewell Valley Community Bank (“Hopewell Valley”) of approximately $1.9 million, net of tax, or $0.04 per diluted share. For the three months ended March 31, 2017, our return on average assets was 1.05%, as compared to 0.41% for the three months ended March 31, 2016. For the three months ended March 31, 2017, our return on average stockholders’ equity was 6.44% as compared to 2.44% for the three months ended March 31, 2016.

Comparison of Financial Condition at March 31, 2017, and December 31, 2016

Total assets decreased $6.1 million, or 0.2%, to $3.84 billion at March 31, 2017, from $3.85 billion at December 31, 2016. The decrease was primarily due to decreases in cash and cash equivalents of $44.8 million and securities available-for-sale of $27.7 million, partially offset by an increase in loans held-for-investment, net, of $66.2 million.

Cash and cash equivalents decreased $44.8 million, or 46.6%, to $51.3 million at March 31, 2017, from $96.1 million at December 31, 2016. Balances fluctuate based on the timing of receipt of security and loan repayments and the redeployment of cash into other asset classes, or the funding of deposit or borrowing obligations.

The available-for-sale securities portfolio totaled $471.2 million at March 31, 2017, compared to $498.9 million at December 31, 2016, a decrease of $27.7 million, or 5.6%, primarily attributable to paydowns. At March 31, 2017, $420.9 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 $45.4 million in corporate bonds, all of which were considered investment grade at March 31, 2017, and other securities of $4.7 million (including $1.3 million of equity investments in mutual funds).

As of March 31, 2017, we estimate our non-owner occupied commercial real estate concentration (as defined by regulatory guidance issued in 2006) to total risk-based capital was approximately 379%. Management believes that Northfield Bank (the “Bank”) has implemented appropriate risk management practices including risk assessments, board approved underwriting policies and related procedures which include, monitoring bank portfolio performance, performing market analysis (economic and real estate), and stressing of the Bank’s commercial real estate portfolio under severe adverse economic

Table of Contents

conditions. Although management believes the Bank has implemented appropriate policies and procedures to manage our commercial real estate concentration risk, the Bank’s regulators could require us to implement additional policies and procedures or could require us to maintain higher levels of regulatory capital, which might adversely affect our loan originations, ability to pay dividends, and profitability.

Loans held-for-investment, net, increased $66.2 million to $3.03 billion at March 31, 2017, from $2.97 billion at December 31, 2016. The increase was primarily due to originated loan growth. Originated loans held-for-investment, net, totaled $2.24 billion at March 31, 2017, as compared to $2.14 billion at December 31, 2016. The increase was primarily due to an increase in multifamily real estate loans of $102.4 million, or 6.8%, to $1.61 billion at March 31, 2017, from $1.51 billion at December 31, 2016. The following table details our multifamily real estate originations for the three months ended March 31, 2017 and 2016 (dollars in thousands):



For the Three Months Ended March 31, 2017
Multifamily Originations		Weighted Average Interest Rate	Weighted Average Loan-to-Value Ratio	Weighted Average Months to Next Rate Change or Maturity for Fixed Rate Loans	(F)ixed or (V)ariable	Amortization Term
$	125,145	3.48%	61%	81	V	25 to 30 Years
2,290		3.76%	40%	180	F	15 Years
$	127,435	3.48%	61%

For the Three Months Ended March 31, 2016
Multifamily Originations		Weighted Average Interest Rate	Weighted Average Loan-to-Value Ratio	Weighted Average Months to Next Rate Change or Maturity for Fixed Rate Loans	(F)ixed or (V)ariable	Amortization Term
$	50,287	3.50%	57%	87	V	30 Years
2,675		3.96%	36%	181	F	15 Years
$	52,962	3.53%	56%

Acquired loans decreased by $32.5 million to $760.7 million at March 31, 2017, from $793.2 million at December 31, 2016. The decrease was primarily due to paydowns.

Total liabilities decreased $15.3 million, or 0.5%, to $3.21 billion at March 31, 2017, from $3.23 billion at December 31, 2016. The decrease was primarily attributable to decreases in deposits of $37.3 million and securities sold under agreements to repurchase totaling $4.0 million, partially offset by an increase in other borrowings of $26.2 million.

Deposits decreased $37.3 million, or 1.4%, to $2.68 billion at March 31, 2017, as compared to $2.71 billion at December 31, 2016. The decrease was attributable to decreases of $88.0 million in transaction accounts and $17.5 million in savings accounts, partially offset by increases of $36.5 million in money market accounts and $31.6 million in certificates of deposit accounts.

Borrowings and securities sold under agreements to repurchase increased by $22.2 million, or 4.7%, to $495.4 million at March 31, 2017, from $473.2 million at December 31, 2016. Management utilizes borrowings to mitigate interest rate risk, for short-term liquidity, and to a lesser extent as part of leverage strategies. The following is a table of term borrowing maturities (excluding capitalized leases and overnight borrowings) and the weighted average rate by year at March 31, 2017 (dollars in thousands):



Year	Amount	Weighted Average Rate
2017	$137,000	1.16%
2018	142,715	1.66%
2019	123,502	1.48%
2020	80,000	1.64%
	$483,217	1.47%

Table of Contents

Total stockholders’ equity increased by $9.2 million to $630.4 million at March 31, 2017, from $621.2 million at December 31, 2016. The increase was primarily attributable to net income of $9.9 million for the three months ended March 31, 2017, and to a lesser extent a $2.3 million increase related to equity award activity and a $604,000 reduction in unrealized losses on our securities available-for-sale portfolio. These increases were partially offset by dividend payments of approximately $3.7 million.

Comparison of Operating Results for the Three Months Ended March 31, 2017 and 2016

Net income. Net income was $9.9 million and $3.7 million for the three months ended March 31, 2017, and March 31, 2016, respectively. Significant variances from the comparable prior year quarter are as follows: a $1.9 million increase in net interest income, a $503,000 increase in the provision for loan losses, a $1.9 million increase in non-interest income, a $4.0 million decrease in non-interest expense, and a $1.0 million increase in income tax expense.

Interest Income. Interest income increased $1.9 million, or 6.3%, to $32.1 million for the three months ended March 31, 2017, from $30.2 million for the three months ended March 31, 2016, due to an increase in the average balance of interest-earning assets of $184.5 million, or 5.5%, and a six basis point increase in yields earned on interest-earning assets. Interest income on loans increased by $2.1 million, primarily attributable to an increase in the average loan balances of $293.3 million, which was partially offset by an eight basis point decrease in the yield earned on loans. The Company accreted interest income related to its PCI loans of $1.5 million for the three months ended March 31, 2017, as compared to $1.3 million for the three months ended March 31, 2016. Interest income on loans for the three months ended March 31, 2017, reflected loan prepayment income of $327,000 compared to $244,000 for the three months ended March 31, 2016.

Interest Expense. Interest expense remained stable at $5.4 million for both the three months ended March 31, 2017 and March 31, 2016, as the $130.0 million increase in the average balance of interest-bearing liabilities was offset by a four basis point decrease in the cost of interest-bearing liabilities to 0.79% for the current quarter as compared to 0.83% for the comparable prior year quarter, primarily due to lower rates on borrowed funds.

Net Interest Income. Net interest income for the three months ended March 31, 2017, increased $1.9 million, or 7.9%, primarily due to a $184.5 million, or 5.5%, increase in our average interest-earning assets and a nine basis point increase in our net interest margin to 3.04%. The increase in average interest-earning assets was primarily attributable to increases in average loans outstanding of $293.3 million and other securities of $5.2 million, partially offset by decreases in average mortgage-backed securities of $86.6 million and interest-earning deposits in financial institutions of $28.6 million. The increase in average loans was primarily due to originated loan growth. Yields earned on interest-earning assets increased six basis points to 3.65% for the three months ended March 31, 2017, from 3.59% for the three months ended March 31, 2016. The cost of interest-bearing liabilities decreased four basis points to 0.79% for the three months ended March 31, 2017 as compared to 0.83% for the three months ended March 31, 2016, primarily due to lower rates on borrowed funds.

Provision for Loan Losses. The provision for loan losses increased by $503,000 to $372,000 for the three months ended March 31, 2017, from a negative provision of $131,000 for the three months ended March 31, 2016, primarily due to growth in the loan portfolio, partially offset by declines in non-performing loans and net recoveries during the three months ended March 31, 2017. Net recoveries, primarily due to insurance proceeds received related to a previously impaired loan, were $317,000 for the current quarter, compared to net charge-offs of $261,000 for the comparable prior year.

Non-interest Income. Non-interest income increased $1.9 million, or 86.0%, to $4.1 million for the three months ended March 31, 2017, from $2.2 million for the three months ended March 31, 2016. The increase was primarily the result of an increase of $1.5 million in income on bank owned life insurance, attributable to insurance proceeds in excess of the related cash surrender value of the policies, and $406,000 in gains on securities transactions, net. Securities gains, net, in the three months ended March 31, 2017, included gains of $408,000 related to the Company’s trading portfolio, while the comparative 2016 quarter included losses of $49,000 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 fair values. Therefore, the Company records an equal and offsetting amount in compensation expense, reflecting the change in the Company’s obligations under the Plan.

Non-interest Expense. Non-interest expense decreased $4.0 million, or 18.4%, to $17.5 million for the three months ended March 31, 2017, from $21.5 million for the three months ended March 31, 2016. The decrease was primarily due to a $3.2 million reduction in merger-related expenses associated with the Hopewell Valley acquisition reflected in the first quarter

Table of Contents

of 2016. Compensation and employee benefits expense decreased $1.7 million, primarily due to a reduction in severance, retention, and change-in-control compensation associated with the Hopewell Valley acquisition in the prior year quarter, partially offset by annual merit-related salary increases and an increase in expense related to the Company’s deferred compensation plan, which is described above, and had no effect on net income. Data processing costs decreased $698,000, primarily due to non-recurring conversion costs of $650,000 associated with the Hopewell Valley acquisition incurred in the prior year first quarter. Professional fees decreased $371,000 due to $557,000 of non-recurring merger-related professional fees associated with the Hopewell Valley acquisition incurred in the first quarter of 2016, partially offset by an increase in other professional fees. FDIC insurance expense decreased by $217,000 due to a reduction in the FDIC's assessment rates for depository institutions with less than $10.0 billion in assets, which became effective in the quarter ended September 30, 2016. Other expense decreased by $788,000, primarily due to lower Directors' equity award expense, and lower advertising expense, due in part to lower printing and production costs associated with Hopewell Valley customer communications and data conversion mailings in the first quarter of 2016.

Income Tax Expense. The Company recorded income tax expense of $3.0 million for the three months ended March 31, 2017, compared to $1.9 million for the three months ended March 31, 2016. The effective tax rate for the three months ended March 31, 2017, was 22.9% compared to 34.5% for the three months ended March 31, 2016. The Company adopted ASU 2016-09 in the first quarter of 2017, which resulted in, among other things, a $1.7 million reduction in income tax expense related to the exercise or vesting of equity awards. Previously, these tax benefits were recorded through equity as an adjustment to additional paid in capital. In addition, the effective tax rate for the quarter ended March 31, 2017, was affected by $1.5 million of tax-exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies. In accordance with accounting standards, the tax effect will be recognized evenly throughout the year. Management estimates the full year tax effect will be $570,000, of which $143,000 was recognized in the first quarter of 2017. The remaining $427,000 ($0.01 per diluted share) will be recognized over the remaining three quarters of 2017.

Table of Contents

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
	March 31, 2017						March 31, 2016
	Average Outstanding Balance		Interest		Average Yield/ Rate ⁽¹⁾		Average Outstanding Balance		Interest		Average Yield/ Rate ⁽¹⁾
Interest-earning assets:
Loans ⁽²⁾	$	2,974,577	$	29,008	3.95	%	$	2,681,234	$	26,888	4.03	%
Mortgage-backed securities ⁽³⁾	451,590		2,356		2.12		538,163		2,769		2.07
Other securities ⁽³⁾	58,229		252		1.76		53,068		173		1.31
Federal Home Loan Bank of New York stock	26,351		371		5.71		25,180		277		4.42
Interest-earning deposits in financial institutions	50,728		82		0.66		79,345		62		0.31
Total interest-earning assets	3,561,475		32,069		3.65		3,376,990		30,169		3.59
Non-interest-earning assets	283,845						240,976
Total assets	$	3,845,320					$	3,617,966

Interest-bearing liabilities:
Savings, NOW, and money market accounts	$	1,736,163	$	2,030	0.47	%	$	1,532,914	$	2,128	0.56	%
Certificates of deposit	533,984		1,590		1.21		588,442		1,296		0.89
Total interest-bearing deposits	2,270,147		3,620		0.65		2,121,356		3,424		0.65
Borrowed funds	496,953		1,772		1.45		515,791		2,017		1.57
Total interest-bearing liabilities	2,767,100		5,392		0.79		2,637,147		5,441		0.83
Non-interest bearing deposit accounts	383,029						341,496
Accrued expenses and other liabilities	68,603						35,309
Total liabilities	3,218,732						3,013,952
Stockholders' equity	626,588						604,014
Total liabilities and stockholders' equity	$	3,845,320					$	3,617,966

Net interest income			$	26,677					$	24,728
Net interest rate spread ⁽⁴⁾					2.86	%					2.76	%
Net interest-earning assets ⁽⁵⁾	$	794,375					$	739,843
Net interest margin ⁽⁶⁾					3.04	%					2.95	%
Average interest-earning assets to interest-bearing liabilities					128.71	%					128.05	%




(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.

Table of Contents

Asset Quality

Purchased Credit Impaired Loans

PCI loans are recorded at estimated fair value using discounted expected future cash flows deemed to be collectible on the date acquired. Based on its detailed review of PCI loans and experience in loan workouts, management believes it has a reasonable expectation about the amount and timing of future cash flows and accordingly has classified PCI loans ($29.7 million at March 31, 2017 and $30.5 million at December 31, 2016) as accruing, even though they may be contractually past due. At March 31, 2017, 7.7% of PCI loans were past due 30 to 89 days, and 15.7% were past due 90 days or more, as compared to 6.6% and 19.3%, respectively, at December 31, 2016.

Originated and Acquired loans

The following table details total originated and acquired (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 March 31, 2017, and December 31, 2016 (dollars in thousands):



	March 31, 2017			December 31, 2016
Non-accrual loans:
Real estate loans:
Commercial	$	3,404		$	5,513
One-to-four family residential	1,013			1,629
Multifamily	904			43
Home equity and lines of credit	123			127
Commercial and industrial	81			9
Total non-accrual loans:	5,525			7,321
Loans delinquent 90 days or more and still accruing:
Real estate loans:
Commercial	258			—
One-to-four family residential	216			52
Multifamily	428			—
Home equity and lines of credit	3			8
Other	17			—
Total loans delinquent 90 days or more and still accruing	922			60
Total non-performing loans	6,447			7,381
Other real estate owned	850			850
Total non-performing assets	$	7,297		$	8,231
Non-performing loans to total loans held-for-investment, net	0.21		%	0.25		%
Non-performing assets to total assets	0.19		%	0.21		%
Loans subject to restructuring agreements and still accruing	$	20,868		$	20,628
Accruing loans 30 to 89 days delinquent	15,784			10,100

Table of Contents

Accruing Loans 30 to 89 Days Delinquent

Loans 30 to 89 days delinquent and on accrual status totaled $15.8 million and $10.1 million at March 31, 2017, and December 31, 2016, respectively. The following table sets forth delinquencies for accruing loans by type and by amount at March 31, 2017, and December 31, 2016 (dollars in thousands):



	March 31, 2017		December 31, 2016
Real estate loans:
Commercial	$	7,600	$	4,578
One-to-four family residential	6,042		3,621
Multifamily	1,760		1,440
Home equity and lines of credit	286		263
Commercial and industrial loans	96		148
Other loans	—		50
Total delinquent accruing loans	$	15,784	$	10,100

Included in loans 30 to 89 days delinquent at March 31, 2017, is one commercial real estate loan with a balance of $1.2 million and one one-to-four family residential loan with a balance of $1.7 million for which payments were made in early April and are now current.

Loans Subject to TDR Agreements

Included in non-accruing loans are loans subject to TDR agreements totaling $430,000 and $1.8 million at March 31, 2017 and December 31, 2016, respectively. At March 31, 2017, the entire $430,000 of non-accruing TDRs were not performing in accordance with their restructured terms, as compared to $1.4 million, or 76.4%, of the $1.8 million that were not performing in accordance with their restructured terms at December 31, 2016. Two separate relationships account for the loans not performing in accordance with their restructured terms at March 31, 2017. These loans are primarily collateralized by real estate with an aggregate estimated fair value of approximately $698,000.

The Company also holds loans subject to restructuring agreements that are on accrual status totaling $20.9 million and $20.6 million at March 31, 2017, and December 31, 2016, respectively. At March 31, 2017, $2.0 million, or 9.5%, of the $20.9 million accruing TDRs were not performing in accordance with their restructured terms. The majority of the $2.0 million relates to one commercial real estate loan with a balance of $1.5 million that was 31 days delinquent at March 31, 2017. This loan is adequately covered by collateral (an industrial building utilized as a limousine storage and repair facility) with a recent appraised value of $2.0 million.

The following table details the amounts and categories of the loans subject to restructuring agreements by loan type as of March 31, 2017, and December 31, 2016 (in thousands):



	March 31, 2017				December 31, 2016
	Non-Accruing		Accruing		Non-Accruing		Accruing
Troubled Debt Restructurings:
Real estate loans:
Commercial	$	—	$	15,705	$	1,000	$	15,828
One-to-four family residential	430		3,226		783		2,835
Multifamily	—		1,508		—		1,527
Home equity and lines of credit	—		331		—		336
Commercial and industrial loans	—		98		—		102
	$	430	$	20,868	$	1,783	$	20,628

Table of Contents

Liquidity and Capital Resources

Liquidity. The overall objective of our liquidity management is to ensure the availability of sufficient funds to meet financial commitments and to take advantage of lending and investment opportunities. The Bank manages liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.

The Bank's primary sources of funds are deposits, principal and interest payments on loans and securities, borrowed funds, the proceeds from maturing securities and short-term investments, and to a lesser extent the proceeds from the sales of loans and securities and wholesale borrowings. The scheduled amortization of loans and securities, as well as proceeds from borrowed funds, are predictable sources of funds. Other funding sources, however, such as deposit inflows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition. The Bank is a member of the Federal Home Loan Bank of New York (“FHLB”), which provides an additional source of short-term and long-term funding. The Bank also has short-term borrowing capabilities with the Federal Reserve Bank of New York. The Bank’s borrowed funds, excluding capitalized lease obligations and floating rate advances, were $483.2 million at March 31, 2017, and had a weighted average interest rate of 1.47%. A total of $182.6 million of these borrowings will mature in less than one year. Borrowed funds, excluding capitalized lease obligations and floating rate advances, were $462.0 million at December 31, 2016. The Bank has the ability to obtain additional funding from the FHLB and Federal Reserve Bank of New York's discount window of approximately $764.2 million utilizing unencumbered securities of $30.2 million and loans of $810.4 million at March 31, 2017. The Bank expects to have sufficient funds available to meet current commitments in the normal course of business.

Northfield Bancorp, Inc. (standalone) is a separate legal entity from the Bank and must provide for its own liquidity to pay dividends, repurchase its stock, and for other corporate purposes. Northfield Bancorp, Inc.'s primary source of liquidity is dividend payments from the Bank. At March 31, 2017, Northfield Bancorp, Inc. (stand alone) had liquid assets of approximately $5.3 million.

During the first quarter of 2017, the Company enhanced its liquidity position by arranging for a municipal line of credit from the FHLB to be used, if needed, to collateralize our municipal deposits.

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

Table of Contents

At March 31, 2017, and December 31, 2016, as set forth in the following table, both the Bank and Northfield Bancorp, Inc exceeded all of the regulatory capital requirements to which they were subject at such dates.



	The Bank	Northfield Bancorp, Inc	For Capital Adequacy Purposes ⁽¹⁾	For Well Capitalized Under Prompt Corrective Action Provisions
As of March 31, 2017:
Common equity Tier 1 capital (to risk-weighted assets)	17.67%	18.57%	5.75%	6.50%
Tier 1 leverage	14.92%	15.63%	4.00%	5.00%
Tier I capital (to risk-weighted assets)	17.67%	18.57%	7.25%	8.00%
Total capital (to risk-weighted assets)	18.47%	19.37%	9.25%	10.00%
As of December 31, 2016:
Common equity Tier 1 capital (to risk-weighted assets)	17.75%	18.79%	5.125%	6.50%
Tier 1 leverage	14.55%	15.40%	4.000%	5.00%
Tier I capital (to risk-weighted assets)	17.75%	18.79%	6.625%	8.00%
Total capital (to risk-weighted assets)	18.56%	19.60%	8.625%	10.00%

(1) Includes capital conservation buffer at March 31, 2017, and December 31, 2016.

Off-Balance Sheet Arrangements and Contractual Obligations

In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance with U.S. GAAP, are not recorded in the financial statements. These transactions primarily relate to lending commitments. These arrangements are not expected to have a material impact on the Company's results of operations or financial condition.

The following table shows the contractual obligations of the Company by expected payment period as of March 31, 2017:



Contractual Obligation	Total		Less than One Year		One to less than Three Years		Three to less than Five Years		More than Five Years
	(in thousands)
Debt obligations (excluding capitalized leases)	$	483,217	$	182,635	$	260,582	$	40,000	$	—
Commitments to originate loans	72,396		72,396		—		—		—
Commitments to fund unused lines of credit	81,806		81,806		—		—		—

Commitments to fund unused lines of credit are agreements to lend additional funds to customers as long as there have been no violations of any of the conditions established in the agreements (original or restructured). Commitments to originate loans generally have a fixed expiration or other termination clauses, which may or may not require payment of a fee. Since some of these loan commitments are expected to expire without being drawn upon, total commitments do not necessarily represent future cash requirements.

For further information regarding our off-balance sheet arrangements and contractual obligations, see "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

Recent Accounting Standards and Interpretations

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

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Management of Market Risk

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

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


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


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


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

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

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

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

The following tables set forth, as of March 31, 2017, and December 31, 2016, our calculation of the estimated changes in our NPV, NPV ratio, and percent change in net interest income that would result from the designated instantaneous and sustained changes in interest rates (dollars in thousands). Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit repricing characteristics including decay rates, and correlations to movements in interest rates, and should not be relied on as indicative of actual results.

Table of Contents



	NPV at March 31, 2017
Change in Interest Rates (basis points)	Estimated Present Value of Assets		Estimated Present Value of Liabilities		Estimated NPV		Estimated Change in NPV			Estimated Change in NPV %		Estimated NPV/Present Value of Assets Ratio		Net Interest Income Percent Change (Year 1)
+400	$	3,422,468	$	2,869,724	$	552,744	$	(190,217	)	(25.60	)%	16.15	%	(16.51	)%
+300	3,518,322		2,922,175		596,147		(146,814		)	(19.76	)	16.94		(12.13	)
+200	3,622,190		2,976,929		645,261		(97,700		)	(13.15	)	17.81		(7.84	)
+100	3,727,690		3,034,126		693,564		(49,397		)	(6.65	)	18.61		(3.82	)
—	3,836,882		3,093,921		742,961		—			—		19.36		—
(100)	3,960,344		3,156,700		803,644		60,683			8.17		20.29		1.17
(200)	4,118,491		3,213,162		905,329		162,368			21.85		21.98		(1.45	)



	NPV at December 31, 2016
Change in Interest Rates (basis points)	Estimated Present Value of Assets		Estimated Present Value of Liabilities		Estimated NPV		Estimated Change In NPV			Estimated Change in NPV %		Estimated NPV/Present Value of Assets Ratio		Net Interest Income Percent Change (Year 1)
+400	$	3,453,451	$	2,884,031	$	569,420	$	(200,567	)	(26.05	)%	16.49	%	(15.85	)%
+300	3,551,355		2,936,326		615,029		(154,958		)	(20.12	)	17.32		(11.67	)
+200	3,657,218		2,990,913		666,305		(103,682		)	(13.47	)	18.22		(7.53	)
+100	3,765,179		3,047,933		717,246		(52,741		)	(6.85	)	19.05		(3.68	)
—	3,877,525		3,107,538		769,987		—			—		19.86		—
(100)	4,011,261		3,171,899		839,362		69,375			9.01		20.93		1.10
(200)	4,179,973		3,227,571		952,402		182,415			23.69		22.78		(1.89	)

At March 31, 2017, in the event of a 200 basis point decrease in interest rates, we would experience a 21.85% increase in estimated net portfolio value and a 1.45% decrease in net interest income. In the event of a 400 basis point increase in interest rates, we would experience a 25.60% decrease in estimated net portfolio value and a 16.51% decrease in net interest income. Our policies provide that, in the event of a 200 basis point decrease or less in interest rates, our net present value ratio should decrease by no more than 300 basis points, or 10%, and in the event of a 400 basis point increase or less, our net present value should decrease by no more than 475 basis points, or 35%. In the event of a 200 basis point decrease or less, our projected net interest income should decrease by no more than 10% in year one, and in the event of a 400 basis point increase or less, our projected net interest income should decrease by no more than 30% in year one. However, when the federal funds rate is low and negative rate shocks do not produce meaningful results, management may temporarily suspend use of guidelines for negative rate shocks. At March 31, 2017, we were in compliance with all board approved policies with respect to interest rate risk management.

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

Table of Contents

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of March 31, 2017. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

During the three months ended March 31, 2017, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Table of Contents

PART II

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

During the three months ended March 31, 2017, there have been no material changes to the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the SEC.

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


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


(b)	Use of Proceeds. Not applicable


(c)	Repurchases of Our Equity Securities.

The Company’s did not repurchase any of its common stock for the three months ended March 31, 2017. The repurchase program permits shares to be repurchased in open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. There were no shares remaining to be purchased at March 31, 2017.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

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

Table of Contents

SIGNATURES

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

NORTHFIELD BANCORP, INC.

(Registrant)

Date: May 10, 2017

/s/ John W. Alexander

John W. Alexander

Chairman and Chief Executive Officer

/s/ William R. Jacobs

William R. Jacobs

Chief Financial Officer

(Principal Financial and Accounting Officer)

Table of Contents

INDEX TO EXHIBITS



Exhibit
Number		Description



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

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

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

101			The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements

Northfield Bancorp, Inc. - FORM 10-Q - May 10, 2017

Attached files

Northfield Bancorp, Inc. Reports