Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from              to             

Commission File Number 1-33732

 

 

NORTHFIELD BANCORP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

United States of America   42-1572539

(State or other jurisdiction

of incorporation)

 

(I.R.S. Employer

Identification No.)

1410 St. Georges Avenue, Avenel, New Jersey   07001
(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  x    No  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on it 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  x    No  ¨.

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

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if smaller reporting company)    Smaller reporting company   ¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. 40,216,999 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of November 2, 2012.

 

 

 


Table of Contents

NORTHFIELD BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents

 

         Page
Number
 
PART I - FINANCIAL INFORMATION   
Item 1.  

Financial Statements

     2   
Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     30   
Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

     42   
Item 4.  

Controls and Procedures

     44   
PART II - OTHER INFORMATION   
Item 1.  

Legal Proceedings

     45   
Item 1A.  

Risk Factors

     45   
Item 2.  

Unregistered Sales of Equity Securities and Use of Proceeds

     45   
Item 3.  

Defaults Upon Senior Securities

     45   
Item 4.  

Mine Safety Disclosures

     45   
Item 5.  

Other Information

     45   
Item 6.  

Exhibits

     45   
Signatures      46   

 

1


Table of Contents

PART I

 

ITEM 1. FINANCIAL STATEMENTS

NORTHFIELD BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

September 30, 2012, and December 31, 2011

(In thousands, except share amounts)

 

     September 30,
2012
    December 31,
2011
 
     (Unaudited)        

ASSETS:

    

Cash and due from banks

   $ 11,849      $ 15,539   

Interest-bearing deposits in other financial institutions

     20,162        49,730   
  

 

 

   

 

 

 

Total cash and cash equivalents

     32,011        65,269   
  

 

 

   

 

 

 

Trading securities

     4,737        4,146   

Securities available-for-sale, at estimated fair value (encumbered $286,585 in 2012 and $309,816 in 2011)

     1,209,006        1,098,725   

Securities held-to-maturity, at amortized cost (estimated fair value of $2,656 in 2012 and $3,771 in 2011) (encumbered $0 in 2012 and 2011)

     2,537        3,617   

Loans held-for-sale

     856        3,900   

Purchased credit-impaired (PCI) loans held-for-investment

     77,423        88,522   

Originated loans held-for-investment, net

     1,023,928        985,945   
  

 

 

   

 

 

 

Loans held-for-investment, net

     1,101,351        1,074,467   

Allowance for loan losses

     (27,069     (26,836
  

 

 

   

 

 

 

Net loans held-for-investment

     1,074,282        1,047,631   
  

 

 

   

 

 

 

Accrued interest receivable

     7,346        8,610   

Bank owned life insurance

     79,917        77,778   

Federal Home Loan Bank of New York stock, at cost

     14,478        12,677   

Premises and equipment, net

     24,074        19,988   

Goodwill

     16,159        16,159   

Other real estate owned

     633        3,359   

Other assets

     25,075        15,059   
  

 

 

   

 

 

 

Total assets

     2,491,111        2,376,918   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY:

    

LIABILITIES:

    

Deposits

     1,570,780        1,493,526   

Securities sold under agreements to repurchase

     256,000        276,000   

Other borrowings

     243,934        205,934   

Advance payments by borrowers for taxes and insurance

     3,995        2,201   

Accrued expenses and other liabilities

     20,608        16,607   
  

 

 

   

 

 

 

Total liabilities

     2,095,317        1,994,268   
  

 

 

   

 

 

 

STOCKHOLDERS’ EQUITY:

    

Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued or outstanding

     —          —     

Common stock, $0.01 par value: 90,000,000 shares authorized, 45,632,611 shares issued at September 30, 2012, and December 31, 2011, respectively, 40,216,999 and 40,518,591 outstanding at September 30, 2012 and December 31, 2011, respectively

     456        456   

Additional paid-in-capital

     211,997        209,302   

Unallocated common stock held by employee stock ownership plan

     (14,133     (14,570

Retained earnings

     246,657        235,776   

Accumulated other comprehensive income

     20,824        17,470   

Treasury stock at cost; 5,415,612 and 5,114,020 shares at September 30, 2012 and December 31, 2011, respectively

     (70,007     (65,784
  

 

 

   

 

 

 

Total stockholders’ equity

     395,794        382,650   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 2,491,111      $ 2,376,918   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

2


Table of Contents

NORTHFIELD BANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

Three and nine months ended September 30, 2012, and 2011

(Unaudited)

(In thousands, except share data)

 

     Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2012     2011     2012      2011  

Interest income:

         

Loans

   $ 15,162      $ 14,044      $ 45,187       $ 39,296   

Mortgage-backed securities

     6,799        7,746        20,418         24,838   

Other securities

     559        781        2,102         2,538   

Federal Home Loan Bank of New York dividends

     151        113        435         343   

Deposits in other financial institutions

     19        35        47         140   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total interest income

     22,690        22,719        68,189         67,155   
  

 

 

   

 

 

   

 

 

    

 

 

 

Interest expense:

         

Deposits

     2,447        3,111        7,432         9,399   

Borrowings

     3,244        3,331        9,820         9,879   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total interest expense

     5,691        6,442        17,252         19,278   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net interest income

     16,999        16,277        50,937         47,877   

Provision for loan losses

     502        2,000        1,661         5,117   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net interest income after provision for loan losses

     16,497        14,277        49,276         42,760   
  

 

 

   

 

 

   

 

 

    

 

 

 

Non-interest income:

         

Fees and service charges for customer services

     720        740        2,285         2,181   

Income on bank owned life insurance

     710        749        2,139         2,235   

Gain (loss) on securities transactions, net

     428        (271     2,488         2,373   

Other-than-temporary impairment losses on securities

     —          —          —           (1,152

Portion recognized in other comprehensive income (before taxes)

     —          —          —           743   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net impairment losses on securities recognized in earnings

     —          —          —           (409
  

 

 

   

 

 

   

 

 

    

 

 

 

Other

     (148     22        203         159   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total non-interest income

     1,710        1,240        7,115         6,539   
  

 

 

   

 

 

   

 

 

    

 

 

 

Non-interest expense:

         

Compensation and employee benefits

     5,950        4,890        17,881         15,101   

Director compensation

     409        370        1,212         1,141   

Occupancy

     2,201        1,685        6,230         4,508   

Furniture and equipment

     375        312        1,064         891   

Data processing

     826        720        2,829         2,054   

Professional fees

     684        382        2,480         1,242   

FDIC insurance

     409        454        1,218         1,523   

Other

     1,174        973        3,557         2,863   
  

 

 

   

 

 

   

 

 

    

 

 

 

Total non-interest expense

     12,028        9,786        36,471         29,323   
  

 

 

   

 

 

   

 

 

    

 

 

 

Income before income tax expense

     6,179        5,731        19,920         19,976   

Income tax expense

     2,285        2,035        7,130         6,963   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income

   $ 3,894      $ 3,696      $ 12,790       $ 13,013   
  

 

 

   

 

 

   

 

 

    

 

 

 

Net income per common share - basic and diluted

   $ 0.10      $ 0.09      $ 0.33       $ 0.32   
  

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive income, before tax:

         

Unrealized gains on securities:

         

Net unrealized holding gains on securities

   $ 3,432      $ 6,346      $ 5,590       $ 14,181   
  

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive income, before tax

     3,432        6,346        5,590         14,181   

Income tax expense related to items of other comprehensive income

     1,373        2,537        2,236         5,671   
  

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive income, net of tax

     2,059        3,809        3,354         8,510   
  

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income

   $ 5,953      $ 7,505      $ 16,144       $ 21,523   
  

 

 

   

 

 

   

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

3


Table of Contents

NORTHFIELD BANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Nine months ended September 30, 2012, and 2011

(Unaudited)

(Dollars in thousands)

 

    Common Stock     Additional    

Unallocated
Common
Stock Held
by the
Employee

Stock

          Accumulated
Other
Comprehensive
          Total  
    Shares     Par
Value
    Paid-in
Capital
    Ownership
Plan
    Retained
Earnings
    Income (Loss),
Net of tax
    Treasury
Stock
    Stockholders’
Equity
 

Balance at December 31, 2010

    45,632,611      $ 456      $ 205,863      $ (15,188   $ 222,655      $ 10,910      $ (27,979   $ 396,717   

Comprehensive income:

               

Net income

            13,013            13,013   

Other comprehensive income

              8,510          8,510   

ESOP shares allocated or committed to be released

        150        438              588   

Stock compensation expense

        2,282                2,282   

Additional tax benefit on equity awards

        186                186   

Exercise of stock options

            (1       6        5   

Cash dividends declared ($0.17 per common share)

            (2,805         (2,805

Treasury stock (average cost of $13.47 per share)

                (28,242     (28,242
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2011

    45,632,611      $ 456      $ 208,481      $ (14,750   $ 232,862      $ 19,420      $ (56,215   $ 390,254   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011

    45,632,611      $ 456      $ 209,302      $ (14,570   $ 235,776      $ 17,470      $ (65,784   $ 382,650   

Comprehensive income:

               

Net income

            12,790            12,790   

Other comprehensive income

              3,354          3,354   

ESOP shares allocated or committed to be released

        192        437              629   

Stock compensation expense

        2,299                2,299   

Additional tax benefit on equity awards

        204                204   

Exercise of stock options

            (187       121        (66

Cash dividends declared ($0.12 per common share)

            (1,722         (1,722

Treasury stock (average cost of $13.81 per share)

                (4,344     (4,344
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

    45,632,611      $ 456      $ 211,997      $ (14,133   $ 246,657      $ 20,824      $ (70,007   $ 395,794   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

4


Table of Contents

NORTHFIELD BANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended September 30, 2012, and 2011

(Unaudited) (In thousands)

 

     2012     2011  

Cash flows from operating activities:

    

Net income

   $ 12,790      $ 13,013   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Provision for loan losses

     1,661        5,117   

ESOP and stock compensation expense

     2,928        2,870   

Depreciation

     2,076        1,566   

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

     277        967   

Amortization of intangible assets

     273        74   

Income on bank owned life insurance

     (2,139     (2,235

Gain on sale of premises and equipment and other real estate owned

     —          (84

Net gain on sale of loans held-for-sale

     111        (25

Proceeds from sale of loans held-for-sale

     13,303        7,739   

Origination of loans held-for-sale

     (10,370     (8,099

Gain on securities transactions, net

     (2,488     (2,373

Net impairment losses on securities recognized in earnings

     —          409   

Net purchases of trading securities

     (135     (235

Decrease in accrued interest receivable

     1,264        69   

Decrease (increase) in other assets

     1,192        (1,660

(Decrease) increase in accrued expenses and other liabilities

     (1,098     114   
  

 

 

   

 

 

 

Net cash provided by operating activities

     19,645        17,227   
  

 

 

   

 

 

 

Cash flows from investing activities:

    

Net (increase) in loans receivable

     (28,538     (140,045

(Purchases) redemptions of Federal Home Loan Bank of New York stock, net

     (1,801     253   

Purchases of securities available-for-sale

     (606,140     (423,400

Principal payments and maturities on securities available-for-sale

     318,165        280,713   

Principal payments and maturities on securities held-to-maturity

     1,079        932   

Proceeds from sale of securities available-for-sale

     176,586        140,724   

Proceeds from sale of other real estate owned

     2,706        571   

Purchases and improvements of premises and equipment

     (6,162     (3,769
  

 

 

   

 

 

 

Net cash used in investing activities

     (144,105     (144,021
  

 

 

   

 

 

 

Cash flows from financing activities:

    

Net increase in deposits

     77,254        81,985   

Dividends paid

     (1,722     (2,805

Exercise of stock options

     16        5   

Purchase of treasury stock

     (4,344     (28,242

Additional tax benefit on equity awards

     204        186   

Increase in advance payments by borrowers for taxes and insurance

     1,794        2,208   

Repayments under capital lease obligations

     (186     (161

Proceeds from securities sold under agreements to repurchase and other borrowings

     351,186        467,864   

Repayments related to securities sold under agreements to repurchase and other borrowings

     (333,000     (404,594
  

 

 

   

 

 

 

Net cash provided by financing activities

     91,202        116,446   
  

 

 

   

 

 

 

Net (decrease) in cash and cash equivalents

     (33,258     (10,348

Cash and cash equivalents at beginning of period

     65,269        43,852   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 32,011      $ 33,504   
  

 

 

   

 

 

 

Supplemental cash flow information:

    

Cash paid during the period for:

    

Interest

   $ 17,490      $ 19,059   

Income taxes

     5,334        7,853   

Non-cash transactions:

    

Loans charged-off, net

     1,428        1,433   

Other real estate owned charged-off

     437        26   

Transfers of loans to other real estate owned

     306        376   

Increase (decrease) in due to broker for purchases of securities available-for-sale

     5,099        (57,007

(Increase) in due from broker for sales of securities available-for-sale

     (13,779     —     

See accompanying notes to consolidated financial statements.

 

5


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., and its wholly-owned subsidiary, Northfield Bank (the “Bank”), and the Bank’s wholly-owned significant subsidiaries, NSB Services Corp. and NSB Realty Trust (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.

In the opinion of management, all adjustments (consisting solely of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the three and nine months ended September 30, 2012, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2012. Certain prior year amounts have been reclassified to conform to the current year presentation.

In preparing the unaudited consolidated financial statements in conformity with U.S. generally accepted accounting principles (“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. The current economic environment has increased the degree of uncertainty inherent in these material 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, 2011, of Northfield Bancorp, Inc. as filed with the SEC.

Note 2 – Securities

The following is a comparative summary of mortgage-backed securities and other securities available-for-sale at September 30, 2012, and December 31, 2011 (in thousands):

 

     September 30, 2012  
     Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
     Estimated
fair
value
 
           
           

Mortgage-backed securities:

           

Pass-through certificates:

           

Government sponsored enterprises (GSE)

   $ 480,881       $ 27,655       $ —         $ 508,536   

Non-GSE

     —           —           —           —     

Real estate mortgage investment conduits (REMICs):

           

GSE

     594,871         6,315         233         600,953   

Non-GSE

     11,108         520         38         11,590   
  

 

 

    

 

 

    

 

 

    

 

 

 
     1,086,860         34,490         271         1,121,079   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other securities:

           

Equity investments-mutual funds

     12,856         106         —           12,962   

Corporate bonds

     74,115         850         —           74,965   
  

 

 

    

 

 

    

 

 

    

 

 

 
     86,971         956         —           87,927   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available-for-sale

   $ 1,173,831       $ 35,446       $ 271       $ 1,209,006   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

6


Table of Contents
     December 31, 2011  
     Amortized
cost
     Gross
unrealized
gains
     Gross
unrealized
losses
     Estimated
fair value
 

Mortgage-backed securities:

           

Pass-through certificates:

           

GSE

   $ 490,184       $ 24,709       $ —         $ 514,893   

Non-GSE

     8,770         —           1,255         7,515   

Real estate mortgage investment conduits (REMICs):

           

GSE

     426,362         4,662         135         430,889   

Non-GSE

     31,114         1,859         37         32,936   
  

 

 

    

 

 

    

 

 

    

 

 

 
     956,430         31,230         1,427         986,233   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other securities:

           

Equity investments-mutual funds

     11,787         48         —           11,835   

Corporate bonds

     100,922         358         623         100,657   
  

 

 

    

 

 

    

 

 

    

 

 

 
     112,709         406         623         112,492   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total securities available-for-sale

   $ 1,069,139       $ 31,636       $ 2,050       $ 1,098,725   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following is a summary of the expected maturity distribution of debt securities available-for-sale, other than mortgage-backed securities, at September 30, 2012 (in thousands):

 

Available-for-sale

   Amortized
cost
     Estimated
fair value
 

Due in one year or less

   $ 35,303       $ 35,459   

Due after one year through five years

     38,812         39,506   
  

 

 

    

 

 

 
   $ 74,115       $ 74,965   
  

 

 

    

 

 

 

Expected maturities on mortgage-backed securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties.

For the three and nine months ended September 30, 2012, the Company had gross proceeds of $46.3 million and $176.6 million, respectively, on sales of securities available-for-sale with gross realized gains of approximately $715,000 and $2.0 million, respectively. The Company had gross realized losses of $490,000 for the three and nine months ended September 30, 2012. For the three and nine months ended September 30, 2011, the Company had gross proceeds of $26.3 million and $140.7 million, respectively, on sales of securities available-for-sale with gross realized gains of approximately $296,000 and $2.8 million, respectively, and no gross realized losses. The Company recognized $203,000 and $456,000 in gains on its trading securities portfolio during the three and nine months ended September 30, 2012, respectively. The Company recognized $567,000 and $428,000 in losses on its trading securities portfolio during the three and nine months ended September 30, 2011, respectively. The Company did not recognize any other-than-temporary impairment charges during the three and nine months ended September 30, 2012. The Company did not recognize any other-than-temporary impairment charges during the three months ended September 30, 2011 and recognized other-than-temporary impairment of $409,000 during the nine months ended September 30, 2011 related to one equity investment in a mutual fund and two private label mortgage-backed securities.

 

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Activity related to the credit component recognized in earnings on debt securities for which a portion of other-than-temporary impairment was recognized in accumulated other comprehensive income for the three and nine months ended September 30, 2012 and 2011, is as follows (in thousands):

 

     Three months
ended
September 30,
     Nine months
ended
September 30,
 
     2012     2011      2012     2011  

Balance, beginning of period

   $ 578      $ 578       $ 578      $ 330   

Additions to the credit component on debt securities in which other-than-temporary impairment was not previously recognized

     —          —           —          248   

Reductions due to sales

     (578     —           (578     —     
  

 

 

   

 

 

    

 

 

   

 

 

 

Cumulative pre-tax credit losses, end of period

   $ —        $ 578       $ —        $ 578   
  

 

 

   

 

 

    

 

 

   

 

 

 

Gross unrealized losses on mortgage-backed securities, equity investments, and corporate bonds available-for-sale, and the estimated fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2012, and December 31, 2011, were as follows (in thousands):

 

     September 30, 2012  
     Less than 12 months      12 months or more      Total  
     Unrealized
losses
     Estimated
fair value
     Unrealized
losses
     Estimated
fair value
     Unrealized
losses
     Estimated
fair value
 

Real estate mortgage investment conduits (REMICs):

                 

GSE

     233         147,667         —           —           233         147,667   

Non-GSE

     —           —           38         700         38         700   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 233       $ 147,667       $ 38       $ 700       $ 271       $ 148,367   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2011  
     Less than 12 months      12 months or more      Total  
     Unrealized
losses
     Estimated
fair value
     Unrealized
losses
     Estimated
fair value
     Unrealized
losses
     Estimated
fair value
 

Mortgage-backed securities:

                 

Pass-through certificates:

                 

Non-GSE

   $ 307       $ 2,513       $ 948       $ 5,002       $ 1,255       $ 7,515   

Real estate mortgage investment conduits (REMICs):

                 

GSE

     135         54,475         —           —           135         54,475   

Non-GSE

     —           —           37         842         37         842   

Corporate bonds

     113         27,523         510         13,132         623         40,655   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 555       $ 84,511       $ 1,495       $ 18,976       $ 2,050       $ 103,487   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

During the current quarter the Company sold two pass-through non-GSE mortgage-backed securities issued by private companies (private label) that were rated less than investment grade at a combined loss of $490,000. As a result of management’s evaluation of these securities, the Company did not recognize any other-than-temporary impairment during the nine months ended September 30, 2012. These securities are included in the above available-for-sale security amounts at December 31, 2011.

The Company held one corporate bond that was in a continuous unrealized loss position of greater than twelve months at September 30, 2012. There were 15 REMIC mortgage-backed securities issued or guaranteed by GSEs that were in an unrealized loss position of less than twelve months, and rated investment grade at September 30, 2012. 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.

 

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Table of Contents

Note 3 – Loans

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

 

     September 30,
2012
    December 31,
2011
 

Real estate loans:

    

Multifamily

   $ 573,316      $ 458,370   

Commercial mortgage

     312,379        327,074   

One-to-four family residential mortgage

     65,023        72,592   

Home equity and lines of credit

     32,622        29,666   

Construction and land

     23,204        23,460   
  

 

 

   

 

 

 

Total real estate loans

     1,006,544        911,162   
  

 

 

   

 

 

 

Commercial and industrial loans

     14,155        12,710   

Insurance premium loans

     26        59,096   

Other loans

     1,401        1,496   
  

 

 

   

 

 

 

Total commercial and industrial, insurance premium, and other loans

     15,582        73,302   
  

 

 

   

 

 

 

Deferred loan cost, net

     1,802        1,481   
  

 

 

   

 

 

 

Originated loans held-for-investment, net

     1,023,928        985,945   

PCI Loans

     77,423        88,522   
  

 

 

   

 

 

 

Loans held for investmement, net

     1,101,351        1,074,467   

Allowance for loan losses

     (27,069     (26,836
  

 

 

   

 

 

 

Net loans held-for-investment

   $ 1,074,282      $ 1,047,631   
  

 

 

   

 

 

 

Loans held-for-sale amounted to $856,000 and $3.9 million at September 30, 2012 and December 31, 2011, respectively. Loans held-for-sale are comprised of one-to-four family residential mortgage loans.

PCI loans, acquired as part of a Federal Deposit Insurance Corporation-assisted transaction, totaled $77.4 million at September 30, 2012 as compared to $88.5 million at December 31, 2011. The Company accounts for PCI loans utilizing generally accepting accounting principles applicable to loans acquired with deteriorated credit quality. PCI loans consist of approximately 33% commercial real estate and 56% commercial and industrial loans, with the remaining balance in residential and home equity loans. The following details the accretable yield for the three and nine months ended September 30, 2012:

 

     For the Three
Months
Ended
September 30,
2012
    For the Nine
Months
Ended
September 30,
2012
 

Balance at the beginning of period

   $ 39,311      $ 42,493   

Accretion into interest income

     (1,499     (4,681
  

 

 

   

 

 

 

Balance at end of period

   $ 37,812      $ 37,812   
  

 

 

   

 

 

 

The Company does not have any lending programs commonly referred to as subprime lending. Subprime lending generally targets borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios.

During the quarter ended September 30, 2012, we sold the servicing rights of the $34.5 million of loans for Freddie Mac to a third party bank. These one-to-four family residential mortgage real estate loans were underwritten to Freddie Mac guidelines and to comply with applicable federal, state, and local laws. At the time of the closing of these loans the Company owned the loans and subsequently sold them to Freddie Mac providing normal and customary representations and warranties, including representations and warranties related to compliance with Freddie Mac underwriting standards. At the time of sale, the loans were free from encumbrances except for the mortgages filed for by the Company which, with other underwriting documents, were subsequently assigned and delivered to Freddie Mac. At the time of sale to the third party, substantially all of the loans serviced for Freddie Mac were performing in accordance with their contractual terms and management believes that it has no material repurchase obligations associated with these loans.

 

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Table of Contents

Activity in the allowance for loan losses is as follows (in thousands):

 

     At or for the nine
months ended
September 30,
 
     2012     2011  

Beginning balance

   $ 26,836      $ 21,819   

Provision for loan losses

     1,661        5,117   

Charge-offs, net

     (1,428     (1,433
  

 

 

   

 

 

 

Ending balance

   $ 27,069      $ 25,503   
  

 

 

   

 

 

 

The following tables set forth activity in our allowance for loan losses, by loan type, for the nine months ended September 30, 2012 and the year ended December 31, 2011. The following tables also detail the amount of originated loans 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, as of September 30, 2012 and December 31, 2011 (in thousands).

 

10


Table of Contents
    At September 30, 2012  
    Real Estate                                
    Multifamily     Commercial     One -to-
Four
Family
    Construction
and Land
    Home
Equity
and
Lines of
Credit
    Commercial
and
Industrial
    Insurance
Premium
    Other     Unallocated     Total  

Allowance for loan losses:

                   

Beginning Balance

  $ 6,772      $ 14,120      $ 967      $ 1,189      $ 418      $ 2,035      $ 186      $ 40      $ 1,109      $ 26,836   

Charge-offs

    (58     (1,245     —          (43     (3     (90     (198     (2     —          (1,639

Recoveries

    5        66        —          —          —          122        18        —          —          211   

Provisions

    807        778        (367     (177     197        185        (4     1        241        1,661   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

  $ 7,526      $ 13,719      $ 600      $ 969      $ 612      $ 2,252      $ 2      $ 39      $ 1,350      $ 27,069   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

  $ 339      $ 2,101      $ 8      $ —        $ 125      $ 1,550      $ —        $ —        $ —        $ 4,123   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

  $ 7,187      $ 11,618      $ 592      $ 969      $ 487      $ 702      $ 2      $ 39      $ 1,350      $ 22,946   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Originated loans, net:

                   

Ending Balance

  $ 574,574      $ 312,525      $ 65,090      $ 23,217      $ 32,917      $ 14,178      $ 26      $ 1,401      $ —        $ 1,023,928   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

  $ 2,919      $ 42,143      $ 1,013      $ —        $ 1,947      $ 5,778      $ —        $ —        $ —        $ 53,800   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

  $ 571,655      $ 270,382      $ 64,077      $ 23,217      $ 30,970      $ 8,400      $ 26      $ 1,401      $ —        $ 970,128   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    At December 31, 2011  
    Real Estate                                
    Multifamily     Commercial     One -to-
Four
Family
    Construction
and Land
    Home
Equity
and
Lines of
Credit
    Commercial
and
Industrial
    Insurance
Premium
    Other     Unallocated     Total  

Allowance for loan losses:

                   

Beginning Balance

  $ 5,137      $ 12,654      $ 570      $ 1,855      $ 242      $ 719      $ 111      $ 28      $ 503      $ 21,819   

Charge-offs

    (718     (5,398     (101     (693     (62     (638     (70     —          —          (7,680

Recoveries

    —          55        —          —          —          23        30        —          —          108   

Provisions

    2,353        6,809        498        27        238        1,931        115        12        606        12,589   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending Balance

  $ 6,772      $ 14,120      $ 967      $ 1,189      $ 418      $ 2,035      $ 186      $ 40      $ 1,109      $ 26,836   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

  $ 338      $ 1,895      $ 408      $ —        $ 30      $ 1,393      $ —        $ —        $ —        $ 4,064   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

  $ 6,434      $ 12,225      $ 559      $ 1,189      $ 388      $ 642      $ 186      $ 40      $ 1,109      $ 22,772   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Originated loans, net:

                   

Ending balance

  $ 459,434      $ 327,141      $ 72,679      $ 23,478      $ 29,906      $ 12,715      $ 59,096      $ 1,496      $ —        $ 985,945   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: individually evaluated for impairment

  $ 2,945      $ 43,448      $ 2,532      $ 1,709      $ 1,593      $ 2,043      $ —        $ —        $ —        $ 54,270   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance: collectively evaluated for impairment

  $ 456,489      $ 283,693      $ 70,147      $ 21,769      $ 28,313      $ 10,672      $ 59,096      $ 1,496      $ —        $ 931,675   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The Company monitors the credit quality of its loans by reviewing certain key 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 help management monitor the credit quality of the Company’s loans. Loan-to-value (LTV) ratios used by management in monitoring credit quality are based on current period loan balances and original values at time of origination (unless a more current appraisal has been obtained). In calculating the provision for loan losses, management has determined that commercial real estate loans and multifamily loans having loan-to-value ratios of less than 35%, and one- to four-family loans having loan-to-value ratios 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. When the lending officer learns of important financial developments, the risk rating is reviewed and adjusted if necessary. Periodically, management presents monitored assets to the Board 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

 

11


Table of Contents

establishment of the loan loss provision and in confirming the adequacy of the allowance for loan losses. After determining the general reserve loss factor for each portfolio segment, the portfolio segment 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. Loans collectively evaluated for impairment that have an internal credit rating of special mention or substandard are multiplied by a multiple of the general reserve loss factors for each 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 through 5 are considered pass ratings. An asset is considered 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 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 designated special mention.

The following tables detail the recorded investment of originated loans held-for-investment, net of deferred fees and costs, by loan type and credit quality indicator at September 30, 2012, and December 31, 2011 (in thousands).

 

    At September 30, 2012  
    Real Estate                          
    Multifamily     Commercial     One- to Four-
Family
    Construction
and Land
    Home
Equity
and
Lines
of
Credit
    Commercial
and
Industrial
    Insurance
Premium
    Other     Total  
    < 35%
LTV
    => 35%
LTV
    < 35%
LTV
    => 35%
LTV
    < 60%
LTV
    =>
60%
LTV
                                     

Internal Risk Rating Pass

  $ 18,914      $ 535,381      $ 31,613      $ 209,179      $ 40,916      $ 20,198      $ 12,519      $ 30,554      $ 10,302      $ 24      $ 1,401      $ 911,001   

Special Mention

    118        12,549        257        22,459        1,441        386        5,141        669        782        2        —          43,804   

Substandard

    513        7,099        1,695        47,322        1,094        1,055        5,557        1,694        3,094        —          —          69,123   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans Receivable, net

  $ 19,545      $ 555,029      $ 33,565      $ 278,960      $ 43,451      $ 21,639      $ 23,217      $ 32,917      $ 14,178      $ 26      $ 1,401      $ 1,023,928   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    At December 31, 2011  
    Real Estate                          
    Multifamily     Commercial     One- to Four-
Family
    Construction
and Land
    Home
Equity
and
Lines
of
Credit
    Commercial
and
Industrial
    Insurance
Premium
    Other     Total  
    < 35%
LTV
    => 35%
LTV
    < 35%
LTV
    => 35%
LTV
    < 60%
LTV
    =>
60%
LTV
                                     

Internal Risk Rating Pass

  $ 23,595      $ 419,433      $ 30,478      $ 214,120      $ 39,808      $ 27,806      $ 17,229      $ 27,751      $ 8,761      $ 58,817      $ 1,496      $ 869,294   

Special Mention

    —          11,989        624        23,271        1,730        —          631        389        1,118        142        —          39,894   

Substandard

    555        3,862        2,027        56,621        821        2,514        5,618        1,766        2,836        137        —          76,757   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Loans Receivable, net

  $ 24,150      $ 435,284      $ 33,129      $ 294,012      $ 42,359      $ 30,320      $ 23,478      $ 29,906      $ 12,715      $ 59,096      $ 1,496      $ 985,945   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

12


Table of Contents

Included in originated loans receivable (including held-for-sale) are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The recorded investment of these nonaccrual loans was $33.2 million and $43.8 million at September 30, 2012 and December 31, 2011, respectively. Generally, loans are placed on non-accruing status when they become 90 days or more delinquent, and remain on non-accrual status until they are brought current, have six 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 $29.7 million and $36.1 million at September 30, 2012 and December 31, 2011, respectively. Loans on non-accrual status with principal balances less than $500,000, and therefore not meeting the Company’s definition of an impaired loan, amounted to $3.5 million and $4.3 million at September 30, 2012 and December 31, 2011, respectively. Non-accrual amounts included in loans held-for-sale were $3.4 million at December 31, 2011. There were not any non-accrual loans held-for-sale loans at September 30, 2012. Loans past due 90 days or more and still accruing interest were $37,000 and $85,000 at September 30, 2012 and December 31, 2011, respectively, and consisted of loans that are considered well secured and in the process of collection.

The following tables set forth the detail, and delinquency status, of non-performing loans (non-accrual loans and loans past due 90 or more and still accruing), net of deferred fees and costs, at September 30, 2012 and December 31, 2011 (in thousands). The following table excludes PCI loans at September 30, 2012, which have been segregated into pools in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Subtopic 310-30. Each loan pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows. At September 30, 2012, expected future cash flows of each PCI loan pool were consistent with those estimated at its purchase date.

 

     At September 30, 2012  
     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

     1,695         —           —           1,695         —           1,695   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,695         —           —           1,695         —           1,695   

LTV => 35%

                 

Substandard

     14,547         448         8,110         23,105         —           23,105   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     14,547         448         8,110         23,105         —           23,105   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     16,242         448         8,110         24,800         —           24,800   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

One-to-four family residential

                 

LTV < 60%

                 

Special Mention

     —           20         229         249         37         286   

Substandard

     50         452         —           502         —           502   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     50         472         229         751         37         788   

LTV => 60%

                 

Substandard

     233         441         131         805         —           805   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     233         441         131         805         —           805   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total one-to-four family residential

     283         913         360         1,556         37         1,593   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Construction and land Substandard

     2,070         —           —           2,070         —           2,070   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total construction and land

     2,070         —           —           2,070         —           2,070   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Multifamily

                 

LTV => 35%

                 

Substandard

           1,840         1,840         —           1,840   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —           —           1,840         1,840         —           1,840   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total multifamily

     —           —           1,840         1,840         —           1,840   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Home equity and lines of credit Substandard

     203         —           1,491         1,694         —           1,694   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total home equity and lines of credit

     203         —           1,491         1,694         —           1,694   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial loans Substandard

     537         —           724         1,261         —           1,261   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial and industrial loans

     537         —           724         1,261         —           1,261   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-performing loans

   $ 19,335       $ 1,361       $ 12,525       $ 33,221       $ 37       $ 33,258   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

13


Table of Contents
     At December 31, 2011  
     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%

                 

Special Mention

     —           —           —           —           13         13   

Substandard

   $ 404       $ —         $ 1,360       $ 1,764       $ —         $ 1,764   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     404         —           1,360         1,764         13         1,777   

LTV => 35%

                 

Special Mention

     876         —           1,020         1,896         —           1,896   

Substandard

     14,657         3,438         10,559         28,654         —           28,654   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     15,533         3,438         11,579         30,550         —           30,550   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     15,937         3,438         12,939         32,314         13         32,327   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

One-to-four family residential

                 

LTV < 60%

                 

Special Mention

     —           23         335         358         —           358   

Substandard

     210         —           198         408         —           408   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     210         23         533         766         —           766   

LTV => 60%

                 

Substandard

     —           572            572         —           572   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —           572         —           572         —           572   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total one-to-four family residential

     210         595         533         1,338         —           1,338   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Construction and land

                 

Special Mention

     —           —           —           —              —     

Substandard

     1,709         —           —           1,709         —           1,709   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total construction and land

     1,709         —           —           1,709         —           1,709   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Multifamily

                 

LTV < 35%

                 

Substandard

     523         —           —           523         —           523   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     523         —           —           523         —           523   

LTV => 35%

                 

Substandard

     —           —           1,179         1,179         72         1,251   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —           —           1,179         1,179         72         1,251   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total multifamily

     523         —           1,179         1,702         72         1,774   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Home equity and lines of credit Substandard

     102         —           1,664         1,766            1,766   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total home equity and lines of credit

     102         —           1,664         1,766         —           1,766   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial loans

                 

Special Mention

     —           —           724         724         —           724   

Substandard

     553         —           90         643         —           643   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial and industrial loans

     553         —           814         1,367         —           1,367   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Insurance premium loans - substandard

     —           —           137         137         —           137   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total insurance premium loans

     —           —           137         137         —           137   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans-held-for-investmet

     19,034         4,033         17,266         40,333         85         40,418   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Loans held-for-sale:

                 

Commercial

                 

LTV < 35%

                 

Substandard

     —           —           263         263         —           263   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —           —           263         263         —           263   

LTV => 35%

                 

Substandard

     458         175         1,449         2,082         —           2,082   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     458         175         1,449         2,082         —           2,082   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     458         175         1,712         2,345         —           2,345   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Construction and land Substandard

     —           —           422         422         —           422   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total construction and land

     —           —           422         422         —           422   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Multifamily

                 

LTV < 35%

                 

Substandard

     —           —           32         32         —           32   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —           —           32         32         —           32   

LTV => 35%

                 

Substandard

     —           —           441         441         —           441   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     —           —           441         441         —           441   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total multifamily

     —           —           473         473         —           473   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial loans Substandard

     —           —           208         208         —           208   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial and industrial loans

     —           —           208         208         —           208   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
                 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total loans held-for-sale

     458         175         2,815         3,448         —           3,448   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total non-performing loans

   $ 19,492       $ 4,208       $ 20,081       $ 43,781       $ 85       $ 43,866   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

14


Table of Contents

The following tables set forth the detail and delinquency status of originated loans held-for-investment, net of deferred fees and costs, by performing and non-performing loans at September 30, 2012 and December 31, 2011 (in thousands).

 

     At September 30, 2012  
     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

   $ 31,613       $ —         $ 31,613       $ —         $ 31,613   

Special Mention

     257         —           257         —           257   

Substandard

     —           —           —           1,695         1,695   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     31,870         —           31,870         1,695         33,565   

LTV > 35%

              

Pass

     208,053         1,126         209,179         —           209,179   

Special Mention

     22,459         —           22,459         —           22,459   

Substandard

     21,840         2,376         24,216         23,105         47,321   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     252,352         3,502         255,854         23,105         278,959   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     284,222         3,502         287,724         24,800         312,524   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

One-to-four family residential

              

LTV < 60%

              

Pass

   $ 40,427       $ 490         40,917         —           40,917   

Special Mention

     714         441         1,155         286         1,441   

Substandard

     124         468         592         502         1,094   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     41,265         1,399         42,664         788         43,452   

LTV > 60%

              

Pass

     18,499         1,699         20,198         —           20,198   

Special Mention

     386         —           386         —           386   

Substandard

     250         —           250         805         1,055   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     19,135         1,699         20,834         805         21,639   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total one-to-four family residential

     60,400         3,098         63,498         1,593         65,091   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Construction and land

              

Pass

     12,519         —           12,519         —           12,519   

Special Mention

     5,141         —           5,141         —           5,141   

Substandard

     3,487         —           3,487         2,070         5,557   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total construction and land

     21,147         —           21,147         2,070         23,217   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Multifamily

              

LTV < 35%

              

Pass

     18,776         138         18,914         —           18,914   

Special Mention

     118            118         —           118   

Substandard

     513         —           513         —           513   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     19,407         138         19,545         —           19,545   

LTV > 35%

              

Pass

     535,115         265         535,380         —           535,380   

Special Mention

     10,838         1,711         12,549         —           12,549   

Substandard

     4,919         340         5,259         1,840         7,099   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     550,872         2,316         553,188         1,840         555,028   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total multifamily

     570,279         2,454         572,733         1,840         574,573   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Home equity and lines of credit

              

Pass

     30,541         13         30,554         —           30,554   

Special Mention

     669            669         —           669   

Substandard

     —              —           1,694         1,694   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total home equity and lines of credit

     31,210         13         31,223         1,694         32,917   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial loans

              

Pass

     10,278         24         10,302         —           10,302   

Special Mention

     782         —           782         —           782   

Substandard

     994         840         1,834         1,261         3,095   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial and industrial loans

     12,054         864         12,918         1,261         14,179   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Insurance premium loans

              

Pass

     25         —           25         —           25   

Special Mention

     1         —           1         —           1   

Substandard

     —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total insurance premium loans

     26         —           26         —           26   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans

              

Pass

     1,334         67         1,401         —           1,401   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     1,334         67         1,401         —           1,401   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 980,672       $ 9,998       $ 990,670       $ 33,258       $ 1,023,928   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

15


Table of Contents
     At December 31, 2011  
     Performing (Accruing) Loans                
     0-29 Days
Past Due
     30-89 Days
Past Due
     Total      Non-Performing
Loans
     Total
Loans
Receivable,
net
 

Real estate loans:

              

Commercial

              

LTV < 35%

              

Pass

   $ 30,478       $ —         $ 30,478       $ —         $ 30,478   

Special Mention

     611         —           611         13         624   

Substandard

     —           —           —           1,764         1,764   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     31,089         —           31,089         1,777         32,866   

LTV > 35%

              

Pass

     215,123         1,342         216,465         —           216,465   

Special Mention

     20,796         579         21,375         1,896         23,271   

Substandard

     19,402         6,483         25,885         28,654         54,539   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     255,321         8,404         263,725         30,550         294,275   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial

     286,410         8,404         294,814         32,327         327,141   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

One-to-four family residential

              

LTV < 60%

              

Pass

     39,420         388         39,808         —           39,808   

Special Mention

     974         398         1,372         358         1,730   

Substandard

     129         284         413         408         821   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     40,523         1,070         41,593         766         42,359   

LTV > 60%

              

Pass

     26,618         1,188         27,806         —           27,806   

Special Mention

     —           —           —           —           —     

Substandard

     1,942         —           1,942         572         2,514   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     28,560         1,188         29,748         572         30,320   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total one-to-four family residential

     69,083         2,258         71,341         1,338         72,679   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Construction and land

              

Pass

     14,610         3,041         17,651         —           17,651   

Special Mention

     631         —           631         —           631   

Substandard

     3,487         —           3,487         1,709         5,196   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total construction and land

     18,728         3,041         21,769         1,709         23,478   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Multifamily

              

LTV < 35%

              

Pass

     23,595         —           23,595         —           23,595   

Substandard

     —           —           —           523         523   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     23,595         —           23,595         523         24,118   

LTV > 35%

              

Pass

     416,453         3,453         419,906         —           419,906   

Special Mention

     10,526         1,463         11,989         —           11,989   

Substandard

     618         1,552         2,170         1,251         3,421   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     427,597         6,468         434,065         1,251         435,316   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total multifamily

     451,192         6,468         457,660         1,774         459,434   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Home equity and lines of credit

              

Pass

     27,721         30         27,751         —           27,751   

Special Mention

     389         —           389         —           389   

Substandard

     —           —           —           1,766         1,766   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total home equity and lines of credit

     28,110         30         28,140         1,766         29,906   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial loans

              

Pass

     8,887         82         8,969         —           8,969   

Special Mention

     269         125         394         724         1,118   

Substandard

     1,985         —           1,985         643         2,628   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total commercial and industrial loans

     11,141         207         11,348         1,367         12,715   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Insurance premium loans

              

Pass

     58,391         426         58,817         —           58,817   

Special Mention

     —           142         142         —           142   

Substandard

     —           —           —           137         137   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total insurance premium loans

     58,391         568         58,959         137         59,096   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other loans

              

Pass

     1,405         91         1,496         —           1,496   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other loans

     1,405         91         1,496         —           1,496   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   $ 924,460       $ 21,067       $ 945,527       $ 40,418       $ 985,945   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

16


Table of Contents

The following tables summarize impaired loans as of September 30, 2012 and December 31, 2011 (in thousands):

 

     At September 30, 2012  
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
 

With No Related Allowance Recorded:

        

Real estate loans:

        

Commercial

        

LTV < 35%

        

Substandard

     1,695         1,695         —     

LTV => 35%

        

Pass

     2,790         2,790         —     

Special Mention

     1,044         1,052         —     

Substandard

     25,285         26,490         —     

One-to-four family residential

        

LTV < 60%

        

Substandard

     50         50         —     

LTV => 60%

        

Substandard

     489         489         —     

Construction and land

        

Substandard

     2,373         3,031         —     

Multifamily

        

LTV < 35%

        

Substandard

     513         513         —     

LTV => 35%

        

Loss

     112         583         —     

Commercial and industrial loans

        

Special Mention

     38         38         —     

Substandard

     1,542         1,542         —     

With a Related Allowance Recorded:

        

Real estate loans:

        

Commercial

        

LTV => 35%

        

Special Mention

     642         669         (64

Substandard

     13,108         13,715         (2,100

One-to-four family residential

        

LTV < 60%

        

Special Mention

     524         524         (9

Multifamily

        

LTV => 35%

        

Substandard

     3,125         3,153         (402

Home equity and lines of credit

        

Special Mention

     360         360         (20

Substandard

     1,587         1,589         (105

Commercial and industrial loans

        

Substandard

     493         493         (1,423

Total:

        

Real estate loans

        

Commercial

     44,564         46,411         (2,164

One-to-four family residential

     1,063         1,063         (9

Construction and land

     2,373         3,031         —     

Multifamily

     3,750         4,249         (402

Home equity and lines of credit

     1,947         1,949         (125

Commercial and industrial loans

     2,073         2,073         (1,423
  

 

 

    

 

 

    

 

 

 
   $ 55,770       $ 58,776       $ (4,123
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     At December 31, 2011  
     Recorded
Investment
     Unpaid
Principal
Balance
     Related
Allowance
 

With No Allowance Recorded:

        

Real estate loans:

        

Commercial

        

LTV < 35%

        

Substandard

   $ 1,764       $ 1,764       $ —     

Loss

     —           471         —     

LTV => 35%

        

Special Mention

     3,670         3,679         —     

Substandard

     26,284         27,906         —     

Construction and land

        

Substandard

     1,709         2,607         —     

Multifamily

        

LTV < 35%

        

Substandard

     523         523         —     

LTV => 35%

        

Substandard

     870         870         —     

Commercial and industrial loans

        

Special Mention

     660         660         —     

Substandard

     921         921         —     

With a Related Allowance Recorded:

        

Real estate loans:

        

Commercial

        

LTV < 35%

        

Substandard

     1,766         2,132         (175

LTV => 35%

        

Special Mention

     659         685         (65

Substandard

     9,305         9,305         (1,655

One-to-four family residential

        

LTV < 60%

        

Special Mention

     782         782         (22

LTV => 60%

        

Substandard

     1,750         1,750         (386

Multifamily

        

LTV => 35%

     1,552         1,552         (338

Substandard

        

Home equity and lines of credit

        

Substandard

     1,593         1,593         (30

Commercial and industrial loans

        

Substandard

     462         462         (1,393

Total:

        

Real estate loans

        

Commercial

     43,448         45,942         (1,895

One-to-four family residential

     2,532         2,532         (408

Construction and land

     1,709         2,607         —     

Multifamily

     2,945         2,945         (338

Home equity and lines of credit

     1,593         1,593         (30

Commercial and industrial loans

     2,043         2,043         (1,393
  

 

 

    

 

 

    

 

 

 
   $ 54,270       $ 57,662       $ (4,064
  

 

 

    

 

 

    

 

 

 

 

18


Table of Contents

Included in the table above at September 30, 2012 are loans with carrying balances of $35.9 million that were not written down by either charge-offs or specific reserves in our allowance for loan losses. Included in the table above at December 31, 2011 are loans with carrying balances of $27.9 million that were not written down by either charge-offs or specific reserves in our allowance for loan losses. Loans not written down by charge-offs or specific reserves at September 30, 2012 and December 31, 2011, are considered to have sufficient collateral values, less costs to sell, to support the carrying balances of the loans.

The average recorded balance of originated impaired loans for the nine months ended September 30, 2012 and 2011 was $55.0 million and $62.6 million, respectively. The Company recorded $938,000 and $2.2 million of interest income on impaired loans for the three and nine months ended September 30, 2012, respectively, as compared to $246,000 and $1.9 million of interest income on impaired loans for the three and nine months ended September 30, 2011, respectively.

The following table summarizes loans that were modified in troubled debt restructurings during the nine months ended September 30, 2012.

 

     Nine Months Ended September 30, 2012  
     Number of
Relationships
     Pre-Modification
Outstanding
Recorded
Investment
     Post-Modification
Outstanding
Recorded
Investment
 
     (in thousands)  

Troubled Debt Restructurings

        

Commercial real estate loans

        

Substandard

     1         6,306         6,306   

One-to-four Family

        

Substandard

     2         489         489   

Home equity and lines of credit

        

Special Mention

     2         360         360   
  

 

 

    

 

 

    

 

 

 

Total Troubled Debt Restructurings

     5       $ 7,155       $ 7,155   
  

 

 

    

 

 

    

 

 

 

At September 30, 2012 and December 31, 2011, we had troubled debt restructurings of $45.1 million and $41.6 million, respectively.

All five of the relationships in the table above were restructured to receive reduced interest rates.

Management classifies all troubled debt restructurings 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 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.

One loan that was restructured during the last twelve months has subsequently defaulted. The loan was a one-to-four family loan with a recorded investment of $256,000 and currently is maintained on non-accrual status as of September 30, 2012.

 

19


Table of Contents

Note 4 – Deposits

Deposits are as follows (in thousands):

 

     September 30,
2012
     December 31,
2011
 

Non-interest-bearing demand

   $ 175,279       $ 156,493   

Interest-bearing negotiable orders of withdrawal (NOW)

     106,232         91,829   

Savings-passbook, statement, tiered, and money market

     815,213         765,081   

Certificates of deposit

     474,056         480,123   
  

 

 

    

 

 

 
   $ 1,570,780       $ 1,493,526   
  

 

 

    

 

 

 

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

 

     Three months ended
September 30,
     Nine months ended
September 30,
 
     2012      2011      2012      2011  

Negotiable order of withdrawal, savings-passbook, statement, tiered, and money market

   $ 996       $ 1,155       $ 3,115       $ 3,453   

Certificates of deposit

     1,451         1,956         4,317         5,946   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 2,447       $ 3,111       $ 7,432       $ 9,399   
  

 

 

    

 

 

    

 

 

    

 

 

 

Note 5 – Equity Incentive Plan

The following table is a summary of the Company’s stock options outstanding as of September 30, 2012 and changes therein during the nine months then ended:

 

     Number of
Stock
Options
    Weighted
Average
Grant
Date Fair
Value
     Weighted
Average
Exercise
Price
     Weighted
Average
Contractual
Life (years)
 

Outstanding - December 31, 2011

     2,056,660      $ 3.22       $ 9.95         7.02   

Granted

     —          —           —           —     

Forfeited

     (3,560     3.22         9.94         —     

Exercised

     (42,680     3.22         9.94         —     
  

 

 

         

Outstanding - September 30, 2012

     2,010,420      $ 3.22       $ 9.95         6.32   
  

 

 

         

Exercisable - September 30, 2012

     1,240,040      $ 3.22       $ 9.95         6.32   
  

 

 

         

Expected future stock option expense related to the non-vested options outstanding as of September 30, 2012 is $1.8 million over an average period of 1.3 years.

The following is a summary of the status of the Company’s restricted share awards as of September 30, 2012 and changes therein during the nine months then ended.

 

     Number
of Shares
Awarded
    Weighted
Average
Grant
Date Fair
Value
 

Non-vested at December 31, 2011

     488,830      $ 9.97   

Granted

     —          —     

Vested

     (162,650     9.96   

Forfeited

     (1,240     9.94   
  

 

 

   

Non-vested at September 30, 2012

     324,940      $ 9.97   
  

 

 

   

 

20


Table of Contents

Expected future stock award expense related to the non-vested restricted share awards as of September 30, 2012 is $2.2 million over an average period of 1.3 years.

During the three and nine months ended September 30, 2012, the Company recorded $800,000 and $2.3 million of stock-based compensation related to the above plans, respectively. During the three and nine months ended September 30, 2011, the Company recorded $748,000 and $2.3 million of stock-based compensation related to the above plans, respectively.

Note 6 – Fair Value Measurements

The following table presents the assets reported on the consolidated balance sheet at their estimated fair value as of September 30, 2012, and December 31, 2011, 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.

 

21


Table of Contents
     Fair Value Measurements at Reporting Date Using:  
     September 30,
2012
     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

   $ 1,109,489       $ —         $ 1,109,489       $ —     

Non-GSE

     11,590         —           11,590         —     

Corporate bonds

     74,965         —           74,965         —     

Equities

     12,962         12,962         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale

     1,209,006         12,962         1,196,044         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Trading securities

     4,737         4,737         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,213,743       $ 17,699       $ 1,196,044       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Measured on a non-recurring basis:

           

Assets:

           

Impaired loans:

           

Real estate loans:

           

Commercial real estate

   $ 30,591       $ —         $ —         $ 30,591   

One-to-four family residential mortgage

     780         —           —           780   

Construction and land

     2,070         —           —           2,070   

Multifamily

     3,097         —           —           3,097   

Home equity and lines of credit

     1,947         —           —           1,947   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

     38,485         —           —           38,485   
  

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial loans

     454         —           —           454   

Other real estate owned

     633         —           —           633   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 39,572       $ —         $ —         $ 39,572   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

22


Table of Contents
     Fair Value Measurements at Reporting Date Using:  
     December 31,
2011
     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

   $ 945,782       $ —         $ 945,782       $ —     

Non-GSE

     40,451         —           40,451         —     

Corporate bonds

     100,657         —           100,657         —     

Equities

     11,835         11,835         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale

     1,098,725         11,835         1,086,890         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Trading securities

     4,146         4,146         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,102,871       $ 15,981       $ 1,086,890       $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Measured on a non-recurring basis:

           

Assets:

           

Impaired loans:

           

Real estate loans:

           

Commercial real estate

   $ 27,826       $ —         $ —         $ 27,826   

One-to-four family residential mortgage

     2,532         —           —           2,532   

Construction and land

     1,709         —           —           1,709   

Multifamily

     1,552         —           —           1,552   

Home equity and lines of credit

     1,593         —           —           1,593   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total impaired loans

     35,212         —           —           35,212   
  

 

 

    

 

 

    

 

 

    

 

 

 

Commercial and industrial loans

     462         —           —           462   

Other real estate owned

     3,359         —           —           3,359   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 39,033       $ —         $ —         $ 39,033   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table presents qualitative information for Level 3 assets measured at fair value on a non-recurring basis at September 30, 2012:

 

     Fair Value      Valuation
Methodology
    

Unobservable Inputs

   Range of Inputs
     (in thousands)                   

Impaired loans

   $ 38,939         Appraisals      

Discount for costs to sell

   7.0%
        

Discount for quick sale

   10.0% - 20.0%
        

Discount for dated appraisal utilizing changes in real estate indexes

   Varies

Other real estate owned

   $ 633         Appraisals      

Discount for costs to sell

   7.0%
        

Discount for dated appraisal utilizing changes in real estate indexes

   Varies

Available for Sale Securities: The estimated fair values for mortgage-backed, GSE and corporate 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, classified as Level 1, are derived from quoted market prices in active markets. Equity securities consist of mutual funds. There were no transfers of securities between Level 1 and Level 2 during the nine months ended September 30, 2012.

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

 

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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. generally accepted accounting principles. The adjustments to fair value usually result from the application of lower-of-cost-or-market accounting or write downs of individual assets.

Impaired Loans: At September 30, 2012 and December 31, 2011, the Company had originated impaired loans held-for-investment and held-for-sale with outstanding principal balances of $43.8 million and $39.1 million, respectively, which were recorded at their estimated fair value of $38.9 million and $35.7 million, respectively. The Company recorded net impairment charges of $58,000 and $2.3 million for the nine months ended September 30, 2012, and 2011, respectively, and charge-offs of $1.6 million and $1.5 million for the nine months ended September 30, 2012 and 2011, respectively, 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: At September 30, 2012, and December 31, 2011, the Company had assets acquired through foreclosure, or deed in lieu of foreclosure, of $633,000 and $3.4 million, respectively, 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.

There were no subsequent valuation adjustments to other real estate owned (REO) for the three and nine months ended September 30, 2012. Operating costs after acquisition are expensed.

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; 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.

(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.

 

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(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) Borrowings

The fair value of borrowings 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

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

The estimated fair values of the Company’s significant financial instruments at September 30, 2012, and December 31, 2011, are presented in the following tables (in thousands):

 

     September 30, 2012  
            Estimated Fair Value  
     Carrying
Value
     Level 1      Level 2      Level 3      Total  

Financial assets:

              

Cash and cash equivalents

   $ 32,011       $ 32,011       $ —         $ —         $ 32,011   

Trading securities

     4,737         4,737         —           —           4,737   

Securities available-for-sale

     1,209,006         12,962         1,196,044         —           1,209,006   

Securities held-to-maturity

     2,537         —           2,656         —           2,656   

Federal Home Loan Bank of New York stock, at cost

     14,478         —           14,478         —           14,478   

Loans held-for-sale

     856         —           —           856         856   

Net loans held-for-investment

     1,074,282         —           —           1,141,886         1,141,886   

Financial liabilities:

              

Deposits

   $ 1,570,780       $ —         $ 1,576,068       $ —         $ 1,576,068   

Repurchase agreements and other borrowings

     499,934         —           515,194         —           515,194   

Advance payments by borrowers

     3,995         —           3,995         —           3,995   

 

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     December 31, 2011  
     Carrying
value
     Estimated
Fair

value
 

Financial assets:

     

Cash and cash equivalents

   $ 65,269       $ 65,269   

Trading securities

     4,146         4,146   

Securities available-for-sale

     1,098,725         1,098,725   

Securities held-to-maturity

     3,617         3,771   

Federal Home Loan Bank of New York stock, at cost

     12,677         12,677   

Loans held-for-sale

     3,900         3,900   

Net loans held-for-investment

     1,047,631         1,081,484   

Financial liabilities:

     

Deposits

   $ 1,493,526       $ 1,499,906   

Repurchase agreements and other borrowings

     481,934         498,774   

Advance payments by borrowers

     2,201         2,201   

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 loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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

Note 7 – Earnings Per Share

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

Diluted earnings per share is computed using the same method as basic earnings per share, but reflects the potential dilution that could occur if stock options and unvested shares of restricted stock were exercised and converted into common stock. These potentially dilutive shares are included in the weighted average number of shares outstanding for the period using the treasury stock method. When applying the treasury stock method, we add: (1) the assumed proceeds from option exercises; (2) the tax benefit, if any, that would have been credited to additional paid-in capital assuming exercise of non-qualified stock options and vesting of shares of restricted stock; and (3) the average unamortized compensation costs related to unvested shares of restricted stock and stock options. We then divide this sum by our average stock price for the period to calculate assumed shares repurchased. The excess of the number of shares issuable over the number of shares assumed to be repurchased is added to basic weighted average common shares to calculate diluted earnings per share.

 

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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):

 

     For the three months ended
September 30,
     For the nine months ended
September 30,
 
     2012      2011      2012      2011  

Net income available to common stockholders

   $ 3,894       $ 3,696       $ 12,790       $ 13,013   

Weighted average shares outstanding-basic

     38,456,933         39,913,992         38,538,525         40,532,972   

Effect of non-vested restricted stock and stock options outstanding

     596,657         449,686         514,648         424,272   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average shares outstanding-diluted

     39,053,590         40,363,678         39,053,173         40,957,244   

Earnings per share-basic

   $ 0.10       $ 0.09       $ 0.33       $ 0.32   

Earnings per share-diluted

   $ 0.10       $ 0.09       $ 0.33       $ 0.32   

Note 8 – Stock Repurchase Program

As of September 30, 2012, the Company has repurchased a total of 5,384,510 shares of its common stock under its prior repurchase plans at an average price of $12.91 per share. The Company announced on June 6, 2012, that it terminated its stock repurchase plan in connection with its adoption of a Plan of Conversion and Reorganization to a fully public company.

Note 9 – Recent Accounting Pronouncements

Accounting Standards Update No. 2011-03, Reconsideration of Effective Control for Repurchase Agreements, amends Topic 860 (Transfers and Servicing) where an entity may or may not recognize a sale upon the transfer of financial assets subject to repurchase agreements, based on whether or not the transferor has maintained effective control. In the assessment of effective control, Accounting Standard Update 2011-03 has removed the criteria that requires transferors to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee. Other criteria applicable to the assessment of effective control have not been changed. This guidance is effective for prospective periods beginning on or after December 15, 2011. Early adoption was prohibited. The adoption of this Accounting Standard Update did not result in a material change to the Company’s consolidated financial statements.

In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). The changes to U.S. GAAP as a result of ASU No. 2011-04 are as follows: (1) The concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets (that is, it does not apply to financial assets or any liabilities); (2) U.S. GAAP currently prohibits application of a blockage factor in valuing financial instruments with quoted prices in active markets. ASU No. 2011-04 extends that prohibition to all fair value measurements; (3) An exception is provided to the basic fair value measurement principles for an entity that holds a group of financial assets and financial liabilities with offsetting positions in market risk or counterparty credit risk that are managed on the basis of the entity’s net exposure to either of those risks. This exception allows the entity, if certain criteria are met, to measure the fair value of the net asset or liability position in a manner consistent with how market participants would price the net risk position; (4) Aligns the fair value measurement of instruments classified within an entity’s shareholders’ equity with the guidance for liabilities; and (5) Disclosure requirements have been enhanced for recurring Level 3 fair value measurements to disclose quantitative information about unobservable inputs and assumptions used, to describe the valuation processes used by the entity, and to describe the sensitivity of fair value measurements to changes in unobservable inputs and interrelationships between those inputs. In addition, entities must report the level in the fair value hierarchy of items that are not measured at fair value in the statement of condition but whose fair value must be disclosed. The provisions of ASU No. 2011-04 are effective for the Company’s interim reporting period beginning on or after December 15, 2011. The adoption of ASU No. 2011-04 did not result in a material change to the Company’s consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” The provisions of ASU No. 2011-05 allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The statement(s) are required to be presented with equal prominence as the other primary financial statements. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as

 

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part of the statement of changes in shareholders’ equity but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” which defers the effective date of the requirement to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income. All other requirements in ASU 2011-05 are not affected by this Update. For a public entity, the ASUs are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption was permitted. The adoption of these pronouncements resulted in a change to the presentation of the Company’s financial statements but did not have an impact on the Company’s financial condition or results of operations.

In September 2011, the FASB issued ASU No. 2011-08, “Testing Goodwill for Impairment.” The provisions of ASU No. 2011-08 simplify how entities, both public and nonpublic, test goodwill for impairment. The amendments in the Update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The provisions of ASU No. 2011-05 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption was permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU No. 2011-08 is not expected to have a material effect on the Company’s consolidated financial statements. The Company will perform annual testing for goodwill impairment at December 31, 2012.

Note 10 – Other Matters and Subsequent Events

On June 6, 2012, the Board of Trustees of Northfield Bancorp, MHC (“MHC”) and the Board of Directors of the Company adopted a Plan of Conversion and Reorganization (the “Plan”). Pursuant to the Plan, the MHC will convert from the mutual holding company form of organization to the fully public form. The MHC will be merged into the Company, and the MHC will no longer exist. The Company will merge into a new Delaware corporation named Northfield Bancorp, Inc. As part of the conversion, the MHC’s ownership interest of the Company will be offered for sale in a public offering. The existing publicly held shares of the Company, which represents the remaining ownership interest in the Company, will be exchanged for new shares of common stock of Northfield Bancorp, Inc., the new Delaware Corporation. The exchange ratio will ensure that immediately after the conversion and public offering, the public shareholders of the Company will own the same aggregate percentage of Northfield Bancorp., Inc. common stock that they owned immediately prior to that time (excluding shares purchased in the stock offering and cash received in lieu of fractional shares). When the conversion and public offering are completed, all of the capital stock of Northfield Bank will be owned by Northfield Bancorp., Inc., the Delaware Corporation.

The Plan provides for the establishment, upon the completion of the conversion, of special “liquidation accounts” for the benefit of certain depositors of Northfield Bank in an amount equal to the greater of the MHC’s ownership interest in the retained earnings of the Company as of the date of the latest balance sheet contained in the prospectus or the retained earnings of Northfield Bank at the time it reorganized into the MHC. Following the completion of the conversion, under the rules of the Board of Governors of the Federal Reserve System, Northfield Bank will not be permitted to pay dividends on its capital stock to Northfield Bancorp., Inc., its sole shareholder, if Northfield Bank’s shareholder’s equity would be reduced below the amount of the liquidation accounts. The liquidation accounts will be reduced annually to the extent that eligible account holders have reduced their qualifying deposits. Subsequent increases will not restore an eligible account holder’s interest in the liquidation accounts.

Additionally, due to recent changes in federal regulations applicable to mutual holding companies relating to the waiver of dividends by parent mutual holding companies, the Board of Directors has determined to delay the payment of any further cash dividends on the Company’s common stock.

Direct costs of the conversion and public offering will be deferred and reduce the proceeds from the shares sold in the public offering. Costs of $558,000 have been incurred related to the conversion as of September 30, 2012.

 

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On February 22, 2012, Northfield Bancorp, Inc., Northfield Bancorp, MHC, and Northfield Bank were served with a summons and complaint related to a personal injury matter. The plaintiff was seeking damages of $40 million. The matter relates to an injury sustained by an individual on a property owned by a borrower of the Bank, which secures a loan to the Bank. The borrower was named as a co-defendant. The Bank does not operate the subject property or have any interest in the property, other than as collateral for its loan. The case was dismissed in federal court on May 23, 2012 due to lack of subject matter jurisdiction and was re-filed in state court on June 21, 2012. Management believes the lawsuit is without merit. The Bank has $12 million in insurance coverage and the complaint is being defended by the Bank’s insurer. No accrual for loss has been established at September 30, 2012.

Our primary market areas of Staten Island and Brooklyn, New York and Union and Middlesex Counties in New Jersey were significantly impacted by Hurricane Sandy, which struck the region on October 29, 2012. While our facilities sustained only minor damage, Hurricane Sandy caused significant property damage throughout our market area, resulting in widespread disruptions in power and transportation. Many properties and structures also have incurred flood and wind damage, which ranges from minor to moderate in many areas to very severe in the coastal areas of Brooklyn, Staten Island, and New Jersey. Substantially all of our loans are secured by real estate located in our market area. Based on our initial assessments of where our borrowers are located within the market area, we believe that many of our borrowers will likely have experienced power outages and wind damage, and to a lesser extent, flood damage. However, we believe most of our borrowers will not have suffered catastrophic damage to their businesses or the collateral securing their loans. For our collateral dependent loans, our policy is to require property insurance on all loans (which normally covers wind damage), as well as flood insurance if the property is located within a flood zone, which should reduce our exposure to potential loss. Properties not located within flood zones are not required to have flood insurance, and thus it is likely that insurance coverage will not be available for any flood-related damage to those properties. We are in the process of performing a detailed evaluation of the effects Hurricane Sandy may have had on our borrowers and our collateral, but we do not yet have sufficient information to reasonably estimate the potential financial impact of the storm on us. However, it is likely that our results of operations will be negatively impacted, and it is possible that the impact could be material.

 

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

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as estimate, project, believe, intend, anticipate, plan, seek, and similar expressions. These forward looking statements include:

 

   

statements of our goals, intentions, and expectations;

 

   

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

 

   

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

 

   

estimates of our risks and future costs and benefits.

These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors that could affect the actual outcome of future events:

 

   

the effect of the current financial economic downturn on our loan portfolio, investment portfolio, and our customers;

 

   

increased competition among depository and other financial institutions;

 

   

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

 

   

general economic conditions, either nationally or in our market areas, that are worse than expected;

 

   

adverse changes in the securities markets;

 

   

legislative or regulatory changes that adversely affect our business;

 

   

our ability to enter new markets successfully and take advantage of growth opportunities, and the possible dilutive effect of potential acquisitions or de novo branches, if any;

 

   

changes in consumer spending, borrowing and savings habits;

 

   

changes in accounting policies and practices, as may be adopted by bank regulatory agencies, the Financial Accounting Standards Board, the Public Company Accounting Oversight Board and other promulgating authorities;

 

   

inability of borrowers and/or third-party providers to perform their obligations to us;

 

   

the effect of recent governmental legislation restructuring the U.S. financial regulatory system;

 

   

the effect of developments in the secondary market affecting our loan pricing;

 

   

the level of future deposit insurance premiums; and

 

   

changes in our organization, compensation, and benefit plans.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

Critical Accounting Policies

Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2011 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 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, 2011.

 

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Impact of Hurricane Sandy

Our primary market areas of Staten Island and Brooklyn, New York and Union and Middlesex Counties in New Jersey were significantly impacted by Hurricane Sandy, which struck the region on October 29, 2012.

Although we experienced short-term service disruptions, the storm has not had a significant effect on our ability to continue to service our customers. With the exception of flooding at our Brighton Beach, Brooklyn office acquired in the Flatbush Federal Bancorp transaction, none of our branches sustained any significant damage as a result of the storm, although many were temporarily affected by power outages and telecommunication problems. As of November 6, 2012, our Woodbridge, New Jersey operations center was fully functional, all of our banking offices other than Brighton Beach were open for business, and our internet banking service was fully operational.

While our facilities sustained only minor damage, Hurricane Sandy caused significant property damage throughout our market area, resulting in widespread disruptions in power and transportation. Many properties and structures also have incurred flood and wind damage, which ranges from minor to moderate in many areas to very severe in the coastal areas of Brooklyn, Staten Island, and New Jersey. Substantially all of our loans are secured by real estate located in our market area. Based on our initial assessments of where our borrowers are located within the market area, we believe that many of our borrowers will likely have experienced power outages and wind damage, and to a lesser extent, flood damage. However, we believe most of our borrowers will not have suffered catastrophic damage to their businesses or the collateral securing their loans. For our collateral dependent loans, our policy is to require property insurance on all loans (which normally covers wind damage), as well as flood insurance if the property is located within a flood zone, which should reduce our exposure to potential loss. Properties not located within flood zones are not required to have flood insurance, and thus it is likely that insurance coverage will not be available for any flood-related damage to those properties.

We are in the process of performing a detailed evaluation of the effects Hurricane Sandy may have had on our borrowers and our collateral, but we do not yet have sufficient information to reasonably estimate the potential financial impact of the storm on us. However, it is likely that our results of operations will be negatively impacted, and it is possible that the impact could be material. For example, it is likely that we will experience increased delinquencies and loan restructurings, particularly in the short-term as customers undertake recovery and clean-up efforts, including the submission of insurance claims. Customers may also experience disruptions in their employment status or income if their employers were affected by the storm. These increases in delinquencies and restructurings would negatively impact our cash flow and, if not timely cured, would increase our non-performing assets and reduce our net interest income. Loan restructurings may also increase as we work with borrowers impacted by the storm. We may also experience increased provisions for loan losses as total loan delinquencies and loan restructurings increase, and to the extent that the combination of insurance proceeds and collateral values are insufficient to cover loan balances on loans that may default. Any increased provisions for loan losses could have a material adverse effect on our results of operations.

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, 2011.

Net income amounted to $3.9 million and $12.8 million for the three and nine months ended September 30, 2012, respectively, as compared to $3.7 million and $13.0 million for the three and nine months ended September 30, 2011, respectively. Basic and diluted earnings per share were $0.10 and $0.33 for the three and nine months ended September 30, 2012, respectively, compared to $0.09 and $0.32 for the three and nine months ended September 30, 2011, respectively. For the three and nine months ended September 30, 2012, our return on average assets was 0.63% and 0.70%, respectively, as compared to 0.63% and 0.76% for the three and nine months ended September 30, 2011, respectively. For the three and nine months ended September 30, 2012, our return on average stockholders’ equity was 3.95% and 4.41%, respectively, as compared to 3.71% and 4.39% for the three and nine months ended September 30, 2011, respectively.

Assets increased by 4.8% to $2.49 billion at September 30, 2012, from $2.38 billion at December 31, 2011. The increase in total assets reflected an increase in securities available-for-sale of $110.3 million, or 10.0%, and an increase in net loans held-for-investment of $26.7 million, which was partially offset by decreases in cash and cash equivalents of $33.3 million. Deposits increased $77.3 million to $1.57 billion at September 30, 2012, from $1.49 billion at December 31, 2011. The increase in deposits was attributable to growth in transaction accounts and savings accounts, partially offset by decreases in certificates of deposit and short-term certificates of deposit originated through the CDARS® Network. Borrowed funds increased $18.0 million to $499.9 million at September 30, 2012, from $481.9 million at December 31, 2011.

Comparison of Financial Condition at September 30, 2012, and December 31, 2011

                        Total assets increased $114.2 million, or 4.8%, to $2.49 billion at September 30, 2012, from $2.38 billion at December 31, 2011. The increase was primarily attributable to increases in securities available-for-sale of $110.3 million and net loans held-for-investment of $26.7 million, partially offset by a decrease in cash and cash equivalents of $33.3 million.

Cash and cash equivalents decreased $33.3 million, or 51.0%, to $32.0 million at September 30, 2012, from $65.3 million at December 31, 2011. The Company routinely maintains liquid assets in interest-bearing accounts in other well-capitalized financial institutions.

Securities available-for-sale increased $110.3 million, or 10.0%, to $1.21 billion at September 30, 2012, from $1.10 billion at December 31, 2011. The increase was primarily attributable to purchases of $611.2 million partially offset by maturities and pay-downs of $318.2 million and sales of $190.4 million. At September 30, 2012, $1.11 billion of the portfolio consisted of residential mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. We also held residential mortgage-backed securities not guaranteed by these three entities, referred to as “private label securities.” The private label securities had an amortized cost of $11.1 million and an estimated fair value of $11.6 million at September 30, 2012, a decrease of $428.9 million from December 31, 2011. During the current quarter, we sold 2 pass-through non-GSE mortgage-backed securities issued by private companies (private label) that were rated less than investment grade at a combined loss of $490,000. In addition to the above mortgage-backed securities, we held $75.0 million in corporate bonds which were all rated investment grade at September 30, 2012, and $13.0 million of equity investments in mutual funds, which focus on investments that qualify under the Community Reinvestment Act and money market mutual funds.

Securities held-to-maturity decreased $1.1 million, or 29.9%, to $2.5 million at September 30, 2012, from $3.6 million at December 31, 2011. The decrease was attributable to maturities and paydowns during the nine months ended September 30, 2012.

Originated loans held-for-investment, net, totaled $1.02 billion at September 30, 2012, as compared to $985.9 million at December 31, 2011. The increase was primarily due to an increase in multifamily real estate loans, which increased $114.9 million, or 25.1%, to $573.3 million at September 30, 2012, from $458.4 million at December 31, 2011. This was partially offset by a decrease in insurance premium loans of $59.1 million, due to the sale of the majority of the portfolio, and a decrease in commercial real estate loans of $14.7 million. Currently, management is primarily focused on originating multifamily loans, with less emphasis on other loan types.

 

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Purchased credit-impaired (PCI) loans, acquired as part of a transaction with the Federal Deposit Insurance Corporation, totaled $77.4 million at September 30, 2012, as compared to $88.5 million at December 31, 2011. The Company recorded accretion of interest income of $4.7 million for the nine months ended September 30, 2012, attributable to these PCI loans.

Bank owned life insurance increased $2.1 million, or 2.8%, to $79.9 million at September 30, 2012 from $77.8 million at December 31, 2011. The increase resulted from income earned on bank owned life insurance for the nine months ended September 30, 2012.

Federal Home Loan Bank of New York stock, at cost, increased $1.8 million, or 14.2%, to $14.5 million at September 30, 2012, from $12.7 million at December 31, 2011. This increase was attributable to an increase in borrowings outstanding with the Federal Home Loan Bank of New York over the same time period.

Premises and equipment, net, increased $4.1 million, or 20.4%, to $24.1 million at September 30, 2012, from $20.0 million at December 31, 2011. This increase was primarily attributable to new branches and the renovation of existing branches.

Other real estate owned decreased $2.7 million, or 81.2%, to $633,000 at September 30, 2012, from $3.4 million at December 31, 2011. This decrease was attributable to the sale of properties during the nine months ended September 30, 2012.

Other assets increased $10.0 million, or 66.5%, to $25.1 million at September 30, 2012, from $15.1 million at December 31, 2011. The increase in other assets was attributable to an increase in amounts due from brokers due to the sale of several securities with trade dates prior to September 30, 2012 settling in October 2012, and an increase in prepaid expenses, partially offset by a decrease in amounts due to us from taxing authorities, and a decrease in prepaid FDIC insurance premiums due to amortization related to the FDIC prepayment of insurance premiums that was made in 2009.

Deposits increased $77.3 million, or 5.2%, to $1.57 billion at September 30, 2012 from $1.49 billion at December 31, 2011. The increase in deposits for the nine months ended September 30, 2012, was due to an increase in savings and money market accounts of $50.1 million, or 6.6%, as compared to December 31, 2011, and an increase in transaction accounts of $33.2 million, or 13.4%, as compared to December 31, 2011. These increases were partially offset by decreases in certificate of deposit accounts (issued by the Bank) of $3.3 million, or 0.7%, from December 31, 2011 to September 30, 2012 and of $2.7 million in short-term certificates of deposit originated through the CDARS® Network. Deposits originated through the CDARS® Network totaled $661,000 at September 30, 2012, and $3.4 million at December 31, 2011. The Company utilizes the CDARS® Network as a cost-effective alternative to other short-term funding sources.

Borrowings, consisting primarily of repurchase agreements from other financial institutions and Federal Home Loan Bank advances, increased $18.0 million, or 3.7%, to $499.9 million at September 30, 2012, from $481.9 million at December 31, 2011. The increase in borrowings was primarily the result of increased FHLB advances.

Accrued expenses and other liabilities increased $4.0 million, to $20.6 million at September 30, 2012, from $16.6 million at December 31, 2011. The increase was primarily a result of an increase in escrow payables.

Total stockholders’ equity increased by $13.1 million to $395.8 million at September 30, 2012, from $382.7 million at December 31, 2011. This increase was primarily attributable to net income of $12.8 million for the nine months ended September 30, 2012, a $3.4 million increase in accumulated other comprehensive income and an increase of $2.7 million in additional paid-in capital primarily related to the recognition of compensation expense associated with equity awards. The increase was partially offset by $4.2 million in stock repurchases net of stock option exercises and the payment of approximately $1.7 million in dividends. As previously announced, we have temporarily suspended dividend payments pending the completion of Northfield Bancorp, MHC’s second-step conversion.

As of September 30, 2012, the Company has repurchased a total of 5,384,510 shares of its common stock under its prior repurchase plans at an average price of $12.91 per share. The Company announced on June 6, 2012, that it suspended dividend payments and terminated its stock repurchase plan in connection with its adoption of a Plan of Conversion and Reorganization to a fully public company.

 

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Comparison of Operating Results for the Three Months Ended September 30, 2012 and 2011

Net income. Net income was $3.9 million for the quarter ended September 30, 2012, as compared to $3.7 million for the quarter ended September 30, 2011. Results reflected an increase of $722,000 in net interest income, a $470,000 increase in non-interest income, a decrease of $1.5 million in the provision for loan losses, a $2.2 million increase in non-interest expense, and a $250,000 increase in income tax expense.

Interest income. Interest income was relatively flat at $22.7 million for both the three months ended September 30, 2012 and September 30, 2011. Interest income on loans increased by $1.1 million, primarily attributable to an increase in the average balances of $145.6million, partially offset by a decrease of 37 basis points in the yield earned. Interest income on loans for the quarter ended September 30, 2012 reflected prepayment loan income of $542,000 compared to $331,000 for the quarter ended September 30, 2011. Interest income on mortgage backed securities decreased by $947,000, primarily attributable to a decrease of 38 basis points in the yield earned partially offset by an increase in the average balance of $13.2 million.

Interest expense. Interest expense decreased $751,000, or 11.7%, to $5.7 million for the three months ended September 30, 2012, from $6.4 million for the three months ended September 30, 2011. The decrease was comprised of a decrease of $664,000 in interest expense on deposits and a decrease in interest expense on borrowings of $87,000. The decrease in interest expense on deposits was attributed to a decrease in the cost of interest bearing deposits of 22 basis points to 0.70% from 0.92%, partially offset by an increase in average balance of interest bearing deposit accounts of $60.4 million, or 4.5%, to $1.39 billion for the three months ended September 30, 2012, from $1.33 billion for the three months ended September 30, 2011. The decrease in interest expense on borrowings was attributed to a decrease in the cost of 39 basis points to 2.60% for the three months ended September 30, 2012 from 2.99% for the three months ended September 30, 2011, partially offset by an increase in average balances of borrowings of $54.4million, or 12.3%, to $496.6 million for the three months ended September 30, 2012 from $442.2 million for the three months ended September 30, 2011.

Net Interest Income. Net interest income increased $722,000, or 4.4%, as average interest-earning assets increased by 6.7% to $2.33 billion. The increase in average interest-earning assets was due primarily to increases in average loans outstanding of $145.6 million and in mortgage-backed securities of $13.2 million, partially offset by a decrease in average interest-earning deposits of $12.4 million. Rates paid on interest-bearing liabilities decreased 24 basis points to 1.20% for the current quarter as compared to 1.44% for the prior year comparable period. This was partially offset by a 26 basis point decrease in yields earned on interest earning assets to 3.88% for the current quarter as compared to 4.14% for the 2011 quarter.

Provision for Loan Losses. The provision for loan losses was $502,000 for the quarter ended September 30, 2012; a decrease of $1.5 million, or 74.9%, from the $2.0 million provision recorded in the quarter ended September 30, 2011. The decrease in the provision for loan losses was due primarily to a shift in the composition of our loan portfolio to multifamily loans, which generally require lower general reserves than our other commercial real estate loans, and a decrease in non-performing loans during the quarter ended September 30, 2012 as compared to the prior year period. During the quarter ended September 30, 2012, the Company recorded net charge-offs of $475,000 compared to net charge-offs of $17,000 for the quarter ended September 30, 2011.

Non-interest Income. Non-interest income increased $470,000 or 37.9%, to $1.7 million for the quarter ended September 30, 2012, as compared to $1.2 million for the quarter ended September 30, 2011. This increase was primarily a result of an increase in gains on securities transactions, net of $699,000 to income of $428,000 for the quarter ended September 30, 2012, compared to a loss of $271,000 for the quarter ended September 30, 2011, partially offset by a decrease in other income of $170,000.

Non-interest Expense. Non-interest expense increased $2.2 million, or 22.9%, for the quarter ended September 30, 2012, as compared to the quarter ended September 30, 2011, due primarily to compensation and employee benefits increasing by $1.1 million primarily related to increased staff due to branch openings and acquisitions, an increase in occupancy expense of $516,000 primarily relating to new branches and the renovation of existing branches, an increase of $106,000 in data processing fees primarily related to conversion costs associated with the Federal Deposit Insurance Corporation-assisted transaction, a $302,000 increase in professional fees primarily related to merger activity and an increase in other non-interest expense of $201,000.

Income Tax Expense. We recorded income tax expense of $2.3 million for the quarter ended September 30, 2012, compared to $2.0 million for the quarter ended September 30, 2011. The effective tax rate for the quarter ended September 30, 2012, was 37.0%, as compared to 35.5% for the quarter ended September 30, 2011. The increase in the effective tax rate was primarily attributable to merger related expenses from the Flatbush Federal transaction which are not deductible for tax purposes.

 

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NORTHFIELD BANCORP, INC.

ANALYSIS OF NET INTEREST INCOME

(Dollars in thousands)

 

     For the Three Months Ended September 30,  
     2012     2011  
     Average
Outstanding
Balance
     Interest      Average
Yield/
Rate (1)
    Average
Outstanding
Balance
     Interest      Average
Yield/
Rate (1)
 

Interest-earning assets:

                

Loans (5)

   $ 1,088,268       $ 15,162         5.54   $ 942,701       $ 14,044         5.91

Mortgage-backed securities

     1,060,837         6,799         2.55        1,047,610         7,746         2.93   

Other securities

     116,274         559         1.91        120,754         781         2.57   

Federal Home Loan Bank of New York stock

     13,796         151         4.35        9,508         113         4.72   

Interest-earning deposits in financial institutions

     46,103         19         0.16        58,527         35         0.24   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-earning assets

     2,325,278         22,690         3.88        2,179,100         22,719         4.14   

Non-interest-earning assets

     151,529              143,639         
  

 

 

         

 

 

       

Total assets

   $ 2,476,807            $ 2,322,739         
  

 

 

         

 

 

       

Interest-bearing liabilities:

                

Savings, NOW, and money market accounts

   $ 913,561       $ 996         0.43      $ 732,128       $ 1,155         0.63   

Certificates of deposit

     481,187         1,451         1.20        602,257         1,956         1.29   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing deposits

     1,394,748         2,447         0.70        1,334,385         3,111         0.92   

Borrowed funds

     496,591         3,244         2.60        442,239         3,331         2.99   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

     1,891,339         5,691         1.20        1,776,624         6,442         1.44   

Non-interest bearing deposit accounts

     176,752              135,355         

Accrued expenses and other liabilities

     16,578              15,086         
  

 

 

         

 

 

       

Total liabilities

     2,084,669              1,927,065         

Stockholders’ equity

     392,138              395,674         
  

 

 

         

 

 

       

Total liabilities and stockholders’ equity

   $ 2,476,807            $ 2,322,739         
  

 

 

         

 

 

       
                
     

 

 

         

 

 

    

Net interest income

      $ 16,999            $ 16,277      
     

 

 

         

 

 

    

Net interest rate spread (2)

           2.68           2.70   

Net interest-earning assets (3)

   $ 433,939            $ 402,476         
  

 

 

         

 

 

       

Net interest margin (4)

           2.91           2.96

Average interest-earning assets to interest-bearing liabilities

           122.94           122.65   

 

(1) Average yields and rates for the three months ended September 30, 2012 and 2011, are annualized.
(2) 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.
(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average total interest-earning assets.
(5) Loans include non-accrual loans.

Comparison of Operating Results for the Nine Months Ended September 30, 2012 and 2011

Net income. Net income was $12.8 million for the nine months ended September 30, 2012, as compared to $13.0 million for the nine months ended September 30, 2011. Results reflected an increase of $3.1 million in net interest income, a $576,000 increase in non-interest income, a decrease of $3.5 million in the provision for loan losses, a $7.1 million increase in non-interest expense, and a $167,000 increase in income tax expense.

Interest income. Interest income increased $1.0 million, or 1.5%, to $68.2 million for the nine months ended September 30, 2012, from $67.2 million for the nine months ended September 30, 2011. The increase was primarily due to an increase in interest income on loans of $5.9 million. The increase in interest income on loans can

 

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be attributed to an increase in the average balances of $185.8 million, partially offset by a decrease of 29 basis points in the yield earned. Interest income on loans for the nine months ended September 30, 2012 reflected prepayment loan income of $956,000 compared to $491,000 for the nine months ended September 30, 2011. This increase in interest income on loans was partially offset by a decrease in interest income on mortgage backed securities of $4.4 million. The decrease in interest income on mortgage backed securities was primarily attributable to a decrease of 41 basis points in the yield earned and a decrease in the average balance of $55.6 million.

Interest expense. Interest expense decreased $2.0 million, or 10.5%, to $17.3 million for the nine months ended September 30, 2012, from $19.3 million for the nine months ended September 30, 2011. The decrease resulted from a decrease of $2.0 in interest expense on deposits. Interest expense on borrowings was relatively flat compared to the prior year period. The decrease in interest expense on deposits was attributed to a decrease in the cost of interest bearing deposits of 24 basis points to 0.73% for the nine months ended September 30, 2012, from 0.97% for the nine months ended September 30, 2011, partially offset by an increase in average balance of interest bearing deposit accounts of $71.8 million, or 5.6%, to $1.36 billion for the nine months ended September 30, 2012 from $1.29 billion for the nine months ended September 30, 2011.

Net Interest Income. Net interest income increased $3.1 million, or 6.4%, as interest-earning assets increased by 5.5% to $2.28 billion. The increase in average interest-earning assets was due primarily to an increase in average loans outstanding of $185.8 million, partially offset by decreases in average interest-earning deposits of $10.3 million, average mortgage-backed securities of $55.6 million, and average other securities of $5.4 million. Rates paid on interest-bearing liabilities decreased 22 basis points to 1.24% as compared to 1.46% for the prior-year comparable period. This was partially offset by an 16 basis point decrease in yields earned on interest-earning assets to 4.00% as compared to 4.16% for the prior-year comparable period.

Provision for Loan Losses. The provision for loan losses was $1.7 million for the nine months ended September 30, 2012; a decrease of $3.4 million, or 67.5%, from the $5.1 million provision recorded in the nine months ended September 30, 2011. The decrease in the provision for loan losses was due primarily to a shift in the composition of our loan portfolio to multifamily loans, which generally require lower general reserves than our other commercial real estate loans, and a decrease in non-performing loans during the nine months ended September 30, 2012, as compared to the nine months ended September 30, 2011. During both the nine months ended September 30, 2012 and 2011, the Company recorded net charge-offs of $1.4 million.

Non-interest Income. Non-interest income increased $576,000, or 8.8%, to $7.1 million for the nine months ended September 30, 2012, as compared to $6.5 million for the nine months ended September 30, 2011. This increase was primarily a result of a $104,000 increase in fees and service charges for customer services, a decrease in losses on other-than-temporary-impairment of securities of $409,000 and an increase in other income of $44,000, an increase in gains on securities transactions, net of $115,000 to $2.5 million for the nine months ended September 30, 2012, compared to $2.4 million for the nine months ended September 30, 2011, partially offset by a decrease in income on bank owed life insurance (BOLI) of $96,000.

Non-interest Expense. Non-interest expense increased $7.1 million, or 24.4%, to $36.4 million for the nine months ended September 30, 2012, as compared to $29.3 million for the nine months ended September 30, 2011, due primarily to compensation and employee benefits increasing by $2.8 million primarily related to increased staff due to branch openings and acquisitions, an increase in occupancy expense of $1.7 million primarily relating to new branches and the renovation of existing branches, an increase of $775,000 in data processing fees primarily related to conversion costs associated with the Federal Deposit Insurance Corporation-assisted transaction, a $1.2 million increase in professional fees related to merger activity and an increase in other non-interest expense of $694,000.

Income Tax Expense. We recorded income tax expense of $7.1 million for the nine months ended September 30, 2012, compared to $7.0 million for the nine months ended September 30, 2011. The effective tax rate for the nine months ended September 30, 2012, was 35.8%, as compared to 34.9% for the nine months ended September 30, 2011. The increase in the effective tax rate was primarily attributable to merger related expenses from the Flatbush Federal transaction which are not deductible for tax purposes.

 

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NORTHFIELD BANCORP, INC.

ANALYSIS OF NET INTEREST INCOME

(Dollars in thousands)

 

     For the Nine Months Ended September 30,  
     2012     2011  
     Average
Outstanding
Balance
     Interest      Average
Yield/
Rate (1)
    Average
Outstanding
Balance
     Interest      Average
Yield/
Rate (1)
 

Interest-earning assets:

                

Loans (5)

   $ 1,072,993       $ 45,187         5.63   $ 887,201       $ 39,296         5.92

Mortgage-backed securities

     1,026,377         20,418         2.66        1,081,940         24,838         3.07   

Other securities

     124,720         2,102         2.25        130,081         2,538         2.61   

Federal Home Loan Bank of New York stock

     13,322         435         4.36        10,145         343         4.52   

Interest-earning deposits in financial institutions

     41,042         47         0.15        51,354         140         0.36   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-earning assets

     2,278,454         68,189         4.00        2,160,721         67,155         4.16   

Non-interest-earning assets

     146,908              137,820         
  

 

 

         

 

 

       

Total assets

   $ 2,425,362            $ 2,298,541         
  

 

 

         

 

 

       

Interest-bearing liabilities:

                

Savings, NOW, and money market accounts

   $ 885,067       $ 3,115         0.47      $ 709,471         3,453         0.65   

Certificates of deposit

     477,236         4,317         1.21        581,077         5,946         1.37   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing deposits

     1,362,303         7,432         0.73        1,290,548         9,399         0.97   

Borrowed funds

     491,884         9,820         2.67        478,066         9,879         2.76   
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest-bearing liabilities

     1,854,187         17,252         1.24        1,768,614         19,278         1.46   

Non-interest bearing deposit accounts

     167,353              122,089         

Accrued expenses and other liabilities

     16,033              11,519         
  

 

 

         

 

 

       

Total liabilities

     2,037,573              1,902,222         

Stockholders’ equity

     387,789              396,319         
  

 

 

         

 

 

       

Total liabilities and stockholders’ equity

   $ 2,425,362            $ 2,298,541         
  

 

 

         

 

 

       
                
     

 

 

         

 

 

    

Net interest income

      $ 50,937            $ 47,877      
     

 

 

         

 

 

    

Net interest rate spread (2)

           2.75           2.70   

Net interest-earning assets (3)

   $ 424,267            $ 392,107         
  

 

 

         

 

 

       

Net interest margin (4)

           2.99           2.96

Average interest-earning assets to interest-bearing liabilities

           122.88           122.17   

 

(1) Average yields and rates for the nine months ended September 30, 2012 and 2011, are annualized.
(2) 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.
(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average total interest-earning assets.
(5) Loans include non-accrual loans.

Asset Quality

Purchased Credit Impaired Loans

PCI loans were recorded at estimated fair value using 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 ($77.4 million at September 30, 2012 and $88.5 million at December 31, 2011) as accruing, even though they may be contractually past due. At September 30, 2012, based on recorded contractual principal,

 

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5.7% of PCI loans were past due 30 to 89 days, and 11.5% were past due 90 days or more. At December 31, 2011, based on recorded contractual principal, 9.0% of PCI loans were past due 30 to 89 days, and 16.1% were past due 90 days or more, as compared to 8.0% and 13.9% at October 14, 2011. The amount and timing of expected cash flows as of September 30, 2012 did not change significantly from the October 2011 acquisition date.

Originated loans

The discussion that follows relates to originated loans, both held-for-investment and held-for-sale.

The following table shows total non-performing assets for the current and previous four quarters and also shows, for the same dates, non-performing originated loans to total loans, Troubled Debt Restructurings (TDR) on which interest is accruing, and accruing loans delinquent 30 to 89 days (dollars in thousands).

 

     September 30,
2012
    June 30,
2012
    March 31,
2012
    December 31,
2011
    September 30,
2011
 

Non-accruing loans:

          

Held-for-investment

   $ 12,231      $ 12,680      $ 15,805      $ 17,489      $ 28,035   

Held-for-sale

     —          80        80        2,991        —     

Non-accruing loans subject to restructuring agreements:

          

Held-for-investment

     20,990        21,609        22,483        22,844        23,763   

Held-for-sale

     —          —          —          457        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-accruing loans

     33,221        34,369        38,368        43,781        51,798   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans 90 days or more past due and still accruing:

          

Held-for-investment

     37        424        1,786        85        1,595   

Held-for-sale

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans 90 days or more past due and still accruing:

     37        424        1,786        85        1,595   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-performing loans

     33,258        34,793        40,154        43,866        53,393   

Other real estate owned

     633        2,139        2,444        3,359        34   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total non-performing assets

   $ 33,891      $ 36,932      $ 42,598      $ 47,225      $ 53,427   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Non-performing originated loans to total loans

     3.0     3.2     3.8     4.1     5.5

Loans subject to restructuring agreements and still accruing

   $ 24,099      $ 25,502      $ 25,047      $ 18,349      $ 18,355   

Accruing loans 30 to 89 days delinquent

   $ 9,998      $ 12,121      $ 22,075      $ 21,067      $ 30,973   

Total Non-accruing Loans

Total non-accruing loans decreased $10.6 million, to $33.2 million at September 30, 2012, from $43.8 million at December 31, 2011. This decrease was primarily attributable to loans held-for-sale of $3.4 million sold during the nine months ended September 30, 2012, $1.4 million of loans returned to accrual status, $428,000 of pay-offs and principal pay-downs, charge-offs of $1.1 million, the sale of $7.7 million of loans held-for-investment and the transfer of $166,000 to other real estate owned. The above decreases in non-accruing loans during the nine months ended September 30, 2012, were partially offset by $3.1 million of loans being placed on non-accrual status and advances of $561,000 during the nine months ended September 30, 2012.

Delinquency Status of Total Non-accruing Loans

Generally, loans are placed on non-accrual status when they become 90 days or more delinquent, and remain on non-accrual status until they are brought current, have a minimum of six 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 in a non-accruing status.

The following tables detail the delinquency status of non-accruing loans (held-for-investment and held-for-sale) at September 30, 2012 and December 31, 2011 (dollars in thousands). All delinquent loans in the following two tables are classified as held-for-investment, with the exception of $3.4 million of loans held-for-sale at December 31, 2011, respectively.

 

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     September 30, 2012  
     Days Past Due         
     0 to 29      30 to 89      90 or more      Total  

Real estate loans:

           

Commercial

   $ 16,243       $ 448       $ 8,109       $ 24,800   

One -to- four family residential

     284         913         359         1,556   

Construction and land

     2,070         —           —           2,070   

Multifamily

     —           —           1,840         1,840   

Home equity and lines of credit

     203         —           1,491         1,694   

Commercial and industrial loans

     537         —           724         1,261   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-accruing loans

   $ 19,337       $ 1,361       $ 12,523       $ 33,221   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2011  
     Days Past Due         
     0 to 29      30 to 89      90 or more      Total  

Real estate loans:

           

Commercial

   $ 16,395       $ 3,613       $ 14,651       $ 34,659   

One -to- four family residential

     210         594         534         1,338   

Construction and land

     1,709         —           422         2,131   

Multifamily

     523         —           1,652         2,175   

Home equity and lines of credit

     102         —           1,664         1,766   

Commercial and industrial loans

     553         —           1,022         1,575   

Insurance premium loans

     —           —           137         137   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total non-accruing loans

   $ 19,492       $ 4,207       $ 20,082       $ 43,781   
  

 

 

    

 

 

    

 

 

    

 

 

 

Loans Subject to Restructuring Agreements

Included in non-accruing loans are loans subject to restructuring agreements totaling $21.0 million and $23.3 million at September 30, 2012, and December 31, 2011, respectively. At September 30, 2012, $17.8 million, or 84.8% of the $21.0 million, were performing in accordance with their restructured terms, as compared to $19.2 million, or 82.3%, at December 31, 2011.

The Company also holds loans subject to restructuring agreements and still accruing, which totaled $24.1 million and $18.3 million at September 30, 2012, and December 31, 2011, respectively. At September 30, 2012, $21.7 million, or 90.1% of the $24.1 million, were performing in accordance with their restructured terms.

The following table details the amounts and categories of the loans subject to restructuring agreements by loan type as of September 30, 2012 and December 31, 2011 (dollars in thousands).

 

     At September 30, 2012     At December 31, 2011  
     Non-Accruing     Accruing     Non-Accruing     Accruing  

Troubled debt restructurings:

        

Real estate loans:

        

Commercial

   $ 17,834      $ 20,204      $ 20,420      $ 13,389   

One- to four-family residential

     539        524        —          2,532   

Construction and land

     2,070        —          1,709        —     

Multifamily

     —          2,049        523        1,552   

Home equity and lines of credit

     96        360        102        —     

Commercial and industrial

     451        962        547        876   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 20,990      $ 24,099      $ 23,301      $ 18,349   
  

 

 

   

 

 

   

 

 

   

 

 

 

Performing in accordance with restructured terms

     84.81     90.14     82.34     69.03
  

 

 

   

 

 

   

 

 

   

 

 

 

Loans 90 Days or More Past Due and Still Accruing and Other Real Estate Owned

Loans 90 days or more past due and still accruing decreased $48,000 to $37,000 at September 30, 2012, as compared to $85,000 at December 31, 2011. Loans 90 days or more past due and still accruing at September 30, 2012, are considered well-secured and in the process of collection.

 

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Other real estate owned declined to $633,000 at September 30, 2012, as compared to $3.4 million at December 31, 2011 due primarily to sales of $2.4 million.

Delinquency Status of Accruing Loans 30-89 Days Delinquent

Loans 30 to 89 days delinquent and on accrual status at September 30, 2012, totaled $10.0 million, a decrease of $11.1 million, from the December 31, 2011 balance of $21.1 million. The following tables set forth delinquencies for accruing loans by type and by amount at September 30, 2012, and December 31, 2011 (dollars in thousands).

 

     September 30,
2012
     December 31,
2011
 

Real estate loans:

     

Commercial

   $ 3,502       $ 8,404   

One- to four-family residential

     3,098         2,258   

Construction and land

     —           3,041   

Multifamily

     2,454         6,468   

Home equity and lines of credit

     13         30   

Commercial and industrial loans

     864         207   

Insurance premium loans

     —           568   

Other loans

     67         91   
  

 

 

    

 

 

 

Total delinquent accruing loans

   $ 9,998       $ 21,067   
  

 

 

    

 

 

 

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. We manage 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.

Our primary sources of funds are deposits, principal and interest payments on loans and securities, borrowed funds, the proceeds from maturing securities and short-term investments, and to a lesser extent the proceeds from the sales of loans and securities and wholesale borrowings. The scheduled amortization of loans and securities, as well as proceeds from borrowed funds, are predictable sources of funds. Other funding sources, however, such as deposit inflows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition. Northfield Bank is a member of the Federal Home Loan Bank of New York, which provides an additional source of short-term and long-term funding. Northfield Bank also has borrowing capabilities with the Federal Reserve on a short-term basis. The Bank’s borrowed funds, excluding capitalized lease obligations and floating rate advances, were $492.2 million at September 30, 2012, at a weighted average interest rate of 2.47%. A total of $107.3 million of these borrowings will mature in less than one year. Borrowed funds, excluding capitalized lease obligations and floating rate advances, were $477.2 million at December 31, 2011. The Company has the ability to obtain additional funding from the FHLB and Federal Reserve Bank discount window of approximately $658.1 million, utilizing unencumbered securities of $591.6 million and multifamily loans of $133.7 million at September 30, 2012. The Company expects to have sufficient funds available to meet current commitments in the normal course of business.

Capital Resources. At September 30, 2012, and December 31, 2011, Northfield Bank exceeded all regulatory capital requirements to which it is subject.

 

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Table of Contents
     Actual
Ratio
    Minimum
Required
for
Capital
Adequacy
Purposes
    Minimum
Required
to Be Well
Capitalized
under
Prompt
Corrective
Action
Provisions
 

As of September 30, 2012:

      

Tangible capital to tangible assets

     13.49     1.50     NA   

Tier 1 capital (core) - (to adjusted assets)

     13.49        4.00        5.00   

Total capital (to risk-weighted assets)

     22.65        8.00        10.00   

As of December 31, 2011:

      

Tangible capital to tangible assets

     13.42     1.50     NA   

Tier 1 capital (core) - (to adjusted assets)

     13.42        4.00        5.00   

Total capital (to risk-weighted assets)

     24.71        8.00        10.00   

On September 6, 2012, the OCC and the other federal bank regulatory agencies issued a series of proposed rules to revise their risk-based and leverage capital requirements and their method for calculating risk-weighted assets to make them consistent with the agreements that were reached by the Basel Committee on Banking Supervision in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (“Basel III”). The proposed rules would apply to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more, and top-tier savings and loan holding companies (“banking organizations”). Among other things, the proposed rules establish a new common equity tier 1 minimum capital requirement and a higher minimum tier 1 capital requirement, and assign higher risk weightings (150%) to exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property. The proposed rules also limit a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of a specified amount of common equity tier 1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements. The final rules will become effective on January 1, 2013, and the changes set forth in the final rules will be phased in from January 1, 2013 through January 1, 2019.

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. generally accepted accounting principles, are not recorded in the financial statements. These transactions primarily relate to lending commitments.

The following table shows the contractual obligations of the Company by expected payment period as of September 30, 2012:

 

Contractual Obligation

   Total      Less than
One Year
     One to less
than
Three
Years
     Three to
less than
Five Years
     Five
Years
and
greater
 
     (in thousands)  

Debt obligations (excluding capitalized leases)

   $ 492,213       $ 107,300       $ 193,000       $ 187,913       $ 4,000   

Commitments to originate loans

   $ 33,607       $ 33,607       $ —         $ —         $ —     

Commitments to fund unused lines of credit

   $ 54,235       $ 54,235       $ —         $ —         $ —     

Commitments to originate loans and 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 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.

During the quarter ended September 30, 2012, we sold the servicing rights of the $34.5 million of loans for Freddie Mac to a third party bank. These one-to-four family residential mortgage real estate loans were underwritten to Freddie Mac guidelines and to comply with applicable federal, state, and local laws. At the time of the closing of these loans the Company owned the loans and subsequently sold them to Freddie Mac providing

 

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Table of Contents

normal and customary representations and warranties, including representations and warranties related to compliance with Freddie Mac underwriting standards. At the time of sale, the loans were free from encumbrances except for the mortgages filed for by the Company which, with other underwriting documents, were subsequently assigned and delivered to Freddie Mac. At the time of sale to the third party, substantially all of the loans serviced for Freddie Mac were performing in accordance with their contractual terms and management believes that it has no material repurchase obligations associated with these loans.

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, 2011.

 

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Table of Contents
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 funding. 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 Treasurer, who chairs this Committee, our Chief Executive Officer, our Chief Operating Officer/Chief Financial Officer, our Chief Lending Officer, and our Executive Vice President of Operations. 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 commercial real estate loans and multifamily loans that generally tend to have shorter maturities and higher interest rates that generally reset at five years;

 

   

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

 

   

obtaining general financing through lower-cost deposits and longer-term Federal Home Loan Bank advances and repurchase agreements.

Shortening the average term of our interest-earning assets by increasing our investments in shorter-term assets, as well as loans with variable interest rates, helps to better match the maturities and interest rates of our assets and liabilities, 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 table below sets forth, as of September 30, 2012, 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. 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 decay, and should not be relied on as indicative of actual results (dollars in thousands).

 

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Table of Contents

 

     NPV        
Change in Interest Rates (basis points)    Estimated
Present
Value of
Assets
     Estimated
Present
Value of
Liabilities
     Estimated
NPV
     Estimated
Change In
NPV
    Estimated
NPV/
Present
Value of
Assets
Ratio
    Net
Interest
Income
Percent
Change
 

+400

   $ 2,308,716       $ 1,953,141       $ 355,575       $ (126,335     15.40     -17.58

+300

     2,369,781         1,984,017         385,764         (96,146     16.28        -12.55   

+200

     2,439,507         2,015,899         423,608         (58,302     17.36        -7.45   

+100

     2,508,766         2,048,834         459,932         (21,978     18.33        -2.84   

  0

     2,564,780         2,082,870         481,910         —          18.79        0.00   

-100

     2,595,059         2,110,259         484,800         2,890        18.68        -0.52   

-200

     2,635,944         2,116,739         519,205         37,295        19.70        -1.94   

The table above indicates that at September 30, 2012, in the event of a 300 basis point increase in interest rates, we would experience a 251 basis point decrease in NPV ratio (18.79% versus 16.28%), and a 12.55% decrease in net interest income. In the event of a 200 basis point decrease in interest rates, we would experience an 91 basis point increase in NPV ratio (18.79% versus 19.70%) and a 1.94% decrease in net interest income. Our policies provide that, in the event of a 300 basis point increase/decrease or less in interest rates, our net present value ratio should decrease by no more than 400 basis points and in the event of a 200 basis point increase/decrease, our projected net interest income should decrease by no more than 16%. Additionally, our policy states that our net portfolio value should be at least 8% of total assets before and after such shock. At September 30, 2012, 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 NPV and net interest income. Modeling requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV 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 interest income and will differ from actual results.

 

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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 and Exchange Act of 1934, as amended) as of September 30, 2012. 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 quarter ended September 30, 2012, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Table of Contents

PART II

 

ITEM 1. LEGAL PROCEEDINGS

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

 

ITEM 1A. RISK FACTORS

Except as disclosed elsewhere in this Quarterly Report on Form 10-Q, in our other filings with the SEC and as follows, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the SEC.

Hurricane Sandy could adversely affect our asset quality and earnings.

Our primary market areas of Staten Island and Brooklyn, New York and Union and Middlesex Counties in New Jersey were significantly affected by Hurricane Sandy, which struck the region on October 29, 2012. The storm caused significant damage throughout our market area, including widespread disruptions in power and transportation. Many properties and structures also have incurred flood and wind damage, which ranges from minor to moderate in many areas to very severe in coastal areas, which may adversely affect the value of certain collateral securing our loans, and, potentially, our borrowers’ ability to repay their obligations to us. In addition, flood and property insurance may not be sufficient to fully cover our exposure to losses, and our borrowers may experience delays in receiving proceeds from insurance claims. We are in the process of performing a detailed evaluation of the effects that Hurricane Sandy may have had on our borrowers and our collateral, but we do not yet have enough information to reasonably estimate the potential financial impact of the storm on us. However, it is likely that our results of operations will be negatively impacted, and it is possible that the impact could be material. For example, it is likely that we will experience increased delinquencies and loan restructurings, particularly in the short-term, as customers undertake recovery and clean-up efforts, including the submission of insurance claims. Customers may also experience disruptions in their employment status or income if their employers were affected by the storm. These increases in delinquencies and restructurings would negatively affect our cash flows and, if not timely cured, would increase our non-performing assets and reduce our net interest income. Loan restructurings may also increase as we work with borrowers impacted by the storm. We may also experience increased provisions for loan losses as total loan delinquencies and loan restructurings increase, and to the extent that the combination of insurance proceeds and collateral values are insufficient to cover loan balances on loans that may default.

 

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 announced on June 6, 2012, that it terminated its stock repurchase plan in connection with its adoption of a Plan of Conversion and Reorganization to a fully public company. As of September 30, 2012, the Company has repurchased a total of 5,384,510 shares of its common stock under its prior repurchase plans at an average price of $12.91 per share.

 

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

 

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SIGNATURES

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

 

      NORTHFIELD BANCORP, INC.
      (Registrant)
Date: November 9, 2012      
     

/s/ John W. Alexander

      John W. Alexander
      Chairman, President and Chief Executive Officer
     

/s/ Steven M. Klein

      Steven M. Klein
      Chief Operating Officer and Chief Financial Officer
      (Principal Financial and Accounting Officer)

 

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INDEX TO EXHIBITS

 

Exhibit
Number

  

Description

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

Certification of Steven M. Klein, Chief Operating Officer and Chief Financial Officer,

Pursuant to Rule 13a-14(a) and Rule 15d-14(a)*

  32    Certification of John W. Alexander, Chairman, President and Chief Executive Officer, and Steven M. Klein, Chief Operating Officer and 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 Report on Form 10-Q for the quarter ended September 30, 2012, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements**

 

* Filed herewith.
** Furnished, not filed

 

47