2017 ANNUAL REPORT
Bancorp
130
YEARS OF
SERVING OUR
COMMUNITY
10
YEARS AS
A PUBLIC
COMPANY
1971
Savings Bank
Conversion
With $40 million in
assets, Northfield
becomes the first
Savings and Loan
Association in New
York to convert to a
savings bank.
2007
IPO and
Brooklyn
Northfield goes
public on November
1, 2007 and is listed
on the NASDAQ
stock exchange.
The bank also
opens its first
Brooklyn branch.
1983
Expanded
Footprint
Northfield adds
several new
locations in Staten
Island through the
acquisition of Security
Federal Savings and
Loan Association.
1887
Open for
Business
Northfield was
founded on
March 1, 1887
in the village of
Northfield, Staten
Island, NY.
2013
2nd Step
Stock Offering
Company
completes its
2nd step stock
offering.
2017
130 th Anniversary
Northfield celebrates
130th Anniversary and
10th year as a public
company.
1948
2nd Branch
The bank opens
their second branch
location, one which is
still serving customers
today at 1731 Victory
Boulevard, Staten
Island, NY.
1977
Mutual
Savings & Loan
Acquisition
Northfield acquires
Mutual Savings and
Loan Association of
Staten Island.
2002
New Jersey
The company enters
the New Jersey market
through the acquisition of
Liberty Bank, resulting in
the bank’s first locations
outside of Staten Island.
2012
Flatbush
Federal Savings
Northfield acquires
Flatbush Federal
Savings Bank in
Brooklyn, NY.
2016
Hopewell Region
Bank expands into Mercer
and Hunterdon counties
in New Jersey through the
acquisition of Hopewell
Valley Community Bank.
DEAR FELLOW
STOCKHOLDER,
This year marked two significant
milestones…130 years of Northfield
Bank serving the financial needs of our
communities, and Northfield Bancorp’s
10-year anniversary as a public company.
Northfield is built upon the principles of customer service,
community involvement, and financial strength. We remain
as committed to these values today, as when our founders
formed Northfield Building Loan and Savings Association
in 1887. Although our name has changed over the years,
our mission remains the same - to be the bank of choice for
businesses and individuals in our communities.
We are focused on a disciplined branch growth strategy
to expand our market share as well as our market reach,
and in the fall of 2017, we increased our customer service
capability in Staten Island by opening a branch in the Great
Kills community, our 39th branch, and anticipate opening
our newest branch in Brooklyn Heights later in 2018. These
branches are in vibrant residential and commercial markets,
complementing our existing branch network.
Recently we announced the launch of Northfield Investment
Services to provide our customers with an expanded array
of investment services and products offered through LPL
Financial LLC, the number one provider of investment
services to banks. With this broadened offering, Northfield
Investment Services will be able to better meet the ever
expanding needs of our customers.
We value the insights provided to us by our customers and
in 2017 we again undertook a customer survey to measure
our performance across all banking delivery channels. The
response has been overwhelmingly positive and we have
gathered invaluable insights that will assist us in continuing
to enhance our customers’ experience.
The online experience is integral to our customer service
model and we continue to improve our digital platforms.
These enhancements range from our newly designed mobile
banking application and online deposit account opening, to
our soon-to-be launched redesigned website and a person-
to-person payment system that will allow our customers to
transfer funds in a matter of seconds. The new website will
simplify the user interface, present products and services
in an easy to navigate format, provide instructional videos
John W. Alexander
Chairman
of the Board
Steven M. Klein
President & CEO
“
After leading Northfield for over 20 years,
John W. Alexander retired as Chief
Executive Officer on October 31, 2017.
The Board of Directors and all Northfield
employees are grateful to John for his
selfless service, vision and friendship,
and we look forward to his leadership as
Chairman of the Board.
- Steven M. Klein
“
2017 Annual Report | 1
on our products and services, provide social media
interfaces, and streamline the process of interacting
with Northfield.
Northfield is Banking Locally Grown, our employees
live, work and volunteer in the communities we
serve. Northfield encourages and supports our
employees as they give back to our communities
by leading charitable organizations, volunteering at
community events, or teaching financial literacy at a
local school. In addition, during 2017, the Northfield
Bank Foundation reached its 10-year anniversary and
since its inception has donated over $7.0 million to
organizations focused on health and human services,
education, youth programs, and affordable housing in
our communities. The philanthropy of our Foundation
coupled with Northfield’s corporate giving program
affirms our commitment to the community. Our
employees also take pride in helping others during
times of need and demonstrated their commitment
while collecting items to aid those affected by the
hurricanes in Texas, Florida, and Puerto Rico.
Strong loan demand, deposit growth, and expense
management fueled earnings for 2017. Diluted
earnings per share for the year ended December 31,
2017, was $0.53. Earnings included a tax charge of
approximately $0.23 per diluted share related to the
recently enacted tax reform, and income of $0.08 per
share related to bank-owned life insurance and the
adoption of a new accounting standard related to
stock-based compensation. The strong core earnings
supported a 25 percent increase in our cash dividend
from $0.08 to $0.10 per share.
Susan Lamberti retired from the Board of Directors
in 2017 after more than 16 years of service. Susan
has provided invaluable guidance and oversight in
her role with Northfield, and we look forward to her
continued contributions as a director emeritus and as
Chair of the Northfield Bank Foundation.
In celebration of our 10th year as a public company,
we participated in the ringing of the closing bell at the
NASDAQ MarketSite in Times Square. Reaching this
milestone reminds us of our many accomplishments
while providing our team the opportunity to focus on
the task at hand of ensuring the continued success
and growth of our company.
We thank our stockholders for their support
and applaud our over 360 employees for their
commitment to Northfield.
John W. Alexander
Chairman of the Board
Steven M. Klein
President and CEO
2 | 2017 Annual Report
financial highlights
DILUTED EARNINGS PER SHARE
DIVIDENDS PER SHARE
TOTAL DEPOSITS
DEPOSIT COMPOSITION
At December 31, 2017
)
s
n
o
i
l
l
i
m
n
i
$
(
2013
2014
2015
2016
2017
$1,489.5
$1,943.0
$2,373.7
$2,968.1
$3,140.8
ORIGINATED LOANS COMPOSITION
At December 31, 2017
TOTAL LOANS
(1) Earnings for the year ended 12/31/14, included a reduction of compensation and benefits of $560,000, net of tax, or $0.01 per diluted share, related to the settlement of the former Flatbush
Federal Savings & Loan Association pension plan and included a charge of $570,000 or $0.01 per diluted share, related to the write-down of deferred assets as a result of tax laws enacted in
the State of New York.
(2) Earnings for the year ended 12/31/15, included merger related expenses of $574,000, net of tax, or $0.01 per diluted share, related to the acquisition of Hopewell Valley Community Bank
(“HVCB”) and included a charge of $795,000, or $0.02 per diluted share, related to the write-down of deferred assets as a result of tax laws enacted in the City of New York.
(3) Earnings for the year ended 12/31/16, included merger related expenses of $2.4 million, net of tax, or $0.05 per diluted share, related to the acquisition of HVCB.
(4) Earnings for the year ended 12/31/17, included an estimated tax charge of $10.5 million, or $0.23 per diluted share, related to the enactment of federal tax reform, a $2.3 million reduction in
tax expense, or $0.05 per diluted share, as a result of the adoption of Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718), and a $1.5 million, or $0.03
per diluted share, benefit of tax-exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies.
(5) Special Dividend
2017 Annual Report | 3
OUR VISION
Northfield will be a high-performing financial institution where
customers want to bank, employees want to work, and
stockholders want to invest.
OUR MISSION
Northfield will be the financial institution of choice to individuals
and businesses by delivering innovative financial products
and exceptional customer service.
40
Branch
locations
4 | 2017 Annual Report
Brooklyn Court Street branch scheduled to open Fall 2018
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2017
OR
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______________ to _________________
Commission File No. 001-35791
Northfield Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
581 Main Street, Suite 810
Woodbridge, New Jersey
(Address of Principal Executive Offices)
80-0882592
(I.R.S. Employer
Identification No.)
07095
Zip Code
(732) 499-7200
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.01 per share
Name of Each Exchange on Which Registered
The NASDAQ Stock Market, LLC
Securities Registered Pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
No
Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
No
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
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
Accelerated filer
Smaller reporting company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed
by reference to price at which the common equity was last sold on June 30, 2017 was $725,183,737.
As of February 20, 2018, there were outstanding 49,059,067 shares of the registrant’s common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant’s Definitive Proxy Statement (the 2018 Proxy Statement) for the 2018 Annual
Meeting of the Stockholders to be held May 23, 2018, will be incorporated by reference in Part III. The 2018 Proxy Statement
will be filed within 120 days of December 31, 2017.
NORTHFIELD BANCORP, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Part I.
Page
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12
Item 13
Item 14
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part II.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . .
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part III.
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part IV.
Item 15
Item 16
Signatures
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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ITEM 1. BUSINESS
Forward-Looking Statements
PART I
This Annual Report contains certain “forward-looking statements,” which can be identified by the use of such words
as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect,” “annualized,” “could,” “may,” “should,”
“will,” and words of similar meaning. These forward-looking statements include, but are not limited to:
•
•
•
•
statements of our goals, intentions, and expectations;
statements regarding our business plans, prospects, growth and operating strategies;
statements regarding the quality of our loan and investment portfolios; and
estimates of our risks and future costs and benefits.
These forward-looking statements are based on current beliefs and expectations of our management and are inherently
subject to significant business, economic and competitive uncertainties, and contingencies, many of which are beyond our
control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and
decisions that are subject to change.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other
expectations expressed in the forward-looking statements:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
general economic conditions, either nationally or in our market areas, including employment prospects, real estate
values and conditions, that are worse than expected;
competition among depository and other financial institutions;
inflation and changes in the interest rate environment that reduce our margins and yields or reduce the fair value
of financial instruments;
adverse changes in the securities, credit markets or real estate values;
changes in laws, tax policies, or government regulations or policies affecting financial institutions, including
changes in regulatory fees and capital requirements;
our ability to manage operations in the current economic conditions;
our ability to enter new markets successfully and capitalize on growth opportunities;
our ability to successfully integrate acquired entities;
changes in consumer demand, spending, borrowing and savings habits;
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial
Accounting Standards Board, or the Securities and Exchange Commission, or the Public Company Accounting
Oversight Board;
cyber attacks, computer viruses and other technological risks that may breach the security of our websites or other
systems to obtain unauthorized access to confidential information and destroy data or disable our systems;
technological changes that may be more difficult or expensive than expected;
changes in our organization, compensation, and benefit plans;
changes in the level of government support for housing finance;
changes in monetary or fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board (“FRB”)
the ability of third-party providers to perform their obligations to us;
the ability of the U.S. Government to manage federal debt limits;
significant increases in our loan losses, including increases that may result from the new authoritative accounting
guidance (known as the current expected credit loss (“CECL”) model which may increase the required level of our
allowance for loan losses after adoption effective January 1, 2020;
changes in our income tax expense resulting from the impact of recently enacted federal corporate tax reform; and
changes in the financial condition, results of operations, or future prospects of issuers of securities that we own.
Because of these and other uncertainties, our actual future results may be materially different from the results indicated
by these forward-looking statements. Accordingly, you should not place undue reliance on such statements. Except as required
by law, we disclaim any intention or obligation to update or revise any forward-looking statements after the date of this Form
10-K, whether as a result of new information, future events or otherwise.
1
Northfield Bancorp, Inc.
Northfield Bancorp, Inc., a Delaware corporation (the “Company”), was organized in 2010 and is the holding company
for Northfield Bank. Northfield Bancorp, Inc. uses the support staff and offices of Northfield Bank and reimburses Northfield
Bank for these services. If Northfield Bancorp, Inc. expands or changes its business in the future, it may hire its own
employees. In the future, we may pursue other business activities, including mergers and acquisitions, investment alternatives
and diversification of operations.
Northfield Bancorp, Inc. is subject to comprehensive regulation and examination by the Board of Governors of the
Federal Reserve System (the “FRB”).
Northfield Bancorp, Inc.’s main office is located at 581 Main Street, Suite 810, Woodbridge, New Jersey 07095, and
its telephone number at this address is (732) 499-7200. The Company's electronic filings with the Securities and Exchange
Commission, including copies of annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and amendments to these filings, if any, are available, free of charge, as soon as practicable after they are filed with the
Securities and Exchange Commission under the Investor Relations section of the Company's website, www.eNorthfield.com.
Information on this website is not and should not be considered to be a part of this annual report.
Northfield Bank
Northfield Bank was organized in 1887 and is a federally chartered savings bank. Northfield Bank conducts business
from its home office located in Staten Island, New York, its operations center located in Woodbridge, New Jersey, its 38
additional branch offices located in New York and New Jersey, and a lending office located in Brooklyn, New York. The branch
offices are located in Staten Island, Brooklyn, and the New Jersey counties of Hunterdon, Mercer, Middlesex, and Union.
On January 8, 2016, the Company completed its acquisition of Hopewell Valley Community Bank (“Hopewell
Valley”), which, after purchase accounting adjustments, added $508.5 million to total assets, $342.6 million to loans, and
$456.2 million to deposits, and nine branch offices in the Hunterdon and Mercer counties of New Jersey. Total consideration
paid for Hopewell Valley was $55.4 million, consisting of $13.7 million in cash and 2,707,381 shares of common stock valued
at $41.7 million based upon the $15.41 per share closing price of Northfield Bancorp, Inc.’s common stock on January 8, 2016.
Northfield Bank’s principal business consists of originating multifamily and other commercial real estate loans,
purchasing investment securities, including mortgage-backed securities and corporate bonds, and, to a lesser extent, depositing
funds in other financial institutions. Northfield Bank also offers construction and land loans, commercial and industrial loans,
and home equity loans and lines of credit, and from time to time purchases loan participations and pools of loans. Northfield
Bank offers a variety of deposit accounts, including certificates of deposit, passbook, statement, and money market savings
accounts, transaction deposit accounts (negotiable orders of withdrawal (NOW) accounts and non-interest bearing demand
accounts), individual retirement accounts, and, to a lesser extent, when it is deemed cost effective, brokered deposits. Deposits
are Northfield Bank’s primary source of funds for its lending and investing activities. Northfield Bank also borrows funds,
principally through Federal Home Loan Bank (“FHLB”) of New York advances and repurchase agreements with
brokers. Northfield Bank owns 100% of NSB Services Corp., which, in turn, owns 100% of the voting common stock of a real
estate investment trust, NSB Realty Trust, which holds primarily mortgage loans. In addition, Northfield Bank refers its
customers to independent third parties that provide non-deposit investment products, merchant processing services, and one-to-
four family residential mortgage products.
Northfield Bank is subject to comprehensive regulation and examination by the Office of the Comptroller of the
Currency (“OCC”).
Northfield Bank’s main office is located at 1731 Victory Boulevard, Staten Island, New York 10314, and its telephone
number at this address is (718) 448-1000. Its website address is www.eNorthfield.com. Information on this website is not and
should not be considered to be a part of this annual report.
Market Area and Competition
Northfield Bank has been in business since 1887, offering a variety of financial products and services to meet the
needs of the communities we serve. Our commercial and retail banking network consists of multiple delivery channels
including full-service banking offices, automated teller machines, telephone, and internet banking capabilities, including mobile
2
banking and remote deposit capture. We consider our competitive products and pricing, branch network, customer service, and
financial position, as our major strengths in attracting and retaining customers in our market areas.
We face intense competition in our market areas both in making loans and attracting deposits. Our market areas have a
high concentration of financial institutions, including large money center and regional banks, non-traditional banks, community
banks, and credit unions. We face additional competition for deposits from money market funds, brokerage firms, mutual funds,
and insurance companies. Some of our competitors offer products and services that we do not offer, such as trust services and
private banking. In addition, competition has further intensified as a result of recent changes in regulation, and advances in
technology and product delivery systems, and we face strong competition for our borrowers, depositors, and other customers
from Financial Technology (“Fintech”) companies that provide innovative web-based solutions to traditional retail banking
services and products. Fintech companies tend to have stronger operating efficiencies and less regulatory burdens than
traditional banks.
Our deposit sources are primarily concentrated in the communities surrounding our branch offices in the New York
counties of Richmond (Staten Island) and Kings (Brooklyn), and Hunterdon, Mercer, Middlesex and Union counties in New
Jersey. As of June 30, 2017 (the latest date for which information is publicly available), we ranked fifth in deposit market share
for Federal Deposit Insurance Corporation (FDIC) Insured Institutions in Staten Island with a 10.52% market share. As of that
date, we had a 0.63% deposit market share in Brooklyn, New York, and a combined deposit market share of 1.23% in the
Hunterdon, Mercer, Middlesex and Union counties in New Jersey.
The following table sets forth the unemployment rates for the communities we serve and the national average for the
last five years, as published by the Bureau of Labor Statistics:
Hunterdon County, NJ
Mercer County, NJ
Union County, NJ
Middlesex County, NJ
Richmond County, NY
Kings County, NY
National Average
Unemployment Rate At December 31,
2017
2016
2015
2014
2013
3.1%
3.1%
3.3%
4.2%
4.6%
3.6
4.2
3.5
3.8
4.0
4.1
3.5
4.3
3.6
4.4
4.5
4.7
3.8
4.7
3.9
5.2
5.3
5.0
5.1
6.2
5.2
6.3
6.4
5.6
5.7
6.9
6.1
7.9
8.3
6.7
The following table sets forth median household income at December 31, 2017 and 2016, for the communities we
serve, as published by the U.S. Census Bureau:
Hunterdon County, NJ
Mercer County, NJ
Union County, NJ
Middlesex County, NJ
Richmond County, NY
Kings County, NY
Lending Activities
Median Household Income
At December 31,
2017
2016
$
112,337
$
113,676
76,922
72,505
84,008
73,481
50,530
73,343
67,257
79,140
71,706
49,716
Our principal lending activity is the origination of multifamily real estate loans and, to a lesser extent, other
commercial real estate loans (typically on office, retail, and industrial properties), in New York City, New Jersey, and eastern
Pennsylvania. We also originate one-to-four family residential real estate loans (non-owner occupied investment properties),
construction and land loans, commercial and industrial loans, and home equity loans and lines of credit.
Loan Originations, Purchases, Sales, Participations, and Servicing. All loans we originate are underwritten pursuant
to our policies and procedures or are properly approved as exceptions to our policies and procedures. Our ability to originate
fixed- or adjustable-rate loans is dependent on the relative demand for such loans, which is affected by various factors including
3
current market interest rates as well as anticipated future market interest rates. Our loan origination activity may be adversely
affected by changes in economic conditions that result in decreased loan demand. Our home equity loans and lines of credit
typically are generated through direct mail advertisements, newspaper advertisements, online applications through our website,
and referrals from branch personnel. A significant portion of our multifamily real estate loans and other commercial real estate
loans are generated with the use of third-party loan brokers. Our commercial and industrial loans typically are generated
through our loan and business development officers and, to a lesser extent, referrals from accountants and other professional
contacts. We generally retain in our portfolio all loans we originate and have historically only sold non-performing loans.
Loans acquired in an assisted transaction with the FDIC in 2011, and in the mergers with Flatbush Federal Bancorp,
Inc. (2012) and Hopewell Valley (2016), with deteriorated credit quality, herein referred to as purchased credit-impaired
(“PCI”) loans, have a carrying value of $22.7 million at December 31, 2017. The accounting and reporting for these loans
differs substantially from those loans originated and classified as held-for-investment. For purposes of reporting, discussion and
analysis, management has classified its loan portfolio into three categories: (1) PCI loans, which are held-for-investment, and
initially valued at estimated fair value on the date of acquisition, with no initial related allowance for loan losses, (2) originated
loans held-for-investment, which are carried at amortized cost, less net charge-offs and the allowance for loan losses, and
(3) acquired loans with no evidence of credit deterioration, which are held-for-investment, and initially valued at an estimated
fair value on the date of acquisition, with no initial related allowance for loan losses. PCI and acquired loans are periodically
evaluated for impairment after their initial valuation and, if determined to be impaired, could have an associated allowance for
loan losses.
Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory, underwriting
standards approved by our board of directors. The loan approval process is intended to assess the borrower’s ability to repay
the loan and the value of the collateral that will secure the loan, if any. To assess the borrower’s ability to repay, we review the
borrower’s income and credit history, and information on the historical and projected income and expenses of the borrower.
In underwriting a loan secured by real property, we require an appraisal of the property by an independent licensed or
certified appraiser approved by our board of directors. The appraisals of multifamily and other commercial real estate properties
are also reviewed by an independent third-party appraiser. We review and inspect properties before disbursement of funds
during the term of a construction loan. Generally, management obtains updated appraisals when a loan is deemed impaired.
These appraisals may be more limited than those prepared for the underwriting of a new loan. In addition, when we acquire
other real estate owned, we generally obtain a current appraisal to substantiate the net carrying value of the asset.
The board of directors maintains a loan committee consisting of bank directors to: periodically review and recommend
for approval our policies related to lending as prepared by management; approve or reject loan applicants meeting certain
criteria; and monitor loan quality including concentrations and certain other aspects of our lending functions, as applicable.
Certain Northfield Bank officers, at levels beginning with vice president, have individual lending authority that is approved by
the board of directors.
Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio, by type of loan, at
the dates indicated, excluding loans held for sale of $471,000, at December 31, 2013. There were no loans held for sale at
December 31, 2017, 2016, 2015, and 2014.
4
2017
2016
2015
2014
2013
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
Amount
Percent
(Dollars in thousands)
At December 31,
$ 1,735,712
55.38% $ 1,506,335
50.86% $ 1,318,461
55.66% $ 1,072,193
55.31% $
870,951
58.61%
445,225
14.20
412,667
13.93
402,073
16.97
390,288
20.13
340,174
22.89
100,942
3.22
105,968
3.58
98,332
4.15
74,401
3.84
64,753
4.36
66,254
2.11
65,437
2.21
61,413
2.59
54,533
2.81
46,231
3.11
34,545
1.10
14,065
0.47
18,652
0.79
21,412
1.10
14,152
0.95
34,828
1,430
2,418,936
22,741
1.11
0.05
77.17
0.73
31,906
1,497
2,137,875
30,498
1.08
0.05
72.18
1.03
25,554
2,256
1,926,741
33,115
1.08
0.10
81.34
1.40
12,945
2,157
1,627,929
44,816
0.67
0.12
83.98
2.31
10,162
2,310
1,348,733
59,468
0.68
0.16
90.76
4.00
275,053
199,149
163,962
8.78
6.35
5.23
317,639
215,389
188,001
10.73
7.27
6.35
330,672
13.96
234,478
12.10
64,779
11,160
2.73
0.47
18,844
11,999
0.97
0.62
60,262
3,930
13,254
4.06
0.26
0.89
20,455
0.65
25,522
0.86
2,404
0.10
—
—
—
—
17,201
0.55
20,887
0.71
16,946
37
0.54
—
25,443
359
0.86
0.01
—
—
—
—
—
—
364
0.02
371
0.03
—
—
—
—
—
—
—
—
692,803
22.10
793,240
26.79
409,015
17.26
265,685
13.71
77,817
5.24
Loans originated:
Real estate loans:
Multifamily
Commercial
One-to-four family
residential
Home equity and
lines of credit
Construction and
land
Commercial and
industrial loans
Other loans
Total loans
originated
PCI loans
Loans acquired:
Real estate loans:
One-to-four family
residential
Multifamily
Commercial
Home equity and
lines of credit
Construction and
land
Commercial and
industrial loans
Other loans
Total loans
acquired
Total loans
$ 3,134,480
100.00% $ 2,961,613
100.00% $ 2,368,871
100.00% $ 1,938,430
100.00% $ 1,486,018
100.00%
Other items:
Deferred loan
costs (fees), net
Allowance for loan
losses
Net loans held-
for-investment
6,339
(26,160)
6,471
(24,595)
4,844
(24,770)
4,565
(26,292)
3,458
(26,037)
$ 3,114,659
$ 2,943,489
$ 2,348,945
$ 1,916,703
$ 1,463,439
At December 31, 2017, PCI loans consisted of approximately 27% commercial real estate loans and 50% commercial
and industrial loans, with the remaining balance in residential and home equity loans. At December 31, 2016, these loans
consisted of approximately 30% commercial real estate loans and 48% commercial and industrial loans, with the remaining
balance in residential and home equity loans. At December 31, 2015, these loans consisted of approximately 28% commercial
real estate loans and 52% commercial and industrial loans, with the remaining balance in residential and home equity loans. At
December 31, 2014, these loans consisted of approximately 33% commercial real estate loans and 53% commercial and
industrial loans, with the remaining balance in residential and home equity loans. At December 31, 2013, these loans consisted
of approximately 37% commercial real estate loans and 47% commercial and industrial loans, with the remaining balance in
residential and home equity loans.
Loan Portfolio Maturities. The following table summarizes the scheduled repayments of our loan portfolio and
weighted average contractual rate by loan type at December 31, 2017. Demand loans (loans having no stated repayment
schedule or maturity) and overdraft loans are reported as being due in the year ending December 31, 2018. Maturities are based
on the final contractual payment date and do not reflect the effect of prepayments, repricing and scheduled principal
amortization.
5
Due during the years ending
December 31,
2018
2019
2020
2021 to 2022
2023 to 2027
2028 to 2032
2033 and beyond
Total
Due during the years ending
December 31,
2018
2019
2020
2021 to 2022
2023 to 2027
2028 to 2032
2033 and beyond
Total
Due during the years ending
December 31,
2018
2019
2020
2021 to 2022
2023 to 2027
2028 to 2032
2033 and beyond
Total
Originated Loans
Multifamily
Commercial Real Estate
One-to-Four Family
Residential
Home Equity and Lines
of Credit
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Amount
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
(Dollars in thousands)
$
272
308
7
1,318
82,088
70,270
1,581,449
4.96% $
5.50%
7.00%
4.96%
3.79%
4.28%
3.57%
1,120
1,670
24,348
18,227
22,695
73,306
303,859
6.61% $
5.59%
4.75%
4.46%
4.30%
4.64%
4.15%
651
171
347
170
3,526
8,481
87,596
5.41% $
5.01%
6.00%
4.12%
4.52%
4.19%
3.87%
139
463
752
2,335
12,986
15,139
34,440
$1,735,712
3.61% $ 445,225
4.30% $
100,942
3.94% $
66,254
3.25%
3.36%
3.43%
3.51%
3.67%
3.95%
3.91%
3.85%
Construction and Land
Commercial and
Industrial
Other
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Amount
Amount
Weighted
Average
Rate
(Dollars in thousands)
$
12,913
5.33% $
11,530
4.72% $
1,213
13,678
2,191
—
109
—
5.10%
5.50%
—
5.00%
—
5,654
3.73%
3,273
53
11,123
8,249
527
73
4.89%
8.37%
4.23%
4.70%
4.72%
5.68%
—
18
11
91
—
97
$
34,545
4.99% $
34,828
4.58% $
1,430
0.13%
—
16.37%
12.00%
6.00%
—
4.26%
1.08%
Acquired Loans
One-to-Four-Family
Residential
Multifamily
Commercial Real Estate
Home Equity and Lines
of Credit
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Amount
Amount
Weighted
Average
Rate
Amount
Weighted
Average
Rate
(Dollars in thousands)
$
1,628
2,355
174
483
8,657
5,148
256,608
4.53% $
4.79%
4.55%
6.23%
3.96%
4.68%
2.95%
15
6,144
85
159
188,851
—
3,895
7.00% $
3.34%
7.50%
4.00%
3.23%
—
4.33%
1,534
4,922
2,491
7,740
33,472
20,259
93,544
4.91% $
4.77%
5.06%
4.94%
4.27%
4.63%
4.79%
445
1,020
817
777
6,401
8,034
2,961
$ 275,053
3.05% $ 199,149
3.26% $
163,962
4.68% $
20,455
4.18%
4.46%
3.41%
4.99%
4.51%
4.55%
4.12%
4.43%
6
Acquired Loans (continued)
Commercial and
Industrial
Construction and Land
Other
Weighted
Average
Rate
Amount
Weighted
Average
Rate
Amount
Amount
Weighted
Average
Rate
(Dollars in thousands)
$
3,183
2,746
924
2,932
3,494
392
3,275
5.19% $
7,561
5.86% $
4.93%
4.92%
4.89%
4.99%
4.75%
4.38%
181
—
256
4,112
—
5,091
5.50%
—
5.00%
4.75%
—
4.67%
$
16,946
4.87% $
17,201
5.23% $
6
29
2
—
—
—
—
37
7.70%
12.35%
18.00%
—
—
—
—
11.90%
Due during the years ending
December 31,
2018
2019
2020
2021 to 2022
2023 to 2027
2028 to 2032
2033 and beyond
Total
Due during the years ending December 31,
2018
2019
2020
2021 to 2022
2023 to 2027
2028 to 2032
2033 and beyond
Total
__________________________________
(1) Represents estimated accretable yield.
PCI loans
Total Loans
Amount
Weighted
Average Rate(1)
Amount
Weighted
Average Rate
(Dollars in thousands)
$
2,969
1,894
699
2,071
2,194
3,753
9,161
24.80% $
22.65%
19.11%
18.45%
21.80%
18.15%
15.37%
45,179
38,854
32,908
47,602
376,925
205,309
2,387,703
$
22,741
18.68% $
3,134,480
6.36%
5.58%
5.10%
5.12%
3.75%
4.69%
3.69%
3.86%
The following table summarizes fixed- and adjustable-rate loans at December 31, 2017, that are contractually due after
December 31, 2018:
Real estate loans:
Multifamily
Commercial
One-to-four family residential
Construction and land
Home equity and lines of credit
Commercial and industrial loans
Other loans
PCI loans
Acquired loans
Total loans
Fixed Rate
Due After December 31, 2018
Adjustable Rate
(Dollars in thousands)
Total
$
$
111,338
47,380
23,188
35
36,063
14,956
217
3,522
228,415
465,114
$
$
1,624,102
396,725
77,103
21,597
30,052
8,342
—
16,250
450,016
2,624,187
$
$
1,735,440
444,105
100,291
21,632
66,115
23,298
217
19,772
678,431
3,089,301
At December 31, 2017, the Company had a total of $2.39 billion in loans due to mature in 2033 and beyond, of which
$53.8 million, or 2.25%, are fixed rate loans.
7
Multifamily Real Estate Loans. Originated loans secured by multifamily properties totaled approximately $1.74
billion, or 55.4% of our total loan portfolio, at December 31, 2017. We include in this category properties having more than
four residential units and a business or businesses where the majority of space is utilized for residential purposes, which we
refer to as mixed-use. At December 31, 2017, we had 913 originated multifamily real estate loans, with an average loan balance
of approximately $1.9 million, although there are a large number of loans with balances substantially greater than this average.
At December 31, 2017, our largest multifamily real estate loan had a principal balance of $30.8 million, was secured by four
apartment buildings located in Staten Island, New York, and was performing in accordance with its original contractual terms.
Substantially all of our multifamily real estate loans are secured by properties located in our primary market areas and eastern
Pennsylvania.
Our multifamily real estate loans typically amortize over 20 to 30 years with negotiated interest rates that adjust after
an initial five-, seven-, or 10-year period, and every five years thereafter. Adjustable-rate loan originations are generally tied to
a specifically identified market rate index. We also originate, to a lesser extent, 10- to 15-year fixed-rate, fully amortizing loans.
In general, our multifamily real estate loans have interest rate floors equal to the interest rate on the date the loan is originated,
and have prepayment penalties should the loan be prepaid in the initial five-, seven-, or 10-year term. In addition, our multi-
family loans may contain an initial interest-only period which typically does not exceed two years; however, these loans are
underwritten on a fully amortizing basis. Loans that we have purchased typically adjust to different market rate indexes.
In underwriting multifamily real estate loans, we consider a number of factors, including the ratio of the projected net
cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 120%, computed after deduction for a
vacancy factor and property expenses we deem appropriate), the age and condition of the collateral, the financial resources and
income of the sponsor, and the sponsor’s experience in owning or managing similar properties. Multifamily real estate loans
generally are originated in amounts up to the lessor of 75% of the appraised value or the purchase price of the property securing
the loan. We require title insurance, fire and extended coverage casualty insurance, and, if appropriate, flood insurance up to the
regulatory required maximum in order to protect our security interest in the underlying property. Although a significant portion
of our multifamily real estate loans are referred to us by third-party loan brokers, we underwrite all multifamily real estate loans
in accordance with our underwriting standards. Due to competitor considerations, as is customary in our marketplace, we
typically do not obtain personal guarantees of the principals on multifamily real estate loans, except when warranted.
The repayment of loans secured by multifamily real estate properties typically depends on the successful operation of
the property. If the cash flow from the property is reduced, or interest payments on the loan increase, the borrower’s ability to
repay the loan may be impaired.
In a ruling that was contrary to a 1996 advisory opinion from the New York State Division of Housing and Community
Renewal that owners of housing units who benefited from the receipt of “J-51” tax incentives under the Rent Stabilization Law
are eligible to decontrol apartments, the New York State Court of Appeals ruled in 2009, that residential housing units located in
two major housing complexes in New York City had been illegally decontrolled by the current and previous property owners.
This ruling may subject other property owners that have previously or are currently benefiting from a J-51 tax incentive to
litigation, possibly resulting in a significant reduction to property cash flows. Based on management’s assessment of our
multifamily loan portfolio, we believe that six loans may be affected by the ruling regarding J-51. These loans had an aggregate
principal balance of $57.5 million at December 31, 2017, and were all performing in accordance with their original contractual
terms at that date.
The following table summarizes our variable-interest multifamily loan repricing (including originated and acquired
loans, excluding PCI loans) at December 31, 2017 (dollars in thousands):
2018
2019
2020
2021 to 2022
2023 to 2027
2028 to 2032
Amount
Weighted Average Rate
$
$
42,662
195,358
192,397
667,488
642,475
20,409
1,760,789
3.74%
3.56%
3.48%
3.56%
3.59%
4.02%
3.57%
Commercial Real Estate Loans. Originated commercial real estate loans (other than multifamily real estate loans)
totaled $445.2 million, or 14.2% of our loan portfolio as of December 31, 2017. At December 31, 2017, our originated
8
commercial real estate loan portfolio consisted of 397 loans with an average loan balance of approximately $1.1 million,
although there are a large number of loans with balances substantially greater than this average. At December 31, 2017, our
largest commercial real estate loan had a principal balance of $20.5 million, was secured by a mall with two small retail
buildings located in New Jersey, and was performing in accordance with its original contractual terms. Substantially all of our
commercial real estate loans are secured by properties located in our primary market areas.
The following table sets forth the property types collateralizing our originated commercial real estate loans as of
December 31, 2017:
Mixed use (majority of space is non-residential)
$
Retail
Office buildings
Warehousing
Accommodations
Services
Healthcare facilities
Manufacturing
Restaurant
Schools/day care
Recreational
Other
At December 31, 2017
Amount
Percent
(Dollars in thousands)
123,408
114,432
85,886
17,905
21,230
19,532
34,005
4,738
6,615
5,424
3,332
8,718
27.7%
25.7
19.3
4.0
4.8
4.4
7.6
1.1
1.5
1.2
0.7
2.0
$
445,225
100.0%
Our commercial real estate loans typically amortize over 20 to 25 years with negotiated interest rates that adjust after
an initial five-, seven-, or 10-year period, and every five years thereafter. Adjustable-rate loan originations are generally tied to
a specifically identified market rate index. We also originate, to a lesser extent, 10- to 15-year fixed-rate, fully amortizing loans.
In general, our commercial real estate loans have interest rate floors equal to the interest rate on the date the loan is originated,
and generally have prepayment penalties if the loan is repaid in the initial five-, seven-, or 10-year term. Loans that we have
purchased typically adjust to different market indexes.
In underwriting commercial real estate loans, we generally lend up to the lesser of 75% of either the property’s
appraised value or purchase price. Our policies permit the origination of certain single-use property types but at lower loan-to-
appraised value ratios. We base our decision to lend primarily on the economic viability of the property and the
creditworthiness of the borrower. In evaluating a proposed commercial real estate loan, we emphasize the ratio of the property’s
projected net cash flow to the loan’s debt service requirement (generally requiring a minimum ratio of 125%, computed after
deduction for a vacancy factor and property expenses we deem appropriate). Personal guarantees of the principals are typically
obtained. We require title insurance, fire and extended coverage casualty insurance, and, if appropriate, flood insurance up to
the regulatory required maximum amount in order to protect our security interest in the underlying property. Although a
significant portion of our commercial real estate loans were referred to us by third-party loan brokers, we underwrite all
commercial real estate loans in accordance with our underwriting standards.
Commercial real estate loans generally carry higher interest rates than multifamily residential real estate loans.
Commercial real estate loans also generally have greater credit risk compared to multifamily residential real estate loans, as
they typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Changes in
economic conditions that are not in the control of the borrower or lender may affect the value of the collateral for the loan or the
future cash flow of the property. Additionally, any decline in real estate values may be more pronounced for commercial real
estate than for multifamily residential properties.
Construction and Land Loans. At December 31, 2017, originated construction and land loans totaled $34.5 million,
or 1.1% of total loans receivable, and the additional unadvanced portion of these construction loans totaled $21.7 million. At
December 31, 2017, we had 37 originated construction and land loans with an average loan balance of approximately $936,000
and our largest construction and land loan had a principal balance of $5.2 million and is secured by a 108 unit town home
development in New Jersey. At December 31, 2017, this loan was performing in accordance with its original contractual terms.
9
Our construction and land loans typically are interest-only loans with interest rates that are tied to the prime rate as
published in The Wall Street Journal. Margins generally range from zero basis points to 200 basis points above the prime rate.
We also originate, to a lesser extent, 10- to 15-year fixed-rate, fully amortizing land loans. In general, our construction and land
loans have interest rate floors equal to the interest rate on the date the loan is originated, and we do not typically charge
prepayment penalties.
We grant construction and land loans to experienced developers for the construction of single-family residences,
including condominiums, and commercial properties. Construction and land loans also are made to individuals for the
construction of their personal residences. Advances on construction loans are made in accordance with a schedule reflecting the
cost of construction, but are generally limited to a loan-to-completed appraised value ratio of 70%. Repayment of construction
loans on residential properties normally is expected from the sale of units to individual purchasers, or in the case of individuals
building their own residences, with a permanent mortgage. In the case of income-producing property, repayment usually is
expected from permanent financing upon completion of construction. We typically offer permanent mortgage financing on our
construction loans only on income-producing properties.
Land loans also help finance the purchase of land intended for future development, including single-family housing,
multifamily housing, and commercial property. In some cases, we may make an acquisition loan before the borrower has
received municipal approvals to develop the land. In general, the maximum loan-to-value ratio for land acquisition loans is 50%
of the appraised value of the property, and the maximum term of these loans is three years. Generally, if the maturity of the loan
exceeds three years, the loan must be an amortizing loan.
Construction and land loans generally carry higher interest rates and have shorter terms than multifamily and
commercial real estate loans. Construction and land loans have greater credit risk than long-term financing on improved,
income-producing real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the
real estate value at completion of construction as compared to the estimated cost (including interest) of construction and other
assumptions. If the estimate of construction costs is inaccurate, we may decide to advance additional funds beyond the amount
originally committed in order to protect our security interest in the underlying property. However, if the estimated value of the
completed project is inaccurate, the borrower may hold the real estate with a value that is insufficient to assure full repayment
of the construction loan upon its sale. In the event we make a land acquisition loan on real estate that is not yet approved for the
planned development, there is a risk that approvals will not be granted or will be delayed. Construction loans also expose us to
a risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, the
ultimate sale or rental of the real estate may not occur as anticipated and the market value of collateral, when completed, may
be less than the outstanding loans and there may be no permanent financing available upon completion. Substantially all of our
construction and land loans are secured by real estate located in our primary market areas.
Commercial and Industrial Loans. At December 31, 2017, originated commercial and industrial loans totaled $34.8
million or 1.1% of the total loan portfolio and the additional unadvanced portion of these commercial and industrial loans
totaled $22.0 million. As of December 31, 2017, we had 176 originated commercial and industrial loans with an average loan
balance of approximately $198,000, although we originate these types of loans in amounts substantially greater than this
average. At December 31, 2017, our largest commercial and industrial loan had a principal balance of $5.0 million and was
performing in accordance with its original contractual terms.
Our commercial and industrial loans typically amortize over 10 years with interest rates that are indexed to the prime
rate as published in The Wall Street Journal. Margins generally range from zero basis points to 300 basis points above the prime
rate. We also originate, to a lesser extent, 10-year fixed-rate, fully amortizing loans. In general, our commercial and industrial
loans have interest rate floors equal to the interest rate on the date the loan is originated and have prepayment penalties.
We make various types of secured and unsecured commercial and industrial loans for the purpose of working capital
and other general business purposes. The terms of these loans generally range from less than one year to a maximum of 15
years. The loans either are negotiated on a fixed-rate basis or carry adjustable interest rates indexed to the prime rate as
published in The Wall Street Journal.
Commercial credit decisions are based on our credit assessment of the applicant. We evaluate the applicant’s ability to
repay in accordance with the proposed terms of the loan and assess the risks involved. Personal guarantees of the principals are
typically obtained. In addition to evaluating the loan applicant’s financial statements, we consider the adequacy of the
secondary sources of repayment for the loan, such as pledged collateral and the financial stability of the guarantors. Credit
agency reports of each guarantor’s personal credit history supplement our analysis of the applicant’s creditworthiness. We also
10
attempt to confirm with other banks and conduct trade investigations as part of our credit assessment of the borrower. Collateral
securing a loan also is analyzed to determine its marketability.
Commercial and industrial loans generally carry higher interest rates than multifamily and commercial real estate loans
of like maturity because they have a higher risk of default since their repayment generally depends on the successful operation
of the borrowers’ business.
One-to-Four Family Residential Real Estate Loans. At December 31, 2017, we had 251 originated one-to-four
family residential real estate loans outstanding with an aggregate balance of $100.9 million, or 3.2% of our total loan
portfolio. As of December 31, 2017, the average balance of originated one-to-four family residential real estate loans was
approximately $408,000, although we have originated this type of loan in amounts substantially greater than this average. At
December 31, 2017, our largest loan of this type had a principal balance of $4.8 million, was collateralized by 48 two-bedroom
individual condominiums, each with a separate assessment, and was performing in accordance with its original contractual
terms. We no longer offer loans secured by owner-occupied, one-to-four family residential real estate loans.
We historically have not offered “interest-only” mortgage loans on one-to-four family residential real estate properties,
where the borrower pays interest for an initial period, after which the loan converts to a fully amortizing loan. However, since
2014 we have purchased pools of one-to-four family residential real estate loans, a substantial amount of which are interest-
only mortgage loans. For further details on these purchases, see the “Acquired Loans” discussion below. We also historically
have not offered loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower
can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan.
Home Equity Loans and Lines of Credit. At December 31, 2017, we had 1,226 originated home equity loans and lines
of credit with an aggregate outstanding balance of $66.3 million, or 2.1% of our total loan portfolio. Of this total, outstanding
home equity lines of credit totaled $30.1 million, or 1.0%, of our total loan portfolio and home equity loans totaled $36.2
million, or 1.2%, of our total loan portfolio. At December 31, 2017, the average originated home equity loan and line of credit
balance was approximately $55,000, although we originate these types of loans in amounts substantially greater than this
average. At December 31, 2017, our largest outstanding home equity line of credit was $501,000 and was performing in
accordance with its original contractual terms. At December 31, 2017, our largest outstanding home equity loan was $430,000
and was performing in accordance with its original contractual terms.
We offer home equity loans and home equity lines of credit that are secured by the borrower’s primary residence or
second home. Home equity lines of credit are adjustable-rate loans tied to the prime rate as published in The Wall Street Journal
adjusted for a margin, and have a maximum term of 20 years during which time the borrower is required to make principal
payments based on a 20-year amortization. Home equity lines generally have interest rate floors and ceilings. The borrower is
permitted to draw against the line during the entire term on originations occurring prior to June 15, 2011. For home equity loans
originated beginning June 15, 2011, the borrower is only permitted to draw against the line for the initial 10 years. Our home
equity loans typically are fully amortizing with fixed terms to 20 years. Home equity loans and lines of credit generally are
underwritten with the same criteria we use to underwrite fixed-rate, one-to-four family residential real estate loans. Home
equity loans and lines of credit may be underwritten with a loan-to-value ratio of 80% when combined with the principal
balance of the existing mortgage loan. We appraise the property securing the loan at the time of the loan application to
determine the value of the property. At the time we close a home equity loan or line of credit, we record a mortgage to perfect
our security interest in the underlying collateral.
PCI Loans. PCI loans are accounted for in accordance with Accounting Standards Codification (ASC) Subtopic
310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality,” since all of these loans were acquired at a
discount attributable, at least in part, to credit quality. PCI loans are initially recorded at fair value (as determined by the present
value of expected future cash flows) with no valuation allowance (i.e., allowance for loan losses). Under ASC Subtopic 310-30,
the PCI loans are aggregated and accounted for as pools of loans based on common risk characteristics. PCI loans had a
carrying balance of approximately $22.7 million at December 31, 2017, or 0.7% of our total loan portfolio. At December 31,
2017, PCI loans consisted of approximately 27% commercial real estate loans and 50% commercial and industrial loans, with
the remaining balance in residential and home equity loans. At December 31, 2017, 10.8% of PCI loans were past due 30 to 89
days, and 17.1% were past due 90 days or more.
The difference between the undiscounted cash flows expected at acquisition and the investment in the PCI loans, or the
“accretable yield,” is recognized as interest income utilizing the level-yield method over the life of the loans in each pool.
Contractually required payments of interest and principal that exceed the undiscounted cash flows expected at acquisition, or
the “non-accretable difference,” are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. Increases
in expected cash flows subsequent to the acquisition are recognized prospectively through an adjustment of the yield on the
11
pool over its remaining life, while decreases in expected cash flows are recognized as impairment through a loss provision and
an increase in the allowance for loan losses.
Acquired Loans. Loans acquired, with no evidence of credit deterioration, are held-for-investment and initially valued
at estimated fair value on the date of acquisition, with no initial related allowance for loan losses. These loans are evaluated for
impairment on a quarterly basis as part of our analysis of the allowance for loan losses. During 2017, the Company purchased
loan pools consisting primarily of one-to-four family residential and multifamily loans, totaling $63.6 million.
The following table provides the details of the loans purchased during the year ended December 31, 2017 (dollars in
thousands):
Principal
Amounts
Purchased
Loan Type
Weighted
Average Interest
Rate(1)
Weighted
Average Loan-
to-Value Ratio(2)
Weighted Average Months to
Next Rate Change or Maturity
for Fixed Rate Loans
(F)ixed or
(V)ariable
$
29,286 Residential
4,812 Residential
18,774 Multifamily
3,399 Multifamily
7,280 Multifamily
$
63,551
2.89%
3.46%
3.35%
3.40%
3.35%
3.15%
57%
62%
55%
58%
51%
56%
(1) Net of servicing fee retained by the originating bank.
(2) At time of purchase.
1
286
53
46
58
V
F
V
F
V
Amortization
Term
30 Years
15-30 Years
30 Years
30 Years
30 Years
The geographic locations of the properties securing the above loans are as follows: 55.3% in New York, 15.9% in New
Jersey, 9.2% in California, and 19.6% in other states.
During 2016, the Company acquired $342.6 million of loans as part of the Hopewell Valley acquisition, and in addition,
we also purchased loan pools, primarily multifamily loans, totaling $165.9 million. The following table provides the details of the
loans purchased during the year ended December 31, 2016 (dollars in thousands):
Principal
Amounts
Purchased
Loan Type
Weighted
Average Interest
Rate(1)
Weighted
Average Loan-
to-Value Ratio(2)
Weighted Average Months to
Next Rate Change or Maturity
for Fixed Rate Loans
(F)ixed or
(V)ariable
Amortization
Term
$
82,242 Multifamily
43,562 Multifamily
27,415 Multifamily
4,883 Residential
7,760
Commercial
Real Estate
$
165,862
2.93%
2.91%
3.98%
3.35%
2.85%
3.11%
49%
52%
30%
65%
66%
45%
(1) Net of servicing fee retained by the originating bank.
(2) At time of purchase.
33
42
120
76
30
V
V
F
V
V
30 Years
30 Years
30 Years
30 Years
The properties securing the above loans are primarily located in New York State.
The following table provides the details of the one-to-four family residential loans purchased in 2015 (dollars in
thousands):
Principal Amounts
Purchased
$
$
49,345
78,086
127,431
Weighted Average
Interest Rate(1)
2.49%
2.38%
2.42%
Weighted Average
Loan-to-Value Ratio
62%
59%
60%
Weighted Average
Months to Next Rate
Change
44
35
Amortization
Term
30 Years
20 Years(2)
Amortization Type
Fully amortizing
Delayed amortizing
(1) Net of servicing fee retained by the originating bank
(2) 20 years of amortization begins after an interest-only period for the first 10 years
12
Of the total loans purchased in the table above, $78.1 million, or 61%, are interest-only for the first 10 years and will
re-price in less than five years at one-month LIBOR plus a weighted average margin of 1.6%; a floor rate also is included in the
terms. The remainder of the loan pool is scheduled to make principal and interest payments and will re-price in less than five
years at one-month LIBOR plus a weighted average margin of 1.9%, also with a floor rate included in the terms. The properties
securing the loans (by state) are located as follows: 62.5% in New York, 22.2% in Massachusetts, and 15.3% in other states.
The multifamily loans purchased in 2015 had a weighted average interest rate of 3.37%, a weighted average loan-to-
value ratio of 41.1%, with terms of 10 to 15 years and amortization ranging from 15 to 30 years at December 31, 2015. The
properties securing these loans are located in New York State.
At December 31, 2017, acquired loans totaled $692.8 million and consisted of 39.7% one-to-four family residential
loans, 28.7% multifamily loans, and 23.7% commercial real estate loans, with the remaining balance in home equity,
construction and land, and commercial and industrial loans. At December 31, 2016, acquired loans totaled $793.2 million and
consisted of 40.0% one-to-four family residential loans, 27.2% multifamily loans, and 23.7% commercial real estate loans, with
the remaining balance in home equity, construction and land, and commercial and industrial loans. At December 31, 2015,
acquired loans totaled $409.0 million and consisted of 80.8% one-to-four family residential loans and 15.8% multifamily loans,
with the remaining balance in commercial real estate and home equity loans.
Non-Performing and Problem Assets
When a loan is between 10 to 15 days delinquent, we generally send the borrower a late charge notice. When a loan is
30 days past due, we generally mail the borrower a letter reminding the borrower of the delinquency and, except for loans
secured by one-to-four family residential real estate, we attempt personal contact with the borrower to determine the reason for
the delinquency, to ensure the borrower correctly understands the terms of the loan, and to emphasize the importance of making
payments on or before the due date. If necessary, additional late charges and delinquency notices are issued and the account will
be monitored. After 90 days of delinquency, we generally send the borrower a final demand for payment and refer the loan to
legal counsel to commence foreclosure and related legal proceedings. At times, we may shorten or lengthen these time frames.
Generally, loans (excluding PCI loans) are placed on non-accrual status when payment of principal or interest is 90
days or more delinquent unless the loan is considered well-secured and in the process of collection. Loans also are placed on
non-accrual status at any time if the ultimate collection of principal or interest in full is in doubt. When loans are placed on non-
accrual status, unpaid accrued interest is reversed, and further income is recognized only to the extent received, and only if the
principal balance is deemed fully collectible. The loan may be returned to accrual status if both principal and interest payments
are brought current and factors indicating doubtful collection no longer exist, including performance by the borrower under the
loan terms for a six-month period. Our Chief Credit Officer reports monitored loans, including all loans rated watch, special
mention, substandard, doubtful or loss, to the loan committee of the board of directors at least quarterly.
To minimize our losses on delinquent loans we work with borrowers experiencing financial difficulties and will
consider modifying existing loan terms and conditions that we would not otherwise consider, commonly referred to as troubled
debt restructurings (“TDR”). We record an impairment loss associated with TDRs, if any, based on the present value of
expected future cash flows discounted at the original loan’s effective interest rate or the underlying collateral value, less cost to
sell, if the loan is collateral dependent. Once an obligation has been restructured because of credit problems, it continues to be
considered restructured until paid in full or, if the obligation yields a market rate (a rate equal to or greater than the rate we were
willing to accept at the time of the restructuring for a new loan with comparable risk), until the year subsequent to the year in
which the restructuring takes place, provided the borrower has performed under the modified terms for a consecutive six-month
period.
PCI loans are subject to the same internal and external credit review process as non-PCI loans. If and when unexpected
credit deterioration occurs at the loan pool level subsequent to the acquisition date, a provision for credit losses for PCI loans
will be charged to earnings for the full amount of the decline in the discounted expected cash flows for the pool. Under the
accounting guidance of ASC Subtopic 310-30, for acquired credit-impaired loans, the allowance for loan losses on PCI loans is
measured at each financial reporting date based on future expected cash flows. This assessment and measurement is performed
at the pool level and not at the individual loan level. Accordingly, decreases in expected cash flows resulting from further credit
deterioration on a pool of acquired PCI loan pools as of such measurement date compared to those originally estimated are
recognized by recording a provision and allowance for credit losses on PCI loans. Subsequent increases in the expected cash
flows of the loans in that pool would first reduce any allowance for loan losses on PCI loans, and any excess will be accreted
prospectively as a yield adjustment.
13
We consider our PCI loans to be performing due to the application of the yield accretion method under ASC Subtopic
310-30. ASC Subtopic 310-30 allows us to aggregate credit-impaired loans acquired in the same fiscal quarter into one or more
pools, provided that the loans have common risk characteristics. A pool is then accounted for as a single asset with a single
composite interest rate and an aggregate expectation of cash flows. Accordingly, loans that may have been classified as non-
performing loans are no longer classified as non-performing because, at the respective dates of acquisition, we believed that we
would fully collect the new carrying value of these loans. The new carrying value represents the contractual balance, reduced
by the portion expected to be uncollectible (referred to as the non-accretable difference) and by an accretable yield (discount)
that is recognized as interest income. Management’s judgment is required in reclassifying loans subject to ASC Subtopic
310-30 as performing loans, and is dependent on having a reasonable expectation about the timing and amount of the cash
flows to be collected, even if a loan is contractually past due.
Non-Performing and Restructured Loans (excluding PCI Loans). The table below sets forth the amounts and
categories of our non-performing assets at the dates indicated. At December 31, 2017, 2016, 2015, 2014, and 2013, we had
TDRs of $251,000, $1.8 million, $4.4 million, $9.5 million, and $10.7 million, respectively, which are included in the
appropriate categories within non-accrual loans. Additionally, we had $18.0 million, $20.6 million, $22.3 million, $24.2
million, and $26.2 million, of TDRs on accrual status at December 31, 2017, 2016, 2015, 2014, and 2013, respectively, which
do not appear in the table below. Generally, the types of concessions that we make to troubled borrowers include reductions in
interest rates and payment extensions and to a lesser extent interest and principal forgiveness. At December 31, 2017, 72.7% of
TDRs were commercial real estate loans, 18.5% were one-to-four family residential loans, 7.9% were multifamily loans, 0.5%
were commercial and industrial loans, and 0.4% were home equity loans. At December 31, 2017, all of the $18.0 million in
accruing TDR loans were performing in accordance with their restructured terms. At December 31, 2017, one loan totaling
$251,000, secured by real estate, accounted for 100% of the non-accruing TDRs not performing in accordance with restructured
terms.
Non-accrual loans:
Real estate loans:
Commercial
One-to-four family residential
Construction and land
Multifamily
Home equity and lines of credit
Commercial and industrial loans
Total non-accrual loans
Loans delinquent 90 days or more and still accruing:
Real estate loans:
One-to-four family residential
Home equity and lines of credit
Other
Commercial and industrial loans
Total loans delinquent 90 days or more and still accruing
Total non-performing loans
Other real estate owned
Total non-performing assets
Ratios:
At December 31,
2017
2016
2015
2014
2013
(Dollars in thousands)
$
4,087
$
774
—
417
156
74
5,508
27
—
1
—
28
5,536
850
$
5,513
1,629
—
43
127
9
7,321
52
8
—
—
60
7,381
850
5,232
2,574
113
559
329
—
8,807
—
—
—
15
15
8,822
45
$
11,164
$
12,450
2,205
—
—
98
408
13,875
708
—
—
—
708
14,583
752
2,989
108
544
1,239
441
17,771
—
—
32
—
32
17,803
634
$
6,386
$
8,231
$
8,867
$
15,335
$
18,437
Non-performing loans to total loans held-for-investment, net. . .
Non-performing assets to total assets
Total assets
Loans held-for-investment, net
0.18%
0.16%
0.25%
0.21%
0.37%
0.28%
0.75%
0.51%
1.20%
0.68%
$3,991,417
$3,140,819
$3,850,094
$3,202,584
$3,020,869
$2,702,764
$2,968,084
$2,373,715
$1,942,995
$1,489,476
14
At December 31, 2017, 10.8% of PCI loans were past due 30 to 89 days, and 17.1% were past due 90 days or more. At
December 31, 2016, 6.6% of PCI loans were past due 30 to 89 days, and 19.3% were past due 90 days or more. At December
31, 2015, 7.9% of PCI loans were past due 30 to 89 days, and 21.4% were past due 90 days or more. At December 31, 2014,
7.8% of PCI loans were past due 30 to 89 days, and 24.1% were past due 90 days or more. At December 31, 2013, 6.6% of PCI
loans were past due 30 to 89 days, and 14.9% were past due 90 days or more.
The following table sets forth the property types collateralizing non-accrual commercial real estate loans at
December 31, 2017:
Industrial
Mixed use
Office buildings
Other
Total
At December 31, 2017
Amount
Percent
(Dollars in thousands)
$
$
2,253
1,088
543
202
4,086
55.1%
26.6
13.3
5.0
100.0%
Other Real Estate Owned. Real estate acquired by us as a result of foreclosure or by deed in lieu of foreclosure is
classified as other real estate owned. On the date the property is acquired, it is recorded at the lower of cost or estimated fair
value, establishing a new cost basis. Estimated fair value generally represents the sale price a buyer would be willing to pay on
the basis of current market conditions, including normal terms from other financial institutions, less the estimated costs to sell
the property. Holding costs and declines in estimated fair value result in charges to expense after acquisition. Other real estate
owned consisted of one commercial real estate property with a carrying value of $850,000 at December 31, 2017 and
December 31, 2016.
Potential Problem Loans and Classification of Assets. Our loan officers and credit administration department monitor
their loan portfolios, including evaluation of borrowers’ business operations, current financial condition, underlying values of
any collateral, and assessment of their financial prospects in the current economic environment. Based on these evaluations, we
determine an appropriate strategy for individual potential problem loans, with the objective of maximizing the recovery of the
related loan balances.
Our policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are
considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is classified substandard if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets
include those assets characterized by the distinct possibility that we 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, on the basis of currently existing facts, conditions and values,
highly questionable and improbable. Assets (or portions of assets) classified as loss are those considered uncollectible and of
such little value that their continuance as assets is not warranted. Assets that do not expose us to risk sufficient to warrant
classification in one of the aforementioned categories, but which possess potential weaknesses that deserve our close attention,
are designated as special mention. At December 31, 2017, classified assets, excluding loans on non-accrual status, consisted of
substandard assets of $17.3 million and no doubtful or loss assets. At December 31, 2017, we also had $6.5 million of assets
designated as special mention. At December 31, 2016, classified assets, excluding loans on non-accrual status, consisted of
substandard assets of $26.1 million and no doubtful or loss assets. At December 31, 2016, we also had $11.5 million of assets
designated as special mention.
Our determination as to the classification of our assets (and the amount of our loss allowances) is subject to review by
our principal federal regulator, the OCC, which can require that we adjust our classification and related loss allowances. We
regularly review our asset portfolio to determine whether any assets require classification in accordance with applicable
regulations. We also engage the services of a third party to review, on a sample basis, our risk ratings on a semi-annual basis.
At December 31, 2017, the Company had $12.0 million of accruing loans that were 30 to 89 days delinquent, as
compared to $10.1 million at December 31, 2016.
15
The following table sets forth the total amounts of delinquencies for accruing loans that were 30 to 89 days past due by
type and by amount at the dates indicated:
Real estate loans:
Commercial
One-to-four family residential
Construction and Land
Multifamily
Home equity and lines of credit
Commercial and industrial loans
Other loans
Total
December 31,
2017
2016
(Dollars in thousands)
$
$
4,347
$
4,162
6
3,298
—
202
29
12,044
$
4,578
3,621
—
1,440
263
148
50
10,100
The increase in delinquent loans from 2016 to 2017 was primarily attributable to one multifamily real estate loan with
a balance of $1.5 million that was 31 days delinquent at December 31, 2017, and became current subsequent to year end.
Allowance for Loan Losses
We provide for loan losses based on the consistent application of our documented allowance for loan loss
methodology. Loan losses are charged to the allowance for loans losses and recoveries are credited to it. Additions to the
allowance for loan losses are provided by charges against income based on various factors, which, in our judgment, deserve
current recognition in estimating probable losses. Loan losses are charged-off in the period the loans, or portion thereof, are
deemed uncollectible. Generally, the Company will record a loan charge-off (including a partial charge-off) to reduce a loan to
the estimated fair value of the underlying collateral, less cost to sell, for collateral dependent loans. We regularly review the
loan portfolio in order to maintain the allowance for loan losses in accordance with U.S. generally accepted accounting
principles (U.S. GAAP). See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
- Critical Accounting Polices - Allowance for Loan Losses” for a description of our allowance methodology.
16
The following table sets forth activity in our allowance for loan losses for the years indicated:
At or For the Years Ended December 31,
2017
2016
2015
2014
2013
Balance at beginning of year
Charge-offs:
Commercial real estate
One-to-four family residential
Multifamily
Home equity and lines of credit
Commercial and industrial
Other
Acquired loans
Total charge-offs
Recoveries:
Commercial real estate
One-to-four family residential
Construction and land
Multifamily
Home equity and lines of credit
Commercial and industrial
Other
Acquired loans
Total recoveries
Net recoveries (charge-offs)
Provision for loan losses
Balance at end of year
Ratios:
$ 24,595
(4)
—
(184)
(104)
(73)
—
(37)
(402)
70
—
—
277
97
79
—
33
556
154
1,411
$ 26,160
(Dollars in thousands)
$ 26,292
$ 26,037
$ 24,770
(638)
(20)
(278)
—
(66)
(2)
—
(1,004)
181
2
—
—
2
4
5
—
194
(810)
635
$ 24,595
(1,431)
(277)
(120)
(115)
(71)
(1)
—
(2,015)
2
20
—
25
42
34
17
—
140
(1,875)
353
$ 24,770
(103)
(58)
(7)
(489)
(135)
—
—
(792)
72
—
246
35
—
8
41
—
402
(390)
645
$ 26,292
$ 26,424
(1,208)
(414)
(657)
(491)
(379)
(25)
—
(3,174)
1
18
567
—
—
201
73
—
860
(2,314)
1,927
$ 26,037
Net recoveries (charge-offs) to average loans outstanding
Allowance for loan losses to non-performing loans held-for-investment
at end of year (1)
Allowance for loan losses to originated loans held-for-investment, net
at end of year (2)
Allowance for loan losses to total loans held-for-investment at end of
year (3)
0.01%
(0.03)%
(0.09)%
(0.02)%
(0.17)%
472.63
333.23
280.78
180.29
150.23
1.04
0.83
1.10
0.83
1.24
1.04
1.58
1.35
1.88
1.75
(1) Excludes non-performing loans held-for-sale, carried at lower of cost or estimated fair value, less costs to sell.
(2) Excludes PCI loans, acquired loans held-for-investment and loans held-for-sale (and related allowance for loan losses).
(3) Includes PCI and acquired loans held-for-investment.
At December 31, 2017 and 2016, the allowance for loan losses related to PCI loans was $951,000 and $896,000,
respectively. Loans held-for-sale are excluded from the allowance for loan losses coverage ratios in the table above.
Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by
loan category and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses
allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of
the allowance to absorb losses in other categories. Prior to December 31, 2016, we maintained an amount identified as the
unallocated component within the allowance for loan losses related to indicators of loan losses not fully captured in other
components of the allowance for loan losses methodology, as well as the inherent imprecision of the loss estimation process.
During the fourth quarter of 2016, the Company enhanced the allowance for loan losses qualitative framework to more fully
capture the risks related to certain loan loss factors. These enhancements are meant to increase the level of precision in the
allowance for loan losses. As a result, the Company will no longer have an unallocated reserve in its allowance for loan losses,
as the risks and uncertainties meant to be captured by the unallocated allowance have been included in the qualitative
framework for the respective loan portfolios.
17
2017
At December 31,
2016
2015
Allowance for
Loan Losses
Percent of
Loans in Each
Category to
Total Loans
Allowance for
Loan Losses
Percent of
Loans in Each
Category to
Total Loans
Allowance for
Loan Losses
Percent of
Loans in Each
Category to
Total Loans
(Dollars in thousands)
$
5,196
14.20% $
5,432
13.93% $
7,106
16.97%
4.15
0.79
55.66
2.59
1.08
1.40
17.26
0.10
100.00%
787
261
12,387
795
1,288
783
115
155
23,677
1,093
24,770
Real estate loans:
Commercial
One-to-four family residential
Construction and land
Multifamily
Home equity and lines of credit
Commercial and industrial
PCI loans
Loans Acquired
Other
503
610
17,374
122
1,273
951
37
94
3.22
1.10
55.38
2.11
1.11
0.73
22.10
0.05
664
172
14,952
588
1,720
896
75
96
3.58
0.47
50.86
2.21
1.08
1.03
26.79
0.05
Total allocated allowance
26,160
100.00%
24,595
100.00%
Unallocated
Total
—
—
$
26,160
$
24,595
$
At December 31,
2014
2013
Allowance for
Loan Losses
Percent of
Loans in Each
Category to
Total Loans
Allowance for
Loan Losses
Percent of
Loans in Each
Category to
Total Loans
(Dollars in thousands)
$
9,309
20.13% $
12,619
22.89%
951
266
12,219
901
841
400
62
134
25,083
1,209
26,292
$
3.84
1.10
55.31
2.81
0.67
2.31
13.71
0.12
100.00%
$
875
205
9,374
860
425
588
—
67
25,013
1,024
26,037
4.36
0.95
58.61
3.11
0.68
4.00
5.24
0.16
100.00%
Real estate loans:
Commercial
One-to-four family residential
Construction and land
Multifamily
Home equity and lines of credit
Commercial and industrial
PCI loans
Loans Acquired
Other
Total allocated allowance
Unallocated
Total
Investments
We conduct securities portfolio transactions in accordance with our board-approved investment policy. Northfield
Bank's investment policy is reviewed at least annually by the Risk Committee of the Board of Directors. Any changes to the
policy are subject to ratification by the full Board of Directors. This policy dictates that investment decisions give consideration
to the safety of the investment, liquidity requirements, potential returns, the ability to provide collateral for pledging
requirements, and consistency with our interest rate risk management strategy. Our Chief Investment Officer executes our
securities portfolio transactions, within policy requirements, with the approval of either the Chief Executive Officer or the Chief
Financial Officer. NSB Services Corp.’s and NSB Realty Trust’s investment officers execute security portfolio transactions in
accordance with investment policies that substantially mirror Northfield Bank’s investment policy. All purchase and sale
transactions are reviewed by the Risk Committee at least quarterly.
18
Our current investment policy permits investments in mortgage-backed securities, including pass-through securities
and real estate mortgage investment conduits (“REMICs”). The investment policy also permits, with certain limitations,
investments in debt securities issued by the U.S. Government, agencies of the U.S. Government or U.S. Government-sponsored
enterprises (“GSEs”), asset-backed securities, municipal obligations (including bonds, tax anticipation notes and bond
anticipation notes), money market mutual funds, federal funds, investment grade corporate bonds, reverse repurchase
agreements, and certificates of deposit.
Northfield Bank’s investment policy does not permit investment in preferred and common stock of other entities
including GSEs, other than our required investment in the common stock of the FHLB of New York or as permitted for
community reinvestment purposes or to fund Northfield Bank’s deferred compensation plan. Northfield Bancorp, Inc. may
invest in equity securities of other financial institutions up to certain limitations. As of December 31, 2017, we held no asset-
backed securities other than mortgage-backed securities. Our Board of Directors may change these limitations in the future.
Our current investment policy does not permit hedging through the use of derivative instruments such as financial
futures or interest rate options and swaps.
At the time of purchase, we designate a security as either held-to-maturity, available-for-sale, or trading, based upon
our ability and intent to hold such securities. Trading securities and securities available-for-sale are reported at estimated fair
value, and securities held-to-maturity are reported at amortized cost. A periodic review and evaluation of the available-for-sale
and held-to-maturity securities portfolios is conducted to determine if the estimated fair value of any security has declined
below its carrying value and whether such impairment is other-than-temporary. If such impairment is deemed to be other-than-
temporary, the security is written down to a new cost basis and the resulting loss is charged against earnings. The estimated fair
values of our securities are obtained from an independent nationally recognized pricing service (see “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies - Securities Valuation
and Impairment” for further discussion). At December 31, 2017, our investment portfolio consisted primarily of mortgage-
backed securities guaranteed by GSEs and, to a lesser extent, corporate debt securities, municipal bonds, private label
mortgage-backed securities, and mutual funds. The market for these securities primarily consists of other financial institutions,
insurance companies, real estate investment trusts, and mutual funds.
We purchase mortgage-backed securities insured or guaranteed primarily by the Federal National Mortgage
Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), or the Government National
Mortgage Association (“Ginnie Mae”), and to a lesser extent, securities issued by private companies (private label). We invest
in mortgage-backed securities to achieve positive interest rate spreads with minimal administrative expense, and to lower our
credit risk as a result of the guarantees provided by Fannie Mae, Freddie Mac, or Ginnie Mae as well as to provide us liquidity
to fund loan originations and deposit outflows. In 2008, the Federal Housing Finance Agency placed Freddie Mac and Fannie
Mae into conservatorship. The U.S. Treasury Department has established financing agreements to ensure that Freddie Mac and
Fannie Mae meet their obligations to holders of mortgage-backed securities that they have issued or guaranteed.
Mortgage-backed securities are securities sold in the secondary market that are collateralized by pools of mortgages.
Certain types of mortgage-backed securities are commonly referred to as “pass-through” certificates because the principal and
interest of the underlying loans is “passed through” pro rata to investors, net of certain costs, including servicing and guarantee
fees, in proportion to an investor’s ownership in the entire pool. The issuers of such securities pool mortgages and resell the
participation interests in the form of securities to investors. The interest rate on the security is lower than the interest rates on
the underlying loans to allow for payment of servicing and guaranty fees. Ginnie Mae, a U.S. Government agency, and GSEs,
such as Fannie Mae and Freddie Mac, may guarantee the payments, or guarantee the timely payment of principal and interest to
investors.
Mortgage-backed securities are more liquid than individual mortgage loans since there is a more active market for
such securities. In addition, mortgage-backed securities may be used to collateralize our specific liabilities and obligations.
Investments in mortgage-backed securities issued or guaranteed by GSEs involve a risk that actual payments will be greater or
less than estimated at the time of purchase, which may require adjustments to the amortization of any premium or accretion of
any discount relating to such interests, thereby affecting the net yield on our securities. We periodically review current
prepayment speeds to determine whether prepayment estimates require modification that could cause adjustment of
amortization or accretion.
REMICs are a type of mortgage-backed security issued by special-purpose entities that aggregate pools of mortgages
and mortgage-backed securities and create different classes of securities with varying maturities and amortization schedules, as
well as a residual interest, with each class possessing different risk characteristics. The cash flows from the underlying
19
collateral are generally divided into “tranches” or classes that have descending priorities with respect to the distribution of
principal and interest cash flows.
The timely payment of principal and interest on these REMICs is generally supported (credit enhanced) in varying
degrees by either insurance issued by a financial guarantee insurer, letters of credit, over collateralization, or subordination
techniques. Privately issued REMICs and pass-throughs can be subject to certain credit-related risks normally not associated
with U.S. Government agency and GSE mortgage-backed securities. The loss protection generally provided by the various
forms of credit enhancements is limited, and losses in excess of certain levels are not protected. Furthermore, the credit
enhancement itself is subject to the creditworthiness of the credit enhancer. Thus, in the event a credit enhancer does not fulfill
its obligations, the holder could be subject to risk of loss similar to a purchaser of a whole loan pool. Management believes that
the credit enhancements are adequate to protect us from material losses on our private label mortgage-backed securities
investments.
At December 31, 2017, our corporate bond portfolio consisted of investment-grade securities, the majority of which
had remaining maturities generally shorter than five years. Our investment policy provides that we may invest up to 15% of our
tier-one risk-based capital in corporate bonds from individual issuers which, at the time of purchase, are within the investment-
grade ratings from Standard & Poor’s, Moody’s or Fitch. The maturity of these bonds may not exceed 10 years, and there is no
aggregate limit for this security type. Corporate bonds from individual issuers not rated investment grade at the time of
purchase, are limited to the lesser of 1% of our total assets or 15% of our Tier 1 risk-based capital, and must have a maturity of
less than one year. Aggregate holdings of this security type cannot exceed 5% of our total assets. Additionally, at the time of
purchase, management performs due diligence to conclude that the security meets the regulatory standard for investment-grade.
Bonds that subsequently experience a decline in credit rating below investment grade are monitored at least quarterly.
The following table sets forth the amortized cost and estimated fair value of our available-for-sale and held-to-maturity
securities portfolios (excluding FHLB of New York common stock) at the dates indicated. As of December 31, 2017, 2016, and
2015, we also had a trading portfolio with a fair value of $9.6 million, $7.9 million and $6.7 million, respectively, consisting of
mutual funds quoted in actively traded markets. These securities are utilized to fund non-qualified deferred compensation
obligations.
2017
At December 31,
2016
2015
Amortized
Cost
Estimated Fair
Value
Amortized
Cost
Estimated Fair
Value
Amortized
Cost
Estimated Fair
Value
(Dollars in thousands)
Securities available-for-sale:
Mortgage-backed securities:
Pass-through certificates:
GSEs
REMICs:
GSEs
Non-GSEs
Debt securities
Municipal bonds
Corporate bonds
Other securities
Equity investments - mutual funds
Other
$
179,320
$
178,295
$
225,047
$
224,549
$
228,557
$
231,700
273,501
266,929
230,500
224,293
305,387
80
79
280
270
597
343
67,927
323
1,016
349
68,130
323
1,016
2,151
45,373
1,233
1,250
2,158
45,159
1,218
1,250
—
11,002
481
—
297,824
579
—
11,011
481
—
Total securities available-for-sale
$
522,510
$
515,121
$
505,834
$
498,897
$
546,024
$
541,595
20
2017
At December 31,
2016
2015
Amortized
Cost
Estimated Fair
Value
Amortized
Cost
Estimated Fair
Value
Amortized
Cost
Estimated Fair
Value
(Dollars in thousands)
Securities held-to-maturity:
Mortgage-backed securities:
Pass-through certificates - GSEs
$
Total securities held-to-maturity $
9,931
9,931
$
$
9,892
9,892
$
$
10,148
10,148
$
$
10,118
10,118
$
$
10,346
10,346
$
$
10,369
10,369
The following table sets forth the amortized cost and estimated fair value of securities as of December 31, 2017, for
issuers that exceeded 10% of our stockholders’ equity as of that date:
Mortgage-backed securities:
Freddie Mac
Fannie Mae
At December 31, 2017
Amortized Cost
Estimated Fair Value
(Dollars in thousands)
$
$
219,995
227,023
$
$
217,159
222,362
Portfolio Maturities and Yields. The composition and maturities of the investment securities portfolio at
December 31, 2017, are summarized in the following table. Maturities are based on the final contractual payment dates, and do
not reflect the effect of scheduled principal repayments, prepayments, or early redemptions that may occur. All of our securities
at December 31, 2017, were taxable securities.
One Year or Less
More than One Year
through Five Years
More than Five Years
through Ten Years
More than Ten Years
Total
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Weighted
Average
Yield
Amortized
Cost
Fair
Value
Weighted
Average
Yield
(Dollars in thousands)
Securities available-for-sale:
Mortgage-backed securities:
Pass-through certificates:
GSEs
$
427
4.04% $
23,959
3.18% $ 100,613
2.47% $
54,321
2.40% $ 179,320
$ 178,295
2.55%
—%
—%
14,340
2.04%
38,039
1.76%
221,122
—
—%
—
—%
—%
230
3.35%
113
3.53%
—%
57,945
2.30%
9,982
2.32%
323
1,016
0.45%
2.25%
—
—
—%
—%
—
—
—%
—%
2.19%
1.95%
273,501
266,929
80
79
2.13%
1.95%
—%
343
349
3.41%
67,927
68,130
2.30%
—%
—%
323
1,016
323
1,016
0.45%
2.25%
80
—
—
—
—
—
—
—
REMICs:
GSEs
Non-GSEs
Debt securities
Municipal
bonds
Corporate
bonds
Equity
investments
Other
Total
securities
available-
for-sale
$
1,766
2.35% $
96,474
2.48% $ 148,747
2.28% $ 275,523
—% $ 522,510
$ 515,121
2.30%
Securities held-to-maturity:
Mortgage-backed securities:
Pass-through certificates:
GSEs
Total
securities
held-to-
maturity
$
$
—
—% $
—
—% $
—
—% $
9,931
3.50% $
9,931
$
9,892
3.50%
—
—% $
—
—% $
—
—% $
9,931
3.50% $
9,931
$
9,892
3.50%
21
Sources of Funds
General. Deposits traditionally have been our primary source of funds for our securities and lending activities. We
also borrow from the FHLB of New York and other financial institutions to supplement cash flow needs, to manage the
maturities of liabilities for interest rate and investment risk management purposes, and to manage our cost of funds. Our
additional sources of funds are the proceeds of loan sales, scheduled loan and investment payments, maturing investments, loan
prepayments, brokered deposits, and stockholders' equity, including retained earnings.
Deposits. We accept deposits primarily from the areas in which our offices are located. We rely on our convenient
locations, customer service, and competitive products and pricing to attract and retain deposits. We offer a variety of deposit
accounts to businesses, consumers and municipalities with a range of interest rates and terms. Our deposit accounts consist of
transaction accounts (NOW and non-interest bearing checking accounts), savings accounts (money market, passbook, and
statement savings), and certificates of deposit, including individual retirement accounts. We accept brokered deposits when it is
deemed cost effective. At December 31, 2017 and 2016, we had brokered deposits totaling $150.6 million and $98.8 million,
respectively. In addition, municipal deposits which primarily consist of funds from local government entities domiciled in New
Jersey, are a growing source of funds. At December 31, 2017, municipal deposits totaled $350.7 million, or 12.4% of our total
deposits. At December 31, 2016, municipal deposits totaled $362.8 million, or 13.4% of our total deposits. Municipal deposits
are primarily secured by mortgaged-backed securities.
Interest rates offered on deposit accounts generally are established weekly, while maturity terms, service fees, and
withdrawal penalties are reviewed on a periodic basis. Deposit rates and terms are based primarily on current operating
strategies, market interest rates, and liquidity requirements.
At December 31, 2017, we had $738.9 million in certificates of deposit, of which $401.3 million had remaining
maturities of one year or less.
The following table sets forth the distribution of our average total deposit accounts, by account type, for the periods
indicated:
For the Year Ended December 31,
2017
2016
2015
Average
Balance
Percent
Weighted
Average
Rate
Average
Balance
Percent
Weighted
Average
Rate
Average
Balance
Percent
Weighted
Average
Rate
(Dollars in thousands)
Non-interest bearing
demand
NOW
Money market
accounts
Savings
Certificates of deposit
$ 385,891
14.16%
—% $ 372,946
14.50%
—% $ 262,318
13.68%
477,996
17.54
0.30%
414,366
16.10
0.23%
181,341
9.47
809,286
426,581
625,067
29.70
15.66
22.94
0.73%
0.21%
1.30%
746,798
458,086
580,973
29.02
17.80
22.58
0.63%
0.46%
1.12%
490,418
468,749
512,977
25.60
24.47
26.78
Total deposits
$ 2,724,821
100.00%
0.60% $ 2,573,169
100.00%
0.56% $ 1,915,803
100.00%
—%
0.25%
0.48%
0.46%
1.07%
0.55%
As of December 31, 2017, the aggregate amount of our outstanding certificates of deposit in amounts greater than or
equal to $100,000 was $337.9 million. The following table sets forth the maturity of these certificates at December 31, 2017:
Three months or less
Over three months through six months
Over six months through one year
Over one year to three years
Over three years
Total
December 31, 2017
(Dollars in thousands)
$
$
16,819
56,145
124,496
121,926
18,480
337,866
Borrowings. Our borrowings consist primarily of advances from the FHLB of New York and securities sold under
agreements to repurchase (repurchase agreements) with third-party financial institutions. As of December 31, 2017, our FHLB
22
advances totaled $464.2 million, or 13.8%, of total liabilities, repurchase agreements totaled $2.0 million, or 0.1%, of total
liabilities, floating rate advances totaled $5.0 million, or 0.2%, of total liabilities and capitalized lease obligations totaled
$299,000, or 0.01%, of total liabilities. At December 31, 2017, the Company had the ability to obtain additional funding from
the FHLB of New York and Federal Reserve Bank discount window of approximately $870.8 million, utilizing unencumbered
securities of $72.6 million and multifamily loans of $885.3 million. Repurchase agreements are primarily secured by mortgage-
backed securities. Advances from the FHLB of New York are secured by our investment in the common stock of the FHLB of
New York as well as by pledged mortgage-backed securities and loans.
The following table sets forth information concerning balances and interest rates on our borrowings at and for the
years indicated:
Balance at end of year
Average balance during year
Maximum outstanding at any month end
Weighted average interest rate at end of year
Weighted average interest rate during year
Employees
At or For the Years Ended December 31,
2017
2016
(Dollars in thousands)
2015
$
$
$
471,549
494,361
579,690
$
$
$
1.62%
1.54%
473,206
491,802
529,988
$
$
$
1.44%
1.50%
558,129
594,926
760,088
1.57%
1.56%
As of December 31, 2017, we had 323 full-time employees and 29 part-time employees. Our employees are not
represented by any collective bargaining group. Management believes that we have a good working relationship with our
employees.
Subsidiary Activities
Northfield-Bancorp, Inc. owns 100% of Northfield Investments, Inc., an inactive New Jersey investment company, and
100% of Northfield Bank. Northfield Bank owns 100% of NSB Services Corp., a Delaware corporation, which in turn owns
100% of the voting common stock of NSB Realty Trust. NSB Realty Trust is a Maryland real estate investment trust that holds
mortgage loans, mortgage-backed securities and other investments. These entities enable us to segregate certain assets for
management purposes, and promote our ability to raise capital in the future through the sale of preferred stock or other capital-
enhancing securities or borrow against assets or stock of these entities for liquidity purposes. At December 31, 2017, Northfield
Bank’s investment in NSB Services Corp. was $712.8 million, and NSB Services Corp. had assets of $724.6 million and
liabilities of $11.9 million at that date. At December 31, 2017, NSB Services Corp.’s investment in NSB Realty Trust was
$724.6 million, and NSB Realty Trust had $724.6 million in assets, and liabilities of $15,000 at that date.
Expense and Tax Allocation Agreements
Northfield Bank has an agreement with Northfield Bancorp, Inc. to provide it with certain administrative support
services, whereby Northfield Bank will be compensated at not less than the fair market value of the services provided. In
addition, Northfield Bank and Northfield Bancorp, Inc. have an agreement for allocating and reimbursing Northfield Bancorp,
Inc. for Northfield Bank's portion of its consolidated tax liability.
23
General
SUPERVISION AND REGULATION
Northfield Bank is a federally chartered savings bank that is regulated, examined, and supervised by the OCC and the
FDIC. This regulation and supervision establishes a comprehensive framework of activities in which an institution may engage
and is intended primarily for the protection of the FDIC’s deposit insurance fund and depositors, and not for the protection of
security holders. Under this system of federal regulation, financial institutions are periodically examined to ensure that they
satisfy applicable standards with respect to their capital adequacy, assets, management, earnings, liquidity, and sensitivity to
market interest rates. Northfield Bank also is regulated to a lesser extent by the FRB, governing reserves to be maintained
against deposits and other matters, including payments of dividends and the repurchase of shares of common stock. The OCC
examines Northfield Bank and prepares reports for the consideration of its Board of Directors on any operating deficiencies.
Northfield Bank’s relationship with its depositors and borrowers also is regulated to a great extent by federal law and, to a much
lesser extent, state law, especially in matters concerning the ownership of deposit accounts and the form and content of
Northfield Bank’s loan documents. Northfield Bank is also a member of and owns stock in the FHLB of New York, which is
one of the 11 regional banks in the Federal Home Loan Bank System.
As a savings and loan holding company, Northfield Bancorp, Inc. is required to comply with the rules and regulations
of the FRB. It is required to file certain reports with and is subject to examination by and the enforcement authority of the
FRB. Northfield Bancorp, Inc. is also subject to the rules and regulations of the Securities and Exchange Commission under the
federal securities laws.
Any change in applicable laws or regulations, whether by the FDIC, the OCC, the FRB, or Congress, could have a
material adverse effect on Northfield Bancorp, Inc. and Northfield Bank and their operations.
Set forth below is a brief description of material regulatory requirements that are or will be applicable to Northfield
Bank and Northfield Bancorp, Inc. The description is limited to certain material aspects of the statutes and regulations
addressed and is not intended to be a complete description of such statutes and regulations and their effects on Northfield Bank
and Northfield Bancorp, Inc.
Business Activities
A federal savings bank derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and
the regulations of the OCC. Under these laws and regulations, Northfield Bank may originate mortgage loans secured by
residential and commercial real estate, commercial business loans, and consumer loans, and it may invest in certain types of
debt securities and certain other assets. Certain types of lending, such as commercial and consumer loans, are subject to
aggregate limits calculated as a specified percentage of Northfield Bank’s capital or assets. Northfield Bank also may establish
subsidiaries that may engage in a variety of activities, including some that are not otherwise permissible for Northfield Bank,
including real estate investment and securities and insurance brokerage.
Loans-to-One-Borrower
We generally may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of
Northfield Bank’s unimpaired capital and unimpaired surplus. An additional amount may be loaned, equal to 10% of
unimpaired capital and unimpaired surplus, if the loan is secured by readily marketable collateral, which is defined to include
certain financial instruments and bullion, but generally does not include real estate. As of December 31, 2017, we were in
compliance with our loans-to-one-borrower limitations.
Qualified Thrift Lender Test
As a federally chartered savings bank, Northfield Bank is required to satisfy a qualified thrift lender (QTL) test, under
which we either must qualify as a “domestic building and loan” association as defined by the Internal Revenue Code or
maintain at least 65% of our “portfolio assets” in “qualified thrift investments.” “Qualified thrift investments” consist primarily
of residential mortgages and related investments, including mortgage-backed and related securities. “Portfolio assets” generally
mean total assets less specified liquid assets up to 20% of total assets, goodwill, and other intangible assets and the value of
property used to conduct business. A savings institution that fails the qualified thrift lender test must operate under specified
restrictions. The Dodd-Frank Act made noncompliance with the QTL test also subject to agency enforcement action for a
violation of law. As of December 31, 2017, we maintained 80.1% of our portfolio assets in qualified thrift investments and,
therefore, we met the QTL test.
24
Standards for Safety and Soundness
Federal law requires each federal banking agency to prescribe for insured depository institutions under its jurisdiction
standards relating to, among other things, internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate risk exposure, asset growth, employee compensation, and other operational
and managerial standards as the agency deems appropriate. The federal banking agencies adopted Interagency Guidelines
Prescribing Standards for Safety and Soundness to implement the safety and soundness standards required under federal
law. The guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address
problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency
determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to
submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to submit or implement
an acceptable plan, the appropriate federal banking agency may issue an enforceable order requiring correction of the
deficiencies.
Capital Requirements
Federal regulations require federally insured depository institutions to meet several minimum capital standards: a
common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital
to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, all assets,
including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied
by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of
capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital generally is defined as
common stockholders’ equity and retained earnings. Tier 1 capital generally is defined as common equity Tier 1 plus additional
Tier 1 capital. Additional Tier 1 capital includes certain noncumulative perpetual preferred stock and related surplus and
minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1
capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus,
meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock,
mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the
allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and certain other items. In assessing
an institution’s capital adequacy, the OCC takes into consideration, not only these numeric factors, but qualitative factors as
well, and has the authority to establish higher capital requirements for individual institutions when deemed necessary.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and
certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting
of 2.5% of common equity Tier 1 capital to risk-weighted asset above the amount necessary to meet its minimum risk-based
capital requirements. The capital conservation buffer requirement was phased in beginning January 1, 2016, at 0.625% of risk-
weighted assets and increases each year until fully implemented at 2.5% on January 1, 2019. For calendar year 2017, the capital
conservation buffer was 1.25%. It increased to 1.875% on January 1, 2018.
As of December 31, 2017, Northfield Bancorp, Inc. and Northfield Bank exceeded all capital adequacy requirements
to which they were subject. Further, the most recent OCC notification categorized the Bank as a well-capitalized institution
under the prompt corrective action regulations. See Note 13 of the Notes to the Consolidated Financial Statements for further
discussion about Regulatory Requirements.
Prompt Corrective Regulatory Action
Federal law requires, among other things, that federal bank regulators take “prompt corrective action” with respect to
institutions that do not meet minimum capital requirements. For this purpose, the law establishes five capital categories: well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. OCC
regulations were amended to incorporate the previously mentioned increased regulatory capital standards that were effective
January 1, 2015. Under the amended regulations, an institution is deemed to be “well capitalized” if it has a total risk-based
capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a
common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio
of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity
Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a
Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than
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4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a
Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than
3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the
regulations) to total assets that is equal to or less than 2.0%.
The regulations provide that a capital restoration plan must be filed with the OCC within 45 days of the date a savings
institution receives notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Any
holding company for the savings institution required to submit a capital restoration plan must guarantee the lesser of an amount
equal to 5.0% of the savings institution’s assets at the time it was notified or deemed to be undercapitalized by the OCC, or the
amount necessary to restore the savings institution to adequately capitalized status. This guarantee remains in place until the
OCC notifies the savings institution that it has maintained adequately capitalized status for each of four consecutive calendar
quarters, and the OCC has the authority to require payment and collect payment under the guarantee. Various restrictions,
including on growth and capital distributions, also apply to “undercapitalized” institutions. If an “undercapitalized” institution
fails to submit an acceptable capital plan, it is treated as “significantly undercapitalized.” “Significantly undercapitalized”
institutions must comply with one or more additional restrictions including, but not limited to, an order by the OCC to sell
sufficient voting stock to become adequately capitalized, requirements to reduce total assets, cease receipt of deposits from
correspondent banks or dismiss officers or directors and restrictions on interest rates paid on deposits, compensation of
executive officers and capital distributions by the parent holding company. The OCC may also take any one of a number of
discretionary supervisory actions against undercapitalized institutions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
Capital Distributions
Federal regulations restrict “capital distributions” by savings institutions. For purposes of the regulations, capital
distributions generally include cash dividends and other transactions charged to the capital account of a savings institution. A
federal savings institution must file an application with the OCC for approval of the capital distribution if:
•
•
•
•
the total capital distributions for the applicable calendar year exceeds the sum of the institution’s net income for
that year to date plus the institution’s retained net income for the preceding two years that is still available for
dividend;
the institution would not be at least adequately capitalized following the distribution;
the distribution would violate any applicable statute, regulation, agreement or written regulatory condition; or
the institution is not eligible for expedited review of its filings (i.e., generally, institutions that do not have safety
and soundness, compliance and Community Reinvestment Act ratings in the top two categories or fail a capital
requirement).
A savings institution that is a subsidiary of a holding company, which is the case with Northfield Bank, must file a
notice with the FRB at least 30 days before the Board of Directors declares a dividend or approves a capital distribution and
receive FRB non-objection to the payment of the dividend.
Applications or notices may be denied if the institution will be undercapitalized after the proposed dividend, the
proposed dividend raises safety and soundness concerns or the proposed dividend would violate a law, regulation enforcement
order, or regulatory condition.
In the event that a savings institution’s capital falls below its regulatory requirements or it is notified by the regulatory
agency that it is in need of more than normal supervision, its ability to make capital distributions would be restricted. In
addition, any proposed capital distribution could be prohibited if the regulatory agency determines that the distribution would
constitute an unsafe or unsound practice.
Transactions with Related Parties
A savings institution’s authority to engage in transactions with related parties or “affiliates” is limited by Sections 23A
and 23B of the Federal Reserve Act and its implementing regulation, FRB Regulation W. The term “affiliate” generally means
any company that controls or is under common control with an institution, including Northfield Bancorp, Inc. and its non-
savings institution subsidiaries (although certain subsidiaries of the institution itself are not considered affiliates). Applicable
law limits the aggregate amount of “covered” transactions with any individual affiliate, including loans to the affiliate, to 10%
of the capital and surplus of the savings institution. The aggregate amount of covered transactions with all affiliates is limited to
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20% of the savings institution’s capital and surplus. Certain covered transactions with affiliates, such as loans to or guarantees
issued on behalf of affiliates, are required to be secured by specified amounts of collateral. Purchasing low quality assets from
affiliates is generally prohibited. Regulation W also provides that transactions with affiliates, including covered transactions,
must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to
the institution as those prevailing at the time for comparable transactions with non-affiliated companies. In addition, savings
institutions are prohibited by law from lending to any affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of any affiliate other than a subsidiary.
Authority to extend credit to executive officers, directors and 10% or greater shareholders (insiders), as well as entities
controlled by insiders, is governed by Sections 22(g) and 22(h) of the Federal Reserve Act and its implementing regulation,
FRB Regulation O. Among other things, loans to insiders must be made on terms substantially the same as those offered to
unaffiliated individuals and not involve more than the normal risk of repayment. There is an exception for bank-wide lending
programs that do not discriminate in favor of insiders. Regulation O also places individual and aggregate limits on the amount
of loans that may be made to insiders based, in part, on the institution’s capital position, and requires that certain prior board
approval procedures be followed. Extensions of credit to executive officers are subject to additional restrictions on the types
and amounts of loans that may be made. At December 31, 2017, Northfield Bank was in compliance with these regulations.
Enforcement
The OCC has primary enforcement responsibility over federal savings institutions, including the authority to bring
enforcement action against “institution-related parties,” including officers, directors, certain shareholders, and attorneys,
appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a capital directive or "cease and desist" order to
removal of officers and/or directors of the institution, receivership, conservatorship or the termination of deposit
insurance. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of
reckless disregard is made, in which case penalties may be as high as $1 million per day.
Deposit Insurance
Northfield Bank is a member of the Deposit Insurance Fund, which is administered by the FDIC. Deposit accounts in
Northfield Bank are insured up to a maximum of $250,000 for each separately insured depositor by the FDIC.
The FDIC assesses insured depository institutions to maintain the Deposit Insurance Fund. Under the FDIC’s risk-
based assessment system, institutions deemed less risky pay lower assessments. Assessments for institutions with less than $10
billion of assets are based on financial measures and supervisory ratings derived from statistical modeling estimating the
probability of an institution’s failure within three years.
The FDIC bases its deposit insurance rate assessments upon each insured institution’s total assets less tangible equity.
The assessment ranges from 2.5 to 45 basis points of total assets less tangible equity. In conjunction with the Deposit Insurance
Fund’s reserve ratio achieving 1.15%, the assessment range (inclusive of possible adjustments) was reduced for insured
institutions of less than $10 billion of total assets to 1.5 basis points to 30 basis points, effective July 1, 2016.
The Dodd-Frank Act increased the minimum target Deposit Insurance Fund ratio from 1.15% of estimated insured
deposits to 1.35% of estimated insured deposits. The Federal Deposit Insurance Corporation must seek to achieve the 1.35%
ratio by September 30, 2020. The Dodd-Frank Act requires insured institutions with assets of $10 billion or more to fund the
increase from 1.15% to 1.35% and, effective July 1, 2016, such institutions are subject to a surcharge to achieve that goal. The
Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the Federal Deposit Insurance
Corporation, and the Federal Deposit Insurance Corporation has exercised that discretion by establishing a long-range fund
ratio of 2%.
The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on
the operating expenses and results of operations of Northfield Bank. Future insurance assessments cannot be predicted.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or
unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation,
rule, order or condition imposed in writing. Management of Northfield Bank does not know of any practice, condition, or
violation that may lead to termination of the Northfield Bank’s deposit insurance.
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In addition to the FDIC assessments, the Financing Corporation is authorized to impose and collect, through the FDIC,
assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the Financing Corporation in the
1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the Financing
Corporation are due to mature in 2017 through 2019. For the quarter ended December 31, 2017, the annualized Financing
Corporation assessment was equal to 0.54 basis points of total quarterly average assets less quarterly average tangible capital.
Federal Home Loan Bank System
Northfield Bank is a member of the FHLB of New York, and therefore is a member of the Federal Home Loan Bank
System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central
credit facility primarily for member institutions. Members of the FHLB are required to acquire and hold a specified amount of
shares of FHLB capital stock. Northfield Bank was in compliance with this requirement at December 31, 2017.
Community Reinvestment Act and Fair Lending Laws
Savings institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet
the credit needs of their communities, including low- and moderate-income neighborhoods. An institution’s failure to comply
with the provisions of the Community Reinvestment Act could, at a minimum, result in regulatory restrictions on certain
activities such as branching and acquisitions. In the most recent Community Reinvestment Act Public Disclosure issued by the
OCC on December 5, 2016, Northfield Bank was rated “Satisfactory.”
Other Regulations
Interest and other charges collected or contracted for by Northfield Bank are subject to state usury laws and federal
laws concerning interest rates. Northfield Bank’s operations are also subject to federal laws applicable to credit transactions,
such as the:
• Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
• Real Estate Settlement Procedures Act, requiring that borrowers for mortgage loans for one-to-four family
residential real estate receive various disclosures, including good faith estimates of settlement costs, lender
servicing and escrow account practices, and prohibiting certain practices that increase the cost of settlement
services;
• Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and
public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing
needs of the community it serves;
• Equal Credit Opportunity Act and the Fair Housing Act, prohibiting discrimination on the basis of race, creed or
other prohibited factors in extending credit;
•
•
•
•
Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;
Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;
Flood Disaster Protection Act, requiring flood insurance of collateral properties located in designated flood zones;
Servicemembers' Civil Relief Act a program that provides a wide range of protections in lending for
individuals entering, called to active duty in the military, or deployed service members; and
• Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal
laws.
The operations of Northfield Bank also are subject to the:
• Truth in Savings Act;
• Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records
and prescribes procedures for complying with administrative subpoenas of financial records;
• Electronic Funds Transfer Act, which governs automatic deposits to and withdrawals from deposit accounts and
customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking
services;
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• Check Clearing for the 21st Century Act (also known as Check 21), which gives “substitute checks,” such as
digital check images and copies made from that image, the same legal standing as the original paper check;
• The USA PATRIOT Act, which requires banks and savings institutions to, among other things, establish
broadened anti-money laundering compliance programs and due diligence policies and controls to ensure the
detection and reporting of money laundering. Such required compliance programs are intended to supplement pre-
existing compliance requirements that apply to financial institutions under the Bank Secrecy Act and the Office of
Foreign Assets Control regulations; and
• The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by
financial institutions with unaffiliated third parties and requires all financial institutions offering products or
services to retail customers to provide such customers with the financial institution’s privacy policy and allow
such customers the opportunity to “opt out” of the sharing of certain personal financial information with
unaffiliated third parties.
Holding Company Regulation
Northfield Bancorp, Inc. is a unitary savings and loan holding company subject to regulation and supervision by the
FRB. The FRB has enforcement authority over Northfield Bancorp, Inc. and its non-savings institution subsidiaries. Among
other things, that authority permits the FRB to restrict or prohibit activities that are determined to be a risk to Northfield Bank.
As a savings and loan holding company, Northfield Bancorp, Inc.'s activities are limited to those activities permissible
by law for financial holding companies (if Northfield Bancorp elects financial holding company status and otherwise qualifies
to be a financial holding company) or multiple savings and loan holding companies. A financial holding company may engage
in activities that are financial in nature, incidental to financial activities or complementary to a financial activity. Such activities
include lending and other activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company
Act, insurance and underwriting equity securities. The Dodd-Frank Act added that any savings and loan holding company that
engages in activities that are solely permissible for a financial holding company must meet the qualitative requirements for a
bank holding company to be a financial holding company and conduct the activities in accordance with the requirements that
would apply to a financial holding company’s conduct of the activity. Multiple savings and loan companies are authorized to
engage in activities specified by FRB regulation, including activities permitted for bank holding companies under Section 4(c)
(8) of the Bank Holding Company Act.
Federal law prohibits a savings and loan holding company, directly or indirectly, or through one or more subsidiaries,
from acquiring more than 5% of another savings institution or savings and loan holding company without prior written approval
of the FRB and from acquiring or retaining control of any depository not insured by the FDIC. In evaluating applications by
holding companies to acquire savings institutions, the FRB must consider such things as the financial and managerial resources
and future prospects of the company and institution involved, the effect of the acquisition on and the risk to the federal deposit
insurance fund, the convenience and needs of the community and competitive factors. An acquisition by a savings and loan
holding company of a savings institution in another state to be held as a separate subsidiary may not be approved unless it is a
supervisory acquisition under Section 13(k) of the Federal Deposit Insurance Act or the law of the state in which the target is
located authorizes such acquisitions by out-of-state companies.
Savings and loan holding companies such as Northfield Bancorp, Inc. are subject to consolidated regulatory capital
requirements that are as stringent as those required for the insured depository subsidiaries such as Northfield Bank.
Consolidated regulatory capital requirements identical to those applicable to the subsidiary depository institutions also apply to
savings and loan holding companies. As is the case with institutions themselves, the capital conservation buffer is being phased
in between 2016 and 2019. Northfield Bancorp, Inc. exceeded the FRB’s consolidated capital requirements as of December 31,
2017.
The Dodd-Frank Act extended the “source of strength” doctrine to savings and loan holding companies. The FRB has
issued regulations implementing the “source of strength” policy that requires holding companies act as a source of strength to
their subsidiary depository institutions by providing capital, liquidity, and other support in times of financial stress.
The FRB has issued a policy statement regarding the payment of dividends and the repurchase of shares of common stock
by bank and savings and loan holding companies. In general, the policy provides that dividends should be paid only out of current
earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s
capital requirements, asset quality and overall financial condition. Regulatory guidance provides for prior regulatory review of
capital distributions in certain circumstances such as where the company’s net income for the past four quarters, net of dividends
previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate of earnings retention is
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inconsistent with the company’s capital needs and overall financial condition. The ability of a holding company to pay dividends
may be restricted if a subsidiary bank becomes undercapitalized. The policy statement also specifies that a holding company should
advise FRB supervisory staff prior to redeeming or repurchasing common or perpetual preferred stock when the holding company
is experiencing financial weaknesses or redeeming or repurchasing common stock or perpetual preferred stock such that the
repurchase or redemption would result in a net reduction as of the end of a quarter in the amount of such equity instruments
outstanding compared with the beginning of the quarter in which the redemption or repurchase occurs. These regulatory policies
could affect the ability of Northfield Bancorp, Inc. to pay dividends, repurchase common stock or otherwise engage in capital
distributions.
Federal Securities Laws
Northfield Bancorp, Inc.’s common stock is registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended. Northfield Bancorp, Inc. is subject to the information, proxy solicitation, insider
trading restrictions, and other requirements under the Securities Exchange Act of 1934.
Sarbanes-Oxley Act of 2002
The Sarbanes-Oxley Act of 2002 addresses, among other issues, corporate governance, auditing and accounting,
executive compensation, and enhanced and timely disclosure of corporate information. As directed by the Sarbanes-Oxley Act,
our Chief Executive Officer and Chief Financial Officer are required to certify that our quarterly and annual reports do not
contain any untrue statement of a material fact. The rules adopted by the Securities and Exchange Commission under the
Sarbanes-Oxley Act have several requirements, including having these officers certify that: (i) they are responsible for
establishing, maintaining and regularly evaluating the effectiveness of our disclosure controls and procedures and internal
control over financial reporting; (ii) they have made certain disclosures to our auditors and the audit committee of the Board of
Directors about our internal control over financial reporting; and (iii) they have included information in our quarterly and
annual reports about the effectiveness of our disclosure controls and procedures and whether there have been any changes in
our internal control over financial reporting or in other factors that could materially affect internal control over financial
reporting.
Change in Control Regulations
Under the Change in Bank Control Act, no person may acquire control of a savings and loan holding company, such as
Northfield Bancorp, Inc., unless the FRB has been given 60 days prior written notice and has not issued a notice disapproving
the proposed acquisition, taking into consideration certain factors, including the financial and managerial resources of the
acquirer and the competitive effects of the acquisition. Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting stock, control in any manner of the election of a
majority of the institution’s directors, or a determination by the regulator that the acquirer has the power to direct, or directly or
indirectly to exercise a controlling influence over, the management or policies of the institution. Acquisition of more than 10%
of any class of a savings and loan holding company’s voting stock constitutes a rebuttable determination of control under the
regulations under certain circumstances including where, as is the case with Northfield Bancorp, Inc., the issuer has registered
securities under Section 12 of the Securities Exchange Act of 1934.
Federal Taxation
TAXATION
General. Northfield Bank and Northfield Bancorp, Inc. are subject to federal income taxation in the same general
manner as other corporations, with some exceptions discussed below. Northfield Bancorp, Inc.'s consolidated federal tax returns
are not currently under audit.
On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (the “Tax Act”), was signed into law.
The Tax Act includes many provisions that will affect our income tax expense, including reducing our federal tax rate from 35%
to 21%, effective January 1, 2018. As a result of this rate reduction, we are required to re-measure, through income tax expense
in the period of enactment, our deferred tax assets and liabilities using the enacted rate at which we expect them to be recovered
or settled. The re-measurement of our net deferred tax asset resulted in additional 2017 income tax expense of $10.5 million.
The following discussion of federal taxation is intended only to summarize certain pertinent federal income tax matters
and is not a comprehensive description of the tax rules applicable to Northfield Bancorp, Inc. or Northfield Bank.
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Method of Accounting. For federal income tax purposes, Northfield Bancorp, Inc. currently reports its income and
expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal and state income
tax returns.
Bad Debt Reserves. Historically, Northfield Bank was subject to special provisions in the tax law applicable to
qualifying savings banks regarding allowable tax bad debt deductions and related reserves. Tax law changes were enacted in
1996 that eliminated the ability of savings banks to use the percentage of taxable income method for computing tax bad debt
reserves for tax years after 1995, and required recapture into taxable income over a six-year period of all bad debt reserves
accumulated after a savings bank’s last tax year beginning before January 1, 1988. Northfield Bank recaptured its post
December 31, 1987, bad-debt reserve balance over the six-year period ended December 31, 2004. Northfield Bancorp, Inc. is
required to use the specific charge-off method to account for tax bad debt deductions.
Taxable Distributions and Recapture. Prior to 1996, bad debt reserves created prior to 1988 were subject to recapture
into taxable income if Northfield Bank failed to meet certain thrift asset and definitional tests or made certain distributions. Tax
law changes in 1996 eliminated thrift-related recapture rules. However, under current law, pre-1988 tax bad debt reserves
remain subject to recapture if Northfield Bank makes certain non-dividend distributions, repurchases any of its common stock,
pays dividends in excess of earnings and profits, or fails to qualify as a “bank” for tax purposes. At December 31, 2017, the
total federal pre-base year bad debt reserve of Northfield Bank was approximately $5.9 million.
Alternative Minimum Tax. Prior to December 31, 2017, the Internal Revenue Code of 1986, as amended, imposed an
alternative minimum tax at a rate of 20% on a base of regular taxable income plus certain tax preferences, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the regular income tax. Net operating losses can
offset no more than 90% of alternative taxable income. Certain payments of alternative minimum tax may be used as credits
against regular tax liabilities in future years. Effective January 1, 2018, the corporate AMT is repealed. Northfield Bancorp,
Inc.’s consolidated group has not been subject to the alternative minimum tax and has no such amounts available as credits for
carryover.
Net Operating Loss Carryovers. A financial institution may carry back net operating losses to the preceding two
taxable years and forward to the succeeding 20 taxable years. At December 31, 2017, Northfield Bancorp, Inc.’s consolidated
group had no net operating loss carryforwards for federal income tax purposes.
Corporate Dividends-Received Deduction. Northfield Bancorp, Inc. may exclude from its federal taxable income
100% of dividends received from Northfield Bank as a wholly-owned subsidiary by filing consolidated tax returns. Through
December 31, 2017, the corporate dividends-received deduction is 80% in the case of dividends received from a corporation in
which a corporate recipient owns at least 20% of its stock, and corporations that own less than 20% of the stock of a
corporation distributing a dividend may deduct only 70% of dividends received or accrued on their behalf. Effective January 1,
2018, the dividends received deduction decreases from 80% to 65% and 70% to 50% for corporate recipients owning at least
20% or less than 20%, respectively, of a corporation’s stock.
State Taxation
New York State Taxation. In 2014, New York State enacted several reforms (the “Tax Reform Package”) to its tax
structure, including changes to the franchise, sales, estate, and personal income taxes. These changes were effective on January
1, 2015. The Tax Reform Package is intended to simplify the existing corporate tax code for New York State businesses while
remaining relatively neutral in relation to corporate tax receipts.
Under the Tax Reform Package, the New York State corporate income tax rate decreased, effective January 1, 2016,
from 7.10% to 6.50%. Effective January 1, 2015, the Metropolitan Transportation Authority (“MTA”) Tax Surcharge rate
allocable to business activities carried on in the Metropolitan Commuter Transportation District increased from 17.0% to
25.6%. The MTA surcharge rate for years beginning on or after January 1, 2017 was 28.3% and increases to 28.6% for years
beginning after January 1, 2018, and before January 1, 2019. The rate will remain the same in succeeding years unless
otherwise adjusted. Some of the most significant elements of the Tax Reform Package include the merger of the bank tax into
the general corporate franchise tax, expanded application of economic nexus, adoption of water’s-edge unitary reporting, and
apportionment of source income solely by reference to customer location.
New York City Taxation. Northfield Bank reports income on a calendar year basis to New York City. In 2015, New York
City enacted provisions to its tax law to conform its corporate and banking tax laws to those of New York State, retroactive to
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January 1, 2015. For tax years beginning on or after January 1, 2015, the New York City income tax rate applied to the Company
apportioned New York City taxable income is 8.85%.
Our New York State and New York City tax returns are currently under audit for tax years 2010 through 2014.
New Jersey State Taxation. Northfield Bancorp, Inc. and Northfield Bank file New Jersey Corporation Business Tax
returns on a calendar year basis. Generally, the income derived from New Jersey sources is subject to New Jersey tax.
Northfield Bancorp, Inc. and Northfield Bank pay the greater of the corporate business tax at 9% of taxable income or the
minimum tax of $1,200 per entity.
Delaware State Taxation. As a Delaware business corporation, Northfield Bancorp, Inc. is required to file an annual
report with and pay franchise taxes to the state of Delaware.
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ITEM 1A.
RISK FACTORS
The material risks and uncertainties that management believes affect us are described below. You should carefully
consider the risks and uncertainties described below, together with all of the other information included or incorporated by
reference herein. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties
that management is not aware of or focused on or that management currently deems immaterial may also impair our business
operations. This report is qualified in its entirety by these risk factors. See also, “Forward-Looking Statements.”
The level of our commercial real estate loan portfolio subjects us to additional regulatory scrutiny.
The OCC and the other federal bank regulatory agencies have promulgated joint guidance on sound risk management
practices for financial institutions with concentrations in commercial real estate lending. Under the guidance, a financial
institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify
concentrations. A financial institution may have a concentration in commercial real estate lending if, among other factors, (i)
total reported loans for construction, land acquisition and development, and other land represent 100% or more of total capital,
or (ii) total reported loans secured by multifamily and non-farm residential properties, loans for construction, land acquisition
and development and other land, and loans otherwise sensitive to the general commercial real estate market, including loans to
commercial real estate related entities, represent 300% or more of total capital.
Based on these factors we have a concentration in multifamily and commercial real estate lending, as such loans
represent 413% of Northfield Bank's capital as of December 31, 2017. The particular focus of the guidance is on exposure to
commercial real estate loans that are dependent on the cash flow from the real estate held as collateral and that are likely to be
at greater risk to conditions in the commercial real estate market (as opposed to real estate collateral held as a secondary source
of repayment or as an abundance of caution). The purpose of the guidance is to guide banks in developing risk management
practices and capital levels commensurate with the level and nature of real estate concentrations. The guidance states that
management should employ heightened risk management practices including board and management oversight and strategic
planning, development of underwriting standards, risk assessment, and monitoring through market analysis and stress
testing. While we believe we have implemented policies and procedures with respect to our commercial real estate loan
portfolio consistent with this guidance, bank regulators could require us to implement additional policies and procedures
consistent with their interpretation of the guidance that may result in additional costs to us or that may result in a curtailment of
our multifamily and commercial real estate lending and/or the requirement that we maintain higher levels of regulatory capital,
either of which would adversely affect our loan originations and profitability.
Our concentration in multifamily loans and commercial real estate loans could expose us to increased lending risks and
related loan losses.
Our current business strategy is to continue to originate multifamily loans and to a lesser extent other commercial real
estate loans. At December 31, 2017, $2.54 billion, or 81.0% of our loan portfolio held-for-investment, net, consisted of
multifamily and other commercial real estate loans.
These types of loans generally expose a lender to greater risk of non-payment and loss than one-to-four family
residential mortgage loans because repayment of the loans often depends on the successful operation of the properties and the
sale of such properties securing the loans. Such loans typically involve larger loan balances to single borrowers or groups of
related borrowers compared to one-to-four family residential mortgage loans. Also, many of our borrowers have more than one
of these types of loans outstanding. Consequently, an adverse development with respect to one loan or one credit relationship
can expose us to a significantly greater risk of loss compared to an adverse development with respect to a one-to-four family
residential real estate loan.
In addition, if loans that are collateralized by real estate become troubled and the value of the real estate has been
significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we
anticipated at the time we originated the loan, which could cause us to increase our provision for loan losses and adversely
affect our operating results and financial condition.
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Implementing our growth strategies could cause us to incur significant costs and expenses which may negatively affect our
financial condition and results of operations
We expect to continue to grow our assets, the level of our deposits or borrowings, and the scale of our operations.
Achieving our growth targets depends, in part, on our ability to attract customers that currently bank at other financial
institutions in our market, thereby increasing our share of the market, implement new lines of business or offer new products
and services within existing lines of business, identify favorable loan and investment opportunities, and acquire other banks and
non-bank entities. Our ability to grow successfully will depend on a variety of factors, including our ability to attract and retain
experienced bankers, the continued availability of desirable business opportunities, competitive responses from other financial
institutions in our market areas and our ability to manage our growth. Growth opportunities may not be available or we may not
be able to manage our growth successfully. If we do not manage our growth effectively, our financial condition and operating
results could be negatively affected.
If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings and capital could decrease.
We make various assumptions and judgments about the collectability of our loan portfolio, including the
creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of
many of our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and
delinquency experience, as well as the experience of other similarly situated institutions, and we evaluate other factors
including, among other things, current economic conditions. If our assumptions are incorrect, or if delinquencies do not
continue to improve or non-accrual and non-performing loans increase, our allowance for loan losses may not be sufficient to
cover losses inherent in our loan portfolio, which would require additions to our allowance. Material additions to our allowance
would materially decrease our net income.
The Financial Accounting Standards Board has adopted a new accounting standard that will be effective for us for the
fiscal year beginning January 1, 2020. This standard, referred to as Current Expected Credit Loss, or CECL, will require
financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected
credit losses as allowances for loan losses. This will change the current method of providing allowances for loan losses that are
probable, which may require us to increase our allowance for loan losses, and to greatly increase the types of data we will need
to collect and review to determine the appropriate level of the allowance for loan losses. We are currently evaluating the effect
the CECL model will have on our consolidated financial statements, but the extent of the effect is indeterminable at this time as
it will be dependent upon the nature and characteristics of the Company's loan portfolio at the adoption date, as well as
economic conditions and forecasts at that date. Any requirement to increase our allowance for loan losses or expenses incurred
to determine the appropriate level of the allowance for loan losses could have a material adverse effect on our financial
condition and results of operations.
In addition, bank regulators periodically review our allowance for loan losses and, based on information available to
them at the time of their review, may require us to increase our allowance for loan losses or recognize further loan charge-offs.
An increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities may have a material
adverse effect on our financial condition and results of operations.
A decline in economic conditions could reduce demand for our products and services and/or result in increases in our level
of non-performing loans, which could have an adverse effect on our results of operations.
Unlike larger financial institutions that are more geographically diversified, our profitability depends primarily on the
general economic conditions in New York, New Jersey and to a lesser extent eastern Pennsylvania. Local economic conditions
have a significant impact on our commercial real estate, construction, and consumer loans, the ability of the borrowers to repay
these loans and the value of the collateral securing these loans. Almost all of our loans are to borrowers located in or secured by
collateral in the New York metropolitan area.
Deterioration in economic conditions could result in the following consequences, any of which could have a material
adverse effect on our business, financial condition, liquidity and results of operations:
•
•
•
demand for our products and services may decline;
loan delinquencies, problem assets, and foreclosures may increase;
collateral for loans, especially real estate, may decline in value, in turn reducing customers’ future borrowing
power, and reducing the value of assets and collateral associated with existing loans;
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•
•
the value of our securities portfolio may decline; and
the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.
Moreover, a significant decline in general economic conditions, caused by inflation, recession, acts of terrorism, an
outbreak of hostilities or other international or domestic events, tax reform, unemployment or other factors beyond our control
could further affect these local economic conditions and could further negatively affect the financial results of our banking
operations. In addition, deflationary pressures, while possibly lowering our operating costs, could have a significant negative
effect on our borrowers, especially our business borrowers, and the values of underlying collateral securing loans, which could
negatively affect our financial performance.
Strong traditional and non-traditional competition within our market areas may limit our growth and profitability.
We face intense competition in making loans and attracting deposits. Price competition from other financial
institutions, credit unions, money market and mutual funds, insurance companies, and other non-traditional competitors such as
financial technology companies for loans and deposits sometimes results in us charging lower interest rates on our loans and
paying higher interest rates on our deposits and may reduce our net interest income. Competition also makes it more difficult
and costly to attract and retain qualified employees. Many of the institutions with which we compete have substantially greater
resources and lending limits than we have and may offer services that we do not provide. Our competitors also may price loan
and deposit products aggressively when they enter into new lines of business or new market areas. We expect competition to
increase in the future as a result of legislative, regulatory, and technological changes and the continuing trend of consolidation
in the financial services industry. If we are not able to compete effectively in our market area, our profitability may be
negatively affected. The greater resources and broader offering of deposit and loan products of some of our competitors may
also limit our ability to increase our interest-earning assets.
The composition of our balance sheet continues to be more heavily weighted towards loans and therefore changes in market
interest rates in an increasing rate environment could adversely affect our financial condition and results of operations.
Our financial condition and results of operations are significantly affected by changes in market interest rates. Our
results of operations substantially depend on our net interest income, which is the difference between the interest income we
earn on our interest-earning assets and the interest expense we pay on our interest-bearing liabilities. Our interest-bearing
liabilities generally reprice or mature more quickly than our interest-earning assets. If rates increase rapidly, we would likely
have to increase the rates we pay on our deposits and borrowed funds more quickly than interest rates earned on our loans and
investments, resulting in a negative effect on interest spreads and net interest income. In addition, the effect of rising rates could
be compounded if deposit customers move funds from transaction and savings accounts to higher rate money market or
certificate of deposit accounts. Conversely, should market interest rates fall below current levels, our net interest margin could
also be affected negatively if competitive pressures keep us from further reducing rates on our deposits, while the yields on our
assets decrease more rapidly through loan prepayments and interest rate adjustments.
Increases in interest rates also may decrease loan demand and/or may make it more difficult for borrowers to repay
adjustable rate loans. Additionally, increases in interest rates may increase capitalization rates utilized in valuing income-
producing properties. This can result in lower appraised values, which can limit the ability of borrowers to refinance existing
debt and may result in higher charge-offs of our non-performing collateral dependent loans.
Monetary policies and regulations of the FRB could adversely affect our business, financial condition and results of
operations.
In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of
the FRB. An important function of the FRB is to regulate the money supply and credit environment. Among the instruments
used by the FRB to implement these objectives are open market purchases and sales of U.S. government securities, adjustments
of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying
combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their
use also affects interest rates charged on loans or paid on deposits.
The monetary policies and regulations of the FRB have had a significant effect on the operating results of financial
institutions in the past and are expected to continue to do so in the future. The effects of such policies upon our business,
financial condition and results of operations cannot be predicted.
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Our balance sheet composition is weighted towards investments in assets with longer durations.
We are subject to reinvestment risk associated with changes in interest rates. Changes in interest rates may affect the
average life of loans and mortgage-related securities. Decreases in interest rates often result in increased prepayments of loans
and mortgage-related securities, as borrowers refinance their loans to reduce borrowings costs. Under these circumstances, we
are subject to reinvestment risk to the extent we are unable to reinvest the cash received from such prepayments in loans or
other investments that have interest rates that are comparable to the interest rates on existing loans and securities. Increases in
interest rates generally reduce prepayments. Additionally, increases in interest rates may decrease loan demand and/or make it
more difficult for borrowers to repay adjustable-rate loans.
Changes in interest rates also affect the value of our interest earning assets and in particular the carrying value of our
securities portfolio. Generally, the value of interest-earning assets fluctuates inversely with changes in interest rates. To the
extent interest rates increase and the value of our available-for-sale portfolio decreases, our stockholders’ equity will be
adversely affected.
At December 31, 2017, our simulation model indicated that our net portfolio value (the net present value of our
interest-earning assets and interest-bearing liabilities) would decrease by 10.28% if there was an instantaneous parallel 200
basis point increase in market interest rates. Although interest rate risk calculations provide an indication of our interest rate
risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on our net portfolio value or net interest income and likely will differ from actual
results.
Historically low interest rates may adversely affect our net interest income and profitability.
During the past several years it has been the policy of the FRB to maintain interest rates at historically low levels
through its targeted federal funds rate and purchases of mortgage-backed securities. As a result, market rates on the loans we
have originated and the yields on securities we have purchased have been at lower levels than as available prior to 2008.
As a general matter, our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets. However,
our ability to lower our interest expense is limited at these interest rate levels while the average yield on our interest-earning
assets may continue to decrease. Accordingly, our net interest income (the difference between interest income earned on assets
and interest expense paid on liabilities) may decrease, which may have an adverse effect on our future profitability.
Our funding sources may prove insufficient to replace deposits and support our future growth.
We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity
management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans
and investments. These additional sources consist primarily of FHLB advances, proceeds from the sale of loans, federal funds
purchased, and brokered certificates of deposit. As we continue to grow, we are likely to become more dependent on these
sources. Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these
additional funding sources. Our financial flexibility will be severely constrained if we are unable to maintain our access to
funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. If we are required to
rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately
to cover our costs. In this case, our operating margins and profitability would be adversely affected.
Our success depends on hiring and retaining certain key personnel.
Our performance largely depends on the talents and efforts of highly skilled individuals. We rely on key personnel to
manage and operate our business, including major revenue generating functions such as loan and deposit generation. The loss
of key staff may adversely affect our ability to maintain and manage these functions effectively, which could negatively affect
our revenues. In addition, loss of key personnel could result in increased recruiting and hiring expenses, which could cause a
decrease in our net income. Our continued ability to compete effectively depends on our ability to attract new employees and to
retain and motivate our existing employees.
Risks associated with system failures, interruptions, or breaches of security could affect our earnings negatively.
Information technology systems are critical to our business. We use various technology systems to manage our
customer relationships, general ledger, securities, deposits, and loans. We have established policies and procedures to prevent
or limit the effect of system failures, interruptions, and security breaches, but such events may still occur or may not be
adequately addressed if they do occur. In addition, any compromise of our systems could deter customers from using our
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products and services. Although we rely on security systems to provide security and authentication necessary to effect the
secure transmission of data, these precautions may not protect our systems from compromises or breaches of security.
In addition, we outsource a majority of our data processing to certain third-party providers. If these third-party
providers encounter difficulties, or if we have difficulty communicating with them, our ability to adequately process and
account for transactions could be affected, and our business operations could be adversely affected. Threats to information
security also exist in the processing of customer information through various other vendors and their personnel.
The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a
loss of customers and business thereby subjecting us to additional regulatory scrutiny, or could expose us to litigation and
possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of
operations.
Cyber-attacks or other security breaches could adversely affect our operations, net income, or reputation.
We regularly collect, process, transmit and store significant amounts of confidential information regarding our
customers, employees and others and concerning our own business, operations, plans and strategies. In some cases, this
confidential or proprietary information is collected, compiled, processed, transmitted, or stored by third parties on our behalf.
Information security risks have generally increased in recent years because of the proliferation of new technologies,
the use of the Internet and telecommunications technologies to conduct financial and other transactions, and the increased
sophistication and activities of perpetrators of cyber-attacks and mobile phishing. Mobile phishing, a means for identity thieves
to obtain sensitive personal information through fraudulent e-mail, text or voice mail, is an emerging threat targeting the
customers of financial entities. A failure in or breach of our operational or information security systems, or those of our third-
party service providers, as a result of cyber-attacks or information security breaches or due to employee error, malfeasance or
other disruptions could adversely affect our business, result in the disclosure or misuse of confidential or proprietary
information, damage our reputation, increase our costs and/or cause losses.
If this confidential or proprietary information were to be mishandled, misused, or lost, we could be exposed to
significant regulatory consequences, reputational damage, civil litigation, and financial loss.
Although we employ a variety of physical, procedural, and technological safeguards to protect this confidential and
proprietary information from mishandling, misuse, or loss, these safeguards do not provide absolute assurance that
mishandling, misuse, or loss of the information will not occur, and that if mishandling, misuse, or loss of information does
occur, those events will be promptly detected and addressed. Similarly, when confidential or proprietary information is
collected, compiled, processed, transmitted or stored by third parties on our behalf, our policies and procedures require that the
third party agree to maintain the confidentiality of the information, establish and maintain policies and procedures designed to
preserve the confidentiality of the information, and permit us to confirm the third party’s compliance with the terms of the
agreement. As information security risks and cyber threats continue to evolve, we may be required to expend additional
resources to continue to enhance our information security measures and/or to investigate and remediate any information
security vulnerabilities.
Changes in our accounting policies or in accounting standards could materially affect how we report our financial
condition and results of operations.
Our accounting policies are essential to understanding our financial results and condition. Some of these policies
require the use of estimates and assumptions that may affect the value of our assets or liabilities and financial results. Some of
our accounting policies are critical because they require management to make difficult, subjective, and complex judgments
about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under
different conditions or using different assumptions. If such estimates or assumptions underlying our financial statements are
incorrect, we may experience material losses.
From time to time, the Financial Accounting Standards Board and the Securities and Exchange Commission change
the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our
financial statements. These changes are beyond our control, can be hard to predict and could materially affect how we report
our results of operations and financial condition. We could also be required to apply a new or revised standard retroactively,
resulting in our restating prior period financial statements in material amounts.
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We hold certain intangible assets that could be classified as impaired in the future. If these assets are considered to be either
partially or fully impaired in the future, our earnings and the book values of these assets would decrease.
We are required to test our goodwill for impairment on a periodic basis. The impairment testing process considers a
variety of factors, including the current market price of our common shares, the estimated net present value of our assets and
liabilities and information concerning the terminal valuation of similarly situated insured depository institutions. It is possible
that future impairment testing could result in a partial or full impairment of the value of our goodwill. If an impairment
determination is made in a future reporting period, our earnings and the book value of goodwill will be reduced by the amount
of the impairment.
We are required to maintain a significant percentage of our total assets in residential mortgage loans and investments
secured by residential mortgage loans, which restricts our ability to diversify our loan portfolio.
A federal savings bank differs from a commercial bank in that it is required to maintain at least 65% of its total assets
in “qualified thrift investments,” which generally includes loans and investments for the purchase, refinance, construction,
improvement, or repair of residential real estate, as well as home equity loans, education loans and small business loans. To
maintain our federal savings bank charter we have to be a “qualified thrift lender” or “QTL” in nine out of each 12 immediately
preceding months. The QTL requirement limits the extent to which we can grow our commercial loan portfolio, and failing the
QTL test can result in an enforcement action. However, a loan that does not exceed $2 million (including a group of loans to
one borrower) that is for commercial, corporate, business, or agricultural purposes is included in our qualified thrift
investments. As of December 31, 2017, we maintained 80.1% of our portfolio assets in qualified thrift investments. Because of
the QTL requirement, we may be limited in our ability to change our asset mix and increase the yield on our earning assets by
growing our commercial loan portfolio.
In addition, if we continue to grow our commercial real estate loan portfolio and our residential mortgage loan
portfolio decreases, it is possible that in order to maintain our QTL status, we could be forced to buy mortgage-backed
securities or other qualifying assets at times when the terms of such investments may not be attractive. Alternatively, we may
find it necessary to pursue different structures, including converting Northfield Bank’s savings bank charter to a commercial
bank charter.
Because the nature of the financial services business involves a high volume of transactions, we face significant operational
risks, including fraud.
We operate in diverse markets and rely on the ability of our employees and systems to process a high number of
transactions over short periods of time. Operational risk is the risk of loss resulting from our operations, including but not
limited to, the risk of fraud by employees or persons outside our company, the execution of unauthorized transactions by
employees, errors relating to transaction processing and technology, breaches of the internal control system and compliance
requirements, and business continuation and disaster recovery. Insurance coverage may not be available for such losses, or
where available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could
arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse
business decisions or their implementation, and customer attrition due to potential negative publicity. In the event of a
breakdown in the internal control system, improper operation of systems or improper employee actions, we could suffer
financial loss, face regulatory action, and suffer damage to our reputation.
We are subject to extensive regulatory oversight.
We are subject to extensive supervision, regulation, and examination by the OCC, the FRB, and the FDIC. As a result,
we are limited in the manner in which we conduct our business, undertake new investments and activities, and obtain financing.
This regulatory structure is designed primarily for the protection of the Deposit Insurance Fund and our depositors, and not to
benefit our stockholders. This regulatory structure also gives the regulatory authorities extensive discretion in connection with
their supervisory and enforcement actions and examination policies, including policies with respect to capital levels, the timing
and amount of dividend payments, the classification of assets, the establishment of adequate loan loss reserves for regulatory
purposes and the timing and amounts of assessments and fees.
In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations.
Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply
with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other
financial institutions or expand our branch network.
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We are subject to the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead
to material penalties.
The Community Reinvestment Act, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending
laws and regulations impose nondiscriminatory lending requirements on financial institutions. A successful regulatory
challenge to an institution’s performance under the Community Reinvestment Act or fair lending laws and regulations could
result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief,
imposition of restrictions on mergers and acquisitions activity and restrictions on expansion. Private parties may also have the
ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could
have a material adverse effect on our business, financial condition and results of operations.
The FRB may require us to commit capital resources to support Northfield Bank.
Federal law requires that a holding company act as a source of financial and managerial strength to its subsidiary bank
and to commit resources to support such subsidiary bank. Under the “source of strength” doctrine, the FRB may require a
holding company to make capital injections into a troubled subsidiary bank and may charge the holding company with
engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank. A capital injection may be
required at times when the holding company may not have the resources to provide it and therefore may be required to borrow
the funds or raise capital. Any loans by a holding company to its subsidiary bank are subordinate in right of payment to deposits
and to certain other indebtedness of such subsidiary bank. In the event of a holding company’s bankruptcy, the bankruptcy
trustee will assume any commitment by the holding company to a federal bank regulatory agency to maintain the capital of a
subsidiary bank. Moreover, bankruptcy law provides that claims based on any such commitment will be entitled to a priority of
payment over the claims of the institution’s general unsecured creditors, including the holders of its note obligations. Thus, any
borrowing that must be done by the Company to make a required capital injection becomes more difficult and expensive and
could have an adverse effect on our business, financial condition and results of operations.
Legislative or regulatory responses to perceived financial and market problems could impair our rights against borrowers.
Federal, state and local laws and policies could reduce the amount distressed borrowers are otherwise contractually
obligated to pay under their mortgage loans, and may limit the ability of lenders to foreclose on mortgage collateral.
Restrictions on Northfield Bank’s rights as creditor could result in increased credit losses on our loans and mortgage-backed
securities, or increased expense in pursuing our remedies as a creditor.
Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or
sanctions.
The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial
institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions
are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement
Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of
customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or
sanctions. Recently, several banking institutions have received large fines for non-compliance with these laws and
regulations. While we have developed policies and procedures designed to assist in compliance with these laws and regulations,
these policies and procedures may not be effective in preventing violations of these laws and regulations.
Final regulations could restrict our ability to originate and sell loans.
The Consumer Financial Protection Bureau has issued a rule designed to clarify for lenders how they can avoid legal
liability under the Dodd-Frank Act, which would hold lenders accountable for ensuring a borrower’s ability to repay a
mortgage. Loans that meet this “qualified mortgage” definition will be presumed to have complied with the new ability-to-
repay standard. Under the Consumer Financial Protection Bureau’s rule, a “qualified mortgage” loan must not contain certain
specified features, including:
•
•
•
•
excessive upfront points and fees (those exceeding 3% of the total loan amount, less “bona fide discount points”
for prime loans);
interest-only payments;
negative-amortization; or
terms longer than 30 years.
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Also, to qualify as a “qualified mortgage”, a loan must be made to a borrower whose total monthly debt-to-income
ratio does not exceed 43%. Lenders must also verify and document the income and financial resources relied upon to qualify
the borrower on the loan and underwrite the loan based on a fully amortizing payment schedule and maximum interest rate
during the first five years, taking into account all applicable taxes, insurance, and assessments.
In addition, the Dodd-Frank Act requires the Consumer Financial Protection Bureau to adopt rules and publish forms
that combine certain disclosures that consumers receive in connection with applying for and closing on certain mortgage loans
under the Truth in Lending Act and the Real Estate Settlement Procedures Act. The Consumer Financial Protection Bureau has
implemented a final rule to implement this requirement, and the final rule was effective in October 2015.
In addition, the Dodd-Frank Act requires the regulatory agencies to issue regulations that require securitizers of loans
to retain “not less than 5% of the credit risk for any asset that is not a qualified residential mortgage.” The regulatory agencies
have issued a final rule to implement this requirement. The final rule provides that the definition of “qualified residential
mortgage” includes loans that meet the definition of a qualified mortgage issued by the Consumer Financial Protection Bureau
for purposes of its regulations.
These rules could have a significant effect on the secondary market for loans and the types of loans we originate, and
restrict our ability or desire to make certain types of loans or loans to certain borrowers, which could limit our growth or
profitability.
Changes in the valuation of our securities portfolio could reduce net income and lower our capital levels.
Our securities portfolio may be affected by fluctuations in market value, potentially reducing accumulated other
comprehensive income and/or earnings. Fluctuations in market value may be caused by changes in market interest rates, lower
market prices for securities and limited investor demand. Management evaluates securities for other-than-temporary
impairment on a quarterly basis, with more frequent evaluation for selected issues. In analyzing a debt issuer’s financial
condition, management considers whether the securities are issued by the federal government or its agencies, whether
downgrades by bond rating agencies have occurred, industry analysts’ reports and, to a lesser extent given the relatively
insignificant levels of depreciation in our debt portfolio, spread differentials between the effective rates on instruments in the
portfolio compared to risk-free rates. In analyzing an equity issuer’s financial condition, management considers industry
analysts’ reports, financial performance, and projected target prices of investment analysts within a one-year time period. If this
evaluation shows impairment to the actual or projected cash flows associated with one or more securities, a potential loss to
earnings may occur. Changes in interest rates also can have an adverse effect on our financial condition, as our available-for-
sale securities are reported at their estimated fair value, and therefore are impacted by fluctuations in interest rates. We increase
or decrease our stockholders’ equity by the amount of change in the estimated fair value of the available-for-sale securities, net
of taxes. The declines in market value could result in other-than-temporary impairments of these assets, which would lead to
accounting charges that could have a material adverse effect on our net income and capital levels. Changes in interest rates can
also have an adverse effect on our financial condition, as our available-for-sale securities are reported at their estimated fair
value, and therefore are impacted by fluctuations in interest rates.
Federal banking regulations restrict insured depository institutions and their affiliated companies from engaging in
short-term proprietary trading of certain securities, investing in funds with collateral comprised of less than 100% loans that are
not registered with the Securities and Exchange Commission and from engaging in hedging activities that do not hedge a
specific identified risk. We continue to analyze the impact of this regulation on our investment portfolio, and whether any
changes are required to our investment strategies that could negatively affect our earnings.
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We are subject to stringent capital requirements, which may adversely affect our return on equity, require us to raise
additional capital, or constrain us from paying dividends or repurchasing shares.
“Basel III” regulatory capital reforms and changes required by the Dodd-Frank Act substantially amended the
regulatory risk-based capital rules applicable to Northfield Bancorp, Inc. and Northfield Bank. The minimum capital
requirements are: (i) a common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a
total capital ratio of 8% ; and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a “capital conservation buffer” of
2.5%, and will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 to risk-
based assets capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The capital conservation buffer requirement was
phased in beginning January 1, 2016, at 0.625% of risk-weighted assets and increases each year until fully implemented at
2.5% on January 1, 2019. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and
paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum
percentage of eligible retained income that can be utilized for such actions.
The application of more stringent capital requirements, among other things, could result in lower returns on equity,
require the raising of additional capital, and result in regulatory actions if we were to be unable to comply with such
requirements. Furthermore, the imposition of liquidity requirements in connection with Basel III could result in our having to
lengthen the term of our funding, restructure our business models, and/or increase our holdings of liquid assets. Implementation
of changes to asset risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory
capital and/or additional capital conservation buffers could result in management modifying its business strategy, and could
limit our ability to make distributions, including paying out dividends or buying back shares. Northfield Bancorp Inc.’s ability
to pay dividends will be limited if it does not have the capital conservation buffer required by the new capital rules, which may
limit our ability to pay dividends to stockholders. See “Item 1. Business - Supervision and Regulation.”
We may be adversely affected by recent changes in U.S. tax laws.
Changes in tax laws contained in the Tax Act, which was enacted in December 2017, include a number of provisions that
could have an impact on the banking industry, borrowers and the market for residential real estate. Changes include (i) a lower
limit on the deductibility of mortgage interest, (ii) the elimination of interest deductions for home equity loans, home equity
lines of credit or second mortgages depending on the how the loans are used, (iii) a limitation on the deductibility of business
interest expense and (iv) a limitation on the deductibility of property taxes and state and local income taxes.
The recent changes in the tax laws may have an adverse effect on the market for, and valuation of, residential
properties, and on the demand for such loans in the future, and could make it harder for borrowers to make their loan payments.
In addition, these recent changes may also have a disproportionate effect on taxpayers in states with high residential home
prices and high state and local taxes, such as New York and New Jersey. If home ownership becomes less attractive, demand
for mortgage loans could decrease. The value of the properties securing loans in our loan portfolio may be adversely impacted
as a result of the changing economics of home ownership, which could require an increase in our provision for loan losses,
which would reduce our profitability and could materially adversely affect our business, financial condition and results of
operations.
Our risk management framework may not be effective in mitigating risk and reducing the potential for significant losses.
Our risk management framework is designed to minimize risk and loss to us. We seek to identify, measure, monitor,
report, and control our exposure to the types of risk to which we are subject, including strategic, market, liquidity, compliance,
and operational risks. While we employ a broad and diversified set of risk monitoring and mitigation techniques, those
techniques are inherently limited because they cannot anticipate the existence or future development of currently unanticipated
or unknown risks. Recent economic conditions, heightened legislative and regulatory scrutiny of the financial services industry,
among other developments, have resulted in a heightened level of risk for us. Accordingly, we could suffer losses as a result of
our failure to properly anticipate and manage these risks.
Our business may be adversely affected by an increasing prevalence of fraud and other financial crimes.
Our loans to businesses and individuals and our deposit relationships and related transactions are subject to exposure
to the risk of loss due to fraud and other financial crimes. Nationally, reported incidents of fraud and other financial crimes
have increased. We have also experienced losses due to apparent fraud and other financial crimes. While we have policies and
procedures designed to prevent such losses, losses may still occur.
41
Acquisitions may disrupt our business and dilute stockholder value.
We regularly evaluate merger and acquisition opportunities and conduct due diligence activities related to possible
transactions with other financial institutions and financial services companies. As a result, negotiations may take place and
future mergers or acquisitions involving cash, debt, or equity securities may occur at any time. We seek acquisition partners
that offer us either significant market presence or the potential to expand our market footprint and improve profitability through
economies of scale or expanded services.
Acquiring other banks, businesses, or branches may have an adverse effect on our financial results and may involve
various other risks commonly associated with acquisitions. These include:
•
•
•
•
integrating personnel with diverse business backgrounds;
converting customers to new systems;
combining different corporate cultures; and
retaining key employees.
The success of an acquisition will depend, in part, on our ability to realize the anticipated benefits and cost savings. If
we are unable to integrate an acquired company successfully, the anticipated benefits and cost savings may not be realized fully
or may take longer to realize than expected. A significant decline in asset valuations or cash flows may also cause us not to
realize expected benefits.
Various factors may make takeover attempts more difficult to achieve.
Our certificate of incorporation and bylaws, federal regulations, Northfield Bank’s charter, Delaware law, shares of
restricted stock and stock options that we have granted or may grant to employees and directors, stock ownership by our
management and directors and employment agreements that we have entered into with our executive officers, and various other
factors may make it more difficult for companies or persons to acquire control of Northfield Bancorp, Inc. without the consent
of our Board of Directors.
We may not pay dividends on our shares of common stock.
Although we currently pay dividends on a quarterly basis, stockholders are not entitled to receive dividends. Federal
regulations also may restrict capital distributions, which include cash dividends, to ensure the institution maintains adequate
capital requirements.
Legal and regulatory proceedings and related matters could adversely affect us or the financial services industry in general.
We, and other participants in the financial services industry upon whom we rely to operate, have been and may in the
future become involved in legal and regulatory proceedings. Most of the proceedings we consider to be in the normal course of
our business or typical for the industry; however, it is inherently difficult to assess the outcome of these matters, and other
participants in the financial services industry or we may not prevail in any proceeding or litigation. Any adverse determination
could negatively affect our business, brand or image, or our financial condition and results of our operations.
We are subject to environmental liability risk associated with lending activities.
A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental
liabilities with respect to one or more of these properties. During the ordinary course of business, we may foreclose on and take
title to properties securing defaulted loans. In doing so, there is a risk that hazardous or toxic substances could be found on
these properties. If hazardous conditions or toxic substances are found on these properties, we may be liable for remediation
costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous
conditions or toxic substances first affected any particular property. Environmental laws may require us to incur substantial
expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or
sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to
existing laws may increase our exposure to environmental liability. Although we have policies and procedures to perform an
environmental review before initiating any foreclosure action on nonresidential real property, these reviews may not be
42
sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with
an environmental hazard could have a material adverse effect on us.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
There are no unresolved staff comments.
ITEM 2.
PROPERTIES
The Company operates from the Bank’s home office in Staten Island, New York, our corporate offices located at 581
Main Street, Woodbridge, New Jersey, and our additional 38 branch offices located in New York and New Jersey, and its
lending office located in Brooklyn, New York. Our branch offices are located in the New York counties of Richmond, and
Kings and the New Jersey counties of Hunterdon, Mercer, Middlesex, and Union. The net book value of our premises, land,
and equipment was $25.7 million at December 31, 2017.
ITEM 3.
LEGAL PROCEEDINGS
In the normal course of business, we may be party to various outstanding legal proceedings and claims. In the opinion
of management, the consolidated financial statements are not likely to be materially affected by the outcome of such legal
proceedings and claims as of December 31, 2017.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
43
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES
Our shares of common stock are traded on the NASDAQ Global Select Market under the symbol “NFBK.” The
approximate number of holders of record of Northfield Bancorp, Inc.’s common stock as of February 20, 2018, was
4,303. Certain shares of Northfield Bancorp, Inc. are held in “nominee” or “street” name and accordingly, the number of
beneficial owners of such shares is not known or included in the foregoing number. The following table presents quarterly
market and dividend information for Northfield Bancorp, Inc. common stock for the years ended December 31, 2017 and
2016. The following market information was provided by the NASDAQ Global Stock Market:
Quarter ended December 31, 2017
Quarter ended September 30, 2017
Quarter ended June 30, 2017
Quarter ended March 31, 2017
Quarter ended December 31, 2016
Quarter ended September 30, 2016
Quarter ended June 30, 2016
Quarter ended March 31, 2016
High
Low
Dividends
$
$
$
$
$
$
$
$
18.39
17.56
19.08
20.36
20.59
16.28
16.58
16.68
$
$
$
$
$
$
$
$
15.96
15.36
16.41
17.32
14.88
14.38
14.31
14.43
$
$
$
$
$
$
$
$
0.10
0.08
0.08
0.08
0.08
0.08
0.08
0.07
The Company is subject to state law limitations and federal banking regulatory policy on the payment of dividends.
Delaware law generally limits dividends to our capital surplus or, if there is no capital surplus, our net profits for the fiscal year
in which the dividend is declared and/or the preceding fiscal year. In addition, see “Item 1. Business - Supervision and
Regulation - Holding Company Regulation.”
The sources of funds for the payment of a cash dividend are interest, and principal payments on Northfield Bancorp,
Inc.’s investments, including its loan to Northfield Bank’s Employee Stock Ownership Plan, and dividends from Northfield
Bank.
For a discussion of Northfield Bank’s ability to pay dividends, see “Item 1. Business - Supervision and Regulation.”
Stock Performance Graph
Set forth below is a stock performance graph comparing (a) the cumulative total return on the Northfield Bancorp,
Inc.’s common stock for the period December 31, 2012, through December 31, 2017, (b) the cumulative total return of the
stocks included in the NASDAQ Composite Index over such period, (c) the cumulative total return on stocks included in the
NASDAQ Bank Index over such period, and, (d) the cumulative total return on stocks included in the SNL U.S. Thrift Index
over such period. Cumulative return assumes the reinvestment of dividends, and is expressed in dollars based on an assumed
investment of $100.
44
Index
Northfield Bancorp, Inc.(1)
NASDAQ Composite Index(1)
NASDAQ Bank Index(2)
SNL U.S. Thrift Index(1)
As of
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
12/31/2017
100.00
100.00
100.00
100.00
126.59
140.12
141.31
128.33
144.79
160.78
148.11
138.02
158.70
171.97
161.09
155.20
203.05
187.22
221.04
190.11
177.13
242.71
232.84
188.72
(1) Source: S&P Global Market Intelligence, a division of S&P Global Inc.
(2) Source: Bloomberg Inc.
Issuer Purchases of Equity Securities
The Company did not repurchase any of its common stock during the year ended December 31, 2017. The previously
adopted repurchase program permitted $185.0 million shares to be repurchased in open market or private transactions, through
block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and
Exchange Commission. There were no shares remaining to be purchased at December 31, 2017, or 2016.
45
ITEM 6.
SELECTED FINANCIAL DATA
The summary information presented below at the dates or for each of the years presented is derived in part from our
consolidated financial statements. The following information is only a summary, and should be read in conjunction with our
consolidated financial statements and notes included in this Annual Report:
Selected Financial Condition Data:
Total assets
Cash and cash equivalents
Trading securities
Securities available-for-sale, at estimated market value
Securities held-to-maturity
Loans held-for-sale - non-performing
Loans held-for-investment:
PCI loans
Loans acquired
Originated loans, net
Loans held-for-investment, net
Allowance for loan losses
Net loans held-for-investment
Bank owned life insurance
FHLB of New York stock, at cost
Other real estate owned
Deposits
Borrowed funds
Total liabilities
Total stockholders’ equity
Selected Operating Data:
Interest income
Interest expense
Net interest income before provision for loan losses
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income
Net income per common share - basic
Net income per common share - diluted
Weighted average basic shares outstanding
Weighted average diluted shares outstanding
At December 31,
2017
2016
2014
2015
(Dollars in thousands, except share data)
2013
$ 3,991,417
57,839
9,597
515,121
9,931
—
$
3,850,094
96,085
7,857
498,897
10,148
—
$ 3,202,584
51,853
6,713
541,595
10,346
—
$ 3,020,869
76,709
6,422
771,239
3,609
—
$
22,741
692,803
2,425,275
3,140,819
(26,160)
3,114,659
150,604
25,046
850
2,836,979
471,549
3,352,540
638,877
$
30,498
793,240
2,144,346
2,968,084
(24,595)
2,943,489
148,047
25,123
850
2,713,587
473,206
3,228,898
621,196
$
33,115
409,015
1,931,585
2,373,715
(24,770)
2,348,945
132,782
25,803
45
2,052,929
558,129
2,642,805
559,779
$
44,816
265,685
1,632,494
1,942,995
(26,292)
1,916,703
129,015
29,219
752
1,620,665
778,658
2,426,941
593,928
2017
2016
2015
2014
Years Ended December 31,
(Dollars in thousands)
132,869
23,976
108,893
1,411
107,482
11,642
67,378
51,746
26,978
24,768
0.55
0.53
45,325,445
46,875,730
$
$
$
$
124,972
21,668
103,304
635
102,669
10,072
72,946
39,795
13,665
26,130
0.59
0.57
44,374,389
45,717,887
$
$
$
$
101,758
19,688
82,070
353
81,717
7,898
58,109
31,506
11,975
19,531
0.46
0.45
42,285,712
43,478,481
$
$
$
$
91,701
15,352
76,349
645
75,704
8,460
52,042
32,122
11,856
20,266
0.41
0.41
49,006,129
50,032,259
$
$
$
$
$
$
$
$
$
$
2,702,764
61,239
5,998
937,085
—
471
59,468
77,817
1,352,191
1,489,476
(26,037)
1,463,439
125,113
17,516
634
1,492,689
470,325
1,986,656
716,108
2013
92,470
16,948
75,522
1,927
73,595
10,161
53,873
29,883
10,736
19,147
0.35
0.34
54,637,680
55,560,309
Note: Weighted average basic and diluted shares have been restated to reflect the completion of our second-step conversion
on January 24, 2013, at an exchange ratio of 1.4029-to-one.
46
Selected Financial Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets)(1) (2) (3) (4)
Return on equity (ratio of net income to average equity)(1) (2) (3) (4)
Interest rate spread(5)
Net interest margin(6)
Dividend payout ratio(7)
Efficiency ratio(8) (9)
Non-interest expense to average total assets
Average interest-earning assets to average interest-bearing liabilities
Average equity to average total assets
Asset Quality Ratios:
Non-performing assets to total assets
Non-performing loans(10) to total loans(11)
Allowance for loan losses to non-performing loans held-for-
investment(12)
Allowance for loan losses to total loans held-for-investment, net(13)
Allowance for loan losses to originated loans held-for-investment, net(14)
Capital Ratios(15):
Common equity Tier 1 capital (to risk-weighted assets)
Total capital (to risk-weighted assets)
Tier 1 capital (to risk-weighted assets)
Tier 1 capital (to adjusted assets)
Other Data:
Number of full service offices
Full time equivalent employees
At or For the Years Ended December 31,
2017
2016
2015
2014
2013
0.63%
3.88
2.79
2.99
63.17
55.90
1.72
128.71
16.31
0.16
0.18
472.63
0.83
1.04
16.70
17.49
16.70
14.15
39
338
0.70%
4.26
2.80
2.98
53.86
64.34
1.95
128.68
16.44
0.21
0.25
333.23
0.83
1.10
17.75
18.56
17.75
14.55
38
348
0.63%
3.41
2.63
2.83
62.38
64.59
1.86
129.12
18.32
0.28
0.37
280.78
1.04
1.24
20.19
21.21
20.19
15.72
30
290
0.73%
3.07
2.74
2.97
63.57
61.36
1.88
139.12
23.75
0.51
0.75
180.29
1.35
1.58
0.70%
2.70
2.68
2.97
140.28
62.87
1.97
142.73
25.90
0.68
1.19
150.23
1.75
1.88
NA
NA
22.95
21.77
16.46
30
302
28.94
27.69
19.88
30
306
(1)
(2)
(3)
(4)
(5)
The year ended December 31, 2017 includes: (i) an estimated tax charge of $10.5 million as a result of the recently enacted Tax Act;
(ii) a $2.3 million reduction in income tax expense from the adoption of ASU 2016-09 related to excess tax benefits from the exercise
or vesting of equity awards which were previously recorded through equity as an adjustment to additional paid in capital; and (iii)
$1.5 million of tax-exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies.
The year ended December 31, 2016, includes merger-related charges of $2.4 million, net of tax, associated with the acquisition of
Hopewell Valley.
The year ended December 31, 2015, includes merger-related charges of $574,000, net of tax, associated with the acquisition of
Hopewell Valley and a $795,000 charge related to the write-down of deferred tax assets resulting from New York City tax reforms.
The year ended December 31, 2014, includes a gain of $560,000, net of tax, related to the settlement of the former Flatbush Federal
Savings & Loan Association pension plan and a charge of $570,000 related to the write-down of deferred tax assets resulting from
New York State tax reforms.
The interest rate spread represents the difference between the weighted-average yield on interest earning assets and the weighted-
average costs of interest-bearing liabilities.
(6)
The net interest margin represents net interest income as a percent of average interest-earning assets for the period.
(7) Dividend payout ratio is calculated as total dividends declared for the year divided by net income for the year. 2013 includes a special
(8)
(9)
dividend of $0.25 per share.
The efficiency ratio represents non-interest expense divided by the sum of net interest income and non-interest income.
The year ended December 31, 2017, includes $1.5 million of tax-exempt income from bank owned life insurance proceeds in excess
of the cash surrender value of the policies. The year ended December 31, 2016, includes merger-related pre-tax charges of $4.0
million associated with the acquisition of Hopewell Valley. The year ended December 31, 2015, includes merger-related pre-tax
charges of $672,000 associated with the acquisition of Hopewell Valley. The year ended December 31, 2014, includes a pre-tax gain
of $937,000, related to the settlement of the former Flatbush Federal Savings & Loan Association pension plan.
(10) Non-performing loans consist of non-accruing loans and loans 90 days or more past due and still accruing (excluding PCI loans), and
are included in total loans held-for-investment, net, and non-performing loans held-for-sale.
(11)
Includes originated loans held-for-investment, PCI loans, acquired loans and non-performing loans held-for-sale.
(12) Excludes non-performing loans held-for-sale, carried at lower of cost or estimated fair value, less costs to sell.
(13)
Includes PCI and acquired loans held-for-investment.
(14) Excludes PCI loans, acquired loans held-for-investment and loans held-for-sale (and related allowance for loan losses).
(15) Capital ratios are presented for Northfield Bank only.
47
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated Financial Statements of Northfield
Bancorp, Inc. and the Notes thereto included elsewhere in this report (collectively, the “Financial Statements”).
Overview
Net income was $24.8 million, or $0.53 per diluted common share, and $26.1 million, or $0.57 per diluted common
share, for the years ended December 31, 2017 and 2016, respectively. Net income for the year ended December 31, 2017,
includes an estimated tax charge of $10.5 million, or $0.23 per diluted share, related to the enactment of the Tax Cuts and Jobs
Act (the “Tax Act”) on December 22, 2017, which among other things, reduces the federal corporate income tax rate from 35%
to 21%, effective January 1, 2018. As a result of the lower corporate tax rate, the Company recorded an adjustment of $10.5
million to reduce its net deferred tax assets, with a corresponding charge to income tax expense. Net income for the year ended
December 31, 2017, also included a reduction in income tax expense of $2.3 million, or $0.05 per diluted share, related to the
adoption of Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718) (“ASU 2016-09”),
and $1.5 million, or $0.03 per diluted share, of tax-exempt income from bank owned life insurance proceeds in excess of the
cash surrender value of the policies. Net income for the year ended December 31, 2016, included merger-related expenses of
$4.0 million ($2.4 million, after tax) associated with our acquisition of Hopewell Valley Community Bank (“Hopewell
Valley”).
Our assets increased by $141.3 million, or 3.7%, to $3.99 billion at December 31, 2017, from $3.85 billion at
December 31, 2016. The increase was primarily attributable to increases in loans held-for-investment, net, of $172.7 million
and securities available-for-sale of $16.2 million, partially offset by decreases in cash and cash equivalents of $38.2 million and
other assets of $11.7 million. The increase in assets was funded by a $123.4 million increase in deposits to $2.84 billion at
December 31, 2017 from $2.71 billion at December 31, 2016.
Our stockholders’ equity increased by $17.7 million, or 2.8%, to $638.9 million at December 31, 2017, from $621.2
million at December 31, 2016. This increase was primarily attributable to net income of $24.8 million for year ended
December 31, 2017, and an $8.8 million increase related to equity award activity, partially offset by dividend payments of
$15.6 million.
Critical Accounting Policies
Critical accounting policies are defined as those that involve significant judgments and uncertainties, and could
potentially result in materially different results under different assumptions and conditions. We believe that the most critical
accounting policies upon which our financial condition and results of operation depend, and which involve the most complex
subjective decisions or assessments, are the following:
Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered necessary to cover
probable and reasonably estimable incurred losses inherent in the loan portfolio at the balance sheet date. The allowance is
established through the provision for loan losses that is charged against income. In determining the allowance for loan losses,
we make significant estimates and judgments. The determination of the allowance for loan losses is considered a critical
accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used,
and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance
for loan losses.
The allowance for loan losses has been determined in accordance with U.S. GAAP. We are responsible for the timely
and periodic determination of the amount of the allowance required. We believe that our allowance for loan losses is adequate
to cover identifiable losses, as well as estimated losses inherent in our portfolio for which certain losses are probable but not
specifically identifiable.
Management performs a formal quarterly evaluation of the adequacy of the allowance for loan losses. This quarterly
process is performed by the accounting department, in conjunction with the credit administration department, and approved by
the Director of Financial Reporting. The Chief Financial Officer performs a final review of the calculation. All supporting
documentation with regard to the evaluation process is maintained by the accounting department. Each quarter a summary of
the allowance for loan losses is presented by the Chief Financial Officer to the audit committee of the board of directors.
48
The analysis of the allowance for loan losses has a component for impaired loans held-for-investment and PCI loans,
and a component for general loan losses. Prior to December 31, 2016, we maintained an amount identified as the unallocated
component within the allowance for loan losses related to indicators of loan losses not fully captured in other components of
the allowance for loan losses methodology, as well as the inherent imprecision of the loss estimation process. During the fourth
quarter of 2016, the Company enhanced the allowance for loan losses qualitative framework to more fully capture the risks
related to certain loan loss factors. These enhancements are meant to increase the level of precision in the allowance for loan
losses. As a result, the Company no longer has an unallocated reserve in its allowance for loan losses, as the risks and
uncertainties meant to be captured by the unallocated allowance have been included in the qualitative framework for the
respective loan portfolios.
Management has defined an impaired loan (excluding PCI loans) to be a loan for which it is probable, based on
current information, that we will not collect all amounts due in accordance with the contractual terms of the loan
agreement. We have defined the population of impaired loans to be all non-accrual loans with an outstanding balance of
$500,000 or greater, and all loans identified as a TDR. 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, when
appropriate, 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 all appraisals. Projecting the expected cash flows under TDRs 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, and could have a material effect on our financial results.
The second component of the allowance for loan losses is the general loss allocation. This assessment excludes
impaired, trouble-debt restructured, and PCI loans, with the remaining loans being placed into groups with similar risk
characteristics, primarily loan type, loan-to-value (if collateral dependent) and internal credit risk rating. We apply an estimated
loss rate to each loan group. The loss rates applied are based on our net loss experience (using appropriate look-back and loss
emergence periods) as adjusted, if appropriate, for our qualitative assessment of factors which may not be fully captured in our
historical quantitative net loss rates applied to:
•
•
•
•
•
•
•
•
•
changes in lending policies and procedures;
changes in local, regional, national, and international economic and business conditions and developments that
affect the collectability of our portfolio, including the condition of various market segments;
changes in the nature and volume of our portfolio and in the terms of our loans;
changes in the experience, ability and depth of lending management and other relevant staff;
changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume and
severity of adversely classified or graded loans;
changes in the quality of our loan review system;
changes in the value of underlying collateral for collateral-dependent loans;
the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and
the effect of other external factors such as competition and legal and regulatory requirements on the level of
estimated credit losses in our existing portfolio.
The loss emergence period is the estimated time from the date of the loss event to the actual recognition of the loss
(typically the first charge-off), and is determined based upon a study of the Company's past loss experience by loan groups.
This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revisions based
on changes in economic and real estate market conditions. Actual loan losses may be significantly different than the allowance
for loan losses we have established, which could have a material effect on our financial results.
We have a concentration of loans secured by real property located in New York City, New Jersey, and, to a lesser
extent, eastern Pennsylvania. As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the
underlying value of property securing loans are critical in determining the amount of the allowance required for specific loans.
49
Assumptions for appraisal valuations are instrumental in determining the value of properties. Overly optimistic assumptions or
negative changes to assumptions could significantly impact the valuation of a property securing a loan and the related
allowance determined. The assumptions supporting such appraisals are reviewed by management and an independent third-
party appraiser to determine that the resulting values reasonably reflect amounts realizable on the collateral. Based on the
composition of our loan portfolio, we believe the primary risks are increases in interest rates, a decline in the economy
generally, or a decline in real estate market values in New York, or New Jersey, or eastern Pennsylvania. Any one or a
combination of these events may adversely affect our loan portfolio resulting in delinquencies, increased loan losses, and future
loan loss provisions.
Although we believe we have established and maintained the allowance for loan losses at adequate levels, changes
may be necessary if future economic or other conditions differ substantially from our estimation of the current operating
environment. Although management uses the information available, the level of the allowance for loan losses remains an
estimate that is subject to significant judgment and short-term change. In addition, the OCC, as an integral part of their
examination process, will review our allowance for loan losses and may require us to recognize adjustments to the allowance
based on their judgments about information available to them at the time of their examination.
Additionally, held-for-investment loans acquired with no evidence of credit deterioration are initially valued at an
estimated fair value on the date of acquisition, with no initial related allowance for loan losses. These loans are collectively
evaluated for impairment on a quarterly basis as part of our analysis of the allowance for loan losses.
We also maintain an allowance for estimated losses on off-balance sheet credit risks related to loan commitments and
standby letters of credit. Management utilizes a methodology similar to its allowance for loan loss methodology to estimate
losses on these items. The allowance for estimated credit losses on these items is included in other liabilities and any changes to
the allowance are recorded as a component of other non-interest expense.
Purchased Credit-Impaired Loans. PCI loans are subject to our internal credit review. If and when credit deterioration
occurs at the loan pool level subsequent to the acquisition date, a provision for credit losses for PCI loans will be charged to
earnings for the full amount of the decline in expected cash flows for the pool. Under the accounting guidance for acquired
credit-impaired loans, the allowance for loan losses on PCI loans is measured at each financial reporting date based on future
expected cash flows. This assessment and measurement is performed at the pool level and not at the individual loan
level. Accordingly, decreases in expected cash flows resulting from further credit deterioration, on a pool basis, as of such
measurement date compared to those originally estimated are recognized by recording a provision and allowance for credit
losses on PCI loans. Subsequent increases in the expected cash flows of the loans in each pool would first reduce any
allowance for loan losses on PCI loans; and any excess will be accreted prospectively as a yield adjustment. The analysis of
expected cash flows for pools incorporates updated pool level expected prepayment rates, default rates, delinquency levels, and
loan level loss severity given default assumptions. The expected cash flows are estimated based on factors which include loan
grades established in Northfield Bank's ongoing credit review program, likelihood of default based on observations of specific
loans during the credit review process as well as applicable industry data, loss severity based on updated evaluation of cash
flows from available collateral, and the contractual terms of the underlying loan agreement. Actual cash flows could differ from
those expected, and others provided with the same information could draw different reasonable conclusions and calculate
different expected cash flows.
Goodwill and Other Intangibles. We record all assets and liabilities in acquisitions, including goodwill and other
intangible assets, at fair value as of the acquisition date, and expense all acquisition related costs as incurred. Goodwill, totaling
$38.4 million at December 31, 2017, is not amortized but is subject to annual tests for impairment or more often if events or
circumstances indicate it may be impaired. Other intangible assets, such as core deposit intangibles, are amortized over their
estimated useful lives and are subject to impairment tests if events or circumstances indicate a possible inability to realize the
carrying amount. Such evaluation of other intangible assets is based on undiscounted cash flow projections. The initial
recording of goodwill and other intangible assets requires subjective judgments concerning estimates of the fair value of the
acquired assets and assumed liabilities.
The goodwill impairment analysis is generally a two-step test. However, under current accounting guidance, we may
first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment
test. We are not required to calculate the fair value of our reporting unit if, based on a qualitative assessment, we determine that
it was more likely than not that the unit’s fair value was not less than its carrying amount. During 2017, we elected to perform
step one of the two-step goodwill impairment test for our reporting unit. The first step compares the fair value of the reporting
unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill
of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, an
additional step must be performed. At December 31, 2017, the Company's fair value of the reporting unit exceeded its carrying
50
amount, therefore, no additional step was performed. That additional step compares the implied fair value of the reporting
unit’s goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in a manner similar
to the amount of goodwill calculated in a business combination, i.e., by measuring the excess of the estimated fair value of the
reporting unit, as determined in the first step above, over the aggregate estimated fair values of the individual assets, liabilities,
and identifiable intangibles, as if the reporting unit was being acquired in a business combination at the impairment test date.
An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The loss
establishes a new basis in the goodwill and subsequent reversal of goodwill impairment losses are not permitted.
Securities Valuation and Impairment. Our securities portfolio is comprised of mortgage-backed securities and, to a
lesser extent, corporate bonds, municipal bonds, mutual funds and loan funds. Our available-for-sale securities portfolio is
carried at estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive
income or loss in stockholders’ equity. Our trading securities portfolio is reported at estimated fair value. Our held-to-maturity
securities portfolio, consisting of debt securities for which we have a positive intent and ability to hold to maturity, is carried at
amortized cost. We conduct a quarterly review and evaluation of the available-for-sale and held-to-maturity securities portfolios
to determine if the estimated fair value of any security has declined below its amortized cost, and whether such decline is other-
than-temporary. If such decline is deemed other-than-temporary, we adjust the cost basis of the security by writing down the
security to estimated fair value through a charge to current period operations. The estimated fair values of our securities are
primarily affected by changes in interest rates, credit quality, and market liquidity.
Management is responsible for determining the estimated fair value of the securities in our portfolio. In determining
estimated fair values, each quarter management utilizes the services of an independent third-party service, recognized as a
specialist in pricing securities. 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, if identifiable. 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 observable market data, where available. Where the market price of the same or similar
securities is not available, the valuation becomes more subjective and involves a high degree of judgment. In addition, we
compare securities prices to a second independent pricing service that is utilized as part of our asset liability risk management
process and analyze significant anomalies in pricing including significant fluctuations, or lack thereof, in relation to other
securities. At December 31, 2017, and for each quarter end in 2017, all securities were priced by an independent third-party
pricing service, and management made no adjustment to the prices received.
Determining that a decline in a security’s estimated fair value is other-than-temporary is inherently subjective, and
becomes increasing difficult as it relates to mortgage-backed securities that are not guaranteed by the U.S. Government, or a
U.S. Government Sponsored Enterprise (e.g., Fannie Mae and Freddie Mac). In performing our evaluation of securities in an
unrealized loss position, we consider, among other things, the severity and duration of time that the security has been in an
unrealized loss position and the credit quality of the issuer. As it relates to private label mortgage-backed securities not
guaranteed by the U.S. Government, Fannie Mae, or Freddie Mac, we perform a review of the key underlying loan collateral
risk characteristics including, among other things, origination dates, interest rate levels, composition of variable and fixed rates,
reset dates (including related pricing indices), current loan to original collateral values, locations of collateral, delinquency
status of loans, and current credit support. In addition, for securities experiencing declines in estimated fair values of over 10%,
as compared to its amortized cost, management also reviews published historical and expected prepayment speeds, underlying
loan collateral default rates, and related historical and expected losses on the disposal of the underlying collateral on defaulted
loans. This evaluation is subjective as it requires estimates of future events, many of which are difficult to predict. Actual
results could be significantly different than our estimates and could have a material effect on our financial results.
Deferred Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. If it is determined that it is more likely than not that the deferred tax assets
will not be realized, a valuation allowance is established. We consider the determination of this valuation allowance to be a
critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of
recognition of deferred tax liabilities and assets, including projections of future taxable income. These judgments and estimates
are reviewed quarterly as regulatory and business factors change. A valuation allowance for deferred tax assets may be required
if the amounts of taxes recoverable through loss carry backs decline, or if we project lower levels of future taxable
income. Such a valuation allowance would be established and any subsequent changes to such allowance would require an
adjustment to income tax expense that could adversely affect our operating results.
51
Stock Based Compensation. We recognize the cost of director and employee services received in exchange for awards
of equity instruments based on the grant-date fair value.
We estimate the per share fair value of options on the date of grant using the Black-Scholes option pricing model using
assumptions for the expected dividend yield, expected stock price volatility, risk-free interest rate and expected option
term. These assumptions are based on our judgments regarding future option exercise experience and market conditions. These
assumptions are subjective in nature, involve uncertainties, and, therefore, cannot be determined with precision. The Black-
Scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public
markets.
The per share fair value of options is highly sensitive to changes in assumptions. In general, the per share fair value of
options will move in the same direction as changes in the expected stock price volatility, risk-free interest rate and expected
option term, and in the opposite direction of changes in the expected dividend yield. The use of different assumptions or
different option pricing models could result in materially different per share fair values of options.
Comparison of Financial Condition at December 31, 2017 and 2016
Total assets increased $141.3 million, or 3.7%, to $3.99 billion at December 31, 2017, from $3.85 billion at
December 31, 2016. The increase was primarily attributable to an increase in loans held-for-investment, net, of $172.7 million,
and an increase in our securities-available-for-sale portfolio of $16.2 million, partially offset by decreases in cash and cash
equivalents of $38.2 million and other assets of $11.7 million.
Total loans held-for-investment, net, increased $172.7 million to $3.14 billion at December 31, 2017, as compared to
$2.97 billion at December 31, 2016. The increase was primarily attributable to originated loan growth, partially offset by
decreases in acquired loans and PCI loans.
Originated loans held-for-investment, net, totaled $2.43 billion at December 31, 2017, as compared to $2.14 billion at
December 31, 2016. The increase was primarily due to an increase in multifamily real estate loans of $229.4 million, or 15.2%,
to $1.74 billion at December 31, 2017, from $1.51 billion at December 31, 2016, and to a lesser extent, increases of $32.6
million, or 7.9%, in commercial real estate loans, and $20.5 million, or 145.6%, in construction and land loans.
The following tables detail our multifamily real estate originations for the years ended December 31, 2017 and 2016
(dollars in thousands):
Multifamily
Originations
Weighted Average
Interest Rate
Weighted Average Loan-
to-Value Ratio
(F)ixed or
(V)ariable
Weighted Average Months to Next
Rate Change or Maturity for Fixed
Rate Loans
Year ended December 31, 2017
352,031
750
16,640
369,421
3.64%
5.07%
3.95%
3.65%
61%
48%
44%
60%
80
1
180
V
V
F
Multifamily
Originations
Weighted Average
Interest Rate
Weighted Average Loan-
to-Value Ratio
(F)ixed or
(V)ariable
Weighted Average Months to Next
Rate Change or Maturity for Fixed
Rate Loans
Year ended December 31, 2016
312,716
11,821
324,537
3.41%
3.76%
3.42%
62%
40%
62%
V
F
80
140
$
$
$
$
Amortization
Term
15-30 Years
25 Years
15 Years
Amortization
Term
30 Years
7 - 20 Years
Acquired loans decreased by $100.4 million to $692.8 million at December 31, 2017, from $793.2 million at
December 31, 2016, primarily due to paydowns, partially offset by purchases of one-to-four family residential mortgage and
multifamily real estate loan pools totaling $63.6 million during the year ended December 31, 2017.
The following table provides the details of the loans purchased during the year ended December 31, 2017 (dollars in
thousands):
52
Principal
Amounts
Purchased
Loan Type
Weighted
Average Interest
Rate(1)
Weighted
Average Loan-
to-Value Ratio(2)
Weighted Average Months to
Next Rate Change or Maturity
for Fixed Rate Loans(2)
(F)ixed or
(V)ariable
$
29,286
Residential
4,812
Residential
18,774 Multifamily
3,399 Multifamily
7,280 Multifamily
$
63,551
2.89%
3.46%
3.35%
3.40%
3.35%
3.15%
(1) Net of servicing fee retained by the originating bank
(2) At time of purchase
57%
62%
55%
58%
51%
56%
1
286
53
46
58
V
F
V
F
V
Amortization
Term
30 Years
15-30 Years
30 Years
30 Years
30 Years
The geographic locations of the properties securing the above loans are as follows: 55.3% in New York, 15.9% in New
Jersey, 9.2% in California, and 19.6% in other states.
The following table provides the details of the loans purchased during the year ended December 31, 2016 (dollars in
thousands):
Principal
Amounts
Purchased
Loan Type
Weighted
Average Interest
Rate(1)
Weighted
Average Loan-
to-Value Ratio(2)
Weighted Average Months to
Next Rate Change or Maturity
for Fixed Rate Loans(2)
(F)ixed or
(V)ariable
Amortization
Term
$
82,242 Multifamily
43,562 Multifamily
27,415 Multifamily
4,883
Residential
7,760
Commercial
Real Estate
$
165,862
2.93%
2.91%
3.98%
3.35%
2.85%
3.11%
(1) Net of servicing fee retained by the originating bank
(2) At time of purchase
49%
52%
30%
65%
66%
45%
33
42
120
76
30
V
V
F
V
V
30 Years
30 Years
30 Years
30 Years
30 Years
The properties securing the above loans are primarily located in New York.
PCI loans totaled $22.7 million at December 31, 2017, as compared to $30.5 million at December 31, 2016. The
majority of the PCI loan balance consists of loans acquired as part of a FDIC-assisted transaction. The Company accreted
interest income attributable to PCI loans of $5.5 million, $5.2 million, and $4.5 million for the years ended December 31, 2017,
2016, and 2015, respectively.
Cash and cash equivalents decreased by $38.2 million, or 39.8%, to $57.8 million at December 31, 2017, from $96.1
million at December 31, 2016. Balances fluctuate based on the timing of receipt of security and loan repayments and the
redeployment of cash into higher-yielding assets such as loans and securities, or the funding of deposit or borrowing
obligations.
The securities available-for-sale portfolio totaled $515.1 million at December 31, 2017, compared to $498.9 million at
December 31, 2016. At December 31, 2017, $445.2 million of the portfolio consisted of residential mortgage-backed securities
issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. In addition, the Company held $68.1 million in corporate
bonds, all of which were considered investment grade, and other securities of $1.8 million (including $323,000 of equity
investments in money market mutual funds). The effective duration of the securities portfolio at December 31, 2017 was 3.3
years.
Bank owned life insurance increased $2.6 million, or 1.7%, to $150.6 million at December 31, 2017, from $148.0
million at December 31, 2016. The increase resulted from income earned on bank owned life insurance for the year ended
December 31, 2017, partially offset by the surrender of policies.
Other assets decreased by $11.7 million, or 26.2%, to $32.9 million at December 31, 2017, from $44.6 million at
December 31, 2016. The decrease in other assets was primarily attributable to a decrease in net deferred tax assets, resulting
from the re-measurement of the Company's net deferred tax assets as a result of the recently enacted Tax Act.
53
Total liabilities increased $123.6 million, or 3.8%, to $3.35 billion at December 31, 2017, from $3.23 billion at
December 31, 2016. The increase was primarily attributable to increases in deposits of $123.4 million and other borrowings of
$4.3 million, partially offset by a decrease in securities sold under agreements to repurchase of $6.0 million.
Deposits increased $123.4 million, or 4.5%, to $2.84 billion at December 31, 2017, from $2.71 billion at
December 31, 2016. The increase was attributable to increases of $202.9 million in certificate of deposit accounts ($51.8
million of which were brokered deposits), and $14.5 million in transaction accounts, partially offset by decreases of $76.1
million in savings accounts and $17.8 million in money market accounts.
Borrowings, consisting primarily of FHLB advances and repurchase agreements, decreased by $1.7 million, or 0.4%,
to $471.5 million at December 31, 2017, from $473.2 million at December 31, 2016. Management utilizes borrowings to
mitigate interest rate risk, for short-term liquidity to fund loan growth, and to a lesser extent as part of leverage strategies. The
growth in deposits enabled the Company to reduce its borrowings in 2017.
Total stockholders’ equity increased by $17.7 million to $638.9 million at December 31, 2017, from $621.2 million at
December 31, 2016. This increase was primarily attributable to net income of $24.8 million for year ended December 31, 2017,
and an $8.8 million increase related to equity award activity, partially offset by dividend payments of $15.6 million.
Comparison of Operating Results for the Years Ended December 31, 2017 and 2016
Net Income. Net income was $24.8 million and $26.1 million for the years ended December 31, 2017 and 2016,
respectively. Significant variances from the prior year are as follows: a $5.6 million increase in net interest income, a $776,000
increase in the provision for loan losses, a $1.6 million increase in non-interest income, a $5.6 million decrease in non-interest
expense, and a $13.3 million increase in income tax expense. Net income for the year ended December 31, 2017 includes an
estimated tax charge of $10.5 million related to the recently enacted Tax Act, a $2.3 million reduction in income tax expense as
a result of the adoption of ASU 2016-09 related to the accounting of stock compensation, and $1.5 million of tax-exempt
income from bank owned life insurance proceeds in excess of the cash surrender value of the policies. Net income for the year
ended December 31, 2016 included merger-related expenses of $4.0 million ($2.4 million, after tax) associated with the
acquisition of Hopewell Valley.
Interest Income. Interest income increased by $7.9 million, or 6.3%, to $132.9 million for the year ended
December 31, 2017, as compared to $125.0 million for the year ended December 31, 2016, due to an increase in the average
balance of interest-earning assets of $182.5 million, or 5.3%, and a three basis point increase in the yields earned to 3.64%
from 3.61% for the prior year. The increase in the average balance of interest-earning assets was primarily attributable to
increases in average loans of $271.1 million and other securities of $11.9 million, partially offset by decreases in average
mortgage-backed securities of $91.2 million and interest-earning deposits in financial institutions of $10.0 million. The
Company accreted interest income related to its PCI loans of $5.5 million for the year ended December 31, 2017, as compared
to $5.2 million for the year ended December 31, 2016. Interest income for the year ended December 31, 2017, included loan
prepayment income of $1.4 million, compared to $1.9 million for the year ended December 31, 2016.
Interest Expense. Interest expense increased $2.3 million, or 10.7%, to $24.0 million for the year ended December 31,
2017, from $21.7 million for the year ended December 31, 2016. The increase was due primarily to an increase of $2.1 million
in interest expense on deposits. The increase in interest expense on deposits was attributable to an increase in the average
balance of interest-bearing deposits of $138.7 million, or 6.3%, to $2.34 billion for the year ended December 31, 2017, from
$2.20 billion for the year ended December 31, 2016, and a five basis point increase in the cost of interest-bearing deposits to
0.70% from 0.65%.
Net Interest Income. Net interest income for the year ended December 31, 2017, increased $5.6 million, or 5.4%, to
$108.9 million, from $103.3 million for the prior year, primarily due to a $182.5 million, or 5.3%, increase in our average
interest-earning assets and a one basis point increase in our net interest margin to 2.99%. Yields earned on interest-earning
assets increased three basis points to 3.64% for the year ended December 31, 2017, from 3.61% for the year ended
December 31, 2016. The cost of interest-bearing liabilities increased five basis points to 0.85% for the year ended
December 31, 2017, as compared to 0.80% for the prior year.
Provision for Loan Losses. The provision for loan losses increased $776,000 to $1.4 million for the year ended
December 31, 2017, from $635,000 for the year ended December 31, 2016, primarily due to growth in the loan portfolio,
partially offset by declines in non-performing loans, and net recoveries during the year ended December 31, 2017. Net
recoveries were $154,000 for the year ended December 31, 2017, compared to net charge-offs of $810,000 for the year ended
December 31, 2016.
54
Non-interest Income. Non-interest income increased $1.6 million, or 15.6%, to $11.6 million for the year ended
December 31, 2017, from $10.1 million for the year ended December 31, 2016, primarily due to an increase of $1.5 million in
income on bank owned life insurance, attributable to insurance proceeds in excess of the related cash surrender value of the
policies, and an increase of $470,000 in gains on securities transactions, net. Partially offsetting these increases was a decrease
in fees and service charges for customer services of $232,000. Securities gains, net, in 2017, included gains of $1.1 million
related to the Company’s trading portfolio, compared to gains of $507,000 in the comparative prior year. The trading portfolio
is utilized to fund the Company’s deferred compensation obligation to certain employees and directors of the Company's
deferred compensation plan (the Plan). The participants of this Plan, at their election, defer a portion of their compensation.
Gains and losses on trading securities have no effect on net income since participants benefit from, and bear the full risk of,
changes in the trading securities market values. Therefore, the Company records an equal and offsetting amount in
compensation expense, reflecting the change in the Company’s obligations under the Plan.
Non-interest Expense. Non-interest expense decreased $5.6 million, or 7.6%, to $67.4 million for the year ended
December 31, 2017, from $72.9 million for the year ended December 31, 2016. The decrease was primarily due to a $4.0
million reduction in merger-related expenses which were associated with the Hopewell Valley acquisition reflected in 2016.
Compensation and employee benefits expense decreased $1.5 million, due primarily to a reduction in severance, retention, and
change-in-control compensation associated with the Hopewell Valley acquisition in the prior year, partially offset by annual
merit-related salary increases and an increase in expenses related to the Company’s deferred compensation plan, which is
described above, and which has no effect on net income. Data processing fees decreased $1.5 million, primarily due to non-
recurring conversion costs and contract termination costs associated with the Hopewell Valley acquisition incurred in the prior
year. Professional fees decreased $687,000 primarily due to non-recurring merger-related professional fees associated with the
Hopewell Valley acquisition incurred in the prior year. FDIC insurance expense decreased by $430,000 due to a reduction in
the FDIC's assessment rates for depository institutions with less than $10.0 billion in assets, which became effective in the
quarter ended September 30, 2016. Other expense decreased by $1.0 million, primarily due to lower directors' equity award
expense, related to the retirement of three directors.
Income Tax Expense. The Company recorded income tax expense of $27.0 million for the year ended December 31,
2017, compared to $13.7 million for the year ended December 31, 2016. The effective tax rate for the year ended December 31,
2017, was 52.1%, compared to 34.3% for the year ended December 31, 2016. The effective tax rate for the year ended
December 31, 2017 was affected by: (i) an estimated tax charge of $10.5 million resulting from the re-measurement of our net
deferred tax assets related to the recently enacted Tax Act; (ii) the adoption of ASU 2016-09 related to stock compensation,
which resulted in a $2.3 million reduction in income tax expense from the exercise or vesting of equity awards. Previously
these tax benefits were recorded through equity as an adjustment to additional paid in capital; and (iii) $1.5 million of tax-
exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies. The effective tax
rate for the year ended December 31, 2016, was affected by $211,000 of non-deductible merger related expenses. The
Company has approximately 1.3 million options outstanding from its 2009 grants which expire on January 30, 2019, at a
weighted average price of $7.09 per share and a weighted average grant date fair value of $2.30 per share. To the extent options
are exercised during 2018, this will result in additional tax benefits which will have a positive effect on our effective tax rate.
Comparison of Operating Results for the Years Ended December 31, 2016 and 2015
Net Income. Net income was $26.1 million and $19.5 million for the years ended December 31, 2016 and 2015,
respectively. Net income for the year ended December 31, 2016, included merger-related expenses of $4.0 million ($2.4
million, after tax), associated with the acquisition of Hopewell Valley. Net income for the year ended December 31, 2015,
included merger-related expenses of $672,000 ($574,000, after tax), associated with the acquisition of Hopewell Valley and a
tax charge of $795,000 related to the write-down of deferred tax assets as a result of New York City tax reforms enacted in
April 2015. Other significant variances from the prior year are as follows: a $21.2 million increase in net interest income,
a $2.2 million increase in non-interest income, a $14.8 million increase in non-interest expense, and a $1.7 million increase in
income tax expense.
Interest Income. Interest income increased by $23.2 million, or 22.8%, to $125.0 million for the year
ended December 31, 2016, as compared to $101.8 million for the year ended December 31, 2015, due to an increase in the
average balance of interest-earning assets of $561.0 million, or 19.3%, and a 10 basis point increase in the yields earned
to 3.61% from 3.51% for the prior year. The increase in the average balance of interest-earning assets was primarily attributable
to an increase in average loans of $632.3 million, partially offset by a decrease in average mortgage-backed securities of $95.3
million. The increase in average loan balances was largely due to $342.6 million of loans added through the Hopewell Valley
acquisition, $165.9 million in loan pool purchases of primarily multifamily loans, and, to a lesser extent, originated loan
growth. The Company accreted interest income related to its PCI loans of $5.2 million for the year ended December 31, 2016,
55
as compared to $4.5 million for the year ended December 31, 2015. Interest income for the year ended December 31, 2016,
included loan prepayment income of $1.9 million, compared to $2.1 million for the year ended December 31, 2015.
Interest Expense. Interest expense increased $2.0 million, or 10.1%, to $21.7 million for the year ended December 31,
2016, from $19.7 million for the year ended December 31, 2015. The increase was due to an increase of $3.9 million in interest
expense on deposits, partially offset by a decrease of $1.9 million in interest expense on borrowings. The increase in interest
expense on deposits was attributable to an increase in the average balance of interest-bearing deposits of $546.7 million,
or 33.1%, to $2.20 billion for the year ended December 31, 2016, from $1.65 billion for the year ended December 31, 2015,
and a two basis point increase in the cost of interest-bearing deposits to 0.65% from 0.63%. The decrease in interest expense on
borrowings was attributable to a decrease in the average balance of borrowings of $103.1 million and a six basis point decrease
in borrowing costs from 1.56% at December 31, 2015, to 1.50% at December 31, 2016.
Net Interest Income. Net interest income for the year ended December 31, 2016, increased $21.2 million, or 25.9%,
to $103.3 million, from $82.1 million for the prior year, primarily due to a $561.0 million, or 19.3%, increase in our average
interest-earning assets and a 15 basis point increase in our net interest margin to 2.98%. Yields earned on interest-earning assets
increased 10 basis points to 3.61% for the year ended December 31, 2016, from 3.51% for the year ended December 31, 2015.
The cost of interest-bearing liabilities decreased eight basis points to 0.80%for the year ended December 31, 2016, as compared
to 0.88% for the prior year.
Provision for Loan Losses. The provision for loan losses increased $282,000 to $635,000 for the year
ended December 31, 2016, from $353,000 for the year ended December 31, 2015, primarily due to growth of the originated
loan portfolio, partially offset by an improvement in asset quality indicators, including declines in non-performing and
delinquent loans, and lower net charge-offs. Acquired loans, including those acquired from Hopewell Valley, are valued at
estimated fair value on the date of acquisition, with no related allowance for loan losses. Net charge-offs were $810,000 for the
year ended December 31, 2016, compared to net charge-offs of $1.9 million for the year ended December 31, 2015.
Non-interest Income. Non-interest income increased $2.2 million, or 27.5%, to $10.1 million for the year
ended December 31, 2016, from $7.9 million for the year ended December 31, 2015, primarily due to increases in fees and
service charges for customer services of $989,000, income on bank owned life insurance of $231,000, and gains on securities
transactions, net, of $1.2 million. These increases were partially offset by a decrease in other income of $198,000, primarily
related to realized gains on sales of other real estate owned properties during 2015. Securities gains, net, in 2016 included gains
of $507,000, net, related to the Company’s trading portfolio, while 2015 results included losses of $396,000 related to the
Company’s trading portfolio. The trading portfolio is utilized to fund the Company’s deferred compensation obligation to
certain employees and directors of the Company's deferred compensation plan (the “Plan”). The participants of this Plan, at
their election, defer a portion of their compensation. Gains and losses on trading securities have no effect on net income since
participants benefit from, and bear the full risk of, changes in the trading securities market values. Therefore, the Company
records an equal and offsetting amount in compensation expense, reflecting the change in the Company’s obligations under the
Plan.
Non-interest Expense. Non-interest expense increased $14.8 million, or 25.5%, to $72.9 million for the year
ended December 31, 2016, from $58.1 million for the year ended December 31, 2015, primarily due to: (1) a $10.0
million increase in compensation and employee benefits largely driven by increased salary and benefit expense attributable to
the addition of Hopewell Valley employees and general merit-related salary increases effective January 1, 2016, charges of $2.4
million related to severance, retention, and change-in-control compensation associated with the Hopewell Valley acquisition,
and an increase in stock compensation expense related to the 2014 Equity Incentive Plan; (2) a $1.4 million increase in
occupancy expense due to the addition of nine Hopewell Valley branches; (3) a $2.3 million increase in data processing costs,
of which approximately $1.1 million was due to conversion costs associated with the Hopewell Valley acquisition; (4) an
increase in professional fees of $424,000; and (5) an $832,000 increase in other expense, primarily due to increases in core
deposit premium amortization, advertising costs, and general office expenses related to the Hopewell Valley acquisition.
Income Tax Expense. The Company recorded income tax expense of $13.7 million for the year ended December 31,
2016, compared to $12.0 million for the year ended December 31, 2015. The effective tax rate for the year ended December 31,
2016, was 34.3% compared to 38.0%for the year ended December 31, 2015. Income tax expense for the year ended
December 31, 2016, included $211,000 in non-deductible merger related expenses. Income tax expense for the year ended
December 31, 2015, included a deferred tax asset write-down of $795,000 related to New York City tax reforms enacted in
April 2015 and $574,000 in non-deductible merger related expenses.
56
Average Balances and Yields
The following tables set forth average balance sheets, average yields and costs, and certain other information for the
years indicated. No tax-equivalent yield adjustments have been made, as we had no tax-free interest-earning assets during the
years. All average balances are daily average balances based upon amortized costs. Non-accrual loans are included in the
computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that
are amortized or accreted to interest income or interest expense.
2017
2016
2015
For the Years Ended December 31,
Average
Outstanding
Balance
Average
Yield/
Rate
Average
Outstanding
Balance
Interest
Average
Yield/
Rate
Average
Outstanding
Balance
Average
Yield/
Rate
Interest
Interest
(Dollars in thousands)
Interest-earning assets:
Loans (1)
Mortgage-backed securities (2)
Other securities(2)
FHLB of New York stock
Interest-earning deposits
$
3,052,410
$120,340
3.94% $ 2,781,336
$111,776
4.02% $ 2,149,011
$ 87,179
434,166
69,163
26,155
64,868
9,174
1,310
1,461
584
2.11%
1.89%
5.59%
0.90%
3.64%
525,355
57,240
25,405
74,892
10,832
908
1,171
285
3,464,228
124,972
2.06%
1.59%
4.61%
0.38%
3.61%
620,653
42,017
25,484
66,017
12,982
328
1,149
120
2,903,182
101,758
268,154
$ 3,732,382
219,566
$ 3,122,748
Total interest-earning assets
3,646,762
132,869
Non-interest-earning assets
Total assets
270,161
$
3,916,923
Interest-bearing liabilities:
Savings, NOW, and money market
accounts
Certificates of deposit
Total interest-bearing deposits
Borrowings
Total interest-bearing liabilities
Non-interest-bearing deposits
Accrued expenses and
other liabilities
Total liabilities
Stockholders’ equity
$
1,713,863
$ 8,233
0.48% $ 1,619,250
$ 7,758
0.48% $ 1,140,508
$ 4,957
625,067
2,338,930
494,361
2,833,291
385,891
59,034
3,278,216
638,707
8,153
16,386
7,590
23,976
1.30%
0.70%
1.54%
0.85%
580,973
2,200,223
491,802
2,692,025
372,946
53,808
3,118,779
613,603
6,529
14,287
7,381
21,668
1.12%
0.65%
1.50%
0.80%
5,466
10,423
9,265
19,688
512,977
1,653,485
594,926
2,248,411
262,318
39,936
2,550,665
572,083
Total liabilities and stockholders’
equity
$
3,916,923
$ 3,732,382
$ 3,122,748
4.06%
2.09%
0.78%
4.51%
0.18%
3.51%
0.43%
1.07%
0.63%
1.56%
0.88%
Net interest income
Net interest rate spread (3)
Net interest-earning assets (4)
Net interest margin (5)
Average interest-earning assets to
interest-bearing liabilities
$
813,471
$108,893
$103,304
$ 82,070
772,203
2.79%
$
2.99%
128.71%
654,771
2.81%
$
2.98%
128.68%
2.63%
2.83%
129.12%
(1)
(2)
Includes non-accruing loans.
Securities available-for-sale are reported at amortized cost.
(3) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of
interest-bearing liabilities.
(4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average total interest-earning assets.
57
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income for the years
indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The
volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total
column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume,
which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to
volume.
Year Ended December 31,
Year Ended December 31,
2017 vs. 2016
2016 vs. 2015
Increase (Decrease) Due to
Total
Increase
Increase (Decrease) Due to
Total
Increase
Volume
Rate
(Decrease)
Volume
Rate
(Decrease)
(Dollars in thousands)
$
10,637
$
(2,073) $
8,564
$
25,404
$
(807) $
24,597
(1,935)
208
35
(32)
277
194
255
331
(1,658)
(1,967)
(183)
(2,150)
402
290
299
151
(4)
18
429
26
147
580
22
165
Interest-earning assets:
Loans
Mortgage-backed securities
Other securities
FHLB of New York stock
Interest-earning deposits
Total interest-earning assets
8,913
(1,016)
7,897
23,602
(388)
23,214
Interest-bearing liabilities:
Savings, NOW and money market
accounts
Certificates of deposit
Total deposits
Borrowings
Total interest-bearing liabilities
454
521
975
39
1,014
21
1,103
1,124
170
1,294
475
1,624
2,099
209
2,308
2,252
753
3,005
(1,558)
1,447
549
310
859
(326)
533
Change in net interest income
$
7,899
$
(2,310) $
5,589
$
22,155
$
(921) $
2,801
1,063
3,864
(1,884)
1,980
21,234
Asset Quality
Purchased Credit-Impaired Loans
PCI loans are recorded at estimated fair value using discounted expected future cash flows deemed to be collectible on
the date acquired. Based on its detailed review of PCI loans and experience in loan workouts, management believes it has a
reasonable expectation about the amount and timing of future cash flows and accordingly has classified PCI loans ($22.7
million at December 31, 2017) as accruing, even though they may be contractually past due. At December 31, 2017, 10.8% of
PCI loans were past due 30 to 89 days, and 17.1% were past due 90 days or more, as compared to 6.6% and 19.3%,
respectively, at December 31, 2016.
Originated and Acquired Loan
The discussion that follows includes originated and acquired loans, both held-for-investment and held-for-sale.
General. Maintaining loan quality historically has been, and will continue to be, a key element of our business
strategy. We employ conservative underwriting standards for new loan originations and maintain sound credit administration
practices while the loans are outstanding. In addition, substantially all of our loans are secured, predominantly by real estate. At
December 31, 2017, our non-performing loans totaled $5.5 million, or 0.18%, of total loans held-for-investment. At the same
time, net charge-offs have remained low at 0.03% of average loans outstanding for the year ended December 31, 2016, and
0.09% for the year ended December 31, 2015. The Company had net recoveries for the year ended December 31, 2017.
58
Non-performing Assets and Delinquent Loans. The following table details non-performing assets at December 31,
2017 and 2016 (in thousands):
Non-accrual loans:
Held-for-investment
Non-accruing loans subject to restructuring agreements:
Held-for-investment
Total non-accruing loans
Loans 90 days or more past due and still accruing:
Held-for-investment
Total non-performing loans
Other real estate owned
Total non-performing assets
Loans subject to restructuring agreements and still accruing
Accruing loans 30 to 89 days delinquent
December 31,
2017
2016
5,257
$
251
5,508
28
5,536
850
6,386
18,003
12,044
$
$
$
5,540
1,781
7,321
60
7,381
850
8,231
20,628
10,100
$
$
$
$
The following table details non-performing loans by loan type at December 31, 2017 and 2016 (in thousands):
Real estate loans:
Commercial
One-to-four family residential
Multifamily
Home equity and lines of credit
Commercial and industrial
Total non-accrual loans:
Loans delinquent 90 days or more and still accruing:
Real estate loans:
One-to-four family residential
Home equity and lines of credit
Commercial and industrial
Total loans delinquent 90 days or more and still accruing
December 31,
2017
2016
$
4,087
$
774
417
156
74
5,508
27
—
1
28
5,513
1,629
43
127
9
7,321
52
8
—
60
Total non-performing loans
$
5,536
$
7,381
Generally, loans, excluding PCI 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 consecutive months of performance under
the loan terms, and factors indicating reasonable doubt about the timely collection of payments no longer exist. Therefore,
loans may be current in accordance with their loan terms, or may be less than 90 days delinquent and still be on a non-accruing
status.
The following table sets forth the total amounts of delinquencies for accruing loans that were 30 to 89 days past due
by type and by amount at the dates indicated (in thousands):
59
Real estate loans:
Commercial
One-to-four family residential
Construction and land
Multifamily
Home equity and lines of credit
Commercial and industrial loans
Other loans
December 31,
2017
2016
$
$
4,347
$
4,162
6
3,298
—
202
29
4,578
3,621
—
1,440
263
148
50
12,044
$
10,100
The increase in delinquent loans was primarily attributable to one multifamily real estate loan with a balance of $1.5
million that was 31 days delinquent at December 31, 2017, and became current subsequent to year end.
Included in non-accruing loans are loans subject to restructuring agreements totaling $251,000 and $1.8 million at
December 31, 2017, and December 31, 2016, respectively. At December 31, 2017, the one non-accruing TDR was not
performing in accordance with its restructured terms and consisted of one one-to-four family residential loan which was over
90 days delinquent and collateralized by real estate with a recent appraised value of $629,000. At December 31, 2016, $1.4
million, or 76.4%, of the $1.8 million non-accruing TDRs were not performing in accordance with their restructured terms.
The Company also holds loans subject to restructuring agreements that are on accrual status, which totaled $18.0
million and $20.6 million at December 31, 2017, and December 31, 2016, respectively. At December 31, 2017, and December
31, 2016, all of the accruing TDR loans were performing in accordance with their restructured terms. Generally, the types of
concessions that we make to troubled borrowers include both temporary and permanent reductions to interest rates, extensions
of payment terms, and, to a lesser extent, forgiveness of principal and interest.
The table below sets forth the amounts and categories of the TDRs as of December 31, 2017, and December 31, 2016
(in thousands):
Real estate loans:
Commercial
One-to-four family residential
Multifamily
Home equity and lines of credit
Commercial and industrial loans
At December 31,
2017
2016
Non-Accruing
Accruing
Non-Accruing
Accruing
$
$
— $
13,272
$
1,000
$
15,828
251
—
—
—
3,135
1,440
69
87
783
—
—
—
2,835
1,527
336
102
251
$
18,003
$
1,783
$
20,628
Allowance for loan losses. The allowance for loan losses to non-performing loans increased from 333.23% at
December 31, 2016 to 472.63% at December 31, 2017. This increase was primarily attributable to a decrease in non-performing
loans of $1.8 million, from $7.4 million at December 31, 2016 to $5.5 million at December 31, 2017. The Company utilizes
external appraisals for its impairment analysis. Generally, non-performing loans are charged down to the appraised value of
collateral less costs to sell, which reduces the ratio of the allowance for loan losses to non-performing loans. Downward
adjustments to appraisal values, primarily to reflect “quick sale” discounts, are generally recorded as specific reserves within
the allowance for loan losses.
The allowance for loan losses to originated loans held-for-investment, net, decreased to 1.04% at December 31, 2017,
from 1.10% at December 31, 2016. The decline in the loan coverage ratio from December 31, 2016 resulted from an overall
improvement in asset quality and a decline in non-performing loans. Net recoveries (of previous loan charge-offs) were
$154,000 for the year ended December 31, 2017, compared to net charge-offs of $810,000 for the year ended 2016. The
provision for loan losses was $1.4 million and $635,000 for the years ended December 31, 2017 and 2016, respectively.
60
Specific reserves on impaired loans decreased $246,000, or 75.0%, from $328,000 at December 31, 2016, to $82,000
at December 31, 2017. The decrease was primarily due to fewer impaired loans at December 31, 2017. At December 31, 2017,
the Company had 33 loans classified as impaired and recorded $82,000 of specific reserves on eight of the 33 impaired
loans. At December 31, 2016, the Company had 36 loans classified as impaired and recorded $328,000 of specific reserves on
13 of the 36 impaired loans.
The following table sets forth activity in our allowance for loan losses, by loan type, at December 31, for the years
indicated (in thousands):
Real estate loans
Commercial
One-to-four
Family
Residential
Construction
and Land
Multifamily
Home
Equity and
Lines of
Credit
Commercial
and
Industrial
Other
PCI
Acquired
Unallocated
Total
Allowance
for Loan
Losses
2014
$
9,309
$
951
$
266
$
12,219
$
901
$
841
$ 134
$
400
$
62
$
1,209
$
26,292
Provision for loan
losses
Recoveries
Charge-offs
2015
Provision for loan
losses
Recoveries
Charge-offs
2016
Provision for loan
losses
Recoveries
Charge-offs
2017
(774)
2
(1,431)
7,106
(1,217)
181
(638)
5,432
93
20
(277)
787
(105)
2
(20)
664
(302)
(161)
70
(4)
—
—
(5)
—
—
263
25
(120)
261
12,387
(33)
42
(115)
795
484
34
(71)
5
17
(1)
1,288
155
(89)
2,843
(209)
—
—
172
438
—
—
—
(278)
14,952
2,329
277
(184)
2
—
588
(459)
97
(104)
494
4
(66)
1,720
(453)
79
(73)
(62)
5
(2)
96
(2)
—
—
383
—
—
783
113
—
—
896
55
—
—
53
—
—
(116)
—
—
115
1,093
(40)
(1,093)
—
—
75
(34)
33
(37)
—
—
—
—
—
—
353
140
(2,015)
24,770
635
194
(1,004)
24,595
1,411
556
(402)
$
5,196
$
503
$
610
$
17,374
$
122
$
1,273
$ 94
$
951
$
37
$
— $
26,160
During the year ended December 31, 2017, the Company recorded net recoveries of $154,000, as compared to net
charge-offs of $810,000 for the year ended December 31, 2016. The decrease in net charge-offs was primarily attributable to a
$523,000 decrease in net charge-offs related to commercial real estate loans and a $371,000 decrease in net charge-offs related
to multifamily real estate loans. The allowance for loan losses related to multifamily real estate loans and construction and land
loans increased from 2016 to 2017 due to growth in the portfolios. In general, as a result of continued improvement in asset
quality, including declines in non-performing loans and lower net charge-offs, the allowance for loan losses in all of the other
loan categories other than PCI decreased in 2017 as compared to 2016. The increase in the allowance for PCI loans was
attributable to the annual recasting of PCI cash flows.
Prior to December 31, 2016, we maintained an amount identified as the unallocated component within the allowance
for loan losses related to indicators of loan losses not fully captured in other components of the allowance for loan losses
methodology, as well as the inherent imprecision of the loss estimation process. During the fourth quarter of 2016, the
Company enhanced the allowance for loan losses qualitative framework to more fully capture the risks related to certain loan
loss factors. These enhancements are meant to increase the level of precision in the allowance for loan losses. As a result, the
Company will no longer have an unallocated reserve in its allowance for loan losses, as the risks and uncertainties meant to be
captured by the unallocated allowance have been included in the qualitative framework for the respective loan portfolios.
61
Management of Market Risk
General. A majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of
market risk is interest rate risk. Our assets, consisting primarily of mortgage-related securities and loans, generally have longer
maturities than our liabilities, which consist primarily of deposits and wholesale borrowings. As a result, a principal part of our
business strategy involves managing interest rate risk and limiting the exposure of our net interest income to changes in market
interest rates. Accordingly, our board of directors has established a Management Asset-Liability Committee (MALCO),
comprised of our SVP & Chief Investment Officer and Treasurer, who chairs this Committee, our President and Chief
Executive Officer, our EVP & Chief Administration Officer, EVP & Chief Financial Officer, EVP & Chief Lending Officer,
EVP Operations, EVP & Director of Business Development and VP & Director of Marketing, and other officers and staff as
necessary or appropriate to manage interest rate risk. This committee is responsible for, among other things, evaluating the
interest rate risk inherent in our assets and liabilities, for recommending to the risk management committee of our board of
directors the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and
performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.
We seek to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in
interest rates. As part of our ongoing asset-liability management, we currently use the following strategies to manage our
interest rate risk:
•
•
•
originating multifamily loans and commercial real estate loans that generally have shorter maturities than one-to-
four family residential real estate loans and have higher interest rates that generally reset from five to ten years;
investing in shorter-term investment grade corporate securities and mortgage-backed securities; and
obtaining general financing through lower-cost core deposits and longer-term FHLB advances and repurchase
agreements.
Shortening the average term of our interest-earning assets by increasing our investments in shorter-term assets, as well
as originating loans with variable interest rates, helps to match the maturities and interest rates of our assets and liabilities
better, thereby reducing the exposure of our net interest income to changes in market interest rates.
Net Portfolio Value Analysis. We compute amounts by which the net present value of our assets and liabilities (net
portfolio value or “NPV”) would change in the event market interest rates changed over an assumed range of rates. Our
simulation model uses a discounted cash flow analysis to measure the interest rate sensitivity of NPV. Depending on current
market interest rates, we estimate the economic value of these assets and liabilities under the assumption that interest rates
experience an instantaneous and sustained increase of 100, 200, 300, or 400 basis points, or a decrease of 100 and 200 basis
points. 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.
The following table sets forth, as of December 31, 2017, our calculation of the estimated changes in our NPV, NPV
ratio, and percent change in net interest income that would result from the designated instantaneous and sustained changes in
interest rates (dollars in thousands). Computations of prospective effects of hypothetical interest rate changes are based on
numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit repricing characteristics
including decay rates, and correlations to movements in interest rates, and should not be relied on as indicative of actual results.
62
NPV at December 31, 2017
Change in
Interest Rates
(basis points)
Estimated
Present Value
of Assets
Estimated
Present Value
of Liabilities
Estimated
NPV
Estimated
Change In
NPV
Estimated
Change in
NPV %
Estimated
NPV/Present
Value of
Assets Ratio
Next 12 Months
Net Interest
Income Percent
Change
Months 13-24
Net Interest
Income Percent
Change
400
300
200
100
—
(100)
(200)
.
$ 3,637,558
$ 2,979,633
$
657,925
$ (171,778)
(20.70)%
3,730,853
3,832,498
3,933,263
4,036,107
4,138,762
4,244,864
3,032,696
3,088,081
3,145,932
3,206,404
3,275,424
3,347,146
698,157
744,417
787,331
829,703
863,338
897,718
(131,546)
(15.85)%
(85,286)
(10.28)%
(42,372)
(5.11)%
—
33,635
68,015
— %
4.05 %
8.20 %
18.09%
18.71%
19.42%
20.02%
20.56%
20.86%
21.15%
(10.35)%
(7.59)%
(4.67)%
(2.20)%
— %
1.21 %
0.21 %
(0.70)%
(0.37)%
0.46 %
0.47 %
— %
0.22 %
(0.56)%
(1) Assumes an instantaneous and sustained uniform change in interest rates at all maturities.
(2) NPV includes non-interest earning assets and liabilities.
The table above indicates that at December 31, 2017, in the event of a 200 basis point decrease in interest rates, we
would experience an 8.20% increase in estimated net portfolio value and a 0.21% increase in net interest income in year one
and a 0.56% decrease in net income in year two. In the event of a 400 basis point increase in interest rates, we would
experience a 20.70% decrease in net portfolio value and a 10.35% decrease in net interest income in year one and a 0.70%
decrease in net income in year two. Our policies provide that, in the event of a 200 basis point decrease or less in interest rates,
our net present value ratio should decrease by no more than 300 basis points and 10%, and in the event of a 400 basis point
increase or less, our net present value should decrease by no more than 475 basis points and 35%. In the event of a 200 basis
point decrease or less, our projected net interest income should decrease by no more than 10% in year one and 25% in year two,
and in the event of a 400 basis point increase or less, our projected net interest income should decrease by no more than 30% in
year one and 22% in year two. However, when the federal funds rate is low and negative rate shocks do not produce
meaningful results, management may temporarily suspend use of guidelines for negative rate shocks. At December 31, 2017,
we were in compliance with all board approved policies with respect to interest rate risk management.
At December 31, 2016, in the event of a 200 basis point decrease in interest rates, we would experience a 23.69%
increase in estimated net portfolio value and a 1.89% decrease in net interest income in year one and a 6.83% decrease in net
income in year two. In the event of a 400 basis point increase in interest rates, we would experience a 26.05% decrease in net
portfolio value and a 15.85% decrease in net interest income in year one and a 7.48% decrease in net income in year two.
Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in net
portfolio value and net interest income. Our model requires us to make certain assumptions that may or may not reflect the
manner in which actual yields and costs respond to changes in market interest rates. However, we also apply consistent parallel
yield curve shifts (in both directions) to determine possible changes in net interest income if the theoretical yield curve shifts
occurred gradually. Net interest income analysis also adjusts the asset and liability repricing analysis based on changes
in prepayment rates resulting from the parallel yield curve shifts. In addition, the net portfolio value and net interest income
information presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a
period remains constant over the period being measured and assume that a particular change in interest rates is reflected
uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although
interest rate risk calculations provide an indication of our interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our
net portfolio value or net interest income and will differ from actual results.
Liquidity and Capital Resources
Liquidity is the ability to fund assets and meet obligations as they come due. Our primary sources of funds consist of
deposit inflows, loan repayments, borrowings through repurchase agreements and advances from money center banks and the
FHLB of New York, and repayments, maturities and sales of securities. While maturities and scheduled amortization of loans
and securities are reasonably predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by
general interest rates, economic conditions, and competition. Our board risk committee is responsible for establishing and
monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs
and withdrawals of deposits by our customers as well as unanticipated contingencies. We seek to maintain a ratio of liquid
assets (not subject to pledge or encumbered) as a percentage of deposits and borrowings of 35% or greater. At December 31,
63
2017, this ratio was 46.88%. We believe that we had sufficient sources of liquidity to satisfy our short- and long-term liquidity
needs at December 31, 2017.
We regularly adjust our investments in liquid assets based on our assessment of:
•
•
•
•
expected loan demand;
expected deposit flows;
yields available on interest-earning deposits and securities; and
the objectives of our asset/liability management program.
Our most liquid assets are cash and cash equivalents, corporate bonds, and unpledged mortgage-related securities
issued or guaranteed by the U.S. Government, Fannie Mae, or Freddie Mac, that we can either borrow against or sell. We also
have the ability to surrender bank-owned life insurance contracts. The surrender of these contracts would subject the Company
to income taxes and penalties for increases in the cash surrender values over the original premium payments.
The Company had the following primary sources of liquidity at December 31, 2017 (in thousands):
Cash and cash equivalents
Corporate bonds
Unpledged multifamily loans
Unpledged mortgage-backed securities (Issued or guaranteed by the U.S. Government, Fannie Mae, or Freddie Mac)
$
$
$
$
57,839
68,130
885,300
72,600
At December 31, 2017, we had $43.6 million in outstanding loan commitments. In addition, we had $98.4 million in
unused lines of credit to borrowers. Certificates of deposit due within one year of December 31, 2017, totaled $401.3 million,
or 14.1% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including
loan sales, securities sales, other deposit products, including replacement certificates of deposit, securities sold under
agreements to repurchase (repurchase agreements), and advances from the FHLB of New York and other borrowing
sources. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we
currently pay on the certificates of deposit due on December 31, 2017. Based on experience, we believe that a significant
portion of such deposits will remain with us, and we have the ability to attract and retain deposits by adjusting the interest rates
offered.
We have a detailed contingency funding plan that is reviewed and reported to the board risk committee at least
quarterly. This plan includes monitoring cash on a daily basis to determine the liquidity needs of the Bank. Additionally,
management performs a stress test on the Bank’s retail deposits and wholesale funding sources in several scenarios on a
quarterly basis. The stress scenarios include deposit attrition of up to 50%, and selling our securities available-for-sale portfolio
at a discount of 20% to its current estimated fair value. The Bank continues to maintain significant liquidity under all stress
scenarios.
Northfield Bancorp, Inc. is a separate legal entity from Northfield Bank and must provide for its own liquidity to fund
dividend payments, stock repurchases, and other corporate risk factors. The Company’s primary source of liquidity is the
receipt of dividend payments from the Bank in accordance with applicable regulatory requirements. At December 31, 2017,
Northfield Bancorp, Inc. (unconsolidated) had liquid assets of $20.1 million.
Northfield Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-
based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning
assets and off-balance sheet items to broad risk categories. At December 31, 2017, Northfield Bank exceeded all regulatory
capital requirements and is considered “well capitalized” under regulatory guidelines. See “Item 1. Business - Supervision and
Regulation” and Note 13 of the Notes to the Consolidated Financial Statements.
Off-Balance Sheet Arrangements and Aggregate Contractual Obligations
Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-
balance-sheet risks, such as commitments to extend credit, and unused lines of credit. While these contractual obligations
represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without
64
being drawn upon. Such commitments are subject to the same credit policies and approval process applicable to loans we
originate. In addition, we routinely enter into commitments to sell mortgage loans; such amounts are not significant to our
operations. For additional information, see Note 12 of the Notes to the Consolidated Financial Statements.
Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such
obligations include leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities, and
agreements with respect to investments.
The following table summarizes our significant fixed and determinable contractual obligations and other funding
needs by payment date at December 31, 2017 (in thousands). The payment amounts represent those amounts due to the
recipient and do not include any unamortized premiums or discounts or other similar carrying amount adjustments.
Contractual Obligations
Borrowings (1)
Floating rate advances
Operating leases
Capitalized leases
Certificates of deposit
Total
Commitments to extend credit (2)
Payments Due by Period
Less Than One
Year
One to Three Years
More Than Three
to Five Years
More Than Five
Years
Total
$
163,459
$
213,502
$
90,000
$
— $
466,961
5,033
4,867
262
401,315
574,936
142,044
$
$
$
$
—
10,501
44
280,296
—
9,089
—
57,318
—
35,748
—
—
5,033
60,205
306
738,929
504,343
$
156,407
$
35,748
$
1,271,434
— $
— $
— $
142,044
(1)
(2)
Includes repurchase agreements, FHLB of New York advances, and accrued interest payable at December 31, 2017.
Includes unused lines of credit which are assumed to be funded within the year.
Recent Accounting Standards and Interpretations
See Note 1(r) of the Notes to the Consolidated Financial Statements.
Impact of Inflation and Changing Prices
Our consolidated financial statements and related notes have been prepared in accordance with U.S. GAAP. U.S.
GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without
consideration for changes in the relative purchasing power of money over time due to inflation. The effect of inflation is
reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary
in nature. As a result, changes in market interest rates have a greater effect on our performance than inflation.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
For information regarding market risk see “Item 7. Management’s Discussion and Analysis of Financial Conditions
and Results of Operations - Management of Market Risk.”
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
65
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Northfield Bancorp, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Northfield Bancorp, Inc., and subsidiaries (the
“Company”) as of December 31, 2017 and 2016, the related consolidated statements of comprehensive income, changes in
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017, and the related
notes (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly,
in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its
operations and its cash flows for each of the years in the three year period ended December 31, 2017, in conformity with
U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission, and our report dated March 1, 2018 expressed an unqualified opinion on the effectiveness of the
Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that
our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have not been able to determine the specific year that we began serving as the Company’s auditor, however we are
aware that we have served as the Company’s auditor since at least 1967.
Short Hills, New Jersey
March 1, 2018
66
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Northfield Bancorp, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Northfield Bancorp, Inc. and subsidiaries' (the “Company”) internal control over financial reporting
as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated balance sheets of Northfield Bancorp, Inc. and subsidiaries as of December 31, 2017 and
2016, the related consolidated statements of comprehensive income, changes in stockholders’ equity, and cash flows for each of
the years in the three-year period ended December 31, 2017, and the related notes (collectively, the consolidated financial
statements), and our report dated March 1, 2018 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Short Hills, New Jersey
March 1, 2018
/s/ KPMG LLP
67
NORTHFIELD BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS:
Cash and due from banks
Interest-bearing deposits in other financial institutions
Total cash and cash equivalents
Trading securities
Securities available-for-sale, at estimated fair value (encumbered $4,628 at December 31, 2017, and
$11,786 at December 31, 2016)
Securities held-to-maturity, (estimated fair value of $9,892 at December 31, 2017, and $10,118 at
December 31, 2016) (encumbered $0 at December 31, 2017, and $2,108 at December 31, 2016)
Originated loans held-for-investment, net
Loans acquired
Purchased credit-impaired (PCI) loans held-for-investment
Loans held-for-investment, net
Allowance for loan losses
Net loans held-for-investment
Accrued interest receivable
Bank owned life insurance
Federal Home Loan Bank (FHLB) of New York stock, at cost
Premises and equipment, net
Goodwill
Other real estate owned
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY:
LIABILITIES:
Deposits
Securities sold under agreements to repurchase
Other borrowings
Advance payments by borrowers for taxes and insurance
Accrued expenses and other liabilities
Total liabilities
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 25,000,000 shares authorized, none issued or outstanding
Common stock, $0.01 par value: 150,000,000 shares authorized, 60,933,707 shares issued at December
31, 2017 and 2016, 48,803,885 and 48,526,658 outstanding at December 31, 2017 and 2016, respectively
Additional paid-in-capital
Unallocated common stock held by employee stock ownership plan
Retained earnings
Accumulated other comprehensive loss
$
$
$
At December 31,
2017
2016
(Dollars in thousands, except
share data)
$
17,446
40,393
57,839
9,597
18,412
77,673
96,085
7,857
515,121
498,897
9,931
2,425,275
692,803
22,741
3,140,819
(26,160)
3,114,659
10,713
150,604
25,046
25,746
38,411
850
32,900
3,991,417
2,836,979
2,000
469,549
14,798
29,214
3,352,540
$
$
10,148
2,144,346
793,240
30,498
2,968,084
(24,595)
2,943,489
9,714
148,047
25,123
26,910
38,411
850
44,563
3,850,094
2,713,587
8,000
465,206
12,331
29,774
3,228,898
—
—
609
548,864
(22,244)
281,138
(5,451)
609
547,910
(23,466)
268,226
(4,332)
Treasury stock at cost; 12,129,822 and 12,407,049 shares at December 31, 2017 and 2016, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
(164,039)
638,877
3,991,417
$
(167,751)
621,196
3,850,094
$
See accompanying notes to consolidated financial statements.
68
NORTHFIELD BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Interest income:
Loans
Mortgage-backed securities
Other securities
FHLB of New York dividends
Deposits in other financial institutions
Total interest income
Interest expense:
Deposits
Borrowings
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income:
Fees and service charges for customer services
Income on bank owned life insurance
Gains/(losses) on securities transactions, net
Other
Total non-interest income
Non-interest expense:
Compensation and employee benefits
Occupancy
Furniture and equipment
Data processing
Professional fees
Federal Deposit Insurance Corporation (FDIC) insurance
Other
Total non-interest expense
Income before income tax expense
Income tax expense
Net income
Net income per common share:
Basic
Diluted
Years ended December 31,
2017
2016
2015
(Dollars in thousands, except share and per
share data)
$
120,340
$
111,776
$
9,174
1,310
1,461
584
10,832
908
1,171
285
87,179
12,982
328
1,149
120
132,869
124,972
101,758
16,386
7,590
23,976
108,893
1,411
107,482
4,702
5,386
1,283
271
14,287
7,381
21,668
103,304
635
102,669
4,934
3,998
813
327
11,642
10,072
38,237
11,270
1,141
4,585
2,774
1,064
8,307
67,378
51,746
26,978
24,768
0.55
0.53
$
$
$
39,780
11,411
1,421
6,054
3,461
1,494
9,325
72,946
39,795
13,665
26,130
0.59
0.57
$
$
$
10,423
9,265
19,688
82,070
353
81,717
3,945
3,767
(339)
525
7,898
29,760
10,039
1,428
3,802
3,037
1,550
8,493
58,109
31,506
11,975
19,531
0.46
0.45
$
$
$
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
45,325,445
44,374,389
42,285,712
46,875,730
45,717,887
43,478,481
See accompanying notes to consolidated financial statements.
69
NORTHFIELD BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income - (Continued)
Net income
Other comprehensive (loss) income:
Unrealized losses on securities:
Years ended December 31,
2017
2016
2015
(Dollars in thousands)
$
24,768
$
26,130
$
19,531
Net unrealized holding losses on securities
(283)
(2,202)
(3,676)
Less: reclassification adjustment for net gains included in net income (included in gains on
securities transactions, net)
Net unrealized losses
Post-retirement benefits adjustment
Other comprehensive loss, before tax
Income tax benefit related to net unrealized holding losses on securities
Income tax expense related to reclassification adjustment for gains included in net income
Income tax expense related to post-retirement benefits adjustment
Other comprehensive loss, net of tax
Comprehensive income
(169)
(452)
74
(378)
113
68
(30)
(227)
(306)
(2,508)
244
(2,264)
894
122
(98)
(57)
(3,733)
21
(3,712)
1,476
23
(8)
(1,346)
(2,221)
$
24,541
$
24,784
$
17,310
See accompanying notes to consolidated financial statements.
70
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B
NORTHFIELD BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses
ESOP and stock compensation expense
Depreciation
Amortization of premiums, and deferred loan costs, net of (accretion) of discounts, and
deferred loan fees
Amortization of intangible assets
Income on bank owned life insurance
Gain on sale of premises and equipment and other real estate owned, net
Net gain on sale of loans held-for-sale
Proceeds from sale of loans held-for-sale
Origination of loans held-for-sale
(Gains) losses on securities transactions, net
Net purchases of trading securities
(Increase) decrease in accrued interest receivable
(Increase) decrease in other assets
Deferred taxes
(Decrease) increase in accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Net increase in loans receivable
Purchase of loans
Purchase of FHLB of New York stock
Redemption of FHLB of New York stock
Purchases of securities available-for-sale
Principal payments and maturities on securities available-for-sale
Principal payments and maturities on securities held-to-maturity
Purchases of securities held-to-maturity
Proceeds from sale of securities available-for-sale
Proceeds from bank owned life insurance
Proceeds from sale of premises and equipment and other real estate owned
Purchases and improvements of premises and equipment
Net cash acquired in business combinations
Net cash used in investing activities
Cash flows from financing activities:
Net increase in deposits
Dividends paid
Exercise of stock options
Purchase of treasury stock
Additional tax benefit on equity awards
Increase in advance payments by borrowers for taxes and insurance
Repayments under capital lease obligations
Proceeds from securities sold under agreements to repurchase and other borrowings
Repayments related to securities sold under agreements to repurchase and other borrowings
Net cash provided by financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
2017
Years Ended December 31,
2016
(Dollars in thousands)
2015
$
24,768
$
26,130
$
19,531
1,411
8,686
3,229
2,000
386
(5,386)
—
—
494
—
(1,283)
(626)
(999)
(3,689)
15,193
(560)
43,624
(110,177)
(64,116)
(18,890)
18,967
(137,631)
114,416
200
—
5,941
2,829
—
(2,065)
—
(190,526)
123,392
(15,646)
100
—
—
2,467
(224)
441,570
(443,003)
108,656
(38,246)
96,085
57,839
$
635
9,555
3,591
2,226
447
(3,998)
—
—
—
—
(813)
(637)
1
3,052
(3,059)
571
37,701
(87,514)
(167,345)
(9,497)
10,653
(105,860)
162,594
181
—
44,582
—
45
(932)
55,479
(97,614)
204,455
(14,074)
120
(2,201)
1,512
1,469
(204)
228,978
(315,910)
104,145
44,232
51,853
96,085
$
353
8,891
3,385
1,800
210
(3,767)
(282)
(4)
2,392
(2,388)
339
(687)
(248)
3,359
(1,632)
1,059
32,311
(246,562)
(186,876)
(11,001)
14,417
—
173,923
870
(7,657)
51,148
—
918
(802)
—
(211,622)
432,264
(12,184)
158
(48,446)
122
3,070
(179)
250,314
(470,664)
154,455
(24,856)
76,709
51,853
See accompanying notes to consolidated financial statements.
72
NORTHFIELD BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows - (Continued)
Supplemental cash flow information:
Cash paid during the period for:
Interest
Income taxes
Non-cash transactions:
Loans (recoveries) / charged-off, net
Transfers of loans to other real estate owned
Other real estate owned write-downs
Transfers of originated loans held-for-investment to held-for-sale, at fair value
Acquisition:
Non-cash assets acquired, at fair value:
Securities available-for-sale
Loans
Accrued interest receivable
Bank owned life insurance
Premises and equipment
Federal Home Loan Bank of New York stock
Goodwill and other intangible assets
Other assets
Total non-cash assets acquired
Non-cash liabilities assumed, at fair value:
Deposits
Borrowings
Other liabilities
Total non-cash liabilities assumed
Net non-cash assets acquired
Net cash and cash equivalents acquired
Common stock issued in acquisition
2017
Years Ended December 31,
2016
(Dollars in thousands)
2015
$
23,765
12,875
$
22,037
14,415
$
19,738
10,800
(154)
—
—
494
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
— $
$
810
850
—
—
1,875
—
71
—
61,633
342,566
1,452
11,269
5,926
476
24,265
5,389
452,976
456,203
2,213
8,318
466,734
(13,758)
55,479
41,721
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
See accompanying notes to consolidated financial statements.
73
NORTHFIELD BANCORP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1)
Summary of Significant Accounting Policies
The following significant accounting and reporting policies of Northfield Bancorp, Inc. and subsidiaries (collectively,
the “Company”), conform to U.S. generally accepted accounting principles (“U.S. GAAP”), and are used in preparing and
presenting these consolidated financial statements.
(a) Basis of Presentation
The consolidated financial statements are comprised of the accounts of Northfield Bancorp, Inc. and its wholly owned
subsidiaries, Northfield Investment, Inc. and Northfield Bank (the “Bank”), and the Bank’s wholly-owned significant
subsidiaries, NSB Services Corp. and NSB Realty Trust. All significant intercompany accounts and transactions have been
eliminated in consolidation.
In preparing the consolidated financial statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the balance sheets and revenues and expenses during the
reporting periods. Actual results may differ significantly from those estimates and assumptions. A material estimate that is
particularly susceptible to significant change in the near term is the allowance for loan losses. In connection with the
determination of this allowance, management generally obtains independent appraisals for significant properties. In addition,
judgments related to the amount and timing of expected cash flows from purchased credit-impaired (“PCI”) loans, goodwill,
securities valuation and impairment, and deferred income taxes, involve a higher degree of complexity and subjectivity and
require estimates and assumptions about uncertain matters. Actual results may differ from the estimates and assumptions.
Certain prior year amounts have been reclassified to conform to the current year presentation.
(b) Business
The Company, through its principal subsidiary, the Bank, provides a full range of banking services primarily to
individuals and corporate customers in Richmond and Kings counties in New York, and Hunterdon, Mercer, Union and
Middlesex counties in New Jersey. The Company is subject to competition from other financial institutions and to the
regulations of certain federal and state agencies, and undergoes periodic examinations by those regulatory authorities.
(c) Cash Equivalents
Cash equivalents consist of cash on hand, due from banks, and interest-bearing deposits in other financial institutions
with an original term of three months or less.
(d) Securities
Securities are classified at the time of purchase, based on management’s intention, as securities held-to-maturity,
securities available-for-sale, or trading account securities. Securities held-to-maturity are those that management has the
positive intent and ability to hold until maturity. Securities held-to-maturity are carried at amortized cost, adjusted for
amortization of premiums and accretion of discounts using the level-yield method over the contractual term of the securities,
adjusted for actual prepayments. Securities available-for-sale represents all securities not classified as either held-to-maturity or
trading. Securities available-for-sale are carried at estimated fair value with unrealized holding gains and losses (net of related
tax effects) on such securities excluded from earnings, but included as a separate component of stockholders’ equity, titled
“Accumulated other comprehensive income (loss).” The cost of securities sold is determined using the specific-identification
method. Security transactions are recorded on a trade-date basis. Trading securities are securities that are bought and may be
held for the purpose of selling them in the near term. Trading securities are reported at estimated fair value, with unrealized
holding gains and losses reported as a component of gain (loss) on securities transactions, net in non-interest income.
Our evaluation of other-than-temporary impairment considers our assessments of the reason for the decline in value,
the duration and severity of the impairment, our intent and ability to hold the securities (as well as the likelihood of a near-term
recovery), and our intent to sell the securities and whether it is more likely than not that we will be required to sell the securities
before the recovery of their amortized cost basis. If a determination is made that a debt security is other-than-temporarily
impaired, the Company will estimate the amount of the unrealized loss that is attributable to credit and all other non-credit
74
related factors. If we intend to hold securities in an unrealized loss position until the loss is recovered, which may be at
maturity, the credit related component will be recognized as an other-than-temporary impairment charge in non-interest income.
The non-credit related component will be recorded as an adjustment to accumulated other comprehensive income (loss), net of
tax. The estimated fair value of debt securities, including mortgage-backed securities and corporate debt obligations is furnished
by an independent third-party pricing service. The third-party pricing service primarily utilizes pricing models and
methodologies that incorporate observable market inputs, including among other things, benchmark yields, reported trades, and
projected prepayment and default rates. Management reviews the data and assumptions used in pricing the securities by its
third-party provider for reasonableness.
(e) Loans
The accounting and reporting for PCI loans and loans classified as held-for-sale differs substantially from those loans
originated and classified by the Company as held-for-investment. For purposes of reporting, discussion and analysis,
management has classified its loan portfolio into four categories: (1) loans originated by the Company and held-for-sale, which
are carried at the lower of aggregate cost or estimated fair value, less costs to sell, and therefore have no associated allowance
for loan losses, (2) PCI loans, which are held-for-investment, and initially valued at estimated fair value on the date of
acquisition, with no initial related allowance for loan losses, (3) originated loans held-for-investment, which are carried at
amortized cost, less net charge-offs and the allowance for loan losses, and (4) acquired loans with no evidence of credit
deterioration, which are held-for-investment, and initially valued at an estimated fair value on the date of acquisition, with no
initial related allowance for loan losses.
Originated and acquired net loans held-for-investment are stated at unpaid principal balance, adjusted by unamortized
premiums and unearned discounts, deferred origination fees and certain direct origination costs, and the allowance for loan
losses. Interest income on loans is accrued and credited to income as earned. Net loan origination fees/costs are deferred and
accreted/amortized to interest income over the loan’s contractual life using the level-yield method, adjusted for actual
prepayments. Generally, loans held-for-sale are designated at time of origination and generally consist of newly originated fixed
rate residential loans and are recorded at the lower of aggregate cost or estimated fair value in the aggregate. Transfers of loans
from held-for-investment to held-for-sale are infrequent and occur at fair value less costs to sell, with any charge-off to
allowance for loan losses. Gains are recognized on a settlement-date basis and are determined by the difference between the net
sales proceeds and the carrying value of the loans, including any net deferred fees or costs.
Originated and acquired net loans held-for-investment are deemed impaired when it is probable, based on current
information, that the Company will not collect all amounts due in accordance with the contractual terms of the loan
agreement. The Company has defined the population of originated and acquired impaired loans to be all originated and acquired
non-accrual loans held-for-investment with an outstanding balance of $500,000 or greater and all loans restructured in troubled
debt restructurings (TDRs). Originated and acquired impaired loans held-for-investment are individually assessed to determine
that the loan’s carrying value is not in excess of the expected future cash flows, discounted at the loan's original effective
interest rate, or the fair value of the underlying collateral (less estimated costs to sell) if the loan is collateral
dependent. Impairments, if any, are recognized through a charge to the allowance for loan losses for the amount that the loan’s
carrying value exceeds the discounted cash flow analysis or estimated fair value of collateral (less estimated costs to sell) if the
loan is collateral dependent. Such amounts are charged-off when considered appropriate.
The allowance for loan losses is increased by the provision for loan losses charged against income and is decreased by
charge-offs, net of recoveries. Loan losses are charged-off in the period the loans, or portion thereof, are deemed
uncollectible. Generally, the Company will record a loan charge-off (including a partial charge-off) to reduce a loan to the
estimated fair value of the underlying collateral, less cost to sell, if it is determined that it is probable that recovery will come
primarily from the sale or operation of such collateral. Specific reserves on impaired loans that are not considered collateral
dependent are charged-off when such amounts are not considered to be collectible. The provision for loan losses is based on
management’s evaluation of the adequacy of the allowance that considers, among other things, impaired loans held-for-
investment, deterioration in PCI loans subsequent to acquisition, past loan loss experience, known and inherent risks in the
portfolio, and existing adverse situations that may affect borrowers’ ability to repay. Additionally, management evaluates
changes, if any, in underwriting standards, collection, charge-off and recovery practices, the nature or volume of the portfolio,
lending staff, concentration of loans, as well as current economic conditions, and other relevant factors. Management believes
the allowance for loan losses is adequate to provide for probable and reasonably estimable incurred losses at the date of the
consolidated balance sheets. The Company also maintains an allowance for estimated losses on off-balance sheet credit risks
related to loan commitments and standby letters of credit. Management utilizes a methodology similar to its allowance for loan
loss adequacy methodology to estimate losses on these commitments. The allowance for estimated credit losses on off-balance
75
sheet commitments is included in other liabilities and any changes to the allowance are recorded as a component of other non-
interest expense.
While management uses available information to estimate probable and reasonably estimable incurred losses on loans,
future additions may be necessary based on changes in conditions, including changes in economic conditions, particularly in
Richmond and Kings counties in New York, and Hunterdon, Mercer, Union and Middlesex counties in New Jersey and to a
lesser extent eastern Pennsylvania. Accordingly, as with most financial institutions in the market area, the ultimate collectability
of a substantial portion of the Company’s loan portfolio is susceptible to changes in conditions in the Company’s
marketplace. In addition, future changes in laws and regulations could make it more difficult for the Company to collect all
contractual amounts due on its loans and mortgage-backed securities.
In addition, various regulatory agencies, as an integral part of their examination process, periodically review the
Company’s allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based
on their judgments about information available to them at the time of their examination.
TDRs are loans where terms have been modified because of deterioration in the financial condition of the
borrower. Modifications could include extension of the repayment terms of the loan, reduced interest rates, or forgiveness of
accrued interest and/or principal. Once an obligation has been restructured because of such credit problems, it continues to be
considered restructured until paid in full or, if the obligation yields a market rate (a rate equal to the rate the Company was
willing to accept at the time of the restructuring for a new loan with comparable risk), until the year subsequent to the year in
which the restructuring takes place, provided the borrower has performed under the modified terms for a six-month period. The
Company records an impairment charge equal to the difference between the present value of estimated future cash flows under
the restructured terms discounted at the original loan’s effective interest rate, or the underlying collateral value less costs to sell,
if the loan is collateral dependent. Changes in present values attributable to the passage of time are recorded as a component of
the provision for loan losses.
A loan is considered past due when it is not paid in accordance with its contractual terms. The accrual of income on
loans, including impaired loans held-for-investment, and other loans in the process of foreclosure, is generally discontinued
when a loan becomes 90 days or more delinquent, or sooner when certain factors indicate that the ultimate collection of
principal and interest is in doubt. Loans on which the accrual of income has been discontinued are designated as non-accrual
loans. All previously accrued interest is reversed against interest income, and income is recognized subsequently only in the
period that cash is received, provided no principal payments are due and the remaining principal balance outstanding is deemed
collectible. A non-accrual loan is not returned to accrual status until both principal and interest payments are brought current
and factors indicating doubtful collection no longer exist, including performance by the borrower under the loan terms for a
consecutive six-month period.
The Company accounts for the PCI loans based on expected cash flows. In accordance with current accounting guidance,
the Company will maintain the integrity of a pool of multiple loans accounted for as a single asset and evaluate the pools for
impairment, and accrual status, based on variances from the expected cash flows.
(f) Federal Home Loan Bank Stock
The Bank, as a member of the Federal Home Loan Bank (FHLB) of New York, is required to hold shares of capital
stock in the FHLB as a condition to both becoming a member and engaging in certain transactions with the FHLB. The
minimum investment requirement is determined by a “membership” investment component and an “activity-based” investment
component. The membership investment component is the greater of 0.125% of the Bank’s mortgage-related assets, as defined
by the FHLB, or $1,000. The activity-based investment component is equal to 4.5% of the Bank’s outstanding advances with
the FHLB. The activity-based investment component also considers other transactions, including assets originated for or sold to
the FHLB, and delivery commitments issued by the FHLB. The Company currently does not enter into these other types of
transactions with the FHLB.
On a quarterly basis, we perform our other-than-temporary impairment analysis of FHLB stock, we evaluate, among
other things, (i) its earnings performance, including the significance of any decline in net assets of the FHLB as compared to the
regulatory capital amount of the FHLB, (ii) the commitment by the FHLB to continue dividend payments, and (iii) the liquidity
position of the FHLB. We did not consider our investment in FHLB stock to be other-than-temporarily impaired at
December 31, 2017 and 2016.
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(g) Premises and Equipment, Net
Premises and equipment, including leasehold improvements, are carried at cost, less accumulated depreciation and
amortization. Depreciation and amortization of premises and equipment, including capital leases, are computed on a straight-
line basis over the estimated useful lives of the related assets. The estimated useful lives of significant classes of assets are
generally as follows: buildings - forty years; furniture and equipment - five to seven years; and purchased computer software -
three years. Leasehold improvements are amortized over the shorter of the term of the related lease or the estimated useful lives
of the improvements. Major improvements are capitalized, while repairs and maintenance costs are charged to operations as
incurred. Upon retirement or sale, any gain or loss is credited or charged to operations.
(h) Bank Owned Life Insurance
The Company has purchased bank owned life insurance contracts to help fund its obligations for certain employee
benefit costs. The Company’s investment in such insurance contracts has been reported in the consolidated balance sheets at
their cash surrender values. Changes in cash surrender values and death benefit proceeds received in excess of the related cash
surrender values are recorded as non-interest income.
(i) Goodwill
Intangible assets resulting from acquisitions under the purchase method of accounting consist of goodwill and other
intangible assets. Goodwill is not amortized and is subject to an annual assessment for impairment. The goodwill impairment
analysis is generally a two-step test. However, under current accounting guidance, first we may assess qualitative factors to
determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under current accounting
guidance, we are not required to calculate the fair value of a reporting unit if, based on a qualitative assessment, we determine
that it was more likely than not that the unit’s fair value was not less than its carrying amount. For the year ended December 31,
2017, we elected to perform step one of the two-step goodwill impairment test for our reporting unit.
Goodwill is allocated to Northfield’s reporting unit at the date goodwill is actually recorded. If the carrying value of a
reporting unit exceeds its estimated fair value, a second step in the analysis is performed to determine the amount of
impairment, if any. The second step compares the implied fair value of the reporting unit’s goodwill with the carrying amount
of that goodwill. If the carrying value of a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is
recorded equal to the excess amount in the current period earnings.
As of December 31, 2017, the carrying value of goodwill totaled $38.4 million. The Company performed its annual
goodwill impairment test, as of December 31, 2017, and determined that the fair value of the Company’s single reporting unit to
be in excess of its carrying value. The Company will test goodwill for impairment between annual test dates if an event occurs
or circumstances change that would indicate the fair value of the reporting unit is below its carrying amount. No events have
occurred and no circumstances have changed since the annual impairment test date that would indicate the fair value of the
reporting unit is below its carrying amount.
(j) Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply in the year in which those temporary differences are expected to be recovered or settled.
When applicable, deferred tax assets are reduced by a valuation allowance for any portions determined not likely to be realized.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date.
Income tax benefits are recognized and measured based upon a two-step model: 1) a tax position must be more-likely-
than-not to be sustained based solely on its technical merits in order to be recognized, and 2) the benefit is measured as the
largest dollar amount of that position that is more-likely-than-not to be sustained upon settlement. The difference between the
benefit recognized and the tax benefit claimed on a tax return is referred to as an unrecognized tax benefit. The Company
records income tax-related interest and penalties, if applicable, within income tax expense.
77
(k) Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future undiscounted (and without interest) net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
(l) Securities Sold Under Agreements to Repurchase and Other Borrowings
The Company enters into sales of securities under agreements to repurchase (Repurchase Agreements) and collateral
pledge agreements (Pledge Agreements) with selected dealers and banks. Such agreements are accounted for as secured
financing transactions since the Company maintains effective control over the transferred or pledged securities and the transfer
meets the other accounting and recognition criteria as required by the transfer and servicing topic of the Financial Accounting
Standards Board (FASB) Accounting Standards. Obligations under these agreements are reflected as a liability in the
consolidated balance sheets. Securities underlying the agreements are maintained at selected dealers and banks as collateral for
each transaction executed and may be sold or pledged by the counterparty. Collateral underlying Repurchase Agreements that
permit the counterparty to sell or pledge the underlying collateral is disclosed on the consolidated balance sheets as
“encumbered.” The Company retains the right under all Repurchase Agreements and Pledge Agreements to substitute
acceptable collateral throughout the terms of the agreement.
(m) Comprehensive Income (Loss)
Comprehensive income (loss) includes net income and the change in unrealized holding gains and losses on securities
available-for-sale, change in actuarial gains and losses on other post-retirement benefits, and change in service cost on other
postretirement benefits, net of taxes. Comprehensive income (loss) and its components is presented in the Consolidated
Statements of Comprehensive Income.
(n) Benefits
The Company sponsors a defined postretirement benefit plan that provides for medical and life insurance coverage to a
limited number of retirees, as well as life insurance to all qualifying employees of the Company. The estimated cost of
postretirement benefits earned is accrued during an individual’s estimated service period to the Company. The Company
recognizes in its balance sheet the over-funded or under-funded status of a defined benefit postretirement plan measured as the
difference between the fair value of plan assets and the benefit obligation at the end of our calendar year. The actuarial gains
and losses and the prior service costs and credits that arise during the period are recognized as a component of other
comprehensive income (loss), net of tax.
Funds borrowed by the Employee Stock Ownership Plan (the “ESOP”) from the Company to purchase the Company’s
common stock are being repaid from the Bank’s contributions over a period of up to 30 years. The Company’s common stock
not yet allocated to participants is recorded as a reduction of stockholders’ equity at cost. The Company records compensation
expense related to the ESOP at an amount equal to the shares committed to be released by the ESOP multiplied by the average
fair value of our common stock during the reporting period.
The Company recognizes the grant-date fair value of stock based awards issued to participants' as compensation cost
in the consolidated statements of comprehensive income (loss). The fair value of common stock awards is based on the closing
price of our common stock as reported on the NASDAQ Stock Market on the grant date. The expense related to stock options is
based on the estimated fair value of the options at the date of the grant using the Black-Scholes pricing model. The awards are
fixed in nature and compensation cost related to stock based awards is recognized on a straight-line basis over the requisite
service periods.
The Bank has a 401(k) plan covering substantially all employees. Contributions to the plan are expensed as incurred.
(o) Segment Reporting
As a community-focused financial institution, substantially all of the Company’s operations involve the delivery of
loan and deposit products to customers. Management makes operating decisions and assesses performance based on an ongoing
78
review of these community banking operations, which constitute the Company’s only operating segment for financial reporting
purposes.
(p) Net Income per Common Share
Net income per common share-basic is computed by dividing the net income available to common stockholders by the
weighted average number of common shares outstanding, excluding unallocated ESOP shares and unearned common stock
award shares. The weighted average common shares outstanding includes the average number of shares of common stock
outstanding, including shares allocated or committed to be released ESOP shares.
Net income per common share-diluted 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. In March 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09,
Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, a new
standard that simplifies certain aspects of accounting for share-based payments. The Company adopted ASU No. 2016-09
effective January 1, 2017. The update amended the diluted earnings per share calculation in that excess tax benefits are no
longer included in assumed proceeds when determining average diluted shares outstanding under the treasury stock method.
This guidance is required to be applied prospectively upon adoption. For further discussion, see - Recent Accounting
Developments.
When applying the treasury stock method for the year ended December 31, 2017, we added the assumed proceeds
from option exercises and the average unamortized compensation costs related to unvested shares of restricted stock and stock
options. We then divided this sum by our average stock price for the period to calculate assumed shares repurchased. The
excess of the number of shares issuable over the number of shares assumed to be repurchased is added to basic weighted
average common shares to calculate diluted earnings per share. For the years ended December 31, 2016, and 2015, we added
(1) the assumed proceeds from option exercises; (2) the tax benefit, that would have been credited to additional paid-in capital
assuming exercise of non-qualified stock options and vesting of shares of restricted stock; and (3) the average unamortized
compensation costs related to unvested shares of restricted stock and stock options. We then divided this sum by our average
stock price for the period to calculate assumed shares repurchased. The excess of the number of shares issuable over the number
of shares assumed to be repurchased is added to basic weighted average common shares to calculate diluted earnings per share.
At December 31, 2017, 2016, and 2015, there were 1,550,285, 1,343,498, and 1,192,769 dilutive shares outstanding,
respectively.
(q) Other Real Estate Owned
Assets acquired through loan foreclosure, or deed-in-lieu of, are held for sale and are initially recorded at estimated
fair value less estimated selling costs when acquired, thus establishing a new cost basis. Costs after acquisition are generally
expensed. If the estimated fair value of the asset subsequently declines, a write-down is recorded through other non-interest
expense.
(r) Recent Accounting Developments
Accounting Pronouncements Adopted in 2017
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic
220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows an entity to elect a
reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax effects resulting
from the Tax Cuts and Jobs Act. The amendment states that if an entity elects to reclassify the income tax effects, the amount of
that reclassification should include the effect of the change in the tax rate on the gross deferred tax amounts and related
valuation allowances, in addition to other income tax effects on items remaining in AOCI. The ASU is effective for fiscal years
beginning after December 15, 2018 and interim periods within those fiscal years with early adoption permitted in a period for
which financial statements have not yet been issued. The Company early adopted ASU 2018-02 retrospectively to December
31, 2017, which resulted in the reclassification from AOCI to retained earnings of $892,000, reflected in the Consolidated
Statements of Changes in Stockholders' Equity.
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements
to Employee Share-Based Payment Accounting, a new standard that simplifies certain aspects of accounting for share-based
payments. The amendments include the following:
79
• Excess tax benefits and deficiencies resulting from exercise or vesting of stock awards are recorded as income tax
•
expense or benefit on the income statement. Previously, excess tax benefits and certain tax deficiencies were recorded
as equity in additional paid-in capital. This update is required to be applied prospectively upon adoption.
For diluted earnings per share calculations, excess tax benefits are no longer included in assumed proceeds when
determining average diluted shares outstanding under the treasury stock method, resulting in changes to average
diluted shares outstanding. This update is required to be applied prospectively upon adoption.
• Excess tax benefits or deficiencies are included as income tax expense as discrete items in the period in which they
occur, which impact the effective tax rate in each reporting period; however, these discrete items are not included in
the projected annual effective tax rate calculation. This update is required to be applied prospectively upon adoption.
• Excess tax benefits are presented as cash flows from operating activities. Previously, excess tax benefits were included
as a cash inflow from financing activities. This update may be applied either prospectively or retrospectively upon
adoption. The Company applied this update prospectively upon adoption and prior periods have not been adjusted.
• Cash paid by an employer to taxing authorities when withholding shares for tax withholding purposes is presented as
cash outflows from financing activities, which is consistent with the manner in which we have presented such
employee withholding taxes in the past. Accordingly, no reclassification for prior periods is required.
• An accounting policy election, using a modified retrospective transition method, to account for forfeitures as they
occur or estimate the number of awards expected to be forfeited. The Company elected to account for forfeitures as
they occur.
The Company adopted ASU No. 2016-09 effective January 1, 2017, and upon adoption recorded a cumulative effect
adjustment of $2.9 million to the opening balances of retained earnings and additional paid-in-capital. Adoption of ASU No.
2016-09 also resulted in the recognition of a $2.3 million benefit within income tax expense for the year ended December 31,
2017, which resulted in a corresponding increase to net income and earnings per share. In addition, the guidance increases
average diluted shares, since the Company no longer includes such excess tax benefits in the calculation of diluted shares.
Adoption of this update did not affect the Company's or the Bank's total equity, book value per share, or regulatory capital
ratios.
Accounting Pronouncements Not Yet Adopted
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment. The ASU simplifies the subsequent measurement of goodwill impairment by eliminating the
requirement to calculate the implied fair value of goodwill (i.e., the current Step 2 of the goodwill impairment test) to measure a
goodwill impairment charge. As amended, the goodwill impairment test will consist of one step comparing the fair value of a
reporting unit with its carrying amount. A goodwill impairment charge should be recognized for the amount by which the
carrying amount exceeds the reporting unit’s fair value. The ASU is effective for annual or any interim goodwill impairment
tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim and annual goodwill impairment
testing dates after January 1, 2017. The adoption of this pronouncement is not expected to have an effect on the Company's
consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which
requires that entities include restricted cash and restricted cash equivalents with cash and cash equivalents in the beginning-of-
period and end-of-period total amounts shown on the Statement of Cash Flows. Prior to this pronouncement there was no
guidance on how to present restricted cash and cash equivalents in the Statement of Cash Flows. ASU No. 2016-18 is effective
for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and is
required to be applied retrospectively to all periods presented beginning in the year of adoption. The adoption of this
pronouncement is not expected to have a material effect on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain
Cash Receipts and Cash Payments, which provides guidance on the classification of certain cash receipts and payments within
the statement of cash flows. ASU No. 2016-15 is effective for annual reporting periods beginning after December 15, 2017,
including interim periods within that reporting period, and is required to be applied retrospectively to all periods presented
beginning in the year of adoption. Since the ASU only impacts classification on the statements of cash flows, adoption will not
affect the Company's consolidated financial position, results of operations or its cash and cash equivalents.
In June 2016, the FASB issued No. ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments, which requires credit losses on most financial assets measured at
amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current
expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the
80
instrument from the date of initial recognition of that instrument. Current US GAAP is based on an incurred loss model that
delays recognition of credit losses until it is probable the loss has been incurred. Accordingly, it is anticipated that credit losses
will be recognized earlier under the CECL model than under the incurred loss model. ASU No. 2016-13 is effective for interim
and annual reporting periods beginning after December 15, 2019. The Company has begun evaluating the potential effect of
adoption of this pronouncement on its consolidated financial statements by identifying key interpretive issues, assessing its
processes, portfolio segmentation, model development, and identifying the data and system requirements against the new
guidance to determine what modifications may be required. The Company is also evaluating third-party vendor solutions to
assist in the application of the ASU 2016-13. The adoption of ASU 2016-13 may result in an increase in the allowance for loan
losses as a result of changing from an incurred loss model, which encompasses allowances for current known and inherent
losses within the portfolio, to an expected losses model, which encompasses allowances for losses expected to be incurred over
the life of the portfolio. The extent of the effect is indeterminable at this time as it will depend upon the nature and
characteristics of the Company's loan portfolio at the adoption date, as well as economic conditions and forecasts at that date.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which is intended to increase transparency
and comparability of accounting for lease transactions. The ASU will require all leases to be recognized on the balance sheet as
lease assets and lease liabilities and will require both quantitative and qualitative disclosures regarding key information about
leasing arrangements. Lessor accounting is largely unchanged. The guidance is effective for fiscal years beginning after
December 15, 2018, including interim periods within that reporting period. The Company is currently evaluating the potential
effect of adoption of this pronouncement on its consolidated financial statements by reviewing its existing lease contracts and
service contracts that may include embedded leases. The Company expects a gross-up of its consolidated balance sheet as a
result of recognizing lease liabilities and right of use assets; the extent of such gross-up is under evaluation. The Company does
not expect adoption of this pronouncement to have a material impact on its results of operations.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement,
presentation, and disclosure of financial instruments. The guidance primarily affects the accounting for equity investments,
financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In
addition, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets
resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as
loans, investments in debt securities, and financial liabilities is largely unchanged. ASU No. 2016-01 is effective for annual
reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company will
adopt the guidance in the first quarter of 2018. Since the Company has minimal equity investments and no financial liabilities
valued under the fair value option, adoption will not have a material effect on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which
requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or
services to customers using a five-step model that requires entities to exercise judgment when considering the terms of the
contracts. ASU No. 2014-09 and subsequent related updates, also require new qualitative and quantitative disclosures, including
disaggregation of revenues and descriptions of performance obligations. The Company will adopt the guidance in the first
quarter of 2018 using the modified retrospective method. Because the guidance does not apply to revenue associated with
financial instruments, including loans and securities that are accounted for under other U.S. GAAP, the new revenue recognition
standard will not have a material impact on the company's consolidated financial statements. The Company's implementation
efforts include the identification of revenue streams within the scope of the guidance, as well as the evaluation of revenue
contracts. Based on these efforts, adoption of this guidance will not result in a material change in the timing or amount of
revenue recognized from contracts with customers. The guidance includes expanded disclosures to revenue which we are
currently in the process of drafting.
(2)
Business Combination
On January 8, 2016, the Company completed its acquisition of Hopewell Valley Community Bank (“Hopewell
Valley”), which, after purchase accounting adjustments, added $508.5 million to total assets, $342.6 million to loans, and
$456.2 million to deposits, and nine branch offices in the Hunterdon and Mercer counties of New Jersey. Total consideration
paid for Hopewell Valley was $55.4 million, consisting of $13.7 million in cash and 2,707,381 shares of common stock valued
at $41.7 million based upon the $15.41 per share closing price of Northfield Bancorp, Inc.'s common stock on January 8, 2016.
The transaction was accounted for under the acquisition method of accounting. Under this method of accounting, the
purchase price has been allocated to the respective assets acquired and liabilities assumed based upon their estimated fair
values, net of tax. The excess of consideration paid over the fair value of the net assets acquired has been recorded as goodwill.
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The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of
acquisition for Hopewell Valley (in thousands):
ASSETS ACQUIRED:
Cash and cash equivalents, net
Securities available for sale
Loans
Accrued interest receivable
Bank-owned life insurance
Premises and equipment
Federal Home Loan Bank of New York stock, at cost
Goodwill
Other intangible assets
Other assets
Total assets acquired
LIABILITIES ASSUMED:
Deposits
Other borrowings
Other liabilities
Total liabilities assumed
Net assets acquired
January 8, 2016
55,479
61,633
342,566
1,452
11,269
5,926
476
22,252
2,013
5,389
508,455
456,203
2,213
8,318
466,734
41,721
$
$
$
$
$
Fair Value Measurement of Assets Assumed and Liabilities Assumed
The methods used to determine the fair value of the assets acquired and liabilities assumed in the Hopewell Valley
acquisition were as follows:
Cash and Cash Equivalents
The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial
instruments are either due on demand or have short-term maturities.
Securities Available-for-Sale
The estimated fair values of the investment securities classified as available-for-sale were calculated utilizing Level 1
and Level 2 inputs. Management reviewed the data and assumptions used by its third party provider in pricing the securities to
ensure the highest level of significant inputs is derived from observable market data. These prices were validated against other
pricing sources and broker-dealer indications.
Loans
The acquired loan portfolio was valued based on current guidance which defines fair value as the price that would be
received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date.
Level 3 inputs were utilized to value the portfolio and included the use of present value techniques employing cash flow
estimates and the incorporated assumptions that marketplace participants would use in estimating fair values. In instances
where reliable market information was not available, the Company used its own assumptions in an effort to determine
reasonable fair value. Specifically, management utilized three separate fair value analyses which a market participant would
employ in estimating the total fair value adjustment. The three separate fair valuation methodologies used were: 1) interest rate
loan fair value analysis; 2) general credit fair value adjustment; and 3) specific credit fair value adjustment.
To prepare the interest rate fair value analysis, loans were grouped by characteristics such as loan type, term, collateral
and rate. Market rates for similar loans were obtained from various external data sources and reviewed by Company
management for reasonableness. The average of these rates was used as the fair value interest rate a market participant would
utilize. A present value approach was utilized to calculate the interest rate fair value adjustment.
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The general credit fair value adjustment was calculated using a two part general credit fair value analysis: 1) expected
lifetime losses; and 2) estimated fair value adjustment for qualitative factors. The expected lifetime losses were calculated using
an average of historical losses of the Company, the acquired bank and peer banks. The adjustment related to qualitative factors
was impacted by general economic conditions and the risk related to lack of familiarity with the originator's underwriting
process.
To calculate the specific credit fair value adjustment, management reviewed the acquired loan portfolio for loans
meeting the definition of an impaired loan with deteriorated credit quality. Loans meeting this definition were reviewed by
comparing the contractual cash flows to expected collectible cash flows. The aggregate expected cash flows less the acquisition
date fair value resulted in an accretable yield amount. The accretable yield amount will be recognized over the life of the loans
on a level yield basis as an adjustment to yield.
Other Intangible Assets
Other intangible assets consisting of core deposit premium represents the value assigned to demand, interest checking,
money market and savings accounts acquired as part of an acquisition. The core deposit premium value represents the future
economic benefit, including the present value of future tax benefits, of the potential cost savings from acquiring core deposits
as part of an acquisition compared to the cost of alternative funding sources. The core deposit premium is being amortized over
an estimated useful life of 10 years to approximate the existing deposit relationships acquired.
Deposits
The fair values of deposit liabilities with no stated maturity (i.e., non-interest bearing demand accounts, interest-
bearing negotiable orders of withdrawal (NOW), savings and money market accounts) are equal to the carrying amounts
payable on demand. The fair values of certificates of deposit represent contractual cash flows, discounted to present value using
interest rates currently offered on deposits with similar characteristics and remaining maturities.
Other Borrowings
Other borrowings consist of securities sold under agreements to repurchase. The carrying amounts approximate their
fair values because they frequently re-price to a market rate.
(3)
Securities Available-for-Sale
The following is a comparative summary of mortgage-backed securities, debt securities and other securities available-
for-sale at December 31, 2017 and 2016 (in thousands):
83
2017
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Estimated
fair
value
Mortgage-backed securities:
Pass-through certificates:
Government sponsored enterprises (GSE)
$
179,320
$
1,429
$
2,454
$
178,295
Real estate mortgage investment conduits (REMICs):
GSE
Non-GSE
Debt securities:
Municipal bonds
Corporate bonds
Other securities
Equity investments - mutual funds
Other
273,501
80
452,901
343
67,927
68,270
323
1,016
1,339
287
—
1,716
6
401
407
—
—
—
6,859
1
9,314
—
198
198
—
—
—
266,929
79
445,303
349
68,130
68,479
323
1,016
1,339
Total securities available-for-sale
$
522,510
$
2,123
$
9,512
$
515,121
Mortgage-backed securities:
Pass-through certificates:
GSE
REMICs:
GSE
Non-GSE
Debt securities:
Municipal bonds
Corporate bonds
Other securities:
Equity investments-mutual funds
Other
2016
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Estimated
fair
value
$
225,047
$
2,800
$
3,298
$
224,549
230,500
280
455,827
2,151
45,373
47,524
1,233
1,250
2,483
259
—
3,059
13
150
163
—
—
—
6,466
10
9,774
6
364
370
15
—
15
224,293
270
449,112
2,158
45,159
47,317
1,218
1,250
2,468
Total securities available-for-sale
$
505,834
$
3,222
$
10,159
$
498,897
The following is a summary of the expected maturity distribution of debt securities available-for-sale other than
mortgage-backed securities at December 31, 2017 (in thousands):
Available-for-sale
Due in one year or less
Due after one year through five years
Due after five years through ten years
Amortized cost
Estimated fair value
$
$
— $
58,174
10,096
68,270
$
—
58,285
10,194
68,479
84
Expected maturities on mortgage-backed securities will differ from contractual maturities as borrowers may have the
right to call or prepay obligations with or without penalties.
Certain securities available-for-sale are pledged or encumbered to secure borrowings under Pledge Agreements and
Repurchase Agreements and for other purposes required by law. At December 31, 2017, and December 31, 2016, securities
available-for-sale with a carrying value of $150.5 million and $108.8 million, respectively, were pledged to secure repurchase
agreements and deposits. See Note 8 for further discussion regarding securities pledged or encumbered for borrowings.
For the year ended December 31, 2017, the Company had gross proceeds of $5.9 million on sales of securities
available-for-sale with gross realized gains of $173,000 and gross realized losses of $4,000. For the year ended December 31,
2016, the Company had gross proceeds of $44.6 million on sales of securities available-for-sale with gross realized gains of
$493,000 and gross realized losses of $187,000. For the year ended December 31, 2015, the Company had gross proceeds of
$51.1 million on sales of securities available-for-sale with gross realized gains of $60,000 and gross realized losses of $3,000.
The Company recognized net gains of $1.1 million and $507,000, on its trading securities portfolio during the years ended
December 31, 2017, and December 31, 2016, respectively, and net losses of $396,000, for the year ended December 31, 2015.
The Company routinely sells securities when market pricing presents, in management’s assessment, an economic benefit that
outweighs holding such security, and when smaller balance securities become cost prohibitive to carry.
The Company did not recognize any other-than-temporary impairment charges in earnings during the years ended
December 31, 2017, 2016 and 2015.
Gross unrealized losses on mortgage-backed securities, debt securities and other securities available-for-sale, and the
estimated fair value of the related securities, aggregated by security category and length of time that individual securities have
been in a continuous unrealized loss position, at December 31, 2017 and 2016, were as follows (in thousands):
Mortgage-backed securities:
Pass-through certificates:
GSE
REMICs:
GSE
Non-GSE
Debt securities:
Corporate bonds
Total
Mortgage-backed securities:
Pass-through certificates:
GSE
REMICs:
GSE
Non-GSE
Debt securities:
Municipal bonds
Corporate bonds
Other securities
Total
Less than 12 months
December 31, 2017
12 months or more
Total
Unrealized
Estimated
Unrealized
Estimated
Unrealized
Estimated
losses
fair value
losses
fair value
losses
fair value
$
439
$
48,931
$
2,015
$
76,113
$
2,454
$
125,044
933
—
103,644
5,926
139,830
6,859
243,474
—
1
79
1
79
61
11,006
137
15,084
198
26,090
$
1,433
$
163,581
$
8,079
$ 231,106
$
9,512
$
394,687
Less than 12 months
December 31, 2016
12 months or more
Total
Unrealized
Estimated
Unrealized
Estimated
Unrealized
Estimated
losses
fair value
losses
fair value
losses
fair value
$
2,703
$
121,878
$
595
$
8,402
$
3,298
$
130,280
1,622
—
6
364
15
75,586
—
1,679
26,022
947
4,844
10
—
—
—
97,726
270
6,466
10
173,312
270
—
—
—
6
364
15
1,679
26,022
947
$
4,710
$
226,112
$
5,449
$
106,398
$
10,159
$
332,510
85
The Company held 33 pass-through mortgage-backed securities issued or guaranteed by GSEs, 19 REMIC mortgage-
backed securities issued or guaranteed by GSEs, one REMIC mortgage-backed security not issued or guaranteed by GSEs, and
three corporate bonds that were in a continuous unrealized loss position of greater than twelve months at December 31, 2017.
There were 20 pass-through mortgage-backed securities issued or guaranteed by GSEs, 33 REMIC mortgage-backed securities
issued or guaranteed by GSEs, and two corporate bonds that were in an unrealized loss position of less than twelve months. All
securities referred to above, other than the one REMIC mortgage-backed security not issued or guaranteed by a GSE, were
rated investment grade at December 31, 2017. The declines in value relate to the general interest rate environment and are
considered temporary. The securities cannot be prepaid in a manner that would result in the Company not receiving 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.
(4)
Securities Held-to-Maturity
The following is a summary of mortgage-backed securities held-to-maturity at December 31, 2017 and 2016 (in
thousands):
Mortgage-backed securities:
Pass-through certificates:
GSEs
Total securities held-to-maturity
Mortgage-backed securities:
Pass-through certificates:
GSEs
Total securities held-to-maturity
2017
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
$
$
9,931
9,931
$
$
17
17
$
$
2016
56
56
$
$
9,892
9,892
Amortized Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair
Value
$
$
10,148
10,148
$
$
29
29
$
$
59
59
$
$
10,118
10,118
Contractual maturities for mortgage-backed securities are not presented, as expected maturities on mortgage-backed
securities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without
penalties. There were no sales of held-to-maturity securities for the years ended December 31, 2017, 2016 and 2015. The
Company did not recognize any other-than-temporary impairment charges in earnings on securities held-to-maturity during the
years ended December 31, 2017, 2016 and 2015. At December 31, 2017, and December 31, 2016, securities held-to-maturity
with a carrying value of $2.8 million and $5.0 million, respectively, were pledged to secure repurchase agreements and
deposits.
Gross unrealized losses on mortgage-backed securities held-to-maturity, and the estimated fair value of the related
securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized
loss position, at December 31, 2017 and 2016, were as follows (in thousands):
86
Mortgage-backed securities:
Pass-through certificates:
GSEs
Total
Mortgage-backed securities:
Pass-through certificates:
GSEs
Total securities held-to-maturity
Less than 12 months
December 31, 2017
12 months or more
Total
Unrealized
Estimated
Unrealized
Estimated
Unrealized
Estimated
losses
fair value
losses
fair value
losses
fair value
$
$
7
7
$
$
3,922
3,922
$
$
49
49
$
$
3,735
3,735
$
$
56
56
$
$
7,657
7,657
December 31, 2016
Less than 12 months
Unrealized Losses
Estimated Fair Value
$
$
59
59
$
$
7,466
7,466
The Company held two pass-through mortgage-backed securities held-to-maturity, issued or guaranteed by GSEs, that
were in a continuous unrealized loss position of greater than twelve months, and three pass-through mortgage-backed securities
held-to-maturity, issued or guaranteed by GSEs, that were in a continuous unrealized loss position of less than twelve months at
December 31, 2017. Management evaluated these securities and concluded that the declines in value relate to the general
interest rate environment and are considered temporary. The securities cannot be prepaid in a manner that would result in the
Company not receiving 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.
87
(5)
Loans
Loans held-for-investment, net, consists of the following (in thousands):
Originated loans:
Real estate loans:
Multifamily
Commercial mortgage
One-to-four family residential mortgage
Home equity and lines of credit
Construction and land
Total real estate loans
Commercial and industrial loans
Other loans
Deferred loan cost, net
Originated loans held-for-investment, net
PCI Loans
Loans acquired:
One-to-four family residential mortgage
Multifamily
Commercial mortgage
Home equity and lines of credit
Construction and land
Total acquired real estate loans
Commercial and industrial loans
Other loans
Total loans acquired
Loans held for investment, net
Allowance for loan losses
Net loans held-for-investment
December 31,
2017
2016
$
$
1,735,712
445,225
100,942
66,254
34,545
2,382,678
34,828
1,430
6,339
2,425,275
22,741
275,053
199,149
163,962
20,455
17,201
675,820
16,946
37
692,803
3,140,819
(26,160)
3,114,659
$
$
1,506,335
412,667
105,968
65,437
14,065
2,104,472
31,906
1,497
6,471
2,144,346
30,498
317,639
215,389
188,001
25,522
20,887
767,438
25,443
359
793,240
2,968,084
(24,595)
2,943,489
The Company had no loans held-for-sale at December 31, 2017, or December 31, 2016.
PCI loans totaled $22.7 million at December 31, 2017, as compared to $30.5 million at December 31, 2016. The
majority of the PCI loan balance is attributable to those loans acquired as part of an FDIC-assisted transaction. The Company
accounts for PCI loans utilizing U.S. GAAP applicable to loans acquired with deteriorated credit quality. At December 31,
2017, PCI loans consisted of approximately 27% commercial real estate loans and 50% commercial and industrial loans, with
the remaining balance in residential and home equity loans. At December 31, 2016, PCI loans consisted of approximately 30%
commercial real estate loans and 48% commercial and industrial loans, with the remaining balance in residential and home
equity loans.
The following table sets forth information regarding the estimates of the contractually required payments, the cash
flows expected to be collected, and the estimated fair value of the PCI loans acquired from Hopewell Valley at January 8, 2016
(in thousands):
Contractually required principal and interest at acquisition
Contractual cash flows not expected to be collected (non-accretable discount)
Expected cash flows to be collected at acquisition
Interest component of expected cash flows (accretable discount)
Fair value of acquired loans
88
January 8, 2016
16,580
(9,929)
6,651
(845)
5,806
$
$
The following details the accretable yield (in thousands):
Balance at the beginning of year
Acquisition
For The Year Ended December 31,
2017
2016
$
24,215
$
—
22,853
845
Accretion into interest income
Net reclassification from non-accretable difference(1)
Balance at end of year
_______________________
(1) Reclassifications of the non-accretable difference to the accretable yield may occur subsequent to the loan acquisition dates due to increases in expected
cash flows of the loans.
(5,477)
24,502
5,764
$
$
5,742
24,215
(5,225)
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.
We provide for loan losses based on the consistent application of our documented allowance for loan loss
methodology. Loan losses are charged to the allowance for loans losses and recoveries are credited to it. Additions to the
allowance for loan losses are provided by charges against income based on various factors which, in our judgment, deserve
current recognition in estimating incurred losses. Loan losses are charged-off in the period the loans, or portion thereof, are
deemed uncollectible. Generally, the Company will record a loan charge-off (including a partial charge-off) to reduce a loan to
the estimated fair value of the underlying collateral, less cost to sell, for collateral dependent loans. We regularly review the
loan portfolio in order to maintain the allowance for loan losses in accordance with U.S. GAAP. At December 31, 2017 and
2016, the allowance for loan losses related to loans held-for-investment (excluding PCI loans) consisted primarily of the
following two components:
(1) Specific allowances are established for impaired loans (generally defined by the Company as non-accrual loans
with an outstanding balance of $500,000 or greater and all loans restructured in troubled debt restructurings). The
amount of impairment, if any, provided for as a specific reserve determined by the deficiency, if any, between the
present value of expected future cash flows discounted at the original loan’s effective interest rate or the
underlying collateral value (less estimated costs to sell and discounts for quick sales,) if the loan is collateral
dependent, and the carrying value of the loan. Impaired loans that have no impairment losses are not considered
for general allowances described below. Generally, the Company charges down a loan to the estimated fair value
of the underlying collateral, less costs to sell for collateral dependent loans and, if necessary, maintains a specific
reserve in the allowance for loan losses related to cash flow dependent impaired loans where the present value of
the expected future cash flows, discounted at the loan’s original contractual interest rate, is less than the carrying
value of the loan unless management determines that such shortfall should be charged off.
(2) General allowances are established for loan losses on a portfolio basis for loans that do not meet the definition of
impaired. The portfolio is grouped into similar risk characteristics, primarily loan type, loan-to-value, if collateral
dependent, and internal credit risk ratings. We apply an estimated loss rate to each loan group. The loss rates
applied are based on our net loss experience (using appropriate look-back and loss emergence periods) as
adjusted, if appropriate, for our qualitative assessment of factors which may not be fully captured in our historical
quantitative net loss rates related to:
•
•
•
•
•
changes in lending policies and procedures;
changes in local, regional, national, and international economic and business conditions and
developments that affect the collectability of our portfolio, including the condition of various market
segments;
changes in the nature and volume of our portfolio and in the terms of our loans;
changes in the experience, ability and depth of lending management and other relevant staff;
changes in the volume and severity of past due loans, the volume of non-accrual loans, and the volume
and severity of adversely classified or graded loans;
89
•
•
•
•
changes in the quality of our loan review system;
changes in the value of underlying collateral for collateral-dependent loans;
the existence and effect of any concentrations of credit, and changes in the level of such concentrations;
and
the effect of other external factors such as competition and legal and regulatory requirements on the level
of estimated credit losses in our existing portfolio.
The loss emergence period is the estimated time from the date of the loss event to the actual recognition of the loss
(typically the first charge-off), and is determined based upon a study of the Company's past loss experience by loan groups.
This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revisions based
upon changes in economic and real estate market conditions. Actual loan losses may be significantly more than the allowance
for loan losses we have established, which could have a material negative effect on our financial results. Prior to December 31,
2016, we maintained an amount identified as the unallocated component within the allowance for loan losses related to
indicators of loan losses not fully captured in other components of the allowance for loan losses methodology, as well as the
inherent imprecision of the loss estimation process. During the fourth quarter of 2016, the Company enhanced the allowance for
loan losses qualitative framework to more fully capture the risks related to certain loan loss factors. These enhancements are
meant to increase the level of precision in the allowance for loan losses. As a result, the Company no longer has an unallocated
reserve in its allowance for loan losses, as the risks and uncertainties meant to be captured by the unallocated allowance have
been included in the qualitative framework for the respective loan portfolios.
Held-for-investment loans acquired with no evidence of credit deterioration are initially valued at an estimated fair
value on the date of acquisition, with no initial related allowance for loan losses. These loans are evaluated for impairment on a
quarterly basis as part of our analysis of the allowance for loan losses.
In underwriting a loan secured by real property, we require an appraisal (or an automated valuation model) of the
property by an independent licensed appraiser approved by the Company’s board of directors. The appraisal is subject to review
by an independent third-party hired by the Company. We review and inspect properties before disbursement of funds during the
term of a construction loan. Generally, management obtains updated appraisals when a loan is deemed impaired, or sooner if
management deems it appropriate. These appraisals may be more limited than those prepared for the underwriting of a new
loan. In addition, when the Company acquires other real estate owned, it generally obtains a current appraisal to substantiate the
net carrying value of the asset.
We evaluate the allowance for loan losses based on the combined total of the impaired and general components for
loans. Generally when the loan portfolio increases, absent other factors, our allowance for loan loss methodology results in a
higher dollar amount of estimated incurred losses. Conversely, when the loan portfolio decreases, absent other factors, our
allowance for loan loss methodology results in a lower dollar amount of estimated incurred losses.
Each quarter we evaluate the allowance for loan losses and adjust the allowance as appropriate through a provision for
loan losses. While we use the best information available to make evaluations, future adjustments to the allowance may be
necessary if conditions differ substantially from the information used in making the evaluations. In addition, as an integral part
of their examination process, the Office of the Comptroller of the Currency (OCC) will periodically review the allowance for
loan losses. The OCC may require us to adjust the allowance based on their analysis of information available to them at the
time of their examination.
A summary of changes in the allowance for loan losses for the years ended December 31, 2017, 2016, and 2015
follows (in thousands):
Balance at beginning of year
Provision for loan losses
Recoveries
Charge-offs
Balance at end of year
2017
December 31,
2016
2015
24,595
1,411
556
(402)
26,160
$
$
24,770
635
194
(1,004)
24,595
$
$
26,292
353
140
(2,015)
24,770
$
$
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The Company monitors the credit quality of its loan portfolio on a regular basis. Credit quality is monitored by
reviewing certain credit quality indicators. Management has determined that loan-to-value ratios (at period end) and internally
assigned credit risk ratings by loan type are the key credit quality indicators that best measure the credit quality of the
Company’s loan receivables. Loan-to-value (“LTV”) ratios used by management in monitoring credit quality are based on
current period loan balances and original appraised values at time of origination (unless a current appraisal has been obtained as
a result of the loan being deemed impaired). In calculating the provision for loan losses, based on past loan loss experience,
management has determined that commercial real estate loans and multifamily loans having loan-to-value ratios, as described
above, of less than 35%, and one-to-four family loans having loan-to-value ratios, as described above, of less than 60%, require
less of a loss factor than those with higher loan to value ratios.
The Company maintains a credit risk rating system as part of the risk assessment of its loan portfolio. The Company’s
lending officers are required to assign a credit risk rating to each loan in their portfolio at origination. This risk rating is
reviewed periodically and adjusted if necessary. Monthly, management presents monitored assets to the loan committee. In
addition, the Company engages a third-party independent loan reviewer that performs semi-annual reviews of a sample of
loans, validating the credit risk ratings assigned to such loans. The credit risk ratings play an important role in the establishment
of the loan loss provision and the allowance for loan losses for originated loans held-for-investment. After determining the
general reserve loss factor for each originated portfolio segment held-for-investment, the originated portfolio segment held-for-
investment balance collectively evaluated for impairment is multiplied by the general reserve loss factor for the respective
portfolio segment in order to determine the general reserve.
When assigning a risk rating to a loan, management utilizes the Bank’s internal nine-point credit risk rating system.
1. Strong
2. Good
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4. Adequate
5. Watch
6. Special Mention
7. Substandard
8. Doubtful
9. Loss
Loans rated 1 to 5 are considered pass ratings. An asset is classified substandard if it is inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets have well defined
weaknesses based on objective evidence, and are characterized by the distinct possibility that the Company will sustain some
loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified
substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable
and improbable based on current circumstances. Assets classified as loss are those considered uncollectible and of such little
value that their continuance as assets is not warranted. Assets which do not currently expose the Company to sufficient risk to
warrant classification in one of the aforementioned categories, but possess weaknesses, are required to be designated special
mention.
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Included in loans receivable are loans for which the accrual of interest income has been discontinued due to
deterioration in the financial condition of the borrowers. The recorded investment of these nonaccrual loans was $5.5 million
and $7.3 million at December 31, 2017, and December 31, 2016, respectively. Generally, originated loans are placed on non-
accruing status when they become 90 days or more delinquent, or sooner if considered appropriate by management, and remain
on non-accrual status until they are brought current, have six consecutive months of performance under the loan terms, and
factors indicating reasonable doubt about the timely collection of payments no longer exist. Therefore, loans may be current in
accordance with their loan terms, or may be less than 90 days delinquent and still be on a non-accruing status.
Non-accrual amounts include loans deemed to be impaired of $3.1 million and $5.7 million at December 31, 2017, and
December 31, 2016, respectively. Loans on non-accrual status with principal balances less than $500,000, and therefore not
meeting the Company’s definition of an impaired loan, amounted to $2.4 million at December 31, 2017, and $1.7 million at
December 31, 2016. There was no loans held-for-sale at December 31, 2017, or December 31, 2016. Loans past due 90 days or
more and still accruing interest were $28,000 and $60,000 at December 31, 2017, and December 31, 2016, respectively, and
consisted of loans that are well secured and in the process of collection.
94
The following table sets forth the detail, and delinquency status, of originated and acquired non-performing loans
(non-accrual loans and loans past due ninety days or more and still accruing), net of deferred fees and costs, at December 31,
2017 and 2016 (in thousands), excluding PCI loans which have been segregated into pools. For PCI loans, each loan pool is
accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flows.
Loans held-for-investment:
Real estate loans:
Commercial
LTV => 35%
Substandard
Total commercial
One-to-four family residential
LTV < 60%
Substandard
LTV => 60%
Substandard
Total one-to-four family residential
Home equity and lines of credit
Substandard
Total home equity and lines of credit
Commercial and industrial loans
Substandard
Total commercial and industrial loans
Total non-performing loans held-for-investment
Loans acquired:
Real Estate Loans:
Commercial
LTV < 35%
Substandard
LTV => 35%
Substandard
Total Commercial
One-to-four family residential
LTV < 60%
Substandard
Total one-to-four family residential
Multifamily
LTV => 35%
Substandard
Total Multifamily
Home equity and lines of credit
Substandard
Total home equity and lines of credit
Commercial and industrial
Substandard
Total commercial and industrial loans
Other loans
Pass
Total other
Total non-performing loans acquired
Total non-performing loans
$
At December 31, 2017
Total Non-Performing Loans
Non-Accruing Loans
0-29 Days
Past Due
30-89 Days
Past Due
90 Days or
More Past
Due
Total
90 Days or
More Past
Due and
Accruing
Total Non-
Performing
Loans
$
$
432
432
$
314
314
$
2,305
2,305
$
3,051
3,051
— $
—
3,051
3,051
—
—
—
79
79
—
—
511
—
—
—
—
—
—
—
—
—
—
—
—
—
—
511
206
—
206
—
—
—
—
520
—
773
773
201
201
417
417
28
28
—
—
328
39
367
—
—
72
72
2,744
205
58
263
—
—
—
—
49
49
2
2
534
39
573
79
79
72
72
3,775
205
831
1,036
201
201
417
417
77
77
2
2
—
—
1,419
1,939
$
—
—
314
3,058
$
—
—
1,733
5,508
$
$
95
—
—
—
—
—
—
—
—
—
—
—
27
27
—
—
—
—
—
—
1
1
28
28
534
39
573
79
79
72
72
3,775
205
831
1,036
228
228
417
417
77
77
2
2
1
1
1,761
5,536
$
Loans held-for-investment:
Real estate loans:
Commercial
LTV => 35%
Substandard
Total commercial
One-to-four family residential
LTV < 60%
Substandard
Total
LTV => 60%
Substandard
Total
Total one-to-four family residential
Multifamily
LTV < 35%
Substandard
LTV => 35%
Substandard
Total multifamily
Home equity and lines of credit
Substandard
Total home equity and lines of credit
Total non-performing loans held-for-investment.
Loans acquired:
Real estate loans:
Commercial
LTV < 35%
Substandard
LTV => 35%
Substandard
Total commercial
One-to-four family residential
LTV < 60%
Substandard
Total one-to-four family residential
Home equity and lines of credit
Substandard
Total home equity and lines of credit
Commercial and industrial
Substandard
Total commercial and industrial loans
Total non-performing loans acquired
Total non-performing loans
$
At December 31, 2016
Total Non-Performing Loans
Non-Accruing Loans
0-29 Days
Past Due
30-89 Days
Past Due
90 Days or
More Past
Due
Total
90 Days or
More Past
Due and
Accruing
Total Non-
Performing
Loans
$
$
341
341
— $
—
$
4,882
4,882
$
5,223
5,223
— $
—
5,223
5,223
384
384
—
—
384
40
—
40
—
—
765
—
—
—
420
420
—
—
383
383
—
—
383
—
—
—
96
96
479
—
—
—
—
—
—
—
442
442
—
—
442
—
3
3
—
—
5,327
231
59
290
—
—
31
31
1,209
1,209
—
—
1,209
40
3
43
96
96
6,571
231
59
290
420
420
31
31
—
—
420
1,185
$
—
—
—
479
$
9
9
330
5,657
$
9
9
750
7,321
$
96
9
9
43
43
52
—
—
—
—
—
52
—
—
—
—
—
8
8
—
—
8
60
1,218
1,218
43
43
1,261
40
3
43
96
96
6,623
231
59
290
420
420
39
39
9
9
758
7,381
$
The following table sets forth the detail and delinquency status of originated and acquired loans, net of deferred fees and costs,
by performing and non-performing loans at December 31, 2017 and 2016 (in thousands):
December 31, 2017
Performing (Accruing) Loans
0-29 Days Past
Due
30-89 Days Past
Due
Total
Non-
Performing
Loans
Total Loans
Receivable, net
Loans held-for-investment:
Real estate loans:
Commercial
LTV < 35%
Pass
Special Mention
Total
LTV => 35%
Pass
Special Mention
Substandard
Total
Total commercial
One-to-four family residential
LTV < 60%
Pass
Special Mention
Substandard
Total
LTV => 60%
Pass
Substandard
Total
Total one-to-four family residential
Construction and land
Pass
Total construction and land
Multifamily
LTV < 35%
Pass
Total
LTV= > 35%
Pass
Special Mention
Substandard
Total
Total multifamily
Home equity and lines of credit
Pass
Special Mention
Substandard
Total home equity and lines of credit
Commercial and industrial loans
Pass
Special Mention
Substandard
Total commercial and industrial loans
Other loans
Pass
Total other loans
$
$
84,620
—
84,620
— $
410
410
$
84,620
410
85,030
— $
—
—
346,229
832
7,675
354,736
439,356
57,907
—
322
58,229
38,504
554
39,058
97,287
34,614
34,614
131,488
131,488
1,603,714
638
83
1,604,435
1,735,923
67,426
28
146
67,600
34,003
547
109
34,659
1,403
1,403
97
628
1,338
998
2,964
3,374
2,493
683
614
3,790
—
—
—
3,790
6
6
304
304
233
1,259
1,501
2,993
3,297
—
—
—
—
138
24
—
162
29
29
346,857
2,170
8,673
357,700
442,730
60,400
683
936
62,019
38,504
554
39,058
101,077
34,620
34,620
131,792
131,792
1,603,947
1,897
1,584
1,607,428
1,739,220
67,426
28
146
67,600
34,141
571
109
34,821
1,432
1,432
—
—
3,051
3,051
3,051
—
—
534
534
—
39
39
573
—
—
—
—
—
—
—
—
—
—
—
79
79
—
—
72
72
—
—
84,620
410
85,030
346,857
2,170
11,724
360,751
445,781
60,400
683
1,470
62,553
38,504
593
39,097
101,650
34,620
34,620
131,792
131,792
1,603,947
1,897
1,584
1,607,428
1,739,220
67,426
28
225
67,679
34,141
571
181
34,893
1,432
1,432
Total originated loans held-for-investment
Acquired loans:
One-to-four family residential
LTV < 60%
Pass
Special Mention
Substandard
Total
LTV => 60%
Pass
Substandard
Total
Total one-to-four family residential
Commercial
LTV < 35%
Pass
Special Mention
Substandard
Total
LTV => 35%
Pass
Special Mention
Substandard
Total
Total commercial
Construction and land
Pass
Total construction and land
Multifamily
LTV < 35%
Pass
Special Mention
Substandard
Total
LTV => 35%
Pass
Substandard
Total
Total multifamily
Home equity and lines of credit
Pass
Substandard
Total home equity and lines of credit
Commercial and industrial
Pass
Substandard
Total commercial and industrial
Other
Total loans acquired
December 31, 2017
Performing (Accruing) Loans
0-29 Days Past
Due
2,410,842
30-89 Days Past
Due
10,658
Total
2,421,500
Non-
Performing
Loans
3,775
Total Loans
Receivable, net
2,425,275
224
—
150
374
—
—
—
374
70
—
181
251
158
133
430
721
972
—
—
—
—
—
—
—
—
—
—
—
—
—
250,373
455
567
251,395
23,295
135
23,430
274,825
50,105
91
181
50,377
108,283
133
4,133
112,549
162,926
17,201
17,201
189,551
78
153
189,782
8,950
—
8,950
198,732
20,291
87
20,378
—
—
228
228
—
—
—
228
—
—
205
205
—
—
831
831
1,036
—
—
—
—
—
—
—
417
417
417
—
77
77
250,373
455
795
251,623
23,295
135
23,430
275,053
50,105
91
386
50,582
108,283
133
4,964
113,380
163,962
17,201
17,201
189,551
78
153
189,782
8,950
417
9,367
199,149
20,291
164
20,455
40
—
40
—
1,386
12,044
$
16,944
—
16,944
36
691,042
3,112,542
$
—
2
2
1
1,761
5,536
$
16,944
2
16,946
37
692,803
3,118,078
250,149
455
417
251,021
23,295
135
23,430
274,451
50,035
91
—
50,126
108,125
—
3,703
111,828
161,954
17,201
17,201
189,551
78
153
189,782
8,950
—
8,950
198,732
20,291
87
20,378
16,904
—
16,904
36
689,656
3,100,498
$
$
98
Loans held-for-investment:
Real estate loans:
Commercial
LTV < 35%
Pass
Substandard
Total
LTV => 35%
Pass
Special Mention
Substandard
Total
Total commercial
One-to-four family residential
LTV < 60%
Pass
Special Mention
Substandard
Total
LTV => 60%
Pass
Substandard
Total
Total one-to-four family residential
Construction and land
Pass
Total construction and land
Multifamily
LTV < 35%
Pass
Special Mention
Substandard
Total
LTV => 35%
Pass
Special Mention
Substandard
Total
Total multifamily
Home equity and lines of credit
Pass
Special Mention
Substandard
Total home equity and lines of credit
Commercial and industrial loans
Pass
Special Mention
Substandard
Total Commercial and industrial loans
Other loans
Pass
Total other loans
Total originated loans held-for-investment
December 31, 2016
Performing (Accruing) Loans
0-29 Days Past
Due
30-89 Days Past
Due
Total
Non-
Performing
Loans
Total Loans
Receivable, net
$
$
65,189
1,179
66,368
$
423
—
423
$
65,612
1,179
66,791
— $
—
—
322,307
3,852
12,600
338,759
405,127
56,787
—
589
57,376
43,316
1,439
44,755
102,131
14,092
14,092
122,525
25
—
122,550
1,380,331
4,636
1,640
1,386,607
1,509,157
66,369
29
153
66,551
31,040
696
144
31,880
1,535
—
1,044
2,579
3,002
2,427
705
—
3,132
—
—
—
3,132
—
—
—
—
—
—
900
—
—
900
900
120
—
—
120
133
—
—
133
323,842
3,852
13,644
341,338
408,129
59,214
705
589
60,508
43,316
1,439
44,755
105,263
14,092
14,092
122,525
25
—
122,550
1,381,231
4,636
1,640
1,387,507
1,510,057
66,489
29
153
66,671
31,173
696
144
32,013
—
—
5,223
5,223
5,223
—
—
1,218
1,218
—
43
43
1,261
—
—
—
—
40
40
—
—
3
3
43
—
—
96
96
—
—
—
—
65,612
1,179
66,791
323,842
3,852
18,867
346,561
413,352
59,214
705
1,807
61,726
43,316
1,482
44,798
106,524
14,092
14,092
122,525
25
40
122,590
1,381,231
4,636
1,643
1,387,510
1,510,100
66,489
29
249
66,767
31,173
696
144
32,013
1,452
1,452
2,130,390
46
46
7,333
1,498
1,498
2,137,723
—
—
6,623
1,498
1,498
2,144,346
99
Loans acquired:
One-to-four family residential
LTV < 60%
Pass
Special Mention
Substandard
Total
LTV => 60%
Pass
Substandard
Total
Total one-to-four family residential
Commercial
LTV < 35%
Pass
Special Mention
Substandard
Total
LTV => 35%
Pass
Special Mention
Substandard
Total
Total commercial
Construction and land
Substandard
Total construction and land
Multifamily
LTV < 35%
Pass
Special Mention
Substandard
Total
LTV => 35%
Pass
Special Mention
Total
Total multifamily
Home equity and lines of credit
Pass
Substandard
Total home equity and lines of credit
Commercial and industrial loans
Pass
Substandard
Total Commercial and industrial loans
Other loans
Pass
Total loans acquired
December 31, 2016
Performing (Accruing) Loans
0-29 Days Past
Due
30-89 Days Past
Due
Total
Non-
Performing
Loans
Total Loans
Receivable, net
285,116
502
654
286,272
30,199
259
30,458
316,730
61,646
286
406
62,338
119,932
446
3,419
123,797
186,135
20,887
20,887
205,025
99
156
205,280
9,569
—
9,569
214,849
25,340
—
25,340
25,419
—
25,419
21
—
261
282
—
207
207
489
7
—
1,040
1,047
132
138
259
529
1,576
—
—
—
111
—
111
—
429
429
540
45
98
143
—
15
15
285,137
502
915
286,554
30,199
466
30,665
317,219
61,653
286
1,446
63,385
120,064
584
3,678
124,326
187,711
20,887
20,887
205,025
210
156
205,391
9,569
429
9,998
215,389
25,385
98
25,483
25,419
15
25,434
—
—
420
420
—
—
—
420
—
—
231
231
—
—
59
59
290
—
—
—
—
—
—
—
—
—
—
—
39
39
—
9
9
285,137
502
1,335
286,974
30,199
466
30,665
317,639
61,653
286
1,677
63,616
120,064
584
3,737
124,385
188,001
20,887
20,887
205,025
210
156
205,391
9,569
429
9,998
215,389
25,385
137
25,522
25,419
24
25,443
355
789,715
2,920,105
$
$
4
2,767
10,100
$
359
792,482
2,930,205
$
—
758
7,381
$
359
793,240
2,937,586
100
December 31, 2017 and 2016 (in thousands):
The following table summarizes originated and acquired (subsequent to acquisition) impaired loans as of
At December 31, 2017
December 31, 2016
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
$
— $
139
$
— $
— $
139
$
With No Allowance Recorded:
Real estate loans:
Commercial
LTV < 35%
Substandard
LTV => 35%
Pass
Substandard
One-to-four family residential
LTV < 60%
Pass
Substandard
LTV => 60%
Pass
Substandard
Multifamily
LTV < 35%
Substandard
LTV => 35%
Pass
Home Equity
Pass
Commercial and industrial loans
Substandard
With a Related Allowance Recorded:
Real estate loans:
Commercial
LTV => 35%
Substandard
One-to-four family residential
LTV < 60%
Pass
Special Mention
Substandard
LTV => 60%
Pass
Substandard
Multifamily
LTV => 35%
Pass
Home equity and lines of credit
Pass
Substandard
Commercial and industrial loans
Special Mention
Total:
Real estate loans:
Commercial
One-to-four family residential
Construction and land
Multifamily
Home equity and lines of credit
Commercial and industrial loans
—
—
—
—
—
—
—
—
—
—
3,911
14,780
4,047
16,868
633
184
—
620
156
63
39
75
633
184
—
848
156
534
39
75
—
—
—
—
—
—
—
—
—
—
—
—
2,019
2,019
(64)
(7)
—
(49)
(19)
—
—
—
(4)
(3)
—
(75)
—
—
(4)
(3)
(82) $
—
—
1,522
275
381
—
—
1,522
275
381
1,309
1,309
258
39
26
20,710
3,615
—
1,528
336
101
26,290
$
258
39
26
23,073
3,843
—
1,999
336
101
29,352
$
—
—
(97)
(3)
(41)
(95)
(5)
(18)
(5)
(64)
(141)
—
(95)
(23)
(5)
(328)
6,263
9,745
1,189
251
136
135
153
1,309
33
135
—
411
—
997
268
—
—
—
36
24
7,150
10,560
1,254
251
161
286
153
1,780
33
135
—
411
—
997
268
—
—
—
36
24
16,008
3,387
—
1,462
69
159
21,085
$
$
17,849
3,628
—
1,933
69
159
23,638
$
$
101
Included in the table above at December 31, 2017, are impaired loans with carrying balances of $14.5 million that
were not written down by charge-offs or for which there are no specific reserves in our allowance for loan losses. Included in
the impaired loans at December 31, 2016, are loans with carrying balances of $11.5 million that were not written down by
charge-offs or for which there are no specific reserves in our allowance for loan losses. Loans not written down by charge-offs
or specific reserves at December 31, 2017 and 2016, have sufficient collateral values, less costs to sell (including any discounts
to facilitate a sale), or sufficient future cash flows to support the carrying balances of the loans.
The following table summarizes the average recorded investment in originated and acquired impaired loans (excluding
PCI loans) and interest recognized on impaired loans as of, and for, the years ended December 31, 2017, and December 31,
2016 (in thousands):
December 31, 2017
December 31, 2016
Average
Recorded
Investment
Interest Income
Average
Recorded
Investment
Interest Income
With No Allowance Recorded:
Real estate loans:
Commercial
LTV < 35%
Substandard
LTV => 35%
Pass
Special Mention
Substandard
One-to-four family residential
LTV < 60%
Pass
Substandard
One-to-four family residential
LTV => 60%
Pass
Substandard
Multifamily
LTV < 35%
Substandard
LTV => 35%
Pass
Substandard
Home equity and lines of credit
Pass
Commercial and industrial loans
Substandard
With a Related Allowance Recorded:
Real estate loans:
Commercial
LTV => 35%
Substandard
One-to-four family residential
LTV < 60%
Pass
Special Mention
Substandard
LTV => 60%
Pass
Special Mention
Substandard
Multifamily
LTV => 35%
Pass
Substandard
Home equity and lines of credit
$
— $
45
$
— $
5,516
—
12,402
334
—
431
3,980
—
13,853
854
372
55
289
154
563
—
36
127
404
165
—
1,264
271
—
152
778
180
102
56
14
4
13
6
56
—
2
—
—
7
—
20
19
—
—
—
—
559
213
—
339
62
69
582
8
81
5,800
137
—
1,575
110
—
796
794
546
39
192
—
450
31
21
—
26
6
17
—
3
—
62
—
—
26
6
—
4
50
—
Pass
Special Mention
Substandard
Commercial and industrial loans
Special Mention
Total:
Real estate loans:
Commercial
One-to-four family residential
Multifamily
Home equity and lines of credit
Commercial and industrial loans
December 31, 2017
December 31, 2016
Average
Recorded
Investment
153
—
37
25
Interest Income
—
—
1
Average
Recorded
Investment
264
34
40
27
Interest Income
8
—
1
18,322
3,422
1,675
226
152
23,797
$
$
1
810
133
62
3
1
1,009
$
23,633
3,729
2,053
346
108
29,869
$
1
743
114
73
12
1
943
There was one one-to-four family residential loan modified as a troubled debt restructuring (“TDR”) during the year
ended December 31, 2017. This loan had a pre- and post-modification balance of $256,000 as of the date of modification, and
was restructured to receive a reduced interest rate. Since modification, the loan subsequently defaulted. There were no loans
modified as TDRs during the year ended December 31, 2016.
At December 31, 2017 and 2016, we had TDRs of $18.3 million and $22.4 million, respectively.
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 which are not collateral dependent is inherently subjective and requires, among other things, an evaluation
of the borrower’s current and projected financial condition. Actual results may be significantly different than our projections
and our established allowance for loan losses on these loans, which could have a material effect on our financial results.
(6)
Premises and Equipment, Net
At December 31, 2017 and 2016, premises and equipment, less accumulated depreciation and amortization, consists of
the following (in thousands):
At cost:
Land
Buildings and improvements
Capital leases
Furniture, fixtures, and equipment
Leasehold improvements
Accumulated depreciation and amortization
Premises and equipment, net
December 31,
2017
2016
$
$
4,018
$
8,883
2,600
22,677
28,721
66,899
(41,153)
25,746
$
4,018
8,856
2,600
21,962
27,398
64,834
(37,924)
26,910
Depreciation expense for the years ended December 31, 2017, 2016, and 2015, was $3.2 million, $3.6 million, and
$3.4 million, respectively. There were no sales of premises and equipment in 2017, 2016, or 2015.
103
(7)
Deposits
Deposit account balances are summarized as follows (dollars in thousands):
As of December 31,
2017
2016
Amount
Weighted Average
Rate
Amount
Weighted Average
Rate
Transaction:
Negotiable orders of withdrawal
$
Non-interest bearing checking
Total transaction
Savings:
Money market
Savings
Total savings
Certificates of deposit:
Under $100,000
$100,000 or more
Total certificates of deposit
Total deposits
465,140
407,267
872,407
800,854
424,789
1,225,643
401,063
337,866
738,929
0.39% $
—%
0.21%
0.72%
0.18%
0.53%
1.42%
1.51%
1.46%
467,440
390,484
857,924
818,660
500,926
1,319,586
484,480
51,597
536,077
$
2,836,979
0.67% $
2,713,587
0.34%
—%
0.19%
0.67%
0.24%
0.51%
1.22%
1.48%
1.24%
0.55%
The Company had brokered deposits (included in certificates of deposit in the above table) of $150.6 million and
$98.8 million at December 31, 2017 and 2016, respectively.
Scheduled maturities of certificates of deposit are summarized as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total
December 31, 2017
$
$
401,315
157,397
122,899
23,511
33,807
—
738,929
Interest expense on deposits is summarized as follows (in thousands):
Negotiable order of withdrawal and money market
Savings-passbook and statement
Certificates of deposit
2017
December 31,
2016
2015
$
$
7,336
$
5,634
$
897
8,153
16,386
$
2,124
6,529
14,287
$
2,816
2,141
5,466
10,423
104
(8)
Borrowings
Borrowings consisted of securities sold under agreements to repurchase (repurchase agreements), FHLB advances,
floating rate advances, and obligations under capital leases and are summarized as follows (in thousands):
Repurchase agreements
Other borrowings:
FHLB advances
Floating rate advances
Obligations under capital leases
December 31,
2017
2016
$
2,000
$
8,000
464,217
5,033
299
453,220
11,463
523
$
471,549
$
473,206
FHLB advances are secured by a blanket lien on unencumbered securities and the Company’s FHLB capital stock.
Repurchase agreements and FHLB advances have contractual maturities as follows (in thousands):
2018
2019
2020
2021
2022
December 31, 2017
FHLB
Advances
Repurchase
Agreements
$
160,715
$
2,000
123,502
90,000
70,000
20,000
—
—
—
—
$
464,217
$
2,000
At December 31, 2017, repurchase agreements have a weighted average rate of 3.39%, with $2.0 million maturing in
the first quarter of 2018. The repurchase agreements are secured primarily by mortgage-backed securities with an amortized
cost of $4.7 million, and a fair value of $4.6 million, at December 31, 2017. At December 31, 2016, repurchase agreements had
a weighted average rate of 3.19%, with $4.0 million maturing in the first quarter of 2017 and $4.0 million maturing in more
than 90 days. The repurchase agreements were secured primarily by mortgage-backed securities with an amortized cost of
$13.7 million, and a fair value of $13.9 million, at December 31, 2016.
The Company has the ability to obtain additional funding from the FHLB and Federal Reserve Bank discount window
of approximately $870.8 million, utilizing unencumbered and unpledged securities of $72.6 million and multifamily loans of
$885.3 million at December 31, 2017. The Company expects to have sufficient funds available to meet current commitments in
the normal course of business.
Interest expense on borrowings is summarized as follows (in thousands):
Repurchase agreements
FHLB advances
Floating rate advances
Obligations under capital leases
2017
December 31,
2016
2015
$
$
137
7,390
33
30
7,590
$
$
569
6,743
27
42
7,381
$
$
2,446
6,742
17
60
9,265
105
(9)
Income Taxes
Income tax expense (benefit) consists of the following (in thousands):
Federal tax expense (benefit):
Current
Deferred
State and local tax expense (benefit):
Current
Deferred
2017
December 31,
2016
2015
$
10,113
$
14,218
$
14,290
24,403
1,672
903
2,575
(1,260)
12,958
2,506
(1,799)
707
Total income tax expense
$
26,978
$
13,665
$
11,796
(2,305)
9,491
1,811
673
2,484
11,975
Reconciliation between the amount of reported total income tax expense and the amount computed by multiplying the
applicable statutory income tax rate for the years ended December 31, 2017, 2016, and 2015, is as follows (dollars in
thousands):
Tax expense at statutory rate of 35%
Increase (decrease) in taxes resulting from:
State tax, net of federal income tax
Impact of 2017 federal tax reform
Bank owned life insurance
ESOP fair market value adjustment
Incentive stock options
Uncertain tax position
Merger related costs
Excess tax benefits from employee share based payments
Other, net
Income tax expense
Federal Tax Reform
2017
December 31,
2016
2015
$
18,111
$
13,928
$
11,027
1,674
10,453
(1,885)
404
247
132
—
(2,309)
151
460
—
(1,399)
352
299
178
74
—
(227)
1,615
—
(1,319)
—
210
51
201
—
190
$
26,978
$
13,665
$
11,975
On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (the “Tax Act”), was signed into law.
The Tax Act includes many provisions that will affect our income tax expense, including reducing our federal tax rate from 35%
to 21%, effective January 1, 2018. As a result of this rate reduction, we were required to re-measure, through income tax
expense in the period of enactment, our deferred tax assets and liabilities using the enacted rate at which we expect them to be
recovered or settled. The re-measurement of our net deferred tax asset resulted in additional 2017 income tax expense of $10.5
million.
Also on December 22, 2017, the Securities and Exchange Commission released Staff Accounting Bulletin No. 118
(“SAB 118”) to address any uncertainty or diversity of views in practice in accounting for the income tax effects of the Tax Act
in situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to
complete this accounting in the reporting period that includes the enactment date. SAB 118 describes three scenarios associated
with a company’s status of accounting for the Tax Act: (1) a company reflects the income tax effects of the Tax Act in which the
accounting under ASC 740 is complete, (2) a company is able to determine a reasonable estimate for certain effects of tax
reform and records that estimate as a provisional amount, or (3) a company is not able to determine a reasonable estimate and
therefore continues to apply ASC 740, Income Taxes, based on the provisions of the tax laws in effect immediately prior to tax
reform being enacted. SAB 118 allows for a measurement period, not to extend beyond one year from the Tax Act’s enactment
date, to complete the necessary accounting. There were no items for which the Company was unable to make reasonable
estimates for the effects of the Tax Act changes.
106
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2017 and 2016, are as follows (in thousands):
Deferred tax assets:
Allowance for loan losses
Capitalized leases
Deferred compensation
Accrued salaries
Postretirement benefits
Equity awards
Unrealized actuarial losses on post-retirement benefits
Straight-line leases adjustment
Asset retirement obligation
Reserve for accrued interest receivable
Reserve for loan commitments
Employee Stock Ownership Plan
Other
Depreciation
Fair value adjustments of acquired loans
Fair value adjustments of pension benefit obligations
Unrealized losses on securities
Total gross deferred tax assets
Deferred tax liabilities:
Fair value adjustments of acquired securities
Fair value adjustments of deposit liabilities
Deferred loan fees
Undistributed earnings related to NSB Realty Trust
Other
Total gross deferred tax liabilities
Net deferred tax asset
December 31,
2017
2016
$
6,836
$
84
3,474
2
381
3,582
93
892
65
712
124
497
236
2,116
4,868
154
2,070
26,186
35
358
1,815
939
37
3,184
$
23,002
$
9,470
213
5,686
1,128
576
5,005
124
1,219
89
1,116
193
642
366
2,509
10,168
250
2,775
41,529
82
547
1,910
—
59
2,598
38,931
Net deferred tax assets are included in other assets on the consolidated balance sheets. In 2016, the Company recorded
net deferred tax assets of approximately $3.9 million as a result of the Hopewell Valley acquisition.
The Company has determined that it is not required to establish a valuation reserve for the net deferred tax asset
account since it is “more likely than not” that the net deferred tax assets will be realized through future reversals of existing
taxable temporary differences, future taxable income and tax planning strategies. The conclusion that it is “more likely than
not” that the net deferred tax assets will be realized is based on the history of earnings and the prospects for continued
profitability. Management will continue to review the tax criteria related to the recognition of deferred tax assets.
As a savings institution, the Bank is subject to a special federal tax provision regarding its frozen tax bad debt reserve.
At December 31, 2017 and December 31, 2016, the Bank’s federal tax bad debt base-year reserve was $5.9 million, with a
related net deferred tax liability of $2.8 million, which has not been recognized since the Bank does not expect that this reserve
will become taxable in the foreseeable future. Events that would result in taxation of this reserve include redemptions of the
Bank’s stock or certain excess distributions by the Bank to the Company.
107
A reconciliation of the Company’s uncertain tax positions are as follows (in thousands):
Beginning balance
Settlements based on tax positions related to prior years
Additions based on tax positions related to prior years
Ending balance
December 31,
2017
2016
2015
$
$
459
$
(109)
132
482
$
281
$
—
178
459
$
230
—
51
281
The Company recognizes interest and penalties on income taxes in income tax expense.
The following years are open for examination or under examination:
•
Federal tax filings for 2014 through present.
• New York State tax filings 2014 through present. The 2013 through 2014 filings are currently under examination.
• New York City tax filings 2014 through present. The 2010 through 2012 filings are currently under examination.
•
State of New Jersey 2014 through present.
(10)
Retirement Benefits
The Company has a 401(k) plan for its employees, which grants eligible employees (those salaried employees with at
least three months of service) the opportunity to invest from 2% to 15% of their base compensation in certain investment
alternatives. The Company contributes an amount equal to 25% of employee contributions on the first 6% of base compensation
contributed by eligible employees for the first three years of participation. Subsequent years of participation in excess of three
years will increase the Company matching contribution from 25% to 50% of an employee’s contributions, on the first 6% of
base compensation contributed by eligible employees. A member becomes fully vested in the Company’s contributions upon
(a) completion of five years of service, or (b) normal retirement, early retirement, permanent disability, or death. The
Company’s contribution to this plan amounted to approximately $387,000, $384,000, and $321,000 for the years ended
December 31, 2017, 2016, and 2015, respectively.
The Company also maintains a profit-sharing plan in which the Company can contribute to the participant’s 401(k)
account, at its discretion, up to the legal limit of the Internal Revenue Code. The Company did not contribute to the profit
sharing plan during 2017, 2016, and 2015.
The Company maintains the Northfield Bank ESOP. The ESOP is a tax-qualified plan designed to invest primarily in
the Company’s common stock. The ESOP provides employees with the opportunity to receive a funded retirement benefit from
the Bank, based primarily on the value of the Company’s common stock. The ESOP purchased 2,463,884 shares of the
Company’s common stock in the Company’s initial public offering at a price of $7.13 per share. This purchase was funded with
a loan from Northfield Bancorp, Inc. to the ESOP. The outstanding balance at December 31, 2017 and 2016 was $11.5 million
and $12.1 million, respectively. The shares of the Company’s common stock purchased in the initial public offering are pledged
as collateral for the loan. Shares are released for allocation to participants as loan payments are made. A total of 99,670 and
97,836 shares were released and allocated to participants of the ESOP for the years ended December 31, 2017 and 2016,
respectively. Cash dividends on unallocated shares are utilized to satisfy required debt payments. Dividends on allocated shares
are utilized to prepay debt which releases additional shares to participants.
Upon completion of the Company’s second-step conversion, a second ESOP was established for employees in 2013,
which purchased 1,422,357 shares of the Company’s common stock at a price of $10.00 per share. The purchase was funded
with a loan from Northfield Bancorp, Inc. to the second ESOP. The outstanding balance at December 31, 2017 and 2016 was
$12.6 million and $12.9 million, respectively. The shares of the Company’s common stock purchased in the second-step
conversion are pledged as collateral for the loan. Shares are released for allocation to participants as loan payments are made. A
total of 51,189 and 50,086 shares were released and allocated to participants of the second ESOP for the years ended
December 31, 2017 and 2016, respectively. Cash dividends on unallocated shares are utilized to satisfy required debt
payments. Dividends on allocated shares are utilized to prepay debt which releases additional shares to participants.
ESOP compensation expense for both plans for the years ended December 31, 2017, 2016, and 2015 was $2.2 million,
$2.0 million, and $1.9 million, respectively.
108
The Company maintains a Supplemental Employee Stock Ownership Plan (the "SESOP"), a non-qualified plan, that
provides supplemental benefits to certain executives who are prevented from receiving the full benefits contemplated by the
ESOP’s benefit formula due to tax law limits for tax-qualified plans. The supplemental payments for the SESOP consist of cash
payments representing the value of Company shares that cannot be allocated to participants under the ESOPs due to legal
limitations imposed on tax-qualified plans. The Company's required contributions to the SESOP plan were $84,000, $82,000,
and $82,000 for the years ended December 31, 2017, 2016, and 2015, respectively.
The Company provides post-retirement medical and life insurance to a limited number of retired individuals. The
Company also provides retiree life insurance benefits to all qualified employees, up to certain limits. The following tables set
forth the funded status and components of postretirement benefit costs at December 31 measurement dates (in thousands):
Accumulated postretirement benefit obligation beginning of year
$
1,697
$
1,950
$
1,846
2017
2016
2015
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid
Accumulated postretirement benefit obligation end of year
11
57
(8)
(112)
1,645
8
71
(214)
(118)
1,697
Accrued liability (included in accrued expenses and other liabilities)
$
1,645
$
1,697
$
The following table sets forth the amounts recognized in accumulated other comprehensive income (loss) (in
9
62
149
(116)
1,950
1,950
thousands):
Net loss
Transition obligation
Prior service cost
Loss recognized in accumulated other comprehensive income (loss)
December 31,
2017
2016
$
$
274
$
—
—
274
$
310
—
—
310
The estimated net loss, prior service cost, and transition obligation, that will be amortized from accumulated other
comprehensive income (loss) into net periodic cost in 2018, are $25,000, $0, and $0 respectively.
The following table sets forth the components of net periodic postretirement benefit costs for the years ended
December 31, 2017, 2016, and 2015 (in thousands):
Service cost
Interest cost
Amortization of transition obligation
Amortization of prior service costs
Amortization of unrecognized loss
Net postretirement benefit cost included in compensation and employee benefits
December 31,
2017
2016
2015
$
$
11
57
—
—
28
96
$
$
$
8
71
—
12
54
9
62
17
38
44
145
$
170
109
The assumed discount rate related to plan obligations reflects the weighted average of published market rates for high-
quality corporate bonds with terms similar to those of the plans expected benefit payments, rounded to the nearest quarter
percentage point. The Company’s discount rate and rate of compensation increase used in accounting for the plan are as
follows:
Assumptions used to determine benefit obligation at period end:
Discount rate
Rate of increase in compensation
Assumptions used to determine net periodic benefit cost for the year:
Discount rate
Rate of increase in compensation
2017
2016
2015
3.25%
4.00%
3.50%
4.00%
3.50%
4.00%
3.75%
4.00%
3.75%
4.00%
3.50%
4.00%
At December 31, 2017, a medical cost trend rate of 8.75% decreasing 0.50% per year thereafter until an ultimate rate
of 4.75% is reached, was used in the plan’s valuation. The Company’s healthcare cost trend rates are based, among other
things, on the Company’s own experience and third-party analysis of recent and projected healthcare cost trends.
A one percentage-point change in assumed heath care cost trends would have the following effects (in thousands):
Effect on benefits earned and interest cost
Effect on accumulated postretirement benefit obligation
$
4
$
111
6
$
121
(4) $
(100)
(5)
(108)
One Percentage Point Increase
One Percentage Point Decrease
2017
2016
2017
2016
A one percentage-point change in assumed heath care cost trends would have the following effects (in thousands):
Aggregate of service and interest
components of net periodic cost (benefit)
$
4
$
6
$
6
$
(4) $
(5) $
(4)
One Percentage Point Increase
One Percentage Point Decrease
2017
2016
2015
2017
2016
2015
Benefit payments of approximately $112,000, $118,000, and $116,000 were made in 2017, 2016, and 2015,
respectively. The benefits expected to be paid under the postretirement health benefits plan for the next five years are as
follows: $121,000 in 2018; $124,000 in 2019; $126,000 in 2020; $127,000 in 2021; and $127,000 in 2022. The benefit
payments expected to be paid in the aggregate for the years 2023 through 2027 are $594,000. The expected benefits are based
on the same assumptions used to measure the Company’s benefit obligation at December 31, 2017, and include estimated future
employee service.
The Company maintains a nonqualified plan to provide for the elective deferral of all or a portion of director fees by
members of the board of directors, deferral of all or a portion of the compensation and/or annual incentive compensation
payable to eligible employees of the Company, and to provide to certain officers of the Company benefits in excess of those
permitted to be paid by the Company’s savings plan, ESOP, and profit-sharing plan under the applicable Internal Revenue
Code. The plan obligation was approximately $13.7 million and $14.1 million at December 31, 2017 and 2016, respectively,
and is included in accrued expenses and other liabilities on the consolidated balance sheets. Income under this plan was $1.1
million, $503,000, and $392,000 for the years ended December 31, 2017, 2016, and 2015, respectively. The Company invests to
fund this future obligation, in various mutual funds designated as trading securities. The securities are marked-to-market
through current period earnings as a component of non-interest income. Accrued obligations under this plan are credited or
charged with the return on the trading securities portfolio as a component of compensation and benefits expense.
110
(11)
Equity Incentive Plan
The Company maintains the Northfield Bancorp, Inc. 2008 Equity Incentive Plan (the “2008 EIP”) which allows the
Company to grant common stock or options to purchase common stock at specific prices to directors and employees of the
Company. The 2008 EIP provides for the issuance or delivery of up to 4,311,796 shares (1,231,941 restricted shares and
3,079,855 stock options) of Northfield Bancorp, Inc. common stock subject to certain plan limitations. As of December 31,
2017, 3,378 restricted shares and 17,299 stock options remain available for issuance under the 2008 EIP. The stock options and
restricted stock granted in 2017 vest in varying installments over a period ranging from 10 to 34 months, the first vesting
beginning on May 27, 2018. Prior to 2017, all stock options and restricted stock granted vest in equal installments over a five
year period beginning one year from the date of grant. The vesting of options and restricted stock awards may accelerate in
accordance with the terms of the 2008 EIP. During 2017, the Company granted to certain directors and employees in aggregate
34,500 restricted shares and 98,244 stock options to purchase Company stock. In 2016, the Company granted to an employee
20,000 restricted shares and 40,000 stock options to purchase Company stock. Stock options were granted at an exercise price
equal to the fair value of the Company’s common stock on the grant date based on quoted market prices and all have an
expiration period of ten years. The Company is expensing the grant date fair value of all employee and director share-based
compensation over the requisite service periods on a straight-line basis.
The fair value of stock options granted was estimated utilizing the Black-Scholes option pricing model using the
following assumptions:
Grant Date
Stock options granted
Risk-free rate of return
Volatility
Dividend yield
Expected life
Year Ended December 31,
2017
2016
November 1, 2017
September 19, 2017
August 1, 2017
November 16, 2016
40,000
2.06%
29.22%
2.37%
5.75
12,500
1.89%
30.06%
1.98%
5.75
45,744
1.86%
29.46%
1.91%
5.75
40,000
1.8%
30.07%
1.74%
6.5
The Company also maintains the Northfield Bancorp, Inc. 2014 Equity Incentive Plan (the “2014 EIP”) which allows the
Company to grant common stock or options to purchase common stock at specific prices to directors and employees of the
Company. The 2014 EIP provides for the issuance or delivery of up to 4,978,249 shares (1,422,357 restricted shares and
3,555,892 stock options) of Northfield Bancorp, Inc. common stock subject to certain plan limitations. As of December 31,
2017, 148,816 restricted shares and 330,273 stock options remain available for issuance under the 2014 EIP. All stock options
and restricted stock granted to date vest in equal installments over a five year period beginning one year from the date of grant.
The vesting of options and restricted stock awards may accelerate in accordance with terms of the 2014 EIP. Stock options were
granted at an exercise price equal to the fair value of the Company’s common stock on the grant date based on quoted market
prices and all have an expiration period of ten years. In May 2015, the Company granted to certain directors and employees
419,000 restricted shares, and 1,090,000 stock options to purchase Company stock. The vesting of options and restricted stock
awards may accelerate in accordance with terms of the 2014 EIP. Stock options were granted at an exercise price equal to the
fair value of the Company’s common stock on the grant date based on quoted market prices and all have an expiration period of
ten years. The fair value of stock options granted on May 27, 2015, was estimated utilizing the Black-Scholes option pricing
model using the following assumptions: an expected life of 6.5 years, risk-free rate of return of 1.67%, volatility of 32.06% and
a dividend yield of 1.90%.
During the years ended December 31, 2017, 2016, and 2015, the Company recorded, $6.2 million, $7.3 million, and
$6.8 million of stock-based compensation.
111
The following table is a summary of the Company’s non-vested stock options as of December 31, 2017, and changes
therein during the year then ended:
Number of Stock
Options
Weighted Average
Grant Date Fair
Value
Weighted
Average Exercise
Price
Weighted Average
Contractual Life
(years)
Outstanding- December 31, 2015
6,011,861
$
Granted
Forfeited
Exercised
Outstanding- December 31, 2016
Granted
Forfeited
Exercised
Outstanding - December 31, 2017
Exercisable - December 31, 2017
40,000
(32,520)
(690,671)
5,328,670
98,244
(247,484)
(558,743)
4,620,687
3,118,615
$
3.30
4.94
4.00
2.52
3.41
4.04
3.93
2.41
3.51
3.25
$
$
10.93
18.44
13.78
7.84
11.36
16.73
13.68
7.52
11.82
10.75
6.41
9.88
—
—
5.78
9.71
—
—
5.17
4.26
Expected future stock option expense related to the non-vested options outstanding as of December 31, 2017, is $3.9
million over an average period of 1.9 years.
The following is a summary of the status of the Company’s restricted shares as of December 31, 2017, and changes
therein during the year then ended:
Non-vested at December 31, 2015
Granted
Vested
Forfeited
Non-vested at December 31, 2016
Granted
Vested
Forfeited
Non-vested at December 31, 2017
Number of Shares
Awarded
Weighted Average
Grant Date Fair
Value
1,193,862
$
20,000
(277,580)
(12,280)
924,002
34,500
(279,660)
(92,947)
585,895
$
13.70
18.44
13.61
13.87
13.82
16.70
13.68
13.92
14.05
Expected future stock award expense related to the non-vested restricted awards as of December 31, 2017, is $5.4
million over an average period of 1.9 years.
Upon the exercise of stock options, management expects to utilize treasury stock as the source of issuance for these
shares.
(12)
Commitments and Contingencies
The Company, in the normal course of business, is party to commitments that involve, to varying degrees, elements of
risk in excess of the amounts recognized in the consolidated financial statements. These commitments include unused lines of
credit and commitments to extend credit.
At December 31, 2017 and 2016, the following commitment and contingent liabilities existed that are not reflected in
the accompanying consolidated financial statements (in thousands):
112
Commitments to extend credit
Unused lines of credit
Standby letters of credit
December 31,
2017
2016
$
43,611
$
98,433
7,000
46,069
78,825
7,463
The Company’s maximum exposure to credit losses in the event of nonperformance by the other party to these
commitments is represented by the contractual amount. The Company uses the same credit policies in granting commitments
and conditional obligations as it does for amounts recorded in the consolidated balance sheets. These commitments and
obligations do not necessarily represent future cash flow requirements. The Company evaluates each customer’s
creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, is based on management’s
assessment of risk. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance
of a customer to a third-party. The guarantees generally extend for a term of up to one year and are fully collateralized. For each
guarantee issued, if the customer defaults on a payment to the third-party, the Company would have to perform under the
guarantee. The unamortized fee on standby letters of credit approximates their fair value; such fees were insignificant at
December 31, 2017, and at December 31, 2016. The Company maintains an allowance for estimated losses on commitments to
extend credit in other liabilities. At December 31, 2017 and 2016, the allowance was $442,000 and $475,000, respectively, and
changes to the allowance are recorded as a component of other non-interest expense.
At December 31, 2017, the Company was obligated under non-cancelable operating leases and capitalized leases on
property used for banking purposes. Most leases contain escalation clauses and renewal options which provide for increased
rentals as well as for increases in certain property costs including real estate taxes, common area maintenance, and insurance.
In July 2017, the Company entered into an amendment to the lease contract for its main office premises in
Woodbridge, New Jersey, to lease an additional 6,919 square feet of office space in the same building and extend the lease term
by 10 years and eight months from July 1, 2018 through February 28, 2029 which will increase the Company's future minimum
lease commitments by approximately $9.4 million. In October 2017, the Company entered into a new lease agreement for 3,600
square feet of office space at a branch facility in Staten Island, New York, for a term of 15 years through September 2032 which
will increase our future minimum lease commitments by approximately $2.5 million.
The projected minimum annual rental payments and receipts under the capitalized leases and operating leases are as
follows (in thousands):
Year ending December 31:
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments
Rental Payments
Capitalized Leases
Rental Payments
Operating Leases
$
$
$
262
44
—
—
—
—
306
$
4,867
5,167
5,334
4,885
4,204
35,748
60,205
Net rental expense included in occupancy expense was approximately $5.3 million, $5.2 million, and $4.6 million for
the years ended December 31, 2017, 2016, and 2015, respectively.
In the normal course of business, the Company may be a party to various outstanding legal proceedings and claims. In
the opinion of management, the consolidated financial statements will not be materially affected by the outcome of such legal
proceedings and claims.
The Bank has entered into employment and change in control agreements with its President and Chief Executive
Officer and the other executive officers of the Company to ensure the continuity of executive leadership, to clarify the roles and
responsibilities of executives, and to make explicit the terms and conditions of executive employment. These agreements are for
a term of three years subject to review and annual renewal, and provide for certain levels of base annual salary and in the event
113
of a change in control, as defined, or in the event of termination, as defined, certain levels of base salary, bonus payments, and
benefits for a period of up to three years.
(13)
Regulatory Requirements
Federal regulations require federally insured depository institutions to meet several minimum capital standards: a
common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital
to risk-based assets of 8.0%, and a 4.0% Tier 1 capital to total assets leverage ratio. These capital requirements were effective
January 1, 2015, and are the result of a final rule implementing recommendations of the Basel Committee on Banking
Supervision and certain requirements of the Dodd-Frank Act.
Under prompt corrective action regulations, the OCC is required to take certain supervisory actions (and may take
additional discretionary actions) with respect to an undercapitalized institution. Such actions could have a direct material effect
on the institution’s financial statements. The regulations establish a framework for the classification of savings institutions into
five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized. Generally, an institution is considered well capitalized if it has a leverage (Tier 1) ratio of 5.0% or greater, a
common equity Tier 1 ratio of 6.5% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, and a total risk-based capital
ratio of 10.0% or greater.
The foregoing capital ratios are based in part on specific quantitative measures of assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classifications also are subject to
qualitative judgments by the regulators about capital components, risk weighting, and other factors.
On January 1, 2015, a final rule issued by the federal bank regulatory agencies became effective which revised their
leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with
agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank
Act. Among other things, the new rule establishes a new common equity Tier 1 minimum capital requirement (4.5% of risk-
weighted assets), increases the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted
assets) and assigns a higher risk weight (150%) to exposures that are more than 90 days past due or are on non-accrual status,
and to certain commercial real estate facilities that finance the acquisition, development, or construction of real property. The
final rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes
of calculating regulatory capital requirements unless a one-time opt-in or opt-out election is exercised. The rule limits a
banking organization's capital distributions and certain discretionary bonus payments if the banking organization does not hold
a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the
amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement was
phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increases each year until fully phased by January 1,
2019 at 2.5%. For calendar year 2017, the capital conservation buffer was 1.25%. It increased to 1.875% on January 1, 2018.
The final rule also implemented consolidated capital requirements for savings and loan holding companies, such as the
Company, effective January 1, 2015.
Prompt Corrective
Management believes that as of December 31, 2017, and December 31, 2016, the Bank exceeded all capital adequacy
requirements to which it is subject. Further, the most recent OCC notification categorized the Bank as a well-capitalized
institution under the prompt corrective action regulations. There have been no conditions or events since that notification that
management believes have changed the Bank's classification.
The following is a summary of Northfield Bank’s regulatory capital amounts and ratios compared to the regulatory
requirements as of December 31, 2017 and 2016, for classification as a well-capitalized institution and minimum capital
(dollars in thousands):
114
For Capital
Adequacy
Purposes
For Well
Capitalized
Under Prompt Corrective
Action Provisions
Actual
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
559,717
16.70% $
150,862
4.50% $
217,912
6.50%
559,717
559,717
586,361
553,715
553,715
553,715
578,828
$
14.15
16.70
17.49
17.75% $
14.55
17.75
18.56
158,220
201,150
268,200
140,371
152,213
187,161
249,548
4.00
6.00
8.00
197,775
268,200
335,250
4.50% $
4.00
6.00
8.00
202,758
190,267
249,548
311,935
5.00
8.00
10.00
6.50%
5.00
8.00
10.00
As of December 31, 2017:
Common Equity Tier 1 Capital (to risk-
weighted assets)
Tier 1 Leverage
Tier I capital (to risk-weighted assets)
Total capital (to risk-weighted assets)
As of December 31, 2016:
Common Equity Tier 1 Capital (to risk-
weighted assets)
Tier 1 Leverage
Tier I capital (to risk-weighted assets)
Total capital (to risk-weighted assets)
The following is a summary of the Company's regulatory capital amounts and ratios compared to the regulatory
requirements as of December 31, 2017 and 2016, for classification as a well-capitalized institution and minimum capital
(dollars in thousands).
For Capital
Adequacy
Purposes
For Well
Capitalized
Under Prompt Corrective
Action Provisions
Actual
Amount
Ratio
Amount
Ratio
Amount
Ratio
$
604,208
18.02% $
150,917
4.50% $
217,991
6.50%
604,208
604,208
630,853
15.27
18.02
18.81
158,254
201,222
268,296
4.00
6.00
8.00
197,818
268,296
335,370
5.00
8.00
10.00
$
586,055
18.79% $
140,329
4.50% $
202,698
6.50%
586,055
586,055
611,168
15.40
18.79
19.60
152,213
187,106
249,474
4.00
6.00
8.00
190,267
249,474
380,533
5.00
8.00
10.00
As of December 31, 2017:
Common Equity Tier 1 Capital (to risk-
weighted assets)
Tier 1 Leverage
Tier I capital (to risk-weighted assets)
Total capital (to risk-weighted assets)
As of December 31, 2016:
Common Equity Tier 1 Capital (to risk-
weighted assets)
Tier 1 Leverage
Tier I capital (to risk-weighted assets)
Total capital (to risk-weighted assets)
(14)
Fair Value of Measurement
The following table presents the assets reported on the consolidated balance sheet at their estimated fair value as of
December 31, 2017 and 2016, by level within the Fair Value Measurements and Disclosures Topic of the FASB Accounting
Standards Codification. 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.
115
The following tables summarize financial assets and financial liabilities measured at fair value as of December 31,
2017 and 2016, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value (in
thousands):
Fair Value Measurements at December 31, 2017 Using:
Carrying Value
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable
Inputs (Level 2)
(in thousands)
Significant
Unobservable
Inputs
(Level 3)
Measured on a recurring basis:
Assets:
Investment securities:
Available-for-sale:
Mortgage-backed securities
GSE
Non-GSE
Debt securities
Municipal bonds
Corporate bonds
Other securities
Equity investments - mutual funds
Other
Total available-for-sale
Trading securities
Total
Measured on a non-recurring basis:
Assets:
Impaired loans:
Real estate loans:
Commercial real estate
One-to-four family residential mortgage
Multifamily
Home equity and lines of credit
Total impaired real estate loans
Commercial and industrial loans
Other real estate owned
Total
$
$
$
$
445,224
$
— $
445,224
$
—
—
—
—
—
—
—
—
4,645
1,735
51
31
6,462
21
850
7,333
79
349
68,130
323
1,016
515,121
9,597
524,718
$
4,645
$
1,735
51
31
6,462
21
850
—
—
—
323
—
323
9,597
9,920
$
79
349
68,130
—
1,016
514,798
—
514,798
$
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
7,333
$
— $
— $
116
Fair Value Measurements at December 31, 2016 Using:
Carrying Value
Quoted Prices in Active
Markets for Identical
Assets (Level 1)
Significant Other
Observable
Inputs (Level 2)
(in thousands)
Significant
Unobservable
Inputs
(Level 3)
$
448,842
$
— $
448,842
$
270
2,158
45,159
1,218
1,250
498,897
7,857
506,754
$
—
—
—
271
—
271
7,857
8,128
$
270
2,158
45,159
947
1,250
498,626
—
498,626
$
—
—
—
—
—
—
—
—
—
10,730
$
— $
— $
10,730
2,177
1,276
274
14,457
21
850
—
—
—
—
—
—
—
—
—
—
—
—
2,177
1,276
274
14,457
21
850
15,328
$
— $
— $
15,328
Measured on a recurring basis:
Assets:
Investment securities:
Available-for-sale:
Mortgage-backed securities
GSE
Non-GSE
Debt securities
Municipal Bonds
Corporate bonds
Other securities
Equity investments - mutual funds
Other
Total available-for-sale
Trading securities
Total
Measured on a non-recurring basis:
Assets:
Impaired loans:
Real estate loans:
Commercial real estate
One-to-four family residential mortgage
Multifamily
Home equity and lines of credit
Total impaired real estate loans
Commercial and industrial loans
Other real estate owned
Total
$
$
$
The following table presents qualitative information for Level 3 assets measured at fair value on a non-recurring basis at
December 31, 2017:
Fair Value
Valuation Methodology
Unobservable Inputs
Range of Inputs
Impaired loans
Other real estate owned
(in thousands)
$
$
6,483 Appraisals
Discount for costs to sell
Discount for quick sale
Discounted cash flows
Interest rates
850 Appraisals
Discount for costs to sell
7.0%
10.0%
3.13% - 6.5%
7.0%
117
The following table presents qualitative information for Level 3 assets measured at fair value on a non-recurring basis
at December 31, 2016:
Fair Value
Valuation Methodology
Unobservable Inputs
Range of Inputs
Impaired loans
Other real estate owned
(in thousands)
$
$
14,478 Appraisals
Discount for costs to sell
Discount for quick sale
Discounted cash flows
Interest rates
850 Appraisals
Discount for costs to sell
7.0%
10.0%
4.75% - 7.5%
7.0%
Available-for-Sale Securities: The estimated fair values for mortgage-backed securities, GSE bonds, and corporate
securities are obtained from a 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 value of equity securities
classified as Level 1, are derived from quoted market prices in active markets. Equity securities consist primarily of money
market mutual funds. There were no transfers of securities between Level 1 and Level 2 during the year ended December 31,
2017.
Trading Securities: Fair values are derived from quoted market prices in active markets. The assets consist of
publicly traded mutual funds.
Impaired Loans: At December 31, 2017, and December 31, 2016, the Company had originated impaired loans held-
for-investment with outstanding principal balances of $8.8 million and $17.7 million that were recorded at their estimated fair
value of $6.5 million and $14.5 million, respectively. The Company recorded a net decrease in the specific reserve for impaired
loans of $246,000 and $562,000 for the years ended December 31, 2017 and 2016, respectively, and net recoveries of $154,000
and net charge-offs of $810,000 for the years ended December 31, 2017 and 2016, 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 December 31, 2017 and 2016, the Company had assets acquired through foreclosure
of $850,000, recorded at estimated fair value, less estimated selling costs when acquired, thus 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 the economic conditions.
In addition, the Company may be required, from time to time, to measure the fair value of certain other financial assets
on a nonrecurring basis in accordance with U.S. GAAP. The adjustments to fair value usually result from the application of
lower-of-cost-or-market accounting or write downs of individual assets.
Fair Value of Financial Instruments
The FASB Accounting Standards 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
Cash and cash equivalents are short-term in nature with original maturities of three months or less; the carrying
amount approximates fair value.
118
(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 FHLB of New York stock is its carrying value, since this is the amount for which it could be
redeemed and there is no active market for this stock.
(d)
Loans (Held-for-Investment)
Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type
such as originated and purchased, and further segregated by residential mortgage, construction, land, multifamily, commercial
and consumer. Each loan category is further segmented into amortizing and non-amortizing and fixed and adjustable rate
interest terms and by performing and non-performing 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, which would also
consider adjustments for other factors such as liquidity and credit quality. The fair value would be affected significantly by
these other factors.
(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 are 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 for Taxes and Insurance
Advance payments by borrowers for taxes and insurance have no stated maturity; the fair value is equal to the amount
currently payable.
119
The estimated fair values of the Company’s significant financial instruments at December 31, 2017 and 2016, are
presented in the following table (in thousands):
Financial assets:
Cash and cash equivalents
Trading securities
Securities available-for-sale
Securities held-to-maturity
FHLB of New York stock, at cost
Net loans held-for-investment
Financial liabilities:
Deposits
December 31, 2017
Estimated Fair Value
Carrying
Value
Level 1
Level 2
Level 3
Total
$
57,839
$
57,839
$
9,597
515,121
9,931
25,046
3,114,659
9,597
323
—
—
—
— $
—
514,798
9,892
25,046
— $
—
—
—
—
57,839
9,597
515,121
9,892
25,046
—
3,157,829
3,157,829
$
2,836,979
$
— $ 2,839,666
$
— $ 2,839,666
Repurchase agreements and other borrowings
Advance payments by borrowers
471,549
14,798
—
—
466,625
14,798
—
—
466,625
14,798
Financial assets:
Cash and cash equivalents
Trading securities
Securities available-for-sale
Securities held-to-maturity
FHLB of New York stock, at cost
Net loans held-for-investment
Financial liabilities:
Deposits
December 31, 2016
Estimated Fair Value
Carrying
Value
Level 1
Level 2
Level 3
Total
$
96,085
$
96,085
$
7,857
498,897
10,148
25,123
2,943,489
7,857
271
—
—
—
— $
—
498,626
10,118
25,123
— $
—
—
—
—
96,085
7,857
498,897
10,118
25,123
—
2,970,438
2,970,438
$
2,713,587
$
— $ 2,720,176
$
— $ 2,720,176
Repurchase agreements and other borrowings
Advance payments by borrowers
473,206
12,331
—
—
472,387
12,331
—
—
472,387
12,331
Limitations
Fair value estimates are made at a specific point in time, based on relevant market information and information about
the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one
time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of
the Company’s financial instruments, fair value estimates are based on judgments regarding future expected 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 a
high degree of 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.
120
(15)
Earnings Per Share
The following is a summary of the Company’s earnings per share calculations and reconciliation of basic to diluted
earnings per share for the periods indicated (in thousands, except share data):
Net income available to common stockholders
Weighted average shares outstanding-basic
Effect of non-vested restricted stock and stock options outstanding
Weighted average shares outstanding-diluted
Earnings per share-basic
Earnings per share-diluted
Anti-dilutive shares
2017
December 31,
2016
2015
24,768
$
26,130
$
19,531
45,325,445
1,550,285
46,875,730
44,374,389
1,343,498
45,717,887
0.55
0.53
$
$
0.59
0.57
$
$
42,285,712
1,192,769
43,478,481
0.46
0.45
334,927
777,733
2,679,507
$
$
$
Diluted earnings per share is computed using the same method as basic earnings per share, but reflects the potential
dilution that could occur if stock options and unvested shares of restricted stock were exercised and converted into common
stock. These potentially dilutive shares would then be included in the weighted average number of shares outstanding for the
period using the treasury stock method. The Company adopted ASU No. 2016-09 effective January 1, 2017. The most
significant impact of the amended guidance resulted in recognition of excess tax benefits within income tax expense, which
resulted in an increase to net income and earnings per share. In addition, the guidance increases average diluted shares, since
the Company no longer includes such excess tax benefits in the calculation of diluted shares. For further discussion, see Note 1
- “Summary of Significant Accounting Policies - Net Income per Common Share”.
121
(16)
Parent-only Financial Information
The following condensed parent company only financial information reflects Northfield Bancorp, Inc.’s investment in
its wholly-owned consolidated subsidiary, Northfield Bank, using the equity method of accounting.
Northfield Bancorp, Inc.
Condensed Balance Sheets
Assets
Cash in Northfield Bank
Interest-earning deposits in other financial institutions
Investment in Northfield Bank
ESOP loan receivable
Other assets
Total assets
Liabilities and Stockholders' Equity
Total liabilities
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2017
2016
(in thousands)
$
20,080
$
21
594,385
24,021
1,185
639,692
815
638,877
639,692
$
$
$
$
$
$
8,953
21
588,856
25,043
118
622,991
1,795
621,196
622,991
Northfield Bancorp, Inc.
Condensed Statements of Comprehensive Income (Loss)
Interest on ESOP loan
Interest income on deposit in Northfield Bank
Gains (losses) on securities transactions, net
Undistributed earnings of Northfield Bank
Total income
Other expenses
Income tax expense
Total expense
Net income
Comprehensive income:
Net income
Other comprehensive loss, net of tax
Comprehensive income
2017
Years Ended
December 31,
2016
(in thousands)
2015
$
939
$
913
$
31
5
24,887
25,862
872
222
1,094
24,768
24,768
(227)
24,541
$
$
$
31
4
26,303
27,251
936
185
1,121
26,130
26,130
(1,346)
24,784
$
$
$
$
$
$
875
51
(4)
19,718
20,640
891
218
1,109
19,531
19,531
(2,221)
17,310
122
Northfield Bancorp, Inc.
Condensed Statements of Cash Flows
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
December 31,
2017
2016
2015
(in thousands)
$
24,768
$
26,130 $
19,531
Increase in other assets
(Gains) losses on securities transactions, net
(Decrease) increase in other liabilities
Undistributed earnings of Northfield Bank
Net cash used in operating activities
Cash flows from investing activities
Cash consideration paid for business acquisition
Dividends from Northfield Bank
Net cash provided by investing activities
Cash flows from financing activities
Principal payments on ESOP loan receivable
Purchase of treasury stock
Dividends paid
Exercise of stock options
Additional tax benefit on stock awards
Net cash used in financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(2,008)
(5)
(980)
(24,887)
(3,112)
—
28,763
28,763
1,022
—
(15,646)
100
—
(14,524)
11,127
8,974
(1,994)
(4)
1,238
(457)
4
377
(26,303)
(19,718)
(933)
(263)
(13,644)
14,700
1,056
969
(2,201)
(14,074)
120
1,512
(13,674)
(13,551)
22,525
—
25,900
25,900
922
(48,446)
(12,184)
158
122
(59,428)
(33,791)
56,316
22,525
$
20,101
$
8,974 $
123
(17)
Selected Quarterly Financial Data (Unaudited)
The following tables are a summary of certain quarterly financial data for the years ended December 31, 2017 and
2016:
Selected Operating Data:
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Other income
Other expenses
Income before income tax expense
Income tax expense
Net income (loss)
Net income per basic common share
Net income per diluted common share
Selected Operating Data:
Interest income
Interest expense
Net interest income
Provision (recoveries) for loan losses
Net interest income after provision for loan losses
Other income
Other expenses
Income before income tax expense
Income tax expense
Net income
Net income per basic common share
Net income per diluted common share
$
$
$
$
$
$
$
2017 Quarter Ended
March 31
June 30
September 30
December 31
(Dollars in thousands, except per share data)
$
32,069
$
32,660
$
33,525
$
5,392
26,677
372
26,305
4,147
17,544
12,908
2,960
9,948
0.22
0.21
$
$
$
5,751
26,909
511
26,398
2,437
16,618
12,217
3,807
8,410
0.19
0.18
$
$
$
6,173
27,352
488
26,864
2,615
16,828
12,651
4,525
8,126
0.18
0.17
$
$
$
34,615
6,660
27,955
40
27,915
2,443
16,388
13,970
15,686
(1,716)
(0.04)
(0.04)
2016 Quarter Ended
March 31
June 30
September 30
December 31
(Dollars in thousands, except per share data)
30,169
$
31,168
$
31,525
$
5,441
24,728
(131)
24,859
2,229
21,499
5,589
1,929
3,660
0.08
0.08
$
$
$
5,527
25,641
14
25,627
2,533
17,494
10,666
3,681
6,985
0.16
0.15
$
$
$
5,274
26,251
472
25,779
2,667
17,377
11,069
3,782
7,287
0.16
0.16
$
$
$
32,110
5,426
26,684
280
26,404
2,643
16,576
12,471
4,273
8,198
0.18
0.18
124
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Steven M. Klein, our President and Chief Executive Officer, and William R. Jacobs, our Chief Financial Officer,
conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended) or (the Exchange Act) as of December 31, 2017. Based
upon their evaluation, they each found that our disclosure controls and procedures were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 2017
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting and we
identified no material weaknesses requiring corrective action with respect to those controls.
Management Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining effective internal control over financial
reporting as such term is defined in Rule 13a-15(f) of the Exchange Act. The Company’s internal control system is a process
designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and
fair presentation of published financial statements.
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable
assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.
generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with
authorizations of management and the directors of the Company; and provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our
financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as
of December 31, 2017. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations
of the Treadway Commission in Internal Control-Integrated Framework (2013). Based on our assessment we believe that, as
of December 31, 2017, the Company’s internal control over financial reporting is effective based on those criteria.
The Company’s independent registered public accounting firm that audited the consolidated financial statements has
issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017,
and it is included in Item 8, under Part II of this Annual Report on Form 10-K. This report appears on page 67 of this
document.
ITEM 9B.
OTHER INFORMATION
None
125
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The sections of the Company’s definitive proxy statement for the Company’s 2018 Annual Meeting of the
Stockholders (the “2018 Proxy Statement”) entitled “Proposal I-Election of Directors,” “Corporate Governance and Board
Matters-Director and Director Nominee Evaluation Process,” “Executive Officers who are not Directors” “Other Information-
Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance and Board Matters - Codes of Conduct
and Ethics,” “Stockholder Communications,” and “Board of Directors, Leadership Structure, Role in Risk Oversight, Meetings
and Standing Committees-Audit Committee” are incorporated herein by reference.
A copy of the Code of Conduct and Ethics for Employees, Officers, and Directors and the Code of Conduct and Ethics
for Senior Financial Officers is available to shareholders under the investor relations tab on the Company's website at
www.eNorthfield.com.
ITEM 11.
EXECUTIVE COMPENSATION
The sections of the Company’s 2018 Proxy Statement entitled “Corporate Governance and Board Matters-Director
Compensation” and “Executive Compensation” are incorporated herein by reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The section of the Company’s 2018 Proxy Statement entitled “Voting Securities and Principal Holders Thereof” is
incorporated herein by reference.
Set forth below is information as of December 31, 2017, with respect to compensation plans (other than our employee
stock ownership plan) under which equity securities of the Company are authorized for issuance:
Equity Compensation Plan Information
Number of Securities to
be Issued Upon Exercise
of Outstanding Options,
Warrants and Rights
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights(1)
Number of Securities
Remaining Available for
Future Issuance Under
Stock-Based
Compensation Plans
(Excluding Securities
Reflected in First Column)
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
4,620,687
N/A
4,620,687
$
$
11.82
N/A
11.82
499,766
N/A
499,766
(1) Represents the weighted average exercise price of outstanding options at December 31, 2017.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
The sections of the Company’s 2018 Proxy Statement entitled “Corporate Governance and Board Matters-
Transactions with Certain Related Persons” and “Board of Directors, Leadership Structure, Role in Oversight, Meetings and
Standing Committees - Board of Directors” are incorporated herein by reference.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The sections of the Company’s 2018 Proxy Statement entitled “Audit-Related Matters-Policy for Approval of Audit
and Permitted Non-audit Services” and “Auditor Fees and Services” are incorporated herein by reference.
126
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)(1) Financial Statements
The following documents are filed as part of this Form 10-K.
(A) Reports of Independent Registered Public Accounting Firm
(B) Consolidated Balance Sheets - at December 31, 2017, and 2016
(C) Consolidated Statements of Comprehensive Income - Years ended December 31, 2017, 2016, and 2015
(D) Consolidated Statements of Changes in Stockholders’ Equity - Years ended December 31, 2017, 2016, and 2015
(E) Consolidated Statements of Cash Flows - Years ended December 31, 2017, 2016, and 2015
(F) Notes to Consolidated Financial Statements.
3.1
3.2
4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
(a)(2)
Exhibits
Certificate of Incorporation of Northfield Bancorp, Inc. (4)
Bylaws of Northfield Bancorp, Inc. (4)
Form of Common Stock Certificate of Northfield Bancorp, Inc.(4)
Short Term Disability and Long Term Disability for Senior Management (1) †
Northfield Bank Non-Qualified Deferred Compensation Plan (3) †
Northfield Bank Non-Qualified Supplemental Employee Stock Ownership Plan (3) †
Amendment to Northfield Bank Non-Qualified Deferred Compensation Plan (6) †
Amendment to Northfield Bank Non-Qualified Supplemental Employee Stock Ownership Plan (6) †
Northfield Bancorp, Inc. 2008 Equity Incentive Plan (5) †
Form of Director Non-Statutory Stock Option Award Agreement under the 2008 Equity Incentive Plan (6) †
Form of Director Restricted Stock Award Agreement under the 2008 Equity Incentive Plan (6) †
Form of Employee Non-Statutory Stock Option Award Agreement under the 2008 Equity Incentive Plan (6) †
Form of Employee Incentive Stock Option Award Agreement under the 2008 Equity Incentive Plan (6) †
Form of Employee Restricted Stock Award Agreement under the 2008 Equity Incentive Plan (6) †
Group Term Replacement Plan (7) †
Northfield Bancorp, Inc. 2014 Equity Incentive Plan (8) †
Form of Employee Stock Option Award Agreement under the 2014 Equity Incentive Plan with the Exception of
John W. Alexander and Steven M. Klein (9) †
Form of Employee Restricted Stock Award Agreement under the 2014 Equity Incentive Plan with John W.
Alexander and Steven M. Klein (9) †
Form of Director Restricted Stock Award Agreement under the 2014 Equity Incentive Plan (9) †
Form of amendment to restricted stock award and stock option agreements to participants of the 2014 Equity
Incentive Plan (2) †
Form of Employee Stock Option Award Agreement under the 2014 Equity Incentive Plan with the Exception of
John W. Alexander and Steven M. Klein (10) †
Form of Employee Stock Option Award Agreement under the 2014 Equity Incentive Plan with John W. Alexander
and Steven M. Klein (10) †
Form of Director Non-Statutory Stock Option Award Agreement under the 2014 Equity Incentive Plan (10) †
Form of Employee Restricted Stock Award Agreement under the 2014 Equity Incentive Plan with the exception of
John W. Alexander and Steven M. Klein (10) †
Form of Employee Restricted Stock Award Agreement under the 2014 Equity Incentive Plan with John W.
Alexander and Steven M. Klein (10) †
Form of Director Restricted Stock Award Agreement under the 2014 Equity Incentive Plan (10) †
Northfield Bancorp, Inc. 2016 Management Cash Incentive Plan, Amended January 27, 2016 (11) †
Northfield Bancorp, Inc. 2017 Management Cash Incentive Plan, Amended January 25, 2017 (12) †
Transition Consulting Agreement between Northfield Bank and John W. Alexander (13) †
127
10.27
10.28
10.29
21
23
31.1
31.2
32
101
Form of Amended and Restated Employment Agreement effective November 1, 2017, with Steven M. Klein (14) †
Form of Amended and Restated Employment Agreement effective January 1, 2018, with Kenneth J. Doherty,
William R. Jacobs, and Michael J. Widmer (15) †
Northfield Bancorp, Inc. 2018 Management Cash Incentive Plan, Amended January 24, 2018 (16) †
Subsidiaries of Registrant (1)
Consent of KPMG LLP *
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002*
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2017,
formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial
Condition, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Statements of
Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated
Financial Statements.
† Management contract or compensation plan or arrangement.
* Filed herewith.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Incorporated by reference to the Registration Statement on Form S-1 of Northfield Bancorp, Inc. (File No. 333-143643),
originally filed with the Securities and Exchange Commission on June 11, 2007.
Incorporated by reference to Northfield Bancorp Inc.’s Current Report on Form 8-K, dated December 17, 2014, filed
with the Securities and Exchange Commission on December 23, 2014 (File Number 001-35791).
Incorporated by reference to Northfield Bancorp Inc.’s Annual Report on Form 10-K, dated December 31, 2007, filed
with the Securities and Exchange Commission on March 31, 2008 (File Number 001-33732).
Incorporated by reference to the Registration Statement on Form S-1 of Northfield Bancorp, Inc. (File No. 333-181995),
originally filed with the Securities and Exchange Commission on June 8, 2012.
Incorporated by reference to Northfield Bancorp Inc.’s Proxy Statement Pursuant to Section 14(a) filed with the Securities
and Exchange Commission on November 12, 2008 (File Number 001-33732).
Incorporated by reference to Northfield Bancorp Inc.’s Annual Report on Form 10-K, dated December 31, 2008, filed
with the Securities and Exchange Commission on March 16, 2009 (File Number 001-33732).
Incorporated by reference to Northfield Bancorp Inc.’s Current Report on Form 8-K, dated April 28, 2010, filed with the
Securities and Exchange Commission on April 29, 2010 (File Number 001-33732).
(8) Incorporated by reference to Appendix A of Northfield Bancorp Inc.’s Definitive Proxy Statement for the 2014 Annual
Meeting of Stockholders (File No. 001-35791) as filed with the Securities and Exchange Commission on April 25, 2014.
(9)
Incorporated by reference to Northfield Bancorp Inc.’s Quarterly Report on Form 10-Q, dated June 30, 2014, filed with
the Securities and Exchange Commission on August 11, 2014 (File Number 001-35791).
(10)
Incorporated by reference to Northfield Bancorp Inc.’s Quarterly Report on Form 10-Q, dated June 30, 2015, filed with
the Securities and Exchange Commission on August 10, 2015 (File Number 001-35791).
(11)
Incorporated by reference to Northfield Bancorp Inc.’s Annual Report on Form 10-K dated December 31, 2015, filed
with the Securities and Exchange Commission on March 15, 2016 (File Number 001-35791).
(12)
Incorporated by reference to Northfield Bancorp Inc.’s Current Report on Form 8-K dated January 25, 2017, filed with
the Securities and Exchange Commission on January 30, 2017 (File Number 001-35791).
128
(13)
(14)
(15)
Incorporated by reference to Northfield Bancorp Inc.’s Current Report on Form 8-K dated October 6, 2017, filed with
the Securities and Exchange Commission on October 10, 2017 (File Number 001-35791).
Incorporated by reference to Northfield Bancorp Inc.’s Current Report on Form 8-K dated October 25, 2017, filed with
the Securities and Exchange Commission on October 30, 2017 (File Number 001-35791).
Incorporated by reference to Northfield Bancorp Inc.’s Current Report on Form 8-K dated December 13, 2017, filed with
the Securities and Exchange Commission on December 19, 2017 (File Number 001-35791).
(16)
Incorporated by reference to Northfield Bancorp Inc.’s Current Report on Form 8-K dated January 24, 2018, filed with
the Securities and Exchange Commission on January 29, 2018 (File Number 001-35791).
ITEM 16.
FOR 10-K SUMMARY
Not Applicable
129
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
NORTHFIELD BANCORP, INC.
Date: March 1, 2018
By:
/s/ Steven M. Klein
Steven M. Klein
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures
Title
Date
/s/ Steven M. Klein
Steven M. Klein
/s/ William R. Jacobs
William R. Jacobs
/s/ John W. Alexander
John W. Alexander
/s/ Annette Catino
Annette Catino
/s/ Gil Chapman
Gil Chapman
/s/ John P. Connors, Jr
John P. Connors, Jr.
/s/ Timothy C. Harrison
Timothy C. Harrison
/s/ Karen J. Kessler
Karen J. Kessler
/s/ Patrick L. Ryan
Patrick Ryan
/s/ Frank P. Patafio
Frank P. Patafio
/s/ Patrick E. Scura, Jr.
Patrick E. Scura, Jr.
President and Chief Executive Officer (Principal
Executive Officer)
March 1, 2018
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
March 1, 2018
Director
Director
Director
Director
Director
Director
Director
Director
Director
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STOCKHOLDER INFORMATION
Corporate Headquarters
Northfield Bancorp, Inc.
581 Main Street, Suite 810
Woodbridge, New Jersey 07095
(732) 499-7200
www.eNorthfield.com
Annual Meeting of Stockholders
The 2018 Annual Meeting of Stockholders
of Northfield Bancorp, Inc. has been set
for 10:00 a.m., local time, on May 23, 2018.
The Annual Meeting will be held at our
Corporate Headquarters, 581 Main Street,
Suite 810, Woodbridge, NJ 07095. The
voting record date was March 27, 2018.
Persons may obtain a copy, free of charge,
of the Northfield Bancorp, Inc. 2017 Annual
Report and Form 10-K (excluding exhibits)
as filed with the Securities and Exchange
Commission by contacting:
M. Eileen Bergin
Senior Vice President
Corporate Secretary
(732) 499-7200 x2515
ebergin@eNorthfield.com
or by going to www.eNorthfield.com/proxy
Stockholder Inquiries
For information regarding your shares of
common stock of Northfield Bancorp, Inc.,
please contact:
M. Eileen Bergin
Senior Vice President
Corporate Secretary
(732) 499-7200 x2515
ebergin@eNorthfield.com
Stock Listing
Northfield Bancorp, Inc. common stock
is traded on the NASDAQ Global Select
Market under the symbol NFBK.
Registrar and Transfer Agent
Broadridge Corporate
Issuer Solutions, Inc.
P.O. Box 1342
Brentwood, NY 11717
http://shareholder.broadridge.com/nfbk
shareholder@broadridge.com
Independent Registered
Public Accounting Firm
KPMG LLP
51 John F. Kennedy Parkway
Short Hills, New Jersey 07078
BOARD OF DIRECTORS
John W. Alexander
Chairman
Retired CEO,
Northfield Bancorp
Timothy C. Harrison
Principal,
TCH Realty &
Development Co., LLC
Annette Catino
Healthcare
Consultant, Principal
Karen J. Kessler
President,
Evergreen Partners, Inc.
Gil Chapman
Retired Auto
Executive
Steven M. Klein
President & CEO,
Northfield Bancorp
John P. Connors, Jr.
Managing Partner,
Connors & Connors, P.C.
Frank P. Patafio
Senior Executive VP,
Head of Investments &
Portfolio Manager,
RXR Realty
Patrick L. Ryan, Esq.
Former Chairman,
Hopewell Valley
Community Bank
Patrick E. Scura, Jr.
Certified
Public Accountant
EXECUTIVE MANAGEMENT
Steven M. Klein
President and
Chief Executive Officer
M. Eileen Bergin
Senior Vice President,
Corporate Secretary
Kenneth J. Doherty
Executive Vice
President,
Chief Lending Officer
Tara French
Executive Vice
President,
Chief Administrative
Officer
William R. Jacobs
Executive Vice
President,
Chief Financial Officer
Robin Lefkowitz
Executive Vice
President, Business
Development and
Branch Administration
Michael J. Widmer
Executive Vice
President, Operations
Bancorp
eNorthfield.com