Market Overview

Northfield Bancorp, Inc. Announces Third Quarter 2017 Results and a 25% Increase in the Cash Dividend

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NOTABLE ITEMS INCLUDE:

  • DILUTED EARNINGS PER SHARE INCREASED 6.3% OVER THE COMPARABLE 2016 QUARTER
  • NET INTEREST INCOME INCREASED 4.2%, OVER THE COMPARABLE 2016 QUARTER
  • ORIGINATED LOANS HELD-FOR-INVESTMENT, NET, INCREASED 10.1% YEAR-TO-DATE
  • ASSET QUALITY REMAINS STRONG WITH NONPERFORMING ASSETS AT 0.16% OF TOTAL ASSETS AND NON PERFORMING LOANS AT 0.18% OF TOTAL LOANS
  • CAPITAL REMAINS STRONG AT 16.1% OF TOTAL ASSETS
  • INCREASED CASH DIVIDEND BY 25% TO $0.10 PER SHARE OF COMMON STOCK, PAYABLE NOVEMBER 22, 2017 TO STOCKHOLDERS OF RECORD AS OF NOVEMBER 8, 2017

WOODBRIDGE, N.J., Oct. 25, 2017 (GLOBE NEWSWIRE) -- NORTHFIELD BANCORP, INC. (NASDAQ:NFBK), the holding company for Northfield Bank, reported diluted earnings per common share of $0.17 and $0.57 for the quarter and nine months ended September 30, 2017, respectively, compared to diluted earnings per common share of $0.16 and $0.39 for the quarter and nine months ended September 30, 2016, respectively. In the first quarter of 2017, the Company adopted Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718) ("ASU 2016-09"), which resulted in a $2.3 million, or $0.05 per diluted share, reduction in income tax expense for the nine months ended September 30, 2017. Earnings for the nine months ended September 30, 2017, also reflect $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, recorded in the first quarter of 2017. Earnings for the nine months ended September 30, 2016, included merger-related expenses associated with the acquisition of Hopewell Valley Community Bank ("Hopewell Valley") of approximately $2.4 million, net of tax, or $0.05 per basic and diluted share.

John W. Alexander, Chairman and Chief Executive Officer, commented, "Executing on fundamentals remains the key to continued solid performance. Originated loans held for investment, net, have increased over 2.6% for the quarter, and 10% year-to-date, while underwriting standards and asset quality remained strong with non-performing loans to total loans dropping to 18 basis points. Efficiency remains a driver of core operating performance as we continue to focus on managing our operating expenses while increasing our net interest and non-interest income, resulting in an efficiency ratio of 56.16% for the quarter as compared to 60.09% in the prior year quarter."

Mr. Alexander further noted, "In recognition of our continued strong operating results and capital position, the Board of Directors determined that an increase in our quarterly dividend was warranted. Accordingly, the Board has declared a dividend of $0.10 per common share, a 25% increase in the quarterly dividend, to be payable on November 22, 2017, to stockholders of record on November 8, 2017."

Results of Operations

Comparison of Operating Results for the Three Months Ended September 30, 2017 and 2016

Net income was $8.1 million and $7.3 million for the quarters ended September 30, 2017, and September 30, 2016, respectively. Significant variances from the comparable prior year quarter are as follows: a $1.1 million increase in net interest income, a $16,000 increase in the provision for loan losses, a $52,000 decrease in non-interest income, a $549,000 decrease in non-interest expense, and a $743,000 increase in income tax expense. 

Net interest income for the quarter ended September 30, 2017, increased $1.1 million, or 4.2%, primarily due to a $151.1 million, or 4.3%, increase in our average interest-earning assets, partially offset by a one basis point decrease in our net interest margin to 2.97%. The increase in average interest-earning assets was primarily attributable to an increase in average loans outstanding of $254.8 million, partially offset by a decrease in average mortgage-backed securities of $111.9 million. The increase in average loans was due to originated loan growth as well as loan pool purchases. Net interest income for the quarter ended September 30, 2017, included loan prepayment income of $366,000 as compared to $459,000 for the quarter ended September 30, 2016. Yields earned on interest-earning assets increased six basis points to 3.64% for the quarter ended September 30, 2017, from 3.58% for the quarter ended September 30, 2016, primarily driven by higher yields on average securities, Federal Home Loan Bank of New York stock and interest-earning deposits in financial institutions, partially offset by lower yields on average loans. The cost of interest-bearing liabilities increased eight basis points to 0.86% for the current quarter as compared to 0.78% for the comparable prior year quarter, due to higher rates across all interest-bearing deposits and borrowed funds.

The provision for loan losses increased by $16,000 to $488,000 for the quarter ended September 30, 2017, from $472,000 for the quarter ended September 30, 2016, primarily due to growth in the loan portfolio, partially offset by declines in non-performing loans and lower net charge-offs. Net recoveries were $6,000 for the quarter ended September 30, 2017, compared to net charge-offs of $449,000 for the quarter ended September 30, 2016.

Non-interest income remained relatively stable at $2.6 million for the quarter ended September 30, 2017, as compared to $2.7 million for the quarter ended September 30, 2016.

Non-interest expense decreased $549,000, or 3.2%, to $16.8 million for the quarter ended September 30, 2017, from $17.4 million for the quarter ended September 30, 2016. The decrease was due primarily to a decrease of $519,000 in data processing fees, related to a contract termination fee associated with the Hopewell Valley acquisition incurred in the comparable prior year quarter.

The Company recorded income tax expense of $4.5 million for the quarter ended September 30, 2017, compared to $3.8 million for the quarter ended September 30, 2016. The effective tax rate for the quarter ended September 30, 2017, was 35.8% compared to 34.2% for the quarter ended September 30, 2016.

Comparison of Operating Results for the Three Months Ended September 30, 2017, and June 30, 2017

Net income was $8.1 million and $8.4 million for the quarters ended September 30, 2017, and June 30, 2017, respectively.  Significant variances from the prior quarter are as follows: a $443,000 increase in net interest income, a $23,000 decrease in the provision for loan losses, a $178,000 increase in non-interest income, a $210,000 increase in non-interest expense, and a $718,000 increase in income tax expense. 

Net interest income for the quarter ended September 30, 2017, increased by $443,000, or 1.6%, primarily due to an increase in our average interest-earning assets of $25.8 million, or 0.7%, while net interest margin remained level at 2.97%. The increase in our average interest-earning assets was due primarily to an increase in average loans outstanding of $23.4 million. Net interest income for the quarter ended September 30, 2017, included loan prepayment income of $366,000 as compared to $193,000 for the quarter ended June 30, 2017. Yields earned on interest-earning assets increased three basis points to 3.64% for the quarter ended September 30, 2017, from 3.61% for the quarter ended June 30, 2017, driven by an increase in the yield on average loans. The cost of interest-bearing liabilities increased four basis points to 0.86% for the quarter ended September 30, 2017, as compared to 0.82% for the quarter ended June 30, 2017, primarily due to higher rates on certificates of deposit and borrowed funds.

The provision for loan losses decreased by $23,000 to $488,000 for the quarter ended September 30, 2017, from $511,000 for the quarter ended June 30, 2017. Net recoveries were $6,000 for the quarter ended September 30, 2017, compared to net charge-offs of $190,000 for the quarter ended June 30, 2017.

Non-interest income increased $178,000, or 7.3%, to $2.6 million for the quarter ended September 30, 2017, from $2.4 million for the quarter ended June 30, 2017. The increase was primarily due to a $131,000 increase in fees and service charges for customers and an $81,000 increase in gains on securities transactions, net.

Non-interest expense increased $210,000, or 1.3%, to $16.8 million for the quarter ended September 30, 2017, from $16.6 million for the quarter ended June 30, 2017, due primarily to an increase of $111,000 in occupancy expenses, due to higher seasonal costs, and an increase of $258,000 in other expenses, driven by higher advertising costs due to the timing of the Company's advertising campaigns, partially offset by a $181,000 decrease in compensation and employee benefits, primarily attributable to lower medical benefit costs.

The Company recorded income tax expense of $4.5 million for the quarter ended September 30, 2017, compared to $3.8 million for the quarter ended June 30, 2017. The effective tax rate for the quarter ended September 30, 2017 was 35.8% compared to 31.2% for the quarter ended June 30, 2017. The effective tax rate for the quarter ended June 30, 2017, was favorably impacted by the adoption of ASU 2016-09 which resulted in a $593,000 reduction in income tax expense related to the exercise or vesting of equity awards during that quarter which were previously recorded through equity as an adjustment to additional paid in capital. There was no exercise or vesting of equity awards during the quarter ended September 30, 2017.

Comparison of Operating Results for the Nine Months Ended September 30, 2017 and 2016

Net income was $26.5 million and $17.9 million for the nine months ended September 30, 2017, and September 30, 2016, respectively. Significant variances from the comparable prior year period are as follows: a $4.3 million increase in net interest income, a $1.0 million increase in the provision for loan losses, a $1.8 million increase in non-interest income, a $5.4 million decrease in non-interest expense, and a $1.9 million increase in income tax expense. 

Net interest income for the nine months ended September 30, 2017, increased $4.3 million, or 5.6%, to $80.9 million, from $76.6 million for the nine months ended September 30, 2016, primarily due to a $187.1 million, or 5.5%, increase in our average interest-earning assets, while the net interest margin remained level at 2.99%. The increase in average interest-earning assets was due primarily to an increase in average loans outstanding of $297.5 million, partially offset by decreases in average mortgage-backed securities of $107.4 million and interest-earning deposits in financial institutions of $12.9 million. The increase in average loans was primarily due to originated loan growth. Net interest income for the nine months ended September 30, 2017, included loan prepayment income of $886,000 as compared to $1.4 million for the nine months ended September 30, 2016. Yields earned on interest-earning assets increased one basis point to 3.63% for the nine months ended September 30, 2017, from 3.62% for the nine months ended September 30, 2016, primarily driven by higher yields on average securities, Federal Home Loan Bank of New York stock and interest-earning deposits in financial institutions, partially offset by lower yields on average loans. The cost of interest-bearing liabilities increased one basis point to 0.82% for the nine months ended September 30, 2017, as compared to 0.81% for the nine months ended September 30, 2016, primarily due to higher rates on certificates of deposit.

The provision for loan losses increased by $1.0 million to $1.4 million for the nine months ended September 30, 2017, from $355,000 for the nine months ended September 30, 2016, primarily due to growth in the loan portfolio, partially offset by declines in non-performing loans and net recoveries during the nine months ended September 30, 2017. Net recoveries for the nine months ended September 30, 2017, were $133,000, primarily relating  to insurance proceeds received from a previously charged-off loan,  as compared to net charge-offs of $785,000 for the comparative prior year period.

Non-interest income increased $1.8 million, or 23.8%, to $9.2 million for the nine months ended September 30, 2017, from $7.4 million for the nine months ended September 30, 2016, primarily due to an increase of $1.4 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 $389,000 in gains on securities transactions, net. Securities gains, net, during the nine months ended September 30, 2017, included gains of $1.0 million related to the Company's trading portfolio, compared to gains of $389,000 in the comparative prior year period. The trading portfolio is utilized to fund the Company's deferred compensation obligation to certain employees and directors of the Company's deferred compensation plan (the Plan). The participants of this Plan, at their election, defer a portion of their compensation. Gains and losses on trading securities have no effect on net income since participants benefit from, and bear the full risk of, changes in the trading securities market values. Therefore, the Company records an equal and offsetting amount in compensation expense, reflecting the change in the Company's obligations under the Plan.

Non-interest expense decreased $5.4 million, or 9.5%, to $51.0 million for the nine months ended September 30, 2017, from $56.4 million for the nine months ended September 30, 2016. The decrease was primarily due to a $3.9 million reduction in merger-related expenses associated with the Hopewell Valley acquisition reflected in the first nine months of 2016. Compensation and employee benefits expense decreased $1.6 million, due primarily to a reduction in severance, retention, and change-in-control compensation associated with the Hopewell Valley acquisition in the prior year period, 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 period. Professional fees decreased $587,000 due to non-recurring merger-related professional fees associated with the Hopewell Valley acquisition incurred in the prior year period. FDIC insurance expense decreased by $423,000 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.

The Company recorded income tax expense of $11.3 million for the nine months ended September 30, 2017, compared to $9.4 million for the nine months ended September 30, 2016. The effective tax rate for the nine months ended September 30, 2017, was 29.9% compared to 34.4% for the nine months ended September 30, 2016. The Company adopted ASU 2016-09 in the first quarter of 2017, which resulted in a $2.3 million reduction in income tax expense related to the exercise or vesting of equity awards during the nine months ended September 30, 2017. Previously, these tax benefits were recorded through equity as an adjustment to additional paid in capital. In addition, the effective tax rate for the nine months ended September 30, 2017, also was affected by $1.5 million of tax-exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies. In accordance with applicable accounting standards, the tax effect will be recognized evenly throughout the year.

Financial Condition

Total assets increased $156.7 million, or 4.1%, to $4.01 billion at September 30, 2017, from $3.85 billion at December 31, 2016. The increase was primarily due to an increase in loans held-for-investment, net, of $163.8 million and an increase in cash and cash equivalents of $7.2 million, partially offset by a decrease in securities available-for-sale of $16.3 million.

As of September 30, 2017, we estimate that our non-owner occupied commercial real estate concentration (as defined by regulatory guidance issued in 2006) to total risk-based capital was approximately 401.3%. Management believes that Northfield Bank (the Bank) has implemented appropriate risk management practices including risk assessments, board approved underwriting policies and related procedures which include, monitoring bank portfolio performance, performing market analysis (economic and real estate), and stressing of the Bank's commercial real estate portfolio under severe adverse economic conditions. Although management believes the Bank has implemented appropriate policies and procedures to manage our commercial real estate concentration risk, the Bank's regulators could require us to implement additional policies and procedures or could require us to maintain higher levels of regulatory capital, which might adversely affect our loan originations, ability to pay dividends, and profitability.

Loans held-for-investment, net, increased $163.8 million to $3.13 billion at September 30, 2017, from $2.97 billion at December 31, 2016. Originated loans held-for-investment, net, totaled $2.36 billion at September 30, 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 $183.7 million, or 12.2%, partially offset by decreases in acquired loans and purchased credit-impaired (PCI) loans. 

The following tables detail our multifamily real estate originations for the nine months ended September 30, 2017 and 2016 (dollars in thousands): 

For the Nine Months Ended September 30, 2017
Multifamily
Originations
  Weighted Average 
Interest Rate
  Weighted Average
Loan-to-Value
Ratio
  Weighted Average Months to Next
Rate Change or Maturity for
Fixed Rate Loans
  (F)ixed or (V)ariable   Amortization Term
$ 247,421     3.61 %   60 %   80   V   15 to 30 Years
750     5.07 %   48 %   1   V   25 Years
16,640     3.95 %   44 %   180   F   15 Years
$ 264,811     3.63 %   59 %            


For the Nine Months Ended September 30, 2016
Multifamily
Originations
  Weighted Average
Interest Rate
  Weighted Average
Loan-to-Value
Ratio
  Weighted Average Months to Next
Rate Change or Maturity for
Fixed Rate Loans
  (F)ixed or (V)ariable   Amortization Term
$ 219,975     3.42 %   63 %   81   V   30 Years
7,075     3.66 %   41 %   131   F   15 Years
$ 227,050     3.43 %   62 %            

Originated loans held-for-investment, net, include funded participations of $39.2 million for the nine months ended  September 30, 2017, including $22.5 million in commercial real estate loans, and $16.7 million in construction loans. For the three months ended September 30, 2017, funded participations totaled $27.2 million.

Acquired loans decreased by $48.2 million to $745.1 million at September 30, 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 $58.7 million in the nine months ended September 30, 2017. The geographic locations of the properties collateralizing the loans are as follows: 63.9% in New York, 10.0% in California, and 26.1% in other states. The following table provides the details of the loans pools purchased during the nine months ended September 30, 2017 (dollars in thousands):

Purchase Amount    Loan Type    Weighted Average
Interest
Rate(1)
  Weighted Average
Loan-to-Value
Ratio
  Weighted Average Months to
Next Rate Change or
Maturity for Fixed Rate
Loans
  (
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