Market Overview

Northfield Bancorp, Inc. Announces Fourth Quarter and Year End 2017 Results

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NOTABLE ITEMS INCLUDE:

  • FOURTH QUARTER 2017:

    • NET LOSS OF $1.7 MILLION, OR $0.04 PER SHARE
    • INCLUDES $10.5 MILLION, OR $0.23 PER SHARE, TAX EXPENSE RELATED TO THE RECENTLY ENACTED FEDERAL TAX REFORM
    • COMPARES TO NET INCOME OF $8.1 MILLION, OR $0.17 PER DILUTED SHARE, FOR THE THIRD QUARTER OF 2017, AND $8.2 MILLION, OR $0.18, PER DILUTED SHARE, FOR THE FOURTH QUARTER OF 2016
    • NET INTEREST MARGIN REMAINS STABLE, DECREASING ONE BASIS POINT TO 2.96% FOR THE FOURTH QUARTER 2017, AS COMPARED TO 2.97% FOR BOTH THE THIRD QUARTER OF 2017 AND FOURTH QUARTER OF 2016
    • EFFICIENCY RATIO DECREASES TO 53.9% FOR THE FOURTH QUARTER OF 2017, AS COMPARED TO 56.2% FOR THE THIRD QUARTER OF 2017, AND 56.5% FOR THE FOURTH QUARTER OF 2016
    • ORIGINATED LOANS HELD-FOR-INVESTMENT, NET, INCREASED 2.7% IN THE FOURTH QUARTER OF 2017
    • DEPOSITS, EXCLUDING BROKERED, INCREASED 3.5% IN THE FOURTH QUARTER OF 2017

  • FULL YEAR 2017:

    • NET INCOME FOR THE FULL YEAR 2017 WAS $24.8 MILLION, OR $0.53 PER DILUTED SHARE, COMPARED TO $26.1 MILLION, OR $0.57 PER DILUTED SHARE IN 2016, AND INCLUDED:
      • THE AFOREMENTIONED TAX CHARGE OF $10.5 MILLION, OR $0.23 PER DILUTED SHARE, IN 2017
      • $3.8 MILLION, OR $0.08 PER DILUTED SHARE, IN TAX BENEFITS FROM THE ADOPTION OF ACCOUNTING STANDARDS UPDATE NO. 2016-09 RELATED TO STOCK COMPENSATION, AND INCOME FROM BANK OWNED LIFE INSURANCE PROCEEDS IN EXCESS OF THE CASH SURRENDER VALUE OF THE POLICIES IN 2017
      • MERGER-RELATED EXPENSES OF $2.4 MILLION, NET OF TAX, OR $0.05 PER DILUTED SHARE IN 2016, RELATED TO THE ACQUISITION OF HOPEWELL VALLEY COMMUNITY BANK ("HOPEWELL VALLEY")
    • NET INTEREST MARGIN INCREASED ONE BASIS POINT TO 2.99% AS COMPARED TO 2.98% IN 2016
    • EFFICIENCY  RATIO DECREASED TO 55.9% FOR 2017 AS COMPARED TO 64.3% IN 2016
    • ORIGINATED LOANS HELD-FOR-INVESTMENT, NET, INCREASED 13.1%
    • DEPOSITS, EXCLUDING BROKERED, INCREASED 2.7%
    • CAPITAL REMAINS STRONG AT 16.0%
    • CASH DIVIDEND OF $0.10 PER SHARE OF COMMON STOCK DECLARED PAYABLE FEBRUARY 21, 2018, TO STOCKHOLDERS OF RECORD AS OF FEBRUARY 7, 2018

WOODBRIDGE, N.J., Jan. 24, 2018 (GLOBE NEWSWIRE) --  NORTHFIELD BANCORP, INC. (the "Company") (NASDAQ:NFBK), the holding company for Northfield Bank, reported a loss per common share of $0.04 for the quarter ended December 31, 2017 and diluted earnings per common share of $0.53 for the year ended December 31, 2017, compared to diluted earnings per common share of $0.18 and $0.57 for the quarter and year ended December 31, 2016, respectively. Earnings for the quarter and year ended December 31, 2017, include an estimated tax charge of $10.5 million, or $0.23 per diluted share, related to the recently enacted federal tax reform (the "Tax Reform Act"). Beginning in 2018, the Tax Reform Act, among other things, reduces the federal corporate income tax rate from 35% to 21%. As a result of the lower corporate tax rate, during the fourth quarter of 2017, the Company recorded an adjustment of $10.5 million to reduce its net deferred tax assets, with a corresponding charge to income tax expense. In addition, earnings for the year ended December 31, 2017, were also affected by the adoption of 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, 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, recorded in the first quarter of 2017. Earnings for the year ended December 31, 2016, included merger-related expenses associated with the acquisition of Hopewell Valley of approximately $2.4 million, net of tax, or $0.05 per diluted share.

Commenting on the fourth quarter and annual results, Steven M. Klein, the Company's President and Chief Executive Officer noted, "We remain focused on the fundamentals of disciplined loan and deposit generation, asset quality, and managing our net interest margin and efficiency ratio. Pre-tax income increased 10% for the quarter as compared to the third quarter of 2017, and 12% as compared to the fourth quarter of 2016.  Originated loans grew 2.7% for the quarter and 13.1% for the year, and deposits, excluding broker deposits, increased 3.5% for the quarter, and 2.7% for the year.  Although we continue to experience pricing pressure on both sides of the balance sheet, our net interest margin remained stable for the quarter with a one basis point decrease to 2.96%, compared to the prior quarter and prior year quarter. Expense management is critical to our operating model  and our efficiency ratio continued to improve to 53.9% for the fourth quarter as compared to 56.2% for the prior quarter, and 56.5% for the prior year fourth quarter."

Mr. Klein continued, "The fourth quarter results included a non-cash charge of approximately $10.5 million as a result of federal income tax reform enacted in December of 2017. Our capital remains strong, and we believe we are well positioned to execute on our strategic plan, and the benefits from the lower Federal income tax rates will allow us to further invest in our communities, our customers and our employees to continue to build shareholder value."  Mr. Klein further noted, "I'm pleased to announce that The Board of Directors has declared a cash dividend of $0.10 per common share payable on February 21, 2018, to stockholders of record on February 7, 2018."

Results of Operations

Comparison of Operating Results for the Year Ended December 31, 2017 and 2016

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 approximately $10.5 million related to the enactment of the Tax Reform Act in the fourth quarter of 2017. Beginning in 2018, the Tax Reform Act, among other things, reduces the federal corporate income tax rate from 35% to 21%, which resulted in a reduction in our net deferred tax assets and a corresponding charge to income tax expense of approximately $10.5 million.

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 year ended December 31, 2016, 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%. The increase in average interest-earning assets was primarily attributable to increases in average loans outstanding 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 increase in average loans was primarily due to originated loan growth. Net 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. 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, driven by higher yields on securities, Federal Home Loan Bank of New York stock and interest-earning deposits in financial institutions, partially offset by lower yields on loans. 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, primarily due to higher rates on certificates of deposit and borrowed funds.

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.

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 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.

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 related to the Tax Reform Act as noted above; (ii) the adoption of 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, 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 effective tax rate for the year ended December 31, 2016, was affected by $211,000 of non-deductible merger related expenses.

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

The Company recorded a net loss of $1.7 million for the quarter ended December 31, 2017 as compared to net income of $8.2 million for the quarter ended December 31, 2016. Significant variances from the comparable prior quarter are as follows: a $1.3 million increase in net interest income, a $240,000 decrease in the provision for loan losses, a $200,000 decrease in non-interest income, a $188,000 decrease in non-interest expense, and an $11.4 million increase in income tax expense, which includes an estimated tax charge of $10.5 million related to the impact of the Tax Reform Act, discussed above.

Net interest income for the quarter ended December 31, 2017, increased $1.3 million, or 4.8%, primarily due to an increase in our average interest-earning assets of $168.5 million, or 4.7%, partially offset by a one basis point decrease in our net interest margin to 2.96%. The increase in average interest-earning assets was primarily attributable to an increase in average loans outstanding of $192.1 million and an increase in other securities of $21.9 million, partially offset by a decrease in average mortgage-backed securities of $43.0 million. The increase in average loans was primarily due to originated loan growth. The quarter ended December 31, 2017, included loan prepayment income of $558,000 as compared to $539,000 for the quarter ended December 31, 2016. Yields earned on interest-earning assets increased nine basis points to 3.67% for the quarter ended December 31, 2017, from 3.58% for the quarter ended December 31, 2016, driven by higher yields on all asset classes. The cost of interest-bearing liabilities increased 13 basis points to 0.91% for the current quarter as compared to 0.78% for the comparable prior year quarter, attributable to higher rates on deposits and borrowed funds.

The provision for loan losses decreased by $240,000 to $40,000 for the quarter ended December 31, 2017, from $280,000 for the quarter ended December 31, 2016, primarily due to an improvement in asset quality indicators, including declines in non-performing loans and net recoveries, partially offset by the increase in provision related to growth in the portfolio. Net recoveries were $21,000 for the quarter ended December 31, 2017, compared to net charge-offs of $25,000 for the quarter ended December 31, 2016.

Non-interest income decreased by $200,000 or 7.6%, to $2.4 million for the quarter ended December 31, 2017, from $2.6 million for the quarter ended December 31, 2016, primarily due to a decrease in fees and service charges for customers of $168,000.

Non-interest expense remained relatively stable at $16.4 million for the quarter ended December 31, 2017, as compared to $16.6 million for the comparable prior year quarter.

The Company recorded income tax expense of $15.7 million for the quarter ended December 31, 2017, compared to $4.3 million for the quarter ended December 31, 2016. The effective tax rate for the quarter ended December 31, 2017, was 112.3% as compared to 34.3% for the quarter ended December 31, 2016. As noted above, income tax expense for the quarter ended December 31, 2017, includes an estimated tax charge of $10.5 million related to the Tax Reform Act.

Comparison of Operating Results for the Three Months Ended December 31, 2017, and September 30, 2017

The Company recorded a net loss of $1.7 million for the quarter ended December 31, 2017, compared to net income of $8.1 million for the quarter ended September 30, 2017. Significant variances from the prior quarter are as follows: a $603,000 increase in net interest income, a $448,000 decrease in the provision for loan losses, a $172,000 decrease in non-interest income, a $440,000 decrease in non-interest expense, and an $11.2 million increase in income tax expense which includes an estimated tax charge of $10.5 million related to the impact of the Tax Reform Act, discussed above.

Net interest income for the quarter ended December 31, 2017, increased $603,000, or 2.2%, due to an $87.2 million, or 2.4%, increase in average interest-earning assets, partially offset by a one basis point decrease in the net interest margin to 2.96%. The increase in average interest-earning assets was primarily attributable to increases in average loans outstanding of $61.1 million, and average mortgage-backed securities of $29.4 million. The quarter ended December 31, 2017, included loan prepayment income of $558,000 as compared to $366,000 for the quarter ended September 30, 2017. Yields earned on interest-earning assets increased three basis points to 3.67% for the quarter ended December 31, 2017, as compared to 3.64% for the quarter ended September 30, 2017, primarily driven by higher yields on loans. The cost of interest-bearing liabilities increased five basis points to 0.91% for the current quarter as compared to 0.86% for the quarter ended September 30, 2017, attributable to higher rates on deposits and borrowed funds.

The provision for loan losses decreased by $448,000 to $40,000 for the quarter ended December 31, 2017, from $488,000 for the quarter ended September 30, 2017, primarily due to an improvement in asset quality indicators. Net recoveries were $21,000 for the quarter ended December 31, 2017, compared to net recoveries of $6,000 for the quarter ended September 30, 2017.

Non-interest income decreased by $172,000 or 6.6%, to $2.4 million for the quarter ended December 31, 2017, from $2.6 million for the quarter ended September 30, 2017, primarily due to decreases in fees and service charges for customers of $99,000 and gains on securities transactions, net, of $55,000.

Non-interest expense decreased $440,000, or 2.6%, to $16.4 million for the quarter ended December 31, 2017, from $16.8 million for the quarter ended September 30, 2017, primarily due to a decrease of $695,000 in compensation and employee benefits, partially offset by an increase in professional fees of  $171,000.

The Company recorded income tax expense of $15.7 million for the quarter ended December 31, 2017, compared to $4.5 million for the quarter ended September 30, 2017.  The effective tax rate for the quarter ended December 31, 2017, was 112.3%, as compared to 35.8% for the quarter ended September 30, 2017. Income tax expense for the quarter ended December 31, 2017, includes an estimated tax charge of $10.5 million related to the Tax Reform Act discussed above.

Financial Condition

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 portfolio of $17.7 million, partially offset by decreases in cash and cash equivalents of $38.2 million and other assets of $11.7 million.

As of December 31, 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 412.2%. 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 $172.7 million to $3.14 billion at December 31, 2017, as compared to $2.97 billion at December 31, 2016. 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):

Year Ended December 31, 2017
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
$ 352,031     3.64 %   61 %   80   V   15-30 Years
750     5.07 %   48 %   1   V   25 Years
16,640     3.95 %   44 %   180   F   15 Years
$ 369,421     3.65 %   60 %            
                             


Year Ended December 31, 2016
Originations   Weighted Average
Interest Rate
  Weighted Average
Loan-to-Value Ratio
  Weighted Average Months to Next
Rate Change or Maturity for Fixed
Rate Loans
  (F)ixed or
(V)ariable
  Amortization
Term
$ 312,716     3.41 %   62 %   80   V   30 Years
11,821     3.76 %   40 %   140   F   7- 20
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