Market Overview

Northfield Bancorp, Inc. Announces Second Quarter 2018 Results

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NOTABLE ITEMS INCLUDE:

  • DILUTED EARNINGS PER SHARE INCREASED 27.8% TO $0.23 FOR THE SECOND QUARTER OF 2018, COMPARED TO $0.18 FOR THE SECOND QUARTER OF 2017, AND 4.5% COMPARED TO $0.22 FOR THE FIRST QUARTER OF 2018, BENEFITING FROM TAX REFORM
  • TOTAL ASSETS INCREASED TO $4.19 BILLION, OR 4.9%, FROM YEAR END 2017, DRIVEN BY:
      -- STRONG LOAN ORIGINATIONS, AS ORIGINATED LOANS, NET, INCREASED $122.6 MILLION, OR 5%
      -- AN INCREASE IN OUR SECURITIES PORTFOLIO OF $111.9 MILLION, OR 21%
  • DEPOSITS, EXCLUDING BROKERED, INCREASED 4.1% FROM YEAR END 2017
  • NET INTEREST MARGIN DECREASED TO 2.85%, OR 12 BASIS POINTS, FOR THE SECOND QUARTER OF 2018, AS COMPARED TO 2.97% FOR THE SECOND QUARTER OF 2017, AND EIGHT BASIS POINTS COMPARED TO 2.93% FOR THE FIRST QUARTER OF 2018, DRIVEN BY THE INCREASED COST OF DEPOSITS
  • EFFICIENCY RATIO IMPROVED TO 56.4% IN THE SECOND QUARTER OF 2018 AS COMPARED TO 56.6% FOR THE SECOND QUARTER OF 2017 AND 57.2% FOR THE FIRST QUARTER OF 2018
  • ASSET QUALITY CONTINUES TO REMAIN STRONG WITH NON-PERFORMING ASSETS AT 0.17% OF TOTAL ASSETS AND NON-PERFORMING LOANS AT 0.20% OF TOTAL LOANS
  • CASH DIVIDEND DECLARED OF $0.10 PER SHARE OF COMMON STOCK, PAYABLE AUGUST 22, 2018, TO STOCKHOLDERS OF RECORD AS OF AUGUST 8, 2018

WOODBRIDGE, N.J., July 25, 2018 (GLOBE NEWSWIRE) -- NORTHFIELD BANCORP, INC. (NASDAQ:NFBK), the holding company for Northfield Bank, reported basic and diluted earnings per common share of $0.23 and $0.45, respectively, for the quarter and six months ended June 30, 2018, compared to basic and diluted earnings per common share of $0.18 and $0.39, respectively, for the quarter and six months ended June 30, 2017. Earnings for the quarter and six months ended June 30, 2018, benefited from a lower effective tax rate due to the impact of recently enacted federal tax reform (the "Tax Reform Act"), which reduced the federal statutory corporate tax rate to 21% from 35% effective January 1, 2018. Earnings for the three and six months ended June 30, 2018, also benefited from excess tax benefits of $1.3 million, or $0.03 per diluted share, and $2.1 million, or $0.05 per diluted share, respectively. Earnings for the three and six months ended June 30, 2017, benefited from excess tax benefits of $593,000, or $0.01 per diluted share, and $2.3 million, or $0.05 per diluted share, respectively, related to the exercise or vesting of equity awards. Earnings for the six months ended June 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.

Commenting on the second quarter 2018 results, Steven M. Klein, the Company's President and Chief Executive Officer, noted, "Earnings continued to increase in the second quarter as growth in loans and securities, funded through deposit growth and borrowings, provided us the opportunity to further leverage our significant capital base."  Mr. Klein commented further, "In addition to our successes in growing loans and deposits, we achieved increases in both net interest income and non-interest income, while reducing our efficiency ratio.  The rise in market interest rates, while increasing competition for deposits and placing downward pressure on our net interest margin, also presents opportunities to invest in higher yielding, shorter term, high quality securities to increase our earnings and liquidity, while maintaining an appropriate interest rate risk position."

Mr. Klein further noted, "I'm pleased to announce that the Board of Directors has declared a dividend of $0.10 per common share, payable on August 22, 2018, to stockholders of record on August 8, 2018."

Results of Operations

Comparison of Operating Results for the Six Months Ended June 30, 2018 and 2017

Net income was $21.1 million and $18.4 million for the six months ended June 30, 2018, and June 30, 2017, respectively. Significant variances from the comparable prior year period are as follows: a $1.7 million increase in net interest income, a $1.7 million decrease in non-interest income, and a $2.5 million decrease in income tax expense.

Net interest income for the six months ended June 30, 2018, increased $1.7 million, or 3.2%, to $55.3 million, from $53.6 million for the six months ended June 30, 2017, primarily due to a $266.1 million, or 7.4%, increase in our average interest-earning assets, partially offset by a 12 basis point decrease in our net interest margin to 2.89% from 3.01% for the six months ended June 30, 2017. The increase in average interest-earning assets was due to increases in average loans outstanding of $144.7 million, average mortgage-backed securities of $64.0 million, average other securities of $49.4 million, and average interest-earning deposits in financial institutions of $9.3 million, partially offset by a decrease in average Federal Home Loan Bank of New York ("FHLBNY") stock of $1.3 million. The increase in average loans was primarily due to strong originated loan growth as well as loan pool purchases during the first quarter of 2018. Net interest income for the six months ended June 30, 2018, included loan prepayment income of $1.1 million as compared to $520,000 for the six months ended June 30, 2017. Yields earned on interest-earning assets increased six basis points to 3.69% for the six months ended June 30, 2018, from 3.63% for the six months ended June 30, 2017, driven by higher yields on all asset classes. The cost of interest-bearing liabilities increased 23 basis points to 1.03% for the six months ended June 30, 2018, from 0.80% for the six months ended June 30, 2017, due to higher rates on interest-bearing deposits and borrowed funds, attributable to the rising rate environment.

The provision for loan losses decreased by $179,000 to $704,000 for the six months ended June 30, 2018, from $883,000 for the six months ended June 30, 2017, primarily due to improving asset quality trends, including a decrease in criticized loans, and an improvement in historical loss rates. Net recoveries for the six months ended June 30, 2018, were $18,000, as compared to net recoveries of $127,000 for the six months ended June 30, 2017.

Non-interest income decreased $1.7 million, or 26.4%, to $4.8 million for the six months ended June 30, 2018, from $6.6 million for the six months ended June 30, 2017, primarily due to a decrease of $1.6 million in income on bank owned life insurance, attributable to insurance proceeds in excess of the related cash surrender value of the policies, received in the first quarter of 2017, and a decrease of $191,000 in gains on securities transactions, net. Securities gains, net, during the six months ended June 30, 2018, included gains of $302,000 related to the Company's trading portfolio, compared to gains of $668,000 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 remained level at $34.2 million for both six-month periods ended June 30, 2018 and June 30, 2017.

The Company recorded income tax expense of $4.2 million for the six months ended June 30, 2018, compared to $6.8 million for the six months ended June 30, 2017. The effective tax rate for the six months ended June 30, 2018, was 16.8% compared to 26.9% for the six months ended June 30, 2017, reflecting the reduction of the federal statutory corporate tax rate to 21% from 35% by the Tax Reform Act, partially offset by lower excess tax benefits. Excess tax benefits were $2.1 million for the current period as compared to $2.3 million for the prior year period. Excess tax benefits will fluctuate throughout the year based on the Company's stock price and timing of employee stock option exercises and vesting of other share-based awards. The Company has approximately 335,000 options outstanding at June 30, 2018, 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 these options are exercised during the remainder of 2018, this will result in additional tax benefits which will have a positive effect on our effective tax rate. The effective tax rate for the six months ended June 30, 2017, benefited from $1.5 million of tax-exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies.

On July 1, 2018, the State of New Jersey enacted new legislation that created a temporary surtax effective for tax years 2018 through 2021 and will require companies to file combined tax returns beginning in 2019. Management is currently evaluating the effect of this new legislation on our net deferred tax asset and future tax expense.  We anticipate that we will realize a tax benefit during the third quarter of 2018 due to the write up of our net deferred tax asset and, prospectively, our state tax expense will increase.

Comparison of Operating Results for the Three Months Ended June 30, 2018 and 2017

Net income was $10.6 million and $8.4 million for the quarters ended June 30, 2018, and June 30, 2017, respectively. Significant variances from the comparable prior year quarter are as follows: an $861,000 increase in net interest income, a $159,000 increase in the provision for loan losses, a $422,000 increase in non-interest expense, and a $1.9 million decrease in income tax expense.

Net interest income for the quarter ended June 30, 2018, increased $861,000, or 3.2%, primarily due to a $276.9 million, or 7.6%, increase in our average interest-earning assets, partially offset by a 12 basis point decrease in our net interest margin to 2.85% from 2.97% for the quarter ended June 30, 2017. The increase in average interest-earning assets was due to increases in average loans outstanding of $132.0 million, average mortgage-backed securities of $93.3 million, and average other securities of $65.6 million, partially offset by decreases of $12.9 million in average interest-earning deposits in financial institutions and $1.1 million in average FHLBNY stock. The increase in average loans was primarily due to originated loan growth. Net interest income for the quarter ended June 30, 2018 included loan prepayment income of $479,000, as compared to $193,000 for the quarter ended June 30, 2017. Yields earned on interest-earning assets increased eight basis points to 3.69% for the quarter ended June 30, 2018, from 3.61% for the quarter ended June 30, 2017, driven by higher yields on all asset classes. The cost of interest-bearing liabilities increased 26 basis points to 1.08% for the current quarter as compared to 0.82% for the comparable prior year quarter, due to higher rates on interest-bearing deposits and borrowed funds, attributable to the rising rate environment.

The provision for loan losses increased by $159,000 to $670,000 for the quarter ended June 30, 2018, from $511,000 for the quarter ended June 30, 2017, primarily due to originated loan growth, partially offset by improving asset quality trends, including a decrease in criticized loans, and an improvement in historical loss rates. Net recoveries were $40,000 for the quarter ended June 30, 2018, compared to net charge-offs of $190,000 for the quarter ended June 30, 2017.

Non-interest income remained level at $2.4 million for both quarters ended June 30, 2018 and June 30, 2017.

Non-interest expense increased $422,000, or 2.5%, to $17.0 million for the quarter ended June 30, 2018, from $16.6 million for the quarter ended June 30, 2017. The increase was due primarily to increases of $496,000 in other expense, primarily due to higher advertising expense and higher directors' fees and equity award expense; $314,000 in professional fees; and $254,000 in occupancy costs, primarily due to higher rent expense attributable to a new branch office and expanded space in our corporate offices. Partially offsetting these increases was a decrease of $653,000 in employee compensation and benefits.

The Company recorded income tax expense of $1.9 million for the quarter ended June 30, 2018, compared to $3.8 million for the quarter ended June 30, 2017. The effective tax rate for the quarter ended June 30, 2018, was 15.1% compared to 31.2% for the quarter ended June 30, 2017, reflecting the reduction of the federal statutory corporate tax rate to 21% from 35%, and higher excess tax benefits of $1.3 million for the current quarter as compared to $593,000 for the comparable prior year quarter.

Comparison of Operating Results for the Three Months Ended June 30, 2018, and March 31, 2018

Net income was $10.6 million and $10.4 million for the quarters ended June 30, 2018, and March 31, 2018, respectively. Significant variances from the prior quarter are as follows: a $226,000 increase in net interest income, a $636,000 increase in the provision for loan losses, and a $451,000 decrease in income tax expense.

Net interest income for the quarter ended June 30, 2018, increased by $226,000, or 0.8%, primarily due to an $88.5 million, or 2.3%, increase in our average interest-earning assets, partially offset by an eight basis point decrease in our net interest margin to 2.85% from 2.93% for the quarter ended March 31, 2018. The increase in average interest-earning assets was due to increases in average loans outstanding of $41.6 million, average mortgage-backed securities of $36.0 million, average other securities of $35.6 million, and average FHLBNY stock of $667,000, partially offset by a decrease of $25.3 million in average interest-earning deposits in financial institutions. Net interest income for the quarter ended June 30, 2018 included loan prepayment income of $479,000, as compared to $628,000 for the quarter ended March 31, 2018. Yields earned on interest-earning assets remained level at 3.69% for both the current and prior quarters while the cost of interest-bearing liabilities increased by 10 basis points to 1.08% from 0.98% for the quarter ended March 31, 2018.

The provision for loan losses increased by $636,000 to $670,000 for the quarter ended June 30, 2018, from $34,000 for the quarter ended March 31, 2018, primarily due to originated loan growth in the current quarter.

Non-interest income remained level at $2.4 million for both quarters ended June 30, 2018 and March 31, 2018. Non-interest expense also remained level at $17.0 million and $17.1 million for the quarters ended June 30, 2018, and March 31, 2018, respectively.

The Company recorded income tax expense of $1.9 million for the quarter ended June 30, 2018, compared to $2.3 million for the quarter ended March 31, 2018. The effective tax rate for the quarter ended June 30, 2018 was 15.1% compared to 18.3% for the quarter ended March 31, 2018, the decrease being primarily due to higher excess tax benefits of $1.3 million for the current quarter as compared to $869,000 for the prior quarter.

Financial Condition

Total assets increased $196.7 million, or 4.9%, to $4.19 billion at June 30, 2018, from $3.99 billion at December 31, 2017. The increase was primarily due to an increase in our available-for sale debt securities portfolio of $111.5 million and an increase in loans held-for-investment, net, of $79.3 million.

As of June 30, 2018, 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 411%. 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 $79.3 million to $3.22 billion at June 30, 2018, from $3.14 billion at December 31, 2017. Originated loans held-for-investment, net, totaled $2.55 billion at June 30, 2018, as compared to $2.43 billion at December 31, 2017. The increase was primarily due to an increase in multifamily real estate loans of $64.7 million, or 3.7%, to $1.80 billion at June 30, 2018, from $1.74 billion at December 31, 2017, and an increase in commercial real estate loans of $54.3 million, or 12.2%, to $499.5 million at June 30, 2018, from $445.2 million at December 31, 2017, partially offset by decreases in acquired loans and purchased credit-impaired ("PCI") loans.

The following tables detail our multifamily real estate originations for the six months ended June 30, 2018 and 2017 (dollars in thousands):

 
For the Six Months Ended June 30, 2018
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
$ 159,649     3.77 %   69 %   77   V   25 to 30 Years
6,615     4.07 %   38 %   180   F   15 Years
$ 166,264     3.78 %   68 %            


For the Six Months Ended June 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
$ 192,407     3.55 %   60 %   80   V   15 to 30 Years
750     5.00 %   48 %   1   V   Line of Credit (2-Year Term)
7,640     3.89 %   27 %   180   F   15 Years
$ 200,797     3.57 %   59 %            
                             

Acquired loans decreased by $41.9 million to $650.9 million at June 30, 2018, from $692.8 million at December 31, 2017, primarily due to paydowns, partially offset by purchases of one-to-four family residential mortgage loan pools during the first quarter of 2018, totaling $37.5 million.

PCI loans totaled $21.3 million at June 30, 2018, as compared to $22.7 million at December 31, 2017. The majority of the PCI loan balance consists of loans acquired as part of a Federal Deposit Insurance Corporation-assisted transaction. The Company accreted interest income of $1.0 million and $2.1 million attributable to PCI loans for the three and six months ended June 30, 2018, respectively, as compared to $1.3 million and $2.8 million for the three and six months ended June 30, 2017, respectively.

The Company's available-for-sale debt securities portfolio increased by $111.5 million, or 21.7%, to $625.3 million at June 30, 2018, from $513.8 million at December 31, 2017. The increase was primarily attributable to purchases of mortgage-backed and corporate securities, partially offset by paydowns and sales. At June 30, 2018, $515.8 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 $109.1 million in corporate bonds, all of which were considered investment grade at June 30, 2018, and $279,000 in municipal bonds.

Total liabilities increased $186.0 million, or 5.5%, to $3.54 billion at June 30, 2018, from $3.35 billion at December 31, 2017. The increase was primarily attributable to an increase in deposits of $130.3 million, an increase in other borrowings of $54.8 million, and an increase in advance payments by borrowers for taxes and insurance of $3.2 million, partially offset by a decrease in securities sold under agreements to repurchase of $2.0 million.

Deposits increased $130.3 million, or 4.6%, to $2.97 billion at June 30, 2018, as compared to $2.84 billion at December 31, 2017.  The increase was attributable to an increase of $233.5 million in certificates of deposit, partially offset by decreases of $39.8 million in transaction accounts, and $63.4 million in savings and money market accounts. The following table shows the distribution of our deposits by account type at June 30, 2018, March 31, 2018, and December 31, 2017 (dollars in thousands):

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