NORTHFIELD BANCORP, INC. (STATEN ISLAND, NY) Cautionary Statement Regarding Forward-Looking Statements
This Quarterly 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:
•the disruption to local, regional, national and global economic activity caused by infectious disease outbreaks, including the novel coronavirus pandemic and variants thereof, including the delta and omicron variants, and the significant and continuing impact that such pandemics may have on our growth, operations, earnings and asset quality; •general economic conditions, internationally, nationally or in our market areas, including inflationary pressures, supply chain disruptions, employment prospects, real estate values, and geopolitical risks that are worse than expected; •competition among depository and other financial institutions, including with respect to overdraft and other fees; •changes in the interest rate environment that reduce our margins and yields, reduce the fair value of financial instruments or reduce loan originations; •adverse changes in the securities or credit markets; •changes in laws, tax policies, or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements; •changes in the quality and/or composition of our loan and securities portfolios; •our ability to enter new markets successfully and capitalize on growth opportunities; •our ability to access cost-effective funding; •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, theFinancial Accounting Standards Board (the "FASB"), theSecurities and Exchange Commission (the "SEC"), or thePublic Company Accounting Oversight Board ; •cyber-attacks, computer viruses and other technological risks that may breach the security of our website 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; •a failure in our operational or security systems; •changes in our organization, compensation, and benefit plans; •our ability to retain key employees; •changes in the level of government support for housing finance; •changes in monetary or fiscal policies of theU.S. Government , including policies of theU.S. Treasury and theFederal Reserve Board (the "FRB"); •the ability of third-party providers to perform their obligations to us; •the effects of global or national war, conflict, or acts of terrorism; •significant increases in our loan delinquencies, problem assets and/or loan losses; and •changes in the financial condition, results of operations, or future prospects of issuers of securities that we own. 42 -------------------------------------------------------------------------------- Table of Contents 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 Quarterly Report on Form 10-Q, whether as a result of new information, future events or otherwise.
Critical Accounting Policies
Note 1 to the Company's Audited Consolidated Financial Statements for the year endedDecember 31, 2021 , included in the Company's Annual Report on Form 10-K, as supplemented by this report, contains a summary of significant accounting policies. Various elements of these accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Certain assets are carried in the consolidated balance sheets at estimated fair value or the lower of cost or estimated fair value. Policies with respect to the methodologies used to determine the allowance for credit losses on loans, estimated cash flows of our purchased credit-deteriorated ("PCD", or, previously, purchased credit-impaired "PCI") loans, and judgments regarding the valuation allowance against deferred tax assets are the most critical accounting policies because they are important to the presentation of the Company's financial condition and results of operations, involve a higher degree of complexity, and require management to make subjective judgments which often require assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions, and estimates could result in material differences in the results of operations or financial condition. These critical accounting policies and their application are reviewed periodically and, at least annually, with the Audit Committee of the Board of Directors. OnJanuary 1, 2021 , we adopted new accounting guidance which requires entities to estimate and recognize an allowance for lifetime expected credit losses for loans, unfunded credit commitments and held-to-maturity debt securities measured at amortized cost. Previously, an allowance for credit losses on loans was recognized based on probable incurred losses. See Notes 5 and 6 to the consolidated financial statements for further discussion of our accounting policies and methodologies for establishing the allowance for credit losses.
The accounting estimates relating to the allowance for credit losses remain "critical accounting estimates" for the following reasons:
•Changes in the provision for credit losses can materially affect our financial
results;
•Estimates relating to the allowance for credit losses require us to utilize a
reasonable and supportable forecast period based upon forward-looking economic
scenarios in order to estimate probability of default and loss given default
rates which our Current Expected Credit Losses ("CECL") methodology encompasses;
•The allowance for credit losses is influenced by factors outside of our control
such as industry and business trends, as well as economic conditions such as
trends in housing prices, interest rates, gross domestic product, inflation, and
unemployment; and
•Judgment is required to determine whether the models used to generate the
allowance for credit losses produce an estimate that is sufficient to encompass
the current view of lifetime expected credit losses.
Our estimation process is subject to risks and uncertainties, including a
reliance on historical loss and trend information that may not be representative
of current conditions and indicative of future performance. Changes in such
estimates could significantly impact our allowance and provision for credit
losses. Accordingly, our actual credit loss experience may not be in line with
our expectations.
For a further discussion of the critical accounting policies of the Company, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for the year ended
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Overview
This overview highlights selected information and may not contain all the information that is important to you in understanding our performance during the periods presented. For a more complete understanding of trends, events, commitments, uncertainties, liquidity, capital resources, and critical accounting estimates, you should read this entire document carefully, as well as our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Net income was$30.0 million for the six months endedJune 30, 2022 , as compared to$38.5 million for the six months endedJune 30, 2021 . Basic and diluted earnings per common share were$0.64 for the six months endedJune 30, 2022 , compared to basic and diluted earnings per common share of$0.78 for the six months endedJune 30, 2021 . For the six months endedJune 30, 2022 , our return on average assets was 1.09%, as compared to 1.40% for the six months endedJune 30, 2021 . For the six months endedJune 30, 2022 , our return on average stockholders' equity was 8.37% as compared to 10.28% for the six months endedJune 30, 2021 . Net earnings for the six months endedJune 30, 2022 , was down from the comparative prior year period primarily due to a benefit in the provision for credit losses on loans in the prior year. For the six months endedJune 30, 2021 , the Company recorded a benefit for credit losses of$6.1 million , reflecting improvements in the economic forecast and asset quality as well as a decline in loan balances, as compared to a provision for credit losses of$552,000 for the six months endedJune 30, 2022 . Earnings for the six months endedJune 30, 2021 , also included a gain on sale of loans of$1.4 million , and approximately$1.9 million of accretable income related to the payoffs of PCD loans. Total assets increased by$216.6 million , or 4.0%, to$5.65 billion atJune 30, 2022 , from$5.43 billion atDecember 31, 2021 . Total liabilities increased$241.2 million , or 5.1%, to$4.93 billion atJune 30, 2022 , from$4.69 billion atDecember 31, 2021 .
Comparison of Financial Condition at
Total assets increased by$216.6 million , or 4.0%, to$5.65 billion atJune 30, 2022 , from$5.43 billion atDecember 31, 2021 . The increase was primarily due to increases in total loans of$307.6 million , or 8.1%, cash and cash equivalents of$19.2 million , or 21.0%, and other assets of$9.9 million , or 26.7%, partially offset by a decrease in available-for-sale debt securities of$121.4 million , or 10.0%. Cash and cash equivalents increased by$19.2 million , or 21.0%, to$110.2 million atJune 30, 2022 , from$91.1 million atDecember 31, 2021 , primarily due to the liquidity obtained from loans and securities paydowns, growth in deposits, and proceeds from the issuance of subordinated debt. 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 outflows or borrowing maturities. The Company's available-for-sale debt securities portfolio decreased by$121.4 million , or 10.0%, to$1.09 billion atJune 30, 2022 , from$1.21 billion atDecember 31, 2021 . The decrease was primarily attributable to paydowns, maturities, calls, and sales. AtJune 30, 2022 ,$821.2 million of the portfolio consisted of residential mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, orGinnie Mae . In addition, the Company held$74.8 million inU.S. Government agency securities,$190.8 million in corporate bonds, all of which were considered investment grade atJune 30, 2022 , and$52,000 in municipal bonds. The effective duration of the securities portfolio atJune 30, 2022 was 2.37 years. Equity securities increased by$2.5 million to$7.8 million atJune 30, 2022 , from$5.3 million atDecember 31, 2021 , due to an increase in our investment in aSmall Business Administration Loan Fund . This investment is utilized by the Bank as part of its Community Reinvestment Act program. As ofJune 30, 2022 , we estimate that our non-owner occupied commercial real estate concentration (as defined by regulatory guidance) to total risk-based capital was approximately 468.9%. 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 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 its commercial real estate concentration risk, the Bank's regulators could require it to implement additional policies and procedures or could require it to maintain higher levels of regulatory capital, which might adversely affect its loan originations, ability to pay dividends, and profitability. 44 -------------------------------------------------------------------------------- Table of Contents Loans held-for-investment, net, increased by$305.2 million , or 8.0%, to$4.11 billion atJune 30, 2022 from$3.81 billion atDecember 31, 2021 . The increase was due to strong loan originations, and, to a lesser extent, the purchase of two one-to-four family residential loan pools of approximately$7.7 million . Multifamily loans increased$252.9 million , or 10.0%, to$2.77 billion atJune 30, 2022 from$2.52 billion atDecember 31, 2021 , commercial real estate loans increased$41.6 million , or 5.1%, to$850.2 million atJune 30, 2022 from$808.6 million atDecember 31, 2021 , home equity loans increased$27.9 million , or 25.4%, to$137.9 million atJune 30, 2022 from$110.0 million atDecember 31, 2021 , commercial and industrial loans (excluding PPP loans) increased$21.0 million , or 20.9%, to$121.5 million atJune 30, 2022 from$100.5 million atDecember 31, 2021 , and, one-to-four family residential loans increased$1.7 million , or 0.9%. The increases were partially offset by decreases in construction and land loans of$8.9 million , or 32.5%, to$18.6 million atJune 30, 2022 from$27.5 million atDecember 31, 2021 , and PPP loans of$28.6 million , or 70.5%, to$11.9 million atJune 30, 2022 from$40.5 million atDecember 31, 2021 . ThroughJune 30, 2022 , 2,307 borrowers have received PPP forgiveness payments totaling approximately$217.8 million .
The following tables detail our multifamily real estate originations for the six
months ended
For the Six Months Ended June 30, 2022
Weighted Average
Months to Next Rate
Multifamily Weighted Average Weighted Average Change or Maturity
Originations Interest Rate LTV Ratio for Fixed Rate Loans (F)ixed or (V)ariable Amortization Term
$ 447,129 3.42% 57% 76 V 25 to 30 Years
1,200 3.75% 18% 180 F 15 Years
$ 448,329 3.42% 57%
For the Six Months Ended June 30, 2021
Weighted Average
Months to Next Rate
Multifamily Weighted Average Weighted Average Change or Maturity
Originations Interest Rate LTV Ratio for Fixed Rate Loans (F)ixed or (V)ariable Amortization Term
$ 385,363 3.12% 62% 74 V 10 to 30 Years
The following table details loan pools purchased during the six months ended
For
the Six Months Ended
Weighted Average
Months to Next Rate
Weighted Average Weighted Average Change or Maturity
Purchase Amount Loan Type Interest Rate(1) Loan-to-Value Ratio for Fixed Rate Loans (F)ixed or (V)ariable Amortization Term
$ 2,482 Residential 2.80% 54% 278 F 15 to 30 Years
5,214 Residential 3.05% 59% 303 F 15 to 30 Years
$ 7,696 2.97% 57%
(1) Net of servicing fee retained by the originating bank
The geographic locations of the properties collateralizing the loans purchased
in the table above are as follows: 63.3% in
There were
PCD loans totaled$13.1 million atJune 30, 2022 , and$15.8 million atDecember 31, 2021 . Upon adoption of the CECL accounting standard onJanuary 1, 2021 , the allowance for credit losses related to PCD loans was recorded through a gross-up that increased the amortized cost-basis of PCD loans by$6.8 million with a corresponding increase to the allowance for credit losses. The decrease in the PCD loan balance atJune 30, 2022 was due to PCD loans being sold and paid off during the period. The majority of the remaining PCD loan balance consists of loans acquired as part of aFederal Deposit Insurance Corporation -assisted transaction. The Company accreted interest income of$339,000 and$729,000 attributable to PCD loans for the three and six months endedJune 30, 2022 , respectively, as compared to$443,000 and$2.9 million for the three and six months endedJune 30, 2021 , respectively. The decrease in income accreted for the six months endedJune 30, 2022 was due to the payoff of PCD loans in the prior year. PCD loans had an allowance for credit losses of approximately$4.2 million atJune 30, 2022 . 45
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Other assets increased
Total liabilities increased$241.2 million , or 5.1%, to$4.93 billion atJune 30, 2022 , from$4.69 billion atDecember 31, 2021 . The increase was primarily attributable to an increase in deposits of$248.7 million , the issuance of subordinated debt, net of issuance costs, of$60.9 million , and an increase in advance payments by borrowers for taxes and insurance of$4.5 million , partially offset by a decrease in FHLB advances and other borrowings of$74.7 million . Deposits increased$248.7 million , or 6.0%, to$4.42 billion atJune 30, 2022 , as compared to$4.17 billion atDecember 31, 2021 . The increase was attributable to increases of$193.0 million in transaction accounts and$140.4 million in certificates of deposit, partially offset by decreases of$16.8 million in savings accounts and$68.0 million in money market accounts. Borrowed funds decreased to$407.9 million atJune 30, 2022 , from$421.8 million atDecember 31, 2021 . The decrease in borrowings for the period was primarily attributable to a decrease in FHLB and other borrowings of$49.7 million , and a decrease in securities sold under agreements to repurchase of$25.0 million , partially offset by the issuance of$62.0 million in aggregate principal amount of fixed to floating subordinated notes (the "Notes"). The Notes are non-callable for five years, have a stated maturity ofJune 30, 2032 , and bear interest at a fixed rate of 5.00% untilJune 30, 2027 . FromJuly 2027 to the maturity date or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month Secured Overnight Financing Rate plus 200 basis points. Debt issuance costs totaled$1.1 million . Management utilizes borrowings to mitigate interest rate risk, for short-term liquidity, and to a lesser extent as part of leverage strategies.
The following is a table of term borrowing maturities (excluding overnight
borrowings and subordinated debt) and the weighted average rate by year at
Year Amount Weighted Average Rate
2022 $45,000 2.05%
2023 87,500 2.89%
2024 50,000 2.47%
2025 112,500 1.48%
Thereafter 45,000 1.45%
$340,000 2.06%
Total stockholders' equity decreased by $24.6 million to $715.3 million at
June 30, 2022 , from $739.9 million at December 31, 2021 . The decrease was
attributable to a $33.3 million decrease in accumulated other comprehensive
income associated with a decline in the estimated fair value of our debt
securities available-for-sale portfolio, $12.2 million in dividend payments, and
$11.0 million in stock repurchases, partially offset by net income of $30.0
million for the six months ended June 30, 2022 , and a $1.9 million increase in
equity award activity. During the first quarter of 2022, the $54.2 million stock
repurchase program that was approved in March 2021 , was completed after reaching
the purchase limit. On June 16, 2022 , the Board of Directors of the Company
approved a new $45.0 million stock repurchase program. During the six months
ended June 30, 2022 , the Company repurchased 739,701 shares of its common stock
outstanding at an average price of $14.84 for a total of $11.0 million pursuant
to the approved stock repurchase plans.
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Comparison of Operating Results for the Six Months Ended
Net Income. Net income was$30.0 million and$38.5 million for the six months endedJune 30, 2022 andJune 30, 2021 , respectively. Significant variances from the comparable prior year period are as follows: a$1.9 million decrease in net interest income, a$6.6 million increase in the provision for credit losses on loans, a$5.1 million decrease in non-interest income, a$2.0 million decrease in non-interest expense, and a$3.1 million decrease in income tax expense. Interest Income. Interest income decreased$4.7 million , or 5.3%, to$83.7 million for the six months endedJune 30, 2022 , from$88.3 million for the six months endedJune 30, 2021 , primarily due to a 19 basis point decrease in the yields earned on interest-earning assets to 3.21% for the six months endedJune 30, 2022 from 3.40% for the comparable prior year period. The decrease was due in part to a$2.2 million decrease in accreted interest income related to PCD loans, and a$1.7 million reduction in fees related to the forgiveness of PPP loans. Partially offsetting the decrease in the yields earned was an increase in the average balance of interest-earning assets of$12.6 million , or 0.2%. The increase in the average balance of interest-earning assets was due to increases in the average balance of other securities of$155.4 million and the average balance of loans outstanding of$9.6 million , partially offset by decreases in the average balance of mortgage-backed securities of$122.6 million , the average balance of FHLBNY stock of$6.7 million , and the average balance of interest-earning deposits in financial institutions of$23.0 million . The Company accreted interest income related to PCD loans of$729,000 for the six months endedJune 30, 2022 , as compared to$2.9 million for the six months endedJune 30, 2021 . The higher accretable PCD interest income in the prior year was primarily related to payoffs of PCD loans in the first quarter of 2021. Fees recognized from PPP loans totaled$1.1 million for the six months endedJune 30, 2022 , as compared to$2.8 million for the six months endedJune 30, 2021 . Interest income for the six months endedJune 30, 2022 , included loan prepayment income of$2.6 million as compared to$2.2 million for the six months endedJune 30, 2021 . Interest Expense. Interest expense decreased$2.7 million , or 29.1%, to$6.7 million for the six months endedJune 30, 2022 , as compared to$9.4 million for the six months endedJune 30, 2021 . The decrease was due to a decrease in interest expense on total borrowings of$1.7 million , or 28.8%, and a decrease in interest expense on deposits of$1.0 million , or 29.6%. The decrease in interest expense on borrowings was primarily attributable to a$171.7 million , or 29.9%, decrease in average borrowings outstanding. The decrease in interest expense on deposits was attributable to a six basis point decrease in the cost of interest-bearing deposits to 0.15% for the six months endedJune 30, 2022 , partially offset by an$32.8 million , or 1.0% increase in the average balance of interest-bearing deposit accounts. The decrease in the cost of interest-bearing deposits was primarily due to decreases in deposit market rates and a change in the composition of the deposit portfolio as the average balance of transaction accounts increased and the average balance of certificates of deposit decreased. Net Interest Income. Net interest income for the six months endedJune 30, 2022 , decreased$1.9 million , or 2.4%, to$77.0 million , from$78.9 million for the six months endedJune 30, 2021 , primarily due to an eight basis point decrease in net interest margin to 2.95% from 3.03% for the six months endedJune 30, 2021 , partially offset by a$12.6 million , or 0.2%, increase in the average balance of interest-earning assets. The decrease in net interest margin was primarily due to lower yields on interest-earning assets, partially offset by the lower cost of interest-bearing liabilities. Yields on interest-earning assets decreased 19 basis points to 3.21% for the six months endedJune 30, 2022 , from 3.40% for the six months endedJune 30, 2021 . The cost of interest-bearing liabilities decreased by 12 basis points to 0.36% for the six months endedJune 30, 2022 , from 0.48% for the six months endedJune 30, 2021 . Provision for Credit Losses. The provision for credit losses on loans increased by$6.6 million to a provision of$552,000 for the six months endedJune 30, 2022 , compared to a benefit of$6.1 million for the six months endedJune 30, 2021 . The prior year benefit for credit losses was primarily due to improvement in the economic forecast and an improvement in asset quality as well as a decline in loan balances. The current year provision for credit losses was due to growth in the loan portfolio and a worsening macroeconomic outlook, partially offset by an improvement in asset quality and lower net charge-offs. AtJune 30, 2022 , management, utilizing judgement, qualitatively adjusted the forecast to account for economic uncertainty that may not be captured in the third party economic forecast scenarios utilized. Net charge-offs were$494,000 for the six months endedJune 30, 2022 , as compared to net charge-offs of$2.4 million for the six months endedJune 30, 2021 , which related to PCD loans. 47
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Non-interest Income. Non-interest income decreased by$5.1 million , or 67.2%, to$2.5 million for the six months endedJune 30, 2022 , from$7.6 million for the six months endedJune 30, 2021 , due primarily to a decrease of$3.5 million in gains on trading securities, net, a$1.4 million decrease in gains on sales of loans, and a$342,000 decrease in net realized gains on available-for-sale debt securities. For the six months endedJune 30, 2022 , losses on trading securities were$2.4 million , as compared to gains of$1.2 million for the six months endedJune 30, 2021 . 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. The decrease in gains on sales of loans was due to a$1.4 million gain realized on the sale of approximately$126.3 million of multifamily loans in the second quarter of 2021. Non-interest Expense. Non-interest expense decreased$2.0 million , or 5.1%, to$37.4 million for the six months endedJune 30, 2022 , compared to$39.4 million for the six months endedJune 30, 2021 . The decrease was primarily due to a$2.4 million decrease in employee compensation and benefits. The decrease was due to a$3.5 million decrease in the mark to market of the Company's deferred compensation plan expense, which as discussed above has no effect on net income, as well as a decrease in medical benefit costs, partially offset by an increase in salary expense related to annual merit increases and an increase in equity award expense related to new awards issued under the 2019 Equity Incentive Plan ( the "2019 EIP") in the first quarter of 2022. Additionally, occupancy expense decreased by$507,000 , primarily related to lower snow removal costs, and advertising expense decreased by$312,000 . Partially offsetting the decreases was an increase in professional fees of$399,000 and an increase in other expense of$812,000 , primarily due to an increase in the reserve for unfunded commitments, as well as an increase in other operating expenses. Income Tax Expense. The Company recorded income tax expense of$11.5 million for the six months endedJune 30, 2022 , compared to$14.6 million for the six months endedJune 30, 2021 . The effective tax rate for the six months endedJune 30, 2022 , was 27.6% compared to 27.5% for the six months endedJune 30, 2021 . 48 -------------------------------------------------------------------------------- Table of Contents The following table sets forth average balances, average yields and costs, and certain other information for the periods indicated. For the Six Months Ended June 30, 2022 June 30, 2021 Average Average Outstanding Average Yield/ Outstanding Average Yield/ Balance Interest Rate (1) Balance Interest Rate (1) Interest-earning assets: Loans (2)$ 3,920,792 $ 75,719 3.89 %$ 3,911,215 $ 80,976 4.18 % Mortgage-backed securities (3) 918,864 5,518 1.21 1,041,493 5,641 1.09 Other securities (3) 277,035 1,684 1.23 121,609 908 1.51 Federal Home Loan Bank of New York stock 21,440 505 4.75 28,169 706 5.05 Interest-earning deposits in financial institutions 118,872 224 0.38 141,899 72 0.10 Total interest-earning assets 5,257,003 83,650 3.21 5,244,385 88,303 3.40 Non-interest-earning assets 272,869 303,183 Total assets$ 5,529,872 $ 5,547,568 Interest-bearing liabilities: Savings, NOW, and money market accounts$ 2,981,180 $ 1,170 0.08 %$ 2,761,541 $ 1,777 0.13 % Certificates of deposit 406,156 1,323 0.66 592,983 1,764 0.60 Total interest-bearing deposits 3,387,336 2,493 0.15 3,354,524 3,541 0.21 Borrowed funds 397,775 4,084 2.07 574,240 5,899 2.07 Subordinated debt 4,790 119 5.01 - - - Total interest-bearing liabilities$ 3,789,901 6,696 0.36$ 3,928,764 9,440 0.48 Non-interest bearing deposits 914,409 767,495 Accrued expenses and other liabilities 102,679 96,759 Total liabilities 4,806,989 4,793,018 Stockholders' equity 722,883 754,550 Total liabilities and stockholders' equity$ 5,529,872 $ 5,547,568 Net interest income$ 76,954 $ 78,863 Net interest rate spread (4) 2.85 % 2.92 % Net interest-earning assets (5)$ 1,467,102 $ 1,315,621 Net interest margin (6) 2.95 % 3.03 % Average interest-earning assets to interest-bearing liabilities 138.71 % 133.49 % (1) Average yields and rates are annualized. (2) Includes non-accruing loans. (3) Securities available-for-sale and other securities are reported at amortized cost. (4) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. (5) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. (6) Net interest margin represents net interest income divided by average total interest-earning assets. 49 -------------------------------------------------------------------------------- Table of Contents Comparison of Operating Results for the Three Months EndedJune 30, 2022 and 2021 Net Income. Net income was$15.9 million and$19.8 million for the quarters endedJune 30, 2022 andJune 30, 2021 , respectively. Significant variances from the comparable prior year quarter are as follows: a$1.4 million increase in net interest income, a$3.9 million increase in the provision for credit losses on loans, a$4.2 million decrease in non-interest income, a$1.2 million decrease in non-interest expense, and a$1.5 million decrease in income tax expense. Interest Income. Interest income increased$220,000 , or 0.5%, to$43.5 million for the quarter endedJune 30, 2022 , from$43.2 million for the quarterJune 30, 2021 , primarily due to an increase in the average balance of interest-earning assets of$70.1 million , partially offset by a two basis point decrease in the yields earned on interest-earning assets to 3.29% for the quarter endedJune 30, 2022 , from 3.31% for the quarter endedJune 30, 2021 , primarily due to lower yields on loans, due in part to a$1.1 million reduction in fees related to the forgiveness of PPP loans. The increase in the average balance of interest-earning assets was primarily due to increases in the average balance of other securities of$156.4 million and the average balance of loans outstanding of$44.6 million , partially offset by decreases in the average balance of mortgage-backed securities of$68.0 million , the average balance of interest-earning deposits in financial institutions of$55.8 million , and the average balance of FHLBNY stock of$7.0 million . The Company accreted interest income related to PCD loans of$339,000 for the quarter endedJune 30, 2022 , as compared to$443,000 for quarter endedJune 30, 2021 . Fees recognized from PPP loans totaled$432,000 for the quarter endedJune 30, 2022 , as compared to$1.6 million for the quarter endedJune 30, 2021 . Interest income for the quarter endedJune 30, 2022 , included loan prepayment income of$1.5 million , as compared to$1.3 million for the quarter endedJune 30, 2021 . Interest Expense. Interest expense decreased$1.2 million , or 25.9%, to$3.4 million for the quarter endedJune 30, 2022 , from$4.5 million for the quarter endedJune 30, 2021 . The decrease was due to a decrease in interest expense on total borrowings of$841,000 , or 29.2%, and a decrease in interest expense on deposits of$337,000 , or 20.2%. The decrease in interest expense on total borrowings was primarily attributable to a$170.1 million , or 30.6%, decrease in the average balance of borrowings outstanding. The decrease in interest expense on deposits was attributable to a four basis point decrease in the cost of interest-bearing deposits to 0.16% for the quarter endedJune 30, 2022 , partially offset by a$117.5 million , or 3.5%, increase in the average balance of interest-bearing deposit accounts. The decrease in the cost of interest-bearing deposits was primarily due to decreases in deposit market rates and a change in the composition of the deposit portfolio as the average balance of transaction accounts increased and the average balance of certificates of deposit decreased. Net Interest Income. Net interest income for the quarter endedJune 30, 2022 , increased$1.4 million , or 3.6%, primarily due to a seven basis point increase in net interest margin to 3.03% from 2.96% for the quarter endedJune 30, 2021 , and the increase in average interest-earning assets of$70.1 million , or 1.3%. The increase in net interest margin was primarily due to a decrease in the cost of interest-bearing liabilities, which decreased by 12 basis points to 0.35% for the quarter endedJune 30, 2022 , from 0.47% for the quarter endedJune 30, 2021 . Partially offsetting this decrease was a decrease in yields on interest-earning assets, which decreased by two basis points to 3.29% for the quarter endedJune 30, 2022 , from 3.31% for the quarter endedJune 30, 2021 . Provision for Credit Losses. The provision for credit losses on loans increased by$3.9 million to a provision of$149,000 for the quarter endedJune 30, 2022 , from a benefit of$3.7 million for the quarter endedJune 30, 2021 . The prior year benefit for credit losses was primarily due to improvement in the economic forecast and an improvement in asset quality as well as a decline in loan balances. The current quarter provision for credit losses was due to growth in the loan portfolio, higher net charge-offs, and a worsening macroeconomic outlook, partially offset by an improvement in asset quality. AtJune 30, 2022 , management, utilizing judgement, qualitatively adjusted the forecast to account for economic uncertainty that may not be captured in the third party economic forecast scenarios utilized. Net charge-offs were$392,000 for the quarter endedJune 30, 2022 , compared to net charge-offs of$3,000 for the quarter endedJune 30, 2021 . Non-interest Income. Non-interest income decreased by$4.2 million , or 84.4%, to$765,000 for the quarter endedJune 30, 2022 , from$4.9 million for the quarter endedJune 30, 2021 , primarily due to a$2.4 million decrease in gains on trading securities, net, a$1.4 million decrease in gains on sales of loans, and a$509,000 decrease in net realized gains on available-for-sale debt securities. For the quarter endedJune 30, 2022 , losses on trading securities, net, included losses of$1.6 million related to the Company's trading portfolio, compared to gains of$807,000 in the comparative prior year quarter. 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. The decrease in gains on sales of loans was due to a$1.4 million gain realized on the sale of approximately$126.3 million of multifamily loans in the second quarter of 2021. 50 -------------------------------------------------------------------------------- Table of Contents Non-interest Expense. Non-interest expense decreased by$1.2 million , or 5.8%, to$18.7 million for the quarter endedJune 30, 2022 , from$19.9 million for the quarter endedJune 30, 2021 . The decrease was due primarily to a$1.4 million decrease in compensation and employee benefits, attributable to a$2.4 million decrease in the mark to market of the Company's deferred compensation plan expense, which has no effect on net income, partially offset by an increase in salary expense related to annual merit increases and an increase in equity award expense related to new awards issued under the 2019 EIP in the first quarter of 2022. Additionally, occupancy expense decreased by$214,000 , and advertising expense decreased by$280,000 . The decreases were partially offset by increases of$397,000 in professional fees and$370,000 in other expense, primarily related to an increase in the reserve for unfunded commitments. Income Tax Expense. The Company recorded income tax expense of$6.1 million for the quarter endedJune 30, 2022 , compared to$7.6 million for the quarter endedJune 30, 2021 . The effective tax rate for both quarters endedJune 30, 2022 , andJune 30, 2021 , was 27.8%. 51
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The following table sets forth average balances, average yields and costs, and certain other information for the periods indicated.
For the Three Months Ended
June 30, 2022 June 30, 2021
Average Average
Outstanding Average Yield/ Outstanding Average Yield/
Balance Interest Rate (1) Balance Interest Rate (1)
Interest-earning assets:
Loans (2) $ 3,992,731 $ 38,998 3.92 % $ 3,948,136 $ 39,699 4.03 %
Mortgage-backed securities (3) 899,479 3,043 1.36 967,526 2,682 1.11
Other securities (3) 297,859 989 1.33 141,475 484 1.37
Federal Home Loan Bank of New York stock 20,689 260 5.04 27,703 336 4.86
Interest-earning deposits in financial institutions 94,689 166 0.70 150,494 35 0.09
Total interest-earning assets 5,305,447 43,456 3.29 5,235,334 43,236 3.31
Non-interest-earning assets 266,303 295,768
Total assets $ 5,571,750 $ 5,531,102
Interest-bearing liabilities:
Savings, NOW, and money market accounts $ 3,007,929 $ 599 0.08 % $ 2,754,346 $ 845 0.12 %
Certificates of deposit 438,835 735 0.67 574,899 826 0.58
Total interest-bearing deposits 3,446,764 1,334 0.16 3,329,245 1,671 0.20
Borrowed funds 377,044 1,918 2.04 556,682 2,878 2.07
Subordinated debt 9,527 119 5.01 - - -
Total interest-bearing liabilities 3,833,335 3,371 0.35 3,885,927 $ 4,549 0.47
Non-interest bearing deposits 918,980 795,613
Accrued expenses and other liabilities 105,525 95,274
Total liabilities 4,857,840 4,776,814
Stockholders' equity 713,910 754,288
Total liabilities and stockholders' equity $ 5,571,750 $ 5,531,102
Net interest income $ 40,085 $ 38,687
Net interest rate spread (4) 2.94 % 2.84 %
Net interest-earning assets (5) $ 1,472,112 $ 1,349,407
Net interest margin (6) 3.03 % 2.96 %
Average interest-earning assets to interest-bearing
liabilities 138.40 % 134.73 %
(1) Average yields and rates are annualized.
(2) Includes non-accruing loans.
(3) Securities available-for-sale and other securities are reported at amortized
cost.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) Net interest-earning assets represent total interest-earning assets less
total interest-bearing liabilities.
(6) Net interest margin represents net interest income divided by average total
interest-earning assets.
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Asset Quality
PCD Loans (Held-for-Investment)
Based on its detailed review of PCD 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 PCD loans ($13.1 million atJune 30, 2022 and$15.8 million atDecember 31, 2021 ) as accruing, even though they may be contractually past due. AtJune 30, 2022 , 0.5% of PCD loans were past due 30 to 89 days, and 24.7% were past due 90 days or more, as compared to 10.5% and 19.2%, respectively, atDecember 31, 2021 .
Loans
The following table details total non-accruing loans, non-performing loans,
non-performing assets and troubled debt restructurings ("TDR") (excluding PCD
loans) on which interest is accruing, and accruing loans 30 to 89
days delinquent at
June 30, 2022 December 31, 2021
Non-accrual loans:
Held-for-investment
Real estate loans:
Multifamily $ 4,022 $ 1,882
Commercial 5,330 5,117
One-to-four family residential 304 314
Home equity and lines of credit 332 281
Commercial and industrial 275 28
Total non-accrual loans held-for-investment 10,263 7,622
Loans delinquent 90 days or more and still accruing:
Held-for-investment
Real estate loans:
Commercial 27 147
One-to-four family residential 160 165
Commercial and industrial 17 72
Other 7 -
Total loans delinquent 90 days or more and still accruing
held-for-investment 211 384
Total non-performing loans 10,474 8,006
Other real estate owned - 100
Total non-performing assets $ 10,474 $ 8,106
Non-performing loans to total loans 0.25 % 0.21 %
Non-performing assets to total assets 0.19 % 0.15 %
Loans subject to restructuring agreements and still accruing $
4,115 $ 5,820
Accruing loans 30 to 89 days delinquent $ 2,706 $ 1,166
The increase in non-accrual loans was primarily due to one
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Other Real Estate Owned
AtJune 30, 2022 , the Company had no assets acquired through foreclosure. As ofDecember 31, 2021 , other real estate owned was comprised of one property located inNew Jersey , which had a carrying value of approximately$100,000 , and which was sold during the second quarter of 2022 for a small gain.
Accruing Loans 30 to 89 Days Delinquent
Loans 30 to 89 days delinquent and on accrual status totaled$2.7 million and$1.2 million atJune 30, 2022 andDecember 31, 2021 , respectively. The following table sets forth delinquencies for accruing loans by type and by amount atJune 30, 2022 andDecember 31, 2021 (in thousands): June 30, 2022 December 31, 2021 Held-for-investment Real estate loans: Commercial $ 658 $ 144 One-to-four family residential 805 593 Home equity and lines of credit 147 412 Commercial and industrial loans (1) 1,096 2 Other loans - 15 Total delinquent accruing loans held-for-investment$ 2,706 $ 1,166
(1) Included within delinquent commercial and industrial loans at
Loans Subject to TDR Agreements
Included in non-accruing loans are loans subject to TDR agreements totaling$3.2 million at bothJune 30, 2022 andDecember 31, 2021 , respectively. There were no loans modified as a TDR during the six months endedJune 30, 2022 . AtJune 30, 2022 , two of the non-accruing TDRs with an aggregate net loan balance of$430,000 were not performing in accordance with their terms and are collateralized by real estate with an estimated fair value of$810,000 . AtDecember 31, 2021 , one of the non-accruing TDRs totaling$368,000 was not performing in accordance with its terms and is collateralized by real estate with an appraised value of$620,000 . The Company also holds loans subject to TDR agreements that are on accrual status totaling$4.1 million and$5.8 million atJune 30, 2022 andDecember 31, 2021 , respectively. AtJune 30, 2022 ,$3.9 million , or 94.6%, of the$4.1 million of accruing loans subject to TDR agreements were performing in accordance with their restructured terms. AtDecember 31, 2021 ,$5.7 million , or 97.5%, of the$5.8 million of accruing loans subject to TDR agreements 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. 54 -------------------------------------------------------------------------------- Table of Contents The following table details the amounts and categories of the loans subject to restructuring agreements by loan type as ofJune 30, 2022 andDecember 31, 2021 (in thousands): June 30, 2022 December 31, 2021 Non-Accruing Accruing Non-Accruing Accruing Real estate loans: Multifamily $ -$ 134 $ -$ 603 Commercial 3,182 3,162 3,219 3,508 One-to-four family residential - 692 - 1,562 Home equity and lines of credit - 28 - 38 Commercial and industrial loans - 99 - 109$ 3,182 $ 4,115 $ 3,219 $ 5,820 Performing in accordance with restructured terms 86.5 % 94.6 % 88.6 % 97.5 % Other During the fourth quarter of 2021, the Bank downgraded a lending relationship with an outstanding principal balance atDecember 31, 2021 , of approximately$15.6 million to substandard, which is comprised of two commercial real estate loans with balances of$10.9 million , and a commercial line of credit secured by all unencumbered business assets with a balance of$4.7 million . All draws on the line are at the discretion of the Bank. The Bank has received paydowns of approximately$3.8 million on the commercial line of credit, reducing the outstanding balance to approximately$913,000 as ofJune 30, 2022 . AtJune 30, 2022 , the aggregate balances of the loans was$11.6 million . The commercial real estate loans are secured by two commercial properties with a current appraised value of$19.2 million . The lending relationship was downgraded as a result of legal matters against certain officers of the borrowing entities, including certain individuals who are guarantors to the loans, and the impact such legal matters may have on future operations of the entities. All loans under the lending relationship are current as ofAugust 8, 2022 , and the entities continue to operate. The Bank continues to evaluate the financial condition, operating results and cash flows of the related entities and guarantors. AtJune 30, 2022 , approximately$1.4 million of the allowance for credit losses has been designated to this lending relationship. Based on information available, the loans have not been designated as impaired and remain on accrual status. However, there can be no assurances that one or more of the loans under the relationship will not migrate to non-accrual status in the future or require the establishment of additional loan losses reserves.
Liquidity and Capital Resources
Liquidity. The objective of our liquidity management is to ensure the
availability of sufficient funds to meet financial commitments and to take
advantage of lending and investment opportunities. The Bank manages liquidity in
order to meet deposit withdrawals, to repay borrowings as they mature, and to
fund new loans and investments as opportunities arise.
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The Bank's primary sources of funds are deposits, principal and interest
payments on loans and securities, borrowed funds, the proceeds from maturing
securities and short-term investments, and to a lesser extent, proceeds from the
sales of loans and securities and wholesale borrowings. The scheduled
amortization of loans and securities, as well as proceeds from borrowed funds,
are predictable sources of funds. Other funding sources, however, such as
deposit inflows and loan prepayments are greatly influenced by market interest
rates, economic conditions, and competition. The Bank is a member of the FHLBNY,
which provides an additional source of short-term and long-term funding. The
Bank also has short-term borrowing capabilities with the Federal Reserve Bank of
New York ("FRBNY"). The Bank's borrowed funds, excluding lease obligations,
floating rate advances and an overnight line of credit, were $340.0 million at
June 30, 2022 , and had a weighted average interest rate of 2.06%. A total of
$107.5 million of these borrowings will mature in less than one year. Borrowed
funds, excluding floating rate advances and an overnight line of credit, were
$415.0 million at December 31, 2021 . On June 17, 2022 , the Company issued $62.0
million in aggregate principal amount of fixed to floating subordinated notes
(the "Notes"). The Notes are non-callable for five years, have a stated maturity
of June 30, 2032 , and bear interest at a fixed rate of 5.00% until June 30,
2027 . From July 2027 to the maturity date or early redemption date, the interest
rate will reset quarterly to a level equal to the then current three-month
Secured Overnight Financing Rate plus 200 basis points. The Bank has the ability
to obtain additional funding from the FHLBNY of approximately $2.06 billion
utilizing unencumbered securities of $472.1 million , loans of $1.59 billion , and
encumbered securities of $394,000 at June 30, 2022 . Additionally, the Bank has
remaining borrowing capacity utilizing encumbered securities through the FRBNY
Discount Window of $1.2 million . The Bank expects to have sufficient funds
available to meet current commitments in the normal course of business.
Northfield Bancorp, Inc. (standalone) is a separate legal entity from the Bank
and must provide for its own liquidity to pay dividends, repurchase its stock,
and for other corporate purposes. Northfield Bancorp, Inc.'s primary source of
liquidity is dividend payments from the Bank. At June 30, 2022 , Northfield
Bancorp, Inc. (standalone) had liquid assets of $72.9 million .
Capital Resources. 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 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 assets in addition to the amount
necessary to meet its minimum risk-based capital requirements.
As a result of the Economic Growth, Regulatory Relief, and Consumer Protection
Act, the federal banking agencies developed a "Community Bank Leverage Ratio"
("CBLR") (the ratio of a bank's tangible equity capital to average total
consolidated assets) for financial institutions with assets of less than $10
billion . A qualifying community bank that exceeds this ratio will be deemed to
be in compliance with all other capital and leverage requirements, including the
capital requirements to be considered "well capitalized" under Prompt Corrective
Action statutes. The federal banking agencies approved 9% as the minimum capital
for the CBLR. Effective March 31, 2020 , a financial institution could elect to
be subject to this new definition. Northfield Bank and Northfield Bancorp
elected to opt into the CBLR framework. The CBLR replaced the risk-based and
leverage capital requirements in the generally applicable capital rules. On
April 6, 2020 , the federal banking regulators, implementing the applicable
provisions of the CARES Act, modified the CBLR framework so that the minimum
CBLR was 8% beginning in the second quarter and for the remainder of calendar
year 2020, 8.5% for calendar year 2021, and 9% thereafter.
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At June 30, 2022 , and December 31, 2021 , as set forth in the following table,
both Northfield Bank and Northfield Bancorp, Inc. exceeded all of the regulatory
capital requirements to which they were subject at such dates.
For Well Capitalized
Under Prompt
For Capital Corrective Action
Northfield Bank Northfield Bancorp, Inc. Adequacy Purposes Provisions
As of June 30, 2022 :
CBLR 12.19% 12.75% 9.00% 9.00%
As of December 31, 2021 :
CBLR 12.24% 12.93% 8.50% 8.50%
Off-Balance Sheet Arrangements and Contractual Obligations
In the normal course of operations, the Company engages in a variety of financial transactions that, in accordance withU.S. GAAP, are not recorded in the financial statements. These transactions primarily relate to lending commitments. These arrangements are not expected to have a material impact on the Company's results of operations or financial condition. Commitments to fund unused lines of credit are agreements to lend additional funds to customers as long as there have been no violations of any of the conditions established in the agreements (original or restructured). Commitments to originate loans generally have a fixed expiration or other termination clauses, which may require payment of a fee. Since some of these loan commitments are expected to expire without being drawn upon, total commitments do not necessarily represent future cash requirements. AtJune 30, 2022 , the reserve for commitments to fund unused lines of credit recorded in accrued expenses and other liabilities was$2.5 million . For further information regarding our off-balance sheet arrangements and contractual obligations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 .
Accounting Pronouncements Not Yet Adopted
Accounting Standards Update ("ASU") No. 2020-04. On March 12, 2020 , the FASB
issued ASU No. 2020-04, "Reference Rate Reform ("ASC 848"): Facilitation of the
Effects of Reference Rate Reform on Financial Reporting", which provides
temporary optional guidance to ease the potential burden in accounting for
reference rate reform. The ASU provides optional expedients and exceptions for
applying generally accepted accounting principles to contract modifications and
hedging relationships, subject to meeting certain criteria, that reference the
London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to
be discontinued. It is intended to help stakeholders during the global
market-wide reference rate transition period. The guidance is effective for all
entities as of March 12, 2020 through December 31, 2022 . The Company continues
to implement its transition plan toward cessation of LIBOR and the modification
of its loans and other financial instruments with attributes that are either
directly or indirectly influenced by LIBOR. The Company is in the process of
evaluating ASU No. 2020-04 and its impact on the Company's transition away from
LIBOR for its loan and other financial instruments, with no material expected
impact on the Company's Consolidated Financial Statements.
ASU No. 2022-02. On March 31, 2022 , the FASB issued ASU No. 2022-02, "Financial
Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and
Vintage Disclosures". The amendments in this ASU were issued to (1) eliminate
accounting guidance for TDRs by creditors, while enhancing disclosure
requirements for certain loan refinancings and restructurings by creditors when
a borrower is experiencing financial difficulty; (2) require disclosures of
current period gross write-offs by year of origination for financing receivables
and net investments in leases. For entities that have adopted the amendments in
ASU 2016-13, Measurement of Credit Losses on Financial Instruments, this update
will be effective for financial statements issued for fiscal years and interim
periods beginning after December 15, 2022 . Early adoption is permitted. The
amendments in this ASU should be applied prospectively, except for the
transition method related to the recognition and measurement of TDRs, where
there is an option to apply a modified retrospective transition method,
resulting in a cumulative-effect adjustment to retained earnings in the period
of adoption. The Company is currently evaluating the impact of this standard to
the Consolidated Financial Statements.
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