Northfield Bancorp, Inc. Announces Second Quarter 2016 Results

NOTABLE ITEMS INCLUDE:

• DILUTED EARNINGS PER SHARE INCREASED OVER 9.5% FOR THE SIX MONTHS ENDED JUNE 30, 2016, AS COMPARED TO THE SAME PRIOR YEAR PERIOD
• NET INTEREST MARGIN EXPANDED 12 BASIS POINTS TO 2.97% FOR THE SIX MONTHS ENDED JUNE 30, 2016, FROM 2.85% FOR THE SIX MONTHS END JUNE 30, 2015 
• LOANS HELD-FOR-INVESTMENT INCREASED BY 2.4% FROM LINKED QUARTER, INCLUDING PURCHASE OF $75.9 MILLION IN LOANS
• DEPOSITS INCREASED BY 2.5% FROM LINKED QUARTER
• ASSET QUALITY REMAINS STRONG WITH NONPERFORMING ASSETS TO TOTAL ASSETS AT 0.29% 
• CAPITAL REMAINS STRONG AT 16.4%

NORTHFIELD BANCORP, INC. (Nasdaq: NFBK), the holding company for Northfield Bank, reported diluted earnings per common share of $0.15 and $0.23 for the quarter and six months ended June 30, 2016, respectively, compared to diluted earnings per common share of $0.10 and $0.21 for the quarter and six months ended June 30, 2015, respectively. Earnings for the six months ended June 30, 2016, reflect merger-related expenses associated with the acquisition of Hopewell Valley Community Bank (Hopewell Valley) of approximately $2.1 million, net of tax, or $0.05 per basic and diluted share. Earnings for the quarter and six months ended June 30, 2015, reflected a tax charge of $795,000, or $0.02 per basic and diluted share, related to the write-down of deferred tax assets as a result of New York City tax reforms enacted in April 2015. 

John W. Alexander, Chairman and Chief Executive Officer, commented, “Our second quarter earnings reflect the contributions expected from the Hopewell Valley transaction that closed in the first quarter, and the integration of operations at the beginning of the second quarter. With only nominal merger integration costs being incurred in this quarter, our earnings per share increased to $0.15 per share, an almost 88% increase over the first quarter. While loan originations year-to-date are below expectations, loan purchases in the quarter contributed to an increase of approximately 2.4% in total loans. Loan growth was funded primarily through deposits, which increased 2.5% for the quarter, or 9.9%, on an annualized basis.”

Continuing, Mr. Alexander added, “We continue to face historically low, and even declining, interest rates on earning assets in an increasingly competitive operating environment. Notwithstanding these pressures, we continue to adhere to our conservative underwriting standards that have resulted in sustained strong asset quality.”

Mr. Alexander further noted, “I am pleased to announce the declaration of a $0.08 per common share dividend by the Board of Directors. This dividend will be payable on August 24, 2016, to stockholders of record on August 10, 2016.”

Results of Operations

Comparison of Operating Results for the Six Months Ended June 30, 2016 and 2015

Net income was $10.6 million and $9.3 million for the six months ended June 30, 2016, and June 30, 2015, respectively. Net income for the six months ended June 30, 2016, included merger-related expenses of $3.5 million ($2.1 million after tax) related to the acquisition of Hopewell Valley, which was completed on January 8, 2016. Net income for the six months ended June 30, 2015, included a tax charge of $795,000 related to the write-down of deferred tax assets as a result of New York City tax reforms enacted in April 2015. Significant variances from the comparable prior year period are as follows: a $10.1 million increase in net interest income, a $389,000 decrease in the provision for loan losses, a $652,000 increase in non-interest income, a $10.2 million increase in non-interest expense, and a $386,000 decrease in income tax expense. 

Net interest income for the six months ended June 30, 2016, increased $10.1 million, or 25.1%, primarily due to a $559.9 million, or 19.7%, increase in our average interest-earning assets and a 12 basis point increase in our net interest margin to 2.97%. The increase in average interest-earning assets was due primarily to increases in average loans outstanding of $673.8 million, partially offset by a decrease in average mortgage-backed securities of $117.0 million. The increase in average loans was primarily due to $342.6 million of loans added through the Hopewell Valley acquisition, and to a lesser extent, loan pool purchases and originated loan growth. The six months ended June 30, 2016 included loan prepayment income of $935,000 as compared to $1.2 million for the six months ended June 30, 2015. Yields earned on interest-earning assets increased nine basis points to 3.62% for the six months ended June 30, 2016, from 3.53% for the six months ended June 30, 2015, driven by the increase in loan income on higher levels of interest-earning assets. The cost of interest-bearing liabilities decreased five basis points to 0.83% for the six months ended June 30, 2016 as compared to 0.88% for the comparable prior year six months, primarily due to lower rates on certificates of deposits, partially offset by higher rates on other interest-bearing deposits and borrowed funds.

The provision for loan losses decreased by $389,000 to a recovery of $117,000 for the six months ended June 30, 2016, from a provision of $272,000 for the six months ended June 30, 2015, primarily due to an improvement in the collateral values of our impaired loans, improved asset quality indicators, and to a lesser extent, lower originated loan growth. Loans acquired from Hopewell Valley were valued at estimated fair value on the date of acquisition, with no initial related allowance for loan losses. Net charge-offs were $336,000 for the six months ended June 30, 2016, compared to net charge-offs of $1.0 million for the six months ended June 30, 2015. Net charge-offs in the six months ended June 30, 2015, were primarily related to five previously impaired loans to one borrower that were restructured during the first quarter of 2015 and subsequently sold in the fourth quarter of 2015. These loans had existing specific reserves associated with them that adequately covered the charge-offs, resulting in no material effect on the provision for loan losses for the six months ended June 30, 2015.

Non-interest income increased $652,000, or 15.9%, to $4.8 million for the six months ended June 30, 2016, from $4.1 million for the six months ended June 30, 2015, due to increases in fees and service charges for customers of $471,000, income on bank owned life insurance of $111,000, and gains on securities transactions, net, of $195,000, partially offset by a decrease in other income of $125,000. The decrease in other income was due to a realized gain of $129,000 on the sale of an other real estate owned property in the first quarter of 2015.

Non-interest expense increased $10.2 million, or 35.3%, to $39.0 million for the six months ended June 30, 2016, from $28.8 million for the six months ended June 30, 2015, primarily due to: (1) a $6.1 million increase in compensation and employee benefits due to charges of $2.3 million related to severance, retention, and change-in-control compensation associated with the Hopewell Valley acquisition, increased salary and benefit expenses attributable to the addition of Hopewell Valley employees and general merit-related salary increases effective January 1, 2016, and an increase in stock compensation expense related to the 2014 Equity Incentive Plan (2014 EIP); (2) a $688,000 increase in occupancy expense due to the addition of nine Hopewell Valley branches; (3) a $1.3 million increase in data processing costs, of which approximately $620,000 was due to conversion costs associated with the Hopewell Valley acquisition; (4) an increase in professional fees of $644,000, of which $557,000 was related to the Hopewell Valley acquisition; and (5) a $1.3 million increase in other expense, primarily related to Directors’ equity awards associated with the 2014 EIP.

The Company recorded income tax expense of $5.6 million for the six months ended June 30, 2016, compared to $6.0 million for the six months ended June 30, 2015. The effective tax rate for the six months ended June 30, 2016, was 34.5% compared to 39.2% for the six months ended June 30, 2015. Income tax expense for the six months ended June 30, 2015, included a deferred tax asset write-down of $795,000 related to New York State tax reforms enacted in April 2015. 

Comparison of Operating Results for the Three Months Ended June 30, 2016 and 2015

Net income was $7.0 million and $4.3 million for the quarters ended June 30, 2016, and June 30, 2015, respectively. Net income for the quarter ended June 30, 2015, included a tax charge of $795,000 related to the write-down of deferred tax assets as a result of New York City tax reforms enacted in April 2015. Significant variances from the comparable prior year period are as follows: a $5.4 million increase in net interest income, a $527,000 increase in non-interest income, a $3.0 million increase in non-interest expense, and a $271,000 increase in income tax expense. 

Net interest income for the quarter ended June 30, 2016, increased $5.4 million, or 26.4%, primarily due to a $584.4 million, or 20.5%, increase in our average interest-earning assets and a 15 basis point increase in our net interest margin to 3.00%. The increase in average interest-earning assets was primarily attributable to an increase in average loans outstanding of $640.8 million, average other securities of $15.3 million, and average interest-earning deposits in financial institutions of $13.3 million, partially offset by a decrease in average mortgage-backed securities of $84.6 million. The increase in average loans was primarily due to $342.6 million of loans added through the Hopewell Valley acquisition, and to a lesser extent, loan pool purchases and originated loan growth. The quarter ended June 30, 2016 included loan prepayment income of $691,000 as compared to $653,000 for the quarter ended June 30, 2015. Yields earned on interest-earning assets increased 13 basis points to 3.65% for the quarter ended June 30, 2016, from 3.52% for the quarter ended June 30, 2015. The cost of interest-bearing liabilities decreased four basis points to 0.83% for the current quarter as compared to 0.87% for the comparable prior year quarter, primarily due to lower rates on borrowed funds, partially offset by higher rates on other interest-bearing deposits.

The provision for loan losses decreased by $58,000 to $14,000 for the quarter ended June 30, 2016, from $72,000 for the quarter ended June 30, 2015, primarily due to an improvement in the collateral values of our impaired loans, improved asset quality indicators, and to a lesser extent, lower originated loan growth in the quarter ended June 30, 2016, as compared to the quarter ended June 30, 2015. Loans acquired from Hopewell Valley were valued at estimated fair value on the date of acquisition, with no initial related allowance for loan losses. Net charge-offs were $75,000 for the quarter ended June 30, 2016, compared to net charge-offs of $454,000 for the quarter ended June 30, 2015.

Non-interest income increased $527,000, or 26.3%, to $2.5 million for the quarter ended June 30, 2016, from $2.0 million for the quarter ended June 30, 2015, due to increases in fees and service charges for customers of $198,000, income on bank owned life insurance of $63,000, gains on securities transactions, net, of $254,000, and other income of $12,000.

Non-interest expense increased $3.0 million, or 20.5%, to $17.5 million for the quarter ended June 30, 2016, from $14.5 million for the quarter ended June 30, 2015, due primarily to: (1) a $1.9 million increase in compensation and employee benefits due to the addition of Hopewell Valley employees, $288,000 of severance and retention bonuses associated with the Hopewell Valley acquisition, and general merit-related salary increases effective January 1, 2016; (2) a $240,000 increase in occupancy costs associated with the addition of nine Hopewell Valley branches; (3) a $405,000 increase in data processing costs as a result of conversion and increased data and maintenance costs related to the Hopewell Valley acquisition; and (4) a $323,000 increase in other expenses primarily related to Directors’ equity awards associated with the 2014 EIP.

The Company recorded income tax expense of $3.7 million for the quarter ended June 30, 2016, compared to $3.4 million for the quarter ended June 30, 2015. The effective tax rate for the quarter ended June 30, 2016, was 34.5% compared to 44.3% for the quarter ended June 30, 2015. Income tax expense for the quarter ended June 30, 2015, included a deferred tax asset write-down of $795,000 related to New York State tax reforms enacted in April 2015.

Comparison of Operating Results for the Three Months Ended June 30, 2016, and March 31, 2016

Net income was $7.0 million and $3.7 million for the quarters ended June 30, 2016, and March 31, 2016, respectively. Net income for the quarter ended March 31, 2016, included merger-related expenses of $3.2 million ($1.9 million after tax) related to the acquisition of Hopewell Valley. Other significant variances from the prior quarter are as follows: a $913,000 increase in net interest income, a $304,000 increase in non-interest income, a $4.0 million decrease in non-interest expense, and a $1.8 million increase in income tax expense. 

Net interest income for the quarter ended June 30, 2016, increased $913,000, or 3.7%, due primarily to a $58.2 million, or 1.7%, increase in our average interest-earning assets and a five basis point increase in our net interest margin to 3.00%. The increase in average interest-earning assets was primarily attributable to increases in average loans outstanding of $39.7 million, average mortgage-backed securities of $14.6 million, and average other securities of $9.5 million, partially offset by a decrease in average interest-earning deposits in financial institutions of $6.1 million. The June 30, 2016 quarter included loan prepayment income of $691,000 as compared to $244,000 for the quarter ended March 31, 2016.Yields earned on interest-earning assets increased six basis points to 3.65% for the quarter ended June 30, 2016, as compared to 3.59% for the quarter ended March 31, 2016, driven by higher yields on substantially all interest-earning assets. The cost of interest-bearing liabilities remained level at 0.83% for the quarters ended June 30, 2016 and March 31, 2016.

The provision for loan losses increased by $145,000 to $14,000 for the quarter ended June 30, 2016, from a recovery of $131,000 for the quarter ended March 31, 2016. The increase in the provision for loan losses was primarily due to loan growth, and an increase in the provision for losses in the multifamily sector associated with increasing vacancy levels. Loans acquired from Hopewell Valley were valued at an estimated fair value on the date of acquisition, with no initial related allowance for loan losses. Net charge-offs were $75,000 for the quarter ended June 30, 2016, compared to net charge-offs of $261,000 for the quarter ended March 31, 2016. 

Non-interest income increased $304,000, or 13.7%, to $2.5 million for the quarter ended June 30, 2016, from $2.2 million for the quarter ended March 31, 2016, primarily due to a $245,000 increase in gains on securities transactions, net, and a $68,000 increase in other income.  

Non-interest expense decreased $4.0 million, or 18.6%, to $17.5 million for the quarter ended June 30, 2016, from $21.5 million for the quarter ended March 31, 2016, primarily due to lower merger-related expenses. The quarter ended March 31, 2016 included merger-related expenses of $3.2 million related to the acquisition of Hopewell Valley.

The Company recorded income tax expense of $3.7 million for the quarter ended June 30, 2016, compared to $1.9 million for the quarter ended March 31, 2016. The effective tax rate for each quarter ended June 30, 2016, and March 31, 2016, was 34.5%.

Financial Condition

Total assets increased $538.8 million, or 16.8%, to $3.74 billion at June 30, 2016, from $3.20 billion at December 31, 2015, primarily due to approximately $500.0 million of total assets acquired from the Hopewell Valley acquisition.