Northfield Bancorp(NFBK) - 2019 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements This section presents Northfield Bancorp's unaudited consolidated financial statements, including balance sheets, income, equity, and cash flow statements Consolidated Balance Sheet Highlights (Unaudited) | | March 31, 2019 (in millions) | December 31, 2018 (in millions) | | :--- | :--- | :--- | | Assets | | | | Total cash and cash equivalents | $ 85.8 | $ 77.8 | | Net loans held-for-investment | $ 3,228.4 | $ 3,217.7 | | Total assets | $ 4,555.4 | $ 4,408.4 | | Liabilities and Stockholders' Equity | | | | Deposits | $ 3,375.2 | $ 3,286.5 | | Borrowed funds | $ 409.2 | $ 408.9 | | Total liabilities | $ 3,876.0 | $ 3,742.0 | | Total stockholders' equity | $ 679.4 | $ 666.4 | | Total liabilities and stockholders' equity | $ 4,555.4 | $ 4,408.4 | Consolidated Statements of Comprehensive Income Highlights (Unaudited) | | Three Months Ended March 31, 2019 (in millions) | Three Months Ended March 31, 2018 (in millions) | | :--- | :--- | :--- | | Net interest income | $ 27.3 | $ 27.5 | | Provision for loan losses | $ 0.059 | $ 0.034 | | Non-interest income | $ 3.3 | $ 2.4 | | Non-interest expense | $ 19.2 | $ 17.1 | | Income before income tax expense | $ 11.4 | $ 12.8 | | Net income | $ 8.8 | $ 10.4 | | Diluted EPS | $ 0.19 | $ 0.22 | Consolidated Statements of Cash Flows Highlights (Unaudited) | | Three Months Ended March 31, 2019 (in millions) | Three Months Ended March 31, 2018 (in millions) | | :--- | :--- | :--- | | Net cash provided by operating activities | $ 9.6 | $ 13.6 | | Net cash used in investing activities | $ (89.6) | $ (71.2) | | Net cash provided by financing activities | $ 88.0 | $ 52.3 | | Net increase (decrease) in cash and cash equivalents | $ 8.1 | $ (5.3) | Note 2 – Debt Securities Available-for-Sale Debt securities available-for-sale increased, primarily in GSE mortgage-backed and corporate bonds, with unrealized losses deemed temporary Debt Securities Available-for-Sale | Security Type | March 31, 2019 (Fair Value, in millions) | December 31, 2018 (Fair Value, in millions) | | :--- | :--- | :--- | | Mortgage-backed securities | $ 668.1 | $ 565.0 | | Other debt securities (Corporate/Municipal) | $ 226.2 | $ 243.0 | | Total | $ 894.3 | $ 808.0 | - Gross unrealized losses on AFS securities totaled $8.1 million as of March 31, 2019, which management considers temporary as the company does not intend to sell and is not likely to be required to sell before recovery[41] Note 5 – Loans Net loans held-for-investment increased slightly, primarily concentrated in multifamily real estate loans, with details on composition, credit quality, NPLs, and TDRs Loan Portfolio Composition | Loan Category | March 31, 2019 (in millions) | December 31, 2018 (in millions) | | :--- | :--- | :--- | | Multifamily | $ 1,978.1 | $ 1,930.5 | | Commercial mortgage | $ 502.3 | $ 499.3 | | One-to-four family residential mortgage | $ 90.8 | $ 91.4 | | Loans acquired, net | $ 509.1 | $ 546.2 | | Total loans held-for-investment, net | $ 3,255.9 | $ 3,245.2 | - The allowance for loan losses was $27.5 million at March 31, 2019, relatively stable compared to year-end 2018, with a provision for loan losses of $59,000 for Q1 2019[56] - Total non-performing loans (excluding PCI loans) were $8.5 million at March 31, 2019, down from $9.2 million at December 31, 2018[73][76] - Troubled Debt Restructurings (TDRs) totaled $19.5 million at March 31, 2019, up from $16.9 million at year-end 2018[99] Note 10 – Leases The company adopted the new lease accounting standard (Topic 842), recognizing operating lease right-of-use assets and liabilities primarily for real estate leases - The adoption of ASU No. 2016-02 (Topic 842) resulted in the recognition of operating lease right-of-use assets of $43.6 million and liabilities of $47.3 million, respectively, as of January 1, 2019[153] Lease Information (as of March 31, 2019) | Metric | Value | | :--- | :--- | | Operating lease right-of-use assets | $43.5 million | | Operating lease liabilities | $47.4 million | | Weighted average remaining lease term | 13.05 years | | Weighted average discount rate | 3.60% | Note 13 – Subsequent Event Subsequent to quarter-end, the Board of Directors approved a new stock repurchase program - On April 24, 2019, the Board of Directors approved a new $37.2 million stock repurchase program[161] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operating results for Q1 2019, highlighting changes in assets, liabilities, loan portfolio, asset quality, liquidity, and capital Comparison of Financial Condition Total assets grew, driven by increases in available-for-sale securities and lease assets, while loans held-for-investment and deposits also increased - Total assets increased by $147.0 million (3.3%) to $4.56 billion at March 31, 2019, from December 31, 2018[170][171] - Available-for-sale debt securities increased by $86.2 million (10.7%) due to purchases of mortgage-backed and corporate securities[172] - Deposits increased by $88.7 million (2.7%) to $3.38 billion, driven by growth in transaction and savings accounts[179] - Total stockholders' equity increased by $13.0 million to $679.4 million, due to net income and a decrease in unrealized losses on securities, partially offset by dividends[180] Comparison of Operating Results Net income decreased year-over-year due to lower net interest income, higher non-interest expenses, and an increased effective tax rate - Net income decreased to $8.8 million for Q1 2019 from $10.4 million for Q1 2018[181] - Interest expense increased by $5.0 million (70.0%) year-over-year, mainly due to a 56 basis point increase in the cost of interest-bearing deposits[183] - Non-interest expense increased by $2.1 million (12.1%) year-over-year, primarily due to a $1.9 million increase in employee compensation and benefits[188] - The effective tax rate increased to 22.9% from 18.3% year-over-year, mainly due to significantly lower excess tax benefits from equity awards in 2019 ($93,000) compared to 2018 ($869,000)[189] Asset Quality Asset quality remained strong and improved, with a decrease in non-performing loans and stable delinquent loans, alongside a minimal provision for loan losses Non-Performing Assets | Metric | March 31, 2019 (in millions) | December 31, 2018 (in millions) | | :--- | :--- | :--- | | Total non-accrual loans | $ 8.4 | $ 9.2 | | Total non-performing loans | $ 8.5 | $ 9.2 | | Non-performing loans to total loans | 0.26% | 0.28% | | Non-performing assets to total assets | 0.19% | 0.21% | - Accruing loans 30 to 89 days delinquent remained stable at $8.7 million at March 31, 2019[197] Liquidity and Capital Resources The company maintains a strong liquidity and capital position, with significant access to additional funding and exceeding all regulatory capital requirements - The Bank has access to approximately $1.54 billion in additional funding from the FHLB and Federal Reserve Bank of New York's discount window[202] Regulatory Capital Ratios (as of March 31, 2019) | Ratio | Northfield Bank | Northfield Bancorp, Inc. | Well Capitalized Requirement | | :--- | :--- | :--- | :--- | | Common equity Tier 1 capital | 15.99% | 17.05% | 6.50% | | Tier 1 leverage | 13.55% | 14.44% | 5.00% | | Total capital (to risk-weighted assets) | 16.74% | 17.80% | 10.00% | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed through various strategies, with simulations showing compliance with board-approved limits - The company's primary market risk is interest rate risk, managed by originating shorter-term commercial and multifamily loans, investing in securities, and using core deposits and FHLB advances for funding[214][218] Interest Rate Sensitivity Analysis (as of March 31, 2019) | Change in Interest Rates (bps) | Estimated Change in NPV % | Next 12 Months NII Percent Change | | :--- | :--- | :--- | | +400 | (17.16)% | (18.35)% | | +200 | (8.54)% | (8.66)% | | +100 | (4.03)% | (3.98)% | | 0 | — | — | | (100) | 2.99% | 1.19% | | (200) | 7.13% | 2.19% | - At March 31, 2019, the company was in compliance with all board-approved policies with respect to interest rate risk management[220] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[221] - There were no changes in the company's internal control over financial reporting during Q1 2019 that have materially affected, or are reasonably likely to materially affect, internal controls[222] PART II - OTHER INFORMATION Legal Proceedings The company is subject to various legal actions, none of which are expected to materially affect its financial condition or operations - The resolution of various legal actions arising in the normal course of business is not expected to have a material adverse effect on the Company's consolidated financial condition or results of operations[224] Risk Factors No material changes to the risk factors previously disclosed in the 2018 Form 10-K were reported - No material changes to the risk factors as previously disclosed in the 2018 Form 10-K were reported for the quarter ended March 31, 2019[225] Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase common stock during the quarter, but a new stock repurchase program was approved post-quarter-end - The Company did not repurchase any of its common stock during the three months ended March 31, 2019[226] - On April 24, 2019, the Company's Board of Directors approved a new $37.2 million stock repurchase program[226] Defaults Upon Senior Securities No defaults upon senior securities were reported - None[227] Mine Safety Disclosures Mine safety disclosures are not applicable to the company - Not applicable[227] Other Information No other information was reported for the period - None[227] Exhibits This section lists exhibits filed with the Form 10-Q, including management plans, agreements, and required CEO/CFO certifications - Exhibits filed with the report include CEO and CFO certifications (31.1, 31.2, 32) and various management compensation plans and agreements (10.1, 10.2, 10.3)[229]