UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For transition period from      to

Commission File Number 1-33732

 

NORTHFIELD BANCORP, INC.

(Exact name of registrant as specified in its charter)

United States of America (State or other jurisdiction of incorporation)		42-1572539 (I.R.S. Employer Identification No.)
1410 St. Georges Avenue, Avenel, New Jersey (Address of principal executive offices)		07001 (Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o.

Indicate by check mark whether the registrant has submitted electronically and posted on it corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for shorter period that the registrant was required and post such files). Yes o No o.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
		(Do not check if smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date. 42,617,931 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of May 5, 2011.

 

 

NORTHFIELD BANCORP, INC.

Form 10-Q Quarterly Report

Table of Contents

		Page
		Number
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements			2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			31
Item 3. Quantitative and Qualitative Disclosures About Market Risk			43
Item 4. Controls and Procedures			45
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			46
Item 1A. Risk Factors			46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 3. Defaults Upon Senior Securities			46
Item 4. [Removed and Reserved]			46
Item 5. Other Information			46
Item 6. Exhibits			47
Signatures			48
EX-31.1
EX-31.2
EX-32

PART I

ITEM 1. FINANCIAL STATEMENTS

NORTHFIELD BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 2011, and December 31, 2010
(In thousands, except per share amounts)

		March 31,				December 31,
		2011				2010
		(Unaudited)
ASSETS:
Cash and due from banks		$	9,986				9,862
Interest-bearing deposits in other financial institutions			82,685				33,990
Total cash and cash equivalents			92,671				43,852
Trading securities			4,381				4,095
Securities available-for-sale, at estimated fair value (encumbered $393,348 in 2011 and $275,694 in 2010)			1,280,188				1,244,313
Securities held-to-maturity, at amortized cost (estimated fair value of $4,898 in 2011 and $5,273 in 2010) (encumbered $0 in 2011 and 2010)			4,710				5,060
Loans held-for-sale			322				1,170
Loans held-for-investment, net			853,099				827,591
Allowance for loan losses			(22,015	)			(21,819	)
Net loans held-for-investment			831,084				805,772
Accrued interest receivable			7,879				7,873
Bank owned life insurance			75,546				74,805
Federal Home Loan Bank of New York stock, at cost			9,334				9,784
Premises and equipment, net			16,357				16,057
Goodwill			16,159				16,159
Other real estate owned			521				171
Other assets			16,579				18,056
Total assets		$	2,355,731				2,247,167
LIABILITIES AND STOCKHOLDERS’ EQUITY:
LIABILITIES:
Deposits		$	1,403,263				1,372,842
Borrowings			489,365				391,237
Advance payments by borrowers for taxes and insurance			2,325				693
Accrued expenses and other liabilities			65,016				85,678
Total liabilities			1,959,969				1,850,450
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued or outstanding			—				—
Common stock, $0.01 par value: 90,000,000 shares authorized, 45,632,611 shares issued at March 31, 2011, and December 31, 2010, respectively, 42,917,594 and 43,316,021 outstanding at March 31, 2011, and December 31, 2010, respectively			456				456
Additional paid-in-capital			206,857				205,863
Unallocated common stock held by employee stock ownership plan			(15,042	)			(15,188	)
Retained earnings			226,776				222,655
Accumulated other comprehensive income			10,015				10,910
Treasury stock at cost; 2,715,017 and 2,316,590 shares at March 31, 2011, and December 31, 2010, respectively			(33,300	)			(27,979	)
Total stockholders’ equity			395,762				396,717
Total liabilities and stockholders’ equity		$	2,355,731				2,247,167

See accompanying notes to the unaudited consolidated financial statements.

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three months ended March 31, 2011, and 2010
(Unaudited)
(In thousands, except share data)

		Three months ended
		March 31,
		2011				2010
Interest income:
Loans		$	12,474				10,293
Mortgage-backed securities			8,417				9,065
Other securities			970				1,500
Federal Home Loan Bank of New York dividends			109				95
Deposits in other financial institutions			28				54
Total interest income			21,998				21,007
Interest expense:
Deposits			3,017				3,952
Borrowings			3,210				2,506
Total interest expense			6,227				6,458
Net interest income			15,771				14,549
Provision for loan losses			1,367				1,930
Net interest income after provision for loan losses			14,404				12,619
Non-interest income:
Fees and service charges for customer services			694				660
Income on bank owned life insurance			741				423
Gain on securities transactions, net			1,805				615
Other-than-temporary impairment losses on securities			(161	)			—
Portion recognized in other comprehensive income (before taxes)			—				—
Net impairment losses on securities recognized in earnings			(161	)			—
Other			30				25
Total non-interest income			3,109				1,723
Non-interest expense:
Compensation and employee benefits			5,162				4,791
Director compensation			399				397
Occupancy			1,492				1,194
Furniture and equipment			287				272
Data processing			672				617
FDIC insurance			460				430
Professional fees			440				379
Other			1,041				1,041
Total non-interest expense			9,953				9,121
Income before income tax expense			7,560				5,221
Income tax expense			2,590				1,840
Net income		$	4,970				3,381
Basic and diluted earnings per share		$	0.12				0.08

See accompanying notes to the unaudited consolidated financial statements.

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Three months ended March 31, 2011, and 2010
(Unaudited)
(Dollars in thousands)

														Unallocated
														common stock								Accumulated
		Common Stock								Additional				held by the								other								Total
						Par				paid-in				employee stock				Retained				comprehensive				Treasury				stockholders’
		Shares				value				capital				ownership plan				earnings				income				Stock				equity
Balance at December 31, 2009			45,628,211			$	456				202,479				(15,807	)			212,196				12,145				(19,929	)			391,540
Comprehensive income:
Net income																			3,381												3,381
Change in accumulated comprehensive income, net of tax of $2,108																							3,545								3,545
Total comprehensive income																															6,926
ESOP shares allocated or committed to be released											55				147																202
Stock compensation expense											776																				776
Additional stock benefit on stock awards											231																				231
Exercise of stock options																			(26	)							163				137
Dividends declared ($0.04 per share)																			(772	)											(772	)
Issuance of restricted stock			4,400				—				—																				—
Treasury stock (average cost of $13.25 per share)																											(2,754	)			(2,754	)
Balance at March 31, 2010			45,632,611				456				203,541				(15,660	)			214,779				15,690				(22,520	)			396,286
Balance at December 31, 2010			45,632,611				456				205,863				(15,188	)			222,655				10,910				(27,979	)			396,717
Comprehensive income:
Net income																			4,970												4,970
Change in accumulated comprehensive income, net of tax of $598																							(895	)							(895	)
Total comprehensive income																															4,075
ESOP shares allocated or committed to be released											49				146																195
Stock compensation expense											759																				759
Additional tax benefit on equity awards											186																				186
Exercise of stock options																			(1	)							6				5
Dividends declared ($0.05 per share)																			(848	)											(848	)
Treasury stock (average cost of $13.35 per share)																											(5,327	)			(5,327	)
Balance at March 31, 2011			45,632,611			$	456				206,857				(15,042	)			226,776				10,015				(33,300	)			395,762

See accompanying notes to the unaudited consolidated financial statements.

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2011, and 2010
(Unaudited) (In thousands)

		Three months ended
		March 31,
		2011				2010
Cash flows from operating activities:
Net income		$	4,970				3,381
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses			1,367				1,930
ESOP and stock compensation expense			954				978
Depreciation			498				432
Amortization of premiums, and deferred loan costs, net of (accretion) of discounts, and deferred loan fees			82				123
Amortization of intangible assets			44				68
Income on bank owned life insurance			(741	)			(423	)
Net gain on sale of loans held-for-sale			(14	)			—
Proceeds from sale of loans held-for-sale			3,730				—
Origination of loans held-for-sale			(2,868	)			—
Gain on securities transactions, net			(1,805	)			(615	)
Net impairment losses on securities recognized in earnings			161				—
Net purchases of trading securities			(100	)			(42	)
(Increase) decrease in accrued interest receivable			(6	)			12
Decrease in other assets			1,681				499
Decrease in accrued expenses and other liabilities			(678	)			(154	)
Net cash provided by operating activities			7,275				6,189
Cash flows from investing activities:
Net increase in loans receivable			(27,003	)			(8,367	)
Redemptions of Federal Home Loan Bank of New York stock, net			450				1,395
Purchases of securities available-for-sale			(245,578	)			(217,161	)
Principal payments and maturities on securities available-for-sale			101,420				123,590
Principal payments and maturities on securities held-to-maturity			351				519
Proceeds from sale of securities available-for-sale			88,505				15,193
Purchases and improvements of premises and equipment			(798	)			(870	)
Net cash used in investing activities			(82,653	)			(85,701	)
Cash flows from financing activities:
Net increase in deposits			30,421				76,020
Dividends paid			(848	)			(772	)
Exercise of stock options			5				137
Purchase of treasury stock			(5,327	)			(2,754	)
Additional tax benefit on equity awards			186				231
Increase in advance payments by borrowers for taxes and insurance			1,632				1,281
Repayments under capital lease obligations			(51	)			(44	)
Proceeds from borrowings			317,773				69,680
Repayments related to borrowings			(219,594	)			(56,000	)
Net cash provided by financing activities			124,197				87,779
Net increase in cash and cash equivalents			48,819				8,267
Cash and cash equivalents at beginning of period			43,852				42,544
Cash and cash equivalents at end of period		$	92,671				50,811
Supplemental cash flow information:
Cash paid during the period for:
Interest		$	6,010				6,645
Income taxes			1,024				1,565
Non-cash transactions:
Loans charged-off, net			1,171				198
Other real estate owned charged-off			—				146
Transfers to other real estate owned			350				—
Decrease in due to broker for purchases of securities available-for-sale			(19,984	)			—

See accompanying notes to the unaudited consolidated financial statements.

NORTHFIELD BANCORP, INC.
Notes to Unaudited Consolidated Financial Statements

Note 1 — Basis of Presentation

     The consolidated financial statements are comprised of the accounts of Northfield Bancorp, Inc., and its wholly-owned subsidiary, Northfield Bank (the “Bank”), and the Bank’s wholly-owned significant subsidiaries, NSB Services Corp. and NSB Realty Trust (collectively, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation.

     In the opinion of management, all adjustments (consisting solely of normal and recurring adjustments) necessary for the fair presentation of the consolidated financial condition and the consolidated results of operations for the unaudited periods presented have been included. The results of operations and other data presented for the three-month period ended March 31, 2011, are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2011. Certain prior year amounts have been reclassified to conform to the current year presentation.

     Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for the preparation of interim financial statements. The consolidated financial statements presented should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2010, of Northfield Bancorp, Inc. as filed with the SEC.

Note 2 — Securities Available-for-Sale

     The following is a comparative summary of mortgage-backed securities and other securities available-for-sale at March 31, 2011, and December 31, 2010 (in thousands):

		March 31, 2011
						Gross				Gross				Estimated
		Amortized				unrealized				unrealized				fair
		cost				gains				losses				value
Mortgage-backed securities:
Pass-through certificates:
Government sponsored enterprises (GSE)		$	560,644				13,217				65				573,796
Non-GSE			12,033				35				474				11,594
Real estate mortgage investment conduits (REMICs):
GSE			517,197				2,636				2,887				516,946
Non-GSE			55,977				3,183				49				59,111
			1,145,851				19,071				3,475				1,161,447
Other securities:
Equity investments-mutual funds			7,924				—				—				7,924
Corporate bonds			109,248				1,651				82				110,817
			117,172				1,651				82				118,741
Total securities available-for-sale		$	1,263,023				20,722				3,557				1,280,188

		December 31, 2010
						Gross				Gross				Estimated
		Amortized				unrealized				unrealized				fair
		cost				gains				losses				value
Mortgage-backed securities:
Pass-through certificates:
Government sponsored enterprises (GSE)		$	342,316				13,479				—				355,795
Non-GSE			27,801				814				737				27,878
Real estate mortgage investment conduits (REMICs):
GSE			622,582				3,020				3,525				622,077
Non-GSE			65,766				3,674				51				69,389
			1,058,465				20,987				4,313				1,075,139
Other securities:
Equity investments-mutual funds			12,437				31				115				12,353
GSE bonds			34,988				45				—				35,033
Corporate bonds			119,765				2,146				123				121,788
			167,190				2,222				238				169,174
Total securities available-for-sale		$	1,225,655				23,209				4,551				1,244,313

     The following is a summary of the expected maturity distribution of debt securities available-for-sale, other than mortgage-backed securities, at March 31, 2011 (in thousands):

						Estimated
		Amortized				fair
Available-for-sale		cost				value
Due in one year or less		$	69,328				70,421
Due after one year through five years			39,920				40,396
		$	109,248				110,817

     Expected maturities on mortgage-backed securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties.

     For the three months ended March 31, 2011, the Company had gross proceeds of $88.5 million on sales of securities available-for-sale with gross realized gains and gross realized losses of approximately $1.6 million and $0, respectively. For the three months ended March 31, 2010, the Company had gross proceeds of $15.2 million on sales of securities available-for-sale with gross realized gains and gross realized losses of approximately $270,000 and $0, respectively. The Company recognized $186,000 and $345,000 in gains on its trading securities portfolio during the three months ended March 31, 2011 and 2010, respectively. The Company recognized other-than-temporary impairment charges of $161,000 against earnings during the three months ended March 31, 2011 related to one equity investment in a mutual fund. The Company did not recognize any other-than-temporary impairment charges during the three months ended March 31, 2010.

     Gross unrealized losses on mortgage-backed securities, GSE bonds, and corporate bonds available-for-sale, and the estimated fair value of the related securities, aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2011, and December 31, 2010, were as follows (in thousands):

		March 31, 2011
		Less than 12 months								12 months or more								Total
		Unrealized				Estimated				Unrealized				Estimated				Unrealized				Estimated
		losses				fair value				losses				fair value				losses				fair value
Mortgage-backed securities:
Pass-through certificates:
Government sponsored enterprises (GSE)		$	65				26,558				—				—				65				26,558
Non-GSE			—				—				474				5,945				474				5,945
Real estate mortgage investment conduits (REMICs)
GSE			2,887				279,882				—				—				2,887				279,882
Non-GSE			—				—				49				1,088				49				1,088
Corporate bonds			82				13,831				—				—				82				13,831
Total		$	3,034				320,271				523				7,033				3,557				327,304

		December 31, 2010
		Less than 12 months								12 months or more								Total
		Unrealized				Estimated				Unrealized				Estimated				Unrealized				Estimated
		losses				fair value				losses				fair value				losses				fair value
Mortgage-backed securities:
Pass-through certificates:
Non-GSE		$	—				—				737				10,126				737				10,126
REMICs
GSE			3,525				344,971				—				—				3,525				344,971
Non-GSE			—				—				51				1,238				51				1,238
Corporate bonds			123				13,880				—				—				123				13,880
Equity Investments — mutual funds			115				4,884				—				—				115				4,884
Total		$	3,763				363,735				788				11,364				4,551				375,099

     Included in the above available-for-sale security amounts at March 31, 2011, was one pass-through non-GSE mortgage-backed security in a continuous unrealized loss position of greater than twelve months that was rated less than AAA at March 31, 2011. This security, had an estimated fair value of $5.9 million (amortized cost of $6.4 million), was rated Caa2, and had the following underlying collateral characteristics: 83% originated in 2004, and 17% originated in 2005. The rating of the security detailed above represents the lowest rating for the security received from the rating agencies of Moody’s, Standard & Poor’s, and Fitch. The Company continues to receive principal and interest payments in accordance with the contractual terms of this security. Management has evaluated, among other things, delinquency status, location of collateral, estimated prepayment speeds, and the estimated default rates and loss severity in liquidating the underlying collateral for this security. Since management does not have the intent to sell the security and it is more likely than not that the Company will not be required to sell the security, before its anticipated recovery, the Company believes that the unrealized loss at March 31, 2011, is temporary, and as such, is recorded as a component of accumulated other comprehensive income, net of tax.

     The Company held one REMIC non-GSE mortgage-backed security that was in a continuous unrealized loss position of greater than twelve months, and three corporate bonds, four pass-through GSE mortgage-backed securities, and nineteen REMIC mortgage-backed securities issued or guaranteed by GSEs, that were in an unrealized loss position of less than twelve months, and rated investment grade at March 31, 2011. The declines in value relate to the general interest rate environment and are considered temporary. The securities cannot be prepaid in a manner that would result in the Company not receiving substantially all of its amortized cost. The Company neither has an intent to sell, nor is it more likely than not that the Company will be required to sell, the securities before the recovery of their amortized cost basis or, if necessary, maturity.

     The fair values of our investment securities could decline in the future if the underlying performance of the collateral for the collateralized mortgage obligations or other securities deteriorates and our credit enhancement levels do not provide sufficient protections to our contractual principal and interest. As a result, there is a risk that significant other-than-temporary impairments may occur in the future given the current economic environment.

     In addition to the one pass-through non-GSE mortgage-backed security discussed above, the Company had one additional private label security that was rated less than AAA at March 31, 2011. This security was rated CC, and was in an unrealized gain position at March 31, 2011. Two REMIC non-GSE mortgage-backed securities, both in unrealized gain positions at March 31, 2011, were downgraded from AAA to A2 and A1, respectively, subsequent to March 31, 2011.

Note 3 — Net Loans Held-for-Investment

Net loans held-for-investment are as follows (in thousands):

		March 31,				December 31,
		2011				2010
Real estate loans:
Commercial mortgage		$	326,494				339,321
One- to- four family residential mortgage			75,458				78,032
Construction and land			30,318				35,054
Multifamily			323,316				283,588
Home equity and lines of credit			30,076				28,125
Total real estate loans			785,662				764,120
Commercial and industrial loans			15,477				17,020
Insurance premium loans			49,701				44,517
Other loans			1,259				1,062
Total commercial and industrial, insurance premium, and other loans			66,437				62,599
Total loans held-for-investment			852,099				826,719
Deferred loan cost, net			1,000				872
Loans held-for-investment, net			853,099				827,591
Allowance for loan losses			(22,015	)			(21,819	)
Net loans held-for-investment		$	831,084				805,772

     Loans held-for-sale amounted to $322,000 and $1.2 million at March 31, 2011, and December 31, 2010, respectively. All loans held for sale are one- to four-family residential mortgage loans.

     The Company does not have any lending programs commonly referred to as subprime lending. Subprime lending generally targets borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios.

     The Company, through its principal subsidiary, the Bank, serviced $49.1 million and $52.1 million of loans at March 31, 2011 and December 31, 2010, respectively, for Freddie Mac. These one- to four-family residential mortgage real estate loans were underwritten to Freddie Mac guidelines and to comply with applicable federal, state, and local laws. At the time of the closing of these loans the Company owned the loans and subsequently sold them to Freddie Mac providing normal and customary representations and warranties, including representations and warranties related to compliance with Freddie Mac underwriting standards. At the time of sale, the loans were free from encumbrances except for the mortgages filed for by the Company which, with other underwriting documents, were subsequently assigned and delivered to Freddie Mac. At March 31, 2011, substantially all of the loans serviced for Freddie Mac were performing in accordance with their contractual terms and management believes that it has no material repurchase obligations associated with these loans. Servicing of loans for others does not have a material effect on our financial position or results of operations.

     We provide for loan losses based on the consistent application of our documented allowance for loan loss methodology. Loan losses are charged to the allowance for loans losses and recoveries are credited to it. Additions to the allowance for loan losses are provided by charges against income based on various factors which, in our judgment, deserve current recognition in estimating probable losses. Loan losses are charged-off in the period the loans, or portion thereof, are deemed uncollectible. Generally, the Company will record a loan charge-off (including a partial charge-off) to reduce a loan to the estimated fair value of the underlying collateral, less cost to sell, for collateral dependent loans. We regularly review the loan portfolio and make adjustments for loan losses in order to maintain the allowance for loan losses in accordance with U.S. generally accepted accounting principles (“GAAP”). The allowance for loan losses consists primarily of the following two components:

(1)

Allowances are established for impaired loans (generally defined by the Company as non-accrual loans with an outstanding balance of $500,000 or greater). The amount of impairment provided for as an allowance is represented by the deficiency, if any, between the present value of expected future cash flows discounted at the original loan’s effective interest rate or the underlying collateral value (less estimated costs to sell,) if the loan is collateral dependent, and the carrying value of the loan. Impaired loans that have no impairment losses are not considered for general valuation allowances described below.

(2)

General allowances are established for loan losses on a portfolio basis for loans that do not meet the definition of impaired. The portfolio is grouped into similar risk characteristics, primarily loan type, loan-to-value, if collateral dependent, and internal credit risk ratings. We apply an estimated loss rate to each loan group. The loss rates applied are based on our cumulative prior two year loss experience adjusted, as appropriate, for the environmental factors discussed below. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revisions based upon changes in economic and real estate market conditions. Actual loan losses may be significantly more than the allowance for loan losses we have established, which could have a material negative effect on our financial results. Within general allowances is an unallocated reserve established to recognize losses related to the inherent subjective nature of the appraisal process and the internal credit risk rating process.

     In underwriting a loan secured by real property, we require an appraisal (or an automated valuation model) of the property by an independent licensed appraiser approved by the Company’s board of directors. The appraisal is subject to review by an independent third party hired by the Company. We review and inspect properties before disbursement of funds during the term of a construction loan. Generally, management obtains updated appraisals when a loan is deemed impaired. These appraisals may be more limited than those prepared for the underwriting of a new loan. In addition, when the Company acquires other real estate owned, it generally obtains a current appraisal to substantiate the net carrying value of the asset.

     The adjustments to our loss experience are based on our evaluation of several environmental factors, including:

	•		changes in local, regional, national, and international economic and business conditions and developments that affect the collectibility of our portfolio, including the condition of various market segments;
	•		changes in the nature and volume of our portfolio and in the terms of our loans;
	•		changes in the experience, ability, and depth of lending management and other relevant staff;
	•		changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans;
	•		changes in the quality of our loan review system;
	•		changes in the value of underlying collateral for collateral-dependent loans;
	•		the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and
	•		the effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in our existing portfolio.

     In evaluating the estimated loss factors to be utilized for each loan group, management also reviews actual loss history over an extended period of time as reported by the OTS and FDIC for institutions both in our market area and nationally for periods that are believed to have experienced similar economic conditions.

     We evaluate the allowance for loan losses based on the combined total of the impaired and general components. Generally when the loan portfolio increases, absent other factors, our allowance for loan loss methodology results in a higher dollar amount of estimated probable losses. Conversely, when the loan portfolio decreases, absent other factors, our allowance for loan loss methodology results in a lower dollar amount of estimated probable losses.

     Each quarter we evaluate the allowance for loan losses and adjust the allowance as appropriate through a provision for loan losses. While we use the best information available to make evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the information used in making the

evaluations. In addition, as an integral part of their examination process, the Office of Thrift Supervision will periodically review the allowance for loan losses. The Office of Thrift Supervision may require us to adjust the allowance based on their analysis of information available to them at the time of their examination. Our last examination was as of September 30, 2010.

     Activity in the allowance for loan losses is as follows (in thousands):

		At or for the
		three months ended
		March 31,
		2011				2010
Beginning balance		$	21,819				15,414
Provision for loan losses			1,367				1,930
Charge-offs, net			(1,171	)			(198	)
Ending balance		$	22,015				17,146

     The following tables set forth activity in our allowance for loan losses, by loan type, for the three months ended March 31, 2011, and the year ended December 31, 2010, respectively. The following tables also detail the amount of loans held-for-investment, net of deferred loan fees and costs, that are evaluated individually, and collectively, for impairment, and the related portion of allowance for loan losses that is allocated to each loan portfolio segment, as of March 31, 2011 and December 31, 2010.

		March 31, 2011
		Real Estate
																		Home Equity
						One -to- Four				Construction								and Lines of				Commercial and				Insurance
		Commercial				Family				and Land				Multifamily				Credit				Industrial				Premium				Other				Unallocated				Total
Allowance for loan losses:
Beginning Balance, December 31, 2010		$	12,654				570				1,855				5,137				242				719				111				28				503			$	21,819
Charge-offs			(1,150	)			—				—				(25	)			—				—				(2	)			—				—				(1,177	)
Recoveries			6				—				—				—				—				—				—				—				—				6
Provisions			1,196				(6	)			(635	)			466				17				(95	)			15				7				402				1,367
Ending Balance, March 31, 2011		$	12,706				564				1,220				5,578				259				624				124				35				905			$	22,015
Ending balance, March 31, 2011:
individually evaluated for impairment		$	1,880				369				36				122				—				—				—				—				—			$	2,407
Ending balance, March 31, 2011:
collectively evaluated for impairment		$	10,826				195				1,184				5,456				259				624				124				35				905			$	19,608
Loans held-for-investment, net:
Ending balance, March 31, 2011		$	326,412				75,541				30,340				324,056				30,308				15,482				49,701				1,259				—			$	853,099
Ending balance, March 31, 2011:
individually evaluated for impairment		$	49,955				1,750				3,620				3,223				—				1,473				—				—				—			$	60,021
Ending balance, March 31, 2011:
collectively evaluated for impairment		$	276,457				73,791				26,720				320,833				30,308				14,009				49,701				1,259				—			$	793,078

		December 31, 2010
		Real Estate
																		Home Equity
						One -to- Four				Construction								and Lines of				Commercial and				Insurance
		Commercial				Family				and Land				Multifamily				Credit				Industrial				Premium				Other				Unallocated				Total
Allowance for loan losses:
Beginning Balance, December 31, 2009		$	8,403				163				2,409				1,866				210				1,877				101				34				351			$	15,414
Charge-offs			(987	)			—				(443	)			(2,132	)			—				(36	)			(101	)			—				—				(3,699	)
Recoveries			—				—				—				—				—				—				20				—				—				20
Provisions			5,238				407				(111	)			5,403				32				(1,122	)			91				(6	)			152				10,084
Ending Balance, December 31, 2010		$	12,654				570				1,855				5,137				242				719				111				28				503			$	21,819
Ending balance, December 31, 2010:
individually evaluated for impairment		$	2,129				369				36				121				—				—				—				—				—			$	2,655
Ending balance, December 31, 2010:
collectively evaluated for impairment		$	10,525				201				1,819				5,016				242				719				111				28				503			$	19,164
Loans held-for-investment, net:
Ending balance, December 31, 2010		$	339,259				78,109				35,077				284,199				28,337				17,032				44,517				1,061				—			$	827,591
Ending balance, December 31, 2010:
individually evaluated for impairment		$	51,324				1,750				4,562				5,083				—				500				—				—				—			$	63,219
Ending balance, December 31, 2010:
collectively evaluated for impairment		$	287,935				76,359				30,515				279,116				28,337				16,532				44,517				1,061				—			$	764,372