e10vq
Table of Contents

 
 
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
For the quarterly period ended June 30, 2011
or
     
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   42-1572539
(State or other jurisdiction of incorporation)   (I.R.S. Employer Identification No.)
     
1410 St. Georges Avenue, Avenel, New Jersey   07001
(Address of principal executive offices)   (Zip Code)
Registrant’s telephone number, including area code: (732) 499-7200
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
 
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 þ 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. 42,306,478 shares of Common Stock, par value $0.01 per share, were issued and outstanding as of July 29, 2011.
 
 

 


 

NORTHFIELD BANCORP, INC.
Form 10-Q Quarterly Report
Table of Contents
         
    Page  
    Number  
PART I — FINANCIAL INFORMATION
       
 
    2  
    34  
    49  
    51  
 
       
       
 
       
    52  
    52  
    52  
    53  
    53  
    53  
    53  
 
       
    54  
 EX-31.1
 EX-31.2
 EX-32
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT

1


Table of Contents

ITEM 1.   FINANCIAL STATEMENTS
NORTHFIELD BANCORP, INC.
CONSOLIDATED BALANCE SHEETS

June 30, 2011, and December 31, 2010
(In thousands, except per share amounts)
                 
    June 30,   December 31,
    2011   2010
 
    (Unaudited)    
ASSETS:
               
 
               
Cash and due from banks
  $ 10,731       9,862  
Interest-bearing deposits in other financial institutions
    52,176       33,990  
 
Total cash and cash equivalents
    62,907       43,852  
 
Trading securities
    4,439       4,095  
Securities available-for-sale, at estimated fair value (encumbered $370,796 in 2011 and $275,694 in 2010)
    1,212,319       1,244,313  
Securities held-to-maturity, at amortized cost (estimated fair value of $4,629 in 2011 and $5,273 in 2010) (encumbered $0 in 2011 and 2010)
    4,421       5,060  
Loans held-for-sale
    125       1,170  
Loans held-for-investment, net
    902,564       827,591  
Allowance for loan losses
    (23,520 )     (21,819 )
 
Net loans held-for-investment
    879,044       805,772  
 
Accrued interest receivable
    7,568       7,873  
Bank owned life insurance
    76,292       74,805  
Federal Home Loan Bank of New York stock, at cost
    8,631       9,784  
Premises and equipment, net
    17,509       16,057  
Goodwill
    16,159       16,159  
Other real estate owned
    118       171  
Other assets
    18,039       18,056  
 
Total assets
  $ 2,307,571       2,247,167  
 
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY:
               
LIABILITIES:
               
Deposits
  $ 1,448,569       1,372,842  
Borrowings
    444,522       391,237  
Advance payments by borrowers for taxes and insurance
    1,869       693  
Accrued expenses and other liabilities
    14,440       85,678  
 
Total liabilities
    1,909,400       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 June 30, 2011, and December 31, 2010, respectively, 42,370,928 and 43,316,021 outstanding at June 30, 2011, and December 31, 2010, respectively
    456       456  
Additional paid-in-capital
    207,686       205,863  
Unallocated common stock held by employee stock ownership plan
    (14,896 )     (15,188 )
Retained earnings
    230,125       222,655  
Accumulated other comprehensive income
    15,611       10,910  
Treasury stock at cost; 3,261,683 and 2,316,590 shares at June 30, 2011, and December 31, 2010, respectively
    (40,811 )     (27,979 )
 
Total stockholders’ equity
    398,171       396,717  
 
Total liabilities and stockholders’ equity
  $ 2,307,571       2,247,167  
 
See accompanying notes to the unaudited consolidated financial statements.

2


Table of Contents

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME

Three and six months ended June 30, 2011, and 2010
(Unaudited)
(In thousands, except share data)
                                 
    Three months ended   Six months ended
    June 30,   June 30,
    2011   2010   2011   2010
 
Interest income:
                               
Loans
  $ 12,778       12,098     $ 25,252       22,391  
Mortgage-backed securities
    8,675       8,244       17,092       17,308  
Other securities
    787       1,567       1,757       3,068  
Federal Home Loan Bank of New York dividends
    121       63       230       158  
Deposits in other financial institutions
    77       60       105       114  
 
 
                               
Total interest income
    22,438       22,032       44,436       43,039  
 
Interest expense:
                               
Deposits
    3,270       3,382       6,287       7,334  
Borrowings
    3,339       2,733       6,549       5,239  
 
Total interest expense
    6,609       6,115       12,836       12,573  
 
 
                               
Net interest income
    15,829       15,917       31,600       30,466  
Provision for loan losses
    1,750       2,798       3,117       4,728  
 
Net interest income after provision for loan losses
    14,079       13,119       28,483       25,738  
 
Non-interest income:
                               
Fees and service charges for customer services
    743       630       1,437       1,289  
Income on bank owned life insurance
    746       514       1,487       937  
Gain on securities transactions, net
    839       529       2,644       1,145  
Other-than-temporary impairment losses on securities
    (991 )           (1,152 )      
Portion recognized in other comprehensive income (before taxes)
    743             743        
     
Net impairment losses on securities recognized in earnings
    (248 )           (409 )      
     
Other
    110       193       140       218  
 
Total non-interest income
    2,190       1,866       5,299       3,589  
 
 
                               
Non-interest expense:
                               
Compensation and employee benefits
    5,048       4,208       10,210       8,999  
Director compensation
    372       372       771       769  
Occupancy
    1,327       1,185       2,819       2,379  
Furniture and equipment
    292       259       579       531  
Data processing
    662       651       1,334       1,268  
FDIC insurance
    400       455       860       885  
Professional fees
    628       475       1,068       854  
Other
    855       852       1,896       1,893  
 
Total non-interest expense
    9,584       8,457       19,537       17,578  
 
 
                               
Income before income tax expense
    6,685       6,528       14,245       11,749  
Income tax expense
    2,338       2,342       4,928       4,182  
 
Net income
  $ 4,347       4,186     $ 9,317       7,567  
 
 
                               
Basic and diluted earnings per share
  $ 0.11       0.10     $ 0.23       0.18  
 
See accompanying notes to the unaudited consolidated financial statements.

3


Table of Contents

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Six months ended June 30, 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
                                    7,567                       7,567  
Change in accumulated comprehensive income, net of tax of $3,274
                                            5,283               5,283  
 
                                                             
Total comprehensive income
                                                            12,850  
 
                                                             
ESOP shares allocated or committed to be released
                    117       293                               410  
Stock compensation expense
                    1,499                                       1,499  
Additional stock benefit on stock awards
                    231                                       231  
Exercise of stock options
                                    (26 )             163       137  
Dividends declared ($0.09 per share)
                                    (1,581 )                     (1,581 )
Issuance of restricted stock
    4,400                                                          
Treasury stock (average cost of $12.00 per share)
                                                    (5,347 )     (5,347 )
 
Balance at June 30, 2010
    45,632,611       456       204,326       (15,514 )     218,156       17,428       (25,113 )     399,739  
 
 
                                                               
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
                                    9,317                       9,317  
Change in accumulated comprehensive income, net of tax of $3,134
                                            4,701               4,701  
 
                                                             
Total comprehensive income
                                                            14,018  
 
                                                             
ESOP shares allocated or committed to be released
                    102       292                               394  
Stock compensation expense
                    1,535                                       1,535  
Additional tax benefit on equity awards
                    186                                       186  
Exercise of stock options
                                    (1 )             6       5  
Dividends declared ($0.11 per share)
                                    (1,846 )                     (1,846 )
Treasury stock (average cost of $13.58 per share)
                                                    (12,838 )     (12,838 )
 
                                                               
 
Balance at June 30, 2011
    45,632,611     $ 456       207,686       (14,896 )     230,125       15,611       (40,811 )     398,171  
 
See accompanying notes to the unaudited consolidated financial statements.

4


Table of Contents

NORTHFIELD BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

Six months ended June 30, 2011, and 2010
(Unaudited) (In thousands)
                 
    2011   2010
 
Cash flows from operating activities:
               
Net income
  $ 9,317       7,567  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Provision for loan losses
    3,117       4,728  
ESOP and stock compensation expense
    1,929       1,909  
Depreciation
    1,008       852  
Amortization of premiums, and deferred loan costs, net of (accretion) of discounts, and deferred loan fees
    295       267  
Amortization of intangible assets
    59       162  
Income on bank owned life insurance
    (1,487 )     (937 )
Gain on sale of premises and equipment and other real estate owned
    (84 )     (197 )
Net gain on sale of loans held-for-sale
    (15 )     (2 )
Proceeds from sale of loans held-for-sale
    5,484       334  
Origination of loans held-for-sale
    (4,424 )     (580 )
Gain on securities transactions, net
    (2,644 )     (1,145 )
Net impairment losses on securities recognized in earnings
    409        
Net purchases of trading securities
    (205 )     (22 )
Decrease in accrued interest receivable
    305       53  
Increase in other assets
    (2,084 )     (200 )
(Decrease) increase in accrued expenses and other liabilities
    (491 )     296  
 
Net cash provided by operating activities
    10,489       13,085  
 
Cash flows from investing activities:
               
Net increase in loans receivable
    (76,940 )     (45,166 )
Redemptions (purchase) of Federal Home Loan Bank of New York stock, net
    1,153       (1,698 )
Purchases of securities available-for-sale
    (342,901 )     (435,937 )
Principal payments and maturities on securities available-for-sale
    198,444       235,647  
Principal payments and maturities on securities held-to-maturity
    641       913  
Proceeds from sale of securities available-for-sale
    114,446       96,082  
Purchase of bank owned life insurance
          (10,000 )
Proceeds from sale of other real estate owned
    487        
Proceeds from the sale of premises and equipment
          394  
Purchases and improvements of premises and equipment
    (2,460 )     (1,960 )
 
Net cash used in investing activities
    (107,130 )     (161,725 )
 
Cash flows from financing activities:
               
Net increase in deposits
    75,728       63,810  
Dividends paid
    (1,846 )     (1,581 )
Exercise of stock options
    5       137  
Purchase of treasury stock
    (12,838 )     (5,347 )
Additional tax benefit on equity awards
    186       231  
Increase in advance payments by borrowers for taxes and insurance
    1,176       799  
Repayments under capital lease obligations
    (102 )     (91 )
Proceeds from borrowings
    412,981       176,680  
Repayments related to borrowings
    (359,594 )     (99,680 )
 
Net cash provided by financing activities
    115,696       134,958  
 
Net increase (decrease) in cash and cash equivalents
    19,055       (13,682 )
Cash and cash equivalents at beginning of period
    43,852       42,544  
 
Cash and cash equivalents at end of period
  $ 62,907       28,862  
 
Supplemental cash flow information:
               
Cash paid during the period for:
               
Interest
  $ 12,586       12,543  
Income taxes
    6,129       5,528  
Other transactions:
               
Loans charged-off, net
    1,416       1,020  
Other real estate owned charged-off
    26       146  
Transfers to other real estate owned
    376        
Decrease in due to broker for purchases of securities available-for-sale
    (70,747 )      
See accompanying notes to the unaudited consolidated financial statements.

5


Table of Contents

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 and six month period ended June 30, 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 June 30, 2011, and December 31, 2010 (in thousands):
                                 
    June 30, 2011  
            Gross     Gross     Estimated  
    Amortized     unrealized     unrealized     fair  
    cost     gains     losses     value  
Mortgage-backed securities:
                               
Pass-through certificates:
                               
Government sponsored enterprises (GSE)
  $ 549,817       19,543       1       569,359  
Non-GSE
    9,787             743       9,044  
Real estate mortgage investment conduits (REMICs):
                               
GSE
    475,168       4,763       527       479,404  
Non-GSE
    38,491       2,311       16       40,786  
 
                       
 
    1,073,263       26,617       1,287       1,098,593  
 
                       
 
                               
Other securities:
                               
Equity investments-mutual funds
    9,140       50             9,190  
Corporate bonds
    103,422       1,178       64       104,536  
 
                       
 
    112,562       1,228       64       113,726  
 
                       
 
                               
Total securities available-for-sale
  $ 1,185,825       27,845       1,351       1,212,319  
 
                       

6


Table of Contents

                                 
    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 June 30, 2011 (in thousands):
                 
            Estimated  
    Amortized     fair  
Available-for-sale   cost     value  
Due in one year or less
  $ 63,716       64,357  
Due after one year through five years
    39,706       40,179  
 
           
 
  $ 103,422       104,536  
 
           
     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 and six months ended June 30, 2011, the Company had gross proceeds of $25.9 million and $114.4 million on sales of securities available-for-sale with gross realized gains of approximately $886,000 and $2.5 million, and gross realized losses of $0 and $0, respectively. For the three and six months ended June 30, 2010, the Company had gross proceeds of $80.9 million and $96.1 million on sales of securities available-for-sale with gross realized gains of approximately $785,000 and $1.0 million, and gross realized losses of approximately $0 and $0, respectively. The Company recognized $(47,000) in losses and $139,000 in gains on its trading securities portfolio during the three and six months ended June 30, 2011, respectively. The Company recognized $(255,000) in losses and $90,000 in gains on its trading securities portfolio during the three and six months ended June 30, 2010, respectively. The Company recognized other-than-temporary impairment charges of $248,000 and $409,000 against earnings during the three and six months ended June 30, 2011, related to one equity investment in a mutual fund and two private label mortgage-backed securities. The Company recognized the credit component of $248,000 in earnings and the non-credit component of $743,000 as a component of accumulated other comprehensive income, net of tax for the three and six months ended June 30, 2011. The Company did not recognize any other-than-temporary impairment charges during the three and six months ended June 30, 2010.
     Activity related to the credit component recognized in earnings on debt securities for which a portion of other-than-temporary impairment was recognized in accumulated other comprehensive income for the three and six months ended June 30, 2011 and 2010, is as follows (in thousands):

7


Table of Contents

                                 
    Three months ended     Six months ended  
    June 30,     June 30,  
    2011     2010     2011     2010  
Balance, beginning of period
  $ 330       176       330       176  
Additions to the credit component on debt securities in which other-than-temporary impairment was not previously recognized
    248             248        
 
                       
Cumulative pre-tax credit losses, end of period
  $ 578       176       578       176  
 
                       
     Gross unrealized losses on mortgage-backed securities, equity investments, 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 June 30, 2011, and December 31, 2010, were as follows (in thousands):
                                                 
    June 30, 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)
  $ 1       165                   1       165  
Non-GSE
    289       3,354       454       5,689       743       9,043  
Real estate mortgage investment conduits (REMICs)
                                               
GSE
    527       53,176                   527       53,176  
Non-GSE
                16       1,031       16       1,031  
Corporate bonds
    64       13,760                   64       13,760  
 
                                   
 
Total
  $ 881       70,455       470       6,720       1,351       77,175  
 
                                   
                                                 
    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 June 30, 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 investment grade at June 30, 2011. The security had an estimated fair value of $5.7 million (amortized cost of $6.1 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. As a result of management’s evaluation of this security, the Company recognized during the quarter ended June 30, 2011, other than temporary impairment of $593,000. 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 (which may be maturity), the credit component of $139,000 was recognized in earnings, and the non credit component of $454,000 was recorded as a component of accumulated other comprehensive income, net of tax.
     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 investment grade at June 30, 2011. The security, had an estimated fair value of $3.4 million (amortized cost of $3.6 million), was rated CC, and was supported by collateral which was originated in 2006. 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

8


Table of Contents

estimated default rates and loss severity in liquidating the underlying collateral for this security. As a result of management’s evaluation of this security, the Company recognized during the quarter ended June 30, 2011, other than temporary impairment of $398,000. 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 (which may be maturity), the credit component of $109,000 was recognized in earnings, and the non credit component of $289,000 was 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, two pass-through GSE mortgage-backed securities, and five 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 June 30, 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.

9


Table of Contents

Note 3 — Net Loans Held-for-Investment
Net loans held-for-investment are as follows (in thousands):
                 
    June 30,   December 31,
    2011   2010
Real estate loans:
               
Commercial mortgage
  $ 335,485       339,321  
One- to- four family residential mortgage
    74,825       78,032  
Construction and land
    28,078       35,054  
Multifamily
    358,130       283,588  
Home equity and lines of credit
    30,195       28,125  
     
Total real estate loans
    826,713       764,120  
     
Commercial and industrial loans
    13,974       17,020  
Insurance premium loans
    59,037       44,517  
Other loans
    1,700       1,062  
     
Total commercial and industrial, insurance premium, and other loans
    74,711       62,599  
     
Total loans held-for-investment
    901,424       826,719  
Deferred loan cost, net
    1,140       872  
     
Loans held-for-investment, net
    902,564       827,591  
Allowance for loan losses
    (23,520 )     (21,819 )
     
Net loans held-for-investment
  $ 879,044       805,772  
     
     Loans held-for-sale amounted to $125,000 and $1.2 million at June 30, 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 $46.9 million and $52.1 million of loans at June 30, 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 June 30, 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

10


Table of Contents

      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 of the property by an independent licensed appraiser approved by the Company’s board of directors or an automated valuation model. 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 federal regulators 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.

11


Table of Contents

     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 the Comptroller of the Currency, as it relates to the Bank, and the Board of Governors of the Federal Reserve System, as it relates to Northfield Bancorp, Inc, are subject to periodic examination, including review of our allowance for loan losses. Our regulators 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, as of September 30, 2010, of Northfield Bancorp, Inc. and the Bank, were conducted by the Office of Thrift Supervision, our predecessor regulator.
     Activity in the allowance for loan losses is as follows (in thousands):
                 
    At or for the
    six months ended
    June 30,
    2011   2010
Beginning balance
  $ 21,819       15,414  
Provision for loan losses
    3,117       4,728  
Charge-offs, net
    (1,416 )     (1,020 )
     
Ending balance
  $ 23,520       19,122  
     

12


Table of Contents

     The following tables set forth activity in our allowance for loan losses, by loan type, for the six months ended June 30, 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 June 30, 2011 and December 31, 2010.
                                                                                 
June 30, 2011  
    Real Estate                                
                                    Home Equity                                
            One -to- Four     Construction             and Lines of     Commercial     Insurance                    
    Commercial     Family     and Land     Multifamily     Credit     and 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
    (1,198 )                 (25 )           (196 )     (26 )                 (1,445 )
Recoveries
    6                               23                         29  
Provisions
    1,884       161       (734 )     702       110       169       63       16       746       3,117  
 
                                                           
Ending Balance, June 30, 2011
    13,346       731       1,121       5,814       352       715       148       44       1,249       23,520  
 
                                                           
 
                                                                               
Ending balance, June 30, 2011:
individually evaluated for impairment
    2,325       369       128       122                                     2,944  
 
                                                           
 
                                                                               
Ending balance, June 30, 2011:
collectively evaluated for impairment
    11,021       362       993       5,692       352       715       148       44       1,249       20,576  
 
                                                           
 
                                                                               
Loans held-for-investment, net:
                                                                               
Ending Balance, June 30, 2011
    335,520       74,915       28,097       358,887       30,431       13,977       59,037       1,700             902,564  
 
                                                           
 
                                                                               
Ending Balance, June 30, 2011
individually evaluated for impairment
    52,097       3,618       3,079       3,214             1,455                         63,463  
 
                                                           
 
                                                                               
Ending Balance, June 30, 2011
collectively evaluated for impairment
  $ 283,423       71,297       25,018       355,673       30,431       12,522       59,037       1,700             839,101  
 
                                                           

13


Table of Contents

                                                                                 
December 31, 2010  
    Real Estate                                
                                    Home Equity                                
            One -to- Four     Construction             and Lines of     Commercial     Insurance                    
    Commercial     Family     and Land     Multifamily     Credit     and 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  
 
                                                           
     The Company routinely monitors the credit quality of its loans. Credit quality is monitored by reviewing certain key credit quality indicators. Management has determined that loan-to-value ratios (at period end) and internally assigned credit risk ratings by loan type are the key credit quality indicators that best help management monitor the credit quality of the Company’s loans. Loan-to-value (LTV) ratios used by management in monitoring credit quality are based on current period loan balances and original values at time of origination (unless a current appraisal has been obtained as a result of the loan being deemed impaired). In calculating the provision for loan losses, management has determined that commercial real estate loans and multifamily loans having loan-to-value ratios of less than 35%, and one- to four-family loans having loan-to-value ratios of less than 60%, require no allowance for loan losses at each period end. If any such loans were to default, requiring the Company to repossess the collateral, no loss would be expected as the Company would be considered well secured.
     The Company also maintains a credit risk rating system as part of the risk assessment of its loan portfolio. The Company’s lending officers are required to assign a credit risk rating to each loan in their portfolio at origination. When the lending officer learns of important financial developments, the risk rating is reviewed accordingly, and adjusted if necessary. Monthly, management presents monitored assets to the loan committee. In addition, the Company engages a third party independent loan reviewer that performs semi-annual reviews of a sample of loans, validating the credit risk ratings assigned to such loans. The credit risk ratings play an important role in the establishment of the loan loss provision and in confirming the adequacy of the allowance for loan losses. After determining the general reserve loss factor for each portfolio segment, the portfolio segment balance collectively evaluated for impairment is multiplied by the general reserve loss factor for the respective portfolio segment in order to determine the general reserve. Loans that have an internal credit rating of special mention or substandard are multiplied by a multiple of the general reserve loss factors for each portfolio segment, in order to determine the general reserve.

14


Table of Contents

     When assigning a risk rating to a loan, management utilizes the Bank’s internal nine-point credit risk rating system.
  1.   Strong
 
  2.   Good
 
  3.   Acceptable
 
  4.   Adequate
 
  5.   Watch
 
  6.   Special Mention
 
  7.   Substandard
 
  8.   Doubtful
 
  9.   Loss
     Loans rated 1 through 5 are considered pass ratings. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets have well defined weaknesses based on objective evidence, and are characterized by the distinct possibility the Company will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full highly questionable and improbable based on current circumstances. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted. Assets which do not currently expose the Company to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses, are required to be designated special mention.

15


Table of Contents

     The following tables detail the recorded investment of loans held-for-investment, net of deferred fees and costs, by loan type and credit quality indicator at June 30, 2011, and December 31, 2010 (in thousands).
                                                                                                 
    At June 30, 2011
    Real Estate                
                                                            Home                
                                                            Equity and   Commercial            
                                    Construction                   Lines of   and   Insurance        
    Commercial   One- to Four-Family   and Land   Multifamily   Credit   Industrial   Premium   Other   Total
    < 35% LTV   => 35% LTV   < 60% LTV   => 60% LTV           < 35% LTV   => 35% LTV                                        
Internal Risk Rating
                                                                                               
Pass
  $ 32,779       229,780       46,516       22,984       21,281       20,795       326,755       30,043       10,368       58,848       1,700       801,849  
Special Mention
    239       10,102       905             73             6,603       51       67       132             18,172  
Substandard
    2,010       60,610       834       3,676       6,743       558       4,176       337       3,542       57             82,543  
     
Total loans held-for-investment, net
  $ 35,028       300,492       48,255       26,660       28,097       21,353       337,534       30,431       13,977       59,037       1,700       902,564  
     
                                                                                                 
    At December 31, 2010
    Real Estate                
                                                            Home                
                                                            Equity and   Commercial            
                                    Construction                   Lines of   and   Insurance        
    Commercial   One- to Four-Family   and Land   Multifamily   Credit   Industrial   Premium   Other   Total
    < 35% LTV   => 35% LTV   < 60% LTV   => 60% LTV           < 35% LTV   => 35% LTV                                        
Internal Risk Rating
                                                                                               
Pass
  $ 24,826       248,759       49,928       22,247       24,767       18,880       256,948       28,042       14,110       44,149       1,061       733,717  
Special Mention
    1,613       12,108       1,206       1,750       1,128             5,233       55       776       239             24,108  
Substandard
    1,385       50,568       623       2,355       9,182       504       2,634       240       2,146       129             69,766  
     
Total loans held-for-investment, net
  $ 27,824       311,435       51,757       26,352       35,077       19,384       264,815       28,337       17,032       44,517       1,061       827,591  
     
     Included in loans held-for-investment, net, are loans for which the accrual of interest income has been discontinued due to deterioration in the financial condition of the borrowers. The recorded investment of these nonaccrual loans was $56.0 million and $59.3 million, at June 30, 2011, and December 31, 2010, respectively. Generally, loans are placed on non-accruing status when they become 90 days or more delinquent, and remain on non-accrual status until they are brought current, have six months of performance under the loan terms, and factors indicating reasonable doubt about the timely collection of payments no longer exist. Therefore, loans may be current in accordance with their loan terms, or may be less than 90 days delinquent and still be on a non-accruing status.

16


Table of Contents

     These non-accrual amounts included loans deemed to be impaired of $47.8 million and $52.0 million at June 30, 2011, and December 31, 2010, respectively. Loans on non-accrual status with principal balances less than $500,000, and therefore not meeting the Company’s definition of an impaired loan, amounted to $8.2 million and $7.3 million at June 30, 2011, and December 31, 2010, respectively. Loans past due 90 days or more and still accruing interest were $2.0 million and $1.6 million at June 30, 2011, and December 31, 2010, respectively, and consisted of loans that are considered well secured and in the process of collection.

17


Table of Contents

     The following tables set forth the detail, and delinquency status, of non-performing loans (non-accrual loans and loans past due 90 or more and still accruing), net of deferred fees and costs, at June 30, 2011, and December 31, 2010 (in thousands).
                                                 
    At June 30, 2011  
    Non-Accruing Loans     90 Days or        
                    90 Days or             More Past     Total Non-  
    0-29 Days     30-89 Days     More Past             Due and     Performing  
    Past Due     Past Due     Due     Total     Accruing     Loans  
Real estate loans:
                                               
Commercial
                                               
LTV < 35%
                                               
Special Mention
  $             218       218               218  
Substandard
                360       360             360  
 
                                   
Total
                578       578             578  
 
                                               
LTV => 35%
                                               
Pass
                            496       496  
Substandard
    25,237       3,986       15,069       44,292             44,292  
 
                                   
Total
    25,237       3,986       15,069       44,292       496       44,788  
 
                                   
Total commercial
    25,237       3,986       15,647       44,870       496       45,366  
 
                                   
 
One-to-four family residential
                                               
LTV < 60%
                                               
Special Mention
    152       24       328       504             504  
Substandard
                415       415             415  
 
                                   
Total
    152       24       743       919             919  
 
                                               
LTV => 60%
                                               
Substandard
          388       1,343       1,731             1,731  
 
                                   
Total
          388       1,343       1,731             1,731  
 
                                   
Total one-to-four family residential
    152       412       2,086       2,650             2,650  
 
                                   
 
                                               
Construction and land
                                               
Special Mention
                                   
Substandard
    2,456             875       3,331             3,331  
 
                                   
Total construction and land
    2,456             875       3,331             3,331  
 
                                   
 
                                               
Multifamily
                                               
LTV < 35%
                                               
Substandard
                558       558             558  
 
                                   
Total
                558       558             558  
 
                                               
LTV => 35%
                                               
Substandard
                2,443       2,443             2,443  
 
                                   
Total
                2,443       2,443             2,443  
 
                                   
Total multifamily
                3,001       3,001             3,001  
 
                                   
 
                                               
Home equity and lines of credit
                                               
Pass
                            1,491       1,491  
Substandard
                337       337             337  
 
                                   
Total home equity and lines of credit
                337       337       1,491       1,828  
 
                                   
 
                                               
Commercial and industrial loans
                                               
Special Mention
                                   
Substandard
    552             1,232       1,784             1,784  
 
                                   
Total commercial and industrial loans
    552             1,232       1,784             1,784  
 
                                   
 
                                               
Insurance premium loans
                                               
Substandard
                57       57             57  
 
                                   
Total insurance premium loans
                57       57             57  
 
                                   
 
                                               
Total non-performing loans, June 30, 2011
  $ 28,397       4,398       23,235       56,030       1,987       58,017  
 
                                   

18


Table of Contents

                                                 
    At December 31, 2010  
    Non-Accruing Loans     90 Days or        
                    90 Days or             More Past     Total Non-  
    0-29 Days     30-89 Days     More Past             Due and     Performing  
    Past Due     Past Due     Due     Total     Accruing     Loans  
Real estate loans:
                                               
Commercial
                                               
LTV < 35%
                                               
Special Mention
  $ 29                   29             29  
 
                                   
Total
    29                   29             29  
 
LTV => 35%
                                               
Substandard
    13,650       15,050       17,659       46,359             46,359  
 
                                   
Total
    13,650       15,050       17,659       46,359             46,359  
 
                                   
Total commercial
    13,679       15,050       17,659       46,388             46,388  
 
                                   
 
One-to-four family residential
                                               
LTV < 60%
                                               
Special Mention
          179       99       278       86       364  
Substandard
    135             197       332       291       623  
 
                                   
Total
    135       179       296       610       377       987  
 
LTV => 60%
                                               
Substandard
          591       74       665       731       1,396  
 
                                   
Total
          591       74       665       731       1,396  
 
                                   
Total one-to-four family residential
    135       770       370       1,275       1,108       2,383  
 
                                   
 
Construction and land
                                               
Special Mention
                            404       404  
Substandard
    2,152       1,860       1,110       5,122             5,122  
 
                                   
Total construction and land
    2,152       1,860       1,110       5,122       404       5,526  
 
                                   
 
Multifamily
                                               
LTV < 35%
                                               
Substandard
          504             504             504  
 
                                   
Total
          504             504             504  
 
LTV => 35%
                                               
Special Mention
    1,824                   1,824             1,824  
Substandard
          423       2,112       2,535             2,535  
 
                                   
Total
    1,824       423       2,112       4,359             4,359  
 
                                   
Total multifamily
    1,824       927       2,112       4,863             4,863  
 
                                   
 
Home equity and lines of credit
                                               
Substandard
                181       181       59       240  
 
                                   
Total home equity and lines of credit
                181       181       59       240  
 
                                   
 
Commercial and industrial loans
                                               
Pass
                            38       38  
Special Mention
                100       100             100  
Substandard
          267       956       1,223             1,223  
 
                                   
Total commercial and industrial loans
          267       1,056       1,323       38       1,361  
 
                                   
 
Insurance premium loans
                                               
Substandard
                129       129             129  
 
                                   
Total insurance premium loans
                129       129             129  
 
                                   
 
Total non-performing loans, December 31, 2010
  $ 17,790       18,874       22,617       59,281       1,609       60,890  
 
                                   

19


Table of Contents

     The following tables set forth the detail and delinquency status of loans held-for-investment, net of deferred fees and costs, by performing and non-performing loans at June 30, 2011, and December 31, 2010 (in thousands).
                                         
    June 30, 2011  
    Performing (Accruing) Loans     Non-        
    0-29 Days     30-89 Days             Performing     Total Loans  
    Past Due     Past Due     Total     Loans     Receivable, net  
Real estate loans:
                                       
Commercial
                                       
LTV < 35%
                                       
Pass
  $ 32,052       727       32,779             32,779  
Special Mention
          21       21       218       239  
Substandard
          1,650       1,650       360       2,010  
 
                             
Total
    32,052       2,398       34,450       578       35,028  
 
                                       
LTV > 35%
                                     
Pass
    226,501       2,783       229,284       496       229,780  
Special Mention
    10,102             10,102             10,102  
Substandard
    13,947       2,371       16,318       44,292       60,610  
 
                             
Total
    250,550       5,154       255,704       44,788       300,492  
 
                             
Total commercial
    282,602       7,552       290,154       45,366       335,520  
 
                             
 
                                       
One-to-four family residential
                                       
LTV < 60%
                                       
Pass
    45,830       686       46,516             46,516  
Special Mention
    401             401       504       905  
Substandard
    132       287       419       415       834  
 
                             
Total
    46,363       973       47,336       919       48,255  
 
                                       
LTV > 60%
                                       
Pass
    22,371       613       22,984             22,984  
Special Mention
                             
Substandard
    1,945             1,945       1,731       3,676  
 
                             
Total
    24,316       613       24,929       1,731       26,660  
 
                             
Total one-to-four family residential
    70,679       1,586       72,265       2,650       74,915  
 
                             
 
                                       
Construction and land
                                       
Pass
    20,781       500       21,281             21,281  
Special Mention
    73             73             73  
Substandard
    3,412             3,412       3,331       6,743  
 
                             
Total construction and land
    24,266       500       24,766       3,331       28,097  
 
                             
 
                                       
Multifamily
                                       
LTV < 35%
                                       
Pass
    20,795             20,795             20,795  
Substandard
                      558       558  
 
                             
Total
    20,795             20,795       558       21,353  
 
                                       
LTV > 35%
                                       
Pass
    326,063       692       326,755             326,755  
Special Mention
    5,152       1,451       6,603             6,603  
Substandard
    172       1,561       1,733       2,443       4,176  
 
                             
Total
    331,387       3,704       335,091       2,443       337,534  
 
                             
Total multifamily
    352,182       3,704       355,886       3,001       358,887  
 
                             
 
                                       
Home equity and lines of credit
                                       
Pass
    28,458       94       28,552       1,491       30,043  
Special Mention
    51             51             51  
Substandard
                      337       337  
 
                             
Total home equity and lines of credit
    28,509       94       28,603       1,828       30,431  
 
                             
 
                                       
Commercial and industrial loans
                                       
Pass
    10,231       137       10,368             10,368  
Special Mention
    67             67             67  
Substandard
    1,758             1,758       1,784       3,542  
 
                             
Total commercial and industrial loans
    12,056       137       12,193       1,784       13,977  
 
                             
 
                                       
Insurance premium loans
                                       
Pass
    58,453       395       58,848             58,848  
Special Mention
          132       132             132  
Substandard
                      57       57  
 
                             
Total insurance premium loans
    58,453       527       58,980       57       59,037  
 
                             
 
                                       
Other loans
                                       
Pass
    1,631       69       1,700             1,700  
 
                             
Total other loans
    1,631       69       1,700             1,700  
 
                             
 
  $ 830,378       14,169       844,547       58,017       902,564  
 
                             

20


Table of Contents

                                         
    December 31, 2010  
    Performing (Accruing) Loans     Non-        
    0-29 Days Past     30-89 Days             Performing     Total Loans  
    Due     Past Due     Total     Loans     Receivable, net  
Real estate loans:
                                       
Commercial
                                       
LTV < 35%
                                       
Pass
  $ 24,823       3       24,826             24,826  
Special Mention
    1,068       516       1,584       29       1,613  
Substandard
          1,385       1,385             1,385  
 
                             
Total
    25,891       1,904       27,795       29       27,824  
 
LTV > 35%
                                       
Pass
    242,131       6,628       248,759             248,759  
Special Mention
    11,670       438       12,108             12,108  
Substandard
    4,209             4,209       46,359       50,568  
 
                             
Total
    258,010       7,066       265,076       46,359       311,435  
 
                             
Total commercial
    283,901       8,970       292,871       46,388       339,259  
 
                             
 
                                       
One-to-four family residential
                                       
LTV < 60%
                                       
Pass
    48,930       998       49,928             49,928  
Special Mention
    83       759       842       364       1,206  
Substandard
                      623       623  
 
                             
Total
    49,013       1,757       50,770       987       51,757  
 
LTV > 60%
                                       
Pass
    21,429       818       22,247             22,247  
Special Mention
    1,750             1,750             1,750  
Substandard
    959             959       1,396       2,355  
 
                             
Total
    24,138       818       24,956       1,396       26,352  
 
                             
Total one-to-four family residential
    73,151       2,575       75,726       2,383       78,109  
 
                             
 
                                       
Construction and land
                                       
Pass
    24,767             24,767             24,767  
Special Mention
    225       499       724       404       1,128  
Substandard
    4,060             4,060       5,122       9,182  
 
                             
Total construction and land
    29,052       499       29,551       5,526       35,077  
 
                             
 
                                       
Multifamily
                                       
LTV < 35%
                                       
Pass
    18,656       224       18,880             18,880  
Substandard
                      504       504  
 
                             
Total
    18,656       224       18,880       504       19,384  
 
LTV > 35%
                                       
Pass
    251,129       5,819       256,948             256,948  
Special Mention
    3,258       151       3,409       1,824       5,233  
Substandard
    99             99       2,535       2,634  
 
                             
Total
    254,486       5,970       260,456       4,359       264,815  
 
                             
Total multifamily
    273,142       6,194       279,336       4,863       284,199  
 
                             
 
                                       
Home equity and lines of credit
                                       
Pass
    27,780       262       28,042             28,042  
Special Mention
    55             55             55  
Substandard
                      240       240  
 
                             
Total home equity and lines of credit
    27,835       262       28,097       240       28,337  
 
                             
 
                                       
Commercial and industrial loans
                                       
Pass
    13,626       446       14,072       38       14,110  
Special Mention
    586       90       676       100       776  
Substandard
    923             923       1,223       2,146  
 
                             
Total commercial and industrial loans
    15,135       536       15,671       1,361       17,032  
 
                             
 
                                       
Insurance premium loans
                                       
Pass
    43,728       421       44,149             44,149  
Special Mention
          239       239             239  
Substandard
                      129       129  
 
                             
Total insurance premium loans
    43,728       660       44,388       129       44,517  
 
                             
 
                                       
Other loans
                                       
Pass
    959       102       1,061             1,061  
 
                             
Total other loans
    959       102       1,061             1,061  
 
                             
 
 
  $ 746,903       19,798       766,701       60,890       827,591  
 
                             

21


Table of Contents

     The following tables summarize impaired loans as of June 30, 2011, and December 31, 2010 (in thousands):
                         
    At June 30, 2011  
            Unpaid        
    Recorded     Principal     Related  
    Investment     Balance     Allowance  
With No Related Allowance Recorded:
                       
Real estate loans:
                       
Commercial
                       
LTV => 35%
                       
Special Mention
  $ 1,791       1,791        
Substandard
    33,429       34,665        
 
                       
One-to-four family residential
                       
LTV < 60%
                       
Pass
    639       639        
Special Mention
    152       152        
LTV => 60%
                       
Substandard
    1,077       1,077        
 
                       
Construction and land
                       
Substandard
    1,146       1,326        
 
                       
Multifamily
                       
LTV < 35%
                       
Substandard
    491       491        
 
LTV => 35%
                       
Substandard
    1,561       1,561        
 
                       
Commercial and industrial
                       
Special Mention
    42       42        
Substandard
    951       951        
 
                       
With an Allowance Recorded:
                       
Real estate loans:
                       
Commercial
                       
LTV => 35%
                       
Substandard
    17,411       18,749       (2,325 )
 
                       
One-to-four family residential
                       
LTV => 60%
                       
Special Mention
    1,750       1,750       (369 )
 
                       
Construction and land
                       
Substandard
    1,860       2,529       (128 )
 
                       
Multifamily
                       
LTV => 35%
                       
Substandard
    1,163       1,632       (122 )
 
                       
Total:
                       
Real estate loans
                       
Commercial
    52,631       55,205       (2,325 )
One-to-four family residential
    3,618       3,618       (369 )
Construction and land
    3,006       3,855       (128 )
Multifamily
    3,215       3,684       (122 )
Commercial and industrial loans
    993       993        
 
                 
 
  $ 63,463       67,355       (2,944 )
 
                 

22


Table of Contents

                         
    At December 31, 2010  
            Unpaid        
    Recorded     Principal     Related  
    Investment     Balance     Allowance  
With No Related Allowance Recorded:
                       
Real estate loans:
                       
Commercial
                       
LTV < 35%
                       
Special Mention
  $ 661       661        
 
LTV => 35%
                       
Special Mention
    4,807       4,807        
Substandard
    25,590       26,870        
 
                       
Construction and land
                       
Substandard
    2,152       2,416        
 
                       
Multifamily
                       
LTV < 35%
                       
Substandard
    504       504        
 
LTV => 35%
                       
Special Mention
    3,392       5,242        
 
                       
With an Allowance Recorded:
                       
Real estate loans:
                       
Commercial
                       
LTV => 35%
                       
Substandard
    20,766       21,782       (2,129 )
 
One-to-four family residential
                       
LTV => 60%
                       
Special Mention
    1,750       1,750       (369 )
 
Construction and land
                       
Substandard
    2,410       3,079       (36 )
 
Multifamily
                       
LTV => 35%
                       
Substandard
    1,187       1,632       (121 )
 
                       
Total:
                       
Real estate loans
                       
Commercial
    51,824       54,120       (2,129 )
One-to-four family residential
    1,750       1,750       (369 )
Construction and land
    4,562       5,495       (36 )
Multifamily
    5,083       7,378       (121 )
 
                 
 
  $ 63,219       68,743       (2,655 )
 
                 
     Included in the table above at June 30, 2011, are loans with carrying balances of $33.5 million that were not written down by either charge-offs or specific reserves in our allowance for loan losses. Included in the table above at December 31, 2010, are loans with carrying balances of $24.8 million that were not written down by either charge-offs or specific reserves in our allowance for loan losses. Loans not written down by charge-offs or specific reserves at June 30, 2011, and December 31, 2010, are considered to have sufficient collateral values, less costs to sell, supporting the carrying balances of the loans.
     The average recorded balance of impaired loans for the six months ended June 30, 2011 and 2010, was $62.2 million and $47.9 million, respectively. The Company recorded $735,000 and $1.6 million of interest income on impaired loans for the three and six months ended June 30, 2011, respectively, compared to $743,000 and $1.2 million of interest income on impaired loans for the three and six months ended June 30, 2010, respectively.

23


Table of Contents

     The following tables summarize loans that were modified in a troubled debt restructuring during the six months ended June 30, 2011.
                         
    Six months ended June 30, 2011  
            Pre-Modification     Post-Modification  
    Number of     Outstanding Recorded     Outstanding Recorded  
    Relationships     Investment     Investment  
            (in thousands)  
Troubled Debt Restructurings
                       
Commercial real estate loans
                       
Substandard
    4     $ 17,681       16,527  
Construction and land
                       
Substandard
    1       405       405  
One -to- four Family
                       
Pass
    2       639       639  
Substandard
    1       152       152  
Commercial and industrial loans
                       
Special Mention
    1       43       42  
Substandard
    2       1,775       1,775  
 
                 
Total Troubled Debt Restructurings
    11     $ 20,695       19,540  
 
                 
     One commercial real estate loan amounting to $3.1 million (pre-modification), which was supported by a retail center, was restructured during the quarter ended March 31, 2011. This loan was charged down by $1.1 million as part of the restructuring. This loan also received a reduction to its interest rate. The second commercial real estate relationship consisted of five loans amounting to $8.3 million (post-modification). Three of these five loans, or $3.1 million (post-modification), were restructured during a prior quarter. The two additional loans, totaling $5.2 million (post-modification), were restructured during the quarter ended March 31, 2011. This entire relationship included in the table above, received a reduction in rate and certain loan maturities in the relationship were extended. The third commercial real estate loan amounting to $2.5 million was an owner occupied industrial building modified during the quarter ended June 30, 2011. This loan received a reduction to its interest rate. The fourth relationship amounting to $3.8 million is supported by two properties which were comprised of an office building and a residential property modified during the quarter ended June 30, 2011. One of the loans received a reduction in the interest rate while the other loan was provided a forbearance agreement to allow the owner to liquidate the property.
     The one construction and land loan amounting to $405,000 received a forbearance agreement allowing the owner to liquidate the collateral was modified during the quarter ended June 30, 2011.
     The three one -to- four family loans amounting to $791,000 each received a temporary reduction in interest rate was modified during the quarter ended June 30, 2011.
     The one commercial and industrial loan that was risk rated special mention was an unsecured line of credit in the amount of $43,000 that matured during the quarter ended March 31, 2011. As the borrower was unable to repay the loan in full, the Company termed out the loan over five years at a reduced interest rate.
     One commercial and industrial loan relationship that was risk rated substandard in the table above consisted of two loans amounting to $1.7 million (pre-modification), which was supported by an office/warehouse, a commercial property, and a personal residence. This relationship was restructured to reduce the monthly payments for a 24-month period. The interest rates were reduced on both loans for a 24-month period, with no forgiveness of principal. The second commercial and industrial loan relationship that was restructured during the quarter ended March 31, 2011, consisted of one loan amounting to $90,000 (pre-modification), secured by business assets. The Company provided the borrower with six months to pay interest only beginning February 2011, in order to allow the borrower time to sell the business.
     Management classifies all troubled debt restructurings as impaired loans. Impaired loans are individually assessed to determine that the loan’s carrying value is not in excess of the estimated fair value of the collateral (less cost to sell), if the loan is collateral dependent, or the present value of the expected future cash flows, if the loan is not collateral dependent. Management performs a detailed evaluation of each impaired loan and generally obtains updated appraisals as part of the evaluation. In addition, management adjusts estimated fair values down to appropriately consider recent market conditions, our willingness to accept a lower sales price to effect a quick sale,

24


Table of Contents

and costs to dispose of any supporting collateral. Determining the estimated fair value of underlying collateral (and related costs to sell) can be difficult in illiquid real estate markets and is subject to significant assumptions and estimates. Management employs an independent third party expert in appraisal preparation and review to ascertain the reasonableness of updated appraisals. Projecting the expected cash flows under troubled debt restructurings is inherently subjective and requires, among other things, an evaluation of the borrower’s current and projected financial condition. Actual results may be significantly different than our projections and our established allowance for loan losses on these loans, which could have a material effect on our financial results.
     There have not been any loans that were restructured during the last twelve months that have subsequently defaulted during the current quarter ended June 30, 2011.

25


Table of Contents

Note 4 — Deposits
Deposits are as follows (in thousands):
                 
    June 30,   December 31,
    2011   2010
   
Non-interest-bearing demand
  $ 118,942       111,413  
Interest-bearing negotiable orders of withdrawal (NOW)
    87,221       76,251  
Savings-passbook, statement, tiered, and money market
    626,907       632,143  
Certificates of deposit
    615,499       553,035  
   
 
  $ 1,448,569       1,372,842  
   
     Interest expense on deposit accounts is summarized for the periods indicated (in thousands):
                                 
    Three months ended   Six months ended
    June 30,   June 30,
    2011   2010   2011   2010
         
Negotiable order of withdrawal, savings-passbook, statement, tiered, and money market
  $ 1,164       1,265       2,298       2,685  
Certificates of deposit
    2,106       2,117       3,989       4,649  
         
 
  $ 3,270       3,382       6,287       7,334  
         
Note 5 — Equity Incentive Plan
     The following table is a summary of the Company’s stock options outstanding as of June 30, 2011, and changes therein during the three months then ended:
                                 
            Weighted     Weighted     Weighted  
            Average     Average     Average  
    Number of     Grant Date     Exercise     Contractual  
    Stock Options     Fair Value     Price     Life (years)  
Outstanding- December 31, 2010
    2,072,540     $ 3.22     $ 9.94       8.09  
Granted
                       
Forfeited
                       
Exercised
    (640 )     3.22       9.94        
 
                       
Outstanding- June 30, 2011
    2,071,900     $ 3.22     $ 9.95       7.57  
 
                       
 
Exercisable- June 30, 2011
    839,320     $ 3.22     $ 9.94       7.53  
 
                       
     Expected future stock option expense related to the non-vested options outstanding as of June 30, 2011, is $3.4 million over an average period of 2.6 years.

26


Table of Contents

     The following is a summary of the status of the Company’s restricted share awards as of June 30, 2011, and changes therein during the three months then ended.
                 
            Weighted  
    Number of     Average  
    Shares     Grant Date  
    Awarded     Fair Value  
Non-vested at December 31, 2010
    653,880     $ 9.97  
Granted
           
Vested
    (165,050 )     9.96  
Forfeited
           
 
           
Non-vested at June 30, 2011
    488,830     $ 9.97  
 
           
     Expected future stock award expense related to the non-vested restricted share awards as of June 30, 2011, is $4.2 million over an average period of 2.6 years.
     During the three and six months ended June 30, 2011, the Company recorded $775,000 and $1.5 million of stock-based compensation related to the above plans, respectively. During the three and six months ended June 30, 2010, the Company recorded $723,000 and $1.5 million of stock-based compensation related to the above plans, respectively.
Note 6 — Fair Value Measurements
     The following table presents the assets reported on the consolidated balance sheet at their estimated fair value as of June 30, 2011, and December 31, 2010, by level within the fair value hierarchy as required by the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification (ASC). Financial assets and liabilities are classified in their entirety based on the level of input that is significant to the fair value measurement. The fair value hierarchy is as follows:
    Level 1 Inputs — Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
    Level 2 Inputs — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (for example, interest rates, volatilities, prepayment speeds, loss severities, credit risks and default rates) or inputs that are derived principally from or corroborated by observable market data by correlations or other means.
    Level 3 Inputs — Significant unobservable inputs that reflect the Company’s own assumptions that market participants would use in pricing the assets or liabilities.

27


Table of Contents

                                 
            Fair Value Measurements at Reporting Date Using:  
            Quoted Prices     Significant        
            in Active     Other     Significant  
            Markets for     Observable     Unobservable  
            Identical Assets     Inputs     Inputs  
(in thousands)   June 30, 2011     (Level 1)     (Level 2)     (Level 3)  
Measured on a recurring basis:
                               
Assets:
                               
Investment securities:
                               
Available-for-sale:
                               
Mortgage-backed securities
                               
GSE
  $ 1,048,763             1,048,763        
Non-GSE
    49,830             49,830        
Corporate bonds
    104,536             104,536        
Equities
    9,190       9,190              
 
                       
Total available-for-sale
    1,212,319       9,190       1,203,129        
 
                       
Trading securities
    4,439       4,439              
 
                       
Total
  $ 1,216,758       13,629       1,203,129        
 
                       
 
                               
Measured on a non-recurring basis:
                               
Assets:
                               
Impaired loans:
                               
Real estate loans:
                               
Commercial mortgage (CRE)
  $ 22,152                   22,152  
One- to- four family residential mortgage
    1,381                   1,381  
Construction and land
    2,474                   2,474  
Multifamily
    1,041                   1,041  
 
                       
Total impaired loans
    27,048                   27,048  
 
                       
Other real estate owned (CRE)
    118                   118  
 
                       
Total
  $ 27,166                   27,166  
 
                       
                                 
            Fair Value Measurements at Reporting Date Using:  
            Quoted Prices     Significant        
            in Active     Other     Significant  
            Markets for     Observable     Unobservable  
            Identical Assets     Inputs     Inputs  
    December 31, 2010     (Level 1)     (Level 2)     (Level 3)  
Measured on a recurring basis:
                               
Assets:
                               
Investment securities:
                               
Available-for-sale:
                               
Mortgage-backed securities
                               
GSE
  $ 977,872             977,872        
Non-GSE
    97,267             97,267        
Corporate bonds
    121,788             121,788        
GSE bonds
    35,033             35,033        
Equities
    12,353       12,353              
 
                       
Total available-for-sale
    1,244,313       12,353       1,231,960        
 
                       
Trading securities
    4,095       4,095              
 
                       
Total
  $ 1,248,408       16,448       1,231,960        
 
                       
 
                               
Measured on a non-recurring basis:
                               
Assets:
                               
Impaired loans:
                               
Real estate loans:
                               
Commercial mortgage
  $ 26,951                   26,951  
One- to four-family residential mortgage
    1,381                   1,381  
Construction and land
    4,526                   4,526  
Multifamily
    2,890                   2,890  
 
                       
Total impaired loans
    35,748                   35,748  
 
                       
Other real estate owned (CRE)
    171                   171  
 
                       
Total
  $ 35,919                   35,919  
 
                       
     Available for Sale Securities: The estimated fair values for mortgage-backed, GSE and corporate securities are obtained from an independent nationally recognized third-party pricing service. The estimated fair

28


Table of Contents

values are derived primarily from cash flow models, which include assumptions for interest rates, credit losses, and prepayment speeds. Broker/dealer quotes are utilized as well when such quotes are available and deemed representative of the market. The significant inputs utilized in the cash flow models are based on market data obtained from sources independent of the Company (Observable Inputs), and are therefore classified as Level 2 within the fair value hierarchy. The estimated fair values of equity securities, classified as Level 1, are derived from quoted market prices in active markets. Equity securities consist of mutual funds. There were no transfers of securities between Level 1 and Level 2 during the six months ended June 30, 2011.
     Trading Securities: Fair values are derived from quoted market prices in active markets. The assets consist of publicly traded mutual funds.
     Impaired Loans: At June 30, 2011, and December 31, 2010, the Company had impaired loans with outstanding principal balances of $30.0 million and $38.4 million, which were recorded at their estimated fair value of $27.0 million and $35.7 million, respectively. The Company recorded net impairment charges of $1.7 million and $646,000 for the six months ended June 30, 2011, and 2010, respectively. For purposes of estimating fair value of impaired loans, management utilizes independent appraisals, if the loan is collateral dependent, adjusted downward by management, as necessary, for changes in relevant valuation factors subsequent to the appraisal date, or the present value of expected future cash flows for non-collateral dependent loans and troubled debt restructurings.
     Other Real Estate Owned: At June 30, 2011, and December 31, 2010, the Company had assets acquired through foreclosure, or deed in lieu of foreclosure, of $118,000 and $171,000, respectively, recorded at estimated fair value, less estimated selling costs when acquired, thus establishing a new cost basis. Fair value is generally based on independent appraisals. These appraisals include adjustments to comparable assets based on the appraisers’ market knowledge and experience, and are considered Level 3 inputs. When an asset is acquired, the excess of the loan balance over fair value, less estimated selling costs, is charged to the allowance for loan losses. If the estimated fair value of the asset declines, a write-down is recorded through non-interest expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in economic conditions. During the three months ended March 31, 2011, the Company transferred a loan with a principal balance of $422,000 and an estimated fair value, less costs to sell, of $350,000 to other real estate owned. The Company charged the $72,000 excess of the loan balance over fair value, less estimated costs to sell, to the allowance for loan losses, utilizing Level 3 inputs during the three months ended March 31, 2011, the property was sold during the three months ended June 30, 2011. Subsequent valuation adjustments to other real estate owned (REO) totaled $0 and $146,000, for the three and six months ended June 30, 2010 reflecting continued deterioration in estimated fair values. Operating costs after acquisition are expensed.
Fair Value of Financial Instruments
     The FASB ASC Topic for Financial Instruments requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The following methods and assumptions were used to estimate the fair value of other financial assets and financial liabilities not already discussed above:
  (a)   Cash, Cash Equivalents, and Certificates of Deposit
 
  Cash and cash equivalents are short-term in nature with original maturities of three months or less; the carrying amount approximates fair value. Certificates of deposit having original terms of six-months or less; carrying value generally approximates fair value. Certificates of deposit with an original maturity of six months or greater, the fair value is derived from discounted cash flows.
 
  (b)   Securities (Held to Maturity)
 
  The fair values for substantially all of our securities are obtained from an independent nationally recognized pricing service. The independent pricing service utilizes market prices of same or similar securities whenever such prices are available. Prices involving distressed sellers are not utilized in determining fair value. Where necessary, the independent third-party pricing service estimates fair value using models employing techniques such as discounted cash flow analyses. The assumptions

29


Table of Contents

  used in these models typically include assumptions for interest rates, credit losses, and prepayments, utilizing market observable data where available.
 
  (c)   Federal Home Loan Bank of New York Stock
 
  The fair value for Federal Home Loan Bank of New York stock is its carrying value, since this is the amount for which it could be redeemed and there is no active market for this stock.
 
  (d)   Loans
 
  Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage, construction, land, multifamily, commercial and consumer. Each loan category is further segmented into amortizing and non-amortizing and fixed and adjustable rate interest terms and by performing and nonperforming categories. The fair value of loans is estimated by discounting the future cash flows using current prepayment assumptions and current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. This method of estimating fair value does not incorporate the exit price concept of fair value prescribed by the FASB ASC Topic for Fair Value Measurements and Disclosures.
 
  (e)   Deposits
 
  The fair value of deposits with no stated maturity, such as non-interest-bearing demand deposits, savings, NOW and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.
 
  (f)   Commitments to Extend Credit and Standby Letters of Credit
 
  The fair value of commitments to extend credit and standby letters of credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of off-balance-sheet commitments is insignificant and therefore not included in the following table.
 
  (g)   Borrowings
 
  The fair value of borrowings is estimated by discounting future cash flows based on rates currently available for debt with similar terms and remaining maturity.
 
  (h)   Advance Payments by Borrowers
 
  Advance payments by borrowers for taxes and insurance have no stated maturity; the fair value is equal to the amount currently payable.

30


Table of Contents

     The estimated fair values of the Company’s significant financial instruments at June 30, 2011, and December 31, 2010, are presented in the following table (in thousands):
                                 
    June 30,   December 31,
    2011   2010
            Estimated           Estimated
    Carrying   Fair   Carrying   Fair
    value   value   value   value
Financial assets:
                               
Cash and cash equivalents
  $ 62,907       62,907       43,852       43,852  
Trading securities
    4,439       4,439       4,095       4,095  
Securities available-for-sale
    1,212,319       1,212,319       1,244,313       1,244,313  
Securities held-to-maturity
    4,421       4,629       5,060       5,273  
Federal Home Loan Bank of New York stock, at cost
    8,631       8,631       9,784       9,784  
Net loans held-for-investment
    879,044       907,248       805,772       818,295  
 
Financial liabilities:
                               
Deposits
  $ 1,448,569       1,453,785       1,372,842       1,377,068  
Borrowings
    444,522       461,167       391,237       403,920  
Advance payments by borrowers
    1,869       1,869       693       693  
Limitations
     Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
     Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates.
Note 7 — Earnings Per Share
     Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding during the period. For purposes of calculating basic earnings per share, weighted average common shares outstanding excludes unallocated employee stock ownership plan (ESOP) shares that have not been committed for release and unvested restricted stock.
     Diluted earnings per share is computed using the same method as basic earnings per share, but reflects the potential dilution that could occur if stock options and unvested shares of restricted stock were exercised and converted into common stock. These potentially dilutive shares are included in the weighted average number of shares outstanding for the period using the treasury stock method. When applying the treasury stock method, we add: (1) the assumed proceeds from option exercises; (2) the tax benefit, if any, that would have been credited to additional paid-in capital assuming exercise of non-qualified stock options and vesting of shares of restricted stock; and (3) the average unamortized compensation costs related to unvested shares of restricted stock and stock options.

31


Table of Contents

We then divide this sum by our average stock price for the period to calculate assumed shares repurchased. The excess of the number of shares issuable over the number of shares assumed to be repurchased is added to basic weighted average common shares to calculate diluted earnings per share.
     The following is a summary of the Company’s earnings per share calculations and reconciliation of basic to diluted earnings per share for the periods indicated (dollars in thousands, except share data):
                                 
    For the three months ended   For the six months ended
    June 30,   June 30,
    2011   2010   2011   2010
Net income available to common stockholders
  $ 4,347       4,186       9,317       7,567  
 
                               
Weighted average shares outstanding-basic
    40,599,400       41,417,662       40,848,467       41,462,961  
Effect of non-vested restricted stock and stock
                               
options outstanding
    381,291       366,068       411,566       340,345  
Weighted average shares outstanding-diluted
    40,980,691       41,783,730       41,260,033       41,803,306  
 
                               
Earnings per share-basic
  $ 0.11       0.10       0.23       0.18  
Earnings per share-diluted
  $ 0.11       0.10       0.23       0.18  
Note 8 — Stock Repurchase Program
     On October 27, 2010, the Board of Directors of the Company authorized a stock repurchase program pursuant to which the Company intends to repurchase up to 2,177,033 shares, representing approximately 5% of its then outstanding shares. The timing of the repurchases will depend on certain factors, including but not limited to, market conditions and prices, the Company’s liquidity and capital requirements, and alternative uses of capital. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. The Company will conduct such repurchases in accordance with a Rule 10b5-1 trading plan. As of June 30, 2011, a total of 1,127,096 shares were purchased under this repurchase plan at a weighted average cost of $13.44 per share.
Note 9 — Income Taxes
     The Company files income tax returns in the United States federal jurisdiction and in the State of New Jersey. The Company’s subsidiary files income tax returns in the State and City of New York, and the State of New Jersey. The State and City of New York are currently examining our subsidiary’s tax returns filed for 2007, 2008, and 2009. The Company, and its subsidiary, are no longer subject to federal and local income tax examinations by tax authorities for years prior to 2007.
Note 10 — Recent Accounting Pronouncements
     Accounting Standards Update No. 2011-02 amends Topic 310 and clarifies the guidance on a creditor’s evaluation of whether it has granted a concession, and whether a restructuring constitutes a troubled debt restructuring. The amendments in this update are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. As a result of applying these amendments, an entity may identify receivables that are newly considered impaired. For purposes of measuring impairment of those receivables, an entity should apply the amendments prospectively for the first interim or annual period beginning on or after June 15, 2011. An entity should disclose the total amount of receivables and the allowance for credit losses as of the end of the period of adoption related to those receivables that are newly considered impaired under Section 310-10-35 for which impairment was previously measured under Subtopic 450-20, Contingencies—Loss Contingencies. An entity should disclose the information required by paragraphs 310-10-50-33 through 50-34, which was deferred by Accounting Standards Update No. 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20, for interim and annual periods beginning on or after June 15, 2011. The Company has early adopted the requirements of this Accounting Standard Update as of March 31, 2011, and has provided the applicable disclosures as part of Note 3 to these condensed financial statements. The adoption of this Accounting Standard Update did not result in a material change to the Company’s consolidated financial statements.

32


Table of Contents

     Accounting Standards Update No. 2011-03, Reconsideration of Effective Control for Repurchase Agreements, amends Topic 860 (Transfers and Servicing) where an entity may or may not recognize a sale upon the transfer of financial assets subject to repurchase agreements, based on whether or not the transferor has maintained effective control. In the assessment of effective control, Accounting Standard Update 2011-03 has removed the criteria that requires transferors to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee. Other criteria applicable to the assessment of effective control have not been changed. This guidance is effective for prospective periods beginning on or after December 15, 2011. Early adoption is prohibited. We do not expect the adoption of this Accounting Standard Update to have a material effect on the Company’s consolidated financial statements.
     In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU No. 2011-04 results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP and International Financial Reporting Standards (“IFRS”). The changes to U.S. GAAP as a result of ASU No. 2011-04 are as follows: (1) The concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets (that is, it does not apply to financial assets or any liabilities); (2) U.S. GAAP currently prohibits application of a blockage factor in valuing financial instruments with quoted prices in active markets. ASU No. 2011-04 extends that prohibition to all fair value measurements; (3) An exception is provided to the basic fair value measurement principles for an entity that holds a group of financial assets and financial liabilities with offsetting positions in market risk or counterparty credit risk that are managed on the basis of the entity’s net exposure to either of those risks. This exception allows the entity, if certain criteria are met, to measure the fair value of the net asset or liability position in a manner consistent with how market participants would price the net risk position; (4) Aligns the fair value measurement of instruments classified within an entity’s shareholders’ equity with the guidance for liabilities; and (5) Disclosure requirements have been enhanced for recurring Level 3 fair value measurements to disclose quantitative information about unobservable inputs and assumptions used, to describe the valuation processes used by the entity, and to describe the sensitivity of fair value measurements to changes in unobservable inputs and interrelationships between those inputs. In addition, entities must report the level in the fair value hierarchy of items that are not measured at fair value in the statement of condition but whose fair value must be disclosed. The provisions of ASU No. 2011-04 are effective for the Company’s interim reporting period beginning on or after December 15, 2011. The adoption of ASU No. 2011-04 is not expected to have a material effect on the Company’s consolidated financial statements.
     In June 2011, the FASB issued ASU No. 2011-05, “ Presentation of Comprehensive Income.” The provisions of ASU No. 2011-05 allow an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The statement(s) are required to be presented with equal prominence as the other primary financial statements. ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The provisions of ASU No. 2011-05 are effective for the Company’s interim reporting period beginning on or after December 15, 2011, with retrospective application required. The adoption of ASU No. 2011-05 is expected to result in presentation changes to the Company’s statements of income and the addition of a statement of comprehensive income. The adoption of ASU No. 2011-05 will have no affect on the Company’s balance sheets.
Note 11 — Subsequent Events
     On July 6, 2011, the Company provided notice to the manager of our premium finance division indicating that we are exercising our right to terminate the licensing agreement. We have been and continue to negotiate amendments to the licensing agreement. If we cannot reach an agreement there are two expected outcomes, either our existing premium finance loans will continue to receive contractual amortization until the loans are paid in full or we may sell the portfolio. At June 30, 2011, these loans had a carrying value of $59.0 million.
     On August 5, 2011, Standard and Poor’s lowered the United States of America’s long-term sovereign credit rating from “AAA” to “AA+.” This downgrade could affect the stability of residential mortgage-backed securities issued or guaranteed by government sponsored enterprises (GSEs). These factors could affect the liquidity or valuation of our current portfolio of residential mortgage-backed securities issued or guaranteed by GSEs, and could result in our counterparties requiring additional collateral for our borrowings. Further, unless and until the current United States political, credit and financial market conditions have been sufficiently resolved, it may increase our future borrowing costs.

33


Table of Contents

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Statement Regarding Forward-Looking Statements
     This Quarterly Report contains forward-looking statements, which can be identified by the use of words such as estimate, project, believe, intend, anticipate, plan, seek, and similar expressions. These forward looking statements include:
    statements of our goals, intentions, and expectations;
 
    statements regarding our business plans, prospects, growth, and operating strategies;
 
    statements regarding the asset quality of our loan and investment portfolios; and
 
    estimates of our risks and future costs and benefits.
     These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors that could affect the actual outcome of future events:
    the effect of the current financial economic downturn on our loan portfolio, investment portfolio, and deposit and other customers;
 
    significantly increased competition among depository and other financial institutions;
 
    inflation and changes in the interest rate environment or other changes that reduce our interest margins or reduce the fair value of financial instruments;
 
    general economic conditions, either nationally or in our market areas, that are worse than expected;
 
    adverse changes in the securities markets;
 
    legislative or regulatory changes that adversely affect our business;
 
    our ability to enter new markets successfully and take advantage of growth opportunities, and the possible dilutive effect of potential acquisitions or de novo branches, if any;
 
    changes in consumer spending, borrowing and savings habits;
 
    changes in accounting policies and practices, as may be adopted by bank regulatory agencies, the Financial Accounting Standards Board, the Public Company Accounting Oversight Board and other promulgating authorities;
 
    inability of borrowers and/or third-party providers to perform their obligations to us;
 
    the effect of recent governmental legislation restructuring the U.S. financial and regulatory system;
 
    the effect of developments in the secondary market affecting our loan pricing;
 
    the level of future deposit insurance premiums; and
 
    changes in our organization, compensation, and benefit plans.
     Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
Critical Accounting Policies
     Note 1 to the Company’s Audited Consolidated Financial Statements for the year ended December 31, 2010, 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 loan losses and judgments regarding the valuation of intangible assets and securities as well as 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 difficult and 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. For a further discussion of the critical accounting policies of

34


Table of Contents

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 December 31, 2010.
Overview
     This overview highlights selected information and may not contain all the information that is important to you in understanding our performance during the period. 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 ended December 31, 2010.
     Net income amounted to $4.3 million and $9.3 million for the three and six months ended June 30, 2011, as compared to $4.2 million and $7.6 million for the three and six months ended June 30, 2010. Basic and diluted earnings per share were $0.11 and $0.23 for the three and six months ended June 30, 2011, compared to $0.10 and $0.18 for the three and six months ended June 30, 2010. For the three and six months ended June 30, 2011, our return on average assets was 0.75% and 0.82%, as compared to 0.80% and 0.74% for the three and six months ended June 30, 2010. For the three and six months ended June 30, 2011, our return on average shareholders’ equity was 4.40% and 4.74%, as compared to 4.23% and 3.86% for the three and six months ended June 30, 2010.
     We increased our assets by 2.7% to $2.31 billion at June 30, 2011, from $2.25 billion at December 31, 2010. The increase in total assets reflected increases in loans held for investment, net, of $75.0 million, or 9.1% and interest-bearing deposits in other financial institutions of $18.2 million, or 53.5% these significant increases were partially offset by decreases in our security portfolio. The increase in our total assets during 2011 was funded primarily by an increase in deposits and borrowings. Deposits increased $75.7 million to $1.45 billion at June 30, 2011, from $1.37 billion at December 31, 2010. The increase in deposits was attributable to growth in transaction accounts and certificates of deposit issued by the Bank. Borrowed funds increased $53.3 million to $444.5 million at June 30, 2011, from $391.2 million at December 31, 2010.
Comparison of Financial Condition at June 30, 2011, and December 31, 2010
     Total assets increased $60.4 million, or 2.7%, to $2.31 billion at June 30, 2011, from $2.25 billion at December 31, 2010. The increase was primarily attributable to increases in loans held for investment, net, of $75.0 million, or 9.1% and interest-bearing deposits in other financial institutions of $18.2 million, or 53.5%.
     Cash and cash equivalents increased $19.1 million, or 43.5%, to $62.9 million at June 30, 2011, from $43.9 million at December 31, 2010. The Company routinely maintains liquid assets in interest-bearing accounts in other well-capitalized financial institutions.
     Securities available-for-sale decreased $32.0 million, or 2.6%, to $1.21 billion at June 30, 2011, from $1.24 billion at December 31, 2010. The decrease was primarily attributable to maturities and paydowns of $198.4 million, and sales of $115.8 million, partially offset by purchases of $273.4 million and an increase of $7.9 million in net unrealized gains.
     Securities held-to-maturity decreased $639,000, or 12.6%, to $4.4 million at June 30, 2011, from $5.1 million at December 31, 2010. The decrease was attributable to maturities and paydowns during the six months ended June 30, 2011.
     The Company’s securities portfolio totaled $1.22 billion at June 30, 2011, compared to $1.25 billion at December 31, 2010. At June 30, 2011, $1.05 billion of the portfolio consisted of residential mortgage-backed securities issued or guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. The Company also held residential mortgage-backed securities not guaranteed by these three entities, referred to as “private label securities.” The private label securities had an amortized cost of $48.3 million and an estimated fair value of $49.8 million at June 30, 2011. These private label securities were in a net unrealized gain position of $1.5 million at June 30, 2011, consisting of gross unrealized gains of $2.3 million and gross unrealized losses of $759,000. In addition to the above mortgage-backed securities, the Company held $104.5 million in securities issued by corporate entities which were all rated investment grade at June 30, 2011, and $9.2 million of equity investments in mutual funds, which focus on investments that qualify under the Community Reinvestment Act and money market mutual funds.
     Of the $48.3 million of private label securities, two securities with an estimated fair value of $9.0 million (amortized cost of $9.8 million) were rated less than investment grade at June 30, 2011. One of the two securities was rated CC and the other security was rated Caa2. The ratings of the securities detailed above represent the lowest

35


Table of Contents

rating for each 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 these securities. 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 the securities rated rate below investment grade at June 30, 2011. As a result of management’s evaluation of these securities, the Company recognized other-than-temporary impairment of $991,000 on the securities rated below investment grade for the quarter ended June 30, 2011. Since management does not have the intent to sell the security, and believes it is more likely than not that the Company will not be required to sell the security, before its anticipated recovery, the credit component of $248,000 was recognized in earnings for the quarter ended June 30, 2011, and the non-credit component of $743,000 was recorded as a component of accumulated other comprehensive income, net of tax. All other losses within the Company’s investment portfolio were deemed to be temporary at June 30, 2011, and as such, were recorded as a component of accumulated other comprehensive income, net of tax.
     During the three months ended March 31, 2011, the Company recognized an other-than-temporary impairment charge on an equity investment in a mutual fund. The investment had been in a continuous loss position for approximately ten months, and as a result of management’s evaluation of this security, the Company believed that the unrealized loss of $161,000 was other-than-temporary, and as such, recognized this charge in earnings during the three months ended March 31, 2011. There was no further impairment during the three months ended June 30, 2011.
     Loans held for investment, net, totaled $902.6 million at June 30, 2011, as compared to $827.6 million at December 31, 2010. The increase was primarily in multi-family real estate loans, which increased $74.5 million, or 26.3%, to $358.1 million at June 30, 2011, from $283.6 million at December 31, 2010. Insurance premium loans increased $14.5 million, or 32.6%, to $59.0 million, and home equity loans increased $2.1 million, or 7.4%, to $30.2 million at June 30, 2011. These increases were partially offset by decreases in commercial real estate, one-to-four family residential, land and construction, and commercial and industrial loans. Currently, management is focused on originating multi-family loans, with less emphasis on other loan types, considering risk profile, market demand, and related financial returns.
     Bank owned life insurance increased $1.5 million, or 2.0%, from December 31, 2010 to June 30, 2011. The increase resulted from income earned on bank owned life insurance for the six months ended June 30, 2011.
     Federal Home Loan Bank of New York stock, at cost, decreased $1.2 million, or 11.8%, to $8.6 million at June 30, 2011, from $9.8 million at December 31, 2010. This decrease was attributable to a decrease in borrowings outstanding with the Federal Home Loan Bank of New York over the same time period.
     Premises and equipment, net, increased $1.5 million, or 9.0%, to $17.5 million at June 30, 2011, from $16.1 million at December 31, 2010. This increase is primarily attributable to leasehold improvements made to new branches and the renovation of existing branches.
     Other real estate owned decreased $53,000, or 31.0%, to $118,000 at June 30, 2011, from $171,000 at December 31, 2010. This decrease is attributable to the sales of several properties during the six months ended June 30, 2011.
     Other assets decreased $17,000, or 0.1%, to $18.0 million at June 30, 2011, from $18.1 million at December 31, 2010. The decrease in other assets was attributable to a decrease in amounts due to us from taxing authorities, and a decrease in prepaid FDIC insurance premiums due to amortization related to the FDIC prepayment of insurance premiums that was made in 2009 partially offset by an increase in prepaid expenses.
     The increase in deposits for the six months ended June 30, 2011 was due in part to an increase of certificates of deposit (issued by the Bank) of $92.7 million, or 19.1% as compared to December 31, 2010. In addition, transaction accounts increased $18.5 million, or 9.9%, from December 31, 2010 to June 30, 2011. These increases were partially offset by a decrease of $5.2 million in total savings deposits, and a decrease of $30.2 million in short-term certificates of deposit originated through the CDARS® Network. Deposits originated through the CDARS® Network totaled $38.2 million at June 30, 2011, and $68.4 million at December 31, 2010. The Company utilizes the CDARS® Network as a cost effective alternative to other short-term funding sources.
     Borrowings, consisting primarily of Federal Home Loan Bank advances and repurchase agreements, increased $53.3 million, or 13.6%, to $444.5 million at June 30, 2011, from $391.2 million at December 31, 2010.

36


Table of Contents

The increase in borrowings was primarily the result of the Company taking advantage of the current lower interest rate market to reduce interest rate risk, partially offset by maturities during the six months ended June 30, 2011.
     Accrued expenses and other liabilities decreased $71.2 million, to $14.4 million at June 30, 2011, from $85.7 million at December 31, 2010. The decrease was primarily a result of a decrease in due to securities brokers.
     Total stockholders’ equity increased by $1.5 million to $398.2 million at June 30, 2011, from $396.7 million at December 31, 2010. The increase was primarily due to net income of $9.3 million for the six months ended June 30, 2011, and an increase of $1.8 million in additional paid-in capital primarily related to the recognition of compensation expense associated with equity awards, and an increase in accumulated other comprehensive income of $4.7 million for the six months ended June 30, 2011. These increases were partially offset by $12.8 million in stock repurchases and the payment of approximately $1.8 million in cash dividends.
     On October 27, 2010, the Board of Directors of the Company authorized a stock repurchase program pursuant to which the Company intends to repurchase up to 2,177,033 shares, representing approximately 5% of its then outstanding shares. The timing of the repurchases will depend on certain factors, including but not limited to, market conditions and prices, the Company’s liquidity and capital requirements, and alternative uses of capital. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. The Company is conducting such repurchases in accordance with a Rule 10b5-1 trading plan. As of June 30, 2011, a total of 1,127,096 shares were purchased under this repurchase plan at a weighted average cost of $13.44 per share.
Comparison of Operating Results for the Three Months Ended June 30, 2011 and 2010
     Net income Net income increased $161,000, or 3.9%, to $4.3 million for the quarter ended June 30, 2011, as compared to $4.2 million for the quarter ended June 30, 2010, due primarily to an increase of $324,000 in non-interest income, and a $1.0 million decrease in the provision for loan losses, partially offset by a decrease in net interest income of $88,000 and an increase of $1.1 million in non-interest expense.
     Interest income. Interest income increased $406,000, or 1.8%, to $22.4 million for the three months ended June 30, 2011, from $22.0 million for the three months ended June 30, 2010. The increase was primarily due to an increase in interest income on loans of $680,000 and an increase in interest income on mortgage backed securities of $431,000. The increase in interest income of loans and mortgage-backed securities can be attributed to an increase in the average balances of $119.1 million and $239.6 million, respectively. These increases in average balances were partially offset by decreases in the yield earned on loans and mortgage-backed securities of fifty-six basis points and sixty-four basis points, respectively. These increases were partially offset by a decrease of $780,000 in interest income on other securities. The decrease in the interest income earned on other securities was primarily attributable to a decrease in the average balance of $136.2 million.
     Interest expense. Interest expense increased $494,000, or 8.1%, to $6.6 million for the three months ended June 30, 2011, from $6.1 million for the three months ended June 30, 2010. The increase was comprised of an increase of $606,000 in interest expense on borrowings, partially offset by a decrease in interest expense on deposits of $112,000. The increase in interest expense on borrowings can be attributed to an increase in the average balances of borrowings of $179.8 million or 56.0% from $320.8 million for the three months ended June 30, 2010, as compared to $500.5 million for the three months ended June 30, 2011, partially offset by a decrease in the cost of seventy-four basis points from 3.42% to 2.68%. The decrease in interest expense on deposits can be attributed to a decrease in the cost of deposits of 7 basis points from 1.08% to 1.01%, partially offset by the increase in average balance of interest bearing deposit accounts of $48.6 million or 3.9% from $1.25 billion for the three months ended June 30, 2010, to $1.30 billion for the three months ended June 30, 2011.
     Net Interest Income. Net interest income decreased $88,000, or 0.6%, which is primarily attributable to a twenty-six basis point decrease in the net interest rate spread from 2.91% for the three months ended June 30, 2010, to 2.65% the three months ended June 30, 2011. Also the net interest margin decreased thirty-three basis points to 2.90% for the three months ended June 30, 2011, as compared to 3.23% for the three months ended June 30, 2010. The margin compressed due to a decrease in the average earning asset to average cost bearing liability ratio from 125.70% for the three months ended June 30, 2010, to 121.46% for the three months ending June 30, 2011 and the decrease in the net interest rate spread. The general decline in yields was due to the overall low interest rate environment and was driven by decreases in yields earned on mortgage-backed securities and loans, as principal repayments were reinvested into lower yielding securities and loans.

37


Table of Contents

     Provision for Loan Losses. The provision for loan losses was $1.8 million for the quarter ended June 30, 2011; a decrease of $1.0 million, or 37.5%, from the $2.8 million provision recorded in the quarter ended June 30, 2010. The decrease in the provision for loan losses in the current quarter was due primarily to a shift in the composition of our loan portfolio to multi-family loans, which generally require lower general reserves than other commercial real estate loans, and decreased levels of delinquencies. During the quarter ended June 30, 2011, the Company recorded net charge-offs of $245,000 compared to net charge-offs of $822,000 for the quarter ended June 30, 2010.
     Non-interest Income. Non-interest income increased $324,000, or 17.4%, to $2.2 million for the quarter ended June 30, 2011, as compared to $1.9 million for the quarter ended June 30, 2010. This increase was primarily a result of a $101,000 increase in gains on security sales, with $886,000 in gains on security sales for the current year quarter as compared to $785,000 for the comparable quarter in 2010, a $114,000 increase in fees and service charges for customer services, a $208,000 decrease in trading losses on securities maintained in the Company’s deferred compensation plan, and a $232,000 increase of income earned on bank owned life insurance, generated by increased cash surrender values, primarily resulting from higher levels of bank owned life insurance. The Company routinely sells securities when market pricing presents, in management’s assessment, an economic benefit that outweighs holding such securities, and when smaller balance securities become cost prohibitive to carry. These increases were partially offset by a $248,000 other-than-temporary credit impairment charge recognized on two private label mortgage-backed securities, and a decrease of $83,000 in other income.
     Non-interest Expense. Non-interest expense increased $1.1 million, or 13.3%, for the quarter ended June 30, 2011, as compared to the quarter ended June 30, 2010, due primarily to compensation and employee benefits expense increasing $840,000 which resulted primarily from increases in employees related to additional branch and operations personnel, and to a lesser extent, salary adjustments effective January 1, 2011. Occupancy expense increased $142,000, or 12.0%, over the same time period, primarily due to increases in rent and amortization of leasehold improvements relating to new branches and the renovation of existing branches. Professional fees increased $153,000, over the same time period, primarily due to increased costs related to loan workouts.
     Income Tax Expense. The Company recorded income tax expense of $2.3 million for the quarters ended June 30, 2011, and 2010. The effective tax rate for the quarter ended June 30, 2011, was 35.0%, as compared to 35.9% for the quarter ended June 30, 2010. The decrease in the effective tax rate was primarily a result of an increase in bank owned life insurance income.

38


Table of Contents

NORTHFIELD BANCORP, INC.
ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
                                                 
    For the Quarter Ended June 30,  
    2011     2010  
    Average             Average     Average             Average  
    Outstanding             Yield/ Rate     Outstanding             Yield/ Rate  
    Balance     Interest     (1)     Balance     Interest     (1)  
Interest-earning assets:
                                               
Loans (5)
  $ 876,389     $ 12,778       5.85 %   $ 757,240     $ 12,098       6.41 %
Mortgage-backed securities
    1,128,099       8,675       3.08       888,469       8,244       3.72  
Other securities
    119,161       787       2.65       255,392       1,567       2.46  
Federal Home Loan Bank of New York stock
    10,104       121       4.80       6,475       63       3.90  
Interest-earning deposits in financial institutions
    52,652       77       0.59       68,078       60       0.35  
 
                                       
Total interest-earning assets
    2,186,405       22,438       4.12       1,975,654       22,032       4.47  
Non-interest-earning assets
    141,330                       112,605                  
 
                                           
Total assets
    2,327,735                       2,088,259                  
 
                                           
 
                                               
Interest-bearing liabilities:
                                               
Savings, NOW, and money market accounts
    700,613       1,164       0.67       670,371       1,265       0.76  
Certificates of deposit
    598,932       2,106       1.41       580,565       2,117       1.46  
 
                                       
Total interest-bearing deposits
    1,299,545       3,270       1.01       1,250,936       3,382       1.08  
Borrowed funds
    500,548       3,339       2.68       320,783       2,733       3.42  
 
                                       
Total interest-bearing liabilities
    1,800,093       6,609       1.47       1,571,719       6,115       1.56  
Non-interest bearing deposit accounts
    120,352                       113,011                  
Accrued expenses and other liabilities
    10,723                       6,457                  
 
                                           
Total liabilities
    1,931,168                       1,691,187                  
Stockholders’ equity
    396,567                       397,072                  
 
                                           
Total liabilities and stockholders’ equity
    2,327,735                       2,088,259                  
 
                                           
 
                                               
 
                                           
Net interest income
          $ 15,829                     $ 15,917          
 
                                           
Net interest rate spread (2)
                    2.65                       2.91  
Net interest-earning assets (3)
  $ 386,312                     $ 403,935                  
 
                                           
Net interest margin (4)
                    2.90 %                     3.23 %
Average interest-earning assets to interest-bearing liabilities
                    121.46                       125.70  
 
(1)   Average yields and rates for the three months ended June 30, 2011 and 2010, are annualized.
 
(2)   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.
 
(3)   Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
 
(4)   Net interest margin represents net interest income divided by average total interest-earning assets.
 
(5)   Loans include non-accrual loans.

39


Table of Contents

Comparison of Operating Results for the Six Months Ended June 30, 2011 and 2010
     Net income Net income increased $1.8 million, or 23.1%, to $9.3 million for the six months ended June 30, 2011, as compared to $7.6 million for the six months ended June 30, 2010, due primarily to an increase of $1.7 million in non-interest income, an increase in net interest income of $1.1 million, and a $1.6 million decrease in the provision for loan losses, partially offset by an increase of $2.0 million in non-interest expense, and an increase of $746,000 in income tax expense.
     Interest income. Interest income increased $1.4 million, or 3.2%, to $44.4 million for the six months ended June 30, 2011, from $43.0 million for the six months ended June 30, 2010. The increase was primarily due to an increase in interest income on loans of $2.9 million. The increase in interest income of loans can be attributed to an increase in the average balances of $113.1 million partially offset by a decrease in the yield earned on loans of thirteen basis points. The increase in interest income earned on loans was partially offset by a decrease in interest income on mortgage-backed securities and other securities of $216,000 and $1.3 million, respectively. The decrease in interest income earned on mortgage-backed securities was primarily attributable to a decrease in the yield earned by eighty-one basis points partially offset by an increase in the average balance of $200.6 million. The decrease in interest earned on other securities was primarily attributable to a decrease in the average balances of $106.2 million partially offset by an increase of thirty-two basis points in the yield earned.
     Interest expense. Interest expense increased $263,000, or 2.1%, to $12.8 million for the six months ended June 30, 2011, from $16.6 million for the six months ended June 30, 2010. The increase was comprised of an increase of $1.3 million in interest expense on borrowings, partially offset by a decrease in interest expense on deposits of $1.0 million. The increase in interest expense on borrowings can be attributed to an increase in the average balances of borrowings of $180.0 million or 56.9% from $316.3 million for the six months ended June 30, 2010, as compared to $496.3 million for the six months ended June 30, 2011, partially offset by a decrease in the cost of sixty-eight basis points from 3.34% to 2.66%. The decrease in interest expense on deposits can be attributed to a decrease in the cost of deposits of nineteen basis points from 1.19% to 1.00%, partially offset by the increase in average balance of interest bearing deposit accounts of $29.6 million or 2.4% from $1.24 billion for the six months ended June 30, 2010, to $1.27 billion for the six months ended June 30, 2011.
     Net Interest Income. Net interest income increased $1.1 million or 3.7% from $30.5 million to $31.6 million for the six months ended June 30, 2011. This is primarily attributable to the increase in average earning assets of $192.6 million partially offset by a 10 basis point decrease in net interest rate spread from 2.80% for the six months ended June 30, 2010, to 2.70% the six months ended June 30, 2011. Net interest margin decreased eighteen basis points to 2.96% for the six months ended June 30, 2011, as compared to 3.14% for the six months ended June 30, 2010. The margin compressed slightly due to a decrease in the average earning asset to average cost bearing liability ratio from 125.97% for the six months ended June 30, 2010, to 121.92% for the six months ending June 30, 2011. The general decline in yields was due to the overall low interest rate environment and was driven by decreases in yields earned on mortgage-backed securities and loans, as principal repayments were reinvested into lower yielding securities and loans.
     Provision for Loan Losses. The provision for loan losses was $3.1 million for the six months ended June 30, 2011; a decrease of $1.6 million, or 34.1%, from the $4.7 million provision recorded in the six months ended June 30, 2010. The decrease in the provision for loan losses in the current six months was due primarily to a shift in the composition of our loan portfolio to multi-family loans, which generally require lower general reserves than other commercial real estate loans, and decreased levels of delinquencies. During the six months ended June 30, 2011, the Company recorded net charge-offs of $1.4 million compared to net charge-offs of $1.0 million for the six months ended June 30, 2010.
     Non-interest Income. Non-interest income increased $1.7 million, or 47.7%, to $5.3 million for the six months ended June 30, 2011, as compared to $3.6 million for the six months ended June 30, 2010. This increase was primarily a result of a $1.5 million increase in gains on security sales, with $2.5 million in gains on security sales for the current six months as compared to $1.1 million for the comparable six months in 2010, a $148,000 increase in fees and service charges for customer services, and a $550,000 increase in income earned on bank owned life insurance, generated by increased cash surrender values, primarily resulting from higher levels of bank owned life insurance. The Company routinely sells securities when market pricing presents, in management’s assessment, an economic benefit that outweighs holding such securities, and when smaller balance securities become cost prohibitive to carry. These increases were partially offset by a $409,000 other-than-temporary credit impairment charge recognized on two private label mortgage backed securities and an equity mutual fund and a decrease of $78,000 in other income.

40


Table of Contents

     Non-interest Expense. Non-interest expense increased $2.0 million, or 11.1%, for the six months ended June 30, 2011, as compared to the six months ended June 30, 2010, due primarily to compensation and employee benefits expense increasing $1.2 million which resulted primarily from increases in employees related to additional branch and operations personnel, and to a lesser extent, salary adjustments effective January 1, 2011. Occupancy expense increased $440,000, or 18.5%, over the same time period, primarily due to increases in rent and amortization of leasehold improvements relating to new branches and the renovation of existing branches. Professional fees increased $214,000, over the same time period, primarily due to increased costs related to loan workouts.
     Income Tax Expense. The Company recorded income tax expense of $4.9 million and $4.2 million for the six months ended June 30, 2011, and 2010, respectively. The effective tax rate for the six months ended June 30, 2011, was 34.6%, as compared to 35.6% for the six months ended June 30, 2010. The decrease in the effective tax rate was primarily a result of an increase in bank owned life insurance income, partially offset by an increase in taxable income.

41


Table of Contents

NORTHFIELD BANCORP, INC.
ANALYSIS OF NET INTEREST INCOME
(Dollars in thousands)
                                                 
    For the Six Months Ended June,  
    2011     2010  
    Average             Average     Average             Average  
    Outstanding             Yield/ Rate     Outstanding             Yield/ Rate  
    Balance     Interest     (1)     Balance     Interest     (1)  
Interest-earning assets:
                                               
Loans (5)
  $ 858,991     $ 25,252       5.93 %   $ 745,891     $ 22,391       6.05 %
Mortgage-backed securities
    1,099,390       17,092       3.14       898,788       17,308       3.88  
Other securities
    134,822       1,757       2.63       241,014       3,068       2.57  
Federal Home Loan Bank of New York stock
    10,469       230       4.43       6,272       158       5.08  
Interest-earning deposits in financial institutions
    47,708       105       0.44       66,826       114       0.34  
 
                                       
Total interest-earning assets
    2,151,380       44,436       4.17       1,958,791       43,039       4.43  
Non-interest-earning assets
    134,861                       111,381                  
 
                                           
Total assets
    2,286,241                       2,070,172                  
 
                                           
 
                                               
Interest-bearing liabilities:
                                               
Savings, NOW, and money market accounts
    697,955       2,298       0.66       654,026       2,685       0.83  
Certificates of deposit
    570,312       3,989       1.41       584,598       4,649       1.60  
 
                                       
Total interest-bearing deposits
    1,268,267       6,287       1.00       1,238,624       7,334       1.19  
Borrowed funds
    496,276       6,549       2.66       316,315       5,239       3.34  
 
                                       
Total interest-bearing liabilities
    1,764,543       12,836       1.47       1,554,939       12,573       1.63  
Non-interest bearing deposit accounts
    115,346                       111,335                  
Accrued expenses and other liabilities
    9,706                       8,278                  
 
                                           
Total liabilities
    1,889,595                       1,674,552                  
Stockholders’ equity
    396,646                       395,620                  
 
                                           
Total liabilities and stockholders’ equity
    2,286,241                       2,070,172                  
 
                                           
 
                                               
 
                                           
Net interest income
          $ 31,600                     $ 30,466          
 
                                           
Net interest rate spread (2)
                    2.70                       2.80  
Net interest-earning assets (3)
  $ 386,837                     $ 403,852                  
 
                                           
Net interest margin (4)
                    2.96 %                     3.14 %
Average interest-earning assets to interest-bearing liabilities
                    121.92                       125.97  
 
(1)   Average yields and rates for the six months ended June 30, 2011 and 2010, are annualized.
 
(2)   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.
 
(3)   Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
 
(4)   Net interest margin represents net interest income divided by average total interest-earning assets.
 
(5)   Loans include non-accrual loans.

42


Table of Contents

Asset Quality
     Nonperforming loans totaled $58.0 million (6.4% of total loans) as compared to $56.7 million (6.6% of total loans) at March 31, 2011, $60.9 million (7.4% of total loans) at December 31, 2010, $55.4 million (6.9% of total loans) at September 30, 2010, and $51.5 million (6.7% of total loans) at June 30, 2010. The following table also shows, for the same dates, troubled debt restructurings on which interest is accruing, and accruing loans delinquent 30 to 89 days (dollars in thousands).
                                         
    June 30,     March 31,     December 31,     September 30,     June 30,  
    2011     2011     2010     2010     2010  
Non-accruing loans
  $ 29,036       31,662       39,303       37,882       34,007  
Non-accruing loans subject to restructuring agreements
    26,994       24,136       19,978       17,261       17,417  
 
                             
Total non-accruing loans
    56,030       55,798       59,281       55,143       51,424  
Loans 90 days or more past due and still accruing
    1,987       876       1,609       248       77  
 
                             
Total non-performing loans
    58,017       56,674       60,890       55,391       51,501  
Other real estate owned
    118       521       171       171       1,362  
 
                             
Total non-performing assets
  $ 58,135       57,195       61,061       55,562       52,863  
 
                             
 
                                       
Loans subject to restructuring agreements and still accruing
  $ 15,622       12,259       11,198       11,218       10,708  
 
                                       
Accruing loans 30 to 89 days delinquent
  $ 14,169       14,551       19,798       35,190       30,619  
Total Non-Accruing Loans
     Total non-accruing loans decreased $3.3 million, to $56.0 million at June 30, 2011, from $59.3 million at December 31, 2010. This decrease was primarily attributable to the following loan types being returned to accrual status during the six months ended June 30, 2011: $1.8 million of multifamily loans, $942,000 of commercial real estate loans, and $332,000 of one-to-four family residential loans. Loans returned to accrual status were current as to principal and interest, and factors indicating doubtful collection no longer existed, including the borrower’s performance under the original loan terms for at least six months. Non-accrual loans also decreased as a result of a $612,000 of pay-offs., the transfer of a $376,000 commercial real estate loan to other real estate owned, an additional $1.4 million of charge-offs being recorded on existing and new non-accrual loans, and principal pay-downs of approximately $2.6 million. The above decreases in non-accruing loans during the six months ended June 30, 2011, were partially offset by the following loan types being placed on non-accrual status during the six months ended June 30, 2011: $1.9 million of commercial real estate loans, $676,000 of commercial and industrial loans, $405,000 of construction and land loans, home equity loans of $155,000, and $1.7 million of one-to-four family loans.
Delinquency Status of Total Non-accruing Loans
     Generally, loans are placed on non-accrual status when they become 90 days or more delinquent, and remain on non-accrual status until they are brought current, have a minimum of six months of performance under the loan terms, and factors indicating reasonable doubt about the timely collection of payments no longer exist. Therefore, loans may be current in accordance with their loan terms, or may be less than 90 days delinquent, and still be in a non-accruing status.

43


Table of Contents

     The following tables detail the delinquency status of non-accruing loans at June 30, 2011 and December 31, 2010 (dollars in thousands).
                                 
    June 30, 2011  
    Days Past Due        
    0 to 29     30 to 89     90 or more     Total  
Real estate loans:
                               
Commercial
  $ 25,237       3,986       15,647       44,870  
One -to- four family residential
    152       412       2,086       2,650  
Construction and land
    2,456             875       3,331  
Multifamily
                3,001       3,001  
Home equity and lines of credit
                337       337  
Commercial and industrial loans
    552             1,232       1,784  
Insurance premium loans
                57       57  
 
                       
Total non-accruing loans
  $ 28,397       4,398       23,235       56,030  
 
                       
                                 
    December 31, 2010
    Days Past Due    
    0 to 29   30 to 89   90 or more   Total
Real estate loans:
                               
Commercial
  $ 13,679       15,050       17,659       46,388  
One -to- four family residential
    135       770       370       1,275  
Construction and land
    2,152       1,860       1,110       5,122  
Multifamily
    1,824       927       2,112       4,863  
Home equity and lines of credit
                181       181  
Commercial and industrial loans
          267       1,056       1,323  
Insurance premium loans
                129       129  
     
Total non-accruing loans
  $ 17,790       18,874       22,617       59,281  
     
Loans Subject to Restructuring Agreements
     Included in non-accruing loans are loans subject to restructuring agreements totaling $27.0 million and $20.0 million at June 30, 2011, and December 31, 2010, respectively. At June 30, 2011, $25.5 million, or 94.4% of the $27.0 million were performing in accordance with their restructured terms.
     The Company also holds loans subject to restructuring agreements, and still accruing, which totaled $15.6 million and $11.2 million at June 30, 2011 and December 31, 2010, respectively. At June 30, 2011, $14.1 million, or 90.0% of the $15.6 million were performing in accordance with their restructured terms.
     The following table details the amounts and categories of the loans subject to restructuring agreements by loan type as of June 30, 2011 and December 31, 2010 (dollars in thousands).
                                 
    At June 30, 2011     At December 31, 2010  
    Non-Accruing     Accruing     Non-Accruing     Accruing  
Troubled debt restructurings:
                               
Real estate loans:
                               
Commercial
  $ 22,998     $ 10,770     $ 13,138     $ 7,879  
One- to four-family residential
    498       2,388             1,750  
Construction and land
    2,456             4,012        
Multifamily
    491       1,561       2,327       1,569  
Commercial and industrial
    551       903       501        
 
                       
Total
  $ 26,994     $ 15,622     $ 19,978     $ 11,198  
 
                       
 
                               
Performing in accordance with restructured terms
    94.40 %     90.00 %     61.03 %     100.00 %
 
                       

44


Table of Contents

Loans 90 Days or More Past Due and Still Accruing and Other Real Estate Owned
     Loans 90 days or more past due and still accruing increased to $378,000 from $1.6 million at December 31, 2010 to $2.0 million at June 30, 2011. Loans 90 days or more past due and still accruing at June 30, 2011, are considered well-secured and in the process of collection. Of the $2.0 million, $1.5 million made payments on July, 1, 2011, and $496,000 was past maturity, paying interest in accordance with original loan terms, and in the process of renewal.
     Other real estate owned amounted to $118,000 at June 30, 2011, as compared to $171,000 at December 31, 2010.
Delinquency Status of Accruing Loans 30-89 Days Delinquent
     Loans 30 to 89 days delinquent and on accrual status at June 30, 2011, totaled $14.2 million, a decrease of $5.6 million, from the December 31, 2010 balance of $19.8 million. The following tables set forth delinquencies for accruing loans by type and by amount at June 30, 2011 and December 31, 2010 (dollars in thousands).
                         
    June 30, 2011  
    30 to 89 Days     90 Days and Over     Total  
Real estate loans:
                       
Commercial
  $ 7,552     $ 496     $ 8,048  
One- to four-family residential
    1,586             1,586  
Construction and land
    500             500  
Multifamily
    3,704             3,704  
Home equity and lines of credit
    94       1,491       1,585  
Commercial and industrial loans
    137             137  
Insurance premium loans
    527             527  
Other loans
    69             69  
 
                 
Total delinquent accruing loans
  $ 14,169     $ 1,987     $ 16,156  
 
                 
                         
    December 31, 2010  
    30 to 89 Days     90 Days and Over     Total  
Real estate loans:
                       
Commercial
  $ 8,970     $     $ 8,970  
One- to four-family residential
    2,575       1,108       3,683  
Construction and land
    499       404       903  
Multifamily
    6,194             6,194  
Home equity and lines of credit
    262       59       321  
Commercial and industrial loans
    536       38       574  
Insurance premium loans
    660             660  
Other loans
    102             102  
 
                 
Total delinquent accruing loans
  $ 19,798     $ 1,609     $ 21,407  
 
                 

45


Table of Contents

     The following table sets forth the activity in our allowance for loan losses for the periods indicated.
                 
    At or For the Six Months Ended June 30,  
    2011     2010  
    (in thousands)  
Balance at beginning of period
  $ 21,819       15,414  
 
               
Charge-offs:
               
Real estate loans:
               
Commercial
    (1,198 )     (469 )
One- to- four family residential
           
Construction and land
          (443 )
Multifamily
    (25 )     (32 )
Home equity and lines of credit
           
Commercial and industrial loans
    (196 )     (36 )
Insurance premium loans
    (26 )     (40 )
Other loans
           
 
           
Total charge-offs
    (1,445 )     (1,020 )
 
               
Recoveries:
               
Commercial real estate loans
    6        
Commercial and industrial loans
    23          
 
           
Total recoveries
    29        
 
           
 
               
Net charge-offs
    (1,416 )     (1,020 )
 
               
Provisions (benefits) for loan losses:
               
Real estate loans:
               
Commercial
    1,884       3,961  
One- to- four family residential
    161       399  
Construction and land
    (734 )     145  
Multifamily
    702       781  
Home equity and lines of credit
    110       53  
Commercial and industrial loans
    169       (942 )
Insurance premium loans
    63       63  
Other loans
    16       11  
Unallocated
    746       257  
 
           
Total provisions for loan losses
    3,117       4,728  
 
           
 
               
Balance at end of period
  $ 23,520       19,122  
 
           

46


Table of Contents

Liquidity and Capital Resources
     Liquidity. The overall 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. We manage liquidity in order to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.
     Our 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 the proceeds from the sales of loans and securities and wholesale borrowings. The scheduled amortizations 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. Northfield Bank is a member of the Federal Home Loan Bank of New York (FHLB), which provides an additional source of short-term and long-term funding. Northfield Bank also has borrowing capabilities with the Federal Reserve on a short-term basis. The Bank’s borrowed funds, excluding capitalized lease obligations, were $442.3 million at June 30, 2011, at a weighted average interest rate of 2.91%. A total of $58.0 million of these borrowings will mature in less than one year. Borrowed funds, excluding capitalized lease obligations, were $389.3 million at December 31, 2010. The Company has the ability to obtain additional funding from the FHLB and Federal Reserve Bank discount window of approximately $543.7 million, utilizing unencumbered securities of $604.1 million at June 30, 2011. The Company expects to have sufficient funds available to meet current commitments in the normal course of business.
     Capital Resources. At June 30, 2011, and December 31, 2010, Northfield Bank exceeded all regulatory capital requirements to which it is subject.
                         
                    Minimum
                    Required to Be
            Minimum   Well Capitalized
            Required for   under Prompt
            Capital   Corrective
    Actual   Adequacy   Action
    Ratio   Purposes   Provisions
As of June 30, 2011:
                       
Tangible capital to tangible assets
    13.57 %     1.50 %   NA %
Tier 1 capital (core) — (to adjusted assets)
    13.57       4.00       5.00  
Total capital (to risk-weighted assets)
    27.51       8.00       10.00  
 
                       
As of December 31, 2010:
                       
Tangible capital to tangible assets
    13.43 %     1.50 %   NA %
Tier 1 capital (core) — (to adjusted assets)
    13.43       4.00       5.00  
Total capital (to risk-weighted assets)
    27.39       8.00       10.00  
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 with U.S. generally accepted accounting principles, are not recorded in the financial statements. These transactions primarily relate to lending commitments.

47


Table of Contents

     The following table shows the contractual obligations of the Company by expected payment period as of June 30, 2011:
                                         
                    One to less   Three to    
            Less than   than Three   less than   Five Years
Contractual Obligation   Total   One Year   Years   Five Years   and greater
    (in thousands)
Debt obligations (excluding capitalized leases)
  $ 442,300       58,000       170,800       201,500       12,000  
Commitments to originate loans
  $ 52,803       52,803                    
Commitments to fund unused lines of credit
  $ 31,085       31,085                    
     Commitments to originate loans and 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 generally have a fixed expiration or other termination clauses which may or may not 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.
     As of June 30, 2011, we serviced $46.9 million of loans 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 June 30, 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.
     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 ended December 31, 2010.

48


Table of Contents

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     A majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage-related assets and loans, generally have longer maturities than our liabilities, which consist primarily of deposits and wholesale funding. As a result, a principal part of our business strategy involves managing interest rate risk and limiting the exposure of our net interest income to changes in market interest rates. Accordingly, our board of directors has established a management asset liability committee, comprised of our Treasurer, who chairs this Committee, our Chief Executive Officer, our Chief Operating Officer/Chief Financial Officer, our Chief Lending Officer, and our Executive Vice President of Operations. This committee is responsible for, among other things, evaluating the interest rate risk inherent in our assets and liabilities, for recommending to the asset liability management committee of our board of director’s the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.
     We seek to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. As part of our ongoing asset-liability management, we currently use the following strategies to manage our interest rate risk:
    originating commercial real estate loans and multifamily loans that generally tend to have shorter maturities and higher interest rates that generally reset at five years;
 
    investing in shorter term investment grade corporate securities and mortgage-backed securities; and
 
    obtaining general financing through lower-cost deposits and longer-term Federal Home Loan Bank advances and repurchase agreements.
     Shortening the average term of our interest-earning assets by increasing our investments in shorter-term assets, as well as loans with variable interest rates, helps to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates.
     Net Portfolio Value Analysis. We compute amounts by which the net present value of our assets and liabilities (net portfolio value or “NPV”) would change in the event market interest rates changed over an assumed range of rates. Our simulation model uses a discounted cash flow analysis to measure the interest rate sensitivity of NPV. Depending on current market interest rates we estimate the economic value of these assets and liabilities under the assumption that interest rates experience an instantaneous and sustained increase of 100, 200, 300, or 400 basis points, or a decrease of 100 and 200 basis points, which is based on the current interest rate environment. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the “Change in Interest Rates” column below.
     Net Interest Income Analysis. In addition to NPV calculations, we analyze our sensitivity to changes in interest rates through our net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. In our model, we estimate what our net interest income would be for a twelve-month period. Depending on current market interest rates we then calculate what the net interest income would be for the same period under the assumption that interest rates experience an instantaneous and sustained increase or decrease of 100, 200, 300, or 400 basis points, or a decrease of 100 and 200 basis points, which is based on the current interest rate environment.

49


Table of Contents

     The table below sets forth, as of June 30, 2011, our calculation of the estimated changes in our NPV, NPV ratio, and percent change in net interest income that would result from the designated instantaneous and sustained changes in interest rates. Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied on as indicative of actual results (dollars in thousands).
                                                 
    NPV    
                                    Estimated    
Change in   Estimated   Estimated           Estimated   NPV/Present   Net Interest
Interest Rates   Present Value   Present Value   Estimated   Change In   Value of   Income Percent
(basis points)   of Assets   of Liabilities   NPV   NPV   Assets Ratio   Change
         
+400
  $ 2,086,473     $ 1,768,516     $ 317,957     $ (130,400 )     15.24 %     (19.50 )%
+300
    2,138,857       1,797,131       341,726       (106,631 )     15.98       (14.56 )
+200
    2,202,234       1,826,703       375,531       (72,826 )     17.05       (9.29 )
+100
    2,268,359       1,857,277       411,082       (37,275 )     18.12       (4.31 )
0
    2,337,255       1,888,898       448,357             19.18        
-100
    2,382,808       1,919,852       462,956       14,599       19.43       (0.94 )
-200
    2,409,315       1,937,627       471,688       23,331       19.58       (4.36 )
     The table above indicates that at June 30, 2011, in the event of a 300 basis point increase in interest rates, we would experience a 320 basis point decrease in NPV ratio (19.18% versus 15.98%), and a 14.56% decrease in net interest income. In the event of a 200 basis point decrease in interest rates, we would experience a 40 basis point increase in NPV ratio (19.18% versus 19.58%) and a 4.36% decrease in net interest income. Our policies provide that, in the event of a 300 basis point increase/decrease or less in interest rates, our net present value ratio should decrease by no more than 400 basis points and in the event of a 200 basis point increase/decrease, our projected net interest income should decrease by no more than 20%. Additionally, our policy states that our net portfolio value should be at least 8.5% of total assets before and after such shock. At June 30, 2011, we were in compliance with all board approved policies with respect to interest rate risk management.
     Certain shortcomings are inherent in the methodologies used in determining interest rate risk through changes in NPV and net interest income. Modeling requires making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the NPV and net interest income information presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assume that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although interest rate risk calculations provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual results.

50


Table of Contents

ITEM 4.   CONTROLS AND PROCEDURES
     An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2011. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
     During the quarter ended June 30, 2011, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

51


Table of Contents

PART II
ITEM 1.   LEGAL PROCEEDINGS
     The Company and subsidiaries are subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.
ITEM 1A.   RISK FACTORS
     United States political, credit and financial market conditions may negatively affect or impair the value of our current portfolio of residential mortgage-backed securities issued or guaranteed by Fannie Mae and Freddie Mac (GSEs).
     As a result of the uncertain domestic political, credit and financial market conditions, investments in these types of financial instruments pose increased risks arising from liquidity and credit concerns. Given that future deterioration in the United States credit and financial markets is a possibility, no assurance can be made that losses or significant deterioration in the fair value of our investments will not occur. Currently we have approximately $1.05 billion invested in residential mortgage-backed securities issued or guaranteed by GSEs. On August 5, 2011, Standard and Poor’s lowered the United States of America’s long-term sovereign credit rating from “AAA” to “AA+.” This downgrade could affect the stability of residential mortgage-backed securities issued or guaranteed by GSEs. These factors could affect the liquidity or valuation of our current portfolio of residential mortgage-backed securities issued or guaranteed by GSEs, and could result in our counterparties requiring additional collateral for our borrowings. Further, unless and until the current United States political, credit and financial market conditions have been sufficiently resolved, it may increase our future borrowing costs.
     Except as disclosed above or in documents we have previously filed with the SEC, there have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2010, as filed with the SEC.
ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  (a)   Unregistered Sale of Equity Securities. There were no sales of unregistered securities during the period covered by this report.
 
  (b)   Use of Proceeds. Not applicable
 
  (c)   Repurchases of Our Equity Securities.
 
      The following table shows the Company’s repurchase of its common stock for each calendar month in the three months ended June 30, 2011.
                                 
                    (c) Total Number of        
                    Shares Purchased     (d) Maximum Number  
    (a) Total Number     (b) Average     as Part of Publicly     of Shares that May Yet  
    of Shares     Price Paid per     Announced Plans     Be Purchased Under  
Period   Purchased     Share     or Programs (1)     Plans or Programs (1)  
April 1, 2011, through April 30, 2011
    274,043     $ 13.72       274,043       1,321,423  
May 1, 2011, through May 31, 2011
    121,070       13.70       120,250       1,201,173  
June 1, 2011, through June 30, 2011
    151,553       13.81       151,236       1,049,937  
 
                           
Total
    546,666     $ 13.74       545,529          
 
                           
 
(1)   On October 27, 2010, the Board of Directors of the Company authorized a stock repurchase program pursuant to which the Company intends to repurchase up to 2,177,033 shares, representing approximately 5% of its then outstanding shares. The timing of the repurchases will depend on certain factors, including but not limited to, market conditions and prices, the Company’s liquidity and capital requirements, and

52


Table of Contents

    alternative uses of capital. Any repurchased shares will be held as treasury stock and will be available for general corporate purposes. The Company is conducting such repurchases in accordance with a Rule 10b5-1 trading plan.
    As of June 30, 2011, under its current repurchase plan, the Company has repurchased 1,127,096 shares of its stock at an average price of $13.44 per share. The Company has repurchased a total of 3,211,040 shares of its common stock (under its current and prior repurchase plans) at an average price of $12.49 per share.
ITEM 3.   DEFAULTS UPON SENIOR SECURITIES
     None
ITEM 4.   [REMOVED AND RESERVED]
ITEM 5.   OTHER INFORMATION
     None
ITEM 6.   EXHIBITS
     The exhibits required by Item 601 of Regulation S-K are included with this Form 10-Q and are listed on the “Index to Exhibits” immediately following the Signatures.

53


Table of Contents

SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  NORTHFIELD BANCORP, INC.
(Registrant)  
 
 
Date: August 9, 2011

   
  /s/ John W. Alexander    
  John W. Alexander   
  Chairman, President and Chief Executive Officer   
 
     
  /s/ Steven M. Klein    
  Steven M. Klein   
  Chief Operating Officer and Chief Financial Officer (Principal Financial and Accounting Officer)   
 

54


Table of Contents

INDEX TO EXHIBITS
     
Exhibit    
Number   Description
 
31.1
  Certification of John W. Alexander, Chairman, President and Chief Executive Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
 
   
31.2
  Certification of Steven M. Klein, Chief Operating Officer and Chief Financial Officer, Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
 
   
32
  Certification of John W. Alexander, Chairman, President and Chief Executive Officer, and Steven M. Klein, Chief Operating Officer and Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

55