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Northfield Bancorp, Inc. Announces Fourth Quarter and Year End 2020 Results
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NOTABLE ITEMS INCLUDE:
FOURTH QUARTER 2020
DILUTED EARNINGS PER SHARE OF $0.26 FOR THE FOURTH QUARTER OF 2020, COMPARED TO $0.17 FOR THE THIRD QUARTER OF 2020, AND $0.21 FOR THE FOURTH QUARTER OF 2019
Current quarter results reflect a net decrease of $0.03 per diluted share related to $2.2 million ($1.6 million after-tax) in occupancy costs attributable to branch consolidations
Third quarter results reflect a net decrease of $0.06 per diluted share related to $3.9 million ($2.9 million after-tax) in merger-related expenses, primarily change in control payments, legal and advisory fees, and technology contract termination charges associated with the acquisition of VSB BANCORP, INC. ("Victory'')
NET INTEREST MARGIN INCREASED 33 BASIS POINTS TO 2.83% FOR THE CURRENT QUARTER AS COMPARED TO 2.50% FOR THE TRAILING QUARTER, AND 38 BASIS POINTS AS COMPARED TO 2.45% FOR THE FOURTH QUARTER OF 2019
ORIGINATED LOANS, NET, EXCLUDING LOANS ORIGINATED UNDER THE PAYCHECK PROTECTION PROGRAM ("PPP"), INCREASED $138.6 MILLION, OR 17.9% ANNUALIZED, DRIVEN BY MULTIFAMILY LOAN GROWTH
LOAN DEFERRALS REDUCED FROM $105.6 MILLION, OR 2.8%, OF TOTAL LOANS AT SEPTEMBER 30, 2020, TO $31.3 MILLION, OR 0.8%, AT DECEMBER 31, 2020 (EXCLUDES LOANS HELD-FOR-SALE)
ENHANCED SHAREHOLDER VALUE WITH $10.3 MILLION IN STOCK REPURCHASES
CASH DIVIDEND OF $0.11 PER SHARE DECLARED ON COMMON STOCK, PAYABLE FEBRUARY 24, 2021, TO STOCKHOLDERS OF RECORD AS OF FEBRUARY 10, 2021
FULL YEAR 2020
DILUTED EARNINGS PER SHARE OF $0.76 AND $0.85, RESPECTIVELY, FOR 2020 AND 2019
2020 full year results reflect a net decrease of $0.19 per diluted share related to:
$8.0 million ($5.8 million after tax) in incremental loan loss provisions related to an increase in estimated loss factors associated with the COVID-19 pandemic
$4.3 million ($3.3 million after tax) in merger-related expenses associated with the Victory acquisition; and
$2.2 million ($1.6 million after tax) in occupancy costs related to branch consolidations; partially offset by:
$665,000 ($479,000 after tax) in gains on loans sold; and a
$618,000 ($445,000 after-tax) reduction in the allowance for loan losses related to the sale of loans
NET INTEREST MARGIN INCREASED SIX BASIS POINTS TO 2.61%
NON-PERFORMING LOANS TO TOTAL LOANS WAS 0.77% AT DECEMBER 31, 2020 (INCLUDES LOANS HELD-FOR-SALE) AS COMPARED TO 0.29% AT DECEMBER 31, 2019
ACQUISITION OF VICTORY COMPLETED ON JULY 1, 2020, WHICH ADDED TOTAL ASSETS OF $403.0 MILLION, LOANS OF $180.4 MILLION, AND DEPOSITS OF $354.6 MILLION
THROUGH DECEMBER 31, 2020, ORIGINATED OVER 1,400 PPP LOANS TOTALING $148.5 MILLION (INCLUDES 395 PPP LOANS FROM VICTORY TOTALING $30.0 MILLION)
We received loan processing fees of approximately $5.3 million of which $1.9 million has been recognized in earnings through December 31, 2020. The remaining fees will be amortized over the remaining lives of the loans
WOODBRIDGE, N.J., Jan. 27, 2021 (GLOBE NEWSWIRE) -- NORTHFIELD BANCORP, INC. (Nasdaq:NFBK), the holding company for Northfield Bank, reported diluted earnings per common share of $0.26 and $0.76 for the quarter and year ended December 31, 2020, respectively, as compared to $0.21 and $0.85 per diluted share for the quarter and year ended December 31, 2019, respectively. Earnings for the quarter and year ended December 31, 2020, reflected $1.6 million, after tax, in occupancy costs related to branch consolidations. Additionally, earnings for the year ended December 31, 2020, reflected merger-related expenses of $3.3 million, after tax, and incremental loan loss provisions of $5.8 million, after tax, primarily related to increases in estimated loss factors associated with the Coronavirus Disease 2019 (“COVID-19”) pandemic. Partially offsetting these charges, was a gain on sale of loans of $479,000, after tax, and a corresponding reduction in loan loss provisions of $445,000, after tax, in the second quarter of 2020. Earnings for the quarter and year ended December 31, 2019, included $1.0 million and $3.4 million, respectively, of tax-exempt income from bank owned life insurance proceeds in excess of the cash surrender value of the policies. Additionally, earnings for the year ended December 31, 2019, included $1.6 million, after tax, of income related to a recovery on a loan previously charged-off.
Commenting on the fourth quarter and annual results, Steven M. Klein, the Company’s President and Chief Executive Officer noted, “Our team’s commitment to community service selflessly focused on our customers, ensured much needed access to loans, economic impact payments, and critical deposit services through our branch network and digital platforms.” Mr. Klein further noted, “Our strategic initiatives continue to produce prudent loan and low cost deposit growth, resulting in increased net interest margins and net interest income. In combination with disciplined expense management, we continued to invest in customer focused technology solutions, team member training and development, and promotion of our community bank brand.”
Mr. Klein further noted, “I am pleased to announce that the Board of Directors has declared a cash dividend of $0.11 per common share, payable February 24, 2021, to stockholders of record on February 10, 2021.”
Results of Operations
Comparison of Operating Results for the Years Ended December 31, 2020 and 2019
Net income was $37.0 million and $40.2 million for the years ended December 31, 2020 and December 31, 2019, respectively. Significant variances from the prior year are as follows: an $18.0 million increase in net interest income, a $12.7 million increase in the provision for loan losses, a $3.3 million decrease in non-interest income, and a $5.0 million increase in non-interest expense.
Net interest income for the year ended December 31, 2020, increased $18.0 million, or 16.1%, to $129.8 million, from $111.8 million for the year ended December 31, 2019, primarily due to a $580.5 million, or 13.2%, increase in average interest-earning assets as well as a six basis point increase in net interest margin to 2.61% from 2.55%. The increase in average interest-earning assets was due to increases in average loans outstanding of $324.9 million, average mortgage-backed securities of $237.3 million, average interest-earning deposits in financial institutions of $100.7 million, and average Federal Home Loan Bank of New York (“FHLBNY”) stock of $1.8 million, partially offset by decreases in average other securities of $84.3 million. The increase in net interest margin was primarily due to the decrease in the cost of interest-bearing liabilities outpacing the decrease in yields on interest earning assets. Yields on interest earning assets decreased 38 basis points to 3.38% for the year ended December 31, 2020, from 3.76% for the year ended December 31, 2019. The cost of interest bearing liabilities decreased by 53 basis points to 0.98% for the year ended December 31, 2020, from 1.51% for the year ended December 31, 2019, driven by lower costs of deposits and borrowed funds. Lower market interest rates continue to negatively impact earning asset yields, but these declines have been largely mitigated by lower cost of funds. Net interest income for the year ended December 31, 2020, included loan prepayment income of $2.2 million as compared to $1.6 million for the year ended December 31, 2019. Also included in net interest income for the year ended December 31, 2020, are PPP fees of approximately $1.9 million. Included in net interest income for the year ended December 31, 2019, is $314,000 of interest income recorded on the pay-off of a non-accrual loan.
The provision for loan losses increased by $12.7 million for the year ended December 31, 2020, compared to a provision of $22,000 for the year ended December 31, 2019. The increase in the provision for loan losses was primarily due to increases in the qualitative factors used in determining the adequacy of the allowance for loan losses related to unemployment, loan risk rating changes and increased risks related to loans on forbearance, resulting from economic uncertainty attributable to the COVID-19 pandemic, and higher charge-offs. Year-over-year loan growth also contributed to the increase in the provision. Net charge-offs were $3.8 million for the year ended December 31, 2020, as compared to net recoveries of $1.2 million for the year ended December 31, 2019.
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, a stimulus package signed into law on March 27, 2020, to address economic disruption caused by the COVID-19 pandemic, provided financial institutions with the option to defer adoption of the Financial Accounting Standards Board's Accounting Standard Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) until the earlier of the end of the pandemic or December 31, 2020. On December 27, 2020, the Consolidations Appropriations Act extended this relief to the earlier of the first day of an entity's fiscal year after the date the national emergency terminates or January 1, 2022. The Company has elected to defer adoption of ASU No. 2016-13 and its Current Expected Credit Loss methodology (“CECL”) to January 1, 2021.
Non-interest income decreased $3.3 million, or 22.5%, to $11.5 million for the year ended December 31, 2020, from $14.8 million for the year ended December 31, 2019, primarily due to decreases of: (i) $914,000 in fees and service charges for customer services, related to fees waived due to the COVID-19 pandemic, as well as a decline in overdrafts due to lower consumer spending; (ii) $3.2 million in income on bank owned life insurance, attributable to insurance proceeds in excess of the related cash surrender value of the policies; and (iii) $387,000 in gains on trading securities, net. For the year ended December 31, 2020, gains on trading securities were $1.6 million as compared to gains of $2.0 million for the year ended December 31, 2019. The trading portfolio is utilized to fund the Company’s deferred compensation obligation to certain employees and directors of the Company's deferred compensation plan (the “Plan”). The participants of this Plan, at their election, defer a portion of their compensation. Gains and losses on trading securities have no effect on net income since participants benefit from, and bear the full risk of, changes in the trading securities market values. Therefore, the Company records an equal and offsetting amount in compensation expense, reflecting the change in the Company’s obligations under the Plan. Partially offsetting the decreases was a $665,000 gain on the sale of a portfolio of multifamily loans in the quarter ended June 30, 2020, and an increase in other income of $1.4 million, primarily attributable to an increase in swap fee income.
Non-interest expense increased $5.0 million, or 6.7%, to $78.5 million for the year ended December 31, 2020, compared to $73.5 million for the year ended December 31, 2019. This is due primarily to a $1.9 million increase in employee compensation and benefits, related to change-in-control and severance compensation associated with the Victory acquisition, increased salary and benefit expenses due to the addition of Victory personnel, and increased medical benefit costs. Partially offsetting the increase was a decrease in expense related to the Company's deferred compensation plan, which is described above and has no effect on net income, and a decrease in equity award expense related to equity awards that fully vested in June 2019. Additionally, there was a $1.5 million increase in occupancy costs primarily attributable to costs associated with the consolidation of five branches, and to a lesser extent higher rent expense associated with additional branches from the Victory acquisition, and a $2.4 million increase in data processing costs, $1.3 million of which relates to a contract termination penalty associated with the completion of Victory's core systems conversion. Partially offsetting the increases was a $1.4 million decrease in advertising expense, due to fewer marketing campaigns in 2020, and an $820,000 decrease in other non-interest expense, primarily related to a decrease in directors' equity award expense associated with awards that fully vested in June 2019.
The Company recorded income tax expense of $13.0 million for the year ended December 31, 2020, compared to $12.8 million for the year ended December 31, 2019. The effective tax rate for the year ended December 31, 2020, was 26.1% compared to 24.1% for the year ended December 31, 2019. The higher effective tax rate for the year ended December 31, 2020, is primarily attributable to lower tax exempt income of $2.4 million from bank owned life insurance proceeds in excess of the cash surrender value of the policies received, compared to the prior year, and non-deductible merger-related expenses for the year ended December 31, 2020.
Comparison of Operating Results for the Three Months Ended December 31, 2020 and 2019
Net income was $13.1 million and $10.1 million for the quarters ended December 31, 2020, and December 31, 2019, respectively. Significant variances from the comparable prior year quarter are as follows: an $8.6 million increase in net interest income, a $1.7 million increase in the provision for loan losses, a $2.5 million increase in non-interest expense, and a $1.4 million increase in income tax expense.
Net interest income for the quarter ended December 31, 2020, increased $8.6 million, or 30.1%, primarily due to a $594.0 million, or 12.9%, increase in average interest-earning assets and a 38 basis point increase in net interest margin to 2.83% from 2.45% for the quarter ended December 31, 2019. The increase in average interest-earning assets was due to increases in average loans outstanding of $326.7 million, average mortgage-backed securities of $207.1 million, and average interest-earning deposits in financial institutions of $132.7 million, partially offset by decreases of $66.0 million in average other securities and $6.6 million in average FHLBNY stock.
The increase in net interest margin was primarily due to the decrease in the cost of interest-bearing liabilities outpacing the decrease in yields on interest earning assets. Yields on interest earning assets decreased 38 basis points to 3.29% for the quarter ended December 31, 2020, from 3.67% for the quarter ended December 31, 2019. The cost of interest-bearing liabilities decreased 90 basis points to 0.60% for the quarter ended December 31, 2020, from 1.50% for the quarter ended December 31, 2019, driven by lower costs of deposits and borrowed funds. Net interest income for the quarter ended December 31, 2020, included loan prepayment income of $1.1 million as compared to $362,000 for the quarter ended December 31, 2019. Additionally, net interest income for the quarter ending December 31, 2020, included PPP fees of approximately $1.1 million.
The provision for loan losses increased by $1.7 million to $2.5 million for the quarter ended December 31, 2020, from $772,000 for the quarter ended December 31, 2019. The increase in the provision for loan losses was primarily due to increases in the qualitative factors used in determining the adequacy of the allowance for loan losses related to unemployment, loan risk rating changes and increased risks related to loans on forbearance, resulting from economic uncertainty attributable to the COVID-19 pandemic, and higher charge-offs. Year-over-year loan growth also contributed to the increase in the provision. Net charge-offs were $3.6 million for the quarter ended December 31, 2020, compared to net charge-offs of $131,000 for the quarter ended December 31, 2019.
Non-interest income decreased $92,000, or 2.2%, to $4.1 million for the quarter ended December 31, 2020, from $4.2 million for the quarter ended December 31, 2019, primarily due to a decrease in income on bank owned life insurance of $813,000, attributable to insurance proceeds in excess of the related cash surrender values of the policies received in the quarter ended December 31, 2019, partially offset by an increase of $673,000 in gains on trading securities, net. For the quarter ended December 31, 2020, gains on trading securities, net, included gains of $1.2 million related to the Company’s trading portfolio, compared to gains of $531,000 in the comparative prior year quarter. The trading portfolio is utilized to fund the Company’s deferred compensation obligation to certain employees and directors of the Company's deferred compensation plan, and gains and losses on trading securities have no effect on net income since participants benefit from, and bear the full risk of, changes in the trading securities market values.
Non-interest expense increased by $2.5 million, or 13.1%, to $21.2 million for the quarter ended December 31, 2020, from $18.7 million for the quarter ended December 31, 2019. The increase was due primarily to an increase of $717,000 in compensation and employee benefits, related to an increase in deferred compensation plan expense, which as discussed above has no effect on net income, a $1.3 million increase in occupancy expense, primarily attributable to costs associated with branch consolidations, and to a lesser extent, higher rent expense associated with additional branches from the Victory acquisition, and a $531,000 increase in data processing costs due to additional accounts from growth in loans and deposits, and special projects.
The Company recorded income tax expense of $4.4 million for the quarter ended December 31, 2020, compared to $3.1 million for the quarter ended December 31, 2019. The effective tax rate for the quarter ended December 31, 2020, was 25.3% compared to 23.2% for the quarter ended December 31, 2019.
Comparison of Operating Results for the Three Months Ended December 31, 2020 and September 30, 2020
Net income was $13.1 million and $8.6 million for the quarters ended December 31, 2020, and September 30, 2020, respectively. Significant variances from the prior quarter are as follows: a $4.4 million increase in net interest income, a $2.3 million increase in the provision for loan losses, a $2.6 million decrease in non-interest expense, a $1.1 million increase in non-interest income, and a $1.3 million increase in income tax expense.
Net interest income for the quarter ended December 31, 2020, increased $4.4 million, or 13.6%, primarily due to a $24.3 million, or 0.5%, increase in average interest-earning assets, and a 33 basis point increase in net interest margin to 2.83% from 2.50% for the quarter ended September 30, 2020. The increase in average interest-earning assets was primarily due to an increase in average mortgage-backed securities of $88.1 million, offset by a decrease in average interest-earning deposits in financial institutions of $39.4 million, a decrease in average other securities of $8.8 million and a decrease in average loans outstanding of $15.4 million. The increase in net interest margin was primarily due to higher yields on interest-earning assets, which increased by 11 basis points to 3.29% for the quarter ended December 31, 2020, from 3.18% for the quarter ended September 30, 2020, and a decrease in the cost of interest-bearing liabilities, which decreased 27 basis points to 0.60% for the quarter ended December 31, 2020, from 0.87% for the quarter ended September 30, 2020. Net interest income for the quarter ended December 31, 2020, included loan prepayment income of $1.1 million, as compared to $91,000 for the quarter ended September 30, 2020. Net interest income for the quarter ended December 31, 2020, included PPP fee income of $1.1 million, as compared to $818,000 for the quarter ended September 30, 2020.
The provision for loan losses increased by $2.3 million to $2.5 million for the quarter ended December 31, 2020, from a provision of $165,000 for the quarter ended September 30, 2020. The increase was primarily due to increased loan growth and higher net-charge-offs, partially offset by an improvement in qualitative factors. Net charge-offs were $3.6 million for the quarter ended December 31, 2020 as compared to net recoveries of $31,000 for the quarter ended September 30, 2020.
Non-interest income increased by $1.1 million to $4.1 million for the quarter ended December 31, 2020, from $3.0 million for the quarter ended September 30, 2020. The increase was primarily due to increases of $163,000 in fees and service charges for customers, $245,000 in income on bank owned life insurance, $441,000 in gains on trading securities, net, and $177,000 in gains on available-for-sale debt securities, net. For the quarter ended December 31, 2020, gains on trading securities, net, included gains of $1.2 million related to the Company’s trading portfolio, compared to gains of $763,000 for the quarter ended September 30, 2020.
Non-interest expense decreased $2.6 million, or 10.9%, to $21.2 million for the quarter ended December 31, 2020, from $23.8 million for the quarter ended September 30, 2020, primarily due to a $2.9 million decrease in employee compensation and benefits related to change-in-control and severance compensation associated with the Victory acquisition in the quarter ended September 30, 2020, a $1.1 million decrease in data processing costs related to the contract termination penalty associated with the completion of Victory's core systems conversion in the quarter ended September 30, 2020, and a decrease in professional fees of $445,000. Partially offsetting the decreases was a $2.0 million increase in occupancy costs attributable to costs associated with branch consolidations.
The Company recorded income tax expense of $4.4 million for the quarter ended December 31, 2020, compared to $3.1 million for the quarter ended September 30, 2020. The effective tax rate for the quarter ended December 31, 2020, was 25.3% compared to 26.5% for the quarter ended September 30, 2020.
Financial Condition
Total assets increased $459.2 million, or 9.1%, to $5.51 billion at December 31, 2020, from $5.06 billion at December 31, 2019. The increase was primarily due to increases in total loans (held-for-investment, net, and held-for-sale) of $406.0 million, or 11.8%, available-for sale debt securities of $126.5 million, or 11.1%, and bank owned life insurance of $8.5 million. Partially offsetting these increases were decreases in cash and cash equivalents of $60.3 million, or 40.8%, and FHLBNY stock of $10.9 million, or 27.6%, and an increase in the allowance for loan losses of $8.9 million, or 31.0%.
As of December 31, 2020, we estimate that our non-owner occupied commercial real estate concentration (as defined by applicable regulatory guidance) to total risk-based capital was approximately 448.0%. Management believes that Northfield Bank (the Bank) has implemented appropriate risk management practices including risk assessments, board-approved underwriting policies and related procedures which include monitoring Bank portfolio performance, performing market analysis (economic and real estate), and stressing of the Bank’s commercial real estate portfolio under severe, adverse economic conditions. Although management believes the Bank has implemented appropriate policies and procedures to manage our commercial real estate concentration risk, the Bank’s regulators could require us to implement additional policies and procedures or could require us to maintain higher levels of regulatory capital, which might adversely affect our loan originations, ability to pay dividends, and profitability.
Cash and cash equivalents decreased by $60.3 million, or 40.8%, to $87.5 million at December 31, 2020, from $147.8 million at December 31, 2019, primarily due to a decrease in cash balances at the Federal Reserve Bank. Balances fluctuate based on the timing of receipt of security and loan repayments and the redeployment of cash into higher-yielding assets such as loans and securities, or the funding of deposit outflows or borrowing maturities.
Loans held-for-investment, net, increased $386.2 million to $3.82 billion at December 31, 2020, from $3.44 billion at December 31, 2019, primarily due to an increase in originated loans held-for-investment of $351.9 million, and $180.4 million of loans acquired from the Victory acquisition, partially offset by paydowns. Originated loans held-for-investment, net, totaled $3.34 billion at December 31, 2020, as compared to $2.99 billion at December 31, 2019. The increase was primarily due to an increase in multifamily real estate loans of $226.3 million, or 10.3%, to $2.42 billion at December 31, 2020, from $2.20 billion at December 31, 2019, and an increase in commercial and industrial loans of $104.2 million, or 229.9%, to $149.6 million December 31, 2020, from $45.3 million at December 31, 2019, primarily due to loans originated under the PPP authorized by the CARES Act. The PPP loans are administered by the Small Business Administration, which provides 100% federally guaranteed loans for small businesses to cover payroll, utilities, rent and interest. These small business loans may be forgiven if borrowers maintain their payrolls and satisfy certain other conditions for a period of time during the COVID-19 pandemic. As of December 31, 2020, we had originated over 1,000 loans, totaling approximately $118.5 million. PPP provides for lender processing fees that range from 1% to 5% of the final disbursement made to individual borrowers. As of December 31, 2020, we have received loan processing fees of $4.2 million, of which $1.6 million was recognized in earnings during 2020 and the remainder will be recognized in income over the remaining life of the loans. As part of the Victory acquisition, we acquired 395 PPP loans, totaling approximately $30.0 million. Loan processing fees totaling $1.1 million have been received, of which $276,000 has been recognized in earnings during 2020.
The following tables detail multifamily real estate originations for the years ended December 31, 2020 and 2019 (dollars in thousands):
For the Year Ended December 31, 2020
Multifamily Originations
Weighted Average Interest Rate
Weighted Average LTV Ratio
Weighted Average Months to Next Rate Change or Maturity for Fixed Rate Loans
northfield bancorp, inc. (staten island, ny) operates as the bank holding company for northfield bank that provides various banking services primarily to individuals and corporate customers. it accepts various deposits products, including certificates of deposit, passbook, statement, and money market savings accounts; transaction accounts comprising negotiable orders of withdrawal accounts, and interest and non-interest bearing checking accounts; individual retirement accounts; and brokered deposits. the company also offers various loans comprising multifamily and other commercial real estate loans, construction and land loans, commercial and industrial loans, one-to-four family residential real estate loans, and home equity loans and lines of credit. in addition, it purchases various investment securities, such as mortgage-backed securities and corporate bonds; and deposits funds in other financial institutions, as well as holds primarily mortgage loans and other investments. as of ja
