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NORTHFIELD BANCORP, INC. - 10-K/A - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
[April 24, 2014]

NORTHFIELD BANCORP, INC. - 10-K/A - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion should be read in conjunction with the Consolidated Financial Statements of Northfield Bancorp, Inc. and the Notes thereto included elsewhere in this report (collectively, the "Financial Statements").



Overview Net income was $19.1 million and $16.0 million for the years ended December 31, 2013 and 2012, respectively. Significant variances from the comparable prior year are as follows: a $6.6 million increase in net interest income, a $1.6 million decrease in the provision for loan losses, a $1.6 million increase in non-interest income, a $4.9 million increase in non-interest expense, and a $1.8 million increase in income tax expense.

Our assets decreased by 3.9% to $2.70 billion at December 31, 2013, from $2.81 billion at December 31, 2012. The decrease in total assets was primarily attributable decreases of $338.5 million, or 26.5%, in securities available-for-sale and $67.5 million in cash and cash equivalents. These decreases were somewhat offset by increases of $246.9 million in net loans held-for-investment, $32.1 million in bank owned life insurance and $19.0 million in other assets.


Our liabilities decreased by $411.7 million primarily due to a decrease in deposits by a $464.2 million to $1.49 billion at December 31, 2013, from $1.96 billion at December 31, 2012, partially offset by an increase in borrowed funds which increased by $51.2 million to $470.3 million at December 31, 2013, from $419.1 million at December 31, 2012. The decrease in deposits at December 31, 2013 from December 31, 2012, was $174.6 million, or 10.5%, after excluding the deposits of $289.6 million used to purchase stock in the second-step conversion in the first quarter of 2013.

Our stockholders' equity increased by 72.6% to $716.1 million at December 31, 2013, from $414.9 million at December 31, 2012. This increase was primarily attributable to a $330.1 million increase related to the net proceeds from the stock conversion, net income of $19.1 million for the year ended December 31, 2013, and a $5.4 million increase related to ESOP and equity award activity. These increases were partially offset by a $22.9 million decrease in accumulated other comprehensive income as a result of an increased interest rate environment, treasury share repurchases of $3.6 million, and dividend payments of $26.9 million, which included a special dividend of $14.5 million paid on May 22, 2013.

Critical Accounting Policies Critical accounting policies are defined as those that involve significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that the most critical accounting policies upon which our financial condition and results of operation depend, and which involve the most complex subjective decisions or assessments, are the following: Allowance for Loan Losses, Impaired Loans, and Other Real Estate Owned. The allowance for loan losses is the estimated amount considered necessary to cover probable and reasonably estimable credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses that is charged against income. In determining the allowance for loan losses, we make significant estimates and judgments. The determination of the allowance for loan losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses.

The allowance for loan losses has been determined in accordance with GAAP. We are responsible for the timely and periodic determination of the amount of the allowance required. We believe that our allowance for loan losses is adequate to cover identifiable losses, as well as estimated losses inherent in our portfolio for which certain losses are probable but not specifically identifiable.

Management performs a formal quarterly evaluation of the adequacy of the allowance for loan losses. This quarterly process is performed by the accounting department, in conjunction with the credit administration department, and approved by the Controller. The Chief Financial Officer performs a final review of the calculation. All supporting documentation with regard to the evaluation process is maintained by the accounting department. Each quarter a summary of the allowance for loan losses is presented by the Chief Financial Officer to the audit committee of the board of directors.

The analysis of the allowance for loan losses has a component for impaired loans held-for-investment, PCI loans, and a component for general loan losses, including unallocated reserves. Management has defined an impaired loan (excluding PCI loans) to be a loan for which it is probable, based on current information, that we will not collect all amounts due in accordance with the contractual terms of the loan agreement. We have defined the population of impaired loans to be all non-accrual loans with an outstanding balance of $500,000 or greater, and all loans subject to a troubled debt restructuring. Impaired loans are individually 46 -------------------------------------------------------------------------------- Table of Contents 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, 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, and could have a material effect on our financial results.

The second component of the allowance for loan losses is the general loss allocation. This assessment excludes impaired loans, trouble debt restructured, held-for-sale and purchased credit-impaired (PCI) loans, with loans being grouped into similar risk characteristics, primarily loan type, loan-to-value (if collateral dependent) and internal credit risk rating. We apply an estimated loss rate to each loan group. The loss rates applied are based on our loss experience as adjusted for our qualitative assessment of relevant changes related to: underwriting standards; delinquency trends; collection, charge-off and recovery practices; the nature or volume of the loan group; changes in lending staff; concentration of loan type; current economic conditions; and other relevant factors considered appropriate by management. 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 Deposit Insurance Corporation for institutions both nationally and in our market area, during periods that are believed to have been under similar economic conditions. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant revisions based on changes in economic and real estate market conditions. Actual loan losses may be significantly different than the allowance for loan losses we have established, and could have a material effect on our financial results. We also maintain an unallocated component related to the general loss allocation. Management does not target a specific unallocated percentage of the total general allocation, or total allowance for loan losses. The primary purpose of the unallocated component is to account for the inherent imprecision of the loss estimation process related primarily to periodic updating of appraisals on impaired loans, as well as periodic updating of commercial loan credit risk ratings by loan officers and our internal credit audit process. Generally, management will establish higher levels of unallocated reserves between independent credit audits, and between appraisal reviews for larger impaired loans. Adjustments to the provision for loans due to the receipt of updated appraisals is mitigated by management's quarterly review of real estate market index changes, and reviews of property valuation trends noted in current appraisals being received on other impaired and unimpaired loans. These changes in indicators of value are applied to impaired loans that are awaiting updated appraisals.

We have a concentration of loans secured by real property located in New York City, New Jersey, and Eastern Pennsylvania. As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisal valuations are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals are reviewed by management and an independent third-party appraiser to determine that the resulting values reasonably reflect amounts realizable on the collateral. Based on the composition of our loan portfolio, we believe the primary risks are increases in interest rates, a decline in the economy generally, or a decline in real estate market values in New York or New Jersey. Any one or a combination of these events may adversely affect our loan portfolio resulting in delinquencies, increased loan losses, and future loan loss provisions.

Although we believe we have established and maintained the allowance for loan losses at adequate levels, changes may be necessary if future economic or other conditions differ substantially from our estimation of the current operating environment. Although management uses the information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment and short-term change. In addition, the Office of the Comptroller of the Currency, as an integral part of their examination process, will review our allowance for loan losses and may require us to recognize adjustments to the allowance based on their judgments about information available to them at the time of their examination.

We also maintain an allowance for estimated losses on off-balance sheet credit risks related to loan commitments and standby letters of credit. Management utilizes a methodology similar to its allowance for loan loss methodology to estimate losses on these items. The allowance for estimated credit losses on these items is included in other liabilities and any changes to the allowance are recorded as a component of other non-interest expense.

Real estate acquired by us as a result of foreclosure or by deed in lieu of foreclosure is classified as other real estate owned. When we acquire other real estate owned, we generally obtain a current appraisal to substantiate the net carrying value of the asset. The asset is recorded at the lower of cost or estimated fair value, establishing a new cost basis. Holding costs and declines in estimated fair value result in charges to expense after acquisition.

47 -------------------------------------------------------------------------------- Table of Contents Purchased Credit-Impaired Loans. Purchased credit-impaired loans, or "PCI" loans, are subject to our internal credit review. If and when credit deterioration occurs at the loan pool level subsequent to the acquisition date, a provision for credit losses for PCI loans will be charged to earnings for the full amount of the decline in expected cash flows for the pool. Under the accounting guidance of ASC Topic 310-30, for acquired credit impaired loans, the allowance for loan losses on PCI loans is measured at each financial reporting date based on future expected cash flows. This assessment and measurement is performed at the pool level and not at the individual loan level. Accordingly, decreases in expected cash flows resulting from further credit deterioration, on a pool basis, as of such measurement date compared to those originally estimated are recognized by recording a provision and allowance for credit losses on PCI loans. Subsequent increases in the expected cash flows of the loans in each pool would first reduce any allowance for loan losses on PCI loans; and any excess will be accreted prospectively as a yield adjustment. The analysis of expected cash flows for pools incorporates updated pool level expected prepayment rates, default rates, and delinquency levels, and loan level loss severity given default assumptions. The expected cash flows are estimated based on factors which include loan grades established in Northfield Bank's ongoing credit review program, likelihood of default based on observations of specific loans during the credit review process as well as applicable industry data, loss severity based on updated evaluation of cash flows from available collateral, and the contractual terms of the underlying loan agreement. Actual cash flows could differ from those expected, and others provided with the same information could draw different reasonable conclusions and calculate different expected cash flows.

Goodwill and Other Intangibles. We record all assets and liabilities in acquisitions, including goodwill and other intangible assets, at fair value as of the acquisition date, and expense all acquisition related costs as incurred as required by ASC Topic 805, "Business Combinations." Goodwill totaling $16.2 million at December 31, 2013, is not amortized but is subject to annual tests for impairment or more often if events or circumstances indicate it may be impaired. Other intangible assets, such as core deposit intangibles, are amortized over their estimated useful lives and are subject to impairment tests if events or circumstances indicate a possible inability to realize the carrying amount. Such evaluation of other intangible assets is based on undiscounted cash flow projections. The initial recording of goodwill and other intangible assets requires subjective judgments concerning estimates of the fair value of the acquired assets and assumed liabilities.

The goodwill impairment analysis is generally a two-step test. However, we may, under Accounting Standards Update (ASU) No. 2011-08, "Testing Goodwill for Impairment," first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this new ASU, we are not required to calculate the fair value of our reporting unit if, based on a qualitative assessment, we determine that it was more likely than not that the unit's fair value was not less than its carrying amount.

During 2013, we elected to perform step one of the two-step goodwill impairment test for our reporting unit, but (under the ASU) we will be permitted to perform the optional qualitative assessment in future periods. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, an additional step must be performed. That additional step compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in a manner similar to the amount of goodwill calculated in a business combination, i.e., by measuring the excess of the estimated fair value of the reporting unit, as determined in the first step above, over the aggregate estimated fair values of the individual assets, liabilities, and identifiable intangibles, as if the reporting unit was being acquired in a business combination at the impairment test date. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. The loss establishes a new basis in the goodwill and subsequent reversal of goodwill impairment losses are not permitted.

Securities Valuation and Impairment. Our securities portfolio is comprised of mortgage-backed securities and to a lesser extent corporate bonds, agency bonds, and mutual funds. Our available-for-sale securities portfolio is carried at estimated fair value, with any unrealized gains or losses, net of taxes, reported as accumulated other comprehensive income or loss in stockholders' equity. Our trading securities portfolio is reported at estimated fair value. Our held-to-maturity securities portfolio, consisting of debt securities for which we have a positive intent and ability to hold to maturity, is carried at amortized cost. We conduct a quarterly review and evaluation of the available-for-sale and held-to-maturity securities portfolios to determine if the estimated fair value of any security has declined below its amortized cost, and whether such decline is other-than-temporary. If such decline is deemed other-than-temporary, we adjust the cost basis of the security by writing down the security to estimated fair value through a charge to current period operations. The estimated fair values of our securities are primarily affected by changes in interest rates, credit quality, and market liquidity.

Management is responsible for determining the estimated fair value of the securities in our portfolio. In determining estimated fair values, each quarter management utilizes the services of an independent third-party service, recognized as a specialist in pricing securities. 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, if identifiable. Where necessary, the independent third-party pricing service estimates fair value using models employing techniques such as discounted cash flow analyses. The assumptions used in these models typically include assumptions for interest rates, credit losses, and prepayments, utilizing observable market data, where available. Where the market price of the same or similar securities is not available, the valuation becomes more subjective and involves a high degree of judgment. In addition, we compare securities prices to a second independent pricing service that is utilized as part of our asset liability risk management process and analyze significant anomalies in pricing including significant fluctuations, or lack thereof, in relation to other securities. At December 31, 2013, and for each quarter end in 48 -------------------------------------------------------------------------------- Table of Contents 2013, all securities were priced by an independent third-party pricing service, and management made no adjustment to the prices received.

Determining that a security's decline in estimated fair value is other-than-temporary is inherently subjective, and becomes increasing difficult as it relates to mortgage-backed securities that are not guaranteed by the U.S.

Government, or a U.S. Government Sponsored Enterprise (e.g., Fannie Mae and Freddie Mac). In performing our evaluation of securities in an unrealized loss position, we consider among other things, the severity and duration of time that the security has been in an unrealized loss position and the credit quality of the issuer. As it relates to private label mortgage-backed securities not guaranteed by the U.S. Government, Fannie Mae, or Freddie Mac, we perform a review of the key underlying loan collateral risk characteristics including, among other things, origination dates, interest rate levels, composition of variable and fixed rates, reset dates (including related pricing indices), current loan to original collateral values, locations of collateral, delinquency status of loans, and current credit support. In addition, for securities experiencing declines in estimated fair values of over 10%, as compared to its amortized cost, management also reviews published historical and expected prepayment speeds, underlying loan collateral default rates, and related historical and expected losses on the disposal of the underlying collateral on defaulted loans. This evaluation is inherently subjective as it requires estimates of future events, many of which are difficult to predict. Actual results could be significantly different than our estimates and could have a material effect on our financial results.

Federal Home Loan Bank Stock Impairment Assessment. Northfield Bank is a member of the Federal Home Loan Bank System, which consists of 12 regional Federal Home Loan Banks, through its membership in the Federal Home Loan Bank of New York. As a member of the Federal Home Loan Bank of New York, Northfield Bank is required to acquire and hold shares of common stock in the Federal Home Loan Bank of New York in an amount determined by a "membership" investment component and an "activity-based" investment component. As of December 31, 2013, Northfield Bank was in compliance with its ownership requirement. At December 31, 2013, Northfield Bank held $17.5 million of Federal Home Loan Bank of New York common stock. In performing our evaluation of our investment in Federal Home Loan Bank of New York stock, on a quarterly basis, management reviews the Federal Home Loan Bank of New York's most recent financial statements and determines whether there have been any adverse changes to its capital position as compared to the trailing period. In addition, management reviews the Federal Home Loan Bank of New York's most recent President's Report in order to determine whether or not a dividend has been declared for the current reporting period. Furthermore, management obtains the credit rating of the Federal Home Loan Bank of New York from an accredited credit rating service to ensure that no downgrades have occurred. At December 31, 2013, it was determined by management that Northfield Bank's investment in Federal Home Loan Bank of New York common stock was not impaired.

Deferred Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If it is determined that it is more likely than not that the deferred tax assets will not be realized, a valuation allowance is established. We consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets, including projections of future taxable income. These judgments and estimates are reviewed quarterly as regulatory and business factors change. A valuation allowance for deferred tax assets may be required if the amounts of taxes recoverable through loss carry backs decline, or if we project lower levels of future taxable income. Such a valuation allowance would be established and any subsequent changes to such allowance would require an adjustment to income tax expense that could adversely affect our operating results.

Stock Based Compensation. We recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value.

We estimate the per share fair value of options on the date of grant using the Black-Scholes option pricing model using assumptions for the expected dividend yield, expected stock price volatility, risk-free interest rate and expected option term. These assumptions are based on our judgments regarding future option exercise experience and market conditions. These assumptions are subjective in nature, involve uncertainties, and, therefore, cannot be determined with precision. The Black-Scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public markets.

The per share fair value of options is highly sensitive to changes in assumptions. In general, the per share fair value of options will move in the same direction as changes in the expected stock price volatility, risk-free interest rate and expected option term, and in the opposite direction of changes in the expected dividend yield. The use of different assumptions or different option pricing models could result in materially different per share fair values of options.

As our common stock did not have a significant amount of historical price volatility, we utilized the historical stock price volatility of a peer group when pricing stock options at the date of grant.

49 -------------------------------------------------------------------------------- Table of Contents Comparison of Financial Condition at December 31, 2013 and 2012 Total assets decreased $110.4 million, or 3.9%, to $2.70 billion at December 31, 2013, from $2.81 billion at December 31, 2012. The decrease was primarily attributable to decreases in cash and cash equivalents of $67.5 million, securities available-for-sale of $338.5 million, partially offset by increases in net loans held-for-investment of $246.9 million, bank owned life insurance of $32.1 million and other assets of $18.6 million.

Cash and cash equivalents decreased by $67.5 million, or 52.4%, to $61.2 million at December 31, 2013, from $128.8 million at December 31, 2012. Balances fluctuate based on the timing of receipt of security and loan repayments and the redeployment of cash into higher yielding assets, or the funding of deposit or borrowing obligations.

The Company's securities available-for-sale portfolio totaled $937.1 million at December 31, 2013, compared to $1.28 billion at December 31, 2012. At December 31, 2013, $855.6 million 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 $4.5 million and an estimated fair value of $4.6 million at December 31, 2013. In addition to the above mortgage-backed securities, the Company held $76.5 million in corporate bonds that were all considered investment grade at December 31, 2013, and $510,000 of equity investments in money market mutual funds.

Securities held-to-maturity decreased to zero at December 31, 2013, from $2.2 million at December 31, 2012. The decrease was attributable to transfers to available-for-sale during the year ended December 31, 2013.

Originated loans held-for-investment, net, totaled $1.35 billion at December 31, 2013, as compared to $1.07 billion at December 31, 2012. The increase was primarily due to an increase in multifamily real estate loans, which increased $260.8 million, or 42.7%, to $871.0 million at December 31, 2013, from $610.1 million at December 31, 2012, commercial real estate loans of $24.7 million and home equity and lines of credit of $12.7 million. These increases were partially offset by a decrease of $9.1 million in construction and land loans and a decrease of $4.6 million in commercial and industrial loans. Currently, management is primarily focused on originating multifamily loans, with less emphasis on other loan types. The following table details our multifamily originations for the year ended December 31, 2013 (dollars in thousands): Weighted Average Weighted Months to Next Rate Weighted Average Change or Maturity Average Loan-to-Value (F)ixed or for Fixed Rate Originations Interest Rate Ratio (V)ariable Loans Amortization Term $ 354,926 3.54% 61% V 95 20 to 30 Years 28,879 4.00% 34% F 174 5 to 15 Years 383,805 3.57% 59% Purchased credit-impaired (PCI) loans, primarily acquired as part of a transaction with the FDIC, totaled $59.5 million at December 31, 2013, as compared to $75.3 million at December 31, 2012. The Company recorded accretion of interest income of $5.7 million for the year ended December 31, 2013.

Additionally, in 2013 the Company reclassified approximately $5.3 million from the non-accretable yield to the accretable yield as a result of improving cash flows which will be recognized into income over the remaining life of the portfolio.

Bank owned life insurance increased $32.1 million, or 34.5%, to $125.1 million at December 31, 2013. The increase resulted primarily from purchases of $28.7 million and income earned of $3.6 million on bank owned life insurance for the year ended December 31, 2013, which was partially offset by death benefits received.

Federal Home Loan Bank of New York stock, at cost, increased $5.0 million, or 39.6%, to $17.5 million at December 31, 2013, from $12.6 million at December 31, 2012. This increase was attributable to an increase in borrowings outstanding with the Federal Home Loan Bank of New York over the same time period.

Premises and equipment, net, decreased $728,000, or 2.4%, to $29.1 million at December 31, 2013, from $29.8 million at December 31, 2012. This decrease was primarily attributable to depreciation expense of $3.6 million, the sale of a vacant parcel of land, partially offset by the completion of leasehold improvements made to the branch opened during the year and the renovation of existing branches.

Other real estate owned decreased $236,000 to $634,000 at December 31, 2013, from $870,000 at December 31, 2012. This decrease was attributable to sales during the year.

50 -------------------------------------------------------------------------------- Table of Contents Other assets increased $18.6 million, or 96.0%, to $37.9 million at December 31, 2013, from $19.4 million at December 31, 2012. The increase in other assets was primarily attributable to an increase in net deferred tax assets, due to an decrease in deferred tax liabilities associated with a reduction in net unrealized gains on securities available-for-sale and the amortization of prepaid FDIC insurance.

Deposits decreased $464.2 million, or 23.7%, to $1.49 billion at December 31, 2013, from $1.96 billion at December 31, 2012. The decrease in deposits for the year ended December 31, 2013, was $174.6 million, or 10.5%, after excluding the deposits of $289.6 million used to purchase stock in the second-step conversion in the first quarter of 2013. The decrease was attributable to decreases of $175.2 million in certificates of deposit accounts and $60.4 million in money market accounts, partially offset by increases of $47.6 million in transaction accounts and $13.4 million in savings accounts. The decline in deposits resulted from the Company's decision not to retain higher cost time deposits and to fund loan growth with cash flow from the Company's securities portfolio..

Borrowings, consisting primarily of Federal Home Loan Bank advances and repurchase agreements, increased by $51.2 million, or 12.2%, to $470.3 million at December 31, 2013, from $419.1 million at December 31, 2012. Management utilizes borrowings to mitigate interest rate risk, for short-term liquidity, and to a lesser extent as part of leverage strategies.

Accrued expenses and other liabilities decreased $1.7 million to $17.2 million at December 31, 2013, from $18.9 million at December 31, 2012.

Total stockholders' equity increased by $301.2 million to $716.1 million at December 31, 2013, from $414.9 million at December 31, 2012. This increase was primarily attributable to a $330.1 million increase related to the net proceeds from the stock conversion, net income of $19.1 million for the year ended December 31, 2013, and a $5.4 million increase related to ESOP and equity award activity. These increases were partially offset by a $22.9 million decrease in accumulated other comprehensive income as a result of an increased interest rate environment, treasury share repurchases of $3.6 million, and dividend payments of $26.9 million, which included a special dividend of $14.5 million paid on May 22, 2013.

Comparison of Operating Results for the Years Ended December 31, 2013 and 2012 Net Income. Net income was $19.1 million and $16.0 million for the years ended December 31, 2013 and 2012, respectively. Significant variances from the prior year are as follows: a $6.6 million increase in net interest income, a $1.6 million decrease in the provision for loan losses, a $1.6 million increase in non-interest income, a $4.9 million increase in non-interest expense, and a $1.8 million increase in income tax expense.

Interest Income. Interest income increased by $931,000, or 1.0%, to $92.5 million for the year ended December 31, 2013, as compared to $91.5 million for the year ended December 31, 2012. The increase was primarily the result of an increase in average interest-earning assets of $232.3 million, or 10.1%. The increase in average interest-earning assets was due primarily to an increase of $238.7 million in average loans outstanding, other securities of $13.2 million and $4.7 million in interest-earning assets in other financial institutions, which were partially offset by a $24.8 million decrease in mortgage-backed securities. This was partially offset by a 33 basis point decrease in yields earned on interest-earning assets to 3.63% from 3.96% for the prior year. The rates earned on all earning assets decreased due to the general decline in market interest rates for these asset types.

Interest Expense. Interest expense decreased $5.7 million, or 25.2%, to $16.9 million for the year ended December 31, 2013, from $22.6 million for the year ended December 31, 2012. The decrease was attributable to a decrease in interest expense on borrowings of $2.4 million, or 18.4% and a decrease in interest expense on deposits of $3.3 million, or 33.9%. The decrease in interest expense on borrowings was primarily attributable to a decrease of 21 basis points, or 8.0%, in the cost of borrowings, reflecting lower market interest rates for borrowed funds, assisted by a decrease of $55.4 million, or 11.42%, in average borrowings outstanding. The decrease in interest expense on deposits was attributable to a decrease in the cost of interest-bearing deposits of 22 basis points, or 31.4%, to 0.48% for the year ended December 31, 2013, from 0.70% for the year ended December 31, 2012, reflecting lower market interest rates for short-term deposits. The decrease in the cost of deposits was further assisted by a decrease of $44.2 million, or 3.2%, in average interest-bearing deposits. The decrease in average deposit balances was attributable to a decrease of $109.8 million in certificates of deposit, partially offset by an increase of $65.6 million in savings, NOW, and money market accounts.

Net Interest Income. Net interest income for the year ended December 31, 2013, increased $6.6 million, or 9.6%, as the $232.3 million, or 10.1%, increase in our interest-earning assets more than offset the one basis point decrease in our net interest margin to 2.97%. The increase in average interest-earning assets was due primarily to increases in average net loans outstanding of $238.7 million, other securities of $13.2 million, and deposits in financial institutions of $4.7 million partially offset by a decrease in mortgage-backed securities of $24.8 million. The December 31, 2013 year included loan prepayment income of $2.2 million compared to $1.5 million for the year ended December 31, 2012. The year ended December 31, 2013, also included a recovery of $256,000 of interest that was previously applied to principal. Rates paid on interest-bearing liabilities decreased 25 basis points to 0.95% for the current year as compared to 1.20% for the prior year. This was offset by a 33 basis point decrease in yields earned on interest earning assets to 3.63% for the year ended December 31, 2013, as compared to 3.96% for 2012.

51 -------------------------------------------------------------------------------- Table of Contents Provision for Loan Losses. The provision for loan losses decreased $1.6 million, or 45.5%, to $1.9 million for the year ended December 31, 2013, from $3.5 million for the year ended December 31, 2012. The decrease in the provision for loan losses resulted primarily from a decrease in net charge-offs of approximately $1.6 million, and a decrease in non-performing loans, partially offset by loan growth. Originated loan growth was approximately 26.8% for the year ended December 31, 2013, compared to 8.1% for the year ended December 31, 2012. Net charge-offs were $2.3 million for the year ended December 31, 2013, compared to net charge-offs of $3.9 million for the year ended December 31, 2012.

Non-interest Income. Non-interest income increased $1.6 million, or 18.3%, to $10.2 million for the year ended December 31, 2013, from $8.6 million for the year ended December 31, 2012. This increase was primarily a result of an increase of $683,000 in gain on securities transactions, net, a $724,000 increase in income on bank owned life insurance, and a $401,000 increase in other non-interest income that was primarily related to the sale of vacant land adjacent to a branch, partially offset by an increase of $410,000 in other-than-temporary impairment losses on securities. Securities gains in 2013 included $963,000 related to the Company's trading portfolio, while 2012 included securities gains of $384,000 related to the Company's trading portfolio.

Non-interest Expense. Non-interest expense increased $4.9 million, or 9.9%, for the year ended December 31, 2013, compared to the year ended December 31, 2012. This was due primarily to a $3.0 million increase in compensation and employee benefits which is related to increased staff due to branch openings and the Flatbush Federal Bancorp merger (Merger), additional ESOP expense related to the issuance of shares in the second step conversion. The increase in non-interest expense also includes to a lesser extent salary adjustments effective January 1, 2013, and includes an increase of $579,000 in expense related to the Company's deferred compensation plan which is described above, and had no effect on net income. Additionally, there was a $1.5 million increase in occupancy expense primarily related to new branches, the Merger, and the renovation of existing branches, and a $562,000 increase in data processing fees due to data conversion charges related to the Merger. This increase was partially offset by a $394,000 decrease in professional fees.

Income Tax Expense. The Company recorded income tax expense of $10.7 million for the year ended December 31, 2013, compared to $8.9 million for the year ended December 31, 2012. The effective tax rate for the year ended December 31, 2013, was 35.9%, as compared to 35.7% for the year ended December 31, 2012.

Comparison of Operating Results for the Years Ended December 31, 2012 and 2011 Net Income. Net income was $16.0 million and $16.8 million for the years ended December 31, 2012 and 2011, respectively. Significant variances from the prior year are as follows: a $3.3 million increase in net interest income, a $9.1 million decrease in the provision for loan losses, a $3.2 million decrease in non-interest income, a $7.5 million increase in non-interest expense, and a $2.4 million increase in income tax expense.

Interest Income. Interest income increased by $522,000, or 0.6%, to $91.5 million for the year ended December 31, 2012, as compared to $91.0 million for the year ended December 31, 2011. The increase was primarily the result of an increase in average interest-earning assets of $131.1 million, or 6.0%. The increase in average interest-earning assets was due primarily to a $171.7 million increase in average loans outstanding, which was partially offset by a $7.4 million decrease in interest-earning assets in other financial institutions, a $21.6 million decrease in mortgage-backed securities, and a $14.5 million decrease in other securities. This was partially offset by a 21 basis point decrease in yields earned on interest-earning assets to 3.96% from 4.17% for the prior year. The rates earned on loans and mortgage-backed securities decreased due to the general decline in market interest rates for these asset types.

Interest Expense. Interest expense decreased $2.8 million, or 10.9%, to $22.6 million for the year ended December 31, 2012, from $25.4 million for the year ended December 31, 2011. The decrease was attributable to a decrease in interest expense on borrowings of $355,000, or 2.7% and a decrease in interest expense on deposits of $2.4 million, or 19.7%. The decrease in interest expense on borrowings was primarily attributable to a decrease of 12 basis points, or 4.3%, in the cost of borrowings, reflecting lower market interest rates for borrowed funds, partially offset by an increase of $8.3 million, or 1.7%, in average borrowings outstanding. The decrease in interest expense on deposits was attributable to a decrease in the cost of interest-bearing deposits of 24 basis points, or 25.5%, to 0.70% for the year ended December 31, 2012, from 0.94% for the year ended December 31, 2011, reflecting lower market interest rates for short-term deposits. The decrease in the cost of deposits was partially offset by an increase of $89.7 million, or 6.1%, in average interest-bearing deposits outstanding.

Net Interest Income. Net interest income increased $3.3 million, or 5.0%, as average net interest-earning assets increased by $33.2 million to $429.8 million which more than offset the three basis point decrease in our net interest margin to 2.98%. The increase in average interest-earning assets was due primarily to a $171.7 million increase in average loans outstanding, which was partially offset by a $7.4 million decrease in interest-earning assets in other financial institutions, a $21.6 million decrease in mortgage-backed securities, and a $14.5 million decrease in other securities. The year ended December 31, 2012, included loan prepayment income of $1.5 million compared to $812,000 for the year ended December 31, 2011. Rates paid on interest-bearing 52 -------------------------------------------------------------------------------- Table of Contents liabilities decreased 22 basis points to 1.20% from 1.42% for the prior year.

This was partially offset by a 21 basis point decrease in yields earned on interest-earning assets to 3.96% from 4.17% for the prior year.

Provision for Loan Losses. The provision for loan losses decreased $9.1 million, or 71.9%, to $3.5 million for the year ended December 31, 2012, from $12.6 million for the year ended December 31, 2011. The decrease in the provision for loan losses was due primarily to a decrease in charge-offs, a shift in the composition of our loan portfolio to multifamily loans, which generally require lower general reserves than our commercial real estate loans, and a decrease in non-performing loans and other asset quality indicators during the year ended December 31, 2012, compared to the year ended December 31, 2011.

The Company recorded net charge-offs of $3.9 million (including $1.2 million related to loans transferred to held-for-sale) and $7.6 million (including $4.0 million related to loans transferred to held-for-sale) during the years ended December 31, 2012 and 2011, respectively.

Non-interest Income. Non-interest income decreased $3.2 million, or 27.5%, to $8.6 million for the year ended December 31, 2012, as compared to $11.8 million for the year ended December 31, 2011. This decrease was primarily a result of a $3.6 million bargain purchase gain, net of tax, during 2011 partially offset by a decrease in losses on other-than-temporary-impairment of securities of $385,000.

Non-interest Expense. Non-interest expense increased $7.5 million, or 18.0%, to $49.0 million for the year ended December 31, 2012, from $41.5 million for the year ended December 31, 2011, due primarily to a $2.5 million increase in compensation and employee benefits primarily resulting from increased staff associated with branch openings and acquisitions, a $1.9 million increase in occupancy expense and a $259,000 increase in furniture and equipment expense each primarily relating to new branches and the renovation of existing branches, a $964,000 increase in data processing fees primarily related to conversion costs associated with the FDIC-assisted transaction, a $945,000 increase in professional fees related to merger activity, and an increase in other non-interest expense of $904,000 primarily related to costs associated with other real estate owned.

Income Tax Expense. The Company recorded income tax expense of $8.9 million for the year ended December 31, 2012, compared to $6.5 million for the year ended December 31, 2011. The effective tax rate for the year ended December 31, 2012, was 35.7%, as compared to 27.8% for the year ended December 31, 2011. The increase in the effective tax rate was primarily attributable to certain merger related expenses from the Flatbush Federal transaction which are not deductible for tax purposes and the recording of the bargain purchase gain net of tax expense in non-interest income during 2011.

53 -------------------------------------------------------------------------------- Table of Contents Average Balances and Yields. The following tables set forth average balance sheets, average yields and costs, and certain other information for the years indicated. No tax-equivalent yield adjustments have been made, as we had no tax-free interest-earning assets during the years. All average balances are daily average balances based upon amortized costs. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense.

For the Years Ended December 31, 2013 2012 2011 Average Average Average Average Average Average Outstanding Yield/ Outstanding Yield/ Outstanding Yield/ Balance Interest Rate Balance Interest Rate Balance Interest Rate (Dollars in thousands) Interest-earning assets: Loans $ 1,339,348 $ 68,472 5.11% $ 1,100,632 $ 61,514 5.59% $ 928,904 $ 55,066 5.93% Mortgage-backed securities 1,014,856 21,920 2.16 1,039,677 26,791 2.58 1,061,308 32,033 3.02 Other securities 129,908 1,459 1.12 116,664 2,588 2.22 131,136 3,314 2.53 Federal Home Loan Bank of New York stock 13,905 536 3.85 13,391 591 4.41 10,459 439 4.20 Interest-earning deposits 46,156 83 0.18 41,462 55 0.13 48,903 165 0.34 Total interest-earning assets 2,544,173 92,470 3.63 2,311,826 91,539 3.96 2,180,710 91,017 4.17 Non-interest-earning assets 192,007 153,827 141,466 Total assets $ 2,736,180 $ 2,465,653 $ 2,322,176 Interest-bearing liabilities: Savings, NOW, and money market accounts $ 982,825 2,635 0.27 $ 917,210 4,136 0.45 $ 741,130 4,651 0.63 Certificates of deposit 370,351 3,866 1.04 480,194 5,701 1.19 566,619 7,600 1.34 Total interest-bearing deposits 1,353,176 6,501 0.48 1,397,404 9,837 0.70 1,307,749 12,251 0.94 Borrowings 429,332 10,447 2.43 484,687 12,807 2.64 476,413 13,162 2.76 Total interest-bearing liabilities 1,782,508 16,948 0.95 1,882,091 22,644 1.20 1,784,162 25,413 1.42 Non-interest-bearing deposits 222,832 173,854 131,224 Accrued expenses and other liabilities 22,176 16,802 13,260 Total liabilities 2,027,516 2,072,747 1,928,646 Stockholders' equity 708,664 392,906 393,530 Total liabilities and stockholders' equity $ 2,736,180 $ 2,465,653 $ 2,322,176 Net interest income $ 75,522 $ 68,895 $ 65,604 Net interest rate spread (1) 2.68 2.76 2.75 Net interest-earning $ 761,665 $ 429,735 $ 396,548 assets (2) Net interest margin (3) 2.97% 2.98% 3.01% Average interest-earning assets to interest-bearing liabilities 142.73% 122.83% 122.23% _____________________________ (1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3) Net interest margin represents net interest income divided by average total interest-earning assets.

54 -------------------------------------------------------------------------------- Table of Contents Rate/Volume Analysis The following table presents the effects of changing rates and volumes on our net interest income for the years indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.

Year Ended December 31, Year Ended December 31, 2013 vs. 2012 2012 vs. 2011 Total Total Increase (Decrease) Due to Increase Increase (Decrease) Due to Increase Volume Rate (Decrease) Volume Rate (Decrease) (In thousands) Interest-earning assets: Loans $ 12,554 $ (5,596) $ 6,958 $ 9,347 $ (2,899) $ 6,448 Mortgage-backed securities (623) (4,248) (4,871) (643) (4,599) (5,242) Other securities 268 (1,397) (1,129) (344) (382) (726) Federal Home Loan Bank of New York stock 22 (77) (55) 129 23 152 Interest-earning deposits 6 22 28 (22) (88) (110) Total interest-earning assets 12,227 (11,296) 931 8,467 (7,945) 522 Interest-bearing liabilities: Savings, NOW and money market accounts 293 (1,794) (1,501) 3,071 (3,488) (417) Certificates of deposit (1,141) (694) (1,835) (1,090) (907) (1,997) Total deposits (848) (2,488) (3,336) 1,981 (4,395) (2,414) Borrowings (1,069) (1,291) (2,360) 236 (591) (355) Total interest-bearing liabilities (1,917) (3,779) (5,696) 2,217 (4,986) (2,769) Change in net interest income $ 14,144 $ (7,517) $ 6,627 $ 6,250 $ (2,959) $ 3,291 Asset Quality Purchased Credit Impaired ("PCI") Loans PCI loans were recorded at estimated fair value using discounted expected future cash flows deemed to be collectible on the date acquired. Based on its detailed review of PCI loans and experience in loan workouts, management believes it has a reasonable expectation about the amount and timing of future cash flows and accordingly has classified PCI loans ($59.5 million at December 31, 2013) as accruing, even though they may be contractually past due. At December 31, 2013, based on contractual principal, 6.6% of PCI loans were past due 30 to 89 days, and 14.9% were past due 90 days or more, as compared to 5.4% and 11.4%, respectively, at December 31, 2012. The amount and timing of expected cash flows as of December 31, 2013 did not change significantly from December 31, 2012.

Originated and Acquired Loans General. Maintaining loan quality historically has been, and will continue to be, a key element of our business strategy. We employ conservative underwriting standards for new loan originations and maintain sound credit administration practices while the loans are outstanding. In addition, substantially all of our loans are secured, predominantly by real estate. At December 31, 2013, our non-performing loans totaled $17.8 million or 1.20% of total loans held-for-investment. At the same time, net charge-offs have remained low at 0.17% of average loans outstanding for the year ended December 31, 2013, 0.36% for the year ended December 31, 2012, and 0.78% for the year ended December 31, 2011. Net charge-offs in 2013 include $856,000 related to the transfer of $2.4 million of loans from held-for-investment to held-for-sale and $1.3 million related to the transfer of $1.6 million of loans held-for-investment to held-for-sale in 2012.

55 -------------------------------------------------------------------------------- Table of Contents Non-performing Assets and Delinquent Loans. Non-performing loans decreased $17.8 million, or 49.9%, to $17.8 million at December 31, 2013 from $35.6 million at December 31, 2012. The following table details non-performing loans at December 31, 2013 and 2012. At December 31, 2013, the table includes $471,000 of multifamily non-accruing loans held-for-sale and $634,000 of other real estate owned. At December 31, 2012, the table includes $3.8 million of one-to-four family non-accruing loans held-for-sale and $823,000 of other real estate owned (in thousands).

December 31, December 31, 2013 2012 Non-accruing loans: Held-for-investment $ 6,649 $ 10,348 Held-for-sale 471 5,325 Non-accruing loans subject to restructuring agreements: Held-for-investment 10,651 19,152 Held-for-sale - 122 Total non-accruing loans 17,771 34,947Loans 90 days or more past due and still accruing: Held-for-investment 32 621 Total loans 90 days or more past due and still accruing: 32 621 Total non-performing loans 17,803 35,568 Other real estate owned 634 870 Total non-performing assets $ 18,437 $ 36,438 Loans subject to restructuring agreements and still accruing $ 26,190 $ 25,697 Accruing loans 30 to 89 days delinquent $ 13,331 $ 14,780 The following table details non-performing loans by loan type at December 31, 2013 and 2012. At December 31, 2013, the table includes $471,000 of multifamily non-accruing loans held-for-sale. At December 31, 2012, the table includes $3.8 million of one-to-four family non-accruing loans held-for-sale: December 31, 2013 2012 (in thousands) Non-accrual loans: Real estate loans: Commercial $ 12,450 $ 22,425 One- to four-family residential 2,989 6,333 Construction and land 108 2,070 Multifamily 544 1,169 Home equity and lines of credit 1,239 1,694 Commercial and industrial 441 1,256 Total non-accrual loans: 17,771 34,947Loans delinquent 90 days or more and still accruing: Real estate loans: Commercial - 349 One-to four-family residential - 270 Other 32 2 Total loans delinquent 90 days or more and still accruing 32 621 Total non-performing loans $ 17,803 $ 35,568 56 -------------------------------------------------------------------------------- Table of Contents Generally loans, excluding PCI 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 consecutive 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.

The decrease in non-accrual loans was attributable primarily to $6.8 million of loans held-for-sale being sold, $4.7 million of loans returning to accrual status, $3.0 million of pay-offs and principal pay-downs, $968,000 of charge-offs, and the sale of $5.0 million of loans held-for-investment. The above decreases in non-accruing loans, were partially offset by $3.4 million of loans being placed on non-accrual status during the year ended December 31, 2013.

At December 31, 2013, the Company had $13.3 million of accruing loans that were 30 to 89 days delinquent, as compared to $14.8 million at December 31, 2012. The following table sets forth the total amounts of delinquencies for accruing loans that were 30 to 89 days past due by type and by amount at the dates indicated.

December 31, 2013 2012 (in thousands) Real estate loans: Commercial $ 4,274 $ 4,736One- to four-family residential 5,644 5,584 Construction and land - 159 Multifamily 2,483 2,731 Home equity and lines of credit 94 44 Commercial and industrial loans 815 1,467 Other loans 21 59 Total $ 13,331 $ 14,780 Included in non-accruing loans are loans subject to restructuring agreements totaling $10.6 million and $19.3 million at December 31, 2013, and December 31, 2012, respectively. At December 31, 2013, $3.2 million, or 29.7% of the $10.6 million of loans subject to restructuring agreements, were performing in accordance with their restructured terms, as compared to $16.0 million, or 83.0%, at December 31, 2012. One relationship accounts for the entire $7.5 million of loans not performing in accordance with their restructured terms at December 31, 2013. The relationship is made of up of several loans totaling $7.5 million collateralized by real estate, with an aggregate appraised value of $9.5 million. The Company also holds loans subject to restructuring agreements that are on accrual status, which totaled $26.2 million and $25.7 million at December 31, 2013, and December 31, 2012, respectively. At December 31, 2013, all of these loans were performing in accordance with their restructured terms.

Generally, the types of concessions that we make to troubled borrowers include reductions to both temporary and permanent interest rates, extensions of payment terms, and to a lesser extent forgiveness of principal and interest.

The table below sets forth the amounts and categories of the troubled debt restructurings as of December 31, 2013 and December 31, 2012.

At December 31, 2013 2012 Non-Accruing Accruing Non-Accruing Accruing (in thousands) Troubled Debt Restructurings: Real estate loans: Commercial $ 9,496 $ 21,536 $ 16,046 $ 21,785 One- to four-family residential 607 1,176 612 569 Construction and land 108 - 2,070 - Multifamily - 2,074 - 2,041 Home equity and lines of credit - 341 96 356 Commercial and industrial loans 441 1,063 451 946 $ 10,652 $ 26,190 $ 19,275 $ 25,697 Performing in accordance with restructured terms 29.65% 100.00% 82.96% 100.00% 57 -------------------------------------------------------------------------------- Table of Contents Allowance for loan losses. The allowance for loan losses to non-performing loans (held-for-investment) increased from 87.73% at December 31, 2012, to 150.23% at December 31, 2013. This increase was primarily attributable to a decrease in non-performing loans of $17.8 million, from $35.6 million at December 31, 2012, to $17.8 million at December 31, 2013. At December 31, 2013, 91.5% of the appraisals utilized for our impairment analysis were completed within the last nine months and 8.5% were completed within the last 18 months. All appraisals older than 12 months were reviewed by management and appropriate adjustments were made utilizing current market indices. Generally, non-performing loans are charged down to the appraised value of collateral less costs to sell, which reduces the ratio of the allowance for loan losses to non-performing loans. Downward adjustments to appraisal values, primarily to reflect "quick sale" discounts, are generally recorded as specific reserves within the allowance for loan losses.

The allowance for loan losses to originated loans held-for-investment, net, decreased to 1.93% at December 31, 2013, from 2.48% at December 31, 2012. The decrease in the Company's allowance for loan losses during the year is primarily attributable to net charge-offs exceeding the provision recorded for the year ended December 31, 2013. Net charge-offs were $2.3 million and $3.9 million for the years ended December 31, 2013 and 2012, respectively, compared to a provision of $1.9 million and $3.5 for the years ended December 31, 2013 and 2012, respectively.

Specific reserves on impaired loans decreased $983,000, or 27.28%, from $3.6 million, at December 31, 2012, to $2.6 million at December 31, 2013. At December 31, 2013, the Company had 36 loans classified as impaired and recorded a total of $2.6 million of specific reserves on 12 of the 36 impaired loans. At December 31, 2012, the Company had 47 loans classified as impaired and recorded a total of $3.6 million of specific reserves on 17 of the 47 impaired loans.

The following table sets forth activity in our allowance for loan losses, by loan type, at December 31, for the years indicated.

Real estate loans Home Equity Total One-to-four and Commercial Insurance Allowance Family Construction Lines of and Premium Purchase for Loan Commercial Residential and Land Multifamily Credit Industrial Loans Other Credit-Impaired Unallocated Losses (in thousands) 2010 $ 12,654 $ 570 $ 1,855 $ 5,137 $ 242 $ 719 $ 111 $ 28 $ - $ 503 $ 21,819 Provision for loan losses 6,809 498 27 2,353 238 1,931 115 12 - 606 12,589 Recoveries 55 - - - - 23 30 - - - 108 Charge-offs (4,338) (101) (693) (718) (62) (1,698) (70) - - - (7,680) 2011 15,180 967 1,189 6,772 418 975 186 40 - 1,109 26,836 Provision for loan losses 1,021 956 (152) 1,034 207 189 (3) (44) 236 92 3,536 Recoveries 107 - - 9 - 86 18 25 - - 245 Charge-offs (1,828) (1,300) (43) (729) (2) (90) (198) (3) - - (4,193) 2012 14,480 623 994 7,086 623 1,160 3 18 236 1,201 26,424 Provision for loan losses (654) 648 (1,356) 2,945 728 (557) (3) 1 352 (177) 1,927 Recoveries 1 18 567 - - 201 - 73 - - 860 Charge-offs (1,208) (414) - (657) (491) (379) - (25) - - (3,174) 2013 $ 12,619 $ 875 $ 205 $ 9,374 $ 860 $ 425 $ - $ 67 $ 588 $ 1,024 $ 26,037 During the year ended December 31, 2013, the Company recorded net charge-offs of $2.3 million, a decrease of $1.6 million, or 41.4%, as compared to the year ended December 31, 2012. The decrease in net charge-offs was primarily attributable to a $514,000 decrease in net charge-offs related to commercial real estate loans, a $610,000 decrease in net charge-offs related to construction and land loans, a $180,000 decrease in net charge-offs related to insurance premium loans, and a $904,000 decrease in net charge-offs related to one-to-four family residential real estate loans, offset by a $174,000 increase in net charge-offs related to commercial and industrial loans and a $489,000 increase in net charge-offs related to home equity loans. 2013 and 2012 net charge-offs include $471,000 related to loans transferred to held-for-sale. As a result of increases in outstanding balances the allowance for loan losses allocated to multifamily real estate loans was increased by $2.3 million, or 32.3%, from $7.1 million at December 31, 2012, to $9.4 million at December 31, 2013. In addition, as a result of reduced non-performing loans and net charge-offs incurred, the Company's historical and general loss factors have decreased, thus decreasing the allowance for loan losses allocated to commercial real estate loans, one-to-four family residential loans, and construction and land loans. Allowance for loan losses allocated to home equity loans and commercial and industrial loans increased slightly from December 31, 2012, to December 31, 2013. This increase was primarily attributable to an increase in historical loss factors, coupled with the increased level of non-performing loans.

58 -------------------------------------------------------------------------------- Table of Contents Management of Market Risk General. The 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 loans and mortgage-related assets, 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 risk committee, comprised of our Chief Investment Officer, who chairs this Committee, our Chief Executive Officer, our President/Chief Operating Officer, our 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 risk management committee of our board of directors 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 multifamily loans and commercial real estate loans that generally tend to have shorter maturities than one-to-four family residential real estate loans and have higher interest rates that generally reset from five to ten years; · investing in shorter term investment grade corporate securities and mortgage-backed securities; and · obtaining general financing through lower-cost core 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 originating 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.

59 -------------------------------------------------------------------------------- Table of Contents The table below sets forth, as of December 31, 2013, 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 repricing characteristics including decay rates, and correlations to movements in interest rates, and should not be relied on as indicative of actual results (dollars in thousands).

NPV Change in Estimated Net Interest Estimated NPV/Present Interest Rates Estimated Present Value Estimated Estimated Value of Income (basis Present Value of Change In Change in Assets Percent points) of Assets Liabilities Estimated NPV NPV NPV % Ratio Change +400 $ 2,317,122 $ 1,834,079 $ 483,043 $ (234,375) (32.67) % 20.85 % (10.84) % +300 2,389,483 1,863,451 526,032 (191,386) (26.68) 22.01 (7.96) +200 2,474,496 1,893,723 580,773 (136,645) (19.05) 23.47 (5.08) +100 2,569,820 1,924,935 644,885 (72,533) (10.11) 25.09 (2.41) 0 2,674,545 1,957,127 717,418 - - 26.82 0.00 (100) 2,771,974 1,989,259 782,715 65,297 9.10 28.24 (0.65) (200) $ 2,865,823 $ 2,005,886 $ 859,937 $ 142,519 19.87 % 30.01 % (4.43) % .

_____________________________ (1) Assumes an instantaneous and sustained uniform change in interest rates at all maturities.

(2) NPV includes non-interest earning assets and liabilities.

The table above indicates that at December 31, 2013, in the event of a 200 basis point decrease in interest rates, we would experience a 19.87% increase in estimated net portfolio value and a 4.43% decrease in net interest income. In the event of a 400 basis point increase in interest rates, we would experience a 32.67% decrease in net portfolio value and a 10.84% 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 December 31, 2013.

At December 31, 2013, 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 net portfolio value and net interest income. Our model requires us to make certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. However, we also apply consistent parallel yield curve shifts (in both directions) to determine possible changes in net interest income if the theoretical yield curve shifts occurred gradually. Net interest income analysis also adjusts the asset and liability repricing analysis based on changes in prepayment rates resulting from the parallel yield curve shifts. In addition, the net portfolio value 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 portfolio value or net interest income and will differ from actual results.

60 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Liquidity is the ability to fund assets and meet obligations as they come due. Our primary sources of funds consist of deposit inflows, loan repayments, borrowings through repurchase agreements and advances from money center banks and the Federal Home Loan Bank of New York, and repayments, maturities and sales of securities. While maturities and scheduled amortization of loans and securities are reasonably predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our board risk committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and withdrawals of deposits by our customers as well as unanticipated contingencies. We seek to maintain a ratio of liquid assets (not subject to pledge) as a percentage of deposits and borrowings of 35% or greater. At December 31, 2013, this ratio was 43.25%. We believe that we had sufficient sources of liquidity to satisfy our short- and long-term liquidity needs at December 31, 2013.

We regularly adjust our investments in liquid assets based on our assessment of: · expected loan demand; · expected deposit flows; · yields available on interest-earning deposits and securities; and · the objectives of our asset/liability management program.

Our most liquid assets are cash and cash equivalents, corporate bonds, and unpledged mortgage-related securities issued or guaranteed by the U.S.

Government, Fannie Mae, or Freddie Mac, that we can either borrow against or sell. We also have the ability to surrender bank owned life insurance contracts. The surrender of these contracts would subject the Company to income taxes and penalties for increases in the cash surrender values over the original premium payments.

The Company had the following primary sources of liquidity at December 31, 2013 (in thousands): Cash and cash equivalents $ 61,239 Corporate bonds 76,491 Unpledged multi-family loans 308,700 Unpledged mortgage-backed securities (Issued or guaranteed by the U.S.

Government, Fannie Mae, or Freddie Mac) 537,400 At December 31, 2013, we had $61.3 million in outstanding loan commitments. In addition, we had $46.1 million in unused lines of credit to borrowers. Certificates of deposit due within one year of December 31, 2013, totaled $215.7 million, or 14.4% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales, securities sales, other deposit products, including replacement certificates of deposit, securities sold under agreements to repurchase (repurchase agreements), and advances from the Federal Home Loan Bank of New York and other borrowing sources. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on December 31, 2013. We believe, based on experience, that a significant portion of such deposits will remain with us, and we have the ability to attract and retain deposits by adjusting the interest rates offered.

We have a detailed contingency funding plan that is reviewed and reported to the board risk committee on at least a quarterly basis. This plan includes monitoring cash on a daily basis to determine the liquidity needs of the Bank. Additionally, management performs a stress test on the Bank's retail deposits and wholesale funding sources in several scenarios on a quarterly basis. The stress scenarios include deposit attrition of up to 50%, and selling our securities available-for-sale portfolio at a discount of 20% to its current estimated fair value. The Bank continues to maintain significant liquidity under all stress scenarios.

Northfield Bancorp, Inc. is a separate legal entity from Northfield Bank and must provide for its own liquidity to fund dividend payments, stock repurchases and other corporate risk factors. The Company's primary source of liquidity is the receipt of dividend payments from the Bank in accordance with applicable regulatory requirements and proceeds from the stock offering. At December 31, 2013, Northfield Bancorp, Inc. (unconsolidated) had liquid assets of $141.5 million.

Northfield Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning assets and off-balance sheet items to broad risk categories. At December 31, 2013, Northfield Bank exceeded all regulatory capital requirements and is considered "well capitalized" under regulatory guidelines. See "Supervision and Regulation" and Note 13 of the Notes to the Consolidated Financial Statements.

61 -------------------------------------------------------------------------------- Table of Contents The net proceeds from the second-step stock offering completed on January 24, 2013, significantly increased our liquidity and capital resources. The initial level of liquidity has been reduced as net proceeds from the stock offering have been used for general corporate purposes, including the funding of loans. Our financial condition and results of operations have been enhanced by the net proceeds from the stock offering, resulting in increased net interest-earning assets and net interest income. However, due to the increase in equity resulting from the net proceeds from the stock offering, our return on equity has been adversely affected.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit, and unused lines of credit. While these contractual obligations represent our potential future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process applicable to loans we originate. In addition, we routinely enter into commitments to sell mortgage loans; such amounts are not significant to our operations. For additional information, see Note 12 of the Notes to the Consolidated Financial Statements.

Contractual Obligations. In the ordinary course of our operations we enter into certain contractual obligations. Such obligations include leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities, and agreements with respect to investments.

The following table summarizes our significant fixed and determinable contractual obligations and other funding needs by payment date at December 31, 2013. The payment amounts represent those amounts due to the recipient and do not include any unamortized premiums or discounts or other similar carrying amount adjustments.

Payments Due by Period Less Than One One to Three Three to More Than Contractual Obligations Year Years Five Years Five Years Total (In thousands) Long-term debt (1) $ 99,859 $ 223,410 $ 144,083 $ - $ 467,352 Floating rate advances 2,485 - - - 2,485 Operating leases 3,928 7,840 7,094 30,998 49,860 Capitalized leases 411 516 516 44 1,487 Certificates of deposit 215,692 78,571 8,150 5,489 307,902 Total $ 322,375 $ 310,337 $ 159,843 $ 36,531 $ 829,086 Commitments to extend credit (2) $ 107,357 $ - $ - $ - $ 107,357 _____________________________ (1) Includes repurchase agreements, Federal Home Loan Bank of New York advances, and accrued interest payable at December 31, 2013.

(2) Includes unused lines of credit which are assumed to be funded within the year.

During 2012, we sold the rights to service Freddie Mac loans to a third-party bank. 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 by the Company which, with other underwriting documents, were subsequently assigned and delivered to Freddie Mac. At the time of sale to the third-party, 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.

Impact of Recent Accounting Standards and Interpretations In February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." This ASU adds new disclosure requirements for items reclassified out of accumulated other comprehensive income to be in a single location in the financial statements. The Company's disclosures of the components of accumulated other comprehensive income are disclosed in its Statements of Comprehensive Income. The new guidance became effective for all interim and annual periods beginning January 1, 2013, and is to be applied prospectively. The adoption of this pronouncement resulted in a change to the presentation of the Company's financial statements but did not have an impact on the Company's financial condition or results of operations.

62 -------------------------------------------------------------------------------- Table of Contents In January, 2014, the FASB issued ASU No. 2014-04, "Receivables - Troubled Debt Restructurings by Creditors (subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure." This ASU clarifies that if an in-substance repossession occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure, or the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal arrangement. This ASU will require interim and annual disclosure of both, the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU No. 2014-04 is effective for annual and interim periods beginning after December 15, 2014. The Company's adoption of this pronouncement is not expected to have a material impact on the Company's consolidated financial statements.

Impact of Inflation and Changing Prices Our consolidated financial statements and related notes have been prepared in accordance with GAAP. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The effect of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater effect on our performance than inflation.

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK For information regarding market risk see Item 7- "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Management of Market Risk."

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