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DCOM Dime Community Bancshares

Filed: 10 May 21, 4:29pm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2021

OR

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

For the transition period from to

Commission file number 001-34096

DIME COMMUNITY BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

N/A

(Former name or former address, if changed since last report)

New York

    

11-2934195

(State or other jurisdiction of incorporation or organization)

(I.R.S. employer identification number)

898 Veterans Memorial Highway, Suite 560, Hauppauge, NY

11788

 (Address of principal executive offices)

(Zip Code)

(631) 537-1000

(Registrant’s telephone number, including area code)

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 Par Value

DCOM

The NASDAQ Stock Market

Preferred Stock, Series A, $0.01 Par Value

DCOMP

The NASDAQ Stock Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer" "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  ☐

Accelerated Filer  ☒

Non-Accelerated Filer  ☐

Smaller Reporting Company 

Emerging Growth Company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Classes of Common Stock

Number of shares outstanding at May 3, 2021

$0.01 Par Value

41,583,837

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements may be identified by use of words such as “annualized,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “seek,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar terms and phrases, including references to assumptions.

Forward-looking statements are based upon various assumptions and analyses made by Dime Community Bancshares, Inc. (together with its direct and indirect subsidiaries, the “Company”), in light of management’s experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond the Company’s control) that could cause actual conditions or results to differ materially from those expressed or implied by such forward-looking statements. Accordingly, you should not place undue reliance on such statements. These factors include, without limitation, the following:

increases in competitive pressure among financial institutions or from non-financial institutions;
fluctuation in market interest rates;
changes in deposit flows, loan demand or real estate values;
changes in the quality and composition of our loan or investment portfolios;
changes in accounting principles, policies or guidelines;
changes in corporate and/or individual income tax laws or policies;
general economic conditions, either nationally or locally in some or all areas in which the Company conducts business, or conditions in the securities markets or the banking industry;
legislative, regulatory or policy changes;
the success or consummation of new business initiatives or the integration of any acquired entities may be more difficult or expensive than the Company anticipates; and
the risks referred to in the section entitled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2020 as updated by our Quarterly Reports on Form 10-Q.

Further, the COVID-19 pandemic has caused local and national economic disruption and has had an impact on the Company’s operations and financial results. Given its ongoing and dynamic nature, it is difficult to predict what further effects the pandemic will have on our business and results of operations. The pandemic and related local and national economic disruption may, among other effects, result in a decline in demand for our products and services; increased levels of loan delinquencies, problem assets and foreclosures; branch closures, work stoppages and unavailability of personnel; and increased cybersecurity risks, as employees continue to increasingly work remotely.

The Company has no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.

3

Item 1.   Condensed Consolidated Financial Statements

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands except share amounts)

March 31, 

December 31, 

    

2021

    

2020

Assets

 

(unaudited)

 

  

Cash and due from banks

$

676,723

$

243,603

Mortgage-backed securities available-for-sale, at fair value

846,529

426,979

Investment securities available-for-sale, at fair value

 

305,964

 

111,882

Marketable equity securities, at fair value

5,970

Loans held for sale

 

23,704

 

5,903

Loans held for investment, net:

 

 

  

Real estate

 

8,149,079

 

4,978,195

Commercial and industrial ("C&I") loans

 

2,332,610

 

641,533

Other loans

24,409

2,316

Allowance for credit losses

 

(98,200)

 

(41,461)

Total loans held for investment, net

 

10,407,898

 

5,580,583

Premises and fixed assets, net

 

53,829

 

19,053

Restricted stock

 

45,063

 

60,707

Bank Owned Life Insurance ("BOLI")

 

251,521

 

156,096

Goodwill

 

155,339

 

55,638

Other intangible assets

10,627

Operating lease assets

 

69,094

 

33,898

Derivative assets

45,760

18,932

Accrued interest receivable

51,100

34,815

Other assets

 

75,477

 

27,551

Total assets

$

13,018,628

$

6,781,610

Liabilities

 

  

 

  

Interest-bearing deposits

$

7,271,876

$

3,744,371

Non-interest-bearing deposits

 

3,538,936

 

780,751

Total deposits

 

10,810,812

 

4,525,122

FHLBNY advances

 

533,865

 

1,204,010

Other short-term borrowings

 

126,763

 

120,000

Subordinated debt, net

 

197,234

 

114,052

Operating lease liabilities

 

71,249

 

39,874

Derivative liabilities

41,816

37,374

Other liabilities

 

64,065

 

40,082

Total liabilities

 

11,845,804

 

6,080,514

 

  

 

  

Commitments and contingencies

 

  

 

  

Stockholders' equity:

 

  

 

  

Preferred stock, Series A ($0.01 par, $25.00 liquidation value, 9,000,000 shares authorized and 5,299,200 shares issued and outstanding at March 31, 2021 and December 31, 2020)

 

116,569

 

116,569

Common stock ($0.01 par 81,000,000 shares authorized, 41,583,837 shares and 34,813,302 shares issued at March 31, 2021 and December 31, 2020, respectively, and 41,536,054 shares and 21,232,984 shares outstanding at March 31, 2021 and December 31, 2020, respectively)

 

416

 

348

Additional paid-in capital

 

492,431

 

278,295

Retained earnings

 

574,297

 

600,641

Accumulated other comprehensive gain (loss), net of deferred taxes

 

531

 

(5,924)

Unearned equity awards

 

(10,107)

 

Common stock held by the Benefit Maintenance Plan ("BMP")

 

 

(1,496)

Treasury stock, at cost (47,783 shares and 13,580,318 shares at March 31, 2021 and December 31, 2020, respectively)

 

(1,313)

 

(287,337)

Total stockholders' equity

 

1,172,824

 

701,096

Total liabilities and stockholders' equity

$

13,018,628

$

6,781,610

See notes to unaudited condensed consolidated financial statements.

4

DIME COMMUNITY BACSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands except per share amounts)

Three Months Ended

March 31, 

2021

    

2020

Interest income:

  

 

  

Loans

$

81,382

$

54,177

Securities

4,380

 

3,726

Other short-term investments

 

993

 

1,002

Total interest income

 

86,755

 

58,905

Interest expense:

 

  

 

  

Deposits and escrow

 

5,298

 

11,926

Borrowed funds

 

3,616

 

6,455

Total interest expense

 

8,914

 

18,381

Net interest income

 

77,841

 

40,524

Provision for credit losses

 

15,779

 

8,012

Net interest income after provision for credit losses

 

62,062

 

32,512

Non-interest income:

 

  

 

  

Service charges and other fees

 

2,920

 

1,203

Title fees

433

Loan level derivative income

 

1,792

 

1,163

BOLI income

 

1,339

 

1,887

Gain on sale of SBA loans

164

164

Gain on sale of residential loans

 

723

 

151

Net gain (loss) on equity securities

131

(472)

Net gain on sale of securities and other assets

 

710

 

8

Loss on termination of derivatives

(16,505)

Other

 

910

 

132

Total non-interest (loss) income

 

(7,383)

 

4,236

Non-interest expense:

 

  

 

  

Salaries and employee benefits

 

24,819

 

15,587

Occupancy and equipment

 

6,977

 

4,056

Data processing costs

 

3,528

 

2,024

Marketing

 

860

 

577

Professional services

1,865

1,514

Federal deposit insurance premiums

 

939

 

477

Loss from extinguishment of debt

 

1,594

 

Curtailment loss

1,543

Merger expenses and transaction costs

37,942

586

Amortization of core deposit intangible

357

Other

 

2,381

 

1,219

Total non-interest expense

 

82,805

 

26,040

(Loss) income before income taxes

 

(28,126)

 

10,708

Income tax (benefit) expense

 

(7,092)

 

2,316

Net (loss) income

(21,034)

8,392

Preferred stock dividends

(1,821)

0

Net (loss) income available to common stockholders

$

(22,855)

$

8,392

(Loss) earnings per common share:

 

  

 

  

Basic

$

(0.66)

$

0.37

Diluted

$

(0.66)

$

0.37

See notes to unaudited condensed consolidated financial statements.

5

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands except per share amounts)

Three Months Ended

March 31, 

2021

    

2020

Net (loss) income

$

(21,034)

$

8,392

Other comprehensive (loss) income:

 

  

 

  

Change in unrealized holding (loss) gain on securities available-for-sale

 

(16,721)

 

10,252

Change in pension and other postretirement obligations

 

2,006

 

271

Change in unrealized gain (loss) on derivatives

 

22,307

 

(20,377)

Other comprehensive income (loss) before income taxes

 

7,592

 

(9,854)

Deferred tax expense (benefit)

 

1,137

 

(3,162)

Other comprehensive income (loss), net of tax

 

6,455

 

(6,692)

Total comprehensive (loss) income

$

(14,579)

$

1,700

See notes to unaudited condensed consolidated financial statements.

6

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands)

Three Months Ended March 31, 2021

Accumulated

Other

Comprehensive

Common

Number of

Additional

Loss,

Unearned

Stock

Treasury

Total

Shares of

Preferred

Common

Paid-in

Retained

Net of Deferred

Equity

Held by

Stock,

Stockholders’

    

Common Stock

    

Stock

    

Stock

    

Capital

    

Earnings

    

Taxes

    

Awards

    

BMP

    

at cost

    

Equity

Beginning balance as of January 1, 2021

 

21,232,984

$

116,569

$

348

$

278,295

$

600,641

$

(5,924)

$

$

(1,496)

$

(287,337)

$

701,096

Cumulative change in accounting principle (Note 3)

1,686

1,686

Adjusted beginning balance on January 1, 2021

21,232,984

116,569

348

278,295

602,327

(5,924)

(1,496)

(287,337)

702,782

Net loss

(21,034)

(21,034)

Other comprehensive income, net of tax

6,455

6,455

Reverse merger with Bridge Bancorp, Inc.

19,992,284

65

206,641

(2,603)

287,107

491,210

Exercise of stock options

15,928

292

80

372

Release of shares, net of forfeitures

335,959

3

8,562

(8,340)

(33)

192

Stock-based compensation

836

836

Shares received to satisfy distribution of retirement benefits

(41,101)

(1,359)

1,496

(1,130)

(993)

Cash dividends declared and paid to preferred stockholders

(1,821)

(1,821)

Cash dividends declared and paid to common stockholders

(5,175)

(5,175)

Ending balance as of March 31, 2021

41,536,054

$

116,569

$

416

$

492,431

$

574,297

$

531

$

(10,107)

$

$

(1,313)

$

1,172,824

Three Months Ended March 31, 2020

Accumulated

Other

Comprehensive

Common

Number of

Additional

Loss,

Unearned

Stock

Treasury

Total

Shares of

Preferred

Common

Paid-in

Retained

Net of Deferred

Equity

Held by

Stock,

Stockholders’

    

Common Stock

    

Stock

    

Stock

    

Capital

    

Earnings

    

Taxes

    

Awards

    

BMP

    

at cost

    

Equity

Beginning balance as of January 1, 2020

 

22,780,208

$

$

348

$

279,511

$

581,817

$

(5,940)

$

(6,731)

$

(1,496)

$

(250,751)

$

596,758

Net income

8,392

8,392

Other comprehensive loss, net of tax

(6,692)

(6,692)

Release of shares, net of forfeitures

59

5

(7)

2

Stock-based compensation

671

671

Proceeds from Preferred Stock issuance, net

72,224

72,224

Shares received related to tax withholding

(3,025)

(79)

(79)

Cash dividends declared and paid to common stockholders

(4,915)

(4,915)

Repurchase of shares of Common Stock

(825,992)

(20,711)

(20,711)

Ending balance as of March 31, 2020

21,951,250

$

72,224

$

348

$

279,516

$

585,294

$

(12,632)

$

(6,067)

$

(1,496)

$

(271,539)

$

645,648

See notes to unaudited condensed consolidated financial statements.

7

DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

Three Months Ended March 31, 

    

2021

    

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

  

  

Net (loss) income

$

(21,034)

$

8,392

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

  

 

  

Net gain on sales of securities available-for-sale and other assets

 

(710)

 

(8)

Net (gain) loss on equity securities

 

(131)

 

472

Net gain on sale of loans held for sale

 

(887)

 

(315)

Net depreciation, amortization and accretion

 

(977)

 

1,294

Stock-based compensation

 

836

 

671

Provision for credit losses

 

15,779

 

8,012

Originations of loans held for sale

 

(12,868)

 

(6,217)

Proceeds from sale of loans originated for sale

 

20,291

 

8,103

Increase in cash surrender value of BOLI

 

(1,340)

 

(756)

Gain from death benefits from BOLI

0

(1,131)

Deferred income tax benefit

 

(12,704)

 

(2,090)

Decrease in other assets

 

89,179

 

1,530

(Decrease) increase in other liabilities

 

(84,352)

 

2,515

Net cash (used in) provided by operating activities

 

(8,918)

 

20,472

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Proceeds from sales of securities available-for-sale

 

134,558

 

4,199

Proceeds from sales of marketable equity securities

 

6,101

 

137

Purchases of securities available-for-sale

 

(327,222)

 

(33,244)

Acquisition of marketable equity securities

 

0

 

(113)

Proceeds from calls and principal repayments of securities available-for-sale

 

214,029

 

32,312

Purchase of BOLI

 

0

 

(20,000)

Loans purchased

 

0

 

(892)

Proceeds from the sale of portfolio loans transferred to held for sale

 

3,900

 

Net (increase) decrease in loans

 

(326,077)

 

131,569

Purchases of fixed assets, net

 

1,651

 

(1,034)

Sales (purchases) of FHLBNY capital stock, net

 

39,006

 

(1,127)

Net cash received in business combination

715,988

0

Net cash provided by investing activities

 

461,934

 

111,807

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Increase (decrease) in deposits

 

870,519

 

(3,183)

Repayments of FHLBNY advances, long-term

 

(140,150)

 

(3,615,520)

(Repayments) proceeds of FHLBNY advances, short-term, net

 

(745,000)

 

3,640,570

Proceeds (repayments) of other short-term borrowings, net

 

6,763

 

(110,000)

Proceeds from preferred stock issuance, net

0

72,224

Proceeds from exercise of stock options

 

372

 

Release of stock for benefit plan awards

 

192

 

Payments related to tax withholding for equity awards

 

0

 

(79)

BMP ESOP shares received to satisfy distribution of retirement benefits

 

(993)

 

Treasury shares repurchased

 

0

 

(20,711)

Cash dividends paid to preferred stockholders

(1,821)

Cash dividends paid to common stockholders

 

(9,778)

 

(4,915)

Net cash used in financing activities

 

(19,896)

 

(41,614)

Increase in cash and cash equivalents

 

433,120

 

90,665

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

243,603

 

155,488

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

676,723

$

246,153

 

  

 

  

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

  

 

  

Cash paid for income taxes

$

4,625

$

955

Cash paid for interest

 

8,624

 

16,881

Loans transferred to held for sale

 

18,144

 

2,509

Transfer of cash surrender value for BOLI to other assets

 

0

 

3,016

Cumulative change due to CECL adoption

 

1,686

 

Net non-cash liabilities assumed in Merger (See Note 2)

324,479

 

See notes to unaudited condensed consolidated financial statements.

8

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.BASIS OF PRESENTATION

On February 1, 2021, Dime Community Bancshares, Inc., a Delaware corporation (“Legacy Dime”) merged with and into Bridge Bancorp, Inc., a New York corporation (“Bridge”) (the “Merger”), with Bridge as the surviving corporation under the name “Dime Community Bancshares, Inc.” (the “Holding Company”). At the effective time of the Merger (the “Effective Time”), each outstanding share of Legacy Dime common stock, par value $0.01 per share, was converted into the right to receive 0.6480 shares of the Holding Company’s common stock, par value $0.01 per share.

At the Effective Time, each outstanding share of Legacy Dime’s Series A preferred stock, par value $0.01 (the “Dime Preferred Stock”), was converted into the right to receive one share of a newly created series of the Holding Company’s preferred stock having the same powers, preferences and rights as the Dime Preferred Stock.

Immediately following the Merger, Dime Community Bank, a New York-chartered commercial bank and a wholly-owned subsidiary of Legacy Dime, merged with and into BNB Bank, a New York-chartered trust company and a wholly-owned subsidiary of Bridge, with BNB Bank as the surviving bank, under the name “Dime Community Bank” (the “Bank”).

The unaudited consolidated financial statements presented in this Quarterly Report on Form 10-Q include the collective results of the Holding Company and its wholly-owned subsidiary, the Bank, which are collectively herein referred to as “we”, “us”, “our” and the “Company.”

The Merger was accounted for as a reverse merger using the acquisition method of accounting, which means that for accounting and financial reporting purposes, Legacy Dime was deemed to have acquired Bridge in the Merger, even though Bridge was the legal acquirer. Accordingly, Legacy Dime’s historical financial statements are the historical financial statements of the combined company for all periods before February 1, 2021 (the “Merger Date”).

The Company’s results of operations for the first quarter of 2021 include the results of operations of Bridge on and after the Merger Date. Results for periods before the Merger Date reflect only those of Legacy Dime and do not include the results of operations of Bridge. The number of shares issued and outstanding, earnings per share, additional paid-in capital, dividends paid and all references to share quantities of the Company have been retrospectively adjusted to reflect the equivalent number of shares issued to holders of Legacy Dime common stock in the Merger. The assets and liabilities of Bridge as of the Merger Date have been recorded at their estimated fair value and added to those of Legacy Dime. See Note 2. Merger for further information.

As of March 31, 2021, we operate 67 branch locations throughout Long Island and the New York City boroughs of Brooklyn, Queens, Manhattan, and the Bronx.  

The Company is a bank holding company engaged in commercial banking and financial services through its wholly-owned subsidiary, Dime Community Bank, which was known as BNB Bank prior to the Merger. The Bank was established in 1910 and is headquartered in Hauppauge, New York. The Holding Company was incorporated under the laws of the State of New York in 1988 to serve as the holding company for the Bank. The Company functions primarily as the holder of all of the Bank’s common stock. In May 1999, the Bank established a real estate investment trust subsidiary, Bridgehampton Community, Inc. (“BCI”), as an operating subsidiary. Our bank operations also include Bridge Abstract LLC (“Bridge Abstract”), a wholly-owned subsidiary of the Bank, which is a broker of title insurance services. In connection with the Merger, on February 1, 2021, the Holding Company acquired Dime Community Bank and its wholly-owned subsidiaries.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The unaudited consolidated financial statements included herein reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. In preparing the interim financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reported periods. Such estimates are subject to

9

change in the future as additional information becomes available or previously existing circumstances are modified. Actual future results could differ significantly from those estimates. The annualized results of operations for the three months ended March 31, 2021 are not necessarily indicative of the results of operations that may be expected for the entire fiscal year. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain reclassifications have been made to prior year amounts, and the related discussion and analysis, to conform to the current year presentation. These reclassifications did not have an impact on net income or total stockholders' equity. The unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Legacy Dime’s Annual Report on Form 10-K for the year ended December 31, 2019, which remain significantly unchanged and have been followed similarly as in prior periods except for the allowance for credit losses policy, resulting from the adoption of Accounting Standard Update (“ASU”) No. 2016-13, “Financial Instruments – Credit Losses (Topic 326)” and certain policies added as a result of the Merger.

Risks and Uncertainties

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which has spread to most countries, including the United States. The pandemic has adversely affected economic activity globally, nationally and locally.

In March 2020, the United States declared a National Public Health Emergency in response to the COVID-19 pandemic. In an effort to mitigate the spread of COVID-19, local state governments, including New York (in which the Bank has retail banking offices), have taken preventative or protective actions such as travel restrictions, advising or requiring individuals to limit or forego their time outside of their homes, and other forced closures for certain types of non-essential businesses. The impact of these actions is expected to continue to have an adverse impact on the economies and financial markets in the United States.

The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020. The CARES Act is intended to provide relief and lessen a severe economic downturn. The stimulus package includes direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and healthcare providers.

It is possible that there will be material, adverse impacts to significant estimates, asset valuations, and business operations, including intangible assets, investments, loans, deferred tax assets, and derivative counter party risk.

2.MERGER

As described in Note 1. Basis of Presentation, on February 1, 2021, we completed our Merger with Legacy Dime.

Pursuant to the merger agreement, Legacy Dime merged with and into Bridge with Bridge as the surviving corporation under the name “Dime Community Bancshares, Inc.” At the effective time of the Merger, each outstanding share of Legacy Dime common stock, par value $0.01 per share, was converted into 0.6480 shares of the Company’s common stock, par value $0.01 per share.

At the Effective Time, each outstanding share of Legacy Dime’s Series A preferred stock, par value $0.01 (the “Dime Preferred Stock”), was converted into 1 share of a newly created series of the Company’s preferred stock having the same powers, preferences and rights as the Dime Preferred Stock.

In connection with the Merger, the Company assumed $115.0 million in aggregate principal amount of the 4.50% Fixed-to-Floating Rate Subordinated Debentures due 2027 of Legacy Dime.

The Merger constituted a business combination and was accounted for as a reverse merger using the acquisition method of accounting. As a result, Legacy Dime was the accounting acquirer and Bridge was the legal acquirer and the accounting acquiree. Accordingly, the historical financial statements of Legacy Dime became the historical financial statements of the combined company. In addition, the assets and liabilities of Bridge have been recorded at their estimated fair values

10

and added to those of Legacy Dime as of the Merger Date. The determination of fair value required management to make estimates about discount rates, expected future cash flows, market conditions and other future events that are subjective and subject to change.

The Company issued 21.2 million shares of its common stock to Legacy Dime stockholders in connection with the Merger, which represented 51.5% of the voting interests in the Company upon completion of the Merger. In accordance with FASB ASC 805-40-30-2, the purchase price in a reverse acquisition is determined based on the number of equity interests the legal acquiree would have had to issue to give the owners of the legal acquirer the same percentage equity interest in the combined entity that results from the reverse acquisition.

The table below summarizes the ownership of the combined company following the Merger, for each shareholder group, as well as the market capitalization of the combined company using shares of Bridge and Legacy Dime common stock outstanding at January 31, 2021 and Bridge’s closing price on January 31, 2021.

Dime Community Bancshares, Inc. Ownership and Market Value

Number of

Market Value at

Bridge

Percentage

$24.43 Bridge

(Dollars and shares in thousands)

Outstanding Shares

Ownership

Share Price

Bridge shareholders

 

19,993

 

48.5%

 

$

488,420

Legacy Dime shareholders

21,233

51.5%

518,720

Total

41,226

100.0%

$

1,007,140

The table below summarizes the hypothetical number of shares as of January 31, 2021 that Legacy Dime would have to issue to give Bridge owners the same percentage ownership in the combined company.

Hypothetical Legacy Dime Ownership

Number of

Legacy Dime

Percentage

(Shares in thousands)

Outstanding Shares

Ownership

Bridge shareholders

 

30,853

 

48.5%

Legacy Dime shareholders

32,767

51.5%

Total

63,620

100.0%

The purchase price is calculated based on the number of hypothetical shares of Legacy Dime common stock issued to Bridge shareholders multiplied by the share price as demonstrated in the table below.

(Dollars and shares in thousands)

Number of hypothetical Legacy Dime shares issued to Bridge shareholders

30,853

Legacy Dime market price per share as of February 1, 2021

$

15.90

Purchase price determination of hypothetical Legacy Dime shares issued to Bridge shareholders

$

490,560

Value of Bridge stock options hypothetically converted to options to acquire shares of Legacy Dime common stock

643

Cash in lieu of fractional shares

7

Purchase price consideration

$

491,210

11

The following table provides the purchase price allocation as of the Merger Date and the Bridge assets acquired and liabilities assumed at their estimated fair value as of the Merger Date as recorded by Dime Community Bancshares. We recorded the estimate of fair value based on initial valuations available at the Merger Date and these estimates are considered preliminary and subject to adjustment for up to one year after the Merger Date. While we believe that the information available on the Merger Date provided a reasonable basis for estimating fair value, we expect that we may obtain additional information and evidence during the measurement period that would result in changes to the estimated fair value amounts. The measurement period ends on the earlier of one year after the Merger Date or the date we are able to determine that we have obtained all necessary information about the facts and circumstances that existed as of Merger Date. Subsequent adjustments to fair value, if necessary, will be reflected in our future filings.

(In thousands)

Purchase price consideration

$

491,210

Fair value of assets acquired:

Cash and due from banks

715,988

Securities available-for-sale

651,997

Loans held for sale

10,000

Loans held for investment

4,531,640

Premises and fixed assets

37,881

Restricted stock

23,362

BOLI

94,085

Other intangible assets

10,984

Operating lease assets

45,603

Other assets

117,474

Total assets acquired

6,239,014

Fair value of liabilities assumed:

Deposits

5,405,575

Other short-term borrowings

216,298

Subordinated debt

83,200

Operating lease liabilities

45,285

Other liabilities

97,147

Total liabilities assumed

5,847,505

Fair value of net identifiable assets

391,509

Goodwill resulting from Merger

$

99,701

As a result of the Merger, we recorded $99.7 million of goodwill. The goodwill recorded in not deductible for income tax purposes.

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As described in detail in Note 3. Summary of Accounting Policies, the Company is required to record purchased financial assets with credit deterioration (PCD assets), defined as a more-than-insignificant deterioration in credit quality since origination or issuance, at the purchase price plus the allowance for credit losses expected at the time of acquisition. Under this method, there is no credit loss expense affecting net income on acquisition of PCD assets.  Changes in estimates of expected losses after acquisition are recognized as credit loss expense (or reversal of credit loss expense) in subsequent periods as they arise. Any non-credit discount or premium resulting from acquiring a pool of purchased financial assets with credit deterioration shall be allocated to each individual asset.  At the acquisition date, the initial allowance for credit losses determined on a collective basis shall be allocated to individual assets to appropriately allocate any non-credit discount or premium.  The non-credit discount or premium, after the adjustment for the allowance for credit losses, shall be accreted to interest income using the interest method based on the effective interest rate determined after the adjustment for credit losses at the adoption date. Information regarding loans acquired at the Merger Date are as follows:

(In thousands)

PCD loans:

 

  

Unpaid principal balance

$

295,306

Non-credit discount at acquisition

 

(9,049)

Unpaid principal balance, net

 

286,257

Allowance for credit losses at acquisition

(52,285)

Fair value at acquisition

233,972

Non-PCD loans:

 

  

Unpaid principal balance

 

4,289,236

Premium at acquisition

 

8,432

Fair value at acquisition

 

4,297,668

 

Total fair value at acquisition

$

4,531,640

Supplemental disclosures of cash flow information related to investing and financing activities regarding the Merger are as follows for the three months ended March 31, 2021:

(In thousands)

Business combination:

 

  

Fair value of tangible assets acquired

$

6,228,030

Goodwill, core deposit intangible and other intangible assets acquired

 

110,685

Liabilities assumed

 

5,847,505

Purchase price consideration

491,210

Other intangible assets consisted of core deposit intangibles and a non-compete agreement with estimated fair values at the Merger Date of $10.2 million and $780 thousand, respectively. Core deposit intangibles are being amortized over a life of 10 years on an accelerated basis. The non-compete agreement is being amortized over a life of 13 months.

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Pro Forma Combined Results of Operations

The following pro forma financial information presents the consolidated results of operations of Legacy Dime and Bridge as if the Merger occurred as of January 1, 2020 with pro forma adjustments. The pro forma adjustments give effect to any change in interest income due to the accretion of discounts (premiums) associated with the fair value adjustments of acquired loans, any change in interest expense due to estimated premium amortization/discount accretion associated with the fair value adjustments to acquired time deposits and other debt, and the amortization of the core deposit intangible that would have resulted had the deposits been acquired as of January 1, 2020. Merger related expenses incurred by the Company during the three months ended March 31, 2021 are not reflected in the pro forma amounts. The pro forma information does not necessarily reflect the results of operations that would have occurred had Legacy Dime merged with Bridge at the beginning of 2020.  The pro forma amounts for the three months ended March 31, 2021 and 2020 do not reflect the anticipated cost savings that have not yet been realized.

Three Months Ended

March 31, 

(Dollars in thousands except per share amounts)

    

2021

    

2020

Net interest income

 

$

90,476

 

$

79,511

Non-interest (loss) income

(6,032)

9,453

Net (loss) income

(149)

18,685

Net (loss) income available to common shareholders

(1,560)

18,423

Earnings per share:

Basic

(0.04)

0.45

Diluted

(0.04)

0.45

3.SUMMARY OF ACCOUNTING POLICIES

Summary of Significant Accounting Policies

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary for a fair presentation of the Company’s financial condition as of March 31, 2021 and December 31, 2020, the results of operations and statements of comprehensive income for the three-month periods ended March 31, 2021 and 2020, the changes in stockholders’ equity for the three-month periods ended March 31, 2021 and 2020, and cash flows for the three-month periods ended March 31, 2021 and 2020.

Please see "Part I - Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" for a discussion of areas in the accompanying unaudited condensed consolidated financial statements utilizing significant estimates.

Recent Accounting Pronouncements

Allowance for Credit Losses – The Company adopted ASU No. 2016-13 on January 1, 2021 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures.  ASU 2016-13 was effective for the Company as of January 1, 2020. Under Section 4014 of the CARES Act, financial institutions required to adopt ASU 2016-13 as of January 1, 2020 were provided an option to delay the adoption of the Current Expected Credit Loss (“CECL” or the “CECL Standard”) framework. The Company elected to defer adoption of the CECL Standard until January 1, 2021. The CECL Standard requires that the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current conditions, and reasonable and supportable forecasts. This standard requires financial institutions and other organizations to use forward-looking information to better inform their credit loss estimates. Results for reporting periods beginning after January 1, 2021 are presented under the CECL Standard while prior period amounts will continue to be reported in accordance with previously applicable GAAP.

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The adoption of the CECL standard resulted in an initial decrease of $3.9 million to the allowance for credit losses and an increase of $1.4 million to the reserve for unfunded commitments in other liabilities. The after-tax cumulative-effect adjustment of $1.7 million was recorded in retained earnings as of January 1, 2021.

The allowance for credit losses is a valuation allowance that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loan losses are charged against the allowance when management believes it has confirmed the loan balance is uncollectible. Subsequent recoveries, if any, are credited to the allowance.

The CECL Standard, which requires that debt securities held to maturity be accounted for under the current expected credit losses model, including historical loss experience and impact of current conditions and reasonable and supportable forecasts, with an associated allowance for credit losses. In addition, while credit losses on debt securities available for sale should be measured in accordance with the other-than-temporary impairment (“OTTI”) framework under current GAAP, the amendments in the CECL Standard require that these credit losses be presented as an allowance for credit losses.  For AFS debt securities, a decline in fair value due to credit loss results in recording an allowance for credit losses to the extent the fair value is less than the amortized cost basis.

Management estimates the allowance balance required using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historically observed credit loss experience of peer banks within our geography provide the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or terms as well as changes in environmental conditions, such as changes in unemployment rates, gross domestic product, and real estate pricing. Management evaluates the adequacy of the allowance on a quarterly basis.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods:

One-to-four family residential, including condominium and cooperative apartment loans - Loans in this classification consist of residential real estate and one-to-four family real estate properties, and may have a mixed-use commercial aspect. Owner-occupied properties are generally underwritten based upon an appraisal performed by an independent, state licensed appraiser and the credit quality of the individual borrower. Investment properties require: (1) a maximum loan-to-value ratio of 75% based upon an appraisal performed by an independent, state licensed appraiser, and (2) sufficient rental income from the underlying property to adequately service the debt, represented by a minimum debt service ratio of 1.25x. The credit quality of this portfolio is largely dependent on economic factors, such as unemployment rates and housing prices.  

Multifamily residential and residential mixed-use loans - Loans in this classification consist of multifamily residential real estate with a minimum of five residential units, and may have a mixed-use commercial aspect of less than 50% of the property’s rental income. The Bank’s underwriting standards for multifamily residential loans generally require: (1) a maximum loan-to-value ratio of 75% based upon an appraisal performed by an independent, state licensed appraiser, and (2) sufficient rental income from the underlying property to adequately service the debt, represented by a minimum debt service ratio of 1.20x. Repayment of multifamily residential loans is dependent, in significant part, on cash flow from the collateral property sufficient to satisfy operating expenses and debt service. Future increases in interest rates, increases in vacancy rates on multifamily residential or commercial buildings, and other economic events, such as unemployment rates, which are outside the control of the borrower or the Bank could negatively impact the future net operating income of such properties. Similarly, government regulations, such as the existing New York City Rent Regulation and Rent Stabilization laws, could limit future increases in the revenue from these buildings.

Commercial real estate and commercial mixed-use loans - Loans in this classification consist of commercial real estate, both owner-occupied and non-owner occupied, and may have a residential aspect of less than 50% of the property’s rental income. The Bank’s underwriting standards for commercial real estate loans generally require: (1) a maximum loan-to-value ratio of 75% based upon an appraisal performed by an independent, state licensed appraiser, and (2) sufficient rental income from the underlying property to adequately service the debt, represented by a minimum debt service ratio of

15

1.25x. Included in commercial real estate loans are also certain Small Business Administration ("SBA") loans in which the loan is secured by underlying real estate as collateral. The Bank may sell a portion of the loan, guaranteed by the SBA, to a third-party investor. Repayment of commercial real estate loans is often dependent upon successful operation or management of the collateral properties, as well as the success of the business and retail tenants occupying the properties. Repayment of such loans is generally more vulnerable to weak economic conditions, such as unemployment rates and commercial real estate prices.

Acquisition, development, and construction loans - Loans in this classification consist of loans to purchase land intended for further development, including single-family homes, multi-family housing, and commercial income properties. In general, the maximum loan-to-value ratio for a land acquisition loan is 50% of the appraised value of the property. The credit quality of this portfolio is largely dependent on economic factors, such as unemployment rates and commercial real estate prices.

Commercial, Industrial and Agricultural Loans - Loans in this classification consist of lines of credit, revolving lines of credit, and term loans, generally to businesses or high net worth individuals. The owners of these businesses typically provide recourse such that they guarantee the debt. The lines of credit are generally secured by the assets of the business, though they may at times be issued on an unsecured basis. Generally speaking, they are subject to renewal on an annual basis based upon review of the borrower’s financial statements. Term loans are generally secured by either specific or general asset liens of the borrower’s business. These loans are granted based upon the strength of the cash generation ability of the borrower. Included in C&I loans are also certain SBA loans in which the loan is secured by underlying assets of the business (excludes SBA Paycheck Protection Program loans from allowance for credit losses as these loans carry a 100% guarantee from the SBA). The Bank may sell a portion of the loan, guaranteed by the SBA, to a third-party investor. The credit quality of this portfolio is largely dependent on economic factors, such as unemployment rates.

Other Loans – Loans in this classification consist of installment and consumer loans. Repayment is dependent on the credit quality of the individual borrower. The credit quality of this portfolio is largely dependent on economic factors, such as unemployment rates and housing prices.

Loans that do not share risk characteristics are evaluated on an individual basis based on various factors. Loans evaluated individually are not included in the collective evaluation. Factors that may be considered are borrower delinquency trends and nonaccrual status, probability of foreclosure or note sale, changes in the borrower’s circumstances or cash collections, borrower’s industry, or other facts and circumstances of the loan or collateral.

Individually Evaluated Loans with an ACL and Other Real Estate Owned: For collateral-dependent loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral, less the estimated costs to sell, and the amortized cost basis of the loan as of the measurement date.  The fair value of real estate collateral is determined based on recent appraised values. The fair value of other real estate owned is also determined based on recent appraised values less the estimated cost to sell. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Adjustments may relate to location, square footage, condition, amenities, market rate of leases as well as timing of comparable sales. All appraisals undergo a second review process to ensure that the methodology employed and the values derived are reasonable. The fair value of non-real estate collateral, which includes inventory, may be determined based on an appraisal, net book value per the borrower’s financial statements, aging reports, or by reference to  market activity, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the borrower and its business. For non-collateral-dependent loans, ACL is measured based on the difference between the present value of expected cash flows and the amortized cost basis of the loan as of the measurement date.

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Appraisals for collateral-dependent loans are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, the Appraisal and Credit Departments review the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Management also considers the appraisal values for commercial properties associated with current loan origination activity. Collectively, this information is reviewed to help assess current trends in commercial property values. For each collateral dependent loan, management considers information that relates to the type of property to determine if such properties may have appreciated or depreciated in value since the date of the most recent appraisal. Adjustments to fair value are made only when the analysis indicates a probable decline in collateral values. Adjustments made in the appraisal process are not deemed material to the overall consolidated financial statements given the level of collateral dependent loans measured at fair value on a non-recurring basis.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures – The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for credit losses on off-balance sheet credit exposures, which is included in other liabilities on the consolidated statements of financial condition, is adjusted as a provision for credit loss expense in other operating expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which is the same as the expected loss factor as determined based on the corresponding portfolio segment.

Loans acquired in a business combination – The Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, on January 1, 2021 which now requires the Company to record purchased financial assets with credit deterioration (PCD assets), defined as a more-than-insignificant deterioration in credit quality since origination or issuance, at the purchase price plus the allowance for credit losses expected at the time of acquisition. Under this method, there is no credit loss expense affecting net income on acquisition of PCD assets.  Changes in estimates of expected losses after acquisition are recognized as credit loss expense (or reversal of credit loss expense) in subsequent periods as they arise. Any non-credit discount or premium resulting from acquiring a pool of purchased financial assets with credit deterioration shall be allocated to each individual asset.  At the acquisition date, the initial allowance for credit losses determined on a collective basis shall be allocated to individual assets to appropriately allocate any non-credit discount or premium.  The non-credit discount or premium, after the adjustment for the allowance for credit losses, shall be accreted to interest income using the interest method based on the effective interest rate determined after the adjustment for credit losses at the adoption date.

A purchased financial asset that does not qualify as a PCD asset is accounted for similar to an originated financial asset.  Generally, this means that an entity recognizes the allowance for credit losses for non-PCD assets through net income at the time of acquisition.  In addition, both the credit discount and non-credit discount or premium resulting from acquiring a pool of purchased financial assets that do not qualify as PCD assets shall be allocated to each individual asset.  This combined discount or premium shall be accreted to interest income using the effective yield method.

For further discussion of our loan accounting and acquisitions, see Note 2 – Merger and Note 8 – Loans.

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4.ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Activity in accumulated other comprehensive income (loss), net of tax, was as follows:

    

    

    

    

Total

Accumulated

Securities

Defined

Other

Available-

Benefit

Comprehensive

(In thousands)

    

for-Sale

    

Plans

    

Derivatives

    

Income (Loss)

Balance as of January 1, 2021

$

12,694

$

(6,086)

$

(12,532)

$

(5,924)

Other comprehensive income (loss) before reclassifications

 

(10,570)

 

1,659

 

16,476

 

7,565

Amounts reclassified from accumulated other comprehensive loss

 

(822)

 

(288)

 

 

(1,110)

Net other comprehensive (loss) income during the period

 

(11,392)

 

1,371

 

16,476

 

6,455

Balance as of March 31, 2021

$

1,302

$

(4,715)

$

3,944

$

531

Balance as of January 1, 2020

$

4,621

$

(6,024)

$

(4,537)

$

(5,940)

Other comprehensive income (loss) before reclassifications

 

7,049

 

120

 

(14,060)

 

(6,891)

Amounts reclassified from accumulated other comprehensive loss

 

(5)

 

65

 

139

 

199

Net other comprehensive income (loss) during the period

 

7,044

 

185

 

(13,921)

 

(6,692)

Balance as of March 31, 2020

$

11,665

$

(5,839)

$

(18,458)

$

(12,632)

The before and after-tax amounts allocated to each component of other comprehensive income (loss) are presented in the table below for the periods indicated.

Three Months Ended

March 31, 

(In thousands)

2021

    

2020

Change in unrealized holding gain or loss on securities available-for-sale:

 

  

 

  

Change in net unrealized gain or loss during the period

$

(15,534)

$

10,260

Reclassification adjustment for net (gains) losses included in net gain on securities and other assets

 

(1,187)

 

(8)

Net change

 

(16,721)

 

10,252

Tax (benefit) expense

 

(5,329)

 

3,208

Net change in unrealized holding gain or loss on securities available-for-sale

 

(11,392)

 

7,044

Change in pension and other postretirement obligations:

 

  

 

  

Reclassification adjustment for expense included in other expense

 

(422)

 

95

Reclassification adjustment for curtailment loss

1,543

Change in the net actuarial gain or loss

 

885

 

176

Net change

 

2,006

 

271

Tax expense

 

635

 

86

Net change in pension and other postretirement obligations

 

1,371

 

185

Change in unrealized gain or loss on derivatives:

 

  

 

  

Change in net unrealized gain or loss during the period

 

21,453

 

(20,581)

Reclassification adjustment for expense included in interest expense

 

854

 

204

Net change

 

22,307

 

(20,377)

Tax expense (benefit)

 

5,831

 

(6,456)

Net change in unrealized gain or loss on derivatives

 

16,476

 

(13,921)

Other comprehensive income (loss), net of tax

$

6,455

$

(6,692)

5.EARNINGS PER COMMON SHARE ("EPS")

Basic EPS is computed by dividing net income available to common stockholders by the weighted-average common shares outstanding during the reporting period. Diluted EPS is computed using the same method as basic EPS, but reflects the potential dilution that would occur if "in the money" stock options were exercised and converted into Common Stock, and if all likely aggregate Long-term Incentive Plan ("LTIP") and Sales Incentive Plan ("SIP") shares are issued, when there are outstanding shares. In determining the weighted average shares outstanding for basic and diluted EPS, treasury shares are excluded. Vested restricted stock award ("RSA") shares are included in the calculation of the weighted average shares outstanding for basic and diluted EPS. Unvested RSA and SIP shares not yet awarded are recognized as a special class of

18

participating securities under ASC 260, and are included in the calculation of the weighted average shares outstanding for basic and diluted EPS.

The following is a reconciliation of the numerators and denominators of basic and diluted EPS for the periods presented:

Three Months Ended

March 31, 

(In thousands except share and per share amounts)

    

2021

    

2020

  

 

  

Net (loss) income available to common stockholders

$

(22,855)

$

8,392

Less: Dividends paid and earnings allocated to participating securities

 

165

 

(67)

(Loss) income attributable to common stock

$

(22,690)

$

8,325

Weighted average common shares outstanding, including participating securities

 

34,543,114

 

22,551,358

Less: weighted average participating securities

 

(282,176)

 

(174,386)

Weighted average common shares outstanding

 

34,260,938

 

22,376,972

Basic EPS

$

(0.66)

$

0.37

 

  

 

  

(Loss) income attributable to common stock

$

(22,690)

$

8,325

Weighted average common shares outstanding

 

34,260,938

 

22,376,972

Weighted average common equivalent shares outstanding

 

1,067

 

99,600

Weighted average common and equivalent shares outstanding

 

34,262,005

 

22,476,572

Diluted EPS

$

(0.66)

$

0.37

Common and equivalent shares resulting from the dilutive effect of "in-the-money" outstanding stock options are calculated based upon the excess of the average market value of the common stock over the exercise price of outstanding in-the-money stock options during the period.

There were 180,020 weighted-average stock options outstanding for the three-month period ended March 31, 2021, which were not considered in the calculation of diluted EPS since their exercise prices exceeded the average market price during the period. There were 0 "out-of-the-money" stock options during the three-month period ended March 31, 2020.

For information about the calculation of expected aggregate LTIP and SIP share payouts, see Note 16.

6.PREFERRED STOCK

On February 5, 2020, Legacy Dime completed an underwritten public offering of 2,999,200 shares, or $75.0 million in aggregate liquidation preference, of its 5.50% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share, with a liquidation preference of $25.00 per share. The net proceeds received from the issuance of preferred stock at the time of closing were $72.2 million. On June 10, 2020, Legacy Dime completed an underwritten public offering, a reopening of the February 5, 2020 original issuance, of 2,300,000 shares, or $57.5 million in aggregate liquidation preference, of its 5.50% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share (the “Preferred Stock”), with a liquidation preference of $25.00 per share. The net proceeds received from the issuance of preferred stock at the time of closing were $44.3 million.

At the Effective Time of the Merger, each outstanding share of the Preferred Stock was converted into the right to receive one share of a newly created series of the Company’s preferred stock having the same powers, preferences and rights as the Legacy Dime Preferred Stock.

The Company expects to pay dividends when, as, and if declared by its board of directors, at a fixed rate of 5.50% per annum, payable quarterly, in arrears, on February 15, May 15, August 15 and November 15 of each year. The Preferred Stock is perpetual and has no stated maturity. The Company may redeem the Preferred Stock at its option at a redemption price equal to $25.00 per share, plus any declared and unpaid dividends (without regard to any undeclared dividends), subject to regulatory approval, on or after June 15, 2025 or within 90 days following a regulatory capital treatment event, as described in the prospectus supplement and accompanying prospectus relating to the offering.

19

7.INVESTMENT AND MORTGAGE-BACKED SECURITIES

The following tables summarize the major categories of securities owned by the Company as of the dates indicated:

March 31, 2021

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

(In thousands)

    

Cost

    

Gains

    

Losses

    

Value

Securities available-for-sale:

 

  

 

  

 

  

 

  

Agency notes

$

72,500

$

$

(2,930)

$

69,570

Treasury securities

92,547

(275)

92,272

Corporate securities

 

95,786

 

3,367

 

(420)

 

98,733

Pass-through MBS issued by GSEs

 

321,442

 

7,053

 

(4,788)

 

323,707

Agency Collateralized Mortgage Obligations ("CMOs")

 

522,841

 

6,305

 

(6,324)

 

522,822

State and municipal obligations

45,498

179

(288)

45,389

Total securities available-for-sale

$

1,150,614

$

16,904

$

(15,025)

$

1,152,493

December 31, 2020

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

(In thousands)

    

Cost

    

Gains

    

Losses

    

Value

Securities available-for-sale:

 

  

 

  

 

  

 

  

Agency notes

$

47,500

$

12

$

(91)

$

47,421

Corporate securities

 

62,021

 

2,440

 

 

64,461

Pass-through MBS issued by GSEs

 

135,842

 

7,672

 

(31)

 

143,483

Agency CMOs

 

274,898

 

8,674

 

(76)

 

283,496

Total securities available-for-sale

$

520,261

$

18,798

$

(198)

$

538,861

As a result of the Merger, the Company acquired $652.0 million of securities available-for-sale on the Merger Date.

The carrying amount of securities pledged as collateral was $637.1 million and $99.4 million at March 31, 2021 and December 31, 2020, respectively.

At March 31, 2021 and December 31, 2020, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders' equity.

The amortized cost and fair value of debt securities are shown by contractual maturity.  Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties.  Securities not due at a single maturity date are shown separately.  

 

March 31, 2021

Amortized

Fair

(In thousands)

Cost

Value

Available-for-sale

Within one year

$

2,123

$

2,130

One to five years

116,049

115,878

Five to ten years

183,014

182,961

Beyond ten years

5,145

4,995

Pass-through MBS issued by GSEs and agency CMO

844,283

846,529

Total

$

1,150,614

$

1,152,493

20

The following table presents the information related to sales of securities available-for-sale as of the periods indicated:

Three Months Ended

March 31, 

(In thousands)

2021

    

2020

Corporate Securities:

Proceeds

$

46,754

$

0

Gross gains

709

0

Tax expense on gain

225

0

Gross losses

41

0

Tax benefit on loss

13

0

Pass through MBS issued by GSEs:

  

 

  

Proceeds

26,823

Gross gains

 

187

 

Tax expense on gain

 

59

 

Gross losses

 

35

 

0

Tax benefit on loss

 

11

 

0

Agency CMOs:

 

  

 

  

Proceeds

 

41,324

 

4,199

Gross gains

 

268

 

8

Tax expense on gain

 

85

 

3

Gross losses

44

0

Tax benefit on loss

14

0

State and municipal obligations:

 

  

 

  

Proceeds

 

19,657

 

0

Gross gains

 

143

 

0

Tax expense on gain

 

45

 

0

Three Months Ended

March 31, 

(In thousands)

2021

    

2020

Proceeds:

  

 

  

Marketable equity securities

$

6,101

$

137

Net gain of $131 thousand was recognized on marketable equity securities for the three-month period ended March 31, 2021. Net loss of $472 thousand was recognized on marketable equity securities for the three-month period ended March 31, 2020. Marketable equity securities were fully liquidated in connection with the termination of the BMP.

The following table summarizes the gross unrealized losses and fair value of investment securities aggregated by investment category and the length of time the securities were in a continuous unrealized loss position as of the dates indicated:

March 31, 2021

Less than 12

12 Consecutive

Consecutive Months

Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(In thousands)

    

Value

    

Losses

    

Value

    

Losses

    

Value

    

Losses

Securities available-for-sale:

 

  

 

  

 

  

 

  

 

  

 

  

Agency notes

$

69,570

$

2,930

$

0

$

0

$

69,570

$

2,930

Treasury securities

92,272

275

0

0

92,272

275

Corporate securities

18,278

420

0

0

18,278

420

Pass-through MBS issued by GSEs

181,917

4,788

0

0

181,917

4,788

Agency CMOs

239,145

6,324

0

0

239,145

6,324

State and municipal obligations

 

19,004

 

288

 

0

 

0

 

19,004

 

288

21

December 31, 2020

Less than 12

12 Consecutive

Consecutive Months

Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(In thousands)

    

Value

    

Losses

    

Value

    

Losses

    

Value

    

Losses

Securities available-for-sale:

 

  

 

  

 

  

 

  

 

  

 

  

Agency notes

$

22,409

$

91

$

0

$

0

$

22,409

$

91

Corporate securities

 

 

 

0

 

0

 

 

Pass-through MBS issued by GSEs

 

5,007

 

31

 

0

 

0

 

5,007

 

31

Agency CMOs

 

6,563

 

30

 

4,954

 

46

 

11,517

 

76

The issuers of securities available-for-sale are primarily U.S. government-sponsored entities or agencies. The decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality. In accordance with the Company’s investment policy, corporate notes are rated "investment grade" at the time of purchase and the financials of the issuers are reviewed quarterly. It is likely that the Company will not be required to sell the securities before their anticipated recovery, and as such, the Company does not consider these securities to be other-than-temporarily-impaired at March 31, 2021.

On January 1, 2021, the Company adopted the CECL Standard, which requires that debt securities held to maturity be accounted for under the current expected credit losses model, including historical loss experience and impact of current conditions and reasonable and supportable forecasts, with an associated allowance for credit losses. In addition, while credit losses on debt securities available for sale should be measured in accordance with the other-than-temporary impairment (“OTTI”) framework under current GAAP, the amendments in the CECL Standard require that these credit losses be presented as an allowance for credit losses.  For AFS debt securities, a decline in fair value due to credit loss results in recording an allowance for credit losses to the extent the fair value is less than the amortized cost basis. There are no held maturity securities as of March 31, 2021.

8.LOANS HELD FOR INVESTMENT, NET

The following table presents the loan categories for the period ended as indicated:

(In thousands)

    

March 31, 2021

    

December 31, 2020

One-to-four family residential and cooperative/condominium apartment

$

696,415

$

184,989

Multifamily residential and residential mixed-use

 

3,567,207

 

2,758,743

Commercial real estate ("CRE")

 

3,631,287

 

1,878,167

Acquisition, development, and construction ("ADC")

 

254,170

 

156,296

Total real estate loans

 

8,149,079

 

4,978,195

Commercial and industrial ("C&I")

 

2,332,610

 

641,533

Other loans

 

24,409

 

2,316

Total

 

10,506,098

 

5,622,044

Allowance for credit losses

 

(98,200)

 

(41,461)

Loans held for investment, net

$

10,407,898

$

5,580,583

As a result of the Merger, the Company recorded $4.53 billion of loans held for investment on the Merger Date.

As of March 31, 2021, included in C&I loans was $1.43 billion of Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans. There was $321.9 million of SBA PPP loans at December 31, 2020.  These loans carry a 100% guarantee from the SBA and have 0 allowance for credit losses allocated to them based on the nature of the guarantee.

22

The following tables present data regarding the allowance for credit losses activity for the periods indicated:

At or for the Three Months Ended March 31, 2021

Real Estate Loans

One-to-Four

Family

Residential,

Including

Multifamily

Commercial

Condominium

Residential

Real Estate

and

and

and

Cooperative

Residential

Commercial

Total Real

Other

(In thousands)

    

Apartment

    

Mixed-Use

    

Mixed-Use

    

ADC

    

Estate

    

C&I

    

Loans

 

Total

Allowance for credit losses:

Beginning balance, prior to the adoption of CECL

$

644

$

17,016

$

9,059

$

1,993

$

28,712

$

12,737

$

12

    

$

41,461

Impact of adopting CECL

1,048

(8,254)

4,849

381

(1,976)

(1,935)

(8)

(3,919)

Adjusted beginning balance as of January 1, 2021

1,692

8,762

13,908

2,374

26,736

10,802

4

37,542

PCD Day 1

2,220

3,292

23,124

117

28,753

23,374

157

52,284

Provision (credit) for credit losses

 

1,235

(1,397)

7,813

1,408

 

9,059

 

3,219

371

 

12,649

Charge-offs

 

(14)

 

(236)

 

(8)

 

 

(258)

 

(4,017)

 

 

(4,275)

Ending balance

$

5,133

$

10,421

$

44,837

$

3,899

$

64,290

$

33,378

$

532

$

98,200

At or for the Three Months Ended March 31, 2020

Real Estate Loans

One-to Four

Family

Residential,

Including

Multifamily

Commercial

Condominium

Residential

Real Estate

and

and

and

Cooperative

Residential

Commercial

Total Real

Other

(In thousands)

    

Apartment

    

Mixed-Use

    

Mixed-Use

    

ADC

    

Estate

    

C&I

    

Loans

 

Total

Allowance for credit losses:

Beginning balance

$

269

$

10,142

$

3,900

$

1,244

$

15,555

$

12,870

$

16

    

$

28,441

Provision (credit) for credit losses

 

376

 

4,127

 

2,442

 

427

 

7,372

 

641

 

(1)

 

8,012

Charge-offs

 

0

 

0

 

(6)

 

0

 

(6)

 

0

 

0

 

(6)

Recoveries

 

0

 

14

 

0

 

0

 

14

 

2

 

0

 

16

Ending balance

$

645

$

14,283

$

6,336

$

1,671

$

22,935

$

13,513

$

15

$

36,463

The increase in allowance for credit losses was primarily attributable to the Day 1 allowance recognized on acquired PCD loans of $52.3 million, coupled with the provision for credit losses on loans recognized of $12.6 million for the quarter, partially offset by $4.3 million in net charge-offs and the impact of the adoption of the CECL standard of $3.9 million. The provision of $12.6 million for the quarter primarily resulted from the provision for credit losses recorded on acquired non-PCD loans which totaled $20.3 million for the quarter, partially offset by a negative $7.6 million provision on the remainder of the portfolio as a result of the improvement in forecasted macroeconomic conditions.

The following table presents the amortized cost basis of loans on non-accrual status as of the period indicated:

March 31, 2021

Non-accrual with

Non-accrual with

(In thousands)

    

No Allowance

    

Allowance

 

Reserve

One-to-four family residential and cooperative/condominium apartment

$

-

$

5,384

$

134

Multifamily residential and residential mixed-use

 

4,844

 

-

-

CRE

 

3,552

 

7,043

2,786

ADC

-

104

59

C&I

-

14,523

7,881

Other

-

99

58

Total

$

8,396

$

27,153

$

10,918

The Company did not recognize interest income on non-accrual loans during the quarter ended March 31, 2021.

23

The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method, prior to the adoption of ASC 326, as of the dates indicated:

December 31, 2020

Real Estate Loans

One-to-Four

Family

Residential,

Including

Multifamily

Commercial

Condominium

Residential

Real Estate

��

and

and

and

Cooperative

Residential

Commercial

Total Real

Other

(In thousands)

    

Apartment

    

Mixed-Use

    

Mixed-Use

    

ADC

    

Estate

    

C&I

    

Loans

    

Total

Allowance for loan losses:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Individually evaluated for impairment

$

0

$

0

$

0

$

0

$

0

$

6,474

$

0

 

$

6,474

Collectively evaluated for impairment

 

644

 

17,016

 

9,059

 

1,993

 

28,712

 

6,263

 

12

 

34,987

Total ending allowance balance

$

644

$

17,016

$

9,059

$

1,993

$

28,712

$

12,737

$

12

 

$

41,461

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Loans:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Individually evaluated for impairment

$

0

$

1,863

$

2,704

$

0

$

4,567

$

12,502

$

0

 

$

17,069

Collectively evaluated for impairment

 

184,989

 

2,756,880

 

1,875,463

 

156,296

 

4,973,628

 

629,031

 

2,316

 

5,604,975

Total ending loans balance

$

184,989

$

2,758,743

$

1,878,167

$

156,296

$

4,978,195

$

641,533

$

2,316

 

$

5,622,044

Impaired Loans (prior to the adoption of ASC 326)

A loan is considered impaired when, based on then current information and events, it is probable that all contractual amounts due will not be collected in accordance with the terms of the loan. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays or shortfalls generally are not classified as impaired. Management determines the significance of payment delays and shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The Bank considers TDRs and all non-accrual loans, except non-accrual one-to-four family loans in less than the FNMA Limits, to be impaired. Non-accrual one-to-four family loans equal to or less than the FNMA Limits, as well as all consumer loans, are considered homogeneous loan pools and are not required to be evaluated individually for impairment unless considered a TDR.

Impairment is typically measured using the difference between the outstanding loan principal balance and either: 1) the likely realizable value of a note sale; 2) the fair value of the underlying collateral, net of likely disposal costs, if repayment is expected to come from liquidation of the collateral; or 3) the present value of estimated future cash flows (using the loan’s pre-modification rate for certain performing TDRs). If a TDR is substantially performing in accordance with its restructured terms, management will look to either the potential net liquidation proceeds of the underlying collateral or the present value of the expected cash flows from the debt service in measuring impairment (whichever is deemed most appropriate under the circumstances). If a TDR has re-defaulted, generally the likely realizable net proceeds from either a note sale or the liquidation of the collateral is considered when measuring impairment. Measured impairment is either charged off immediately or, in limited instances, recognized as an allocated reserve within the allowance for loan losses.

24

The following tables summarize impaired loans with no related allowance recorded and with related allowance recorded as of the periods indicated (by collateral type within the real estate loan segment):

The following table summarizes impaired loans recorded as of the date indicated:

December 31, 2020

Unpaid

Principal

Recorded

Related

(In thousands)

    

Balance

    

Investment(1)

    

Allowance

With no related allowance recorded:

  

  

  

Multifamily residential and residential mixed-use

$

1,863

$

1,863

$

0

CRE

 

2,704

 

2,704

 

0

Total with no related allowance recorded

 

4,567

 

4,567

 

0

With an allowance recorded:

 

  

 

  

 

  

C&I

 

12,502

 

12,502

 

6,474

Total with an allowance recorded

 

12,502

 

12,502

 

6,474

Total

$

17,069

$

17,069

$

6,474

(1)The recorded investment excludes net deferred costs due to immateriality.

25

The following table presents information for impaired loans for the period indicated:

Three Months Ended

March 31, 2020

Average

Interest

Recorded

Income

(In thousands)

    

Investment(1)

    

Recognized(2)

With no related allowance recorded:

  

  

One-to-four family residential and cooperative/condominium apartment

$

2,948

$

Multifamily residential and residential mixed-use

 

743

 

6

CRE

 

58

 

1

Total with no related allowance recorded

 

3,749

 

7

 

  

 

  

With an allowance recorded:

 

  

 

  

C&I

 

10,082

 

Total

$

13,831

$

7

(1)The recorded investment excludes net deferred costs due to immateriality.
(2)Cash basis interest and interest income recognized on accrual basis approximate each other.

The following tables summarize the past due status of the Company’s investment in loans (excluding net deferred costs and accrued interest) as of the dates indicated:

March 31, 2021

Loans 90

Days or

30 to 59

60 to 89

More Past Due

Days

Days

and Still

Non-

Total

Total

(In thousands)

    

Past Due

    

Past Due

    

Accruing Interest

    

accrual (1)

    

Past Due

    

Current

    

Loans

Real estate:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

One-to-four family residential, including condominium and cooperative apartment

$

7,027

$

686

$

45

$

5,384

$

13,142

$

683,273

$

696,415

Multifamily residential and residential mixed-use

 

3,984

 

8,340

 

2,871

 

4,844

 

20,039

 

3,547,168

 

3,567,207

CRE

 

4,702

 

3,334

 

2,259

 

10,595

 

20,890

 

3,610,397

 

3,631,287

ADC

 

0

 

0

 

0

 

104

 

104

 

254,066

 

254,170

Total real estate

 

15,713

 

12,360

 

5,175

 

20,927

 

54,175

 

8,094,904

 

8,149,079

C&I

 

13,254

 

410

 

3,652

 

14,523

 

31,839

 

2,300,771

 

2,332,610

Other

9

89

0

99

197

24,212

24,409

Total

$

28,976

$

12,859

$

8,827

$

35,549

$

86,211

$

10,419,887

$

10,506,098

(1)Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of March 31, 2021.

26

December 31, 2020

Loans 90

Days or

30 to 59

60 to 89

More Past Due

Days

Days

and Still

Non-

Total

Total

(In thousands)

    

Past Due

    

Past Due

    

Accruing Interest

    

accrual (1)

    

Past Due

    

Current

    

Loans

Real estate:

 

  

 

  

 

  

 

  

 

  

 

  

 

  

One-to-four family residential, including condominium and cooperative apartment

$

0

$

0

$

44

$

858

$

902

$

184,087

$

184,989

Multifamily residential and residential mixed-use

 

0

 

0

 

437

 

1,863

 

2,300

 

2,756,443

 

2,758,743

CRE

 

15,351

 

0

 

0

 

2,704

 

18,055

 

1,860,112

 

1,878,167

ADC

 

0

 

0

 

0

 

0

 

0

 

156,296

 

156,296

Total real estate

 

15,351

 

0

 

481

 

5,425

 

21,257

 

4,956,938

 

4,978,195

C&I

 

0

 

917

 

2,848

 

12,502

 

16,267

 

625,266

 

641,533

Other

8

1

0

1

10

2,306

2,316

Total

$

15,359

$

918

$

3,329

$

17,928

$

37,534

$

5,584,510

$

5,622,044

(1)Includes all loans on non-accrual status regardless of the number of days such loans were delinquent as of December 31, 2020.

Accruing Loans 90 Days or More Past Due:

The Company continued accruing interest on 8 loans with an outstanding balance of $8.8 million at March 31, 2021, and 3 loans with an outstanding balance of $3.3 million at December 31, 2020, all of which were 90 days or more past due on their respective contractual maturity dates. These loans continued to make monthly payments consistent with their initial contractual amortization schedule exclusive of the balloon payments due at maturity. These loans were well secured and/or were expected to be refinanced, and, therefore, remained on accrual status and were deemed performing assets at the dates indicated above.

Collateral Dependent Loans:

At March 31, 2021, the Company had collateral dependent loans which were individually evaluated to determine expected credit losses.

Collateral dependent CRE loans totaled $66.0 million and had a related allowance for credit losses totaling $17.4 million at March 31, 2021.  The loans were secured by real estate.

Collateral dependent multi-family residential and residential mixed-use loans totaled $12.5 million and had a related allowance for credit losses totaling $2.6 million. The loans were secured by real estate.

Collateral dependent C&I loans totaled $8.0 million and had a related allowance for credit losses totaling $4.1 million. The loans were secured by business assets.

Loan payment deferrals due to COVID-19

Consistent with regulatory guidance to work with borrowers during the unprecedented situation caused by the COVID-19 pandemic and as outlined in the CARES Act, the Company established a formal payment deferral program in April 2020 for borrowers that have been adversely affected by the pandemic.

As of March 31, 2021, the Company had 34 loans, representing outstanding loan balances of $66.7 million, that were deferring both principal and interest (“P&I” deferrals).

27

The table below presents the P&I deferrals as of March 31, 2021:

March 31, 2021

Number

 

    

of Loans

    

Balance(1)

 

% of Portfolio

(Dollars in thousands)

One-to-four family residential and cooperative/condominium apartment

 

15

$

15,489

2.2

%

Multifamily residential and residential mixed-use

 

 

CRE

 

8

 

24,174

0.7

ADC

1

13,500

5.3

C&I

10

13,491

0.6

Total

 

34

$

66,654

0.6

(1)Amount excludes net deferred costs due to immateriality.

Pursuant to regulatory guidance, and guidance under Section 4013 of the CARES Act, a qualified loan modification, such as a payment deferral, is exempt by law from classification as a TDR as defined by GAAP, was expected to expire on December 31, 2020.  The 2021 Consolidated Appropriations Act, which was signed into law December of 2020, extended the exemption for TDR classification until the earlier of January 1, 2022 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak is lifted.

Risk-ratings on COVID-19 loan deferrals are evaluated on an ongoing basis.

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit structure, loan documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying them as to credit risk. This analysis includes all loans, such as multifamily residential, mixed-use residential (i.e., loans in which the aggregate rental income of the underlying collateral property is generated from both residential and commercial units, but 50% or more of such income is generated from the residential units), commercial real estate, mixed-use commercial real estate (i.e., loans in which the aggregate rental income of the underlying collateral property is generated from both residential and commercial units, but over 50% of such income is generated from the commercial units), ADC, C&I, as well as all one-to- four family residential and cooperative and condominium apartment loans. The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of then existing facts, conditions, and values, highly questionable and improbable. All real estate and C&I loans not classified as Special Mention, Substandard, or Doubtful were deemed pass loans at both March 31, 2021 and December 31, 2020.

28

The following is a summary of the credit risk profile of loans by internally assigned grade as of the periods indicated, the years represent the year of origination for non-revolving loans:

March 31, 2021

(In thousands)

2021

2020

2019

2018

2017

2016 and Prior

Revolving

Revolving-Term

Total

One-to-four family residential, and condominium/cooperative apartment:

Pass

$

30,658

$

102,503

$

95,992

$

105,587

$

101,101

$

177,780

$

54,179

$

13,426

$

681,226

Special mention

381

152

371

5,106

846

1,106

7,962

Substandard

745

46

5,157

1,279

7,227

Doubtful

Total one-to-four family residential, and condominium/cooperative apartment

30,658

102,503

97,118

105,785

101,472

188,043

55,025

15,811

696,415

Multifamily residential and residential mixed-use:

Pass

95,876

365,073

518,902

215,459

464,424

1,672,655

9,698

11

3,342,098

Special mention

1,005

17,169

17,057

35,231

Substandard

34,421

27,280

32,564

95,117

496

189,878

Doubtful

Total multifamily residential and residential mixed-use

95,876

365,073

554,328

242,739

514,157

1,784,829

10,194

11

3,567,207

CRE:

Pass

184,029

867,480

604,893

396,946

404,571

978,940

50,050

26,440

3,513,349

Special mention

4,256

2,673

9,031

13,536

11,578

41,074

Substandard

589

3,400

13,235

22,060

37,567

10

76,861

Doubtful

3

3

Total CRE

184,029

872,325

610,966

419,212

440,167

1,028,085

50,050

26,453

3,631,287

ADC:

Pass

8,105

39,106

23,599

10,520

5,615

1,355

121,537

29,651

239,488

Special mention

1,077

13,500

14,577

Substandard

105

105

Doubtful

Total ADC

8,105

39,106

23,599

11,597

5,615

1,460

121,537

43,151

254,170

C&I:

Pass

560,948

991,821

71,898

44,089

47,108

38,787

461,029

42,082

2,257,762

Special mention

2,345

1,270

5,553

765

559

22,566

3,078

36,136

Substandard

49

839

1,417

3,228

1,314

4,118

15,190

26,155

Doubtful

210

11,929

190

228

12,557

Total C&I

560,948

994,215

74,217

51,059

63,030

40,850

487,713

60,578

2,332,610

Total Loans

$

879,616

$

2,373,222

$

1,360,228

$

830,392

$

1,124,441

$

3,043,267

$

724,519

$

146,004

$

10,481,689

December 31, 2020

Special

(In thousands)

    

Pass

    

Mention

    

Substandard

    

Doubtful

    

Total

Real Estate:

 

  

 

  

 

  

 

  

 

  

One-to-four family residential and condominium/cooperative apartment

$

183,293

$

0

$

1,696

$

0

$

184,989

Multifamily residential and residential mixed-use

 

2,523,258

 

56,400

 

179,085

 

0

 

2,758,743

CRE

 

1,831,712

 

13,861

 

32,594

 

0

 

1,878,167

ADC

 

142,796

 

13,500

 

0

 

0

 

156,296

Total real estate

 

4,681,059

 

83,761

 

213,375

 

0

 

4,978,195

C&I

 

613,691

 

2,131

 

13,315

 

12,396

 

641,533

Total Real Estate and C&I

$

5,294,750

$

85,892

$

226,690

$

12,396

$

5,619,728

29

For other loans, the Company evaluates credit quality based on payment activity. Other loans that are 90 days or more past due are placed on non-accrual status, while all remaining other loans are classified and evaluated as performing. The following is a summary of the credit risk profile of other loans by internally assigned grade:

(In thousands)

    

March 31, 2021

    

December 31, 2020

Performing

$

24,310

$

2,315

Non-accrual

 

99

 

1

Total

$

24,409

$

2,316

9.LEASES

As a result of the Merger, the Company acquired $45.6 million of operating lease assets and $45.3 million of operating lease liabilities on the Merger Date.

The Company recognizes operating lease assets and corresponding lease liabilities related to its office facilities and retail branches. The operating lease assets represent the Company’s right to use an underlying asset for the lease term, and the lease liability represents the Company’s obligation to make lease payments over the lease term.

The operating lease asset and lease liability are determined at the commencement date of the lease based on the present value of the lease payments. As most of our leases do not provide an implicit rate, the Company used its incremental borrowing rate, the rate of interest to borrow on a collateralized basis for a similar term, at the lease commencement date.

The Company made a policy election to exclude the recognition requirements of ASU 2016-02 to short-term leases, those leases with original terms of 12 months or less. Short-term lease payments are recognized in the income statement on a straight-line basis over the lease term. Certain leases may include one or more options to renew. The exercise of lease renewal options is typically at the Company’s discretion and are included in the operating lease liability if it is reasonably certain that the renewal option will be exercised. Certain real estate leases may contain lease and non-lease components, such as common area maintenance charges, real estate taxes, and insurance, which are generally accounted for separately and are not included in the measurement of the lease liability since they are generally able to be segregated. The Company does not sublease any of its leased properties. The Company does not lease properties from any related parties.

Maturities of the Company’s operating lease liabilities at March 31, 2021 are as follows:

Rent to be

(In thousands)

    

Capitalized

2021

 

$

10,570

2022

 

11,367

2023

 

9,665

2024

 

9,530

2025

 

9,141

Thereafter

 

26,289

Total undiscounted lease payments

 

76,562

Less amounts representing interest

 

5,313

Lease liability

$

71,249

Other information related to operating leases was as follows:

 

Three Months Ended

March 31, 

(In thousands)

    

2021

    

2020

Operating lease cost

$

3,158

$

1,603

Cash paid for amounts included in the measurement of operating lease liabilities

3,050

1,811

30

The weighted average remaining lease term at March 31, 2021 and March 31, 2020 was 7.2 years and 7.9 years. The weighted average discount rate at March 31, 2021 and March 31, 2020 was 1.87% and 3.25% respectively.

10.DERIVATIVES AND HEDGING ACTIVITIES

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s loan portfolio.

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. The Company engages in both cash flow hedges and freestanding derivatives.

Cash Flow Hedges

Cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.  The Company uses these types of derivatives to hedge the variable cash flows associated with existing or forecasted issuances of short-term borrowings.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Income (Loss) and subsequently reclassified into interest expense in the same periods during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s debt. During the next twelve months, the Company estimates that an additional $117 thousand will be reclassified as an increase to interest expense.

The Company is hedging its exposure to the variability in future cash flows for forecasted transactions over a maximum period of twenty-four months (excluding forecasted transactions related to the payment of variable interest on existing financial instruments).

During the three-month period ended March 31, 2021, the Company terminated 34 derivatives with notional values totaling $785.0 million, resulting in a termination value of $16.5 million which was recognized in loss on termination of derivatives in non-interest income.

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Statements of Financial Condition as of the periods indicated.

March 31, 2021

December 31, 2020

Notional

Fair Value

Fair Value

Notional

Fair Value

Fair Value

(Dollars in thousands)

    

Count

    

Amount

    

Assets

    

Liabilities

    

Count

    

Amount

    

Assets

    

Liabilities

Included in derivative assets/(liabilities):

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

Interest rate swaps related to FHLBNY advances

 

4

$

150,000

$

3,944

$

 

$

$

$

Interest rate swaps related to FHLBNY advances

 

$

$

$

 

32

$

655,000

$

$

(18,442)

31

The table below presents the effect of the cash flow hedge accounting on Accumulated Other Comprehensive Income (Loss) as of March 31, 2021 and 2020.

Three Months Ended

March 31, 

(In thousands)

2021

    

2020

Gain recognized in other comprehensive income

$

21,453

$

(20,581)

Gain reclassified from other comprehensive income into interest expense

 

854

 

204

All cash flow hedges are recorded gross on the balance sheet.

The cash flow hedges involve derivative agreements with third-party counterparties that contain provisions requiring the Bank to post cash collateral if the derivative exposure exceeds a threshold amount. As of March 31, 2021, the bank did not post collateral to the third-party counterparties.

Freestanding Derivatives

The Company maintains an interest-rate risk protection program for its loan portfolio in order to offer loan level derivatives with certain borrowers and to generate loan level derivative income. The Company enters into interest rate swap or interest rate floor agreements with borrowers. These interest rate derivatives are designed such that the borrower synthetically attains a fixed-rate loan, while the Company receives floating rate loan payments. The Company offsets the loan level interest rate swap exposure by entering into an offsetting interest rate swap or interest rate floor with an unaffiliated and reputable bank counterparties. These interest rate derivatives do not qualify as designated hedges, under ASU 815; therefore, each interest rate derivative is accounted for as a freestanding derivative. The notional amounts of the interest rate derivatives do not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate derivative agreements. The following table reflects freestanding derivatives included in the Consolidated Statements of Financial Condition as of the period indicated:

March 31, 2021

Notional

Fair Value

Fair Value

(In thousands)

    

Count

    

Amount

    

Assets

    

Liabilities

Included in derivative assets/(liabilities):

Loan level interest rate swaps with borrower

 

109

$

689,408

$

28,104

$

Loan level interest rate swaps with borrower

 

72

 

543,095

 

 

(16,468)

Loan level interest rate floors with borrower

46

406,923

0

(5,294)

Loan level interest rate swaps with third-party counterparties

 

109

 

689,408

 

 

(28,104)

Loan level interest rate swaps with third-party counterparties

72

543,095

16,468

Loan level interest rate floors with third-party counterparties

 

46

 

406,923

 

5,294

 

0

December 31, 2020

Notional

Fair Value

Fair Value

(In thousands)

    

Count

    

Amount

    

Assets

    

Liabilities

Included in derivative assets/(liabilities):

Loan level interest rate swaps with borrower

 

65

$

570,277

$

24,764

$

Loan level interest rate floors with borrower

 

41

 

364,643

 

 

(5,832)

Loan level interest rate swaps with third-party counterparties

 

65

 

570,277

 

 

(24,764)

Loan level interest rate floors with third-party counterparties

 

41

 

364,643

 

5,832

 

32

Loan level derivative income is recognized on the mark-to-market of the interest rate swap as a fair value adjustment at the time the transaction is closed. Total loan level derivative income is included in non-interest income as follows:

Three Months Ended

March 31, 

(In thousands)

2021

    

2020

Loan level derivative income

$

1,792

$

1,163

The interest rate swap product with the borrower is cross collateralized with the underlying loan and therefore there is no posted collateral. Certain interest rate swap agreements with third-party counterparties contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount. As of March 31, 2021, posted collateral was $10.8 million.

Credit Risk Related Contingent Features

The Company’s agreements with each of its derivative counterparties state that if the Company defaults on any of its indebtedness, it could also be declared in default on its derivative obligations and could be required to terminate its derivative positions with the counterparty.

The Company’s agreements with certain of its derivative counterparties state that if the Bank fails to maintain its status as a well-capitalized institution, the Bank could be required to terminate its derivative positions with the counterparty.

As of March 31, 2021, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $7.1 million for those related to loan level derivatives. If the Company had breached any of the above provisions at March 31, 2021, it could have been required to settle its obligations under the agreements at the termination value with the respective counterparty. There were 0 provisions breached for the three-month period ended March 31, 2021.

11.FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 Inputs – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs – Significant other observable inputs such as any of the following: (1) quoted prices for similar assets or liabilities in active markets, (2) quoted prices for identical or similar assets or liabilities in markets that are not active, (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and default rates), or (4) inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs).

Level 3 Inputs – Significant unobservable inputs for the asset or liability. Significant unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). Significant unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

33

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Securities

The Company’s marketable equity securities and available-for-sale securities are reported at fair value, which were determined utilizing prices obtained from independent parties. The valuations obtained are based upon market data, and often utilize evaluated pricing models that vary by asset and incorporate available trade, bid and other market information. For securities that do not trade on a daily basis, pricing applications apply available information such as benchmarking and matrix pricing. The market inputs normally sought in the evaluation of securities include benchmark yields, reported trades, broker/dealer quotes (obtained only from market makers or broker/dealers recognized as market participants), issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. For certain securities, additional inputs may be used or some market inputs may not be applicable. Prioritization of inputs may vary on any given day based on market conditions.

All MBS, CMO, treasury securities and agency notes available-for-sale are guaranteed either implicitly or explicitly by GSEs as of March 31, 2021 and December 31, 2020. In accordance with the Company’s investment policy, corporate securities are rated "investment grade" at the time of purchase and the financials of the issuers are reviewed quarterly. Obtaining market values as of March 31, 2021 and December 31, 2020 for these securities utilizing significant observable inputs was not difficult due to their liquid nature.

Derivatives

Derivatives represent interest rate swaps and estimated fair values are based on valuation models using observable market data as of the measurement date.

The following tables present financial assets liabilities measured at fair value on a recurring basis as of the dates indicated, segmented by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Fair Value Measurements 

at March 31, 2021 Using

Level 1

Level 2

Level 3

(In thousands)

    

Total

    

 Inputs

    

 Inputs

    

 Inputs

Financial Assets

 

  

 

  

 

  

 

  

Securities available-for-sale:

 

  

 

  

 

  

 

  

Agency Notes

$

69,570

$

$

69,570

$

Treasury Securities

92,272

92,272

Corporate Securities

 

98,733

 

 

98,733

 

Pass-through MBS issued by GSEs

 

323,707

 

 

323,707

 

Agency CMOs

 

522,822

 

 

522,822

 

State and municipal obligations

45,389

45,389

Derivative – cash flow hedges

 

3,944

 

 

3,944

 

Derivative – freestanding derivatives, net

 

41,816

 

 

41,816

 

Financial Liabilities

 

  

 

  

 

  

 

  

Derivative – cash flow hedges

 

 

 

 

Derivative – freestanding derivatives, net

 

41,816

 

 

41,816

 

34

Fair Value Measurements 

at December 31, 2020 Using

Level 1

Level 2

Level 3

(In thousands)

    

Total

    

 Inputs

    

 Inputs

    

 Inputs

Financial Assets

 

  

 

  

 

  

 

  

Marketable equity securities (Registered Mutual Funds)

 

  

 

  

 

  

 

  

Domestic equity mutual funds

$

1,769

$

1,769

$

$

International equity mutual funds

 

468

 

468

 

 

Fixed income mutual funds

 

3,733

 

3,733

 

 

Securities available-for-sale:

 

  

 

  

 

  

 

  

Agency Notes

 

47,421

 

 

47,421

 

Corporate Securities

 

64,461

 

 

64,461

 

Pass-through MBS issued by GSEs

 

143,483

 

 

143,483

 

Agency CMOs

 

283,496

 

 

283,496

 

Derivative – cash flow hedges

 

 

 

 

Derivative – freestanding derivatives

30,596

30,596

Financial Liabilities

 

  

 

  

 

  

 

  

Derivative – cash flow hedges

 

18,442

 

 

18,442

 

Derivative – freestanding derivatives

 

30,596

 

 

30,596

 

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis. That is, they are subject to fair value adjustments in certain circumstances. Financial assets measured at fair value on a nonrecurring basis include certain individually evaluated loans (or impaired loans prior to the adoption of ASC 326) reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. There were 0 impaired loans carried at fair value at March 31, 2021 and December 31, 2020.

Financial Instruments Not Measured at Fair Value

The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 24 to the Company’s Consolidated Financial Statements included in the Annual Report on Form 10-K.

The following tables present the carrying amounts and estimated fair values of financial instruments other than those measured at fair value on either a recurring or nonrecurring is as follows for the dates indicated, segmented by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Fair Value Measurements 

at March 31, 2021 Using

Carrying

Level 1

Level 2

Level 3

(In thousands)

    

 Amount

    

 Inputs

    

 Inputs

    

 Inputs

    

Total

Financial Assets

 

  

 

  

 

  

 

  

 

  

Cash and due from banks

$

676,723

$

676,723

$

$

$

676,723

Loans, net

 

10,407,898

 

 

 

10,489,350

 

10,489,350

Accrued interest receivable

 

51,100

 

 

3,602

 

47,498

 

51,100

Financial Liabilities

 

  

 

  

 

  

 

  

 

  

Savings, money market and checking accounts

 

9,270,496

 

9,270,496

 

 

 

9,270,496

Certificates of Deposits ("CDs")

 

1,540,316

 

 

1,545,436

 

 

1,545,436

FHLBNY Advances

 

533,865

 

 

534,049

 

 

534,049

Subordinated debt, net

 

197,234

 

 

198,297

 

 

198,297

Other borrowings

 

126,763

 

126,763

 

 

 

126,763

Accrued interest payable

 

2,024

 

 

2,024

 

 

2,024

35

Fair Value Measurements 

at December 31, 2020 Using

Carrying

Level 1

Level 2

Level 3

(In thousands)

    

 Amount

    

 Inputs

    

 Inputs

    

 Inputs

    

Total

Financial Assets

 

  

 

  

 

  

 

  

 

  

Cash and due from banks

$

243,603

$

243,603

$

$

$

243,603

Loans, net

 

5,580,583

 

 

 

5,598,787

 

5,598,787

Accrued interest receivable

 

34,815

 

2

 

1,584

 

33,229