UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Year Ended December 31, 2021
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BRIDGE BANCORP, INC.Commission file number001-34096
Dime Community Bancshares, Inc.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) | | (I.R.S. |
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(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (631) 537‑1000537-1000
Securities registered pursuantRegistered Pursuant to Section 12 (b)12(b) of the Act:
Title of each class | Trading | Name of |
Common Stock, par value $0.01 per share |
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The Nasdaq Stock Market | |
Preferred Stock, Series A, par value $0.01 per share | |
DCOMP | The Nasdaq Stock Market |
Securities registered pursuantRegistered Pursuant to Section 12 (g)12(g) of the Act:
(Title of Class)
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YesYES ☒ NO ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YesYES ☐ NoNO ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12twelve 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. YesYES ☒ NoNO ☐
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). YesYES ☒ NoNO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”filer” “smaller reporting company,”company” and “emerging“emerging growth company” in Rule 12b‑212b-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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑212b-2 of the Act).: Yes ☐ No ☒
The approximate aggregate market value of the voting stock held by non-affiliates of the Registrant,registrant as of June 30, 2021 was approximately $1.15 billion based upon the $33.62 closing price on the NASDAQ National Market for a share of the Common Stockregistrant’s common stock on June 30, 2019, was $484,470,967.2021.
The number ofregistrant had 39,647,623 shares of the Registrant’s common stock, $0.01 par value, outstanding onas of February 28, 2020 was 19,842,716.22, 2022.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated into the Parts of this Report on Form 10‑K indicated below:
The Registrant’s definitive Proxy Statement forto be distributed on behalf of the 2020Board of Directors of Registrant in connection with the Annual Meeting of Shareholders to be filed pursuant to Regulation 14Aheld on or before April 29, 2020 (Part III).May 26, 2022 and any adjournment thereof, are incorporated by reference in Part III.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||
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Changes in and Disagreements | |||||
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Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | |||||
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |||||
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Certain Relationships and Related Transactions, and Director Independence | |||||
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This report may contain statements relating to our future results (including certain projections and business trends) that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Such forward-looking statements, in addition to historical information, which involve risk and uncertainties, are based on the beliefs, assumptions and expectations of our management. Words such as “expects,” “believes,” “should,” “plans,” “anticipates,” “will,” “potential,” “could,” “intend,” “may,” “outlook,” “predict,” “project,” “would,” “estimated,” “assumes,” “likely,” and variations of such similar expressions are intended to identify such forward-looking statements. Examples of forward-looking statements include, but are not limited to, possible or assumed estimates with respect to the financial condition, expected or anticipated revenue, and results of operations and our business, including earnings growth; revenue growth in retail banking, lending and other areas; origination volume in the consumer, commercial and other lending businesses; current and future capital management programs; non-interest income levels, including fees from the title insurance subsidiary and banking services as well as product sales; tangible capital generation; market share; expense levels; and other business operations and strategies. We claim the protection of the safe harbor for forward-looking statements contained in the PSLRA.
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:
● | there may be increases in competitive pressure among financial institutions or from non-financial institutions; |
● | the net interest margin is subject to material short-term fluctuation based upon market rates; |
● | changes in deposit flows, loan demand or real estate values may affect the business of Dime Community Bank (the “Bank”); |
● | changes in accounting principles, policies or guidelines may cause the Company’s financial condition to be perceived differently; |
● | changes in corporate and/or individual income tax laws may adversely affect the Company’s business or financial condition or results of operations; |
● | 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, may be different than the Company currently anticipates; |
● | legislative, regulatory or policy changes may adversely affect the Company’s business or results of operations; |
● | technological changes may be more difficult or expensive than the Company anticipates; |
● | success or consummation of new business initiatives or the integration of any acquired entities may be more difficult or expensive than the Company anticipates; |
● | litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, may delay the occurrence or non-occurrence of events longer than the Company anticipates; and |
● | the Company may be subject to other risks, as enumerated under Item 1A. Risk Factors in this Annual Report on Form 10-K and in quarterly and other reports filed by us with the Securities and Exchange Commission. |
The Company has no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.
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PART I
In this Annual Report on Form 10-K, unless otherwise mentioned, the terms the “Company”, “we”, “us” and “our” refer to Bridge Bancorp, Inc. and its wholly-owned subsidiary, BNB Bank (the “Bank”). We use the term “Holding Company” to refer solely to Bridge Bancorp, Inc. and not to its consolidated subsidiary.
General
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 “Registrant” or“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”).
As of December 31, 2021, we operated 60 branch locations throughout Long Island and the New York City boroughs of Brooklyn, Queens, Manhattan, and the Bronx.
The Company is a registered bank holding company for BNBengaged in commercial banking and financial services through its wholly-owned subsidiary, Dime Community Bank. The Bank which was known as The Bridgehampton National Bank prior to the Bank’s conversion to aestablished in 1910 and is headquartered in Hauppauge, New York chartered commercial bank in December 2017.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. Since commencing business in March 1989, the HoldingThe Company has functionedfunctions primarily as the holder of all of the Bank’s common stock. In May 1999, the Bank establishedOur bank operations include Dime Community Inc., a real estate investment trust subsidiary which was formerly known as Bridgehampton Community, Inc. (“BCI”), as an operating subsidiary. The assets of BCI are viewed by the bank regulators as part of the Bank’s assets in consolidation. Our bank operations also include Bridge Abstract LLC (“Bridge Abstract”), a wholly-owned subsidiary of BNBthe Bank, which is a broker of title insurance services. In October 2009,September 2021, the Company formed Bridge Statutory Capital Trust II (the “Trust”) as a subsidiary,dissolved two REITs, DSBW Preferred Funding Corporation and DSBW Residential Preferred Funding Corporation, which sold $16.0 millionwere wholly-owned subsidiaries of 8.5% cumulative convertible Trust Preferred Securities (the “Trust Preferred Securities”) in a private placement to accredited investors.the Bank. The Trust Preferred Securitiespreferred shares issued by the REITs were redeemed effective January 18, 2017 andin connection with the Trust was cancelled effective April 24, 2017.dissolutions.
The Bank was established in 1910 and is headquartered in Bridgehampton, New York. We operate 40 branch locations in the primary market areas of Suffolk and Nassau Counties on Long Island and the New York City boroughs, including 36 in Suffolk and Nassau Counties, two in Queens and two in Manhattan. For over a century, we have maintained our focus on building customer relationships in our market area. Our mission is to grow through the provision of exceptional service to our customers, our employees, and the community. We strive to achieve excellence in financial performance and build long-term shareholder value. We engage in a full service commercial and consumer banking business, including accepting time, savings and demand deposits from the businesses, consumers, businesses and local municipalities in our market area. These deposits, together with funds generated from operations and borrowings, are invested primarily in: (1) commercial real estate loans; (2) multi-family mortgage loans; (3) residential mortgage loans; (4) secured and unsecured commercial and consumer loans; (5) home equity loans; (6) construction and land loans; (7) Federal Home Loan Bank (“FHLB”), Federal National Mortgage Association (“Fannie Mae”), Government National Mortgage Association (“Ginnie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) mortgage-backed securities, collateralized mortgage obligations and other asset backed securities; (8) U.S. Treasury securities; (9) New York State and local municipal obligations; (9)(10) U.S. government-sponsored enterprise (“U.S. GSE”) securities; and (10)(11) corporate bonds. We also offer the Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) programs, providing multi-millions of dollars of Federal Deposit Insurance Corporation (“FDIC”) insurance on deposits to our customers. In addition, we offer merchant credit and debit card processing, automated teller machines, cash management services, lockbox processing, online banking services, remote deposit capture, safe deposit boxes, and individual retirement accounts as well as investment services through Bridge Financial Services LLC, which offers a full range of investment products and services through a third-party broker dealer. Through its title insurance abstract subsidiary, the Bank acts as a broker for title insurance services. Our customer base is comprised principally of small and medium sized businesses, municipal relationships and consumer relationships.
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Human Capital Resources
Demographics and Culture
As of December 31, 2019,2021, we had 496employed 802 full-time equivalent employees. As a result of the Merger, on February 1, 2021, we added 373 full-time equivalent employees. Our employees are not represented by a collective bargaining agreement. Our culture in the workplace encourages employees to care about each other, the communities they serve, and the work they do. We believe strong community ties, customer focus, accountability, and development of the communities in which we operate will have a favorable long-term impact on our business performance. Our employees are passionate and empowered to build relationships and provide customized banking solutions to the communities we serve. We believe in hiring well-qualified people from a varietywide range of employment benefitsbackgrounds who align to values like integrity, innovation, and considerteamwork. As an equal opportunity employer, our relationship withdecisions to select and promote employees are unbiased as we seek to build a diverse and inclusive team of employees.
Labor Policies and Benefits
We offer our employees a comprehensive benefits package that will support, maintain, and protect their physical, mental, and financial health. We sponsor various wellness programs that promote the health and wellness of our employees. In March 2020, the United States declared a National Public Health Emergency in response to be positive.the COVID-19 pandemic, which presented a challenge of maintaining the health and safety of our employees. Our employees complete daily COVID-19 health assessments and must remain at home if they experience COVID-19 symptoms, tested positive, or have been in close contact with a person who has tested positive for COVID-19. As the pandemic evolved, we pivoted the schedules of corporate staff to ensure their safety while still providing support to our customers. Our branch network remained operational with minimal disruption throughout the pandemic.
Training, Development and Retention
We are committed to retaining employees by being competitive in providing cash and non-cash rewards, benefits, recognition, and professional development opportunities. We offered an 8-week summer internship program through local colleges that provided students with a valuable experience in the professional fields they are considering career paths in. It also provides a post-graduation pipeline of future employees. In addition, we maintain equity incentive plans under which we may issue shares of our common stock. Refer to Note 16.20. “Stock-Based Compensation Plans”Compensation” of the Notes to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details of our equity incentive plans. We promote career development and continuing education by offering internal training programs and tuition reimbursement for programs that develop skills related to our business.
Competition and Principal Market Areas
All phases of our business are highly competitive. We face direct competition from a significant number of financial institutions operating in our market area, many with a statewide or regional presence, and in some cases, a national presence. There is also competition for banking business from competitors outside of our market areas. Most of these competitors are significantly larger than us, and therefore have greater financial and marketing resources and lending limits than us. The fixed cost of regulatory compliance remains high for community banks as compared to their larger competitors that are able to achieve economies of scale. We consider our major competition to be local commercial banks as well as other commercial banks with branches in our market area. Other competitors include savings banks, credit unions,
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mortgage brokers and financial services firms other than financial institutions, such as investment and insurance companies. Increased competition within our market areas may limit growth and profitability. Additionally, as our market area expands westward, competitive pressure in new markets is expected to be strong. The title insurance abstract subsidiary also faces competition from other title insurance brokers as well as directly from the companies that underwrite title insurance. In New York State, title insurance is obtained on most transfers of real estate and mortgage transactions.
OurAs of December 31, 2021, our principal market areas arearea is Greater Long Island, which includes the counties of Kings, Queens, Nassau and Suffolk, and Nassau Counties on Long Island and the New York City boroughs, with our legacy markets being primarily in Suffolk County and our newer expansion markets being primarily in Nassau County, Queens and Manhattan. Long Island has a population of approximately 3 million and both counties are relatively affluent and well-educated, enjoying above average median household incomes. In total, Long Island hasManhattan, which have a sizable industry base with a majority of Suffolk County tending towards high-tech manufacturing and Nassau County favoring wholesale and retail trade. Suffolk County, particularly Eastern Long Island, is semi-rural and also the point of origin for us. Surrounded by water and including the Hamptons and North Fork, the region is a recreational destination for the New York metropolitan area, and a highly regarded resort locale worldwide. While the local economy flourishes in the summer months as a result of the influx of tourists and second homeowners, the year-round population has grown considerably in recent years, resulting in a reduction of the seasonal fluctuations in the economy, which has boosted our legacy market opportunities. Our opportunities in Nassau County are vast as there is a deposit base totaling approximately $17 billion across the zip codes in which we operate. As we had $447.7 million, or 3%, of this Nassau County deposit base at December 31, 2019, there is much room for growth in these expansion markets.base. Industries represented across the principal market areas include retail establishments; construction and trades; restaurants and bars; lodging and recreation; professional entities; real estate; health services; passenger transportation; high-tech manufacturing; and agricultural and related
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businesses. Given its proximity, Long Island’s economy is closely linked with New York City’s and major employers in the area include municipalities, school districts, hospitals, and financial institutions.
Since 2010, we have opened 16 branch locations in New York, including nine branches over the last six years, to continue expansion into new markets and strengthen the Bank’s position in existing markets. In 2014, we opened three branches in Suffolk County: in Bay Shore, Port Jefferson and Smithtown. In 2017, we again opened three branches in Suffolk County: one in Riverhead, capitalizing on a market opportunity presented by the sale of Suffolk County National Bank to People’s United Bank in the second quarter, one in East Moriches, and a drive-up facility located in Sag Harbor. We also opened a branch in Astoria, Queens in 2017. In 2018, we opened a limited service branch in Suffolk County located in Melville. In 2019, we opened a limited service branch in Manhattan.
During 2017, we conducted a branch rationalization study analyzing branch performance and market opportunities. As a result of the study, and in an effort to increase efficiency and remove branch redundancy, we closed six locations in the first quarter of 2018. The branches closed in Suffolk County, New York were located in Cutchogue, Center Moriches, and Melville. The branches closed in Nassau County, New York were located in Massapequa, New Hyde Park and Hewlett.Taxation
The Holding Company, the Bank and its subsidiaries, with the exception of the real estate investment trust, which files its own federal and state income tax returns, report their income on a consolidated basis using the accrual method of accounting and are subject to federal taxation as well as income tax of the State, City of New York and state income taxation.the State of New Jersey. In general, banks are subject to federal income tax in the same manner as other corporations. However, gains and losses realized by banks from the sale of available for saleavailable-for-sale securities are generally treated as ordinary income, rather than capital gains or losses. We are subject to the New York State Franchise Tax on Banking Corporations based on certain criteria. The taxation of net income is similar to federal taxable income subject to certain modifications. On December 22, 2017, the President signed the Tax Cuts and Jobs Act (“Tax Act”), resulting in significant changes to existing tax law, including a lower federal statutory tax rate of 21%. The Tax Act was generally effective as of January 1, 2018. In the fourth quarter of 2017, we recorded a charge of $7.6 million, which consisted primarily of the deferred tax asset remeasurement from the previous 35% federal statutory rate to the new 21% federal statutory tax rate.
Mergers and Acquisitions
Hamptons State Bank (“HSB”)
In May 2011, we acquired HSB, which increased our presence in an existing market with a branch located in the Village of Southampton.
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First National Bank of New York
In February 2014, we acquired FNBNY Bancorp and its wholly-owned subsidiary, the First National Bank of New York (collectively “FNBNY”) at a purchase price of $6.1 million, subject to certain post-closing adjustments, and issued an aggregate of 240,598 of our shares in exchange for all the issued and outstanding stock of FNBNY. At acquisition, FNBNY had total acquired assets on a fair value basis of $211.9 million, with loans of $89.7 million, investment securities of $103.2 million and deposits of $169.9 million. The transaction expanded our geographic footprint into Nassau County, complemented the existing branch network and enhanced asset generation capabilities.
Community National Bank (“CNB”)
In June 2015, we acquired CNB at a purchase price of $157.5 million, issued an aggregate of 5.647 million of our common shares in exchange for all the issued and outstanding common stock of CNB and recorded goodwill of $96.5 million, which is not deductible for tax purposes. At acquisition, CNB had total acquired assets on a fair value basis of $895.3 million, with loans of $729.4 million, investment securities of $90.1 million and deposits of $786.9 million. The transaction expanded our geographic footprint across Long Island including Nassau County, Queens and into New York City. The transaction complemented our existing branch network and enhanced asset generation capabilities.
We will continue to seek opportunities to expand our reach into other contiguous markets by network expansion, or through the addition of professionals with established customer relationships. We routinely add to our menu of products and services, continually meeting the needs of consumers and businesses. We believe positive outcomes in the future will result from the expansion of our geographic footprint, investments in infrastructure and technology and continued focus on placing customers first.
Regulation and Supervision
BNBDime Community Bank
The Bank is a New York chartered commercial bankState-chartered trust company and a member of the Federal Reserve System (a “member bank”). The lending, investment, and other business operations of the Bank are governed by New York and federal laws and regulations, and the Bank is prohibited from engaging in any operations not specifically authorized by such laws and regulations. The Bank is subject to extensive regulation by the New York State Department of Financial Services (“NYSDFS”) and, as a member bank, by the Board of Governors of the Federal Reserve System (“FRB”). The Bank’s deposit accounts are insured up to applicable limits by the FDIC under its Deposit Insurance Fund (“DIF”) and the FDIC has certain regulatory authority as deposit insurer. A summary of the primary laws and regulations that govern the Bank’s operations are set forth below.
Loans and Investments
The powers of a New York commercial bank are established by New York law and applicable federal law. New York commercial banks have authority to originate and purchase any type of loan, including commercial, commercial real estate, residential mortgages or consumer loans. Aggregate loans by a state commercial bank to any single borrower or group of related borrowers are generally limited to 15% of the Bank’s capital and surplus, plus an additional 10% if secured by specified readily marketable collateral.
Federal and state law and regulations limit the Bank’s investment authority. Generally, a state member bank is prohibited from investing in corporate equity securities for its own account other than the equity securities of companies through which the bank conducts its business. Under federal and state regulations, a New York state member bank may invest in investment securities for its own account up to specified limit depending upon the type of security. “Investment Securities” are generally defined as marketable obligations that are investment grade and not predominantly speculative in nature. Applicable regulations classify investment securities into five different types and, depending on its type, a state member bank may have the authority to deal in and underwrite the security. New York-chartered state member banks may also purchase certain non-investment securities that can be reclassified and underwritten as loans.
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Lending Standards
The federal banking agencies adopted uniform regulations prescribing standards for extensions of credit that are secured by liens on interests in real estate or made for the purpose of financing the construction of a building or other improvements to real estate. Under these regulations, all insured depository institutions, like the Bank, adopted and maintain written policies that establish appropriate limits and standards for extensions of credit that are secured by liens or interests in real estate or are made for the purpose of financing permanent improvements to real estate. These policies must establish loan portfolio diversification standards, prudent underwriting standards (including loan-to-value limits) that are clear and measurable, loan administration procedures, and documentation, approval and reporting requirements. The real estate
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lending policies must reflect consideration of the Interagency Guidelines for Real Estate Lending Policies that have been adopted by the federal bank regulators.
Federal Deposit Insurance
The Bank is a member of the DIF, which is administered by the FDIC. Our deposit accounts are insured by the FDIC. Effective July 22, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) permanently raised the deposit insurance available on all deposit accounts to $250,000 with a retroactive effective date of January 1, 2008.
The FDIC assesses insured depository institutions to maintain the DIF. Under the FDIC’s risk-based assessment system, institutions deemed less risky pay lower assessments. Assessments for institutions of less thanwith $10 billion or more of assets are nowprimarily based on a scorecard approach by the FDIC, including factors such as examination ratings, financial measures, and supervisory ratings derived from statistical modeling estimatingmeasuring the probabilityinstitution’s ability to withstand asset-related and funding-related stress and potential loss to the DIF in the event of anthe institution’s failure within three years. That system, effective July 1, 2016, replaced the previous system under which institutions were placed into risk categories.
failure. The Dodd-Frank Act required the FDIC to revise its procedures to base assessments upon each insured institution’s total assets less tangible equity instead of deposits. The FDIC finalized a rule, effective April 1, 2011, that set the assessment range at 2.5 basis points to 45 basis points of total assets less tangible equity. In conjunction with the DIF’s reserve ratio achieving 1.15%, the assessment range (inclusive of possible adjustments) was reducedadjustments specified by the regulations) for insured institutions with total assets of lessmore than $10 billion of total assetsis 1.5 to 1.540 basis points to 30 basis points, effective July 1, 2016.
The Dodd-Frank Act increased the minimum target DIF ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC was required to achieve the 1.35% ratio by September 30, 2020. The Dodd-Frank Act requires insured institutions with assets of $10 billion or more to fund the increase from 1.15% to 1.35% and, effective July 1, 2016, such institutions were subject to a surcharge to achieve that goal. The FDIC indicated that the 1.35% ratio was exceeded in November 2018; institutions of less than $10 billion of assets will receive credits for that portion of their past assessments that contributed to raising the ratio from 1.15% to 1.35%. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC. The FDIC has exercised that discretion by establishing a long-range fund ratio of 2%.points.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. The Company does not know of any practice, condition or violation that might lead to termination of deposit insurance.
Capitalization
Federal regulations require FDIC insured depository institutions, including state member banks, to meet several minimum capital standards: a common equity tier 1 capital to risk-based assets ratio of 4.5%, a tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a tier 1 capital to total assets leverage ratio of 4.0%. The existing capital requirements were effective January 1, 2015 and are the result of a final rule implementing regulatory amendments based on recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Act. Common equity tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity tier 1 and additional tier 1 capital. Additional tier 1 capital generally includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of
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consolidated subsidiaries. Total capital includes tier 1 capital (common equity tier 1 capital plus additional tier 1 capital) and tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements, and may include cumulative preferred stock, and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of accumulated other comprehensive income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity tier 1 capital (including unrealized gains and losses on available-for-sale-securities). Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one-to-four family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer requirement was phased in beginning January 1, 2016 at 0.625%
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Community Bank Leverage Ratio
Legislation enacted in 2018 required the federal banking agencies, including the FRB, to amend the regulatory capital regulations to establish an optional “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) of between 8% and 10% of average total consolidated assets. Banking organizations of less than $10 billion of assets that have capital meeting the specified level and satisfying other criteria may elect to follow this alternative framework and be deemed in compliance with all applicable capital requirements, including the risk-based requirements, and would be considered “well capitalized” under “prompt corrective action” statutes. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The agencies finalized a rule, effective January 1, 2020, that set the Community Bank Leverage Ratio at 9% tier 1 capital to average total consolidated assets.
Safety and Soundness Standards
Each federal banking agency, including the FRB, has adopted guidelines establishing general standards relating to internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings and compensation, fees, and benefits. In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder.
On April 26, 2016, the federal regulatory agencies approved a second proposed joint rulemaking to implement Section 956 of the Dodd-Frank Act, which prohibits incentive-based compensation that encourages inappropriate risk taking. In addition, the NYSDFS issued guidance applicable to incentive compensation in October 2016.
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Prompt Corrective Regulatory Action
Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For these purposes, the statute establishes five capital tiers: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.
The FRB may order member banks which have insufficient capital to take corrective actions. For example, a bank, which is categorized as “undercapitalized” would be subject to other growth limitations, would be required to submit a capital restoration plan, and a holding company that controls such a bank would be required to guarantee that the bank complies with the restoration plan. A “significantly undercapitalized” bank would be subject to additional restrictions. Member banks deemed by the FRB to be “critically undercapitalized” would be subject to the appointment of a receiver or conservator.
The final rule that increased regulatory capital standards adjusted the prompt corrective action tiers as of January 1, 2015. The various categories were revised to incorporate the new common equity tier 1 capital requirement, the increase in the tier 1 to risk-based assets requirement and other changes. Under the revised prompt corrective action requirements, insured depository institutions are required to meet the following in order to qualify as “well capitalized:” (1) a common equity tier 1 risk-based capital ratio of 6.5% (new standard); (2) a tier 1 risk-based capital ratio of 8.0% (increased from 6.0%); (3) a total risk-based capital ratio of 10.0% (unchanged); and (4) a tier 1 leverage ratio of 5.0% (unchanged). Under the final rulemaking discussed above, a qualifying institution would be deemed to be “well capitalized” if it complies with the Community Bank Leverage Ratio, and elects to follow that alternative framework.
Dividends
Under federal law and applicable regulations, a New York member bank may generally declare a dividend, without prior regulatory approval, in an amount equal to its year-to-date retained net income plus the prior two years’ retained net income that is still available for dividend. Dividends exceeding those amounts require application to and approval by the NYSDFS and FRB. In addition, a member bank may be limited in paying cash dividends if it does not maintain the capital conservation buffer described previously.
Liquidity
Pursuant to FDIC regulations, the Bank is required to maintain sufficient liquidity to ensure its safe and sound operation.
Branching
Subject to certain limitations, NYS and federal law permit NYS-chartered banks to establish branches in any state of the United States. In general, federal law allows the FDIC, and the NYBL allows the Superintendent, to approve an application by a state banking institution to acquire interstate branches by merger. The NYBL authorizes NYS-chartered banks to open and occupy de novo branches outside the State of New York. Pursuant to the Reform Act, the FDIC is authorized to approve the establishment by a state bank of a de novo interstate branch if the intended host state allows de novo branching within that state by banks chartered by that state.
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Acquisitions
Under the Federal Bank Merger Act, prior approval of the FDIC is required for the Bank to merge with or purchase the assets or assume the deposits of another insured depository institution. In reviewing applications seeking approval of merger and acquisition transactions, the FDIC will consider, among other factors, the competitive effect and public benefits of the transactions, the capital position of the combined organization, the risks to the stability of the U.S. banking or financial system, the applicant’s performance record under the CRA (see “Community Reinvestment”) and its compliance with fair housing and other consumer protection laws and the effectiveness of the subject organizations in combating money laundering activities.
Privacy and Security Protection
The federal banking agencies have adopted regulations for consumer privacy protection that require financial institutions to adopt procedures to protect customers and their “non-public personal information.” The regulations require the Bank to disclose its privacy policy, including identifying with whom it shares “non-public personal information,” to customers at the time of establishing the customer relationship, and annually thereafter if there are changes to its policy. In addition, the Bank is required to provide its customers the ability to “opt-out” of: (1) the sharing of their personal information with unaffiliated third parties if the sharing of such information does not satisfy any of the permitted exceptions; and (2) the receipt of marketing solicitations from Bank affiliates.
The Bank is additionally subject to regulatory guidelines establishing standards for safeguarding customer information. The guidelines describe the federal banking agencies’ expectations for the creation, implementation and maintenance of an information security program, including administrative, technical and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. The standards set forth in the guidelines are intended to ensure the security and confidentiality of customer records and information, and protect against anticipated threats or hazards to the security or integrity of such records and unauthorized access to or use of such records or information that could result in substantial customer harm or inconvenience.
Federal law additionally permits each state to enact legislation that is more protective of consumers’ personal information. There are periodically privacy bills considered by the New York legislature. Management of the Company cannot predict the impact, if any, of these bills if enacted.
Cybersecurity more broadly has become a focus of federal and state regulators. In March 2015, federal regulators issued two statements regarding cybersecurity to reiterate regulatory expectations regarding cyberattacks compromising credentials and business continuity planning to ensure the rapid recovery of an institution’s operations after a cyberattack involving destructive malware. In October 2016, federal regulators jointly issued an advance notice of proposed rulemaking on enhanced cyber risk management standards that are intended to increase the operational resilience of large and interconnected entities under their supervision. Once established, the enhanced cyber risk management standards would help to reduce the potential impact of a cyber-attack or other cyber-related failure on the financial system. The advance notice of proposed rulemaking addressed five categories of cyber standards: (1) cyber risk governance; (2) cyber risk management; (3) internal dependency management; (4) external dependency management; and (5) incident response, cyber resilience, and situational awareness. In March 2017, the NYSDFS made effective regulations that require financial institutions regulated by the NYSDFS, including the Bank, to, among other things, (i) establish and maintain a cyber security program designed to ensure the confidentiality, integrity and availability of their information systems; (ii) implement and maintain a written cyber security policy setting forth policies and procedures for the protection of their information systems and nonpublic information; and (iii) designate a Chief Information Security Officer. In January 2020, the FDIC issued a “Statement on Heightened Cybersecurity Risk” to remind regulated institutions of sound cybersecurity risk management principles. The Company will continue to monitor any developments related to these proposed rulemakings as part of its ongoing cyber risk management. See “Item 1A - Risk Factors” for a further discussion of cybersecurity risks.
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Transactions with Affiliates and Insiders
Sections 23A and 23B of the Federal Reserve Act govern transactions between a member bank and its affiliates, which includes the Company. The FRB has adopted Regulation W, which comprehensively implements and interprets Sections 23A and 23B, in part by codifying prior FRB interpretations under Sections 23A and 23B.
An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. A subsidiary of a bank that is not also a depository institution or a “financial subsidiary” under federal law is not treated as an affiliate of the bank for the purposes of Sections 23A and 23B; however, the FRB has the discretion to treat subsidiaries of a bank as affiliates on a case-by-case basis. Sections 23A and 23B limit the extent to which a bank or its subsidiaries may engage in “covered transactions” with any one affiliate to an amount equal to 10% of such bank’s capital stock and surplus, and limit all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. The statutory sections also require that all such transactions be on terms that are consistent with safe and sound banking practices. The term “covered transaction” includes the making of loans, purchase of assets, issuance of guarantees and other similar types of transactions. Further, most loans by a bank to any of its affiliates must be secured by collateral in amounts ranging from 100 to 130 percent of the loan amounts. In addition, any covered transaction by an association with an affiliate and any purchase of assets or services by an association from an affiliate must be on terms that are substantially the same, or at least as favorable, to the bank as those that would be provided to a non-affiliate.
A bank’s loans to its executive officers, directors, any owner of more than 10% of its stock (each, an insider) and any of certain entities affiliated with any such person (an insider’s related interest) are subject to the conditions and limitations imposed by Section 22(h) of the Federal Reserve Act and the FRB’s Regulation O thereunder. Under these restrictions, the aggregate amount of the loans to any insider and the insider’s related interests may not exceed the loans-to-one-borrower limit applicable to national banks. All loans by a bank to all insiders and insiders’ related interests in the aggregate
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may not exceed the bank’s unimpaired capital and unimpaired surplus. With certain exceptions, loans to an executive officer, other than loans for the education of the officer’s children and certain loans secured by the officer’s residence, may not exceed the greater of $25,000 or 2.5% of the bank’s unimpaired capital and unimpaired surplus, but in no event more than $100,000. Regulation O also requires that any proposed loan to an insider or a related interest of that insider be approved in advance by a majority of the board of directors of the bank, with any interested director not participating in the voting, if such loan, when aggregated with any existing loans to that insider and the insider’s related interests, would exceed either $500,000 or the greater of $25,000 or 5% of the bank’s unimpaired capital and surplus. Generally, such loans must be made on substantially the same terms as, and follow credit underwriting procedures that are no less stringent than, those that are prevailing at the time for comparable transactions with other persons and must not present more than a normal risk of collectability. An exception is made for extensions of credit made pursuant to a benefit or compensation plan of a bank that is widely available to employees of the bank and that does not give any preference to insiders of the bank over other employees of the bank.
Examinations and Assessments
The Bank is required to file periodic reports with and is subject to periodic examination by the NYSDFS and the FRB. Applicable laws and regulations generally require periodic on-site examinations and annual audits by independent public accountants for all insured institutions. The Bank is required to pay an annual assessment to the NYSDFS to fund its supervision.
Federal law provides that institutions with more than $10 billion in total assets, such as the Bank, are examined by the Consumer Financial Protection Bureau (“CFPB”), rather than its primary federal bank regulator, as to compliance with certain federal consumer protection and fair lending laws and regulations.
Community Reinvestment Act
Under the federal Community Reinvestment Act (“CRA”), the Bank has a continuing and affirmative obligation consistent with its safe and sound operation to help meet the credit needs of its entire community, including low and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FRB, in connection with its examination of the Bank, to
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assess its record of meeting the credit needs of its community and to take that record into account in its evaluation of certain applications by the Bank. For example, the regulations specify that a bank’s CRA performance will be considered in its expansion (e.g., branching or mergers) proposals and may be the basis for approving, denying or conditioning the approval of an application. As of the date of its most recent CRA examination, which was conducted by the Federal Reserve Bank of New York and the NYSDFS, the Bank’s CRA performance was rated “satisfactory”“Satisfactory”.
New York law imposes a similar obligation on the Bank to serve the credit needs of its community. New York law contains its own CRA provisions, which are substantially similar to federal law.
USA PATRIOT Act
The USA PATRIOT Act of 2001 gave the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. The USA PATRIOT Act also required the federal banking agencies to take into consideration the effectiveness of controls designed to combat money-laundering activities in determining whether to approve a merger or other acquisition application of a member institution. Accordingly, if the Bank engages in a merger or other acquisition, the Bank’s controls designed to combat money laundering would be considered as part of the application process. The Bank has established policies, procedures and systems designed to comply with these regulations.
Bridge Bancorp,Dime Community Bancshares, Inc.
The Holding Company, as a bank holding company controlling the Bank, is subject to the Bank Holding Company Act of 1956, as amended (“BHCA”), and the rules and regulations of the FRB under the BHCA applicable to bank holding companies. We are required to file reports with, and otherwise comply with the rules and regulations of the FRB.
The FRB previously adopted consolidated capital adequacy guidelines for bank holding companies structured similarly, but not identically, to those applicable to the Bank. The Dodd-Frank Act directed the FRB to issue consolidated capital requirements for depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than those applicable to institutions themselves. The FRB subsequently issued regulations
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amending its regulatory capital requirements to implement the Dodd-Frank Act as to bank holding company capital standards. Consolidated regulatory capital requirements identical to those applicable to the subsidiary banks applied to bank holding companies as of January 1, 2015. As is the case with institutions themselves, the capital conservation buffer was phased-in between 2016 and 2019. The new capital rule eliminated from tier 1 capital the inclusion of certain instruments, such as trust preferred securities, that were previously includable by bank holding companies. However, the final rule grandfathered trust preferred issuances prior to May 19, 2010 in accordance with the Dodd-Frank Act. We issued trust preferred securities that qualified for grandfathering. These securities were redeemed as of January 18, 2017 and the Trust was cancelled effective April 24, 2017. We met all capital adequacy requirements under the FRB’s capital rules on December 31, 2019.2021.
The policy of the FRB is that a bank holding company must serve as a source of strength to its subsidiary banks by providing capital and other support in times of distress. The Dodd-Frank Act codified the source of strength policy.
Under the prompt corrective action provisions of federal law, a bank holding company parent of an undercapitalized subsidiary bank is required to guarantee, within specified limits, the capital restoration plan that is required of an undercapitalized bank. If an undercapitalized bank fails to file an acceptable capital restoration plan or fails to implement an accepted plan, the FRB may prohibit the bank holding company parent of the undercapitalized bank from paying dividends or making any other capital distribution.
As a bank holding company, we are required to obtain the prior approval of the FRB to acquire more than 5% of a class of voting securities of any additional bank or bank holding company or to acquire all, or substantially all, the assets of any additional bank or bank holding company. In addition, the bank holding companies may generally only engage in activities that are closely related to banking as determined by the FRB. Bank holding companies that meet certain criteria may opt to become a financial holding company and thereby engage in a broader array of financial activities.
FRB policy is that a bank holding company should pay cash dividends only to the extent that the company’s net income for the past two years is sufficient to fund the dividends and the prospective rate of earnings retention is consistent with the company’s capital needs, asset quality and overall financial condition. In addition, FRB guidance sets forth the supervisory expectation that bank holding companies will inform and consult with FRB staff in advance of issuing a dividend that exceeds earnings for the quarter and should inform the FRB and should eliminate, defer or significantly reduce dividends if (i) net income
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available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends, (ii) prospective rate of earnings retention is not consistent with the bank holding company’s capital needs and overall current and prospective financial condition, or (iii) the bank holding company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.Moreover, the guidance indicates that a bank holding company should notify the FRB in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the organization’s capital structure. FRB guidance also provides for consultation and nonobjection for material increases in the amount of a bank holding company’s common stock dividend.
Current FRB regulations provide that a bank holding company that is not well capitalized or well managed, as such terms are defined in the regulations, or that is subject to any unresolved supervisory issues, is required to give the FRB prior written notice of any repurchase or redemption of its outstanding equity securities if the gross consideration for repurchase or redemption, when combined with the net consideration paid for all such repurchases or redemptions during the preceding 12 months, will be equal to 10% or more of the company’s consolidated net worth. The FRB may disapprove such a repurchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice or violate a law or regulation. FRB guidance generally provides for bank holding company consultation with FRB staff prior to engaging in a repurchase or redemption of a bank holding company’s stock, even if a formal written notice is not required. The guidance provides that the purpose of such consultation is to allow the FRB to review the proposed repurchases or redemption from a supervisory perspective and possibly object.
The NYSDFS and FRB have extensive enforcement authority over the institutions and holding companies that they regulate to prohibit or correct activities that violate law, regulation or a regulatory agreement or which are deemed to be unsafe or unsound banking practices. Enforcement actions may include: the appointment of a conservator or receiver for an institution; the issuance of a cease and desist order; the termination of deposit insurance; the imposition of civil money penalties on the institution, its directors, officers, employees and institution-affiliated parties; the issuance of directives to increase capital; the issuance of formal and informal agreements; the removal of or restrictions on directors, officers, employees and institution-affiliated parties; and the enforcement of any such mechanisms through restraining orders or other court actions. Any change in applicable New York or federal laws and regulations could have a material adverse impact on us and our operations and stockholders.
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We file certain reports with the Securities and Exchange Commission (“SEC”) under the federal securities laws. Our operations are also subject to extensive regulation by other federal, state and local governmental authorities and it is subject to various laws and judicial and administrative decisions imposing requirements and restrictions on part or all of its operations. We believe that we are in substantial compliance, in all material respects, with applicable federal, state and local laws, rules and regulations. Because our business is highly regulated, the laws, rules and regulations applicable to it are subject to regular modification and change. There can be no assurance that these proposed laws, rules and regulations, or any other laws, rules or regulations, will not be adopted in the future, which could make compliance more difficult or expensive or otherwise adversely affect our business, financial condition or prospects.
Other Information
Through a link on the Investor Relations section of our website of www.bnbbank.comwww.dime.com, copies of our Annual Reports on Form 10‑K,10-K, Quarterly Reports on Form 10‑Q10-Q and Current Reports on Form 8‑K,8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) for 15(d) of the Exchange Act, are made available, free of charge, as soon as reasonably practicable after electronically filing such material with, or furnishing it to, the SEC. Copies of such reports and other information also are available at no charge to any person who requests them or at www.sec.gov. Such requests may be directed to Bridge Bancorp,Dime Community Bancshares, Inc., Investor Relations, 2200 Montauk898 Veterans Memorial Highway, PO Box 3005, Bridgehampton,Suite 560, Hauppauge, NY 11932,11788, (631) 537‑1000.537-1000.
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Item 1A. Risk Factors
Risks Related to the COVID-19 Outbreak
The economic impact of the COVID-19 outbreak may continue to have an adverse impact on our business and results of operations.
The COVID-19 pandemic has caused significant economic dislocation in the United States. Since March 2020, many state and local governments, including New York, have from time to time ordered non-essential businesses to close and residents to shelter in place at home, or placed other restrictions on businesses and individuals, resulting in a slow-down in economic activity and increases in unemployment. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. In response to the COVID-19 outbreak, the Federal Reserve reduced the benchmark federal funds rate to a target range of 0% to 0.25%. Various state governments and federal agencies required lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). From time to time, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. Government actions and business practices continue to evolve in response to the advent of COVID-19 variants.
Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be fully reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we may be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:
● | demand for our products and services may decline, making it difficult to grow assets and income; |
● | if economic activity slows or high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; |
● | collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; |
● | our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income; |
● | the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; |
● | if the Federal Reserve Board’s target federal funds remains near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income; |
● | a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend; |
● | our cyber security risks are increased as the result of an increase in the number of employees working remotely; |
● | we rely on third-party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and |
● | government actions in response to the pandemic, such as vaccination mandates, may affect our business and operations, workforce, human capital resources and infrastructure. |
Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability. Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.
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Risks Related to our Loan Portfolio
The concentration of our loan portfolio in loans secured by commercial, multi-family and residential real estate properties located onin Greater Long Island and the New York City boroughsManhattan could materially adversely affect our financial condition and results of operations if general economic conditions or real estate values in this area decline.
Unlike larger banks that are more geographically diversified, our loan portfolio consists primarily of real estate loans secured by commercial, multi-family and residential real estate properties located in Nassau and Suffolk Counties onGreater Long Island and in the New York City boroughs.Manhattan. The local economic conditions onin Greater Long Island and in New York CityManhattan have a significant impact on the volume of loan originations and the quality of loans, the ability of borrowers to repay these loans, and the value of collateral securing these loans. A considerable decline in the general economic conditions caused by inflation, recession, unemployment or other factors beyond our control would impact these local economic conditions and could negatively affect our financial condition and results of operations. Additionally, decreases in tenant occupancy may also have a negative effect on the ability of borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings.
If our regulators impose limitations on our commercial real estate lending activities, earnings could be adversely affected.
In 2006, the federal bank regulatory agencies (collectively, the “Agencies”) issued joint guidance entitled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”). Although the CRE Guidance did not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure may receive increased supervisory scrutiny where total non-owner occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate and construction and land loans, represent 300% or more of an institution’s total risk-based capital and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the preceding 36 months. OurThe Consolidated Company’s non-owner occupied commercial real estate level equaled 386%519% of total risk-based capital at December 31, 2019.2021. Including owner-occupied commercial real estate, the Consolidated Company’s ratio of commercial real estate loans to total risk-based capital ratio would be 496%598% at December 31, 2019.2021.
If our regulators were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, or require higher capital ratios as a result of the level of commercial real estate loans held, our earnings would be adversely affected.
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Changes in interest rates could affect our profitability.
Our ability to earn a profit, like most financial institutions, depends primarily on net interest income, which is the difference between the interest income that we earn on our interest-earning assets, such as loans and investments, and the interest expense that we pay on our interest-bearing liabilities, such as deposits and borrowings. Our profitability depends on our ability to manage our assets and liabilities during periods of changing market interest rates.
In a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our liabilities. In an increasing interest rate environment, our cost of funds is expected to increase more rapidly than interest earned on our loan and investment portfolio as our primary source of funds is deposits with generally shorter maturities than those on our loans and investments. This makes the balance sheet more liability sensitive in the short term.
A sustained decrease in market interest rates could adversely affect our earnings. When interest rates decline, borrowers tend to refinance higher-rate, fixed-rate loans at lower rates. Under those circumstances, we would not be able to reinvest those prepayments in assets earning interest rates as high as the rates on those prepaid loans or in investment securities. In addition, the majority of our loans are at variable interest rates, which would adjust to lower rates.
Changes in interest rates also affect the fair value of the securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. As of December 31, 2019, the securities portfolio totaled $804.8 million.
Strong competition within our market area may limit our growth and profitability.
Our primary market area is located in Nassau and Suffolk Counties on Long Island and the New York City boroughs. Competition in the banking and financial services industry remains intense. Our profitability depends on the continued ability to successfully compete. We compete with commercial banks, savings banks, credit unions, insurance companies, and brokerage and investment banking firms. Many of our competitors have substantially greater resources and lending limits than us and may offer certain services that we do not provide. In addition, competitors may offer deposits at higher rates and loans with lower fixed rates, more attractive terms and less stringent credit structures than we have been willing to offer.
Our future success depends on the success and growth of BNB Bank.
Our primary business activity for the foreseeable future will be to act as the holding company of the Bank. Therefore, our future profitability will depend on the success and growth of this subsidiary. The continued and successful implementation of our growth strategy will require, among other things that we increase our market share by attracting new customers that currently bank at other financial institutions in our market area. In addition, our ability to successfully grow will depend on several factors, including favorable market conditions, the competitive responses from other financial institutions in our market area, and our ability to maintain high asset quality. While we believe we have the management resources, market opportunities and internal systems in place to obtain and successfully manage future growth, growth opportunities may not be available, and we may not be successful in continuing our growth strategy. In addition, continued growth requires that we incur additional expenses, including salaries, data processing and occupancy expense related to new branches and related support staff. Many of these increased expenses are considered fixed expenses. Unless we can successfully continue our growth, our results of operations could be negatively affected by these increased costs.
The loss of key personnel could impair our future success.
Our future success depends in part on the continued service of our executive officers, other key management, and staff, as well as its ability to continue to attract, motivate, and retain additional highly qualified employees. The loss of services of one or more of our key personnel or our inability to timely recruit replacements for such personnel, or to otherwise attract, motivate, or retain qualified personnel could have an adverse effect on our business, operating results and financial condition.
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The performance of our multi-family real estate loans could be adversely impacted by regulation.
Multi-family real estate loans generally involve a greater risk than residential real estate loans because of legislation and government regulations involving rent control and rent stabilization, which are outside the control of the borrower or the Bank, and could impair the value of the security for the loan or the future cash flow of such properties. For example, on June 14, 2019, the State of New York enacted legislation increasing the restrictions on rent increases in a rent-regulated apartment building, including, among other provisions, (i) repealing the vacancy bonus and longevity bonus, which allowed a property owner to raise rents as much as 20% each time a rental unit became vacant, (ii) eliminating high rent vacancy deregulation and high-income deregulation, which allowed a rental unit to be removed from rent stabilization once it crossed a statutory high-rent threshold and became vacant, or the tenant’s income exceeded the statutory amount in the preceding two years, and (iii) eliminating an exception that allowed a property owner who offered preferential rents to tenants to raise the rent to the full legal rent upon renewal. The new legislation still permits a property owner to charge up to the full legal rent once the tenant vacates. As a result of this new legislation as well as previously existing laws and regulations, it is possible that rental income might not rise sufficiently over time to satisfy increases in the loan rate at repricing or increases in overhead expenses (e.g., utilities, taxes, etc.). In addition, if the cash flow from a collateral property is reduced (e.g., if leases are not obtained or renewed), the borrower’s ability to repay the loan and the value of the security for the loan may be impaired. Therefore, impaired multi-family real estate loans may be more difficult to identify before they become problematic than residential real estate loans.
Increases to the allowance for credit losses may cause our earnings to decrease.
The Financial Accounting Standards Board (“FASB”) has issued an accounting standard that we adopted in the first quarter of 2021. This standard, referred to as ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) (“CECL” or the “CECL Standard”), requires that we determine periodic estimates of lifetime expected credit losses on loans, and recognize
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the expected credit losses as allowances for credit losses. This changed the previous method of providing allowances for loan losses that are probable, and greatly increases the types of data we need to collect and review to determine the appropriate level of the allowance for credit losses.
Customers may not repay their loans according to the original terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan balance. Hence, we may experience significant loancredit losses, which could have a material adverse effect on its operating results. We make various assumptions and judgments about the collectability of itsour loan portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans. In determining the amount of the allowance for credit losses, we rely on loan quality reviews, our past loss experience and that of our peer group, and an evaluation of economic conditions, among other factors. If our assumptions prove to be incorrect, the allowance for credit losses may not be sufficient to cover probable incurredexpected losses in the loan portfolio, resulting in additions to the allowance.allowance for credit losses. Material additions to the allowance for credit losses through charges to earnings would materially decrease our net income.
Bank regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or loan charge-offs. Any increase in our allowance for credit losses or loan charge-offs as required by these regulatory authorities could have a material adverse effect on our results of operations and/or financial condition.
The Financial Accounting Standards Board has adopted a new accounting standard that will be effective for us for the first fiscal year beginning after December 15, 2019. This standard, referred to as Current Expected Credit Loss, will require that we determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses. This will change the current method of providing allowances for loan losses that are probable, which may require us to increase our allowance for loan losses, and will greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for loan losses.
Our business may be adversely affected by fraud and other financial crimes.
Our loans to businesses and individuals and our deposit relationships and related transactionsWe are subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. With respect to the Bank, the NYSDFS, FRB, CFPB, the United States Department of Justice and other federal and state agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on expansion. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations.
The Company is subject to environmental liability risk associated with lending activities.
A significant portion of the Company’s loan portfolio is secured by real property. During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, the Company may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require the Company to incur substantial expenses and may materially reduce the affected property’s value or limit the Company’s ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase the Company’s exposure to the riskenvironmental liability. Environmental reviews of loss duereal property before initiating foreclosure may not be sufficient to frauddetect all potential environmental hazards. The remediation costs and any other financial crimes. Whileliabilities associated with an environmental hazard could have a material adverse effect on the Company’s business, financial condition and results of operations.
Risks Related to Interest Rates
Changes in interest rates could affect our profitability.
Our ability to earn a profit, like most financial institutions, depends primarily on net interest income, which is the difference between the interest income that we have policiesearn on our interest-earning assets, such as loans and procedures designedinvestments, and the interest expense that we pay on our interest-bearing liabilities, such as deposits and borrowings. Our profitability depends on our ability to prevent such losses, lossesmanage our assets and liabilities during periods of changing market interest rates.
In a period of rising interest rates, the interest income earned on our assets may still occur.
We have recently experienced losses duenot increase as rapidly as the interest paid on our liabilities. The FRB has indicated its intent to fraud. In 2018, we incurred a pre-tax charge, net of recovery, of $8.9 million relating to the fraudulent conduct of a business customer through its deposit accounts. We have filed a claim for the loss with its insurance carrier, however, the extent and amount of coverage is not yet certain.
increase market interest rates beginning in 2022.
Page -11-15
The subordinated debentures that we issued have rights that are seniorA sustained decrease in market interest rates could adversely affect our earnings. When interest rates decline, borrowers tend to refinance higher-rate, fixed-rate loans at lower rates. Under those of our common shareholders.
In 2015, we issued $40.0 million of 5.25% fixed-to-floating rate subordinated debentures due 2025 and $40.0 million of 5.75% fixed-to-floating rate subordinated debentures due 2030. Because these subordinated debentures rank senior to our common stock, if we fail to timely make principal and interest payments on the subordinated debentures,circumstances, we may not pay any dividendsbe able to reinvest those prepayments in assets earning interest rates as high as the rates on our common stock. Further, if we declare bankruptcy, dissolvethose prepaid loans or liquidate, we must satisfy allin investment securities.
Changes in interest rates also affect the fair value of our subordinated debenture obligations before we may pay any distributions on our common stock.the securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. As of December 31, 2021, the securities portfolio totaled $1.74 billion.
Management is unable to predict fluctuations of market interest rates, which are affected by many factors, including inflation, recession, unemployment, monetary policy, domestic and international disorder and instability in domestic and foreign financial markets, and investor and consumer demand.
We are required to transition from the use of LIBOR.
In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates the London Interbank Offered Rate (“LIBOR”), announced that it intends to stop persuading or compelling banks to submit rates for the calibration of LIBOR to the administrator of LIBOR after 2021. LIBOR will be discontinued on December 31, 2021.after June 2023. At this time, no consensus exists as to what rate or rates may become acceptable alternatives to LIBOR and it is impossible to predict the effect of any such alternatives on the value of LIBOR-based securities and variable rate loans, subordinated debentures, or other securities or financial arrangements, given LIBOR's role in determining market interest rates globally. Regulators, industry groups and certain committees (e.g. the Alternative Reference Rates Committee) have published recommended fallback language for LIBOR-linked financial instruments, identified recommended alternatives for the LIBOR (e.g. the Secured Overnight Financing Rate), and proposed implementations of the recommended alternatives in floating-rate financial instruments. At this time, it is not possible to predict whether these specific recommendations and proposals will be broadly accepted. Uncertainty as to the nature of alternative reference rates and as to potential changes or other reforms to LIBOR may adversely affect LIBOR rates and the value of LIBOR-based loans and securities in our portfolio and may impact the availability and cost of hedging instruments and borrowings. We have material contracts that are indexed to LIBOR and are monitoring this activity and evaluating the related risks. IfWhen LIBOR rates are no longer available and we are required to implement substitute indices for the calculation of interest rates, we may incur expenses in effecting the transition, and may be subject to disputes or litigation with customers and security holders over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on our results of operations. Additionally, since alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition may change our market risk profile, requiring changes to risk and pricing models.
Risks Related to Regulation
We operate in a highly regulated environment, Federal and state regulators periodically examine our business, and we may be required to remediate adverse examination findings.
The FRB and the NYSDFS periodically examine our business, including our compliance with laws and regulations. If, as a result of an examination, a federal banking agency were to determine that our financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, we may take a number of different remedial actions as we deem appropriate. These actions include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance and place it into receivership or conservatorship. If we become subject to any regulatory actions, it could have a material adverse effect on our business, results of operations, financial condition and growth prospects.
Additionally, the CFPB has the authority to issue consumer finance regulations and is authorized, individually or jointly with bank regulatory agencies, to conduct investigations to determine whether any person is, or has, engaged in conduct that violates new and existing consumer financial laws or regulations. However, because we have less thanBanks with assets in excess of $10 billion in total consolidated assets,are subject to requirements imposed by the FRBDodd-Frank and NYSDFS, notits implementing regulations, including the examination authority
16
of the CFPB are responsible for examining and supervisingto assess our compliance with thesefederal consumer protectionfinancial laws, imposition of higher FDIC premiums, reduced debit card interchange fees, and regulations.enhanced risk management frameworks, all of which increase operating costs and reduce earnings. In addition, in accordance with a memorandum of understanding entered into between the CFPB and U.S. Department of Justice, the two agencies have agreed to coordinate
Page -12-
efforts related to enforcing the fair lending laws, which includes information sharing and conducting joint investigations, and have done so on a number of occasions.
We are subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. With respect to the Bank, the NYSDFS, FRB, the United States Department of Justice and other federal and state agencies are responsible for enforcing these laws and regulations. A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on expansion. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations.
We face a risk of noncompliance and enforcement action with the federal Bank Secrecy Act (the “BSA”) and other anti-money laundering and counter terrorist financing statutes and regulations.
The BSA, the USA PATRIOT Act and other laws and regulations require financial institutions, among others, to institute and maintain an effective anti-money laundering compliance program and to file reports such as suspicious activity reports and currency transaction reports. Our products and services, including our debit card issuing business, are subject to an increasingly strict set of legal and regulatory requirements intended to protect consumers and to help detect and prevent money laundering, terrorist financing and other illicit activities. We are required to comply with these and other anti-money laundering requirements. The federal banking agencies and the U.S. Treasury Department’s Financial Crimes Enforcement Network are authorized to impose significant civil money penalties for violations of those requirements and have recently engaged in coordinated enforcement efforts against banks and other financial services providers with the U.S. Department of Justice, Drug Enforcement Administration and Internal Revenue Service. We are also subject to increased scrutiny of compliance with the regulations administered and enforced by the U.S. Treasury Department’s Office of Foreign Assets Control. If we violate these laws and regulations, or our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Risks Related to our Debt Securities
The short-termsubordinated debentures that we issued have rights that are senior to those of our common shareholders.
In 2015, Bridge issued $40.0 million of 5.25% fixed-to-floating rate subordinated debentures due 2025 and long-term impact$40.0 million of 5.75% fixed-to-floating rate subordinated debentures due 2030. In 2017, Legacy Dime issued $115.0 million of 4.50% Fixed-to-Floating Rate Subordinated Debentures due 2027, which were assumed by the Company in the Merger. Because these subordinated debentures rank senior to our common stock, if we fail to timely make principal and interest payments on the subordinated debentures, we may not pay any dividends on our common stock. Further, if we declare bankruptcy, dissolve or liquidate, we must satisfy all of our subordinated debenture obligations before we may pay any distributions on our common stock.
Operational Risk Factors
Strong competition within our market area may limit our growth and profitability.
Our primary market area is located in Greater Long Island and Manhattan. Competition in the banking and financial services industry remains intense. Our profitability depends on the continued ability to successfully compete. We compete with commercial banks, savings banks, credit unions, insurance companies, and brokerage and investment banking firms. Many of our competitors have substantially greater resources and lending limits than us and may offer certain services that we do not provide. In addition, competitors may offer deposits at higher rates and loans with lower fixed rates, more attractive terms and less stringent credit structures than we have been willing to offer.
Our future success depends on the success and growth of Dime Community Bank.
Our primary business activity for the foreseeable future will be to act as the holding company of the changing regulatory capital requirementsBank. Therefore, our future profitability will depend on the success and anticipated new capital rules are uncertain.
In July 2013, federal bank regulatory agencies issued a final rule that revised their leveragegrowth of this subsidiary. The continued and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule established a new common equity tier 1 minimum capital requirement of 4.5% of risk-weighted assets, set the leverage ratio at a uniform 4.0% of total assets, increased the minimum tier 1 capital to risk-based assets requirement from 4.0% to 6.0% of risk-weighted assets and assigned a higher risk weight of 150% to exposures that are more than 90 days past due or are on non-accrual status and to certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rule also requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-out is exercised. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capitalsuccessful implementation
Page -13-17
requirements. The final rule became effective January 1, 2015. The “capital conservation buffer’ was phased in from January 1, 2016 to January 1, 2019.
The application of more stringent capital requirements could,our growth strategy will require, among other things result in lower returns on equity, require the raising of additional capital, and result in regulatory actions ifthat we were unable to comply with such requirements. Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could resultincrease our market share by attracting new customers that currently bank at other financial institutions in our having to lengthen the terms of our funding, restructure business models, and/or increase holdings of liquid assets. Implementation of changes to asset risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory capital or additional capital conservation buffers, could result in management modifying our business strategy and could limitmarket area. In addition, our ability to make distributions,successfully grow will depend on several factors, including paying dividendsfavorable market conditions, the competitive responses from other financial institutions in our market area, and our ability to maintain good asset quality. While we believe we have the management resources, market opportunities and internal systems in place to obtain and successfully manage future growth, growth opportunities may not be available, and we may not be successful in continuing our growth strategy. In addition, continued growth requires that we incur additional expenses, including salaries, data processing and occupancy expense related to new branches and related support staff. Many of these increased expenses are considered fixed expenses. Unless we can successfully continue our growth, our results of operations could be negatively affected by these increased costs.
The loss of key personnel could impair our future success.
Our future success depends in part on the continued service of our executive officers, other key management, and staff, as well as our ability to continue to attract, motivate, and retain additional highly qualified employees. The loss of services of one or buying back shares.more of our key personnel or our inability to timely recruit replacements for such personnel, or to otherwise attract, motivate, or retain qualified personnel could have an adverse effect on our business, operating results and financial condition.
Our business may be adversely affected by fraud and other financial crimes.
Our loans to businesses and individuals and our deposit relationships and related transactions are subject to exposure to the risk of loss due to fraud and other financial crimes. While we have policies and procedures designed to prevent such losses, losses may still occur. In the past, we have experienced losses due to fraud.
Risks associated with system failures, interruptions, or breaches of security could negatively affect our operations and earnings.
Information technology systems are critical to our business. We collect, process and store sensitive customer data by utilizing computer systems and telecommunications networks operated by us and third-party service providers. We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches, but such events may still occur or may not be adequately addressed if they do occur. In addition, any compromise of our systems could deter customers from using our products and services. Although we take numerous protective measures and otherwise endeavor to protect and maintain the privacy and security of confidential data, these systems may be vulnerable to unauthorized access, computer viruses, other malicious code, cyberattacks, including distributed denial of service attacks, cyber-theft and other events that could have a security impact. If one or more of such events were to occur, this potentially could jeopardize confidential and other information processed and stored in, and transmitted through, our systems or otherwise cause interruptions or malfunctions in our or our customers' operations.
In addition, we maintain interfaces with certain third-party service providers. If these third-party service providers encounter difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.
The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of customers and business, thereby subjecting us to additional regulatory scrutiny, or could expose us to litigation and possible financial liability. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are not fully covered by our insurance. Any of these events could have a material adverse effect on our financial condition and results of operations.
We are exposed to cyber-security risks, including denial of service, hacking, and identity theft.
There have been well-publicized distributed denials of service attacks on large financial services companies. Distributed denial of service attacks are designed to saturate the targeted online network with excessive amounts of network traffic, resulting in slow response times, or in some cases, causing the site to be temporarily unavailable. Hacking and identity
18
theft risks, in particular, could cause serious reputational harm. Cyber threats are rapidly evolving, and we may not be able to anticipate or prevent all such attacks. We may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss.
Severe weather, acts of terrorism and other external events could impact our ability to conduct business.
Weather-related events have adversely impacted our market area in recent years, especially areas located near coastal waters and flood prone areas. Such events that may cause significant flooding and other storm-related damage may become more common events in the future. Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and communication systems and the metropolitan New York area remains a central target for potential acts of terrorism. Such events could cause significant damage, impact the stability of our facilities and result in additional expenses, impair the ability of borrowers to repay their loans, reduce the value of collateral securing repayment
Page -14-
of loans, and result in the loss of revenue. While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition.
Additionally, global markets may be adversely affected by natural disasters, the emergence of widespread health emergencies or pandemics, cyberattacks or campaigns, military conflict, terrorism or other geopolitical events. Global market fluctuations may affect our business liquidity. Also, any sudden or prolonged market downturn in the U.S. or abroad, as a result of the above factors or otherwise could result in a decline in revenue and adversely affect our results of operations and financial condition, including capital and liquidity levels.
Acquisitions involve integrationsIf we determine our goodwill or other intangible assets to be impaired, the Company’s financial condition and other risks.
Acquisitions involve a numberresults of risks and challenges including: our ability to integrate the branches and operations acquired, and the associated internal controls and regulatory functions, into our current operations; our ability to limit the outflow of deposits held by our new customers in the acquired branches and to successfully retain and manage the loans acquired; and our ability to attract new deposits and to generate new interest-earning assets in geographic areas not previously served. Additionally, no assurance can be given that the operation of acquired branches would not adversely affect our existing profitability; that we would be able to achieve results innegatively affected.
When the future similar to those achieved by our existing banking business; that we would be able to compete effectively inCompany completes a business combination, a portion of the market areas served by acquired branches; or that we would be able to manage any growth resulting from the transaction effectively. We face the additional risk that the anticipated benefitspurchase price of the acquisition may not be realized fully or at all, or withinis allocated to goodwill and other identifiable intangible assets. The amount of the time period expected. Finally, acquisitions typically involvepurchase price which is allocated to goodwill and other intangible assets is determined by the paymentexcess of a premiumthe purchase price over book and trading values and therefore, may result in dilution of our book and tangible book value per share.
We may incurthe net identifiable assets acquired. At least annually (or more frequently if indicators arise), the Company evaluates goodwill for impairment to our goodwill.
Goodwill arises when a business is purchased for an amount greater thanby comparing the fair value of its reporting entities against the net assets acquired. We recognizedcarrying value. If the Company determines goodwill as an asset on our balance sheet in connection with the CNB, FNBNY and HSB acquisitions. We evaluate goodwill for impairment at least annually. Although we determined that goodwill was not impaired during 2019, a significant and sustained decline in our stock price and market capitalization, a significant decline in our expected future cash flows, a significant adverse change in the business climate, slower growth rates or other factors could result in impairment of goodwill. If we wereintangible assets are impaired, the Company will be required to conclude thatwrite down these assets. Any write-down would have a future write-down ofnegative effect on the goodwill was necessary, then we would record the appropriate charge to earnings, which could be materially adverse to our consolidated financial statements.
Item 1B. Unresolved Staff Comments
Not applicable.
None.
At December 31, 2019, we owned eight properties located in Suffolk County, New York consisting of ourFollowing the Merger, the Company’s corporate headquarters and branchis located at 898 Veterans Highway in Hauppauge, New York. The Bank’s main office continues to be located at 2200 Montauk Highway in Bridgehampton; six branchesBridgehampton, New York. In connection with the Merger, we expanded our footprint with the addition of Legacy Dime’s full-service retail banking offices located throughout Brooklyn, Queens, the Bronx, and Nassau and Suffolk Counties in New York, and Legacy Dime’s operations office located in Montauk, Southold, Westhampton Beach, Southampton Village, East Hampton Village and Mattituck; and one drive-up facility located in Sag Harbor. In 2018, we purchased the Mattituck branch property, which we had previously leased. We lease a portionManhattan.
As of the Montauk and Westhampton Beach properties to commercial lessees.
At December 31, 2019,2021, we maintained executive offices and back office operations at leased facilities located in Suffolk County, New York at 898 and 888 Veterans Highway in Hauppauge. We lease 31 additional properties asoperated 60 branch locations in New York: 21 in Suffolk County; six in Nassau County; two in Queens;throughout Greater Long Island and two in Manhattan. We sublease a portionManhattan, of thewhich 44 were leased properties located in Patchogue and Melville in Suffolk County to commercial sublessees. 16 were owned.
For additional information on our premises and equipment, see Note 6.7. “Premises and Equipment, net”Fixed Assets, net and Premises Held for Sale” in the Notesnotes to the Consolidated Financial Statements.consolidated financial statements.
Page -15-19
The RegistrantIn the ordinary course of business, the Holding Company and its subsidiarythe Bank are subjectroutinely named as a defendant in or party to certainvarious pending andor threatened legal actions that arise outor proceedings. Certain of the normal course of business.these matters may seek substantial monetary damages. In the opinion of management, as of December 31, 2021, neither the resolution ofHolding Company nor the Bank were involved in any such pendingactions or threatened litigation is not expectedproceedings that were likely to have a material adverse effectimpact on ourthe Company’s consolidated financial statements.condition and results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
Page -16-20
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock trades on the NASDAQ® Stock Market under the symbol “DCOM”. Prior to the Merger, our common shares were traded under the symbol “BDGE”. At February 28, 2020,22, 2022, we had approximately 9921,147 shareholders of record, not including the number of persons or entities holding stock in nominee or the street name through various banks and brokers.
Our common stock trades on the NASDAQ Global Select Market under the symbol “BDGE”.
DCOM Performance Graph
Pursuant to the regulations of the SEC, the graph below compares our performance with that of the total return for the NASDAQ® stock marketComposite Index and for certain bank stocks of financial institutions with an asset size of $1 billion to $5 billion, as reported by SNL Financial LC (“SNL”)the S&P SmallCap 600 Banks Index from December 31, 20142016 through December 31, 2019.2021. The graph assumes the reinvestment of dividends in additional shares of the same class of equity securities as those listed below. The following performance graph reflects the performance of BDGE prior to the Merger.
Bridge Bancorp, Inc.
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| Period Ending | ||||||||||
Index |
| 12/31/14 |
| 12/31/15 |
| 12/31/16 |
| 12/31/17 |
| 12/31/18 |
| 12/31/19 |
Bridge Bancorp, Inc. |
| 100.00 |
| 117.74 |
| 151.39 |
| 143.62 |
| 107.48 |
| 145.88 |
NASDAQ Composite |
| 100.00 |
| 106.96 |
| 116.45 |
| 150.96 |
| 146.67 |
| 200.49 |
SNL Bank $1B-$5B |
| 100.00 |
| 111.94 |
| 161.04 |
| 171.69 |
| 150.42 |
| 182.85 |
| | | | | | | | | | | | |
|
| Year Ended December 31, | ||||||||||
Index |
| 2016 |
| 2017 |
| 2018 |
| 2019 |
| 2020 |
| 2021 |
Dime Community Bancshares, Inc. | | 100.00 |
| 94.88 |
| 71.00 |
| 96.37 |
| 72.77 |
| 108.64 |
S&P SmallCap 600 Banks Index | | 100.00 |
| 101.68 |
| 91.21 |
| 112.06 |
| 99.99 |
| 134.23 |
NASDAQ Composite Index | | 100.00 |
| 129.64 |
| 125.96 |
| 172.18 |
| 249.51 |
| 304.85 |
Page -17-21
Issuer Purchases of Equity Securities
The following table presents information in connection with repurchases of our sharesregarding purchases of common stock during the three months ended December 31, 2019:2021:
| | | | | | | | | |
| | Total | | | | | Total Number of | | Maximum Number |
| | Number | | Average | | Shares Purchased | | of Shares that May | |
| | of Shares | | Price Paid | | as Part of Publicly | | Yet be Purchased | |
Period |
| Purchased |
| Per Share |
| Announced Programs |
| Under the Programs (1) | |
October 2021 | | 267,503 | | $ | 34.54 | | 267,503 | | 1,670,085 |
November 2021 |
| 92,764 | | | 35.86 |
| 92,764 |
| 1,577,321 |
December 2021 |
| 490,634 | | | 34.12 |
| 490,634 |
| 1,086,687 |
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| Total Number of |
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| Shares Purchased |
| Maximum Number |
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|
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| as Part of |
| of Shares That May |
|
| Total Number of |
|
|
|
| Publicly |
| Yet Be Purchased |
|
| Shares |
| Average Price |
| Announced Plans |
| Under the Plans or | |
|
| Purchased (1) |
| Paid per Share |
| or Programs |
| Programs (2) | |
October 1, 2019 through October 31, 2019 |
| 63 |
| $ | 31.51 |
| — |
| 977,400 |
November 1, 2019 through November 30, 2019 |
| 174 |
|
| 33.18 |
| — |
| 977,400 |
December 1, 2019 through December 31, 2019 |
| — |
|
| — |
| — |
| 977,400 |
Total |
| 237 |
|
| 32.74 |
| — |
|
|
(1) |
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Page -18-
Item 6. Selected Financial Data[Reserved]
Five-Year Summary of Operations (In thousands, except per share data and financial ratios)
Set forth below are our selected consolidated financial and other data. Our business is primarily the business of our Bank. This financial data is derived in part from, and should be read in conjunction with our consolidated financial statements.
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| December 31, | |||||||||||||
Selected Financial Data: |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |||||
Securities available for sale, at fair value |
| $ | 638,291 |
| $ | 680,886 |
| $ | 759,916 |
| $ | 819,722 |
| $ | 800,203 |
Securities, restricted |
|
| 32,879 |
|
| 24,028 |
|
| 35,349 |
|
| 34,743 |
|
| 24,788 |
Securities held to maturity |
|
| 133,638 |
|
| 160,163 |
|
| 180,866 |
|
| 223,237 |
|
| 208,351 |
Loans held for sale |
|
| 12,643 |
|
| — |
|
| — |
|
| — |
|
| — |
Loans held for investment |
|
| 3,680,285 |
|
| 3,275,811 |
|
| 3,102,752 |
|
| 2,600,440 |
|
| 2,410,774 |
Total assets |
|
| 4,921,520 |
|
| 4,700,744 |
|
| 4,430,002 |
|
| 4,054,570 |
|
| 3,781,959 |
Total deposits |
|
| 3,814,647 |
|
| 3,886,393 |
|
| 3,334,543 |
|
| 2,926,009 |
|
| 2,843,625 |
Total stockholders’ equity |
|
| 497,154 |
|
| 453,830 |
|
| 429,200 |
|
| 407,987 |
|
| 341,128 |
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| Year Ended December 31, |
| |||||||||||||
Selected Operating Data: |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| |||||
Total interest income |
| $ | 181,541 |
| $ | 168,984 |
| $ | 149,849 |
| $ | 137,716 |
| $ | 106,240 |
|
Total interest expense |
|
| 39,338 |
|
| 32,204 |
|
| 22,689 |
|
| 16,845 |
|
| 10,129 |
|
Net interest income |
|
| 142,203 |
|
| 136,780 |
|
| 127,160 |
|
| 120,871 |
|
| 96,111 |
|
Provision for loan losses |
|
| 5,700 |
|
| 1,800 |
|
| 14,050 |
|
| 5,550 |
|
| 4,000 |
|
Net interest income after provision for loan losses |
|
| 136,503 |
|
| 134,980 |
|
| 113,110 |
|
| 115,321 |
|
| 92,111 |
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Total non-interest income |
|
| 25,387 |
|
| 11,568 |
|
| 18,102 |
|
| 16,046 |
|
| 12,668 |
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Total non-interest expense |
|
| 96,139 |
|
| 98,180 |
|
| 91,727 |
|
| 77,081 |
|
| 72,890 |
|
Income before income taxes |
|
| 65,751 |
|
| 48,368 |
|
| 39,485 |
|
| 54,286 |
|
| 31,889 |
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Income tax expense |
|
| 14,060 |
|
| 9,141 |
|
| 18,946 |
|
| 18,795 |
|
| 10,778 |
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Net income (1)(2)(3)(4) |
| $ | 51,691 |
| $ | 39,227 |
| $ | 20,539 |
| $ | 35,491 |
| $ | 21,111 |
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Selected Financial Ratios and Other Data: |
|
|
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|
|
|
Return on average equity (1)(2)(3)(4) |
|
| 10.84 | % |
| 8.66 | % |
| 4.64 | % |
| 9.82 | % |
| 7.91 | % |
Return on average assets (1)(2)(3)(4) |
|
| 1.10 |
|
| 0.87 |
|
| 0.49 |
|
| 0.92 |
|
| 0.71 |
|
Average equity to average assets |
|
| 10.11 |
|
| 10.08 |
|
| 10.53 |
|
| 9.38 |
|
| 9.01 |
|
Dividend payout ratio (1)(2)(3)(4) |
|
| 35.63 |
|
| 46.76 |
|
| 88.80 |
|
| 45.48 |
|
| 63.55 |
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Basic earnings per share (1)(2)(3)(4) |
| $ | 2.59 |
| $ | 1.97 |
| $ | 1.04 |
| $ | 2.01 |
| $ | 1.43 |
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Diluted earnings per share (1)(2)(3)(4) |
|
| 2.59 |
|
| 1.97 |
|
| 1.04 |
|
| 2.00 |
|
| 1.43 |
|
Cash dividends declared per common share |
|
| 0.92 |
|
| 0.92 |
|
| 0.92 |
|
| 0.92 |
|
| 0.92 |
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Page -19-
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In this Annual Report on Form 10-K, unless otherwise mentioned, the terms the “Company”, “we”, “us” and “our” refer to Bridge Bancorp,Dime Community Bancshares, Inc. and itsour wholly-owned subsidiary, BNBDime Community Bank (the “Bank”). We use the term “Holding Company” to refer solely to Bridge Bancorp,Dime Community Bancshares, Inc. and not to itsour consolidated subsidiary.
The following discussion and analysis covers changes in our results of operations and financial condition from 2018 to 2019. A discussion and analysis of changes in our results of operations and financial condition from 2017 to 2018 may be found in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the U.S. Securities and Exchange Commission on March 11, 2019.
Private Securities Litigation Reform Act Safe Harbor Statement
This report may contain statements relating to our future results (including certain projections and business trends) that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). Such forward-looking statements, in addition to historical information, which involve risk and uncertainties, are based on the beliefs, assumptions and expectations of our management. Words such as “expects,” “believes,” “should,” “plans,” “anticipates,” “will,” “potential,” “could,” “intend,” “may,” “outlook,” “predict,” “project,” “would,” “estimated,” “assumes,” “likely,” and variations of such similar expressions are intended to identify such forward-looking statements. Examples of forward-looking statements include, but are not limited to, possible or assumed estimates with respect to the financial condition, expected or anticipated revenue, and results of operations and our business, including earnings growth; revenue growth in retail banking, lending and other areas; origination volume in the consumer, commercial and other lending businesses; current and future capital management programs; non-interest income levels, including fees from the title insurance subsidiary and banking services as well as product sales; tangible capital generation; market share; expense levels; and other business operations and strategies. We claim the protection of the safe harbor for forward-looking statements contained in the PSLRA.
Factors that could cause future results to vary from current management expectations include, but are not limited to, changing economic conditions; legislative and regulatory changes, including increases in FDIC insurance rates; monetary and fiscal policies of the federal government; changes in tax policies; rates and regulations of federal, state and local tax authorities; changes in interest rates; deposit flows; the cost of funds; demand for loan products; demand for financial services; competition; our ability to successfully integrate acquired entities; changes in the quality and composition of our loan and investment portfolios; changes in management’s business strategies; changes in accounting principles, policies or guidelines; changes in real estate values; expanded regulatory requirements, which could adversely affect operating results; and other factors discussed elsewhere in this report including factors set forth under Item 1A., Risk Factors, and in quarterly and other reports filed by us with the Securities and Exchange Commission. The forward-looking statements are made as of the date of this report, and we assume no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.
Overview
Who We Are and How We Generate Income
Bridge Bancorp,Dime Community Bancshares, Inc., a New York corporation previously known as “Bridge Bancorp, Inc.,” is a bank holding company formed in 1989.1988. On a parent-only basis, the Holding Company has had minimal resultsoperations, other than as owner of operations.Dime Community Bank. The Holding Company is dependent on dividends from its wholly-owned subsidiary, BNBDime Community Bank, its own earnings, additional capital raised, and borrowings as sources of funds. The information in this report reflects principally the financial condition and results of operations of the Bank. The Bank's results of operations are primarily dependent on its net interest income, which is the difference between interest income on loans and investments and interest expense on deposits and borrowings. The Bank also generates non-interest income, such as fee income on deposit and loan accounts, and merchant credit and debit card processing programs, loan swap fees, investment services, income from its title insurance subsidiary, and net gains on sales of securities and loans. The level of non-interest expenses, such as salaries and benefits, occupancy and equipment costs, other general and administrative expenses, expenses from the Bank’s title insurance subsidiary, and income tax expense, further affects our net income. Certain
Page -20-
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.
YearCompletion of Merger of Equals
On February 1, 2021, Dime Community Bancshares, Inc., a Delaware corporation (“Legacy Dime”) merged with and Quarterly Highlights
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oPre-tax chargeinto 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 $8.9 million, or $0.35the Merger (the “Effective Time”), each outstanding share of Legacy Dime common stock, par value $0.01 per diluted share, after tax,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.
22
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”).
Recent Developments Relating to the COVID-19 Pandemic
As Banking was designated by New York State as an essential business, we remain committed to being a source of capital to businesses in our footprint. Over the past several years, we have taken numerous steps, including hiring personnel and adding new processes and systems, that have put us in a position to help our business customers, through programs such as the SBA Paycheck Protection Program (“PPP”). Our retail branch office locations remain open to conduct business. The locations are following the state and local guidance related to COVID vaccination mandates and Centers for Disease Control and Prevention guidance on safe practices and social distancing. All employees and customers must wear a mask when unable to socially distance. We also offer mobile and digital banking platforms. We also allow for a remote working environment for many of our back office personnel. We have not identified any material operational or internal control challenges.
We also prioritize the fraudulent conductwell-being of our employees, including the creation of the Safety and Wellness Committee. We adhere to the NY Health & Essential Rights (“HERO”) Act, under which we have adopted additional guidelines and safety measures to protect our employees against exposure.
Future government actions in response to the COVID-19 pandemic, including vaccination mandates, may affect our workforce, human capital resources, and infrastructure.
It is possible that there will be continued material, adverse impacts to significant estimates, asset valuations, and business operations, including intangible assets, investments, loans, deferred tax assets, and derivative counter party risk as a result of the COVID-19 pandemic.
Lending Operations and Accommodations to Borrowers
The Company’s business, customer through its deposit accounts at BNBfinancial condition and results of operations generally rely upon the ability of the Bank’s borrowers to repay their loans, the value of collateral underlying the Bank’s secured loans, and demand for loans and other products and services the Bank offers, which are highly dependent on the business environment in the 2018 third quarter.Bank’s primary markets where it operates.
oPre-tax net securities lossesConsistent 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 $7.9December 31, 2021, the Company had seven loans, representing outstanding loan balances of $5.7 million, or $0.31 per diluted share after tax, relatedthat were deferring full principal and interest. In accordance with Section 4013 of the CARES Act, issued in March 2020, these deferrals are not considered troubled debt restructurings (“TDRs”). Risk-ratings on COVID-19 loan deferrals are evaluated on an ongoing basis. The loans will be subject to the Bank’s normal credit monitoring. The collectability of accrued interest is evaluated on a periodic basis.
With the passage of the PPP, administered by the SBA, the Company participated in assisting its customers with applications for resources through the program. Since the inception of the program, the consolidated PPP originations for the Company, including originations by both Legacy Dime and Bridge, through December 31, 2021 exceeded $1.90 billion. The Company’s balance sheet restructure in the 2018 second quarter.
oPre-tax charge of $0.8 million, or $0.03 per diluted share after tax, relatedability to respond quickly to the SBA guidelines allowed the Company to be a source of funding for local businesses during the COVID-19 pandemic. The Company’s office relocation costsSBA PPP loans generally have a two-year or five-year term and earn interest at 1%. Following the completion of the PPP, the Company sold its 2021 originations in order to re-deploy funds into ongoing loan portfolio growth. The Company believes that the 2018 fourth quarter.remainder of its SBA PPP loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of December 31, 2021, the Company had SBA PPP loans totaling $66.0 million, net of deferred fees. It is the Company’s expectation that loans funded through the PPP are fully guaranteed by the U.S. government.
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Challenges and Opportunities
We continue to face challenges associated with ever-increasing banking regulationsmonitor unfunded commitments through the pandemic, including commercial and the current low interest rate environment. A prolonged inverted or flat yield curve presents a challenge to a bank, like us, that derives mosthome equity lines of its revenue from net interest margin. A sustained decrease in market interest rates could adversely affect our earnings. When interest rates decline,credit, for evidence of increased credit exposure as borrowers tend to refinance higher-rate, fixed-rate loans at lower rates. In addition, the majority of our loans are at variable interest rates, which would adjust to lower rates. However, with the Federal Reserve having cut interest rates during the third quarter and fourth quarter of 2019, we took the opportunity to lower our funding costs and stabilize our net interest margin.
We established five strategic objectives to achieve our vision: (1) acquire new customers in growth markets; (2) build new sales and marketing disciplines; (3) deepen customer relationships; (4) expand use of automation; and (5) improve talent management. We believe there remain opportunities to grow our franchise and that continued investments to generate core funding, quality loans and new sources of revenue remain keys to continue creating long-term shareholder value. Our ability to attract, retain, train and cultivate employees at all levels of our Company remains significant to meeting our corporate objectives. In particular, we are focused on expanding and retaining our loan team as we continue to grow the loan portfolio. We have capitalized on opportunities presented by the market and diligently seek opportunities to grow and strengthen the franchise. We recognize the potential risks of the current economic environment and will monitor the impact of market events as we evaluate loans and investments and consider growth initiatives. Our management and Board ofutilize these lines for liquidity purposes.
Page -21-23
Directors have built a solid foundation for growth, and we are positioned to adapt to anticipated changes in the industry resulting from new regulations and legislative initiatives.
Critical Accounting PoliciesEstimates
Note 1 Summary of the NotesSignificant Accounting Policies, to the Company’s Audited Consolidated Financial StatementsStatement for the year ended December 31, 20192021 contains a summary of significant accounting policies. Various elements of ourThese accounting policies may require various levels of subjectivity, estimates or judgement by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Our policymanagement. Policies with respect to the methodologies usedit uses to determine the allowance for loancredit losses is our moston loans held for investment and fair value of loans acquired in a business combinations are critical accounting policy. This policy ispolicies because they are important to the presentation of the Company’s consolidated financial condition and results of operations, and it involvesoperations. These critical accounting estimates involve a highersignificant degree of complexity and requiresrequire management to make difficult and subjective judgments which often requirenecessitate assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions andor estimates could result in material differencesvariations in the Company’s consolidated results of operations or financial condition.
TheManagement has reviewed the following is a description of this critical accounting policyestimates and an explanation of the methods and assumptions underlyingrelated disclosures with its application.Audit Committee.
Allowance for LoanCredit Losses on Loans Held for Investment
We considerMethods and Assumptions Underlying the allowanceEstimate
On January 1, 2021, we adopted the CECL Standard, which requires that loans held for loaninvestment be accounted for under the current expected credit losses accounting policy to be the most critical and requires complex management judgment. The judgments made regarding the allowance for loan losses can have a material effect on our results of operations.
model. The allowance for loancredit losses is established and maintained through a provision for loancredit losses based on probable incurredexpected losses inherent in our loan portfolio. We evaluateManagement evaluates the adequacy of the allowance for loan losses on a quarterly basis. The allowance is comprised of both individual valuation allowancesbasis, and loan pool valuation allowances. We monitor our entire loan portfolio on a regular basis, with consideration given to detailed analysis of classified loans, repayment patterns, probable incurred losses, past loss experience, current economic conditions, and various types of concentrations of credit. Additionsadditions to the allowance are charged to expense and realized losses, net of recoveries, are charged against the allowance.
Individual valuation allowances are established in connection with specific loan reviews andDetermining the asset classification process including the procedures for impairment testing under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310, “Receivables” (“ASC 310”). Such valuation, which includes a review of loans for which full collectability in accordance with contractual terms is not reasonably assured, considers the estimated fair valueappropriateness of the underlying collateral lessallowance is complex and requires judgment by management about the costseffect of matters that are inherently uncertain. In determining the allowance for credit losses for loans that share similar risk characteristics, the Company utilizes a model which compares the amortized cost basis of the loan to sell, if any, or the net present value of expected cash flows to be collected. Expected credit losses are determined by aggregating the individual cash flows and calculating a loss percentage by loan segment, or pool, for loans that share similar risk characteristics. For a loan that does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis. Within the model, assumptions are made in the determination of probability of default, loss given default, reasonable and supportable economic forecasts, prepayment rate, curtailment rate, and recovery lag periods. Management assesses the sensitivity of key assumptions at least annually by stressing the assumptions to understand the impact on the model.
Statistical regression is utilized to relate historical macro-economic variables to historical credit loss experience of the peer group. These models are then utilized to forecast future expected loan losses based on expected future behavior of the same macro-economic variables. Adjustments to the quantitative results are adjusted using qualitative factors. These factors include: (1) lending policies and procedures; (2) international, national, regional and local economic business conditions and developments that affect the collectability of the portfolio, including the condition of various markets; (3) the nature and volume of the loan portfolio; (4) the experience, ability, and depth of the lending management and other relevant staff; (5) the volume and severity of past due loans; (6) the quality of our loan review system; (7) the value of underlying collateral for collateralized loans; (8) the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and (9) the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.
For loans that do not share risk characteristics, the Company evaluated the loan on an individual basis based on various factors. Factors that may be considered are borrower delinquency trends and non-accrual 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. The expected credit loss is measured based on net realizable value, that is, the difference between the discounted value of the expected future cash flows, orbased on the loan’s observable market value. Any shortfall that exists from this analysis results in a specific allowance fororiginal effective interest rate, and the amortized cost basis of the loan. Pursuant to our policy,For collateral dependent loans, expected credit loss is measured as the difference between the amortized cost basis of the loan losses must be charged-off in the period the loans, or portions thereof, are deemed uncollectable. Assumptions and judgments by management, in conjunction with outside sources, are used to determine whether full collectability of a loan is not reasonably assured. These assumptions and judgments are also used to determine the estimates of the fair value of the underlying collateral, orless estimated costs to sell.
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Uncertainties Regarding the present valueEstimate
Estimating the timing and amounts of expected future losses is subject to significant management judgment as these projected cash flows rely upon the estimates discussed above and factors that are reflective of current or future expected conditions. These estimates depend on the loan’s observable market value. Individualduration of current overall economic conditions, industry, borrower, or portfolio specific conditions. Volatility in certain credit metrics and differences between expected and actual outcomes are to be expected.
Customers may not repay their loans according to the original terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan analyses arebalance. Bank regulators periodically performed on specific loans considered impaired. Individual valuation allowances could differ materially as a result of changes in these assumptions and judgments. The results of the individual valuation allowances are aggregated and included in the overallreview our allowance for credit losses and may require us to increase our provision for credit losses or loan losses.charge-offs.
Loan pool valuation allowances represent loss allowances that have been established to recognize the inherent risks associated with our lending activities, but which, unlike individual allowances, have not been allocated to particular problem assets. Pool evaluations are broken down into loans with homogenous characteristics by loan typeImpact on Financial Condition and include commercial real estate mortgages, owner and non-owner occupied; multi-family mortgage loans; residential real estate mortgages, home equity loans; commercial, industrial and agricultural loans, secured and unsecured; real estate construction and land loans; and consumer loans. We consider a varietyResults of factors in determining the adequacy of the valuation allowance and have developed a range of valuation allowances necessary to adequately provide for probable incurred losses in each pool of loans. We consider our charge-off history along with the growth in the portfolio as well as our credit administration and asset management philosophies and procedures when determining the allowances for each pool. In addition, we evaluate and consider credit risk ratings, which includes our evaluation of: cash flow, collateral, guarantor support, financial disclosures, industry trends and strength of borrowers’ management, the impact that economicOperations
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and market conditions may have on the portfolio as well as known and inherent risks in the portfolio. Finally, we evaluate and consider the allowance ratios and coverage percentages of both peer group and regulatory agency data. These evaluations are inherently subjective because, even though they are based on objective data, it is our interpretation of that data that determines the amount of the appropriate allowance. If our evaluationsassumptions prove to be incorrect, the allowance for loancredit losses may not be sufficient to cover expected losses inherent in the loan portfolio, resulting in additions to the allowance for loan losses.
For Purchased Credit Impaired (“PCI”) loans, a valuation allowance is established when it is probable that we will be unable to collect all the cash flows expected at acquisition plus additional cash flows expected to be collected arising from changes in estimate after acquisition. A specific allowance is established when subsequent evaluations of expected cash flows from PCI loans reflect a decrease in those estimates. The allowance established represents the excess of the recorded investment in those loans over the present value of the currently estimated future cash flow, discounted at the last effective accounting yield.
We use assumptions and methodologies that are relevant to estimating the level of impairment and probable losses in the loan portfolio. To the extent that the data supporting such assumptions has limitations, management's judgment and experience play a key role in recording the allowance estimates. Additions to the allowance for loan losses are made by provisions charged to earnings. Furthermore, an improvement in the expected cash flows related to PCI loans would result in a reduction of the required specific allowance with a corresponding credit to the provision.
The Credit Risk Management Committee (“CRMC”) is comprised of management. The adequacy of the allowance is analyzed quarterly, with any adjustment to a level deemed appropriate by the CRMC, based on its risk assessment of the entire portfolio. Each quarter, members of the CRMC meet with the Credit Risk Committee of our Board of Directors to review credit risk trends and the adequacy of the allowance for loan losses. Based on the CRMC’s review of the classified loans, delinquency and charge-off trends, and the overall allowance levels as they relate to the entire loan portfolio at December 31, 2019 and 2018, we believe the allowance for loan losses has been established at levels sufficient to cover the probable incurred losses in our loan portfolio.allowance. Future additions or reductions to the allowance may be necessary based on changes in economic, market or other conditions. Changes in estimates could result in a material change in the allowance. allowance through charges to earnings would materially decrease our net income.
We may experience significant credit losses if borrowers experience financial difficulties, which could have a material adverse effect on our operating results.
In addition, various regulatory agencies, as an integral part of the examination process, periodically review the allowance for loancredit losses. Such agencies may require usthe Bank to recognize adjustments to the allowance based on their judgments of the information available to them at the time of their examination.
Fair value of loans acquired in a business combination
Methods and Assumptions Underlying the Estimate
On February 1, 2021, Legacy Dime merged with and into Bridge, Inc. in a merger of equals business combination accounted for as a reverse merger using the acquisition method of accounting (see Note 2 – Merger). As a result of the Merger, the Company recorded $100.2 million of goodwill, based on the fair value of acquired assets and liabilities of Bridge. The fair value often involved third-party estimates utilizing input assumptions by management which may be complex or uncertain. The fair value of acquired loans is based on a discounted cash flow methodology that considers factors such as type of loan and related collateral, and requires management’s judgement on estimates about discount rates, expected future cash flows, market conditions and other future events.
For additional information regardingpurchased financial loans with credit deterioration (“PCD”), an estimate of expected credit losses was made for loans with similar risk characteristics and was added to the allowance for loan losses, see Note 5purchase price to establish the initial amortized cost basis of the NotesPCD loans. Any difference between the unpaid principal balance and the amortized cost basis is considered to relate to non-credit factors and results in a discount or premium. Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans. For acquired loans not deemed PCD at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans.
Uncertainties Regarding the Estimate
Management relied on economic forecasts, internal valuations, or other relevant factors which were available at the time of the Merger in the determination of the assumptions used to calculate the fair value of the acquired loans. The estimates about discount rates, expected future cash flows, market conditions and other future events are subjective and may differ from estimates.
Impact on Financial Condition and Results of Operations
The estimate of fair values on acquired loans contributed to the Consolidated Financial Statements.recorded goodwill from the Merger. In future income statement periods, interest income on loans will include the amortization and accretion of any premiums and discounts
25
resulting from the fair value of acquired loans. Additionally, the provision for credit losses on acquired individually analyzed PCD loans may be impacted due to changes in the assumptions used to calculated expected cash flows.
Net IncomeComparison of Operating Results Years Ended December 31, 2021, 2020 and 2019
Net incomeThe Company’s results of operations for the year ended December 31, 2019 was $51.7 million and $2.59 per diluted share as compared to $39.2 million and $1.97 per diluted share for the same period in 2018. Changes in net2021 include income for the yeareleven months following the Merger and the results of Legacy Dime for the month ended January 31, 2021. While Bridge was the legal acquirer and surviving corporation following the Merger, Legacy Dime is considered the acquirer for accounting purposes. Accordingly, the Company’s historical operating results as of and for the years ended December 31, 2020 and 2019, as presented and discussed in this Annual Report on Form 10-K, do not include the historical results of Bridge.
General. Net income was $104.0 million in 2021, compared to $42.3 million in 2020, and $36.2 million in 2019. During 2021, net interest income increased by $179.9 million, provision for credit losses decreased by $20.0 million, and non-interest income increased by $20.8 million. These increases to net income were partially offset by a non-interest expense increase of $127.5 million and an income tax expense increase of $31.5 million. During 2020, net interest income increased by $30.3 million and non-interest income increased by $9.1 million. These increases to net income were partially offset by a non-interest expense increase of $22.4 million, a provision for credit losses increase of $8.8 million, and an income tax expense increase of $2.0 million.
The discussion of net interest income for the years ended December 31, 2018 include: (i) a $5.4 million, or 4.0%, increase2021, 2020, and 2019 should be read in net interest income; (ii) a $3.9 million, or 216.7%, increase inconjunction with the provision for loan losses; (iii) a $13.8 million, or 119.5%, increase in non-interest income; (iv) a $2.0 million, or 2.1%, decrease in non-interest expense; and (v) a $4.9 million, or 53.8%, increase in income tax expense.
Net Interest Income
Net interest income, the primary contributor to earnings, represents the difference between income on interest-earning assets and expenses on interest-bearing liabilities. Net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them.
The following table presentstables, which set forth certain information relatingrelated to our average consolidated balance sheets and ourthe consolidated statements of income for thethose periods, indicated and reflectswhich also present the average yield on assets and average cost of liabilities for thosethe periods on a tax-equivalent basis based on the U.S. federal statutory tax rate. Suchindicated. The average yields and costs arewere derived by dividing income or expense by the average balance of their related assets or liabilities respectively, forduring the periods shown.represented. Average balances arewere derived from average daily average balancesbalances. No tax-equivalent adjustments have been made for interest income exempt from Federal, state, and include non-accrual loans.local taxation. The yields include loan fees consisting of amortization of loan origination and costs includecommitment fees and
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certain direct and indirect origination costs, whichprepayment fees, and late charges that are considered adjustments to yields. Loan fees included in interest income were $12.5 million in 2021, $7.5 million in 2020, and $2.0 million in 2019. There are no out-of-period adjustments included in the rate/volume analysis in the following table.
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Average Balance Sheets
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Real estate loans (1) | | | $ | 7,969,344 | | $ | 298,682 |
| | 3.75 | % | $ | 4,916,204 | | $ | 196,144 |
| | 3.99 | % | $ | 5,167,130 | | $ | 202,110 |
| | 3.91 | % |
Commercial and industrial ("C&I") loans (1) | | |
| 832,152 | |
| 44,460 |
| | 5.34 | |
| 327,330 | |
| 14,454 |
| | 4.42 | |
| 292,534 | |
| 15,980 |
| | 5.46 | |
SBA PPP loans (1) | | | | 662,818 | | | 14,449 | | | 2.18 | | | 207,672 | | | 5,918 | | | 2.85 | | | — | | | — | | | — | |
Other loans (1) | | |
| 19,891 | |
| 1,425 |
| | 7.16 | |
| 958 | |
| 50 |
| | 5.22 | |
| 1,370 | |
| 70 |
| | 5.11 | |
Securities | | |
| 1,295,439 | |
| 22,634 |
| | 1.75 | |
| 520,279 | |
| 14,159 |
| | 2.72 | |
| 506,676 | |
| 14,518 |
| | 2.87 | |
Other short-term investments | | |
| 574,467 | |
| 2,976 |
| | 0.52 | |
| 150,200 | |
| 3,282 |
| | 2.19 | |
| 155,546 | |
| 5,590 |
| | 3.59 | |
Total interest-earning assets | | |
| 11,354,111 | | | 384,626 |
| | 3.39 | |
| 6,122,643 | | | 234,007 |
| | 3.82 | |
| 6,123,256 | | | 238,268 |
| | 3.89 | |
Non-interest-earning assets | | |
| 758,689 | |
| |
| | | |
| 301,608 | |
|
|
| |
| |
| 247,162 | |
|
|
| |
| |
Total assets | | | $ | 12,112,800 | | | | | | | | $ | 6,424,251 | |
|
|
| |
| | $ | 6,370,418 | |
|
|
| |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholders' Equity: | | |
|
| |
|
| |
|
| |
|
| |
|
|
| |
| |
|
| |
|
|
| |
| |
Interest-bearing liabilities: | | |
|
| |
|
| |
|
| |
|
| |
|
|
| |
| |
|
| |
|
|
| |
| |
Interest-bearing checking | | | $ | 924,122 | | $ | 1,655 | |
| 0.18 | % | $ | 220,693 | | $ | 627 |
| | 0.28 | % | $ | 128,276 | | $ | 251 |
| | 0.20 | % |
Money market | | |
| 3,491,870 | |
| 6,521 | |
| 0.19 | |
| 1,653,452 | |
| 9,223 |
| | 0.56 | |
| 1,891,153 | |
| 26,983 |
| | 1.43 | |
Savings | | |
| 1,142,111 | |
| 697 | |
| 0.06 | |
| 400,530 | |
| 983 |
| | 0.25 | |
| 341,595 | |
| 538 |
| | 0.16 | |
Certificates of deposit | | |
| 1,247,425 | |
| 7,654 | |
| 0.61 | |
| 1,463,613 | |
| 22,205 |
| | 1.52 | |
| 1,585,172 | |
| 34,307 |
| | 2.16 | |
Total interest-bearing deposits | | |
| 6,805,528 | |
| 16,527 | |
| 0.24 | |
| 3,738,288 | |
| 33,038 |
| | 0.88 | |
| 3,946,196 | |
| 62,079 |
| | 1.57 | |
FHLBNY advances | | |
| 259,203 | | | 1,963 | |
| 0.76 | |
| 1,065,356 | | | 17,898 |
| | 1.68 | |
| 1,073,047 | | | 23,220 |
| | 2.16 | |
Subordinated debt, net | | | | 190,128 | | | 8,523 | | | 4.48 | | | 113,974 | | | 5,322 | | | 4.67 | | | 113,827 | | | 5,322 | | | 4.68 | |
Other short-term borrowings | | | | 6,282 | | | 4 | | | 0.06 | | | 5,582 | | | 45 | | | 0.81 | | | 9,997 | | | 226 | | | 2.26 | |
Total borrowings | | | | 455,613 | | | 10,490 | | | 2.30 | | | 1,184,912 | | | 23,265 | | | 1.96 | | | 1,196,871 | | | 28,768 | | | 2.40 | |
Total interest-bearing liabilities | | | | 7,261,141 | | | 27,017 | | | 0.37 | | | 4,923,200 | | | 56,303 | | | 1.14 | | | 5,143,067 | | | 90,847 | | | 1.77 | |
Non-interest-bearing checking | | | | 3,513,354 | | | | | | | | | 691,561 | | | | | | | | | 426,633 | | | | | | | |
Other non-interest-bearing liabilities | | | | 177,057 | | | | | | | | | 137,860 | | | | | | | | | 193,769 | | | | | | | |
Total liabilities | | |
| 10,951,552 | |
| | |
| | |
| 5,752,621 | |
|
|
| | | |
| 5,763,469 | |
|
|
| |
| |
Stockholders' equity | | |
| 1,161,248 | |
| | |
| | |
| 671,630 | |
|
|
| |
| |
| 606,949 | |
|
|
| |
| |
Total liabilities and stockholders' equity | | | $ | 12,112,800 | |
| | |
| | | $ | 6,424,251 | |
|
|
| |
| | $ | 6,370,418 | |
|
|
| |
| |
Net interest income | | |
| | | $ | 357,609 | |
| | |
| | | $ | 177,704 |
| |
| |
| | | $ | 147,421 |
| |
| |
Net interest spread (2) | | | | | | | | | | 3.02 | % | | | |
|
| | | 2.68 | % | | | |
|
|
| | 2.12 | % |
Net interest-earning assets | | | $ | 4,092,970 | | | | | | | | $ | 1,199,443 | | | | | | | | $ | 980,189 | | | |
| | | |
Net interest margin (3) | | |
| | |
| | |
| 3.15 | % |
|
| |
|
| | | 2.90 | % |
|
| |
|
|
| | 2.41 | % |
Ratio of interest-earning assets to interest-bearing liabilities | | | | | | | | | | 156.37 | % | | | |
|
| | | 124.36 | % | | | |
|
|
| | 119.06 | % |
Deposits (including non-interest-bearing checking accounts) | | | $ | 10,318,882 | | $ | 16,527 | |
| 0.16 | % | $ | 4,429,849 | | $ | 33,038 | | | 0.75 | % | $ | 4,372,829 | | $ | 62,079 |
| | 1.42 | % |
(1) Amounts are net of deferred origination costs/ (fees) and allowance for credit losses, and include loans held for sale.
(2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average-interest earning assets.
27
Rate/Volume Analysis
| | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | ||||||||||||||||
| | 2021 over 2020 | | 2020 over 2019 | ||||||||||||||
| | Increase/(Decrease) Due to | | Increase/(Decrease) Due to | ||||||||||||||
| | Volume |
| Rate |
| Total |
| Volume |
| Rate |
| Total | ||||||
| | | | | | | | | | | | | | | | | | |
Interest-earning assets: | | (In thousands) | ||||||||||||||||
Real estate loans (1) | | $ | 118,075 | | $ | (15,537) | | $ | 102,538 | | $ | (9,958) | | $ | 3,992 | | $ | (5,966) |
Commercial and industrial (1) | |
| 24,644 | |
| 5,362 | |
| 30,006 | |
| 1,709 | |
| (3,235) | |
| (1,526) |
SBA PPP loans (1) | | | 11,446 | | | (2,915) | | | 8,531 | | | 2,959 | | | 2,959 | | | 5,918 |
Other loans (1) | |
| 1,172 | |
| 203 | |
| 1,375 | |
| (22) | |
| 2 | |
| (20) |
Securities | |
| 17,309 | |
| (8,834) | |
| 8,475 | |
| 396 | |
| (755) | |
| (359) |
Other short-term investments | |
| 5,737 | |
| (6,043) | |
| (306) | |
| (161) | |
| (2,147) | |
| (2,308) |
Total interest-earning assets | | | 178,383 | | | (27,764) | | | 150,619 | | | (5,077) | | | 816 | | | (4,261) |
Interest-bearing liabilities: | | |
| | |
| | |
| | |
| | |
| | |
|
Interest-bearing checking | | | 1,624 | | | (596) | | | 1,028 | | | 227 | | | 149 | | | 376 |
Money market | | | 6,836 | | | (9,538) | | | (2,702) | | | (2,350) | | | (15,410) | | | (17,760) |
Savings | | | 1,148 | | | (1,434) | | | (286) | | | 116 | | | 329 | | | 445 |
Certificates of deposit | | | (2,256) | | | (12,295) | | | (14,551) | | | (2,294) | | | (9,808) | | | (12,102) |
FHLBNY advances | | | (9,839) | | | (6,096) | | | (15,935) | | | (169) | | | (5,153) | | | (5,322) |
Subordinated debt, net | | | 3,487 | | | (286) | | | 3,201 | | | 9 | | | (9) | | | — |
Other short-term borrowings | | | 4 | | | (45) | | | (41) | | | (68) | | | (113) | | | (181) |
Total interest-bearing liabilities | | | 1,004 | | | (30,290) | | | (29,286) | | | (4,529) | | | (30,015) | | | (34,544) |
Net change in net interest income | | $ | 177,379 | | $ | 2,526 | | $ | 179,905 | | $ | (548) | | $ | 30,831 | | $ | 30,283 |
(1) Amounts are net of deferred origination costs/ (fees) and allowance for credit losses, and include loans held for sale.
Net Interest Income. Net interest income was $357.6 million in 2021, $177.7 million in 2020, and $147.4 million in 2019. Average interest-earning assets were $11.35 billion in 2021, $6.12 billion in 2020 and 2019. Net interest margin was 3.15% in 2021, 2.90% in 2020, and 2.41% in 2019.
Interest Income. Interest income was $384.6 million in 2021, $234.0 million in 2020, and $238.3 million in 2019. During 2021, interest income increased $150.6 million from 2020, primarily reflecting increases in interest income of $102.5 million on non-accrualreal estate loans, has been included only$30.0 million on commercial and industrial (“C&I”) loans, $8.5 million on SBA PPP loans, $8.5 million on securities, and $1.4 million on other loans. The increased interest income on real estate loans was due to an increase of $3.05 billion in the average balance of such loans in the period, offset in part by a 24-basis point decrease in the yield. The increased interest income on C&I loans was primarily due to growth of $504.8 million in the average balances, and a 92-basis point increase in yield during the period. The increased interest income from securities was primarily due to the extent reflectedincrease in the consolidated statementsaverage balances of income.$775.2 million, offset in part by a 97-basis point decrease in the yield. The Tax Act loweredincreased average balances were related to increased balances from the U.S. federal statutory tax rate from 35% to 21% effective as of January 1, 2018. Our tax-equivalent adjustment toMerger. During 2020, interest income decreased $4.3 million from 2019, primarily reflecting decreases in interest income of $6.0 million on real estate loans, $2.3 million on other short-term investments, $1.5 million on C&I loans, partially offset by an increase in interest income of $5.9 million on SBA PPP loans. The decreased interest income on real estate loans was primarily due to a decrease of $250.9 million in the average balance of such loans in the period, offset in part by an 8-basis point increase in the average yield. The decreased interest income on other short-term investments was primarily due to the 140-basis point decrease in average yield on such securities. The increased interest income on SBA PPP loans was due to the addition of $207.7 million in the average balances of such loans during the period.
Interest Expense. Interest expense was $27.0 million in 2021, $56.3 million in 2020, and $90.8 million in 2019. During 2021, interest expense decreased $29.3 million from 2020, primarily reflecting decreases in interest expense of $15.9 million on FHLBNY advances, and $14.6 million on CDs. The decrease in interest expense was primarily due to decreased rates offered on CD accounts, a decrease of $216.2 million in the average balances of such accounts, a decrease of $806.2 million in the average balances of FHLBNY advances, and a decrease of 92 basis points in the cost of such borrowings. During 2020, interest expense decreased $34.5 million from 2019, primarily reflecting decreases in interest expense of $17.8 million on money market accounts, $12.1 million on CDs, and $5.3 million on FHLBNY advances. The decrease in interest expense was primarily due to decreased rates offered on money market accounts, CDs, and FHLBNY advances, and decreases of $237.7 million in the average balances of money market accounts and $121.6 million in the average balances of CDs.
28
Provision for Credit Losses. The Company recognized a provision for credit losses of $6.2 million in 2021, $26.2 million in 2020, and $17.3 million in 2019. The $6.2 million provision for credit losses recognized in 2021 included a provision recorded on acquired non-PCD loans which totaled $20.3 million for the Day 2 accounting of acquired loans from the Merger and a provision for unfunded commitments of $2.9 million, offset by a credit of $17.0 million as a result of improvement in forecasted macroeconomic conditions, and releases of reserves on individually analyzed loans. The $26.2 million provision for credit losses recognized during 2020 resulted mainly from anincreaseinthegeneral reserve allowance for creditlossesdue totheadjustment ofqualitative factorstoaccountfortheeffectsoftheCOVID-19 pandemicandrelatedeconomic disruption, and additional specific reserves of $6.0 million on non-performing loans. The $17.3 million provision for credit losses recognized during 2019 resulted mainly from charge-offs of $10.0 million and a $10.0 million specific reserve on one non-performing C&I relationship, partially offset by a release of reserves due to a reduction of $481.4 million in multifamily real estate loans. The provision for credit losses recognized in 2021 was calculated in accordance with the CECL Standard adopted by the Company on January 1, 2021. The provision for credit losses recognized in 2020 and 2019 was calculated in accordance with prior GAAP, including ASC 310.
Non-Interest Income.Non-interest income was $42.1 million in 2021, $21.3 million in 2020, and $12.2 million in 2019. During 2021, non-interest income increased $20.8 million from 2020, due primarily to a gain on the sale of SBA PPP loans of $20.7 million, an increase in service charges and other fees of $10.4 million, and an increase in other non-interest income of $3.0 million, partially offset by an increase in loss on termination of derivatives of $9.9 million, a decrease in loan level derivative income of $6.0 million, and a decrease in net gain on sale of securities and other assets of $2.9 million. During 2020, non-interest income increased $9.1 million from 2019, due primarily to an increase in loan level derivative income of $8.0 million, an increase in gains on sales of securities and other assets of $4.6 million, an increase in BOLI income of $2.0 million, and an increase in gain on sale of residential loans of $1.4 million, partially offset by a loss on termination of derivatives in 2020 of $6.6 million.
Non-Interest Expense. Non-interest expense was $245.3 million in 2021, $117.8 million in 2020, and $95.4 million in 2019. During 2021, non-interest expense increased $127.5 million from 2020, reflecting an increase of $47.6 million in salaries and employee benefits expense, an increase of $29.6 million in merger expenses and transaction costs, an increase of $14.5 million in occupancy and equipment expense, an increase of $8.3 million in data processing costs, an increase of $7.2 million in other expenses, and an increase of $5.9 million in professional services expenses, primarily due to the Merger. We also incurred branch restructuring costs of $5.1 million during the 2021 period. During 2020, non-interest expense increased $22.4 million from 2019, reflecting $15.3 million in merger expenses and transaction costs and $4.0 million in severance expense during the 2020 period, and an increase of $8.7 million in salaries and employee benefits expense, partially offset by a decrease of $2.7 million in loss from extinguishment of debt.
Non-interest expense was 2.03%, 1.83%, and 1.50% of average assets during 2021, 2020, and 2019, respectively. The increase in 2021 compared to 2020 was primarily due to the Merger. The increase in 2020 compared to 2019 was primarily due to merger and transaction costs in 2020.
Income Tax Expense. Income tax expense was $44.2 million in 2021, $12.7 million in 2020, and $10.7 million in 2019. Income tax expense increased $31.5 million during 2021 compared to 2020, primarily as a result of $93.2 million of higher pre-tax income during 2021. During 2020, income tax expense increased $2.0 million compared to 2019, primarily as a result of $8.1 million of higher pre-tax income in 2020.
The Company’s consolidated tax rate was 29.8%, 23.0% and 22.8% in 2021, 2020, and 2019, respectively. The increase in the effective tax rate in 2021 compared to 2020 was primarily the result of the loss of benefits from Legacy Dime’s REITs as the Company’s total assets exceeded $8 billion, and non-deductible expenses during 2021.
Comparison of Financial Condition at December 31, 2021 and December 31, 2020
Assets. Assets totaled $12.07 billion at December 31, 2021, $5.28 billion above their level at December 31, 2020, primarily due to an increase in the loan portfolio of $3.58 billion, an increase in securities of $1.20 billion, and an increase in cash and due from banks of $150.1 million. These changes were mainly due to the acquisition of assets due to the Merger.
Total loans increased $3.58 billion during the year ended December 31, 2018 as a result2021, to $9.16 billion at period end. During the period, the Bank had originations of $2.32 billion. Additionally, the lower federal statutory tax rate in 2018. For purposesallowance for credit losses increased by $42.4 million,
29
which was due to the application of FASB ASC 320, “Investments - Debt and Equity Securities”.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| ||||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 |
| ||||||||||||||||||
|
|
|
|
|
| Average |
|
|
|
|
| Average |
|
|
|
|
| Average |
| ||||||
|
| Average |
|
|
| Yield/ |
| Average |
|
|
| Yield/ |
| Average |
|
|
| Yield/ |
| ||||||
(Dollars in thousands) |
| Balance |
| Interest |
| Cost |
| Balance |
| Interest |
| Cost |
| Balance |
| Interest |
| Cost |
| ||||||
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net (1)(2) |
| $ | 3,410,773 |
| $ | 158,492 |
| 4.65 | % | $ | 3,167,933 |
| $ | 144,568 |
| 4.56 | % | $ | 2,774,422 |
| $ | 126,802 |
| 4.57 | % |
Mortgage-backed securities, CMOs and other asset-backed securities |
|
| 651,262 |
|
| 16,182 |
| 2.48 |
|
| 679,805 |
|
| 16,591 |
| 2.44 |
|
| 737,212 |
|
| 15,231 |
| 2.07 |
|
Taxable securities |
|
| 138,625 |
|
| 4,477 |
| 3.23 |
|
| 168,326 |
|
| 5,413 |
| 3.22 |
|
| 220,744 |
|
| 6,074 |
| 2.75 |
|
Tax-exempt securities (2) |
|
| 33,393 |
|
| 1,215 |
| 3.64 |
|
| 62,595 |
|
| 1,932 |
| 3.09 |
|
| 90,077 |
|
| 2,835 |
| 3.15 |
|
Deposits with banks |
|
| 75,600 |
|
| 1,697 |
| 2.24 |
|
| 52,143 |
|
| 1,076 |
| 2.06 |
|
| 24,554 |
|
| 278 |
| 1.13 |
|
Total interest-earning assets (2) |
|
| 4,309,653 |
|
| 182,063 |
| 4.22 |
|
| 4,130,802 |
|
| 169,580 |
| 4.11 |
|
| 3,847,009 |
|
| 151,220 |
| 3.93 |
|
Non-interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
| 81,850 |
|
|
|
|
|
|
| 76,730 |
|
|
|
|
|
|
| 70,053 |
|
|
|
|
|
|
Other assets |
|
| 326,963 |
|
|
|
|
|
|
| 285,546 |
|
|
|
|
|
|
| 283,966 |
|
|
|
|
|
|
Total assets |
| $ | 4,718,466 |
|
|
|
|
|
| $ | 4,493,078 |
|
|
|
|
|
| $ | 4,201,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW and money market deposits |
| $ | 2,109,891 |
| $ | 23,687 |
| 1.12 | % | $ | 1,922,515 |
| $ | 15,928 |
| 0.83 | % | $ | 1,717,529 |
| $ | 7,858 |
| 0.46 | % |
Certificates of deposit of $100,000 or more |
|
| 208,875 |
|
| 4,270 |
| 2.04 |
|
| 184,438 |
|
| 3,007 |
| 1.63 |
|
| 147,366 |
|
| 1,843 |
| 1.25 |
|
Other time deposits |
|
| 78,800 |
|
| 1,502 |
| 1.91 |
|
| 107,153 |
|
| 1,801 |
| 1.68 |
|
| 72,550 |
|
| 725 |
| 1.00 |
|
Federal funds purchased and repurchase agreements |
|
| 41,077 |
|
| 767 |
| 1.87 |
|
| 69,604 |
|
| 1,200 |
| 1.72 |
|
| 132,514 |
|
| 1,571 |
| 1.19 |
|
FHLB advances |
|
| 245,283 |
|
| 4,573 |
| 1.86 |
|
| 324,653 |
|
| 5,729 |
| 1.76 |
|
| 401,258 |
|
| 6,105 |
| 1.52 |
|
Subordinated debentures |
|
| 78,845 |
|
| 4,539 |
| 5.76 |
|
| 78,706 |
|
| 4,539 |
| 5.77 |
|
| 78,566 |
|
| 4,539 |
| 5.78 |
|
Junior subordinated debentures |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| — |
|
| 668 |
|
| 48 |
| 7.19 |
|
Total interest-bearing liabilities |
|
| 2,762,771 |
|
| 39,338 |
| 1.42 |
|
| 2,687,069 |
|
| 32,204 |
| 1.20 |
|
| 2,550,451 |
|
| 22,689 |
| 0.89 |
|
Non-interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits |
|
| 1,392,606 |
|
|
|
|
|
|
| 1,310,857 |
|
|
|
|
|
|
| 1,174,840 |
|
|
|
|
|
|
Other liabilities |
|
| 86,130 |
|
|
|
|
|
|
| 42,392 |
|
|
|
|
|
|
| 33,465 |
|
|
|
|
|
|
Total liabilities |
|
| 4,241,507 |
|
|
|
|
|
|
| 4,040,318 |
|
|
|
|
|
|
| 3,758,756 |
|
|
|
|
|
|
Stockholders' equity |
|
| 476,959 |
|
|
|
|
|
|
| 452,760 |
|
|
|
|
|
|
| 442,272 |
|
|
|
|
|
|
Total liabilities and stockholders' equity |
| $ | 4,718,466 |
|
|
|
|
|
| $ | 4,493,078 |
|
|
|
|
|
| $ | 4,201,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income/net interest rate spread (2) (3) |
|
|
|
|
| 142,725 |
| 2.80 | % |
|
|
|
| 137,376 |
| 2.91 | % |
|
|
|
| 128,531 |
| 3.04 | % |
Net interest-earning assets |
| $ | 1,546,882 |
|
|
|
|
|
| $ | 1,443,733 |
|
|
|
|
|
| $ | 1,296,558 |
|
|
|
|
|
|
Net interest margin (2) (4) |
|
|
|
|
|
|
| 3.31 | % |
|
|
|
|
|
| 3.33 | % |
|
|
|
|
|
| 3.34 | % |
Tax-equivalent adjustment |
|
|
|
|
| (522) |
| (0.01) |
|
|
|
|
| (596) |
| (0.02) |
|
|
|
|
| (1,371) |
| (0.03) |
|
Net interest income |
|
|
|
| $ | 142,203 |
|
|
|
|
|
| $ | 136,780 |
|
|
|
|
|
| $ | 127,160 |
|
|
|
Net interest margin (4) |
|
|
|
|
|
|
| 3.30 | % |
|
|
|
|
|
| 3.31 | % |
|
|
|
|
|
| 3.31 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of interest-earning assets to interest-bearing liabilities |
|
|
|
|
|
|
| 155.99 | % |
|
|
|
|
|
| 153.73 | % |
|
|
|
|
|
| 150.84 | % |
|
|
|
|
|
|
|
|
Page -24-
Rate/Volume Analysis
Net interest income can be analyzed in terms of the impact of changes in rates and volumes. The following table illustrates the extent to which changes in interest rates and in the volume of average interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume); and (iii) the net changes. For purposes of this table, changes that are not due solely to volume or rate changes have been allocated to these categories basedMerger (credit mark on the respective percentage changes in average volume and rate. Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes between volume and rates. In addition, average interest-earning assets include non-accrual loans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | ||||||||||||||||
|
| 2019 Over 2018 |
| 2018 Over 2017 | ||||||||||||||
|
| Changes Due To |
| Changes Due To | ||||||||||||||
|
|
|
|
|
|
|
| Net |
|
|
|
|
|
|
| Net | ||
(In thousands) |
| Volume |
| Rate |
| Change |
| Volume |
| Rate |
| Change | ||||||
Interest income on interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net (1) (2) |
| $ | 11,245 |
| $ | 2,679 |
| $ | 13,924 |
| $ | 17,958 |
| $ | (192) |
| $ | 17,766 |
Mortgage-backed securities, CMOs and other asset-backed securities |
|
| (706) |
|
| 297 |
|
| (409) |
|
| (1,251) |
|
| 2,611 |
|
| 1,360 |
Taxable securities |
|
| (958) |
|
| 22 |
|
| (936) |
|
| (1,585) |
|
| 924 |
|
| (661) |
Tax-exempt securities (2) |
|
| (1,018) |
|
| 301 |
|
| (717) |
|
| (849) |
|
| (54) |
|
| (903) |
Deposits with banks |
|
| 520 |
|
| 101 |
|
| 621 |
|
| 461 |
|
| 337 |
|
| 798 |
Total interest income on interest-earning assets (2) |
|
| 9,083 |
|
| 3,400 |
|
| 12,483 |
|
| 14,734 |
|
| 3,626 |
|
| 18,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense on interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings, NOW and money market deposits |
|
| 1,671 |
|
| 6,088 |
|
| 7,759 |
|
| 1,035 |
|
| 7,035 |
|
| 8,070 |
Certificates of deposit of $100,000 or more |
|
| 433 |
|
| 830 |
|
| 1,263 |
|
| 527 |
|
| 637 |
|
| 1,164 |
Other time deposits |
|
| (519) |
|
| 220 |
|
| (299) |
|
| 443 |
|
| 633 |
|
| 1,076 |
Federal funds purchased and repurchase agreements |
|
| (526) |
|
| 93 |
|
| (433) |
|
| (919) |
|
| 548 |
|
| (371) |
FHLB advances |
|
| (1,465) |
|
| 309 |
|
| (1,156) |
|
| (1,267) |
|
| 891 |
|
| (376) |
Subordinated debentures |
|
| 8 |
|
| (8) |
|
| — |
|
| 8 |
|
| (8) |
|
| — |
Junior subordinated debentures |
|
| — |
|
| — |
|
| — |
|
| (48) |
|
| — |
|
| (48) |
Total interest expense on interest-bearing liabilities |
|
| (398) |
|
| 7,532 |
|
| 7,134 |
|
| (221) |
|
| 9,736 |
|
| 9,515 |
Net interest income (2) |
| $ | 9,481 |
| $ | (4,132) |
| $ | 5,349 |
| $ | 14,955 |
| $ | (6,110) |
| $ | 8,845 |
|
|
|
|
Net interest income increased $5.4 million, or 4.0%, to $142.2 million for the year ended December 31, 2019 compared to $136.8 million for the year ended December 31, 2018. Average net interest-earning assets increased $103.1 million to $1.5 billion for 2019 compared to $1.4 billion for 2018. The increase in average net interest-earning assets in 2019 reflects organic growth inPCD loans and a decrease in average borrowings, partiallyplus provision on non-PCD loans), offset by a decreaseCECL adoption, improvements in average investment securitiesforecasted macroeconomic conditions, and an increase in average deposits. Tax-equivalent net interest margin was 3.31% in 2019 compared to 3.33% in 2018. The decrease in tax-equivalent net interest margin for 2019 compared to 2018 reflects higher overall funding costs due in part to four Fed Funds rate increases in 2018, partially offset by a higher average yieldreleases of reserves on loans and investment securities, coupled with a lower volume of borrowings in 2019. The Federal Reserve cut interest rates during the third quarter and fourth quarter of 2019, which provided an opportunity for us to lower our deposit costs in these periods.
Total interest income increased $12.5 million, or 7.4%, to $181.5 million in 2019 compared to $169.0 million in 2018 as average interest-earning assets increased $178.9 million, or 4.3%, to $4.3 billion in 2019 compared to $4.1 billion in 2018. The increase in average interest-earning assets in 2019 compared to 2018 reflects organic growth in loans, partially offset
Page -25-
by a decline in average investment securities. The tax-equivalent average yield on interest-earning assets increased to 4.22% in 2019 compared to 4.11% in 2018.
Interest income on loans increased to $158.2 million for 2019 compared to $144.4 million for 2018, primarily due to growth in the loan portfolio and an increase in the average yield on loans. Average loans grew by $242.8 million, or 7.7%, to $3.4 billion in 2019 compared to $3.2 billion in 2018. The increase in average loans was the result of organic growth in commercial real estate mortgage loans, residential mortgage loans, commercial and industrial loans, multi-family mortgage loans, and real estate construction and land loans. The tax-equivalent average yield on loans was 4.65% in 2019 compared to 4.56% in 2018. We remain committed to growing loans with prudent underwriting, sensible pricing, and limited credit and extension risk.
Interest income on investment securities decreased to $21.6 million in 2019 from $23.5 million in 2018. The decrease in 2019 compared to 2018 reflects a decrease in the average investment securities, partially offset by a higher average yield on investment securities. Interest income on investment securities included net amortization of premiums on securities of $4.4 million in 2019, compared to $4.0 million in 2018. Average total investment securities decreased by $87.4 million, or 9.6%, to $823.3 million in 2019 compared to $910.7 million in 2018. The tax-equivalent average yield on total investment securities was 2.66% in 2019 compared to 2.63% in 2018.
Total interest expense increased $7.1 million, or 22.2%, to $39.3 million in 2019 compared to $32.2 million in 2018. The increase in interest expense between the periods resulted primarily from an increase in the average cost of interest-bearing liabilities coupled with an increase in average deposits, partially offset by a decrease in average borrowings. The average cost of interest-bearing liabilities was 1.42% in 2019 compared to 1.20% in 2018. The increase in the average cost of interest-bearing liabilities was mainly due to higher overall funding costs, due in part to four Fed Funds rate increases in 2018. However, the Federal Reserve cut interest rates during the third quarter and fourth quarter of 2019, which provided an opportunity for us to lower our funding costs a total of 33 basis points during this rate cut cycle. Average total interest-bearing liabilities increased to $2.8 billion in 2019 compared to $2.7 billion in 2018 due to an increase in average deposits, partially offset by a decrease in average borrowings.
Average total deposits increased to $3.8 billion in 2019 compared to $3.5 billion in 2018 due to increases in average savings, NOW and money market deposits and average demand deposits, partially offset by a decrease in average certificates of deposit. The average balances in savings, NOW and money market accounts increased to $2.1 billion in 2019 compared to $1.9 billion in 2018. Average demand deposits increased to $1.4 billion in 2019 compared to $1.3 billion in 2018. Average certificates of deposit decreased $3.9 million to $287.7 million in 2019 compared to 2018. The average cost of savings, NOW and money market accounts increased to 1.12% in 2019 compared to 0.83% in 2018. The average cost of certificates of deposit increased to 2.01% in 2019 compared to 1.65% in 2018. Average public fund deposits decreased to 15.2% of total average deposits during 2019 compared to 15.4% in 2018.
Average federal funds purchased and repurchase agreements declined to $41.1 million in 2019 compared to $69.6 million in 2018. Average FHLB advances decreased to $245.3 million in 2019, compared to $324.7 million in 2018. Average subordinated debentures increased to $78.8 million in 2019, compared to $78.7 million in 2018. This decline in average borrowings in 2019 compared to 2018 was mainly due to our decreased reliance on borrowings in 2019 by using deposit growth to fund our loan portfolio growth.
Provision and Allowance for Loan Losses
Our loan portfolio consists primarily of real estate loans secured by commercial, multi-family and residential real estate properties located in our principal lending areas of Nassau and Suffolk Counties on Long Island and the New York City boroughs. The interest rates we charge on loans are affected primarily by the demand for such loans, the supply of money available for lending purposes, the rates offered by our competitors, our relationship with the customer, and the related credit risks of the transaction. These factors are affected by general and economic conditions including, but not limited to, monetary policies of the federal government, including the Federal Reserve Board, legislative policies and governmental budgetary matters.
Based on our continuing review of the overall loan portfolio, the current asset quality of the portfolio, the growth in the loan portfolio and the net charge-offs, a provision for loan losses of $5.7 million was recorded in 2019, as compared to
Page -26-
$1.8 million in 2018. Net charge-offs were $4.3 million for the year ended December 31, 2019, as compared to $2.1 million for the year ended December 31, 2018. The charge-offs in 2019 relate primarily to the $3.7 million charge-off related to one CRE loan totaling $16.3 million which was written down to the loan’s estimated fair value of $12.6 million and moved into loans held for sale in June 2019. The charge-offs in 2018 resulted from the charge-off of one loan which was fully reserved for and partial charge-offs recognized on eleven taxi medallion loans attributable to payoff settlements we accepted. The ratio of allowance for loan losses to non-accrual loans was 750% and 1,119% at December 31, 2019 and 2018, respectively. The allowance for loan losses totaled $32.8 million at December 31, 2019 and $31.4 million at December 31, 2018. The allowance as a percentage of total loans was 0.89% and 0.96% at December 31, 2019 and 2018, respectively. We continue to carefully monitor the loan portfolio as well as real estate trends in Nassau and Suffolk Counties and the New York City boroughs.
Loans totaling $88.3 million or 2.4%, of total loans at December 31, 2019 were categorized as classified loans compared to $87.9 million or 2.7%, at December 31, 2018. Classified loans include loans with credit quality indicators with the internally assigned grades of special mention, substandard and doubtful. These loans are categorized as classified loans as we have information that indicates the borrower may not be able to comply with the present repayment terms. These loans are subject to increased management attention and their classification is reviewed at least quarterly.
At December 31, 2019, $32.0 million of these classified loans were commercial real estate (“CRE”) loans. Of the $32.0 million of CRE loans, $30.5 million were current and $1.5 million were past due. At December 31, 2019, $17.2 million of classified loans were residential real estate loans with $13.5 million current and $3.7 million past due. Commercial, industrial, and agricultural loans represented $36.0 million of classified loans, with $34.5 million current and $1.5 million past due. Taxi medallion loans represented $9.6 million of the classified commercial, industrial and agricultural loans at December 31, 2019. All of our taxi medallion loans are collateralized by New York City medallions and have personal guarantees. All taxi medallion loans were current as of December 31, 2019. No new originations of taxi medallion loans are currently planned, and we expect these balances to continue to decline through amortization and pay-offs. In January 2019, seven taxi medallion loans, totaling $6.2 million, net of charge-offs, were paid off under settlements we accepted. The charge-offs related to the settlements were recognized in the 2018 fourth quarter. At December 31, 2019, there was $0.9 million of classified consumer loans substantially all of which were current; $0.4 million of classified multi-family loans which were current; and $1.8 million of classified real estate construction and land loans with $1.7 million current and $0.1 million past due.
CRE loans, including multi-family loans, represented $2.4 billion, or 64.8%, of the total loan portfolio at December 31, 2019 compared to $2.0 billion, or 59.9%, at December 31, 2018. Our underwriting standards for CRE loans require an evaluation of the cash flow of the property, the overall cash flow of the borrower and related guarantors as well as the value of the real estate securing the loan. In addition, our underwriting standards for CRE loans are consistent with regulatory requirements with original loan to value ratios generally less than or equal to 75%. We consider charge-off history, delinquency trends, cash flow analysis, and the impact of the local economy on CRE values when evaluating the appropriate level of the allowance for loan losses.
At December 31, 2019 and 2018, we had individually impaired loans as defined by ASC 310 of $27.0 million, with a specific reserve totaling $4.7 million, and $19.4 million, with a specific reserve totaling $0.2 million, respectively. For a loan to be considered impaired, we determine after review whether it is probable that we will not be able to collect all amounts due according to the contractual terms of the loan agreement. We apply our normal loan review procedures in making these judgments. Impaired loans include individually classified non-accrual loans and troubled debt restructuring loans (“TDRs”). At December 31, 2019, impaired loans also included $1.1 million in other impaired performing loans which were related to borrowers with other performing TDRs. At December 31, 2018, impaired loans also included $2.7 million in other impaired performing loans related to three taxi medallion loans which paid off in January 2019. For impaired loans, we evaluate the impairment of the loan in accordance with FASB ASC 310‑10‑35‑22. Impairment is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate. For loans that are collateral dependent, the fair value of the collateral less costs to sell is used to determine the fair value of the loan. The fair value of the collateral is determined based on recent appraised values. The fair value of the collateral less costs to sell or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan loss allowance allocation is required. The increase in impaired loans from December 31, 2018 was primarily attributable to the new TDRs, partially offset by the payoff of certain TDRs and other impairedanalyzed loans during the year ended December 31, 2019. 2021.
The $139.7 million increase in BOLI was mainly due to purchases of $40.0 million during the year ended December 31, 2021, and acquisition of $94.1 million in BOLI as a result of the Merger.
Liabilities. Total liabilities increased $4.79 billion during the year ended December 31, 2021, to $10.87 billion at period end, primarily due to an increase of $5.93 billion in deposits, an increase of $83.0 million in subordinated debt, and an increase of $26.2 million in lease liability for operating leases. The increases in total liabilities in the current year were mainly due to the assumption of liabilities due to the Merger. The increases due to the Merger were partially offset by a decrease of $1.18 billion in FHLBNY advances and a decrease of $118.1 million in other short-term borrowings. We used excess liquidity on the balance sheet to pay down FHLBNY advances and other short-term borrowings in the current year.
During the year ended December 31, 2019, we modified certain loans as TDRs2021, the Company terminated 34 derivatives with notional values totaling $21.7 million.
Page -27-
The increase in the specific reserve on impaired loans from December 31, 2018 to December 31, 2019 was primarily attributable to the restructuring of certain taxi medallion loans which had matured during 2019. All of our taxi medallion loans have been restructured as of December 31, 2019,$785.0 million, resulting in a shifttermination value of $16.5 million which was recognized in loss on termination of derivatives in non-interest income. During the reserves onyear ended December 31, 2020, the commercial and industrial loan portfolio fromCompany terminated two derivatives with notional values totaling $30.0 million, resulting in a termination value of $175 thousand, which was expected to be recognized in interest expense over the general reservesremaining term of the original derivative. Due to the specific reserves.
Non-accrual loans were $4.4 million, or 0.12%, of total loans atterminations during the year ended December 31, 2019 compared to $2.8 million, or 0.09%,2021, the remaining termination value was recognized as part of total loans atthe loss on terminations during the year ended December 31, 2018. TDRs represent $405 thousand of2021. Additionally, during the non-accrual loans atyear ended December 31, 2019 and $133 thousand at2020, the Company terminated six derivatives with notional values totaling $95.0 million, resulting in a termination value of $6.6 million, which was recognized as losses on termination of derivatives within non-interest income.
Stockholders’ Equity. Stockholders’ equity increased $491.5 million during the year ended December 31, 2018.
There was no other real estate owned2021 to $1.19 billion at December 31, 2019. At December 31, 2018, other real estate owned totaled $0.2period end, primarily due to share issuances associated with the Merger of $491.2 million and consistednet income for the period of one property which was sold during the quarter ended June 30, 2019.$104.0 million, offset in part by repurchases of shares of common stock of $59.3 million, common stock dividends of $44.3 million and preferred stock dividends of $7.3 million.
Loan Portfolio Composition
The following table presents changes in the allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||||||||
(In thousands) |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| |||||
Beginning balance |
| $ | 31,418 |
| $ | 31,707 |
| $ | 25,904 |
| $ | 20,744 |
| $ | 17,637 |
|
Charge-offs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate mortgage loans |
|
| (3,670) |
|
| — |
|
| — |
|
| — |
|
| (50) |
|
Residential real estate mortgage loans |
|
| — |
|
| (24) |
|
| — |
|
| (56) |
|
| (249) |
|
Commercial, industrial and agricultural loans |
|
| (799) |
|
| (2,806) |
|
| (8,245) |
|
| (930) |
|
| (827) |
|
Installment/consumer loans |
|
| (13) |
|
| (11) |
|
| (49) |
|
| (1) |
|
| (2) |
|
Total |
|
| (4,482) |
|
| (2,841) |
|
| (8,294) |
|
| (987) |
|
| (1,128) |
|
Recoveries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate mortgage loans |
|
| 1 |
|
| — |
|
| — |
|
| 109 |
|
| — |
|
Residential real estate mortgage loans |
|
| 112 |
|
| 3 |
|
| 28 |
|
| 96 |
|
| 79 |
|
Commercial, industrial and agricultural loans |
|
| 25 |
|
| 747 |
|
| 16 |
|
| 386 |
|
| 149 |
|
Installment/consumer loans |
|
| 12 |
|
| 2 |
|
| 3 |
|
| 6 |
|
| 7 |
|
Total |
|
| 150 |
|
| 752 |
|
| 47 |
|
| 597 |
|
| 235 |
|
Net charge-offs |
|
| (4,332) |
|
| (2,089) |
|
| (8,247) |
|
| (390) |
|
| (893) |
|
Provision for loan losses charged to operations |
|
| 5,700 |
|
| 1,800 |
|
| 14,050 |
|
| 5,550 |
|
| 4,000 |
|
Ending balance |
| $ | 32,786 |
| $ | 31,418 |
| $ | 31,707 |
| $ | 25,904 |
| $ | 20,744 |
|
Ratio of net charge-offs during period to average loans outstanding |
|
| (0.13) | % |
| (0.07) | % |
| (0.30) | % |
| (0.02) | % |
| (0.04) | % |
Page -28-
Allocation of Allowance for Loan Losses
The following table presents the allocation of the total allowance for loan lossesoutstanding loans by loan classification:type, excluding loans held for sale, net of unearned discounts and premiums and deferred origination fees and costs, at the dates presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, |
| |||||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| |||||||||||||||
|
|
|
| Percentage |
|
|
| Percentage |
|
|
| Percentage |
|
|
| Percentage |
|
|
| Percentage |
| |||||
|
|
|
| of Loans |
|
|
| of Loans |
|
|
| of Loans |
|
|
| of Loans |
|
|
| of Loans |
| |||||
|
|
|
| to Total |
|
|
| to Total |
|
|
| to Total |
|
|
| to Total |
|
|
| to Total |
| |||||
(Dollars in thousands) |
| Amount |
| Loans |
| Amount |
| Loans |
| Amount |
| Loans |
| Amount |
| Loans |
| Amount |
| Loans |
| |||||
Commercial real estate mortgage loans |
| $ | 12,150 |
| 42.7 | % | $ | 10,792 |
| 42.0 | % | $ | 11,048 |
| 41.7 | % | $ | 9,225 |
| 42.0 | % | $ | 7,850 |
| 43.8 | % |
Multi-family mortgage loans |
|
| 4,829 |
| 22.1 |
|
| 2,566 |
| 17.9 |
|
| 4,521 |
| 19.2 |
|
| 6,264 |
| 20.0 |
|
| 4,208 |
| 14.6 |
|
Residential real estate mortgage loans |
|
| 1,882 |
| 13.4 |
|
| 3,935 |
| 15.9 |
|
| 2,438 |
| 15.0 |
|
| 1,495 |
| 14.1 |
|
| 2,115 |
| 16.3 |
|
Commercial, industrial and agricultural loans |
|
| 12,583 |
| 18.5 |
|
| 12,722 |
| 19.8 |
|
| 12,838 |
| 19.9 |
|
| 7,837 |
| 20.2 |
|
| 5,405 |
| 20.8 |
|
Real estate construction and land loans |
|
| 1,066 |
| 2.6 |
|
| 1,297 |
| 3.8 |
|
| 740 |
| 3.5 |
|
| 955 |
| 3.1 |
|
| 1,030 |
| 3.8 |
|
Installment/consumer loans |
|
| 276 |
| 0.7 |
|
| 106 |
| 0.6 |
|
| 122 |
| 0.7 |
|
| 128 |
| 0.6 |
|
| 136 |
| 0.7 |
|
Total |
| $ | 32,786 |
| 100.0 | % | $ | 31,418 |
| 100.0 | % | $ | 31,707 |
| 100.0 | % | $ | 25,904 |
| 100.0 | % | $ | 20,744 |
| 100.0 | % |
| | | | | | | | | | | | | | | | | | |
| | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
|
(In thousands) | | December 31, 2021 |
| | | December 31, 2020 | | December 31, 2019 | | |||||||||
One-to-four family, including condominium and cooperative apartment | | $ | 669,282 | | 7.2 | % | | $ | 184,989 |
| 3.3 | % | | $ | 148,429 |
| 2.8 | % |
Multifamily residential and residential mixed-use | |
| 3,356,346 |
| 36.3 | | |
| 2,758,743 |
| 49.1 | | |
| 3,385,375 |
| 63.4 | |
Commercial real estate ("CRE") | |
| 3,945,948 |
| 42.7 | | |
| 1,878,167 |
| 33.4 | | |
| 1,350,185 |
| 25.3 | |
Acquisition, development, and construction ("ADC") | |
| 322,628 |
| 3.5 | | |
| 156,296 |
| 2.8 | | |
| 118,365 |
| 2.2 | |
Total real estate loans | |
| 8,294,204 |
| 89.7 | | |
| 4,978,195 |
| 88.6 | | |
| 5,002,354 |
| 93.7 | |
C&I loans | |
| 933,559 |
| 10.1 | | |
| 641,533 |
| 11.4 | | |
| 336,412 |
| 6.3 | |
Other loans | |
| 16,898 |
| 0.2 | | |
| 2,316 |
| - | | |
| 1,772 |
| - | |
Total | |
| 9,244,661 |
| 100.0 | % | |
| 5,622,044 |
| 100.0 | % | |
| 5,340,538 |
| 100.0 | % |
Allowance for credit losses | |
| (83,853) |
| | | |
| (41,461) |
| | | |
| (28,441) |
| | |
Loans held for investment, net | | $ | 9,160,808 |
| | | | $ | 5,580,583 |
| | | | $ | 5,312,097 |
| | |
Non-Interest Income
Total non-interest income increased $13.8 million, or 119.5%, to $25.4 million forDuring the year ended December 31, 2019, compared2021, our real estate loans and C&I loans increased $3.32 billion and $292.0 million, respectively, primarily due to $11.6 million for the year endedacquisition of loans from the Merger.
Loan Purchases, Sales and Servicing
In the event that the Bank were to sell loans in the secondary market or through securitization, it generally retains servicing rights on the loans sold. These fees are typically derived based upon the difference between the actual origination rate and
30
contractual pass-through rate of the loans at the time of sale. At December 31, 2018. The increase in total non-interest income was driven by an $8.12021, the Bank had recorded servicing right assets ("SRAs") of $3.8 million increase in net securities gains, primarily attributable to a $7.9 million net securities loss related to the balance sheet restructure in the 2018 second quarter, a $6.7 million increase in loan swap fees, and a $0.2 million increase in service charges and other fees, partially offset by a $1.1 million decrease in other operating income, a $94 thousand decrease in gain on sale of Small Business Administration (“SBA”) loans, and a $77 thousand decrease in title fees.
We recognized net securities gains of $0.2 million in 2019 compared to net securities losses of $7.9 million in 2018. The net securities losses in 2018 were attributable toassociated with the sale of $240.3 millionloans to third-party institutions in which the Bank retained the servicing of securities relatedthe loan. The Bank outsources the servicing of a portion of our one-to-four family mortgage loan portfolio to balance sheet restructure inan unrelated third-party under a sub-servicing agreement. Fees paid under the second quarter 2018.
Loan swap fees recorded on interest rate swaps increased to $7.5 million in 2019, compared to $716 thousand in 2018. We increased the notional amount of interest rate swaps to $823.8 million at December 31, 2019, compared to $193.4 million at December 31, 2018. The loan swap program allows us to deliver fixed rate exposure to our customers while we retain a floating rate asset and generate fee income. These interest rate swap agreements do not qualify for hedge accounting treatment, and therefore changes in fair valuesub-servicing agreement are reported inas a component of other non-interest incomeexpense in the consolidated statements of income.
Non-Interest ExpenseLoan Maturity and Repricing
Total non-interest expense decreased $2.1 million,As of December 31, 2021, $7.57 billion, or 2.1%, to $96.1 million in 2019 compared to $98.2 million in 2018. The decrease was mainly due to the impact81.8% of the net fraud loss and office relocation costs during 2018, coupled with lower FDIC assessments in 2019, partially offset by higher salaries and benefits, technology and communications, occupancy and equipment, and other operating expenses in 2019. loan portfolio was scheduled to mature or reprice within five years.
Salaries and employee benefits increased to $56.2 million in 2019 compared to $50.5 million in 2018. The rise in salaries and employee benefits reflectsfollowing table distributes our objective to attract, retain, train and cultivate employees at all levels of the Company. In particular, we are focused on expanding and retaining our loan team as we continue to grow our loan portfolio.
Occupancy and equipment increased to $14.4 million in 2019 compared to $13.2 million in 2018, primarily due to higher operating lease rent costs and leasehold improvement amortization at our branch locations and corporate offices. Certain leases contain rent escalation clauses, which are included in our operating lease rent cost.
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Technology and communications increased to $7.9 million in 2019 compared to $6.5 million in 2018. The rise in technology and communications expenses reflect higher software maintenance and system services expenses as we increased our investment in technology and expanded our use of automation in 2019.
FDIC assessments decreased to $0.6 million in 2019, compared to $1.7 million in 2018, primarily due to FDIC assessment credits totaling $0.7 million in 2019.
We incurred an $8.9 million pre-tax net fraud loss charge in 2018 related to the fraudulent conduct of a business customer through its deposit accounts at the Bank.
Marketing and advertising increased to $4.7 million in 2019 compared to $4.6 million in 2018. Professional services decreased to $3.8 million in 2019 compared to $4.0 million in 2018. We recorded amortization of other intangible assets of $0.8 million in 2019 and $0.9 million in 2018, related to the CNB and FNBNY core deposit intangible assets subject to amortization. Other operating expenses increased to $7.7 million in 2019 compared to $7.2 million in 2018.
Income Tax Expense
Income tax expense increased to $14.1 million in 2019 compared to $9.1 million in 2018, reflecting higher income before income taxes and a higher effective tax rate in 2019. The effective tax rate increased to 21.4% in 2019 compared to 18.9% in 2018. We estimate we will record income tax at an effective tax rate of approximately 23% in 2020.
Financial Condition
Total assets were $4.9 billion at December 31, 2019, $220.8 million, or 4.7%, higher than December 31, 2018. The rise in total assets in 2019 reflects increases in loans held for investment portfolio at December 31, 2021 by the earlier of the maturity or next repricing date. ARMs are included in the period during which their interest rates are next scheduled to adjust. The table does not include scheduled principal amortization.
| | | | | | | | | | | | | | | | | | | |
| | Less than 1 year | | 1 to 5 years | | 5 to 15 years | | Over 15 years | | | Total | ||||||||
|
| Amount | |
| Amount | |
| Amount | |
| Amount | | | | Amount | ||||
(In thousands) |
| | | | | | |||||||||||||
One-to-four family residential and cooperative/condominium apartment |
| $ | 142,694 | | | $ | 219,651 | | | $ | 199,241 | | | $ | 107,696 | | | $ | 669,282 |
Multifamily residential and residential mixed-use | |
| 892,730 | | |
| 1,859,039 | | |
| 603,506 | | |
| 1,071 | | | | 3,356,346 |
CRE | |
| 1,364,070 | | |
| 1,850,971 | | |
| 724,887 | | |
| 6,020 | | | | 3,945,948 |
ADC | | | 300,739 | | | | 17,550 | | | | 1,488 | | | | 2,851 | | | | 322,628 |
Total real estate loans | |
| 2,700,233 | | |
| 3,947,211 | | |
| 1,529,122 | | |
| 117,638 | | | | 8,294,204 |
C&I | | | 711,657 | | | | 191,639 | | | | 30,262 | | | | 1 | | | | 933,559 |
Other loans | | | 14,970 | | | | 345 | | | | 228 | | | | 1,355 | | | | 16,898 |
Total | | $ | 3,426,860 | | | $ | 4,139,195 | | | $ | 1,559,612 | | | $ | 118,994 | | | $ | 9,244,661 |
The following table presents our loans held for investment with maturity or next repricing due after December 31, 2022:
| | | | | | | | | |
| | Due after December 31, 2022 | |||||||
|
| Fixed | |
| Adjustable | | Total | ||
(In thousands) | | | |||||||
One-to-four family residential and cooperative/condominium apartment | | $ | 178,949 | | $ | 347,639 | | $ | 526,588 |
Multifamily residential and residential mixed-use | |
| 591,908 | |
| 1,871,708 | |
| 2,463,616 |
CRE | | | 893,182 | | | 1,688,696 | | | 2,581,878 |
ADC | | | 10,520 | | | 11,369 | | | 21,889 |
Total real estate loans | | | 1,674,559 | | | 3,919,412 | | | 5,593,971 |
C&I | | | 204,275 | | | 17,627 | | | 221,902 |
Other loans | | | 1,928 | | | — | | | 1,928 |
Total | | $ | 1,880,762 | | $ | 3,937,039 | | $ | 5,817,801 |
Asset Quality
General
We do not originate or purchase loans, either whole loans or loans underlying mortgage-backed securities (“MBS”), which would have been considered subprime loans at origination, i.e., real estate loans advanced to borrowers who did not qualify for market interest rates because of problems with their income or credit history. See Note 4 to our consolidated financial statements for a discussion of evaluation for impaired securities.
COVID-19 Related Loan Deferrals
Consistent with regulatory guidance to work with borrowers during the unprecedented situation caused by the COVID-19 pandemic and operating lease right-of-use asserts recordedas outlined in the CARES Act, we established a formal payment deferral program in April 2020 for borrowers that have been adversely affected by the pandemic.
31
As of December 31, 2021, we had seven loans, representing outstanding loan balances of $5.7 million, that were full principal and interest (“P&I”) deferrals.
The table below presents the loans with full P&I deferrals as of the period indicated:
| | | | | |
| | December 31, 2021 | |||
| | Number | | | |
(Dollars in thousands) | | of Loans | | | Balance (1) |
One-to-four family residential and cooperative/condominium apartment | | 5 | | $ | 1,922 |
CRE | | 1 | | | 3,487 |
C&I | | 1 | | | 251 |
Total | | 7 | | $ | 5,660 |
(1) | Amount excludes net deferred costs due to immateriality. |
Pursuant to guidance under Section 4013 of the CARES Act, a COVID-19 related qualified loan modification, such as a payment deferral, was exempt from classification as a TDR as defined by GAAP. This applied if the loan was current as of December 31, 2019 and the modifications were related to arrangements that deferred or delayed the payment of principal or interest, or changed the interest rate of the loan. This provision expired on January 1, 20192022 and therefore we will not have additional loans modified under this exemption going forward.
Risk-ratings on COVID-19 loan deferrals are evaluated on an ongoing basis.
While interest is expected to still accrue to income during the deferral period, should deterioration in the financial condition of the borrowers that would not support the ultimate repayment of interest emerge, interest income accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted.
Monitoring and Collection of Delinquent Loans
Our management reviews delinquent loans on a monthly basis and reports to our Board of Directors at each regularly scheduled Board meeting regarding the status of all non-performing and otherwise delinquent loans in our loan portfolio.
Our loan servicing policies and procedures require that an automated late notice be sent to a delinquent borrower as soon as possible after a payment is ten days late in the case of multifamily residential, commercial real estate loans, and C&I loans, or fifteen days late in connection with one-to-four family or consumer loans. Thereafter, periodic letters are mailed and phone calls placed to the borrower until payment is received. When contact is made with the borrower at any time prior to foreclosure, we will attempt to obtain the full payment due or negotiate a repayment schedule with the borrower to avoid foreclosure.
Accrual of interest is generally discontinued on a loan that meets any of the following three criteria: (i) full payment of principal or interest is not expected; (ii) principal or interest has been in default for a period of 90 days or more (unless the loan is both deemed to be well secured and in the process of collection); or (iii) an election has otherwise been made to maintain the loan on a cash basis due to deterioration in the adoptionfinancial condition of Accounting Standards Updatethe borrower. Such non-accrual determination practices are applied consistently to all loans regardless of their internal classification or designation. Upon entering non-accrual status, we reverse all outstanding accrued interest receivable.
We generally initiate foreclosure proceedings on real estate loans when a loan enters non-accrual status based upon non-payment, unless the borrower is paying in accordance with an agreed upon modified payment agreement. We obtain an updated appraisal upon the commencement of legal action to calculate a potential collateral shortfall and to reserve appropriately for the potential loss. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure action is completed, the property securing the loan is transferred to Other Real Estate Owned (“ASU”OREO”) 2016-12, Leases(Topic 842), partially offsetstatus. We generally attempt to utilize all available remedies, such as note sales in lieu of foreclosure, in an effort to resolve non-accrual loans and OREO properties as quickly and prudently as possible in consideration of market conditions, the physical condition of the property and any other mitigating circumstances. In the event that a non-accrual loan is subsequently brought current, it is returned to accrual status once the doubt concerning collectability has been removed and the borrower has demonstrated performance in accordance with the loan terms and conditions for a period of generally at least six months.
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The C&I portfolio is actively managed by decreases in cashour lenders and cash equivalents,underwriters. Most credit facilities typically require an annual review of the exposure and securities.borrowers are required to submit annual financial reporting and loans are structured with financial covenants to indicate expected performance levels. Smaller C&I loans are monitored based on performance and the ability to draw against a credit line is curtailed if there are any indications of credit deterioration. Guarantors are also required to update their financial reporting. All exposures are risk rated and those entering adverse ratings due to financial performance concerns of the borrower or material delinquency of any payments or financial reporting are subjected to added management scrutiny. Measures taken typically include amendments to the amount of the available credit facility, requirements for increased collateral, additional guarantor support or a material enhancement to the frequency and quality of financial reporting. Loans determined to reach adverse risk rating standards are monitored closely by Credit Administration to identify any potential credit losses. When warranted, loans reaching a Substandard rating could be reassigned to the Workout Group for direct handling.
Cash and cash equivalents decreased $178.2 million, or 60.3%, to $117.2Non-accrual Loans
Within our held-for-investment loan portfolio, non-accrual loans totaled $40.3 million at December 31, 2019 compared to December 31, 2018. Total securities decreased $69.1 million to $771.92021 and $17.9 million at December 31, 2019 compared to2020. Our loan portfolio as of December 31, 2018. Total2021 includes loans heldacquired from the Merger that were already on non-accrual status, or have since been placed on non-accrual status.
TDRs
We are required to recognize loans for investment, net, increased $403.1 million,which certain modifications or 12.4%,concessions have been made as TDRs. A TDR has been created in the event that, for economic or legal reasons, any of the following concessions has been granted that would not have otherwise been considered to $3.6 billion at December 31, 2019 compared to December 31, 2018. Our focus is on our ability to growa debtor experiencing financial difficulties. The following criteria are considered concessions:
● | A reduction of interest rate has been made for the remaining term of the loan |
● | The maturity date of the loan has been extended with a stated interest rate lower than the current market rate for new debt with similar risk |
● | The outstanding principal amount and/or accrued interest have been reduced |
In instances in which the loan portfolio, while maintaining interest rate risk sensitivity and maintaining credit quality.
Total liabilities were $4.4 billion at December 31, 2019, $177.5 million higher than December 31, 2018. The increase in total liabilities at year-end 2019 compared to year-end 2018 was mainly due tohas been reduced, management would not deem the modification a rise in FHLB advancesTDR in the fourth quarterevent that the reduction in interest rate reflected either a general decline in market interest rates or an effort to maintain a relationship with a borrower who could readily obtain funds from other sources at the current market interest rate, and the terms of 2019, coupled with operating lease liabilities recorded on January 1, 2019 duethe restructured loan are comparable to the adoption of ASU 2016-12, partially offsetterms offered by lower total deposits.the Bank to non-troubled debtors.
Total deposits decreased $71.7 million, or 1.8%, to $3.8 billion at December 31, 2019 compared to December 31, 2018. The decrease
We modified four loans in total deposits in 2019 was largely attributable to lower savings, NOW and money market deposits, and certificates of deposit, partially offset by growth in demand deposits. Savings, NOW and money market deposits decreased $120.6 million, or 5.7% year-over-year, to $2.0 billion at December 31, 2019. Certificates of deposit decreased $21.5 million, or 6.5% year-over-year, to $308.0 million at December 31, 2019. Demand deposits increased $70.4 million, or 4.9% year-over-year, to $1.5 billion at December 31, 2019. FHLB advances increased $194.6 million, or 80.9% year-over-year, to $435.0 million at December 31, 2019. The change in our deposit profile in 2019 reflects our strategy to allow higher cost brokered deposit accounts to runoff and grow our demand deposits.
Total stockholders’ equity was $497.2 million at December 31, 2019, an increase of $43.3 million, or 9.5%, from December 31, 2018, primarily due to net income of $51.7 million, other comprehensive income, net of deferred income taxes of $6.8 million, and share based compensation of $3.7 million, partially offset by $18.4 million in dividends. Duringa manner that met the criteria for a TDR during the year ended December 31, 2019, there were 22,600 shares purchased under the 2019 Stock Repurchase Plan.
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Loans
During 2019, we continued to experience growth in most loan portfolios. The concentration of2021. We did not modify any loans in a manner that met the criteria for a TDR during the year ended December 31, 2020.
Accrual status for TDRs is determined separately for each TDR in accordance with our primary market areas may increase risk. Unlike larger bankspolicies for determining accrual or non-accrual status. At the time an agreement is entered into between the Bank and the borrower that results in our determination that a TDR has been created, the loan can be on either accrual or non-accrual status. If a loan is on non-accrual status at the time it is restructured, it continues to be classified as non-accrual until the borrower has demonstrated compliance with the modified loan terms for a period of at least six months. Conversely, if at the time of restructuring the loan is performing (and accruing) it will remain accruing throughout its restructured period, unless the loan subsequently meets any of the criteria for non-accrual status under our policy and agency regulations. Within the allowance for credit losses, losses are estimated for TDRs on accrual status and well as TDRs on non-accrual status that are more geographically diversified, ourone-to-four family loans or consumer loans, on a pooled basis with loans that share similar risk characteristics. TDRs on non-accrual status excluding one-to-four family and consumer loans are individually evaluated to determine expected credit losses. For collateral-dependent TDRs where we have determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and we expect repayment of the loan portfolio consists primarilyto be provided substantially through the operation or sale of real estate loans secured by commercial, multi-family and residential real estate properties located in our principal lending areas of Nassau and Suffolk Counties on Long Island and the New York City boroughs. The local economic conditions on Long Island have a significant impactcollateral, the allowance for credit losses (“ACL”) is measured based on the volume of loan originations,difference between the quality of loans, the ability of borrowers to repay these loans, and thefair value of collateral, securing these loans. A considerable decline in general economic conditions caused by inflation, recession, unemployment or other factors beyond our control would impact these local economic conditions and could negatively affectless the financial results of our operations. Additionally, decreases in tenant occupancy may also have a negative effect on the ability of borrowersestimated costs to make timely repayments of their loans, which would have an adverse impact on our earnings.
The interest rates charged by us on loans are affected primarily by the demand for such loans, the supply of money available for lending purposes, the rates offered by our competitors, our relationship with the customer,sell, and the related credit risks of the transaction. These factors are affected by general and economic conditions including, but not limited to, monetary policies of the federal government, including the FRB, legislative policies and governmental budgetary matters.
We target our business lending and marketing initiatives towards promotion of loans that primarily meet the needs of small to medium-sized businesses. These small to medium-sized businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities. If general economic conditions negatively impact these businesses, our results of operations and financial condition may be adversely affected.
With respect to the underwriting of loans, there are certain risks, including the risk of non-payment that are associated with each type of loan that we market. Approximately 80.8% of our loan portfolio at December 31, 2019 was secured by real estate. Commercial real estate loans represented 42.7% of our loan portfolio. Multi-family mortgage loans represented 22.1% of our loan portfolio. Residential real estate mortgage loans represented 13.4% of our loan portfolio, including home equity lines of credit representing 1.9% and residential mortgages representing 11.5% of our loan portfolio. Real estate construction and land loans represented 2.6% of our loan portfolio. Risks associated with a concentration in real estate loans include potential losses from fluctuating values of land and improved properties. Home equity loans represent loans originated in our geographic markets with original loan to value ratios generally of 75% or less. Our residential mortgage portfolio included approximately $27.4 million in interest only mortgages at December 31, 2019. The underwriting standards for interest only mortgages are consistent with the remainderamortized cost basis of the loan portfolio and do not include any features that result in negative amortization. We use conservative underwriting criteria to better insulate us from a downturn in real estate values and economic conditionsas of the measurement date. For non-collateral-dependent loans, the ACL is measured based on Long Islandthe difference between the present value of expected cash flows and the New York City boroughs that could have a significant impact on the value of collateral securing the loans as well as the ability of customers to repay loans.
The remainderamortized cost basis of the loan portfolio was comprised of commercial and consumer loans, which represented 19.2% of our loan portfolio, at December 31, 2019. The commercial loans are made to businesses and include term loans, lines of credit, senior secured loans to corporations, equipment financing and taxi medallion loans. The primary risks associated with commercial loans are the cash flowas of the business,measurement date.
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See Note 5 to our consolidated financial statements for a further discussion of TDRs.
OREO
Property acquired by the experience and quality of the borrowers’ management, the business climate, and the impact of economic factors. The primary risks associated with consumer loans relate to the borrower, such as the risk ofBank, or a borrower’s unemploymentsubsidiary, as a result of deteriorating economicforeclosure on a mortgage loan or a deed in lieu of foreclosure is classified as OREO. Upon entering OREO status, we obtain a current appraisal on the property and reassesses the likely realizable value (a/k/a fair value) of the property quarterly thereafter. OREO is carried at the lower of the fair value or book balance, with any write downs recognized through a provision recorded in non-interest expense. Only the appraised value, or either a contractual or formal marketed value that falls below the appraised value, is used when determining the likely realizable value of OREO at each reporting period. We typically seek to dispose of OREO properties in a timely manner. As a result, OREO properties have generally not warranted subsequent independent appraisals.
There was no carrying value of OREO properties on our consolidated balance sheets at December 31, 2021 or December 31, 2020. We did not recognize any provisions for losses on OREO properties during the years ended December 31, 2021, 2020 or 2019.
Past Due Loans
Our loan portfolio as of December 31, 2021 includes loans acquired from the Merger that were already delinquent, or have since become delinquent.
Loans Delinquent 30 to 59 Days
At December 31, 2021, we had loans totaling $61.2 million that were past due between 30 and 59 days. At December 31, 2020, we had loans totaling $15.4 million that were past due between 30 and 59 days. The 30 to 59-day delinquency levels fluctuate monthly, and are generally considered a less accurate indicator of near-term credit quality trends than non-accrual loans.
Loans Delinquent 60 to 89 Days
At December 31, 2021, we had loans totaling $12.1 million that were past due between 60 and 89 days. At December 31, 2020, we had loans totaling $918 thousand that were past due between 60 and 89 days. The 60 to 89-day delinquency levels fluctuate monthly, and are generally considered a less accurate indicator of near-term credit quality trends than non-accrual loans.
Accruing Loans 90 Days or More Past Due
We continued accruing interest on nine loans with an aggregate outstanding balance of $3.0 million at December 31, 2021, and three loans with an aggregate outstanding balance of $3.3 million at December 31, 2020, all of which were 90 days or more past due. These loans were either well secured, awaiting a forbearance extension or formal payment deferral, or will likely be forgiven through the PPP or repurchased by the SBA, and, therefore, remained on accrual status and were deemed performing assets at the dates indicated above.
Reserve for Loan Commitments
We maintain a reserve, recorded in other liabilities, associated with unfunded loan commitments accepted by the borrower. The amount of reserve was $4.4 million at December 31, 2021 and $25 thousand at December 31, 2020. This reserve is determined based upon the outstanding volume of loan commitments at each period end. Any increases or reductions in this reserve are recognized in provision for credit losses. The adoption of the CECL Standard resulted in a $1.4 million increase in the reserve. The remaining provision of $3.0 million was primarily the result of additional required reserves attributable to acquired loan commitments from the Merger during the year ended December 31, 2021.
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Allowance for Credit Losses
On January 1, 2021, the Company adopted ASU No. 2016-13 "Financial Instruments – Credit Losses (Topic 326)". 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 CECL framework. The Company elected to defer adoption of CECL until January 1, 2021. This 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, orand reasonable and supportable forecasts. This standard requires financial institutions and other organizations to use forward-looking information to better inform their credit loss estimates.
The adoption of the amountCECL Standard resulted in an initial decrease of $3.9 million to the allowance for credit losses and naturean increase of $1.4 million to the reserve for unfunded commitments. The after-tax cumulative-effect adjustment of $1.7 million was recorded as an increase to retained earnings as of January 1, 2021.
A provision of $6.2 million and $26.2 million were recorded during the twelve-month periods ended December 31, 2021 and 2020, respectively. The $6.2 million credit loss provision for the twelve months ended December 31, 2021 was due to a borrower’s other existing indebtedness,provision for credit losses recorded on acquired non-PCD loans which totaled $20.3 million for the Day 2 accounting of acquired loans from the Merger, and a provision for unfunded commitments which approximated $2.9 million, offset by a credit of $17.0 million as a result of improvement in forecasted macroeconomic conditions, as well as releases of reserves on individually analyzed loans. Duringthe twelvemonthsendedDecember 31,2020,thecreditlossprovisionwasdrivenmainly fromanincreaseinthegeneral reserve allowanceforcreditlossesdue totheadjustment ofqualitative factorstoaccountfortheeffectsoftheCOVID-19 pandemicandrelatedeconomic disruption, and additional specific reserves of $6.0 million on non-performing loans.
For a further discussion of the allowance for credit losses and related activity during the years ended December 31, 2021, 2020 and 2019, please see Note 5 to the consolidated financial statements.
The following table presents our allowance for credit losses allocated by loan type and the valuepercent of the collateral securing the loan if we must take possession of the collateral.
Our policy for charging offeach to total loans is a multi-step process. A loan is considered a potential charge-off when it is in default of either principal or interest for a period of 90, 120 or 180 days, depending upon the loan type, as of the end of the prior month. In addition to delinquency criteria, other triggering events may include, but are not limited to, notice of bankruptcy by the borrower or guarantor, death of the borrower, and deficiency balance from the sale of collateral. These loans identified are presented for evaluation at the regular meeting of the CRMC. A loan is charged off when a loss is reasonably assured. The recovery of charged-off balances is actively pursued until the potential for recovery has been exhausted, or until the expense of collection does not justify the recovery efforts.dates indicated.
| | | | | | | | | | | | | | | | |
| | December 31, | ||||||||||||||
| | 2021 | | 2020 | | 2019 | | |||||||||
| | | | | Percent | | | | | Percent | | | | | Percent | |
| | | | | of Loans | | | | | of Loans | | | | | of Loans | |
| | | | | in Each | | | | | in Each | | | | | in Each | |
| | | | | Category | | | | | Category | | | | | Category | |
| | Allocated | | to Total | | Allocated | | to Total | | Allocated | | to Total | | |||
|
| Amount |
| Loans |
| Amount |
| Loans |
| Amount |
| Loans |
| |||
(In thousands) |
| | ||||||||||||||
One-to-four family residential and cooperative/condominium apartment | | $ | 5,932 | | 0.89 | % | $ | 644 | | 0.35 | % | $ | 269 | | 0.00 | % |
Multifamily residential and residential mixed-use | |
| 7,816 | | 0.23 | | | 17,016 | | 0.62 | | | 10,142 | | 0.30 | |
CRE | |
| 29,166 | | 0.74 | | | 9,059 | | 0.48 | | | 3,900 | | 0.29 | |
ADC | |
| 4,857 | | 1.51 | | | 1,993 | | 1.28 | | | 1,244 | | 1.05 | |
C&I | |
| 35,331 | | 3.78 | | | 12,737 | | 1.99 | | | 12,870 | | 3.83 | |
Other loans | |
| 751 | | 4.44 | | | 12 | | 0.52 | | | 16 | | 0.90 | |
Total | | $ | 83,853 |
| 0.91 | % | $ | 41,461 |
| 0.74 | % | $ | 28,441 |
| 0.01 | % |
Page -31-35
The following table sets forth information about our allowance for credit losses at or for the dates indicated:
Total loans grew $404.5 million, or 12.3%, to $3.7
| | | | | | | | | | |
| | At or for the Year Ended December 31, | ||||||||
|
| 2021 |
| 2020 |
| 2019 |
| |||
|
| (Dollars in Thousands) | ||||||||
Total loans outstanding at end of period (1) | | $ | 9,244,661 | | $ | 5,622,044 | | $ | 5,340,538 | |
Average total loans outstanding during the period(2) | |
| 9,484,205 | |
| 5,452,165 | |
| 5,461,034 | |
Allowance for credit losses balance at end of period | |
| 83,853 | |
| 41,461 | |
| 28,441 | |
Allowance for credit losses to total loans at end of period | |
| 0.91 | % |
| 0.74 | % |
| 0.53 | % |
Non-performing loans to total loans at end of period | | | 0.44 | | | 0.32 | | | 0.21 | |
Allowance for credit losses to total non-performing loans at end of period | |
| 208.04 | |
| 231.26 | |
| 256.43 | |
| | | | | | | | | | |
Ratio of net charge-offs (recoveries) to average loans outstanding during the period: | | | | | | | | | | |
One-to-four family residential and cooperative/condominium apartment | | | (0.01) | % | | 0.01 | % | | 0.01 | % |
Multifamily residential and residential mixed-use | | | 0.01 | | | 0.10 | | | — | |
CRE | | | 0.09 | | | — | | | 0.01 | |
ADC | | | — | | | — | | | — | |
C&I | | | 0.33 | | | 1.95 | | | 3.58 | |
Other loans | | | 3.89 | | | 0.44 | | | 0.55 | |
Total | | | 0.10 | | | 0.24 | | | 0.20 | |
| | | | | | | | | | |
(1) | Total loans represent gross loans (excluding loans held for sale), inclusive of deferred fees/costs and premiums/discounts. |
(2) | Total average loans represent gross loans (including loans held for sale), inclusive of deferred loan fees/costs and premiums/discounts. |
Investment Activities
Securities available-for-sale
Our consolidated investment in securities available-for-sale totaled $1.56 billion at December 31, 2019 compared to $3.3 billion at2021. The average duration of these securities was 4.3 years as of December 31, 2018, with multi-family loans being2021. The increase in our securities available-for-sale portfolio during the largest contributor of the growth. Commercial real estate mortgage loans increased $192.1 million, or 14.0%, during 2019. Residential real estate mortgage loans decreased $26.6 million, or 5.1%, during 2019. Commercial, industrial and agricultural loans increased $33.7 million, or 5.2%, in 2019. Real estate construction and land loans decreased $26.1 million, or 21.1%, in 2019. Multi-family mortgage loans and increased $226.3 million, or 38.6%, in 2019. Installment/consumer loans increased slightly during 2019. Fixed rate loans represented 21.9% and 23.9% of total loans atyear ended December 31, 2019 and 2018, respectively.2021 was primarily due to the acquisition of investments due to the Merger.
The following table presents the major classificationsamortized cost, fair value and weighted average yield of loansour securities available-for-sale at December 31, 2021, categorized by remaining period to contractual maturity:
| | | | | | | | | |
|
| | |
| | |
| Weighted |
|
| | Amortized | | Fair | | Average |
| ||
|
| Cost |
| Value |
| Yield |
| ||
| | (Dollars in Thousands) | | ||||||
Due within 1 year | | $ | 852 | | $ | 858 |
| 2.01 | % |
Due after 1 year but within 5 years | |
| 324,464 | |
| 321,009 |
| 0.78 | |
Due after 5 years but within 10 years | |
| 486,697 | |
| 489,704 |
| 2.34 | |
Due after ten years | |
| 762,081 | |
| 752,140 |
| 1.57 | |
Total | | $ | 1,574,094 | | $ | 1,563,711 |
| 1.65 | % |
The entire carrying amount of each security at December 31, 2021 is reflected in the dates indicated:above table in the maturity period that includes the final security payment date and, accordingly, no effect has been given to periodic repayments or possible prepayments. The weighted average duration of our securities available-for-sale approximated 4.3 years as of December 31, 2021 when giving consideration to anticipated repayments or possible prepayments, which is significantly less than their weighted average maturity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | |||||||||||||
(In thousands) |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |||||
Commercial real estate mortgage loans |
| $ | 1,565,687 |
| $ | 1,373,556 |
| $ | 1,293,906 |
| $ | 1,091,752 |
| $ | 1,053,399 |
Multi-family mortgage loans |
|
| 812,174 |
|
| 585,827 |
|
| 595,280 |
|
| 518,146 |
|
| 350,793 |
Residential real estate mortgage loans |
|
| 493,144 |
|
| 519,763 |
|
| 464,264 |
|
| 364,884 |
|
| 392,815 |
Commercial, industrial and agricultural loans |
|
| 679,444 |
|
| 645,724 |
|
| 616,003 |
|
| 524,450 |
|
| 501,766 |
Real estate construction and land loans |
|
| 97,311 |
|
| 123,393 |
|
| 107,759 |
|
| 80,605 |
|
| 91,153 |
Installment/consumer loans |
|
| 24,836 |
|
| 20,509 |
|
| 21,041 |
|
| 16,368 |
|
| 17,596 |
Total loans |
|
| 3,672,596 |
|
| 3,268,772 |
|
| 3,098,253 |
|
| 2,596,205 |
|
| 2,407,522 |
Net deferred loan costs and fees |
|
| 7,689 |
|
| 7,039 |
|
| 4,499 |
|
| 4,235 |
|
| 3,252 |
Total loans held for investment |
|
| 3,680,285 |
|
| 3,275,811 |
|
| 3,102,752 |
|
| 2,600,440 |
|
| 2,410,774 |
Allowance for loan losses |
|
| (32,786) |
|
| (31,418) |
|
| (31,707) |
|
| (25,904) |
|
| (20,744) |
Net loans |
| $ | 3,647,499 |
| $ | 3,244,393 |
| $ | 3,071,045 |
| $ | 2,574,536 |
| $ | 2,390,030 |
36
The following table presents the weighted average contractual maturity of our securities available-for-sale:
| | |
| | December 31, |
| | 2021 |
Weighted average contractual maturity (years) - Available-for-sale: | | |
Agency notes | | 8.6 |
Treasury securities | | 3.3 |
Corporate securities | | 8.8 |
Pass-through MBS issued by GSEs and agency CMOs | | 18.8 |
State and municipal obligations | | 5.1 |
Selected Loan Maturity InformationSecurities held-to-maturity
Our investment in securities held-to-maturity totaled $179.3 million at December 31, 2021. The average duration of these securities was 5.4 years as of December 31, 2021.
The following table presents the approximate maturitiesamortized cost, fair value and sensitivityweighted average yield of our securities held-to-maturity at December 31, 2021, categorized by remaining period to changescontractual maturity:
| | | | | | | | | |
|
| | |
| | |
| Weighted |
|
| | Amortized | | Fair | | Average |
| ||
|
| Cost |
| Value |
| Yield |
| ||
| | (Dollars in Thousands) | | ||||||
Due within 1 year | | $ | — | | $ | — |
| — | % |
Due after 1 year but within 5 years | |
| — | |
| — |
| — | |
Due after 5 years but within 10 years | |
| 10,740 | |
| 10,566 |
| 1.58 | |
Due after ten years | |
| 168,569 | |
| 166,788 |
| 1.89 | |
Total | | $ | 179,309 | | $ | 177,354 |
| 1.87 | % |
The entire carrying amount of each security at December 31, 2021 is reflected in interest ratesthe above table in the maturity period that includes the final security payment date and, accordingly, no effect has been given to periodic repayments or possible prepayments. The weighted average duration of certain loans, exclusive of real estate mortgage loans and installment/consumer loans to individualsour securities held-to-maturity approximated 5.4 years as of December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| After One |
|
|
|
|
|
| |
|
| Within One |
| But Within |
| After |
|
|
| |||
(In thousands) |
| Year |
| Five Years |
| Five Years |
| Total | ||||
Commercial loans |
| $ | 277,954 |
| $ | 225,206 |
| $ | 176,284 |
| $ | 679,444 |
Construction and land loans (1) |
|
| 59,609 |
|
| 15,806 |
|
| 21,896 |
|
| 97,311 |
Total |
| $ | 337,563 |
| $ | 241,012 |
| $ | 198,180 |
| $ | 776,755 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rate provisions: |
|
|
|
|
|
|
|
|
|
|
|
|
Amounts with fixed interest rates |
| $ | 34,928 |
| $ | 138,207 |
| $ | 37,922 |
| $ | 211,057 |
Amounts with variable interest rates |
|
| 302,635 |
|
| 102,805 |
|
| 160,258 |
|
| 565,698 |
Total |
| $ | 337,563 |
| $ | 241,012 |
| $ | 198,180 |
| $ | 776,755 |
|
|
Past Due, Non-accrual and Restructured Loans and Other Real Estate Owned
The following table presents selected information about past due, non-accrual, and restructured loans and other real estate owned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | |||||||||||||
(In thousands) |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |||||
Loans 90 days or more past due and still accruing |
| $ | 343 |
| $ | 308 |
| $ | 1,834 |
| $ | 1,027 |
| $ | 964 |
Non-accrual loans excluding restructured loans |
|
| 3,964 |
|
| 2,675 |
|
| 6,950 |
|
| 909 |
|
| 850 |
Restructured loans - non-accrual |
|
| 405 |
|
| 133 |
|
| 5 |
|
| 332 |
|
| 60 |
Restructured loans - performing |
|
| 26,340 |
|
| 16,913 |
|
| 16,727 |
|
| 2,417 |
|
| 1,681 |
Other real estate owned, net |
|
| — |
|
| 175 |
|
| — |
|
| — |
|
| 250 |
Total |
| $ | 31,052 |
| $ | 20,204 |
| $ | 25,516 |
| $ | 4,685 |
| $ | 3,805 |
Page -32-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||||||||
(In thousands) |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |||||
Gross interest income that has not been paid or recorded during the year under original terms: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans |
| $ | 47 |
| $ | 36 |
| $ | 110 |
| $ | 17 |
| $ | 6 |
Restructured loans |
|
| — |
|
| — |
|
| — |
|
| 1 |
|
| 1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross interest income recorded during the year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-accrual loans |
| $ | 48 |
| $ | 39 |
| $ | 282 |
| $ | 1 |
| $ | 1 |
Restructured loans |
|
| 1,212 |
|
| 716 |
|
| 619 |
|
| 123 |
|
| 109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments for additional funds |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
The following table presents individually impaired loans by loan classification:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | |||||||||||||
(In thousands) |
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 | |||||
Non-accrual loans excluding restructured loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate mortgage loans |
| $ | 751 |
| $ | 1,158 |
| $ | 2,305 |
| $ | 185 |
| $ | 238 |
Residential real estate mortgage loans |
|
| 294 |
|
| — |
|
| 100 |
|
| 719 |
|
| 612 |
Commercial, industrial and agricultural loans |
|
| — |
|
| 4 |
|
| 4,124 |
|
| — |
|
| — |
Total |
|
| 1,045 |
|
| 1,162 |
|
| 6,529 |
|
| 904 |
|
| 850 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans - non-accrual: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate mortgage loans |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Residential real estate mortgage loans |
|
| — |
|
| — |
|
| — |
|
| 65 |
|
| 60 |
Commercial, industrial and agricultural loans |
|
| 320 |
|
| — |
|
| — |
|
| — |
|
| — |
Total |
|
| 320 |
|
| — |
|
| — |
|
| 65 |
|
| 60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing impaired loans |
|
| 1,365 |
|
| 1,162 |
|
| 6,529 |
|
| 969 |
|
| 910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructured loans - performing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate mortgage loans |
|
| 4,924 |
|
| 1,926 |
|
| 8,857 |
|
| 1,354 |
|
| 1,391 |
Residential real estate mortgage loans |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Commercial, industrial and agricultural loans |
|
| 19,624 |
|
| 13,535 |
|
| 7,106 |
|
| 1,030 |
|
| 290 |
Total |
|
| 24,548 |
|
| 15,461 |
|
| 15,963 |
|
| 2,384 |
|
| 1,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans - performing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate mortgage loans |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Residential real estate mortgage loans |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Commercial, industrial and agricultural loans |
|
| 1,070 |
|
| 2,732 |
|
| — |
|
| — |
|
| — |
Total |
|
| 1,070 |
|
| 2,732 |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total performing impaired loans |
|
| 25,618 |
|
| 18,193 |
|
| 15,963 |
|
| 2,384 |
|
| 1,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans |
| $ | 26,983 |
| $ | 19,355 |
| $ | 22,492 |
| $ | 3,353 |
| $ | 2,591 |
Securities
Securities decreased $60.3 million2021 when giving consideration to $804.8 million at December 31, 2019 compared to December 31, 2018, including restricted securities totaling $32.9 million at December 31, 2019 and $24.0 million at December 31, 2018. The available for sale portfolio decreased $42.6 million to $638.3 million at December 31, 2019 compared to December 31, 2018. Securities classified as available for sale may be sold in response to,anticipated repayments or in anticipation of, changes in interest rates and resulting prepayment risk, or other factors. During 2019, we sold $46.2 million of securities available for sale compared to $238.3 million in 2018. The decrease in securities available for salepossible prepayments, which is primarily the result of a $79.9 million decrease in residential collateral mortgage obligations and a $24.1 million decrease in GSE securities, partially offset by a $50.1 million increase in U.S. Treasury securities. Securities held to maturity decreased $26.5 million to $133.6 million at December 31, 2019 compared to December 31, 2018. The decrease in securities held to maturity is primarily the result of an $8.3 million decrease in residential collateralized mortgage obligations, and a $12.5 million decrease in state and municipal obligations. Fixed rate securities represented 88.2% of total available for sale and held to maturity securities at December 31, 2019 compared to 88.4% at December 31, 2018.
Page -33-
significantly less than their weighted average maturity.
The following table presents the fair values, amortized costs, contractual maturities and approximate weighted average yieldscontractual maturity of the available for sale and held to maturityour securities portfolios at December 31, 2019. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Yields on tax-exempt obligations have been computed on a tax equivalent basis based on the U.S. federal statutory tax rate of 21%.held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 | ||||||||||||||||||||||||||||||||||||
|
| Within |
| After One But |
| After Five But |
| After |
|
|
|
|
|
| ||||||||||||||||||||||||
|
| One Year |
| Within Five Years |
| Within Ten Years |
| Ten Years |
| Total | ||||||||||||||||||||||||||||
(Dollars in thousands) |
| Estimated |
| Amortized |
| Yield |
| Estimated |
| Amortized |
| Yield |
| Estimated |
| Amortized |
| Yield |
| Estimated |
| Amortized |
| Yield |
| Estimated |
| Amortized | ||||||||||
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 50,822 |
| $ | 50,833 |
| 1.54 | % | $ | — |
| $ | — |
| — | % | $ | — |
| $ | — |
| — | % | $ | — |
| $ | — |
| — | % | $ | 50,822 |
| $ | 50,833 |
U.S. GSE securities |
|
| — |
|
| — |
| — |
|
| 4,995 |
|
| 5,000 |
| 2.04 |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| — |
|
| 4,995 |
|
| 5,000 |
State and municipal obligations |
|
| 1,143 |
|
| 1,142 |
| 2.39 |
|
| 14,829 |
|
| 14,620 |
| 2.65 |
|
| 16,540 |
|
| 16,088 |
| 2.86 |
|
| 2,452 |
|
| 2,453 |
| 2.00 |
|
| 34,964 |
|
| 34,303 |
U.S. GSE residential mortgage-backed securities |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| — |
|
| 84,691 |
|
| 84,550 |
| 2.31 |
|
| 84,691 |
|
| 84,550 |
U.S. GSE residential collateralized mortgage obligations |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| — |
|
| 277,851 |
|
| 278,149 |
| 1.55 |
|
| 277,851 |
|
| 278,149 |
U.S. GSE commercial mortgage-backed securities |
|
| — |
|
| — |
| — |
|
| 8,761 |
|
| 8,753 |
| 2.63 |
|
| 4,848 |
|
| 4,903 |
| 2.42 |
|
| — |
|
| — |
| — |
|
| 13,609 |
|
| 13,656 |
U.S. GSE commercial collateralized mortgage obligations |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| — |
|
| 104,156 |
|
| 102,722 |
| 2.91 |
|
| 104,156 |
|
| 102,722 |
Other asset backed securities |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| — |
|
| 23,401 |
|
| 24,250 |
| 2.98 |
|
| 23,401 |
|
| 24,250 |
Corporate bonds |
|
| — |
|
| — |
| — |
|
| 14,538 |
|
| 15,000 |
| 2.00 |
|
| 29,264 |
|
| 31,000 |
| 2.31 |
|
| — |
|
| — |
| — |
|
| 43,802 |
|
| 46,000 |
Total available for sale |
| $ | 51,965 |
| $ | 51,975 |
| 1.56 | % | $ | 43,123 |
| $ | 43,373 |
| 2.35 | % | $ | 50,652 |
| $ | 51,991 |
| 2.49 | % | $ | 492,551 |
| $ | 492,124 |
| 2.04 | % | $ | 638,291 |
| $ | 639,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal obligations |
| $ | 8,838 |
| $ | 8,827 |
| 2.48 | % | $ | 23,382 |
| $ | 22,902 |
| 3.01 | % | $ | 9,444 |
| $ | 9,129 |
| 3.15 | % | $ | 153 |
| $ | 150 |
| 2.73 | % | $ | 41,817 |
| $ | 41,008 |
U.S. GSE residential mortgage-backed securities |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| — |
|
| 5,919 |
|
| 5,947 |
| 1.80 |
|
| 2,174 |
|
| 2,195 |
| 2.23 |
|
| 8,093 |
|
| 8,142 |
U.S. GSE residential collateralized mortgage obligations |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| — |
|
| 3,865 |
|
| 3,871 |
| 2.10 |
|
| 36,633 |
|
| 36,065 |
| 2.65 |
|
| 40,498 |
|
| 39,936 |
U.S. GSE commercial mortgage-backed securities |
|
| — |
|
| — |
| — |
|
| 4,824 |
|
| 4,776 |
| 2.42 |
|
| 4,835 |
|
| 4,805 |
| 2.27 |
|
| 7,576 |
|
| 7,634 |
| 2.98 |
|
| 17,235 |
|
| 17,215 |
U.S. GSE commercial collateralized mortgage obligations |
|
| — |
|
| — |
| — |
|
| 387 |
|
| 392 |
| 0.99 |
|
| — |
|
| — |
| — |
|
| 26,997 |
|
| 26,945 |
| 2.57 |
|
| 27,384 |
|
| 27,337 |
Total held to maturity |
|
| 8,838 |
|
| 8,827 |
| 2.48 |
|
| 28,593 |
|
| 28,070 |
| 2.88 |
|
| 24,063 |
|
| 23,752 |
| 2.46 |
|
| 73,533 |
|
| 72,989 |
| 2.64 |
|
| 135,027 |
|
| 133,638 |
Total securities |
| $ | 60,803 |
| $ | 60,802 |
| 1.69 | % | $ | 71,716 |
| $ | 71,443 |
| 2.56 | % | $ | 74,715 |
| $ | 75,743 |
| 2.48 | % | $ | 566,084 |
| $ | 565,113 |
| 2.12 | % | $ | 773,318 |
| $ | 773,101 |
| | |
| | December 31, |
| | 2021 |
Weighted average contractual maturity (years) - Held-to-maturity: | | |
Pass-through MBS issued by GSEs and agency CMOs | | 28.2 |
Deposits and Borrowings
Borrowings, consisting of repurchase agreements, FHLB advances and subordinated debentures, increased $195.2 million year-over-year to $514.9 million at December 31, 2019. Total deposits decreased $71.7 million to $3.8 billion at December 31, 2019 compared to December 31, 2018. Individual, partnership and corporate (“IPC deposits”) account balances increased $77.2 million and public funds and brokered deposits decreased $148.9 million. The decrease in deposits is attributable to a decrease in savings, NOW and money market deposits of $120.6 million, or 5.7%, to $2.0 billion at December 31, 2019, and a decrease in certificates of deposit of $21.5 million, or 6.5%, to $308.0 million at December 31, 2019, partially offset by an increase in demand deposits of $70.4 million, or 4.9%, to $1.5 billion at December 31, 2019.
Page -34-37
CertificatesSources of deposit of $100,000 or more increased $7.0 million, or 3.4%, from December 31, 2018 and other time deposits decreased $28.5 million, or 23.3%, compared to December 31, 2018.Funds
Deposits
The following table presents our deposit accounts and the remaining maturitiesrelated weighted average interest rates at the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
| |||||||||||||||
| | | |
| Percent |
| |
| | |
| Percent |
| |
| | |
| Percent |
| |
|
| | | | | of | | Weighted | | | | | Of | | Weighted | | | | | Of | | Weighted |
|
| | | | | Total | | Average | | | | | Total | | Average | | | | | Total | | Average |
|
|
| Amount |
| Deposits |
| Rate |
| Amount |
| Deposits |
| Rate |
| Amount | | Deposits | | Rate |
| |||
|
| (Dollars in Thousands) | | |||||||||||||||||||
Savings accounts | | $ | 1,158,040 |
| 11.1 | % | 0.03 | % | $ | 414,809 |
| 9.2 | % | 0.12 | % | $ | 374,265 |
| 8.7 | % | 0.35 | % |
CDs | |
| 853,242 |
| 8.2 |
| 0.58 | |
| 1,322,638 |
| 29.2 |
| 0.84 | |
| 1,572,869 |
| 36.7 |
| 2.05 | |
Money market accounts | |
| 3,621,552 |
| 34.6 |
| 0.07 | |
| 1,716,624 |
| 37.9 |
| 0.24 | |
| 1,705,451 |
| 39.8 |
| 1.03 | |
Interest-bearing checking accounts | |
| 905,717 |
| 8.7 |
| 0.18 | |
| 290,300 |
| 6.4 |
| 0.10 | |
| 151,491 |
| 3.5 |
| 0.08 | |
Non-interest-bearing checking accounts | |
| 3,920,423 |
| 37.5 |
| — | |
| 780,751 |
| 17.3 |
| — | |
| 478,549 |
| 11.2 |
| — | |
Totals | | $ | 10,458,974 |
| 100.00 | % | 0.09 | % | $ | 4,525,122 |
| 100.00 | % | 0.36 | % | $ | 4,282,625 |
| 100.00 | % | 1.19 | % |
As a result of the Bank’s timeMerger, we acquired $5.41 billion of deposits on the Merger Date.
The weighted average maturity of our CDs at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
| Less than |
| $100,000 or |
|
| |||
(In thousands) |
| $100,000 |
| Greater |
| Total | |||
3 months or less |
| $ | 12,022 |
| $ | 28,244 |
| $ | 40,266 |
Over 3 through 6 months |
|
| 56,354 |
|
| 60,250 |
|
| 116,604 |
Over 6 through 12 months |
|
| 14,598 |
|
| 32,366 |
|
| 46,964 |
Over 12 months through 24 months |
|
| 5,850 |
|
| 77,570 |
|
| 83,420 |
Over 24 months through 36 months |
|
| 1,160 |
|
| 10,112 |
|
| 11,272 |
Over 36 months through 48 months |
|
| 1,803 |
|
| 2,269 |
|
| 4,072 |
Over 48 months through 60 months |
|
| 2,076 |
|
| 2,901 |
|
| 4,977 |
Over 60 months |
|
| 21 |
|
| 381 |
|
| 402 |
Total |
| $ | 93,884 |
| $ | 214,093 |
| $ | 307,977 |
2021 was 7.7 months, compared to 7.4 months at December 31, 2020.
Liquidity
As of December 31, 2021 and 2020, the portion of deposit accounts in excess of the $250,000 FDIC insurance limit was $5.83 billion and $2.04 billion, respectively.
The following table sets forth the amount of time deposits in uninsured accounts by maturity, all of which are CDs:
| | | |
(In thousands) | | December 31, 2021 | |
Maturity Period | | | |
Three months or less | | $ | 79,289 |
Over three through six months | | | 62,766 |
Over six through twelve months | | | 27,834 |
Over twelve months | | | 30,224 |
Total | | $ | 200,113 |
As of December 31, 2021, total uninsured CDs totaled $200.1 million, of which the portion of uninsured CDs in excess of the $250,000 FDIC insurance limit was $73.6 million.
Our Board of Directors authorized the Bank to accept brokered deposits up to an aggregate limit of 10.0% of total assets. At December 31, 2021, brokered deposits totaled $200.0 million, which included purchased MMAs from the ICS program. At December 31, 2020, brokered deposits totaled $343.0 million, which included purchased CDs from the CDARS program, purchased MMAs from the ICS program and purchased CDs through a broker. At December 31, 2019, brokered deposits totaled $458.7 million, which included purchased CDs from the CDARS program and purchased MMAs from the ICS program.
Borrowings
The Bank’s total borrowing line with FHLBNY equaled $4.19 billion at December 31, 2021. The Bank had $25.0 million of FHLBNY advances outstanding at December 31, 2021, and $1.20 billion at December 31, 2020. The Bank maintained sufficient collateral, as defined by the FHLBNY (principally in the form of real estate loans), to secure such advances.
The Company had $1.9 million outstanding of securities sold under agreements to repurchase (“repurchase agreements”) at December 31, 2021. The Company had no securities sold under agreements to repurchase at December 31, 2020.
38
Liquidity and Capital Resources
The Board of Directors of the Bank has approved a liquidity policy that it reviews and updates at least annually. Senior management objectivesis responsible for implementing the policy. The Bank’s Asset Liability Committee (“ALCO”) is responsible for general oversight and strategic implementation of the policy and management of the appropriate departments are designated responsibility for implementing any strategies established by ALCO. On a daily basis, appropriate senior management receives a current cash position report and one-week forecast to ensure that all short-term obligations are timely satisfied and that adequate liquidity exists to fund future activities. Reports detailing the sufficiencyBank’s liquidity reserves are presented to appropriate senior management on a monthly basis, and the Board of funds availableDirectors at each of its meetings. In addition, a twelve-month liquidity forecast is presented to respondALCO in order to assess potential future liquidity concerns. A forecast of cash flow data for the upcoming 12 months is presented to the needsBoard of depositors and borrowers, and to take advantage of unanticipated opportunities for our growth or earnings enhancement. Liquidity management addresses our ability to meet financial obligations that arise in the normal course of business. Directors on an annual basis.
Liquidity is primarily needed to meet customer borrowing commitments and deposit withdrawals, either on demand or on contractual maturity, to repay borrowings as they mature, to fund current and planned expenditures and to make new loans and investments as opportunities arise. The Bank’s primary sources of funding for its lending and investment activities include deposits, loan and MBS payments, investment security principal and interest payments and advances from the FHLBNY. The Bank may also sell or securitize selected multifamily residential, mixed-use or one-to-four family residential real estate loans to private sector secondary market purchasers, and has in the past sold such loans to FNMA and FHLMC. The Company may additionally issue debt or equity under appropriate circumstances. Although maturities and scheduled amortization of loans and investments are predictable sources of funds, deposit flows and prepayments on real estate loans and MBS are influenced by interest rates, economic conditions and competition.
The Holding Company’s principal sourcesBank is a member of liquidity included cash and cash equivalentsAFX, through which it may either borrow or lend funds on an overnight or short-term basis with other member institutions. The availability of $3.6 millionfunds changes daily.
The Bank utilizes repurchase agreements as part of its borrowing policy to add liquidity. Repurchase agreements represent funds received from customers, generally on an overnight basis, which are collateralized by investment securities. As of December 31, 2019,2021, the Bank’s repurchase agreements totaled $1.9 million, included in other short-term borrowings on the consolidated balance sheets.
The Bank gathers deposits in direct competition with commercial banks, savings banks and dividend capabilities frombrokerage firms, many among the Bank. Cash availablelargest in the nation. It must additionally compete for distributiondeposit monies against the stock and bond markets, especially during periods of dividends to our shareholders isstrong performance in those arenas. The Bank’s deposit flows are affected primarily derived from dividends paid by the Bankpricing and marketing of its deposit products compared to its competitors, as well as the Company. During 2019,market performance of depositor investment alternatives such as the U.S. bond or equity markets. To the extent that the Bank paid $24.5 millionis responsive to general market increases or declines in cash dividends to the Holding Company. Prior regulatory approval is required if the total of all dividends declared by the Bank in any calendar year exceeds the totalinterest rates, its deposit flows should not be materially impacted. However, favorable performance of the equity or bond markets could adversely impact the Bank’s net income for that year combined with its retained net income of the preceding two years. As of January 1, 2020, the Bank had $58.7 million of retained net income available for dividends to the Holding Company. In the event that the Holding Company subsequently expands its current operations, in addition to dividends from the Bank, it will need to rely on its own earnings, additional capital raised and other borrowings to meet liquidity needs. The Holding Company did not make any capital contributions to the Bankdeposit flows.
Total deposits increased $5.93 billion during the year ended December 31, 2019.
The Bank’s most liquid assets are cash and cash equivalents, securities available for sale and securities held2021 compared to maturity due within one year. The levelsan increase of these assets are dependent on the Bank’s operating, financing, lending and investing activities during any given period. Other sources of liquidity include loan and investment securities principal repayments and maturities, lines of credit with other financial institutions including the FHLB and FRB, growth in core deposits and sources of wholesale funding such as brokered deposits. While scheduled loan amortization, maturing securities and short-term investments are a relatively predictable source of funds, deposit flows and loan and mortgage-backed securities prepayments are greatly influenced by general interest rates, economic conditions and competition. The Bank adjusts its liquidity levels as appropriate to meet funding needs such as seasonal deposit flows, loans, and asset and liability management objectives. Historically, the Bank has relied on its deposit base, drawn through its full-service branches that serve its market area and local municipal deposits, as its principal source of funding. The Bank seeks to retain existing deposits and loans and maintain customer relationships by offering quality service and competitive interest rates to its customers, while managing the overall cost of funds needed to finance its strategies.
The Bank’s Asset/Liability and Funds Management Policy allows for wholesale borrowings of up to 25% of total assets. At December 31, 2019, the Bank had aggregate lines of credit of $373.0$180.8 million with unaffiliated correspondent banks to provide short-term credit for liquidity requirements. Of these aggregate lines of credit, $353.0 million is available on an unsecured basis. As of December 31, 2019, the Bank had no overnight borrowings outstanding under these lines. As of December 31, 2018, the Bank had no overnight borrowings outstanding under these lines. The Bank also has the ability, as a member of the FHLB system, to borrow against unencumbered residential and commercial mortgages owned by the Bank. The Bank also has a master repurchase agreement with the FHLB, which increases its borrowing capacity. As of
Page -35-
December 31, 2019, the Bank had $195.0 million in FHLB overnight borrowings outstanding and $240.0 million outstanding in FHLB term borrowings. As of December 31, 2018, the Bank had no FHLB overnight borrowings and $240.4 million outstanding in FHLB term borrowings. As of December 31, 2019, the Bank had securities sold under agreements to repurchase of $1.0 million outstanding with customers and nothing outstanding with brokers. As of December 31, 2018, the Bank had securities sold under agreements to repurchase of $0.5 million outstanding with customers and nothing outstanding with brokers. In addition, the Bank has approved broker relationships for the purpose of issuing brokered deposits. As of December 31, 2019, the Bank had $77.3 million outstanding in brokered certificates of deposit and $85.1 million outstanding in brokered money market accounts. As of December 31, 2018, the Bank had $101.6 million outstanding in brokered certificates of deposits and $150.2 million outstanding in brokered money market accounts.
Liquidity policies are established by senior management and reviewed and approved by the full Board of Directors at least annually. Management continually monitors the liquidity position and believes that sufficient liquidity exists to meet all of the Company’s operating requirements. The Bank’s liquidity levels are affected by the use of short-term and wholesale borrowings and the amount of public funds in the deposit mix. Excess short-term liquidity is invested in overnight federal funds sold or in an interest-earning account at the FRB.
Contractual Obligations
In the ordinary course of operations, we enter into certain contractual obligations.
The following table presents contractual obligations outstanding at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Less than |
| One to |
| Four to |
| Over Five | ||||
(In thousands) |
| Total |
| One Year |
| Three Years |
| Five Years |
| Years | |||||
Operating leases |
| $ | 52,559 |
| $ | 7,011 |
| $ | 13,776 |
| $ | 11,448 |
| $ | 20,324 |
FHLB advances and repurchase agreements |
|
| 435,999 |
|
| 435,999 |
|
| — |
|
| — |
|
| — |
Subordinated debentures |
|
| 80,000 |
|
| — |
|
| — |
|
| — |
|
| 80,000 |
Time deposits |
|
| 307,977 |
|
| 203,834 |
|
| 94,692 |
|
| 9,049 |
|
| 402 |
Total contractual obligations outstanding |
| $ | 876,535 |
| $ | 646,844 |
| $ | 108,468 |
| $ | 20,497 |
| $ | 100,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, often including obtaining collateral at exercise of the commitment. At December 31, 2019, we had $117.0 million in outstanding loan commitments and $674.2 million in outstanding commitments for various lines of credit including unused overdraft lines. We also had $23.7 million of standby letters of credit as of December 31, 2019. See Note 18 of the Notes to the Consolidated Financial Statements for additional information on loan commitments and standby letters of credit.
Capital Resources
Stockholders’ equity increased $43.3 million year-over-year to $497.2 million at December 31, 2019 primarily as a result of net income, the net change in unrealized gains on available for sale securities, and the stock-based compensation plan, partially offset by dividends declared and the net change in unrealized losses on cash flow hedges. The ratio of average stockholders’ equity to average total assets was 10.11% for the year ended December 31, 2019 compared2020. The increase in total deposits during the current period was primarily due to 10.08% forthe acquisition of deposits in the Merger. Within deposits, core deposits (i.e., non-CDs) increased $6.40 billion during the year ended December 31, 2018.2021 and increased $431.1 million during the year ended December 31. 2020. CDs decreased $469.4 million during the year ended December 31, 2021 compared to a decrease of $250.2 million during the year ended December 31, 2020. The decrease in CDs during the current period was primarily due to higher-cost CDs not being renewed. In the event that the Bank should require funds beyond its ability or desire to generate them internally, an additional source of funds is available through its borrowing line at the FHLBNY or borrowing capacity through AFX and lines of credit with unaffiliated correspondent banks. At December 31, 2021, the Bank had an additional unused borrowing capacity of $3.18 billion through the FHLBNY, subject to customary minimum FHLBNY common stock ownership requirements (i.e., 4.5% of the Bank’s outstanding FHLBNY borrowings).
The Company’s capital strength is paralleledBank decreased its outstanding FHLBNY advances by $1.18 billion during the solid capital position of the Bank, as reflected in the excess of its regulatory capital ratios over the risk-based capital adequacy ratio levels required for classification as a “well capitalized”
Page -36-
institution by the FDIC (see Note 19 of the Notes to the Consolidated Financial Statements). Since 2015, we have raised $209.5 million in capital through the following initiatives:
|
|
|
|
|
|
We have the ability to issue additional common stock and/or preferred stock should the need arise under a shelf registration statement filed in May 2019.
We utilize cash dividends and stock repurchases to manage our capital levels. In 2019, the Company declared four quarterly cash dividends totaling $18.4 millionyear ended December 31, 2021, compared to four quarterly cash dividends of $18.3a $111.8 million in 2018. The dividend payout ratiosincrease during the year ended December 31, 2020. See Note 13. “Federal Home Loan Bank Advances” to our consolidated financial statements for 2019 and 2018 were 35.63% and 46.76%, respectively. In February 2019, we announced the approval of a stock repurchase plan for up to 1,000,000 shares of common stock. There is no expiration date for the stock repurchase plan. further information.
During the year ended December 31, 2019, we purchased 22,600 shares of our common stock under the repurchase plan at a cost of $0.6 million.
Our return on average equity increased to 10.84% for2021 and 2020, real estate loan originations totaled $1.67 billion and $975.3 million, respectively. During the year ended December 31, 20192021 and 2020, C&I loan originations totaled $647.6 million (including
39
$579.9 million of PPP loans) and $494.9 million (including $334.4 million of PPP loans), respectively. The increase in both real estate loan originations and C&I loan originations during the current period was primarily due to the Merger.
Proceeds from 8.66%sales of available-for-sale securities totaled $138.1 million and $94.3 million during the years ended December 31, 2021 and 2020, respectively. Purchases of available-for-sale securities totaled $1.10 billion and $219.6 million during the years ended December 31, 2021 and 2020, respectively. Proceeds from pay downs and calls and maturities of available-for-sale securities were $412.4 million and $153.1 million for the years ended December 31, 2021 and 2020, respectively.
The Company and the Bank are subject to minimum regulatory capital requirements imposed by its primary federal regulator. As a general matter, these capital requirements are based on the amount and composition of an institution’s assets. At December 31, 2021, each of the Company and the Bank were in compliance with all applicable regulatory capital requirements and the Bank was considered "well capitalized" for all regulatory purposes.
The Holding Company repurchased 1,755,061 shares of its common stock during the year ended December 31, 2018. Our return on average assets increased2021. Legacy Dime repurchased 1,477,029 shares of its common stock during the year ended December 31, 2020. As of December 31, 2021, up to 1.10% in 2019 compared to 0.87% in 2018. The year-over-year increases in return on average equity and return on average assets were due to higher net income in 2019 compared to 2018.
Impact1,086,687 shares remained available for purchase under the authorized share repurchase programs. See "Part II - Item 5. Issuer Purchases of Inflation and Changing PricesEquity Securities" for additional information about repurchases of common stock.
The consolidated financial statements and notes presented herein have been preparedHolding Company paid $7.3 million in accordance with U.S.cash dividends on its preferred stock during the year ended December 31, 2021. Legacy Dime paid $4.8 million in cash dividends on its preferred stock during the year ended December 31, 2020.
The Holding Company paid $39.4 million in cash dividends on its common stock during the year ended December 31, 2021. Legacy Dime paid $18.7 million in cash dividends on its common stock during the year ended December 31, 2020.
Contractual Obligations
The Bank generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changeshas outstanding at any time borrowings in the relative purchasing powerform of money over time dueFHLBNY advances, short-term or overnight borrowings, subordinated debt, as well as customer CDs with fixed contractual interest rates. In addition, the Bank is obligated to inflation. The primary effectmake rental payments under leases on certain of inflationits branches and equipment.
Off-Balance Sheet Arrangements
As part of its loan origination business, the Bank generally has outstanding commitments to extend credit to borrowers, which are originated pursuant to its regular underwriting standards. Available lines of credit may not be drawn on our operations is reflectedor may expire prior to funding, in increased operating costs. Unlike most industrial companies, virtually allwhole or in part, and amounts are not estimates of future cash flows. As of December 31, 2021, the Bank had $226.0 million of firm loan commitments that were accepted by the borrowers. All of these commitments are expected to close during the year ended December 31, 2022.
Additionally, in connection with the Loan Securitization, the Bank executed a reimbursement agreement with FHLMC that obligates the Company to reimburse FHLMC for any contractual principal and interest payments on defaulted loans, not to exceed 10% of the assets and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates have a more significant effect on the performance of a financial institution than do the effects of changes in the general rate of inflation and changes in prices. Changes in interest rates could adversely affect our results of operations and financial condition. Interest rates do not necessarily move in the same direction, or in the same magnitude, as the prices of goods and services. Interest rates are highly sensitive to many factors, which are beyond our control, including the influence of domestic and foreign economic conditions and the monetary and fiscal policiesoriginal principal amount of the United States government and federal agencies, particularlyloans comprising the FRB. aggregate balance of the loan pool at securitization. The maximum exposure under this reimbursement obligation is $28.0 million. The Bank has pledged $26.6 million of available-for-sale pass-through MBS issued by GSEs as collateral.
Impact of ProspectiveRecently Issued Accounting Standards
For a discussion regardingof the impact of newrecently issued accounting standards, refer toplease see Note 1 of the Notes to the Consolidated Financial Statements.Company’s consolidated financial statements.
Page -37-40
Item 7A. Quantitative and Qualitative Disclosures aboutAbout Market Risk
General
The Company’s largest component of market risk remains interest rate risk. The Company is not subject to foreign currency exchange or commodity price risk. During the year ended December 31, 2021, we conducted zero transactions involving derivative instruments requiring bifurcation in order to hedge interest rate or market risk.
Asset/Liability Management
Management considers interest rate risk to be ourthe most significant market risk.risk for the Company. Market risk is the risk of losslosses from adverse changes in market prices and rates. Interest rate risk is the exposure to adverse changes in our net income as a result of changes in interest rates.
OurThe Company’s primary earnings source is net interest income, which is affected by changes in the level of interest rates, the relationship between rates, the impact of interest rate fluctuations on asset prepayments, the level and composition of deposits and liabilities, and the credit quality of earning assets. Our asset and liability management objectives are to maintain a strong, stable net interest margin, to utilize its capital effectively without taking undue risks, to maintain adequate liquidity, and to reduce vulnerability of our operations to changes in interest rates.
Our Asset and Liability Committee evaluates periodically, but at leastno less than four times a year,annually, the impact of changes in market interest rates on assets and liabilities, net interest margin, capital and liquidity. Risk assessments are governed by policies and limits established by senior management, which are reviewed and approved by the full Board of Directors at least annually. The economic environment continually presents uncertainties as to future interest rate trends. The Asset and Liability Committee regularly utilizes a model that projects net interest income based on increasing or decreasing interest rates, in order to be better able to respond to changes in interest rates.
At December 31, 2019, $680.4 million,2021, $1.54 billion, or 88.2%88.4%, of our available for saleavailable-for-sale and held to maturityheld-to-maturity securities had fixed interest rates. At December 31, 2019, $2.92021, $7.16 billion, or 78.1%77.5%, of our loan portfolio had adjustable or floating interest rates. Changes in interest rates affect the value of our interest-earning assets and, in particular, ourthe securities portfolio. Generally, the value of securities fluctuates inversely with changes in interest rates. Increases in interest rates could result in decreases in the market value of interest-earning assets, which could adversely affect our stockholders’ equity and the results of operations if sold. We areThe Company is also subject to reinvestment risk associated with changes in interest rates. Changes in market interest rates also could affect the type (fixed-rate or adjustable-rate) and amount of loans we originateoriginated and the average life of loans and securities, which can impact the yields earned on our loans and securities. In periods of decreasing interest rates, the average life of loans and securities we holdheld may be shortened to the extent increased prepayment activity occurs during such periods which, in turn, may result in the investment of funds from such prepayments in lower yielding assets. Under these circumstances, we arethe Company is subject to reinvestment risk to the extent that we aremanagement is unable to reinvest the cash received from such prepayments at rates that are comparable to the rates on existing loans and securities. Additionally, increases in interest rates may result in decreasing loan prepayments with respect to fixed rate loans (and, therefore, an increase in the average life of such loans), may result in a decrease in loan demand, and may make it more difficult for borrowers to repay adjustable rate loans. In addition, increases in interest rates may result in the extensions of the average life of securities which may result in lower cash flows to the Bank.
We utilizeInterest Rate Risk Exposure Analysis
Economic Value of Equity ("EVE") Analysis. In accordance with agency regulatory guidelines, the Company simulates the impact of interest rate volatility upon EVE using several interest rate scenarios. EVE is the difference between the present value of the expected future cash flows of the Company’s assets and liabilities and the value of any off-balance sheet items, such as derivatives, if applicable.
Traditionally, the fair value of fixed-rate instruments fluctuates inversely with changes in interest rates. Increases in interest rates thus result in decreases in the fair value of interest-earning assets, which could adversely affect the Company’s consolidated results of operations in the event they were to be sold, or, in the case of interest-earning assets classified as available-for-sale, reduce the Company’s consolidated stockholders’ equity, if retained. The changes in the
41
value of assets and liabilities due to fluctuations in interest rates measure the interest rate sensitivity of those assets and liabilities.
In order to measure the Company’s sensitivity to changes in interest rates, EVE is calculated under market interest rates prevailing at a detailedgiven quarter-end ("Pre-Shock Scenario"), and dynamic simulation modelunder various other interest rate scenarios ("Rate Shock Scenarios") representing immediate, permanent, parallel shifts in the term structure of interest rates from the actual term structure observed in the Pre-Shock Scenario. An increase in the EVE is considered favorable, while a decline is considered unfavorable. The changes in EVE between the Pre-Shock Scenario and various Rate Shock Scenarios due to quantifyfluctuations in interest rates reflect the interest rate sensitivity of the Company’s assets, liabilities, and off-balance sheet items that are included in the EVE. Management reports the EVE results to the Board of Directors on a quarterly basis. The report compares the Company’s estimated Pre-Shock Scenario EVE to the estimated exposureEVE calculated under the various Rate Shock Scenarios.
The Company’s valuation model makes various estimates regarding cash flows from principal repayments on loans and deposit decay rates at each level of interest rate change. The Company’s estimates for loan repayment levels are influenced by the recent history of prepayment activity in its loan portfolio, as well as the interest rate composition of the existing portfolio, especially in relation to the existing interest rate environment. In addition, the Company considers the amount of fee protection inherent in the loan portfolio when estimating future repayment cash flows. Regarding deposit decay rates, the Company tracks and analyzes the decay rate of its deposits over time, with the assistance of a reputable third-party, and over various interest rate scenarios. Such results are utilized in determining estimates of deposit decay rates in the valuation model. The Company also generates a series of spot discount rates that are integral to the valuation of the projected monthly cash flows of its assets and liabilities. The valuation model employs discount rates that it considers representative of prevailing market rates of interest with appropriate adjustments it believes are suited to the heterogeneous characteristics of the Company’s various asset and liability portfolios. No matter the care and precision with which the estimates are derived, actual cash flows could differ significantly from the Company’s estimates resulting in significantly different EVE calculations.
The analysis that follows presents, as of December 31, 2021 and 2020, the estimated EVE at both the Pre-Shock Scenario and the +100 Basis Point Rate and +200 Basis Point Rate Shock Scenarios.
| | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| ||||||||||||
|
| | |
| Dollar |
| Percentage |
| | |
| Dollar |
| Percentage |
| ||
(Dollars in thousands) | | EVE | | Change | | Change | | EVE | | Change | | Change |
| ||||
Rate Shock Scenarios | | |
| ||||||||||||||
+ 200 Basis Points | | $ | 1,413,179 | | $ | 194,959 | | 16.0% | | $ | 601,319 | | $ | 7,892 | | 1.3% | |
+ 100 Basis Points | | | 1,334,981 | | | 116,761 |
| 9.6% | | | 597,398 | | | 3,971 |
| 0.7% | |
Pre-Shock Scenario | |
| 1,218,220 | |
| — |
| — | |
| 593,427 | |
| — |
| — | |
The Company’s Pre-Shock Scenario EVE increased from $593.4 million at December 31, 2020 to $1.22 billion at December 31, 2021. The primary factor contributing to the significant increase in EVE at December 31, 2021, was the completion of the Merger in the first quarter.
The Company’s EVE in the +100 Basis Point Rate and +200 Basis Point Rate Shock Scenarios increased from $597.4 million and $601.3 million, respectively, at December 31, 2020, to $1.33 billion and $1.41 billion, respectively, at December 31, 2021.
42
Income Simulation Analysis. As of the end of each quarterly period, the Company also monitors the impact of interest rate changes through a net interest income to sustainedsimulation model. This model estimates the impact of interest rate changes. Management routinely monitors simulatedchanges on the Company’s net interest income sensitivity over a rolling two-year horizon. The simulation model capturesforward-looking periods typically not exceeding 36 months (a considerably shorter period than measured through the impact of changing interest rates onEVE analysis). Management reports the interest income received and the interest expense paid on all assets and liabilities reflected on our consolidated balance sheet. This sensitivity analysis is compared to the asset and liability policy limits that specify a maximum tolerance level for net interest income exposure oversimulation results to the Company’s Board of Directors on a one-year horizon given 100 and 200-basis point upward shiftsquarterly basis. The following table discloses the estimated changes to the Company’s net interest income in various time periods assuming gradual changes in interest rates and a 100-basis point downward shift in interest rates. A parallel and pro-rata shift in rates over a twelve-month12-month period is assumed.
In addition to the above scenarios, we consider other, non-parallel rate shifts that would also exert pressure on earnings. The current low interest rate environment presents the possibility for a flattening of the yield curve, which presents a challenge to a bank, like us, that derives most of its revenue from net interest margin. During the year endedbeginning December 31, 2019,2021, for the yield on U.S. Treasury 5-year notes decreased 82 basis points from 2.51%given rate scenarios:
| | | | |
| | Percentage Change in Net Interest Income | ||
Gradual Change in Interest rates of: | | Year-One | | Year-Two |
+ 200 Basis Points | | 0.6% | | 8.8% |
+ 100 Basis Points | | 0.1% | | 4.1% |
Management also examines the potential impact to 1.69%, while the yield on 3-month Treasury bills decreased 90 basis points from 2.45% to 1.55%. While the 3-month/5-year Treasury spread increased from 6 basis points at December 31, 2018 to 14 basis points at December 31, 2019, the yield curve continues to be considerably flat compared to the 3-month/5-year Treasury spread of 81 basis points at December 31, 2017 and 142 basis points at December 31, 2016. A continued flat or inverted yield curve in 2020 may adversely affect net interest income as borrowers tend to refinance higher-rate fixed rate loans at lower rates and we may not be able to reinvest those prepayments in assets earning interest rates as high as the rates on those prepaid assets.
Page -38-
The following reflects our net interest income sensitivity analysis at December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 |
| ||||||||
|
| Potential Change |
| ||||||||
|
| in Future Net |
| ||||||||
Change in Interest |
| Interest Income |
| ||||||||
Rates in Basis Points |
| Year 1 |
| Year 2 |
| ||||||
(Dollars in thousands) |
| $ Change |
| % Change |
| $ Change |
| % Change |
| ||
200 |
| $ | 1,028 |
| 0.70 | % | $ | 12,075 |
| 8.21 | % |
100 |
|
| 520 |
| 0.35 |
|
| 6,787 |
| 4.62 |
|
Static |
|
| — |
| — |
|
| — |
| — |
|
(100) |
|
| (574) |
| (0.39) |
|
| (3,586) |
| (2.44) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 |
| ||||||||
|
| Potential Change |
| ||||||||
|
| in Future Net |
| ||||||||
Change in Interest |
| Interest Income |
| ||||||||
Rates in Basis Points |
| Year 1 |
| Year 2 |
| ||||||
(Dollars in thousands) |
| $ Change |
| % Change |
| $ Change |
| % Change |
| ||
200 |
| $ | (2,212) |
| (1.57) | % | $ | 8,767 |
| 6.23 | % |
100 |
|
| (898) |
| (0.64) |
|
| 7,355 |
| 5.23 |
|
Static |
|
| — |
| — |
|
| — |
| — |
|
(100) |
|
| (435) |
| (0.31) |
|
| (266) |
| (0.19) |
|
As noted in the table above, a 200-basis point increase in interest rates is projected to increase net interest income by 0.70% in year 1 and increasesimulating the impact of instantaneous changes to interest rates. The following table discloses the estimated changes to the Company’s net interest income by 8.21% in year 2. Our balance sheet sensitivity to such a move in interest rates at December 31, 2019 decreased as compared to December 31, 2018 (which was a decrease of 1.57% in net interest income over a twelve-month period). This decrease isvarious time periods associated with the result of an increase in non-interest-bearing demand deposits and a reduction in brokered deposits, coupled with a higher portion of our loans repricing to market rates. We also continue to show the ability to hold the costs of interest-bearing deposits to below market rates. Overall, our strategy is shifting to a focus on reducing our exposure to falling rates. Over the intervening year, the effective duration (a measure of price sensitivity to interest rates) of the bond portfolio decreased from 3.05 years at December 31, 2018 to 2.35 years at December 31, 2019.
The preceding sensitivity analysis does not represent a Company forecast and should not be relied on as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including, but not limited to, the nature and timing ofgiven interest rate levels and yield curve shapes, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, and reinvestment and replacement of asset and liability cash flows. While assumptions are developed based on perceived current economic and local market conditions, we cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences may change. Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to prepayment and refinancing levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals, prepayment penalties and product preference changes and other internal and external variables. Furthermore, the sensitivity analysis does not reflect actions that management might take in responding to, or anticipating, changes in interest rates and market conditions.shock scenarios:
| | | | |
| | Percentage Change in Net Interest Income | ||
Instantaneous Rate Shock Scenarios | | Year-One | | Year-Two |
+ 200 Basis Points | | 3.5% | | 11.9% |
+ 100 Basis Points | | 1.5% | | 5.9% |
Page -39-43
Item 8. Financial Statements and Supplementary Data
For the Company’s consolidated financial statements with the notes thereto, see pages hereafter.
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(InDollars in thousands except share and per share amounts)
|
|
|
|
|
|
|
|
| December 31, |
| December 31, | ||
|
| 2019 |
| 2018 | ||
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
Cash and due from banks |
| $ | 77,693 |
| $ | 142,145 |
Interest-bearing deposits with banks |
|
| 39,501 |
|
| 153,223 |
Total cash and cash equivalents |
|
| 117,194 |
|
| 295,368 |
|
|
|
|
|
|
|
Securities available for sale, at fair value |
|
| 638,291 |
|
| 680,886 |
Securities held to maturity (fair value of $135,027 and $156,792, respectively) |
|
| 133,638 |
|
| 160,163 |
Total securities |
|
| 771,929 |
|
| 841,049 |
|
|
|
|
|
|
|
Securities, restricted |
|
| 32,879 |
|
| 24,028 |
|
|
|
|
|
|
|
Loans held for sale |
|
| 12,643 |
|
| — |
|
|
|
|
|
|
|
Loans held for investment |
|
| 3,680,285 |
|
| 3,275,811 |
Allowance for loan losses |
|
| (32,786) |
|
| (31,418) |
Loans, net |
|
| 3,647,499 |
|
| 3,244,393 |
|
|
|
|
|
|
|
Premises and equipment, net |
|
| 34,062 |
|
| 35,008 |
Operating lease right-of-use assets |
|
| 43,450 |
|
| — |
Accrued interest receivable |
|
| 10,908 |
|
| 11,236 |
Goodwill |
|
| 105,950 |
|
| 105,950 |
Other intangible assets |
|
| 3,677 |
|
| 4,374 |
Prepaid pension |
|
| 10,988 |
|
| 10,263 |
Bank owned life insurance |
|
| 91,942 |
|
| 89,712 |
Other real estate owned |
|
| — |
|
| 175 |
Other assets |
|
| 38,399 |
|
| 39,188 |
Total assets |
| $ | 4,921,520 |
| $ | 4,700,744 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Demand deposits |
| $ | 1,518,958 |
| $ | 1,448,605 |
Savings, NOW and money market deposits |
|
| 1,987,712 |
|
| 2,108,297 |
Certificates of deposit of $100,000 or more |
|
| 214,093 |
|
| 207,087 |
Other time deposits |
|
| 93,884 |
|
| 122,404 |
Total deposits |
|
| 3,814,647 |
|
| 3,886,393 |
|
|
|
|
|
|
|
Repurchase agreements |
|
| 999 |
|
| 539 |
Federal Home Loan Bank ("FHLB") advances |
|
| 435,000 |
|
| 240,433 |
Subordinated debentures, net |
|
| 78,920 |
|
| 78,781 |
Operating lease liabilities |
|
| 45,977 |
|
| — |
Other liabilities and accrued expenses |
|
| 48,823 |
|
| 40,768 |
Total liabilities |
|
| 4,424,366 |
|
| 4,246,914 |
|
|
|
|
|
|
|
Commitments and contingencies |
|
| — |
|
| — |
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
Preferred stock, par value $.01 per share (2,000,000 shares authorized; none issued) |
|
| — |
|
| — |
Common stock, par value $.01 per share (40,000,000 shares authorized; 19,898,022 and 19,815,680 shares issued, respectively; and 19,836,797 and 19,790,884 shares outstanding, respectively) |
|
| 199 |
|
| 198 |
Surplus |
|
| 356,436 |
|
| 352,093 |
Retained earnings |
|
| 150,703 |
|
| 117,432 |
Treasury stock at cost, 61,225 and 24,796 shares, respectively |
|
| (1,843) |
|
| (781) |
|
|
| 505,495 |
|
| 468,942 |
Accumulated other comprehensive loss, net of income taxes |
|
| (8,341) |
|
| (15,112) |
Total stockholders’ equity |
|
| 497,154 |
|
| 453,830 |
Total liabilities and stockholders’ equity |
| $ | 4,921,520 |
| $ | 4,700,744 |
| | | | | | |
| | December 31, | ||||
|
| 2021 |
| 2020 | ||
Assets |
| |
|
| |
|
Cash and due from banks | | $ | 393,722 | | $ | 243,603 |
Securities available-for-sale, at fair value | | | 1,563,711 | | | 538,861 |
Securities held-to-maturity | | | 179,309 | | | — |
Marketable equity securities, at fair value | | | — | | | 5,970 |
Loans held for sale | |
| 5,493 | |
| 5,903 |
Loans held for investment, net: | |
| | |
|
|
Real estate | |
| 8,294,204 | |
| 4,978,195 |
Commercial and industrial ("C&I") | |
| 933,559 | |
| 641,533 |
Other loans | | | 16,898 | | | 2,316 |
Allowance for credit losses | |
| (83,853) | |
| (41,461) |
Total loans held for investment, net | |
| 9,160,808 | |
| 5,580,583 |
Premises and fixed assets, net | |
| 50,368 | |
| 19,053 |
Premises held for sale | | | 556 | | | — |
Restricted stock | |
| 37,732 | |
| 60,707 |
Bank Owned Life Insurance ("BOLI") | |
| 295,789 | |
| 156,096 |
Goodwill | |
| 155,797 | |
| 55,638 |
Other intangible assets | | | 8,362 | | | — |
Operating lease assets | |
| 64,258 | |
| 33,898 |
Derivative assets | | | 45,086 | | | 18,932 |
Accrued interest receivable | | | 40,149 | | | 34,815 |
Other assets | |
| 65,224 | |
| 27,551 |
Total assets | | $ | 12,066,364 | | $ | 6,781,610 |
| | | | | | |
Liabilities | |
|
| |
|
|
Interest-bearing deposits | | $ | 6,538,551 | | $ | 3,744,371 |
Non-interest-bearing deposits | |
| 3,920,423 | |
| 780,751 |
Total deposits | |
| 10,458,974 | |
| 4,525,122 |
Federal Home Loan Bank of New York ("FHLBNY") advances | |
| 25,000 | |
| 1,204,010 |
Other short-term borrowings | | | 1,862 | | | 120,000 |
Subordinated debt, net | |
| 197,096 | |
| 114,052 |
Operating lease liabilities | |
| 66,103 | |
| 39,874 |
Derivative liabilities | | | 40,728 | | | 37,374 |
Other liabilities | |
| 83,981 | |
| 40,082 |
Total liabilities | |
| 10,873,744 | |
| 6,080,514 |
| |
|
| |
|
|
Commitments and contingencies (See Note 23) | |
|
| |
|
|
| | | | | | |
Stockholders' equity: | |
|
| |
|
|
Preferred stock, Series A ($0.01 par, $25.00 liquidation value, 10,000,000 shares authorized and 5,299,200 shares issued and outstanding at December 31, 2021 and December 31, 2020) | |
| 116,569 | |
| 116,569 |
Common stock ($0.01 par 80,000,000 shares authorized, 41,610,939 shares and 34,813,302 shares issued at December 31, 2021 and December 31, 2020, respectively, and 39,877,833 shares and 21,232,984 shares outstanding at December 31, 2021 and December 31, 2020, respectively) | |
| 416 | |
| 348 |
Additional paid-in capital | |
| 494,125 | |
| 278,295 |
Retained earnings | |
| 654,726 | |
| 600,641 |
Accumulated other comprehensive loss, net of deferred taxes | |
| (6,181) | |
| (5,924) |
Unearned equity awards | |
| (7,842) | |
| — |
Common stock held by the Benefit Maintenance Plan ("BMP") | |
| — | |
| (1,496) |
Treasury stock, at cost (1,733,106 shares and 13,580,318 shares at December 31, 2021 and December 31, 2020, respectively) | |
| (59,193) | |
| (287,337) |
Total stockholders' equity | |
| 1,192,620 | |
| 701,096 |
Total liabilities and stockholders' equity | | $ | 12,066,364 | | $ | 6,781,610 |
See accompanying Notesnotes to the Consolidated Financial Statements.
consolidated financial statements.
Page -40-44
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(InDollars in thousands except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
Interest income: |
|
|
|
|
|
|
|
|
|
Loans (including fee income) |
| $ | 158,228 |
| $ | 144,380 |
| $ | 126,420 |
Mortgage-backed securities, CMOs and other asset-backed securities |
|
| 16,182 |
|
| 16,591 |
|
| 15,231 |
U.S. GSE securities |
|
| 465 |
|
| 837 |
|
| 1,198 |
State and municipal obligations |
|
| 2,234 |
|
| 2,812 |
|
| 3,788 |
Corporate bonds |
|
| 1,200 |
|
| 1,422 |
|
| 1,233 |
Deposits with banks |
|
| 1,697 |
|
| 1,076 |
|
| 278 |
Other interest and dividend income |
|
| 1,535 |
|
| 1,866 |
|
| 1,701 |
Total interest income |
|
| 181,541 |
|
| 168,984 |
|
| 149,849 |
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
|
Savings, NOW and money market deposits |
|
| 23,687 |
|
| 15,928 |
|
| 7,858 |
Certificates of deposit of $100,000 or more |
|
| 4,270 |
|
| 3,007 |
|
| 1,843 |
Other time deposits |
|
| 1,502 |
|
| 1,801 |
|
| 725 |
Federal funds purchased and repurchase agreements |
|
| 767 |
|
| 1,200 |
|
| 1,571 |
FHLB advances |
|
| 4,573 |
|
| 5,729 |
|
| 6,105 |
Subordinated debentures |
|
| 4,539 |
|
| 4,539 |
|
| 4,539 |
Junior subordinated debentures |
|
| — |
|
| — |
|
| 48 |
Total interest expense |
|
| 39,338 |
|
| 32,204 |
|
| 22,689 |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
| 142,203 |
|
| 136,780 |
|
| 127,160 |
Provision for loan losses |
|
| 5,700 |
|
| 1,800 |
|
| 14,050 |
Net interest income after provision for loan losses |
|
| 136,503 |
|
| 134,980 |
|
| 113,110 |
|
|
|
|
|
|
|
|
|
|
Non-interest income: |
|
|
|
|
|
|
|
|
|
Service charges and other fees |
|
| 10,059 |
|
| 9,853 |
|
| 8,996 |
Net securities gains (losses) |
|
| 201 |
|
| (7,921) |
|
| 38 |
Title fees |
|
| 1,720 |
|
| 1,797 |
|
| 2,394 |
Gain on sale of Small Business Administration ("SBA") loans |
|
| 1,984 |
|
| 2,078 |
|
| 1,689 |
Bank owned life insurance |
|
| 2,230 |
|
| 2,219 |
|
| 2,250 |
Loan swap fees |
|
| 7,460 |
|
| 716 |
|
| 1,008 |
Other |
|
| 1,733 |
|
| 2,826 |
|
| 1,727 |
Total non-interest income |
|
| 25,387 |
|
| 11,568 |
|
| 18,102 |
|
|
|
|
|
|
|
|
|
|
Non-interest expense: |
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
| 56,244 |
|
| 50,458 |
|
| 46,560 |
Occupancy and equipment |
|
| 14,372 |
|
| 13,245 |
|
| 13,998 |
Technology and communications |
|
| 7,905 |
|
| 6,465 |
|
| 5,753 |
Marketing and advertising |
|
| 4,740 |
|
| 4,597 |
|
| 4,742 |
Professional services |
|
| 3,797 |
|
| 4,004 |
|
| 3,153 |
FDIC assessments |
|
| 608 |
|
| 1,665 |
|
| 1,310 |
Net fraud loss |
|
| — |
|
| 8,900 |
|
| — |
Office relocation costs |
|
| — |
|
| 750 |
|
| — |
Restructuring costs |
|
| — |
|
| — |
|
| 8,020 |
Amortization of other intangible assets |
|
| 787 |
|
| 917 |
|
| 1,047 |
Other |
|
| 7,686 |
|
| 7,179 |
|
| 7,144 |
Total non-interest expense |
|
| 96,139 |
|
| 98,180 |
|
| 91,727 |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
| 65,751 |
|
| 48,368 |
|
| 39,485 |
Income tax expense |
|
| 14,060 |
|
| 9,141 |
|
| 18,946 |
Net income |
| $ | 51,691 |
| $ | 39,227 |
| $ | 20,539 |
Basic earnings per share |
| $ | 2.59 |
| $ | 1.97 |
| $ | 1.04 |
Diluted earnings per share |
| $ | 2.59 |
| $ | 1.97 |
| $ | 1.04 |
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2021 |
| 2020 |
| 2019 | |||
Interest income: |
| |
|
| |
|
| |
|
Loans | | $ | 359,016 | | $ | 216,566 | | $ | 218,160 |
Securities | | | 22,634 | | | 14,159 | | | 14,518 |
Other short-term investments | |
| 2,976 | |
| 3,282 | |
| 5,590 |
Total interest income | |
| 384,626 | |
| 234,007 | |
| 238,268 |
Interest expense: | |
|
| |
|
| |
|
|
Deposits and escrow | |
| 16,527 | |
| 33,038 | |
| 62,079 |
Borrowed funds | |
| 10,490 | |
| 23,265 | |
| 28,768 |
Total interest expense | |
| 27,017 | |
| 56,303 | |
| 90,847 |
Net interest income | |
| 357,609 | |
| 177,704 | |
| 147,421 |
Provision for credit losses | |
| 6,212 | |
| 26,165 | |
| 17,340 |
Net interest income after provision for credit losses | |
| 351,397 | |
| 151,539 | |
| 130,081 |
Non-interest income: | |
|
| |
|
| |
|
|
Service charges and other fees | |
| 15,998 | |
| 5,571 | |
| 5,805 |
Title fees | | | 2,338 | | | — | | | — |
Loan level derivative income | | | 2,909 | | | 8,872 | | | 910 |
BOLI income | | | 7,071 | | | 4,859 | | | 2,830 |
Gain on sale of Small Business Administration ("SBA") loans | | | 23,033 | | | 1,118 | | | 1,102 |
Gain on sale of residential loans | | | 1,758 | | | 1,884 | | | 438 |
Net gain on equity securities | | | 131 | | | 361 | | | 531 |
Net gain on sale of securities and other assets | | | 1,705 | | | 4,592 | | | 31 |
Loss on termination of derivatives | | | (16,505) | | | (6,596) | | | — |
Other | |
| 3,630 | |
| 612 | |
| 521 |
Total non-interest income | |
| 42,068 | |
| 21,273 | |
| 12,168 |
Non-interest expense: | |
|
| |
|
| |
|
|
Salaries and employee benefits | |
| 108,331 | |
| 60,756 | |
| 52,065 |
Severance | | | 1,875 | | | 4,000 | | | — |
Occupancy and equipment | |
| 30,697 | |
| 16,177 | |
| 16,175 |
Data processing costs | |
| 16,638 | |
| 8,329 | |
| 7,816 |
Marketing | |
| 4,661 | |
| 1,458 | |
| 2,664 |
Professional services | | | 9,284 | | | 3,394 | | | 3,938 |
Federal deposit insurance premiums | |
| 4,077 | |
| 2,257 | |
| 609 |
Loss from extinguishment of debt | | | 1,751 | | | 1,104 | | | 3,780 |
Curtailment loss (gain) | | | 1,543 | | | (1,651) | | | — |
Merger expenses and transaction costs | | | 44,824 | | | 15,256 | | | — |
Branch restructuring costs | | | 5,059 | | | — | | | — |
Amortization of other intangible assets | | | 2,622 | | | — | | | — |
Other | |
| 13,937 | |
| 6,748 | |
| 8,340 |
Total non-interest expense | |
| 245,299 | |
| 117,828 | |
| 95,387 |
Income before income taxes | |
| 148,166 | |
| 54,984 | |
| 46,862 |
Income tax expense | |
| 44,170 | |
| 12,666 | |
| 10,676 |
Net income | | | 103,996 | | | 42,318 | | | 36,186 |
Preferred stock dividends | | | 7,286 | | | 4,783 | | | — |
Net income available to common stockholders | | $ | 96,710 | | $ | 37,535 | | $ | 36,186 |
Earnings per common share: | |
|
| |
|
| |
|
|
Basic | | $ | 2.45 | | $ | 1.74 | | $ | 1.56 |
Diluted | | $ | 2.45 | | $ | 1.74 | | $ | 1.55 |
See accompanying Notesnotes to the Consolidated Financial Statementsconsolidated financial statements.
Page -41-45
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands except per share amounts)
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2021 |
| 2020 |
| 2019 | |||
Net income | | $ | 103,996 | | $ | 42,318 | | $ | 36,186 |
Other comprehensive income (loss): | |
|
| |
|
| |
|
|
Change in unrealized holding gain or loss on securities: | | | | | | | | | |
Change in net unrealized gain or loss during the period | |
| (28,865) | |
| 16,432 | |
| 9,693 |
Reclassification adjustment for net gains included in net gain on securities and other assets | | | (1,207) | | | (4,592) | | | (31) |
Change in pension and other postretirement obligations: | | | | | | | | | |
Reclassification adjustment for expense included in other expense | |
| (1,092) | |
| (1,272) | |
| 729 |
Reclassification adjustment for curtailment loss (gain) | | | 1,543 | | | (1,651) | | | — |
Change in the net actuarial gain or loss | | | 6,563 | | | 2,817 | | | (296) |
Change in unrealized gain or loss on derivatives: | | | | | | | | | |
Change in net unrealized gain or loss during the period | |
| 5,277 | |
| (24,449) | |
| (8,254) |
Reclassification adjustment for loss included in loss on termination of derivatives | | | 16,505 | | | 6,596 | | | — |
Reclassification adjustment for expense included in interest expense | | | 940 | | | 6,127 | | | (955) |
Other comprehensive (loss) income before income taxes | |
| (336) | |
| 8 | |
| 886 |
Deferred tax (benefit) expense | |
| (79) | |
| (8) | |
| 326 |
Total other comprehensive (loss) income, net of tax | |
| (257) | |
| 16 | |
| 560 |
Total comprehensive income | | $ | 103,739 | | $ | 42,334 | | $ | 36,746 |
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
Net income |
| $ | 51,691 |
| $ | 39,227 |
| $ | 20,539 |
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
Change in unrealized net gains (losses) on securities available for sale, net of reclassifications and deferred income taxes |
|
| 10,856 |
|
| (348) |
|
| (505) |
Adjustment to pension liability, net of reclassifications and deferred income taxes |
|
| (410) |
|
| (832) |
|
| 193 |
Unrealized (losses) gains on cash flow hedges, net of reclassifications and deferred income taxes |
|
| (3,675) |
|
| 1,007 |
|
| 1,089 |
Total other comprehensive income (loss) |
|
| 6,771 |
|
| (173) |
|
| 777 |
Comprehensive income |
| $ | 58,462 |
| $ | 39,054 |
| $ | 21,316 |
See notes to consolidated financial statements.
See accompanying Notes to the Consolidated Financial Statements.
Page -42-46
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(InDollars in thousands except share and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
|
| |
|
| Common |
|
|
|
| Retained |
| Treasury |
| Comprehensive |
|
|
| ||||
|
| Stock |
| Surplus |
| Earnings |
| Stock |
| Loss |
| Total | ||||||
Balance at January 1, 2017 |
| $ | 191 |
| $ | 329,427 |
| $ | 91,594 |
| $ | (161) |
| $ | (13,064) |
| $ | 407,987 |
Net income |
|
|
|
|
|
|
|
| 20,539 |
|
|
|
|
|
|
|
| 20,539 |
Shares issued under the dividend reinvestment plan (“DRP”) (24,981 shares) |
|
|
|
|
| 951 |
|
|
|
|
|
|
|
|
|
|
| 951 |
Shares issued for trust preferred securities conversions (529,292 shares) |
|
| 5 |
|
| 14,944 |
|
|
|
|
|
|
|
|
|
|
| 14,949 |
Stock awards granted and distributed (72,979 shares) |
|
| 1 |
|
| (434) |
|
|
|
|
| 433 |
|
|
|
|
| — |
Stock awards forfeited (8,213 shares) |
|
|
|
|
| 218 |
|
|
|
|
| (218) |
|
|
|
|
| — |
Repurchase of surrendered stock from vesting of stock plans (10,068 shares) |
|
|
|
|
|
|
|
|
|
|
| (350) |
|
|
|
|
| (350) |
Share based compensation expense |
|
|
|
|
| 2,585 |
|
|
|
|
|
|
|
|
|
|
| 2,585 |
Impact of Tax Cuts and Jobs Act related to accumulated other comprehensive income reclassification |
|
|
|
|
|
|
|
| 2,652 |
|
|
|
|
| (2,652) |
|
| — |
Cash dividend declared, $0.92 per share |
|
|
|
|
|
|
|
| (18,238) |
|
|
|
|
|
|
|
| (18,238) |
Other comprehensive income, net of deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 777 |
|
| 777 |
Balance at December 31, 2017 |
| $ | 197 |
| $ | 347,691 |
| $ | 96,547 |
| $ | (296) |
| $ | (14,939) |
| $ | 429,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
| 39,227 |
|
|
|
|
|
|
|
| 39,227 |
Shares issued under the DRP (25,154 shares) |
|
|
|
|
| 954 |
|
|
|
|
|
|
|
|
|
|
| 954 |
Shares issued under the Employee Stock Purchase Plan ("ESPP"), net of offering costs (3,758 shares) |
|
|
|
|
| 63 |
|
|
|
|
|
|
|
|
|
|
| 63 |
Stock awards granted and distributed (84,910 shares) |
|
| 1 |
|
| (539) |
|
|
|
|
| 538 |
|
|
|
|
| — |
Stock awards forfeited (15,225 shares) |
|
|
|
|
| 437 |
|
|
|
|
| (437) |
|
|
|
|
| — |
Repurchase of surrendered stock from vesting of stock plans (17,073 shares) |
|
|
|
|
|
|
|
|
|
|
| (586) |
|
|
|
|
| (586) |
Share based compensation expense |
|
|
|
|
| 3,487 |
|
|
|
|
|
|
|
|
|
|
| 3,487 |
Cash dividend declared, $0.92 per share |
|
|
|
|
|
|
|
| (18,342) |
|
|
|
|
|
|
|
| (18,342) |
Other comprehensive loss, net of deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (173) |
|
| (173) |
Balance at December 31, 2018 |
| $ | 198 |
| $ | 352,093 |
| $ | 117,432 |
| $ | (781) |
| $ | (15,112) |
| $ | 453,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
| 51,691 |
|
|
|
|
|
|
|
| 51,691 |
Shares issued under the DRP (24,529 shares) |
|
|
|
|
| 867 |
|
|
|
|
|
|
|
|
|
|
| 867 |
Shares issued under the ESPP (7,888 shares) |
|
|
|
|
| 235 |
|
|
|
|
|
|
|
|
|
|
| 235 |
Purchase of treasury stock (22,600 shares) |
|
|
|
|
| — |
|
|
|
|
| (625) |
|
|
|
|
| (625) |
Stock awards granted and distributed (82,210 shares) |
|
| 1 |
|
| (988) |
|
|
|
|
| 987 |
|
|
|
|
| — |
Stock awards forfeited (19,531 shares) |
|
|
|
|
| 555 |
|
|
|
|
| (555) |
|
|
|
|
| — |
Repurchase of surrendered stock from vesting of stock plans (26,583 shares) |
|
|
|
|
| (18) |
|
|
|
|
| (869) |
|
|
|
|
| (887) |
Share based compensation expense |
|
|
|
|
| 3,692 |
|
|
|
|
|
|
|
|
|
|
| 3,692 |
Cash dividend declared, $0.92 per share |
|
|
|
|
|
|
|
| (18,420) |
|
|
|
|
|
|
|
| (18,420) |
Other comprehensive income, net of deferred income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,771 |
|
| 6,771 |
Balance at December 31, 2019 |
| $ | 199 |
| $ | 356,436 |
| $ | 150,703 |
| $ | (1,843) |
| $ | (8,341) |
| $ | 497,154 |
data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | 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, 2019 | | 23,380,783 | | $ | — | | $ | 348 | | $ | 277,701 | | $ | 565,713 | | $ | (6,500) | | $ | (3,623) | | $ | (1,509) | | $ | (230,049) | | $ | 602,081 |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income |
| — | |
| — | |
| — | |
| — | |
| 36,186 | |
| — | |
| — | |
| — | |
| — | |
| 36,186 |
Other comprehensive income, net of tax |
| — | |
| — | |
| — | |
| — | |
| — | |
| 560 | |
| — | |
| — | |
| — | |
| 560 |
Exercise of stock options |
| 19,676 | |
| — | |
| — | |
| 367 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 367 |
Release of shares, net of forfeitures |
| 180,027 | |
| — | |
| — | |
| 1,456 | |
| — | |
| — | |
| (4,951) | |
| — | |
| 3,626 | |
| 131 |
Stock-based compensation |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 1,843 | |
| — | |
| — | |
| 1,843 |
Shares received to satisfy distribution of retirement benefits |
| (123) | |
| — | |
| — | |
| (13) | |
| — | |
| — | |
| — | |
| 13 | |
| (4) | |
| (4) |
Shares received related to tax withholding | | (4,029) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (133) | | | (133) |
Cash dividends declared and paid to common stockholders |
| — | |
| — | |
| — | |
| — | |
| (20,082) | |
| — | |
| — | |
| — | |
| — | |
| (20,082) |
Repurchase of shares of common stock |
| (796,126) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (24,191) | |
| (24,191) |
Ending balance as of December 31, 2019 |
| 22,780,208 | |
| — | |
| 348 | |
| 279,511 | |
| 581,817 | |
| (5,940) | |
| (6,731) | |
| (1,496) | |
| (250,751) | |
| 596,758 |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income |
| — | |
| — | |
| — | |
| — | |
| 42,318 | |
| — | |
| — | |
| — | |
| — | |
| 42,318 |
Other comprehensive income, net of tax |
| — | |
| — | |
| — | |
| — | |
| — | |
| 16 | |
| — | |
| — | |
| — | |
| 16 |
Exercise of stock options, net |
| 1,972 | |
| — | |
| — | |
| 38 | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 38 |
Release of shares, net of forfeitures |
| 52,894 | |
| — | |
| — | |
| (1,254) | |
| — | |
| — | |
| (492) | |
| — | |
| 1,830 | |
| 84 |
Stock-based compensation |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 7,223 | |
| — | |
| — | |
| 7,223 |
Proceeds from preferred stock issuance, net | | — | | | 116,569 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 116,569 |
Shares received related to tax withholding |
| (125,061) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (3,060) | |
| (3,060) |
Cash dividends declared and paid to preferred stockholders |
| — | |
| — | |
| — | |
| — | |
| (4,783) | |
| — | |
| — | |
| — | |
| — | |
| (4,783) |
Cash dividends declared and paid to common stockholders |
| — | |
| — | |
| — | |
| — | |
| (18,711) | |
| — | |
| — | |
| — | |
| — | |
| (18,711) |
Repurchase of shares of common stock |
| (1,477,029) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (35,356) | |
| (35,356) |
Ending balance as of December 31, 2020 |
| 21,232,984 | |
| 116,569 | |
| 348 | |
| 278,295 | |
| 600,641 | |
| (5,924) | |
| — | |
| (1,496) | |
| (287,337) | |
| 701,096 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cumulative change in accounting principle (Note 1) |
| — | |
| — | |
| — | |
| — | |
| 1,686 | |
| — | |
| — | |
| — | |
| — | |
| 1,686 |
Adjusted balance on January 1, 2021 |
| 21,232,984 | |
| 116,569 | |
| 348 | |
| 278,295 | |
| 602,327 | |
| (5,924) | |
| — | |
| (1,496) | | | (287,337) | |
| 702,782 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income |
| — | | | — | | | — | | | — | | | 103,996 | | | — | | | — | | | — | | | — | | | 103,996 |
Other comprehensive loss, net of tax |
| — | | | — | | | — | | | — | | | — | | | (257) | | | — | | | — | | | — | | | (257) |
Reverse merger with Bridge Bancorp Inc. |
| 19,992,284 | | | — | | | 65 | | | 206,641 | | | — | | | — | | | (2,603) | | | — | | | 287,107 | | | 491,210 |
Exercise of stock options, net |
| 20,629 | |
| — | |
| — | |
| 258 | |
| — | |
| — | |
| — | |
| — | |
| 173 | |
| 431 |
Release of shares, net of forfeitures |
| 431,440 | |
| — | |
| 3 | |
| 10,411 | |
| — | |
| — | |
| (10,646) | |
| — | |
| 1,385 | |
| 1,153 |
Stock-based compensation |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 5,407 | |
| — | |
| — | |
| 5,407 |
Shares received to satisfy distribution of retirement benefits |
| (41,101) | |
| — | |
| — | |
| (1,359) | |
| — | |
| — | |
| — | |
| 1,496 | |
| (1,130) | |
| (993) |
Shares received related to tax withholding | | (3,342) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (111) | | | (111) |
Cash dividends declared to preferred stockholders | | — | |
| — | |
| — | |
| — | |
| (7,286) | |
| — | |
| — | |
| — | |
| — | |
| (7,286) |
Cash dividends declared to common stockholders | | — | | | — | | | — | | | — | | | (44,311) | | | — | | | — | | | — | | | — | | | (44,311) |
Redemption of real estate investment trust ("REIT") preferred stock | | — | | | — | | | — | | | (121) | | | — | | | — | | | — | | | — | | | — | | | (121) |
Repurchase of shares of common stock | | (1,755,061) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (59,280) | |
| (59,280) |
Ending balance as of December 31, 2021 | | 39,877,833 | | $ | 116,569 | | $ | 416 | | $ | 494,125 | | $ | 654,726 | | $ | (6,181) | | $ | (7,842) | | $ | — | | $ | (59,193) | | $ | 1,192,620 |
See accompanying Notesnotes to the Consolidated Financial Statementsconsolidated financial statements.
Page -43-47
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net income |
| $ | 51,691 |
| $ | 39,227 |
| $ | 20,539 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
| 5,700 |
|
| 1,800 |
|
| 14,050 |
Depreciation and amortization of premises and equipment |
|
| 4,253 |
|
| 3,822 |
|
| 3,827 |
Net (accretion) and other amortization |
|
| (1,375) |
|
| (2,093) |
|
| (7,936) |
Net amortization on securities |
|
| 4,365 |
|
| 4,009 |
|
| 6,361 |
Increase in cash surrender value of bank owned life insurance |
|
| (2,230) |
|
| (2,219) |
|
| (2,250) |
Amortization of other intangible assets |
|
| 787 |
|
| 917 |
|
| 1,047 |
Share based compensation expense |
|
| 3,692 |
|
| 3,487 |
|
| 2,585 |
Net securities (gains) losses |
|
| (201) |
|
| 7,921 |
|
| (38) |
Decrease (increase) in accrued interest receivable |
|
| 328 |
|
| 416 |
|
| (1,419) |
SBA loans originated for sale |
|
| (27,419) |
|
| (28,340) |
|
| (18,596) |
Proceeds from sale of the guaranteed portion of SBA loans |
|
| 29,922 |
|
| 30,898 |
|
| 20,667 |
Gain on sale of the guaranteed portion of SBA loans |
|
| (1,984) |
|
| (2,078) |
|
| (1,689) |
(Gain) loss on sale of loans |
|
| — |
|
| (441) |
|
| 58 |
Decrease (increase) in other assets |
|
| 3,942 |
|
| (2,373) |
|
| 5,426 |
(Decrease) increase in accrued expenses and other liabilities |
|
| (1,509) |
|
| 3,430 |
|
| 4,194 |
Net cash provided by operating activities |
|
| 69,962 |
|
| 58,383 |
|
| 46,826 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of securities available for sale |
|
| (141,297) |
|
| (255,746) |
|
| (116,956) |
Purchases of securities, restricted |
|
| (97,206) |
|
| (505,272) |
|
| (654,017) |
Purchases of securities held to maturity |
|
| — |
|
| (1,000) |
|
| (4,128) |
Proceeds from sales of securities available for sale |
|
| 46,478 |
|
| 230,372 |
|
| 52,367 |
Redemption of securities, restricted |
|
| 88,355 |
|
| 516,593 |
|
| 653,411 |
Maturities, calls and principal payments of securities available for sale |
|
| 149,456 |
|
| 92,818 |
|
| 118,092 |
Maturities, calls and principal payments of securities held to maturity |
|
| 25,642 |
|
| 20,851 |
|
| 45,334 |
Net increase in loans |
|
| (421,024) |
|
| (213,973) |
|
| (526,989) |
Proceeds from loan sale |
|
| — |
|
| 40,133 |
|
| 23,171 |
Proceeds from sales of other real estate owned ("OREO"), net |
|
| 297 |
|
| — |
|
| — |
Purchase of premises and equipment |
|
| (3,307) |
|
| (5,325) |
|
| (2,069) |
Net cash used in investing activities |
|
| (352,606) |
|
| (80,549) |
|
| (411,784) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Net (decrease) increase in deposits |
|
| (71,728) |
|
| 551,891 |
|
| 408,597 |
Net decrease in federal funds purchased |
|
| — |
|
| (50,000) |
|
| (50,000) |
Net increase (decrease) in FHLB advances |
|
| 194,568 |
|
| (260,855) |
|
| 5,056 |
Repayment of junior subordinated debentures |
|
| — |
|
| — |
|
| (352) |
Net increase (decrease) in repurchase agreements |
|
| 460 |
|
| (338) |
|
| 203 |
Net proceeds from issuance of common stock |
|
| 1,102 |
|
| 1,017 |
|
| 951 |
Purchase of treasury stock |
|
| (625) |
|
| — |
|
| — |
Repurchase of surrendered stock from vesting of stock plans |
|
| (887) |
|
| (586) |
|
| (350) |
Cash dividends paid |
|
| (18,420) |
|
| (18,342) |
|
| (18,238) |
Net cash provided by financing activities |
|
| 104,470 |
|
| 222,787 |
|
| 345,867 |
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
| (178,174) |
|
| 200,621 |
|
| (19,091) |
Cash and cash equivalents at beginning of period |
|
| 295,368 |
|
| 94,747 |
|
| 113,838 |
Cash and cash equivalents at end of period |
| $ | 117,194 |
| $ | 295,368 |
| $ | 94,747 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
|
Interest |
| $ | 39,395 |
| $ | 32,254 |
| $ | 22,917 |
Income taxes |
| $ | 9,158 |
| $ | 2,474 |
| $ | 8,445 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Transfers from portfolio loans to loans held for sale |
| $ | 12,643 |
| $ | — |
| $ | — |
Conversion of junior subordinated debentures |
| $ | — |
| $ | — |
| $ | 15,350 |
Transfers from portfolio loans to other real estate owned |
| $ | — |
| $ | 175 |
| $ | — |
See accompanying Notes to the Consolidated Financial Statements.
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2021 |
| 2020 |
| 2019 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: | | |
| | |
| | |
|
Net income | | $ | 103,996 | | $ | 42,318 | | $ | 36,186 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
| |
|
| |
|
|
Net gain on sales of securities available-for-sale and other assets | |
| (1,705) | |
| (4,592) | |
| (31) |
Net gain on equity securities | |
| (131) | |
| (361) | |
| (531) |
Net gain on sale of loans held for sale | |
| (24,791) | |
| (3,002) | |
| (1,540) |
Loss on termination of derivatives | | | 16,505 | | | 6,596 | | | — |
Net depreciation, amortization and accretion | |
| 7,805 | |
| 5,069 | |
| 5,075 |
Amortization of other intangible assets | | | 2,622 | | | — | | | — |
Stock-based compensation | |
| 5,407 | |
| 7,223 | |
| 1,843 |
Provision for credit losses | |
| 6,212 | |
| 26,165 | |
| 17,340 |
Originations of loans held for sale | |
| (48,610) | |
| (50,359) | |
| (23,154) |
Proceeds from sale of loans originated for sale | |
| 77,184 | |
| 62,383 | |
| 38,666 |
Increase in cash surrender value of BOLI | |
| (6,721) | |
| (3,725) | |
| (2,830) |
Gain from death benefits from BOLI | | | (350) | | | (1,134) | | | — |
Deferred income tax benefit | |
| 8,596 | |
| (1,965) | |
| (2,383) |
Decrease (increase) in other assets | |
| 118,641 | |
| (13,106) | |
| 3,186 |
Decrease in other liabilities | |
| (118,333) | |
| (11,578) | |
| (3,336) |
Net cash provided by operating activities | |
| 146,327 | |
| 59,932 | |
| 68,491 |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
|
| |
|
| |
|
|
Proceeds from sales of securities available-for-sale | |
| 138,077 | |
| 94,252 | |
| 148,857 |
Proceeds from sales of marketable equity securities | |
| 6,101 | |
| 546 | |
| 570 |
Purchases of securities available-for-sale | |
| (1,095,028) | |
| (219,621) | |
| (317,656) |
Purchases of securities held-to-maturity | | | (40,249) | | | — | | | — |
Acquisition of marketable equity securities | |
| 0 | |
| (261) | |
| (266) |
Proceeds from calls and principal repayments of securities available-for-sale | |
| 411,031 | |
| 153,119 | |
| 129,680 |
Proceeds from calls and principal repayments of securities held-to-maturity | | | 1,360 | | | — | | | — |
Purchase of BOLI | |
| (40,000) | |
| (40,000) | |
| — |
Proceeds received from cash surrender value of BOLI | | | 1,464 | | | 3,020 | | | — |
Loans purchased | |
| (9,855) | |
| (29,892) | |
| — |
Proceeds from the sale of portfolio loans transferred to held for sale | |
| 684,898 | |
| 47,830 | |
| 9,684 |
Net decrease (increase) in loans | |
| 282,683 | |
| (327,736) | |
| 18,953 |
Sales (purchases) of fixed assets, net | |
| 14 | |
| (954) | |
| (1,719) |
Redemptions (purchases) of restricted stock, net | |
| 46,337 | |
| (4,688) | |
| 1,532 |
Net cash received in business combination | | | 715,988 | | | — | | | — |
Net cash provided by (used in) investing activities | |
| 1,102,821 | |
| (324,385) | |
| (10,365) |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
|
| |
|
| |
|
|
Increase (decrease) in deposits | |
| 518,682 | |
| 176,027 | |
| (82,882) |
(Repayments) proceeds from FHLBNY advances, short-term, net | |
| (1,228,865) | |
| 127,500 | |
| 240,500 |
Repayments of FHLBNY advances, long-term | | | (190,150) | | | (113,190) | | | (470,050) |
Proceeds from FHLBNY advances, long-term | | | 25,000 | | | 97,450 | | | 196,450 |
(Repayments) proceeds of other short-term borrowings, net | |
| (118,138) | |
| 10,000 | |
| 110,000 |
Proceeds from preferred stock issuance, net | | | — | | | 116,569 | | | — |
Proceeds from exercise of stock options | |
| 431 | |
| 38 | |
| 367 |
Release of stock for benefit plan awards | |
| 1,153 | |
| 84 | |
| 131 |
Payments related to tax withholding for equity awards | |
| (111) | |
| (3,060) | |
| (133) |
BMP ESOP shares received to satisfy distribution of retirement benefits | |
| (993) | |
| — | |
| (4) |
Treasury shares repurchased | |
| (59,280) | |
| (35,356) | |
| (24,191) |
Redemption of REIT preferred stock | |
| (121) | |
| — | |
| — |
Cash dividends paid to preferred stockholders | | | (7,286) | | | (4,783) | | | — |
Cash dividends paid to common stockholders | |
| (39,351) | |
| (18,711) | |
| (20,082) |
Net cash (used in) provided by financing activities | |
| (1,099,029) | |
| 352,568 | |
| (49,894) |
Increase in cash and cash equivalents | |
| 150,119 | |
| 88,115 | |
| 8,232 |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | |
| 243,603 | |
| 155,488 | |
| 147,256 |
CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | 393,722 | |
| 243,603 | |
| 155,488 |
| |
|
| |
|
| |
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
|
| |
|
| |
|
|
Cash paid for income taxes | | $ | 34,771 | |
| 15,755 | |
| 11,944 |
Cash paid for interest | |
| 28,460 | |
| 59,138 | |
| 92,707 |
Securities transferred to held-to-maturity | | | 140,399 | | | — | | | — |
Loans transferred to held for sale | |
| 692,751 | |
| 62,243 | |
| 22,921 |
Premises transferred to (from) held for sale | | | 2,799 | | | (514) | | | 514 |
Operating lease assets in exchange for operating lease liabilities | | | 9,769 | | | 1,524 | | | 49,747 |
Cumulative change due to Current Expected Credit Loss ("CECL") Standard adoption | |
| 1,686 | |
| — | |
| — |
Net non-cash liabilities assumed in Merger (See Note 2) | |
| 324,937 | |
| — | |
| — |
Page -44-48
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017(Dollars In Thousands except for share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation
The consolidated financial statements includeOn 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 holdingand a wholly-owned subsidiary of Legacy Dime, merged with and into BNB Bank, a New York-chartered trust company incorporatedand a wholly-owned subsidiary of Bridge, with BNB Bank as the surviving bank, under the laws of the State of New York, and its wholly-owned subsidiary, BNB Bankname “Dime Community Bank” (the “Bank”), together referred to as “the Company.” The Bank’s operations include its real estate investment trust subsidiary, Bridgehampton Community, Inc.; a financial title insurance subsidiary, Bridge Abstract LLC (“Bridge Abstract”); and an investment services subsidiary, Bridge Financial Services, Inc. (“Bridge Financial Services”). Intercompany transactions and balances are eliminated in consolidation.
The Company provides financial services through its branches in its primary market areas of Suffolk and Nassau Counties on Long Island and the New York City boroughs. The Bank’s primary deposit products are time, savings and demand deposits from the consumers, businesses and local municipalities in its market area. Its primary lending products are commercial real estate, multi-family, commercial and industrial, and residential mortgage loans. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is dependent on the real estate and general economic conditions in the area.
The audited consolidated financial statements presented in this Annual Report on Form 10-K 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 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 December 31, 2021, we operated 60 branch locations throughout Greater Long Island and Manhattan.
The Company is a bank holding company engaged in commercial banking and financial services through its wholly-owned subsidiary, Dime Community Bank. 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. Our bank operations include Dime Community Inc., a real estate investment trust subsidiary which was formerly known as Bridgehampton Community, Inc., 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 September 2021, the Company dissolved 2 REITs, DSBW Preferred Funding Corporation and DSBW Residential Preferred Funding Corporation, which were wholly-owned subsidiaries of the Bank, and the preferred shares outstanding were redeemed by its shareholders.
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and general practices within the financial institution industry. The accompanying consolidated financial statements include the accounts of the Holding Company and the Bank and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.
The following is a description of the significant accounting policies that the Company follows in preparing its consolidated financial statements.
49
Use of Estimates
The preparation ofTo prepare consolidated financial statements in conformity with U.S. GAAP, requires management to makemakes judgments, estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided, and actual future results could differ.
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.
In December 2020, the 2021 Consolidated Appropriations Act was signed into law to provide additional relief.
It is possible that there will be continued material, adverse impacts to significant estimates, asset valuations, and business operations, including intangible assets, investments, loans, deferred tax assets, and derivative counter party risk.
Summary of Significant Accounting Policies
Cash Flows
For purposes of reporting cash flows, cashand Cash Equivalents - Cash and cash equivalents include cash on hand, amounts due from banks, interest- earningand deposits with banks, and federal funds sold, which mature overnight.other financial institutions with maturities fewer than 90 days. Net cash flows are reported for customer loan and deposit transactions, federal funds purchased, FHLB advances, and repurchase agreements.interest bearing deposits in other financial institutions.
Securities
- Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income, net of tax. Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting in observable price changes in orderly transactions for the identical or a similar investment.
On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2016-01, Financial Instruments, which requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The adoption of this guidance resulted in no change to the Company’s consolidated financial statements.
Page -45-
Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are anticipated. The Company has made a policy election to exclude accrued interest from the amortized cost basis of debt securities and report accrued interest separately in accrued interest receivable in the consolidated balance sheet. A debt security is placed on non-accrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of interest or principal becomes uncertain. Accrued interest for a security placed on non-accrual is reversed against interest income. There were no non-accrual debt securities at December 31, 2021 and there was no accrued interest related to debt securities reversed against interest income for the year ended December 31, 2021. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.
Management evaluates securities for other-than-temporary impairmentRestricted Stock – Restricted stock represents Federal Home Loan Bank of New York (“OTTI”FHLB” or “FHLBNY”) on at least a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the near-term prospects of the issuer. Management also assesses whether it intends to sell, or is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet these criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.
Securities, Restricted
Securities, restricted represents FHLB,capital stock, Federal Reserve Bank (“FRB”) capital stock, and bankers’ banks stock,Bankers’ Bank Capital Stock, which are reported at cost. The Bank is a member of the FHLB system. Members are required to own a particular amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is periodically evaluated for impairment based on ultimate recovery of par value. The Bank is a member of the FRB. Membership requires the purchase of shares of FRB capital stock. The Bank has a relationship with Atlantic Community Bankers Bank (“ACBB”). The relationship requires the purchase of shares of ACBB capital stock. Both cash and stock dividends are reported as income.
Loans Held for Sale
-Loans heldoriginated and intended for sale in the secondary market, as well as identified problem loans which are subject to an executed note sale agreement, are carried at the lower of aggregate cost or estimated fair value. Any subsequent declinesnet realizable proceeds. Loans
50
originated and intended for sale are generally sold with servicing rights retained. Certain problematic loans in fair value belowwhich the initial carrying value are recordedCompany identified for sale were re-classified as held for sale and carried at the lower of cost or their expected net realizable proceeds when management had the intent to sell or there was a valuation allowance, which is established through a charge to earnings.pending note sale agreement.
Loans
Loans - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal amount outstanding, net of partial charge-offs, deferred origination costs and fees and purchase premiums and discounts. Loan origination and commitment fees and certain direct and indirect costs incurred in connection with loan originations are deferred and amortized to income over the life of the related loans as an adjustment to yield. When a loan prepays, the remaining unamortized net deferred origination fees or costs are recognized in the current year. Interest on loans is credited to income based on the principal outstanding during the period. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in accrued interest receivable on consolidated balance sheets. Past due status is based on the contractual terms of the loan. Loans that are 90 days past due are automatically placed on non-accrual and previously accrued interest is reversed and charged against interest income. However, if the loan is in the process of collection and the Bank has reasonable assurance that the loan will be fully collectable based upon an individual loan evaluation assessing such factors as collateral and collectability, accrued interest will be recognized as earned. If a payment is received when a loan is non-accrual or a troubled debt restructuring (“TDR”) loan is non-accrual, the payment is applied to the principal balance. A troubled debt restructuredTDR loan performing in accordance with its modified terms is maintained on accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due. Loans for which the terms have been modified as a concession to the borrower due to the borrower experiencing financial difficulties are considered troubled debt restructurings and are classified as impaired. Loans considered to be troubled debt restructurings can be categorized as non-accrual or performing. The impairment of a loan is measured at the present value of expected future cash flows using the loan’s effective interest rate, or at the loan’s observable market price or the fair value of the collateral less costs to sell if the loan is collateral dependent. Loans that experience minor payment delays and payment shortfalls generally are not classified as impaired.
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Non-residential real estate loans over $200,000 and residential real estate loans over $1.0 million are individually evaluated for impairment. Smaller balance loans may also be individually evaluated for impairment if they are part of a larger impaired relationship. Loans with balances below the aforementioned thresholds are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures.
Loans that were acquired through the acquisition of Community National Bank (“CNB”) on June 19, 2015 and First National Bank of New York (“FNBNY”) on February 14, 2014, were initially recorded at fair value with no carryover of the related allowance for loan losses. After acquisition, losses are recognized through the allowance for loan losses. Determining fair value of the loans involves estimating the amount and timing of expected principal and interest cash flows to be collected on the loans and discounting those cash flows at a market interest rate. Some of the loans at the time of acquisition showed evidence of credit deterioration since origination. These loans are considered purchased credit impaired (“PCI”) loans.
For PCI loans, the excess of cash flows expected at acquisition over the estimated fair value is referred to as the accretable discount and is recognized into interest income over the remaining life of the loan. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the non-accretable discount. The non-accretable discount represents estimated future credit losses expected to be incurred over the life of the loan. Subsequent increases to the expected cash flows result in the reversal of a corresponding amount of the non-accretable discount, which is then reclassified as accretable discount and recognized into interest income over the remaining life of the loan using the interest method. Subsequent decreases to the expected cash flows require management to evaluate the need for an addition to the allowance for loan losses.
PCI loans that were non-accrual prior to acquisition may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if management can reasonably estimate the timing and amount of the expected cash flows on such loans and if management expects to fully collect the new carrying value of the loans. As such, management may no longer consider the loans to be non-accrual or non-performing and may accrue interest on these loans, including the impact of any accretable discount.
Unless otherwise noted, the above policy is applied consistently to all loan classes.segments.
Allowance for LoanCredit Losses
- On January 1, 2021, we adopted the CECL Standard, which requires that the measurement of all expected credit losses for financial assets at amortized cost, such as loans receivable, securities, and off-balance sheet credit exposures, held as of the reporting date be based on historical experience, current conditions, and reasonable and supportable forecasts to cover lifetime expected losses. Accrued interest receivable is excluded from amortized cost basis. The allowance for loancredit losses is established and maintained through a provision for loancredit losses based on probable incurredexpected losses in our loan portfolio.inherent within the financial asset holdings. Management evaluates the adequacy of the allowance on a quarterly basis. The allowance is comprised of both individual valuation allowancesbasis, and loan pool valuation allowances. Management monitors its entire loan portfolio regularly, with consideration given to detailed analysis of classified loans, repayment patterns, probable incurred losses, past loss experience, current economic conditions, and various types of concentrations of credit. Additionsadditions to the allowance are charged to expense and realized losses, net of recoveries, are charged against the allowance.
Individual valuation allowancesAllowance for credit losses on held-to-maturity securities – Management classifies its held-to-maturity portfolio into the following major security types: Pass-through MBS issued by GSEs and Agency Collateralized Mortgage Obligations. All of the securities in the held-to-maturity portfolio are establishedissued by U.S. government-sponsored entities or agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, are highly rated by major rating agencies, and have a long history of no credit losses. To the extent that debt securities in connectionthe held-to-maturity portfolio share common risk characteristics, estimated expected credit losses are calculated by pools of such debt securities. The historical lifetime probability of default and severity of loss in the event of default is derived or obtained from external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected lifetime of the securities.
For a debt security in the held-to-maturity portfolio that does not share common risk characteristics with specific loan reviewsany of the pools of debt securities, expected credit loss on each security is individually measured based on net realizable value, or the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the recorded amortized cost basis of the security.
With respect to certain classes of debt securities, primarily U.S. Treasuries and securities issued by Government Sponsored Entities or agencies, the Company considers the history of credit losses, current conditions and reasonable and supportable forecasts, which may indicate that the expectation that nonpayment of the amortized cost basis is or continues to be zero, even if the U.S. government were to technically default. Therefore, for those securities, the Company does not record expected credit losses.
Allowance for credit losses on available-for-sale securities - Management evaluates available-for-sale debt securities for OTTI on at least a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. For securities in an unrealized loss position, management considers the extent of the unrealized loss, and the near-term prospects of the issuer. Impairment may result from credit deterioration of the issuer or collateral underlying the security. In performing an assessment of whether any decline in fair value is due to a credit loss, all relevant information is considered at the individual security level. For asset-backed securities performance indicators considered related to the underlying assets include default rates, delinquency rates, percentage of non-performing assets, debt-to-collateral ratios, third party guarantees, current levels of subordination, vintage, geographic concentration, analyst reports and forecasts, credit ratings and other market data. In assessing whether a credit loss exists, we compare the present value of cash flows expected to be collected from the security with the
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amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists and an allowance for credit losses is recorded, limited to the amount the fair value is less than amortized cost basis. Declines in fair value that have not been recorded through an allowance for credit losses, such as declines due to changes in market interest rates, are excluded from earnings and reported, net of tax, in other comprehensive income (“OCI”). Management also assesses whether it intends to sell or is more likely than not that it will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.
Allowance for credit losses on loans held for investment – The Company utilizes a model which compares the amortized cost basis of the loan to the net present value of expected cash flows to be collected. Expected credit losses are determined by aggregating the individual cash flows and calculating a loss percentage by loan segment, or pool, for loans that share similar risk characteristics. For a loan that does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis. The methodology for determining the allowance for credit losses on loans held for investment is considered a critical accounting policy by management given the judgement required for determining assumptions used, uncertainty of economic forecasts, and subjectivity of any qualitative factors considered.
The Company evaluates its loan pooling methodology at least annually. The Company has identified the following loan pools used to measure the allowance for credit losses as follows:
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. Included in one-to-four family loans are also certain 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. 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 1.25x. Included in commercial real estate loans are also certain 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.
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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 (“PPP”) 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 processconsist 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.
Troubled debt restructurings (“TDRs”) – As allowed by ASC 326, the Entity elected to maintain pools of loans accounted for under ASC 310-30. In accordance with the standard, management did not reassess whether modifications to individual acquired financial assets accounted for in pools were TDRs as of the date of adoption. A loan for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, is considered to be a TDR. The allowance for credit loss on a TDR is measured using the same method as all other loans held for investment, except when the value of a concession cannot be measured using a method other than the discounted cash flow method. When the value of a concession is measured using the discounted cash flow method, the allowance for credit loss is determined by discounting the expected future cash flows at the original interest rate of the loan. The allowance for credit losses on a TDR is measured using the same method as all other loans held for investment, except that the original interest rate is used to discount the expected cash flows, not the rate specified within the restructuring.
Management estimates the allowance for credit losses on each loan pool 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 on similar loan pools. Within the model, assumptions are made in the determination of probability of default, loss given default, reasonable and supportable economic forecasts, prepayment rate, curtailment rate, and recovery lag periods. Statistical regression is utilized to relate historical macro-economic variables to historical credit loss experience of the peer group. These models are then utilized to forecast future expected loan losses based on expected future behavior of the same macro-economic variables. Adjustments to the quantitative results are adjusted using qualitative factors. These factors include: (1) lending policies and procedures; (2) international, national, regional and local economic business conditions and developments that affect the collectability of the portfolio, including the procedurescondition of various markets; (3) the nature and volume of the loan portfolio; (4) the experience, ability, and depth of the lending management and other relevant staff; (5) the volume and severity of past due loans; (6) the quality of our loan review system; (7) the value of underlying collateral for impairment testing under Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) 310, “Receivables”. Such valuation,collateralized loans; (8) the existence and effect of any concentrations of credit, and changes in the level of such concentrations; and (9) the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio. Collectively evaluated loans and the associated allowance for credit losses totaled $8.98 billion and $41.4 million at December 31, 2021, respectively.
Individually evaluated loans – Loans that do not share risk characteristics are evaluated on an individual basis based on various factors, and are not included in the collective pool evaluation. Factors that may be considered are borrower delinquency trends and non-accrual 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.For a loan that does not share risk characteristics with other loans, expected credit loss is measured based on net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan. For these loans, the Company recognizes expected credit loss equal to the amount by which includes a reviewthe net realizable value of loans for which full collectability in accordance with contractual termsthe loan is not reasonably assured, considersless than the estimatedamortized cost basis of the loan (which is net of previous charge-offs), except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the underlyingcollateral. The fair value of the collateral lessis adjusted for the estimated costs to sell the loan if any,repayment or satisfaction of a loan is dependent on the presentsale (rather than only on the operation) of the collateral. Individually evaluated loans and the associated allowance for credit losses totaled $51.4 million and $22.3 million at December 31, 2021, respectively.
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The fair value of real estate collateral is determined based on recent appraised values. Appraisals 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. All appraisals undergo a second review process to ensure that the methodology employed and the values derived are reasonable. Generally, collateral values for real estate loans for which measurement of expected future cash flows,losses is dependent on collateral values are updated every twelve months. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the loan’s observable market value. Any shortfall that exists from this analysis resultstime of the valuation and management’s expertise and knowledge of the borrower and its business. Once the expected credit loss amount is determined, an allowance is provided for equal to the calculated expected credit loss and included in a specificthe allowance for the loan.credit losses. Pursuant to the Company’s policy, loancredit losses must be charged-off in the period the loans, or portions thereof, are deemed uncollectable. Assumptions
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. The estimate includes consideration of the likelihood that funding will occur and judgmentsan 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 loans with credit deterioration (“PCD loans”), 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 loans. Changes in estimates of expected losses after acquisition were recognized as credit loss expense (or reversal of credit loss expense) in subsequent periods. Any non-credit discount or premium resulting from the acquisition of purchased loans with credit deterioration was allocated to each individual loan. The determination of PCD classification on acquired loans can have a significant impact on the accounting for these loans.
At the acquisition date, the initial allowance for credit losses on PCD loans that share similar risk characteristics, management determined the allowance for expected credit losses in a similar manner to loans held for investment. That is, these loans were also segmented by management, in conjunctionloan pool and utilized a model which compares the amortized cost basis of the loan to the net present value of expected cash flows to be collected. Expected credit losses were determined by aggregating the individual cash flows and calculating a loss percentage by loan segment, or pool, for loans that share similar risk characteristics, and considers assumptions such as probability of default, loss given default, reasonable and supportable economic forecasts, prepayment rate, curtailment rate, and recovery lag periods. Management may consider adjustments to the quantitative results by using similar qualitative factors as those used for the determination of the estimated credit loss of loans held for investment. 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.Pooled PCD loans and the associated allowance for credit losses totaled $138.3 million and $6.2 million at December 31, 2021, respectively.
At acquisition date, the initial allowance for PCD loans that do not share risk characteristics with outside sources, are usedpooled PCD loans, the Company evaluated the loan on an individual basis. The expected credit loss was measured based on net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan. For these loans, the Company recognizes expected credit loss equal to determine whether full collectabilitythe amount by which the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs), except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In these cases, expected credit loss was measured as the difference between the amortized cost basis of the loan and the fair value of the collateral. The fair value of the collateral is adjusted for the estimated costs to sell the loan if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral. 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. Individually evaluated PCD loans and the associated allowance for credit losses totaled $75.2 million and $13.9 million at December 31, 2021, respectively.
A purchased financial asset that does not reasonably assured. Thesequalify 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.
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The fair value of acquired loans involved third-party estimates utilizing input assumptions and judgments are also used to determine the estimatesby management which may be complex or uncertain. The determination of the fair value of the underlyingacquired loans is based on a discounted cash flow methodology that considers factors such as type of loan and related collateral, or the present value ofand requires management’s judgement on estimates about discount rates, expected future cash flows, ormarket conditions and other future events. Management considers this to be a critical accounting estimate given the loan’s observable market value. Individual valuation allowances could differ materially as a result of changes in thesesignificant assumptions and judgments. Individual loan analyses are periodically performedjudgement on specificuncertain factors. For PCD loans, considered impaired. The resultsan estimate of expected credit losses was made for loans with similar risk characteristics and was added to the purchase price to establish the initial amortized cost basis of the individual valuation allowancesPCD loans. Any difference between the unpaid principal balance and the amortized cost basis is considered to relate to non-credit factors and results in a discount or premium. Discounts and premiums are aggregated and included inrecognized through interest income on a level-yield method over the overall allowance for loan losses.
Loan pool valuation allowances represent loss allowances that have been established to recognize the inherent risks associated with the Bank’s lending activities, but which, unlike individual allowances, have not been allocated to particular
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problem assets. Pool evaluations are broken down into loans with homogenous characteristics by loan type and include commercial real estate mortgages, owner and non-owner occupied; multi-family mortgage loans; home equity loans; residential real estate mortgages; commercial, industrial and agricultural loans, secured and unsecured; real estate construction and land loans; and consumer loans. Management considers a variety of factors in determining the adequacylife of the valuation allowance and has developed a range of valuation allowances necessary to adequately provide for probable incurred losses in each pool of loans. Management considers the Bank’s charge-off history along with the growth in the portfolio as well as the Bank’s credit administration and asset management philosophies and procedures when determining the allowances for each pool. In addition, management evaluates and considers credit risk ratings, which includes management’s evaluation of: cash flow, collateral, guarantor support, financial disclosures, industry trends and strength of borrowers’ management, the impact that economic and market conditions may have on the portfolio as well as known and inherent risks in the portfolio. Finally, management evaluates and considers the allowance ratios and coverage percentages of both peer group and regulatory agency data. These evaluations are inherently subjective because, even though they are based on objective data, it is management’s interpretation of that data that determines the amount of the appropriate allowance. If the evaluations prove to be incorrect, the allowance for loan losses mayFor acquired loans not be sufficient to cover losses inherent in the loan portfolio, resulting in additions to the allowance for loan losses.
For PCI loans, a valuation allowance is established when it is probable that the Bank will be unable to collect all the cash flows expecteddeemed PCD at acquisition, plus additional cash flows expected to be collected arising from changes in estimate after acquisition. A specific allowance is established when subsequent evaluations of expected cash flows from PCI loans reflectthe differences between the initial fair value and the unpaid principal balance are recognized as interest income on a decrease in those estimates. The allowance established represents the excess of the recorded investment in those loans over the present value of the currently estimated future cash flow, discounted at the last effective accounting yield.
The Bank uses assumptions and methodologies that are relevant to estimating the level of impairment and probable losses in the loan portfolio. To the extent that the data supporting such assumptions has limitations, management’s judgment and experience play a key role in recording the allowance estimates. Additions to the allowance for loan losses are made by provisions charged to earnings. Furthermore, an improvement in the expected cash flows related to PCI loans would result in a reduction of the required specific allowance with a corresponding credit to the provision.
Future additions or reductions to the allowance may be necessary based on changes in economic, market or other conditions. Changes in estimates could result in a material change in the allowance. In addition, various regulatory agencies, as an integral part of the examination process, periodically review the allowance for loan losses. Such agencies may require the Bank to recognize adjustments to the allowance based on their judgments of the information available to them at the time of their examination.
A loan is considered a potential charge-off when it is in default of either principal or interest for a period of 90, 120 or 180 days, depending upon the loan type, as of the end of the prior month. In addition to delinquency criteria, other triggering events may include, but are not limited to, notice of bankruptcy by the borrower or guarantor, death of the borrower, and deficiency balance from the sale of collateral.
Unless otherwise noted, the above policy is applied consistently to all loan portfolio segments.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with a useful life of fifty years for buildings and a range of two to ten years for equipment, computer hardware and software, and furniture and fixtures. Leasehold improvements are amortizedlevel-yield basis over the lives of the respective leases or the service livesrelated loans.
For further discussion of the improvements, whichever is shorter. Land is carried at cost.our loan accounting and acquisitions, see Note 2 – Merger and Note 5 – Loans.
Improvements and major repairs are capitalized, while the cost of ordinary maintenance, repairs and minor improvements are charged to expense.
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Bank-Owned Life Insurance
The Bank is the owner and beneficiary of life insurance policies on certain employees. Bank-owned life insurance (“BOLI”) is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
Other Real Estate Owned
Real estate properties acquired through, or in lieu of, foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed.
Goodwill and Other Intangible Assets
Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and indefinite-lived intangible assets are not amortized, but tested for impairment at least annually, or more frequently if events and circumstances exist that indicate the carrying amount of the asset may be impaired.Derivatives – The Company has selected November 30 as the date to perform the annual impairment test. Goodwill and the BNB Banktrademark are intangible assets with indefinite lives on the Company’s balance sheet.
Other intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Core deposit intangible assets are amortized on an accelerated method over their estimated useful livesmay engage in two types of ten years.
Other intangible assets also include servicing rights, which result from the sale of Small Business Administration (“SBA”) loans with servicing rights retained. Servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value is based on market prices for comparable servicing contracts, when available or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income. Servicing assets are subsequently measured using the amortization method, which requires servicing rights to be amortized into non-interest income in proportion to, and over the period of, the estimated future net servicing income of the underlying loans.
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as unused lines of credit, commitments to make loans and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded on the balance sheet when they are funded.
Derivatives
The Company records cash flow hedges at the inception of the derivative contract basedderivatives depending on the Company’s intentions and belief as to the likely effectiveness as a hedge. Cash flow hedges representThese two types are (1) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability.liability (“cash flow hedge”) or (2) an instrument with no hedging designation (“stand-alone derivative”). For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income (“OCI”) and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. The changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings as non-interest income.
Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.
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The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions.sheet. The Company also formally assesses, both at the hedge’s inception and on an ongoingon-going basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods in which the hedged transactionstransaction will affect earnings.
The Company is exposed to losses if a counterparty fails to make its payments under a contract in which the Company is in the net receiving position. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements. All the contracts to which the Company is a party settle monthly. In addition, the Company obtains collateral above certain thresholds of the fair value of its hedges for each counterparty based upon their credit standing and the Company has netting agreements with the dealers with which it does business.
OREO - Properties acquired as a result of foreclosure on a real estate loan or a deed in lieu of foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of residential real estate collateralizing a one-to-four family residential loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through execution of a deed in lieu of foreclosure or through a similar legal agreement. These assets are subsequently accounted for at the lower of cost or fair value less estimated costs to sell. Declines in the recorded balance subsequent to acquisition by the Company are recorded through expense. Operating costs after acquisition are expensed.
Premises and Fixed Assets, Net - Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method with useful lives generally ranging from forty to fifty years. Furniture, fixtures and equipment are depreciated using the straight-line method with useful lives generally ranging from three to ten years.
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Leases - On January 1, 2019, the Company adopted ASU No. 2016-02 "Leases (Topic 842)" and subsequent amendments thereto, which requires the Company to recognize most leases on the balance sheet. The Company adopted the standard under a modified retrospective approach as of the date of adoption and elected to apply several of the available practical expedients, including:
● | Carryover of historical lease determination and lease classification conclusions |
● | Carryover of historical initial direct cost balances for existing leases |
● | Accounting for lease and non-lease components in contracts in which the Company is a lessee as a single lease component |
Adoption of the leasing standard resulted in the recognition of operating right-of-use assets, and operating lease liabilities of $41.6 million as of January 1, 2019. These amounts were determined based on the present value of remaining minimum lease payments, discounted using the Company’s incremental borrowing rate as of the date of adoption. There was no material impact to the timing of expense or income recognition in the Company’s Consolidated Statements of Income. Prior periods were not restated and continue to be presented under legacy GAAP. Disclosures about the Company’s leasing activities are presented in Note 8.
The Company made a policy election to exclude the recognition requirements of ASU 2016-02 on short-term 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.
Goodwill and Other Intangible Assets - Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and indefinite-lived intangible assets are not amortized, but tested for impairment at least annually, or more frequently if events and circumstances exist that indicate the carrying amount of the asset may be impaired. The Company performs its annual goodwill impairment test in the fourth quarter of every year, or more frequently if events or changes in circumstance indicate the asset might be impaired.
Other intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. Core deposit intangible assets are amortized on an accelerated method over their estimated useful lives of ten years.
Servicing Right Assets ("SRA") – When real estate or C&I loans are sold with servicing retained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. SRAs are carried at the lower of cost or fair value and are amortized in proportion to, and over the period of, anticipated net servicing income. All separately recognized SRAs are required to be initially measured at fair value, if practicable. The estimated fair value of loan servicing assets is determined by calculating the present value of estimated future net servicing cash flows, using assumptions of prepayments, defaults, servicing costs and discount rates derived based upon actual historical results for the Bank, or, in the absence of such data, from historical results for the Bank’s peers. Capitalized loan servicing assets are stratified based on predominant risk characteristics of the underlying loans (i.e., collateral, interest rate, servicing spread and maturity) for the purpose of evaluating impairment. A valuation allowance is then established in the event the recorded value of an individual stratum exceeds its fair value. The fair values of servicing rights are subject to significant fluctuations as a result of changes in estimated and actual prepayment speeds, default rates, and losses.
Transfers of Financial Assets – Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
BOLI – BOLI is carried at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement. Increases in the contract value are recorded as non-interest income in the consolidated statements of income and insurance proceeds received are recorded as a reduction of the contract value.
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Income Taxes
– Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces deferred tax assets to the amount expecteddeemed more likely than not to be realized. It is management’s position, as currently supported by the facts and circumstances, that no valuation allowance is necessary against any of the Company’s deferred tax assets.
A tax position is recognized as a benefit only if it is “more"more likely than not”not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meetingsatisfying the “more"more likely than not”not" test, no tax benefit is recorded. There are no such tax positions in the Company’s financial statements at December 31, 2019 and 2018.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company did not have any amounts accrued for interest and penaltieshad 0 unrecorded tax positions at December 31, 20192021 or 2020.
Employee Benefits – The Bank maintains two noncontributory pension plans that existed before the Merger: (i) the Retirement Plan of Dime Community Bank (“Employee Retirement Plan”) and 2018.
Treasury Stock
Repurchases(ii) the BNB Bank Pension Plan, covering all eligible employees. As the sponsor of common stock are recordeda single employer defined benefit plan, the Company must do the following for the Employee Retirement Plan and BNB Bank Pension Plan: (1) recognize the funded status of the benefit plans in its statements of financial condition, measured as treasury stockthe difference between plan assets at cost. Treasury stockfair value (with limited exceptions) and the benefit obligation. For a pension plan, the benefit obligation is reissued using the first in, first out method.
Earnings Per Share (“EPS”)
Basic EPSprojected benefit obligation; for any other postretirement benefit plan, such as a retiree health care plan, the benefit obligation is the accumulated postretirement benefit obligation; (2) recognize as a component of other comprehensive income, net income attributable to common shareholders divided byof tax, the weighted average number of common shares outstandinggains or losses and prior service costs or credits that arise during the period. All outstanding unvested share-based payment awards that contain rights to nonforfeitable dividendsperiod but are considered participating securities for this calculation. Diluted EPS includesnot recognized as components of net periodic benefit or cost. Amounts recognized in accumulated other comprehensive income, including the dilutive effectgains or losses, prior service costs or credits, and the transition asset or obligation are adjusted as they are subsequently recognized as components of additional potential common shares issuable under stock options.
Dividend Restriction
Cash available for distribution of dividends to stockholdersnet periodic benefit cost; (3) measure defined benefit plan assets and obligations as of the Company is primarily derived from cash and cash equivalentsdate of the employer’s fiscal year-end statements of financial condition (with limited exceptions); and (4) disclose in the notes to financial statements additional information about certain effects on net periodic benefit cost for the next fiscal year that arise from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. The Dime Community Bank KSOP Plan (“Dime KSOP Plan”), Outside Director Retirement Plan, and the Benefit Maintenance Plan (“BMP”) were terminated by resolution of the Legacy Dime Board of Directors. The effective date of the Dime terminations was February 1, 2021, the Merger Date.
The Company provides a 401(k) plan, which covers substantially all current employees. Newly hired employees are automatically enrolled in the plan on the 60th day of employment, unless they elect not to participate.
The Holding Company and dividends paid byBank maintain the Bank toDime Community Bancshares, Inc. 2021 Equity Incentive Plan (the “2021 Equity Incentive Plan”), the Company. Prior regulatory approval is required ifDime Community Bancshares, Inc. 2019 Equity Incentive Plan, (the “2019 Equity Incentive Plan”), and the total of all dividends declared by2012 Stock-Based Compensation Plan (the “2012 Equity Incentive Plan”), (collectively the Bank“Stock Plans”); which are discussed more fully in any calendar year exceedsNote 20 Stock-Based Compensation. Under the total of the Bank’s net income of that year combined with its retained net income of the preceding two years. Dividends from the Bank to the Company at January 1, 2020 are limited to $58.7 million, which represents the Bank’s net retained earnings from the previous two years. During 2019, the Bank paid $24.5 million in cash dividends to the Company.
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Segment Reporting
While management monitors the revenue streams of the various products and services, the identifiable segments are not material and operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.
Stock-Based Compensation
CompensationStock Plans, compensation cost is recognized for stock options and restricted stock awards (“RSAs”), and restricted stock units (“RSUs”) issued to employees and independent directors, based on the fair value of thesethe awards at the date of the grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Holding Company’s common stock (“Common Stock”) at the date of grant is used to estimate the fair value for RSAs and RSUs.
restricted stock awards. Compensation cost is recognized as expense over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. The Company’s accounting policy
Basic and Diluted EPS -Basic earnings per share (“EPS”) is computed by dividing net income available to recognize forfeiturescommon stockholders by the weighted average common shares outstanding during the reporting period. Diluted EPS is computed using the same method as they occur.basic EPS, but reflects the potential dilution that would occur if "in the money" stock options were exercised and converted into common stock, and prior to 2021, if all likely aggregate Long Term Incentive Plan ("LTIP") performance-based share awards (“PSA”) were issued. 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 PSA shares are recognized as a special class of participating securities under ASC 260, and are included in the calculation of the weighted average shares outstanding for basic and diluted EPS.
Comprehensive Income
– Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on available for saleavailable-for-sale securities, unrealized gains and losses on cash flow hedges, and changes in the funded status of the pension plan, which are also recognized as separate components of equity. Comprehensive and accumulated comprehensive income are summarized in Note 3.
ReclassificationsDisclosures about Segments of an Enterprise and Related Information - The Company has 1 reportable segment, "Community Banking." All of the Company’s activities are interrelated, and each activity is dependent and assessed based on the manner in which it supports the other activities of the Company. For example, lending is dependent upon the ability of the Bank to fund
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itself with retail deposits and other borrowings and to manage interest rate and credit risk. Accordingly, all significant operating decisions are based upon analysis of the Company as 1 operating segment or unit.
Certain reclassificationsFor the years ended December 31, 2021, 2020 and 2019, there was no customer that accounted for more than 10% of the Company's consolidated revenue.
Reclassifications – There have been madeno material reclassifications to prior year amounts to conform to thetheir current year presentation.
Adoption of New Accounting Standards
Standards EffectiveAdopted in 20192021
ASU 2016‑02, Leases (Topic 842)
In February 2016, the FASB amended existing guidance that requires lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date (1) A lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. The new guidance also requires enhanced disclosure about an entity’s leasing arrangements. The Company adopted Topic 842 using the transition approach of applying the new leases standard at the beginning of the period of adoption on January 1, 2019. The new guidance includes a number of optional transition-related practical expedients that must be elected as a package and applied by a reporting entity to all of its leases consistently. The Company has elected to apply the package of practical expedients to all of its existing leases, which among other things, allowed the Company to carry forward the historical lease classification as operating leases in accordance with previous GAAP. The effect of adopting this standard in the Company's consolidated balance sheets was a $39 million increase in operating right-of-use assets and operating lease liabilities as of January 1, 2019. Refer to Note 7. “Leases” for further details of Leases.
ASU 2017‑12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
In August 2017, the FASB provided guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. The amendments also simplify the application of the hedge accounting guidance. The amendments in the ASU better align an entity's risk management activities and financial reporting for hedging relationships through changes in both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments expand and refine hedge accounting for both nonfinancial and financial risk components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. All transition requirements and elections should be applied to hedging relationships existing on the date of adoption. The effect of
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adoption should be reflected as of the beginning of the fiscal year of adoption. For cash flow and net investment hedges existing at the date of adoption, an entity shall apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this ASU. The amended presentation and disclosure guidance is required only prospectively. The adoption of this standard did not have an effect on the Company's consolidated financial statements.
Standards Effective in 2020
ASU 2016‑13,2016-13, Financial Instruments – Credit Losses (Topic 326)
In June 2016, the FASB issued guidance to replace the incurred loss methodology with an expected loss methodology, which is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held to maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, Topic 326 made changes to the accounting for available for sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell. The Company adopted Topic 326 in the first quarter of 2020ASU 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. A cumulative-effect adjustment will be recorded in retained earningsASU 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 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, 2020 will be2021 are presented under Topic 326the CECL Standard while prior period amounts will continue to be reported in accordance with previously applicable GAAP. The impact of
The adoption will be significantly influenced by the composition, characteristics and quality of the loans and securities portfolios, as well as the prevailing economic conditions and forecasts as of the adoption date. The Company continues to finalize its impact assumptions, documentation of internal controls and model validation, and expects the cumulative effect of adopting Topic 326 as of January 1, 2020 will resultCECL Standard resulted in an initial increasedecrease of $3.9 million to the allowance for credit losses includingand an increase of $1.4 million to the increase in reserve for unfunded commitments in other liabilities. The after-tax cumulative-effect adjustment of up to approximately 10% above$1.7 million was recorded in retained earnings as of January 1, 2021. There were no held-to-maturity securities as of January 1, 2021 and, therefore, no impact from the current allowance for loan losses levels. Based on the credit qualityadoption of the Company's securities portfolio, the Company expects the allowance for credit losses for securities held to maturity and securities available for sale to be minimal.CECL Standard.
Standards That Have Not Yet Been Adopted
ASU 2017‑04, Intangibles – Goodwill and Other2020-04, Reference Rate Reform (Topic 350): Simplifying the Test for Goodwill Impairment
In January 2017, the FASB amended existing guidance to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The amendments require an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The amendments are effective for public business entities that are an SEC filer, like the Company, for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The amendments should be applied prospectively. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition in the first annual period when the entity initially adopts the amendments. The adoption of ASU 2017‑04 did not have an effect on the Company's consolidated financial statements.848)
ASU 2018‑15, Intangibles – Goodwill2020-04 provides optional expedients and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accountingexceptions for Implementation Costs Incurred in a Cloud Computing Arrangement Thatapplying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is a Service Contract
In August 2018, the FASB issued ASU 2018-15 to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments in this ASUeffective March 12, 2020 through December 31, 2022. Once optional expedients are effective for public business entities, like the Company, for fiscal years beginning after
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December 15, 2019, and interim periods within those fiscal years. Early adoption ofelected, the amendments in this ASU is permitted, including adoption in any interim period. The amendments in this ASU shouldmust be applied either retrospectivelyprospectively for all eligible contract modifications for that Topic or prospectively to all implementation costs incurred afterIndustry Subtopic within the date of adoption. The adoptionCodification. We are evaluating the impact of ASU 2018‑15 did2020-04 and expect the LIBOR transition will not have a material effect on the Company's consolidated financial statements.
ASU 2021-01, Reference Rate Reform (Topic 848): Scope
ASU 2021-01 clarifies that all derivative instruments affected by changes to the interest rates used for discounting, margining, or contract price alignment due to reference rate reform are in the scope of ASC 848. Entities may apply certain optional expedients in ASC 848 to derivative instruments that do not reference LIBOR or another rate expected to be discontinued as a result of reference rate reform if there is a change to the interest rate used for discounting, margining or contract price alignment. ASU 2020-01 is effective upon issuance and generally can be applied through December 31, 2022. The adoption of ASU 2021-01 is not expected to have a material effect on the Company's consolidated financial statements.
2. MERGER
As described in Note 1. Summary of Significant Accounting Policies, 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.
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At the Effective Time, each outstanding share of Legacy Dime’s Series A preferred stock, par value $0.01 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 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 |
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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. We finalized all valuations and recorded final adjustments during the fourth quarter of 2021. In the fourth quarter of 2021, we obtained additional information and evidence that resulted in a subsequent adjustment to decrease the estimated fair value of our acquired BNB Bank Pension Plan assets, which resulted in an increase to goodwill resulting from the Merger of $458 thousand, net of tax. The subsequent adjustment to assets acquired was recorded in other assets in the consolidated balance sheet.
| | | |
(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 | | | 117,016 |
Total assets acquired | | | 6,238,556 |
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 | | | 391,051 |
Goodwill resulting from Merger | | $ | 100,159 |
| | | |
As a result of the Merger, we recorded $100.2 million of goodwill. The goodwill recorded is not deductible for income tax purposes.
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The Company is required to record 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 | |
| (9,050) |
Unpaid principal balance, net | |
| 286,256 |
| | | |
Allowance for credit losses at acquisition | | | (52,284) |
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 year ended December 31, 2021:
| | | |
(In thousands) | | | |
Business combination: |
| |
|
Fair value of tangible assets acquired | | $ | 6,227,572 |
Goodwill, core deposit intangible and other intangible assets acquired | |
| 111,143 |
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.
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, 2019 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, 2019. Merger related expenses incurred by the Company during the year ended December 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 2019.
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(Dollars in thousands except per share amounts) |
| 2021 |
| 2020 |
| 2019 | |||
Net interest income |
| $ | 365,075 | | $ | 338,310 | | $ | 294,842 |
Non-interest income | | | 43,419 | | | 40,976 | | | 37,555 |
Net income | | | 132,536 | | | 84,257 | | | 85,660 |
Net income available to common shareholders | | | 124,323 | | | 78,453 | | | 84,380 |
Earnings per share: | | | | | | | | | |
Basic | | | 3.20 | | | 1.91 | | | 2.05 |
Diluted | | | 3.20 | | | 1.90 | | | 2.05 |
61
3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Activity in accumulated other comprehensive income (loss), net of tax, was as follows:
| | | | | | | | | | | | |
|
| | |
| | |
| | |
| Total | |
| | | | | | | | | | | Accumulated | |
| | | | Defined | | | | | Other | |||
| | | | Benefit | | | | | Comprehensive | |||
(In thousands) |
| Securities |
| Plans |
| Derivatives |
| Income (Loss) | ||||
Balance as of January 1, 2020 | | $ | 4,621 | | $ | (6,024) | | $ | (4,537) | | $ | (5,940) |
Other comprehensive income (loss) before reclassifications | |
| 11,221 | |
| 802 | |
| (12,153) | |
| (130) |
Amounts reclassified from accumulated other comprehensive loss | |
| (3,148) | |
| (864) | |
| 4,158 | |
| 146 |
Net other comprehensive income (loss) during the period | |
| 8,073 | |
| (62) | |
| (7,995) | |
| 16 |
Balance as of December 31, 2020 | | $ | 12,694 | | $ | (6,086) | | $ | (12,532) | | $ | (5,924) |
Other comprehensive (loss) income before reclassifications | |
| (19,733) | |
| 5,520 | |
| 14,883 | |
| 670 |
Amounts reclassified from accumulated other comprehensive loss | |
| (825) | |
| (740) | |
| 638 | |
| (927) |
Net other comprehensive (loss) income during the period | |
| (20,558) | |
| 4,780 | |
| 15,521 | |
| (257) |
Balance as of December 31, 2021 | | $ | (7,864) | | $ | (1,306) | | $ | 2,989 | | $ | (6,181) |
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.
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) |
| 2021 |
| 2020 |
| 2019 | |||
Change in unrealized holding gain or loss on securities: | |
|
| |
|
| |
|
|
Change in net unrealized gain or loss during the period | | $ | (28,865) | | $ | 16,432 | | $ | 9,693 |
Reclassification adjustment for net gains included in net gain on securities and other assets | |
| (1,207) | |
| (4,592) | |
| (31) |
Net change | |
| (30,072) | |
| 11,840 | |
| 9,662 |
Tax (benefit) expense | |
| (9,514) | |
| 3,767 | |
| 3,084 |
Net change in unrealized holding gain or loss on securities, net of reclassification adjustments and tax | |
| (20,558) | |
| 8,073 | |
| 6,578 |
Change in pension and other postretirement obligations: | |
|
| |
|
| |
|
|
Reclassification adjustment for expense included in other expense | |
| (1,092) | |
| (1,272) | |
| 729 |
Reclassification adjustment for curtailment loss (gain) | | | 1,543 | | | (1,651) | | | — |
Change in the net actuarial gain or loss | |
| 6,563 | |
| 2,817 | |
| (296) |
Net change | |
| 7,014 | |
| (106) | |
| 433 |
Tax expense | |
| 2,234 | |
| (44) | |
| 167 |
Net change in pension and other postretirement obligations | |
| 4,780 | |
| (62) | |
| 266 |
Change in unrealized gain or loss on derivatives: | |
|
| |
|
| |
|
|
Change in net unrealized gain or loss during the period | |
| 5,277 | |
| (24,449) | |
| (8,254) |
Reclassification adjustment for loss included in loss on termination of derivatives | | | 16,505 | | | 6,596 | | | — |
Reclassification adjustment for expense included in interest expense | |
| 940 | |
| 6,127 | |
| (955) |
Net change | |
| 22,722 | |
| (11,726) | |
| (9,209) |
Tax expense (benefit) | |
| 7,201 | |
| (3,731) | |
| (2,925) |
Net change in unrealized gain or loss on derivatives, net of reclassification adjustments and tax | |
| 15,521 | |
| (7,995) | |
| (6,284) |
Other comprehensive (loss) income, net of tax | | $ | (257) | | $ | 16 | | $ | 560 |
62
4. SECURITIES
The following tables summarize the major categories of securities as of the dates indicated:
| | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||
| | | | | Gross | | Gross | | | | ||
| | Amortized | | Unrealized | | Unrealized | | Fair | ||||
(In thousands) |
| Cost |
| Gains |
| Losses |
| Value | ||||
Securities available-for-sale: |
| |
|
| |
|
| |
|
| |
|
Agency notes | | $ | 82,476 | | $ | — | | $ | (2,222) | | $ | 80,254 |
Treasury securities | | | 247,916 | | | — | | | (3,147) | | | 244,769 |
Corporate securities | |
| 148,430 | |
| 4,354 | |
| (754) | |
| 152,030 |
Pass-through mortgage-backed securities ("MBS") issued by government sponsored entities ("GSEs") | |
| 528,749 | |
| 4,271 | |
| (6,566) | |
| 526,454 |
Agency collateralized mortgage obligations ("CMOs") | |
| 527,348 | |
| 2,705 | |
| (8,795) | |
| 521,258 |
State and municipal obligations | | | 39,175 | | | 73 | | | (302) | | | 38,946 |
Total securities available-for-sale | | $ | 1,574,094 | | $ | 11,403 | | $ | (21,786) | | $ | 1,563,711 |
| | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||
| | | | | Gross | | Gross | | | | ||
| | Amortized | | Unrecognized | | Unrecognized | | Fair | ||||
(In thousands) |
| Cost |
| Gains |
| Losses |
| Value | ||||
Securities held-to-maturity: |
| |
|
| |
|
| |
|
| |
|
Pass-through MBS issued by GSEs | | $ | 118,382 | | $ | 59 | | $ | (1,141) | | $ | 117,300 |
Agency CMOs | |
| 60,927 | |
| — | |
| (873) | |
| 60,054 |
Total securities held-to-maturity | | $ | 179,309 | | $ | 59 | | $ | (2,014) | | $ | 177,354 |
| | | | | | | | | | | | |
| | 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.
As of December 31, 2020, there were 0 securities held-to-maturity.
The Company transferred $140.4 million of securities available-for-sale to securities held-to-maturity during the year ended December 31, 2021. There were 0 transfers from securities held-to-maturity during the year ended December 31, 2021. There were 0 transfers to or from securities held-to-maturity during years ended December 31, 2020 and 2019.
The carrying amount of securities pledged at December 31, 2021 and 2020 was $726.4 million and $99.4 million, respectively.
At December 31, 2021 and 2020, there were 0 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 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.
63
| | | | | | |
| | | | | |
|
| | December 31, 2021 | ||||
| | Amortized | | Fair | ||
(In thousands) | | Cost | | Value | ||
Available-for-sale | | | | | | |
Within one year | | $ | 852 | | $ | 858 |
One to five years | | | 281,148 | | | 277,877 |
Five to ten years | | | 222,851 | | | 224,137 |
Beyond ten years | | | 13,145 | | | 13,127 |
Pass-through MBS issued by GSEs and agency CMO | | | 1,056,098 | | | 1,047,712 |
Total | | $ | 1,574,094 | | $ | 1,563,711 |
| | | | | | |
Held-to-maturity | | | | | | |
Pass-through MBS issued by GSEs and agency CMO | | $ | 179,309 | | $ | 177,354 |
Total | | $ | 179,309 | | $ | 177,354 |
The following table presents the information related to sales of securities available-for-sale for the periods indicated:
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) |
| 2021 |
| 2020 |
| 2019 | |||
Securities available-for-sale | | | | | | | | | |
Proceeds | | $ | 138,077 | | $ | 94,252 | | $ | 148,857 |
Gross gains | | | 1,327 | | | 4,592 | | | 551 |
Tax expense on gains | | | 421 | | | 1,444 | | | 175 |
Gross losses | | | 120 | | | — | | | 520 |
Tax benefit on losses | | | 38 | | | — | | | 166 |
Marketable equity securities were fully liquidated in connection with the termination of the BMP. Prior to termination, the Company held marketable equity securities as the underlying mutual fund investments of the BMP, held in a rabbi trust.
A summary of the sales of marketable equity securities is listed below for the periods indicated:
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) | | 2021 |
| 2020 |
| 2019 | |||
Proceeds: | | |
|
| |
|
| |
|
Marketable equity securities | | $ | 6,101 | | $ | 546 | | $ | 570 |
The remaining gain or loss on securities shown in the consolidated statements of income was due to market valuation changes. Net gains on marketable equity securities of $131 thousand, $361 thousand and $531 thousand were recognized for the years ended December 31, 2021, 2020 and 2019, respectively.
There were 0 sales of securities held-to-maturity during the years ended December 31, 2021, 2020, and 2019.
64
The following table summarizes the gross unrealized losses and fair value of securities aggregated by investment category and the length of time the securities were in a continuous unrealized loss position for the periods indicated:
| | | | | | | | | | | | | | | | | | |
| | December 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 | | $ | 58,607 | | $ | 1,369 | | $ | 21,647 | | $ | 853 | | $ | 80,254 | | $ | 2,222 |
Treasury securities | | | 244,769 | | | 3,147 | | | — | | | — | | | 244,769 | | | 3,147 |
Corporate securities | | | 37,620 | | | 754 | | | — | | | — | | | 37,620 | | | 754 |
Pass-through MBS issued by GSEs | | | 422,634 | | | 6,333 | | | 4,748 | | | 233 | | | 427,382 | | | 6,566 |
Agency CMOs | | | 349,879 | | | 8,672 | | | 3,182 | | | 123 | | | 353,061 | | | 8,795 |
State and municipal obligations | |
| 18,887 | |
| 302 | |
| — | |
| — | | | 18,887 | | | 302 |
| | | | | | | | | | | | | | | | | | |
Securities held-to-maturity |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Pass-through MBS issued by GSEs | | $ | 97,328 | | $ | 1,141 | | $ | — | | $ | — | | $ | 97,328 | | $ | 1,141 |
Agency CMOs | | | 60,054 | | | 873 | |
| — | |
| — | | | 60,054 | |
| 873 |
| |
| | |
| | |
| | |
| | |
| | |
| |
| | | | | | | | | | | | | | | | | | |
| | 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 | | $ | — | | $ | — | | $ | 22,409 | | $ | 91 |
Pass-through MBS issued by GSEs | |
| 5,007 | |
| 31 | |
| — | |
| — | |
| 5,007 | |
| 31 |
Agency CMOs | |
| 6,563 | |
| 30 | |
| 4,954 | |
| 46 | |
| 11,517 | |
| 76 |
As of December 31, 2021, NaN of the Company’s available-for-sale debt securities were in an unrealized loss position due to credit and therefore no allowance for credit losses on available-for-sale debt securities was required. Additionally, the calculated allowance for credit losses on held-to-maturity securities was inconsequential given the high-quality composition of the Company’s held-to-maturity portfolio and therefore no allowance for credit losses was recorded. With respect to certain classes of debt securities, primarily U.S. Treasuries and securities issued by Government Sponsored Entities, the Company considers the history of credit losses, current conditions and reasonable and supportable forecasts, which may indicate that the expectation that nonpayment of the amortized cost basis is or continues to be zero, even if the U.S. government were to technically default. Accrued interest receivable on securities totaling $4.4 million at December 31, 2021 was included in other assets in the consolidated balance sheet and excluded from the amortized cost and estimated fair value oftotals in the available for sale and held to maturity investment securities portfolio and the corresponding amounts of gross unrealized gains and losses therein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||||||||||||||||||||
|
| 2019 |
| 2018 | ||||||||||||||||||||
|
|
|
| Gross |
| Gross |
| Estimated |
|
|
| Gross |
| Gross |
| Estimated | ||||||||
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair |
| Amortized |
| Unrealized |
| Unrealized |
| Fair | ||||||||
(In thousands) |
| Cost |
| Gains |
| Losses |
| Value |
| Cost |
| Gains |
| Losses |
| Value | ||||||||
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 50,833 |
| $ | — |
| $ | (11) |
| $ | 50,822 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
U.S. GSE securities |
|
| 5,000 |
|
| — |
|
| (5) |
|
| 4,995 |
|
| 29,997 |
|
| — |
|
| (947) |
|
| 29,050 |
State and municipal obligations |
|
| 34,303 |
|
| 704 |
|
| (43) |
|
| 34,964 |
|
| 40,980 |
|
| 105 |
|
| (354) |
|
| 40,731 |
U.S. GSE residential mortgage-backed securities |
|
| 84,550 |
|
| 609 |
|
| (468) |
|
| 84,691 |
|
| 96,536 |
|
| 38 |
|
| (3,036) |
|
| 93,538 |
U.S. GSE residential collateralized mortgage obligations |
|
| 278,149 |
|
| 1,166 |
|
| (1,464) |
|
| 277,851 |
|
| 362,905 |
|
| 826 |
|
| (5,954) |
|
| 357,777 |
U.S. GSE commercial mortgage-backed securities |
|
| 13,656 |
|
| 23 |
|
| (70) |
|
| 13,609 |
|
| 3,536 |
|
| — |
|
| (28) |
|
| 3,508 |
U.S. GSE commercial collateralized mortgage obligations |
|
| 102,722 |
|
| 1,723 |
|
| (289) |
|
| 104,156 |
|
| 93,177 |
|
| — |
|
| (2,539) |
|
| 90,638 |
Other asset-backed securities |
|
| 24,250 |
|
| — |
|
| (849) |
|
| 23,401 |
|
| 24,250 |
|
| — |
|
| (1,031) |
|
| 23,219 |
Corporate bonds |
|
| 46,000 |
|
| — |
|
| (2,198) |
|
| 43,802 |
|
| 46,000 |
|
| — |
|
| (3,575) |
|
| 42,425 |
Total available for sale |
|
| 639,463 |
|
| 4,225 |
|
| (5,397) |
|
| 638,291 |
|
| 697,381 |
|
| 969 |
|
| (17,464) |
|
| 680,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal obligations |
|
| 41,008 |
|
| 809 |
|
| — |
|
| 41,817 |
|
| 53,540 |
|
| 290 |
|
| (276) |
|
| 53,554 |
U.S. GSE residential mortgage-backed securities |
|
| 8,142 |
|
| 5 |
|
| (54) |
|
| 8,093 |
|
| 9,688 |
|
| — |
|
| (336) |
|
| 9,352 |
U.S. GSE residential collateralized mortgage obligations |
|
| 39,936 |
|
| 624 |
|
| (62) |
|
| 40,498 |
|
| 48,244 |
|
| 163 |
|
| (1,130) |
|
| 47,277 |
U.S. GSE commercial mortgage-backed securities |
|
| 17,215 |
|
| 102 |
|
| (82) |
|
| 17,235 |
|
| 19,098 |
|
| 4 |
|
| (620) |
|
| 18,482 |
U.S. GSE commercial collateralized mortgage obligations |
|
| 27,337 |
|
| 191 |
|
| (144) |
|
| 27,384 |
|
| 29,593 |
|
| — |
|
| (1,466) |
|
| 28,127 |
Total held to maturity |
|
| 133,638 |
|
| 1,731 |
|
| (342) |
|
| 135,027 |
|
| 160,163 |
|
| 457 |
|
| (3,828) |
|
| 156,792 |
Total securities |
| $ | 773,101 |
| $ | 5,956 |
| $ | (5,739) |
| $ | 773,318 |
| $ | 857,544 |
| $ | 1,426 |
| $ | (21,292) |
| $ | 837,678 |
table above.
Page -53-
The following table summarizes securities with gross unrealized losses at December 31, 2019 and 2018, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||||||||||||||||||||
|
| 2019 |
| 2018 | ||||||||||||||||||||
|
| Less than 12 months |
| Greater than 12 months |
| Less than 12 months |
| Greater than 12 months | ||||||||||||||||
|
| Estimated |
| Gross |
| Estimated |
| Gross |
| Estimated |
| Gross |
| Estimated |
| Gross | ||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Fair |
| Unrealized | ||||||||
(In thousands) |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses |
| Value |
| Losses | ||||||||
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 50,822 |
| $ | (11) |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
U.S. GSE securities |
|
| — |
|
| — |
|
| 4,995 |
|
| (5) |
|
| — |
|
| — |
|
| 29,050 |
|
| (947) |
State and municipal obligations |
|
| 4,982 |
|
| (42) |
|
| 76 |
|
| (1) |
|
| 6,655 |
|
| (15) |
|
| 21,273 |
|
| (339) |
U.S. GSE residential mortgage-backed securities |
|
| 2,935 |
|
| (30) |
|
| 39,617 |
|
| (438) |
|
| — |
|
| — |
|
| 88,762 |
|
| (3,036) |
U.S. GSE residential collateralized mortgage obligations |
|
| 81,377 |
|
| (480) |
|
| 93,403 |
|
| (984) |
|
| 46,452 |
|
| (141) |
|
| 172,468 |
|
| (5,813) |
U.S. GSE commercial mortgage-backed securities |
|
| 6,648 |
|
| (70) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,508 |
|
| (28) |
U.S. GSE commercial collateralized mortgage obligations |
|
| 28,710 |
|
| (145) |
|
| 9,614 |
|
| (144) |
|
| 46,705 |
|
| (623) |
|
| 43,933 |
|
| (1,916) |
Other asset-backed securities |
|
| — |
|
| — |
|
| 23,401 |
|
| (849) |
|
| — |
|
| — |
|
| 23,219 |
|
| (1,031) |
Corporate bonds |
|
| — |
|
| — |
|
| 43,802 |
|
| (2,198) |
|
| — |
|
| — |
|
| 42,425 |
|
| (3,575) |
Total available for sale |
| $ | 175,474 |
| $ | (778) |
| $ | 214,908 |
| $ | (4,619) |
| $ | 99,812 |
| $ | (779) |
| $ | 424,638 |
| $ | (16,685) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal obligations |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 8,286 |
| $ | (26) |
| $ | 22,142 |
| $ | (250) |
U.S. GSE residential mortgage-backed securities |
|
| — |
|
| — |
|
| 7,268 |
|
| (54) |
|
| — |
|
| — |
|
| 9,352 |
|
| (336) |
U.S. GSE residential collateralized mortgage obligations |
|
| 6,750 |
|
| (17) |
|
| 6,105 |
|
| (45) |
|
| — |
|
| — |
|
| 40,665 |
|
| (1,130) |
U.S. GSE commercial mortgage-backed securities |
|
| — |
|
| — |
|
| 5,034 |
|
| (82) |
|
| — |
|
| — |
|
| 16,205 |
|
| (620) |
U.S. GSE commercial collateralized mortgage obligations |
|
| 13,038 |
|
| (57) |
|
| 4,300 |
|
| (87) |
|
| — |
|
| — |
|
| 28,127 |
|
| (1,466) |
Total held to maturity |
| $ | 19,788 |
| $ | (74) |
| $ | 22,707 |
| $ | (268) |
| $ | 8,286 |
| $ | (26) |
| $ | 116,491 |
| $ | (3,802) |
Other-Than-Temporary Impairment
Management evaluates available-for-sale debt securities for other-than-temporaryin unrealized loss positions to determine whether the impairment (“OTTI”) quarterly and more frequently when economicis due to credit-related factors or market conditions warrant. The investment securities portfoliononcredit-related factors. Consideration is evaluated for OTTI by segregating the portfolio into two general segments and applying the appropriate OTTI model. Investment securities classified as available for sale or heldgiven to maturity are generally evaluated for OTTI under FASB ASC 320, “Investments - Debt and Equity Securities” (“ASC 320”). In determining OTTI under the FASB ASC 320 model, management considers many factors, including: (1) the length of time and the extent to which the fair value has beenis less than cost, (2) the financial condition and near termnear-term prospects of the issuer, and (3) whether the market decline was affected by macroeconomic conditions,intent and (4) whetherability of the Company has the intent to sell the debt security or more likely than not will be required to sell the debt security beforeretain its anticipated recovery. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet these criteria, the amount of impairment is split into two components: (1) OTTI related to credit loss, which must be recognizedinvestment in the income statement and (2) OTTI relatedsecurity for a period of time sufficient to other factors, which is recognizedallow for any anticipated recovery in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The assessment of whether an other-than-temporary decline exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.fair value.
At December 31, 2019,2021, substantially all of the securities in an unrealized loss position had a fixed interest rate and the cause of the temporary impairment was directly related to changes in interest rates. The Company generally views changes in fair value caused by changes in interest rates as temporary, which is consistent with its experience. Other asset backed securitiesThe following major security types held by the Company are comprised of student loan backed bonds, which areall issued by U.S. government entities and agencies and therefore either explicitly or implicitly guaranteed by the U.S. Department of Education for 97% to 100% of principal. Additionally, the bonds have credit support of 3% to 5% and have maintained their Aa3 Moody’s rating during the time the Bank has owned them.government; Agency Notes, Treasury Securities, Pass-through MBS issued by GSEs, Agency Collateralized Mortgage Obligations. The corporate bonds within the portfolio have all maintained an
Page -54-
investment grade rating by either Kroll, Egan-Jones, Fitch, Moody’s or Standard and Poor’s. None of the unrealized losses wereare related to credit losses. The state and municipal obligations within the portfolio have all maintained an investment grade rating by either Moody’s or Standard and Poor’s. The Company does not have the intent to sell these securities and it is more likely than not that it will not be required to sell the securities before their anticipated recovery. Therefore,The issuers continue to make timely principal and interest payments on the debt. The fair value is expected to recover as the securities approach maturity.
65
5. LOANS HELD FOR INVESTMENT, NET
The following table presents the loan categories for the period ended as indicated:
| | | | | | |
(In thousands) |
| December 31, 2021 |
| December 31, 2020 | ||
One-to-four family residential and cooperative/condominium apartment | | $ | 669,282 | | $ | 184,989 |
Multifamily residential and residential mixed-use | |
| 3,356,346 | |
| 2,758,743 |
Commercial real estate ("CRE") | |
| 3,945,948 | |
| 1,878,167 |
Acquisition, development, and construction ("ADC") | |
| 322,628 | |
| 156,296 |
Total real estate loans | |
| 8,294,204 | |
| 4,978,195 |
C&I | |
| 933,559 | |
| 641,533 |
Other loans | |
| 16,898 | |
| 2,316 |
Total | |
| 9,244,661 | |
| 5,622,044 |
Allowance for credit losses | |
| (83,853) | |
| (41,461) |
Loans held for investment, net | | $ | 9,160,808 | | $ | 5,580,583 |
As a result of the Merger, the Company does not consider these securities to be other-than-temporarily impairedrecorded $4.53 billion of loans held for investment on the Merger Date.
Included in C&I loans was Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans totaling $66.0 million and $313.4 million at December 31, 2019.2021 and 2020, respectively. SBA PPP loans carry a 100% guarantee from the SBA. The Company may hold an allowance for credit losses as a result of individual loan analysis. In June 2021, the Company sold $596.2 million of SBA PPP loans and recorded a gain of $20.7 million in Gain on sale of SBA loans in the consolidated statements of income.
The following tables present data regarding the allowance for credit losses activity for the periods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Real Estate Loans | | | ��� | | | | | | | |||||||||||||
| | One-to-Four | | | | | | | | | | | | | | | | | | | | | | |
| | Family | | Multifamily | | | | | | | | | | | | | | | | | | |||
| | Residential and | | Residential | | | | | | | | | | | | | | | | | | |||
| | Cooperative/ | | and | | | | | | | | | | | | | | | | | | |||
| | Condominium | | Residential | | | | | | | Total Real | | | | | Other | | | | |||||
(In thousands) | | Apartment |
| Mixed-Use |
| CRE |
| ADC |
| Estate |
| C&I |
| Loans |
| Total | ||||||||
Beginning balance as of January 1, 2019 | | $ | 198 | | $ | 13,446 | | $ | 3,777 | | $ | 397 | | $ | 17,818 | | $ | 3,946 | | $ | 18 | | $ | 21,782 |
Provision (credit) for credit losses |
| | 86 | |
| (3,233) | |
| 266 | |
| 847 | |
| (2,034) | |
| 19,368 | |
| 6 | |
| 17,340 |
Charge-offs |
| | (22) | |
| (83) | |
| (145) | |
| — | |
| (250) | |
| (10,447) | |
| (8) | |
| (10,705) |
Recoveries |
| | 7 | |
| 12 | |
| 2 | |
| — | |
| 21 | |
| 3 | |
| — | |
| 24 |
Ending balance as of December 31, 2019 | | $ | 269 | | $ | 10,142 | | $ | 3,900 | | $ | 1,244 | | $ | 15,555 | | $ | 12,870 | | $ | 16 | | $ | 28,441 |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Provision for credit losses | |
| 386 | | | 9,934 | | | 5,165 | | | 749 | |
| 16,234 | |
| 9,928 | | | 3 | |
| 26,165 |
Charge-offs | |
| (11) | | | (3,190) | | | (6) | | | — | |
| (3,207) | |
| (10,095) | | | (7) | |
| (13,309) |
Recoveries | |
| — | | | 130 | | | — | | | — | |
| 130 | |
| 34 | | | — | |
| 164 |
Ending balance as of December 31, 2020 | | $ | 644 | | $ | 17,016 | | $ | 9,059 | | $ | 1,993 | | $ | 28,712 | | $ | 12,737 | | $ | 12 | | $ | 41,461 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Impact of adopting CECL as of January 1, 2021 | |
| 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 | |
| 1,975 | | | (3,921) | | | (4,497) | | | 2,366 | |
| (4,077) | |
| 6,016 | | | 1,364 | |
| 3,303 |
Charge-offs | |
| (20) | | | (391) | | | (3,406) | | | — | |
| (3,817) | |
| (4,984) | | | (777) | |
| (9,578) |
Recoveries | |
| 65 | | | 74 | | | 37 | | | — | |
| 176 | |
| 123 | | | 3 | |
| 302 |
Ending balance as of December 31, 2021 | | $ | 5,932 | | $ | 7,816 | | $ | 29,166 | | $ | 4,857 | | $ | 47,771 | | $ | 35,331 | | $ | 751 | | $ | 83,853 |
The following table presents the amortized cost basis of loans on non-accrual status as of the period indicated:
| | | | | | | | |
| | December 31, 2021 | ||||||
| | Non-accrual with | | | Non-accrual with | | | |
(In thousands) |
| No Allowance |
| Allowance | |
| Reserve | |
One-to-four family residential and cooperative/condominium apartment | $ | - | | $ | 7,623 | | $ | 1,278 |
CRE |
| 1,301 | |
| 3,752 | | | 797 |
C&I | | 348 | | | 26,918 | | | 16,973 |
Other | | - | | | 365 | | | 361 |
Total | $ | 1,649 | | $ | 38,658 | | $ | 19,409 |
The Company did not recognize interest income on non-accrual loans during the year ended December 31, 2021.
66
The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method of ASC 326 as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||||||||||||||
| | Real Estate Loans | | | | | | | | | | |||||||||||||
| | One-to-Four | | | | | | | | | | | | | | | | | | | | | | |
| | Family | | Multifamily | | | | | | | | | | | | | | | | | | |||
| | Residential and | | Residential | | | | | | | | | | | | | | | | | | |||
| | Cooperative/ | | and | | | | | | | | | | | | | | | | | | |||
| | Condominium | | Residential | | | | | | | Total Real | | | | | Other | | | | |||||
(In thousands) |
| Apartment |
| Mixed-Use |
| CRE |
| ADC |
| Estate |
| C&I |
| Loans |
| Total | ||||||||
Allowance for loan losses: | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated for impairment | | $ | — | | $ | — | | $ | — | | $ | — | | $ | — | | $ | 6,474 | | $ | — |
| $ | 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 | | $ | — | | $ | 1,863 | | $ | 2,704 | | $ | — | | $ | 4,567 | | $ | 12,502 | | $ | — |
| $ | 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 Federal National Mortgage Association (“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.
67
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):
| | | | | | | | | | |
| | | 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 | | $ | — |
CRE | | |
| 2,704 | |
| 2,704 | |
| — |
Total with no related allowance recorded | | |
| 4,567 | |
| 4,567 | |
| — |
| | | | | | | | | | |
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. |
The following table presents information for impaired loans for the periods indicated:
| | | | | | | | | | | | |
| | Year Ended | | Year Ended | ||||||||
| | December 31, 2020 | | December 31, 2019 | ||||||||
| | Average | | Interest | | Average | | Interest | ||||
| | Recorded | | Income | | Recorded | | Income | ||||
(In thousands) |
| Investment(1) |
| Recognized(2) |
| Investment(1) |
| Recognized(2) | ||||
With no related allowance recorded: | | |
| | |
| | |
| | |
|
One-to-four family residential, including condominium and cooperative apartment | | $ | 1,179 | | $ | — | | $ | 9 | | $ | 9 |
Multifamily residential and residential mixed-use | |
| 1,188 | |
| 6 | |
| 415 | |
| 29 |
CRE | |
| 1,195 | |
| 1 | |
| 3,765 | |
| 244 |
Total with no related allowance recorded | |
| 3,562 | |
| 7 | |
| 4,189 | |
| 282 |
| |
|
| |
|
| |
|
| |
|
|
With an allowance recorded: | |
|
| |
|
| |
|
| |
|
|
C&I | |
| 10,605 | |
| 1 | |
| 5,125 | |
| 13 |
Total | | $ | 14,167 | | $ | 8 | | $ | 9,314 | | $ | 295 |
(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 as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | |||||||||||||||||||
| | | | | | | | Loans 90 | | | | | | | | | | | | | |
| | | | | | | | Days or | | | | | | | | | | | | | |
| | 30 to 59 | | 60 to 89 | | More Past Due | | | | | | | | | | | | | |||
| | Days | | Days | | and Still | | | | Total | | | | | Total | ||||||
(In thousands) |
| Past Due |
| Past Due |
| Accruing Interest |
| Non-accrual |
| Past Due |
| Current |
| Loans | |||||||
Real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
One-to-four family residential, including condominium and cooperative apartment | | $ | 3,294 | | $ | 877 | | $ | 1,945 | | $ | 7,623 | | $ | 13,739 | | $ | 655,543 | | $ | 669,282 |
Multifamily residential and residential mixed-use | |
| 30,983 | |
| 3,339 | |
| — | |
| — | |
| 34,322 | |
| 3,322,024 | |
| 3,356,346 |
CRE | |
| 23,108 | |
| 887 | |
| — | |
| 5,053 | |
| 29,048 | |
| 3,916,900 | |
| 3,945,948 |
ADC | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 322,628 | |
| 322,628 |
Total real estate | |
| 57,385 | |
| 5,103 | |
| 1,945 | |
| 12,676 | |
| 77,109 | |
| 8,217,095 | |
| 8,294,204 |
C&I | |
| 3,753 | |
| 7,040 | |
| 1,056 | |
| 27,266 | |
| 39,115 | |
| 894,444 | |
| 933,559 |
Other | | | 104 | | | 3 | | | — | | | 365 | | | 472 | | | 16,426 | | | 16,898 |
Total | | $ | 61,242 | | $ | 12,146 | | $ | 3,001 | | $ | 40,307 | | $ | 116,696 | | $ | 9,127,965 | | $ | 9,244,661 |
68
| | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | |||||||||||||||||||
| | | | | | | | Loans 90 | | | | | | | | | | | | | |
| | | | | | | | Days or | | | | | | | | | | | | | |
| | 30 to 59 | | 60 to 89 | | More Past Due | | | | | | | | | | | | | |||
| | Days | | Days | | and Still | | | | Total | | | | | Total | ||||||
(In thousands) |
| Past Due |
| Past Due |
| Accruing Interest |
| Non-accrual |
| Past Due |
| Current |
| Loans | |||||||
Real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
One-to-four family residential, including condominium and cooperative apartment | | $ | — | | $ | — | | $ | 44 | | $ | 858 | | $ | 902 | | $ | 184,087 | | $ | 184,989 |
Multifamily residential and residential mixed-use | |
| — | |
| — | |
| 437 | |
| 1,863 | |
| 2,300 | |
| 2,756,443 | |
| 2,758,743 |
CRE | |
| 15,351 | |
| — | |
| — | |
| 2,704 | |
| 18,055 | |
| 1,860,112 | |
| 1,878,167 |
ADC | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 156,296 | |
| 156,296 |
Total real estate | |
| 15,351 | |
| — | |
| 481 | |
| 5,425 | |
| 21,257 | |
| 4,956,938 | |
| 4,978,195 |
C&I | |
| — | |
| 917 | |
| 2,848 | |
| 12,502 | |
| 16,267 | |
| 625,266 | |
| 641,533 |
Other | | | 8 | | | 1 | | | — | | | 1 | | | 10 | | | 2,306 | | | 2,316 |
Total | | $ | 15,359 | | $ | 918 | | $ | 3,329 | | $ | 17,928 | | $ | 37,534 | | $ | 5,584,510 | | $ | 5,622,044 |
Accruing Loans 90 Days or More Past Due:
The Company continued accruing interest on loans with an outstanding balance of $3.0 million at December 31, 2021, and loans with an outstanding balance of $3.3 million at December 31, 2020, all of which were 90 days or more past due. These loans were either well secured, awaiting a forbearance extension or formal payment deferral, or will likely be forgiven through the PPP or repurchased by the SBA, and, therefore, remained on accrual status and were deemed performing assets at the dates indicated above.
Collateral Dependent Loans:
At December 31, 2021, the Company had collateral dependent loans which were individually evaluated to determine expected credit losses.
| | | | | | |
| | | ||||
| | December 31, 2021 | ||||
| | Real Estate | | Associated Allowance | ||
(In thousands) | | Collateral Dependent | | for Credit Losses | ||
CRE | | $ | 3,837 | | $ | 600 |
C&I | | | 348 | | | - |
Total | | $ | 4,185 | | $ | 600 |
Related Party Loans
Certain directors, executive officers, and their related parties, including their immediate families and companies in which they are principal owners, were loan customers of the Bank during 2021.
The following table sets forth selected information about related party loans for the estimated fair value, amortized cost and contractual maturities of the securities portfolio at December 31, 2019. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 | ||||||||||||||||||||||||||||
|
| Within |
| After One but |
| After Five but |
| After |
|
|
|
| ||||||||||||||||||
|
| One Year |
| Within Five Years |
| Within Ten Years |
| Ten Years |
| Total | ||||||||||||||||||||
|
| Estimated |
|
|
| Estimated |
|
|
| Estimated |
|
|
| Estimated |
|
|
| Estimated |
|
| ||||||||||
|
| Fair |
| Amortized |
| Fair |
| Amortized |
| Fair |
| Amortized |
| Fair |
| Amortized |
| Fair |
| Amortized | ||||||||||
(In thousands) |
| Value |
| Cost |
| Value |
| Cost |
| Value |
| Cost |
| Value |
| Cost |
| Value |
| Cost | ||||||||||
Available for sale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 50,822 |
| $ | 50,833 |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
| $ | 50,822 |
| $ | 50,833 |
U.S. GSE securities |
|
| — |
|
| — |
|
| 4,995 |
|
| 5,000 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 4,995 |
|
| 5,000 |
State and municipal obligations |
|
| 1,143 |
|
| 1,142 |
|
| 14,829 |
|
| 14,620 |
|
| 16,540 |
|
| 16,088 |
|
| 2,452 |
|
| 2,453 |
|
| 34,964 |
|
| 34,303 |
U.S. GSE residential mortgage-backed securities |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 84,691 |
|
| 84,550 |
|
| 84,691 |
|
| 84,550 |
U.S. GSE residential collateralized mortgage obligations |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 277,851 |
|
| 278,149 |
|
| 277,851 |
|
| 278,149 |
U.S. GSE commercial mortgage-backed securities |
|
| — |
|
| — |
|
| 8,761 |
|
| 8,753 |
|
| 4,848 |
|
| 4,903 |
|
| — |
|
| — |
|
| 13,609 |
|
| 13,656 |
U.S. GSE commercial collateralized mortgage obligations |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 104,156 |
|
| 102,722 |
|
| 104,156 |
|
| 102,722 |
Other asset backed securities |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 23,401 |
|
| 24,250 |
|
| 23,401 |
|
| 24,250 |
Corporate bonds |
|
| — |
|
| — |
|
| 14,538 |
|
| 15,000 |
|
| 29,264 |
|
| 31,000 |
|
| — |
|
| — |
|
| 43,802 |
|
| 46,000 |
Total available for sale |
|
| 51,965 |
|
| 51,975 |
|
| 43,123 |
|
| 43,373 |
|
| 50,652 |
|
| 51,991 |
|
| 492,551 |
|
| 492,124 |
|
| 638,291 |
|
| 639,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and municipal obligations |
|
| 8,838 |
|
| 8,827 |
|
| 23,382 |
|
| 22,902 |
|
| 9,444 |
|
| 9,129 |
|
| 153 |
|
| 150 |
|
| 41,817 |
|
| 41,008 |
U.S. GSE residential mortgage-backed securities |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 5,919 |
|
| 5,947 |
|
| 2,174 |
|
| 2,195 |
|
| 8,093 |
|
| 8,142 |
U.S. GSE residential collateralized mortgage obligations |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,865 |
|
| 3,871 |
|
| 36,633 |
|
| 36,065 |
|
| 40,498 |
|
| 39,936 |
U.S. GSE commercial mortgage-backed securities |
|
| — |
|
| — |
|
| 4,824 |
|
| 4,776 |
|
| 4,835 |
|
| 4,805 |
|
| 7,576 |
|
| 7,634 |
|
| 17,235 |
|
| 17,215 |
U.S. GSE commercial collateralized mortgage obligations |
|
| — |
|
| — |
|
| 387 |
|
| 392 |
|
| — |
|
| — |
|
| 26,997 |
|
| 26,945 |
|
| 27,384 |
|
| 27,337 |
Total held to maturity |
|
| 8,838 |
|
| 8,827 |
|
| 28,593 |
|
| 28,070 |
|
| 24,063 |
|
| 23,752 |
|
| 73,533 |
|
| 72,989 |
|
| 135,027 |
|
| 133,638 |
Total securities |
| $ | 60,803 |
| $ | 60,802 |
| $ | 71,716 |
| $ | 71,443 |
| $ | 74,715 |
| $ | 75,743 |
| $ | 566,084 |
| $ | 565,113 |
| $ | 773,318 |
| $ | 773,101 |
Sales and Calls of Securities
There were $46.5 million of proceeds on sales of available for sale securities with gross gains of approximately $0.2 million realized in 2019. There were $230.4 million of proceeds on sales of available for sale securities with gross losses of approximately $7.9 million realized in 2018. There were $52.4 million of proceeds on sales of available for sale securities with gross gains of approximately $0.3 million and gross losses of approximately $0.3 million realized in 2017. There were $20.3 million and $3.3 million of proceeds from calls of securities in 2019 and 2018, respectively.
Pledged Securities
Securities having a fair value of $402.2 million and $354.3 million at December 31, 2019 and 2018, respectively, were pledged to secure public deposits and FHLB and FRB overnight borrowings.
Trading Securities
The Company did not hold any trading securities during the yearsyear ended December 31, 2019 and 2018.2021:
| | | |
| | Year Ended | |
| | December 31, | |
(In thousands) |
| 2021 | |
Beginning balance | | $ | 1,700 |
Acquired in Merger | | | 4,217 |
New loans | | | 1,243 |
Effect of changes in composition of related parties | | | (239) |
Repayments | | | (692) |
Balance at end of period | | $ | 6,229 |
Page -55-
Restricted Securities
The Bank is a member of the FHLB of New York. Members are required to own a particular amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. The Bank is a member of the Atlantic Central Banker’s Bank (“ACBB”) and is required to own ACBB stock. The Bank is also a member of the FRB system and required to own FRB stock. FHLB, ACBB and FRB stock is carried at cost and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. The Bank owned $32.9 million and $24.0 million in FHLB, ACBB and FRB stock at December 31, 2019 and 2018, respectively. These amounts were reported as restricted securities in the consolidated balance sheets.TDRs
As of December 31, 2019 and 2018, there was no issuer, other than2021, the U.S. Government and its sponsored entities, where the BankCompany had invested holdings that exceeded 10% of consolidated stockholders’ equity.
3. FAIR VALUE
TDRs totaling $942 thousand. The Company adopted ASU 2016‑01, Financial Instruments – Overall (Subtopic 825‑10): Recognition and Measurementhas allocated $483 thousand of Financial Assets and Financial Liabilities, during the first quarter of 2018.
FASB ASC 820‑10 defines fair value as the exchange price that would be receivedallowance 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. FASB ASC 820‑10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Page -56-
The following tables summarize assets and liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 | ||||||||
|
|
|
| Fair Value Measurements Using: | ||||||
|
|
|
| Quoted Prices |
|
|
|
| ||
|
|
|
| In Active |
| Significant |
|
| ||
|
|
|
| Markets for |
| Other |
| Significant | ||
|
|
|
| Identical |
| Observable |
| Unobservable | ||
|
| Carrying |
| Assets |
| Inputs |
| Inputs | ||
(In thousands) |
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
Available for sale securities: |
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
| $ | 50,822 |
|
|
| $ | 50,822 |
|
|
U.S. GSE securities |
|
| 4,995 |
|
|
|
| 4,995 |
|
|
State and municipal obligations |
|
| 34,964 |
|
|
|
| 34,964 |
|
|
U.S. GSE residential mortgage-backed securities |
|
| 84,691 |
|
|
|
| 84,691 |
|
|
U.S. GSE residential collateralized mortgage obligations |
|
| 277,851 |
|
|
|
| 277,851 |
|
|
U.S. GSE commercial mortgage-backed securities |
|
| 13,609 |
|
|
|
| 13,609 |
|
|
U.S. GSE commercial collateralized mortgage obligations |
|
| 104,156 |
|
|
|
| 104,156 |
|
|
Other asset-backed securities |
|
| 23,401 |
|
|
|
| 23,401 |
|
|
Corporate bonds |
|
| 43,802 |
|
|
|
| 43,802 |
|
|
Total available for sale securities |
| $ | 638,291 |
|
|
| $ | 638,291 |
|
|
Derivatives |
| $ | 15,437 |
|
|
| $ | 15,437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
Derivatives |
| $ | 16,645 |
|
|
| $ | 16,645 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | ||||||||
|
|
|
| Fair Value Measurements Using: | ||||||
|
|
|
| Quoted Prices |
|
|
|
| ||
|
|
|
| In Active |
| Significant |
|
| ||
|
|
|
| Markets for |
| Other |
| Significant | ||
|
|
|
| Identical |
| Observable |
| Unobservable | ||
|
| Carrying |
| Assets |
| Inputs |
| Inputs | ||
(In thousands) |
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
Available for sale securities: |
|
|
|
|
|
|
|
|
|
|
U.S. GSE securities |
| $ | 29,050 |
|
|
| $ | 29,050 |
|
|
State and municipal obligations |
|
| 40,731 |
|
|
|
| 40,731 |
|
|
U.S. GSE residential mortgage-backed securities |
|
| 93,538 |
|
|
|
| 93,538 |
|
|
U.S. GSE residential collateralized mortgage obligations |
|
| 357,777 |
|
|
|
| 357,777 |
|
|
U.S. GSE commercial mortgage-backed securities |
|
| 3,508 |
|
|
|
| 3,508 |
|
|
U.S. GSE commercial collateralized mortgage obligations |
|
| 90,638 |
|
|
|
| 90,638 |
|
|
Other asset-backed securities |
|
| 23,219 |
|
|
|
| 23,219 |
|
|
Corporate bonds |
|
| 42,425 |
|
|
|
| 42,425 |
|
|
Total available for sale securities |
| $ | 680,886 |
|
|
| $ | 680,886 |
|
|
Derivatives |
| $ | 6,363 |
|
|
| $ | 6,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
Derivatives |
| $ | 2,215 |
|
|
| $ | 2,215 |
|
|
The following tables summarize assets measured at fair value on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 | ||||||||
|
|
|
| Fair Value Measurements Using: | ||||||
|
|
|
| Quoted Prices |
|
|
|
| ||
|
|
|
| In Active |
| Significant |
|
| ||
|
|
|
| Markets for |
| Other |
| Significant | ||
|
|
|
| Identical |
| Observable |
| Unobservable | ||
|
| Carrying |
| Assets |
| Inputs |
| Inputs | ||
(In thousands) |
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||
Loans held for sale |
| $ | 12,643 |
|
|
|
|
| $ | 12,643 |
Impaired loans |
| $ | 6,981 |
|
|
|
|
| $ | 6,981 |
Page -57-
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | ||||||||
|
|
|
| Fair Value Measurements Using: | ||||||
|
|
|
| Quoted Prices |
|
|
|
| ||
|
|
|
| In Active |
| Significant |
|
| ||
|
|
|
| Markets for |
| Other |
| Significant | ||
|
|
|
| Identical |
| Observable |
| Unobservable | ||
|
| Carrying |
| Assets |
| Inputs |
| Inputs | ||
(In thousands) |
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||
Impaired loans |
| $ | 2,532 |
|
|
|
|
| $ | 2,532 |
Other real estate owned |
| $ | 175 |
|
|
|
|
| $ | 175 |
Loans held for salethose loans at December 31, 2019 had a carrying amount of $12.6 million2021, with no valuation allowance recorded.0 commitments to lend additional amounts. There were no loans held for sale0 outstanding TDRs at December 31, 2018.2020.
Impaired loans with an allocated allowance for loan losses atDuring the year ended December 31, 2019 had a carrying amount2021, TDR modifications included reduction of $7.0 million, which is made upoutstanding principal, extensions of maturity dates, or favorable interest rates and loan terms than the outstanding balanceprevailing market interest rates and loan terms.
69
During the year ended December 31, 2018 had a carrying amount of $2.5 million, which is made up of the outstanding balance of $2.7 million, net of a valuation allowance of $0.2 million.
There was no other real estate owned at December 31, 2019. At December 31, 2018, other real estate owned had a carrying amount of $0.2 million with no valuation allowance recorded. Accordingly, there was no additional provision for loan losses included in the amount reported on the Consolidated Statements of Income.
The Company used the following methods and assumptions in estimating the fair value of its financial instruments:
Securities Available for Sale and Held to Maturity: If available, the estimated fair values are based on independent dealer quotations on nationally recognized securities exchanges and are classified as Level 1. For securities where quoted prices are not available, fair value is based on matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities resulting in a Level 2 classification.
Derivatives: Represents interest rate swaps for which the estimated fair values are based on valuation models using observable market data as of the measurement date resulting in a Level 2 classification.
Loans Held for Sale:Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is initially determined using the price we expect to receive for the loans based on commitments received from third-party investors. Thereafter, loans held for sale are re-evaluated quarterly to determine if a valuation allowance is required to adjust for a decline in fair value below the carrying amount, resulting in a Level 3 classification.
Impaired Loans and Other Real Estate Owned: For impaired loans,2021, the Company evaluatesmodified 1 CRE loan as a TDR, which subsequently paid off during the fair value of the loan in accordance with current accounting guidance. For loans that are collateral dependent, the fair value of the collateral is used to determine the fair value of the loan. The fair value of the collateral is determined based on recent appraised values. The fair value of other real estate owned is also evaluated in accordance with current accounting guidance and 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. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s expertise and knowledge of the borrower and its business. These valuation methods result in a Level 3 classification. The fair value of the loan is compared to the carrying value to determine if any write-down or specific reserve is required. Impaired loans are evaluated quarterly for additional impairment and adjusted accordingly.year.
Appraisals for collateral-dependent impaired 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 Credit Department reviews the assumptions and approaches
Page -58-
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 impaired loan, management considers information that relates to the type of commercial 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 impaired loans measured at fair value on a non-recurring basis.
The following tables summarize the estimated fair values and recorded carrying amounts of the Company’s financial instruments at December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 | |||||||||||||
|
|
|
| Fair Value Measurements Using: |
|
| |||||||||
|
|
|
|
|
| Significant |
|
|
|
| |||||
|
|
|
| Quoted Prices In |
| Other |
| Significant |
|
| |||||
|
|
|
| Active Markets for |
| Observable |
| Unobservable |
|
| |||||
|
| Carrying |
| Identical Assets |
| Inputs |
| Inputs |
| Total | |||||
(In thousands) |
| Amount |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Fair Value | |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 77,693 |
| $ | 77,693 |
| $ | — |
| $ | — |
| $ | 77,693 |
Interest-bearing deposits with banks |
|
| 39,501 |
|
| 39,501 |
|
| — |
|
| — |
|
| 39,501 |
Securities available for sale |
|
| 638,291 |
|
| — |
|
| 638,291 |
|
| — |
|
| 638,291 |
Securities restricted |
|
| 32,879 |
|
| n/a |
|
| n/a |
|
| n/a |
|
| n/a |
Securities held to maturity |
|
| 133,638 |
|
| — |
|
| 135,027 |
|
| — |
|
| 135,027 |
Loans held for sale |
|
| 12,643 |
|
| — |
|
| — |
|
| 12,643 |
|
| 12,643 |
Loans, net |
|
| 3,647,499 |
|
| — |
|
| — |
|
| 3,685,770 |
|
| 3,685,770 |
Derivatives |
|
| 15,437 |
|
| — |
|
| 15,437 |
|
| — |
|
| 15,437 |
Accrued interest receivable |
|
| 10,908 |
|
| — |
|
| 2,181 |
|
| 8,727 |
|
| 10,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
| 307,977 |
|
| — |
|
| 308,660 |
|
| — |
|
| 308,660 |
Demand and other deposits |
|
| 3,506,670 |
|
| 3,506,670 |
|
| — |
|
| — |
|
| 3,506,670 |
FHLB advances |
|
| 435,000 |
|
| 195,000 |
|
| 239,622 |
|
| — |
|
| 434,622 |
Repurchase agreements |
|
| 999 |
|
| — |
|
| 999 |
|
| — |
|
| 999 |
Subordinated debentures |
|
| 78,920 |
|
| — |
|
| 81,010 |
|
| — |
|
| 81,010 |
Derivatives |
|
| 16,645 |
|
| — |
|
| 16,645 |
|
| — |
|
| 16,645 |
Accrued interest payable |
|
| 1,467 |
|
| — |
|
| 1,467 |
|
| — |
|
| 1,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | |||||||||||||
|
|
|
| Fair Value Measurements Using: |
|
| |||||||||
|
|
|
|
|
| Significant |
|
|
|
| |||||
|
|
|
| Quoted Prices In |
| Other |
| Significant |
|
| |||||
|
|
|
| Active Markets for |
| Observable |
| Unobservable |
|
| |||||
|
| Carrying |
| Identical Assets |
| Inputs |
| Inputs |
| Total | |||||
(In thousands) |
| Amount |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Fair Value | |||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
| $ | 142,145 |
| $ | 142,145 |
| $ | — |
| $ | — |
| $ | 142,145 |
Interest-bearing deposits with banks |
|
| 153,223 |
|
| 153,223 |
|
| — |
|
| — |
|
| 153,223 |
Securities available for sale |
|
| 680,886 |
|
| — |
|
| 680,886 |
|
| — |
|
| 680,886 |
Securities restricted |
|
| 24,028 |
|
| n/a |
|
| n/a |
|
| n/a |
|
| n/a |
Securities held to maturity |
|
| 160,163 |
|
| — |
|
| 156,792 |
|
| — |
|
| 156,792 |
Loans, net |
|
| 3,244,393 |
|
| — |
|
| — |
|
| 3,216,204 |
|
| 3,216,204 |
Derivatives |
|
| 6,363 |
|
| — |
|
| 6,363 |
|
| — |
|
| 6,363 |
Accrued interest receivable |
|
| 11,236 |
|
| — |
|
| 2,936 |
|
| 8,300 |
|
| 11,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit |
|
| 329,491 |
|
| — |
|
| 326,865 |
|
| — |
|
| 326,865 |
Demand and other deposits |
|
| 3,556,902 |
|
| 3,556,902 |
|
| — |
|
| — |
|
| 3,556,902 |
FHLB advances |
|
| 240,433 |
|
| — |
|
| 236,209 |
|
| — |
|
| 236,209 |
Repurchase agreements |
|
| 539 |
|
| — |
|
| 539 |
|
| — |
|
| 539 |
Subordinated debentures |
|
| 78,781 |
|
| — |
|
| 74,400 |
|
| — |
|
| 74,400 |
Derivatives |
|
| 2,215 |
|
| — |
|
| 2,215 |
|
| — |
|
| 2,215 |
Accrued interest payable |
|
| 1,524 |
|
| — |
|
| 1,524 |
|
| — |
|
| 1,524 |
Page -59-
4. LOANS
The following table sets forthpresents the major classificationsloans by category modified as TDRs that occurred during the year ended December 31, 2021:
| | | | | | | | |
| | Modifications During the Year Ended December 31, 2021 | ||||||
| | | | | Pre- | | | Post- |
| | | | | Modification | | | Modification |
| | | | | Outstanding | | | Outstanding |
| | Number of | | | Recorded | | | Recorded |
(Dollars in thousands) | | Loans | | | Investment | | | Investment |
One-to-four family residential and cooperative/condominium apartment | | 2 | | $ | 467 | | $ | 467 |
CRE | | 1 | | | 10,000 | | | - |
C&I | | 1 | | | 456 | | | 456 |
Total | | 4 | | $ | 10,923 | | $ | 923 |
There were 0 loans modified in a manner that met the criteria of loans:
|
|
|
|
|
|
|
|
| December 31, | ||||
(In thousands) |
| 2019 |
| 2018 | ||
Commercial real estate mortgage loans |
| $ | 1,565,687 |
| $ | 1,373,556 |
Multi-family mortgage loans |
|
| 812,174 |
|
| 585,827 |
Residential real estate mortgage loans |
|
| 493,144 |
|
| 519,763 |
Commercial, industrial and agricultural loans |
|
| 679,444 |
|
| 645,724 |
Real estate construction and land loans |
|
| 97,311 |
|
| 123,393 |
Installment/consumer loans |
|
| 24,836 |
|
| 20,509 |
Total loans |
|
| 3,672,596 |
|
| 3,268,772 |
Net deferred loan costs and fees |
|
| 7,689 |
|
| 7,039 |
Total loans held for investment |
|
| 3,680,285 |
|
| 3,275,811 |
Allowance for loan losses |
|
| (32,786) |
|
| (31,418) |
Loans, net |
| $ | 3,647,499 |
| $ | 3,244,393 |
a TDR during the year ended December 31, 2020 or 2019.
In June 2015,As of December 31, 2020 and 2019, the Bank had 0 loan commitments to borrowers with outstanding TDRs.
There were 0 TDR charge-offs during the year ended December 31, 2021. TDRs did not have a material impact to the allowance for credit losses.There were 0 TDRs that subsequently defaulted.
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 completedestablished a formal payment deferral program in April 2020 for borrowers that had been adversely affected by the acquisitionpandemic.
As of CNB resulting inDecember 31, 2021, the additionCompany had 7 loans, representing outstanding loan balances of $729.4$5.7 million, that were deferring full principal and interest (“P&I” deferrals).
The table below presents the full P&I deferrals as of acquired loans recorded at their fair value. There were approximately $223.4 million and $275.0 millionDecember 31, 2021:
| | | | | | | | |
| | December 31, 2021 | | |||||
| | Number | | | |
| | |
|
| of Loans |
| Balance |
| % of Portfolio | | |
(Dollars in thousands) | | | | | | | | |
One-to-four family residential and cooperative/condominium apartment |
| 5 | | $ | 1,922 | | 0.3 | % |
CRE |
| 1 | |
| 3,487 | | 0.1 | |
C&I | | 1 | | | 251 | | - | |
Total |
| 7 | | $ | 5,660 | | 0.1 | % |
Pursuant to guidance under Section 4013 of acquired CNB loans remainingthe CARES Act, a qualified loan modification, such as a payment deferral, is exempt from classification as a TDR as defined by GAAP. This applies if the loan was current as of December 31, 2019 and 2018, respectively.
Asthe modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate of the loan. This guidance was expected to expire on December 31, 2019, one commercial real estate (“CRE”) mortgage loan totaling $12.6 million2020. The 2021 Consolidated Appropriations Act, which was classified as heldsigned into law December of 2020, extended the exemption for sale. The loan was reclassified from loans held for investment to loans held for saleTDR classification. This provision expired on January 1, 2022 and, written down from $16.3 million to the loan’s estimated fair value of $12.6 million, through a $3.7 million charge-off during the 2019 second quarter.
Lending Risk
The principal business of the Bank is lending in CRE mortgage loans, multi-family mortgage loans, residential real estate mortgage loans, construction loans, home equity loans, commercial, industrial and agricultural loans, land loans and consumer loans. The Bank considers its primary lending area to be Nassau and Suffolk Counties located on Long Island and the New York City boroughs. A substantial portion of the Bank’s loans is secured by real estate in these areas. Accordingly, the ultimate collectability of the loan portfolio is susceptible to changes in market and economic conditions in this region.
Commercial Real Estate Mortgages
Loans in this classification include income producing investment properties and owner-occupied real estate used for business purposes. The underlying properties are located largely in the Bank’s primary market area. The cash flows of the income producing investment properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on credit quality. Generally, management seeks to obtain annual financial information for borrowers with loans in excess of $1.0 million in this category. In the case of owner-occupied real estate used for business purposes, a weakened economy and resultant decreased consumer and/or business spending will have an adverse effect on credit quality.
Multi-Family Mortgages
Loans in this classification include income producing residential investment properties of five or more families. Loans are made to established owners with a proven and demonstrable record of strong performance. Loans are secured by a first mortgage lien on the subject property with a loan to value ratio generally not exceeding 75%. Repayment is derived generally from the rental income generated from the property and may be supplemented by the owners’ personal cash flow. Credit risk arises with an increase in vacancy rates, property mismanagement and the predominance of non-recourse loans that are customary in the industry.
Page -60-
Residential Real Estate Mortgages and Home Equity Loans
Loans in these classifications are generally secured by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, can have an effect on the credit quality in this loan class. The Bank generally does not originate loans with a loan-to-value ratio greater than 80% and does not grant subprime loans.
Commercial, Industrial and Agricultural Loans
Loans in this classification are made to businesses and include term loans, lines of credit, senior secured loans to corporations, equipment financing and taxi medallion loans. Generally, these loans are secured by assets of the business and repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer and/or business spending, will have an effect on the credit quality in this loan class.
Real Estate Construction and Land Loans
Loans in this classification primarily include land loans to local individuals, contractors and developers for developing the land for sale or for the purpose of making improvements thereon. Repayment is derived primarily from sale of the lots/units including any pre-sold units. Credit risk is affected by market conditions, time to sell at an adequate price and cost overruns. To a lesser extent, this class includes commercial development projects thattherefore, the Company finances, which in most cases require interest only during construction, and then convert to permanent financing. Construction delays, cost overruns, market conditions and the availability of permanent financing, to the extent such permanent financing iswill not being provided by the Bank, all affect the credit risk inhave additional loans modified under this exemption going forward.
Risk-ratings on COVID-19 loan class.
Installment and Consumer Loans
Loans in this classification may be either secured or unsecured. Repayment is dependentdeferrals are evaluated on the credit quality of the individual borrower and, if applicable, sale of the collateral securing the loan, such as automobiles. Therefore, the overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this loan class.ongoing basis.
Credit Quality Indicators
The Company categorizes loans into risk categories of pass, special mention, substandard and doubtful based on relevant information about the ability of borrowers to service their debt including repayment patterns, probable incurred losses, past losssuch as: current financial information, historical payment experience, credit structure, loan documentation, public information, and current economic conditions, and various types of concentrations of credit. Assigned risk rating grades are continuously updatedtrends, among other factors. The Company analyzes loans individually by classifying them as new information is obtained. Loans risk rated special mention, substandard and doubtful are reviewed on a quarterly basis.to credit risk. The Company uses the following definitions for risk rating grades:ratings:
Pass: Loans classified as pass include current loans performing in accordance with contractual terms, pools
70
Special mention:Mention. Loans classified as special mention while generally not delinquent, have a potential weaknessesweakness that deservedeserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or inof the Bank’s credit position at some future date.
Substandard: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. There is aThey are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful:Doubtful. Loans classified as doubtful have all the weaknesses inherent in athose classified as substandard, loan, may also bewith the added characteristic that the weaknesses make collection or liquidation in delinquency status and have defined weaknesses basedfull, on currentlythe basis of then existing facts, conditions, and values, making collection or liquidation in full highly questionable and improbable.
Page -61-
The following tables representis a summary of the credit risk profile of loans categorized by class and internally assigned grade as of the periods indicated, the years represent the year of origination for non-revolving loans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 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 | | $ | 129,679 | | $ | 86,028 | | $ | 80,195 | | $ | 75,354 | | $ | 77,829 | | $ | 129,276 | | $ | 49,878 | | $ | 12,537 | | $ | 640,776 |
Special mention | | | — | | | 1,124 | | | 335 | | | 752 | | | 334 | | | 2,158 | | | 846 | | | 747 | | | 6,296 |
Substandard | | | — | | | 1,944 | | | 2,038 | | | 597 | | | 2,202 | | | 14,512 | | | — | | | 894 | | | 22,187 |
Doubtful | | | — | | | — | | | — | | | 23 | | | — | | | — | | | — | | | — | | | 23 |
Total one-to-four family residential, and condominium/cooperative apartment | | | 129,679 | | | 89,096 | | | 82,568 | | | 76,726 | | | 80,365 | | | 145,946 | | | 50,724 | | | 14,178 | | | 669,282 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Multifamily residential and residential mixed-use: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 590,462 | | | 341,206 | | | 455,277 | | | 151,226 | | | 332,749 | | | 1,145,609 | | | 12,277 | | | 825 | | | 3,029,631 |
Special mention | | | — | | | 11,040 | | | 14,486 | | | — | | | 11,817 | | | 26,252 | | | — | | | — | | | 63,595 |
Substandard | | | — | | | 1,501 | | | 35,326 | | | 32,390 | | | 54,238 | | | 137,387 | | | 2,278 | | | — | | | 263,120 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total multifamily residential and residential mixed-use | | | 590,462 | | | 353,747 | | | 505,089 | | | 183,616 | | | 398,804 | | | 1,309,248 | | | 14,555 | | | 825 | | | 3,356,346 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
CRE: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 872,049 | | | 848,694 | | | 529,182 | | | 306,360 | | | 298,904 | | | 815,238 | | | 43,183 | | | 6,188 | | | 3,719,798 |
Special mention | | | 6,003 | | | 1,024 | | | 39,305 | | | 18,983 | | | 11,039 | | | 17,438 | | | — | | | — | | | 93,792 |
Substandard | | | 4,431 | | | 1,732 | | | 7,082 | | | 45,496 | | | 31,747 | | | 41,763 | | | — | | | — | | | 132,251 |
Doubtful | | | — | | | — | | | 106 | | | — | | | — | | | — | | | — | | | — | | | 106 |
Total CRE | | | 882,483 | | | 851,450 | | | 575,675 | | | 370,839 | | | 341,690 | | | 874,439 | | | 43,183 | | | 6,188 | | | 3,945,947 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
ADC: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 142,123 | | | 76,259 | | | 56,885 | | | 23,456 | | | 6,809 | | | 774 | | | 1,066 | | | 588 | | | 307,960 |
Special mention | | | — | | | 1,078 | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,078 |
Substandard | | | — | | | 90 | | | — | | | 13,500 | | | — | | | — | | | — | | | — | | | 13,590 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total ADC | | | 142,123 | | | 77,427 | | | 56,885 | | | 36,956 | | | 6,809 | | | 774 | | | 1,066 | | | 588 | | | 322,628 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
C&I: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 93,802 | | | 121,291 | | | 53,116 | | | 49,634 | | | 36,238 | | | 23,615 | | | 446,134 | | | 9,764 | | | 833,594 |
Special mention | | | — | | | 1,625 | | | 239 | | | 2,191 | | | 585 | | | 52 | | | 3,225 | | | 1,286 | | | 9,203 |
Substandard | | | 402 | | | 5,744 | | | 5,789 | | | 6,011 | | | 2,832 | | | 2,844 | | | 28,545 | | | 13,597 | | | 65,764 |
Doubtful | | | 550 | | | 1,621 | | | 9,968 | | | 752 | | | 11,107 | | | — | | | 1,000 | | | — | | | 24,998 |
Total C&I | | | 94,754 | | | 130,281 | | | 69,112 | | | 58,588 | | | 50,762 | | | 26,511 | | | 478,904 | | | 24,647 | | ��� | 933,559 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 1,828,115 | | | 1,473,478 | | | 1,174,655 | | | 606,030 | | | 752,529 | | | 2,114,512 | | | 552,538 | | | 29,902 | | | 8,531,759 |
Special mention | | | 6,003 | | | 15,891 | | | 54,365 | | | 21,926 | | | 23,775 | | | 45,900 | | | 4,071 | | | 2,033 | | | 173,964 |
Substandard | | | 4,833 | | | 11,011 | | | 50,235 | | | 97,994 | | | 91,019 | | | 196,506 | | | 30,823 | | | 14,491 | | | 496,912 |
Doubtful | | | 550 | | | 1,621 | | | 10,074 | | | 775 | | | 11,107 | | | — | | | 1,000 | | | — | | | 25,127 |
Total Loans | | $ | 1,839,501 | | $ | 1,502,001 | | $ | 1,289,329 | | $ | 726,725 | | $ | 878,430 | | $ | 2,356,918 | | $ | 588,432 | | $ | 46,426 | | $ | 9,227,762 |
71
| | | | | | | | | | | | | | | |
| | December 31, 2020 | |||||||||||||
| | | | | Special | | | | | | | | | | |
(In thousands) |
| Pass |
| Mention |
| Substandard |
| Doubtful |
| Total | |||||
Real Estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
One-to-four family residential and condominium/cooperative apartment | | $ | 183,293 | | $ | — | | $ | 1,696 | | $ | — | | $ | 184,989 |
Multifamily residential and residential mixed-use | |
| 2,523,258 | |
| 56,400 | |
| 179,085 | |
| — | |
| 2,758,743 |
CRE | |
| 1,831,712 | |
| 13,861 | |
| 32,594 | |
| — | |
| 1,878,167 |
ADC | |
| 142,796 | |
| 13,500 | |
| — | |
| — | |
| 156,296 |
Total real estate | |
| 4,681,059 | |
| 83,761 | |
| 213,375 | |
| — | |
| 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 |
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 grades:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 | |||||||||||||
(In thousands) |
| Pass |
| Special Mention |
| Substandard |
| Doubtful |
| Total | |||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
| $ | 511,444 |
| $ | 18,426 |
| $ | 1,218 |
| $ | — |
| $ | 531,088 |
Non-owner occupied |
|
| 1,022,208 |
|
| — |
|
| 12,391 |
|
| — |
|
| 1,034,599 |
Multi-family |
|
| 811,770 |
|
| 404 |
|
| — |
|
| — |
|
| 812,174 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
| 408,933 |
|
| 11,490 |
|
| 4,089 |
|
| — |
|
| 424,512 |
Home equity |
|
| 67,016 |
|
| 910 |
|
| 706 |
|
| — |
|
| 68,632 |
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
| 162,431 |
|
| 2,074 |
|
| 9,714 |
|
| — |
|
| 174,219 |
Unsecured |
|
| 480,982 |
|
| 13,596 |
|
| 10,647 |
|
| — |
|
| 505,225 |
Real estate construction and land loans |
|
| 95,530 |
|
| — |
|
| 1,781 |
|
| — |
|
| 97,311 |
Installment/consumer loans |
|
| 23,976 |
|
| 103 |
|
| 757 |
|
| — |
|
| 24,836 |
Total loans |
| $ | 3,584,290 |
| $ | 47,003 |
| $ | 41,303 |
| $ | — |
| $ | 3,672,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | |||||||||||||
(In thousands) |
| Pass |
| Special Mention |
| Substandard |
| Doubtful |
| Total | |||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
| $ | 480,503 |
| $ | 12,045 |
| $ | 17,850 |
| $ | — |
| $ | 510,398 |
Non-owner occupied |
|
| 858,069 |
|
| 2,188 |
|
| 2,901 |
|
| — |
|
| 863,158 |
Multi-family |
|
| 585,409 |
|
| 418 |
|
| — |
|
| — |
|
| 585,827 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage |
|
| 438,891 |
|
| 8,510 |
|
| 1,114 |
|
| — |
|
| 448,515 |
Home equity |
|
| 68,480 |
|
| 1,594 |
|
| 1,174 |
|
| — |
|
| 71,248 |
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
| 147,474 |
|
| 5,536 |
|
| 15,530 |
|
| — |
|
| 168,540 |
Unsecured |
|
| 458,526 |
|
| 12,886 |
|
| 5,772 |
|
| — |
|
| 477,184 |
Real estate construction and land loans |
|
| 123,089 |
|
| — |
|
| 304 |
|
| — |
|
| 123,393 |
Installment/consumer loans |
|
| 20,464 |
|
| 9 |
|
| 36 |
|
| — |
|
| 20,509 |
Total loans |
| $ | 3,180,905 |
| $ | 43,186 |
| $ | 44,681 |
| $ | — |
| $ | 3,268,772 |
profile of other loans by internally assigned grade:
Past Due
| | | | | | |
(In thousands) |
| December 31, 2021 |
| December 31, 2020 | ||
Performing | | $ | 16,533 | | $ | 2,315 |
Non-accrual | |
| 365 | |
| 1 |
Total | | $ | 16,898 | | $ | 2,316 |
6. LOAN SERVICING ACTIVITIES
The Bank services real estate and Non-accrualC&I loans for others having principal balances outstanding of approximately $471.9 million and $377.7 million at December 31, 2021 and 2020, respectively. Loans serviced for others are not reported as assets. Servicing loans for others generally consists of collecting loan payments, maintaining escrow accounts, disbursing payments to investors, paying taxes and insurance and processing foreclosure. In connection with loans serviced for others, the Bank held borrowers’ escrow balances of $2.9 million and $3.9 million at December 31, 2021 and 2020, respectively.
There are no restrictions on the Company’s consolidated assets or liabilities related to loans sold with servicing rights retained. Upon sale of these loans, the Company recorded an SRA in other assets, and has elected to account for the SRA under the "amortization method" prescribed under GAAP. The activity for SRAs for the periods indicated are as follows:
| | | | | | | | | |
| | | |||||||
| | Year Ended December 31, | |||||||
(In thousands) |
| 2021 |
| 2020 |
| 2019 | |||
Servicing right assets: | | | | | | | | | |
Beginning of year | | $ | 1,710 | | $ | 1,459 | | $ | 1,315 |
Acquired in the Merger | | | 2,070 | | | — | | | — |
Additions | |
| 885 | |
| 703 | |
| 509 |
Amortized to expense | | | (809) | | | (452) | | | (365) |
End of year | | | 3,856 | | | 1,710 | | | 1,459 |
| | | | | | | | | |
Valuation allowance: | | | | | | | | | |
Beginning of year | | | — | | | — | | | — |
Additions expensed | |
| (80) | |
| — | |
| — |
End of year | | | (80) | | | — | | | — |
Servicing right assets, net | | $ | 3,776 | | $ | 1,710 | | $ | 1,459 |
The fair value of SRAs was $3.9 million and $1.7 million, at December 31, 2021 and 2020, respectively. The fair value at December 31, 2021 was determined using discount rates ranging from 7.8% to 12.0%, prepayment speeds ranging from 5% to 38%, depending on the stratification of the specific servicing right, and a weighted average default rate of 1.24%. The fair value at December 31, 2020 was determined using discount rates ranging from 4.0% to 17.0%, prepayment speeds ranging from 5% to 20%, depending on the stratification of the specific servicing right, and a weighted average default rate of 1.30%.
72
7. PREMISES AND FIXED ASSETS, NET AND PREMISES HELD FOR SALE
Premises and Fixed Assets, Net
As a result of the Merger, the Company acquired $37.9 million of premises and fixed assets, net on the Merger Date.
The following tables representis a summary of premises and fixed assets, net:
| | | | | | |
| | December 31, | ||||
(In thousands) |
| 2021 |
| 2020 | ||
Land | | $ | 10,824 | | $ | 1,600 |
Buildings | |
| 21,323 | |
| 10,265 |
Leasehold improvements | |
| 26,120 | |
| 23,445 |
Furniture, fixtures and equipment | |
| 25,110 | |
| 20,945 |
Premises and fixed assets, gross | | $ | 83,377 | | $ | 56,255 |
Less: accumulated depreciation and amortization | |
| (33,009) | |
| (37,202) |
Premises and fixed assets, net | | $ | 50,368 | | $ | 19,053 |
Depreciation and amortization expense amounted to $6.5 million, $4.1 million and $4.7 million during the agingyears ended December 31, 2021, 2020 and 2019, respectively.
Premises Held for Sale
The aggregate recorded balance of the recorded investment in past due loansCompany’s premises held for sale was $556 thousand at December 31, 2021. There were 0 premises held for sale as of December 31, 2019 and 2018 by class of loans, as defined by FASB ASC 310‑10:
|
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|
|
|
|
| December 31, 2019 | |||||||||||||||||||
|
|
|
|
|
|
|
| 90+ Days |
| Non-accrual |
|
|
|
|
|
|
|
|
| ||
|
| 30-59 |
| 60-89 |
| Past Due |
| Including 90 |
| Total Past |
|
|
|
|
|
| |||||
|
| Days |
| Days |
| And |
| Days or More |
| Due and |
|
|
|
|
|
| |||||
(In thousands) |
| Past Due |
| Past Due |
| Accruing |
| Past Due |
| Non-accrual |
| Current |
| Total Loans | |||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
| $ | 917 |
| $ | 433 |
| $ | — |
| $ | 225 |
| $ | 1,575 |
| $ | 529,513 |
| $ | 531,088 |
Non-owner occupied |
|
| 98 |
|
| — |
|
| — |
|
| 512 |
|
| 610 |
|
| 1,033,989 |
|
| 1,034,599 |
Multi-family |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 812,174 |
|
| 812,174 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
|
| 2,446 |
|
| — |
|
| — |
|
| 2,086 |
|
| 4,532 |
|
| 419,980 |
|
| 424,512 |
Home equity |
|
| 607 |
|
| 747 |
|
| 343 |
|
| 657 |
|
| 2,354 |
|
| 66,278 |
|
| 68,632 |
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
| 24 |
|
| 187 |
|
| — |
|
| 206 |
|
| 417 |
|
| 173,802 |
|
| 174,219 |
Unsecured |
|
| 249 |
|
| 534 |
|
| — |
|
| 530 |
|
| 1,313 |
|
| 503,912 |
|
| 505,225 |
Real estate construction and land loans |
|
| — |
|
| — |
|
| — |
|
| 123 |
|
| 123 |
|
| 97,188 |
|
| 97,311 |
Installment/consumer loans |
|
| 124 |
|
| — |
|
| — |
|
| 30 |
|
| 154 |
|
| 24,682 |
|
| 24,836 |
Total loans |
| $ | 4,465 |
| $ | 1,901 |
| $ | 343 |
| $ | 4,369 |
| $ | 11,078 |
| $ | 3,661,518 |
| $ | 3,672,596 |
Page -62-
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|
|
| December 31, 2018 | |||||||||||||||||||
|
|
|
|
|
|
|
| 90+ Days |
| Non-accrual |
|
|
|
|
|
|
|
|
| ||
|
| 30-59 |
| 60-89 |
| Past Due |
| Including 90 |
| Total Past |
|
|
|
|
|
| |||||
|
| Days |
| Days |
| And |
| Days or More |
| Due and |
|
|
|
|
|
| |||||
(In thousands) |
| Past Due |
| Past Due |
| Accruing |
| Past Due |
| Non-accrual |
| Current |
| Total Loans | |||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
| $ | 333 |
| $ | 194 |
| $ | — |
| $ | 253 |
| $ | 780 |
| $ | 509,618 |
| $ | 510,398 |
Non-owner occupied |
|
| — |
|
| — |
|
| — |
|
| 885 |
|
| 885 |
|
| 862,273 |
|
| 863,158 |
Multi-family |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 585,827 |
|
| 585,827 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
|
| 892 |
|
| 230 |
|
| — |
|
| 199 |
|
| 1,321 |
|
| 447,194 |
|
| 448,515 |
Home equity |
|
| 1,033 |
|
| — |
|
| 308 |
|
| 624 |
|
| 1,965 |
|
| 69,283 |
|
| 71,248 |
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
| 330 |
|
| 196 |
|
| — |
|
| 174 |
|
| 700 |
|
| 167,840 |
|
| 168,540 |
Unsecured |
|
| 1,108 |
|
| — |
|
| — |
|
| 621 |
|
| 1,729 |
|
| 475,455 |
|
| 477,184 |
Real estate construction and land loans |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 123,393 |
|
| 123,393 |
Installment/consumer loans |
|
| 84 |
|
| — |
|
| — |
|
| 52 |
|
| 136 |
|
| 20,373 |
|
| 20,509 |
Total loans |
| $ | 3,780 |
| $ | 620 |
| $ | 308 |
| $ | 2,808 |
| $ | 7,516 |
| $ | 3,261,256 |
| $ | 3,268,772 |
2020.
Impaired Loans
At December 31, 2019 and 2018, the Company had individually impaired loans as defined by FASB ASC 310, “Receivables” of $27.0million and $19.4 million, respectively. The increase in impaired loans was primarily attributable to new troubled debt restructurings (“TDRs”), partially offset by the payoff of certain TDRs and other impaired loans during the year ended December 31, 2019. During the year ended December 31, 2019,2021, the Bank modified certain loansCompany transferred 2 real estate properties utilized as TDRsretail branches to premises held for sale totaling $21.7$2.8 million. For a loan to be considered impaired, management determines after review whether it is probable that the Bank will not be able to collect all amounts due according to the contractual terms of the loan agreement. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually classified non-accrual loans and TDRs. At December 31, 2019, impaired loans also included $1.1 million in other impaired performing loans which were related to borrowers with other performing TDRs. At December 31, 2018 impaired loans included $2.7 million in other impaired performing loans related to three taxi medallion loans which paid off in January 2019. For impaired loans, the Bank evaluates the impairment of the loan in accordance with FASB ASC 310‑10‑35‑22. Impairment is determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate. For loans that are collateral dependent, the fair value of the collateral is used to determine the fair value of the loan. The fair value of the collateral is determined based on recent appraised values. The fair value of the collateral or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan loss allowance allocation is required. The increase in the allocated allowance on impaired loans from December 31, 2018, primarily relates to taxi medallion loans which were restructured as TDRs during
During the year ended December 31, 2019.
The following tables set forth2021, the Company sold 1 real estate property utilized as a retail branch totaling $2.2 million and recorded investment, unpaid principal balancea gain of $550 thousand in Gain on sale of securities and related allowance by classother assets in the consolidated financial statements. There were 0 sales of loans at December 31, 2019, 2018 and 2017premises held for individually impaired loans. The tables also set forth the average recorded
Page -63-
investment of individually impaired loans and interest income recognized while the loans were impairedsale during the years ended December 31, 2019, 2018 and 2017:
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|
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|
|
|
|
|
| Year Ended | ||||
|
| December 31, 2019 |
| December 31, 2019 | |||||||||||
|
|
|
|
| Unpaid |
| Related |
| Average |
| Interest | ||||
|
| Recorded |
| Principal |
| Allocated |
| Recorded |
| Income | |||||
(In thousands) |
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized | |||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
| $ | 3,379 |
| $ | 3,401 |
| $ | — |
| $ | 1,286 |
| $ | 41 |
Non-owner occupied |
|
| 2,296 |
|
| 2,296 |
|
| — |
|
| 2,149 |
|
| 99 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Home equity |
|
| 294 |
|
| 300 |
|
| — |
|
| 74 |
|
| — |
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
| 494 |
|
| 494 |
|
| — |
|
| 287 |
|
| 18 |
Unsecured |
|
| 8,863 |
|
| 8,863 |
|
| — |
|
| 6,601 |
|
| 411 |
Total with no related allowance recorded |
|
| 15,326 |
|
| 15,354 |
|
| — |
|
| 10,397 |
|
| 569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Non-owner occupied |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Home equity |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
| 9,612 |
|
| 9,612 |
|
| 3,435 |
|
| 6,189 |
|
| 223 |
Unsecured |
|
| 2,045 |
|
| 2,051 |
|
| 1,241 |
|
| 1,838 |
|
| 86 |
Total with an allowance recorded |
|
| 11,657 |
|
| 11,663 |
|
| 4,676 |
|
| 8,027 |
|
| 309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
| 3,379 |
|
| 3,401 |
|
| — |
|
| 1,286 |
|
| 41 |
Non-owner occupied |
|
| 2,296 |
|
| 2,296 |
|
| — |
|
| 2,149 |
|
| 99 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Home equity |
|
| 294 |
|
| 300 |
|
| — |
|
| 74 |
|
| — |
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
| 10,106 |
|
| 10,106 |
|
| 3,435 |
|
| 6,476 |
|
| 241 |
Unsecured |
|
| 10,908 |
|
| 10,914 |
|
| 1,241 |
|
| 8,439 |
|
| 497 |
Total |
| $ | 26,983 |
| $ | 27,017 |
| $ | 4,676 |
| $ | 18,424 |
| $ | 878 |
Page -64-
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended | ||||
|
| December 31, 2018 |
| December 31, 2018 | |||||||||||
|
|
|
|
| Unpaid |
| Related |
| Average |
| Interest | ||||
|
| Recorded |
| Principal |
| Allocated |
| Recorded |
| Income | |||||
(In thousands) |
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized | |||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
| $ | 268 |
| $ | 278 |
| $ | — |
| $ | 177 |
| $ | — |
Non-owner occupied |
|
| 2,816 |
|
| 2,816 |
|
| — |
|
| 1,583 |
|
| 88 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Home equity |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
| 8,234 |
|
| 8,234 |
|
| — |
|
| 5,644 |
|
| 196 |
Unsecured |
|
| 5,316 |
|
| 5,316 |
|
| — |
|
| 5,127 |
|
| 284 |
Total with no related allowance recorded |
|
| 16,634 |
|
| 16,644 |
|
| — |
|
| 12,531 |
|
| 568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Non-owner occupied |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Home equity |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
| 2,721 |
|
| 2,721 |
|
| 189 |
|
| 2,757 |
|
| 91 |
Unsecured |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Total with an allowance recorded |
|
| 2,721 |
|
| 2,721 |
|
| 189 |
|
| 2,757 |
|
| 91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
| 268 |
|
| 278 |
|
| — |
|
| 177 |
|
| — |
Non-owner occupied |
|
| 2,816 |
|
| 2,816 |
|
| — |
|
| 1,583 |
|
| 88 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Home equity |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
| 10,955 |
|
| 10,955 |
|
| 189 |
|
| 8,401 |
|
| 287 |
Unsecured |
|
| 5,316 |
|
| 5,316 |
|
| — |
|
| 5,127 |
|
| 284 |
Total |
| $ | 19,355 |
| $ | 19,365 |
| $ | 189 |
| $ | 15,288 |
| $ | 659 |
Page -65-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 |
| Year Ended December 31, 2017 | |||||||||||
|
|
|
|
| Unpaid |
| Related |
| Average |
| Interest | ||||
|
| Recorded |
| Principal |
| Allocated |
| Recorded |
| Income | |||||
(In thousands) |
| Investment |
| Balance |
| Allowance |
| Investment |
| Recognized | |||||
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
| $ | 2,073 |
| $ | 2,073 |
| $ | — |
| $ | 173 |
| $ | 80 |
Non-owner occupied |
|
| 9,089 |
|
| 9,089 |
|
| — |
|
| 7,001 |
|
| 400 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Home equity |
|
| 100 |
|
| 100 |
|
| — |
|
| 8 |
|
| — |
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
| 7,368 |
|
| 8,013 |
|
| — |
|
| 2,633 |
|
| 211 |
Unsecured |
|
| 2,154 |
|
| 2,408 |
|
| — |
|
| 592 |
|
| 36 |
Total with no related allowance recorded |
|
| 20,784 |
|
| 21,683 |
|
| — |
|
| 10,407 |
|
| 727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Non-owner occupied |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Home equity |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Unsecured |
|
| 1,708 |
|
| 3,235 |
|
| 1,708 |
|
| 142 |
|
| 174 |
Total with an allowance recorded |
|
| 1,708 |
|
| 3,235 |
|
| 1,708 |
|
| 142 |
|
| 174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
|
| 2,073 |
|
| 2,073 |
|
| — |
|
| 173 |
|
| 80 |
Non-owner occupied |
|
| 9,089 |
|
| 9,089 |
|
| — |
|
| 7,001 |
|
| 400 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Home equity |
|
| 100 |
|
| 100 |
|
| — |
|
| 8 |
|
| — |
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
|
| 7,368 |
|
| 8,013 |
|
| — |
|
| 2,633 |
|
| 211 |
Unsecured |
|
| 3,862 |
|
| 5,643 |
|
| 1,708 |
|
| 734 |
|
| 210 |
Total |
| $ | 22,492 |
| $ | 24,918 |
| $ | 1,708 |
| $ | 10,549 |
| $ | 901 |
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.
There was no other real estate owned at December 31, 2019. At December 31, 2018, other real estate owned totaled $0.2 million and consisted of one property which was sold during the quarter ended June 30,2020 or 2019.
Troubled Debt Restructurings
8. LEASES
The terms of certain loans were modified and are considered TDRs. The modificationAs a result of the terms of such loans generally includes one or a combination ofMerger, the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. The modification of these loans involved loans to borrowers who were experiencing financial difficulties.
In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed to determine if that borrower is currently in payment default under any of its obligations or whether there is a probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification.
Page -66-
The following table presents loans by class modified as troubled debt restructurings during the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Modifications During the Year Ended December 31, | ||||||||||||||||||||||
|
| 2019 |
| 2018 |
| 2017 | ||||||||||||||||||
|
|
|
| Pre- |
| Post- |
|
|
| Pre- |
| Post- |
|
|
| Pre- |
| Post- | ||||||
|
|
|
| Modification |
| Modification |
|
|
| Modification |
| Modification |
|
|
| Modification |
| Modification | ||||||
|
|
|
| Outstanding |
| Outstanding |
|
|
| Outstanding |
| Outstanding |
|
|
| Outstanding |
| Outstanding | ||||||
|
| Number of |
| Recorded |
| Recorded |
| Number of |
| Recorded |
| Recorded |
| Number of |
| Recorded |
| Recorded | ||||||
(Dollars in thousands) |
| Loans |
| Investment |
| Investment |
| Loans |
| Investment |
| Investment |
| Loans |
| Investment |
| Investment | ||||||
Commercial real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied |
| 3 |
| $ | 8,582 |
| $ | 8,582 |
| — |
| $ | — |
| $ | — |
| — |
| $ | — |
| $ | — |
Non-owner occupied |
| — |
|
| — |
|
| — |
| 1 |
|
| 926 |
|
| 926 |
| 2 |
|
| 7,764 |
|
| 7,764 |
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgages |
| 1 |
|
| 338 |
|
| 338 |
| 1 |
|
| 644 |
|
| 644 |
| — |
|
| — |
|
| — |
Home equity |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
Commercial and industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured |
| 7 |
|
| 6,920 |
|
| 6,920 |
| 2 |
|
| 1,994 |
|
| 1,994 |
| 7 |
|
| 6,828 |
|
| 6,828 |
Unsecured |
| 8 |
|
| 5,908 |
|
| 5,908 |
| 8 |
|
| 5,655 |
|
| 5,655 |
| 2 |
|
| 189 |
|
| 189 |
Installment/consumer loans |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
| — |
|
| — |
|
| — |
Total |
| 19 |
| $ | 21,748 |
| $ | 21,748 |
| 12 |
| $ | 9,219 |
| $ | 9,219 |
| 11 |
| $ | 14,781 |
| $ | 14,781 |
There were $0.1 million, $0.4 million and $0.4Company acquired $45.6 million of charge-offs related to TDRs duringoperating lease assets and $45.3 million of operating lease liabilities on the years ended December 31, 2019, 2018 and 2017, respectively. Merger Date
During the year ended December 31, 2019 there were two loans modified as TDRs for which there was a payment default within twelve months following the modification. There was one loan modified as a TDR during 2018 and two loans modified as TDRs during 2017 for which there was a payment default within twelve months following the modification. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.
At December 31, 2019 and 2018,2021, the Company had $405 thousand and $133 thousand, respectively, of non-accrual TDRs and $26.3 million and $16.9 million, respectively, of performing TDRs. At December 31, 2019 and 2018, the non-accrual TDRs were unsecured. The Bank has no commitmentelected to lend additional funds to these debtors.
The terms of certain other loans were modified during the year ended December 31, 2019 that did not meet the definition of a TDR. These loans have a total recorded investment at December 31, 2019 of $82.8 million. These loans were to borrowers who were not experiencing financial difficulties.
Purchased Credit Impaired Loans
Loans acquiredterminate 1 if its corporate headquarters office space leases, which resulted in a business combination are recorded at their fair value at the acquisition date. Credit discounts are included in the determination of fair value; therefore, an allowance for loan losses is not recorded at the acquisition date.
In determining the acquisition date fair value of purchased loans, acquired loans are aggregated into pools of loans with common characteristics. Each loan is reviewed at acquisitiondecrease to determine if it should be accounted for as a loan that has experienced credit deterioration and it is probable that at acquisition, the Company will not be able to collect all the contractual principal and interest due from the borrower. All loans with evidence of deterioration in credit quality are considered PCI loans unless the loan type is specifically excluded from the scope of FASB ASC 310‑30 “Loans and Debt Securities Acquired with Deteriorated Credit Quality,” such as loans with active revolver features or because management has minimal doubt about the collection of the loan.
The Bank makes an estimate of the loans’ contractual principal and contractual interest payments as well as the expected total cash flows from the pools of loans, which includes undiscounted expected principal and interest. The excess of contractual amounts over the total cash flows expected to be collected from the loans is referred to as non-accretable difference, which is not accreted into income. The excess of the expected undiscounted cash flows over the fair value of the loans is referred to as accretable discount. Accretable discount is recognized as interest income on a level-yield basis over the life of the loans. Management has not included prepayment assumptions in its modeling of contractual or expected cash flows. The Bank continues to estimate cash flows expected to be collected over the life of the loans. Subsequent increases in total cash flows expected to be collected are recognized as an adjustment to the accretable yield with the amount of periodic accretion adjusted over the remaining life of the loans. Subsequent decreases in cash flows expected to be collected over the life of the loans are recognized as impairment in the current period through the allowance for loan losses.
Page -67-
A PCI loan may be resolved either through a sale of the loan, by working with the customer and obtaining partial or full repayment, by short sale of the collateral, or by foreclosure. When a loan accounted for in a pool is resolved, it is removed from the pool at its carrying amount. Any differences between the amounts received and the outstanding balance are absorbed by the non-accretable difference of the pool. For loans not accounted for in pools, a gain or loss on resolution would be recognized based on the difference between the proceeds received and the carrying amount of the loan.
Payments received earlier than expected or in excess of expected cash flows from sales or other resolutions may result in the carrying value of a pool being reduced to zero even though outstanding contractual balances and expected cash flows remain related to loans in the pool. Once the carrying value of a pool is reduced to zero, any future proceeds from the remaining loans, representing further realization of accretable yield, are recognized as interest income upon receipt. These proceeds may include cash or real estate acquired in foreclosure.
The following table summarizes the activity in the accretable yield for the PCI loans:
|
|
|
|
|
|
|
|
| Year Ended December 31, | ||||
(In thousands) |
| 2019 |
| 2018 | ||
Balance at beginning of period |
| $ | 460 |
| $ | 2,151 |
Accretion |
|
| (515) |
|
| (1,842) |
Reclassification from nonaccretable difference during the period |
|
| 129 |
|
| 151 |
Accretable discount at end of period |
| $ | 74 |
| $ | 460 |
The allowance for loan losses was not increased during the years ended December 31, 2019 and 2018 for those PCI loans disclosed above and there were no charge-offs recorded.
Related Party Loans
Certain directors, executive officers, and their related parties, including their immediate families and companies in which they are principal owners, were loan customers of the Bank during 2019 and 2018.
The following table sets forth selected information about related party loans for the year ended December 31, 2019:
|
|
|
|
|
| Year Ended | |
|
| December 31, | |
(In thousands) |
| 2019 | |
Balance at beginning of period |
| $ | 21,047 |
New loans |
|
| 1,128 |
Repayments |
|
| (9,826) |
Balance at end of period |
| $ | 12,349 |
Page -68-
5. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established and maintained through a provision for loan losses based on probable incurred losses in the Bank’s loan portfolio. Management evaluates the adequacy of the allowance quarterly. The allowance is comprised of both individual valuation allowances and loan pool valuation allowances.
The following tables represent the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment, as defined under FASB ASC 310‑10, and based on impairment method as of December 31, 2019 and 2018. The tables include loans acquired from CNB and FNBNY.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 | |||||||||||||||||||
|
|
|
|
|
|
|
| Residential |
| Commercial, |
| Real Estate |
|
|
|
|
|
| |||
|
| Commercial |
|
|
|
| Real Estate |
| Industrial and |
| Construction |
| Installment/ |
|
|
| |||||
|
| Real Estate |
| Multi-family |
| Mortgage |
| Agricultural |
| and Land |
| Consumer |
|
| |||||||
(In thousands) |
| Mortgage Loans |
| Loans |
| Loans |
| Loans |
| Loans |
| Loans |
| Total | |||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | 4,676 |
| $ | — |
| $ | — |
| $ | 4,676 |
Collectively evaluated for impairment |
|
| 12,150 |
|
| 4,829 |
|
| 1,882 |
|
| 7,907 |
|
| 1,066 |
|
| 276 |
|
| 28,110 |
Loans acquired with deteriorated credit quality |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Total allowance for loan losses |
| $ | 12,150 |
| $ | 4,829 |
| $ | 1,882 |
| $ | 12,583 |
| $ | 1,066 |
| $ | 276 |
| $ | 32,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | 5,675 |
| $ | — |
| $ | 294 |
| $ | 21,014 |
| $ | — |
| $ | — |
| $ | 26,983 |
Collectively evaluated for impairment |
|
| 1,560,012 |
|
| 812,174 |
|
| 492,507 |
|
| 658,430 |
|
| 97,311 |
|
| 24,836 |
|
| 3,645,270 |
Loans acquired with deteriorated credit quality |
|
| — |
|
| — |
|
| 343 |
|
| — |
|
| — |
|
| — |
|
| 343 |
Total loans |
| $ | 1,565,687 |
| $ | 812,174 |
| $ | 493,144 |
| $ | 679,444 |
| $ | 97,311 |
| $ | 24,836 |
| $ | 3,672,596 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | |||||||||||||||||||
|
|
|
|
|
|
|
| Residential |
| Commercial, |
| Real Estate |
|
|
|
|
|
| |||
|
| Commercial |
|
|
|
| Real Estate |
| Industrial and |
| Construction |
| Installment/ |
|
|
| |||||
|
| Real Estate |
| Multi-family |
| Mortgage |
| Agricultural |
| and Land |
| Consumer |
|
|
| ||||||
(In thousands) |
| Mortgage Loans |
| Loans |
| Loans |
| Loans |
| Loans |
| Loans |
| Total | |||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | — |
| $ | — |
| $ | — |
| $ | 189 |
| $ | — |
| $ | — |
| $ | 189 |
Collectively evaluated for impairment |
|
| 10,792 |
|
| 2,566 |
|
| 3,935 |
|
| 12,533 |
|
| 1,297 |
|
| 106 |
|
| 31,229 |
Loans acquired with deteriorated credit quality |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Total allowance for loan losses |
| $ | 10,792 |
| $ | 2,566 |
| $ | 3,935 |
| $ | 12,722 |
| $ | 1,297 |
| $ | 106 |
| $ | 31,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually evaluated for impairment |
| $ | 3,084 |
| $ | — |
| $ | — |
| $ | 16,271 |
| $ | — |
| $ | — |
| $ | 19,355 |
Collectively evaluated for impairment |
|
| 1,370,472 |
|
| 585,827 |
|
| 519,455 |
|
| 629,229 |
|
| 123,393 |
|
| 20,509 |
|
| 3,248,885 |
Loans acquired with deteriorated credit quality |
|
| — |
|
| — |
|
| 308 |
|
| 224 |
|
| — |
|
| — |
|
| 532 |
Total loans |
| $ | 1,373,556 |
| $ | 585,827 |
| $ | 519,763 |
| $ | 645,724 |
| $ | 123,393 |
| $ | 20,509 |
| $ | 3,268,772 |
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.
The increase in the specific reserve on impaired loans from December 31, 2018 to December 31, 2019 was primarily attributable to the restructuring of certain taxi medallion loans which had matured during 2019. All of the Bank’s taxi medallion loans have been restructured as of December 31, 2019, resulting in a shift in the reserves on the commercial and industrial loan portfolio from the general reserves to the specific reserves.
Page -69-
The following tables represent the changes in the allowance for loan losses for the years ended December 31, 2019, 2018 and 2017, by portfolio segment, as defined under FASB ASC 310‑10. The portfolio segments represent the categories that the Bank uses to determine its allowance for loan losses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2019 | |||||||||||||||||||
|
|
|
|
|
|
| Residential |
| Commercial, |
| Real Estate |
|
|
|
|
| |||||
|
| Commercial |
|
|
|
| Real Estate |
| Industrial and |
| Construction |
| Installment/ |
|
|
| |||||
|
| Real Estate |
| Multi-family |
| Mortgage |
| Agricultural |
| and Land |
| Consumer |
|
|
| ||||||
(In thousands) |
| Mortgage Loans |
| Loans |
| Loans |
| Loans |
| Loans |
| Loans |
| Total | |||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 10,792 |
| $ | 2,566 |
| $ | 3,935 |
| $ | 12,722 |
| $ | 1,297 |
| $ | 106 |
| $ | 31,418 |
Charge-offs |
|
| (3,670) |
|
| — |
|
| — |
|
| (799) |
|
| — |
|
| (13) |
|
| (4,482) |
Recoveries |
|
| 1 |
|
| — |
|
| 112 |
|
| 25 |
|
| — |
|
| 12 |
|
| 150 |
Provision (Credit) |
|
| 5,027 |
|
| 2,263 |
|
| (2,165) |
|
| 635 |
|
| (231) |
|
| 171 |
|
| 5,700 |
Ending balance |
| $ | 12,150 |
| $ | 4,829 |
| $ | 1,882 |
| $ | 12,583 |
| $ | 1,066 |
| $ | 276 |
| $ | 32,786 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2018 | |||||||||||||||||||
|
|
|
|
|
|
|
| Residential |
| Commercial, |
| Real Estate |
|
|
|
|
|
| |||
|
| Commercial |
|
|
|
| Real Estate |
| Industrial and |
| Construction |
| Installment/ |
|
|
| |||||
|
| Real Estate |
| Multi-family |
| Mortgage |
| Agricultural |
| and Land |
| Consumer |
|
|
| ||||||
(In thousands) |
| Mortgage Loans |
| Loans |
| Loans |
| Loans |
| Loans |
| Loans |
| Total | |||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 11,048 |
| $ | 4,521 |
| $ | 2,438 |
| $ | 12,838 |
| $ | 740 |
| $ | 122 |
| $ | 31,707 |
Charge-offs |
|
| — |
|
| — |
|
| (24) |
|
| (2,806) |
|
| — |
|
| (11) |
|
| (2,841) |
Recoveries |
|
| — |
|
| — |
|
| 3 |
|
| 747 |
|
| — |
|
| 2 |
|
| 752 |
(Credit) Provision |
|
| (256) |
|
| (1,955) |
|
| 1,518 |
|
| 1,943 |
|
| 557 |
|
| (7) |
|
| 1,800 |
Ending balance |
| $ | 10,792 |
| $ | 2,566 |
| $ | 3,935 |
| $ | 12,722 |
| $ | 1,297 |
| $ | 106 |
| $ | 31,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, 2017 | |||||||||||||||||||
|
|
|
|
|
|
|
| Residential |
| Commercial, |
| Real Estate |
|
|
|
|
|
| |||
|
| Commercial |
|
|
|
| Real Estate |
| Industrial and |
| Construction |
| Installment/ |
|
|
| |||||
|
| Real Estate |
| Multi-family |
| Mortgage |
| Agricultural |
| and Land |
| Consumer |
|
|
| ||||||
(In thousands) |
| Mortgage Loans |
| Loans |
| Loans |
| Loans |
| Loans |
| Loans |
| Total | |||||||
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
| $ | 9,225 |
| $ | 6,264 |
| $ | 1,495 |
| $ | 7,837 |
| $ | 955 |
| $ | 128 |
| $ | 25,904 |
Charge-offs |
|
| — |
|
| — |
|
| — |
|
| (8,245) |
|
| — |
|
| (49) |
|
| (8,294) |
Recoveries |
|
| — |
|
| — |
|
| 28 |
|
| 16 |
|
| — |
|
| 3 |
|
| 47 |
Provision (Credit) |
|
| 1,823 |
|
| (1,743) |
|
| 915 |
|
| 13,230 |
|
| (215) |
|
| 40 |
|
| 14,050 |
Ending balance |
| $ | 11,048 |
| $ | 4,521 |
| $ | 2,438 |
| $ | 12,838 |
| $ | 740 |
| $ | 122 |
| $ | 31,707 |
6. PREMISES AND EQUIPMENT, NET
The following table details the components of premises and equipment:
|
|
|
|
|
|
|
|
| December 31, | ||||
(In thousands) |
| 2019 |
| 2018 | ||
Land |
| $ | 7,896 |
| $ | 7,896 |
Building and improvements |
|
| 17,271 |
|
| 17,227 |
Furniture, fixtures and equipment |
|
| 25,288 |
|
| 23,328 |
Leasehold improvements |
|
| 12,356 |
|
| 13,470 |
|
|
| 62,811 |
|
| 61,921 |
Accumulated depreciation and amortization |
|
| (28,749) |
|
| (26,913) |
Total premises and equipment, net |
| $ | 34,062 |
| $ | 35,008 |
Depreciation and amortization amounted to $4.3 million, $3.8 million and $3.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Page -70-
7. LEASES
The Company has operating leases for certain branch locations, corporate offices and equipment. Certain leases contain rent escalation clauses, which are reflected in the Company’s operating lease liabilities.liabilities of $11.6 million, and an early termination fee of $12.0 million. The Company’s lease agreements do not contain any material residual value guarantees, restrictions or covenants.
The components of lease cost were as follows:
|
|
|
|
|
| Year Ended | |
(In thousands) |
| December 31, 2019 | |
Lease cost |
|
|
|
Operating lease cost |
| $ | 7,038 |
Sublease income |
|
| (95) |
Total lease cost |
| $ | 6,943 |
The Company reports lease costearly termination fee is reported in occupancymerger expenses and equipment expense in the consolidated statements of income. The Company subleases a portion of its leased properties to commercial sublessees. Sublease income is included in other operating incometransaction costs in the consolidated statements of income.
Supplemental cash flow
During the year ended December 31, 2021, the Company elected to terminate 3 leases in connection with the combination of 3 branches into other locations, which resulted in a decrease to the Company’s operating lease liabilities of $3.7 million, and balance sheetan early termination fee of $4.0 million. The early termination fee is reported in branch restructuring costs in the consolidated statements of income.
Maturities of the Company’s operating lease liabilities at December 31, 2021 are as follows:
| | | |
| | Rent to be | |
(In thousands) |
| Capitalized | |
2022 |
| $ | 11,934 |
2023 |
| | 10,694 |
2024 |
| | 10,587 |
2025 |
| | 10,352 |
2026 |
| | 9,631 |
Thereafter |
| | 17,306 |
Total undiscounted lease payments |
| | 70,504 |
Less amounts representing interest |
| | (4,401) |
Operating lease liabilities | | $ | 66,103 |
73
Other information related to our operating leases werewas as follows:
|
|
|
|
|
| Year Ended | |
(Dollars in thousands) |
| December 31, 2019 | |
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
Operating cash flows from operating leases |
| $ | 7,019 |
Operating right-of-use assets obtained in exchange for lease liabilities |
| $ | 48,101 |
| | | | | | | | |
|
| Year Ended | ||||||
| | December 31, | ||||||
(In thousands) |
| 2021 |
| 2020 |
| 2019 | ||
Operating lease cost | | $ | 14,341 | | $ | 6,522 | $ | 6,588 |
Cash paid for amounts included in the measurement of operating lease liabilities | | | 13,975 | | | 7,030 |
| 6,907 |
| | | | |
| | December 31, | ||
| 2021 | |||
Weighted average remaining lease term |
| 6.6 | years | |
Weighted average discount rate |
| |||
1.79 |
| |||
|
|
| ||
|
| % |
|
|
Certain leases contain renewal options which are not reflected in the tables below. The exercise of renewal options, which extend the lease term from five to ten years, is at the Company’s discretion.
The maturities of operating lease liabilities were as follows:
|
|
|
|
(In thousands) |
| December 31, 2019 | |
2020 |
| $ | 7,011 |
2021 |
|
| 6,974 |
2022 |
|
| 6,802 |
2023 |
|
| 5,853 |
2024 |
|
| 5,595 |
Thereafter |
|
| 20,324 |
Total operating lease payments |
| $ | 52,559 |
Less: Interest |
|
| (6,582) |
Present value of operating lease liabilities |
| $ | 45,977 |
Page -71-
8.9. GOODWILL AND OTHER INTANGIBLE ASSETS
FASB ASC 350, Intangibles — Goodwill
At December 31, 2021 and Other, requires a company to perform an2020, the carrying amount of the Company’s goodwill was $155.8 million and $55.6 million, respectively.
The Company performs its annual goodwill impairment test on goodwill annually,in the fourth quarter of every year, or more frequently if events or changes in circumstance indicate that the asset might be impaired, by comparing the fair value of such goodwill to its recorded or carrying amount. If the carrying amount of goodwill exceeds the fair value, an impairment charge must be recorded in an amount equal to the excess. The FASB issued ASU No. 2011‑08, “Testing Goodwill for Impairment,” which permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent.
Goodwill
At December 31, 2019 and 2018, the carrying amount of the Company’s goodwillimpaired. It was $106.0 million.
The Company tested goodwill for impairmentdetermined during the fourth quarter of 2019. The Company has one reporting unit, Bridge Bancorp, Inc., and evaluated goodwill atannual impairment testing that reporting unit level. The Company elected to perform a qualitative assessment to determine if it0 impairment was more likely than not that the fair value of the reporting unit exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit exceeded its carrying value and no further testing was required. The results of this assessment indicated that goodwill was not impaired.
Other Intangible Assets
The Company’s other intangible assets consist of core deposit intangibles, a trademark, and servicing assets. At December 31, 2019 and 2018, the carrying amount of the Company’s servicing assets was $1.3 million and $1.2 million, respectively.
Acquired Intangible Assets
The following table reflects acquired intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||||||||
|
| 2019 |
| 2018 | ||||||||
|
| Gross |
|
|
| Gross |
|
|
| |||
|
| Carrying |
| Accumulated |
| Carrying |
| Accumulated | ||||
(In thousands) |
| Amount |
| Amortization |
| Amount |
| Amortization | ||||
Intangible assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles |
| $ | 7,211 |
| $ | 5,113 |
| $ | 7,211 |
| $ | 4,326 |
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Trademark |
|
| 259 |
|
| — |
|
| 259 |
|
| — |
Total intangible assets |
| $ | 7,470 |
| $ | 5,113 |
| $ | 7,470 |
| $ | 4,326 |
Aggregate amortization expense for intangible assets with finite livesneeded for the years ended December 31, 2021, 2020 and 2019 2018, and 2017as the fair value of the Company’s single reporting unit was $0.8 million, $0.9 million, and $1.0 million, respectively.
The Company acquired a trademark relateddetermined to the Bank’s name change to BNB Bank. At December 31, 2019 and 2018,exceed the carrying amount of the Company’s trademark was $259 thousand.reporting unit.
The following table reflects estimated amortization expense for each of the next five years and thereafter:
|
|
|
|
(In thousands) |
| Total | |
2020 |
| $ | 656 |
2021 |
|
| 531 |
2022 |
|
| 413 |
2023 |
|
| 281 |
2024 |
|
| 164 |
Thereafter |
|
| 53 |
Total |
| $ | 2,098 |
Page -72-
9. DEPOSITS
Time Deposits
The following table presents the remaining maturitieschange in Goodwill for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) | | | 2021 |
| | 2020 |
| | 2019 |
Beginning of year | | $ | 55,638 | | $ | 55,638 | | $ | 55,638 |
Acquired goodwill1 | | | 100,159 | | | - | | | - |
Impairment | |
| - | | | - | | | - |
End of year | | $ | 155,797 | | $ | 55,638 | | $ | 55,638 |
(1) | See Note 2. Merger for additional information regarding the acquired goodwill |
Other Intangible Assets
As a result of the Bank’s time deposits at December 31, 2019:
|
|
|
|
(In thousands) |
| Total | |
2020 |
| $ | 203,834 |
2021 |
|
| 83,420 |
2022 |
|
| 11,272 |
2023 |
|
| 4,072 |
2024 |
|
| 4,977 |
Thereafter |
|
| 402 |
Total |
| $ | 307,977 |
Merger, the Company recorded $10.2 million of core deposit intangible assets and a $780 thousand non-compete agreement intangible asset on the Merger Date.
The deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2019 and 2018 were $129.6 million and $128.5 million, respectively. Deposits from principal officers, directors and their affiliates at December 31, 2019 and 2018 were approximately $16.7 million and $18.5 million, respectively.
10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase totaled $1.0 million at December 31, 2019 and $0.5 million at December 31, 2018. The repurchase agreements were collateralized by investment securities, of which 17% were U.S. GSE residential collateralized mortgage obligations and 83% were U.S. GSE residential mortgage-backed securities with a carrying amount of $2.1 million at December 31, 2019 and 18% were U.S. GSE residential collateralized mortgage obligations and 82% were U.S. GSE residential mortgage-backed securities with a carrying amount of $2.4 million at December 31, 2018.
Securities sold under agreements to repurchase are financing arrangements with $1.0 million maturing during the first quarter of 2020. At maturity, the securities underlying the agreements are returned to the Company. The primary risk associated with these secured borrowings is the requirement to pledge a market value-based balance of collateral in excess of the borrowed amount. The excess collateral pledged represents an unsecured exposure to the lending counterparty. As the market value of the collateral changes, both through changes in discount rates and spreads as well as related cash flows, additional collateral may need to be pledged. In accordance with the Company’s policies, eligible counterparties are defined and monitored to minimize exposure.
The following table summarizes information concerning securities sold under agreementspresents the carrying amount and accumulated amortization of intangible assets that are amortizable and arose from the Merger. There were 0 intangible assets at December 31, 2020.
| | | | | | | | | |
| | December 31, 2021 | |||||||
| | | Core Deposit | | | Non-complete | | | |
(In thousands) | | | Intangibles |
| | Agreement |
| | Total |
Gross carrying value | | $ | 10,204 | | $ | 780 | | $ | 10,984 |
Accumulated amortization | |
| (1,962) | | | (660) | | | (2,622) |
Net carrying amount | | $ | 8,242 | | $ | 120 | | $ | 8,362 |
| | | | | | | | | |
Amortization expense recognized on intangible assets was $2.6 million for the year ended December 31, 2021. There was 0 amortization expense recognized on intangible assets for the years ended December 31, 2020 and 2019.
74
Estimated amortization expense for 2022 through 2025 and thereafter is as follows:
| | | |
(In thousands) | | | Total |
2022 | | $ | 1,878 |
2023 | | | 1,425 |
2024 | | | 1,163 |
2025 | | | 958 |
Thereafter | | | 2,938 |
Total | | $ | 8,362 |
10. RESTRICTED STOCK
The following is a summary of restricted stock:
| | | | | | |
(In thousands) |
| December 31, 2021 |
| December 31, 2020 | ||
FHLBNY capital stock | | $ | 12,819 | | $ | 60,707 |
FRB capital stock | |
| 24,748 | |
| — |
Bankers' Bank capital stock | |
| 165 | |
| — |
Restricted stock | | $ | 37,732 | | $ | 60,707 |
FHLBNY Capital Stock
The Bank is a member of the FHLBNY. Membership requires the purchase of shares of FHLBNY capital stock at $100 per share. Members are required to repurchase:
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| ||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| ||
Average daily balance during the year |
| $ | 849 |
| $ | 1,078 |
|
Average interest rate during the year |
|
| 0.05 | % |
| 0.04 | % |
Maximum month-end balance during the year |
| $ | 1,037 |
| $ | 1,610 |
|
Weighted average interest rate at year-end |
|
| 0.05 | % |
| 0.05 | % |
own a particular amount of stock based on the level of borrowings and other factors. As a result of the Merger, the Bank acquired $13.9 million of FHLBNY capital stock on the Merger Date. The Bank decreased its outstanding FHLBNY advances by $1.18 billion during the year ended December 31, 2021, resulting in a reduction of required FHLBNY stock. The Bank owned 128,184 shares and 607,074 shares at December 31, 2021 and 2020, respectively. The Bank recorded dividend income on the FHLBNY capital stock of $1.9 million, $3.0 million and $3.6 million during the years ended December 31, 2021, 2020 and 2019, respectively.
FRB Capital Stock
The Bank is a member of the FRB. Membership requires the purchase of shares of FRB capital stock at $50 per share. As a result of the Merger, the Bank acquired $9.3 million of FRB capital stock on the Merger Date. The Bank owned 494,965 shares at December 31, 2021 and 0 shares at December 31, 2020. The Bank recorded dividend income on the FRB capital stock of $442 thousand during the year ended December 31, 2021 and 0 dividend income for the years ended December 31, 2020 and 2019.
Bankers’ Bank Capital Stock
The Bank has a relationship with Atlantic Community Bankers Bank. The relationship requires the purchase of shares of ACBB capital stock between $2,500 and $3,250 per share. As a result of the Merger, the Bank acquired $165 thousand of ACBB capital stock on the Merger Date. The Bank owned 60 shares at December 31, 2021 and 0 shares at December 31, 2020. The Bank recorded dividend income on the ACBB capital stock of $1 thousand during the year ended December 31, 2021 and 0 dividend income during the years ended December 31, 2020 and 2019.
11. FEDERAL HOME LOAN BANK ADVANCESDEPOSITS
Deposits are summarized as follows:
| | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 | ||||||
| | Weighted | | | | | Weighted | | | |
| | Average | | | | | Average | | | |
(Dollars in thousands) |
| Rate |
| Liability |
| Rate |
| Liability | ||
Savings |
| 0.03 | % | $ | 1,158,040 |
| 0.12 | % | $ | 414,809 |
Certificates of deposit ("CDs") |
| 0.58 | |
| 853,242 |
| 0.84 | |
| 1,322,638 |
Money market |
| 0.07 | |
| 3,621,552 |
| 0.24 | |
| 1,716,624 |
Interest-bearing checking |
| 0.18 | |
| 905,717 |
| 0.10 | |
| 290,300 |
Non-interest-bearing checking |
| — | |
| 3,920,423 |
| — | |
| 780,751 |
Total |
| 0.09 | % | $ | 10,458,974 |
| 0.36 | % | $ | 4,525,122 |
75
As a result of the Merger, the Company acquired $5.41 billion of deposits on the Merger Date.
The following table summarizes information concerning FHLB advances:
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| ||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| ||
Average daily balance during the year |
| $ | 245,283 |
| $ | 324,653 |
|
Average interest rate during the year |
|
| 1.86 | % |
| 1.76 | % |
Maximum month-end balance during the year |
| $ | 435,000 |
| $ | 520,092 |
|
Weighted average interest rate at year-end |
|
| 1.82 | % |
| 2.72 | % |
presents a summary of scheduled maturities of CDs outstanding at December 31, 2021:
| | | | | | |
| | Maturing | | Weighted Average |
| |
(Dollars in thousands) |
| Balance |
| Interest Rate |
| |
2022 |
| $ | 701,259 | | 0.51 | % |
2023 | |
| 98,015 | | 0.87 | |
2024 | |
| 27,402 | | 1.20 | |
2025 | |
| 15,078 | | 1.12 | |
2026 | |
| 9,110 | | 0.52 | |
2027 and beyond | |
| 2,378 | | 0.67 | |
Total | | $ | 853,242 | | 0.58 | % |
CDs that met or exceeded the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250 thousand were $200.1 million and $279.0 million December 31, 2021 and 2020, respectively.
12. DERIVATIVES AND HEDGING ACTIVITIES
The Company is exposed to certain risks 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 $57 thousand will be reclassified as an increase to interest expense.
During the year ended December 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. During the year ended December 31, 2020, the Company terminated 2 derivatives with notional values totaling $30.0 million, resulting in a termination value of $175 thousand, which was expected to be recognized in interest expense over the remaining term of the original derivative. Due to the terminations during the year ended December 31, 2021, the remaining termination value was recognized as part of the loss on terminations during the year ended December 31, 2021. Additionally, during the year ended December 31, 2020, the Company terminated 6 derivatives with notional values totaling $95.0 million, resulting in a termination value of $6.6 million, which was recognized as losses on termination of derivatives within non-interest income.
Page -73-76
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.
| | | | | | | | | | | | | | | | | | | | | | |
| | December 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 | | $ | 4,358 | | $ | — |
| — | | $ | — | | $ | — | | $ | — |
Interest rate swaps related to FHLBNY advances |
| — | | $ | — | | $ | — | | $ | — |
| 32 | | $ | 655,000 | | $ | — | | $ | (18,442) |
The table below presents the effect of the cash flow hedge accounting on accumulated other comprehensive loss as of December 31, 2021, 2020 and 2019.
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) | | 2021 |
| 2020 |
| 2019 | |||
Gain (loss) recognized in other comprehensive income | | $ | 5,277 | | $ | (24,449) | | $ | (8,254) |
Gain recognized on termination of derivatives | | | 16,505 | | | 6,596 | | | — |
(Loss) gain reclassified from other comprehensive income into interest expense | |
| (940) | |
| (6,127) | |
| 955 |
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 December 31, 2021, the Bank did not post collateral to the third-party counterparties. As of December 31, 2020, posted collateral to the other third-party counterparties was $5.4 million.
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 counterparty. 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 tables reflect freestanding derivatives included in the consolidated statements of financial condition as of the dates indicated
| | | | | | | | | | | |
| | December 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 |
| 111 | | $ | 604,529 | | $ | 28,291 | | $ | — |
Loan level interest rate swaps with borrower |
| 74 | |
| 620,459 | |
| — | |
| (11,865) |
Loan level interest rate floors with borrower | | 45 | | | 392,764 | | | — | | | (5,644) |
Loan level interest rate swaps with third-party counterparties |
| 111 | |
| 604,529 | |
| — | |
| (28,291) |
Loan level interest rate swaps with third-party counterparties | | 74 | | | 620,459 | | | 11,865 | | | — |
Loan level interest rate floors with third-party counterparties |
| 45 | |
| 392,764 | |
| 5,644 | |
| — |
| | | | | | | | | | | |
| | 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 | |
| — |
77
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:
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) |
| 2021 |
| 2020 | | 2019 | |||
Loan level derivative income | | $ | 2,909 | | $ | 8,872 | | $ | 910 |
The interest rate swap product with the borrower is cross collateralized with the underlying loan and, therefore, there is 0 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 December 31, 2021, posted collateral was $14.0 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 December 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 $16.5 million for those related to loan level derivatives. If the Company had breached any of the above provisions at December 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 year ended December 31, 2021.
13. FHLBNY ADVANCES
The Bank had borrowings from the FHLBNY (“Advances”) totaling $25.0 million and $1.20 billion at December 31, 2021 and 2020, respectively, all of which were fixed rate. The average interest rate on outstanding FHLBNY Advances was 0.35% and 0.53% at December 31, 2021 and 2020, respectively. In accordance with its Advances, Collateral Pledge and Security Agreement with the FHLBNY, the Bank was eligible to borrow up to $4.19 billion as of December 31, 2021 and $2.11 billion as of December 31, 2020, and maintained sufficient qualifying collateral, as defined by the FHLBNY. Certain FHLBNY Advances may contain call features that may be exercised by the FHLBNY. At December 31, 2021 there were 0 callable Advances.
During the years ended December 2021, 2020, and 2019, the Company’s prepayment penalty expense was recognized as a loss on extinguishment of debt. The following table is a summary of FHLBNY extinguishments for the periods presented:
| | | | | | | | | | |
| | Year Ended December 31, | | |||||||
(Dollars in thousands) | | | 2021 |
| | 2020 |
| | 2019 | |
FHLBNY advances extinguished | | $ | 209,010 | | $ | 70,750 | | $ | 313,900 | |
Weighted average rate | | | 1.31 | % | | 1.15 | % | | 2.35 | % |
Loss on extinguishment of debt | | $ | 1,751 | | $ | 1,104 | | $ | 3,780 | |
78
The following tables present the contractual maturities and weighted average interest rates of FHLBFHLBNY advances for each of the next five years. There were 0 FHLBNY advances with an overnight contractual maturity at December 31, 2021 and December 31, 2020. There are no FHLB0 FHLBNY advances with contractual maturities after 2020.
|
|
|
|
|
|
|
|
| December 31, 2019 |
| |||
(Dollars in thousands) |
|
|
|
| Weighted |
|
Contractual Maturity |
| Amount |
| Average Rate |
| |
Overnight |
| $ | 195,000 |
| 1.81 | % |
|
|
|
|
|
|
|
2020 |
|
| 240,000 |
| 1.84 |
|
Total FHLB advances |
| $ | 435,000 |
| 1.82 | % |
|
|
|
|
|
|
|
|
| December 31, 2018 |
| |||
(Dollars in thousands) |
|
|
|
| Weighted |
|
Contractual Maturity |
| Amount |
| Average Rate |
| |
Overnight |
| $ | — |
| — | % |
|
|
|
|
|
|
|
2019 |
|
| 240,433 |
| 2.72 |
|
Total FHLB advances |
| $ | 240,433 |
| 2.72 | % |
Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances were collateralized by $1.4 billion and $1.3 billion of residential and commercial mortgage loans under a blanket lien arrangement2022 at December 31, 20192021 and 2018, respectively. Based on this collateral andDecember 31, 2020:
| | | | | | |
| | December 31, 2021 |
| |||
(Dollars in thousands) | | | | | Weighted |
|
Contractual Maturity |
| Amount |
| Average Rate |
| |
2022, fixed rate at 0.35% | | $ | 25,000 |
| 0.35 | % |
Total FHLBNY advances | | $ | 25,000 |
| 0.35 | % |
| | | | | | |
| | December 31, 2020 |
| |||
(Dollars in thousands) | | | | | Weighted |
|
Contractual Maturity |
| Amount |
| Average Rate |
| |
2021, fixed rate at rates from 0.24% to 2.09% | | $ | 1,144,010 |
| 0.52 | % |
2022, fixed rate at rates from 0.33% to 1.79% | | | 60,000 | | 0.60 | |
Total FHLBNY advances | | $ | 1,204,010 |
| 0.53 | % |
14. SUBORDINATED DEBENTURES
In connection with the Company’s holdings of FHLB stock,Merger, the Company was eligible to borrow up to a totalassumed $115.0 million in aggregate principal amount of $1.5 billion atthe 4.50% Fixed-to-Floating Rate Subordinated Debentures due 2027 of Legacy Dime on the Merger Date. During the year ended December 31, 2019.
12. SUBORDINATED DEBENTURES2017, Legacy Dime issued $115.0 million of fixed-to-floating rate subordinated notes due June 2027, which become callable commencing on June 15, 2022. The notes will mature on June 15, 2027 (the “Maturity Date”). From and including June 13, 2017 until but excluding June 15, 2022, interest will be paid semi-annually in arrears on each June 15 and December 15 at a fixed annual interest rate equal to 4.50%. From and including June 15, 2022 to, but excluding, the Maturity Date or earlier redemption date, the interest rate shall reset quarterly to an annual interest rate equal to the then-current three-month LIBOR plus 266 basis points, payable quarterly in arrears. Debt issuance cost directly associated with subordinated debt offering was capitalized and netted with subordinated notes payable on the consolidated statements of financial condition.
In September 2015, the Company issued $80.0 million in aggregate principal amount of fixed-to-floating rate subordinated debentures. $40.0 million of the subordinated debentures are callable at par after five years, have a stated maturity of September 30, 2025 and bear interest at a fixed annual rate of 5.25% per year, from and including September 21, 2015 until but excluding September 30, 2020. From and including September 30, 2020 to the maturity date or early redemption date, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month LIBOR plus 360 basis points. The remaining $40.0 million of the subordinated debentures are callable at par after ten years, have a stated maturity of September 30, 2030 and bear interest at a fixed annual rate of 5.75% per year, from and including September 21, 2015 until but excluding September 30, 2025. From and including September 30, 2025 to the maturity date or early redemption date, the interest rate will reset quarterly to an annual interest rate equal to the then-current three-month LIBOR plus 345 basis points.
The subordinated debentures totaled $78.9$197.1 million at December 31, 20192021 and $78.8$114.1 million at December 31, 2018.
2020. Interest expense related to the subordinated debt was $8.5 million, $5.3 million and $5.3 million during the years ended December 31, 2021, 2020 and 2019, respectively. The subordinated debentures are included in tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.
15. OTHER SHORT-TERM BORROWINGS
13. DERIVATIVESThe following is a summary of other short-term borrowings:
As described in Note 1, Summary
| | | | | | |
(In thousands) |
| December 31, 2021 |
| December 31, 2020 | ||
Repurchase agreements | | $ | 1,862 | | $ | — |
AFX | |
| — | |
| 120,000 |
Other short-term borrowings | | $ | 1,862 | | $ | 120,000 |
Repurchase Agreements
The Bank utilizes securities sold under agreements to repurchase (“repurchase agreements”) as part of Significant Accounting Policies,its borrowing policy to add liquidity. Repurchase agreements represent funds received from customers, generally on an overnight basis, which are
79
collateralized by investment securities, of which 100% were pass-through MBS issued by GSEs with a carrying amount of $3.8 million at December 31, 2021.
Repurchase agreements are financing arrangements with $1.9 million maturing during the first quarter of 20192022. At maturity, the Company adopted ASU 2017-12, Derivatives and Hedging: Targeted Improvementssecurities underlying the agreements are returned to Accounting for Hedging Activities.the Bank. The purposeprimary risk associated with these secured borrowings is the requirement to pledge a market value-based balance of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018, with early adoption, including adoptioncollateral in an interim period, permitted. ASU 2017-12 requires a modified retrospective transition method in which the Company will recognize the cumulative effectexcess of the change on the opening balance of each affected component of equity in the statement of financial position as of the date of adoption.borrowed amount. The Company has adopted the standard in 2019 with minimal impact to its financial position upon transition.
The Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight Funding Rate ("SOFR") replace USD-LIBOR. ARRC has proposed that the transition to SOFR from USD-LIBOR will take place by the end of 2021. The Company has material contracts that are indexed to USD-LIBOR. Industry organizations are currently working on the transition plan. The Company is currently monitoring this activity and evaluating the risks involved.
Page -74-
Cash Flow Hedges of Interest Rate Risk
As part of its asset liability management, the Company utilizes interest rate swap agreements to help manage its interest rate risk position. The notional amount of the interest rate swap does not represent the amount exchanged by the parties. The amount exchanged is determined by referenceexcess collateral pledged represents an unsecured exposure to the notional amount andlending counterparty. As the other terms of the individual interest rate swap agreements.
Interest rate swaps with notional amounts totaling $290.0 million and $240.0 million as of December 31, 2019 and 2018, respectively, were designated as cash flow hedges of certain FHLB advances. The swaps were determined to be fully effective during the periods presented. The aggregate fairmarket value of the swaps is recorded in other assets or other liabilities withcollateral changes, both through changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) woulddiscount rates and spreads as well as related cash flows, additional collateral may need to be reclassifiedpledged. In accordance with the Bank’s policies, eligible counterparties are defined and monitored to current earnings should the hedges no longer be considered effective. The Company expects the hedges to remain fully effective during the remaining term of the swaps.
The following table summarizes information about the interest rate swaps designated as cash flow hedges at December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
| December 31, |
| ||||
(Dollars in thousands) |
| 2019 |
| 2018 |
| ||
Notional amounts |
| $ | 290,000 |
| $ | 240,000 |
|
Weighted average pay rates |
|
| 1.84 | % |
| 1.84 | % |
Weighted average receive rates |
|
| 1.94 | % |
| 2.77 | % |
Weighted average maturity |
|
| 2.91 | years |
| 2.03 | years |
minimize exposure.
Interest income recordedexpense on these swap transactions totaled $1.6 million and $1.1 million during the years ended December 31, 2019 and 2018, respectively and interest expenses recorded on these swap transactions totaled $1.4 million duringrepurchase agreements for the year ended December 31, 2017, which is reported as a component of2021 was $3 thousand. There was 0 interest expense on FHLB Advances. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income/expense as interest payments are made/received on the Company’s variable-rate assets/liabilities. During the year ended December 31, 2019, the Company had $1.6 million of reclassifications as a reduction to interest expense. During the next twelve months, the Company estimates that $157 thousand will be reclassified as an increase in interest expense.
The following table presents the net gains (losses) recorded in accumulated other comprehensive income and the consolidated statements of income relating to the cash flow derivative instrumentsrepurchase agreements for the years ended December 31, 2019, 20182020 and 2017:2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amount of gain (loss) |
| Amount of gain | |||
|
|
|
|
|
|
|
| reclassified from |
| reclassified from | ||
|
| Amount of (loss) gain |
| Amount of (loss) gain |
| Accumulated OCI |
| Accumulated OCI | ||||
(In thousands) |
| recognized in OCI |
| recognized in OCI |
| into income |
| into income | ||||
Interest rate contracts |
| included component |
| excluded component |
| included component |
| excluded component | ||||
Year ended December 31, 2019 |
| $ | (3,601) |
| $ | — |
| $ | 1,588 |
| $ | — |
Year ended December 31, 2018 |
|
| 2,493 |
|
| — |
|
| 1,068 |
|
| — |
Year ended December 31, 2017 |
|
| 463 |
|
| — |
|
| (1,419) |
|
| — |
AFX
The following table reflects the cash flow hedges included in the consolidated balance sheets at the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, | ||||||||||||||||
|
| 2019 |
| 2018 | ||||||||||||||
|
|
|
| Fair |
| Fair |
|
|
|
| Fair |
| Fair | |||||
(In thousands) |
| Notional |
| Value |
| Value |
| Notional |
| Value |
| Value | ||||||
Included in other assets/(liabilities): |
| Amount |
| Asset |
| Liability |
| Amount |
| Asset |
| Liability | ||||||
Interest rate swaps related to FHLB advances |
| $ | 240,000 |
| $ | 1,233 |
| $ | (978) |
| $ | 240,000 |
| $ | 4,239 |
| $ | (4) |
Forward starting interest rate swaps related to FHLB advances |
| $ | 50,000 |
| $ | — |
| $ | (1,427) |
| $ | — |
| $ | — |
| $ | — |
Non-Designated Hedges
Derivatives not designated as hedgesBank is a member of AFX, through which it may be used to manage the Company’s exposure to interest rate movementseither borrow or to provide service to customers but do not meet the requirements for hedge accounting under U.S. GAAP.lend funds on an overnight or short-term basis with other member institutions. The Company
Page -75-
executes interest rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps with customers are simultaneously offset by interest rate swaps that the Company executes with a third party in order to minimize the net risk exposure resulting from such transactions. These interest-rate swap agreements do not qualify for hedge accounting treatment, and thereforefunds changes in fair value are reported in current period earnings.
daily. Interest rate swaps with notional amounts totaled $823.9 million at December 31, 2019. Of the $823.9 million notional amounts, $411.9 million were from loan customers and $411.9 million were from bank counterparties. Interest rate swaps with notional amounts totaled $193.4 million at December 31, 2018. Of the $193.4 million notional amounts, $96.7 million were from loan customers and $96.7 million were from bank counterparties.
The following table presents summary information about the interest rate swaps at December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
| December 31, |
| |||||
(Dollars in thousands) |
| 2019 |
|
| 2018 |
| ||
Notional amounts |
| $ | 823,894 |
|
| $ | 193,401 |
|
Weighted average pay rates |
|
| 3.75 | % |
|
| 4.52 | % |
Weighted average receive rates |
|
| 3.75 | % |
|
| 4.52 | % |
Weighted average maturity |
|
| 10.77 | years |
|
| 12.25 | years |
Fair value of combined interest rate swaps |
| $ | — |
|
| $ | — |
|
Loan swap fees recordedexpense on these swap transactions, which is reported as a component of non-interest income, totaled $7.5 million, $716 thousand, and $1.0 millionAFX borrowings for the years ended December 31, 2021, 2020 and 2019 2018,was $1 thousand, $45 thousand, and 2017,$226 thousand, respectively.
Credit-Risk-Related Contingent Features
As of December 31, 2019, 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 $14.9 million, while there were no derivatives in a net asset position. The Company has minimum collateral posting thresholds with certain of its derivative counterparties. If the termination value of derivatives is a net liability position, the Company is required to post collateral against its obligations under the agreements. However, if the termination value of derivatives is a net asset position, the counterparty is required to post collateral to the Company. At December 31, 2019, the Company posted collateral of $16.3 million to its counterparties under the agreements in a net liability position and received no collateral from its counterparties under the agreements in a net asset position. If the Company had breached any of these provisions at December 31, 2019, it could have been required to settle its obligations under the agreements at the termination value.
14.16. INCOME TAXES
The following table details the components ofCompany’s consolidated Federal, State and City income tax expense:
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
(In thousands) |
| 2019 |
| 2018 |
| 2017 | |||
Current: |
|
|
|
|
|
|
|
|
|
Federal |
| $ | 12,665 |
| $ | 5,270 |
| $ | 8,762 |
State |
|
| 639 |
|
| 1,023 |
|
| 937 |
Total current |
|
| 13,304 |
|
| 6,293 |
|
| 9,699 |
Deferred: |
|
|
|
|
|
|
|
|
|
Federal |
|
| (419) |
|
| 3,299 |
|
| 10,251 |
State |
|
| 1,175 |
|
| (451) |
|
| (1,004) |
Total deferred |
|
| 756 |
|
| 2,848 |
|
| 9,247 |
Total income tax expense |
| $ | 14,060 |
| $ | 9,141 |
| $ | 18,946 |
provisions were comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2021 | | Year Ended December 31, 2020 | | Year Ended December 31, 2019 | |||||||||||||||||||||
| | | | | State | | | | | | | | State | | | | | | | | State | | | | |||
(In thousands) |
| Federal |
| and City |
| Total |
| Federal |
| and City |
| Total |
| Federal |
| and City |
| Total | |||||||||
Current | | $ | 23,759 | | $ | 11,815 | | $ | 35,574 | | $ | 13,107 | | $ | 1,524 | | $ | 14,631 | | $ | 10,129 | | $ | 2,930 | | $ | 13,059 |
Deferred | |
| 5,490 | |
| 3,106 | |
| 8,596 | |
| (1,181) | |
| (784) | |
| (1,965) | |
| (1,437) | |
| (946) | |
| (2,383) |
Total | | $ | 29,249 | | $ | 14,921 | | $ | 44,170 | | $ | 11,926 | | $ | 740 | | $ | 12,666 | | $ | 8,692 | | $ | 1,984 | | $ | 10,676 |
The preceding table excludes tax effects recorded directly to stockholders’ equity in connection with unrealized gains and losses on securities available-for-sale (including losses on such securities upon their transfer to held-to-maturity), interest rate derivatives, and adjustments to other comprehensive income relating to the minimum pension liability, unrecognized gains of pension and other postretirement obligations and changes in the non-credit component of OTTI. These tax effects are disclosed as part of the presentation of the consolidated statements of changes in stockholders’ equity and comprehensive income.
The provision for income taxes differed from that computed at the Federal statutory rate as follows:
| | | | | | | | | | |
| | Year Ended December 31, |
| |||||||
(Dollars in thousands) |
| 2021 |
| 2020 |
| 2019 |
| |||
Tax at federal statutory rate | | $ | 31,115 | | $ | 11,546 | | $ | 9,841 | |
State and local taxes, net of federal income tax benefit | |
| 11,601 | |
| 567 | |
| 1,567 | |
Benefit plan differences | |
| (107) | |
| (240) | |
| (261) | |
Adjustments for prior period returns and tax items | |
| (238) | |
| 125 | |
| 19 | |
Investment in BOLI | |
| (1,485) | |
| (1,020) | |
| (594) | |
Equity based compensation | |
| (301) | |
| 96 | |
| (33) | |
Salaries deduction limitation | |
| 3,419 | |
| 1,428 | |
| 126 | |
Transaction costs | | | 181 | | | 256 | | | — | |
Other, net | |
| (15) | |
| (92) | |
| 11 | |
Total | | $ | 44,170 | | $ | 12,666 | | $ | 10,676 | |
Effective tax rate | |
| 29.81 | % |
| 23.04 | % |
| 22.78 | % |
Page -76-80
The following table is a reconciliationincrease in the effective tax rate in 2021 compared to 2020 was primarily the result of the expected federal income tax expense atloss of benefits from the statutory tax rateCompany’s REIT due to the actual provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||||||||
|
| 2019 | 2018 | 2017 |
| |||||||||||
|
|
|
|
| Percentage |
|
|
|
| Percentage |
|
|
|
| Percentage |
|
|
|
|
|
| of Pre-tax |
|
|
|
| of Pre-tax |
|
|
|
| of Pre-tax |
|
(Dollars in thousands) |
| Amount |
| Earnings |
| Amount |
| Earnings |
| Amount |
| Earnings |
| |||
Federal income tax expense computed by applying the statutory rate to income before income taxes |
| $ | 13,808 |
| 21 | % | $ | 10,157 |
| 21 | % | $ | 13,820 |
| 35 | % |
Tax-exempt income |
|
| (920) |
| (1) |
|
| (1,002) |
| (2) |
|
| (1,808) |
| (5) |
|
State taxes, net of federal income tax benefit |
|
| 1,425 |
| 2 |
|
| 1,999 |
| 4 |
|
| 725 |
| 2 |
|
Deferred tax asset remeasurement (1) |
|
| — |
| — |
|
| — |
| — |
|
| 7,572 |
| 19 |
|
Other |
|
| (253) |
| (1) |
|
| (2,013) |
| (4) |
|
| (1,363) |
| (3) |
|
Income tax expense |
| $ | 14,060 |
| 21 | % | $ | 9,141 |
| 19 | % | $ | 18,946 |
| 48 | % |
|
|
The following table summarizesincrease in the composition of deferredCompany’s total assets, and non-deductible expenses during 2021.
Deferred tax assets and liabilities:
|
|
|
|
|
|
|
|
| December 31, | ||||
(In thousands) |
| 2019 |
| 2018 | ||
Deferred tax assets: |
|
|
|
|
|
|
Allowance for loan losses and off-balance sheet credit exposure |
| $ | 10,305 |
| $ | 9,309 |
Net unrealized losses on securities |
|
| 343 |
|
| 4,810 |
Compensation and related benefit obligations |
|
| 2,368 |
|
| 2,427 |
Purchase accounting fair value adjustments |
|
| 4,735 |
|
| 4,141 |
Net change in pension and other post-retirement benefits plans |
|
| 2,809 |
|
| 2,630 |
Net operating loss carryforward |
|
| 3,229 |
|
| 4,746 |
Net loss on cash flow hedges |
|
| 304 |
|
| — |
Operating lease liabilities |
|
| 13,444 |
|
| — |
Other |
|
| 200 |
|
| 671 |
Total deferred tax assets |
|
| 37,737 |
|
| 28,734 |
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
Pension and SERP expense |
|
| (4,904) |
|
| (4,559) |
Depreciation |
|
| (956) |
|
| (1,163) |
REIT undistributed net income |
|
| (2,403) |
|
| (2,110) |
Net deferred loan costs and fees |
|
| (2,413) |
|
| (2,206) |
Net gain on cash flow hedges |
|
| — |
|
| (1,210) |
State and local taxes |
|
| (1,227) |
|
| (1,468) |
Operating lease right-of-use assets |
|
| (12,934) |
|
| — |
Other |
|
| (835) |
|
| (353) |
Total deferred tax liabilities |
|
| (25,672) |
|
| (13,069) |
Net deferred tax asset |
| $ | 12,065 |
| $ | 15,665 |
On December 22, 2017,liabilities are recorded for temporary differences between the President signed the Tax Cutsbook and Jobs Act (“Tax Act”), resulting in significant changes to existing tax law, including a lower federal statutory tax ratebases of 21%.assets and liabilities. The Tax Act was generally effective ascomponents of January 1, 2018. In the fourth quarter of 2017, the Company recorded a charge of $7.6 million, which consisted primarily of theFederal, State and City deferred tax asset remeasurement from the previous 35% federal statutory rate to the current 21% federal statutory tax rate.
On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides a measurement period of up to one year from the enactment date to refine and complete the accounting. The Company has completed its accounting for the effects of the Tax Act, and has made reasonable estimates of the effect of the change in federal statutory tax rate and remeasurement of deferredincome tax assets based on the rate at which they are expected to reverse in the future.and liabilities were as follows:
| | | | | | |
| | December 31, | ||||
(In thousands) |
| 2021 |
| 2020 | ||
Deferred tax assets: | | | |
| |
|
Allowance for credit losses and other contingent liabilities | | $ | 29,777 | | $ | 13,261 |
Employee benefit plans | |
| — | |
| 4,227 |
Tax effect of purchase accounting fair value adjustments | |
| — | |
| 287 |
Tax effect of other components of income on derivatives | |
| — | |
| 5,831 |
Tax effect of other components of income on securities available-for-sale | | | 3,608 | | | — |
Operating lease liability | |
| 20,532 | |
| 12,673 |
Other | |
| 1,976 | |
| 2 |
Total deferred tax assets | |
| 55,893 | |
| 36,281 |
Deferred tax liabilities: | |
|
| |
|
|
Tax effect of other components of income on derivatives | | | 1,371 | | | — |
Tax effect of other components of income on securities available-for-sale | |
| — | |
| 6,161 |
Employee benefit plans | | | 2,803 | | | — |
Tax effect of purchase accounting fair value adjustments | | | 3,945 | | | — |
Difference in book and tax carrying value of fixed assets | |
| 3,950 | |
| 906 |
Difference in book and tax basis of unearned loan fees | |
| 2,413 | |
| 2,490 |
Operating lease asset | |
| 19,871 | |
| 10,774 |
Other | |
| 1,141 | |
| 685 |
Total deferred tax liabilities | |
| 35,494 | |
| 21,016 |
Net deferred tax asset (recorded in other assets) | | $ | 20,399 | | $ | 15,265 |
The Company and its subsidiariessubsidiary are subject to U.S. federal income tax as well as income tax of the State, and City of New York and the State of New Jersey. The Company is no longer subject to examination by taxing authorities for years
Page -77-
before 2015. There are no unrecorded tax benefits, andUnder generally accepted accounting principles, the Company doesuses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled.
NaN valuation allowances were recognized on deferred tax assets during the years ended December 31, 2021 or 2020, since, at each period end, it was deemed more likely than not expectthat the total amount of unrecognized incomedeferred tax benefits to significantly increase in the next twelve months.assets would be fully realized.
In connection with the acquisition of FNBNY,Merger, the Company acquired a federal net operating loss (“NOL”) carryforward subject to Internal Revenue Code Section 382. The Company recorded a deferred tax asset that it expects to realize within the carryforward period. At December 31, 2019,2021, the remaining federal NOL carryforward was $3.1$2.7 million. At December 31, 2019,2021, the Company had New York State and New York City NOL carryforwardscarryforward of $26.3$1.6 million, and $4.4 million, respectively, and recorded a deferred tax asset that it expects to recover within the carryforward period. At December 31, 2021, the Company had New York City NOL carryforward of 0. The New York State and New York City NOLs at December 31, 20192021 included NOLs acquired in connection with the CNB and FNBNY acquisitions.Merger.
15. PENSION AND OTHER POSTRETIREMENT PLANS
Pension Plan and Supplemental Executive Retirement Plan
The Bank maintains a noncontributory pension plan (the “Pension Plan”) covering all eligible employees. The Bank uses aAt December 31, measurement date for this plan in accordance with FASB ASC 715‑30 “Compensation – Retirement Benefits – Defined Benefit Plans – Pension.” During 2012, the Company amended the Pension Plan by revising the formula for determining benefits effective January 1, 2013, except for certain grandfathered employees. Additionally, new employees hired on or after October 1, 2012 are not eligible for the Pension Plan.
During 2001,2021 and 2020, the Bank had accumulated bad debt reserves totaling $15.1 million for which no provision for income tax was required to be recorded. These bad debt reserves could be subject to recapture into taxable income under certain circumstances, including a distribution of the bad debt benefits to the Holding Company or the failure of the Bank to qualify as a bank for federal income tax purposes. Should the reserves as of December 31, 2021 be fully recaptured, the Bank would recognize $4.8 million in additional income tax expense. The Company expects to take no action in the foreseeable future that would require the establishment of a tax liability associated with these bad debt reserves.
The Company is subject to regular examination by various tax authorities in jurisdictions in which it conducts significant business operations. The Company regularly assesses the likelihood of additional examinations in each of the tax jurisdictions resulting from ongoing assessments.
Under current accounting rules, all tax positions adopted are subjected to two levels of evaluation. Initially, a determination is made, based on the Bridgehampton National Bank Supplemental Executive Retirement Plan (“SERP”). As recommendedtechnical merits of the position, as to whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes. In conducting this evaluation, management is required to presume that the position will be examined by the Compensation Committeeappropriate taxing authority possessing full knowledge of all
81
relevant information. The second level of evaluation is the Boardmeasurement of Directors and approved bya tax position that satisfies the full Boardmore-likely-than-not recognition threshold. This measurement is performed in order to determine the amount of Directors, the SERP provides benefitsbenefit to certain employees, whose benefits under the Pension Plan are limited by the applicable provisions of the Internal Revenue Code. The benefit under the SERP is equal to the additional amount the employee would be entitled to under the Pension Plan and the 401(k) Planrecognize in the absencefinancial statements. The tax position is measured at the largest amount of such Internal Revenue Code limitations.benefit that is greater than 50% likely to be realized upon ultimate settlement. The assetsCompany had 0 unrecognized tax benefits as of December 31, 2021 or 2020. The Company does not anticipate any material change to unrecognized tax benefits during the SERP are held in a rabbi trust to maintain the tax-deferred status of the plan and are subject to the general, unsecured creditors of the Company. As a result, the assets of the rabbi trust are reflected on the Company’s consolidated balance sheets.year ended December 31, 2022.
The following table provides information about changes in obligations and plan assets of the defined benefit Pension Plan and the defined benefit plan component of the SERP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Benefits |
| SERP Benefits | ||||||||
|
| Year Ended December 31, |
| Year Ended December 31, | ||||||||
(In thousands) |
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Change in benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
| $ | 23,611 |
| $ | 24,759 |
| $ | 3,811 |
| $ | 3,919 |
Service cost |
|
| 952 |
|
| 1,106 |
|
| 261 |
|
| 290 |
Interest cost |
|
| 908 |
|
| 794 |
|
| 147 |
|
| 127 |
Benefits paid and expected expenses |
|
| (475) |
|
| (402) |
|
| (112) |
|
| (112) |
Assumption changes and other |
|
| 3,761 |
|
| (2,646) |
|
| 1,216 |
|
| (413) |
Benefit obligation at end of year |
| $ | 28,757 |
| $ | 23,611 |
| $ | 5,323 |
| $ | 3,811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
| $ | 33,874 |
| $ | 34,695 |
| $ | — |
| $ | — |
Actual return on plan assets |
|
| 6,346 |
|
| (2,079) |
|
| — |
|
| — |
Employer contribution |
|
| — |
|
| 1,660 |
|
| 112 |
|
| 112 |
Benefits paid and actual expenses |
|
| (475) |
|
| (402) |
|
| (112) |
|
| (112) |
Fair value of plan assets at end of year |
| $ | 39,745 |
| $ | 33,874 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year |
| $ | 10,988 |
| $ | 10,263 |
| $ | (5,323) |
| $ | (3,811) |
Page -78-
The following table presents amounts recognized in accumulated other comprehensive income at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Benefits |
| SERP Benefits | ||||||||
|
| December 31, |
| December 31, | ||||||||
(In thousands) |
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Net actuarial loss |
| $ | 7,997 |
| $ | 8,631 |
| $ | 2,071 |
| $ | 925 |
Prior service cost |
|
| (484) |
|
| (561) |
|
| — |
|
| — |
Net amount recognized |
| $ | 7,513 |
| $ | 8,070 |
| $ | 2,071 |
| $ | 925 |
As of December 31, 2021, the tax years ended December 31, 2021, 2020, 2019, and 2018, remained subject to examination by all of the accumulated benefit obligation was $27.4Company's relevant tax jurisdictions. The Company is currently not under audit in any taxing jurisdictions.
17. MERGER RELATED EXPENSES
Merger-related expenses were recorded in the consolidated statements of income as a component of non-interest expense and include costs relating to the Merger, as described in Note 2. Merger. These charges represent one-time costs associated with merger activities and do not represent ongoing costs of the fully integrated combined organization. Accounting guidance requires that merger-related transactional and restructuring costs incurred by the Company be charged to expense as incurred. Costs associated with employee severance and other merger-related compensation expense incurred in connection with the Merger totaled $15.9 million for the Pension Planyear ended December 31, 2021 and $3.6were recorded in merger expenses and transaction costs expense in the consolidated statements of income. Transaction costs (inclusive of costs to terminate leases) in connection with the Merger totaled $28.9 million and $4.7 million, respectively, for the years ended December 31, 2021 and 2020, and were recorded in merger expenses and transaction costs in the consolidated statements of income. There were 0 costs associated with merger expenses and transaction costs for the year ended December 31, 2019.
18. BRANCH RESTRUCTURING COSTS
On June 29, 2021, the Company issued a press release announcing that the Bank planned to combine 5 branch locations into other existing branches. The combinations took place in October 2021. Costs associated with early lease terminations and accelerated depreciation of fixed assets totaled $5.1 million for the SERP. Asyear ended December 31, 2021 and were recorded in branch restructuring costs in the consolidated statements of income. There were 0 branch restructuring costs for the years ended December 31, 2020 and 2019.
19. RETIREMENT AND POSTRETIREMENT PLANS
The Bank maintains two noncontributory pension plans that existed before the Merger: (i) the Retirement Plan of Dime Community Bank (“Employee Retirement Plan”) and (ii) the BNB Bank Pension Plan, covering all eligible employees. Bank of America, N.A. (“BANA”) was the Trustee for the Employee Retirement Plan and BNB Bank Pension Plan assets as of December 31, 2018,2021. Pentegra Retirement Trust was the accumulated benefit obligation was $22.3 milliontrustee for the PensionEmployee Retirement Plan and $2.7 million forprior to the SERP.
The following table summarizes the components of net periodic benefit (credit) cost and other amounts recognized in other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Benefits |
| SERP Benefits | ||||||||||||||
|
| Year Ended December 31, |
| Year Ended December 31, | ||||||||||||||
(In thousands) |
| 2019 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| 2017 | ||||||
Components of net periodic benefit cost and other amounts recognized in other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 952 |
| $ | 1,106 |
| $ | 1,129 |
| $ | 261 |
| $ | 290 |
| $ | 212 |
Interest cost |
|
| 908 |
|
| 794 |
|
| 750 |
|
| 147 |
|
| 127 |
|
| 105 |
Expected return on plan assets |
|
| (2,445) |
|
| (2,547) |
|
| (2,129) |
|
| — |
|
| — |
|
| — |
Amortization of net loss |
|
| 494 |
|
| 335 |
|
| 479 |
|
| 70 |
|
| 121 |
|
| 51 |
Amortization of prior service credit |
|
| (77) |
|
| (77) |
|
| (77) |
|
| — |
|
| — |
|
| — |
Amortization of transition obligation |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 5 |
|
| 27 |
Net periodic benefit (credit) cost |
| $ | (168) |
| $ | (389) |
| $ | 152 |
| $ | 478 |
| $ | 543 |
| $ | 395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss |
| $ | (140) |
| $ | 1,980 |
| $ | (409) |
| $ | 1,216 |
| $ | (413) |
| $ | 710 |
Amortization of net loss |
|
| (494) |
|
| (335) |
|
| (479) |
|
| (70) |
|
| (121) |
|
| (51) |
Amortization of prior service credit |
|
| 77 |
|
| 77 |
|
| 77 |
|
| — |
|
| — |
|
| — |
Amortization of transition obligation |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (5) |
|
| (27) |
Total recognized in other comprehensive income |
| $ | (557) |
| $ | 1,722 |
| $ | (811) |
| $ | 1,146 |
| $ | (539) |
| $ | 632 |
The Company's service cost component is reported in the Company's income statement in salaries and employee benefits, which is the same line item as other compensation costs arising from services rendered by the pertinent employeestransfer to BANA during the period. All other componentsyear ended December 31, 2021. The assets of net periodic benefit (credit) cost are reported in the other operating expenses income statement line.
The estimated net loss and prior service credit for the defined benefit Pension Plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $400 thousand and $77 thousand, respectively. The estimated net loss for the SERP that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $227 thousand.
Page -79-
Expected Long-Term Rate of Return
The Company’s expected long-term rate of return on Pension Plan assets is a long-term rate based on anticipated Pension Plan asset returns over an extended period of time, taking into account market conditions and broad asset mix considerations. The expected rate of return is a long-term assumption and generally does not change annually.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Benefits |
| SERP Benefits |
| ||||||||
|
| December 31, |
| December 31, |
| ||||||||
|
| 2019 |
| 2018 |
| 2017 |
| 2019 |
| 2018 |
| 2017 |
|
Weighted average assumptions used to determine benefit obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
| 3.10 | % | 4.14 | % | 3.52 | % | 3.08 | % | 4.13 | % | 3.50 | % |
Rate of compensation increase |
| 3.00 |
| 3.00 |
| 3.00 |
| 5.00 |
| 5.00 |
| 5.00 |
|
Weighted average assumptions used to determine net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate |
| 4.14 | % | 3.52 | % | 4.05 | % | 4.13 | % | 3.50 | % | 4.01 | % |
Rate of compensation increase |
| 3.00 |
| 3.00 |
| 3.00 |
| 5.00 |
| 5.00 |
| 5.00 |
|
Expected long-term rate of return |
| 7.25 |
| 7.25 |
| 7.25 |
| — |
| — |
| — |
|
Pension Plan Assets
The Pension Plan seeks to provide retirement benefits to the employees of the Bank who are entitled to receive benefits under the Pension Plan. The Pension Plan assetsboth plans are overseen by a committeethe Retirement Committee (“Committee”), comprised of management, who meet semi-annually,quarterly and setsset investment policy guidelines. Merrill Lynch, Pierce, Fenner & Smith, Inc. (MLPF&S) and Blackrock are the investment policy guidelines.managers of the assets of both plans. The Committee meets with representatives of MLPF&S and reviews the performance of the plan assets. Pension plan assets include cash and cash equivalents, equities and fixed income securities.
Employee Retirement Plan
The PensionBank sponsors the Employee Retirement Plan, a tax-qualified, noncontributory, defined-benefit retirement plan. Prior to April 1, 2000, substantially all full-time employees of at least 21 years of age were eligible for participation after one year of service. Effective April 1, 2000, the Bank froze all participant benefits under the Employee Retirement Plan. For the years ended December 31, 2021 and 2020, the Bank used December 31 as its measurement date for the Employee Retirement Plan.
82
The funded status of the Employee Retirement Plan was as follows:
| | | | | | |
| | Year Ended December 31, | ||||
(In thousands) |
| 2021 |
| 2020 | ||
Reconciliation of projected benefit obligation: | |
|
| |
|
|
Projected benefit obligation at beginning of year | | $ | 26,891 | | $ | 25,405 |
Interest cost | |
| 562 | |
| 732 |
Actuarial (gain) loss | |
| (903) | |
| 2,204 |
Benefit payments | |
| (1,589) | |
| (1,450) |
Projected benefit obligation at end of year | |
| 24,961 | |
| 26,891 |
| |
|
| |
|
|
Plan assets at fair value (investments in trust funds managed by trustee) | |
|
| |
|
|
Balance at beginning of year | |
| 27,142 | |
| 25,202 |
Return on plan assets | |
| 3,140 | |
| 3,390 |
Benefit payments | |
| (1,589) | |
| (1,450) |
Balance at end of year | |
| 28,693 | |
| 27,142 |
Funded status at end of year | | $ | 3,732 | | $ | 251 |
The net periodic cost for the Employee Retirement Plan included the following components:
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) | | 2021 |
| 2020 |
| 2019 | |||
Interest cost | | $ | 562 | | $ | 732 | | $ | 901 |
Expected return on plan assets | |
| (1,846) | |
| (1,713) | |
| (1,528) |
Amortization of unrealized loss | |
| 824 | |
| 914 | |
| 913 |
Net periodic benefit (credit) cost | | $ | (460) | | $ | (67) | | $ | 286 |
The change in accumulated other comprehensive loss that resulted from the Employee Retirement Plan is summarized as follows:
| | | | | | |
| | Year Ended December 31, | ||||
(In thousands) |
| 2021 |
| 2020 | ||
Balance at beginning of period | | $ | (7,119) | | $ | (7,506) |
Amortization of unrealized loss | |
| 825 | |
| 914 |
Gain (loss) recognized during the year | |
| 2,197 | |
| (527) |
Balance at the end of the period | | $ | (4,097) | | $ | (7,119) |
Period end component of accumulated other comprehensive loss, net of tax | | $ | 2,808 | | $ | 4,858 |
Major assumptions utilized to determine the net periodic cost of the Employee Retirement Plan benefit obligations were as follows:
| | | | | | | |
| | At or for the Year Ended December 31, |
| ||||
|
| 2021 |
| 2020 |
| 2019 |
|
Discount rate used for net periodic benefit cost |
| 2.55 | % | 2.97 | % | 4.04 | % |
Discount rate used to determine benefit obligation at period end |
| 2.55 |
| 2.15 |
| 2.97 | |
Expected long-term return on plan assets used for net periodic benefit cost |
| 7.00 |
| 7.00 |
| 7.00 | |
Expected long-term return on plan assets used to determine benefit obligation at period end |
| 7.00 |
| 7.00 |
| 7.00 | |
Plan Assets
The Employee Retirement Plan’s overall investment strategy is to achieve a mix of approximately 97% of investments for long‐term growth and 3% for near‐near‐term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. Cash equivalents consist primarily of short-term investment funds. Equity securities primarily include investments in common stock, mutual funds, depository receipts and exchange traded funds. Fixed income securities include corporate bonds, government issues, mortgage-backed securities, high yield securities and mutual funds.
The weighted average expected long-termlong-term rate of return is estimated based on current trends in PensionEmployee Retirement Plan assets, as well as projected future rates of return on those assets and reasonable actuarial assumptions based on the guidance provided by Actuarial Standard of Practice No.27 for the real and nominal rate of investment return for a specific mix of asset classes. The long-term rate of return considers historical returns for the S&P 500 index and corporate bonds representing cumulative returns of approximately 9.5%9.0% and 5.0%, respectively. These returns were considered along with the target allocations of asset categories. When these overall return expectations were applied to the Employee Retirement Plan’s target allocation, the expected annual rate of return was determined to be 7.00% at both December 31, 2021 and 2020.
83
The Bank did not make any contributions to the Employee Retirement Plan during the year ended December 31, 2021. The Bank does not expect to make contributions to the Employee Retirement Plan during the year ending December 31, 2022.
The weighted-average allocation by asset category of the assets of the Employee Retirement Plan was summarized as follows:
| | | | | |
| | December 31, |
| ||
|
| 2021 |
| 2020 |
|
Asset category |
|
|
|
| |
Equity securities |
| 54 | % | 67 | % |
Debt securities (bond mutual funds) |
| 42 |
| 30 | |
Cash equivalents |
| 4 |
| 3 | |
Total |
| 100 | % | 100 | % |
The allocation percentages in the above table were consistent with future planned allocation percentages as of December 31, 2021 and 2020, respectively.
The following table indicates the target allocations for Plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-Average- |
|
|
| Target |
| Percentage of Plan Assets |
| Expected Long- |
| ||
|
| Allocation |
| At December 31, |
| term Rate of |
| ||
Asset Category |
| 2020 |
| 2019 |
| 2018 |
| Return |
|
Cash equivalents |
| 0 - 5 | % | 3.6 | % | 3.0 | % | — | % |
Equity securities |
| 45 - 65 |
| 57.9 |
| 54.8 |
| 9.5 |
|
Fixed income securities |
| 30 - 50 |
| 38.5 |
| 42.2 |
| 5.0 |
|
Total |
|
|
| 100.0 |
| 100.0 |
|
|
|
Except for pooled vehicles and mutual funds, which are governed by the prospectus, and unless expressly authorized by management, the Pension Plan and its investment managers are prohibited from purchasing the following investments: letter stock, private placements, or direct payments; securities not readily marketable; Bridge Bancorp, Inc. stock; pledging or hypothecating securities, except for loans of securities that are fully collateralized; purchasing or selling derivative securities for speculation or leverage; and investments by the investment managers in their own securities, their affiliates or subsidiaries (excluding money market funds).
Fair value is defined under FASB ASC 820 as the exchange price that would be received for an asset or paid to transfertables present a liability (an 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. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair
Page -80-
value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value. These levels are described in Note 3 “Fair Value.”
In instances in which the inputs used to measure fair value fall into different levelssummary of the fair value hierarchy, the fair value measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments valued using the Net Asset Value (“NAV”) are classified as level 2 if the Pension Plan can redeem its investment with the investee at the NAV at the measurement date. If the Pension Plan can never redeem the investment with the investee at the NAV, it is considered as level 3. If the Pension Plan can redeem the investment at the NAV at a future date, the PensionEmployee Retirement Plan’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset.
In accordance with FASB ASC 715‑20, the following table represents the Pension Plan’s fair value hierarchy for its financial assetsinvestments measured at fair value on a recurring basis by level within the fair value hierarchy, as of December 31, 2019 and 2018:the dates indicated. (See Note 24 for a discussion of the fair value hierarchy).
| | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||
| | Fair Value Measurements Using: | ||||||||||
| | Quoted | | | | | | | | | | |
| | Prices in | | Significant | | | | | | | ||
| | Active Markets for | | Other | | Significant | | | | |||
| | Identical | | Observable | | Unobservable | | | | |||
(In thousands) |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) |
| Total | ||||
Description: | |
| | | | | |
| | |
| |
Cash and cash equivalents | | $ | — | | $ | 1,001 | | $ | — | | $ | 1,001 |
Equities: | |
| | | | | | | | | | |
U.S. large cap | |
| 8,579 | | | — | | | — | | | 8,579 |
U.S. mid cap/small cap | |
| 2,896 | | | — | | | — | | | 2,896 |
International | |
| 3,560 | | | — | | | — | | | 3,560 |
Equities blend | |
| 479 | | | — | | | — | | | 479 |
Fixed income securities: | | | | | | | | | | | | |
Corporate | | | — | | | 1,288 | | | — | | | 1,288 |
Government | | | 1,406 | | | — | | | — | | | 1,406 |
Mortgage-backed | |
| — | | | 1,858 | | | — | | | 1,858 |
High yield bonds and bond funds | |
| — | | | 7,626 | | | — | | | 7,626 |
Total Plan Assets | | $ | 16,920 | | $ | 11,773 | | $ | — | | $ | 28,693 |
| | | | | | | | | | | | |
| | December 31, 2020 | ||||||||||
| | Fair Value Measurements Using: | ||||||||||
| | Quoted | | | | | | | | | | |
| | Prices in | | Significant | | | | | | | ||
| | Active Markets for | | Other | | Significant | | | | |||
| | Identical | | Observable | | Unobservable | | | | |||
(In thousands) |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) |
| Total | ||||
Description: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 720 | | $ | — | | $ | — | | $ | 720 |
Mutual Funds (all registered and publicly traded) : | |
| | |
| | |
| | |
| |
U.S. Large Cap | | | 3,336 | | | — | | | — | | | 3,336 |
U.S. Mid Cap | |
| 1,571 | |
| — | |
| — | |
| 1,571 |
U.S. Small Cap | |
| 618 | |
| — | |
| — | |
| 618 |
International Equity | |
| 4,678 | |
| — | |
| — | |
| 4,678 |
Fixed income | |
| 8,300 | |
| — | |
| — | |
| 8,300 |
Common collective investment funds: | |
|
| |
|
| |
|
| |
|
|
U.S. Large Cap | |
| — | |
| 5,564 | |
| — | |
| 5,564 |
U.S. Mid Cap | |
| — | |
| 742 | |
| — | |
| 742 |
U.S. Small Cap | |
| — | |
| 1,613 | |
| — | |
| 1,613 |
Total Plan Assets | | $ | 19,223 | | $ | 7,919 | | $ | — | | $ | 27,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2019 | ||||||||||
|
|
|
|
| Fair Value Measurements Using: | |||||||
|
|
|
|
| Quoted Prices |
| Significant |
|
|
| ||
|
|
|
|
| In Active |
| Other |
|
| Significant | ||
|
|
|
|
| Markets for |
| Observable |
|
| Unobservable | ||
|
| Carrying |
| Identical Assets |
| Inputs |
|
| Inputs | |||
(Dollars in thousands) |
| Value |
| (Level 1) |
| (Level 2) |
|
| (Level 3) | |||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Short term investment funds |
|
| 1,444 |
|
| — |
|
| 1,444 |
|
| — |
Total cash and cash equivalents |
|
| 1,444 |
|
| — |
|
| 1,444 |
|
| — |
Equities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. large cap |
|
| 12,097 |
|
| 12,097 |
|
| — |
|
| — |
U.S. mid cap/small cap |
|
| 4,195 |
|
| 4,195 |
|
| — |
|
| — |
International |
|
| 6,320 |
|
| 6,320 |
|
| — |
|
| — |
Equities blend |
|
| 414 |
|
| 414 |
|
| — |
|
| — |
Total equities |
|
| 23,026 |
|
| 23,026 |
|
| — |
|
| — |
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Government issues |
|
| 2,024 |
|
| 2,024 |
|
| — |
|
| — |
Corporate bonds |
|
| 2,926 |
|
| — |
|
| 2,926 |
|
| — |
Mortgage-backed |
|
| 1,033 |
|
| — |
|
| 1,033 |
|
| — |
High yield bonds and bond funds |
|
| 9,292 |
|
| — |
|
| 9,292 |
|
| — |
Total fixed income securities |
|
| 15,275 |
|
| 2,024 |
|
| 13,251 |
|
| — |
Total plan assets |
| $ | 39,745 |
| $ | 25,050 |
| $ | 14,695 |
| $ | — |
84
Page -81-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | ||||||||||
|
|
|
|
| Fair Value Measurements Using: | |||||||
|
|
|
|
| Quoted Prices |
| Significant |
|
|
| ||
|
|
|
|
| In Active |
| Other |
|
| Significant | ||
|
|
|
|
| Markets for |
| Observable |
|
| Unobservable | ||
|
| Carrying |
| Identical Assets |
| Inputs |
|
| Inputs | |||
(Dollars in thousands) |
| Value |
| (Level 1) |
| (Level 2) |
|
| (Level 3) | |||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Short term investment funds |
|
| 1,063 |
|
| — |
|
| 1,063 |
|
| — |
Total cash and cash equivalents |
|
| 1,063 |
|
| — |
|
| 1,063 |
|
| — |
Equities: |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. large cap |
|
| 9,173 |
|
| 9,173 |
|
| — |
|
| — |
U.S. mid cap/small cap |
|
| 2,760 |
|
| 2,760 |
|
| — |
|
| — |
International |
|
| 6,480 |
|
| 6,480 |
|
| — |
|
| — |
Equities blend |
|
| 155 |
|
| 155 |
|
| — |
|
| — |
Total equities |
|
| 18,568 |
|
| 18,568 |
|
| — |
|
| — |
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Government issues |
|
| 2,341 |
|
| 2,341 |
|
| — |
|
| — |
Corporate bonds |
|
| 2,098 |
|
| — |
|
| 2,098 |
|
| — |
Mortgage-backed |
|
| 1,132 |
|
| — |
|
| 1,132 |
|
| — |
High yield bonds and bond funds |
|
| 8,672 |
|
| — |
|
| 8,672 |
|
| — |
Total fixed income securities |
|
| 14,243 |
|
| 2,341 |
|
| 11,902 |
|
| — |
Total plan assets |
| $ | 33,874 |
| $ | 20,909 |
| $ | 12,965 |
| $ | — |
Benefit payments are anticipated to be made as follows:
| | | |
Year Ended December 31, | | Amount | |
2022 | | $ | 1,501 |
2023 | |
| 1,490 |
2024 | |
| 1,477 |
2025 | |
| 1,412 |
2026 | |
| 1,368 |
2027 to 2031 | |
| 6,503 |
BNB Bank Pension Plan
During 2012, Bridge amended the BNB Bank Pension Plan by revising the formula for determining benefits effective January 1, 2013, except for certain grandfathered Bridge employees. Additionally, new Bridge employees hired on or after October 1, 2012 were not eligible for the BNB Bank Pension Plan. For the year ended December 31, 2021, the Bank used December 31 as its measurement date for the BNB Bank Pension Plan.
The Company has no minimum required pension contribution due to the overfundedfunded status of the plan.BNB Bank Pension Plan was as follows:
Estimated Future Payments
| | | |
| | Year Ended December 31, | |
(In thousands) |
| 2021 | |
Reconciliation of projected benefit obligation: | |
|
|
Projected benefit obligation at beginning of year | | $ | — |
Acquired in the Merger | | | 33,897 |
Service cost | |
| 893 |
Interest cost | |
| 609 |
Actuarial gain | | | (304) |
Benefit payments | |
| (600) |
Projected benefit obligation at end of year | |
| 34,495 |
| |
|
|
Plan assets at fair value (investments in trust funds managed by trustee) | |
|
|
Balance at beginning of year | |
| — |
Acquired in the Merger | | | 43,685 |
Return on plan assets | |
| 4,772 |
Benefit payments | |
| (600) |
Balance at end of year | |
| 47,857 |
Funded status at end of year | | $ | 13,362 |
The net periodic cost for the BNB Bank Pension Plan included the following components:
| | | |
| | Year Ended December 31, | |
(In thousands) | | 2021 | |
Service cost | | $ | 893 |
Interest cost | | | 609 |
Expected return on plan assets | |
| (2,883) |
Net periodic benefit credit | | $ | (1,381) |
The change in accumulated other comprehensive income that resulted from the BNB Bank Pension Plan is summarized as follows:
| | | |
| | Year Ended December 31, | |
(In thousands) |
| 2021 | |
Balance at beginning of period | | $ | — |
Gain recognized during the year | |
| 2,193 |
Balance at the end of the period | | $ | 2,193 |
Period end component of accumulated other comprehensive income, net of tax | | $ | (1,503) |
85
Major assumptions utilized to determine the net periodic cost of the BNB Bank Pension Plan benefit obligations were as follows:
| | | |
| | At or for the Year Ended December 31, | |
| 2021 | ||
Discount rate used for net periodic benefit cost | 2.69 | % | |
Discount rate used to determine benefit obligation at period end | 2.69 | ||
Expected long-term return on plan assets used for net periodic benefit cost | 7.25 | ||
Expected long-term return on plan assets used to determine benefit obligation at period end | 7.25 |
Plan Assets
The BNB Bank Pension Plan’s overall investment strategy is to achieve a mix of approximately 97% of investments for long‐term growth and 3% for near‐term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. Cash equivalents consist primarily of short-term investment funds. Equity securities primarily include investments in common stock, mutual funds, depository receipts and exchange traded funds. Fixed income securities include corporate bonds, government issues, mortgage-backed securities, high yield securities and mutual funds.
The weighted average expected long-term rate of return is estimated based on current trends in BNB Bank Pension Plan assets, as well as projected future rates of return on those assets and reasonable actuarial assumptions based on the guidance provided by Actuarial Standard of Practice No.27 for the real and nominal rate of investment return for a specific mix of asset classes. The long-term rate of return considers historical returns for the S&P 500 index and corporate bonds representing cumulative returns of approximately 9.0% and 5.0%, respectively. These returns were considered along with the target allocations of asset categories. When these overall return expectations were applied to the BNB Bank Pension Plan’s target allocation, the expected annual rate of return was determined to be 7.25% at December 31, 2021.
The Bank did not make any contributions to the BNB Bank Pension Plan during the year ended December 31, 2021. The Bank does not expect to make contributions to the BNB Bank Pension Plan during the year ending December 31, 2022.
The weighted-average allocation by asset category of the assets of the BNB Bank Pension Plan was summarized as follows:
| | | |
| | December 31, | |
| 2021 | ||
Asset category | |||
Equity securities | 60 | % | |
Debt securities (bond mutual funds) | 37 | ||
Cash equivalents | 3 | ||
Total | 100 | % |
86
The following table summarizes benefits expectedtables present a summary of the BNB Bank Pension Plan’s investments measured at fair value on a recurring basis by level within the fair value hierarchy, as of the dates indicated. (See Note 24 for a discussion of the fair value hierarchy).
| | | | | | | | | | | | |
| | December 31, 2021 | ||||||||||
| | Fair Value Measurements Using: | ||||||||||
| | Quoted | | | | | | | | | | |
| | Prices in | | Significant | | | | | | | ||
| | Active Markets for | | Other | | Significant | | | | |||
| | Identical | | Observable | | Unobservable | | | | |||
(In thousands) |
| Assets (Level 1) |
| Inputs (Level 2) |
| Inputs (Level 3) |
| Total | ||||
Description: | |
| | | | | |
| | |
| |
Cash and cash equivalents | | $ | — | | $ | 1,581 | | $ | — | | $ | 1,581 |
Equities: | |
| | | | | | | | | | |
U.S. large cap | |
| 13,623 | | | — | | | — | | | 13,623 |
U.S. mid cap/small cap | |
| 5,669 | | | — | | | — | | | 5,669 |
International | |
| 8,332 | | | — | | | — | | | 8,332 |
Equities blend | |
| 900 | | | — | | | — | | | 900 |
Fixed income securities: | | | | | | | | | | | | |
Corporate | | | — | | | 1,696 | | | — | | | 1,696 |
Government | | | 1,700 | | | — | | | — | | | 1,700 |
Mortgage-backed | |
| — | | | 2,549 | | | — | | | 2,549 |
High yield bonds and bond funds | |
| — | | | 11,807 | | | — | | | 11,807 |
Total Plan Assets | | $ | 30,224 | | $ | 17,633 | | $ | — | | $ | 47,857 |
| | | | | | | | | | | | |
Benefit payments are anticipated to be paid under the Pension Plan and the SERPmade as of December 31, 2019, which reflect expected future service:follows:
|
|
|
|
|
| Pension and SERP | |
Year |
| (in thousands) | |
2020 |
| $ | 931 |
2021 |
|
| 1,074 |
2022 |
|
| 1,148 |
2023 |
|
| 1,291 |
2024 |
|
| 1,298 |
2025-2029 |
|
| 9,246 |
| | | |
Year Ended December 31, | | Amount | |
2022 | | $ | 1,119 |
2023 | |
| 1,264 |
2024 | |
| 1,274 |
2025 | |
| 1,360 |
2026 | |
| 1,563 |
2027 to 2031 | |
| 9,153 |
401(k) Plan
The Company providesmaintains a 401(k) plan, whichPlan (the “401(k) Plan”) that existed before the Merger. The 401(k) Plan covers substantially all current employees. Legacy Dime employees that continued to be employed following the Merger Date, that met eligibility requirements, were automatically enrolled in the plan unless they elected not to participate. Newly hired employees are automatically enrolled in the plan on the first day of the month following the 60th day of employment, unless they elect not to participate. Participants may contribute a portion of their pre-tax base salary, generally not to exceed $19,000$19,500 for the calendar year ended December 31, 2019.2021. Under the provisions of the 401(k) plan, employee contributions are partially matched by the Bank as follows: 100% of each employee’s contributions up to 1% of each employee’s compensation plus 50% of each employee’s contributions over 1% but not in excess of 6% of each employee’s compensation for a maximum contribution of 3.5% of a participating employee’s compensation. Participants can invest their account balances into several investment alternatives. The 401(k) plan does not allow for investment in the Company’s common stock. Legacy Dime employees were allowed to rollover Company common stock shares in-kind held in the former Dime Community Bank KSOP Plan (“Dime KSOP Plan”) and hold in the 401(k) Plan. The 401(k) held Company common stock within the accounts of participants totaling $9.7 million at December 31, 2021. During the yearsyear ended December 31, 2019, 20182021, total expense recognized as a component of salaries and 2017employee benefits expense for the Company made cash contributions401(k) Plan was $2.0 million.
Dime KSOP Plan
The Dime Community Bank KSOP Plan (“Dime KSOP Plan”) was terminated by resolution of $1.1the Legacy Dime Board of Directors. The effective date of the Dime KSOP Plan termination was February 1, 2021, the date of the Merger. As such, all participants were required to transfer their assets out of the Dime KSOP Plan. The KSOP held Legacy Dime common stock within the accounts of participants totaling $40 thousand and $33.7 million $1.0 million,at December 31, 2021 and $1.0 million, respectively. The 401(k) plan also includes a discretionary profit-sharing component.2020. During the years
87
ended December 31, 2021, 2020 and 2019, 2018total expense recognized as a component of salaries and 2017,employee benefits expense for the Dime KSOP Plan was $0.3 million, $1.9 million and $1.9 million, respectively.
BMP and Outside Director Retirement Plan
The Holding Company and Bank maintained the BMP, which existed in order to compensate executive officers for any curtailments in benefits due to statutory limitations on benefit plans. As of December 31, 2020, the BMP had investments, held in a rabbi trust, in the Common Stock of $2.2 million. Benefit accruals under the defined benefit portion of the BMP were suspended on April 1, 2000, when they were suspended under the Employee Retirement Plan.
Effective July 1, 1996, the Company made discretionary profit-sharing contributionsestablished the Outside Director Retirement Plan to provide benefits to each eligible outside director commencing upon the earlier of $583 thousand, $497 thousand,termination of Board service or at age 75. The Outside Director Retirement Plan was frozen on March 31, 2005, and $550 thousand, respectively.only outside directors serving prior to that date are eligible for benefits.
As of December 31, 2021 and 2020, the Bank used December 31 as its measurement date for both the BMP and Outside Director Retirement Plan.
In connection with the Merger, the Outside Director Retirement Plan and the BMP were terminated, resulting in lump sum payments to the participants in the amounts of $2.8 million for the Outside Director Retirement Plan and $6.2 million for the BMP. The total expense recognized as a curtailment loss during the three months ended March 31, 2021 was $1.5 million.
The combined funded status of the defined benefit portions of the BMP and the Director Retirement Plan was as follows:
| | | | | | |
| | Year Ended December 31, | ||||
(In thousands) |
| 2021 |
| 2020 | ||
Reconciliation of projected benefit obligation: | |
|
| |
|
|
Projected benefit obligation at beginning of year | | $ | 9,328 | | $ | 9,360 |
Interest cost | |
| 12 | |
| 234 |
Benefit payments | |
| (9,063) | |
| (771) |
Actuarial (gain) loss | |
| (277) | |
| 505 |
Projected benefit obligation at end of year | |
| — | |
| 9,328 |
Plan assets at fair value: | |
|
| |
|
|
Balance at beginning of year | |
| — | |
| — |
Contributions | |
| 9,063 | |
| 771 |
Benefit payments | |
| (9,063) | |
| (771) |
Balance at end of period | |
| — | |
| — |
Funded status at end of year | | $ | — | | $ | (9,328) |
The combined net periodic cost for the defined benefit portions of the BMP and the Director Retirement Plan included the following components:
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) |
| 2021 |
| 2020 |
| 2019 | |||
Interest cost | | $ | 12 | | $ | 234 | | $ | 351 |
Curtailment loss | | | 1,543 | | | — | | | — |
Amortization of unrealized loss | |
| — | |
| 179 | |
| 59 |
Net periodic benefit cost | | $ | 1,555 | | $ | 413 | | $ | 410 |
The combined change in accumulated other comprehensive loss that resulted from the BMP and Director Retirement Plan is summarized as follows:
| | | | | | |
| | Year Ended December 31, | ||||
(In thousands) |
| 2021 |
| 2020 | ||
Balance at beginning of year | | $ | (1,820) | | $ | (1,494) |
Amortization of unrealized loss | |
| — | |
| 179 |
Gain (loss) recognized during the year | |
| 277 | |
| (505) |
Curtailment credit | | | 1,543 | | | — |
Balance at the end of year | | $ | — | | $ | (1,820) |
Period end component of accumulated other comprehensive loss, net of tax | | $ | — | | $ | 1,228 |
Page -82-88
Major assumptions utilized to determine the net periodic cost and benefit obligations for both the BMP and Director Retirement Plan were as follows:
| | | | | |
| | At or For the Year Ended December 31, |
| ||
|
| 2020 |
| 2019 |
|
Discount rate used for net periodic benefit cost – BMP |
| 2.60 | % | 3.80 | % |
Discount rate used for net periodic benefit cost – Director Retirement Plan |
| 2.68 |
| 3.84 | |
Discount rate used to determine BMP benefit obligation at year end |
| 1.55 |
| 2.60 | |
Discount rate used to determine Director Retirement Plan benefit obligation at year end |
| 1.69 |
| 2.68 | |
Postretirement Benefit Plan
The Bank offered the Postretirement Benefit Plan to its retired employees who provided at least five consecutive years of credited service and were active employees prior to April 1, 1991. Postretirement Benefit Plan benefits were available only to full-time employees who commence or commenced collecting retirement benefits from the Retirement Plan immediately upon termination of service from the Bank. The Postretirement Benefit Plan was amended effective March 31, 2015 to eliminate plan participation for post-amendment retirees.
During the year ended December 31, 2020, Legacy Dime approved the termination of the Postretirement Benefit Plan in anticipation of the Merger. As a result of the decision to terminate the plan, no additional benefits will be paid after January 31, 2021, and a curtailment gain of $1.6 million was recognized through net periodic cost during the year ended December 31, 2020.
The funded status of the Postretirement Benefit Plan was as follows:
| | | | | | |
| | Year Ended December 31, | ||||
(In thousands) |
| | 2021 |
| | 2020 |
Reconciliation of projected benefit obligation: | |
|
| |
|
|
Projected benefit obligation at beginning of year | | $ | 13 | | $ | 1,608 |
Interest cost | |
| — | |
| 42 |
Actuarial loss | |
| — | |
| 105 |
Curtailment gain | | | — | | | (1,577) |
Benefit payments | |
| (13) | |
| (165) |
Projected benefit obligation at end of year | |
| — | |
| 13 |
Plan assets at fair value: | |
|
| |
|
|
Balance at beginning of year | |
| — | |
| — |
Contributions | |
| 13 | |
| 165 |
Benefit payments | |
| (13) | |
| (165) |
Balance at end of period | |
| — | |
| — |
Funded status at end of year | | $ | — | | $ | (13) |
The Postretirement Benefit Plan net periodic cost included the following components:
| | | | | | |
| | Year Ended December 31, | ||||
(In thousands) |
| 2020 |
| 2019 | ||
Interest cost | | $ | 42 | | $ | 56 |
Curtailment gain | | | 1,651 | | | — |
Amortization of unrealized loss | |
| (9) | |
| (20) |
Net periodic benefit cost | | $ | 1,684 | | $ | 36 |
The change in accumulated other comprehensive loss that resulted from the Postretirement Benefit Plan is summarized as follows:
| | | |
| | | Year Ended December 31, |
(In thousands) |
| 2020 | |
Balance at beginning of period | | $ | 188 |
Amortization of unrealized loss | |
| (9) |
Recognition of prior service cost | | | (74) |
Loss recognized during the year | |
| (105) |
Balance at the end of the period | | $ | — |
Period end component of accumulated other comprehensive loss, net of tax | | $ | — |
89
Major assumptions utilized to determine the net periodic cost were as follows:
| | | | | |
| | At or For the Year Ended December 31, |
| ||
|
| 2020 |
| 2019 |
|
Discount rate used for net periodic benefit cost |
| 2.69 | % | 3.82 | % |
Discount rate used to determine benefit obligation at period end |
| 0.29 |
| 2.69 | |
16.
20. STOCK-BASED COMPENSATION PLANS
Before the Merger, Bridge and Legacy Dime granted share-based awards under their respective share-based compensation plans, (collectively, the “Legacy Stock Plans”), which are both subject to the accounting requirements of ASC 718.
In May 2019,2021, the Company’s shareholders approved the Bridge Bancorp,Dime Community Bancshares, Inc. 20192021 Equity Incentive Plan (the “2019“2021 Equity Incentive Plan”), which provides for to provide the grantCompany with sufficient equity compensation to meet the objectives of stock-based andappropriately incentivizing its officers, other incentive awards to officers, employees, and directors to execute our strategic plan to build shareholder value, while providing appropriate shareholder protections. The Company no longer makes grants under the Legacy Stock Plans. Awards outstanding under the Legacy Stock Plans will continue to remain outstanding and subject to the terms and conditions of the Company. The 2019Legacy Stock Plans. At December 31, 2021, there were 1,123,844 shares reserved for issuance under the 2021 Equity Incentive Plan supersededPlan.
In anticipation of the Bridge Bancorp, Inc. 2012 Stock-Based Incentive Plan (the “2012 Equity Incentive Plan”). The 2012 Equity Incentive Plan supersededMerger, Legacy Dime accelerated and vested all unvested and outstanding share-based awards such that there were 0 outstanding awards as of December 31, 2020. In connection with the 2006 Stock-Based Incentive Plan. The maximumMerger, all outstanding stock options granted under Legacy Dime’s equity plans, were legally assumed by the combined company and adjusted so that its holder is entitled to receive a number of shares of Dime’s common stock inequal to the aggregate, that may be granted under the 2019 Equity Incentive Plan as stock options, restricted stock, or restricted stock units is 370,000 plusproduct of (a) the number of shares of Legacy Dime common stock subject to such award multiplied by (b) the Exchange Ratio and (c) rounded, as applicable, to the nearest whole share, and otherwise subject to the same terms and conditions (including, without limitation, with respect to vesting conditions (taking into account any vesting that occurred at the Merger Date)).
In connection with the Merger, all outstanding stock options and time-vesting restricted stock units of Bridge, which have been reserved but not issuedwe refer to as the Bridge equity awards, which were outstanding immediately before the Merger Date continue to be awards in respect of Dime common stock following the Merger, subject to the same terms and conditions that were applicable to such awards before the Merger Date.
Stock Option Activity
The following table presents a summary of activity related to stock options granted under the 2012 Equity Incentive Plan,Legacy Stock Plans, and any awards that are forfeitedchanges during the period then ended:
| | | | | | | | | | |
| | |
| | |
| Weighted- |
| | |
| | | | | | | Average | | Aggregate | |
| | | | Weighted- | | Remaining | | Intrinsic | ||
| | Number of | | Average Exercise | | Contractual | | Value | ||
|
| Options |
| Price |
| Years |
| (In thousands) | ||
| | | | | | | | | | |
Options outstanding at January 1, 2021 as adjusted for conversion | | 18,685 | | $ | 23.23 | | | | | |
Options acquired | | 180,020 | | | 35.39 | | | | | |
Options exercised | | (48,031) | |
| 30.66 | | | | | |
Options forfeited | | (29,421) | |
| 35.38 | | | | | |
Options outstanding at December 31, 2021 |
| 121,253 | | $ | 35.39 |
| 7.2 | | $ | 14 |
Options vested and exercisable at December 31, 2021 |
| 121,253 | | $ | 35.39 |
| 7.2 | | $ | 14 |
Information related to stock options during each period is as follows:
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) | | 2021 |
| 2020 |
| 2019 | |||
Cash received for option exercise cost | | $ | 431 | | $ | 38 | | $ | 367 |
Income tax (expense) benefit recognized on stock option exercises | |
| (15) | |
| — | |
| 39 |
Intrinsic value of options exercised | |
| 171 | |
| 8 | |
| 229 |
90
The range of exercise prices and weighted-average remaining contractual lives of both outstanding and vested options (by option exercise cost) as of December 31, 2021 were as follows:
| | | | | | | | |
| | Outstanding Options | Vested Options | |||||
| | | | Weighted | | | | Weighted |
| | | | Average | | | | Average |
| | | | Contractual | | | | Contractual |
| | | | Years | | | | Years |
|
| Amount |
| Remaining |
| Amount |
| Remaining |
Exercise Prices: |
|
|
|
|
|
|
|
|
$34.87 |
| 46,799 |
| 8.1 |
| 46,799 |
| 8.1 |
$35.35 |
| 42,475 |
| 7.1 |
| 42,475 |
| 7.1 |
$36.19 |
| 31,979 |
| 6.1 |
| 31,979 |
| 6.1 |
Total |
| 121,253 |
| 7.2 |
| 121,253 |
| 7.2 |
Restricted Stock Awards
The Company has made RSA grants to outside Directors and certain officers under the 2012 Equity Incentive Plan afterLegacy Stock Plans and the effective date of the 20192021 Equity Incentive Plan. No further grants will be made underTypically, awards to outside Directors fully vest on the 2012 Equity Incentive Plan. Currently outstanding grants under the 2012 Equity Incentive Plan will not be affected.
The number of shares of common stock of Bridge Bancorp, Inc. available for stock-based awards under the 2019 Equity Incentive Plan is 370,000 plus 162,738 shares that were remaining under the 2012 Equity Incentive Plan. At December 31, 2019, 526,518 shares remain available for issuance, including shares that may be granted in the form of stock options, RSAs, or RSUs.
The Compensation Committeefirst anniversary of the Board of Directors determinesgrant date, while awards underto officers vest over a pre-determined requisite period. All awards were made at the 2019 Equity Incentive Plan. The Company accounts for the 2019 Equity Incentive Plan under FASB ASC 718.
Stock Options
Stock options may be either incentive stock options, which bestow certain tax benefits on the optionee, or non-qualified stock options, not qualifying for such benefits. All options have an exercise price that is not less than the marketfair value of the Company'sCompany’s common stock on the dategrant date. Compensation expense on all RSAs is based upon the fair value of the shares on the respective dates of the grant.
During the year ended December 31, 2020, Legacy Dime modified certain RSAs to accelerate the vesting of all outstanding awards in connection with the Merger. Total expense recognized as part of the acceleration was approximately $2.5 million.
The following table presents a summary of activity related to the RSAs granted, and changes during the period then ended:
| | | | | |
| | |
| Weighted- | |
| | | | Average | |
| | Number of | | Grant-Date | |
|
| Shares |
| Fair Value | |
| | | | | |
Unvested allocated shares outstanding at January 1, 2021 | | — | | $ | — |
Shares acquired in the Merger | | 101,778 | | | 25.98 |
Shares granted |
| 390,027 | |
| 26.48 |
Shares vested | | (9,838) | | | 25.41 |
Shares forfeited |
| (35,044) | |
| 25.89 |
Unvested allocated shares at December 31, 2021 |
| 446,923 | | $ | 26.45 |
Information related to RSAs during each period is as follows:
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(Dollars in thousands) | | | 2021 |
| | 2020 |
| | 2019 |
Compensation expense recognized | | $ | 5,253 | | $ | 4,217 | | $ | 1,540 |
Income tax benefit (expense) recognized on vesting of RSAs | |
| 27 | |
| (211) | |
| 11 |
As of December 31, 2021, there was $6.8 million of total unrecognized compensation cost related to unvested RSAs to be recognized over a weighted-average period of 2.8 years.
Performance-Based Share Awards
The Company maintains a LTIP for certain officers, which meets the criteria for equity-based accounting. For each award, threshold (50% of target), target (100% of target) and stretch (150% of target) opportunities are eligible to be earned over a three-year performance period based on the Company’s relative performance on certain goals that were established at the onset of the performance period and cannot be altered subsequently. Shares of common stock are issued on the grant date and held as unvested stock awards until the end of the performance period. Shares are issued at the stretch opportunity in order to ensure that an adequate number of shares are allocated for shares expected to vest at the end of the performance period. Compensation expense on PSAs is based upon the fair value of each option granted is estimatedthe shares on the date of the grant usingfor the Black-Scholes option-pricing model. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of the Company's common stockexpected aggregate share payout as of the exercise or reporting date.period end.
91
During the years ended December 31, 2019 and 2018, in accordance with the Long Term Incentive Plan (“LTI Plan”) for Named Executive Officers (“NEOs”), the Company granted 63,267 and 47,393 stock options, respectively, with an exercise price set to equal a 10.0% premium over the grant date stock price. All of the stock options granted vest ratably over three years. The estimated weighted-average grant-date fair value of all stock options granted in the years ended December 31, 2019 and 2018 was $5.05 and $6.52 per stock option, respectively, using the Black-Scholes option-pricing model with assumptions as follows:
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| ||||
|
|
| 2019 |
| 2018 |
| ||
Dividend yield |
|
|
| 2.86 | % |
| 2.80 | % |
Expected volatility |
|
|
| 23.80 |
|
| 27.53 |
|
Risk-free interest rate |
|
|
| 2.52 |
|
| 2.67 |
|
Expected option life |
|
|
| 6.0 | years |
| 6.5 | years |
No new grants of stock options were awarded during the year ended December 31, 2017.2020, Legacy Dime modified certain PSAs to accelerate the vesting of all outstanding awards in connection with the Merger. Total expense recognized as part of the acceleration was approximately $1.7 million. There were no stock options0 outstanding PSAs at December 31, 2020. This plan continued into 2021, and as of December 31, 2017.2021, 38,948 shares have been granted.
Compensation expense attributableThe following table presents a summary of activity related to stock options was $197 thousandthe PSAs granted, and $91 thousand for changes during the years endedperiod then ended:
| | | | | |
| | |
| Weighted- | |
| | | | Average | |
| | Number of | | Grant-Date | |
|
| Shares |
| Fair Value | |
Maximum aggregate share payout at January 1, 2021 | | — | | $ | — |
Shares granted |
| 38,948 | |
| 31.40 |
Maximum aggregate share payout at December 31, 2021 |
| 38,948 | | $ | 31.40 |
Minimum aggregate share payout |
| — | | | — |
Expected aggregate share payout |
| 29,951 | | $ | 30.72 |
Information related to PSAs during each period is as follows:
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) | | 2021 |
| 2020 |
| 2019 | |||
Compensation expense recognized | | $ | 154 | | $ | 2,279 | | $ | 132 |
Income tax benefit recognized on vesting of PSAs | |
| — | |
| 60 | |
| — |
As of December 31, 2019 and 2018, respectively. There was no compensation expense attributable to stock options for the year ended December 31, 2017 because all stock options were vested. As of December 31, 2019,2021, there was $341$765 thousand of total unrecognized compensation cost related to unvested stock options. The cost isPSAs based on the expected aggregate share payout to be recognized over a weighted-average period of 1.82.5 years.
Sales Incentive Awards
Page -83-
The following table summarizescommon stock were issued on the statusgrant date and held as unvested stock awards until the end of the Company's stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted |
|
|
|
| |
|
|
|
| Weighted |
| Average |
|
|
|
| ||
|
| Number |
| Average |
| Remaining |
|
| Aggregate | |||
|
| of |
| Exercise |
| Contractual |
|
| Intrinsic | |||
(Dollars in thousands, except per share amounts) |
| Options |
| Price |
| Life |
|
| Value | |||
Outstanding, January 1, 2019 |
| 47,393 |
| $ | 36.19 |
|
|
|
|
|
|
|
Granted |
| 63,267 |
|
| 35.35 |
|
|
|
|
|
|
|
Outstanding, December 31, 2019 |
| 110,660 |
|
| 35.71 |
|
| 8.7 | years |
| $ | — |
Vested and Exercisable, December 31, 2019 |
| 15,795 |
|
| 36.19 |
|
| 8.1 | years |
|
| — |
|
|
|
|
|
|
|
|
|
|
| |
|
| Number of |
| Exercise | |
Range of Exercise Prices |
| Options |
| Price | |
$35.35 |
| 63,267 |
| $ | 35.35 |
36.19 |
| 47,393 |
|
| 36.19 |
|
| 110,660 |
|
|
|
Restricted Stock Awards
The Company's RSAs areperformance period. They were issued at the maximum opportunity in order to ensure that an adequate number of shares were allocated for shares expected to vest at the end of the Company's common stock that are forfeitable and are subject to restrictions on transfer prior to the vesting date. RSAs are forfeited if the award holder departs the Company before vesting. RSAs carry dividend and voting rights from the date of grant. The vesting of time-vested RSAs depends upon the award holder continuing to render services to the Company. The Company's performance-based RSAs vest subject to the achievement of the Company's corporate goals.
The following table summarizes the unvested RSA activity for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
| Weighted | |
|
|
|
| Average Grant-Date | |
|
| Shares |
| Fair Value | |
Unvested, January 1, 2019 |
| 324,882 |
| $ | 29.13 |
Granted |
| 78,952 |
|
| 31.92 |
Vested |
| (90,586) |
|
| 27.20 |
Forfeited |
| (19,531) |
|
| 30.62 |
Unvested, December 31, 2019 |
| 293,717 |
|
| 30.37 |
performance period.
During the year ended December 31, 2019,2020, Legacy Dime modified certain performance-based share awards to accelerate the Company granted a totalvesting of 78,952 RSAs. Ofall outstanding awards in connection with the 78,952 RSAs granted, 49,925 time-vested RSAs vest ratably over fiveMerger. Total compensation expense recognized as part of the acceleration was approximately $341 thousand. There were 0 outstanding sales incentive share awards at December 31, 2020. Total compensation expenses of $727 thousand and $171 thousand were recognized during the years ended December 31, 2020 and 29,027 time-vested RSAs vest ratably over three years. During2019. There was 0 sales incentive awards compensation expense recognized during the year ended December 31, 2018,2021.
There was no activity related to sales incentive awards during the Company granted RSAsyear ended December 31, 2021.
21. EARNINGS PER SHARE
Basic earnings per share (“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 prior to 2021, if all likely aggregate PSAs were issued. In determining the weighted average shares outstanding for basic and diluted EPS, treasury shares are excluded. Vested RSA shares are included in the calculation of 83,782 shares. Of the 83,782weighted average shares granted, 44,750outstanding for basic and diluted EPS. Unvested RSA and PSA shares vestnot yet awarded are recognized as a special class of participating securities under ASC 260, and are included in the calculation of the weighted average shares outstanding for basic and diluted EPS.
92
The following is a reconciliation of the numerators and denominators of basic and diluted EPS for the periods presented:
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands except share and per share amounts) | | 2021 |
| 2020 |
| 2019 | |||
| | |
|
| |
|
| |
|
Net income available to common stockholders | | $ | 96,710 | | $ | 37,535 | | $ | 36,186 |
Less: Dividends paid and earnings allocated to participating securities | |
| (1,215) | |
| (149) | |
| (184) |
Income attributable to common stock | | $ | 95,495 | | $ | 37,386 | | $ | 36,002 |
Weighted average common shares outstanding, including participating securities | |
| 39,327,959 | |
| 21,729,484 | |
| 23,240,571 |
Less: weighted average participating securities | |
| (425,533) | |
| (191,536) | |
| (137,563) |
Weighted average common shares outstanding | |
| 38,902,426 | |
| 21,537,948 | |
| 23,103,008 |
Basic EPS | | $ | 2.45 | | $ | 1.74 | | $ | 1.56 |
| |
|
| |
|
| |
|
|
Income attributable to common stock | | $ | 95,495 | | $ | 37,386 | | $ | 36,002 |
Weighted average common shares outstanding | |
| 38,902,426 | |
| 21,537,948 | |
| 23,103,008 |
Weighted average common equivalent shares outstanding | |
| 611 | |
| 500 | |
| 82,903 |
Weighted average common and equivalent shares outstanding | |
| 38,903,037 | |
| 21,538,448 | |
| 23,185,911 |
Diluted EPS | | $ | 2.45 | | $ | 1.74 | | $ | 1.55 |
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 fivethe exercise price of outstanding in-the-money stock options during the period.
There were 167,053 and 15,498 weighted-average stock options outstanding for the years 13,915ended December 31, 2021 and 2020, respectively, 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 for the year ended December 31, 2019.
22. PREFERRED STOCK
On February 5, 2020, Legacy Dime completed an underwritten public offering of 2,999,200 shares, vest over three years 25,117 performance-based RSAs vest ratably over two years, subjector $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 “Legacy Dime Preferred Stock”). 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 the Legacy Dime Preferred Stock. 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 Legacy Dime Preferred Stock was converted into the right to the achievementreceive one share of a newly created series of the Company’s 2018 corporate goals. 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.
23. COMMITMENTS AND CONTINGENCIES
Loan Commitments and Lines of Credit
The contractual amounts of financial instruments with off-balance sheet risk at year-end were as follows:
| | | | | | | | | | | | |
| | 2021 | | 2020 | ||||||||
(In thousands) |
| Fixed Rate |
| Variable Rate |
| Fixed Rate |
| Variable Rate | ||||
Available lines of credit | | $ | 69,333 | | $ | 981,726 | | $ | — | | $ | 210,660 |
Other loan commitments | |
| 89,537 | |
| 136,553 | |
| 14,613 | |
| 68,286 |
Stand-by letters of credit | |
| 34,852 | |
| 689 | |
| 8,610 | |
| — |
93
At December 31, 2021 and 2020, the Bank had outstanding firm loan commitments that were accepted by the borrower aggregating $226.1 million and $82.9 million, respectively. The year-over-year increase in loan commitments was related to the Merger. Substantially all of the Bank’s commitments expire within three months of their acceptance by the prospective borrower. The credit risk associated with these commitments is based on the loan type which is comprised of multifamily residential, residential mixed-use, commercial real estate, commercial mixed-use, C&I, and one-to-four family residential loans.
At December 31, 2021, the Bank had an available line of credit with the FHLBNY equal to its excess borrowing capacity. At December 31, 2021, this amount approximated $3.2 billion.
During the year ended December 31, 2017, the Bank completed a securitization of $280.2 million of its multifamily loans through a Federal Home Loan Mortgage Corporation (“FHLMC”) sponsored “Q-deal” securitization completed in December 2017. With respect to the securitization transaction, the Company granted RSAsalso has continuing involvement through a reimbursement agreement executed with Freddie Mac. To the extent the ultimate resolution of 71,781 shares. Ofdefaulted loans results in contractual principal and interest payments that are deficient, the 71,781 shares granted, 31,860 shares vest over seven yearsCompany is obligated to reimburse FHLMC for such amounts, not to exceed 10% of the original principal amount of the loans comprising the securitization pool at the closing date.
Litigation
The Company is subject to certain pending and threatened legal actions which arise out of the normal course of business. Litigation is inherently unpredictable, particularly in proceedings where claimants seek substantial or indeterminate damages, or which are in their early stages. The Company cannot predict with certainty the actual loss or range of loss related to such legal proceedings, the manner in which they will be resolved, the timing of final resolution or the ultimate settlement. Consequently, the Company cannot estimate losses or ranges of losses related to such legal matters, even in instances where it is reasonably possible that a third vestingloss will be incurred. In the opinion of management, after years five, sixconsultation with counsel, the resolution of all ongoing legal proceedings will not have a material adverse effect on the consolidated financial condition or results of operations of the Company. The Company accounts for potential losses related to litigation in accordance with GAAP.
24. 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 seven, 25,396 shares vest over five yearsyield 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.
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
94
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, CMOs, treasury securities, and agency notes are guaranteed either implicitly or explicitly by GSEs as of December 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 December 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 and liabilities measured at fair value on a third vesting after years three, fourrecurring basis as of the dates indicated, segmented by level within the fair value hierarchy. Financial assets and five, 11,070 shares vest ratably over three yearsliabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
| | | | | | | | | | | | |
| | | | | Fair Value Measurements | |||||||
| | | | | at December 31, 2021 Using | |||||||
| | | | | Level 1 | | Level 2 | | Level 3 | |||
(In thousands) |
| Total |
| Inputs |
| Inputs |
| Inputs | ||||
Financial Assets: |
| |
|
| |
|
| |
|
| |
|
Securities available-for-sale: | |
|
| |
|
| |
|
| |
|
|
Agency notes | | $ | 80,254 | | $ | — | | $ | 80,254 | | $ | — |
Treasury securities | | | 244,769 | | | — | | | 244,769 | | | — |
Corporate securities | |
| 152,030 | |
| — | |
| 152,030 | |
| — |
Pass-through MBS issued by GSEs | |
| 526,454 | |
| — | |
| 526,454 | |
| — |
Agency CMOs | |
| 521,258 | |
| — | |
| 521,258 | |
| — |
State and municipal obligations | | | 38,946 | | | — | | | 38,946 | | | — |
Derivative – cash flow hedges | |
| 4,358 | |
| — | |
| 4,358 | |
| — |
Derivative – freestanding derivatives, net | |
| 40,728 | |
| — | |
| 40,728 | |
| — |
Financial Liabilities: | |
| | | | | | | | | | |
Derivative – freestanding derivatives, net | |
| 40,728 | |
| — | |
| 40,728 | |
| — |
| | | | | | | | | | | | |
| | | | | 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 – freestanding derivatives, net | | | 30,596 | | | — | | | 30,596 | | | — |
Financial Liabilities: | |
|
| |
|
| |
|
| |
|
|
Derivative – cash flow hedges | |
| 18,442 | |
| — | |
| 18,442 | |
| — |
Derivative – freestanding derivatives, net | |
| 30,596 | |
| — | |
| 30,596 | |
| — |
95
Assets and 3,455 shares vest ratably over nine months. Liabilities Measured at Fair Value on a Non-recurring 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 non-recurring 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.
| | | | | | | | | | | |
| | December 31, 2021 | |||||||||
| | | | | Fair Value Measurements Using: | ||||||
| |
| | Quoted Prices | | | |
| |||
| | | | In Active | | Significant | |
| |||
| | | | Markets for | | Other | | Significant | |||
| | | | Identical | | Observable | | Unobservable | |||
| | Carrying | | Assets | | Inputs | | Inputs | |||
(In thousands) |
| Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | |||
Individually evaluated loans | | $ | 1,900 | | $ | — | $ | — |
| $ | 1,900 |
Individually evaluated loans with an allowance for credit losses at December 31, 2021 had a carrying amount of $1.9 million, which is made up of the outstanding balance of $2.5 million, net of a valuation allowance of $600 thousand. Collateral dependent individually analyzed loans as of December 31, 2021 resulted in a credit loss provision of $600 thousand, which is included in the amounts reported in the consolidated statements of income for the year ended December 31, 2021. There were no collateral dependent impaired loans (prior to the adoption of the CECL Standard) with an allowance for credit losses at December 31, 2020.
Financial Instruments Not Measured at Fair Value
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 basis 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 December 31, 2021 Using | ||||||||||
| | Carrying | | Level 1 | | Level 2 | | Level 3 | | | | ||||
(In thousands) |
| Amount |
| Inputs |
| Inputs |
| Inputs |
| Total | |||||
Financial Assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and due from banks | | $ | 393,722 | | $ | 393,722 | | $ | — | | $ | — | | $ | 393,722 |
Securities held-to-maturity | | | 179,309 | |
| — | |
| 179,309 | |
| — | |
| 179,309 |
Loans held for investment, net | |
| 9,158,908 | |
| — | |
| — | |
| 9,169,872 | |
| 9,169,872 |
Accrued interest receivable | |
| 40,149 | |
| — | |
| 4,481 | |
| 35,668 | |
| 40,149 |
Financial Liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
|
Savings, money market and checking accounts | |
| 9,605,731 | |
| 9,605,731 | |
| — | |
| — | |
| 9,605,731 |
Certificates of Deposits ("CDs") | |
| 853,242 | |
| — | |
| 857,342 | |
| — | |
| 857,342 |
FHLBNY advances | |
| 25,000 | |
| — | |
| 25,014 | |
| — | |
| 25,014 |
Subordinated debt, net | |
| 197,096 | |
| — | |
| 202,334 | |
| — | |
| 202,334 |
Other short-term borrowings | |
| 1,862 | |
| 1,862 | |
| — | |
| — | |
| 1,862 |
Accrued interest payable | |
| 870 | |
| — | |
| 870 | |
| — | |
| 870 |
96
| | | | | | | | | | | | | | | |
| | | | | 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 held for investment, net | |
| 5,580,583 | |
| — | |
| — | |
| 5,598,787 | |
| 5,598,787 |
Accrued interest receivable | |
| 34,815 | |
| 2 | |
| 1,584 | |
| 33,229 | |
| 34,815 |
Financial Liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
|
Savings, money market and checking accounts | |
| 3,202,484 | |
| 3,202,484 | |
| — | |
| — | |
| 3,202,484 |
CDs | |
| 1,322,638 | |
| — | |
| 1,328,554 | |
| — | |
| 1,328,554 |
FHLBNY advances | |
| 1,204,010 | |
| — | |
| 1,207,890 | |
| — | |
| 1,207,890 |
Subordinated debt, net | |
| 114,052 | |
| — | |
| 114,340 | |
| — | |
| 114,340 |
Other short-term borrowings | | | 120,000 | | | 120,000 | | | — | | | — | | | 120,000 |
Accrued interest payable | |
| 1,734 | |
| — | |
| 1,734 | |
| — | |
| 1,734 |
25. REGULATORY CAPITAL MATTERS
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital requirements that involve quantitative measures of the Company’s and Bank’s assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and classifications also are subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of total, tier 1, and common equity tier 1 capital to risk-weighted assets and of tier 1 capital to average assets. Tier 1 capital, risk-weighted assets and average assets are as defined by regulation. The required minimums for the Company and Bank are set forth in the tables that follow. The Company and the Bank met all capital adequacy requirements at December 31, 2021 and 2020.
Under the Basel III Capital Rules the Company and the Bank are subject to the following minimum capital to risk-weighted assets ratios: a) 4.5% based on common equity tier 1 capital ("CET1"); b) 6.0% based on tier 1 capital; and c) 8.0% based on total regulatory capital. A minimum leverage ratio (tier 1 capital as a percentage of total average assets) of 4.0% is also required under the Basel III Capital Rules. The Basel III Capital Rules additionally require institutions to retain a capital conservation buffer, composed of CET1, of 2.5% above these required minimum capital ratio levels. Including the capital conservation buffer, the Company and the Bank effectively have the following minimum capital to risk-weighted assets ratios: a) 7.0% based on CET1; b) 8.5% based on tier 1 capital; and c) 10.5% based on total regulatory capital.
The Company and the Bank made the one-time, permanent election to continue to exclude the effects of accumulated other comprehensive income or loss items included in stockholders’ equity for the purposes of determining the regulatory capital ratios.
As of December 31, 2019,2021, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” the Bank must maintain minimum total risk-based, tier 1 risk-based, common equity tier 1 risk-based, and tier 1 leverage ratios as set forth in the tables below. Since that notification, there were 293,717 unvested RSAs consistingare no conditions or events that management believes have changed the institution’s category.
97
The following tables present actual capital levels and 10,933 performance-based RSAs.minimum required levels for the Company and the Bank under Basel III rules at December 31, 2021 and 2020:
Compensation expense attributable to RSAs was $2.2 million, $2.4 million
| | | | | | | | | | | | | | | | |
| | | | | | | For Capital | | To Be Categorized |
| ||||||
(Dollars in thousands) | | Actual | | Adequacy Purposes(1) | | as “Well Capitalized”(1) |
| |||||||||
| | | | | | | | | | Minimum | | | | | Minimum |
|
December 31, 2021 |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| |||
Tier 1 capital / % of average total assets | | |
| |
| | |
| |
| | |
| |
| |
Bank | | $ | 1,215,586 |
| 10.0 | % | $ | 488,506 |
| 4.0 | % | $ | 610,633 |
| 5.0 | % |
Consolidated Company | |
| 1,037,235 |
| 8.5 | |
| 490,420 |
| 4.0 | |
| N/A |
| N/A | |
Common equity Tier 1 capital / % of risk-weighted assets | |
|
|
|
| |
| |
|
| |
|
|
|
| |
Bank | |
| 1,215,586 |
| 12.5 | |
| 436,539 |
| 4.5 | |
| 630,557 |
| 6.5 | |
Consolidated Company | |
| 920,666 |
| 9.5 | |
| 436,700 |
| 4.5 | |
| N/A |
| N/A | |
Tier 1 capital / % of risk-weighted assets | |
|
|
|
| |
| |
|
| |
|
|
|
| |
Bank | |
| 1,215,586 |
| 12.5 | |
| 582,052 |
| 6.0 | |
| 776,070 |
| 8.0 | |
Consolidated Company | |
| 1,037,235 |
| 10.7 | |
| 582,267 |
| 6.0 | |
| N/A |
| N/A | |
Total capital / % of risk-weighted assets | |
|
|
|
| |
| |
|
| |
|
|
|
| |
Bank | |
| 1,304,242 |
| 13.4 | |
| 776,070 |
| 8.0 | |
| 970,087 |
| 10.0 | |
Consolidated Company | |
| 1,304,891 |
| 13.4 | |
| 776,356 |
| 8.0 | |
| N/A |
| N/A | |
(1) | In accordance with the Basel III rules. |
| | | | | | | | | | | | | | | | |
| | | | | | | For Capital | | To Be Categorized |
| ||||||
(Dollars in thousands) | | Actual | | Adequacy Purposes(1) | | as “Well Capitalized”(1) |
| |||||||||
| | | | | | | | | | Minimum | | | | | Minimum |
|
December 31, 2020 |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| |||
Tier 1 capital / % of average total assets |
| |
|
|
|
| |
|
|
|
| |
|
|
| |
Bank | | $ | 653,393 |
| 10.2 | % | $ | 257,143 |
| 4.0 | % | $ | 321,428 |
| 5.0 | % |
Consolidated Company | |
| 651,382 |
| 10.0 | |
| 261,949 |
| 4.0 | |
| N/A |
| N/A | |
Common equity Tier 1 capital / % of risk-weighted assets | |
|
|
|
| |
|
|
|
| |
|
|
|
| |
Bank | |
| 653,393 |
| 12.5 | |
| 235,243 |
| 4.5 | |
| 339,796 |
| 6.5 | |
Consolidated Company | |
| 534,813 |
| 10.2 | |
| 235,499 |
| 4.5 | |
| N/A |
| N/A | |
Tier 1 capital / % of risk-weighted assets | |
|
|
|
| |
|
|
|
| |
|
|
|
| |
Bank | |
| 653,393 |
| 12.5 | |
| 313,658 |
| 6.0 | |
| 418,210 |
| 8.0 | |
Consolidated Company | |
| 651,382 |
| 12.4 | |
| 313,999 |
| 6.0 | |
| N/A |
| N/A | |
Total capital / % of risk-weighted assets | |
|
|
|
| |
|
|
|
| |
|
|
|
| |
Bank | |
| 695,300 |
| 13.3 | |
| 418,210 |
| 8.0 | |
| 522,763 |
| 10.0 | |
Consolidated Company | |
| 808,289 |
| 15.4 | |
| 418,666 |
| 8.0 | |
| N/A |
| N/A | |
(1) | In accordance with the Basel III rules. |
98
26. CONDENSED HOLDING COMPANY ONLY FINANCIAL STATEMENTS
The following statements of condition as of December 31, 2021 and $1.7 million2020, and the related statements of income and cash flows for the years ended December 31, 2021, 2020 and 2019, 2018 and 2017, respectively. The total fair valuereflect the Holding Company’s investment in its wholly-owned subsidiary, the Bank, using, as deemed appropriate, the equity method of shares vestedaccounting:
DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
| | | | | | |
| | December 31, | ||||
(In thousands) |
| 2021 |
| 2020 | ||
ASSETS: |
| |
|
| |
|
Cash and due from banks | | $ | 27,364 | | $ | 106,014 |
Securities available-for-sale, at fair value | | | 3,068 | | | — |
Marketable equity securities, at fair value | |
| — | |
| 5,970 |
Investment in subsidiaries | |
| 1,366,796 | |
| 703,107 |
Other assets | |
| 4,285 | |
| 1,018 |
Total assets | | $ | 1,401,513 | | $ | 816,109 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY: | |
|
| |
|
|
Subordinated debt, net | | $ | 197,096 | | $ | 114,052 |
Other liabilities | |
| 11,797 | |
| 961 |
Stockholders’ equity | |
| 1,192,620 | |
| 701,096 |
Total liabilities and stockholders’ equity | | $ | 1,401,513 | | $ | 816,109 |
DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (1)
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) |
| 2021 |
| 2020 |
| 2019 | |||
Net interest loss | | $ | (8,427) | | $ | (5,147) | | $ | (5,147) |
Dividends received from Bank | |
| 20,000 | |
| 30,000 | |
| 52,500 |
Non-interest income | |
| 136 | |
| 361 | |
| 531 |
Non-interest expense | |
| (4,361) | |
| (1,176) | |
| (1,003) |
Income before income taxes and equity in undistributed earnings of direct subsidiaries | |
| 7,348 | |
| 24,038 | |
| 46,881 |
Income tax credit | |
| 4,051 | |
| 1,819 | |
| 1,785 |
Income before equity in undistributed earnings of direct subsidiaries | |
| 11,399 | |
| 25,857 | |
| 48,666 |
Equity in undistributed earnings of subsidiaries | |
| 92,597 | |
| 16,461 | |
| (12,480) |
Net income | | $ | 103,996 | | $ | 42,318 | | $ | 36,186 |
(1) | Other comprehensive income for the Holding Company approximated other comprehensive income for the consolidated Company during the years ended December 31, 2021, 2020 and 2019. |
99
DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2021 |
| 2020 |
| 2019 | |||
Cash flows from operating activities: |
| |
|
| |
|
| |
|
Net income | | $ | 103,996 | | $ | 42,318 | | $ | 36,186 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
| |
|
|
Equity in undistributed earnings of direct subsidiaries | |
| (92,597) | |
| (16,461) | |
| 12,480 |
Net gain on marketable equity securities | |
| (131) | |
| (361) | |
| (531) |
Net accretion | |
| (157) | |
| 146 | |
| 147 |
Decrease (increase) in other assets | |
| 761 | |
| (502) | |
| 26 |
Increase in other liabilities | |
| 269 | |
| 214 | |
| 388 |
Net cash provided by operating activities | |
| 12,141 | |
| 25,354 | |
| 48,696 |
| | | | | | | | | |
Cash flows from investing activities: | |
|
| |
|
| |
|
|
Proceeds sales of marketable equity securities | |
| 6,101 | |
| 546 | |
| 570 |
Purchases of securities available-for-sale and marketable equity securities | |
| (3,000) | |
| (261) | |
| (266) |
Reimbursement from subsidiary, including purchases of securities available-for-sale | |
| — | |
| 2 | |
| 26 |
Net cash received in business combination | | | 11,545 | | | — | | | — |
Net cash provided by investing activities | |
| 14,646 | |
| 287 | |
| 330 |
| | | | | | | | | |
Cash flows from financing activities: | |
|
| |
|
| |
|
|
Redemption of preferred stock | |
| — | |
| (3) | |
| (1) |
Proceeds from preferred stock issuance, net | | | — | | | 116,569 | | | — |
Proceeds from exercise of stock options | |
| 431 | |
| 38 | |
| 367 |
Release of stock for benefit plan awards | |
| 1,153 | |
| 84 | |
| 131 |
Payments related to tax withholding for equity awards | |
| (111) | |
| (3,060) | |
| (133) |
BMP ESOP shares received to satisfy distribution of retirement benefits | |
| (993) | |
| — | |
| (4) |
Treasury shares repurchased | |
| (59,280) | |
| (35,356) | |
| (24,191) |
Cash dividends paid to preferred stockholders | |
| (7,286) | |
| (4,783) | |
| — |
Cash dividends paid to common stockholders | |
| (39,351) | |
| (18,696) | |
| (20,082) |
Net cash (used in) provided by financing activities | |
| (105,437) | |
| 54,793 | |
| (43,913) |
| | | | | | | | | |
Net (decrease) increase in cash and due from banks | |
| (78,650) | |
| 80,434 | |
| 5,113 |
Cash and due from banks, beginning of period | |
| 106,014 | |
| 25,580 | |
| 20,467 |
Cash and due from banks, end of period | | $ | 27,364 | | $ | 106,014 | | $ | 25,580 |
100
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of December 31, 2021. Based on that evaluation, the Company’s Principal Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by the annual report.
Report by Management on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining an effective system of internal control over financial reporting. The Company’s system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There are inherent limitations in the effectiveness of any system of internal control over financial reporting, including the possibility of human error and circumvention or overriding of controls. Accordingly, even an effective system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the Company’s internal control over financial reporting as of December 31, 2021. This assessment was based on criteria for effective internal control over financial reporting described in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 2021, the Company maintained effective internal control over financial reporting based on those criteria.
The Company’s independent registered public accounting firm that audited the financial statements that are included in this annual report on Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting. The attestation report of Crowe LLP appears on page 104.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the quarter ended December 31, 2019, 20182021, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
On February 24, 2022, the Company adopted Amendment One to the Dime Community Bancshares, Inc. 2021 Equity Incentive Plan (the “Amendment”). The Amendment provides that upon an involuntary termination following a change in control, all performance awards will vest as to all shares subject to an outstanding performance award as of the date of such involuntary termination: (i) based on actual performance measured as of the most recent completed fiscal quarter, and 2017, was $2.5 million, $1.5 million(ii) if actual performance cannot be determined, all performance awards will vest as to all shares subject to an outstanding performance award at the target performance level. The foregoing description of the Amendment does not purport to be complete and $1.1 million, respectively. Asit is qualified in its entirety by reference to Exhibit 10.9 to this Annual Report on Form 10-K, which is incorporated herein by reference.
101
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information regarding Directors, Executive Officers and Corporate Governance will be set forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 26, 2022 and is incorporated herein by reference thereto.
Item 11. Executive Compensation
The information regarding Executive Compensation will be set forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 26, 2022 and is incorporated herein by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information regarding Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters will be set forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 26, 2022 and is incorporated herein by reference thereto.
Set forth below is certain information as of December 31, 2019, there was $4.7 million of total unrecognized compensation costs related to non-vested RSAs. The cost is expected to be recognized over a weighted-average period of 3.0 years.
Page -84-
Restricted Stock Units
Long Term Incentive Plan
RSUs represent an obligation to deliver shares to an employee at a future date if certain vesting conditions are met. RSUs are subject to a time-based vesting schedule, or the satisfaction of performance conditions, and are settled in shares of the Company's common stock. RSUs do not provide voting rights and RSUs may provide dividend equivalent rights from the date of grant.
The following table summarizes the unvested NEO RSU activity for the year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
| Weighted | |
|
|
|
| Average Grant-Date | |
|
| Shares |
| Fair Value | |
Unvested, January 1, 2019 |
| 79,238 |
| $ | 27.36 |
Granted |
| 22,305 |
|
| 33.42 |
Reinvested dividends |
| 2,556 |
|
| 29.03 |
Forfeited |
| (16,184) |
|
| 23.34 |
Vested |
| (2,573) |
|
| 32.90 |
Unvested, December 31, 2019 |
| 85,342 |
|
| 29.59 |
During the year ended December 31, 2019 in accordance with the LTI plan for NEOs, the Company granted 22,305 RSUs. Of the 22,305 RSUs granted, 13,255 time-vested RSUs vest ratably over five years and 9,050 performance-based RSUs vest subject to the achievement of2021, regarding the Company’s three-year corporate goal for the three-year period ending December 31, 2021. During the year ended December 31, 2018 in accordance with the LTI plan for NEOs, theequity compensation plans that have been approved by stockholders. The Company granted 21,693 RSUs. Of the 21,693 RSUs granted, 12,522 time-vested RSUs vest ratably over five years and 9,171 performance-based RSUs vest subject to the achievement of the Company’s three-year corporate goal for the three-year period ending December 31, 2020.
Compensation expense attributable to LTI plan RSUs was $693 thousand, $462 thousand and $309 thousand in connection with these awards for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, there was $1.3 million of total unrecognizeddoes not have any equity compensation cost related to non-vested RSUs. The cost is expected to be recognized over a weighted-average period of 2.7 years.
Directors Plan
In April 2009, the Company adopted a Directors Deferred Compensation Plan (“Directors Plan”). Under the Directors Plan, independent directors may elect to defer all or a portion of their annual retainer fee in the form of RSUs. In addition, directors receive a non-election retainer in the form of RSUs. These RSUs vest ratably over one year andplans that have dividend rights but no voting rights. In connection with the Directors Plan, the Company recorded expense of $570 thousand, $560 thousand and $530 thousand for the years ended December 31, 2019, 2018 and 2017, respectively.not been approved by stockholders.
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| | Number of securities to | | Weighted average | | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity compensation | | be issued upon exercise | | exercise price with | | Number of securities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
plan approved by | | of outstanding options | | respect to outstanding | | remaining available for | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
stockholders |
| and awards | | stock options | | issuance under the plan | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2012 Equity Incentive Plan | | 74,454 | | $ 35.71 | | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 Equity Incentive Plan | | 46,799 | | 34.87 | | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2021 Equity Incentive Plan | | — | | — | | 1,123,844 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Report by Management on Internal Control Over Financial Reporting Management is responsible for establishing and
reporting. The Company’s
There has been no change in the Company’s internal control over financial reporting during the quarter ended December 31, 2021, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. Other Information On February 24, 2022, the Company adopted Amendment One to the Dime Community Bancshares, Inc. 2021 Equity Incentive Plan (the “Amendment”). The Amendment provides that upon an involuntary termination following a change in control, all performance awards will vest as to all shares subject to an outstanding performance award as of the date of such involuntary termination: (i) based on actual performance measured as of the most recent completed fiscal quarter, and (ii) if actual performance cannot be determined, all performance awards will vest as to all shares subject to an outstanding performance award at the target performance level. The foregoing description of the Amendment does not purport to be complete and it is qualified in its entirety by reference to Exhibit 10.9 to this Annual Report on Form 10-K, which is incorporated herein by reference.
Item None. PART III Item 10. Directors, Executive Officers and Corporate Governance The information regarding Directors, Executive Officers and Corporate Governance will be set forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 26, 2022 and is incorporated herein by reference thereto. Item The information regarding Executive Compensation will be set forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 26, 2022 and Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information regarding Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters will be set forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 26, 2022 and is incorporated herein by reference thereto. Set forth below is certain information as of December 31, 2021, regarding the Company’s equity compensation plans that have been approved by stockholders. The Company does not have any equity compensation plans that have not been approved by stockholders.
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