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. The Bank is 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
Regulation 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, the Company 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.
DeNovo Branch Expansion
Since 2010, the Bank has opened fourteen new branches, of which four locations were opened over the last year, to continue expansion into new markets and strengthen the Bank’s position in existing markets. The Bank opened two branches in 2012: one in Ronkonkoma, New York with proximity to MacArthur Airport complementing the Patchogue branch and extending the Bank’s reach into the Bohemia market, and one branch and administrative offices in Hauppauge, New York. In 2013, the Bank opened two branches: one in Rocky Point, New York and one on Shelter Island, New York. In 2014, the Bank opened three branches: one in Bay Shore, New York, one in Port Jefferson, New York and one in Smithtown, New York. In 2017, the Bank opened three branches in Suffolk County, New York: one in Riverhead, capitalizing on a new 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 second satellite branch in Sag Harbor. The Bank also opened a branch in Astoria, New York in 2017. This record of consistent branch openings demonstrates the Bank’s commitment to traditional growth through branch expansion and moves the Bank geographically westward.
Mergers and AcquisitionsSupervision
Hamptons StateDime Community Bank
In May 2011, the Bank acquired Hamptons State Bank (“HSB”) which increased the Bank’s presence in an existing market with a branch located in the Village of Southampton.
FNBNY
On February 14, 2014, the Company 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 and issued an aggregate of 240,598 Company shares in exchange for all the issued and outstanding stock of FNBNY. The purchase price was subject to certain post-closing adjustments equal to 60 percent of the net recoveries on $6.3 million of certain identified problem loans over a two-year period after the acquisition. As of February 14, 2016, a net recovery of $0.4 million was realized and $0.3 million has been distributed to the former FNBNY shareholders. At acquisition, FNBNY hadtotal 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 the Company’s geographic footprint into Nassau County, complemented the existing branch network and enhanced asset generation capabilities.
Community National Bank
On June 19, 2015, the Company acquired Community National Bank (“CNB”) at a purchase price of $157.5 million, issued an aggregate of 5.647 million Bridge Bancorp 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 the Company’s geographic footprint across Long Island including Nassau County, Queens and into New York City. It complements the Bank’s existing branch network and enhances asset generation capabilities.
Management will continue to seek opportunities to expand its reach into other contiguous markets by network expansion, or through the addition of professionals with established customer relationships. The Bank routinely adds to its menu of products and services, continually meeting the needs of consumers and businesses. Management believes positive outcomes in the future will result from the expansion of the Company’s geographic footprint, investments in infrastructure and technology and continued focus on placing customers first.
REGULATION AND SUPERVISION
BNB 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 of the Bank are set forth below.
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) made extensive changes in the regulation of insured depository institutions. Many of the provisions of the Dodd-Frank Act are subject to delayed effective dates and/or require the issuance of implementing regulations. The regulatory process is ongoing and the impact on operations cannot yet be fully assessed. However, the Dodd-Frank Act has resulted in increased regulatory burden, compliance costs and interest expense for the Company and the Bank.
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 a 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.
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, such aslike 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 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. DepositOur deposit accounts at the Bank 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 probability of an institution’s failure within three years. That system, effective July 1, 2016, replaced the previous system under which institutions were placed into risk categories.ability to withstand asset-related and funding-related stress and potential loss to
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The Dodd-Frank Act required the FDIC to revise its procedures to base assessments upon each insuredDIF in the event of the institution’s total assets less tangible equity instead of deposits.failure. 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 assetswas 1.5 to 1.5 basis points to 3040 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.through December 31, 2022. The FDIC must seekhas the authority to achieveincrease insurance assessments and adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates beginning in the 1.35% ratio by September 30, 2020. The Dodd-Frank Act requires insuredfirst quarterly assessment period of 2023. As a result, effective January 1, 2023, assessment rates for 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 are subject to a surcharge to achieve that goal. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC, and the FDIC has exercised that discretion by establishing a long-range fund ratio of 2%.
Bank’s size will range from 3.5 to 42 basis 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.
In addition to the FDIC assessments, the Financing Corporation (FICO) is authorized to impose and collect, with the approval of the FDIC, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are maturing beginning in 2017 and continuing through 2019. For the quarter ended December 31, 2017, the annualized FICO assessment was equal to 0.54 basis points of average consolidated total assets less average tangible equity.
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 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 leasecredit 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, (Dime has exercised), 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 is being phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing each year until fully implemented at 2.5% on January 1, 2019. The capital conservation buffer was 1.25% in calendar year 2017 and increased to 1.875% on January 1, 2018.
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
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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.
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 have beenwere 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).
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.previously under “Capitalization.”
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.
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
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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. In addition, in November 2021, the federal banking agencies published a final rule that, among other things, requires banking organizations to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the level of a “notification incident” within the meaning attributed to those terms by the final rule. 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.
Transactions with Affiliates and Insiders
Sections 23A and 23B of the Federal Reserve Act govern transactions between a nationalmember 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
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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 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 ActsAct (“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 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. On May 5, 2022, the Federal Reserve Board and the Federal Deposit Insurance Corporation released a notice of propose rulemaking to strengthen and modernize the CRA regulations and framework. As of the date
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of its most recent CRA examination, which was conducted by the OfficeFederal Reserve Bank of New York and the Comptroller of the Currency, the Bank’s regulator under its previous national bank charter,NYSDFS, the Bank’s CRA performance was rated “satisfactory”“Outstanding”.
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, IncDime 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. The Company isWe 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 previously discussed final rule regardingFRB subsequently issued regulations amending its regulatory capital requirements implementsto 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 is beingwas phased-in between 2016 and 2019. The new capital rule eliminates 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 grandfathers trust preferred issuances prior to May 19, 2010 in accordance with the Dodd-Frank Act. The Company 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. The CompanyWe met all capital adequacy requirements under the newFRB’s capital rules on December 31, 2017.
2022.
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, the Company iswe 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 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
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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.
ACurrent 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 Federal Reserve BankFRB 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 the Bankus and the Company and theirour operations and stockholders.
During 2008, the Company received approval and began trading on the NASDAQ Global Select Market under the symbol “BDGE”. Equity incentive plan grants of stock options and stock awards are recorded directly to the holding company. The Company’s sources of funds are dependent on dividends from the Bank, its own earnings, additional capital raised and borrowings. 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. The Bank also generates non-interest income, such as fee income on deposit accounts and merchant credit and debit card processing programs, investment services, income from its title insurance abstract subsidiary, and net gains on sales of securities and loans. The level of its non-interest expenses, such as salaries and benefits, occupancy and equipment costs, other general and administrative expenses, expenses from its title insurance abstract subsidiary, and income tax expense, further affects the Bank’s net income.
The Company had nominal results of operations for 2017, 2016, and 2015 on a parent-only basis. The Company’s capital strength is paralleled by 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” institution by the FDIC (see Note 18 of the Notes to the Consolidated Financial Statements). Since 2013, the Company has actively managed its capital position in response to its growth and has raised $260.2 million in capital.
The Company filesWe file certain reports with the Securities and Exchange Commission (“SEC”) under the federal securities laws. The Company’sOur 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. Management believesWe believe that the Company iswe are in substantial compliance, in all material respects, with applicable federal, state and local laws, rules and regulations. Because the Company’sour 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 the Company’sour business, financial condition or prospects.
OTHER INFORMATION
Other Information
Through a link on the Investor Relations section of the Bank’sour website ofwww.bnbbank.comwww.dime.com, copies of the Company’sour Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 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 atwww.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. Information on our website is not incorporated by reference and is not a part of this annual report on Form 10-K.
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Item 1A. Risk Factors
Risks Related to our Loan Portfolio
The concentration of the Bank’sour 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 itsour 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, the Bank’sour 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 the Bank’sour control would impact these local economic conditions and could negatively affect the Bank’sour 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 the Bank’sour earnings.
If bankour regulators impose limitations on the Bank’sour 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. The Bank’s level ofConsolidated Company’s non-owner occupied commercial real estate level equaled 345%554% of total risk-based capital at December 31, 2017.2022. Including owner-occupied commercial real estate, the Consolidated Company’s ratio of commercial real estate loans to total risk-based capital ratio would be 458%636% at December 31, 2017.2022.
In December 2015, the Agencies released a new statement on prudent risk management for commercial real estate lending (the “2015 Statement”). In the 2015 Statement, the Agencies express concerns about easing commercial real estate underwriting standards, direct financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor lending risks, and indicate that the Agencies will continue “to pay special attention” to commercial real estate lending activities and concentrations going forward. If the NYSDFS or FRBour regulators were to impose restrictions on the amount of commercial real estate loans the Bankwe can hold in itsour portfolio, or require higher capital ratios as a result of the level of commercial real estate loans held, the Bank’sour earnings would be adversely affected.
The performance of our multi-family real estate loans could be adversely impacted by regulation.
Changes in interest rates could affect
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 Bank’s profitability.
The Bank’s ability to earn a profit, like most financial institutions, depends primarily on net interest income, which iscontrol of the difference between the interest income thatborrower or the Bank, earns on its interest-earning assets, such as loans and investments, andcould impair the interest expense that the Bank pays on its interest-bearing liabilities, such as deposits and borrowings. The Bank’s profitability depends on its ability to manage its assets and liabilities during periods of changing market interest rates.
In a period of rising interest rates, the interest income earned on the Bank’s assets may not increase as rapidly as the interest paid on its liabilities. In an increasing interest rate environment, the Bank’s cost of funds is expected to increase more rapidly than interest earned on its loan and investment portfolio as its primary source of funds is deposits with generally shorter maturities than those on its 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 the Bank’s earnings. When interest rates decline, borrowers tend to refinance higher-rate, fixed-rate loans at lower rates. Under those circumstances, the Bank 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 the Bank’s 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,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 legislation still permits a property owner to charge up to the full legal rent once the tenant vacates. As a result of this 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 securities moves inversely with changes in interest rates. As of December 31, 2017, the securities portfolio totaled $976.1 million.
In addition, the Dodd-Frank Act eliminated the federal prohibition on paying interest on demand deposits effective July 21, 2011, thus allowing businesses to have interest-bearing checking accounts. Depending on competitive responses, this change to existing law could increase the Bank’s interest expense.
Strong competition within the Bank’s market area may limit its growth and profitability.
The Bank’s 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. The profitability of the Bank depends on the continued ability to successfully compete. The Bank competes with commercial banks, savings banks, credit unions, insurance companies, and brokerage and investment banking firms. Many of the Bank’s competitors have substantially greater resources and lending limits than the Bank and may offer certain services that the Bank does 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 the Bank has been willing to offer.
Acquisitions involve integrations and other risks.
Acquisitions involve a number of risks and challenges including: the Bank’s ability to integrate the branches and operations acquired, and the associated internal controls and regulatory functions, into the Bank’s current operations; the Bank’s ability to limit the outflow of deposits held by the Bank’s new customers in the acquired branches and to successfully retain and manage the loans acquired; and the Bank’s 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 the Bank’s existing profitability; that the Bank would be able to achieve results in the future similar to those achieved by the Bank’s existing banking business; that the Bank would be able to compete effectively in the market areas served by acquired branches; or that the Bank would be able to manage any growth resulting from the transaction effectively. The Bank faces the additional risk that the anticipated benefits of the acquisition may not be realized fully or at all, or within the time period expected. Finally, acquisitions typically involve the payment of a premium over book and trading values and therefore, may result in dilution of the Company’s book and tangible book value per share.
The Company’s future success depends on the success and growth of BNB Bank.
The Company’s primary business activitysecurity for the foreseeable future will be to act as the holding company of the Bank. Therefore, the Company’s future profitability will depend on the success and growth of this subsidiary. The continued and successful implementation of the Company’s growth strategy will require, among other things that the Bank increases its market share by attracting new customers that currently bank at other financial institutions in the Bank’s market area. In addition, the Company’s ability to successfully grow will depend on several factors, including favorable market conditions, the competitive responses from other financial institutions in the Bank’s market area, and the Bank’s ability to maintain high asset quality. While the Company believes it has the management resources, market opportunities and internal systems in place to obtain and successfully manage future growth, growth opportunities may not be available and the Company may not be successful in continuing its growth strategy. In addition, continued growth requires that the Company incurs 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 the Company can successfully continue its growth, its results of operations could be negatively affected by these increased costs.
The loss of key personnel could impair the Company’s future success.
The Company’s future success depends in part on the continued service of its 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 the Company’s key personnel or its inability to timely recruit replacements for such personnel, or to otherwise attract, motivate, or retain qualified personnel could have an adverse effect on the Company’s business, operating results and financial condition.
The Companyloan may be adversely affected by current economic and market conditions.impaired.
Although economic and real estate conditions improved in 2017, the Company continues to operate in a challenging environment both nationally and locally. This poses significant risks to both the Company’s business and the banking industry as a whole. Although the Company has taken, and continues to take, steps to reduce its exposure to the risks that stem from adverse changes in such conditions, it nonetheless could be impacted by them to the degree that they affect the loans the Bank originates and the securities it invests in. Specific risks include reduced loan demand from quality borrowers; increased competition for loans; increased loan loss provisions resulting from deterioration in loan quality caused by, among other things, depressed real estate values and high levels of unemployment; reduced net interest income and net interest margin caused by a sustained period of low interest rates; interest rate volatility; price competition for deposits due to liquidity concerns or otherwise; and volatile equity markets.
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Increases to the allowance for credit losses may cause the Bank’sour earnings to decrease.
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, the Bankwe may experience significant loancredit losses, which could have a material adverse effect on itsour operating results. The Bank makesSince the first quarter of 2021, we have been required to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses. This method of loan loss accounting represents a change from the previous method of providing allowances for loan losses that are probable, and greatly increased the types of data we need to collect and review to determine the appropriate level of the allowance for credit losses. 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, the Bank relieswe 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 itsour 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 the Bank’sour net income.
BankAdditionally, bank regulators periodically review theour allowance for credit losses and may require the Bankus to increase itsour provision for credit losses or loan charge-offs. Any increase in theour allowance for credit losses or loan charge-offs as required by these regulatory authorities could have a material adverse effect on the Bank’sour results of operations and/or financial condition.
The Financial Accounting Standards Board has adopted a new accounting standard that will be effective for the Company for the first fiscal year beginning after December 15, 2019. This standard, referred to as Current Expected Credit Loss, will require that the Bank 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 thatWe are probable, which may require the Bank to increase its allowance for loan losses, and will greatly increase the types of data the Bank would need to collect and review to determine the appropriate level of the allowance for loan losses.
The subordinated debentures the Company issued have rights that are senior to those of the Company’s common shareholders.
In 2015, the Company 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 the Company’s common stock, if the Company fails to timely make principal and interest payments on the subordinated debentures, the Company may not pay any dividends on its common stock. Further, if the Company declares bankruptcy, dissolves or liquidates, it must satisfy all of its subordinated debenture obligations before it may pay any distributions on its common stock.
The Company operates in a highly regulated environment, Federal and state regulators periodically examine the Company’s business, and it may be required to remediate adverse examination findings.
The FRB and the NYSDFS, periodically examine the Company’s business, including its compliance with laws and regulations. If, as a result of an examination, a federal banking agency were to determine that the Company’s financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of its operations had become unsatisfactory, or that the Company was in violation of any law or regulation, it may take a number of different remedial actions as it deems 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 the Company’s capital, to restrict the Company’s growth, to assess civil monetary penalties against the Company’s 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 the Bank’s deposit insurance and place it into receivership or conservatorship. If the Company becomes subject to any regulatory actions, it could have a material adverse effect on the Company’s business, results of operations, financial condition and growth prospects.
New and future rulemaking from the Consumer Financial Protection Bureau (“CFPB”) may have a material effect on the Company’s operations and operating costs.
The CFPB has the authority to issue new consumer finance regulations and is authorized, individually or jointly with bankregulatoryagencies, 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 the Bank has less than $10 billion in total consolidated assets, the FRB and NYSDFS, not the CFPB, are responsible for examining and supervising the Bank’s compliance with these consumer protection laws and regulations. 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 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.
In addition, the CFPB has issued a final rule on arbitration that, among other things, prohibits class action waivers in certain consumer financial services contracts. The rule, which became effective on September 18, 2017, applies to contracts entered into on or after March 19, 2018 (and will not apply to prior contracts with class action waivers or arbitration agreements unless such accounts or debts are sold after that date). This rule could increase the likelihood that the Bank becomes subject to class action litigation concerning consumer banking products and services and could result in increased litigation costs.
The Bank is 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 the Bank’sour 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 environmental liability. Environmental reviews of real property before initiating foreclosure may not be sufficient to detect all potential environmental hazards. The Bank facesremediation costs and any other financial liabilities 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 earn on our interest-earning assets, such as loans and investments, and the interest
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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.
During 2022, in response to accelerated inflation, the Federal Reserve implemented monetary tightening policies, resulting in significantly increased 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.
A sustained decrease in market interest rates could also adversely affect our earnings. When interest rates decline, borrowers tend to refinance higher-rate, fixed-rate loans at lower rates. Under those circumstances, we may 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.
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, 2022, the securities portfolio totaled $1.54 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.
We have material contracts that are indexed to the London Interbank Offered Rate (“LIBOR”). In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulated LIBOR, announced that the publication of LIBOR would not be guaranteed after 2021. LIBOR will be discontinued after June 2023.
There have been ongoing efforts to establish an alternative reference rate to LIBOR. 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 LIBOR (e.g. the Secured Overnight Financing Rate, or “SOFR”), and proposed implementations of the recommended alternatives in floating-rate financial instruments. The March 2022 enactment of the Adjustable Interest Rate (LIBOR) Act and the Federal Reserve’s proposed regulations addressed the discontinuation of LIBOR and established a replacement benchmark rate, based on SOFR, that will automatically apply to agreements that rely on LIBOR and do not have an alternative contractual fallback benchmark. These SOFR-based replacement benchmarks may also apply automatically to contracts with fallback provisions that authorize a particular person to determine the replacement benchmark. We have analyzed our LIBOR-indexed contracts, the significant majority of which already provided for a fallback rate. Where the fallback rate is not specified or is no longer considered an economic equivalent to the LIBOR-derived rate previously used, we are working with counterparties to agree upon a replacement rate and have generally selected the rate recommended by the Federal Reserve.
While the LIBOR Act and implementing regulations will help to transition legacy LIBOR contracts to a new benchmark rate, the substitution of SOFR for LIBOR may have economic impacts on parties to affected contracts. When 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 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. There may be changes in the rules or methodologies used to calculate SOFR or other benchmark rates, which may have an adverse effect on the value of or return on financial assets and liabilities that are based on or are linked to those rates.
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
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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. Banks with assets in excess of $10 billion are subject to requirements imposed by the Dodd-Frank Act and its implemented regulations, including the examination authority of the CFPB to assess our compliance with federal consumer financial laws, imposition of higher FDIC premiums, reduced debit card interchange fees, and 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 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 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. The Bank’sOur products and services, including itsour 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. The Banks isWe 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. The Bank isWe 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 the Bank violateswe violate these laws and regulations, or itsour policies, procedures and systems are deemed deficient, the Bankwe would be subject to liability, including fines and regulatory actions, which may include restrictions on itsour ability to pay dividends and the necessityability to obtain regulatory approvals to proceed with certain aspects of the Bank’sour business plan, including its acquisition plans.
acquisitions.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for the Bank.us. Any of these results could have a material adverse effect on the Bank’sour 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, the Company issued $40.0 million of 5.75% Fixed-to-Floating Rate Subordinated Debentures due 2030. In 2022, the Company issued $160.0 million of 5.00% Fixed-to-Floating Rate Subordinated Debentures due 2032. Because these subordinated debentures rank senior to our common stock, if we fail to make timely principal and long-term impactinterest payments on the subordinated debentures, we may not pay any dividends on our common stock. Further, if we declare bankruptcy, dissolve
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or liquidate, we must satisfy all of our subordinated debenture obligations before we may pay any distributions on our common stock.
Strategic Risks
Expansion of our branch network may adversely affect our financial results.
We cannot be certain that the opening of new branches will be accretive to earnings or that it will be accretive to earnings within a reasonable period of time. Numerous factors contribute to the performance of a new branch, such as suitable location, qualified personnel, and an effective marketing strategy. Additionally, it takes time for a new branch to gather sufficient loans and deposits to generate income sufficient to cover its operating expenses. Difficulties we experience in opening new branches may have a material adverse effect on our financial condition and results of operations.
Mergers and acquisitions involve numerous risks and uncertainties.
The Company has in the past and may in the future pursue mergers and acquisitions opportunities. Mergers and acquisitions involve a number of risks and challenges, including the expenses involved; potential diversion of management’s attention from other strategic matters; integration of branches and operations acquired; outflow of customers from the acquired branches; retention of personnel from acquired companies or branches; competing effectively in geographic areas not previously served; managing growth resulting from the transaction; and dilution in the acquirer's book and tangible book value per share.
Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed or the cost of that capital may be very high.
We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. While we anticipate that our capital resources will satisfy our capital requirements for the foreseeable future, we may at some point need to raise additional capital to support our operations or continued growth, both internally and through acquisitions. Any capital we obtain may result in the dilution of the changing regulatoryinterests of existing holders of our common stock, or otherwise adversely affect your investment.
Our ability to raise additional capital, requirementsif needed, will depend on conditions in the capital markets at that time, which are outside our control, and anticipated newon our financial condition and performance. Accordingly, we cannot make assurances of our ability to raise additional capital rules are uncertain.if needed, or if the terms will be acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired and our financial condition and liquidity could be materially and adversely affected.
Operational Risk Factors
Our business may be adversely affected by conditions in the financial markets and economic conditions generally.
A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, declines in housing and real estate valuations, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; geopolitical conflicts; natural disasters; or a combination of these or other factors.
The Company's performance could be negatively affected to the extent there is deterioration in business and economic conditions, including persistent inflation, an inverted yield curve, rising prices, and supply chain issues or labor shortages, which have direct or indirect material adverse impacts on us, our customers, and our counterparties. Recessionary conditions may significantly affect the markets in which we do business, the financial condition of our borrowers, the value of our loans and investments, and our ongoing operations, costs and profitability. Declines in real estate values and sales volumes and increased unemployment levels may result in higher than expected loan delinquencies, increases in our
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levels of nonperforming and classified assets and a decline in demand for our products and services. Such events may cause us to incur losses and may adversely affect our capital, liquidity, and financial condition.
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 July 2013, federal bank regulatory agencies issued a final rule that revised their leverageaddition, competitors may offer deposits at higher rates and risk-based capital requirementsloans 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 methodsuccess and growth of Dime Community Bank.
Our primary business activity for calculating risk-weighted assetsthe foreseeable future will be to make them consistent with agreements that were reached byact as the Basel Committee on Banking Supervision and certain provisionsholding company of the Dodd-Frank Act. Among other things,Bank. Therefore, our future profitability will depend on the rule established a new common equity tier 1 minimum capital requirementsuccess and growth of 4.5%this subsidiary. The continued and successful implementation 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 nonaccrual 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 capital requirements. The final rule became effective January 1, 2015. The “capital conservation buffer’ is being phased in from January 1, 2016 to January 1, 2019, when the full capital conservation bufferour growth strategy will be effective.
The application of more stringent capital requirements could,require, among other things resultthat we increase our market share by attracting new customers that currently bank at other financial institutions in lower returns on equity, require the raising of additional capital, and result in regulatory actions if the Company was unable to comply with such requirements. Furthermore, the imposition of liquidity requirements in connection with the implementation of Basel III could result in the Company having to lengthen the terms of 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 the Company’s business strategy and could limit itsour market 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 the Company’sour operations and earnings.
Information technology systems are critical to the Company’sour business. The Company collects, processesWe collect, process and storesstore sensitive customer data by utilizing computer systems and telecommunications networks operated by itus and third partythird-party service providers. The
Company hasWe 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 the Company’sour systems could deter customers from using the Bank’sour products and services. Although we take numerous protective measures and otherwise endeavor to protect and maintain the Company relies onprivacy and security systems to provide security and authentication necessary to effect the secure transmission of confidential data, these precautionssystems may not protect thebe 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
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potentially could jeopardize confidential and other information processed and stored in, and transmitted through, our systems from compromises or breaches of security.
otherwise cause interruptions or malfunctions in our operations or our customers' operations.
In addition, the Company maintainswe maintain interfaces with certain third-party service providers. If these third-party service providers encounter difficulties, or if the Company haswe have difficulty communicating with them, the Company’sour 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 the Company’sour reputation and result in a loss of customers and business, thereby subjecting itus to additional regulatory scrutiny, or could expose itus 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 the Company’sour financial condition and results of operations.
The Company isWe 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 theft risks, in particular, could cause serious reputational harm. Cyber threats are rapidly evolving, and the Companywe may not be able to anticipate or prevent all such attacks. The CompanyWe may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss.
Public health emergencies like the COVID-19 outbreak may have an adverse impact on our business and results of operations
The COVID-19 pandemic caused significant economic dislocation in the United States. Certain industries were particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Additionally, the spread of COVID-19 temporarily caused us to modify our business practices, including placing restrictions on employee travel and implementing remote work practices. As a result of the COVID-19 pandemic or any other public health emergency, and related governmental responses to any outbreak, we may be subject to the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, or results of operations: demand for our products and services may decline; if consumer and business activities are restricted, 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 increase loan losses; our allowance for credit losses may have to be increased if borrowers experience financial difficulties; a material decrease in net income or a net loss over several quarters could affect our ability to pay cash dividends; cyber security risks may be increased as the result of an increase in the number of employees working remotely; critical services provided by third-party vendors may become unavailable; and the Company may experience unanticipated unavailability or loss of key employees, harming our ability to execute our business strategy.
Severe weather, acts of terrorism and other external events could impact the Company’sour ability to conduct business.
In the past, weather-relatedWeather-related events have adversely impacted the Company’sour 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 the Company’sour facilities and result in additional expenses, impair the ability of borrowers to repay their loans, reduce the value of collateral securing repayment of loans, and result in the loss of revenue. While the Company haswe have established and regularly teststest disaster recovery procedures, the occurrence of any such event could have a material adverse effect on the Company’sour 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
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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.
Damage to the Company’s reputation could adversely impact our business.
The Company's reputation is important to our success. Our ability to attract and retain customers, investors, employees and advisors may depend upon external perceptions of the Company. Damage to the Company's reputation could cause significant harm to our business and prospects and may arise from numerous sources, including litigation or regulatory actions, compliance failures, customer services failures, or unethical behavior or misconduct of employees, advisors and counterparties. Adverse developments with respect to the financial services industry may also, by association, negatively impact the Company's reputation or result in greater regulatory or legislative scrutiny of or litigation against the Company.
Furthermore, shareholders and other stakeholders have begun to consider how corporations are addressing environmental, social and governance (“ESG”) issues. Governments, investors, customers and the general public are increasingly focused on ESG practices and disclosures, and views about ESG are diverse and rapidly changing. These shifts in investing priorities may result in adverse effects on the trading price of the Company’s common stock if investors determine that the Company has not made sufficient progress on ESG matters. The Company could also face potential negative ESG-related publicity in traditional media or social media if shareholders or other stakeholders determine that we have not adequately considered or addressed ESG matters. If the Company, or our relationships with certain customers, vendors or suppliers became the subject of negative publicity, our ability to attract and retain customers and employees, and our financial condition and results of operations, could be adversely impacted.
Accounting-Related Risks
Changes in our accounting policies or in accounting standards could materially affect how we report our financial results.
Our accounting policies are fundamental to understanding our financial results and condition. Some of these policies require the use of estimates and assumptions that may incur impairmentaffect the value of our assets or liabilities and financial results. Some of our accounting policies are critical because they require management to its goodwill.make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. If such estimates or assumptions underlying our financial statements are incorrect, we may experience material losses.
Goodwill arises whenFrom time to time, the FASB and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our external financial statements. These changes are beyond our control, can be hard to predict and could materially impact how we report our results of operations and financial condition. We could be required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements in material amounts.
If we determine our goodwill or other intangible assets to be impaired, the Company’s financial condition and results of operations would be negatively affected.
When the Company completes a business is purchased for an amount greater than the fair valuecombination, a portion of the purchase price of the acquisition is allocated to goodwill and other identifiable intangible assets. The amount of the purchase price which is allocated to goodwill and other intangible assets is determined by the excess of the purchase price over the net identifiable assets acquired. The Company recognized goodwill as an asset on its balance sheet in connection withAt least annually (or more frequently if indicators arise), the CNB, FNBNY and HSB acquisitions. The Company evaluates goodwill for impairment at least annually. Although the Company determined that goodwill was not impaired during 2017, a significant and sustained decline in the Company’s stock price and market capitalization, a significant decline in its expected future cash flows, a significant adverse change in the business climate, slower growth rates or other factors could result in impairment of goodwill.impairment. If the Company weredetermines goodwill or other intangible 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 it would record the appropriate charge to earnings, which could be materially adverse to the Company’s consolidated financial statements.
Item 1B. Unresolved Staff Comments
Not applicable.
None.
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Item 2. Properties
At present, the Registrant does not own or lease any property. The Registrant uses theCompany’s corporate headquarters is located at 898 Veterans Highway in Hauppauge, New York. The Bank’s space and employees without separate payment. Headquarters aremain office is located at 2200 Montauk Highway in Bridgehampton, New York 11932. The Bank’s internet address iswww.bnbbank.com.York.
As of December 31, 2017, the Bank owns seven properties in New York: its headquarters2022, we operated 59 branch locations throughout Greater Long Island and branch office in Bridgehampton; five branches located in Montauk, Southold, Westhampton Beach, Southampton Village,Manhattan, of which 43 were leased and East Hampton Village;16 were owned.
For additional information on our premises and a drive-up facility located in Sag Harbor. In 2011, the Bank purchased real estateequipment, see Note 7. “Premises and Fixed Assets, net and Premises Held for Sale” in the Town of Southold, New York, which will also be considered as a site for a future branch facility. The Bank currently leases out a portion ofnotes to the Montauk and Westhampton Beach buildings. The Bank leases thirty-six additional properties as branch locations in New York: twenty-four in Suffolk County; nine in Nassau County; two inconsolidated financial statements.
Queens; and one in Manhattan. The Bank currently subleases a portion of the leased property located in Patchogue and Melville, New York. Additionally, the Bank leases one property as a loan production office in New York City.
Item 3. Legal Proceedings
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 these matters may seek substantial monetary damages against the normal course of business.Holding Company or the Bank. In the opinion of management, as of December 31, 2022, 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 the Company’s consolidated financial statements.condition and results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II 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 DCOM Performance Graph Pursuant to the regulations of the SEC, the graph below compares Year Ended December 31, Index 2017 2018 2019 2020 2021 2022 Dime Community Bancshares, Inc. 100.00 74.83 101.57 76.70 114.50 106.72 S&P SmallCap 600 Banks Index 100.00 89.71 110.21 98.34 132.01 118.97 NASDAQ Composite Index 100.00 97.16 132.81 192.47 235.15 158.65December 31, 2017, the CompanyFebruary 16, 2023, we had approximately 1,0001,112 shareholders of record, not including the number of persons or entities holding stock in nominee or the street name through various banks and brokers.The Company’s common stock trades on the NASDAQ Global Select Market under the symbol “BDGE”. The following table details the quarterly high and low sale prices of the Company’s common stock and the dividends declared for such periods.COMMON STOCK INFORMATION Stock Prices Dividends High Low Declared By Quarter 2017 First $ 38.35 $ 33.20 $ 0.23 Second $ 37.25 $ 32.10 $ 0.23 Third $ 34.65 $ 29.95 $ 0.23 Fourth $ 36.85 $ 33.05 $ 0.23 Stock Prices Dividends High Low Declared By Quarter 2016 First $ 30.71 $ 26.23 $ 0.23 Second $ 31.47 $ 27.09 $ 0.23 Third $ 30.62 $ 27.50 $ 0.23 Fourth $ 38.95 $ 26.90 $ 0.23 Stockholders received cash dividends totaling $18.2 million in 2017 and $16.1 million in 2016. The ratio of dividends paid to net income was 88.80% in 2017 compared to 45.48% in 2016.There are various legal limitations with respect to the Company’s ability to pay dividends to shareholders and the Bank’s ability to pay dividends to the Company. Under the New York Business Corporation Law, the Company may pay dividends on its outstanding shares unless the Company is insolvent or would be made insolvent by the dividend. Under the banking laws, the prior approval of the FRB and the NYSDFS may be required in certain circumstances prior to the payment of dividends by the Company or the Bank. A New York state member bank, such as BNB Bank, may generally declare a dividend, without approval from the NYSDFS or the FRB, in an amount equal to its year-to-date net income plus the prior two years’ net income that is still available for dividends. The NYSDFS and the FRB have the authority to prohibit a New York commercial bank from paying dividends if such payment is deemed to be an unsafe or unsound practice. In addition, as a depository institution, the deposits of which are insured by the FDIC, the Bank may not pay dividends or distribute any of its capital assets while it remains in default on any assessment due to the FDIC. The Bank currently is not (and never has been) in default under any of its obligations to the FDIC.The FRB has issued a policy statement regarding the payment of dividends by bank holding companies. In general, the FRB’s policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The FRB has the authority to prohibit the Company from paying dividends if such payment is deemed to be an unsafe or unsound practice.Page-14-PERFORMANCE GRAPHtheour performance of the Company 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, 20122017 through December 31, 2017.2022. 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.23
| Period Ending | ||||||||||||||||||||||||
| Index | 12/31/12 | 12/31/13 | 12/31/14 | 12/31/15 | 12/31/16 | 12/31/17 | ||||||||||||||||||
| Bridge Bancorp, Inc. | 100.00 | 131.75 | 140.72 | 165.68 | 213.04 | 202.10 | ||||||||||||||||||
| NASDAQ Composite | 100.00 | 140.12 | 160.78 | 171.97 | 187.22 | 242.71 | ||||||||||||||||||
| SNL Bank $1B-$5B | 100.00 | 145.41 | 152.04 | 170.20 | 244.85 | 261.04 | ||||||||||||||||||
ISSUER PURCHASES OF EQUITY SECURITIES
Issuer Purchases of Equity Securities
The following table sets forthpresents information in connection with repurchasesregarding purchases of shares of the Company’s common stock during the three months ended December 31, 2017:2022:
| Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs | |||||||||||||
| October 1, 2017 through October 31, 2017 | — | $ | — | — | 167,041 | |||||||||||
| November 1, 2017 through November 30, 2017 | 612 | $ | 33.30 | — | 167,041 | |||||||||||
| December 1, 2017 through December 31, 2017 | — | $ | — | — | 167,041 | |||||||||||
| Total | 612 | $ | 33.30 | — | 167,041 | |||||||||||
(1) Represents shares withheld by the Company to pay the taxes associated with the vesting of restricted stock awards.
| | | | | | | | | |
| | 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 2022 | | 4,846 | | $ | 31.09 | | 4,846 | | 1,607,160 |
November 2022 |
| 1,400 | | | 34.26 |
| 1,400 |
| 1,605,760 |
December 2022 |
| 2,000 | | | 32.64 |
| 2,000 |
| 1,603,760 |
| (1) | In May 2022, we announced the adoption of a new stock repurchase program of up to 1,948,314 shares, upon the completion of our existing authorized stock repurchase program. The stock repurchase program may be suspended, terminated, or modified at any time for any reason, and has no termination date. As of December 31, 2022, there were 1,603,760 shares remaining to be purchased in the program. |
The Board of Directors approved a stock repurchase program on March 27, 2006, which authorized the repurchase of 309,000 shares. No shares were purchased during the year ended December 31, 2017. The total number of shares purchased as part of the publicly announced plan totaled 141,959 as of December 31, 2017. The maximum number of remaining shares that may be purchased under the plan totals 167,041 as of December 31, 2017. There is no expiration date for the stock repurchase plan. There is no stock repurchase plan that has expired or that has been terminated during the period ended December 31, 2017.
Item 6. Selected Financial Data[Reserved]
Five-Year Summary of Operations
(In thousands, except per share data and financial ratios)
Set forth below are selected consolidated financial and other data of the Company. The Company’s business is primarily the business of the Bank. This financial data is derived in part from, and should be read in conjunction with, the Consolidated Financial Statements of the Company.
| December 31, | ||||||||||||||||||||
| Selected Financial Data: | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Securities available for sale, at fair value | $ | 759,916 | $ | 819,722 | $ | 800,203 | $ | 587,184 | $ | 575,179 | ||||||||||
| Securities, restricted | 35,349 | 34,743 | 24,788 | 10,037 | 7,034 | |||||||||||||||
| Securities held to maturity | 180,866 | 223,237 | 208,351 | 214,927 | 201,328 | |||||||||||||||
| Loans held for investment | 3,102,752 | 2,600,440 | 2,410,774 | 1,338,327 | 1,013,263 | |||||||||||||||
| Total assets | 4,430,002 | 4,054,570 | 3,781,959 | 2,288,524 | 1,896,612 | |||||||||||||||
| Total deposits | 3,334,543 | 2,926,009 | 2,843,625 | 1,833,779 | 1,539,079 | |||||||||||||||
| Total stockholders’ equity | 429,200 | 407,987 | 341,128 | 175,118 | 159,460 | |||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| Selected Operating Data: | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Total interest income | $ | 149,849 | $ | 137,716 | $ | 106,240 | $ | 74,910 | $ | 58,430 | ||||||||||
| Total interest expense | 22,689 | 16,845 | 10,129 | 7,460 | 7,272 | |||||||||||||||
| Net interest income | 127,160 | 120,871 | 96,111 | 67,450 | 51,158 | |||||||||||||||
| Provision for loan losses | 14,050 | 5,550 | 4,000 | 2,200 | 2,350 | |||||||||||||||
| Net interest income after provision for loan losses | 113,110 | 115,321 | 92,111 | 65,250 | 48,808 | |||||||||||||||
| Total non-interest income | 18,102 | 16,046 | 12,668 | 8,166 | 8,891 | |||||||||||||||
| Total non-interest expense | 91,727 | 77,081 | 72,890 | 52,414 | 37,937 | |||||||||||||||
| Income before income taxes | 39,485 | 54,286 | 31,889 | 21,002 | 19,762 | |||||||||||||||
| Income tax expense | 18,946 | 18,795 | 10,778 | 7,239 | 6,669 | |||||||||||||||
| Net income(1)(2)(3)(4)(5) | $ | 20,539 | $ | 35,491 | $ | 21,111 | $ | 13,763 | $ | 13,093 | ||||||||||
| Selected Financial Ratios and Other Data: | ||||||||||||||||||||
| Return on average equity(1)(2)(3)(4)(5) | 4.64 | % | 9.82 | % | 7.91 | % | 7.76 | % | 9.89 | % | ||||||||||
| Return on average assets(1)(2)(3)(4)(5) | 0.49 | % | 0.92 | % | 0.71 | % | 0.64 | % | 0.77 | % | ||||||||||
| Average equity to average assets | 10.53 | % | 9.38 | % | 9.01 | % | 8.27 | % | 7.80 | % | ||||||||||
| Dividend payout ratio(6) | 88.80 | % | 45.48 | % | 63.55 | % | 77.43 | % | 51.58 | % | ||||||||||
| Basic earnings per share(1)(2)(3)(4)(5) | $ | 1.04 | $ | 2.01 | $ | 1.43 | $ | 1.18 | $ | 1.36 | ||||||||||
| Diluted earnings per share(1)(2)(3)(4)(5) | $ | 1.04 | $ | 2.00 | $ | 1.43 | $ | 1.18 | $ | 1.36 | ||||||||||
| Cash dividends declared per common share(6) | $ | 0.92 | $ | 0.92 | $ | 0.92 | $ | 0.92 | $ | 0.69 | ||||||||||
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 Dime Community Bancshares, Inc. and our wholly-owned subsidiary, Dime Community Bank (the “Bank”). We use the term “Holding Company” to refer solely to Dime Community Bancshares, Inc. and not to our consolidated subsidiary.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENTOverview
This report may contain statements relating to the future results of the Company (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 management of the Company. Words such as “expects,” “believes,” “should,” “plans,” “anticipates,” “will,” “potential,” “could,” “intend,” “may,” “outlook,” “predict,” “project,” “would,” “estimated,” “assumes,” “likely,” and variation 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 business of the Company, 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 abstract subsidiary and banking services as well as product sales; tangible capital generation; market share; expense levels; and other business operations and strategies. The Company claims 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; the Company’s ability to successfully integrate acquired entities; changes in the quality and composition of the Bank’s 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 as a result of the Dodd-Frank Act, 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 the Company with the Securities and Exchange Commission. The forward-looking statements are made as of the date of this report, and the Company assumes 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 The Company Is and How It Generates Income
Bridge Bancorp,Dime Community Bancshares, Inc., a New York corporation, 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 ownedwholly-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’sBank'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 its non-interest expenses, such as salaries and benefits, occupancy and equipment costs, other general and administrative expenses, expenses from itsthe Bank’s title insurance subsidiary, and income tax expense, further affects the Bank’sour net income. Certain reclassifications have been made to prior year amounts and the related discussion and analysis to conform to the current year presentation. These reclassifications did not have an impact on net income or total stockholders’stockholders' equity.
COVID-19 Pandemic Response
Year and Quarterly Highlights
Significant Recent Events
Charter Conversion and Branch Rationalization
In the fourth quarter 2017,2022, the Company executed on two major initiatives: identifyinghad SBA PPP loans totaling $5.8 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.
We continue to monitor unfunded commitments, including commercial and executinghome equity lines of credit, for evidence of increased credit exposure as borrowers utilize these lines for liquidity purposes.
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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, changes in consumer behavior, and supply chain interruptions as a branch rationalization strategy and the finalizationresult of the Bank’s charter conversion from a national bankCOVID-19 pandemic. Future government actions in response to a New York chartered commercial bank effective December 31, 2017. In connection with its charter conversion, the Bank obtained approval from the Federal Reserve BankCOVID-19 pandemic, including vaccination mandates, may also affect our workforce, human capital resources, and infrastructure.
Critical Accounting Estimates
Note 1 Summary of New YorkSignificant Accounting Policies, to remain a member bank of the Federal Reserve System. Following an assessment of the Company’s branch network to ensure it is covering its markets efficiently, the Company identified six branches that it closed in the first quarter of 2018. As a result, the Company recorded a restructuring charge of $8.0 million in the fourth quarter 2017, with $7.7 million attributable to existing lease obligations, employee severance, and other related branch charges. The impact on pre-tax incomeAudited Consolidated Financial Statement for the year ended December 31, 2018, in the form of cost savings is expected to be $4.0 million, with an expected payback period of no more than 24 months.
Current Regulatory Environment
The Bank continues to operate in a highly regulated environment with many new regulations issued and remaining to be issued under the Dodd-Frank Act enacted on July 21, 2010. In 2013, the FDIC and the other federal bank regulatory agencies issued a final rule that revised their leverage 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, 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 nonaccrual 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 unless a one-time opt-out is exercised. Additional constraints were also imposed on the inclusion in regulatory capital of mortgage-servicing assets, deferred tax assets and minority interests. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments 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 capital requirements. The final rule became effective for the Bank on January 1, 2015. The capital conservation buffer requirement is being phased in from January 1, 2016 to January 1, 2019, when the full capital conservation buffer requirement will be effective. The final rules, while more favorable to community banks, require that all banks maintain higher levels of capital. The Bank’s current capital levels meet these requirements.
Challenges and Opportunities
In December 2017, the Federal Reserve decided to increase the target range for the federal funds rate to 1.25 to 1.50 percent. The Federal Open Market Committee’s (“FOMC”) stance on monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to two percent inflation. In determining the timing and size of future adjustments to the target range for the federal funds rate, the FOMC will assess realized and expected economic conditions relative to its objectives of maximum employment and two percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The FOMC will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The FOMC stated its expectation that economic conditions will evolve in a manner that would warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.
Interest rates have been at or near historic lows for an extended period of time. Growth and service strategies have the potential to offset the compression on the net interest margin with volume as the customer base grows through expanding the Bank’s footprint, while maintaining and developing existing relationships. Since 2010, the Bank has opened fourteen branches, including one in September 2017 in Astoria, New York, two in April 2017 in Riverhead and East Moriches, New York, and one in March 2017 in Sag Harbor, New York. The Bank has also grown through acquisitions including the June 2015 acquisition of Community National Bank (“CNB”), the February 2014 acquisition of First National Bank of New York (“FNBNY”), and the May 2011 acquisition of Hamptons State Bank (“HSB”). Management will continue to seek opportunities to expand its reach into other contiguous markets by network
expansion, or through the addition of professionals with established customer relationships. Recent and pending acquisitions of local competitors may also provide additional growth opportunities.
The Bank continues to face challenges associated with ever-increasing regulations and the current low interest rate environment. Over time, additional rate increases should provide some relief to net interest margin compression as new loans are funded and securities are reinvested at higher rates. However, in the short term, the fair value of available for sale securities declines when rates increase, resulting in net unrealized losses and a reduction in stockholders’ equity. Strategies for managing for the eventuality of higher rates have a cost. Extending liability maturities or shortening the term of assets increases interest expense and reduces interest income. An additional method for managing in a higher rate environment is to grow stable core deposits, requiring continued investment in people, technology and branches. Over time, the costs of these strategies should provide long-term benefits.
The key to delivering on the Company’s mission is combining its expanding branch network, improving technology, and experienced professionals with the critical element of local decision-making. The successful expansion of the franchise’s geographic reach continues to deliver the desired results: increasing deposits and loans, and generating higher levels of revenue and income.
Corporate objectives include: leveraging the Bank’s branch network to build customer relationships and grow loans and deposits; focusing on opportunities and processes that continue to enhance the customer experience at the Bank; improving operational efficiencies and prudent management of non-interest expense; and maximizing non-interest income. Management believes there remain opportunities to grow its 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. The ability to attract, retain, train and cultivate employees at all levels of the Company remains significant to meeting corporate objectives. The Company has made great progress toward the achievement of these objectives, and avoided many of the problems facing other financial institutions. This is a result of maintaining discipline in its underwriting, expansion strategies, investing and general business practices. The Company has capitalized on opportunities presented by the market and diligently seeks opportunities to grow and strengthen the franchise. The Company recognizes the potential risks of the current economic environment and will monitor the impact of market events as management evaluates loans and investments and considers growth initiatives. Management and the Board have built a solid foundation for growth and the Company is positioned to adapt to anticipated changes in the industry resulting from new regulations and legislative initiatives.
CRITICAL ACCOUNTING POLICIES
Note 1 of the Notes to the Consolidated Financial Statements for the year ended December 31, 20172022 contains a summary of significant accounting policies. Various elements of the Company’sThese 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. The Company’s policymanagement. Policies with respect to the methodologies usedit uses to determine the allowance for loancredit losses is its 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 ofrelated disclosures with its Audit Committee.
Allowance for Credit Losses on Loans Held for Investment
Methods and Assumptions Underlying the methods and assumptions underlying its application.
ALLOWANCE FOR LOAN LOSSESEstimate
Management considersOn January 1, 2021, we adopted the accounting policy onCurrent Expected Credit Losses (“CECL”) Standard, which requires that loans held for investment be accounted for under the allowance for loancurrent expected credit losses 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 the results of operations of the Company.
model. The allowance for loancredit losses is established and maintained through a provision for loancredit losses based on probable incurredexpected losses inherent in the Bank’sour loan portfolio. 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. The Bank monitors its 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 toagainst 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 Standard Codification (“ASC”) No. 310, “Receivables”. 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 a peer group of banks that operate in and around Dime’s footprint. 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 made 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 evaluates these loans 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
25
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 toFor collateral dependent loans, expected credit loss is measured as the Company’s policy,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.
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. Individual loan analysesduration of current overall economic conditions, industry, borrower, or portfolio specific conditions. Volatility in certain credit metrics and differences between expected and actual outcomes are periodically performed on specificto be expected.
Customers may not repay their loans considered impaired. For collateral dependent impaired loans, 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. Once received, the Credit Administration department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources, such as recent market data or industry-wide statistics. On a quarterly basis, the Company compares the actual selling price of collateral that has been sold, based on these independent sources, as well as recent appraisals associated with current loan origination activity,according to the most recent appraised valueoriginal terms, and the collateral securing the payment of those loans may be insufficient to determine if additional adjustments should be made to the appraisal value to arrive at fair value. Adjustments to fair value are made only when the analysis indicates a probable decline in collateral values. 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 overallpay any remaining loan balance. Bank regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or loan losses.charge-offs.
Impact on Financial Condition and Results of Operations
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 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; residential real estate mortgages, home equity loans; 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 adequacy 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 the credit’s risk rating 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 evaluationsour assumptions 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.
The Credit Risk Management Committee (“CRMC”) is comprised of Bank 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 the Board to review credit risk trends and the adequacy of the allowance for loan losses. Based on the CRMC’s review of the classified loans and the overall allowance levels as they relate to the entire loan portfolio at December 31, 2017 and 2016, management believes the allowance for loan losses has been established at levels sufficient to cover the probable incurred losses in the Bank’s 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 the 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, the Company completed a merger of equals business combination accounted for as a reverse merger using the acquisition method of accounting. As a part of accounting for the Merger, fair value estimates were calculated with a combination of assumptions by management and by using a third party. 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 was based on a discounted cash flow methodology that considers factors such as type of loan and related collateral, and requires management’s judgment 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 resulted 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 were subjective and may differ from estimates.
26
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 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 calculate expected cash flows.
Comparison of Operating Results Years Ended December 31, 2022, 2021 and 2020
NET INCOME
Net incomeThe Company’s results of operations for the year ended December 31, 2017 totaled $20.5 million, or $1.04 per diluted share, compared to $35.5 million, or $2.00 per diluted share,2021 include income for the eleven months following the Merger and the results of Legacy Dime for the month ended January 31, 2021. The Company’s historical operating results as of and for the year ended December 31, 20162020, as presented and $21.1 million, or $1.43 per diluted share,discussed in this Annual Report on Form 10-K, only include the historical results of Legacy Dime. Accordingly, the Company’s historical operating results as of and for periods before February 1, 2021, including the year ended December 31, 2015.2020, as presented and discussed in this Annual Report on Form 10-K, do not include the historical results of Bridge.
General. Net income decreased $15.0was $152.6 million or 42.1%, in 20172022, compared to 2016$104.0 million in 2021, and $42.3 million in 2020. During 2022, net interest income increased by $22.3 million, provision for 2016credit losses decreased by $0.8 million, and non-interest expense decreased by $44.6 million. These items were partially offset by a non-interest income decrease of $3.9 million and an income tax expense increase of $15.2 million. During 2021, net interest income increased $14.4by $179.9 million, or 68.1%, as compared to 2015. Changes inprovision for credit losses decreased by $20.0 million, and non-interest income increased by $20.8 million. These items were partially offset by a non-interest expense increase of $127.5 million and an income tax expense increase of $31.5 million.
The discussion of net interest income for the yearyears ended December 31, 2017 compared to December 31, 2016 include: (i) a $6.3 million, or 5.2%, increase2022, 2021, and 2020 should be read in net interest income; (ii) an $8.5 million increase inconjunction with the provision for loan losses; (iii) a $2.1 million, or 12.8%, increase in total non-interest income; and (iv) a $14.6 million, or 19.0%, increase in total non-interest expense. The effective income tax rate was 48.0% for 2017 compared to 34.6% for 2016. Changes in net income for the year ended December 31, 2016 compared to December 31, 2015 include: (i) a $24.8 million, or 25.8%, increase in net interest income; (ii) a $1.6 million increase in the provision for loan losses; (iii) a $3.4 million, or 26.7%, increase in total non-interest income; and (iv) a $4.2 million, or 5.7%, increase in total non-interest expense. The effective income tax rate was 34.6% for 2016 compared to 33.8% for 2015.
Weighted average common and common equivalent shares outstanding were higher for the year ended December 31, 2017 versus 2016 due in part to the $50 million common stock offering in November 2016.
ANALYSIS OF 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 upon the volume of interest earning assets and interest bearing liabilities and the interest rates earned or paid on them.
The following table setstables, which set forth certain information relatingrelated to the Company’s average consolidated balance sheets and its 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 of 35%.indicated. The Tax Act lowered the U.S, federal statutory tax rate to 21% effective as of January 1, 2018. The Company expects its tax equivalent adjustment to interest income will decrease as a result of the lower federal statutory tax rate in 2018. Suchaverage 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 nonaccrual loans.local taxation. The yields include loan fees consisting of amortization of loan origination and costs includecommitment fees and certain direct and indirect origination costs, whichprepayment fees, and late charges that are considered adjustments to yields. Interest on nonaccrual loans has beenLoan fees included only to the extent reflectedin interest income were $3.1 million in 2022, $12.5 million in 2021, and $7.5 million in 2020. There are no out-of-period adjustments included in the consolidated statements of income. For purposes of this table,rate/volume analysis in the average balances for investments in debt and equity securities exclude unrealized appreciation/depreciation due to the application of FASB ASC 320, “Investments - Debt and Equity Securities.”following table.
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| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Average Balance | Interest | Average Yield/ Cost | Average Balance | Interest | Average Yield/ Cost | Average Balance | Interest | Average Yield/ Cost | |||||||||||||||||||||||||||
| Interest earning assets: | ||||||||||||||||||||||||||||||||||||
| Loans, net(1)(2) | $ | 2,774,422 | $ | 126,802 | 4.57 | % | $ | 2,494,750 | $ | 117,114 | 4.69 | % | $ | 1,876,934 | $ | 89,204 | 4.75 | % | ||||||||||||||||||
| Mortgage-backed, CMOs and other asset-back securities | 737,212 | 15,231 | 2.07 | 681,899 | 13,484 | 1.98 | 562,553 | 11,173 | 1.99 | |||||||||||||||||||||||||||
| Taxable securities | 220,744 | 6,074 | 2.75 | 219,049 | 5,612 | 2.56 | 197,363 | 4,574 | 2.32 | |||||||||||||||||||||||||||
| Tax exempt securities(2) | 90,077 | 2,835 | 3.15 | 83,677 | 2,689 | 3.21 | 73,796 | 2,590 | 3.51 | |||||||||||||||||||||||||||
| Federal funds sold | — | — | — | — | — | — | 8 | — | — | |||||||||||||||||||||||||||
| Deposits with banks | 24,554 | 278 | 1.13 | 29,054 | 147 | 0.51 | 18,614 | 47 | 0.25 | |||||||||||||||||||||||||||
| Total interest earning assets(2) | 3,847,009 | 151,220 | 3.93 | 3,508,429 | 139,046 | 3.96 | 2,729,268 | 107,588 | 3.94 | |||||||||||||||||||||||||||
| Non-interest earning assets: | ||||||||||||||||||||||||||||||||||||
| Cash and due from banks | 70,053 | 62,676 | 55,570 | |||||||||||||||||||||||||||||||||
| Other assets | 283,966 | 278,455 | 179,205 | |||||||||||||||||||||||||||||||||
| Total assets | $ | 4,201,028 | $ | 3,849,560 | $ | 2,964,043 | ||||||||||||||||||||||||||||||
| Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
| Savings, NOW and money market deposits | $ | 1,717,529 | $ | 7,858 | 0.46 | % | $ | 1,585,158 | $ | 5,250 | 0.33 | % | $ | 1,289,678 | $ | 4,002 | 0.31 | % | ||||||||||||||||||
| Certificates of deposit of $100,000 or more | 147,366 | 1,843 | 1.25 | 126,904 | 932 | 0.73 | 134,211 | 929 | 0.69 | |||||||||||||||||||||||||||
| Other time deposits | 72,550 | 725 | 1.00 | 96,842 | 684 | 0.71 | 96,617 | 673 | 0.70 | |||||||||||||||||||||||||||
| Federal funds purchased and repurchase agreements | 132,514 | 1,571 | 1.19 | 162,118 | 1,075 | 0.66 | 115,648 | 474 | 0.41 | |||||||||||||||||||||||||||
| Federal Home Loan Bank advances | 401,258 | 6,105 | 1.52 | 275,591 | 3,001 | 1.09 | 127,358 | 1,425 | 1.12 | |||||||||||||||||||||||||||
| Subordinated debentures | 78,566 | 4,539 | 5.78 | 78,427 | 4,539 | 5.79 | 21,911 | 1,261 | 5.76 | |||||||||||||||||||||||||||
| Junior subordinated debentures | 668 | 48 | 7.19 | 15,620 | 1,364 | 8.73 | 15,875 | 1,365 | 8.60 | |||||||||||||||||||||||||||
| Total interest bearing liabilities | 2,550,451 | 22,689 | 0.89 | 2,340,660 | 16,845 | 0.72 | 1,801,298 | 10,129 | 0.56 | |||||||||||||||||||||||||||
| Non-interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||
| Demand deposits | 1,174,840 | 1,110,824 | 873,794 | |||||||||||||||||||||||||||||||||
| Other liabilities | 33,465 | 36,839 | 21,936 | |||||||||||||||||||||||||||||||||
| Total liabilities | 3,758,756 | 3,488,323 | 2,697,028 | |||||||||||||||||||||||||||||||||
| Stockholders’ equity | 442,272 | 361,237 | 267,015 | |||||||||||||||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 4,201,028 | $ | 3,849,560 | $ | 2,964,043 | ||||||||||||||||||||||||||||||
| Net interest income/interest rate spread(2) (3) | 128,531 | 3.04 | % | 122,201 | 3.24 | % | 97,459 | 3.38 | % | |||||||||||||||||||||||||||
| Net interest earning assets/net interest margin(2) (4) | $ | 1,296,558 | 3.34 | % | $ | 1,167,769 | 3.48 | % | $ | 927,970 | 3.57 | % | ||||||||||||||||||||||||
| Tax equivalent adjustment | (1,371 | ) | (0.03 | )% | (1,330 | ) | (0.03 | )% | (1,348 | ) | (0.05 | )% | ||||||||||||||||||||||||
| Net interest income/net interest margin(4) | $ | 127,160 | 3.31 | % | $ | 120,871 | 3.45 | % | $ | 96,111 | 3.52 | % | ||||||||||||||||||||||||
| Ratio of interest earning assets to interest bearing liabilities | 150.84 | % | 149.89 | % | 151.52 | % | ||||||||||||||||||||||||||||||
Average Balance Sheets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
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| | 2022 | | 2021 | | 2020 |
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| | Average | | | | | | Yield/ | | Average | | | | | | Yield/ | | Average | | | | | | Yield/ |
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| Balance |
| Interest |
| | Cost |
| Balance |
| Interest |
| | Cost |
| Balance |
| Interest |
| | Cost | | ||||||
Assets: |
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Interest-earning assets: |
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Real estate loans (1) | | $ | 8,798,852 | | $ | 354,418 |
| | 4.03 | % | $ | 7,969,344 | | $ | 298,682 |
| | 3.75 | % | $ | 4,916,204 | | $ | 196,144 |
| | 3.99 | % |
Commercial and industrial loans (1) | |
| 937,542 | |
| 51,556 |
| | 5.50 | |
| 1,494,970 | |
| 58,909 |
| | 3.94 | |
| 535,002 | |
| 20,372 |
| | 3.81 | |
Other loans (1) | |
| 11,493 | |
| 627 |
| | 5.46 | |
| 19,891 | |
| 1,425 |
| | 7.16 | |
| 958 | |
| 50 |
| | 5.22 | |
Securities | |
| 1,687,835 | |
| 29,224 |
| | 1.73 | |
| 1,295,439 | |
| 22,634 |
| | 1.75 | |
| 520,279 | |
| 14,159 |
| | 2.72 | |
Other short-term investments | |
| 248,779 | |
| 3,400 |
| | 1.37 | |
| 574,467 | |
| 2,976 |
| | 0.52 | |
| 150,200 | |
| 3,282 |
| | 2.19 | |
Total interest-earning assets | |
| 11,684,501 | | | 439,225 |
| | 3.76 | |
| 11,354,111 | | | 384,626 |
| | 3.39 | |
| 6,122,643 | | | 234,007 |
| | 3.82 | |
Non-interest earning assets | |
| 782,261 | |
| |
| | | |
| 758,689 | |
|
|
| |
| |
| 301,608 | |
|
|
| |
| |
Total assets | | $ | 12,466,762 | | | | | | | | $ | 12,112,800 | |
|
|
| |
| | $ | 6,424,251 | |
|
|
| |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholders' Equity: | |
|
| |
|
| |
|
| |
|
| |
|
|
| |
| |
|
| |
|
|
| |
| |
Interest-bearing liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
|
| |
| |
|
| |
|
|
| |
| |
Interest-bearing checking | | $ | 851,931 | | $ | 3,115 | |
| 0.37 | % | $ | 924,122 | | $ | 1,655 |
| | 0.18 | % | $ | 220,693 | | $ | 627 |
| | 0.28 | % |
Money market | |
| 2,971,312 | |
| 10,879 | |
| 0.37 | |
| 3,491,870 | |
| 6,521 |
| | 0.19 | |
| 1,653,452 | |
| 9,223 |
| | 0.56 | |
Savings | |
| 1,815,198 | |
| 15,906 | |
| 0.88 | |
| 1,142,111 | |
| 697 |
| | 0.06 | |
| 400,530 | |
| 983 |
| | 0.25 | |
Certificates of deposit | |
| 926,837 | |
| 8,533 | |
| 0.92 | |
| 1,247,425 | |
| 7,654 |
| | 0.61 | |
| 1,463,613 | |
| 22,205 |
| | 1.52 | |
Total interest-bearing deposits | |
| 6,565,278 | |
| 38,433 | |
| 0.59 | |
| 6,805,528 | |
| 16,527 |
| | 0.24 | |
| 3,738,288 | |
| 33,038 |
| | 0.88 | |
FHLBNY advances | |
| 252,838 | | | 7,062 | |
| 2.79 | |
| 259,203 | | | 1,963 |
| | 0.76 | |
| 1,065,356 | | | 17,898 |
| | 1.68 | |
Subordinated debt, net | | | 217,753 | | | 10,616 | | | 4.88 | | | 190,128 | | | 8,523 | | | 4.48 | | | 113,974 | | | 5,322 | | | 4.67 | |
Other short-term borrowings | | | 56,030 | | | 1,439 | | | 2.57 | | | 6,282 | | | 4 | | | 0.06 | | | 5,582 | | | 45 | | | 0.81 | |
Total borrowings | | | 526,621 | | | 19,117 | | | 3.63 | | | 455,613 | | | 10,490 | | | 2.30 | | | 1,184,912 | | | 23,265 | | | 1.96 | |
Derivative cash collateral | | | 97,225 | | | 1,812 | | | 1.86 | | | 1,982 | | | — | | | — | | | — | | | — | | | — | |
Total interest-bearing liabilities | | | 7,189,124 | | | 59,362 | | | 0.83 | | | 7,263,123 | | | 27,017 | | | 0.37 | | | 4,923,200 | | | 56,303 | | | 1.14 | |
Non-interest-bearing checking | | | 3,890,642 | | | | | | | | | 3,513,354 | | | | | | | | | 691,561 | | | | | | | |
Other non-interest-bearing liabilities | | | 218,194 | | | | | | | | | 175,075 | | | | | | | | | 137,860 | | | | | | | |
Total liabilities | |
| 11,297,960 | |
| | |
| | |
| 10,951,552 | |
|
|
| | | |
| 5,752,621 | |
|
|
| |
| |
Stockholders' equity | |
| 1,168,802 | |
| | |
| | |
| 1,161,248 | |
|
|
| |
| |
| 671,630 | |
|
|
| |
| |
Total liabilities and stockholders' equity | | $ | 12,466,762 | |
| | |
| | | $ | 12,112,800 | |
|
|
| |
| | $ | 6,424,251 | |
|
|
| |
| |
Net interest income | |
| | | $ | 379,863 | |
| | |
| | | $ | 357,609 |
| |
| |
| | | $ | 177,704 |
| |
| |
Net interest spread (2) | | | | | | | | | 2.93 | % | | | |
|
| | | 3.02 | % | | | |
|
|
| | 2.68 | % |
Net interest-earning assets | | $ | 4,495,377 | | | | | | | | $ | 4,090,988 | | | | | | | | $ | 1,199,443 | | | |
| | | |
Net interest margin (3) | |
| | |
| | |
| 3.25 | % |
|
| |
|
| | | 3.15 | % |
|
| |
|
|
| | 2.90 | % |
Ratio of interest-earning assets to interest-bearing liabilities | | | | | | | | | 162.53 | % | | | |
|
| | | 156.33 | % | | | |
|
|
| | 124.36 | % |
Deposits (including non-interest-bearing checking accounts) | | $ | 10,455,920 | | $ | 38,433 | |
| 0.37 | % | $ | 10,318,882 | | $ | 16,527 | | | 0.16 | % | $ | 4,429,849 | | $ | 33,038 |
| | 0.75 | % |
(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.
28
Rate/Volume Analysis
| | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, | ||||||||||||||||
| | 2022 over 2021 | | 2021 over 2020 | ||||||||||||||
| | Increase/(Decrease) Due to | | Increase/(Decrease) Due to | ||||||||||||||
| | Volume |
| Rate |
| Total |
| Volume |
| Rate |
| Total | ||||||
| | | | | | | | | | | | | | | | | | |
Interest-earning assets: | | (In thousands) | ||||||||||||||||
Real estate loans (1) | | $ | 32,265 | | $ | 23,471 | | $ | 55,736 | | $ | 118,075 | | $ | (15,537) | | $ | 102,538 |
Commercial and industrial (1) | |
| (26,319) | |
| 18,966 | |
| (7,353) | |
| 36,090 | |
| 2,447 | |
| 38,537 |
Other loans (1) | |
| (531) | |
| (267) | |
| (798) | |
| 1,172 | |
| 203 | |
| 1,375 |
Securities | |
| 6,858 | |
| (268) | |
| 6,590 | |
| 17,309 | |
| (8,834) | |
| 8,475 |
Other short-term investments | |
| (3,077) | |
| 3,501 | |
| 424 | |
| 5,737 | |
| (6,043) | |
| (306) |
Total interest-earning assets | | | 9,196 | | | 45,403 | | | 54,599 | | | 178,383 | | | (27,764) | | | 150,619 |
Interest-bearing liabilities: | | |
| | |
| | |
| | |
| | |
| | |
|
Interest-bearing checking | | | (213) | | | 1,673 | | | 1,460 | | | 1,624 | | | (596) | | | 1,028 |
Money market | | | (1,458) | | | 5,816 | | | 4,358 | | | 6,836 | | | (9,538) | | | (2,702) |
Savings | | | 3,124 | | | 12,085 | | | 15,209 | | | 1,148 | | | (1,434) | | | (286) |
Certificates of deposit | | | (2,472) | | | 3,351 | | | 879 | | | (2,256) | | | (12,295) | | | (14,551) |
FHLBNY advances | | | (106) | | | 5,205 | | | 5,099 | | | (9,839) | | | (6,096) | | | (15,935) |
Subordinated debt, net | | | 1,285 | | | 808 | | | 2,093 | | | 3,487 | | | (286) | | | 3,201 |
Other short-term borrowings | | | 654 | | | 781 | | | 1,435 | | | 4 | | | (45) | | | (41) |
Derivative cash collateral | | | 888 | | | 924 | | | 1,812 | | | — | | | — | | | — |
Total interest-bearing liabilities | | | 1,702 | | | 30,643 | | | 32,345 | | | 1,004 | | | (30,290) | | | (29,286) |
Net change in net interest income | | $ | 7,494 | | $ | 14,760 | | $ | 22,254 | | $ | 177,379 | | $ | 2,526 | | $ | 179,905 |
(1) Amounts are net of deferred origination costs/ (fees) and allowance for credit losses, and include loans held for sale.
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 the Bank’s 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 based 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 earning assets include nonaccrual loans.
| Year Ended December 31, | ||||||||||||||||||||||||
| 2017 Over 2016 Changes Due To | 2016 Over 2015 Changes Due To | |||||||||||||||||||||||
| (In thousands) | Volume | Rate | Net Change | Volume | Rate | Net Change | ||||||||||||||||||
| Interest income on interest earning assets: | ||||||||||||||||||||||||
| Loans(1) (2) | $ | 12,754 | $ | (3,066 | ) | $ | 9,688 | $ | 29,048 | $ | (1,138 | ) | $ | 27,910 | ||||||||||
| Mortgage-backed, CMOs and other asset-backed securities | 1,137 | 610 | 1,747 | 2,367 | (56 | ) | 2,311 | |||||||||||||||||
| Taxable securities | 43 | 419 | 462 | 535 | 503 | 1,038 | ||||||||||||||||||
| Tax exempt securities(2) | 200 | (54 | ) | 146 | 331 | (232 | ) | 99 | ||||||||||||||||
| Deposits with banks | (26 | ) | 157 | 131 | 35 | 65 | 100 | |||||||||||||||||
| Total interest income on interest earning assets(2) | 14,108 | (1,934 | ) | 12,174 | 32,316 | (858 | ) | 31,458 | ||||||||||||||||
| Interest expense on interest bearing liabilities: | ||||||||||||||||||||||||
| Savings, NOW and money market deposits | 463 | 2,145 | 2,608 | 974 | 274 | 1,248 | ||||||||||||||||||
| Certificates of deposit of $100,000 or more | 168 | 743 | 911 | (51 | ) | 54 | 3 | |||||||||||||||||
| Other time deposits | (198 | ) | 239 | 41 | 2 | 9 | 11 | |||||||||||||||||
| Federal funds purchased and repurchase agreements | (225 | ) | 721 | 496 | 239 | 362 | 601 | |||||||||||||||||
| Federal Home Loan Bank advances | 1,662 | 1,442 | 3,104 | 1,615 | (39 | ) | 1,576 | |||||||||||||||||
| Subordinated debentures | 9 | (9 | ) | — | 3,271 | 7 | 3,278 | |||||||||||||||||
| Junior subordinated debentures | (1,111 | ) | (205 | ) | (1,316 | ) | (22 | ) | 21 | (1 | ) | |||||||||||||
| Total interest expenses on interest bearing liabilities | 768 | 5,076 | 5,844 | 6,028 | 688 | 6,716 | ||||||||||||||||||
| Net interest income(2) | $ | 13,340 | $ | (7,010 | ) | $ | 6,330 | $ | 26,288 | $ | (1,546 | ) | $ | 24,742 | ||||||||||
Interest Income. Net interest income was $127.2 million for the year ended December 31, 2017 compared to $120.9$379.9 million in 2016 and $96.12022, $357.6 million in 2015.2021, and $177.7 million in 2020. Average interest-earning assets were $11.68 billion in 2022, $11.35 billion in 2021 and $6.12 billion in 2020. Net interest margin was 3.25% in 2022, 3.15% in 2021, and 2.90% in 2020.
Interest Income. Interest income was $439.2 million in 2022, $384.6 million in 2021, and $234.0 million in 2020. During 2022, interest income increased $54.6 million from 2021, primarily reflecting increases in interest income of $55.7 million on real estate loans, and $6.6 million on securities. The increased interest income on real estate loans was primarily due to growth of $829.5 million in the average balances, and a 28-basis point increase in netyield during the period due to the rising interest rate environment. The increased interest income from securities was $6.3 million, or 5.2%, as comparedprimarily due to 2016 and $24.8 million, or 25.8%, in 2016 as compared to 2015. Average net interest earning assets increased $128.8 million to $1.3 billion for the full year 2017 compared to $1.2 billion for the full year 2016, and increased $239.8 million to $1.2 billion for the full year 2016 compared to $928.0 million for the full year 2015. The increases in average net interest earning assets reflect organic growth in loans and an increase in securities, partiallythe average balances of $392.4 million, offset in part by increases in average deposits and average borrowings. The net interest margin decreased to 3.31% in 2017 compared to 3.45% in 2016 and 3.52% in 2015. Thea 2-basis point decrease in the netyield. During 2021, interest margin for 2017 compared to 2016 reflects the higher overall funding costs due in part to the Fed Funds rateincome increased $150.6 million from 2020, primarily reflecting increases in December 2016, March 2017,June 2017,interest income of $102.5 million on real estate loans, $38.5 million on commercial and December 2017, partially offset by the decrease in costs associated with the junior subordinated debentures, which were redeemed in January 2017.industrial (“C&I”) loans, $8.5 million on securities, and $1.4 million on other loans. The decrease in the netincreased interest margin for 2016 compared to 2015 reflects the higher costs of borrowings associated with the $80 million in subordinated debentures issued in September 2015 and higher overall borrowing costs due to the Fed Funds rate increase in December 2015.
Interest income increased $12.1 million, or 8.8%, to $149.8 million in 2017 from $137.7 million in 2016 as average interest earning assets increased $338.6 million, or 9.7%, to $3.8 billion in 2017 compared to $3.5 billion in 2016. Interest income increased $31.5 million, or 29.6%, to $137.7 million in 2016 from $106.2 million in 2015,on real estate loans was due to an increase of $779.2 million in average interest earning assets to $3.5 billion for 2016 from $2.7$3.05 billion in 2015.the average balance of such loans in the period, offset in part by a 24-basis point decrease in the yield. The tax adjusted average yield onincreased interest earning assets was 3.93% for the full year 2017, 3.96% in 2016 and 3.94% in 2015.
Interest income on C&I loans increased $9.7 million to $126.4 million in 2017 over 2016, and $27.9 million to $116.7 million in 2016 over 2015,was primarily due to growth of $960.0 million in the average balances, and a 13-basis point increase in yield during the period. The increased interest income from securities was primarily due to the increase in the average balances of $775.2 million, offset in part by a 97-basis point decrease in the yield. The increased average balances in 2021 versus 2020 were related primarily to the Merger transaction.
Interest Expense. Interest expense was $59.4 million in 2022, $27.0 million in 2021, and $56.3 million in 2020. During 2022, interest expense increased $32.3 million from 2021, primarily reflecting increases in interest expense of $15.2 million on savings accounts, $5.1 million on FHLBNY advances and $4.4 million on money market accounts. The increase in interest expense on savings accounts was primarily due to increased rates offered on savings accounts and, an increase of $673.1 million in the average balances of such accounts. The increase in interest expense on FHLB advances was primarily due to the increased cost of wholesale borrowings. The increase in interest expense on money market accounts was primarily due to increased rates offered on money market accounts. 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 on CDs was primarily due to decreased rates offered on CD accounts and, a decrease of $216.2 million in the average balances of such accounts. The decrease in interest expense on FHLBNY advances was primarily due to 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.
29
Provision for Credit Losses. The Company recognized a provision for credit losses of $5.4 million in 2022, $6.2 million in 2021 and $26.2 million in 2020. The $5.4 million provision for credit losses recognized in 2022 was associated with growth in the loan portfolio and a deterioration of forecasted macroeconomic conditions, offset by a reduction in reserves on individually analyzed loans and unfunded commitments. The $6.2 million provision for credit losses recognized in 2021 included a provision recorded on acquired non-PCD loans for the Day 2 accounting of acquired loans from the Merger, offset by improvements in forecasted macroeconomic conditions, and releases of reserves on individually analyzed loans. The $26.2 million provision for credit losses recognized in 2020 resulted mainly from an increase in the general reserve allowance for credit losses due to an adjustment of qualitative factors to account for the effects of the COVID-19 pandemic and related economic disruption, and additional specific reserves on non-performing loans. The provision for credit losses recognized in 2022 and 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 was calculated in accordance with prior GAAP, in accordance with ASC 310.
Non-Interest Income.Non-interest income was $38.2 million in 2022, $42.1 million in 2021, and $21.3 million in 2020. During 2022, non-interest income decreased $3.9 million from 2021, due primarily to a decrease in gains on the sales of SBA PPP loans, and a decrease in gain on sale of residential loans and other non-interest income of $1.3 million each. Offsetting these declines was an increase in BOLI income of $3.3 million and no loss on termination of derivatives in 2022 (versus a $16.5 million loss on termination of derivatives in 2021). 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.
Non-Interest Expense. Non-interest expense was $200.7 million in 2022, $245.3 million in 2021, and $117.8 million in 2020. During 2022, non-interest expense decreased $44.6 million from 2021, primarily due to not recognizing any merger expenses and transaction costs and branch restructuring costs in 2022 (versus $44.8 million in merger expenses and transaction costs and $5.1 million of branch restructuring costs in 2021). These declines were offset by an increase of $11.8 million in salaries and employee benefits expenses. 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, all of which increased primarily due to the Merger. We also incurred branch restructuring costs of $5.1 million during the 2021 period.
Non-interest expense was 1.61%, 2.03%, and 1.83% of average assets during 2022, 2021, and 2020, respectively. The increase in 2021 was primarily due to merger expenses and transaction costs.
Income Tax Expense. Income tax expense was $59.4 million in 2022, $44.2 million in 2021, and $12.7 million in 2020. Income tax expense increased $15.2 million during 2022 compared to 2021, primarily as a result of $63.7 million of higher pre-tax income during 2022. 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.
The Company’s consolidated tax rate was 28.0%, 29.8% and 23.0% in 2022, 2021, and 2020, respectively. The increase in the effective tax rate in 2022 and 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, 2022 and December 31, 2021
Assets. Assets totaled $13.19 billion at December 31, 2022, $1.13 billion above their level at December 31, 2021, primarily due to an increase in the loan portfolio of $1.32 billion, partially offset by a decrease in the average yield on loans. Forcash and due from banks of $224.4 million, and a decrease in total securities of $206.6 million.
Total net loans held for investment increased $1.32 billion during the year ended December 31, 2017, average loans grew by $279.72022, to $10.48 billion at period end. During the period, the Bank had originations of $2.83 billion.
30
Total securities decreased $206.6 million or 11.2%, to $2.8 billion as compared to $2.5 billion in 2016, and increased $617.8 million, or 32.9%, in 2016 as compared to $1.9 billion in 2015. The increases in average loans were the result of the organic growth in commercial real estate mortgage loans, multi-family mortgage loans, commercial and industrial loans, and residential mortgage loans, as well as the acquisition of CNB. The Bank remains committed to growing loans with prudent underwriting, sensible pricing and limited credit and extension risk.
Interest income on securities increased $2.3 million, or 11.1%, in 2017 to $23.1 million from $20.8 million in 2016, and increased $3.4 million, or 19.6%, in 2016 from $17.4 million in 2015. Interest income on securities included net amortization of premiums on securities of $6.4 million in 2017, compared to $6.5 million in 2016 and $4.9 million in 2015. Forduring the year ended December 31, 2017, average total securities increased by $63.42022, to $1.54 billion at period end, primarily due to proceeds from principal payments and calls of $195.3 million or 6.4%, to $1.0 billion as compared to $984.6 million in 2016, and increased $150.9 million in 2016 compared to $833.7 million in 2015.
Total interest expense increased to $22.7 million in 2017, as compared to $16.8 million in 2016 and $10.1 million in 2015. The increase in interest expense in 2017 isa result of the increase in the cost of average interest bearing liabilities coupled with an increase in average interest bearing liabilities. The costunrealized losses of average interest bearing liabilities was 0.89% in 2017, 0.72% in 2016, and 0.56% in 2015. The increase in the cost of average interest bearing liabilities is primarilydue to higher overall funding costs, due$109.7 million, offset in part by purchases of $102.4 million. We transferred $372.2 million of securities available-for-sale to the Fed Funds rate increases in December 2016, March 2017, June 2017 and December 2017, partially offset by the decrease in costs associated with the junior subordinated debentures,which were redeemedin January 2017. Since the Company’s interest bearing liabilities generally reprice or mature more quickly than its interest earning assets, an increase in short term interest rates would initially result in a decrease in net interest income.The Company began extending the terms of certain matured borrowings at the end of the 2017 first quarter in anticipation of further Fed Funds rate increases.Additionally, the large percentages of deposits in money market accounts reprice at short-term market rates making the balance sheet more liability sensitive. The Bank continues its prudent management of deposit pricing. Average total interest bearing liabilities were $2.6 billion in 2017, compared to $2.3 billion in 2016 and $1.8 billion in 2015. The increases in average interest bearing liabilities in 2017 were primarily due to increases in both average borrowings and average deposits. The Bank grew average interest bearing liabilities in 2016 and 2015 as a result of the acquisition of CNB deposits in June 2015.
Forsecurities held-to-maturity during the year ended December 31, 2017, average total deposits2022.
Liabilities. Total liabilities increased by $192.6 million, or 6.6%, to $3.1$1.15 billion as compared to $2.9 billion in 2016, and increased by $525.4 million, or 21.9%, in 2016 as compared to $2.4 billion in 2015. The increase in average total deposits reflects higher average balances in savings, NOW and money market accounts of $132.4 million, or 8.4%, in 2017 as compared to 2016, and an increase of $295.5 million, or 22.9%, in 2016 as compared to 2015. Average demand deposits increased $64.0 million, or 5.8%, in 2017 as compared to 2016, and increased $237.0 million, or 27.1%, in 2016 as compared to 2015. The Bank’s deposit growth in 2016 over 2015 includes the acquisition of CNB, which closed in June 2015, adding eleven additional branches to the existing branch network. The cost of average savings, NOW and money market accounts was 0.46% forduring the year ended December 31, 2017, compared2022, to 0.33%$12.02 billion at period end, primarily due to an increase of $1.11 billion in 2016FHLBNY advances, and 0.31%an increase of $148.5 million in 2015. Average public fund deposits comprised 16.0%derivative cash collateral. We maintained a higher level of total average deposits during 2017, as comparedborrowings to 17.1%support loan growth and offset a $204.6 million decline in 2016 and 14.7% in 2015.deposits.
Average federal funds purchased and repurchase agreements decreased $29.6 million, or 18.3%, to $132.5 million forDuring the year ended December 31, 2017 compared to $162.1 million for 2016, and increased $46.5 million, or 40.2%, in 2016 compared to $115.6 million in 2015. Average FHLB advances increased $125.7 million, or 45.6%, to $401.3 million for2022, the Company did not terminate any derivatives. During the year ended December 31, 2017 compared to $275.62021, the Company terminated 34 derivatives with notional values totaling $785.0 million, for 2016, and increased $148.2resulting in a termination value of $16.5 million which was recognized in 2016 compared to $127.4loss on termination of derivatives in non-interest income.
Stockholders’ Equity. Stockholders’ equity decreased $23.0 million in 2015. Average subordinated debentures increased $139 thousand, or 0.2%, to $78.6 million forduring the year ended December 31, 2017, compared2022 to $78.4$1.17 billion at period end, primarily due to an increase in accumulated other comprehensive loss of $88.2 million, repurchases of shares of common stock of $46.8 million, common stock dividends of $37.2 million and preferred stock dividends of $7.3 million, offset in part by net income for 2016, and increased $56.5 million, or 257.9%, compared to $21.9 million in 2015. The junior subordinated debentures were redeemed in January 2017.the period of $152.6 million.
Provision and Allowance for Loan Losses
Portfolio Composition
The Bank’sfollowing table presents an analysis of outstanding loans by loan portfolio consists primarilytype, excluding loans held for sale, net of unearned discounts and premiums and deferred origination fees and costs, at the dates presented:
| | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | |
|
(In thousands) | | December 31, 2022 |
| | | December 31, 2021 | | December 31, 2020 | | |||||||||
One-to-four family, including condominium and cooperative apartment | | $ | 773,321 | | 7.3 | % | | $ | 669,282 |
| 7.2 | % | | $ | 184,989 |
| 3.3 | % |
Multifamily residential and residential mixed-use | |
| 4,026,826 |
| 38.1 | | |
| 3,356,346 |
| 36.3 | | |
| 2,758,743 |
| 49.1 | |
Commercial real estate ("CRE") | |
| 4,457,630 |
| 42.2 | | |
| 3,945,948 |
| 42.7 | | |
| 1,878,167 |
| 33.4 | |
Acquisition, development, and construction ("ADC") | |
| 229,663 |
| 2.2 | | |
| 322,628 |
| 3.5 | | |
| 156,296 |
| 2.8 | |
Total real estate loans | |
| 9,487,440 |
| 89.8 | | |
| 8,294,204 |
| 89.7 | | |
| 4,978,195 |
| 88.6 | |
C&I loans | |
| 1,071,712 |
| 10.1 | | |
| 933,559 |
| 10.1 | | |
| 641,533 |
| 11.4 | |
Other loans | |
| 7,679 |
| 0.1 | | |
| 16,898 |
| 0.2 | | |
| 2,316 |
| - | |
Total | |
| 10,566,831 |
| 100.0 | % | |
| 9,244,661 |
| 100.0 | % | |
| 5,622,044 |
| 100.0 | % |
Allowance for credit losses | |
| (83,507) |
| | | |
| (83,853) |
| | | |
| (41,461) |
| | |
Loans held for investment, net | | $ | 10,483,324 |
| | | | $ | 9,160,808 |
| | | | $ | 5,580,583 |
| | |
During the year ended December 31, 2022, our real estate loans securedand C&I loans increased $1.19 billion and $138.2 million, respectively.
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. Servicing fees are typically derived based upon the difference between the actual origination rate and contractual pass-through rate of the loans at the time of sale. At December 31, 2022 and 2021, the Bank had recorded servicing right assets ("SRAs") of $3.1 million and $3.8 million, respectively, associated with the sale of loans to third-party institutions in which the Bank retained the servicing of the loan. The Bank outsources the servicing of a portion of our one-to-four family mortgage loan portfolio to an unrelated third-party under a sub-servicing agreement. Fees paid under the sub-servicing agreement are reported as a component of other non-interest expense in the consolidated statements of income.
Loan Maturity and Repricing
As of December 31, 2022, $8.21 billion, or 77.7% of the loan portfolio was scheduled to mature or reprice within five years.
31
The following table distributes our loans held for investment portfolio at December 31, 2022 by commercial, multi-family and residentialthe 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 |
| $ | 114,698 | | | $ | 241,877 | | | $ | 336,124 | | | $ | 80,622 | | | $ | 773,321 |
Multifamily residential and residential mixed-use | |
| 664,833 | | |
| 2,535,954 | | |
| 823,705 | | |
| 2,334 | | | | 4,026,826 |
CRE | |
| 1,358,497 | | |
| 2,069,795 | | |
| 1,025,122 | | |
| 4,216 | | | | 4,457,630 |
ADC | | | 225,983 | | | | 3,680 | | | | — | | | | — | | | | 229,663 |
Total real estate loans | |
| 2,364,011 | | |
| 4,851,306 | | |
| 2,184,951 | | |
| 87,172 | | | | 9,487,440 |
C&I | | | 799,962 | | | | 189,049 | | | | 82,700 | | | | 1 | | | | 1,071,712 |
Other loans | | | 4,896 | | | | 976 | | | | 224 | | | | 1,583 | | | | 7,679 |
Total | | $ | 3,168,869 | | | $ | 5,041,331 | | | $ | 2,267,875 | | | $ | 88,756 | | | $ | 10,566,831 |
The following table presents our loans held for investment with maturity or next repricing due after December 31, 2023:
| | | | | | | | | |
| | Due after December 31, 2023 | |||||||
|
| Fixed | |
| Adjustable | | Total | ||
(In thousands) | | | |||||||
One-to-four family residential and cooperative/condominium apartment | | $ | 142,934 | | $ | 515,689 | | $ | 658,623 |
Multifamily residential and residential mixed-use | |
| 952,391 | |
| 2,409,602 | |
| 3,361,993 |
CRE | | | 1,443,193 | | | 1,655,940 | | | 3,099,133 |
ADC | | | - | | | 3,680 | | | 3,680 |
Total real estate loans | | | 2,538,518 | | | 4,584,911 | | | 7,123,429 |
C&I | | | 206,802 | | | 64,948 | | | 271,750 |
Other loans | | | 2,533 | | | 250 | | | 2,783 |
Total | | $ | 2,747,853 | | $ | 4,650,109 | | $ | 7,397,962 |
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 properties locatedloans 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.
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 Bank’scase 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 lending areasor interest is not expected; (ii) principal or interest has been in default for a period of Nassau90 days or more (unless the loan is both deemed to be well secured and Suffolk Countiesin the process of collection); or (iii) an election has otherwise been made to maintain the loan on Long Islanda cash basis due to deterioration in the financial condition of the 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.
32
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 New York City boroughs. 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 (“OREO”) status. 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. We have not initiated any expected or imminent foreclosure proceedings that are likely to have a material adverse impact on our consolidated financial statements. 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.
The C&I portfolio is actively managed by our lenders and underwriters. Most credit facilities typically require an annual review of the exposure and 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.
Non-accrual Loans
Within our held-for-investment loan portfolio, non-accrual loans totaled $34.2 million at December 31, 2022 and $40.3 million at December 31, 2021.
TDRs
We are required to recognize loans for which certain modifications or 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 a 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 interest rate has been reduced, management would not deem the modification a TDR in the event that the reduction in interest rate reflected either a general decline in market interest rates chargedor 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 the restructured loan are comparable to the terms offered by the Bank to non-troubled debtors.
We modified twelve loans in a manner that met the criteria for a TDR during the year ended December 31, 2022. We modified four loans in a manner that met the criteria for a TDR during the year ended December 31, 2021.
Accrual status for TDRs is determined separately for each TDR in accordance with our policies 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
33
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 as well as TDRs on non-accrual status that are one-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 affected primarilyindividually 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 to be provided substantially through the operation or sale of the collateral, the allowance for credit losses (“ACL”) is measured based on the difference between the fair value of collateral, less the estimated costs to sell, and the amortized cost basis of the loan as of the measurement date. For non-collateral-dependent loans, the ACL is measured based on the difference between the present value of expected cash flows and the amortized cost basis of the loan as of the measurement date.
Please refer to Note 5 to our condensed consolidated financial statements for a further discussion of TDRs.
OREO
Property acquired by the demand for such loans,Bank, or a subsidiary, as a result of foreclosure 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 supply of money available for lending purposes,property and reassesses the rates offered by its competitors, the Bank’s relationship with the customer, and the related credit riskslikely realizable value (a/k/a fair value) of the transaction. These factors are affected by general and economic conditions including, but not limited to, monetary policiesproperty quarterly thereafter. OREO is carried at the lower of the federal government, includingfair value or book balance, with any write downs recognized through a provision recorded in non-interest expense. Only the Federal 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, 2022 or December 31, 2021. We did not recognize any provisions for losses on OREO properties during the years ended December 31, 2022, 2021 or 2020.
Past Due Loans
Loans Delinquent 30 to 59 Days
At December 31, 2022, we had loans totaling $23.5 million that were past due between 30 and 59 days. At December 31, 2021, we had loans totaling $61.2 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, 2022, we had loans totaling $0.7 million that were past due between 60 and 89 days. At December 31, 2021, we had loans totaling $12.1 million 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
At December 31, 2022, there were no accruing loans 90 days or more past due. At December 31, 2021, we had nine loans with an aggregate outstanding balance of $3.0 million, 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.
Reserve Board, legislative policiesfor Loan Commitments
We maintain a reserve, recorded in other liabilities, associated with unfunded loan commitments accepted by the borrower. The amount of reserve was $2.8 million at December 31, 2022 and governmental budgetary matters.$4.4 million at December 31, 2021. This reserve is
34
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.
Allowance for Credit Losses
Based onOn January 1, 2021, the Company’s continuing reviewCompany 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 overall loan portfolio,CARES Act, financial institutions required to adopt ASU 2016-13 as of January 1, 2020 were provided an option to delay the current asset qualityadoption of the portfolio,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, 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.
The adoption of the CECL Standard resulted in an initial decrease of $3.9 million to the allowance for credit losses and an increase of $1.4 million to the reserve for unfunded commitments. 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 $5.4 million and $6.2 million were recorded during the twelve-month periods ended December 31, 2022 and 2021, respectively. The $5.4 million provision for credit losses recognized in 2022 was associated with growth in the loan portfolio and the net charge-offs,a deterioration of forecased economic conditions, offset by a reduction in reserves on individually analyzed loans and unfunded commitments. The $6.2 million provision for credit losses recognized in 2021 included a provision for loan losses of $14.1 million was recorded in 2017, as compared to $5.6 million in 2016 and $4.0 million in 2015. Net charge-offs were $8.2 millionon acquired non-PCD loans for the year ended December 31, 2017, as compared to $0.4 million for the year ended December 31, 2016 and $0.9 million for the year ended December 31, 2015. The increase in charge-offs in 2017 resulted primarilyDay 2 accounting of acquired loans from the charge-offMerger offset by improvements in forecasted macroeconomic conditions, and release of loans and specific reserves associated with two specific relationships. The Companyon individually analyzed loans.
considers the losses incurred as isolated and not indicative of any negative trends within either the borrowers’ industries or the Company’s overall credit profile. The ratio of allowance for loan losses to nonaccrual loans was 456%, 2,087% and 1,537%, at December 31, 2017, 2016, and 2015, respectively. The allowance for loan losses increased to $31.7 million at December 31, 2017 as compared to $25.9 million at December 31, 2016 and $20.7 million at December 31, 2015. The allowance as a percentage of total loans was 1.02%, 1.00% and 0.86% at December 31, 2017, 2016 and 2015, respectively. The increases in the allowance for loan losses and the provision for loan losses reflect loan growth in all portfolios and an increase in charge-offs and specific reserves, coupled with an increase in substandard loans. Management continues 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 $85.3 million or 2.8%, of total loans at December 31, 2017 were categorized as classified loans compared to $84.3 million, or 3.2%, at December 31, 2016 and $26.9 million, or 1.1%, at December 31, 2015. 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 management has 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, 2017, $34.0 million of these classified loans were commercial real estate (“CRE”) loans. Of the $34.0 million of CRE loans, $30.2 million were current and $3.8 million were past due. At December 31, 2017, $6.6 million of classified loans were residential real estate loans with $5.9 million current and $0.7 million past due. Commercial, industrial, and agricultural loans represented $44.4 million of classified loans, with $40.0 million current and $4.4 million past due. Taxi medallion loans represented $24.6 million of the classified commercial, industrial and agricultural loans at December 31, 2017. The Bank’s taxi medallion loan portfolio was downgraded to special mention at December 31, 2016 due to weakening cash flows and declining collateral values and certain loans have beenFor further downgraded to substandard during 2017. All of the Bank’s taxi medallion loans are collateralized by New York City – Manhattan medallions and have personal guarantees. All taxi medallion loans were current as of December 31, 2017 except one, which was nonaccrual. No new originations of taxi medallion loans are currently planned, and management expects these balances to decline through amortization and pay-offs. At December 31, 2017, there were $0.3 million of classified real estate construction and land loans, all of which are current.
CRE loans, including multi-family loans, represented $1.9 billion, or 61.0%, of the total loan portfolio at December 31, 2017 compared to $1.5 billion, or 59.2%, at December 31, 2016 and $1.4 billion, or 56.1%, at December 31, 2015. The Bank’s 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, the Bank’s underwriting standards for CRE loans are consistent with regulatory requirements with original loan to value ratios generally less than or equal to 75%. The Bank considers charge-off history, delinquency trends, cash flow analysis, and the impact of the local economy on commercial real estate values when evaluating the appropriate leveldiscussion of the allowance for loan losses.
As ofcredit losses and related activity during the years ended December 31, 20172022, 2021 and 2016, the Company had individually impaired loans as defined by FASB ASC No. 310, “Receivables” of $22.5 million and $3.4 million, respectively. 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 according2020, please see Note 5 to the contractual termsconsolidated financial statements.
The following table presents our allowance for credit losses allocated by loan type and the percent of the loan agreement. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually classified nonaccrual loans and TDRs. 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 less costseach 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, 2016 is the result of the modification of certain CRE mortgage loans to one borrower totaling $7.8 million and certain taxi medallion loans as TDRs totaling $6.8 million, coupled with an increase in nonaccrual loans. The TDR loans are current and classified as performing TDRs at December 31, 2017.
Nonaccrual loans increased $5.8 million to $7.0 million, or 0.22%, of total loans at December 31, 2017 from $1.2 million, or 0.05%, of total loans at December 31, 2016. The increase was primarily due to a $2.1 million CRE loan and $3.5 million in commercial, industrial and agricultural loans to two borrowers, which became nonaccrual during the quarter ended December 31, 2017. TDRs represent $5 thousand of the nonaccrual loans at December 31, 2017 and $0.3 million at December 31, 2016.dates indicated.
| | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 | | December 31, 2020 | | |||||||||
| | | | | 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 |
| |||
(Dollars in thousands) | | | | | | | | |||||||||
One-to-four family residential and cooperative/condominium apartment | | $ | 5,969 | | 7.32 | % | $ | 5,932 | | 7.24 | % | $ | 644 | | 3.29 | % |
Multifamily residential and residential mixed-use | |
| 8,360 | | 38.11 | | | 7,816 | | 36.31 | | | 17,016 | | 49.07 | |
CRE | |
| 27,329 | | 42.19 | | | 29,166 | | 42.68 | | | 9,059 | | 33.41 | |
Acquisition, development, and construction | |
| 1,723 | | 2.17 | | | 4,857 | | 3.49 | | | 1,993 | | 2.78 | |
C&I | |
| 39,853 | | 10.14 | | | 35,331 | | 10.10 | | | 12,737 | | 11.41 | |
Other loans | |
| 273 | | 0.07 | | | 751 | | 0.18 | | | 12 | | 0.04 | |
Total | | $ | 83,507 |
| 100.00 | % | $ | 83,853 |
| 100.00 | % | $ | 41,461 |
| 100.00 | % |
35
The following table sets forth changesinformation about our allowance for credit losses at or for the dates indicated:
| | | | | | | | | | |
| | | | | | | | | |
|
|
| 2022 |
| 2021 |
| 2020 |
| |||
|
| (Dollars in thousands) | ||||||||
Total loans outstanding at end of period (1) | | $ | 10,566,831 | | $ | 9,244,661 | | $ | 5,622,044 | |
Average total loans outstanding during the period(2) | |
| 9,747,887 | |
| 9,484,205 | |
| 5,452,164 | |
Allowance for credit losses balance at end of period | |
| 83,507 | |
| 83,853 | |
| 41,461 | |
Allowance for credit losses to total loans at end of period | |
| 0.79 | % |
| 0.91 | % |
| 0.74 | % |
Non-performing loans to total loans at end of period | | | 0.32 | | | 0.44 | | | 0.37 | |
Allowance for credit losses to total non-performing loans at end of period | |
| 243.91 | |
| 208.04 | |
| 231.26 | |
| | | | | | | | | | |
Ratio of net charge-offs to average loans outstanding during the period: | | | | | | | | | | |
One-to-four family residential and cooperative/condominium apartment | | | — | % | | (0.01) | % | | 0.01 | % |
Multifamily residential and residential mixed-use | | | — | | | 0.01 | | | 0.10 | |
CRE | | | — | | | 0.09 | | | — | |
Acquisition, development, and construction | | | — | | | — | | | — | |
C&I | | | 0.77 | | | 0.33 | | | 1.95 | |
Other loans | | | 0.42 | | | 3.89 | | | 0.44 | |
Total | | | 0.07 | | | 0.10 | | | 0.24 | |
| (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 $950.6 million at December 31, 2022. The average duration of these securities was 3.5 years as of December 31, 2022.
The following table presents the amortized cost, fair value and weighted average yield of our securities available-for-sale at December 31, 2022, categorized by remaining period to contractual maturity:
| | | | | | | | | |
|
| | |
| | |
| Weighted |
|
| | Amortized | | Fair | | Average |
| ||
|
| Cost |
| Value |
| Yield |
| ||
| | (Dollars in Thousands) | | ||||||
Due within 1 year | | $ | 6,355 | | $ | 6,253 |
| 1.10 | % |
Due after 1 year but within 5 years | |
| 352,610 | |
| 326,218 |
| 1.06 | |
Due after 5 years but within 10 years | |
| 319,984 | |
| 289,401 |
| 3.14 | |
Due after ten years | |
| 392,909 | |
| 328,715 |
| 1.48 | |
Total | | $ | 1,071,858 | | $ | 950,587 |
| 1.83 | % |
The entire carrying amount of each security at December 31, 2022 is reflected in the allowance for loan losses: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 3.5 years as of December 31, 2022 when giving consideration to anticipated repayments or possible prepayments, which is significantly less than their weighted average maturity.
36
| Year Ended December 31, | ||||||||||||||||||||
| (Dollars in thousands) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Beginning balance | $ | 25,904 | $ | 20,744 | $ | 17,637 | $ | 16,001 | $ | 14,439 | ||||||||||
| Charge-offs: | ||||||||||||||||||||
| Commercial real estate mortgage loans | — | — | (50 | ) | (461 | ) | — | |||||||||||||
| Residential real estate mortgage loans | — | (56 | ) | (249 | ) | (257 | ) | (420 | ) | |||||||||||
| Commercial, industrial and agricultural loans | (8,245 | ) | (930 | ) | (827 | ) | (104 | ) | (420 | ) | ||||||||||
| Real estate construction and land loans | — | — | — | — | (23 | ) | ||||||||||||||
| Installment/consumer loans | (49 | ) | (1 | ) | (2 | ) | (2 | ) | (53 | ) | ||||||||||
| Total | (8,294 | ) | (987 | ) | (1,128 | ) | (824 | ) | (916 | ) | ||||||||||
| Recoveries: | ||||||||||||||||||||
| Commercial real estate mortgage loans | — | 109 | — | — | — | |||||||||||||||
| Residential real estate mortgage loans | 28 | 96 | 79 | 170 | 34 | |||||||||||||||
| Commercial, industrial and agricultural loans | 16 | 386 | 149 | 87 | 87 | |||||||||||||||
| Real estate construction and land loans | — | — | — | — | 2 | |||||||||||||||
| Installment/consumer loans | 3 | 6 | 7 | 3 | 5 | |||||||||||||||
| Total | 47 | 597 | 235 | 260 | 128 | |||||||||||||||
| Net charge-offs | (8,247 | ) | (390 | ) | (893 | ) | (564 | ) | (788 | ) | ||||||||||
| Provision for loan losses charged to operations | 14,050 | 5,550 | 4,000 | 2,200 | 2,350 | |||||||||||||||
| Ending balance | $ | 31,707 | $ | 25,904 | $ | 20,744 | $ | 17,637 | $ | 16,001 | ||||||||||
| Ratio of net charge-offs during period to average loans outstanding | (0.30 | )% | (0.02 | )% | (0.04 | )% | (0.04 | )% | (0.09 | )% | ||||||||||
The following table presents the weighted average contractual maturity of our securities available-for-sale:
| | |
| | December 31, |
| | 2022 |
Weighted average contractual maturity (years) - Available-for-sale: | | |
Treasury securities | | 2.33 |
Corporate securities | | 7.88 |
Pass-through MBS issued by GSEs and agency CMOs | | 17.35 |
State and municipal obligations | | 4.21 |
AllocationSecurities held-to-maturity
Our investment in securities held-to-maturity totaled $585.8 million at December 31, 2022. The average duration of Allowance for Loan Lossesthese securities was 6.1 years as of December 31, 2022.
The following table presents the amortized cost, fair value and weighted average yield of our securities held-to-maturity at December 31, 2022, categorized by remaining period to contractual maturity:
| | | | | | | | | |
|
| | |
| | |
| Weighted |
|
| | Amortized | | Fair | | Average |
| ||
|
| Cost |
| Value |
| Yield |
| ||
| | (Dollars in Thousands) | | ||||||
Due within 1 year | | $ | — | | $ | — |
| — | % |
Due after 1 year but within 5 years | |
| 12,432 | |
| 11,523 |
| 2.41 | |
Due after 5 years but within 10 years | |
| 166,697 | |
| 142,785 |
| 2.42 | |
Due after ten years | |
| 406,669 | |
| 351,451 |
| 2.60 | |
Total | | $ | 585,798 | | $ | 505,759 |
| 2.54 | % |
The entire carrying amount of each security at December 31, 2022 is reflected in the 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 held-to-maturity approximated 6.1 years as of December 31, 2022 when giving consideration to anticipated repayments or possible prepayments, which is significantly less than their weighted average maturity.
The following table presents the weighted average contractual maturity of our securities held-to-maturity:
| | |
| | December 31, |
| | 2022 |
Weighted average contractual maturity (years) - Held-to-maturity: | | |
Agency notes | | 7.26 |
Corporate securities | | 9.59 |
Pass-through MBS issued by GSEs and agency CMOs | | 22.16 |
37
Sources of Funds
Deposits
The following table presents our deposit accounts and the related weighted average interest rates at the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 | | December 31, 2020 |
| |||||||||||||||
| | | |
| 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 | | $ | 2,260,101 |
| 22.0 | % | 2.24 | % | $ | 1,158,040 |
| 11.1 | % | 0.03 | % | $ | 414,809 |
| 9.2 | % | 0.12 | % |
CDs | |
| 1,115,364 |
| 10.9 |
| 2.25 | |
| 853,242 |
| 8.2 |
| 0.58 | |
| 1,322,638 |
| 29.2 |
| 0.84 | |
Money market accounts | |
| 2,532,270 |
| 24.7 |
| 1.50 | |
| 3,621,552 |
| 34.6 |
| 0.07 | |
| 1,716,624 |
| 37.9 |
| 0.24 | |
Interest-bearing checking accounts | |
| 827,454 |
| 8.1 |
| 1.01 | |
| 905,717 |
| 8.7 |
| 0.18 | |
| 290,300 |
| 6.4 |
| 0.10 | |
Non-interest-bearing checking accounts | |
| 3,519,218 |
| 34.3 |
| — | |
| 3,920,423 |
| 37.5 |
| — | |
| 780,751 |
| 17.3 |
| — | |
Totals | | $ | 10,254,407 |
| 100.00 | % | 1.19 | % | $ | 10,458,974 |
| 100.00 | % | 0.09 | % | $ | 4,525,122 |
| 100.00 | % | 0.36 | % |
The weighted average maturity of our CDs at December 31, 2022 was 7.6 months, compared to 7.7 months at December 31, 2021.
As of December 31, 2022 and 2021, the portion of deposit accounts in excess of the $250,000 FDIC insurance limit was $5.73 billion and $5.83 billion, respectively.
The following table sets forth the allocationamount of the total allowance for loan lossestime deposits in uninsured accounts by loan classification:
| December 31, | ||||||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Amount | Percentage of Loans to Total Loans | Amount | Percentage of Loans to Total Loans | Amount | Percentage of Loans to Total Loans | Amount | Percentage of Loans to Total Loans | Amount | Percentage of Loans to Total Loans | ||||||||||||||||||||||||||||||
| Commercial real estate mortgage loans | $ | 11,048 | 41.7 | % | $ | 9,225 | 42.0 | % | $ | 7,850 | 43.8 | % | $ | 6,994 | 44.5 | % | $ | 6,279 | 47.9 | % | ||||||||||||||||||||
| Multi-family mortgage loans | 4,521 | 19.2 | 6,264 | 20.0 | 4,208 | 14.6 | 2,670 | 16.4 | 1,597 | 10.6 | ||||||||||||||||||||||||||||||
| Residential real estate mortgage loans | 2,438 | 15.0 | 1,495 | 14.1 | 2,115 | 16.3 | 2,208 | 11.7 | 2,712 | 15.2 | ||||||||||||||||||||||||||||||
| Commercial, industrial and agricultural loans | 12,838 | 19.9 | 7,837 | 20.2 | 5,405 | 20.8 | 4,526 | 21.8 | 4,006 | 20.7 | ||||||||||||||||||||||||||||||
| Real estate construction and land loans | 740 | 3.5 | 955 | 3.1 | 1,030 | 3.8 | 1,104 | 4.8 | 1,206 | 4.7 | ||||||||||||||||||||||||||||||
| Installment/consumer loans | 122 | 0.7 | 128 | 0.6 | 136 | 0.7 | 135 | 0.8 | 201 | 0.9 | ||||||||||||||||||||||||||||||
| Total | $ | 31,707 | 100.0 | % | $ | 25,904 | 100.0 | % | $ | 20,744 | 100.0 | % | $ | 17,637 | 100.0 | % | $ | 16,001 | 100.0 | % | ||||||||||||||||||||
Non-Interest Income
Total non-interest income increased by $2.1 million, or 12.8%, to $18.1 million in 2017 compared to $16.0 million in 2016 and increased by $3.3 million, or 26.7%, in 2016 as compared to $12.7 million in 2015. The increase in total non-interest income in 2017 compared to 2016 was primarily due to increases in service charges and other fees, gain on sale of SBA loans, title fee income, other operating income, BOLI income, partially offset by a decrease in net securities gains. The increase in total non-interest income in 2016 compared to 2015 was primarily due to higher service charges and other fees, BOLI income, gain on sale of SBA loans, net securities gains, and other operating income.
Service charges and other fees for the year ended December 31, 2017 increased $0.6 million, or 7.0%, to $9.0 million compared to $8.4 million for the year ended December 31, 2016, and increased $1.3 million, or 19.2%, in 2016 compared to $7.1 million in 2015. Net securities gains of $38 thousand were recognized in 2017, compared to $0.4 million in 2016 and net securities losses of $8 thousand in 2015. The net securities gains in 2016 were primarily attributable to the sale of $235.7 million of lower yielding securities in the 2016 second quarter as part of a deleveraging strategy by the Company. Bridge Abstract, the Bank’s title insurance subsidiary, generated title fee income of $2.4 million in 2017, $1.8 million in 2016, and $1.9 million in 2015. Gain on sale of SBA loans increased $0.6 million, or 54.0%, to $1.7 million in 2017 compared to $1.1 million in 2016, and increased $0.6 million, or 116.4%, in 2016 compared to $0.5 million in 2015. BOLI income increased $0.4 million, or 16.6%, to $2.3 million in 2017 compared to $1.9 million in 2016, and increased $0.7 million, or 57.5%, in 2016 compared to $1.2 million in 2015.
Other operating income increased $0.4 million to $2.7 million in 2017 compared to $2.3 million in 2016, primarily due to an increase in loan swap fee income of $0.9 million, and increased $0.3 million in 2016 compared to $2.0 million in 2015, primarily due to a $0.9 million increase in miscellaneous income primarily related to a net recovery associated with certain identified FNBNY acquired problem loans recorded in 2016.
Non-Interest Expense
Total non-interest expense increased $14.6 million, or 19.0%, to $91.7 million in 2017 compared to $77.1 million in 2016, and increased $4.2 million, or 5.7%, in 2016 from $72.9 million in 2015. The increase in 2017 is primarily due to restructuring costs related to branch restructuring and charter conversion, and higher salaries and employee benefits, occupancy and equipment, technology and communications, marketing and advertising, and other operating expenses, partially offset lower amortization of other intangible assets, professional services and FDIC assessments. The increase from 2015 to 2016 is a result of increases in all expense categories, offset by a decrease in acquisition costs,maturity, all of which were attributable toare CDs:
| | | |
(In thousands) | | December 31, 2022 | |
Maturity Period | | | |
Three months or less | | $ | 132,925 |
Over three through six months | | | 241,143 |
Over six through twelve months | | | 125,971 |
Over twelve months | | | 41,901 |
Total | | $ | 541,940 |
As of December 31, 2022, the CNB acquisition. The reversalportion of accrued acquisition costsuninsured time deposits in 2016 is due to the reversal of pending merger related liabilities recorded at the acquisition date, which have since been settled.
Salaries and employee benefits increased $4.9 million, or 11.9%, to $45.8 million in 2017 compared to $40.9 million in 2016, and increased $7.0 million, or 20.8%, in 2016 from $33.9 million in 2015. The increase in salaries and employee benefits in 2017 is primarily due to additional staff related to new branches, business development, and risk management. The increase in salaries and employee benefits in 2016 reflect additional positions to support the Company’s expanding infrastructure primarily related to the acquisition of CNB and a larger loan portfolio. Occupancy and equipment increased $1.2 million, or 9.4%, to $14.0 million in 2017 compared to $12.8 million in 2016, and increased $1.8 million, or 15.9%, in 2016 from $11.0 million in 2015. Technology and communications increased $0.8 million, or 17.5%, to $5.7 million in 2017 compared to $4.9 million in 2016, and increased $1.3 million, or 36.1%, in 2016 from $3.6 million in 2015. Marketing and advertising increased $0.7 million, or 17.1%, to $4.7 million in 2017 from $4.0 million in 2016, and increased $0.9 million, or 29.5%, in 2016 from $3.1 million in 2015. Higher occupancy and equipment, technology and communications, and marketing and advertising expenses in 2016 were primarily related to the higher operating costs associated with the acquired CNB operations and facilities, investments in technology and additional marketing costs. Professional services decreased $0.5 million, or 13.5%, to $3.1 million in 2017 from $3.6 million in 2016, and increased $1.3 million, or 56.7%, in 2016 from $2.3 million in 2015. FDIC assessments were $1.3 million in 2017, and $1.6 million in 2016 and 2015. The Company recorded amortization of other intangible assets of $1.0 million in 2017, $2.6 million in 2016, and $1.4 million in 2015 primarily related to the CNB and FNBNY acquisitions. Other operating expenses totaled $7.9 million in 2017, $7.4 million in 2016 and $6.1 million in 2015.
Income Tax Expense
Income tax expense increased $0.1 million, or 0.8%, to $18.9 million in 2017 compared to $18.8 million in 2016, and increased $8.0 million, or 74.4%, in 2016 from $10.8 million in 2015. The effective tax rate was 48.0% in 2017, 34.6% in 2016 and 33.8% in 2015. Income tax expense in 2017 included a $7.6 million charge to write-down the Company’s deferred tax assets due to the enactmentexcess of the Tax Act in$250,000 FDIC insurance limit was $420.4 million.
Our Board of Directors authorized the fourth quarter 2017. The increase in income tax expense in 2016 comparedBank to 2015 reflects higher income before income taxes. The lower effective tax rate in 2015 comparedaccept brokered deposits up to 2016 relates primarily toan aggregate limit of 10.0% of total assets. At December 31, 2022, brokered deposits totaled $538.9 million, which included purchased CDs from the tax benefit associated withCDARS program, purchased MMAs from the change in New York City tax law recognized in 2015. The Company estimates it will record income tax at an effective tax rate of approximately 23% in 2018.
ICS program and purchased CDs through a broker. 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.
FINANCIAL CONDITIONBorrowings
The Company’sBank’s total assets increased $375.4 million, or 9.3%, to $4.4borrowing line with FHLBNY equaled $4.13 billion at December 31, 2017 compared to2022. The Bank had $1.13 billion of FHLBNY advances outstanding at December 31, 2016, with loan growth funded primarily by deposits. Net loans increased $496.5 million, or 19.3%, to $3.1 billion compared to December 31, 2016. The ability to grow the loan portfolio, while minimizing interest rate risk sensitivity2022, and maintaining credit quality, remains a strong focus of management. Total securities decreased $101.6 million to $976.1$25.0 million at December 31, 2017 compared2021. The Bank maintained sufficient collateral, as defined by the FHLBNY (principally in the form of real estate loans), to December 31, 2016. Cash and cash equivalents decreased $19.1secure such advances.
The Company had $1.4 million outstanding of securities sold under agreements to $94.7 millionrepurchase (“repurchase agreements”) at December 31, 2017 compared2022. The Company had $1.9 million outstanding of securities sold under agreements to December 31, 2016. Total deposits grew $408.5 million, or 14.0%, to $3.3 billionrepurchase at December 31, 2017 compared2021.
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 is 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 $2.9 billionensure that all short-term obligations are timely satisfied and that adequate liquidity exists to fund future activities. Reports detailing the Bank’s liquidity reserves are presented to appropriate senior management on a monthly basis, and the Board of Directors at December 2016. Demand deposits increased $187.4 millioneach of its meetings. In addition, a twelve-month liquidity forecast is presented to $1.3 billion asALCO in order to assess potential future liquidity concerns. A forecast of December 31, 2017 compared to $1.2 billion at December 31, 2016. Savings, NOW and money market deposits increased $205.5 million to $1.8 billion at December 31, 2017 from $1.6 billion at December 31, 2016. Certificates of deposit of $100,000 or more increased $32.4 million to $158.6 million at December 31, 2017 from $126.2 million at December 31, 2016. Other time deposits decreased $16.7 million to $63.8 million as of December 31, 2017 from $80.5 million as of December 31, 2016. Federal funds purchased at December 31, 2017 decreased $50.0 million, or 50.0%, to $50.0 million compared to $100.0 million at December 31, 2016. FHLB advances increased $4.7 million, or 0.9%, to $501.4 million at December 31, 2017 compared to $496.7 million at December 31, 2016. Repurchase agreements increased $0.2 million to $0.9 million at December 31, 2017 compared to $0.7 million at December 31, 2016. Junior subordinated debentures decreased $15.2 millioncash flow data for the year ended December 31, 2017 dueupcoming 12 months is presented to the redemption in January 2017.Board of Directors on an annual basis.
Total stockholders’ equity increased $21.2 million, or 5.2%, to $429.2 million at December 31, 2017 compared to $408.0 million at December 31, 2016. The increase in 2017 is primarily due to net income of $20.5 million, the issuance of common stock related to the trust preferred securities conversions of $14.9 million, and share based compensation of $2.6 million, partially offset by $18.2 million in dividends.
Loans
During 2017, the Company continued to experience growth in all loan portfolios. The concentration of loans in the Company’s primary market areas may increase risk. Unlike larger banks that are more geographically diversified, the Bank’s loan portfolio consists primarily of real estate loans secured by commercial, multi-family and residential real estate properties located in the Bank’s 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 impact on the volume of loan originations, the quality of loans, the ability of borrowers to repay these loans, and the value of collateral securing these loans. A considerable decline in general economic conditions caused by inflation, recession, unemployment or other factors beyond the Company’s control would impact these local economic conditions and could negatively affect the financial results of the Company’s 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 the Company’s earnings.
The interest rates charged by the Bank on loans are affected primarily by the demand for such loans, the supply of money available for lending purposes, the rates offered by its competitors, the Bank’s 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 FRB, legislative policies and governmental budgetary matters.
The Bank targets its 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, the results of operations and financial condition of the Company may be adversely affected.
With respect to the underwriting of loans, there are certain risks, including the risk of non-payment that is associated with each type of loan that the Bank markets. Approximately 79.4% of the Bank’s loan portfolio at December 31, 2017 is secured by real estate. Commercial real estate loans represent 41.7% of the Bank’s loan portfolio. Multi-family mortgage loans represent 19.2% of the Bank’s loan portfolio. Residential real estate mortgage loans represent 15.0% of the Bank’s loan portfolio and include home equity lines of credit representing 2.1% and residential mortgages representing 12.9% of the Bank’s loan portfolio. Real estate construction and land loans represent 3.5% of the Bank’s 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 the Bank’s geographic markets with original loan to value ratios generally of 75% or less. The Bank’s residential mortgage portfolio includes approximately $56.1 million in interest only mortgages. The underwriting standards for interest only mortgages are consistent with the remainder of the loan portfolio and do not include any features that result in negative amortization. The Bank uses conservative underwriting criteria to better insulate itself from a downturn in real estate values and economic conditions on Long Island 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 remainder of the loan portfolio is comprised of commercial and consumer loans, which represent 20.6% of the Bank’s loan portfolio. 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 flow of the business, 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 of a borrower’s unemployment as a result of deteriorating economic conditions or the amount and nature of a borrower’s other existing indebtedness, and the value of the collateral securing the loan if the Bank must take possession of the collateral.
The Bank’s policy for charging off 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 date 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.
Total loans grew $502.3 million, or 19.3%, to $3.1 billion at December 31, 2017 compared to $2.6 billion at December 31, 2016 with commercial real mortgage loans being the largest contributor of the growth. Commercial real estate mortgage loans increased $202.2 million, or 18.5%, during 2017. Residential real estate mortgage loans increased $99.4 million, or 27.2%, and multi-family mortgage
loans grew $77.1 million, or 14.9%, during 2017. Commercial, industrial and agricultural loans increased $91.6 million, or 17.5%, in 2017. Real estate construction and land loans increased $27.2 million, or 33.7%, and installment/consumer loans increased $4.7 million in 2017. Fixed rate loans represented 24.3% and 23.0% of total loans at December 31, 2017 and 2016, respectively.
The following table sets forth the major classifications of loans at the dates indicated:
| December 31, | ||||||||||||||||||||
| (In thousands) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Commercial real estate mortgage loans | $ | 1,293,906 | $ | 1,091,752 | $ | 1,053,399 | $ | 595,397 | $ | 484,900 | ||||||||||
| Multi-family mortgage loans | 595,280 | 518,146 | 350,793 | 218,985 | 107,488 | |||||||||||||||
| Residential real estate mortgage loans | 464,264 | 364,884 | 392,815 | 156,156 | 153,417 | |||||||||||||||
| Commercial, industrial and agricultural loans | 616,003 | 524,450 | 501,766 | 291,743 | 209,452 | |||||||||||||||
| Real estate construction and land loans | 107,759 | 80,605 | 91,153 | 63,556 | 46,981 | |||||||||||||||
| Installment/consumer loans | 21,041 | 16,368 | 17,596 | 10,124 | 9,287 | |||||||||||||||
| Total loans | 3,098,253 | 2,596,205 | 2,407,522 | 1,335,961 | 1,011,525 | |||||||||||||||
| Net deferred loan costs and fees | 4,499 | 4,235 | 3,252 | 2,366 | 1,738 | |||||||||||||||
| Total loans held for investment | 3,102,752 | 2,600,440 | 2,410,774 | 1,338,327 | 1,013,263 | |||||||||||||||
| Allowance for loan losses | (31,707 | ) | (25,904 | ) | (20,744 | ) | (17,637 | ) | (16,001 | ) | ||||||||||
| Net loans | $ | 3,071,045 | $ | 2,574,536 | $ | 2,390,030 | $ | 1,320,690 | $ | 997,262 | ||||||||||
Selected Loan Maturity Information
The following table sets forth the approximate maturities and sensitivity to changes in interest rates of certain loans, exclusive of real estate mortgage loans and installment/consumer loans to individuals as of December 31, 2017:
| (In thousands) | Within One Year | After One But Within Five Years | After Five Years | Total | ||||||||||||
| Commercial loans | $ | 235,405 | $ | 175,457 | $ | 224,042 | $ | 634,904 | ||||||||
| Construction and land loans(1) | 44,933 | 45,378 | 17,644 | 107,955 | ||||||||||||
| Total | $ | 280,338 | $ | 220,835 | $ | 241,686 | $ | 742,859 | ||||||||
| Rate provisions: | ||||||||||||||||
| Amounts with fixed interest rates | $ | 20,633 | $ | 118,909 | $ | 64,484 | $ | 204,026 | ||||||||
| Amounts with variable interest rates | 259,705 | 101,926 | 177,202 | 538,833 | ||||||||||||
| Total | $ | 280,338 | $ | 220,835 | $ | 241,686 | $ | 742,859 | ||||||||
(1)Included in the “After Five Years” column, are one-step construction loans that contain a preliminary construction period (interest only) that automatically converts to amortization at the end of the construction phase.
Past Due, Nonaccrual and Restructured Loans and Other Real Estate Owned
The following table sets forth selected information about past due, nonaccrual, and restructured loans and other real estate owned:
| December 31, | ||||||||||||||||||||
| (In thousands) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Loans 90 days or more past due and still accruing | $ | 1,834 | $ | 1,027 | $ | 964 | $ | 144 | $ | 1 | ||||||||||
| Nonaccrual loans excluding restructured loans | 6,950 | 909 | 850 | 713 | 1,856 | |||||||||||||||
| Restructured loans - nonaccrual | 5 | 332 | 60 | 490 | 1,965 | |||||||||||||||
| Restructured loans - performing | 16,727 | 2,417 | 1,681 | 5,031 | 5,184 | |||||||||||||||
| Other real estate owned, net | — | — | 250 | — | 2,242 | |||||||||||||||
| Total | $ | 25,516 | $ | 4,685 | $ | 3,805 | $ | 6,378 | $ | 11,248 | ||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| (In thousands) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Gross interest income that has not been paid or recorded during the year under original terms: | ||||||||||||||||||||
| Nonaccrual loans | $ | 110 | $ | 17 | $ | 6 | $ | 33 | $ | 66 | ||||||||||
| Restructured loans | — | 1 | 1 | 84 | 60 | |||||||||||||||
| Gross interest income recorded during the year: | ||||||||||||||||||||
| Nonaccrual loans | $ | 282 | $ | 1 | $ | 1 | $ | 4 | $ | 94 | ||||||||||
| Restructured loans | 619 | 123 | 109 | 214 | 282 | |||||||||||||||
| Commitments for additional funds | — | — | — | — | — | |||||||||||||||
The following table sets forth individually impaired loans by loan classification:
| December 31, | ||||||||||||||||||||
| (In thousands) | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Nonaccrual loans excluding restructured loans: | ||||||||||||||||||||
| Commercial real estate mortgage loans | $ | 2,305 | $ | 185 | $ | 238 | $ | 295 | $ | 352 | ||||||||||
| Residential real estate mortgage loans | 100 | 719 | 612 | 315 | 1,436 | |||||||||||||||
| Commercial, industrial and agricultural loans | 4,124 | — | — | 75 | — | |||||||||||||||
| Total | 6,529 | 904 | 850 | 685 | 1,788 | |||||||||||||||
| Restructured loans - nonaccrual: | ||||||||||||||||||||
| Commercial real estate mortgage loans | — | — | — | 300 | 617 | |||||||||||||||
| Residential real estate mortgage loans | — | 65 | 60 | 69 | 618 | |||||||||||||||
| Commercial, industrial and agricultural loans | — | — | — | 118 | 720 | |||||||||||||||
| Total | — | 65 | 60 | 487 | 1,955 | |||||||||||||||
| Total non-performing impaired loans | 6,529 | 969 | 910 | 1,172 | 3,743 | |||||||||||||||
| Restructured loans - performing: | ||||||||||||||||||||
| Commercial real estate mortgage loans | 8,857 | 1,354 | 1,391 | 4,541 | 4,260 | |||||||||||||||
| Residential real estate mortgage loans | — | — | — | — | 329 | |||||||||||||||
| Commercial, industrial and agricultural loans | 7,106 | 1,030 | 290 | 489 | 526 | |||||||||||||||
| Total | 15,963 | 2,384 | 1,681 | 5,030 | 5,115 | |||||||||||||||
| Total impaired loans | $ | 22,492 | $ | 3,353 | $ | 2,591 | $ | 6,202 | $ | 8,858 | ||||||||||
Securities
Securities totaled $976.1 million at December 31, 2017 compared to $1.1 billion at December 31, 2016, including restricted securities totaling $35.3 million at December 31, 2017 and $34.7 million at December 31, 2016. The available for sale portfolio decreased $59.8 million to $759.9 million from $819.7 million at December 31, 2016. Securities classified as available for sale may be sold in response to, or in anticipation of, changes in interest rates and resulting prepayment risk, or other factors. During 2017, the Company sold $52.4 million of securities compared to $264.4 million in 2016. The decrease in securities available for sale is primarily the result of a $60.1 million decrease in residential collateralized mortgage obligations, a $29.1 million decrease in state and municipal obligations, and a $6.5 million decrease in commercial collateralized mortgage obligations, partially offset by a $28.9 million increase in residential mortgage-backed securities, and a $13.4 million increase in corporate bonds. Securities held to maturity decreased $42.3 million to $180.9 million at December 31, 2017 compared to $223.2 million at December 31, 2016. The decrease in securities held to maturity is
primarily the result of an $11.0 million decrease in Corporate bonds, a $10.2 million decrease in commercial collateralized mortgage obligations, a $7.4 million decrease in residential collateralized mortgage obligations, a $5.9 million decrease in state and municipal obligations, and a $5.8 million decrease in commercial mortgage-backed securities. Fixed rate securities represented 87.5% of total available for sale and held to maturity securities at December 31, 2017 compared to 93.9% at December 31, 2016.
The following table sets forth the fair values, amortized costs, contractual maturities and approximate weighted average yields of the available for sale and held to maturity securities portfolios at December 31, 2017. 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 35%.
| December 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Within One Year | After One But Within Five Years | After Five But Within Ten Years | After Ten Years | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Estimated Fair Value | Amortized Cost | Yield | Estimated Fair Value | Amortized Cost | Yield | Estimated Fair Value | Amortized Cost | Yield | Estimated Fair Value | Amortized Cost | Yield | Estimated Fair Value | Amortized Cost | ||||||||||||||||||||||||||||||||||||||||||
| Available for sale: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| U.S. GSE securities | $ | — | $ | — | — | % | $ | 37,271 | $ | 37,994 | 1.73 | % | $ | 19,543 | $ | 20,000 | 2.29 | % | $ | — | $ | — | — | % | $ | 56,814 | $ | 57,994 | ||||||||||||||||||||||||||||
| State and municipal obligations | 9,588 | 9,600 | 1.75 | 45,196 | 45,683 | 1.94 | 31,809 | 31,884 | 2.85 | 429 | 415 | 4.03 | 87,022 | 87,582 | ||||||||||||||||||||||||||||||||||||||||||
| U.S. GSE residential mortgage-backed securities | — | — | — | — | — | — | 25,203 | 25,482 | 1.91 | 161,698 | 164,223 | 2.10 | 186,901 | 189,705 | ||||||||||||||||||||||||||||||||||||||||||
| U.S. GSE residential collateralized mortgage obligations | — | — | — | — | — | — | 5,468 | 5,543 | 2.04 | 301,922 | 308,847 | 2.00 | 307,390 | 314,390 | ||||||||||||||||||||||||||||||||||||||||||
| U.S. GSE commercial mortgage-backed securities | — | — | — | 5,979 | 6,017 | 2.31 | — | — | — | — | — | — | 5,979 | 6,017 | ||||||||||||||||||||||||||||||||||||||||||
| U.S. GSE commercial collateralized mortgage obligations | — | — | — | — | — | — | — | — | — | 48,716 | 49,965 | 2.31 | 48,716 | 49,965 | ||||||||||||||||||||||||||||||||||||||||||
| Other asset backed securities | — | — | — | — | — | — | — | — | — | 23,401 | 24,250 | 1.33 | 23,401 | 24,250 | ||||||||||||||||||||||||||||||||||||||||||
| Corporate bonds | — | — | — | — | — | — | 43,693 | 46,000 | 3.09 | — | — | — | 43,693 | 46,000 | ||||||||||||||||||||||||||||||||||||||||||
| Total available for sale | $ | 9,588 | $ | 9,600 | 1.75 | % | $ | 88,446 | $ | 89,694 | 1.88 | % | $ | 125,716 | $ | 128,909 | 2.63 | % | $ | 536,166 | $ | 547,700 | 2.03 | % | $ | 759,916 | $ | 775,903 | ||||||||||||||||||||||||||||
| Held to maturity: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| State and municipal obligations | $ | 3,766 | $ | 3,774 | 1.71 | % | $ | 17,610 | $ | 17,430 | 3.31 | % | $ | 38,599 | $ | 37,882 | 4.17 | % | $ | 1,695 | $ | 1,676 | 4.16 | % | $ | 61,670 | $ | 60,762 | ||||||||||||||||||||||||||||
| U.S. GSE residential mortgage-backed securities | — | — | — | — | — | — | 5,011 | 5,103 | 1.74 | 6,152 | 6,321 | 1.91 | 11,163 | 11,424 | ||||||||||||||||||||||||||||||||||||||||||
| U.S. GSE residential collateralized mortgage obligations | — | — | — | — | — | — | 6,769 | 6,795 | 2.00 | 47,059 | 47,455 | 2.56 | 53,828 | 54,250 | ||||||||||||||||||||||||||||||||||||||||||
| U.S. GSE commercial mortgage-backed securities | — | — | — | 9,373 | 9,311 | 2.59 | 4,916 | 5,022 | 2.26 | 8,303 | 8,620 | 3.00 | 22,592 | 22,953 | ||||||||||||||||||||||||||||||||||||||||||
| U.S. GSE commercial collateralized mortgage obligations | — | — | — | 3,851 | 4,030 | 1.68 | — | — | — | 26,781 | 27,447 | 2.68 | 30,632 | 31,477 | ||||||||||||||||||||||||||||||||||||||||||
| Total held to maturity | 3,766 | 3,774 | 1.71 | 30,834 | 30,771 | 2.88 | 55,295 | 54,802 | 3.50 | 89,990 | 91,519 | 2.62 | 179,885 | 180,866 | ||||||||||||||||||||||||||||||||||||||||||
| Total securities | $ | 13,354 | $ | 13,374 | 1.74 | % | $ | 119,280 | $ | 120,465 | 2.13 | % | $ | 181,011 | $ | 183,711 | 2.89 | % | $ | 626,156 | $ | 639,219 | 2.11 | % | $ | 939,801 | $ | 956,769 | ||||||||||||||||||||||||||||
Deposits and Borrowings
Borrowings, including federal funds purchased, FHLB advances, repurchase agreements, subordinated debentures and junior subordinated debentures, decreased $60.2 million to $630.9 million at December 31, 2017 from $691.1 million at December 31, 2016. Total deposits increased $408.5 million to $3.3 billion at December 31, 2017 compared to $2.9 billion at December 31, 2016. Individual, partnership and corporate (“core deposits”) account balances increased $384.1 million and public funds deposits increased $24.4 million. The growth in deposits is attributable to increases in savings, NOW and money market deposits of $205.5 million, or 13.1%, to $1.8 billion at December 31, 2017, an increase in demand deposits of $187.4 million, or 16.3%, to $1.3 billion at December 31, 2017, and an increase in certificates of deposit of $15.6 million, or 7.0%, to $222.4 million at December 31, 2017. Certificates of deposit of $100,000 or more increased $32.4 million, or 25.7%, from December 31, 2016 and other time deposits decreased $16.8 million, or 20.8%, as compared to December 31, 2016.
The following table sets forth the remaining maturities of the Bank’s time deposits at December 31, 2017:
| (In thousands) | Less than $100,000 | $100,000 or Greater | Total | |||||||||
| 3 months or less | $ | 10,344 | $ | 25,976 | $ | 36,320 | ||||||
| Over 3 through 6 months | 16,068 | 24,944 | 41,012 | |||||||||
| Over 6 through 12 months | 15,533 | 32,713 | 48,246 | |||||||||
| Over 12 months through 24 months | 14,361 | 23,504 | 37,865 | |||||||||
| Over 24 months through 36 months | 5,438 | 6,283 | 11,721 | |||||||||
| Over 36 months through 48 months | 1,128 | 41,775 | 42,903 | |||||||||
| Over 48 months through 60 months | 908 | 2,656 | 3,564 | |||||||||
| Over 60 months | — | 733 | 733 | |||||||||
| Total | $ | 63,780 | $ | 158,584 | $ | 222,364 | ||||||
LIQUIDITY
The objective of liquidity management is to ensure the sufficiency of funds available to respond to the needs of depositors and borrowers, and to take advantage of unanticipated opportunities for Company growth or earnings enhancement. Liquidity management addresses the ability of the Company to meet financial obligations that arise in the normal course of business. 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 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 $7.9 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, 2017,2022, the Bank’s repurchase agreements totaled $1.4 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 dividends 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 dividendsstrong performance in those arenas. The Bank’s deposit flows are affected primarily by the pricing and marketing of its deposit products compared to shareholdersits competitors, as well as the market performance of depositor investment alternatives such as the U.S. bond or equity markets. To the extent that the Bank is responsive to general market increases or declines in interest rates, its deposit flows should not be materially impacted. However, favorable performance of the Company is primarily derived from dividends paid by the Bank to the Company. During 2017, the Bank did not pay cash dividends to the Company. Prior regulatory approval is required if the total of all dividends declared by the Bank in any calendar year exceeds the total ofequity 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, 2018, the Bank had $48.2deposit flows.
Total deposits decreased $204.6 million of retained net income available for dividends to the Company. In the event that the 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 Company did not make capital contributions to the Bank during the year ended December 31, 2017.
2022 compared to an increase of $5.93 billion during the year ended December 31, 2021. The increase in total deposits during the 2021 period was primarily due to the acquisition of deposits in the Merger. Within deposits, core deposits (i.e., non-CDs) decreased $466.7 million during the year ended December 31, 2022 and increased $6.40 billion during the year ended December 31. 2021. CDs increased $262.1 million during the year ended December 31, 2022 compared to a decrease of $469.4 million during the year ended December 31, 2021. The increase in CDs during the current period was primarily due to a $294.1 million increase in brokered CDs.
The Bank’s most liquid assets are cash and cash equivalents, securities available for sale and securities held to maturity due within one year. The levels of these assets are dependent uponBank increased its outstanding FHLBNY advances by $1.11 billion during 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 outflows, 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. Atyear ended December 31, 2017,2022, compared to a $1.18 billion decrease during the Bank had aggregate lines of credit of $369.5 million with unaffiliated correspondent banks to provide short-term credit for liquidity requirements. Of these aggregate lines of credit, $349.5 million is available on an unsecured basis. As of December 31,
2017, the Bank had $50.0 million in 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 ofyear ended December 31, 2017, the Bank had $185.0 million outstanding in FHLB overnight borrowings and $316.4 million outstanding in FHLB term borrowings. As of December 31, 2016, the Bank had $175.0 million in FHLB overnight borrowings and $321.7 million outstanding in FHLB term borrowings. As of December 31, 2017, the Bank had securities sold under agreements to repurchase of $0.9 million outstanding with customers and nothing outstanding with brokers. As of December 31, 2016, the Bank had securities sold under agreements to repurchase of $0.7 million outstanding with customers and nothing outstanding with brokers. As of December 31, 2017, the Bank had $44.9 million outstanding in brokered certificates of deposit and $163.2 million outstanding in brokered money market accounts. As of December 31, 2016, the Bank had $58.6 million outstanding in brokered certificates of deposits and $177.0 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 Federal Reserve.
CONTRACTUAL OBLIGATIONS
In the ordinary course of operations, the Company enters into certain contractual obligations.
The following table presents contractual obligations outstanding at December 31, 2017:
| Total | Less than One Year | One to Three Years | Four to Five Years | Over Five Years | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Operating leases | $ | 47,322 | $ | 6,473 | $ | 11,698 | $ | 10,228 | $ | 18,923 | ||||||||||
| FHLB advances and repurchase agreements | 502,251 | 500,960 | 1,291 | — | — | |||||||||||||||
| Subordinated debentures | 80,000 | — | — | — | 80,000 | |||||||||||||||
| Time deposits | 222,364 | 125,578 | 49,586 | 46,467 | 733 | |||||||||||||||
| Total contractual obligations outstanding | $ | 851,937 | $ | 633,011 | $ | 62,575 | $ | 56,695 | $ | 99,656 | ||||||||||
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, 2017, the Company had $124.3 million in outstanding loan commitments and $576.7 million in outstanding commitments for various lines of credit including unused overdraft lines. The Company also had $26.9 million of standby letters of credit as of December 31, 2017.2021. See Note 17 of the Notes13. “Federal Home Loan Bank Advances” to the Consolidated Financial Statementsour consolidated financial statements for additional information on loan commitments and standby letters of credit.further information.
CAPITAL RESOURCES
Stockholders’ equity increased to $429.2Subordinated debentures totaled $200.3 million at December 31, 2017 from $408.02022 and $197.1 million at December 31, 2016 as a result2021. See Note 14. “Subordinated Debentures” to our consolidated financial statements for further information.
In the event that the Bank should require funds beyond its ability or desire to generate them internally, an additional source of undistributed net income;funds is available through its borrowing line at the sharesFHLBNY or borrowing capacity through AFX and lines of credit
39
with unaffiliated correspondent banks. At December 31, 2022, the Bank had an additional unused borrowing capacity of $1.57 billion through the FHLBNY, subject to customary minimum FHLBNY common stock issuedownership requirements (i.e., 4.5% of the Bank’s outstanding FHLBNY borrowings).
During the year ended December 31, 2022 and 2021, real estate loan originations totaled $2.67 billion and $1.67 billion, respectively. During the year ended December 31, 2022 and 2021, C&I loan originations totaled $160.1 million and $647.6 million, respectively. Included in the 2021 period was PPP loan originations of $579.9 million. The PPP program ended on May 31, 2021.
The Bank did not have proceeds from sales of securities available-for-sale during the year ended December 31, 2022. Proceeds from sales of available-for-sale securities totaled $138.1 million during the year ended December 31, 2021. Purchases of available-for-sale securities totaled $39.2 million and $1.10 billion during the years ended December 31, 2022 and 2021, respectively. Proceeds from pay downs and calls and maturities of available-for-sale securities were $165.1 million and $411.0 million for trust preferredthe years ended December 31, 2022 and 2021, respectively.
The Bank did not have proceeds from sales of held-to-maturity securities conversions;during the sharesyears ended December 31, 2022 and 2021. Purchases of common stock issued underheld-to-maturity securities totaled $63.2 million and $40.2 million during the DRP,year ended December 31, 2022 and the stock based compensation plan; partially offset by the declaration2021, respectively. Proceeds from pay downs and calls and maturities of dividends;held-to-maturity securities were $31.7 million and the net change in unrealized losses on available for sale securities, pension benefits, and cash flow hedges. The ratio of average stockholders’ equity to average total assets was 10.53%$1.4 million for the year ended December 31, 2017 compared2022 and 2021, respectively.
The Company and the Bank are subject to 9.38%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, 2022, 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 1,431,241 shares of its common stock during the year ended December 31, 2016.
2022. The Holding Company repurchased 1,755,061 shares of its common stock during the year ended December 31, 2021. As of December 31, 2022, up to 1,603,760 shares remained available for purchase under the authorized share repurchase programs. See "Part II - Item 5. Issuer Purchases of Equity Securities" for additional information about repurchases of common stock.
The Company’s capital strength is paralleled by 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” institution by the FDIC (see Note 18 of the Notes to the Consolidated Financial Statements). Since 2013, theHolding Company has actively managed its capital position in response to its growth. During this period, the Company has raised $260.2paid $7.3 million in capital through the following initiatives:
The Company has the ability to issue additional common stock and/or preferred stock should the need arise under a shelf registration statement filed in April 2016.
The Company had returns on average equity of 4.64% and 9.82%, and returns on average assets of 0.49% and 0.92%, forduring the years ended December 31, 20172022 and 2016,2021, respectively.
The Holding Company also utilizespaid $36.8 million and $39.4 million in cash dividends on its common stock during the years ended December 31, 2022 and stock repurchases2021, respectively.
Contractual Obligations
The Bank generally has outstanding at any time borrowings in the form of FHLBNY 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 manage capital levels. Inmake rental payments under leases on certain of its 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 or may expire prior to funding, in whole or in part, and amounts are not estimates of future cash flows. As of December 31, 2022, the Bank had $271.6 million of firm loan commitments that were accepted by the borrowers.
Additionally, in connection with a loan securitization transaction that was completed in 2017, the Company declared four quarterly cash dividends totaling $18.2 million compared to four quarterly cash dividends of $16.1 million in 2016. The dividend payout ratios for 2017 and 2016 were 88.80% and 45.48%, respectively. The Company continues its trend of uninterrupted dividends. On March 27, 2006,Bank executed a reimbursement agreement with FHLMC that obligates the Company approved its stock repurchase plan allowing the repurchase of up to 5% of its then current outstanding shares, 309,000 shares. There is no expiration datereimburse FHLMC for the share repurchase plan. The Company considers opportunities for stock repurchases carefully. The Company didany contractual principal and interest payments on defaulted loans, not repurchase any shares in 2017 and 2016.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and notes thereto presented herein have been prepared in accordance with U.S. generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary effect of inflation on the operationsexceed 10% of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually alloriginal principal amount 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 onloans comprising 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 the Company’s 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 the controlaggregate balance of the Company, including the influenceloan pool at securitization. The maximum exposure under this reimbursement obligation is $28.0 million. The Bank has pledged $28.0 million of domestic and foreign economic conditions and the monetary and fiscal policiespass-through MBS issued by GSEs as collateral.
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IMPACT OF PROSPECTIVE ACCOUNTING STANDARDS
Recently 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.
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, 2022, 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 the most significant market 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 the net income of the Company as a result of changes in interest rates.
The 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. The Company’s objectives in itsOur 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 itsour operations to changes in interest rates.
The Company’sOur 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, 2017, $823.2 million,2022, $1.31 billion, or 87.5%85.2%, of the Company’s available for saleour available-for-sale and held to maturityheld-to-maturity securities had fixed interest rates. At December 31, 2022, $7.70 billion, or 72.9%, of our loan portfolio had adjustable or floating interest rates. Changes in interest rates affect the value of the Company’s interest earninginterest-earning assets and, in particular, itsthe 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 earninginterest-earning assets, which could adversely affect the Company’s stockholders’ equity and itsthe results of operations if sold. The 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 originated by the Company and the average life of loans and securities, which can impact the yields earned on the Company’s loans and securities. In periods of decreasing interest rates, the average life of loans and securities held by the Company 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, the Company is subject to reinvestment risk to the extent that itmanagement 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.
Interest 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.
41
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 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 given quarter-end ("Pre-Shock Scenario"), and under 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 fluctuations 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 EVE 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 utilizesconsiders the resultsamount 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 detailedreputable third-party, and dynamic simulationover 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 quantifythe 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, 2022 and 2021, the estimated exposureEVE at both the Pre-Shock Scenario and the +100 Basis Point Rate and +200 Basis Point Rate Shock Scenarios.
| | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| ||||||||||||
|
| | |
| Dollar |
| Percentage |
| | |
| Dollar |
| Percentage |
| ||
(Dollars in thousands) | | EVE | | Change | | Change | | EVE | | Change | | Change |
| ||||
Rate Shock Scenarios | | |
| ||||||||||||||
+ 200 Basis Points | | $ | 1,717,562 | | $ | 78,373 | | 4.8% | | $ | 1,413,179 | | $ | 194,959 | | 16.0% | |
+ 100 Basis Points | | | 1,703,131 | | | 63,942 |
| 3.9% | | | 1,334,981 | | | 116,761 |
| 9.6% | |
Pre-Shock Scenario | |
| 1,639,189 | |
| — |
| — | |
| 1,218,220 | |
| — |
| — | |
The Company’s Pre-Shock Scenario EVE increased from $1.22 billion at December 31, 2021 to $1.64 billion at December 31, 2022. The primary factor contributing to the increase in EVE at December 31, 2022, was the increase in value of the Bank’s low-cost deposit base relative to the current rate environment. Throughout 2022, market interest rates utilized in the calculation of economic value increased materially across all yield curve points. However, the Bank continued to maintain a relatively low-cost funding base during this time even as market rates have risen measurably, resulting in additional economic value.
The Company’s EVE in the +100 Basis Point Rate and +200 Basis Point Rate Shock Scenarios increased from $1.33 billion and $1.41 billion, respectively, at December 31, 2021, to $1.70 billion and $1.72 billion, respectively, at December 31, 2022.
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 sustained interest rate changes. Management routinely monitors simulated net interest income sensitivity over a rolling two-year horizon. The simulation model. This model capturesestimates the impact of changing interest rates on the interest income received and the interest expense paid on all assets and liabilities reflected on the Company’s 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 over a one-year horizon given a 100 and 200 basis point upward shift in interest rates and a 100 basis point downward shift in interest rates. A parallel and pro-rata shift in rates over a twelve-month period is assumed.
In addition to the above scenarios, the Company considers 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. This could happen if the Federal Open Market Committee began to raise short-term interest rates without there being a corresponding rise in long-term rates. This would have the effect of raising short-term borrowing costs without allowing longer term assets to reprice higher.
The following reflectschanges on the Company’s net interest income sensitivity analysis at December 31, 2017:
| Change in Interest | Potential Change in Future Net Interest Income | |||||||||||||||
| Rates in Basis Points | Year 1 | Year 2 | ||||||||||||||
| (Dollars in thousands) | $ Change | % Change | $ Change | % Change | ||||||||||||
| 200 | $ | (4,548 | ) | (3.45 | )% | $ | 3,217 | 2.44 | % | |||||||
| 100 | $ | (2,262 | ) | (1.71 | )% | $ | 2,937 | 2.23 | % | |||||||
| Static | — | — | — | — | ||||||||||||
| (100) | $ | 918 | 0.70 | % | $ | 1,090 | 0.83 | % | ||||||||
As notedDirectors on a quarterly basis. The following table discloses the estimated changes to the Company’s net interest income in the table above, a 200 basis point increasevarious time periods assuming gradual changes in interest rates is projectedover a 12-month period beginning December 31, 2022, for the given rate scenarios:
| | | | |
| | Percentage Change in Net Interest Income | ||
Gradual Change in Interest rates of: | | Year-One | | Year-Two |
+ 200 Basis Points | | (1.9)% | | 1.4% |
+ 100 Basis Points | | (0.9)% | | 1.2% |
- 100 Basis Points | | 0.0% | | (3.4)% |
Management also examines the potential impact to decrease net interest income by 3.45 percent 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 2.44 percent in year 2. The Company’s balance sheet sensitivity to such a move in interest rates atDecember 31, 2017 decreased as compared toDecember 31, 2016(which was a decrease of 6.52 percent in net interest income over a twelve-month period). This decrease isvarious time periods associated with the result of a higher proportion of the Company’s assets repricing to market rates, coupled with a large increase in demand deposits and the Company’s ability to hold the costs of interest bearing deposits to below market rates. Overall, the strategy for the Bank remains focused on reducing its exposure to rising rates. Over the intervening year, the effective duration (a measure of price sensitivity to interest rates) of the bond portfolio decreased from 3.73 at December 31, 2016 to 3.23 at December 31, 2017. Additionally, the Bank has increased its use of swaps to extend liabilities. The Company believes that its strong core funding profile also provides protection from rising rates due to the ability of the Bank to lag increases in the rates paid to on these accounts to market rates.
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, the Company 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 | | (2.2)% | | 3.4% |
+ 100 Basis Points | | (0.9)% | | 2.3% |
- 100 Basis Points | | (1.2)% | | (4.9)% |
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 BALANCE SHEETS
STATEMENTS OF FINANCIAL CONDITION
(InDollars in thousands except share and per share amounts)
| December 31, 2017 | December 31, 2016 | |||||||
| ASSETS | ||||||||
| Cash and due from banks | $ | 76,614 | $ | 102,280 | ||||
| Interest earning deposits with banks | 18,133 | 11,558 | ||||||
| Total cash and cash equivalents | 94,747 | 113,838 | ||||||
| Securities available for sale, at fair value | 759,916 | 819,722 | ||||||
| Securities held to maturity (fair value of $179,885 and $222,878, respectively) | 180,866 | 223,237 | ||||||
| Total securities | 940,782 | 1,042,959 | ||||||
| Securities, restricted | 35,349 | 34,743 | ||||||
| Loans held for investment | 3,102,752 | 2,600,440 | ||||||
| Allowance for loan losses | (31,707 | ) | (25,904 | ) | ||||
| Loans, net | 3,071,045 | 2,574,536 | ||||||
| Premises and equipment, net | 33,505 | 35,263 | ||||||
| Accrued interest receivable | 11,652 | 10,233 | ||||||
| Goodwill | 105,950 | 105,950 | ||||||
| Other intangible assets | 5,214 | 5,824 | ||||||
| Prepaid pension | 9,936 | 7,070 | ||||||
| Bank owned life insurance | 87,493 | 85,243 | ||||||
| Other assets | 34,329 | 38,911 | ||||||
| Total Assets | $ | 4,430,002 | $ | 4,054,570 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Demand deposits | $ | 1,338,701 | $ | 1,151,268 | ||||
| Savings, NOW and money market deposits | 1,773,478 | 1,568,009 | ||||||
| Certificates of deposit of $100,000 or more | 158,584 | 126,198 | ||||||
| Other time deposits | 63,780 | 80,534 | ||||||
| Total deposits | 3,334,543 | 2,926,009 | ||||||
| Federal funds purchased | 50,000 | 100,000 | ||||||
| Federal Home Loan Bank advances | 501,374 | 496,684 | ||||||
| Repurchase agreements | 877 | 674 | ||||||
| Subordinated debentures, net | 78,641 | 78,502 | ||||||
| Junior subordinated debentures, net | - | 15,244 | ||||||
| Other liabilities and accrued expenses | 35,367 | 29,470 | ||||||
| Total Liabilities | 4,000,802 | 3,646,583 | ||||||
| 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; 19,719,575 and 19,106,246 shares issued, respectively; and 19,709,360 and 19,100,389 shares outstanding, respectively) | 197 | 191 | ||||||
| Surplus | 347,691 | 329,427 | ||||||
| Retained earnings | 96,547 | 91,594 | ||||||
| Treasury stock at cost, 10,215 and 5,857 shares, respectively | (296 | ) | (161 | ) | ||||
| 444,139 | 421,051 | |||||||
| Accumulated other comprehensive loss, net of income taxes | (14,939 | ) | (13,064 | ) | ||||
| Total Stockholders’ Equity | 429,200 | 407,987 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 4,430,002 | $ | 4,054,570 | ||||
| | | | | | |
| | December 31, | ||||
|
| 2022 |
| 2021 | ||
Assets: |
| |
|
| |
|
Cash and due from banks | | $ | 169,297 | | $ | 393,722 |
Securities available-for-sale, at fair value | | | 950,587 | | | 1,563,711 |
Securities held-to-maturity | | | 585,798 | | | 179,309 |
Loans held for sale | |
| — | |
| 5,493 |
Loans held for investment, net of fees and costs | | | 10,566,831 | | | 9,244,661 |
Allowance for credit losses | |
| (83,507) | |
| (83,853) |
Total loans held for investment, net | |
| 10,483,324 | |
| 9,160,808 |
Premises and fixed assets, net | |
| 46,749 | |
| 50,368 |
Premises held for sale | | | — | | | 556 |
Restricted stock | |
| 88,745 | |
| 37,732 |
Bank Owned Life Insurance ("BOLI") | |
| 333,292 | |
| 295,789 |
Goodwill | |
| 155,797 | |
| 155,797 |
Other intangible assets | | | 6,484 | | | 8,362 |
Operating lease assets | |
| 57,857 | |
| 64,258 |
Derivative assets | | | 154,485 | | | 45,086 |
Accrued interest receivable | | | 48,561 | | | 40,149 |
Other assets | |
| 108,945 | |
| 65,224 |
Total assets | | $ | 13,189,921 | | $ | 12,066,364 |
| | | | | | |
Liabilities: | |
|
| |
|
|
Interest-bearing deposits | | $ | 6,735,189 | | $ | 6,538,551 |
Non-interest-bearing deposits | |
| 3,519,218 | |
| 3,920,423 |
Total deposits | |
| 10,254,407 | |
| 10,458,974 |
Federal Home Loan Bank of New York ("FHLBNY") advances | |
| 1,131,000 | |
| 25,000 |
Other short-term borrowings | | | 1,360 | | | 1,862 |
Subordinated debt, net | |
| 200,283 | |
| 197,096 |
Derivative cash collateral | | | 153,040 | | | 4,550 |
Operating lease liabilities | |
| 60,340 | |
| 66,103 |
Derivative liabilities | | | 137,335 | | | 40,728 |
Other liabilities | |
| 82,573 | |
| 79,431 |
Total liabilities | |
| 12,020,338 | |
| 10,873,744 |
| |
|
| |
|
|
Commitments and contingencies | |
|
| |
|
|
| | | | | | |
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, 2022 and December 31, 2021) | |
| 116,569 | |
| 116,569 |
Common stock ($0.01 par, 80,000,000 shares authorized, 41,621,772 shares and 41,610,939 shares issued at December 31, 2022 and December 31, 2021, respectively, and 38,573,000 shares and 39,877,833 shares outstanding at December 31, 2022 and December 31, 2021, respectively) | |
| 416 | |
| 416 |
Additional paid-in capital | |
| 495,410 | |
| 494,125 |
Retained earnings | |
| 762,762 | |
| 654,726 |
Accumulated other comprehensive loss, net of deferred taxes | |
| (94,379) | |
| (6,181) |
Unearned equity awards | |
| (8,078) | |
| (7,842) |
Treasury stock, at cost (3,048,772 shares and 1,733,106 shares at December 31, 2022 and December 31, 2021, respectively) | |
| (103,117) | |
| (59,193) |
Total stockholders' equity | |
| 1,169,583 | |
| 1,192,620 |
Total liabilities and stockholders' equity | | $ | 13,189,921 | | $ | 12,066,364 |
See accompanying notes to Consolidated Financial Statements.consolidated financial statements.
44
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(InDollars in thousands except per share amounts)
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Interest income: | ||||||||||||
| Loans (including fee income) | $ | 126,420 | $ | 116,723 | $ | 88,760 | ||||||
| Mortgage-backed securities, CMOs and other asset-backed securities | 15,231 | 13,483 | 11,173 | |||||||||
| U.S. GSE securities | 1,198 | 1,294 | 1,630 | |||||||||
| State and municipal obligations | 3,788 | 3,777 | 3,198 | |||||||||
| Corporate bonds | 1,233 | 1,124 | 840 | |||||||||
| Deposits with banks | 278 | 147 | 47 | |||||||||
| Other interest and dividend income | 1,701 | 1,168 | 592 | |||||||||
| Total interest income | 149,849 | 137,716 | 106,240 | |||||||||
| Interest expense: | ||||||||||||
| Savings, NOW and money market deposits | 7,858 | 5,250 | 4,002 | |||||||||
| Certificates of deposit of $100,000 or more | 1,843 | 932 | 929 | |||||||||
| Other time deposits | 725 | 684 | 673 | |||||||||
| Federal funds purchased and repurchase agreements | 1,571 | 1,075 | 474 | |||||||||
| Federal Home Loan Bank advances | 6,105 | 3,001 | 1,425 | |||||||||
| Subordinated debentures | 4,539 | 4,539 | 1,261 | |||||||||
| Junior subordinated debentures | 48 | 1,364 | 1,365 | |||||||||
| Total interest expense | 22,689 | 16,845 | 10,129 | |||||||||
| Net interest income | 127,160 | 120,871 | 96,111 | |||||||||
| Provision for loan losses | 14,050 | 5,550 | 4,000 | |||||||||
| Net interest income after provision for loan losses | 113,110 | 115,321 | 92,111 | |||||||||
| Non-interest income: | ||||||||||||
| Service charges and other fees | 8,996 | 8,407 | 7,054 | |||||||||
| Net securities gains (losses) | 38 | 449 | (8 | ) | ||||||||
| Title fee income | 2,394 | 1,833 | 1,866 | |||||||||
| Gain on sale of Small Business Administration loans | 1,689 | 1,097 | 507 | |||||||||
| BOLI income | 2,250 | 1,929 | 1,225 | |||||||||
| Other operating income | 2,735 | 2,331 | 2,024 | |||||||||
| Total non-interest income | 18,102 | 16,046 | 12,668 | |||||||||
| Non-interest expense: | ||||||||||||
| Salaries and employee benefits | 45,766 | 40,913 | 33,871 | |||||||||
| Occupancy and equipment | 13,998 | 12,798 | 11,045 | |||||||||
| Technology and communications | 5,753 | 4,897 | 3,599 | |||||||||
| Marketing and advertising | 4,742 | 4,048 | 3,125 | |||||||||
| Professional services | 3,153 | 3,646 | 2,327 | |||||||||
| FDIC assessments | 1,310 | 1,635 | 1,593 | |||||||||
| Acquisition costs and branch restructuring | 8,020 | (920 | ) | 9,766 | ||||||||
| Amortization of other intangible assets | 1,047 | 2,637 | 1,447 | |||||||||
| Other operating expenses | 7,938 | 7,427 | 6,117 | |||||||||
| Total non-interest expense | 91,727 | 77,081 | 72,890 | |||||||||
| Income before income taxes | 39,485 | 54,286 | 31,889 | |||||||||
| Income tax expense | 18,946 | 18,795 | 10,778 | |||||||||
| Net income | $ | 20,539 | $ | 35,491 | $ | 21,111 | ||||||
| Basic earnings per share | $ | 1.04 | $ | 2.01 | $ | 1.43 | ||||||
| Diluted earnings per share | $ | 1.04 | $ | 2.00 | $ | 1.43 | ||||||
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Interest income: |
| |
|
| |
|
| |
|
Loans | | $ | 406,601 | | $ | 359,016 | | $ | 216,566 |
Securities | | | 29,224 | | | 22,634 | | | 14,159 |
Other short-term investments | |
| 3,400 | |
| 2,976 | |
| 3,282 |
Total interest income | |
| 439,225 | |
| 384,626 | |
| 234,007 |
Interest expense: | |
|
| |
|
| |
|
|
Deposits and escrow | |
| 38,433 | |
| 16,527 | |
| 33,038 |
Borrowed funds | |
| 19,117 | |
| 10,490 | |
| 23,265 |
Derivative cash collateral | | | 1,812 | | | — | | | — |
Total interest expense | |
| 59,362 | |
| 27,017 | |
| 56,303 |
Net interest income | |
| 379,863 | |
| 357,609 | |
| 177,704 |
Provision for credit losses | |
| 5,374 | |
| 6,212 | |
| 26,165 |
Net interest income after provision for credit losses | |
| 374,489 | |
| 351,397 | |
| 151,539 |
| | | | | | | | | |
Non-interest income: | |
|
| |
|
| |
|
|
Service charges and other fees | |
| 16,206 | |
| 15,998 | |
| 5,571 |
Title fees | | | 2,031 | | | 2,338 | | | — |
Loan level derivative income | | | 3,637 | | | 2,909 | | | 8,872 |
BOLI income | | | 10,346 | | | 7,071 | | | 4,859 |
Gain on sale of Small Business Administration ("SBA") loans | | | 1,797 | | | 23,033 | | | 1,118 |
Gain on sale of residential loans | | | 448 | | | 1,758 | | | 1,884 |
Net gain on equity securities | | | — | | | 131 | | | 361 |
Net gain on sale of securities and other assets | | | 1,397 | | | 1,705 | | | 4,592 |
Loss on termination of derivatives | | | — | | | (16,505) | | | (6,596) |
Other | |
| 2,294 | |
| 3,630 | |
| 612 |
Total non-interest income | |
| 38,156 | |
| 42,068 | |
| 21,273 |
Non-interest expense: | |
|
| |
|
| |
|
|
Salaries and employee benefits | |
| 120,108 | |
| 108,331 | |
| 60,756 |
Severance | | | 2,198 | | | 1,875 | | | 4,000 |
Occupancy and equipment | |
| 30,220 | |
| 30,697 | |
| 16,177 |
Data processing costs | |
| 15,175 | |
| 16,638 | |
| 8,329 |
Marketing | |
| 5,900 | |
| 4,661 | |
| 1,458 |
Professional services | | | 8,069 | | | 9,284 | | | 3,394 |
Federal deposit insurance premiums | |
| 3,900 | |
| 4,077 | |
| 2,257 |
Loss from extinguishment of debt for FHLB advances and subordinated debt | | | 740 | | | 1,751 | | | 1,104 |
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 | | | 1,878 | | | 2,622 | | | — |
Other | |
| 12,542 | |
| 13,937 | |
| 6,748 |
Total non-interest expense | |
| 200,730 | |
| 245,299 | |
| 117,828 |
Income before income taxes | |
| 211,915 | |
| 148,166 | |
| 54,984 |
Income tax expense | |
| 59,359 | |
| 44,170 | |
| 12,666 |
Net income | | | 152,556 | | | 103,996 | | | 42,318 |
Preferred stock dividends | | | 7,286 | | | 7,286 | | | 4,783 |
Net income available to common stockholders | | $ | 145,270 | | $ | 96,710 | | $ | 37,535 |
Earnings per common share: | |
|
| |
|
| |
|
|
Basic | | $ | 3.73 | | $ | 2.45 | | $ | 1.74 |
Diluted | | $ | 3.73 | | $ | 2.45 | | $ | 1.74 |
See accompanying notes to Consolidated Financial Statements.consolidated financial statements.
45
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(InDollars in thousands) except per share amounts)
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Net income | | $ | 152,556 | | $ | 103,996 | | $ | 42,318 |
Other comprehensive income (loss): | |
|
| |
|
| |
|
|
Change in unrealized gain (loss) on securities: | | | | | | | | | |
Change in net unrealized gain (loss) during the period | |
| (138,630) | |
| (28,865) | |
| 16,432 |
Reclassification adjustment for net gains included in net gain on sale of securities and other assets | | | — | | | (1,207) | | | (4,592) |
Accretion of net unrealized loss on securities transferred to held-to-maturity | | | 2,953 | | | — | | | — |
Change in pension and other postretirement obligations: | | | | | | | | | |
Reclassification adjustment for expense included in other expense | |
| (3,715) | |
| (1,092) | |
| (1,272) |
Reclassification adjustment for curtailment loss | | | — | | | 1,543 | | | (1,651) |
Change in the net actuarial gain | | | (2,062) | | | 6,563 | | | 2,817 |
Change in unrealized gain (loss) on derivatives: | | | | | | | | | |
Change in net unrealized gain (loss) during the period | |
| 14,412 | |
| 5,277 | |
| (24,449) |
Reclassification adjustment for loss included in loss on termination of derivatives | | | — | | | 16,505 | | | 6,596 |
Reclassification adjustment for expense included in interest expense | | | (1,621) | | | 940 | | | 6,127 |
Other comprehensive (loss) income before income taxes | |
| (128,663) | |
| (336) | |
| 8 |
Deferred tax benefit | |
| (40,465) | |
| (79) | |
| (8) |
Total other comprehensive (loss) income, net of tax | |
| (88,198) | |
| (257) | |
| 16 |
Total comprehensive income | | $ | 64,358 | | $ | 103,739 | | $ | 42,334 |
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Net income | $ | 20,539 | $ | 35,491 | $ | 21,111 | ||||||
| Other comprehensive income (loss): | ||||||||||||
| Change in unrealized net losses on securities available for sale, net of reclassifications and deferred income taxes | (505 | ) | (4,082 | ) | (1,434 | ) | ||||||
| Adjustment to pension liability, net of reclassifications and deferred income taxes | 193 | (630 | ) | 380 | ||||||||
| Unrealized gains (losses) on cash flow hedges, net of reclassifications and deferred income taxes | 1,089 | 1,270 | (201 | ) | ||||||||
| Total other comprehensive income (loss) | 777 | (3,442 | ) | (1,255 | ) | |||||||
| Comprehensive income | $ | 21,316 | $ | 32,049 | $ | 19,856 | ||||||
See accompanying notes to Consolidated Financial Statements.consolidated financial statements.
46
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(InDollars in thousands except share and per share amounts)data)
| Common Stock | Surplus | Retained Earnings | Treasury Stock | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||||
| Balance at December 31, 2014 | $ | 117 | $ | 118,846 | $ | 64,547 | $ | (25 | ) | $ | (8,367 | ) | $ | 175,118 | ||||||||||
| Net income | 21,111 | 21,111 | ||||||||||||||||||||||
| Shares issued under the dividend reinvestment plan (“DRP”) | 779 | 779 | ||||||||||||||||||||||
| Shares issued in the acquisition of CNB net of offering costs (5,647,268 shares) | 56 | 157,143 | 157,199 | |||||||||||||||||||||
| Stock awards granted and distributed | 1 | (263 | ) | 262 | — | |||||||||||||||||||
| Stock awards forfeited | 125 | (125 | ) | — | ||||||||||||||||||||
| Repurchase of surrendered stock from vesting of restricted stock awards | (228 | ) | (228 | ) | ||||||||||||||||||||
| Exercise of stock options | (36 | ) | 116 | 80 | ||||||||||||||||||||
| Tax effect of stock plans | 50 | 50 | ||||||||||||||||||||||
| Share based compensation expense | 1,689 | 1,689 | ||||||||||||||||||||||
| Cash dividend declared, $0.92 per share | (13,415 | ) | (13,415 | ) | ||||||||||||||||||||
| Other comprehensive loss, net of deferred income taxes | (1,255 | ) | (1,255 | ) | ||||||||||||||||||||
| Balance at December 31, 2015 | $ | 174 | $ | 278,333 | $ | 72,243 | $ | — | $ | (9,622 | ) | $ | 341,128 | |||||||||||
| Net income | 35,491 | 35,491 | ||||||||||||||||||||||
| Shares issued under the DRP | 921 | 921 | ||||||||||||||||||||||
| Shares issued in common stock offering, net of offering costs (1,613,000 shares) | 16 | 47,505 | 47,521 | |||||||||||||||||||||
| Shares issued for trust preferred securities conversions (10,344 shares) | 292 | 292 | ||||||||||||||||||||||
| Stock awards granted and distributed | 1 | (205 | ) | 204 | - | |||||||||||||||||||
| Stock awards forfeited | 173 | (173 | ) | - | ||||||||||||||||||||
| Repurchase of surrendered stock from vesting of restricted stock awards | (344 | ) | (344 | ) | ||||||||||||||||||||
| Exercise of stock options | (90 | ) | 152 | 62 | ||||||||||||||||||||
| Impact of modification of convertible trust preferred securities | 356 | 356 | ||||||||||||||||||||||
| Share based compensation expense | 2,142 | 2,142 | ||||||||||||||||||||||
| Cash dividend declared, $0.92 per share | (16,140 | ) | (16,140 | ) | ||||||||||||||||||||
| Other comprehensive loss, net of deferred income taxes | (3,442 | ) | (3,442 | ) | ||||||||||||||||||||
| Balance at December 31, 2016 | $ | 191 | $ | 329,427 | $ | 91,594 | $ | (161 | ) | $ | (13,064 | ) | $ | 407,987 | ||||||||||
| Net income | 20,539 | 20,539 | ||||||||||||||||||||||
| Shares issued under the DRP | 951 | 951 | ||||||||||||||||||||||
| Shares issued for trust preferred securities conversions (529,292 shares) | 5 | 14,944 | 14,949 | |||||||||||||||||||||
| Stock awards granted and distributed | 1 | (434 | ) | 433 | - | |||||||||||||||||||
| Stock awards forfeited | 218 | (218 | ) | - | ||||||||||||||||||||
| Repurchase of surrendered stock from vesting of restricted stock awards | (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 | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Accumulated | | | | | Common Stock | | | | | | | ||
| | | | | | | | | | | | | | | | Other | | | | | Held by | | | | | | | ||
| | | | | | | | | | | | | | | | Comprehensive | | | | | Benefit | | | | | | | ||
| | Number of | | | | | | | | Additional | | | | | Loss, | | Unearned | | Maintenance | | Treasury | | Total | ||||||
| | Shares of | | Preferred | | Common | | Paid-in | | Retained | | Net of Deferred | | Equity | | Plan | | Stock, | | Stockholders’ | |||||||||
|
| Common Stock |
| Stock |
| Stock |
| Capital |
| Earnings |
| Taxes |
| Awards |
| ("BMP") |
| at cost |
| Equity | |||||||||
Beginning balance as of January 1, 2020 | | 22,780,208 | | $ | — | | $ | 348 | | $ | 279,511 | | $ | 581,817 | | $ | (5,940) | | $ | (6,731) | | $ | (1,496) | | $ | (250,751) | | $ | 596,758 |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Net income |
| — | |
| — | |
| — | |
| — | |
| 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) |
Purchase of treasury 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) |
Purchase of treasury 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 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income |
| — | | | — | | | — | | | — | | | 152,556 | | | — | | | — | | | — | | | — | | | 152,556 |
Other comprehensive loss, net of tax |
| — | | | — | | | — | | | — | | | — | | | (88,198) | | | — | | | — | | | — | | | (88,198) |
Release of shares, net of forfeitures |
| 171,838 | |
| — | |
| — | |
| 1,287 | |
| — | |
| — | |
| (4,514) | |
| — | |
| 4,394 | |
| 1,167 |
Stock-based compensation |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 4,278 | |
| — | |
| — | |
| 4,278 |
Shares received related to tax withholding | | (45,430) | | | — | | | — | | | (2) | | | — | | | — | | | — | | | — | | | (1,556) | | | (1,558) |
Cash dividends declared to preferred stockholders | | — | |
| — | |
| — | |
| — | |
| (7,286) | |
| — | |
| — | |
| — | |
| — | |
| (7,286) |
Cash dividends declared to common stockholders | | — | | | — | | | — | | | — | | | (37,234) | | | — | | | — | | | — | | | — | | | (37,234) |
Purchase of treasury stock | | (1,431,241) | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| — | |
| (46,762) | |
| (46,762) |
Ending balance as of December 31, 2022 | | 38,573,000 | | $ | 116,569 | | $ | 416 | | $ | 495,410 | | $ | 762,762 | | $ | (94,379) | | $ | (8,078) | | $ | — | | $ | (103,117) | | $ | 1,169,583 |
See accompanying notes to Consolidated Financial Statements.consolidated financial statements.
47
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)Dollars in thousands)
| Year Ended December 31, | ||||||||||||
| 2017 | 2016 | 2015 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 20,539 | $ | 35,491 | $ | 21,111 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Provision for loan losses | 14,050 | 5,550 | 4,000 | |||||||||
| Depreciation and (accretion) | (4,109 | ) | (6,746 | ) | (3,789 | ) | ||||||
| Net amortization on securities | 6,361 | 6,501 | 4,936 | |||||||||
| Increase in cash surrender value of bank owned life insurance | (2,250 | ) | (1,929 | ) | (1,225 | ) | ||||||
| Amortization of intangible assets | 1,047 | 2,637 | 1,447 | |||||||||
| Share based compensation expense | 2,585 | 2,142 | 1,689 | |||||||||
| Net securities (gains) losses | (38 | ) | (449 | ) | 8 | |||||||
| Increase in accrued interest receivable | (1,419 | ) | (963 | ) | (267 | ) | ||||||
| Small Business Administration (“SBA”) loans originated for sale | (18,596 | ) | (11,944 | ) | (5,043 | ) | ||||||
| Proceeds from sale of the guaranteed portion of SBA loans | 20,667 | 13,286 | 5,659 | |||||||||
| Gain on sale of the guaranteed portion of SBA loans | (1,689 | ) | (1,097 | ) | (507 | ) | ||||||
| Loss (gain) on sale of loans | 58 | (98 | ) | (477 | ) | |||||||
| Decrease (increase) in other assets | 5,426 | 8,331 | (6,815 | ) | ||||||||
| Increase (decrease) in accrued expenses and other liabilities | 4,194 | (6,476 | ) | 10,799 | ||||||||
| Net cash provided by operating activities | 46,826 | 44,236 | 31,526 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Purchases of securities available for sale | (116,956 | ) | (462,702 | ) | (330,646 | ) | ||||||
| Purchases of securities, restricted | (654,017 | ) | (537,930 | ) | (318,887 | ) | ||||||
| Purchases of securities held to maturity | (4,128 | ) | (46,495 | ) | (21,650 | ) | ||||||
| Proceeds from sales of securities available for sale | 52,367 | 264,358 | 75,750 | |||||||||
| Redemption of securities, restricted | 653,411 | 527,975 | 308,808 | |||||||||
| Maturities, calls and principal payments of securities available for sale | 118,092 | 167,045 | 113,217 | |||||||||
| Maturities, calls and principal payments of securities held to maturity | 45,334 | 30,460 | 34,897 | |||||||||
| Net increase in loans | (526,989 | ) | (206,380 | ) | (354,375 | ) | ||||||
| Proceeds from loan sale | 23,171 | 18,116 | 21,011 | |||||||||
| Proceeds from sales of other real estate owned (“OREO”), net | — | 278 | — | |||||||||
| Purchase of bank owned life insurance | — | (30,000 | ) | — | ||||||||
| Purchase of premises and equipment | (2,069 | ) | (4,270 | ) | (4,325 | ) | ||||||
| Net cash acquired in business combination | — | — | 24,628 | |||||||||
| Net cash used in investing activities | (411,784 | ) | (279,545 | ) | (451,572 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Net increase in deposits | 408,597 | 83,120 | 223,872 | |||||||||
| Net (decrease) increase in federal funds purchased | (50,000 | ) | (20,000 | ) | 45,000 | |||||||
| Net increase in Federal Home Loan Bank advances | 5,056 | 199,666 | 124,087 | |||||||||
| Repayment of junior subordinated debentures | (352 | ) | — | — | ||||||||
| Net increase (decrease) in repurchase agreements | 203 | (50,217 | ) | 14,628 | ||||||||
| Net proceeds from issuance of subordinated debentures | — | — | 78,324 | |||||||||
| Net proceeds from issuance of common stock | 951 | 48,442 | 779 | |||||||||
| Net proceeds from exercise of stock options | — | 62 | 80 | |||||||||
| Repurchase of surrendered stock from vesting of restricted stock awards | (350 | ) | (344 | ) | (228 | ) | ||||||
| Excess tax benefit from share based compensation | — | — | 50 | |||||||||
| Cash dividends paid | (18,238 | ) | (16,140 | ) | (13,415 | ) | ||||||
| Other, net | — | — | (303 | ) | ||||||||
| Net cash provided by financing activities | 345,867 | 244,589 | 472,874 | |||||||||
| Net (decrease) increase in cash and cash equivalents | (19,091 | ) | 9,280 | 52,828 | ||||||||
| Cash and cash equivalents at beginning of period | 113,838 | 104,558 | 51,730 | |||||||||
| Cash and cash equivalents at end of period | $ | 94,747 | $ | 113,838 | $ | 104,558 | ||||||
| Supplemental Information-Cash Flows: | ||||||||||||
| Cash paid for: | ||||||||||||
| Interest | $ | 22,917 | $ | 16,640 | $ | 8,793 | ||||||
| Income tax | $ | 8,445 | $ | 21,585 | $ | 8,744 | ||||||
| Noncash investing and financing activities: | ||||||||||||
| Conversion of junior subordinated debentures | $ | 15,350 | $ | — | $ | — | ||||||
| Transfers from portfolio loans to OREO | $ | — | $ | — | $ | 250 | ||||||
| Acquisition of noncash assets and liabilities: | ||||||||||||
| Fair value of assets acquired | $ | — | $ | — | $ | 875,302 | ||||||
| Fair value of liabilities assumed | $ | — | $ | — | $ | 831,422 | ||||||
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: | | |
| | |
| | |
|
Net income | | $ | 152,556 | | $ | 103,996 | | $ | 42,318 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
|
| |
|
| |
|
|
Net gain on sales of securities available-for-sale and other assets | |
| (1,397) | |
| (1,705) | |
| (4,592) |
Net gain on equity securities | |
| — | |
| (131) | |
| (361) |
Net gain on sale of loans held for sale | |
| (2,245) | |
| (24,791) | |
| (3,002) |
Loss on termination of derivatives | | | — | | | 16,505 | | | 6,596 |
Net depreciation, amortization and accretion | |
| 8,314 | |
| 7,805 | |
| 5,069 |
Amortization of other intangible assets | | | 1,878 | | | 2,622 | | | — |
Loss on extinguishment of debt | | | 740 | | | 1,751 | | | 1,104 |
Stock-based compensation | |
| 4,278 | |
| 5,407 | |
| 7,223 |
Provision for credit losses | |
| 5,374 | |
| 6,212 | |
| 26,165 |
Originations of loans held for sale | |
| (20,709) | |
| (48,610) | |
| (50,359) |
Proceeds from sale of loans originated for sale | |
| 46,474 | |
| 77,184 | |
| 62,383 |
Increase in cash surrender value of BOLI | |
| (8,190) | |
| (6,721) | |
| (3,725) |
Gain from death benefits from BOLI | | | (2,156) | | | (350) | | | (1,134) |
(Increase) decrease in other assets | |
| (35,170) | |
| 125,486 | |
| (16,175) |
Increase (decrease) in other liabilities | |
| 145,425 | |
| (118,333) | |
| (11,578) |
Net cash provided by operating activities | |
| 295,172 | |
| 146,327 | |
| 59,932 |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
|
| |
|
| |
|
|
Proceeds from sales of securities available-for-sale | |
| — | |
| 138,077 | |
| 94,252 |
Proceeds from sales of marketable equity securities | |
| — | |
| 6,101 | |
| 546 |
Purchases of securities available-for-sale | |
| (39,232) | |
| (1,095,028) | |
| (219,621) |
Purchases of securities held-to-maturity | | | (63,210) | | | (40,249) | | | — |
Acquisition of marketable equity securities | | | — | | | — | | | (261) |
Proceeds from calls and principal repayments of securities available-for-sale | |
| 165,097 | |
| 411,031 | |
| 153,119 |
Proceeds from calls and principal repayments of securities held-to-maturity | | | 31,736 | | | 1,360 | | | — |
Purchase of BOLI | |
| (30,000) | |
| (40,000) | |
| (40,000) |
Proceeds received from cash surrender value of BOLI | | | 2,843 | | | 1,464 | | | 3,020 |
Loans purchased | |
| — | |
| (9,855) | |
| (29,892) |
Proceeds from the sale of portfolio loans transferred to held for sale | |
| 13,201 | |
| 684,898 | |
| 47,830 |
Net (increase) decrease in loans | |
| (1,359,782) | |
| 282,683 | |
| (327,736) |
(Purchases) sales of fixed assets, net | |
| (3,745) | |
| 14 | |
| (954) |
Proceeds from the sale of fixed assets and premises held for sale | | | 1,914 | | | — | | | — |
(Purchases) redemptions of restricted stock, net | |
| (51,013) | |
| 46,337 | |
| (4,688) |
Net cash received in business combination | | | — | | | 715,988 | | | — |
Net cash (used in) provided by investing activities | |
| (1,332,191) | |
| 1,102,821 | |
| (324,385) |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
|
| |
|
| |
|
|
(Decrease) increase in deposits | |
| (204,233) | |
| 518,682 | |
| 176,027 |
Proceeds (repayments) from FHLBNY advances, short-term, net | |
| 1,070,000 | |
| (1,228,865) | |
| 127,500 |
Repayments of FHLBNY advances, long-term | | | — | | | (190,150) | | | (113,190) |
Proceeds from FHLBNY advances, long-term | | | 36,000 | | | 25,000 | | | 97,450 |
(Repayments) proceeds of other short-term borrowings, net | |
| (502) | |
| (118,138) | |
| 10,000 |
Proceeds from subordinated debentures issuance, net | | | 157,559 | | | — | | | — |
Redemption of subordinated debentures | | | (155,000) | | | — | | | — |
Proceeds from preferred stock issuance, net | | | — | | | — | | | 116,569 |
Proceeds from exercise of stock options | |
| — | |
| 431 | |
| 38 |
Release of stock for benefit plan awards | |
| 1,167 | |
| 1,153 | |
| 84 |
Payments related to tax withholding for equity awards | |
| (1,558) | |
| (111) | |
| (3,060) |
BMP Employee Stock Ownership Plan shares received to satisfy distribution of retirement benefits | |
| — | |
| (993) | |
| — |
Purchase of treasury stock | |
| (46,762) | |
| (59,280) | |
| (35,356) |
Redemption of REIT preferred stock | |
| — | |
| (121) | |
| — |
Cash dividends paid to preferred stockholders | | | (7,286) | | | (7,286) | | | (4,783) |
Cash dividends paid to common stockholders | |
| (36,791) | |
| (39,351) | |
| (18,711) |
Net cash provided by (used in) financing activities | |
| 812,594 | |
| (1,099,029) | |
| 352,568 |
(Decrease) increase in cash and cash equivalents | |
| (224,425) | |
| 150,119 | |
| 88,115 |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | |
| 393,722 | |
| 243,603 | |
| 155,488 |
CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | 169,297 | |
| 393,722 | |
| 243,603 |
| |
|
| |
|
| |
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
|
| |
|
| |
|
|
Cash paid for income taxes | | $ | 43,518 | |
| 34,771 | |
| 15,755 |
Cash paid for interest | |
| 54,910 | |
| 28,460 | |
| 59,138 |
Securities available-for-sale transferred to held-to-maturity | | | 372,154 | | | 140,399 | | | — |
Loans transferred to held for sale | |
| 34,997 | |
| 692,751 | |
| 62,243 |
Loans transferred to held for investment | | | 4,051 | | | — | | | — |
Premises transferred to (from) held for sale | | | — | | | 2,799 | | | (514) |
Operating lease assets in exchange for operating lease liabilities | | | 5,098 | | | 9,769 | | | 1,524 |
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 | |
| — |
See accompanying notes to Consolidated Financial Statements.
48
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
(Dollars In Thousands except for share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation
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 “Company”“Merger”), with Bridge as the surviving corporation under the name “Dime Community Bancshares, Inc.” (the “Holding Company”). At the effective time of the Merger (the “Effective Time”), each outstanding share of Legacy Dime common stock, par value $0.01 per share, was converted into the right to receive 0.6480 shares of the Holding Company’s common stock, par value $0.01 per share.
At the Effective Time, each outstanding share of Legacy Dime’s Series A preferred stock, par value $0.01 (the “Dime Preferred Stock”), was converted into the right to receive one share of a newly created series of the Holding Company’s preferred stock having the same powers, preferences and rights as the Dime Preferred Stock.
Immediately following the Merger, Dime Community Bank, a New York-chartered commercial bank and a wholly-owned subsidiary of Legacy Dime, merged with and into BNB Bank, a New York-chartered trust company and a wholly-owned subsidiary of Bridge, with BNB Bank as the surviving bank, under the name “Dime Community Bank” (the “Bank”).
The 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 were recorded at their estimated fair values and added to those of Legacy Dime. See Note 2. Merger for further information.
As of December 31, 2022, we operated 59 branch locations throughout Long Island and New York City boroughs of Brooklyn, Queens, Manhattan and the Bronx.
The Company is a bank holding company engaged in commercial banking and financial services through its wholly-owned subsidiary, Dime Community Bank. 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.York in 1988 to serve as the holding company for the Bank. The Company’s business currently consistsCompany functions primarily as the holder of all of the operations of its wholly-owned subsidiary, BNB Bank (the “Bank”). The Bank’s common stock. Our bank operations include itsDime 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 Dime Abstract LLC (“Dime Abstract”), a financialwholly-owned subsidiary of the Bank, which is a broker of title insurance subsidiary, Bridge Abstract LLC (“Bridge Abstract”);services. In September 2021, the Company dissolved two REITs, DSBW Preferred Funding Corporation andan investment services subsidiary, Bridge Financial Services, Inc. (“Bridge Financial Services”). In addition to DSBW Residential Preferred Funding Corporation, which were wholly-owned subsidiaries of the Bank, and the Company had another subsidiary, Bridge Statutory Capital Trust II (“the Trust”), which was formed in 2009 and sold $16.0 million of 8.5% cumulative convertible trust preferred securities (“TPS”) in a private placement to accredited investors. In accordance with accounting guidance, the Trust was not consolidated in the Company’s financial statements. The TPSshares outstanding were redeemed effective January 18, 2017 and the Trust was cancelled effective April 24, 2017.
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. 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.consolidated financial statements.
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Use of Estimates
a) Basis of Financial Statement Presentation
The accompanying Consolidated Financial Statements are prepared on the accrual basis of accounting and include the accounts of the Company and its wholly-owned subsidiary, the Bank. All material intercompany transactions and balances have been eliminated.
The preparation ofTo prepare consolidated financial statements in conformity with U.S. GAAP, requires management to makemakes judgments, estimates and assumptions thatbased on available information. These estimates and assumptions affect the amounts reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as ofin the date of each consolidated balance sheetfinancial statements and the related consolidated statementdisclosures provided, and actual results could differ.
Risks and Uncertainties
In March 2020, the World Health Organization declared the outbreak of income forCOVID-19 as a global pandemic, which has spread to most countries, including the years then ended. Such estimates are subjectUnited 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 changethe COVID-19 pandemic. The outbreak of COVID-19 has materially, adversely impacted labor supply, supply chains, and certain industries in which our customers and vendors operate, and could continue to materially impair their ability to fulfill their obligations to us. Further additional outbreaks of COVID-19 variants could lead to economic recession and other severe disruptions in the future as additional information becomes available or previously existing circumstances are modified. Actual future resultsU.S. economy, may disrupt banking and other financial activity in the areas in which we operate, and could differpotentially create widespread business continuity issues for us. Future government actions in response to the COVID-19 pandemic, including vaccination mandates, may also affect our workforce, human capital resources, and infrastructure.
The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020. The CARES Act was intended to provide relief and lessen a severe economic downturn. The stimulus package included direct financial aid to American families and economic stimulus to significantly from those estimates.impacted industry sectors. The package also included extensive emergency funding for hospitals and healthcare providers. Subsequently, the 2021 Consolidated Appropriations Act was enacted to provide supplemental 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, derivative counterparty risk, changes in consumer behavior, and supply chain interruptions.
Summary of Significant Accounting Policies
b) Cash and Cash Equivalents -
For purposes of reporting cash flows, cashCash and cash equivalents include cash on hand, amounts due from banks, interest earningand deposits with banks, and federal funds sold, which mature overnight. Cashother financial institutions with maturities fewer than 90 days. Net cash flows are reported net for customer loan and deposit transactions, federal funds purchased, Federal Home Loan Bank (“FHLB”) advances, and repurchase agreements.
interest bearing deposits in other financial institutions.
c) Securities
- Debt and equity securities are classified in one ofas held-to-maturity and carried at amortized cost when management has the following categories: (i) “held to maturity” (management has a positive intent and ability to hold them to maturity), whichmaturity. Debt securities are reported at amortized cost, (ii) “available for sale” (all other debt and marketable equity securities), whichclassified as available-for-sale when they might be sold before maturity. Securities available-for-sale are reportedcarried at fair value, with unrealized holding gains and losses reported net of taxes, as accumulatedin 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 separate componentsimilar investment.
Interest income includes amortization of stockholders’ equity, and (iii) “restricted” which represents FHLB, FRB and bankers’ banks stock which are reported at cost.
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 accretedreport 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, 2022 and 2021, and there was no accrued interest related to debt securities reversed against interest income overfor the estimated life of the respective securities using the interest method.year ended December 31, 2022 and 2021. Gains and losses on sales are recorded on the sales of securities are recognized upon realization based ontrade date and determined using the specific identification method. Declines in the fair value of securities below their cost that are other-than-temporary are reflected as realized losses. In determining other-than-temporary impairment (“OTTI”), management considers many factors including: (1) the length of time and extent to which the fair value has been less than cost, (2) the financial condition and near term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the Company has the intent to sell the security or more likely than not will be required to sell the security before 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 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. 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.
d)Restricted Stock – Restricted stock represents Federal Home Loan Bank Stock
of New York (“FHLB” or “FHLBNY”) capital stock, Federal Reserve Bank (“FRB”) capital stock, and 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 carried at cost and classified as a restricted
security, and 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.
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e) Loans, Loan Interest Income Recognition and Loans Held for Sale - Loans originated 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 net realizable proceeds. Loans originated and intended for sale are generally sold with servicing rights retained. Certain loans in which the borrower does not adhere to all of the terms and conditions of the legal contract were best resolved through the sale of the asset rather than through litigation through our workout department. These loans were reclassified.
Loans - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are statedreported 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 adjustmentadjustments 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 the consolidated balance sheet. Past due status is based on the contractual terms of the loan. Loans that are 90 days past due are automatically placed on nonaccrualnon-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 nonaccrualnon-accrual or is a troubled debt restructuring loan is nonaccrual,(“TDR”), 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 or 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 nonaccrual 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. Generally, the Bank measures impairment of such loans by reference to the fair value of the collateral less costs to sell. Loans that experience minor payment delays and payment shortfall generally are not classified as impaired.
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. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of expected future cash flows using the loan’s effective interest rate or at the fair value of collateral less costs to sell if repayment is expected solely from the collateral. 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 loans.
For purchased credit impaired 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 nonaccretable discount. The nonaccretable 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 nonaccretable 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.
Purchased credit impaired loans that were nonaccrual 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 nonaccrual or nonperforming and may accrue interest on these loans, including the impact of any accretable discount.
Loans held for sale are carried at the lower of aggregate cost or estimated fair value. Any subsequent declines in fair value below the initial carrying value are recorded as a valuation allowance, which is established through a charge to earnings.
Unless otherwise noted, the above policy is applied consistently to all loan classes.segments.
f) Allowance for LoanCredit Losses
- On January 1, 2021, the Company 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 credit 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 ininherent within the Bank’s loan portfolio.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. The Bank 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.
Allowance 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, Agency Collateralized Mortgage Obligations, Agency Notes and Corporate Securities. The majority of the securities in the held-to-maturity portfolio are issued 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 the held-to-maturity portfolio share common risk characteristics, 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 any 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 in an unrealized loss position 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 allowance.underlying assets include default rates, delinquency rates, percentage of non-performing assets, debt-to-collateral ratios, third party guarantees,
51
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 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.
Individual valuation allowancesThe 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 establishedalso certain SBA loans in connection with specificwhich the loan reviewsis 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
52
property. The credit quality of this portfolio is largely dependent on economic factors, such as unemployment rates and commercial real estate prices.
Commercial, Industrial and Agricultural Loans - Loans in this classification consist of lines of credit, revolving lines of credit, and term loans, generally to businesses or high net worth individuals. The owners of these businesses typically provide recourse such that they guarantee the debt. The lines of credit are generally secured by the assets of the business, though they may at times be issued on an unsecured basis. Generally speaking, they are subject to renewal on an annual basis based upon review of the borrower’s financial statements. Term loans are generally secured by either specific or general asset liens of the borrower’s business. These loans are granted based upon the strength of the cash generation ability of the borrower. Included in Commercial and Industrial (“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 Company 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”) No. 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 $10.52 billion and $57.1 million at December 31, 2022, 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 collateral if any,repayment or satisfaction of a loan is dependent on the presentsale (rather than only on the operation) of the collateral.
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Individually evaluated loans and the associated allowance for credit losses totaled $47.6 million and $26.4 million at December 31, 2022, respectively.
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. 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 judgments by management,an estimate of expected credit losses on commitments expected to be funded over its estimated life, which is the same as the expected loss factor as determined based on the corresponding portfolio segment.
For further discussion of our loan accounting and acquisitions, see Note 2 – Merger and Note 5 – Loans.
Derivatives – The Company may engage in conjunctiontwo types of derivatives depending on the Company’s intentions and belief as to the likely effectiveness as a hedge. These two types are (1) a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”) or (2) an instrument with outside sources,no hedging designation (“freestanding derivatives”). For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects 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 same as the cash flows of the items being hedged.
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 liabilities on the balance sheet. The Company also formally assesses, both at the hedge’s inception and on an on-going basis, whether the derivative instruments that are used are highly effective in offsetting changes in 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 cash flows of the hedged item, 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 are still expected to determine whether full collectability ofoccur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transaction will affect earnings.
The Company is exposed to losses if a loancounterparty fails to make its payments under a contract in which the Company is not reasonably assured. These assumptions and judgments are also usedin the net receiving position. The Company anticipates that the counterparties will be able to determinefully satisfy their obligations under the estimatesagreements. 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 from each counterparty based upon their credit standing and the underlying collateral orCompany has netting agreements with the present value of expected future cash flows or the loan’s observable market value. Individual valuation allowances could differ materiallydealers with which it does business.
Other Real Estate Owned (‘OREO”) - Properties acquired as a result of changes in these assumptions and judgments. Individual loan analyses are periodically performedforeclosure on specific loans considered impaired. The results of the individual valuation allowances are aggregated and included in 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 problem assets. Pool evaluations are broken down into loans with homogenous characteristics by loan type and include commerciala 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 considersloan or a variety of factors in determining the adequacy 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 the credit’s risk rating, 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 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 may 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 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.
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 segments.
g) Premises and Equipment
Buildings, furniture and fixtures, and equipment are carried at cost less accumulated depreciation. Buildings and related components are depreciated using the straight-line method using 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 amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter. Land is recorded at cost.
Improvements and major repairs are capitalized, while the cost of ordinary maintenance, repairs and minor improvements are charged to expense.
h) 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.
i) Other Real Estate Owned
Real estate properties acquired through, ordeed 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
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less estimated costs to sell. If fair value declinesDeclines in the recorded balance subsequent to foreclosure, a valuation allowance isacquisition by the Company are recorded through expense. Operating costs after acquisition are chargedexpensed.
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 expense as incurred.
fifty years. Furniture, fixtures and equipment are depreciated using the straight-line method with useful lives generally ranging from three to ten years.
j) Leases - On January 1, 2019, the Company adopted ASC 2016-02 "Leases (ASC 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. 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. Disclosures about the Company’s leasing activities are presented in Note 8.
The Company made a policy election to exclude the recognition requirements of ASC 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 has selected November 30 asperforms its annual goodwill impairment test in the date to performfourth quarter of every year, or more frequently if events or changes in circumstance indicate the annual impairment test. Goodwill and theBNB Bank trademark are intangible assets with indefinite lives on the Company’s balance sheet.
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. Non-compete intangible assets arising from whole bank acquisitions were fully amortized as of December 31, 2016.
Other intangible assets also include servicing rights, which result from the sale of Small Business Administration (“SBA”Servicing Right Assets ("SRA") – When real estate or C&I loans are sold with servicing rights retained. Servicingretained, servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. FairSRAs 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 based on market prices for comparable servicing contracts, when available or alternatively, is based on a valuation model that calculatesdetermined by calculating the present value of estimated future net servicing income. Servicingcash 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 subsequently measured usingstratified based on predominant risk characteristics of the amortization method, which requiresunderlying 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 amortized intosurrendered when the assets have been legally isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or
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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 proportion to,the consolidated statements of income and over the period of, the estimated future net servicing income of the underlying loans. Servicing assets totaled $1.2 million at December 31, 2017 and $975 thousand at December 31, 2016.
k) 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.
l) Derivatives
The Company records cash flow hedges at the inception of the derivative contract based on the Company’s intentions and belief as to likely effectiveness as a hedge. Cash flow hedges represent a hedge of a forecasted transaction or the variability of cash flows to beinsurance proceeds received or paid related to a recognized asset or liability. 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 noninterest 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 noninterest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.
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. The Company also formally assesses, both at the hedge’s inception and on an ongoing 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 noninterest income. When a cash flow hedge is discontinued butreduction of 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 transactions will affect earnings.
contract value.
m) Income Taxes
The Company follows– Income tax expense is the assettotal of the current year income tax due or refundable and liability approach, which requires the recognition ofchange in deferred tax assets and liabilities. Deferred tax assets and liabilities forare the expected future tax consequences ofamounts for the temporary differences between the carrying amounts and the tax bases of assets and liabilities, computed using enacted tax rates. DeferredA valuation allowance, if needed, reduces deferred tax assets are recognized if it isto the amount deemed more likely than not that a future benefit willto 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.
In accordance with FASB ASU 740, Accounting for Uncertainty in Income Taxes, aA 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, 2017 and 2016.
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 no unrecognized tax positions at December 31, 20172022 or 2021.
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 2016.(ii) the BNB Bank Pension Plan, covering all eligible employees. As the sponsor of a 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 the difference between plan assets at fair value (with limited exceptions) and the benefit obligation. For a pension plan, the benefit obligation is the projected 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 of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit or cost. Amounts recognized in accumulated other comprehensive income, including the gains or losses, prior service costs or credits, and the transition asset or obligation are adjusted as they are subsequently recognized as components of net periodic benefit cost; (3) measure defined benefit plan assets and obligations as of the date 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”) and Outside Director Retirement Plan, 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.
n) Treasury
The Holding Company and Bank maintain the Dime Community Bancshares, Inc. 2021 Equity Incentive Plan (the “2021 Equity Incentive Plan”), the Dime Community Bancshares, Inc. 2019 Equity Incentive Plan, (the “2019 Equity Incentive Plan”), and the 2012 Stock-Based Compensation Plan (the “2012 Equity Incentive Plan”), (collectively the “Stock Plans”); which are discussed more fully in Note 20 Stock-Based Compensation. Under the Stock
Repurchases Plans, compensation cost is recognized for stock options and restricted stock awards issued to employees based on the fair value of the awards at the date of 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 are recorded(“Common Stock”) at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as treasury stock at cost. Treasury stockthe vesting period. For awards with graded vesting, compensation cost is reissued usingrecognized on a straight-line basis over the first in, first out method.
requisite service period for the entire award.
o) Earnings Per ShareBasic and Diluted EPS -
EarningsBasic earnings per share (“EPS”) is calculated in accordance with FASB ASC 260-10, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”. This ASC addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing EPS. Basic earnings per common share is computed by dividing net income attributableavailable to common shareholdersstockholders by the weighted average number of common shares outstanding during the reporting period. Diluted EPS whichis computed using the same method as basic EPS, but reflects the potential dilution that couldwould occur if outstanding"in the money" stock options were exercised and if junior subordinated debentures were converted into common shares, is computed by dividing net income attributablestock, and prior to common shareholders including assumed conversions by2021, if all likely aggregate Long Term Incentive Plan ("LTIP") performance-based share awards (“PSA”) were issued. In determining the weighted average number of common shares and common equivalent shares outstanding duringfor basic and diluted EPS, treasury shares are excluded. Vested restricted stock award ("RSA") shares are included in the period.
p) Dividends
Cash available for distribution of dividends to stockholderscalculation of the Company is primarily derived from cashweighted average shares outstanding for basic and cash equivalentsdiluted 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 Companyweighted average shares outstanding for basic and dividends paid by the Bank to the Company. Prior regulatory approval is required if the total of all dividends declared by the Bank in any calendar year exceeds 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, 2018 are limited to $48.2 million, which represents the Bank’s net retained earnings from the previous two years. During 2017, the Bank did not pay dividends to the Company.diluted EPS.
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q) 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.
r) Stock Based Compensation Plans
Stock based compensation awards are recorded in accordance with FASB ASC No. 718, “Accounting for Stock-Based Compensation” which requires companies to record compensation cost for stock options, restricted stock awards and restricted stock units granted to employees in return for employee service. The cost is measured at the fair value of the options and awards when granted, and this cost is expensed over the employee service period, which is normally the vesting period of the options and awards.
s) Comprehensive Income
– Comprehensive income includesconsists of net income and all other changes in equity during a period, except those resulting from investments by owners and distributions to owners.comprehensive income (loss). Other comprehensive income includes revenues, expenses,unrealized gains and losses that under generally accepted accounting principles are included in comprehensive income but excluded from net income. Other comprehensive income and accumulated other comprehensive income are reported net of deferred income taxes. Accumulated other comprehensive income for the Company includes unrealized holding gains or losses on available for saleavailable-for-sale securities, unrealized gains orand losses on cash flow hedges, and changes in the funded status of the pension plan. FASB ASC 715-30 “Compensation – Retirement Benefits – Defined Benefit Plans – Pension” requires employersplan, which are also recognized as separate components of equity. Comprehensive and accumulated comprehensive income are summarized in Note 3.
Disclosures about Segments of an Enterprise and Related Information - The Company has one 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 recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial positionfund itself with retail deposits and other borrowings and to recognize changes inmanage interest rate and credit risk. Accordingly, all significant operating decisions are based upon analysis of the Company as one operating segment or unit.
For the years ended December 31, 2022, 2021 and 2020, there was no customer that funded status inaccounted for more than 10% of the year the changes occur through comprehensive income.Company's consolidated revenue.
t) Reclassifications – There have been no material reclassifications to prior year amounts to conform to their current presentation.
Adoption of New Accounting Standards and Newly Issued Not Yet Effective Accounting
Standards Adopted in 2021
The following are new accounting standards that are likely to be broadly applicable to financial institutions.
Accounting Standards Update (“ASU”) 2014-09,Revenue from Contracts with Customers (Topic 606)
In May 2014, the FASB amended existing guidance related to revenue from contracts with customers. This amendment supersedes and replaces nearly all existing revenue recognition guidance, establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time, provides new and more detailed guidance on specific topics and expands and improves disclosures about revenue. In addition, the amendment specifies the accounting for some costs to obtain or fulfill a contract with a customer. These amendments are effective for public business entities for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that period. The amendments allow for one of two transition methods: full retrospective or modified retrospective. The full retrospective approach requires application to all periods presented. The modified retrospective transition requires application to uncompleted contracts at the date of adoption. Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect is recognized at the date of initial application on uncompleted contracts. While the guidance in ASU 2014-09 supersedes most existing industry-specific revenue recognition accounting guidance, much of a bank’s revenue comes from financial instruments such as debt securities and loans, which are scoped-out of the guidance. Most of the Company’s revenue comes from financial instruments, i.e. loans and securities, which are not within the scope of ASU 2014-09. The Company determined its service charges on deposit accounts and fees for other customer services within non-interest income are in scope of the amended guidance. As a result of the Company’s assessment of revenue recognition, it has determined the recognition, measurement and presentation of services charges on deposit accounts and fees for other customer services will not change. The Company has not identified any material differences in the amount and timing of revenue recognition for these revenue streams that are within the scope of ASU 2014-09. The Company adopted the guidance in the first quarter of 2018, using the modified retrospective method of adoption. The Company’s adoption did not have a material impact on its consolidated financial statements.
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. Certain targeted improvements were made to align, where necessary, the lessor accounting model and Topic 606,Revenue from Contracts with Customers. ASU 2016-02 is effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees
and lessors may not apply a full retrospective transition approach. The Company is currently evaluating the impact of ASU 2016-02 on the consolidated financial statements. Based on leases outstanding at December 31, 2017, the Company does not expect the updates to have a material impact on the income statement, but does anticipate the adoption of ASU 2016-02 will result in an increase in the Company’s consolidated balance sheet as a result of recognizing right-of-use assets and lease liabilities.
ASU 2016-13,Financial Instruments – Credit Losses (Topic 326)
In June 2016, FASB issued guidance to replaceThe Company adopted ASU No. 2016-13 on January 1, 2021 using the incurred loss model with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses onmodified retrospective method for all financial assets measured at amortized cost including loan receivables, held-to maturity debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accountedexposures. ASU 2016-13 was effective for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. For public business entities that meet the definition of an SEC filer, like the Company as of January 1, 2020. Under Section 4014 of the standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All entities may early adopt for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company plansCARES Act, financial institutions required to adopt ASU 2016-13 in the first quarter of 2020 using the required modified retrospective method with a cumulative effect adjustment as of January 1, 2020 were provided an option to delay the beginningadoption of the reporting period.CECL Standard framework. The Company has created a cross-functional committee responsibleelected to defer adoption of the CECL Standard until January 1, 2021. The CECL Standard requires that the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current conditions, and reasonable and supportable forecasts. This standard requires financial institutions and other organizations to use forward-looking information to better inform their credit loss estimates. Results for reporting periods beginning after January 1, 2021 are presented under the CECL Standard while prior period amounts will continue to be reported in accordance with previously applicable GAAP.
The adoption of the CECL Standard resulted in an initial decrease of $3.9 million to the allowance for credit losses and an increase of $1.4 million to the reserve for unfunded commitments in other liabilities. The after-tax cumulative-effect adjustment of $1.7 million was recorded in retained earnings as of January 1, 2021. There were no held-to-maturity securities as of January 1, 2021 and, therefore, no impact from the adoption of the CECL Standard.
Standards That Have Not Yet Been Adopted
ASU 2020-04, Reference Rate Reform (Topic 848)
ASU 2020-04 provides optional expedients and exceptions for applying 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 effective March 12, 2020 through December 31, 2022. Once optional expedients are elected, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic within the Codification. We are evaluating the impact of adopting ASU 2016-13, assessing data2020-04 and system needs, and implementing required changes to loss estimation methods underexpect the CECL model. The Company cannot yet determine the overall impact this guidanceLIBOR transition will not have a material effect on the Company’sCompany's consolidated financial statements.
ASU 2017-04, Intangibles – Goodwill2021-01, 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 Other (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. 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. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The amendments shouldgenerally can 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 and in the interim period within the first annual period when the entity initially adopts the amendments.through December 31, 2022. The adoption of ASU 2017-042021-01 is not expected to have a material effect on the Company’s operating results orCompany's consolidated financial condition.statements.
ASU 2017-07,Compensation - Retirement Benefits2022-01, Derivatives and Hedging (Topic 715)815): ImprovingFair Value Hedging-Portfolio Layer Method
57
ASU 2022-01 clarifies the Presentationaccounting for and promotes consistency in the reporting of Net Periodic Pension Costhedge basis adjustments applicable to both a single hedged layer and Net Periodic Postretirement Benefit Cost
In March 2017, the FASB amended existing guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost.multiple layers. The amendments requirein ASU 2022-01 apply to all entities that an employer reportelect to apply the service cost componentportfolio layer method of hedge accounting in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit costs are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The line item used in the income statement to present the other components of net benefit cost must be disclosed. Additionally, only the service cost component of net benefit cost is eligible for capitalization, if applicable.accordance with Topic 815. For public business entities, like the Company, ASU 2017-07 was2022-01 is effective for annual periodsfiscal years beginning after December 15, 2017, including2022, and interim periods within those periods. Early adoption is permittedfiscal years. If an entity adopts ASU 2022-01 in an interim period, the effect of adopting the amendments related to basis adjustments should be reflected as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. The amendments should be applied retrospectively for the presentationfiscal year of adoption (that is, the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the income statement. The amendments allow a practical expedient that permits an employer to use the amounts disclosed in its pension and postretirement benefit plan note for the prior comparative periods as the estimation basis for applying the retrospective presentation requirements. The amendment requires disclosure that the practical expedient was used. The components of net benefit cost are disclosed in Note 14 to the consolidated financial statements. The Company adopted the guidance in the first quarter of 2018. The Company will present its other components of net benefit expense outside of Salaries and employee benefits in the Other operating expenses income statement lineinitial application date).The change in presentation will not change the Company’s operating results or financial condition.
ASU 2017-09,Compensation – Stock Compensation (Topic 718) – Scope of Modification Accounting
In May 2017, the FASB provided guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The current disclosure requirements in Topic 718 apply regardless of whether an entity is required to apply modification accounting under the amendments in ASU 2017-09. The amendments in ASU 2017-09 are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for reporting periods for which financial statements have not yet been issued. The amendments should be applied prospectively to an award modified on or after the adoption date. The adoption of ASU 2017-092022-01 is not expected to have a material effect on the Company’s operating results orCompany's consolidated financial condition.statements.
ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
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 Update better align an entity’s risk management activities and financial reporting for hedging relationships through changes in both the designation2022-02 eliminates troubled debt restructuring (“TDR”) recognition and measurement guidance for qualifying hedging relationships and, instead, requires that an entity evaluate whether the presentationmodification represents a new loan or a continuation of hedge results. Thean existing loan. ASU 2022-02 enhances existing disclosure requirements and introduces new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. For entities that have adopted the amendments expand and refine hedge accounting for both nonfinancial and financial risk components and alignof ASU 2016-13, the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The amendments in this UpdateASU 2022-02 are effective for fiscal years beginning after December 15, 2018, and2022, including interim periods within those fiscal years, with early adoption, including adoption in an interim period, permitted.years. This ASU 2017-12 requires ais effective for the Company on January 1, 2023. The Company plans to adopt ASU 2022-02 on its effective date using the modified retrospective transition method in which the Company will recognize the cumulative effectmethod. The adoption of the change on the opening balance of each affected component of equity in the consolidated balance sheet as of the date of adoption. While the Company continues to assess all potential impacts of the standard, ASU 2017-122022-02 is not expected to have a material impacteffect on the Company’sCompany's consolidated financial statements.
2. MERGER
ASU 2018-02,Income Statement-Reporting Comprehensive Income(Topic 220):ReclassificationAs described in Note 1. Summary of Certain Tax Effects from Accumulated Other Comprehensive IncomeSignificant 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.
At the Effective Time, each outstanding share of Legacy Dime’s Series A preferred stock, par value $0.01 was converted into one 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 February 2018,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 amended existing guidanceASC 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 allowissue 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 |
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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 |
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 reclassificationsubsequent 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.
59
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 was amortized over a life of 13 months.
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3. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Activity in accumulated other comprehensive income (loss), net of tax, was as follows:
| | | | | | | | | | | | |
|
| | |
| | |
| | |
| Total | |
| | | | | | | | | | | Accumulated | |
| | Securities | | Defined | | | | | Other | |||
| | Available- | | Benefit | | | | | Comprehensive | |||
|
| for-Sale |
| Plans |
| Derivatives |
| Loss | ||||
Balance as of January 1, 2021 | | $ | 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) |
Other comprehensive (loss) income before reclassifications | |
| (95,030) | |
| (1,413) | |
| 9,879 | |
| (86,564) |
Amounts reclassified from accumulated other comprehensive loss | |
| 2,024 | |
| (2,547) | |
| (1,111) | |
| (1,634) |
Net other comprehensive (loss) income during the period | |
| (93,006) | |
| (3,960) | |
| 8,768 | |
| (88,198) |
Balance as of December 31, 2022 | | $ | (100,870) | | $ | (5,266) | | $ | 11,757 | | $ | (94,379) |
The before and after tax amounts allocated to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“Tax Act”). Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulnesseach component of information reported to financial statement users. However, because the amendments only relate to the reclassification of the income tax effects of the Tax Act, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operations is not affected. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early adoption, including adoption in an interim period, permitted. The Company adopted ASU 2018-02 at the beginning of the fourth quarter 2017 and reclassified $2.7 million from accumulated other comprehensive income (loss) are presented in the table below for the periods indicated.
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) | | 2022 |
| 2021 |
| 2020 | |||
Change in unrealized gain (loss) on securities: | |
|
| |
|
| |
|
|
Change in net unrealized gain (loss) during the period | | $ | (138,630) | | $ | (28,865) | | $ | 16,432 |
Reclassification adjustment for net gains included in net gain on sale of securities and other assets | |
| — | |
| (1,207) | |
| (4,592) |
Accretion of net unrealized loss on securities transferred to held-to-maturity | | | 2,953 | | | — | | | — |
Net change | |
| (135,677) | |
| (30,072) | |
| 11,840 |
Tax benefit | |
| (42,671) | |
| (9,514) | |
| 3,767 |
Net change in unrealized gain (loss) on securities, net of reclassification adjustments and tax | |
| (93,006) | |
| (20,558) | |
| 8,073 |
Change in pension and other postretirement obligations: | |
|
| |
|
| |
|
|
Reclassification adjustment for expense included in other expense | |
| (3,715) | |
| (1,092) | |
| (1,272) |
Reclassification adjustment for curtailment loss | | | — | | | 1,543 | | | (1,651) |
Change in the net actuarial gain | |
| (2,062) | |
| 6,563 | |
| 2,817 |
Net change | |
| (5,777) | |
| 7,014 | |
| (106) |
Tax expense | |
| (1,817) | |
| 2,234 | |
| (44) |
Net change in pension and other postretirement obligations | |
| (3,960) | |
| 4,780 | |
| (62) |
Change in unrealized gain (loss) on derivatives: | |
|
| |
|
| |
|
|
Change in net unrealized gain (loss) during the period | |
| 14,412 | |
| 5,277 | |
| (24,449) |
Reclassification adjustment for loss included in loss on termination of derivatives | | | — | | | 16,505 | | | 6,596 |
Reclassification adjustment for expense included in interest expense | |
| (1,621) | |
| 940 | |
| 6,127 |
Net change | |
| 12,791 | |
| 22,722 | |
| (11,726) |
Tax expense | |
| 4,023 | |
| 7,201 | |
| (3,731) |
Net change in unrealized gain (loss) on derivatives, net of reclassification adjustments and tax | |
| 8,768 | |
| 15,521 | |
| (7,995) |
Other comprehensive (loss) income, net of tax | | $ | (88,198) | | $ | (257) | | $ | 16 |
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4. SECURITIES
The following tables summarize the major categories of securities as of the dates indicated:
| | | | | | | | | | | | |
| | December 31, 2022 | ||||||||||
| | | | | Gross | | Gross | | | | ||
| | Amortized | | Unrealized | | Unrealized | | Fair | ||||
(In thousands) |
| Cost |
| Gains |
| Losses |
| Value | ||||
Securities available-for-sale: |
| |
|
| |
|
| |
|
| |
|
Treasury securities | | $ | 246,899 | | $ | — | | $ | (19,643) | | $ | 227,256 |
Corporate securities | |
| 183,791 | |
| 57 | |
| (17,075) | |
| 166,773 |
Pass-through mortgage-backed securities ("MBS") issued by government sponsored entities ("GSEs") | |
| 272,774 | |
| — | |
| (31,534) | |
| 241,240 |
Agency collateralized mortgage obligations ("CMOs") | |
| 331,394 | |
| 2 | |
| (50,057) | |
| 281,339 |
State and municipal obligations | | | 37,000 | | | — | | | (3,021) | | | 33,979 |
Total securities available-for-sale | | $ | 1,071,858 | | $ | 59 | | $ | (121,330) | | $ | 950,587 |
| | | | | | | | | | | | |
| | December 31, 2022 | ||||||||||
| | | | | Gross | | Gross | | | | ||
| | Amortized | | Unrecognized | | Unrecognized | | Fair | ||||
(In thousands) |
| Cost |
| Gains |
| Losses |
| Value | ||||
Securities held-to-maturity: |
| |
|
| |
|
| |
|
| |
|
Agency notes | | $ | 89,157 | | $ | — | | $ | (14,095) | | $ | 75,062 |
Corporate securities | | | 9,000 | | | — | | | (553) | | | 8,447 |
Pass-through MBS issued by GSEs | | | 278,281 | | | — | | | (40,960) | | | 237,321 |
Agency CMOs | |
| 209,360 | |
| — | |
| (24,431) | |
| 184,929 |
Total securities held-to-maturity | | $ | 585,798 | | $ | — | | $ | (80,039) | | $ | 505,759 |
| | | | | | | | | | | | |
| | 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 MBS issued by GSEs | |
| 528,749 | |
| 4,271 | |
| (6,566) | |
| 526,454 |
Agency 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 |
The Company reassessed classification of certain investments and transferred securities with a book value of $372.2 million from available-for-sale to retained earnings. For additionalsecurities held-to-maturity during the year ended December 31, 2022. The related unrealized losses of $27.7 million were converted to a discount that is being accreted through interest income on a level-yield method over the term of the securities, while the unrealized losses recorded in other comprehensive income are amortized out of other comprehensive income through interest income on a level-yield method over the remaining term of securities, with no net change to interest income. No gain or loss was recorded at the time of transfer. There were no transfers from securities held-to-maturity during the year ended December 31, 2022. There were $140.4 million transferred from securities available-for-sale to securities held-to-maturity during year ended December 31, 2021. There were no transfers from securities held-to-maturity during the year ended December 31, 2021. There were no transfers to or from securities held-to-maturity during the year ended December 31, 2020.
The carrying amount of securities pledged at December 31, 2022 and 2021 was $631.4 million and $726.4 million, respectively.
At December 31, 2022 and 2021, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
62
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.
| | | | | | |
| | December 31, 2022 | ||||
| | Amortized | | Fair | ||
(In thousands) | | Cost | | Value | ||
Available-for-sale | | | | | | |
Within one year | | $ | 6,355 | | $ | 6,253 |
One to five years | | | 277,570 | | | 255,798 |
Five to ten years | | | 178,620 | | | 161,398 |
Beyond ten years | | | 5,145 | | | 4,559 |
Pass-through MBS issued by GSEs and agency CMO | | | 604,168 | | | 522,579 |
Total | | $ | 1,071,858 | | $ | 950,587 |
| | | | | | |
Held-to-maturity | | | | | | |
Within one year | | $ | — | | $ | — |
One to five years | | | 10,000 | | | 9,314 |
Five to ten years | | | 88,157 | | | 74,195 |
Beyond ten years | | | — | | | — |
Pass-through MBS issued by GSEs and agency CMO | | | 487,641 | | | 422,250 |
Total | | $ | 585,798 | | $ | 505,759 |
The following table presents the information see Note 13related to sales of securities available-for-sale for the periods indicated:
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) | | 2022 |
| 2021 |
| 2020 | |||
Securities available-for-sale | | | | | | | | | |
Proceeds | | $ | — | | $ | 138,077 | | $ | 94,252 |
Gross gains | | | — | | | 1,327 | | | 4,592 |
Tax expense on gains | | | — | | | 421 | | | 1,444 |
Gross losses | | | — | | | 120 | | | — |
Tax benefit on losses | | | — | | | 38 | | | — |
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) |
| 2022 |
| 2021 |
| 2020 | |||
Proceeds: |
| |
|
| |
|
| |
|
Marketable equity securities | | $ | — | | $ | 6,101 | | $ | 546 |
The remaining gain or loss on securities shown in the consolidated financial statements.statements of income was due to market valuation changes. Net gains on marketable equity securities of $131 thousand and $361 thousand were recognized for the years ended December 31, 2021 and 2020, respectively.
u) Reclassifications
Certain reclassifications have been made to prior year amounts to conform toThere were no sales of securities held-to-maturity during the current year presentation.
2. SECURITIES
years ended December 31, 2022, 2021, and 2020.
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, 2022 | ||||||||||||||||
| | 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: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Treasury securities | | $ | — | | $ | — | | $ | 227,256 | | $ | 19,643 | | $ | 227,256 | | $ | 19,643 |
Corporate securities | | | 110,707 | | | 8,494 | | | 50,116 | | | 8,581 | | | 160,823 | | | 17,075 |
Pass-through MBS issued by GSEs | | | 50,813 | | | 2,010 | | | 190,427 | | | 29,524 | | | 241,240 | | | 31,534 |
Agency CMOs | | | 55,924 | | | 3,454 | | | 220,413 | | | 46,603 | | | 276,337 | | | 50,057 |
State and municipal obligations | |
| 10,848 | |
| 174 | |
| 22,681 | |
| 2,847 | | | 33,529 | | | 3,021 |
63
| | | | | | | | | | | | | | | | | | |
| | 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 |
As of December 31, 2022, none 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, given the high-quality composition of the Company’s held-to-maturity portfolio, the Company did not record an allowance for credit losses on the held-to-maturity portfolio. 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 $5.4 million and $4.4 million at December 31, 2022 and 2021 respectively, 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 investmenttable above.
Management evaluates available-for-sale debt securities portfolio and the corresponding amounts of gross unrealized gains and losses therein:
| December 31, | ||||||||||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||||||||||
| (In thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||||||||||||||||||
| Available for sale: | ||||||||||||||||||||||||||||||||
| U.S. GSE securities | $ | 57,994 | $ | — | $ | (1,180 | ) | $ | 56,814 | $ | 64,993 | $ | — | $ | (1,344 | ) | $ | 63,649 | ||||||||||||||
| State and municipal obligations | 87,582 | 259 | (819 | ) | 87,022 | 117,292 | 212 | (1,339 | ) | 116,165 | ||||||||||||||||||||||
| U.S. GSE residential mortgage-backed securities | 189,705 | 29 | (2,833 | ) | 186,901 | 160,446 | 16 | (2,414 | ) | 158,048 | ||||||||||||||||||||||
| U.S. GSE residential collateralized mortgage obligations | 314,390 | 16 | (7,016 | ) | 307,390 | 373,098 | 149 | (5,736 | ) | 367,511 | ||||||||||||||||||||||
| U.S. GSE commercial mortgage-backed securities | 6,017 | 2 | (40 | ) | 5,979 | 6,337 | 6 | (36 | ) | 6,307 | ||||||||||||||||||||||
| U.S. GSE commercial collateralized mortgage obligations | 49,965 | — | (1,249 | ) | 48,716 | 56,148 | — | (956 | ) | 55,192 | ||||||||||||||||||||||
| Other asset backed securities | 24,250 | — | (849 | ) | 23,401 | 24,250 | — | (1,697 | ) | 22,553 | ||||||||||||||||||||||
| Corporate bonds | 46,000 | — | (2,307 | ) | 43,693 | 32,000 | — | (1,703 | ) | 30,297 | ||||||||||||||||||||||
| Total available for sale | 775,903 | 306 | (16,293 | ) | 759,916 | 834,564 | 383 | (15,225 | ) | 819,722 | ||||||||||||||||||||||
| Held to maturity: | ||||||||||||||||||||||||||||||||
| State and municipal obligations | 60,762 | 972 | (64 | ) | 61,670 | 66,666 | 1,085 | (130 | ) | 67,621 | ||||||||||||||||||||||
| U.S. GSE residential mortgage-backed securities | 11,424 | — | (261 | ) | 11,163 | 13,443 | — | (287 | ) | 13,156 | ||||||||||||||||||||||
| U.S. GSE residential collateralized mortgage obligations | 54,250 | 244 | (666 | ) | 53,828 | 61,639 | 352 | (552 | ) | 61,439 | ||||||||||||||||||||||
| U.S. GSE commercial mortgage-backed securities | 22,953 | 77 | (438 | ) | 22,592 | 28,772 | 136 | (509 | ) | 28,399 | ||||||||||||||||||||||
| U.S. GSE commercial collateralized mortgage obligations | 31,477 | — | (845 | ) | 30,632 | 41,717 | 93 | (573 | ) | 41,237 | ||||||||||||||||||||||
| Corporate bonds | — | — | — | — | 11,000 | 26 | — | 11,026 | ||||||||||||||||||||||||
| Total held to maturity | 180,866 | 1,293 | (2,274 | ) | 179,885 | 223,237 | 1,692 | (2,051 | ) | 222,878 | ||||||||||||||||||||||
| Total securities | $ | 956,769 | $ | 1,599 | $ | (18,567 | ) | $ | 939,801 | $ | 1,057,801 | $ | 2,075 | $ | (17,276 | ) | $ | 1,042,600 | ||||||||||||||
The following table summarizes securities with gross unrealized losses at December 31, 2017 and 2016, aggregated by category and length of time that individual securities have been in a continuous unrealized loss position:
| December 31, | ||||||||||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||||||||||
| 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. GSE securities | $ | — | $ | — | $ | 56,815 | $ | (1,180 | ) | $ | 63,649 | $ | (1,344 | ) | $ | — | $ | — | ||||||||||||||
| State and municipal obligations | 35,350 | (301 | ) | 28,165 | (518 | ) | 78,883 | (1,338 | ) | 240 | (1 | ) | ||||||||||||||||||||
| U.S. GSE residential mortgage-backed securities | 107,408 | (1,153 | ) | 69,571 | (1,680 | ) | 140,514 | (2,409 | ) | 241 | (5 | ) | ||||||||||||||||||||
| U.S. GSE residential collateralized mortgage obligations | 77,705 | (759 | ) | 224,932 | (6,257 | ) | 319,197 | (5,221 | ) | 15,627 | (515 | ) | ||||||||||||||||||||
| U.S. GSE commercial mortgage-backed securities | 2,345 | (40 | ) | — | — | 2,573 | (36 | ) | — | — | ||||||||||||||||||||||
| U.S. GSE commercial collateralized mortgage obligations | 452 | (1 | ) | 48,264 | (1,248 | ) | 48,901 | (886 | ) | 6,292 | (70 | ) | ||||||||||||||||||||
| Other asset backed securities | — | — | 23,401 | (849 | ) | — | — | 22,552 | (1,697 | ) | ||||||||||||||||||||||
| Corporate bonds | 13,588 | (412 | ) | 30,105 | (1,895 | ) | 17,834 | (1,166 | ) | 12,463 | (537 | ) | ||||||||||||||||||||
| Total available for sale | 236,848 | (2,666 | ) | 481,253 | (13,627 | ) | 671,551 | (12,400 | ) | 57,415 | (2,825 | ) | ||||||||||||||||||||
| Held to maturity: | ||||||||||||||||||||||||||||||||
| State and municipal obligations | 7,709 | (57 | ) | 1,009 | (7 | ) | 21,867 | (130 | ) | — | — | |||||||||||||||||||||
| U.S. GSE residential mortgage-backed securities | 1,359 | (16 | ) | 9,804 | (245 | ) | 13,156 | (287 | ) | — | — | |||||||||||||||||||||
| U.S. GSE residential collateralized mortgage obligations | 21,329 | (94 | ) | 21,112 | (572 | ) | 31,297 | (455 | ) | 3,873 | (97 | ) | ||||||||||||||||||||
| U.S. GSE commercial mortgage-backed securities | 8,789 | (121 | ) | 8,303 | (317 | ) | 12,860 | (286 | ) | 5,877 | (223 | ) | ||||||||||||||||||||
| U.S. GSE commercial collateralized mortgage obligations | 10,341 | (116 | ) | 20,290 | (729 | ) | 22,666 | (372 | ) | 3,790 | (201 | ) | ||||||||||||||||||||
| Total held to maturity | $ | 49,527 | $ | (404 | ) | $ | 60,518 | $ | (1,870 | ) | $ | 101,846 | $ | (1,530 | ) | $ | 13,540 | $ | (521 | ) | ||||||||||||
Other-Than-Temporary Impairment
Management evaluates securities for other-than-temporarypositions 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, “Accounting for Certain Investments in Debt and Equity Securities”. 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 amortized 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, 2017,2022, 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 Companygenerally 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. Departmentgovernment: Agency Notes, Treasury Securities, Pass-through MBS issued by GSEs, Agency Collateralized Mortgage Obligations. Substantially all of Education for 97% to 100% of principal. Additionally, the corporate bonds have credit support of 3% to 5% andwithin the portfolio have maintained their Aaaan investment grade rating by either Kroll, Egan-Jones, Fitch, Moody’s rating duringor Standard and Poor’s. None of the timeunrealized losses are related to credit losses. Substantially all of the Bank has owned them. The corporate bondsstate and municipal obligations within the portfolio have all maintained an investment grade rating by either Moody’s or Standard and Poor’s. None of the unrealized losses is related to credit losses. 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.
5. LOANS HELD FOR INVESTMENT, NET
The following table presents the loan categories for the period ended as indicated:
| | | | | | |
(In thousands) |
| December 31, 2022 |
| December 31, 2021 | ||
One-to-four family residential and cooperative/condominium apartment | | $ | 773,321 | | $ | 669,282 |
Multifamily residential and residential mixed-use | |
| 4,026,826 | |
| 3,356,346 |
Commercial real estate ("CRE") | |
| 4,457,630 | |
| 3,945,948 |
Acquisition, development, and construction | |
| 229,663 | |
| 322,628 |
Total real estate loans | |
| 9,487,440 | |
| 8,294,204 |
Commercial and industrial ("C&I") | |
| 1,071,712 | |
| 933,559 |
Other loans | |
| 7,679 | |
| 16,898 |
Total | |
| 10,566,831 | |
| 9,244,661 |
Allowance for credit losses | |
| (83,507) | |
| (83,853) |
Loans held for investment, net | | $ | 10,483,324 | | $ | 9,160,808 |
Included in C&I loans was Small Business Administration (“SBA”) PPP loans totaling $5.8 million and $66.0 million at December 31, 2022 and 2021, 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 does not consider these securities to be other-than-temporarily impaired at December 31, 2017.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.
64
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, 2020 | | $ | 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 |
Day 1 acquired PCD loans | |
| 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 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Provision (credit) for credit losses | |
| 37 | | | 542 | | | (1,891) | | | (3,134) | |
| (4,446) | |
| 11,786 | | | (430) | |
| 6,910 |
Charge-offs | |
| — | | | — | | | — | | | — | |
| — | |
| (11,401) | | | (53) | |
| (11,454) |
Recoveries | |
| — | | | 2 | | | 54 | | | — | |
| 56 | |
| 4,137 | | | 5 | |
| 4,198 |
Ending balance as of December 31, 2022 | | $ | 5,969 | | $ | 8,360 | | $ | 27,329 | | $ | 1,723 | | $ | 43,381 | | $ | 39,853 | | $ | 273 | | $ | 83,507 |
The following table presents the amortized cost basis of loans on non-accrual status as of the period indicated:
| | | | | | | | |
| | December 31, 2022 | ||||||
| | Non-accrual with | | | Non-accrual with | | | |
(In thousands) |
| No Allowance |
| Allowance | |
| Reserve | |
One-to-four family residential and cooperative/condominium apartment | $ | - | | $ | 3,203 | | $ | 181 |
CRE |
| 4,915 | |
| 3,417 | | | 1,424 |
Acquisition, development, and construction | | 657 | | | - | | | - |
C&I | | 503 | | | 21,443 | | | 20,685 |
Other | | - | | | 99 | | | 99 |
Total | $ | 6,075 | | $ | 28,162 | | $ | 22,389 |
The Company did not recognize interest income on non-accrual loans held for investment during the year ended December 31, 2022.
The following tables summarize the past due status of the Company’s investment in loans as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | |||||||||||||||||||
| | | | | | | | Loans 90 | | | | | | | | | | | | | |
| | | | | | | | Days or | | | | | Total | | | | | | | ||
| | 30 to 59 | | 60 to 89 | | More Past Due | | | | | Past Due | | | | | | | ||||
| | Days | | Days | | and Still | | | | and | | | | | Total | ||||||
(In thousands) |
| Past Due |
| Past Due |
| Accruing Interest |
| Non-accrual |
| Non-accrual |
| Current |
| Loans | |||||||
Real estate: |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
One-to-four family residential, including condominium and cooperative apartment | | $ | 686 | | $ | — | | $ | — | | $ | 3,203 | | $ | 3,889 | | $ | 769,432 | | $ | 773,321 |
Multifamily residential and residential mixed-use | |
| 4,817 | |
| — | |
| — | |
| — | |
| 4,817 | |
| 4,022,009 | |
| 4,026,826 |
CRE | |
| 14,189 | |
| — | |
| — | |
| 8,332 | |
| 22,521 | |
| 4,435,109 | |
| 4,457,630 |
Acquisition, development, and construction | |
| — | |
| — | |
| — | |
| 657 | |
| 657 | |
| 229,006 | |
| 229,663 |
Total real estate | |
| 19,692 | |
| — | |
| — | |
| 12,192 | |
| 31,884 | |
| 9,455,556 | |
| 9,487,440 |
C&I | |
| 3,561 | | | 741 | | | — | | | 21,946 | |
| 26,248 | |
| 1,045,464 | |
| 1,071,712 |
Other | | | 264 | | | 1 | | | — | | | 99 | | | 364 | | | 7,315 | | | 7,679 |
Total | | $ | 23,517 | | $ | 742 | | $ | — | | $ | 34,237 | | $ | 58,496 | | $ | 10,508,335 | | $ | 10,566,831 |
65
| | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | |||||||||||||||||||
| | | | | | | | Loans 90 | | | | | | | | | | | | | |
| | | | | | | | Days or | | | | | Total | | | | | | | ||
| | 30 to 59 | | 60 to 89 | | More Past Due | | | | | Past Due | | | | | | | ||||
| | Days | | Days | | and Still | | | | and | | | | | Total | ||||||
(In thousands) |
| Past Due |
| Past Due |
| Accruing Interest |
| Non-accrual |
| Non-accrual |
| 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 |
Acquisition, development, and construction | |
| — | |
| — | |
| — | |
| — | |
| — | |
| 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 |
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, 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, 2022, the Company had collateral dependent loans which were individually evaluated to determine expected credit losses.
| | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 | ||||||||
| | Real Estate | | Associated Allowance | | Real Estate | | Associated Allowance | ||||
(In thousands) | | Collateral Dependent | | for Credit Losses | | Collateral Dependent | | for Credit Losses | ||||
CRE | | $ | 7,391 | | $ | 1,297 | | $ | 3,837 | | $ | 600 |
Acquisition, development, and construction | | | 657 | | | - | | | - | | | - |
C&I | | | 949 | | | - | | | 348 | | | - |
Total | | $ | 8,997 | | $ | 1,297 | | $ | 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 2022.
The following table sets forth selected information about related party loans for the estimated fair value, amortized cost and contractual maturitiesyear ended December 31, 2022:
| | | |
| | Year Ended | |
| | December 31, | |
(In thousands) |
| 2022 | |
Beginning balance | | $ | 6,229 |
New loans | | | 1 |
Effect of changes in composition of related parties | | | 496 |
Repayments | | | (1,770) |
Balance at end of period | | $ | 4,956 |
TDRs
As of December 31, 2022, the securities portfolioCompany had TDRs totaling $22.1 million. The Company has allocated $9.1 million of allowance for those loans at December 31, 2017. Expected maturities will differ from contractual maturities because borrowers may have2022, with no commitments to lend additional amounts. As of December 31, 2021, the rightCompany had TDRs totaling $942 thousand. The Company has allocated $483 thousand of allowance for those loans at December 31, 2021, with no commitments to calllend additional amounts.
During the year ended December 31, 2022, TDR modifications included reduction of outstanding principal, extensions of maturity dates, or prepay obligations with or without call or prepayment penalties.favorable interest rates and loan terms than the prevailing market interest rates and loan terms.
66
During the year ended December 31, 2022, the Company modified one CRE loan as a TDR, and one Acquistion, Development, and Construction loan, which subsequently paid off during the year. During the year ended December 31, 2021, the Company modified one CRE loan as a TDR, which subsequently paid off during the year.
| December 31, 2017 | ||||||||||||||||||||||||||||||||||||||||
| 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. GSE securities | $ | — | $ | — | $ | 37,271 | $ | 37,994 | $ | 19,543 | $ | 20,000 | $ | — | $ | — | $ | 56,814 | $ | 57,994 | ||||||||||||||||||||
| State and municipal obligations | 9,588 | 9,600 | 45,196 | 45,683 | 31,809 | 31,884 | 429 | 415 | 87,022 | 87,582 | ||||||||||||||||||||||||||||||
| U.S. GSE residential mortgage-backed securities | — | — | — | — | 25,203 | 25,482 | 161,698 | 164,223 | 186,901 | 189,705 | ||||||||||||||||||||||||||||||
| U.S. GSE residential collateralized mortgage obligations | — | — | — | — | 5,468 | 5,543 | 301,922 | 308,847 | 307,390 | 314,390 | ||||||||||||||||||||||||||||||
| U.S. GSE commercial mortgage-backed securities | — | — | 5,979 | 6,017 | — | — | — | — | 5,979 | 6,017 | ||||||||||||||||||||||||||||||
| U.S. GSE commercial collateralized mortgage obligations | — | — | — | — | — | — | 48,716 | 49,965 | 48,716 | 49,965 | ||||||||||||||||||||||||||||||
| Other asset backed securities | — | — | — | — | — | — | 23,401 | 24,250 | 23,401 | 24,250 | ||||||||||||||||||||||||||||||
| Corporate bonds | — | — | — | — | 43,693 | 46,000 | — | — | 43,693 | 46,000 | ||||||||||||||||||||||||||||||
| Total available for sale | 9,588 | 9,600 | 88,446 | 89,694 | 125,716 | 128,909 | 536,166 | 547,700 | 759,916 | 775,903 | ||||||||||||||||||||||||||||||
| Held to maturity: | ||||||||||||||||||||||||||||||||||||||||
| State and municipal obligations | 3,766 | 3,774 | 17,610 | 17,430 | 38,599 | 37,882 | 1,695 | 1,676 | 61,670 | 60,762 | ||||||||||||||||||||||||||||||
| U.S. GSE residential mortgage-backed securities | — | — | — | — | 5,011 | 5,103 | 6,152 | 6,321 | 11,163 | 11,424 | ||||||||||||||||||||||||||||||
| U.S. GSE residential collateralized mortgage obligations | — | — | — | — | 6,769 | 6,795 | 47,059 | 47,455 | 53,828 | 54,250 | ||||||||||||||||||||||||||||||
| U.S. GSE commercial mortgage-backed securities | — | — | 9,373 | 9,311 | 4,916 | 5,022 | 8,303 | 8,620 | 22,592 | 22,953 | ||||||||||||||||||||||||||||||
| U.S. GSE commercial collateralized mortgage obligations | — | — | 3,851 | 4,030 | — | — | 26,781 | 27,447 | 30,632 | 31,477 | ||||||||||||||||||||||||||||||
| Total held to maturity | 3,766 | 3,774 | 30,834 | 30,771 | 55,295 | 54,802 | 89,990 | 91,519 | 179,885 | 180,866 | ||||||||||||||||||||||||||||||
| Total securities | $ | 13,354 | $ | 13,374 | $ | 119,280 | $ | 120,465 | $ | 181,011 | $ | 183,711 | $ | 626,156 | $ | 639,219 | $ | 939,801 | $ | 956,769 | ||||||||||||||||||||
Sales and Calls of SecuritiesThe following table presents the loans by category modified as TDRs that occurred during the year ended December 31, 2022:
| | | | | | | | | | | | | | | | |
| | Modifications During the Year Ended December 31, | ||||||||||||||
| | 2022 | | 2021 | ||||||||||||
| | | | | Pre- | | | Post- | | | | | Pre- | | | Post- |
| | | | | Modification | | | Modification | | | | | Modification | | | Modification |
| | | | | Outstanding | | | Outstanding | | | | | Outstanding | | | Outstanding |
| | Number of | | | Recorded | | | Recorded | | Number of | | | Recorded | | | Recorded |
(Dollars in thousands) | | Loans | | | Investment | | | Investment | | Loans | | | Investment | | | Investment |
One-to-four family residential and cooperative/condominium apartment | | 2 | | $ | 762 | | $ | 762 | | 2 | | $ | 467 | | $ | 467 |
CRE | | 1 | | | 991 | | | 991 | | 1 | | | 10,000 | | | 10,000 |
Acquisition, development, and construction | | 1 | | | 13,500 | | | 13,500 | | - | | | - | | | - |
C&I | | 7 | | | 21,934 | | | 21,938 | | 1 | | | 456 | | | 488 |
Other | | 1 | | | 276 | | | 276 | | - | | | - | | | - |
Total | | 12 | | $ | 37,463 | | $ | 37,467 | | 4 | | $ | 10,923 | | $ | 10,955 |
There were $52.4 millionno loans modified in a manner that met the criteria 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. a TDR during the year ended December 31, 2020.
There were $264.4 million of proceeds on sales of available for sale securities with gross gains of approximately $1.6 million and gross losses of approximately $1.2 million realized in 2016. There were $75.8 million of proceeds on sales of available for sale securities with gross gains of approximately $0.5 million and gross losses of approximately $0.5 million realized in 2015.
Pledged Securities
Securities having a fair value of $513.5 million and $570.1 million at December 31, 2017 and 2016, respectively, were pledged to secure public deposits and FHLB and FRB overnight borrowings.
Trading Securities
The Company did not hold any trading securitiesno TDR charge-offs during the years ended December 31, 20172022 and 2016.2021.
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 $35.3 million and $34.7 million in FHLB, ACBB and FRB stock at December 31, 2017 and 2016, respectively. These amounts were reported as restricted securities in the consolidated balance sheets.
As of December 31, 2017 and 2016, there was no issuer, other than the U.S. Government and its sponsored entities, where the Bank had invested holdings that exceeded 10% of consolidated stockholders’ equity.
3. FAIR VALUE
FASB ASC No. 820-10defines fair value as 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. 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.
The following tables summarize assets and liabilities measured at fair value on a recurring basis:
| December 31, 2017 | ||||||||||||||||
| Fair Value Measurements Using: | ||||||||||||||||
| (In thousands) | Carrying Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Observable | Significant Unobservable Inputs (Level 3) | ||||||||||||
| Financial assets: | ||||||||||||||||
| Available for sale securities: | ||||||||||||||||
| U.S. GSE securities | $ | 56,814 | $ | 56,814 | ||||||||||||
| State and municipal obligations | 87,022 | 87,022 | ||||||||||||||
| U.S. GSE residential mortgage-backed securities | 186,901 | 186,901 | ||||||||||||||
| U.S. GSE residential collateralized mortgage obligations | 307,390 | 307,390 | ||||||||||||||
| U.S. GSE commercial mortgage-backed securities | 5,979 | 5,979 | ||||||||||||||
| U.S. GSE commercial collateralized mortgage obligations | 48,716 | 48,716 | ||||||||||||||
| Other asset backed securities | 23,401 | 23,401 | ||||||||||||||
| Corporate bonds | 43,693 | 43,693 | ||||||||||||||
| Total available for sale securities | $ | 759,916 | $ | 759,916 | ||||||||||||
| Derivatives | $ | 4,546 | $ | 4,546 | ||||||||||||
| Financial liabilities: | ||||||||||||||||
| Derivatives | $ | 1,823 | $ | 1,823 | ||||||||||||
| December 31, 2016 | ||||||||||||||||
| Fair Value Measurements Using: | ||||||||||||||||
| (In thousands) | Carrying Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
| Financial assets: | ||||||||||||||||
| Available for sale securities: | ||||||||||||||||
| U.S. GSE securities | $ | 63,649 | $ | 63,649 | ||||||||||||
| State and municipal obligations | 116,165 | 116,165 | ||||||||||||||
| U.S. GSE residential mortgage-backed securities | 158,048 | 158,048 | ||||||||||||||
| U.S. GSE residential collateralized mortgage obligations | 367,511 | 367,511 | ||||||||||||||
| U.S. GSE commercial mortgage-backed securities | 6,307 | 6,307 | ||||||||||||||
| U.S. GSE commercial collateralized mortgage obligations | 55,192 | �� | 55,192 | |||||||||||||
| Other asset backed securities | 22,553 | 22,553 | ||||||||||||||
| Corporate bonds | 30,297 | 30,297 | ||||||||||||||
| Total available for sale securities | $ | 819,722 | $ | 819,722 | ||||||||||||
| Derivatives | $ | 2,510 | $ | 2,510 | ||||||||||||
| Financial liabilities: | ||||||||||||||||
| Derivatives | $ | 1,670 | $ | 1,670 | ||||||||||||
The following tables summarize assets measured at fair value on a non-recurring basis:
| December 31, 2016 | ||||||||||||||||
| Fair Value Measurements Using: | ||||||||||||||||
| (In thousands) | Carrying Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
| Impaired loans | $ | 64 | $ | 64 | ||||||||||||
Impaired loans with an allocated allowance for loan losses at December 31, 2017 had a carrying amount of zero, which is made up of the outstanding balance of $1.7 million, net of a valuation allowance of $1.7 million. This resulted in an additional provision for loan losses of $1.7 million that is included in the amount reported on the Consolidated Statements of Income. Impaired loans with an allocated allowance for loan losses at December 31, 2016 had a carrying amount of $64 thousand, which is made up of the outstanding balance of $65 thousand, net of a valuation allowance of $1 thousand. This resulted in an additional provision for loan losses of $1 thousand that is included in the amount reported on the Consolidated Statements of Income. There was no other real estate owned at December 31, 2017 and 2016.
The Company used the following methods and assumptions in estimating the fair value of its financial instruments:
Cash and Due from Banks and Interest Earning Deposits with Banks: Carrying amounts approximate fair value, since these instruments are either payable on demand or have short-term maturities and as such are classified as Level 1.
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.
Restricted Securities: It is not practicable to determine the fair value of FHLB, ACBB and FRB stock due to restrictions placed on transferability.
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: The estimated fair values of real estate mortgage loans and other loans receivable are based on discounted cash flow calculations that use available market benchmarks when establishing discount factors for the types of loans resulting in a Level 3 classification. Exceptions may be made for adjustable rate loans with resets of one year or less, which would be discounted straight to their rate index plus or minus an appropriate spread. All nonaccrual loans are carried at their current fair value. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price and therefore, while permissible for presentation purposes under FASB ASC 825-10, do not conform to FASB ASC 820-10.
Impaired Loans and Other Real Estate Owned: For impaired loans, the Company evaluates 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 insure that the methodology employed and the values derived are reasonable. 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.
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 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. On a quarterly basis, the Company compares the actual sale price of collateral that has been sold to the most recent appraised value to determine what additional adjustments should be made to appraisal values to arrive at fair value. 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 nonrecurring basis.
Deposits: The estimated fair values of certificates of deposit are based on discounted cash flow calculations that use a replacement cost of funds approach to establishing discount rates for certificate of deposit maturities resulting in a Level 2 classification. Stated value is fair value for all other deposits resulting in a Level 1 classification.
Borrowed Funds: Represents federal funds purchased, repurchase agreements and FHLB advances for which the estimated fair values are based on discounted cash flow calculations that use a replacement cost of funds approach to establishing discount rates for funding maturities resulting in a Level 1 classification for overnight federal funds purchased, repurchase agreements and FHLB advances and a Level 2 classification for all other maturity terms.
Subordinated Debentures: The estimated fair value is based on valuation models using observable market data as of the measurement date resulting in a Level 2 classification.
Junior Subordinated Debentures: The estimated fair value is based on estimates using market data for similarly risk weighted items and takes into consideration the convertible features of the debentures into Company common stock, which is an unobservable input resulting in a Level 3 classification.
Accrued Interest Receivable and Payable: For these short-term instruments, the carrying amount is a reasonable estimate of the fair value resulting in a Level 1, 2 or 3 classification consistent with the underlying asset or liability the interest is associated with.
Off-Balance-Sheet Liabilities: The fair value of off-balance-sheet commitments to extend credit is estimated using fees currently charged to enter into similar agreements. The fair value is immaterial as of December 31, 2017 and 2016.
Fair value estimates are made at specific points in time and are based on existing on-and off-balance sheet financial instruments. These estimates are subjective in nature and dependent on a number of significant assumptions associated with each financial instrument or group of financial instruments, including estimates of discount rates, risks associated with specific financial instruments, estimates of future cash flows, and relevant available market information. Changes in assumptions could significantly affect the estimates. In addition, fair value estimates do not reflect the value of anticipated future business, premiums or discounts that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument, or the tax consequences of realizing gains or losses on the sale of financial instruments.
The following tables summarize the estimated fair values and recorded carrying amounts of the Company’s financial instruments at December 31, 2017 and 2016:
| December 31, 2017 | ||||||||||||||||||||
| Fair Value Measurement Using: | ||||||||||||||||||||
| (In thousands) | Carrying Amount | Quoted Prices In Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | |||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and due from banks | $ | 76,614 | $ | 76,614 | $ | — | $ | — | $ | 76,614 | ||||||||||
| Interest bearing deposits with banks | 18,133 | 18,133 | — | — | 18,133 | |||||||||||||||
| Securities available for sale | 759,916 | — | 759,916 | — | 759,916 | |||||||||||||||
| Securities restricted | 35,349 | n/a | n/a | n/a | n/a | |||||||||||||||
| Securities held to maturity | 180,866 | — | 179,885 | — | 179,885 | |||||||||||||||
| Loans, net | 3,071,045 | — | — | 3,010,023 | 3,010,023 | |||||||||||||||
| Derivatives | 4,546 | — | 4,546 | — | 4,546 | |||||||||||||||
| Accrued interest receivable | 11,652 | — | 3,211 | 8,441 | 11,652 | |||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Certificates of deposit | 222,364 | — | 220,775 | — | 220,775 | |||||||||||||||
| Demand and other deposits | 3,112,179 | 3,112,179 | — | — | 3,112,179 | |||||||||||||||
| Federal funds purchased | 50,000 | 50,000 | — | — | 50,000 | |||||||||||||||
| Federal Home Loan Bank advances | 501,374 | 185,000 | 313,558 | — | 498,558 | |||||||||||||||
| Repurchase agreements | 877 | — | 877 | — | 877 | |||||||||||||||
| Subordinated debentures | 78,641 | — | 77,933 | — | 77,933 | |||||||||||||||
| Derivatives | 1,823 | — | 1,823 | — | 1,823 | |||||||||||||||
| Accrued interest payable | 1,574 | — | 462 | 1,112 | 1,574 | |||||||||||||||
| December 31, 2016 | ||||||||||||||||||||
| Fair Value Measurement Using: | ||||||||||||||||||||
| (In thousands) | Carrying Amount | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | |||||||||||||||
| Financial assets: | ||||||||||||||||||||
| Cash and due from banks | $ | 102,280 | $ | 102,280 | $ | — | $ | — | $ | 102,280 | ||||||||||
| Interest bearing deposits with banks | 11,558 | 11,558 | — | — | 11,558 | |||||||||||||||
| Securities available for sale | 819,722 | — | 819,722 | — | 819,722 | |||||||||||||||
| Securities restricted | 34,743 | n/a | n/a | n/a | n/a | |||||||||||||||
| Securities held to maturity | 223,237 | — | 222,878 | — | 222,878 | |||||||||||||||
| Loans, net | 2,574,536 | — | — | 2,542,395 | 2,542,395 | |||||||||||||||
| Derivatives | 2,510 | — | 2,510 | — | 2,510 | |||||||||||||||
| Accrued interest receivable | 10,233 | — | 3,480 | 6,753 | 10,233 | |||||||||||||||
| Financial liabilities: | ||||||||||||||||||||
| Certificates of deposit | 206,732 | — | 206,026 | — | 206,026 | |||||||||||||||
| Demand and other deposits | 2,719,277 | 2,719,277 | — | — | 2,719,277 | |||||||||||||||
| Federal funds purchased | 100,000 | 100,000 | — | — | 100,000 | |||||||||||||||
| Federal Home Loan Bank advances | 496,684 | 175,000 | 321,249 | — | 496,249 | |||||||||||||||
| Repurchase agreements | 674 | — | 674 | — | 674 | |||||||||||||||
| Subordinated debentures | 78,502 | — | 78,303 | — | 78,303 | |||||||||||||||
| Junior subordinated debentures | 15,244 | — | — | 15,258 | 15,258 | |||||||||||||||
| Derivatives | 1,670 | — | 1,670 | — | 1,670 | |||||||||||||||
| Accrued interest payable | 1,849 | — | 403 | 1,446 | 1,849 | |||||||||||||||
4. LOANS
The following table sets forth the major classifications of loans:
| December 31, | ||||||||
| (In thousands) | 2017 | 2016 | ||||||
| Commercial real estate mortgage loans | $ | 1,293,906 | $ | 1,091,752 | ||||
| Multi-family mortgage loans | 595,280 | 518,146 | ||||||
| Residential real estate mortgage loans | 464,264 | 364,884 | ||||||
| Commercial, industrial and agricultural loans | 616,003 | 524,450 | ||||||
| Real estate construction and land loans | 107,759 | 80,605 | ||||||
| Installment/consumer loans | 21,041 | 16,368 | ||||||
| Total loans | 3,098,253 | 2,596,205 | ||||||
| Net deferred loan costs and fees | 4,499 | 4,235 | ||||||
| Total loans held for investment | 3,102,752 | 2,600,440 | ||||||
| Allowance for loan losses | (31,707 | ) | (25,904 | ) | ||||
| Loans, net | $ | 3,071,045 | $ | 2,574,536 | ||||
In June 2015, the Company completed the acquisition of Community National Bank (“CNB”) resulting in the addition of $729.4 million of acquired loans recorded at their fair value. There were approximately $359.4 million and $464.2 million of acquired CNB loans remaining as of December 31, 2017 and 2016, respectively.
In February 2014, the Company completed the acquisition of FNBNY Bancorp, Inc. and its wholly owned subsidiary First National Bank of New York (collectively “FNBNY”) resulting in the addition of $89.7 million of acquired loans recorded at their fair value. There were approximately $15.4 million and $26.5 million of acquired FNBNY loans remaining as of December 31, 2017 and 2016, respectively.
Lending Risk
The principal business of the Bank is lending in commercial real estate 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 $250,000 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. The loans are usually made in areas with limited single-family residences generating high demand for these facilities. 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.
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 that 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 is not being provided by the Bank, all affect the credit risk in this loan class.
Installment and Consumer Loans
Loans in this classification may be either secured or unsecured. Repayment is dependent 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.
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 of homogenous residential real estate and installment/consumer loans that are not individually risk rated and loans which do not exhibit certain risk factors that require greater than usual monitoring by management.
Special mention:Mention. Loans classified as special mention while generally not delinquent, have a potential weaknessesweakness that deserve management'sdeserves 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'sBank’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, and 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.
67
The following tables representis a summary of the credit risk profile of loans categorized by class and internally assigned risk grades:grade as of the periods indicated, the years represent the year of origination for non-revolving loans:
| December 31, 2017 | ||||||||||||||||||||
| (In thousands) | Pass | Special Mention | Substandard | Doubtful | Total | |||||||||||||||
| Commercial real estate: | ||||||||||||||||||||
| Owner occupied | $ | 451,264 | $ | 1,796 | $ | 19,589 | $ | — | $ | 472,649 | ||||||||||
| Non-owner occupied | 808,612 | 8,056 | 4,589 | — | 821,257 | |||||||||||||||
| Multi-family | 595,280 | — | — | — | 595,280 | |||||||||||||||
| Residential real estate: | ||||||||||||||||||||
| Residential mortgage | 393,029 | 4,854 | 290 | — | 398,173 | |||||||||||||||
| Home equity | 64,601 | 698 | 792 | — | 66,091 | |||||||||||||||
| Commercial and industrial: | ||||||||||||||||||||
| Secured | 86,116 | 12,637 | 13,560 | — | 112,313 | |||||||||||||||
| Unsecured | 485,598 | 14,553 | 3,539 | — | 503,690 | |||||||||||||||
| Real estate construction and land loans | 107,440 | — | 319 | — | 107,759 | |||||||||||||||
| Installment/consumer loans | 21,020 | 16 | 5 | — | 21,041 | |||||||||||||||
| Total loans | $ | 3,012,960 | $ | 42,610 | $ | 42,683 | $ | — | $ | 3,098,253 | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | |||||||||||||||||||||||||
(In thousands) | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 and Prior | | Revolving | | Revolving-Term | | Total | |||||||||
One-to-four family residential, and condominium/cooperative apartment: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | $ | 225,031 | | $ | 108,185 | | $ | 72,732 | | $ | 65,515 | | $ | 66,038 | | $ | 164,338 | | $ | 41,172 | | $ | 12,563 | | $ | 755,574 |
Special mention | | | — | | | — | | | — | | | — | | | 735 | | | 1,175 | | | 579 | | | 726 | | | 3,215 |
Substandard | | | — | | | — | | | 1,026 | | | 1,227 | | | 407 | | | 10,779 | | | — | | | 1,093 | | | 14,532 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total one-to-four family residential, and condominium/cooperative apartment | | | 225,031 | | | 108,185 | | | 73,758 | | | 66,742 | | | 67,180 | | | 176,292 | | | 41,751 | | | 14,382 | | | 773,321 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Multifamily residential and residential mixed-use: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 1,386,549 | | | 582,393 | | | 316,424 | | | 395,933 | | | 127,074 | | | 1,107,281 | | | 12,584 | | | — | | | 3,928,238 |
Special mention | | | — | | | — | | | — | | | 11,183 | | | — | | | 14,168 | | | — | | | — | | | 25,351 |
Substandard | | | — | | | — | | | 12,294 | | | 7,001 | | | 20,311 | | | 33,631 | | | — | | | — | | | 73,237 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total multifamily residential and residential mixed-use | | | 1,386,549 | | | 582,393 | | | 328,718 | | | 414,117 | | | 147,385 | | | 1,155,080 | | | 12,584 | | | — | | | 4,026,826 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
CRE: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 1,021,622 | | | 854,240 | | | 753,552 | | | 510,332 | | | 308,265 | | | 868,099 | | | 34,362 | | | 24,767 | | | 4,375,239 |
Special mention | | | 2,864 | | | — | | | 19,655 | | | 4,653 | | | 14,372 | | | 15,478 | | | — | | | — | | | 57,022 |
Substandard | | | — | | | 151 | | | 4,550 | | | 7,947 | | | 1,131 | | | 11,590 | | | — | | | — | | | 25,369 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total CRE | | | 1,024,486 | | | 854,391 | | | 777,757 | | | 522,932 | | | 323,768 | | | 895,167 | | | 34,362 | | | 24,767 | | | 4,457,630 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition, development, and construction: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 36,877 | | | 152,543 | | | 11,242 | | | 15,943 | | | — | | | 2,087 | | | 10,033 | | | 281 | | | 229,006 |
Special mention | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Substandard | | | — | | | 657 | | | — | | | — | | | — | | | — | | | — | | | — | | | 657 |
Doubtful | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Total acquisition, development, and construction: | | | 36,877 | | | 153,200 | | | 11,242 | | | 15,943 | | | — | | | 2,087 | | | 10,033 | | | 281 | | | 229,663 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
C&I: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 175,347 | | | 36,511 | | | 42,103 | | | 37,030 | | | 20,628 | | | 33,343 | | | 628,560 | | | 22,239 | | | 995,761 |
Special mention | | | 3,770 | | | — | | | 894 | | | 1,529 | | | 1,521 | | | 843 | | | 9,062 | | | 478 | | | 18,097 |
Substandard | | | 5,242 | | | 1,244 | | | 5,364 | | | 2,968 | | | 970 | | | 10,232 | | | 11,290 | | | 9,412 | | | 46,722 |
Doubtful | | | — | | | — | | | — | | | 8,332 | | | 752 | | | 2,048 | | | — | | | — | | | 11,132 |
Total C&I | | | 184,359 | | | 37,755 | | | 48,361 | | | 49,859 | | | 23,871 | | | 46,466 | | | 648,912 | | | 32,129 | | | 1,071,712 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pass | | | 2,845,426 | | | 1,733,872 | | | 1,196,053 | | | 1,024,753 | | | 522,005 | | | 2,175,148 | | | 726,711 | | | 59,850 | | | 10,283,818 |
Special mention | | | 6,634 | | | — | | | 20,549 | | | 17,365 | | | 16,628 | | | 31,664 | | | 9,641 | | | 1,204 | | | 103,685 |
Substandard | | | 5,242 | | | 2,052 | | | 23,234 | | | 19,143 | | | 22,819 | | | 66,232 | | | 11,290 | | | 10,505 | | | 160,517 |
Doubtful | | | — | | | — | | | — | | | 8,332 | | | 752 | | | 2,048 | | | — | | | — | | | 11,132 |
Total Loans | | $ | 2,857,302 | | $ | 1,735,924 | | $ | 1,239,836 | | $ | 1,069,593 | | $ | 562,204 | | $ | 2,275,092 | | $ | 747,642 | | $ | 71,559 | | $ | 10,559,152 |
68
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 | | | 815,239 | | | 43,183 | | | 6,188 | | | 3,719,799 |
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 | | | 874,440 | | | 43,183 | | | 6,188 | | | 3,945,948 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Acquisition, development, and construction: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 acquisition, development, and construction: | | | 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 | | | 2,114,513 | | | 552,538 | | | 29,902 | | | 8,531,760 |
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 | | $ | 2,356,919 | | $ | 588,432 | | $ | 46,426 | | $ | 9,227,763 |
At December 31, 2017 there were $0.4 million and $1.6 million of acquired CNBFor other loans, included in the special mention and substandard grades, respectively, and $0.2 million and $0.3 million of acquired FNBNY loans included in the special mention and substandard grades, respectively.
| December 31, 2016 | ||||||||||||||||||||
| (In thousands) | Pass | Special Mention | Substandard | Doubtful | Total | |||||||||||||||
| Commercial real estate: | ||||||||||||||||||||
| Owner occupied | $ | 404,584 | $ | 18,909 | $ | 722 | $ | — | $ | 424,215 | ||||||||||
| Non-owner occupied | 643,426 | 20,035 | 4,076 | — | 667,537 | |||||||||||||||
| Multi-family | 518,146 | — | — | — | 518,146 | |||||||||||||||
| Residential real estate: | ||||||||||||||||||||
| Residential mortgage | 299,297 | 82 | 370 | — | 299,749 | |||||||||||||||
| Home equity | 64,195 | 563 | 377 | — | 65,135 | |||||||||||||||
| Commercial and industrial: | ||||||||||||||||||||
| Secured | 75,837 | 31,143 | 2,254 | — | 109,234 | |||||||||||||||
| Unsecured | 409,879 | 2,493 | 2,844 | — | 415,216 | |||||||||||||||
| Real estate construction and land loans | 80,272 | — | 333 | — | 80,605 | |||||||||||||||
| Installment/consumer loans | 16,268 | — | 100 | — | 16,368 | |||||||||||||||
| Total loans | $ | 2,511,904 | $ | 73,225 | $ | 11,076 | $ | — | $ | 2,596,205 | ||||||||||
At December 31, 2016 there were $0.01 million and $1.5 million of acquired CNB loans included in the special mention and substandard grades, respectively, and $0.2 million and $0.2 million of acquired FNBNY loans included in the special mention and substandard grades, respectively.
Past Due and Nonaccrual Loans
The following tables represent the aging of the recorded investment in past due loans as of December 31, 2017 and 2016 by class of loans, as defined by FASB ASC 310-10:
| December 31, 2017 | ||||||||||||||||||||||||||||
| (In thousands) | 30-59 Days Past Due | 60-89 Days Past Due | >90 Days Past Due And Accruing | Nonaccrual Including 90 Days or More Past Due | Total Past Due and Nonaccrual | Current | Total Loans | |||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||
| Owner occupied | $ | 284 | $ | — | $ | 175 | $ | 2,205 | $ | 2,664 | $ | 469,985 | $ | 472,649 | ||||||||||||||
| Non-owner occupied | — | — | 1,163 | — | 1,163 | 820,094 | 821,257 | |||||||||||||||||||||
| Multi-family | — | — | — | — | — | 595,280 | 595,280 | |||||||||||||||||||||
| Residential real estate: | ||||||||||||||||||||||||||||
| Residential mortgages | 2,074 | 398 | — | 401 | 2,873 | 395,300 | 398,173 | |||||||||||||||||||||
| Home equity | 329 | — | 271 | 161 | 761 | 65,330 | 66,091 | |||||||||||||||||||||
| Commercial and industrial: | ||||||||||||||||||||||||||||
| Secured | 113 | 41 | 225 | 570 | 949 | 111,364 | 112,313 | |||||||||||||||||||||
| Unsecured | 18 | 35 | — | 3,618 | 3,671 | 500,019 | 503,690 | |||||||||||||||||||||
| Real estate construction and land loans | — | 281 | — | — | 281 | 107,478 | 107,759 | |||||||||||||||||||||
| Installment/consumer loans | 36 | 5 | — | — | 41 | 21,000 | 21,041 | |||||||||||||||||||||
| Total loans | $ | 2,854 | $ | 760 | $ | 1,834 | $ | 6,955 | $ | 12,403 | $ | 3,085,850 | $ | 3,098,253 | ||||||||||||||
| December 31, 2016 | ||||||||||||||||||||||||||||
| (In thousands) | 30-59 Days Past Due | 60-89 Days Past Due | >90 Days Past Due And Accruing | Nonaccrual Including 90 Days or More Past Due | Total Past Due and Nonaccrual | Current | Total Loans | |||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||
| Owner occupied | $ | 222 | $ | — | $ | 467 | $ | 184 | $ | 873 | $ | 423,342 | $ | 424,215 | ||||||||||||||
| Non-owner occupied | — | — | — | — | — | 667,537 | 667,537 | |||||||||||||||||||||
| Multi-family | — | — | — | — | — | 518,146 | 518,146 | |||||||||||||||||||||
| Residential real estate: | ||||||||||||||||||||||||||||
| Residential mortgages | 1,232 | — | — | 770 | 2,002 | 297,747 | 299,749 | |||||||||||||||||||||
| Home equity | 532 | — | 238 | 265 | 1,035 | 64,100 | 65,135 | |||||||||||||||||||||
| Commercial and industrial: | ||||||||||||||||||||||||||||
| Secured | 27 | — | 204 | — | 231 | 109,003 | 109,234 | |||||||||||||||||||||
| Unsecured | 115 | — | 118 | 22 | 255 | 414,961 | 415,216 | |||||||||||||||||||||
| Real estate construction and land loans | — | — | — | — | — | 80,605 | 80,605 | |||||||||||||||||||||
| Installment/consumer loans | 28 | — | — | — | 28 | 16,340 | 16,368 | |||||||||||||||||||||
| Total loans | $ | 2,156 | $ | — | $ | 1,027 | $ | 1,241 | $ | 4,424 | $ | 2,591,781 | $ | 2,596,205 | ||||||||||||||
There were $2.4 million and $1.0 million of acquiredCompany evaluates credit quality based on payment activity. Other loans that were 30-89 days past due at December 31, 2017 and 2016, respectively. All loansare 90 days or more past due that are still accruing interest represent loans acquired from CNB, FNBNY and Hamptons State Bank (“HSB”) which were recorded at fair value upon acquisition. Theseplaced on non-accrual status, while all remaining other loans are consideredclassified and evaluated as performing. The following is a summary of the credit risk profile of other loans by internally assigned grade:
| | | | | | |
(In thousands) |
| December 31, 2022 |
| December 31, 2021 | ||
Performing | | $ | 7,580 | | $ | 16,533 |
Non-accrual | |
| 99 | |
| 365 |
Total | | $ | 7,679 | | $ | 16,898 |
6. LOAN SERVICING ACTIVITIES
The Bank services real estate and C&I loans for others having principal balances outstanding of approximately $347.9 million and $471.9 million at December 31, 2022 and 2021, 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 be accruing as management can reasonably estimate future cash flowsinvestors, paying taxes and expectsinsurance and processing foreclosures. In connection with loans serviced for others, the Bank held borrowers’ escrow balances of $1.3 million and $2.9 million at December 31, 2022 and 2021, respectively.
69
There are no restrictions on the Company’s consolidated assets or liabilities related to fully collect the carrying value of these acquired loans. Therefore, the difference between the carrying valueloans sold with servicing rights retained. Upon sale of these loans, the Company recorded an SRA in other assets, and their expected cash flows is being accreted into income.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) |
| 2022 |
| 2021 |
| 2020 | |||
Servicing right assets: | | | | | | | | | |
Beginning of year | | $ | 3,856 | | $ | 1,710 | | $ | 1,459 |
Acquired in the Merger | | | — | | | 2,070 | | | — |
Additions | |
| 659 | |
| 885 | |
| 703 |
Amortized to expense | | | (907) | | | (809) | | | (452) |
Sold | | | (259) | | | — | | | — |
End of year | | | 3,349 | | | 3,856 | | | 1,710 |
| | | | | | | | | |
Valuation allowance: | | | | | | | | | |
Beginning of year | | | (80) | | | — | | | — |
Additions expensed | |
| (121) | |
| (80) | |
| — |
End of year | | | (201) | | | (80) | | | — |
Servicing right assets, net | | $ | 3,148 | | $ | 3,776 | | $ | 1,710 |
Impaired Loans
AtThe fair value of SRAs was $3.5 million and $3.9 million, at December 31, 20172022 and 2016,2021, respectively. The fair value at December 31, 2022 was determined using discount rates ranging from 9.5% to 12.0%, prepayment speeds ranging from 6.7% to 16.0%, depending on the Company had individually impaired loans as defined by FASB ASC No. 310, “Receivables”stratification of $22.5the specific servicing right, and a weighted average default rate of 0.67%. 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%.
7. PREMISES AND FIXED ASSETS, NET AND PREMISES HELD FOR SALE
Premises and Fixed Assets, Net
The following is a summary of premises and fixed assets, net:
| | | | | | |
| | December 31, | ||||
(In thousands) |
| 2022 |
| 2021 | ||
Land | | $ | 10,824 | | $ | 10,824 |
Buildings | |
| 21,688 | |
| 21,323 |
Leasehold improvements | |
| 26,862 | |
| 26,120 |
Furniture, fixtures and equipment | |
| 25,750 | |
| 25,110 |
Premises and fixed assets, gross | | $ | 85,124 | | $ | 83,377 |
Less: accumulated depreciation and amortization | |
| (38,375) | |
| (33,009) |
Premises and fixed assets, net | | $ | 46,749 | | $ | 50,368 |
Depreciation and amortization expense amounted to $7.4 million, $6.5 million and $3.4$4.1 million during the years ended December 31, 2022, 2021 and 2020, respectively.
Premises Held for Sale
There were no premises held for sale as of December 31, 2022. The aggregate recorded balance of the Company’s premises held for sale was $556 thousand at December 31, 2021
During the year ended December 31, 2017,2021, the Bank modified certain commercialCompany transferred two real estate mortgage loansproperties utilized as troubled debt restructurings (“TDRs”)retail branches to premises held for sale totaling $7.8 million, which are classified as special mention, and certain taxi medallion loans totaling $6.8 million, which are classified as substandard, which, coupled with an increase in nonaccrual loans, caused the increase in impaired loans from December 31, 2016. 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$2.8 million.
During each of the loan agreement. Management applies its normal loan review procedures in making these judgments. Impaired loans include individually classified nonaccrual loans and troubled debt restructurings (“TDRs”). 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 following tables set forth the recorded investment, unpaid principal balance and related allowance by class of loans at December 31, 2017, 2016 and 2015 for individually impaired loans. The tables also set forth the average recorded investment of individually impaired loans and interest income recognized while the loans were impaired during the years ended December 31, 2017, 20162022 and 2015:2021, the Company sold one real estate property utilized as a retail branch totaling $1.9 million and $2.2 million, respectively. The Company recorded a gain of $1.4 million and $550 thousand in gain on sale of securities and other assets in the consolidated statements of income.
| December 31, 2017 | Year Ended December 31, 2017 | |||||||||||||||||||
| (In thousands) | Recorded Investment | Unpaid Principal Balance | Related Allocated Allowance | Average Recorded Investment | Interest Income 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 | ||||||||||
70
8. LEASES
| December 31, 2016 | Year Ended December 31, 2016 | |||||||||||||||||||
| (In thousands) | Recorded Investment | Unpaid Principal Balance | Related Allocated Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
| With no related allowance recorded: | ||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||
| Owner occupied | $ | 326 | $ | 538 | $ | — | $ | 176 | $ | 10 | ||||||||||
| Non-owner occupied | 1,213 | 1,213 | — | 614 | 75 | |||||||||||||||
| Residential real estate: | ||||||||||||||||||||
| Residential mortgages | 520 | 558 | — | 276 | — | |||||||||||||||
| Home equity | 264 | 285 | — | 328 | — | |||||||||||||||
| Commercial and industrial: | ||||||||||||||||||||
| Secured | 556 | 556 | — | 274 | 12 | |||||||||||||||
| Unsecured | 408 | 408 | — | 227 | 19 | |||||||||||||||
| Total with no related allowance recorded | 3,287 | 3,558 | — | 1,895 | 116 | |||||||||||||||
| With an allowance recorded: | ||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||
| Owner occupied | — | — | — | — | — | |||||||||||||||
| Non-owner occupied | — | — | — | — | — | |||||||||||||||
| Residential real estate: | ||||||||||||||||||||
| Residential mortgages | — | — | — | — | — | |||||||||||||||
| Home equity | — | — | — | — | — | |||||||||||||||
| Commercial and industrial: | ||||||||||||||||||||
| Secured | — | — | — | — | — | |||||||||||||||
| Unsecured | 66 | 66 | 1 | 43 | 7 | |||||||||||||||
| Total with an allowance recorded | 66 | 66 | 1 | 43 | 7 | |||||||||||||||
| Total: | ||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||
| Owner occupied | 326 | 538 | — | 176 | 10 | |||||||||||||||
| Non-owner occupied | 1,213 | 1,213 | — | 614 | 75 | |||||||||||||||
| Residential real estate: | ||||||||||||||||||||
| Residential mortgages | 520 | 558 | — | 276 | — | |||||||||||||||
| Home equity | 264 | 285 | — | 328 | — | |||||||||||||||
| Commercial and industrial: | ||||||||||||||||||||
| Secured | 556 | 556 | — | 274 | 12 | |||||||||||||||
| Unsecured | 474 | 474 | 1 | 270 | 26 | |||||||||||||||
| Total | $ | 3,353 | $ | 3,624 | $ | 1 | $ | 1,938 | $ | 123 | ||||||||||
| December 31, 2015 | Year Ended December 31, 2015 | |||||||||||||||||||
| (In thousands) | Recorded Investment | Unpaid Principal Balance | Related Allocated Allowance | Average Recorded Investment | Interest Income Recognized | |||||||||||||||
| With no related allowance recorded: | ||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||
| Owner occupied | $ | 384 | $ | 564 | $ | — | $ | 412 | $ | 10 | ||||||||||
| Non-owner occupied | 927 | 928 | — | 938 | 62 | |||||||||||||||
| Residential real estate: | ||||||||||||||||||||
| Residential mortgages | 62 | 73 | — | 66 | — | |||||||||||||||
| Home equity | 610 | 700 | — | 631 | — | |||||||||||||||
| Commercial and industrial: | ||||||||||||||||||||
| Secured | 96 | 96 | — | 93 | 6 | |||||||||||||||
| Unsecured | — | — | — | — | — | |||||||||||||||
| Total with no related allowance recorded | 2,079 | 2,361 | — | 2,140 | 78 | |||||||||||||||
| With an allowance recorded: | ||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||
| Owner occupied | — | — | — | — | — | |||||||||||||||
| Non-owner occupied | 318 | 318 | 20 | 320 | 15 | |||||||||||||||
| Residential real estate: | ||||||||||||||||||||
| Residential mortgages | — | — | — | — | — | |||||||||||||||
| Home equity | — | — | — | — | — | |||||||||||||||
| Commercial and industrial: | ||||||||||||||||||||
| Secured | — | — | — | — | — | |||||||||||||||
| Unsecured | 194 | 194 | 9 | 223 | 17 | |||||||||||||||
| Total with an allowance recorded | 512 | 512 | 29 | 543 | 32 | |||||||||||||||
| Total: | ||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||
| Owner occupied | 384 | 564 | — | 412 | 10 | |||||||||||||||
| Non-owner occupied | 1,245 | 1,246 | 20 | 1,258 | 77 | |||||||||||||||
| Residential real estate: | ||||||||||||||||||||
| Residential mortgages | 62 | 73 | — | 66 | — | |||||||||||||||
| Home equity | 610 | 700 | — | 631 | — | |||||||||||||||
| Commercial and industrial: | ||||||||||||||||||||
| Secured | 96 | 96 | — | 93 | 6 | |||||||||||||||
| Unsecured | 194 | 194 | 9 | 223 | 17 | |||||||||||||||
| Total | $ | 2,591 | $ | 2,873 | $ | 29 | $ | 2,683 | $ | 110 | ||||||||||
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.
The Bank had no other real estate ownedCompany’s operating lease liabilities at December 31, 2017 and 2016.2022 are as follows:
| | | |
| | Rent to be | |
(In thousands) |
| Capitalized | |
2023 |
| $ | 11,724 |
2024 |
| | 11,641 |
2025 |
| | 11,434 |
2026 |
| | 10,741 |
2027 |
| | 8,754 |
Thereafter |
| | 9,964 |
Total undiscounted lease payments |
| | 64,258 |
Less amounts representing interest |
| | (3,918) |
Operating lease liabilities | | $ | 60,340 |
Troubled Debt Restructurings
The terms of certain loans were modified and are considered TDRs. The modification of the terms of such loans generally includes one or a combination of 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.
The following table presents loans by class modified as troubled debt restructurings during the years indicated:
| Modifications During the Years Ended December 31, | ||||||||||||||||||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | Number of Loans | Pre- Modification Outstanding Recorded Investment | Post- Modification Outstanding Recorded Investment | Number of Loans | Pre- Modification Outstanding Recorded Investment | Post- Modification Outstanding Recorded Investment | Number of Loans | Pre- Modification Outstanding Recorded Investment | Post- Modification Outstanding Recorded Investment | |||||||||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||||||||||
| Owner occupied | — | $ | — | $ | — | — | $ | — | $ | — | — | $ | — | $ | — | |||||||||||||||||||||
| Non-owner occupied | 2 | 7,764 | 7,764 | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Residential real estate: | ||||||||||||||||||||||||||||||||||||
| Residential mortgages | — | — | — | 1 | 252 | 252 | — | — | — | |||||||||||||||||||||||||||
| Home equity | — | — | — | 1 | 69 | 69 | — | — | — | |||||||||||||||||||||||||||
| Commercial and industrial: | ||||||||||||||||||||||||||||||||||||
| Secured | 7 | 6,828 | 6,828 | 3 | 459 | 459 | — | — | — | |||||||||||||||||||||||||||
| Unsecured | 2 | 189 | 189 | 1 | 525 | 525 | 3 | 160 | 160 | |||||||||||||||||||||||||||
| Installment/consumer loans | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||
| Total | 11 | $ | 14,781 | $ | 14,781 | 6 | $ | 1,305 | $ | 1,305 | 3 | $ | 160 | $ | 160 | |||||||||||||||||||||
The TDRs described above did not increase the allowance for loan losses during the years ended December 31, 2017, 2016 and 2015.
There were $0.4 million, $0.1 million and $0.7 million of charge-offsOther information related to TDRs during the years ended December 31, 2017, 2016 and 2015, respectively. During the year ended December 31, 2017 there were two loans modifiedour operating leases was as TDRs for which there was a payment default within twelve months following the modification. There was one loan modified as a TDR during 2016 and no loans modified as TDRs during 2015 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.follows:
| | | | | | | | | |
|
| Year Ended | |||||||
| | December 31, | |||||||
(In thousands) |
| 2022 |
| 2021 | | 2020 | |||
Operating lease cost | | $ | 11,428 | | $ | 14,341 | | $ | 6,522 |
Cash paid for amounts included in the measurement of operating lease liabilities | | | 10,574 | | | 13,975 | |
| 7,030 |
| | | | | | |
| | December 31, |
| | December 31, |
|
|
| 2022 |
| | 2021 |
|
Weighted average remaining lease term |
| 5.9 | years | | 6.6 | years |
Weighted average discount rate |
| 2.03 | % | | 1.79 | % |
9. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
At December 31, 20172022 and 2016, the Company had $5 thousand and $0.3 million, respectively, of nonaccrual TDRs and $16.7 million and $2.4 million, respectively, of performing TDRs. The nonaccrual TDR at December 31, 2017 was unsecured. At December 31, 2016, total nonaccrual TDRs were secured with collateral that had an appraised value of $1.3 million. The Bank has no commitment to lend additional funds to these debtors.
The terms of certain other loans were modified during the year ended December 31, 2017 that did not meet the definition of a TDR. These loans have a total recorded investment at December 31, 2017 of $52.5 million. These loans were to borrowers who were not experiencing financial difficulties.
Purchased Credit Impaired Loans
Loans acquired 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 acquisition 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 purchased credit impaired (“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.
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 and2021, the carrying amount of the loan.Company’s goodwill was $155.8 million.
Payments received earlier than expected or in excess of expected cash flows from sales or other resolutions may resultThe Company performs its annual goodwill impairment test in the carrying valuefourth quarter 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.
At the acquisition date, the PCI loans acquired as part of the FNBNY acquisition had contractually required principal and interest payments receivable of $40.3 million; expected cash flows of $28.4 million; and a fair value (initial carrying amount) of $21.8 million. The difference between the contractually required principal and interest payments receivable and the expected cash flows of $11.9 million represented the non-accretable difference. The difference between the expected cash flows and fair value of $6.6 million represented the initial accretable yield. At December 31, 2017, the contractually required principal and interest payments receivable and carrying amount of the PCI loans was $4.0 million and $2.4 million, respectively, with a remaining non-accretable difference of $0.7 million. At December 31, 2016, the contractually required principal and interest payments receivable and carrying amount of the PCI loans was $12.2 million and $7.0 million, respectively, with a remaining non-accretable difference of $1.3 million.
At the acquisition date, the PCI loans acquired as part of the CNB acquisition had contractually required principal and interest payments receivable of $23.4 million, expected cash flows of $10.1 million, and a fair value (initial carrying amount) of $8.7 million. The difference between the contractually required principal and interest payments receivable and the expected cash flows of $13.3 million represented the non-accretable difference. The difference between the expected cash flows and fair value of $1.4 million represented the initial accretable yield. At December 31, 2017, the contractually required principal and interest payments receivable and carrying amount of the PCI loans was $7.6 million and $1.0 million, respectively, with a remaining non-accretable difference of $5.3 million. At December 31, 2016, the contractually required principal and interest payments receivable and carrying amount of the PCI loans was $12.2 million and $2.3 million, respectively, with a remaining non-accretable difference of $6.9 million.
The following table summarizes the activity in the accretable yield for the PCI loans:
| Year Ended December 31, | ||||||||
| (In thousands) | 2017 | 2016 | ||||||
| Balance at beginning of period | $ | 6,915 | $ | 7,113 | ||||
| Accretion | (5,221 | ) | (4,924 | ) | ||||
| Reclassification from nonaccretable difference during the period | 457 | 4,492 | ||||||
| Other | - | 234 | ||||||
| Accretable discount at end of period | $ | 2,151 | $ | 6,915 | ||||
The allowance for loan losses was increased $0.1 million during theevery year, ended December 31 2017 for those PCI loans disclosed above and a $0.1 million charge-off was recorded. The allowance for loan losses was not increased during the year ended December 31, 2016 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 2017 and 2016.
The following table sets forth selected information about related party loans for the year ended December 31, 2017:
| (In thousands) | Year Ended December 31, 2017 | |||
| Balance at beginning of period | $ | 22,116 | ||
| New loans | 1,645 | |||
| Repayments | (2,619 | ) | ||
| Balance at end of period | $ | 21,142 | ||
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, 2017 and 2016. The tables include loans acquired from CNB and FNBNY.
| December 31, 2017 | ||||||||||||||||||||||||||||
| (In thousands) | Commercial Real Estate Mortgage Loans | Multi-family Loans | Residential Real Estate Mortgage Loans | Commercial, Industrial and Agricultural Loans | Real Estate Construction and Land Loans | Installment/ Consumer Loans | Total | |||||||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | 1,708 | $ | — | $ | — | $ | 1,708 | ||||||||||||||
| Collectively evaluated for impairment | 11,048 | 4,521 | 2,438 | 11,130 | 740 | 122 | 29,999 | |||||||||||||||||||||
| Loans acquired with deteriorated credit quality | — | — | — | — | — | — | — | |||||||||||||||||||||
| Total allowance for loan losses | $ | 11,048 | $ | 4,521 | $ | 2,438 | $ | 12,838 | $ | 740 | $ | 122 | $ | 31,707 | ||||||||||||||
| Loans: | ||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | 11,162 | $ | — | $ | 100 | $ | 11,230 | $ | — | $ | — | $ | 22,492 | ||||||||||||||
| Collectively evaluated for impairment | 1,281,837 | 593,645 | 463,575 | 604,329 | 107,759 | 21,041 | 3,072,186 | |||||||||||||||||||||
| Loans acquired with deteriorated credit quality | 907 | 1,635 | 589 | 444 | — | — | 3,575 | |||||||||||||||||||||
| Total loans | $ | 1,293,906 | $ | 595,280 | $ | 464,264 | $ | 616,003 | $ | 107,759 | $ | 21,041 | $ | 3,098,253 | ||||||||||||||
| December 31, 2016 | ||||||||||||||||||||||||||||
| (In thousands) | Commercial Real Estate Mortgage Loans | Multi-family Loans | Residential Real Estate Mortgage Loans | Commercial, Industrial and Agricultural Loans | Real Estate Construction and Land Loans | Installment/ Consumer Loans | Total | |||||||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | — | $ | — | $ | — | $ | 1 | $ | — | $ | — | $ | 1 | ||||||||||||||
| Collectively evaluated for impairment | 9,225 | 6,264 | 1,495 | 7,836 | 955 | 128 | 25,903 | |||||||||||||||||||||
| Loans acquired with deteriorated credit quality | — | — | — | — | — | — | — | |||||||||||||||||||||
| Total allowance for loan losses | $ | 9,225 | $ | 6,264 | $ | 1,495 | $ | 7,837 | $ | 955 | $ | 128 | $ | 25,904 | ||||||||||||||
| Loans: | ||||||||||||||||||||||||||||
| Individually evaluated for impairment | $ | 1,539 | $ | — | $ | 784 | $ | 1,030 | $ | — | $ | — | $ | 3,353 | ||||||||||||||
| Collectively evaluated for impairment | 1,088,332 | 514,853 | 363,230 | 519,686 | 80,605 | 16,368 | 2,583,074 | |||||||||||||||||||||
| Loans acquired with deteriorated credit quality | 1,881 | 3,293 | 870 | 3,734 | — | — | 9,778 | |||||||||||||||||||||
| Total loans | $ | 1,091,752 | $ | 518,146 | $ | 364,884 | $ | 524,450 | $ | 80,605 | $ | 16,368 | $ | 2,596,205 | ||||||||||||||
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.
The following tables represent the changes in the allowance for loan losses for the years ended December 31, 2017, 2016 and 2015, 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, 2017 | ||||||||||||||||||||||||||||
| (In thousands) | Commercial Real Estate Mortgage Loans | Multi-family Loans | Residential Real Estate Mortgage Loans | Commercial, Industrial and Agricultural Loans | Real Estate Construction and Land Loans | Installment/ Consumer 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 | 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 | ||||||||||||||
| Year Ended December 31, 2016 | ||||||||||||||||||||||||||||
| (In thousands) | Commercial Real Estate Mortgage Loans | Multi-family Loans | Residential Real Estate Mortgage Loans | Commercial, Industrial and Agricultural Loans | Real Estate Construction and Land Loans | Installment/ Consumer Loans | Total | |||||||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||||||
| Beginning balance | $ | 7,850 | $ | 4,208 | $ | 2,115 | $ | 5,405 | $ | 1,030 | $ | 136 | $ | 20,744 | ||||||||||||||
| Charge-offs | — | — | (56 | ) | (930 | ) | — | (1 | ) | (987 | ) | |||||||||||||||||
| Recoveries | 109 | — | 96 | 386 | — | 6 | 597 | |||||||||||||||||||||
| Provision | 1,266 | 2,056 | (660 | ) | 2,976 | (75 | ) | (13 | ) | 5,550 | ||||||||||||||||||
| Ending balance | $ | 9,225 | $ | 6,264 | $ | 1,495 | $ | 7,837 | $ | 955 | $ | 128 | $ | 25,904 | ||||||||||||||
| Year Ended December 31, 2015 | ||||||||||||||||||||||||||||
| (In thousands) | Commercial Real Estate Mortgage Loans | Multi-family Loans | Residential Real Estate Mortgage Loans | Commercial, Industrial and Agricultural Loans | Real Estate Construction and Land Loans | Installment/ Consumer Loans | Total | |||||||||||||||||||||
| Allowance for loan losses: | ||||||||||||||||||||||||||||
| Beginning balance | $ | 6,994 | $ | 2,670 | $ | 2,208 | $ | 4,526 | $ | 1,104 | $ | 135 | $ | 17,637 | ||||||||||||||
| Charge-offs | (50 | ) | — | (249 | ) | (827 | ) | — | (2 | ) | (1,128 | ) | ||||||||||||||||
| Recoveries | — | — | 79 | 149 | — | 7 | 235 | |||||||||||||||||||||
| Provision | 906 | 1,538 | 77 | 1,557 | (74 | ) | (4 | ) | 4,000 | |||||||||||||||||||
| Ending balance | $ | 7,850 | $ | 4,208 | $ | 2,115 | $ | 5,405 | $ | 1,030 | $ | 136 | $ | 20,744 | ||||||||||||||
6. PREMISES AND EQUIPMENT, NET
The following table details the components of premises and equipment:
| December 31, | ||||||||
| (In thousands) | 2017 | 2016 | ||||||
| Land | $ | 7,980 | $ | 7,951 | ||||
| Building and improvements | 15,368 | 15,272 | ||||||
| Furniture, fixtures and equipment | 21,464 | 20,295 | ||||||
| Leasehold improvements | 12,271 | 13,562 | ||||||
| 57,083 | 57,080 | |||||||
| Accumulated depreciation and amortization | (23,578 | ) | (21,817 | ) | ||||
| Total premises and equipment, net | $ | 33,505 | $ | 35,263 | ||||
Depreciation and amortization amounted to $3.8 million, $3.5 million and $3.6 million for the years ended December 31, 2017, 2016 and 2015, respectively.
7. GOODWILL AND OTHER INTANGIBLE ASSETS
FASB ASC No. 350, Intangibles —Goodwill and Other, requires a company to perform an impairment test on goodwill annually, 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.
The Company tested goodwill for impairmentimpaired. It was determined during the fourth quarter of 2017. 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 itno 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.
Goodwill
The following table reflects the changes in goodwill:
| Year Ended December 31, | ||||||||
| (In thousands) | 2017 | 2016 | ||||||
| Balance at beginning of period | $ | 105,950 | $ | 98,445 | ||||
| Measurement period adjustments(1) | — | 7,505 | ||||||
| Balance at end of period | $ | 105,950 | $ | 105,950 | ||||
Acquired Intangible Assets
The following table reflects acquired intangible assets:
| December 31, | ||||||||||||||||
| 2017 | 2016 | |||||||||||||||
| (In thousands) | Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||
| Intangible assets subject to amortization: | ||||||||||||||||
| Core deposit intangibles | $ | 7,211 | $ | 3,409 | $ | 7,211 | $ | 2,362 | ||||||||
| Intangible assets not subject to amortization: | ||||||||||||||||
| Trademark | 255 | — | — | — | ||||||||||||
| Total intangible assets | $ | 7,466 | $ | 3,409 | $ | 7,211 | $ | 2,362 | ||||||||
Aggregate amortization expense for intangible assets with finite livesneeded for the years ended December 31, 2017, 2016,2022, 2021 and 20152020 as the fair value of the Company’s single reporting unit was $1.0determined to exceed the carrying amount of the reporting unit.
The following table presents the change in Goodwill for the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) | | | 2022 |
| | 2021 |
| | 2020 |
Beginning of year | | $ | 155,797 | | $ | 55,638 | | $ | 55,638 |
Acquired goodwill1 | | | - | | | 100,159 | | | - |
Impairment | |
| - | | | - | | | - |
End of year | | $ | 155,797 | | $ | 155,797 | | $ | 55,638 |
| (1) | See Note 2. Merger for additional information regarding the acquired goodwill |
Other Intangible Assets
The following table presents the carrying amount and accumulated amortization of intangible assets that are amortizable.
| | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 | ||||||||||||||
| | Core Deposit | | | Non-compete | | | | | | Core Deposit | | | Non-compete | | | |
(In thousands) | | Intangibles |
| | Agreement |
| | Total | | | Intangibles |
| | Agreement |
| | Total |
Gross carrying value | $ | 10,204 | | $ | 780 | | $ | 10,984 | | $ | 10,204 | | $ | 780 | | $ | 10,984 |
Accumulated amortization |
| (3,720) | | | (780) | | | (4,500) | |
| (1,962) | | | (660) | | | (2,622) |
Net carrying amount | $ | 6,484 | | $ | - | | $ | 6,484 | | $ | 8,242 | | $ | 120 | | $ | 8,362 |
71
Amortization expense recognized on intangible assets was $1.9 million and $2.6 million for the years ended December 31, 2022 and $1.4 million,2021, respectively.
InEstimated amortization expense for 2023 through 2027 and thereafter is as follows:
| | | |
(In thousands) | | | Total |
2023 | | | 1,425 |
2024 | | | 1,163 |
2025 | | | 958 |
2026 | | | 795 |
2027 | | | 664 |
Thereafter | | | 1,479 |
Total | | $ | 6,484 |
10. RESTRICTED STOCK
The following is a summary of restricted stock:
| | | | | | |
(In thousands) |
| December 31, 2022 |
| December 31, 2021 | ||
FHLBNY capital stock | | $ | 63,627 | | $ | 12,819 |
FRB capital stock | |
| 24,953 | |
| 24,748 |
Bankers' Bank capital stock | |
| 165 | |
| 165 |
Restricted stock | | $ | 88,745 | | $ | 37,732 |
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 own a particular amount of stock based on the level of borrowings and other factors. The Bank increased its outstanding FHLBNY advances by $1.11 billion during the year ended December 31, 2017,2022, resulting in an increase of required FHLBNY stock. The Bank owned 636,274 shares and 128,184 shares at December 31, 2022 and 2021, respectively. The Bank recorded dividend income on the Company acquiredFHLBNY capital stock of $0.9 million, $1.9 million and $3.0 million during the years ended December 31, 2022, 2021 and 2020, respectively.
FRB Capital Stock
The Bank is a trademarkmember of $255the FRB. Membership requires the purchase of shares of FRB capital stock at $50 per share. The Bank owned 499,052 shares at December 31, 2022 and 494,965 shares at December 31, 2021. The Bank recorded dividend income on the FRB capital stock of $828 thousand related toand $442 thousand during the Bank’s name change to BNByears ended December 31, 2022 and 2021, respectively, and no dividend income for the year ended December 31, 2020.
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. The Bank owned 60 shares at December 31, 2022 and 2021. The Bank recorded dividend income on the ACBB capital stock of $1 thousand during the years ended December 31, 2022 and 2021, and no dividend income during the year ended December 31, 2020.
72
11. DEPOSITS
Deposits are summarized as follows:
| | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 | ||||||
| | Weighted | | | | | Weighted | | | |
| | Average | | | | | Average | | | |
(Dollars in thousands) |
| Rate |
| Liability |
| Rate |
| Liability | ||
Savings |
| 2.24 | % | $ | 2,260,101 |
| 0.03 | % | $ | 1,158,040 |
Certificates of deposit ("CDs") |
| 2.25 | |
| 1,115,364 |
| 0.58 | |
| 853,242 |
Money market |
| 1.50 | |
| 2,532,270 |
| 0.07 | |
| 3,621,552 |
Interest-bearing checking |
| 1.01 | |
| 827,454 |
| 0.18 | |
| 905,717 |
Non-interest-bearing checking |
| — | |
| 3,519,218 |
| — | |
| 3,920,423 |
Total |
| 1.19 | % | $ | 10,254,407 |
| 0.09 | % | $ | 10,458,974 |
The following table reflects estimated amortizationpresents a summary of scheduled maturities of CDs outstanding at December 31, 2022:
| | | | | | |
| | Maturing | | Weighted Average |
| |
(Dollars in thousands) |
| Balance |
| Interest Rate |
| |
2023 |
| $ | 929,791 | | 2.33 | % |
2024 | |
| 131,969 | | 2.22 | |
2025 | |
| 31,444 | | 1.33 | |
2026 | |
| 13,366 | | 0.30 | |
2027 | |
| 8,793 | | 0.25 | |
2028 and beyond | |
| 1 | | 0.01 | |
Total | | $ | 1,115,364 | | 2.25 | % |
CDs that met or exceeded the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250 thousand were $420.4million and $200.1 million December 31, 2022 and 2021, 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 $6.4 million will be reclassified as a decrease to interest expense.
During the year ended December 31, 2022, the Company did not terminate any derivatives. 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
73
31, 2020, the Company 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 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.
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, 2022 | | December 31, 2021 | ||||||||||||||||||
| | | | 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 | | $ | 17,150 | | $ | — |
| 4 | | $ | 150,000 | | $ | 4,358 | | $ | — |
The table below presents the effect of the cash flow hedge accounting on accumulated other comprehensive loss as of December 31, 2022, 2021 and 2020.
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) |
| 2022 |
| 2021 |
| 2020 | |||
Gain (loss) recognized in other comprehensive income (loss) | | $ | 14,412 | | $ | 5,277 | | $ | (24,449) |
Gain recognized on termination of derivatives | | | — | | | 16,505 | | | 6,596 |
Gain (loss) reclassified from other comprehensive income into interest expense | |
| 1,621 | |
| (940) | |
| (6,127) |
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, 2022 and 2021, the Bank did not post collateral to the third-party counterparties. As of December 31, 2022 and 2021, the Company received $17.8 million and $4.6 million, respectively, in collateral from its third-party counterparties under the agreements in a net asset position.
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 ASC 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, 2022 | |||||||||
| | | | Notional | | Fair Value | | Fair Value | |||
(In thousands) |
| Count |
| Amount |
| Assets |
| Liabilities | |||
Included in derivative assets/(liabilities): | | | | | | | | | | | |
Loan level interest rate swaps with borrower |
| 3 | | $ | 53,311 | | $ | 1,524 | | $ | |
Loan level interest rate swaps with borrower |
| 185 | | | 1,214,736 | | | — | | | 126,751 |
Loan level interest rate floors with borrower | | 40 | | | 326,309 | | | — | | | 9,060 |
Loan level interest rate swaps with third-party counterparties |
| 3 | |
| 53,311 | |
| — | |
| 1,524 |
Loan level interest rate swaps with third-party counterparties | | 185 | | | 1,214,736 | | | 126,751 | | | — |
Loan level interest rate floors with third-party counterparties |
| 40 | |
| 326,309 | |
| 9,060 | |
| — |
74
| | | | | | | | | | | |
| | 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 |
| 98 | | $ | 599,003 | | $ | 27,440 | | $ | — |
Loan level interest rate swaps with borrower |
| 87 | |
| 612,610 | |
| — | |
| (12,620) |
Loan level interest rate floors with borrower | | 33 | | | 291,990 | | | 615 | | | — |
Loan level interest rate floors with borrower | | 12 | | | 100,774 | | | — | | | (53) |
Loan level interest rate swaps with third-party counterparties |
| 98 | |
| 599,003 | |
| — | |
| (27,440) |
Loan level interest rate swaps with third-party counterparties | | 87 | | | 612,610 | | | 12,620 | | | — |
Loan level interest rate floors with third-party counterparties | | 33 | | | 291,990 | | | — | | | (615) |
Loan level interest rate floors with third-party counterparties |
| 12 | |
| 100,774 | |
| 53 | |
| — |
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) |
| 2022 |
| 2021 | | 2020 | |||
Loan level derivative income | | $ | 3,637 | | $ | 2,909 | | $ | 8,872 |
The interest rate swap product with the borrower is cross collateralized with the underlying loan and, therefore, there is no posted collateral. Certain interest rate swap agreements with third-party counterparties contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount and receive collateral for agreements in a net asset position. As of December 31, 2022, the Company did not post collateral to its third-party counterparties. As of December 31, 2021, posted collateral was $14.0 million. As of December 31, 2022, the Company received $135.3 million in collateral from its third-party counterparties under the agreements in a net asset position. As of December 31, 2021, the Company did not receive collateral from its third-party counterparties.
Risk Participation Agreements
The Company enters into risk participation agreements to manage economic risks but does not designate the instruments in hedge relationships. As of December 31, 2022 and December 31, 2021, the notional amounts of risk participation agreements for derivative liabilities were $71.1 million and $25.6 million, respectively. The related fair values of the Company’s risk participation agreements were immaterial as of December 31, 2022 and December 31, 2021
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, 2022, 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 $137.3 million for those related to loan level derivatives. If the Company had breached any of the above provisions at December 31, 2022, it could have been required to settle its obligations under the agreements at the termination value with the respective counterparty. There were no provisions breached for the year ended December 31, 2022.
13. FHLBNY ADVANCES
The Bank had borrowings from the FHLBNY (“Advances”) totaling $1.13 billion and $25.0 million at December 31, 2022 and 2021, respectively, all of which were fixed rate. The average interest rate on outstanding FHLBNY Advances was 4.55% and 0.35% at December 31, 2022 and 2021, respectively. In accordance with its Advances, Collateral Pledge and Security Agreement with the FHLBNY, the Bank was eligible to borrow up to $4.13 billion as of December 31, 2022 and $4.19 billion as of December 31, 2021, and maintained sufficient qualifying collateral, as defined by the FHLBNY. At December 31, 2022 there were no callable Advances.
75
During the years ended December 2022, 2021, and 2020, 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) | | | 2022 |
| | 2021 |
| | 2020 | |
FHLBNY advances extinguished | | $ | - | | $ | 209,010 | | $ | 70,750 | |
Weighted average rate | | | - | % | | 1.31 | % | | 1.15 | % |
Loss on extinguishment of debt | | $ | - | | $ | 1,751 | | $ | 1,104 | |
The following tables present the contractual maturities and weighted average interest rates of FHLBNY advances for each of the next five years. There were no FHLBNY advances with an overnight contractual maturity at December 31, 2022 and 2021. As of December 31, 2022, there were $1.10 billion of FHLBNY advances with contractual maturities during 2023 and $36.0 million of FHLBNY advances with contractual maturities after 2023. As of December 31, 2021, there were $25.0 million of FHLBNY advances with contractual maturities during 2022 and no FHLBNY advances with contractual maturities after 2023:
| | | | | | |
| | December 31, 2022 |
| |||
(Dollars in thousands) | | | | | Weighted |
|
Contractual Maturity |
| Amount |
| Average Rate |
| |
2023, fixed rate at rates from 3.85% to 4.75% | | $ | 1,095,000 | | 4.56 | |
2027, fixed rate at 4.25% | | | 36,000 |
| 4.25 | |
Total FHLBNY advances | | $ | 1,131,000 |
| 4.55 | % |
| | | | | | |
| | 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 | % |
14. SUBORDINATED DEBENTURES
On May 6, 2022, the Company issued $160.0 million aggregate principal amount of fixed-to-floating rate subordinated notes due 2032 (“the Notes”). The Notes are callable at par after five years, have a stated maturity of May 15, 2032 and bear interest at a fixed annual rate of 5.00% per��year, payable semi-annually in arrears on May 15 and November 15 of each year, commencing on November 15, 2022. The last interest payment for the fixed rate period will be May 15, 2027. From and including May 15, 2027 to, but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an annual interest rate equal to the benchmark rate (which is expected to be Three-Month Term SOFR) plus 218 basis points, payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, commencing on August 15, 2027.
The Company used the net proceeds of the offering for the repayment of $115.0 million of the Company’s 4.50% fixed-to-floating rate subordinated notes due 2027 on June 15, 2022, and $40.0 million of the Company’s 5.25% fixed-to-floating rate subordinated debentures due 2025 on June 30, 2022. The repayment of the subordinated notes due 2027 resulted in a pre-tax write-off of debt issuance costs of $740 thousand, which was recognized in loss on extinguishment of debt in non-interest expense.
The subordinated debentures totaled $200.3 million at December 31, 2022 and $197.1 million at December 31, 2021. Interest expense related to the subordinated debt was $10.6 million, $8.5 million and $5.3 million during the years ended December 31, 2022, 2021 and thereafter:2020, respectively. The subordinated debentures are included in tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.
| (In thousands) | Total | |||
| 2018 | $ | 917 | ||
| 2019 | 787 | |||
| 2020 | 656 | |||
| 2021 | 531 | |||
| 2022 | 413 | |||
| Thereafter | 498 | |||
| Total | $ | 3,802 | ||
8. DEPOSITS
Time Deposits
15. OTHER SHORT-TERM BORROWINGS
The following table sets forth the remaining maturitiesis a summary of the Bank’s time deposits at December 31, 2017:other short-term borrowings:
| (In thousands) | Total | |||
| 2018 | $ | 125,578 | ||
| 2019 | 37,865 | |||
| 2020 | 11,721 | |||
| 2021 | 42,903 | |||
| 2022 | 3,564 | |||
| Thereafter | 733 | |||
| Total | $ | 222,364 | ||
| | | | | | |
(In thousands) |
| December 31, 2022 |
| December 31, 2021 | ||
Repurchase agreements | | $ | 1,360 | | $ | 1,862 |
Other short-term borrowings | | $ | 1,360 | | $ | 1,862 |
76
Repurchase Agreements
The deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2017 and 2016 were $93.0 million and $65.4 million, respectively. Deposits from principal officers, directors and their affiliates at December 31, 2017 and 2016 were approximately $23.2 million and $13.9 million, respectively.
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
SecuritiesBank utilizes securities sold under agreements to repurchase totaled $0.9 million at December 31, 2017 and $0.7 million at December 31, 2016. The (“repurchase agreements”) as part of its borrowing policy to add liquidity. Repurchase agreements wererepresent funds received from customers, generally on an overnight basis, which are collateralized by investment securities, of which 52%100% were U.S. GSE residential collateralized mortgage obligations and 48% were U.S. GSE residential mortgage-backed securitiespass-through MBS issued by GSEs with a carrying amount of $1.8$1.4 million at December 31, 2017 and 49% were U.S. GSE residential collateralized mortgage obligations and 51% were U.S. GSE residential mortgage-backed securities with a carrying amount of $2.3 million at December 31, 2016.2022.
Securities sold underRepurchase agreements to repurchase are financing arrangements with $0.9$1.4 million maturing during the first quarter of 2018.2023. At maturity, the securities underlying the agreements are returned to the Company.Bank. The primary risk associated with these secured borrowings is the requirement to pledge a market value basedvalue-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’sBank’s policies, eligible counterparties are defined and monitored to minimize exposure.
The following table summarizes information concerning securities sold under agreements to repurchase:
| Year Ended December 31, | ||||||||
| (Dollars in thousands) | 2017 | 2016 | ||||||
| Average daily balance during the year | $ | 867 | $ | 45,630 | ||||
| Average interest rate during the year | 0.05 | % | 0.85 | % | ||||
| Maximum month-end balance during the year | $ | 1,300 | $ | 51,197 | ||||
| Weighted average interest rate at year-end | 0.05 | % | 0.83 | % | ||||
10. FEDERAL HOME LOAN BANK ADVANCES
The following table summarizes information concerning FHLB advances:
| Year Ended December 31, | �� | |||||||
| (Dollars in thousands) | 2017 | 2016 | ||||||
| Average daily balance during the year | $ | 401,258 | $ | 275,592 | ||||
| Average interest rate during the year | 1.52 | % | 1.09 | % | ||||
| Maximum month-end balance during the year | $ | 563,974 | $ | 496,684 | ||||
| Weighted average interest rate at year-end | 1.57 | % | 0.80 | % | ||||
The following tables set forth the contractual maturities and weighted average interest rates of FHLB advances for each of the next five years. There are no FHLB advances with contractual maturities after 2019.
| (Dollars in thousands) | December 31, 2017 | |||||||
| Contractual Maturity | Amount | Weighted Average Rate | ||||||
| Overnight | $ | 185,000 | 1.53 | % | ||||
| 2018 | 315,083 | 1.59 | ||||||
| 2019 | 1,291 | 0.94 | ||||||
| 316,374 | 1.59 | |||||||
| Total FHLB advances | $ | 501,374 | 1.57 | % | ||||
| (Dollars in thousands) | December 31, 2016 | |||||||
| Contractual Maturity | Amount | Weighted Average Rate | ||||||
| Overnight | $ | 175,000 | 0.74 | % | ||||
| 2017 | 294,113 | 0.82 | ||||||
| 2018 | 25,431 | 1.05 | ||||||
| 2019 | 2,140 | 1.04 | ||||||
| 321,684 | 0.84 | |||||||
| Total FHLB advances | $ | 496,684 | 0.80 | % | ||||
Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances were collateralized by $1.2 billion and $923.9 million of residential and commercial mortgage loans under a blanket lien arrangement at December 31, 2017 and 2016, respectively. Based on this collateral and the Company’s holdings of FHLB stock, the Company is eligible to borrow up to a total of $1.3 billion at December 31, 2017.
11. BORROWED FUNDS
Subordinated Debentures
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 $78.6 million at December 31, 2017 and $78.5 million at December 31, 2016.
The subordinated debentures are included in tier 2 capital (with certain limitations applicable) under current regulatory guidelines and interpretations.
Junior Subordinated Debentures
In December 2009, the Company completed the private placement of $16.0 million in aggregate liquidation amount of 8.50% cumulative convertible trust preferred securities (“TPS”), through its subsidiary, Bridge Statutory Capital Trust II (the “Trust”). The TPS had a liquidation amount of $1,000 per security, were convertible into the Company’s common stock, at a modified effective conversion price of $29 per share, matured in 2039 and were callable by the Company at par after September 30, 2014.
The Company issued $16.0 million of junior subordinated debentures (the “Debentures”) to the Trust in exchange for ownership of all of the common securities of the Trust and the proceeds of the TPS sold by the Trust. In accordance with accounting guidance, the Trust was not consolidated in the Company’s financial statements, but rather the Debentures were shown as a liability. The Debentures had the same interest rate, maturity and prepayment provisions as the TPS.
On December 15, 2016, the Company notified holders of the $15.8 million in outstanding TPS of the full redemption of the TPS on January 18, 2017. The redemption price equaled the liquidation amount, plus accrued but unpaid interest until but not including the redemption date. TPS not converted into shares of the Company’s common stock on or prior to January 17, 2017 were redeemed as of January 18, 2017. 15,450 shares of TPS with a liquidation amount of $15.5 million were converted into 532,740 shares of the Company’s common stock, which includes 100 shares of TPS with a liquidation amount of $100,000, which were converted into 3,448 shares of the Company’s common stock on December 28, 2016. The remaining 350 shares of TPS with a liquidation amount of $350,000 were redeemed on January 18, 2017. The Trust was cancelled effective April 24, 2017.
12. DERIVATIVES
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 reference to the notional amount and the other terms of the individual interest rate swap agreements.
Interest rate swaps with notional amounts totaling $290.0 million and $175.0 million as of December 31, 2017 and 2016, respectively, were designated as cash flow hedges of certain FHLB advances. The swaps were determined to be fully effective during the periods presented and therefore no amount of ineffectiveness has been included in net income. The aggregate fair value of the swaps is recorded in other assets/(other liabilities) with changes in fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income (loss) would be reclassified 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, 2017 and 2016:
| December 31, | ||||||||
| (Dollars in thousands) | 2017 | 2016 | ||||||
| Notional amounts | $ | 290,000 | $ | 175,000 | ||||
| Weighted average pay rates | 1.78 | % | 1.61 | % | ||||
| Weighted average receive rates | 1.61 | % | 0.95 | % | ||||
| Weighted average maturity | 2.64 years | 2.98 years | ||||||
Interest expense recorded on these swap transactions totaled $1.4 million, $0.9 million and $0.7 million during the years ended December 31, 2017, 2016 and 2015, respectively, and is reported as a component of 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, 2017, the Company had $1.4 million of reclassifications to interest expense. During the next twelve months, the Company estimates that $0.2 million will be reclassified as a decrease 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, 2017, 20162022 and 2015:2021 was $1 thousand and $1 thousand, respectively. There was no interest expense on repurchase agreements for the years ended December 31, 2020.
(In thousands) Interest rate contracts | Amount of gain (loss) recognized in OCI (Effective Portion) | Amount of loss reclassified from OCI to interest expense | Amount of loss recognized in other non- interest income (Ineffective Portion) | |||||||||
| Year ended December 31, 2017 | $ | 463 | $ | (1,419 | ) | $ | — | |||||
| Year ended December 31, 2016 | $ | 1,191 | $ | (944 | ) | $ | — | |||||
| Year ended December 31, 2015 | $ | (1,008 | ) | $ | (657 | ) | $ | — | ||||
AFX
The followingBank is a member of AFX, through which it may either borrow or lend funds on an overnight or short-term basis with other member institutions. The availability of funds changes daily. Interest expense on AFX borrowings for the years ended December 31, 2022, 2021 and 2020 was $1.4 million, $1 thousand, and $45 thousand, respectively.
16. INCOME TAXES
The Company’s consolidated Federal, State and City income tax provisions were comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2022 | | Year Ended December 31, 2021 | | Year Ended December 31, 2020 | |||||||||||||||||||||
| | | | | State | | | | | | | | State | | | | | | | | State | | | | |||
(In thousands) |
| Federal |
| and City |
| Total |
| Federal |
| and City |
| Total |
| Federal |
| and City |
| Total | |||||||||
Current | | $ | 39,492 | | $ | 17,205 | | $ | 56,697 | | $ | 23,759 | | $ | 11,815 | | $ | 35,574 | | $ | 13,107 | | $ | 1,524 | | $ | 14,631 |
Deferred | |
| 840 | |
| 1,822 | |
| 2,662 | |
| 5,490 | |
| 3,106 | |
| 8,596 | |
| (1,181) | |
| (784) | |
| (1,965) |
Total | | $ | 40,332 | | $ | 19,027 | | $ | 59,359 | | $ | 29,249 | | $ | 14,921 | | $ | 44,170 | | $ | 11,926 | | $ | 740 | | $ | 12,666 |
The preceding table reflectsexcludes 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 cash flow hedges includedminimum pension liability, unrecognized gains of pension and other postretirement obligations and changes in the Consolidated Balance Sheets atnon-credit component of OTTI. These tax effects are disclosed as part of the dates indicated:
| December 31, | ||||||||||||||||||||||||
| 2017 | 2016 | |||||||||||||||||||||||
| 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 | $ | 290,000 | $ | 3,133 | $ | (410 | ) | $ | 175,000 | $ | 1,994 | $ | (1,153 | ) | ||||||||||
Non-Designated Hedges
Derivatives not designated as hedges may be used to managepresentation of the Company’s exposure to interest rate movements or to provide service to customers but do not meet the requirements for hedge accounting under U.S. GAAP. The Company 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 thereforeconsolidated statements of changes in fair value are reported in current period earnings.
The following table presents summary information about the interest rate swaps at December 31, 2017stockholders’ equity and 2016:comprehensive income.
77
| December 31, | ||||||||
| (Dollars in thousands) | 2017 | 2016 | ||||||
| Notional amounts | $ | 147,967 | $ | 62,472 | ||||
| Weighted average pay rates | 3.96 | % | 3.50 | % | ||||
| Weighted average receive rates | 3.96 | % | 3.50 | % | ||||
| Weighted average maturity | 12.37 years | 13.97 years | ||||||
| Fair value of combined interest rate swaps | $ | — | $ | — | ||||
Credit-Risk-Related Contingent Features
As of December 31, 2017, 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 $0.3 million and the termination value of derivatives in a net asset position was $2.0 million. 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, 2017, the Company did not post collateral to its counterparty under the agreements in a net liability position and received collateral of $2.1 million from its counterparty under the agreements in a net asset position. If the Company had breached any of these provisions at December 31, 2017, it could have been required to settle its obligations under the agreements at the termination value.
The provision for income taxes differed from that computed at the Federal statutory rate as follows:
13. INCOME TAXES
| | | | | | | | | | |
| | Year Ended December 31, |
| |||||||
(Dollars in thousands) |
| 2022 |
| 2021 |
| 2020 |
| |||
Tax at federal statutory rate | | $ | 44,502 | | $ | 31,115 | | $ | 11,546 | |
State and local taxes, net of federal income tax benefit | |
| 13,699 | |
| 11,601 | |
| 567 | |
Benefit plan differences | |
| (127) | |
| (107) | |
| (240) | |
Adjustments for prior period returns and tax items | |
| 1,812 | |
| (238) | |
| 125 | |
Investment in BOLI | |
| (2,173) | |
| (1,485) | |
| (1,020) | |
Equity based compensation | |
| (141) | |
| (301) | |
| 96 | |
Salaries deduction limitation | |
| 2,054 | |
| 3,419 | |
| 1,428 | |
Transaction costs | | | — | | | 181 | | | 256 | |
Other, net | |
| (267) | |
| (15) | |
| (92) | |
Total | | $ | 59,359 | | $ | 44,170 | | $ | 12,666 | |
Effective tax rate | |
| 28.01 | % |
| 29.81 | % |
| 23.04 | % |
The following table detailsincrease in the components of incomeeffective tax expense:
| Year Ended December 31, | ||||||||||||
| (In thousands) | 2017 | 2016 | 2015 | |||||||||
| Current: | ||||||||||||
| Federal | $ | 8,762 | $ | 14,730 | $ | 8,248 | ||||||
| State | 937 | 780 | 1,230 | |||||||||
| Total current | 9,699 | 15,510 | 9,478 | |||||||||
| Deferred: | ||||||||||||
| Federal | 10,251 | 2,388 | 1,457 | |||||||||
| State | (1,004 | ) | 897 | (157 | ) | |||||||
| Total deferred | 9,247 | 3,285 | 1,300 | |||||||||
| Total income tax expense | $ | 18,946 | $ | 18,795 | $ | 10,778 | ||||||
The following table is a reconciliationrate in 2022 and 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, | ||||||||||||||||||||||||
| 2017 | 2016 | 2015 | ||||||||||||||||||||||
| (Dollars in thousands) | Amount | Percentage of Pre-tax Earnings | Amount | Percentage of Pre-tax Earnings | Amount | Percentage of Pre-tax Earnings | ||||||||||||||||||
| Federal income tax expense computed by applying the statutory rate to income before income taxes | $ | 13,820 | 35 | % | $ | 19,000 | 35 | % | $ | 11,161 | 35 | % | ||||||||||||
| Tax exempt income | (1,808 | ) | (5 | ) | (1,661 | ) | (3 | ) | (1,356 | ) | (4 | ) | ||||||||||||
| State taxes, net of federal income tax benefit | 725 | 2 | 1,090 | 2 | 1,087 | 3 | ||||||||||||||||||
| Deferred tax asset remeasurement (1) | 7,572 | 19 | - | - | - | - | ||||||||||||||||||
| Other | (1,363 | ) | (3 | ) | 366 | 1 | (114 | ) | - | |||||||||||||||
| Income tax expense | $ | 18,946 | 48 | % | $ | 18,795 | 35 | % | $ | 10,778 | 34 | % | ||||||||||||
The following table summarizesincrease in the composition of deferredCompany’s total assets, and non-deductible expenses. Deferred tax assets and liabilities:
| December 31, | ||||||||
| (In thousands) | 2017 | 2016 | ||||||
| Deferred tax assets: | ||||||||
| Allowance for loan losses and off-balance sheet credit exposure | $ | 9,906 | $ | 11,401 | ||||
| Net unrealized losses on securities | 4,650 | 6,019 | ||||||
| Compensation and related benefit obligations | 2,508 | 2,226 | ||||||
| Purchase accounting fair value adjustments | 7,576 | 14,376 | ||||||
| Net change in pension and other post-retirement benefits plans | 2,279 | 3,249 | ||||||
| Net operating loss carryforward | 1,997 | 2,470 | ||||||
| Other | 1,119 | 756 | ||||||
| Total deferred tax assets | 30,035 | 40,497 | ||||||
| Deferred tax liabilities: | ||||||||
| Pension and SERP expense | (3,915 | ) | (4,715 | ) | ||||
| Depreciation | (808 | ) | (1,537 | ) | ||||
| REIT undistributed net income | (2,146 | ) | (86 | ) | ||||
| Net deferred loan costs and fees | (1,406 | ) | (1,844 | ) | ||||
| Net gain on cash flow hedges | (792 | ) | (341 | ) | ||||
| State and local taxes | (1,255 | ) | (1,862 | ) | ||||
| Other | (221 | ) | (179 | ) | ||||
| Total deferred tax liabilities | (10,543 | ) | (10,564 | ) | ||||
| Net deferred tax asset | $ | 19,492 | $ | 29,933 | ||||
On December 22, 2017, the President signed the Tax Act, resulting in significant changes to existing tax law, including a lower federal statutory tax rateassets and liabilities. The components of 21%. The Tax Act was generally effective as 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 new 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) |
| 2022 |
| 2021 | ||
Deferred tax assets: | | | |
| |
|
Allowance for credit losses and other contingent liabilities | | $ | 28,175 | | $ | 29,777 |
Tax effect of other components of income on securities available-for-sale | | | 38,140 | | | 3,265 |
Tax effect of other components of income on securities held-to-maturity | | | 8,138 | | | 343 |
Operating lease liability | |
| 19,256 | |
| 20,532 |
Other | |
| 2,074 | |
| 1,976 |
Total deferred tax assets | |
| 95,783 | |
| 55,893 |
Deferred tax liabilities: | |
|
| |
|
|
Tax effect of other components of income on derivatives | | | 5,394 | | | 1,371 |
Employee benefit plans | | | 976 | | | 2,803 |
Tax effect of purchase accounting fair value adjustments | | | 2,352 | | | 3,945 |
Difference in book and tax carrying value of fixed assets | |
| 4,261 | |
| 3,950 |
Difference in book and tax basis of unearned loan fees | |
| 2,431 | |
| 2,413 |
Operating lease asset | |
| 18,414 | |
| 19,871 |
States taxes | | | 2,801 | | | (189) |
Other | |
| 1,002 | |
| 1,330 |
Total deferred tax liabilities | |
| 37,631 | |
| 35,494 |
Net deferred tax asset (recorded in other assets) | | $ | 58,152 | | $ | 20,399 |
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 before 2014. There are no unrecorded tax benefits, and
Under 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.
No valuation allowances were recognized on deferred tax assets during the years ended December 31, 2022 or 2021, 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, 2017,2022, the remaining federal NOL carryforward was $3.5$2.4 million. In connection with the CNB and FNBNY acquisitions,At December 31, 2022, the Company acquiredhad New York State and New York City NOL carryforwards. The Companycarryforward of $1.1 million, and recorded a deferred tax asset that it expects to realizerecover within the carryforward period. At December 31, 2017,2022, the remaining New York State andCompany had New York City NOL carryforwardscarryforward of zero. The New York State NOLs at December 31, 2021 included NOLs acquired in connection with the Merger.
At December 31, 2022 and 2021, 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
78
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, 2022 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 technical 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 appropriate taxing authority possessing full knowledge of all relevant information. The second level of evaluation is the measurement of a tax position that satisfies the more-likely-than-not recognition threshold. This measurement is performed in order to determine the amount of benefit to recognize in the financial statements. The tax position is measured at the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. The Company had no unrecognized tax benefits as of December 31, 2022 or 2021. The Company does not anticipate any material change to unrecognized tax benefits during the year ended December 31, 2023.
As of December 31, 2022, the tax years ended December 31, 2022, 2021, 2020, and 2019, remained subject to examination by all of the Company's relevant tax jurisdictions. The Company is currently not under audit in any taxing jurisdictions.
17. MERGER RELATED EXPENSES
Merger-related expenses were $18.0recorded 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. There were no costs associated with merger expenses and transaction costs for the year ended December 31, 2022. Costs associated with employee severance and other merger-related compensation expense incurred in connection with the Merger totaled $15.9 million for the year ended December 31, 2021 and were 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 $8.8$4.7 million, respectively.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.
14. PENSION18. BRANCH RESTRUCTURING COSTS
On June 29, 2021, the Company issued a press release announcing that the Bank planned to combine five 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 year ended December 31, 2021 and were recorded in branch restructuring costs in the consolidated statements of income. There were no branch restructuring costs for the years ended December 31, 2022 and 2020.
19. RETIREMENT AND OTHER POSTRETIREMENT PLANS
Pension Plan and Supplemental Executive Retirement Plan
The Bank maintains atwo noncontributory pension plan (the “Plan”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. The Bank uses a December 31 measurement date for this plan in accordance with FASB ASC 715-30 “Compensation – Retirement Benefits – Defined Benefit Plans – Pension”.During 2012,of America, N.A. (“BANA”) was the Company amended the pension plan 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 eligibleTrustee for the pension plan.
During 2001, the Bank adopted the Bridgehampton National Bank Supplemental ExecutiveEmployee Retirement Plan (“SERP”). As recommended by the Compensation Committee of the Board of Directors and approved by the full Board of Directors, the SERP provides benefits 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 theBNB Bank Pension Plan and the 401(k) Plan in the absence of such Internal Revenue Code limitations. The assets of 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 trust are reflected on the Consolidated Balance Sheets of the Company.
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) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Change in benefit obligation: | ||||||||||||||||
| Benefit obligation at beginning of year | $ | 20,844 | $ | 18,515 | $ | 3,004 | $ | 2,555 | ||||||||
| Service cost | 1,129 | 1,153 | 212 | 176 | ||||||||||||
| Interest cost | 750 | 794 | 105 | 105 | ||||||||||||
| Benefits paid and expected expenses | (285 | ) | (279 | ) | (112 | ) | (112 | ) | ||||||||
| Assumption changes and other | 2,321 | 661 | 710 | 280 | ||||||||||||
| Benefit obligation at end of year | $ | 24,759 | $ | 20,844 | $ | 3,919 | $ | 3,004 | ||||||||
| Change in plan assets: | ||||||||||||||||
| Fair value of plan assets at beginning of year | $ | 27,914 | $ | 24,562 | $ | — | $ | — | ||||||||
| Actual return on plan assets | 4,859 | 1,416 | — | — | ||||||||||||
| Employer contribution | 2,207 | 2,215 | 112 | 112 | ||||||||||||
| Benefits paid and actual expenses | (285 | ) | (279 | ) | (112 | ) | (112 | ) | ||||||||
| Fair value of plan assets at end of year | $ | 34,695 | $ | 27,914 | $ | — | $ | — | ||||||||
| Funded status at end of year | $ | 9,936 | $ | 7,070 | $ | (3,919 | ) | $ | (3,004 | ) | ||||||
The following table presents amounts recognized in accumulated other comprehensive income at December 31:
| Pension Benefits | SERP Benefits | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (In thousands) | 2017 | 2016 | 2017 | 2016 | ||||||||||||
| Net actuarial loss | $ | 6,987 | $ | 7,874 | $ | 1,459 | $ | 800 | ||||||||
| Prior service cost | (639 | ) | (715 | ) | — | — | ||||||||||
| Transition obligation | — | — | 5 | 32 | ||||||||||||
| Net amount recognized | $ | 6,348 | $ | 7,159 | $ | 1,464 | $ | 832 | ||||||||
The accumulated benefit obligation was $23.1 million for the pension plan and $2.5 million for the SERP as of December 31, 2017. As of2021. Pentegra Retirement Trust was the trustee for the Employee Retirement Plan prior to the transfer to BANA during the year ended December 31, 2016, the accumulated benefit obligation was $19.4 million for the pension plan and $2.2 million for the SERP.
2021. The following table summarizes the componentsassets of net periodic benefit cost and other amounts recognized in other comprehensive income:
| Pension Benefits | SERP Benefits | |||||||||||||||||||||||
| Year Ended December 31, | Year Ended December 31, | |||||||||||||||||||||||
| (In thousands) | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | ||||||||||||||||||
| Components of net periodic benefit cost and other amounts recognized in other comprehensive income: | ||||||||||||||||||||||||
| Service cost | $ | 1,129 | $ | 1,153 | $ | 1,134 | $ | 212 | $ | 176 | $ | 168 | ||||||||||||
| Interest cost | 750 | 794 | 706 | 105 | 105 | 91 | ||||||||||||||||||
| Expected return on plan assets | (2,129 | ) | (1,927 | ) | (1,838 | ) | — | — | — | |||||||||||||||
| Amortization of net loss | 479 | 406 | 376 | 51 | 27 | 32 | ||||||||||||||||||
| Amortization of prior service credit | (77 | ) | (77 | ) | (77 | ) | — | — | — | |||||||||||||||
| Amortization of transition obligation | — | — | — | 27 | 28 | 28 | ||||||||||||||||||
| Net periodic benefit cost | $ | 152 | $ | 349 | $ | 301 | $ | 395 | $ | 336 | $ | 319 | ||||||||||||
| Net loss (gain) | $ | (409 | ) | $ | 1,172 | $ | (123 | ) | $ | 710 | $ | 280 | $ | (48 | ) | |||||||||
| Amortization of net loss | (479 | ) | (406 | ) | (376 | ) | (51 | ) | (27 | ) | (32 | ) | ||||||||||||
| Amortization of prior service credit | 77 | 77 | 77 | — | — | — | ||||||||||||||||||
| Amortization of transition obligation | — | — | — | (27 | ) | (28 | ) | (27 | ) | |||||||||||||||
| Total recognized in other comprehensive income | $ | (811 | ) | $ | 843 | $ | (422 | ) | $ | 632 | $ | 225 | $ | (107 | ) | |||||||||
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 $330 thousand and $77 thousand, respectively. The estimated net loss and transition obligation for the SERP that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $121 thousand and $5 thousand, respectively.
Expected Long-Term Rate-of-Return
The expected long-term rate-of-return on plan assets reflects long-term earnings expectations on existing plan assets and those contributions expected to be received during the current plan year. In estimating that rate, appropriate consideration was given to historical returns earned by plan assets in the fund and the rates of return expected to be available for reinvestment. Average rates of return over the past 1, 3, 5 and 10-year periods were determined and subsequently adjusted to reflect current capital market assumptions and changes in investment allocations.
| Pension Benefits | SERP Benefits | |||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||
| 2017 | 2016 | 2015 | 2017 | 2016 | 2015 | |||||||||||||||||||
| Weighted average assumptions used to determine benefit obligations: | ||||||||||||||||||||||||
| Discount rate | 3.52 | % | 4.05 | % | 4.30 | % | 3.50 | % | 4.01 | % | 4.20 | % | ||||||||||||
| 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 | 4.05 | % | 4.30 | % | 3.90 | % | 4.01 | % | 4.20 | % | 3.80 | % | ||||||||||||
| Rate of compensation increase | 3.00 | 3.00 | 3.00 | 5.00 | 5.00 | 5.00 | ||||||||||||||||||
| Expected long-term rate of return | 7.25 | 7.50 | 7.50 | — | — | — | ||||||||||||||||||
Plan Assets
The Plan seeks to provideretirement benefits to the employees of the Bank who are entitled to receive benefits under the Plan. The 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 Bank 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
79
service. Effective April 1, 2000, the Bank froze all participant benefits under the Employee Retirement Plan. For the years ended December 31, 2022 and 2021, the Bank used December 31 as its measurement date for the Employee Retirement Plan.
The funded status of the Employee Retirement Plan was as follows:
| | | | | | |
| | Year Ended December 31, | ||||
(In thousands) |
| 2022 |
| 2021 | ||
Reconciliation of projected benefit obligation: | |
|
| |
|
|
Projected benefit obligation at beginning of year | | $ | 24,961 | | $ | 26,891 |
Interest cost | |
| 622 | |
| 562 |
Actuarial (gain) loss | |
| (5,004) | |
| (903) |
Benefit payments | |
| (1,558) | |
| (1,589) |
Projected benefit obligation at end of year | |
| 19,021 | |
| 24,961 |
| |
|
| |
|
|
Plan assets at fair value (investments in trust funds managed by trustee) | |
|
| |
|
|
Balance at beginning of year | |
| 28,693 | |
| 27,142 |
Return on plan assets | |
| (4,542) | |
| 3,140 |
Benefit payments | |
| (1,558) | |
| (1,589) |
Balance at end of year | |
| 22,593 | |
| 28,693 |
Funded status at end of year | | $ | 3,572 | | $ | 3,732 |
The net periodic cost for the Employee Retirement Plan included the following components:
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) | | 2022 |
| 2021 |
| 2020 | |||
Interest cost | | $ | 622 | | $ | 562 | | $ | 732 |
Expected return on plan assets | |
| (1,949) | |
| (1,846) | |
| (1,713) |
Amortization of unrealized loss | |
| 261 | |
| 824 | |
| 914 |
Net periodic benefit (credit) cost | | $ | (1,066) | | $ | (460) | | $ | (67) |
The change in accumulated other comprehensive loss that resulted from the Employee Retirement Plan is summarized as follows:
| | | | | | |
| | Year Ended December 31, | ||||
(In thousands) |
| 2022 |
| 2021 | ||
Balance at beginning of period | | $ | (4,097) | | $ | (7,119) |
Amortization of unrealized loss | |
| 261 | |
| 825 |
Gain (loss) recognized during the year | |
| (1,487) | |
| 2,197 |
Balance at the end of the period | | $ | (5,323) | | $ | (4,097) |
Period end component of accumulated other comprehensive loss, net of tax | | $ | 3,649 | | $ | 2,808 |
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, |
| ||||
|
| 2022 |
| 2021 |
| 2020 |
|
Discount rate used for net periodic benefit cost |
| 2.55 | % | 2.15 | % | 2.97 | % |
Discount rate used to determine benefit obligation at period end |
| 4.90 |
| 2.55 |
| 2.15 | |
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 backedmortgage-backed securities, high yield securities and mutual funds.
The weighted average expected long-term rate-of-returnlong-term rate of return is estimated based on current trends in Employee 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 from 1926 to 2015 representing cumulative returns
80
of approximately 10%9.0% and 5%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, 2022 and 2021.
The Bank did not make any contributions to the Employee Retirement Plan during the year ended December 31, 2022. The Bank does not expect to make contributions to the Employee Retirement Plan during the year ending December 31, 2023.
The weighted-average allocation by asset category of the assets of the Employee Retirement Plan was summarized as follows:
| | | | | |
| | December 31, |
| ||
|
| 2022 |
| 2021 |
|
Asset category |
|
|
|
| |
Equity securities |
| 51 | % | 54 | % |
Debt securities (bond mutual funds) |
| 47 |
| 42 | |
Cash equivalents |
| 2 |
| 4 | |
Total |
| 100 | % | 100 | % |
The allocation percentages in the above table were consistent with future planned allocation percentages as of December 31, 2022 and 2021, respectively.
The following table indicates the target allocations for Plan assets:
| Target Allocation | Percentage of Plan Assets At December 31, | Weighted-Average Expected Long- term Rate of | ||||||||||||||
| Asset Category | 2018 | 2017 | 2016 | Return | ||||||||||||
| Cash Equivalents | 0 – 5% | 8.1 | % | 3.0 | % | — | ||||||||||
| Equity Securities | 45 - 65% | 58.7 | % | 64.0 | % | 10.0 | % | |||||||||
| Fixed income securities | 35 - 55% | 33.2 | % | 33.0 | % | 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 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 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.
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 Plan can redeem its investment with the investee at the NAV at the measurement date. If the Plan can never redeem the investment with the investee at the NAV, it is considered as level 3. If the Plan can redeem the investment at the NAV at a future date, the 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 theEmployee Retirement 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 the dates indicated. (See Note 24 for a discussion of the fair value hierarchy).
| | | | | | | | | | | | |
| | December 31, 2022 | ||||||||||
| | 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 | | $ | — | | $ | 541 | | $ | — | | $ | 541 |
Equities: | |
| | | | | | | | | | |
U.S. large cap | |
| 8,398 | | | — | | | — | | | 8,398 |
U.S. mid cap/small cap | |
| 2,348 | | | — | | | — | | | 2,348 |
International | |
| 2,718 | | | — | | | — | | | 2,718 |
Equities blend | |
| 192 | | | — | | | — | | | 192 |
Fixed income securities: | | | | | | | | | | | | |
Corporate | | | — | | | 1,305 | | | — | | | 1,305 |
Government | | | 2,527 | | | — | | | — | | | 2,527 |
Mortgage-backed | |
| — | | | 586 | | | — | | | 586 |
High yield bonds and bond funds | |
| — | | | 3,978 | | | — | | | 3,978 |
Total Plan Assets | | $ | 16,183 | | $ | 6,410 | | $ | — | | $ | 22,593 |
81
| | | | | | | | | | | | |
| | 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 |
Benefit payments are anticipated to be made as follows:
| | | |
Year Ended December 31, | | Amount | |
2023 | | $ | 1,526 |
2024 | |
| 1,521 |
2025 | |
| 1,498 |
2026 | |
| 1,452 |
2027 | |
| 1,403 |
2028 to 2032 | |
| 6,674 |
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, 2017 and 2016:
| December 31, 2017: | ||||||||||||||||
| Fair Value Measurements Using: | ||||||||||||||||
| (Dollars in thousands) | Carrying Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
| Cash and cash equivalents: | ||||||||||||||||
| Cash | $ | — | $ | — | $ | — | ||||||||||
| Short term investment funds | 2,821 | — | 2,821 | |||||||||||||
| Total cash and cash equivalents | 2,821 | — | 2,821 | |||||||||||||
| Equities: | �� | |||||||||||||||
| U.S. large cap | 9,587 | 9,587 | — | |||||||||||||
| U.S. mid cap/small cap | 3,131 | 3,131 | — | |||||||||||||
| International | 7,283 | 7,283 | — | |||||||||||||
| Equities blend | 367 | 367 | — | |||||||||||||
| Total equities | 20,368 | 20,368 | — | |||||||||||||
| Fixed income securities: | ||||||||||||||||
| Government issues | 1,634 | 1,507 | 127 | |||||||||||||
| Corporate bonds | 2,837 | — | 2,837 | |||||||||||||
| Mortgage backed | 1,007 | — | 1,007 | |||||||||||||
| High yield bonds and bond funds | 6,028 | — | 6,028 | |||||||||||||
| Total fixed income securities | 11,506 | 1,507 | 9,999 | |||||||||||||
| Total plan assets | $ | 34,695 | $ | 21,875 | $ | 12,820 | ||||||||||
| December 31, 2016 | ||||||||||||||||
| Fair Value Measurements Using: | ||||||||||||||||
| (Dollars in thousands) | Carrying Value | Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||
| Cash and cash equivalents: | ||||||||||||||||
| Cash | $ | — | $ | — | $ | — | ||||||||||
| Short term investment funds | 822 | — | 822 | |||||||||||||
| Total cash and cash equivalents | 822 | — | 822 | |||||||||||||
| Equities: | ||||||||||||||||
| U.S. large cap | 8,950 | 8,950 | — | |||||||||||||
| U.S. mid cap/small cap | 3,038 | 3,038 | — | |||||||||||||
| International | 5,770 | 5,770 | — | |||||||||||||
| Equities blend | 124 | 124 | — | |||||||||||||
| Total equities | 17,882 | 17,882 | — | |||||||||||||
| Fixed income securities: | ||||||||||||||||
| Government issues | 1,948 | 1,706 | 242 | |||||||||||||
| Corporate bonds | 1,795 | — | 1,795 | |||||||||||||
| Mortgage backed | 960 | — | 960 | |||||||||||||
| High yield bonds and bond funds | 4,507 | — | 4,507 | |||||||||||||
| Total fixed income securities | 9,210 | 1,706 | 7,504 | |||||||||||||
| Total plan assets | $ | 27,914 | $ | 19,588 | $ | 8,326 | ||||||||||
2022, 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:
| | | | | | |
| | Year Ended December 31, | ||||
(In thousands) |
| 2022 |
| 2021 | ||
Reconciliation of projected benefit obligation: | |
|
| | | |
Projected benefit obligation at beginning of year | | $ | 34,495 | | $ | — |
Acquired in the Merger | | | — | | | 33,897 |
Service cost | |
| 807 | |
| 893 |
Interest cost | |
| 793 | |
| 609 |
Actuarial gain | | | (7,111) | | | (304) |
Benefit payments | |
| (1,064) | |
| (600) |
Projected benefit obligation at end of year | |
| 27,920 | |
| 34,495 |
| |
|
| |
|
|
Plan assets at fair value (investments in trust funds managed by trustee) | |
|
| |
|
|
Balance at beginning of year | |
| 47,857 | |
| — |
Acquired in the Merger | | | — | | | 43,685 |
Return on plan assets | |
| (8,221) | |
| 4,772 |
Benefit payments | |
| (1,064) | |
| (600) |
Balance at end of year | |
| 38,572 | |
| 47,857 |
Funded status at end of year | | $ | 10,652 | | $ | 13,362 |
82
The net periodic cost for the BNB Bank Pension Plan included the following components:
Estimated Future Payments
| | | | | | |
| | Year Ended December 31, | ||||
(In thousands) | | 2022 |
| 2021 | ||
Service cost | | $ | 807 | | $ | 893 |
Interest cost | | | 793 | | | 609 |
Expected return on plan assets | |
| (3,441) | |
| (2,883) |
Net periodic benefit credit | | $ | (1,841) | | $ | (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) |
| 2022 |
| 2021 | ||
Balance at beginning of period | | $ | 2,193 | | $ | — |
Gain recognized during the year | |
| (2,358) | |
| 2,193 |
Balance at the end of the period | | $ | (165) | | $ | 2,193 |
Period end component of accumulated other comprehensive income, net of tax | | $ | 113 | | $ | (1,503) |
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, | | ||
|
| 2022 |
| 2021 | |
Discount rate used for net periodic benefit cost |
| 2.69 | % | 2.33 | % |
Discount rate used to determine benefit obligation at period end |
| 4.98 |
| 2.69 | |
Expected long-term return on plan assets used for net periodic benefit cost |
| 7.25 |
| 7.25 | |
Expected long-term return on plan assets used to determine benefit obligation at period end |
| 7.25 |
| 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, 2022.
The Bank did not make any contributions to the BNB Bank Pension Plan during the year ended December 31, 2022. The Bank does not expect to make contributions to the BNB Bank Pension Plan during the year ending December 31, 2023.
The weighted-average allocation by asset category of the assets of the BNB Bank Pension Plan was summarized as follows:
| | | | | | |
| | December 31, | | | December 31, | |
|
| 2022 |
| | 2021 |
|
Asset category |
|
|
| |
|
|
Equity securities |
| 51 | % | | 60 | % |
Debt securities (bond mutual funds) |
| 46 |
| | 37 |
|
Cash equivalents |
| 3 |
| | 3 |
|
Total |
| 100 | % | | 100 | % |
83
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, 2022 | ||||||||||
| | 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 | |
| 14,310 | | | — | | | — | | | 14,310 |
U.S. mid cap/small cap | |
| 4,094 | | | — | | | — | | | 4,094 |
International | |
| 4,658 | | | — | | | — | | | 4,658 |
Equities blend | |
| 308 | | | — | | | — | | | 308 |
Fixed income securities: | | | | | | | | | | | | |
Corporate | | | — | | | 2,203 | | | — | | | 2,203 |
Government | | | 4,275 | | | — | | | — | | | 4,275 |
Mortgage-backed | |
| — | | | 979 | | | — | | | 979 |
High yield bonds and bond funds | |
| — | | | 6,744 | | | — | | | 6,744 |
Total Plan Assets | | $ | 27,645 | | $ | 10,927 | | $ | — | | $ | 38,572 |
| | | | | | | | | | | | |
|
| Fair Value Measurements | ||||||||||
| | at December 31, 2021 | ||||||||||
| | 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 SERPmade as of December 31, 2017, which reflect expected future service:follows:
| Pension and SERP Payments | ||||
| Year | (in thousands) | |||
| 2018 | $ | 667 | ||
| 2019 | 743 | |||
| 2020 | 915 | |||
| 2021 | 1,030 | |||
| 2022 | 1,113 | |||
| 2023-2027 | 7,256 | |||
| | | |
Year Ended December 31, | | Amount | |
2023 | | $ | 1,337 |
2024 | |
| 1,365 |
2025 | |
| 1,456 |
2026 | |
| 1,694 |
2027 | |
| 1,688 |
2028 to 2032 | |
| 10,505 |
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. 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 $18,000$20,500 for the calendar year ended December 31, 2017.2022. 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
84
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 $7.8 million at December 31, 2022. During the year ended December 31, 2022, total expense recognized as a component of salaries and employee benefits expense for the 401(k) Plan was $2.3 million.
Dime KSOP Plan
The Dime Community Bank KSOP Plan (“Dime KSOP Plan”) was terminated by resolution of the 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 at December 31, 2021 and 2020. During the years ended December 31, 2017, 20162021, 2020 and 20152019, total expense recognized as a component of salaries and 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 established the Outside Director Retirement Plan to provide benefits to each eligible outside director commencing upon the earlier of termination of Board service or at age 75. The Outside Director Retirement Plan was frozen on March 31, 2005, and only outside directors serving prior to that date are eligible for benefits.
As of December 31, 2021 and 2020, the Bank made cash contributionsused 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 $1.0$2.8 million $786 thousand,for the Outside Director Retirement Plan and $623 thousand, respectively.$6.2 million for the BMP. The 401(k) plan also includestotal expense recognized as a discretionary profit-sharing component. The Company made discretionary profit sharing contributions of $550 thousand in 2017, $424 thousand in 2016 and $276 thousand in 2015.
15. STOCK BASED COMPENSATION PLANS
Equity Incentive Plan
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 | ||
Interest cost | | $ | 12 | | $ | 234 |
Curtailment loss | | | 1,543 | | | — |
Amortization of unrealized loss | |
| — | |
| 179 |
Net periodic benefit cost | | $ | 1,555 | | $ | 413 |
85
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 |
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 | ||
Discount rate used for net periodic benefit cost – BMP | 2.60 | % | |
Discount rate used for net periodic benefit cost – Director Retirement Plan | 2.68 | ||
Discount rate used to determine BMP benefit obligation at year end | 1.55 | ||
Discount rate used to determine Director Retirement Plan benefit obligation at year end | 1.69 | ||
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 | |
Interest cost | | $ | 42 |
Curtailment gain | | | 1,651 |
Amortization of unrealized loss | |
| (9) |
Net periodic benefit cost | | $ | 1,684 |
86
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 | | $ | — |
Major assumptions utilized to determine the net periodic cost were as follows:
| | | |
| | At or For the Year Ended December 31, | |
| 2020 | ||
Discount rate used for net periodic benefit cost | 2.69 | % | |
Discount rate used to determine benefit obligation at period end | 0.29 | ||
20. STOCK-BASED COMPENSATION
Before the Merger, Bridge Bancorp,and Legacy Dime granted share-based awards under their respective stock-based compensation plans, (collectively, the “Legacy Stock Plans”), which are both subject to the accounting requirements of ASC 718.
In May 2021, the Company’s shareholders approved the Dime Community Bancshares, Inc. 2012 Stock-Based2021 Equity Incentive Plan (the “2012“2021 Equity Incentive Plan”) provides forto 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 plan supersededLegacy Stock Plans. At December 31, 2022, there were 961,122 shares reserved for issuance under the Bridge Bancorp, Inc. 20062021 Equity Incentive Plan. The
In connection with the Merger, 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 equal to the product 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, Bancorp, Inc. available for stock-basedwhich we 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 PlanLegacy Stock Plans, and changes 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, 2022 | | 121,253 | | $ | 35.39 | | | | | |
Options exercised | | — | |
| 35.39 | | | | | |
Options forfeited | | (29,116) | |
| 35.39 | | | | | |
Options outstanding at December 31, 2022 |
| 92,137 | | $ | 35.39 |
| 6.2 | | $ | — |
Options vested and exercisable at December 31, 2022 |
| 92,137 | | $ | 35.39 |
| 6.2 | | $ | — |
87
Information related to stock options during each period is 525,000 plus 278,385 shares thatas follows:
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) |
| 2022 |
| 2021 |
| 2020 | |||
Cash received for option exercise cost | | $ | — | | $ | 431 | | $ | 38 |
Income tax (expense) benefit recognized on stock option exercises | |
| — | |
| (15) | |
| — |
Intrinsic value of options exercised | |
| — | |
| 171 | |
| 8 |
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, 2022 were remainingas follows:
| | | | | | | | |
| | Outstanding Options | Vested Options | |||||
| | | | Weighted | | | | Weighted |
| | | | Average | | | | Average |
| | | | Contractual | | | | Contractual |
| | | | Years | | | | Years |
|
| Amount |
| Remaining |
| Amount |
| Remaining |
Exercise Prices: |
|
|
|
|
|
|
|
|
$34.87 |
| 35,671 |
| 7.1 |
| 35,671 |
| 7.1 |
$35.35 |
| 32,079 |
| 6.1 |
| 32,079 |
| 6.1 |
$36.19 |
| 24,387 |
| 5.1 |
| 24,387 |
| 5.1 |
Total |
| 92,137 |
| 6.2 |
| 92,137 |
| 6.2 |
Restricted Stock Awards
The Company has made RSA grants to outside Directors and certain officers under the 2006Legacy Stock Plans and the 2021 Equity Incentive Plan. OfTypically, awards to outside Directors fully vest on the first anniversary of the grant date, while awards to officers vest over a pre-determined requisite period. All awards were made at the fair value of the Company’s common stock on the grant 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, 2022 | | 446,923 | | $ | 26.45 |
Shares granted |
| 113,113 | |
| 33.84 |
Shares vested | | (173,447) | | | 26.67 |
Shares forfeited |
| (35,831) | |
| 27.37 |
Unvested allocated shares outstanding at December 31, 2022 |
| 350,758 | | $ | 28.63 |
Information related to RSAs during each period is as follows:
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(Dollars in thousands) |
| | 2022 |
| | 2021 |
| | 2020 |
Compensation expense recognized | | $ | 3,516 | | $ | 5,253 | | $ | 4,217 |
Income tax (expense) benefit recognized on vesting of RSAs | |
| (10) | |
| 27 | |
| (211) |
As of December 31, 2022, there was $6.1 million of total 803,385 sharesunrecognized compensation cost related to unvested RSAs to be recognized over a weighted-average period of 2.0 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 approved for issuance underare issued on the 2012 Equity Incentive Plan, 411,748 shares remain available for issuance at December 31, 2017, including shares that may be granted in the form of restrictedgrant date and held as unvested stock awards or restricted stock units.
The Compensation Committeeuntil the end of the Boardperformance period. Shares are issued at the stretch opportunity in order to ensure that an
88
adequate number of shares are allocated for shares expected to vest at the 2012 Equity Incentive Plan. The Company accounts forend of the 2012 Equity Incentive Plan under FASB ASC No. 718.
Stock Options
Theperformance 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. No new grantsexpected aggregate share payout as of the period end.
During the year ended December 31, 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 outstanding PSAs at December 31, 2020. As of December 31, 2022 and 2021, 60,755 shares and 38,948 shares have been granted, respectively.
The following table presents a summary of activity related to the PSAs granted, and changes during the period then ended:
| | | | | |
| | |
| Weighted- | |
| | | | Average | |
| | Number of | | Grant-Date | |
|
| Shares |
| Fair Value | |
Maximum aggregate share payout at January 1, 2022 | | 38,948 | | $ | 31.40 |
Shares granted |
| 60,755 | |
| 29.63 |
Shares forfeited | | (3,872) | | | 29.63 |
Maximum aggregate share payout at December 31, 2022 |
| 95,831 | | $ | 30.35 |
Minimum aggregate share payout |
| — | | | — |
Expected aggregate share payout |
| 77,449 | | $ | 29.45 |
Information related to PSAs during each period is as follows:
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) |
| 2022 |
| 2021 |
| 2020 | |||
Compensation expense recognized | | $ | 760 | | $ | 154 | | $ | 2,279 |
Income tax benefit recognized on vesting of PSAs | |
| 193 | |
| — | |
| 60 |
As of December 31, 2022, there was $2.0 million of total unrecognized compensation cost related to unvested PSAs based on the expected aggregate share payout to be recognized over a weighted-average period of 1.8 years.
Sales Incentive Awards
Legacy Dime maintained a sales incentive award program for certain officers, which meets the criteria for equity-based accounting. For each quarter an individual earned their shares based on their sales performance in that quarter. The shares then vested one year from the quarter in which they are earned. Shares of common stock options were awardedissued on the grant date and held as unvested stock awards until the end of the performance 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 performance period.
During the year ended December 31, 2020, Legacy Dime modified certain performance-based share awards to accelerate the vesting of all outstanding awards in connection with the Merger. Total compensation expense recognized as part of the acceleration was approximately $341 thousand. There were no 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, 2017, 20162020 and 2015 and there2019. There was no sales incentive awards compensation expense attributablerecognized during the year ended December 31, 2022 and 2021.
There was no activity related to sales incentive awards during the year ended December 31, 2022 and 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 the weighted average shares outstanding for basic and diluted EPS. Unvested RSA and PSA shares not 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.
89
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) |
| 2022 |
| 2021 |
| 2020 | |||
|
| |
|
| |
|
| |
|
Net income available to common stockholders | | $ | 145,270 | | $ | 96,710 | | $ | 37,535 |
Less: Dividends paid and earnings allocated to participating securities | |
| (1,688) | |
| (1,215) | |
| (149) |
Income attributable to common stock | | $ | 143,582 | | $ | 95,495 | | $ | 37,386 |
Weighted-average common shares outstanding, including participating securities | |
| 38,985,314 | |
| 39,327,959 | |
| 21,729,484 |
Less: weighted-average participating securities | |
| (446,480) | |
| (425,533) | |
| (191,536) |
Weighted-average common shares outstanding | |
| 38,538,834 | |
| 38,902,426 | |
| 21,537,948 |
Basic EPS | | $ | 3.73 | | $ | 2.45 | | $ | 1.74 |
| |
|
| |
|
| |
|
|
Income attributable to common stock | | $ | 143,582 | | $ | 95,495 | | $ | 37,386 |
Weighted-average common shares outstanding | |
| 38,538,834 | |
| 38,902,426 | |
| 21,537,948 |
Weighted-average common equivalent shares outstanding | |
| — | |
| 611 | |
| 500 |
Weighted-average common and equivalent shares outstanding | |
| 38,538,834 | |
| 38,903,037 | |
| 21,538,448 |
Diluted EPS | | $ | 3.73 | | $ | 2.45 | | $ | 1.74 |
Common and equivalent shares resulting from the dilutive effect of "in-the-money" outstanding stock options are calculated based upon the excess of the average market value of the common stock over the exercise price of outstanding in-the-money stock options during the period.
There were 134,447, 167,053 and 15,498 weighted-average stock options outstanding for the years ended December 31, 2017, 20162022, 2021 and 2015 because all2020, respectively, which were not considered in the calculation of diluted EPS since their exercise prices exceeded the average market price during the period.
22. PREFERRED STOCK
On February 5, 2020, Legacy Dime completed an underwritten public offering of 2,999,200 shares, or $75.0 million in aggregate liquidation preference, of its 5.50% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share, with a liquidation preference of $25.00 per share (the “Legacy Dime Preferred Stock”). The net proceeds received from the issuance of preferred stock optionsat the time of closing were vested. There$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 receive one share of a newly created series of the Company’s preferred stock having the same powers, preferences and rights as the Legacy Dime Preferred Stock.
The Company expects to pay dividends when, as, and if declared by its board of directors, at a fixed rate of 5.50% per annum, payable quarterly, in arrears, on February 15, May 15, August 15 and November 15 of each year. The Preferred Stock is perpetual and has no stock options outstandingstated 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:
| | | | | | | | | | | | |
| | 2022 | | 2021 | ||||||||
(In thousands) |
| Fixed Rate |
| Variable Rate |
| Fixed Rate |
| Variable Rate | ||||
Available lines of credit | | $ | 73,929 | | $ | 996,029 | | $ | 69,333 | | $ | 981,726 |
Other loan commitments | |
| 150,663 | |
| 120,899 | |
| 89,537 | |
| 136,553 |
Stand-by letters of credit | |
| 27,020 | |
| 355 | |
| 34,852 | |
| 689 |
90
At December 31, 20172022 and 2016.2021, the Bank had outstanding firm loan commitments that were accepted by borrowers that aggregated to $271.6 million and $226.1 million, respectively. Substantially all of the Bank’s commitments expire within three months of their acceptance by the prospective borrowers. 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.
The following table summarizes stock option exercise activity:
| Year Ended December 31, | ||||||||||||
| (In thousands) | 2017 | 2016 | 2015 | |||||||||
| Intrinsic value of options exercised | $ | — | $ | 115 | $ | 52 | ||||||
| Cash received from options exercised | — | 62 | 80 | |||||||||
| Tax benefit realized from option exercised | — | — | — | |||||||||
Restricted Stock Awards
The following table summarizes the unvested restricted stock activity for the year endedAt December 31, 2017:
| Shares | Weighted Average Grant-Date Fair Value | |||||||
| Unvested, January 1, 2017 | 301,991 | $ | 24.59 | |||||
| Granted | 71,781 | $ | 35.61 | |||||
| Vested | (47,867 | ) | $ | 23.62 | ||||
| Forfeited | (8,213 | ) | $ | 27.07 | ||||
| Unvested, December 31, 2017 | 317,692 | $ | 27.16 | |||||
2022, the Bank had an available line of credit with the FHLBNY equal to its excess borrowing capacity. At December 31, 2022, this amount approximated $1.57 billion.
During the year ended December 31, 2017, restricted stock awardsthe Bank completed a securitization of 71,781 shares were granted. 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 71,781 shares granted, 31,860 shares vest over seven years with a third vesting after years five, six and seven, 25,396 shares vest over five years with a third vesting after years three, four and five, 11,070 shares vest ratably over three years and 3,455 shares vest ratably over nine months. During the year ended December 31, 2016,securitization transaction, the Company granted restricted stock awardsalso has continuing involvement through a reimbursement agreement executed with Freddie Mac. To the extent the ultimate resolution of 69,309 shares. Of the 69,309 shares granted, 36,000 shares vest over seven years with a third vesting after years five, sixdefaulted loans results in contractual principal and seven, 27,709 shares vest over five years with a third vesting after years three, four and five, and 5,600 shares vest ratably over three years. During the year ended December 31, 2015,interest payments that are deficient, the Company granted restricted stock awards of 71,187 shares. Of the 71,187 shares granted, 30,625 shares vest over seven years with a third vesting after years five, six and seven, 24,812 shares vest over five years with a third vesting after years three, four and five, 10,550 shares vest ratably over five years, 4,000 shares vest ratably over three years and 1,200 shares vest ratably over two years. Compensation expense attributableis obligated to these awards was $1.7 million, $1.5 million and $1.3 millionreimburse FHLMC for the years ended December 31, 2017, 2016 and 2015, respectively. The total fair value of shares vested during the years ended December 31, 2017, 2016 and 2015, was $1.1 million, $935 thousand and $732 thousand, respectively. As of December 31, 2017, there was $5.0 million of total unrecognized compensation costs relatedsuch amounts, not to non-vested restricted stock awards granted under the 2012 Equity Incentive Plan and the 2006 Equity Incentive Plan. The cost is expected to be recognized over a weighted-average period of 3.92 years.
Restricted Stock Units
Effective in 2015, the Board revised the designexceed 10% of the Long Term Incentive Plan (“LTI Plan”) for Named Executive Officers to include performance-based awards. The LTI Plan includes 60% performance vested awards based on three-year relative Total Shareholder Return tooriginal principal amount of the proxy peer group and 40% time vested awards. The awards are inloans comprising the form of restricted stock units which cliff vest after five years and require an additional two year holding period before being delivered in shares of common stock. securitization pool at the closing date.
Litigation
The Company recorded expense of $309 thousand, $193 thousand and $81 thousand in connection with these awards for the years ended December 31, 2017, 2016 and 2015, respectively.
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 restricted stock units. In addition, directors receive a non-election retainer in the form of restricted stock units. These restricted stock units vest ratably over one year and have dividend rights but no voting rights. In connection with the Directors Plan, the Company recorded expense of $530 thousand, $493 thousand and $342 thousand for the years ended December 31, 2017, 2016 and 2015, respectively.
16. EARNINGS PER SHARE
Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) No.260-10-45 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”). The restricted stock awards and certain restricted stock units granted by the Company contain non-forfeitable rights to dividends and therefore are considered participating securities. The two-class method for calculating basic EPS excludes dividends paid to participating securities and any undistributed earnings attributable to participating securities.
The following table presents the computation of EPS for the years ended December 31, 2017, 2016 and 2015:
| Year Ended December 31, | ||||||||||||
| (In thousands, except per share data) | 2017 | 2016 | 2015 | |||||||||
| Net income | $ | 20,539 | $ | 35,491 | $ | 21,111 | ||||||
| Dividends paid on and earnings allocated to participating securities | (415 | ) | (732 | ) | (451 | ) | ||||||
| Income attributable to common stock | $ | 20,124 | $ | 34,759 | $ | 20,660 | ||||||
| Weighted average common shares outstanding, including participating securities | 19,759 | 17,670 | 14,792 | |||||||||
| Weighted average participating securities | (404 | ) | (366 | ) | (319 | ) | ||||||
| Weighted average common shares outstanding | 19,355 | 17,304 | 14,473 | |||||||||
| Basic earnings per common share | $ | 1.04 | $ | 2.01 | $ | 1.43 | ||||||
| Income attributable to common stock | $ | 20,124 | $ | 34,759 | $ | 20,660 | ||||||
| Impact of assumed conversions - interest on 8.5% trust preferred securities | — | 878 | — | |||||||||
| Income attributable to common stock including assumed conversions | $ | 20,124 | $ | 35,637 | $ | 20,660 | ||||||
| Weighted average common shares outstanding | 19,355 | 17,304 | 14,473 | |||||||||
| Incremental shares from assumed conversions of options and restricted stock units | 24 | 13 | 4 | |||||||||
| Incremental shares from assumed conversions of 8.5% trust preferred securities | — | 534 | — | |||||||||
| Weighted average common and equivalent shares outstanding | 19,379 | 17,851 | 14,477 | |||||||||
| Diluted earnings per common share | $ | 1.04 | $ | 2.00 | $ | 1.43 | ||||||
There were no stock options outstanding for the year ended December 31, 2017. There were no stock options that were antidilutive at December 31, 2016 and 2015. The assumed conversion of the TPS was antidilutive for the years ended December 31, 2017 and 2015, and therefore was not included in the computation of diluted earnings per share during those years. The assumed conversion of the TPS was dilutive for the year ended December 31, 2016, and therefore was included in the computation of diluted earnings per share during that year.
17. COMMITMENTS AND CONTINGENCIES AND OTHER MATTERS
In the normal course of business, there are various outstanding commitments and contingent liabilities, such as claims and legal actions, minimum annual rental payments under non-cancelable operating leases, guarantees and commitments to extend credit, which are not reflected in the accompanying consolidated financial statements. No material losses are anticipated as a result of these commitments and contingencies.
Leases
At December 31, 2017, the Company was obligated to make minimum annual rental payments under non-cancelable operating leases for its premises. Projected minimum rental payments under existing leases are as follows:
| Amount | ||||
| Year | (In thousands) | |||
| 2018 | $ | 6,473 | ||
| 2019 | 6,089 | |||
| 2020 | 5,609 | |||
| 2021 | 5,386 | |||
| 2022 | 4,842 | |||
| Thereafter | 18,923 | |||
| Total | $ | 47,322 | ||
Certain leases contain rent escalation clauses, which are reflected in the amounts, listed above. In addition, certain leases provide for additional payments based on real estate taxes, interest and other charges. Certain leases contain renewal options, which are not reflected in the table. Rent expense under operating leases for the years ended December 31, 2017, 2016 and 2015 totaled $7.3 million, $6.8 million, and $5.3 million, respectively, net of subleases.
Loan commitments
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 of 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.
The following represents commitments outstanding:
| December 31, | ||||||||
| (In thousands) | 2017 | 2016 | ||||||
| Standby letters of credit | $ | 26,913 | $ | 21,507 | ||||
| Loan commitments outstanding(1) | 124,284 | 66,779 | ||||||
| Unused lines of credit | 576,698 | 466,271 | ||||||
| Total commitments outstanding | $ | 727,895 | $ | 554,557 | ||||
Litigation
The Company and its subsidiaries areis subject to certain pending and threatened legal actions thatwhich 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 loss will be incurred. In the opinion of management, after consultation with counsel, the resolution of any such pending or threatened litigation isall ongoing legal proceedings will not expected to have a material adverse effect on the Company’s consolidated financial statements.condition or results of operations of the Company. The Company accounts for potential losses related to litigation in accordance with GAAP.
Other24. 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:
During 2017,Level 1 Inputs – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the Bank was required to maintain certain cash balances with the FRB for reserve and clearing requirements. The required cash balance at December 31, 2017 was $3.9 million. During 2017, the Bank invested overnight with the FRB and the average balance maintained during 2017 was $22.4 million.
During 2017, the Bank maintained an overnight line of credit with the FHLB. The Bankreporting entity has the ability to borrow against its unencumbered residentialaccess 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 commercial mortgagesyield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks, and investmentdefault 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 available-for-sale securities ownedare 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 Bank. At December 31, 2017, the Bank had aggregate linesevaluation of creditsecurities include benchmark yields, reported trades, broker/dealer quotes (obtained only from market makers or
91
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 credit, $349.5 million is availableinputs may vary on an unsecured basis. Asany 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, 2017, the Bank had $50.0 million of such borrowings outstanding.
2022 and December 31, 2021. In March 2001, the Bank entered into a Master Repurchase Agreementaccordance with the FHLB wherebyCompany’s investment policy, corporate securities are rated "investment grade" at the FHLB agreestime of purchase and the financials of the issuers are reviewed quarterly. Obtaining market values as of December 31, 2022 and December 31, 2021 for these securities utilizing significant observable inputs was not difficult due to purchase securitiestheir 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 recurring basis as of the dates indicated, segmented by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
| | | | | | | | | | | | |
| | | | | Fair Value Measurements | |||||||
| | | | | at December 31, 2022 Using | |||||||
| | | | | Level 1 | | Level 2 | | Level 3 | |||
(In thousands) |
| Total |
| Inputs |
| Inputs |
| Inputs | ||||
Financial Assets: |
| |
|
| |
|
| |
|
| |
|
Securities available-for-sale: | |
|
| |
|
| |
|
| |
|
|
Treasury securities | | $ | 227,256 | | $ | — | | $ | 227,256 | | $ | — |
Corporate securities | |
| 166,773 | |
| — | |
| 166,773 | |
| — |
Pass-through MBS issued by GSEs | |
| 241,240 | |
| — | |
| 241,240 | |
| — |
Agency CMOs | |
| 281,339 | |
| — | |
| 281,339 | |
| — |
State and municipal obligations | | | 33,979 | | | — | | | 33,979 | | | — |
Derivative – cash flow hedges | |
| 17,150 | |
| — | |
| 17,150 | |
| — |
Derivative – freestanding derivatives, net | |
| 137,335 | |
| — | |
| 137,335 | |
| — |
Financial Liabilities: | |
| | | | | | | | | | |
Derivative – freestanding derivatives, net | |
| 137,335 | |
| — | |
| 137,335 | |
| — |
| | | | | | | | | | | | |
| | | | | 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 | |
| — |
92
Assets Measured at Fair Value on a Non-recurring Basis
Certain financial assets 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 Bank, uponcollateral.
| | | | | | | | | | | |
| | December 31, 2022 | |||||||||
| | | | | 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 | | $ | 1,179 | | $ | — | $ | — |
| $ | 1,179 |
| | | | | | | | | | | |
| | 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, 2022 had a carrying amount of $1.2 million, which is made up of the Bank’s request,outstanding balance of $2.5 million, net of a valuation allowance of $1.3 million. Collateral dependent individually analyzed loans as of December 31, 2022 resulted in a credit loss provision of $0.7 million, which is included in the amounts reported in the consolidated statements of income for the year ended December 31, 2022.
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 simultaneous agreement to selloutstanding balance of $2.5 million, net of a valuation allowance of $600 thousand.
Financial Instruments Not Measured at Fair Value
The following tables present the samecarrying amounts and estimated fair values of financial instruments other than those measured at fair value on either a recurring or similar securities backnonrecurring 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 Bank at a future date. Securities are limited, under the agreement, to government securities, securities issued, guaranteed or collateralized by any agency or instrumentalityfair value measurement.
| | | | | | | | | | | | | | | |
| | | | | Fair Value Measurements | ||||||||||
| | | | | at December 31, 2022 Using | ||||||||||
| | Carrying | | Level 1 | | Level 2 | | Level 3 | | | | ||||
(In thousands) |
| Amount |
| Inputs |
| Inputs |
| Inputs |
| Total | |||||
Financial Assets: |
| |
|
| |
|
| |
|
| |
|
| |
|
Cash and due from banks | | $ | 169,297 | | $ | 169,297 | | $ | — | | $ | — | | $ | 169,297 |
Securities held-to-maturity | | | 585,798 | |
| — | |
| 505,759 | |
| — | |
| 505,759 |
Loans held for investment, net | |
| 10,482,145 | |
| — | |
| — | |
| 10,005,121 | |
| 10,005,121 |
Accrued interest receivable | |
| 48,561 | |
| — | |
| 6,105 | |
| 42,456 | |
| 48,561 |
Financial Liabilities: | |
|
| |
|
| |
|
| |
|
| |
|
|
Savings, money market and checking accounts | |
| 9,139,043 | |
| 9,139,043 | |
| — | |
| — | |
| 9,139,043 |
Certificates of Deposits ("CDs") | |
| 1,115,364 | |
| — | |
| 1,096,808 | |
| — | |
| 1,096,808 |
FHLBNY advances | |
| 1,131,000 | |
| — | |
| 1,131,217 | |
| — | |
| 1,131,217 |
Subordinated debt, net | |
| 200,283 | |
| — | |
| 180,583 | |
| — | |
| 180,583 |
Other short-term borrowings | |
| 1,360 | |
| 1,360 | |
| — | |
| — | |
| 1,360 |
Accrued interest payable | |
| 5,323 | |
| — | |
| 5,323 | |
| — | |
| 5,323 |
93
| | | | | | | | | | | | | | | |
| | | | | 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 | |
| — | |
| 177,354 | |
| — | |
| 177,354 |
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 |
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 |
18.25. REGULATORY CAPITAL REQUIREMENTS
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 weightedrisk-weighted assets and of tier 1 capital to average assets. Tier 1 capital, risk weightedrisk-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, 20172022 and 2016. 2021.
On January 1, 2015,Under the Basel III Capital Rules became effectivethe Company and include transition provisions through January 1, 2019. These rules provide forthe Bank are subject to the following minimum capital to risk-weighted assets ratios as of January 1, 2015: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. When fully phased in, theThe Basel III Capital Rules will additionally require institutions to retain a capital conservation buffer, composed of CET1, of 2.5% above these required minimum capital ratio levels. The capital conservation buffer requirement is being phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing by 0.625% each subsequent January 1, until it reaches 2.5% on January 1, 2019. WhenIncluding the capital conservation buffer, is fully phased in on January 1, 2019, the Company and the Bank will 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'stockholders’ equity for the purposes of determining the regulatory capital ratios.
As of December 31, 2017,2022, 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 are no conditions or events that management believes have changed the institution’s category.
94
The following tables present actual capital levels and minimum required levels for the Company and the Bank under Basel III rules at December 31, 20172022 and 2016:2021:
| December 31, 2017 | ||||||||||||||||||||||||||||||||
| Minimum Capital | Minimum To Be Well | |||||||||||||||||||||||||||||||
| Minimum Capital | Adequacy Requirement with | Capitalized Under Prompt | ||||||||||||||||||||||||||||||
| Actual Capital | Adequacy Requirement | Capital Conservation Buffer | Corrective Action Provisions | |||||||||||||||||||||||||||||
| (Dollars in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||
| Common equity tier 1 capital to risk weighted assets: | ||||||||||||||||||||||||||||||||
| Consolidated | $ | 336,393 | 10.0 | % | $ | 152,011 | 4.5 | % | $ | 194,237 | 5.75 | % | n/a | n/a | ||||||||||||||||||
| Bank | 408,089 | 12.1 | 152,002 | 4.5 | 194,224 | 5.75 | $ | 219,558 | 6.5 | % | ||||||||||||||||||||||
| Total capital to risk weighted assets: | ||||||||||||||||||||||||||||||||
| Consolidated | 448,376 | 13.3 | 270,242 | 8.0 | 312,468 | 9.25 | n/a | n/a | ||||||||||||||||||||||||
| Bank | 440,072 | 13.0 | 270,225 | 8.0 | 312,448 | 9.25 | 337,781 | 10.0 | ||||||||||||||||||||||||
| Tier 1 capital to risk weighted assets: | ||||||||||||||||||||||||||||||||
| Consolidated | 336,393 | 10.0 | 202,682 | 6.0 | 244,907 | 7.25 | n/a | n/a | ||||||||||||||||||||||||
| Bank | 408,089 | 12.1 | 202,669 | 6.0 | 244,892 | 7.25 | 270,225 | 8.0 | ||||||||||||||||||||||||
| Tier 1 capital to average assets: | ||||||||||||||||||||||||||||||||
| Consolidated | 336,393 | 7.9 | 170,440 | 4.0 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||
| Bank | 408,089 | 9.6 | 170,441 | 4.0 | n/a | n/a | 213,051 | 5.0 | ||||||||||||||||||||||||
| December 31, 2016 | ||||||||||||||||||||||||||||||||
| Minimum Capital | Minimum To Be Well | |||||||||||||||||||||||||||||||
| Minimum Capital | Adequacy Requirement with | Capitalized Under Prompt | ||||||||||||||||||||||||||||||
| Actual Capital | Adequacy Requirement | Capital Conservation Buffer | Corrective Action Provisions | |||||||||||||||||||||||||||||
| (Dollars in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||
| Common equity tier 1 capital to risk weighted assets: | ||||||||||||||||||||||||||||||||
| Consolidated | $ | 312,731 | 10.8 | % | $ | 130,065 | 4.5 | % | $ | 148,129 | 5.125 | % | n/a | n/a | ||||||||||||||||||
| Bank | 378,352 | 13.1 | 130,054 | 4.5 | 148,117 | 5.125 | $ | 187,856 | 6.5 | % | ||||||||||||||||||||||
| Total capital to risk weighted assets: | ||||||||||||||||||||||||||||||||
| Consolidated | 434,184 | 15.0 | 231,226 | 8.0 | 249,290 | 8.625 | n/a | n/a | ||||||||||||||||||||||||
| Bank | 404,532 | 14.0 | 231,208 | 8.0 | 249,271 | 8.625 | 289,010 | 10.0 | ||||||||||||||||||||||||
| Tier 1 capital to risk weighted assets: | ||||||||||||||||||||||||||||||||
| Consolidated | 328,004 | 11.3 | 173,419 | 6.0 | 191,484 | 6.625 | n/a | n/a | ||||||||||||||||||||||||
| Bank | 378,352 | 13.1 | 173,406 | 6.0 | 191,469 | 6.625 | 231,208 | 8.0 | ||||||||||||||||||||||||
| Tier 1 capital to average assets: | ||||||||||||||||||||||||||||||||
| Consolidated | 328,004 | 8.6 | 152,391 | 4.0 | n/a | n/a | n/a | n/a | ||||||||||||||||||||||||
| Bank | 378,352 | 9.9 | 152,382 | 4.0 | n/a | n/a | 190,478 | 5.0 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | For Capital | | To Be Categorized |
| ||||||
(Dollars in thousands) | | Actual | | Adequacy Purposes(1) | | as “Well Capitalized”(1) |
| |||||||||
| | | | | | | | | | Minimum | | | | | Minimum |
|
December 31, 2022 |
| Amount |
| Ratio |
| Amount |
| Ratio |
| Amount |
| Ratio |
| |||
Tier 1 capital / % of average total assets | | |
| |
| | |
| |
| | |
| |
| |
Bank | | $ | 1,286,656 |
| 10.0 | % | $ | 517,606 |
| 4.0 | % | $ | 647,008 |
| 5.0 | % |
Consolidated Company | |
| 1,103,498 |
| 8.5 | |
| 517,914 |
| 4.0 | |
| N/A |
| N/A | |
Common equity Tier 1 capital / % of risk-weighted assets | |
|
|
|
| |
| |
|
| |
|
|
|
| |
Bank | |
| 1,286,656 |
| 11.9 | |
| 485,062 |
| 4.5 | |
| 700,645 |
| 6.5 | |
Consolidated Company | |
| 986,928 |
| 9.2 | |
| 485,243 |
| 4.5 | |
| N/A |
| N/A | |
Tier 1 capital / % of risk-weighted assets | |
|
|
|
| |
| |
|
| |
|
|
|
| |
Bank | |
| 1,286,656 |
| 11.9 | |
| 646,749 |
| 6.0 | |
| 862,332 |
| 8.0 | |
Consolidated Company | |
| 1,103,498 |
| 10.2 | |
| 646,990 |
| 6.0 | |
| N/A |
| N/A | |
Total capital / % of risk-weighted assets | |
|
|
|
| |
| |
|
| |
|
|
|
| |
Bank | |
| 1,373,431 |
| 12.7 | |
| 862,332 |
| 8.0 | |
| 1,077,915 |
| 10.0 | |
Consolidated Company | |
| 1,390,272 |
| 12.9 | |
| 862,654 |
| 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, 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. |
95
19. PARENT26. CONDENSED HOLDING COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of Bridge Bancorp, Inc. (Parent Company only) follows:
Condensed Balance Sheets
| December 31, | ||||||||
| (In thousands) | 2017 | 2016 | ||||||
| Assets: | ||||||||
| Cash and cash equivalents | $ | 7,858 | $ | 29,049 | ||||
| Other assets | 210 | 228 | ||||||
| Investment in the Bank | 500,896 | 474,035 | ||||||
| Total assets | $ | 508,964 | $ | 503,312 | ||||
| Liabilities and stockholders’ equity: | ||||||||
| Subordinated debentures | $ | 78,641 | $ | 78,502 | ||||
| Junior subordinated debentures | — | 15,244 | ||||||
| Other liabilities | 1,123 | 1,579 | ||||||
| Total liabilities | 79,764 | 95,325 | ||||||
| Total stockholders’ equity | 429,200 | 407,987 | ||||||
| Total liabilities and stockholders’ equity | $ | 508,964 | $ | 503,312 | ||||
Condensed Statements of Income
| Year Ended December 31, | ||||||||||||
| (In thousands) | 2017 | 2016 | 2015 | |||||||||
| Dividends from the Bank | $ | — | $ | 14,800 | $ | 10,000 | ||||||
| Interest expense | 4,588 | 5,903 | 2,626 | |||||||||
| Non-interest expense | 147 | 260 | 73 | |||||||||
| (Loss) income before income taxes and equity in undistributed earnings of the Bank | (4,735 | ) | 8,637 | 7,301 | ||||||||
| Income tax benefit | (1,774 | ) | (2,126 | ) | (933 | ) | ||||||
| (Loss) income before equity in undistributed earnings of the Bank | (2,961 | ) | 10,763 | 8,234 | ||||||||
| Equity in undistributed earnings of the Bank | 23,500 | 24,728 | 12,877 | |||||||||
| Net income | $ | 20,539 | $ | 35,491 | $ | 21,111 | ||||||
Condensed Statements of Cash Flows
| Year Ended December 31, | ||||||||||||
| (In thousands) | 2017 | 2016 | 2015 | |||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 20,539 | $ | 35,491 | $ | 21,111 | ||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||||||
| Equity in undistributed earnings of the Bank | (23,500 | ) | (24,728 | ) | (12,877 | ) | ||||||
| Amortization | 139 | 152 | 44 | |||||||||
| Decrease (increase) in other assets | 18 | (212 | ) | 72 | ||||||||
| (Decrease) increase in other liabilities | (398 | ) | 351 | 1,228 | ||||||||
| Net cash (used in) provided by operating activities | (3,202 | ) | 11,054 | 9,578 | ||||||||
| Cash flows from investing activities: | ||||||||||||
| Investment in the Bank | — | (39,500 | ) | (50,000 | ) | |||||||
| Net cash used in investing activities | — | (39,500 | ) | (50,000 | ) | |||||||
| Cash flows from financing activities: | ||||||||||||
| Net proceeds from issuance of subordinated debentures | — | — | 78,324 | |||||||||
| Repayment of junior subordinated debentures | (352 | ) | — | — | ||||||||
| Net proceeds from issuance of common stock | 951 | 48,442 | 779 | |||||||||
| Net proceeds from exercise of stock options | — | 62 | 80 | |||||||||
| Repurchase of surrendered stock from vesting of restricted stock awards | (350 | ) | (344 | ) | (228 | ) | ||||||
| Excess tax benefit from share based compensation | — | — | 50 | |||||||||
| Cash dividends paid | (18,238 | ) | (16,140 | ) | (13,415 | ) | ||||||
| Other, net | — | — | (303 | ) | ||||||||
| Net cash (used in) provided by financing activities | (17,989 | ) | 32,020 | 65,287 | ||||||||
| Net (decrease) increase in cash and cash equivalents | (21,191 | ) | 3,574 | 24,865 | ||||||||
| Cash and cash equivalents at beginning of year | 29,049 | 25,475 | 610 | |||||||||
| Cash and cash equivalents at end of year | $ | 7,858 | $ | 29,049 | $ | 25,475 | ||||||
20. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
STATEMENTS
The following table summarizesstatements of condition as of December 31, 2022 and 2021, and the components of other comprehensive loss and related income tax effects:
| Year Ended December 31, | ||||||||||||
| (In thousands) | 2017 | 2016 | 2015 | |||||||||
| Unrealized holding losses on available for sale securities | $ | (1,107 | ) | $ | (6,428 | ) | $ | (2,489 | ) | |||
| Reclassification adjustment for (gains) losses realized in income | (38 | ) | (449 | ) | 8 | |||||||
| Income tax effect | 640 | 2,795 | 1,047 | |||||||||
| Net change in unrealized losses on available for sale securities | (505 | ) | (4,082 | ) | (1,434 | ) | ||||||
| Unrealized net (loss) gain arising during the period | (302 | ) | (1,452 | ) | 196 | |||||||
| Reclassification adjustment for amortization realized in income | 480 | 384 | 358 | |||||||||
| Income tax effect | 15 | 438 | (174 | ) | ||||||||
| Net change in post-retirement obligation | 193 | (630 | ) | 380 | ||||||||
| Change in fair value of derivatives used for cash flow hedges | 463 | 1,191 | (1,008 | ) | ||||||||
| Reclassification adjustment for losses realized in income | 1,419 | 944 | 657 | |||||||||
| Income tax effect | (793 | ) | (865 | ) | 150 | |||||||
| Net change in unrealized gain (loss) on cash flow hedges | 1,089 | 1,270 | (201 | ) | ||||||||
| Other comprehensive income (loss) | $ | 777 | $ | (3,442 | ) | $ | (1,255 | ) | ||||
The following is a summary of the accumulated other comprehensive loss balances, netstatements of income taxes at the dates indicated:
| (In thousands) | December 31, 2016 | Other Comprehensive Income | Impact of Tax Act (1) | December 31, 2017 | ||||||||||||
| Unrealized losses on available for sale securities | $ | (8,823 | ) | $ | (505 | ) | $ | (2,009 | ) | $ | (11,337 | ) | ||||
| Unrealized (losses) gains on pension benefits | (4,741 | ) | 193 | (985 | ) | (5,533 | ) | |||||||||
| Unrealized gains on cash flow hedges | 500 | 1,089 | 342 | 1,931 | ||||||||||||
| Accumulated other comprehensive (loss) income, net of income taxes | $ | (13,064 | ) | $ | 777 | $ | (2,652 | ) | $ | (14,939 | ) | |||||
The following represents the reclassifications out of accumulated other comprehensive (loss) income:
| Year Ended December 31, | Affected Line Item in the | |||||||||||||
| (In thousands) | 2017 | 2016 | 2015 | Consolidated Statements of Income | ||||||||||
| Realized gains (losses) on sale of available for sale securities | $ | 38 | $ | 449 | $ | (8 | ) | Net securities gain (losses) | ||||||
| Amortization of defined benefit pension plan and defined benefit plan component of the SERP: | ||||||||||||||
| Prior service credit | 77 | 77 | 77 | Salaries and employee benefits | ||||||||||
| Transition obligation | (27 | ) | (28 | ) | (27 | ) | Salaries and employee benefits | |||||||
| Actuarial losses | (530 | ) | (433 | ) | (408 | ) | Salaries and employee benefits | |||||||
| Realized losses on cash flow hedges | (1,419 | ) | (944 | ) | (657 | ) | Interest expense | |||||||
| Total reclassifications, before income taxes | (1,861 | ) | (879 | ) | (1,023 | ) | ||||||||
| Income tax benefit | 762 | 356 | 414 | Income tax expense | ||||||||||
| Total reclassifications, net of income taxes | $ | (1,099 | ) | $ | (523 | ) | $ | (609 | ) | |||||
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected Consolidated Quarterly Financial Data
| 2017 Quarter Ended | ||||||||||||||||
| (In thousands, except per share amounts) | March 31, | June 30, | September 30, | December 31, | ||||||||||||
| Interest income | $ | 35,217 | $ | 36,234 | $ | 38,438 | $ | 39,960 | ||||||||
| Interest expense | 4,756 | 5,441 | 6,093 | 6,399 | ||||||||||||
| Net interest income | 30,461 | 30,793 | 32,345 | 33,561 | ||||||||||||
| Provision for loan losses | 800 | 950 | 1,900 | 10,400 | (1) | |||||||||||
| Net interest income after provision for loan losses | 29,661 | 29,843 | 30,445 | 23,161 | ||||||||||||
| Non-interest income | 4,122 | 4,509 | 4,972 | 4,499 | ||||||||||||
| Non-interest expense | 20,296 | 21,006 | 21,271 | 29,154 | (2) | |||||||||||
| Income (loss) before income taxes | 13,487 | 13,346 | 14,146 | (1,494 | ) | |||||||||||
| Income tax expense | 4,316 | 4,505 | 4,703 | 5,422 | (3) | |||||||||||
| Net income (loss) | $ | 9,171 | $ | 8,841 | $ | 9,443 | $ | (6,916 | ) | |||||||
| Basic earnings (loss) per share | $ | 0.47 | $ | 0.45 | $ | 0.48 | $ | (0.35 | ) | |||||||
| Diluted earnings (loss) per share | $ | 0.47 | $ | 0.45 | $ | 0.48 | $ | (0.35 | ) | |||||||
| 2016 Quarter Ended | ||||||||||||||||
| (In thousands, except per share amounts) | March 31, | June 30, | September 30, | December 31, | ||||||||||||
| Interest income | $ | 33,607 | $ | 34,733 | $ | 34,761 | $ | 34,615 | ||||||||
| Interest expense | 4,175 | 4,143 | 4,077 | 4,450 | ||||||||||||
| Net interest income | 29,432 | 30,590 | 30,684 | 30,165 | ||||||||||||
| Provision for loan losses | 1,250 | 900 | 2,000 | 1,400 | ||||||||||||
| Net interest income after provision for loan losses | 28,182 | 29,690 | 28,684 | 28,765 | ||||||||||||
| Non-interest income | 3,995 | 4,269 | 4,034 | 3,748 | ||||||||||||
| Non-interest expense | 18,907 | (4) | 20,441 | 19,204 | 18,529 | (5) | ||||||||||
| Income before income taxes | 13,270 | 13,518 | 13,514 | 13,984 | ||||||||||||
| Income tax expense | 4,644 | 4,664 | 4,663 | 4,824 | ||||||||||||
| Net income | $ | 8,626 | $ | 8,854 | $ | 8,851 | $ | 9,160 | ||||||||
| Basic earnings per share | $ | 0.49 | $ | 0.51 | $ | 0.50 | $ | 0.50 | ||||||||
| Diluted earnings per share | $ | 0.49 | $ | 0.50 | $ | 0.50 | $ | 0.50 | ||||||||
(1) 2017 amount includes net charge-offs primarily from loans and specific reserves associated with two relationships of $8.0 million.
(2) 2017 amount includes restructuring costs associated with branch restructuring and charter conversion of $8.0 million.
(3) 2017 amount includes a charge to write-down deferred tax assets due to the enactment of the Tax Act of $7.6 million.
(4) 2016 amount includes reversal of costs associated with the CNB and FNBNY acquisitions of $0.3 million.
(5) 2016 amount includes reversal of costs associated with the CNB and FNBNY acquisitions of $0.7 million.
22. BUSINESS COMBINATIONS
On June 19, 2015, the Company acquired CNB at a purchase price of $157.5 million, issued an aggregate of 5.647 million Bridge Bancorp 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. The transaction expanded the Company’s geographic footprint across Long Island including Nassau County, Queens and into New York City. It complements the Bank’s existing branch network and enhances asset generation capabilities. The expanded branch network allows the Bank to serve a greater portion of Long Island and the New York City boroughs.
The acquisition was accounted for under the acquisition method of accounting in accordance with FASB ASC 805, “Business Combinations.” Accordingly, the assets acquired and liabilities assumed were recorded at their respective acquisition date fair values, and identifiable intangible assets were recorded at fair value. The operating results of the Companycash flows for the years ended December 31, 2017, 20162022, 2021 and 2015 include2020, reflect the operating resultsHolding Company’s investment in its wholly-owned subsidiary, the Bank, using, as deemed appropriate, the equity method of CNB since the acquisition date of June 19, 2015.accounting:
DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
| | | | | | |
| | December 31, | ||||
(In thousands) |
| 2022 |
| 2021 | ||
ASSETS: |
| |
|
| |
|
Cash and due from banks | | $ | 25,009 | | $ | 27,364 |
Securities available-for-sale, at fair value | | | 2,489 | | | 3,068 |
Marketable equity securities, at fair value | |
| — | |
| — |
Investment in subsidiaries | |
| 1,348,962 | |
| 1,366,796 |
Other assets | |
| 4,389 | |
| 4,285 |
Total assets | | $ | 1,380,849 | | $ | 1,401,513 |
| | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY: | |
|
| |
|
|
Subordinated debt, net | | $ | 200,283 | | $ | 197,096 |
Other liabilities | |
| 10,983 | |
| 11,797 |
Stockholders’ equity | |
| 1,169,583 | |
| 1,192,620 |
Total liabilities and stockholders’ equity | | $ | 1,380,849 | | $ | 1,401,513 |
DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME (1)
| | | | | | | | | |
| | Year Ended December 31, | |||||||
(In thousands) |
| 2022 |
| 2021 |
| 2020 | |||
Net interest loss | | $ | (10,394) | | $ | (8,427) | | $ | (5,147) |
Dividends received from Bank | |
| 95,000 | |
| 20,000 | |
| 30,000 |
Non-interest income | |
| — | |
| 136 | |
| 361 |
Non-interest expense | |
| (1,720) | |
| (4,361) | |
| (1,176) |
Income before income taxes and equity in undistributed earnings of direct subsidiaries | |
| 82,886 | |
| 7,348 | |
| 24,038 |
Income tax credit | |
| 4,001 | |
| 4,051 | |
| 1,819 |
Income before equity in undistributed earnings of direct subsidiaries | |
| 86,887 | |
| 11,399 | |
| 25,857 |
Equity in undistributed earnings of subsidiaries | |
| 65,669 | |
| 92,597 | |
| 16,461 |
Net income | | $ | 152,556 | | $ | 103,996 | | $ | 42,318 |
| (1) | Other comprehensive income for the Holding Company approximated other comprehensive income for the consolidated Company during the years ended December 31, 2022, 2021 and 2020. |
96
DIME COMMUNITY BANCSHARES, INC.
The following table summarizes the finalized fair values of the assets acquired and liabilities assumed on June 19, 2015:CONDENSED STATEMENTS OF CASH FLOWS
| Measurement | ||||||||||||
| As Initially | Period | |||||||||||
| (In thousands) | Reported | Adjustments (1) | As Adjusted | |||||||||
| Cash and due from banks | $ | 24,628 | $ | - | $ | 24,628 | ||||||
| Securities | 90,109 | - | 90,109 | |||||||||
| Loans | 736,348 | (6,935 | ) | 729,413 | ||||||||
| Bank owned life insurance | 21,445 | - | 21,445 | |||||||||
| Premises and equipment | 6,398 | (5,122 | ) | 1,276 | ||||||||
| Other intangible assets | 6,698 | - | 6,698 | |||||||||
| Other assets | 14,484 | 7,245 | 21,729 | |||||||||
| Total assets acquired | $ | 900,110 | $ | (4,812 | ) | $ | 895,298 | |||||
| Deposits | $ | 786,853 | $ | - | $ | 786,853 | ||||||
| Federal Home Loan Bank term advances | 35,581 | - | 35,581 | |||||||||
| Other liabilities and accrued expenses | 5,647 | 6,214 | 11,861 | |||||||||
| Total liabilities assumed | $ | 828,081 | $ | 6,214 | $ | 834,295 | ||||||
| Net assets acquired | 72,029 | (11,026 | ) | 61,003 | ||||||||
| Consideration paid | 157,503 | - | 157,503 | |||||||||
| Goodwill recorded on acquisition | $ | 85,474 | $ | 11,026 | $ | 96,500 | ||||||
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2022 |
| 2021 |
| 2020 | |||
Cash flows from operating activities: |
| |
|
| |
|
| |
|
Net income | | $ | 152,556 | | $ | 103,996 | | $ | 42,318 |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | |
|
| |
|
|
Equity in undistributed earnings of direct subsidiaries | |
| (65,669) | |
| (92,597) | |
| (16,461) |
Net gain on marketable equity securities | |
| — | |
| (131) | |
| (361) |
Net accretion | |
| (111) | |
| (157) | |
| 146 |
Loss on extinguishment of debt | | | 740 | | | — | | | — |
(Increase) decrease in other assets | |
| (104) | |
| 761 | |
| (502) |
(Decrease) increase in other liabilities | |
| (1,096) | |
| 269 | |
| 214 |
Net cash provided by operating activities | |
| 86,316 | |
| 12,141 | |
| 25,354 |
| | | | | | | | | |
Cash flows from investing activities: | |
|
| |
|
| |
|
|
Proceeds sales of marketable equity securities | |
| — | |
| 6,101 | |
| 546 |
Purchases of securities available-for-sale and marketable equity securities | |
| — | |
| (3,000) | |
| (261) |
Reimbursement from subsidiary, including purchases of securities available-for-sale | |
| — | |
| — | |
| 2 |
Net cash received in business combination | | | — | | | 11,545 | | | — |
Net cash provided by investing activities | |
| — | |
| 14,646 | |
| 287 |
| | | | | | | | | |
Cash flows from financing activities: | |
|
| |
|
| |
|
|
Proceeds from subordinated debentures issuance, net | | | 157,559 | | | — | | | — |
Redemption of subordinated debentures | | | (155,000) | | | — | | | — |
Redemption of preferred stock | |
| — | |
| — | |
| (3) |
Proceeds from preferred stock issuance, net | | | — | | | — | | | 116,569 |
Proceeds from exercise of stock options | |
| — | |
| 431 | |
| 38 |
Release of stock for benefit plan awards | |
| 1,167 | |
| 1,153 | |
| 84 |
Payments related to tax withholding for equity awards | |
| (1,558) | |
| (111) | |
| (3,060) |
BMP ESOP shares received to satisfy distribution of retirement benefits | |
| — | |
| (993) | |
| — |
Treasury shares repurchased | |
| (46,762) | |
| (59,280) | |
| (35,356) |
Cash dividends paid to preferred stockholders | |
| (7,286) | |
| (7,286) | |
| (4,783) |
Cash dividends paid to common stockholders | |
| (36,791) | |
| (39,351) | |
| (18,696) |
Net cash (used in) provided by financing activities | |
| (88,671) | |
| (105,437) | |
| 54,793 |
| | | | | | | | | |
Net (decrease) increase in cash and due from banks | |
| (2,355) | |
| (78,650) | |
| 80,434 |
Cash and due from banks, beginning of period | |
| 27,364 | |
| 106,014 | |
| 25,580 |
Cash and due from banks, end of period | | $ | 25,009 | | $ | 27,364 | | $ | 106,014 |
Loans – represents adjustments to the initial fair values related to certain PCI loans based on the finalization of the initial provisional analyses.
Premises and equipment – represents write down to estimated fair value based on the final valuation performed on leasehold improvements.
97
Other assets – represents adjustments to the net deferred tax asset resulting from the adjustments to the initial fair values related to acquired assets and liabilities assumed.
Other liabilities and accrued expenses - represents adjustments to the initial fair values reported to adjust other liabilities to estimated fair value and record certain liabilities directly related to the CNB acquisition.
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, 2022. 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, 2022. 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, 2022, 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, 2022, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
98
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 25, 2023 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 25, 2023 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 25, 2023 and is incorporated herein by reference thereto.
Set forth below is certain information as of December 31, 2022, 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.
| | | | | | |
| | 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 | | 56,466 | | $ 35.71 | | — |
2019 Equity Incentive Plan | | 35,671 | | 34.87 | | — |
2021 Equity Incentive Plan | | — | | - | | 961,122 |
Employee Stock Purchase Plan | | — | | - | | 957,153 |
Total |
| 92,137 | | $ 35.39 | | 1,918,275 |
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information regarding Certain Relationships and Related Transactions and Director Independence will be set forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2023 and is incorporated herein by reference thereto.
Item 14. Principal Accounting Fees and Services
The information regarding the Company’s independent registered public accounting firm’s fees and services will be set forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2023 and is incorporated herein by reference thereto.
99
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following consolidated financial statements, including notes thereto, and financial schedules of the Company, required in response to this item are included in Part II, Item 8, “Financial Statements and Supplementary Data.”
| | | | |
| | Page No. | ||
1. | | Financial Statements | | |
| | | | |
| | | 44 | |
| | | 45 | |
| | | 46 | |
| | | 47 | |
| | | 48 | |
| | | 49 | |
| | Report of Independent Registered Public Accounting Firm (PCAOB ID 173) | | 101 |
| | | | |
2. | | Financial Statement Schedules | | |
Financial Statement Schedules have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto in Part II, Item 8, “Financial Statements and Supplementary Data.”
3. | Exhibits | |
| | |
| | See Exhibit Index on page 103 |
100
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ShareholdersStockholders and the Audit CommitteeBoard of Bridge Bancorp,Directors
of Dime Community Bancshares, Inc.Bridgehampton, and Subsidiaries
Hauppauge, New York
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheetsstatements of Bridge Bancorp,financial condition of Dime Community Bancshares, Inc. and Subsidiaries (the “Company”"Company") as of December 31, 20172022 and 2016,2021, the related consolidated statements of income, comprehensive income, shareholders’changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2017,2022, and the related notes (collectively referred to as “financial statements”the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control—Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)(“COSO”).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172022 and 2016,2021, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 20172022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2022, based on criteria established in Internal Control—Control – Integrated Framework: (2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanyingManagement’s Report Onby Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
101
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Credit Losses for Loans – Qualitative Factors
As described in Notes 1 and 5to the financial statements, the Company estimates expected credit losses for its financial assets carried at amortized cost utilizing the current expected credit loss (“CECL”) methodology. At December 31, 2022, the allowance for credit losses (the “ACL”) on the overall loan portfolio was $83.5million.
In determining the ACL related to loans that are collectively evaluated, expected credit losses are determined by calculating a loss percentage by loan segment, or pool. 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 the Company’s geography, adjusted for prepayment and curtailment assumptions as well as macro-economic variables, provide the basis for the estimation of quantitatively modeled expected credit losses on similar loan pools.
The quantitative results of the modeling are then 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. A significant amount of judgment is required to assess the reasonableness of the qualitative factors. Further, changes to these factors could have a material effect on the Company’s financial results.
The qualitative factors contribute significantly to the determination of the ACL related to loans that share similar risk characteristics. We identified the assessment of qualitative factors as a critical audit matter because auditing management’s estimate required especially subjective auditor judgment.
The primary procedures we performed to address this critical audit matter included testing the effectiveness of controls over the evaluation of the qualitative factors and substantively testing management’s process related to the assessment of qualitative factors. The testing of the effectiveness of controls over the evaluation of qualitative factors involved controls addressing management’s review and approval of the qualitative factors, including significant assumptions and judgments made and the relevance and reliability of data used as the basis for those judgments. The substantive testing of management’s process related to the assessment of qualitative factors, including evaluating management’s judgments and significant assumptions used in the assessment of qualitative factors, involved evaluation of the reasonableness of management’s judgments related to qualitative factors to determine if they are calculated to conform with management’s policies.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. |  |
|
|
| Crowe |
We have served as the Company’s auditor since 2002.
2009.
New York, New York
March 9, 2018February 28, 2023
102
Exhibit Number | Description of Exhibit | ||||
Exhibit Number | Description of Exhibit | ||||
| | | ||
3.1 | | | | |
| | | | |
3.2 | | | ||
| | | | |
4.1 | | | ||
| | | | |
4.2 | | | | |
| | | | |
4.3 | | | | |
| | | | |
4.4 | | | | |
| | | | |
4.5 | | | ||
| | | | |
4.6 | | | ||
| | | | |
4.7 | | | ||
| | | | |
4.8 | | | | |
| | | | |
4.9 | | | | |
| | | | |
10.1 | | | ||
| | | | |
103
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, 2017. 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, 2017. This assessment was based on criteria for effective internal control over financial reporting described inInternal 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, 2017, 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 Horwath LLP appears on the previous page.
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, 2017, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
On March 9, 2018, the Company and the Bank amended their employment agreement with Howard H. Nolan, Senior Executive Vice President, Chief Operating Officer and a member of the Board of Directors of the Bank and the Company, and entered into substantially similar employment agreements with James J. Manseau, Executive Vice President, Chief Retail Banking Officer of the Bank and the Company, John M. McCaffery, Executive Vice President, Chief Financial Officer of the Bank and the Company, and Kevin L. Santacroce, Executive Vice President, Chief Lending Officer of the Bank and the Company, which agreements superseded and replaced their prior change in control agreements. The term of each employment agreement is two years, renewing daily, so that the remaining term is twenty-four months, unless notice of non-renewal is provided to the executive. Base salary is reviewed annually and can be increased but not decreased.
Pursuant to these agreements, if an executive voluntarily terminates his employment without “good reason,” or if the executive’s employment is terminated for cause, no benefits are provided under the agreement.
In the event of (i) the executive’s involuntary termination for any reason other than disability, death, retirement or termination for cause, or (ii) the executive’s resignation upon the occurrence of certain events constituting “good reason,” including a reduction in the executive’s duties, responsibilities or base salary, the executive would be entitled to a severance benefit equal to a cash lump sum payment equal to 24 months base salary and the value of continued health and medical insurance coverage for 24 months, payable within ten business days following the date of termination of employment.
In the event of (i) the executive’s involuntary termination for any reason other than cause, or (ii) the executive’s resignation upon the occurrence of certain events constituting “good reason,” including a reduction in the executive’s duties, responsibilities or pay, within
10.2 | |
two years (one year for Mr. Nolan) following a change in control, the executive would be entitled to a severance benefit equal to a cash lump sum payment equal to three times the sum of base salary and the highest annual bonus earned during the prior three years and the value of continued health and medical insurance coverage for 36 months, payable within ten business days following the date of termination of employment. Each employment agreement provides that the executive’s cash severance will be reduced to the limitation under Section 280G of the Internal Revenue Code only if this will result in the executive receiving a greater total payment as measured on an after-tax basis.
Except in the event of a change in control, following termination of employment each executive is subject to non-competition restrictions.
The foregoing description is qualified in its entirety by reference to the amendment to employment agreement and form of employment agreement that are attached hereto as Exhibits 10.1(iii) and 10.7, respectively, and are incorporated by reference into this Form 10-K.
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 4, 2018 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 4, 2018 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 4, 2018 and is incorporated herein by reference thereto.
Set forth below is certain information as of December 31, 2017, 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 shareholders.
| Equity compensation plan approved by stockholders | Number of securities to be issued upon exercise of outstanding options and awards | Weighted average exercise price with respect to outstanding stock options | Number of securities remaining available for issuance under the Plan | |||||||||
| 2006 Equity Incentive Plan | 19,928 | — | — | |||||||||
| 2012 Equity Incentive Plan | 133,468 | — | 411,748 | |||||||||
| Total | 153,396 | — | 411,748 | |||||||||
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information regarding Certain Relationships and Related Transactions and Director Independence will be set forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 4, 2018 and is incorporated herein by reference thereto.
Item 14. Principal Accountant Fees and Services
The information regarding the Company’s independent registered public accounting firm’s fees and services will be set forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 4, 2018, and is incorporated herein by reference thereto.
|
Item 15. Exhibits and Financial Statement Schedules
(a) The following Consolidated Financial Statements, including notes thereto, and financial schedules of the Company, required in response to this item are included in Part II, Item 8, “Financial Statements and Supplementary Data.”
| | | | | |
10.3 | | | |||
| | | | | |
10.4 | | | |||
| | | | | |
10.5 | | | | ||
| | | | | |
10.6 | | | | ||
| | | | | |
10.7 | | | |||
| | | | | |
10.8 | | | |||
| | | | | |
10.9 | | | |||
| | | | | |
10.10 | | Amendment One to the Dime Community Bancshares, Inc. 2021 Equity Incentive Plan | | | |
| | | | | |
10.11 | | | |||
| | | | | |
10.12 | | | | ||
| | | | | |
10.13 | | | | ||
| | | | | |
10.14 | | | | ||
| | | | | |
21.1 | | | | ||
| | ||||
23.1 | | | | ||
| | | |||
31.1 | Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) | | | ||
| | | |||
31.2 | Certification of Principal Financial | | | ||
| | ||||
32.1 | | | |||
| | | |||
104
101.INS | | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | | |
| | | ||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | | | |
| | | ||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | |
| | | ||
101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document | | | |
| | | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | | | |
| | | | |
101.DEF | | Inline XBRL Taxonomy Extension Definitions Linkbase Document | | |
| | | | |
104 | | Cover page to this Annual Report on Form 10-K, formatted in Inline XBRL | | |
| | | | |
Financial Statement Schedules have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or Notes thereto in Part II, Item 8, “Financial Statements and Supplementary Data.”
Item 16. Form 10-K Summary
Not applicable.
105
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |||
| DIME COMMUNITY BANCSHARES, INC. | ||
| | Registrant | |
| | | |
February 28, 2023 | | /s/ Kevin M. O’Connor | |
| | Kevin M. O’Connor | |
| | Chief Executive Officer | |
| | | |
February 28, 2023 | | /s/ | Avinash Reddy |
| | Avinash Reddy | |
| | Senior Executive Vice President, | |
| | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
February 28, 2023 | /s/ Kenneth J. Mahon | Director | ||
| | Kenneth J. Mahon | | |
| | | | |
February 28, 2023 | | /s/ Marcia Z. Hefter | | Director |
| | Marcia Z. Hefter | | |
| | | | |
February 28, 2023 | | /s/ | | Director |
| | Rosemarie Chen | | |
| | | | |
February 28, 2023 | | /s/ | | Director |
| | Michael P. Devine | | |
| | | | |
February 28, 2023 | | /s/ | | Director |
| | Matthew A. Lindenbaum | | |
| | | | |
February 28, 2023 | | |||
/s/ Albert E. McCoy, Jr. | | Director | ||
| | Albert E. McCoy, Jr. | | |
| | | | |
February 28, 2023 | | |||
/s/ Raymond A. Nielsen | | Director | ||
| | Raymond A. Nielsen | | |
| | | | |
February 28, 2023 | | /s/ | ||
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