Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Who We Are and How We Generate Income
Dime Community Bancshares, Inc., a New York corporation previously known as “Bridge Bancorp, Inc.,” is a bank holding company formed in 1988. On a parent-only basis, the Holding Company has had minimal results of operations. The Holding Company is dependent on dividends from its wholly-owned subsidiary, Dime Community Bank, which was previously known as “BNB Bank,” its own earnings, additional capital raised, and borrowings as sources of funds. The information in this report reflects principally the financial condition and results of operations of the Bank. The Bank's results of operations are primarily dependent on its net interest income, which is the difference between interest income on loans and investments and interest expense on deposits and borrowings. The Bank also generates non-interest income, such as fee income on deposit accounts and merchant credit and debit card processing programs, loan swap fees, investment services, income from its title insurance subsidiary, and net gains on sales of securities and loans. The level of non-interest expenses, such as salaries and benefits, occupancy and equipment costs, other general and administrative expenses, expenses from the Bank’s title insurance subsidiary, and income tax expense, further affects our net income. We believe the Merger created the opportunity for the resulting company to leverage complementary and diversified revenue streams and to potentially have superior future earnings and prospects compared to our current earnings and prospects on a stand-alone basis. Certain reclassifications have been made to prior year amounts and the related discussion and analysis to conform to the current year presentation. These reclassifications did not have an impact on net income or total stockholders' equity.
Completion of Merger of Equals
On February 1, 2021, Dime Community Bancshares, Inc., a Delaware corporation (“Legacy Dime”) merged with and into Bridge Bancorp, Inc., a New York corporation (“Legacy Bridge”) (the “Merger”), with Legacy Bridge as the surviving corporation under the name “Dime Community Bancshares, Inc.” (the “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 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 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 commercial bank and a wholly-owned subsidiary of Bridge, with BNB Bank as the surviving bank, under the name “Dime Community Bank.”
In connection with the Merger, the Company assumed $115.0 million in aggregate principal amount of the 4.50% Fixed-to-Floating Rate Subordinated Debentures due 2027 of Legacy Dime.
See “Note 2. “Merger” of the Notes to the Consolidated Financial Statements for further information.
Recent Developments Relating to the COVID-19 Pandemic
The disruption to the economy and financial markets brought on by the COVID-19 pandemic will continue to have an impact on the Company’s operations and financial results. As banking was designated by New York State as an essential business, the Company remains committed to being a source of capital to businesses in its footprint. Our retail branch office locations remain open to conduct business. The locations are following the Centers for Disease Control and Prevention guidance on safe practices and social distancing, including social distancing signs and floor markings to guide employees and customers. All employees and customers must wear masks and floor traffic is limited to three customers in a branch. The Bank also offers mobile and digital banking platforms.
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The Company also prioritizes the well-being of employees. The Company has deployed its Business Continuity Plans and shifted to a remote working environment during the "New York State on PAUSE" executive order, which began on March 22, 2020. All non-branch staff have the ability to use remote desktop software to re-create their desktop environment in order to work from home. The Company has not furloughed any of its employees.
The Company continues to follow the guidance of New York State in the reopening phases, with phase four which began for New York City on July 20, 2020. As the COVID-19 vaccine is becoming more readily available, the Company continues to assess its own internal “return to office” strategy. Guidelines have been established for those employees that are working from a corporate office location. Many of the Bank’s back office personnel are still working remotely.
Business Continuity Plan
When "New York State on PAUSE" was initiated, the Company had already invoked its Board-approved Business Continuity Plan (“BCP”), that was updated earlier in the year, to address specific risks and operational concerns related to the COVID-19 pandemic. The BCP includes a remote working environment for many of the Company’s back office personnel, strategic branch closures for locations that do not have plexiglass barriers, and other considerations. No material operational or internal control challenges or risks have been identified to date. The Company does not currently anticipate significant challenges to its ability to maintain its systems.
Lending operations and accommodations to borrowers
The Company’s business, financial condition and results of operations generally rely upon the ability of the Bank’s borrowers to repay their loans, the value of collateral underlying the Bank’s secured loans, and demand for loans and other products and services the Bank offers, which are highly dependent on the business environment in the Bank’s primary markets where it operates.
Consistent with regulatory guidance to work with borrowers during the unprecedented situation caused by the COVID-19 pandemic and as outlined in the CARES Act, the Company established a formal payment deferral program in April 2020 for borrowers that have been adversely affected by the pandemic. As of March 31, 2021, the Company had 34 loans, representing outstanding loan balances of $66.7 million, that were deferring both principal and interest. In accordance with Section 4013 of the CARES Act, issued in March 2020, these deferrals are not considered troubled debt restructurings. Risk-ratings on COVID-19 loan deferrals are evaluated as part of the deferral request approval process. The loans will be subject to the Bank’s normal credit monitoring. The collectability of accrued interest will be evaluated on a periodic basis.
The Bank is closely monitoring the developments and uncertainties regarding the pandemic, including various segments of our loan portfolio that may be disproportionately impacted by the pandemic. The Company does not have any exposure to the energy industry, airline industry, leveraged lending, or auto loans. The Company does not have any hotel loans that are in full P&I deferral.
With the passage of the Paycheck Protection Program (“PPP”), administered by the SBA, the Company participated in assisting its customers with applications for resources through the program. Dime's PPP loans generally have a two-year or five-year term and earn interest at 1%. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of March 31, 2021, the Company had PPP loans totaling $1.4 billion, net of deferred fees. It is the Company’s understanding that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be required to establish additional allowance for loan losses through additional provision expense charged to earnings.
We continue to monitor unfunded commitments through the pandemic, including commercial and home equity lines of credit, for evidence of increased credit exposure as borrowers utilize these lines for liquidity purposes.
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Selected Financial Highlights and Other Data
(Dollars in Thousands Except Per Share Amounts)
At or For the
Three Months Ended
March 31,
2021
2020
Per Share Data:
Reported EPS (Diluted)
$
(0.66)
$
0.37
Cash dividends paid per common share
0.24
0.22
Book value per common share
25.43
26.12
Dividend Payout Ratio
(36.36)
%
58.39
%
Performance and Other Selected Ratios:
Return on average assets
(0.79)
%
0.54
%
Return on average equity
(8.20)
5.35
Net interest spread
2.98
2.46
Net interest margin
3.14
2.72
Average interest-earning assets to average interest-bearing liabilities
144.13
120.93
Non-interest expense to average assets
3.11
1.68
Efficiency Ratio
117.5
58.2
Loan-to-Deposit ratio at end of period
97.2
120.8
Effective tax rate
25.22
21.63
Asset Quality Summary:
Non-performing loans (1)
$
35,549
$
18,157
Non-performing assets
35,549
18,157
Net charge-offs (recoveries)
4,275
(10)
Non-performing assets/Total assets
0.27
%
0.29
%
Non-performing loans/Total loans
0.34
0.35
Allowance for credit loss/Total loans
0.93
0.70
Allowance for credit loss/Non-performing loans
276.24
200.82
(1) Non-performing loans are defined as all loans on non-accrual status.
Critical Accounting Policies
The Company’s policies with respect to the methodologies it uses to determine the allowance for loan losses (including reserves for loan commitments), are its most critical accounting policies because they are important to the presentation of the Company’s consolidated financial condition and results of operations, involve a significant degree of complexity and require management to make difficult and subjective judgments which often necessitate assumptions or estimates about highly uncertain matters. The use of different judgments, assumptions or estimates could result in material variations in the Company’s consolidated results of operations or financial condition.
Allowance for Credit Losses. The Bank’s methods and assumptions utilized to periodically determine its allowance for credit losses are summarized in Note 3 to the Company’s condensed consolidated financial statements.
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 ensure 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 each of its meetings. In addition, a twelve-month liquidity forecast is presented to ALCO in order to assess potential future liquidity concerns. A forecast of cash flow data for the upcoming 12 months is presented to the Board of Directors on an annual basis.
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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 Bank 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.
The Bank gathers deposits in direct competition with commercial banks, savings banks and brokerage firms, many among the largest in the nation. It must additionally compete for deposit monies against the stock and bond markets, especially during periods of strong performance in those arenas. The Bank’s deposit flows are affected primarily by the pricing and marketing of its deposit products compared to its 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 equity or bond markets could adversely impact the Bank’s deposit flows.
Total deposits increased $6.36 billion during the three months ended March 31, 2021, compared to a decrease of $42.8 million for the three months ended March 31, 2020. Within deposits, core deposits ( i.e., non-CDs) increased $6.15 billion during the three months ended March 31, 2020 and decreased $111.4 million during the three months ended March 31, 2020. CDs decreased $217.7 million during the three months ended March 31, 2021 compared to an increase of $68.6 million during the three months ended March 31, 2020. The increase in deposits during the current period was primarily due to the acquisition of deposits in the merger.
In the event that the Bank should require funds beyond its ability or desire to generate them internally, an additional source of funds is available through its borrowing line at the FHLBNY or borrowing capacity through AFX and lines of credit with unaffiliated correspondent banks. At March 31, 2021, the Bank had an additional unused borrowing capacity of $2.3 billion through the FHLBNY, subject to customary minimum FHLBNY common stock ownership requirements ( i.e. , 4.5% of the Bank’s outstanding FHLBNY borrowings).
The Bank decreased its outstanding FHLBNY advances by $670.1 million during the three months ended March 31, 2021, compared to a $25.1 million increase during the three months ended March 31, 2020. See Note 13. Federal Home Loan Bank Advances for further information.
During the three months ended March 31, 2021 and 2020, real estate loan originations totaled $349.1 million and $166.8 million, respectively. During the three months ended March 31, 2021 and 2020, C&I loan originations totaled $612.1 million (including $573.3 million of PPP loans) and $51.9 million, respectively.
Sales of available-for-sale securities totaled $133.8 million and $4.2 million during the three-month periods ended March 31, 2021 and 2020, respectively. Purchases of available-for-sale securities totaled $979.2 million and $33.2 million during the three-month periods ended March 31, 2021 and 2020, respectively. Proceeds from pay downs and calls and maturities of available-for-sale securities were $214.0 million and $32.3 million for the three-month periods ended March 31, 2021 and 2020, respectively.
The Company and the Bank are subject to minimum regulatory capital requirements imposed by its primary federal regulator. As a general matter, these capital requirements are based on the amount and composition of an institution’s assets. At March 31, 2021, each of the Company and the Bank were in compliance with all applicable regulatory capital requirements and the Bank was considered "well capitalized" for all regulatory purposes.
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The following table summarizes Company and Bank capital ratios calculated under the Basel III Capital Rules framework as of the period indicated:
Actual Ratios at March 31, 2021
Basel III
Consolidated
Minimum
To Be Categorized as
Bank
Company
Requirement
“Well Capitalized” (1)
Tier 1 common equity ratio
11.9
%
9.7
%
4.5
%
6.5
%
Tier 1 risk-based based capital ratio
11.9
10.9
6.0
8.0
Total risk-based based capital ratio
13.0
14.0
8.0
10.0
Tier 1 leverage ratio
10.5
9.6
4.0
5.0
(1) Only the Bank is subject to these requirements.
In accordance with the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies have adopted, effective January 1, 2020, a final rule whereby financial institutions and financial institution holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, will be eligible to opt into a “Community Bank Leverage Ratio” framework. The leverage ratio was temporarily lowered to 8% by the Federal Reserve Board in March 2020, gradually increasing back to 9% by 2022. The framework is available for use by election in the Bank’s Call Report. Qualifying community banking organizations that elect to use the community bank leverage ratio framework and that maintain a leverage ratio of greater than 9% will be considered to have satisfied the generally applicable risk-based and leverage capital requirements in the agencies’ capital rules and will be considered to have met the “well capitalized” ratio requirements under the Prompt Corrective Action statutes. The agencies reserved the authority to disallow the use of the Community Bank Leverage Ratio by a financial institution or holding company based on the risk profile of the organization. As of March 31, 2021, the Bank has not opted into the Community Bank Leverage Ratio framework.
Legacy Dime repurchased 825,992 shares of its common stock during the three months ended March 31, 2020. The Holding Company did not repurchase any shares of its common stock during the three months ended March 31, 2021. As of March 31, 2021, up to 797,870 shares remained available for purchase under the authorized share repurchase programs. See "Part II - Item 2. Other Information - Unregistered Sales of Equity Securities and Use of Proceeds" for additional information about repurchases of common stock.
The Holding Company paid $1.8 million in cash dividends on preferred stock during the three months ended March 31, 2021, and none during the three months ended March 31, 2020. The Holding Company paid $4.9 million in cash dividends on common stock during the three months ended March 31, 2020.
Contractual Obligations
The Bank is obligated to make rental payments under leases on certain of its branches and equipment. In addition, the Bank generally has outstanding at any time significant borrowings in the form of FHLBNY advances, or overnight or short-term borrowings, as well as customer and brokered CDs with fixed contractual interest rates.
Off-Balance Sheet Arrangements
As part of its loan origination business, the Bank generally has outstanding commitments to extend credit to third parties, which are granted pursuant to its regular underwriting standards. Since these loan commitments may expire prior to funding, in whole or in part, the contract amounts are not estimates of future cash flows.
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Asset Quality
General
The Bank does not originate or purchase loans, either whole loans or loans underlying mortgage-backed securities (“MBS”), which would have been considered subprime loans at origination, i.e ., real estate loans advanced to borrowers who did not qualify for market interest rates because of problems with their income or credit history. See Note 6 to the Company’s Unaudited Condensed Consolidated Financial Statements for a discussion of evaluation for impaired securities.
COVID-19 Related Loan Deferrals
Consistent with regulatory guidance to work with borrowers during the unprecedented situation caused by the COVID-19 pandemic and as outlined in the CARES Act, the Company established a formal payment deferral program in April 2020 for borrowers that have been adversely affected by the pandemic.
As of March 31, 2021, the Company had 34 loans, representing outstanding loan balances of $66.7 million, that were deferring both principal and interest (“P&I” deferrals).
The table below presents the loans with P&I deferrals as of March 31, 2021:
March 31, 2021
Number
(Dollars in thousands)
of Loans
Balance (1)
One-to-four family residential and cooperative/condominium apartment
15
$
15,489
Multifamily residential and residential mixed-use
—
—
CRE
8
24,174
ADC
1
13,500
C&I
10
13,491
Total
34
$
66,654
(1) Amount excludes net deferred costs due to immateriality.
Pursuant to regulatory guidance, and guidance under Section 4013 of the CARES Act, a qualified loan modification, such as a payment deferral, is exempt by law from classification as a TDR as defined by GAAP, was expected to expire on December 31, 2020. The 2021 Consolidated Appropriations Act, which was signed into law December of 2020, extended the exemption for TDR classification until the earlier of January 1, 2022 or the date that is 60 days after the date on which the national emergency concerning the COVID-19 outbreak is lifted.
Risk-ratings on COVID-19 loan deferrals are evaluated on an ongoing basis.
While interest is expected to still accrue to income during the deferral period, should deterioration in the financial condition of the borrowers that would not support the ultimate repayment of interest emerge, interest income accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted.
Monitoring and Collection of Delinquent Loans
Management of the Bank reviews delinquent loans on a monthly basis and reports to its Board of Directors at each regularly scheduled Board meeting regarding the status of all non-performing and otherwise delinquent loans in the Bank’s portfolio.
The Bank’s loan servicing policies and procedures require that an automated late notice be sent to a delinquent borrower as soon as possible after a payment is ten days late in the case of multifamily residential, commercial real estate loans, and C&I loans, or fifteen days late in connection with one-to-four family or consumer loans. Thereafter, periodic letters are mailed and phone calls placed to the borrower until payment is received. When contact is made with the borrower at any
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time prior to foreclosure, the Bank will attempt to obtain the full payment due or negotiate a repayment schedule with the borrower to avoid foreclosure.
Accrual of interest is generally discontinued on a loan that meets any of the following three criteria: (i) full payment of principal or interest is not expected; (ii) principal or interest has been in default for a period of 90 days or more (unless the loan is both deemed to be well secured and in the process of collection); or (iii) an election has otherwise been made to maintain the loan on a cash basis due to deterioration in the 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, the Bank reverses all outstanding accrued interest receivable.
The Bank generally initiates 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. The Bank obtains an updated appraisal upon the commencement of legal action to calculate a potential collateral shortfall and to reserve appropriately for the potential loss. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure action is completed, the property securing the loan is transferred to Other Real Estate Owned (“OREO”) status. The Bank generally attempts to utilize all available remedies, such as note sales in lieu of foreclosure, in an effort to resolve non-accrual loans and OREO properties as quickly and prudently as possible in consideration of market conditions, the physical condition of the property and any other mitigating circumstances. In the event that a non-accrual loan is subsequently brought current, it is returned to accrual status once the doubt concerning collectability has been removed and the borrower has demonstrated performance in accordance with the loan terms and conditions for a period of at least six months.
The C&I portfolio is actively managed by the Bank’s lenders and underwriters. All credit facilities at a minimum require an annual review of the exposure and typically terms of the loan require annual and interim financial reporting and have financial covenants to indicate expected performance levels. Guarantors are also required to, at a minimum, annually 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, a request for a capital infusion, additional guarantor support or a material enhancement to the frequency and quality of financial reporting. Loans determined to reach adverse risk rating standards are subject to quarterly updating to Credit Administration and executive management. When warranted, loans reaching a Substandard rating could be reassigned to the Workout Group for direct handling.
Non-accrual Loans
Within the Bank’s held-for-investment loan portfolio, non-accrual loans totaled $35.5 million at March 31, 2021, and $17.9 million at December 31, 2020. During the three months ended March 31, 2021, loans totaling $17.7 million were placed on non-accrual status, including $11.9 million in non-accrual PCD loans. There were no sales or payoffs of non-accrual loans during the three months ended March 31, 2021.
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The following is a reconciliation of non-accrual loans as of the dates indicated:
March 31,
December 31,
March 31,
2021
2020
2020
(Dollars in thousands)
Non-accrual loans (1) :
One-to-four family residential, including condominium and cooperative apartment
$
5,384
$
858
$
6,685
Multifamily residential and residential mixed-use real estate
4,844
1,863
1,332
CRE
10,595
2,704
56
ADC
104
—
—
C&I
14,523
12,502
10,082
Other
99
1
2
Total non-accrual loans
$
35,549
$
17,928
$
18,157
Ratios:
Total non-accrual loans to total loans
0.34
%
0.32
%
0.35
%
Total non-performing assets to total assets (2)
0.27
0.26
0.29
(1) There were no TDRs for the periods indicated.
(2) Non-performing assets includes non-accrual loans.
OREO
Property acquired by the 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, the Bank obtains a current appraisal on the property and reassesses the likely realizable value ( a/k/a fair value) of the property quarterly thereafter. OREO is carried at the lower of the fair value or book balance, with any write downs recognized through a provision recorded in non-interest expense. Only the appraised value, or either a contractual or formal marketed value that falls below the appraised value, is used when determining the likely realizable value of OREO at each reporting period. The Bank typically seeks to dispose of OREO properties in a timely manner. As a result, OREO properties have generally not warranted subsequent independent appraisals.
The Bank had no OREO properties at March 31, 2021 or December 31, 2020. The Bank did not recognize any provisions for losses on OREO properties during the three months ended March 31, 2021 or 2020.
Other Potential Problem Loans
Accruing Loans 90 Days or More Past Due
The Bank continued accruing interest on eight loans with an aggregate outstanding balance of $8.8 million at March 31, 2021, and three loans with an aggregate outstanding balance of $3.3 million at December 31, 2020, all of which were 90 days or more past due on their respective contractual maturity dates. These loans continued to make monthly payments consistent with their initial contractual amortization schedule exclusive of the balloon payments due at maturity. These loans were well secured and/or were expected to be refinanced, and, therefore, remained on accrual status and were deemed performing assets at the dates indicated above.
Loans Delinquent 30 to 89 Days
The Bank had loans totaling $41.8 million that were delinquent between 30 and 89 days at March 31, 2021 and $16.3 million at December 31, 2020. The increase in 30 to 89 day delinquencies was primarily attributable to acquired loans totaling $18.3 million. The 30 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.
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Reserve for Loan Commitments
The Bank maintains a reserve associated with unfunded loan commitments accepted by the borrower. The amount of reserve was $4.6 million at March 31, 2021 and $25 thousand at December 31, 2020. This reserve is determined based upon the outstanding volume of loan commitments at each period end. Any increases or reductions in this reserve are recognized in provision for credit losses. The adoption of the CECL standard resulted in a $1.4 million increase in the reserve. An additional $3.1 million increase in the reserve was recorded as a provision for credit losses primarily attributable to acquired loan commitments.
Allowance for Credit Losses
On January 1, 2021, the Company adopted ASU No. 2016-13 "Financial Instruments – Credit Losses (Topic 326)". ASU 2016-13 was effective for the Company as of January 1, 2020. Under Section 4014 of the CARES Act, financial institutions required to adopt ASU 2016-13 as of January 1, 2020 were provided an option to delay the adoption of the CECL framework. The Company elected to defer adoption of CECL until January 1, 2021. This standard requires that the measurement of all expected credit losses for financial assets held at the reporting date be based on historical experience, current conditions, 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 in retained earnings as of January 1, 2021.
A provision of $15.8 million and $8.0 million were recorded during the three month periods ended March 31, 2021 and 2020, respectively. The $15.8 million credit loss provision for the first quarter of 2021 was primarily associated with the provision for credit losses recorded on acquired non-PCD loans which totaled $20.3 million for the first quarter of 2021 and a provision for unfunded commitments which totaled $3.1 million for the first quarter of 2021. The provision on the remainder of the portfolio for the first quarter of 2021 was negative $7.6 million primarily as a result of improvement in forecasted macroeconomic conditions. Durin g the three - mont hs ende d Marc h 31 , 2020 , th e credit los s provisio n wa s drive n mainl y b y a n increas e i n th e genera l allowanc e fo r credit losse s due t o th e adjustmen t o f qualitativ e factor s t o accoun t fo r th e effect s o f th e COVID - 1 9 pandemi c an d relate d economi c disruption .
For a further discussion of the allowance for loan losses and related activity during the three-month periods ended March 31, 2021 and 2020, and as of December 31, 2020, please see Note 8 to the condensed consolidated financial statements.
Comparison of Financial Condition at March 31, 2021 and December 31, 2020
Assets. Assets totaled $13.02 billion at March 31, 2021, $6.24 billion above their level at December 31, 2020, primarily due to an increase in the loan portfolio of $4.83 billion, an increase in securities of $607.7 million, an increase in BOLI of $95.4 million, an increase in derivative assets of $26.8 million, an increase in accrued interest receivable of $16.3 million, and an increase in other assets of $47.9 million, offset by a decrease in FHLBNY capital stock of $15.6 million. These changes were mainly due to the acquisition of assets due to the Merger.
Total loans increased $4.83 billion during the three months ended March 31, 2021. During the period, the Bank had originations of $909.7 million. Additionally, the allowance for credit losses increased by $56.7 million which was due to the acquisition (credit mark on PCD loans plus provision on non-PCD), offset by CECL adoption and improvements in forecasted macroeconomic conditions during the three months ended March 31, 2021.
The $26.8 million increase in derivative assets was primarily the result of the Merger. The Company had 111 loan swaps that were acquired. The $16.3 million increase in accrued interest receivables was primarily due to the acquired loan portfolio as part of the Merger.
Liabilities. Total liabilities increased $5.77 billion during the three months ended March 31, 2021, primarily due to an increase of $6.29 billion in deposits, an increase of $83.2 million in subordinated debt, an increase of $31.4 million in
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lease liability for operating leases, and an increase of $4.4 million in derivative liabilities. These changes were mainly due to the assumption of liabilities due to the Merger. FHLBNY advances and other borrowings declined by $670.1 million, as the Company used excess liquidity on the balance sheet to paydown borrowings.
The Company terminated 28 interest rates swaps related to FHLBNY advances totaling $505.0 million during the quarter with a termination fee of $16.0 million. The remaining four interest rate swaps are in an asset position as of the end of the quarter.
Stockholders’ Equity. Stockholders’ equity increased $471.7 million during the three months ended March 31, 2021, due to share issuances associated with the Merger of $491.2 million and income from other comprehensive income of $6.5 million, offset by net loss in the period of $21.0 million, common stock dividends of $5.2 million and preferred stock dividends of $1.8 million.
Comparison of Operating Results for the Three Months Ended March 31, 2021 and 2020
General. Net loss was $22.9 million during the three months ended March 31, 2021, lower than net income of $8.4 million for the three months ended March 31, 2020. During the three months ended March 31, 2021, net interest income increased by $37.3 million, non-interest income decreased by $11.6 million, non-interest expense increased by $56.8 million, income tax expense decreased by $9.4 million and the loan loss provision increased by $7.8 million, compared to the three months ended March 31, 2020. Please see "Provision for Credit Losses" for a discussion of the increase in the credit loss provision for the period ended March 31, 2021.
Net Interest Income. The discussion of net interest income for the three months ended March 31, 2021 and 2020 should be read in conjunction with the following tables, which set forth certain information related to the consolidated statements of income for those periods, and which also present the average yield on assets and average cost of liabilities for the periods indicated. The average yields and costs were derived by dividing income or expense by the average balance of their related assets or liabilities during the periods represented. Average balances were derived from average daily balances. The yields include fees that are considered adjustments to yields.
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Analysis of Net Interest Income
Three Months Ended March 31,
2021
2020
Average
Average
Average
Yield/
Average
Yield/
Balance
Interest
Cost
Balance
Interest
Cost
Assets:
(Dollars in Thousands)
Interest-earning assets:
Real estate loans
$
7,039,881
$
66,144
3.81
%
$
4,954,391
$
50,117
4.05
%
Commercial and industrial loans
730,850
9,835
5.46
327,653
4,045
4.94
SBA PPP loans
1,020,910
5,049
2.01
—
—
—
Other loans
17,509
354
8.20
1,443
15
4.16
Mortgage-backed securities
665,190
3,080
1.88
486,722
3,305
2.72
Investment securities
199,918
1,300
2.64
47,060
421
3.58
Other short-term investments
383,340
993
1.05
132,094
1,002
3.03
Total interest-earning assets
10,057,598
86,755
3.50
%
5,949,363
58,905
3.96
%
Non-interest earning assets
609,021
258,586
Total assets
$
10,666,619
$
6,207,949
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing checking
$
662,273
$
351
0.21
%
$
159,027
$
87
0.22
%
Money market
2,893,723
1,987
0.28
1,580,779
3,586
0.91
Savings
863,409
207
0.10
383,769
367
0.38
Certificates of deposit
1,522,017
2,753
0.73
1,586,549
7,886
2.00
Total interest-bearing deposits
5,941,422
5,298
0.36
3,710,124
11,926
1.29
FHLBNY Advances
853,162
1,711
0.81
1,085,553
5,085
1.88
Subordinated debt, net
168,607
1,902
4.57
113,918
1,330
4.70
Other short-term borrowings
15,021
3
0.08
9,890
40
1.63
Total borrowings
1,036,790
3,616
1.41
1,209,361
6,455
2.15
Total interest-bearing liabilities
6,978,212
8,914
0.52
%
4,919,485
18,381
1.50
%
Non-interest-bearing checking
2,494,630
467,468
Other non-interest-bearing liabilities
164,859
193,652
Total liabilities
9,637,701
5,580,605
Stockholders' equity
1,028,918
627,344
Total liabilities and stockholders' equity
$
10,666,619
$
6,207,949
Net interest income
$
77,841
$
40,524
Net interest spread
2.98
%
2.46
%
Net interest-earning assets
$
3,079,386
$
1,029,878
Net interest margin
3.14
%
2.72
%
Ratio of interest-earning assets to interest-bearing liabilities
144.13
%
120.93
%
Deposits (including non-interest-bearing checking accounts)
$
8,436,052
$
5,298
0.25
%
$
4,177,592
$
11,926
1.14
%
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Rate/Volume Analysis
Three Months Ended March 31, 2021
Compared to Three Months Ended March 31, 2020
Increase / (Decrease) Due to:
Volume
Rate
Total
(Dollars In thousands)
Interest-earning assets:
Real estate loans
$
20,048
$
(4,021)
$
16,027
Commercial and industrial loans
5,256
534
5,790
SBA PPP loans
2,514
2,535
5,049
Other loans
246
93
339
Mortgage-backed securities
1,005
(1,230)
(225)
Investment securities
1,179
(300)
879
Other short-term investments
1,274
(1,283)
(9)
Total interest-earning assets
$
31,522
$
(3,672)
$
27,850
Interest-bearing liabilities:
Interest-bearing checking
$
272
$
(8)
$
264
Money market
1,928
(3,527)
(1,599)
Savings
283
(443)
(160)
Certificates of deposit
(222)
(4,911)
(5,133)
FHLBNY Advances
(788)
(2,586)
(3,374)
Subordinated debt, net
624
(52)
572
Other short-term borrowings
11
(48)
(37)
Total interest-bearing liabilities
$
2,108
$
(11,575)
$
(9,467)
Net change in net interest income
$
29,414
$
7,903
$
37,317
Net interest income was $77.8 million during the three months ended March 31, 2021, an increase of $37.3 million from the three months ended March 31, 2020. Average interest-earning assets were $10.06 billion for the three months ended March 31, 2021, an increase of $4.11 billion from $5.95 billion for the three months ended March 31, 2020. Net interest margin (“NIM”) was 3.14% during the three months ended March 31, 2021, up from 2.72% during the three months ended March 31, 2020.
Interest Income. Interest income was $86.8 million during the three months ended March 31, 2021, an increase of $27.9 million from the three months ended March 31, 2020, primarily reflecting increases in interest income of $16.0 million on real estate loans, $5.8 million on C&I loans, $5.0 million on SBA PPP loans, $0.3 million on other loans, $0.9 million on investment securities, partially offset by decreases of $0.2 million in mortgaged-backed securities and other short term investments. The increased interest income on real estate loans was related to an increase of $2.09 billion in the average balance of such loans in the period, offset by a 24-basis point decrease in the yield. The increased interest income on C&I loans was due to an increase of $407.5 million in the average balance of such loans during the period.
Interest Expense. Interest expense decreased $9.5 million, to $8.9 million, during the three months ended March 31, 2021, from $18.4 million during the three months ended March 31, 2020. The decreased interest expense was mainly attributable to a reduction in interest rates offered on CDs as well as a decrease in average balances of $64.5 million in CD products, and a decrease in average balances of $232.4 million in FHLBNY advances.
Provision for Credit Losses. The Company recognized a provision for credit losses of $15.8 million during the three months ended March 31, 2021, compared to a provision of $8.0 million for the three months ended March 31, 2020. The $15.8 million credit loss provision for the first quarter of 2021 was primarily associated with the provision for credit losses recorded on acquired non-PCD loans which totaled $20.3 million for the first quarter of 2021 and a provision for unfunded commitments which totaled $3.1 million for the first quarter of 2021. The provision on the remainder of the portfolio for the first quarter of 2021 was negative $7.6 million primarily as a result of improvement in forecasted macroeconomic conditions.
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Non-Interest Income. Non-interest loss was $7.4 million during the three months ended March 31, 2021, compared to non-interest income of $4.2 million during the three months ended March 31, 2020, primarily due to loss on termination of derivatives of $16.5 million, offset by an increase of service charges and other fees of $1.7 million, an increase of $0.6 million of loan level derivative income, and an increase of $0.6 million in gains on sale of loans for the three months ended March 31, 2021.
Non-Interest Expense. Non-interest expense was $82.8 million during the three months ended March 31, 2021, an increase of $56.8 million from $26.0 million during the three months ended March 31, 2020, primarily the result of merger expenses of $25.8 million during the quarter, an increase in salaries and employee benefit expense of $9.1 million, and an increase in severance of $12.0 million.
Non-interest expense was 1.61% and 1.68% of average assets during the three-month periods ended March 31, 2021 and 2020, respectively.
Income Tax Expense. Income tax benefit was $7.1 million during the three months ended March 31, 2021, compared to tax expense of $2.3 million during the three months ended March 31, 2020. The Company’s consolidated tax rate was 25.2% during the three months ended March 31, 2021, compared to 21.6% during the three months ended March 31, 2020. The higher tax rate for the three months ended March 31, 2021 was primarily the result of non-deductible merger expenses and salary expenses during the period.
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