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 minimal operations, other than as owner of Dime Community Bank. 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 and loan accounts, merchant credit and debit card processing programs, loan swap fees, investment services, income from its title insurance subsidiary, and net gains on sales of securities and loans. The level of non-interest expenses, such as salaries and benefits, occupancy and equipment costs, other general and administrative expenses, expenses from the Bank’s title insurance subsidiary, and income tax expense, further affects our net income. Certain 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 (“Bridge”) (the “Merger”), with 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
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. Over the past several years, the Company has taken numerous steps, including hiring personnel and adding new processes and systems, that have put the Bank in a position to help its business customers, through programs such as the SBA Paycheck Protection Program (“PPP”). Our retail branch office locations remain open to conduct business. The locations are following the 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. The Bank also offers mobile and digital banking platforms. All employees and customers must wear masks when unable to socially distance . The Company also allows for a remote working environment for many of the Company’s back office personnel. The Company has not identified any material operational or internal control challenges.
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The Company also prioritizes the well-being of employees, including the creation of the Safety and Wellness Committee.
The Bank adheres to the NY Health & Essential Rights (“HERO”) Act, under which the Company has adopted additional guidelines and safety measures to protect employees against exposure.
Future government actions in response to the COVID-19 pandemic, including vaccination mandates, may affect the Company’s workforce, human capital resources and infrastructure.
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 September 30, 2021, the Company had 17 loans, representing outstanding loan balances of $26.6 million, that were deferring full principal and interest. In accordance with Section 4013 of the CARES Act, issued in March 2020, these deferrals are not considered troubled debt restructurings (“TDRs”). Risk-ratings on COVID-19 loan deferrals are evaluated on an ongoing basis. The loans will be subject to the Bank’s normal credit monitoring. The collectability of accrued interest is evaluated on a periodic basis.
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 PPP, administered by the SBA, the Company participated in assisting its customers with applications for resources through the program. Since the inception of the program, the consolidated PPP originations for the Company, including originations by Legacy Dime and Bridge, through September 30, 2021 exceeded $1.90 billion. The Company’s ability to respond quickly to the SBA guidelines allowed the Company to be a source of funding for local businesses during the COVID-19 pandemic. The Company’s SBA PPP loans generally have a two-year or five-year term and earn interest at 1%. Following the completion of the PPP, the Company was able to sell $596.2 million of the SBA PPP loan portfolio in order to re-deploy funds to service ongoing loan portfolio growth. The Company believes that the remainder of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of September 30, 2021, the Company had SBA PPP loans totaling $134.1 million, net of deferred fees. It is the Company’s understanding that loans funded through the PPP are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be required to establish additional allowance for credit 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
At or For the
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
Per Share Data:
Reported EPS (Diluted)
$
0.89
$
0.65
$
1.62
$
1.56
Cash dividends paid per common share
0.24
0.22
0.72
0.65
Book value per common share
26.64
26.97
26.64
26.97
Dividend payout ratio
26.97
%
33.33
%
44.44
%
41.58
%
Performance and Other Selected Ratios:
Return on average assets
1.22
%
0.98
%
0.76
%
0.78
%
Return on average equity
12.69
9.22
8.00
7.59
Net interest spread
3.08
2.71
3.02
2.59
Net interest margin
3.20
2.92
3.15
2.83
Average interest-earning assets to average interest-bearing liabilities
159.05
125.10
152.96
123.68
Non-interest expense to average assets
1.80
1.53
2.16
1.68
Efficiency ratio
54.3
48.6
65.3
54.3
Loan-to-deposit ratio at end of period
87.0
125.3
87.0
125.3
Effective tax rate
27.50
21.87
29.24
21.72
Asset Quality Summary:
Non-performing loans (1)
$
34,020
$
12,424
$
34,020
$
12,424
Non-performing assets
34,020
12,424
34,020
12,424
Net charge-offs (recoveries)
4,191
(69)
9,383
(48)
Non-performing assets/Total assets
0.28
%
0.19
%
0.28
%
0.19
%
Non-performing loans/Total loans
0.37
0.22
0.37
0.22
Allowance for credit loss/Total loans
0.88
0.87
0.88
0.87
Allowance for credit loss/Non-performing loans
238.84
390.31
238.84
390.31
(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 credit losses (including reserves for loan commitments) and loans acquired in a business combination, 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.
Loans Acquired in a Business Combination. The Bank’s methods 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
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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.
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 utilizes securities sold under agreements to repurchase (“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 September 30, 2021, the Bank’s repurchase agreements totaled $2.7 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 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 $6.15 billion during the nine months ended September 30, 2021, compared to an increase of $89.9 million for the nine months ended September 30, 2020. The increase in total deposits during the current period was primarily due to the acquisition of deposits in the Merger. Within deposits, core deposits ( i.e., non-CDs) increased $6.46 billion during the nine months ended September 30, 2021 and increased $305.3 million during the nine months ended September 30, 2020. CDs decreased $306.4 million during the nine months ended September 30, 2021 compared to a decrease of $215.4 million during the nine months ended September 30, 2020. The decrease in CDs during the current period was primarily due to higher-cost CDs not being renewed. In the event that the Bank should require funds beyond its ability or desire to generate them internally, an additional source of funds is available through its borrowing line at the FHLBNY or borrowing capacity through AFX and lines of credit with unaffiliated correspondent banks. At September 30, 2021, the Bank had an additional unused borrowing capacity of $3.25 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 $1.18 billion during the nine months ended September 30, 2021, compared to a $36.2 million increase during the nine months ended September 30, 2020. See Note 13. Federal Home Loan Bank Advances for further information.
During the nine months ended September 30, 2021 and 2020, real estate loan originations totaled $1.24 billion and $681.6 million, respectively. During the nine months ended September 30, 2021 and 2020, C&I loan originations totaled $631.3 million (including $579.9 million of PPP loans) and $442.4 million (including $334.3 million of PPP loans), respectively. The increase in both real estate loan originations and C&I loan originations during the current period was primarily due to the Merger.
Sales of available-for-sale securities totaled $138.1 million and $68.8 million during the nine-month periods ended September 30, 2021 and 2020, respectively. Purchases of available-for-sale securities totaled $1.03 billion and $149.4 million during the nine-month periods ended September 30, 2021 and 2020, respectively. Proceeds from pay downs and
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calls and maturities of available-for-sale securities were $350.6 million and $121.2 million for the nine-month periods ended September 30, 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 September 30, 2021, each of the Company and the Bank were in compliance with all applicable regulatory capital requirements and the Bank was considered "well capitalized" for all regulatory purposes.
The following table summarizes Company and Bank capital ratios calculated under the Basel III Capital Rules framework as of the period indicated:
Actual Ratios at September 30, 2021
Basel III
Consolidated
Minimum
To Be Categorized as
Bank
Company
Requirement
“Well Capitalized” (1)
Tier 1 common equity ratio
12.7
%
9.9
%
4.5
%
6.5
%
Tier 1 risk-based capital ratio
12.7
11.2
6.0
8.0
Total risk-based capital ratio
13.7
14.1
8.0
10.0
Tier 1 leverage ratio
9.6
8.4
4.0
5.0
(1) Only the Bank is subject to these requirements.
The Holding Company repurchased 904,160 shares of its common stock during the nine months ended September 30, 2021. Legacy Dime repurchased 1,477,030 shares of its common stock during the nine months ended September 30, 2020. As of September 30, 2021, up to 1,937,588 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 $5.5 million in cash dividends on its preferred stock during the nine months ended September 30, 2021. Legacy Dime paid $3.0 million in cash dividends on its preferred stock during the nine months ended September 30, 2020.
The Holding Company paid $29.6 million in cash dividends on its common stock during the nine months ended September 30, 2021. Legacy Dime paid $14.2 million in cash dividends on its common stock during the nine months ended September 30, 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.
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
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who did not qualify for market interest rates because of problems with their income or credit history. See Note 7 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 September 30, 2021, the Company had 17 loans, representing outstanding loan balances of $26.6 million, that were P&I deferrals.
The table below presents the loans with P&I deferrals as of the period indicated:
September 30, 2021
Number
(Dollars in thousands)
of Loans
Balance (1)
One-to-four family residential and cooperative/condominium apartment
10
$
9,255
CRE
1
3,487
C&I
6
13,861
Total
17
$
26,603
(1) Amount excludes net deferred costs due to immateriality.
Pursuant to guidance under Section 4013 of the CARES Act, a qualified loan modification, such as a payment deferral, is exempt from classification as a TDR as defined by GAAP. This applies if the loan was current as of December 31, 2019 and the modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate of the loan. This guidance was expected to expire on December 31, 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 quarterly 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 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
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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 $34.0 million at September 30, 2021, and $17.9 million at December 31, 2020. Compared to June 30, 2021, non-accrual loans as of September 30, 2021 included $14.3 million of additional loans placed on non-accrual status. There were no non-accrual loan sales during the three months ended September 30, 2021.
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The following is a reconciliation of non-accrual loans as of the dates indicated:
September 30,
December 31,
September 30,
2021
2020
2020
(Dollars in thousands)
Non-accrual loans:
One-to-four family residential, including condominium and cooperative apartment
$
4,938
$
858
$
867
Multifamily residential and residential mixed-use real estate
859
1,863
1,213
CRE
4,122
2,704
47
C&I
23,727
12,502
10,287
Other
374
1
10
Total non-accrual loans
$
34,020
$
17,928
$
12,424
TDRs:
One-to-four family residential, including condominium and cooperative apartment
49
—
—
C&I
479
—
—
Total TDRs
$
528
$
—
$
—
Ratios:
Total non-accrual loans to total loans
0.37
%
0.32
%
0.22
%
Total non-performing assets to total assets
0.28
0.26
0.19
TDRs
The Bank is 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 or an effort to maintain a relationship with a borrower who could readily obtain funds from other sources at the current market interest rate, and the terms of the restructured loan are comparable to the terms offered by the Bank to non-troubled debtors. The Bank modified three loans in a manner that met the criteria for a TDR during the nine months ended September 30, 2021. The Bank did not modify any loans in a manner that met the criteria for a TDR during the nine months ended September 30, 2020.
Accrual status for TDRs is determined separately for each TDR in accordance with the Bank's 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 the Bank's 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 three months. Conversely, if at the time of restructuring the loan is performing (and accruing) it will remain accruing throughout its restructured period, unless the loan subsequently meets any of the criteria for non-accrual status under the Bank's policy and agency regulations.
The Bank does not accept receivables or equity interests in satisfaction of TDRs.
For TDRs that demonstrated conditions sufficient to warrant accrual status, the present value of the expected net cash flows of the underlying property was utilized as the primary means of determining impairment. Any shortfall in the present
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value of the expected cash flows calculated at each measurement period (typically quarter-end) compared to the present value of the expected cash flows at the time of the original loan agreement was recognized as either an allocated reserve (in the event that it related to lower expected interest payments) or a charge-off (if related to lower expected principal payments). For TDRs on non-accrual status, an appraisal of the underlying real estate collateral is deemed the most appropriate measure to utilize when evaluating impairment and any shortfall in valuation from the recorded balance is accounted for through a charge-off. In the event that either an allocated reserve or a charge-off is recognized on TDRs, the periodic loan loss provision is impacted.
Please refer to Note 8 to the condensed consolidated financial statements for a further discussion of TDRs.
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.
There was no carrying value of OREO properties on the Bank’s consolidated balance sheets at September 30, 2021 or December 31, 2020. The Bank did not recognize any provisions for losses on OREO properties during the three or nine months ended September 30, 2021 or 2020.
Other Potential Problem Loans
The delinquencies noted below as of December 31, 2020 reflect those for Legacy Dime prior to the Merger with Bridge on February 1, 2021. See Note 2 for further information regarding the Merger.
Loans Delinquent 30 to 59 Days
At September 30, 2021, the Company had loans totaling $51.1 million that were past due between 30 and 59 days. At December 31, 2020, the Company had loans totaling $15.4 million that were past due between 30 and 59 days. The 30 to 59-day delinquency levels fluctuate monthly, and are generally considered a less accurate indicator of near-term credit quality trends than non-accrual loans.
Loans Delinquent 60 to 89 Days
At September 30, 2021, the Company had loans totaling $7.5 million that were past due between 60 and 89 days. At December 31, 2020, the Company had loans totaling $918 thousand that were past due between 60 and 89 days. The 60 to 89-day delinquency levels fluctuate monthly, and are generally considered a less accurate indicator of near-term credit quality trends than non-accrual loans.
Accruing Loans 90 Days or More Past Due
The Bank continued accruing interest on ten loans with an aggregate outstanding balance of $6.3 million at September 30, 2021, and three loans with an aggregate outstanding balance of $3.3 million at December 31, 2020, all of which were 90 days or more past due. These loans were well secured and/or awaiting a forbearance extension or formal payment deferral, and, therefore, remained on accrual status and were deemed performing assets at the dates indicated above.
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Reserve for Loan Commitments
The Bank maintains a reserve, recorded in other liabilities, associated with unfunded loan commitments accepted by the borrower. The amount of reserve was $7.0 million at September 30, 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 $5.6 million increase in the reserve was recorded as a provision for credit losses primarily attributable to acquired loan commitments during the nine months ended September 30, 2021.
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 as an increase to retained earnings as of January 1, 2021.
A provision of $6.3 million and $20.0 million were recorded during the nine-month periods ended September 30, 2021 and 2020, respectively. The $6.3 million credit loss provision for the nine months ended September 30, 2021 was due to a provision for credit losses recorded on acquired non-PCD loans which totaled $20.3 million for the Day 2 accounting of acquired loans from the Merger, and a provision for unfunded commitments which approximated $5.5 million, offset by a credit of $19.5 million as a result of improvement in forecasted macroeconomic conditions, as well as releases of reserves on individually analyzed loans. Durin g the nine mont hs ende d September 30, 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 factors 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 . During the three months ended September 30, 2021 and 2020, a credit of $5.2 million and a provision of $5.9 million were recorded, respectively. During the three months ended September 30, 2021, the credit was primarily the result of improvement in forecasted macroeconomic conditions, as well as releases of reserves on individually analyzed loans. Durin g the three mont hs ende d September 30, 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 factors 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 credit losses and related activity during the three- or nine-month periods ended September 30, 2021 and 2020, and as of December 31, 2020, please see Note 8 to the unaudited condensed consolidated financial statements.
Comparison of Financial Condition at September 30, 2021 and December 31, 2020
Assets. Assets totaled $12.36 billion at September 30, 2021, $5.58 billion above their level at December 31, 2020, primarily due to an increase in the loan portfolio of $3.62 billion, an increase in securities of $1.20 billion, and an increase in cash and due from banks of $385.4 million. These changes were mainly due to the acquisition of assets due to the Merger.
Total loans increased $3.62 billion during the nine months ended September 30, 2021, to $9.20 billion at period end. During the period, the Bank had originations of $1.87 billion. Additionally, the allowance for credit losses increased by $39.8 million, which was due to the Merger (credit mark on PCD loans plus provision on non-PCD), offset by CECL adoption, improvements in forecasted macroeconomic conditions, and releases of reserves on individually analyzed loans during the nine months ended September 30, 2021.
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The $137.8 million increase in BOLI was mainly due to purchases of $40.0 million during the nine months ended September 30, 2021, and acquisition of $94.1 million in BOLI as a result of the Merger.
Liabilities. Total liabilities increased $5.08 billion during the nine months ended September 30, 2021, to $11.16 billion at period end, primarily due to an increase of $6.15 billion in deposits, an increase of $83.1 million in subordinated debt, an increase of $23.0 million in lease liability for operating leases, and an increase of $1.5 million in derivative liabilities. The increases in total liabilities in the current year were mainly due to the assumption of liabilities due to the Merger. The increases due to the Merger were partially offset by a decrease of $1.18 billion in FHLBNY advances and a decrease of $118.2 million in other short-term borrowings. The Company used excess liquidity on the balance sheet to pay down FHLBNY advances and other short-term borrowings in the current year.
The Company terminated 28 interest rates swaps related to FHLBNY advances totaling $505.0 million during the nine months ended September 30, 2021 with a termination fee of $16.5 million. The remaining four interest rate swaps are in an asset position as of September 30, 2021.
Stockholders’ Equity. Stockholders’ equity increased $500.0 million during the nine months ended September 30, 2021 to $1.20 billion at period end, due to share issuances associated with the Merger of $491.2 million, net income for the period of $38.4 million, and income from other comprehensive income of $4.9 million, offset in part by common stock dividends of $34.8 million and preferred stock dividends of $5.5 million.
Comparison of Operating Results for the Three Months Ended September 30, 2021 and 2020
The Company’s results of operations for the third quarter of 2021 include income for the full quarter from the Merger with Bridge Bancorp, Inc. (“Bridge”), compared to the Company’s historical information for the third quarter of 2020, which does not include the historical GAAP results of Bridge.
General. Net income was $38.4 million during the three months ended September 30, 2021, higher than net income of $15.9 million for the three months ended September 30, 2020. During the three months ended September 30, 2021, net interest income increased by $49.9 million, non-interest income increased by $3.6 million, non-interest expense increased by $31.9 million, income tax expense increased by $10.1 million and the credit loss provision decreased by $11.1 million, compared to the three months ended September 30, 2020. Please see "Provision for Credit Losses" for a discussion of the decrease in the credit loss provision for the three-month period ended September 30, 2021.
Net Interest Income. The discussion of net interest income for the three months ended September 30, 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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Table of Contents
Analysis of Net Interest Income
Three Months Ended September 30,
2021
2020
Average
Average
Average
Yield/
Average
Yield/
Balance
Interest
Cost
Balance
Interest
Cost
Assets:
(Dollars in Thousands)
Interest-earning assets:
Real estate loans
$
8,234,182
$
78,626
3.79
%
$
4,874,780
$
47,482
3.90
%
Commercial and industrial loans
923,698
12,337
5.30
326,636
3,574
4.38
SBA PPP loans
266,472
2,643
3.94
316,747
2,178
2.75
Other loans
21,992
439
7.92
1,444
11
3.05
Mortgage-backed securities
976,198
3,999
1.63
435,920
2,707
2.48
Investment securities
462,150
2,031
1.74
78,405
715
3.65
Other short-term investments
880,606
583
0.26
130,520
729
2.23
Total interest-earning assets
11,765,298
100,658
3.39
%
6,164,452
57,396
3.72
%
Non-interest earning assets
819,074
327,721
Total assets
$
12,584,372
$
6,492,173
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing checking
$
1,000,435
$
388
0.15
%
$
241,248
$
186
0.31
%
Money market
3,698,124
1,467
0.16
1,696,297
1,858
0.44
Savings
1,335,310
170
0.05
405,582
170
0.17
Certificates of deposit
1,138,853
1,540
0.54
1,425,083
4,458
1.24
Total interest-bearing deposits
7,172,722
3,565
0.20
3,768,210
6,672
0.70
FHLBNY advances
25,000
59
0.94
1,040,127
4,448
1.70
Subordinated debt, net
197,172
2,206
4.44
113,992
1,330
4.64
Other short-term borrowings
2,290
—
—
5,283
2
0.12
Total borrowings
224,462
2,265
4.00
1,159,402
5,780
1.98
Total interest-bearing liabilities
7,397,184
5,830
0.31
%
4,927,612
12,452
1.01
%
Non-interest-bearing checking
3,789,623
652,880
Other non-interest-bearing liabilities
186,977
223,285
Total liabilities
11,373,784
5,803,777
Stockholders' equity
1,210,588
688,396
Total liabilities and stockholders' equity
$
12,584,372
$
6,492,173
Net interest income
$
94,828
$
44,944
Net interest spread
3.08
%
2.71
%
Net interest-earning assets
$
4,368,114
$
1,236,840
Net interest margin
3.20
%
2.92
%
Ratio of interest-earning assets to interest-bearing liabilities
159.05
%
125.10
%
Deposits (including non-interest-bearing checking accounts)
$
10,962,345
$
3,565
0.13
%
$
4,421,090
$
6,672
0.60
%
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Rate/Volume Analysis
Three Months Ended September 30, 2021
Compared to Three Months Ended September 30, 2020
Increase / (Decrease) Due to:
Volume
Rate
Total
(Dollars In thousands)
Interest-earning assets:
Real estate loans
$
32,703
$
(1,559)
$
31,144
Commercial and industrial loans
7,323
1,440
8,763
SBA PPP loans
(358)
823
465
Other loans
276
152
428
Mortgage-backed securities
2,877
(1,585)
1,292
Investment securities
2,606
(1,290)
1,316
Other short-term investments
2,526
(2,672)
(146)
Total interest-earning assets
$
47,953
$
(4,691)
$
43,262
Interest-bearing liabilities:
Interest-bearing checking
$
451
$
(249)
$
202
Money market
1,582
(1,973)
(391)
Savings
298
(298)
—
Certificates of deposit
(758)
(2,160)
(2,918)
FHLBNY advances
(3,144)
(1,245)
(4,389)
Subordinated debt, net
961
(85)
876
Other short-term borrowings
(7)
5
(2)
Total interest-bearing liabilities
$
(617)
$
(6,005)
$
(6,622)
Net change in net interest income
$
48,570
$
1,314
$
49,884
Net interest income was $94.8 million during the three months ended September 30, 2021, an increase of $49.9 million from the three months ended September 30, 2020. Average interest-earning assets were $11.77 billion for the three months ended September 30, 2021, an increase of $5.60 billion from $6.16 billion for the three months ended September 30, 2020. Net interest margin (“NIM”) was 3.20% during the three months ended September 30, 2021, up from 2.92% during the three months ended September 30, 2020.
Interest Income. Interest income was $100.7 million during the three months ended September 30, 2021, an increase of $43.3 million from the three months ended September 30, 2020, primarily reflecting increases in interest income of $31.1 million on real estate loans, $8.8 million on C&I loans, $0.5 million on SBA PPP loans, $0.4 million on other loans, $1.3 million on investment securities, and $1.3 million on mortgage-backed securities. The increased interest income on real estate loans was related to an increase of $3.36 billion in the average balance of such loans in the period, offset by an 11-basis point decrease in the yield. The increased interest income on C&I loans was due to an increase of $597.1 million in the average balance of such loans during the period. The increased average balances were due to the Merger.
Interest Expense. Interest expense decreased $6.6 million, to $5.8 million, during the three months ended September 30, 2021, from $12.5 million during the three months ended September 30, 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 $286.2 million in CD products, and a decrease in average balances of $1.02 billion in FHLBNY advances.
Provision for Credit Losses. The Company recognized a credit loss recovery of $5.2 million during the three months ended September 30, 2021, compared to a provision of $5.9 million for the three months ended September 30, 2020. The $5.2 million credit loss recovery for the third quarter of 2021 was primarily associated with the improvement in forecasted macroeconomic conditions, as well as releases of reserves on individually analyzed loans.
Non-Interest Income. Non-interest income was $9.7 million during the three months ended September 30, 2021, compared to non-interest income of $6.1 million during the three months ended September 30, 2020, primarily due to an increase of service charges and other fees of $2.9 million, and an increase in BOLI income of $1.2 million, offset by a decrease of $1.1 million of loan level derivative income for the three months ended September 30, 2021.
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Non-Interest Expense. Non-interest expense was $56.8 million during the three months ended September 30, 2021, an increase of $31.9 million from $24.9 million during the three months ended September 30, 2020, as a result of an increase in salaries and employee benefits expenses of $14.0 million, an increase in occupancy and equipment expense of $3.8 million, an increase in professional services of $1.8 million, an increase in merger expense and transaction costs of $1.7 million, and an increase in data processing costs of $1.4 million, primarily due to the Merger. The Company also incurred branch restructuring costs of $4.5 million during the third quarter of 2021.
Non-interest expense was 1.80% and 1.53% of average assets during the three-month periods ended September 30, 2021 and 2020, respectively.
Income Tax Expense. Income tax expense was $14.6 million during the three months ended September 30, 2021, compared to tax expense of $4.4 million during the three months ended September 30, 2020. The reported effective tax rate for the third quarter of 2021 was 27.5%, and 21.9% for the third quarter of 2020. The increase in the effective tax rate during the third quarter of 2021 compared to the year ago quarter was primarily the result of the loss of benefits from the Company’s REITs and non-deductible expenses during the current period.
Comparison of Operating Results for the Nine Months Ended September 30, 2021 and 2020
The Company’s results of operations for the nine months ended September 30, 2021 include income for the eight months following the Merger with Bridge on February 1, 2021. The Company’s historical operating results for the nine months ended September 30, 2020 do not include the historical results of Bridge.
General. Net income was $68.6 million during the nine months ended September 30, 2021, an increase of $31.4 million from net income of $37.2 million during the nine months ended September 30, 2020. During the nine months ended September 30, 2021, net interest income increased by $136.9 million, provision for credit losses decreased by $13.7 million, and non-interest income increased by $13.1 million. These increases to net income were partially offset by a non-interest expense increase of $114.2 million and an income tax expense increase of $18.0 million.
Net Interest Income. The discussion of net interest income for the nine months ended September 30, 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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Table of Contents
Analysis of Net Interest Income
Nine Months Ended September 30,
2021
2020
Average
Average
Average
Yield/
Average
Yield/
Balance
Interest
Cost
Balance
Interest
Cost
Assets:
(Dollars in Thousands)
Interest-earning assets:
Real estate loans
$
7,846,509
$
219,207
3.74
%
$
4,898,959
$
146,657
3.99
%
Commercial and industrial loans
862,988
35,449
5.49
326,852
11,202
4.57
SBA PPP loans
821,822
13,866
2.26
170,362
3,666
2.87
Other loans
21,300
1,193
7.49
1,253
39
4.15
Mortgage-backed securities
823,585
10,562
1.71
463,681
9,076
2.61
Investment securities
325,654
4,974
2.04
63,594
1,718
3.60
Other short-term investments
575,399
2,563
0.60
144,414
2,577
2.38
Total interest-earning assets
11,277,257
287,814
3.41
%
6,069,115
174,935
3.84
%
Non-interest earning assets
732,265
294,653
Total assets
$
12,009,522
$
6,363,768
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Interest-bearing checking
$
911,156
$
1,240
0.18
%
$
207,779
$
486
0.31
%
Money market
3,437,677
5,395
0.21
1,644,679
7,938
0.64
Savings
1,131,122
589
0.07
397,941
842
0.28
Certificates of deposit
1,359,380
6,442
0.63
1,507,442
19,032
1.69
Total interest-bearing deposits
6,839,335
13,666
0.27
3,757,841
28,298
1.01
FHLBNY advances
338,129
1,902
0.75
1,029,485
13,580
1.76
Subordinated debt, net
187,770
6,319
4.50
113,955
3,991
4.68
Other short-term borrowings
7,562
4
0.07
5,971
42
0.95
Total borrowings
533,461
8,225
2.06
1,149,411
17,613
2.05
Total interest-bearing liabilities
7,372,796
21,891
0.40
%
4,907,252
45,911
1.25
%
Non-interest-bearing checking
3,316,989
579,753
Other non-interest-bearing liabilities
175,703
222,659
Total liabilities
10,865,488
5,709,664
Stockholders' equity
1,144,034
654,104
Total liabilities and stockholders' equity
$
12,009,522
$
6,363,768
Net interest income
$
265,923
$
129,024
Net interest spread
3.02
%
2.59
%
Net interest-earning assets
$
3,904,461
$
1,161,863
Net interest margin
3.15
%
2.83
%
Ratio of interest-earning assets to interest-bearing liabilities
152.96
%
123.68
%
Deposits (including non-interest-bearing checking accounts)
$
10,156,324
$
13,666
0.18
%
$
4,337,594
$
28,298
0.87
%
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Rate/Volume Analysis
Nine Months Ended September 30, 2021
Compared to Nine Months Ended September 30, 2020
Increase / (Decrease) Due to:
Volume
Rate
Total
(Dollars In thousands)
Interest-earning assets:
Real estate loans
$
84,854
$
(12,304)
$
72,550
Commercial and industrial loans
20,161
4,086
24,247
SBA PPP loans
12,479
(2,279)
10,200
Other loans
870
284
1,154
Mortgage-backed securities
5,816
(4,330)
1,486
Investment securities
5,529
(2,273)
3,256
Other short-term investments
4,790
(4,804)
(14)
Total interest-earning assets
$
134,499
$
(21,620)
$
112,879
Interest-bearing liabilities:
Interest-bearing checking
$
1,299
$
(545)
$
754
Money market
5,689
(8,232)
(2,543)
Savings
960
(1,213)
(253)
Certificates of deposit
(1,308)
(11,282)
(12,590)
FHLBNY advances
(6,498)
(5,180)
(11,678)
Subordinated debt, net
2,526
(198)
2,328
Other short-term borrowings
6
(44)
(38)
Total interest-bearing liabilities
$
2,674
$
(26,694)
$
(24,020)
Net change in net interest income
$
131,825
$
5,074
$
136,899
Net Interest Income. Net interest income was $265.9 million during the nine months ended September 30, 2021, an increase of $136.9 million from $129.0 million during the nine months ended September 30, 2021. Average interest-earning assets were $11.28 billion for the nine months ended September 30, 2021, an increase of $5.21 billion compared to $6.07 billion for the nine months ended September 30, 2020. Net interest margin was 3.15% during the nine months ended September 30, 2021, up from 2.83% during the nine months ended September 30, 2020.
Interest Income. Interest income was $287.8 million during the nine months ended September 30, 2021, an increase of $112.9 million from the nine months ended September 30, 2020, primarily reflecting increases in interest income of $72.6 million on real estate loans, $24.2 million on C&I loans, $10.2 million on SBA PPP loans, $1.2 million on other loans, $1.5 million on mortgage-backed securities, and $3.3 million on investment securities. The increased interest income on real estate loans was due to an increase of $2.95 billion in the average balance of such loans in the period, offset in part by a 25-basis point decrease in the yield. The increased interest income on C&I loans was primarily due to growth of $536.1 million in the average balances, and a 92-basis point increase in yield during the period. The increased interest income from mortgage-backed securities was primarily due to the increase in the average balances of $359.9 million. The increased average balances were related to increased balances from the Merger.
Interest Expense. Interest expense decreased $24.0 million, to $21.9 million, during the nine months ended September 30, 2021, from $45.9 million during the nine months ended September 30, 2020. The decrease in interest expense was due to decreased rates offered on CD accounts, a decrease of $148.1 million in the average balances of such accounts, a decrease of $691.4 million in the average balances of FHLBNY advances, and a decrease of 101 basis points in the cost of such borrowings.
Provision for Credit Losses. The Company recognized a provision for credit losses of $6.3 million during the nine months ended September 30, 2021, compared to $20.0 million for the nine months ended September 30, 2020. The change in provision for the nine months ended September 30, 2021 was due to a provision for credit losses recorded on acquired non-PCD loans which totaled $20.3 million for the Day 2 accounting of acquired loans from the Merger. Excluding acquired non-PCD loans, the provision on the remainder of the portfolio for the nine months ended September 30, 2021 was a credit loss recovery of $19.5 million primarily as a result of improvement in forecasted macroeconomic conditions, as well as releases of reserves on individually analyzed loans.
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Non-Interest Income. Non-interest income was $31.9 million during the nine months ended September 30, 2021, an increase of $13.1 million from $18.8 million during the nine months ended September 30, 2020, primarily due to increases in gains on the sales of SBA loans of $21.2 million and increases in service charges and other fees of $7.5 million, partially offset by a loss on termination of derivatives of $16.5 million in the 2021 period, a decrease in gains on sales of securities and other assets of $2.6 million, and a decrease in loan level derivative income of $2.4 million.
Non-Interest Expense. Non-interest expense was $194.5 million during the nine months ended September 30, 2021, an increase of $114.3 million from $80.2 million during the nine months ended September 30, 2020, reflecting an increase of $39.8 million in merger expenses and transaction costs, an increase of $35.7 million in salaries and employee benefits expense, an increase of $10.9 million in occupancy and equipment expense, an increase of $6.0 million in data processing costs, and an increase of $4.4 million in professional services expenses, primarily due to the Merger. The Company also incurred branch restructuring costs of $6.2 million during the 2021 period.
Non-interest expense was 2.16% and 1.68% of average assets during the nine-month periods ended September 30, 2021 and 2020, respectively.
Income Tax Expense. Income tax expense was $28.4 million during the nine months ended September 30, 2021, an increase of $18.0 million from $10.3 million during the nine months ended September 30, 2020. The Company's consolidated tax rate was 29.2% during the nine months ended September 30, 2021, an increase from 21.7% during the nine months ended September 30, 2020. The increase in the effective tax rate during the nine months ended September 30, 2021 compared to the year ago period was primarily the result of the loss of benefits from the Company’s REIT and non-deductible expenses during the period.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.