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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-15 · 490 added, 617 removed, 56 unchanged (95% of the section changed)

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and not to our consolidated subsidiary.

The following discussion and analysis covers changes in our results of operations and financial condition from 2019 to 2020.

A discussion and analysis of changes in our results of operations and financial condition from 2018 to 2019 may be found in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the U.S.

Securities and Exchange Commission on March 11, 2020.

Private Securities Litigation Reform Act Safe Harbor Statement

This report may contain statements relating to our future results (including certain projections and business trends) that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995 (the “PSLRA”).

Such forward-looking statements, in addition to historical information, which involve risk and uncertainties, are based on the beliefs, assumptions and expectations of our management.

Words such as “expects,” “believes,” “should,” “plans,” “anticipates,” “will,” “potential,” “could,” “intend,” “may,” “outlook,” “predict,” “project,” “would,” “estimated,” “assumes,” “likely,” and variations of such similar expressions are intended to identify such forward-looking statements.

Examples of forward-looking statements include, but are not limited to, possible or assumed estimates with respect to the financial condition, expected or anticipated revenue, and results of operations and our business, including earnings growth;

revenue growth in retail banking, lending and other areas;

origination volume in the consumer, commercial and other lending businesses;

current and future capital management programs;

non-interest income levels, including fees from the title insurance subsidiary and banking services as well as product sales;

tangible capital generation;

market share;

expense levels;

and other business operations and strategies.

We claim the protection of the safe harbor for forward-looking statements contained in the PSLRA.

Factors that could cause future results to vary from current management expectations include, but are not limited to, changing economic conditions;

legislative and regulatory changes, including increases in FDIC insurance rates;

monetary and fiscal policies of the federal government;

changes in tax policies;

rates and regulations of federal, state and local tax authorities;

changes in interest rates;

deposit flows;

the cost of funds;

demand for loan products;

demand for financial services;

our ability to successfully integrate acquired entities;

changes in the quality and composition of our loan and investment portfolios;

changes in management’s business strategies;

changes in accounting principles, policies or guidelines;

changes in real estate values;

expanded regulatory requirements, which could adversely affect operating results;

and other factors discussed elsewhere in this report including factors set forth under Item 1A., Risk Factors, and in quarterly and other reports filed by us with the Securities and Exchange Commission.

The forward-looking statements are made as of the date of this report, and we assume no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those projected in the forward-looking statements.

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.

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, 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.

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.

Year and Quarterly Highlights (prior to the completion of the Merger on February 1, 2021)

● Net income for the 2020 fourth quarter of $9.0 million, or $0.45 per diluted share, inclusive of merger and stock acceleration expenses related to the Merger.

● Net income for the full year 2020 was $42.0 million, or $2.11 per diluted share, compared to $51.7 million, or $2.59 per diluted share, for the full year 2019.

Inclusive of:

Pre-tax merger expenses of $4.5 million, or $0.21 per diluted share, in the last six months of 2020.

Pre-tax stock acceleration expenses of $4.2 million, or $0.21 per diluted share, in the 2020 fourth quarter.

● Net interest income increased to $160.8 million for 2020, compared to $142.2 million in 2019.

● Tax-equivalent net interest margin was 2.99% for 2020 and 3.31% in 2019.

● Total assets of $6.4 billion at December 31, 2020, an increase of $1.5 billion, or 30.7%, over December 31, 2019.

● Total loans held for investment at December 31, 2020 of $4.6 billion, inclusive of PPP loans totaling $844.7 million, an increase of $917.1 million, or 24.9%, over December 31, 2019.

● Total deposits of $5.5 billion at December 31, 2020, an increase of $1.7 billion, or 43.9%, compared to December 31, 2019.

● Provision for credit losses of $11.5 million for 2020, compared to $5.7 million in 2019.

● Allowance for credit losses was 0.96% of loans as of December 31, 2020, compared to 0.89% at December 31, 2019.

● Cash dividends of $19.2 million were paid in 2020, representing $0.96 per share.

A cash dividend of $4.8 million, or $0.24 per share, was declared in January 2021 and paid in February 2021 for the fourth quarter.

Challenges and Opportunities

The COVID-19 pandemic has caused us to modify our business practices, including employee travel and employee work locations, as many employees are working remotely.

Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers, such as waiving late payment and other fees.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the challenges our business will face and the full impact of the COVID-19 outbreak on our business.

We continue to face challenges associated with ever-increasing banking regulations and the current low interest rate environment.

A prolonged inverted or flat yield curve presents a challenge to a bank, like us, that derives most of its revenue from net interest margin.

A sustained decrease in market interest rates could adversely affect our earnings.

When interest rates decline, borrowers tend to refinance higher-rate, fixed-rate loans at lower rates.

In addition, the majority of our loans are at variable interest rates, which would adjust to lower rates.

In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark federal funds rate to a target range of 0% to 0.25% during the 2020 first quarter.

We took this opportunity to lower our funding costs and stabilize our net interest margin.

We established five strategic objectives to achieve our vision:

(1) acquire new customers in growth markets;

(2) build new sales and marketing disciplines;

(3) deepen customer relationships;

(4) expand use of automation;

and (5) improve talent management.

We believe there remain opportunities to grow our franchise and that continued investments to generate core funding, quality loans and new sources of revenue remain keys to continue creating long-term shareholder value.

Our ability to attract, retain, train and cultivate employees at all levels of our Company remains significant to meeting our corporate objectives.

In particular, we are focused on expanding and retaining our loan team as we continue to grow the loan portfolio.

We have capitalized on opportunities presented by the market and diligently seek opportunities to grow and strengthen the franchise.

We recognize the potential risks of the current economic environment and will monitor the impact of market events as we evaluate loans and investments and consider growth initiatives.

Our management and Board of Directors have built a solid foundation for growth, and we are positioned to adapt to anticipated changes in the industry resulting from new regulations and legislative initiatives.

Paycheck Protection Program

We are an active participant in the SBA PPP for small business customers.

As of December 31, 2020, we originated over 4,200 loans totaling approximately $980 million.

The top industries were construction, professional, manufacturing, health care, accommodation/food, and administrative.

The mean and median PPP loan amounts were $229 thousand and $70 thousand, respectively.

The following table presents the outstanding balance and range of loan size of our PPP loans as of December 31, 2020:

(Dollars in thousands)

Range of Loan Size

$150 and Below

Between $150 and $350

Between $350 and $2,000

Substantially all of the PPP loans we originated have a two-year term and a 1% interest rate.

Subsequent CARES Act changes extended the maturities of these loans to potentially five years at the borrower’s option.

Any changes are expected to be made at the end of the interest only phase and are expected to coincide with the forgiveness process.

The SBA pays us fees ranging from 1% to 5% per loan depending on the loan principal amount.

Fee income from processing PPP loans is amortized as a yield adjustment over the life of the loan.

PPP loans are expected to be fully guaranteed by the SBA.

Prior to the commencement of the PPP program, in the 2020 first quarter we funded 80 loans totaling $4.2 million with an average loan size of $53 thousand.

These streamlined loans were our initial response to the COVID-19 pandemic to quickly provide customers with small loans to bridge short term cash flow.

We terminated this program and focused our efforts on developing a process to accept PPP loans when the PPP program commenced on April 3, 2020.

As of December 31, 2020, $3.2 million of these loans remain outstanding.

COVID-19 Loan Moratoriums and Forbearance Programs

We are supporting our customers who may experience financial difficulty due to COVID-19 through loan moratoriums and forbearance programs.

We began offering 90-day payment modifications on a case-by-case basis to those customers whose income was adversely impacted by COVID-19.

The loan modifications in this program primarily consist of three-month deferrals of interest and principal payments.

Extensions may be granted on a case by case basis.

As of December 31, 2020, approximately 500 loans totaling $635 million were granted payment moratoriums during 2020.

T hese deferrals are not considered TDRs based on the CARES Act and/or the interagency guidance.

As of January 21, 2021, $76.1 million in moratoriums were outstanding.

The industries we identified as most significantly impacted by the COVID-19 pandemic based on the potential risk to cash flows are hotels, restaurants, passenger transportation, leisure, museums and catering.

Community Support

We continue to support our communities during the COVID-19 pandemic by pledging a total of $1.8 million to support COVID-19 affected communities, including $500 thousand in grants to non-profit partners working on the COVID-19 relief effort in our footprint.

These grants are focused on organizations working to address meeting the basic needs of the vulnerable populations, providing emergency food, and health services.

We have partnered with local governments to help coordinate emergency relief.

The PPP loans we funded also benefitted hundreds of non-profit partners.

A portion of the fees generated by the PPP will be set aside to increase funding for local organizations.

Significant Events

Merger Agreement with Dime Community Bancshares, Inc.

On July 1, 2020, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Legacy Dime.

Pursuant to the Merger Agreement, on February 1, 2021, Legacy Dime merged with and into Bridge, with Bridge as the surviving corporation under the name “Dime Community Bancshares, Inc.”

At 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 of the Merger, each outstanding share of Dime Preferred Stock was converted into the right to receive one share of a newly created series of Company 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 the Company, 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.

Critical Accounting Policies

Note 1 of the Notes to the Consolidated Financial Statements for the year ended December 31, 2020 contains a summary of significant accounting policies.

Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments.

Our policy with respect to the methodologies used to determine the allowance for credit losses is our most critical accounting policy.

This policy is important to the presentation of the financial condition and results of operations, and it involves a higher degree of complexity and requires management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters.

The use of different judgments, assumptions and estimates could result in material differences in the results of operations or financial condition.

The following is a description of this critical accounting policy and an explanation of the methods and assumptions underlying its application.

Allowance for Credit Losses

On January 1, 2020, we adopted the current expected credit loss model (“CECL” or the “CECL Standard”), which requires that loans held for investment be accounted for under the current expected credit losses model.

Although the CARES Act provided the option to delay the adoption of the current expected credit loss model until the earlier of December 31, 2020 or the termination of the current national emergency declaration related to the COVID-19 outbreak, we implemented the CECL Standard in the first quarter of 2020 as previously planned.

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 “Holding Company”).

At the effective time of the Merger (the “Effective Time”), each outstanding share of Legacy Dime common stock, par value $0.01 per share, was converted into the right to receive 0.6480 shares of the Holding Company’s common stock, par value $0.01 per share.

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

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

Recent Developments Relating to the COVID-19 Pandemic

As Banking was designated by New York State as an essential business, we remain committed to being a source of capital to businesses in our footprint.

Over the past several years, we have taken numerous steps, including hiring personnel and adding new processes and systems, that have put us in a position to help our business customers, through programs such as the SBA Paycheck Protection Program (“PPP”).

Our retail branch office locations remain open to conduct business.

The locations are following the state and local guidance related to COVID vaccination mandates and Centers for Disease Control and Prevention guidance on safe practices and social distancing.

All employees and customers must wear a mask when unable to socially distance.

We also offer mobile and digital banking platforms.

We also allow for a remote working environment for many of our back office personnel.

We have not identified any material operational or internal control challenges.

We also prioritize the well-being of our employees, including the creation of the Safety and Wellness Committee.

We adhere to the NY Health & Essential Rights (“HERO”) Act, under which we have adopted additional guidelines and safety measures to protect our employees against exposure.

Future government actions in response to the COVID-19 pandemic, including vaccination mandates, may affect our workforce, human capital resources, and infrastructure.

It is possible that there will be continued material, adverse impacts to significant estimates, asset valuations, and business operations, including intangible assets, investments, loans, deferred tax assets, and derivative counter party risk as a result of the COVID-19 pandemic.

Lending Operations and Accommodations to Borrowers

The Company’s business, 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 December 31, 2021, the Company had seven loans, representing outstanding loan balances of $5.7 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.

With the passage of the PPP, administered by the SBA, the Company participated in assisting its customers with applications for resources through the program.

Since the inception of the program, the consolidated PPP originations for the Company, including originations by both Legacy Dime and Bridge, through December 31, 2021 exceeded $1.90 billion.

The Company’s 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 sold its 2021 originations in order to re-deploy funds into ongoing loan portfolio growth.

The Company believes that the remainder of its SBA PPP loans will ultimately be forgiven by the SBA in accordance with the terms of the program.

As of December 31, 2021, the Company had SBA PPP loans totaling $66.0 million, net of deferred fees.

It is the Company’s expectation that loans funded through the PPP are fully guaranteed by the U.S.

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.

Critical Accounting Estimates

Note 1 Summary of Significant Accounting Policies, to the Company’s Audited Consolidated Financial Statement for the year ended December 31, 2021 contains a summary of significant accounting policies.

These accounting policies may require various levels of subjectivity, estimates or judgement by management.

Policies with respect to the methodologies it uses to determine the allowance for credit losses on loans held for investment and fair value of loans acquired in a business combinations are critical accounting policies because they are important to the presentation of the Company’s consolidated financial condition and results of operations.

These critical accounting estimates 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.

Management has reviewed the following critical accounting estimates and related disclosures with its Audit Committee.

Allowance for Credit Losses on Loans Held for Investment

Methods and Assumptions Underlying the Estimate

On January 1, 2021, we adopted the CECL Standard, which requires that loans held for investment be accounted for under the current expected credit losses model.

The allowance for credit losses is established and maintained through a provision for credit losses based on expected losses inherent in our loan portfolio.

Management evaluates the adequacy of the allowance on a quarterly basis.

Management monitors its entire loan portfolio regularly, with consideration given to detailed analysis of classified loans, repayment patterns, past loss experience, various types of

concentrations of credit, current economic conditions, and reasonable and supportable forecasts.

Additions to the allowance are charged to expense and realized losses, net of recoveries, are charged against the allowance.

The credit loss estimation process involves procedures to appropriately consider the unique characteristics of our loan portfolio segments.

These segments are further disaggregated into loan risk ratings, the level at which credit risk is monitored.

When computing allowance levels, credit loss assumptions are estimated using a model that categorizes loan pools based on expected loss history, delinquency status and other credit trends and risk characteristics, including current conditions and reasonable and supportable forecasts about the future.

Management evaluates the adequacy of the allowance on a quarterly basis, and additions to the allowance are charged to expense and realized losses, net of recoveries, are charged against the allowance.

Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain.

In future periods, evaluations of the overall loan portfolio, in light of the factors and forecasts then prevailing, may result in significant changes in the allowance and provision for credit losses in those future periods.

Credit quality is assessed and monitored by evaluating various attributes and the results of those evaluations are utilized in our process for estimation of expected credit losses.

The allowance level is influenced by loan volumes, loan risk rating migration, historic loss experience and other conditions influencing loss expectations, such as reasonable and supportable forecasts of economic conditions.

The methodology for estimating the amount of expected credit losses reported in the allowance for credit losses has two basic components:

(1) an asset-specific component involving individual loans that do not share risk characteristics with other loans and the measurement of expected credit losses for such individual loans;

and (2) a pooled component for estimated expected credit losses for pools of loans that share similar risk characteristics.

Loans that do not share similar credit risk characteristics

For a loan that does not share risk characteristics with other loans, expected credit loss is measured based on net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan.

For these loans, we recognize expected credit loss equal to the amount by which the net realizable value of the loan is less than the amortized cost basis of the loan (which is net of previous charge-offs), except when the loan is collateral dependent, that is, when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral.

In these cases, expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral.

The fair value of the collateral is adjusted for the estimated costs to sell the loan if repayment or satisfaction of a loan is dependent on the sale (rather than only on the operation) of the collateral.

The fair value of real estate collateral is determined based on recent appraised values.

Appraisals are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by us.

All appraisals undergo a second review process to ensure that the methodology employed and the values derived are reasonable.

Generally, collateral values for real estate loans for which measurement of expected losses is dependent on collateral values are updated every twelve months.

Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the borrower and its business.

Once the expected credit loss amount is determined, an allowance is provided for equal to the calculated expected credit loss and included in the allowance for credit losses.

Pursuant to our policy, credit losses must be charged-off in the period the loans, or portions thereof, are deemed uncollectable.

Loans that share similar credit risk characteristics

In estimating the component of the allowance for credit losses for loans that share similar risk characteristics with other loans, such loans are segmented into loan types.

Loans are designated into loan pools with similar risk characteristics based on product type in conjunction with other homogeneous characteristics.

Loan types include commercial real estate mortgages, owner and non-owner occupied;

multi-family mortgage loans;

residential real estate mortgages and home equity loans;

commercial, industrial and agricultural loans, real estate construction and land loans;

and consumer loans.

In determining the allowance for credit losses, we derive an estimated credit loss assumption from a model that categorizes loan pools based on loan type and further segmented by risk rating.

This model is known as Probability of Default/Loss Given Default, utilizing a Transition Matrix approach.

This model calculates an expected loss percentage for each loan

pool by considering the probability of default, based upon the historical transition or migration of loans from performing (various pass ratings) to criticized, and classified risk ratings to default by risk rating buckets using life-of-loan analysis runout periods for all loan segments, and the historical severity of loss, based on the aggregate net lifetime losses (loss given default) per loan pool.

The default trigger, which is defined as the earlier of ninety days past-due or non-accrual status, and severity factors used to calculate the allowance for credit losses for loans in pools that share similar risk characteristics with other loans, are adjusted for differences between the historical period used to calculate historical default and loss severity rates and expected conditions over the remaining lives of the loans in the portfolio.

In determining the allowance for credit losses for loans that share similar risk characteristics, the Company utilizes a model which compares the amortized cost basis of the loan to the net present value of expected cash flows to be collected.

Expected credit losses are determined by aggregating the individual cash flows and calculating a loss percentage by loan segment, or pool, for loans that share similar risk characteristics.

For a loan that does not share risk characteristics with other loans, the Company will evaluate the loan on an individual basis.

Within the model, assumptions are made in the determination of probability of default, loss given default, reasonable and supportable economic forecasts, prepayment rate, curtailment rate, and recovery lag periods.

Management assesses the sensitivity of key assumptions at least annually by stressing the assumptions to understand the impact on the model.

Statistical regression is utilized to relate historical macro-economic variables to historical credit loss experience of the peer group.

These models are then utilized to forecast future expected loan losses based on expected future behavior of the same macro-economic variables.

Adjustments to the quantitative results are adjusted using qualitative factors.

These factors include:

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(2) international, national, regional and local economic business conditions and developments that affect the collectability of the portfolio, including the condition of various markets;

(3) the nature and volume of the loan portfolio including the terms of the loans;

(3) the nature and volume of the loan portfolio;

(4) the experience, ability, and depth of the lending management and other relevant staff;

(5) the volume and severity of past due and adversely classified or graded loans and the volume of non-accrual loans;

(5) the volume and severity of past due loans;

(6) the quality of our loan review system;

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and (9) the effect of external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio.

Such factors are used to adjust the historical probabilities of default and severity of loss for current conditions that are not reflective of the model results.

In addition, the economic factor includes management’s expectation of future conditions based on a reasonable and supportable forecast of the economy.

To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made (currently two years), the Bank immediately reverts back to the historical rates of default and severity of loss.

Management believes that this transition approach to the Probability of Default/Loss Given Default is a relevant calculation of expected credit losses as there is sufficient volume as well as movement in the risk ratings due to the initial grading system as well as timely updates to risk ratings when necessary.

Credit risk ratings are based on management’s evaluation of a credit’s cash flow, collateral, guarantor support, financial disclosures, industry trends and strength of borrowers’ management.

The adequacy of the allowance is analyzed quarterly, with any adjustment to a level deemed appropriate by the Credit Risk Management Committee (“CRMC”), based on its risk assessment of the entire portfolio.

Each quarter, members of the CRMC meet with the Credit Risk Committee of our Board of Directors to review credit risk trends and the adequacy of the allowance for credit losses.

Based on the CRMC’s review of the classified loans, delinquency and charge-off trends, current economic conditions, reasonable and supportable forecasts, and the overall allowance levels as they relate to the entire loan portfolio at December 31, 2020 and December 31, 2019, we believe the allowance for credit losses has been established at levels sufficient to cover the expected losses inherent in our loan portfolio.

For loans that do not share risk characteristics, the Company evaluated the loan on an individual basis based on various factors.

Factors that may be considered are borrower delinquency trends and non-accrual status, probability of foreclosure or note sale, changes in the borrower’s circumstances or cash collections, borrower’s industry, or other facts and circumstances of the loan or collateral.

The expected credit loss is measured based on net realizable value, that is, the difference between the discounted value of the expected future cash flows, based on the original effective interest rate, and the amortized cost basis of the loan.

For collateral dependent loans, expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral, less estimated costs to sell.

Uncertainties Regarding the Estimate

Estimating the timing and amounts of future losses is subject to significant management judgment as these projected cash flows rely upon the estimates discussed above and factors that are reflective of current or future expected conditions.

These estimates depend on the duration of current overall economic conditions, industry, borrower, or portfolio specific conditions.

Volatility in certain credit metrics and differences between expected and actual outcomes are to be expected.

Customers may not repay their loans according to the original terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan balance.

Bank regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses or loan charge-offs.

Impact on Financial Condition and Results of Operations

If our assumptions prove to be incorrect, the allowance for credit losses may not be sufficient to cover expected losses in the loan portfolio, resulting in additions to the allowance.

Future additions or reductions to the allowance may be necessary based on changes in economic, market or other conditions.

Changes in estimates could result in a material change in the allowance.

Changes in estimates could result in a material change in the allowance through charges to earnings would materially decrease our net income.

We may experience significant credit losses if borrowers experience financial difficulties, which could have a material adverse effect on our operating results.

In addition, various regulatory agencies, as an integral part of the examination process, periodically review the allowance for credit losses.

Such agencies may require us to recognize adjustments to the allowance based on their judgments of the information available to them at the time of their examination.

For additional information regarding the allowance for credit losses, see Note 4 of the Notes to the Consolidated Financial Statements.

Net income for the year ended December 31, 2020 was $42.0 million and $2.11 per diluted share as compared to $51.7 million and $2.59 per diluted share for the same period in 2019.

Changes in net income for the year ended December 31, 2020 compared to December 31, 2019 include:

(i) an $18.6 million, or 13.1%, increase in net interest income;

(ii) a $5.8 million, or 101.8%, increase in the provision for credit losses;

(iii) a $5.7 million, or 22.4%, decrease in non-interest

(iv) a $17.1 million, or 17.8%, increase in non-interest expense;

and (v) a $0.4 million, or 2.7%, decrease in income tax expense.

Net Interest Income

Net interest income, the primary contributor to earnings, represents the difference between income on interest-earning assets and expenses on interest-bearing liabilities.

Net interest income depends on the volume of interest-earning assets and interest-bearing liabilities and the interest rates earned or paid on them.

The following table presents certain information relating to our average consolidated balance sheets and our consolidated statements of income for the periods indicated and reflects the average yield on assets and average cost of liabilities for those periods on a tax-equivalent basis based on the U.S.

federal statutory tax rate.

Such yields and costs are derived by dividing income or expense by the average balance of assets or liabilities, respectively, for the periods shown.

Average balances are derived from daily average balances and include non-accrual loans.

The yields and costs include fees and costs, which are considered adjustments to yields.

Interest on non-accrual loans has been included only to the extent reflected in the consolidated statements of income.

For purposes of this table, the average balances for investments in debt and equity securities exclude unrealized appreciation/depreciation due to the application of FASB Accounting Standards Codification (“ASC”) 320, “Investments - Debt and Equity Securities”.

Such agencies may require the Bank to recognize adjustments to the allowance based on their judgments of the information available to them at the time of their examination.

Fair value of loans acquired in a business combination

Methods and Assumptions Underlying the Estimate

On February 1, 2021, Legacy Dime merged with and into Bridge, Inc.

in a merger of equals business combination accounted for as a reverse merger using the acquisition method of accounting (see Note 2 – Merger).

As a result of the Merger, the Company recorded $100.2 million of goodwill, based on the fair value of acquired assets and liabilities of Bridge.

The fair value often involved third-party estimates utilizing input assumptions by management which may be complex or uncertain.

The fair value of acquired loans is based on a discounted cash flow methodology that considers factors such as type of loan and related collateral, and requires management’s judgement on estimates about discount rates, expected future cash flows, market conditions and other future events.

For purchased financial loans with credit deterioration (“PCD”), an estimate of expected credit losses was made for loans with similar risk characteristics and was added to the purchase price to establish the initial amortized cost basis of the PCD loans.

Any difference between the unpaid principal balance and the amortized cost basis is considered to relate to non-credit factors and results in a discount or premium.

Discounts and premiums are recognized through interest income on a level-yield method over the life of the loans.

For acquired loans not deemed PCD at acquisition, the differences between the initial fair value and the unpaid principal balance are recognized as interest income on a level-yield basis over the lives of the related loans.

Uncertainties Regarding the Estimate

Management relied on economic forecasts, internal valuations, or other relevant factors which were available at the time of the Merger in the determination of the assumptions used to calculate the fair value of the acquired loans.

The estimates about discount rates, expected future cash flows, market conditions and other future events are subjective and may differ from estimates.

Impact on Financial Condition and Results of Operations

The estimate of fair values on acquired loans contributed to the recorded goodwill from the Merger.

In future income statement periods, interest income on loans will include the amortization and accretion of any premiums and discounts

resulting from the fair value of acquired loans.

Additionally, the provision for credit losses on acquired individually analyzed PCD loans may be impacted due to changes in the assumptions used to calculated expected cash flows.

Comparison of Operating Results Years Ended December 31, 2021, 2020 and 2019

The Company’s results of operations for the year ended December 31, 2021 include income for the eleven months following the Merger and the results of Legacy Dime for the month ended January 31, 2021.

While Bridge was the legal acquirer and surviving corporation following the Merger, Legacy Dime is considered the acquirer for accounting purposes.

Accordingly, the Company’s historical operating results as of and for the years ended December 31, 2020 and 2019, as presented and discussed in this Annual Report on Form 10-K, do not include the historical results of Bridge.

Net income was $104.0 million in 2021, compared to $42.3 million in 2020, and $36.2 million in 2019.

During 2021, net interest income increased by $179.9 million, provision for credit losses decreased by $20.0 million, and non-interest income increased by $20.8 million.

These increases to net income were partially offset by a non-interest expense increase of $127.5 million and an income tax expense increase of $31.5 million.

During 2020, net interest income increased by $30.3 million and non-interest income increased by $9.1 million.

These increases to net income were partially offset by a non-interest expense increase of $22.4 million, a provision for credit losses increase of $8.8 million, and an income tax expense increase of $2.0 million.

The discussion of net interest income for the years ended December 31, 2021, 2020, and 2019 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.

No tax-equivalent adjustments have been made for interest income exempt from Federal, state, and local taxation.

The yields include loan fees consisting of amortization of loan origination and commitment fees and certain direct and indirect origination costs, prepayment fees, and late charges that are considered adjustments to yields.

Loan fees included in interest income were $12.5 million in 2021, $7.5 million in 2020, and $2.0 million in 2019.

There are no out-of-period adjustments included in the rate/volume analysis in the following table.

Average Balance Sheets

Year Ended December 31,

(Dollars in thousands)

Interest-earning assets:

Loans, net (1)(2)

Mortgage-backed securities, CMOs and other asset-backed securities

Taxable securities

Tax-exempt securities (2)

Deposits with banks

Real estate loans (1)

Commercial and industrial ("C&I") loans (1)

SBA PPP loans (1)

Other loans (1)

Other short-term investments

Total interest-earning assets

Non-interest-earning assets

Cash and due from banks

Liabilities and Stockholders' Equity:

Interest-bearing liabilities:

Savings, NOW and money market deposits

Certificates of deposit of $100,000 or more

Other time deposits

Federal funds purchased and repurchase agreements

FHLB advances

Subordinated debentures

Interest-bearing checking

Certificates of deposit

Total interest-bearing deposits

FHLBNY advances

Subordinated debt, net

Other short-term borrowings

Total borrowings

Total interest-bearing liabilities

Non-interest-bearing liabilities:

Demand deposits

Other liabilities

Non-interest-bearing checking

Other non-interest-bearing liabilities

Total liabilities

1 unchanged sentence

Total liabilities and stockholders' equity

Net interest income/net interest rate spread (2) (3)

Net interest-earning assets

Net interest margin (2) (4)

Tax-equivalent adjustment

Net interest income

Net interest spread (2)

Net interest-earning assets

Net interest margin (3)

Ratio of interest-earning assets to interest-bearing liabilities

Deposits (including non-interest-bearing checking accounts)

(1) Amounts are net of deferred origination costs/ (fees) and allowance for credit losses, and include loans held for sale.

(2) Presented on a tax-equivalent basis based on the U.S.

federal statutory tax rate of 21%.

(2) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.

1 unchanged sentence

Rate/Volume Analysis

Net interest income can be analyzed in terms of the impact of changes in rates and volumes.

The following table illustrates the extent to which changes in interest rates and in the volume of average interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated.

Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate);

(ii) changes attributable to changes in rates (changes in rates multiplied by prior volume);

and (iii) the net changes.

For purposes of this table, changes that are not due solely to volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate.

Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes between volume and rates.

In addition, average interest-earning assets include non-accrual loans.

Year Ended December 31,

Years Ended December 31,

2021 over 2020

2020 over 2019

Changes Due To

Increase/(Decrease) Due to

Interest-earning assets:

(In thousands)

Interest income on interest-earning assets:

Loans, net (1) (2)

Mortgage-backed securities, CMOs and other asset-backed securities

Taxable securities

Tax-exempt securities (2)

Deposits with banks

Total interest income on interest-earning assets (2)

Interest expense on interest-bearing liabilities:

Savings, NOW and money market deposits

Certificates of deposit of $100,000 or more

Other time deposits

Federal funds purchased and repurchase agreements

FHLB advances

Subordinated debentures

Total interest expense on interest-bearing liabilities

Net interest income (2)

Real estate loans (1)

Commercial and industrial (1)

SBA PPP loans (1)

Other loans (1)

Other short-term investments

Total interest-earning assets

Interest-bearing liabilities:

Interest-bearing checking

Certificates of deposit

FHLBNY advances

Subordinated debt, net

Other short-term borrowings

Total interest-bearing liabilities

Net change in net interest income

(1) Amounts are net of deferred origination costs/ (fees) and allowance for credit losses, and include loans held for sale.

(2) Presented on a tax-equivalent basis based on the U.S.

federal statutory tax rate of 21%.

Net interest income increased $18.6 million, or 13.1%, to $160.8 million for the year ended December 31, 2020 compared to $142.2 million for the year ended December 31, 2019.

Average net interest-earning assets increased $637.7 million to $2.2 billion for 2020 compared to $1.5 billion for 2019.

The increase in average net interest-earning assets was primarily driven by loan growth in the commercial and industrial portfolio, and a rise in deposits with banks, partially offset by increases in average deposits and average borrowings, and a decrease in average investment securities.

Tax-equivalent net interest margin was 2.99% in 2020 compared to 3.31% in 2019.

The decrease in tax-equivalent net interest margin for 2020 compared to 2019 reflects the lower average yield on our loan portfolio and significantly higher levels of cash earning low average yields, partially offset by lower overall funding costs, due in part to federal funds rate decreases during the third and fourth quarter of 2019 and the first quarter of 2020.

In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark federal funds rate to a target range of 0% to 0.25% during the 2020 first quarter.

We took this opportunity to lower our funding costs and stabilize our net interest margin.

Total interest income increased $2.7 million, or 1.5%, to $184.2 million in 2020 compared to $181.5 million in 2019 as average interest-earning assets increased $1.1 billion, or 25.0%, to $5.4 billion in 2020 compared to $4.3 billion in 2019.

The increase in average interest-earning assets in 2020 compared to 2019 reflects growth in the commercial and industrial portfolio driven by PPP loan originations, and a rise in deposits with banks driven by deposit growth, partially offset by a

decrease in average investment securities.

The decline in economic activity during the COVID-19 shut-down resulted in more of our customers increasing their deposits, which raised our average deposits with banks in the current year.

The tax-equivalent average yield on interest-earning assets decreased to 3.43% in 2020 compared to 4.22% in 2019.

The PPP loans and excess liquidity in banks had the effect of depressing our net interest margin in the current year.

Interest income on loans increased to $169.4 million for 2020 compared to $158.2 million for 2019, primarily due to growth in the commercial and industrial loan portfolio, partially offset by a decrease in yield on loans.

Average loans grew by $930.9 million, or 21.4%, to $4.3 billion in 2020 compared to $3.4 billion in 2019.

The tax-equivalent average yield on loans was 3.91% in 2020 compared to 4.65% in 2019.

The PPP loans had the effect of decreasing the tax-equivalent yield by 17 basis points in 2020.

Interest income on investment securities decreased to $14.1 million in 2020 from $21.6 million in 2019.

The decrease in 2020 compared to 2019 reflects a decrease in the average balance of investment securities and a lower average yield on investment securities.

Interest income on investment securities included net amortization of premiums on securities of $3.6 million in 2020, compared to $4.4 million in 2019.

Average total investment securities decreased by $180.8 million, or 22.0%, to $642.5 million in 2020 compared to $823.3 million in 2019.

The decline in tax-equivalent average yield on total investment securities to 2.23% in 2020 compared to 2.66% in 2019 reflected the impact of the reductions in the benchmark federal funds rate by the Federal Reserve in the third and fourth quarter of 2019, and the first quarter of 2020, and the related decline in market interest rates available on securities purchases.

Total interest expense decreased $15.9 million, or 40.4%, to $23.5 million in 2020 compared to $39.3 million in 2019.

The decrease in interest expense between periods was a result of the decrease in the cost of average interest-bearing liabilities, partially offset by an increase in average deposits and average borrowings.

The average cost of interest-bearing liabilities was 0.73% in 2020 compared to 1.42% in 2019.

The decrease in the cost of average interest-bearing liabilities is primarily due to federal funds rate decreases during the third and fourth quarter of 2019 and the first quarter of 2020.

Average total interest-bearing liabilities increased to $3.2 billion in 2020 compared to $2.8 billion in 2019 due to an increase in average deposits and average borrowings.

Average total deposits increased to $4.9 billion in 2020 compared to $3.8 billion in 2019 primarily due to increases in average demand deposits, and average savings, NOW and money market deposits.

Average demand deposits increased to $2.0 billion in 2020 compared to $1.4 billion in 2019.

The increase in demand deposits was primarily driven by an inflow of deposits from PPP loan customers in 2020.

The average balances in savings, NOW and money market accounts increased to $2.5 billion in 2020 compared to $2.1 billion in 2019.

Average certificates of deposit increased $16.1 million to $303.7 million in 2020 compared to 2019.

The average cost of savings, NOW and money market accounts decreased to 0.41% in 2020 compared to 1.12% in 2019.

The average cost of certificates of deposit decreased to 1.50% in 2020 compared to 2.01% in 2019.

Average public fund deposits increased to 17.5% of total average deposits during 2020 compared to 15.2% in 2019.

Average federal funds purchased and repurchase agreements declined to $8.6 million in 2020 compared to $41.1 million in 2019.

The cost of average federal funds purchased and repurchase agreements was 0.92% in 2020, compared to 1.87% for the same period in 2019.

Average FHLB advances increased to $284.7 million in 2020, compared to $245.3 million in 2019.

Average subordinated debentures increased to $79.0 million in 2020, compared to $78.8 million in 2019.

Provision and Allowance for Credit Losses

At December 31, 2020, our loan portfolio consists primarily of real estate loans secured by commercial, multi-family and residential real estate properties located in our principal lending areas of Nassau and Suffolk Counties on Long Island and the New York City boroughs.

The interest rates we charge on loans are affected primarily by the demand for such loans, the supply of money available for lending purposes, the rates offered by our competitors, our relationship with the customer, and the related credit risks of the transaction.

These factors are affected by general and economic conditions including, but not limited to, monetary policies of the federal government, including the Federal Reserve Board, legislative policies and governmental budgetary matters.

Based on our adoption of the CECL Standard on January 1, 2020, our continuing review of the overall loan portfolio, the current asset quality of the portfolio, the growth in the loan portfolio, the net charge-offs, and current and forecasted

economic conditions, a provision for credit losses of $11.5 million was recorded in 2020, as compared to $5.7 million in 2019.

The increase in allowance for credit losses in the first half of 2020 was primarily related to the reasonable and supportable forecast component of the newly adopted CECL Standard which includes the impact of COVID-19.

COVID-19 continues to have a profound impact on economic activity.

While there have been some signs of economic improvement during the latter half of 2020, significant uncertainty remains.

Management still believes that the economic recovery will continue during 2021 and 2022, however, based on the aforementioned uncertainty and negative impact the virus has had to date, the decision was made to maintain the current risk level for the reasonable and supportable forecast component of the allowance for credit losses as of December 31, 2020.

Net charge-offs were $1.7 million for the year ended December 31, 2020, as compared to $4.3 million for the year ended December 31, 2019.

The charge-offs in 2020 relate primarily to one relationship that totaled $2.7 million as of June 30, 2020.

In the 2020 third quarter, a settlement agreement was entered into resulting in $1.4 million in payments and a charge-off totaling $1.3 million.

The charge-offs in 2019 relate primarily to the $3.7 million charge-off related to one CRE loan totaling $16.3 million which was written down to the loan’s estimated fair value of $12.6 million and moved into loans held for sale in June 2019.

The ratio of allowance for credit losses to non-accrual loans was 363% and 750% at December 31, 2020 and 2019, respectively.

The allowance for credit losses totaled $44.2 million at December 31, 2020 and $32.8 million at December 31, 2019.

The allowance as a percentage of total loans was 0.96% and 0.89% at December 31, 2020 and 2019, respectively.

The addition of PPP loans, which are expected to be fully guaranteed by the SBA and have a nominal reserve associated with them, decreased the allowance as a percentage of total loans by 20 basis points at December 31, 2020.

We continue to carefully monitor the loan portfolio as well as real estate trends in Nassau and Suffolk Counties and the New York City boroughs.

Loans totaling $121.7 million, or 2.6%, of total loans at December 31, 2020 were categorized as classified loans compared to $88.3 million or 2.4%, at December 31, 2019.

Classified loans include loans with credit quality indicators with the internally assigned grades of special mention, substandard and doubtful.

These loans are categorized as classified loans as we have information that indicates the borrower may not be able to comply with the present repayment terms.

These loans are subject to increased management attention and their classification is reviewed at least quarterly.

At December 31, 2020, $43.3 million of these classified loans were commercial real estate (“CRE”) loans.

Of the $43.3 million of CRE loans, $35.9 million were current and $7.4 million were past due.

At December 31, 2020, $20.0 million of classified loans were residential real estate loans with $15.7 million current and $4.3 million past due.

Commercial, industrial, and agricultural loans represented $47.7 million of classified loans, with $41.2 million current and $6.5 million past due.

Taxi medallion loans represented $9.6 million of the classified commercial, industrial and agricultural loans at December 31, 2020.

All of our taxi medallion loans are collateralized by New York City medallions and have personal guarantees.

No new originations of taxi medallion loans are currently planned, and we expect these balances to continue to decline through amortization and pay-offs.

In January 2021, six taxi medallion loans, totaling $2.6 million, net of charge-offs, were paid off under settlements we accepted.

The charge-offs related to the settlements were recognized in January 2021.

At December 31, 2020, there was $8.5 million of classified multi-family loans which were current;

$1.2 million of classified real estate construction and land loans substantially all of which were current;

and $1.0 million of classified consumer loans substantially all of which were current.

CRE loans, including multi-family loans, represented $2.5 billion, or 55.1%, of the total loan portfolio at December 31, 2020 compared to $2.4 billion, or 64.8%, at December 31, 2019.

Our underwriting standards for CRE loans require an evaluation of the cash flow of the property, the overall cash flow of the borrower and related guarantors as well as the value of the real estate securing the loan.

In addition, our underwriting standards for CRE loans are consistent with regulatory requirements with original loan to value ratios generally less than or equal to 75%.

We consider charge-off history, delinquency trends, cash flow analysis, and the impact of the local economy on CRE values when evaluating the appropriate level of the allowance for credit losses.

As of December 31, 2020, we had $20.3 million in loans which were individually evaluated, with a specific reserve of $6.7 million.

Individually evaluated loans include $9.6 million of taxi medallion loans.

As of June 30, 2020, taxi loans were changed from being collectively evaluated to individually evaluated.

While our collectively evaluated taxi loans were all performing in accordance with the terms of the renewals, the taxi industry, like many others, suffered greatly as a result of the COVID-19 pandemic.

Substantially all of our taxi borrowers requested payment moratoriums and until such time as business fully resumes and cash flows return to normal, we will value the taxi loans assuming they are collateral

As of December 31, 2019, we had individually impaired loans as defined by FASB ASC No.

310, “Receivables” (prior to adoption of the CECL Standard) of $27.0 million, with a specific reserve totaling $4.7 million.

Impaired loans include individually classified non-accrual loans and troubled debt restructuring loans (“TDRs”).

At December 31, 2019, impaired loans also included $1.1 million in other impaired performing loans which were related to borrowers with other performing TDRs.

Upon adoption of the CECL Standard on January 1, 2020, we re-evaluated our impaired loans to determine which loans should be evaluated on a collective (pooled) basis and which loans do not share similar risk characteristics with loans evaluated using a collective (pooled) basis and therefore should be individually evaluated.

The majority of our impaired loans at December 31, 2019 were performing TDRs where there was no write-off of principal as a result of the restructure and interest was at a market rate.

We concluded the risks associated with these loans were consistent with the other pooled loans and therefore they were appropriately evaluated on a collective (pooled) basis under the CECL Standard.

Non-accrual loans were $12.2 million, or 0.26%, of total loans at December 31, 2020 compared to $4.4 million, or 0.12%, of total loans at December 31, 2019.

TDRs represent $346 thousand of the non-accrual loans at December 31, 2020 and $405 thousand at December 31, 2019.

There was no other real estate owned at December 31, 2020 and 2019.

The following table presents changes in the allowance for credit losses:

Year Ended December 31,

(In thousands)

Beginning balance

Impact of adopting CECL

Commercial real estate mortgage loans

Residential real estate mortgage loans

Commercial, industrial and agricultural loans

Installment/consumer loans

Commercial real estate mortgage loans

Residential real estate mortgage loans

Commercial, industrial and agricultural loans

Installment/consumer loans

Net charge-offs

Provision for credit losses charged to operations

Ending balance

Ratio of net charge-offs during period to average loans outstanding

Allocation of Allowance for Credit Losses

The following table presents the allocation of the total allowance for credit losses by loan classification:

(Dollars in thousands)

Commercial real estate mortgage loans

Multi-family mortgage loans

Residential real estate mortgage loans

Commercial, industrial and agricultural loans

Real estate construction and land loans

Installment/consumer loans

Net Interest Income.

Net interest income was $357.6 million in 2021, $177.7 million in 2020, and $147.4 million in 2019.

Average interest-earning assets were $11.35 billion in 2021, $6.12 billion in 2020 and 2019.

Net interest margin was 3.15% in 2021, 2.90% in 2020, and 2.41% in 2019.

Interest Income.

Interest income was $384.6 million in 2021, $234.0 million in 2020, and $238.3 million in 2019.

During 2021, interest income increased $150.6 million from 2020, primarily reflecting increases in interest income of $102.5 million on real estate loans, $30.0 million on commercial and industrial (“C&I”) loans, $8.5 million on SBA PPP loans, $8.5 million on securities, and $1.4 million on other loans.

The increased interest income on real estate loans was due to an increase of $3.05 billion in the average balance of such loans in the period, offset in part by a 24-basis point decrease in the yield.

The increased interest income on C&I loans was primarily due to growth of $504.8 million in the average balances, and a 92-basis point increase in yield during the period.

The increased interest income from securities was primarily due to the increase in the average balances of $775.2 million, offset in part by a 97-basis point decrease in the yield.

The increased average balances were related to increased balances from the Merger.

During 2020, interest income decreased $4.3 million from 2019, primarily reflecting decreases in interest income of $6.0 million on real estate loans, $2.3 million on other short-term investments, $1.5 million on C&I loans, partially offset by an increase in interest income of $5.9 million on SBA PPP loans.

The decreased interest income on real estate loans was primarily due to a decrease of $250.9 million in the average balance of such loans in the period, offset in part by an 8-basis point increase in the average yield.

The decreased interest income on other short-term investments was primarily due to the 140-basis point decrease in average yield on such securities.

The increased interest income on SBA PPP loans was due to the addition of $207.7 million in the average balances of such loans during the period.

Interest Expense.

Interest expense was $27.0 million in 2021, $56.3 million in 2020, and $90.8 million in 2019.

During 2021, interest expense decreased $29.3 million from 2020, primarily reflecting decreases in interest expense of $15.9 million on FHLBNY advances, and $14.6 million on CDs.

The decrease in interest expense was primarily due to decreased rates offered on CD accounts, a decrease of $216.2 million in the average balances of such accounts, a decrease of $806.2 million in the average balances of FHLBNY advances, and a decrease of 92 basis points in the cost of such borrowings.

During 2020, interest expense decreased $34.5 million from 2019, primarily reflecting decreases in interest expense of $17.8 million on money market accounts, $12.1 million on CDs, and $5.3 million on FHLBNY advances.

The decrease in interest expense was primarily due to decreased rates offered on money market accounts, CDs, and FHLBNY advances, and decreases of $237.7 million in the average balances of money market accounts and $121.6 million in the average balances of CDs.

Provision for Credit Losses.

The Company recognized a provision for credit losses of $6.2 million in 2021, $26.2 million in 2020, and $17.3 million in 2019.

The $6.2 million provision for credit losses recognized in 2021 included a provision recorded on acquired non-PCD loans which totaled $20.3 million for the Day 2 accounting of acquired loans from the Merger and a provision for unfunded commitments of $2.9 million, offset by a credit of $17.0 million as a result of improvement in forecasted macroeconomic conditions, and releases of reserves on individually analyzed loans.

The $26.2 million provision for credit losses recognized during 2020 resulted mainly from a n increas e i n th e genera l reserve allowance for 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, and additional specific reserves of $6.0 million on non-performing loans.

The $17.3 million provision for credit losses recognized during 2019 resulted mainly from charge-offs of $10.0 million and a $10.0 million specific reserve on one non-performing C&I relationship, partially offset by a release of reserves due to a reduction of $481.4 million in multifamily real estate loans.

The provision for credit losses recognized in 2021 was calculated in accordance with the CECL Standard adopted by the Company on January 1, 2021.

The provision for credit losses recognized in 2020 and 2019 was calculated in accordance with prior GAAP, including ASC 310.

Non-Interest Income.

Total non-interest income decreased $5.7 million, or 22.4%, to $19.7 million for the year ended December 31, 2020, compared to $25.4 million for the year ended December 31, 2019.

The decline in total non-interest income in the current year compared to 2019 was driven by a $3.7 million decrease in loan swap fees, a $3.4 million loss on termination of swaps, a $2.9 million decrease in fair value of loans held for sale, and a $1.1 million decrease in service charges and other fees, partially offset by a $3.3 million increase in net securities gains, a $2.0 million increase in gain on sale of Small Business Administration (“SBA”) loans, and a $0.6 million increase in title fees.

During the third quarter of 2020, we restructured our wholesale balance sheet, offsetting net securities gains of $3.5 million with swap termination losses of $3.4 million, which positively impacted our net interest margin in the fourth quarter of 2020.

During the second quarter of 2020, an additional write-down was recognized on one CRE mortgage loan held for sale for the decrease in the estimated fair value of the loan by $2.6 million to $10.0 million through a valuation allowance which was charged against non-interest income in the consolidated statements of income.

Loan swap fees recorded on interest rate swaps decreased to $3.7 million in 2020, compared to $7.5 million in 2019.

We increased the notional amount of interest rate swaps to $1.1 billion at December 31, 2020, compared to $823.8 million at December 31, 2019.

The loan swap program allows us to deliver fixed rate exposure to our customers while we retain a floating rate asset and generate fee income.

These interest rate swap agreements do not qualify for hedge accounting treatment, and therefore changes in fair value are reported in non-interest income in the consolidated statements of income.

Non-interest income was $42.1 million in 2021, $21.3 million in 2020, and $12.2 million in 2019.

During 2021, non-interest income increased $20.8 million from 2020, due primarily to a gain on the sale of SBA PPP loans of $20.7 million, an increase in service charges and other fees of $10.4 million, and an increase in other non-interest income of $3.0 million, partially offset by an increase in loss on termination of derivatives of $9.9 million, a decrease in loan level derivative income of $6.0 million, and a decrease in net gain on sale of securities and other assets of $2.9 million.

During 2020, non-interest income increased $9.1 million from 2019, due primarily to an increase in loan level derivative income of $8.0 million, an increase in gains on sales of securities and other assets of $4.6 million, an increase in BOLI income of $2.0 million, and an increase in gain on sale of residential loans of $1.4 million, partially offset by a loss on termination of derivatives in 2020 of $6.6 million.

Non-Interest Expense.

Total non-interest expense increased $17.1 million, or 17.8%, to $113.3 million in 2020 compared to $96.1 million in 2019.

The increase was mainly due to expenses associated with the Merger, and higher salaries and benefits, technology and communications, professional services, and FDIC assessment expenses, partially offset by lower marketing and advertising and other operating expenses in 2020.

Salaries and employee benefits increased to $67.2 million in 2020 compared to $56.2 million in 2019.

The rise in salaries and employee benefits was primarily due to stock acceleration expense related to the Merger and higher incentive accruals in 2020.

Technology and communications increased to $9.7 million in 2020 compared to $7.9 million in 2019.

The rise in technology and communications expenses reflect higher software maintenance and system services expenses as we increased our investment in technology and expanded our use of automation in 2020.

FDIC assessments increased to $2.0 million in 2020, compared to $0.6 million in 2019, primarily due to FDIC assessment credits totaling $0.7 million in 2019.

Marketing and advertising decreased to $3.3 million in 2020 compared to $4.7 million in 2019.

Professional services increased to $5.0 million in 2020 compared to $3.8 million in 2019.

We recorded amortization of other intangible assets of $0.7 million in 2020 and $0.8 million in 2019, related to the CNB and FNBNY core deposit intangible assets subject to amortization.

Other operating expenses increased to $6.8 million in 2020 compared to $7.7 million in 2019.

Non-interest expense was $245.3 million in 2021, $117.8 million in 2020, and $95.4 million in 2019.

During 2021, non-interest expense increased $127.5 million from 2020, reflecting an increase of $47.6 million in salaries and employee benefits expense, an increase of $29.6 million in merger expenses and transaction costs, an increase of $14.5 million in occupancy and equipment expense, an increase of $8.3 million in data processing costs, an increase of $7.2 million in other expenses, and an increase of $5.9 million in professional services expenses, primarily due to the Merger.

We also incurred branch restructuring costs of $5.1 million during the 2021 period.

During 2020, non-interest expense increased $22.4 million from 2019, reflecting $15.3 million in merger expenses and transaction costs and $4.0 million in severance expense during the 2020 period, and an increase of $8.7 million in salaries and employee benefits expense, partially offset by a decrease of $2.7 million in loss from extinguishment of debt.

Non-interest expense was 2.03%, 1.83%, and 1.50% of average assets during 2021, 2020, and 2019, respectively.

The increase in 2021 compared to 2020 was primarily due to the Merger.

The increase in 2020 compared to 2019 was primarily due to merger and transaction costs in 2020.

Income Tax Expense.

Income tax expense decreased to $13.7 million in 2020 compared to $14.1 million in 2019, reflecting lower income before income taxes, partially offset by a higher effective tax rate in 2020.

The effective tax rate for 2020 was 24.6%, compared to 21.4% for 2019.

The increase in our effective tax rate resulted primarily from non-deductible salaries and merger expenses related to the Merger.

Financial Condition

Total assets were $6.4 billion at December 31, 2020, $1.5 billion, or 30.7%, higher than December 31, 2019.

The rise in total assets in 2020 reflects increases in loans held for investment and cash and cash equivalents, partially offset by a decrease in securities.

Cash and cash equivalents increased $759.6 million, or 648.2%, to $876.8 million at December 31, 2020 compared to December 31, 2019.

Total securities decreased $245.4 million to $559.4 million at December 31, 2020 compared to December 31, 2019.

Total loans held for investment, net, increased $917.1 million, or 24.9%, to $4.6 billion at December 31, 2020 compared to December 31, 2019, inclusive of PPP loans totaling $844.7 million.

Net deferred loan fees were $8.2 million at December 31, 2020, inclusive of $15.4 million remaining unamortized net loan fees related to PPP loans.

Our focus is on our ability to grow the loan portfolio, while maintaining interest rate risk sensitivity and maintaining credit quality.

Total liabilities were $5.9 billion at December 31, 2020, $1.5 billion higher than December 31, 2019.

The increase in total liabilities in 2020 was mainly due to deposit growth, primarily attributable to PPP related deposits, partially offset by a decrease in FHLB advances.

Total deposits increased $1.7 billion, or 43.9%, to $5.5 billion at December 31, 2020 compared to December 31, 2019.

The increase in total deposits in 2020 was largely attributable to higher demand deposits and savings, NOW and money market deposits, partially offset by a decrease in certificates of deposit.

Demand deposits increased $953.8 million, or 62.8% year-over-year, to $2.5 billion at December 31, 2020.

The rise in demand deposits in 2020 was primarily driven by an inflow of PPP-related deposits.

Savings, NOW and money market deposits increased $740.4 million, or 37.2% year-over-year, to $2.7 billion at December 31, 2020.

Certificates of deposit decreased $19.5 million, or 6.3% year-over-year, to $288.4 million at December 31, 2020.

FHLB advances decreased $220.0 million, or 50.6% year-over-year, to $215.0 million at December 31, 2020.

The decline in FHLB advances was mainly due to our decreased reliance on borrowings in 2020 by using deposit growth to fund our loan portfolio growth.

Total stockholders’ equity was $517.8 million at December 31, 2020, an increase of $20.7 million, or 4.2%, from December 31, 2019.

We adopted the CECL Standard on January 1, 2020, which resulted in a charge to retained earnings and reduction to stockholders’ equity of $1.5 million.

The increase in stockholders’ equity was largely attributable to net income of $42.0 million, partially offset by $19.2 million in dividends, and $4.6 million in purchases of common stock.

During the year ended December 31, 2020, there were 179,620 shares purchased under the 2019 Stock Repurchase Program at a cost of $4.6 million.

During 2020, despite the pandemic, we continued to experience growth in the commercial real estate and multifamily mortgage loan portfolios, coupled with significant growth in the commercial, industrial and agricultural loan portfolio as a result of the PPP loans.

The concentration of loans in our primary market areas may increase risk.

Unlike larger banks that are more geographically diversified, our loan portfolio consists primarily of real estate loans secured by commercial, multi-family and residential real estate properties located in our principal lending areas of Nassau and Suffolk Counties on Long Island and the New York City boroughs.

The local economic conditions on Long Island and the New York City boroughs have a significant impact on the volume of loan originations, the quality of loans, the ability of borrowers to repay these loans, and the value of collateral securing these loans.

A considerable decline in general economic conditions caused by inflation, recession, unemployment or other factors beyond our control would impact these local economic conditions and could negatively affect the financial results of our operations.

Additionally, decreases in tenant occupancy may also have a negative effect on the ability of borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings.

The interest rates charged by us on loans are affected primarily by the demand for such loans, the supply of money available for lending purposes, the rates offered by our competitors, our relationship with the customer, and the related credit risks of the transaction.

These factors are affected by general and economic conditions including, but not limited to, monetary policies of the federal government, including the FRB, legislative policies and governmental budgetary matters.

We target our business lending and marketing initiatives towards promotion of loans that primarily meet the needs of small to medium-sized businesses.

These small to medium-sized businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities.

If general economic conditions negatively impact these businesses, our results of operations and financial condition may be adversely affected.

With respect to the underwriting of loans, there are certain risks, including the risk of non-payment that are associated with each type of loan that we market.

Approximately 66.3% of our loan portfolio at December 31, 2020 was secured by real estate.

Commercial real estate loans represented 35.6% of our loan portfolio.

Multi-family mortgage loans represented 19.5% of our loan portfolio.

Residential real estate mortgage loans represented 9.4% of our loan portfolio, including home equity lines of credit representing 1.4% and residential mortgages representing 8.0% of our loan portfolio.

Real estate construction and land loans represented 1.8% of our loan portfolio.

Risks associated with a concentration in real estate loans include potential losses from fluctuating values of land and improved properties.

Home equity loans represent loans originated in our geographic markets with original loan to value ratios generally of 75% or less.

Our residential mortgage portfolio included approximately $14.7 million in interest only mortgages at December 31, 2020.

The underwriting standards for interest only mortgages are consistent with the remainder of the loan portfolio and do not include any features that result in negative amortization.

We use conservative underwriting criteria to better insulate us from a downturn in real estate values and economic conditions on Long Island and the New York City boroughs that could have a significant impact on the value of collateral securing the loans as well as the ability of customers to repay loans.

The remainder of the loan portfolio was comprised of commercial and consumer loans, which represented 33.7% of our loan portfolio, at December 31, 2020.

The commercial loans are made to businesses and include term loans, lines of credit, senior secured loans to corporations, equipment financing, taxi medallion loans and, beginning in 2020, PPP loans.

The primary risks associated with commercial loans are the cash flow of the business, the experience and quality of the borrowers’ management, the business climate, and the impact of economic factors.

The primary risks associated with consumer loans relate to the borrower, such as the risk of a borrower’s unemployment as a result of deteriorating economic conditions or the amount and nature of a borrower’s other existing indebtedness, and the value of the collateral securing the loan if we must take possession of the collateral.

Our policy for charging off loans is a multi-step process.

A loan is considered a potential charge-off when it is in default of either principal or interest for a period of 90, 120 or 180 days, depending upon the loan type, as of the end of the prior month.

In addition to delinquency criteria, other triggering events may include, but are not limited to, notice of bankruptcy by the borrower or guarantor, death of the borrower, and deficiency balance from the sale of collateral.

These loans identified are presented for evaluation at the regular meeting of the CRMC.

A loan is charged off when a loss is reasonably assured.

The recovery of charged-off balances is actively pursued until the potential for recovery has been exhausted, or until the expense of collection does not justify the recovery efforts.

Total loans grew $917.1 million, or 24.9%, to $4.6 billion at December 31, 2020 compared to $3.7 billion at December 31, 2019, with commercial, industrial, and agricultural loans being the largest contributor of the growth.

Commercial, industrial and agricultural loans increased $847.7 million, or 124.8% in 2020 as a result of PPP loans totaling $844.7 million at December 31, 2020.

Multi-family mortgage loans increased $87.6 million, or 10.8%, in 2020.

Commercial real estate mortgage loans increased $72.8 million, or 4.7%, during 2020.

Residential real estate mortgage loans decreased $58.5 million, or 11.9%, during 2020.

Real estate construction and land loans decreased $14.8 million, or 15.2%, in 2020.

Installment/consumer loans decreased slightly during 2020.

Fixed rate loans represented 35.5% and 21.9% of total loans at December 31, 2020 and 2019, respectively.

The increase in fixed rate loans from December 31, 2019 relates to the PPP loans.

The following table presents the major classifications of loans at the dates indicated:

Income tax expense was $44.2 million in 2021, $12.7 million in 2020, and $10.7 million in 2019.

Income tax expense increased $31.5 million during 2021 compared to 2020, primarily as a result of $93.2 million of higher pre-tax income during 2021.

During 2020, income tax expense increased $2.0 million compared to 2019, primarily as a result of $8.1 million of higher pre-tax income in 2020.

The Company’s consolidated tax rate was 29.8%, 23.0% and 22.8% in 2021, 2020, and 2019, respectively.

The increase in the effective tax rate in 2021 compared to 2020 was primarily the result of the loss of benefits from Legacy Dime’s REITs as the Company’s total assets exceeded $8 billion, and non-deductible expenses during 2021.

Comparison of Financial Condition at December 31, 2021 and December 31, 2020

Assets totaled $12.07 billion at December 31, 2021, $5.28 billion above their level at December 31, 2020, primarily due to an increase in the loan portfolio of $3.58 billion, an increase in securities of $1.20 billion, and an increase in cash and due from banks of $150.1 million.

These changes were mainly due to the acquisition of assets due to the Merger.

Total loans increased $3.58 billion during the year ended December 31, 2021, to $9.16 billion at period end.

During the period, the Bank had originations of $2.32 billion.

Additionally, the allowance for credit losses increased by $42.4 million,

which was due to the Merger (credit mark on PCD loans plus provision on non-PCD loans), offset by CECL adoption, improvements in forecasted macroeconomic conditions, and releases of reserves on individually analyzed loans during the year ended December 31, 2021.

The $139.7 million increase in BOLI was mainly due to purchases of $40.0 million during the year ended December 31, 2021, and acquisition of $94.1 million in BOLI as a result of the Merger.

Total liabilities increased $4.79 billion during the year ended December 31, 2021, to $10.87 billion at period end, primarily due to an increase of $5.93 billion in deposits, an increase of $83.0 million in subordinated debt, and an increase of $26.2 million in lease liability for operating leases.

The increases in total liabilities in the current year were mainly due to the assumption of liabilities due to the Merger.

The increases due to the Merger were partially offset by a decrease of $1.18 billion in FHLBNY advances and a decrease of $118.1 million in other short-term borrowings.

We used excess liquidity on the balance sheet to pay down FHLBNY advances and other short-term borrowings in the current year.

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

During the year ended December 31, 2020, the Company terminated two derivatives with notional values totaling $30.0 million, resulting in a termination value of $175 thousand, which was expected to be recognized in interest expense over the remaining term of the original derivative.

Due to the terminations during the year ended December 31, 2021, the remaining termination value was recognized as part of the loss on terminations during the year ended December 31, 2021.

Additionally, during the year ended December 31, 2020, the Company terminated six derivatives with notional values totaling $95.0 million, resulting in a termination value of $6.6 million, which was recognized as losses on termination of derivatives within non-interest income.

Stockholders’ Equity.

Stockholders’ equity increased $491.5 million during the year ended December 31, 2021 to $1.19 billion at period end, primarily due to share issuances associated with the Merger of $491.2 million and net income for the period of $104.0 million, offset in part by repurchases of shares of common stock of $59.3 million, common stock dividends of $44.3 million and preferred stock dividends of $7.3 million.

Loan Portfolio Composition

The following table presents an analysis of outstanding loans by loan type, excluding loans held for sale, net of unearned discounts and premiums and deferred origination fees and costs, at the dates presented:

(In thousands)

Commercial real estate mortgage loans

Multi-family mortgage loans

Residential real estate mortgage loans

Commercial, industrial and agricultural loans

Real estate construction and land loans

Installment/consumer loans

Net deferred loan costs and fees

Total loans held for investment

December 31, 2021

December 31, 2020

December 31, 2019

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

Multifamily residential and residential mixed-use

Commercial real estate ("CRE")

Acquisition, development, and construction ("ADC")

Total real estate loans

Allowance for credit losses

Selected Loan Maturity Information

The following table presents the approximate maturities and sensitivity to changes in interest rates of certain loans, exclusive of real estate mortgage loans and installment/consumer loans to individuals as of December 31, 2020:

(In thousands)

Commercial loans (1)

Construction and land loans (2)

Rate provisions:

Amounts with fixed interest rates

Amounts with variable interest rates

(1) Included in the “After One But Within Five Years” column are fixed rate PPP loans totaling $844.7 million.

(2) Included in the “After Five Years” column are one-step construction loans that contain a preliminary construction period (interest only) that automatically converts to amortization at the end of the construction phase.

Past Due, Non-accrual and Restructured Loans and Other Real Estate Owned

The following table presents selected information about past due, non-accrual, and restructured loans and other real estate owned:

Loans held for investment, net

During the year ended December 31, 2021, our real estate loans and C&I loans increased $3.32 billion and $292.0 million, respectively, primarily due to the acquisition of loans from the Merger.

Loan Purchases, Sales and Servicing

In the event that the Bank were to sell loans in the secondary market or through securitization, it generally retains servicing rights on the loans sold.

These fees are typically derived based upon the difference between the actual origination rate and

contractual pass-through rate of the loans at the time of sale.

At December 31, 2021, the Bank had recorded servicing right assets ("SRAs") of $3.8 million associated with the sale of loans to third-party institutions in which the Bank retained the servicing of the loan.

The Bank outsources the servicing of a portion of our one-to-four family mortgage loan portfolio to an unrelated third-party under a sub-servicing agreement.

Fees paid under the sub-servicing agreement are reported as a component of other non-interest expense in the consolidated statements of income.

Loan Maturity and Repricing

As of December 31, 2021, $7.57 billion, or 81.8% of the loan portfolio was scheduled to mature or reprice within five years.

The following table distributes our loans held for investment portfolio at December 31, 2021 by the earlier of the maturity or next repricing date.

ARMs are included in the period during which their interest rates are next scheduled to adjust.

The table does not include scheduled principal amortization.

Less than 1 year

5 to 15 years

Over 15 years

(In thousands)

Loans 90 days or more past due and still accruing

Non-accrual loans excluding restructured loans

Restructured loans - non-accrual

Restructured loans - performing

Other real estate owned, net

Year Ended December 31,

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

Multifamily residential and residential mixed-use

Total real estate loans

The following table presents our loans held for investment with maturity or next repricing due after December 31, 2022:

Due after December 31, 2022

(In thousands)

Gross interest income that has not been paid or recorded during the year under original terms:

Non-accrual loans

Restructured loans

Gross interest income recorded during the year:

Non-accrual loans

Restructured loans

Commitments for additional funds

Securities decreased $245.4 million to $559.4 million at December 31, 2020 compared to December 31, 2019, including restricted securities totaling $23.4 million at December 31, 2020 and $32.9 million at December 31, 2019.

The available for sale portfolio decreased $187.9 million to $450.4 million at December 31, 2020 compared to December 31, 2019.

Securities classified as available for sale may be sold in response to, or in anticipation of, changes in interest rates and resulting prepayment risk, or other factors.

During 2020, we sold $149.5 million of securities available for sale compared to $46.2 million in 2019.

The decrease in securities available for sale is primarily the result of a $149.0 million decrease in residential collateral mortgage obligations, a $50.8 million decrease in U.S.

Treasury securities and a $41.8 million decrease in commercial collateralized mortgage obligations, partially offset by a $28.5 million increase in residential mortgage-backed, $11.1 million increase in commercial mortgage-backed, and $11.3 million increase in Corporate bonds.

Securities held to maturity decreased $47.9 million to $85.7 million at December 31, 2020 compared to December 31, 2019.

The decrease in securities held to maturity is primarily the result of a $21.4 million decrease in residential collateralized mortgage obligations and a $17.3 million decrease in state and municipal obligations.

Fixed rate securities represented 82.4% of total available for sale and held to maturity securities at December 31, 2020 compared to 88.2% at December 31, 2019.

The following table presents the fair values, amortized costs, contractual maturities and approximate weighted average yields of the available for sale and held to maturity securities portfolios at December 31, 2020.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Yields on tax-exempt obligations have been computed on a tax equivalent basis based on the U.S.

federal statutory tax rate of 21%.

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

Multifamily residential and residential mixed-use

Total real estate loans

Asset Quality

We do not originate or purchase loans, either whole loans or loans underlying mortgage-backed securities (“MBS”), which would have been considered subprime loans at origination, i.e ., real estate loans advanced to borrowers who did not qualify for market interest rates because of problems with their income or credit history.

See Note 4 to our consolidated financial statements for a discussion of evaluation for impaired securities.

COVID-19 Related Loan Deferrals

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

As of December 31, 2021, we had seven loans, representing outstanding loan balances of $5.7 million, that were full principal and interest (“P&I”) deferrals.

The table below presents the loans with full P&I deferrals as of the period indicated:

December 31, 2021

After One But

After Five But

Within Five Years

Within Ten Years

(Dollars in thousands)

Available for sale:

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

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

Pursuant to guidance under Section 4013 of the CARES Act, a COVID-19 related qualified loan modification, such as a payment deferral, was exempt from classification as a TDR as defined by GAAP.

This applied if the loan was current as of December 31, 2019 and the modifications were related to arrangements that deferred or delayed the payment of principal or interest, or changed the interest rate of the loan.

This provision expired on January 1, 2022 and therefore we will not have additional loans modified under this exemption going forward.

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

While interest is expected to still accrue to income during the deferral period, should deterioration in the financial condition of the borrowers that would not support the ultimate repayment of interest emerge, interest income accrued would need to be reversed.

In such a scenario, interest income in future periods could be negatively impacted.

Monitoring and Collection of Delinquent Loans

Our management reviews delinquent loans on a monthly basis and reports to our Board of Directors at each regularly scheduled Board meeting regarding the status of all non-performing and otherwise delinquent loans in our loan portfolio.

Our loan servicing policies and procedures require that an automated late notice be sent to a delinquent borrower as soon as possible after a payment is ten days late in the case of multifamily residential, commercial real estate loans, and C&I loans, or fifteen days late in connection with one-to-four family or consumer loans.

Thereafter, periodic letters are mailed and phone calls placed to the borrower until payment is received.

When contact is made with the borrower at any time prior to foreclosure, we will attempt to obtain the full payment due or negotiate a repayment schedule with the borrower to avoid foreclosure.

Accrual of interest is generally discontinued on a loan that meets any of the following three criteria:

(i) full payment of principal or interest is not expected;

(ii) principal or interest has been in default for a period of 90 days or more (unless the loan is both deemed to be well secured and in the process of collection);

or (iii) an election has otherwise been made to maintain the loan on a cash basis due to deterioration in the financial condition of the borrower.

Such non-accrual determination practices are applied consistently to all loans regardless of their internal classification or designation.

Upon entering non-accrual status, we reverse all outstanding accrued interest receivable.

We generally initiate foreclosure proceedings on real estate loans when a loan enters non-accrual status based upon non-payment, unless the borrower is paying in accordance with an agreed upon modified payment agreement.

We obtain an updated appraisal upon the commencement of legal action to calculate a potential collateral shortfall and to reserve appropriately for the potential loss.

If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure action is completed, the property securing the loan is transferred to Other Real Estate Owned (“OREO”) status.

We generally attempt to utilize all available remedies, such as note sales in lieu of foreclosure, in an effort to resolve non-accrual loans and OREO properties as quickly and prudently as possible in consideration of market conditions, the physical condition of the property and any other mitigating circumstances.

In the event that a non-accrual loan is subsequently brought current, it is returned to accrual status once the doubt concerning collectability has been removed and the borrower has demonstrated performance in accordance with the loan terms and conditions for a period of generally at least six months.

The C&I portfolio is actively managed by our lenders and underwriters.

Most credit facilities typically require an annual review of the exposure and borrowers are required to submit annual financial reporting and loans are structured with financial covenants to indicate expected performance levels.

Smaller C&I loans are monitored based on performance and the ability to draw against a credit line is curtailed if there are any indications of credit deterioration.

Guarantors are also required to update their financial reporting.

All exposures are risk rated and those entering adverse ratings due to financial performance concerns of the borrower or material delinquency of any payments or financial reporting are subjected to added management scrutiny.

Measures taken typically include amendments to the amount of the available credit facility, requirements for increased collateral, additional guarantor support or a material enhancement to the frequency and quality of financial reporting.

Loans determined to reach adverse risk rating standards are monitored closely by Credit Administration to identify any potential credit losses.

When warranted, loans reaching a Substandard rating could be reassigned to the Workout Group for direct handling.

Non-accrual Loans

Within our held-for-investment loan portfolio, non-accrual loans totaled $40.3 million at December 31, 2021 and $17.9 million at December 31, 2020.

Our loan portfolio as of December 31, 2021 includes loans acquired from the Merger that were already on non-accrual status, or have since been placed on non-accrual status.

We are required to recognize loans for which certain modifications or concessions have been made as TDRs.

A TDR has been created in the event that, for economic or legal reasons, any of the following concessions has been granted that would not have otherwise been considered to a debtor experiencing financial difficulties.

The following criteria are considered concessions:

● A reduction of interest rate has been made for the remaining term of the loan

● The maturity date of the loan has been extended with a stated interest rate lower than the current market rate for new debt with similar risk

● The outstanding principal amount and/or accrued interest have been reduced

In instances in which the interest rate has been reduced, management would not deem the modification a TDR in the event that the reduction in interest rate reflected either a general decline in market interest rates 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.

We modified four loans in a manner that met the criteria for a TDR during the year ended December 31, 2021.

We did not modify any loans in a manner that met the criteria for a TDR during the year ended December 31, 2020.

Accrual status for TDRs is determined separately for each TDR in accordance with our policies for determining accrual or non-accrual status.

At the time an agreement is entered into between the Bank and the borrower that results in our determination that a TDR has been created, the loan can be on either accrual or non-accrual status.

If a loan is on non-accrual status at the time it is restructured, it continues to be classified as non-accrual until the borrower has demonstrated compliance with the modified loan terms for a period of at least six months.

Conversely, if at the time of restructuring the loan is performing (and accruing) it will remain accruing throughout its restructured period, unless the loan subsequently meets any of the criteria for non-accrual status under our policy and agency regulations.

Within the allowance for credit losses, losses are estimated for TDRs on accrual status and well as TDRs on non-accrual status that are one-to-four family loans or consumer loans, on a pooled basis with loans that share similar risk characteristics.

TDRs on non-accrual status excluding one-to-four family and consumer loans are individually evaluated to determine expected credit losses.

For collateral-dependent TDRs where we have determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and we expect repayment of the loan to be provided substantially through the operation or sale of the collateral, the allowance for credit losses (“ACL”) is measured based on the difference between the fair value of collateral, less the estimated costs to sell, and the amortized cost basis of the loan as of the measurement date.

For non-collateral-dependent loans, the ACL is measured based on the difference between the present value of expected cash flows and the amortized cost basis of the loan as of the measurement date.

See Note 5 to our consolidated financial statements for a further discussion of TDRs.

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, we obtain a current appraisal on the property and reassesses the likely realizable value ( a/k/a fair value) of the property quarterly thereafter.

OREO is carried at the lower of the fair value or book balance, with any write downs recognized through a provision recorded in non-interest expense.

Only the appraised value, or either a contractual or formal marketed value that falls below the appraised value, is used when determining the likely realizable value of OREO at each reporting period.

We typically seek to dispose of OREO properties in a timely manner.

As a result, OREO properties have generally not warranted subsequent independent appraisals.

There was no carrying value of OREO properties on our consolidated balance sheets at December 31, 2021 or December 31, 2020.

We did not recognize any provisions for losses on OREO properties during the years ended December 31, 2021, 2020 or 2019.

Past Due Loans

Our loan portfolio as of December 31, 2021 includes loans acquired from the Merger that were already delinquent, or have since become delinquent.

Loans Delinquent 30 to 59 Days

At December 31, 2021, we had loans totaling $61.2 million that were past due between 30 and 59 days.

At December 31, 2020, we had loans totaling $15.4 million that were past due between 30 and 59 days.

The 30 to 59-day delinquency levels fluctuate monthly, and are generally considered a less accurate indicator of near-term credit quality trends than non-accrual loans.

Loans Delinquent 60 to 89 Days

At December 31, 2021, we had loans totaling $12.1 million that were past due between 60 and 89 days.

At December 31, 2020, we had loans totaling $918 thousand that were past due between 60 and 89 days.

The 60 to 89-day delinquency levels fluctuate monthly, and are generally considered a less accurate indicator of near-term credit quality trends than non-accrual loans.

Accruing Loans 90 Days or More Past Due

We continued accruing interest on nine loans with an aggregate outstanding balance of $3.0 million at December 31, 2021, and three loans with an aggregate outstanding balance of $3.3 million at December 31, 2020, all of which were 90 days or more past due.

These loans were either well secured, awaiting a forbearance extension or formal payment deferral, or will likely be forgiven through the PPP or repurchased by the SBA, and, therefore, remained on accrual status and were deemed performing assets at the dates indicated above.

Reserve for Loan Commitments

We maintain a reserve, recorded in other liabilities, associated with unfunded loan commitments accepted by the borrower.

The amount of reserve was $4.4 million at December 31, 2021 and $25 thousand at December 31, 2020.

This reserve is determined based upon the outstanding volume of loan commitments at each period end.

Any increases or reductions in this reserve are recognized in provision for credit losses.

The adoption of the CECL Standard resulted in a $1.4 million increase in the reserve.

The remaining provision of $3.0 million was primarily the result of additional required reserves attributable to acquired loan commitments from the Merger during the year ended December 31, 2021.

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 $6.2 million and $26.2 million were recorded during the twelve-month periods ended December 31, 2021 and 2020, respectively.

The $6.2 million credit loss provision for the twelve months ended December 31, 2021 was due to a provision for credit losses recorded on acquired non-PCD loans which totaled $20.3 million for the Day 2 accounting of acquired loans from the Merger, and a provision for unfunded commitments which approximated $2.9 million, offset by a credit of $17.0 million as a result of improvement in forecasted macroeconomic conditions, as well as releases of reserves on individually analyzed loans.

Durin g the twelve mont hs ende d December 31, 2020 , th e credit los s provisio n wa s drive n mainl y from a n increas e i n th e genera l reserve 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, and additional specific reserves of $6.0 million on non-performing loans.

For a further discussion of the allowance for credit losses and related activity during the years ended December 31, 2021, 2020 and 2019, please see Note 5 to the consolidated financial statements.

The following table presents our allowance for credit losses allocated by loan type and the percent of each to total loans at the dates indicated.

(In thousands)

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

Multifamily residential and residential mixed-use

The following table sets forth information about our allowance for credit losses at or for the dates indicated:

At or for the Year Ended December 31,

(Dollars in Thousands)

Total loans outstanding at end of period (1)

Average total loans outstanding during the period (2)

Allowance for credit losses balance at end of period

Allowance for credit losses to total loans at end of period

Non-performing loans to total loans at end of period

Allowance for credit losses to total non-performing loans at end of period

Ratio of net charge-offs (recoveries) to average loans outstanding during the period:

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

Multifamily residential and residential mixed-use

(1) Total loans represent gross loans (excluding loans held for sale), inclusive of deferred fees/costs and premiums/discounts.

(2) Total average loans represent gross loans (including loans held for sale), inclusive of deferred loan fees/costs and premiums/discounts.

Investment Activities

Securities available-for-sale

Our consolidated investment in securities available-for-sale totaled $1.56 billion at December 31, 2021.

The average duration of these securities was 4.3 years as of December 31, 2021.

The increase in our securities available-for-sale portfolio during the year ended December 31, 2021 was primarily due to the acquisition of investments due to the Merger.

The following table presents the amortized cost, fair value and weighted average yield of our securities available-for-sale at December 31, 2021, categorized by remaining period to contractual maturity:

(Dollars in Thousands)

Due within 1 year

Due after 1 year but within 5 years

Due after 5 years but within 10 years

Due after ten years

The entire carrying amount of each security at December 31, 2021 is reflected in the above table in the maturity period that includes the final security payment date and, accordingly, no effect has been given to periodic repayments or possible prepayments.

The weighted average duration of our securities available-for-sale approximated 4.3 years as of December 31, 2021 when giving consideration to anticipated repayments or possible prepayments, which is significantly less than their weighted average maturity.

The following table presents the weighted average contractual maturity of our securities available-for-sale:

Weighted average contractual maturity (years) - Available-for-sale:

Treasury securities

GSE securities

State and municipal obligations

GSE residential mortgage-backed securities

GSE residential collateralized mortgage obligations

GSE commercial mortgage-backed securities

GSE commercial collateralized mortgage obligations

Other asset backed securities

Corporate bonds

Total available for sale

Held to maturity:

Corporate securities

Pass-through MBS issued by GSEs and agency CMOs

State and municipal obligations

GSE residential mortgage-backed securities

GSE residential collateralized mortgage obligations

GSE commercial mortgage-backed securities

GSE commercial collateralized mortgage obligations

Total held to maturity

Total securities

Deposits and Borrowings

Borrowings, consisting of repurchase agreements, FHLB advances and subordinated debentures, decreased $219.6 million year-over-year to $295.3 million at December 31, 2020.

Total deposits increased $1.7 billion to $5.5 billion at December 31, 2020 compared to December 31, 2019.

Individual, partnership and corporate (“IPC deposits”) account balances increased $1.3 billion and public funds and brokered deposits increased $378.6 million.

The increase in deposits is attributable to an increase in savings, NOW and money market deposits of $740.4 million, or 37.2%, to $2.7 billion at December 31, 2020, and an increase in demand deposits of $953.8 million, or 62.8%, to $2.5 billion at December 31, 2020,

partially offset by a decrease in certificates of deposit of $19.5 million, or 6.3%, to $288.4 million at December 31, 2020.

Certificates of deposit of $100,000 or more increased $1.9 million, or 0.9%, from December 31, 2019 and other time deposits decreased $21.5 million, or 22.9%, compared to December 31, 2019.

The following table presents the remaining maturities of the Bank’s time deposits at December 31, 2020:

Securities held-to-maturity

Our investment in securities held-to-maturity totaled $179.3 million at December 31, 2021.

The average duration of these securities was 5.4 years as of December 31, 2021.

The following table presents the amortized cost, fair value and weighted average yield of our securities held-to-maturity at December 31, 2021, categorized by remaining period to contractual maturity:

(Dollars in Thousands)

Due within 1 year

Due after 1 year but within 5 years

Due after 5 years but within 10 years

Due after ten years

The weighted average duration of our securities held-to-maturity approximated 5.4 years as of December 31, 2021 when giving consideration to anticipated repayments or possible prepayments, which is significantly less than their weighted average maturity.

The following table presents the weighted average contractual maturity of our securities held-to-maturity:

Weighted average contractual maturity (years) - Held-to-maturity:

Pass-through MBS issued by GSEs and agency CMOs

Sources of Funds

The following table presents our deposit accounts and the related weighted average interest rates at the dates indicated:

December 31, 2021

December 31, 2020

December 31, 2019

(Dollars in Thousands)

Savings accounts

Money market accounts

Interest-bearing checking accounts

Non-interest-bearing checking accounts

As a result of the Merger, we acquired $5.41 billion of deposits on the Merger Date.

The weighted average maturity of our CDs at December 31, 2021 was 7.7 months, compared to 7.4 months at December 31, 2020.

As of December 31, 2021 and 2020, the portion of deposit accounts in excess of the $250,000 FDIC insurance limit was $5.83 billion and $2.04 billion, respectively.

The following table sets forth the amount of time deposits in uninsured accounts by maturity, all of which are CDs:

(In thousands)

3 months or less

Over 3 through 6 months

Over 6 through 12 months

Over 12 months through 24 months

Over 24 months through 36 months

Over 36 months through 48 months

Over 48 months through 60 months

Over 60 months

Our liquidity management objectives are to ensure the sufficiency of funds available to respond to the needs of depositors and borrowers, and to take advantage of unanticipated opportunities for our growth or earnings enhancement.

Liquidity management addresses our ability to meet financial obligations that arise in the normal course of business.

December 31, 2021

Maturity Period

Three months or less

Over three through six months

Over six through twelve months

Over twelve months

As of December 31, 2021, total uninsured CDs totaled $200.1 million, of which the portion of uninsured CDs in excess of the $250,000 FDIC insurance limit was $73.6 million.

Our Board of Directors authorized the Bank to accept brokered deposits up to an aggregate limit of 10.0% of total assets.

At December 31, 2021, brokered deposits totaled $200.0 million, which included purchased MMAs from the ICS program.

At December 31, 2020, brokered deposits totaled $343.0 million, which included purchased CDs from the CDARS program, purchased MMAs from the ICS program and purchased CDs through a broker.

At December 31, 2019, brokered deposits totaled $458.7 million, which included purchased CDs from the CDARS program and purchased MMAs from the ICS program.

The Bank’s total borrowing line with FHLBNY equaled $4.19 billion at December 31, 2021.

The Bank had $25.0 million of FHLBNY advances outstanding at December 31, 2021, and $1.20 billion at December 31, 2020.

The Bank maintained sufficient collateral, as defined by the FHLBNY (principally in the form of real estate loans), to secure such advances.

The Company had $1.9 million outstanding of securities sold under agreements to repurchase (“repurchase agreements”) at December 31, 2021.

The Company had no securities sold under agreements to repurchase at December 31, 2020.

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.

Liquidity is primarily needed to meet customer borrowing commitments and deposit withdrawals, either on demand or on contractual maturity, to repay borrowings as they mature, to fund current and planned expenditures and to make new loans and investments as opportunities arise.

The Holding Company’s principal sources of liquidity included cash and cash equivalents of $0.3 million as of December 31, 2020, and dividend capabilities from the Bank.

Cash available for distribution of dividends to our shareholders is primarily derived from dividends paid by the Bank to the Company.

During 2020, the Bank paid $26.5 million in cash dividends to the Holding Company.

Prior regulatory approval is required if the total of all dividends declared by the Bank in any calendar year exceeds the total of the Bank’s net income for that year combined with its retained net income of the preceding two years.

As of January 1, 2021, the Bank had $49.8 million of retained net income available for dividends to the Holding Company.

In the event that the Holding Company subsequently expands its current operations, in addition to dividends from the Bank, it will need to rely on its own earnings, additional capital raised and other borrowings to meet liquidity needs.

The Holding Company did not make any capital contributions to the Bank during the year ended December 31, 2020.

The Bank’s most liquid assets are cash and cash equivalents, securities available for sale and securities held to maturity due within one year.

The levels of these assets are dependent on the Bank’s operating, financing, lending and investing activities during any given period.

Other sources of liquidity include loan and investment securities principal repayments and maturities, lines of credit with other financial institutions including the FHLB and FRB, growth in core deposits and sources of wholesale funding such as brokered deposits.

While scheduled loan amortization, maturing securities and short-term investments are a relatively predictable source of funds, deposit flows and loan and mortgage-backed securities prepayments are greatly influenced by general interest rates, economic conditions and competition.

The Bank adjusts its liquidity levels as appropriate to meet funding needs such as seasonal deposit flows, loans, and asset and liability management objectives.

Historically, the Bank has relied on its deposit base, drawn through its full-service branches that serve its market area and local municipal deposits, as its principal source of funding.

The Bank seeks to retain existing deposits and loans and maintain customer relationships by offering quality service and competitive interest rates to its customers, while managing the overall cost of funds needed to finance its strategies.

The Bank’s Asset/Liability and Funds Management Policy allows for wholesale borrowings of up to 25% of total assets.

At December 31, 2020, the Bank had aggregate lines of credit of $418.0 million with unaffiliated correspondent banks to provide short-term credit for liquidity requirements.

Of these aggregate lines of credit, $398.0 million is available on an unsecured basis.

As of December 31, 2020, the Bank had no overnight borrowings outstanding under these lines.

As of December 31, 2019, the Bank had no overnight borrowings outstanding under these lines.

The Bank also has the ability, as a member of the FHLB system, to borrow against unencumbered residential and commercial mortgages owned by the

The Bank also has a master repurchase agreement with the FHLB, which increases its borrowing capacity.

As of December 31, 2020, the Bank had no FHLB overnight borrowings outstanding and $215.0 million outstanding in FHLB term borrowings.

As of December 31, 2019, the Bank had $195.0 million outstanding in FHLB overnight borrowings and $240.0 million outstanding in FHLB term borrowings.

As of December 31, 2020, the Bank had securities sold under agreements to repurchase of $1.2 million outstanding with customers and nothing outstanding with brokers.

As of December 31, 2019, the Bank had securities sold under agreements to repurchase of $1.0 million outstanding with customers and nothing outstanding with brokers.

In addition, the Bank has approved broker relationships for the purpose of issuing brokered deposits.

As of December 31, 2020, the Bank had $64.1 million outstanding in brokered certificates of deposit and $50.2 million outstanding in brokered money market accounts.

As of December 31, 2019, the Bank had $77.3 million outstanding in brokered certificates of deposits and $85.1 million outstanding in brokered money market accounts.

Liquidity policies are established by senior management and reviewed and approved by the full Board of Directors at least annually.

Management continually monitors the liquidity position and believes that sufficient liquidity exists to meet all of the Company’s operating requirements.

The Bank’s liquidity levels are affected by the use of short-term and wholesale borrowings and the amount of public funds in the deposit mix.

Excess short-term liquidity is invested in overnight federal funds sold or in an interest-earning account at the FRB.

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 repurchase agreements as part of its borrowing policy to add liquidity.

Repurchase agreements represent funds received from customers, generally on an overnight basis, which are collateralized by investment securities.

As of December 31, 2021, the Bank’s repurchase agreements totaled $1.9 million, included in other short-term borrowings on the consolidated balance sheets.

The Bank gathers deposits in direct competition with commercial banks, savings banks and 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 $5.93 billion during the year ended December 31, 2021 compared to an increase of $180.8 million for the year ended December 31, 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 $6.40 billion during the year ended December 31, 2021 and increased $431.1 million during the year ended December 31.

CDs decreased $469.4 million during the year ended December 31, 2021 compared to a decrease of $250.2 million during the year ended December 31, 2020.

The decrease in CDs during the current period was primarily due to higher-cost CDs not being renewed.

In the event that the Bank should require funds beyond its ability or desire to generate them internally, an additional source of funds is available through its borrowing line at the FHLBNY or borrowing capacity through AFX and lines of credit with unaffiliated correspondent banks.

At December 31, 2021, the Bank had an additional unused borrowing capacity of $3.18 billion through the FHLBNY, subject to customary minimum FHLBNY common stock ownership requirements ( i.e.

, 4.5% of the Bank’s outstanding FHLBNY borrowings).

The Bank decreased its outstanding FHLBNY advances by $1.18 billion during the year ended December 31, 2021, compared to a $111.8 million increase during the year ended December 31, 2020.

“Federal Home Loan Bank Advances” to our consolidated financial statements for further information.

During the year ended December 31, 2021 and 2020, real estate loan originations totaled $1.67 billion and $975.3 million, respectively.

During the year ended December 31, 2021 and 2020, C&I loan originations totaled $647.6 million (including

$579.9 million of PPP loans) and $494.9 million (including $334.4 million of PPP loans), respectively.

The increase in both real estate loan originations and C&I loan originations during the current period was primarily due to the Merger.

Proceeds from sales of available-for-sale securities totaled $138.1 million and $94.3 million during the years ended December 31, 2021 and 2020, respectively.

Purchases of available-for-sale securities totaled $1.10 billion and $219.6 million during the years ended December 31, 2021 and 2020, respectively.

Proceeds from pay downs and calls and maturities of available-for-sale securities were $412.4 million and $153.1 million for the years ended December 31, 2021 and 2020, respectively.

The Company and the Bank are subject to minimum regulatory capital requirements imposed by its primary federal regulator.

As a general matter, these capital requirements are based on the amount and composition of an institution’s assets.

At December 31, 2021, each of the Company and the Bank were in compliance with all applicable regulatory capital requirements and the Bank was considered "well capitalized"

for all regulatory purposes.

The Holding Company repurchased 1,755,061 shares of its common stock during the year ended December 31, 2021.

Legacy Dime repurchased 1,477,029 shares of its common stock during the year ended December 31, 2020.

As of December 31, 2021, up to 1,086,687 shares remained available for purchase under the authorized share repurchase programs.

See "Part II - Item 5.

Issuer Purchases of Equity Securities"

for additional information about repurchases of common stock.

The Holding Company paid $7.3 million in cash dividends on its preferred stock during the year ended December 31, 2021.

Legacy Dime paid $4.8 million in cash dividends on its preferred stock during the year ended December 31, 2020.

The Holding Company paid $39.4 million in cash dividends on its common stock during the year ended December 31, 2021.

Legacy Dime paid $18.7 million in cash dividends on its common stock during the year ended December 31, 2020.

Contractual Obligations

In the ordinary course of operations, we enter into certain contractual obligations.

The following table presents contractual obligations outstanding at December 31, 2020:

(In thousands)

Operating leases

FHLB advances and repurchase agreements

Subordinated debentures

Time deposits

Total contractual obligations outstanding

Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs.

These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates.

Commitments may expire without being used.

Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated.

The same credit policies are used to make such commitments as are used for loans, often including obtaining collateral at exercise of the commitment.

At December 31, 2020, we had $150.5 million in outstanding loan commitments and $808.3 million in outstanding commitments for various lines of credit including unused overdraft lines.

We also had $25.5 million of standby letters of credit as of December 31, 2020.

See Note 17 of the Notes to the Consolidated Financial Statements for additional information on loan commitments and standby letters of credit.

Capital Resources

Stockholders’ equity increased $20.7 million year-over-year to $517.8 million at December 31, 2020 primarily as a result of net income, partially offset by dividends declared and purchases of treasury stock.

We adopted the CECL Standard on January 1, 2020, which resulted in a charge to retained earnings and reduction to stockholders’ equity of $1.5 million.

ratio of average stockholders’ equity to average total assets was 8.67% for the year ended December 31, 2020 compared to 10.11% for the year ended December 31, 2019.

The Company’s capital strength is paralleled by the solid capital position of the Bank, as reflected in the excess of its regulatory capital ratios over the risk-based capital adequacy ratio levels required for classification as a “well capitalized” institution by the FDIC (see Note 18 of the Notes to the Consolidated Financial Statements).

We utilize cash dividends and stock repurchases to manage our capital levels.

In 2020, the Company declared four quarterly cash dividends totaling $19.2 million compared to four quarterly cash dividends of $18.4 million in 2019.

The dividend payout ratios for 2020 and 2019 were 45.66% and 35.63%, respectively.

In February 2019, we announced the approval of a stock repurchase plan for up to 1,000,000 shares of common stock.

There is no expiration date for the stock repurchase plan.

During the year ended December 31, 2020, we purchased 179,620 shares of our common stock under the repurchase plan at a cost of $4.6 million.

Our return on average equity decreased to 8.26% for the year ended December 31, 2020 from 10.84% for the year ended December 31, 2019.

Our return on average assets decreased to 0.72% in 2020 compared to 1.10% in 2019.

The year-over-year decreases in return on average equity and return on average assets were due to lower net income in 2020 compared to 2019.

Impact of Inflation and Changing Prices

The consolidated financial statements and notes presented herein have been prepared in accordance with U.S.

generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.

The primary effect of inflation on our operations is reflected in increased operating costs.

Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature.

As a result, changes in interest rates have a more significant effect on the performance of a financial institution than do the effects of changes in the general rate of inflation and changes in prices.

Changes in interest rates could adversely affect our results of operations and financial condition.

Interest rates do not necessarily move in the same direction, or in the same magnitude, as the prices of goods and services.

Interest rates are highly sensitive to many factors, which are beyond our control, including the influence of domestic and foreign economic conditions and the monetary and fiscal policies of the United States government and federal agencies, particularly the FRB.

Impact of Prospective Accounting Standards

For a discussion regarding the impact of new accounting standards, refer to Note 1 of the Notes to the Consolidated Financial Statements.

The Bank generally has outstanding at any time borrowings in the form of FHLBNY advances, short-term or overnight borrowings, subordinated debt, as well as customer CDs with fixed contractual interest rates.

In addition, the Bank is obligated to make rental payments under leases on certain of its branches and equipment.

Off-Balance Sheet Arrangements

As part of its loan origination business, the Bank generally has outstanding commitments to extend credit to borrowers, which are originated pursuant to its regular underwriting standards.

Available lines of credit may not be drawn on or may expire prior to funding, in whole or in part, and amounts are not estimates of future cash flows.

As of December 31, 2021, the Bank had $226.0 million of firm loan commitments that were accepted by the borrowers.

All of these commitments are expected to close during the year ended December 31, 2022.

Additionally, in connection with the Loan Securitization, the Bank executed a reimbursement agreement with FHLMC that obligates the Company to reimburse FHLMC for any contractual principal and interest payments on defaulted loans, not to exceed 10% of the original principal amount of the loans comprising the aggregate balance of the loan pool at securitization.

The maximum exposure under this reimbursement obligation is $28.0 million.

The Bank has pledged $26.6 million of available-for-sale pass-through MBS issued by GSEs as collateral.

Recently Issued Accounting Standards

For a discussion of the impact of recently issued accounting standards, please see Note 1 to the Company’s consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis