UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 001-34096
DIME COMMUNITY BANCSHARES, INC.
NEW YORK
(State or other jurisdiction of incorporation or organization)
11-2934195
(I.R.S. Employer Identification No.)
(Exact name of registrant as specified in its charter)
898 VETERANS MEMORIAL HIGHWAY, SUITE 560, HAUPPAUGE, NY
(Address of principal executive offices)
11788
(Zip Code)
Registrant’s telephone number, including area code: 631-537-1000
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol
DCOM
DCOMP
Name of each exchange on which registered
The Nasdaq Stock Market, LLC
The Nasdaq Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ◻ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth
company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer ◻
Non-accelerated filer ◻
Accelerated filer ☒
Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ⌧
The approximate aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing price of the Common Stock on June 30, 2020, was
$377,838,854.
The number of shares of the Registrant’s common stock outstanding on February 28, 2021 was 41,488,275.
Portions of the following documents are incorporated into the Parts of this Report on Form 10-K indicated below:
The Registrant’s definitive Proxy Statement for the 2021 Annual Meeting to be filed pursuant to Regulation 14A on or before April 30, 2021 (Part III).
TABLE OF CONTENTS
PART I
Item 1
Business
Item 1A
Risk Factors
Item 1B
Unresolved Staff Comments
Item 2
Item 3
Item 4
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Item 5
Item 6
Item 7
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A
Controls and Procedures
Item 9B
Other Information
PART III
Item 10
Directors, Executive Officers and Corporate Governance
Item 11
Executive Compensation
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13
Certain Relationships and Related Transactions, and Director Independence
Item 14
Principal Accounting Fees and Services
PART IV
Item 15
Exhibits and Financial Statement Schedules
Item 16
Form 10-K Summary
EXHIBIT INDEX
SIGNATURES
1
1
10
19
19
19
19
20
20
22
23
44
46
103
103
103
104
104
104
104
104
104
105
105
105
106
108
In this Annual Report on Form 10-K, unless otherwise mentioned, the terms the “Company”, “we”, “us” and “our” refer to
Dime Community Bancshares, Inc. and our wholly-owned subsidiary, Dime Community Bank (the “Bank”). We use the term
“Holding Company” to refer solely to Dime Community Bancshares, Inc. and not to our consolidated subsidiary.
PART I
Item 1. Business
Completion of Merger of Equals
On February 1, 2021, Dime Community Bancshares, Inc., a Delaware corporation (“Legacy Dime”) merged with and into Bridge
Bancorp, Inc., a New York corporation (“Legacy Bridge”) (the “Merger”), with Legacy Bridge as the surviving corporation under
the name “Dime Community Bancshares, Inc.” (the “Company”). At the effective time of the Merger (the “Effective Time”),
each outstanding share of Legacy Dime common stock, par value $0.01 per share, was converted into the right to receive 0.6480
shares of the Company’s common stock, par value $0.01 per share.
At the Effective Time, each outstanding share of Legacy Dime’s Series A preferred stock, par value $0.01 (the “Dime Preferred
Stock”), was converted into the right to receive one share of a newly created series of the Company’s preferred stock having the
same powers, preferences and rights as the Dime Preferred Stock.
Immediately following the Merger, Dime Community Bank, a New York-chartered commercial bank and a wholly-owned
subsidiary of Legacy Dime, merged with and into BNB Bank, a New York-chartered commercial bank and a wholly-owned
subsidiary of Bridge, with BNB Bank as the surviving bank, under the name “Dime Community Bank.”
In connection with the Merger, the Company assumed $115.0 million in aggregate principal amount of the 4.50% Fixed-to-
Floating Rate Subordinated Debentures due 2027 of Legacy Dime.
See “Note 23. Subsequent Event” of the Notes to the Consolidated Financial Statements for further information.
General
Dime Community Bancshares, Inc., (the “Holding Company”), which was known as Bridge Bancorp, Inc., prior to the Merger, is
a bank holding company engaged in commercial banking and financial services through its wholly-owned subsidiary, Dime
Community Bank, which was known as BNB Bank prior to the Merger. The Bank was established in 1910 and is headquartered
in Hauppauge, New York. The Holding Company was incorporated under the laws of the State of New York in 1988 to serve as
the holding company for the Bank. The Company functions primarily as the holder of all of the Bank’s common stock. In
May 1999, the Bank established a real estate investment trust subsidiary, Bridgehampton Community, Inc. (“BCI”), as an
operating subsidiary. The assets of BCI are viewed by the bank regulators as part of the Bank’s assets in consolidation. Our bank
operations also include Bridge Abstract LLC (“Bridge Abstract”), a wholly-owned subsidiary of the Bank, which is a broker of
title insurance services. In connection with the Merger, on February 1, 2021, the Holding Company acquired Dime Community
Bank and its wholly-owned subsidiaries.
As of December 31, 2020, we operated 39 branch locations in the primary market areas of Suffolk and Nassau Counties on Long
Island and the New York City boroughs, including 35 in Suffolk and Nassau Counties, two in Queens and two in Manhattan.
Following the Merger, we operate 67 branch locations throughout Long Island and the New York City boroughs of Brooklyn,
Queens, Manhattan, and the Bronx.
For over a century, we have maintained our focus on building customer relationships in our market area. Our mission is to grow
through the provision of exceptional service to our customers, our employees, and the community. We strive to achieve
excellence in financial performance and build long-term shareholder value. We engage in a full service commercial and
consumer banking business, including accepting time, savings and demand deposits from the consumers, businesses and local
municipalities in our market area. These deposits, together with funds generated from operations and borrowings, are invested
primarily in: (1) commercial real estate loans; (2) multi-family mortgage loans; (3) residential mortgage loans; (4) secured and
unsecured commercial and consumer loans; (5) home equity loans; (6) construction and land loans;
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(7) Federal Home Loan Bank (“FHLB”), Federal National Mortgage Association (“Fannie Mae”), Government National
Mortgage Association (“Ginnie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”) mortgage-backed
securities, collateralized mortgage obligations and other asset backed securities; (8) New York State and local municipal
obligations; (9) U.S. government-sponsored enterprise (“U.S. GSE”) securities; and (10) corporate bonds. We also offer the
Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) programs, providing multi-
millions of dollars of Federal Deposit Insurance Corporation (“FDIC”) insurance on deposits to our customers. In addition, we
offer merchant credit and debit card processing, automated teller machines, cash management services, lockbox processing,
online banking services, remote deposit capture, safe deposit boxes, and individual retirement accounts as well as investment
services through Bridge Financial Services LLC, which offers a full range of investment products and services through a third-
party broker dealer. Through its title insurance abstract subsidiary, the Bank acts as a broker for title insurance services. Our
customer base is comprised principally of small businesses, municipal relationships and consumer relationships.
We believe the Merger will create a company with a more diversified loan portfolio, across geographies, asset classes and
commercial industries, and that the resulting company will have increased capacity for loan growth while maintaining its current
business risk tolerances.
Human Capital Resources
Demographics and Culture
As of December 31, 2020, we employed 502 full-time equivalent employees. As a result of the Merger, on February 1, 2021, we
added 373 full-time equivalent employees. Our employees are not represented by a collective bargaining agreement. We have
been recognized as one of Long Island’s Top Workplaces in 2020 and consider our relationship with our employees to be good.
Our culture in the workplace encourages employees to care about each other, the communities they serve, and the work they do.
We believe strong community ties, customer focus, accountability, and development of the communities in which we operate will
have a favorable long-term impact on our business performance. Our employees are passionate about building relationships and
providing customized banking solutions to our communities. We believe in hiring well-qualified people from a wide range of
backgrounds who also fit our value system. As an equal opportunity employer, our decisions to select and promote employees are
unbiased as we seek to build a diverse team of employees.
Labor Policies and Benefits
We offer our employees a comprehensive benefits package that will support, maintain, and protect their physical, mental, and
financial health. We sponsor various wellness programs that promote the health and wellness of our employees. The COVID-19
pandemic presented a challenge of maintaining the health and safety of our employees. Our employees complete daily COVID-
19 health assessments and must remain at home if they experience COVID-19 symptoms, tested positive, or have been in close
contact with a person who has tested positive for COVID-19. Our return to work phase-in began on July 6, 2020 for back office
employees. Our branch network has returned to operating regular business hours. Our branch employees receive 100% weekly
pay, regardless of the number of hours worked. All front-line employees received special bonus payments for the team effort in
issuing the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) loans.
Training, Development and Retention
We are committed to retaining employees by monitoring salaries in our markets and offering competitive salaries. In addition, we
maintain equity incentive plans under which we may issue shares of our common stock. Refer to Note 15. “Stock-Based
Compensation Plans” of the Notes to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form
10-K for further details of our equity incentive plans. We promote career development and continuing education by offering
internal training programs and tuition reimbursement for programs that develop skills related to our business.
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Competition and Principal Market Areas
All phases of our business are highly competitive. We face direct competition from a significant number of financial institutions
operating in our market area, many with a statewide or regional presence, and in some cases, a national presence. There is also
competition for banking business from competitors outside of our market areas. Most of these competitors are significantly larger
than us, and therefore have greater financial and marketing resources and lending limits than us. The fixed cost of regulatory
compliance remains high for community banks as compared to their larger competitors that are able to achieve economies of
scale. We consider our major competition to be local commercial banks as well as other commercial banks with branches in our
market area. Other competitors include savings banks, credit unions, mortgage brokers and financial services firms other than
financial institutions, such as investment and insurance companies. Increased competition within our market areas may limit
growth and profitability. Additionally, as our market area expands westward, competitive pressure in new markets is expected to
be strong. The title insurance abstract subsidiary also faces competition from other title insurance brokers as well as directly from
the companies that underwrite title insurance. In New York State, title insurance is obtained on most transfers of real estate and
mortgage transactions.
As of December 31, 2020, our principal market areas were Suffolk and Nassau Counties on Long Island and the New York City
boroughs, with our legacy markets being primarily in Suffolk County and our newer expansion markets being primarily in
Nassau County, Queens and Manhattan. Long Island has a population of approximately 3 million and both counties are relatively
affluent and well-educated, enjoying above average median household incomes. In total, Long Island has a sizable industry base
with a majority of Suffolk County tending towards high-tech manufacturing and Nassau County favoring wholesale and retail
trade. Suffolk County, particularly Eastern Long Island, is semi-rural and also the point of origin for us. Surrounded by water and
including the Hamptons and North Fork, the region is a recreational destination for the New York metropolitan area, and a highly
regarded resort locale worldwide. While the local economy flourishes in the summer months as a result of the influx of tourists
and second homeowners, the year-round population has grown considerably in recent years, resulting in a reduction of the
seasonal fluctuations in the economy, which has boosted our legacy market opportunities. Industries represented across the
principal market areas include retail establishments; construction and trades; restaurants and bars; lodging and recreation;
professional entities; real estate; health services; passenger transportation; high-tech manufacturing; and agricultural and related
businesses. Given its proximity, Long Island’s economy is closely linked with New York City’s and major employers in the area
include municipalities, school districts, hospitals, and financial institutions.
We believe the completion of the Merger unites two iconic New York community banks, creating the premier community-based
business bank in our region. Our enhanced branch footprint in Brooklyn, Queens, the Bronx, and Nassau County, and increased
capital base will allow the combined bank to better serve the needs of our customers across the greater New York and Long
Island marketplaces.
Taxation
The Holding Company, the Bank and its subsidiaries, with the exception of the real estate investment trust, which files its own
federal and state income tax returns, report their income on a consolidated basis using the accrual method of accounting and are
subject to federal and state income taxation. In general, banks are subject to federal income tax in the same manner as other
corporations. However, gains and losses realized by banks from the sale of available for sale securities are generally treated as
ordinary income, rather than capital gains or losses. We are subject to the New York State Franchise Tax on Banking
Corporations based on certain criteria. The taxation of net income is similar to federal taxable income subject to certain
modifications.
Regulation and Supervision
Dime Community Bank
The Bank is a New York chartered commercial bank and a member of the Federal Reserve System (a “member bank”). The
lending, investment, and other business operations of the Bank are governed by New York and federal laws and regulations. The
Bank is subject to extensive regulation by the New York State Department of Financial Services (“NYSDFS”) and, as a member
bank, by the Board of Governors of the Federal Reserve System (“FRB”). The Bank’s deposit accounts are insured up to
applicable limits by the FDIC under its Deposit Insurance Fund (“DIF”) and the FDIC
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has certain regulatory authority as deposit insurer. A summary of the primary laws and regulations that govern the Bank’s
operations are set forth below.
Loans and Investments
The powers of a New York commercial bank are established by New York law and applicable federal law. New York
commercial banks have authority to originate and purchase any type of loan, including commercial, commercial real estate,
residential mortgages or consumer loans. Aggregate loans by a state commercial bank to any single borrower or group of related
borrowers are generally limited to 15% of the Bank’s capital and surplus, plus an additional 10% if secured by specified readily
marketable collateral.
Federal and state law and regulations limit the Bank’s investment authority. Generally, a state member bank is prohibited from
investing in corporate equity securities for its own account other than the equity securities of companies through which the bank
conducts its business. Under federal and state regulations, a New York state member bank may invest in investment securities for
its own account up to specified limit depending upon the type of security. “Investment Securities” are generally defined as
marketable obligations that are investment grade and not predominantly speculative in nature. Applicable regulations classify
investment securities into five different types and, depending on its type, a state member bank may have the authority to deal in
and underwrite the security. New York-chartered state member banks may also purchase certain non-investment securities that
can be reclassified and underwritten as loans.
Lending Standards
The federal banking agencies adopted uniform regulations prescribing standards for extensions of credit that are secured by liens
on interests in real estate or made for the purpose of financing the construction of a building or other improvements to real estate.
Under these regulations, all insured depository institutions, like the Bank, adopted and maintain written policies that establish
appropriate limits and standards for extensions of credit that are secured by liens or interests in real estate or are made for the
purpose of financing permanent improvements to real estate. These policies must establish loan portfolio diversification
standards, prudent underwriting standards (including loan-to-value limits) that are clear and measurable, loan administration
procedures, and documentation, approval and reporting requirements. The real estate lending policies must reflect consideration
of the Interagency Guidelines for Real Estate Lending Policies that have been adopted by the federal bank regulators.
Federal Deposit Insurance
The Bank is a member of the DIF, which is administered by the FDIC. Our deposit accounts are insured by the FDIC. Effective
July 22, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) permanently raised the
deposit insurance available on all deposit accounts to $250,000 with a retroactive effective date of January 1, 2008.
The FDIC assesses insured depository institutions to maintain the DIF. Under the FDIC’s risk-based assessment system,
institutions deemed less risky pay lower assessments. Assessments for institutions of less than $10 billion of assets are based on
financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure
within three years. However, inasmuch as the Bank’s assets have exceeded $10 billion due to the Merger of Dime Community
Bank and BNB Bank, the Bank will become subject to larger institution assessment procedures. Such institutions are assigned an
individual rate based on a scorecard combining examination ratings, financial measures, a bank’s ability to withstand asset-
related and funding-related stress and a measure of potential losses to the DIF in the event of the institution’s failure.
The Dodd-Frank Act required the FDIC to revise its procedures to base assessments upon each insured institution’s total assets
less tangible equity instead of deposits. The FDIC finalized a rule, effective April 1, 2011, that set the assessment range at 2.5
basis points to 45 basis points of total assets less tangible equity. In conjunction with the DIF’s reserve ratio achieving 1.15%, the
assessment range (inclusive of possible adjustments) was reduced for insured institutions of less than $10 billion of total assets to
1.5 basis points to 30 basis points, effective July 1, 2016. As noted, the Bank will be subject to large institution procedures in the
future following the Merger, and the applicable range for such institutions of 1.5 basis points to 40 basis points.
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The Dodd-Frank Act increased the minimum target DIF ratio from 1.15% of estimated insured deposits to 1.35% of estimated
insured deposits. The FDIC was required to achieve the 1.35% ratio by September 30, 2020. The Dodd-Frank Act eliminated the
1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC. The FDIC has exercised that discretion by
establishing a long-range fund ratio of 2%.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC. The Company does not know of any practice, condition or violation that might lead to
termination of deposit insurance.
Capitalization
Federal regulations require FDIC insured depository institutions, including state member banks, to meet several minimum capital
standards: a common equity tier 1 capital to risk-based assets ratio of 4.5%, a tier 1 capital to risk-based assets ratio of 6.0%, a
total capital to risk-based assets ratio of 8.0%, and a tier 1 capital to total assets leverage ratio of 4.0%. The existing capital
requirements were effective January 1, 2015 and are the result of a final rule implementing regulatory amendments based on
recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Act. Common
equity tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined
as common equity tier 1 and additional tier 1 capital. Additional tier 1 capital generally includes certain noncumulative perpetual
preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes
tier 1 capital (common equity tier 1 capital plus additional tier 1 capital) and tier 2 capital. Tier 2 capital is comprised of capital
instruments and related surplus meeting specified requirements, and may include cumulative preferred stock and long-term
perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in
tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for
institutions that have exercised an opt-out election regarding the treatment of accumulated other comprehensive income
(“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.
Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity tier 1 capital (including
unrealized gains and losses on available-for-sale-securities). Calculation of all types of regulatory capital is subject to deductions
and adjustments specified in the regulations.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, assets, including certain
off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk weight
factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required
for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government
securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one-to-four family residential
mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain
past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain
specified factors.
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain
discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of
common equity tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital
requirements. The capital conservation buffer requirement was phased in beginning January 1, 2016 at 0.625% of risk-weighted
assets and increasing each year until fully implemented at 2.5% on January 1, 2019.
Community Bank Leverage Ratio
Legislation enacted in 2018 required the federal banking agencies, including the FRB, to amend the regulatory capital regulations
to establish an optional “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total
consolidated assets) of between 8% and 10% of average total consolidated assets. Banking organizations of less than $10 billion
of assets that have capital meeting the specified level and satisfying other criteria may elect to follow this alternative framework
and be deemed in compliance with all applicable capital requirements, including the risk-based requirements, and would be
considered “well capitalized” under “prompt corrective action” statutes. The agencies finalized a rule, effective January 1, 2020,
that set the Community Bank Leverage Ratio at 9% tier 1 capital to average
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total consolidated assets. Pursuant to 2020 federal legislation, the Community Bank Leverage Ratio was temporarily lowered to
8%, transitioning back to 9% by year-end 2021. Since the merged bank exceeds $10 billion of assets, its eligibility to elect the
community bank leverage ratio will be terminated in the future following the Merger.
Safety and Soundness Standards
Each federal banking agency, including the FRB, has adopted guidelines establishing general standards relating to internal
controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth,
asset quality, earnings and compensation, fees, and benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified in the guidelines. The guidelines prohibit
excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are
unreasonable or disproportionate to the services performed by an executive officer, employee, director, or principal shareholder.
On April 26, 2016, the federal regulatory agencies approved a second proposed joint rulemaking to implement Section 956 of the
Dodd-Frank Act, which prohibits incentive-based compensation that encourages inappropriate risk taking. In addition, the
NYSDFS issued guidance applicable to incentive compensation in October 2016.
Prompt Corrective Regulatory Action
Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to
institutions that do not meet minimum capital requirements. For these purposes, the statute establishes five capital tiers: well
capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized.
The FRB may order member banks which have insufficient capital to take corrective actions. For example, a bank, which is
categorized as “undercapitalized” would be subject to other growth limitations, would be required to submit a capital restoration
plan, and a holding company that controls such a bank would be required to guarantee that the bank complies with the restoration
plan. A “significantly undercapitalized” bank would be subject to additional restrictions. Member banks deemed by the FRB to
be “critically undercapitalized” would be subject to the appointment of a receiver or conservator.
The final rule that increased regulatory capital standards adjusted the prompt corrective action tiers as of January 1, 2015. The
various categories were revised to incorporate the new common equity tier 1 capital requirement, the increase in the tier 1 to risk-
based assets requirement and other changes. Under the revised prompt corrective action requirements, insured depository
institutions are required to meet the following in order to qualify as “well capitalized:” (1) a common equity tier 1 risk-based
capital ratio of 6.5% (new standard); (2) a tier 1 risk-based capital ratio of 8.0% (increased from 6.0%); (3) a total risk-based
capital ratio of 10.0% (unchanged); and (4) a tier 1 leverage ratio of 5.0% (unchanged). Under the final rulemaking discussed
above, a qualifying institution would be deemed to be “well capitalized” if it complies with the Community Bank Leverage Ratio,
and elects to follow that alternative framework.
Dividends
Under federal law and applicable regulations, a New York member bank may generally declare a dividend, without prior
regulatory approval, in an amount equal to its year-to-date retained net income plus the prior two years’ retained net income that
is still available for dividend. Dividends exceeding those amounts require application to and approval by the
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NYSDFS and FRB. In addition, a member bank may be limited in paying cash dividends if it does not maintain the capital
conservation buffer described previously.
Transactions with Affiliates and Insiders
Sections 23A and 23B of the Federal Reserve Act govern transactions between a member bank and its affiliates, which includes
the Company. The FRB has adopted Regulation W, which comprehensively implements and interprets Sections 23A and 23B, in
part by codifying prior FRB interpretations under Sections 23A and 23B.
An affiliate of a bank is any company or entity that controls, is controlled by or is under common control with the bank. A
subsidiary of a bank that is not also a depository institution or a “financial subsidiary” under federal law is not treated as an
affiliate of the bank for the purposes of Sections 23A and 23B; however, the FRB has the discretion to treat subsidiaries of a bank
as affiliates on a case-by-case basis. Sections 23A and 23B limit the extent to which a bank or its subsidiaries may engage in
“covered transactions” with any one affiliate to an amount equal to 10% of such bank’s capital stock and surplus, and limit all
such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus. The statutory sections also
require that all such transactions be on terms that are consistent with safe and sound banking practices. The term “covered
transaction” includes the making of loans, purchase of assets, issuance of guarantees and other similar types of transactions.
Further, most loans by a bank to any of its affiliates must be secured by collateral in amounts ranging from 100 to 130 percent of
the loan amounts. In addition, any covered transaction by an association with an affiliate and any purchase of assets or services
by an association from an affiliate must be on terms that are substantially the same, or at least as favorable, to the bank as those
that would be provided to a non-affiliate.
A bank’s loans to its executive officers, directors, any owner of more than 10% of its stock (each, an insider) and any of certain
entities affiliated with any such person (an insider’s related interest) are subject to the conditions and limitations imposed by
Section 22(h) of the Federal Reserve Act and the FRB’s Regulation O thereunder. Under these restrictions, the aggregate amount
of the loans to any insider and the insider’s related interests may not exceed the loans-to-one-borrower limit applicable to
national banks. All loans by a bank to all insiders and insiders’ related interests in the aggregate may not exceed the bank’s
unimpaired capital and unimpaired surplus. With certain exceptions, loans to an executive officer, other than loans for the
education of the officer’s children and certain loans secured by the officer’s residence, may not exceed the greater of $25,000 or
2.5% of the bank’s unimpaired capital and unimpaired surplus, but in no event more than $100,000. Regulation O also requires
that any proposed loan to an insider or a related interest of that insider be approved in advance by a majority of the board of
directors of the bank, with any interested director not participating in the voting, if such loan, when aggregated with any existing
loans to that insider and the insider’s related interests, would exceed either $500,000 or the greater of $25,000 or 5% of the
bank’s unimpaired capital and surplus. Generally, such loans must be made on substantially the same terms as, and follow credit
underwriting procedures that are no less stringent than, those that are prevailing at the time for comparable transactions with
other persons and must not present more than a normal risk of collectability. An exception is made for extensions of credit made
pursuant to a benefit or compensation plan of a bank that is widely available to employees of the bank and that does not give any
preference to insiders of the bank over other employees of the bank.
Examinations and Assessments
The Bank is required to file periodic reports with and is subject to periodic examination by the NYSDFS and the FRB.
Applicable laws and regulations generally require periodic on-site examinations and annual audits by independent public
accountants for all insured institutions. The Bank is required to pay an annual assessment to the NYSDFS to fund its supervision.
The Bank’s assets exceeded $10 billion due to the Merger of BNB Bank and Dime Community Bank. Federal law provides that
institutions above that asset size be examined by the Consumer Financial Protection Bureau (“CFPB”), rather than its primary
federal bank regulator, as to compliance with certain federal consumer protection and fair lending laws and
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regulations. The Bank will therefore be subject to examination by the CFPB as to those matters in the future, rather than the
FDIC.
Community Reinvestment Act
Under the federal Community Reinvestment Act (“CRA”), the Bank has a continuing and affirmative obligation consistent with
its safe and sound operation to help meet the credit needs of its entire community, including low and moderate-income
neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit
an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires the FRB, in connection with its examination of the Bank, to assess its record of
meeting the credit needs of its community and to take that record into account in its evaluation of certain applications by the
Bank. For example, the regulations specify that a bank’s CRA performance will be considered in its expansion (e.g., branching or
mergers) proposals and may be the basis for approving, denying or conditioning the approval of an application. As of the date of
its most recent CRA examination, which was conducted by the Federal Reserve Bank of New York and the NYSDFS, the Bank’s
CRA performance was rated “Satisfactory”.
New York law imposes a similar obligation on the Bank to serve the credit needs of its community. New York law contains its
own CRA provisions, which are substantially similar to federal law.
USA PATRIOT Act
The USA PATRIOT Act of 2001 gave the federal government new powers to address terrorist threats through enhanced domestic
security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering
requirements. The USA PATRIOT Act also required the federal banking agencies to take into consideration the effectiveness of
controls designed to combat money-laundering activities in determining whether to approve a merger or other acquisition
application of a member institution. Accordingly, if the Bank engages in a merger or other acquisition, the Bank’s controls
designed to combat money laundering would be considered as part of the application process. The Bank has established policies,
procedures and systems designed to comply with these regulations.
Dime Community Bancshares, Inc.
The Holding Company, as a bank holding company controlling the Bank, is subject to the Bank Holding Company Act of 1956,
as amended (“BHCA”), and the rules and regulations of the FRB under the BHCA applicable to bank holding companies. We are
required to file reports with, and otherwise comply with the rules and regulations of the FRB.
The FRB previously adopted consolidated capital adequacy guidelines for bank holding companies structured similarly, but not
identically, to those applicable to the Bank. The Dodd-Frank Act directed the FRB to issue consolidated capital requirements for
depository institution holding companies that are no less stringent, both quantitatively and in terms of components of capital, than
those applicable to institutions themselves. The FRB subsequently issued regulations amending its regulatory capital
requirements to implement the Dodd-Frank Act as to bank holding company capital standards. Consolidated regulatory capital
requirements identical to those applicable to the subsidiary banks applied to bank holding companies as of January 1, 2015. As is
the case with institutions themselves, the capital conservation buffer was phased-in between 2016 and 2019. We met all capital
adequacy requirements under the FRB’s capital rules on December 31, 2020.
The policy of the FRB is that a bank holding company must serve as a source of strength to its subsidiary banks by providing
capital and other support in times of distress. The Dodd-Frank Act codified the source of strength policy.
Under the prompt corrective action provisions of federal law, a bank holding company parent of an undercapitalized subsidiary
bank is required to guarantee, within specified limits, the capital restoration plan that is required of an undercapitalized bank. If
an undercapitalized bank fails to file an acceptable capital restoration plan or fails to implement an accepted plan, the FRB may
prohibit the bank holding company parent of the undercapitalized bank from paying dividends or making any other capital
distribution.
As a bank holding company, we are required to obtain the prior approval of the FRB to acquire more than 5% of a class of voting
securities of any additional bank or bank holding company or to acquire all, or substantially all, the assets of any
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additional bank or bank holding company. In addition, the bank holding companies may generally only engage in activities that
are closely related to banking as determined by the FRB. Bank holding companies that meet certain criteria may opt to become a
financial holding company and thereby engage in a broader array of financial activities.
FRB policy is that a bank holding company should pay cash dividends only to the extent that the company’s net income for the
past two years is sufficient to fund the dividends and the prospective rate of earnings retention is consistent with the company’s
capital needs, asset quality and overall financial condition. In addition, FRB guidance sets forth the supervisory expectation that
bank holding companies will inform and consult with FRB staff in advance of issuing a dividend that exceeds earnings for the
quarter and should inform the FRB and should eliminate, defer or significantly reduce dividends if (i) net income available to
stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the
dividends, (ii) prospective rate of earnings retention is not consistent with the bank holding company’s capital needs and overall
current and prospective financial condition, or (iii) the bank holding company will not meet, or is in danger of not meeting, its
minimum regulatory capital adequacy ratios.
Current FRB regulations provide that a bank holding company that is not well capitalized or well managed, as such terms are
defined in the regulations, or that is subject to any unresolved supervisory issues, is required to give the FRB prior written notice
of any repurchase or redemption of its outstanding equity securities if the gross consideration for repurchase or redemption, when
combined with the net consideration paid for all such repurchases or redemptions during the preceding 12 months, will be equal
to 10% or more of the company’s consolidated net worth. The FRB may disapprove such a repurchase or redemption if it
determines that the proposal would constitute an unsafe and unsound practice or violate a law or regulation. FRB guidance
generally provides for bank holding company consultation with FRB staff prior to engaging in a repurchase or redemption of a
bank holding company’s stock, even if a formal written notice is not required. The guidance provides that the purpose of such
consultation is to allow the FRB to review the proposed repurchases or redemption from a supervisory perspective and possibly
object.
The NYSDFS and FRB have extensive enforcement authority over the institutions and holding companies that they regulate to
prohibit or correct activities that violate law, regulation or a regulatory agreement or which are deemed to be unsafe or unsound
banking practices. Enforcement actions may include: the appointment of a conservator or receiver for an institution; the issuance
of a cease and desist order; the termination of deposit insurance; the imposition of civil money penalties on the institution, its
directors, officers, employees and institution-affiliated parties; the issuance of directives to increase capital; the issuance of
formal and informal agreements; the removal of or restrictions on directors, officers, employees and institution-affiliated parties;
and the enforcement of any such mechanisms through restraining orders or other court actions. Any change in applicable New
York or federal laws and regulations could have a material adverse impact on us and our operations and stockholders.
We file certain reports with the Securities and Exchange Commission (“SEC”) under the federal securities laws. Our operations
are also subject to extensive regulation by other federal, state and local governmental authorities and it is subject to various laws
and judicial and administrative decisions imposing requirements and restrictions on part or all of its operations. We believe that
we are in substantial compliance, in all material respects, with applicable federal, state and local laws, rules and regulations.
Because our business is highly regulated, the laws, rules and regulations applicable to it are subject to regular modification and
change. There can be no assurance that these proposed laws, rules and regulations, or any other laws, rules or regulations, will not
be adopted in the future, which could make compliance more difficult or expensive or otherwise adversely affect our business,
financial condition or prospects.
Other Information
Through a link on the Investor Relations section of our website of www.dime.com, copies of our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) for 15(d) of the Exchange Act, are made available, free of charge, as soon as reasonably practicable after
electronically filing such material with, or furnishing it to, the SEC. Copies of such reports and other information also are
available at no charge to any person who requests them or at www.sec.gov. Such requests may be
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directed to Dime Community Bancshares, Inc., Investor Relations, 898 Veterans Memorial Highway, Suite 560, Hauppauge, NY
11788, (631) 537-1000.
Item 1A. Risk Factors
Risks Related to our Mergers and Acquisitions Activities
Combining Legacy Bridge and Legacy Dime may be more difficult, costly or time consuming than expected and the
Company may fail to realize the anticipated benefits of the Merger.
The success of the Merger will depend, in part, on the ability to realize the anticipated cost savings from combining the
businesses of Legacy Bridge and Legacy Dime. To realize the anticipated benefits and cost savings from the Merger, we must
successfully integrate and combine the two businesses in a manner that permits those cost savings to be realized. If the Company
is not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully or at all or
may take longer to realize than expected. In addition, the actual cost savings and anticipated benefits of the Merger could be less
than anticipated, and integration may result in additional unforeseen expenses.
It is possible that the integration process could result in the loss of key employees, the disruption of the Company’s ongoing
businesses or inconsistencies in standards, controls, procedures and policies that adversely affect the Company’s ability to
maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits and cost savings of
the Merger. Integration efforts may also divert management attention and resources. These integration matters could have an
adverse effect on the Company for an undetermined period after completion of the Merger.
The combined company may be unable to retain personnel successfully following the Merger.
The success of the Merger will depend in part on the Company’s ability to retain the talents and dedication of key employees of
Legacy Bridge and Legacy Dime. It is possible that these employees may decide not to remain with the Company. If the
Company is unable to retain key employees, including management, who are critical to the successful integration and future
operations of the companies, the Company could face disruptions in its operations, loss of existing customers, loss of key
information, expertise or know-how and unanticipated additional recruitment costs. In addition, if key employees terminate their
employment, the Company’s business activities may be adversely affected and management’s attention may be diverted from
successfully integrating the businesses of Legacy Bridge and Legacy Dime to hiring suitable replacements, all of which may
cause the Company’s business to suffer. In addition, the Company may not be able to locate or retain suitable replacements for
any key employees who leave.
Acquisitions involve integrations and other risks.
Acquisitions involve a number of risks and challenges including: our ability to integrate the branches and operations acquired,
and the associated internal controls and regulatory functions, into our current operations; our ability to limit the outflow of
deposits held by our new customers in the acquired branches and to successfully retain and manage the loans acquired; and our
ability to attract new deposits and to generate new interest-earning assets in geographic areas not previously served. Additionally,
no assurance can be given that the operation of acquired branches would not adversely affect our existing profitability; that we
would be able to achieve results in the future similar to those achieved by our existing banking business; that we would be able to
compete effectively in the market areas served by acquired branches; or that we would be able to manage any growth resulting
from the transaction effectively. We face the additional risk that the anticipated benefits of the acquisition may not be realized
fully or at all, or within the time period expected. Finally, acquisitions typically involve the payment of a premium over book and
trading values and therefore, may result in dilution of our book and tangible book value per share.
We may incur impairment to our goodwill.
Goodwill arises when a business is purchased for an amount greater than the fair value of the net assets acquired. We recognized
goodwill as an asset on our balance sheet in connection with our merger with Legacy Dime and our acquisitions of Community
National Bank (“CNB”) in 2015, FNBNY Bancorp (“FNBNY”) in 2014, and Hamptons State Bank
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(“HSB”) in 2011. We evaluate goodwill for impairment at least annually. Although we determined that goodwill was not
impaired during 2020, a significant and sustained decline in our stock price and market capitalization, a significant decline in our
expected future cash flows, a significant adverse change in the business climate, slower growth rates or other factors could result
in impairment of goodwill. If we were to conclude that a future write-down of the goodwill was necessary, then we would record
the appropriate charge to earnings, which could be materially adverse to our consolidated financial statements.
Risks Related to the COVID-19 Outbreak
The economic impact of the COVID-19 outbreak may continue to have an adverse impact on our business and results of
operations.
In December 2019, a novel coronavirus was reported in China, and, in March 2020, the World Health Organization declared
COVID-19 a pandemic. On March 12, 2020 the President of the United States declared the COVID-19 outbreak in the United
States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many
state and local governments, including New York, have ordered non-essential businesses to close and residents to shelter in place
at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since
the COVID-19 outbreak, more than 30 million people nationwide have filed claims for unemployment, and stock markets have
declined in value and in particular bank stocks have significantly declined in value. 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%, and the yields on 10 and 30-year
treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide
forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have
encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief
from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been
particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the
spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations,
and cancellation of physical participation in meetings, events and conferences. We have many employees working remotely and
we may take further actions as may be required by government authorities or that we determine are in the best interests of our
employees, customers and business partners.
Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on
our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the
coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19
pandemic and the related adverse local and national economic consequences, we may be subject to any of the following risks, any
of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:
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demand for our products and services may decline, making it difficult to grow assets and income;
if the economy is unable to substantially reopen, and high levels of unemployment continue, for an extended
period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased
charges and reduced income;
collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
our allowance for credit losses may have to be increased if borrowers experience financial difficulties beyond
forbearance periods, which will adversely affect our net income;
the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us;
as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our
assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net
interest margin and spread and reducing net income;
a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our
quarterly cash dividend;
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our cyber security risks are increased as the result of an increase in the number of employees working
remotely; and
we rely on third party vendors for certain services and the unavailability of a critical service due to the
COVID-19 outbreak could have an adverse effect on us.
Moreover, our future success and profitability substantially depends on the management skills of our executive officers and
directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability
of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not
be successful in finding and integrating suitable successors in the event of key employee loss or unavailability. Any one or a
combination of the factors identified above could negatively impact our business, financial condition and results of operations
and prospects.
Risks Related to our Loan Portfolio
The concentration of our loan portfolio in loans secured by commercial, multi-family and residential real estate properties
located on Long Island and the New York City boroughs could materially adversely affect our financial condition and
results of operations if general economic conditions or real estate values in this area decline.
Unlike larger banks that are more geographically diversified, our loan portfolio consists primarily of real estate loans secured by
commercial, multi-family and residential real estate properties located in Nassau and Suffolk Counties on Long Island, and in the
New York City boroughs. The local economic conditions on Long Island and in New York City have a significant impact on the
volume of loan originations and the quality of loans, the ability of borrowers to repay these loans, and the value of collateral
securing these loans. A considerable decline in the general economic conditions caused by inflation, recession, unemployment or
other factors beyond our control would impact these local economic conditions and could negatively affect our financial
condition and results of operations. Additionally, decreases in tenant occupancy may also have a negative effect on the ability of
borrowers to make timely repayments of their loans, which would have an adverse impact on our earnings.
If our regulators impose limitations on our commercial real estate lending activities, earnings could be adversely affected.
In 2006, the federal bank regulatory agencies (collectively, the “Agencies”) issued joint guidance entitled “Concentrations in
Commercial Real Estate Lending, Sound Risk Management Practices” (the “CRE Guidance”). Although the CRE Guidance did
not establish specific lending limits, it provides that a bank’s commercial real estate lending exposure may receive increased
supervisory scrutiny where total non-owner occupied commercial real estate loans, including loans secured by apartment
buildings, investor commercial real estate and construction and land loans, represent 300% or more of an institution’s total risk-
based capital and the outstanding balance of the commercial real estate loan portfolio has increased by 50% or more during the
preceding 36 months. Our non-owner occupied commercial real estate level equaled 390% of total risk-based capital at December
31, 2020. Including owner-occupied commercial real estate, the ratio of commercial real estate loans to total risk-based capital
ratio would be 495% at December 31, 2020.
If our regulators were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, or
require higher capital ratios as a result of the level of commercial real estate loans held, our earnings would be adversely affected.
We are subject to litigation, regulatory enforcement and reputation risk due to our participation in the SBA PPP, and we
are subject to the risk that the SBA may not fund some or all PPP loan guarantees.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES” Act) included the PPP as a loan program administered
through the SBA. Under the PPP, small businesses and other entities and individuals can apply for loans from existing SBA
lenders and other lenders, subject to detailed qualifications and eligibility criteria.
Because of the short timeframe between the passing of the CARES Act and implementation of the PPP, some of the rules and
guidance relating to PPP were issued after lenders began processing PPP applications. Also, there was and continues
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to be uncertainty in the laws, rules and guidance relating to the PPP. Since the opening of the PPP, several banks have been
subject to litigation regarding the procedures used in processing PPP applications and the payment of fees to agents that assisted
borrowers in obtaining PPP loans. In addition, some banks and borrowers have received negative media attention associated with
PPP loans. Although we believe that we have administered the PPP in accordance with all applicable laws, regulations and
guidance, we may be exposed to litigation risk and negative media attention related to our participation in the PPP. If any such
litigation is not resolved in in our favor, it may result in significant financial liability to us or adversely affect our reputation. In
addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs or reputational damage caused by
PPP-related litigation or media attention could have a material adverse impact on our business, financial condition, and results of
operations.
Federal and state regulators can impose or request that we consent to substantial sanctions, restrictions and requirements if they
determine there are violations of laws, rules or regulations or weaknesses or failures with respect to general standards of safety
and soundness, including with respect to the PPP, which could adversely affect our business, reputation, results of operation and
financial condition, and thereby adversely affect your investment.
We also have credit risk on PPP loans if the SBA determines that there is a deficiency in the manner in which we originated,
funded or serviced loans, including any issue with the eligibility of a borrower to receive a PPP loan. In the event of a loss
resulting from a default on a PPP loan and a determination by the SBA that there was a deficiency in the manner in which we
originated, funded or serviced a PPP loan, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty
or, if the SBA has already paid under the guaranty, seek recovery of any loss related to the deficiency from us.
The performance of our multi-family real estate loans could be adversely impacted by regulation.
Multi-family real estate loans generally involve a greater risk than residential real estate loans because of legislation and
government regulations involving rent control and rent stabilization, which are outside the control of the borrower or the Bank,
and could impair the value of the security for the loan or the future cash flow of such properties. For example, on June 14, 2019,
the State of New York enacted legislation increasing the restrictions on rent increases in a rent-regulated apartment building,
including, among other provisions, (i) repealing the vacancy bonus and longevity bonus, which allowed a property owner to raise
rents as much as 20% each time a rental unit became vacant, (ii) eliminating high rent vacancy deregulation and high-income
deregulation, which allowed a rental unit to be removed from rent stabilization once it crossed a statutory high-rent threshold and
became vacant, or the tenant’s income exceeded the statutory amount in the preceding two years, and (iii) eliminating an
exception that allowed a property owner who offered preferential rents to tenants to raise the rent to the full legal rent upon
renewal. The new legislation still permits a property owner to charge up to the full legal rent once the tenant vacates. As a result
of this new legislation as well as previously existing laws and regulations, it is possible that rental income might not rise
sufficiently over time to satisfy increases in the loan rate at repricing or increases in overhead expenses (e.g., utilities, taxes, etc.).
In addition, if the cash flow from a collateral property is reduced (e.g., if leases are not obtained or renewed), the borrower’s
ability to repay the loan and the value of the security for the loan may be impaired. Therefore, impaired multi-family real estate
loans may be more difficult to identify before they become problematic than residential real estate loans.
Increases to the allowance for credit losses may cause our earnings to decrease.
The Financial Accounting Standards Board (“FASB”) has issued an accounting standard that we adopted in the first quarter of
2020. This standard, referred to as Current Expected Credit Loss, requires that we determine periodic estimates of lifetime
expected credit losses on loans, and recognize the expected credit losses as allowances for credit losses. This changed the
previous method of providing allowances for loan losses that are probable, which required us to increase our allowance for credit
losses, and greatly increases the types of data we need to collect and review to determine the appropriate level of the allowance
for credit losses.
Customers may not repay their loans according to the original terms, and the collateral securing the payment of those loans may
be insufficient to pay any remaining loan balance. Hence, we may experience significant credit losses, which could have a
material adverse effect on its operating results. We make various assumptions and judgments about the collectability of its loan
portfolio, including the creditworthiness of borrowers and the value of the real estate and other assets serving
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as collateral for the repayment of loans. In determining the amount of the allowance for credit losses, we rely on loan quality
reviews, past loss experience, and an evaluation of economic conditions, among other factors. If our assumptions prove to be
incorrect, the allowance for credit losses may not be sufficient to cover expected losses in the loan portfolio, resulting in additions
to the allowance. Material additions to the allowance through charges to earnings would materially decrease our net income.
Bank regulators periodically review our allowance for credit losses and may require us to increase our provision for credit losses
or loan charge-offs. Any increase in our allowance for credit losses or loan charge-offs as required by these regulatory authorities
could have a material adverse effect on our results of operations and/or financial condition.
We are subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose
nondiscriminatory lending requirements on financial institutions. With respect to the Bank, the NYSDFS, FRB, CFPB, the United
States Department of Justice and other federal and state agencies are responsible for enforcing these laws and regulations. A
successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in
a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of
restrictions on mergers and acquisitions activity and restrictions on expansion. Private parties may also have the ability to
challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a
material adverse effect on our business, financial condition and results of operations.
The Company is subject to environmental liability risk associated with lending activities.
A significant portion of the Company’s loan portfolio is secured by real property. During the ordinary course of business, the
Company may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that hazardous or toxic
substances could be found on these properties. If hazardous or toxic substances are found, the Company may be liable for
remediation costs, as well as for personal injury and property damage. Environmental laws may require the Company to incur
substantial expenses and may materially reduce the affected property’s value or limit the Company’s ability to use or sell the
affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws
may increase the Company’s exposure to environmental liability. Environmental reviews of real property before initiating
foreclosure may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial
liabilities associated with an environmental hazard could have a material adverse effect on the Company’s business, financial
condition and results of operations.
Risks Related to Interest Rates
Changes in interest rates could affect our profitability.
Our ability to earn a profit, like most financial institutions, depends primarily on net interest income, which is the difference
between the interest income that we earn on our interest-earning assets, such as loans and investments, and the interest expense
that we pay on our interest-bearing liabilities, such as deposits and borrowings. Our profitability depends on our ability to manage
our assets and liabilities during periods of changing market interest rates.
In a period of rising interest rates, the interest income earned on our assets may not increase as rapidly as the interest paid on our
liabilities. In an increasing interest rate environment, our cost of funds is expected to increase more rapidly than interest earned
on our loan and investment portfolio as our primary source of funds is deposits with generally shorter maturities than those on our
loans and investments. This makes the balance sheet more liability sensitive in the short term.
A sustained decrease in market interest rates could adversely affect our earnings. When interest rates decline, borrowers tend to
refinance higher-rate, fixed-rate loans at lower rates. Under those circumstances, we would not be able to reinvest those
prepayments in assets earning interest rates as high as the rates on those prepaid loans or in investment securities. In addition, the
majority of our loans are at variable interest rates, which would adjust to lower rates.
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Changes in interest rates also affect the fair value of the securities portfolio. Generally, the value of securities moves inversely
with changes in interest rates. As of December 31, 2020, the securities portfolio totaled $559.4 million.
We are required to transition from the use of LIBOR.
In 2017, the Chief Executive of the United Kingdom Financial Conduct Authority, which regulates the London Interbank Offered
Rate (“LIBOR”), announced that it intends to stop persuading or compelling banks to submit rates for the calibration of LIBOR
to the administrator of LIBOR after 2021. LIBOR will be discontinued on December 31, 2021. At this time, no consensus exists
as to what rate or rates may become acceptable alternatives to LIBOR and it is impossible to predict the effect of any such
alternatives on the value of LIBOR-based securities and variable rate loans, subordinated debentures, or other securities or
financial arrangements, given LIBOR's role in determining market interest rates globally. Regulators, industry groups and certain
committees (e.g. the Alternative Reference Rates Committee) have published recommended fallback language for LIBOR-linked
financial instruments, identified recommended alternatives for the LIBOR (e.g. the Secured Overnight Financing Rate), and
proposed implementations of the recommended alternatives in floating-rate financial instruments. At this time, it is not possible
to predict whether these specific recommendations and proposals will be broadly accepted. Uncertainty as to the nature of
alternative reference rates and as to potential changes or other reforms to LIBOR may adversely affect LIBOR rates and the value
of LIBOR-based loans and securities in our portfolio and may impact the availability and cost of hedging instruments and
borrowings. We have material contracts that are indexed to LIBOR and are monitoring this activity and evaluating the related
risks. If LIBOR rates are no longer available and we are required to implement substitute indices for the calculation of interest
rates, we may incur expenses in effecting the transition, and may be subject to disputes or litigation with customers and security
holders over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on our
results of operations. Additionally, since alternative rates are calculated differently, payments under contracts referencing new
rates will differ from those referencing LIBOR. The transition may change our market risk profile, requiring changes to risk and
pricing models.
Risks Related to Regulation
We operate in a highly regulated environment, Federal and state regulators periodically examine our business, and we
may be required to remediate adverse examination findings.
The FRB and the NYSDFS periodically examine our business, including our compliance with laws and regulations. If, as a result
of an examination, a federal banking agency were to determine that our financial condition, capital resources, asset quality,
earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in
violation of any law or regulation, we may take a number of different remedial actions as we deem appropriate. These actions
include the power to enjoin “unsafe or unsound” practices, to require affirmative action to correct any conditions resulting from
any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in our capital, to
restrict our growth, to assess civil monetary penalties against our officers or directors, to remove officers and directors and, if it is
concluded that such conditions cannot be corrected or there is an imminent risk of loss to depositors, to terminate our deposit
insurance and place it into receivership or conservatorship. If we become subject to any regulatory actions, it could have a
material adverse effect on our business, results of operations, financial condition and growth prospects.
Additionally, the CFPB has the authority to issue consumer finance regulations and is authorized, individually or jointly with
bank regulatory agencies, to conduct investigations to determine whether any person is, or has, engaged in conduct that violates
new and existing consumer financial laws or regulations. Previously, we had less than $10 billion in total consolidated assets so
the FRB and NYSDFS, not the CFPB, was responsible for examining and supervising our compliance with these consumer
protection laws and regulations. However, following the Merger with Legacy Dime, the merged Bank’s assets exceed $10
billion. Banks with assets in excess of $10 billion are subject to requirements imposed by the Dodd-Frank and its implementing
regulations, including the examination authority of the CFPB to assess our compliance with federal consumer financial laws,
imposition of higher FDIC premiums, reduced debit card interchange fees, and enhanced risk management frameworks, all of
which increase operating costs and reduce earnings. In addition, in accordance with a memorandum of understanding entered into
between the CFPB and U.S. Department of Justice, the
Page -15-
two agencies have agreed to coordinate efforts related to enforcing the fair lending laws, which includes information sharing and
conducting joint investigations, and have done so on a number of occasions.
We face a risk of noncompliance and enforcement action with the federal Bank Secrecy Act (the “BSA”) and other anti-
money laundering and counter terrorist financing statutes and regulations.
The BSA, the USA PATRIOT Act and other laws and regulations require financial institutions, among others, to institute and
maintain an effective anti-money laundering compliance program and to file reports such as suspicious activity reports and
currency transaction reports. Our products and services, including our debit card issuing business, are subject to an increasingly
strict set of legal and regulatory requirements intended to protect consumers and to help detect and prevent money laundering,
terrorist financing and other illicit activities. We are required to comply with these and other anti-money laundering
requirements. The federal banking agencies and the U.S. Treasury Department’s Financial Crimes Enforcement Network are
authorized to impose significant civil money penalties for violations of those requirements and have recently engaged in
coordinated enforcement efforts against banks and other financial services providers with the U.S. Department of Justice, Drug
Enforcement Administration and Internal Revenue Service. We are also subject to increased scrutiny of compliance with the
regulations administered and enforced by the U.S. Treasury Department’s Office of Foreign Assets Control. If we violate these
laws and regulations, or our policies, procedures and systems are deemed deficient, we would be subject to liability, including
fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory
approvals to proceed with certain aspects of our business plan, including our acquisition plans.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have
serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial
condition, results of operations and growth prospects.
The short-term and long-term impact of the changing regulatory capital requirements and anticipated new capital
rules are uncertain.
In July 2013, federal bank regulatory agencies issued a final rule that revised their leverage and risk-based capital requirements
and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel
Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule established a
new common equity tier 1 minimum capital requirement of 4.5% of risk-weighted assets, set the leverage ratio at a uniform 4.0%
of total assets, increased the minimum tier 1 capital to risk-based assets requirement from 4.0% to 6.0% of risk-weighted assets
and assigned a higher risk weight of 150% to exposures that are more than 90 days past due or are on non-accrual status and to
certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rule also
requires unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating
regulatory capital requirements unless a one-time opt-out is exercised. The rule limits a banking organization’s capital
distributions and certain discretionary bonus payments to executive officers if the banking organization does not hold a “capital
conservation buffer” consisting of 2.5% of common equity tier 1 capital to risk-weighted assets in addition to the amount
necessary to meet its minimum risk-based capital requirements. The final rule became effective January 1, 2015. The “capital
conservation buffer’ was phased in from January 1, 2016 to January 1, 2019.
The application of more stringent capital requirements could, among other things, result in lower returns on equity, require the
raising of additional capital, and result in regulatory actions if we were unable to comply with such requirements. Furthermore,
the imposition of liquidity requirements in connection with the implementation of Basel III could result in our having to lengthen
the terms of our funding, restructure business models, and/or increase holdings of liquid assets. Implementation of changes to
asset risk weightings for risk-based capital calculations, items included or deducted in calculating regulatory capital or additional
capital conservation buffers, could result in management modifying our business strategy and could limit our ability to make
distributions, including paying dividends or buying back shares.
Page -16-
Risks Related to our Debt Securities
The subordinated debentures that we issued have rights that are senior to those of our common shareholders.
In 2015, we issued $40.0 million of 5.25% fixed-to-floating rate subordinated debentures due 2025 and $40.0 million of 5.75%
fixed-to-floating rate subordinated debentures due 2030. Because these subordinated debentures rank senior to our common
stock, if we fail to timely make principal and interest payments on the subordinated debentures, we may not pay any dividends on
our common stock. Further, if we declare bankruptcy, dissolve or liquidate, we must satisfy all of our subordinated debenture
obligations before we may pay any distributions on our common stock.
Operational Risk Factors
Strong competition within our market area may limit our growth and profitability.
Our primary market area is located in Nassau and Suffolk Counties on Long Island and the New York City boroughs.
Competition in the banking and financial services industry remains intense. Our profitability depends on the continued ability to
successfully compete. We compete with commercial banks, savings banks, credit unions, insurance companies, and brokerage
and investment banking firms. Many of our competitors have substantially greater resources and lending limits than us and may
offer certain services that we do not provide. In addition, competitors may offer deposits at higher rates and loans with lower
fixed rates, more attractive terms and less stringent credit structures than we have been willing to offer.
Our future success depends on the success and growth of Dime Community Bank.
Our primary business activity for the foreseeable future will be to act as the holding company of the Bank. Therefore, our future
profitability will depend on the success and growth of this subsidiary. The continued and successful implementation of our
growth strategy will require, among other things that we increase our market share by attracting new customers that currently
bank at other financial institutions in our market area. In addition, our ability to successfully grow will depend on several factors,
including favorable market conditions, the competitive responses from other financial institutions in our market area, and our
ability to maintain high asset quality. While we believe we have the management resources, market opportunities and internal
systems in place to obtain and successfully manage future growth, growth opportunities may not be available, and we may not be
successful in continuing our growth strategy. In addition, continued growth requires that we incur additional expenses, including
salaries, data processing and occupancy expense related to new branches and related support staff. Many of these increased
expenses are considered fixed expenses. Unless we can successfully continue our growth, our results of operations could be
negatively affected by these increased costs.
The loss of key personnel could impair our future success.
Our future success depends in part on the continued service of our executive officers, other key management, and staff, as well as
its ability to continue to attract, motivate, and retain additional highly qualified employees. The loss of services of one or more of
our key personnel or our inability to timely recruit replacements for such personnel, or to otherwise attract, motivate, or retain
qualified personnel could have an adverse effect on our business, operating results and financial condition.
Our business may be adversely affected by fraud and other financial crimes.
Our loans to businesses and individuals and our deposit relationships and related transactions are subject to exposure to the risk
of loss due to fraud and other financial crimes. While we have policies and procedures designed to prevent such losses, losses
may still occur.
We have recently experienced losses due to fraud. In 2018, we incurred a pre-tax charge, net of recovery, of $8.9 million relating
to the fraudulent conduct of a business customer through its deposit accounts. In September 2020, we resolved our claim for the
loss with our insurance carrier to the full extent of the available coverage.
Page -17-
Risks associated with system failures, interruptions, or breaches of security could negatively affect our operations and
earnings.
Information technology systems are critical to our business. We collect, process and store sensitive customer data by utilizing
computer systems and telecommunications networks operated by us and third-party service providers. We have established
policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches, but such events
may still occur or may not be adequately addressed if they do occur. In addition, any compromise of our systems could deter
customers from using our products and services. Although we take numerous protective measures and otherwise endeavor to
protect and maintain the privacy and security of confidential data, these systems may be vulnerable to unauthorized access,
computer viruses, other malicious code, cyberattacks, including distributed denial of service attacks, cyber-theft and other events
that could have a security impact. If one or more of such events were to occur, this potentially could jeopardize confidential and
other information processed and stored in, and transmitted through, our systems or otherwise cause interruptions or malfunctions
in our or our customers' operations.
In addition, we maintain interfaces with certain third-party service providers. If these third-party service providers encounter
difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for transactions
could be affected, and our business operations could be adversely affected. Threats to information security also exist in the
processing of customer information through various other vendors and their personnel.
The occurrence of any system failures, interruption, or breach of security could damage our reputation and result in a loss of
customers and business, thereby subjecting us to additional regulatory scrutiny, or could expose us to litigation and possible
financial liability. We may be required to expend significant additional resources to modify our protective measures or to
investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are not
fully covered by our insurance. Any of these events could have a material adverse effect on our financial condition and results of
operations.
We are exposed to cyber-security risks, including denial of service, hacking, and identity theft.
There have been well-publicized distributed denials of service attacks on large financial services companies. Distributed denial of
service attacks are designed to saturate the targeted online network with excessive amounts of network traffic, resulting in slow
response times, or in some cases, causing the site to be temporarily unavailable. Hacking and identity theft risks, in particular,
could cause serious reputational harm. Cyber threats are rapidly evolving, and we may not be able to anticipate or prevent all
such attacks. We may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach
or loss.
Severe weather, acts of terrorism and other external events could impact our ability to conduct business.
Weather-related events have adversely impacted our market area in recent years, especially areas located near coastal waters and
flood prone areas. Such events that may cause significant flooding and other storm-related damage may become more common
events in the future. Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising
operating and communication systems and the metropolitan New York area remains a central target for potential acts of
terrorism. Such events could cause significant damage, impact the stability of our facilities and result in additional expenses,
impair the ability of borrowers to repay their loans, reduce the value of collateral securing repayment of loans, and result in the
loss of revenue. While we have established and regularly test disaster recovery procedures, the occurrence of any such event
could have a material adverse effect on our business, operations and financial condition.
Additionally, global markets may be adversely affected by natural disasters, the emergence of widespread health emergencies or
pandemics, cyberattacks or campaigns, military conflict, terrorism or other geopolitical events. Global market fluctuations may
affect our business liquidity. Also, any sudden or prolonged market downturn in the U.S. or abroad, as a result of the above
factors or otherwise could result in a decline in revenue and adversely affect our results of operations and financial condition,
including capital and liquidity levels.
Page -18-
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
At December 31, 2020, we owned eight properties located in Suffolk County, New York consisting of our corporate headquarters
and branch office located at 2200 Montauk Highway in Bridgehampton; six branches located in Montauk, Southold,
Westhampton Beach, Southampton Village, East Hampton Village and Mattituck; and one drive-up facility located in Sag
Harbor. In 2018, we purchased the Mattituck branch property, which we had previously leased. We lease a portion of the
Montauk and Westhampton Beach properties to commercial lessees.
At December 31, 2020, we maintained executive offices and back office operations at leased facilities located in Suffolk County,
New York at 898 and 888 Veterans Highway in Hauppauge. We lease 30 additional properties as branch locations in New York:
20 in Suffolk County; six in Nassau County; two in Queens; and two in Manhattan. We sublease a portion of the leased properties
located in Patchogue and Melville in Suffolk County to commercial sublessees.
Following the Merger, our corporate headquarters is located at 898 Veterans Highway in Hauppauge, New York. The Bank’s
main office continues to be located at 2200 Montauk Highway in Bridgehampton, New York. In connection with the Merger, we
expanded our footprint with the addition of 31 properties consisting of Legacy Dime’s 28 full-service retail banking offices
located throughout Brooklyn, Queens, the Bronx, and Nassau and Suffolk Counties in New York, and Legacy Dime’s three
operations offices located in Manhattan and Brooklyn, New York and New Jersey. As of February 1, 2021, following the
Merger, of the 31 Legacy Dime properties, 23 were leased and eight were owned.
For additional information on our premises and equipment, see Note 5. “Premises and Equipment, net” in the Notes to the
Consolidated Financial Statements.
Item 3. Legal Proceedings
The Registrant and its subsidiary are subject to certain pending and threatened legal actions that arise out of the normal course of
business. In the opinion of management, the resolution of any such pending or threatened litigation is not expected to have a
material adverse effect on our consolidated financial statements.
Item 4. Mine Safety Disclosures
Not applicable.
Page -19-
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock trades on the NASDAQ® Stock Market under the symbol “DCOM”. Prior to the Merger, our common shares
were traded under the symbol “BDGE”. At February 28, 2021, we had approximately 1,066 shareholders of record, not including
the number of persons or entities holding stock in nominee or the street name through various banks and brokers.
DCOM Performance Graph
Pursuant to the regulations of the SEC, the graph below compares our performance with that of the total return for the
NASDAQ® stock market and for certain bank stocks of financial institutions with an asset size of $5 billion to $10 billion, as
reported by SNL Financial LC (“SNL”) from December 31, 2015 through December 31, 2020. The graph assumes the
reinvestment of dividends in additional shares of the same class of equity securities as those listed below.
Period Ending
Index
Dime Community Bancshares, Inc.
NASDAQ Composite
SNL Bank $5B-$10B
Page -20-
12/31/15 12/31/16 12/31/17 12/31/18 12/31/19 12/31/20
92.39
271.64
145.37
91.29
137.12
129.17
128.58
108.87
143.27
123.90
187.44
160.06
121.98
141.13
142.73
100.00
100.00
100.00
Issuer Purchases of Equity Securities
The following table presents information in connection with repurchases of our shares of common stock during the three months
ended December 31, 2020:
October 1, 2020 through October 31, 2020
November 1, 2020 through November 30, 2020
December 1, 2020 through December 31, 2020
Total
Total Number of
Shares
Average Price
Total Number of
Shares Purchased Maximum Number
of Shares That May
Yet Be Purchased
Announced Plans Under the Plans or
as Part of
Publicly
Purchased (1) Paid per Share
or Programs
Programs (2)
$
39
63
62,468
62,570
19.54
21.52
24.16
24.15
—
—
—
—
797,780
797,780
797,780
(1) Represents shares withheld by the Company to pay the taxes associated with the vesting of restricted stock awards.
(2) The Board of Directors approved a stock repurchase plan in March 2006 that authorized the repurchase of 309,000 shares. In
February 2019, the Company announced the adoption of a new stock repurchase plan for up to 1,000,000 shares, replacing
the previous plan. There is no expiration date for the stock repurchase plan. No shares were purchased under the repurchase
program during the three months ended December 31, 2020.
Page -21-
Item 6. Selected Financial Data
Five-Year Summary of Operations
(In thousands, except per share data and financial ratios)
Set forth below are our selected consolidated financial and other data. Our business is primarily the business of our Bank. This
financial data is derived in part from, and should be read in conjunction with, our consolidated financial statements.
Selected Financial Data:
Securities available for sale, at fair value
Securities, restricted
Securities held to maturity
Loans held for sale
Loans held for investment
Total assets
Total deposits
Total stockholders’ equity
$
2020
450,360
23,362
85,700
52,785
4,597,403
6,434,296
5,489,253
517,831
$
2019
638,291
32,879
133,638
12,643
3,680,285
4,921,520
3,814,647
497,154
$
December 31,
2018
680,886
24,028
160,163
—
3,275,811
4,700,744
3,886,393
453,830
$
2017
759,916
35,349
180,866
—
3,102,752
4,430,002
3,334,543
429,200
$
2016
819,722
34,743
223,237
—
2,600,440
4,054,570
2,926,009
407,987
Selected Operating Data:
Total interest income
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Total non-interest income
Total non-interest expense
Income before income taxes
Income tax expense
Net income (1)(2)(3)(4)
Selected Financial Ratios and Other Data:
Return on average equity (1)(2)(3)(4)
Return on average assets (1)(2)(3)(4)
Average equity to average assets
Dividend payout ratio (1)(2)(3)(4)
Basic earnings per share (1)(2)(3)(4)
Diluted earnings per share (1)(2)(3)(4)
Cash dividends declared per common share
$
$
$
2020
184,232
23,451
160,781
11,500
149,281
19,703
113,257
55,727
13,685
42,042
8.26 %
0.72
8.67
45.66
2.11
2.11
0.96
$
$
$
$
$
Year Ended December 31,
2018
168,984
32,204
136,780
1,800
134,980
11,568
98,180
48,368
9,141
39,227
2019
181,541
39,338
142,203
5,700
136,503
25,387
96,139
65,751
14,060
51,691
$
$
2017
149,849
22,689
127,160
14,050
113,110
18,102
91,727
39,485
18,946
20,539
10.84 %
1.10
10.11
35.63
2.59
2.59
0.92
$
8.66 %
0.87
10.08
46.76
1.97
1.97
0.92
$
4.64 %
0.49
10.53
88.80
1.04
1.04
0.92
$
$
$
2016
137,716
16,845
120,871
5,550
115,321
16,046
77,081
54,286
18,795
35,491
9.82 %
0.92
9.38
45.48
2.01
2.00
0.92
(1) 2020 amount includes $4.5 million of merger expenses and $4.2 million of stock acceleration expenses related to the Merger.
(2) 2018 amount includes $6.2 million of net securities losses, net of taxes, associated with the balance sheet restructure, $6.9
million of net fraud loss, net of taxes, related to fraudulent conduct of a business customer through its deposit accounts at
BNB, and $0.6 million of office relocation costs, net of taxes.
(3) 2017 amount includes $5.2 million, net of taxes, associated with restructuring costs and a charge of $7.6 million associated
with the write-down of deferred tax assets due to the enactment of the Tax Cuts and Jobs Act.
(4) 2016 amount includes reversal of $0.6 million of acquisition costs, net of taxes, associated with the CNB and FNBNY
acquisitions.
Page -22-
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In this Annual Report on Form 10-K, unless otherwise mentioned, the terms the “Company”, “we”, “us” and “our” refer to
Dime Community Bancshares, Inc. and our wholly-owned subsidiary, Dime Community Bank (the “Bank”). We use the term
“Holding Company” to refer solely to Dime Community Bancshares, Inc. and not to our consolidated subsidiary.
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; competition;
our ability to successfully integrate acquired entities; changes in the quality and composition of our loan and investment
portfolios; changes in management’s business strategies; changes in accounting principles, policies or guidelines; changes in real
estate values; expanded regulatory requirements, which could adversely affect operating results; and other factors discussed
elsewhere in this report including factors set forth under Item 1A., Risk Factors, and in quarterly and other reports filed by us
with the Securities and Exchange Commission. The forward-looking statements are made as of the date of this report, and we
assume no obligation to update the forward-looking statements or to update the reasons why actual results could differ from those
projected in the forward-looking statements.
Overview
Who We Are and How We Generate Income
Dime Community Bancshares, Inc., a New York corporation previously known as “Bridge Bancorp, Inc.,” is a bank holding
company formed in 1989. On a parent-only basis, the Holding Company has had minimal results of operations. The Holding
Company is dependent on dividends from its wholly-owned subsidiary, Dime Community Bank, which was previously known as
“BNB Bank,” its own earnings, additional capital raised, and borrowings as sources of funds. The information in this report
reflects principally the financial condition and results of operations of the Bank. The Bank's results of operations are primarily
dependent on its net interest income, which is the difference between interest income on loans and investments and interest
expense on deposits and borrowings. The Bank also generates non-interest income, such as fee income on deposit accounts and
merchant credit and debit card processing programs, loan swap fees, investment services, income from its title insurance
subsidiary, and net gains on sales of securities and loans. The level of non-interest expenses, such as salaries and benefits,
occupancy and equipment costs, other general and administrative expenses,
Page -23-
expenses from the Bank’s title insurance subsidiary, and income tax expense, further affects our net income. We believe the
Merger created the opportunity for the resulting company to leverage complementary and diversified revenue streams and to
potentially have superior future earnings and prospects compared to our current earnings and prospects on a stand-alone basis.
Certain reclassifications have been made to prior year amounts and the related discussion and analysis to conform to the
current year presentation. These reclassifications did not have an impact on net income or total stockholders' equity.
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:
o
o
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.
Page -24-
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
Over $2,000
Total
Number of
Loans
Outstanding
Balance
2,618
539
463
66
3,686
$
$
124,461
122,600
359,307
238,284
844,652
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. These 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.
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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. 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
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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. 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
Page -27-
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. These factors include: (1) lending policies and procedures; (2) international,
national, regional and local economic business conditions and developments that affect the collectability of the portfolio,
including the condition of various markets; (3) the nature and volume of the loan portfolio including the terms of the loans; (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; (6) the quality of our loan review system; (7) the value
of underlying collateral for collateralized loans; (8) the existence and effect of any concentrations of credit, and changes in the
level of such concentrations; and (9) the effect of external factors such as competition and legal and regulatory requirements on
the level of estimated credit losses in the existing portfolio. 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. Future additions or reductions to the allowance may be necessary based
on changes in economic, market or other conditions. Changes in estimates could result in a material change in the allowance. In
addition, various regulatory agencies, as an integral part of the examination process, periodically review the allowance for 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
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
Page -28-
income; (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”.
Page -29-
(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
Total interest-earning assets (2)
Non-interest-earning assets:
Cash and due from banks
Other assets
Total assets
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-bearing liabilities
Non-interest-bearing liabilities:
Demand deposits
Other liabilities
Total liabilities
Stockholders' equity
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 margin (4)
Ratio of interest-earning assets to interest-
bearing liabilities
2020
Year Ended December 31,
2019
2018
Average
Balance
Interest
Average
Yield/
Cost
Average
Balance
Average
Yield/
Cost
Average
Balance
Interest
Average
Yield/
Cost
Interest
$ 4,341,647
$ 169,611
3.91 % $ 3,410,773
$ 158,492
4.65 % $ 3,167,933
$ 144,568
4.56 %
9,329
4,158
841
673
184,612
1.98
2.79
3.66
0.17
3.43
470,306
149,156
22,999
404,272
5,388,380
91,736
391,911
$ 5,872,027
651,262
138,625
33,393
75,600
4,309,653
81,850
326,963
$ 4,718,466
16,182
4,477
1,215
1,697
182,063
2.48
3.23
3.64
2.24
4.22
679,805
168,326
62,595
52,143
4,130,802
16,591
5,413
1,932
1,076
169,580
2.44
3.22
3.09
2.06
4.11
76,730
285,546
$ 4,493,078
$ 2,527,785
$ 10,435
0.41 % $ 2,109,891
$ 23,687
1.12 % $ 1,922,515
$
15,928
0.83 %
217,624
86,113
8,595
284,718
78,985
3,203,820
2,020,575
138,665
5,363,060
508,967
$ 5,872,027
3,346
1,198
79
3,992
4,401
23,451
1.54
1.39
0.92
1.40
5.57
0.73
208,875
78,800
41,077
245,283
78,845
2,762,771
1,392,606
86,130
4,241,507
476,959
$ 4,718,466
4,270
1,502
767
4,573
4,539
39,338
2.04
1.91
1.87
1.86
5.76
1.42
184,438
107,153
69,604
324,653
78,706
2,687,069
1,310,857
42,392
4,040,318
452,760
$ 4,493,078
3,007
1,801
1,200
5,729
4,539
32,204
1.63
1.68
1.72
1.76
5.77
1.20
161,161
2.70 %
142,725
2.80 %
137,376
2.91 %
$ 2,184,560
$ 1,546,882
$ 1,443,733
(380)
$ 160,781
2.99 %
(0.01)
2.98 %
(522)
$ 142,203
3.31 %
(0.01)
3.30 %
(596)
$ 136,780
3.33 %
(0.02)
3.31 %
168.19 %
155.99 %
153.73 %
(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%.
(3) Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average
interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by average interest-earning assets.
Page -30-
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.
(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)
Year Ended December 31,
2020 Over 2019
Changes Due To
2019 Over 2018
Changes Due To
Volume
Rate
Net
Change
Volume
Rate
Net
Change
$ 38,905
$ (27,786)
$ 11,119
$ 11,245
$ 2,679
$ 13,924
(3,970)
323
(380)
1,746
36,624
(2,883)
(642)
6
(2,770)
(34,075)
(6,853)
(319)
(374)
(1,024)
2,549
(706)
(958)
(1,018)
520
9,083
297
22
301
101
3,400
(409)
(936)
(717)
621
12,483
3,984
172
130
(419)
664
8
4,539
$ 32,085
(17,236)
(1,096)
(434)
(269)
(1,245)
(146)
(20,426)
$ (13,649)
(13,252)
(924)
(304)
(688)
(581)
(138)
(15,887)
$ 18,436
1,671
433
(519)
(526)
(1,465)
8
(398)
$ 9,481
6,088
830
220
93
309
(8)
7,532
$ (4,132)
7,759
1,263
(299)
(433)
(1,156)
—
7,134
$ 5,349
(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
Page -31-
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
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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
Page -33-
dependent. 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:
(In thousands)
Beginning balance
Impact of adopting CECL
Charge-offs:
Commercial real estate mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Installment/consumer loans
Total
Recoveries:
Commercial real estate mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Installment/consumer loans
Total
Net charge-offs
Provision for credit losses charged to operations
Ending balance
Ratio of net charge-offs during period to average loans outstanding
Page -34-
2020
Year Ended December 31,
2018
2017
2019
2016
$ 32,786 $ 31,418 $ 31,707 $ 25,904 $ 20,744
—
1,625
—
—
—
(1)
—
(2,004)
(7)
(2,012)
(3,670)
—
(799)
(13)
(4,482)
—
(24)
(2,806)
(11)
(2,841)
—
—
(8,245)
(49)
(8,294)
—
(56)
(930)
(1)
(987)
109
—
96
3
386
298
6
—
597
301
(390)
(1,711)
5,550
11,500
$ 44,200 $ 32,786 $ 31,418 $ 31,707 $ 25,904
—
28
16
3
47
(8,247)
14,050
1
112
25
12
150
(4,332)
5,700
—
3
747
2
752
(2,089)
1,800
(0.04)%
(0.13)%
(0.07)%
(0.30)%
(0.02)%
Allocation of Allowance for Credit Losses
The following table presents the allocation of the total allowance for credit losses by loan classification:
2020
2019
2018
2017
2016
Percentage
Percentage
Percentage
Percentage
Percentage
December 31,
of Loans
to Total
Loans
of Loans
to Total
Loans
Amount
of Loans
to Total
Loans
Amount
of Loans
to Total
Loans
Amount
of Loans
to Total
Loans
Amount
35.6 % $ 12,150
4,829
19.5
42.7 % $ 10,792
2,566
22.1
42.0 % $ 11,048
4,521
17.9
41.7 % $ 9,225
6,264
19.2
42.0 %
20.0
Amount
$ 8,534
1,736
3,062
9.4
1,882
13.4
3,935
15.9
2,438
15.0
1,495
27,363
33.2
12,583
18.5
12,722
19.8
12,838
19.9
7,837
14.1
20.2
2,175
1,330
$ 44,200
1.8
0.5
1,066
276
100.0 % $ 32,786
2.6
0.7
1,297
106
100.0 % $ 31,418
3.8
0.6
740
122
100.0 % $ 31,707
3.5
0.7
955
128
100.0 % $ 25,904
3.1
0.6
100.0 %
(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
Total
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 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.
Page -35-
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.
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.
Page -36-
Loans
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.
Page -37-
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:
(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
Total loans
Net deferred loan costs and fees
Total loans held for investment
Allowance for credit losses
Net loans
Selected Loan Maturity Information
2020
$ 1,638,519
899,730
434,689
1,527,147
82,479
23,019
4,605,583
(8,180)
4,597,403
(44,200)
$ 4,553,203
2019
$ 1,565,687
812,174
493,144
679,444
97,311
24,836
3,672,596
7,689
3,680,285
(32,786)
$ 3,647,499
December 31,
2018
$ 1,373,556
585,827
519,763
645,724
123,393
20,509
3,268,772
7,039
3,275,811
(31,418)
$ 3,244,393
2017
$ 1,293,906
595,280
464,264
616,003
107,759
21,041
3,098,253
4,499
3,102,752
(31,707)
$ 3,071,045
2016
$ 1,091,752
518,146
364,884
524,450
80,605
16,368
2,596,205
4,235
2,600,440
(25,904)
$ 2,574,536
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)
Total
Rate provisions:
Amounts with fixed interest rates
Amounts with variable interest rates
Total
Within One
Year
$ 303,631
23,643
$ 327,274
After One
But Within
Five Years
$ 1,081,141
41,648
$ 1,122,789
After
Five Years
$ 142,375
17,188
$ 159,563
Total
$ 1,527,147
82,479
$ 1,609,626
$
19,532
307,742
$ 327,274
$ 989,921
132,868
$ 1,122,789
$ 46,450
113,113
$ 159,563
$ 1,055,903
553,723
$ 1,609,626
(1)
(2)
Included in the “After One But Within Five Years” column are fixed rate PPP loans totaling $844.7 million.
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.
Page -38-
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:
(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
Total
2020
$
— $
11,816
346
22,187
—
2019
343
3,964
405
26,340
$ 34,349
$ 31,052
December 31,
2018
$
308
2,675
133
16,913
175
$ 20,204
2017
$ 1,834
6,950
5
16,727
$ 25,516
2016
$ 1,027
909
332
2,417
—
$ 4,685
—
—
(In thousands)
Gross interest income that has not been paid or recorded during the year under original
terms:
2020
Year Ended December 31,
2018
2017
2019
2016
Non-accrual loans
Restructured loans
Gross interest income recorded during the year:
Non-accrual loans
Restructured loans
$
$
167
$
—
47
$
—
36
$
—
110
$
—
17
1
93
948
$
48
1,212
$
$
39
716
$
282
619
1
123
Commitments for additional funds
—
—
—
—
—
Securities
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.
Page -39-
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%.
Within
One Year
After One But
Within Five Years
December 31, 2020
After Five But
Within Ten Years
After
Ten Years
Estimated
Fair
Value
Amortized
Cost
Yield
Estimated
Fair
Value
Amortized
Cost
Yield
Estimated
Fair
Value
Amortized
Cost
Yield
Estimated
Fair
Value
Amortized
Cost
Yield
Total
Estimated
Fair
Value
Amortized
Cost
$
— $
—
—
—
— % $
—
— $
—
— %$
—
— —
— $
—
—
—
— % $
—
— $
—
—
—
— % $
—
— $
—
—
—
678
676 2.75
18,562
17,696 2.50
16,914
16,153 2.69
5,934
5,923 1.88
42,088
40,448
—
—
— —
—
—
—
—
—
—
113,235
111,398 1.72
113,235
111,398
— —
—
—
—
—
—
—
128,804
127,369 1.01
128,804
127,369
3,438
3,455 3.04
9,042
8,912 2.42
770
762 2.51
11,557
11,791 1.43
24,807
24,920
—
—
—
— —
—
—
—
—
—
—
62,336
61,102 1.83
62,336
61,102
— —
— —
—
31,257
—
—
32,000 1.38
—
20,913
—
—
21,500 2.02
23,950
2,970
24,250 1.61
3,000 5.98
23,950
55,140
24,250
56,500
$
4,116 $
4,131 2.99 % $ 58,861 $
58,608 1.88 %$ 38,597 $
38,415 2.31 % $ 348,786 $ 344,833 1.50 % $ 450,360 $ 445,987
$
1,902 $
1,885 2.97 % $ 18,065
17,058 2.80 %$
5,154
4,772 3.05 % $
—
— — % $ 25,121 $ 23,715
—
—
—
— —
—
— —
4,412
4,244 1.54
2,087
2,028 2.22
6,499
6,272
— —
98
95 3.69
2,578
2,519 1.80
16,315
15,897 2.17
18,991
18,511
— —
6,080
5,778 2.35
—
—
—
7,614
7,291 3.16
13,694
13,069
—
— —
209
209 1.42
—
—
—
24,811
23,924 2.59
25,020
24,133
1,902
6,018 $
$
2.97
1,885
6,016 2.99 % $ 83,313 $
24,452
23,140 2.68
81,748 2.10 %$ 50,741 $
12,144
11,535 2.22
85,700
49,950 2.29 % $ 399,613 $ 393,973 1.63 % $ 539,685 $ 531,687
49,140 2.52
50,827
89,325
(Dollars in
thousands)
Available for sale:
U.S. Treasury
securities
U.S. GSE securities
State and municipal
obligations
U.S. GSE residential
mortgage-backed
securities
U.S. GSE residential
collateralized
mortgage
obligations
U.S. GSE
commercial
mortgage-backed
securities
U.S. GSE
commercial
collateralized
mortgage
obligations
Other asset backed
securities
Corporate bonds
Total available for
sale
Held to maturity:
State and municipal
obligations
U.S. GSE residential
mortgage-backed
securities
U.S. GSE residential
collateralized
mortgage
obligations
U.S. GSE
commercial
mortgage-backed
securities
U.S. 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,
Page -40-
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:
(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
Total
Liquidity
Less than $100,000 or
$100,000
$ 10,986
36,522
12,552
5,831
3,414
1,925
1,198
—
$ 72,428
Greater
$
$
24,244
63,698
90,115
20,871
10,844
2,972
3,067
206
216,017
$
Total
35,230
100,220
102,667
26,702
14,258
4,897
4,265
206
$ 288,445
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. 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
Page -41-
Bank. 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.
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
Total
One Year Three Years Five Years Years
Less than
One to
Four to
Over Five
$
52,319
216,223
80,000
288,445
$ 636,987
$
7,387 $
216,223
—
238,117
$ 461,727 $
$
13,809
—
—
40,960
54,769
$
12,474
—
40,000
9,162
61,636
$ 18,649
—
40,000
206
$ 58,855
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. The
Page -42-
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.
Page -43-
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Asset/Liability Management
Management considers interest rate risk to be our most significant market risk. Market risk is the risk of loss from adverse
changes in market prices and rates. Interest rate risk is the exposure to adverse changes in our net income as a result of changes in
interest rates.
Our primary earnings source is net interest income, which is affected by changes in the level of interest rates, the relationship
between rates, the impact of interest rate fluctuations on asset prepayments, the level and composition of deposits and liabilities,
and the credit quality of earning assets. Our asset and liability management objectives are to maintain a strong, stable net interest
margin, to utilize its capital effectively without taking undue risks, to maintain adequate liquidity, and to reduce vulnerability of
our operations to changes in interest rates.
Our Asset and Liability Committee evaluates periodically, but at least four times a year, the impact of changes in market interest
rates on assets and liabilities, net interest margin, capital and liquidity. Risk assessments are governed by policies and limits
established by senior management, which are reviewed and approved by the full Board of Directors at least annually. The
economic environment continually presents uncertainties as to future interest rate trends. The Asset and Liability Committee
regularly utilizes a model that projects net interest income based on increasing or decreasing interest rates, in order to be better
able to respond to changes in interest rates.
At December 31, 2020, $441.8 million, or 82.4%, of our available for sale and held to maturity securities had fixed interest rates.
At December 31, 2020, $3.0 billion, or 64.5%, of our loan portfolio had adjustable or floating interest rates. Changes in interest
rates affect the value of our interest-earning assets and, in particular, our securities portfolio. Generally, the value of securities
fluctuates inversely with changes in interest rates. Increases in interest rates could result in decreases in the market value of
interest-earning assets, which could adversely affect our stockholders’ equity and results of operations if sold. We are also subject
to reinvestment risk associated with changes in interest rates. Changes in market interest rates also could affect the type (fixed-
rate or adjustable-rate) and amount of loans we originate and the average life of loans and securities, which can impact the yields
earned on our loans and securities. In periods of decreasing interest rates, the average life of loans and securities we hold may be
shortened to the extent increased prepayment activity occurs during such periods which, in turn, may result in the investment of
funds from such prepayments in lower yielding assets. Under these circumstances, we are subject to reinvestment risk to the
extent that we are unable to reinvest the cash received from such prepayments at rates that are comparable to the rates on existing
loans and securities. Additionally, increases in interest rates may result in decreasing loan prepayments with respect to fixed rate
loans (and, therefore, an increase in the average life of such loans), may result in a decrease in loan demand, and may make it
more difficult for borrowers to repay adjustable rate loans.
We utilize the results of a detailed and dynamic simulation model to quantify the estimated exposure of net interest income to
sustained interest rate changes. Management routinely monitors simulated net interest income sensitivity over a rolling two-year
horizon. The simulation model captures the impact of changing interest rates on the interest income received and the interest
expense paid on all assets and liabilities reflected on our consolidated balance sheet. This sensitivity analysis is compared to the
asset and liability policy limits that specify a maximum tolerance level for net interest income exposure over a one-year horizon
given 100 and 200-basis point upward shifts in interest rates and a 100-basis point downward shift in interest rates. A parallel and
pro-rata shift in rates over a twelve-month period is assumed.
In addition to the above scenarios, we consider other, non-parallel rate shifts that would also exert pressure on earnings. The
current low interest rate environment presents the possibility for a flattening of the yield curve, which presents a challenge to a
bank, like us, that derives most of its revenue from net interest margin. During the year ended December 31, 2020, the yield on
U.S. Treasury 5-year notes decreased 133 basis points from 1.69% to 0.36%, while the yield on 3-month Treasury bills decreased
146 basis points from 1.55% to 0.09%. While the 3-month/5-year Treasury spread increased from 14 basis points at December
31, 2019 to 27 basis points at December 31, 2020, the yield curve continues to be considerably flat compared to the 3-month/5-
year Treasury spread of 81 basis points at December 31, 2017. A continued flat or inverted yield curve in 2021 may adversely
affect net interest income as borrowers tend to refinance higher-rate fixed rate loans at lower rates and we may not be able to
reinvest those prepayments in assets earning interest rates as high as the rates on those prepaid assets.
Page -44-
The following reflects our net interest income sensitivity analysis at December 31, 2020 and 2019:
Change in Interest
Rates in Basis Points
(Dollars in thousands)
200
100
Static
-100
Change in Interest
Rates in Basis Points
(Dollars in thousands)
200
100
Static
-100
December 31, 2020
Potential Change
in Future Net
Interest Income
Year 1
Year 2
$ Change % Change $ Change % Change
$ 8,640
4,387
—
1,659
5.72 % $ 28,562
12,345
2.90
—
(2,340)
—
1.10
18.90 %
8.17
—
(1.55)
December 31, 2019
Potential Change
in Future Net
Interest Income
Year 1
Year 2
$ Change % Change $ Change % Change
$ 1,028
520
—
(574)
0.70 % $ 12,075
6,787
0.35
—
(3,586)
—
(0.39)
8.21 %
4.62
—
(2.44)
As noted in the table above, a 200-basis point increase in interest rates is projected to increase net interest income by 5.72% in
year 1 and increase net interest income by 18.90% in year 2. Our balance sheet sensitivity to such a move in interest rates at
December 31, 2020 increased as compared to December 31, 2019 (which was an increase of 0.70% in net interest income over a
twelve-month period). This increase is the result of a higher portion of our loans repricing to market rates in addition to the
increase in our floating rate portfolio over the last year. We also continue to show the ability to hold the costs of interest-bearing
deposits to below market rates. Overall, our strategy has been to proactively take advantage of the falling rate cycle in
aggressively lowering deposit costs, ultimately dampening the effect of variable and adjustable rate loan repricing and additional
fix rate loan refinancing. Over the intervening year, the effective duration (a measure of price sensitivity to interest rates) of the
bond portfolio increased from 2.35 years at December 31, 2019 to 2.56 years at December 31, 2020.
The preceding sensitivity analysis does not represent a Company forecast and should not be relied on as being indicative of
expected operating results. These hypothetical estimates are based on numerous assumptions including, but not limited to, the
nature and timing of interest rate levels and yield curve shapes, prepayments on loans and securities, deposit decay rates, pricing
decisions on loans and deposits, and reinvestment and replacement of asset and liability cash flows. While assumptions are
developed based on perceived current economic and local market conditions, we cannot make any assurances as to the predictive
nature of these assumptions including how customer preferences or competitor influences may change. Also, as market
conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to prepayment and refinancing
levels likely deviating from those assumed, the varying impact of interest rate change caps or floors on adjustable rate assets, the
potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals, prepayment
penalties and product preference changes and other internal and external variables. Furthermore, the sensitivity analysis does not
reflect actions that management might take in responding to, or anticipating, changes in interest rates and market conditions.
Page -45-
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
Assets
Cash and due from banks
Interest-bearing deposits with banks
Total cash and cash equivalents
Securities available for sale, at fair value
Securities held to maturity (fair value of $89,325 and $135,027, respectively)
Total securities
Securities, restricted
Loans held for sale
Loans held for investment
Allowance for credit losses
Loans, net
Premises and equipment, net
Operating lease right-of-use assets
Accrued interest receivable
Goodwill
Other intangible assets
Prepaid pension
Bank owned life insurance
Other assets
Total assets
Liabilities
Demand deposits
Savings, NOW and money market deposits
Certificates of deposit of $100,000 or more
Other time deposits
Total deposits
Repurchase agreements
Federal Home Loan Bank ("FHLB") advances
Subordinated debentures, net
Operating lease liabilities
Other liabilities and accrued expenses
Total liabilities
Commitments and contingencies
Stockholders’ equity
Preferred stock, par value $.01 per share (2,000,000 shares authorized; none issued)
Common stock, par value $.01 per share (40,000,000 shares authorized; 19,951,955 and 19,898,022 shares issued, respectively;
and 19,743,710 and 19,836,797 shares outstanding, respectively)
Surplus
Retained earnings
Treasury stock at cost, 208,245 and 61,225 shares, respectively
Accumulated other comprehensive loss, net of income taxes
Total stockholders’ equity
Total liabilities and stockholders’ equity
See accompanying Notes to the Consolidated Financial Statements.
Page -46-
December 31,
2020
December 31,
2019
$
$
$
$
107,729
769,099
876,828
450,360
85,700
536,060
23,362
52,785
4,597,403
(44,200)
4,553,203
34,872
44,007
16,566
105,950
3,378
10,313
93,900
83,072
6,434,296
2,472,727
2,728,081
216,017
72,428
5,489,253
1,223
215,000
79,059
46,713
85,217
5,916,465
—
—
199
360,741
172,075
(5,056)
527,959
(10,128)
517,831
6,434,296
$
$
$
$
77,693
39,501
117,194
638,291
133,638
771,929
32,879
12,643
3,680,285
(32,786)
3,647,499
34,062
43,450
10,908
105,950
3,677
10,988
91,942
38,399
4,921,520
1,518,958
1,987,712
214,093
93,884
3,814,647
999
435,000
78,920
45,977
48,823
4,424,366
—
—
199
356,436
150,703
(1,843)
505,495
(8,341)
497,154
4,921,520
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Interest income:
Loans (including fee income)
Mortgage-backed securities, CMOs and other asset-backed securities
U.S. GSE securities
State and municipal obligations
Corporate bonds
Deposits with banks
Other interest and dividend income
Total interest income
Interest expense:
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
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Non-interest income:
Service charges and other fees
Net securities gains (losses)
Loss on termination of swaps
Change in fair value of loans held for sale
Title fees
Gain on sale of Small Business Administration ("SBA") loans
Bank owned life insurance
Loan swap fees
Other
Total non-interest income
Non-interest expense:
Salaries and employee benefits
Occupancy and equipment
Technology and communications
Marketing and advertising
Professional services
FDIC assessments
Merger expenses
Net fraud loss
Office relocation costs
Amortization of other intangible assets
Other
Total non-interest expense
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
See accompanying Notes to the Consolidated Financial Statements.
Page -47-
Year Ended December 31,
2019
2018
2020
$
$
$
$
169,411
9,329
365
1,843
1,070
673
1,541
184,232
10,435
3,346
1,198
79
3,992
4,401
23,451
160,781
11,500
149,281
8,955
3,525
(3,403)
(2,877)
2,337
3,940
2,186
3,742
1,298
19,703
67,159
14,287
9,712
3,287
4,988
1,950
4,452
—
—
656
6,766
113,257
55,727
13,685
42,042
2.11
2.11
$
$
$
$
158,228
16,182
465
2,234
1,200
1,697
1,535
181,541
23,687
4,270
1,502
767
4,573
4,539
39,338
142,203
5,700
136,503
10,059
201
—
—
1,720
1,984
2,230
7,460
1,733
25,387
56,244
14,372
7,905
4,740
3,797
608
—
—
—
787
7,686
96,139
65,751
14,060
51,691
2.59
2.59
$
$
$
$
144,380
16,591
837
2,812
1,422
1,076
1,866
168,984
15,928
3,007
1,801
1,200
5,729
4,539
32,204
136,780
1,800
134,980
9,853
(7,921)
—
—
1,797
2,078
2,219
716
2,826
11,568
50,458
13,245
6,465
4,597
4,004
1,665
—
8,900
750
917
7,179
98,180
48,368
9,141
39,227
1.97
1.97
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income
Other comprehensive (loss) income:
Change in unrealized net gains (losses) on securities available for sale, net of reclassifications and deferred income taxes
Adjustment to pension liability, net of reclassifications and deferred income taxes
Unrealized (losses) gains on cash flow hedges, net of reclassifications and deferred income taxes
Total other comprehensive (loss) income
Comprehensive income
$
$
See accompanying Notes to the Consolidated Financial Statements.
Page -48-
2020
Year Ended December 31,
2019
51,691
$
$
42,042
3,916
(1,865)
(3,838)
(1,787)
40,255
10,856
(410)
(3,675)
6,771
58,462
$
$
2018
39,227
(348)
(832)
1,007
(173)
39,054
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
Balance at January 1, 2018
Net income
Shares issued under the dividend reinvestment plan (“DRP”) (25,154 shares)
Shares issued under the Employee Stock Purchase Plan ("ESPP"), net of offering costs (3,758 shares)
Stock awards granted and distributed (84,910 shares)
Stock awards forfeited (15,225 shares)
Repurchase of surrendered stock from vesting of stock plans (17,073 shares)
Share based compensation expense
Cash dividend declared, $0.92 per share
Other comprehensive loss, net of deferred income taxes
Balance at December 31, 2018
Net income
Shares issued under the DRP (24,529 shares)
Shares issued under the ESPP (7,888 shares)
Purchase of treasury stock (22,600 shares)
Stock awards granted and distributed (82,210 shares)
Stock awards forfeited (19,531 shares)
Repurchase of surrendered stock from vesting of stock plans (26,583 shares)
Share based compensation expense
Cash dividend declared, $0.92 per share
Other comprehensive income, net of deferred income taxes
Balance at December 31, 2019
Cumulative change in accounting principle (Note 1)
Balance at January 1, 2020 (as adjusted for change in accounting principle)
Net income
Shares issued under the DRP (39,600 shares)
Shares issued under the ESPP (11,413 shares)
Purchase of treasury stock (179,620 shares)
Stock awards granted and distributed (136,662 shares)
Stock awards forfeited (6,593 shares)
Repurchase of surrendered stock from vesting of stock plans (95,892 shares)
Share based compensation expense
Cash dividend declared, $0.96 per share
Other comprehensive loss, net of deferred income taxes
Balance at December 31, 2020
See accompanying Notes to the Consolidated Financial Statements.
Page -49-
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Total
Common
Stock
$
197
Surplus
$ 347,691
Retained
Earnings
96,547
39,227
$
1
954
63
(539)
437
3,487
$
(296) $
538
(437)
(586)
(18,342)
$
198
$ 352,093
$ 117,432
$
(781) $
1
867
235
—
(988)
555
(18)
3,692
51,691
(18,420)
(625)
987
(555)
(869)
$
199
$ 356,436
$ 150,703
$
(1,843) $
1,012
255
(4,167)
222
(656)
7,639
(4,633)
4,167
(222)
(2,525)
(19,197)
$
199
$ 360,741
$ 172,075
$
(5,056) $
(14,939) $ 429,200
39,227
954
63
—
—
(586)
3,487
(18,342)
(173)
(15,112) $ 453,830
(173)
51,691
867
235
(625)
—
—
(887)
3,692
(18,420)
6,771
6,771
(8,341) $ 497,154
42,042
1,012
255
(4,633)
—
—
(3,181)
7,639
(19,197)
(1,787)
(1,787)
(10,128) $ 517,831
199
356,436
(1,473)
149,230
42,042
(1,843)
(8,341)
(1,473)
495,681
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Depreciation and amortization of premises and equipment
Net (accretion) and other amortization
Net amortization on securities
Increase in cash surrender value of bank owned life insurance
Amortization of other intangible assets
Share based compensation expense
Net securities (gains) losses
Loss on termination of swaps
Change in fair value of loans held for sale
(Increase) decrease in accrued interest receivable
SBA loans originated for sale
Proceeds from sale of the guaranteed portion of SBA loans
Gain on sale of the guaranteed portion of SBA loans
Gain on sale of loans
(Increase) decrease in other assets
(Decrease) increase in accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of securities available for sale
Purchases of securities, restricted
Purchases of securities held to maturity
Proceeds from sales of securities available for sale
Redemption of securities, restricted
Maturities, calls and principal payments of securities available for sale
Maturities, calls and principal payments of securities held to maturity
Net increase in loans
Proceeds from loan sale
Proceeds from sales of other real estate owned ("OREO"), net
Purchase of premises and equipment
Net cash used in investing activities
Cash flows from financing activities:
Net increase (decrease) in deposits
Net decrease in federal funds purchased
Net (decrease) increase in FHLB advances
Net increase (decrease) in repurchase agreements
Net proceeds from issuance of common stock
Purchase of treasury stock
Repurchase of surrendered stock from vesting of stock plans
Cash dividends paid
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid for:
Interest
Income taxes
Non-cash investing and financing activities:
Transfers from portfolio loans to loans held for sale
Transfers from portfolio loans to other real estate owned
See accompanying Notes to the Consolidated Financial Statements.
Page -50-
2020
Year Ended December 31,
2019
2018
$
42,042
$
51,691
$
39,227
11,500
4,319
(940)
3,585
(2,186)
656
7,639
(3,525)
3,403
2,877
(5,658)
(47,741)
52,643
(3,940)
5,700
4,253
(1,375)
4,365
(2,230)
787
3,692
(201)
—
—
328
(27,419)
29,922
(1,984)
—
—
(11,916)
(5,371)
47,387
(363,224)
(52,988)
—
152,980
62,505
404,093
47,505
(962,582)
—
—
(5,129)
(716,840)
1,674,607
—
(220,000)
224
1,267
(4,633)
(3,181)
(19,197)
1,429,087
759,634
117,194
876,828
24,037
12,457
43,019
—
$
$
$
$
$
$
$
$
$
$
3,942
(1,509)
69,962
(141,297)
(97,206)
—
46,478
88,355
149,456
25,642
(421,024)
—
297
(3,307)
(352,606)
(71,728)
—
194,568
460
1,102
(625)
(887)
(18,420)
104,470
(178,174)
295,368
117,194
39,395
9,158
$
$
$
12,643
$
— $
1,800
3,822
(2,093)
4,009
(2,219)
917
3,487
7,921
—
—
416
(28,340)
30,898
(2,078)
(441)
(2,373)
3,430
58,383
(255,746)
(505,272)
(1,000)
230,372
516,593
92,818
20,851
(213,973)
40,133
—
(5,325)
(80,549)
551,891
(50,000)
(260,855)
(338)
1,017
—
(586)
(18,342)
222,787
200,621
94,747
295,368
32,254
2,474
—
175
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020, 2019 and 2018
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations and Principles of Consolidation
On February 1, 2021, Dime Community Bancshares, Inc., (“Legacy Dime”) merged with and into Bridge Bancorp, Inc.,
(“Legacy Bridge”) (the “Merger”), with Legacy Bridge as the surviving corporation under the name “Dime Community
Bancshares, Inc.” (the “Holding Company”). The consolidated financial statements include the Holding Company, which was
known as “Bridge Bancorp, Inc.” prior to the Merger, a bank holding company incorporated under the laws of the State of New
York, engaged in commercial banking and financial services through its wholly-owned subsidiary, Dime Community Bank, (the
“Bank”), which was known as “BNB Bank” prior to the Merger, together referred to as the “Company.” The Bank’s operations
include its real estate investment trust subsidiary, Bridgehampton Community, Inc.; a financial title insurance subsidiary, Bridge
Abstract LLC (“Bridge Abstract”); and an investment services subsidiary, Bridge Financial Services, Inc. (“Bridge Financial
Services”). Intercompany transactions and balances are eliminated in consolidation. The Company’s consolidated financial
statements, including notes thereto, and accounting policies and practices are as of December 31, 2020, and do not include the
operations of Legacy Dime.
The Company provides financial services through its branches in its primary market areas of Suffolk and Nassau Counties on
Long Island and the New York City boroughs. The Bank’s primary deposit products are time, savings and demand deposits from
the consumers, businesses and local municipalities in its market area. Its primary lending products are commercial real estate,
multi-family, commercial and industrial, and residential mortgage loans. There are no significant concentrations of loans to any
one industry or customer. However, the customers’ ability to repay their loans is dependent on the real estate and general
economic conditions in the area.
The audited consolidated financial statements presented in this Annual Report on Form 10-K include the collective results of the
Holding Company and its wholly-owned subsidiary, the Bank, which are collectively herein referred to as “we”, “us”, “our” and
the “Company.”
The financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and
general practices within the financial institution industry. The following is a description of the significant accounting policies that
the Company follows in preparing its consolidated financial statements.
Use of Estimates
The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and
assumptions based on available information. These estimates and assumptions affect the amounts reported in the consolidated
financial statements and the disclosures provided, and actual future results could differ.
COVID-19 Risks
In December 2019, a novel coronavirus (“COVID-19”) was reported in China, and, in March 2020, the World Health
Organization declared COVID-19 a pandemic. On March 12, 2020, the President of the United States declared the COVID-19
outbreak in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the
United States as many state and local governments, including New York, ordered non-essential businesses to close and residents
to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in
unemployment.
The Company’s audited consolidated financial statements reflect the impact of COVID-19 on the assumptions and estimates
used. Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19
outbreak on the Company’s business. The extent of such impact will depend on future developments, which are highly uncertain,
including when COVID-19 can be controlled and abated and when and how the economy may be reopened. As the result of the
COVID-19 pandemic and the related adverse local and national economic consequences,
Page -51-
the Company is subject to the following risks, any of which could have a material, adverse effect on its business, financial
condition, liquidity, and results of operations:
●
●
●
●
●
●
●
●
●
●
demand for the Company’s products and services may decline, making it difficult to grow assets and income;
if the economy is unable to substantially reopen or remain open, and high levels of unemployment continue,
for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in
increased charges and reduced income;
collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;
the Company’s allowance for credit losses (“ACL”) may have to be increased if borrowers experience financial
difficulties beyond forbearance periods, which will adversely affect the Company’s net income;
the Company may recognize impairment of its goodwill;
the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to the
Company;
as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on the
Company’s assets may decline to a greater extent than the decline in its cost of interest-bearing liabilities,
reducing net interest margin and spread and reducing net income;
a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of the
Company’s quarterly cash dividend;
the Company’s cyber security risks are increased as the result of an increase in the number of employees
working remotely; and
the Company relies on third party vendors for certain services and the unavailability of a critical service due to
the COVID-19 outbreak could have an adverse effect on the Company.
Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest- earning
deposits with banks, and federal funds sold, which mature overnight. Net cash flows are reported for customer loan and deposit
transactions, federal funds purchased, FHLB advances, and repurchase agreements.
Securities
Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and
ability to hold them to maturity. Debt securities are classified as available for sale when they might be sold before maturity.
Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive
income, net of tax. Equity securities are carried at fair value, with changes in fair value reported in net income. Equity securities
without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting in
observable price changes in orderly transactions for the identical or a similar investment.
Interest income includes amortization of purchase premium or discount. Premiums and discounts on securities are amortized on
the level-yield method without anticipating prepayments, except for mortgage-backed securities where prepayments are
anticipated. The Company has made a policy election to exclude accrued interest from the amortized cost basis of debt securities
and report accrued interest separately in accrued interest receivable in the consolidated balance sheet. A debt security is placed on
non-accrual status at the time any principal or interest payments become more than 90 days delinquent or if full collection of
interest or principal becomes uncertain. Accrued interest for a security placed on non-accrual is reversed against interest income.
There were no non-accrual debt securities at December 31, 2020 and there was no accrued interest related to debt securities
reversed against interest income for the year ended December 31, 2020. Gains and losses on sales are recorded on the trade date
and determined using the specific identification method.
On January 1, 2020, the Company adopted the CECL Standard, which requires that debt securities held to maturity be accounted
for under the current expected credit losses model, including historical loss experience and impact of current conditions and
reasonable and supportable forecasts, with an associated allowance for credit losses. In addition, while
Page -52-
credit losses on debt securities available for sale should be measured in accordance with the other-than-temporary impairment
(“OTTI”) framework under current GAAP, the amendments in the CECL Standard require that these credit losses be presented as
an allowance for credit losses. For AFS debt securities, a decline in fair value due to credit loss results in recording an allowance
for credit losses to the extent the fair value is less than the amortized cost basis.
Held to maturity debt securities and the allowance for credit losses
To the extent that debt securities in the held-to-maturity portfolio share common risk characteristics, estimated expected credit
losses are calculated in a manner like that used for loans held for investment. That is, for pools of such debt securities with
common risk characteristics, the historical lifetime probability of default and severity of loss in the event of default is derived or
obtained from external sources and adjusted for the expected effects of reasonable and supportable forecasts over the expected
lives of the securities.
Expected credit loss on each debt security in the held-to-maturity portfolio that do not share common risk characteristics with any
of the pools of debt securities is individually measured based on net realizable value, or the difference between the discounted
value of the expected future cash flows, based on the original effective interest rate, and the recorded amortized cost basis of the
security.
With respect to certain classes of debt securities, primarily U.S. Treasuries and securities issued by Government Sponsored
Entities, the Company considers the history of credit losses, current conditions and reasonable and supportable forecasts, which
may indicate that the expectation that nonpayment of the amortized cost basis is or continues to be zero, even if the U.S.
government were to technically default. Therefore, for those securities, the Company does not record expected credit losses.
Accrued interest receivable is excluded from the estimate of credit losses.
Available for sale debt securities and the allowance for credit losses
Management evaluates available for sale debt securities for OTTI on at least a quarterly basis, and more frequently when
economic or market conditions warrant such evaluation. For securities in an unrealized loss position, management considers the
extent and duration of the unrealized loss, and the near-term prospects of the issuer. Impairment may result from credit
deterioration of the issuer or collateral underlying the security. In performing an assessment of whether any decline in fair value
is due to a credit loss, all relevant information is considered at the individual security level. For asset-backed securities
performance indicators considered related to the underlying assets include default rates, delinquency rates, percentage of non-
performing assets, debt-to-collateral ratios, third party guarantees, current levels of subordination, vintage, geographic
concentration, analyst reports and forecasts, credit ratings and other market data. In assessing whether a credit loss exists, we
compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.
If the present value of cash flows expected to be collected is less than the amortized cost basis for the security, a credit loss exists
and an allowance for credit losses is recorded, limited to the amount the fair value is less than amortized cost basis. Declines in
fair value that have not been recorded through an allowance for credit losses, such as declines due to changes in market interest
rates, are excluded from earnings and reported, net of tax, in other comprehensive income (“OCI”). Management also assesses
whether it intends to sell or is more likely than not that it will be required to sell a security in an unrealized loss position before
recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference
between amortized cost and fair value is recognized as impairment through earnings.
Accrued interest receivable is excluded from the estimate of credit losses.
Securities, Restricted
Securities, restricted represents FHLB, Federal Reserve Bank (“FRB”) and bankers’ banks stock, which are reported at cost. The
Bank is a member of the FHLB system. Members are required to own a particular amount of stock based on the
Page -53-
level of borrowings and other factors, and may invest in additional amounts. FHLB stock is periodically evaluated for impairment
based on ultimate recovery of par value. Both cash and stock dividends are reported as income.
Loans Held for Sale
Loans held for sale are carried at the lower of aggregate cost or estimated fair value. Any subsequent declines in fair value below
the initial carrying value are recorded as a valuation allowance, which is established through a charge to earnings.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the
principal amount outstanding, net of partial charge-offs, deferred origination costs and fees and purchase premiums and
discounts. Loan origination and commitment fees and certain direct and indirect costs incurred in connection with loan
originations are deferred and amortized to income over the life of the related loans as an adjustment to yield. When a loan
prepays, the remaining unamortized net deferred origination fees or costs are recognized in the current year. Interest on loans is
credited to income based on the principal outstanding during the period. The Company has made a policy election to exclude
accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in
accrued interest receivable on consolidated balance sheets. Past due status is based on the contractual terms of the loan. Loans
that are 90 days past due are automatically placed on non-accrual and previously accrued interest is reversed and charged against
interest income. However, if the loan is in the process of collection and the Bank has reasonable assurance that the loan will be
fully collectable based upon an individual loan evaluation assessing such factors as collateral and collectability, accrued interest
will be recognized as earned. If a payment is received when a loan is non-accrual or a troubled debt restructuring (“TDR”) loan is
non-accrual, the payment is applied to the principal balance. A TDR loan performing in accordance with its modified terms is
maintained on accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due
are brought current and future payments are reasonably assured.
Loans that were acquired through the acquisition of Community National Bank on June 19, 2015 and First National Bank of New
York on February 14, 2014 were initially recorded at fair value with no carryover of the related allowance for loan losses. After
acquisition, losses are recognized through the allowance for loan losses. Determining fair value of the loans involves estimating
the amount and timing of expected principal and interest cash flows to be collected on the loans and discounting those cash flows
at a market interest rate. Some of the loans at the time of acquisition showed evidence of credit deterioration since origination.
These loans were considered purchased credit impaired (“PCI”) loans. As of December 31, 2019, the remaining balance of PCI
loans was immaterial to the Company’s financial condition and results of operations.
Unless otherwise noted, the above policy is applied consistently to all loan segments.
Allowance for Credit Losses
On January 1, 2020, we adopted 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. 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
Page -54-
conditions and reasonable and supportable forecasts about the future. 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, the Company recognizes 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 the Company. All appraisals undergo a second review process to ensure that the
methodology employed and the values derived are reasonable. Generally, collateral values for real estate loans for which
measurement of expected 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 the
Company’s 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, the Company derives 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. These factors
Page -55-
include: (1) lending policies and procedures; (2) international, national, regional and local economic business conditions and
developments that affect the collectability of the portfolio, including the condition of various markets; (3) the nature and volume
of the loan portfolio including the terms of the loans; (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; (6) the quality of our loan review system; (7) the value of underlying collateral for collateralized loans; (8) the existence
and effect of any concentrations of credit, and changes in the level of such concentrations; and (9) the effect of external factors
such as competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio. 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 reverts immediately 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.
Future additions or reductions to the allowance may be necessary based on changes in economic, market or other conditions.
Changes in estimates could result in a material change in the allowance. In addition, various regulatory agencies, as an integral
part of the examination process, periodically review the allowance for credit losses. Such agencies may require the Bank to
recognize adjustments to the allowance based on their judgments of the information available to them at the time of their
examination.
A loan is considered a potential charge-off when it is in default of either principal or interest for a period of 90, 120 or 180 days,
depending upon the loan type, as of the end of the prior month. In addition to delinquency criteria, other triggering events may
include, but are not limited to, notice of bankruptcy by the borrower or guarantor, death of the borrower, and deficiency balance
from the sale of collateral.
Unless otherwise noted, the above policy is applied consistently to all loan portfolio segments.
Loan Commitments and Related Financial Instruments
Financial instruments include off-balance sheet credit instruments, such as unused lines of credit, commitments to make loans
and commercial letters of credit, issued to meet customer financing needs. The face amount for these items represents the
exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded on the
balance sheet when they are funded. In accordance with the CECL Standard, the Company maintains a separate reserve for off-
balance sheet credit instruments, which is included in other liabilities on the consolidated statements of financial condition.
Management estimates the amount of expected losses by calculating a commitment usage factor over the contractual period for
exposures that are not unconditionally cancellable by the Company and applying the loss factors, current conditions and
forecasting adjustments used in the allowance for credit loss methodology to the results of the usage calculation to estimate the
liability for credit losses related to unfunded commitments for each loan type. No credit loss estimate is reported for off-balance
sheet credit exposures that are unconditionally cancellable by the Company. At December 31, 2020, the reserve for off-balance
sheet credit exposures was immaterial to the Company’s consolidated statements of financial condition and results of operations.
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation. Buildings and related components are depreciated
using the straight-line method with a useful life of fifty years for buildings and a range of two to ten years for equipment,
computer hardware and software, and furniture and fixtures. Leasehold improvements are amortized over the lives of the
respective leases or the service lives of the improvements, whichever is shorter. Land is carried at cost.
Improvements and major repairs are capitalized, while the cost of ordinary maintenance, repairs and minor improvements are
charged to expense.
Page -56-
Bank-Owned Life Insurance
The Bank is the owner and beneficiary of life insurance policies on certain employees. Bank-owned life insurance is recorded at
the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted
for other charges or other amounts due that are probable at settlement.
Other Real Estate Owned
Real estate properties acquired through, or in lieu of, foreclosure are initially recorded at fair value less costs to sell when
acquired, establishing a new cost basis. These assets are subsequently accounted for at the lower of cost or fair value less
estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense.
Operating costs after acquisition are expensed.
Goodwill and Other Intangible Assets
Goodwill resulting from business combinations is generally determined as the excess of the fair value of the consideration
transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and
indefinite-lived intangible assets are not amortized, but tested for impairment at least annually, or more frequently if events and
circumstances exist that indicate the carrying amount of the asset may be impaired. The Company has selected November 30 as
the date to perform the annual impairment test. Goodwill and the BNB Bank trademark are intangible assets with indefinite lives
on the Company’s balance sheet.
Other intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.
Core deposit intangible assets are amortized on an accelerated method over their estimated useful lives of ten years.
Other intangible assets also include servicing rights, which result from the sale of SBA loans with servicing rights retained.
Servicing rights are initially recorded at fair value with the income statement effect recorded in gains on sales of loans. Fair value
is based on market prices for comparable servicing contracts, when available or alternatively, is based on a valuation model that
calculates the present value of estimated future net servicing income. Servicing assets are subsequently measured using the
amortization method, which requires servicing rights to be amortized into non-interest income in proportion to, and over the
period of, the estimated future net servicing income of the underlying loans.
Derivatives
The Company records cash flow hedges at the inception of the derivative contract based on the Company’s intentions and belief
as to likely effectiveness as a hedge. Cash flow hedges represent a hedge of a forecasted transaction or the variability of cash
flows to be received or paid related to a recognized asset or liability. For a cash flow hedge, the gain or loss on the derivative is
reported in other comprehensive income (“OCI”) and is reclassified into earnings in the same periods during which the hedged
transaction affects earnings. The changes in the fair value of derivatives that are not highly effective in hedging the changes in
fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of
derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income.
Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based
on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-
interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being
hedged.
The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management
objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation
includes linking cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or
forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the
derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items.
The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in
the fair value or cash flows of the hedged item, the derivative is settled or
Page -57-
terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of
the derivative as a hedge is no longer appropriate or intended.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income.
When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or
losses that were accumulated in other comprehensive income are amortized into earnings over the same periods in which the
hedged transactions will affect earnings.
Income Taxes
Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and
liabilities. Deferred tax assets and liabilities are the expected future tax amounts for temporary differences between carrying
amounts and tax bases of assets and liabilities, computed using enacted tax rates. A valuation allowance, if needed, reduces
deferred tax assets to the amount expected to be realized. It is management’s position, as currently supported by the facts and
circumstances, that no valuation allowance is necessary against any of the Company’s deferred tax assets at December 31, 2020.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax
examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is
greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax
benefit is recorded. There are no such tax positions in the Company’s financial statements at December 31, 2020 and 2019.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company did not
have any amounts accrued for interest and penalties at December 31, 2020 and 2019.
Treasury Stock
Repurchases of common stock are recorded as treasury stock at cost. Treasury stock is reissued using the first in, first out method.
Earnings Per Share (“EPS”)
Basic EPS is net income attributable to common shareholders divided by the weighted average number of common shares
outstanding during the period. All outstanding unvested share-based payment awards that contain rights to nonforfeitable
dividends are considered participating securities for this calculation. Diluted EPS includes the dilutive effect of additional
potential common shares issuable under stock options.
Dividend Restriction
Cash available for distribution of dividends to stockholders of the Company is primarily derived from cash and cash equivalents
of the Company and dividends paid by the Bank to the Company. Prior regulatory approval is required if the total of all dividends
declared by the Bank in any calendar year exceeds the total of the Bank’s net income of that year combined with its retained net
income of the preceding two years. Dividends from the Bank to the Company at January 1, 2021 are limited to $49.8 million,
which represents the Bank’s net retained earnings from the previous two years. During 2020, the Bank paid $26.5 million in cash
dividends to the Company.
Segment Reporting
While management monitors the revenue streams of the various products and services, the identifiable segments are not material
and operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the financial
service operations are considered by management to be aggregated in one reportable operating segment.
Page -58-
Stock-Based Compensation
Compensation cost is recognized for stock options, restricted stock awards (“RSAs”), and restricted stock units (“RSUs”) issued
to employees and independent directors, based on the fair value of these awards at the date of the grant. A Black-Scholes model
is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the date of grant
is used to estimate the fair value for RSAs and RSUs.
Compensation cost is recognized as expense over the required service period, generally defined as the vesting period. For awards
with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire
award. The Company’s accounting policy is to recognize forfeitures as they occur.
Comprehensive Income
Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes
unrealized gains and losses on available for sale securities, unrealized gains and losses on cash flow hedges, and changes in the
funded status of the pension plan, which are also recognized as separate components of equity.
Reclassifications
Certain reclassifications have been made to prior year amounts to conform to the current year presentation.
Standards Effective in 2020
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326)
Effective for periods after December 31, 2019, the Company adopted Accounting Standards Update (“ASU”) No 2016-13,
Financial Instruments – Credit Losses (Topic 326), which replaced the long-standing incurred loss model used in calculating the
allowance for loan and lease losses with a more forward-looking, current expected credit loss model (“CECL” or the “CECL
Standard”). Furthermore, the CECL Standard requires financial institutions to measure all expected credit losses for in-scope
financial assets held at amortized cost at the reporting date based on historical experience, current conditions, and reasonable and
supportable forecasts, including estimates of prepayments. It also applies to off-balance sheet credit exposures not accounted for
as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net
investments in leases recognized by a lessor in accordance with Topic 842 on leases. Accordingly, financial institutions will now
leverage forward-looking information to better inform their credit loss estimates. For the Company, this standard applies to loans
held for investment, unfunded commitments, and securities held to maturity. In addition, the CECL Standard made changes to
the accounting for available for sale debt securities. Credit losses on available for sale debt securities under the CECL Standard
should be measured in a manner similar to legacy GAAP. However, the amendments in the CECL Standard require that credit
losses be presented as an allowance for credit losses rather than as a write-down. The CECL Standard approach is an
improvement because an entity is able to record reversals of credit losses (in situations in which the estimate of credit losses
declines) in current period net income, which in turn should align the income statement recognition of credit losses with the
reporting period in which changes occur. Although the Coronavirus Aid, Relief, and Economic Security Act (the “CARES” Act)
provided the option to delay the adoption of the CECL Standard until the earlier of December 31, 2020 or the termination of the
current national emergency declaration related to the COVID-19 outbreak, the Company adopted the CECL Standard in the first
quarter of 2020 as previously planned using the modified retrospective method for all financial assets measured at amortized cost
and off-balance sheet credit exposures. The adoption of the CECL Standard resulted in an initial increase of $1.6 million to the
allowance for credit losses and $0.5 million to the reserve for unfunded commitments. The after-tax cumulative-effect adjustment
of $1.5 million was recorded in retained earnings as of January 1, 2020. Based on the credit quality of the Company's securities
portfolio, there was no initial adjustment to retained earnings for credit losses associated with debt securities held to maturity.
Results for reporting periods beginning after January 1, 2020 are presented under the CECL Standard while prior period amounts
will continue to be reported in accordance with previously applicable GAAP.
Page -59-
ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
In January 2017, the FASB amended existing guidance to simplify the subsequent measurement of goodwill by eliminating Step
2 from the goodwill impairment test. The amendments require an entity to perform its annual, or interim, goodwill impairment
test by comparing the fair value of a reporting unit with its carrying amount and recognizing an impairment charge for the amount
by which the carrying amount of the reporting unit exceeds its fair value, not to exceed the total amount of goodwill allocated to
that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying
amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The amendments also eliminate the
requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that
qualitative test, to perform Step 2 of the goodwill impairment test. The amendments are effective for public business entities that
are an SEC filer, like the Company, for annual or interim goodwill impairment tests in fiscal years beginning after December 15,
2019. The amendments should be applied prospectively. An entity is required to disclose the nature of and reason for the change
in accounting principle upon transition in the first annual period when the entity initially adopts the amendments. The adoption of
ASU 2017-04 did not have an effect on the Company's consolidated financial statements.
ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
In August 2018, the FASB issued ASU 2018-15 to align the requirements for capitalizing implementation costs incurred in a
hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or
obtain internal-use software (and hosting arrangements that include an internal-use software license). The amendments in this
ASU are effective for public business entities, like the Company, for fiscal years beginning after December 15, 2019, and interim
periods within those fiscal years. Early adoption of the amendments in this ASU is permitted, including adoption in any interim
period. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs
incurred after the date of adoption. The adoption of ASU 2018-15 did not have a material effect on the Company's consolidated
financial statements.
2. SECURITIES
The following table summarizes the amortized cost and estimated fair value of the available for sale and held to maturity
investment securities portfolio at December 31, 2020 and the corresponding amounts of gross unrealized gains and losses
recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses, respectively:
(In thousands)
Available for sale:
State and municipal obligations
U.S. GSE residential mortgage-backed securities
U.S. GSE residential collateralized mortgage obligations
U.S. GSE commercial mortgage-backed securities
U.S. GSE commercial collateralized mortgage obligations
Other asset backed securities
Corporate bonds
Total available for sale
(In thousands)
Held to maturity:
State and municipal obligations
U.S. GSE residential mortgage-backed securities
U.S. GSE residential collateralized mortgage obligations
U.S. GSE commercial mortgage-backed securities
U.S. GSE commercial collateralized mortgage obligations
Total held to maturity
Total securities
Amortized
Cost
December 31, 2020
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$
$
$
40,448
111,398
127,369
24,920
61,102
24,250
56,500
445,987
$
1,650
1,843
1,661
140
1,286
—
195
6,775
$
(10)
(6)
(226)
(253)
(52)
(300)
(1,555)
(2,402)
42,088
113,235
128,804
24,807
62,336
23,950
55,140
450,360
Amortized
Cost
Gross
Unrecognized
Gains
Gross
Unrecognized
Losses
Estimated
Fair
Value
23,715
6,272
18,511
13,069
24,133
85,700
531,687
$
1,406
227
489
625
887
3,634
10,409
$
—
—
(9)
—
—
(9)
(2,411)
$
25,121
6,499
18,991
13,694
25,020
89,325
539,685
Page -60-
As of December 31, 2020, none of the Company’s available for sale debt securities were in an unrealized loss position due to
credit and therefore no allowance for credit losses on available for sale debt securities was required. Additionally, the calculated
allowance for credit losses on held to maturity securities was inconsequential given the high quality composition of the
Company’s held to maturity portfolio and therefore no allowance for credit losses was recorded. Accrued interest receivable on
securities totaling $1.4 million at December 31, 2020 was included in accrued interest receivable in the consolidated balance
sheet and excluded from the amortized cost and estimated fair value totals in the table above.
The following table summarizes the amortized cost and estimated fair value of the available for sale and held to maturity
investment securities portfolio at December 31, 2019 and the corresponding amounts of gross unrealized gains and losses therein:
(In thousands)
Available for sale:
U.S. Treasury securities
U.S. GSE securities
State and municipal obligations
U.S. GSE residential mortgage-backed securities
U.S. GSE residential collateralized mortgage obligations
U.S. GSE commercial mortgage-backed securities
U.S. GSE commercial collateralized mortgage obligations
Other asset-backed securities
Corporate bonds
Total available for sale
Held to maturity:
State and municipal obligations
U.S. GSE residential mortgage-backed securities
U.S. GSE residential collateralized mortgage obligations
U.S. GSE commercial mortgage-backed securities
U.S. GSE commercial collateralized mortgage obligations
Total held to maturity
Total securities
Amortized
Cost
December 31, 2019
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated
Fair
Value
$
$
$
50,833
5,000
34,303
84,550
278,149
13,656
102,722
24,250
46,000
639,463
41,008
8,142
39,936
17,215
27,337
133,638
773,101
$
— $
—
704
609
1,166
23
1,723
—
—
4,225
809
5
624
102
191
1,731
5,956
$
(11)
(5)
(43)
(468)
(1,464)
(70)
(289)
(849)
(2,198)
(5,397)
—
(54)
(62)
(82)
(144)
(342)
50,822
4,995
34,964
84,691
277,851
13,609
104,156
23,401
43,802
638,291
41,817
8,093
40,498
17,235
27,384
135,027
773,318
$
(5,739)
$
The following table summarizes available for sale debt securities with gross unrealized losses for which an allowance for credit
losses has not been recorded at December 31, 2020, aggregated by category and length of time that individual securities have
been in a continuous unrealized loss position:
(In thousands)
Available for sale:
State and municipal obligations
U.S. GSE residential mortgage-backed securities
U.S. GSE residential collateralized mortgage obligations
U.S. GSE commercial mortgage-backed securities
U.S. GSE commercial collateralized mortgage obligations
Other asset backed securities
Corporate bonds
Total available for sale
December 31, 2020
Less than 12 months
Gross
Unrealized
Losses
Estimated
Fair
Value
Greater than 12 months
Gross
Unrealized
Losses
Estimated
Fair
Value
$
$
5,310
$
—
55,832
14,994
11,755
—
7,927
95,818
$
(10)
$
—
(226)
(253)
(52)
—
(73)
(614)
$
— $
152
—
—
—
3,450
29,518
33,120
$
—
(6)
—
—
—
(300)
(1,482)
(1,788)
Page -61-
The following table summarizes securities with gross unrealized losses at December 31, 2019, aggregated by category and length
of time that individual securities have been in a continuous unrealized loss position:
(In thousands)
Available for sale:
U.S. Treasury securities
U.S. GSE securities
State and municipal obligations
U.S. GSE residential mortgage-backed securities
U.S. GSE residential collateralized mortgage obligations
U.S. GSE commercial mortgage-backed securities
U.S. GSE commercial collateralized mortgage obligations
Other asset-backed securities
Corporate bonds
Total available for sale
Held to maturity:
U.S. GSE residential mortgage-backed securities
U.S. GSE residential collateralized mortgage obligations
U.S. GSE commercial mortgage-backed securities
U.S. GSE commercial collateralized mortgage obligations
Total held to maturity
Other-Than-Temporary Impairment
December 31, 2019
Less than 12 months
Estimated
Fair
Value
Gross
Unrealized
Losses
Greater than 12 months
Gross
Unrealized
Losses
Estimated
Fair
Value
$
$
50,822
—
4,982
2,935
81,377
6,648
28,710
—
—
$
175,474 $
—
6,750
—
13,038
19,788
$
$
$
(11)
—
(42)
(30)
(480)
(70)
(145)
—
—
$
(778)
— $
4,995
76
39,617
93,403
—
9,614
23,401
43,802
214,908 $
—
(17)
—
(57)
(74)
$
7,268
6,105
5,034
4,300
22,707
$
—
(5)
(1)
(438)
(984)
—
(144)
(849)
(2,198)
(4,619)
(54)
(45)
(82)
(87)
(268)
Management evaluates available for sale debt securities in unrealized loss positions to determine whether the impairment is due
to credit-related factors or noncredit-related factors. Consideration is given to (1) the extent to which the fair value is less than
cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its
investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.
At December 31, 2020, substantially all of the securities in an unrealized loss position had a variable interest rate and the cause of
the temporary impairment was directly related to changes in interest rates. The Company generally views changes in fair value
caused by changes in interest rates as temporary, which is consistent with its experience. Other asset backed securities are
comprised of student loan backed bonds, which are guaranteed by the U.S. Department of Education for 97% to 100% of
principal. Additionally, the bonds have credit support of 3% to 5% and have maintained their Aa3 Moody’s rating during the time
the Bank has owned them. The corporate bonds within the portfolio have all maintained an investment grade rating by either
Moody’s or Standard and Poor’s. None of the unrealized losses is related to credit losses. The Company does not have the intent
to sell these securities and it is more likely than not that it will not be required to sell the securities before their anticipated
recovery. The issuers continue to make timely principal and interest payments on the debt. The fair value is expected to recover
as the securities approach maturity. Therefore, the Company does not consider these securities to be other-than-temporarily
impaired at December 31, 2020.
Sales and Calls of Securities
There were $153.0 million of proceeds on sales of available for sale securities with gross gains of approximately $4.3 million and
gross losses of approximately $0.8 million realized in 2020. There were $46.5 million of proceeds on sales of available for sale
securities with gross gains of approximately $0.2 million realized in 2019. There were $230.4 million of proceeds on sales of
available for sale securities with gross losses of approximately $7.9 million realized in 2018. There were $14.9 million, $20.3
million and $3.3 million of proceeds from calls of securities in 2020, 2019 and 2018, respectively.
Page -62-
Pledged Securities
Securities having a fair value of $402.8 million and $402.2 million at December 31, 2020 and 2019, respectively, were pledged to
secure public deposits and FHLB and FRB overnight borrowings.
Trading Securities
The Company did not hold any trading securities during the years ended December 31, 2020 and 2019.
Restricted Securities
The Bank is a member of the FHLB of New York. Members are required to own a particular amount of stock based on the level
of borrowings and other factors, and may invest in additional amounts. The Bank is a member of the Atlantic Central Banker’s
Bank (“ACBB”) and is required to own ACBB stock. The Bank is also a member of the FRB system and required to own FRB
stock. FHLB, ACBB and FRB stock is carried at cost and periodically evaluated for impairment based on ultimate recovery of
par value. Both cash and stock dividends are reported as income. The Bank owned $23.4 million and $32.9 million in FHLB,
ACBB and FRB stock at December 31, 2020 and 2019, respectively. These amounts were reported as restricted securities in the
consolidated balance sheets.
As of December 31, 2020 and 2019, there was no issuer, other than the U.S. Government and its sponsored entities, where the
Bank had invested holdings that exceeded 10% of consolidated stockholders’ equity.
The following table summarizes the amortized cost and estimated fair value by contractual maturity of the available for sale and
held to maturity investment securities portfolio 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.
(In thousands)
Maturity
Available for sale:
Within one year
One to five years
Five to ten years
Beyond ten years
Total
Held to maturity:
Within one year
One to five years
Five to ten years
Beyond ten years
Total
3. FAIR VALUE
December 31, 2020
Amortized
Cost
Estimated
Fair Value
$
$
$
$
4,131
58,608
38,415
344,833
445,987
1,885
23,140
11,535
49,140
85,700
$
$
$
$
4,116
58,861
38,597
348,786
450,360
1,902
24,452
12,144
50,827
89,325
The Company adopted ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities, during the first quarter of 2018.
FASB ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit
price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants
on the measurement date. FASB ASC 820-10 also establishes a fair value hierarchy, which requires an entity
Page -63-
to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of
the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market
participants would use in pricing an asset or liability.
The following tables summarize assets and liabilities measured at fair value on a recurring basis:
(In thousands)
Financial assets:
Available for sale securities:
State and municipal obligations
U.S. GSE residential mortgage-backed securities
U.S. GSE residential collateralized mortgage obligations
U.S. GSE commercial mortgage-backed securities
U.S. GSE commercial collateralized mortgage obligations
Other asset-backed securities
Corporate bonds
Total available for sale securities
Derivatives
Financial liabilities:
Derivatives
(In thousands)
Financial assets:
Available for sale securities:
U.S. Treasury securities
U.S. GSE securities
State and municipal obligations
U.S. GSE residential mortgage-backed securities
U.S. GSE residential collateralized mortgage obligations
U.S. GSE commercial mortgage-backed securities
U.S. GSE commercial collateralized mortgage obligations
Other asset-backed securities
Corporate bonds
Total available for sale securities
Derivatives
Financial liabilities:
Derivatives
December 31, 2020
Fair Value Measurements Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
$
$
42,088
113,235
128,804
24,807
62,336
23,950
55,140
450,360
49,662
56,417
December 31, 2019
Fair Value Measurements Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
$
$
50,822
4,995
34,964
84,691
277,851
13,609
104,156
23,401
43,802
638,291
15,437
16,645
Carrying
Value
42,088
113,235
128,804
24,807
62,336
23,950
55,140
450,360
49,662
56,417
Carrying
Value
50,822
4,995
34,964
84,691
277,851
13,609
104,156
23,401
43,802
638,291
15,437
16,645
$
$
$
$
$
$
$
$
Page -64-
The following tables summarize assets measured at fair value on a non-recurring basis:
(In thousands)
Loans held for sale
Individually evaluated loans
(In thousands)
Loans held for sale
Impaired loans
December 31, 2020
Fair Value Measurements Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Carrying
Value
$
$
52,785 $
2,940
42,785
Significant
Unobservable
Inputs
(Level 3)
$
$
10,000
2,940
December 31, 2019
Fair Value Measurements Using:
Quoted Prices
In Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
12,643
6,981
Carrying
Value
$
$
12,643
6,981
Loans held for sale at December 31, 2020 had a carrying amount of $52.8 million which is net of a $2.9 million valuation
allowance. Loans held for sale at December 31, 2019 had a carrying amount of $12.6 million with no valuation allowance
recorded.
Individually evaluated commercial and industrial loans with an allowance for credit losses at December 31, 2020 had a carrying
amount of $2.9 million, which is made up of the outstanding balance of $9.6 million, net of a valuation allowance of $6.7 million.
This resulted in an additional provision for credit losses of $2.6 million that is included in the amount reported on the
consolidated statements of income for the year ended December 31, 2020. Impaired loans (prior to the adoption of the CECL
standard) with an allocated allowance for loan losses at December 31, 2019 had a carrying amount of $7.0 million, which is made
up of the outstanding balance of $11.7 million, net of a valuation allowance of $4.7 million.
There was no other real estate owned at December 31, 2020 and 2019. Accordingly, there was no additional provision for credit
losses included in the amount reported on the consolidated statements of income.
The Company used the following methods and assumptions in estimating the fair value of its financial instruments:
Securities Available for Sale and Held to Maturity: If available, the estimated fair values are based on independent dealer
quotations on nationally recognized securities exchanges and are classified as Level 1. For securities where quoted prices are not
available, fair value is based on matrix pricing, which is a mathematical technique widely used in the industry to value debt
securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’
relationship to other benchmark quoted securities resulting in a Level 2 classification.
Derivatives: Represents interest rate swaps for which the estimated fair values are based on valuation models using observable
market data as of the measurement date resulting in a Level 2 classification.
Loans Held for Sale: Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is
initially determined using the price we expect to receive for the loans based on commitments received from third-party investors.
Thereafter, loans held for sale are re-evaluated quarterly to determine if a valuation allowance is required to adjust for a decline
in fair value below the carrying amount. Subsequent fair value determinations are based on commitments received from third
party investors and/or through appraisals using a single valuation approach or a combination of approaches including comparable
sales and the income approach. Appraisals may be discounted for changes in market conditions. These valuation methods result
in a Level 3 classification.
Page -65-
At December 31, 2020 the leveraged lending portfolio was reclassified to held for sale and sold in January 2021.The estimated
fair values at December 31, 2020 were based on the observable market prices for the loans, resulting in a Level 1 classification.
Individually Evaluated Loans with an ACL (Impaired Loans with an ACL prior to the adoption of the CECL Standard) and Other
Real Estate Owned: For collateral dependent loans where the Company has determined that foreclosure of the collateral is
probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be
provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the
fair value of the collateral and the amortized cost basis of the loan as of the measurement date. The fair value of real estate
collateral is determined based on recent appraised values. The fair value of other real estate owned is also determined based on
recent appraised values less the estimated cost to sell. These appraisals may utilize a single valuation approach or a combination
of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by
the independent appraisers to adjust for differences between the comparable sales and income data available. Adjustments may
relate to location, square footage, condition, amenities, market rate of leases as well as timing of comparable sales. All appraisals
undergo a second review process to ensure that the methodology employed and the values derived are reasonable. Non-real estate
collateral, which includes inventory and taxi medallions, may be valued using an appraisal, net book value per the borrower’s
financial statements, aging reports, or by reference to market activity, 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. These valuation methods result in a Level 3 classification.
Appraisals for collateral-dependent loans are performed by certified general appraisers (for commercial properties) or certified
residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the
Company. Once received, the Appraisal and Credit Departments review the assumptions and approaches utilized in the appraisal
as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-
wide statistics. Management also considers the appraisal values for commercial properties associated with current loan
origination activity. Collectively, this information is reviewed to help assess current trends in commercial property values. For
each collateral dependent loan, management considers information that relates to the type of property to determine if such
properties may have appreciated or depreciated in value since the date of the most recent appraisal. Adjustments to fair value are
made only when the analysis indicates a probable decline in collateral values. Adjustments made in the appraisal process are not
deemed material to the overall consolidated financial statements given the level of collateral dependent loans measured at fair
value on a non-recurring basis.
Page -66-
The following tables summarize the estimated fair values and recorded carrying amounts of the Company’s financial instruments
at December 31, 2020 and 2019:
December 31, 2020
Fair Value Measurements Using:
(In thousands)
Financial assets:
Cash and due from banks
Interest-bearing deposits with banks
Securities available for sale
Securities restricted
Securities held to maturity
Loans held for sale
Loans, net
Derivatives
Accrued interest receivable
Financial liabilities:
Certificates of deposit
Demand and other deposits
FHLB advances
Repurchase agreements
Subordinated debentures
Derivatives
Accrued interest payable
(In thousands)
Financial assets:
Cash and due from banks
Interest-bearing deposits with banks
Securities available for sale
Securities restricted
Securities held to maturity
Loans held for sale
Loans, net
Derivatives
Accrued interest receivable
Financial liabilities:
Certificates of deposit
Demand and other deposits
FHLB advances
Repurchase agreements
Subordinated debentures
Derivatives
Accrued interest payable
Quoted Prices In
Active Markets for Observable Unobservable
Significant
Significant
Other
Carrying
Amount
Identical Assets
(Level 1)
Inputs
(Level 2)
Inputs
(Level 3)
Total
Fair Value
$
107,729 $
769,099
450,360
23,362
85,700
52,785
4,553,203
49,662
16,566
288,445
5,200,808
215,000
1,223
79,059
56,417
881
107,729 $
769,099
—
n/a
—
42,785
—
—
—
— $
—
450,360
n/a
89,325
—
—
49,662
1,421
— $
—
—
n/a
—
107,729
769,099
450,360
n/a
89,325
52,785
4,554,333
49,662
16,566
10,000
4,554,333
—
15,145
—
290,971
5,200,808
—
—
—
—
—
—
221,665
1,223
86,704
56,417
881
290,971
—
— 5,200,808
221,665
—
1,223
—
86,704
—
56,417
—
881
—
December 31, 2019
Fair Value Measurements Using:
Quoted Prices In
Active Markets for Observable Unobservable
Significant
Significant
Other
Carrying
Amount
Identical Assets
(Level 1)
Inputs
(Level 2)
Inputs
(Level 3)
Total
Fair Value
77,693 $
39,501
— $
—
— 638,291
n/a
n/a
— 135,027
—
—
—
—
—
—
15,437
2,181
— 308,660
—
3,506,670
195,000
239,622
999
81,010
16,645
1,467
—
—
—
—
— $
—
—
n/a
—
77,693
39,501
638,291
n/a
135,027
12,643
3,685,770
15,437
10,908
12,643
3,685,770
—
8,727
—
308,660
— 3,506,670
434,622
—
999
—
81,010
—
16,645
—
1,467
—
$
77,693 $
39,501
638,291
32,879
133,638
12,643
3,647,499
15,437
10,908
307,977
3,506,670
435,000
999
78,920
16,645
1,467
Page -67-
4. LOANS
The following table sets forth the major classifications of loans:
(In thousands)
Commercial real estate mortgage loans:
Owner occupied
Non-owner occupied
Multi-family mortgage loans
Residential real estate mortgage loans
Commercial, industrial and agricultural loans
Real estate construction and land loans
Installment/consumer loans
Total loans
Net deferred loan (fees) costs
Total loans held for investment
Allowance for credit losses
Loans, net
December 31, 2020 December 31, 2019
$
$
557,076
1,081,443
899,730
434,689
1,527,147
82,479
23,019
4,605,583
(8,180)
4,597,403
(44,200)
$
4,553,203
$
531,088
1,034,599
812,174
493,144
679,444
97,311
24,836
3,672,596
7,689
3,680,285
(32,786)
3,647,499
Included in commercial, industrial and agricultural loans at December 31, 2020 was $844.7 million of Paycheck Protection
Program (“PPP”) loans. These loans are expected to be fully guaranteed by the SBA and have a nominal allowance for credit
losses allocated to them based on the nature of the guarantee. The shift from net deferred loan costs at December 31, 2019 to net
deferred loan fees at December 31, 2020 was the result of the net deferred loan fees associated with the PPP loans.
Accrued interest receivable on loans totaling $15.1 million at December 31, 2020 and $8.7 million at December 31, 2019 was
included in accrued interest receivable in the consolidated balance sheet and excluded from the table above. The increase in
accrued interest receivable from December 31, 2019 relates primarily to accrued interest on PPP loans.
Loans held for sale, which are not included in the table above, totaled $52.8 million at December 31, 2020 and $12.6 million at
December 31, 2019. In December 2020, the Company made a decision to dispose of its $43.0 million leveraged lending portfolio
which was previously included in commercial, industrial and agricultural loans. As of December 31, 2020, the leveraged lending
portfolio was reclassified from loans held for investment to loans held for sale and written down by $234 thousand to the
estimated fair value of the loans in this portfolio of $42.8 million through a valuation allowance which was charged against non-
interest income in the consolidated statements of income. As of December 31, 2020 and 2019, one commercial real estate
(“CRE”) mortgage loan totaling $10.0 million and $12.6 million, respectively, was classified as held for sale. The loan was
reclassified from loans held for investment to loans held for sale and written down from $16.3 million to the loan’s estimated fair
value of $12.6 million as of June 30, 2019, through a $3.7 million charge-off during the 2019 second quarter. During the 2020
second quarter, an additional write-down was recognized 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.
Lending Risk
The principal business of the Bank is lending in CRE mortgage loans, multi-family mortgage loans, residential real estate
mortgage loans, construction loans, home equity loans, commercial, industrial and agricultural loans, land loans and consumer
loans. The Bank considers its primary lending area to be Nassau and Suffolk Counties located on Long Island and the New York
City boroughs. A substantial portion of the Bank’s loans is secured by real estate in these areas. Accordingly, the ultimate
collectability of the loan portfolio is susceptible to changes in market and economic conditions in this region.
Commercial Real Estate Mortgages
Loans in this classification include income producing investment properties and owner-occupied real estate used for business
purposes. The underlying properties are located largely in the Bank’s primary market area. The cash flows of the income
producing investment properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates,
which in turn, will have an effect on credit quality. Generally, management seeks to obtain annual financial
Page -68-
information for borrowers with loans in excess of $1.0 million in this category. In the case of owner-occupied real estate used for
business purposes, a weakened economy and resultant decreased consumer and/or business spending will have an adverse effect
on credit quality.
Multi-Family Mortgages
Loans in this classification include income producing residential investment properties of five or more families. Loans are made
to established owners with a proven and demonstrable record of strong performance. Loans are secured by a first mortgage lien
on the subject property with a loan to value ratio generally not exceeding 75%. Repayment is derived generally from the rental
income generated from the property and may be supplemented by the owners’ personal cash flow. Credit risk arises with an
increase in vacancy rates, property mismanagement and the predominance of non-recourse loans that are customary in the
industry.
Residential Real Estate Mortgages and Home Equity Loans
Loans in these classifications are generally secured by owner-occupied residential real estate and repayment is dependent on the
credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices,
can have an effect on the credit quality in this loan class. The Bank generally does not originate loans with a loan-to-value ratio
greater than 80% and does not grant subprime loans.
Commercial, Industrial and Agricultural Loans
Loans in this classification are made to businesses and include term loans, lines of credit, senior secured loans to corporations,
equipment financing and taxi medallion loans. Generally, these loans are secured by assets of the business and repayment is
expected from the cash flows of the business. A weakened economy, and resultant decreased consumer and/or business spending,
will have an effect on the credit quality in this loan class.
Real Estate Construction and Land Loans
Loans in this classification primarily include land loans to local individuals, contractors and developers for developing the land
for sale or for the purpose of making improvements thereon. Repayment is derived primarily from sale of the lots/units including
any pre-sold units. Credit risk is affected by market conditions, time to sell at an adequate price and cost overruns. To a lesser
extent, this class includes commercial development projects that the Company finances, which in most cases require interest only
during construction, and then convert to permanent financing. Construction delays, cost overruns, market conditions and the
availability of permanent financing, to the extent such permanent financing is not being provided by the Bank, all affect the credit
risk in this loan class.
Installment and Consumer Loans
Loans in this classification may be either secured or unsecured. Repayment is dependent on the credit quality of the individual
borrower and, if applicable, sale of the collateral securing the loan, such as automobiles. Therefore, the overall health of the
economy, including unemployment rates and housing prices, will have an effect on the credit quality in this loan class.
Credit Quality Indicators
The Company categorizes loans into risk categories of pass, watch, special mention, substandard and doubtful based on relevant
information about the ability of borrowers to service their debt including repayment patterns, past loss experience, current
economic conditions, and various types of concentrations of credit. Assigned risk rating grades are continuously updated as new
information is obtained. Loans risk rated special mention, substandard and doubtful are reviewed on a quarterly basis. The
Company uses the following definitions for risk rating grades:
Pass: Loans classified as pass include current loans performing in accordance with contractual terms, pools of homogenous
residential real estate and installment/consumer loans that are not individually risk rated and loans which do not exhibit certain
risk factors that require greater than usual monitoring by management.
Page -69-
Watch: Loans classified as watch are considered pass rated loans. These loans carry additional risk factors above those of pass
loans but do not have all the risk characteristics of loans classified as special mention. Such risk factors require monitoring and if
left uncorrected, could lead these loans to be downgraded.
Special mention: Loans classified as special mention, while generally not delinquent, have potential weaknesses that deserve
management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment
prospects for the loan or in the Bank’s credit position at some future date.
Substandard: Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the
debt. There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in a substandard loan, may also be in delinquency status
and have defined weaknesses based on currently existing facts, conditions and values making collection or liquidation in full
highly questionable and improbable.
Page -70-
The following tables represent loans categorized by internally assigned risk grades as of December 31, 2020 and December 31,
2019. In the December 31, 2020 table, the years noted represent the year of origination for non-revolving loans.
(In thousands)
Commercial real estate owner occupied:
Pass
Watch
Special mention
Substandard
Total commercial real estate owner occupied
Commercial real estate non-owner occupied:
Pass
Watch
Special mention
Substandard
Total commercial real estate non-owner occupied
Multi-family:
Pass
Watch
Special mention
Substandard
Total multi-family
Residential real estate:
Pass
Watch
Special mention
Substandard
Total residential real estate
Commercial, industrial and agricultural:
Pass
Watch
Special mention
Substandard
Total commercial, industrial and agricultural
Real estate construction and land loans:
Pass
Watch
Special mention
Substandard
Total real estate construction and land loans
Installment/consumer loans
Pass
Watch
Special mention
Substandard
Total installment/consumer loans
2020
2019
2018
2017
2016
2015 and
Prior
Revolving
Revolving-
Term
Total
December 31, 2020
$
92,053
727
1,843
469
95,092
$
96,679
1,373
—
553
98,605
$
47,224
8,038
3,875
—
59,137
$
66,320
10,737
10,857
—
87,914
$
25,852
3,425
823
2,426
32,526
$ 153,766
23,919
4,600
1,517
183,802
$
— $
—
—
—
—
— $
—
—
—
—
481,894
48,219
21,998
4,965
557,076
181,811
7,314
—
—
189,125
159,301
15,436
—
—
174,737
20,033
—
—
—
20,033
949,257
8,062
2,914
—
960,233
37,684
—
—
—
37,684
1,656
—
—
—
1,656
249,782
7,700
—
—
257,482
293,752
2,724
—
—
296,476
32,564
—
1,103
466
34,133
62,410
6,140
838
905
70,293
20,948
—
—
—
20,948
215
—
—
—
215
108,086
12,845
—
—
120,931
40,840
—
—
—
40,840
71,903
406
758
569
73,636
30,736
8,265
572
1,233
40,806
8,229
—
1,078
—
9,307
166
—
—
—
166
180,235
12,117
—
9,006
201,358
86,169
19,331
8,098
—
113,598
95,712
321
—
937
96,970
17,646
1,574
1,507
3,514
24,241
11,308
1,150
—
—
12,458
93
—
—
—
93
54,252
12,209
—
6,038
72,499
118,846
35,976
—
—
154,822
23,589
541
—
—
24,130
12,685
1,188
545
470
14,888
—
—
—
—
—
—
—
—
—
—
214,620
24,089
290
1,049
240,048
106,044
12,825
388
—
119,257
106,518
1,740
6,879
6,967
122,104
26,606
3,048
1,323
9,660
40,637
1,701
270
—
111
2,082
710
—
—
—
710
—
—
—
—
—
—
—
—
—
—
53,217
—
818
—
54,035
304,781
40,448
18,984
200
364,413
—
—
—
—
—
17,382
496
—
50
17,928
—
—
—
—
—
—
—
—
—
—
7,012
1,145
633
858
9,648
5,086
1,527
2,073
2,950
11,636
—
—
—
—
—
1,257
40
46
908
2,251
988,786
76,274
290
16,093
1,081,443
804,952
86,292
8,486
—
899,730
410,548
4,153
10,191
9,797
434,689
1,409,207
70,252
28,756
18,932
1,527,147
79,870
1,420
1,078
111
82,479
21,479
536
46
958
23,019
Total Loans
$ 1,478,560
$ 778,152
$ 344,823
$ 536,632
$ 298,865
$ 708,640
$ 436,376
$
23,535
$ 4,605,583
(In thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family
Residential real estate
Commercial, industrial and agricultural
Real estate construction and land loans
Installment/consumer loans
Total loans
December 31, 2019
Special Mention Substandard Doubtful
Pass
Total
$
$
511,444
1,022,208
811,770
475,949
643,413
95,530
23,976
$ 3,584,290
$
18,426
$
—
404
12,400
15,670
—
103
47,003
$
1,218
12,391
—
4,795
20,361
1,781
757
41,303
$
$
531,088
— $
1,034,599
—
812,174
—
493,144
—
679,444
—
97,311
—
—
24,836
— $ 3,672,596
Page -71-
Past Due and Non-accrual Loans
The following tables represent the aging of past due loans as of December 31, 2020 and 2019:
(In thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family
Residential real estate
Commercial, industrial and agricultural
Real estate construction and land loans
Installment/consumer loans
Total loans
30-59
Days
60-89
Days
90+ Days
Past Due
And
Past Due Past Due Accruing
December 31, 2020
Non-accrual
Including 90
Days or More
Past Due
Total Past
Due and
Non-accrual Current
Total Loans
$
$
— $
—
—
3,567
2,711
210
100
6,588
$
— $
—
—
949
4,072
—
4
5,025
$
— $
—
—
—
—
—
—
— $
636
6,771
$
—
2,897
1,597
111
150
12,162
636
6,771
—
7,413
8,380
321
254
$
556,440
1,074,672
899,730
427,276
1,518,767
82,158
22,765
$ 4,581,808
$
557,076
1,081,443
899,730
434,689
1,527,147
82,479
23,019
$ 4,605,583
$
23,775
In the absence of other intervening factors, loans granted payment deferrals related to COVID-19 are not reported as past due or
placed on non-accrual status provided the borrowers have met the criteria in the CARES Act or otherwise have met the criteria
included in an interagency statement issued by bank regulatory agencies.
During the year ended December 31, 2020, there was $93 thousand in interest earned on non-accrual loans and $406 thousand in
accrued interest on non-accrual loans was reversed through interest income.
(In thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Multi-family
Residential real estate
Commercial, industrial and agricultural
Real estate construction and land loans
Installment/consumer loans
Total loans
30-59
Days
60-89
Days
90+ Days
Past Due
And
Past Due
Past Due
Accruing
December 31, 2019
Non-accrual
Including 90
Days or More
Past Due
Total Past
Due and
Non-accrual Current
Total Loans
$
$
917
98
—
3,053
273
—
124
$
4,465
$
433
$
—
—
747
721
—
—
$
1,901
— $
—
—
343
—
—
—
343
$
$
225
512
—
2,743
736
123
30
4,369
1,575
610
—
6,886
1,730
123
154
$
529,513
1,033,989
812,174
486,258
677,714
97,188
24,682
$ 3,661,518
$
531,088
1,034,599
812,174
493,144
679,444
97,311
24,836
$ 3,672,596
$
11,078
There was no other real estate owned at December 31, 2020 and 2019.
Troubled Debt Restructurings
The terms of certain loans were modified and are considered TDRs. The modification of the terms of such loans generally
includes one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date
at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the
recorded investment in the loan. The modification of these loans involved loans to borrowers who were experiencing financial
difficulties.
In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed to determine if that
borrower is currently in payment default under any of its obligations or whether there is a probability that the borrower will be in
payment default on any of its debt in the foreseeable future without the modification.
Page -72-
The following table presents loans modified as troubled debt restructurings during the years indicated:
2020
Pre-
Modifications During the Year Ended December 31,
2019
Pre-
Post-
Post-
Modification Modification
Outstanding
Outstanding
Recorded
Recorded
Investment
Investment
Number of
Loans
Modification Modification
Outstanding
Outstanding
Recorded
Recorded
Investment
Investment
Number of
Loans
Number of
Loans
2018
Pre-
Modification
Outstanding
Recorded
Investment
Post-
Modification
Outstanding
Recorded
Investment
— $
—
—
3
—
3 $
— $
—
—
1,138
—
1,138 $
—
—
—
1,138
—
1,138
3 $
—
1
15
—
19 $
8,582 $
—
338
12,828
—
21,748 $
8,582
—
338
12,828
—
21,748
— $
1
1
10
—
12
$
— $
926
644
7,649
—
9,219
$
—
926
644
7,649
—
9,219
(Dollars in thousands)
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate
Commercial, industrial and
agricultural
Installment/consumer loans
Total
There were $1.7 million, $0.1 million and $0.4 million of charge-offs related to TDRs during the years ended December 31,
2020, 2019 and 2018, respectively. During the year ended December 31, 2020 there was one loan modified as a TDR for which
there was a payment default within twelve months following the modification. There were two loans modified as TDRs during
2019 and one loan modified as a TDR during 2018 for which there was a payment default within twelve months following the
modification. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.
At December 31, 2020 and 2019, the Company had $346 thousand and $405 thousand, respectively, of non-accrual TDRs and
$22.2 million and $26.3 million, respectively, of performing TDRs. The decrease in performing TDRs is primarily due to one
TDR relationship which became non-accrual during the 2020 second quarter and totaled $2.7 million at 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. At December 31, 2020, three non-accrual TDRs totaling $130 thousand were unsecured and one non-accrual TDR
totaling $216 thousand was secured and at December 31, 2019, the non-accrual TDRs were unsecured. The Bank has no
commitment to lend additional funds to these debtors.
The terms of certain other loans were modified during the year ended December 31, 2020 that did not meet the definition of a
TDR. These loans have a total recorded investment at December 31, 2020 of $191.1 million. These loans were to borrowers who
were not experiencing financial difficulties.
In connection with the COVID-19 relief provided by the CARES Act and interagency guidance issued in March 2020, the
Company is supporting its customers who may experience financial difficulty due to COVID-19 through loan moratoriums and
forbearance programs. The Company 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. These 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.
Collateral Dependent Loans
At December 31, 2020, the Company had collateral dependent loans which were individually evaluated to determine expected
credit losses. Collateral dependent commercial, industrial and agricultural loans totaled $9.6 million and had a related allowance
for credit losses totaling $6.7 million. The loans were secured by taxi medallions. Collateral dependent commercial real estate
loans totaled $10.8 million and had no related allowance for credit losses.
Impaired Loans (prior to the adoption of the CECL Standard)
At December 31, 2019 the Company had individually impaired loans as defined by FASB ASC 310, “Receivables” of
$27.0 million. For a loan to be considered impaired, management determines after review whether it is probable that the Bank
will not be able to collect all amounts due according to the contractual terms of the loan agreement. Management applies its
normal loan review procedures in making these judgments. Impaired loans include individually classified non-
Page -73-
accrual loans and TDRs. At December 31, 2019 impaired loans included $1.1 million in other impaired performing loans related
to borrowers with other performing TDRs. For impaired loans, the Bank evaluates the impairment of the loan in accordance with
FASB ASC 310-10-35-22. Impairment is determined based on the present value of expected future cash flows discounted at the
loan’s effective interest rate. For loans that are collateral dependent, the fair value of the collateral is used to determine the fair
value of the loan. The fair value of the collateral is determined based on recent appraised values. The fair value of the collateral
or present value of expected cash flows is compared to the carrying value to determine if any write-down or specific loan loss
allowance allocation is required.
The following tables set forth the recorded investment, unpaid principal balance and related allowance for individually impaired
loans at December 31, 2019 and 2018. The tables also set forth the average recorded investment of individually impaired loans
and interest income recognized while the loans were impaired during the years ended December 31, 2019 and 2018:
(In thousands)
With no related allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial, industrial and agricultural:
Secured
Unsecured
Total with no related allowance recorded
With an allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial, industrial and agricultural:
Secured
Unsecured
Total with an allowance recorded
Total:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial, industrial and agricultural:
Secured
Unsecured
Total
December 31, 2019
Unpaid
Principal
Balance
Related
Allocated
Allowance
Year Ended December 31, 2019
Average
Recorded
Investment
Interest
Income
Recognized
Recorded
Investment
$
3,379
2,296
$
3,401
2,296
$
— $
—
1,286
2,149
$
—
294
494
8,863
15,326
—
—
—
—
9,612
2,045
11,657
3,379
2,296
—
294
—
300
494
8,863
15,354
—
—
—
—
9,612
2,051
11,663
3,401
2,296
—
300
—
—
—
—
—
—
—
—
—
3,435
1,241
4,676
—
—
—
—
—
74
287
6,601
10,397
—
—
—
—
6,189
1,838
8,027
1,286
2,149
—
74
10,106
10,908
26,983
$
10,106
10,914
27,017
$
$
3,435
1,241
4,676
$
6,476
8,439
18,424
$
Page -74-
41
99
—
—
18
411
569
—
—
—
—
223
86
309
41
99
—
—
241
497
878
December 31, 2018
Unpaid
Principal
Balance
Related
Allocated
Allowance
Year Ended December 31, 2018
Average
Recorded
Investment
Interest
Income
Recognized
Recorded
Investment
(In thousands)
With no related allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial, industrial and agricultural:
Secured
Unsecured
Total with no related allowance recorded
With an allowance recorded:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
Commercial, industrial and agricultural:
Secured
Unsecured
Total with an allowance recorded
Total:
Commercial real estate:
Owner occupied
Non-owner occupied
Residential real estate:
Residential mortgages
Home equity
$
268
2,816
$
278
2,816
$
—
—
8,234
5,316
16,634
—
—
—
—
2,721
—
2,721
268
2,816
—
—
—
—
8,234
5,316
16,644
—
—
—
—
2,721
—
2,721
278
2,816
—
—
— $
—
—
—
—
—
—
—
—
—
—
189
—
189
—
—
—
—
189
—
189
$
177
1,583
$
—
—
5,644
5,127
12,531
—
—
—
—
2,757
—
2,757
177
1,583
—
—
8,401
5,127
15,288
$
—
88
—
—
196
284
568
—
—
—
—
91
—
91
—
88
—
—
287
284
659
Commercial, industrial and agricultural:
Secured
Unsecured
Total
10,955
5,316
19,355
$
10,955
5,316
19,365
$
$
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality. For
purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.
Related Party Loans
Certain directors, executive officers, and their related parties, including their immediate families and companies in which they are
principal owners, were loan customers of the Bank during 2020 and 2019.
The following table sets forth selected information about related party loans for the year ended December 31, 2020:
(In thousands)
Balance at beginning of period
New loans
Repayments
Balance at end of period
Year Ended
December 31,
2020
$
$
12,349
724
(1,575)
11,498
Page -75-
The following tables represent the changes in the allowance for credit losses for the years ended December 31, 2020, 2019 and
2018:
(In thousands)
Allowance for credit losses:
Beginning balance, prior to adoption of CECL
Impact of adopting CECL
Charge-offs
Recoveries
Provision (credit) for credit losses
Ending balance
(In thousands)
Allowance for credit losses:
Beginning balance
Charge-offs
Recoveries
Provision (credit) for credit losses
Ending balance
(In thousands)
Allowance for credit losses:
Beginning balance
Charge-offs
Recoveries
(Credit) provision for credit losses
Ending balance
Commercial
Real Estate
Mortgage Loans
Residential
Real Estate
Multi-family Mortgage
Loans
Loans
Commercial,
Industrial and
Agricultural
Loans
Real Estate
Construction
and Land
Loans
Installment/
Consumer
Loans
Total
Year Ended December 31, 2020
$
$
$
12,150
(7,712)
(1)
—
4,097
8,534
$
$
4,829
(3,589)
—
—
496
1,736
$
1,882
2,182
—
3
(1,005)
3,062
$
$
12,583
8,699
(2,004)
298
7,787
27,363
$
$
$
1,066
1,274
—
—
(165)
2,175
$
276
771
(7)
—
290
1,330
$ 32,786
1,625
(2,012)
301
11,500
$ 44,200
Commercial
Real Estate
Mortgage Loans
Multi-family
Loans
Residential
Real Estate
Mortgage
Loans
Commercial, Real Estate
Industrial and
Agricultural
Loans
Construction
and Land
Loans
Installment/
Consumer
Loans
Year Ended December 31, 2019
$
$
10,792
(3,670)
1
5,027
12,150
$
$
2,566
$
—
—
2,263
4,829
$
3,935
$
—
112
(2,165)
1,882
$
12,722
(799)
25
635
12,583
$
$
1,297
$
—
—
(231)
1,066
$
106
(13)
12
171
276
Commercial
Real Estate
Mortgage Loans
Multi-family
Loans
Year Ended December 31, 2018
Residential
Real Estate
Mortgage
Loans
Commercial,
Industrial and
Agricultural
Loans
Real Estate
Construction
and Land
Loans
Installment/
Consumer
Loans
$
$
11,048
$
—
—
(256)
10,792
$
4,521
$
—
—
(1,955)
2,566
$
2,438
(24)
3
1,518
3,935
$
$
12,838
(2,806)
747
1,943
12,722
$
$
740
$
—
—
557
1,297
$
122
(11)
2
(7)
106
Total
31,418
(4,482)
150
5,700
32,786
Total
31,707
(2,841)
752
1,800
31,418
$
$
$
$
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 the COVID-19 pandemic. The COVID-
19 pandemic 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.
The following table represents the balance in the allowance for loan losses and the recorded investment in loans, as defined under
FASB ASC 310-10 (prior to adoption of the CECL Standard), and based on impairment method as of December 31, 2019:
Page -76-
(In thousands)
Allowance for loan losses:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit quality
Total allowance for loan losses
Loans:
Individually evaluated for impairment
Collectively evaluated for impairment
Loans acquired with deteriorated credit quality
Total loans
$
$
$
Commercial
Real Estate
Mortgage Loans
Multi-family
Loans
Residential
Real Estate
Mortgage
Loans
December 31, 2019
Commercial,
Industrial and
Agricultural
Loans
Real Estate
Construction
and Land
Loans
Installment/
Consumer
Loans
— $
— $
— $
12,150
—
12,150
$
4,829
—
4,829
1,882
—
$
4,676
7,907
—
$
1,882
$
12,583
$
— $
— $
1,066
—
1,066
$
276
—
276
$
Total
4,676
28,110
—
32,786
5,675
1,560,012
$
812,174
— $
—
—
$ 1,565,687
$ 812,174
294
492,507
343
$ 493,144
$
21,014
658,430
$
$ 679,444
—
$
— $
97,311
—
$
97,311
— $
—
26,983
3,645,270
343
$ 3,672,596
24,836
24,836
The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.
5. PREMISES AND EQUIPMENT, NET
The following table details the components of premises and equipment:
(In thousands)
Land
Building and improvements
Furniture, fixtures and equipment
Leasehold improvements
Accumulated depreciation and amortization
Total premises and equipment, net
December 31,
2020
7,896
17,391
28,682
13,355
67,324
(32,452)
34,872
$
$
2019
7,896
17,271
25,288
12,356
62,811
(28,749)
34,062
$
$
Depreciation and amortization amounted to $4.3 million, $4.3 million and $3.8 million for the years ended December 31, 2020,
2019 and 2018, respectively.
Page -77-
6. LEASES
The Company has operating leases for certain branch locations, corporate offices and equipment. Certain leases contain rent
escalation clauses, which are reflected in the Company’s operating lease liabilities. The Company’s lease agreements do not
contain any material residual value guarantees, restrictions or covenants.
The components of lease cost were as follows:
(In thousands)
Lease cost
Operating lease cost
Sublease income
Total lease cost
Year Ended December 31,
2019
2020
$
$
7,643
(37)
7,606
$
$
7,038
(95)
6,943
The Company reports lease cost in occupancy and equipment expense in the consolidated statements of income. The Company
subleases a portion of its leased properties to commercial sublessees. Sublease income is included in other operating income in
the consolidated statements of income.
Supplemental cash flow and balance sheet information related to operating leases were as follows:
(Dollars in thousands)
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
Operating right-of-use assets obtained in exchange for lease liabilities
Weighted-average remaining lease term-operating leases
Weighted-average discount rate-operating leases (1)
Year Ended December 31,
2019
2020
$
$
7,363
7,843
$
$
7,019
48,101
December 31, 2020
December 31, 2019
7.6 years
2.91 %
7.8 years
3.20 %
(1) The Company computes the present value of operating lease liabilities using its incremental borrowing rate as the
discount rate.
Certain leases contain renewal options which are not reflected in the tables below. The exercise of renewal options, which extend
the lease term from five to ten years, is at the Company’s discretion.
The maturities of operating lease liabilities were as follows:
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total operating lease payments
Less: Interest
Present value of operating lease liabilities
Page -78-
December 31, 2020
$
$
$
7,387
7,260
6,548
6,297
6,177
18,649
52,318
(5,605)
46,713
7. GOODWILL AND OTHER INTANGIBLE ASSETS
FASB ASC 350, Intangibles — Goodwill and Other, requires a company to perform an impairment test on goodwill annually, or
more frequently if events or changes in circumstance indicate that the asset might be impaired, by comparing the fair value of
such goodwill to its recorded or carrying amount. If the carrying amount of goodwill exceeds the fair value, an impairment
charge must be recorded in an amount equal to the excess. The FASB issued ASU No. 2011-08, “Testing Goodwill for
Impairment,” which permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair
value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step
goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more
than 50 percent.
Goodwill
At December 31, 2020 and 2019, the carrying amount of the Company’s goodwill was $106.0 million.
The Company tested goodwill for impairment during the fourth quarter of 2020. The Company has one reporting unit, Dime
Community Bancshares, Inc., and evaluated goodwill at that reporting unit level. The Company elected to perform a qualitative
assessment to determine if it was more likely than not that the fair value of the reporting unit exceeded its carrying value,
including goodwill. The qualitative assessment indicated that it was more likely than not that the fair value of the reporting unit
exceeded its carrying value and no further testing was required. The results of this assessment indicated that goodwill was not
impaired.
Other Intangible Assets
The Company’s other intangible assets consist of core deposit intangibles, a trademark, and servicing assets. At December 31,
2020 and 2019, the carrying amount of the Company’s servicing assets was $1.7 million and $1.3 million, respectively.
Acquired Intangible Assets
The following table reflects acquired intangible assets:
(In thousands)
Intangible assets subject to amortization:
Core deposit intangibles
Intangible assets not subject to amortization:
Trademark
Total intangible assets
December 31,
2020
Gross
2019
Gross
Carrying
Amount
Accumulated
Amortization Amount
Carrying Accumulated
Amortization
$
$
7,211
259
7,470
$
$
5,769
$
7,211
—
$
5,769
259
7,470
$
$
5,113
—
5,113
Aggregate amortization expense for intangible assets with finite lives for the years ended December 31, 2020, 2019, and 2018
was $0.7 million, $0.8 million, and $0.9 million, respectively.
The Company acquired a trademark related to the Bank’s name change from “Bridgehampton National Bank” to “BNB Bank”
during the year ended December 31, 2017. At December 31, 2020 and 2019, the carrying amount of the Company’s trademark
was $259 thousand.
The following table reflects estimated amortization expense for each of the next five years:
(In thousands)
2021
2022
2023
2024
2025
Total
Total
530
413
281
164
54
1,442
$
$
Page -79-
8. DEPOSITS
Time Deposits
The following table presents the remaining maturities of the Bank’s time deposits at December 31, 2020:
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total
Total
238,117
26,702
14,258
4,897
4,265
206
288,445
$
$
The deposits that met or exceeded the FDIC insurance limit of $250,000 at December 31, 2020 and 2019 were $121.8 million and
$129.6 million, respectively. Deposits from principal officers, directors and their affiliates at December 31, 2020 and 2019 were
approximately $25.0 million and $16.7 million, respectively.
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase totaled $1.2 million at December 31, 2020 and $1.0 million at December 31,
2019. The repurchase agreements were collateralized by investment securities, of which 34% were U.S. GSE residential
collateralized mortgage obligations and 66% were U.S. GSE residential mortgage-backed securities with a carrying amount of
$2.2 million at December 31, 2020 and 17% were U.S. GSE residential collateralized mortgage obligations and 83% were U.S.
GSE residential mortgage-backed securities with a carrying amount of $2.1 million at December 31, 2019.
Securities sold under agreements to repurchase are financing arrangements with $1.2 million maturing during the first quarter of
2021. At maturity, the securities underlying the agreements are returned to the Company. The primary risk associated with these
secured borrowings is the requirement to pledge a market value-based balance of collateral in excess of the borrowed amount.
The excess collateral pledged represents an unsecured exposure to the lending counterparty. As the market value of the collateral
changes, both through changes in discount rates and spreads as well as related cash flows, additional collateral may need to be
pledged. In accordance with the Company’s policies, eligible counterparties are defined and monitored to minimize exposure.
The following table summarizes information concerning securities sold under agreements to repurchase:
(Dollars in thousands)
Average daily balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Weighted average interest rate at year-end
10. FEDERAL HOME LOAN BANK ADVANCES
The following table summarizes information concerning FHLB advances:
(Dollars in thousands)
Average daily balance during the year
Average interest rate during the year
Maximum month-end balance during the year
Weighted average interest rate at year-end
Year Ended December 31,
2020
2019
$
$
1,529
0.05 %
1,943
0.05 %
$
$
849
0.05 %
1,037
0.05 %
Year Ended December 31,
2020
$ 284,719
2019
$ 245,283
1.40 %
1.86 %
$ 340,000
$ 435,000
0.35 %
1.82 %
Page -80-
The following tables present the contractual maturities and weighted average interest rates of FHLB advances for each of the next
five years. There are no FHLB advances with contractual maturities after 2021.
(Dollars in thousands)
Contractual Maturity
Overnight
2021
Total FHLB advances
(Dollars in thousands)
Contractual Maturity
Overnight
2020
Total FHLB advances
December 31, 2020
Weighted
Amount Average Rate
$
—
215,000
$ 215,000
— %
0.35
0.35 %
December 31, 2019
Weighted
Average Rate
Amount
$ 195,000
240,000
$ 435,000
1.81 %
1.84
1.82 %
Each advance is payable at its maturity date, with a prepayment penalty for fixed rate advances. The advances were collateralized
by $1.7 billion and $1.4 billion of residential and commercial mortgage loans under a blanket lien arrangement at December 31,
2020 and 2019, respectively. Based on this collateral and the Company’s holdings of FHLB stock, the Company was eligible to
borrow up to a total of $1.9 billion at December 31, 2020.
11. SUBORDINATED DEBENTURES
In September 2015, the Company issued $80.0 million in aggregate principal amount of fixed-to-floating rate subordinated
debentures. $40.0 million of the subordinated debentures are callable at par after five years, have a stated maturity of
September 30, 2025 and bear interest at a fixed annual rate of 5.25% per year, from and including September 21, 2015 until but
excluding September 30, 2020. From and including September 30, 2020 to the maturity date or early redemption date, the interest
rate will reset quarterly to an annual interest rate equal to the then-current three-month LIBOR plus 360 basis points. The
remaining $40.0 million of the subordinated debentures are callable at par after ten years, have a stated maturity of September 30,
2030 and bear interest at a fixed annual rate of 5.75% per year, from and including September 21, 2015 until but excluding
September 30, 2025. From and including September 30, 2025 to the maturity date or early redemption date, the interest rate will
reset quarterly to an annual interest rate equal to the then-current three-month LIBOR plus 345 basis points. The subordinated
debentures totaled $79.1 million at December 31, 2020 and $78.9 million at December 31, 2019.
The subordinated debentures are included in tier 2 capital (with certain limitations applicable) under current regulatory guidelines
and interpretations.
12. DERIVATIVES
During the first quarter of 2019 the Company adopted ASU 2017-12, Derivatives and Hedging: Targeted Improvements to
Accounting for Hedging Activities. The purpose of this updated guidance is to better align a company’s financial reporting for
hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for public business entities for fiscal
years beginning after December 15, 2018, with early adoption, including adoption in an interim period, permitted. ASU 2017-12
requires a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on
the opening balance of each affected component of equity in the statement of financial position as of the date of adoption. The
Company has adopted the standard in 2019 with minimal impact to its financial position upon transition.
The Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight Funding Rate ("SOFR") replace
USD-LIBOR. ARRC has proposed that the transition to SOFR from USD-LIBOR will take place by the end of 2021. The
Company has material contracts that are indexed to USD-LIBOR. Industry organizations are currently working on the transition
plan. The Company is currently monitoring this activity and evaluating the risks involved.
Page -81-
Cash Flow Hedges of Interest Rate Risk
As part of its asset liability management, the Company utilizes interest rate swap agreements to help manage its interest rate risk
position. The notional amount of the interest rate swap does not represent the amount exchanged by the parties. The amount
exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.
Interest rate swaps with notional amounts totaling $280.0 million and $290.0 million as of December 31, 2020 and 2019,
respectively, were designated as cash flow hedges of certain FHLB advances. The swaps were determined to be fully effective
during the periods presented. The aggregate fair value of the swaps is recorded in other assets or other liabilities with changes in
fair value recorded in other comprehensive income (loss). The amount included in accumulated other comprehensive income
(loss) would be reclassified to current earnings should the hedges no longer be considered effective. The Company expects the
hedges to remain fully effective during the remaining term of the swaps.
The following table summarizes information about the interest rate swaps designated as cash flow hedges at December 31, 2020
and 2019:
(Dollars in thousands)
Notional amounts
Weighted average pay rates
Weighted average receive rates
Weighted average maturity
December 31,
2020
2019
$
280,000
$
290,000
1.33 %
0.23 %
3.14 years
1.84 %
1.94 %
2.91 years
Four interest rate swaps, with notional amounts totaling $125.0 million, were terminated resulting in $3.4 million in loss on
termination of swaps, which is reported as a component of non-interest income, for the year ended December 31, 2020.
Interest expense recorded on these swap transactions totaled $1.7 million during the year ended December 31, 2020. Interest
income recorded on these swap transactions totaled $1.6 million and $1.1 million during the years ended December 31, 2019 and
2018, respectively. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to
interest income/expense as interest payments are made/received on the Company’s variable-rate assets/liabilities. During the year
ended December 31, 2020, the Company had $1.7 million of reclassifications as a reduction to interest expense. During the year
ended December 31, 2020, the Company accelerated the reclassification of $3.4 million loss from other comprehensive income to
earnings as a result of hedged forecasted transactions becoming probable not to occur. During the next twelve months, the
Company estimates that $2.1 million will be reclassified as an increase in interest expense.
The following table presents the net gains (losses) recorded in accumulated other comprehensive income and the consolidated
statements of income relating to the cash flow derivative instruments for the years ended December 31, 2020, 2019 and 2018:
(In thousands)
Interest rate contracts
Year ended December 31, 2020
Year ended December 31, 2019
Year ended December 31, 2018
Amount of gain (loss)
reclassified from
Accumulated OCI
into income
Amount of gain
reclassified from
Accumulated OCI
into income
included component excluded component
—
—
—
(5,016)
1,588
1,068
— $
—
—
$
Amount of (loss) gain
recognized in OCI
included component
Amount of (loss) gain
recognized in OCI
excluded component
$
$
(10,455)
(3,601)
2,493
Page -82-
The following table reflects the cash flow hedges included in the consolidated balance sheets at the dates indicated:
December 31,
(In thousands)
Included in other assets/(liabilities):
Interest rate swaps related to FHLB advances
2020
Fair
Value
Amount Asset
Notional
Fair
Value
Notional
Liability Amount
$ 240,000
2019
Fair
Value
Asset
$ 1,233
Fair
Value
Liability
(978)
$
$ 215,000
$ — $ (6,651)
Forward starting interest rate swaps related to FHLB advances
$ 65,000
$
11
$
(222)
$ 50,000
$ — $ (1,427)
Non-Designated Hedges
Derivatives not designated as hedges may be used to manage the Company’s exposure to interest rate movements or to provide
service to customers but do not meet the requirements for hedge accounting under U.S. GAAP. The Company executes interest
rate swaps with commercial lending customers to facilitate their respective risk management strategies. These interest rate swaps
with customers are simultaneously offset by interest rate swaps that the Company executes with a third party in order to minimize
the net risk exposure resulting from such transactions. These interest-rate swap agreements do not qualify for hedge accounting
treatment, and therefore changes in fair value are reported in current period earnings. The Company’s existing credit derivatives
result from participations in interest rate swaps provided by external lenders as part of loan participation arrangements, therefore,
are not used to manage interest rate risk in the Company’s assets or liabilities. Derivatives not designated as hedges are not
speculative and result from a service the Company provides to certain lenders which participate in loans.
Interest rate swaps with notional amounts totaled $1.1 billion at December 31, 2020. Of the $1.1 billion notional amounts, $548.5
million were from loan customers and $548.5 million were from bank counterparties. Interest rate swaps with notional amounts
totaled $823.9 million at December 31, 2019. Of the $823.9 million notional amounts, $411.9 million were from loan customers
and $411.9 million were from bank counterparties.
The following table presents summary information about the interest rate swaps at December 31, 2020 and 2019:
(Dollars in thousands)
Notional amounts
Weighted average pay rates
Weighted average receive rates
Weighted average maturity
Fair value of combined interest rate swaps
December 31,
2020
1,097,100
2.94 %
2.94 %
10.02 years
—
2019
823,894
3.75 %
3.75 %
10.77 years
—
$
$
$
$
Loan swap fees recorded on these swap transactions, which is reported as a component of non-interest income, totaled $3.7
million, $7.5 million, and $716 thousand for the years ended December 31, 2020, 2019, and 2018, respectively.
Credit-Risk-Related Contingent Features
As of December 31, 2020, the termination value of derivatives in a net liability position, which includes accrued interest but
excludes any adjustment for nonperformance risk, related to these agreements was $57.1 million, while there were no derivatives
in a net asset position. The Company has minimum collateral posting thresholds with certain of its derivative counterparties. If
the termination value of derivatives is a net liability position, the Company is required to post collateral against its obligations
under the agreements. However, if the termination value of derivatives is a net asset position, the counterparty is required to post
collateral to the Company. At December 31, 2020, the Company posted collateral of $57.9 million to its counterparties under the
agreements in a net liability position and received no collateral from its counterparties under the agreements in a net asset
position. If the Company had breached any of these provisions at December 31, 2020, it could have been required to settle its
obligations under the agreements at the termination value.
Page -83-
13. INCOME TAXES
The following table details the components of income tax expense:
(In thousands)
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
Total income tax expense
Year Ended December 31,
2019
2018
2020
$ 16,262
1,457
17,719
$ 12,665
639
13,304
(3,782)
(252)
(4,034)
$ 13,685
(419)
1,175
756
$ 14,060
$
$
5,270
1,023
6,293
3,299
(451)
2,848
9,141
The following table is a reconciliation of the expected federal income tax expense at the statutory tax rate to the actual provision:
(Dollars in thousands)
Federal income tax expense computed by applying the statutory rate to
income before income taxes
Tax-exempt income
State taxes, net of federal income tax benefit
Other
Income tax expense
Year Ended December 31,
2019
2018
2020
Percentage
of Pre-tax
Percentage
of Pre-tax
Amount Earnings Amount Earnings Amount Earnings
Percentage
of Pre-tax
$ 11,703
(851)
1,214
1,619
$ 13,685
21 % $ 13,808
(920)
(1)
1,425
2
3
(253)
25 % $ 14,060
21 % $ 10,157
(1,002)
(1)
1,999
2
(1)
(2,013)
21 % $ 9,141
21 %
(2)
4
(4)
19 %
The following table summarizes the composition of deferred tax assets and liabilities:
(In thousands)
Deferred tax assets:
Allowance for credit losses and off-balance sheet credit exposure
Net unrealized losses on securities
Compensation and related benefit obligations
Net deferred loan costs and fees
Purchase accounting fair value adjustments
Net change in pension and other post-retirement benefits plans
Net operating loss carryforward
Net loss on cash flow hedges
Operating lease liabilities
Other
Total deferred tax assets
Deferred tax liabilities:
Pension and SERP expense
Net unrealized gains on securities
Depreciation
REIT undistributed net income
Net deferred loan costs and fees
State and local taxes
Operating lease right-of-use assets
Other
Total deferred tax liabilities
Net deferred tax asset
December 31,
2020
2019
$
13,983
$
—
1,674
2,588
3,574
3,608
786
1,905
13,684
1,234
43,036
10,305
343
2,368
—
4,735
2,809
3,229
304
13,444
200
37,737
(5,366)
(1,285)
(546)
(3,178)
—
(1,345)
(13,172)
(970)
(25,862)
17,174
$
$
(4,904)
—
(956)
(2,403)
(2,413)
(1,227)
(12,934)
(835)
(25,672)
12,065
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of the State and City of New York
and the State of New Jersey. The Company is no longer subject to examination by taxing authorities for years
Page -84-
before 2015. There are no unrecorded tax benefits, and the Company does not expect the total amount of unrecognized income
tax benefits to significantly increase in the next twelve months.
In connection with the acquisition of FNBNY, the Company acquired a federal net operating loss (“NOL”) carryforward subject
to Internal Revenue Code Section 382. The Company recorded a deferred tax asset that it expects to realize within the
carryforward period. At December 31, 2020, the remaining federal NOL carryforward was $2.9 million. At December 31, 2020,
the Company had New York State NOL carryforward of $2.1 million, and recorded a deferred tax asset that it expects to recover
within the carryforward period. At December 31, 2020, the Company had New York City NOL carryforward of zero. The New
York State and New York City NOLs at December 31, 2020 included NOLs acquired in connection with the CNB and FNBNY
acquisitions.
14. PENSION AND OTHER POSTRETIREMENT PLANS
Pension Plan and Supplemental Executive Retirement Plan
The Bank maintains a noncontributory pension plan (the “Pension Plan”) covering all eligible employees. The Bank uses a
December 31 measurement date for this plan in accordance with FASB ASC 715-30 “Compensation – Retirement Benefits –
Defined Benefit Plans – Pension.” During 2012, the Company amended the Pension Plan by revising the formula for determining
benefits effective January 1, 2013, except for certain grandfathered employees. Additionally, new employees hired on or after
October 1, 2012 are not eligible for the Pension Plan.
During 2001, the Bank adopted the Bridgehampton National Bank Supplemental Executive Retirement Plan (“SERP”). As
recommended by the Compensation Committee of the Board of Directors and approved by the full Board of Directors, the SERP
provides benefits to certain employees, whose benefits under the Pension Plan are limited by the applicable provisions of the
Internal Revenue Code. The benefit under the SERP is equal to the additional amount the employee would be entitled to under
the Pension Plan and the 401(k) Plan in the absence of such Internal Revenue Code limitations. The assets of the SERP are held
in a rabbi trust to maintain the tax-deferred status of the plan and are subject to the general, unsecured creditors of the Company.
As a result, the assets of the rabbi trust are reflected on the Company’s consolidated balance sheets.
The following table provides information about changes in obligations and plan assets of the defined benefit Pension Plan and the
defined benefit plan component of the SERP:
(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Benefits paid and expected expenses
Assumption changes and other
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contribution
Benefits paid and actual expenses
Fair value of plan assets at end of year
Funded status at end of year
Pension Benefits
SERP Benefits
Year Ended December 31, Year Ended December 31,
2020
2019
2020
2019
$
5,323
$
23,611
952
908
(475)
3,761
28,757
33,874
6,346
$
$
—
(475)
39,745
10,988
$
$
371
149
(112)
238
5,969
$
— $
—
112
(112)
— $
3,811
261
147
(112)
1,216
5,323
—
—
112
(112)
—
(5,969)
$
(5,323)
$
28,757
$
940
794
(609)
3,865
33,747
39,745
3,764
1,160
(609)
44,060
10,313
$
$
$
$
$
$
$
$
Page -85-
The following table presents amounts recognized in accumulated other comprehensive income at December 31:
(In thousands)
Net actuarial loss
Prior service cost
Net amount recognized
Pension Benefits
December 31,
SERP Benefits
December 31,
2020 2019 2020 2019
$ 10,572
(408)
$ 10,164
$ 7,997
(484)
$ 7,513
$ 2,083
—
$ 2,083
$ 2,071
—
$ 2,071
As of December 31, 2020, the accumulated benefit obligation was $32.3 million for the Pension Plan and $6.0 million for the
SERP. As of December 31, 2019, the accumulated benefit obligation was $27.4 million for the Pension Plan and $3.6 million for
the SERP.
The following table summarizes the components of net periodic benefit (credit) cost and other amounts recognized in other
comprehensive income:
(In thousands)
Components of net periodic benefit (credit) cost and
other amounts recognized in other comprehensive
income:
Service cost
Interest cost
Expected return on plan assets
Amortization of net loss
Amortization of prior service credit
Amortization of transition obligation
Net periodic benefit (credit) cost
Net loss (gain)
Amortization of net loss
Amortization of prior service credit
Amortization of transition obligation
Total recognized in other comprehensive income
Pension Benefits
Year Ended December 31,
2019
2020
2018
2020
SERP Benefits
Year Ended December 31,
2019
2018
$
$
$
$
940
794
(2,905)
431
(77)
—
(817)
3,006
(431)
77
—
2,652
$
$
$
$
952
908
(2,445)
494
(77)
—
(168)
(140)
(494)
77
—
(557)
$
$
$
$
1,106 $
794
(2,547)
335
(77)
—
(389) $
1,980 $
(335)
77
—
1,722 $
371 $
149
—
227
—
—
747 $
239 $
(227)
—
—
12 $
261 $
147
—
70
—
—
478 $
1,216 $
(70)
—
—
1,146 $
290
127
—
121
—
5
543
(413)
(121)
—
(5)
(539)
The Company's service cost component is reported in the Company's income statement in salaries and employee benefits, which
is the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. All
other components of net periodic benefit (credit) cost are reported in the other operating expenses income statement line.
The estimated net loss and prior service credit for the defined benefit Pension Plan that will be amortized from accumulated other
comprehensive income into net periodic benefit cost over the next fiscal year are $650 thousand and $77 thousand, respectively.
The estimated net loss for the SERP that will be amortized from accumulated other comprehensive income into net periodic
benefit cost over the next fiscal year is $257 thousand.
Page -86-
Expected Long-Term Rate of Return
The Company’s expected long-term rate of return on Pension Plan assets is a long-term rate based on anticipated Pension Plan
asset returns over an extended period of time, taking into account market conditions and broad asset mix considerations. The
expected rate of return is a long-term assumption and generally does not change annually.
Weighted average assumptions used to determine benefit obligations:
Discount rate
Rate of compensation increase
Weighted average assumptions used to determine net periodic benefit cost:
Discount rate
Rate of compensation increase
Expected long-term rate of return
Pension Plan Assets
Pension Benefits
December 31,
2019
2020
2018
SERP Benefits
December 31,
2019
2020
2018
2.33 %
3.00
3.10 %
3.00
4.14 %
3.00
2.28 %
—
3.08 %
5.00
4.13 %
5.00
3.10 %
3.00
7.25
4.14 %
3.00
7.25
3.52 %
3.00
7.25
3.08 %
—
—
4.13 %
5.00
—
3.50 %
5.00
—
The Pension Plan seeks to provide retirement benefits to the employees of the Bank who are entitled to receive benefits under the
Pension Plan. The Pension Plan assets are overseen by a committee comprised of management, who meet semi-annually, and sets
the investment policy guidelines.
The Pension Plan’s overall investment strategy is to achieve a mix of approximately 97% of investments for long‐term growth
and 3% for near‐term benefit payments with a wide diversification of asset types, fund strategies, and fund managers. Cash
equivalents consist primarily of short-term investment funds. Equity securities primarily include investments in common stock,
mutual funds, depository receipts and exchange traded funds. Fixed income securities include corporate bonds, government
issues, mortgage-backed securities, high yield securities and mutual funds.
The weighted average expected long-term rate of return is estimated based on current trends in Pension Plan assets, as well as
projected future rates of return on those assets and reasonable actuarial assumptions based on the guidance provided by Actuarial
Standard of Practice No. 27 for the real and nominal rate of investment return for a specific mix of asset classes. The long-term
rate of return considers historical returns for the S&P 500 index and corporate bonds representing cumulative returns of
approximately 9.5% and 5.0%, respectively. These returns were considered along with the target allocations of asset categories.
The following table indicates the target allocations for Plan assets:
Asset Category
Cash equivalents
Equity securities
Fixed income securities
Total
Target
Allocation
2021
Percentage of Plan Assets
At December 31,
2019
2020
0 - 5 %
5.6 %
45 - 65
30 - 50
56.8
37.6
100.0
3.6 %
57.9
38.5
100.0
Weighted-Average-
Expected Long-
term Rate of
Return
— %
9.5
5.0
Except for pooled vehicles and mutual funds, which are governed by the prospectus, and unless expressly authorized by
management, the Pension Plan and its investment managers are prohibited from purchasing the following investments: letter
stock, private placements, or direct payments; securities not readily marketable; Bridge Bancorp, Inc. stock; pledging or
hypothecating securities, except for loans of securities that are fully collateralized; purchasing or selling derivative securities for
speculation or leverage; and investments by the investment managers in their own securities, their affiliates or subsidiaries
(excluding money market funds).
Fair value is defined under FASB ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of
observable inputs and minimize the use of unobservable inputs. The standard describes a fair
Page -87-
value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that
may be used to measure fair value. These levels are described in Note 3 “Fair Value.”
In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value
measurement has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Investments valued using the Net Asset Value (“NAV”) are classified as level 2 if the Pension Plan can redeem its investment
with the investee at the NAV at the measurement date. If the Pension Plan can never redeem the investment with the investee at
the NAV, it is considered as level 3. If the Pension Plan can redeem the investment at the NAV at a future date, the Pension
Plan’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment,
including the consideration of inputs specific to the asset.
In accordance with FASB ASC 715-20, the following table represents the Pension Plan’s fair value hierarchy for its financial
assets measured at fair value on a recurring basis as of December 31, 2020 and 2019:
(Dollars in thousands)
Cash and cash equivalents
Equities:
U.S. large cap
U.S. mid cap/small cap
International
Equities blend
Total equities
Fixed income securities:
Corporate
Government
Mortgage-backed
High yield bonds and bond funds
Total fixed income securities
Total plan assets
(Dollars in thousands)
Cash and cash equivalents
Equities:
U.S. large cap
U.S. mid cap/small cap
International
Equities blend
Total equities
Fixed income securities:
Corporate
Government
Mortgage-backed
High yield bonds and bond funds
Total fixed income securities
Total plan assets
December 31, 2020
Fair Value Measurements Using:
Quoted Prices Significant
In Active
Markets for
Identical Assets
(Level 1)
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Carrying
Value
$
2,452 $
— $
2,452 $
15,449
3,471
6,029
74
25,023
1,853
2,342
2,325
10,065
16,585
44,060
$
15,449
3,471
6,029
74
25,023
1,853
—
—
—
1,853
$
26,876
$
—
—
—
—
—
—
2,342
2,325
10,065
14,732
17,184
$
—
—
—
—
—
—
—
—
—
—
—
—
December 31, 2019
Fair Value Measurements Using:
Quoted Prices Significant
In Active
Markets for
Identical Assets
(Level 1)
Other
Observable
Inputs
(Level 2)
Carrying
Value
Significant
Unobservable
Inputs
(Level 3)
$
1,444 $
— $
1,444 $
12,097
4,195
6,320
414
23,026
2,024
2,926
1,033
9,292
15,275
39,745
$
12,097
4,195
6,320
414
23,026
2,024
—
—
—
2,024
$
25,050
$
—
—
—
—
—
—
2,926
1,033
9,292
13,251
14,695
$
—
—
—
—
—
—
—
—
—
—
—
—
The Company has no minimum required pension contribution due to the overfunded status of the plan.
Page -88-
Estimated Future Payments
The following table summarizes benefits expected to be paid under the Pension Plan and the SERP as of December 31, 2020,
which reflect expected future service:
Year
2021
2022
2023
2024
2025
2026-2030
401(k) Plan
Pension and SERP
Payments
(in thousands)
$
1,093
1,180
1,315
1,318
1,395
10,228
The Company provides a 401(k) plan, which covers substantially all current employees. Newly hired employees are
automatically enrolled in the plan on the 60th day of employment, unless they elect not to participate. Participants may contribute
a portion of their pre-tax base salary, generally not to exceed $19,500 for the calendar year ended December 31, 2020. Under the
provisions of the 401(k) plan, employee contributions are partially matched by the Bank as follows: 100% of each employee’s
contributions up to 1% of each employee’s compensation plus 50% of each employee’s contributions over 1% but not in excess
of 6% of each employee’s compensation for a maximum contribution of 3.5% of a participating employee’s compensation.
Participants can invest their account balances into several investment alternatives. The 401(k) plan does not allow for investment
in the Company’s common stock. During the years ended December 31, 2020, 2019 and 2018 the Company made cash
contributions of $1.4 million, $1.1 million, and $1.0 million, respectively. The 401(k) plan also includes a discretionary profit-
sharing component. During the years ended December 31, 2020, 2019 and 2018, the Company made discretionary profit-sharing
contributions of $546 thousand, $583 thousand, and $497 thousand, respectively.
Page -89-
15. STOCK-BASED COMPENSATION PLANS
In May 2019, the Company’s shareholders approved the Bridge Bancorp, Inc. 2019 Equity Incentive Plan (the “2019 Equity
Incentive Plan”), which provides for the grant of stock-based and other incentive awards to officers, employees and directors of
the Company. The 2019 Equity Incentive Plan superseded the Bridge Bancorp, Inc. 2012 Stock-Based Incentive Plan (the “2012
Equity Incentive Plan”). The 2012 Equity Incentive Plan superseded the 2006 Stock-Based Incentive Plan. The maximum
number of shares of stock, in the aggregate, that may be granted under the 2019 Equity Incentive Plan as stock options, restricted
stock, or restricted stock units is 370,000 plus the number of shares of stock which have been reserved but not issued under the
2012 Equity Incentive Plan, and any awards that are forfeited under the 2012 Equity Incentive Plan after the effective date of the
2019 Equity Incentive Plan. No further grants will be made under the 2012 Equity Incentive Plan. Currently outstanding grants
under the 2012 Equity Incentive Plan will not be affected.
The number of shares of the Company’s common stock available for stock-based awards under the 2019 Equity Incentive Plan is
370,000 plus 162,738 shares that were remaining under the 2012 Equity Incentive Plan. At December 31, 2020, 436,953 shares
remain available for issuance, including shares that may be granted in the form of stock options, RSAs, or RSUs.
The Compensation Committee of the Board of Directors determines awards under the 2019 Equity Incentive Plan. The Company
accounts for the 2019 Equity Incentive Plan under FASB ASC 718.
Stock Options
Stock options may be either incentive stock options, which bestow certain tax benefits on the optionee, or non-qualified stock
options, not qualifying for such benefits. All options have an exercise price that is not less than the market value of the
Company's common stock on the date of the grant.
The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option-pricing model. The
intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of the
Company's common stock as of the exercise or reporting date.
During the years ended December 31, 2020, 2019 and 2018, in accordance with the Long Term Incentive Plan (“LTI Plan”) for
Named Executive Officers (“NEOs”), the Company granted 69,360, 63,267 and 47,393 stock options, respectively, with an
exercise price set to equal a 10.0% premium over the grant date stock price. All of the stock options granted vest ratably over
three years. The estimated weighted-average grant-date fair value of all stock options granted in the years ended December 31,
2020, 2019 and 2018 was $4.10, $5.05 and $6.52 per stock option, respectively, using the Black-Scholes option-pricing model
with assumptions as follows:
Dividend yield
Expected volatility
Risk-free interest rate
Expected option life
Year Ended December 31,
2019
2018
2020
3.03 %
23.11
1.47
6.0 years
2.86 %
23.80
2.52
6.0 years
2.80 %
27.53
2.67
6.5 years
Compensation expense attributable to stock options was $425 thousand, $197 thousand and $91 thousand for the years ended
December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, there was $201 thousand of total unrecognized
compensation cost related to unvested stock options. The cost is expected to be recognized over a weighted-average period of 0.1
years.
Page -90-
The following table summarizes the status of the Company's stock options:
Number
of
Options
Weighted
Average
Exercise
Price
$
110,660
69,360
180,020
110,660
35.71
34.87
35.39
35.71
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
8.2 years
7.7 years
$
—
—
(Dollars in thousands, except per share amounts)
Outstanding, January 1, 2020
Granted
Outstanding, December 31, 2020
Vested and Exercisable, December 31, 2020
Number of
Options
Exercise
Price
$ 34.87
35.35
36.19
69,360
63,267
47,393
180,020
Restricted Stock Awards
The Company's RSAs are shares of the Company's common stock that are forfeitable and are subject to restrictions on transfer
prior to the vesting date. RSAs are forfeited if the award holder departs the Company before vesting. RSAs carry dividend and
voting rights from the date of grant. The vesting of time-vested RSAs depends upon the award holder continuing to render
services to the Company. The Company's performance-based RSAs vest subject to the achievement of the Company's corporate
goals.
The following table summarizes the unvested RSA activity for the year ended December 31, 2020:
Unvested, January 1, 2020
Granted
Vested
Forfeited
Unvested, December 31, 2020
Weighted
Average Grant-Date
Fair Value
$
30.37
31.02
30.34
32.16
31.00
Shares
293,717
91,428
(289,509)
(6,593)
89,043
During the year ended December 31, 2020, the Company granted a total of 91,428 RSAs. Of the 91,428 RSAs granted, 57,850
time-vested RSAs vest ratably over five years and 33,578 time-vested RSAs vest ratably over three years. During the year ended
December 31, 2019, the Company granted RSAs of 78,952 shares. Of the 78,952 shares granted, 49,925 shares vest over five
years and 29,027 shares vest over three years. During the year ended December 31, 2018, the Company granted RSAs of 83,782
shares. Of the 83,782 shares granted, 44,750 shares vest over five years, 13,915 shares vest over three years and 25,117
performance-based RSAs vest ratably over two years, subject to the achievement of the Company’s 2018 corporate goals. As of
December 31, 2020, there were 89,043 unvested RSAs, all of which were time-vested RSAs and there were no performance-
based RSAs.
Compensation expense attributable to RSAs was $5.1 million, $2.2 million and $2.4 million for the years ended December 31,
2020, 2019 and 2018, respectively. The total fair value of shares vested during the years ended December 31, 2020, 2019 and
2018, was $8.8 million, $2.5 million and $1.5 million, respectively. As of December 31, 2020, there was $2.2 million of total
unrecognized compensation costs related to non-vested RSAs. The cost is expected to be recognized over a weighted-average
period of 0.1 years.
Page -91-
Restricted Stock Units
Long Term Incentive Plan
RSUs represent an obligation to deliver shares to an employee at a future date if certain vesting conditions are met. RSUs are
subject to a time-based vesting schedule, or the satisfaction of performance conditions, and are settled in shares of the Company's
common stock. RSUs do not provide voting rights and RSUs may provide dividend equivalent rights from the date of grant.
The following table summarizes the unvested NEO RSU activity for the year ended December 31, 2020:
Unvested, January 1, 2020
Granted
Reinvested dividends
Added by performance factor
Forfeited
Vested
Unvested, December 31, 2020
Weighted
Average Grant-Date
Fair Value
29.59
32.13
30.08
33.69
28.68
29.10
32.57
Shares
85,342 $
26,556
4,491
605
(6,623)
(72,096)
38,275
During the year ended December 31, 2020 in accordance with the LTI plan for NEOs, the Company granted 26,556 RSUs. Of
the 26,556 RSUs granted, 17,943 time-vested RSUs vest ratably over three years and 8,613 performance-based RSUs vest subject
to the achievement of the Company’s three-year corporate goal for the three-year period ending December 31, 2022. During the
year ended December 31, 2019 in accordance with the LTI plan for NEOs, the Company granted 22,305 RSUs. Of the 22,305
RSUs granted, 13,255 time-vested RSUs vest ratably over five years and 9,050 performance-based RSUs vest subject to the
achievement of the Company’s three-year corporate goal for the three-year period ending December 31, 2021.
Compensation expense attributable to LTI plan RSUs was $1.6 million, $693 thousand and $462 thousand in connection with
these awards for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, there was $0.6
million of total unrecognized compensation cost related to non-vested RSUs. The cost is expected to be recognized over a
weighted-average period of 0.1 years.
Directors Plan
In April 2009, the Company adopted a Directors Deferred Compensation Plan (“Directors Plan”). Under the Directors Plan,
independent directors may elect to defer all or a portion of their annual retainer fee in the form of RSUs. In addition, directors
receive a non-election retainer in the form of RSUs. These RSUs vest ratably over one year and have dividend rights but no
voting rights. In connection with the Directors Plan, the Company recorded expense of $553 thousand, $570 thousand and $560
thousand for the years ended December 31, 2020, 2019 and 2018, respectively.
Employee Stock Purchase Plan
In May 2018, the Board of Directors adopted, and stockholders approved the Employee Stock Purchase Plan (“ESPP”). A total of
1,000,000 shares of the Company’s common stock have been initially authorized for issuance under the ESPP. Subject to any
plan limitations, the ESPP allows eligible employees to contribute, normally through payroll deductions, up to $25 thousand for
the purchase of the Company’s common stock at a discounted price per share for any calendar year.
Eligible employees purchased 11,413 shares, 7,888 shares and 3,758 shares of the Company’s common stock under the ESPP
during the years ended December 31, 2020, 2019 and 2018, respectively. No expense was recorded related to ESPP for the years
ended December 31, 2020, 2019 and 2018.
Page -92-
16. EARNINGS PER SHARE
FASB ASC 260-10-45 addresses whether instruments granted in share-based payment transactions are participating securities
prior to vesting and, therefore, need to be included in the earnings allocation in computing EPS. The RSAs and certain RSUs
granted by the Company contain non-forfeitable rights to dividends and therefore are considered participating securities. The
two-class method for calculating basic EPS excludes dividends paid to participating securities and any undistributed earnings
attributable to participating securities.
The following table presents the computation of EPS for the years ended December 31, 2020, 2019 and 2018:
(In thousands, except per share data)
Net income
Dividends paid on and earnings allocated to participating securities
Income attributable to common stock
Weighted average common shares outstanding, including participating securities
Weighted average participating securities
Weighted average common shares outstanding
Basic earnings per common share
Income attributable to common stock
Weighted average common shares outstanding
Incremental shares from assumed conversions of options and restricted stock units
Weighted average common and equivalent shares outstanding
Diluted earnings per common share
Year Ended December 31,
2019
2018
2020
$
$
$
$
$
42,042
(872)
41,170
$
$
51,691
(1,096)
50,595
$
$
19,903
(409)
19,494
2.11
41,170
19,494
55
19,549
2.11
$
$
$
19,952
(424)
19,528
2.59
50,595
19,528
31
19,559
2.59
$
$
$
39,227
(853)
38,374
19,875
(434)
19,441
1.97
38,374
19,441
27
19,468
1.97
There were 180,020, 110,660 and 47,393 stock options outstanding at December 31, 2020, 2019 and 2018, respectively, that were
not included in the computation of diluted earnings per share for the years ended December 31, 2020, 2019 and 2018 because the
options’ exercise prices were greater than the average market price of common stock and were, therefore, antidilutive.
There were 8,941 RSUs that were antidilutive for the year ended December 31, 2020. There were no RSUs that were antidilutive
for the year ended December 31, 2019. There were 3,156 RSUs that were antidilutive for the year ended December 31, 2018.
Page -93-
17. COMMITMENTS AND CONTINGENCIES AND OTHER MATTERS
In the normal course of business, there are various outstanding commitments and contingent liabilities, such as claims and legal
actions, guarantees and commitments to extend credit, which are not reflected in the accompanying consolidated financial
statements. No material losses are anticipated as a result of these commitments and contingencies.
Loan Commitments and Related Financial Instruments
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet
customer-financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions
established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-
sheet risk of credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same
credit policies are used to make such commitments as are used for loans, often including obtaining collateral at exercise of the
commitment.
The following represents commitments outstanding:
(In thousands)
Standby letters of credit
Loan commitments outstanding (1)
Unused lines of credit
Total commitments outstanding
December 31,
2020
25,501
150,515
808,296
984,312
$
$
2019
23,670
117,044
674,194
814,908
$
$
(1) Of the $150.5 million of loan commitments outstanding at December 31, 2020, $5.1 million are fixed rate commitments and
$145.4 million are variable rate commitments. Of the $117.0 million of loan commitments outstanding at December 31,
2019, $5.9 million are fixed rate commitments and $111.1 million are variable rate commitments.
Litigation
The Company and its subsidiaries are subject to certain pending and threatened legal actions that arise out of the normal course of
business. In the opinion of management, the resolution of any such pending or threatened litigation is not expected to have a
material adverse effect on the Company’s consolidated financial statements.
Other
Effective March 26, 2020, the FRB Board reduced the reserve requirement ratios to zero percent, which eliminated reserve
requirements for all depository institutions.
During 2020, the Bank invested overnight with the FRB and the average balance maintained during 2020 was $342.4 million.
During 2020, the Bank maintained an overnight line of credit with the FHLB. The Bank has the ability to borrow against its
unencumbered residential and commercial mortgages and investment securities owned by the Bank. 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 such borrowings outstanding.
In March 2001, the Bank entered into a Master Repurchase Agreement with the FHLB whereby the FHLB agrees to purchase
securities from the Bank, upon the Bank’s request, with the simultaneous agreement to sell the same or similar securities back to
the Bank at a future date. Securities are limited, under the agreement, to government securities, securities issued, guaranteed or
collateralized by any agency or instrumentality of the U.S. Government or any government sponsored enterprise, and non-agency
AA and AAA rated mortgage-backed securities. At December 31, 2020, there was up to $1.9 billion available for transactions
under this agreement, assuming availability of required collateral.
Page -94-
18. REGULATORY CAPITAL REQUIREMENTS
The Company and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet
specific capital requirements that involve quantitative measures of the Company’s and Bank’s assets, liabilities, and certain off-
balance sheet items calculated under regulatory accounting practices. The Company’s and Bank’s capital amounts and
classifications also are subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain
minimum amounts and ratios of total, tier 1, and common equity tier 1 capital to risk-weighted assets and of tier 1 capital to
average assets. Tier 1 capital, risk-weighted assets and average assets are as defined by regulation. The required minimums for
the Company and Bank are set forth in the tables that follow. The Company and the Bank met all capital adequacy requirements
at December 31, 2020 and 2019.
Under the Basel III Capital Rules the Company and the Bank are subject to the following minimum capital to risk-weighted
assets ratios: a) 4.5% based on common equity tier 1 capital ("CET1"); b) 6.0% based on tier 1 capital; and c) 8.0% based on total
regulatory capital. A minimum leverage ratio (tier 1 capital as a percentage of total average assets) of 4.0% is also required under
the Basel III Capital Rules. The Basel III Capital Rules additionally require institutions to retain a capital conservation buffer,
composed of CET1, of 2.5% above these required minimum capital ratio levels. Including the capital conservation buffer, the
Company and the Bank effectively have the following minimum capital to risk-weighted assets ratios: a) 7.0% based on CET1; b)
8.5% based on tier 1 capital; and c) 10.5% based on total regulatory capital.
The Company and the Bank made the one-time, permanent election to continue to exclude the effects of accumulated other
comprehensive income or loss items included in stockholders’ equity for the purposes of determining the regulatory capital ratios.
As of December 31, 2020, the most recent notification from the Federal Deposit Insurance Corporation categorized the Bank as
“well capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well capitalized,” the Bank
must maintain minimum total risk-based, tier 1 risk-based, common equity tier 1 risk-based, and tier 1 leverage ratios as set forth
in the tables below. Since that notification, there are no conditions or events that management believes have changed the
institution’s category.
The following tables present actual capital levels and minimum required levels for the Company and the Bank under Basel III
rules at December 31, 2020 and 2019:
(Dollars in thousands)
Common equity tier 1 capital to risk-weighted
assets:
Consolidated
Bank
Total capital to risk-weighted assets:
Consolidated
Bank
Tier 1 capital to risk-weighted assets:
Consolidated
Bank
Tier 1 capital to average assets:
Consolidated
Bank
Actual Capital
Amount Ratio
Minimum Capital
Adequacy Requirement
Ratio
Amount
December 31, 2020
Minimum Capital
Adequacy Requirement with
Capital Conservation Buffer
Minimum To Be Well
Capitalized Under Prompt
Corrective Action Provisions
Amount
Ratio
Amount
Ratio
$ 424,652
503,524
10.3 % $
12.2
185,479
185,465
4.5 % $
4.5
537,664
544,536
424,652
503,524
424,652
503,524
13.0
13.2
10.3
12.2
6.8
8.1
329,740
329,716
247,305
247,287
249,502
249,389
8.0
8.0
6.0
6.0
4.0
4.0
288,523
288,502
432,784
432,753
350,349
350,324
n/a
n/a
7.0 %
7.0
$
10.5
10.5
8.5
8.5
n/a
n/a
n/a
267,895
n/a
412,145
n/a
329,716
n/a
311,737
n/a
6.5 %
n/a
10.0
n/a
8.0
n/a
5.0
Page -95-
(Dollars in thousands)
Common equity tier 1 capital to risk-weighted assets:
Consolidated
Bank
Total capital to risk-weighted assets:
Consolidated
Bank
Tier 1 capital to risk-weighted assets:
Consolidated
Bank
Tier 1 capital to average assets:
Consolidated
Bank
Actual Capital
Minimum Capital
Adequacy Requirement
Minimum Capital
Adequacy Requirement with
Capital Conservation Buffer
Minimum To Be Well
Capitalized Under Prompt
Corrective Action Provisions
Amount
Ratio Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2019
$ 397,800
474,056
510,862
507,118
397,800
474,056
397,800
474,056
10.2 % $
12.1
176,121
176,114
4.5 % $
4.5
13.1
13.0
10.2
12.1
8.5
10.1
313,105
313,091
234,828
234,818
187,386
187,377
8.0
8.0
6.0
6.0
4.0
4.0
273,967
273,954
410,950
410,932
332,674
332,659
n/a
n/a
7.0 %
7.0 $
10.5
10.5
8.5
8.5
n/a
n/a
n/a
254,386
n/a
391,363
n/a
313,091
n/a
234,222
n/a
6.5 %
n/a
10.0
n/a
8.0
n/a
5.0
Page -96-
19. PARENT COMPANY ONLY CONDENSED FINANCIAL INFORMATION
Condensed financial information of Dime Community Bancshares, Inc. (Parent Company only) follows:
Condensed Balance Sheets
(In thousands)
Assets:
Cash and cash equivalents
Other assets
Investment in the Bank
Total assets
Liabilities and stockholders’ equity:
Subordinated debentures
Other liabilities
Total liabilities
Total stockholders’ equity
Total liabilities and stockholders’ equity
Condensed Statements of Income
(In thousands)
Dividends from the Bank
Interest expense
Non-interest expense
Income before income taxes and equity in undistributed earnings of the Bank
Income tax benefit
Income before equity in undistributed earnings of the Bank
Equity in undistributed earnings of the Bank
Net income
Condensed Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of the Bank
Amortization
(Increase) decrease in other assets
(Decrease) increase in other liabilities
Net cash provided by operating activities
Cash flows from financing activities:
Net proceeds from issuance of common stock
Purchase of treasury stock
Repurchase of surrendered stock from vesting of stock plans
Cash dividends paid
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Page -97-
December 31,
2020
2019
$
280 $
554
596,703
3,663
174
573,410
$ 597,537 $ 577,247
$
79,059 $
647
79,706
78,920
1,173
80,093
517,831
497,154
$ 597,537 $ 577,247
Year Ended December 31,
2019
2018
2020
$
$
26,500
4,401
252
21,847
(1,280)
23,127
18,915
42,042
$
$
24,500
4,539
104
19,857
(994)
20,851
30,840
51,691
$
$
15,000
4,539
135
10,326
(1,005)
11,331
27,896
39,227
Year Ended December 31,
2019
2018
2020
$
42,042
$
51,691
$
39,227
(18,915)
139
(379)
(526)
22,361
1,267
(4,633)
(3,181)
(19,197)
(25,744)
(30,840)
139
(73)
39
20,956
1,102
(625)
(887)
(18,420)
(18,830)
(3,383)
3,663
280
$
2,126
1,537
3,663
$
$
(27,896)
140
108
11
11,590
1,017
—
(586)
(18,342)
(17,911)
(6,321)
7,858
1,537
20. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table summarizes the components of other comprehensive (loss) income and related income tax effects:
(In thousands)
Unrealized holding gains (losses) on available for sale securities
Reclassification adjustments for (gains) losses realized in income
Income tax effect
Net change in unrealized gains (losses) on available for sale securities
Unrealized net losses arising during the period
Reclassification adjustments for amortization realized in income
Income tax effect
Net change in post-retirement obligation
Change in fair value of derivatives used for cash flow hedges
Reclassification adjustments for losses (gains) realized in income
Income tax effect
Net change in unrealized (losses) gains on cash flow hedges
Year Ended December 31,
2019
2018
2020
$
9,069 $
(3,525)
(1,628)
3,916
15,524 $
(201)
(4,467)
10,856
(3,245)
581
799
(1,865)
(10,455)
5,016
1,601
(3,838)
(1,076)
487
179
(410)
(3,601)
(1,588)
1,514
(3,675)
(8,429)
7,921
160
(348)
(1,567)
384
351
(832)
2,493
(1,068)
(418)
1,007
Other comprehensive (loss) income
$
(1,787) $
6,771 $
(173)
The following is a summary of the accumulated other comprehensive (loss) income balances, net of income taxes, at the dates
indicated:
(In thousands)
Unrealized (losses) gains on available for sale securities
Unrealized losses on pension benefits
Unrealized losses on cash flow hedges
Accumulated other comprehensive loss, net of income taxes
2019
(829)
(6,775)
(737)
(8,341)
$
$
$
December 31, Comprehensive
Other
Income (Loss)
$
$
December 31,
2020
3,087
(8,640)
(4,575)
(10,128)
$
3,916
(1,865)
(3,838)
(1,787)
The following represents the reclassifications out of accumulated other comprehensive (loss) income:
(In thousands)
Realized gains (losses) on sale of available for sale
securities
Amortization of defined benefit pension plan and defined
benefit plan component of the SERP:
Prior service credit
Transition obligation
Actuarial losses
Realized (losses) gains on cash flow hedges
Realized loss on the termination of swaps
Total reclassifications, before income tax
Income tax benefit (expense)
Total reclassifications, net of income tax
Year Ended December 31,
2019
2020
2018
Consolidated Statements of Income
Affected Line Item in the
$
3,525
$
201
$
(7,921) Net securities gains (losses)
77
—
(658)
(1,651)
(3,365)
(2,072)
606
(1,466)
$
$
77
—
(564)
1,588
—
1,302
(380)
922
$
77 Other operating expenses
(5) Other operating expenses
(456) Other operating expenses
1,068 Interest expense
— Loss on termination of swaps
(7,237)
2,105 Income tax expense
(5,132)
Page -98-
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected Consolidated Quarterly Financial Data follows:
2020 Quarter Ended
(In thousands, except per share amounts)
Interest income
Interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
(In thousands, except per share amounts)
Interest income
Interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income
Basic earnings per share
Diluted earnings per share
$
$
$
$
March 31, June 30,
45,850
5,418
40,432
4,500
35,932
2,252
24,399
13,785
3,129
10,656 $
0.54 $
0.54 $
44,602
7,952
36,650
5,000
31,650
5,217
24,843
12,024
2,676
9,348 $
0.47 $
0.47 $
September 30, December 31,
47,484
4,492
42,992
500
42,492
5,444
35,078 (2)
12,858
3,881
8,977
0.45
0.45
46,296
5,589
40,707
1,500
39,207
6,790
28,937 (1)
17,060
3,999
13,061 $
0.66 $
0.66 $
$
$
$
2019 Quarter Ended
March 31,
$
$
44,515
10,192
34,323
600
33,723
5,218
22,599
16,342
3,415
12,927 $
0.65 $
0.65 $
$
June 30,
46,352
10,835
35,517
3,500
32,017
5,499
24,004
13,512
2,859
10,653 $
0.53 $
0.53 $
$
$
$
September 30, December 31,
44,320
8,672
35,648
600
35,048
8,426
$
46,354
9,639
36,715
1,000
35,715
6,244
24,204
17,755
3,852
13,903 $
0.70 $
0.70 $
25,332
18,142
3,934
14,208
0.71
0.71
(1) 2020 amount includes pre-tax merger expenses of $2.4 million.
(2) 2020 amount includes pre-tax merger expenses of $2.1 million.
22. NET FRAUD LOSS
The Company incurred a pre-tax charge of $8.9 million in the year ended December 31, 2018 relating to the fraudulent conduct
of a business customer through its deposit accounts at the Bank. The Company continues to work with the appropriate law
enforcement authorities in connection with this matter. The customer has filed a petition pursuant to Chapter 11 of the bankruptcy
code.
In September 2020, the Company resolved its claim for the loss with its insurance carrier to the full extent of the available
coverage.
Page -99-
23. SUBSEQUENT EVENT
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. The Company issued 21,232,920
shares of its common stock to Legacy Dime shareholders in connection with the Merger.
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 Company preferred stock having the same
powers, preferences and rights as the Dime Preferred Stock. The Company issued 5,299,200 shares of its 5.50% Fixed-Rate Non-
Cumulative Perpetual Preferred Stock, Series A to Dime Preferred Stock holders in connection with the Merger.
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 4.50% Fixed-to-Floating
Rate Subordinated Debentures due 2027 of Legacy Dime.
Page -100-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Audit Committee
Dime Community Bancshares, Inc.
Hauppauge, New York
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Dime Community Bancshares, Inc. (the “Company”) as of December 31, 2020 and
2019, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year
period ended December 31, 2020, and the related notes (collectively referred to as “financial statements”). We also have audited the Company’s internal
control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework: (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31,
2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020 in conformity
with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework:
(2013) issued by COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for credit losses effective January 1,
2020, due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification No. 326, Financial Instruments – Credit
Losses (ASC 326). The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not
adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles. The adoption of the new credit
loss standard and its subsequent application is also communicated as a critical audit matter below.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report On Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective
internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial
statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Page -101-
Allowance for Credit Losses – Loans: Qualitative Factors
As described in Note 1 to the consolidated financial statements, the Company adopted Accounting Standards Update 2016-13, “Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (the “CECL Standard”) as of January 1, 2020. See change in
accounting principle explanatory paragraph above. The adoption of the CECL Standard resulted in an after-tax cumulative-effect adjustment of $1.5
million recorded in retained earnings as of January 1, 2020. As of December 31, 2020, the allowance for credit losses was $44.2 million and the
provision for credit losses was $11.5 million for the year then ended; see Notes 1 and 4 to the consolidated financial statements. The methodology for
estimating the amount of expected credit losses reported in the allowance for credit losses includes a pooled component for estimated expected credit
losses for pools of loans that share similar risk characteristics. The Company employs a loss-rate model based on probability of default and loss given
default estimates, 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 loan risk ratings) to criticized, and
classified loan risk ratings to default.
Loans are pooled by loan risk ratings based loan product type and other homogeneous characteristics. Credit loss assumptions are applied to the loan
pools using life-of-loan analysis runout periods and the historical severity of loss, based on the aggregate net lifetime losses (loss given default) per loan
pool. The Company adjusts 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. These adjustment factors (qualitative factors) include: (1) lending policies and
procedures; (2) international, national, regional and local economic business conditions and developments that affect the collectability of the portfolio,
including the condition of various markets; (3) the nature and volume of the loan portfolio including the terms of the loans; (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; (6) the quality of the Company’s loan review system; (7) the value of underlying collateral for collateralized loans; (8) the
existence and effect of any concentrations of credit, and changes in the level of such concentrations; and (9) the effect of external factors such as
competition and legal and regulatory requirements on the level of estimated credit losses in the existing portfolio. The factors above include
management’s expectation of future conditions based on a reasonable and supportable forecasts of the economic conditions.
We determined that auditing management’s implementation and subsequent application of the qualitative factors used to reflect current and forecasted
conditions in the allowance for credit losses for loans to be a critical audit matter due to the extent of audit effort and degree of auditor judgment required
to evaluate the qualitative factors, given the volume and nature of inputs and the significant management judgment required.
To address this critical audit matter, we tested the operating effectiveness of the Company's controls related to the qualitative factors, including the
following:
•
•
•
•
Management’s implementation and subsequent application of significant judgments related to the qualitative factors and the resulting
allocation to the allowance for credit losses
Management's review over the completeness and accuracy of the data used as the basis for the qualitative factors
Management's testing over the mathematical accuracy of the allowance for credit losses
An internal committee’s review of the allowance for credit losses and provision for credit losses
Our substantive procedures related to the qualitative factors included the following:
•
•
•
•
Performing analytical procedures over the current and forecast qualitative factors
Evaluating the reasonableness of management’s initial selection and subsequent application of qualitative factors and the resulting allocation
to the allowance for credit losses
Testing the completeness and accuracy of certain data used in the qualitative factor calculations
Testing the mathematical accuracy of the allowance for credit loss calculation
Because of its inherent limitations, internal control over financial reporting
We have served as the Company’s auditor since 2002.
New York, New York
March 15, 2021
Crowe LLP
Page -102-
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Company’s management, including the
Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as
amended) as of December 31, 2020. Based on that evaluation, the Company’s Principal Executive Officer and Principal Financial
Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by
the annual report.
Report by Management on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining an effective system of internal control over financial reporting. The
Company’s system of internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. There are inherent limitations in the effectiveness of any system of internal control over financial
reporting, including the possibility of human error and circumvention or overriding of controls. Accordingly, even an effective
system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement
preparation. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become
inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the Company’s internal control over financial reporting as of December 31, 2020. This assessment was
based on criteria for effective internal control over financial reporting described in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment,
management believes that, as of December 31, 2020, the Company maintained effective internal control over financial reporting
based on those criteria.
The Company’s independent registered public accounting firm that audited the financial statements that are included in this
annual report on Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting. The
attestation report of Crowe LLP appears on the previous page.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the quarter ended December 31,
2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial
reporting.
Item 9B. Other Information
None.
Page -103-
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information regarding Directors, Executive Officers and Corporate Governance will be set forth in the Registrant’s Proxy
Statement for the Annual Meeting of Shareholders to be held on May 27, 2021 and is incorporated herein by reference thereto.
Item 11. Executive Compensation
The information regarding Executive Compensation will be set forth in the Registrant’s Proxy Statement for the Annual Meeting
of Shareholders to be held on May 27, 2021 and is incorporated herein by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information regarding Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
will be set forth in the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 27, 2021 and is
incorporated herein by reference thereto.
Set forth below is certain information as of December 31, 2020, regarding the Company’s equity compensation plans that have
been approved by stockholders. The Company does not have any equity compensation plans that have not been approved by
stockholders.
Equity compensation
plan approved by
stockholders
2006 Stock-Based Incentive Plan
2012 Stock-Based Incentive Plan
2019 Equity Incentive Plan
Employee Stock Purchase Plan
Total
Number of securities to Weighted average
exercise price with
be issued upon exercise
respect to outstanding
of outstanding options
stock options
and awards
19,928
203,789
150,827
—
374,544
—
$ 35.71
34.87
—
$ 35.39
Number of securities
remaining available for
issuance under the plan
—
—
436,953
976,941
1,413,894
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information regarding Certain Relationships and Related Transactions and Director Independence will be set forth in the
Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 27, 2021 and is incorporated herein by
reference thereto.
Item 14. Principal Accounting Fees and Services
The information regarding the Company’s independent registered public accounting firm’s fees and services will be set forth in
the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 27, 2021 and is incorporated herein
by reference thereto.
Page -104-
Item 15. Exhibits and Financial Statement Schedules
PART IV
(a) The following consolidated financial statements, including notes thereto, and financial schedules of the Company, required in
response to this item are included in Part II, Item 8, “Financial Statements and Supplementary Data.”
1.
Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
2.
Financial Statement Schedules
Page No.
46
47
48
49
50
51
101
Financial Statement Schedules have been omitted because they are not applicable or the required information is shown in the
Consolidated Financial Statements or Notes thereto in Part II, Item 8, “Financial Statements and Supplementary Data.”
3.
Exhibits
See Exhibit Index on page 106.
Item 16. Form 10-K Summary
Not applicable.
Page -105-
EXHIBIT INDEX
Exhibit
Number
Description of Exhibit
Exhibit
3.1
3.2
4.1
4.2
4.3
4.4
10.1
10.1(i)
10.1(ii)
10.1(iii)
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K,
filed February 2, 2021)
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Form 8-K, filed
February 1, 2021)
Description of the Registrant’s Securities
Indenture, dated as of June 13, 2017, by and between Dime Community Bancshares, Inc., as Issuer, and Wilmington Trust,
National Association, as Trustee (incorporated by reference to Exhibit 4.1 to Dime Community Bancshares, Inc.’s Form 8-K,
filed on June 13, 2017)
First Supplemental Indenture, dated as of June 13, 2017, by and between Dime Community Bancshares, Inc., as Issuer, and
Wilmington Trust, National Association, as Trustee, including the form of the 4.50% fixed-to-floating rate subordinated
debentures due 2027 attached as Exhibit A thereto (incorporated by reference to Exhibit 4.2 to Dime Community
Bancshares, Inc.’s Form 8-K, filed on June 13, 2017)
Second Supplemental Indenture, dated as of February 1, 2021, by and between the Registrant and Wilmington Trust, National
Association, as Trustee (incorporated by reference to Exhibit 4.3 to the Registrant’s Form 8-K, filed February 1, 2021)
*
*
*
*
*
Amended and Restated Employment Contract – Howard H. Nolan (incorporated by reference to Registrant’s Form 8-K, File
No. 001-34096, filed June 24, 2015)
*
First Amendment to the Amended and Restated Employment Contract – Howard H. Nolan (incorporated by reference to
Registrant’s Form 10-Q, File No. 0-18546, filed May 10, 2016)
Second Amendment to the Amended and Restated Employment Contract – Howard H. Nolan (incorporated by reference to
Registrant’s Form 10-Q, File No. 0-18546, filed August 8, 2016)
Third Amendment to the Amended and Restated Employment Contract – Howard H. Nolan (incorporated by reference to
Registrant’s Form 10-K, File No. 001-34096, filed March 9, 2018)
Employment Agreement – Kevin M. O’Connor (incorporated by reference to Registrant’s Form 8-K, File No. 0-18546, filed
October 15, 2007)
Equity Incentive Plan (incorporated by reference to Registrant’s Definitive Proxy Statement, File No. 0-18546, filed March
24, 2006)
Supplemental Executive Retirement Plan (Revised for 409A) (incorporated by reference to Registrant’s Form 10-K, File No.
0-18546, filed March 14, 2008)
2012 Stock-Based Incentive Plan (incorporated by reference to the Registrant’s Definitive Proxy Statement, File No. 001-
34096, filed April 2, 2012)
Bridge Bancorp, Inc. Amended and Restated Directors Deferred Compensation Plan (incorporated by reference to Registrant’s
Form 10-K, File No. 001-34096, filed March 11, 2018)
Form of Employment Agreement entered into with James J. Manseau, John M. McCaffery and Kevin L. Santacroce
(incorporated by reference to Registrant’s Form 10-K, File No. 001-34096, filed March 9, 2018)
Bridge Bancorp, Inc. Employee Stock Purchase Plan (incorporated by reference to the Registrant’s Definitive Proxy
Statement, File No. 001-34096, filed April 2, 2018)
2019 Equity Incentive Plan (incorporated by reference to the Registrant’s Definitive Proxy Statement, File No. 001-34096,
filed April 1, 2019)
10.10
Form of Amendment to Employment Agreement and Amended and Restated Employment Agreement entered into with
Howard H. Nolan, James J. Manseau, John M. McCaffery and Kevin L. Santacroce (incorporated by reference to Exhibit
10.10 to the Registrant’s Annual Report on Form 10-K, File No. 001-34096, filed March 11, 2020)
Page -106-
*
*
*
*
*
*
*
*
*
*
*
*
Exhibit
Number
21.1
23.1
31.1
31.2
32.1
101
Description of Exhibit
Exhibit
Subsidiaries of Registrant
Consent of Independent Registered Public Accounting Firm
Certification of Principal Executive Officer pursuant to Rule 13a-14(a)
Certification of Principal Financial Officer pursuant to Rule 13a-14(a)
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350
The following financial statements from Dime Community Bancshares, Inc.’s Annual Report on Form 10-K for the Year
Ended December 31, 2020, filed on March 15, 2021, formatted in Inline XBRL: (i) Consolidated Balance Sheets as of
December 31, 2020 and 2019, (ii) Consolidated Statements of Income for the Years Ended December 31, 2020, 2019 and
2018, (iii) Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2020, 2019 and 2018, (iv)
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2020, 2019 and 2018, (v) Consolidated
Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018, and (vi) the Notes to Consolidated
Financial Statements.
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
104
Inline XBRL Instance Document
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Labels Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Inline XBRL Taxonomy Extension Definitions Linkbase Document
Cover page to this Annual Report on Form 10-K, formatted in Inline XBRL
* Denotes incorporated by reference.
Page -107-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 15, 2021
March 15, 2021
March 15, 2021
DIME COMMUNITY BANCSHARES, INC.
Registrant
/s/ Kevin M. O’Connor
Kevin M. O’Connor
Chief Executive Officer
/s/ Avinash Reddy
Avinash Reddy
Senior Executive Vice President and Chief Financial Officer
/s/ Leslie Veluswamy
Leslie Veluswamy
Senior Vice President, Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
March 15, 2021
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
/s/ Kenneth J. Mahon
Kenneth J. Mahon
/s/ Marcia Z. Hefter
Marcia Z. Hefter
/s/ Rosemarie Chen
Rosemarie Chen
/s/ Michael P. Devine
Michael P. Devine
/s/ Matthew A. Lindenbaum
Matthew A. Lindenbaum
/s/ Albert E. McCoy, Jr.
Albert E. McCoy, Jr.
/s/ Raymond A. Nielsen
Raymond A. Nielsen
/s/ Kevin M. O’Connor
Kevin M. O’Connor
/s/ Vincent F. Palagiano
Vincent F. Palagiano
/s/ Joseph J. Perry
Joseph J. Perry
/s/ Kevin Stein
Kevin Stein
/s/ Dennis A. Suskind
Dennis A. Suskind
Page -108-
Exhibit 4.1
Description of Dime Community Bancshares, Inc. Securities
Unless otherwise indicated or unless the context requires otherwise, all references in this prospectus to “Dime
Community Bancshares,” the “Company,” “we,” “us,” “our” or similar references mean Dime Community Bancshares, Inc.
Description of Common Stock
We are authorized to issue 90,000,000 shares of capital stock, 80,000,000 of which are shares of common stock, par
value of $0.01 per share, and 10,000,000 of which are shares of preferred stock, par value of $0.01 per share. Each share of
common stock has the same relative rights as, and is identical in all respects to, each other share of common stock. All of our
shares of common stock are duly authorized, fully paid and nonassessable.
Dividends
The holders of our common stock are entitled to receive and share equally in such dividends, if any, declared by the
Board of Directors out of funds legally available therefor. Under the New York Business Corporation Law, we may pay
dividends on our outstanding shares except when the Company is insolvent or would be made insolvent by the dividend. In
addition, we may pay dividends and other distributions either (1) out of surplus, so that our net assets remaining after such
payment or distribution shall at least equal the amount of our stated capital, or (2) if we have no such surplus, out of our net
profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year; provided, that, if our capital is
less than the aggregate amount of the stated capital represented by the issued and outstanding shares of all classes having a
preference upon the distribution of assets, we may not pay dividends out of such net profits until the deficiency in the
amount of stated capital represented by the issued and outstanding shares of all classes having a preference upon the
distribution of assets shall have been repaired. Under the terms of the Company’s 5.50% Fixed-Rate Non-Cumulative
Perpetual Preferred Stock, Series A, unless full dividends for the most recently completed preferred stock dividend period on
all outstanding shares of preferred stock have been declared and paid in full or declared or a sum sufficient for the payment
thereof has been set aside, dividends may not be paid to the holders of our common stock (except for stock dividends and a
dividend in connection with a stockholders’ rights plan).
Voting Rights
The holders of our common stock are generally entitled to one vote per share.
Board of Directors
Our bylaws provide that the Board of Directors must consist of not less than five nor more than 25 directors, the
exact number to be determined by resolution of a majority of the full Board of Directors. The members of the Board of
Directors are elected on an annual basis. Directors are elected by a plurality of the votes cast by shareholders present at the
annual shareholders’ meeting, or if the annual meeting is not held, at a special meeting called for the purpose of the election
of directors. Holders of our common stock are not entitled to cumulate their votes in the election of directors.
Liquidation
In the event of our liquidation, dissolution or winding up, the holders of our common stock would be entitled to
receive, after payment or provision for payment of all our debts and liabilities and the holders of any preferred stock, all of
our assets available for distribution.
No Preemptive or Redemption Rights
Holders of our common stock are not entitled to preemptive rights with respect to any shares that may be issued.
The common stock is not subject to redemption.
Certain Provisions in Our Certificate of Incorporation, Our Bylaws, and Applicable Laws and Regulations
Our certificate of incorporation, our bylaws, and applicable federal and New York laws and regulations contain a
number of provisions relating to corporate governance and rights of shareholders that might have the effect of delaying,
deferring or preventing a change in control of the Company. Such provisions are listed below.
Provisions in our Certificate of Incorporation and Bylaws
Prohibition of Cumulative Voting. Our shareholders are not entitled to cumulative voting in the election of
directors.
Restrictions on Call of Special Meetings. Our bylaws provide that special meetings of stockholders can be called
by the Board of Directors.
Amendments to Certificate of Incorporation. Our certificate of incorporation provides that certain provisions may
only be amended by the approval of 75% of the shares entitled to vote on such amendment, unless such amendment has been
approved by an affirmative vote of 75% of directors then in office.
Business Combinations Involving Interested Shareholders. Our certificate of incorporation provides that an
“interested shareholder” (a person who owns or an affiliate or associate of the Company who has owned in the previous two-
year period more than 5% of the Company’s common stock) may engage in a business combination with the Company (i) if
approved by the affirmative vote of not less than 75% of the votes entitled to be cast by the holders or (ii) (a) if approved by
75% or more of the continuing directors and (b) the per share value of the consideration for the transaction is equal to the
higher of the highest per share price paid by the interested shareholder in acquiring Company common stock in the preceding
two years and the fair market value per share of common stock on the date on which the interested shareholder became an
interested shareholder.
Evaluation of Offers. Our certificate of incorporation provides that the Board of Directors may, in the context of
opposing a tender offer, take into account (i) the social and economic effects of the offer or transaction on the employees,
depositors, loan and other customers, creditors, shareholders and other elements of the communities in which we operate or
are located, (ii) the reputation and business practices of the offeror and its management and affiliates, and (iii) the business
and financial condition and earnings prospects of the offer or, including the possible effect of such conditions on the other
elements of the communities in which we operate or are located.
Federal Laws and Regulations
The Bank Holding Company Act generally would prohibit any company that is not engaged in financial activities
and activities that are permissible for a bank holding company or a financial holding company from acquiring control of us.
“Control” is generally defined as ownership of 25% or more of the voting stock or other exercise of a controlling influence.
In addition, any existing bank holding company would need the prior approval of the Federal Reserve before acquiring 5%
or more of our voting stock. The Change in Bank Control Act of 1978, as amended, prohibits a person or group of persons
from acquiring control of a bank holding company unless the Federal Reserve has been notified and has not objected to the
transaction. Under a rebuttable presumption established by the Federal Reserve, the acquisition of 10% or more of a class of
voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as
us, could constitute acquisition of control of the bank holding company.
New York Business Corporation Law
The business combination provisions of the New York Business Corporation Law could prohibit or delay mergers
or other takeovers or change in control attempts with respect to the Company and, accordingly, may
discourage attempts to acquire the Company. In general such provisions prohibit an “interested shareholder” (i.e., a person
who owns 20% or more of our outstanding voting stock) from engaging in various business combination transactions with
our company, unless (a) the business combination transaction, or the transaction in which the interested shareholder became
an interested shareholder, was approved by the Board of Directors prior to the interested shareholder's stock acquisition date,
(b) the business combination transaction was approved by the disinterested shareholders at a meeting called no earlier than
five years after the interested shareholder's stock acquisition date, or (c) if the business combination transaction takes place
no earlier than five years after the interested stockholder's stock acquisition date, the price paid to all the stockholders under
such transaction meets statutory criteria.
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Subsidiary of Dime Community Bancshares, Inc.:
Name
Dime Community Bank
Incorporation
Federal
Percent Owned
100%
Subsidiaries of Dime Community Bank:
Name
195 Havemeyer Corp.
Boulevard Funding Corp.
Bridge Abstract LLC
Bridge Financial Services, Inc.
Bridgehampton Community, Inc.
Dime Insurance Agency Inc. (f/k/a Havemeyer
Incorporation
New York
New York
New York
New York
New York
New York
Investments, Inc.)
Dime Reinvestment Corporation
DSB Holdings NY, LLC
DSBW Preferred Funding Corp.
DSBW Residential Preferred Funding Corp.
Delaware
New York
Delaware
Delaware
Percent Owned
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements on Form S-3 and S-8 (File Numbers: 333-136600, 333-199123, 333-
187262, 333-225221, 333-230338, 333-233406 and 333-253391) of Dime Community Bancshares, Inc. of our report dated March 15, 2021 with
respect to the consolidated financial statements of Dime Community Bancshares, Inc. and the effectiveness of internal control over financial
reporting, which report appears in this Annual Report on Form 10-K of Dime Community Bancshares, Inc. for the year ended December 31,
2020.
New York, New York
March 15, 2021
Crowe LLP
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13A-14(A)
I, Kevin M. O’Connor, certify that:
1) I have reviewed this annual report on Form 10-K of Dime Community Bancshares, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 15, 2021
/s/ Kevin M. O’Connor
Kevin M. O’Connor
Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13A-14(A)
I, Avinash Reddy, certify that:
1) I have reviewed this annual report on Form 10-K of Dime Community Bancshares, Inc.;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 15, 2021
/s/ Avinash Reddy
Avinash Reddy
Senior Executive Vice President and Chief Financial Officer
This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section
1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or
otherwise subject to the liability of that section. This certification shall not be deemed to be incorporated by reference into any filing under the
Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.
EXHIBIT 32.1
CERTIFICATION PURSUANT TO RULE 13A-14(B) 18 U.S.C. SECTION 1350,
As adopted pursuant to
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Dime Community Bancshares, Inc. (the “Company”) on Form 10-K for the year ended December 31,
2020 as filed with the Securities and Exchange Commission on March 15, 2021, (the “Report”), we, Kevin M. O’Connor, Chief Executive
Officer of the Company and, Avinash Reddy, Senior Executive Vice President and Chief Financial Officer of the Company, hereby certify,
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 15, 2021
/s/ Kevin M. O’Connor
Kevin M. O’Connor
Chief Executive Officer
/s/ Avinash Reddy
Avinash Reddy
Senior Executive Vice President and Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to Dime Community Bancshares, Inc. and will be retained
by Dime Community Bancshares, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.