Dime(DCOM) - 2022 Q1 - Quarterly Report

FORM 10-Q Filing Information The company, a Large Accelerated Filer, filed its Form 10-Q for the quarter ended March 31, 2022 - Registrant is Dime Community Bancshares, Inc., filing a Quarterly Report on Form 10-Q for the period ended March 31, 2022[2] - The company is classified as a Large Accelerated Filer[2] Common Stock Outstanding | Metric | Value | | :----- | :---- | | Common Stock Outstanding (April 30, 2022) | 39,243,718 shares | Cautionary Note Regarding Forward-Looking Statements The report contains forward-looking statements subject to risks like market fluctuations and the COVID-19 pandemic - Forward-looking statements are based on management's assumptions and are subject to risks and uncertainties[5] - Key risk factors include competitive pressure, market interest rate fluctuations, changes in deposit flows, loan demand, real estate values, and legislative/regulatory changes[5] - The COVID-19 pandemic continues to pose risks, potentially leading to declines in demand, increased loan delinquencies, and operational disruptions[5] PART I – FINANCIAL INFORMATION This part presents the unaudited condensed consolidated financial statements and management's analysis for Q1 2022 Item 1. Unaudited Condensed Consolidated Financial Statements This section provides the unaudited financial statements and related notes for the quarter ended March 31, 2022 Consolidated Statements of Financial Condition The company's total assets remained stable at approximately $12.1 billion as of March 31, 2022 Consolidated Statements of Financial Condition Highlights (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :--------------------------------- | :---------------------------- | :------------------------------- | :-------------------- | | Total Assets | $12,078,245 | $12,066,364 | $11,881 | | Cash and due from banks | $432,994 | $393,722 | $39,272 | | Securities available-for-sale | $1,277,036 | $1,563,711 | $(286,675) | | Securities held-to-maturity | $383,922 | $179,309 | $204,613 | | Loans held for investment, net | $9,170,234 | $9,160,808 | $9,426 | | Total Liabilities | $10,922,958 | $10,873,744 | $49,214 | | Total Deposits | $10,430,103 | $10,458,974 | $(28,871) | | FHLBNY advances | $50,000 | $25,000 | $25,000 | | Derivative cash collateral | $64,450 | $4,550 | $59,900 | | Total Stockholders' Equity | $1,155,287 | $1,192,620 | $(37,333) | Consolidated Statements of Income The company reported a significant turnaround to a net income of $34.5 million in Q1 2022 from a net loss in Q1 2021 Consolidated Statements of Income Highlights (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | Change (in thousands) | | :--------------------------------- | :---------------------------- | :---------------------------- | :-------------------- | | Total interest income | $93,919 | $86,755 | $7,164 | | Total interest expense | $4,810 | $8,914 | $(4,104) | | Net interest income | $89,109 | $77,841 | $11,268 | | (Credit) provision for credit losses | $(1,592) | $15,779 | $(17,371) | | Total non-interest income (loss) | $7,203 | $(7,383) | $14,586 | | Total non-interest expense | $49,888 | $82,805 | $(32,917) | | Income (loss) before income taxes | $48,016 | $(28,126) | $76,142 | | Income tax expense (benefit) | $13,485 | $(7,092) | $20,577 | | Net income (loss) | $34,531 | $(21,034) | $55,565 | | Net income (loss) available to common stockholders | $32,710 | $(22,855) | $55,565 | | Basic EPS | $0.82 | $(0.66) | $1.48 | | Diluted EPS | $0.82 | $(0.66) | $1.48 | Consolidated Statements of Comprehensive Income The company recorded a total comprehensive loss of $8.7 million, driven by unrealized losses on securities Consolidated Statements of Comprehensive Income Highlights (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | | :------------------------------------------------- | :---------------------------- | :---------------------------- | | Net income (loss) | $34,531 | $(21,034) | | Change in net unrealized gain (loss) on securities | $(70,131) | $(15,534) | | Change in net unrealized gain (loss) on derivatives | $6,852 | $4,948 | | Total comprehensive loss | $(8,668) | $(14,579) | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased primarily due to other comprehensive loss, dividends, and stock repurchases Consolidated Statements of Changes in Stockholders' Equity Highlights (Three Months Ended March 31, 2022) | Item | Amount (in thousands) | | :------------------------------------- | :-------------------- | | Beginning balance as of January 1, 2022 | $1,192,620 | | Net income | $34,531 | | Other comprehensive loss, net of tax | $(43,199) | | Shares received related to tax withholding | $(1,414) | | Cash dividends declared to preferred stockholders | $(1,821) | | Cash dividends declared to common stockholders | $(9,410) | | Treasury stock, at cost (purchase) | $(17,392) | | Ending balance as of March 31, 2022 | $1,155,287 | Consolidated Statements of Cash Flows Cash and cash equivalents increased by $39.3 million, driven by cash from operating activities Consolidated Statements of Cash Flows Highlights (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | | :------------------------------------------ | :---------------------------- | :---------------------------- | | Net cash provided by (used in) operating activities | $79,623 | $(8,918) | | Net cash (used in) provided by investing activities | $(7,476) | $461,934 | | Net cash used in financing activities | $(32,875) | $(19,896) | | Increase in cash and cash equivalents | $39,272 | $433,120 | | Cash and cash equivalents, end of period | $432,994 | $676,723 | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail the basis of presentation, merger accounting, and other key financial policies Note 1. Basis of Presentation The financial statements reflect the reverse merger of Legacy Dime and Bridge Bancorp completed in February 2021 - On February 1, 2021, Legacy Dime merged into Bridge Bancorp, Inc., with Bridge as the surviving entity renamed "Dime Community Bancshares, Inc."[25] - The merger was accounted for as a reverse merger, with Legacy Dime as the accounting acquirer, meaning its historical financial statements are used for pre-Merger periods[28] - As of March 31, 2022, the Company operated 60 branch locations across Long Island and New York City boroughs[30] - The Company adopted ASU No. 2016-13 (CECL Standard) on January 1, 2021, resulting in an initial $3.9 million decrease to the allowance for credit losses and a $1.7 million after-tax cumulative-effect adjustment to retained earnings[35][36] Note 2. Merger The reverse merger accounting treats Legacy Dime as the acquirer, with its assets and liabilities recorded at historical cost - The merger was completed on February 1, 2021, with Legacy Dime merging into Bridge, which was renamed Dime Community Bancshares, Inc.[43] - The merger was accounted for as a reverse merger, with Legacy Dime as the accounting acquirer[45] - The Company issued 21.2 million common shares to Legacy Dime stockholders (51.5% voting interest) and assumed $115.0 million in Legacy Dime's subordinated debt[44][46] Note 3. Summary of Accounting Policies Financial statements are prepared under GAAP for interim periods and involve significant management estimates - Unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information, involving significant estimates and assumptions[47] - The Company is evaluating ASU 2020-04 (Reference Rate Reform) and ASU 2021-01 (Reference Rate Reform: Scope), expecting no material effect on consolidated financial statements[51][52] - ASU 2022-01 (Derivatives and Hedging: Fair Value Hedging-Portfolio Layer Method) and ASU 2022-02 (Financial Instruments-Credit Losses: Troubled Debt Restructurings and Vintage Disclosures) are not expected to have a material effect on the Company's consolidated financial statements[53][54] Note 4. Accumulated Other Comprehensive Income (Loss) The accumulated other comprehensive loss balance increased significantly due to unrealized losses on securities Accumulated Other Comprehensive Income (Loss) Activity (Three Months Ended March 31, 2022) | Item | Amount (in thousands) | | :------------------------------------------------- | :-------------------- | | Balance as of January 1, 2022 | $(6,181) | | Net other comprehensive (loss) income during the period | $(43,199) | | Balance as of March 31, 2022 | $(49,380) | Components of Other Comprehensive Income (Loss), Net of Tax (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | | :------------------------------------------------- | :---------------------------- | :---------------------------- | | Net change in unrealized gain (loss) on securities, net of tax | $(47,959) | $(11,392) | | Net change in pension and other postretirement obligations | $42 | $1,371 | | Net change in unrealized gain (loss) on derivatives, net of tax | $4,718 | $16,476 | | Other comprehensive (loss) income, net of tax | $(43,199) | $6,455 | Note 5. Earnings Per Common Share The company reported diluted EPS of $0.82 for Q1 2022, a substantial improvement from a loss in the prior year Earnings Per Common Share (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 | March 31, 2021 | | :----------------------------------------- | :------------- | :------------- | | Net income (loss) available to common stockholders (in thousands) | $32,710 | $(22,855) | | Weighted average common shares outstanding | 39,251,248 | 34,260,938 | | Basic EPS | $0.82 | $(0.66) | | Diluted EPS | $0.82 | $(0.66) | Note 6. Preferred Stock The company has one series of perpetual preferred stock paying a fixed 5.50% annual dividend - Legacy Dime's Series A preferred stock was converted into the Company's preferred stock during the merger, retaining the same powers, preferences, and rights[64] - The preferred stock is perpetual, pays a fixed annual dividend of 5.50% quarterly, and is callable on or after June 15, 2025[68] Note 7. Securities The company transferred a portion of its available-for-sale securities to held-to-maturity during the quarter Securities Portfolio (March 31, 2022 vs. December 31, 2021) | Category | March 31, 2022 (Fair Value, in thousands) | December 31, 2021 (Fair Value, in thousands) | | :-------------------------- | :------------------------------------ | :------------------------------------- | | Securities available-for-sale | $1,277,036 | $1,563,711 | | Securities held-to-maturity | $358,689 | $177,354 | - The Company transferred $182.1 million (book value) of available-for-sale securities to held-to-maturity at a fair value of $175.3 million during Q1 2022, converting $6.8 million in unrealized losses to a discount[70] - All unrealized losses on available-for-sale debt securities at March 31, 2022, were due to non-credit-related interest rate changes, with no allowance for credit losses deemed necessary[81][82][83] Note 8. Loans Held for Investment, Net The loan portfolio remained stable, while the allowance for credit losses and non-accrual loans decreased Loans Held for Investment, Net (March 31, 2022 vs. December 31, 2021) | Category | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :------------------------------- | | Total loans held for investment, net | $9,170,234 | $9,160,808 | | Allowance for credit losses | $(79,615) | $(83,853) | | SBA PPP loans (included in C&I) | $33,000 | $66,000 | Allowance for Credit Losses Activity (Three Months Ended March 31, 2022) | Item | Amount (in thousands) | | :----------------------------------------- | :-------------------- | | Beginning balance (January 1, 2022) | $83,853 | | (Credit) provision for credit losses | $(1,654) | | Charge-offs | $(2,638) | | Recoveries | $54 | | Ending balance (March 31, 2022) | $79,615 | Non-Accrual Loans (March 31, 2022 vs. December 31, 2021) | Category | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :------------------------------- | | Total non-accrual loans | $35,962 | $40,307 | - The Company modified five loans totaling $25.9 million as Troubled Debt Restructurings (TDRs) during the three months ended March 31, 2022[97] Note 9. Leases The company holds operating lease liabilities primarily for its office facilities and retail branches - The Company recognizes operating lease assets and liabilities for office facilities and retail branches, excluding short-term leases[107][110] Operating Lease Liabilities and Key Metrics (March 31, 2022) | Item | Amount (in thousands) | | :---------------------------------- | :-------------------- | | Operating lease liabilities (March 31, 2022) | $63,600 | | Weighted average remaining lease term | 6.4 years | | Weighted average discount rate | 1.79% | Note 10. Derivatives and Hedging Activities The company utilizes interest rate swaps for cash flow hedging and freestanding derivative purposes - The Company uses interest rate swaps for cash flow hedges (to stabilize interest expense) and freestanding derivatives (for loan-level interest rate protection)[113][115][121] - An estimated $1.7 million will be reclassified as a decrease to interest expense from accumulated other comprehensive income related to cash flow hedges in the next twelve months[116] - The Company terminated 34 derivatives in Q1 2021, resulting in a $16.5 million loss, but no terminations occurred in Q1 2022[117] Derivative Financial Instruments Fair Value (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (Fair Value, in thousands) | December 31, 2021 (Fair Value, in thousands) | | :----------------------------------------- | :---------------------------- | :------------------------------- | | Derivative assets | $71,826 | $45,086 | | Derivative liabilities | $60,586 | $40,728 | Note 11. Fair Value of Financial Instruments Fair value measurements are categorized into three levels, with most recurring measurements using Level 2 inputs - Fair value measurements are categorized into Level 1 (active market quotes), Level 2 (observable inputs), and Level 3 (unobservable inputs)[128][129][130] - Securities available-for-sale and derivatives are measured at fair value on a recurring basis, predominantly using Level 2 inputs[131][134][136] Individually Evaluated Loans Measured at Fair Value on a Non-recurring Basis (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (Carrying Value, in thousands) | December 31, 2021 (Carrying Value, in thousands) | | :--------------------------------- | :---------------------------- | :------------------------------- | | Individually evaluated loans | $1,179 | $1,900 | Note 12. Other Intangible Assets Intangible assets consist of core deposit intangibles and a non-compete agreement resulting from the merger - The merger resulted in $10.2 million of core deposit intangibles and a $780 thousand non-compete agreement intangible asset[145] Other Intangible Assets (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :---------------------- | :---------------------------- | :------------------------------- | | Net carrying amount | $7,776 | $8,362 | | Amortization expense (Q1 2022) | $586 | N/A | Note 13. FHLBNY Advances The company doubled its FHLBNY advances during the quarter and maintains significant additional borrowing capacity FHLBNY Advances (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :------------------------------- | | Total FHLBNY advances | $50,000 | $25,000 | | Weighted average rate | 0.76% | 0.35% | - The Bank had an additional unused borrowing capacity of $3.00 billion through the FHLBNY at March 31, 2022[227] - No loss on extinguishment of debt was recognized in Q1 2022, compared to $1.6 million in Q1 2021[149] Note 14. Subordinated Debentures The company's subordinated debt balance remained stable, with interest expense increasing slightly year-over-year Subordinated Debentures (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :------------------------------- | | Subordinated debt, net | $197,050 | $197,096 | - The Company assumed $115.0 million of 4.50% fixed-to-floating rate subordinated debentures due 2027, callable starting June 15, 2022[151] - Interest expense related to subordinated debt was $2.2 million for Q1 2022, up from $1.9 million for Q1 2021[153] Note 15. Retirement and Postretirement Plans The company maintains two frozen defined-benefit pension plans and a 401(k) plan - The Company maintains two noncontributory defined-benefit pension plans (Employee Retirement Plan and BNB Bank Pension Plan), both frozen to new accruals or participants[154][155][156] Net Periodic Benefit (Credit) Cost (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :---------------------------- | | Net periodic credit (BNB Bank Pension Plan) | $(395) | $(381) | | Net periodic credit (Employee Retirement Plan) | $(273) | $(16) | - The 401(k) Plan expense was $800 thousand for Q1 2022, and the BMP and Outside Director Retirement Plan terminations in Q1 2021 resulted in a $1.5 million curtailment loss[159][165] Note 16. Stock-Based Compensation The company grants stock options, RSAs, and PSAs, with significant unrecognized compensation cost remaining - The Company grants stock options, restricted stock awards (RSAs), and performance-based share awards (PSAs) under its 2021 Equity Incentive Plan and Legacy Stock Plans[167] Stock Option Activity (March 31, 2022) | Item | Number of Options | Weighted-Average Exercise Price | Remaining Contractual Years | Intrinsic Value (in thousands) | | :----------------------------------------- | :---------------- | :------------------------------ | :-------------------------- | :----------------------------- | | Options outstanding at March 31, 2022 | 121,253 | $35.39 | 7.0 | $0 | | Options vested and exercisable at March 31, 2022 | 121,253 | $35.39 | 7.0 | $0 | - As of March 31, 2022, there was $7.9 million of unrecognized compensation cost for RSAs (2.8 years weighted-average period) and $2.0 million for PSAs (2.6 years weighted-average period)[176][178] Note 17. Income Taxes The company's effective tax rate increased in Q1 2022 primarily due to the loss of benefits from its REITs Effective Tax Rates (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 | March 31, 2021 | | :-------------------------- | :------------- | :------------- | | Consolidated effective tax rate | 28.1% | 25.2% | - The increase in the effective tax rate in Q1 2022 was primarily due to the loss of benefits from the Company's REITs[298] Note 18. Merger Related Expenses No merger-related expenses were incurred in Q1 2022, compared to significant costs in the prior-year period - No merger expenses and transaction costs were incurred during the three months ended March 31, 2022[180] Merger Expenses and Transaction Costs (Three Months Ended March 31, 2021) | Item | Amount (in thousands) | | :----------------------------------------- | :-------------------- | | Employee severance and compensation costs | $12,100 | | Transaction costs (including lease terminations) | $25,800 | | Total merger expenses and transaction costs | $37,900 | Note 19. Subsequent Event The company issued new subordinated notes in May 2022 to refinance existing debt - On May 6, 2022, the Company issued $160.0 million in fixed-to-floating rate subordinated notes due 2032[185] - Proceeds will be used to repay $115.0 million of 4.50% notes due 2027 and $40.0 million of 5.25% debentures due 2025, resulting in an estimated $750 thousand pre-tax write-off of debt issuance costs[186] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operating results, liquidity, capital, and asset quality for Q1 2022 Overview The company's operations are primarily conducted through its subsidiary, Dime Community Bank - The Holding Company's primary operations are as owner of Dime Community Bank, dependent on Bank dividends, its own earnings, capital, and borrowings[187] - The Bank's results are primarily driven by net interest income and non-interest income from fees, loan swaps, and title insurance[187] Completion of Merger of Equals The merger of Legacy Dime and Bridge Bancorp was completed on February 1, 2021, creating the current company - On February 1, 2021, Legacy Dime merged into Bridge Bancorp, Inc., which became Dime Community Bancshares, Inc.[188] - Legacy Dime common stock was converted at a ratio of 0.6480 shares of the Holding Company's common stock, and preferred stock was converted one-for-one[188][189] - The bank subsidiaries, Dime Community Bank (Legacy Dime) and BNB Bank (Bridge), merged to form "Dime Community Bank"[191] Recent Developments Relating to the COVID-19 Pandemic The company continues to operate as an essential business with no material operational disruptions from the pandemic - The Company continues to operate as an essential business, with retail branches open and remote work options, adhering to safety guidelines[192] - No material operational or internal control challenges have been identified due to the pandemic[192] - Potential continued material adverse impacts on significant estimates, asset valuations, and business operations (intangible assets, investments, loans, deferred tax assets, derivative counterparty risk) are acknowledged[194] Lending Operations and Accommodations to Borrowers The company has significantly reduced its SBA PPP loan portfolio, with remaining loans expected to be forgiven - The Company originated over $1.90 billion in SBA PPP loans through December 31, 2021[196] SBA PPP Loans Outstanding | Item | Amount (in thousands) | | :-------------------- | :-------------------- | | SBA PPP loans, net of deferred fees | $33,000 | - The Company sold its 2021 PPP originations to re-deploy funds and expects remaining PPP loans to be fully forgiven[196] Selected Financial Highlights and Other Data Key performance metrics show a strong rebound in profitability and efficiency compared to the prior year Selected Financial Highlights (Three Months Ended March 31, 2022 vs. 2021) | Metric | March 31, 2022 | March 31, 2021 | | :------------------------------------------ | :------------- | :------------- | | Reported EPS (Diluted) | $0.82 | $(0.66) | | Return on average assets | 1.13% | (0.79)% | | Return on average equity | 11.53% | (8.18)% | | Net interest margin | 3.19% | 3.14% | | Efficiency ratio | 51.8% | 117.5% | | Non-performing loans/Total loans | 0.39% | 0.34% | | Allowance for credit loss/Total loans | 0.86% | 0.93% | Critical Accounting Estimates Key estimates involving significant management judgment include the allowance for credit losses and fair value of acquired loans - Critical accounting estimates involve significant management judgment and subjectivity, impacting the Company's financial condition and results[203] - Key critical estimates include the allowance for credit losses on loans held for investment and the fair value of loans acquired in business combinations[203] Allowance for Credit Losses on Loans Held for Investment The allowance for credit losses is determined under the CECL standard using models and significant management judgment - The allowance for credit losses is established under the CECL Standard, based on expected losses from historical experience, current conditions, and reasonable and supportable forecasts[205][208] - For pooled loans, a model compares amortized cost to the net present value of expected cash flows, using assumptions for probability of default, loss given default, and economic forecasts[208] - Estimating future losses is subject to significant management judgment and inherent uncertainties, with potential material impacts on net income if assumptions prove incorrect[211][213] Fair value of loans acquired in a business combination The fair value of loans acquired in the merger was determined using a discounted cash flow methodology - Fair value of acquired loans from the merger was based on a discounted cash flow methodology, considering loan type, collateral, discount rates, and expected future cash flows[216] - The fair value estimates contributed to the $100.2 million in goodwill recorded from the merger[216] - For PCD loans, expected credit losses were added to the purchase price, with non-credit differences recognized as discounts or premiums through interest income[217] Liquidity and Capital Resources The company maintains a strong liquidity position and is considered "well capitalized" under regulatory standards - Liquidity is managed to meet customer commitments, deposit withdrawals, and fund new loans/investments, primarily through deposits, loan/MBS payments, and FHLBNY advances[223] Deposit and FHLBNY Advance Changes (Three Months Ended March 31, 2022) | Item | Change (in thousands) | | :----------------------------------------- | :-------------------- | | Total deposits | $(28,900) | | FHLBNY advances | $25,000 | - The Bank had an unused borrowing capacity of $3.00 billion through the FHLBNY and was considered "well capitalized" at March 31, 2022, complying with all Basel III capital requirements[227][233][239] Contractual Obligations The company's contractual obligations include deposits, borrowings, subordinated debt, and lease payments - Contractual obligations include FHLBNY advances, short-term borrowings, subordinated debt, and customer CDs[237] - The Bank also has rental payment obligations under leases for its branches and equipment[237] Off-Balance Sheet Arrangements The company has off-balance sheet commitments primarily related to unfunded loans Off-Balance Sheet Commitments (March 31, 2022) | Item | Amount (in thousands) | | :----------------------------------------- | :-------------------- | | Firm loan commitments accepted by borrowers | $378,700 | - The Bank has a maximum exposure of $28.0 million under a reimbursement agreement with FHLMC for loan securitization, collateralized by available-for-sale MBS[242] Asset Quality The company maintains strong asset quality through disciplined underwriting and active monitoring of delinquent loans General (Asset Quality) The company's lending practices exclude the origination or purchase of subprime loans - The Company does not originate or purchase subprime loans[243] Monitoring and Collection of Delinquent Loans A systematic process is in place for monitoring delinquent loans, including automated notices and repayment negotiations - Delinquent loans are reviewed monthly, with automated late notices and repayment negotiations[244][245] - Interest accrual is generally discontinued on loans 90 days or more past due, unless well-secured and in collection[246] - Foreclosure proceedings are initiated on non-accrual real estate loans, and C&I loans are actively managed with annual reviews and financial covenants[247][248] Non-accrual Loans (Asset Quality) Non-accrual loans decreased during the quarter, improving the overall asset quality ratio Non-Accrual Loans (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :------------------------------- | | Total non-accrual loans | $35,962 | $40,307 | | Total non-accrual loans to total loans | 0.39% | 0.44% | Troubled Debt Restructurings (TDRs) (Asset Quality) The company modified five loans as TDRs in Q1 2022 to assist financially distressed borrowers - Five loans were modified as TDRs in Q1 2022 due to payment deferrals for financially distressed borrowers; no TDRs in Q1 2021[254] - TDRs are evaluated for accrual status and expected credit losses are estimated within the allowance for credit losses[258] Other Real Estate Owned (OREO) (Asset Quality) The company held no Other Real Estate Owned properties on its balance sheet at the end of the quarter - OREO is carried at the lower of fair value or book balance, with quarterly reassessments[260] - There was no carrying value of OREO properties on the balance sheet at March 31, 2022, or December 31, 2021, and no provisions for losses were recognized in Q1 2022 or Q1 2021[261] Past Due Loans (Asset Quality) The volume of past due loans decreased significantly across all delinquency categories during the quarter Past Due Loans (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :------------------------------- | | Loans delinquent 30 to 59 days | $27,100 | $61,200 | | Loans delinquent 60 to 89 days | $924 | $12,100 | | Accruing loans 90 days or more past due | $1,200 | $3,000 | Allowance for Off-Balance Sheet Exposures The allowance for off-balance sheet exposures remained unchanged from the previous quarter Allowance for Off-Balance Sheet Exposures (March 31, 2022 vs. December 31, 2021) | Item | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :------------------------------- | | Allowance for off-balance sheet exposures | $4,400 | $4,400 | Allowance for Credit Losses (Asset Quality) The company recorded a credit loss recovery in Q1 2022 due to improved macroeconomic conditions - The Company adopted the CECL Standard on January 1, 2021, resulting in an initial $3.9 million decrease to the allowance for credit losses[269][270] Credit Loss (Recovery) Provision (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :---------------------------- | | (Credit) provision for credit losses | $(1,600) | $15,800 | - The Q1 2022 credit loss recovery was due to improved macroeconomic conditions and reduced reserves for individually evaluated loans[271] Comparison of Financial Condition at March 31, 2022 and December 31, 2021 This section compares the company's balance sheet at the end of Q1 2022 with the end of the prior fiscal year Assets (Financial Condition Comparison) Total assets remained stable, with a shift from securities to cash and derivative assets Asset Changes (March 31, 2022 vs. December 31, 2021) | Item | Change (in thousands) | | :----------------------------------------- | :-------------------- | | Total assets | $11,900 | | Cash and due from banks | $39,300 | | Derivative assets | $26,700 | | Total loans | $9,400 | | Total securities | $(82,100) | Liabilities (Financial Condition Comparison) Total liabilities increased, driven by derivative cash collateral and FHLBNY advances, offsetting a decrease in deposits Liability Changes (March 31, 2022 vs. December 31, 2021) | Item | Change (in thousands) | | :----------------------------------------- | :-------------------- | | Total liabilities | $49,200 | | Derivative cash collateral | $64,500 | | FHLBNY advances | $25,000 | | Total deposits | $(28,900) | Stockholders' Equity (Financial Condition Comparison) Stockholders' equity decreased due to comprehensive loss and capital returns exceeding net income Stockholders' Equity Changes (March 31, 2022 vs. December 31, 2021) | Item | Change (in thousands) | | :----------------------------------------- | :-------------------- | | Total stockholders' equity | $(37,300) | | Other comprehensive loss | $(43,200) | | Repurchases of common stock | $(17,400) | | Common stock dividends | $(9,300) | | Preferred stock dividends | $(1,800) | | Net income | $34,500 | Comparison of Operating Results for the Three Months Ended March 31, 2022 and 2021 This section analyzes the company's income statement performance for Q1 2022 compared to Q1 2021 General (Operating Results Comparison) The company's net income improved dramatically due to higher net interest income and lower expenses Net Income (Loss) (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :---------------------------- | | Net income (loss) | $34,531 | $(21,034) | - The improvement was driven by increases in net interest income ($11.3M), non-interest income ($14.6M), and a decrease in non-interest expense ($32.9M), along with a credit loss provision decrease ($17.4M)[283] Net interest income (Operating Results Comparison) Net interest income and margin both increased, driven by growth in average interest-earning assets Net Interest Income and Margin (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :---------------------------- | | Net interest income | $89,109 | $77,841 | | Net interest margin (NIM) | 3.19% | 3.14% | - The increase in net interest income was primarily due to a $1.27 billion increase in average interest-earning assets[289] Interest Income (Operating Results Comparison) Higher average balances in real estate loans and securities drove the increase in total interest income Interest Income Changes by Category (Three Months Ended March 31, 2022 vs. 2021) | Category | Change (in thousands) | | :----------------------------------------- | :-------------------- | | Real estate loans | $10,000 | | Securities | $2,800 | | SBA PPP loans | $(4,600) | - The increase in interest income on real estate loans and securities was primarily due to higher average balances resulting from the merger[290] Interest Expense (Operating Results Comparison) Interest expense decreased due to lower rates on deposits and reduced average balances on borrowings Interest Expense Changes by Category (Three Months Ended March 31, 2022 vs. 2021) | Category | Change (in thousands) | | :----------------------------------------- | :-------------------- | | Certificates of Deposit (CDs) | $(1,800) | | FHLBNY advances | $(1,600) | | Money market accounts | $(1,100) | | Subordinated debt | $299 | - The decrease in interest expense was primarily due to decreased rates on CDs and money market accounts, and lower average balances for FHLBNY advances and CDs[291] Provision for Credit Losses (Operating Results Comparison) The company recorded a credit loss recovery in Q1 2022, a significant reversal from the provision in Q1 2021 Credit Loss (Recovery) Provision (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :---------------------------- | | (Credit) provision for credit losses | $(1,600) | $15,800 | - The Q1 2022 recovery was due to improved macroeconomic conditions and reduced reserves for individually evaluated loans[293] Non-Interest Income (Operating Results Comparison) Non-interest income increased substantially, primarily due to the absence of a large loss on derivative terminations in the prior year Non-Interest Income (Loss) (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :---------------------------- | | Total non-interest income (loss) | $7,203 | $(7,383) | - The increase was primarily due to the absence of a $16.5 million loss on termination of derivatives in Q1 2021[294][295] - Service charges and other fees increased by $1.1 million, and BOLI income increased by $500 thousand[294] Non-Interest Expense (Operating Results Comparison) Non-interest expense decreased significantly due to the absence of merger-related costs from the prior year Non-Interest Expense (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :---------------------------- | | Total non-interest expense | $49,888 | $82,805 | - The decrease was primarily due to the absence of $37.9 million in merger expenses and transaction costs, $1.6 million loss on extinguishment of debt, and $1.5 million curtailment loss from the prior year[296] Income Tax Expense (Operating Results Comparison) The effective tax rate rose due to the loss of tax benefits from the company's REITs Income Tax Expense (Benefit) and Effective Tax Rate (Three Months Ended March 31, 2022 vs. 2021) | Item | March 31, 2022 (in thousands) | March 31, 2021 (in thousands) | | :----------------------------------------- | :---------------------------- | :---------------------------- | | Income tax expense (benefit) | $13,485 | $(7,092) | | Effective tax rate | 28.1% | 25.2% | - The increase in effective tax rate was primarily due to the loss of benefits from the Company's REITs[298] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, which is monitored using EVE and NII simulation analyses General (Market Risk) Interest rate risk is the company's most significant market risk exposure - Interest rate risk is the Company's largest market risk component[300] - No transactions involving derivative instruments requiring bifurcation for hedging interest rate or market risk were conducted in Q1 2022[300] Interest Rate Risk Exposure Analysis The company's Economic Value of Equity increased significantly due to the rising rate environment - The Company monitors interest rate risk using Economic Value of Equity (EVE) and Income Simulation analyses[301][312] Economic Value of Equity (EVE) (March 31, 2022 vs. December 31, 2021) | Scenario | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------- | :---------------------------- | :------------------------------- | | Pre-Shock Scenario EVE | $1,740,914 | $1,218,220 | - The increase in EVE was primarily due to the increased value of the Bank's low-cost deposit base relative to the current rising rate environment[308] Estimated Percentage Change in Net Interest Income (Gradual Rate Change) | Gradual Change in Interest rates of: | Year-One | Year-Two | | :----------------------------------- | :------- | :------- | | + 100 Basis Points | 0.5% | 4.4% | Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022 - Management concluded that the Company's disclosure controls and procedures were effective as of March 31, 2022[313] Changes in Internal Control Over Financial Reporting No material changes to internal controls over financial reporting occurred during the first quarter of 2022 - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2022[314] PART II – OTHER INFORMATION This part covers legal proceedings, risk factors, stock repurchases, and other required disclosures Item 1. Legal Proceedings No pending legal actions are expected to have a material adverse impact on the company's financial condition - The Company is routinely involved in legal actions in the ordinary course of business[315] - As of March 31, 2022, no legal actions were deemed likely to have a material adverse impact on financial condition or results of operations[315] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2021 Form 10-K - No changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021[316] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased over 500,000 shares of its common stock during the first quarter of 2022 Common Stock Repurchases (Three Months Ended March 31, 2022) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :------------- | :----------------------------- | :--------------------------- | | January 2022 | 120,215 | $35.60 | | February 2022 | 135,317 | $34.35 | | March 2022 | 249,473 | $33.93 | | Total Q1 2022 | 505,005 | $34.50 (approx) | - As of March 31, 2022, 581,682 shares remained available for purchase under authorized stock repurchase programs[320] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities[321] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not Applicable[322] Item 5. Other Information No other information is required to be disclosed under this item - None[323] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents and officer certifications - Includes Restated Certificate of Incorporation, Amended and Restated Bylaws, and certifications of Principal Executive and Financial Officers[325] - XBRL financial statements and taxonomy documents are filed as exhibits[325] SIGNATURES The report was duly signed by the company's executive officers on May 9, 2022 - Report signed by Kevin M. O'Connor (CEO) and Avinash Reddy (SEVP & CFO) on May 9, 2022[328]