Dime(DCOM) - 2021 Q3 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This section highlights that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements based on management's assumptions about historical trends, current conditions, and future developments. These statements are not guarantees of future performance and are subject to various risks and uncertainties[4] - Key risk factors include increased competitive pressure, fluctuations in market interest rates, changes in deposit flows, loan demand, real estate values, and changes in the quality of loan or investment portfolios[4] - The COVID-19 pandemic has caused economic disruption and impacted the Company's operations and financial results, potentially leading to reduced demand for services, increased loan delinquencies, and operational challenges[4] PART I – FINANCIAL INFORMATION This part presents the Company's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Unaudited Condensed Consolidated Financial Statements This section presents the Company's unaudited condensed consolidated financial statements, including the statements of financial condition, income, comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes. The financial statements reflect the impact of the February 1, 2021 merger with Bridge Bancorp, Inc., which was accounted for as a reverse merger Consolidated Statements of Financial Condition This statement provides a snapshot of the Company's assets, liabilities, and equity at specific dates Consolidated Statements of Financial Condition (in thousands) | Metric (in thousands) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Total Assets | $12,364,381 | $6,781,610 | | Total Liabilities | $11,163,264 | $6,080,514 | | Total Stockholders' Equity | $1,201,117 | $701,096 | - Total assets significantly increased by $5.58 billion from December 31, 2020, to September 30, 2021, primarily due to the merger with Bridge Bancorp, Inc. and subsequent increases in loans and securities[8][307] - Total deposits increased to $10.67 billion at September 30, 2021, from $4.53 billion at December 31, 2020, largely driven by the acquisition of deposits in the merger[8][259] Consolidated Statements of Income This statement details the Company's revenues, expenses, and net income over specific periods Consolidated Statements of Income (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Interest Income | $100,658 | $57,396 | $287,814 | $174,935 | | Total Interest Expense| $5,830 | $12,452 | $21,891 | $45,911 | | Net Interest Income | $94,828 | $44,944 | $265,923 | $129,024 | | Net Income | $38,395 | $15,868 | $68,639 | $37,226 | | Diluted EPS | $0.89 | $0.65 | $1.62 | $1.56 | - Net interest income for the three months ended September 30, 2021, increased by $49.9 million to $94.8 million, and for the nine months ended September 30, 2021, increased by $136.9 million to $265.9 million, largely due to the merger[12][316][331] - The Company recorded a credit loss recovery of $5.2 million for the three months ended September 30, 2021, compared to a provision of $5.9 million in the prior year, driven by improved macroeconomic conditions and reserve releases[12][324] Consolidated Statements of Comprehensive Income This statement presents net income and other comprehensive income components for the periods Consolidated Statements of Comprehensive Income (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income | $38,395 | $15,868 | $68,639 | $37,226 | | Total Other Comprehensive (Loss) Income, Net of Tax | $(5,618) | $2,864 | $4,882 | $(5,599) | | Total Comprehensive Income | $32,777 | $18,732 | $73,521 | $31,627 | - Total comprehensive income for the nine months ended September 30, 2021, was $73.5 million, a significant increase from $31.6 million in the prior year, primarily due to higher net income and a positive shift in other comprehensive income[15] - Other comprehensive income (loss) for the nine months ended September 30, 2021, was a gain of $4.9 million, compared to a loss of $5.6 million in the prior year, influenced by changes in unrealized gains/losses on securities and derivatives[15][96] Consolidated Statements of Changes in Stockholders' Equity This statement tracks changes in equity components, including net income and share transactions Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Metric (in thousands) | Jan 1, 2021 (Adjusted) | Sep 30, 2021 | | :-------------------- | :--------------------- | :----------- | | Total Stockholders' Equity | $702,782 | $1,201,117 | | Preferred Stock | $116,569 | $116,569 | | Common Stock | $348 | $416 | | Additional Paid-in Capital | $278,295 | $493,775 | | Retained Earnings | $602,327 | $630,744 | | Accumulated Other Comprehensive Loss | $(5,924) | $(1,042) | | Treasury Stock | $(287,337) | $(29,928) | - Total stockholders' equity increased by $500.0 million to $1.20 billion at September 30, 2021, primarily due to share issuances associated with the merger ($491.2 million), net income ($38.4 million), and other comprehensive income ($4.9 million)[17][18][314] - The Company repurchased 904,160 shares of common stock during the nine months ended September 30, 2021, with 1,937,588 shares remaining available under authorized programs[266] Consolidated Statements of Cash Flows This statement categorizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | | Net Cash Provided by Operating Activities | $159,283 | $47,974 | | Net Cash Provided by (Used in) Investing Activities | $1,068,893 | $(249,191) | | Net Cash (Used in) Provided by Financing Activities | $(842,768) | $193,012 | | Cash and Cash Equivalents, End of Period | $629,011 | $147,283 | - Net cash provided by operating activities significantly increased to $159.3 million for the nine months ended September 30, 2021, from $48.0 million in the prior year, driven by higher net income and adjustments[24] - Investing activities generated $1.07 billion in cash for the nine months ended September 30, 2021, a substantial reversal from a $249.2 million outflow in the prior year, primarily due to net cash received in the business combination ($716.0 million) and proceeds from sales of available-for-sale securities[24] - Financing activities resulted in a net cash outflow of $842.8 million for the nine months ended September 30, 2021, compared to an inflow of $193.0 million in the prior year, mainly due to repayments of FHLBNY advances and other short-term borrowings, partially offset by an increase in deposits[24][312] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the financial statements Note 1. BASIS OF PRESENTATION This note describes the accounting principles and the impact of the reverse merger on financial reporting - On February 1, 2021, Dime Community Bancshares, Inc. (Legacy Dime) merged into Bridge Bancorp, Inc. (Bridge), with Bridge as the surviving entity renamed 'Dime Community Bancshares, Inc.' (the 'Holding Company')[27] - The merger was accounted for as a reverse merger, with Legacy Dime deemed the accounting acquirer. Consequently, Legacy Dime's historical financial statements are those of the combined company for periods before February 1, 2021[30] - As of September 30, 2021, the Company operated 65 branch locations across Long Island and New York City boroughs[32] Note 2. MERGER This note details the terms, accounting treatment, and financial impact of the February 2021 merger - The merger, completed on February 1, 2021, involved Legacy Dime shareholders receiving 0.6480 shares of the Company's common stock for each Legacy Dime share, representing 51.5% of the combined company's voting interests[41][46] - The Company assumed $115.0 million in Legacy Dime's 4.50% Fixed-to-Floating Rate Subordinated Debentures due 2027[44] Purchase Price Allocation as of Merger Date (in thousands) | Item | Amount | | :------------------------------------ | :------- | | Purchase price consideration | $491,210 | | Fair value of assets acquired | $6,239,014 | | Fair value of liabilities assumed | $5,847,505 | | Fair value of net identifiable assets | $391,509 | | Goodwill resulting from Merger | $99,701 | Pro Forma Combined Results of Operations (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net interest income | $93,316 | $86,818 | $274,499 | $252,455 | | Net income | $39,978 | $29,971 | $92,782 | $72,015 | | Basic EPS | $0.93 | $0.68 | $2.11 | $1.66 | | Diluted EPS | $0.93 | $0.68 | $2.11 | $1.66 | Note 3. SUMMARY OF ACCOUNTING POLICIES This note outlines key accounting policies, including the adoption of the CECL Standard for credit losses - The Company adopted ASU No. 2016-13 (CECL Standard) on January 1, 2021, using the modified retrospective method, after deferring adoption under the CARES Act. This standard requires forward-looking information for credit loss estimates[61] - The adoption of CECL resulted in an initial $3.9 million decrease to the allowance for credit losses and a $1.4 million increase to the reserve for unfunded commitments, with an after-tax cumulative-effect adjustment of $1.7 million recorded in retained earnings[63] - The allowance for credit losses is estimated using historical loss experience, current conditions, and reasonable and supportable forecasts, with adjustments for loan-specific and environmental factors[66] Note 4. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) This note details changes in accumulated other comprehensive income, including securities and derivatives Accumulated Other Comprehensive Income (Loss) Activity (in thousands) | Component | Balance as of Jan 1, 2021 | Net Other Comprehensive (Loss) Income During Period | Balance as of Sep 30, 2021 | | :------------------------------------ | :------------------------ | :------------------------------------------ | :------------------------- | | Securities Available-for-Sale | $12,694 | $(11,204) | $1,490 | | Defined Benefit Plans | $(6,086) | $1,624 | $(4,462) | | Derivatives | $(12,532) | $14,462 | $1,930 | | Total Accumulated Other Comprehensive Income (Loss) | $(5,924) | $4,882 | $(1,042) | - Accumulated other comprehensive loss improved from $(5.9) million at January 1, 2021, to $(1.0) million at September 30, 2021, primarily driven by a positive change in derivatives and defined benefit plans, partially offset by a decline in securities available-for-sale[95] Note 5. EARNINGS PER COMMON SHARE ("EPS") This note provides the reconciliation and calculation of basic and diluted earnings per common share EPS Reconciliation (in thousands, except share and per share amounts) | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income available to common stockholders | $36,573 | $14,046 | $63,174 | $34,264 | | Basic EPS | $0.89 | $0.66 | $1.62 | $1.57 | | Diluted EPS | $0.89 | $0.65 | $1.62 | $1.56 | | Weighted average common shares outstanding (Basic) | 40,425,738 | 21,190,551 | 38,574,157 | 21,656,746 | | Weighted average common and equivalent shares outstanding (Diluted) | 40,426,161 | 21,324,187 | 38,574,857 | 21,791,080 | - Basic and diluted EPS for the three months ended September 30, 2021, increased to $0.89 from $0.66 and $0.65, respectively, in the prior year, reflecting higher net income available to common stockholders[99] - Weighted average common shares outstanding for basic EPS increased significantly to 40.4 million for the three months ended September 30, 2021, from 21.2 million in the prior year, primarily due to shares issued in the merger[99] Note 6. PREFERRED STOCK This note describes the Company's preferred stock, including its issuance, conversion, and dividend terms - Legacy Dime completed two public offerings of 5.50% Fixed-Rate Non-Cumulative Perpetual Preferred Stock, Series A, in February and June 2020, raising $72.2 million and $44.3 million in net proceeds, respectively[101] - At the merger's effective time, each outstanding share of Legacy Dime Preferred Stock was converted into one share of a newly created series of the Company's preferred stock with identical powers, preferences, and rights[102] - The Preferred Stock pays quarterly dividends at a fixed rate of 5.50% per annum and is perpetual, with the Company having an option to redeem it on or after June 15, 2025, subject to regulatory approval[103][104] Note 7. INVESTMENT AND MORTGAGE-BACKED SECURITIES This note details the composition and fair value of the Company's investment and mortgage-backed securities Securities Available-for-Sale (in thousands) | Category | Amortized Cost (Sep 30, 2021) | Fair Value (Sep 30, 2021) | Fair Value (Dec 31, 2020) | | :------------------------------------ | :---------------------------- | :------------------------ | :------------------------ | | Agency notes | $82,475 | $81,018 | $47,421 | | Treasury securities | $248,173 | $247,696 | N/A | | Corporate securities | $122,476 | $126,833 | $64,461 | | Pass-through MBS issued by GSEs | $622,225 | $621,957 | $143,483 | | Agency CMOs | $590,385 | $590,426 | $283,496 | | State and municipal obligations | $41,158 | $41,133 | N/A | | Total securities available-for-sale | $1,706,892 | $1,709,063 | $538,861 | - The Company acquired $652.0 million of securities available-for-sale as a result of the merger[107] - Total securities available-for-sale increased significantly to $1.71 billion at September 30, 2021, from $538.9 million at December 31, 2020, primarily due to the merger and new purchases[106] - The carrying amount of securities pledged as collateral increased from $99.4 million at December 31, 2020, to $684.0 million at September 30, 2021[107] Note 8. LOANS HELD FOR INVESTMENT, NET This note provides a breakdown of the loan portfolio, credit quality, and allowance for credit losses Loans Held for Investment, Net (in thousands) | Loan Category | Sep 30, 2021 | Dec 31, 2020 | | :------------------------------------ | :----------- | :----------- | | One-to-four family residential and cooperative/condominium apartment | $683,665 | $184,989 | | Multifamily residential and residential mixed-use | $3,468,262 | $2,758,743 | | Commercial real estate ("CRE") | $3,814,437 | $1,878,167 | | Acquisition, development, and construction ("ADC") | $285,379 | $156,296 | | Commercial and industrial ("C&I") | $1,012,415 | $641,533 | | Other loans | $20,713 | $2,316 | | Total | $9,284,871 | $5,622,044 | | Allowance for credit losses | $(81,255) | $(41,461) | | Loans held for investment, net | $9,203,616 | $5,580,583 | - The Company recorded $4.53 billion of loans held for investment on the merger date, contributing to a total increase of $3.62 billion in loans held for investment during the nine months ended September 30, 2021[117][308] - Non-accrual loans totaled $34.0 million at September 30, 2021, up from $17.9 million at December 31, 2020. The allowance for credit losses increased to $81.3 million from $41.5 million over the same period[117][121][286] - As of September 30, 2021, the Company had $134.1 million in SBA PPP loans, which carry a 100% guarantee from the SBA and no allowance for credit losses. The Company sold $596.2 million of SBA PPP loans in June 2021, realizing a $20.7 million gain[118] - The Company had 17 loans with outstanding balances of $26.6 million deferring full principal and interest payments due to COVID-19 as of September 30, 2021, which are not classified as TDRs under the CARES Act[139][142] Note 9. LEASES This note outlines the Company's operating lease assets and liabilities, including merger impacts and maturities - The Company acquired $45.6 million of operating lease assets and $45.3 million of operating lease liabilities as a result of the merger[153] - During the nine months ended September 30, 2021, the Company terminated three leases, resulting in a $3.7 million decrease in operating lease liabilities and a $4.0 million early termination fee recorded as branch restructuring costs[154] Maturities of Operating Lease Liabilities (in thousands) at Sep 30, 2021 | Year | Rent to be Capitalized | | :--------- | :--------------------- | | 2021 | $3,374 | | 2022 | $11,006 | | 2023 | $9,301 | | 2024 | $9,186 | | 2025 | $8,941 | | Thereafter | $25,439 | | Total Undiscounted Lease Payments | $67,247 | | Less amounts representing interest | $(4,377) | | Operating lease liabilities | $62,870 | Note 10. DERIVATIVES AND HEDGING ACTIVITIES This note describes the Company's use of interest rate derivatives for risk management and their fair values - The Company uses interest rate derivatives, primarily interest rate swaps, to manage interest rate risk and stabilize interest expense, engaging in both cash flow hedges and freestanding derivatives[161][162] - During the nine months ended September 30, 2021, the Company terminated 34 derivatives with notional values totaling $785.0 million, resulting in a $16.5 million loss on termination recognized in non-interest income[166] Fair Value of Derivative Financial Instruments (in thousands) | Type | Sep 30, 2021 Fair Value Assets | Sep 30, 2021 Fair Value Liabilities | Dec 31, 2020 Fair Value Assets | Dec 31, 2020 Fair Value Liabilities | | :------------------------------------ | :----------------------------- | :------------------------------ | :----------------------------- | :------------------------------ | | Interest rate swaps related to FHLBNY advances | $2,811 | $0 | $0 | $(18,442) | | Loan level interest rate swaps with borrower | $36,095 | $(7,414) | $24,764 | $0 | | Loan level interest rate floors with borrower | $0 | $(4,072) | $0 | $(5,832) | | Loan level interest rate swaps with third-party counterparties | $7,414 | $(36,095) | $0 | $(24,764) | | Loan level interest rate floors with third-party counterparties | $4,072 | $0 | $5,832 | $0 | Note 11. FAIR VALUE OF FINANCIAL INSTRUMENTS This note explains the fair value hierarchy and measurements for the Company's financial instruments - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs), and Level 3 (significant unobservable inputs)[177][178][180] - The Company's marketable equity securities and available-for-sale securities are reported at fair value, primarily using Level 2 inputs based on market data and evaluated pricing models[181][182] Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis (in thousands) at Sep 30, 2021 | Category | Total | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | | :------------------------------------ | :---------- | :------------- | :------------- | :------------- | | Securities available-for-sale | $1,709,063 | $0 | $1,709,063 | $0 | | Derivative – cash flow hedges | $2,811 | $0 | $2,811 | $0 | | Derivative – freestanding derivatives, net | $38,889 | $0 | $38,889 | $0 | | Financial Liabilities: Derivative – freestanding derivatives, net | $38,889 | $0 | $38,889 | $0 | - Individually evaluated loans with an allowance for credit losses had a carrying amount of $55.1 million at September 30, 2021, with a valuation allowance of $8.8 million, measured at fair value on a non-recurring basis using Level 3 inputs[187] Note 12. OTHER INTANGIBLE ASSETS This note details the Company's intangible assets, including core deposit intangibles and amortization - As a result of the merger, the Company recorded $10.2 million in core deposit intangible assets and a $780 thousand non-compete agreement intangible asset[192] Intangible Assets (in thousands) at Sep 30, 2021 | Category | Gross Carrying Value | Accumulated Amortization | Net Carrying Amount | | :------------------------------------ | :------------------- | :----------------------- | :------------------ | | Core Deposit Intangibles | $10,204 | $(1,427) | $8,777 | | Non-compete Agreement | $780 | $(480) | $300 | | Total | $10,984 | $(1,907) | $9,077 | - Amortization expense for intangible assets was $715 thousand for the three months and $1.9 million for the nine months ended September 30, 2021[193] Note 13. FEDERAL HOME LOAN BANK OF NEW YORK ADVANCES This note provides information on FHLBNY advances, including changes due to the merger and repayments FHLBNY Advances (in thousands) | Contractual Maturity | Sep 30, 2021 Amount | Sep 30, 2021 Weighted Average Rate | Dec 31, 2020 Amount | Dec 31, 2020 Weighted Average Rate | | :------------------- | :------------------ | :--------------------------------- | :------------------ | :--------------------------------- | | 2021 | $25,000 | 0.35% | $1,144,010 | 0.52% | | 2022 | N/A | N/A | $60,000 | 0.60% | | Total FHLBNY advances | $25,000 | 0.35% | $1,204,010 | 0.53% | - FHLBNY advances decreased significantly from $1.20 billion at December 31, 2020, to $25.0 million at September 30, 2021, as the Company used excess liquidity to pay down advances[197][312] - As part of the merger, $216.3 million of FHLBNY advances were acquired. During the nine months ended September 30, 2021, the Company extinguished $209.0 million of advances, incurring a $1.8 million prepayment penalty[198] Note 14. SUBORDINATED DEBENTURES This note details the Company's subordinated debentures, including those assumed in the merger - The Company assumed $115.0 million of Legacy Dime's 4.50% Fixed-to-Floating Rate Subordinated Debentures due 2027 as part of the merger[200] - Total subordinated debentures were $197.1 million at September 30, 2021, up from $114.1 million at December 31, 2020, reflecting the assumed debt[202] - Interest expense related to subordinated debt was $2.2 million for the three months and $6.3 million for the nine months ended September 30, 2021[202] Note 15. RETIREMENT AND POSTRETIREMENT PLANS This note describes the Company's various retirement and postretirement plans and merger-related changes - The Company maintains the Legacy Dime Employee Retirement Plan and two Bridge employee benefit plans (401(k) Plan and Pension Plan) post-merger[203] - The Dime Community Bank KSOP Plan was terminated on January 31, 2021, prior to the merger, with participants transferring assets to the 401(k) Plan[204] - The Outside Director Retirement Plan and the Benefit Maintenance Plan (BMP) were terminated in connection with the merger, resulting in lump sum payments of $2.8 million and $6.2 million, respectively, and a curtailment loss of $1.5 million[208] Note 16. STOCK-BASED COMPENSATION This note covers the Company's stock-based compensation plans, including option activity and unrecognized costs - In May 2021, shareholders approved the Dime Community Bancshares, Inc. 2021 Equity Incentive Plan, reserving 1,123,639 shares for issuance to incentivize officers, employees, and directors[210][212] - All outstanding Legacy Dime stock options were adjusted post-merger to reflect the exchange ratio, and Bridge equity awards continued as Dime common stock awards[213][214] Stock Option Activity (Shares) | Metric | Options Outstanding at Jan 1, 2021 (Adjusted) | Options Acquired | Options Exercised | Options Forfeited | Options Outstanding at Sep 30, 2021 | | :------------------------------------ | :------------------------------------------ | :--------------- | :---------------- | :---------------- | :---------------------------------- | | Number of Options | 18,685 | 180,020 | (17,102) | (29,421) | 152,182 | | Weighted-Average Exercise Price | $23.23 | $35.39 | $23.40 | $35.38 | $35.24 | - As of September 30, 2021, there was $8.3 million of unrecognized compensation cost related to unvested Restricted Stock Awards (RSAs) and $1.0 million for Performance Based Share Awards (PSAs)[219][223] Note 17. INCOME TAXES This note presents the Company's effective tax rates and factors influencing their changes Consolidated Effective Tax Rates | Period | Effective Tax Rate | | :-------------------------- | :----------------- | | 3 Months Ended Sep 30, 2021 | 27.5% | | 3 Months Ended Sep 30, 2020 | 21.9% | | 9 Months Ended Sep 30, 2021 | 29.2% | | 9 Months Ended Sep 30, 2020 | 21.7% | - The increase in the effective tax rate for the nine months ended September 30, 2021, compared to the prior year, was primarily due to the loss of benefits from the Company's REITs and non-deductible expenses[226][329][344] Note 18. MERGER RELATED EXPENSES This note details the expenses incurred by the Company directly related to the merger transaction - Merger-related expenses, recorded in non-interest expense, totaled $1.1 million for employee severance and compensation and $1.4 million for transaction costs during the three months ended September 30, 2021[227] - For the nine months ended September 30, 2021, merger-related expenses included $15.0 million for employee severance and compensation and $27.3 million for transaction costs[227] Note 19. BRANCH RESTRUCTURING COSTS This note outlines costs associated with combining and restructuring branch locations post-merger - The Company incurred $4.5 million in branch restructuring costs for the three months and $6.2 million for the nine months ended September 30, 2021, related to combining five branch locations[229] - These costs included early lease terminations and accelerated depreciation of fixed assets[229] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting the impact of the merger, COVID-19 developments, and key financial performance metrics. It includes detailed comparisons of financial condition and operating results for the three and nine months ended September 30, 2021, versus 2020 Overview This section provides a general description of the Company's business model and the impact of the merger - Dime Community Bancshares, Inc. (formerly Bridge Bancorp, Inc.) is a bank holding company primarily dependent on dividends from its wholly-owned subsidiary, Dime Community Bank (formerly BNB Bank)[231] - The Company's income is mainly derived from net interest income (interest on loans and investments minus interest on deposits and borrowings) and non-interest income from fees, loan swaps, and sales of securities/loans[231] - The merger of Legacy Dime into Bridge Bancorp, Inc. on February 1, 2021, resulted in Bridge becoming the surviving entity under the name 'Dime Community Bancshares, Inc.', with Legacy Dime's bank subsidiary merging into BNB Bank, which was renamed 'Dime Community Bank'[232][234] Recent Developments Relating to the COVID-19 Pandemic This section discusses the Company's operational responses and loan deferral programs related to COVID-19 - The Company's banking operations remained open as an essential business, with retail branches following CDC guidance and offering mobile/digital banking. Many back-office personnel work remotely[236][237] - As of September 30, 2021, 17 loans totaling $26.6 million were deferring full principal and interest payments due to COVID-19, which are not classified as troubled debt restructurings (TDRs) under the CARES Act[241] - The Company originated over $1.90 billion in SBA Paycheck Protection Program (PPP) loans through September 30, 2021, and sold $596.2 million of its PPP loan portfolio to redeploy funds[243] Selected Financial Highlights and Other Data This section presents key financial performance indicators and ratios for the reported periods Selected Financial Highlights | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Reported EPS (Diluted) | $0.89 | $0.65 | $1.62 | $1.56 | | Return on average assets | 1.22% | 0.98% | 0.76% | 0.78% | | Return on average equity | 12.69% | 9.22% | 8.00% | 7.59% | | Net interest margin | 3.20% | 2.92% | 3.15% | 2.83% | | Efficiency ratio | 54.3% | 48.6% | 65.3% | 54.3% | | Non-performing loans | $34,020 | $12,424 | $34,020 | $12,424 | | Allowance for credit loss/Total loans | 0.88% | 0.87% | 0.88% | 0.87% | - Diluted EPS increased to $0.89 for the three months ended September 30, 2021, from $0.65 in the prior year, and to $1.62 for the nine months, from $1.56[248] - Net interest margin improved to 3.20% for the three months ended September 30, 2021, from 2.92% in the prior year, and to 3.15% for the nine months, from 2.83%[248] - Non-performing loans increased to $34.0 million at September 30, 2021, from $12.4 million in the prior year, while the allowance for credit loss to total loans remained stable at 0.88%[248] Critical Accounting Policies This section identifies the Company's most significant accounting policies requiring complex judgments - The Company's most critical accounting policies are the methodologies used to determine the allowance for credit losses (including loan commitments) and the accounting for loans acquired in a business combination[250] - These policies involve significant complexity and require management to make difficult and subjective judgments, necessitating assumptions and estimates about highly uncertain matters[250] Liquidity and Capital Resources This section discusses the Company's funding sources, deposit trends, and capital adequacy ratios - The Bank's primary funding sources include deposits, loan/MBS payments, investment security payments, and FHLBNY advances. It also utilizes repurchase agreements and may sell or securitize loans[255][257] - Total deposits increased by $6.15 billion during the nine months ended September 30, 2021, primarily due to the merger, while Certificates of Deposit (CDs) decreased by $306.4 million due to non-renewal of higher-cost CDs[259] - The Bank decreased its outstanding FHLBNY advances by $1.18 billion during the nine months ended September 30, 2021, and had an additional unused borrowing capacity of $3.25 billion through the FHLBNY[260][259] Company and Bank Capital Ratios (Basel III Capital Rules) at Sep 30, 2021 | Ratio | Bank | Consolidated Company | Basel III Minimum Requirement | To Be Categorized as "Well Capitalized" | | :-------------------------- | :--- | :------------------- | :---------------------------- | :-------------------------------------- | | Tier 1 common equity ratio | 12.7%| 9.9% | 4.5% | 6.5% | | Tier 1 risk-based capital ratio | 12.7%| 11.2% | 6.0% | 8.0% | | Total risk-based capital ratio | 13.7%| 14.1% | 8.0% | 10.0% | | Tier 1 leverage ratio | 9.6% | 8.4% | 4.0% | 5.0% | Contractual Obligations This section outlines the Company's significant contractual commitments, including leases and borrowings - The Bank is obligated to make rental payments under leases for its branches and equipment[268] - Significant borrowings include FHLBNY advances, overnight/short-term borrowings, and customer/brokered Certificates of Deposit with fixed contractual interest rates[268] Off-Balance Sheet Arrangements This section describes the Company's commitments to extend credit that are not recognized on the balance sheet - The Bank has outstanding commitments to extend credit to third parties as part of its loan origination business, which are granted under regular underwriting standards[269] - Since these loan commitments may expire prior to funding, their contract amounts do not represent estimates of future cash flows[269] Asset Quality This section reviews the quality of the Company's loan portfolio, non-accrual loans, and credit loss allowance - The Bank does not originate or purchase subprime loans. It reviews delinquent loans quarterly and reports to the Board on non-performing and delinquent loans[270][278] - As of September 30, 2021, the Company had 17 loans with outstanding balances of $26.6 million in P&I deferrals due to COVID-19, which are exempt from TDR classification under the CARES Act[274][276] - Non-accrual loans totaled $34.0 million at September 30, 2021, an increase from $17.9 million at December 31, 2020. The Bank generally discontinues interest accrual on loans 90 days or more past due[286][288][280] - The Company adopted the CECL Standard on January 1, 2021, resulting in an initial $3.9 million decrease to the allowance for credit losses and a $1.4 million increase to the reserve for unfunded commitments[303][304] - A credit loss recovery of $5.2 million was recognized for the three months ended September 30, 2021, and a provision of $6.3 million for the nine months, influenced by macroeconomic conditions and acquired non-PCD loans[305] Comparison of Financial Condition at September 30, 2021 and December 31, 2020 This section analyzes changes in the Company's balance sheet, including assets, liabilities, and equity - Total assets increased by $5.58 billion to $12.36 billion at September 30, 2021, primarily due to the merger, which led to a $3.62 billion increase in the loan portfolio and a $1.20 billion increase in securities[307][308] - Total liabilities increased by $5.08 billion to $11.16 billion, mainly driven by a $6.15 billion increase in deposits and an $83.1 million increase in subordinated debt from the merger[312] - Stockholders' equity increased by $500.0 million to $1.20 billion, attributed to $491.2 million in merger-related share issuances, $38.4 million in net income, and $4.9 million in other comprehensive income[314] Comparison of Operating Results for the Three Months Ended September 30, 2021 and 2020 This section compares the Company's income statement performance for the three-month periods - Net income for the three months ended September 30, 2021, was $38.4 million, up from $15.9 million in the prior year, largely due to a $49.9 million increase in net interest income and an $11.1 million decrease in credit loss provision[316] - Net interest income increased by $49.9 million to $94.8 million, with net interest margin improving to 3.20% from 2.92%, driven by higher average interest-earning assets from the merger[321] - Interest expense decreased by $6.6 million to $5.8 million, primarily due to reduced interest rates on CDs and a $1.02 billion decrease in average FHLBNY advances[323] - Non-interest expense increased by $31.9 million to $56.8 million, mainly due to higher salaries and employee benefits, occupancy costs, professional services, merger expenses, and branch restructuring costs related to the merger[327] Comparison of Operating Results for the Nine Months Ended September 30, 2021 and 2020 This section compares the Company's income statement performance for the nine-month periods - Net income for the nine months ended September 30, 2021, increased by $31.4 million to $68.6 million, driven by a $136.9 million increase in net interest income and a $13.7 million decrease in credit loss provision[331] - Net interest income increased by $136.9 million to $265.9 million, with net interest margin improving to 3.15% from 2.83%, primarily due to a $5.21 billion increase in average interest-earning assets from the merger[336] - Interest expense decreased by $24.0 million to $21.9 million, mainly due to lower CD rates and a $691.4 million decrease in average FHLBNY advances[338] - Non-interest income increased by $13.1 million to $31.9 million, primarily from a $21.2 million increase in SBA loan sales gains and $7.5 million in service charges, partially offset by a $16.5 million loss on derivative terminations[341] - Non-interest expense increased by $114.3 million to $194.5 million, largely due to $39.8 million in merger expenses, $35.7 million in salaries, and $6.2 million in branch restructuring costs[342] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section updates the Company's market risk disclosures, focusing on interest rate risk, which remains the largest component. It presents an analysis of the Economic Value of Equity (EVE) and Net Interest Income (NII) sensitivity to interest rate changes General This section identifies interest rate risk as the Company's primary market risk exposure - The Company's primary market risk is interest rate risk; it is not exposed to foreign currency exchange or commodity price risk[346] - No transactions involving derivative instruments for hedging interest rate or market risk requiring bifurcation were conducted during the three and nine months ended September 30, 2021[346] Interest Rate Risk Exposure Analysis This section analyzes the impact of interest rate changes on the Company's economic value of equity and net interest income - The Company uses Economic Value of Equity (EVE) analysis to simulate the impact of interest rate volatility on the present value of assets, liabilities, and off-balance sheet items[347] Economic Value of Equity (EVE) Analysis (in thousands) | Rate Shock Scenarios | Sep 30, 2021 EVE | Sep 30, 2021 Dollar Change | Sep 30, 2021 Percentage Change | Dec 31, 2020 EVE | Dec 31, 2020 Dollar Change | Dec 31, 2020 Percentage Change | | :------------------- | :--------------- | :------------------------- | :----------------------------- | :--------------- | :------------------------- | :----------------------------- | | +200 Basis Points | $1,369,702 | $222,016 | 19.34% | $601,319 | $7,892 | 1.33% | | +100 Basis Points | $1,280,262 | $132,576 | 11.55% | $597,398 | $3,971 | 0.67% | | Pre-Shock Scenario | $1,147,686 | — | — | $593,427 | — | — | - The Company's Pre-Shock Scenario EVE increased significantly from $593.4 million at December 31, 2020, to $1.15 billion at September 30, 2021, primarily due to the merger[354] Net Interest Income (NII) Simulation Analysis (12-month period from Sep 30, 2021) | Gradual Change in Interest rates of: | Percentage Change in Net Interest Income | | :----------------------------------- | :--------------------------------------- | | +200 Basis Points | 1.28% | | +100 Basis Points | 0.47% | Item 4. Controls and Procedures This section details the effectiveness of the Company's disclosure controls and procedures and reports on changes in internal control over financial reporting Changes in Internal Control Over Financial Reporting This section reports on the effectiveness of disclosure controls and changes in internal control over financial reporting - Management concluded that the Company's disclosure controls and procedures were effective as of September 30, 2021[359] - Changes in internal control over financial reporting occurred during the nine months ended September 30, 2021, related to the adoption of CECL and business combinations[360] PART II – OTHER INFORMATION This part includes disclosures on legal proceedings, risk factors, equity sales, and other relevant information Item 1. Legal Proceedings This section addresses legal proceedings involving the Company - The Company is routinely involved in various pending or threatened legal actions in the ordinary course of business[361] - Management believes that as of September 30, 2021, no actions or proceedings were likely to have a material adverse impact on the Company's financial condition and results of operations[361] Item 1A. Risk Factors This section refers to the Company's risk factors - There have been no changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2020[362] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides information on the Company's common stock repurchase activities Common Stock Repurchase Program (Shares) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :------------ | :------------------------------- | :--------------------------- | | July 2021 | 253,145 | $31.84 | | August 2021 | 71,284 | $33.38 | | September 2021| 155,610 | $32.10 | - In August 2021, the Company adopted a new stock repurchase program authorizing the purchase of up to 2,043,968 shares upon completion of the existing program[367] - As of September 30, 2021, 1,937,588 shares remained available for purchase under the authorized repurchase programs[367] Item 3. Defaults Upon Senior Securities This section confirms no defaults on senior securities - There were no defaults upon senior securities[365] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[366] Item 5. Other Information This section indicates no other information to report - There is no other information to report in this section[370] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q - The exhibits include the Restated Certificate of Incorporation, Amended and Restated Bylaws, Certifications of Principal Executive and Financial Officers, and XBRL financial statements[372] Signatures This section contains the official signatures of the Company's principal executive and financial officers - The report is signed by Kevin M. O'Connor, Chief Executive Officer, and Avinash Reddy, Senior Executive Vice President and Chief Financial Officer, on November 9, 2021[376]