DCOM US Equity☆

Item 1A. Risk Factors

Risks Related to our Mergers and Acquisitions Activities

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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.

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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.

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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.

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The combined company may be unable to retain personnel successfully following the Merger.

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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.

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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.

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Risks Related to the COVID-19 Outbreak

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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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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.

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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.

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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.

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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.

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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.

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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.

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The performance of our multi-family real estate loans could be adversely impacted by regulation.

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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.

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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.

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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.

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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

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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.

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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.

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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.

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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.

​

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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

​

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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:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ Total Number of ​ ​

​ ​ ​ ​ ​ ​ ​ Shares Purchased ​ Maximum Number

​ ​ ​ ​ ​ ​ ​ as Part of ​ of Shares That May

​ ​ Total Number of ​ ​ ​ ​ Publicly ​ Yet Be Purchased

​ ​ Shares ​ Average Price ​ Announced Plans ​ Under the Plans or

​ Purchased (1) Paid per Share or Programs Programs (2)

​

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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.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ December 31,

Loans held for sale ​ ​ 52,785 ​ ​ 12,643 ​ ​ — ​ ​ — ​ ​ —

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31, ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Selected Financial Ratios and Other Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

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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,

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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)

​

​

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

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.

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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) ​ Number of ​ ​ Outstanding

Range of Loan Size ​ Loans ​ ​ Balance

​

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

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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

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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”.

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

​ ​ ​ Average ​ ​ Average ​ ​ Average

​ ​ Average ​ ​ ​ Yield/ ​ Average ​ ​ ​ Yield/ ​ Average ​ ​ ​ Yield/

Interest-earning assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Non-interest-earning assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Interest-bearing liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net interest margin (2) (4) ​ ​ ​ ​ ​ ​ 2.99 % ​ ​ ​ ​ ​ 3.31 % ​ ​ ​ ​ ​ 3.33 %

Net interest margin (4) ​ ​ ​ ​ ​ ​ 2.98 % ​ ​ ​ ​ ​ 3.30 % ​ ​ ​ ​ ​ 3.31 %

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

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Rate/Volume Analysis

Net interest income can be analyzed in terms of the impact of changes in rates and volumes. The following table illustrates the extent to which changes in interest rates and in the volume of average interest-earning assets and interest-bearing liabilities have affected our interest income and interest expense during the periods indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume); and (iii) the net changes. For purposes of this table, changes that are not due solely to volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate. Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes between volume and rates. In addition, average interest-earning assets include non-accrual loans.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

​ ​ Changes Due To ​ Changes Due To

​ ​ ​ ​ ​ Net ​ ​ ​ ​ Net

(In thousands) ​ Volume ​ Rate Change ​ Volume ​ Rate Change

Interest income on interest-earning assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Subordinated debentures ​ 8 ​ (146) ​ (138) ​ 8 ​ (8) ​ —

​

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

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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

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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:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Year Ended December 31, ​

Impact of adopting CECL ​ ​ 1,625 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​

Charge-offs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Commercial real estate mortgage loans ​ (1) (3,670) — — — ​

Residential real estate mortgage loans ​ — — (24) — (56) ​

Installment/consumer loans ​ (7) (13) (11) (49) (1) ​

Recoveries: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Commercial real estate mortgage loans ​ — 1 — — 109 ​

Residential real estate mortgage loans ​ 3 112 3 28 96 ​

Commercial, industrial and agricultural loans ​ 298 25 747 16 386 ​

Installment/consumer loans ​ — 12 2 3 6 ​

​

​

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Allocation of Allowance for Credit Losses

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

​ ​ Percentage ​ Percentage ​ Percentage ​ Percentage ​ Percentage

​ ​ ​ ​ of Loans ​ ​ ​ of Loans ​ ​ ​ of Loans ​ ​ ​ of Loans ​ ​ ​ of Loans

​ ​ ​ ​ to Total ​ ​ ​ to Total ​ ​ ​ to Total ​ ​ ​ to Total ​ ​ ​ to 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.

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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.

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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.

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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:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

​

Selected Loan Maturity Information

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ After One ​ ​ ​ ​

​ ​ Within One ​ But Within ​ After ​ ​ ​

(In thousands) ​ Year ​ Five Years ​ Five Years ​ Total

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Rate provisions: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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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:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ December 31,

Other real estate owned, net ​ — ​ — ​ 175 ​ — ​ —

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Year Ended December 31,

Restructured loans ​ — ​ — ​ — ​ — ​ 1

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross interest income recorded during the year: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Non-accrual loans ​ $ 93 ​ $ 48 ​ $ 39 ​ $ 282 ​ $ 1

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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.

​

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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 ​ After One But ​ After Five But ​ After ​ ​ ​ ​ ​ ​

​ ​ One Year ​ Within Five Years ​ Within Ten Years ​ Ten Years ​ Total

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Held to maturity: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

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,

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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) ​ $100,000 ​ Greater ​ Total

​

Liquidity

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

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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:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ Less than ​ One to ​ Four to ​ Over Five

(In thousands) Total One Year Three Years Five Years Years

FHLB advances and repurchase agreements ​ ​ 216,223 ​ ​ 216,223 ​ — ​ ​ — ​ ​ —

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

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

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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.

​

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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.

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The following reflects our net interest income sensitivity analysis at December 31, 2020 and 2019:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Potential Change ​

​ ​ in Future Net

Change in Interest ​ Interest Income

Rates in Basis Points ​ Year 1 ​ Year 2

(Dollars in thousands) $ Change % Change $ Change % Change ​

Static ​ — — ​ — — ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Potential Change ​

​ ​ in Future Net

Change in Interest ​ Interest Income

Rates in Basis Points ​ Year 1 ​ Year 2

(Dollars in thousands) $ Change % Change $ Change % Change ​

Static ​ — — ​ — — ​

​

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.

​

​

​

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Item 8. Financial Statements and Supplementary Data

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

​ ​ ​ ​ ​ ​ ​

​ December 31, ​ December 31,

​ ​ ​ ​ ​ ​ ​

Assets ​ ​ ​ ​ ​ ​

Interest-bearing deposits with banks ​ ​ 769,099 ​ ​ 39,501

​ ​ ​ ​ ​ ​ ​

Securities available for sale, at fair value ​ ​ 450,360 ​ ​ 638,291

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

Allowance for credit losses ​ ​ (44,200) ​ ​ (32,786)

​ ​ ​ ​ ​ ​ ​

Operating lease right-of-use assets ​ ​ 44,007 ​ ​ 43,450

Other intangible assets ​ ​ 3,378 ​ ​ 3,677

​ ​ ​ ​ ​ ​ ​

Liabilities ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

Repurchase agreements ​ ​ 1,223 ​ ​ 999

Federal Home Loan Bank ("FHLB") advances ​ ​ 215,000 ​ ​ 435,000

Other liabilities and accrued expenses ​ ​ 85,217 ​ ​ 48,823

​ ​ ​ ​ ​ ​ ​

Commitments and contingencies ​ ​ — ​ ​ —

​ ​ ​ ​ ​ ​ ​

Stockholders’ equity ​ ​ ​ ​ ​ ​

See accompanying Notes to the Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Interest income: ​ ​ ​ ​ ​ ​ ​ ​ ​

State and municipal obligations ​ ​ 1,843 ​ ​ 2,234 ​ ​ 2,812

Other interest and dividend income ​ ​ 1,541 ​ ​ 1,535 ​ ​ 1,866

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Interest expense: ​ ​ ​ ​ ​ ​ ​ ​ ​

Federal funds purchased and repurchase agreements ​ ​ 79 ​ ​ 767 ​ ​ 1,200

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Non-interest income: ​ ​ ​ ​ ​ ​ ​ ​ ​

Net securities gains (losses) ​ ​ 3,525 ​ ​ 201 ​ ​ (7,921)

Loss on termination of swaps ​ ​ (3,403) ​ ​ — ​ ​ —

Change in fair value of loans held for sale ​ ​ (2,877) ​ ​ — ​ ​ —

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Non-interest expense: ​ ​ ​ ​ ​ ​ ​ ​ ​

Merger expenses ​ ​ 4,452 ​ ​ — ​ ​ —

Net fraud loss ​ ​ — ​ ​ — ​ ​ 8,900

Office relocation costs ​ ​ — ​ ​ — ​ ​ 750

Amortization of other intangible assets ​ ​ 656 ​ ​ 787 ​ ​ 917

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Basic earnings per share ​ $ 2.11 ​ $ 2.59 ​ $ 1.97

Diluted earnings per share ​ $ 2.11 ​ $ 2.59 ​ $ 1.97

​

See accompanying Notes to the Consolidated Financial Statements.

​

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Other comprehensive (loss) income: ​ ​

Total other comprehensive (loss) income ​ (1,787) ​ 6,771 ​ (173)

​

See accompanying Notes to the Consolidated Financial Statements.

​

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share and per share amounts)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ ​

​ ​ Common ​ ​ ​ ​ Retained ​ Treasury ​ Comprehensive ​ ​

​ ​ Stock ​ Surplus ​ Earnings ​ Stock ​ Loss ​ Total

Stock awards forfeited (15,225 shares) ​ ​ ​ 437 ​ ​ ​ (437) ​ ​ ​ —

Share based compensation expense ​ ​ ​ 3,487 ​ ​ ​ ​ ​ ​ 3,487

Cash dividend declared, $0.92 per share ​ ​ ​ ​ (18,342) ​ ​ ​ ​ (18,342)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Shares issued under the DRP (24,529 shares) ​ ​ ​ 867 ​ ​ ​ ​ ​ ​ 867

Stock awards forfeited (19,531 shares) ​ ​ ​ 555 ​ ​ ​ (555) ​ ​ ​ —

Share based compensation expense ​ ​ ​ 3,692 ​ ​ ​ ​ ​ ​ 3,692

Cash dividend declared, $0.92 per share ​ ​ ​ ​ (18,420) ​ ​ ​ ​ (18,420)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Shares issued under the DRP (39,600 shares) ​ ​ ​ 1,012 ​ ​ ​ ​ ​ ​ 1,012

Stock awards forfeited (6,593 shares) ​ ​ ​ 222 ​ ​ ​ (222) ​ ​ ​ —

Share based compensation expense ​ ​ ​ 7,639 ​ ​ ​ ​ ​ ​ 7,639

Cash dividend declared, $0.96 per share ​ ​ ​ ​ (19,197) ​ ​ ​ ​ (19,197)

​

See accompanying Notes to the Consolidated Financial Statements.

​

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

Cash flows from operating activities: ​ ​ ​ ​ ​ ​

Depreciation and amortization of premises and equipment ​ 4,319 ​ 4,253 ​ 3,822

Net (accretion) and other amortization ​ ​ (940) ​ ​ (1,375) ​ ​ (2,093)

Amortization of other intangible assets ​ 656 ​ 787 ​ 917

Loss on termination of swaps ​ ​ 3,403 ​ ​ — ​ ​ —

Change in fair value of loans held for sale ​ ​ 2,877 ​ ​ — ​ ​ —

(Increase) decrease in accrued interest receivable ​ (5,658) ​ 328 ​ 416

Gain on sale of loans ​ — ​ — ​ (441)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash flows from investing activities: ​ ​ ​ ​ ​

Purchases of securities held to maturity ​ — ​ — ​ (1,000)

Proceeds from loan sale ​ — ​ — ​ 40,133

Proceeds from sales of other real estate owned ("OREO"), net ​ ​ — ​ ​ 297 ​ ​ —

Purchase of premises and equipment ​ (5,129) ​ (3,307) ​ (5,325)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash flows from financing activities: ​ ​ ​ ​ ​

Net decrease in federal funds purchased ​ — ​ — ​ (50,000)

Net increase (decrease) in repurchase agreements ​ 224 ​ 460 ​ (338)

Net proceeds from issuance of common stock ​ 1,267 ​ 1,102 ​ 1,017

Purchase of treasury stock ​ ​ (4,633) ​ ​ (625) ​ ​ —

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Supplemental disclosure of cash flow information: ​ ​ ​ ​ ​

Cash paid for: ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Non-cash investing and financing activities: ​ ​ ​ ​

Transfers from portfolio loans to other real estate owned ​ $ — ​ $ — ​ $ 175

​

See accompanying Notes to the Consolidated Financial Statements.

​

​

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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,

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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:

● the Company may recognize impairment of its goodwill;

​

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

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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.