MERGER

6 Months Ended

Jun. 30, 2021

MERGER

MERGER

2.MERGER

As described in Note 1. Basis of Presentation, on February 1, 2021, we completed our Merger with Legacy Dime.

Pursuant to the merger agreement, Legacy Dime merged with and into Bridge with Bridge as the surviving corporation under the name “Dime Community Bancshares, Inc.” At the effective time of the Merger, each outstanding share of Legacy Dime common stock, par value $0.01 per share, was converted into 0.6480 shares of the Company’s common stock, par value $0.01 per share.

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

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.

The Merger constituted a business combination and was accounted for as a reverse merger using the acquisition method of accounting. As a result, Legacy Dime was the accounting acquirer and Bridge was the legal acquirer and the accounting acquiree. Accordingly, the historical financial statements of Legacy Dime became the historical financial statements of the combined company. In addition, the assets and liabilities of Bridge have been recorded at their estimated fair values and added to those of Legacy Dime as of the Merger Date. The determination of fair value required management to make estimates about discount rates, expected future cash flows, market conditions and other future events that are subjective and subject to change.

The Company issued 21.2 million shares of its common stock to Legacy Dime stockholders in connection with the Merger, which represented 51.5% of the voting interests in the Company upon completion of the Merger. In accordance with FASB ASC 805-40-30-2, the purchase price in a reverse acquisition is determined based on the number of equity interests the legal acquiree would have had to issue to give the owners of the legal acquirer the same percentage equity interest in the combined entity that results from the reverse acquisition.

The table below summarizes the ownership of the combined company following the Merger, for each shareholder group, as well as the market capitalization of the combined company using shares of Bridge and Legacy Dime common stock outstanding at January 31, 2021 and Bridge’s closing price on January 31, 2021.

	Dime Community Bancshares, Inc. Ownership and Market Value
	Number of				Market Value at
	Bridge		Percentage		$24.43 Bridge
(Dollars and shares in thousands)	Outstanding Shares		Ownership		Share Price
Bridge shareholders		19,993		48.5%	$	488,420
Legacy Dime shareholders		21,233		51.5%		518,720
Total		41,226		100.0%	$	1,007,140

The table below summarizes the hypothetical number of shares as of January 31, 2021 that Legacy Dime would have to issue to give Bridge owners the same percentage ownership in the combined company.

	Hypothetical Legacy Dime Ownership
	Number of
	Legacy Dime		Percentage
(Shares in thousands)	Outstanding Shares		Ownership
Bridge shareholders		30,853		48.5%
Legacy Dime shareholders		32,767		51.5%
Total		63,620		100.0%

The purchase price is calculated based on the number of hypothetical shares of Legacy Dime common stock issued to Bridge shareholders multiplied by the share price as demonstrated in the table below.

(Dollars and shares in thousands)
Number of hypothetical Legacy Dime shares issued to Bridge shareholders		30,853
Legacy Dime market price per share as of February 1, 2021	$	15.90
Purchase price determination of hypothetical Legacy Dime shares issued to Bridge shareholders	$	490,560
Value of Bridge stock options hypothetically converted to options to acquire shares of Legacy Dime common stock		643
Cash in lieu of fractional shares		7
Purchase price consideration	$	491,210

The following table provides the purchase price allocation as of the Merger Date and the Bridge assets acquired and liabilities assumed at their estimated fair value as of the Merger Date as recorded by Dime Community Bancshares. We recorded the estimate of fair value based on initial valuations available at the Merger Date and these estimates are considered preliminary and subject to adjustment for up to one year after the Merger Date. While we believe that the information available on the Merger Date provided a reasonable basis for estimating fair value, we are currently within the measurement period and our estimates of fair value are provisional. We expect that we may obtain additional information and evidence during the measurement period that would result in changes to the estimated fair value amounts. The measurement period ends on the earlier of one year after the Merger Date or the date we are able to determine that we have obtained all necessary information about the facts and circumstances that existed as of Merger Date. Subsequent adjustments to fair value, if necessary, will be reflected in our future filings.

(In thousands)
Purchase price consideration	$	491,210
Fair value of assets acquired:
Cash and due from banks		715,988
Securities available-for-sale		651,997
Loans held for sale		10,000
Loans held for investment		4,531,640
Premises and fixed assets		37,881
Restricted stock		23,362
BOLI		94,085
Other intangible assets		10,984
Operating lease assets		45,603
Other assets		117,474
Total assets acquired		6,239,014
Fair value of liabilities assumed:
Deposits		5,405,575
Other short-term borrowings		216,298
Subordinated debt		83,200
Operating lease liabilities		45,285
Other liabilities		97,147
Total liabilities assumed		5,847,505
Fair value of net identifiable assets		391,509
Goodwill resulting from Merger	$	99,701

As a result of the Merger, we recorded $99.7 million of goodwill. The goodwill recorded is not deductible for income tax purposes.

As described in detail in Note 3. Summary of Accounting Policies, the Company is required to record purchased financial assets with credit deterioration (PCD assets), defined as a more-than-insignificant deterioration in credit quality since origination or issuance, at the purchase price plus the allowance for credit losses expected at the time of acquisition. Under this method, there is no credit loss expense affecting net income on acquisition of PCD assets.  Changes in estimates of expected losses after acquisition are recognized as credit loss expense (or reversal of credit loss expense) in subsequent periods as they arise. Any non-credit discount or premium resulting from acquiring a pool of purchased financial assets with credit deterioration shall be allocated to each individual asset.  At the acquisition date, the initial allowance for credit losses determined on a collective basis shall be allocated to individual assets to appropriately allocate any non-credit discount or premium.  The non-credit discount or premium, after the adjustment for the allowance for credit losses, shall be accreted to interest income using the interest method based on the effective interest rate determined after the adjustment for credit losses at the adoption date. Information regarding loans acquired at the Merger Date are as follows:

(In thousands)
PCD loans:
Unpaid principal balance	$	295,306
Non-credit discount at acquisition		(9,050)
Unpaid principal balance, net		286,256
Allowance for credit losses at acquisition		(52,284)
Fair value at acquisition		233,972
Non-PCD loans:
Unpaid principal balance		4,289,236
Premium at acquisition		8,432
Fair value at acquisition		4,297,668
Total fair value at acquisition	$	4,531,640

Supplemental disclosures of cash flow information related to investing and financing activities regarding the Merger are as follows for the six months ended June 30, 2021:

(In thousands)
Business combination:
Fair value of tangible assets acquired	$	6,228,030
Goodwill, core deposit intangible and other intangible assets acquired		110,685
Liabilities assumed		5,847,505
Purchase price consideration		491,210

Other intangible assets consisted of core deposit intangibles and a non-compete agreement with estimated fair values at the Merger Date of $10.2 million and $780 thousand, respectively. Core deposit intangibles are being amortized over a life of 10 years on an accelerated basis. The non-compete agreement is being amortized over a life of 13 months.

Pro Forma Combined Results of Operations

The following pro forma financial information presents the consolidated results of operations of Legacy Dime and Bridge as if the Merger occurred as of January 1, 2020 with pro forma adjustments. The pro forma adjustments give effect to any change in interest income due to the accretion of discounts (premiums) associated with the fair value adjustments of acquired loans, any change in interest expense due to estimated premium amortization/discount accretion associated with the fair value adjustments to acquired time deposits and other debt, and the amortization of the core deposit intangible that would have resulted had the deposits been acquired as of January 1, 2020. Merger related expenses incurred by the Company during the three and six months ended June 30, 2021 are not reflected in the pro forma amounts. The pro forma information does not necessarily reflect the results of operations that would have occurred had Legacy Dime merged with Bridge at the beginning of 2020.  

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(Dollars in thousands except per share amounts)	2021		2020		2021		2020
Net interest income	$	90,771	$	86,126	$	181,183	$	165,637
Non-interest income		29,544		10,638		23,512		20,091
Net income		53,000		23,755		52,804		42,044
Net income available to common shareholders		50,620		22,351		48,690		40,378
Earnings per share:
Basic		1.24		0.54		1.18		0.98
Diluted		1.24		0.54		1.18		0.98