50
Bank-owned life insurance increased $20.2 million, or 9.5%, to $231.6 million at June 30, 2020 from $211.4 million at December 31, 2019. The increase was primarily attributable to $17.2 million acquired in connection with the Roselle merger.
Goodwill and intangible assets increased $24.1 million, or 35.1%, to $92.6 million at June 30, 2020 from $68.6 million at December 31, 2019. The increase was primarily attributable to $23.8 million in goodwill recorded in connection with the Roselle merger.
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
originally permitted by the CARES Act and the Consolidated Appropriations Act, 2021, which, when enacted, extended certain provisions of the CARES Act. The Company expects to adopt CECL on January 1, 2022.
Other assets increased $71.4$7.2 million, or 49.0%3.4%, to $217.1$217.0 million at June 30, 20202021 from $145.7$209.9 million at December 31, 2019.2020. The increase in other assets consisted of an increase of $36.2 million in the Company's pension plan balance based on a $20.8revaluation of the plan, partially offset by a decrease of $13.3 million balance of a right-of-use asset recognized in connection with the adoption of Accounting Standards Update ("ASU") 2016-02-Leases, a $31.5 million increase in the collateral balance related to our swap agreement obligations, and a $17.2decrease of $6.8 million increase in interest rate swap fair value adjustments.
assets, a decrease of $6.3 million in federal and state income tax receivables, and a decrease of $2.5 million in deferred taxes.
Total liabilities increased $716.0$247.1 million, or 9.9%3.2%, to $7.9$8.0 billion at June 30, 20202021 from $7.2$7.8 billion at December 31, 2019.2020. The increase was primarily attributable to an increase in total deposits of $935.3$300.7 million, or 16.6%, and an increase in accrued expenses and other liabilities of $56.6 million, or 48.0%4.4%, partially offset by a decrease in borrowings of $277.0$49.7 million, or 19.7%6.2%, and a decrease in accrued expenses and other liabilities of $7.4 million, or 4.2%. The increase in total deposits was primarily driven by $333.2 million in deposits assumed due to the Roselle merger andconsisted of increases in non-interest-bearing and interest-bearing demand deposits of $358.1$158.6 million and $205.6$166.7 million, respectively, which were mainly related to borrowers depositing funds received from SBA PPP loans into their business accounts. Moneyand money market accounts and savings and club deposits of $57.4 million and $61.2 million, respectively, partially offset by a decrease in certificates of deposits also increased $91.6deposit accounts of $143.2 million. The decrease in borrowings was primarily driven by the prepayment of $56.5 million $109.1 million and $170.9 million, respectively, during the period.of FHLB borrowings. The increasedecrease in accrued expenses and other liabilities consisted of a $21.9$14.0 million balance of the lease liability recognized in connection with the adoption of ASU 2016-02-Leases, and a $32.9 million increasedecrease in interest rate swap liabilities. The decrease in borrowings was primarily driven by maturing long-term borrowings of $116.5 million and a net decrease in short-term borrowings of $287.8 million,liabilities, partially offset by new long-term borrowingsa $7.6 million increase in balance of $90.0 million and $ 37.7 million in borrowings assumed from Roselle.
outstanding checks.
Total stockholders’ equity increased $58.5$21.8 million, or 6.0%2.2%, towith a balance of $1.0 billion at both June 30, 2020 from $982.5 million at2021 and December 31, 2019.2020. The net increase was primarily attributable to net income of $21.9$47.7 million, an increaseand a change in additional capitalthe pension obligation of $68.5$32.2 million due toa revaluation of the issuance of 4,759,048 shares of Company common stock to Columbia Bank MHC related to the Roselle merger, and improved fair values on debt securities within our available for sale portfolio of $25.9 million,plan, partially offset by the repurchase of approximately 3,456,2003,470,040 shares of common stock totaling $53.4$58.5 million under our stock repurchase program. The repurchases under the stock repurchase program were completed in April 2020.
Comparison of Results of Operations for the QuarterThree months Ended June 30, 20202021 and June 30, 20192020
Net income of $15.1$26.7 million was recorded for the quarter ended June 30, 2020,2021, an increase of $3.1$11.6 million, or 25.5%76.8%, compared to net income of $12.0$15.1 million for the quarter ended June 30, 2019.2020. The increase in net income was primarily attributable to a $15.0$2.2 million increase in net interest income, a $7.5 million decrease in provision for loan losses, and a $233,000$7.4 million increase in non-interest income, partially offset by a $5.6$5.3 million increase in the provision for loan losses, a $5.6 million increase in non-interest expense and a $969,000 increase in income tax expense.
Net interest income was $58.1 million for the quarter ended June 30, 2021, an increase of $2.2 million, or 4.0%, from $55.9 million for the quarter ended June 30, 2020, an increase of $15.0 million, or 36.8%, from $40.8 million for the quarter ended June 30, 2019.2020. The increase in net interest income was primarily attributable to a $12.9 million increase in interest income coupled with a $2.2$9.9 million decrease in interest expense.expense, partially offset by a $7.7 million decrease in interest income. The increasedecrease in interest expense on deposits was driven by both an inflow of lower cost deposits and the repricing of existing deposits at a significantly reduced rate as a result of a lower interest rate environment. The decrease in interest expense on borrowings was the result of decreases in both the average balance and average cost of borrowings. The decrease in interest income for the quarter ended June 30, 20202021 was largely due to increases in the average balances on loans, securities and other interest-earning assets, which was the result of internal growth and the acquisitions of Stewardship and Roselle, partially offset by decreases in the average yields on theseinterest-earning assets. Prepayment penalties, which are included in interest income on loans, totaled $1.1 million for the quarter ended June 30, 2021, compared to $964,000 for the quarter ended June 30, 2020 compared to $155,000 for the quarter ended June 30, 2019.2020.
The average yield on loans for the quarter ended June 30, 20202021 decreased 1824 basis points to 3.96%3.72%, as compared to 4.14%3.96% for the quarter ended June 30, 2019,2020, while the average yield on securities for the quarter ended June 30, 20202021 decreased 3363 basis points to 2.56%1.93%, as compared to 2.89%2.56% for the quarter ended June 30, 2019.2020. The average yield on other interest-earning assets for the quarter ended June 30, 20202021 decreased 324171 basis points to 2.95%1.24%, as compared to 6.19%2.95% for the quarter ended June 30, 2019.2020, as there were substantially higher cash balances in low yielding bank accounts for the quarter ended June 30, 2021. Decreases in the average yields on these portfolios for the quarter ended June 30, 20202021 were influenced by the lower interest rate environment as the Federal Reserve reduced interest rates by 75 basis points in the third and fourth quarters of 2019, and in response to COVID-19, reduced interest rates again by 150 basis points in March 2020.2020 in response to the COVID-19 pandemic.
Total interest expense was $9.8 million for the quarter ended June 30, 2021, a decrease of $9.9 million, or 50.3%, from $19.7 million for the quarter ended June 30, 2020, a decrease of $2.2 million, or 9.9%, from $21.9 million for the quarter ended June 30, 2019.2020. The decrease in interest expense was primarily attributable to a 4158 basis point decrease in the average cost of interest-bearing deposits which more thanwas partially offset by the impact fromof the increase in the average balance of deposits. The decrease in the cost of deposits was driven by both an inflow of lower costingcost deposits and the repricing of existing deposits at a significantly reduced rate.lower interest rates. Interest on borrowings decreased $1.8$2.9 million due to a decrease in the average balancebalances of borrowingsFHLB advances and subordinated notes, coupled with an 84a 59 basis point decrease in the cost of these borrowings due to a lower interest rate environment.
total borrowings.
The Company's net interest margin for the quarter ended June 30, 20202021 increased 204 basis points to 2.73%2.77%, when compared to 2.53%2.73% for the quarter ended June 30, 2019.2020. The weighted average yield on interest-earning assets decreased 2045 basis points to 3.24% for the quarter ended June 30, 2021 as compared to 3.69% for the quarter ended June 30, 2020 as compared to 3.89% for2020. Excluding the quarter ended June 30, 2019. The average costimpact of interest-bearing liabilitiesPPP loan
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
deferred fee acceleration for the quarter ended June 30, 2021, the net interest margin would have been 2.66%. The average cost of interest-bearing liabilities decreased 5163 basis points to 0.62% for the quarter ended June 30, 2021 as compared to 1.25% for the quarter ended June 30, 2020 as compared to 1.76% for the quarter ended June 30, 2019.2020. The decrease in yields and costs for the quarter ended June 30, 20202021 were largely driven by a continued lower interest rate environment. The net interest margin increased for the quarter ended June 30, 2021 as the cost of interest-bearing liabilities repricedcontinued to reprice lower more rapidly than the yields on interest-earning assets.
The reversal of provision for loan lossesloss recorded for the quarter ended June 30, 2021 was $1.8 million, a decrease of $7.5 million, from $5.7 million of provision for loan loss expense recorded for the quarter ended June 30, 2020. The comparatively lower level of provision for the 2021 period was primarily attributable to a decrease in the average balance of loans, a decrease in loan loss rates, a decrease in the balances of delinquent and non-accrual loans, and the consideration of the improving economic environment.
Non-interest income was $14.4 million for the quarter ended June 30, 2020,2021, an increase of $5.6$7.4 million, or 105.4%, from $112,000 for the quarter ended June 30, 2019. The increase was primarily attributable to consideration of the deterioration of economic conditions and loan performance due to the ongoing COVID-19 pandemic, which resulted in increases to qualitative factors.
Non-interest income was $7.0 million for the quarter ended June 30, 2020, an increase of $233,000, or 3.4%, from $6.8 million for the quarter ended June 30, 2019. The increase was primarily attributable to increases in the change in fair value of equity securities of $572,000, gain on sale of loans of $599,000 and other non-interest income of $728,000, partially offset by decreases in demand deposit account fees of $431,000, income from loan fees and service charges of $967,000 and gains on securities transactions of $339,000. The increase in other non-interest income consists of increases in ATM, check card and wealth management related activities. Demand deposit account fees and loan fees and service charges were lower due to the decrease in fees related to customer swaps and the impact of the COVID-19 pandemic, which resulted in higher fee waivers as well as customers carrying higher deposit balances related to government stimulus programs.
Non-interest expense was $37.4 million for the quarter ended June 30, 2020, an increase of $5.6 million, or 17.6%, from $31.8 million for the quarter ended June 30, 2019.2020. The increase was primarily attributable to an increase in income from a $7.7 million gain on the sale of $237.0 million of commercial business loans granted as part of the Small Business Administration PPP, and an increase in title insurance fees of $507,000, partially offset by the decrease in the fair value of equity securities of $1.4 million.
Non-interest expense was $37.6 million for the quarter ended June 30, 2021, an increase of $167,000, or 0.4%, from $37.4 million for the quarter ended June 30, 2020. The increase was primarily attributable to an increase in data processing and software expenses of $248,000, professional fees of $568,000, and other non-interest expenses of $1.1 million, partially offset by a decrease in compensation and employee benefits expense of $4.9$1.6 million, and a decrease in merger-related expenses of $357,000. Professional fees included an increase in occupancy expense of $877,000consulting expenses related to information technology improvements, and anthe increase in other non-interest expense included $561,000 of $860,000, partially offset by a decrease of $943,000 in advertising expense. The increase in compensation and employee benefitsbranch closure costs.
Income tax expense was primarily attributable to an increase of $2.2$9.9 million in expense recorded in connection with grants made under the Company's 2019 Equity Incentive Plan and an increase in expense due to a larger number of employees in the 2020 period, which included continuing employees of Stewardship and Roselle. Duringfor the quarter ended June 30, 2020, the Bank implemented a Voluntary Early Retirement Program which offers early retirement incentives for qualified employees. Employees may elect to retire during the third quarter of 2020 if they meet criteria established under the existing Columbia Bank Retirement Plan, with additional incentives under the program. There have been no expenses related to this program recorded through June 30, 2020, although management anticipates approximately $3.0 million in additional compensation and employee benefits expense related to this program in the third quarter. The increase in occupancy expense was primarily the result of2021, an increase in the number of branch offices acquired from Stewardship and Roselle. In light of our focus during the pandemic of delivering our services digitally, the Bank plans$5.3 million, as compared to temporarily suspend de novo branching activities with an increased focus of enhancing digital capabilities. The increase in other non-interest expense includes $1.3 million related to interest rate swap transactions.
Income tax expense was $4.6 million for the quarter ended June 30, 2020, mainly due to an increase of $1.0 million, as comparedin pre-tax income, and to $3.6 million for the quarter ended June 30, 2019. Thea lesser extent, an increase in the Company's effective state income tax expense is attributable to higher pretax income during the quarter.rate. The Company's effective tax rate was 23.4%27.1% and 23.2%23.4% for the quarters ended June 30, 20202021 and 2019,2020, respectively.
Comparison of Results of Operations for the Six Months Ended June 30, 20202021 and June 30, 20192020
Net income of $21.9$47.7 million was recorded for the six months ended June 30, 2020, a decrease2021, an increase of $5.1$25.9 million, or 18.9%118.3%, compared to net income of $27.0$21.9 million for the six months ended June 30, 2019.2020. The decreaseincrease in net income was primarily attributable to a $14.8an $8.2 million increase in net interest income, an $18.3 million decrease in provision for loan losses, and a $14.6$9.6 million increase in non-interest expense,income, partially offset by a $23.3$10.9 million increase in net interest income and a $587,000 increase in non-interest income.tax expense.
Net interest income was $114.8 million for the six months ended June 30, 2021, an increase of $8.2 million, or 7.7%, from $106.6 million for the six months ended June 30, 2020, an increase of $23.3 million, or 28.1%, from $83.2 million for the six months ended June 30, 2019.2020. The increase in net interest income was primarily attributable to a $24.7$23.0 million increasedecrease in interest income andexpense, partially offset by a $1.3$14.8 million increasedecrease in interest income. The decrease in interest expense on deposits was driven by both an inflow of lower cost deposits and the repricing of existing deposits at a significantly reduced rate as a result of a lower interest rate environment. The decrease in interest expense on borrowings was the result of decreases in both the average balance and average cost of borrowings. During the six months ended June 30, 2021, $56.5 million of Federal Home Loan Bank of New York ("FHLB") borrowings were prepaid, resulting in a $742,000 loss on early extinguishment of debt included in non-interest expense. The increaseCompany has significantly reduced the cost of borrowings over the period by prepaying high rate borrowings. The decrease in interest income for the six months ended June 30, 20202021 was largely due to increases in the average balances on loans, securities and other interest-earning assets, which were the result of internal growth and the acquisitions of Stewardship and Roselle, partially offset by decreases in the average yields on theseinterest-earning assets. Prepayment penalties, which are included in interest income on loans, totaled $2.0 million for the six months ended June 30, 2021, compared to $1.6 million for the six months ended June 30, 2020 compared to $877,000 for the six months ended June 30, 2019.2020.
The average yield on loans for the six months ended June 30, 20202021 decreased 1526 basis points to 4.05%3.79%, as compared to 4.20%4.05% for the six months ended June 30, 2019,2020, while the average yield on securities for the six months ended June 30, 20202021 decreased 2766 basis points to 2.64%1.98%, as compared to 2.91%2.64% for the six months ended June 30, 2019.2020. The average yield on other interest-earning assets for the six months ended June 30, 2021 decreased 299 basis points to 0.82%, as compared to 3.81% for the six months ended June 30, 2020, as there were substantially higher cash balances in low yielding bank accounts for the six months ended June 30, 2021. Decreases in the average yields on these portfolios for the six months ended June 30, 2021 were influenced by the lower interest rate environment as the Federal Reserve reduced interest rates in early 2020 in response to the COVID-19 pandemic.
Total interest expense was $20.7 million for the six months ended June 30, 2021, a decrease of $23.0 million, or 52.6%, from $43.7 million for the six months ended June 30, 2020. The decrease in interest expense was primarily attributable to a 68 basis point
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
the six months ended June 30, 2020 decreased 259 basis points to 3.81%, as compared to 6.40% for the six months ended June 30, 2019. Decreases in the average yields on these portfolios for the six months ended June 30, 2020 were influenced by the lower interest rate environment.
Total interest expense was $43.7 million for the six months ended June 30, 2020, an increase of $1.3 million, or 3.09%, from $42.4 million for the six months ended June 30, 2019. The increase in interest expense on interest-bearing deposits was primarily attributable to a $1.1 billion increase in average balances, partially offset by a 22 basis point decrease in the average cost of interest-bearing deposits which was partially offset by the impact of the increase in the average balance of deposits. The decrease in the cost of deposits was driven by both an inflow of lower costingcost deposits and the repricing of existing deposits at a significantly reduced rate.lower interest rates. Interest on borrowings decreased $1.5$8.0 million due to a 60decrease in the average balances of FHLB advances and subordinated notes, coupled with a 80 basis point decrease in the cost of thesetotal borrowings. During the six months ended June 30, 2021, we prepaid $53.5 million of FHLB borrowings due towith an average rate of 2.64% and original contractual maturities through March 2022, and a lower interest$3.0 million FHLB borrowing acquired in our acquisition of Roselle Bank with a rate environment, which was partially offsetof 2.74% and an original contractual maturity of March 2024. The prepayments were funded by an increaseexcess cash liquidity. The transactions were accounted for as early debt extinguishments resulting in the average balancea loss of borrowings.
$742,000.
The Company's net interest margin for the six months ended June 30, 20202021 increased 810 basis points to 2.69%2.79%, when compared to 2.61%2.69% for the six months ended June 30, 2019.2020. The weighted average yield on interest-earning assets decreased 1551 basis points to 3.29% for the six months ended June 30, 2021 as compared to 3.80% for the six months ended June 30, 2020 as compared to 3.95%2020. Excluding the impact of PPP loan deferred fee acceleration for the six months ended June 30, 2019.2021, the net interest margin would have been 2.64%. The average cost of interest-bearing liabilities decreased 3174 basis points to 0.67% for the six months ended June 30, 2021 as compared to 1.41% for the six months ended June 30, 2020 as compared to 1.72% for the six months ended June 30, 2019.2020. The decreasedecreases in yields and costs for the six months ended June 30, 20202021 were largely driven by a continued lower interest rate environment. The net interest margin increased for the six months ended June 30, 20202021 as the cost of interest-bearing liabilities repricedcontinued to reprice lower more rapidly than the yields on interest-earning assets.
The reversal of provision for loan lossesloss recorded for the six months ended June 30, 2021 was $3.0 million, a decrease of $18.3 million, from $15.3 million of provision for loan loss expense recorded for the six months ended June 30, 2020. The comparatively lower level of provision for the 2021 period was primarily attributable to a decrease in the average balance of loans, a decrease in loan loss rates, a decrease in the balances of delinquent and non-accrual loans, and the consideration of the improving economic environment.
Non-interest income was $23.0 million for the six months ended June 30, 2021, an increase of $9.6 million, or 71.6%, from $13.4 million for the six months ended June 30, 2020. The increase was primarily attributable to an increase in income from the gain on the sale of loans of $9.1 million and an increase in other non-interest income of $1.7 million, partially offset by the decrease in the fair value of equity securities of $1.4 million. The increase in the gain on sale of loans was primarily attributable to a gain of $7.7 million resulting from the sale of $237.0 million of commercial business loans granted as part of the Small Business Administration PPP. Other non-interest income included increases of $755,000 from debit card transactions and $651,000 from swap transactions.
Non-interest expense was $75.3 million for the six months ended June 30, 2021, a decrease of $638,000, or 0.8%, from $76.0 million for the six months ended June 30, 2020. The decrease was primarily attributable to a decrease in compensation and employee benefits expense of $2.7 million, and a decrease in merger-related expenses of $1.4 million, partially offset by an increase in professional fees of $992,000, an increase in data processing and software expenses of $789,000, and the loss on the extinguishment of debt of $742,000. The decrease in compensation and employee benefits was primarily attributable to an increase in amounts deferred as direct loan origination costs as a result of an increase in originations. Merger-related expenses recorded in the 2020 period related to the acquisitions of Stewardship Financial Corporation and Roselle Bank. Professional fees included an increase in consulting expenses related to information technology, and the increase in data processing and software expenses was attributable to the purchase and implementation of several digital banking and other Fintech solutions, as well as the amortization of software costs related to a digital small business lending solution. As noted above, during the six months ended June 30, 2021, the Company utilized excess liquidity to prepay long-term borrowings which resulted in a $742,000 loss on the early extinguishment of debt.
Income tax expense was $17.8 million for the six months ended June 30, 2021, an increase of $10.9 million, as compared to $6.9 million for the six months ended June 30, 2020, mainly due to an increase of $14.8 million, from $548,000in pre-tax income, and to a lesser extent, an increase in the Company's effective state income tax rate. The Company's effective tax rate was 27.2% and 23.9% for the six months ended June 30, 2019. The increase was primarily attributable to consideration of the deterioration of economic conditions2021 and loan performance due to the ongoing COVID-19 pandemic, which resulted in increases to qualitative factors.
Non-interest income was $13.4 million for the six months ended June 30, 2020, an increase of $587,000, or 4.6%, from $12.8 million for the six months ended June 30, 2019. The increase was primarily attributable to increases in gain on sale of loans of $1.2 million and other non-interest income of $441,000, partially offset by decreases in loan fees and service charges of $1.1 million and a change in fair value of equity securities of $188,000. The increase in gain on sale of loans is due to increased activities related to loan sales, and the increase in other non-interest income consists of increases in ATM, check card and wealth management related activities. Loan fees and service charges were lower due to the decrease in fees related to customer swaps, and the impact of the COVID-19 pandemic which resulted in higher fee waivers.respectively.
Non-interest expense was $76.0 million for the six months ended June 30, 2020, an increase of $14.6 million, or 23.7%, from $61.4 million for the six months ended June 30, 2019. The increase was primarily attributable to an increase in compensation and employee benefits expense of $9.8 million, occupancy expense of $1.8 million and other non-interest expense of $3.2 million. The increase in compensation and employee benefits expense was primarily attributable to an increase of $4.4 million in expense recorded in connection with grants made under the Company's 2019 Equity Incentive Plan and an increase in expense due to a larger number of employees in the 2020 period, which included continuing employees of Stewardship and Roselle. As noted above, during the period ended June 30, 2020, the Bank implemented a Voluntary Early Retirement Program for qualified employees. There have been no expenses related to this program recorded through June 30, 2020, although management anticipates approximately $3.0 million in additional compensation and employee benefits expense related to this program in the third quarter. The increase in occupancy expense was primarily the result of an increase in the number of branch offices acquired from Stewardship and Roselle, and the increase in other non-interest expense was due to losses of $1.3 million recorded in connection with the branch consolidation resulting from the Stewardship merger and includes $2.2 million related to interest rate swap transactions. In light of our focus during the pandemic of delivering our services digitally, the Bank plans to temporarily suspend de novo branching activities with an increased focus on enhancing digital capabilities.
Asset Quality
The Company's non-performing loans at June 30, 20202021 totaled $13.5$4.3 million, or 0.20%0.07% of total gross loans, as compared to $6.7$8.2 million, or 0.11%0.13% of total gross loans, at December 31, 2019.2020. The $6.8$3.8 million increasedecrease in non-performing loans was primarily attributable to increasesdecreases of $3.4$1.8 million in non-performing one-to-four family real estate loans, $1.7$2.6 million in non-performing commercial business loans, and $43,000 in non-performing home equity loans and advances, partially offset by an increase of $560,000 in non-performing multifamily and commercial real estate loans and $1.8 million in commercial business loans. The increasedecrease in non-performing one-to-four family real estate loans was due to an increasea decrease in the number of loans from 1013 non-performing loans at December 31, 20192020 to 27six non-performing loans at June 30, 2020.2021. The increasedecrease in multifamilynon-performing commercial business loans was mainly due to charge-offs totaling $1.7 million. The decrease in non-performing home equity loans and commercial real estate loansadvances was due to an increasea decrease in the number of loans from seven non-performing loans at December 31, 2019 to 12 non-performing loans at June 30, 2020. The increase in non-performing commercial business loans included the addition of a $1.1 million commercial loan during the period. Non-performing assets as a percentage of total assets totaled 0.15% at June 30, 2020 as compared to 0.08% at December 31, 2019.non-
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
performing loans at December 31, 2020 to eight non-performing loans at June 30, 2021. Non-performing assets as a percentage of total assets totaled 0.05% at June 30, 2021 as compared to 0.09% at December 31, 2020.
For the quarter ended June 30, 2020,2021, net charge-offs totaled $2.9 million$244,000 as compared to $480,000$2.9 million for the quarter ended June 30, 2019.2020. For the six months ended June 30, 2020,2021, net charge-offs totaled $3.0$1.7 million as compared to $487,000$3.0 million for the six months ended June 30, 2019. The increase in net charge-offs during the three and six month periods was primarily attributable to a $2.8 million charge-off of one commercial business loan.
2020.
The Company's allowance for loan losses was $74.0$69.9 million, or 1.12%1.17% of total loans, at June 30, 2020,2021, compared to $61.7$74.7 million, or 1.00%1.21% of total loans, at December 31, 2019.2020. The increasedecrease in the allowance for loan losses iswas primarily attributable to a decrease in loan loss rates, and a decrease in the balance of delinquent and non-accrual loans, as well as the consideration of improving economic conditions and loan performance due to the ongoing COVID-19 pandemic which resulted in increases to qualitative factors and, to a lesser extent, due to the growth in the Bank's loan portfolio.
conditions.
COVID-19
Through June 30, 2020,2021, the Company granted $768.0 million of commercial loan modification requests with respect to multifamily, commercial, and construction real estate loans and $195.0with current balances of $705.8 million ofand consumer-related loan modification requests with respect to one-to-four family real estate loans and home equity loans and advances fromwith current balances of $142.4 million to our customers affected by the COVID-19 pandemic. These short-term loan modifications will be treated in accordance with Section 4013 of the CARES Act and will not be treated as troubled debt restructurings during the short-term modification period if the loan was not in arrears atarrears. The Consolidated Appropriations Act, 2021, which was enacted in late December 31, 2019.2020, extended certain provisions of the CARES Act, including provisions permitting loan deferral extension requests to not be treated as troubled debt restructurings. Furthermore, these loans will continue to accrue interest and will not be tested for impairment during the short-term modification period. Commercial loan modification requests include various industries and property types. The following table is a summary of loan modifications that have not begun to remit full payment as of July 21, 2020:payment:
| | | Balance at July 21, 2020 | | Percent of Total Loans at June 30, 2020 | | Balance at December 31, 2020 | | Percent of Total Loans at December 31, 2020 | | Balance at June 30, 2021 | | Percent of Total Loans at June 30, 2021 | | Balance at July 22, 2021 | | Percent of Total Loans at July 22, 2021 |
| (Dollars in thousands) | | | | (Dollars in thousands) |
Real estate loans: | | | | Real estate loans: | |
One-to-four family | $ | 73,502 |
| | 3.40 | % | One-to-four family | $ | 6,770 | | | 0.35 | % | | $ | 2,459 | | | 0.13 | % | | $ | 2,105 | | | 0.11 | % |
Multifamily and commercial | 447,925 |
| | 15.59 | % | Multifamily and commercial | 71,348 | | | 2.53 | | | 55,617 | | | 1.79 | | | 27,173 | | | 0.88 | |
Construction | 13,525 |
| | 4.14 | % | Construction | 3,312 | | | 1.01 | | | 3,337 | | | 1.28 | | | 2,537 | | | 0.98 | |
Commercial business loans | 34,059 |
| | 3.79 | % | Commercial business loans | 3,397 | | | 0.45 | | | 2,301 | | | 0.49 | | | 1,457 | | | 0.31 | |
| Home equity loans and advances | 8,427 |
| | 2.34 | % | Home equity loans and advances | 314 | | | 0.10 | | | 57 | | | 0.02 | | | 57 | | | 0.02 | |
| Total loans | $ | 577,438 |
| | 8.72 | % | Total loans | $ | 85,141 | | | 1.38 | % | | $ | 63,771 | | | 1.06 | % | | $ | 33,329 | | | 0.56 | % |
At July 21, 2020, $248.0June 30, 2021, $37.9 million of the commercial loans in the above table are remitting partial payments and $162.0$61.3 million were granted an additional deferral period.
At June 30, 2020, the Company had originated 2,284 loans for $467.0 million under the SBA Paycheck Protection Program. Approximately eighty-one percent of the total number of loans granted have original balances of $250,000 or less.
Critical Accounting Policies
The Company considers certain accounting policies to be critically important to the fair presentation of its Consolidated Statements of Financial Condition and Consolidated Statements of Income. These policies require management to make significant judgments on matters which by their nature have elements of uncertainty. The sensitivity of the Company’s consolidated financial statements to these critical accounting policies, and the assumptions and estimates applied, could have a significant impact on its financial condition and results of operations. These assumptions, estimates and judgments made by management can be influenced by a number of factors, including the general economic environment. The Company has identified the following as critical accounting policies:
▪Adequacy of the allowance for loan losses
▪Valuation of deferred tax assets
▪Valuation of retirement and post-retirement benefits
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The calculation of the allowance for loan losses is a critical accounting policy of the Company. The allowance for loan losses is a valuation account that reflects management’s evaluation of the probable losses in the loan portfolio. Determining the amount of the allowance for loan losses involves a high degree of judgment. Estimates required to establish the allowance include: the overall economic environment, value of collateral, strength of guarantors, loss exposure in the event of default, the amount and timing of future cash flows on impaired loans, and determination of loss factors applied to the portfolio segments. These estimates are susceptible to significant
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
change. Management regularly reviews loss experience within the portfolio and monitors current economic conditions and other factors related to the collectability of the loan portfolio. As previously mentioned, the Company elected to defer the adoption of the CECL methodology as permitted by the recently enacted CARES Act. The Company willexpects to adopt CECL at the earlier of December 31, 2020 or when the national emergency concerning the COVID-19 outbreak has concluded.on January 1, 2022.
The Company maintains the allowance for loan losses through provisions for (reversal of) loan losses which are charged to income. Charge-offs against the allowance for loan losses are taken on loans where management determines that the collection of loan principal is unlikely. Recoveries made on loans that have been charged-off are credited to the allowance for loan losses.
As part of the evaluation of the adequacy of the allowance for loan losses, management prepares an analysis each quarter that categorizes the loan portfolio by certain risk characteristics such as loan type (residential mortgage, commercial mortgage, construction, commercial business, etc.) and loan risk rating.
When assigning a risk rating to a loan, management utilizes an eight-point internal risk rating system. Loans deemed to be “acceptable quality” are rated 1 through 4, with a rating of 1 established for loans with minimal risk. Loans deemed to be of “questionable quality” are rated 5 (Special Mention) or 6 (Substandard). Loans with adverse classifications are rated 7 (Doubtful) or 8 (Loss). The risk ratings are also confirmed through periodic loan review examinations, which are currently performed by both an independent third-party and the Company's internal loan review department. The Company requires an annual review be performed above certain dollar thresholds, depending on loan type, to help determine the appropriate risk rating. Results are presented to the Audit Committee of the Board of Directors.
Management estimates the allowance for loans collectively evaluated for impairment by applying quantitative loss factors to the loan segments by risk rating and determining qualitative adjustments to each loan segment at an overall level. Quantitative loss factors give consideration to historical loss experience and migration experience by loan type based on an appropriateover a look-back period, adjusted for a loss emergence period.
Qualitative adjustments give consideration to other qualitative or environmental factors such as trends and levels of delinquencies, impaired loans, charge-offs, recoveries and loan volumes, as well as national and local economic trends and conditions.
Qualitative adjustments reflect risks in the loan portfolio not captured by the quantitative loss factors and, as such, are evaluated relative to the risk levels present over the look-back period. The reserves resulting from the application of both the quantitative experienceexperiences and qualitative factors are combined to arrive at the allowance for loan losses for loans collectivelycollectability evaluated for impairment.impairment,
Management believes the primary risks inherent in the portfolio are a general decline in the economy, a decline in real estate market values, rising unemployment, elevated unemployment, increasing vacancy rates, and increases in interest rates in the absence of economic improvement. Any one or a combination of these events may adversely affect a borrower's ability to repay its loan, resulting in increased delinquencies and loan losses. Accordingly, the Company has recorded loan losses at a level which is estimated to represent the current risk in its loan portfolio. Management considers it important to maintain the ratio of the allowance for loan losses to total loans at an acceptable level considering the current composition of the loan portfolio.
Although management believes that the Company has established and maintained the allowance for loan losses at appropriate levels, additional reserves may be necessary if future economic and other conditions differ substantially from the current operating environment. Management evaluates its estimates and assumptions on an ongoing basis and the estimates and assumptions are adjusted when facts and circumstances necessitate a re-valuation of the estimate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. In addition, regulatory agencies periodically review the adequacy of the Company’s allowance for loan losses as an integral part of their examination process. Such agencies may require the Company to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination. Although management uses the best information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment.
We assessed the impact of the pandemic on the Company’s financial condition, including its determination of the allowance for loan losses aslosses. Beginning in March 2020, management established an additional qualitative loss factor solely related to the impact of June 30, 2020.COVID-19 in the calculation. As part of that assessment, the Company considered the effects of the pandemic on economic conditions such as increasing unemployment rates and the shut-down of all non-essential businesses. The Company also analyzed the impact of COVID-19 on its primary market as well as the impact on the Company’s market sectors and its specific customers. As part of its
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
estimation of an adjustment to the allowance due to COVID-19, the Company identified those market sectors or industries that were more likely to be affected, such as hospitality, transportation and outpatient care centers. To determine the potential impact on the Company’s customers, management considered significant revenue declines in a borrower’s business as well as reductions in its operating cash flows and the
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
impact on their ability to repay their loans, and estimated the probability of default and loss-given-default for the various loan categories at June 30, 2020 and assigned a weighting to each scenario. Based on this analysis, management estimated the potential impact resulting from COVID-19, and the adjustment to the allowance that was necessary asnecessary. Management continues to evaluate the impact of June 30, 2020. During March 2020, management also established an additionalthe COVID-19 qualitative loss factor solely related to the impact of COVID-19 in the calculation. Ason a result of management’s assessments, the Bank recorded an additional loan loss provision of $5.7 million for the quarter ended June 30, 2020. However, during this period of great uncertainty, the full impact of COVID-19 on the Company’s borrowers is likely to be felt over the next several quarters. As such, future adjustments to the allowance may be required.quarterly basis.
The determination of whether deferred tax assets will be realizable is predicated on the reversal of existing deferred tax liabilities, utilization against carry-back years, and estimatesprojections of future taxable income. SuchThese estimates are subject to management’s judgment. A valuation allowance is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period enacted. BasedManagement believes, based on all available evidence, a valuation allowance was established for the portion of the state tax benefitcurrent facts, that it is not more likely than not that there will be sufficient taxable income in future years to realize federal deferred tax assets and that it is more likely than not that the benefits from certain state temporary differences will not be realized. At June 30, 20202021 and December 31, 2019,2020, the Company's net deferred tax assets totaled $8.4$4.7 million and $10.4$7.2 million, respectively, which included a valuation allowance totaling $7.3$3.7 million and $7.4$3.4 million, respectively. Based upon projections of future taxable income and the ability to carryforward operating losses indefinitely, management believes it is more likely than not the Company will realize the remaining deferred tax assets.
The Company provides certain health care and life insurance benefits, along with a split dollar BOLI death benefit, to eligible retired employees. The cost of retiree health care and other benefits during the employees' period of active service are accrued monthly. The accounting guidance requires the following: a) recognizingrecognize in the statement of financial position the over funded or underfunded status of a defined benefit post-retirement plan measured as the difference between the fair value of plan assets and the benefit obligations; b) measuringmeasure a plan's assets and its obligations that determine its funded status as of the end of the Company's fiscal year (with limited exceptions); and c) recognizing asrecognizes a component of other comprehensive income (loss), net of tax, the actuarial gain and losses and the prior service costs and credits that arise during the period. These assets and liabilities and expenses are based upon actuarial assumptions including interest rates, rates of increase in compensation, expected rate of return on plan assets and the length of time we will have to provide those benefits. Actual results may differ from these assumptions. These assumptions are reviewed and updated at least annually and management believes the estimates are reasonable.
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Qualitative Analysis. Interest rate risk is defined as the exposure of a Company's current and future earnings and capital arising from movements in market interest rates. The guidelines of the Company’s interest rate risk policy seek to limit the exposure to changes in interest rates that affect the underlying economic value of assets, liabilities, earnings and capital.
The Asset/Liability Committee meets regularly to review the impact of interest rate changes on net interest income, net interest margin, net income, and the economic value of equity. The Asset/Liability Committee reviews a variety of strategies that project changes in asset or liability mix and the impact of those changes on projected net interest income and net income.
The Company’s strategy for liabilities has been to maintain a stable funding base by focusing on core deposit accounts. The Company’s ability to retain maturing time deposit accounts is the result of its strategy to remain competitively priced within its marketplace. The Company’s pricing strategy may vary depending upon current funding needs and the ability of the Company to fund operations through alternative sources.
Quantitative Analysis. Current and future sensitivity to changes in interest rates are measured through the use of balance sheet and income simulation models. The analysis captures changes in net interest income using flat rates as a base and rising and declining interest rate forecasts. Changes in net interest income and net income for the forecast period, generally twelve to twenty-four months, are measured and compared to policy limits for acceptable changes. The Company periodically reviews historical deposit re-pricing activity and makes modifications to certain assumptions used in its balance sheet and income simulation models regarding the interest rate sensitivity of deposits. These modifications are made to more closely reflect the most likely results under the various interest rate change scenarios. Since it is inherently difficult to predict the sensitivity of interest-bearing deposits to changes in interest rates, the changes in net interest income due to changes in interest rates cannot be precisely predicted. There are a variety of reasons that may cause actual results to vary considerably from the predictions presented below which include, but are not limited to, the timing, magnitude, and frequency of changes in interest rates, interest rate spreads, prepayments, and actions taken in response to such changes.
Assumptions used in the simulation model may include but are not limited to:
•Securities pricing from third parties;
•Loan pricing indications from third parties;
•Loan and depository spread assumptions based upon the Company's product offerings;
•Securities and borrowing spreads based upon third party indications; and
•Prepayment assumptions derived from the Company's actual results and third party surveys.
Certain shortcomings are inherent in the methodologies used in the interest rate risk measurements. Modeling changes in net interest income requires the use of certain assumptions regarding prepayment and deposit repricing, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. While management believes such assumptions are reasonable, there can be no assurance that assumed prepayment rates and repricing rates will approximate actual future asset prepayment and liability repricing activity.
Moreover, net The table below sets forth an approximation of our interest rate exposure. Net interest income assumes that the composition of interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the net interest income table provides an indication of the Company’sour interest rate risk exposure at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual.
The table below sets forth, as of June 30, 2020,2021, Columbia Bank's net portfolio value, the estimated changes in our net portfolio value, and the net interest income that would result from the designated instantaneous parallel changes in market interest rates. This data is for Columbia Bank and its subsidiaries only and does not include any assets of the Company.
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
| | | | | | | | | | | | | | | | Twelve Months Net Interest Income | | Net Portfolio Value ("NPV") |
Change in Interest Rates (Basis Points) | | Change in Interest Rates (Basis Points) | Amount | | Dollar Change | | Percent of Change | | Estimated NPV | | Present Value Ratio | | Percent Change |
| Twelve Months Net Interest Income | | Net Portfolio Value ("NPV") | | | | | | (Dollars in Thousands) | | | | |
(Dollars in thousands) | Amount | | Dollar Change | | Percent of Change | | Estimated NPV | | Present Value Ratio | | Percent Change | |
Change in Interest Rates (Basis Points) | | | | | | | | | | | | |
+300 | $ | 221,423 |
| | $ | 7,832 |
| | 3.67 | % | | $ | 990,657 |
| | 11.81 | % | | (9.84 | )% | +300 | $ | 218,082 | | | $ | 3,488 | | | 1.63 | % | | $ | 978,449 | | | 11.85 | % | | (14.60) | % |
+200 | 219,784 |
| | 6,193 |
| | 2.90 |
| | 1,047,184 |
| | 12.12 |
| | (4.69 | ) | +200 | 217,317 | | | 2,723 | | | 1.27 | | | 1,043,380 | | | 12.25 | | | (8.93) | |
+100 | 216,647 |
| | 3,056 |
| | 1.43 |
| | 1,083,445 |
| | 12.18 |
| | (1.39 | ) | +100 | 216,123 | | | 1,529 | | | 0.71 | | | 1,098,811 | | | 12.50 | | | (4.09) | |
Base | 213,591 |
| | — |
| | — |
| | 1,098,769 |
| | 12.00 |
| | — |
| Base | 214,594 | | | — | | | — | | | 1,145,659 | | | 12.61 | | | — | |
-100 | 206,649 |
| | (6,942 | ) | | (3.25 | ) | | 1,059,439 |
| | 11.28 |
| | (3.58 | ) | -100 | 201,434 | | | (13,160) | | | (6.13) | | | 1,073,620 | | | 11.49 | | | (6.29) | |
Another measure of interest rate sensitivity is to model changes in net portfolio value through the use of immediate and sustained interest rate shocks. As of June 30, 2020,2021, based on the scenarios above, in the event of an immediate and sustained 200 basis point increase in interest rates, the NPV is projected to decrease 4.69%8.93%. If rates were to decrease 100 basis points, the model forecasts a 3.58%6.29% decrease in the NPV.
The Company's cash flows are identified as cash flows from operating activities, investing activities and financing activities. Refer to the Consolidated Statements of Cash Flows for further details of the cash inflows and outflows of the Company.
Federal regulators require federally insured depository institutions to meet several minimum capital standards: (1) total capital to risk-weighted assets of 8.0%; (2) tier 1 capital to risk-weighted assets of 6.0%; (3) common equity tier 1 capital to risk-weighted assets of 4.5%; and (4) tier 1 capital to adjusted total assets of 4.0%. In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer capital requirement was fully phased in on January 1, 2019. The regulators established a framework for the classification of savings institutions into five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Generally, an institution is considered well capitalized if it has: a total capital to risk-weighted assets ratio of at least 10.0%, a tier 1 capital to risk-weighted assets ratio of at least 8.0%, a common tier 1 capital to risk-weighted assets ratio of at least 6.5%, and a tier 1 capital to adjusted total assets ratio of at least 5.0%. As of June 30, 20202021 and December 31, 2019,2020, each of the Company and the Bank exceeded all capital adequacy requirements to which it is subject.
The following table presents the Company's and the Bank's actual capital amounts and ratios as ofat June 30, 20202021 and December 31, 20192020 compared to the Federal Reserve Bank minimum capital adequacy requirements and the Federal Reserve Bank requirements for classification as a well-capitalized institution:
|
| | | | | | | | | | | | | | | | | | | | |
| Actual | | Minimum Capital Adequacy Requirements | | Minimum Capital Adequacy Requirements with Capital Conservation Buffer | | To be Well Capitalized Under Prompt Corrective Action Provisions |
| Amount | Ratio | | Amount | Ratio | | Amount | Ratio | | Amount | Ratio |
Company | (In thousands, except ratio data) | | | |
At June 30, 2020: | | | | | | | | | | | |
Total capital (to risk-weighted assets) | $ | 1,092,838 |
| 18.22 | % | | $ | 479,760 |
| 8.00 | % | | $ | 629,685 |
| 10.50 | % | | N/A | N/A |
Tier 1 capital (to risk-weighted assets) | 1,006,951 |
| 16.79 | % | | 359,820 |
| 6.00 | % | | 509,745 |
| 8.50 | % | | N/A | N/A |
Common equity tier 1 capital (to risk-weighted assets) | 999,734 |
| 16.67 | % | | 269,865 |
| 4.50 | % | | 419,790 |
| 7.00 | % | | N/A | N/A |
Tier 1 capital (to adjusted total assets) | 1,006,951 |
| 11.56 | % | | 348,535 |
| 4.00 | % | | 348,535 |
| 4.00 | % | | N/A | N/A |
| | | | | | | | | | | |
At December 31, 2019: | | | | | | | | | | | |
Total capital (to risk-weighted assets) | $ | 1,061,555 |
| 17.25 | % | | $ | 492,438 |
| 8.00 | % | | $ | 646,324 |
| 10.50 | % | | N/A | N/A |
Tier 1 capital (to risk-weighted assets) | 988,172 |
| 16.05 |
| | 369,328 |
| 6.00 |
| | 523,215 |
| 8.50 |
| | N/A | N/A |
Common equity tier 1 capital (to risk-weighted assets) | 980,995 |
| 15.94 |
| | 276,996 |
| 4.50 |
| | 430,883 |
| 7.00 |
| | N/A | N/A |
Tier 1 capital (to adjusted total assets) | 988,172 |
| 12.92 |
| | 305,824 |
| 4.00 |
| | 305,824 |
| 4.00 |
| | N/A | N/A |
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Actual | | Minimum Capital Adequacy Requirements | | Minimum Capital Adequacy Requirements with Capital Conservation Buffer | | To be Well Capitalized Under Prompt Corrective Action Provisions |
| Amount | Ratio | | Amount | Ratio | | Amount | Ratio | | Amount | Ratio |
Bank | (In thousands, except ratio data) |
At June 30, 2021: | | | | | | | | | | | |
Total capital (to risk-weighted assets) | $ | 981,541 | | 16.41 | % | | $ | 478,609 | | 8.00 | % | | $ | 628,175 | | 10.50 | % | | $ | 598,262 | | 10.00 | % |
Tier 1 capital (to risk-weighted assets) | 911,092 | | 15.23 | | | 358,957 | | 6.00 | | | 508,522 | | 8.50 | | | 478,609 | | 8.00 | |
Common equity tier 1 capital (to risk-weighted assets) | 911,092 | | 15.23 | | | 269,218 | | 4.50 | | | 418,783 | | 7.00 | | | 388,870 | | 6.50 | |
Tier 1 capital (to adjusted total assets) | 911,092 | | 10.23 | | | 356,078 | | 4.00 | | | 356,078 | | 4.00 | | | 445,098 | | 5.00 | |
| | | | | | | | | | | |
At December 31, 2020: | | | | | | | | | | | |
Total capital (to risk-weighted assets) | $ | 924,959 | | 16.05 | % | | $ | 460,944 | | 8.00 | % | | $ | 604,989 | | 10.50 | % | | $ | 576,180 | | 10.00 | % |
Tier 1 capital (to risk-weighted assets) | 852,897 | | 14.80 | | | 345,708 | | 6.00 | | | 489,753 | | 8.50 | | | 460,944 | | 8.00 | |
Common equity tier 1 capital (to risk-weighted assets) | 852,897 | | 14.80 | | | 259,281 | | 4.50 | | | 403,326 | | 7.00 | | | 374,517 | | 6.50 | |
Tier 1 capital (to adjusted total assets) | 852,897 | | 9.72 | | | 350,815 | | 4.00 | | | 350,815 | | 4.00 | | | 438,519 | | 5.00 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Actual | | Minimum Capital Adequacy Requirements | | Minimum Capital Adequacy Requirements with Capital Conservation Buffer | | To be Well Capitalized Under Prompt Corrective Action Provisions |
| Amount | Ratio | | Amount | Ratio | | Amount | Ratio | | Amount | Ratio |
Bank | (In thousands, except ratio data) |
At June 30, 2020: | | | | | | | | | | | |
Total capital (to risk-weighted assets) | $ | 926,380 |
| 15.58 | % | | $ | 475,689 |
| 8.00 | % | | $ | 624,342 |
| 10.50 | % | | $ | 594,611 |
| 10.00 | % |
Tier 1 capital (to risk-weighted assets) | 852,093 |
| 14.33 |
| | 356,767 |
| 6.00 |
| | 505,420 |
| 8.50 |
| | 475,689 |
| 8.00 |
|
Common equity tier 1 capital (to risk-weighted assets) | 852,093 |
| 14.33 |
| | 267,575 |
| 4.50 |
| | 416,228 |
| 7.00 |
| | 386,497 |
| 6.50 |
|
Tier 1 capital (to adjusted total assets) | 852,093 |
| 9.79 |
| | 348,116 |
| 4.00 |
| | 348,116 |
| 4.00 |
| | 435,145 |
| 5.00 |
|
| | | | | | | | | | | |
At December 31, 2019: | | | | | | | | | | | |
Total capital (to risk-weighted assets) | $ | 844,664 |
| 14.25 | % | | $ | 474,125 |
| 8.00 | % | | $ | 622,290 |
| 10.50 | % | | $ | 592,657 |
| 10.00 | % |
Tier 1 capital (to risk-weighted assets) | 782,881 |
| 13.21 |
| | 355,594 |
| 6.00 |
| | 503,758 |
| 8.50 |
| | 474,125 |
| 8.00 |
|
Common equity tier 1 capital (to risk-weighted assets) | 782,881 |
| 13.21 |
| | 266,696 |
| 4.50 |
| | 414,860 |
| 7.00 |
| | 385,227 |
| 6.50 |
|
Tier 1 capital (to adjusted total assets) | 782,881 |
| 10.25 |
| | 305,423 |
| 4.00 |
| | 305,423 |
| 4.00 |
| | 381,779 |
| 5.00 |
|
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2020.2021. In designing and evaluating the Company’s disclosure controls and procedures, the Company and its management recognize that any controls and procedures, no matter how well-designed and operated, can provide only a reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.
During the quarter ended June 30, 2020,2021, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal actions and claims arising in the normal course of business. In the opinion of management, these legal actions and claims are not expected to have a material adverse impact on the Company’s financial condition.
Item 1A. Risk Factors
For information regarding the Company’s risk factors, refer to the Risk Factors previously disclosed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the Securities and Exchange Commission. Except as set forth below, asAs of June 30, 20202021, the risk factors of the Company have not materially changed from those disclosed in the Company's Annual Report on Form 10-K.10-K for the year ended December 31, 2020.
The widespread outbreak of the novel coronavirus ("COVID-19") has adversely affected, and will likely continue to adversely affect, our business, financial condition, and results of operations. Moreover, the longer the pandemic persists, the more material the ultimate effects are likely to be.
The COVID-19 pandemic is negatively impacting economic and commercial activity and financial markets, both globally and within the United States. In our market area, stay-at-home orders and travel restrictions - and similar orders imposed across the United States to restrict the spread of COVID-19 - resulted in significant business and operational disruptions, including business closures, supply chain disruptions, and mass layoffs and furloughs. Local jurisdictions have subsequently lifted stay-at-home orders and moved to phased reopening of businesses, although capacity restrictions and health and safety recommendations that encourage continued physical distancing and teleworking have limited the ability of businesses to return to pre-pandemic levels of activity.
We have implemented business continuity plans and continue to provide financial services to clients, while taking health and safety measures such as transitioning most in-person customer transactions to our drive-thru facilities and limiting access to the interior of our facilities, frequent cleaning of our facilities, and using a remote workforce where possible. Despite these safeguards, we may nonetheless experience business disruptions.
The COVID-19 pandemic has negatively affected our business and is likely to continue to do so. However, the extent to which COVID-19 will negatively affect our business is unknown and will depend on the geographic spread of the virus, the overall severity of the disease, the duration of the pandemic, the actions undertaken by national, state and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume. The longer the pandemic persists, the more material the ultimate effects are likely to be.
The continued spread of COVID-19 and the efforts to contain the virus, including stay-at-home orders and travel restrictions, could:
cause changes in consumer and business spending, borrowing and savings habits, which may affect the demand for loans and other products and services we offer, as well as the creditworthiness of potential and current borrowers;
cause our borrowers to be unable to meet existing payment obligations, particularly those borrowers that may be disproportionately affected by business shut downs and travel restrictions, such as those operating in the travel, lodging, retail, and entertainment industries, resulting in increases in loan delinquencies, problem assets, and foreclosures;
cause the value of collateral for loans, especially real estate, to decline in value;
reduce the availability and productivity of our employees;
require us to increase our allowance for loan losses;
cause our vendors and counterparties to be unable to meet existing obligations to us;
negatively impact the business and operations of third party service providers that perform critical services for our business;
impede our ability to close mortgage loans, if appraisers and title companies are unable to perform their functions;
cause the value of our securities portfolio to decline; and
cause the net worth and liquidity of loan guarantors to decline, impairing their ability to honor commitments to us.
Any one or a combination of the above events could have a material, adverse effect on our business, financial condition, and results of operations.
Moreover, our success and profitability is substantially dependent upon the management skills of our executive officers, many of whom have held officer positions with us for many years. The unanticipated loss or unavailability of key employees due to COVID-19 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.
Certain actions taken by U.S. or other governmental authorities, including the Federal Reserve, that are intended to ameliorate the macroeconomic effects of COVID-19 may cause additional harm to our business. Decreases in short-term interest rates, such as those announced by the Federal Reserve during the first fiscal quarter of 2020, have a negative impact on our results, as we have certain assets and liabilities that are sensitive to changes in interest rates.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table reports information regarding repurchases of the Company's common stock during the quarter ended June 30, 2020:2021:
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Period | | Total Number of Shares (3) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)(2) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
April 1 - 30, 2020 | | 899,314 |
| | $ | 14.46 |
| | 899,074 |
| | — |
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May 1 - 31, 2020 | | — |
| | — |
| | — |
| | — |
|
June 1 - 30, 2020 | | — |
| | — |
| | — |
| | — |
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Total | | 899,314 |
| | 14.46 | | 899,074 |
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(1) On June 11, 2019, the Company announced that the Company's Board of Directors authorized a stock repurchase program for up to 4,000,000 shares of the Company's issued and outstanding common stock, commencing on June 13, 2019. |
(2) On December 5, 2019, the Company announced that its Board of Directors had expanded its stock repurchase program to acquire an additional 3,000,000 shares of the Company's outstanding common stock in addition to the shares remaining under the repurchase program announced on June 11, 2019. |
(3) During the three months ended June 30, 2020, 240 shares were repurchased pursuant to forfeitures related to the 2019 Equity Incentive Plan and not as part of our share repurchase program. |
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Period | | Total Number of Shares (2) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
April 1 - 30, 2021 | | 326,929 | | | $ | 17.90 | | | 326,801 | | | 3,543,718 | |
May 1 - 31, 2021 | | 400,100 | | | 17.68 | | | 400,100 | | | 3,143,618 | |
June 1 - 30, 2021 | | 744,600 | | | 17.17 | | | 744,600 | | | 2,399,018 | |
Total | | 1,471,629 | | | $ | 17.47 | | | 1,471,501 | | | |
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(1) On February 1, 2021, the Company announced that its Board of Directors authorized a new stock repurchase program to acquire up to 5,000,000 shares of the Company's then issued and outstanding common stock, commencing upon the completion of the repurchase of the remaining shares under the Company's existing stock repurchase program that was approved in September 2020. On February 5, 2021, the Company completed the repurchases under the previous stock repurchase program. |
(2) During the three months ended June 30, 2021, 128 shares were repurchased pursuant to forfeitures related to the 2019 Equity Incentive Plan and not as part of a share repurchase program. |
On April 23, 2020 the Company completed the repurchases under the stock repurchase programs.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The exhibits listed in the Exhibit Index (following the signatures section of this report) are included in, or incorporated by reference into this Quarterly Report on Form 10-Q.
Exhibit Index
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31.1 | | |
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31.2 | | |
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32 | | |
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101.101.0 | | The following materials from the Company’s Quarterly Report to Stockholders on Form 10-Q for the quarter ended June 30, 2020,2021, formatted in inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements. |
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101. INS | | The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document |
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101. SCH | | Inline XBRL Taxonomy Extension Schema Document |
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101. CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101. DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101. LAB | | Inline XBRL Taxonomy Extension Labels Linkbase Document |
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101. PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 | | Cover page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | | | Columbia Financial, Inc. |
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Date: | | August 9, 2021 | | Columbia Financial, Inc. |
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Date: | | August 10, 2020 | | /s/Thomas J. Kemly |
| | | | Thomas J. Kemly |
| | | | President and Chief Executive Officer |
| | | | (Principal Executive Officer) |
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Date: | | August 10, 20209, 2021 | | /s/Dennis E. Gibney |
| | | | Dennis E. Gibney |
| | | | Executive Vice President and Chief Financial Officer |
| | | | (Principal Financial and Accounting Officer)
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