EDGAR 10-K Filing

Company CIK: 1723596
Filing Year: 2022
Filename: 1723596_10-K_2022_0001723596-22-000091.json

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ITEM 1. BUSINESS
Item I. Business
General
Columbia Financial, Inc. (“Columbia Financial” or the “Company”) is a Delaware corporation that was organized in March 1997 in connection with the mutual holding company reorganization of Columbia Bank. Columbia Financial is the holding company of Columbia Bank and Freehold Bank, each of which is a federally chartered stock savings bank. Columbia Bank, MHC (the “MHC”) was also organized in March 1997 under the laws of the United States. In connection with the reorganization, Columbia Financial became the wholly owned subsidiary of Columbia Bank MHC.
Columbia Bank is a federally chartered savings bank founded in 1927. Effective October 15, 2020, Columbia Bank has elected and has received regulatory approval to operate as a "covered savings association" pursuant to Section 5A of the Home Owners’ Loan Act, as amended, and the regulations of the Office of the Comptroller of the Currency promulgated thereunder. A covered savings association generally has the same rights and privileges as a national bank, and is subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that would apply to a national bank. Management believes that the key benefits of Columbia Bank's election to operate as a covered savings association include the elimination of the requirement to meet the qualified thrift lender test and that Columbia Bank will no longer be subject to the limits on an aggregate amount of commercial loans that are applicable to savings associations.
Freehold Bank is a federally chartered savings bank founded in 1853. On September 28, 2018, Freehold Bank converted from a federal stock savings bank to a New Jersey chartered stock savings bank and on December 1, 2021, Freehold Bank converted from a New Jersey chartered stock savings bank to a federally chartered stock savings bank. Freehold Bank is a community-oriented institution that serves the financial needs of its depositors and the local community through its two offices in Freehold, New Jersey
Through Columbia Bank and Freehold Bank, we serve the financial needs of our depositors and the local community as community-minded, customer service-focused institutions. We offer traditional financial services to businesses and consumers in our market areas. We attract deposits from the general public and use those funds to originate a variety of loans, including multifamily and commercial real estate loans, commercial business loans, one-to four-family real estate loans, construction loans, home equity loans and advances, and other consumer loans. We offer title insurance through our wholly-owned subsidiary, First Jersey Title Services, Inc. Wealth management services are offered through a third party relationship.
Our executive offices are located at 19-01 Route 208 North, Fair Lawn, New Jersey 07410 and our telephone number is (800) 522-4167. Our website address is www.columbiabankonline.com. Information on our website should not be considered a part of this report.
Throughout this report, references to “we,” “us” or “our” refer to the Company and its subsidiaries, Columbia Bank and Freehold Bank, collectively.
Recent Acquisition History
Atlantic Stewardship Bank. On November 1, 2019, the Company completed its acquisition of Stewardship Financial Corporation (“Stewardship Financial”) and Atlantic Stewardship Bank, the wholly owned subsidiary of Stewardship Financial. At the effective time of the merger, Stewardship Financial merged with and into the Company in a series of transactions, with the Company as the surviving entity, and immediately thereafter, Atlantic Stewardship Bank merged with and into Columbia Bank, with Columbia Bank as the surviving institution. In addition, at the effective time of the merger, each outstanding share of Stewardship Financial common stock was converted into the right to receive from the Company a cash payment equal to $15.75. The total consideration paid was $136.3 million.
Roselle Bank. On April 1, 2020, the Company completed its acquisition of RSB Bancorp, MHC, RSB Bancorp, Inc. and Roselle Bank (collectively, the “Roselle Entities”). At the effective time of the merger, (i) RSB Bancorp, MHC merged with and into the MHC, with the MHC as the surviving entity, (ii) RSB Bancorp, Inc. merged with and into the Company, with the Company as the surviving entity; and (iii) Roselle Bank merged with and into Columbia Bank, with Columbia Bank as the surviving institution. In addition, at the effective time of the merger, depositors of Roselle Bank became depositors of Columbia Bank and were afforded the same rights and privileges in the MHC as if their accounts had been established at Columbia Bank on the date established at Roselle Bank. At the effective time of the merger, the Company also issued 4,759,048 additional shares of its common stock to the MHC, representing an amount equal to the fair value of the Roselle Entities, as determined by an independent appraiser.
Freehold Bank. On December 1, 2021, the Company completed its acquisition of Freehold MHC, Freehold Bancorp and Freehold Bank (collectively, the “Freehold Entities”). At the effective time of the merger, (i) Freehold MHC was merged with and into the MHC, with the MHC as the surviving entity, and (ii) Freehold Bancorp was merged with and into the Company, with the Company as the surviving entity. To facilitate the transaction, Freehold Bank converted from a New Jersey chartered savings bank to a federally chartered savings bank. It is intended that Freehold Bank will operate as a wholly owned subsidiary of the Company for at least two years following the effective time of the merger. In addition, at the effective time of the merger, depositors of Freehold Bank became depositors of Columbia Bank and were afforded the same rights and privileges in the MHC as if their accounts had been established at Columbia Bank on the date established at Freehold Bank. At the effective time of the merger, the Company also issued 2,591,007 additional shares of its common stock to the MHC, representing an amount equal to the fair value of the Freehold Entities, as determined by an independent appraiser.
Pending Acquisition
On December 1, 2021, the Company, the MHC and Columbia Bank entered into an agreement and plan of merger with RSI Bancorp, M.H.C., RSI Bancorp, Inc. and RSI Bank (collectively, the “RSI Entities”), pursuant to which (i) RSI Bancorp, M.H.C. will merge with and into the MHC, with the MHC as the surviving entity, (ii) RSI Bancorp, Inc. will merge with and into the Company, with the Company as the surviving entity; and (iii) RSI Bank will merge with and into Columbia Bank, with Columbia Bank as the surviving institution. Under the terms of the merger agreement, depositors of RSI Bank will become depositors of Columbia Bank and will have the same rights and privileges in the MHC as if their accounts had been established at Columbia Bank on the date established at RSI Bank. As part of the transactions contemplated by the merger agreement, at the effective time of the merger, the Company will issue additional shares of its common stock to the MHC in an amount equal to the fair value of the RSI Entities as determined by an independent appraiser.
The merger agreement has been unanimously approved by the Boards of Directors of each of the MHC, the Company and Columbia Bank, as well as by the Boards of Directors of each of the RSI Entities. Subject to the receipt of all required regulatory and other approvals, and the satisfaction or waiver of other customary closing conditions, the parties anticipate that the transactions contemplated by the merger agreement will close in the second quarter of 2022.
Market Area
We are headquartered in Fair Lawn, New Jersey. As of December 31, 2021, (i) Columbia Bank operated 62 full-service banking offices in twelve of New Jersey’s 21 counties and (ii) Freehold Bank operated two branch offices in Freehold, New Jersey. In addition, First Jersey Title Services, Inc., a wholly-owned subsidiary of Columbia Bank, operates in one of Columbia Bank’s offices in Fair Lawn, New Jersey. We periodically evaluate our network of banking offices to optimize the penetration in our market area. Our business strategy currently includes opening new branches in and around our market area, which may include neighboring states.
We consider our market area to be the State of New Jersey and the suburbs surrounding both the New York City and Philadelphia metropolitan areas. This area has historically benefited from having a large number of corporate headquarters and a concentration of financial services-related industries located within it. The area also benefits from having a well-educated employment base and a large number of diverse industrial, service, retail and high technology businesses. Other employment is provided by a variety of wholesale trade, manufacturing, federal, state and local governments, hospitals and utilities.
According to S&P Global projections based on 2020 U.S. Census Data, the population of our twelve county primary market area totaled approximately 6.7 million and the total population for the entire state of New Jersey was 9.3 million. The population in our twelve county market area has increased by 6.2% from 2010 to 2022. According to S&P Global, the weighted average projected median household income for 2022 for the twelve New Jersey counties that we operate in is $104,290. By contrast, the national projected median household income for 2022 is $72,465 and the State of New Jersey projected median income is $94,000. The unemployment rate, not seasonally adjusted, for the State of New Jersey was 3.5% in December 2019, 7.6% in December 2020, and 6.3% in December 2021, compared to the national unemployment rate of 3.6% in December 2019, 6.7% in December 2020, and 3.9% in 2021. The unemployment rates were higher in 2020 due to the COVID-19 pandemic, but have been decreasing gradually throughout 2021.
Competition
We face significant competition in attracting deposits. Many of the nation’s largest financial institutions operate in our market area. Our most direct competition for deposits has historically come from the many banks, thrift institutions and credit unions operating in our market area and, to a lesser extent, from other financial service companies such as brokerage firms and insurance companies. We also face competition for investors’ funds from money market funds, mutual funds and other corporate and government securities.
Our competition for loans comes primarily from the competitors referenced above and from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from the increasing number of non-depository financial service companies participating in the mortgage market, such as insurance companies, securities companies, financial technology companies and specialty finance firms, along with federal agencies.
We expect competition to remain intense in the future as a result of legislative, regulatory and technological changes and the continuing trend of consolidation in the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the internet and made it possible for non-depository institutions, including financial technology companies, to offer products and services that traditionally have been provided by banks. Competition for deposits and the origination of loans could limit our growth in the future.
Lending Activities
Through our banking subsidiaries, Columbia Bank and Freehold Bank, we offer a variety of loans, including commercial, residential and consumer loans. Our commercial loan portfolio includes multifamily and commercial real estate loans, commercial business loans and construction loans. Our residential loan portfolio includes one-to-four family residential real estate loans and one-to-four family residential construction loans. Our consumer loan portfolio primarily includes home equity loans and advances, and to a lesser extent automobile, personal, unsecured and overdraft lines of credit.
We intend to continue to emphasize commercial lending and manage existing credit relationships. In the past two years, we have completed our acquisitions of Stewardship Financial, Roselle Bank and Freehold Bank, and we have continued to invest in our lending staff, technology and processes to position us for continued growth. Specifically, in the past two years, we have hired additional lenders with significant experience in our market area to expand our commercial real estate and commercial and industrial lending efforts. In addition, we will continue to offer competitive pricing for our one-to-four family loan products and continue to invest in lending staff to market these products in New Jersey, New York and Pennsylvania.
Multifamily and Commercial Real Estate Loans. We originate mortgage loans for the acquisition and refinancing of multifamily properties and nonresidential real estate. At December 31, 2021, multifamily and commercial real estate loans totaled $3.2 billion, or 50.8% of our total loan portfolio. Of this amount, $2.6 billion of loans were used for the purchase, financing and/or refinancing of commercial real estate and the financing of income-producing real estate. These loans are generally non-owner-occupied properties in which 50% or more of the primary source of repayment is derived from rental income from unaffiliated third-parties. Our multifamily loans include loans primarily to finance apartment buildings located in the State of New Jersey, and to a lesser extent, in New York and Pennsylvania. Our commercial real estate loans include loans secured by office buildings, retail shopping centers, medical office buildings, industrial, warehouses, hotels, assisted-living facilities and similar commercial properties.
We offer both fixed and adjustable rate multifamily and commercial real estate loans. We originate these loans generally for terms of up to ten years and with payments generally based on an amortization schedule of up to 30 years for multifamily properties, and up to 25 years for commercial properties, and to a lesser extent, we offer loans with an interest only period of up to two years. Our adjustable rate loans are typically fixed from three to ten years.
When making multifamily and commercial real estate loans, we consider the financial statements and tax returns of the borrower, the borrower’s payment history of its debt, the debt service capabilities of the borrower, the projected cash flows of the real estate, leases for any of the tenants located at the collateral property and the value of the collateral and the strength of the guarantors, if any.
As of December 31, 2021, the average outstanding loan balance within our multifamily loan portfolio was $3.2 million, and the average loan balance within our commercial real estate loan portfolio totaled $1.5 million. At December 31, 2021, our largest multifamily loan was a $49.8 million loan made by Columbia Bank and secured by 22 garden style apartment buildings located in Mercer County, New Jersey. The loan is well-collateralized and was performing in accordance with its original terms at December 31, 2021. As of December 31, 2021, our largest commercial real estate loan was a $25.0 million loan made by Columbia Bank to fund a mixed-use development to include rental units and apartment buildings, a clubhouse and parking garage located in Monmouth County, New Jersey. The loan is well-collateralized and was performing in accordance with its original terms at December 31, 2021.
One-to-Four Family Residential Loans. We offer fixed-rate and adjustable-rate residential mortgage loans. Our fixed-rate mortgage loans have terms of up to 30 years. At December 31, 2021, one-to-four family residential loans totaled $2.1 billion, or 33.0% of our total loan portfolio. We also offer adjustable-rate mortgage loans with interest rates and payments that adjust annually after an initial fixed period of up to seven years. Interest rates and payments on our adjustable-rate loans generally are adjusted to a rate equal to a spread above the U.S. Treasury security index. Our adjustable-rate single-family residential real estate loans generally have a cap of 2% on any increase or decrease in the interest rate at any adjustment date, and a maximum adjustment limit of 5% on any such increase or decrease over the life of the loan. To increase the originations of adjustable-rate loans, we have been originating loans that
bear a fixed interest rate for a period of up to seven years (but historically as long as ten years) after which they convert to one-year adjustable-rate loans. Our adjustable-rate loans require that any payment adjustment resulting from a change in the interest rate be sufficient to result in full amortization of the loan by the end of the loan term and, thus, do not permit any of the increased payment to be added to the principal amount of the loan, creating negative amortization. Although we offer adjustable-rate loans with initial rates below the fully indexed rate, loans tied to the one-year constant maturity treasury are underwritten using methods approved by the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or the Federal National Mortgage Association (“Fannie Mae”). We do not offer loans with negative amortization and we do not currently offer interest-only residential mortgage loans.
Borrower demand for adjustable-rate loans compared to fixed-rate loans is a function of the level of interest rates, the expectations of changes in the level of interest rates, and the difference between the interest rates and loan fees offered for fixed-rate mortgage loans as compared to the interest rates and loan fees for adjustable-rate loans. At December 31, 2021, fixed-rate mortgage loans totaled approximately $2.0 billion and adjustable-rate mortgage loans totaled approximately $131.3 million. The loan fees, interest rates and other provisions of mortgage loans are determined by us on the basis of our own pricing criteria and competitive market conditions.
While one-to-four family residential real estate loans are normally originated with up to 30-year terms, such loans typically remain outstanding for substantially shorter periods because borrowers often prepay their loans in full either upon sale of the property pledged as security or upon refinancing the original loan. Therefore, average loan maturity is a function of, among other factors, the level of purchase and sale activity in the real estate market, prevailing interest rates and the interest rates payable on outstanding loans.
It is our general policy not to make high loan-to-value loans (defined as loans with a loan-to-value ratio of 80% or more) without private mortgage insurance. The maximum loan-to-value ratio we generally permit is 95% with private mortgage insurance, although occasionally we do originate loans with loan-to-value ratios as high as 97.75% under special loan programs, including our first-time homeowner loan program. We require all properties securing mortgage loans to be appraised by an independent appraiser approved by our board of directors. We require title insurance on all purchase money and refinance mortgage loans. Borrowers must obtain hazard insurance, and flood insurance is required for loans on properties located in a flood zone.
As of December 31, 2021, the average outstanding loan balance within our one-to-four family residential real estate loan portfolio was $273,000. As of December 31, 2021, our largest one to-four family residential real estate loan was a $6.6 million loan made by Columbia Bank and secured by a residential property located in Bergen County, New Jersey. The loan is well-collateralized and was performing in accordance with its original terms at December 31, 2021.
Commercial Business Loans. We make commercial business loans in our market area to a variety of professionals, sole proprietorships, partnerships and corporations. We offer a variety of commercial lending products such as secured and unsecured loans that include term loans for equipment financing and for business acquisitions, working capital loans, inventory financing and revolving lines of credit. In most cases, fixed-rate loans have terms up to ten years and are fully amortizing. Revolving lines of credit generally will have adjustable rates of interest and will be extended for periods of up to 24 months to support inventory and accounts receivable fluctuations and are subject to periodic review and renewal. Business loans with variable rates of interest adjust on a daily basis and are generally indexed to the prime rate as published in The Wall Street Journal. Unsecured commercial business lending is generally considered to involve a higher degree of risk than secured lending. Risk of loss on an unsecured commercial business loan is dependent largely on the borrower’s ability to remain financially able to repay the loan out of ongoing operations. If our estimate of the borrower’s financial ability is inaccurate, we may be confronted with a loss of principal on the loan.
In making commercial business loans, we consider a number of factors, including the financial condition of the borrower, the nature of the borrower’s business, economic conditions affecting the borrower, our market area, the management experience of the borrower, the debt service capabilities of the borrower, the projected cash flows of the business and the collateral. Commercial loans are generally secured by a variety of collateral, including equipment, machinery, inventory and accounts receivable, and may be supported by personal guarantees.
We also originate commercial business and real estate loans under the Small Business Administration (“SBA”). Loans originated under this program are partially guaranteed by the SBA and are underwritten within the guidelines set forth by the SBA. As of December 31, 2021, the outstanding balance of our SBA loans was $58.9 million, which is included in the secured and unsecured commercial business loan amounts discussed above. On March 27, 2020 the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law, and included the creation of the SBA's Paycheck Protection Program ("PPP"). The CARES Act authorized the SBA to temporarily guarantee loans under a new loan program under which the SBA will guarantee 100% of the PPP loans made to eligible borrowers. As qualified SBA lenders, Columbia Bank and Freehold Bank were authorized to originate these loans. As of December 31, 2021, PPP loans totaling $44.9 million, are included in commercial business loans.
As of December 31, 2021, the average outstanding loan balance within our commercial business loan portfolio (excluding lines of credit with no outstanding balance and PPP loans) was $427,000. As of December 31, 2021, the average outstanding PPP loan
balance was $354,000. At December 31, 2021, our largest commercial business loan was a $15.0 million loan made by Columbia Bank to a real estate development company located in Middlesex County, New Jersey, and was secured by real estate in Florida.
Construction Loans. We originate commercial construction loans primarily to professional builders for the construction and acquisition of personal residences, apartment buildings, retail, industrial, warehouse, office buildings and special purpose facilities. We will originate construction loans on unimproved land in amounts typically up to 65% of the lower of the appraised value or the cost of the land. We also originate loans for site improvements and construction costs in amounts generally up to 75% of as completed and stabilized appraised value. Our construction loans generally provide for the payment of interest only during the construction phase, which is usually six to 36 months. Many of our commercial construction loans are structured to convert to permanent financing upon completion and stabilization. Commercial real estate construction loans are typically based upon the prime rate as published in The Wall Street Journal. At December 31, 2021, we had an outstanding balance of $271.5 million in construction loans for commercial development.
Before making a commitment to fund a construction loan, we require an appraisal of the property by a licensed appraiser. We also review and inspect each property before disbursement of funds during the term of the construction loan. Loan proceeds are disbursed after inspections based on the work completed.
Construction lending generally involves a higher degree of risk than permanent mortgage lending because funds are advanced upon the security of the project under construction prior to its completion. As a result, construction lending often involves the disbursement of substantial funds with repayment dependent on the success of the ultimate project and the ability of the borrower or guarantor to repay the loan. Because of these factors, the analysis of prospective construction loan projects requires an expertise that is different in significant respects from that which is required for other types of lending. We have addressed these risks through our underwriting procedures. Additionally, we have attempted to minimize the foregoing risks by, among other things, limiting our construction lending to experienced developers, by limiting the amount of speculative construction projects and requiring executed agreements of sales as conditions for draws of the commercial construction loans. When making commercial construction loans, we consider the financial statements of the borrower, the borrower’s payment history, the projected cash flows from the proposed real estate collateral, and the value of the collateral. In general, our real estate construction loans are typically guaranteed by the principals of the borrowers. We consider the financial statements and tax returns of the guarantors, along with the guarantors’ payment history, when underwriting a commercial construction loan.
As of December 31, 2021, the average outstanding loan balance within our commercial construction loan portfolio was $2.1 million. At December 31, 2021, our largest commercial construction loan exposure had an outstanding balance of $18.7 million and was made by Columbia Bank to finance a luxury apartment complex located in Monmouth County, New Jersey. The loan payments are current and have been made in accordance with the loan terms at December 31, 2021.
We also originate residential construction loans primarily on a construction-to-permanent basis with such loans converting to an amortizing loan following the completion of the construction phase. Most of our residential construction loans are made to individuals building a personal residence. At December 31, 2021, residential construction loans totaled $20.7 million, or 0.3%, of total loans outstanding. Construction lending, by its nature, entails additional risks compared to one-to-four family mortgage lending, attributable primarily to the fact that funds are advanced based upon a security interest in a project which is not yet complete. We address these risks through our established underwriting policies and procedures performed by our experienced staff.
Home Equity Loans and Advances. We offer consumer home equity loans and advances that are secured by one-to-four family residential real estate, where we may be in a first or second lien position. Historically, we offered home equity loans and advances with a lien junior to second position and some of these junior loans still reside in the loan portfolio at December 31, 2021. In addition, in prior years we also offered adjustable-rate home equity loans with fixed terms, although we no longer offer these loans. We generally offer home equity loans and advances with a maximum combined loan-to-value ratio of 80%. At December 31, 2021, home equity loans and advances totaled $276.6 million, or 4.4%, of our total loan portfolio. Home equity loans have fixed rates of interest and are currently offered with terms of up to 20 years. Home equity advances have adjustable rates and are based upon the prime rate as published in The Wall Street Journal. Home equity advances can have repayment schedules of both principal and interest or interest only paid monthly. We held a first mortgage position on approximately 59.5% of the homes that secured our home equity loans and advances at December 31, 2021.
The procedures for underwriting consumer home equity loans and advances include an assessment of the applicant’s payment history on other debts and ability to meet existing obligations and payments on the proposed loan. Although the applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral to the proposed loan amount.
Other Consumer Loans. We offer a variety of other consumer loans, including loans for automobiles, personal loans, unsecured lines of credit, and overdraft lines of credit. Our unsecured lines of credit bear a substantially higher interest rate than our secured loans and lines of credit. At December 31, 2021, other consumer loans totaled $1.4 million.
For more information on our loan commitments, see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity Management”
Credit Risks
Multifamily and Commercial Real Estate Loans. Loans secured by multifamily and commercial real estate loans generally have larger balances and involve a greater degree of risk than one-to four-family residential mortgage loans. Of primary concern in multifamily and commercial real estate lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the property that secures the loan. Additional considerations include: location, market and geographic concentrations, loan-to-value ratio, strength of guarantors and quality of tenants. Payments on loans secured by income properties often depend on successful operation and management of the properties. As a result, repayment of such loans may be subject to a greater extent than residential real estate loans to adverse conditions in the real estate market or the economy. To monitor cash flows on income properties, we require borrowers and loan guarantors, if any, to provide annual financial statements and rent rolls where applicable. In reaching a decision on whether to make a commercial real estate loan, we usually consider and review a global cash flow analysis of the borrower, when applicable, and consider the net operating income of the property, the borrower’s expertise, credit history, and profitability and the value of the underlying property. The global analysis is more typically performed when lending to real estate development and management companies that own multiple properties with financing from other creditors. The analysis takes into consideration all rental income and expenses from the borrower’s real estate investments to determine if any other real estate holdings in the portfolio do not provide income levels to support the expenses of each property and debt service requirements for any third party financing secured by the properties held in the portfolio. We have generally required that the properties securing these real estate loans have debt service coverage ratios (the ratio of earnings before debt service to debt service) of at least 1.2x and a loan-to-value no greater than 75% for commercial properties and no greater than 80% for multifamily properties. An environmental report is obtained when the possibility exists that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties with known environmental concerns.
One-to-Four Family Real Estate Loans. While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate mortgages, the increased mortgage payments required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate mortgage loans help make our asset base more responsive to changes in interest rates, the extent of this interest sensitivity is limited by the annual and lifetime interest rate adjustment limits on such loans.
Commercial Business Loans. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property, the value of which tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may depend substantially on the success of the business itself and guarantors, if any. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise, may fluctuate in value and may depend on the borrower’s ability to collect receivables.
Construction Loans. Loans made to facilitate construction are primarily short term loans used to finance the construction of an owner-occupied residence or income producing assets. Generally, upon stabilization or upon completion and issuance of a certificate of occupancy, these loans often convert to permanent loans with long-term amortization. Payments during construction consist of an interest-only period funded generally by borrower or guarantor equity. As these loans represent higher risk, each project is monitored for progress throughout the life of the loan, and loan funding occurs through borrower draw requests. These requests are compared to project milestones and progress is verified by independent inspectors engaged by us.
Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value at completion of construction or development and the estimated cost (including interest) of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, business conditions may dictate that the borrower or guarantors, when applicable, contribute additional equity or we advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value proves to be inaccurate, we may be confronted, at or before the maturity of the loan, with a project having a value which is insufficient to assure full repayment.
Home Equity Loans and Advances. Consumer home equity loans and advances are loans secured by one-to four-family residential real estate, where we may be in a first or junior lien position. In each instance, the value of the property is determined and the loan is made against identified equity in the market value of the property. When a residential mortgage is not present on the property, a first lien position is secured against the property. In cases where a mortgage is present on the property, a junior lien position is established, subordinated to the first mortgage. As these subordinated liens represent higher risk, loan collection becomes more influenced by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.
Other Consumer Loans. Unlike consumer home equity loans, these loans are either unsecured or secured by rapidly depreciating assets such as autos. In such cases, repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a small remaining deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and, therefore, are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.
Loan Originations and Purchases. Loan originations come from a number of sources. The primary sources of loan originations are existing customers, online channels, walk-in traffic, advertising and referrals from customers and other business contacts, including attorneys, accountants and other professionals. Residential mortgage loans are also sourced through mortgage brokers, although such loans are underwritten by us in accordance with our underwriting standards.
Occasionally, we purchase participation interests in loans to supplement our lending portfolio. Loan participations totaled $109.4 million at December 31, 2021 and were comprised of 30 commercial real estate loans. Loan participations are subject to the same credit analysis and loan approvals as loans which we originate. We review all of the documentation relating to any loan in which we participate. However, for participation loans, we do not service the loan and, thus, are subject to the policies and practices of the lead lender with regard to monitoring delinquencies, pursuing collections and instituting foreclosure proceedings.
Loan Commitments. We issue commitments for fixed and adjustable-rate mortgage loans conditioned upon the occurrence of certain events. Commitments to originate mortgage loans are legally binding agreements to lend to our customers. Generally, our loan commitments expire after 60 days.
Delinquent Loans. We identify loans that may need to be charged-off as a loss by reviewing all delinquent loans, classified loans and other loans that management may have concerns about collectability. For individually reviewed loans, the borrower’s inability to make payments under the terms of the loan as well as a shortfall in collateral value may result in a write down to management’s estimate of net realizable value. The collateral or cash flow shortfall on all secured loans is charged-off when the loan becomes 90 days delinquent or earlier where management determines that the collection of loan principal is unlikely. In the case of unsecured loans, the entire balance deemed uncollectable is charged-off when the loan becomes 90 days delinquent. For more information on how we address credit risk, see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations-Risk Management.”
Securities Activities
We maintain a securities portfolio that consists of U.S. Government and agency obligations, mortgage-backed securities and collateralized mortgage obligations (“CMOs”), municipal obligations, corporate debt securities, equity securities, and trust preferred securities. We classify our securities as either held to maturity or available for sale. Management determines the appropriate classification of securities at the time of purchase. If we have the intent and the ability to hold the securities until maturity, they are classified as held to maturity. These securities are stated at amortized cost and adjusted for accretion of discounts over the estimated lives of the securities using the level-yield method. Premiums are amortized to the first (or earliest) call date instead of as an adjustment to the yield over the contractual life. Securities in the available for sale category are those for which we do not have the intent at purchase to hold to maturity. These securities are reported at fair value with any unrealized appreciation or depreciation, net of tax effects, reported as a separate component of accumulated other comprehensive income.
Mortgage-backed securities are a type of asset-backed security that is secured by a mortgage, or a collection of mortgages. These securities usually pay periodic payments that are similar to coupon payments. The contractual cash flows of securities in government sponsored enterprises’ mortgage-backed securities are debt obligations of Freddie Mac and Fannie Mae, both of which are currently under the conservatorship of the Federal Housing Finance Agency. The contractual cash flows related to Government National Mortgage Association (“Ginnie Mae”) securities are direct obligations of the U.S. Government. Mortgage-backed securities are also known as mortgage pass-throughs. CMOs are structured as pool mortgage-backed securities and redistribute principal and
interest payments to predetermined groups (classes) of investors. The repayments from the pool of pass-through securities are used to retire the bonds in the order specified by the bonds’ prospectuses.
At December 31, 2021, 91.2% of the available for sale portfolio was comprised of mortgage-backed securities and CMOs issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities are guaranteed by the issuing agency and backed by residential and multifamily mortgages. These securities are comprised of fixed rate, adjustable-rate and hybrid securities that bear a fixed rate for a specific term and, thereafter, to the extent they are not prepaid, adjust periodically. At December 31, 2021, corporate debt securities comprised the next largest segment of the available for sale portfolio, totaling 6.5% of the portfolio. At December 31, 2021, the remainder of our available for sale securities portfolio consisted of U.S. government and agency obligations and municipal obligations, which comprised 2.0% and 0.3%, respectively, of the portfolio.
At December 31, 2021, 89.6% of the held to maturity securities portfolio was comprised of mortgage-backed securities and CMOs issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities are guaranteed by the issuing agency and backed by residential and multifamily mortgages. These securities are comprised of fixed rate, adjustable-rate and hybrid securities that bear a fixed rate for a specific term and thereafter, to the extent they are not prepaid, adjust periodically. At December 31, 2021, the remainder of our held to maturity securities portfolio consisted of U.S. government and agency obligations which comprised 10.4% of the portfolio.
At December 31, 2021, we held $2.7 million of securities in our equity portfolio comprised of a trust preferred security that is not traded in an active market, and Federal Home Loan Mortgage Corporation ("FHLMC") and Federal National Mortgage Association ("FNMA") preferred stock. In addition, the equity portfolio includes Atlantic Community Bankers Bank ("ACBB") stock, which is based on redemption at par value and can only be sold to the issuing ACBB or another institution that holds ACBB stock. Some of these securities receive dividends and all are carried at fair value.
To mitigate the credit risk related to our securities portfolio, we primarily invest in agency and highly-rated securities. As of December 31, 2021, approximately 94.5% of the total portfolio consisted of direct government obligations or government sponsored enterprise obligations, approximately 5.2% of the remaining portfolio was rated at least investment grade and approximately 0.3% of the remaining portfolio was not rated. Securities not rated consist primarily of short term municipal bond anticipation notes, private placement municipal notes issued and guaranteed by local municipal authorities, and equity securities.
Deposit Activities and Other Sources of Funds.
General. Deposits, borrowings and loan and securities repayments are the major sources of our funds for lending and other investment purposes. Scheduled loan and securities repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and market conditions.
Deposit Accounts. Deposits are primarily attracted from within our market area through the offering of a broad selection of deposit products, including non-interest bearing demand deposits (such as checking accounts to individuals and commercial checking accounts), interest-bearing demand accounts (such as interest-earning checking account products and most municipal accounts), savings and club accounts, money market accounts and certificates of deposit. We have not historically utilized brokered deposits, but assumed $31.6 million of brokered deposits in our acquisition of Stewardship Financial in November 2019. The balance of these brokered deposits at December 31, 2021 is $5.0 million.
Our three primary categories of deposit customers consist of retail or individual customers, businesses and municipalities. Our business banking deposit products include a commercial checking account, a checking account specifically designed for small businesses and a money market product. Additionally, we offer cash management services, including remote deposit, lockbox service and sweep accounts.
Deposit account terms vary according to the minimum balance required, the time periods the funds must remain on deposit and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, the rates on borrowings, our liquidity needs, profitability to us, and customer preferences and concerns. We generally review our deposit mix and pricing weekly. Our deposit pricing strategy has traditionally been to offer competitive rates on all types of deposit products, and to periodically offer special rates in order to attract deposits. Current strategies include changing the deposit mix to include more core deposits.
Borrowings. We have the ability to utilize advances and overnight lines of credit from the FHLB to supplement our liquidity. As member banks, we are required to own capital stock in the FHLB and are authorized to apply for advances on the security of such stock and certain mortgage loans and other assets, provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. We can also utilize securities sold under agreements to repurchase to provide funding. We maintain access to the Federal Reserve Bank’s discount window and federal
funds lines with correspondent banks to supplement our supply of investable funds and to meet deposit withdrawal and contingency funding requirements. To secure our borrowings, we generally pledge securities and/or loans. The types of securities pledged for borrowings include, but are not limited to, government-sponsored enterprises (“GSE”) including notes and government agency mortgage-backed securities and CMOs. The types of loans pledged for borrowings include, but are not limited to, one-to four-family real estate mortgage loans, home equity loans and multifamily and commercial real estate loans. At December 31, 2021, we had additional borrowing capacity from the FHLB and the Federal Reserve Bank of New York based on our ability to collateralize such borrowings. Members in good standing with the FHLB can borrow up to 50% of their asset size as long as they have qualifying collateral to support the advance and purchase of FHLB capital.
During 2021, the Company entered into a $30.0 million unsecured term note with a third party at a fixed interest rate of 3.35% and a maturity date of December 21, 2024. At December 31, 2021 the carrying value of a term note was $29.8 million. In conjunction with the term note, the Company also established a $30.0 million unsecured revolving credit facility with a third party at a variable rate indexed to the prime rate as published by The Wall Street Journal. The Company did not draw on this facility during 2021.
Regulation and Supervision
General
As federal savings banks, Columbia Bank and Freehold Bank are subject to examination, supervision and regulation, primarily by the Office of the Comptroller of the Currency, and, secondarily, by the Federal Deposit Insurance Corporation (“FDIC”) as deposit insurer. Effective October 15, 2020, Columbia Bank has elected and has received regulatory approval to operate as a “covered savings association” pursuant to Section 5A of the Home Owners’ Loan Act, as amended, and the regulations of the Office of the Comptroller of the Currency promulgated thereunder. A covered savings association generally has the same rights and privileges as a national bank, and is subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that would apply to a national bank.
Columbia Bank and Freehold Bank are also regulated by the Federal Reserve Board, which governs the reserves to be maintained against deposits and other matters. In addition, each of Columbia Bank and Freehold Bank is a member of and owns stock in the FHLB of New York, which is one of the 11 regional banks in the Federal Home Loan Bank System. Columbia Bank’s and Freehold Bank’s relationships with depositors and borrowers also are regulated to a great extent by federal law and, to a lesser extent, state law, including in matters concerning the ownership of deposit accounts and other contractual arrangements.
As savings and loan holding companies in the mutual holding company structure, the Company and the MHC are subject to examination and supervision by, and are required to file certain reports with, the Federal Reserve Board. The Company is also subject to the rules and regulations of the Securities and Exchange Commission ("SEC") under the federal securities laws.
Set forth below are certain material regulatory requirements that are applicable to Columbia Bank, Freehold Bank and the Company. This description of statutes and regulations is not intended to be a complete description of such statutes and regulations and their effects on Columbia Bank, Freehold Bank and the Company. Any change in these laws or regulations, whether by Congress or the applicable regulatory agencies, could have a material adverse impact on the Company, Columbia Bank, Freehold Bank and their operations.
Federal Banking Regulations
Business Activities. A federal savings bank derives its lending and investment powers form the Home Owners' Loan Act, as amended, and applicable federal regulations. However, as a covered savings association, Columbia Bank generally has the same rights and privileges as a national bank, and is subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that would apply to a national bank.
Examinations and Assessments. Columbia Bank and Freehold Bank are primarily supervised by the Office of the Comptroller of the Currency. Each of Columbia Bank and Freehold Bank is required to file reports with and is subject to periodic examination by the Office of the Comptroller of the Currency, and are also required to pay assessments to the Office of the Comptroller of the Currency to fund the agency’s operations.
Capital Requirements. Federal regulations require FDIC-insured depository institutions, including federal savings banks, to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio, a total capital to risk-based assets and a Tier 1 capital to total assets leverage ratio.
The capital standards require the maintenance of common equity Tier 1 capital, Tier 1 capital and Total capital to risk-weighted assets of at least 4.5%, 6.0% and 8.0%, respectively. The regulations also establish a minimum required leverage ratio of at least 4.0% of Tier 1 capital. Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 capital plus additional Tier 1 capital. Additional Tier 1 capital generally includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of accumulated other comprehensive income such as Columbia Bank and Freehold Bank, up to 45% of net unrealized gains on available for sale equity securities with readily determinable fair market values. Institutions that have not exercised the accumulated other comprehensive income opt-out have accumulated other comprehensive income incorporated into common equity Tier 1 capital (including unrealized gains and losses on available for sale securities). Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, an institution’s assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests), are multiplied by a risk weight factor assigned by the regulations based on the risk deemed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one-to-four family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.
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.
As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies developed a "Community Bank Leverage Ratio" (the ratio of a bank's Tier 1 equity capital to average total consolidated assets) for financial institutions with less than $10 billion. A "qualifying community bank" that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the minimum capital for the new Community Bank Leverage Ratio at 9%. A financial institution can elect to be subject to this new definition. Columbia Bank and Freehold Bank currently have not elected to utilize this framework.
At December 31, 2021, Columbia Bank’s and Freehold Bank’s capital each exceeded all applicable requirements.
Loans-to-One Borrower. Generally, a federal savings bank or national bank may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by “readily marketable collateral,” which generally includes certain financial instruments (but not real estate). As of December 31, 2021, both Columbia Bank and Freehold Bank were in compliance with the loans-to-one borrower limitations.
Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.
Prompt Corrective Action. Under the federal prompt corrective action statute, the Office of the Comptroller of the Currency is required to take supervisory actions against undercapitalized institutions under its jurisdiction, the severity of which depends upon the institution’s level of capital. An institution that has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a common equity Tier 1 ratio of less than 4.5% or a leverage ratio of less than 4.0% is considered to be “undercapitalized”. An institution that has total risk-based capital of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%,
a common equity Tier 1 ratio of less than 3.0% or a leverage ratio that is less than 3.0% is considered to be “significantly undercapitalized”. An institution that has a tangible capital to assets ratio equal to or less than 2.0% is deemed to be “critically undercapitalized”.
Generally, the Office of the Comptroller of the Currency is required to appoint a receiver or conservator for a federal savings bank or national bank that becomes “critically undercapitalized” within specific time frames. The regulations also provide that a capital restoration plan must be filed with the Office of the Comptroller of the Currency within 45 days of the date that a federal savings association is deemed to have received notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized”. Any holding company of a federal savings association that is required to submit a capital restoration plan must guarantee performance under the plan in an amount of up to the lesser of 5.0% of the savings association’s assets at the time it was deemed to be undercapitalized by the Office of the Comptroller of the Currency or the amount necessary to restore the savings association to adequately capitalized status. This guarantee remains in place until the Office of the Comptroller of the Currency notifies the institution that it has maintained adequately capitalized status for each of four consecutive calendar quarters. Institutions that are undercapitalized become subject to certain mandatory measures such as restrictions on capital distributions and asset growth. The Office of the Comptroller of the Currency may also take any one of a number of discretionary supervisory actions against undercapitalized federal savings associations, including the issuance of a capital directive and the replacement of senior executive officers and directors.
At December 31, 2021, each of Columbia Bank and Freehold Bank met the criteria for being considered “well capitalized,” which means that its total risk-based capital ratio exceeded 10.0%, its Tier 1 risk-based ratio exceeded 8.0%, its common equity Tier 1 ratio exceeded 6.5% and its leverage ratio exceeded 5.0%.
Capital Distributions. Federal regulations govern capital distributions by a federal savings bank, including a covered savings association, which include cash dividends, stock repurchases and other transactions charged to the institution’s capital account. A federal savings bank, including a covered savings association, must file an application with the Office of the Comptroller of the Currency for approval of a capital distribution if (i) the total capital distributions for the applicable calendar year exceed the sum of the institution’s net income for that year to date plus the institution’s retained net income for the preceding two years; (ii) the institution would not be at least adequately capitalized following the distribution; (iii) the distribution would violate an applicable statute, regulation, agreement or regulatory condition; or (iv) the institution is not eligible for expedited treatment of its filings. Even if an application is not otherwise required, every savings association that is a subsidiary of a savings and loan holding company must file a notice with the Federal Reserve Board at least 30 days before the board of directors declares a dividend. An application or notice related to a capital distribution may be disapproved if (i) the federal savings association would be undercapitalized following the distribution; (ii) the proposed capital distribution raises safety and soundness concerns or (iii) the capital distribution would violate a prohibition contained in any statute, regulation or agreement.
In addition, the Federal Deposit Insurance Act provides that an insured depository institution shall not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement.
Community Reinvestment Act and Fair Lending Laws. All financial institution banks have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low and moderate-income borrowers. In connection with its examination of a federal savings bank, the Office of the Comptroller of the Currency is required to assess the federal savings bank’s record of compliance with the Community Reinvestment Act. A savings bank’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of the Comptroller of the Currency, as well as other federal regulatory agencies and the Department of Justice.
The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating. Both Columbia Bank and Freehold Bank received a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.
Transactions with Related Parties. A federal savings bank’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally any company that controls, or is under common control with an insured depository institution such as Columbia Bank or Freehold Bank. The Company and the MHC are affiliates of Columbia Bank and Freehold Bank because of their direct and indirect control of Columbia Bank and Freehold Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than
a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates.
The authority of Columbia Bank and Freehold Bank to extend credit to their directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders:
•be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and
•not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of the institution’s capital.
In addition, extensions of credit in excess of certain limits must be approved by the respective board of directors of Columbia Bank and Freehold Bank. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.
Enforcement. The Office of the Comptroller of the Currency has primary enforcement responsibility over federal savings banks and has authority to bring enforcement action against all “institution-affiliated parties,” including directors, officers, stockholders, attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association. Formal enforcement action by the Office of the Comptroller of the Currency may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the institution to the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions, and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1.0 million per day. The FDIC also has the authority to terminate deposit insurance or recommend to the Office of the Comptroller of the Currency that enforcement action be taken with respect to a particular savings association. If such action is not taken, the FDIC has authority to take the action under specified circumstances.
Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured financial institutions such as Columbia Bank and Freehold Bank. Deposit accounts in Columbia Bank and Freehold Bank are insured by the FDIC generally up to a maximum of $250,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts.
The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund. Assessments for most institutions are now based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of failure within three years. In conjunction with the Deposit Insurance Fund reserve ratio achieving 1.15%, the assessment range (inclusive of possible adjustments) was reduced for most banks and savings associations from 1.5 basis points to 30 basis points.
The FDIC has authority to increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of Columbia Bank and Freehold Bank. We cannot predict what assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not currently know of any practice, condition or violation that may lead to termination of our deposit insurance.
Federal Home Loan Bank System. Columbia Bank and Freehold Bank are both members of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved in home mortgage lending. As a members of the FHLB of New York, Columbia Bank and Freehold Bank are required to purchase and hold shares of capital stock in the FHLB of New York. As of December 31, 2021, both Columbia Bank and Freehold Bank were in compliance with this requirement. The FHLB imposes various limitations on advances such as limiting the amount of certain types of real estate related collateral and limiting total advances to a member.
Other Regulations. Interest and other charges collected or contracted for by Columbia Bank and Freehold Bank are subject to state usury laws and federal laws concerning interest rates. The operations of Columbia Bank and Freehold Bank are also subject to federal laws applicable to credit transactions, such as the:
•Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
•Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;
•Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;
•Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;
•Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;
•Truth in Savings Act, prescribing disclosure and advertising requirements with respect to deposit accounts; and
•Rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.
The operations of Columbia Bank and Freehold Bank also are subject to the:
•Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;
•Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;
•Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies made from that image, the same legal standing as the original paper check;
•The USA PATRIOT Act, which requires savings associations to, among other things, establish broadened anti-money laundering compliance programs, and due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement existing compliance requirements that also apply to financial institutions under the Bank Secrecy Act and the Office of Foreign Assets Control regulations; and
•The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out” of the sharing of certain personal financial information with unaffiliated third parties.
Holding Company Regulation
General. The Company and the MHC are non-diversified savings and loan holding companies within the meaning of the Home Owners’ Loan Act. As such, the Company and the MHC are registered with the Federal Reserve Board and are subject to the regulation, examination, supervision and reporting requirements applicable to savings and loan holding companies and mutual holding companies. As a result of Columbia Bank’s election to be treated as a covered savings association, the Federal Reserve Board will generally treat the Company and the MHC as bank holding companies even though they remain savings and loan holding companies under existing law. In addition, the Federal Reserve Board has enforcement authority over the Company, the MHC and their non-savings institution subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings bank.
Permissible Activities. Due to Columbia Bank’s status as a covered savings association, the activities of the Company and the MHC are generally limited to activities permissible for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, subject to regulatory approval, and certain additional activities authorized by federal regulations. Federal law prohibits a holding company, including the Company and the MHC, directly or indirectly, or through one or more subsidiaries, from acquiring control of more than 5% of another financial institution or financial institution holding company, without prior Federal Reserve Board approval.
In evaluating applications by holding companies to acquire other financial institutions, the Federal Reserve Board considers factors such as the financial and managerial resources, future prospects of the company and institution involved, the effect of the acquisition on the risk to the federal deposit insurance fund, the convenience and needs of the community and competitive factors.
Capital. Savings and loan holding companies have historically not been subjected to consolidated regulatory capital requirements. The Dodd-Frank Act required the Federal Reserve Board to establish for all bank and savings and loan holding companies minimum consolidated capital requirements that are as stringent as those required for the insured depository subsidiaries. The Company is subject to consolidated regulatory capital requirements that are similar to those that apply to Columbia Bank and Freehold Bank.
Source of Strength. The Dodd-Frank Act extended the “source of strength” doctrine to savings and loan holding companies. The Federal Reserve Board has issued regulations requiring that all savings and loan holding companies serve as a source of strength to their subsidiary depository institutions.
Dividends and Stock Repurchases. The Federal Reserve Board has issued a policy statement regarding the payment of dividends by holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall supervisory financial condition. Separate regulatory guidance provides for prior consultation with Federal Reserve Bank staff concerning dividends in certain circumstances such as where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s overall rate or earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a savings and loan holding company to pay dividends may be restricted if a subsidiary savings association becomes undercapitalized. The regulatory guidance also states that a savings and loan holding company should inform Federal Reserve Bank supervisory staff prior to redeeming or repurchasing common stock or perpetual preferred stock if the savings and loan holding company is experiencing financial weaknesses or the repurchase or redemption would result in a net reduction, at the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. The Federal Reserve requires the Company to file an application for approval prior to implementing any repurchase plan. These regulatory policies may affect the ability of the Company to pay dividends, repurchase shares of common stock or otherwise engage in capital distributions.
Waivers of Dividends by Columbia Bank MHC. The Company may pay dividends on its common stock to public stockholders. If it does, it is also required to pay dividends to the MHC, unless the MHC elects to waive the receipt of dividends. Under the Dodd-Frank Act, the MHC must receive the approval of the Federal Reserve Board before it may waive the receipt of any dividends from the Company. The Federal Reserve Board has issued an interim final rule providing that it will not object to dividend waivers under certain circumstances, including circumstances where the waiver is not detrimental to the safe and sound operation of the savings association and a majority of the mutual holding company’s members have approved the waiver of dividends by the mutual holding company within the previous twelve months. In addition, for a “non-grandfathered” mutual holding company such as the MHC, each of our officers and directors, and any tax-qualified stock benefit plan or non-tax-qualified stock benefit plan in which such individual participates that holds any shares of stock to which the waiver would apply, must waive the right to receive any such dividend declared. The Federal Reserve Board’s current position is to not permit a non-grandfathered savings and loan or bank holding company to waive dividends declared by its subsidiary. In addition, any dividends waived by the MHC must be considered in determining an appropriate exchange ratio in the event of a second step conversion of the mutual holding company to stock form.
Conversion of Columbia Bank MHC to Stock Form. Federal Reserve Board regulations permit the MHC to convert from the mutual form of organization to the capital stock form of organization (a “Conversion Transaction”). There can be no assurance when, if ever, a Conversion Transaction will occur, and the board of directors has no current intention or plan to undertake a Conversion Transaction. In a Conversion Transaction, a new stock holding company would be formed as the successor to the Company (the “New Holding Company”), the MHC’s corporate existence would end, and certain depositors and borrowers of Columbia Bank and Freehold Bank would receive the right to subscribe for shares of the New Holding Company. In a Conversion Transaction, each share of common stock held by stockholders other than the MHC (“Minority Stockholders”) would be automatically converted into a number of shares of common stock of the New Holding Company determined pursuant to an exchange ratio that ensures that Minority Stockholders own the same percentage of common stock in the New Holding Company as they owned in the Company immediately prior to the Conversion Transaction. Any Conversion Transaction would be subject to approvals by Minority Stockholders and members of the MHC. Minority Stockholders will not be able to force a Conversion Transaction without the consent of the MHC since such transaction also requires, under federal corporate law, the approval of a majority of all of the outstanding voting stock, which can only be achieved if the MHC voted to approve such transaction.
Acquisition. Under the Federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve Board if any person (including a company), or group acting in concert, seeks to acquire direct or indirect “control” of a savings and loan holding company. Under certain circumstances, a change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the company’s outstanding voting stock, unless the Federal Reserve Board has found that the acquisition will not result in
control of the company. A change in control definitively occurs upon the acquisition of 25% or more of the company’s outstanding voting stock. Under the Change in Bank Control Act, the Federal Reserve Board generally has 60 days from the filing of a complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition.
Federal Securities Laws
The Company’s common stock is registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. The Company is therefore subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.
Personnel
As of December 31, 2021, we had 645 full-time employees and 69 part-time employees, none of whom is represented by a collective bargaining unit. We believe that our relationship with our employees is good.
Human Capital Management
We consider our employees to be our most valuable asset and we promote an environment that is both rewarding and challenging. We offer many different programs and initiatives to develop our workforce and to ensure the work culture matches our mission of offering a challenging and rewarding work environment for employees while promoting programs that support wellness and the quality of employees’ lives. We encourage our employees to get involved with their communities and through “Team Columbia” our employees participate in many outreach programs and volunteer events. In addition, we host various employee events such as the Annual Service Awards Dinner, Community Service Dinner and holiday events to further promote our culture and to provide opportunities for employee engagement. Though many of these events were postponed during the pandemic, we were able to bring some of the programs back to be in person. In addition, we continued to hold other virtual events and town halls to connect with our employees and to keep communication strong.
At December 31, 2021, we employed 714 full and part time employees throughout the state of New Jersey. During the year ended December 31, 2021, we hired 177 employees, 27 of those in conjunction with the Freehold Bank acquisition. Our voluntary turnover rate was 10.6% and the involuntary turnover was 10.1% in 2021. The voluntary and involuntary turnover rates were slightly higher than the year ended December 31, 2020. The increase in turnover rates was influenced by technology and remote work rules in the COVID-19 era which make it easier for individuals to change jobs more frequently.
Retention
In order to retain our talented workforce, we provide a competitive compensation and benefits program to help meet the needs of our employees. We monitor salaries on a regular basis participating in various external salary surveys and analyzing internal reports to ensure market competitiveness and internal equity. We also offer annual incentive programs to further reward our employees based on their performance.
In addition to competitive salaries, we offer comprehensive benefit programs which include equity awards, an Employee Stock Ownership Plan ("ESOP") and a deferred compensation plan (401k) with an employer matching contribution, healthcare and life insurance benefits, health savings accounts, flexible spending accounts, paid time off, family leaves of absence, tuition reimbursement and an employee assistance program.
The Human Resources Department continues to enhance our wellness programs to establish an environment that promotes a holistic approach to well-being that includes: healthy lifestyles, financial stability, mental well-being, and decreases the risk of disease, and improves the quality of employee life. These programs enhance our employee experience by giving our employees the tools necessary to create a healthier lifestyle through the promotion of healthy diets, workplace activities, exercise programs and wellness seminars. Active participants in wellness programs enjoy health insurance cost advantages. We have also created wellness and quiet rooms in the Company's corporate headquarters for people to be able to take breaks or attend to personal matters. All of these programs are intended to make us an employer of choice.
Learning and Development
We invest in the growth and development of our employees by providing a multi-dimensional approach to learning that empowers, intellectually grows, and professionally develops our colleagues. Our employees receive continuing education courses that are relevant to the banking industry and their job function within the Company. We have developed succession programs that help us
to create a pipeline for leadership. Our core curriculum is offered to all employees and helps to build upon the competencies and skills of which we are assessed during the performance management process.
We offer robust training programs on the topics of customer service, sales, change management, digital banking and products and services. As we have evolved into a public organization we have undergone a digital transformation. This initiative resulted in an extensive digital systems training curriculum.
To support our communication and training initiatives during the COVID-19 pandemic, we implemented a learning management system, a new virtual classroom and an eLearning authoring tool that allowed all job functional and soft skills training to continue to be offered at a distance for all colleagues, and we continue these virtual learning opportunities today. We also provided training on the collaboration tools that were rolled out by our Information Technology Department. All training initiatives continued to be offered in spite of the pandemic.
Talent Management
Our Human Resources and Learning and Development Departments have action plans designed specifically to facilitate the screening, acquisition, development, and performance management of a talent pool that aligns with the initiatives of the Company, including promoting quality customer service and enhancing the client experience throughout Columbia Bank. We have funded significant technological investments, including the upgrade of our core banking platform, loan origination systems, document imaging systems, and business intelligence reporting. While these new systems provide enhanced features for customers and automation of routine tasks for staff, they require specialized technical skills to operate and administer. Based on our strategic objectives, acquiring and developing a talent pool of well-educated and technically-skilled professionals is essential to support our growth plans over the next decade.
Diversity, Equity and Inclusion
Our Diversity, Equity and Inclusion ("DEI") strategy focuses on increasing representation, education, teamwork and collaboration. We have also built a DEI task force made up of employees across the Company to support additional events that support the diverse employees and clients we support. We practice equity recruiting practices to find top diverse talent and onboard them into the Company. In addition, we include DEI perspectives in our social media, marketing and branding strategy. We believe that as our footprint grows our brand will expand to reflect the diverse range of clients and communities we support. In 2021, the Company implemented an Environmental Social Governance ("ESG") program which included the establishment of a committee and a designated Diversity Officer, which are supported by various cross functional members of the Company. To ensure proper tracking and communication of ESG initiatives, a consultant was engaged to quantify the actions the Company takes to serve as a responsible corporate citizen. We also established eight Employee Resource Groups to further promote an inclusive work environment.
At the Company, we believe that diversity is a core tenet of our future success. A diverse Board of Directors and workforce increase our creativity and innovation, promote higher quality decisions, enhance economic growth, and represent the stockholders and customers we serve.
Our organization and our Board of Directors are deeply committed to cultivating an inclusive culture where all backgrounds, experiences and perspectives are welcome; where individuals are comfortable being who they are and are encouraged to celebrate their diversity; and where all have opportunities to realize their full personal and professional potential.
We look to develop a diverse employee base to better reflect our customer base and local community. We are working towards impactful recruitment via social media, sharing employee experiences and insights, corporate brand ambassadors, community ambassadors and social and civic organizations. In addition, we enhanced our employee referral program to further assist in our hiring efforts.
Our mission is to ensure that we are diverse across all levels of the organization and that our policies, practices, and actions promote inclusion and continue to strengthen our ability to attract, develop and retain the best talent, while accelerating business growth, increasing shareholder value and supporting our local communities.
Our Board of Directors, executive management, and leadership teams are committed to working together to implement a comprehensive strategy to support, promote, and accelerate diversity and inclusion across the organization with a focus on achieving sustained results, value and impact.
Succession Planning
Succession planning is a critical driver of our transformation. Succession planning efforts are helping our organization become what it needs to be, rather than simply recreating the existing organization. We have programs in place to support these initiatives: Associate Development Program, Career Development Program, Leadership Development Program, Stonier/Wharton School Program, and new ones are being rolled out. We have active support of top leadership and have linked succession to strategic planning. We implemented a new online interactive performance management system and process that includes a 9 box grid (production and performance exercises) to identify talent from multiple organizational levels, early in careers, or with critical skills and leadership potential. There is emphasis on developmental assignments in addition to formal training. Along the way, we are addressing specific human capital challenges, such as diversity, leadership capacity, and retention.
Workplace Safety
We have policies and programs in place that protect our employees and invest in their well-being.
As the threat of the COVID-19 pandemic became clear, we took significant steps to protect the health and safety of our employees. We also provided our employees various outlets to gain emotional assistance during this time through our Employee Assistance Program and webinars provided by our healthcare provider. We provided employees a safe workplace throughout the pandemic both in the branches and back office departments and implemented technologies for a remote work environment and to accommodate remote workers. We established service level agreements for the work from home environment communicating expectations to employees and receiving employee agreement to the execution of these expectations. These agreements are monitored on a regular basis. The pandemic required us to modify our facilities to provide additional precautions to ensure the safety of our staff and customers. It is expected that these regiments will continue in 2022. We have recently completed a renovation of our corporate headquarters facility that will allow for the envisioned growth of existing department staff and operations consistent with our strategic growth objectives.
Subsidiaries
Columbia Financial’s sole banking subsidiaries are Columbia Bank and Freehold Bank. Columbia Financial also maintains two trust subsidiaries, Columbia Financial Capital Trust I (a Delaware statutory trust) and Stewardship Statutory Trust I (a Delaware statutory trust), that were formed in connection with the prior issuance of trust preferred securities. Stewardship Statutory Trust I was acquired by the Company as a result of its acquisition of Stewardship in November 2019.
Columbia Bank’s active subsidiaries are as follows:
First Jersey Title Services, Inc., a title insurance agency that we acquired in 2002. At December 31, 2021, total assets were approximately $17.8 million. For the year ended December 31, 2021, First Jersey Title Services, Inc. had net income of approximately $1.2 million.
1901 Commercial Management Co. LLC, which was established in 2009 to hold commercial other real estate owned, and 1901 Residential Management Co. LLC, which was established in 2009 to hold residential other real estate owned. At December 31, 2021, these subsidiaries both held $100,000 in total assets.
2500 Broadway Corp. is a passive investment company that holds an investment in CSB Realty Corp. At December 31, 2021, total assets were approximately $5.5 billion.
CSB Realty Corp., which is a majority owned subsidiary of 2500 Broadway Corp. CSB Realty Corp. is a real estate investment trust which holds commercial real estate, mortgage and home equity loans for investment. At December 31, 2021, total assets were approximately $4.8 billion.
Stewardship Realty LLC, which was formed in 2005 and acquired by the Company as a result of its acquisition of Stewardship Financial in November 2019, is a New Jersey limited liability company that owns and manages property located at 612 Godwin Avenue Midland Park, New Jersey. At December 31, 2021, total assets were approximately $2.2 million.
Columbia Bank also currently maintains three inactive subsidiaries: (i) Columbia Investment Services, Inc., (ii) Real Estate Management Corp, LLC and (iii) Plaza Financial Services, Inc.
Freehold S & L Service Corporation is an inactive wholly-owned subsidiary of Freehold Bank.
Information About Our Executive Officers
Our executive officers are elected annually by the board of directors and serve at the board’s discretion. The following individuals currently serve as executive officers:
Name Position
Thomas J. Kemly President and Chief Executive Officer
E. Thomas Allen, Jr. Senior Executive Vice President and Chief Operating Officer
Dennis E. Gibney, CFA Executive Vice President and Chief Financial Officer
Damodaram Bashyam ** Executive Vice President and Chief Information and Digital Officer
W. Justin Jennings Executive Vice President and Operations Officer
Geri M. Kelly Executive Vice President and Human Resources Officer
John Klimowich Executive Vice President and Chief Risk Officer
Mark S. Krukar * Executive Vice President and Chief Credit Officer
Oliver E. Lewis, Jr. Executive Vice President and Head of Commercial Banking
Brian W. Murphy * Executive Vice President and Operations Officer
Allyson Schlesinger Executive Vice President and Head of Consumer Banking
* Mr. Murphy and Mr. Krukar will be retiring from the Company during 2022.
** Mr. Bashyam has notified the Company that he will resign effective March 4, 2022.
Below is information regarding our executive officers who are not also directors. Each executive officer has held his or her current position for the period indicated below. Ages presented are as of December 31, 2021.
E. Thomas Allen, Jr. was appointed Senior Executive Vice President, Chief Operating Officer of Columbia Bank on December 24, 2014. Mr. Allen began his career with Columbia Bank on October 17, 1994 and held various positions in the finance department. He was promoted to Treasurer in 1996, appointed Vice President, Treasurer in 1998, and named Senior Vice President, Treasurer in 2001. In 2002, Mr. Allen was promoted to Executive Vice President, Chief Financial Officer and served in that capacity until his appointment to Senior Executive Vice President, Chief Operating Officer. Mr. Allen holds a BS/BA in Banking & Finance from the University of Missouri and an MBA in Financial Management from Pace University. Age 64.
Dennis E. Gibney, CFA was appointed Executive Vice President and Chief Financial Officer of Columbia Bank in 2014. Prior to joining Columbia Bank, Mr. Gibney worked for FinPro, Inc. a bank consulting firm, and its wholly owned investment banking subsidiary, FinPro Capital Advisors, Inc., for 17 years. While at FinPro, Mr. Gibney worked on mergers and acquisitions, mutual-to-stock conversions, corporate valuations, strategic planning and interest rate risk management engagements for community banks. Mr. Gibney graduated Magna Cum Laude from Babson College with a triple major in Finance, Investments and Economics. He is a CFA Charterholder and a member of the New York Society of Security Analysts. Age 48.
Damodaram Bashyam was appointed Executive Vice President and Chief Information and Digital Officer of Columbia Bank in December 2019. Prior to joining Columbia Bank, Mr. Bashyam served as Managing Director and Chief Technology Officer at JP Morgan Chase from January 2018 to December 2019, where he was responsible for all aspects of technology delivery for consumer banking. Mr. Bashyam previously served as Vice President, Information Technology for Verizon Wireless from 2013 to 2017, and in various other capacities with Verizon Wireless from 1998 to 2012. Mr. Bashyam has notified the Company that he will resign from the Company effective March 4, 2022. Mr. Bashyam holds an Executive MBA in General Management from the Kellogg School of Management, a Master’s degree in Information Systems from the Stevens Institute of Management and a Bachelor’s degree in Computer Science and Engineering from Bangalore University in Karnataka, India. Age 49.
W. Justin Jennings was appointed Executive Vice President, Operations Officer of Columbia Bank in January 2022. Prior to joining Columbia Bank, Mr. Jennings served in various positions with JP Morgan Chase & Co. since 2004. Most recently, Mr. Jennings served as Executive Director, Head of Treasury Services - Community Development Banking at JP Morgan Chase & Co. from 2020 to January 2022, served as Executive Director, Client Service Director - Commercial Real Estate at JP Morgan Chase & Co. from 2015 to 2020 and served as Executive Director, Senior Business Manager - Commercial Banking Client Services at JP Morgan Chase & Co. from 2013 to 2015. Mr. Jennings holds a Bachelor’s degree in Sociology from The Ohio State University and received an MBA from the University of Notre Dame’s Mendoza School of Business. Age 40.
Geri M. Kelly was appointed Executive Vice President, Human Resources Officer of Columbia Bank on January 1, 2012. Ms. Kelly began her career at Columbia Bank in December 1979 and held various positions in the human resources department. In 1998,
Ms. Kelly was promoted to Vice President, Human Resources Officer and in December 2000 she was promoted to Senior Vice President, Human Resources Officer. Ms. Kelly served Columbia Bank in that capacity until her appointment to Executive Vice President, Human Resources Officer in 2012. She graduated from Douglass College with a Bachelor’s of Arts degree in Foreign Languages and received her Masters of Business Administration from Rutgers University. Age 64.
John Klimowich was appointed Executive Vice President and Chief Risk Officer of Columbia Bank on October 5, 2013. Mr. Klimowich began working for Columbia Bank in November 1985 and held various positions in the accounting department. Mr. Klimowich was promoted to Senior Vice President, Controller in March 2002 and served Columbia Bank in that capacity until his appointment as Executive Vice President and Chief Risk Officer in 2013. Mr. Klimowich holds a Bachelor’s degree in Economics from William Paterson University and an MBA in Accounting from Seton Hall University. Age 58.
Mark S. Krukar was appointed Executive Vice President and Chief Credit Officer of Columbia Bank in September 2018. He previously served as Executive Vice President and Chief Lending Officer of Columbia Bank in April 2012. Mr. Krukar began his career at Columbia Bank in December 1987 as a Commercial Lender and was promoted to Vice President/Commercial Lending in April 1995. Mr. Krukar was named Senior Vice President/Commercial Lending in 2002 and served in that capacity until he was promoted to Executive Vice President and Chief Lending Officer in 2012. Mr. Krukar has notified the Company that he will retire from the Company during 2022. Mr. Krukar graduated Magna Cum Laude with a Bachelor’s degree in Finance and received an MBA in Finance, both from Fairleigh Dickinson University. Age 61.
Oliver E. Lewis, Jr. was appointed Executive Vice President and Head of Commercial Banking of Columbia Bank in January 2021. Mr. Lewis began working for Columbia Bank in May 2019 and served as Senior Vice President, Commercial Banking Market Manager until his appointment as Executive Vice President and Head of Commercial Banking. In this role, Mr. Lewis is responsible for the commercial banking division consisting of Columbia Bank's commercial & industrial, SBA, middle market, commercial real estate and construction lending activities, treasury management sales and the business development department. Prior to joining Columbia Bank, Mr. Lewis served as a Market Executive at JP Morgan Chase and Treasury Services, Regional Sales Executive. Mr. Lewis holds a Bachelor’s degree in Aviation Administration from Embry-Riddle Aeronautical University and received an MBA from Rutgers University. Age 57.
Brian W. Murphy was appointed Executive Vice President, Operations of Columbia Bank in March 2009. Mr. Murphy began his career at Columbia Bank as a Management Trainee in 1981 and held various positions in the retail department. In 1996, Mr. Murphy became Columbia Bank’s Branch Administrator and was promoted to Senior Vice President in 2001. He served Columbia Bank in that capacity until his appointment to Executive Vice President, Operations in 2009. Mr. Murphy has notified the Company that he will retire from the Company during 2022. Mr. Murphy holds a Bachelor’s degree in Accounting from William Paterson University. Age 62.
Allyson Schlesinger was appointed Executive Vice President and Head of Consumer Banking of Columbia Bank in September 2018. In this role, Ms. Schlesinger is responsible for the retail banking, retail lending, wealth management and marketing divisions of Columbia Bank. Ms. Schlesinger was previously with Citigroup, Inc. for 25 years, most recently as its Managing Director, U.S. Retail and Division Manager for Citigroup, Inc. in the New York City and New Jersey markets. Ms. Schlesinger holds a Bachelor’s degree from the University of Michigan. Age 50.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Investing in the Company’s common stock involves risks. The investor should carefully consider the following risk factors before deciding to make an investment decision regarding the Company’s stock. The risk factors may cause future earnings to be lower or the financial condition to be less favorable than expected. In addition, other risks that the Company is not aware of, or which are not believed to be material, may cause earnings to be lower, or may deteriorate the financial condition of the Company. Consideration should also be given to the other information in this Annual Report on Form 10-K, as well as in the documents incorporated by reference into this Form 10-K.
Risks Related to the COVID-19 Pandemic and Associated Economic Slowdown
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 created a global public-health crisis that resulted in challenging economic conditions for households and businesses and has negatively affected our business. The economic impact of the COVID-19 pandemic impacted a broad range of industries, although many areas of consumer spending have rebounded since the initial onset of the COVID-19 pandemic.
The extent to which COVID-19 will continue to negatively affect our business is unknown and will depend on the rate of continued spread of the virus, the overall severity of the disease and of new variants of the virus, 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, including the successful implementation of vaccination programs, 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.
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.
There is also currently uncertainty surrounding the future economic conditions that will emerge in the years following the start of the COVID-19 pandemic. As a result, management is confronted with a significant and unfamiliar degree of uncertainty in estimating the impact of the pandemic on credit quality, revenues and asset values. We continue to have borrowers that have deferred payments on their loans, and we recognize that borrowers in certain industries are experiencing a slower recovery than certain other industries. We deferred foreclosures on certain one-to-four family loans as a result of federal and state foreclosure moratoriums, and now that foreclosures have resumed, we could experience losses on the impacted loans.
Risks Related to Our Lending Activities
Our multifamily and commercial real estate lending practices expose us to increased lending risks and related loan losses.
At December 31, 2021, our multifamily and commercial real estate loan portfolios totaled $3.2 billion, or 50.8% of our total loan portfolio. Our current business strategy is to continue our originations of multifamily and commercial real estate loans. These loans generally expose a lender to greater risk of non-payment and loss than one-to-four family residential mortgage loans because repayment of the loans often depends on the successful operation of the properties and the income stream of the borrowers. These loans involve larger loan balances to single borrowers or groups of related borrowers compared to one-to-four family residential mortgage loans. Further, we may increase our loans to individual borrowers, which would result in larger loan balances. To the extent that borrowers have more than one multifamily or commercial real estate loan outstanding, an adverse development with respect to one loan or one credit relationship could expose us to a significantly greater risk of loss compared to an adverse development with respect to a one-to-four family residential real estate loan. Moreover, if loans that are collateralized by multifamily or commercial real estate properties, become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could cause us to increase our provision for loan losses and adversely affect our earnings and financial condition.
Imposition of limits by the bank regulators on commercial and multifamily real estate lending activities could curtail our growth and adversely affect our earnings.
In 2006, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System (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 could 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. The balance of these real estate loans represented 236.5% of Columbia Bank’s total risk-based capital at December 31, 2021, and our commercial real estate loan portfolio increased by approximately 9.1% during the preceding 36 months.
In December 2015, the Agencies released a new statement on prudent risk management for commercial real estate lending (the “2015 Statement”). In the 2015 Statement, the Agencies, among other things, indicate the intent to continue “to pay special attention” to commercial real estate lending activities and concentrations going forward. If the Office of the Comptroller of the Currency, our primary federal regulator, were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, for reasons noted above or otherwise, our earnings would be adversely affected.
Our origination of construction loans exposes us to increased lending risks.
We originate commercial construction loans, including speculative construction loans, primarily to professional builders for the construction and acquisition of personal residences, apartment buildings, retail, industrial/warehouse, office buildings and special purpose facilities. Speculative construction loans are loans made to builders who have not identified a buyer for the completed property at the time of loan origination. At December 31, 2021, $295.0 million, or 4.7%, of our loan portfolio, consisted of construction loans, of which $207.6 million, or 70.4% consisted of speculative construction loans. In addition, we originate residential construction loans primarily on a construction-to-permanent basis with such loans converting to an amortizing loan following the completion of the construction phase. Our construction loans present a greater level of risk than loans secured by improved, occupied real estate due to: (1) the increased difficulty at the time the loan is made of estimating the building costs and the selling price of the property to be built; (2) the increased difficulty and costs of monitoring the loan; (3) the higher degree of sensitivity to increases in market rates of interest; and (4) the increased difficulty of working out loan problems. In addition, with respect to speculative construction loans, repayment often depends on the successful construction or development and ultimate sale of the property and, possibly, unrelated cash needs of the borrowers. Further, construction costs may exceed original estimates as a result of increased materials, labor or other costs. Construction loans also often involve the disbursement of funds with repayment dependent, in part, on the success of the project and the ability of the borrower to sell or lease the property or refinance the indebtedness.
Our concentration of residential mortgage loans exposes us to increased lending risks.
At December 31, 2021, $2.1 billion, or 33.0%, of our loan portfolio was secured by one-to-four family real estate, a significant majority of which is located in the State of New Jersey, and to a lesser extent New York and Pennsylvania, and we intend to continue this type of lending in the foreseeable future. One-to-four family residential mortgage lending is generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet their loan payment obligations, making loss levels difficult to predict. A decline in residential real estate values as a result of a downturn in the local housing market or in the markets in neighboring states in which we originate residential mortgage loans could reduce the value of the real estate collateral securing these types of loans. Declines in real estate values could cause some of our residential mortgages to be inadequately collateralized, which would expose us to a greater risk of loss if we seek to recover on defaulted loans by selling the real estate collateral.
Our commercial business lending activities expose us to additional lending risks.
We make commercial business loans in our market area to a variety of professionals, sole proprietorships, partnerships and corporations. Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property, the value of which tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may depend substantially on the success of the business itself. Further, any collateral securing such loans may depreciate over time, may be difficult to appraise, may fluctuate in value and may depend on the borrower’s ability to collect receivables. We have increased our focus on commercial business lending in recent years and intend to continue to focus on this type of lending in the future.
If our allowance for loan losses is not sufficient to cover actual loan losses, our results of operations would be negatively affected.
In determining the amount of the allowance for loan losses, we analyze our loss and delinquency experience by loan categories and we consider the effect of existing economic conditions. In addition, we make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of our loans. If the actual results are different from our estimates, or our analyses are incorrect, our allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, which would require additions to our allowance and would decrease our net income. Our emphasis on loan growth and on increasing our portfolio, as well as any future credit deterioration, will require us to increase our allowance further in the future.
In addition, our banking regulators periodically review our allowance for loan losses and could require us to increase our provision for loan losses. Any increase in our allowance for loan losses or loan charge-offs as required by regulatory authorities may have a material adverse effect on our results of operations and financial condition.
The geographic concentration of our loan portfolio and lending activities makes us vulnerable to a downturn in the New Jersey and metropolitan New York and Philadelphia economies.
While there is not a single employer or industry in our market area on which a significant number of our customers are dependent, a substantial portion of our loan portfolio is comprised of loans secured by property located in northern New Jersey and in metropolitan New York and Philadelphia. This makes us vulnerable to a downturn in the local economy and real estate markets. Adverse conditions in the local economy such as unemployment, recession, a catastrophic event or other factors beyond our control could impact the ability of our borrowers to repay their loans, which could impact our net interest income. Decreases in local real estate values caused by economic conditions, recent changes in tax laws or other events could adversely affect the value of the property used as collateral for our loans, which could cause us to realize a loss in the event of a foreclosure. Further, deterioration in local economic conditions could drive the level of loan losses beyond the level we have provided for in our allowance for loan losses, which in turn could necessitate an increase in our provision for loan losses and a resulting reduction to our earnings and capital.
Economic conditions could result in increases in our level of non-performing loans and/or reduce demand for our products and services, which could have an adverse effect on our results of operations.
Prolonged deteriorating economic conditions could significantly affect the markets in which we do business, the value of our loans and securities, and our ongoing operations, costs and profitability. Further, declines in real estate values and sales volumes and elevated unemployment levels may result in higher loan delinquencies, increases in our non-performing and classified assets and a decline in demand for our products and services. These events may cause us to incur losses and may adversely affect our financial condition and results of operations. Reduction in problem assets can be slow, and the process can be exacerbated by the condition of the properties securing non-performing loans and the lengthy foreclosure process in New Jersey. To the extent that we must work through the resolution of assets, economic problems may cause us to incur losses and adversely affect our capital, liquidity, and financial condition.
Risks Related to Our Growth Strategies
Our business strategy includes growth, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively. Growing our operations could also cause our expenses to increase faster than our revenues.
Our business strategy includes growth in assets and deposits and the scale of our operations. Achieving such growth will require us to attract customers that currently bank at other financial institutions in our market area. Our ability to successfully grow will depend on a variety of factors, including our ability to attract and retain experienced bankers, the continued availability of desirable business opportunities, competition from other financial institutions in our market area and our ability to manage our growth. Growth opportunities may not be available or we may not be able to manage our growth successfully. If we do not manage our growth effectively, our financial condition and operating results could be negatively affected. Furthermore, there can be considerable costs involved in expanding deposit and lending capacity that generally require a period of time to generate the necessary revenues to offset their costs, especially in areas in which we do not have an established presence and that require alternative delivery methods. Accordingly, any such business expansion can be expected to negatively impact our earnings for some period of time until certain economies of scale are reached. Our expenses could be further increased if we encounter delays in modernizing existing facilities, opening new branches or deploying new services.
We are subject to certain risks in connection with our strategy of growing through mergers and acquisitions.
Mergers and acquisitions are currently a component of our business model and growth strategy. Since November 2019, we have acquired Atlantic Stewardship Bank, Roselle Bank and Freehold Bank and, in December 2021, we announced that we have entered into a definitive agreement to acquire RSI Bank. It is possible that we could acquire other banking institutions, other financial services companies or branches of banks in the future. Acquisitions typically involve the payment of a premium over book and trading values and, therefore, may result in the dilution of our tangible book value per share. Our ability to engage in future mergers and acquisitions depends on various factors, including: (1) our ability to identify suitable merger partners and acquisition opportunities; (2) our ability to finance and complete transactions on acceptable terms and at acceptable prices; and (3) our ability to receive the necessary regulatory and, when required, stockholder approvals. Our inability to engage in an acquisition or merger for any of these reasons could have an adverse impact on the implementation of our business strategies. Furthermore, mergers and acquisitions involve a number of risks and challenges, including (1) our ability to achieve planned synergies and to integrate the branches and operations we acquire, and the internal controls and regulatory functions into our current operations; (2) the integration process could adversely affect our ability to maintain relationships with existing customers; (3) the diversion of management’s attention from existing operations, which may adversely affect our ability to successfully conduct our business and negatively impact our financial results and (4) our ability to identify potential asset quality issues or contingent liabilities during the due diligence process.
If our acquisition of RSI Bank is completed, the pro forma combined company may exceed $10 billion in assets, which could result in increased costs and/or reduced revenues.
As of December 31, 2021, the Company had, on a consolidated basis, total assets of $9.2 billion. Based on our current total assets and growth strategy, and as a result of our pending acquisition of RSI Bank, we expect our total assets may exceed $10 billion in the near future. Accordingly, we will become subject to certain regulations that apply only to depository institution holding companies or depository institutions with total consolidated assets of $10 billion or more.
Debit card interchange fee restrictions set forth in Section 1075 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is known as the Durbin Amendment, as implemented by regulations of the Federal Reserve, cap the maximum debit interchange fee that a debit card issuer may receive per transaction at the sum of $0.21 plus five basis points. A debit card issuer that adopts certain fraud prevention procedures may charge an additional $0.01 per transaction. Debit card issuers with total consolidated assets of less than $10 billion, which currently includes the Company, are exempt from these interchange fee restrictions. The exemption for small issuers ceases to apply as of July 1st of the year following the calendar year in which the debit card issuer has total consolidated assets of $10 billion or more at calendar year-end. As a result, if our acquisition of RSI Bank is consummated in 2022, we may become subject to the interchange restrictions of the Durbin Amendment beginning July 1, 2023.
In addition, an insured depository institution with total assets of $10 billion or more is subject to supervision, examination, and enforcement with respect to consumer protection laws by the Consumer Financial Protection Bureau, or the CFPB. Under its current policies, the CFPB will assert jurisdiction in the first quarter after the call reports of merging insured depository institutions, on a combined basis, show total consolidated assets of $10 billion or more for four consecutive quarters ended prior to the merger. As a result, we could become subject to CFPB supervision, examination and enforcement at the beginning of the quarter following consummation of our acquisition of RSI Bank.
There are other regulatory requirements that apply to insured depository institution holding companies and insured depository institutions with total consolidated assets of $10 billion or more. These include, but are not limited to, (i) the establishment by publicly traded depository institution holding companies with $10 billion or more in assets of a risk committee responsible for oversight of enterprise-wide risk management practices that are commensurate with the entity’s structure, risk profile, complexity, activities and size and (ii) an institution with total consolidated assets of $10 billion or more no longer being entitled to benefit from the FDIC’s offset of the effect of the increase in the statutory minimum Deposit Insurance Fund reserve ratio to 1.35% from the former statutory minimum of 1.15% that is required for institutions with assets of less than $10 billion by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
In addition, Congress and/or regulatory agencies may impose new requirements or surcharges on these institutions in the future. The Economic Growth, Regulatory Reform, and Consumer Protection Act, which was enacted on May 24, 2018, includes provisions that, as they are implemented, relieve banking organizations with total consolidated assets of less than $10 billion (and that satisfy certain other conditions) from risk-based capital requirements, restrictions on proprietary trading and investment and sponsorship in hedge funds and private equity funds known as the Volcker Rule, and certain other regulatory requirements. Once we have total consolidated assets of $10 billion or more, we will no longer qualify for any of the foregoing relief.
There can be no assurance that the benefits of the merger will outweigh the regulatory costs resulting from the Company having total consolidated assets of $10 billion or more. The increased regulatory costs resulting from the Company having total consolidated assets of $10 billion or more may negatively impact the Company’s revenue and earnings.
Risks Related to Our Business and Industry Generally
Ineffective liquidity management could adversely affect our financial results and condition.
Effective liquidity management is essential for the operation of our business. We require sufficient liquidity to meet customer loan requests, customer deposit maturities/withdrawals, payments on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances causing industry or general financial market stress. Our access to funding sources in amounts adequate to finance our activities on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally. Factors that could detrimentally impact our access to liquidity sources include a downturn in the geographic markets in which our loans and operations are concentrated or difficult credit markets. Our access to deposits may also be affected by the liquidity needs of our depositors. In particular, a majority of our liabilities are checking accounts and other liquid deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial majority of our assets are loans, which cannot be called or sold in the same time frame. Although we have historically been able to replace maturing deposits and advances as necessary, we might not be able to replace such funds in the future, especially if a large number of our depositors seek to withdraw their accounts, regardless of the reason. A failure to maintain adequate liquidity could materially and adversely affect our business, results of operations or financial condition.
Changes in interest rates or the shape of the yield curve may hurt our profits and asset values and our strategies for managing interest rate risk may not be effective.
We are subject to significant interest rate risk as a financial institution with a high percentage of fixed rate loans and certificates of deposit on our balance sheet. From 2015 to 2018 the Federal Reserve Board’s Open Market Committee increased its federal funds rate target from a range of 0.00% to 0.25% to a range of 2.25% to 2.50%. However, beginning in July 2019, the Committee began lowering the target rate in response to a slowing economy, and in March 2020, lowered their target rate back to 0.00% to 0.25% in response to the economic impacts of the COVID-19 crisis. This resulted in a steepening of the yield curve to a flattening of the curve as long-term rates fell shortly thereafter. Our interest-bearing liabilities reprice or mature more quickly than our interest-earning assets. Changes in the general level of interest rates can affect our net interest income by affecting the difference between the weighted-average yield earned on our interest-earning assets and the weighted-average rate paid on our interest-bearing liabilities, or interest rate spread, and the average life of our interest-earning assets and interest-bearing liabilities. Changes in interest rates also can affect: (1) our ability to originate loans; (2) the value of our interest-earning assets and our ability to realize gains from the sale of such assets; (3) our ability to obtain and retain deposits in competition with other available investment alternatives; and (4) the ability of our borrowers to repay their loans, particularly adjustable or variable rate loans. Interest rates are highly sensitive to many factors, including government monetary policies, domestic and international economic and political conditions and other factors beyond our control.
We may be adversely affected by recent changes in U.S. tax laws and regulations.
Changes in tax laws contained in the Tax Cuts and Jobs Act (“Tax Act”), which was enacted in December 2017, included a number of provisions that have had an impact on the banking industry, borrowers and the market for residential real estate. Included in this legislation was a reduction of the corporate income tax rate from 35% to 21%. In addition, other changes which could effect our borrowers include: (i) a lower limit on the deductibility of mortgage interest on single-family residential mortgage loans, (ii) the elimination of interest deductions for certain home equity loans, (iii) a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility of property taxes and state and local income taxes.
These changes in the tax laws may have an adverse effect on the market for, and valuation of, residential properties, and on the demand for such loans in the future, and could make it harder for borrowers to make their loan payments. In addition, these recent changes may also have a disproportionate effect on taxpayers in states with high residential home prices and high state and local taxes, such as New Jersey and New York. If home ownership becomes less attractive, demand for mortgage loans could decrease. The value of the properties securing loans in our loan portfolio may be adversely impacted as a result of the changing economics of home ownership, which could require an increase in our provision for loan losses, which would reduce our profitability and could materially adversely affect our business, financial condition and results of operations.
Additionally, legislation in New Jersey that was adopted in July 2018 has increased our state income tax liability and our overall tax expense. The legislation imposed a temporary surtax on corporations earning New Jersey allocated income in excess of $1 million of 2.5% for tax years beginning on or after January 1, 2018 through December 31, 2019, and of 1.5% for tax years beginning on or after January 1, 2020 through December 31, 2021. Subsequently, in September 2020, New Jersey enacted legislation that restored and extended the 2.5% Corporation Business Tax surcharge to apply retroactively from January 1, 2020 through December 31, 2023. The 2018 legislation also required combined filing for members of an affiliated group for tax years beginning on or after January 1, 2019, changing New Jersey’s current status as a separate return state, and limited the deductibility of dividends received.
These changes are not temporary. All regulations implementing the legislative changes have not yet been issued, so we cannot fully evaluate the impact of the legislation on our overall tax expense. However, the legislation may cause us to lose the benefit of certain of our tax management strategies and may cause our total tax expense to increase.
Municipal deposits are an important source of funds for us and a reduced level of such deposits may hurt our profits.
Municipal deposits are an important source of funds for our lending and investment activities. At December 31, 2021, $702.0 million, or 9.3%, of our total deposits were comprised of municipal deposits, including public funds deposits from local government entities primarily domiciled in the State of New Jersey. Given our use of these high-average balance municipal deposits as a source of funds, our inability to retain such funds could have an adverse effect on our liquidity. In addition, our municipal deposits are primarily demand deposit accounts or short-term deposits and therefore are more sensitive to changes in interest rates. If we are forced to pay higher rates on our municipal deposits to retain those funds, or if we are unable to retain those funds and we are forced to turn to borrowing sources for our lending and investment activities, the interest expense associated with such borrowings may be higher than the rates we are paying on our municipal deposits, which could adversely affect our net income.
We are dependent on our information technology and telecommunications systems and third-party service providers; systems failures, interruptions and cybersecurity breaches could have a material adverse effect on us.
Our business is dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems and third-party service providers. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If significant, sustained or repeated, a system failure or service denial could compromise our ability to operate effectively, damage our reputation, result in a loss of customer business, and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on us.
Our third-party service providers may be vulnerable to unauthorized access, computer viruses, phishing schemes and other security breaches. We likely will expend additional resources to protect against the threat of such security breaches and computer viruses, or to alleviate problems caused by such security breaches or viruses. To the extent that the activities of our third-party service providers or the activities of our customers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, regulatory scrutiny, litigation costs and other possible liabilities.
Security breaches and cybersecurity threats could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and that of our customers, suppliers and business partners, as well as personally identifiable information about our customers and employees. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. We, our customers, and other financial institutions with which we interact, are subject to ongoing, continuous attempts to penetrate key systems by individual hackers, organized criminals, and in some cases, state-sponsored organizations. While we have established policies and procedures to prevent or limit the impact of cyber-attacks, there can be no assurance that such events will not occur or will be adequately addressed if they do. In addition, we also outsource certain cybersecurity functions, such as penetration testing, to third party service providers, and the failure of these service providers to adequately perform such functions could increase our exposure to security breaches and cybersecurity threats. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other malicious code and cyber-attacks that could have an impact on information security. Any such breach or attacks could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such unauthorized access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties; disrupt our operations and the services we provide to customers; damage our reputation; and cause a loss of confidence in our products and services, all of which could adversely affect our financial condition and results of operations.
We must keep pace with technological change to remain competitive.
Financial products and services have become increasingly technology-driven. Our ability to meet the needs of our customers competitively, and in a cost-efficient manner, is dependent on the ability to keep pace with technological advances and to invest in new technology as it becomes available, as well as related essential personnel. In addition, technology has lowered barriers to entry into the financial services market and made it possible for financial technology companies and other non-bank entities to offer financial products and services traditionally provided by banks. The ability to keep pace with technological change is important, and
the failure to do so, due to cost, proficiency or otherwise, could have a material adverse impact on our business and therefore on our financial condition and results of operations.
Because the nature of the financial services business involves a high volume of transactions, we face significant operational risks.
We operate in diverse markets and rely on the ability of our employees and systems to process a high number of transactions. Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by employees or outside persons, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of our internal control system and compliance requirements, and business continuation and disaster recovery. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulations, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. Although our control testing has not identified any significant deficiencies in our internal control system, a breakdown in our internal control system, improper operation of our systems or improper employee actions could result in material financial loss to us, the imposition of regulatory action, and damage to our reputation.
The building of market share through our branch office strategy, and our ability to achieve profitability on new branch offices, may increase our expenses and negatively affect our earnings.
We believe there are branch expansion opportunities within our market area and adjacent markets, including other states, and will seek to grow our deposit base by adding branches to our existing branch network. There are considerable costs involved in opening branch offices, especially in light of the capabilities needed to compete in today’s environment. Moreover, new branch offices generally require a period of time to generate sufficient revenues to offset their costs, especially in areas in which we do not have an established presence. Accordingly, new branch offices could negatively impact our earnings and may do so for some period of time. Our investments in products and services, and the related personnel required to implement new policies and procedures, take time to earn returns and can be expected to negatively impact our earnings for the foreseeable future. The profitability of our expansion strategy will depend on whether the income that we generate from the new branch offices will offset the increased expenses resulting from operating these branch offices.
Strong competition within our market area could hurt our profits and slow growth.
Our profitability depends upon our continued ability to compete successfully in our market area. We face intense competition both in making loans and attracting deposits. We continue to face stiff competition for one-to-four family residential loans from other financial service providers, including large national residential lenders and local community banks. Other competitors for one-to-four family residential loans include credit unions and mortgage brokers which keep overhead costs and mortgage rates down by selling loans and not holding or servicing them. Our competitors for commercial real estate and multifamily loans include other community banks, commercial lenders and insurance companies, some of which are larger than us and have greater resources and lending limits than we have and offer services that we do not provide, along with government agencies such as Freddie Mac, Fannie Mae and Ginnie Mae. Price competition for loans and deposits might result in us earning less on our loans and paying more on our deposits, which reduces net interest income. We expect competition to remain strong in the future.
Acts of terrorism and other external events could impact our ability to conduct business.
Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and communication systems. Additionally, the metropolitan New York area and northern New Jersey remain central targets 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 our borrowers to repay their loans, reduce the value of collateral securing repayment of our loans, and result in the loss of revenue. The occurrence of any such event could have a material adverse effect on our business, operations and financial condition.
Climate change, severe weather, global pandemics, natural disasters, and other external events could significantly impact our business.
Natural disasters, including severe weather events, global pandemics, and other adverse external events could have a significant impact on our ability to conduct business or upon third parties who perform operational services for us. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in lost revenue, or cause us to incur additional expenses.
Economic, social and political conditions or civil unrest in the United States, may affect the markets in which we operate, our customers, our ability to provide customer service, and could have a material adverse impact on our business, results of operations, or financial condition.
Our business may be adversely affected by instability, disruption or destruction in the markets in which we operate, regardless of cause, including war, terrorism, riot, civil insurrection or social unrest, and natural or man-made disasters, including storm or other events beyond our control, such as the COVID-19 pandemic, which has resulted in the imposition of related public health measures and travel restrictions, and civil unrest. Such events can increase levels of political and economic unpredictability, result in property damage and business closures within in our markets and increase the volatility of the financial markets. Any of these effects could have a material and adverse impact on our business and results of operations. These events also pose significant risks to the Company’s personnel and to physical facilities, transportation and operations, which could materially adversely affect the Company’s financial results.
Regulation of the financial services industry is intense, and we may be adversely affected by changes in laws and regulations.
We are subject to extensive government regulation, supervision and examination. Such regulation, supervision and examination govern the activities in which we may engage, and are intended primarily for the protection of the federal deposit insurance fund and Columbia Bank’s depositors.
In 2010 and 2011, in response to the financial crisis and recession that began in 2008, significant regulatory and legislative changes resulted in broad reform and increased regulation affecting financial institutions. The Dodd-Frank Act has created a significant shift in the way financial institutions operate and has restructured the regulation of depository institutions by merging the Office of Thrift Supervision, which previously regulated Columbia Bank, into the Office of the Comptroller of the Currency, and assigning the regulation of savings and loan holding companies to the Federal Reserve Board. The Dodd-Frank Act also created the Consumer Financial Protection Bureau to administer consumer protection and fair lending laws, a function that was formerly performed by the depository institution regulators. The Dodd-Frank Act contains various provisions designed to enhance the regulation of depository institutions and prevent the recurrence of a financial crisis such as that which occurred in 2008 and 2009. The Dodd-Frank Act has had and may continue to have a material impact on our operations, particularly through increased regulatory burden and compliance costs. Any future legislative changes could have a material impact on our profitability, the value of assets held for investment or the value of collateral for loans. Future legislative changes could also require changes to business practices and potentially expose us to additional costs, liabilities, enforcement action and reputational risk.
Federal regulatory agencies have the ability to take strong supervisory actions against financial institutions that have experienced increased loan production and losses and other underwriting weaknesses or have compliance weaknesses. These actions include the entering into of formal or informal written agreements and cease and desist orders that place certain limitations on their operations, and/or they can impose fines. If we were to become subject to a regulatory action, such action could negatively impact our ability to execute our business plan, and result in operational restrictions, as well as our ability to grow, pay dividends, repurchase stock or engage in mergers and acquisitions. See “Item 1: Business -Regulation and Supervision-Federal Banking Regulations-Capital Requirements” for a discussion of regulatory capital requirements.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stockholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stockholders related to their environmental, social and governance (“ESG”) practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights. Increased ESG related compliance costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or shareholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.
Changes to LIBOR may adversely impact the value of, and the return on, our loans, securities and derivatives which are indexed to LIBOR
We have loans, securities and debt obligations whose interest rate is indexed to the London InterBank Offered Rate (LIBOR).
In July 2017, the United Kingdom's Financial Conduct Authority, which regulates LIBOR, announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021. On November 30, 2020, authorities announced a plan to extend the date that most U.S. LIBOR values would cease being published from December 31, 2021 to June 30, 2023. The announcement means the continuation of LIBOR cannot be guaranteed after June 30, 2023.
In the United States, the Alternative Reference Rate Committee ("ARRC"), a group of diverse private-market participants assembled by the Federal Reserve Board and the Federal Reserve Bank of New York, was tasked with identifying alternative reference interest rates to replace LIBOR. The Secured Overnight Finance Rate ("SOFR") has emerged as the ARRC's preferred alternative rate for LIBOR; however, other market alternatives have been developed. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities in the repurchase agreement market. The use of SOFR continues to steadily grow. At this time, it is not possible to predict how markets will respond to alternative reference rates as markets continue to transition away from LIBOR.
The language in our LIBOR-based contracts and financial instruments has developed over time and may have various events that trigger when a successor index to LIBOR would be selected. If a trigger is satisfied, contracts and financial instruments may give us or the calculation agent, as applicable, discretion over the selection of the substitute index for the calculation of interest rates. The implementation of a substitute index or the calculation of interest rates under our loan agreements may result in us incurring significant expenses in effecting the transition and may result in disputes or litigation with customers over the appropriateness or comparability to LIBOR of the substitute index, any of which could have an adverse effect on our results of operations. We continue to develop and implement plans to mitigate the risks associated with the expected discontinuation of LIBOR.
The implementation of the Current Expected Credit Loss accounting standard could require us to increase our allowance for credit losses and may have a material adverse effect on our financial condition and results of operations.
Accounting Standard Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments became effective for the Company on January 1, 2022. ASU No. 2016-13 replaced the incurred loss model with an expected loss model, which is referred to as the current expected credit loss model, or CECL. This standard requires earlier recognition of expected credit losses on loans and certain other instruments, compared to the incurred loss model. The adoption of CECL can result in greater volatility in the level of the allowance for credit losses, depending on various factors and assumptions applied in the model, such as the forecasted economic conditions in the foreseeable future and loan payment behaviors. Any increase in the allowance for credit losses, or expenses incurred to determine the appropriate level of the allowance for credit losses, can have an adverse effect on the Company’s financial condition and results of operations.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
We conduct our business through (i) Columbia Bank’s main office and 62 branch offices located in Bergen, Passaic, Morris, Essex, Union, Middlesex, Monmouth, Burlington, Camden, Gloucester, Somerset and Hunterdon Counties in New Jersey and (ii) Freehold Bank’s two branch offices in Monmouth County, New Jersey. We own 31 properties and lease the other 33 properties. First Jersey Title Services, Inc. operates within one of Columbia Bank’s branch facilities.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
From time to time, we are involved in routine legal proceedings in the ordinary course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to our financial condition, results of operations and cash flows.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
None.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Stock Listing and Holders
The Company’s common stock is listed on the Nasdaq Global Select Market (“Nasdaq”) under the trading symbol “CLBK.” As of February 22, 2022 the Company had approximately 3,594 holders of record of common stock.
Dividends
The Company has not declared any dividends to holders of its common stock and we do not currently anticipate paying dividends on our common stock. Our board of directors has the authority to declare dividends on our shares of common stock, and may determine to pay dividends in the future, subject to statutory and regulatory requirements and other considerations such as the ability of Columbia Bank MHC to receive permission to waive receipt of any dividends we may determine to declare in the future.
A policy statement issued by the Federal Reserve Board provides that dividends should be paid only out of current earnings and only if our prospective rate of earnings retention is consistent with our capital needs, asset quality and overall financial condition. Regulatory guidance also provides for prior regulatory consultation with respect to capital distributions in certain circumstances, such as where a holding company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or a holding company’s overall rate of earnings retention is inconsistent with its capital needs and overall financial condition. In determining whether to pay a cash dividend in the future and the amount of any cash dividend, the board of directors is expected to take into account a number of factors, including regulatory capital requirements, our financial condition and results of operations, other uses of funds for the long-term value of stockholders, tax considerations, statutory and regulatory limitations and general economic conditions.
If Columbia Financial pays dividends to its stockholders, it also will be required to pay dividends to Columbia Bank MHC, unless Columbia Bank MHC is permitted by the Federal Reserve to waive the receipt of dividends. The Federal Reserve Board’s current position is to not permit a "non-grandfathered" mutual holding company, such as Columbia Bank MHC, to waive dividends declared by its subsidiary. Columbia Bank MHC may determine to apply to the Federal Reserve Board for approval to waive dividends if we determine to pay dividends to our stockholders without dilution of minority stockholders in the event of a second-step conversion to stock form. Given the Federal Reserve Board’s current position on this issue, there is no assurance that any request by Columbia Bank MHC to waive dividends from Columbia Financial would be permitted. The denial by the Federal Reserve Board of any such dividend waiver request, if sought, could significantly affect any determination by Columbia Financial to pay dividends or the amount of any dividend it might determine to pay in the future, if any.
Dividends we can declare and pay will depend, in part, upon receipt of dividends from Columbia Bank and, to a lesser extent, Freehold Bank. Regulations of the Federal Reserve Board and the Office of the Comptroller of the Currency impose limitations on “capital distributions” by savings institutions. See “Item 1: Business-Regulation And Supervision-Federal Banking Regulations-Capital Distributions.”
Stock Performance Graph
The following graph provided by S&P Global Market Intelligence compares the cumulative total return of the Company’s common stock with the cumulative total return of the Nasdaq Composite Index, and S&P Composite 1500 Thrifts & Mortgage Finance Index. The graph assumes $100 was invested on April 20, 2018, at the end of the first day of trading of the Company’s common stock. Cumulative total return assumes reinvestment of all dividends. The performance graph is being furnished solely to accompany this report pursuant to Item 201(e) of Regulation S-K, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Period Ending
Index 4/20/2018 12/31/2018 12/31/2019 12/31/2020 12/31/2021
Columbia Financial, Inc. 100.00 99.16 109.86 100.91 135.28
NASDAQ Composite Index 100.00 93.59 127.93 185.39 226.50
S&P Composite 1500 Thrifts & Mortgage Finance Index 100.00 80.24 109.04 102.95 126.98
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Source: S&P Global Market Intelligence
Equity Compensation Plan Information
The following table sets forth information about the Company’s common stock that may be issued upon the exercise of stock options, warrants and rights under all of the Company’s equity compensation plans as of December 31, 2021:
(A) (B) (C)
Plan Category Number of Securities to be Issued Upon Exercise of Outstanding options Weighted Average Exercise Price of Outstanding Options Number of Securities Remaining Available for Future Issuance Under Equity Compensation plans (Excluding Securities Reflected in Column (A))
Equity compensation plans approved by
stockholders:
2019 Equity Incentive Plan 3,637,542 $ 15.73 2,012,505
Equity compensation plans not yet approved by stockholders:
None. - - -
Total 3,637,542 $ 15.73 2,012,505
Issuer Purchases of Equity Securities
The following table reports information regarding repurchases of the Company’s common stock during the quarter ended December 31, 2021:
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
October 1 - 31, 2021 16,879 $ 18.52 16,879 1,218,639
November 1 - 30, 2021 30,000 18.43 30,000 1,188,639
December 1 - 31, 2021 1,399,574 20.25 1,374,700 4,813,939
Total 1,446,453 $ 20.18 1,421,579
(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 December 6, 2021, the Company announced that the Company’s Board of Directors has authorized a new stock repurchase program to acquire up to 5,000,000 shares, or approximately 4.6%, of the Company's currently issued and outstanding common stock, commencing upon the completion of the Company’s stock repurchase program announced on February 1, 2021.
(2) During the three months ended December 31, 2021, 21,653 shares were repurchased pursuant to forfeitures and 3,221 shares were repurchased for taxes related to the 2019 Equity Incentive Plan and not as part of a share repurchase program.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Reserved
PART II

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The objective of this section is to help potential investors understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the consolidated financial statements and notes to the consolidated financial statements that appear at the end of this report.
Executive Summary
Our primary source of pre-tax income is net interest income. Net interest income is the difference between the interest we earn on our loans and securities and the interest we pay on our deposits and borrowings. Changes in levels of interest rates as well as the balances of interest-earning assets and interest-bearing liabilities affect our net interest income.
A secondary source of income is non-interest income, which is revenue we receive from providing products and services. Traditionally, the majority of our non-interest income has come from service charges, loan fees, interchange income, gains on sales of loans and securities, revenue from mortgage servicing, income from bank-owned life insurance and fee income from title insurance and wealth management businesses.
The non-interest expense we incur in operating our business consists of salaries and employee benefits expenses, occupancy expenses, depreciation, amortization and maintenance expenses, data processing and software expenses and other miscellaneous expenses, such as loan expenses, advertising, insurance, professional services and federal deposit insurance premiums. Our largest non-interest expense is salaries and employee benefits, which consist primarily of salaries and wages paid to our employees, payroll taxes, and expenses for health insurance, retirement plans and other employee benefits.
Our business results are impacted by the pace of economic growth and the level of market interest rates, and the difference between short-term and long-term rates. The Federal Reserve Board is expected to increase rates in the foreseeable future after keeping rates stable since March 2020. The Federal Reserve reduced rates by 75 basis points in 2019, and in response to COVID-19, reduced rates again by 150 basis points in March 2020. Throughout this period, competition among banks to secure new customers, loans and deposits has remained fierce, and interest rate spreads have again declined over the last few years. We continue to adhere to our prudent underwriting standards and are committed to originating quality loans. Additionally, we have maintained relatively low levels of non-performing assets, past due loans and charge-offs, through all economic environments.
Business Strategy
Our business strategy is to continue to operate and grow Columbia Bank as a profitable community-oriented financial institution and to continue to shift our focus to more business-oriented commercial banking. We plan to achieve this by:
Increasing earnings through the growth of our balance sheet.
We intend to continue to grow our balance sheet through organic growth of loans and securities, funded by growth of deposits and borrowings. We expect that this growth will increase revenue faster than the growth of expenses, resulting in increased earnings over time.
As part of our growth strategy, we will seek to grow our loan portfolio and deposit base at consistent rates of growth. We have a diversified loan portfolio, which includes multifamily and commercial real estate loans, residential mortgage loans, residential and commercial construction loans, commercial business loans and consumer loans (primarily home equity loans and advances). While we intend to continue our focus on originations of one-to-four family residential mortgage loans as we grow our loan portfolio, we expect to continue to shift the mix of our loans over time, from residential mortgage loans, toward commercial loans and, correspondingly, shift our deposit mix toward commercial deposits, particularly non-interest-bearing checking accounts. These strategies along with continued deposit pricing discipline are expected to enhance our net interest margin.
Expanding our commercial business relationships.
Historically, our commercial loan products have consisted primarily of loans secured by multifamily and commercial real estate and construction loans. As part of our growth strategy, we intend to continue our increased focus on commercial business lending, which offers shorter terms and variable rates, helps to manage interest rate risk exposure, and provides us with an opportunity to offer a full range of our products and services, including cash management, and deposit products to commercial customers. In 2021, our commercial business loans decreased 39.9% from the year ended December 31, 2020, which was due primarily due to the sale of
SBA PPP loans which represented 45.7% of the commercial business portfolio at December 31, 2020. Historically, we have focused on lending in New Jersey with only a minimal volume from neighboring states, but anticipate that we will increase the amount of loans originated outside New Jersey as we continue to grow our commercial loan business. We anticipate that any such expansion of our commercial lending to market areas outside New Jersey will increase lending and deposit opportunities in those areas and provide geographic diversification within our portfolio.
Continuing to emphasize the origination of one-to- four family residential mortgage loans.
At December 31, 2021, $2.1 billion, or 33.0%, of our total loan portfolio consisted of one-to-four family residential mortgage loans. Although we expect to shift the mix of our loans over time, from residential mortgage loans, toward commercial loans, we intend to continue to emphasize the origination of one-to-four family residential mortgage loans in the future. We believe there are opportunities to maintain and increase our residential mortgage lending in our market area, and we have made efforts to take advantage of these opportunities by increasing our origination channels.
We originate one-to-four family residential mortgage loans for our own portfolio but periodically Columbia Bank sells loans to third party investors with servicing retained. We offer fixed-rate and adjustable-rate residential mortgage loans, which totaled $2.0 billion and $131.3 million, respectively, at December 31, 2021. To increase the origination of adjustable-rate loans, we intend to continue originating loans that bear a fixed interest rate for a period of up to seven years after which they convert to one-year adjustable-rate loans.
Increasing fee income through continued growth of fee-based activities.
We intend to focus on growing our existing title insurance business, expanding the scope of the wealth management services we provide, and increasing our revenues from loan servicing activities to increase the amount of fees earned from our fee-based businesses. Presently, the majority of our revenue comes from net interest income and less than 13% from other sources, including title insurance fees, loan and deposit fees, bank-owned life insurance and gains and losses on the sales of securities and loans. We expect to increase fee income from enhancing interchange services, generating additional commercial loan swap fee income and expanding treasury services.
We currently offer title insurance services through our title insurance agency and offer wealth management services through a third-party networking arrangement. In order to expand both of these services and to grow our wealth management business, we have considered the acquisition of title insurance agencies and wealth management businesses in recent years and expect to actively pursue the acquisition of such fee-based businesses, as well as considering the acquisition of other fee-based businesses such as insurance agencies and specialty lending companies. We continue to explore and evaluate acquisition opportunities of fee-based businesses, but we currently have no understandings or agreements with respect to any such acquisitions, other than our definitive agreement to acquire RSI Bank, which currently has an insurance agency subsidiary.
We also intend to grow our servicing revenue by continuing to periodically sell one-to-four family residential mortgage loans that we originate to third party investors, including other financial institutions, while retaining the servicing of such loans.
Expanding our franchise through de novo branching, branch acquisitions and the possible acquisition of other financial institutions and/or financial services companies.
We believe there are branch expansion opportunities within our market area and adjacent markets, including other states, and will seek to grow our deposit base by adding branches to our existing branch network. In addition to deposit generation, our branch network also generates one-to-four family loans, home equity loans and advances and other consumer loans. While we are aware of the industry branch consolidation trends, we believe that in order to attract new customers, we need to selectively expand our network to fill in gaps in the existing footprint and into adjacent markets. We believe that new smaller branch designs, which are more cost-efficient, are more appropriately sized and staffed for the expected transaction volumes.
Our growth strategy also includes the acquisition of other financial institutions within our market area as well as in neighboring states. On November 1, 2019, we completed our acquisition of Stewardship Financial and its wholly owned subsidiary, Atlantic Stewardship Bank, on April 1, 2020 we completed our acquisition of the Roselle Entities and on December 1, 2021 we completed our acquisition of the Freehold Entities. On December 1, 2021, we also announced that we have entered into an agreement and plan of merger to acquire the RSI Entities. We intend to continue to actively pursue the acquisition of banks and thrifts, including thrifts in the mutual and mutual holding company structure. In the past, we have relied upon organic growth rather than acquisitions to grow our franchise, and there is no guarantee that we will be successful in pursuing our acquisition strategy.
Maintaining asset quality through the application of a prudent, disciplined approach to credit risk as part of an overall risk management program.
We employ a conservative, analytical approach to the assets we acquire that we have tested over many different business and interest rate cycles. This applies to our securities portfolio, which is comprised primarily of liquid, low credit-risk, government agency-backed securities, as well as, our loan portfolio. Residential loans are underwritten to secondary market standards and our commercial lending policies are designed to be consistent with industry best practices. We subject our loan portfolio to independent internal and external reviews to validate conformance to policies and stress tests to identify areas of potential risk. We have management information systems that provide regular insight into the quantity and direction of credit risk in our loan portfolio segments, including borrower and industry-specific concentrations. We employ limits on concentration risks, including the ratios of commercial real estate and construction loan portfolios to capital. We have developed reporting, analytics and stress testing that we believe provide effective oversight of these portfolios at higher concentration levels.
We employ tools to ensure we are being appropriately compensated for the risks inherent in the lending products we offer, and in the specific transactions. Our commercial loan pricing model quantifies the credit and interest rate risk embedded in our new loan originations and provides a target return hurdle.
We operate with Risk Committees, at both the management and board levels, that review changes in the quantity and direction of risk. These committees review our key risk indicators, loan portfolio and liquidity stress tests and operational and cyber risk assessments, which draw from our Asset/Liability Committee data, our loan portfolio credit metrics and treasury risk (investment/funding) metrics.
Enhancing our technology infrastructure to broaden our product capabilities and improve product delivery and efficiency.
We have embraced the latest technological developments in the banking industry, which we believe allows us to better leverage our employees by enabling them focus on developing customer relationships, generate retail deposits in an efficient manner, expand the suite of products that we can offer to customers and allow us to compete more efficiently and effectively as we grow. In 2019, we implemented a new commercial loan underwriting and a new relationship monitoring system to better support and manage our commercial customer base. In 2020, faced with the COVID-19 pandemic, we were able to quickly enable remote employee access via the Digital Workplaces initiative, accelerating the release of several digital banking and other Fintech solutions to support our customers. We introduced a new digital mortgage system which greatly expedited the handling of mortgage, home equity and HELOC applications. In 2021 we introduced a digital small business lending solution, online chat and appointment scheduling and a credit card platform. We expect to continue to enhance our digital technology platforms to provide more appealing products and services to our customers and support our sales and marketing initiatives. Currently, we are in the process of upgrading our current company-wide technology infrastructure to support both organic and inorganic growth.
Focusing on an enhanced customer experience and continued customer satisfaction.
We believe that customer satisfaction is a key to generating sustainable growth and profitability. While continually striving to ensure that our products and services meet our customers’ needs, we also encourage our officers and employees to focus on providing personal service and attentiveness to our customers in a proactive manner.
In recent years, we have enhanced our image and brand recognition within our marketplace for banking services. Our strategy continues to be focused on providing quality customer service through our convenient branch network, supported by our Call Center, where customers can speak with a representative to answer questions and resolve issues during business and extended hours. We believe that our ability to close transactions and deliver our services in a timely manner is attractive to our customers and distinguishes us from other financial institutions that operate in our marketplace. Our customers enjoy access to senior executives and decision makers and the value it brings to their businesses. We also offer convenient online and mobile banking tools for customers to transact business anytime and anywhere.
We believe that many opportunities remain to deliver what our customers want in the form of exceptional service and convenience and we intend to continue to focus our operating strategy on taking advantage of these opportunities.
Employing a stockholder-focused management of capital.
We intend to manage our capital position through the growth of assets, as well as the utilization of appropriate capital management tools, consistent with applicable regulations and policies, and subject to market conditions. Under Federal Reserve Board regulations, we were prohibited from repurchasing shares of our common stock for one year following our minority public offering that was completed in April 2018. Since June 2019, we have announced four stock repurchase programs under which we have repurchased an aggregated of 17,186,061 shares of common stock as of December 31, 2021. Most recently, on December 6, 2021, we
announced that our Board of Directors authorized a new stock repurchase program to acquire up to 5,000,000 shares, or approximately 4.6%, of our then currently issued and outstanding common stock, commencing upon the completion of our existing stock repurchase program that was approved in February 2021.
Our Board of Directors has the authority to declare dividends on our shares of common stock, and may determine to pay dividends in the future, subject to statutory and regulatory requirements and other considerations such as the ability of Columbia Bank MHC to receive permission from the Federal Reserve Board to waive receipt of any dividends we may determine to declare in the future. If Columbia Financial pays dividends to its stockholders, it also will be required to pay dividends to Columbia Bank MHC, unless Columbia Bank MHC is permitted by the Federal Reserve Board to waive the receipt of dividends. The Federal Reserve Board’s current position is to not permit a "non-grandfathered" mutual holding company to waive dividends declared by its subsidiary. Columbia Bank MHC may determine to apply to the Federal Reserve Board for approval to waive dividends if we determine to pay dividends to our stockholders. Given the Federal Reserve Board’s current position on this issue, there is no assurance that any request by Columbia Bank MHC to waive dividends from Columbia Financial would be permitted. The denial by the Federal Reserve Board of any such dividend waiver request, if sought, could determine whether the board of directors of Columbia Financial determines to declare a dividend, or if so declared, could significantly limit the amount of dividends Columbia Financial would pay in the future, if any.
COVID-19
To assist customers impacted by the COVID-19 pandemic, the Company granted commercial loan modification requests with respect to multifamily, commercial, and construction real estate loans and consumer-related loan modification requests with respect to one-to-four family real estate loans and home equity loans and advances to our customers affected by the COVID-19 pandemic. Commercial loan modification requests included various industries and property types. Approximately $1 billion in loans received some variation of deferral. At December 31, 2021, four loans remained on deferral for $24.3 million, a decrease of $60.8 million, compared to $85.1 million at December 31, 2020. These short-term loan modifications are treated in accordance with Section 4013 of the CARES Act and are not treated as troubled debt restructurings during the short-term modification period if the loan was not in arrears. The Consolidated Appropriations Act, 2021, which was enacted in late December 2020, extended certain provisions of the CARES Act through January 1, 2022, including provisions permitting loan deferral extension requests to not be treated as troubled debt restructurings.
Critical Accounting Policies
In the preparation of our consolidated financial statements, we have adopted various accounting policies that govern the application of U.S. generally accepted accounting principles (“GAAP”) and general practices within the banking industry. Our significant accounting policies are described in note 2 to the consolidated financial statements.
Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies, which are discussed below, to be critical accounting policies. These assumptions, estimates and judgments we use can be influenced by a number of factors, including the general economic environment. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations.
Allowance for Loan Losses. The calculation of the allowance for loan losses is a critical accounting policy of the Company because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses. The allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairment based upon an evaluation of known and inherent risk in the loan portfolio. The allowance consists of two elements: (1) identification of loans that must be reviewed individually for impairment and (2) establishment of an allowance for loan losses for loans collectively evaluated for impairment. We maintain a loan review system that provides a periodic review of the loan portfolio and the identification of impaired loans. The allowance for loan losses for loans individually evaluated for impairment is based on the fair value of collateral or cash flows. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluations.
The allowance for loan losses for loans collectively evaluated for impairment consists of both quantitative and qualitative loss components established for estimated losses inherent in the portfolio. The evaluation of the allowance for loan losses for loans collectively evaluated for impairment excludes impaired loans which are individually evaluated for impairment. We estimate the quantitative component of the allowance for loan losses for loans collectively evaluated for impairment by applying quantitative loss factors to 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 over 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 risk levels present over the look-back period. The reserves resulting from the application of both the quantitative experiences and qualitative factors are combined to arrive at the allowance for loan losses for loans collectability evaluated for impairment.
We assessed the impact of the pandemic on the Company’s financial condition, including its determination of the allowance for loan losses. Beginning in March 2020, management established an additional qualitative loss factor solely related to the impact of 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 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 impact on their ability to repay their loans, and estimated the probability of default and loss-given-default for the various loan categories 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. Management continues to evaluate the impact of the COVID-19 qualitative loss factor on a quarterly basis.
The allowance for loan losses is established through provisions for loan losses charged to income, which is based upon past loan loss experience and an evaluation of estimated losses in the current loan portfolio, including the evaluation of impaired loans. Although we believe that we have 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. In addition, regulatory agencies periodically review the adequacy of our allowance for loan losses as an integral part of their examination process. Such agencies may require us 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.
Our financial results are affected by the changes in and the level of the allowance for loan losses. This process involves our analysis of internal and external variables, and it requires that we exercise judgment to estimate an appropriate allowance for loan losses. As a result of the uncertainty associated with this subjectivity, we cannot assure the precision of the amount reserved, should we experience sizable loan losses in any particular period. We believe 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, we have recorded loan losses at a level which is estimated to represent the current risk in its loan portfolio.
Most of our non-performing assets are collateral dependent loans which are written down to their current appraised value less estimated costs to sell. We continue to assess the collateral of these loans and update our appraisals on these loans on an annual basis. To the extent the property values decline, there could be additional losses on these non-performing assets, which may be material. Management considered these market conditions in deriving the estimated allowance for loan losses. Should economic difficulties occur, the ultimate amount of loss could vary from that estimate. For additional discussion related to the determination of the allowance for loan losses, see “Risk Management-Analysis and Determination of the Allowance for Loan Losses” and the notes to the consolidated financial statements.
Income Taxes. We are subject to the income tax laws of the various jurisdictions where we conduct business and estimate income tax expense based on amounts expected to be owed to these various tax jurisdictions. The estimated income tax expense (benefit) is reported in the Consolidated Statements of Income. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a continual basis as regulatory and business factors change.
Accrued or prepaid taxes represent the net estimated amount due to or to be received from tax jurisdictions either currently or in the future and are reported in other assets or other liabilities in our consolidated financial statements. We assess the appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent and other pertinent information and maintain tax accruals consistent with our evaluation. Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, status of examinations by the tax authorities and newly enacted statutory, judicial and regulatory guidance that could impact the relative merits of tax positions. These changes, when they occur, impact accrued taxes and can materially affect our operating results. The Company identified no significant income tax uncertainties through the evaluation of its
income tax positions as of December 31, 2021 and 2020. Therefore, the Company has no unrecognized income tax benefits as of those dates.
As of December 31, 2021, we had a net deferred tax liability totaling $9.7 million. In accordance with Accounting Standards Codification (“ASC”) Topic 740 “Income Taxes,” we use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a regular basis as regulatory or business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect earnings. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the federal deferred tax assets and that it is more likely than not that the benefits from certain state temporary differences will not be realized. In recognition of this risk, we have provided a valuation allowance of $2.0 million as of December 31, 2021 on the deferred tax assets related to state net operating losses.
Post-retirement Benefits. We provide 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. We account for benefits in accordance with ASC Topic 715 “Pension and Other Post-retirement Benefits.” The guidance requires an employer to: (a) recognize 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) measure 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) recognize as 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.
Pending Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing disclosures that no longer are considered cost beneficial, clarifying the specific requirements of disclosures, and adding disclosure requirements identified as relevant. Among other changes, the ASU adds disclosure requirements to Topic 715-20 for the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in benefit obligation for the period. The amendments remove disclosure requirements for the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, the amount and timing of plan assets expected to be returned to the employer, and the effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation for post-retirement health care benefits. ASU 2018-14 is effective for fiscal years beginning after December 15, 2020, including interim reporting periods within that reporting period, with early adoption permitted. The Company adopted this ASU effective January 1, 2021. The update will be applied on a retrospective basis to disclosures with regard to employee benefit plans. The adoption of this update did not have a significant impact on the Company's consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("CECL"), further amended by ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. Topic 326 pertains to the measurement of credit losses on financial instruments. This update requires the measurement of all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better determine their credit loss estimates. This update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. This update is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2019.
The Company elected to defer the adoption of the CECL methodology until December 31, 2020 as permitted by the enacted Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). In late December 2020, the Consolidated Appropriations Act, 2021 was enacted, and extended certain provisions of the CARES Act, which allowed the Company to extend the adoption of CECL until January 1, 2022. The Company elected to extend its adoption of CECL in accordance with this legislation, and will adopt the above mentioned ASUs related to Financial Instruments -Credit Losses (Topic 326) using a modified retrospective approach. Our CECL methodology includes the following key factors and assumptions for all loan portfolio segments:
•a historical loss period, which represents a full economic credit cycle utilizing internal loss experience, as well as industry and peer historical loss data;
•a single economic scenario with a reasonable and supportable forecast period of four to six quarters based on management’s current review of macroeconomic factors and the reliability of extended economic forecasts over different time horizons;
•a reversion to historical mean period (after the reasonable and supportable forecast period) using a straight-line approach that extends through the shorter of six quarters or the end of the remaining contractual term; and
•expected prepayment rates based on a combination of our historical experience and market observations.
Based on several analyses performed, as well as an implementation analysis utilizing existing exposures and forecasts of macroeconomic conditions at December 31, 2021, the adoption of ASU 2016-13 will result in a decrease of approximately 12%, net of tax, in our allowance for loan losses and our reserves for unfunded commitments.
As part of the implementation of the ASU, the Company will reconcile historical loan data, determine segmentation of the loan portfolio for application of the CECL calculation, determine the key assumptions, select calculation methods, and establish an internal control framework. We are currently finalizing the execution of our implementation controls and enhancing process documentation.
The expected decrease in the allowance for loan losses and reserve for unfunded commitments is a result of the change from an incurred loss model, which encompasses allowances for current known and inherent losses within the portfolio, to an expected loss model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate that we establish an allowance for expected credit losses for certain debt securities and other financial assets; however, we do not expect these allowances to be significant.
Future amounts of provision expense related to our allowance for loan losses and reserves for unfunded commitments will depend on the size and composition of our loan portfolio, future economic conditions and borrowers’ payment performance. Future amounts of provision related our debt securities will depend on the composition of our securities portfolio and current market conditions.
The adoption of ASU 2016-13 is not expected to have a significant impact on our regulatory capital ratios.
Upon adoption, any impact to the allowance for credit losses as of January 1, 2022, currently the allowance for loan losses, will be reflected as an adjustment, net of tax, to retained earnings.
Comparison of Financial Condition at December 31, 2021 and 2020
General
Total assets increased $425.6 million, or 4.8%, to $9.2 billion at December 31, 2021 from $8.8 billion at December 31, 2020. The increase in total assets was primarily attributable to increases in debt securities available for sale of $386.9 million, debt securities held to maturity of $167.0 million, loans receivable, net of $190.8 million, bank-owned life insurance of $14.7 million, and other assets of $39.8 million, partially offset by decreases in cash and cash equivalents of $352.0 million and Federal Home Loan Bank stock of $20.6 million. Increases were impacted by the acquisition of assets with fair values totaling $316.5 million in connection with the acquisition of the Freehold Entities. Total liabilities increased $357.8 million, or 4.6%, to $8.1 billion at December 31, 2021 from $7.8 billion at December 31, 2020. The increase was primarily attributable to an increase in total deposits of $791.6 million, or 11.7%, partially offset by a decrease in borrowings of $422.1 million, or 52.8%, and a decrease in accrued expenses and other liabilities of $15.7 million. The increase in total deposits consisted of increases in non-interest-bearing and interest-bearing demand deposits of $357.5 million and $410.8 million, respectively, and money market accounts and savings and club deposits of $69.0 million and $134.5 million, respectively, partially offset by a decrease in certificates of deposit accounts of $180.2 million. In addition, the increase in total deposits was impacted by the assumption of $210.1 million in deposits in connection with the acquisition of Freehold
Bank. Total stockholders’ equity increased $67.8 million, or 6.7%, to $1.1 billion at December 31, 2021 from $1.0 billion at December 31, 2020, primarily due to net income of $92.0 million, an increase in additional paid in capital of $47.2 million due to the issuance of 2,591,007 shares of Company common stock to Columbia Bank MHC in connection with the Freehold Bank acquisition, and a change in the pension obligation of $41.2 million, partially offset by the repurchase of 6,055,119 shares of common stock totaling $107.8 million under our stock repurchase program.
Securities
Debt securities available for sale and held to maturity increased $553.9 million, or 35.1%, to $2.1 billion at December 31, 2021 from $1.6 billion at December 31, 2020. The increase in securities during 2021 was primarily impacted by purchases of $870.8 million of securities primarily consisting of U.S. government and agency obligations, mortgage-backed securities and municipal securities, and $99.6 million in purchases of guarantor swaps with Freddie Mac, partially offset by maturities, calls and sales of $109.6 million in U.S. government and agency obligations, corporate debt and municipal securities, and repayments of $385.1 million. The increase also included the acquisition of $118.0 million in securities from Freehold Bank. The gross unrealized gain (loss) on debt securities available for sale decreased by $36.9 million during the year ended December 31, 2021. We continue to focus on maintaining a high quality securities portfolio that provides consistent cash flows in changing interest rate environments. At December 31, 2021, our total securities portfolio was 23.2% of total assets, as compared to 18.0% at December 31, 2020.
At December 31, 2021, 91.2% of the debt securities available for sale portfolio was comprised of mortgage-backed securities and CMOs issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities are guaranteed by the issuing agency and backed by residential and multifamily mortgages. These securities are comprised of fixed rate, adjustable-rate and hybrid securities that bear a fixed rate for a specific term and thereafter, to the extent they are not prepaid, adjust periodically. At December 31, 2021, corporate debt securities comprised the next largest segment of the available for sale portfolio, totaling 6.5%. At December 31, 2021, the remainder of our available for sale securities portfolio consisted of U.S. government and agency obligations and municipal obligations, which comprised 2.0% and 0.3%, respectively.
At December 31, 2021, 89.6% of the debt securities held to maturity portfolio was comprised of mortgage-backed securities and CMOs issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities are guaranteed by the issuing agency and backed by residential and multifamily mortgages. These securities are comprised of fixed rate, adjustable-rate and hybrid securities that bear a fixed rate for a specific term and thereafter, to the extent they are not prepaid, adjust periodically. At December 31, 2021, the remaining 10.4% of our held to maturity securities portfolio consisted of U.S. government and agency obligations.
To mitigate the credit risk related to our securities portfolio, we primarily invest in agency and highly-rated securities. As of December 31, 2021, approximately 94.5% of the total portfolio consisted of direct government obligations or government sponsored enterprise obligations, approximately 5.2% of the remaining portfolio was rated at least investment grade and approximately 0.3% of the remaining portfolio was not rated. Securities not rated consist primarily of short term municipal bond anticipation notes, private placement municipal notes issued and guaranteed by local municipal authorities, and equity securities.
The following table sets forth the amortized cost and fair value of securities at December 31, 2021, 2020 and 2019:
At December 31,
2021 2020 2019
Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
(In thousands)
Debt securities available for sale:
U.S. government and agency obligations $ 34,711 $ 34,879 $ 24,425 $ 25,549 $ 42,081 $ 42,386
Mortgage-backed securities and collateralized mortgage obligations 1,553,491 1,554,359 1,163,613 1,200,394 968,165 979,881
Municipal obligations 4,159 4,179 16,845 16,862 2,284 2,284
Corporate debt securities 109,018 110,430 67,628 69,477 68,613 69,180
Trust preferred securities - - 5,000 4,670 5,000 4,605
Total securities available for sale $ 1,701,379 $ 1,703,847 $ 1,277,511 $ 1,316,952 $ 1,086,143 $ 1,098,336
Debt securities held to maturity:
U.S. government and agency obligations $ 44,870 $ 44,111 $ 5,000 $ 5,001 $ 20,000 $ 19,960
Mortgage-backed securities and collateralized mortgage obligations 384,864 390,678 257,720 272,090 265,756 269,545
Total debt securities held to maturity $ 429,734 $ 434,789 $ 262,720 $ 277,091 $ 285,756 $ 289,505
Equity securities $ 2,870 $ 2,710 $ 3,785 $ 5,418 $ 1,989 $ 2,855
Total securities $ 2,133,983 $ 2,141,346 $ 1,544,016 $ 1,599,461 $ 1,373,888 $ 1,390,696
At December 31, 2021 and 2020, securities with carrying values of $1.1 billion and $164.4 million, respectively, were in net unrealized loss positions that totaled $16.2 million and $1.3 million, respectively. The increase in unrealized losses on securities in 2021 was primarily due to the increase in market interest rates at the end of the period. When evaluating for impairment, we consider the duration and extent to which fair value is less than cost, the creditworthiness and near-term prospects of the issuer, the likelihood of recovering our investment, whether we have the intent to sell the security, or whether it is more likely than not that we will be required to sell the security before recovery, and other available information to determine the nature of the decline in the fair value of the securities.
At December 31, 2021, the unrealized losses in the portfolio were mainly attributed to GSE mortgage-backed securities and GSE CMOs. The temporary loss position associated with these securities was the result of changes in market interest rates relative to the coupon of the individual security and changes in credit spreads. As we do not intend to sell the securities, nor is it more likely than not that we will be required to sell the securities before the anticipated recovery, we do not consider the securities to be other-than-temporarily impaired at December 31, 2021. During the years ended December 31, 2021 and 2020, we did not record an other-than-temporary impairment charge on securities.
At December 31, 2021 and 2020, we had no securities in a single company or entity (other than United States Government and United States GSE securities) that had an aggregate book value in excess of 5% of our equity.
The following tables set forth the stated maturities and weighted average yields of securities at December 31, 2021. Certain securities have adjustable interest rates and will reprice monthly, quarterly, semi-annually or annually within the various maturity ranges. Certain securities have adjustable interest rates and will reprice monthly, quarterly, semi-annually or annually within the various maturity ranges. Weighted average yields for tax-exempt securities totaling $4.2 million with a weighted average rate of 0.89%, are presented on a tax equivalent basis using a federal marginal tax rate of 21%.
Equity securities are not included in the table based on lack of a maturity date. The tables present contractual final maturities for mortgage-backed securities and does not reflect repricing or the effect of prepayments.
At December 31, 2021
One Year or Less More Than One Year to Five Years More Than Five Years to Ten Years After Ten Years Total
Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield
(Dollars in thousands)
Debt securities available for sale:
U.S. government and agency obligations $ - - % $ 30,091 1.51 % $ 4,788 0.63 % $ - - % $ 34,879 1.39 %
Mortgage-backed securities and collateralized mortgage obligations 357 1.62 148,813 2.32 355,089 1.87 1,050,100 2.12 1,554,359 2.08
Municipal obligations 915 0.62 2,785 0.62 479 3.03 - - 4,179 0.89
Corporate debt securities - - 52,650 2.35 53,620 3.49 4,160 4.15 110,430 2.97
Total $ 1,272 1.01 % $ 234,339 2.20 % $ 413,976 2.07 % $ 1,054,260 2.13 % $ 1,703,847 2.12 %
At December 31, 2021
More Than One Year to Five Years More Than Five Years to Ten Years After Ten Years Total
Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield
(Dollars in thousands)
Debt securities held to maturity:
U.S. government and agency obligations $ 14,875 0.76 % $ 19,995 1.00 % $ 10,000 2.30 % $ 44,870 1.21 %
Mortgage-backed securities and collateralized mortgage obligations 69,766 2.68 152,219 2.17 162,879 2.74 384,864 2.50
Total $ 84,641 2.34 % $ 172,214 2.03 % $ 172,879 2.71 % $ 429,734 2.37 %
Loans receivable
Total gross loans increased $166.4 million, or 2.7%, to $6.3 billion at December 31, 2021 from $6.2 billion at December 31, 2020. One-to-four family real estate loans and multifamily and commercial real estate loans increased $152.0, or 7.8%, and $393.4 million, or 14.0%, respectively, during 2021. Construction loans decreased $33.7 million, or 10.2%, during 2021 to $295.0 million at December 31, 2021 from $328.7 million at December 31, 2020. Commercial business loans also decreased $300.6 million, or 39.9%, to $452.2 million at December 31, 2021 from $752.9 million at December 31, 2020. The decrease during 2021, was primarily attributable to the sale of SBA PPP loans totaling $237.0 million and forgiven SBA PPP loans totaling $277.7 million. The remaining PPP loans totaled $44.9 million at December 31, 2021.
Our consumer loan originations, which are primarily comprised of home equity loans and advances, continue to be impacted by weak demand. The reduction in volume was influenced by the low interest rate environment, additional tightening of underwriting
on these types of loans, and enacted restrictions on the tax deductibility of home mortgage interest. As a result of these factors, home equity loans and advances decreased $44.6 million, or 13.9%, during 2021.
The following tables present the loan portfolio for the periods indicated:
At December 31,
2021 2020
Amount Percent Amount Percent
(Dollars in thousands)
Real estate loans:
One-to-four family $ 2,092,317 33.0 % $ 1,940,327 31.5 %
Multifamily and commercial 3,211,344 50.7 2,817,965 45.7
Construction 295,047 4.7 328,711 5.3
Total real estate loans 5,598,708 88.4 5,087,003 82.5
Commercial business loans 452,232 7.1 752,870 12.2
Consumer loans:
Home equity loans and advances 276,563 4.4 321,177 5.2
Other consumer loans 1,428 0.1 1,497 0.1
Total consumer loans 277,991 4.5 322,674 5.3
Total gross loans 6,328,931 100.0 % 6,162,547 100.0 %
Purchased credit-impaired loans 6,791 6,345
Net deferred loan costs, fees and purchased premiums and discounts 24,879 12,878
Allowance for loan losses (62,689) (74,676)
Loans receivable, net $ 6,297,912 $ 6,107,094
Loan Maturity
The following table sets forth certain information at December 31, 2021 regarding the dollar amount of loan principal repayments becoming due during the periods indicated. The table does not include any estimate of prepayments that significantly shorten the average life of all loans and may cause our actual repayment experience to differ from that shown below. The table reflects final maturities for construction loans that convert to permanent loans. Demand loans having no stated schedule of repayments or maturity are reported as due in one year or less.
December 31, 2021
Real Estate
One-to-four Family Multifamily and Commercial Construction Commercial Business Home Equity Loans and Advances Other Consumer Loans Total
(In thousands)
Amounts due in:
One year or less $ 1,151 $ 156,419 $ 168,526 $ 173,889 $ 744 $ 934 $ 501,663
More than one year to five years 33,889 827,673 101,364 159,326 18,591 494 1,141,337
More than five years to fifteen years 189,416 1,641,719 4,503 97,069 59,003 - 1,991,710
More than fifteen years 1,867,861 585,533 20,654 21,948 198,225 - 2,694,221
Total $ 2,092,317 $ 3,211,344 $ 295,047 $ 452,232 $ 276,563 $ 1,428 $ 6,328,931
The following table sets forth all loans at December 31, 2021 that are due after December 31, 2022 and have either fixed interest rates or floating or adjustable interest rates:
Due After December 31, 2022
Fixed Rates Floating or Adjustable Rates Total
(In thousands)
Real estate loans:
One-to-four family $ 1,959,885 $ 131,281 $ 2,091,166
Multifamily and commercial 1,220,936 1,833,989 3,054,925
Construction 30,120 96,401 126,521
Commercial business loans 168,217 110,126 278,343
Consumer loans:
Home equity loans and advances 172,291 103,528 275,819
Other consumer loans 494 - 494
Total loans $ 3,551,943 $ 2,275,325 $ 5,827,268
Loan Originations and Sales
The following table shows loans originated, purchased, sold and other reductions in loans during the periods indicated:
Years Ended December 31,
2021 2020 2019
(In thousands)
Total loans at beginning of period $ 6,181,770 $ 6,197,566 $ 4,979,182
Originations:
Real estate loans:
One-to-four family 865,837 589,871 499,430
Multifamily and commercial 496,487 285,719 347,867
Construction 233,561 150,482 204,838
Total real estate loans 1,595,885 1,026,072 1,052,135
Commercial business loans 375,822 583,713 139,922
Consumer loans:
Home equity loans and advances 64,903 67,823 93,217
Other consumer loans 145 98 354
Total consumer loans 65,048 67,921 93,571
Total loans originated 2,036,755 1,677,706 1,285,628
Purchases 85,382 - 89,774
Loans acquired 158,912 171,593 757,223
Less:
Principal payments, repayments, and other items, net (1,411,214) (1,486,288) (685,862)
Loan sales (302,039) (147,377) (113,617)
Securitization of loans (99,603) (117,259) (21,615)
Transfer of loans receivable to loans held-for-sale (289,362) (114,171) (93,147)
Transfer to real estate owned - - -
Total loans receivable at end of period $ 6,360,601 $ 6,181,770 $ 6,197,566
Deposits
Our primary source of funds is our deposits, which are comprised of non-interest bearing and interest-bearing transaction accounts, money market deposit accounts, savings and club accounts and certificates of deposit.
Deposits increased $791.6 million, or 11.7%, to $7.6 billion at December 31, 2021 from $6.8 billion at December 31, 2020. The increase in deposits was partially driven by $210.1 million in deposits assumed in connection with the acquisition of Freehold Bank. The balances of non-interest bearing demand, interest-bearing demand, money market, and savings and club accounts, increased as we strategically priced our deposit products and utilized marketing campaigns to attract non-maturity deposits. Municipal deposits totaled $702.0 million at December 31, 2021 compared to $599.8 million at December 31, 2020. We continue our efforts to emphasize deposit taking though various channels.
During 2021, non-interest bearing demand accounts increased $357.5 million, or 26.4%, due to an increase in commercial checking and Advantage Plus checking account balances. During 2021, interest-bearing demand accounts increased $410.8 million, or 18.8%, due to an increase in our Yield Plus product and an increase in municipal deposits of $102.2 million, or 17.0%. Money market accounts increased $69.0 million, or 11.7%, while certificates of deposits decreased $180.2 million, or 9.2%. We have focused on obtaining non-maturity deposit products by offering attractive pricing and promotions and by deepening our existing customer relationships.
The following table sets forth the deposit balances as of the periods indicated:
At December 31,
2021 2020 2019
Amount Percent of Total Deposits Amount Percent of Total Deposits Amount Percent of Total Deposits
(Dollars in thousands)
Non-interest-bearing demand $ 1,712,061 22.6 % $ 1,354,605 20.0 % $ 958,442 17.0 %
Interest-bearing demand 2,599,987 34.3 2,189,164 32.3 1,720,383 30.5
Money market accounts 657,156 8.7 588,180 8.7 410,392 7.3
Savings and club deposits 822,833 10.9 688,309 10.2 543,480 9.6
Certificates of deposit 1,778,179 23.5 1,958,366 28.9 2,013,145 35.6
Total deposits $ 7,570,216 100.0 % $ 6,778,624 100.0 % $ 5,645,842 100.0 %
We are required to pledge securities to secure municipal deposits. At December 31, 2021 and 2020, we had pledged securities totaling $613.4 million and $546.3 million, respectively, to secure these deposits.
The following table sets forth the deposit activity for the periods indicated:
Years Ended December 31,
2021 2020 2019
(In thousands)
Beginning balance $ 6,778,624 $ 5,645,842 $ 4,413,873
Increase before interest credited 762,483 1,077,536 1,170,418
Interest credited 29,109 55,246 61,551
Net increase in deposits 791,592 1,132,782 1,231,969
Ending balance $ 7,570,216 $ 6,778,624 $ 5,645,842
At December 31, 2021, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000, which is the maximum amount for federal deposit insurance) was $300.3 million. The maturities are as follows:
Balance
(In thousands)
Maturity Period:
Three months or less $ 55,209
Over three through six months 37,107
Over six through twelve months 62,283
Over twelve months 145,689
Total $ 300,288
The following table sets forth all of our certificates of deposit classified by interest rate as of the dates indicated:
At December 31,
2021 2020 2019
(In thousands)
Less than 0.50% $ 1,014,820 $ 477,849 $ 19,169
0.50% to 0.99% 466,787 358,562 9,007
1.00% to 1.49% 53,799 181,037 123,708
1.50% to 1.99% 69,706 307,957 576,354
2.00% to 2.49% 40,719 226,922 580,882
2.50% to 2.99% 124,223 384,284 678,681
3.00% and greater 8,125 21,755 25,344
Total $ 1,778,179 $ 1,958,366 $ 2,013,145
The following table sets forth the amount and maturities of our certificates of deposit by interest rate at December 31, 2021:
Period to Maturity
One Year or Less More Than One Year to Two Years More Than Two Years to Three Years More Than Three Years to Four Years More Than Four Years Total Percentage of Certificate Accounts
(Dollars in thousands)
Less than 0.50% $ 828,048 $ 164,642 $ 19,431 $ 1,942 $ 757 $ 1,014,820 57.1 %
0.50% to 0.99% 78,496 208,468 98,660 14,798 66,365 466,787 26.2
1.00% to 1.49% 19,187 7,315 6,833 8,357 12,107 53,799 3.0
1.50% to 1.99% 43,676 9,713 6,431 5,706 4,180 69,706 3.9
2.00% to 2.49% 22,846 7,068 6,908 1,379 2,518 40,719 2.3
2.50% to 2.99% 94,841 21,077 5,532 392 2,381 124,223 7.0
3.00% and greater 537 232 155 3,703 3,498 8,125 0.5
Total $ 1,087,631 $ 418,515 $ 143,950 $ 36,277 $ 91,806 $ 1,778,179 100.0 %
The following tables set forth the average balances and weighted average rates of our deposit products at the dates indicated:
For the Years Ended December 31,
2021 2020
Average Balance Percent Weighted Average Rate Average Balance Percent Weighted Average Rate
(Dollars in thousands)
Non-interest-bearing demand $ 1,522,322 21.32 % - % $ 1,215,352 19.04 % - %
Interest-bearing demand 2,395,493 33.56 0.34 1,945,075 30.47 0.65
Money market accounts 632,011 8.85 0.30 510,189 7.99 0.57
Savings and club deposits 752,983 10.55 0.10 623,964 9.78 0.16
Certificates of deposit 1,835,866 25.72 1.00 2,088,488 32.72 1.85
Total $ 7,138,675 100.00 % 0.41 % $ 6,383,068 100.00 % 0.87 %
For the Year Ended December 31,
Average Balance Percent Weighted Average Rate
(Dollars in thousands)
Non-interest-bearing demand $ 776,850 16.11 % - %
Interest-bearing demand 1,420,667 29.47 1.24
Money market accounts 286,281 5.94 0.80
Savings and club deposits 495,261 10.27 0.16
Certificates of deposit 1,842,243 38.21 2.22
Total $ 4,821,302 100.00 % 1.28 %
Borrowings
We have the ability to utilize advances and overnight lines of credit from the FHLB to supplement our liquidity. As member banks, we are required to own capital stock in the FHLB and are authorized to apply for advances on the security of such stock and certain mortgage loans and other assets, provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. We can also utilize securities sold under agreements to repurchase to provide funding. We maintain access to the Federal Reserve Bank’s discount window and federal funds lines with correspondent banks for additional contingency funding. To secure our borrowings, we generally pledge securities and/or loans. The types of securities pledged for borrowings include, but are not limited to, government-sponsored enterprises ("GSE") including notes and government agency mortgage-backed securities and CMOs. The types of loans pledged for borrowings include, but are not limited to, one-to-four family real estate loans home equity loans and multifamily and commercial real estate loans.
The following table sets forth the outstanding borrowings and weighted averages at the dates or for the periods indicated:
Years Ended December 31,
2021 2020 2019
(Dollars in thousands)
Maximum amount outstanding at any month-end during the year:
Lines of credit $ 36,000 $ 186,600 $ 180,300
FHLB advances 722,141 1,139,580 1,275,391
Notes payable 29,841 - -
Subordinated notes 7,198 16,675 16,936
Junior subordinated debentures 6,949 6,949 6,932
Securities sold under repurchase agreements - - -
Average outstanding balance during the year:
Lines of credit $ 2,276 $ 29,859 $ 77,165
FHLB advances 722,514 1,092,774 1,056,115
Notes payable 740 - -
Subordinated notes - 11,067 2,881
Junior subordinated debentures 7,448 8,481 1,253
Securities sold under repurchase agreements - 1,913 -
Weighted average interest rate during the year:
Lines of credit 0.35 % 1.42 % 2.28 %
FHLB advances 1.06 1.62 2.39
Notes payable 3.38 - -
Subordinated notes - 4.05 3.92
Junior subordinated debentures 3.29 3.48 5.19
Securities sold under repurchase agreements - 0.21 -
Balance outstanding at end of the year:
Lines of credit $ - $ - $ 107,800
FHLB advances 340,495 792,412 1,275,391
Notes payable 29,841 - -
Subordinated notes - - 16,899
Junior subordinated debentures 6,973 6,952 6,932
Weighted average interest rate at end of year:
Lines of credit - % - % 1.81 %
FHLB advances 1.17 1.18 2.09
Notes payable 3.35 - -
Subordinated notes - - 6.75
Junior subordinated debentures 3.07 3.20 5.09
Comparison of Financial Condition at December 31, 2020 and 2019
For a comparison of the Company’s financial condition at December 31, 2020 and 2019, please see the section captioned “Comparison of Financial Condition at December 31, 2020 and 2019” in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Results of Operations for the Year Ended December 31, 2021
Financial Highlights
Net income was $92.0 million for the year ended December 31, 2021 as compared to $57.6 million for the year ended December 31, 2020, an increase of $34.4 million, or 59.8%. The increase was attributable to an increase in net interest income of $11.6 million, or 5.2%, a decrease in our provision for loan losses of $28.4 million, or 154.0%, an increase in non-interest income of $7.6 million, or 24.2%, and a decrease in non-interest expense of $2.4 million, or 1.5%, partially offset by an increase in income tax expense of $15.5 million, or 83.0%. In 2021, the increase in net interest income was primarily attributable to a $37.1 million decrease in interest expense, resulting from a decrease in both interest expense on deposits and interest expense on borrowings, partially offset by a $25.6 million decrease 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 reduced rates as a result of a sustained 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 year ended December 31, 2021, $495.5 million of FHLB borrowings were prepaid. The decrease in interest income for the year ended December 31, 2021 was largely due to decreases in the average yields on loans and securities. Net deferred fee acceleration of $7.1 million was recognized upon the forgiveness and settlement of $277.7 million of SBA PPP loans for the year ended December 31, 2021.
The reversal of provision for loan losses of $10.0 million recorded for the year ended December 31, 2021 as compared to $18.4 million of provision for loan loss expense recorded for the year ended December 31, 2020, was primarily attributable to 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. Net charge-offs totaled $2.0 million for the year ended December 31, 2021, as compared to $5.5 million for the year ended December 31, 2020.
The increase in non-interest income was primarily attributable to an increase in title insurance fees of $1.1 million, an increase in the income from gains on securities transactions of $1.7 million, an increase in income from the gain on the sale of loans of $5.3 million and an increase in other non-interest income of $2.0 million, partially offset by a decrease in the fair value of equity securities of $2.6 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 SBA PPP loans. Other non-interest income includes an increase of $1.0 million from debit card transactions. Fee related income for both 2020 and 2021 were impacted by the waiving of various deposit fees as we supported consumer and commercial customers with hardships due to the pandemic.
The decrease in non-interest expense was primarily attributable to a decrease in merger-related expenses of $1.1 million, and a decrease in other non-interest expense of $5.7 million, partially offset by an increase in professional fees of $1.6 million, an increase in data processing and software expenses of $1.2 million, and an increase in the loss on the extinguishment of debt of $1.7 million. Merger-related expenses recorded for the year ended December 31, 2020 related to the completed acquisitions of Stewardship Financial Corporation and Roselle Bank, while 2021 merger-related expenses primarily related to the acquisition of Freehold Bank, which will be fully integrated into the Company within two years. The decrease in other non-interest expense was primarily attributable to a $6.0 million decrease in pension plan expense. 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. During the year ended December 31, 2021, the Company utilized excess liquidity to prepay $495.5 million in borrowings and also terminated related derivative contracts, which resulted in a $2.9 million loss on the early extinguishment of debt.
The overall increase in our pre-tax income was mostly attributable to the increase in net interest income due to a decrease in interest expense in the 2021 period, coupled with a reversal of provision for loan losses. Income tax expense was $34.1 million for the year ended December 31, 2021, an increase of $15.5 million, or 83.0%, as compared to $18.7 million for the year ended December 31, 2020. The Company's effective tax rate was 27.1% and 24.5% for the years ended December 31, 2021 and 2020, respectively.
Summary Income Statements
The following table sets forth the income summary for the periods indicated:
Years Ended December 31,
Change 2021/2020
2021 2020 $ %
(Dollars in thousands)
Net interest income $ 233,134 $ 221,573 $ 11,561 5.2 %
(Reversal of) provision for loan losses (9,953) 18,447 (28,400) (154.0)
Non-interest income 38,831 31,270 7,561 24.2
Non-interest expense 155,737 158,139 (2,402) (1.5)
Income tax expense 34,132 18,654 15,478 83.0
Net income $ 92,049 $ 57,603 $ 34,446 59.8 %
Return on average assets 1.01 % 0.66 %
Return on average equity 8.98 % 5.67 %
Net Interest Income
For the year ended December 31, 2021, net interest income increased $11.6 million, or 5.2%, to $233.1 million from $221.6 million for the year ended December 31, 2020. For the year ended December 31, 2021, total interest income decreased $25.6 million, or 8.6%, to $270.2 million from $295.7 million for the year ended December 31, 2020. The decrease in interest income was primarily attributable to a decrease in average balances of loans coupled with decreases in yields on all interest-earning assets, partially offset by increases in average balances of securities and other interest-earning assets. The yield on the loan portfolio for the year ended December 31, 2021 was 25 basis points lower than the yield for the year ended December 31, 2020, while the yield on the securities portfolio was 50 basis points lower for the 2021 period. The average yield on other interest-earning assets for the year ended December 31, 2021 decreased 90 basis points compared to the year ended December 31, 2020. Decreases in average yields on these portfolios for the year ended December 31, 2021 were influenced by the continued lower interest rate environment.
The average cost of our interest-bearing liabilities decreased to 0.58% for the year ended December 31, 2021, from 1.17% for the year ended December 31, 2020, primarily as a result of a decrease of 55 basis points in the average cost of interest-bearing deposits, which was partially offset by an increase in the average balance of deposits. For the year ended December 31, 2021, total interest expense decreased $37.1 million, or 50.1%, to $37.0 million from $74.1 million for the year ended December 31, 2020 due to a decrease in the average cost of interest-bearing liabilities. The lower interest rate environment coupled with excess liquidity from an inflow of deposits allowed the Bank to significantly reduce deposit pricing in 2021. During 2021, the average balance of our borrowings decreased $411.1 million while the total cost of borrowings decreased 57 basis points. During the year ended December 31, 2021, $495.5 million of FHLB borrowings with an average rate of 1.35% were prepaid. The prepayments were funded by excess cash liquidity. The transactions were accounted for as early debt extinguishments resulting in a total loss of $1.9 million.
A reversal of provision for loan losses of $10.0 million was recorded for the year ended December 31, 2021 compared to a provision expense of $18.4 million for the year ended December 31, 2020. The decrease in provision for loan losses was primarily attributable to 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. Net charge-offs totaled $2.0 million for the year ended December 31, 2021, as compared to $5.5 million for the year ended December 31, 2020. We charge-off any collateral or cash flow deficiency on all classified loans once they are 90 days delinquent or earlier if management believes the collectability of the loan is unlikely. The provision for loan losses was determined by management to be an amount necessary to maintain a balance of allowance for loan losses at a level that considers all known and current losses in the loan portfolio as well as potential losses due to unknown factors such as the economic environment. Changes in the provision were based on management’s analysis of various factors such as: estimated fair value of underlying collateral, recent loss experience in particular segments of the portfolio, levels and trends in delinquent loans, and changes in general economic and business conditions. At December 31, 2021, the allowance for loan losses totaled $62.7 million, or 0.99% of total gross loans outstanding, compared to $74.7 million, or 1.21% of total gross loans outstanding, as of December 31, 2020. An analysis of the changes in the allowance for loan losses is presented under “Risk Management-Analysis and Determination of the Allowance for Loan Losses” below.
Non-Interest Income
The following table sets forth a summary of non-interest income for the periods indicated:
Years Ended December 31,
2021 2020
(In thousands)
Demand deposit account fees $ 3,803 $ 3,633
Bank-owned life insurance 5,994 6,620
Title insurance fees 6,088 5,034
Loan fees and service charges 2,983 2,419
Gain on securities transactions 2,025 370
Change in fair value of equity securities (1,792) 767
Gain on sale of loans 10,790 5,444
Other non-interest income 8,940 6,983
Total $ 38,831 $ 31,270
For the year ended December 31, 2021, non-interest income increased $7.6 million, or 24.2%, to $38.8 million from $31.3 million for the year ended December 31, 2020. In 2021, the increase is primarily attributable to an increase in title insurance fees of $1.1 million, an increase in the income from gains on securities transactions of $1.7 million, an increase in income from the gain on the sale of loans of $5.3 million and an increase in other non-interest income of $2.0 million, partially offset by a decrease in the fair value of equity securities of $2.6 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 SBA PPP. Other non-interest income includes an increase of $1.0 million from debit card transactions. Fee related income for both 2020 and 2021was impacted by the waiving of various deposit fees as we supported consumer and commercial customers with hardships due to the pandemic.
Non-Interest Expense
The following table sets forth an analysis of non-interest expense for the periods indicated:
Years Ended December 31,
2021 2020
(In thousands)
Compensation and employee benefits $ 99,534 $ 100,687
Occupancy 20,071 19,170
Federal deposit insurance premiums 2,374 1,901
Advertising 2,358 2,641
Professional fees 7,363 5,810
Data processing and software expenses 11,497 10,285
Merger-related expenses 822 1,931
Loss on extinguishment of debt 2,851 1,158
Other non-interest expense 8,867 14,556
Total $ 155,737 $ 158,139
For the year ended December 31, 2021, non-interest expense decreased $2.4 million, or 1.5%, to $155.7 million from $158.1 million for the year ended December 31, 2020. The decrease in non-interest expense was primarily attributable to a decrease in merger-related expenses of $1.1 million, and a decrease in other non-interest expense of $5.7 million, partially offset by an increase in professional fees of $1.6 million, an increase in data processing and software expenses of $1.2 million, and an increase in the loss on the extinguishment of debt of $1.7 million. Merger-related expenses recorded for the year ended December 31, 2020 related to the completed acquisitions of Stewardship Financial Corporation and Roselle Bank, while 2021 merger-related expenses primarily related to the acquisition of Freehold Bank, which will be fully integrated into the Company within two years. The decrease in other non-interest expense was primarily attributable to a $6.0 million decrease in pension plan expense. 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 year ended December 31, 2021, the Company utilized excess liquidity to prepay $495.5 million in borrowings and also terminated related derivative contracts, which resulted in a $2.9 million loss on the early extinguishment of debt.
Income Tax Expense
We recorded income tax expense of $34.1 million for the year ended December 31, 2021, reflecting an effective tax rate of 27.1%, compared to income tax expense of $18.7 million for 2020, reflecting an effective tax rate of 24.5%.
As of December 31, 2021, we had a net deferred tax liability totaling $9.7 million. We regularly evaluate the realizability of deferred tax asset positions. In determining whether a valuation allowance is necessary, we consider the level of taxable income in prior years to the extent that carrybacks are permitted under current tax laws, as well as estimates of future pre-tax and taxable income and tax planning strategies that would, if necessary, be implemented. We have provided a valuation allowance of $2.0 million as of December 31, 2021 on the deferred tax assets related to the Bank’s state net operating losses.
Results of Operations for the Year Ended December 31, 2020
Financial Highlights
Net income was $57.6 million for the year ended December 31, 2020 as compared to $54.7 million for the year ended December 31, 2019, an increase of $2.9 million, or 5.3%. The increase was attributable to an increase in net interest income of $49.2 million, or 28.5%, partially offset by an increase in our provision for loan losses of $14.2 million, or 336.7%, a decrease in non-interest income of $366,000, or 1.2%, an increase in non-interest expense of $29.4 million, or 22.9%, and an increase in income tax expense of $2.3 million, or 14.0%. In 2020, the increase in net interest income was primarily attributable to a $34.6 million increase in interest income and a $14.6 million decrease in interest expense. The increase in interest income for the year ended December 31, 2020 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 Financial and the Roselle Entities, partially offset by decreases in the average yields on these assets. Net deferred fee acceleration of $2.9 million was recognized upon the forgiveness and settlement of $144.0 million of SBA PPP loans for the year ended December 31, 2020.
The increase in provision for loan losses 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. Net charge-offs totaled $5.5 million for the year ended December 31, 2020, as compared to $4.9 million for the year ended December 31, 2019.
The decrease in non-interest income was primarily attributable to an $845,000 decrease in demand deposit account fees, a $4.3 million decrease in loan fees and service charges, and a $2.2 million decrease in gain on securities transactions, partially offset by a $4.7 million increase in the gain on sale of loans, a $774,000 increase in income from bank owned life insurance and a $1.1 million increase on other non-interest income. Fee related income decreased as we supported consumer and commercial customers with hardships due to the pandemic by waiving various deposit and loan fees in 2020.
The increase in non-interest expense was primarily attributable to an increase in compensation and employee benefits expense of $16.4 million, occupancy expense of $3.0 million, loss on extinguishment of debt of $1.2 million, and other non-interest expense of $9.7 million. The increase in compensation and employee benefits expense was primarily attributable to an increase of $5.1 million in expense recorded in connection with grants made under the Company's 2019 Equity Incentive Plan. In addition, $3.0 million in expense was recorded in connection with the Company's previously announced voluntary early retirement program that was completed during the third quarter of 2020 and offered early retirement incentives for previously announced qualified employees. The increase in occupancy expense was primarily the result of an increase in the number of branch offices acquired from Stewardship Financial and Roselle Entities, and the increase in other non-interest expense was due to losses of $1.4 million recorded in connection with the branch consolidation resulting from the Stewardship Financial acquisition and also includes $5.5 million related to interest rate swap transactions.
The overall increase in our pre-tax income was mostly attributable to the increase in net interest income in the 2020 period. Income tax expense was $18.7 million for the year ended December 31, 2020, an increase of $2.3 million, or 14.0%, as compared to $16.4 million for the year ended December 31, 2019. The Company's effective tax rate was 24.5% and 23.0% for the years ended December 31, 2020 and 2019, respectively. The 2020 effective tax rate was higher than the 2019 rate as the 2019 period reflected tax benefits related to Columbia Bank's investment subsidiary, coupled with other previously implemented tax strategies.
Summary Income Statements
The following table sets forth the income summary for the periods indicated:
Years Ended December 31,
Change 2020/2019
2020 2019 $ %
(Dollars in thousands)
Net interest income $ 221,573 $ 172,371 $ 49,202 28.5 %
Provision for loan losses 18,447 4,224 14,223 336.7
Non-interest income 31,270 31,636 (366) (1.2)
Non-interest expense 158,139 128,701 29,438 22.9
Income tax expense 18,654 16,365 2,289 14.0
Net income $ 57,603 $ 54,717 $ 2,886 5.3 %
Return on average assets 0.66 % 0.77 %
Return on average equity 5.67 % 5.50 %
Net Interest Income
For the year ended December 31, 2020, net interest income increased $49.2 million, or 28.5%, to $221.6 million from $172.4 million for the year ended December 31, 2019. For the year ended December 31, 2020, total interest income increased $34.6 million, or 13.3%, to $295.7 million from $261.1 million for the year ended December 31, 2019. The increase in net interest income was primarily attributable to increases in average balances on loans, securities and other interest-earning assets. The yield on the loan portfolio for the year ended December 31, 2020 was 19 basis points lower than the yield for the year ended December 31, 2019, while the yield on the securities portfolio was 35 basis points lower for the 2020 period. The average yield on other interest-earning assets for the year ended December 31, 2020 decreased 426 basis points for the year ended December 31, 2019. Decreases in average yields on these portfolios for the year ended December 31, 2020 were influenced by the lower interest rate environment.
The average cost of our interest-bearing liabilities decreased to 1.17% for the year ended December 31, 2020, from 1.71% for the year ended December 31, 2019, primarily as a result of a decrease of 45 basis points in the average cost of interest-bearing deposits, which was partially offset by an increase in the average balance of deposits. For the year ended December 31, 2020, total interest expense decreased $14.6 million, or 16.4%, to $74.1 million from $88.7 million for the year ended December 31, 2019 due to a decrease in the average cost of interest-bearing liabilities. The lower interest rate environment coupled with excess liquidity from an inflow of deposits allowed us to significantly reduce deposit pricing in 2020. During 2020, the average balance of our borrowings increased $6.7 million while the total cost of borrowings decreased 74 basis points. During the year ended December 31, 2020, $122.6 million of FHLB borrowings with an average rate of 2.18% and original contractual maturities through July 2021 were prepaid, and $27.0 million of FHLB borrowings acquired in our Roselle Bank acquisition with an average rate of 2.65% and original contractual maturities through November 2023 were prepaid. The prepayments were funded by excess cash liquidity. The transactions were accounted for as early debt extinguishments resulting in a total loss of $1.2 million.
Provision for Loan Losses
A provision for loan losses of $18.4 million was recorded for the year ended December 31, 2020 compared to a provision of $4.2 million for the year ended December 31, 2019. The increase in provision for loan losses 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. Net charge-offs totaled $5.5 million for the year ended December 31, 2020, as compared to $4.9 million for the year ended December 31, 2019. We charge-off any collateral or cash flow deficiency on all classified loans once they are 90 days delinquent or earlier if management believes the collectability of the loan is unlikely. The provision for loan losses was determined by management to be an amount necessary to maintain a balance of allowance for loan losses at a level that considers all known and current losses in the loan portfolio as well as potential losses due to unknown factors such as the economic environment. Changes in the provision were based on management’s analysis of various factors such as: estimated fair value of underlying collateral, recent loss experience in particular segments of the portfolio, levels and trends in delinquent loans, and changes in general economic and business conditions. At December 31, 2020, the allowance for loan losses totaled $74.7 million, or 1.21% of total loans outstanding, compared to $61.7 million, or 1.00% of total loans outstanding, as of December 31, 2019. An analysis of the changes in the allowance for loan losses is presented under “Risk Management-Analysis and Determination of the Allowance for Loan Losses” below.
Non-Interest Income
The following table sets forth a summary of non-interest income for the periods indicated:
Years Ended December 31,
2020 2019
(In thousands)
Demand deposit account fees $ 3,633 $ 4,478
Bank-owned life insurance 6,620 5,846
Title insurance fees 5,034 4,981
Loan fees and service charges 2,419 6,707
Gain on securities transactions 370 2,612
Change in fair value of equity securities 767 305
Gain on sale of loans 5,444 785
Other non-interest income 6,983 5,922
Total $ 31,270 $ 31,636
For the year ended December 31, 2020, non-interest income decreased $366,000, or 1.2%, to $31.3 million from $31.6 million for the year ended December 31, 2019. In 2020, the decrease in non-interest income was primarily attributable to an $845,000 decrease in demand deposit account fees, a $4.3 million decrease in loan fees and service charges, and a $2.2 million decrease in gain on securities transactions, partially offset by a $4.7 million increase in the gain on sale of loans, a $774,000 increase in income from bank owned life insurance and a $1.1 million increase on other non-interest income. Fee related income decreased as we supported consumer and commercial customers with hardships due to the pandemic by waiving various deposit and loan fees in 2020. Other non-interest income increased as a result of check card, annuity and other related income.
Non-Interest Expense
The following table sets forth an analysis of non-interest expense for the periods indicated:
Years Ended December 31,
2020 2019
(In thousands)
Compensation and employee benefits $ 100,687 $ 84,256
Occupancy 19,170 16,180
Federal deposit insurance premiums 1,901 895
Advertising 2,641 3,932
Professional fees 5,810 5,913
Data processing and software expenses 10,285 8,670
Merger-related expenses 1,931 2,755
Loss on extinguishment of debt 1,158 -
Other non-interest expense 14,556 6,100
Total $ 158,139 $ 128,701
For the year ended December 31, 2020, non-interest expense increased $29.4 million, or 22.9%, to $158.1 million from $128.7 million for the year ended December 31, 2019. The increase in non-interest expense was primarily attributable to an increase in compensation and employee benefits expense of $16.4 million, occupancy expense of $3.0 million, loss on extinguishment of debt of $1.2 million, and other non-interest expense of $8.5 million. The increase in compensation and employee benefits expense was primarily attributable to an increase of $5.1 million in expense recorded in connection with grants made under the Company's 2019 Equity Incentive Plan. In addition, $3.0 million in expense was recorded in connection with the Company's voluntary early retirement program that was completed during the third quarter of 2020 and offered early retirement incentives for qualified employees. The increase in occupancy expense was primarily the result of an increase in the number of branch offices acquired from Stewardship Financial and the Roselle Entities, and the increase in other non-interest expense was due to losses of $1.4 million recorded in connection with the branch consolidation resulting from the Stewardship merger and also includes $5.5 million related to interest rate swap transactions.
Income Tax Expense
We recorded income tax expense of $18.7 million for the year ended December 31, 2020, reflecting an effective tax rate of 24.5%, compared to income tax expense of $16.4 million for 2019, reflecting an effective tax rate of 23.0%. The 2020 effective tax rate was higher than the 2019 rate as the 2019 period reflected tax benefits related to Columbia Bank's investment subsidiary, coupled with other previously implemented tax strategies.
As of December 31, 2020, we had net deferred tax assets totaling $7.2 million. These deferred tax assets can only be realized if we generate taxable income in the future. We regularly evaluate the realizability of deferred tax asset positions. In determining whether a valuation allowance is necessary, we consider the level of taxable income in prior years to the extent that carrybacks are permitted under current tax laws, as well as estimates of future pre-tax and taxable income and tax planning strategies that would, if necessary, be implemented. We have provided a valuation allowance of $2.0 million as of December 31, 2020 on the deferred tax assets related to state net operating losses.
Results of Operations for the Fiscal Year Ended December 31, 2019
For a comparison of the Company’s results of operations for the year ended December 31, 2019, please see the section captioned “Results of Operations for the Fiscal Year Ended December 31, 2019” in Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Average Balances and Yields
The following tables present information regarding average balances of assets and liabilities, as well as the total dollar amounts of interest income and dividends from average interest-earning assets, and interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average daily balances of assets or liabilities, respectively, for the periods presented. Loan (fees) costs, including prepayment fees, are included in interest income on loans and are not material. Non-accrual loans and PCI loans are included in the average balances and are not material. Yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.
Years Ended December 31,
2021 2020
Average Balance Interest Yield / Cost Average Balance Interest Yield / Cost
(Dollars in thousands)
Interest earning assets:
Loans (1) $ 6,139,290 $ 228,841 3.73 % $ 6,413,559 $ 255,236 3.98 %
Securities (2) 1,965,901 38,843 1.98 % 1,465,093 36,401 2.48 %
Other interest-earning assets 350,162 2,466 0.70 % 255,369 4,074 1.60 %
Total interest-earning assets 8,455,353 $ 270,150 3.20 % 8,134,021 $ 295,711 3.64 %
Non-interest-earning assets 647,650 610,952
Total assets $ 9,103,003 $ 8,744,973
Interest-bearing liabilities:
Interest-bearing demand $ 2,395,493 $ 8,177 0.34 % $ 1,945,075 $ 12,666 0.65 %
Money market accounts 632,011 1,900 0.30 % 510,189 2,890 0.57 %
Savings and club deposits 752,983 731 0.10 % 623,964 1,023 0.16 %
Certificates of deposit 1,835,866 18,301 1.00 % 2,088,488 38,667 1.85 %
Total interest-bearing deposits 5,616,353 29,109 0.52 % 5,167,716 55,246 1.07 %
FHLB advances 724,790 7,637 1.05 % 1,122,633 18,145 1.62 %
Notes payable 740 25 3.38 % - - - %
Subordinated notes - - - % 11,067 448 4.05 %
Junior subordinated debentures 7,448 245 3.29 % 8,481 295 3.48 %
Other borrowings - - - % 1,913 4 0.21 %
Total borrowings 732,978 7,907 1.08 % 1,144,094 18,892 1.65 %
Total interest-bearing liabilities 6,349,331 $ 37,016 0.58 % 6,311,810 $ 74,138 1.17 %
Non-interest-bearing liabilities:
Non-interest-bearing deposits 1,522,322 1,215,352
Other non-interest-bearing liabilities 206,436 201,714
Total liabilities 8,078,089 7,728,876
Total stockholders' equity 1,024,914 1,016,097
Total liabilities and stockholders' equity $ 9,103,003 $ 8,744,973
Net interest income $ 233,134 $ 221,573
Interest rate spread (3) 2.62 % 2.47 %
Net interest-earning assets (4) $ 2,106,022 $ 1,822,211
Net interest margin (5) 2.76 % 2.72 %
Ratio of interest-earning assets to interest-bearing liabilities 133.17 % 128.87 %
(1) Includes loans held-for-sale, non-accrual and PCI loan balances.
(2) Includes debt securities available for sale, debt securities held to maturity and equity securities.
(3) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average total interest-earning assets.
Year Ended December 31,
Average Balance Interest Yield / Cost
(Dollars in thousands)
Interest earning assets:
Loans (1) $ 5,222,953 $ 217,774 4.17 %
Securities (2) 1,380,801 39,118 2.83 %
Other interest-earning assets 71,551 4,191 5.86 %
Total interest-earning assets 6,675,305 $ 261,083 3.91 %
Non-interest-earning assets 411,549
Total assets $ 7,086,854
Interest-bearing liabilities:
Interest-bearing demand $ 1,420,667 $ 17,621 1.24 %
Money market accounts 286,281 2,301 0.80 %
Savings and club deposits 495,261 770 0.16 %
Certificates of deposit 1,842,243 40,859 2.22 %
Total interest-bearing deposits 4,044,452 61,551 1.52 %
FHLB advances 1,133,280 26,983 2.38 %
Subordinated notes 2,881 113 3.92 %
Junior subordinated debentures 1,253 65 5.19 %
Total borrowings 1,137,414 27,161 2.39 %
Total interest-bearing liabilities 5,181,866 $ 88,712 1.71 %
Non-interest-bearing liabilities:
Non-interest-bearing deposits 776,850
Other non-interest bearing liabilities 133,213
Total liabilities 6,091,929
Total stockholders' equity 994,925
Total liabilities and stockholders' equity $ 7,086,854
Net interest income $ 172,371
Interest rate spread (3) 2.20 %
Net interest-earning assets (4) $ 1,493,439
Net interest margin (5) 2.58 %
Ratio of interest-earning assets to interest-bearing liabilities 128.82 %
(1) Includes loans held-for-sale, non-accrual and PCI loan balances.
(2) Includes debt securities available for sale, debt securities held to maturity and equity securities.
(3) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average total interest-earning assets.
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns.
Year Ended 12/31/2021 Compared to Year Ended 12/31/2020 Year Ended 12/31/2020 Compared to Year Ended 12/31/2019
Increase (Decrease) Due to Increase (Decrease) Due to
Volume Rate Total Volume Rate Total
(In thousands)
Interest income:
Loans $ (10,915) $ (15,480) $ (26,395) $ 49,643 $ (12,181) $ 37,462
Securities 12,443 (10,001) 2,442 2,388 (5,105) (2,717)
Other interest-earning assets 1,512 (3,120) (1,608) 10,767 (10,884) (117)
Total interest-earning assets $ 3,040 $ (28,601) $ (25,561) $ 62,798 $ (28,170) $ 34,628
Interest expense:
Interest-bearing demand 2,933 (7,422) (4,489) $ 6,504 $ (11,459) $ (4,955)
Money market accounts 690 (1,680) (990) 1,800 (1,211) 589
Savings and club accounts 212 (504) (292) 200 53 253
Certificates of deposit (4,677) (15,689) (20,366) 5,461 (7,653) (2,192)
Total interest-bearing deposits (842) (25,295) (26,137) 13,965 (20,270) (6,305)
FHLB advances (6,430) (4,078) (10,508) (254) (8,584) (8,838)
Notes payable - 25 25 - - -
Subordinated notes (448) - (448) 321 14 335
Junior subordinated debentures (36) (14) (50) 375 (145) 230
Other borrowings (4) - (4) - 4 4
Total interest-bearing liabilities $ (7,760) $ (29,362) $ (37,122) $ 14,407 $ (28,981) $ (14,574)
Net change in net interest income $ 10,800 $ 761 $ 11,561 $ 48,391 $ 811 $ 49,202
Risk Management
Overview. Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest rate risk and market risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of interest income as a result of changes in interest rates. Market risk arises from fluctuations in interest rates that may result in changes in the values of financial instruments, such as available for sale securities that are accounted for at fair value. Other risks that we face are operational risk, liquidity risk and reputation risk. Operational risk includes risks related to fraud, regulatory compliance, processing errors, cyber-attacks, and disaster recovery. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers. Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or revenue.
We maintain a Risk Management Division comprised of our Risk Management, Compliance, Credit Risk Review, Appraisal and Security Departments. Our Risk Management Division is led by our Executive Vice President and Chief Risk Officer, who reports quarterly to Columbia Bank’s Risk Committee, which is comprised of the full board of directors. The current structure of our Risk Management Division is designed to monitor and address, among other things, financial, credit, collateral, consumer compliance, operational, Bank Secrecy Act, fraud, cyber security, vendor and insurable risks. The Risk Management Division utilizes a number of enterprise risk assessment tools, including stress testing, credit concentration reviews, peer analyses, industry considerations and individual risk assessments, to identify and report potential risks that we face in connection with our business operations.
Credit Risk Management. The objective of our credit risk management strategy is to quantify and manage credit risk and to limit the risk of loss resulting from an individual customer default. Our credit risk management strategy focuses on conservatism, diversification within the loan portfolio and monitoring. Our lending practices include conservative exposure limits and underwriting, documentation and collection standards. Our credit risk management strategy also emphasizes diversification on an industry and customer level as well as regular credit examinations and monthly management reviews of large credit exposures and loans
experiencing deterioration in credit quality. Our credit risk review function provides objective assessments of the quality of underwriting and documentation, the accuracy of risk ratings and the charge-off, non-accrual and reserve analysis process. Our credit review process and overall assessment of required allowances is based on quarterly assessments of the probable estimated losses inherent in the loan portfolio. We use these assessments to identify potential problem loans within the portfolio, maintain an adequate reserve and take any necessary charge-offs.
When a borrower fails to make a required payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status. Generally, our collection department follows the guidelines for servicing loans as prescribed by applicable law or the appropriate investor. Collection activities include, but are not limited to, phone calls to borrowers and collection letters, which include a late charge notice based on the contractual requirements of the specific loan. Additional calls and notices are mailed in compliance with state and federal regulations including, but not limited to, the Fair Debt Collection Practices Act. After the 90th day of delinquency for a residential mortgage or consumer loan, or on a different date as allowable by law or contract, the collection department will forward the account to counsel and begin the collection litigation which typically includes foreclosure proceedings, or we may periodically sell a delinquent loan to a third party. If a foreclosure action is instituted and the loan is not in at least the early stages of a workout by the scheduled sale date, the real property securing the loan generally is sold at a sheriff sale. If we determine that there is a possibility of a settlement, pay-off or reinstatement, the sheriff sale may be postponed.
We charge off the collateral or cash flow deficiency on all consumer loans once they become 180 days delinquent and all commercial loans once they become 90 days delinquent or earlier if management believes the collectability of the loan is unlikely. In addition to the individual review of larger commercial loans that exhibit probable or observed credit weaknesses, the commercial credit review process includes the use of an enhanced risk rating system. Historical portfolio performance metrics, current economic conditions and delinquency monitoring are factors used to assess the credit risk in our homogeneous commercial, residential and consumer loan portfolios.
Analysis of Non-Performing, Troubled Debt Restructurings and Classified Assets. We consider repossessed assets and loans to be non-performing assets if they are 90 days or more past due or earlier if management believes the collectability of the loan is unlikely. Generally, all loans are placed on non-accrual status when the payment of interest is 90 days or more in arrears of its contractual due date, at which time the accrual of interest ceases. Typically, payments received on a non-accrual loan are applied to the outstanding principal balance of the loan.
Real estate that we acquire through foreclosure or by deed in lieu of foreclosure is classified as real estate owned until it is sold. When an asset is acquired, the excess of the loan balance over fair value less estimated selling costs is charged to the allowance for loan losses. Operating results from real estate owned, including rental income, operating expenses, and gains and losses realized from the sales of real estate owned are recorded as incurred.
We consider a loan a troubled debt restructuring, or “TDR,” when the borrower is experiencing financial difficulty and we grant a concession that we would not otherwise consider but for the borrower’s financial difficulties. A TDR includes a modification of debt terms or assets received in satisfaction of the debt (which may include foreclosure or deed in lieu of foreclosure) or a combination of the foregoing. We evaluate selective criteria to determine if a borrower is experiencing financial difficulty including the ability of the borrower to obtain funds from third party sources at market rates. We consider all TDRs to be impaired loans even if they are performing. We will not consider the loan a TDR if the loan modification was made for customer retention purposes and the modification is consistent with prevailing market conditions.
Once a loan has been classified as a TDR and has been put on non-accrual status, it may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible. Our policy for returning a loan to accrual status requires the preparation of a well-documented credit evaluation, which includes the following:
•A review of the borrower’s current financial condition in which the borrower must demonstrate sufficient cash flow to support the repayment of all principal and interest including any amounts previously charged-off;
•An updated appraisal or home valuation, which must demonstrate sufficient collateral value to support the debt;
•Sustained performance based on the restructured terms for at least six consecutive months; and
•Approval by the Asset Classification Committee, which consists of senior management including the Chief Credit Officer and the Chief Accounting Officer.
Section 4013 of the CARES Act, “Temporary Relief from Troubled Debt Restructurings,” allows banks to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. We elected to account for modifications on certain loans under Section 4013 of the CARES Act or, if the loan modification was not eligible under Section 4013, used the criteria in the COVID-19 guidance to determine when the loan modification was not a TDR in accordance with ASC 310-40. Guidance noted that modification or deferral programs mandated by the federal or a state government related to COVID-19 would not be in the scope of ASC 310-40, such as a state program that requires all institutions within that state to suspend mortgage payments for a specified period. These short-term loan modifications will not be treated as troubled debt restructurings during the short-term modification period if the loan was not in arrears at December 31, 2019. Furthermore, based on current evaluations, generally, we have continued the accrual of interest on these loans during the short-term modification period. The Consolidated Appropriations Act, 2021, which was enacted in late December 2020, extended certain provisions of the CARES Act through January 1, 2022, including provisions permitting loan deferral extension requests to not be treated as troubled debt restructurings
We had no TDR's on non-accrual status at December 31, 2021, as compared to two TDRs totaling $726,000 on non-accrual status at December 31, 2020, and no TDRs on non-accrual status at December 31, 2019. We had 52 TDRs totaling $22.0 million and 70 TDRs totaling $44.7 million that were on accrual status and in compliance with their modified terms as of December 31, 2021 and 2020, respectively.
The following table sets forth information with respect to our non-performing assets at the dates indicated, excluding PCI loans. We did not have any accruing loans past due 90 days or more at any of the dates indicated.
At December 31,
2021 2020 2019
(Dollars in thousands)
Non-accrual loans:
Real estate loans:
One-to-four family $ 1,416 $ 2,637 $ 1,732
Multifamily and commercial 1,561 1,873 716
Total real estate loans 2,977 4,510 2,448
Commercial business loans 761 2,968 3,686
Consumer loans:
Home equity loans and advances 201 678 553
Total non-accrual loans (1) 3,939 8,156 6,687
Total non-performing loans 3,939 8,156 6,687
Real estate owned - - -
Total non-performing assets $ 3,939 $ 8,156 $ 6,687
Total non-performing loans to total loans 0.06 % 0.13 % 0.11 %
Total non-performing assets total assets 0.04 % 0.09 % 0.08 %
(1) Includes $383,000, $91,000 and $0, of TDRs on non-accrual status as of December 31, 2021, 2020, 2019, respectively.
Non-performing assets decreased $4.2 million to $3.9 million, or 0.04% of total assets, at December 31, 2021 from $8.2 million, or 0.09% of total assets, at December 31, 2020. The $4.2 million decrease in non-performing loans was primarily attributable to decreases of $1.2 million in non-performing one-to-four family real estate loans, $2.2 million in non-performing commercial business loans, and $477,000 in non-performing home equity loans and advances. The decrease in non-performing one-to-four family real estate loans was due to a decrease in the number of loans from 13 non-performing loans at December 31, 2020 to six non-performing loans at December 31, 2021. The decrease in non-performing commercial business loans was due to charge-offs totaling $2.0 million. The decrease in non-performing home equity loans and advances was due to a decrease in the number of loans from 12 non-performing loans at December 31, 2020 to four non-performing loans at December 31, 2021. We charge-off the collateral or cash flow deficiency on all loans meeting our definition of an impaired loan, which we define as a loan for which it is probable, based on current information, that we will not collect all amounts due under the contractual terms of the loan agreement. We consider the population of loans in our impairment analysis to include all multifamily and commercial real estate, construction, and commercial business loans with outstanding balances greater than $500,000 and not accruing interest, loans modified in a troubled debt
restructuring, and other loans if there is specific information of a collateral shortfall. We continue to rigorously review our loan portfolio to ensure that the collateral values remain sufficient to support the outstanding balances.
Non-performing assets increased $1.5 million to $8.2 million, or 0.09% of total assets, at December 31, 2020 from $6.7 million, or 0.08% of total assets, at December 31, 2019. The increase in non-performing one-to-four family real estate loans was due to an increase in the number of loans from 10 non-performing loans at December 31, 2019 to 13 non-performing loans at December 31, 2020. The increase in non-performing multifamily and commercial real estate loans was due to two higher balance loans included at December 31, 2020, despite a decrease in the number of loans from eight non-performing loans at December 31, 2019 to four non-performing loans at December 31, 2020. Net charge-offs for the year ended December 31, 2020 were $5.5 million compared to $4.9 million for the year ended December 31, 2019.
Federal regulations require us to review and classify our assets on a regular basis. In addition, our banking regulators have the authority to identify problem assets and, if appropriate, require them to be classified. Our credit review process includes a risk classification of all commercial and residential loans that includes four levels of pass, special mention, substandard, doubtful and loss. A loan is classified as pass when payments are current and it is performing under the original contractual terms. A loan is classified as special mention when the borrower exhibits potential credit weakness or a downward trend which, if not checked or corrected, will weaken the asset or inadequately protect our position. While potentially weak, the borrower is currently marginally acceptable; no loss of principal or interest is envisioned. A loan is classified as substandard when the borrower has a well-defined weakness or weaknesses that jeopardize the orderly liquidation of the debt. A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor, normal repayment from this borrower is in jeopardy, and there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. A loan is classified as doubtful when a borrower has all weaknesses inherent in a substandard loan with the added provision that: (1) the weaknesses make collection of debt in full on the basis of currently existing facts, conditions and values highly questionable and improbable; (2) serious problems exist to the point where a partial loss of principal is likely; and (3) the possibility of loss is extremely high, but because of certain important, reasonably specific pending factors that may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens and additional refinancing plans. A loan is classified as loss when all or a portion of the loan is considered uncollectible and of such little value that its continuance on our books without establishment of a specific valuation allowance or charge off is not warranted. This classification does not necessarily mean that the loan has no recovery or salvage value. Rather, it indicates that there is significant doubt about whether, how much or when recovery will occur.
A loan is considered delinquent when we have not received a payment within 30 days of its contractual due date. Generally, a loan is designated as a non-accrual loan when the payment of interest is 90 days or more in arrears of its contractual due date. At December 31, 2021, there were no loans past due 90 days or more still accruing interest. In accordance with the CARES Act, these loans are not included in the aging of loans receivable by portfolio segment in the table below, and the Bank continues to accrue interest income during the forbearance or deferral period. If adverse information indicating that the borrower's capability of repaying all amounts due is unlikely, the interest accrual will cease. The following tables summarize the aging of loans receivable by portfolio segment at the dates indicated:
At December 31,
2021 2020 2019
30-59 Days 60-89 Days 90 Days or More 30-59 Days 60-89 Days 90 Days or More 30-59 Days 60-89 Days 90 Days or More
(In thousands)
Real estate loans:
One-to-four family $ 3,131 $ 1,976 $ 373 $ 3,068 $ 912 $ 1,901 $ 6,249 $ 2,132 $ 1,638
Multifamily and commercial 2,189 - 1,561 15,645 - 1,238 626 1,210 716
Construction - - - 550 - - - - -
Commercial business loans 412 - 203 2,343 1,056 2,453 1,056 - 2,489
Consumer loans:
Home equity loans and advances 108 53 81 1,156 696 394 1,708 246 405
Other consumer loans - 4 - 4 - - 3 - -
Total $ 5,840 $ 2,033 $ 2,218 $ 22,766 $ 2,664 $ 5,986 $ 9,642 $ 3,588 $ 5,248
The following tables present criticized and classified assets by credit quality risk indicator at the dates indicated:
At December 31,
2021 2020 2019
(In thousands)
Classified loans:
Substandard $ 42,379 $ 30,786 $ 28,495
Doubtful - - -
Total classified loans 42,379 30,786 28,495
Special mention 61,068 47,514 25,313
Total criticized loans $ 103,447 $ 78,300 $ 53,808
All impaired loans classified as substandard and doubtful are written down to the fair value of their underlying collateral if the loan is collateral dependent.
Analysis and Determination of the Allowance for Loan Losses
The allowance for loan losses is a valuation account that reflects management's evaluation of probable losses in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings. Our methodology for assessing the appropriateness of the allowance for loan losses consists of: (1) a specific valuation allowance for loans individually evaluated for impairment and (2) a general valuation allowance for loans collectively evaluated for impairment.
Specific Allowance (Individually Evaluated for Impairment). Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any relationships have deteriorated, considering factors such as historical loss experience, trends in delinquency and non-performing loans, changes in risk composition and underwriting standards, the experience and ability of staff and regional and national economic conditions and trends.
Our loan officers and loan servicing staff identify and manage potential problem loans within our commercial loan portfolio. Non-performing assets within the commercial loan portfolio are transferred to the Special Assets Department for workout or litigation. The Special Assets Department reports directly to the Chief Credit Officer. Changes in management, financial or operating performance, company behavior, industry factors and external events and circumstances are evaluated on an ongoing basis to determine whether potential impairment is evident and additional analysis is needed. For our commercial loan portfolio, risk ratings are assigned to each individual loan to differentiate risk within the portfolio and are reviewed on an ongoing basis by credit management and the credit risk review Department and revised, if needed, to reflect the borrower’s current risk profiles and the related collateral positions.
The risk ratings consider factors such as financial condition, debt capacity and coverage ratios, market presence and quality of management. When a credit’s risk rating is downgraded to a certain level, the relationship must be reviewed and detailed reports completed that document risk management strategies for the credit going forward, and the appropriate accounting actions to take in accordance with generally accepted accounting principles in the United States. When credits are downgraded beyond a certain level, our Special Assets and Loan Servicing Departments become responsible for managing the credit risk.
The Asset Classification Committee reviews risk rating actions (specifically downgrades or upgrades between pass and the criticized and classified categories) recommended by Lending, Loan Servicing, Commercial Credit, Credit Risk Review and/or Special Assets Departments on a quarterly basis. Our Commercial Credit, Credit Risk Review, Lending, and Loan Servicing Departments monitor our commercial, residential and consumer loan portfolios for credit risk and deterioration considering factors such as delinquency, loan to value ratios and credit scores.
When problem loans are identified that are secured with collateral, management examines the loan files to evaluate the nature and type of collateral supporting the loans. Management documents the collateral type, date of the most recent valuation, and whether any liens exist, to determine the value to compare against the committed loan amount. If a loan is identified as impaired and is collateral dependent, an updated appraisal is obtained to provide a baseline in determining the property’s fair value. A collateral dependent impaired loan is written down to its appraised value and a specific allowance is established to cover potential selling costs. If the collateral value is subject to significant volatility (due to location of asset, obsolescence, etc.) an appraisal is obtained more frequently. In-house revaluations are typically performed on a quarterly basis and updated appraisals are obtained annually, if determined necessary.
When we determine that the value of an impaired loan is less than its carrying amount, we recognize impairment through a charge-off to the allowance. We perform these assessments on an ongoing basis. For commercial loans, a charge-off is recorded when management determines we will not collect 100% of a loan based on the fair value of the collateral or the net present value of expected future cash flows. The collateral deficiency on consumer loans and residential loans are generally charged-off when deemed to be uncollectible or delinquent 180 days, whichever comes first, unless it can be clearly demonstrated that repayment will occur regardless of the delinquency status. Examples that would demonstrate repayment include a loan that is secured by adequate collateral and is in the process of collection, a loan supported by a valid guarantee or insurance, or a loan supported by a valid claim against a solvent estate.
General Allowance (Collectively Evaluated for Impairment). Additionally, we reserve for certain inherent, but undetected, losses that are probable within the loan portfolio. This is due to several factors, such as, but not limited to, inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions and the interpretation of economic trends. While this analysis is conducted at least quarterly, we have the ability to revise the allowance factors whenever necessary to address improving or deteriorating credit quality trends or specific risks associated with a given loan pool classification.
A comprehensive analysis of the allowance for loan losses is performed on a quarterly basis. The entire allowance for loan losses is available to absorb losses in the loan portfolio irrespective of the amount of each separate element of the allowance. Our principal focus, therefore, is on the adequacy of the total allowance for loan losses.
The allowance for loan losses is maintained at levels that management considers appropriate to provide for losses based upon an evaluation of known and inherent risks in the loan portfolio. Management’s evaluation takes into consideration the risks inherent in the loan portfolio, historical loss experience, specific loans with loss potential, geographic and industry concentrations, delinquency trends, economic conditions, the level of originations and other relevant factors. While management uses the best information available to make such evaluations, future adjustments to the allowance for credit losses may be necessary if conditions differ substantially from the assumptions used in making the evaluations. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance for loan losses may not be sufficient should the quality of loans deteriorate as a result of the factors described above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations. The allowance for loan losses is subject to review by our banking regulators. On an annual basis our primary bank regulator conducts an examination of the allowance for loan losses and makes an assessment regarding its adequacy and the methodology employed in its determination. Our regulators may require the allowance for loan losses to be increased based on their review of information available to them at the time of their examination.
At December 31,
2021 2020 2019
Amount % of Allowance to Total Allowance % of Allowance to Loans in Category Amount % of Allowance to Total Allowance % of Allowance to Loans in Category Amount % of Allowance to Total Allowance % of Allowance to Loans in Category
(Dollars in thousands)
Real estate loans:
One-to-four family $ 8,798 14.0 % 0.4 % $ 13,586 18.2 % 0.7 % $ 13,780 22.3 % 0.7 %
Multifamily and commercial 23,855 38.1 0.7 30,681 41.1 1.1 22,980 37.2 0.8
Construction 8,943 14.3 3.0 11,271 15.1 3.4 7,435 12.0 2.5
Commercial business 20,214 32.2 4.5 17,384 23.3 2.3 15,836 25.7 3.3
Consumer loans:
Home equity loans and advances 873 1.4 0.3 1,748 2.3 0.5 1,669 2.7 0.4
Other consumer loans 6 - 0.4 6 - 0.4 9 - 0.5
Total allowance for loan losses $ 62,689 100.0 % 1.0 % $ 74,676 100.0 % 1.2 % $ 61,709 100.0 % 1.0 %
Total Loans. During the year ended December 31, 2021, the balance of the allowance for loan losses decreased by $12.0 million to $62.7 million, or 0.99% of total gross loans at December 31, 2021, from $74.7 million or 1.21% of total gross loans at December 31, 2020. The noted decrease in the total loan coverage ratio for the year ended December 31, 2021 was 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.
One-to-Four Family Loan Portfolio. The portion of the allowance related to the one-to-four family real estate loan portfolio totaled $8.8 million, or 0.4%, of one-to-four family loans at December 31, 2021, compared to $13.6 million, or 0.7%, of one-to-four family real estate loans at December 31, 2020. Our one-to-four family non-accrual loans decreased $1.2 million, or 46.3%, to $1.4 million at December 31, 2021 from $2.6 million at December 31, 2020, and net charge-offs were $751,000 for the year ended December 31, 2021 compared to $1.5 million for the year ended December 31, 2020. We believe the one-to-four family real estate loan reserve ratio was appropriate given the decrease in non-accrual loans and the continued low charge-off levels.
Multifamily and Commercial Real Estate Loan Portfolio. The portion of the allowance for loan losses related to the multifamily and commercial real estate loan portfolio totaled $23.9 million, or 0.7%, of multifamily and commercial real estate loans at December 31, 2021, as compared to $30.7 million, or 1.1%, of multifamily and commercial real estate loans at December 31, 2020. We experienced a $21.9 million increase in criticized and classified loans to $80.9 million at December 31, 2021 compared to $59.1 million at December 31, 2020. Multifamily and commercial real estate non-accrual loans decreased to $1.6 million at December 31, 2021 from $1.9 million at December 31, 2020. Net recoveries were $528,000 for the year ended December 31, 2021 as compared to net charge-offs of $12,000 for the year ended December 31, 2020. We believe the multifamily and commercial real estate loan reserve ratio was appropriate given the increases in criticized and classified loans, partially mitigated by the continued low balance of non-accrual loans along with low levels of charge-offs.
Construction Loan Portfolio. The portion of the allowance for loan losses related to the construction loan portfolio totaled $8.9 million, or 3.0%, of construction loans at December 31, 2021, as compared to $11.3 million, or 3.4%, at December 31, 2020. At both December 31, 2021 and 2020, we had no criticized or classified or non-accrual construction loans. We recorded recoveries of $2,000 and $1,000, respectively, during the years ended December 31, 2021 and 2020. We believe the construction loan reserve ratio was appropriate due to the decrease in the balance of these loans coupled with no identified problem loans, considering the inherent credit risk associated with this portfolio.
Commercial Business Loan Portfolio. The portion of the allowance for loan losses related to the commercial business loan portfolio totaled $20.2 million, or 4.5%, of commercial business loans at December 31, 2021, as compared to $17.4 million, or 2.3%, at December 31, 2020. At December 31, 2021 and 2020 $44.9 million and $344.4 million, respectively, in PPP loans included in the commercial business loan portfolio did not require an allowance as they were 100% guaranteed by the SBA. We experienced a $4.4 million increase in criticized and classified commercial business loans to $17.3 million at December 31, 2021 as compared to $12.9 million at December 31, 2020. Commercial business loan non-accrual loans decreased $2.2 million to $761,000 at December 31, 2021 from $3.0 million at December 31, 2020. Net charge-offs were $1.6 million for the year ended December 31, 2021 compared to $3.8 million for the year ended December 31, 2020. We continue to charge-off any cash flow or collateral deficiency for non-performing loans once a loan is 90 days past due. We believe the commercial business loan reserve ratio was appropriate given the inherent credit risk of commercial business loans.
Home Equity Loans and Advances. The portion of the allowance related to the home equity loan portfolio decreased to $873,000, or 0.3%, of consumer loans at December 31, 2021 compared to $1.7 million, or 0.5%, of consumer loans at December 31, 2020. Home equity non-accrual loans decreased $477,000 to $201,000 at December 31, 2021, from $678,000 at December 31, 2020. Net charge-offs were $252,000 for the year ending December 31, 2021 compared to $160,000 for the year ending December 31, 2020. We believe the decrease in the home equity loan reserve was appropriate based upon the decrease in the balance year over year and the insignificant amount of delinquencies, non-accrual loans and charge-offs.
The following table sets forth an analysis of the activity in the allowance for loan losses for the periods indicated:
At or For the Years Ended December 31,
2021 2020 2019
(Dollars in thousands)
Allowance at beginning of period $ 74,676 $ 61,709 $ 62,342
Provision for loan losses (9,953) 18,447 4,224
Charge-offs:
Real estate loans:
One-to-four family (773) (1,931) (1,053)
Multifamily and commercial (703) (28) (103)
Construction - - -
Total real estate loans (1,476) (1,959) (1,156)
Commercial business loans (1,773) (4,120) (3,994)
Consumer loans:
Home equity loans and advances (308) (220) (201)
Other consumer loans (7) (4) (2)
Total consumer loans (315) (224) (203)
Total charge-offs (3,564) (6,303) (5,353)
Recoveries:
Real estate loans:
One-to-four family 22 438 30
Multifamily and commercial 1,231 16 10
Construction 2 1 2
Total real estate loans 1,255 455 42
Commercial business loans 219 308 404
Consumer loans:
Home equity loans and advances 56 60 50
Total consumer loans 56 60 50
Total recoveries 1,530 823 496
Net charge-offs (2,034) (5,480) (4,857)
Allowance at end of period: $ 62,689 $ 74,676 $ 61,709
Total loans outstanding $ 6,328,931 $ 6,162,547 $ 6,169,308
Average gross loans outstanding $ 6,139,290 $ 6,413,559 $ 5,222,953
Allowance for loan losses to total non-performing loans 1,591.50 % 915.60 % 922.82 %
Allowance for loan losses to total gross loans at end of period 0.99 % 1.21 % 1.00 %
Net charge-offs to average outstanding loans 0.03 % 0.09 % 0.09 %
The following table sets forth the ratio of net charge-offs (recoveries) to average loans outstanding for the periods indicated:
For the Years Ended December 31,
2021 2020 2019
Real estate loans:
One-to-four family 0.04 % 0.07 % 0.06 %
Multifamily and commercial (0.02) - -
Commercial business loans 0.25 0.50 0.95
Consumer loans:
Home equity loans and advances 0.09 0.04 0.04
Other consumer 0.39 0.25 0.06
Total loans 0.03 % 0.09 % 0.09 %
COVID-19
At December 31, 2021, there were four loans on deferral for $24.3 million, a decrease of $3.7 million, compared to $28.0 million at September 30, 2021, and a decrease of $60.8 million, compared to $85.1 million at December 31, 2020. These short term loan modifications are treated in accordance with Section 4013 of the CARES Act and are not treated as troubled debt restructurings during the short-term modification period if the loan was not in arrears. The Consolidated Appropriations Act, 2021, which was enacted in late December 2020, extended certain provisions of the CARES Act through January 1, 2022, including provisions permitting loan deferral extension requests to not be treated as troubled debt restructurings.
At December 31, 2021, two loans totaling approximately $24.3 million are remitting partial payments.
Interest Rate Risk Management
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. Depending on a bank’s asset/liability structure, adverse movements in interest rates could be either rising or falling interest rates. For example, a bank with predominantly long-term fixed-rate assets and short-term liabilities could have an adverse earnings exposure to a rising rate environment. Conversely, a short-term or variable-rate asset base funded by longer-term liabilities could be negatively affected by falling rates. This is referred to as re-pricing or maturity mismatch risk.
Interest rate risk also arises from changes in the slope of the yield curve (yield curve risk), from imperfect correlations in the adjustment of rates earned and paid on different instruments with otherwise similar re-pricing characteristics (basis risk), and from interest rate related options embedded in our assets and liabilities (option risk).
Our objective is to manage our interest rate risk by determining whether a given movement in interest rates affects our net interest income and the market value of our portfolio equity in a positive or negative way and to execute strategies to maintain interest rate risk within established limits. The results at December 31, 2021 indicate a level of risk within the parameters of our model. Our management believes that the December 31, 2021 results indicate a profile that reflects an acceptable level of interest rate risk exposures in both rising and declining rate environments for both net interest income and economic value.
Model Simulation Analysis. We view interest rate risk from two different perspectives. The traditional accounting perspective, which defines and measures interest rate risk as the change in net interest income and earnings caused by a change in interest rates, provides the best view of short-term interest rate risk exposure. We also view interest rate risk from an economic perspective, which defines and measures interest rate risk as the change in the market value of portfolio equity caused by changes in the values of assets and liabilities, which fluctuate due to changes in interest rates. The market value of portfolio equity, also referred to as the economic value of equity, is defined as the present value of future cash flows from existing assets, minus the present value of future cash flows from existing liabilities.
These two perspectives give rise to income simulation and economic value simulation, each of which presents a unique picture of our risk of any movement in interest rates. Income simulation identifies the timing and magnitude of changes in income resulting from changes in prevailing interest rates over a short-term time horizon (usually one or two years). Economic value simulation reflects the interest rate sensitivity of assets and liabilities in a more comprehensive fashion, reflecting all future time periods. It can identify the quantity of interest rate risk as a function of the changes in the economic values of assets and liabilities, and the corresponding change in the economic value of equity of Columbia Bank. Both types of simulation assist in identifying,
measuring, monitoring and managing interest rate risk and are employed by management to ensure that variations in interest rate risk exposure will be maintained within policy guidelines.
We produce these simulation reports and review them regularly with our management, Asset/Liability Committee and Board Risk Committee. The simulation reports compare baseline (no interest rate change) to the results of an interest rate shock, to illustrate the specific impact of the interest rate scenario tested on income and equity. The model, which incorporates all asset and liability rate information, simulates the effect of various interest rate movements on income and equity value. The reports identify and measure our interest rate risk exposure present in our current asset/liability structure. Management considers both a static (current position) and dynamic (forecast changes in volume) analysis as well as non-parallel and gradual changes in interest rates and the yield curve in assessing interest rate exposures.
If the results produce quantifiable interest rate risk exposure beyond our limits, then the testing will have served as a monitoring mechanism to allow us to initiate asset/liability strategies designed to reduce and therefore mitigate interest rate risk.
Certain shortcomings are also 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.
The table below sets forth an approximation of our interest rate risk 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 our 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 December 31, 2021, the total net portfolio value, the estimated changes in the 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 Freehold Bank and its subsidiaries only and does not include any assets of the Company.
Twelve Months Net Interest Income Net Portfolio Value ("NPV")
Change in Interest Rates (Basis Points) Amount Dollar Change Percent of Change Estimated NPV Present Value Ratio Percent Change
(Dollars in thousands)
+300 $ 231,265 $ (686) (0.30) % $ 1,166,355 14.10 % (12.70) %
+200 232,003 52 0.02 1,247,269 14.60 (6.60)
+100 232,259 308 0.13 1,318,054 14.92 (1.30)
Base 231,951 - - 1,335,338 14.62 -
-100 219,048 (12,903) (5.56) 1,293,294 13.74 (3.10)
As of December 31, 2021, based on the scenarios above, net interest income would increase by approximately 0.02% if rates were to rise 200 basis points, and would decrease by 5.56% if rates were to decrease 100 basis points over a one-year time horizon.
Another measure of interest rate sensitivity is to model changes in the net portfolio value through the use of immediate and sustained interest rate shocks. As of December 31, 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 6.60%. If rates were to decrease 100 basis points, the model forecasts a 3.10% decrease in the NPV.
Overall, our December 31, 2021 results indicate that we are adequately positioned with an acceptable net interest income and economic value at risk in all scenarios and that all interest rate risk results continue to be within our policy guidelines.
Liquidity Management
Liquidity risk is the risk of being unable to meet future financial obligations as they come due at a reasonable funding cost. We mitigate this risk by attempting to structure our balance sheet prudently and by maintaining diverse borrowing resources to fund potential cash needs. For example, we structure our balance sheet so that we fund less liquid assets, such as loans, with stable funding
sources, such as retail deposits, long-term debt, wholesale borrowings, and capital. We assess liquidity needs arising from asset growth, maturing obligations, and deposit withdrawals, taking into account operations in both the normal course of business and times of unusual events. In addition, we consider our off-balance sheet arrangements and commitments that may impact liquidity in certain business environments.
Our Asset/Liability Committee measures liquidity risks, sets policies to manage these risks, and reviews adherence to those policies at its quarterly meetings. For example, we manage the use of short-term unsecured borrowings as well as total wholesale funding through policies established and reviewed by our Asset/Liability Committee. In addition, the Risk Committee of our Board of Directors reviews liquidity limits and reviews current and forecasted liquidity positions at each of its regularly scheduled meetings.
We have contingency funding plans that assess liquidity needs that may arise from certain stress events such as rapid asset growth or financial market disruptions. Our contingency plans also provide for continuous monitoring of net borrowed funds and dependence and available sources of contingent liquidity. These sources of contingent liquidity include cash and cash equivalents, capacity to borrow at the Federal Reserve discount window and through the FHLB system, fed funds purchased from other banks and the ability to sell, pledge or borrow against unencumbered securities in our securities portfolio. As of December 31, 2021, the potential liquidity from these sources is an amount we believe currently exceeds any contingent liquidity need.
Uses of Funds. Our primary uses of funds include the extension of loans and credit, the purchase of securities, working capital, and debt and capital management. In addition, contingent uses of funds may arise from events such as financial market disruptions.
We regularly adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, (4) repayment of borrowings, and (5) the objectives of our asset/liability management program. Excess liquid assets are generally invested in fed funds.
Sources of Funds. Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, investing and financing activities during any given period. At December 31, 2021, total cash and cash equivalents totaled $71.0 million. Debt securities classified as available for sale, and equity securities, which provide additional sources of liquidity, totaled $1.7 billion, and $2.7 million, respectively, at December 31, 2021. At December 31, 2021, we had $340.5 million in Federal Home Loan Bank fixed rate advances. In addition, if Columbia Bank and Freehold Bank require funds beyond their ability to generate them internally, they can each borrow additional funds under an overnight advance program up to their maximum borrowing capacity based on their ability to collateralize such borrowings. At December 31, 2021, we had $340.5 million in Federal Home Loan Bank fixed rate advances.
Our primary sources of funds include a large, stable deposit base. Core deposits (consisting of demand, money market and savings and club accounts), primarily generated from our retail branch network, are our largest and most cost-effective source of funding. Core deposits totaled $5.8 billion at December 31, 2021, representing an increase of $1.0 billion, from $4.8 billion at December 31, 2020. The increase in core deposits was primarily driven by a $357.5 million increase in non-interest bearing demand accounts, and a $410.8 million increase in interest-bearing demand accounts, mainly attributable to our Yield and Advantage Plus checking products. In addition, we acquired approximately $128.1 million in core deposits from Freehold Bank. We also maintain access to a diversified base of wholesale funding sources. These uncommitted sources include federal funds purchased from other banks, securities sold under agreements to repurchase, and FHLB advances. Aggregate wholesale funding totaled $377.3 million at December 31, 2021, compared to $799.4 million as of December 31, 2020. In addition, at December 31, 2021, we had availability to borrow additional funds, subject to our ability to collateralize such borrowings from the FHLB of New York and the Federal Reserve Bank of New York, or utilize our $30.0 million unsecured revolving credit facility with a a third party.
A significant use of our liquidity is the funding of loan originations. At December 31, 2021, the Company had $284.9 million in loan commitments outstanding, which primarily consisted of commitments to fund loans of $116.0 million, $73.9 million, $27.8 million, $58.1 million, and $9.2 million, in one-to-four family real estate, multifamily and commercial real estate, commercial business, construction, and home equity loans and advances, respectively. There was also $899.2 million in unused commercial business, construction and consumer lines of credit, and $13.5 million in letters of credit. Since these commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower. Another significant use of liquidity is the funding of deposit withdrawals. Certificates of deposit due within one year of December 31, 2021 totaled $1.1 billion, or 61.2% of total certificates of deposit. The large percentage of certificates of deposit that mature within one year reflects customers’ hesitancy to invest their funds for long periods. Management believes, however, based on past experience, that a significant portion of our certificates of deposit will be renewed. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits and borrowings than we currently pay on the certificates of deposit due on or before December 31, 2021. We have the ability to attract and retain deposits by adjusting the interest rates offered.
Our primary investing activities are the origination of loans and the purchase of securities. Our primary financing activities consist of activity in deposit accounts, borrowings and treasury stock. Deposit flows are affected by the overall level of market interest rates, the interest rates and products offered by us, local competitors and other factors. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain deposit products to attract deposits.
Columbia Financial is a separate legal entity from Columbia Bank and Freehold Bank and must provide for its own liquidity in addition to its operating expenses. Columbia Financial’s primary source of income is dividends received from Columbia Bank and Freehold Bank. The amount of dividends the Banks may declare and pay to Columbia Financial is generally restricted under federal regulations to the retained earnings of each Bank. At December 31, 2021, on a stand-alone basis, Columbia Financial had liquid assets of $77.3 million.
Capital Management. We are subject to various regulatory capital requirements administered by our federal banking regulators, including a risk-based capital measure. The Federal Reserve establishes capital requirements, including well capitalized standards, for our consolidated financial holding company, and the OCC has similar requirements for our Company's subsidiary banks. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At December 31, 2021, we exceeded all of our regulatory capital requirements. We are considered “well capitalized” under regulatory guidelines. See “Item 1: Business - Regulation and Supervision - Federal Banking Regulations - Capital Requirements” and note 13 in the notes to the consolidated financial statements included in this report.
Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit. For information about our loan commitments, see note 16 in the notes to the consolidated financial statements included in this report.
For the years ended December 31, 2021 and 2020, we did not engage in any off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.
Derivative Financial Instruments. Columbia Bank executes interest rate swaps with third parties in order to hedge the interest expense of short-term FHLB advances. Those interest rate swaps are simultaneous with entering into the short-term borrowings with the FHLB. These derivatives are designated as cash flow hedges and are not speculative. As these interest rate swaps meet the hedge accounting requirements, the effective portion of changes in the fair value are recognized in accumulated other comprehensive income. As of December 31, 2021, Columbia Bank had 14 interest rate swaps with notional amounts of $190.0 million hedging certain FHLB advances.
Columbia Bank presently offers interest rate swaps to commercial banking customers to manage their risk of exposure and risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that Columbia Bank executes with a third party, such that Columbia Bank would minimize its net risk exposure resulting from such transactions. These derivatives are not designated as hedges and are not speculative. Rather, these derivatives result from a service Columbia Bank offers to certain customers. As the interest rate swaps would not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting third party swap contracts are recognized directly in earnings. At December 31, 2021, we had interest rate swaps in place with 52 commercial banking customers executed by offsetting interest rate swaps with third parties, with aggregated notional amounts of $183.4 million.
Columbia Bank offers currency forward contracts to certain commercial banking customers to facilitate international trade. Those forward contracts are simultaneously hedged by offsetting forward contracts that Columbia Bank would execute with a third party, such that Columbia Bank would minimize its net risk exposure resulting from such transactions. These derivatives are not designated as hedges and are not speculative. Rather, these derivatives result from a service Columbia Bank offers to certain commercial customers. As the currency forward contract does not meet the hedge accounting requirements, changes in the fair value of both the customer forward contract and the offsetting forward contract is recognized directly in earnings. At December 31, 2021, Columbia Bank had no currency forward contracts in place with. commercial banking customers.
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see note 2 in the notes to the consolidated financial statements included in this report.
Effect of Inflation and Changing Prices
The consolidated financial statements and related consolidated financial data presented in this report have been prepared in accordance with accounting principles generally accepted in the United States of America, 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 impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services because such prices are affected by inflation to a larger extent than interest rates.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated herein by reference to the section captioned “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
The information required by this item is included beginning on page 78 of this report.
The following are included in this item:
(A) Report of Independent Registered Public Accounting Firm (PCAOB ID: 185)
(B) Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
(C) Consolidated Financial Statements:
(1) Consolidated Statements of Financial Condition as of December 31, 2021 and 2020
(2) Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019
(3) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019
(4) Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2021, 2020 and 2019
(5) Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
(6) Notes to the Consolidated Financial Statements
(D) Columbia Financial, Inc. Condensed Financial Statements
(1) Statements of Financial Condition as of December 31, 2021 and 2020
(2) Statements of Income and Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019
(3) Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Change in and Disagreements With Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure 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 Exchange Act of 1934, as amended) as of December 31, 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 the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported as of the end of the period covered by this annual report.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial reporting that occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control system is a process designed to provide reasonable assurance to the Company's management and board of directors regarding the preparation and fair presentation of published financial statements.
The Company's internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances
that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on its financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those system determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness of future periods are subject to the risk that controls may be inadequate due to changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
As part of the Company’s program to comply with Section 404 of the Sarbanes-Oxley Act of 2002, our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 (the “Assessment”). In making this Assessment, management used the control criteria framework of the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission published in its report entitled Internal Control - Integrated Framework (2013). Management’s Assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Based on this assessment, the Company’s management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2021.
The Company acquired Freehold Bank on December 1, 2021. Freehold Bank, which had assets of $316.5 million as of December 31, 2021, and net income of approximately $423,000 from the acquisition date through December 31, 2021, was excluded from the scope of this report as allowed by the SEC. Freehold's assets comprised 3.4% of the Company's consolidated assets as of December 31, 2021, and net income was less than 1% of the Company's consolidated net income for 2021.
Report of Independent Registered Public Accounting Firm
The attestation report by the Company’s independent registered public accounting firm, KPMG LLP, on the Company’s internal control over financial reporting is included with the audited consolidated financial statements of the Company beginning on page 78 of this report.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
Board of Directors
To be filed by amendment.
Executive Officers
To be filed by amendment.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
To be filed by amendment.
Disclosure of Code of Ethics
To be filed by amendment. A copy of the Code of Ethics and Business Conduct is available to stockholders on the Company’s website at www.columbiabankonline.com.
Corporate Governance
To be filed by amendment.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
Executive Compensation
To be filed by amendment.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
To be filed by amendment.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions and Director Independence
Certain Relationships and Related Transactions
To be filed by amendment.
Corporate Governance
To be filed by amendment.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
To be filed by amendment.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
(1) The financial statements required in response to this item are incorporated herein by reference from Item 8 of this Annual Report on Form 10-K.
(2) All financial statement schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.
(3) Exhibits
No. Description Location
3.1 Second Amended and Restated Certificate of Incorporation of Columbia Financial, Inc. Incorporated herein by reference to
Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
3.2 Amended Bylaws of Columbia Financial, Inc.
Incorporated herein by reference to
Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
4.0 Specimen Stock Certificate of Columbia Financial, Inc.
Incorporated herein by reference to
Exhibit 4.0 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
4.1 Description of Columbia Financial, Inc.'s Common Stock Registered Under Section 12 of the Securities Exchange Act of 1934
Incorporated herein by reference to
Exhibit 4.0 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
10.1 Employment Agreement between Columbia Financial, Inc., Columbia Bank and Thomas J. Kemly+
Incorporated herein by reference to
Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
10.2 Employment Agreement between Columbia Financial, Inc., Columbia Bank and Dennis E. Gibney+
Incorporated herein by reference to
Exhibit 10.2 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
10.3 Employment Agreement between Columbia Financial, Inc., Columbia Bank and Thomas Allen, Jr.+
Incorporated herein by reference to
Exhibit 10.3 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
10.4 Employment Agreement between Columbia Financial, Inc., Columbia Bank and Geri M. Kelly+
Incorporated herein by reference to
Exhibit 10.4 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
10.5 Employment Agreement between Columbia Financial, Inc., Columbia Bank and John Klimowich+
Incorporated herein by reference to
Exhibit 10.5 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
10.6 Employment Agreement between Columbia Financial, Inc., Columbia Bank and Mark S. Krukar+ Incorporated herein by reference to
Exhibit 10.6 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
10.7 Employment Agreement between Columbia Financial, Inc., Columbia Bank and Brian W. Murphy+
Incorporated herein by reference to
Exhibit 10.7 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
10.8 Employment Agreement between Columbia Financial, Inc., Columbia Bank and Allyson Schlesinger+
Incorporated herein by reference to
Exhibit 10.8 to the Company’s Annual Report on Form 10-K (File No. 001-38456), for the Year Ended December 31, 2018, filed on March 29, 2019
10.9 Employment Agreement between Columbia Financial, Inc., Columbia Bank and Damodaram Bashyam+
Incorporated herein by reference to
Exhibit 10.9 to the Company’s Annual Report on Form 10-K (File No. 001-38456), for the Year Ended December 31, 2019, filed on March 29, 2019
10.10 Employment Agreement between Columbia Financial, Inc., Columbia Bank and Oliver Lewis+ Incorporated herein by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K (File No. 001-38456), for the Year Ended December 31, 2020, filed on March 1, 2021
10.11 Employment Agreement between Columbia Financial, Inc., Columbia Bank and W. Justin Jennings+ Filed herewith
10.12 Form of Columbia Bank Supplemental Executive Retirement Plan+
Incorporated herein by reference to
Exhibit 10.9 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
10.13 Columbia Bank Stock-Based Deferral Plan+
Incorporated herein by reference to
Exhibit 10.10 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
10.14 Columbia Bank Director Deferred Compensation Plan, as amended+ Incorporated herein by reference to
Exhibit 10.11 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
10.15 Columbia Bank Retirement Income Maintenance Plan+
Incorporated herein by reference to
Exhibit 10.12 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
10.16 Columbia Bank Non-Qualified Savings Income Maintenance Plan, as amended+
Incorporated herein by reference to
Exhibit 10.13 to the Company’s Registration Statement on Form S-1 (File No. 333-221912), initially filed on December 5, 2017
10.17 Columbia Financial, Inc. 2019 Equity Incentive Plan
Incorporated by reference to Annex 1 to the Company's Definitive Proxy Materials on Schedule 14A (File No. 001-38456), filed on April 22, 2019
21.0 Subsidiaries Filed herewith
23.1 Consent of KPMG LLP Filed herewith
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Filed herewith
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Filed herewith
32 Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
Filed herewith
101.0 The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 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 (Loss), (iv) the Consolidated Statement of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements.
Filed herewith
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+ Management contract or compensatory plan, contract or arrangement.