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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark one)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Commission File Number 001-38456

Columbia Financial, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
22-3504946
(State or other jurisdiction
of incorporation or organization)
 
(I.R.S. Employer Identification Number)
19-01 Route 208 North,
Fair Lawn,
 
 
New Jersey
 
07140
(Address of principal executive offices)
 
(Zip Code)

(800) 522-4167
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
CLBK
The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
☒
Accelerated filer
☐
Smaller reporting company
☐
Non-accelerated filer
☐
Emerging growth company
☐
 
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes ☒ No

As of August 7, 2020, there were 115,055,092 shares issued and outstanding of the Registrant's common stock, par value $0.01 per share.
 


COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Index to Form 10-Q
Item Number
Page Number
 
 
 
PART I.
Financial Information
 
 
 
 
Item 1.
Financial Statements
 
 
Consolidated Statements of Financial Condition as of June 30, 2020 (Unaudited) and December 31, 2019
 
Consolidated Statements of Income for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)
 
Consolidated Statements of Comprehensive Income (Loss) for the Six Months Ended June 30, 2020 and 2019 (Unaudited)
 
Consolidated Statements of Changes in Stockholder's Equity for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)
 
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (Unaudited)
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(In thousands, except share and per share data)
 
June 30,
 
December 31,
 
2020
 
2019
Assets
 (Unaudited)
 
 
 
 
 
 
Cash and due from banks
$
225,743

 
$
75,420

Short-term investments
138

 
127

Total cash and cash equivalents
225,881

 
75,547

 
 
 
 
Debt securities available for sale, at fair value
1,177,925

 
1,098,336

Debt securities held to maturity, at amortized cost (fair value of $289,836 and $289,505 at June 30, 2020 and December 31, 2019, respectively)
273,997

 
285,756

Equity securities, at fair value
4,710

 
2,855

Federal Home Loan Bank stock
57,843

 
69,579

Loans held-for-sale, at fair value
9,639

 
—

 
 
 
 
Loans receivable
6,639,874

 
6,197,566

Less: allowance for loan losses
74,015

 
61,709

Loans receivable, net
6,565,859

 
6,135,857

 
 
 
 
Accrued interest receivable
28,414

 
22,092

Office properties and equipment, net
77,588

 
72,967

Bank-owned life insurance
231,596

 
211,415

Goodwill and intangible assets
92,642

 
68,582

Other assets
217,098

 
145,708

Total assets
$
8,963,192

 
$
8,188,694

 
 
 
 
Liabilities and Stockholders' Equity
 
 
 
Liabilities:
 
 
 
Deposits
$
6,581,109

 
$
5,645,842

Borrowings
1,129,979

 
1,407,022

Advance payments by borrowers for taxes and insurance
36,706

 
35,507

Accrued expenses and other liabilities
174,410

 
117,806

Total liabilities
7,922,204

 
7,206,177

 
 
 
 
Stockholders' equity:
 
 
 
Preferred stock, $0.01 par value. 10,000,000 shares authorized; none issued and outstanding at June 30, 2020 and December 31, 2019
—

 
—

Common stock, $0.01 par value. 500,000,000 shares authorized; 122,037,793 shares issued and 115,067,114 shares outstanding at June 30, 2020, and 113,765,387 shares issued and outstanding at December 31, 2019
1,220

 
1,173

Additional paid-in capital
605,124

 
531,667

Retained earnings
637,343

 
615,481

Accumulated other comprehensive loss
(53,207
)
 
(68,735
)
Treasury stock, at cost; 6,970,679 shares at June 30, 2020 and 3,513,358 shares at December 31, 2019
(108,327
)
 
(54,950
)
Common stock held by the Employee Stock Ownership Plan
(40,434
)
 
(41,564
)
Stock held by Rabbi Trust
(1,767
)
 
(1,520
)
Deferred compensation obligations
1,036

 
965

Total stockholders' equity
1,040,988

 
982,517

Total liabilities and stockholders' equity
$
8,963,192

 
$
8,188,694

 
 
 
 
See accompanying notes to unaudited consolidated financial statements.

2


COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except share and per share data)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Interest income:
(Unaudited)
Loans receivable
$
65,235

 
$
51,709

 
129,253

 
103,969

Debt securities available for sale and equity securities
7,292

 
7,900

 
14,620

 
15,559

Debt securities held to maturity
1,993

 
2,115

 
4,058

 
4,022

Federal funds and interest earning deposits
27

 
134

 
216

 
223

Federal Home Loan Bank stock dividends
1,040

 
874

 
2,130

 
1,846

Total interest income
75,587

 
62,732

 
150,277

 
125,619

Interest expense:
 
 
 
 
 
 
 
Deposits
14,911

 
15,250

 
31,743

 
28,929

Borrowings
4,805

 
6,639

 
11,961

 
13,463

Total interest expense
19,716

 
21,889

 
43,704

 
42,392

 
 
 
 
 

 

Net interest income
55,871

 
40,843

 
106,573

 
83,227

 
 
 
 
 

 

Provision for loan losses
5,736

 
112

 
15,304

 
548

 
 
 
 
 

 

Net interest income after provision for loan losses
50,135

 
40,731

 
91,269

 
82,679

 
 
 
 
 
 
 
 
Non-interest income:
 
 
 
 
 
 
 
Demand deposit account fees
620

 
1,051

 
1,919

 
2,010

Bank-owned life insurance
1,519

 
1,345

 
2,936

 
2,665

Title insurance fees
996

 
1,099

 
2,227

 
2,140

Loan fees and service charges
533

 
1,500

 
1,261

 
2,320

Gain on securities transactions
—

 
339

 
370

 
465

Change in fair value of equity securities
643

 
71

 
59

 
247

Gain on sale of loans
795

 
196

 
1,549

 
328

Other non-interest income
1,902

 
1,174

 
3,078

 
2,637

Total non-interest income
7,008

 
6,775

 
13,399

 
12,812

 
 
 
 
 
 
 
 
Non-interest expense:
 
 
 
 
 
 
 
Compensation and employee benefits
25,218

 
20,343

 
49,683

 
39,923

Occupancy
4,701

 
3,824

 
9,496

 
7,655

Federal deposit insurance premiums
626

 
462

 
736

 
887

Advertising
447

 
1,390

 
1,591

 
2,778

Professional fees
1,083

 
1,431

 
2,449

 
2,678

Data processing
816

 
669

 
1,581

 
1,307

Merger-related expenses
432

 
462

 
1,507

 
462

Other non-interest expense
4,120

 
3,260

 
8,908

 
5,710

Total non-interest expense
37,443

 
31,841

 
75,951

 
61,400

 
 
 
 
 
 
 
 
 Income before income tax expense
19,700

 
15,665

 
28,717

 
34,091

 
 
 
 
 
 
 
 
Income tax expense
4,603

 
3,634

 
6,855

 
7,141

 
 
 
 
 
 
 
 
Net income
$
15,097

 
$
12,031

 
21,862

 
26,950

 
 
 
 
 
 
 
 
Earnings per share - basic and diluted
$
0.14

 
$
0.11

 
$
0.20

 
$
0.24

Weighted average shares outstanding -basic and diluted
111,102,306

 
111,553,203

 
109,770,239

 
111,544,339

 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.

3


COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
(Unaudited)
 
 
 
 
 
 
 
 
Net income
$
15,097

 
$
12,031

 
$
21,862

 
$
26,950

 
 
 
 
 
 
 
 
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Unrealized gains on debt securities available for sale
6,352

 
14,092

 
25,619

 
23,387

Accretion of unrealized (loss) gain on debt securities reclassified as held to maturity
(2
)
 
(2
)
 
4

 
8

Reclassification adjustment for gains included in net income
—

 
260

 
289

 
360

 
6,350

 
14,350

 
25,912

 
23,755

 
 
 
 
 
 
 
 
Derivatives, net of tax:
 
 
 
 
 
 
 
Unrealized (loss) on swap contracts accounted for as cash flow hedges
(750
)
 
(4,676
)
 
(12,099
)
 
(7,456
)
 
(750
)
 
(4,676
)
 
(12,099
)
 
(7,456
)
 
 
 
 
 
 
 
 
Employee benefit plans, net of tax:
 
 
 
 
 
 
 
Amortization of prior service cost included in net income
(11
)
 
(11
)
 
(22
)
 
(22
)
Reclassification adjustment of actuarial net gain included in net income
(845
)
 
(731
)
 
(1,692
)
 
(1,461
)
Change in funded status of retirement obligations
1,714

 
(4,431
)
 
3,429

 
(3,690
)
 
858

 
(5,173
)
 
1,715

 
(5,173
)
 
 
 
 
 
 
 
 
Total other comprehensive income
6,458

 
4,501

 
15,528

 
11,126

 
 
 
 
 
 
 
 
Total comprehensive income, net of tax
$
21,555

 
$
16,532

 
$
37,390

 
$
38,076

 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.


4


COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Three Months Ended June 30, 2020 and 2019
(In thousands)
 
Common Stock
 
Additional Paid-in-Capital
 
Retained Earnings
 
Accumulated Other Comprehensive (Loss)
 
Treasury Stock
 
Common Stock Held by the Employee Stock Ownership Plan
 
Stock Held by Rabbi Trust
 
Deferred Compensation Obligations
 
Total Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2019
$
1,159

 
$
527,346

 
$
575,683

 
$
(65,820
)
 
$
—

 
$
(43,276
)
 
$
(1,359
)
 
$
769

 
$
994,502

Net income
—

 
—

 
12,031

 
—

 
—

 
—

 
—

 
—

 
12,031

Other comprehensive income
—

 
—

 
—

 
4,501

 
—

 
—

 
—

 
—

 
4,501

Purchase of treasury stock
—

 
—

 
—

 
—

 
(3,867
)
 
—

 
—

 
—

 
(3,867
)
Employee Stock Ownership Plan shares committed to be released
—

 
304

 
—

 
—

 
—

 
566

 
—

 
—

 
870

Funding of deferred compensation obligations
—

 
—

 
—

 
—

 
—

 
—

 
(48
)
 
(80
)
 
(128
)
Balance at June 30, 2019
$
1,159

 
$
527,650

 
$
587,714

 
$
(61,319
)
 
$
(3,867
)
 
$
(42,710
)
 
$
(1,407
)
 
$
689

 
$
1,007,909

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2020
$
1,173

 
$
534,213

 
$
622,246

 
$
(59,665
)
 
$
(95,326
)
 
$
(40,999
)
 
$
(1,728
)
 
$
1,212

 
$
961,126

Net income
—

 
—

 
15,097

 
—

 
—

 
—

 
—

 
—

 
15,097

Other comprehensive income
—

 
—

 
—

 
6,458

 
—

 
—

 
—

 
—

 
6,458

Issuance of common stock to Columbia Bank MHC
47

 
68,483

 
—

 
—

 
—

 
—

 
—

 
—

 
68,530

Stock based compensation
—

 
2,205

 
—

 
—

 
—

 
—

 
—

 
—

 
2,205

Purchase of treasury stock (899,074 shares)
—

 
—

 
—

 
—

 
(12,998
)
 
—

 
—

 
—

 
(12,998
)
Restricted stock forfeitures (240 shares)
—

 
—

 
—

 
—

 
(3
)
 
—

 
—

 
—

 
(3
)
Employee Stock Ownership Plan shares committed to be released
—

 
223

 
—

 
—

 
—

 
565

 
—

 
—

 
788

Funding of deferred compensation obligations
—

 
—

 
—

 
—

 
—

 
—

 
(39
)
 
(176
)
 
(215
)
Balance at June 30, 2020
$
1,220

 
$
605,124

 
$
637,343

 
$
(53,207
)
 
$
(108,327
)
 
$
(40,434
)
 
$
(1,767
)
 
$
1,036

 
$
1,040,988

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.






5


COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Six Months Ended June 30, 2020 and 2019
(In thousands)
 
Common Stock
 
Additional Paid-in-Capital
 
Retained Earnings
 
Accumulated Other Comprehensive (Loss)
 
Treasury Stock
 
Common Stock Held by the Employee Stock Ownership Plan
 
Stock Held by Rabbi Trust
 
Deferred Compensation Obligations
 
Total Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
1,159

 
$
527,037

 
$
560,216

 
$
(71,897
)
 
$
—

 
$
(43,835
)
 
$
(1,259
)
 
$
639

 
$
972,060

Effect of the adoption of Accounting Standards Update ("ASC") 2016-01
—

 
—

 
548

 
(548
)
 
—

 
—

 
—

 
—

 
—

Balance at January 1, 2019
1,159

 
527,037

 
560,764

 
(72,445
)
 
—

 
(43,835
)
 
(1,259
)
 
639

 
972,060

Net income
—

 
—

 
26,950

 
—

 
—

 
—

 
—

 
—

 
26,950

Other comprehensive income
—

 
—

 
—

 
11,126

 
—

 
—

 
—

 
—

 
11,126

Purchase of treasury stock
—

 
—

 
—

 
—

 
(3,867
)
 
—

 
—

 
—

 
(3,867
)
Employee Stock Ownership Plan shares committed to be released
—

 
613

 
—

 
—

 
—

 
1,125

 
—

 
—

 
1,738

Funding of deferred compensation obligations
—

 
—

 
—

 
—

 
—

 
—

 
(148
)
 
50

 
(98
)
Balance at June 30, 2019
$
1,159

 
$
527,650

 
$
587,714

 
$
(61,319
)
 
$
(3,867
)
 
$
(42,710
)
 
$
(1,407
)
 
$
689

 
$
1,007,909

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2019
$
1,173

 
$
531,667

 
$
615,481

 
$
(68,735
)
 
$
(54,950
)
 
$
(41,564
)
 
$
(1,520
)
 
$
965

 
$
982,517

Net income
—

 
—

 
21,862

 
—

 
—

 
—

 
—

 
—

 
21,862

Other comprehensive income
—

 
—

 
—

 
15,528

 
—

 
—

 
—

 
—

 
15,528

Issuance of common stock to Columbia Bank MHC
47

 
68,483

 
—

 
—

 
—

 
—

 
—

 
—

 
68,530

Stock based compensation
—

 
4,409

 
—

 
—

 
—

 
—

 
—

 
—

 
4,409

Purchase of treasury (3,456,200 shares)
—

 
—

 
—

 
—

 
(53,361
)
 
—

 
—

 
—

 
(53,361
)
Restricted stock forfeitures (1,121 shares)
—

 
—

 
—

 
—

 
(16
)
 
—

 
—

 
—

 
(16
)
Employee Stock Ownership Plan shares committed to be released
—

 
565

 
—

 
—

 
—

 
1,130

 
—

 
—

 
1,695

Funding of deferred compensation obligations
—

 
—

 
—

 
—

 
—

 
—

 
(247
)
 
71

 
(176
)
Balance at June 30, 2020
$
1,220

 
$
605,124

 
$
637,343

 
$
(53,207
)
 
$
(108,327
)
 
$
(40,434
)
 
$
(1,767
)
 
$
1,036

 
$
1,040,988

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited consolidated financial statements.

6


COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
 
Six Months Ended June 30,
 
2020
 
2019
Cash flows from operating activities:
(In thousands, unaudited)
Net income
$
21,862

 
$
26,950

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Amortization of deferred loan costs, fees and purchased premiums and discounts
656

 
1,102

Net amortization of premiums and discounts on securities
854

 
589

Net amortization of mortgage servicing rights
57

 
(52
)
Amortization of intangible assets
514

 
—

Depreciation and amortization of office properties and equipment
3,314

 
2,170

Amortization of operating lease right-of-use assets
1,440

 
—

Provision for loan losses
15,304

 
548

Gain on securities transactions
(370
)
 
(465
)
Change in fair value of equity securities
(59
)
 
(247
)
Gain on sale of loans
(1,549
)
 
(328
)
Loss on real estate owned
—

 
1

Loss on disposal of office properties and equipment
691

 
—

Loss on write-down of mortgage servicing rights
34

 
—

Deferred tax expense (benefit)
7,220

 
(7,160
)
(Increase) in accrued interest receivable
(5,643
)
 
(1,416
)
(Increase) in other assets
(80,652
)
 
(34,322
)
Increase in accrued expenses and other liabilities
36,507

 
12,880

Income on bank-owned life insurance
(2,936
)
 
(2,665
)
Employee stock ownership plan expense
1,695

 
1,738

Stock based compensation
4,409

 
—

Increase in deferred compensation obligations under Rabbi Trust
(176
)
 
(98
)
Net cash provided by operating activities
3,172

 
(775
)
Cash flows from investing activities:
 
 
 
Proceeds from sales of debt securities available for sale
20,761

 
15,711

Proceeds from sales of equity securities
—

 
765

Proceeds from paydowns/maturities/calls of debt securities available for sale
94,758

 
49,569

Proceeds from paydowns/maturities/calls of debt securities held to maturity
24,971

 
9,964

Purchases of debt securities available for sale
(111,113
)
 
(80,499
)
Purchases of debt securities held to maturity
—

 
(47,671
)
Purchases of equity securities
—

 
(417
)
Proceeds from sales of loans held-for-sale
103,992

 
45,003

Proceeds from sales of loans receivable
22,876

 
2,483

Purchases of loans receivable
—

 
(29,885
)
Net increase in loans receivable
(409,327
)
 
(168,486
)
Proceeds from redemptions of Federal Home Loan Bank stock
35,660

 
32,851

Purchases of Federal Home Loan Bank stock
(21,914
)
 
(32,526
)
Additions to office properties and equipment
(2,852
)
 
(11,387
)
Proceeds from sale of real estate owned
—

 
91

Net cash acquired in acquisition
155,248

 
—

Net cash used in investing activities
(86,940
)
 
(214,434
)
Cash flows from financing activities:

 
 
Net increase in deposits
602,033

 
254,772

Proceeds from long-term borrowings
90,000

 
78,991

Payments on long-term borrowings
(116,465
)
 
(160,000
)
Net (decrease) increase in short-term borrowings
(288,306
)
 
55,100

Increase in advance payments by borrowers for taxes and insurance
217

 
2,389

Purchase of treasury stock
(53,361
)
 
(3,867
)
Restricted stock forfeitures
(16
)
 
—

Net cash provided by financing activities
234,102

 
227,385


7


COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
 
Six Months Ended June 30,
 
2020
 
2019
 
( In thousands, unaudited)
 
 
 
 
Net increase in cash and cash equivalents
$
150,334

 
$
12,176

 
 
 
 
Cash and cash equivalents at beginning of year
75,547

 
42,201

Cash and cash equivalents at end of period
$
225,881

 
$
54,377

 
 
 
 
Cash paid during the period for:
 
 
 
Interest on deposits and borrowings
$
43,801

 
$
21,491

Income tax payments, net of (refunds)
$
1,300

 
$
(5,174
)
 
 
 
 
Non-cash investing and financing activities:
 
 
 
Transfer of loans receivable to loans held-for-sale
$
112,219

 
$
38,966

Securitization of loans
$
—

 
$
21,615

Initial recognition of operating lease right-of-use assets
$
22,218

 
$
—

Initial recognition of operating lease liabilities
$
23,290

 
$
—

Acquisition:
 
 
 
Non-cash assets acquired:
 
 
 
Debt securities available for sale
$
51,479

 
$
—

Debt securities held to maturity
13,418

 
—

Equity securities
1,796

 
—

Federal Home Loan Bank stock
2,010

 
—

Loans receivable
171,593

 
—

Accrued interest receivable
679

 
—

Office properties and equipment, net
5,774

 
—

Bank-owned life insurance
17,245

 
—

Other assets
2,823

 
—

Total non-cash assets acquired
$
266,817

 
$
—

Liabilities assumed:
 
 
 
Deposits
$
333,234

 
$
—

Borrowings
37,728

 
—

Advance payments by borrowers for taxes and insurance
982

 
—

Accrued expenses and other liabilities
5,400

 
—

Total liabilities assumed
$
377,344

 
$
—

Net non-cash liabilities acquired
$
(110,527
)
 
$
—

Net cash and cash equivalents acquired in acquisition
$
155,248

 
$
—

 
 
 
 
See accompanying notes to unaudited consolidated financial statements.


8
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements


1.Basis of Financial Statement Presentation

The accompanying unaudited consolidated financial statements include the accounts of Columbia Financial, Inc., its wholly-owned subsidiary Columbia Bank (the "Bank") and the Bank's wholly-owned subsidiaries (collectively, the “Company”). In consolidation, all intercompany accounts and transactions are eliminated.

Columbia Financial, Inc. is a majority-owned subsidiary of Columbia Bank, MHC (the "MHC"). The accounts of the MHC are not consolidated in the accompanying consolidated financial statements of the Company.
    
In preparing the interim unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the Consolidated Statements of Financial Condition and Consolidated Statements of Income for the periods presented. Actual results could differ from these estimates. Material estimates that are particularly susceptible to change are the determination of the adequacy of the allowance for credit losses, evaluation of the need for valuation allowances on deferred tax assets, and determination of liabilities related to retirement and other post-retirement benefits. These estimates and assumptions are evaluated on an ongoing basis and are adjusted when facts and circumstances dictate.

The interim unaudited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operations for the three and six month periods ended June 30, 2020 are not necessarily indicative of the results of operations that may be expected for the entire fiscal year or any other period. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.

The interim unaudited consolidated financial statements of the Company presented herein have been prepared in accordance with the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and U.S. generally accepted accounting principles (“GAAP”). Certain information and note disclosures have been condensed or omitted pursuant to the rules and regulations of the SEC.

These unaudited consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2019 and the audited consolidated financial statements included therein.

2.     Acquisitions
Stewardship Financial Corporation

On November 1, 2019, the Company completed its acquisition of Stewardship Financial Corporation ("Stewardship"), pursuant to the Agreement and Plan of Merger, dated as of June 6, 2019 (the "Merger Agreement"), by and among Columbia Financial, Broadway Acquisition Corp. (a wholly owned subsidiary of Columbia Financial) and Stewardship. Under the terms of the merger agreement, each outstanding share of Stewardship common stock was converted into the right to received $15.75 in cash at the effective time of the merger. At the time of closing, Stewardship had $956.0 million in total assets, including $756.9 million in net loans receivable, and $52.6 million in securities, and $877.8 million in total liabilities, including $781.4 million in deposits and $81.8 million in borrowings. The deposits initially acquired from Stewardship were held across a network of 12 branches located in New Jersey throughout Bergen, Morris, and Passaic Counties. During the six months ended June 30, 2020, four of these branches were closed, and the Bank recorded a loss of $770,000 related to these branch closures.

Merger-related expenses are recorded in the Consolidated Statements of Income and are expensed as incurred. Direct acquisition and other charges incurred in connection with the Stewardship acquisition totaled $102,000 and $1.1 million during the three and six months ended June 30, 2020, respectively. Merger expenses recorded during both the three and six months ended June 30, 2019 were $462,000.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The fair value estimates are subject to change for up to one year after the closing date of the transaction if additional information (existing at the date of closing) relative to closing date fair values becomes available. As the Company continues to analyze the acquired assets and assumed liabilities, there may be adjustments to the recorded carrying values. However, management does not expect significant future adjustments to the recorded amounts as at November 1, 2019.



9
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

2.     Acquisitions (continued)

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"). Pursuant to the terms of the Merger Agreement, RSB Bancorp, MHC merged with and into the MHC, with the MHC as the surviving entity; RSB Bancorp, Inc.: merged with and into the Company, with the Company as the surviving entity; and Roselle Bank merged with and into the Bank, with the Bank as the surviving institution. Under the terms of the merger agreement, depositors of Roselle Bank became depositors of the Bank and have the same rights and privileges in the MHC as if their accounts had been established at the Bank on the date established at Roselle Bank. The Company issued 4,759,048 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, at the effective time of the merger.

Merger-related expenses are recorded in the Consolidated Statements of Income and are expensed as incurred. Direct acquisition and other charges incurred in connection with the acquisition of the Roselle Entities totaled $335,000 and $443,000 during the three and six months ended June 30, 2020, respectively. There were no merger expenses recorded during the three and six months ended June 30, 2019.

The following table sets forth assets acquired and liabilities assumed in the acquisition of the Roselle Entities, at their estimated fair values as of the closing date of the transaction:
 
April 1, 2020
 
(In thousands)
Assets acquired:
 
Cash and cash equivalents
$
155,248

Debt securities available for sale
51,479

Debt securities held to maturity
13,418

Equity securities
1,796

Federal Home Loan Bank stock
2,010

Loans receivable
171,593

Accrued interest receivable
679

Office properties and equipment, net
5,774

Bank-owned life insurance
17,245

Deferred tax asset, net
1,334

Other assets
1,489

Total assets acquired
$
422,065

 
 
Liabilities assumed:
 
Deposits
$
333,234

Borrowings
37,728

Advance payments by borrowers for taxes and insurance
982

Accrued expenses and other liabilities
5,400

Total liabilities assumed
$
377,344

 
 
Net assets acquired
44,721

Fair market value of stock issued to Columbia Bank MHC for purchase
68,530

Goodwill recorded at merger
$
23,809








COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

2.     Acquisitions (continued)

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities were recorded at their fair values as of April 1, 2020, and resulted in the recognition of goodwill of $23.8 million. The determination of the fair value of assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market condition, and other future events that are highly subjective in nature and subject to change. The fair value estimates are subject to change for up to one year after the closing date of the transaction if additional information (existing at the date of closing) relative to closing date fair values becomes available. As the Company continues to analyze the acquired assets and assumed liabilities, there may be adjustments to the recorded carrying values. However, management does not expect significant future adjustments to the recorded amounts as at April 1, 2020.

Fair Value Measurement of Assets Acquired and Liabilities Assumed

Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed:

Cash and cash equivalents. The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or have short-term maturities.
    
Debt securities available for sale. The estimated fair values of the debt securities were calculated utilizing Level 2 inputs. The majority of the acquired securities were fixed income instruments that are not quoted on an exchange, but are traded in active markets. The prices for these instruments are obtained through an independent pricing service when available, or dealer market participants with whom the Company has historically transacted with for both purchases and sales of securities. The prices are derived from market quotations and matrix pricing. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, and the bond's terms and conditions, among other things. Management reviewed the data and assumptions used in pricing securities by its third party provider to ensure the highest level of significant inputs are derived from market observable data.

Loans receivable. The acquired loan portfolio was segregated into pools for valuation purposes primarily based on loan type, non-accrual status, and credit risk rating. The estimated fair values were computed by discounting the expected cash flows from the respective pools. Cash flows were estimated by using valuation models that incorporated estimates of current key assumptions such as prepayment speeds, default rates, and loss severity rates. The process included: (1) projecting monthly principal and/or interest cash flows based on the contractual terms of the loans, including both maturity and contractual amortization; (2) adjusting projected cash flows for expected losses and prepayments, where appropriate; (3) developing a discount rate based on the relative risk of the cash flows, considering the loan type, liquidity risk, the maturity of the loans, servicing costs, and a required return on capital; and (4) discounting the projected cash flows to a present value, to arrive at the calculated value of the loans.

The methods used to estimate the fair values of loans are extremely sensitive to the assumptions and estimates used. While management attempted to use assumptions and estimates that best reflected the acquired loan portfolios and current market conditions, a greater degree of subjectivity is inherent in the values than in those determined in active markets.

Office properties and equipment, net. The fair value of land and buildings was estimated using current appraisals. Acquired equipment was not material. Buildings are amortized over their estimated useful lives. Equipment is amortized or depreciated over their estimated useful lives usually ranging for three to ten years.

Goodwill. Goodwill is not amortized for book purposes: however, it is reviewed at least annually for impairment and is not deductible for tax purposes.

Deposits. The fair values of deposit liabilities with no stated maturity (i.e., non-interest bearing and interest-bearing demand deposit accounts, money market and savings and club accounts) are equal to the carrying amounts payable on demand. The fair value of certificates of deposit represent contractual cash flows, discounted to present value using interest rates currently offered on deposits with similar characteristics and remaining maturities.

Borrowings. The fair values of borrowings consisting of FHLB advances were estimated by discounting future cash flows using market discount rates for borrowings with similar characteristics, terms and remaining maturities.
    




COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

3.        Earnings per Share

Basic earnings per share ("EPS") is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. For purposes of calculating basic EPS, weighted average common shares outstanding excludes treasury stock, unallocated employee stock ownership plan shares that have not been committed for release and deferred compensation obligations required to be settled in shares of Company stock.

Diluted EPS is computed using the same method as basic EPS and reflects the potential dilution which could occur if stock options and unvested shares were exercised and converted into common stock. The potentially diluted shares would then be included in the weighted average number of shares outstanding for the period using the treasury stock method.

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations for the three and six months ended June 30, 2020 and 2019:     
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
(Dollars in thousands, except per share data)
 
 
 
 
 
 
 
 
Net income
$
15,097

 
$
12,031

 
$
21,862

 
$
26,950

Shares:
 
 
 
 
 
 
 
Weighted average shares outstanding - basic
111,102,306

 
111,553,203

 
109,770,239

 
111,544,339

Weighted average dilutive shares outstanding
—

 
—

 
—

 
—

Weighted average shares outstanding - diluted
111,102,306

 
111,553,203

 
109,770,239

 
111,544,339

Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.14

 
$
0.11

 
$
0.20

 
$
0.24

Diluted
$
0.14

 
$
0.11

 
$
0.20

 
$
0.24



For the three and six months ended June 30, 2020 the average number of stock options which were anti-dilutive and were not included in the computation of diluted earnings per share totaled 1,494,367 and 1,101,780, respectively. There were no stock options outstanding for the three and six months ended June 30, 2019.

4.    Stock Repurchase Program

On June 11, 2019, the Company announced that its Board of Directors authorized the Company's first stock repurchase program since the completion of its minority public offering in April 2018. This program, which commenced on June 13, 2019, authorized the purchase of up to 4,000,000 shares, or approximately 3.5%, of the Company's then issued and outstanding common stock. On December 5, 2019, the Company announced that its Board of Directors had expanded its stock repurchase program to authorize the purchase of an additional 3,000,000 shares of the Company's outstanding common stock in addition to the shares remaining under the repurchase program announced on June 11, 2019. During the three and six months ended June 30, 2020, the Company repurchased 899,074 shares at a cost of approximately $13.0 million, or $14.46 per share, and 3,456,200 shares at a cost of approximately $53.4 million, or $15.44 per share, respectively, under this program. During the three and six months ended June 30, 2019, the Company repurchased 263,900 shares at a cost of approximately $3.9 million, or $14.65 per share. On April 23, 2020, the Company completed the repurchases under the stock repurchase programs. Repurchased shares are held as treasury stock and are available for general corporate purposes.

5.     Summary of Significant Accounting Policies

Accounting Pronouncements Adopted in 2020

In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815)- Inclusion of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This ASU permits the use of the OIS rate based upon SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the direct Treasury obligations of the U.S. Government, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association Municipal Swap Rate. The amendments in this ASU are required to be adopted concurrently with the amendments in ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which was issued in August 2017. The effective date for this ASU for the Company is for fiscal years beginning after December 15, 2019, with early adoption, including adoption in an interim period permitted. The amendments should be adopted on a
5.    Summary of Significant Accounting Policies (continued)

12
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements


Accounting Pronouncements Adopted in 2020 (continued)

prospective basis for qualifying new or redesignated hedging relationships entered into on or after date of adoption. The Company adopted this guidance effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
    
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The purpose of this updated guidance is to improve the effectiveness and disclosures in the notes to the financial statements. The ASU removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; removes the policy for timing of transfers between levels; and removes the disclosure related to the valuation process for Level 3 fair value measurements. The ASU also modifies existing disclosure requirements
which relate to the disclosure for investments in certain entities which calculate net asset value and clarifies the disclosure about uncertainty in the measurements as of the reporting date. For all entities, the effective date for this guidance is fiscal years beginning after December 15, 2019, including interim periods within the reporting period, with early adoption permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. The Company adopted this guidance effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
    
In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. This guidance shortens the amortization period for premiums on callable debt securities by requiring that premiums be amortized to the first (or earliest) call date instead of as an adjustment to the yield over the contractual life. This change more closely aligns the accounting with the economics of a callable debt security and the amortization period with expectations that already are included in market pricing on callable debt securities. This guidance does not change the accounting for discounts on callable debt securities, which will continue to be amortized to the maturity date. This guidance includes only instruments that are held at a premium and have explicit call features. It does not include instruments that contain prepayment features, such as mortgage backed securities; nor does it include call options that are contingent upon future events or in which the timing or amount to be paid is not fixed. The effective date for this ASU for the Company is fiscal years beginning after December 15, 2019, including interim periods within the reporting period, with early adoption permitted. Transition is on a modified retrospective basis with an adjustment to retained earnings as of the beginning of the period of adoption. The Company adopted this guidance effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The main objective of this guidance is to simplify the accounting for goodwill impairment by requiring that impairment charges be based upon the first step in the current two-step impairment test under ASC 350. Currently, if the fair value of a reporting unit is lower than its carrying amount (Step 1), an entity calculates any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). The implied fair value of goodwill is calculated by deducting the fair value of all assets and liabilities of the reporting unit from the reporting unit’s fair value as determined in Step 1. To determine the implied fair value of goodwill, entities estimate the fair value of any unrecognized intangible assets and any corporate-level assets or liabilities that were included in the determination of the carrying amount and fair value of the reporting unit in Step 1. Under this guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. This guidance eliminates the requirement to calculate a goodwill impairment charge using Step 2. This guidance does not change the guidance on completing Step 1 of the goodwill impairment test. Under this guidance, an entity will still be able to perform the current optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. The guidance in the ASU was applied prospectively and is effective for the Company for annual and interim impairment tests performed in periods beginning after December 15, 2019. The Company adopted this guidance effective January 1, 2020. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance requires all lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date for leases classified as operating leases as well as finance leases. The update also requires new quantitative disclosures related to leases in the Company's consolidated financial statements. There are also practical expedients in this update related to leases that commenced before the effective date, initial direct costs and the use of hindsight to extend or terminate a lease or purchase a leased asset. Lessor accounting remains largely unchanged under this new guidance. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842)-Land Easement Practical Expedient for Transition to Topic 842, which provides an optional practical expedient to not evaluate land easements which were existing or expired before the adoption of Topic 842 that were not accounted for as leases under Topic 840.

5.    Summary of Significant Accounting Policies (continued)

13
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements


Accounting Pronouncements Adopted in 2020 (continued)

In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842) -Targeted Improvements which provides entities with an optional transition method under which comparative periods presented in the financial statements will continue to be in accordance with current Topic 840, Leases, and a practical expedient to not separate non-lease components from the associated lease component. The guidance is effective for the Company for annual periods beginning after December 15, 2019, including interim periods within that reporting period. In the evaluation of this guidance, the Company identified the inventory of leases and actively accumulated the requisite lease data necessary to apply the guidance. The Company selected a software platform to support the recording, accounting and disclosure requirements of the new lease guidance. Upon adoption, the Company recorded a right-of-use asset and lease liability as of January 1, 2020. See note 10 for more information regarding adoption.

Accounting Pronouncements Not Yet Adopted

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 permitted by the recently enacted Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). The Company will adopt CECL at the earlier of December 31, 2020 or when the national emergency concerning the COVID-19 outbreak has concluded. The Company 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 June 30, 2020, we currently expect the adoption of ASU 2016-13 will result in an increase between 10% and 20% 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 increase 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.
    

14
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

5.    Summary of Significant Accounting Policies (continued)

Accounting Pronouncements Not Yet Adopted (continued)

Upon adoption, any impact to the allowance for credit losses, currently the allowance for loan losses, will be reflected as an adjustment to retained earnings.

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 update is to be applied on a retrospective basis. The Company is currently evaluating the effect of ASU 2018-14 on its disclosures in the Company's consolidated financial statements, and as its adoption is only disclosure related, does not expect it will have a significant impact on the Company's consolidated financial statements.

6.    Debt Securities Available for Sale

Debt securities available for sale at June 30, 2020 and December 31, 2019 are summarized as follows:
 
June 30, 2020
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized (Losses)
 
Fair Value
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
$
35,433

 
$
1,238

 
$
—

 
$
36,671

Mortgage-backed securities and collateralized mortgage obligations
1,013,079

 
43,526

 
(377
)
 
1,056,228

Municipal obligations
1,873

 
14

 
—

 
1,887

Corporate debt securities
77,551

 
2,038

 
(749
)
 
78,840

Trust preferred securities
5,000

 
—

 
(701
)
 
4,299

 
$
1,132,936

 
$
46,816

 
$
(1,827
)
 
$
1,177,925

 
December 31, 2019
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized (Losses)
 
Fair Value
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
$
42,081

 
$
321

 
$
(16
)
 
$
42,386

Mortgage-backed securities and collateralized mortgage obligations
968,165

 
12,981

 
(1,265
)
 
979,881

Municipal obligations
2,284

 
1

 
(1
)
 
2,284

Corporate debt securities
68,613

 
945

 
(378
)
 
69,180

Trust preferred securities
5,000

 
—

 
(395
)
 
4,605

 
$
1,086,143

 
$
14,248

 
$
(2,055
)
 
$
1,098,336



15
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements


6.    Debt Securities Available for Sale (continued)

The amortized cost and fair value of debt securities available for sale at June 30, 2020, by contractual final maturity, is shown below. Expected maturities may differ from contractual maturities due to prepayment or early call options exercised by the issuer.
 
June 30, 2020
 
Amortized Cost
 
Fair Value
 
(In thousands)
 
 
 
 
One year or less
$
22,397

 
$
22,464

More than one year to five years
37,414

 
39,410

More than five years to ten years
59,575

 
59,338

More than ten years
471

 
485

 
$
119,857

 
$
121,697

Mortgage-backed securities and collateralized mortgage obligations
1,013,079

 
1,056,228

 
$
1,132,936

 
$
1,177,925



Mortgage-backed securities and collateralized mortgage obligations totaling $1.0 billion at amortized cost, and $1.1 billion at fair value, are not classified by maturity in the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.
    
During the three months ended June 30, 2020, there were no sales of debt securities available for sale. Proceeds from called debt securities available for sale totaled $5.5 million. No gross gains or gross losses were recognized on the securities called. Proceeds from matured debt securities available for sale totaled $5.1 million.

During the six months ended June 30, 2020, proceeds from the sale of debt securities available for sale totaled $20.8 million, resulting in $369,000 of gross gains and no gross losses. Proceeds from called debt securities available for sale totaled $6.6 million, resulting in $1,000 of gross gains and no gross losses. Proceeds from matured debt securities available for sale totaled $5.8 million.

During the three and six months ended June 30, 2019, proceeds from the sale of debt securities available for sale totaled $15.7 million resulting in $339,000 of gross gains and no gross losses. During the three and six months ended June 30, 2019, there were no maturities of debt securities available for sale. During the six months ended June 30, 2019, proceeds from one called debt security available for sale totaled $797,000. No gross gains or losses were recognized on the security which was called. During the three months ended June 30, 2019 there were no calls of debt securities available for sale.

Debt securities available for sale having a carrying value of $769.7 million and $462.0 million, respectively, at June 30, 2020 and December 31, 2019, respectively, were pledged as security for public funds on deposit at the Bank as required and permitted by law, pledged for outstanding borrowings at the Federal Home Loan Bank, and pledged for potential borrowings at the Federal Reserve Bank of New York.

















16
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements


6.    Debt Securities Available for Sale (continued)

The following tables summarize the fair value and gross unrealized losses of those securities that reported an unrealized loss at June 30, 2020 and December 31, 2019 and if the unrealized loss position was continuous for the twelve months prior to those respective dates:
 
June 30, 2020
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Fair Value
 
Gross Unrealized (Losses)
 
Fair Value
 
Gross Unrealized (Losses)
 
Fair Value
 
Gross Unrealized (Losses)
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities and collateralized mortgage obligations
$
43,842

 
$
(267
)
 
$
31,643

 
$
(110
)
 
$
75,485

 
$
(377
)
Corporate debt securities
15,912

 
(88
)
 
4,340

 
(661
)
 
20,252

 
(749
)
Trust preferred securities
—

 
—

 
4,298

 
(701
)
 
4,298

 
(701
)
 
$
59,754

 
$
(355
)
 
$
40,281

 
$
(1,472
)
 
$
100,035

 
$
(1,827
)
 
December 31, 2019
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Fair Value
—

Gross Unrealized (Losses)
—

Fair Value
—

Gross Unrealized (Losses)
—

Fair Value
—

Gross Unrealized (Losses)
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
$
5,106

 
$
(13
)
 
$
4,988

 
$
(3
)
 
$
10,094

 
$
(16
)
Mortgage-backed securities and collateralized mortgage obligations
178,665

 
(946
)
 
58,208

 
(319
)
 
236,873

 
(1,265
)
Municipal obligations
696

 
(1
)
 
—

 
—

 
696

 
(1
)
Corporate debt securities
2,588

 
(5
)
 
4,627

 
(373
)
 
7,215

 
(378
)
Trust preferred securities
—

 
—

 
4,605

 
(395
)
 
4,605

 
(395
)
 
$
187,055

 
$
(965
)
 
$
72,428

 
$
(1,090
)
 
$
259,483

 
$
(2,055
)

The Company evaluates securities for other-than-temporary impairment at each reporting period and more frequently when economic or market conditions warrant such evaluation. The temporary loss position associated with debt securities available for sale was the result of changes in market interest rates relative to the coupon of the individual security and changes in credit spreads. The Company does not have the intent to sell securities in a temporary loss position at June 30, 2020, nor is it more likely than not that the Company will be required to sell the securities before the anticipated recovery.

The number of securities in an unrealized loss position at June 30, 2020 totaled 31, compared with 97 at December 31, 2019. All temporarily impaired securities were investment grade at June 30, 2020 and December 31, 2019.

The Company did not record an other-than-temporary impairment charge on debt securities available for sale during the three and six months ended June 30, 2020 and 2019.


17
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

7.    Debt Securities Held to Maturity

Debt securities held to maturity at June 30, 2020 and December 31, 2019 are summarized as follows:
 
June 30, 2020
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized (Losses)
 
Fair Value
 
(In thousands)
 
 
 
 
 
 
 
 
Mortgage-backed securities and collateralized mortgage obligations
$
273,997

 
$
15,878

 
$
(39
)
 
$
289,836

 
$
273,997

 
$
15,878

 
$
(39
)
 
$
289,836

 
December 31, 2019
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized (Losses)
 
Fair Value
 
(In thousands)
 
 
 
 
 
 
 
 
U.S. government and agency obligations
$
20,000

 
$
26

 
$
(66
)
 
$
19,960

Mortgage-backed securities and collateralized mortgage obligations
265,756

 
4,048

 
(259
)
 
269,545

 
$
285,756

 
$
4,074

 
$
(325
)
 
$
289,505


    
Mortgage-backed securities and collateralized mortgage obligations totaling $274.0 million at amortized cost, and $289.8 million at fair value, are not classified by maturity as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.

During the three and six months ended June 30, 2020, there were no sales or maturities of debt securities held to maturity. During both the three and six months ended June 30, 2020, proceeds from called debt securities held to maturity totaled $20.0 million. No gross gains or losses were recognized on the securities which were called.

During the three and six months ended June 30, 2019, there were no sales or maturities of debt securities held for maturity. During the three and six months ended June 30, 2019, proceeds from one called debt security held to maturity totaled $5.0 million, resulting in no gross gain or loss.

Debt securities held to maturity having a carrying value of $240.0 million and $236.0 million, at June 30, 2020 and December 31, 2019, respectively, were pledged as security for public funds on deposit at the Bank as required and permitted by law, pledged for outstanding borrowings at the Federal Home Loan Bank, and pledged for potential borrowings at the Federal Reserve Bank of New York.

The following tables summarize the fair value and gross unrealized losses of those securities that reported an unrealized loss at June 30, 2020 and December 31, 2019 and if the unrealized loss position was continuous for the twelve months prior to those respective dates:
 
June 30, 2020
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Fair Value
 
Gross Unrealized (Losses)
 
Fair Value
 
Gross Unrealized (Losses)
 
Fair Value
 
Gross Unrealized (Losses)
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities and collateralized mortgage obligations
$
7,974

 
$
(39
)
 
$
—

 
$
—

 
$
7,974

 
$
(39
)



18
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

7.    Debt Securities Held to Maturity (continued)

 
December 31, 2019
 
Less Than 12 Months
 
12 Months or Longer
 
Total
 
Fair Value
 
Gross Unrealized (Losses)
 
Fair Value
 
Gross Unrealized (Losses)
 
Fair Value
 
Gross Unrealized (Losses)
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency obligations
$
9,934

 
$
(66
)
 
$
—

 
$
—

 
$
9,934

 
$
(66
)
Mortgage-backed securities and collateralized mortgage obligations
27,911

 
(251
)
 
772

 
(8
)
 
28,683

 
(259
)
 
$
37,845

 
$
(317
)
 
$
772

 
$
(8
)
 
$
38,617

 
$
(325
)

    
The Company evaluates securities for other-than-temporary impairment at each reporting period and more frequently when economic or market conditions warrant such evaluation. The temporary loss position associated with debt securities held to maturity was the result of changes in market interest rates relative to the coupon of the individual security and changes in credit spreads. The Company does not have the intent to sell securities in a temporary loss position at June 30, 2020, nor is it more likely than not that the Company will be required to sell the securities before the anticipated recovery.

There were five securities in an unrealized loss position at June 30, 2020, compared with 22 at December 31, 2019. All temporarily impaired securities were investment grade at June 30, 2020 and December 31, 2019.

The Company did not record an other-than-temporary impairment charge on debt securities held to maturity during the three and six months ended June 30, 2020 and 2019.

8.    Equity Securities at Fair Value

The Company has an equity securities portfolio which consists of common stock in other financial institutions, a payment technology company, a community bank correspondent services company, and preferred stock in U.S. Government agencies which are reported at fair value on the Company's Consolidated Statements of Financial Condition. The fair value of the equities portfolio at June 30, 2020 and December 31, 2019 was $4.7 million and $2.9 million, respectively.

The Company adopted ASU 2016-01 on January 1, 2019, resulting in a $548,000 after tax cumulative-effect adjustment from other comprehensive income (loss) to retained earnings, as reflected in the Consolidated Statements of Changes in Stockholders' Equity. The Company recorded a net increase in the fair value of equity securities of $643,000 and $59,000, during the three and six months ended June 30, 2020, as a component of non-interest income. During the three and six months ended June 30, 2019, the Company recorded a net increase in the fair value of equity securities of $71,000 and $247,000, respectively, as a component of non-interest income.

During the three and six months ended June 30, 2020, there were no sales of equity securities. During the three months ended June 30, 2019 there were no sales of equity securities, and during the six months ended June 30, 2019, proceeds from sales of equity securities totaled $765,000, resulting in gross gains of $126,000 and no gross losses.

19
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

9.     Loans Receivable and Allowance for Loan Losses

Loans receivable at June 30, 2020 and December 31, 2019 are summarized as follows:
 
June 30,
 
December 31,
 
2020
 
2019
 
(In thousands)
Real estate loans:
 
 
 
One-to-four family
$
2,164,185

 
$
2,077,079

Multifamily and commercial
2,874,019

 
2,919,985

Construction
326,343

 
298,942

Commercial business loans
899,506

 
483,215

Consumer loans:
 
 
 
Home equity loans and advances
359,813

 
388,127

Other consumer loans
1,600

 
1,960

Total gross loans
6,625,466

 
6,169,308

Purchased credit-impaired loans
6,881

 
7,021

Net deferred loan costs, fees and purchased premiums and discounts
7,527

 
21,237

Loans receivable
$
6,639,874

 
$
6,197,566



The Company had $9.6 million of one-to-four family real estate loans and commercial business loans held-for-sale at June 30, 2020. The Company had no loans held-for-sale at December 31, 2019. During the three months ended June 30, 2020, the Company sold $52.4 million of one-to-four family real estate loans held-for-sale, resulting in gross gains of $740,000 and no gross losses. During the six months ended June 30, 2020, the Company sold $104.0 million of one-to-four family real estate loans held-for-sale resulting in gross gains of $1.4 million and no gross losses. During the three months ended June 30, 2019, the Company sold $27.6 million of one-to-four family real estate loans held-for-sale resulting in gross gains of $196,000 and no gross losses. During the six months ended June 30, 2019, the Company sold $45.0 million of one-to-four family real estate loans held-for-sale resulting in gross gains of $328,000 and no gross losses.

During the six months ended June 30, 2020, the Company sold $8.8 million and $7.3 million of one-to-four family real estate and home equity loans and commercial business loans, respectively, included in loans receivable. The Company recognized gross gains of $82,000 and $55,000 and no gross losses, respectively. During the three months ended June 30, 2020, the Company sold $579,000 of commercial business loans included in loans receivable, resulting in $55,000 gross gains or losses. During the three and six months ended June 30, 2020, the Company sold one construction loan totaling $6.7 million included in loans receivable, resulting in no gross gains or gross losses. During the three and six months ended June 30, 2019, the Company sold $2.5 million of one-to-four family real estate and home equity loans included in loans receivable, resulting in no gross gains or gross losses.

During the three and six months ended June 30, 2020, there were no loans purchased by the Company. During the three and six months ended June 30, 2019, the Company purchased $2.6 million and $5.0 million, respectively, of one-to-four family real estate loan from third parties. During the three and six months ended June 30, 2019, the Company purchased $24.9 million of commercial real estate loans from third parties.

At June 30, 2020 commercial business loans include $467.0 million of SBA PPP loans and net deferred loan costs and fees of $13.5 million. At December 31, 2019 there were no SBA PPP loans.

At June 30, 2020 and December 31, 2019, the carrying value of loans serviced by the Company for investors was $592.8 million and $526.3 million, respectively.

The Company has entered into guarantor swaps with Freddie Mac which results in improved liquidity. During the three and six months ended June 30, 2020, no loans were sold. During the three and six months ended June 30, 2019, the Company exchanged $15.6 million and $21.6 million, respectively, of loans for a Freddie Mac mortgage participation certificate. The Company retained the servicing of these loans.



20
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

9.     Loans Receivable and Allowance for Loan Losses (continued)

The following tables summarize the aging of loans receivable by portfolio segment, including non-accrual loans and excluding PCI loans at June 30, 2020 and December 31, 2019:
 
June 30, 2020
 
30-59 Days
 
60-89 Days
 
90 Days or More
 
Total Past Due
 
Non-accrual
 
Current
 
Total
 
(In thousands)
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
$
4,105

 
$
1,120

 
$
3,278

 
$
8,503

 
$
4,872

 
$
2,150,810

 
$
2,164,185

Multifamily and commercial
3,830

 
2,072

 
2,169

 
8,071

 
2,368

 
2,863,580

 
2,874,019

Construction
1,580

 
—

 
—

 
1,580

 
—

 
324,763

 
326,343

Commercial business loans
594

 
4,460

 
3,515

 
8,569

 
5,167

 
885,770

 
899,506

Consumer loans:
 
 
 
 
 
 
 
 

 
 
 
 
Home equity loans and advances
1,344

 
348

 
310

 
2,002

 
1,095

 
356,716

 
359,813

Other consumer loans
—

 
—

 
—

 
—

 
—

 
1,600

 
1,600

Total loans
$
11,453

 
$
8,000

 
$
9,272

 
$
28,725

 
$
13,502

 
$
6,583,239

 
$
6,625,466

 
December 31, 2019
 
30-59 Days
 
60-89 Days
 
90 Days or More
 
Total Past Due
 
Non-accrual
 
Current
 
Total
 
(In thousands)
Real estate loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
One-to-four family
$
6,249

 
$
2,132

 
$
1,638

 
$
10,019

 
$
1,732

 
$
2,065,328

 
$
2,077,079

Multifamily and commercial
626

 
1,210

 
716

 
2,552

 
716

 
2,916,717

 
2,919,985

Construction
—

 
—

 
—

 
—

 
—

 
298,942

 
298,942

Commercial business loans
1,056

 
—

 
2,489

 
3,545

 
3,686

 
475,984

 
483,215

Consumer loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Home equity loans and advances
1,708

 
246

 
405

 
2,359

 
553

 
385,215

 
388,127

Other consumer loans
3

 
—

 
—

 
3

 
—

 
1,957

 
1,960

Total loans
$
9,642

 
$
3,588

 
$
5,248

 
$
18,478

 
$
6,687

 
$
6,144,143

 
$
6,169,308



The Company considers a loan to be 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. Non-accruing loans are returned to accrual status after there has been a sustained period of repayment performance (generally
six consecutive months of payments) and both principal and interest are deemed collectible. The Company identifies 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. At June 30, 2020 and December 31, 2019, non-accrual loans totaled $13.5 million and $6.7 million, respectively. Included in non-accrual loans at June 30, 2020, are 21 loans totaling $4.2 million which are less than 90 days in arrears. At December 31, 2019, eight loans totaling $1.5 million were less than 90 days in arrears.

At June 30, 2020 and December 31, 2019, there were no loans past due 90 days or more and still accruing interest.

PCI loans are loans acquired at a discount primarily due to deteriorated credit quality. These loans are accounted for at fair value at acquisition, based upon the present value of expected future cash flows, with no related allowance for loan losses. PCI loans acquired in the Stewardship acquisition totaled $6.9 million at both June 30, 2020 and December 31, 2019. PCI loans acquired in the Roselle acquisition totaled $226,000 at June 30, 2020.




21
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

9.     Loans Receivable and Allowance for Loan Losses (continued)

The following table presents changes in accretable yield for PCI loans for the three and six months ended June 30, 2020. There were no PCI loans outstanding for the three and six months ended June 30, 2019.
 
Three Months Ended June 30, 2020
 
Six Months Ended June 30, 2020
 
(In thousands)
 
 
 
 
Balance at beginning of period
$
463

 
$
511

Acquisition
58

 
58

Accretion
(49
)
 
(98
)
Net change in expected cash flows
(1
)
 
—

Balance at end of period
$
471

 
$
471



We may obtain physical possession of real estate collateralizing a residential mortgage loan via foreclosure or through an in-substance repossession. At June 30, 2020 and December 31, 2019, the Company had no real estate owned. At June 30, 2020 and December 31, 2019 we had one and four residential mortgage loans with carrying values totaling $180,000 and $522,000, respectively, collateralized by residential real estate which are in the process of foreclosure.

The following tables summarize loans receivable (including PCI loans) and allowance for loan losses by portfolio segment and impairment method at June 30, 2020 and December 31, 2019:
 
June 30, 2020
 
One-to-Four Family
 
Multifamily and Commercial
 
Construction
 
Commercial Business
 
Home Equity Loans and Advances
 
Other Consumer Loans
 
Total
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
434

 
$
584

 
$
—

 
$
1,100

 
$
11

 
$
—

 
$
2,129

Collectively evaluated for impairment
16,199

 
26,746

 
10,217

 
17,214

 
1,503

 
7

 
71,886

Loans acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
$
16,633

 
$
27,330

 
$
10,217

 
$
18,314

 
$
1,514

 
$
7

 
$
74,015

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
8,810

 
$
14,960

 
$
—

 
$
5,293

 
$
2,008

 
$
—

 
$
31,071

Collectively evaluated for impairment
2,155,375

 
2,859,059

 
326,343

 
894,213

 
357,805

 
1,600

 
6,594,395

Loans acquired with deteriorated credit quality
297

 
4,946

 
—

 
1,638

 
—

 
—

 
6,881

Total loans
$
2,164,482

 
$
2,878,965

 
$
326,343

 
$
901,144

 
$
359,813

 
$
1,600

 
$
6,632,347










22
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

9.     Loans Receivable and Allowance for Loan Losses (continued)

 
December 31, 2019
 
One-to-Four Family
 
Multifamily and Commercial
 
Construction
 
Commercial Business
 
Home Equity Loans and Advances
 
Other Consumer Loans
 
Total
 
(In thousands)
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
484

 
$
2

 
$
—

 
$
1,121

 
$
14

 
$
—

 
$
1,621

Collectively evaluated for impairment
13,296

 
22,978

 
7,435

 
14,715

 
1,655

 
9

 
60,088

Loans acquired with deteriorated credit quality
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
$
13,780

 
$
22,980

 
$
7,435

 
$
15,836

 
$
1,669

 
$
9

 
$
61,709

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
Individually evaluated for impairment
$
8,891

 
$
2,599

 
$
—

 
$
5,178

 
$
2,143

 
$
—

 
$
18,811

Collectively evaluated for impairment
2,068,188

 
2,917,386

 
298,942

 
478,037

 
385,984

 
1,960

 
6,150,497

Loans acquired with deteriorated credit quality
429

 
4,866

 
—

 
1,726

 
—

 
—

 
7,021

Total loans
$
2,077,508

 
$
2,924,851

 
$
298,942

 
$
484,941

 
$
388,127

 
$
1,960

 
$
6,176,329



Loan modifications to borrowers experiencing financial difficulties that are considered troubled debt restructurings ("TDRs") primarily involve the lowering of the monthly payments on such loans through either a reduction in interest rate below a market rate, an extension of the term of the loan without a corresponding adjustment to the risk premium reflected in the interest rate, or a combination of these two methods. These modifications generally do not result in the forgiveness of principal or accrued interest. In addition, the Company attempts to obtain additional collateral or guarantor support when modifying such loans. Non-accruing restructured loans 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.

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. The Bank 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.















23
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

9.     Loans Receivable and Allowance for Loan Losses (continued)

    
There were no loans modified during the three months ended June 30, 2020 and 2019. The following table presents the number of loans modified as TDRs during the six months ended June 30, 2020 and 2019, along with their balances immediately prior to the modification date and post-modification. Post-modification recorded investment represents the net book balance immediately following modification.
 
For the Six Months Ended June 30,
 
2020
 
2019
 
No. of Loans
 
Pre-modification Recorded Investment
 
Post-modification Recorded Investment
 
No. of Loans
 
Pre-modification Recorded Investment
 
Post-modification Recorded Investment
 
(Dollars in thousands)
Troubled Debt Restructurings
 
 
 
 
 
 
 
 
 
 
 
Real Estate loans:
 
 
 
 
 
 
 
 
 
 
 
Multifamily and commercial
1

 
$
10,212

 
$
11,507

 
1

 
$
4,095

 
$
4,095

Total restructured loans
1

 
$
10,212

 
$
11,507

 
1

 
$
4,095

 
$
4,095



The activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2020 and 2019 are as follows:
 
For the Three Months Ended June 30,
 
One-to-Four Family
 
Multifamily and Commercial
 
Construction
 
Commercial Business
 
Home Equity Loans and Advances
 
Other Consumer Loans
 
Unallocated
 
Total
 
(In thousands)
2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
16,798

 
$
26,085

 
$
9,399

 
$
17,191

 
$
1,718

 
$
9

 
$
—

 
$
71,200

Provision charged (credited)
(51
)
 
1,243

 
817

 
3,911

 
(183
)
 
(1
)
 
—

 
5,736

Recoveries
239

 
2

 
1

 
12

 
9

 
—

 
—

 
263

Charge-offs
(353
)
 
—

 
—

 
(2,800
)
 
(30
)
 
(1
)
 
—

 
(3,184
)
Balance at end of period
$
16,633

 
$
27,330

 
$
10,217

 
$
18,314

 
$
1,514

 
$
7

 
$
—

 
$
74,015

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
17,375

 
$
20,986

 
$
9,033

 
$
12,225

 
$
3,146

 
$
6

 
$
—

 
$
62,771

Provision charged (credited)
(1,254
)
 
1,693

 
(228
)
 
441

 
(542
)
 
2

 
—

 
112

Recoveries
4

 
—

 
1

 
53

 
—

 
—

 
—

 
58

Charge-offs
(515
)
 
—

 
—

 
(1
)
 
(21
)
 
(1
)
 
—

 
(538
)
Balance at end of period
$
15,610

 
$
22,679

 
$
8,806

 
$
12,718

 
$
2,583

 
$
7

 
$
—

 
$
62,403









24
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

9.     Loans Receivable and Allowance for Loan Losses (continued)

 
For the Six Months Ended June 30,
 
One-to-Four Family
 
Multifamily and Commercial
 
Construction
 
Commercial Business
 
Home Equity Loans and Advances
 
Other Consumer Loans
 
Unallocated
 
Total
 
(In thousands)
2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
13,780

 
$
22,980

 
$
7,435

 
$
15,836

 
$
1,669

 
$
9

 
$
—

 
$
61,709

Provision charged (credited)
3,050

 
4,339

 
2,781

 
5,258

 
(124
)
 
—

 
—

 
15,304

Recoveries
242

 
12

 
1

 
83

 
23

 
—

 
—

 
361

Charge-offs
(439
)
 
(1
)
 
—

 
(2,863
)
 
(54
)
 
(2
)
 
—

 
(3,359
)
Balance at end of period
$
16,633

 
$
27,330

 
$
10,217

 
$
18,314

 
$
1,514

 
$
7

 
$
—

 
$
74,015

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
15,232

 
$
23,251

 
$
7,217

 
$
14,176

 
$
2,458

 
$
8

 
$
—

 
$
62,342

Provision charged (credited)
868

 
(572
)
 
1,588

 
(1,555
)
 
219

 
—

 
—

 
548

Recoveries
25

 
—

 
1

 
366

 
7

 
—

 
—

 
399

Charge-offs
(515
)
 
—

 
—

 
(269
)
 
(101
)
 
(1
)
 
—

 
(886
)
Balance at end of period
$
15,610

 
$
22,679

 
$
8,806

 
$
12,718

 
$
2,583

 
$
7

 
$
—

 
$
62,403


























25
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

9.     Loans Receivable and Allowance for Loan Losses (continued)

The following tables present loans individually evaluated for impairment by loan segment, excluding PCI loans, at June 30, 2020 and December 31, 2019:
 
At June 30, 2020
 
Recorded Investment
 
Unpaid Principal Balance
 
Specific Allowance
 
(In thousands)
With no allowance recorded:
 
 
 
 
 
Real estate loans:
 
 
 
 
 
One-to-four family
$
4,418

 
$
5,301

 
$
—

Multifamily and commercial
735

 
771

 
—

Commercial business loans
4,016

 
4,204

 
—

Consumer loans:
 
 
 
 
 
Home equity loans and advances
1,052

 
1,189

 
—

 
10,221

 
11,465

 
—

With a specific allowance recorded:
 
 
 
 
 
Real estate loans:
 
 
 
 
 
One-to-four family
4,392

 
4,475

 
434

Multifamily and commercial
14,225

 
14,928

 
584

Commercial business loans
1,277

 
4,264

 
1,100

Consumer loans:
 
 
 
 
 
Home equity loans and advances
956

 
956

 
11

 
20,850

 
24,623

 
2,129

Total:
 
 
 
 
 
Real estate loans:
 
 
 
 
 
One-to-four family
8,810

 
9,776

 
434

Multifamily and commercial
14,960

 
15,699

 
584

Commercial business loans
5,293

 
8,468

 
1,100

Consumer loans:
 
 
 
 
 
Home equity loans and advances
2,008

 
2,145

 
11

Total loans
$
31,071

 
$
36,088

 
$
2,129


















26
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

9.     Loans Receivable and Allowance for Loan Losses (continued)

 
At December 31, 2019
 
Recorded Investment
 
Unpaid Principal Balance
 
Specific Allowance
 
(In thousands)
With no allowance recorded:
 
 
 
 
 
Real estate loans:
 
 
 
 
 
One-to-four family
$
4,314

 
$
5,473

 
$
—

Multifamily and commercial
1,494

 
2,191

 
—

Commercial business loans
3,859

 
4,048

 
—

Consumer loans:
 
 
 
 
 
Home equity loans and advances
1,080

 
1,217

 
—

 
10,747

 
12,929

 
—

With a specific allowance recorded:
 
 
 
 
 
Real estate loans:
 
 
 
 
 
One-to-four family
4,577

 
4,613

 
484

Multifamily and commercial
1,105

 
1,105

 
2

Commercial business loans
1,319

 
4,307

 
1,121

Consumer loans:
 
 
 
 
 
Home equity loans and advances
1,063

 
1,063

 
14

 
8,064

 
11,088

 
1,621

Total:
 
 
 
 
 
Real estate loans:
 
 
 
 
 
One-to-four family
8,891

 
10,086

 
484

Multifamily and commercial
2,599

 
3,296

 
2

Commercial business loans
5,178

 
8,355

 
1,121

Consumer loans:
 
 
 
 
 
Home equity loans and advances
2,143

 
2,280

 
14

 
$
18,811

 
$
24,017

 
$
1,621



Specific allocations of the allowance for loan losses attributable to impaired loans totaled $2.1 million and $1.6 million at June 30, 2020 and December 31, 2019, respectively. At June 30, 2020 and December 31, 2019, impaired loans for which there was no related allowance for loan losses totaled $10.2 million and $10.7 million, respectively.

The recorded investment in TDRs totaled $31.3 million at June 30, 2020, of which three loans totaling $603,000 were 30-59 days past due, two loans totaling $364,000 were 60-89 days past due, and six loans totaling $1.6 million were 90 days past due. The remaining loans modified were current at the time of restructuring and have complied with the terms of their restructure agreement at June 30, 2020. The recorded investment in TDRs totaled $20.0 million at December 31, 2019, of which there were no loans over 90 days past due and three loans totaling $660,000 were 30-59 days past due. The remaining loans modified were current at the time of restructuring and have complied with the terms of their restructure agreement at December 31, 2019.












27
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

9.     Loans Receivable and Allowance for Loan Losses (continued)

The following tables present interest income recognized for loans individually evaluated for impairment, by loan segment, excluding PCI loans for the three and six months ended June 30, 2020 and 2019:
 
For the Three Months Ended June 30,
 
2020
 
2019
 
Average Recorded Investment
 
Interest Income Recognized
 
Average Recorded Investment
 
Interest Income Recognized
 
(In thousands)
Real estate loans:
 
 
 
 
 
 
 
One-to-four family
$
8,647

 
$
81

 
$
8,611

 
$
108

Multifamily and commercial
14,960

 
32

 
2,666

 
37

Construction
—

 
—

 
1,700

 
—

Commercial business loans
5,871

 
157

 
6,616

 
98

Consumer loans:
 
 
 
 
 
 
 
Home equity loans and advances
2,062

 
29

 
2,699

 
47

Total loans
$
31,540

 
$
299

 
$
22,292

 
$
290


 
For the Six Months Ended June 30,
 
2020
 
2019
 
Average Recorded Investment
 
Interest Income Recognized
 
Average Recorded Investment
 
Interest Income Recognized
 
(In thousands)
Real estate loans:
 
 
 
 
 
 
 
One-to-four family
$
8,728

 
$
188

 
$
9,149

 
$
214

Multifamily and commercial
10,840

 
198

 
2,681

 
74

Construction
—

 
—

 
1,133

 
25

Commercial business loans
5,640

 
224

 
5,430

 
178

Consumer loans:
 
 
 
 
 
 
 
Home equity loans and advances
2,089

 
58

 
2,920

 
99

Total loans
$
27,297

 
$
668

 
$
21,313

 
$
590


The Company utilizes an eight-point risk rating system to summarize its loan portfolio into categories with similar risk characteristics. Loans deemed to be “acceptable quality” are rated 1 through 4 (Pass), with a rating of 1 established for loans with minimal risk. Loans that are deemed to be of “questionable quality” are rated 5 (Special Mention) or 6 (Substandard). Loans with adverse classifications are rated 7 (Doubtful) or 8 (Loss). The risk ratings are also confirmed through periodic loan review examinations which are currently performed by both an independent third-party and the Company's credit risk review department. The Company requires an annual review be performed above certain dollar thresholds, depending on loan type, to help determine the appropriate risk ratings. Results from examinations are presented to the Audit Committee of the Board of Directors.













28
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

9.     Loans Receivable and Allowance for Loan Losses (continued)

The following tables present loans receivable by credit quality risk indicator and by loan segment, excluding PCI loans at June 30, 2020 and December 31, 2019:
 
June 30, 2020
 
One-to-Four Family
 
Multifamily and Commercial
 
Construction
 
Commercial Business
 
Home Equity Loans and Advances
 
Other Consumer Loans
 
Total
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
2,157,351

 
$
2,850,202

 
$
326,343

 
$
877,804

 
$
358,526

 
$
1,600

 
$
6,571,826

Special mention
411

 
4,507

 
—

 
13,102

 
—

 
—

 
18,020

Substandard
6,423

 
19,310

 
—

 
8,600

 
1,287

 
—

 
35,620

Doubtful
—

 
—

 
—

 
—

 
—

 
—

 
—

Loss
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
$
2,164,185

 
$
2,874,019

 
$
326,343

 
$
899,506

 
$
359,813

 
$
1,600

 
$
6,625,466

 
December 31, 2019
 
One-to-Four Family
 
Multifamily and Commercial
 
Construction
 
Commercial Business
 
Home Equity Loans and Advances
 
Other Consumer Loans
 
Total
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
$
2,072,878

 
$
2,900,286

 
$
298,942

 
$
454,183

 
$
387,251

 
$
1,960

 
$
6,115,500

Special mention
419

 
4,724

 
—

 
20,170

 
—

 
—

 
25,313

Substandard
3,782

 
14,975

 
—

 
8,862

 
876

 
—

 
28,495

Doubtful
—

 
—

 
—

 
—

 
—

 
—

 
—

Loss
—

 
—

 
—

 
—

 
—

 
—

 
—

Total
$
2,077,079

 
$
2,919,985

 
$
298,942

 
$
483,215

 
$
388,127

 
$
1,960

 
$
6,169,308



10.     Leases

Effective January 1, 2020, the Company adopted ASU 2016-02 Leases (Topic 842) and all subsequent ASU's that modified Topic 842, as explained in note 5, Summary of Significant Accounting Policies, Accounting Pronouncements Adopted. The Company's leases primarily relate to real estate property for branches and office space. At June 30, 2020, all of the Company's leases are classified as operating leases.

The Company determines if an arrangement is a lease at inception. Topic 842 requires lessees to recognize a right-of-use asset and a lease liability, measured at the present value of the future minimum lease payments, at the lease commencement date. At the time of adoption, an operating lease right-of-use asset of $22.2 million and operating lease liabilities of $23.3 million were recorded in other assets and other liabilities, respectively on our Consolidated Statements of Financial Condition. The calculated amount of the right-of-use asset and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of minimum lease payments. As the Company's leases do not provide an implicit rate, the discount rate used in determining the lease liability for each individual lease was the Company's incremental borrowing rate at the time of adoption of ASU 2016-02, on a collateralized basis, over a similar term. Certain leases include options to renew, with one or more renewal terms usually ranging from 5 years to 10 years. For each lease, these extension options were evaluated, and those which were considered reasonably certain of renewal were included in the lease term.
 
At June 30, 2020, the weighted average remaining lease term for operating leases was 7.8 years and the weighted average discount rate used in the measurement of operating lease liabilities was 2.26%.




29
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

10.     Leases (continued)

The Company elected to account for the lease and non-lease components separately since such amounts are readily determinable under the Company's lease contracts. Operating lease expense is recognized on a straight-line basis over the lease term, while variable lease payments are recognized as incurred. Variable lease payments include common area maintenance charges, real estate taxes, repairs and maintenance costs and utilities. Operating and variable lease expenses are recorded in occupancy expense in the Consolidated Statements of Income. During the three and six months ended June 30, 2020, operating and variable lease expenses totaled approximately $601,000 and $1.3 million, respectively.

There were no sale and leaseback transactions, leveraged leases or lease transactions with related parties during the three and six months ended June 30, 2020. At June 30, 2020, the Company had no leases that had not yet commenced.

The following table summarizes lease payment obligations for each of the next five years and thereafter as follows:
At June 30, 2020
 
Lease Payment Obligations
 
 
(In thousands)
 
 
 
2020
 
$
2,076

2021
 
3,940

2022
 
3,636

2023
 
3,322

2024
 
2,597

Thereafter
 
8,548

Total undiscounted cash flows
 
24,119

Discount on cash flows
 
(2,227
)
Total lease liability
 
$
21,892



At December 31, 2019, operating lease commitments under lessee arrangements were $4.9 million, $4.5 million, $4.0 million, $3.5 million and $2.7 million for 2020 through 2024, respectively, and $5.0 million in aggregate for all years thereafter.

11.     Deposits

Deposits at June 30, 2020 and December 31, 2019 are summarized as follows:
 
June 30,
 
December 31,
 
2020
 
2019
 
(In thousands)
 
 
 
 
Non-interest-bearing demand
$
1,316,539

 
$
958,442

Interest-bearing demand
1,926,019

 
1,720,383

Money market accounts
501,954

 
410,392

Savings and club deposits
652,555

 
543,480

Certificates of deposit
2,184,042

 
2,013,145

          Total deposits
$
6,581,109

 
$
5,645,842



Included in the above balances at June 30, 2020 and December 31, 2019 are certificates of deposit obtained through brokers, totaling $26.4 million and $31.6 million that were acquired from Stewardship.

The aggregate amount of certificates of deposit that meet or exceed $100,000 totaled approximately $1.2 billion and $1.1 billion, respectively, at June 30, 2020 and December 31, 2019. Interest expense on deposits for the three and six months ended June 30, 2020 and 2019 totaled $14.9 million and $15.3 million, and $31.7 million and $28.9 million, respectively.


30
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

11.     Deposits (continued)

Scheduled maturities of certificates of deposit accounts at June 30, 2020 and December 31, 2019 are summarized as follows:
 
June 30,
 
December 31,
 
2020
 
2019
 
(In thousands)
 
 
 
 
One year or less
$
1,572,328

 
$
1,293,613

After one year to two years
478,820

 
548,995

After two years to three years
61,513

 
142,458

After three years to four years
27,502

 
11,362

After four years
43,879

 
16,717

 
$
2,184,042

 
$
2,013,145



12.    Stock Based Compensation

At the Company's annual meeting of stockholders held on June 6, 2019, stockholders approved the Columbia Financial, Inc. 2019 Equity Incentive Plan ("2019 Plan") which provides for the issuance of up to 7,949,996 shares (2,271,427 restricted stock awards and 5,678,569 stock options) of common stock.
    
On July 23, 2019, 1,419,131 shares of restricted stock were awarded, with a grant date fair value of $15.60 per share. To fund the grant of restricted common stock, the Company issued shares from authorized but unissued shares. On December 16, 2019, 74,673 shares of restricted stock were awarded, with a grant date fair value of $17.00 per share. To fund the grant of restricted common stock, the Company reissued shares from treasury stock.

Restricted shares granted under the 2019 Plan generally vest in equal installments, over performance or service periods ranging from three to five years, beginning one year from the date of grant. A portion of restricted shares awarded are performance vesting awards, which may or may not vest depending upon the attainment of certain corporate financial targets. Management recognizes compensation expense for the fair value of restricted shares on a straight line basis over the requisite performance or service period. During the three and six months ended June 30, 2020, approximately $1.4 million and $2.8 million, respectively, in expense was recognized in regard to these awards. There was no restricted stock expense recorded during the three and six months ended June 30, 2019. The expected future compensation expense related to the 1,418,891 non-vested restricted shares outstanding at June 30, 2020 is approximately $17.1 million over a weighted average period of 3.6 years.

The following is a summary of the Company's restricted stock activity during the three and six months ended June 30, 2020:
 
Number of Restricted Shares
 
Weighted Average Grant Date Fair Value
 
 
 
 
Outstanding, January 1, 2020
1,420,012

 
$
15.67

 Forfeited
(881
)
 
16.60

Outstanding, March 31, 2020
1,419,131

 
$
15.67

 Forfeited
(240
)
 
15.60

Outstanding, June 30, 2020
1,418,891

 
$
15.67


    
On July 23, 2019, options to purchase 3,589,959 shares of Company common stock were awarded, with a grant date fair value of $4.25 per option. Stock options granted under the 2019 Plan vest in equal installments over the service period of five years beginning one year from the date of grant. Stock options were granted at an exercise price of $15.60, which represents the fair value of the Company's common stock price on the grant date based on the closing market price, and have an expiration period of 10 years. The fair value of stock options granted was estimated utilizing the Black-Scholes option pricing model using the following assumptions: expected life of 6.5 years, risk-free rate of return of 1.90%, volatility of 22.12%, and a dividend yield of 0.00%.
 


31
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

12.    Stock Based Compensation (Continued)

On December 16, 2019, options to purchase 184,378 shares of Company common stock were awarded with a grant date fair value of $4.59 per option. Stock options granted under the 2019 Plan generally vest in equal installments over the service period of five years beginning one year from the date of grant. Stock options were granted at an exercise price of $17.00, which represents the fair value of the Company's common stock price on the grant date based on the closing market price, and have an expiration period of approximately 10 years. The fair value of stock options granted was estimated utilizing the Black-Scholes option pricing model using the following assumptions: expected life of 6.5 years, risk-free rate of return of 1.79%, volatility of 22.23%, and a dividend yield of 0.00%.

The expected life of the options represents the period of time that stock options are expected to be outstanding and is estimated using the simplified approach, which assumes that all outstanding options will be exercised at the midpoint of the vesting date and full contractual term. The risk-free rate of return is based on the rates on the grant date of a U.S. Treasury Note with a term equal to the expected option life. Since the Company recently became a public company and does not have sufficient historical price data, the expected volatility is based on the historical daily stock prices of a peer group of similar entities based on factors such as industry, stage of life cycle, size and financial leverage. The Company has not paid any cash dividends on its common stock.

Management recognizes expense for the fair value of these awards on a straight line basis over the requisite service period. During the three and six months ended June 30, 2020, approximately $804,200 and $1.6 million in expense was recognized in regard to these awards. There was no stock option expense recorded for the three and six months ended June 30, 2019. The expected future compensation expense related to the 3,771,690 non-vested options outstanding at June 30, 2020 is $13.1 million over a weighted average period of 4.1 years.

The following is a summary of the Company's option activity during the three and six months ended June 30, 2020:
 
Number of Stock Options
 
 Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (in years)
 
 Aggregate Intrinsic Value
 
 
 
 
 
 
 
 
Outstanding, January 1, 2020
3,784,044

 
15.67

 
9.6

 
$
4,812,490

 Forfeited
(9,707
)
 
15.60

 
—

 
—

Outstanding, March 31, 2020
3,774,337

 
15.67

 
9.3

 
$
—

 Forfeited
(2,647
)
 
15.60

 
—

 
—

Outstanding, June 30, 2020
3,771,690

 
15.67

 
9.1

 
$
—

Options exercisable at June 30, 2020
—

 
$
—

 
—

 
$
—



The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value, the difference between the Company's closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options.

There were no stock option exercises during the three and six months ended June 30, 2020 and 2019.

13.    Components of Net Periodic Benefit Cost

Pension Plan, Retirement Income Maintenance Plan (the "RIM Plan") and Post-retirement Plan

The Company maintains a single employer, tax-qualified defined benefit pension plan (the "Pension Plan") which covers full-time employees that satisfy the Pension Plan's eligibility requirements. The benefits are based on years of service and the employee's average compensation for the highest five consecutive years of employment. Effective October 1, 2018, employees hired by the Bank are not eligible to participate in the Bank's Pension Plan as the plan has been closed to new employees as of that date.
    
The Company also has a Retirement Income Maintenance Plan (the "RIM "Plan) which is a non-qualified defined benefit plan which provides benefits to all employees of the Company if their benefits under the Pension Plan are limited by Internal Revenue Code 415 and 401(a)(17).    




32
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

13.    Components of Net Periodic Benefit Cost (continued)
    
In addition, the Company provides certain health care and life insurance benefits to eligible retired employees under a Post-retirement Plan. The Company accrues the cost of retiree health care and other benefits during the employees’ period of active service. Effective January 1, 2019, the Post-retirement Plan has been closed to new hires. The Company also provides life insurance benefits to eligible employees under an endorsement split-dollar life insurance program.

Net periodic benefit (income) cost for Pension Plan, RIM Plan, Post-retirement Plan and split-dollar life insurance arrangement plan benefits for the three and six months ended June 30, 2020 and 2019, includes the following components:
 
For the Three Months Ended June 30,
 
 
 
Pension Plan
 
RIM Plan
 
Post-retirement Plan
 
Split-Dollar Life Insurance
 
 
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
 
 Affected Line Item in the Consolidated Statements of Income
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
1,937

 
$
1,501

 
$
67

 
$
53

 
$
99

 
$
84

 
$
120

 
$
88

 
Compensation and employee benefits
Interest cost
2,031

 
2,194

 
102

 
116

 
171

 
207

 
131

 
114

 
Other non-interest expense
Expected return on plan assets
(5,737
)
 
(4,727
)
 
—

 
—

 
—

 
—

 
—

 
—

 
Other non-interest expense
Amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
—

 
—

 
—

 
—

 
—

 
—

 
14

 
14

 
Other non-interest expense
Net loss
781

 
765

 
99

 
61

 
77

 
37

 
113

 
62

 
Other non-interest expense
Net periodic (income) benefit cost
$
(988
)
 
$
(267
)
 
$
268

 
$
230

 
$
347

 
$
328

 
$
378

 
$
278

 
 
 
For the Six Months Ended June 30,
 
 
 
Pension Plan
 
RIM Plan
 
Post-retirement Plan
 
Split-Dollar Life Insurance
 
 
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
 
2020
 
2019
 
 Affected Line Item in the Consolidated Statements of Income
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
3,874

 
$
3,002

 
$
134

 
$
106

 
$
198

 
$
168

 
$
226

 
$
176

 
Compensation and employee benefits
Interest cost
4,062

 
4,388

 
204

 
232

 
342

 
414

 
245

 
228

 
Other non-interest expense
Expected return on plan assets
(11,474
)
 
(9,454
)
 
—

 
—

 
—

 
—

 
—

 
—

 
Other non-interest expense
Amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prior service cost
—

 
—

 
—

 
—

 
—

 
—

 
28

 
28

 
Other non-interest expense
Net loss
1,562

 
1,530

 
198

 
122

 
154

 
74

 
226

 
124

 
Other non-interest expense
Net periodic (income) benefit cost
$
(1,976
)
 
$
(534
)
 
$
536

 
$
460

 
$
694

 
$
656

 
$
725

 
$
556

 
 


For the three and six months ended June 30, 2020, no contributions were made to the Pension Plan. The net periodic cost (income) for pension benefits, other post-retirement and split dollar life insurance benefits for the three and six months ended June 30, 2020 were calculated using the most recent available benefit valuations.
    

33
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

13.    Components of Net Periodic Benefit Cost (continued)

Through the acquisition of Roselle, the Company acquired a non-contributory defined benefit supplemental executive retirement plan with the only participant being a former president of Roselle Bank. For the three and six months ended June 30, 2020 the Company recorded a net periodic benefit cost of $4,000 in connection with this plan.

14.    Fair Value Measurements

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The determination of fair values of financial instruments often requires the use of estimates. Where quoted market values in an active market are not readily available, the Company utilizes various valuation techniques to estimate fair value.
  
In January 2016, the FASB issued ASU 2016-01- "Financial Instruments". This guidance amended existing guidance to improve accounting standards for financial instruments including clarification and simplification of the accounting and disclosure requirements and the requirement to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The Company adopted the guidance effective January 1, 2019, and the fair value of the Company's loan portfolio is now presented using an exit price method.
 
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1:     Unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access on the measurement date.

Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar instruments in markets that are active or not active, or inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require unobservable inputs that are both significant to the fair value measurement and unobservable (i.e., supported by minimal or no market activity). Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The methods described below were used to measure fair value of financial instruments as reflected in the tables below on a recurring basis at June 30, 2020 and December 31, 2019.
















34
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

14.    Fair Value Measurements (continued)

Debt Securities Available for Sale, at Fair Value

For debt securities available for sale, fair value was estimated using a market approach. The majority of these securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third-party data service providers or dealer market participants with which the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to a benchmark or to comparable securities. The Company evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As the Company is responsible for the determination of fair value, it performs quarterly analysis on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company compares changes in the reported market values and returns to relevant market indices to assess the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has not historically resulted in an adjustment in the prices obtained from the pricing service. The Company may hold debt instruments issued by the U.S. government and U.S. government-sponsored agencies that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs.

Equity Securities, at Fair Value

The Company holds equity securities that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs. 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 are considered Level 2 instruments. In addition, Level 2 instruments include Atlantic Community Bankers Bank ("ACCB") stock, which is based on redemption at par value and can only be sold to the issuing ACBB or another institution that holds ACBB or another institution that holds ACBB stock.

Derivatives

The Company records all derivatives included in other assets and liabilities on the Consolidated Statements of Financial Condition at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. See note 16 for disclosures related to the accounting treatment for derivatives.

The fair value of the Company's derivatives is determined using discounted cash flow analysis using observable market-based inputs, which are considered Level 2 inputs.

The following tables present the assets and liabilities reported on the Consolidated Statements of Financial Condition at their fair values at June 30, 2020 and December 31, 2019, by level within the fair value hierarchy:




















35
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

14.    Fair Value Measurements (continued)

 
June 30, 2020
 
 
 
                     Fair Value Measurements
 
Fair Value
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
(In thousands)
Debt securities available for sale:
 
 
 
 
 
 
 
U.S. government and agency obligations
$
36,671

 
$
36,671

 
$
—

 
$
—

Mortgage-backed securities and collateralized mortgage obligations
1,056,228

 
—

 
1,056,228

 
—

Municipal obligations
1,887

 
—

 
1,887

 
—

Corporate debt securities
78,840

 
—

 
78,840

 
—

Trust preferred securities
4,299

 
—

 
4,299

 
—

Total debt securities available for sale
1,177,925

 
36,671

 
1,141,254

 
—

Equity securities
4,710

 
4,385

 
325

 
—

Derivative assets
—

 
—

 
—

 
—

 
$
1,182,635

 
$
41,056

 
$
1,141,579

 
$
—

 
 
 
 
 
 
 
 
Derivative liabilities
$
27,626

 
$
—

 
$
27,626

 
$
—


 
December 31, 2019
 
 
 
Fair Value Measurements
 
Fair Value
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
(In thousands)
Debt securities available for sale:
 
 
 
 
 
 
 
U.S. government and agency obligations
$
42,386

 
$
42,386

 
$
—

 
$
—

Mortgage-backed securities and collateralized mortgage obligations
979,881

 
—

 
979,881

 
—

Municipal obligations
2,284

 
—

 
2,284

 
—

Corporate debt securities
69,180

 
—

 
69,180

 
—

Trust preferred securities
4,605

 
—

 
4,605

 
—

Total debt securities available for sale
1,098,336

 
42,386

 
1,055,950

 
—

Equity securities
2,855

 
2,587

 
268

 


Derivative assets
185

 
—

 
185

 
—

 
$
1,101,376

 
$
44,973

 
$
1,056,403

 
$
—

 
 
 
 
 
 
 
 
Derivative liabilities
$
11,546

 
$
—

 
$
11,546

 
$
—



There were no Level 3 assets measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019.





36
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

14.    Fair Value Measurements (continued)

Assets Measured at Fair Value on a Non-Recurring Basis

The valuation techniques described below were used to estimate fair value of financial instruments measured on a non-recurring basis at June 30, 2020 and December 31, 2019.

Collateral Dependent Impaired Loans

Loans which meet certain criteria are evaluated individually for impairment. For loans measured for impairment based on the fair value of the underlying collateral, fair value was estimated using a market approach. The Company measures the fair value of collateral underlying impaired loans primarily through obtaining independent appraisals that rely upon quoted market prices for similar assets in active markets. These appraisals include adjustments, on an individual case-by-case basis, to comparable assets based on the appraisers’ market knowledge and experience, as well as adjustments for estimated costs to sell between 6.0% and 8.0%. The Company classifies these loans as Level 3 within the fair value hierarchy.

Mortgage Servicing Rights, Net ("MSR's")
    
Mortgage servicing rights are carried at the lower of cost or estimated fair value. The estimated fair value of MSRs is obtained through an analysis of future cash flows, incorporating assumptions that market participants would use in determining fair value including market discount rates, prepayments speeds, servicing income, servicing costs, default rates and other market driven data, including the market's perception of future interest rate movements. The prepayment speed and the discount rate are considered two of the most significant inputs in the model. A significant degree of judgment is involved in valuing the mortgage servicing rights using Level 3 inputs. The use of different assumptions could have a significant effect on this fair value estimate.

The following tables present the assets and liabilities reported on the Consolidated Statements of Financial Condition at their fair values at June 30, 2020 and December 31, 2019, by level within the fair value hierarchy:
 
June 30, 2020
 
 
 
Fair Value Measurements
 
Fair Value
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
(In thousands)
 
 
 
 
 
 
 
 
Mortgage servicing rights
$
443

 
$
—

 
$
—

 
$
443

 
$
443

 
$
—

 
$
—

 
$
443

 
December 31, 2019
 
 
 
Fair Value Measurements
 
Fair Value
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
(In thousands)
 
 
 
 
 
 
 
 
Impaired loans
$
1,063

 
$
—

 
$
—

 
$
1,063

Mortgage servicing rights
681

 
—

 
—

 
681

 
$
1,744

 
$
—

 
$
—

 
$
1,744



At June 30, 2020, there were no impaired loans or real estate owned measured at fair value on a non-recurring basis.




37
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

14.    Fair Value Measurements (continued)

The following table presents information for Level 3 assets measured at fair value on a non-recurring basis at June 30, 2020 and December 31, 2019:
 
June 30, 2020
 
Fair Value
 
Valuation Methodology
 
Unobservable Inputs
 
Range of Inputs
 
Weighted Average
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
Mortgage servicing rights
$
443

 
Estimated cash flow
 
Prepayment speeds and discount rates(3)
 
9.1% - 29.3%
 
17.4%

 
December 31, 2019
 
Fair Value
 
Valuation Methodology
 
Unobservable Inputs
 
Range of Inputs
 
Weighted Average
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
Impaired loans
$
1,063

 
Estimated cash flow
 
Expected value of future cash flows (1)
 
—%
 
—%
Mortgage servicing rights
681

 
Estimated cash flow
 
Prepayment speeds and discount rates (2)
 
3.6% - 24.0%
 
12.7%
 
 
 
 
 
 
 
 
 
 
(1) Value based on management's estimate of expected future cash flows.
(2) Value of SBA servicing rights based on a discount rate of 11.75%.
(3) Value of SBA servicing rights based on a discount rate of 10.25%.


Other Fair Value Disclosures

The Company is required to disclose estimated fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value. A description of the valuation methodologies used for those assets and liabilities not recorded at fair value on a recurring or non-recurring basis are set forth below.

Cash and Cash Equivalents

For cash and due from banks, federal funds sold and short-term investments, the carrying amount approximates fair value due to their nature and short-term maturities.

Debt Securities Held to Maturity

For debt securities held to maturity, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third-party data service providers or dealer market participants with which the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input, is a mathematical technique used principally to value certain securities to a benchmark or to comparable securities. The Company evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. As the Company is responsible for the determination of fair value, it performs quarterly analysis on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value. Specifically, the Company compares the prices received from the pricing service to a secondary pricing source. Additionally, the Company compares changes in the reported market values and returns to relevant market indices to assess the reasonableness of the reported prices. The Company’s internal price verification procedures and review of fair value methodology documentation provided by independent pricing services has not historically resulted in an adjustment in the prices obtained from the pricing service. The Company also holds debt instruments issued by the U.S. government and U.S. government-sponsored agencies that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs within the fair value hierarchy.


38
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

14.    Fair Value Measurements (continued)

Federal Home Loan Bank Stock ("FHLB")

The fair value of FHLB stock is based on redemption at par value and can only be sold to the issuing FHLB, to other FHLBs, or to other member banks. As such, the Company's FHLB stock is recorded at cost, or par value, and is evaluated for impairment each reporting period by considering the ultimate recoverability of the investment rather than temporary declines in value. The Company classifies the estimated fair value as Level 2 within the fair value hierarchy.

Loans Receivable

Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial mortgage, residential mortgage, commercial, construction, and consumer and other. Each loan category is further segmented into fixed and adjustable rate interest terms and into performing and non-performing categories.

The fair value of performing loans was estimated using a combination of techniques, including a discounted cash flow model that utilizes a discount rate that reflects the Company's current pricing for loans with similar characteristics and remaining maturity, adjusted by an amount for estimated credit losses inherent in the portfolio at the balance sheet date. The rates take into account the expected yield curve, as well as an adjustment for prepayment risk, when applicable. The Company classifies the estimated fair value of its loan portfolio as Level 3.

The fair value for non-performing loans deemed significant was based on recent external appraisals of collateral securing such loans, adjusted for the timing of anticipated cash flows. The Company classifies the estimated fair value of its non-performing loan portfolio as Level 3.
    
Deposits

The fair value of deposits with no stated maturity, such as demand, money market, and savings and club deposits are payable on demand at each reporting date and classified as Level 2. The estimated fair value of certificates of deposit was based on the discounted value of contractual cash flows. The discount rate was estimated using the Company’s current rates offered for deposits with similar remaining maturities. The Company classifies the estimated fair value of its certificates of deposit portfolio as Level 2.

Borrowings

The fair value of borrowings was estimated by discounting future cash flows using rates available for debt with similar terms and maturities and is classified by the Company as Level 2 within the fair value hierarchy.

Commitments to Extend Credit and Letters of Credit

The fair value of commitments to extend credit and letters of credit was estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counter-parties. For fixed rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value estimates of commitments to extend credit and letters of credit are deemed immaterial.














39
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

14.    Fair Value Measurements (continued)

The following tables present the assets and liabilities reported on the Consolidated Statements of Financial Condition at their fair values at June 30, 2020 and December 31, 2019:
 
June 30, 2020
 
 
 
                          Fair Value Measurements
 
Carrying Value
 
Total Fair Value
 
Quoted Prices in Active Markets for Identical Assets (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
(In thousands)
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
225,881

 
$
225,881

 
$
225,881

 
$
—

 
$
—

Debt securities available for sale
1,177,925

 
1,177,925

 
36,671

 
1,141,254

 
—

Debt securities held to maturity
273,997

 
289,836

 
—

 
289,836

 
—

Equity securities
4,710

 
4,710

 
4,385

 
325

 
—

Federal Home Loan Bank stock
57,843

 
57,843

 
—

 
57,843

 
—

Loans receivable, net
6,565,859

 
6,737,316

 
—

 
—

 
6,737,316

 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
—

 
 
 
 
 
 
Deposits
$
6,581,109

 
$
6,605,444

 
$
—

 
$
6,605,444

 
$
—

Borrowings
1,129,979

 
1,143,380

 
—

 
1,143,380

 
—

Derivative liabilities
27,626

 
27,626

 
—

 
27,626

 
—

 
December 31, 2019
 
 
 
                           Fair Value Measurements
 
Carrying Value
 
Total Fair Value
 
Quoted prices in active markets for identical assets (Level 1)
 
Significant other observable inputs (Level 2)
 
Significant unobservable inputs (Level 3)
 
(In thousands)
Financial assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
75,547

 
$
75,547

 
$
75,547

 
$
—

 
$
—

Debt securities available for sale
1,098,336

 
1,098,336

 
42,386

 
1,055,950

 
—

Debt securities held to maturity
285,756

 
289,505

 
19,960

 
269,545

 
—

Equity securities
2,855

 
2,855

 
2,587

 
268

 
—

Federal Home Loan Bank stock
69,579

 
69,579

 
—

 
69,579

 
—

Loans receivable, net
6,135,857

 
6,219,008

 
—

 
—

 
6,219,008

Derivative assets
185

 
185

 
—

 
185

 
—

 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
Deposits
$
5,645,842

 
$
5,654,075

 
$
—

 
$
5,654,075

 
$
—

Borrowings
1,407,022

 
1,411,962

 
—

 
1,411,962

 
—

Derivative liabilities
11,546

 
11,546

 
—

 
11,546

 
—








40
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

14.    Fair Value Measurements (continued)

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because limited markets exist for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based on existing on and off balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets or liabilities include goodwill and intangibles assets, deferred tax assets, office properties and equipment, and bank-owned life insurance.

    
        

41
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

15.    Other Comprehensive Income (Loss)

The following tables present the components of other comprehensive income (loss), both gross and net of tax, for the three and six months ended June 30, 2020 and 2019:
 
For the Three Months Ended June 30,
 
2020
 
2019
 
Before Tax
 
Tax Effect
 
After Tax
 
Before Tax
 
Tax Effect
 
After Tax
 
(In thousands)
Components of other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains on debt securities available for sale:
$
8,041

 
$
(1,689
)
 
$
6,352

 
$
17,829

 
$
(3,737
)
 
$
14,092

Accretion of unrealized gain on debt securities reclassified as held to maturity
(2
)
 
—

 
(2
)
 
(2
)
 
—

 
(2
)
Reclassification adjustment for gains included in net income
—

 
—

 
—

 
339

 
(79
)
 
260

 
8,039

 
(1,689
)
 
6,350

 
18,166

 
(3,816
)
 
14,350

Derivatives:
 
 
 
 
 
 
 
 
 
 
 
Unrealized (loss) on swap contracts accounted for as cash flow hedges
(945
)
 
195

 
(750
)
 
(5,920
)
 
1,244

 
(4,676
)
 
(945
)
 
195

 
(750
)
 
(5,920
)
 
1,244

 
(4,676
)
 
 
 
 
 
 
 
 
 
 
 
 
Employee benefit plans:
 
 
 
 
 
 
 
 
 
 
 
Amortization of prior service cost included in net income
(14
)
 
3

 
(11
)
 
(14
)
 
3

 
(11
)
Reclassification adjustment of actuarial net gain included in net income
(1,071
)
 
226

 
(845
)
 
(925
)
 
194

 
(731
)
Change in funded status of retirement obligations
2,170

 
(456
)
 
1,714

 
(5,610
)
 
1,179

 
(4,431
)
 
1,085

 
(227
)
 
858

 
(6,549
)
 
1,376

 
(5,173
)
Total other comprehensive income
$
8,179

 
$
(1,721
)
 
$
6,458

 
$
5,697

 
$
(1,196
)
 
$
4,501
















42
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

15.    Other Comprehensive Income (Loss) (continued)

 
For the Six Months Ended June 30,
 
2020
 
2019
 
Before Tax
 
Tax Effect
 
After Tax
 
Before Tax
 
Tax Effect
 
After Tax
 
(In thousands)
Components of other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains on debt securities available for sale:
$
32,425

 
$
(6,806
)
 
$
25,619

 
$
29,595

 
$
(6,208
)
 
$
23,387

Accretion of unrealized gain on debt securities reclassified as held to maturity
5

 
(1
)
 
4

 
11

 
(3
)
 
8

Reclassification adjustment for gains included in net income
370

 
(81
)
 
289

 
465

 
(105
)
 
360

 
32,800

 
(6,888
)
 
25,912

 
30,071

 
(6,316
)
 
23,755

Derivatives:
 
 
 
 
 
 
 
 
 
 
 
Unrealized (loss) on swap contracts accounted for as cash flow hedges
(15,306
)
 
3,207

 
(12,099
)
 
(9,440
)
 
1,984

 
(7,456
)
 
(15,306
)
 
3,207

 
(12,099
)
 
(9,440
)
 
1,984

 
(7,456
)
 

 

 

 
 
 
 
 
 
Employee benefit plans:
 
 
 
 
 
 
 
 
 
 
 
Amortization of prior service cost included in net income
(28
)
 
6

 
(22
)
 
(28
)
 
6

 
(22
)
Reclassification adjustment of actuarial net (loss) included in net income
(2,142
)
 
450

 
(1,692
)
 
(1,849
)
 
388

 
(1,461
)
Change in funded status of retirement obligations
4,340

 
(911
)
 
3,429

 
(4,672
)
 
982

 
(3,690
)
 
2,170

 
(455
)
 
1,715

 
(6,549
)
 
1,376

 
(5,173
)
Total other comprehensive income
$
19,664

 
$
(4,136
)
 
$
15,528

 
$
14,082

 
$
(2,956
)
 
$
11,126

















43
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

15.    Other Comprehensive Income (Loss) (continued)

The following tables present the changes in the components of accumulated other comprehensive income (loss), net of tax, for the three and six months ended June 30, 2020 and 2019:
 
For the Three Months Ended June 30,
 
2020
 
2019
 
Unrealized Gains on Debt Securities Available for Sale
 
Unrealized (Losses) on Swaps
 
Employee Benefit Plans
 
Accumulated Other Comprehensive (Loss)
 
Unrealized (Losses) Gains on Debt Securities Available for Sale
 
Unrealized Gains on Swaps
 
Employee Benefit Plans
 
Accumulated Other Comprehensive (Loss)
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
28,875

 
$
(19,823
)
 
$
(68,717
)
 
$
(59,665
)
 
$
(4,369
)
 
$
(4,786
)
 
$
(56,665
)
 
$
(65,820
)
Current period changes in other comprehensive income (loss)
6,350

 
(750
)
 
858

 
6,458

 
14,350

 
(4,676
)
 
(5,173
)
 
4,501

Total other comprehensive income (loss)
$
35,225

 
$
(20,573
)
 
$
(67,859
)
 
$
(53,207
)
 
$
9,981


$
(9,462
)

$
(61,838
)
 
$
(61,319
)
 
For the Six Months Ended June 30,
 
2020
 
2019
 
Unrealized Gains on Debt Securities Available for Sale
 
Unrealized (Losses) on Swaps
 
Employee Benefit Plans
 
Accumulated Other Comprehensive (Loss)
 
Unrealized (Losses) Gains on Debt Securities Available for Sale
 
Unrealized Gains on Swaps
 
Employee Benefit Plans
 
Accumulated Other Comprehensive (Loss)
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at beginning of period
$
9,313

 
$
(8,474
)
 
$
(69,574
)
 
$
(68,735
)
 
$
(13,226
)
 
$
(2,006
)
 
$
(56,665
)
 
$
(71,897
)
Effect of adoption of ASU 2016-01
—

 
—

 
—

 
—

 
(548
)
 
—

 
—

 
(548
)
Balance at January 1,
9,313

 
(8,474
)
 
(69,574
)
 
(68,735
)
 
(13,774
)
 
(2,006
)
 
(56,665
)
 
(72,445
)
Current period changes in other comprehensive income (loss)
25,912

 
(12,099
)
 
1,715

 
15,528

 
23,755

 
(7,456
)
 
(5,173
)
 
11,126

Total other comprehensive income (loss)
$
35,225

 
$
(20,573
)
 
$
(67,859
)
 
$
(53,207
)
 
$
9,981

 
$
(9,462
)
 
$
(61,838
)
 
$
(61,319
)






44
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

15.    Other Comprehensive Income (Loss) (continued)

The following tables reflect amounts reclassified from accumulated other comprehensive income (loss) to the Consolidated Statements of Income and the affected line item in the statement where net income is presented for the three and six months ended June 30, 2020 and 2019:
 
 
Accumulated Other Comprehensive Income (Loss) Components
 
 
 
 
For the Three Months Ended June 30,
 
Affected Line Items in the Consolidated Statements of Income
 
 
2020
 
2019
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
Reclassification adjustment for gains included in net income
 
$
—

 
$
339

 
Gain on securities transactions

Reclassification adjustment of actuarial net (loss) included in net income
 
(1,071
)
 
(925
)
 
Other non-interest expense
      Total before tax
 
(1,071
)
 
(586
)
 
 
      Income (tax) benefit
 
226

 
115

 
 
      Net of tax
 
$
(845
)
 
$
(471
)
 
 
 
 
Accumulated Other Comprehensive Income (Loss) Components
 
 
 
 
For the Six Months Ended June 30,
 
Affected Line Items in the Consolidated Statements of Income
 
 
2020
 
2019
 
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
Reclassification adjustment for gains included in net income
 
$
370

 
$
465

 
Gain on securities transactions
Reclassification adjustment of actuarial net (loss) included in net income
 
(2,142
)
 
(1,849
)
 
Other non-interest expense
      Total before tax
 
(1,772
)
 
(1,384
)
 
 
      Income (tax) benefit
 
369

 
283

 
 
      Net of tax
 
$
(1,403
)
 
$
(1,101
)
 
 



45
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

16.     Derivatives and Hedging Activities

The Company uses derivative financial instruments as components of its market risk management, principally to manage interest rate risk. Certain derivatives are entered into in connection with transactions with commercial customers. Derivatives are not used for speculative purposes. All derivatives are recognized as either assets or liabilities in the Consolidated Statements of Financial Condition, reported at fair value and presented on a gross basis. Until a derivative is settled, a favorable change in fair value results in an unrealized gain that is recognized as an asset, while an unfavorable change in fair value results in an unrealized loss that is recognized as a liability. 

The Company generally applies hedge accounting to its derivatives used for market risk management purposes. Hedge accounting is permitted only if specific criteria are met, including a requirement that a highly effective relationship exists between the derivative instrument and the hedged item, both at inception of the hedge and on an ongoing basis. Changes in the fair value of effective fair value hedges are recognized in current earnings (with the change in fair value of the hedged asset or liability also recognized in earnings). Changes in the fair value of effective cash flow hedges are recognized in other comprehensive income (loss) until earnings are affected by the variability in cash flows of the designated hedged item. Ineffective portions of hedge results are recognized in current earnings. Changes in the fair value of derivatives for which hedge accounting is not applied are recognized in current earnings.

The Company formally documents at inception all relationships between the derivative instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transactions. This process includes linking all derivatives that are designated as hedges to specific assets and liabilities, or to specific firm commitments. The Company also formally assesses, both at inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the fair values or cash flows of the hedged items. If it is determined that a derivative is not highly effective or has ceased to be a highly effective hedge, the Company would discontinue hedge accounting prospectively. Gains or losses resulting from the termination of a derivative accounted for as a cash flow hedge remain in other comprehensive income (loss) and is (accreted) amortized to earnings over the remaining period of the former hedging relationship.

Certain derivative financial instruments are offered to certain commercial banking customers to manage their risk of exposure and risk management strategies. These derivative instruments consist primarily of currency forward contracts and interest rate swap contracts. The risk associated with these transactions is mitigated by simultaneously entering into similar transactions having essentially offsetting terms with a third party. In addition, the Company executes interest rate swaps with third parties in order to hedge the interest rate risk of short-term FHLB advances.

Currency Forward Contracts. At June 30, 2020 and December 31, 2019, the Company had no currency forward contracts in place with commercial banking customers.

Interest Rate Swaps. At June 30, 2020, the Company had interest rate swaps in place with 23 commercial banking customers executed by offsetting interest rate swaps with third parties, with an aggregated notional amount of $171.3 million. At December 31, 2019, the Company had interest rate swaps in place with 22 commercial banking customers executed by offsetting interest rate swaps with third parties, with an aggregated notional amount of $169.9 million. These derivatives are not designated as hedges and are not speculative. These interest rate swaps do not meet hedge accounting requirements.
    
At June 30, 2020 and December 31, 2019, the Company had 34 and 29 interest rate swaps with notional amounts of $475.0 million and $410.0 million, respectively, hedging certain FHLB advances. These interest rate swaps meet the hedge accounting requirements.

Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counter-party in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount.

For the three and six months ended June 30, 2020 and 2019, the Company did not record any hedge ineffectiveness associated with these contracts.
   
    







46
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

16.     Derivatives and Hedging Activities (continued)

The tables below present the fair value of the Company’s derivative financial instruments as well as their classification in the Consolidated Statements of Financial Condition at June 30, 2020 and December 31, 2019:
 
June 30, 2020
 
Asset Derivative
 
Liability Derivative
 
Consolidated Statements of Financial Condition
 
Fair Value
 
Consolidated Statements of Financial Condition
 
Fair Value
 
 
 
(In thousands)
 
 
Derivatives:
 
 
 
 
 
 
 
Interest rate swaps
Other Assets
 
$
—

 
Other Liabilities
 
$
27,626

Total derivative instruments
 
 
$
—

 
 
 
$
27,626

 
December 31, 2019
 
Asset Derivative
 
Liability Derivative
 
Consolidated Statements of Financial Condition
 
Fair Value
 
Consolidated Statements of Financial Condition
 
Fair Value
 
 
 
(In thousands)
 
 
Derivatives:
 
 
 
 
 
 
 
Interest rate swaps
Other Assets
 
$
185

 
Other Liabilities
 
$
11,546

Total derivative instruments
 
 
$
185

 
 
 
$
11,546


For the three months ended June 30, 2020 and 2019, losses of $24,000 and $146,000, respectively, were recorded for changes in fair value of interest rate swaps with third parties. For the six months ended June 30, 2020 and 2019, losses of $450,000 and $213,000, respectively, were recorded for changes in fair value of interest rate swaps with third parties.

At June 30, 2020 and December 31, 2019, accrued interest was $846,000 and $344,000, respectively.

The Company has agreements with counterparties that contain a provision that if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default of its derivative obligations.

At June 30, 2020, the termination value of derivatives in a net liability position, which includes accrued interest, was $28.5 million. The Company has collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $49.9 million against its obligations under these agreements.

17.     Revenue Recognition

On January 1, 2019, the Company adopted ASU 2014-09 Revenue from Contracts with Customers (Topic 606) and all subsequent ASUs that modified Topic 606. The Company performed a review and assessment of all revenue streams, the related contracts with customers, and the underlying performance obligations in those contracts. This guidance does not apply to revenue associated with financial instruments, including interest income on loans and securities, which comprise the majority of the Company's revenue. Revenue-generating activities that are within the scope of Topic 606, are components of non-interest income. These revenue streams can generally be classified as demand deposit account fees, title insurance fees and other fees.
 
The Company, using a modified retrospective transition approach, determined that there was no cumulative effect adjustment to retained earnings as a result of adopting the new standard, nor did the standard have a material impact on our consolidated financial statements including the timing or amounts of revenue recognized.    
    



47
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements

17.     Revenue Recognition (continued)

The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and six months ended June 30, 2020 and 2019.
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
(In thousands)
Non-interest income
 
 
 
 
 
 
 
In-scope of Topic 606:
 
 
 
 
 
 
 
Demand deposit account fees
$
620

 
$
1,051

 
$
1,919

 
$
2,010

Title insurance fees
996

 
1,099

 
2,227

 
2,140

Other non-interest income
1,527

 
1,214

 
2,944

 
2,274

Total in-scope non-interest income
3,143

 
3,364

 
7,090

 
6,424

Total out-of-scope non-interest income
3,865

 
3,411

 
6,309

 
6,388

Total non-interest income
$
7,008

 
$
6,775

 
$
13,399

 
$
12,812



Demand deposit account fees include monthly maintenance fees and service charges. These fees are generally derived as a result of either transaction-based or serviced-based services. The Company's performance obligation for these services is generally satisfied, and revenue recognized, at the time the transaction is completed or the service rendered. Fees for these services are generally received from the customer either at the time of the transaction or monthly.

Title insurance fees are generally recognized at the time the transaction closes or when the service is rendered.

Other non-interest income includes check printing fees, traveler's check fees, gift card fees, branch service fees, overdraft fees, account analysis fees, other deposit related fees, wealth management related fee income which includes annuity fees, brokerage commissions, and asset management fees. Wealth management related fee income represent fees earned from customers as consideration for asset management and investment advisory services provided by a third party. The Company's performance obligation is generally satisfied monthly and the resulting fees are recognized monthly based upon the month-end market value of the assets under management and the applicable fee rate. The Company does not earn performance-based incentives. The Company's performance obligation for these transaction-based services are generally satisfied, and related revenue recognized, at the time the transaction closes or when the service is rendered or a point in time when the service is completed.

Also included in other fees are debit card and ATM fees which are transaction-based. Debit card revenue is primarily comprised of interchange fees earned when a customer's Company card is processed through a card payment network. ATM fees are largely generated when a Company cardholder uses a non-Company ATM, or a non-Company cardholder uses a Company ATM. The Company's performance obligation for these services is satisfied when the service is rendered. Payment is generally received at time of transaction or monthly.

Out-of-scope non-interest income primarily consists of income from bank-owned life insurance, loan prepayment and servicing fees, net fees on loan level interest rate swaps, gains and losses on the sale of loans and securities, and changes in the fair value of equity securities. None of these revenue streams are subject to the requirements of Topic 606.

19.    Subsequent Events

The Company has evaluated events subsequent to June 30, 2020 and through the financial statement issuance date of August 10, 2020. The Company has not identified any material subsequent events that would require adjustment or disclosure in the consolidated financial statements.

The COVID-19 pandemic has disrupted and adversely affected the Bank’s business and results of operations, and the ultimate impacts of the pandemic on the Bank’s business, financial condition and results of operations will depend on future developments and other factors that are highly uncertain and will be impacted by the scope and duration of the pandemic and actions taken by governmental authorities in response to the pandemic.


48
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Certain statements contained herein are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “estimate,” "project," "intend," “anticipate,” “continue,” or similar terms or variations on those terms, or the negative of those terms. Forward-looking statements are subject to numerous risk factors and uncertainties, including, but not limited to, those set forth in Item 1A of the Company's Annual Report on Form 10-K as supplemented by its Quarterly Reports on Form 10-Q, and those related to the economic environment, particularly in the market areas in which the Company operates, competitive products and pricing, fiscal and monetary policies of the U.S. Government, changes in government regulations affecting financial institutions, including regulatory fees and capital requirements, changes in prevailing interest rates, acquisitions and the integration of acquired businesses, credit risk management, the effect of the COVID-19 pandemic (including its impact on our borrowers and their ability to repay their loans, and on the local and national economies), asset-liability management, the financial and securities markets, and the availability of and costs associated with sources of liquidity.

The Company cautions readers not to place undue reliance on any such forward-looking statements which speak only as of the date made. The Company also advises readers that the factors listed above could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements. The Company does not have any obligation to update any forward-looking statements to reflect any subsequent events or circumstances after the date of this statement.

Comparison of Financial Condition at June 30, 2020 and December 31, 2019

Total assets increased $774.5 million, or 9.5%, to $9.0 billion at June 30, 2020 from $8.2 billion at December 31, 2019. The increase in total assets was primarily attributable to increases in cash and cash equivalents of $150.3 million, debt securities available for sale of $79.6 million, loans receivable, net, of $430.0 million, bank-owned life insurance of $20.2 million, goodwill and intangible assets of $24.1 million and other assets of $71.4 million.

Cash and cash equivalents increased $150.3 million, or 199.0% to $225.9 million at June 30, 2020 from $75.5 million at December 31, 2019. The increase was primarily attributable to $155.2 million in cash acquired due to the Roselle merger, higher prepayments of loans and strong growth in deposits, partially offset by $53.4 million in repurchases of common stock under our stock repurchase program.

Debt securities available for sale increased $79.6 million, or 7.2%, to $1.2 billion at June 30, 2020 from $1.1 billion at December 31, 2019. The increase was attributable to $51.5 million of investments acquired in the Roselle merger, purchases of $111.1 million in mortgage-backed securities, partially offset by maturities and calls of $12.4 million in U.S. agency obligations and municipal securities, repayments of $82.4 million, and sales of $20.8 million. The gross unrealized gain on debt securities available for sale increased by $32.8 million during the six months ended June 30, 2020.
    
Loans receivable, net, increased $430.0 million, or 7.0%, to $6.6 billion at June 30, 2020 from $6.1 billion at December 31, 2019. The increase included $171.6 million of loans which were acquired due to the Roselle merger mainly consisting of one-to-four family real estate loans. The increases in one-to-four family real estate loans, construction and commercial business loans of $87.1 million, $27.4 million, and $416.3 million, respectively, were partially offset by decreases in multifamily and commercial real estate and home equity loans and advances of $46.0 million and $28.3 million, respectively. A significant portion of the increase in commercial business loans included loans granted as part of the SBA Paycheck Protection Program, which totaled $467.0 million at June 30, 2020. The allowance for loan loss balance increased $12.3 million to $74.0 million at June 30, 2020 from $61.7 million at December 31, 2019, which was primarily attributable to consideration of the deterioration of economic conditions and loan performance due to the ongoing COVID-19 pandemic, resulting from increases to qualitative factors. The current allowance for loan losses was calculated utilizing the existing incurred loss methodology.
    
Bank-owned life insurance increased $20.2 million, or 9.5%, to $231.6 million at June 30, 2020 from $211.4 million at December 31, 2019. The increase was primarily attributable to $17.2 million acquired in connection with the Roselle merger.
    
Goodwill and intangible assets increased $24.1 million, or 35.1%, to $92.6 million at June 30, 2020 from $68.6 million at December 31, 2019. The increase was primarily attributable to $23.8 million in goodwill recorded in connection with the Roselle merger.
    
    


49
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Other assets increased $71.4 million, or 49.0%, to $217.1 million at June 30, 2020 from $145.7 million at December 31, 2019. The increase in other assets consisted of a $20.8 million balance of a right-of-use asset recognized in connection with the adoption of Accounting Standards Update ("ASU") 2016-02-Leases, a $31.5 million increase in the collateral balance related to our swap agreement obligations, and a $17.2 million increase in interest rate swap fair value adjustments.

Total liabilities increased $716.0 million, or 9.9%, to $7.9 billion at June 30, 2020 from $7.2 billion at December 31, 2019. The increase was primarily attributable to an increase in total deposits of $935.3 million, or 16.6%, and an increase in accrued expenses and other liabilities of $56.6 million, or 48.0%, partially offset by a decrease in borrowings of $277.0 million, or 19.7%. The increase in total deposits was primarily driven by $333.2 million in deposits assumed due to the Roselle merger and increases in non-interest-bearing and interest-bearing demand deposits of $358.1 million and $205.6 million, respectively, which were mainly related to borrowers depositing funds received from SBA PPP loans into their business accounts. Money market accounts, savings and club deposits, and certificates of deposits also increased $91.6 million, $109.1 million and $170.9 million, respectively, during the period. The increase in accrued expenses and other liabilities consisted of a $21.9 million balance of the lease liability recognized in connection with the adoption of ASU 2016-02-Leases, and a $32.9 million increase in interest rate swap liabilities. The decrease in borrowings was primarily driven by maturing long-term borrowings of $116.5 million and a net decrease in short-term borrowings of $287.8 million, partially offset by new long-term borrowings of $90.0 million and $ 37.7 million in borrowings assumed from Roselle.

Total stockholders’ equity increased $58.5 million, or 6.0%, to $1.0 billion at June 30, 2020 from $982.5 million at December 31, 2019. The net increase was primarily attributable to net income of $21.9 million, an increase in additional capital of $68.5 million due to the issuance of 4,759,048 shares of Company common stock to Columbia Bank MHC related to the Roselle merger, and improved fair values on debt securities within our available for sale portfolio of $25.9 million, partially offset by the repurchase of approximately 3,456,200 shares of common stock totaling $53.4 million under our stock repurchase program. The repurchases under the stock repurchase program were completed in April 2020.

Comparison of Results of Operations for the Quarter Ended June 30, 2020 and June 30, 2019

Net income of $15.1 million was recorded for the quarter ended June 30, 2020, an increase of $3.1 million, or 25.5%, compared to net income of $12.0 million for the quarter ended June 30, 2019. The increase in net income was primarily attributable to a $15.0 million increase in net interest income and a $233,000 increase in non-interest income, partially offset by a $5.6 million increase in the provision for loan losses, a $5.6 million increase in non-interest expense and a $969,000 increase in income tax expense.

Net interest income was $55.9 million for the quarter ended June 30, 2020, an increase of $15.0 million, or 36.8%, from $40.8 million for the quarter ended June 30, 2019. The increase in net interest income was primarily attributable to a $12.9 million increase in interest income coupled with a $2.2 million decrease in interest expense. The increase in interest income for the quarter ended June 30, 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 and Roselle, partially offset by decreases in the average yields on these assets. Prepayment penalties, which are included in interest income on loans, totaled $964,000 for the quarter ended June 30, 2020 compared to $155,000 for the quarter ended June 30, 2019.

The average yield on loans for the quarter ended June 30, 2020 decreased 18 basis points to 3.96%, as compared to 4.14% for the quarter ended June 30, 2019, while the average yield on securities for the quarter ended June 30, 2020 decreased 33 basis points to 2.56%, as compared to 2.89% for the quarter ended June 30, 2019. The average yield on other interest-earning assets for the quarter ended June 30, 2020 decreased 324 basis points to 2.95%, as compared to 6.19% for the quarter ended June 30, 2019. Decreases in the average yields on these portfolios for the quarter ended June 30, 2020 were influenced by the lower interest rate environment as the Federal Reserve reduced interest rates by 75 basis points in the third and fourth quarters of 2019, and in response to COVID-19, reduced interest rates again by 150 basis points in March 2020.

Total interest expense was $19.7 million for the quarter ended June 30, 2020, a decrease of $2.2 million, or 9.9%, from $21.9 million for the quarter ended June 30, 2019. The decrease in interest expense was primarily attributable to a 41 basis point decrease in the average cost of interest-bearing deposits which more than offset the impact from the increase in the average balance of deposits. The decrease in the cost of deposits was driven by both an inflow of lower costing deposits and the repricing of existing deposits at a significantly reduced rate. Interest on borrowings decreased $1.8 million due to a decrease in the average balance of borrowings coupled with an 84 basis point decrease in the cost of these borrowings due to a lower interest rate environment.
    
The Company's net interest margin for the quarter ended June 30, 2020 increased 20 basis points to 2.73%, when compared to 2.53% for the quarter ended June 30, 2019. The weighted average yield on interest-earning assets decreased 20 basis points to 3.69% for the quarter ended June 30, 2020 as compared to 3.89% for the quarter ended June 30, 2019. The average cost of interest-bearing liabilities

50
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

decreased 51 basis points to 1.25% for the quarter ended June 30, 2020 as compared to 1.76% for the quarter ended June 30, 2019. The decrease in yields and costs for the quarter ended June 30, 2020 were largely driven by a lower interest rate environment. The net interest margin increased for the quarter as the cost of interest-bearing liabilities repriced lower more rapidly than the yields on interest-earning assets.

The provision for loan losses was $5.7 million for the quarter ended June 30, 2020, an increase of $5.6 million, from $112,000 for the quarter ended June 30, 2019. The increase was primarily attributable to consideration of the deterioration of economic conditions and loan performance due to the ongoing COVID-19 pandemic, which resulted in increases to qualitative factors.
    
Non-interest income was $7.0 million for the quarter ended June 30, 2020, an increase of $233,000, or 3.4%, from $6.8 million for the quarter ended June 30, 2019. The increase was primarily attributable to increases in the change in fair value of equity securities of $572,000, gain on sale of loans of $599,000 and other non-interest income of $728,000, partially offset by decreases in demand deposit account fees of $431,000, income from loan fees and service charges of $967,000 and gains on securities transactions of $339,000. The increase in other non-interest income consists of increases in ATM, check card and wealth management related activities. Demand deposit account fees and loan fees and service charges were lower due to the decrease in fees related to customer swaps and the impact of the COVID-19 pandemic, which resulted in higher fee waivers as well as customers carrying higher deposit balances related to government stimulus programs.

Non-interest expense was $37.4 million for the quarter ended June 30, 2020, an increase of $5.6 million, or 17.6%, from $31.8 million for the quarter ended June 30, 2019. The increase was primarily attributable to an increase in compensation and employee benefits expense of $4.9 million, an increase in occupancy expense of $877,000 and an increase in other non-interest expense of $860,000, partially offset by a decrease of $943,000 in advertising expense. The increase in compensation and employee benefits expense was primarily attributable to an increase of $2.2 million in expense recorded in connection with grants made under the Company's 2019 Equity Incentive Plan and an increase in expense due to a larger number of employees in the 2020 period, which included continuing employees of Stewardship and Roselle. During the quarter ended June 30, 2020, the Bank implemented a Voluntary Early Retirement Program which offers early retirement incentives for qualified employees. Employees may elect to retire during the third quarter of 2020 if they meet criteria established under the existing Columbia Bank Retirement Plan, with additional incentives under the program. There have been no expenses related to this program recorded through June 30, 2020, although management anticipates approximately $3.0 million in additional compensation and employee benefits expense related to this program in the third quarter. The increase in occupancy expense was primarily the result of an increase in the number of branch offices acquired from Stewardship and Roselle. In light of our focus during the pandemic of delivering our services digitally, the Bank plans to temporarily suspend de novo branching activities with an increased focus of enhancing digital capabilities. The increase in other non-interest expense includes $1.3 million related to interest rate swap transactions.
    
Income tax expense was $4.6 million for the quarter ended June 30, 2020, an increase of $1.0 million, as compared to $3.6 million for the quarter ended June 30, 2019. The increase in tax expense is attributable to higher pretax income during the quarter. The Company's effective tax rate was 23.4% and 23.2% for the quarters ended June 30, 2020 and 2019, respectively.

Results of Operations for the Six Months Ended June 30, 2020 and June 30, 2019
Net income of $21.9 million was recorded for the six months ended June 30, 2020, a decrease of $5.1 million, or 18.9%, compared to net income of $27.0 million for the six months ended June 30, 2019. The decrease in net income was primarily attributable to a $14.8 million increase in provision for loan losses and a $14.6 million increase in non-interest expense, partially offset by a $23.3 million increase in net interest income and a $587,000 increase in non-interest income.

Net interest income was $106.6 million for the six months ended June 30, 2020, an increase of $23.3 million, or 28.1%, from $83.2 million for the six months ended June 30, 2019. The increase in net interest income was primarily attributable to a $24.7 million increase in interest income and a $1.3 million increase in interest expense. The increase in interest income for the six months ended June 30, 2020 was largely due to increases in the average balances on loans, securities and other interest-earning assets, which were the result of internal growth and the acquisitions of Stewardship and Roselle, partially offset by decreases in the average yields on these assets. Prepayment penalties, which are included in interest income on loans, totaled $1.6 million for the six months ended June 30, 2020 compared to $877,000 for the six months ended June 30, 2019.

The average yield on loans for the six months ended June 30, 2020 decreased 15 basis points to 4.05%, as compared to 4.20% for the six months ended June 30, 2019, while the average yield on securities for the six months ended June 30, 2020 decreased 27 basis points to 2.64%, as compared to 2.91% for the six months ended June 30, 2019. The average yield on other interest-earning assets for

51
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

the six months ended June 30, 2020 decreased 259 basis points to 3.81%, as compared to 6.40% for the six months ended June 30, 2019. Decreases in the average yields on these portfolios for the six months ended June 30, 2020 were influenced by the lower interest rate environment.

Total interest expense was $43.7 million for the six months ended June 30, 2020, an increase of $1.3 million, or 3.09%, from $42.4 million for the six months ended June 30, 2019. The increase in interest expense on interest-bearing deposits was primarily attributable to a $1.1 billion increase in average balances, partially offset by a 22 basis point decrease in the average cost of interest-bearing deposits. The decrease in the cost of deposits was driven by both an inflow of lower costing deposits and the repricing of existing deposits at a significantly reduced rate. Interest on borrowings decreased $1.5 million due to a 60 basis point decrease in the cost of these borrowings due to a lower interest rate environment, which was partially offset by an increase in the average balance of borrowings.

The Company's net interest margin for the six months ended June 30, 2020 increased 8 basis points to 2.69%, when compared to 2.61% for the six months ended June 30, 2019. The weighted average yield on interest-earning assets decreased 15 basis points to 3.80% for the six months ended June 30, 2020 as compared to 3.95% for the six months ended June 30, 2019. The average cost of interest-bearing liabilities decreased 31 basis points to 1.41% for the six months ended June 30, 2020 as compared to 1.72% for the six months ended June 30, 2019. The decrease in yields and costs for the six months ended June 30, 2020 were largely driven by a lower interest rate environment. The net interest margin increased for the six months ended June 30, 2020 as the cost of interest-bearing liabilities repriced lower more rapidly than the yields on interest-earning assets.

The provision for loan losses was $15.3 million for the six months ended June 30, 2020, an increase of $14.8 million, from $548,000 for the six months ended June 30, 2019. The increase was primarily attributable to consideration of the deterioration of economic conditions and loan performance due to the ongoing COVID-19 pandemic, which resulted in increases to qualitative factors.

Non-interest income was $13.4 million for the six months ended June 30, 2020, an increase of $587,000, or 4.6%, from $12.8 million for the six months ended June 30, 2019. The increase was primarily attributable to increases in gain on sale of loans of $1.2 million and other non-interest income of $441,000, partially offset by decreases in loan fees and service charges of $1.1 million and a change in fair value of equity securities of $188,000. The increase in gain on sale of loans is due to increased activities related to loan sales, and the increase in other non-interest income consists of increases in ATM, check card and wealth management related activities. Loan fees and service charges were lower due to the decrease in fees related to customer swaps, and the impact of the COVID-19 pandemic which resulted in higher fee waivers.

Non-interest expense was $76.0 million for the six months ended June 30, 2020, an increase of $14.6 million, or 23.7%, from $61.4 million for the six months ended June 30, 2019. The increase was primarily attributable to an increase in compensation and employee benefits expense of $9.8 million, occupancy expense of $1.8 million and other non-interest expense of $3.2 million. The increase in compensation and employee benefits expense was primarily attributable to an increase of $4.4 million in expense recorded in connection with grants made under the Company's 2019 Equity Incentive Plan and an increase in expense due to a larger number of employees in the 2020 period, which included continuing employees of Stewardship and Roselle. As noted above, during the period ended June 30, 2020, the Bank implemented a Voluntary Early Retirement Program for qualified employees. There have been no expenses related to this program recorded through June 30, 2020, although management anticipates approximately $3.0 million in additional compensation and employee benefits expense related to this program in the third quarter. The increase in occupancy expense was primarily the result of an increase in the number of branch offices acquired from Stewardship and Roselle, and the increase in other non-interest expense was due to losses of $1.3 million recorded in connection with the branch consolidation resulting from the Stewardship merger and includes $2.2 million related to interest rate swap transactions. In light of our focus during the pandemic of delivering our services digitally, the Bank plans to temporarily suspend de novo branching activities with an increased focus on enhancing digital capabilities.

Asset Quality
    
The Company's non-performing loans at June 30, 2020 totaled $13.5 million, or 0.20% of total gross loans, as compared to $6.7 million, or 0.11% of total gross loans, at December 31, 2019. The $6.8 million increase in non-performing loans was primarily attributable to increases of $3.4 million in one-to-four family real estate loans, $1.7 million in multifamily and commercial real estate loans and $1.8 million in commercial business loans. 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 27 non-performing loans at June 30, 2020. The increase in multifamily and commercial real estate loans was due to an increase in the number of loans from seven non-performing loans at December 31, 2019 to 12 non-performing loans at June 30, 2020. The increase in non-performing commercial business loans included the addition of a $1.1 million commercial loan during the period. Non-performing assets as a percentage of total assets totaled 0.15% at June 30, 2020 as compared to 0.08% at December 31, 2019.



52
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the quarter ended June 30, 2020, net charge-offs totaled $2.9 million as compared to $480,000 for the quarter ended June 30, 2019. For the six months ended June 30, 2020, net charge-offs totaled $3.0 million as compared to $487,000 for the six months ended June 30, 2019. The increase in net charge-offs during the three and six month periods was primarily attributable to a $2.8 million charge-off of one commercial business loan.

The Company's allowance for loan losses was $74.0 million, or 1.12% of total loans, at June 30, 2020, compared to $61.7 million, or 1.00% of total loans, at December 31, 2019. The increase in the allowance for loan losses is primarily attributable to consideration of economic conditions and loan performance due to the ongoing COVID-19 pandemic which resulted in increases to qualitative factors and, to a lesser extent, due to the growth in the Bank's loan portfolio.

COVID-19
Through June 30, 2020, the Company granted $768.0 million of commercial loan modification requests with respect to multifamily, commercial, and construction real estate loans, and $195.0 million of consumer-related loan modification requests with respect to one-to-four family real estate loans and home equity loans and advances from our customers affected by the COVID-19 pandemic. These short-term loan modifications will be treated in accordance with Section 4013 of the CARES Act and will not be treated as troubled debt restructurings during the short-term modification period if the loan was not in arrears at December 31, 2019. Furthermore, these loans will continue to accrue interest and will not be tested for impairment during the short-term modification period. Commercial loan modification requests include various industries and property types. The following table is a summary of loan modifications that have not begun to remit full payment as of July 21, 2020:
 
 Balance at July 21, 2020
 
Percent of Total Loans at June 30, 2020
 
(Dollars in thousands)
 
 
Real estate loans:
 
 
 
One-to-four family
$
73,502

 
3.40
%
Multifamily and commercial
447,925

 
15.59
%
Construction
13,525

 
4.14
%
Commercial business loans
34,059

 
3.79
%
Home equity loans and advances
8,427

 
2.34
%
Total loans
$
577,438

 
8.72
%
At July 21, 2020, $248.0 million of the commercial loans in the above table are remitting partial payments and $162.0 million were granted an additional deferral period.

At June 30, 2020, the Company had originated 2,284 loans for $467.0 million under the SBA Paycheck Protection Program. Approximately eighty-one percent of the total number of loans granted have original balances of $250,000 or less.

Critical Accounting Policies

The Company considers certain accounting policies to be critically important to the fair presentation of its Consolidated Statements of Financial Condition and Consolidated Statements of Income. These policies require management to make judgments on matters which by their nature have elements of uncertainty. The sensitivity of the Company’s consolidated financial statements to these critical accounting policies, and the assumptions and estimates applied, could have a significant impact on its financial condition and results of operations. These assumptions, estimates and judgments made by management can be influenced by a number of factors, including the general economic environment. The Company has identified the following as critical accounting policies:

▪Adequacy of the allowance for loan losses
▪Valuation of deferred tax assets
▪Valuation of retirement and post-retirement benefits

The calculation of the allowance for loan losses is a critical accounting policy of the Company. The allowance for loan losses is a valuation account that reflects management’s evaluation of the probable losses in the loan portfolio. Determining the amount of the allowance for loan losses involves a high degree of judgment. Estimates required to establish the allowance include: the overall economic environment, value of collateral, strength of guarantors, loss exposure in the event of default, the amount and timing of future cash flows on impaired loans, and determination of loss factors applied to the portfolio segments. These estimates are susceptible to significant

53
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

change. Management regularly reviews loss experience within the portfolio and monitors current economic conditions and other factors related to the collectability of the loan portfolio. As previously mentioned, the Company elected to defer the adoption of the CECL methodology permitted by the recently enacted CARES Act. The Company will adopt CECL at the earlier of December 31, 2020 or when the national emergency concerning the COVID-19 outbreak has concluded.

The Company maintains the allowance for loan losses through provisions for loan losses which are charged to income. Charge-offs against the allowance for loan losses are taken on loans where management determines that the collection of loan principal is unlikely. Recoveries made on loans that have been charged-off are credited to the allowance for loan losses.

As part of the evaluation of the adequacy of the allowance for loan losses, management prepares an analysis each quarter that categorizes the loan portfolio by certain risk characteristics such as loan type (residential mortgage, commercial mortgage, construction, commercial, etc.) and loan risk rating.

When assigning a risk rating to a loan, management utilizes an eight-point internal risk rating system. Loans deemed to be “acceptable quality” are rated 1 through 4, with a rating of 1 established for loans with minimal risk. Loans deemed to be of “questionable quality” are rated 5 (Special Mention) or 6 (Substandard). Loans with adverse classifications are rated 7 (Doubtful) or 8 (Loss). The risk ratings are also confirmed through periodic loan review examinations, which are currently performed by both an independent third-party and the Company's internal loan review department. The Company requires an annual review be performed above certain dollar thresholds, depending on loan type, to help determine the appropriate risk rating. Results are presented to the Audit Committee of the Board of Directors.

Management estimates the allowance for loans collectively evaluated for impairment by applying quantitative loss factors to the loan segments by risk rating and determining qualitative adjustments to each loan segment at an overall level. Quantitative loss factors give consideration to historical loss experience and migration experience by loan type based on an appropriate look-back period, adjusted for a loss emergence period.

Qualitative adjustments give consideration to other qualitative or environmental factors such as trends and levels of delinquencies, impaired loans, charge-offs, recoveries and loan volumes, as well as national and local economic trends and conditions.

Qualitative adjustments reflect risks in the loan portfolio not captured by the quantitative loss factors and, as such, are evaluated relative to the risk levels present over the look-back period. The reserves resulting from the application of both the quantitative experience and qualitative factors are combined to arrive at the allowance for loan losses for loans collectively evaluated for impairment.

Management believes the primary risks inherent in the portfolio are a general decline in the economy, a decline in real estate market values, rising unemployment, elevated unemployment, increasing vacancy rates, and increases in interest rates in the absence of economic improvement. Any one or a combination of these events may adversely affect a borrower's ability to repay its loan, resulting in increased delinquencies and loan losses. Accordingly, the Company has recorded loan losses at a level which is estimated to represent the current risk in its loan portfolio. Management considers it important to maintain the ratio of the allowance for loan losses to total loans at an acceptable level considering the current composition of the loan portfolio.

Although management believes that the Company has established and maintained the allowance for loan losses at appropriate levels, additional reserves may be necessary if future economic and other conditions differ substantially from the current operating environment. Management evaluates its estimates and assumptions on an ongoing basis and the estimates and assumptions are adjusted when facts and circumstances necessitate a re-valuation of the estimate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. In addition, regulatory agencies periodically review the adequacy of the Company’s allowance for loan losses as an integral part of their examination process. Such agencies may require the Company to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination. Although management uses the best information available, the level of the allowance for loan losses remains an estimate that is subject to significant judgment.

We assessed the impact of the pandemic on the Company’s financial condition, including its determination of the allowance for loan losses as of June 30, 2020. 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

54
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

impact on their ability to repay their loans, and estimated the probability of default and loss-given-default for the various loan categories at June 30, 2020 and assigned a weighting to each scenario. Based on this analysis, management estimated the potential impact resulting from COVID-19, and the adjustment to the allowance that was necessary as of June 30, 2020. During March 2020, management also established an additional qualitative loss factor solely related to the impact of COVID-19 in the calculation. As a result of management’s assessments, the Bank recorded an additional loan loss provision of $5.7 million for the quarter ended June 30, 2020. However, during this period of great uncertainty, the full impact of COVID-19 on the Company’s borrowers is likely to be felt over the next several quarters. As such, future adjustments to the allowance may be required.

The determination of whether deferred tax assets will be realizable is predicated on the reversal of existing deferred tax liabilities, utilization against carry-back years, and estimates of future taxable income. Such estimates are subject to management’s judgment. A valuation allowance is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period enacted. Based on all available evidence, a valuation allowance was established for the portion of the state tax benefit that is not more likely than not to be realized. At June 30, 2020 and December 31, 2019, the Company's net deferred tax assets totaled $8.4 million and $10.4 million, respectively, which included a valuation allowance totaling $7.3 million and $7.4 million, respectively.

The Company provides certain health care and life insurance benefits to eligible retired employees. The cost of retiree health care and other benefits during the employees' period of active service are accrued monthly. The accounting guidance requires the following: a) recognizing 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) measuring a plan's assets and its obligations that determine its funded status as of the end of the Company's fiscal year (with limited exceptions); and c) recognizing 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.

55
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Qualitative Analysis. Interest rate risk is defined as the exposure of a Company's current and future earnings and capital arising from movements in market interest rates. The guidelines of the Company’s interest rate risk policy seek to limit the exposure to changes in interest rates that affect the underlying economic value of assets, liabilities, earnings and capital.

The Asset/Liability Committee meets regularly to review the impact of interest rate changes on net interest income, net interest margin, net income, and the economic value of equity. The Asset/Liability Committee reviews a variety of strategies that project changes in asset or liability mix and the impact of those changes on projected net interest income and net income.

The Company’s strategy for liabilities has been to maintain a stable funding base by focusing on core deposit accounts. The Company’s ability to retain maturing time deposit accounts is the result of its strategy to remain competitively priced within its marketplace. The Company’s pricing strategy may vary depending upon current funding needs and the ability of the Company to fund operations through alternative sources.

Quantitative Analysis. Current and future sensitivity to changes in interest rates are measured through the use of balance sheet and income simulation models. The analysis captures changes in net interest income using flat rates as a base and rising and declining interest rate forecasts. Changes in net interest income and net income for the forecast period, generally twelve to twenty-four months, are measured and compared to policy limits for acceptable changes. The Company periodically reviews historical deposit re-pricing activity and makes modifications to certain assumptions used in its balance sheet and income simulation models regarding the interest rate sensitivity of deposits. These modifications are made to more closely reflect the most likely results under the various interest rate change scenarios. Since it is inherently difficult to predict the sensitivity of interest-bearing deposits to changes in interest rates, the changes in net interest income due to changes in interest rates cannot be precisely predicted. There are a variety of reasons that may cause actual results to vary considerably from the predictions presented below which include, but are not limited to, the timing, magnitude, and frequency of changes in interest rates, interest rate spreads, prepayments, and actions taken in response to such changes.

Assumptions used in the simulation model may include but are not limited to:
•Securities pricing from third parties;
•Loan pricing indications from third parties;
•Loan and depository spread assumptions based upon the Company's product offerings;
•Securities and borrowing spreads based upon third party indications; and
•Prepayment assumptions derived from the Company's actual results and third party surveys.

Certain shortcomings are inherent in the methodologies used in the interest rate risk measurements. Modeling changes in net interest income requires the use of certain assumptions regarding prepayment and deposit repricing, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. While management believes such assumptions are reasonable, there can be no assurance that assumed prepayment rates and repricing rates will approximate actual future asset prepayment and liability repricing activity.

Moreover, net interest income assumes that the composition of interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the net interest income table provides an indication of the Company’s interest rate risk exposure at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual.

The table below sets forth, as of June 30, 2020, Columbia Bank's net portfolio value, the estimated changes in our net portfolio value, and the net interest income that would result from the designated instantaneous parallel changes in market interest rates. This data is for Columbia Bank and its subsidiaries only and does not include any assets of the Company.


56
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


 
Twelve Months Net Interest Income
 
Net Portfolio Value ("NPV")
(Dollars in thousands)
Amount
 
Dollar Change
 
Percent of Change
 
Estimated NPV
 
Present Value Ratio
 
Percent Change
Change in Interest Rates (Basis Points)
 
 
 
 
 
 
 
 
 
 
 
+300
$
221,423

 
$
7,832

 
3.67
 %
 
$
990,657

 
11.81
%
 
(9.84
)%
+200
219,784

 
6,193

 
2.90

 
1,047,184

 
12.12

 
(4.69
)
+100
216,647

 
3,056

 
1.43

 
1,083,445

 
12.18

 
(1.39
)
Base
213,591

 
—

 
—

 
1,098,769

 
12.00

 
—

-100
206,649

 
(6,942
)
 
(3.25
)
 
1,059,439

 
11.28

 
(3.58
)
    
As of June 30, 2020, based on the scenarios above, net interest income would increase by approximately 2.90% if rates were to rise 200 basis points, and would decrease by 3.25% 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 net portfolio value through the use of immediate and sustained interest rate shocks. As of June 30, 2020, based on the scenarios above, in the event of an immediate and sustained 200 basis point increase in interest rates, the NPV is projected to decrease 4.69%. If rates were to decrease 100 basis points, the model forecasts a 3.58% decrease in the NPV.

Overall, our June 30, 2020 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 and Capital Resources:

Liquidity Management. Liquidity refers to the Company's ability to generate adequate amounts of cash to meet financial obligations of a short-term and long-term nature. Sources of funds consist of deposit inflows, loan repayments and maturities, maturities and sales of securities, and the ability to execute new borrowings. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, calls of debt securities, and prepayments on loans and mortgage-backed securities are influenced by economic conditions, competition, and interest rate movements.

The Company's cash flows are identified as cash flows from operating activities, investing activities and financing activities. Refer to the Consolidated Statements of Cash Flows for further details of the cash inflows and outflows of the Company.

Capital Resources. The Company and its subsidiary Bank are subject to various regulatory capital requirements administered by the federal banking regulators, including a risk-based capital measure. The Federal Reserve establishes capital requirements, including well capitalized standards, for the consolidated financial holding company, and the Office of the Comptroller of the Currency (the "OCC") has similar requirements for the Company's subsidiary bank. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's Consolidated Statements of Financial Condition. Federal regulators require federally insured depository institutions to meet several minimum capital standards: (1) total capital to risk-weighted assets of 8.0%; (2) tier 1 capital to risk-weighted assets of 6.0%; (3) common equity tier 1 capital to risk-weighted assets of 4.5%; and (4) tier 1 capital to adjusted total assets of 4.0%. In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation buffer capital requirement was fully phased in on January 1, 2019. The regulators established a framework for the classification of savings institutions into five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Generally, an institution is considered well capitalized if it has: a total capital to risk-weighted assets ratio of at least 10.0%, a tier 1 capital to risk-weighted assets ratio of at least 8.0%, a common tier 1 capital to risk-weighted assets ratio of at least 6.5%, and a tier 1 capital to adjusted total assets ratio of at least 5.0%. As of June 30, 2020 and December 31, 2019, each of the Company and the Bank exceeded all capital adequacy requirements to which it is subject.

The following table presents the Company's and the Bank's actual capital amounts and ratios as of June 30, 2020 and December 31, 2019 compared to the Federal Reserve Bank minimum capital adequacy requirements and the Federal Reserve Bank requirements for classification as a well-capitalized institution:


57
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


 
Actual
 
Minimum Capital Adequacy Requirements
 
Minimum Capital Adequacy Requirements with Capital Conservation Buffer
 
To be Well Capitalized Under Prompt Corrective Action Provisions
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Company
(In thousands, except ratio data)
 
 
 
At June 30, 2020:
 
 
 
 
 
 
 
 
 
 
 
Total capital (to risk-weighted assets)
$
1,092,838

18.22
%
 
$
479,760

8.00
%
 
$
629,685

10.50
%
 
N/A
N/A
Tier 1 capital (to risk-weighted assets)
1,006,951

16.79
%
 
359,820

6.00
%
 
509,745

8.50
%
 
N/A
N/A
Common equity tier 1 capital (to risk-weighted assets)
999,734

16.67
%
 
269,865

4.50
%
 
419,790

7.00
%
 
N/A
N/A
Tier 1 capital (to adjusted total assets)
1,006,951

11.56
%
 
348,535

4.00
%
 
348,535

4.00
%
 
N/A
N/A
 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
Total capital (to risk-weighted assets)
$
1,061,555

17.25
%
 
$
492,438

8.00
%
 
$
646,324

10.50
%
 
N/A
N/A
Tier 1 capital (to risk-weighted assets)
988,172

16.05

 
369,328

6.00

 
523,215

8.50

 
N/A
N/A
Common equity tier 1 capital (to risk-weighted assets)
980,995

15.94

 
276,996

4.50

 
430,883

7.00

 
N/A
N/A
Tier 1 capital (to adjusted total assets)
988,172

12.92

 
305,824

4.00

 
305,824

4.00

 
N/A
N/A








58
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


 
Actual
 
Minimum Capital Adequacy Requirements
 
Minimum Capital Adequacy Requirements with Capital Conservation Buffer
 
To be Well Capitalized Under Prompt Corrective Action Provisions
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
 
Amount
Ratio
Bank
(In thousands, except ratio data)
At June 30, 2020:
 
 
 
 
 
 
 
 
 
 
 
Total capital (to risk-weighted assets)
$
926,380

15.58
%
 
$
475,689

8.00
%
 
$
624,342

10.50
%
 
$
594,611

10.00
%
Tier 1 capital (to risk-weighted assets)
852,093

14.33

 
356,767

6.00

 
505,420

8.50

 
475,689

8.00

Common equity tier 1 capital (to risk-weighted assets)
852,093

14.33

 
267,575

4.50

 
416,228

7.00

 
386,497

6.50

Tier 1 capital (to adjusted total assets)
852,093

9.79

 
348,116

4.00

 
348,116

4.00

 
435,145

5.00

 
 
 
 
 
 
 
 
 
 
 
 
At December 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
Total capital (to risk-weighted assets)
$
844,664

14.25
%
 
$
474,125

8.00
%
 
$
622,290

10.50
%
 
$
592,657

10.00
%
Tier 1 capital (to risk-weighted assets)
782,881

13.21

 
355,594

6.00

 
503,758

8.50

 
474,125

8.00

Common equity tier 1 capital (to risk-weighted assets)
782,881

13.21

 
266,696

4.50

 
414,860

7.00

 
385,227

6.50

Tier 1 capital (to adjusted total assets)
782,881

10.25

 
305,423

4.00

 
305,423

4.00

 
381,779

5.00


    


59
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Item 4. CONTROLS AND PROCEDURES


An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of June 30, 2020. In designing and evaluating the Company’s disclosure controls and procedures, the Company and its management recognize that any controls and procedures, no matter how well-designed and operated, can provide only a reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.

During the quarter ended June 30, 2020, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

60


PART II – OTHER INFORMATION

Item 1.     Legal Proceedings
    
The Company is involved in various legal actions and claims arising in the normal course of business. In the opinion of management, these legal actions and claims are not expected to have a material adverse impact on the Company’s financial condition.

Item 1A.     Risk Factors

For information regarding the Company’s risk factors, refer to the Risk Factors previously disclosed under Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission. Except as set forth below, as of June 30, 2020 the risk factors of the Company have not materially changed from those disclosed in the Company's Annual Report on Form 10-K.

The widespread outbreak of the novel coronavirus ("COVID-19") has adversely affected, and will likely continue to adversely affect, our business, financial condition, and results of operations. Moreover, the longer the pandemic persists, the more material the ultimate effects are likely to be.

The COVID-19 pandemic is negatively impacting economic and commercial activity and financial markets, both globally and within the United States. In our market area, stay-at-home orders and travel restrictions - and similar orders imposed across the United States to restrict the spread of COVID-19 - resulted in significant business and operational disruptions, including business closures, supply chain disruptions, and mass layoffs and furloughs. Local jurisdictions have subsequently lifted stay-at-home orders and moved to phased reopening of businesses, although capacity restrictions and health and safety recommendations that encourage continued physical distancing and teleworking have limited the ability of businesses to return to pre-pandemic levels of activity.

We have implemented business continuity plans and continue to provide financial services to clients, while taking health and safety measures such as transitioning most in-person customer transactions to our drive-thru facilities and limiting access to the interior of our facilities, frequent cleaning of our facilities, and using a remote workforce where possible. Despite these safeguards, we may nonetheless experience business disruptions.

The COVID-19 pandemic has negatively affected our business and is likely to continue to do so. However, the extent to which COVID-19 will negatively affect our business is unknown and will depend on the geographic spread of the virus, the overall severity of the disease, the duration of the pandemic, the actions undertaken by national, state and local governments and health officials to contain the virus or treat its effects, and how quickly and to what extent economic conditions improve and normal business and operating conditions resume. The longer the pandemic persists, the more material the ultimate effects are likely to be.

The continued spread of COVID-19 and the efforts to contain the virus, including stay-at-home orders and travel restrictions, could:
•
cause changes in consumer and business spending, borrowing and savings habits, which may affect the demand for loans and other products and services we offer, as well as the creditworthiness of potential and current borrowers;
•
cause our borrowers to be unable to meet existing payment obligations, particularly those borrowers that may be disproportionately affected by business shut downs and travel restrictions, such as those operating in the travel, lodging, retail, and entertainment industries, resulting in increases in loan delinquencies, problem assets, and foreclosures;
•
cause the value of collateral for loans, especially real estate, to decline in value;
•
reduce the availability and productivity of our employees;
•
require us to increase our allowance for loan losses;
•
cause our vendors and counterparties to be unable to meet existing obligations to us;
•
negatively impact the business and operations of third party service providers that perform critical services for our business;
•
impede our ability to close mortgage loans, if appraisers and title companies are unable to perform their functions;
•
cause the value of our securities portfolio to decline; and
•
cause the net worth and liquidity of loan guarantors to decline, impairing their ability to honor commitments to us.

Any one or a combination of the above events could have a material, adverse effect on our business, financial condition, and results of operations.


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Moreover, our success and profitability is substantially dependent upon the management skills of our executive officers, many of whom have held officer positions with us for many years. The unanticipated loss or unavailability of key employees due to COVID-19 could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Certain actions taken by U.S. or other governmental authorities, including the Federal Reserve, that are intended to ameliorate the macroeconomic effects of COVID-19 may cause additional harm to our business. Decreases in short-term interest rates, such as those announced by the Federal Reserve during the first fiscal quarter of 2020, have a negative impact on our results, as we have certain assets and liabilities that are sensitive to changes in interest rates.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

The following table reports information regarding repurchases of the Company's common stock during the quarter ended June 30, 2020:
Period
 
Total Number of Shares (3)
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)(2)
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 - 30, 2020
 
899,314

 
$
14.46

 
899,074

 
—

May 1 - 31, 2020
 
—

 
—

 
—

 
—

June 1 - 30, 2020
 
—

 
—

 
—

 
—

Total
 
899,314

 
14.46
 
899,074

 
 
 
 
 
 
 
 
 
 
 
(1) On June 11, 2019, the Company announced that the Company's Board of Directors authorized a stock repurchase program for up to 4,000,000 shares of the Company's issued and outstanding common stock, commencing on June 13, 2019.
(2) On December 5, 2019, the Company announced that its Board of Directors had expanded its stock repurchase program to acquire an additional 3,000,000 shares of the Company's outstanding common stock in addition to the shares remaining under the repurchase program announced on June 11, 2019.
(3) During the three months ended June 30, 2020, 240 shares were repurchased pursuant to forfeitures related to the 2019 Equity Incentive Plan and not as part of our share repurchase program.
    
On April 23, 2020 the Company completed the repurchases under the stock repurchase programs.

Item 3.     Defaults Upon Senior Securities
    
Not Applicable.

Item 4.     Mine Safety Disclosures

Not Applicable.

Item 5.     Other Information

None.

Item 6.     Exhibits

The exhibits listed in the Exhibit Index (following the signatures section of this report) are included in, or incorporated by reference into this Quarterly Report on Form 10-Q.



Exhibit Index
31.1
 
 
 
 
31.2
 
 
 
 
32
 
 
 
 
101.
 
The following materials from the Company’s Quarterly Report to Stockholders on Form 10-Q for the quarter ended June 30, 2020, formatted in inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Financial Condition, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.
 
 
 
101. INS
 
The instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
 
 
 
101. SCH
 
Inline XBRL Taxonomy Extension Schema Document
 
 
 
101. CAL
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101. DEF
 
Inline XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101. LAB
 
Inline XBRL Taxonomy Extension Labels Linkbase Document
 
 
 
101. PRE
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
104
 
Cover page Interactive Data File (embedded within the Inline XBRL document)


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SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
Columbia Financial, Inc.
 
 
 
 
 
Date:
 
August 10, 2020
 
/s/Thomas J. Kemly
 
 
 
 
Thomas J. Kemly
 
 
 
 
President and Chief Executive Officer
 
 
 
 
(Principal Executive Officer)
 
 
 
 
 
Date:
 
August 10, 2020
 
/s/Dennis E. Gibney
 
 
 
 
Dennis E. Gibney
 
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
 
(Principal Financial and Accounting Officer)



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