The objective of this section is to help potential investors understand our views on our results of operations and financial condition. You should read this discussion in conjunction with the consolidated financial statements and notes to the consolidated financial statements that appear at the end of this report.
Executive Summary
Our primary source of pre-tax income is net interest income. Net interest income is the difference between the interest we earn on our loans and securities and the interest we pay on our deposits and borrowings. Changes in levels of interest rates as well as the balances of interest-earning assets and interest-bearing liabilities affect our net interest income. A secondary source of income is non-interest income, which is revenue we receive from providing products and services. Traditionally, the majority of our non-interest income has come from service charges, loan fees, interchange income, gains on sales of loans and securities, revenue from mortgage servicing, income from bank-owned life insurance and fee income from title insurance and wealth management businesses. The non-interest expense we incur in operating our business consists of salaries and employee benefits expenses, occupancy expenses, depreciation, amortization and maintenance expenses, data processing and software expenses and other miscellaneous expenses, such as loan expenses, advertising, insurance, professional services and federal deposit insurance premiums. Our largest non-interest expense is salaries and employee benefits, which consist primarily of salaries and wages paid to our employees, payroll taxes, and expenses for health insurance, retirement plans and other employee benefits. Our business results are impacted by the pace of economic growth and the level of market interest rates, and the difference between short-term and long-term rates. TheFederal Reserve Board is expected to increase rates in the foreseeable future after keeping rates stable sinceMarch 2020 . TheFederal Reserve reduced rates by 75 basis points in 2019, and in response to COVID-19, reduced rates again by 150 basis points inMarch 2020 . Throughout this period, competition among banks to secure new customers, loans and deposits has remained fierce, and interest rate spreads have again declined over the last few years. We continue to adhere to our prudent underwriting standards and are committed to originating quality loans. Additionally, we have maintained relatively low levels of non-performing assets, past due loans and charge-offs, through all economic environments. Business Strategy
Our business strategy is to continue to operate and grow
profitable community-oriented financial institution and to continue to shift our
focus to more business-oriented commercial banking. We plan to achieve this by:
Increasing earnings through the growth of our balance sheet.
We intend to continue to grow our balance sheet through organic growth of loans and securities, funded by growth of deposits and borrowings. We expect that this growth will increase revenue faster than the growth of expenses, resulting in increased earnings over time. As part of our growth strategy, we will seek to grow our loan portfolio and deposit base at consistent rates of growth. We have a diversified loan portfolio, which includes multifamily and commercial real estate loans, residential mortgage loans, residential and commercial construction loans, commercial business loans and consumer loans (primarily home equity loans and advances). While we intend to continue our focus on originations of one-to-four family residential mortgage loans as we grow our loan portfolio, we expect to continue to shift the mix of our loans over time, from residential mortgage loans, toward commercial loans and, correspondingly, shift our deposit mix toward commercial deposits, particularly non-interest-bearing checking accounts. These strategies along with continued deposit pricing discipline are expected to enhance our net interest margin.
Expanding our commercial business relationships.
Historically, our commercial loan products have consisted primarily of loans secured by multifamily and commercial real estate and construction loans. As part of our growth strategy, we intend to continue our increased focus on commercial business lending, which offers shorter terms and variable rates, helps to manage interest rate risk exposure, and provides us with an opportunity to offer a full range of our products and services, including cash management, and deposit products to commercial customers. In 2021, our commercial business loans decreased 39.9% from the year endedDecember 31, 2020 , which was due primarily due to the sale of 34 -------------------------------------------------------------------------------- SBA PPP loans which represented 45.7% of the commercial business portfolio atDecember 31, 2020 . Historically, we have focused on lending inNew Jersey with only a minimal volume from neighboring states, but anticipate that we will increase the amount of loans originated outsideNew Jersey as we continue to grow our commercial loan business. We anticipate that any such expansion of our commercial lending to market areas outsideNew Jersey will increase lending and deposit opportunities in those areas and provide geographic diversification within our portfolio.
Continuing to emphasize the origination of one-to- four family residential
mortgage loans.
AtDecember 31, 2021 ,$2.1 billion , or 33.0%, of our total loan portfolio consisted of one-to-four family residential mortgage loans. Although we expect to shift the mix of our loans over time, from residential mortgage loans, toward commercial loans, we intend to continue to emphasize the origination of one-to-four family residential mortgage loans in the future. We believe there are opportunities to maintain and increase our residential mortgage lending in our market area, and we have made efforts to take advantage of these opportunities by increasing our origination channels. We originate one-to-four family residential mortgage loans for our own portfolio but periodicallyColumbia Bank sells loans to third party investors with servicing retained. We offer fixed-rate and adjustable-rate residential mortgage loans, which totaled$2.0 billion and$131.3 million , respectively, atDecember 31, 2021 . To increase the origination of adjustable-rate loans, we intend to continue originating loans that bear a fixed interest rate for a period of up to seven years after which they convert to one-year adjustable-rate loans.
Increasing fee income through continued growth of fee-based activities.
We intend to focus on growing our existing title insurance business, expanding the scope of the wealth management services we provide, and increasing our revenues from loan servicing activities to increase the amount of fees earned from our fee-based businesses. Presently, the majority of our revenue comes from net interest income and less than 13% from other sources, including title insurance fees, loan and deposit fees, bank-owned life insurance and gains and losses on the sales of securities and loans. We expect to increase fee income from enhancing interchange services, generating additional commercial loan swap fee income and expanding treasury services. We currently offer title insurance services through our title insurance agency and offer wealth management services through a third-party networking arrangement. In order to expand both of these services and to grow our wealth management business, we have considered the acquisition of title insurance agencies and wealth management businesses in recent years and expect to actively pursue the acquisition of such fee-based businesses, as well as considering the acquisition of other fee-based businesses such as insurance agencies and specialty lending companies. We continue to explore and evaluate acquisition opportunities of fee-based businesses, but we currently have no understandings or agreements with respect to any such acquisitions, other than our definitive agreement to acquireRSI Bank , which currently has an insurance agency subsidiary. We also intend to grow our servicing revenue by continuing to periodically sell one-to-four family residential mortgage loans that we originate to third party investors, including other financial institutions, while retaining the servicing of such loans. Expanding our franchise through de novo branching, branch acquisitions and the possible acquisition of other financial institutions and/or financial services companies. We believe there are branch expansion opportunities within our market area and adjacent markets, including other states, and will seek to grow our deposit base by adding branches to our existing branch network. In addition to deposit generation, our branch network also generates one-to-four family loans, home equity loans and advances and other consumer loans. While we are aware of the industry branch consolidation trends, we believe that in order to attract new customers, we need to selectively expand our network to fill in gaps in the existing footprint and into adjacent markets. We believe that new smaller branch designs, which are more cost-efficient, are more appropriately sized and staffed for the expected transaction volumes. Our growth strategy also includes the acquisition of other financial institutions within our market area as well as in neighboring states. OnNovember 1, 2019 , we completed our acquisition of Stewardship Financial and its wholly owned subsidiary,Atlantic Stewardship Bank , onApril 1, 2020 we completed our acquisition of the Roselle Entities and onDecember 1, 2021 we completed our acquisition of the Freehold Entities. OnDecember 1, 2021 , we also announced that we have entered into an agreement and plan of merger to acquire the RSI Entities. We intend to continue to actively pursue the acquisition of banks and thrifts, including thrifts in the mutual and mutual holding company structure. In the past, we have relied upon organic growth rather than acquisitions to grow our franchise, and there is no guarantee that we will be successful in pursuing our acquisition strategy. 35 --------------------------------------------------------------------------------
Maintaining asset quality through the application of a prudent, disciplined
approach to credit risk as part of an overall risk management program.
We employ a conservative, analytical approach to the assets we acquire that we have tested over many different business and interest rate cycles. This applies to our securities portfolio, which is comprised primarily of liquid, low credit-risk, government agency-backed securities, as well as, our loan portfolio. Residential loans are underwritten to secondary market standards and our commercial lending policies are designed to be consistent with industry best practices. We subject our loan portfolio to independent internal and external reviews to validate conformance to policies and stress tests to identify areas of potential risk. We have management information systems that provide regular insight into the quantity and direction of credit risk in our loan portfolio segments, including borrower and industry-specific concentrations. We employ limits on concentration risks, including the ratios of commercial real estate and construction loan portfolios to capital. We have developed reporting, analytics and stress testing that we believe provide effective oversight of these portfolios at higher concentration levels. We employ tools to ensure we are being appropriately compensated for the risks inherent in the lending products we offer, and in the specific transactions. Our commercial loan pricing model quantifies the credit and interest rate risk embedded in our new loan originations and provides a target return hurdle. We operate with Risk Committees, at both the management and board levels, that review changes in the quantity and direction of risk. These committees review our key risk indicators, loan portfolio and liquidity stress tests and operational and cyber risk assessments, which draw from our Asset/Liability Committee data, our loan portfolio credit metrics and treasury risk (investment/funding) metrics.
Enhancing our technology infrastructure to broaden our product capabilities and
improve product delivery and efficiency.
We have embraced the latest technological developments in the banking industry, which we believe allows us to better leverage our employees by enabling them focus on developing customer relationships, generate retail deposits in an efficient manner, expand the suite of products that we can offer to customers and allow us to compete more efficiently and effectively as we grow. In 2019, we implemented a new commercial loan underwriting and a new relationship monitoring system to better support and manage our commercial customer base. In 2020, faced with the COVID-19 pandemic, we were able to quickly enable remote employee access via the Digital Workplaces initiative, accelerating the release of several digital banking and other Fintech solutions to support our customers. We introduced a new digital mortgage system which greatly expedited the handling of mortgage, home equity and HELOC applications. In 2021 we introduced a digital small business lending solution, online chat and appointment scheduling and a credit card platform. We expect to continue to enhance our digital technology platforms to provide more appealing products and services to our customers and support our sales and marketing initiatives. Currently, we are in the process of upgrading our current company-wide technology infrastructure to support both organic and inorganic growth.
Focusing on an enhanced customer experience and continued customer satisfaction.
We believe that customer satisfaction is a key to generating sustainable growth and profitability. While continually striving to ensure that our products and services meet our customers' needs, we also encourage our officers and employees to focus on providing personal service and attentiveness to our customers in a proactive manner. In recent years, we have enhanced our image and brand recognition within our marketplace for banking services. Our strategy continues to be focused on providing quality customer service through our convenient branch network, supported by our Call Center, where customers can speak with a representative to answer questions and resolve issues during business and extended hours. We believe that our ability to close transactions and deliver our services in a timely manner is attractive to our customers and distinguishes us from other financial institutions that operate in our marketplace. Our customers enjoy access to senior executives and decision makers and the value it brings to their businesses. We also offer convenient online and mobile banking tools for customers to transact business anytime and anywhere. We believe that many opportunities remain to deliver what our customers want in the form of exceptional service and convenience and we intend to continue to focus our operating strategy on taking advantage of these opportunities.
Employing a stockholder-focused management of capital.
We intend to manage our capital position through the growth of assets, as well as the utilization of appropriate capital management tools, consistent with applicable regulations and policies, and subject to market conditions. UnderFederal Reserve Board regulations, we were prohibited from repurchasing shares of our common stock for one year following our minority public offering that was completed inApril 2018 . SinceJune 2019 , we have announced four stock repurchase programs under which we have repurchased an aggregated of 17,186,061 shares of common stock as ofDecember 31, 2021 . Most recently, onDecember 6, 2021 , we 36 -------------------------------------------------------------------------------- announced that our Board of Directors authorized a new stock repurchase program to acquire up to 5,000,000 shares, or approximately 4.6%, of our then currently issued and outstanding common stock, commencing upon the completion of our existing stock repurchase program that was approved inFebruary 2021 . Our Board of Directors has the authority to declare dividends on our shares of common stock, and may determine to pay dividends in the future, subject to statutory and regulatory requirements and other considerations such as the ability ofColumbia Bank MHC to receive permission from theFederal Reserve Board to waive receipt of any dividends we may determine to declare in the future. IfColumbia Financial pays dividends to its stockholders, it also will be required to pay dividends toColumbia Bank MHC , unlessColumbia Bank MHC is permitted by theFederal Reserve Board to waive the receipt of dividends. TheFederal Reserve Board's current position is to not permit a "non-grandfathered" mutual holding company to waive dividends declared by its subsidiary.Columbia Bank MHC may determine to apply to theFederal Reserve Board for approval to waive dividends if we determine to pay dividends to our stockholders. Given theFederal Reserve Board's current position on this issue, there is no assurance that any request byColumbia Bank MHC to waive dividends fromColumbia Financial would be permitted. The denial by theFederal Reserve Board of any such dividend waiver request, if sought, could determine whether the board of directors ofColumbia Financial determines to declare a dividend, or if so declared, could significantly limit the amount of dividendsColumbia Financial would pay in the future, if any. COVID-19 To assist customers impacted by the COVID-19 pandemic, the Company granted commercial loan modification requests with respect to multifamily, commercial, and construction real estate loans and consumer-related loan modification requests with respect to one-to-four family real estate loans and home equity loans and advances to our customers affected by the COVID-19 pandemic. Commercial loan modification requests included various industries and property types. Approximately$1 billion in loans received some variation of deferral. AtDecember 31, 2021 , four loans remained on deferral for$24.3 million , a decrease of$60.8 million , compared to$85.1 million atDecember 31, 2020 . These short-term loan modifications are treated in accordance with Section 4013 of the CARES Act and are not treated as troubled debt restructurings during the short-term modification period if the loan was not in arrears. The Consolidated Appropriations Act, 2021, which was enacted in lateDecember 2020 , extended certain provisions of the CARES Act throughJanuary 1, 2022 , including provisions permitting loan deferral extension requests to not be treated as troubled debt restructurings.
Critical Accounting Policies
In the preparation of our consolidated financial statements, we have adopted various accounting policies that govern the application ofU.S. generally accepted accounting principles ("GAAP") and general practices within the banking industry. Our significant accounting policies are described in note 2 to the consolidated financial statements. Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies, which are discussed below, to be critical accounting policies. These assumptions, estimates and judgments we use can be influenced by a number of factors, including the general economic environment. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations. Allowance for Loan Losses. The calculation of the allowance for loan losses is a critical accounting policy of the Company because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses. The allowance for loan losses is maintained at a level that management considers adequate to provide for estimated losses and impairment based upon an evaluation of known and inherent risk in the loan portfolio. The allowance consists of two elements: (1) identification of loans that must be reviewed individually for impairment and (2) establishment of an allowance for loan losses for loans collectively evaluated for impairment. We maintain a loan review system that provides a periodic review of the loan portfolio and the identification of impaired loans. The allowance for loan losses for loans individually evaluated for impairment is based on the fair value of collateral or cash flows. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluations. The allowance for loan losses for loans collectively evaluated for impairment consists of both quantitative and qualitative loss components established for estimated losses inherent in the portfolio. The evaluation of the allowance for loan losses for loans collectively evaluated for impairment excludes impaired loans which are individually evaluated for impairment. We estimate the quantitative component of the allowance for loan losses for loans collectively evaluated for impairment by applying quantitative loss factors to loan segments by risk rating and determining qualitative adjustments to each loan segment at an overall level. Quantitative loss factors give consideration to historical loss experience and migration experience by loan type over a look-back period, adjusted for a loss emergence period. Qualitative adjustments give consideration to other qualitative or environmental factors such as trends 37 -------------------------------------------------------------------------------- and levels of delinquencies, impaired loans, charge-offs, recoveries and loan volumes, as well as national and local economic trends and conditions. Qualitative adjustments reflect risks in the loan portfolio not captured by the quantitative loss factors and, as such, are evaluated relative to risk levels present over the look-back period. The reserves resulting from the application of both the quantitative experiences and qualitative factors are combined to arrive at the allowance for loan losses for loans collectability evaluated for impairment. We assessed the impact of the pandemic on the Company's financial condition, including its determination of the allowance for loan losses. Beginning inMarch 2020 , management established an additional qualitative loss factor solely related to the impact of COVID-19 in the calculation. As part of that assessment, the Company considered the effects of the pandemic on economic conditions such as increasing unemployment rates and the shut-down of all non-essential businesses. The Company also analyzed the impact of COVID-19 on its primary market as well as the impact on the Company's market sectors and its specific customers. As part of its estimation of an adjustment to the allowance due to COVID-19, the Company identified those market sectors or industries that were more likely to be affected, such as hospitality, transportation and outpatient care centers. To determine the potential impact on the Company's customers, management considered significant revenue declines in a borrower's business as well as reductions in its operating cash flows and the impact on their ability to repay their loans, and estimated the probability of default and loss-given-default for the various loan categories and assigned a weighting to each scenario. Based on this analysis, management estimated the potential impact resulting from COVID-19, and the adjustment to the allowance that was necessary. Management continues to evaluate the impact of the COVID-19 qualitative loss factor on a quarterly basis. The allowance for loan losses is established through provisions for loan losses charged to income, which is based upon past loan loss experience and an evaluation of estimated losses in the current loan portfolio, including the evaluation of impaired loans. Although we believe that we have established and maintained the allowance for loan losses at appropriate levels, additional reserves may be necessary if future economic and other conditions differ substantially from the current operating environment. In addition, regulatory agencies periodically review the adequacy of our allowance for loan losses as an integral part of their examination process. Such agencies may require us to recognize additions to the allowance or additional write-downs based on their judgments about information available to them at the time of their examination. Our financial results are affected by the changes in and the level of the allowance for loan losses. This process involves our analysis of internal and external variables, and it requires that we exercise judgment to estimate an appropriate allowance for loan losses. As a result of the uncertainty associated with this subjectivity, we cannot assure the precision of the amount reserved, should we experience sizable loan losses in any particular period. We believe the primary risks inherent in the portfolio are a general decline in the economy, a decline in real estate market values, rising unemployment, elevated unemployment, increasing vacancy rates, and increases in interest rates in the absence of economic improvement. Any one or a combination of these events may adversely affect a borrower's ability to repay its loan, resulting in increased delinquencies and loan losses. Accordingly, we have recorded loan losses at a level which is estimated to represent the current risk in its loan portfolio. Most of our non-performing assets are collateral dependent loans which are written down to their current appraised value less estimated costs to sell. We continue to assess the collateral of these loans and update our appraisals on these loans on an annual basis. To the extent the property values decline, there could be additional losses on these non-performing assets, which may be material. Management considered these market conditions in deriving the estimated allowance for loan losses. Should economic difficulties occur, the ultimate amount of loss could vary from that estimate. For additional discussion related to the determination of the allowance for loan losses, see "Risk Management-Analysis and Determination of the Allowance for Loan Losses" and the notes to the consolidated financial statements. Income Taxes. We are subject to the income tax laws of the various jurisdictions where we conduct business and estimate income tax expense based on amounts expected to be owed to these various tax jurisdictions. The estimated income tax expense (benefit) is reported in the Consolidated Statements of Income. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a continual basis as regulatory and business factors change. Accrued or prepaid taxes represent the net estimated amount due to or to be received from tax jurisdictions either currently or in the future and are reported in other assets or other liabilities in our consolidated financial statements. We assess the appropriate tax treatment of transactions and filing positions after considering statutes, regulations, judicial precedent and other pertinent information and maintain tax accruals consistent with our evaluation. Changes in the estimate of accrued taxes occur periodically due to changes in tax rates, interpretations of tax laws, status of examinations by the tax authorities and newly enacted statutory, judicial and regulatory guidance that could impact the relative merits of tax positions. These changes, when they occur, impact accrued taxes and can materially affect our operating results. The Company identified no significant income tax uncertainties through the evaluation of its 38 --------------------------------------------------------------------------------
income tax positions as of
has no unrecognized income tax benefits as of those dates.
As ofDecember 31, 2021 , we had a net deferred tax liability totaling$9.7 million . In accordance with Accounting Standards Codification ("ASC") Topic 740 "Income Taxes," we use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is established when management is unable to conclude that it is more likely than not that it will realize deferred tax assets based on the nature and timing of these items. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period enacted. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax assets and liabilities. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets are inherently subjective and are reviewed on a regular basis as regulatory or business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets. A valuation allowance that results in additional income tax expense in the period in which it is recognized would negatively affect earnings. Management believes, based upon current facts, that it is more likely than not that there will be sufficient taxable income in future years to realize the federal deferred tax assets and that it is more likely than not that the benefits from certain state temporary differences will not be realized. In recognition of this risk, we have provided a valuation allowance of$2.0 million as ofDecember 31, 2021 on the deferred tax assets related to state net operating losses. Post-retirement Benefits. We provide certain health care and life insurance benefits, along with a split-dollar BOLI death benefit, to eligible retired employees. The cost of retiree health care and other benefits during the employees' period of active service are accrued monthly. We account for benefits in accordance with ASC Topic 715 "Pension and Other Post -retirement Benefits." The guidance requires an employer to: (a) recognize in the statement of financial position the over funded or underfunded status of a defined benefit post-retirement plan measured as the difference between the fair value of plan assets and the benefit obligations; (b) measure a plan's assets and its obligations that determine its funded status as of the end of the Company's fiscal year (with limited exceptions); and (c) recognize as a component of other comprehensive income (loss), net of tax, the actuarial gain and losses and the prior service costs and credits that arise during the period. These assets and liabilities and expenses are based upon actuarial assumptions including interest rates, rates of increase in compensation, expected rate of return on plan assets and the length of time we will have to provide those benefits. Actual results may differ from these assumptions. These assumptions are reviewed and updated at least annually and management believes the estimates are reasonable.
Pending Accounting Pronouncements
InAugust 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 afterDecember 15, 2020 , including interim reporting periods within that reporting period, with early adoption permitted. The Company adopted this ASU effectiveJanuary 1, 2021 . The update will be applied on a retrospective basis to disclosures with regard to employee benefit plans. The adoption of this update did not have a significant impact on the Company's consolidated financial statements. InJune 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 afterDecember 15, 2019 . 39 -------------------------------------------------------------------------------- The Company elected to defer the adoption of the CECL methodology untilDecember 31, 2020 as permitted by the enacted Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). In lateDecember 2020 , the Consolidated Appropriations Act, 2021 was enacted, and extended certain provisions of the CARES Act, which allowed the Company to extend the adoption of CECL untilJanuary 1, 2022 . The Company elected to extend its adoption of CECL in accordance with this legislation, and will adopt the above mentioned ASUs related to Financial Instruments -Credit Losses (Topic 326) using a modified retrospective approach. Our CECL methodology includes the following key factors and assumptions for all loan portfolio segments:
•a historical loss period, which represents a full economic credit cycle
utilizing internal loss experience, as well as industry and peer historical loss
data;
•a single economic scenario with a reasonable and supportable forecast period of four to six quarters based on management's current review of macroeconomic factors and the reliability of extended economic forecasts over different time horizons; •a reversion to historical mean period (after the reasonable and supportable forecast period) using a straight-line approach that extends through the shorter of six quarters or the end of the remaining contractual term; and
•expected prepayment rates based on a combination of our historical experience
and market observations.
Based on several analyses performed, as well as an implementation analysis utilizing existing exposures and forecasts of macroeconomic conditions atDecember 31, 2021 , the adoption of ASU 2016-13 will result in a decrease of approximately 12%, net of tax, in our allowance for loan losses and our reserves for unfunded commitments.
As part of the implementation of the ASU, the Company will reconcile
historical loan data, determine segmentation of the loan portfolio for
application of the CECL calculation, determine the key assumptions, select
calculation methods, and establish an internal control framework. We are
currently finalizing the execution of our implementation controls and enhancing
process documentation.
The expected decrease in the allowance for loan losses and reserve for unfunded commitments is a result of the change from an incurred loss model, which encompasses allowances for current known and inherent losses within the portfolio, to an expected loss model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate that we establish an allowance for expected credit losses for certain debt securities and other financial assets; however, we do not expect these allowances to be significant. Future amounts of provision expense related to our allowance for loan losses and reserves for unfunded commitments will depend on the size and composition of our loan portfolio, future economic conditions and borrowers' payment performance. Future amounts of provision related our debt securities will depend on the composition of our securities portfolio and current market conditions.
The adoption of ASU 2016-13 is not expected to have a significant impact on
our regulatory capital ratios.
Upon adoption, any impact to the allowance for credit losses as of
2022
adjustment, net of tax, to retained earnings.
Comparison of Financial Condition at
General
Total assets increased$425.6 million , or 4.8%, to$9.2 billion atDecember 31, 2021 from$8.8 billion atDecember 31, 2020 . The increase in total assets was primarily attributable to increases in debt securities available for sale of$386.9 million , debt securities held to maturity of$167.0 million , loans receivable, net of$190.8 million , bank-owned life insurance of$14.7 million , and other assets of$39.8 million , partially offset by decreases in cash and cash equivalents of$352.0 million andFederal Home Loan Bank stock of$20.6 million . Increases were impacted by the acquisition of assets with fair values totaling$316.5 million in connection with the acquisition of the Freehold Entities. Total liabilities increased$357.8 million , or 4.6%, to$8.1 billion atDecember 31, 2021 from$7.8 billion atDecember 31, 2020 . The increase was primarily attributable to an increase in total deposits of$791.6 million , or 11.7%, partially offset by a decrease in borrowings of$422.1 million , or 52.8%, and a decrease in accrued expenses and other liabilities of$15.7 million . The increase in total deposits consisted of increases in non-interest-bearing and interest-bearing demand deposits of$357.5 million and$410.8 million , respectively, and money market accounts and savings and club deposits of$69.0 million and$134.5 million , respectively, partially offset by a decrease in certificates of deposit accounts of$180.2 million . In addition, the increase in total deposits was impacted by the assumption of$210.1 million in deposits in connection with the acquisition of Freehold 40 -------------------------------------------------------------------------------- Bank. Total stockholders' equity increased$67.8 million , or 6.7%, to$1.1 billion atDecember 31, 2021 from$1.0 billion atDecember 31, 2020 , primarily due to net income of$92.0 million , an increase in additional paid in capital of$47.2 million due to the issuance of 2,591,007 shares of Company common stock toColumbia Bank MHC in connection with theFreehold Bank acquisition, and a change in the pension obligation of$41.2 million , partially offset by the repurchase of 6,055,119 shares of common stock totaling$107.8 million under our stock repurchase program.
Securities
Debt securities available for sale and held to maturity increased$553.9 million , or 35.1%, to$2.1 billion atDecember 31, 2021 from$1.6 billion atDecember 31, 2020 . The increase in securities during 2021 was primarily impacted by purchases of$870.8 million of securities primarily consisting ofU.S. government and agency obligations, mortgage-backed securities and municipal securities, and$99.6 million in purchases of guarantor swaps with Freddie Mac, partially offset by maturities, calls and sales of$109.6 million inU.S. government and agency obligations, corporate debt and municipal securities, and repayments of$385.1 million . The increase also included the acquisition of$118.0 million in securities fromFreehold Bank . The gross unrealized gain (loss) on debt securities available for sale decreased by$36.9 million during the year endedDecember 31, 2021 . We continue to focus on maintaining a high quality securities portfolio that provides consistent cash flows in changing interest rate environments. AtDecember 31, 2021 , our total securities portfolio was 23.2% of total assets, as compared to 18.0% atDecember 31, 2020 . AtDecember 31, 2021 , 91.2% of the debt securities available for sale portfolio was comprised of mortgage-backed securities and CMOs issued by Freddie Mac, Fannie Mae andGinnie Mae . These securities are guaranteed by the issuing agency and backed by residential and multifamily mortgages. These securities are comprised of fixed rate, adjustable-rate and hybrid securities that bear a fixed rate for a specific term and thereafter, to the extent they are not prepaid, adjust periodically. AtDecember 31, 2021 , corporate debt securities comprised the next largest segment of the available for sale portfolio, totaling 6.5%. AtDecember 31, 2021 , the remainder of our available for sale securities portfolio consisted ofU.S. government and agency obligations and municipal obligations, which comprised 2.0% and 0.3%, respectively. AtDecember 31, 2021 , 89.6% of the debt securities held to maturity portfolio was comprised of mortgage-backed securities and CMOs issued by Freddie Mac, Fannie Mae andGinnie Mae . These securities are guaranteed by the issuing agency and backed by residential and multifamily mortgages. These securities are comprised of fixed rate, adjustable-rate and hybrid securities that bear a fixed rate for a specific term and thereafter, to the extent they are not prepaid, adjust periodically. AtDecember 31, 2021 , the remaining 10.4% of our held to maturity securities portfolio consisted ofU.S. government and agency obligations. To mitigate the credit risk related to our securities portfolio, we primarily invest in agency and highly-rated securities. As ofDecember 31, 2021 , approximately 94.5% of the total portfolio consisted of direct government obligations or government sponsored enterprise obligations, approximately 5.2% of the remaining portfolio was rated at least investment grade and approximately 0.3% of the remaining portfolio was not rated. Securities not rated consist primarily of short term municipal bond anticipation notes, private placement municipal notes issued and guaranteed by local municipal authorities, and equity securities. 41
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The following table sets forth the amortized cost and fair value of securities
at
At December 31,
2021 2020 2019
Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
(In thousands)
Debt securities available for sale:
U.S. government and agency obligations $ 34,711 $ 34,879
$ 42,386 Mortgage-backed securities and collateralized mortgage obligations 1,553,491 1,554,359 1,163,613 1,200,394 968,165 979,881 Municipal obligations 4,159 4,179 16,845 16,862 2,284 2,284 Corporate debt securities 109,018 110,430 67,628 69,477 68,613 69,180 Trust preferred securities - - 5,000 4,670 5,000 4,605
Total securities available for sale
$ 1,098,336 Debt securities held to maturity: U.S. government and agency obligations$ 44,870 $ 44,111
$ 5,000
$ 19,960 Mortgage-backed securities and collateralized mortgage obligations 384,864 390,678 257,720 272,090 265,756
269,545
Total debt securities held to maturity
$ 262,720 $ 277,091 $ 285,756 $ 289,505 Equity securities $ 2,870$ 2,710 $ 3,785$ 5,418 $ 1,989$ 2,855 Total securities$ 2,133,983 $ 2,141,346 $ 1,544,016 $ 1,599,461 $ 1,373,888 $ 1,390,696 AtDecember 31, 2021 and 2020, securities with carrying values of$1.1 billion and$164.4 million , respectively, were in net unrealized loss positions that totaled$16.2 million and$1.3 million , respectively. The increase in unrealized losses on securities in 2021 was primarily due to the increase in market interest rates at the end of the period. When evaluating for impairment, we consider the duration and extent to which fair value is less than cost, the creditworthiness and near-term prospects of the issuer, the likelihood of recovering our investment, whether we have the intent to sell the security, or whether it is more likely than not that we will be required to sell the security before recovery, and other available information to determine the nature of the decline in the fair value of the securities. AtDecember 31, 2021 , the unrealized losses in the portfolio were mainly attributed to GSE mortgage-backed securities and GSE CMOs. The temporary loss position associated with these securities was the result of changes in market interest rates relative to the coupon of the individual security and changes in credit spreads. As we do not intend to sell the securities, nor is it more likely than not that we will be required to sell the securities before the anticipated recovery, we do not consider the securities to be other-than-temporarily impaired atDecember 31, 2021 . During the years endedDecember 31, 2021 and 2020, we did not record an other-than-temporary impairment charge on securities.
At
entity (other than United States Government and United States GSE securities)
that had an aggregate book value in excess of 5% of our equity.
The following tables set forth the stated maturities and weighted average yields of securities atDecember 31, 2021 . Certain securities have adjustable interest rates and will reprice monthly, quarterly, semi-annually or annually within the various maturity ranges. Certain securities have adjustable interest rates and will reprice monthly, quarterly, semi-annually or annually within the various maturity ranges. Weighted average yields for tax-exempt securities totaling$4.2 million with a weighted average rate of 0.89%, are presented on a tax equivalent basis using a federal marginal tax rate of 21%. 42
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Equity securities are not included in the table based on lack of a maturity
date. The tables present contractual final maturities for mortgage-backed
securities and does not reflect repricing or the effect of prepayments.
At December 31, 2021
More Than Five Years to Ten
One Year or Less More Than One Year to Five Years Years After Ten Years Total
Carrying Weighted Average Weighted Average Weighted Average Weighted Average Weighted Average
Value Yield Carrying Value Yield Carrying Value Yield Carrying Value Yield Carrying Value Yield
(Dollars in thousands)
Debt securities
available for sale:
U.S. government and
agency obligations $ - - % $ 30,091 1.51 % $ 4,788 0.63 % $ - - % $ 34,879 1.39 %
Mortgage-backed
securities and
collateralized
mortgage obligations 357 1.62 148,813 2.32 355,089 1.87 1,050,100 2.12 1,554,359 2.08
Municipal obligations 915 0.62 2,785 0.62 479 3.03 - - 4,179 0.89
Corporate debt
securities - - 52,650 2.35 53,620 3.49 4,160 4.15 110,430 2.97
Total $ 1,272 1.01 % $ 234,339 2.20 % $ 413,976 2.07 % $ 1,054,260 2.13 % $ 1,703,847 2.12 %
At December 31, 2021
More Than One Year to Five More Than Five Years to Ten
Years Years After Ten Years Total
Weighted Weighted Weighted Weighted
Carrying Value Average Yield
Carrying Value Average Yield Carrying Value Average Yield
Carrying Value Average Yield
(Dollars in thousands)
Debt securities held to maturity:
U.S. government and agency
obligations $ 14,875 0.76 % $ 19,995 1.00 % $ 10,000 2.30 % $ 44,870 1.21 %
Mortgage-backed securities and
collateralized mortgage
obligations 69,766 2.68 152,219 2.17 162,879 2.74 384,864 2.50
Total $ 84,641 2.34 % $ 172,214 2.03 % $ 172,879 2.71 % $ 429,734 2.37 %
Loans receivable
Total gross loans increased $166.4 million , or 2.7%, to $6.3 billion at
December 31, 2021 from $6.2 billion at December 31, 2020 . One-to-four family
real estate loans and multifamily and commercial real estate loans increased
$152.0 , or 7.8%, and $393.4 million , or 14.0%, respectively, during 2021.
Construction loans decreased $33.7 million , or 10.2%, during 2021 to $295.0
million at December 31, 2021 from $328.7 million at December 31, 2020 .
Commercial business loans also decreased $300.6 million , or 39.9%, to $452.2
million at December 31, 2021 from $752.9 million at December 31, 2020 . The
decrease during 2021, was primarily attributable to the sale of SBA PPP loans
totaling $237.0 million and forgiven SBA PPP loans totaling $277.7 million . The
remaining PPP loans totaled $44.9 million at December 31, 2021 .
Our consumer loan originations, which are primarily comprised of home equity
loans and advances, continue to be impacted by weak demand. The reduction in
volume was influenced by the low interest rate environment, additional
tightening of underwriting
43
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on these types of loans, and enacted restrictions on the tax deductibility of
home mortgage interest. As a result of these factors, home equity loans and
advances decreased
The following tables present the loan portfolio for the periods indicated:
At December 31,
2021 2020
Amount Percent Amount Percent
(Dollars in thousands)
Real estate loans:
One-to-four family $ 2,092,317 33.0 % $ 1,940,327 31.5 %
Multifamily and commercial 3,211,344 50.7 2,817,965 45.7
Construction 295,047 4.7 328,711 5.3
Total real estate loans 5,598,708 88.4 5,087,003 82.5
Commercial business loans 452,232 7.1 752,870 12.2
Consumer loans:
Home equity loans and advances 276,563 4.4 321,177 5.2
Other consumer loans 1,428 0.1 1,497 0.1
Total consumer loans 277,991 4.5 322,674 5.3
Total gross loans 6,328,931 100.0 % 6,162,547 100.0 %
Purchased credit-impaired loans 6,791 6,345
Net deferred loan costs, fees and purchased
premiums and discounts 24,879 12,878
Allowance for loan losses (62,689) (74,676)
Loans receivable, net $ 6,297,912 $ 6,107,094
Loan Maturity
The following table sets forth certain information at December 31, 2021
regarding the dollar amount of loan principal repayments becoming due during the
periods indicated. The table does not include any estimate of prepayments that
significantly shorten the average life of all loans and may cause our actual
repayment experience to differ from that shown below. The table reflects final
maturities for construction loans that convert to permanent loans. Demand loans
having no stated schedule of repayments or maturity are reported as due in one
year or less.
December 31, 2021
Real Estate
Home Equity Other
One-to-four Multifamily and Commercial Loans and Consumer
Family Commercial Construction Business Advances Loans Total
(In thousands)
Amounts due in:
One year or less $ 1,151 $ 156,419 $ 168,526 $ 173,889 $ 744 $ 934 $ 501,663
More than one year
to five years 33,889 827,673 101,364 159,326 18,591 494 1,141,337
More than five years
to fifteen years 189,416 1,641,719 4,503 97,069 59,003 - 1,991,710
More than fifteen
years 1,867,861 585,533 20,654 21,948 198,225 - 2,694,221
Total $ 2,092,317 $ 3,211,344 $ 295,047 $ 452,232 $ 276,563 $ 1,428 $ 6,328,931
44
-------------------------------------------------------------------------------- The following table sets forth all loans atDecember 31, 2021 that are due afterDecember 31, 2022 and have either fixed interest rates or floating or adjustable interest rates: Due After December 31, 2022 Floating or Fixed Rates Adjustable Rates Total (In thousands) Real estate loans: One-to-four family$ 1,959,885 $ 131,281 $ 2,091,166 Multifamily and commercial 1,220,936 1,833,989 3,054,925 Construction 30,120 96,401 126,521 Commercial business loans 168,217 110,126 278,343 Consumer loans: Home equity loans and advances 172,291 103,528 275,819 Other consumer loans 494 - 494 Total loans$ 3,551,943 $ 2,275,325 $ 5,827,268
Loan Originations and Sales
The following table shows loans originated, purchased, sold and other
reductions in loans during the periods indicated:
Years Ended
2021 2020 2019
(In thousands)
Total loans at beginning of period $ 6,181,770 $ 6,197,566 $ 4,979,182
Originations:
Real estate loans:
One-to-four family 865,837 589,871 499,430
Multifamily and commercial 496,487 285,719 347,867
Construction 233,561 150,482 204,838
Total real estate loans 1,595,885 1,026,072 1,052,135
Commercial business loans 375,822 583,713 139,922
Consumer loans:
Home equity loans and advances 64,903 67,823 93,217
Other consumer loans 145 98 354
Total consumer loans 65,048 67,921 93,571
Total loans originated 2,036,755 1,677,706 1,285,628
Purchases 85,382 - 89,774
Loans acquired 158,912 171,593 757,223
Less:
Principal payments, repayments, and other items, net (1,411,214)
(1,486,288) (685,862) Loan sales (302,039) (147,377) (113,617) Securitization of loans (99,603) (117,259) (21,615)
Transfer of loans receivable to loans held-for-sale (289,362)
(114,171) (93,147) Transfer to real estate owned - - - Total loans receivable at end of period$ 6,360,601 $ 6,181,770 $ 6,197,566 45
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Deposits
Our primary source of funds is our deposits, which are comprised of non-interest
bearing and interest-bearing transaction accounts, money market deposit
accounts, savings and club accounts and certificates of deposit.
Deposits increased$791.6 million , or 11.7%, to$7.6 billion atDecember 31, 2021 from$6.8 billion atDecember 31, 2020 . The increase in deposits was partially driven by$210.1 million in deposits assumed in connection with the acquisition ofFreehold Bank . The balances of non-interest bearing demand, interest-bearing demand, money market, and savings and club accounts, increased as we strategically priced our deposit products and utilized marketing campaigns to attract non-maturity deposits. Municipal deposits totaled$702.0 million atDecember 31, 2021 compared to$599.8 million atDecember 31, 2020 . We continue our efforts to emphasize deposit taking though various channels. During 2021, non-interest bearing demand accounts increased$357.5 million , or 26.4%, due to an increase in commercial checking and Advantage Plus checking account balances. During 2021, interest-bearing demand accounts increased$410.8 million , or 18.8%, due to an increase in our Yield Plus product and an increase in municipal deposits of$102.2 million , or 17.0%. Money market accounts increased$69.0 million , or 11.7%, while certificates of deposits decreased$180.2 million , or 9.2%. We have focused on obtaining non-maturity deposit products by offering attractive pricing and promotions and by deepening our existing customer relationships. The following table sets forth the deposit balances as of the periods indicated: At December 31, 2021 2020 2019 Percent of Percent of Percent of Amount Total Deposits Amount Total Deposits Amount Total Deposits (Dollars in thousands) Non-interest-bearing demand$ 1,712,061 22.6 %$ 1,354,605 20.0 %$ 958,442 17.0 % Interest-bearing demand 2,599,987 34.3 2,189,164 32.3 1,720,383 30.5 Money market accounts 657,156 8.7 588,180 8.7 410,392 7.3 Savings and club deposits 822,833 10.9 688,309 10.2 543,480 9.6 Certificates of deposit 1,778,179 23.5 1,958,366 28.9 2,013,145 35.6 Total deposits$ 7,570,216 100.0 %$ 6,778,624 100.0 %$ 5,645,842 100.0 %
We are required to pledge securities to secure municipal deposits. At
and
The following table sets forth the deposit activity for the periods indicated:
Years Ended December 31,
2021 2020 2019
(In thousands)
Beginning balance $ 6,778,624 $ 5,645,842 $ 4,413,873
Increase before interest credited 762,483 1,077,536
1,170,418
Interest credited 29,109 55,246
61,551
Net increase in deposits 791,592 1,132,782 1,231,969
Ending balance $ 7,570,216 $ 6,778,624 $ 5,645,842
46
-------------------------------------------------------------------------------- AtDecember 31, 2021 , the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to$250,000 , which is the maximum amount for federal deposit insurance) was$300.3 million . The maturities are as follows: Balance (In thousands) Maturity Period: Three months or less$ 55,209 Over three through six months 37,107 Over six through twelve months 62,283 Over twelve months 145,689 Total$ 300,288
The following table sets forth all of our certificates of deposit classified by
interest rate as of the dates indicated:
At December 31,
2021 2020 2019
(In thousands)
Less than 0.50% $ 1,014,820 $ 477,849 $ 19,169
0.50% to 0.99% 466,787 358,562 9,007
1.00% to 1.49% 53,799 181,037 123,708
1.50% to 1.99% 69,706 307,957 576,354
2.00% to 2.49% 40,719 226,922 580,882
2.50% to 2.99% 124,223 384,284 678,681
3.00% and greater 8,125 21,755 25,344
Total $ 1,778,179 $ 1,958,366 $ 2,013,145
The following table sets forth the amount and maturities of our certificates of
deposit by interest rate at
Period to Maturity
More Than One More Than Two More Than Three Percentage of
Year to Two Years to Three Years to Four More Than Certificate
One Year or Less Years Years Years Four Years Total Accounts
(Dollars in thousands)
Less than 0.50% $ 828,048 $ 164,642 $ 19,431 $ 1,942 $ 757 $ 1,014,820 57.1 %
0.50% to 0.99% 78,496 208,468 98,660 14,798 66,365 466,787 26.2
1.00% to 1.49% 19,187 7,315 6,833 8,357 12,107 53,799 3.0
1.50% to 1.99% 43,676 9,713 6,431 5,706 4,180 69,706 3.9
2.00% to 2.49% 22,846 7,068 6,908 1,379 2,518 40,719 2.3
2.50% to 2.99% 94,841 21,077 5,532 392 2,381 124,223 7.0
3.00% and greater 537 232 155 3,703 3,498 8,125 0.5
Total $ 1,087,631 $ 418,515 $ 143,950 $ 36,277 $ 91,806 $ 1,778,179 100.0 %
47
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The following tables set forth the average balances and weighted average rates
of our deposit products at the dates indicated:
For the Years Ended December 31,
2021 2020
Weighted Average Weighted Average
Average Balance Percent Rate Average Balance Percent Rate
(Dollars in thousands)
Non-interest-bearing demand $ 1,522,322 21.32 % - % $ 1,215,352 19.04 % - %
Interest-bearing demand 2,395,493 33.56 0.34 1,945,075 30.47 0.65
Money market accounts 632,011 8.85 0.30 510,189 7.99 0.57
Savings and club deposits 752,983 10.55 0.10 623,964 9.78 0.16
Certificates of deposit 1,835,866 25.72 1.00 2,088,488 32.72 1.85
Total $ 7,138,675 100.00 % 0.41 % $ 6,383,068 100.00 % 0.87 %
For the Year Ended December 31,
2019
Weighted
Average Balance Percent Average Rate
(Dollars in thousands)
Non-interest-bearing demand $ 776,850 16.11 % - %
Interest-bearing demand 1,420,667 29.47 1.24
Money market accounts 286,281 5.94 0.80
Savings and club deposits 495,261 10.27 0.16
Certificates of deposit 1,842,243 38.21 2.22
Total $ 4,821,302 100.00 % 1.28 %
Borrowings
We have the ability to utilize advances and overnight lines of credit from the
FHLB to supplement our liquidity. As member banks, we are required to own
capital stock in the FHLB and are authorized to apply for advances on the
security of such stock and certain mortgage loans and other assets, provided
certain standards related to creditworthiness have been met. Advances are made
under several different programs, each having its own interest rate and range of
maturities. We can also utilize securities sold under agreements to repurchase
to provide funding. We maintain access to the Federal Reserve Bank's discount
window and federal funds lines with correspondent banks for additional
contingency funding. To secure our borrowings, we generally pledge securities
and/or loans. The types of securities pledged for borrowings include, but are
not limited to, government-sponsored enterprises ("GSE") including notes and
government agency mortgage-backed securities and CMOs. The types of loans
pledged for borrowings include, but are not limited to, one-to-four family real
estate loans home equity loans and multifamily and commercial real estate loans.
48
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The following table sets forth the outstanding borrowings and weighted averages
at the dates or for the periods indicated:
Years Ended December 31,
2021 2020 2019
(Dollars in thousands)
Maximum amount outstanding at any month-end during the
year:
Lines of credit $ 36,000 $ 186,600 $ 180,300
FHLB advances 722,141 1,139,580 1,275,391
Notes payable 29,841 - -
Subordinated notes 7,198 16,675 16,936
Junior subordinated debentures 6,949 6,949 6,932
Securities sold under repurchase agreements - - -
Average outstanding balance during the year:
Lines of credit $ 2,276 $ 29,859 $ 77,165
FHLB advances 722,514 1,092,774 1,056,115
Notes payable 740 - -
Subordinated notes - 11,067 2,881
Junior subordinated debentures 7,448 8,481 1,253
Securities sold under repurchase agreements - 1,913 -
Weighted average interest rate during the year:
Lines of credit 0.35 % 1.42 % 2.28 %
FHLB advances 1.06 1.62 2.39
Notes payable 3.38 - -
Subordinated notes - 4.05 3.92
Junior subordinated debentures 3.29 3.48 5.19
Securities sold under repurchase agreements - 0.21 -
Balance outstanding at end of the year:
Lines of credit $ - $ - $ 107,800
FHLB advances 340,495 792,412 1,275,391
Notes payable 29,841 - -
Subordinated notes - - 16,899
Junior subordinated debentures 6,973 6,952 6,932
Weighted average interest rate at end of year:
Lines of credit - % - % 1.81 %
FHLB advances 1.17 1.18 2.09
Notes payable 3.35 - -
Subordinated notes - - 6.75
Junior subordinated debentures 3.07 3.20 5.09
49
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Comparison of Financial Condition at
For a comparison of the Company's financial condition atDecember 31, 2020 and 2019, please see the section captioned "Comparison of Financial Condition atDecember 31, 2020 and 2019" in Item 7 of the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 .
Results of Operations for the Year Ended
Financial Highlights
Net income was$92.0 million for the year endedDecember 31, 2021 as compared to$57.6 million for the year endedDecember 31, 2020 , an increase of$34.4 million , or 59.8%. The increase was attributable to an increase in net interest income of$11.6 million , or 5.2%, a decrease in our provision for loan losses of$28.4 million , or 154.0%, an increase in non-interest income of$7.6 million , or 24.2%, and a decrease in non-interest expense of$2.4 million , or 1.5%, partially offset by an increase in income tax expense of$15.5 million , or 83.0%. In 2021, the increase in net interest income was primarily attributable to a$37.1 million decrease in interest expense, resulting from a decrease in both interest expense on deposits and interest expense on borrowings, partially offset by a$25.6 million decrease in interest income. The decrease in interest expense on deposits was driven by both an inflow of lower cost deposits and the repricing of existing deposits at reduced rates as a result of a sustained lower interest rate environment. The decrease in interest expense on borrowings was the result of decreases in both the average balance and average cost of borrowings. During the year endedDecember 31, 2021 ,$495.5 million of FHLB borrowings were prepaid. The decrease in interest income for the year endedDecember 31, 2021 was largely due to decreases in the average yields on loans and securities. Net deferred fee acceleration of$7.1 million was recognized upon the forgiveness and settlement of$277.7 million of SBA PPP loans for the year endedDecember 31, 2021 . The reversal of provision for loan losses of$10.0 million recorded for the year endedDecember 31, 2021 as compared to$18.4 million of provision for loan loss expense recorded for the year endedDecember 31, 2020 , was primarily attributable to a decrease in loan loss rates, a decrease in the balances of delinquent and non-accrual loans, and the consideration of the improving economic environment. Net charge-offs totaled$2.0 million for the year endedDecember 31, 2021 , as compared to$5.5 million for the year endedDecember 31, 2020 . The increase in non-interest income was primarily attributable to an increase in title insurance fees of$1.1 million , an increase in the income from gains on securities transactions of$1.7 million , an increase in income from the gain on the sale of loans of$5.3 million and an increase in other non-interest income of$2.0 million , partially offset by a decrease in the fair value of equity securities of$2.6 million . The increase in the gain on sale of loans was primarily attributable to a gain of$7.7 million resulting from the sale of SBA PPP loans. Other non-interest income includes an increase of$1.0 million from debit card transactions. Fee related income for both 2020 and 2021 were impacted by the waiving of various deposit fees as we supported consumer and commercial customers with hardships due to the pandemic. The decrease in non-interest expense was primarily attributable to a decrease in merger-related expenses of$1.1 million , and a decrease in other non-interest expense of$5.7 million , partially offset by an increase in professional fees of$1.6 million , an increase in data processing and software expenses of$1.2 million , and an increase in the loss on the extinguishment of debt of$1.7 million . Merger-related expenses recorded for the year endedDecember 31, 2020 related to the completed acquisitions ofStewardship Financial Corporation andRoselle Bank , while 2021 merger-related expenses primarily related to the acquisition ofFreehold Bank , which will be fully integrated into the Company within two years. The decrease in other non-interest expense was primarily attributable to a$6.0 million decrease in pension plan expense. Professional fees included an increase in consulting expenses related to information technology, and the increase in data processing and software expenses was attributable to the purchase and implementation of several digital banking and other Fintech solutions, as well as the amortization of software costs related to a digital small business lending solution. During the year endedDecember 31, 2021 , the Company utilized excess liquidity to prepay$495.5 million in borrowings and also terminated related derivative contracts, which resulted in a$2.9 million loss on the early extinguishment of debt. The overall increase in our pre-tax income was mostly attributable to the increase in net interest income due to a decrease in interest expense in the 2021 period, coupled with a reversal of provision for loan losses. Income tax expense was$34.1 million for the year endedDecember 31, 2021 , an increase of$15.5 million , or 83.0%, as compared to$18.7 million for the year endedDecember 31, 2020 . The Company's effective tax rate was 27.1% and 24.5% for the years endedDecember 31, 2021 and 2020, respectively. 50
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Summary Income Statements
The following table sets forth the income summary for the periods indicated:
Years Ended December 31,
Change 2021/2020
2021 2020 $ %
(Dollars in thousands)
Net interest income $ 233,134 $ 221,573 $ 11,561 5.2 %
(Reversal of) provision for loan losses (9,953) 18,447 (28,400) (154.0)
Non-interest income 38,831 31,270 7,561 24.2
Non-interest expense 155,737 158,139 (2,402) (1.5)
Income tax expense 34,132 18,654 15,478 83.0
Net income $ 92,049 $ 57,603 $ 34,446 59.8 %
Return on average assets 1.01 % 0.66 %
Return on average equity 8.98 % 5.67 %
Net Interest Income
For the year ended December 31, 2021 , net interest income increased $11.6
million , or 5.2%, to $233.1 million from $221.6 million for the year ended
December 31, 2020 . For the year ended December 31, 2021 , total interest income
decreased $25.6 million , or 8.6%, to $270.2 million from $295.7 million for the
year ended December 31, 2020 . The decrease in interest income was primarily
attributable to a decrease in average balances of loans coupled with decreases
in yields on all interest-earning assets, partially offset by increases in
average balances of securities and other interest-earning assets. The yield on
the loan portfolio for the year ended December 31, 2021 was 25 basis points
lower than the yield for the year ended December 31, 2020 , while the yield on
the securities portfolio was 50 basis points lower for the 2021 period. The
average yield on other interest-earning assets for the year ended December 31,
2021 decreased 90 basis points compared to the year ended December 31, 2020 .
Decreases in average yields on these portfolios for the year ended December 31,
2021 were influenced by the continued lower interest rate environment.
The average cost of our interest-bearing liabilities decreased to 0.58% for the
year ended December 31, 2021 , from 1.17% for the year ended December 31, 2020 ,
primarily as a result of a decrease of 55 basis points in the average cost of
interest-bearing deposits, which was partially offset by an increase in the
average balance of deposits. For the year ended December 31, 2021 , total
interest expense decreased $37.1 million , or 50.1%, to $37.0 million from $74.1
million for the year ended December 31, 2020 due to a decrease in the average
cost of interest-bearing liabilities. The lower interest rate environment
coupled with excess liquidity from an inflow of deposits allowed the Bank to
significantly reduce deposit pricing in 2021. During 2021, the average balance
of our borrowings decreased $411.1 million while the total cost of borrowings
decreased 57 basis points. During the year ended December 31, 2021 , $495.5
million of FHLB borrowings with an average rate of 1.35% were prepaid. The
prepayments were funded by excess cash liquidity. The transactions were
accounted for as early debt extinguishments resulting in a total loss of $1.9
million .
A reversal of provision for loan losses of $10.0 million was recorded for the
year ended December 31, 2021 compared to a provision expense of $18.4 million
for the year ended December 31, 2020 . The decrease in provision for loan losses
was primarily attributable to a decrease in loan loss rates, a decrease in the
balances of delinquent and non-accrual loans, and the consideration of the
improving economic environment. Net charge-offs totaled $2.0 million for the
year ended December 31, 2021 , as compared to $5.5 million for the year ended
December 31, 2020 . We charge-off any collateral or cash flow deficiency on all
classified loans once they are 90 days delinquent or earlier if management
believes the collectability of the loan is unlikely. The provision for loan
losses was determined by management to be an amount necessary to maintain a
balance of allowance for loan losses at a level that considers all known and
current losses in the loan portfolio as well as potential losses due to unknown
factors such as the economic environment. Changes in the provision were based on
management's analysis of various factors such as: estimated fair value of
underlying collateral, recent loss experience in particular segments of the
portfolio, levels and trends in delinquent loans, and changes in general
economic and business conditions. At December 31, 2021 , the allowance for loan
losses totaled $62.7 million , or 0.99% of total gross loans outstanding,
compared to $74.7 million , or 1.21% of total gross loans outstanding, as of
December 31, 2020 . An analysis of the changes in the allowance for loan losses
is presented under "Risk Management-Analysis and Determination of the Allowance
for Loan Losses" below.
51
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Non-Interest Income
The following table sets forth a summary of non-interest income for the
periods indicated:
Years Ended December 31,
2021 2020
(In thousands)
Demand deposit account fees$ 3,803
$ 3,633 Bank-owned life insurance 5,994 6,620 Title insurance fees 6,088 5,034
Loan fees and service charges 2,983
2,419
Gain on securities transactions 2,025
370
Change in fair value of equity securities (1,792)
767
Gain on sale of loans 10,790
5,444
Other non-interest income 8,940
6,983
Total $ 38,831 $ 31,270
For the year ended December 31, 2021 , non-interest income increased $7.6
million , or 24.2%, to $38.8 million from $31.3 million for the year ended
December 31, 2020 . In 2021, the increase is primarily attributable to an
increase in title insurance fees of $1.1 million , an increase in the income from
gains on securities transactions of $1.7 million , an increase in income from the
gain on the sale of loans of $5.3 million and an increase in other non-interest
income of $2.0 million , partially offset by a decrease in the fair value of
equity securities of $2.6 million . The increase in the gain on sale of loans was
primarily attributable to a gain of $7.7 million resulting from the sale of
$237.0 million of commercial business loans granted as part of the SBA PPP.
Other non-interest income includes an increase of $1.0 million from debit card
transactions. Fee related income for both 2020 and 2021was impacted by the
waiving of various deposit fees as we supported consumer and commercial
customers with hardships due to the pandemic.
Non-Interest Expense
The following table sets forth an analysis of non-interest expense for the
periods indicated:
Years Ended December 31,
2021 2020
(In thousands)
Compensation and employee benefits $ 99,534 $
100,687
Occupancy 20,071
19,170
Federal deposit insurance premiums 2,374 1,901
Advertising 2,358 2,641
Professional fees 7,363 5,810
Data processing and software expenses 11,497
10,285
Merger-related expenses 822
1,931
Loss on extinguishment of debt 2,851
1,158
Other non-interest expense 8,867
14,556
Total $ 155,737 $ 158,139
For the year ended December 31, 2021 , non-interest expense decreased $2.4
million , or 1.5%, to $155.7 million from $158.1 million for the year ended
December 31, 2020 . The decrease in non-interest expense was primarily
attributable to a decrease in merger-related expenses of $1.1 million , and a
decrease in other non-interest expense of $5.7 million , partially offset by an
increase in professional fees of $1.6 million , an increase in data processing
and software expenses of $1.2 million , and an increase in the loss on the
extinguishment of debt of $1.7 million . Merger-related expenses recorded for the
year ended December 31, 2020 related to the completed acquisitions of
Stewardship Financial Corporation and Roselle Bank , while 2021 merger-related
expenses primarily related to the acquisition of Freehold Bank , which will be
fully integrated into the Company within two years. The decrease in other
non-interest expense was primarily attributable to a $6.0 million decrease in
pension plan expense. Professional fees included an increase in consulting
expenses related to information technology, and the increase in data processing
and software expenses was attributable to the purchase and implementation of
several digital banking and other Fintech solutions, as well as the amortization
of software costs
52
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related to a digital small business lending solution. As noted above, during the
year ended December 31, 2021 , the Company utilized excess liquidity to prepay
$495.5 million in borrowings and also terminated related derivative contracts,
which resulted in a $2.9 million loss on the early extinguishment of debt.
Income Tax Expense
We recorded income tax expense of
tax expense of
24.5%.
As ofDecember 31, 2021 , we had a net deferred tax liability totaling$9.7 million . We regularly evaluate the realizability of deferred tax asset positions. In determining whether a valuation allowance is necessary, we consider the level of taxable income in prior years to the extent that carrybacks are permitted under current tax laws, as well as estimates of future pre-tax and taxable income and tax planning strategies that would, if necessary, be implemented. We have provided a valuation allowance of$2.0 million as ofDecember 31, 2021 on the deferred tax assets related to the Bank's state net operating losses.
Results of Operations for the Year Ended
Financial Highlights
Net income was$57.6 million for the year endedDecember 31, 2020 as compared to$54.7 million for the year endedDecember 31, 2019 , an increase of$2.9 million , or 5.3%. The increase was attributable to an increase in net interest income of$49.2 million , or 28.5%, partially offset by an increase in our provision for loan losses of$14.2 million , or 336.7%, a decrease in non-interest income of$366,000 , or 1.2%, an increase in non-interest expense of$29.4 million , or 22.9%, and an increase in income tax expense of$2.3 million , or 14.0%. In 2020, the increase in net interest income was primarily attributable to a$34.6 million increase in interest income and a$14.6 million decrease in interest expense. The increase in interest income for the year endedDecember 31, 2020 was largely due to increases in the average balances on loans, securities and other interest-earning assets, which was the result of internal growth and the acquisitions of Stewardship Financial and the Roselle Entities, partially offset by decreases in the average yields on these assets. Net deferred fee acceleration of$2.9 million was recognized upon the forgiveness and settlement of$144.0 million of SBA PPP loans for the year endedDecember 31, 2020 . The increase in provision for loan losses was primarily attributable to consideration of the deterioration of economic conditions and loan performance due to the ongoing COVID-19 pandemic which resulted in increases to qualitative factors. Net charge-offs totaled$5.5 million for the year endedDecember 31, 2020 , as compared to$4.9 million for the year endedDecember 31, 2019 . The decrease in non-interest income was primarily attributable to an$845,000 decrease in demand deposit account fees, a$4.3 million decrease in loan fees and service charges, and a$2.2 million decrease in gain on securities transactions, partially offset by a$4.7 million increase in the gain on sale of loans, a$774,000 increase in income from bank owned life insurance and a$1.1 million increase on other non-interest income. Fee related income decreased as we supported consumer and commercial customers with hardships due to the pandemic by waiving various deposit and loan fees in 2020. The increase in non-interest expense was primarily attributable to an increase in compensation and employee benefits expense of$16.4 million , occupancy expense of$3.0 million , loss on extinguishment of debt of$1.2 million , and other non-interest expense of$9.7 million . The increase in compensation and employee benefits expense was primarily attributable to an increase of$5.1 million in expense recorded in connection with grants made under the Company's 2019 Equity Incentive Plan. In addition,$3.0 million in expense was recorded in connection with the Company's previously announced voluntary early retirement program that was completed during the third quarter of 2020 and offered early retirement incentives for previously announced qualified employees. The increase in occupancy expense was primarily the result of an increase in the number of branch offices acquired from Stewardship Financial and Roselle Entities, and the increase in other non-interest expense was due to losses of$1.4 million recorded in connection with the branch consolidation resulting from the Stewardship Financial acquisition and also includes$5.5 million related to interest rate swap transactions. The overall increase in our pre-tax income was mostly attributable to the increase in net interest income in the 2020 period. Income tax expense was$18.7 million for the year endedDecember 31, 2020 , an increase of$2.3 million , or 14.0%, as compared to$16.4 million for the year endedDecember 31, 2019 . The Company's effective tax rate was 24.5% and 23.0% for the years endedDecember 31, 2020 and 2019, respectively. The 2020 effective tax rate was higher than the 2019 rate as the 2019 period reflected tax benefits related toColumbia Bank's investment subsidiary, coupled with other previously implemented tax strategies. 53 --------------------------------------------------------------------------------
Summary Income Statements
The following table sets forth the income summary for the periods indicated:
Years Ended December 31,
Change 2020/2019
2020 2019 $ %
(Dollars in thousands)
Net interest income $ 221,573 $ 172,371 $ 49,202 28.5 %
Provision for loan losses 18,447 4,224
14,223 336.7
Non-interest income 31,270 31,636 (366) (1.2)
Non-interest expense 158,139 128,701 29,438 22.9
Income tax expense 18,654 16,365 2,289 14.0
Net income $ 57,603 $ 54,717 $ 2,886 5.3 %
Return on average assets 0.66 % 0.77 %
Return on average equity 5.67 % 5.50 %
Net Interest Income
For the year ended December 31, 2020 , net interest income increased $49.2
million , or 28.5%, to $221.6 million from $172.4 million for the year ended
December 31, 2019 . For the year ended December 31, 2020 , total interest income
increased $34.6 million , or 13.3%, to $295.7 million from $261.1 million for the
year ended December 31, 2019 . The increase in net interest income was primarily
attributable to increases in average balances on loans, securities and other
interest-earning assets. The yield on the loan portfolio for the year ended
December 31, 2020 was 19 basis points lower than the yield for the year ended
December 31, 2019 , while the yield on the securities portfolio was 35 basis
points lower for the 2020 period. The average yield on other interest-earning
assets for the year ended December 31, 2020 decreased 426 basis points for the
year ended December 31, 2019 . Decreases in average yields on these portfolios
for the year ended December 31, 2020 were influenced by the lower interest rate
environment.
The average cost of our interest-bearing liabilities decreased to 1.17% for the
year ended December 31, 2020 , from 1.71% for the year ended December 31, 2019 ,
primarily as a result of a decrease of 45 basis points in the average cost of
interest-bearing deposits, which was partially offset by an increase in the
average balance of deposits. For the year ended December 31, 2020 , total
interest expense decreased $14.6 million , or 16.4%, to $74.1 million from $88.7
million for the year ended December 31, 2019 due to a decrease in the average
cost of interest-bearing liabilities. The lower interest rate environment
coupled with excess liquidity from an inflow of deposits allowed us to
significantly reduce deposit pricing in 2020. During 2020, the average balance
of our borrowings increased $6.7 million while the total cost of borrowings
decreased 74 basis points. During the year ended December 31, 2020 , $122.6
million of FHLB borrowings with an average rate of 2.18% and original
contractual maturities through July 2021 were prepaid, and $27.0 million of FHLB
borrowings acquired in our Roselle Bank acquisition with an average rate of
2.65% and original contractual maturities through November 2023 were prepaid.
The prepayments were funded by excess cash liquidity. The transactions were
accounted for as early debt extinguishments resulting in a total loss of $1.2
million .
Provision for Loan Losses
A provision for loan losses of $18.4 million was recorded for the year ended
December 31, 2020 compared to a provision of $4.2 million for the year ended
December 31, 2019 . The increase in provision for loan losses was primarily
attributable to consideration of the deterioration of economic conditions and
loan performance due to the ongoing COVID-19 pandemic which resulted in
increases to qualitative factors. Net charge-offs totaled $5.5 million for the
year ended December 31, 2020 , as compared to $4.9 million for the year ended
December 31, 2019 . We charge-off any collateral or cash flow deficiency on all
classified loans once they are 90 days delinquent or earlier if management
believes the collectability of the loan is unlikely. The provision for loan
losses was determined by management to be an amount necessary to maintain a
balance of allowance for loan losses at a level that considers all known and
current losses in the loan portfolio as well as potential losses due to unknown
factors such as the economic environment. Changes in the provision were based on
management's analysis of various factors such as: estimated fair value of
underlying collateral, recent loss experience in particular segments of the
portfolio, levels and trends in delinquent loans, and changes in general
economic and business conditions. At December 31, 2020 , the allowance for loan
losses totaled $74.7 million , or 1.21% of total loans outstanding, compared to
$61.7 million , or 1.00% of total loans outstanding, as of December 31, 2019 . An
analysis of the changes in the allowance for loan losses is presented under
"Risk Management-Analysis and Determination of the Allowance for Loan Losses"
below.
54
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Non-Interest Income
The following table sets forth a summary of non-interest income for the
periods indicated:
Years Ended December 31,
2020 2019
(In thousands)
Demand deposit account fees$ 3,633
$ 4,478 Bank-owned life insurance 6,620 5,846 Title insurance fees 5,034 4,981
Loan fees and service charges 2,419
6,707
Gain on securities transactions 370
2,612
Change in fair value of equity securities 767
305
Gain on sale of loans 5,444 785
Other non-interest income 6,983 5,922
Total $ 31,270 $ 31,636
For the year ended December 31, 2020 , non-interest income decreased $366,000 , or
1.2%, to $31.3 million from $31.6 million for the year ended December 31, 2019 .
In 2020, the decrease in non-interest income was primarily attributable to an
$845,000 decrease in demand deposit account fees, a $4.3 million decrease in
loan fees and service charges, and a $2.2 million decrease in gain on securities
transactions, partially offset by a $4.7 million increase in the gain on sale of
loans, a $774,000 increase in income from bank owned life insurance and a $1.1
million increase on other non-interest income. Fee related income decreased as
we supported consumer and commercial customers with hardships due to the
pandemic by waiving various deposit and loan fees in 2020. Other non-interest
income increased as a result of check card, annuity and other related income.
Non-Interest Expense
The following table sets forth an analysis of non-interest expense for the
periods indicated:
Years Ended December 31,
2020 2019
(In thousands)
Compensation and employee benefits $ 100,687 $
84,256
Occupancy 19,170
16,180
Federal deposit insurance premiums 1,901 895
Advertising 2,641 3,932
Professional fees 5,810 5,913
Data processing and software expenses 10,285
8,670
Merger-related expenses 1,931
2,755
Loss on extinguishment of debt 1,158
–
Other non-interest expense 14,556 6,100
Total $ 158,139 $ 128,701
For the year ended December 31, 2020 , non-interest expense increased $29.4
million , or 22.9%, to $158.1 million from $128.7 million for the year ended
December 31, 2019 . The increase in non-interest expense was primarily
attributable to an increase in compensation and employee benefits expense of
$16.4 million , occupancy expense of $3.0 million , loss on extinguishment of debt
of $1.2 million , and other non-interest expense of $8.5 million . The increase in
compensation and employee benefits expense was primarily attributable to an
increase of $5.1 million in expense recorded in connection with grants made
under the Company's 2019 Equity Incentive Plan. In addition, $3.0 million in
expense was recorded in connection with the Company's voluntary early retirement
program that was completed during the third quarter of 2020 and offered early
retirement incentives for qualified employees. The increase in occupancy expense
was primarily the result of an increase in the number of branch offices acquired
from Stewardship Financial and the Roselle Entities, and the increase in other
non-interest expense was due to losses of $1.4 million recorded in connection
with the branch consolidation resulting from the Stewardship merger and also
includes $5.5 million related to interest rate swap transactions.
55
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Income Tax Expense
We recorded income tax expense of$18.7 million for the year endedDecember 31, 2020 , reflecting an effective tax rate of 24.5%, compared to income tax expense of$16.4 million for 2019, reflecting an effective tax rate of 23.0%. The 2020 effective tax rate was higher than the 2019 rate as the 2019 period reflected tax benefits related toColumbia Bank's investment subsidiary, coupled with other previously implemented tax strategies. As ofDecember 31, 2020 , we had net deferred tax assets totaling$7.2 million . These deferred tax assets can only be realized if we generate taxable income in the future. We regularly evaluate the realizability of deferred tax asset positions. In determining whether a valuation allowance is necessary, we consider the level of taxable income in prior years to the extent that carrybacks are permitted under current tax laws, as well as estimates of future pre-tax and taxable income and tax planning strategies that would, if necessary, be implemented. We have provided a valuation allowance of$2.0 million as ofDecember 31, 2020 on the deferred tax assets related to state net operating losses.
Results of Operations for the Fiscal Year Ended
For a comparison of the Company’s results of operations for the year ended
the Fiscal Year Ended
Report on Form 10-K for the year ended
Average Balances and Yields
The following tables present information regarding average balances of assets
and liabilities, as well as the total dollar amounts of interest income and
dividends from average interest-earning assets, and interest expense on average
interest-bearing liabilities, and the resulting annualized average yields and
costs. The yields and costs for the periods indicated are derived by dividing
income or expense by the average daily balances of assets or liabilities,
respectively, for the periods presented. Loan (fees) costs, including prepayment
fees, are included in interest income on loans and are not material. Non-accrual
loans and PCI loans are included in the average balances and are not material.
Yields are not presented on a tax-equivalent basis. Any adjustments necessary to
present yields on a tax-equivalent basis are insignificant.
56
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Years Ended December 31,
2021 2020
Average Balance Interest Yield / Cost Average Balance Interest Yield / Cost
(Dollars in thousands)
Interest earning assets:
Loans (1) $ 6,139,290 $ 228,841 3.73 % $ 6,413,559 $ 255,236 3.98 %
Securities (2) 1,965,901 38,843 1.98 % 1,465,093 36,401 2.48 %
Other interest-earning assets 350,162 2,466 0.70 % 255,369 4,074 1.60 %
Total interest-earning assets 8,455,353 $ 270,150 3.20 % 8,134,021 $ 295,711 3.64 %
Non-interest-earning assets 647,650 610,952
Total assets $ 9,103,003 $ 8,744,973
Interest-bearing liabilities:
Interest-bearing demand $ 2,395,493 $ 8,177 0.34 % $ 1,945,075 $ 12,666 0.65 %
Money market accounts 632,011 1,900 0.30 % 510,189 2,890 0.57 %
Savings and club deposits 752,983 731 0.10 % 623,964 1,023 0.16 %
Certificates of deposit 1,835,866 18,301 1.00 % 2,088,488 38,667 1.85 %
Total interest-bearing deposits 5,616,353 29,109 0.52 % 5,167,716 55,246 1.07 %
FHLB advances 724,790 7,637 1.05 % 1,122,633 18,145 1.62 %
Notes payable 740 25 3.38 % - - - %
Subordinated notes - - - % 11,067 448 4.05 %
Junior subordinated debentures 7,448 245 3.29 % 8,481 295 3.48 %
Other borrowings - - - % 1,913 4 0.21 %
Total borrowings 732,978 7,907 1.08 % 1,144,094 18,892 1.65 %
Total interest-bearing
liabilities 6,349,331 $ 37,016 0.58 % 6,311,810 $ 74,138 1.17 %
Non-interest-bearing
liabilities:
Non-interest-bearing deposits 1,522,322 1,215,352
Other non-interest-bearing
liabilities 206,436 201,714
Total liabilities 8,078,089 7,728,876
Total stockholders' equity 1,024,914 1,016,097
Total liabilities and
stockholders' equity $ 9,103,003 $ 8,744,973
Net interest income $ 233,134 $ 221,573
Interest rate spread (3) 2.62 % 2.47 %
Net interest-earning assets (4) $ 2,106,022 $ 1,822,211
Net interest margin (5) 2.76 % 2.72 %
Ratio of interest-earning assets
to interest-bearing liabilities 133.17 % 128.87 %
(1) Includes loans held-for-sale, non-accrual and PCI loan balances.
(2) Includes debt securities available for sale, debt securities held to maturity and equity securities.
(3) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average total interest-earning assets.
57
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Year Ended December 31,
2019
Average Balance Interest Yield / Cost
(Dollars in thousands)
Interest earning assets:
Loans (1) $ 5,222,953 $ 217,774 4.17 %
Securities (2) 1,380,801 39,118 2.83 %
Other interest-earning assets 71,551 4,191 5.86 %
Total interest-earning assets 6,675,305 $ 261,083 3.91 %
Non-interest-earning assets 411,549
Total assets $ 7,086,854
Interest-bearing liabilities:
Interest-bearing demand $ 1,420,667 $ 17,621 1.24 %
Money market accounts 286,281 2,301 0.80 %
Savings and club deposits 495,261 770 0.16 %
Certificates of deposit 1,842,243 40,859 2.22 %
Total interest-bearing deposits 4,044,452 61,551 1.52 %
FHLB advances 1,133,280 26,983 2.38 %
Subordinated notes 2,881 113 3.92 %
Junior subordinated debentures 1,253 65 5.19 %
Total borrowings 1,137,414 27,161 2.39 %
Total interest-bearing liabilities 5,181,866 $ 88,712 1.71 %
Non-interest-bearing liabilities:
Non-interest-bearing deposits
776,850
Other non-interest bearing liabilities 133,213 Total liabilities 6,091,929 Total stockholders' equity 994,925 Total liabilities and stockholders' equity$ 7,086,854 Net interest income$ 172,371 Interest rate spread (3) 2.20 % Net interest-earning assets (4) $
1,493,439
Net interest margin (5) 2.58 %
Ratio of interest-earning assets to interest-bearing
liabilities
128.82 %
(1) Includes loans held-for-sale, non-accrual and PCI loan balances.
(2) Includes debt securities available for sale, debt securities held to maturity and equity securities.
(3) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of
average interest-bearing liabilities.
(4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average total interest-earning assets.
58
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Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on
our net interest income. The rate column shows the effects attributable to
changes in rate (changes in rate multiplied by prior volume). The volume column
shows the effects attributable to changes in volume (changes in volume
multiplied by prior rate). The total column represents the sum of the prior
columns.
Year Ended 12/31/2021 Compared to Year Ended Year Ended 12/31/2020 Compared to Year Ended
12/31/2020 12/31/2019
Increase (Decrease) Due to Increase (Decrease) Due to
Volume Rate Total Volume Rate Total
(In thousands)
Interest income:
Loans $ (10,915) $ (15,480) $ (26,395) $ 49,643 $ (12,181) $ 37,462
Securities 12,443 (10,001) 2,442 2,388 (5,105) (2,717)
Other interest-earning assets 1,512 (3,120) (1,608) 10,767 (10,884) (117)
Total interest-earning assets $ 3,040 $ (28,601) $ (25,561) $ 62,798 $ (28,170) $ 34,628
Interest expense:
Interest-bearing demand 2,933 (7,422) (4,489) $ 6,504 $ (11,459) $ (4,955)
Money market accounts 690 (1,680) (990) 1,800 (1,211) 589
Savings and club accounts 212 (504) (292) 200 53 253
Certificates of deposit (4,677) (15,689) (20,366) 5,461 (7,653) (2,192)
Total interest-bearing deposits (842) (25,295) (26,137) 13,965 (20,270) (6,305)
FHLB advances (6,430) (4,078) (10,508) (254) (8,584) (8,838)
Notes payable - 25 25 - - -
Subordinated notes (448) - (448) 321 14 335
Junior subordinated debentures (36) (14) (50) 375 (145) 230
Other borrowings (4) - (4) - 4 4
Total interest-bearing liabilities
Net change in net interest income
$ 11,561 $ 48,391 $ 811 $ 49,202 Risk Management Overview. Managing risk is an essential part of successfully managing a financial institution. Our most prominent risk exposures are credit risk, interest rate risk and market risk. Credit risk is the risk of not collecting the interest and/or the principal balance of a loan or investment when it is due. Interest rate risk is the potential reduction of interest income as a result of changes in interest rates. Market risk arises from fluctuations in interest rates that may result in changes in the values of financial instruments, such as available for sale securities that are accounted for at fair value. Other risks that we face are operational risk, liquidity risk and reputation risk. Operational risk includes risks related to fraud, regulatory compliance, processing errors, cyber-attacks, and disaster recovery. Liquidity risk is the possible inability to fund obligations to depositors, lenders or borrowers. Reputation risk is the risk that negative publicity or press, whether true or not, could cause a decline in our customer base or revenue. We maintain aRisk Management Division comprised of our Risk Management, Compliance, Credit Risk Review,Appraisal and Security Departments . OurRisk Management Division is led by our Executive Vice President andChief Risk Officer , who reports quarterly toColumbia Bank's Risk Committee, which is comprised of the full board of directors. The current structure of ourRisk Management Division is designed to monitor and address, among other things, financial, credit, collateral, consumer compliance, operational, Bank Secrecy Act, fraud, cyber security, vendor and insurable risks.The Risk Management Division utilizes a number of enterprise risk assessment tools, including stress testing, credit concentration reviews, peer analyses, industry considerations and individual risk assessments, to identify and report potential risks that we face in connection with our business operations. Credit Risk Management. The objective of our credit risk management strategy is to quantify and manage credit risk and to limit the risk of loss resulting from an individual customer default. Our credit risk management strategy focuses on conservatism, diversification within the loan portfolio and monitoring. Our lending practices include conservative exposure limits and underwriting, documentation and collection standards. Our credit risk management strategy also emphasizes diversification on an industry and customer level as well as regular credit examinations and monthly management reviews of large credit exposures and loans 59 -------------------------------------------------------------------------------- experiencing deterioration in credit quality. Our credit risk review function provides objective assessments of the quality of underwriting and documentation, the accuracy of risk ratings and the charge-off, non-accrual and reserve analysis process. Our credit review process and overall assessment of required allowances is based on quarterly assessments of the probable estimated losses inherent in the loan portfolio. We use these assessments to identify potential problem loans within the portfolio, maintain an adequate reserve and take any necessary charge-offs. When a borrower fails to make a required payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status. Generally, our collection department follows the guidelines for servicing loans as prescribed by applicable law or the appropriate investor. Collection activities include, but are not limited to, phone calls to borrowers and collection letters, which include a late charge notice based on the contractual requirements of the specific loan. Additional calls and notices are mailed in compliance with state and federal regulations including, but not limited to, the Fair Debt Collection Practices Act. After the 90th day of delinquency for a residential mortgage or consumer loan, or on a different date as allowable by law or contract, the collection department will forward the account to counsel and begin the collection litigation which typically includes foreclosure proceedings, or we may periodically sell a delinquent loan to a third party. If a foreclosure action is instituted and the loan is not in at least the early stages of a workout by the scheduled sale date, the real property securing the loan generally is sold at a sheriff sale. If we determine that there is a possibility of a settlement, pay-off or reinstatement, the sheriff sale may be postponed. We charge off the collateral or cash flow deficiency on all consumer loans once they become 180 days delinquent and all commercial loans once they become 90 days delinquent or earlier if management believes the collectability of the loan is unlikely. In addition to the individual review of larger commercial loans that exhibit probable or observed credit weaknesses, the commercial credit review process includes the use of an enhanced risk rating system. Historical portfolio performance metrics, current economic conditions and delinquency monitoring are factors used to assess the credit risk in our homogeneous commercial, residential and consumer loan portfolios. Analysis of Non-Performing, Troubled Debt Restructurings and Classified Assets. We consider repossessed assets and loans to be non-performing assets if they are 90 days or more past due or earlier if management believes the collectability of the loan is unlikely. Generally, all loans are placed on non-accrual status when the payment of interest is 90 days or more in arrears of its contractual due date, at which time the accrual of interest ceases. Typically, payments received on a non-accrual loan are applied to the outstanding principal balance of the loan. Real estate that we acquire through foreclosure or by deed in lieu of foreclosure is classified as real estate owned until it is sold. When an asset is acquired, the excess of the loan balance over fair value less estimated selling costs is charged to the allowance for loan losses. Operating results from real estate owned, including rental income, operating expenses, and gains and losses realized from the sales of real estate owned are recorded as incurred. We consider a loan a troubled debt restructuring, or "TDR," when the borrower is experiencing financial difficulty and we grant a concession that we would not otherwise consider but for the borrower's financial difficulties. A TDR includes a modification of debt terms or assets received in satisfaction of the debt (which may include foreclosure or deed in lieu of foreclosure) or a combination of the foregoing. We evaluate selective criteria to determine if a borrower is experiencing financial difficulty including the ability of the borrower to obtain funds from third party sources at market rates. We consider all TDRs to be impaired loans even if they are performing. We will not consider the loan a TDR if the loan modification was made for customer retention purposes and the modification is consistent with prevailing market conditions. Once a loan has been classified as a TDR and has been put on non-accrual status, it may be returned to accrual status when there has been a sustained period of repayment performance (generally six consecutive months of payments) and both principal and interest are deemed collectible. Our policy for returning a loan to accrual status requires the preparation of a well-documented credit evaluation, which includes the following: •A review of the borrower's current financial condition in which the borrower must demonstrate sufficient cash flow to support the repayment of all principal and interest including any amounts previously charged-off;
•An updated appraisal or home valuation, which must demonstrate sufficient
collateral value to support the debt;
•Sustained performance based on the restructured terms for at least six
consecutive months; and
•Approval by the Asset Classification Committee, which consists of senior
management including the Chief Credit Officer and the Chief Accounting Officer.
60 -------------------------------------------------------------------------------- Section 4013 of the CARES Act, "Temporary Relief from Troubled Debt Restructurings," allows banks to temporarily suspend certain requirements under GAAP related to TDRs for a limited period of time to account for the effects of COVID-19. We elected to account for modifications on certain loans under Section 4013 of the CARES Act or, if the loan modification was not eligible under Section 4013, used the criteria in the COVID-19 guidance to determine when the loan modification was not a TDR in accordance with ASC 310-40. Guidance noted that modification or deferral programs mandated by the federal or a state government related to COVID-19 would not be in the scope of ASC 310-40, such as a state program that requires all institutions within that state to suspend mortgage payments for a specified period. These short-term loan modifications will not be treated as troubled debt restructurings during the short-term modification period if the loan was not in arrears atDecember 31, 2019 . Furthermore, based on current evaluations, generally, we have continued the accrual of interest on these loans during the short-term modification period. The Consolidated Appropriations Act, 2021, which was enacted in lateDecember 2020 , extended certain provisions of the CARES Act throughJanuary 1, 2022 , including provisions permitting loan deferral extension requests to not be treated as troubled debt restructurings We had no TDR's on non-accrual status atDecember 31, 2021 , as compared to two TDRs totaling$726,000 on non-accrual status atDecember 31, 2020 , and no TDRs on non-accrual status atDecember 31, 2019 . We had 52 TDRs totaling$22.0 million and 70 TDRs totaling$44.7 million that were on accrual status and in compliance with their modified terms as ofDecember 31, 2021 and 2020, respectively. The following table sets forth information with respect to our non-performing assets at the dates indicated, excluding PCI loans. We did not have any accruing loans past due 90 days or more at any of the dates indicated. At December 31, 2021 2020 2019 (Dollars in thousands) Non-accrual loans: Real estate loans: One-to-four family$ 1,416 $ 2,637 $ 1,732 Multifamily and commercial 1,561 1,873 716 Total real estate loans 2,977 4,510 2,448 Commercial business loans 761 2,968 3,686 Consumer loans: Home equity loans and advances 201 678 553 Total non-accrual loans (1) 3,939 8,156 6,687 Total non-performing loans 3,939 8,156 6,687 Real estate owned - - - Total non-performing assets$ 3,939
Total non-performing loans to total loans 0.06 % 0.13 % 0.11 % Total non-performing assets total assets 0.04 % 0.09 % 0.08 %
(1) Includes
respectively.
Non-performing assets decreased$4.2 million to$3.9 million , or 0.04% of total assets, atDecember 31, 2021 from$8.2 million , or 0.09% of total assets, atDecember 31, 2020 . The$4.2 million decrease in non-performing loans was primarily attributable to decreases of$1.2 million in non-performing one-to-four family real estate loans,$2.2 million in non-performing commercial business loans, and$477,000 in non-performing home equity loans and advances. The decrease in non-performing one-to-four family real estate loans was due to a decrease in the number of loans from 13 non-performing loans atDecember 31, 2020 to six non-performing loans atDecember 31, 2021 . The decrease in non-performing commercial business loans was due to charge-offs totaling$2.0 million . The decrease in non-performing home equity loans and advances was due to a decrease in the number of loans from 12 non-performing loans atDecember 31, 2020 to four non-performing loans atDecember 31, 2021 . We charge-off the collateral or cash flow deficiency on all loans meeting our definition of an impaired loan, which we define as a loan for which it is probable, based on current information, that we will not collect all amounts due under the contractual terms of the loan agreement. We consider the population of loans in our impairment analysis to include all multifamily and commercial real estate, construction, and commercial business loans with outstanding balances greater than$500,000 and not accruing interest, loans modified in a troubled debt 61 -------------------------------------------------------------------------------- restructuring, and other loans if there is specific information of a collateral shortfall. We continue to rigorously review our loan portfolio to ensure that the collateral values remain sufficient to support the outstanding balances. Non-performing assets increased$1.5 million to$8.2 million , or 0.09% of total assets, atDecember 31, 2020 from$6.7 million , or 0.08% of total assets, atDecember 31, 2019 . The increase in non-performing one-to-four family real estate loans was due to an increase in the number of loans from 10 non-performing loans atDecember 31, 2019 to 13 non-performing loans atDecember 31, 2020 . The increase in non-performing multifamily and commercial real estate loans was due to two higher balance loans included atDecember 31, 2020 , despite a decrease in the number of loans from eight non-performing loans atDecember 31, 2019 to four non-performing loans atDecember 31, 2020 . Net charge-offs for the year endedDecember 31, 2020 were$5.5 million compared to$4.9 million for the year endedDecember 31, 2019 . Federal regulations require us to review and classify our assets on a regular basis. In addition, our banking regulators have the authority to identify problem assets and, if appropriate, require them to be classified. Our credit review process includes a risk classification of all commercial and residential loans that includes four levels of pass, special mention, substandard, doubtful and loss. A loan is classified as pass when payments are current and it is performing under the original contractual terms. A loan is classified as special mention when the borrower exhibits potential credit weakness or a downward trend which, if not checked or corrected, will weaken the asset or inadequately protect our position. While potentially weak, the borrower is currently marginally acceptable; no loss of principal or interest is envisioned. A loan is classified as substandard when the borrower has a well-defined weakness or weaknesses that jeopardize the orderly liquidation of the debt. A substandard loan is inadequately protected by the current net worth and paying capacity of the obligor, normal repayment from this borrower is in jeopardy, and there is a distinct possibility that a partial loss of interest and/or principal will occur if the deficiencies are not corrected. A loan is classified as doubtful when a borrower has all weaknesses inherent in a substandard loan with the added provision that: (1) the weaknesses make collection of debt in full on the basis of currently existing facts, conditions and values highly questionable and improbable; (2) serious problems exist to the point where a partial loss of principal is likely; and (3) the possibility of loss is extremely high, but because of certain important, reasonably specific pending factors that may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens and additional refinancing plans. A loan is classified as loss when all or a portion of the loan is considered uncollectible and of such little value that its continuance on our books without establishment of a specific valuation allowance or charge off is not warranted. This classification does not necessarily mean that the loan has no recovery or salvage value. Rather, it indicates that there is significant doubt about whether, how much or when recovery will occur. A loan is considered delinquent when we have not received a payment within 30 days of its contractual due date. Generally, a loan is designated as a non-accrual loan when the payment of interest is 90 days or more in arrears of its contractual due date. AtDecember 31, 2021 , there were no loans past due 90 days or more still accruing interest. In accordance with the CARES Act, these loans are not included in the aging of loans receivable by portfolio segment in the table below, and the Bank continues to accrue interest income during the forbearance or deferral period. If adverse information indicating that the borrower's capability of repaying all amounts due is unlikely, the interest accrual will cease. The following tables summarize the aging of loans receivable by portfolio segment at the dates indicated: At December 31, 2021 2020 2019 90 Days or 90 Days or 90 Days or 30-59 Days 60-89 Days More 30-59 Days 60-89 Days More 30-59 Days 60-89 Days More (In thousands) Real estate loans: One-to-four family$ 3,131 $ 1,976 $ 373 $ 3,068 $ 912 $ 1,901 $ 6,249 $ 2,132 $ 1,638 Multifamily and commercial 2,189 - 1,561 15,645 - 1,238 626 1,210 716 Construction - - - 550 - - - - - Commercial business loans 412 - 203 2,343 1,056 2,453 1,056 - 2,489 Consumer loans: Home equity loans and advances 108 53 81 1,156 696 394 1,708 246 405 Other consumer loans - 4 - 4 - - 3 - - Total$ 5,840 $ 2,033 $ 2,218 $ 22,766 $ 2,664 $ 5,986 $ 9,642 $ 3,588 $ 5,248 62
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The following tables present criticized and classified assets by credit quality
risk indicator at the dates indicated:
At December 31,
2021 2020 2019
(In thousands)
Classified loans:
Substandard $ 42,379 $ 30,786 $ 28,495
Doubtful - - -
Total classified loans 42,379 30,786 28,495
Special mention 61,068 47,514 25,313
Total criticized loans $ 103,447 $ 78,300 $ 53,808
All impaired loans classified as substandard and doubtful are written down to
the fair value of their underlying collateral if the loan is collateral
dependent.
Analysis and Determination of the Allowance for Loan Losses
The allowance for loan losses is a valuation account that reflects management's evaluation of probable losses in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional allowances are necessary, a provision for loan losses is charged to earnings. Our methodology for assessing the appropriateness of the allowance for loan losses consists of: (1) a specific valuation allowance for loans individually evaluated for impairment and (2) a general valuation allowance for loans collectively evaluated for impairment. Specific Allowance (Individually Evaluated for Impairment). Management regularly monitors the condition of borrowers and assesses both internal and external factors in determining whether any relationships have deteriorated, considering factors such as historical loss experience, trends in delinquency and non-performing loans, changes in risk composition and underwriting standards, the experience and ability of staff and regional and national economic conditions and trends. Our loan officers and loan servicing staff identify and manage potential problem loans within our commercial loan portfolio. Non-performing assets within the commercial loan portfolio are transferred to theSpecial Assets Department for workout or litigation.The Special Assets Department reports directly to the Chief Credit Officer. Changes in management, financial or operating performance, company behavior, industry factors and external events and circumstances are evaluated on an ongoing basis to determine whether potential impairment is evident and additional analysis is needed. For our commercial loan portfolio, risk ratings are assigned to each individual loan to differentiate risk within the portfolio and are reviewed on an ongoing basis by credit management and the credit risk review Department and revised, if needed, to reflect the borrower's current risk profiles and the related collateral positions. The risk ratings consider factors such as financial condition, debt capacity and coverage ratios, market presence and quality of management. When a credit's risk rating is downgraded to a certain level, the relationship must be reviewed and detailed reports completed that document risk management strategies for the credit going forward, and the appropriate accounting actions to take in accordance with generally accepted accounting principles inthe United States . When credits are downgraded beyond a certain level, our Special Assets and Loan Servicing Departments become responsible for managing the credit risk. The Asset Classification Committee reviews risk rating actions (specifically downgrades or upgrades between pass and the criticized and classified categories) recommended by Lending, Loan Servicing, Commercial Credit, Credit Risk Review and/or Special Assets Departments on a quarterly basis. Our Commercial Credit, Credit Risk Review, Lending, and Loan Servicing Departments monitor our commercial, residential and consumer loan portfolios for credit risk and deterioration considering factors such as delinquency, loan to value ratios and credit scores. When problem loans are identified that are secured with collateral, management examines the loan files to evaluate the nature and type of collateral supporting the loans. Management documents the collateral type, date of the most recent valuation, and whether any liens exist, to determine the value to compare against the committed loan amount. If a loan is identified as impaired and is collateral dependent, an updated appraisal is obtained to provide a baseline in determining the property's fair value. A collateral dependent impaired loan is written down to its appraised value and a specific allowance is established to cover potential selling costs. If the collateral value is subject to significant volatility (due to location of asset, obsolescence, etc.) an appraisal is obtained more frequently. In-house revaluations are typically performed on a quarterly basis and updated appraisals are obtained annually, if determined necessary. 63 -------------------------------------------------------------------------------- When we determine that the value of an impaired loan is less than its carrying amount, we recognize impairment through a charge-off to the allowance. We perform these assessments on an ongoing basis. For commercial loans, a charge-off is recorded when management determines we will not collect 100% of a loan based on the fair value of the collateral or the net present value of expected future cash flows. The collateral deficiency on consumer loans and residential loans are generally charged-off when deemed to be uncollectible or delinquent 180 days, whichever comes first, unless it can be clearly demonstrated that repayment will occur regardless of the delinquency status. Examples that would demonstrate repayment include a loan that is secured by adequate collateral and is in the process of collection, a loan supported by a valid guarantee or insurance, or a loan supported by a valid claim against a solvent estate. General Allowance (Collectively Evaluated for Impairment). Additionally, we reserve for certain inherent, but undetected, losses that are probable within the loan portfolio. This is due to several factors, such as, but not limited to, inherent delays in obtaining information regarding a customer's financial condition or changes in their unique business conditions and the interpretation of economic trends. While this analysis is conducted at least quarterly, we have the ability to revise the allowance factors whenever necessary to address improving or deteriorating credit quality trends or specific risks associated with a given loan pool classification. A comprehensive analysis of the allowance for loan losses is performed on a quarterly basis. The entire allowance for loan losses is available to absorb losses in the loan portfolio irrespective of the amount of each separate element of the allowance. Our principal focus, therefore, is on the adequacy of the total allowance for loan losses. The allowance for loan losses is maintained at levels that management considers appropriate to provide for losses based upon an evaluation of known and inherent risks in the loan portfolio. Management's evaluation takes into consideration the risks inherent in the loan portfolio, historical loss experience, specific loans with loss potential, geographic and industry concentrations, delinquency trends, economic conditions, the level of originations and other relevant factors. While management uses the best information available to make such evaluations, future adjustments to the allowance for credit losses may be necessary if conditions differ substantially from the assumptions used in making the evaluations. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance for loan losses may not be sufficient should the quality of loans deteriorate as a result of the factors described above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations. The allowance for loan losses is subject to review by our banking regulators. On an annual basis our primary bank regulator conducts an examination of the allowance for loan losses and makes an assessment regarding its adequacy and the methodology employed in its determination. Our regulators may require the allowance for loan losses to be increased based on their review of information available to them at the time of their examination. At December 31, 2021 2020 2019 % of Allowance % of Allowance % of Allowance % of Allowance % of Allowance % of Allowance to Total to Loans in to Total to Loans in to Total to Loans in Amount Allowance Category Amount Allowance Category Amount Allowance Category (Dollars in thousands) Real estate loans: One-to-four family$ 8,798 14.0 % 0.4 %$ 13,586 18.2 % 0.7 %$ 13,780 22.3 % 0.7 % Multifamily and commercial 23,855 38.1 0.7 30,681 41.1 1.1 22,980 37.2 0.8 Construction 8,943 14.3 3.0 11,271 15.1 3.4 7,435 12.0 2.5 Commercial business 20,214 32.2 4.5 17,384 23.3 2.3 15,836 25.7 3.3 Consumer loans: Home equity loans and advances 873 1.4 0.3 1,748 2.3 0.5 1,669 2.7 0.4 Other consumer loans 6 - 0.4 6 - 0.4 9 - 0.5 Total allowance for loan losses$ 62,689 100.0 % 1.0 %$ 74,676 100.0 % 1.2 %$ 61,709 100.0 % 1.0 % 64
-------------------------------------------------------------------------------- Total Loans. During the year endedDecember 31, 2021 , the balance of the allowance for loan losses decreased by$12.0 million to$62.7 million , or 0.99% of total gross loans atDecember 31, 2021 , from$74.7 million or 1.21% of total gross loans atDecember 31, 2020 . The noted decrease in the total loan coverage ratio for the year endedDecember 31, 2021 was primarily attributable to a decrease in loan loss rates, and a decrease in the balance of delinquent and non-accrual loans, as well as the consideration of improving economic conditions. One-to-Four Family Loan Portfolio. The portion of the allowance related to the one-to-four family real estate loan portfolio totaled$8.8 million , or 0.4%, of one-to-four family loans atDecember 31, 2021 , compared to$13.6 million , or 0.7%, of one-to-four family real estate loans atDecember 31, 2020 . Our one-to-four family non-accrual loans decreased$1.2 million , or 46.3%, to$1.4 million atDecember 31, 2021 from$2.6 million atDecember 31, 2020 , and net charge-offs were$751,000 for the year endedDecember 31, 2021 compared to$1.5 million for the year endedDecember 31, 2020 . We believe the one-to-four family real estate loan reserve ratio was appropriate given the decrease in non-accrual loans and the continued low charge-off levels. Multifamily and Commercial Real Estate Loan Portfolio. The portion of the allowance for loan losses related to the multifamily and commercial real estate loan portfolio totaled$23.9 million , or 0.7%, of multifamily and commercial real estate loans atDecember 31, 2021 , as compared to$30.7 million , or 1.1%, of multifamily and commercial real estate loans atDecember 31, 2020 . We experienced a$21.9 million increase in criticized and classified loans to$80.9 million atDecember 31, 2021 compared to$59.1 million atDecember 31, 2020 . Multifamily and commercial real estate non-accrual loans decreased to$1.6 million atDecember 31, 2021 from$1.9 million atDecember 31, 2020 . Net recoveries were$528,000 for the year endedDecember 31, 2021 as compared to net charge-offs of$12,000 for the year endedDecember 31, 2020 . We believe the multifamily and commercial real estate loan reserve ratio was appropriate given the increases in criticized and classified loans, partially mitigated by the continued low balance of non-accrual loans along with low levels of charge-offs. Construction Loan Portfolio. The portion of the allowance for loan losses related to the construction loan portfolio totaled$8.9 million , or 3.0%, of construction loans atDecember 31, 2021 , as compared to$11.3 million , or 3.4%, atDecember 31, 2020 . At bothDecember 31, 2021 and 2020, we had no criticized or classified or non-accrual construction loans. We recorded recoveries of$2,000 and$1,000 , respectively, during the years endedDecember 31, 2021 and 2020. We believe the construction loan reserve ratio was appropriate due to the decrease in the balance of these loans coupled with no identified problem loans, considering the inherent credit risk associated with this portfolio. Commercial Business Loan Portfolio. The portion of the allowance for loan losses related to the commercial business loan portfolio totaled$20.2 million , or 4.5%, of commercial business loans atDecember 31, 2021 , as compared to$17.4 million , or 2.3%, atDecember 31, 2020 . AtDecember 31, 2021 and 2020$44.9 million and$344.4 million , respectively, in PPP loans included in the commercial business loan portfolio did not require an allowance as they were 100% guaranteed by the SBA. We experienced a$4.4 million increase in criticized and classified commercial business loans to$17.3 million atDecember 31, 2021 as compared to$12.9 million atDecember 31, 2020 . Commercial business loan non-accrual loans decreased$2.2 million to$761,000 atDecember 31, 2021 from$3.0 million atDecember 31, 2020 . Net charge-offs were$1.6 million for the year endedDecember 31, 2021 compared to$3.8 million for the year endedDecember 31, 2020 . We continue to charge-off any cash flow or collateral deficiency for non-performing loans once a loan is 90 days past due. We believe the commercial business loan reserve ratio was appropriate given the inherent credit risk of commercial business loans. Home Equity Loans and Advances. The portion of the allowance related to the home equity loan portfolio decreased to$873,000 , or 0.3%, of consumer loans atDecember 31, 2021 compared to$1.7 million , or 0.5%, of consumer loans atDecember 31, 2020 . Home equity non-accrual loans decreased$477,000 to$201,000 atDecember 31, 2021 , from$678,000 atDecember 31, 2020 . Net charge-offs were$252,000 for the year endingDecember 31, 2021 compared to$160,000 for the year endingDecember 31, 2020 . We believe the decrease in the home equity loan reserve was appropriate based upon the decrease in the balance year over year and the insignificant amount of delinquencies, non-accrual loans and charge-offs. 65
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The following table sets forth an analysis of the activity in the allowance for
loan losses for the periods indicated:
At or
For the Years Ended
2021 2020 2019
(Dollars in thousands)
Allowance at beginning of period $ 74,676 $ 61,709 $ 62,342
Provision for loan losses (9,953) 18,447 4,224
Charge-offs:
Real estate loans:
One-to-four family (773) (1,931) (1,053)
Multifamily and commercial (703) (28) (103)
Construction - - -
Total real estate loans (1,476) (1,959) (1,156)
Commercial business loans (1,773) (4,120) (3,994)
Consumer loans:
Home equity loans and advances (308) (220) (201)
Other consumer loans (7) (4) (2)
Total consumer loans (315) (224) (203)
Total charge-offs (3,564) (6,303) (5,353)
Recoveries:
Real estate loans:
One-to-four family 22 438 30
Multifamily and commercial 1,231 16 10
Construction 2 1 2
Total real estate loans 1,255 455 42
Commercial business loans 219 308 404
Consumer loans:
Home equity loans and advances 56 60 50
Total consumer loans 56 60 50
Total recoveries 1,530 823 496
Net charge-offs (2,034) (5,480) (4,857)
Allowance at end of period: $ 62,689 $ 74,676 $ 61,709
Total loans outstanding $ 6,328,931 $ 6,162,547 $ 6,169,308
Average gross loans outstanding $ 6,139,290 $ 6,413,559 $ 5,222,953
Allowance for loan losses to total non-performing loans 1,591.50 % 915.60 % 922.82 %
Allowance for loan losses to total gross loans at end of
period
0.99 % 1.21 % 1.00 %
Net charge-offs to average outstanding loans 0.03 % 0.09 % 0.09 %
66
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The following table sets forth the ratio of net charge-offs (recoveries) to
average loans outstanding for the periods indicated:
For the Years Ended December 31,
2021 2020 2019
Real estate loans:
One-to-four family 0.04 % 0.07 % 0.06 %
Multifamily and commercial (0.02) - -
Commercial business loans 0.25 0.50 0.95
Consumer loans:
Home equity loans and advances 0.09 0.04 0.04
Other consumer 0.39 0.25 0.06
Total loans 0.03 % 0.09 % 0.09 %
COVID-19
At December 31, 2021 , there were four loans on deferral for $24.3 million , a
decrease of $3.7 million , compared to $28.0 million at September 30, 2021 , and a
decrease of $60.8 million , compared to $85.1 million at December 31, 2020 . These
short term loan modifications are treated in accordance with Section 4013 of the
CARES Act and are not treated as troubled debt restructurings during the
short-term modification period if the loan was not in arrears. The Consolidated
Appropriations Act, 2021, which was enacted in late December 2020 , extended
certain provisions of the CARES Act through January 1, 2022 , including
provisions permitting loan deferral extension requests to not be treated as
troubled debt restructurings.
At
remitting partial payments.
Interest Rate Risk Management
Interest rate risk is defined as the exposure of a Company's current and future earnings and capital arising from movements in market interest rates. Depending on a bank's asset/liability structure, adverse movements in interest rates could be either rising or falling interest rates. For example, a bank with predominantly long-term fixed-rate assets and short-term liabilities could have an adverse earnings exposure to a rising rate environment. Conversely, a short-term or variable-rate asset base funded by longer-term liabilities could be negatively affected by falling rates. This is referred to as re-pricing or maturity mismatch risk.
Interest rate risk also arises from changes in the slope of the yield curve
(yield curve risk), from imperfect correlations in the adjustment of rates
earned and paid on different instruments with otherwise similar re-pricing
characteristics (basis risk), and from interest rate related options embedded in
our assets and liabilities (option risk).
Our objective is to manage our interest rate risk by determining whether a given movement in interest rates affects our net interest income and the market value of our portfolio equity in a positive or negative way and to execute strategies to maintain interest rate risk within established limits. The results atDecember 31, 2021 indicate a level of risk within the parameters of our model. Our management believes that theDecember 31, 2021 results indicate a profile that reflects an acceptable level of interest rate risk exposures in both rising and declining rate environments for both net interest income and economic value. Model Simulation Analysis. We view interest rate risk from two different perspectives. The traditional accounting perspective, which defines and measures interest rate risk as the change in net interest income and earnings caused by a change in interest rates, provides the best view of short-term interest rate risk exposure. We also view interest rate risk from an economic perspective, which defines and measures interest rate risk as the change in the market value of portfolio equity caused by changes in the values of assets and liabilities, which fluctuate due to changes in interest rates. The market value of portfolio equity, also referred to as the economic value of equity, is defined as the present value of future cash flows from existing assets, minus the present value of future cash flows from existing liabilities. These two perspectives give rise to income simulation and economic value simulation, each of which presents a unique picture of our risk of any movement in interest rates. Income simulation identifies the timing and magnitude of changes in income resulting from changes in prevailing interest rates over a short-term time horizon (usually one or two years). Economic value simulation reflects the interest rate sensitivity of assets and liabilities in a more comprehensive fashion, reflecting all future time periods. It can identify the quantity of interest rate risk as a function of the changes in the economic values of assets and liabilities, and the corresponding change in the economic value of equity ofColumbia Bank . Both types of simulation assist in identifying, 67 --------------------------------------------------------------------------------
measuring, monitoring and managing interest rate risk and are employed by
management to ensure that variations in interest rate risk exposure will be
maintained within policy guidelines.
We produce these simulation reports and review them regularly with our management,Asset/Liability Committee andBoard Risk Committee . The simulation reports compare baseline (no interest rate change) to the results of an interest rate shock, to illustrate the specific impact of the interest rate scenario tested on income and equity. The model, which incorporates all asset and liability rate information, simulates the effect of various interest rate movements on income and equity value. The reports identify and measure our interest rate risk exposure present in our current asset/liability structure. Management considers both a static (current position) and dynamic (forecast changes in volume) analysis as well as non-parallel and gradual changes in interest rates and the yield curve in assessing interest rate exposures. If the results produce quantifiable interest rate risk exposure beyond our limits, then the testing will have served as a monitoring mechanism to allow us to initiate asset/liability strategies designed to reduce and therefore mitigate interest rate risk. Certain shortcomings are also inherent in the methodologies used in the interest rate risk measurements. Modeling changes in net interest income requires the use of certain assumptions regarding prepayment and deposit repricing, which may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. While management believes such assumptions are reasonable, there can be no assurance that assumed prepayment rates and repricing rates will approximate actual future asset prepayment and liability repricing activity. The table below sets forth an approximation of our interest rate risk exposure. Net interest income assumes that the composition of interest sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and also assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or repricing of specific assets and liabilities. Accordingly, although the net interest income table provides an indication of our interest rate risk exposure at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effect of changes in market interest rates on our net interest income and will differ from actual. The table below sets forth, as ofDecember 31, 2021 , the total net portfolio value, the estimated changes in the net portfolio value, and the net interest income that would result from the designated instantaneous parallel changes in market interest rates. This data is forColumbia Bank andFreehold Bank and its subsidiaries only and does not include any assets of the Company. Twelve Months Net Interest Income Net Portfolio Value ("NPV") Change in Interest Rates Percent of Present Value (Basis Points) Amount Dollar Change Change Estimated NPV Ratio Percent
Change
(Dollars in thousands)
+300 $ 231,265 $ (686) (0.30) % $ 1,166,355 14.10 % (12.70) %
+200 232,003 52 0.02 1,247,269 14.60 (6.60)
+100 232,259 308 0.13 1,318,054 14.92 (1.30)
Base 231,951 - - 1,335,338 14.62 -
-100 219,048 (12,903) (5.56) 1,293,294 13.74 (3.10)
As of December 31, 2021 , based on the scenarios above, net interest income
would increase by approximately 0.02% if rates were to rise 200 basis points,
and would decrease by 5.56% if rates were to decrease 100 basis points over a
one-year time horizon.
Another measure of interest rate sensitivity is to model changes in the net
portfolio value through the use of immediate and sustained interest rate shocks.
As of December 31, 2021 , based on the scenarios above, in the event of an
immediate and sustained 200 basis point increase in interest rates, the NPV is
projected to decrease 6.60%. If rates were to decrease 100 basis points, the
model forecasts a 3.10% decrease in the NPV.
Overall, our December 31, 2021 results indicate that we are adequately
positioned with an acceptable net interest income and economic value at risk in
all scenarios and that all interest rate risk results continue to be within our
policy guidelines.
Liquidity Management
Liquidity risk is the risk of being unable to meet future financial obligations
as they come due at a reasonable funding cost. We mitigate this risk by
attempting to structure our balance sheet prudently and by maintaining diverse
borrowing resources to fund potential cash needs. For example, we structure our
balance sheet so that we fund less liquid assets, such as loans, with stable
funding
68
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sources, such as retail deposits, long-term debt, wholesale borrowings, and
capital. We assess liquidity needs arising from asset growth, maturing
obligations, and deposit withdrawals, taking into account operations in both the
normal course of business and times of unusual events. In addition, we consider
our off-balance sheet arrangements and commitments that may impact liquidity in
certain business environments.
Our Asset/Liability Committee measures liquidity risks, sets policies to manage
these risks, and reviews adherence to those policies at its quarterly meetings.
For example, we manage the use of short-term unsecured borrowings as well as
total wholesale funding through policies established and reviewed by our
Asset/Liability Committee. In addition, the Risk Committee of our Board of
Directors reviews liquidity limits and reviews current and forecasted liquidity
positions at each of its regularly scheduled meetings.
We have contingency funding plans that assess liquidity needs that may arise
from certain stress events such as rapid asset growth or financial market
disruptions. Our contingency plans also provide for continuous monitoring of net
borrowed funds and dependence and available sources of contingent liquidity.
These sources of contingent liquidity include cash and cash equivalents,
capacity to borrow at the Federal Reserve discount window and through the FHLB
system, fed funds purchased from other banks and the ability to sell, pledge or
borrow against unencumbered securities in our securities portfolio. As of
December 31, 2021 , the potential liquidity from these sources is an amount we
believe currently exceeds any contingent liquidity need.
Uses of Funds. Our primary uses of funds include the extension of loans and
credit, the purchase of securities, working capital, and debt and capital
management. In addition, contingent uses of funds may arise from events such as
financial market disruptions.
We regularly adjust our investments in liquid assets based upon our assessment of: (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, (4) repayment of borrowings, and (5) the objectives of our asset/liability management program. Excess liquid assets are generally invested in fed funds. Sources of Funds. Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, investing and financing activities during any given period. AtDecember 31, 2021 , total cash and cash equivalents totaled$71.0 million . Debt securities classified as available for sale, and equity securities, which provide additional sources of liquidity, totaled$1.7 billion , and$2.7 million , respectively, atDecember 31, 2021 . AtDecember 31, 2021 , we had$340.5 million inFederal Home Loan Bank fixed rate advances. In addition, ifColumbia Bank andFreehold Bank require funds beyond their ability to generate them internally, they can each borrow additional funds under an overnight advance program up to their maximum borrowing capacity based on their ability to collateralize such borrowings. AtDecember 31, 2021 , we had$340.5 million inFederal Home Loan Bank fixed rate advances. Our primary sources of funds include a large, stable deposit base. Core deposits (consisting of demand, money market and savings and club accounts), primarily generated from our retail branch network, are our largest and most cost-effective source of funding. Core deposits totaled$5.8 billion atDecember 31, 2021 , representing an increase of$1.0 billion , from$4.8 billion atDecember 31, 2020 . The increase in core deposits was primarily driven by a$357.5 million increase in non-interest bearing demand accounts, and a$410.8 million increase in interest-bearing demand accounts, mainly attributable to our Yield and Advantage Plus checking products. In addition, we acquired approximately$128.1 million in core deposits fromFreehold Bank . We also maintain access to a diversified base of wholesale funding sources. These uncommitted sources include federal funds purchased from other banks, securities sold under agreements to repurchase, and FHLB advances. Aggregate wholesale funding totaled$377.3 million atDecember 31, 2021 , compared to$799.4 million as ofDecember 31, 2020 . In addition, atDecember 31, 2021 , we had availability to borrow additional funds, subject to our ability to collateralize such borrowings from the FHLB ofNew York and theFederal Reserve Bank of New York , or utilize our$30.0 million unsecured revolving credit facility with a a third party. A significant use of our liquidity is the funding of loan originations. AtDecember 31, 2021 , the Company had$284.9 million in loan commitments outstanding, which primarily consisted of commitments to fund loans of$116.0 million ,$73.9 million ,$27.8 million ,$58.1 million , and$9.2 million , in one-to-four family real estate, multifamily and commercial real estate, commercial business, construction, and home equity loans and advances, respectively. There was also$899.2 million in unused commercial business, construction and consumer lines of credit, and$13.5 million in letters of credit. Since these commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the borrower. Another significant use of liquidity is the funding of deposit withdrawals. Certificates of deposit due within one year ofDecember 31, 2021 totaled$1.1 billion , or 61.2% of total certificates of deposit. The large percentage of certificates of deposit that mature within one year reflects customers' hesitancy to invest their funds for long periods. Management believes, however, based on past experience, that a significant portion of our certificates of deposit will be renewed. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits and borrowings than we currently pay on the certificates of deposit due on or beforeDecember 31, 2021 . We have the ability to attract and retain deposits by adjusting the interest rates offered. 69 -------------------------------------------------------------------------------- Our primary investing activities are the origination of loans and the purchase of securities. Our primary financing activities consist of activity in deposit accounts, borrowings and treasury stock. Deposit flows are affected by the overall level of market interest rates, the interest rates and products offered by us, local competitors and other factors. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain deposit products to attract deposits.Columbia Financial is a separate legal entity fromColumbia Bank andFreehold Bank and must provide for its own liquidity in addition to its operating expenses.Columbia Financial's primary source of income is dividends received fromColumbia Bank andFreehold Bank . The amount of dividends the Banks may declare and pay toColumbia Financial is generally restricted under federal regulations to the retained earnings of each Bank. AtDecember 31, 2021 , on a stand-alone basis,Columbia Financial had liquid assets of$77.3 million . Capital Management. We are subject to various regulatory capital requirements administered by our federal banking regulators, including a risk-based capital measure. TheFederal Reserve establishes capital requirements, including well capitalized standards, for our consolidated financial holding company, and the OCC has similar requirements for our Company's subsidiary banks. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. AtDecember 31, 2021 , we exceeded all of our regulatory capital requirements. We are considered "well capitalized" under regulatory guidelines. See "Item 1: Business - Regulation and Supervision - Federal Banking Regulations - Capital Requirements" and note 13 in the notes to the consolidated financial statements included in this report. Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles, are not recorded in our consolidated financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers' requests for funding and take the form of loan commitments and lines of credit. For information about our loan commitments, see note 16 in the notes to the consolidated financial statements included in this report.
For the years ended
off-balance sheet transactions reasonably likely to have a material effect on
our financial condition, results of operations or cash flows.
Derivative Financial Instruments.Columbia Bank executes interest rate swaps with third parties in order to hedge the interest expense of short-term FHLB advances. Those interest rate swaps are simultaneous with entering into the short-term borrowings with the FHLB. These derivatives are designated as cash flow hedges and are not speculative. As these interest rate swaps meet the hedge accounting requirements, the effective portion of changes in the fair value are recognized in accumulated other comprehensive income. As ofDecember 31, 2021 ,Columbia Bank had 14 interest rate swaps with notional amounts of$190.0 million hedging certain FHLB advances.Columbia Bank presently offers interest rate swaps to commercial banking customers to manage their risk of exposure and risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps thatColumbia Bank executes with a third party, such thatColumbia Bank would minimize its net risk exposure resulting from such transactions. These derivatives are not designated as hedges and are not speculative. Rather, these derivatives result from a serviceColumbia Bank offers to certain customers. As the interest rate swaps would not meet the hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting third party swap contracts are recognized directly in earnings. AtDecember 31, 2021 , we had interest rate swaps in place with 52 commercial banking customers executed by offsetting interest rate swaps with third parties, with aggregated notional amounts of$183.4 million .Columbia Bank offers currency forward contracts to certain commercial banking customers to facilitate international trade. Those forward contracts are simultaneously hedged by offsetting forward contracts thatColumbia Bank would execute with a third party, such thatColumbia Bank would minimize its net risk exposure resulting from such transactions. These derivatives are not designated as hedges and are not speculative. Rather, these derivatives result from a serviceColumbia Bank offers to certain commercial customers. As the currency forward contract does not meet the hedge accounting requirements, changes in the fair value of both the customer forward contract and the offsetting forward contract is recognized directly in earnings. AtDecember 31, 2021 ,Columbia Bank had no currency forward contracts in place with. commercial banking customers.
Recent Accounting Pronouncements
For a discussion of the impact of recent accounting pronouncements, see note 2
in the notes to the consolidated financial statements included in this report.
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Effect of Inflation and Changing Prices
The consolidated financial statements and related consolidated financial data presented in this report have been prepared in accordance with accounting principles generally accepted inthe United States of America , which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution's performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services because such prices are affected by inflation to a larger extent than interest rates. 71
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