QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-38456
Columbia Financial, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction
of incorporation or organization)
22-3504946
(I.R.S. Employer Identification Number)
19-01 Route 208 North, Fair Lawn, New Jersey
(Address of principal executive offices)
07410
(Zip Code)
(800) 522-4167
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value per share
CLBK
The Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
ý Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
ý Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
¨
Accelerated filer
¨
Smaller reporting company
¨
Non-accelerated filer
ý
Emerging growth company
ý
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨ Yes ý No
As of November 7, 2019, there were 114,164,514 shares issued and outstanding of the Registrant's common stock, par value $0.01 per share.
Debt securities held to maturity, at amortized cost (fair value of $296,325 and $254,841 at September 30, 2019 and December 31, 2018, respectively)
289,089
262,143
Equity securities, at fair value
1,765
1,890
Federal Home Loan Bank stock
57,077
58,938
Loans held-for-sale, at fair value
—
8,081
Loans receivable
5,186,097
4,979,182
Less: allowance for loan losses
62,629
62,342
Loans receivable, net
5,123,468
4,916,840
Accrued interest receivable
19,423
18,894
Real estate owned
—
92
Office properties and equipment, net
63,723
52,050
Bank-owned life insurance
187,922
184,488
Goodwill and intangible assets
6,163
6,085
Other assets
147,763
107,048
Total assets
$
7,070,250
$
6,691,618
Liabilities and Stockholders' Equity
Liabilities:
Deposits
$
4,783,322
$
4,413,873
Borrowings
1,129,117
1,189,180
Advance payments by borrowers for taxes and insurance
34,543
32,030
Accrued expenses and other liabilities
131,433
84,475
Total liabilities
6,078,415
5,719,558
Stockholders' equity:
Preferred stock, $0.01 par value. 10,000,000 shares authorized; none issued and outstanding at September 30, 2019 and December 31, 2018
—
—
Common stock, $0.01 par value. 500,000,000 shares authorized; 117,278,745 shares issued and 114,536,445 shares outstanding at September 30, 2019, and 115,889,175 shares issued and outstanding at December 31, 2018
1,173
1,159
Additional paid-in capital
529,588
527,037
Retained earnings
601,932
560,216
Accumulated other comprehensive loss
(55,972
)
(71,897
)
Treasury stock, at cost; 2,742,300 shares at September 30, 2019 and -0- at December 31, 2018
(42,084
)
—
Common stock held by the Employee Stock Ownership Plan
(42,137
)
(43,835
)
Stock held by Rabbi Trust
(1,467
)
(1,259
)
Deferred compensation obligations
802
639
Total stockholders' equity
991,835
972,060
Total liabilities and stockholders' equity
$
7,070,250
$
6,691,618
See accompanying notes to unaudited consolidated financial statements.
2
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except share and per share data)
Three Months Ended September 30,
Nine Months Ended September 30,
2019
2018
2019
2018
Interest income:
(Unaudited)
Loans receivable
$
53,594
$
48,585
157,563
138,291
Debt securities available for sale and equity securities
7,736
6,651
23,295
17,987
Debt securities held to maturity
2,068
1,798
6,090
5,253
Federal funds and interest earning deposits
182
44
405
1,116
Federal Home Loan Bank stock dividends
858
617
2,704
1,861
Total interest income
64,438
57,695
190,057
164,508
Interest expense:
Deposits
16,055
10,420
44,984
27,713
Borrowings
6,667
6,692
20,130
16,134
Total interest expense
22,722
17,112
65,114
43,847
Net interest income
41,716
40,583
124,943
120,661
Provision for loan losses
1,157
1,500
1,705
5,900
Net interest income after provision for loan losses
40,559
39,083
123,238
114,761
Non-interest income:
Demand deposit account fees
1,106
1,000
3,116
2,920
Bank-owned life insurance
1,784
1,309
4,449
3,865
Title insurance fees
1,350
1,189
3,490
3,218
Loan fees and service charges
3,038
616
5,358
1,537
Gain on securities transactions
1,256
—
1,721
116
(Decrease)/increase in fair value of equity securities
(59
)
—
189
—
Gain on sale of loans
382
—
710
15
Other non-interest income
1,258
1,176
3,895
3,609
Total non-interest income
10,115
5,290
22,928
15,280
Non-interest expense:
Compensation and employee benefits
21,362
18,179
61,285
54,503
Occupancy
3,973
3,529
11,628
10,764
Federal deposit insurance premiums
40
503
927
1,404
Advertising
533
1,003
3,311
3,142
Professional fees
1,541
967
4,219
2,824
Data processing
658
630
1,965
1,944
Charitable contribution to foundation
—
—
—
34,767
Merger-related expenses
740
—
1,202
—
Other non-interest expense
2,217
1,779
7,927
5,024
Total non-interest expense
31,064
26,590
92,464
114,372
Income before income tax expense
19,610
17,783
53,702
15,669
Income tax expense
5,392
6,956
12,534
7,800
Net income
$
14,218
$
10,827
41,168
7,869
Earnings per share - basic and diluted
$
0.13
$
0.10
$
0.37
$
0.07
Weighted average shares outstanding -basic and diluted
111,371,754
111,389,951
111,486,179
111,380,218
See accompanying notes to unaudited consolidated financial statements.
3
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Three Months Ended September 30,
Nine Months Ended September 30,
2019
2018
2019
2018
(Unaudited)
Net income
$
14,218
$
10,827
$
41,168
$
7,869
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on debt securities available for sale
4,915
(5,358
)
28,302
(18,186
)
Accretion of unrealized gain (loss) on debt securities reclassified as held to maturity
2
(11
)
10
(13
)
Reclassification adjustment for gains included in net income
965
3
1,325
90
5,882
(5,366
)
29,637
(18,109
)
Derivatives, net of tax:
Unrealized (loss) gain on swap contracts accounted for as cash flow hedges
(1,279
)
1,240
(8,735
)
1,746
(1,279
)
1,240
(8,735
)
1,746
Employee benefit plans, net of tax:
Amortization of prior service cost included in net income
(11
)
—
(33
)
98
Reclassification adjustment of actuarial net (loss) gain included in net income
(735
)
—
(2,196
)
520
Change in funded status of retirement obligations
1,490
(1,908
)
(2,200
)
(615
)
744
(1,908
)
(4,429
)
3
Total other comprehensive income (loss)
5,347
(6,034
)
16,473
(16,360
)
Total comprehensive income (loss), net of tax
$
19,565
$
4,793
$
57,641
$
(8,491
)
See accompanying notes to unaudited consolidated financial statements.
4
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Three Months Ended September 30, 2018 and 2019
(In thousands)
Common Stock
Additional Paid-in-Capital
Retained Earnings
Accumulated Other Comprehensive (Loss)
Treasury Stock
Common Stock Held by the Employee Stock Ownership Plan
Stock Held by Rabbi Trust
Deferred Compensation Obligations
Total Stockholders' Equity
Balance at June 30, 2018
$
1,159
$
526,332
$
534,522
$
(75,736
)
$
—
$
(44,980
)
$
—
$
—
$
941,297
Net income
—
—
10,827
—
—
—
—
—
10,827
Other comprehensive (loss)
—
—
—
(6,034
)
—
—
—
—
(6,034
)
Employee Stock Ownership Plan shares committed to be released
—
384
—
—
—
572
—
—
956
Balance at September 30, 2018
$
1,159
$
526,716
$
545,349
$
(81,770
)
$
—
$
(44,408
)
$
—
$
—
$
947,046
Balance at June 30, 2019
$
1,159
$
527,650
$
587,714
$
(61,319
)
$
(3,867
)
$
(42,710
)
$
(1,407
)
$
689
$
1,007,909
Net income
—
—
14,218
—
—
—
—
—
14,218
Other comprehensive income
—
—
—
5,347
—
—
—
—
5,347
Issuance of common stock allocated to restricted stock award grants
14
—
—
—
—
—
—
—
14
Stock based compensation
—
1,630
—
—
—
—
—
—
1,630
Purchase of treasury stock
—
—
—
—
(38,217
)
—
—
—
(38,217
)
Employee Stock Ownership Plan shares committed to be released
—
308
—
—
—
573
—
—
881
Funding of deferred compensation obligations
—
—
—
—
—
—
(60
)
113
53
Balance at September 30, 2019
$
1,173
$
529,588
$
601,932
$
(55,972
)
$
(42,084
)
$
(42,137
)
$
(1,467
)
$
802
$
991,835
See accompanying notes to unaudited consolidated financial statements.
5
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Nine Months Ended September 30, 2018 and 2019
(In thousands)
Common Stock
Additional Paid-in-Capital
Retained Earnings
Accumulated Other Comprehensive (Loss)
Treasury Stock
Common Stock Held by the Employee Stock Ownership Plan
Stock Held by Rabbi Trust
Deferred Compensation Obligations
Total Stockholders' Equity
Balance at December 31, 2017
$
—
$
—
$
537,480
$
(65,410
)
$
—
$
—
$
—
$
—
$
472,070
Net income
—
—
7,869
—
—
—
—
—
7,869
Other comprehensive (loss)
—
—
—
(16,360
)
—
—
—
—
(16,360
)
Issuance of common stock to Columbia Bank, MHC
626
—
—
—
—
—
—
—
626
Issuance of common stock in initial public offering
498
491,304
—
—
—
—
—
—
491,802
Issuance of common stock to Columbia Bank Foundation
35
34,732
—
—
—
—
—
—
34,767
Purchase of Employee Stock Ownership Plan shares
—
—
—
—
—
(45,428
)
—
—
(45,428
)
Employee Stock Ownership Plan shares committed to be released
—
680
—
—
—
1,020
—
—
1,700
Balance at September 30, 2018
$
1,159
$
526,716
$
545,349
$
(81,770
)
$
—
$
(44,408
)
$
—
$
—
$
947,046
Balance at December 31, 2018
$
1,159
$
527,037
$
560,216
$
(71,897
)
$
—
$
(43,835
)
$
(1,259
)
$
639
$
972,060
Effect of the adoption of Accounting Standards Update ("ASU") 2016-01
—
—
548
(548
)
—
—
—
—
—
Balance at January 1, 2019
1,159
527,037
560,764
(72,445
)
—
(43,835
)
(1,259
)
639
972,060
Net income
—
—
41,168
—
—
—
—
—
41,168
Other comprehensive income
—
—
—
16,473
—
—
—
—
16,473
Issuance of common stock allocated to restricted stock award grants
14
—
—
—
—
—
—
—
14
Stock based compensation
—
1,630
—
—
—
—
—
—
1,630
Purchase of treasury stock
—
—
—
—
(42,084
)
—
—
—
(42,084
)
Employee Stock Ownership Plan shares committed to be released
—
921
—
—
—
1,698
—
—
2,619
Funding of deferred compensation obligations
—
—
—
—
—
—
(208
)
163
(45
)
Balance at September 30, 2019
$
1,173
$
529,588
$
601,932
$
(55,972
)
$
(42,084
)
$
(42,137
)
$
(1,467
)
$
802
$
991,835
See accompanying notes to unaudited consolidated financial statements.
6
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30,
2019
2018
Cash flows from operating activities:
(In thousands, unaudited)
Net income
$
41,168
$
7,869
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred loan fees and costs, premiums and discounts
1,055
1,420
Net amortization of premiums and discounts on securities
787
1,017
Net amortization on mortgage servicing rights
(78
)
57
Amortization of debt issuance costs
—
890
Depreciation and amortization of office properties and equipment
3,366
2,748
Provision for loan losses
1,705
5,900
Gain on securities transactions
(1,721
)
(116
)
Change in fair value of equity securities
(189
)
—
Gain on sales of loans
(710
)
(15
)
Loss on real estate owned
1
45
Deferred tax (benefit) expense
(7,160
)
6,764
Increase in accrued interest receivable
(529
)
(2,679
)
Increase in other assets
(44,037
)
(13,801
)
Increase in accrued expenses and other liabilities
36,367
3,505
Income on bank-owned life insurance
(4,449
)
(3,435
)
Contribution of common stock to Columbia Bank Foundation
—
34,767
Employee stock ownership plan expense
2,619
1,700
Stock based compensation
1,630
—
Increase in deferred compensation obligations under Rabbi Trust
(45
)
—
Net cash provided by operating activities
29,780
46,636
Cash flows from investing activities:
Proceeds from sales of debt securities available for sale
31,811
—
Proceeds from sales of equity securities
926
—
Proceeds from paydowns/maturities/calls of debt securities available for sale
88,504
60,959
Proceeds from paydowns/maturities/calls on debt securities held to maturity
37,968
6,846
Purchases of debt securities available for sale
(143,196
)
(361,263
)
Purchases of debt securities held to maturity
(65,171
)
(31,639
)
Purchase of equity securities
(416
)
—
Proceeds from sales of loans held-for-sale
94,834
—
Proceeds from sales of loans receivable
10,273
3,695
Purchases of loans receivable
(29,885
)
(4,715
)
Net increase in loans receivable
(297,434
)
(451,223
)
Purchase of bank-owned life insurance
—
(30,000
)
Proceeds from bank-owned life insurance death benefit
1,015
811
Proceeds from redemptions of Federal Home Loan Bank stock
47,860
51,676
Purchases of Federal Home Loan Bank stock
(45,999
)
(63,544
)
Additions to office properties and equipment
(15,039
)
(8,799
)
Proceeds from sales of real estate owned
91
914
Net cash (used in) investing activities
(283,858
)
(826,282
)
Cash flows from financing activities:
Net increase in deposits
369,449
109,030
Proceeds from long-term borrowings
127,337
168,930
Payments on long-term borrowings
(220,000
)
(170,000
)
Net increase in short-term borrowings
32,600
258,400
Payments on trust preferred securities
—
(51,547
)
Increase in advance payments by borrowers for taxes and insurance
2,513
7,169
Issuance of common stock
14
492,428
Purchase of treasury stock
(42,084
)
—
Purchase of employee stock ownership plan shares
—
(45,428
)
Net cash provided by financing activities
269,829
768,982
7
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Nine Months Ended September 30,
2019
2018
( In thousands, unaudited)
Net increase (decrease) in cash and cash equivalents
$
15,751
$
(10,664
)
Cash and cash equivalents at beginning of year
42,201
65,498
Cash and cash equivalents at end of period
$
57,952
$
54,834
Cash paid during the period for:
Interest on deposits and borrowings
$
64,892
$
45,306
Income tax payments, net of (refunds)
$
(4,293
)
$
13,435
Non-cash investing and financing activities:
Transfer of loans receivable to real estate owned
$
—
$
251
Transfer of loans receivable to loans held-for-sale
$
86,043
$
1,860
Securitization of loans
$
21,615
$
—
See accompanying notes to unaudited consolidated financial statements.
8
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
1.Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements include the accounts of Columbia Financial, Inc., its wholly-owned subsidiary Columbia Bank (the "Bank") and the Bank's wholly-owned subsidiaries (collectively, the “Company”). In consolidation, all intercompany accounts and transactions are eliminated.
Columbia Financial, Inc. is a majority-owned subsidiary of Columbia Bank, MHC (the "MHC"). The accounts of the MHC are not consolidated in the accompanying consolidated financial statements of the Company.
In preparing the interim unaudited consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of financial condition and consolidated statements of income for the periods presented. Actual results could differ from these estimates. Material estimates that are particularly susceptible to change are the determination of the adequacy of the allowance for loan losses, evaluation of the need for valuation allowances on deferred tax assets, and determination of liabilities related to retirement and other post-retirement benefits. These estimates and assumptions are evaluated on an ongoing basis and are adjusted when facts and circumstances dictate.
The interim unaudited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. The results of operation for the three and nine month periods ended September 30, 2019 are not necessarily indicative of the results of operation that may be expected for the entire fiscal year or any other period. Certain reclassifications have been made in the consolidated financial statements to conform with current year classifications.
The interim unaudited consolidated financial statements of the Company presented herein have been prepared in accordance with the rules of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and U.S. generally accepted accounting principles (“GAAP”). Certain information and note disclosures have been condensed or omitted pursuant to the rules and regulations of the SEC.
These unaudited consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2018 and the audited consolidated financial statements included therein.
2.Earnings per Share
Basic earnings per share ("EPS") is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. For purposes of calculating basic EPS, weighted average common shares outstanding excludes treasury stock, unallocated employee stock ownership plan shares that have not been committed for release and deferred compensation obligations required to be settled in shares of Company stock.
Diluted EPS is computed using the same method as basic EPS and reflects the potential dilution which could occur if stock options and unvested shares were exercised and converted into common stock. The potentially diluted shares would then be included in the weighted average number of shares outstanding for the period using the treasury stock method.
9
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
2. Earnings per Share (continued)
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share calculations for the three and nine months ended September 30, 2019 and 2018:
For the Three Months Ended September 30,
For the Nine Months Ended September 30,
2019
2018
2019
2018
(Dollars in thousands, except per share data)
Net income
$
14,218
$
10,827
$
41,168
$
7,869
Shares:
Weighted average shares outstanding - basic
111,371,754
111,389,951
111,486,179
111,380,218
Effect of dilutive common stock equivalents (1)
—
—
—
—
Weighted average shares outstanding - diluted
111,371,754
111,389,951
111,486,179
111,380,218
Earnings per share:
Basic
$
0.13
$
0.10
$
0.37
$
0.07
Diluted
$
0.13
$
0.10
$
0.37
$
0.07
(1) During the three and nine months ended September 30, 2019 the average number of stock options which were antidilutive and were not included in the computation of diluted earnings per share totaled approximately 790,000 and 310,000, respectively. There were no stock options outstanding for the three and nine months ended September 30, 2018.
3. Stock Repurchase Program
On June 11, 2019, the Company announced that its Board of Directors authorized the Company's first stock repurchase program since the completion of its minority public offering in April 2018. This program, which commenced on June 13, 2019, authorizes the purchase of up to 4,000,000 shares, or approximately 3.5%, of the Company's then issued and outstanding common stock. During the three and nine months ended September 30, 2019, the Company purchased 2,478,400 and 2,742,300 shares, respectively, at a cost of approximately $38.2 million, or $15.42 per share, and approximately $42.1 million, or $15.35 per share, respectively. Repurchased shares are held as treasury stock and will be available for general corporate purposes.
4. Summary of Significant Accounting Policies
Accounting Pronouncements Adopted in 2019
In March 2017, the FASB issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost, which requires that companies disaggregate the service cost component from other components of net benefit cost. This update calls for companies that offer post-retirement benefits to present the service cost, which is the amount an employer has to set aside each quarter or fiscal year to cover the benefits, in the same line item with other current employee compensation costs. Other components of net benefit cost will be presented in the income statement separately from the service costs component and outside the subtotal of income from operations, if one is presented. The effective date for this ASU for the Company is fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this guidance effective January 1, 2019. See note 11 for additional disclosure regarding the impact of adoption of this ASU on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, a new standard which addresses diversity in practice related to eight specific cash flow issues: debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that
are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies), distributions received from equity method investees, beneficial interests in securitization
transactions and separately identifiable cash flows and application of the predominance principle. This guidance in the ASU is effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Entities will apply the standard’s provisions using a retrospective transition method to each period presented. If it is impracticable to apply the
10
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
4. Summary of Significant Accounting Policies (continued)
Accounting Pronouncements Adopted in 2019 (continued)
amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company adopted this guidance effective January 1, 2019. The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments- Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This guidance requires an entity to: (i) measure equity investments at fair value through net income, with certain exceptions; (ii) present in other comprehensive income the changes in instrument-specific credit risk for financial liabilities measured using the fair value option; (iii) present financial assets and financial liabilities by measurement category and form of financial asset; (iv) calculate the fair value of financial instruments for disclosure purposes based on an exit price; and (v) assess a valuation
allowance on deferred tax assets related to unrealized losses on available-for-sale debt securities in combination with other deferred tax assets. This guidance provides an election to subsequently measure certain non-marketable equity investments at cost less any impairment and adjusted for certain observable price changes.
The guidance also requires a qualitative impairment assessment of such equity investments and amends certain fair value disclosure requirements. The guidance in the ASU is effective for the Company for annual periods beginning after December 15, 2018.
The Company adopted this guidance effective January 1, 2019. As a result, $1.9 million of equity securities, as of December 31, 2018, were reclassified from securities available for sale, and presented as a separate line item on the consolidated statements of financial condition. The $548,000 after tax unrealized gain on these securities, at time of adoption, was reclassified from other comprehensive income (loss) to retained earnings, and is reflected in the consolidated statements of changes in stockholders' equity. For financial instruments that are measured at amortized cost, the Company measures fair value utilizing an exit price methodology. See note 12 for additional disclosure regarding the impact of adoption of this ASU on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts are in the scope of other standards. The guidance in the ASU was effective for the Company for fiscal years beginning after December 15, 2018. Subsequently, the FASB issued various amendments that were intended to improve and clarify the implementation guidance of ASU No. 2014-09 and had the same effective date as the original guidance. The Company's revenue is primarily comprised of net interest income on interest earning assets and liabilities and non-interest income. The scope of guidance explicitly excludes net interest income as well as other revenues associated with financial assets and liabilities, including loans, leases, securities and derivatives. The Company adopted this guidance effective January 1, 2019, after completing an evaluation of the Company's revenue streams and applicable revenue recognition, and concluded that there are no material changes related to the timing or amount of revenue recognition. The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements, but resulted in additional footnote disclosures, including the disaggregation of certain categories of revenues. See note 15 for additional disclosure regarding the impact of adoption of this ASU on the Company's consolidated financial statements.
Accounting Pronouncements Not Yet Adopted
In October 2018, the FASB issued ASU No. 2018-16, Derivatives and Hedging (Topic 815)- Inclusion of the Secured Overnight Financing Rate ("SOFR") Overnight Index Swap ("OIS") Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. This ASU permits the use of the OIS rate based upon SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the direct Treasury obligations of the U.S. Government, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate, and the Securities Industry and Financial Markets Association Municipal Swap Rate. The amendments in this ASU are required to be adopted concurrently with the amendments in ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which was issued in August 2017. The effective date for this ASU for the Company is for fiscal years beginning after December 15, 2019, with early adoption, including adoption in an interim period permitted. The amendments should be adopted on a prospective basis for qualifying new of redesignated hedging relationships entered into on or after date of adoption. The Company does not expect the adoption of this guidance to have a significant impact on its consolidated financial statements.
11
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
4. Summary of Significant Accounting Policies (continued)
Accounting Pronouncements Not Yet Adopted (continued)
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The purpose of this updated guidance is to improve the effectiveness and disclosures in the notes to the financial statements. The ASU removes the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy; removes the policy for timing of transfers between levels; and removes the disclosure related to the valuation process for Level 3 fair value measurements. The ASU also modifies existing disclosure requirements which relate to the disclosure for investments in certain entities which calculate net asset value and clarifies the disclosure about uncertainty in the measurements as of the reporting date.
For all entities, the effective date for this guidance is fiscal years beginning after December 15, 2019, including interim periods within the reporting period, with early adoption permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20): Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans. The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing disclosures that no longer are considered cost beneficial, clarifying the specific requirements of disclosures, and adding disclosure requirements identified as relevant. Among other changes, the ASU adds disclosure requirements to Topic 715-20 for the weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates and an explanation of the reasons for significant gains and losses related to changes in benefit obligation for the period. The amendments remove disclosure requirements for the amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year, the amount and timing of plan assets expected to be returned to the employer, and the effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation for post-retirement health care benefits. ASU 2018-14 is effective for fiscal years beginning after December 15, 2020, including interim reporting periods within that reporting period, with early adoption permitted. The update is to be applied on a retrospective basis. The Company is currently evaluating the effect of ASU 2018-14 on its disclosures in the Company's consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. This guidance shortens the amortization period for premiums on callable debt securities by requiring that premiums be amortized to the first (or earliest) call date instead of as an adjustment to the yield over the contractual life. This change more closely aligns the accounting with the economics of a callable debt security and the amortization period with expectations that already are included in market pricing on callable debt securities. This guidance does not change the accounting for discounts on callable debt securities, which will continue to be amortized to the maturity date. This guidance includes only instruments that are held at a premium and have explicit call features. It does not include instruments that contain prepayment features, such as mortgage backed securities; nor does it include call options that are contingent upon future events or in which the timing or amount to be paid is not fixed. The effective date for this ASU for the Company is fiscal years beginning after December 15, 2019, including interim periods within the reporting period, with early adoption permitted. Transition is on a modified retrospective basis with an adjustment to retained earnings as of the beginning of the period of adoption. If early adopted in an interim period, adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company does not expect the adoption of this ASU to have a significant impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The main objective of this guidance is to simplify the accounting for goodwill impairment by requiring that impairment charges be based upon the first step in the current two-step impairment test under ASC 350. Currently, if the fair value of a reporting unit is lower than its carrying amount (Step 1), an entity calculates any impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). The implied fair value of goodwill is calculated by deducting the fair value of all assets and liabilities of the reporting unit from the reporting unit’s fair value as determined in Step 1. To determine the implied fair value of goodwill, entities estimate the fair value of any unrecognized intangible assets and any corporate-level assets or liabilities that were
12
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
4. Summary of Significant Accounting Policies (continued)
Accounting Pronouncements Not Yet Adopted (continued)
included in the determination of the carrying amount and fair value of the reporting unit in Step 1. Under this guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. This guidance eliminates the requirement to calculate a goodwill impairment charge using Step 2. This guidance does not change the guidance on completing Step 1 of the goodwill impairment test. Under this guidance, an entity will still be able to perform the current optional qualitative goodwill impairment assessment before determining whether to proceed to Step 1. The guidance in the ASU will be applied prospectively and is effective for the Company for annual and interim impairment tests performed in periods beginning after December 15, 2019. The Company does not expect the adoption of this ASU to have a significant impact on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The main objective of this ASU is to provide financial statement users with more decision-useful information about expected credit losses on financial instruments by a reporting entity at each reporting date. The amendments of this guidance require financial assets measured at amortized cost to be presented at the net amount expected to be collected. The allowance for credit losses would represent a valuation account that would be deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement would reflect the measurement of credit losses that have taken place during the period.
The measurement of expected credit losses would be based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity would be required to use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The guidance in the ASU is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods within that reporting period. Early adoption is permitted. The Company is currently assessing the impact that the guidance will have on the Company's consolidated financial statements. The Company has formed a working group under the direction of the Chief Financial Officer that is primarily comprised of individuals from various functional areas including finance, credit, risk management, and operations, among others. A detailed implementation plan was developed which includes an assessment of the processes, portfolio segmentation, model development and validation, and system requirements and resources needed. The Company has engaged third-party vendors to assist with model development, data governance and operational controls to support the adoption of this ASU. Furthermore, this ASU will necessitate establishing an allowance for expected credit losses on debt securities. The Company is continuing its evaluation of the guidance including the potential impact on its consolidated financial statements. The extent of the change is indeterminable at this time as it will be dependent upon portfolio composition and credit quality at the adoption date, as well as economic conditions and forecasts at that time. Upon adoption, any impact to the allowance for credit losses- currently the allowance for loan losses- will have an offsetting impact on retained earnings.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This guidance requires all lessees to recognize a lease liability and a right-of-use asset, measured at the present value of the future minimum lease payments, at the lease commencement date for leases classified as operating leases as well as finance leases. The update also requires new quantitative disclosures related to leases in the Company's consolidated financial statements. There are also practical expedients in this update related to leases that commenced before the effective date, initial direct costs and the use of hindsight to extend or terminate a lease or purchase a leased asset. Lessor accounting remains largely unchanged under this new guidance. In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842)-Land Easement Practical Expedient for Transition to Topic 842, which provides an optional practical expedient to not evaluate land easements which were existing or expired before the adoption of Topic 842 that were not accounted for as leases under Topic 840. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842) -Targeted Improvements which provides entities with an optional transition method under which comparative periods presented in the financial statements will continue to be in accordance with current Topic 840, Leases, and a practical expedient to not separate non-lease components from the associated lease component. The Company has selected a software platform which will support the recording, accounting and disclosure requirements of the new lease guidance. The guidance is effective for the Company for annual periods beginning after December 15, 2019, including interim periods within that reporting period. In the evaluation of this guidance, the Company identified the inventory of leases and actively accumulated the requisite lease data necessary to apply the guidance. The Company expects to record a right of use asset and lease liability as of January 1, 2020. The Company is continuing its efforts to evaluate the impact of this guidance and, as such, no conclusions have yet been reached regarding the potential impact on adoption on the Company's consolidated financial statements; however, the Company does not expect the adoption to have a material impact on its results of operations.
13
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
5. Debt Securities Available for Sale
Debt securities available for sale at September 30, 2019 and December 31, 2018 are summarized as follows:
September 30, 2019
Amortized Cost
Gross Unrealized Gains
Gross Unrealized (Losses)
Fair Value
(In thousands)
U.S. government and agency obligations
$
44,532
$
621
$
(22
)
$
45,131
Mortgage-backed securities and collateralized mortgage obligations
981,205
20,742
(504
)
1,001,443
Municipal obligations
190
—
—
190
Corporate debt securities
64,495
774
(669
)
64,600
Trust preferred securities
5,000
—
(459
)
4,541
$
1,095,422
$
22,137
$
(1,654
)
$
1,115,905
December 31, 2018
Amortized Cost
Gross Unrealized Gains
Gross Unrealized (Losses)
Fair Value
(In thousands)
U.S. government and agency obligations
$
54,821
$
53
$
(717
)
$
54,157
Mortgage-backed securities and collateralized mortgage obligations
934,631
2,812
(17,436
)
920,007
Municipal obligations
987
—
—
987
Corporate debt securities
54,493
129
(1,155
)
53,467
Trust preferred securities
5,000
—
(750
)
4,250
$
1,049,932
$
2,994
$
(20,058
)
$
1,032,868
The amortized cost and fair value of debt securities available for sale at September 30, 2019, by contractual final maturity, is shown below. Expected maturities may differ from contractual maturities due to prepayment or early call options exercised by the issuer.
September 30, 2019
Amortized Cost
Fair Value
(In thousands)
One year or less
$
15,098
$
15,110
More than one year to five years
40,046
40,467
More than five years to ten years
54,073
54,483
More than ten years
5,000
4,402
$
114,217
$
114,462
Mortgage-backed securities and collateralized mortgage obligations
981,205
1,001,443
$
1,095,422
$
1,115,905
Mortgage-backed securities and collateralized mortgage obligations totaling $981.2 million at amortized cost, and $1.0 billion at fair value, are not classified by maturity in the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.
14
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
5. Debt Securities Available for Sale (continued)
During the three months ended September 30, 2019, proceeds from the sale of debt securities available for sale totaled $16.1 million, resulting in $1.2 million of gross gains and no gross losses. During the three months ended September 30, 2019, there were no maturities or calls of debt securities available for sale.
During the nine months ended September 30, 2019, proceeds from the sale of debt securities available for sale totaled $31.8 million, resulting in $1.5 million of gross gains and no gross losses. During the nine months ended September 30, 2019, proceeds from one matured debt security available for sale totaled $767,000. There were no calls of debt securities available for sale.
During the three months ended September 30, 2018, proceeds from one called debt security available for sale totaled $1.5 million. No gross gains or losses were recognized on the security called during the quarter. There were no maturities of debt securities available for sale during the quarter.
During the nine months ended September 30, 2018, there were no sales or maturities of debt securities available for sale. During the nine months ended September 30, 2018, proceeds from called debt securities available for sale totaled $11.5 million, resulting in $116,000 in gross gains and no gross losses.
Debt securities available for sale having a carrying value of $203.4 million and $232.7 million, respectively, at September 30, 2019 and December 31, 2018, respectively, were pledged as security for public funds on deposit at the Bank as required and permitted by law.
The following tables summarize the fair value and gross unrealized losses of those securities that reported an unrealized loss at September 30, 2019 and December 31, 2018 and if the unrealized loss position was continuous for the twelve months prior to those respective dates:
September 30, 2019
Less Than 12 Months
12 Months or Longer
Total
Fair Value
Gross Unrealized (Losses)
Fair Value
Gross Unrealized (Losses)
Fair Value
Gross Unrealized (Losses)
(In thousands)
U.S. government and agency obligations
$
—
$
—
$
14,970
$
(22
)
$
14,970
$
(22
)
Mortgage-backed securities and collateralized mortgage obligations
70,393
(161
)
59,713
(343
)
130,106
(504
)
Corporate debt securities
4,961
(39
)
9,371
(630
)
14,332
(669
)
Trust preferred securities
—
—
4,541
(459
)
4,541
(459
)
$
75,354
$
(200
)
$
88,595
$
(1,454
)
$
163,949
$
(1,654
)
December 31, 2018
Less Than 12 Months
12 Months or Longer
Total
Fair Value
—
Gross Unrealized (Losses)
—
Fair Value
—
Gross Unrealized (Losses)
—
Fair Value
—
Gross Unrealized (Losses)
(In thousands)
U.S. government and agency obligations
$
14,668
$
(202
)
$
29,437
$
(515
)
$
44,105
$
(717
)
Mortgage-backed securities and collateralized mortgage obligations
176,614
(1,034
)
509,397
(16,402
)
686,011
(17,436
)
Corporate debt securities
26,480
(512
)
9,358
(643
)
35,838
(1,155
)
Trust preferred securities
—
—
4,250
(750
)
4,250
(750
)
$
217,762
$
(1,748
)
$
552,442
$
(18,310
)
$
770,204
$
(20,058
)
15
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
5. Debt Securities Available for Sale (continued)
The Company evaluates securities for other-than-temporary impairment at each reporting period and more frequently when economic or market conditions warrant such evaluation. The temporary loss position associated with debt securities available for sale was the result of changes in market interest rates relative to the coupon of the individual security and changes in credit spreads. The Company does not have the intent to sell securities in a temporary loss position at September 30, 2019, nor is it more likely than not that the Company will be required to sell the securities before the anticipated recovery.
The number of securities in an unrealized loss position as of September 30, 2019 totaled 41, compared with 151 at December 31, 2018. All temporarily impaired securities were investment grade as of September 30, 2019 and December 31, 2018.
The Company did not record an other-than-temporary impairment charge on debt securities available for sale during the three and nine months ended September 30, 2019 and 2018.
6. Debt Securities Held to Maturity
Debt securities held to maturity at September 30, 2019 and December 31, 2018 are summarized as follows:
September 30, 2019
Amortized Cost
Gross Unrealized Gains
Gross Unrealized (Losses)
Fair Value
(In thousands)
U.S. government and agency obligations
$
25,000
$
70
$
(142
)
$
24,928
Mortgage-backed securities and collateralized mortgage obligations
264,089
7,342
(34
)
271,397
$
289,089
$
7,412
$
(176
)
$
296,325
December 31, 2018
Amortized Cost
Gross Unrealized Gains
Gross Unrealized (Losses)
Fair Value
(In thousands)
U.S. government and agency obligations
$
23,404
$
45
$
(208
)
$
23,241
Mortgage-backed securities and collateralized mortgage obligations
238,739
28
(7,167
)
231,600
$
262,143
$
73
$
(7,375
)
$
254,841
The amortized cost and fair value of debt securities held to maturity at September 30, 2019, by contractual final maturity, is shown below. Expected maturities may differ from contractual maturities due to prepayment or early call options exercised by the issuer.
September 30, 2019
Amortized Cost
Fair Value
(In thousands)
More than five years to ten years
$
5,000
$
5,002
More than ten years
20,000
19,926
25,000
24,928
Mortgage-backed securities and collateralized mortgage obligations
264,089
271,397
$
289,089
$
296,325
16
COLUMBIA FINANCIAL, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
6. Debt Securities Held to Maturity (continued)
Mortgage-backed securities and collateralized mortgage obligations totaling $264.1 million at amortized cost, and $271.4 million at fair value, are not classified by maturity in the table above as their expected lives are likely to be shorter than the contractual maturity date due to principal prepayments.
During the three months ended September 30, 2019, there were no sales or maturities of debt securities held to maturity. During the three months ended September 30, 2019, proceeds from calls of debt securities held to maturity totaled $23.4 million, resulting in $24,000 of gross gains and no gross losses.
During the nine months ended September 30, 2019, there were no sales or maturities of debt securities held to maturity. During the nine months ended September 30, 2019, proceeds from calls of debt securities held to maturity totaled $28.4 million, resulting in $24,000 of gross gains and no gross losses.
During the three and nine months ended September 30, 2018, there were no sales, calls or maturities of debt securities held for maturity.
Debt securities held to maturity having a carrying value of $180.4 million and $187.0 million, at September 30, 2019 and December 31, 2018, respectively, were pledged as security for public funds on deposit at the Bank as required and permitted by law.
The following tables summarize the fair value and gross unrealized losses of those securities that reported an unrealized loss at September 30, 2019 and December 31, 2018 and if the unrealized loss position was continuous for the twelve months prior to September 30, 2019 and December 31, 2018:
September 30, 2019
Less Than 12 Months
12 Months or Longer
Total
Fair Value
Gross Unrealized (Losses)
Fair Value
Gross Unrealized (Losses)
Fair Value
Gross Unrealized (Losses)
(In thousands)
U.S. government and agency obligations
$
9,858
$
(142
)
$
—
$
—
$
9,858
$
(142
)
Mortgage-backed securities and collateralized mortgage obligations
5,989
(30
)
941
(4
)
6,930
(34
)
$
15,847
$
(172
)
$
941
$
(4
)
$
16,788
$
(176
)
December 31, 2018
Less Than 12 Months
12 Months or Longer
Total
Fair Value
Gross Unrealized (Losses)
Fair Value
Gross Unrealized (Losses)
Fair Value
Gross Unrealized (Losses)
(In thousands)
U.S. government and agency obligations
$
—
$
—
$
8,197
$
(208
)
$
8,197
$
(208
)
Mortgage-backed securities and collateralized mortgage obligations