Acquisitions

12 Months Ended

Dec. 31, 2021

Stewardship Financial Corporation

On November 1, 2019, the Company completed its acquisition of Stewardship Financial Corporation ("Stewardship"), pursuant to the Agreement and Plan of Merger, dated as of June 6, 2019, (the "Merger Agreement") by and among Columbia Financial, Broadway Acquisition Corp. (a wholly owned subsidiary of Columbia Financial) and Stewardship. Under the terms of the merger agreement, each outstanding share of Stewardship common stock was converted into the right to receive $15.75 in cash at the effective time of the merger. The aggregate merger consideration paid was $136.3 million. At the time of closing, Stewardship had $956.0 million in total assets, including $756.9 million in net loans receivable, $52.6 million in securities, and $877.8 million in total liabilities, including $781.4 million in deposits and $81.8 million in borrowings. The deposits initially acquired from Stewardship were held across a network of 12 branches located in New Jersey throughout Bergen, Morris, and Passaic counties. During the year ended December 31, 2020, four of these branches were closed, and the Company recorded a loss of $770,000 related to these branch closures. During the year ended December 31, 2021, the Company recorded additional net losses of $301,000 related to these branches.

Merger-related expenses are recorded in the Consolidated Statements of Income and are expensed as incurred. Direct acquisition and other charges incurred in connection with the Stewardship acquisition totaled $277,000, $1.3 million and $2.8 million, for the years ended December 31, 2021, 2020 and 2019, respectively.

The following table sets forth assets acquired and liabilities assumed in the Stewardship acquisition, at their estimated fair values as of the closing date of the transaction:


		November 1, 2019
Assets acquired:	(In thousands)
Cash and cash equivalents		$	105,006
Debt securities available for sale		51,710
Equity securities		1,073
Federal Home Loan Bank stock		3,716
Loans receivable		757,223

Accrued interest receivable		2,239
Office properties and equipment, net		6,815
Bank-owned life insurance		22,096
Deferred tax assets, net		3,534
Core deposit and other intangibles		7,467
Other assets		767
Total assets acquired		$	961,646

Liabilities assumed:
Deposits		$	782,698
Borrowings		82,761
Advance payments by borrowers for taxes and insurance		356
Accrued expenses and other liabilities		14,584
Total liabilities assumed		$	880,399

Net assets acquired		$	81,247
Cash paid for purchase		136,294
Goodwill recorded at merger		$	55,047

(3) Acquisitions (continued)

Stewardship Financial Corporation (continued)

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities were recorded at their fair values as of November 1, 2019, and resulted in the recognition of goodwill of $55.0 million and a core deposit intangible of $7.5 million. The determination of the fair value of assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. The fair value estimates were subject to change for up to one year after the closing date of the transaction if additional information (existing at the date of closing) relative to closing date fair values became available. During the year ended December 21 2020, the Company determined that there were no material adjustments required to be recorded to amounts as of November 1, 2019.

Roselle Bank

On April 1, 2020, the Company completed its acquisition of RSB Bancorp, MHC, RSB Bancorp, Inc. and Roselle Bank (collectively, the "Roselle Entities" or "Roselle"). Pursuant to the terms of the Merger Agreement, RSB Bancorp, MHC merged with and into the MHC, with the MHC as the surviving entity; RSB Bancorp, Inc. merged with and into Columbia Financial, with Columbia Financial as the surviving entity; and Roselle Bank merged with and into the Columbia Bank, with Columbia Bank as the surviving institution. Under the terms of the merger agreement, depositors of Roselle Bank became depositors of Columbia Bank and have the same rights and privileges in the MHC as if their accounts had been established at Columbia Bank on the date established at Roselle Bank. The Company issued 4,759,048 shares of its common stock to the MHC, representing an amount equal to the fair value of the Roselle Entities as determined by an independent appraiser, at the effective time of the merger.

Merger-related expenses are recorded in the Consolidated Statements of Income and are expensed as incurred. Direct acquisition and other charges incurred in connection with the Roselle acquisition totaled $597,000 for the year ended December 31, 2020. There were no expenses recorded for the years ended December 31, 2021 and 2019.

(3) Acquisitions (continued)

Roselle Bank (continued)

The following table sets forth assets acquired and liabilities assumed in the Roselle acquisition, at their estimated fair values as of the closing date of the transaction:


		April 1, 2020
Assets acquired:	(In thousands)
Cash and cash equivalents		$	155,248
Debt securities available for sale		51,479
Debt securities held to maturity		13,418
Equity securities		1,796
Federal Home Loan Bank stock		2,010
Loans receivable		171,593
Accrued interest receivable		679
Office properties and equipment, net		5,774
Bank-owned life insurance		17,245
Deferred tax assets, net		1,334
Other assets		1,489
Total assets acquired		$	422,065

Liabilities assumed:
Deposits		$	333,234
Borrowings		37,728
Advance payments by borrowers for taxes and insurance		982
Accrued expenses and other liabilities		5,400
Total liabilities assumed		$	377,344

Net assets acquired		$	44,721
Fair market value of stock issued to Columbia Bank MHC for purchase		68,530
Goodwill recorded at merger		$	23,809

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities were recorded at their fair values as of April 1, 2020, and resulted in the recognition of goodwill of $23.8 million. The determination of the fair value of assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. During the fourth quarter of 2020, the Company completed all tax returns related to the operation of the acquired entity and its impact on the Company's income taxes, which resulted in a $5.1 million adjustment to deferred income taxes, net, and a decrease in goodwill. During the quarter ended March 31, 2021, the Company recorded a final adjustment of $1.1 million to deferred income taxes, net, and a decrease in goodwill. At December 31, 2021, goodwill related to the Roselle acquisition totaled $17.6 million.

(3) Acquisitions (continued)

Freehold Bank

On December 1, 2021, the Company completed its acquisition of Freehold Bancorp, MHC, Freehold Bancorp, Inc. and Freehold Bank (collectively, the "Freehold Entities" or "Freehold"). Pursuant to the terms of the Merger Agreement, Freehold Bancorp, MHC merged with and into the MHC, with the MHC as the surviving entity; and Freehold Bancorp, Inc. merged with and into Columbia Financial, with Columbia Financial as the surviving entity. In connection with the merger, Freehold Bank converted to a federal savings bank and will operate as a wholly-owned subsidiary of Columbia Financial for at least two years following the effective time of the merger, or no later than December 31, 2023. Under the terms of the merger agreement, depositors of Freehold Bank became depositors of the Columbia Bank and have the same rights and privileges in the MHC as if their accounts had been established at Columbia Bank on the date established at Freehold Bank. The Company issued 2,591,007 shares of its common stock to the MHC, representing an amount equal to the fair value of the Freehold Entities as determined by an independent appraiser, at the effective time of the merger.

Merger-related expenses are recorded in the Consolidated Statements of Income and are expensed as incurred. Direct acquisition and other charges incurred in connection with the Freehold acquisition totaled $350,000 for the year ended December 31, 2021. There were no expenses recorded for the years ended December 31, 2020 and 2019.

The following table sets forth assets acquired and liabilities assumed in the Freehold acquisition, at their estimated fair values as of the closing date of the transaction:


		December 1, 2021
Assets acquired:	(In thousands)
Cash and cash equivalents		$	20,417

Debt securities available for sale		118,017

Federal Home Loan Bank stock		3,032
Loans receivable		158,912

Accrued interest receivable		867
Office properties and equipment, net		5,934
Bank-owned life insurance		8,661
Deferred tax assets, net		454
Core deposit and other intangibles		42
Other assets		162
Total assets acquired		$	316,498

Liabilities assumed:
Deposits		210,117
Borrowings		59,908
Advance payments by borrowers for taxes and insurance		495
Accrued expenses and other liabilities		4,822
Total liabilities assumed		$	275,342

Net assets acquired		$	41,156
Fair market value of stock issued to Columbia Bank MHC for purchase		47,260
Goodwill recorded at merger		$	6,104

(3) Acquisitions (continued)

Freehold Bank (continued)

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. The assets and liabilities were recorded at their fair values as of December 1, 2021, and resulted in the recognition of goodwill of $6.1 million. The determination of the fair value of assets acquired and liabilities assumed required management to make estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and subject to change. The fair value estimates are subject to change for up to one year after the closing date of the transaction if additional information (existing at the date of closing) relative to closing date fair values becomes available. As the Company continues to analyze the acquired assets and assumed liabilities, there may be adjustments to the recorded carrying values. However, management does not expect significant future adjustments to the recorded amounts as at December 1, 2021.

RSI Bank

On December 1, 2021, Columbia Financial, Inc. (the “Company”), the parent company of Columbia Bank, and Columbia Bank MHC, the Company’s mutual holding company parent (the “MHC” and, together with the Company and Columbia Bank, the “Columbia Entities”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with RSI Bancorp, M.H.C., RSI Bancorp, Inc. and RSI Bank (collectively, the “RSI Entities”), pursuant to which (i) RSI Bancorp, M.H.C. will merge with and into the MHC, with the MHC as the surviving entity, (ii) RSI Bancorp, Inc. will merge with and into the Company (or a wholly owned subsidiary of the Company to be formed after the date of the Merger Agreement), with the Company (or such wholly owned subsidiary of the Company) as the surviving entity; and (iii) RSI Bank will merge with and into Columbia Bank, with Columbia Bank as the surviving institution (collectively, the “Merger”). Under the terms of the Merger Agreement, depositors of RSI Bank will become depositors of Columbia Bank and will have the same rights and privileges in the MHC as if their accounts had been established at Columbia Bank on the date established at RSI Bank. As part of the transactions contemplated by the Merger Agreement, at the effective time of the Merger, the Company will issue additional shares of its common stock to the MHC in an amount equal to the fair value of the RSI Entities as determined by an independent appraiser. These shares are expected to be issued immediately prior to completion of the mergers. The Merger Agreement has been unanimously approved by the Boards of Directors of each of the Columbia Entities and the RSI Entities. Subject to the receipt of all required regulatory and other approvals, and the satisfaction or waiver of other customary closing conditions, the parties anticipate that the transactions contemplated by the Merger Agreement will close in the second quarter of 2022.

Merger-related expenses are recorded in the Consolidated Statements of Income and are expensed as incurred. Direct acquisition and other charges incurred in connection with the RSI acquisition totaled $196,000 for the year ended December 31, 2021. There were no expenses recorded for the years ended December 31, 2020 and 2019.

Fair Value Measurement of Assets Acquired and Liabilities Assumed

Described below are the methods used to determine the fair values of the significant assets acquired and liabilities assumed in the Stewardship, Roselle and Freehold acquisitions (if applicable):

Cash and cash equivalents. The estimated fair values of cash and cash equivalents approximate their stated face amounts, as these financial instruments are either due on demand or have short-term maturities.

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

(3) Acquisitions (continued)

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

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

Office properties and equipment, net. The fair value of land and buildings was estimated using current appraisals. Acquired equipment was not material.

Intangible assets. Intangible assets recognized in the Stewardship and Freehold acquisitions consisting of core deposit intangibles ("CDI") are the measures of the value of non-maturity deposits in a business combination. The fair value of the CDI was calculated utilizing the cost savings approach, the expected cost savings attributable to the core deposits funding relative to an alternative source of funding, using a discounted cash flow present value methodology. Key inputs and assumptions utilized in the discounted cash flow present value methodology include core deposit balances and rates paid, the cost of an additional funding source, the aggregate life of deposits and truncation points, non-interest deposit costs, and the immediate deposit outflow assumption.

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

Borrowings. The fair values of borrowings consisting of FHLB advances were estimated by discounting future cash flows using market discount rates for borrowings with similar characteristics, terms and remaining maturities. The fair value of other borrowings recognized in the Stewardship acquisition, which included subordinated notes and debentures, were measured at the acquisition date using a dealer market quote.