Columbia Financial, Inc.CLBK
Columbia Financial, Inc. Commitments Disclosure
Financial Transactions with Off-Balance-Sheet Risk and Concentrations of Credit Risk
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business in order to meet the financing needs of its customers. These financial instruments consist of commitments to extend credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the Consolidated Statements of Financial Condition.
At December 31, 2024 and 2023, the following commitments existed which are not reflected in the Consolidated Statements of Financial Condition:
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
| Loan commitments: | |||||||||||
| Residential real estate | $ | 9,790 | $ | 12,298 | |||||||
| Multifamily real estate | 17,712 | — | |||||||||
| Commercial real estate | 30,681 | 7,203 | |||||||||
| Construction | 26,973 | 54,082 | |||||||||
| Commercial business | 33,027 | 23,217 | |||||||||
| Consumer including home equity loans and advances | 6,862 | 5,317 | |||||||||
| Total loan commitments | $ | 125,045 | $ | 102,117 | |||||||
Unused lines of credit consisting of home equity lines, and undisbursed business and construction lines totaled approximately $1.2 billion and $1.3 billion as of December 31, 2024 and 2023, respectively. Amounts drawn on the unused lines of credit are predominantly assessed interest at rates that fluctuate with the base rate.
The Company uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet loans. Commitments to extend credit are agreements to lend to customers as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's creditworthiness on a case-by-case basis. 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.
The Company principally grants residential real estate loans, multifamily real estate loans, commercial real estate loans, construction loans, commercial business loans, home equity loans and advances and other consumer loans to borrowers primarily throughout New Jersey, New York and Pennsylvania, and to a much lesser extent in a few other east coast states. Its borrowers' abilities to repay their obligations are dependent upon various factors, including the borrowers' income and net worth, cash flows generated by the underlying collateral, if any, or from business operations, value of the underlying collateral and priority of the Company's lien on the property. These factors are dependent on various economic conditions and circumstances beyond the Company's control, and as a result, the Company is subject to the risk of loss. The Company believes that its lending policies and procedures adequately minimize the potential exposure to such risks and adequate provisions for loan losses are provided for all probable and estimable losses. In the normal course of business, the Company sells residential real estate loans to third parties. These loan sales are subject to customary representations and warranties. In the event that the Company is found to be in breach of these representations and warranties, it may be obligated to repurchase certain of these loans.
The Company has entered into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company's derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash receipts and its known or expected cash payments principally related to the Company's borrowings. These derivatives were used to hedge the variability in cash flows associated with certain short-term funding transactions. The fair value of the derivatives as of December 31, 2024 and 2023 was a net liability of $1.1 million and $6.1 million, respectively, net of accrued interest and variation margin posted in accordance with the Chicago Mercantile Exchange.
(16) Financial Transactions with Off-Balance-Sheet Risk and Concentrations of Credit Risk (continued)
In connection with its mortgage banking activities, at December 31, 2024 and 2023 the Company had no commitments to sell loans, and no commitments classified as held-for-sale.
The Company is also a party to standby letters of credit, which are conditional commitments issued to guarantee the performance of a customer to a third party. These guarantees generally extend for a term of up to one year and may be secured or unsecured. The balance of standby letters of credit totaled $28.3 million and $33.1 million at December 31, 2024 and 2023, respectively.
The FHLB has issued irrevocable standby letters of credits totaling $350.0 million at both December 31, 2024 and 2023 for purposes of collateralizing Columbia Bank's New Jersey public funds on deposit. These letters are renewable on an annual basis and are securitized by loans and securities. The FHLB also has issued an irrevocable standby letter of credit totaling $600,000 at both December 31, 2024 and 2023, for the purposes of collateralizing retention of New Jersey public funds on deposit as required by the New Jersey Governmental Unit Deposit Protection Act.
The Company and its subsidiaries are also party to litigation which arises primarily in the ordinary course of business. In the opinion of management, these legal actions and claims are not expected to have a material adverse impact on the consolidated financial position of the Company.
The Company is required to include unfunded commitments that are expected to be funded in the future within the allowance calculation, other than those that are unconditionally cancellable. To arrive at that reserve, the reserve percentage for each applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected funding rate. To determine the expected funding rate, the Company uses a historical utilization rate for each segment. The allowance for credit losses on off-balance-sheet exposures is reported in other liabilities in the Consolidated Statements of Financial Condition. The liability represents an estimate of expected credit losses arising from off-balance-sheet exposures such as unfunded commitments. At December 31, 2024 and 2023, the balance of the allowance for credit losses on unfunded commitments, included in other liabilities, totaled $3.8 million and $5.5 million, respectively. The Company recorded a reversal of provision for credit losses on unfunded commitments, included in other non-interest expense in the Consolidated Statements of Income, of $1.7 million and $1.5 million for the years ended December 31, 2024 and 2023, respectively.
The following table presents the activity in the allowance for credit losses on off-balance-sheet exposures for years ended December 31, 2024 and 2023:
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| (In thousands) | |||||||||||
| Allowance for Credit Losses: | |||||||||||
| Beginning balance | $ | 5,484 | $ | 6,970 | |||||||
| (Reversal of) provision for credit losses | (1,663) | (1,486) | |||||||||
| Balance at end of period | $ | 3,821 | $ | 5,484 | |||||||
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.