Columbia Financial, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing is an annual report, not a standalone quarterly filing, although it includes unaudited fourth-quarter data. Columbia Financial is the holding company of Columbia Bank, a New Jersey-focused federally chartered savings bank operating 64 branches in 10 counties.
Business Context and Major Events
- The Company originates multifamily and commercial real estate, residential, construction, commercial business and consumer loans, and provides title insurance and other fee-based services.
- On November 1, 2019, the Company acquired Stewardship Financial and Atlantic Stewardship Bank for cash consideration of $15.75 per acquired share. The transaction added approximately $961.6 million of assets, $880.4 million of liabilities, $757.2 million of acquired loans and $55.0 million of goodwill.
- On December 2, 2019, the Company entered into an agreement to acquire RSB Bancorp, MHC, RSB Bancorp, Inc. and Roselle Bank. Closing was expected in the second quarter of 2020, subject to regulatory approvals and other conditions.
Financial Performance and Key Metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total assets | $8.19 billion | $6.69 billion | +22.4% |
| Loans receivable, net | $6.14 billion | $4.92 billion | +24.8% |
| Deposits | $5.65 billion | $4.41 billion | +27.9% |
| Borrowings | $1.41 billion | $1.19 billion | +18.3% |
| Stockholders’ equity | $982.5 million | $972.1 million | +1.1% |
| Net interest income | $172.4 million | $164.0 million | +5.1% |
| Provision for loan losses | $4.2 million | $6.7 million | -36.7% |
| Non-interest income | $31.6 million | $21.7 million | +45.9% |
| Net income | $54.7 million | $22.7 million | +140.7% |
| Basic and diluted EPS | $0.49 | $0.20 | +145.0% |
| Net interest margin | 2.58% | 2.74% | -16 bps |
| Return on average assets | 0.77% | 0.36% | +41 bps |
| Return on average equity | 5.50% | 2.87% | +263 bps |
Cash flow from operating activities was $123.8 million, compared with $60.2 million in 2018. Investing activities used $623.0 million, primarily reflecting loan growth, securities purchases and the Stewardship acquisition. Financing activities provided $532.5 million, principally from deposit growth and borrowings. Cash and cash equivalents increased to $75.5 million from $42.2 million.
Loan growth was concentrated in multifamily and commercial real estate loans, which totaled $2.92 billion, or 47.3% of gross loans, and one-to-four-family residential loans, which totaled $2.08 billion, or 33.8%. Commercial business loans increased 44.7% to $483.2 million.
The allowance for loan losses was $61.7 million, or 1.00% of gross loans, compared with $62.3 million, or 1.26%, in 2018. Net charge-offs increased to $4.9 million from $2.5 million. Non-performing assets increased to $6.7 million, or 0.08% of assets, from $2.9 million, or 0.04%.
The Bank remained well capitalized. At December 31, 2019, Bank total capital to risk-weighted assets was 14.25%, common equity Tier 1 capital was 13.21% and Tier 1 leverage was 10.25%. The Company reported total capital of 17.25% and common equity Tier 1 capital of 15.94%.
Material Changes Versus the Prior Comparable Period
- Net income increased substantially, but the comparison was materially affected by the $34.8 million one-time charitable contribution recorded in 2018. Excluding that contribution, 2019 non-interest expense increased 16.3%.
- Net interest income increased, but the net interest margin declined from 2.74% to 2.58% as funding costs rose. The average cost of interest-bearing liabilities increased to 1.71% from 1.32%.
- Non-interest income benefited from higher loan fees and service charges, including $4.1 million of income from swap transactions, and $2.5 million of additional securities gains.
- Non-interest expense included $2.8 million of merger-related costs and $3.7 million of stock-based compensation expense related to the 2019 Equity Incentive Plan.
- The Company repurchased approximately 3.54 million shares for $55.3 million during 2019. It declared no common-stock dividends and did not anticipate paying dividends in the near term.
Guidance, Outlook, Risks and Unusual Items
- Management intends to continue growing loans and deposits, expand commercial banking relationships, increase fee-based activities, invest in technology and pursue branch expansion and acquisitions.
- Management expects to continue shifting the loan mix toward commercial lending while maintaining residential mortgage originations. It also expects interest rates to remain generally stable in the near term, but noted continued competitive pressure and margin compression.
- The Company’s largest exposures are concentrated in multifamily and commercial real estate, construction lending and New Jersey-area residential real estate. Commercial real estate exposure represented 319% of Bank risk-based capital and had increased approximately 64% over three years, potentially subjecting the Bank to heightened regulatory scrutiny.
- Liquidity risks include reliance on deposits and wholesale funding, $1.3 billion of certificates of deposit maturing within one year, $1.4 billion of FHLB advances and $910.0 million of unused credit lines.
- At December 31, 2019, the Company had $270.9 million of loan commitments, $910.0 million of unused lines of credit and $8.4 million of standby letters of credit.
- Management expected adoption of CECL on January 1, 2020 to increase the allowance for loan losses and reserves for unfunded commitments by no more than 10%. The actual adoption impact was not provided in this filing.
- The Company identified LIBOR discontinuation, cybersecurity and third-party technology providers, regulatory changes, local real estate conditions, acquisition integration and interest-rate movements as significant risks.
- KPMG issued an unqualified audit opinion and an unqualified opinion on internal control over financial reporting. Critical audit matters included the allowance for loan losses and fair value measurement of acquired Stewardship loans.
Important Facts for Investors to Verify
- Whether the Roselle Bank acquisition closed as anticipated in the second quarter of 2020, and the final consideration, share issuance and integration results.
- The actual CECL adoption adjustment, subsequent allowance levels and whether credit deterioration continued in commercial business and commercial real estate portfolios.
- Deposit retention and repricing, especially for the $1.3 billion of certificates of deposit maturing within one year and the $526.0 million of municipal deposits.
- Trends in net interest margin, funding costs and the effect of additional FHLB borrowing on earnings.
- Performance of the highly concentrated multifamily, commercial real estate and construction portfolios, including criticized loans and collateral values.
- Realization of the $10.3 million net deferred tax asset and the $7.4 million valuation allowance.
- Share repurchase activity, potential dilution from 3.78 million outstanding options and 1.42 million restricted shares, and any change to the no-dividend policy.