Columbia Financial, Inc. annual report, FY2023

Columbia Financial, Inc. 2023 Form 10-K Summary

Reporting period: Fiscal year ended December 31, 2023. The filing is an annual Form 10-K rather than a standalone fourth-quarter report. Columbia Financial is the holding company for Columbia Bank and Freehold Bank, serving primarily New Jersey through 67 banking offices, with lending concentrated in multifamily, commercial real estate, residential real estate, construction and commercial business loans.

Financial condition and results

Metric	2023	2022	Change
Total assets	$10.65 billion	$10.41 billion	+2.3%
Gross loans	$7.82 billion	$7.62 billion	+2.6%
Deposits	$7.85 billion	$8.00 billion	-1.9%
Borrowings	$1.53 billion	$1.13 billion	+35.6%
Stockholders’ equity	$1.04 billion	$1.05 billion	-1.3%
Net income	$36.1 million	$86.2 million	-58.1%
Basic / diluted EPS	$0.35 / $0.35	$0.82 / $0.81	Lower
Return on average assets	0.35%	0.88%	Lower
Return on average equity	3.29%	8.09%	Lower

• Net interest income: $205.9 million, down 22.8%. Interest income increased 27.5% to $395.0 million, but interest expense increased 340.9% to $189.1 million as deposits and borrowings repriced upward.
• Net interest margin: 2.16%, compared with 2.98% in 2022. The interest-rate spread narrowed to 1.62% from 2.82%.
• Provision for credit losses: $4.8 million, compared with $5.5 million. Net charge-offs increased to $2.5 million from $45,000.
• Non-interest income: $27.4 million, down 9.9%, primarily because the Company recorded a $10.8 million loss on securities transactions. Bank-owned life insurance income increased to $10.1 million.
• Non-interest expense: $182.4 million, up 4.3%. Key increases included compensation, FDIC insurance premiums and a $300,000 loss on extinguishment of debt.
• Cash flow: Operating activities provided $40.7 million; investing activities provided $39.6 million; financing activities provided $163.7 million. Cash and cash equivalents increased $244.0 million to $423.2 million.
• Liquidity: Management reported approximately $3.4 billion of available liquidity, including $423.2 million of cash and cash equivalents. The Company had additional borrowing capacity through the FHLB and Federal Reserve, subject to collateral and other conditions.
• Capital: The Company, Columbia Bank and Freehold Bank exceeded applicable regulatory capital requirements. Columbia Bank and Freehold Bank were categorized as well capitalized.

Loan portfolio and asset quality

• Multifamily and commercial real estate loans totaled approximately $3.8 billion, or 48.5% of the loan portfolio. This concentration exposes the Company to commercial property cash flows, valuations, refinancing conditions and regulatory scrutiny.
• One-to-four family real estate loans totaled $2.8 billion, or 35.7% of gross loans. Construction loans increased 31.7% to $443.1 million, including $296.2 million of speculative construction loans.
• Commercial business loans increased 7.2% to $533.0 million, while multifamily loans increased 13.7% to $1.41 billion. Residential, commercial real estate and home-equity balances declined.
• The allowance for credit losses increased to $55.1 million, or 0.70% of gross loans, from $52.8 million, or 0.69%.
• Non-performing assets increased to $12.6 million, or 0.12% of assets, from $6.7 million, or 0.06%. The increase was concentrated in commercial business loans, including a $3.7 million loan to a technology company.
• Criticized loans totaled $84.4 million, including $47.6 million classified as substandard. There were no non-accrual multifamily or construction loans at year-end.

Material changes versus 2022

• The principal adverse change was a sharp decline in profitability caused by deposit and wholesale funding costs rising faster than asset yields.
• Deposits shifted materially from lower-cost transaction and savings accounts into money market accounts and certificates of deposit. Core deposits declined by approximately $671.6 million.
• FHLB advances increased to $1.52 billion from $1.09 billion. The Company repaid its $30.0 million unsecured term note and terminated its $30.0 million revolving credit facility during the fourth quarter.
• The Company sold $277.0 million of available-for-sale securities, recognizing a $10.8 million loss. Unrealized losses on the securities portfolio declined to $202.6 million from $238.6 million, primarily because of securities sales, repayments and higher-yielding purchases.
• Stockholders’ equity declined by $13.3 million, principally because the Company repurchased 4.24 million shares for approximately $80.5 million, partially offset by net income and an improvement in accumulated other comprehensive loss.
• The Company became subject to the Durbin Amendment debit-interchange fee restrictions beginning July 1, 2023 because consolidated assets exceeded $10 billion.
• FDIC insurance expense increased to $8.6 million, including a one-time special assessment related to the 2023 bank failures.

Guidance, outlook, risks and unusual items

• Management intends to continue growing loans and deposits, emphasize commercial banking and commercial business relationships, maintain residential mortgage origination, expand fee-based businesses and selectively pursue branches, acquisitions and other financial services opportunities.
• The filing does not provide quantitative earnings, margin, loan-growth or expense guidance for 2024.
• Management expects continued pressure from competition for deposits, elevated funding costs, interest-rate volatility and inflation. A 200-basis-point rate increase was modeled to reduce one-year net interest income by approximately 4.11%; a 200-basis-point decrease was modeled to increase it by approximately 3.12%.
• Key risks include the concentration in multifamily and commercial real estate lending, speculative construction lending, regional exposure to New Jersey and nearby metropolitan markets, liquidity and deposit outflows, unrealized securities losses, cybersecurity and third-party technology risks, regulatory costs associated with exceeding $10 billion in assets, and the ability to execute acquisitions and growth initiatives.
• The FDIC notified the Company in February 2024 that the estimated industry loss underlying the special assessment had increased to $20.4 billion. The Company could not reasonably estimate its additional assessment at the filing date.
• The Company intends eventually to merge Freehold Bank into Columbia Bank, but no merger date has been set. The boards also approved dissolution of certain real-estate subsidiaries in February 2024, subject to New Jersey approval.
• Management and KPMG reported effective disclosure controls and effective internal control over financial reporting. KPMG issued unqualified opinions on the consolidated financial statements and internal controls. The allowance for credit losses on collectively evaluated loans was identified as the critical audit matter.

Important facts for investors to verify

• Whether net interest margin and earnings stabilize as deposit repricing moderates and interest rates change.
• The renewal rate and pricing of the $2.08 billion of certificates of deposit maturing within one year, and the resulting effect on funding costs and liquidity.
• Credit performance in multifamily, commercial real estate, construction and commercial business portfolios, including criticized loans, non-accrual balances and collateral values.
• The potential amount and timing of additional FDIC special assessments and any other regulatory costs associated with the Company’s $10 billion-plus asset threshold.
• The fair value and duration of the securities portfolio, including approximately $202.6 million of gross unrealized losses at year-end.
• Progress toward the stated commercial-lending, branch-expansion, fee-income and acquisition strategies, including integration plans for Freehold Bank.
• The Company’s standalone liquidity, which was only $8.8 million at year-end, and its dependence on dividends from the subsidiary banks and regulatory permission for future capital distributions.
• The Company has not declared common-stock dividends and does not currently anticipate paying them; investors should verify any future dividend or repurchase authorization changes.