Columbia Financial, Inc. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. The filing is an annual Form 10-K rather than a standalone fourth-quarter report; quarterly results are not separately provided in the supplied text.
Business Context
Columbia Financial is the holding company for Columbia Bank and Freehold Bank, community-oriented federally chartered savings banks operating primarily in New Jersey. The company offers commercial real estate, multifamily, residential mortgage, construction, commercial business and consumer lending, together with title insurance, insurance agency and wealth-management services. At year-end, Columbia Bank operated 65 full-service offices and Freehold Bank operated two offices.
The company completed its acquisition of RSI Bank on May 1, 2022, issuing 6.1 million shares to Columbia Bank, MHC. RSI contributed approximately $595.1 million of assets and $502.7 million of deposits at acquisition. Management expects Freehold Bank to merge into Columbia Bank in November 2023.
Financial Performance and Key Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net income | $86.2 million | $92.0 million | Down 6.4% |
| Basic/diluted EPS | $0.82/$0.81 | $0.88/$0.88 | Down |
| Net interest income | $266.8 million | $233.1 million | Up 14.4% |
| Provision for credit losses | $5.5 million | $(10.0) million reversal | Expense increased $15.4 million |
| Non-interest income | $30.4 million | $38.8 million | Down 21.7% |
| Non-interest expense | $174.8 million | $155.7 million | Up 12.3% |
| Return on average assets | 0.88% | 1.01% | Down |
| Return on average equity | 8.09% | 8.98% | Down |
| Net interest margin | 2.98% | 2.76% | Up 22 basis points |
Interest income benefited from higher average earning-asset balances and rising rates. Total interest income increased 14.6% to $309.7 million, while interest expense increased 15.9% to $42.9 million. The Federal Reserve raised rates six times during 2022, and management noted that deposit repricing lagged asset repricing initially.
Non-interest income declined primarily because gains on loan sales fell to $178,000 from $10.8 million, including the absence of the prior-year $7.7 million gain on SBA PPP loan sales. Title insurance fees also declined by $2.7 million. Expense growth reflected higher compensation and benefits, occupancy costs and RSI-related merger expenses.
Balance Sheet, Capital and Liquidity
| Metric at December 31 | 2022 | 2021 | Change |
|---|---|---|---|
| Total assets | $10.4 billion | $9.2 billion | Up 12.8% |
| Gross loans | $7.6 billion | $6.3 billion | Up 20.5% |
| Net loans | $7.6 billion | $6.3 billion | Up $1.3 billion |
| Total deposits | $8.0 billion | $7.6 billion | Up 5.7% |
| Borrowings | $1.13 billion | $377.3 million | Up 198.7% |
| Stockholders’ equity | $1.05 billion | $1.08 billion | Down 2.4% |
| Cash and cash equivalents | $179.2 million | $71.0 million | Up $108.3 million |
Loan growth was concentrated in one-to-four-family residential loans, multifamily loans, commercial real estate loans and construction loans. Commercial real estate and multifamily loans totaled $3.7 billion, or 48.0% of the loan portfolio; one-to-four-family loans totaled $2.9 billion, or 37.5%.
Core deposits totaled approximately $6.0 billion. Municipal deposits were $850.1 million, or 10.6% of total deposits, and uninsured deposits totaled $417.1 million. Certificates of deposit totaling $1.2 billion, or 60.4% of total certificates, matured within one year.
Liquidity sources included $179.2 million of cash and cash equivalents, $1.3 billion of available-for-sale securities, $1.1 billion of FHLB advances, unused correspondent lines and additional secured borrowing capacity. The parent company separately reported $59.9 million of liquid assets. Loan commitments were $254.4 million, unused lines of credit were approximately $1.2 billion and letters of credit were $20.4 million.
Regulatory capital remained strong. At year-end, the consolidated company reported total risk-based capital of 15.39%, common equity Tier 1 capital of 14.49% and a Tier 1 leverage ratio of 10.68%. Columbia Bank and Freehold Bank both exceeded all requirements and were categorized as well capitalized.
Cash Flow and Other Financial Effects
| Cash flow item | 2022 | 2021 |
|---|---|---|
| Operating cash flow | $142.2 million | $98.7 million |
| Investing cash flow | $(614.7) million | $(443.6) million |
| Financing cash flow | $580.8 million | $(7.1) million |
| Net change in cash | $108.3 million increase | $352.0 million decrease |
Investing cash flow was primarily affected by a $987.8 million net increase in loans receivable, partly offset by acquisition-related cash acquired and securities cash flows. Financing cash flow benefited from increased borrowings but included $94.0 million of common-stock repurchases.
Material Changes Versus the Prior Comparable Period
- RSI Bank acquisition added scale, deposits, loans, goodwill and merger-related costs, while 6.1 million shares were issued to the MHC.
- Total assets grew beyond $10 billion during the quarter ended September 30, 2022. This triggers additional regulatory requirements and is expected to increase compliance costs.
- Borrowings increased sharply to $1.13 billion, primarily through higher FHLB advances, as loan growth exceeded deposit growth.
- Accumulated other comprehensive loss increased to $179.3 million from $45.9 million, primarily because of unrealized losses on available-for-sale securities caused by higher interest rates.
- The company adopted CECL effective January 1, 2022. The adoption increased retained earnings by $6.2 million net of tax and reduced the loan allowance initially; the year-end allowance was $52.8 million, or 0.69% of gross loans, versus 0.99% in 2021.
- Non-performing loans increased to $6.7 million, or 0.09% of loans, from $3.9 million, or 0.06%, but remained low in absolute terms. Net charge-offs were $45,000, compared with $2.0 million in 2021.
- The company repurchased 4.46 million shares for approximately $94.0 million during 2022 and authorized a new program for up to 3.0 million additional shares.
Guidance, Outlook, Risks and Unusual Items
Management did not provide quantitative earnings or revenue guidance in the supplied filing. Its stated strategy is to continue growing loans and deposits, shift the portfolio gradually toward commercial business lending, expand fee-based activities, invest in technology and pursue branch and acquisition opportunities.
- Credit concentration: Commercial real estate and multifamily loans represented 48.0% of loans. Commercial real estate exposure represented 323.5% of Columbia Bank’s total risk-based capital, potentially subjecting the bank to heightened regulatory scrutiny.
- Construction risk: Construction loans totaled $337.6 million, including $210.5 million of speculative construction loans.
- Interest-rate risk: Management’s model estimated that a 200-basis-point rate increase would reduce one-year net interest income by approximately 1.37% and net portfolio value by 18.46%. A 200-basis-point decrease would reduce net interest income by approximately 4.40% but increase net portfolio value by 9.77%.
- Funding risk: Deposit competition, repricing of certificates of deposit, municipal deposit outflows and reliance on FHLB funding could pressure liquidity and interest margins.
- Regulatory impact: The company expects to become subject to the Durbin Amendment interchange-fee restrictions beginning July 1, 2023. If assets remain above $10 billion for the required period, CFPB supervision could begin in the quarter ending December 31, 2023.
- Market-value effects: Securities had approximately $238.6 million of net unrealized losses at year-end, versus $16.2 million in 2021. Management attributed the losses to interest rates and credit spreads rather than credit deterioration.
- Accounting sensitivity: The allowance for credit losses is a critical estimate. A hypothetical increase in unemployment from approximately 4% to 6% and decrease in GDP from approximately 2% to 1% would have increased the modeled ACL by approximately $14.0 million.
- Other risks: The filing highlights cybersecurity, technology and third-party service-provider risks, local real estate conditions, inflation, regulatory changes, LIBOR transition and the continuing effects of COVID-19.
The independent auditor issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting. The allowance for credit losses on collectively evaluated loans was identified as the critical audit matter. Management reported effective disclosure controls and internal control over financial reporting.
Most Important Facts for Investors to Verify
- Whether loan and deposit growth can continue without materially increasing funding costs, credit losses or commercial real estate concentration risk.
- The composition, maturity and repricing cost of the $1.1 billion FHLB borrowing balance and the $1.2 billion of certificates maturing within one year.
- Whether unrealized securities losses remain primarily interest-rate related and whether they could affect liquidity, capital or securities sales.
- The adequacy and sensitivity of the $52.8 million ACL under CECL, particularly for commercial real estate, construction and commercial business loans.
- The financial and operational effects of crossing $10 billion in assets, including Durbin Amendment costs and potential CFPB supervision.
- The execution and cost of integrating RSI Bank and the planned Freehold Bank merger.
- The sustainability of earnings excluding acquisition-related items, lower loan-sale gains and other unusual non-interest income.
- The company’s ability to fund stock repurchases while maintaining regulatory capital, liquidity and growth objectives.