Columbia Financial, Inc. 2020 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020; consolidated results include Columbia Financial, Columbia Bank, and subsidiaries. The filing is an annual report, not a standalone Q4 filing, although unaudited quarterly data is provided. Columbia Bank operates 61 branches in New Jersey and provides commercial, residential, consumer, title insurance, and related financial services.
Financial performance and condition
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total assets | $8.80 billion | $8.19 billion | Up 7.4% |
| Net interest income | $221.6 million | $172.4 million | Up 28.5% |
| Provision for loan losses | $18.4 million | $4.2 million | Up 336.7% |
| Non-interest income | $31.3 million | $31.6 million | Down 1.2% |
| Non-interest expense | $158.1 million | $128.7 million | Up 22.9% |
| Net income | $57.6 million | $54.7 million | Up 5.3% |
| Basic and diluted EPS | $0.52 | $0.49 | Up $0.03 |
| Return on average assets | 0.66% | 0.77% | Down 11 basis points |
| Return on average equity | 5.67% | 5.50% | Up 17 basis points |
| Net interest margin | 2.72% | 2.58% | Up 14 basis points |
| Core efficiency ratio | 59.65% | 62.54% | Improved |
Net interest income benefited from higher average loan and securities balances and sharply lower funding costs. Average interest-bearing liability cost declined to 1.17% from 1.71%, while the average loan yield declined to 3.98% from 4.17% because of the low-rate environment. Non-interest income was pressured by waived customer fees and lower securities gains, partly offset by higher loan-sale gains, bank-owned life insurance income, and other fee income.
Balance sheet, liquidity, and capital
- Deposits increased 20.1% to $6.78 billion, including $333.2 million assumed in the Roselle acquisition. Non-interest-bearing demand deposits increased 41.3% to $1.35 billion.
- Borrowings declined 43.2% to $799.4 million, including $792.4 million of FHLB advances. The company prepaid certain borrowings and recorded a $1.2 million loss on extinguishment of debt.
- Cash and cash equivalents increased to $423.0 million from $75.5 million. Available-for-sale securities totaled $1.32 billion, providing additional liquidity.
- Loans receivable, net, declined modestly to $6.11 billion. Gross loans were broadly stable at $6.16 billion, as commercial business and construction growth offset declines in residential, multifamily/commercial real estate, and home equity loans.
- Stockholders’ equity increased 2.9% to $1.01 billion. The company repurchased 7.6 million shares for approximately $108.2 million during 2020.
- The Bank remained well capitalized, with a total risk-based capital ratio of 16.05%, common equity Tier 1 ratio of 14.80%, and Tier 1 leverage ratio of 9.72% at year-end.
Cash flow and off-balance-sheet commitments
- Net cash provided by operating activities was $47.9 million.
- Net cash provided by investing activities was $257.6 million, principally reflecting cash acquired in the Roselle acquisition, securities activity, loan repayments, and FHLB stock redemptions.
- Net cash provided by financing activities was $41.9 million, driven primarily by deposit growth and partly offset by debt repayments and share repurchases.
- At December 31, 2020, loan commitments totaled $282.2 million, unused lines of credit totaled $894.5 million, and standby letters of credit totaled $9.4 million.
Material changes versus the prior comparable period
- Roselle acquisition: Completed April 1, 2020; Columbia issued 4,759,048 shares to the mutual holding company. The transaction added approximately $422.1 million of assets and $333.2 million of deposits and generated $18.7 million of goodwill at year-end after purchase-accounting adjustments.
- COVID-19 credit effects: The provision for loan losses rose to $18.4 million, and the allowance increased to $74.7 million, or 1.21% of gross loans, from $61.7 million, or 1.00%.
- Credit quality: Non-performing assets increased to $8.2 million, or 0.09% of assets, from $6.7 million, or 0.08%. Criticized loans increased to $78.3 million from $53.8 million, with most of the increase in multifamily and commercial real estate exposures.
- Loan mix: Commercial business loans increased 55.8% to $752.9 million, largely because of $344.4 million of SBA Paycheck Protection Program loans. Multifamily and commercial real estate loans declined 3.5% to $2.82 billion, while one-to-four-family loans declined 6.6% to $1.94 billion.
- Operating expenses: Compensation expense increased $16.4 million, including $5.1 million of additional equity compensation expense and $3.0 million related to a voluntary early retirement program. Branch consolidation expenses and interest-rate-swap losses also increased expenses.
- Capital allocation: The company continued share repurchases but has not declared common dividends and does not currently anticipate paying them.
Guidance, outlook, risks, and unusual items
- Management expects the Federal Reserve to keep rates low for the foreseeable future. Strategy emphasizes balance-sheet growth, commercial banking, residential mortgage lending, core deposit growth, fee-based activities, technology investment, selective branch expansion, and potential acquisitions.
- Management reported that interest-rate risk remained within policy limits. Its model estimated that a 200-basis-point rate increase would increase one-year net interest income by approximately 4.6%, while a 100-basis-point decline would reduce it by approximately 6.9%. Modeled net portfolio value would decline 2.39% under a 200-basis-point increase and 9.00% under a 100-basis-point decline.
- Through January 31, 2021, loan modifications covered commercial real estate and construction loans with current balances of $734.7 million and consumer-related loans with current balances of $178.1 million. Loans not yet remitting full payment totaled $67.9 million at January 31, 2021, or 1.10% of total loans.
- Through January 31, 2021, the company originated 2,826 PPP loans totaling $559.5 million; forgiveness had been received for 1,187 loans totaling $184.2 million.
- The company deferred adoption of CECL until January 1, 2022 under pandemic-related legislative relief. Management currently expects adoption to reduce the allowance for loan losses and unfunded-commitment reserves by approximately 10% to 20%, although the ultimate effect may differ.
- Key risks include COVID-19-related borrower stress, concentration in New Jersey commercial real estate and multifamily lending, construction and commercial-credit losses, interest-rate and liquidity risk, deposit repricing and runoff, intense competition, acquisition integration, cybersecurity, regulatory change, LIBOR transition, and potential changes in collateral values.
- Unusual 2020 items included $2.3 million of after-tax early-retirement expense, $1.5 million of after-tax merger-related expense, $879,000 of after-tax debt-extinguishment loss, and $1.1 million of after-tax branch-closure expense. Core net income was $63.0 million versus reported GAAP net income of $57.6 million.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. The critical audit matter was the allowance for loan losses, particularly qualitative adjustments and assumptions used for collectively evaluated loans.
Most important facts for investors to verify
- Whether COVID-19 loan modifications, particularly the $734.7 million commercial exposure, result in higher delinquencies, non-performing assets, charge-offs, or additional provisioning after the reporting date.
- The sustainability of net interest margin gains as low asset yields, deposit repricing, competition, and future interest-rate changes affect funding costs and loan yields.
- Credit concentration and collateral performance in the $2.82 billion multifamily and commercial real estate portfolio and the $328.7 million construction portfolio.
- The realized economics and integration progress of the Roselle acquisition, including goodwill, branch consolidation, expense synergies, and deposit retention.
- The impact of PPP loan forgiveness and associated deferred-fee recognition on future interest income and fee revenue.
- The actual accounting and regulatory-capital effects of CECL adoption in 2022 compared with management’s preliminary expectation of a 10% to 20% reserve reduction.
- Liquidity coverage relative to $1.49 billion of certificates of deposit maturing within one year, $282.2 million of loan commitments, and $894.5 million of unused lines of credit.
- Future share repurchases, dividend policy, and the effect of the mutual holding company’s dividend-waiver limitations on shareholder returns.