Columbia Financial, Inc. Stock

Good day, and welcome to the Columbia Financial Merger and Second Step Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Thomas Kemly, President and CEO of Columbia Bank. Please go ahead.

Thank you. This is Thomas Kemly, Columbia Bank. Today, we are excited to announce that Columbia and Northfield have entered into a merger agreement valued at approximately $597 million. Upon completion of the transaction, Northfield Bank will merge into Columbia Bank, with Columbia Bank being the surviving entity. The combination of the two organizations will create the third largest regional bank headquartered in New Jersey with pro forma total assets of approximately $18 billion and over 100 branches, stretching our footprint to 14 counties in New Jersey as well as Brooklyn and Staten Island, where we will have the #1 deposit share for community banks in that market.

In connection with this announcement, we also adopted a plan of conversion to a fully public stockholding company form. This transaction is commonly referred to as a second step conversion. The second step conversion and the merger are expected to be completed early in the third quarter of 2026, subject to the receipt of all regulatory and shareholder approvals and the satisfaction of customary closing conditions. The merger is valued at approximately $597 million or 0.86x Northfield's tangible book value. Based on a preliminary valuation by an independent appraiser with respect to our second step conversion and stock offering, we anticipate approximately 50% of earnings accretion in 2027. The tangible book value dilution of 4.4% and an earn-back on tangible book value is a modest 1.8 years.

The transaction will be in stock or cash consideration, with cash consideration to be paid for up to 30% of outstanding Northfield shares. The merger consideration per Northfield share will be based on the final valuation appraisal of Columbia, as is required by the bank regulators for a second step conversion. On a pro forma basis, at closing, the merger consideration, depending on the final appraised value, will range from $14.25 to $14.65.

Upon completion of the transaction, I will continue to lead the combined organization as President and CEO; and Dennis Gibney, who was recently promoted, will be the first Senior Executive Vice President and Chief Banking Officer. And I'm excited to announce that Steve Klein will be joining our team as Senior Executive Vice President and Chief Operating Officer. The resulting Board will consist of 13 directors, 9 from Columbia and 4 from Northfield, including Steve Klein.

Since going public in 2018, Columbia has successfully leveraged its initial capital to grow the bank to nearly $11 billion, in part through 4 successful mergers and also organic growth. As we approached $10 billion in assets in 2022, the bank built the internal infrastructure and risk management practices to meet regulatory expectations and to support continued growth as a regional community bank. Acquiring Northfield simultaneously with a second step conversion creates a formidable New Jersey/New York metro competitor while leveraging the conversion proceeds to allow the company to achieve a normalized return on equity faster than on a stand-alone basis.

By undertaking the second step conversion, we are eliminating the minority discount embedded in Columbia's stock as a mutual holding company and positioning the bank for future growth in important and vibrant markets. We believe that the merger with Northfield is financially attractive, and we expect it to significantly improve the operating performance, the balance sheet and strategic position of the pro forma company and accelerate the bank's business strategy. Additionally, this combination expands the franchise into new opportunistic markets while adding $1.8 billion in deposits in New Jersey, adding density and expanding our existing New Jersey franchise.

As reflected on Page 8, we see that this is a low risk transaction given Northfield's conservative credit culture and experienced management team. The resulting exposure in commercial real estate will be well under 300% of capital. Our similar conservative credit cultures are evidenced by historically low nonperforming assets and charge-off histories of both banks. We've applied conservative credit and fair value marks supported by a thorough and detailed due diligence process with independent third parties, which Dennis Gibney will walk you through later in our presentation.

Pro forma earnings are projected to be approximately 1.06% return on average assets with pro forma earnings of $200 million, which is 51% accretive to our 2027 earnings per share and resulting in an efficiency ratio of approximately 48%. The resulting balance sheet features a loan-to-deposit ratio of approximately 96%, core deposits of 71%, cash and securities of 28%, and based on the of the independent appraisal for our proposed second step conversion, commercial real estate to total capital will be 211%.

We have long admired Northfield's relationship-driven approach to community banking and are excited to bring together two organizations with shared values, disciplined credit philosophies and a strong commitment to the communities we serve. Both institutions emphasize local decision-making, conservative risk management and long-term client relationships, creating a strong cultural and strategic fit. Northfield has built a high-quality deposit franchise, which we believe makes it an ideal partner for Columbia and creates a strong foundation for sustainable growth.

The combination diversifies Columbia's asset mix and reduces our reliance on long-term fixed rate residential mortgages, improving balance sheet flexibility. The transaction provides a median entry into two densely populated and economically diverse New York markets, Staten Island and Brooklyn, with combined deposit base of approximately $89.5 billion. With more than 1 million households in Brooklyn and approximately 174,000 households in Staten Island, the combined organization will be well positioned to leverage its mature digital banking capabilities, expanded product set and nationally recognized customer service to retain and expand and grow its customer base across these new entered markets.

Northfield's established market presence provides a platform to expand commercial and small business lending with, among other things, enhanced cash management and tenant security capabilities as well as new products and services, including insurance services to a broader customer base. These offerings align with the market's demonstrated growth in small business lending demand and the large professional and service-oriented population across both markets. Northfield has also built a commercially oriented franchise with a strong local reputation, reinforcing Columbia's ability to deepen client relationships, expand target fee-based businesses and drive disciplined relationship focused growth across two strategically important New York markets.

Our pro forma franchise will boast over 100 branches located in Brooklyn, Staten Island and the expansion in New Jersey. And the combined entity will result in Columbia being the fifth largest community bank deposit franchise in New Jersey while maintaining the #1 community-based franchise in Staten Island. We are very excited to combine our teams of like-minded community bankers.

I'd like to take -- turn this over to Steve Klein now to talk a bit about Northfield. Steve?

Thank you, Tom, and thank you to the Columbia and Northfield team members who worked so hard to get us to where we are today. We truly appreciate it. The Northfield Bank Board of Directors and executive team are thrilled that our two institutions are coming together. This combination is not only attractive to the Northfield stockholders in the short term as measured by the $14.25 purchase price, which represents an over 15% premium as compared to NFBK's closing price this past Friday, January 30, 2026, and it's an over 20% premium as compared to the average closing price of NFB stock in January of this year.

Adding to the attractive pricing metrics, Northfield stockholders will also have the opportunity to receive stock consideration in the newly formed holding company at a significant discount to pro forma tangible book value as compared to its peers. In addition, the combined organization will have a CRE concentration ratio that is well under 300%, be highly capitalized as compared to regulatory required minimums at its peer competitors and have significant scale to invest in people, processes and technology to compete in some of the most vibrant and opportunistic markets in the country.

A little bit about Northfield. We currently operate 37 branches in total. We have 17 branches in New Jersey and hold the top 10 ranking as measured by deposits in all New Jersey towns that we operate in, with the exception of Flemington, New Jersey, where we are ranked #11. We operate in Hunterdon and Mercer Counties, where we entered those markets when Hopewell Valley Community Bank combined with us in 2016, and in Middlesex and Union Counties in New Jersey when we completed a combination with Liberty Bank in 2002. We also successfully completed an FDIC-assisted transaction in 2011 that brought us into the community of Westfield, New Jersey.

We've been operating in Staten Island in New York since March 1887 and currently have 12 branches throughout the island. As measured by deposits, we rank sixth out of 92 financial institutions on the island, with only large regional and nationwide financial institutions above us. We entered the Brooklyn market via de novo branching in 2007 and currently have 8 branches in the marketplace and hold a ranking of 17th out of 327 financial institutions. We expanded our presence in 2013 through the acquisition of Flatbush Federal Savings Bank as part of Northfield's second step conversion.

Our New York markets are thriving communities with over 500,000 people in Staten Island and over 2.6 million people in Brooklyn. In both segments, the populations tend to be diverse and affluent, with both counties having average incomes of nearly $150,000. We look forward to joining the Columbia team and growing together.

I will now turn the program to Dennis Gibney.

Thank you, Steve. On Slide 11, we present the pro forma value range for our second step. We retained RP Financial to perform our second step conversion independent appraisal. RP provided the preliminary valuation range for our second step conversion, taking into account the proposed merger with Northfield, and that's presented on Slide 11.

Based on the preliminary appraisal, the value to our existing minority shareholders is quite attractive, with an exchange ratio ranging from 1.8729 and 2.5340, while our new shareholders will be buying in at a discount to our peers on a pro forma price to tangible book basis. We believe the resulting entity will have a solid profitability profile and a strong capital base.

Prior to joining Columbia, I used to advise thrifts doing conversions. One of the goals that converting thrifts always had was to get to a point where earnings normalized relative to the capital base and the company could trade on an earnings basis. The simultaneous merger with Northfield will accelerate Columbia's ability to reach that goal much sooner than the time period for a stand-alone conversion. It should be noted that RP will update its independent appraisal immediately prior to filing our S-1 in late February or early March and again just before we go to market in early May. The final appraisal may vary from the preliminary appraisal, or it may stay the same. And the final appraisal is subject to a non-objection by the Federal Reserve in connection with its review of the second step conversion.

We believe that the stock offering, coupled with the merger, will materially improve operating performance with a pro forma 2027 ROA of 1.06% and an efficiency ratio of 48%. The future use of proceeds from the offering will be used to fund future growth organically, stock repurchases 1 year after conversion, cash dividends and potentially a restructuring of our securities held available for sale. Bank M&A will be deemphasized for the next 18 months as management focuses on integrating Northfield and optimizing performance.

Both Northfield and Columbia have a conservative credit culture, with nonperforming assets and net charge-offs below peer and industry levels. With the combination, loan concentration levels decline, and the liquidity position improves notably. Northfield does have some exposure to New York rent-regulated multifamily loans at $419 million. The portfolio is diverse with an average loan size of $1.7 million and conservatively underwritten with a weighted average LTV of under 50% and a debt service coverage ratio of 1.6% -- 1.6x.

Over the last 10 years, Northfield's aggregate charge-offs from this portfolio are only $414,000. Presently, Northfield only has 1 New York rent-regulated loan on nonaccrual status. This loan has a balance of $2 million, and its accrual status is based on the inability to document the source of repayment, while the loan continues to pay principal and interest as originally agreed.

Over 70 individuals undertook comprehensive due diligence on Northfield over more than a 30-day period. Columbia staff reviewed 624 commercial loan files or slightly more than 50% of the portfolio. We also engaged SRA Consulting to perform an independent credit review and prepare a credit mark. SRA reviewed 583 commercial loan files equal to 52% of the portfolio, as well as all of Columbia's team line sheets. Both Columbia and SRA reviewed 100% of the New York City rent-regulated loans as well as NPLs and classified loans. Columbia engaged with multiple New York City commercial real estate appraisal firms and commissioned market studies on rent-regulated markets in which Northfield lends.

Further, Columbia's collateral risk team prepared an LTV stress test of the rent-regulated multifamily loans. Any loan with a stressed LTV of 90% or greater was appraised by a New York City-based real estate appraiser in January 2026. These appraisals indicated two things: number one, the stress model assumptions were conservative; and then number two, the amount of loans with a collateral shortfall was small. There were only 11 loans with a collateral shortfall totaling $2.7 million.

In summary, the credit mark on Northfield's portfolio is $81 million, which represents 2.1% of loans and over 2x Northfield's current reserves. The aggregate mark on the New York rent-regulated portfolio is 14%, composed of 7% for the credit mark and 7% for the interest rate mark.

In summary, I'd like to highlight that the transaction leverages a portion of the capital from Columbia's second step offering to drive improved financial performance and better position the company for future growth. It bolsters Columbia's position in New Jersey and establishes a robust platform in Brooklyn and Staten Island. It is an attractively priced transaction that balances meaningful EPS accretion with acceptable levels of tangible book value dilution. It is a low-risk transaction combining two sound community banking franchises with shared visions, culture and operating philosophies. It combines two strong management teams and Boards with wealth of industry knowledge and experience.

Thank you. Now I'd like to open up the lines for analyst questions.

[Operator Instructions] And we'll take our first question.

Hi, good morning. This is David Konrad from KBW. Just wanted to talk a little bit about growth as these banks are coming together. There's a lot of capital here. And the diversified nature of the portfolio now, I know you commented about being below the 300% CRE. So I know that's been a little bit of a headwind for Northfield, but maybe from a loan portfolio, what areas you could see that could see a little bit accelerating growth now with the banks coming together?

David, thank you for the question. It's Tom Kemly, I'll -- let me give an answer there. So we've been trying to transition our balance sheet away from the thrift model, where we had an emphasis on residential lending as well as commercial lending, where we think our opportunities to grow is to continue to grow the C&I portfolio at an accelerated pace over other assets. But with the excess capital, we believe there's going to be asset growth in every category.

We'd like to see C&I grow at a higher pace. We're working hard to keep that strategy in place. We had good results in '25. And that would be what you should expect to see in the future, continuing increase of C&I to the total portfolio. But we do think there's room to continue to grow a bit in CRE given the lower levels of CRE to capital right now, and we'll probably grow the residential consumer portfolio at about the pace of the whole company. Dennis, I don't know if you had anything you wanted to share there?

No, I think you covered it well, Tom.

And then maybe the efficiency ratio at 48% is well better than peers or maybe almost too good, I guess. Maybe speak to some of your investment plans with the bank now near $20 billion in assets? And then also, are there any plans for just branch build-out, especially like in Brooklyn with the 8 branches there?

Let me take a crack at that. So the efficiency ratio is really a combination of the aggregate growth. We don't -- the infrastructure has been built many years ago to prepare for being over the $10 billion. So we have a lot of risk infrastructure in place that we feel good about. We still have a tech stack that's going to expand over a pretty good level as we continue to expand our technology. We believe that we'll get some efficiencies as those technologies mature in the companies.

And then we think as the bank continues to grow revenue, that will continue to push our efficiency ratio lower. We still have a lot of maturing assets that are from the years of the 3.5%, 4% asset structure that are coming off the book. So we do have an inherent lift coming from maturing assets going into higher-yielding assets that help support that.

And then maybe my last question -- and I'll jump out -- is the New York regulated multifamily portfolio is pretty well controlled. I mean, it's only 3% of the combined balance sheet. But sitting there with as much capital that you have, is there any prospects in taking and being opportunistic and maybe marketing some of those loans?

So David, let me take that question. We did comprehensive due diligence on them. It's a very high-quality portfolio. Obviously, it's an asset class that's gotten a lot of negative attention recently. Many of these assets are generational assets, and folks don't want to give up generational assets. We may consider selling a portion of them. We have talked with individuals involved in the marketing of those assets, and should we elect to sell any of them, the pricing should be well within the mark that we have on the portfolio.

[Operator Instructions] And it appears there are no additional questions at this time.

Okay. Then I guess I'd like to wrap up by thanking everybody for their interest in the combined company and to thank the Columbia and Northfield teams that have worked so hard to get us to this point and as well as the professionals involved. We're very excited about the future, and we believe that we put together two extremely strong organizations. Thank you.

And this concludes today's call. Thank you for your participation. You may now disconnect.