Columbia Financial, Inc. — 2024 Q1 Form 10-Q Summary
Business context and reporting period
Columbia Financial, Inc. is the majority-owned holding company of Columbia Bank, with Freehold Bank as a wholly owned subsidiary. This unaudited Form 10-Q covers the three months ended March 31, 2024, with comparative results for the three months ended March 31, 2023 and balance-sheet comparisons with December 31, 2023. The company operates 67 branches and serves retail and commercial deposit customers.
Key financial metrics
| Metric | Q1 2024 | Comparable / prior period |
|---|---|---|
| Total assets | $10.64 billion at March 31, 2024 | $10.65 billion at December 31, 2023 |
| Loans receivable, net | $7.76 billion | $7.82 billion at December 31, 2023 |
| Deposits | $7.83 billion | $7.85 billion at December 31, 2023 |
| Borrowings | $1.53 billion | $1.53 billion at December 31, 2023 |
| Net interest income | $42.2 million | $60.9 million in Q1 2023 |
| Net interest margin | 1.75% | 2.58% in Q1 2023 |
| Provision for credit losses | $5.3 million | $0.2 million in Q1 2023 |
| Non-interest income | $7.5 million | $8.1 million in Q1 2023 |
| Non-interest expense | $45.7 million | $43.9 million in Q1 2023 |
| Pre-tax income | Loss of $1.3 million | Income of $24.9 million in Q1 2023 |
| Net income | Loss of $1.2 million | Net income of $18.7 million in Q1 2023 |
| Basic and diluted EPS | $(0.01) | $0.18 in Q1 2023 |
| Operating cash flow | $14.1 million provided | $3.6 million used in Q1 2023 |
| Cash and cash equivalents | $373.5 million | $423.2 million at December 31, 2023 |
| Stockholders’ equity | $1.04 billion | $1.04 billion at December 31, 2023 |
Material changes versus the prior comparable period
- Net interest income declined 30.7% to $42.2 million. Interest income increased $15.7 million, but interest expense increased $34.4 million, including a $31.3 million increase in deposit interest expense and a $3.1 million increase in borrowing expense.
- The average yield on interest-earning assets rose 57 basis points to 4.50%, while the average cost of interest-bearing liabilities increased 164 basis points to 3.38%, compressing the net interest margin by 83 basis points.
- The company recorded a $5.3 million credit-loss provision versus $175,000 in Q1 2023. Net charge-offs were $5.0 million, compared with $105,000 in the prior-year quarter.
- Non-interest expense increased 4.0%, primarily due to higher FDIC insurance premiums and professional fees, partly offset by lower compensation and employee-benefit costs following workforce-reduction and cost-cutting measures.
- Loans receivable, net, decreased $59.2 million, or 0.8%, from year-end. Commercial real estate loans decreased $58.9 million, partly offset by a $20.2 million increase in multifamily loans and a $5.2 million increase in commercial business loans.
- Debt securities available for sale increased $93.9 million, or 8.6%, following $137.8 million of purchases, primarily U.S. government obligations and mortgage-backed securities.
- The company repurchased 101,516 shares for approximately $1.7 million, or $16.28 per share. The sixth repurchase program had 1,005,325 shares remaining at March 31, 2024.
Credit quality, liquidity, capital and risk considerations
- Non-performing loans increased to $22.9 million, or 0.30% of gross loans, from $12.6 million, or 0.16%, at December 31, 2023. A healthcare-facility borrower accounted for approximately 71% of the increase; management stated that the loan was current, secured by a first lien with a 2023 appraised value of $23.0 million, and subject to an acquisition by an entity providing additional support.
- The allowance for credit losses on loans was $55.4 million, or 0.71% of gross loans, versus $55.1 million, or 0.70%, at year-end. The allowance for off-balance-sheet exposures was $4.7 million.
- Deposits declined $17.2 million, while certificates of deposit increased $81.7 million. Uninsured deposits were $1.89 billion, or 24.1% of total deposits, excluding collateralized municipal deposits and intercompany deposits.
- Management reported approximately $2.7 billion of immediately accessible funding and more than $1.5 billion of additional unpledged loan collateral. The company had no Federal Reserve Discount Window borrowings at March 31, 2024.
- The company and both subsidiary banks exceeded applicable regulatory capital requirements. Columbia Bank reported a 14.24% total risk-based capital ratio and a 13.43% common equity tier 1 ratio; Freehold Bank reported 22.91% and 22.28%, respectively.
- Interest-rate sensitivity modeling indicated that a parallel 200-basis-point increase could reduce projected one-year net interest income by approximately 3.91% and reduce net portfolio value by approximately 18.43%. Management stated that results remained within policy guidelines.
- Material risks identified include deposit competition and funding costs, interest-rate movements, credit losses, real-estate values, economic conditions, regulatory changes, liquidity availability, operational disruptions and cybersecurity events.
Guidance, outlook, management commentary and unusual items
- The filing does not provide formal quantitative earnings or revenue guidance. Management cautions that quarterly results are not necessarily indicative of full-year performance.
- Management attributed the earnings decline primarily to funding-cost pressure, deposit repricing, higher borrowing costs, increased credit-loss provisions and higher FDIC and professional-fee expenses.
- Interest-rate risk remains a central operating issue: asset yields improved, but liability costs rose faster. Deposit pricing and retention are expected to remain important to future margins and liquidity.
- The quarter included a $1.3 million loss on securities transactions, $22,000 of merger-related expenses, $5.0 million of net charge-offs and a one-time FDIC special-assessment component within higher insurance expense.
- Available-for-sale securities carried $166.1 million of gross unrealized losses at March 31, 2024. Management reported that temporarily impaired securities were investment grade except for two corporate securities rated BB+ and concluded that no securities credit-loss allowance activity was required.
- The company adopted ASU 2023-07 on segment reporting retrospectively; the adoption affected disclosures only and did not affect the financial statements.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting. No material legal proceedings or subsequent events requiring disclosure were reported.
Important facts for investors to verify
- Whether deposit repricing and wholesale funding costs stabilize sufficiently to restore net interest margin.
- Whether non-performing loans, particularly the healthcare-related exposure and commercial real estate portfolio, generate additional provisions or charge-offs.
- Whether the $5.0 million of Q1 net charge-offs represents an isolated event or an emerging credit trend.
- The liquidity implications of $1.89 billion of uninsured deposits and the availability and cost of contingent borrowing capacity.
- The potential earnings and capital effects of unrealized securities losses if interest rates remain elevated or securities must be sold.
- The pace of loan growth, deposit mix changes, stock repurchases and any future merger or integration activity involving Freehold Bank.