Columbia Financial, Inc. — Form 10-Q Summary
Business context and reporting period
Columbia Financial, Inc., the majority-owned subsidiary of Columbia Bank, MHC, reported unaudited consolidated results for the three and nine months ended September 30, 2023. The Company operates Columbia Bank and Freehold Bank through a 67-branch retail and commercial banking platform.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Net interest income | $48.5 million | $69.2 million | $160.5 million | $198.4 million |
| Net interest margin | 2.06% | 3.01% | 2.27% | 3.00% |
| Net income | $9.1 million | $20.9 million | $29.5 million | $64.3 million |
| Diluted EPS | $0.09 | $0.19 | $0.29 | $0.61 |
| Provision for credit losses | $2.4 million | $1.5 million | $3.6 million | $4.5 million |
| Non-interest income | $8.6 million | $8.2 million | $16.1 million | $22.9 million |
| Non-interest expense | $42.9 million | $47.8 million | $134.4 million | $130.3 million |
At September 30, 2023, total assets were $10.32 billion, loans receivable net of allowance were $7.79 billion, deposits were $7.70 billion, borrowings were $1.36 billion, and stockholders’ equity was $1.01 billion. Cash and cash equivalents were $204.5 million. The allowance for credit losses on loans was $54.1 million, or 0.69% of gross loans.
Cash provided by operating activities was $73.2 million for the first nine months of 2023. Investing activities provided $102.7 million, primarily reflecting securities sales and loan activity, while financing activities used $150.7 million, including a $298.0 million deposit decrease and $78.3 million of share repurchases. Cash and cash equivalents increased $25.3 million from year-end 2022.
Material changes versus prior comparable periods
- Third-quarter net income declined 56.4%, and nine-month net income declined 54.1%, primarily because sharply higher deposit and borrowing costs reduced net interest income.
- Q3 interest expense increased 363.0% to $49.9 million; nine-month interest expense increased 443.3% to $126.9 million. The average cost of interest-bearing liabilities rose 208 basis points in the quarter and 182 basis points year to date.
- Loans receivable, net, increased 2.1% from December 31, 2022, led by growth in multifamily, construction, and commercial business loans.
- Deposits decreased 3.7% from year-end, with declines in demand and savings balances partly offset by growth in money-market accounts and certificates of deposit. Certificates of deposit increased to $2.33 billion, including approximately $1.3 billion with balances of at least $100,000.
- Available-for-sale securities decreased 23.4% to $1.02 billion. The Company sold $277.0 million of securities during the first nine months and recorded a $10.8 million realized loss.
- Stockholders’ equity decreased 4.4%, primarily due to $78.3 million of share repurchases and additional unrealized securities losses recorded in accumulated other comprehensive income.
- Non-interest expense decreased 10.3% in the quarter but increased 3.2% year to date. Q3 benefited from lower compensation, merger-related costs, and other expenses, while year-to-date costs reflected higher compensation, FDIC insurance premiums, and data-processing expense.
Outlook, commentary, risks, and unusual items
- Management provided no specific earnings or financial guidance in the filing. Results for the interim periods are not necessarily indicative of full-year results.
- Management identified continued deposit competition, higher interest rates, funding costs, inflation, economic conditions, credit risk, regulatory changes, cybersecurity and operational disruptions, acquisition integration, and liquidity availability as material risks.
- Non-performing loans increased to $15.2 million, or 0.19% of gross loans, from $6.7 million, or 0.09%, at December 31, 2022. Q3 net charge-offs were $1.7 million, including a partial $2.0 million charge-off on a commercial business loan.
- Loans to borrowers experiencing financial difficulty modified during the first nine months totaled $8.6 million; one commercial business relationship included interest-rate reduction and/or principal forgiveness.
- The Company completed a workforce reduction in June 2023, contributing to lower Q3 compensation expense but resulting in year-to-date severance costs.
- Freehold Bank’s planned merger into Columbia Bank, previously anticipated for the fourth quarter of 2023, was deferred and is now anticipated in 2024.
- Liquidity remained strong. As of October 23, 2023, management reported approximately $2.7 billion of immediate funding access plus more than $1.6 billion of additional unpledged loan collateral. The Company had not used the Federal Reserve Bank Term Funding Program or Discount Window at September 30, 2023.
- All regulatory capital requirements were exceeded. At September 30, 2023, the Company reported total capital and common equity tier 1 ratios of 13.91% and 13.06%, respectively; Columbia Bank and Freehold Bank were also classified above applicable well-capitalized thresholds.
- Interest-rate sensitivity modeling indicated that a 200-basis-point rate increase would reduce projected one-year net interest income by approximately 10.16% and net portfolio value by approximately 20.48%.
- Management stated that legal proceedings in the ordinary course are not expected to have a material adverse effect and that risk factors had not materially changed from the prior Form 10-K.
Investor verification checklist
- Verify whether deposit pricing and mix stabilize and whether net interest margin continues to compress or begins to recover.
- Monitor deposit outflows, uninsured deposits of approximately $1.8 billion, certificate-of-deposit maturities, and reliance on borrowings.
- Assess trends in non-performing loans, commercial business loan losses, charge-offs, modifications, and the adequacy of the $54.1 million loan-loss allowance.
- Review the effect of securities sales, unrealized losses, and the $10.8 million realized securities loss on liquidity, capital, and future net interest income.
- Track execution and timing of the anticipated 2024 Freehold Bank merger and any related integration costs.
- Evaluate the sustainability of earnings after workforce reductions, lower merger expense, and other non-recurring items.
- Confirm future share repurchase activity; 1,245,461 shares remained authorized for repurchase at September 30, 2023.