Columbia Financial, Inc. — 1Q21 Form 10-Q Summary
Business context and reporting period
Columbia Financial, Inc., through Columbia Bank, operates as a New Jersey-based banking organization focused on deposits, residential and commercial real estate lending, commercial business lending, consumer lending, securities and related financial services. This unaudited filing covers the three months ended March 31, 2021, with comparisons to March 31, 2020 and December 31, 2020.
Key financial metrics
| Metric | 1Q21 / Mar. 31, 2021 | Comparable / Prior period |
|---|---|---|
| Net income | $21.0 million | $6.8 million in 1Q20 |
| Basic and diluted EPS | $0.20 | $0.06 in 1Q20 |
| Net interest income | $56.7 million | $50.7 million in 1Q20 |
| Net interest margin | 2.80% | 2.65% in 1Q20; 2.69% excluding PPP fee acceleration |
| Non-interest income | $8.6 million | $6.4 million in 1Q20 |
| Non-interest expense | $37.7 million | $38.5 million in 1Q20 |
| Total assets | $9.04 billion | $8.80 billion at Dec. 31, 2020 |
| Loans receivable, net | $6.15 billion | $6.11 billion at Dec. 31, 2020 |
| Deposits | $7.00 billion | $6.78 billion at Dec. 31, 2020 |
| Borrowings | $722.6 million | $799.4 million at Dec. 31, 2020 |
| Allowance for loan losses | $71.9 million, or 1.16% of loans | $74.7 million, or 1.21%, at Dec. 31, 2020 |
| Cash and cash equivalents | $359.7 million | $423.0 million at Dec. 31, 2020 |
| Stockholders’ equity | $999.6 million | $1.01 billion at Dec. 31, 2020 |
Material changes versus prior comparable period
- Net income increased 211.1%, primarily because net interest income rose $6.0 million, the provision for loan losses declined by $10.8 million to a $1.3 million reversal, non-interest income increased $2.2 million, and non-interest expense declined $805,000.
- Interest expense fell 54.6% to $10.9 million as deposit and borrowing costs declined. The average cost of interest-bearing liabilities decreased to 0.71% from 1.58%.
- Interest income declined $7.1 million because of lower asset yields, but PPP loan forgiveness accelerated $2.1 million of deferred fees into interest income.
- Assets increased $241.4 million, or 2.7%, driven by increases of $157.3 million in available-for-sale securities, $128.5 million in held-to-maturity securities and $45.9 million in net loans.
- Deposits increased $217.7 million, while borrowings declined $76.7 million. The Company prepaid $56.5 million of Federal Home Loan Bank borrowings and recorded a $742,000 loss on extinguishment of debt.
- The Company repurchased 1,998,539 shares for approximately $32.8 million, reducing stockholders’ equity and shares outstanding.
- Non-performing loans declined to $6.2 million, or 0.10% of gross loans, from $8.2 million, or 0.13%, at year-end 2020. Net charge-offs increased to $1.5 million from $77,000 in 1Q20.
Cash flow, liquidity and capital
- Operating activities provided $172.3 million of cash, compared with $8.5 million used in 1Q20. Investing activities used $343.5 million, principally for $351.5 million of debt-security purchases and a $117.2 million net increase in loans. Financing activities provided $107.9 million, primarily from $217.7 million of deposit growth.
- Cash and cash equivalents declined $63.2 million during the quarter to $359.7 million. Management states that liquidity was sufficient and that funding sources include deposits, loan repayments, securities maturities and sales, and borrowing capacity.
- At March 31, 2021, the Company reported total capital of 18.27%, Tier 1 capital of 17.02%, common equity Tier 1 capital of 16.90%, and Tier 1 leverage capital of 11.37%. The Bank reported corresponding ratios of 16.34%, 15.10%, 15.10% and 10.08%. Both exceeded applicable minimums and well-capitalized requirements.
Guidance, outlook, risks and unusual items
- No formal earnings or revenue guidance is provided. Management states that quarterly results are not necessarily indicative of full-year results.
- The Company expects to adopt the CECL credit-loss model on January 1, 2022. Based on its March 31 analysis, management currently expects CECL adoption to reduce the allowance for loan losses and reserves for unfunded commitments by approximately 15% to 25%; actual effects may differ.
- COVID-19 remains a principal risk. At March 31, $78.95 million of loans had modifications that had not begun full repayment, equal to 1.27% of total loans, down from $85.14 million, or 1.38%, at December 31, 2020. The filing identifies economic conditions, borrower repayment capacity, real estate values, unemployment, vacancies and interest-rate changes as key credit risks.
- PPP loans included $446.2 million of commercial business loans at March 31. Forgiveness of $109.1 million of PPP loans generated the $2.1 million deferred-fee acceleration in interest income.
- Other unusual items included the $742,000 debt-extinguishment loss, a $1.7 million gain from a Freddie Mac loan securitization/guarantor-swap transaction, and a $2.9 million after-tax decline in accumulated other comprehensive income, primarily from unrealized securities losses partly offset by derivative and benefit-plan gains.
- Interest-rate sensitivity modeling indicated that a parallel 200-basis-point increase could increase one-year net interest income by approximately 1.61%, while a 100-basis-point decrease could reduce it by approximately 6.01%. Management reported that modeled exposures remained within policy limits.
- Management reported effective disclosure controls, no material change in internal control over financial reporting, no material litigation expected from ordinary-course matters, and no material change in previously disclosed risk factors.
Important facts for investors to verify
- Whether the reversal of loan-loss provision and favorable credit trends persist, particularly after CECL adoption.
- The performance and eventual repayment or forgiveness of the $446.2 million PPP loan balance and the remaining COVID-19-modified loans.
- The sustainability of the 2.80% net interest margin after the one-time or timing-related PPP fee acceleration.
- Exposure to interest-rate movements, securities valuation changes and unrealized losses in the expanded securities portfolio.
- The effect of continued share repurchases, debt prepayments and deposit growth on liquidity, capital ratios and per-share results.
- Future credit losses in the Company’s multifamily, commercial real estate, construction and commercial business portfolios.