Columbia Financial, Inc. — Form 10-Q Summary
Business context and reporting period
Columbia Financial, Inc., the holding company for Columbia Bank, reported unaudited results for the three months ended March 31, 2020. The company operates primarily as a New Jersey-based community bank, with a loan portfolio concentrated in residential, multifamily and commercial real estate, construction, commercial business and consumer lending.
The results include the November 2019 acquisition of Stewardship Financial Corporation. The April 1, 2020 acquisition of Roselle Bank occurred after quarter-end and is not reflected in the reported March 31 financial statements.
Key financial metrics
| Metric | March 31, 2020 / Q1 2020 | Comparable period or prior date |
|---|---|---|
| Total assets | $8.325 billion | $8.189 billion at December 31, 2019 |
| Loans receivable, net | $6.181 billion | $6.136 billion at December 31, 2019 |
| Total deposits | $5.772 billion | $5.646 billion at December 31, 2019 |
| Borrowings | $1.377 billion | $1.407 billion at December 31, 2019 |
| Stockholders’ equity | $961.1 million | $982.5 million at December 31, 2019 |
| Net interest income | $50.7 million | $42.4 million in Q1 2019 |
| Provision for loan losses | $9.6 million | $0.4 million in Q1 2019 |
| Net income | $6.8 million | $14.9 million in Q1 2019 |
| Basic and diluted EPS | $0.06 | $0.13 in Q1 2019 |
| Net interest margin | 2.65% | 2.70% in Q1 2019 |
| Net cash provided by operating activities | $43.2 million | $25.8 million in Q1 2019 |
| Cash and cash equivalents | $88.3 million | $75.5 million at December 31, 2019 |
Net interest income increased 19.6% year over year, primarily from larger loan, securities and other earning-asset balances, including the Stewardship acquisition. The average loan yield declined to 4.15% from 4.25%, while the average securities yield declined to 2.72% from 2.93%. The lower-rate environment reduced the net interest margin despite lower funding costs.
Allowance for loan losses increased to $71.2 million, or 1.14% of total loans, from $61.7 million, or 1.00%, at year-end 2019. Nonperforming loans increased to $10.7 million, or 0.17% of gross loans, from $6.7 million, or 0.08%.
Material changes versus the prior comparable period
- Net income declined 54.7% to $6.8 million, driven primarily by the $9.1 million increase in the loan-loss provision and an $8.9 million increase in non-interest expense.
- Non-interest expense increased 30.3% to $38.5 million. Compensation and benefits increased by $4.9 million, including equity incentive expense and additional personnel from Stewardship; merger-related expenses were $1.1 million versus none in the prior-year quarter.
- Non-interest income increased modestly to $6.4 million from $6.0 million. Gains on loan sales increased to $0.8 million from $0.1 million, while equity securities generated a $0.6 million fair-value loss versus a $0.2 million gain.
- Loans receivable, net, increased $45.4 million, or 0.7%, during the quarter. Multifamily and commercial real estate, construction and commercial business loans increased, partly offset by lower one-to-four-family and home-equity balances.
- Deposits increased $126.6 million, or 2.2%, primarily from demand deposits and funds drawn on credit lines and deposited in business accounts. Borrowings decreased $30.1 million.
- Stockholders’ equity declined $21.4 million, principally due to $40.4 million of treasury-stock purchases and a $14.4 million after-tax unrealized loss on interest-rate swaps, partly offset by earnings and securities valuation gains.
- The company repurchased approximately 2.56 million shares for $40.4 million, at an average price of $15.78 per share. The repurchase programs were completed on April 23, 2020.
Guidance, outlook, risks and unusual items
- The company provided no formal earnings or financial guidance. Management stated that quarterly results are not necessarily indicative of full-year results.
- COVID-19 materially affected the allowance analysis and operating outlook. Management recorded an additional $9.6 million provision based on deterioration in economic conditions and loan performance, but stated that further adjustments may be required over subsequent quarters.
- As of May 7, 2020, the company had received approximately $840 million of commercial loan modification requests and $155 million of consumer-related requests that were granted or under consideration.
- COVID-19-related exposures included approximately $80 million to restaurants, caterers, hotels and travel, and approximately $700 million to retail stores, shopping centers and other retail businesses. The weighted-average loan-to-value ratio for retail-store and shopping-center mortgages was approximately 59%.
- As of May 7, 2020, the company had originated approximately 2,200 Paycheck Protection Program loans totaling $475.0 million and expected approximately $15.0 million of net fees, subject to amortization and potential sale-related accounting.
- The company deferred adoption of CECL under the CARES Act. It expects adoption to increase the allowance for loan losses and reserves for unfunded commitments by approximately 10% to 20%; adoption is required by the earlier of December 31, 2020 or the end of the COVID-19 national emergency.
- The April 1, 2020 Roselle acquisition added 4,759,048 shares issued to the mutual holding company. Its assets, liabilities, deposits and operating results are excluded from the March 31 financial statements.
- The company remained above applicable regulatory capital requirements. At March 31, 2020, the Bank reported total risk-based capital of 14.38%, common equity tier 1 capital of 13.19% and tier 1 leverage capital of 9.79%; it remained well capitalized under prompt-corrective-action standards.
- Interest-rate sensitivity modeling indicated that one-year net interest income would decline 0.81% under an instantaneous 200-basis-point increase and 0.62% under a 100-basis-point decrease. Estimated net portfolio value would decline 9.74% and 9.56%, respectively.
- Management identified economic conditions, real estate values, unemployment, borrower performance, interest rates, acquisition integration, liquidity, regulatory requirements and market volatility as significant risks. Legal proceedings in the ordinary course were not expected to have a material adverse effect.
Most important facts for investors to verify
- Whether COVID-19 loan modifications convert into higher delinquencies, nonperforming assets, charge-offs and additional provisions.
- The size and timing of the CECL adoption adjustment and its effect on retained earnings and regulatory capital.
- Actual credit performance in retail, hospitality, travel, commercial real estate and construction exposures.
- The financial contribution, purchase accounting effects and integration costs of the Roselle acquisition.
- The sustainability of net interest income and margin under continued low interest rates and changing deposit costs.
- Whether liquidity, collateral-posting requirements and deposit trends remain adequate as pandemic conditions evolve.
- The effect of share repurchases, equity compensation and the Roselle share issuance on future per-share results.