Columbia Financial, Inc. Form 10-Q Summary
Reporting period: Three months ended December 31, 2017, filed March 23, 2018. The supplied metadata identifies this as 2018 Q1, but the filing reports the quarter ended December 31, 2017. Columbia Financial is a wholly owned subsidiary of Columbia Bank MHC; Columbia Bank is its principal operating subsidiary.
Financial Performance and Condition
| Metric | Three months ended December 31, 2017 | Comparable period or balance |
|---|---|---|
| Total assets | $5.77 billion | $5.43 billion at September 30, 2017 |
| Loans receivable, net | $4.40 billion | $4.31 billion at September 30, 2017 |
| Total deposits | $4.26 billion | $4.12 billion at September 30, 2017 |
| Borrowings | $929.1 million | $733.0 million at September 30, 2017 |
| Net interest income | $36.9 million | $33.4 million in Q1 2017 |
| Provision for loan losses | $3.4 million | No provision in Q1 2017 |
| Net income | $3.7 million | $10.0 million in Q1 2017 |
| Net cash provided by operating activities | $2.3 million | $9.9 million in Q1 2017 |
| Cash and cash equivalents | $65.5 million | $101.0 million at September 30, 2017 |
- Interest and dividend income increased 11.4% to $49.2 million, driven by growth in average loans and investment securities and an eight-basis-point increase in the yield on average earning assets.
- Interest expense increased 14.1% to $12.2 million, reflecting higher average interest-bearing liabilities and a five-basis-point increase in their cost.
- Net interest income increased 10.5% to $36.9 million. The filing does not provide a clear net interest margin percentage.
- Non-interest income declined 15.1% to $4.7 million, primarily because prior-year gains on securities and loan sales did not recur and title insurance fees decreased.
- Non-interest expense increased 6.2% to $25.5 million, led by higher advertising, compensation and professional fees.
- Income before tax was $12.7 million, compared with $14.9 million in the prior-year quarter. The effective tax rate rose to 70.9% from 32.7%, including a $4.7 million charge from remeasurement of deferred tax assets and liabilities following the Tax Cuts and Jobs Act.
- Total comprehensive loss was $15.6 million, primarily reflecting a $16.3 million after-tax loss related to employee benefit plans and a $3.1 million after-tax unrealized loss on available-for-sale securities.
Material Changes Versus the Prior Comparable Period
- Net income decreased $6.3 million, or 63.2%, to $3.7 million. The principal drivers were the $3.4 million loan-loss provision and the $4.7 million tax remeasurement charge.
- The allowance for loan losses increased to $58.2 million, or 1.30% of total loans, from $54.6 million, or 1.26%, at September 30, 2017. Management attributed the provision to qualitative adjustments related to collateral values, a longer loss-emergence period for commercial real estate, and loan growth.
- Total investment securities increased 37.7% to $950.2 million, including substantial purchases of available-for-sale and held-to-maturity securities. Management stated that these purchases were funded principally with short-term borrowings and were intended to support the anticipated use of offering proceeds.
- Loans increased 2.2% to $4.4 billion, including $49.8 million of purchased commercial real estate and multifamily loans and a $37.4 million increase in residential loans.
- Deposits increased 3.4% to $4.3 billion, while borrowings increased 26.7% to $929.1 million, primarily from short-term Federal Home Loan Bank advances.
- Stockholders’ equity decreased 0.8% to $472.1 million because of higher accumulated other comprehensive loss, partially offset by quarterly net income.
- Non-interest income and cash flow from operations were lower than in the prior-year quarter, while investing cash outflows increased to $372.1 million because of securities purchases and loan activity.
Liquidity, Capital, Outlook and Risks
- Cash and cash equivalents declined $35.5 million during the quarter as funds were redeployed principally into investment securities. Funding sources include deposits, loan repayments, securities maturities and sales, and borrowings.
- The Company exceeded applicable regulatory capital requirements and reported well-capitalized ratios at December 31, 2017. Company ratios included total capital to risk-weighted assets of 15.01%, common equity tier 1 capital to risk-weighted assets of 12.55%, and tier 1 capital to adjusted total assets of 10.54%.
- The Company was pursuing a stock issuance plan under which approximately 43% of outstanding shares would be sold, Columbia Bank, MHC would retain approximately 54%, and approximately 3% would be contributed to the Columbia Bank Foundation, subject to required approvals. Deferred offering costs were $1.1 million and would be charged to operations if the offering were not completed.
- No formal earnings or balance-sheet guidance was provided. Management’s forward-looking statements identify risks from economic conditions, competition, interest rates, regulation, acquisitions, credit performance, asset-liability management, financial markets, and liquidity costs.
- Interest-rate simulations estimated that a sustained 200-basis-point increase could reduce economic value of equity by 20.8%, or $164.7 million. Estimated net interest income declined 2.38% under the company’s modeled 200-basis-point increase scenario. These are model estimates and may differ materially from actual results.
- Non-performing assets increased to $7.5 million, or 0.13% of total assets, from $6.8 million. Non-performing loans remained low at $6.5 million, or 0.15% of total loans.
- Management identified the allowance for loan losses, securities valuation and impairment, post-retirement benefit valuation, and deferred tax asset valuation as critical accounting policies. Legal proceedings were described as ordinary-course matters not expected to have a material adverse effect.
- The filing states that no material subsequent events were identified through March 23, 2018, and that risk factors had not materially changed from those in the company’s February 20, 2018 prospectus.
Important Facts for Investors to Verify
- Whether the planned mutual holding company stock offering was completed, its final ownership structure, and the use of proceeds.
- Whether the elevated tax rate and deferred-tax remeasurement charge were largely nonrecurring and how the lower 21% federal tax rate affects future earnings.
- Whether loan growth, commercial real estate exposure, collateral values, delinquencies and the higher allowance ratio lead to additional provisions.
- Whether the securities purchases funded with short-term borrowings create increased interest-rate, liquidity and capital risk.
- Whether accumulated other comprehensive losses, particularly pension and securities-related losses, continue to reduce equity.
- The sustainability of deposit growth and access to Federal Home Loan Bank and other borrowing sources.
- The filing’s statement that it early adopted ASU No. 2018-02 for the period ended December 31, 2017, including the reported $11.7 million reclassification between accumulated other comprehensive loss and retained earnings.