Columbia Financial, Inc. — Form 10-Q Summary
Business context and reporting period
Columbia Financial, Inc. is the majority-owned holding company of Columbia Bank and Freehold Bank, operating primarily through retail and commercial banking, lending, deposit-taking, securities investing, title insurance, insurance agency, and related financial services. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2023, with comparisons to the corresponding 2022 periods and to December 31, 2022 for balance-sheet items.
Financial performance and key metrics
| Metric | Three months ended June 30, 2023 | Six months ended June 30, 2023 |
|---|---|---|
| Total interest income | $96.1 million | $189.0 million |
| Total interest expense | $45.0 million | $77.0 million |
| Net interest income | $51.2 million | $112.0 million |
| Net interest margin | 2.17% | 2.37% |
| Provision for credit losses | $1.1 million | $1.3 million |
| Non-interest income | $(0.5) million | $7.5 million |
| Non-interest expense | $47.6 million | $91.5 million |
| Net income | $1.7 million | $20.4 million |
| Diluted EPS | $0.02 | $0.20 |
- Total assets were $10.1 billion at June 30, 2023, down 3.1% from December 31, 2022.
- Net loans were $7.7 billion, up 1.1%; gross loans increased primarily in multifamily, construction, and commercial business lending.
- Deposits were $7.7 billion, down 3.6%. Certificates of deposit increased to $2.3 billion, while demand and savings balances declined.
- Borrowings were $1.1 billion, broadly stable versus year-end; the mix shifted from short-term to long-term borrowings.
- Stockholders’ equity was $1.0 billion, down 2.9%, principally due to share repurchases, partially offset by net income and improved accumulated other comprehensive loss.
- Allowance for credit losses on loans was $53.5 million, or 0.69% of gross loans. The allowance for unfunded commitments was $6.3 million.
- Non-performing loans increased to $11.1 million, or 0.14% of gross loans, from $6.7 million, or 0.09%, at year-end 2022. Net charge-offs were $0.6 million for the first six months.
- Cash and cash equivalents were $93.5 million at June 30, 2023, compared with $179.2 million at year-end.
- Operating cash flow was $29.9 million for the first six months. Investing activities provided $244.9 million, primarily from securities sales, while financing activities used $360.5 million, primarily from deposit decreases, debt repayment activity, and share repurchases.
- The company reported $1.1 billion of total capital and a 14.06% total capital-to-risk-weighted-assets ratio at the holding-company level. Columbia Bank and Freehold Bank exceeded applicable well-capitalized thresholds.
Material changes versus prior comparable periods
- Second-quarter net income fell 92.8% to $1.7 million from $23.0 million; six-month net income fell 53.0% to $20.4 million from $43.4 million.
- Net interest income declined 23.1% in the quarter and 13.3% year to date. Higher loan and securities yields were more than offset by sharply higher deposit and borrowing costs.
- Net interest margin contracted by 84 basis points in the quarter to 2.17% and by 63 basis points year to date to 2.37%. Average interest-bearing liability costs rose faster than asset yields.
- Non-interest income was negative in the quarter because the company recognized a $9.6 million loss on securities transactions. The six-month securities loss was $10.8 million, compared with a $0.2 million gain in the prior-year period.
- Non-interest expense increased 14.1% in the quarter and 11.0% year to date. Compensation costs increased, including $1.6 million of severance expense related to a workforce reduction; FDIC insurance premiums and technology costs also increased.
- Deposit competition intensified. Total deposits declined from year-end, while the weighted average deposit rate increased to 1.68% at June 30, 2023 from 1.22% at March 31, 2023.
- The company repurchased 3.6 million shares for approximately $69.3 million during the first six months and had 1.764 million shares remaining under its sixth repurchase program at June 30, 2023.
- Accumulated other comprehensive loss improved to $166.2 million from $179.3 million at year-end, primarily due to improved unrealized securities valuations and pension-related changes.
Guidance, outlook, commentary, risks, and unusual items
The filing does not provide formal earnings or revenue guidance. Management emphasized that results are sensitive to interest-rate movements, deposit pricing and retention, competition for funding, loan growth, securities valuations, and broader economic conditions.
- Management stated that liquidity and capital positions remained strong. At June 30, 2023, available liquidity included $93.5 million of cash, approximately $1.3 billion of FHLB borrowing capacity, approximately $1.9 billion of Federal Reserve borrowing capacity, $384.0 million of correspondent lines, and more than $2.1 billion of unpledged loan collateral.
- The company had not used the Federal Reserve Bank Term Funding Program and had no Federal Reserve Discount Window borrowings at quarter-end.
- Interest-rate sensitivity modeling indicated that a 200-basis-point increase would raise projected one-year net interest income by approximately 0.36%, while a 200-basis-point decrease would reduce it by approximately 2.44%. A 200-basis-point increase was projected to reduce net portfolio value by 18.75%.
- Credit risks include rising non-performing loans, potential declines in real estate values, higher vacancy rates, unemployment, weaker economic conditions, and additional interest-rate increases. The loan portfolio is concentrated in real estate, including multifamily and commercial real estate.
- The allowance for credit losses depends on forecasts, probability-of-default and loss-severity assumptions, collateral values, and qualitative adjustments; actual losses may differ materially from estimates.
- The company held significant unrealized losses in debt securities, including approximately $176.4 million in gross unrealized losses on available-for-sale securities and $51.2 million on held-to-maturity securities at June 30, 2023. The filing states that the securities were investment grade and considered temporarily impaired.
- Freehold Bank was expected to merge into Columbia Bank effective November 6, 2023. The filing reported no material subsequent events through August 9, 2023.
- Management concluded that disclosure controls and procedures were effective and that no material changes occurred in internal control over financial reporting during the quarter. Legal proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether elevated funding costs and deposit repricing continue to compress net interest margin and earnings.
- The sustainability of deposit balances, particularly uninsured deposits of approximately $1.9 billion, or 24.1% of total deposits excluding specified collateralized and intercompany deposits.
- Trends in non-performing loans, charge-offs, criticized commercial real estate and commercial business loans, and the adequacy of the $53.5 million loan-loss allowance.
- The realized and unrealized effects of securities portfolio sales, interest-rate changes, and future securities repositioning on earnings, liquidity, and accumulated other comprehensive loss.
- The effect of continued share repurchases on capital, tangible book value, and per-share results.
- Integration and operational consequences of the planned Freehold Bank merger into Columbia Bank.
- Actual future results versus management’s interest-rate sensitivity assumptions, which depend on deposit repricing, loan prepayments, funding spreads, and other modeled factors.