Columbia Financial, Inc. — 2022 Q2 Form 10-Q Summary
Business context and reporting period
Columbia Financial, Inc. is a bank holding company for Columbia Bank and Freehold Bank, operating primarily in New Jersey. This unaudited Form 10-Q covers the three and six months ended June 30, 2022, with comparisons to the same periods in 2021 and financial-condition comparisons to December 31, 2021.
The company completed its acquisition of RSI Bank on May 1, 2022, issuing 6.1 million shares to Columbia Bank, MHC. The acquisition added approximately $595.1 million of assets and $520.4 million of liabilities at estimated fair value and resulted in $28.0 million of goodwill and $10.3 million of core deposit intangibles.
Key financial metrics
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Six months ended June 30, 2022 | Six months ended June 30, 2021 |
|---|---|---|---|---|
| Net interest income | $66.5 million | $58.1 million | $129.2 million | $114.8 million |
| Net interest margin | 3.01% | 2.77% | 3.00% | 2.79% |
| Provision for credit losses | $1.5 million | $(1.8) million reversal | $3.0 million | $(3.0) million reversal |
| Non-interest income | $7.7 million | $14.4 million | $14.7 million | $23.0 million |
| Non-interest expense | $41.7 million | $37.6 million | $82.5 million | $75.3 million |
| Net income | $23.0 million | $26.7 million | $43.4 million | $47.7 million |
| Diluted EPS | $0.22 | $0.26 | $0.41 | $0.45 |
- Total assets were $9.75 billion at June 30, 2022, up 5.7% from December 31, 2021.
- Loans receivable, net, were $6.93 billion, up 10.1%; gross loans were $6.93 billion and were concentrated in one-to-four-family, multifamily and commercial real estate lending.
- Deposits were $8.03 billion, up 6.1%, while borrowings were $420.0 million, up 11.3% from year-end.
- Cash and cash equivalents were $109.2 million, compared with $71.0 million at December 31, 2021.
- Stockholders’ equity was $1.07 billion. Accumulated other comprehensive loss was $155.8 million, primarily reflecting unrealized losses on available-for-sale securities and employee benefit plans.
- Net cash provided by operating activities was $74.8 million for the six months. Investing activities provided $11.8 million, substantially aided by $140.8 million of cash acquired in the RSI transaction. Financing activities used $48.4 million, including $53.2 million for treasury-stock repurchases.
- The allowance for credit losses on loans was $50.6 million, or 0.73% of gross loans, compared with $62.7 million, or 0.99%, at December 31, 2021. The allowance for unfunded commitments was $8.4 million.
- Non-performing loans were $4.5 million, or 0.07% of gross loans, versus $3.9 million, or 0.06%, at year-end. There were no loans 90 days or more past due and still accruing interest.
Material changes versus the prior comparable period
- Second-quarter net income declined 14.0%, and first-half net income declined 9.2%, despite higher net interest income.
- Net interest income increased 14.5% in the quarter and 12.6% year to date, supported by loan growth, lower deposit funding costs and rising asset yields. The company reported that deposit repricing lagged increases in market rates.
- Non-interest income declined 46.7% in the quarter and 36.0% year to date. The prior-year periods included substantial gains from sales of SBA Paycheck Protection Program loans, including a $7.7 million second-quarter 2021 gain.
- Non-interest expense increased 10.9% in the quarter and 9.5% year to date, primarily because of higher personnel costs and merger-related expenses associated with the RSI acquisition.
- The company adopted CECL on January 1, 2022. The adoption increased retained earnings by $6.2 million net of tax, reduced the loan allowance by $16.8 million, established a $7.7 million allowance for unfunded commitments and established a $490,000 allowance for available-for-sale securities.
- Available-for-sale securities declined to $1.49 billion from $1.70 billion at year-end. Gross unrealized losses increased substantially as interest rates rose, contributing to a $109.9 million net decline in accumulated other comprehensive income during the first half.
- The company repurchased 1.52 million shares during the quarter for approximately $31.5 million and 2.55 million shares during the first half for approximately $53.2 million.
Guidance, outlook, management commentary, risks and unusual items
The filing does not provide formal earnings or financial guidance. Management stated that interest-rate risk results remained within policy guidelines. Based on its June 30, 2022 modeling, a parallel 200-basis-point rate increase would reduce projected 12-month net interest income by approximately 1.78% and net portfolio value by approximately 13.82%; a 100-basis-point decrease would reduce projected net interest income by approximately 3.36% and increase net portfolio value by approximately 2.48%.
- Key risks include economic deterioration, declining real estate values, higher unemployment, higher interest rates without corresponding economic improvement, credit losses, deposit repricing and funding costs.
- Additional risks include integration of acquired banks, regulatory and capital requirements, inflation, changes in fiscal or monetary policy, market volatility, liquidity availability and the continuing effects of COVID-19.
- Management identified the allowance for credit losses, deferred tax asset valuation and retirement and post-retirement benefit obligations as critical accounting estimates.
- The company reported $125.2 million of gross unrealized losses on available-for-sale securities at June 30, 2022. Management stated that the securities were investment grade and viewed the losses as temporary; no allowance for credit losses remained on those securities at quarter-end.
- Management made no pension contribution during the first half, but Columbia Bank contributed $10.0 million to the pension plan in August 2022.
- Legal proceedings are described as arising in the ordinary course and are not expected to have a material adverse effect. The filing states that risk factors were not materially changed from the 2021 Form 10-K.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting.
Most important facts for investors to verify
- Whether loan growth from the RSI acquisition and other production is maintained without a material deterioration in credit quality.
- Whether the CECL allowance of $50.6 million adequately reflects rising rates, economic conditions and the company’s sizable commercial real estate exposure.
- The effect of higher deposit costs and further Federal Reserve rate increases on net interest margin and earnings.
- The duration, unrealized-loss profile and liquidity implications of the securities portfolio, particularly the $125.2 million of available-for-sale unrealized losses.
- Integration execution, expense levels and expected synergies following the RSI and earlier Freehold acquisitions.
- The sustainability of earnings excluding the nonrecurring 2021 PPP loan-sale gains and including merger-related and acquisition-driven operating costs.
- Progress under the stock-repurchase program and the effect of repurchases and acquisition-related share issuance on per-share results and capital.