Columbia Financial, Inc. — Form 10-Q Summary
Business context and reporting period
Columbia Financial, Inc. is the majority-owned holding company of Columbia Bank, a New Jersey-based savings bank. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods, and the balance sheet compared with December 31, 2020.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Net income | $21.0 million | $15.1 million | $68.7 million | $36.9 million |
| Basic and diluted EPS | $0.20 | $0.14 | $0.66 | $0.34 |
| Net interest income | $57.4 million | $56.3 million | $172.2 million | $162.9 million |
| Provision for loan losses | $0.5 million | $2.5 million | $(2.6) million reversal | $17.8 million |
| Non-interest income | $8.9 million | $7.9 million | $31.9 million | $21.3 million |
| Non-interest expense | $37.1 million | $41.4 million | $112.4 million | $117.3 million |
| Net interest margin | 2.67% | 2.70% | 2.75% | 2.70% |
| Effective tax rate | 26.9% | 25.8% | 27.1% | 24.7% |
- Total assets were $9.20 billion, up 4.6% from $8.80 billion at December 31, 2020.
- Deposits were $7.22 billion, up 6.5%; borrowings were $749.6 million, down 6.2%.
- Cash and cash equivalents were $298.5 million, down from $423.0 million.
- Net loans were $6.01 billion, down 1.5%. Multifamily and commercial real estate loans increased $319.5 million, while commercial business loans declined $302.8 million, primarily because of PPP loan sales and forgiveness.
- Debt securities available for sale increased 34.0% to $1.76 billion, and held-to-maturity securities increased 55.3% to $408.1 million.
- Stockholders’ equity was $1.03 billion. The Company repurchased 4.63 million shares for $79.1 million during the first nine months.
- Net cash provided by operating activities was $67.5 million. Investing activities used $509.3 million, mainly for securities purchases, while financing activities provided $317.3 million, primarily from deposit growth.
- Asset quality improved: non-accrual loans declined to $5.3 million, or 0.09% of gross loans, from $8.2 million, or 0.13%, at year-end. The allowance for loan losses was $70.3 million, or 1.16% of loans, versus $74.7 million, or 1.21%.
- At September 30, 2021, 12 loans totaling $28.0 million remained on COVID-19 deferral, down from $85.1 million at December 31, 2020.
- The Company and Bank exceeded applicable regulatory capital requirements. The Bank’s total risk-based capital ratio was 16.36%, and its common equity tier 1 ratio was 15.21%.
Material changes versus prior comparable periods
- Third-quarter net income increased 39.1%, while nine-month net income increased 86.0%. The principal drivers were lower credit-loss expense, lower funding costs, higher non-interest income, and lower operating expenses.
- Interest expense fell 47.6% in the quarter and 51.3% year to date as deposit and borrowing costs declined. The lower-cost funding benefited net interest income, although asset yields also declined.
- Nine-month non-interest income benefited from a $7.7 million gain on the sale of $237.0 million of PPP loans, higher securities gains, and higher title insurance fees. Q3 loan-sale gains were lower than in the prior-year quarter.
- Non-interest expense declined partly because the 2020 periods included voluntary early-retirement costs and higher merger-related and pension expenses.
- The Company prepaid $56.5 million of Federal Home Loan Bank borrowings, recognizing a $742,000 loss on extinguishment of debt.
- Other comprehensive income was $20.8 million for the first nine months, compared with a $19.2 million loss in 2020, primarily reflecting improved pension funded status and gains on derivatives, partially offset by unrealized losses on available-for-sale securities.
Guidance, outlook, risks and unusual items
- The filing does not provide formal earnings or revenue guidance. Management stated that the pending Freehold Bank acquisition was expected to close in the fourth quarter of 2021, subject to regulatory approvals and customary closing conditions. The transaction would involve issuing additional Columbia Financial shares to the MHC.
- The Company expects to adopt the CECL credit-loss methodology on January 1, 2022. Based on analyses as of September 30, management expected a 15% to 25% decrease in the allowance for loan losses and reserves for unfunded commitments, although the ultimate effect may differ.
- Management cited risks from COVID-19, borrower repayment performance, real estate values, unemployment, vacancy rates, interest-rate movements, competition, regulatory changes, liquidity costs, acquisition execution and integration, and financial-market conditions.
- Interest-rate modeling indicated that a 200-basis-point increase could increase one-year net interest income by approximately 0.86%, while a 100-basis-point decrease could reduce it by approximately 6.26%. Estimated net portfolio value would decline 9.79% under an immediate and sustained 200-basis-point increase.
- The Company made a $35.0 million pension plan contribution during the first nine months. Pension revaluation and the contribution contributed to a $75.1 million increase in the pension plan balance within other assets.
- All temporarily impaired debt securities were investment grade, and no other-than-temporary impairment charge was recorded. Legal proceedings were described as ordinary-course matters not expected to have a material adverse effect.
- Management concluded that disclosure controls were effective and that risk factors had not materially changed from the 2020 Form 10-K.
Important facts for investors to verify
- Confirm the timing, approvals, share issuance and integration economics of the Freehold Bank acquisition.
- Assess the actual January 1, 2022 CECL transition adjustment against the preliminary 15% to 25% allowance reduction estimate.
- Separate recurring earnings from PPP loan-sale gains, securities gains, prepayment penalties and other transaction-related income.
- Monitor net interest margin, deposit repricing, securities duration and sensitivity to changing interest rates.
- Review credit migration, COVID-19 deferrals, non-accrual loans, commercial real estate exposure and the adequacy of the allowance.
- Evaluate liquidity after substantial securities purchases, share repurchases and debt prepayments, including the decline in cash balances.
- Track the impact of continued share repurchases and any stock issuance associated with the Freehold transaction on per-share results and capital.