Columbia Financial, Inc. — Q3 2020 Form 10-Q Summary
Business context and reporting period
Columbia Financial, Inc., the majority-owned holding company of Columbia Bank, reported unaudited results for the three and nine months ended September 30, 2020. The company operates primarily as a New Jersey community bank. Results include the April 1, 2020 acquisition of Roselle Bank and the continuing integration of the November 2019 Stewardship acquisition. The COVID-19 pandemic materially affected operating conditions, loan modifications, credit-loss estimates, and fee income.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Net interest income | $56.3 million | $41.7 million | $162.9 million | $124.9 million |
| Provision for loan losses | $2.5 million | $1.2 million | $17.8 million | $1.7 million |
| Non-interest income | $7.9 million | $10.1 million | $21.3 million | $22.9 million |
| Non-interest expense | $41.4 million | $31.1 million | $117.3 million | $92.5 million |
| Net income | $15.1 million | $14.2 million | $36.9 million | $41.2 million |
| Basic and diluted EPS | $0.14 | $0.13 | $0.34 | $0.37 |
| Net interest margin | 2.70% | 2.52% | 2.70% | 2.58% |
- Total assets were $8.9 billion at September 30, 2020, up 8.3% from December 31, 2019.
- Loans receivable, net, were $6.4 billion, up 4.2%; commercial business loans included $474.9 million of SBA Paycheck Protection Program loans.
- Deposits were $6.6 billion, up 17.4%, while borrowings declined 27.8% to $1.0 billion.
- Cash and cash equivalents increased to $265.9 million from $75.5 million at year-end 2019.
- The allowance for loan losses rose to $76.1 million, or 1.18% of total loans, from $61.7 million, or 1.00%.
- Stockholders’ equity was $1.0 billion, compared with $982.5 million at December 31, 2019.
- Net cash provided by operating activities was $8.1 million for the first nine months, compared with $29.8 million in the prior-year period. Net cash provided by investing activities was $23.7 million, and financing activities provided $158.5 million.
Material changes versus the prior comparable period
- Third-quarter net income increased 6.1%, driven by a $14.6 million increase in net interest income, partly offset by lower non-interest income, higher credit-loss provision, and higher operating expenses.
- Nine-month net income declined 10.2%, primarily because the loan-loss provision increased $16.1 million and non-interest expense increased $24.9 million.
- Net interest income benefited from larger loan and securities balances, acquisitions, lower deposit costs, and lower borrowing costs. Asset yields declined in the lower-rate environment, but funding costs declined faster, raising the net interest margin.
- Non-interest income declined because of lower loan fees and service charges and lower securities gains. Gains on loan sales increased to $3.4 million for the nine months from $710,000.
- Non-interest expense increased due to higher compensation, acquired branch operations, equity incentive-plan expense, interest-rate-swap-related costs, and a $3.0 million voluntary early-retirement program charge in the third quarter.
- The Roselle acquisition added $422.1 million of assets and $377.3 million of liabilities, generated $23.8 million of goodwill, and involved the issuance of 4.76 million shares to Columbia Bank, MHC.
- The company repurchased 4.08 million shares for approximately $60.3 million during the first nine months and began a new authorization to repurchase up to 5.0 million additional shares.
Guidance, outlook, risks, contingencies, and unusual items
- No formal earnings or financial guidance was provided. Management stated that future results remain subject to significant uncertainty from COVID-19, economic conditions, interest rates, competition, regulation, acquisitions, credit performance, and liquidity costs.
- Through September 30, the company granted approximately $1.0 billion of COVID-19-related loan modification requests, including $802.5 million of commercial loans and $197.4 million of consumer-related loans. Loans not yet remitting full payments declined to $156.1 million at September 30 and $113.3 million at October 21.
- Non-accrual loans increased to $10.9 million, or 0.17% of gross loans, from $6.7 million at year-end. Nine-month net charge-offs were $3.4 million, including a $2.8 million charge-off of one commercial business loan.
- Management expects adoption of the CECL credit-loss methodology no later than December 31, 2020 and estimated a 5% to 10% increase in the allowance for loan losses and unfunded-commitment reserves. The eventual impact remains dependent on portfolio composition and economic forecasts.
- The company recognized a $32.7 million after-tax third-quarter loss in other comprehensive income from the change in funded status of retirement obligations. Accumulated other comprehensive loss was $87.9 million at September 30.
- Four Stewardship branches were closed during the first nine months, producing a $770,000 loss; total branch-consolidation losses related to the Stewardship merger were approximately $1.3 million.
- Interest-rate sensitivity modeling indicated that a 200-basis-point rate increase would raise one-year net interest income by approximately 3.74%, while a 100-basis-point decline would reduce it by approximately 4.35%. Management reported that modeled risk remained within policy limits.
- The company and bank exceeded applicable regulatory capital requirements. At September 30, the bank’s total risk-based capital ratio was 16.24%, common equity tier 1 ratio was 14.99%, and tier 1 leverage ratio was 10.00%.
- Management reported no material changes to previously disclosed risk factors, no material legal proceedings, and no material subsequent events through November 9, 2020.
Important facts for investors to verify
- Progression of COVID-19 loan deferrals, borrower payment performance, non-accrual loans, charge-offs, and required credit-loss reserves after CECL adoption.
- Whether PPP loan fees and forgiveness activity materially affect future interest income, fee income, and loan balances.
- Post-acquisition integration costs, branch consolidation benefits, goodwill valuation, and any additional adjustments related to Roselle or Stewardship.
- Sustainability of the 2.70% net interest margin as loan and securities yields continue to reprice in a low-rate environment.
- Impact of continued share repurchases on capital, tangible book value, and per-share results.
- Future pension and other post-retirement obligations, including the effect of market performance and plan funding decisions.