Columbia Financial, Inc. — Form 10-Q Summary
Business context and reporting period
Columbia Financial, Inc., the majority-owned subsidiary of Columbia Bank, MHC, reported unaudited consolidated results for the three and nine months ended September 30, 2018. The Company operates primarily as a banking institution through Columbia Bank and was an emerging growth company and non-accelerated filer.
Key financial metrics
| Metric | Q3 2018 | Q3 2017 | 9M 2018 | 9M 2017 |
|---|---|---|---|---|
| Net interest income | $40.6 million | $36.0 million | $120.7 million | $106.4 million |
| Provision for loan losses | $1.5 million | $5.7 million | $5.9 million | $6.4 million |
| Non-interest income | $5.3 million | $1.6 million | $15.3 million | $12.3 million |
| Non-interest expense | $26.6 million | $30.2 million | $114.4 million | $80.0 million |
| Net income | $10.8 million | $1.5 million | $7.9 million | $21.1 million |
| Basic and diluted EPS | $0.10 | N/A | $0.07 | N/A |
| Net interest margin | 2.65% | 2.79% | 2.73% | 2.83% |
Total assets increased 13.9% to $6.6 billion at September 30, 2018, including net loans of $4.84 billion, available-for-sale securities of $987.1 million and held-to-maturity securities of $264.2 million. Deposits were $4.37 billion and borrowings were $1.14 billion. Stockholders’ equity increased to $947.0 million, primarily following the public stock offering.
Net cash provided by operating activities was $46.6 million for the first nine months. Investing activities used $826.3 million, largely reflecting loan originations and securities purchases, while financing activities provided $769.0 million through stock issuance, borrowings and deposit growth. Cash and cash equivalents ended the period at $54.8 million.
The allowance for loan losses was $63.4 million, or 1.30% of total loans, compared with 1.31% at December 31, 2017. Non-performing loans declined to $3.9 million, or 0.08% of total loans, from $6.5 million, and non-performing assets declined to $4.2 million from $7.5 million.
Material changes versus comparable periods
- Third-quarter net income increased $9.3 million, primarily from higher net interest income, a lower loan-loss provision and the absence of 2017 losses on securities and loan sales and a foundation contribution.
- Nine-month net income decreased $13.2 million because 2018 included a $34.8 million contribution of common stock to the Columbia Bank Foundation. The contribution was recorded as non-interest expense and was partly offset by a related tax benefit.
- Net interest income increased 12.9% in the quarter and 13.4% year to date, supported by growth in average loans and investment securities. However, the net interest margin declined 14 basis points in the quarter and 10 basis points year to date as funding costs increased.
- Loans increased $442.8 million from year-end 2017, while available-for-sale securities increased $276.5 million. Growth was funded by the minority stock offering, deposits and borrowings.
- The Company redeemed $51.5 million of junior subordinated debt securities in August 2018.
- Accumulated other comprehensive loss increased to $81.8 million, driven principally by unrealized losses on available-for-sale securities and changes in employee benefit plans.
Outlook, risks and unusual items
The filing does not provide specific earnings, revenue or balance-sheet guidance. Management identified interest-rate movements, deposit pricing, liquidity and funding costs, credit performance, real-estate values, economic conditions, competition, regulatory changes, acquisitions and securities-market conditions as material risks.
Interest-rate modeling indicated that an immediate and sustained 200-basis-point increase could reduce estimated economic value of equity by 17.2%, or $178.0 million. Estimated annual net interest income was modeled to increase 0.2% under a 200-basis-point increase and decline 1.7% under a 100-basis-point decrease, subject to significant modeling assumptions.
The New Jersey corporate business tax surtax increased the state tax rate from 9.0% to 11.5%, retroactive to January 1, 2018. The Company recorded approximately $2.2 million of additional tax expense related to the surtax and deferred-tax revaluation.
Management reported no material subsequent events through November 14, 2018, no material change in previously disclosed risk factors, and no material adverse effect expected from ordinary-course legal proceedings. The Company exceeded applicable regulatory capital requirements and reported that the Company and Columbia Bank were well capitalized under applicable standards.
Other notable items include the closure of the pension plan to employees hired on or after October 1, 2018, adoption or evaluation of several forthcoming accounting standards, and continued implementation planning for the expected-credit-loss standard.
Important facts for investors to verify
- Whether loan growth and securities purchases can continue without further pressure on deposit pricing, borrowing costs and the net interest margin.
- The sustainability of quarterly profitability after excluding the unusually large 2018 foundation stock contribution and other non-recurring items.
- Future effects of rising interest rates on funding costs, securities valuations, economic value of equity and net interest income.
- Credit trends in the expanding multifamily, commercial real-estate, construction and commercial-business portfolios, including allowance adequacy.
- The liquidity and refinancing implications of $1.14 billion of borrowings and the concentration of certificates of deposit, including $828.1 million exceeding $100,000.
- The eventual impact of the current and forthcoming accounting standards, particularly expected credit losses, leases and revenue recognition.