Columbia Financial, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Columbia Financial, Inc. is a bank holding company whose subsidiaries include Columbia Bank and Freehold Bank. The unaudited filing covers the three months ended March 31, 2022, with comparisons to the three months ended March 31, 2021 and the balance sheet as of December 31, 2021. The December 2021 acquisition of Freehold Bank affected staffing, expenses, assets and liabilities. On May 1, 2022, after quarter-end, the Company completed its acquisition of RSI Bank and issued 6,086,314 shares to the mutual holding company.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 or prior period | Change |
|---|---|---|---|
| Net interest income | $62.7 million | $56.7 million | Up 10.5% |
| Provision for credit losses | $1.5 million expense | $1.3 million reversal | $2.7 million unfavorable |
| Non-interest income | $7.0 million | $8.6 million | Down 18.1% |
| Non-interest expense | $40.7 million | $37.7 million | Up 8.1% |
| Income before taxes | $27.6 million | $28.9 million | Down 4.7% |
| Net income | $20.4 million | $21.0 million | Down 3.0% |
| Basic and diluted EPS | $0.20 | $0.20 | No change |
| Net interest margin | 2.98% | 2.80% | Up 18 basis points |
| Cash flow from operating activities | $32.9 million | $172.3 million | Down $139.5 million |
At March 31, 2022, total assets were $9.24 billion, including $6.43 billion of net loans, $1.58 billion of available-for-sale debt securities and $96.0 million of cash and cash equivalents. Deposits were $7.59 billion and borrowings were $432.8 million. Stockholders’ equity was $1.03 billion, down from $1.08 billion at year-end.
- Gross loans increased 1.8% from year-end to $6.48 billion; net loans increased 2.1% to $6.43 billion.
- The allowance for credit losses on loans was $47.2 million, or 0.73% of gross loans, versus $62.7 million, or 0.99%, at December 31, 2021.
- Non-performing loans were $4.6 million, or 0.07% of gross loans, compared with $3.9 million, or 0.06%, at year-end. Net recoveries were $111,000.
- Deposits increased $24.8 million, while borrowings increased $55.4 million, primarily from higher FHLB overnight borrowings.
- The Company repurchased 1,023,519 shares under announced programs for approximately $21.7 million, or $21.19 per share.
- Interest-rate risk modeling indicated that net interest income would decline approximately 1.80% under an immediate and sustained 200-basis-point rate increase and 3.42% under a 100-basis-point decrease. Management stated that exposure remained within policy limits.
Material changes versus comparable periods
- Net interest income benefited from a $4.9 million reduction in interest expense and a $1.1 million increase in interest income. The average cost of interest-bearing deposits declined 34 basis points, while the average loan yield declined 25 basis points to 3.62%.
- Non-interest income declined primarily because gains on loan sales fell $2.0 million and title insurance fees fell $663,000. The fair-value change in equity securities improved by $667,000.
- Non-interest expense increased $3.0 million, including a $2.6 million increase in compensation and benefits and a $496,000 increase in data-processing and software expense. The increases reflected higher staffing and Freehold-related costs, as well as digital banking and fintech software amortization.
- Available-for-sale securities declined $124.4 million. Rising rates produced an $80.2 million decrease in gross unrealized gains and losses, contributing to a $54.4 million after-tax decline in accumulated other comprehensive income.
- CECL was adopted on January 1, 2022. The adoption increased retained earnings by $6.2 million net of tax, reduced the loan allowance by approximately $16.8 million, established a $490,000 securities allowance and increased the allowance for unfunded commitments by $7.7 million.
Guidance, outlook, risks and unusual items
The filing does not provide formal earnings or financial guidance. Management’s outlook is subject to interest-rate movements, inflation, economic conditions, competition and pricing, regulatory changes, liquidity costs, credit performance, COVID-19 effects, acquisition integration and the availability of funding.
- Management identifies economic deterioration, declining real estate values, rising unemployment and higher interest rates without corresponding economic improvement as principal credit risks. CECL estimates depend on forecasts, historical loss data and qualitative judgments and may change materially.
- Three litigation settlements totaling $2.2 million were paid or accrued during the quarter, including $1.3 million of attorney fees related to litigation concerning 2019 equity awards.
- At March 31, two loans totaling $2.6 million remained on COVID-19 deferral; both had returned to full repayment and were current in April 2022.
- Unrealized securities losses were investment-related rather than identified credit losses; all temporarily impaired securities were investment grade. Available-for-sale securities had $80.7 million of gross unrealized losses at quarter-end.
- The Company and both subsidiary banks exceeded applicable regulatory capital requirements. Columbia Bank’s total risk-based capital ratio was 15.56%, and Freehold Bank’s was 23.12% at March 31, 2022.
- Management stated that routine legal proceedings were not expected to materially affect financial condition. The filing states that risk factors had not materially changed from the 2021 Form 10-K.
Important facts for investors to verify
- Assess the sustainability of the improved net interest margin as rates rise and deposit costs reprice.
- Reconcile the CECL adoption effects and monitor future allowance changes, particularly for commercial real estate and commercial business loans.
- Evaluate the duration and credit sensitivity of the securities portfolio, including the $80.7 million of gross unrealized losses.
- Review the financial and operational impact of the May 1, 2022 RSI Bank acquisition, including the 6.1 million shares issued and integration costs.
- Monitor borrowings, deposit mix and liquidity after the $55.4 million increase in borrowings during the quarter.
- Verify the recurring versus non-recurring nature of the $2.2 million of litigation settlements and other unusual expenses.
- Consider the effect of continued share repurchases and acquisition-related share issuance on outstanding shares, capital and EPS.