umbia Financial(CLBK) - 2020 Q1 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements This section presents Columbia Financial, Inc.'s unaudited consolidated financial statements and notes for the specified periods Consolidated Statements of Financial Condition As of March 31, 2020, total assets increased to $8.33 billion from $8.19 billion at year-end 2019, driven by growth in net loans receivable, while total liabilities also rose to $7.36 billion from $7.21 billion, primarily due to an increase in deposits, and total stockholders' equity decreased slightly to $961.1 million from $982.5 million Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Assets | $8,325,051 | $8,188,694 | | Loans receivable, net | $6,181,305 | $6,135,857 | | Debt securities available for sale | $1,116,417 | $1,098,336 | | Total Liabilities | $7,363,925 | $7,206,177 | | Deposits | $5,772,418 | $5,645,842 | | Borrowings | $1,376,941 | $1,407,022 | | Total Stockholders' Equity | $961,126 | $982,517 | Consolidated Statements of Income For the three months ended March 31, 2020, net income was $6.8 million, a 54.7% decrease from $14.9 million in the prior-year period, primarily driven by a significant increase in the provision for loan losses to $9.6 million, up from $436,000 in Q1 2019, while net interest income grew to $50.7 million from $42.4 million year-over-year Quarterly Income Statement Comparison (Unaudited) | Metric | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :--- | :--- | :--- | | Net Interest Income | $50,702 | $42,384 | | Provision for Loan Losses | $9,568 | $436 | | Non-interest Income | $6,391 | $6,037 | | Non-interest Expense | $38,508 | $29,559 | | Net Income | $6,765 | $14,919 | | Earnings Per Share (Basic & Diluted) | $0.06 | $0.13 | Consolidated Statements of Comprehensive Income (Loss) Total comprehensive income for Q1 2020 was $15.8 million, compared to $21.5 million in Q1 2019, including net income of $6.8 million and other comprehensive income of $9.1 million, primarily driven by unrealized gains on debt securities available for sale, partially offset by unrealized losses on cash flow hedges Comprehensive Income Breakdown (Unaudited) | Component | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :--- | :--- | :--- | | Net Income | $6,765 | $14,919 | | Other Comprehensive Income | $9,070 | $6,625 | | Total Comprehensive Income | $15,835 | $21,544 | Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased by $21.4 million during the first quarter of 2020, from $982.5 million to $961.1 million, primarily due to the repurchase of treasury stock for $40.4 million, partially offset by $6.8 million in net income and $9.1 million in other comprehensive income - Key drivers of the change in stockholders' equity for Q1 2020 include: - Net Income: +$6.8 million - Other Comprehensive Income: +$9.1 million - Purchase of Treasury Stock: -$40.4 million - Stock-based Compensation: +$2.2 million[21] Consolidated Statements of Cash Flows For the first quarter of 2020, net cash provided by operating activities was $43.2 million, net cash used in investing activities totaled $87.8 million mainly due to a net increase in loans, and financing activities provided $57.4 million driven by a net increase in deposits, resulting in a net increase in cash and cash equivalents of $12.8 million Cash Flow Summary (Unaudited) | Activity | Three Months Ended March 31, 2020 (in thousands) | Three Months Ended March 31, 2019 (in thousands) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $43,167 | $25,834 | | Net Cash used in Investing Activities | ($87,770) | ($105,831) | | Net Cash from Financing Activities | $57,380 | $102,937 | | Net Increase in Cash | $12,777 | $22,940 | Notes to Unaudited Consolidated Financial Statements These notes detail accounting policies and financial statement components, covering CECL deferral, loan loss allowance, and acquisitions - The Company elected to defer the adoption of the Current Expected Credit Losses (CECL) methodology as permitted by the CARES Act. Adoption is expected by December 31, 2020, and is anticipated to increase the allowance for loan losses by 10% to 20%[57][58] - The allowance for loan losses increased from $61.7 million at year-end 2019 to $71.2 million at March 31, 2020, with a provision of $9.6 million for the quarter, largely due to the economic impact of the COVID-19 pandemic[129] - On January 1, 2020, the Company adopted the new lease accounting standard (Topic 842), resulting in the recognition of a right-of-use asset of $22.2 million and a lease liability of $23.3 million[147] - On April 1, 2020, subsequent to the reporting period, the Company completed its acquisition of Roselle Bank[264] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses key factors impacting financial condition and operations, highlighting asset growth, net income decline, and rising non-performing assets Comparison of Financial Condition Total assets grew by $136.4 million (1.7%) to $8.3 billion in Q1 2020, primarily from a $45.4 million increase in net loans and a $73.4 million increase in other assets, which included a right-of-use asset from the new lease standard, while total liabilities increased by $157.7 million, driven by a $126.6 million rise in deposits, and stockholders' equity fell by $21.4 million due to $40.4 million in stock repurchases - Total assets increased by $136.4 million, or 1.7%, to $8.3 billion at March 31, 2020[275] - Net loans receivable increased by $45.4 million, or 0.7%, to $6.2 billion, driven by growth in commercial real estate, construction, and commercial business loans[277] - Total liabilities increased by $157.7 million, or 2.2%, primarily due to a $126.6 million increase in deposits, particularly non-interest-bearing demand accounts[279] Comparison of Results of Operations Net income for Q1 2020 was $6.8 million, down $8.2 million (54.7%) from Q1 2019, mainly caused by a $9.1 million increase in the provision for loan losses reflecting the deteriorating economic outlook from the COVID-19 pandemic, while net interest income rose by $8.3 million to $50.7 million, but non-interest expense also increased by $8.9 million, driven by higher compensation and merger-related costs - Net income decreased by $8.2 million, or 54.7%, compared to Q1 2019[282] - The provision for loan losses surged to $9.6 million, an increase of $9.1 million from the prior year, primarily due to the expected economic impact of the COVID-19 pandemic[286] - Non-interest expense increased by $8.9 million, or 30.3%, due to higher compensation, employee benefits, and merger-related expenses[287] Asset Quality and Impact of COVID-19 Asset quality weakened, with non-performing loans increasing to $10.7 million (0.17% of total loans) from $6.7 million at year-end 2019, and the allowance for loan losses to total loans ratio increased to 1.14% from 1.00%, reflecting increased qualitative factors due to the pandemic, while as of May 7, 2020, the Company had received approximately $995 million in loan modification requests and originated $475 million in PPP loans - Non-performing loans increased by $4.0 million to $10.7 million, or 0.17% of total gross loans[290] - As of May 7, 2020, the Company had received loan modification requests totaling approximately $840 million for commercial loans and $155 million for consumer loans[292] - The Company originated approximately 2,200 loans for $475.0 million under the SBA's Paycheck Protection Program (PPP) as of May 7, 2020[294] Critical Accounting Policies Critical accounting policies, including allowance for loan losses, deferred tax assets, and retirement benefits, involve significant judgment, particularly regarding COVID-19 and CECL - The calculation of the allowance for loan losses is a critical accounting policy involving a high degree of judgment, particularly regarding economic conditions, collateral values, and loss factors[295] - Due to the COVID-19 pandemic's impact on economic conditions, management established an additional qualitative loss factor, contributing to a $9.6 million loan loss provision for the quarter[308] - The Company elected to defer the adoption of the CECL methodology as permitted by the CARES Act and will adopt it by December 31, 2020[295][297] Quantitative and Qualitative Disclosures About Market Risk The Company manages interest rate risk through its Asset/Liability Committee, using balance sheet and income simulation models, where as of March 31, 2020, a +200 basis point rate shock was projected to decrease net interest income by 0.81% and Net Portfolio Value (NPV) by 9.74% over one year, and the Company and its subsidiary bank remain well-capitalized, exceeding all regulatory minimums Interest Rate Sensitivity Analysis (as of March 31, 2020) | Rate Shock (Basis Points) | Change in Net Interest Income (12 Months) | Change in Net Portfolio Value (NPV) | | :--- | :--- | :--- | | +200 | (0.81)% | (9.74)% | | +100 | (0.45)% | (4.09)% | | -100 | (0.62)% | (9.56)% | Company Capital Ratios (as of March 31, 2020) | Ratio | Actual | Minimum Adequacy | Well Capitalized Requirement | | :--- | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | 15.94% | 8.00% | N/A | | Tier 1 capital (to risk-weighted assets) | 14.67% | 6.00% | N/A | | Common equity tier 1 capital (to risk-weighted assets) | 14.56% | 4.50% | N/A | Bank Capital Ratios (as of March 31, 2020) | Ratio | Actual | Minimum Adequacy | Well Capitalized Requirement | | :--- | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | 14.38% | 8.00% | 10.00% | | Tier 1 capital (to risk-weighted assets) | 13.19% | 6.00% | 8.00% | | Common equity tier 1 capital (to risk-weighted assets) | 13.19% | 4.50% | 6.50% | Controls and Procedures Management, including the CEO and CFO, evaluated the Company's disclosure controls and procedures and concluded they were effective as of March 31, 2020, with no material changes in the Company's internal control over financial reporting during the quarter - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report[332] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal controls[333] Part II. Other Information Legal Proceedings The Company is involved in various legal actions arising in the normal course of business, which management does not expect to have a material adverse impact on the Company's financial condition - Ongoing legal actions and claims are not expected to materially impact the Company's financial condition[336] Risk Factors The primary update to risk factors relates to the COVID-19 pandemic, highlighting significant uncertainty and potential adverse impacts on the Company's business, customers, and financial results due to market volatility, economic disruptions, and potential increases in loan delinquencies and defaults - The COVID-19 pandemic has introduced significant volatility and could harm business and results of operations[338] - Disruptions to customers could increase the risk of delinquencies, defaults, and losses on loans, and negatively impact regional economic conditions[340] - The pandemic could create widespread business continuity issues, affecting employees, customers, and third-party vendors[341] Unregistered Sales of Equity Securities and Use of Proceeds During the first quarter of 2020, the Company repurchased a total of 2,557,126 shares under its publicly announced stock repurchase programs at an average price of $15.78 per share, with the repurchase programs completed on April 23, 2020 Stock Repurchases in Q1 2020 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2020 | 894,326 | $16.89 | | Feb 2020 | 584,700 | $16.97 | | Mar 2020 | 1,078,100 | $14.23 | | Total | 2,557,126 | $15.78 | - The Company's stock repurchase programs were completed on April 23, 2020[345] Other Items Items 3 (Defaults Upon Senior Securities) and 4 (Mine Safety Disclosures) are not applicable, Item 5 (Other Information) reports no additional information, and Item 6 (Exhibits) lists the exhibits filed with the report - No defaults on senior securities or mine safety disclosures were reported[346][347]