umbia Financial(US:CLBK)2024-05-10 20:04PART I. Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Columbia Financial, Inc. as of March 31, 2024, and for the three months then ended, compared with prior periods Consolidated Statement of Financial Condition Highlights | Account | March 31, 2024 ($ in thousands) | December 31, 2023 ($ in thousands) | | :--- | :--- | :--- | | Total Assets | 10,637,519 | 10,645,568 | | Loans receivable, net | 7,760,228 | 7,819,441 | | Debt securities available for sale | 1,187,440 | 1,093,557 | | Total Liabilities | 9,599,494 | 9,605,233 | | Deposits | 7,829,403 | 7,846,556 | | Borrowings | 1,530,424 | 1,528,695 | | Total Stockholders' Equity | 1,038,025 | 1,040,335 | Consolidated Statement of Income (Loss) Highlights (Three Months Ended) | Account | March 31, 2024 ($ in thousands) | March 31, 2023 ($ in thousands) | | :--- | :--- | :--- | | Net interest income | 42,200 | 60,864 | | Provision for credit losses | 5,278 | 175 | | Non-interest income | 7,452 | 8,073 | | Non-interest expense | 45,658 | 43,901 | | Net (loss) income | (1,155) | 18,723 | | (Loss) earnings per share-diluted | (0.01) | 0.18 | Notes to Unaudited Consolidated Financial Statements The notes provide detailed disclosures on the company's accounting policies and financial activities, covering debt securities, loans, deposits, fair value measurements, and stock-based compensation Note 6. Debt Securities Available for Sale The portfolio of debt securities available for sale increased to $1.19 billion at March 31, 2024, with gross unrealized losses rising to $166.1 million, primarily in mortgage-backed securities and U.S. government obligations Debt Securities Available for Sale (at Fair Value) | Security Type | March 31, 2024 ($ in thousands) | December 31, 2023 ($ in thousands) | | :--- | :--- | :--- | | U.S. government and agency obligations | 237,034 | 145,501 | | Mortgage-backed securities and CMOs | 869,217 | 867,585 | | Municipal obligations | 2,708 | 2,702 | | Corporate debt securities | 78,481 | 77,769 | | Total | 1,187,440 | 1,093,557 | - Gross unrealized losses on AFS securities were $166.1 million at March 31, 2024, with $165.5 million in a loss position for 12 months or longer298 - During Q1 2024, the company sold one debt security for proceeds of $3.5 million, resulting in a gross loss of $1.3 million295 Note 7. Debt Securities Held to Maturity Debt securities held to maturity totaled $398.4 million at amortized cost as of March 31, 2024, consisting entirely of investment-grade U.S. government and mortgage-backed securities, all in an unrealized loss position totaling $46.4 million Debt Securities Held to Maturity | Security Type | Amortized Cost (Mar 31, 2024) | Fair Value (Mar 31, 2024) | Gross Unrealized Losses (Mar 31, 2024) | | :--- | :--- | :--- | :--- | | U.S. government and agency obligations | $49,871 | $43,807 | $(6,064) | | Mortgage-backed securities and CMOs | $348,480 | $308,184 | $(40,296) | | Total | $398,351 | $351,991 | $(46,360) | - All 111 securities in the HTM portfolio were in an unrealized loss position at March 31, 2024, and all were investment grade, with no allowance for credit losses required due to government guarantees218219 Note 9. Loans Receivable and Allowance for Credit Losses Total gross loans slightly decreased to $7.77 billion, while the allowance for credit losses (ACL) increased to $55.4 million, driven by a significant rise in non-accrual loans to $22.9 million and $5.0 million in net charge-offs Loans Receivable by Category (Gross) | Loan Category | March 31, 2024 ($ in thousands) | December 31, 2023 ($ in thousands) | | :--- | :--- | :--- | | One-to-four family | 2,778,932 | 2,792,833 | | Multifamily | 1,429,369 | 1,409,187 | | Commercial real estate | 2,318,178 | 2,377,077 | | Construction | 437,566 | 443,094 | | Commercial business | 538,260 | 533,041 | | Consumer loans | 263,387 | 269,433 | | Total gross loans | 7,765,692 | 7,824,665 | Allowance for Credit Losses (ACL) Activity (Q1 2024) | Metric | Amount ($ in thousands) | | :--- | :--- | | Balance at Dec 31, 2023 | 55,096 | | Provision for credit losses | 5,278 | | Charge-offs | (5,122) | | Recoveries | 149 | | Balance at Mar 31, 2024 | 55,401 | - Non-accrual loans increased significantly to $22.9 million at March 31, 2024, from $12.6 million at December 31, 2023194 - The ACL is estimated using a CECL model that incorporates a reasonable and supportable forecast period of six quarters, followed by a four-quarter reversion period to long-term historical loss rates236 Note 11. Deposits Total deposits slightly decreased to $7.83 billion, with a shift towards higher-cost certificates of deposit, leading to a sharp increase in interest expense on deposits to $48.4 million for Q1 2024 Deposit Composition | Deposit Type | March 31, 2024 ($ in thousands) | December 31, 2023 ($ in thousands) | | :--- | :--- | :--- | | Non-interest-bearing demand | 1,415,909 | 1,437,361 | | Interest-bearing demand | 1,929,490 | 1,966,463 | | Money market accounts | 1,228,098 | 1,255,528 | | Savings and club deposits | 687,303 | 700,348 | | Certificates of deposit | 2,568,603 | 2,486,856 | | Total deposits | 7,829,403 | 7,846,556 | - Interest expense on deposits for Q1 2024 was $48.4 million, a significant increase from $17.1 million in Q1 2023, reflecting the higher interest rate environment and shift in deposit mix61 - Of the $2.57 billion in certificates of deposit, $2.20 billion (approximately 86%) are scheduled to mature in one year or less64 Note 12. Stock Based Compensation In Q1 2024, the company awarded 212,441 restricted shares and 286,265 stock options, incurring $1.3 million in restricted stock expense and $951,000 for stock options, with significant unrecognized compensation remaining - In March 2024, the company awarded 212,441 restricted shares and 286,265 stock options6970 Stock-Based Compensation Expense (Q1) | Award Type | Q1 2024 Expense ($ in thousands) | Q1 2023 Expense ($ in thousands) | | :--- | :--- | :--- | | Restricted Stock | 1,300 | 1,000 | | Stock Options | 951 | 921 | - At March 31, 2024, there were 620,547 non-vested restricted shares and 1,265,884 non-vested options outstanding6980 Note 14. Fair Value Measurements The company's recurring fair value measurements totaled $1.22 billion, primarily Level 1 and Level 2 debt securities and derivatives, with minimal Level 3 assets, while non-recurring Level 3 assets, including impaired loans, totaled $7.6 million Assets Measured at Fair Value on a Recurring Basis (March 31, 2024) | Asset Type | Level 1 ($ in thousands) | Level 2 ($ in thousands) | Level 3 ($ in thousands) | Total ($ in thousands) | | :--- | :--- | :--- | :--- | :--- | | Debt securities available for sale | 229,844 | 947,685 | 9,911 | 1,187,440 | | Equity securities | 4,107 | 323 | — | 4,430 | | Derivative assets | — | 25,346 | — | 25,346 | | Total | 233,951 | 973,354 | 9,911 | 1,217,216 | - Level 3 assets measured on a recurring basis consist of two private placement corporate debt securities and two private placement municipal obligations115 - Assets measured at fair value on a non-recurring basis totaled $7.6 million, consisting of impaired loans ($4.9 million) and mortgage servicing rights ($2.8 million), both classified as Level 3128 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a challenging first quarter, with a net loss of $1.2 million driven by a 30.7% decrease in net interest income due to rising funding costs and a significant increase in non-performing loans, while maintaining strong liquidity and capital Comparison of Financial Condition Total assets remained stable at $10.6 billion, with a decrease in net loans and cash offset by an increase in debt securities available for sale, while total liabilities and stockholders' equity saw minor decreases - Total assets decreased by a marginal $8.0 million to $10.6 billion at March 31, 2024338 - Loans receivable, net, decreased by $59.2 million, while debt securities available for sale increased by $93.9 million339303 - Total deposits decreased by $17.2 million, reflecting a shift from demand and savings accounts to higher-cost certificates of deposit310 - Stockholders' equity decreased by $2.3 million, primarily due to a $1.2 million net loss and $1.7 million in stock repurchases340 Comparison of Results of Operations The company reported a net loss of $1.2 million for Q1 2024, a $19.9 million decrease from the prior year, primarily due to a 30.7% drop in net interest income and an 83 basis point compression in net interest margin to 1.75% - Net loss for Q1 2024 was $1.2 million, a decrease of $19.9 million from the $18.7 million net income in Q1 2023313 - Net interest income decreased by 30.7% to $42.2 million, as the increase in interest expense ($34.4 million) significantly outpaced the increase in interest income ($15.7 million)341 - The net interest margin for Q1 2024 fell to 1.75% from 2.58% in Q1 2023315 - The provision for credit losses increased to $5.3 million, primarily due to $5.0 million in net charge-offs343 - Non-interest expense increased by $1.8 million (4.0%), driven by higher FDIC insurance premiums and professional fees, though partially offset by lower compensation costs316 Asset Quality Asset quality deteriorated in Q1 2024, with non-performing loans increasing by $10.3 million to $22.9 million, largely due to a single commercial loan relationship, and net charge-offs totaling $5.0 million - Non-performing loans increased to $22.9 million (0.30% of gross loans) at March 31, 2024, from $12.6 million (0.16%) at December 31, 2023319 - A single borrower relationship with a struggling healthcare facility accounted for $7.3 million (71%) of the increase in non-performing loans, though the loans are current on payments and well-collateralized319 - Net charge-offs for Q1 2024 totaled $5.0 million, compared to only $105,000 in Q1 2023, related to four commercial business loans with expected future recoveries320 - The allowance for credit losses on loans was $55.4 million, or 0.71% of total gross loans, at March 31, 2024347 Critical Accounting Policies Management identifies the allowance for credit losses (ACL), valuation of deferred tax assets, and valuation of retirement benefits as critical accounting policies requiring significant judgment and sensitivity to economic conditions - The determination of the Allowance for Credit Losses (ACL) is a critical accounting estimate due to the high degree of judgment involved386 - The ACL methodology uses a discounted cash flow model incorporating probability of default (PD) and loss given default (LGD) based on a 6-quarter reasonable and supportable forecast, followed by a 4-quarter reversion to long-term averages357389 - Other critical policies include the valuation of deferred tax assets, which depends on future taxable income projections, and the valuation of retirement and post-retirement benefits, which relies on actuarial assumptions355332391 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company actively manages interest rate risk, with simulations indicating net interest income is liability-sensitive in a rising rate environment and asset-sensitive in a falling rate environment, while maintaining strong liquidity and capital positions Interest Rate Sensitivity Analysis (as of March 31, 2024) | Change in Interest Rates (bps) | Change in Net Interest Income (12 Months) | Change in Net Portfolio Value (NPV) | | :--- | :--- | :--- | | +200 | (3.91)% | (18.43)% | | +100 | (1.81)% | (8.97)% | | Base | — | — | | -100 | +1.89% | +8.80% | | -200 | +3.12% | +16.04% | - The company maintains strong liquidity, with access to approximately $2.7 billion in immediate funding and over $1.5 billion in additional unpledged collateral as of March 31, 2024351 - As of March 31, 2024, the company, Columbia Bank, and Freehold Bank all exceeded the capital requirements to be classified as 'well capitalized' under regulatory standards371 Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the first quarter - Management concluded that the Company's disclosure controls and procedures were effective as of the end of the reporting period376 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls407 PART II. Other Information Item 1. Legal Proceedings The company is involved in various legal actions in the normal course of business, which management does not expect to have a material adverse impact on its financial condition - Ongoing legal actions are not expected to have a material adverse impact on the Company's financial condition378 Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - As of March 31, 2024, the Company's risk factors have not materially changed from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023409 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company continued its sixth stock repurchase program, acquiring 101,516 shares at an average price of $16.31 per share during the first quarter of 2024 Share Repurchases in Q1 2024 | Period | Total Shares Purchased (Public Program) | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2024 | 0 | N/A | | Feb 2024 | 100 | $16.52 | | Mar 2024 | 101,416 | $16.31 | | Total Q1 | 101,516 | $16.31 | - As of March 31, 2024, there were 1,005,325 shares remaining to be purchased under the company's sixth stock repurchase program286305