Columbia Financial, Inc. (the “Company”) (NASDAQ: CLBK), the mid-tier holding company for Columbia Bank (the "Bank"), reported net income of $12.0 million, or $0.11 per basic and diluted share, for the quarter ended June 30, 2019, as compared to a net loss of $14.7 million, or $(0.13) per basic and diluted share, for the quarter ended June 30, 2018. Earnings for the three months ended June 30, 2019 reflected a lower provision for loan losses and higher non-interest income, coupled with a decrease in non-interest expense, which included a one-time charitable contribution of $34.8 million in the 2018 quarter. Excluding the impact of the charitable contribution, non-interest expense would have increased by $4.8 million. Core net income would have been $12.7 million for the quarter ended June 30, 2018, or $0.11 per basic and diluted share.
For the six months ended June 30, 2019, the Company reported net income of $27.0 million, or $0.24 per basic and diluted share, as compared to a net loss of $3.0 million or $(0.03) per basic and diluted share, for the six months ended June 30, 2018. Earnings for the six months ended June 30, 2019 reflected higher net interest income and non-interest income, lower provision for loan losses and a decrease in non-interest expense, which included a one-time charitable contribution of $34.8 million for the six months ended June 30, 2018. Excluding the impact of the charitable contribution, non-interest expense would have increased by $8.4 million. Core net income would have been $24.4 million for the six months ended June 30, 2018, or $0.22 per basic and diluted share.
Mr. Thomas J. Kemly, President and Chief Executive Officer, commented: "We again maintained consistent earnings and solid asset quality despite margin compression resulting from operating in a competitive market for loans and deposits. We are committed to our strategic plan, which includes prudent asset growth and efficient management of capital as evidenced by our recently announced stock repurchase program, and our announced merger of Stewardship Financial Corporation."
Results of Operations for the Quarters Ended June 30, 2019 and June 30, 2018
Net income of $12.0 million was recorded for the quarter ended June 30, 2019, an increase of $26.8 million, compared to a net loss of $14.7 million for the quarter ended June 30, 2018. The increase in net income was primarily attributable to a $2.3 million decrease in the provision for loan losses, a $1.3 million increase in non-interest income, and a $29.9 million decrease in non-interest expense, partially offset by a $6.6 million increase in income tax expense. The decrease in non-interest expense for the quarter ended June 30, 2019 was primarily attributable to the previously noted one-time $34.8 million contribution of shares of the Company's stock to the Columbia Bank Foundation in connection with its minority stock offering in April 2018.
Net interest income was $40.8 million for the quarter ended June 30, 2019, a decrease of $172,000, or 0.4%, from $41.0 million for the quarter ended June 30, 2018. The decrease in net interest income was attributable to a $7.9 million increase in interest expense which was partially offset by a $7.7 million increase in interest income. The increase in interest income for the quarter ended June 30, 2019 was largely due to increases in both the average balances and yields on loans and securities, coupled with an increase in yield on other interest-earning assets. The increase in interest expense for the quarter ended June 30, 2019 was largely due to increases in the average yields on deposits and borrowings.
The average yield on loans for the quarter ended June 30, 2019 increased 16 basis points to 4.14%, as compared to 3.98% for the quarter ended June 30, 2018, while the yield on securities for the quarter ended June 30, 2019 increased 19 basis points to 2.89%, as compared to 2.70% for the quarter ended June 30, 2018. Increases in yields for the quarter ended June 30, 2019 reflect the increase in market interest rates that occurred during fiscal 2018. The average yield on other interest-earning assets for the quarter ended June 30, 2019 increased 320 basis points to 6.19%, as compared to 2.99% for the quarter ended June 30, 2018. This was mainly a result of the 2019 average balance of other interest-earning assets including higher yielding Federal Home Loan Bank stock, while the 2018 average balance of other interest-earning assets included higher cash deposits related to the subscriptions for the Company's minority stock offering, which yielded a lower rate of interest.
Total interest expense was $21.9 million for the quarter ended June 30, 2019, an increase of $7.9 million, or 56.3%, from $14.0 million for the quarter ended June 30, 2018. The increase in interest expense was primarily attributable to a $388.5 million increase in the average balance of certificates of deposits, partially offset by a decrease of $111.6 million in the average balance of money market accounts, and $253.9 million in the average balance of savings and club accounts, combined with a 62 basis point increase in the cost of interest-bearing deposits. The increase in the cost of deposits was primarily driven by higher market rates and a shift in the mix from non-maturity deposits to higher costing certificates of deposit. The increase in interest on borrowings was attributable to a $372.1 million increase in the average balance of Federal Home Loan Bank advances coupled with a 49 basis point increase in the cost of these borrowings.
The Company's net interest margin for the quarter ended June 30, 2019 decreased 23 basis points to 2.53%, when compared to 2.76% for the quarter ended June 30, 2018. The weighted average yield on interest-earning assets increased 19 basis points to 3.89% for the quarter ended June 30, 2019 as compared to 3.70% for the quarter ended June 30, 2018. The average cost of interest-bearing liabilities increased 56 basis points to 1.76% for the quarter ended June 30, 2019 as compared to 1.20% for the quarter ended June 30, 2018. Increases in yields and costs for the quarter ended June 30, 2019 were largely driven by competitive pressures in pricing deposit products in a higher market interest rate environment.
The provision for loan losses was $112,000 for the quarter ended June 30, 2019, a decrease of $2.3 million, or 95.3%, from $2.4 million for the quarter ended June 30, 2018. The decrease was primarily driven by a decrease in historical loss factors, coupled with nominal growth in the loan portfolio. Net charge offs increased to $480,000 for the quarter ended June 30, 2019, as compared to net recoveries of $172,000 for the quarter ended June 30, 2018.
Non-interest income was $6.8 million for the quarter ended June 30, 2019, an increase of $1.3 million, or 24.3%, from $5.5 million for the quarter ended June 30, 2018. The increase was primarily attributable to an increase in income from loan fees and service charges of $1.0 million, which included an increase in income from swap transactions, and $339,000 in gains on the sale of securities. There were no realized gains on security transactions for the quarter ended June 30, 2018.
Non-interest expense was $31.8 million for the quarter ended June 30, 2019, a decrease of $29.9 million, or 48.5%, from $61.8 million for the quarter ended June 30, 2018. The decrease was primarily attributable to a decrease of $34.8 million in charitable contributions which were made during the quarter ended June 30, 2018 as previously noted. Excluding the impact of this one-time contribution, non-interest expense increased $4.8 million, or 17.9%, for the quarter ended June 30, 2019. This increase was attributable to an increase in compensation and employee benefits of $2.1 million, an increase in professional fees of $355,000, an increase in other non-interest expense of $1.6 million, and merger-related expenses of $462,000 recorded in the quarter ended June 30, 2019. The higher compensation and employee benefits expense was mostly driven by costs associated with new hires. The increase in professional fees was the result of higher legal, accounting and consulting fees commensurate with being a public company. The increase in other non-interest expense was mainly due to a decrease of $368,000 in the credit associated with pension benefit costs, resulting from a new pension accounting standard, effective January 1, 2019, which requires that other components of net periodic benefit costs be reported separately from the service cost as a component of non-interest expense in the statements of income. Merger-related expenses included expenses related to the June 2019 announcement that the Company has entered into a definitive merger agreement with Stewardship Financial Corporation.
Income tax expense was $3.6 million for the quarter ended June 30, 2019, an increase of $6.6 million, as compared to a tax benefit of $3.0 million for the quarter ended June 30, 2018. The Company's effective tax rate was 23.2% and (16.7%) for the quarters ended June 30, 2019 and 2018, respectively. The 2019 income tax expense and resulting effective tax rate was primarily driven by maximizing the tax benefits related to a subsidiary of the Bank, coupled with other previously implemented tax strategies. The 2018 income tax benefit and resulting effective tax rate was impacted by the net loss resulting from the one-time charitable contribution.
Results of Operations for the Six Months Ended June 30, 2019 and June 30, 2018
Net income of $27.0 million was recorded for the six months ended June 30, 2019, an increase of $29.9 million, compared to a net loss of $3.0 million for the six months ended June 30, 2018. The increase in net income was primarily attributable to a $3.1 million increase in net interest income, a $3.9 million decrease in the provision for loan losses, a $2.8 million increase in non-interest income, and a $26.4 million decrease in non-interest expense, partially offset by a $6.3 million increase in income tax expense. The decrease in non-interest expense for the six months ended June 30, 2019 was attributable to the 2018 period including a $34.8 million one-time contribution to the Columbia Bank Foundation previously noted.
Net interest income was $83.2 million for the six months ended June 30, 2019, an increase of $3.1 million, or 3.9%, from $80.1 million for the six months ended June 30, 2018. The increase in net interest income was attributable to an $18.8 million increase in interest income, which was partially offset by a $15.7 million increase in interest expense. The increase in interest income for the period was largely due to increases in both the average balances and yields on loans and securities, coupled with an increase in the yield on other interest-earning assets.
The average yield on loans for the six months ended June 30, 2019 increased 23 basis points to 4.20%, as compared to 3.97% for the six months ended June 30, 2018, and the yield on securities for the six months ended June 30, 2019 increased 19 basis points to 2.91%, as compared to 2.72% for the six months ended June 30, 2018. Increases in yields for the six months ended June 30, 2019 reflect the increase in market interest rates that occurred during fiscal 2018. The average yield on other interest-earning assets for the six months ended June 30, 2019 increased 352 basis points to 6.40%, as compared to 2.88% for the six months ended June 30, 2018. This was driven by the 2019 average balance of other interest-earning assets including higher yielding Federal Home Loan Bank stock, while the 2018 average balance of other interest-earning assets included higher cash deposits related to the subscriptions for the Company's minority stock offering which yielded a lower rate of interest.
Total interest expense was $42.4 million for the six months ended June 30, 2019, an increase of $15.7 million, or 58.6%, from $26.7 million for the six months ended June 30, 2018. The increase in interest expense was primarily attributable to a $350.3 million increase in the average balance of certificates of deposit, partially offset by decreases of $67.8 million in the average balance of interest-bearing demand accounts, $75.4 million in the average balance of money market accounts and $243.3 million in the average balance of savings and club accounts, coupled with a 62 basis point increase in the cost of interest-bearing deposits. The increase in the cost of deposits was driven by higher market rates and a shift in the mix from core deposits to higher costing certificates of deposit. The increase in interest on borrowings was attributable to a $347.1 million increase in the average balance of Federal Home Loan Bank advances coupled with a 57 basis point increase in the cost of these borrowings.
The Company's net interest margin for the six months ended June 30, 2019 decreased 17 basis points to 2.61%, when compared to 2.78% for the six months ended June 30, 2018. The weighted average yield on interest-earning assets increased 24 basis points to 3.95% for the six months ended June 30, 2019 as compared to 3.71% for the six months ended June 30, 2018. The average cost of interest-bearing liabilities increased 57 basis points to 1.72% for the six months ended June 30, 2019 as compared to 1.15% for the six months ended June 30, 2018. Increases in yields and costs for the quarter ended June 30, 2019 reflect the increase in market interest rates that occurred during fiscal 2018.
The provision for loan losses was $548,000 for the six months ended June 30, 2019, a decrease of $3.9 million, or 87.5%, from $4.4 million for the six months ended June 30, 2018. The decrease was primarily driven by a decrease in historical loss factors, coupled with nominal growth in the loan portfolio. Net charge offs increased to $487,000 for the six months ended June 30, 2019, as compared to $54,000 for the six months ended June 30, 2018.
Non-interest income was $12.8 million for the six months ended June 30, 2019, an increase of $2.8 million, or 28.2%, from $10.0 million for the six months ended June 30, 2018. The increase was primarily attributable to an increase in income from loan fees and service charges of $1.4 million, which included an increase in income from swap transactions of $1.0 million, and increases in gains on the sale of securities and loans of $349,000 and $313,000, respectively.
Non-interest expense was $61.4 million for the six months ended June 30, 2019, a decrease of $26.4 million, or 30.1%, from $87.8 million for the six months ended June 30, 2018. The decrease was primarily attributable to a decrease of $34.8 million in charitable contributions during the 2018 period as previously noted. Excluding the impact of this one-time contribution, non-interest expense increased $8.4 million, or 15.8%, for the six months ended June 30, 2019. This increase was attributable to an increase in compensation and employee benefits of $3.6 million, an increase in professional fees of $821,000, an increase in other non-interest expense of $2.5 million, and merger-related expenses of $462,000 recorded in the 2019 period. The higher compensation and employee benefits expense was driven by costs associated with new hires. The increase in professional fees was the result of higher legal, accounting and consulting fees commensurate with being a public company. The increase in other non-interest expense was mainly due to a decrease of $735,000 in the credit associated with pension benefit other than service costs included in non-interest expense as previously described. Merger-related expenses included expenses related to the June 2019 announcement that the Company has entered into a definitive merger agreement with Stewardship Financial Corporation.
Income tax expense was $7.1 million for the six months ended June 30, 2019, an increase of $6.3 million, from $845,000 for the six months ended June 30, 2018. The 2018 income tax expense and resulting effective tax rate was impacted by the net loss resulting from the one-time charitable contribution. The 2019 income tax expense and resulting effective tax rate was primarily driven by maximizing the tax benefits related to a subsidiary of the Bank, coupled with other previously implemented tax strategies.
Balance Sheet Summary
Total assets increased $289.1 million, or 4.3%, to $7.0 billion at June 30, 2019 from $6.7 billion at December 31, 2018. The increase in total assets was primarily attributable to increases in debt securities available for sale of $66.9 million, debt securities held to maturity of $37.5 million, loans receivable, net of $133.9 million, and other assets of $31.6 million.
Debt securities available for sale increased $66.9 million, or 6.5%, to $1.1 billion at June 30, 2019 from $1.0 billion at December 31, 2018. The increase was mainly attributable to purchases of $80.5 million in U.S. agency obligations, mortgage-backed securities and corporate and municipal bonds, partially offset by maturities of $797,000 in municipal securities, repayments of $48.8 million in mortgage-backed securities, and sales of $15.7 million in U.S. government obligations and mortgage-backed securities. The gross unrealized gain on debt securities available for sale increased $30.1 million during the period.
Debt securities held to maturity increased $37.5 million, or 14.3%, to $299.6 million at June 30, 2019 from $262.1 million at December 31, 2018. The increase was mainly attributable to purchases of $47.7 million in U.S. agency obligations, mortgage-backed securities and corporate bonds, partially offset by a call of a $5.0 million U.S. agency obligation, and repayments of $5.5 million in mortgage-backed securities.
Loans receivable, net, increased $133.9 million, or 2.7%, to $5.1 billion at June 30, 2019 from $4.9 billion at December 31, 2018. The increase was mainly attributable to increases in multi-family and commercial real estate, construction and commercial business loans of $106.1 million, $32.1 million, and $24.7 million, respectively, partially offset by decreases in one-to-four family real estate and home equity loans and advances of $10.6 million and $18.4 million, respectively. One-to-four family real estate loans decreased slightly due to lower originations and loan sales totaling $62.7 million.
Other assets increased $31.6 million, or 29.6%, to $138.7 million at June 30, 2019 from $107.0 million at December 31, 2018. The increase was primarily attributable to a $35.0 million contribution which increased the funded status of the Company's pension plan in June 2019.
Total liabilities increased $253.3 million, or 4.4%, to $6.0 billion at June 30, 2019 from $5.7 billion at December 31, 2018. The increase was primarily attributable to an increase in total deposits of $254.8 million, or 5.8%. The increase in total deposits consisted of increases in the balances of interest-bearing and non-interest-bearing demand accounts, as well as certificates of deposit. The Bank's high yield checking account program, which began in January 2019, experienced significant growth during the period, along with non-interest-bearing commercial demand accounts which were primarily obtained from existing commercial loan customers. Certificates of deposit balances also increased as the Bank continues to offer competitive rates on these products.
Total stockholders’ equity increased $35.8 million, or 3.7%, to $1.0 billion at June 30, 2019 from $972.1 million at December 31, 2018. The net increase was primarily attributable to net income of $27.0 million, coupled with improved fair market values on debt securities within our available for sale portfolio, partially offset by the repurchase of 263,900 shares of common stock for approximately $3.9 million under our recently announced stock repurchase program.
Asset Quality
The Company's total non-performing loans at June 30, 2019 totaled $6.7 million, or 0.13% of total gross loans, as compared to $2.8 million, or 0.06% of total gross loans, at December 31, 2018. The $3.9 million increase in non-performing loans was mainly attributable to increases of $1.7 million in one-to-four family real estate loans, $1.7 million in construction loans and $472,000 in commercial business loans. The increase in one-to-four family real estate loans was the result of an increase in the number of loans from 6 non-performing loans at December 31, 2018 to 13 non-performing loans at June 30, 2019, while the entire construction loan non-performing balance consisted of one non-performing loan. The Company had no real estate owned at June 30, 2019 compared to one property owned, with a carrying value of $92,000, at December 31, 2018. Non-performing assets as a percentage of total assets totaled 0.10% at June 30, 2019 as compared to 0.04% at December 31, 2018.
The Company's allowance for loan losses was $62.4 million, or 1.22% of total loans at June 30, 2019, compared to $62.3 million, or 1.26% of total loans, at December 31, 2018.
Previously Announced Merger with Stewardship Financial Corporation
On June 7, 2019, the Company announced the signing of a definitive agreement and plan of merger pursuant to which the Company will acquire Stewardship Financial Corporation ("Stewardship"), the holding company for Atlantic Stewardship Bank in an all-cash transaction. Based on financial statements as of June 30, 2019, the combined company will have approximately $8.0 billion in assets, $5.9 billion in gross loans, and $5.5 billion in deposits upon completion of the merger. The transaction has been unanimously approved by the Boards of Directors of both companies and is expected to be completed during the fourth quarter of 2019, subject to approval by Stewardship's shareholders, as well as regulatory approvals and other customary closing conditions.
About Columbia Financial, Inc.
The consolidated financial results include the accounts of Columbia Financial, Inc., its wholly-owned subsidiary Columbia Bank (the "Bank") and the Bank's wholly-owned subsidiaries. Columbia Financial, Inc. is a Delaware corporation organized as Columbia Bank's mid-tier stock holding company. Columbia Financial, Inc. is a majority-owned subsidiary of Columbia Bank MHC. Columbia Bank is a federally chartered savings bank headquartered in Fair Lawn, New Jersey. The Bank offers traditional financial services to consumers and businesses in our market areas. We currently operate 51 full-services banking offices.
Forward Looking Statements
Certain statements herein constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements may be identified by words such as “believes,” “will,” “would,” “expects,” “projects,” “may,” “could,” “developments,” “strategic,” “launching,” “opportunities,” “anticipates,” “estimates,” “intends,” “plans,” “targets” and similar expressions. These statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements as a result of numerous factors. Factors that could cause such differences to exist include, but are not limited to, adverse conditions in the capital and debt markets and the impact of such conditions on the Company’s business activities; changes in interest rates; competitive pressures from other financial institutions; the effects of general economic conditions on a national basis or in the local markets in which the Company operates, including changes that adversely affect a borrowers’ ability to service and repay the Company’s loans; changes in the value of securities in the Company’s portfolio; changes in loan default and charge-off rates; fluctuations in real estate values; the adequacy of loan loss reserves; decreases in deposit levels necessitating increased borrowing to fund loans and securities; legislative changes and changes in government regulation; changes in accounting standards and practices; the risk that goodwill and intangibles recorded in the Company’s consolidated financial statements will become impaired; demand for loans in the Company’s market area; the Company’s ability to attract and maintain deposits; risks related to the implementation of acquisitions, dispositions, and restructurings; the risk that the Company may not be successful in the implementation of its business strategy, including successfully consummating its pending acquisition of Stewardship Financial Corporation, or its deployment of the proceeds raised in its minority public offering; and changes in assumptions used in making such forward-looking statements which are subject to numerous risks and uncertainties, including but not limited to, those set forth in Item 1A of the Company's Annual Report on Form 10-K, as supplemented by its Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission (the “SEC”), which are available at the SEC’s website, www.sec.gov. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, Columbia Financial, Inc.’s actual results could differ materially from those discussed. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release. The Company disclaims any obligation to publicly update or revise any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes, except as required by law.
Explanation of Non-GAAP Financial Measures
Reported amounts are presented in accordance with U.S. generally accepted accounting principles ("GAAP"). This press release also contains certain supplemental non-GAAP information that the Company’s management uses in its analysis of the Company’s financial results. Specifically, the Company provides measures based on what it believes are its operating earnings on a consistent basis, and excludes material non-routine operating items which affect the GAAP reporting of results of operations. The Company’s management believes that providing this information to analysts and investors allows them to better understand and evaluate the Company’s core financial results for the periods in question.
The Company also provides measurements and ratios based on tangible stockholders' equity. These measures are utilized by regulators and market analysts to evaluate a company’s financial condition and, therefore, the Company’s management believes that such information is useful to investors.
A reconciliation of GAAP to Non-GAAP financial measures are included at the end of this press release. See "Reconciliation of GAAP to Non-GAAP Financial Measures".
