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Columbia Financial, Inc. Announces Fourth Quarter Earnings

 
Fair Lawn, New Jersey (January 31, 2019): Columbia Financial, Inc. (the “Company”) (NASDAQ: CLBK) reported net income of $14.9 million, or $0.13 per basic and diluted share, for the quarter ended December 31, 2018, compared to net income of $3.7 million for the quarter ended December 31, 2017. The December 31, 2018 quarterly earnings reflects higher net interest income driven primarily by growth within the residential and commercial loan portfolios and a decrease in income tax expense. The December 31, 2017 quarterly earnings includes the impact from the revaluation of our gross deferred tax assets and liabilities as a result of the enactment of the Tax Cut and Jobs Act in December 2017, which decreased the federal corporate tax rate.
 
For the year ended December 31, 2018, the Company reported net income of $22.7 million, or $0.20 per basic and diluted share, compared to net income of $24.8 million for the year ended December 31, 2017. The decrease in earnings year over year is primarily driven by the $34.8 million one-time expense related to the contribution of shares of the Company's common stock to the Columbia Bank Foundation in April 2018 in connection with the completion of the Company's minority stock offering. Excluding this charitable contribution and other non-core items, core net income would have been $50.1 million for the year ended December 31, 2018, an increase of $20.9 million, or 71.7% as compared to core net income for the same period in 2017.
 
Mr. Thomas J. Kemly, President and Chief Executive Officer commented: "Our fourth quarter results demonstrate strong core earnings and fee income growth over prior periods and reflect the efforts of management to grow in this challenging interest rate environment. We continue to stay focused on providing superior products and services as we enter new markets and bolstering existing customer relationships in order to generate long-term shareholder value. I'm also proud that the Columbia Bank Foundation has been able to help 384 charities and communities throughout the markets we serve. Our overall charitable giving through the foundation reached record levels in 2018 and we remain committed to continuing our charitable giving efforts in 2019."

Results of Operations for the Quarter Ended December 31, 2018 and December 31, 2017
Net income of $14.9 million was recorded for the quarter ended December 31, 2018, compared to net income of $3.7 million for the quarter ended December 31, 2017. The increase of $11.2 million was primarily attributable to a $6.4 million increase in net interest income and the lower income tax expense, since the 2017 period included a $4.7 million charge due to the revaluation of deferred tax assets and liabilities as noted above. In addition, the provision for loan losses decreased $2.6 million, primarily as a result of improvements in credit metrics.

Net interest income was $43.4 million for the quarter ended December 31, 2018, an increase of $6.4 million, or 17.5%, from $36.9 million for the quarter ended December 31, 2017. The increase in net interest income was attributable to a $12.6 million increase in interest and dividend income, which was partially offset by a $6.2 million increase in interest expense. The increase in interest and dividend income for the quarter ended December 31, 2018 was largely due to an increase in the average balances of loans and securities.
 
The Company's net interest margin for the quarter ended December 31, 2018 decreased five basis points to 2.74% when compared to 2.79% for the quarter ended December 31, 2017. The weighted average yield on interest-earning assets increased 20 basis points to 3.91% for the quarter ended December 31, 2018 compared with 3.71% for the quarter ended December 31, 2017. The average cost of interest bearing liabilities increased 39 basis points to 1.52% for the quarter ended December 31, 2018 as compared to 1.13% for the quarter ended December 31, 2017.

The average yield on loans increased 24 basis points to 4.15% from 3.91%, while the yield on securities increased 24 basis points to 2.88% from 2.64%, for the quarter ended December 31, 2018 as compared to the quarter ended December 31, 2017.
 
The $4.2 million increase in interest expense on deposits was largely the result of a $140.2 million increase in the average balance of interest bearing deposits combined with a 42 basis point increase in the cost of deposits which was driven by higher market rates and a shift in the mix between core deposits and certificates of deposit.

The provision for loan losses was $777 thousand for the quarter ended December 31, 2018, a decrease of approximately $2.6 million from $3.4 million for the quarter ended December 31, 2017. The decrease was primarily driven by a decline in non-performing loans and improvements in credit metrics. A portion of the decline in non-performing loans resulted from the sale of $1.7 million of one-to-four family and fixed rate home equity loans during the quarter ended December 31, 2018.

Non-interest income was $6.4 million for the quarter ended December 31, 2018, an increase of $1.7 million or 35.3% from $4.7 million for the quarter ended December 31, 2017. Gain on sale of loans totaled $602 thousand for the quarter ended December 31, 2018 as compared to no gains being recorded in the 2017 period. Income from loan fees increased $417 thousand primarily related to swap fee income while income from bank-owned life insurance increased $253 thousand as a result of an additional $30.0 million purchase made in the third quarter of 2018.
Non-interest expense was $31.0 million for the quarter ended December 31, 2018, an increase of $5.4 million, or 21.1%, from $25.6 million for the quarter ended December 31, 2017. The increase was driven primarily by higher compensation and employee benefit expense as a result of Columbia Bank's newly created employee stock ownership plan, the addition of staff and other performance-based compensation.

Income tax expense was $3.1 million for the quarter ended December 31, 2018 as compared to $9.0 million for the quarter ended December 31, 2017. The decrease is attributable to the effect of the reduction in the federal corporate income tax rate in 2018 coupled with the re-measurement of our net deferred tax assets resulting from the change in the tax rate which resulted in a charge of $4.7 million in the 2017 period.
 
Results of Operations for the Year Ended December 31, 2018 and December 31, 2017
For the year ended December 31, 2018, net income decreased $2.0 million to $22.7 million, compared to net income of $24.8 million for the year ended December 31, 2017. The decrease was primarily attributable to the previously noted $34.8 million contribution of the Company's common stock to the Columbia Bank Foundation in April of 2018. Excluding this contribution and other non-core items, core net income would have been $50.1 million for the year ended December 31, 2018 as compared to $29.2 million for the year ended December 31, 2017.
 
Net interest income was $164.0 million for the year ended December 31, 2018, an increase of $20.7 million, or 14.5% from $143.3 million for the year ended December 31, 2017. The increase in net interest income was attributable to a $37.0 million increase in interest and dividend income which was partially offset by a $16.3 million increase in interest expense. The increase in interest and dividend income for the year ended December 31, 2018 was largely due to an increase in average loans and securities balances.
 
The Company's net interest margin for the year ended December 31, 2018 decreased eight basis points to 2.74% compared with 2.82% for the year ended December 31, 2017. The weighted average yield on interest-earning assets increased five basis points to 3.77% for the year ended December 31, 2018 compared with 3.72% for the year ended December 31, 2017. The average cost of interest bearing-liabilities increased 22 basis points to 1.32% for the year ended December 31, 2018 compared with 1.10% for the year ended December 31, 2017.

The average yield on loans increased 12 basis points while the yield on securities increased 17 basis points for the year ended December 31, 2018 as compared with the year ended December 31, 2017.

For the year ended December 31, 2018, interest expense on deposits was $39.5 million, an increase of $12.5 million or 46.4% from $27.0 million for the year ended December 31, 2017, driven by a $337.1 million increase in the average balance of total interest-bearing deposits coupled with a 26 basis point increase in the cost of deposits. Average borrowings increased by $203.0 million while the average cost of borrowings decreased by 15 basis points.
 
For the year ended December 31, 2018 the provision for loan losses was $6.7 million, a decrease of $3.1 million from $9.8 million for the year ended December 31, 2017. The decrease was attributable to a continued decline in non-performing loans and improvements in credit metrics. Contributing to the decline in non-performing loans was the sale of $1.7 million of one-to-four family and fixed rate home equity loans as previously discussed.

Non-interest income was $21.7 million for the year ended December 31, 2018, an increase of $4.9 million, or 29.0% from $16.8 million for the year ended December 31, 2017. During 2017, we had $2.2 million of losses recorded on the sale of securities and net losses of $788 thousand recorded on the sale of loans. In 2018, $116 thousand of gains were recorded on the sale of securities and $618 thousand of gains were recorded on the sale of loans in the secondary market. The Company continues to designate loans to be sold in the secondary market and classifies these loans as held-for-sale in the consolidated statement of financial condition.

For the year ended December 31, 2018 non-interest expense was $145.4 million, an increase of $40.0 million, or 37.9%, from $105.4 million for the year ended December 31, 2017. The increase was driven primarily by the above noted $34.8 million contribution of the Company's common stock to the Columbia Bank Foundation. In addition, compensation and employee benefit expenses increased $6.3 million as a result of Columbia Bank's newly created employee stock ownership plan, the addition of staff and other performance-based compensation.
Income tax expense was $10.9 million for the year ended December 31, 2018 as compared to $20.1 million for the year ended December 31, 2017. The decrease is attributable to the effect of the reduction in the federal corporate income tax rate in 2018 coupled with a one-time re-measurement of our net deferred tax assets resulting from the change in the tax rate which resulted in a charge of $4.7 million in the 2017 period.
 
Balance Sheet Summary
Total assets increased $925.1 million, or 16.0%, to $6.7 billion at December 31, 2018 from $5.8 billion at December 31, 2017. The increase in total assets was primarily attributed to increases in loans receivable, net, of $516.4 million and securities available for sale of $324.2 million. Growth was funded primarily by $492.4 million of net proceeds from the minority stock offering and increases in borrowings and deposits.
 
Securities available for sale increased $324.2 million to $1.0 billion at December 31, 2018 from $710.6 million at December 31, 2017. Securities held to maturity increased $22.5 million to $262.1 million at December 31, 2018 from $239.6 million at December 31, 2017. These increases were primarily the result of the deployment of proceeds from the minority stock offering into higher yielding assets.

Loans receivable, net increased $516.4 million to $4.9 billion at December 31, 2018 from $4.4 billion at December 31, 2017. One-to-four family, multifamily and commercial real estate, construction loans and commercial business loans contributed to the growth by $215.2 million, $271.7 million, $27.8 million and $55.9 million, respectively. Home equity loans and advances declined $54.4 million between December 31, 2018 and December 31, 2017. At December 31, 2018, the Company had $8.1 million of one-to-four family loans in the held-for-sale portfolio carried at fair value.

Bank-owned life insurance increased $34.0 million to $184.5 million at December 31, 2018 from $150.5 million at December 31, 2017. The increase is primarily the result of the purchase of $30.0 million of additional bank-owned life insurance during the third quarter of 2018.

Total liabilities increased $425.1 million, or 8.0%, to $5.7 billion at December 31, 2018 from $5.3 billion at December 31, 2017. The increase is primarily attributable to an increase in borrowings of $260.1 million and total deposits of $150.6 million. In August 2018, the Company redeemed, in full, $51.5 million of junior subordinated debt securities. The increase in total deposits is primarily attributed to higher certificate of deposit and non interest bearing transaction account balances.
 
Total stockholders’ equity increased $500.0 million or 105.9%, to $972.1 million at December 31, 2018 from $472.1 million at December 31, 2017. The net increase was primarily due to the completion of the minority stock offering, which resulted in net proceeds of $492.4 million, coupled with net income recorded for the year.

Asset Quality
The Company's total non-performing loans at December 31, 2018 totaled $2.8 million, or 0.06% of total loans receivable, as compared to $6.5 million, or 0.15% of total loans receivable, at December 31, 2017. The Company held $92 thousand in foreclosed assets at December 31, 2018 compared to $959 thousand at December 31, 2017. Non-performing assets as a percentage of total assets totaled 0.04% at December 31, 2018 as compared to 0.13% at December 31, 2017.

In the fourth quarter of 2018, the Company sold $1.7 million of non-performing one-to-four family and fixed rate home equity loans to an independent third party. For the year ended December 31, 2018, net charge-offs totaled $2.5 million, as compared to $3.5 million for the year ended December 31, 2017.

The Company's allowance for loan losses was $62.3 million, or 1.26% of total loans at December 31, 2018, compared to $58.2 million, or 1.31% of total loans, at December 31, 2017.

Annual Meeting of Stockholders
On January 31, 2019, the Company also announced that its annual meeting of stockholders will be held on June 6, 2019.
 
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 49 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 borrowers’ ability to service and repay the Company’s loans; changes in the value of securities in the Company’s investment 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 investments; legislative changes and changes in government regulation; changes in accounting standards and practices; the risk that goodwill and intangibles recorded in the Company’s 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 or its deployment of the proceeds raised in its minority public offering; and changes in assumptions used in making such forward-looking statements and 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 accounting principles generally accepted in the United States of America ("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.
 
For a reconciliation of GAAP to Non-GAAP financial measures included in this press release, see "Reconciliation of GAAP to Non-GAAP Financial Measures" below.