Executive Summary / Key Takeaways

• Columbia Financial, Inc. (CLBK) reported a significant financial turnaround in the third quarter of 2025, with net income surging by 276.9% year-to-date, primarily driven by an expanded net interest income.
• A strategic balance sheet repositioning executed in Q4 2024 has been instrumental in boosting net interest margin through higher asset yields and reduced borrowing costs.
• The company demonstrates robust loan growth, particularly in commercial segments, supported by a stable and diversified deposit base, underpinning asset expansion.
• While non-performing loans have increased, management asserts that overall interest rate risk remains within policy guidelines, supported by sophisticated risk management methodologies.
• Active capital management, including a recently authorized stock repurchase program, signals a commitment to enhancing shareholder value.

A Regional Banking Powerhouse with Strategic Acumen

Columbia Financial, Inc., founded in 1926 and headquartered in Fair Lawn, New Jersey, operates as the bank holding company for Columbia Bank, a prominent regional institution serving businesses and consumers across the United States. The company's comprehensive suite of financial services includes commercial, residential, and consumer loans, alongside a diverse array of deposit products, title insurance, wealth management, and essential cash management solutions. Columbia Financial's enduring presence in the Northeastern U.S. banking landscape is a testament to its community-focused strategy and a history of strategic growth initiatives.

The company's expansion has been significantly shaped by a series of calculated acquisitions, including Stewardship Financial Corporation, RSI Bank, and notably, Freehold Bancorp, which was fully integrated into Columbia Bank in October 2024. These integrations have broadened Columbia's market reach and diversified its loan portfolio. A pivotal strategic move in the fourth quarter of 2024 was the implementation of a balance sheet repositioning transaction, designed to optimize asset yields and reduce funding costs. This initiative, coupled with a disciplined approach to maintaining a stable funding base through core deposit accounts and competitive pricing, forms the bedrock of Columbia Financial's overarching strategy to thrive within a dynamic banking environment.

Leveraging Technology for Enhanced Risk Management and Customer Service

Columbia Financial, Inc. distinguishes itself not through a singular, proprietary hardware technology, but through its sophisticated application of data analytics and financial technology to optimize risk management and enhance customer service. A cornerstone of its operational excellence lies in its advanced Allowance for Credit Losses (ACL) methodology. This system employs a discounted cash flow framework, integrating econometric models, probability of default (PD), and loss given default (LGD) with distinct segment-specific multi-variate regression models. This analytical rigor allows the company to estimate expected credit losses over the life of its loans by measuring the difference between the net present value of modeled cash flows and amortized cost basis.

The tangible benefits of this approach are evident in the company's ability to incorporate a single economic forecast of macroeconomic variables—such as unemployment, gross domestic product, vacancy, and home price index—over a six-quarter forecast period, followed by a four-quarter reversion to long-term average historical loss rates. This data-driven framework provides a more precise and forward-looking assessment of credit risk, potentially leading to more accurate provisioning and better capital allocation compared to less sophisticated models. For investors, this translates into a more resilient balance sheet and a clearer understanding of potential loan losses, underpinning financial stability.

Beyond risk management, Columbia Financial leverages technology to deliver essential cash management services to its commercial customers. Offerings like remote deposit, lockbox services, sweep accounts, and escrow services are critical for businesses seeking efficient financial operations. These services, while common in modern banking, are integral to attracting and retaining commercial clients by providing convenience and streamlining their financial workflows. Furthermore, the company utilizes derivative financial instruments, specifically interest rate swaps, as a key component of its market risk management strategy, hedging against interest rate fluctuations. This sophisticated use of financial derivatives demonstrates a proactive approach to managing interest rate exposure, a critical factor for banks in volatile economic environments. These technological applications, from advanced credit modeling to digital service delivery and financial hedging, collectively form a robust operational framework that supports the company's competitive positioning and long-term profitability.

Financial Performance: A Turnaround Driven by Strategic Repositioning

Columbia Financial's recent financial performance underscores the effectiveness of its strategic initiatives, particularly the balance sheet repositioning. For the third quarter ended September 30, 2025, the company reported net income of $14.90 million, a substantial increase of $8.70 million compared to $6.20 million in the prior year's quarter. This positive momentum is even more pronounced over the nine-month period, with net income reaching $36.07 million, representing a remarkable 276.90% increase from $9.57 million in the same period of 2024.

The primary catalyst for this improved profitability was a significant expansion in net interest income, which rose by $12.10 million (26.70%) to $57.40 million in Q3 2025 and by $29.90 million (22.70%) to $161.40 million for the nine months ended September 30, 2025. This growth was fueled by a $4.50 million increase in interest income during Q3 2025, driven by higher average loan balances and improved yields on both loans and securities. The balance sheet repositioning in Q4 2024 played a crucial role, increasing the average yield on securities by 51 basis points to 3.41% in Q3 2025, as lower-yielding assets were replaced with higher-yielding ones. Concurrently, total interest expense decreased by $7.60 million (10.70%) in Q3 2025, benefiting from a 30 basis point reduction in the average cost of interest-bearing deposits and a 50 basis point decrease in the average cost of borrowings, partly due to market interest rate declines in late 2024 and September 2025. Consequently, the company's net interest margin expanded by 45 basis points to 2.29% for the third quarter of 2025.

Non-interest income also contributed positively, increasing by $889,000 (9.90%) in Q3 2025, primarily due to higher demand deposit account fees, loan fees and service charges (including customer swap income), and gains from bank-owned life insurance and equity securities. While non-interest expense saw a modest increase of $2.30 million (5.30%) in Q3 2025, mainly from compensation, occupancy, and data processing costs, the nine-month period showed a slight decrease of $902,000 (0.70%), reflecting reduced professional and merger-related fees.

Asset Quality and Risk Management: Vigilance Amidst Growth

Columbia Financial maintains a vigilant approach to asset quality and risk management, crucial for a regional banking institution. While the company's loan portfolio has expanded, non-performing loans (NPLs) increased by $10.80 million to $32.50 million, representing 0.40% of total gross loans, at September 30, 2025, up from $21.70 million (0.28%) at December 31, 2024. This rise was primarily attributed to a $5.90 million construction loan becoming non-performing, alongside increases in non-performing one-to-four family real estate and commercial real estate loans.

Despite the increase in NPLs, the allowance for credit losses (ACL) on loans grew by $5.70 million to $65.70 million at September 30, 2025, or 0.80% of total gross loans, reflecting the increased outstanding loan balances. The provision for credit losses decreased by $1.80 million (42.90%) to $2.30 million in Q3 2025 and by $3.80 million (33.10%) to $7.70 million for the nine months ended September 30, 2025. This reduction was driven by lower net charge-offs and decreased quantitative loss rates, a result of the company's robust ACL methodology that incorporates a six-quarter economic forecast.

Management acknowledges the inherent risks in the portfolio, including potential declines in the economy, real estate values, and increases in unemployment or interest rates. The company's interest rate risk analysis indicates that a 200 basis point increase in rates could decrease net interest income by approximately 6.89%, while a similar decrease could lead to a 5.99% increase. However, management concludes that the company is "adequately positioned with an acceptable net interest income and economic value at risk in all scenarios and that all interest rate risk results continue to be within our policy guidelines."

Liquidity and Capital Strength: A Solid Foundation

Columbia Financial's balance sheet reflects a solid foundation of liquidity and capital strength, essential for supporting its growth trajectory and weathering economic fluctuations. Total assets expanded by $380.30 million, or 3.60%, reaching $10.90 billion at September 30, 2025, compared to $10.50 billion at December 31, 2024. This growth was largely driven by a $349.90 million (4.50%) increase in net loans receivable, which reached $8.20 billion. The increase in loans was broad-based, with significant contributions from multifamily, commercial real estate, and commercial business loans, notably including a $130.90 million purchase of equipment finance loans in May 2025.

On the funding side, total liabilities increased by $319.80 million (3.40%) to $9.70 billion. This was primarily due to a $144.20 million (1.80%) increase in total deposits, with growth in non-interest-bearing demand deposits, money market accounts, and certificates of deposit. Borrowings also increased by $182.90 million (16.90%), reflecting a net increase in short-term borrowings and new long-term borrowings, partly utilized to fund the equipment finance loan acquisition.

The company's capital position remains robust, with total stockholders' equity increasing by $60.60 million (5.60%) to $1.10 billion at September 30, 2025. This growth was primarily attributable to net income and an increase in other comprehensive income. Both Columbia Financial, Inc. and Columbia Bank consistently exceed all regulatory capital adequacy requirements, maintaining "well capitalized" status, which provides a strong buffer against potential losses and supports future expansion. Furthermore, the company actively manages its capital structure, as evidenced by the authorization of its seventh stock repurchase program in September 2025, allowing for the acquisition of up to 1.80 million shares. This program underscores management's commitment to returning value to shareholders and optimizing capital efficiency.

Competitive Landscape and Positioning

Columbia Financial operates within a competitive regional banking landscape, primarily in New Jersey, where it faces direct competition from established players like Valley National Bancorp , Lakeland Bancorp , and Provident Financial Services . CLBK's core strengths lie in its deep-rooted community brand, extensive branch network across New Jersey, and a commitment to personalized customer service, which fosters strong local relationships and customer loyalty. This localized approach allows CLBK to effectively compete in niche segments, such as small business lending, where its community ties can be a significant differentiator.

Compared to Valley National Bancorp (VLY), which boasts a broader geographic footprint and potentially greater scale, CLBK's strength is its concentrated market presence and tailored service. While VLY might achieve higher operational efficiencies due to its size, CLBK's localized model can lead to stronger customer retention and potentially better pricing power in its core markets. Similarly, against Lakeland Bancorp (LBAI), both entities share a community-oriented focus in New Jersey. CLBK's long history and established brand may offer a trust advantage, while LBAI might exhibit more operational flexibility. With Provident Financial Services (PFS), which has grown through strategic mergers and acquisitions, CLBK's subsidiary structure under Columbia Bank MHC could provide a unique value proposition centered on stability and mutual ownership benefits, contrasting with PFS's broader, acquisition-driven market positioning.

However, CLBK also faces competitive vulnerabilities. Its regional focus, while a strength in terms of local market penetration, limits revenue diversification and exposes it more directly to regional economic downturns. Furthermore, the banking industry is experiencing rapid shifts towards digital innovation, driven by indirect competitors such as fintech companies (e.g., PayPal (PYPL), Square (SQ)) and online banks (e.g., Ally Financial (ALLY)). These digital-first entities offer convenient and often lower-cost solutions for deposits, loans, and payments, posing a threat to traditional branch-based models. While CLBK's investment in data processing and software expenses, alongside its cash management services, demonstrates an awareness of technological needs, a potential gap in digital innovation speed compared to more agile rivals could impact its market share and profitability. The broader industry trend towards AI adoption and data center growth, while creating new lending opportunities, also necessitates significant technological adaptation, a challenge that larger competitors might be better equipped to address.

Conclusion

Columbia Financial, Inc. is currently demonstrating a compelling financial turnaround, largely driven by its strategic balance sheet repositioning in late 2024. The significant surge in net interest income and overall profitability for the nine months ended September 30, 2025, underscores the effectiveness of management's efforts to optimize asset yields and reduce funding costs. The company's robust capital position and proactive liquidity management further solidify its financial foundation, providing stability amidst evolving market conditions.

While the increase in non-performing loans warrants close monitoring, the company's sophisticated ACL methodology and prudent risk management framework are designed to mitigate potential credit losses. Columbia Financial's enduring competitive advantage stems from its strong community ties and extensive branch network, which foster deep customer relationships. However, sustained success will hinge on its ability to continuously adapt to the accelerating pace of digital innovation and effectively compete with both traditional regional banks and agile fintech disruptors. By leveraging its foundational strengths and strategically investing in technology, Columbia Financial is positioned for continued stability and growth, offering a compelling narrative for discerning investors.