Amalgamated Financial Corp. — 2023 Form 10-K
Business context and reporting period
Annual report for the fiscal year ended December 31, 2023; comparisons are primarily with 2022. Amalgamated is a bank holding company whose principal subsidiary is Amalgamated Bank. It provides commercial and consumer banking, trust, custody and investment-management services, with a values-focused customer base and offices in New York, Washington, D.C., San Francisco and Boston. Workers United held approximately 42% of the company’s equity at year-end.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Net income | $88.0 million | $81.5 million |
| Diluted EPS | $2.86 | $2.61 |
| Net interest income | $261.3 million | $239.8 million |
| Net interest margin | 3.41% | 3.22% |
| Net interest spread | 2.38% | 2.92% |
| Provision for credit losses | $14.7 million | $15.0 million |
| Non-interest income | $29.3 million | $23.9 million |
| Non-interest expense | $151.2 million | $140.6 million |
| Income tax expense / effective rate | $36.8 million / 29.5% | $26.7 million / 24.7% |
Net income rose 8.0%. Higher loan and securities yields and loan growth lifted net interest income, while the cost of interest-bearing liabilities rose faster than asset yields, narrowing the spread. Non-interest income increased mainly because solar tax-equity investment results improved; securities-sale losses partly offset that gain. Compensation and deposit-insurance costs contributed to higher expenses.
- Balance sheet: Total assets were $7.97 billion, up from $7.84 billion. Net loans were $4.35 billion, up from $4.06 billion; deposits were $7.01 billion, up from $6.60 billion; stockholders’ equity was $585.4 million, up from $509.0 million.
- Cash flow: Operating activities provided $117.2 million; investing activities used $134.4 million; financing activities provided $44.2 million. Cash and cash equivalents ended at $90.6 million, versus $63.5 million.
- Credit quality: Allowance for loan losses was $65.7 million, or 1.49% of loans, versus $45.0 million, or 1.10%, at year-end 2022. Nonperforming assets rose to $34.2 million (0.43% of assets) from $28.6 million (0.37%); nonaccrual loans increased to $33.2 million from $21.7 million.
- Funding and liquidity: Average deposit cost was 1.17%, compared with 0.16% in 2022; non-interest-bearing deposits were 44% of average deposits, down from 54%. Estimated uninsured deposits were $4.04 billion. The company reported $3.59 billion of liquidity available within two days, covering 89% of uninsured deposits.
- Debt and capital: Year-end liabilities included $234.4 million of other borrowings, including $230.0 million of Bank Term Funding Program borrowing due in 2024, and $70.5 million of subordinated debt. The Bank’s CET1 ratio was 13.68% and total risk-based capital ratio was 14.93%; it was categorized as well capitalized.
- Trust business: Assets under custody were $41.66 billion and assets under management were $14.82 billion. Trust fees were $15.2 million, up 5%.
Material changes versus 2022
- Loan growth and higher asset yields increased net interest income, but deposit and borrowing costs rose sharply; the margin improved while the spread compressed.
- Deposits increased by $417.0 million and net loans by $284.7 million. FHLB advances and other borrowings fell by $345.6 million overall, although the company had $230.0 million outstanding under the BTFP at year-end.
- CECL adoption on January 1, 2023 increased the loan allowance by $21.2 million and reduced retained earnings by $17.8 million after tax. Prior-year figures were not restated.
- Unrealized losses on available-for-sale securities improved year over year: accumulated other comprehensive loss was $86.0 million at year-end 2023, versus $108.7 million in 2022. The filing reports $102.3 million of net unrealized losses on available-for-sale securities and $148.0 million of net unrecognized losses on held-to-maturity securities at year-end.
- Net charge-offs increased to $14.0 million from $5.8 million, including $7.0 million in consumer solar charge-offs and $4.7 million in construction and land-development charge-offs.
Outlook, risks, contingencies and unusual items
The filing provides no specific earnings or financial guidance. Management describes a strategy of deposit-led organic growth, selective geographic expansion, growth in trust and investment management, and disciplined asset allocation and risk management. These are strategic intentions, not quantified forecasts.
- Key exposures include interest-rate and funding sensitivity, deposit concentration and election-cycle volatility, and geographic concentration in New York and California. Political and labor-related deposits represented 16% and 23%, respectively, of on- and off-balance-sheet deposits.
- Multifamily lending is concentrated in New York; approximately 74% of the New York multifamily exposure involved buildings with rent-regulated units. The company also highlights CRE market risks, consumer solar loan risks and PACE assessment risks.
- PACE assessments totaled approximately $1.08 billion at year-end across commercial and residential holdings. The company notes potential regulatory, compliance and credit risks; it also had an estimated $85.0 million remaining purchase commitment with Pace Funding Group.
- Available liquidity was substantial relative to uninsured deposits, but a deposit outflow could require higher-cost borrowing or securities sales. The company disclosed unrealized securities losses and warned that forced sales could affect earnings and capital.
- The 2023 provision included a $1.2 million charge-off tied to a corporate bond affected by Silicon Valley Bank credit concerns. Securities sales to reinvest in higher-yielding assets produced a $7.4 million net loss.
- The effective tax rate increased to 29.5%, including a $3.3 million adjustment related to a state and city tax examination; a $2.7 million uncertain tax liability related to prior net operating losses remained at year-end.
- Management said ordinary-course legal matters were not expected to have a material adverse effect. The auditor issued an unqualified opinion on the financial statements and internal controls; the allowance-for-credit-loss model and qualitative factors were identified as a critical audit matter.
Most important facts for investors to verify
- Deposit stability, uninsured-deposit trends, reciprocal-deposit usage and the stated two-day liquidity coverage.
- Whether higher deposit costs, funding mix and interest-rate movements sustain or pressure net interest margin and earnings.
- Developments in nonaccrual loans, charge-offs and the CECL allowance, especially in construction, solar and residential real estate.
- Valuation, credit performance and regulatory treatment of PACE assets, alongside the remaining purchase commitment.
- Realization of securities losses, repayment of the 2024 BTFP borrowing, and the resolution of the tax examination liability.
- Capital levels, dividend capacity and share repurchases, which remain subject to regulatory and board decisions.