Amalgamated Financial Corp. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with 2020. On March 1, 2021, the Company became the holding company for Amalgamated Bank through a reorganization. Unless otherwise noted, financial amounts below are in U.S. dollars.
Business context and reporting period
The Company is a bank holding company whose principal subsidiary provides commercial and consumer banking, trust, custody and investment management services. Its relationship-based business targets values-aligned organizations and individuals. At year-end, it reported $7.08 billion in assets, $6.36 billion in deposits and $3.28 billion in net loans. Trust operations had $40.2 billion of assets under custody and $17.3 billion under management.
Financial results and key metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Net interest income | $174.3 million | $180.0 million |
| Non-interest income | $28.4 million | $40.6 million |
| Net income | $52.9 million | $46.2 million |
| Diluted EPS | $1.68 | $1.48 |
| Net interest margin | 2.77% | 3.11% |
| Non-interest expense | $132.3 million | $133.9 million |
| Cash provided by operating activities | $70.5 million | $65.8 million |
- Profit increased 14.6%, principally reflecting a $25.1 million year-over-year swing in loan-loss provision expense: 2021 had a $0.3 million recovery versus a $24.8 million provision in 2020. Lower net interest income and non-interest income partly offset the benefit.
- Net interest margin fell 34 basis points as earning-asset yields declined amid low rates and elevated deposit-driven liquidity. Average earning-asset yield was 2.86%, while the average cost of interest-bearing liabilities was 0.22%; reported total cost of deposits was 0.10%.
- Non-interest income declined $12.2 million, including lower solar tax-equity investment income, trust fees and securities-sale gains. Non-interest expense decreased $1.6 million, with lower occupancy costs partly offset by higher data-processing, professional and merger-related costs.
- Total assets rose to $7.08 billion from $5.98 billion; deposits increased to $6.36 billion from $5.34 billion. Net loans declined to $3.28 billion from $3.45 billion. Cash and cash equivalents ended at $330.5 million versus $38.8 million.
- Cash flows were $70.5 million from operations, negative $865.4 million from investing and positive $1.09 billion from financing; cash increased $291.7 million. Financing inflows included $1.02 billion of deposit growth and proceeds from subordinated notes.
- Stockholders’ equity was $563.9 million versus $535.8 million. Year-end allowance for loan losses was $35.9 million, or 1.08% of loans, down from $41.6 million, or 1.19%. Nonperforming assets fell to $54.6 million (0.77% of assets) from $82.2 million (1.38%).
- Regulatory capital remained above minimums: Bank CET1 was 13.98%, total risk-based capital 14.89% and leverage ratio 8.21%; the Bank was categorized as well capitalized.
- The Company issued $85 million of 3.25% fixed-to-floating subordinated notes due 2031. Year-end carrying value, net of issuance costs, was $83.8 million.
Material changes, outlook and notable items
- Investment securities, including FHLB stock, increased to approximately $2.96 billion from $2.03 billion. The portfolio included $627.4 million of held-to-maturity PACE assessments; management reported no material PACE losses to date and judged securities impairments at year-end to be temporary.
- The Company’s New York multifamily exposure was approximately $647.6 million; about $425 million related to rent-stabilized or rent-controlled apartments. Management identifies rent regulation and local real-estate conditions as credit risks.
- Political campaign, PAC and party-committee deposits were approximately $989.6 million at year-end and may fluctuate with election cycles. Core deposits were 97% of total deposits, while non-interest-bearing accounts represented about 52% of deposits.
- On February 25, 2022, the Company said it withdrew regulatory applications for its planned mergers with Amalgamated Investments Company and Amalgamated Bank of Chicago because approval could not be obtained. The transaction will not proceed; the filing identifies possible litigation, reputational effects and customer or employee reactions.
- Management described organic deposit-led growth and expansion of trust and investment services as strategic priorities, but provided no numerical earnings or growth guidance. It stated an intention to continue a quarterly dividend of $0.08 per share, subject to Board, regulatory, capital and other constraints.
- Management’s market-risk simulation estimated first-year net interest income would increase 12.8% under an immediate +100-basis-point parallel rate shift and decrease 11.7% under a -100-basis-point shift. These are hypothetical model results, not forecasts; actual outcomes may differ materially.
- Key risks include interest-rate and margin pressure, COVID-19 effects, concentrated metropolitan and real-estate lending, New York rent regulation, deposit volatility, PACE collateral priority and evolving regulation, cybersecurity and vendor dependence. CECL adoption is expected January 1, 2023; management said its impact was not yet determinable and could increase reserves.
Important facts for investors to verify
- Whether the improvement in earnings is sustainable after the unusually favorable loan-loss provision comparison, and how credit quality and the allowance evolve.
- How deposit growth, especially election-related and other concentrated balances, behaves as rates and customer cash needs change.
- The performance, valuation and credit risks of the growing securities and PACE portfolios, including remaining PACE purchase commitments of $145.8 million and their lien priority.
- Exposure and collateral performance in rent-regulated New York multifamily lending, and the status of criticized or potential problem loans.
- The realized effect of higher interest rates on net interest income, deposit costs, securities values and capital; the filing’s rate scenarios are model-dependent.
- Consequences of the withdrawn merger applications, including any litigation, costs or business disruption, and the terms and execution of the increased share-repurchase authorization of up to $40 million approved in February 2022.