Amalgamated Financial Corp. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; balance-sheet comparisons are to December 31, 2021. Amounts below are in U.S. dollars. The company is a bank holding company providing commercial and consumer banking, trust, custody and investment-management services.
Key financial metrics
| Metric | Q3 2022 / September 30, 2022 | Comparable period / December 31, 2021 |
|---|---|---|
| Net interest income | $67.6 million; prior-year quarter $43.4 million | YTD: $172.5 million vs. $127.2 million |
| Net income | $22.9 million; diluted EPS $0.74 | Q3 2021: $14.4 million; $0.46. YTD net income $56.7 million vs. $37.0 million; diluted EPS $1.82 vs. $1.17 |
| Net interest margin | 3.50% | Q3 2021: 2.70%; YTD 2022: 3.11% vs. 2.77% |
| Loans, net | $3.83 billion | $3.28 billion |
| Deposits | $7.16 billion | $6.36 billion |
| Total assets | $7.87 billion | $7.08 billion |
| Cash and cash equivalents | $66.2 million | $330.5 million |
| Stockholders’ equity | $487.7 million | $563.9 million |
| Allowance for loan losses | $42.1 million; 1.09% of loans | $35.9 million; 1.08% of loans |
Results, cash flow and balance-sheet changes
- Q3 net interest income rose $24.2 million year over year, reflecting higher yields and larger average securities and loan balances. Average earning-asset yield increased to 3.66% from 2.79%; deposit costs remained relatively low, with a reported total cost of deposits of 0.14% for the quarter.
- YTD noninterest income was $19.7 million, up from $16.0 million. YTD noninterest expense increased to $105.0 million from $97.2 million, including higher data-processing and compensation costs. Q3 provision for loan losses was $5.4 million, versus a $2.3 million recovery in Q3 2021.
- For the first nine months, operating cash flow was $94.9 million, investing cash outflow was $1.21 billion and financing cash inflow was $851.3 million. Cash and cash equivalents declined $264.3 million from year-end.
- Loans grew $552.8 million net of allowance, with particularly strong growth in residential real estate and consumer loans. Deposits increased $804.1 million from year-end. The company also reported $75 million of FHLB advances and $77.7 million carrying value of subordinated debt.
- Equity declined $76.1 million, principally due to a $113.3 million after-tax decline in accumulated other comprehensive income, largely reflecting securities valuation losses; net income partly offset the decline. Available-for-sale securities had $129.8 million of gross unrealized losses, and held-to-maturity securities had $123.0 million of gross unrealized losses.
Outlook, risks and unusual items
- The filing provides no specific earnings or balance-sheet guidance. Management said it believes available liquidity sources are adequate for current and reasonably foreseeable needs. At quarter-end, it reported $1.4 billion of remaining FHLB credit availability and approximately $63.9 million of Federal Reserve discount-window capacity.
- Management attributed securities impairment primarily to higher interest rates and credit spreads, and said it did not intend to sell the securities and expected to collect contractual amounts. However, the filing’s discussion also states that management “believe[s] it is more likely than not” the securities will be required to be sold before full recovery; this appears inconsistent with the surrounding discussion and merits clarification.
- Credit indicators included $54.3 million of nonperforming assets (0.69% of assets), $19.8 million of nonaccrual loans and $84.9 million of potential problem loans. Management cited loan growth, specific reserves and charge-offs as drivers of the higher provision. Multifamily lending has a notable New York City concentration.
- The company expected to adopt CECL on January 1, 2023. Model testing and impact analysis were ongoing; management did not then expect a significant impact, but stated the effect could depend on portfolio characteristics and economic forecasts. PACE securities make up a significant portion of held-to-maturity securities.
- Other exposures include $856.8 million of commitments to extend credit and standby letters of credit, a $45.0 million remaining PACE investment commitment through year-end 2022, and ordinary-course legal proceedings that management did not expect to have a material adverse effect. The filing identifies rising rates, deposit repricing or outflows, economic weakness, credit deterioration, real-estate conditions and the outcome of litigation related to a terminated merger agreement among risks.
- The company and Bank were reported as well capitalized. The company reported no material change to previously disclosed risk factors; disclosure controls were considered effective.
Important facts for investors to verify
- Clarify the apparently inconsistent statement about whether securities may need to be sold before recovery, and assess the size and duration of unrealized losses.
- Review deposit stability and sensitivity to rates, including political deposits, which were approximately $1.2 billion at quarter-end, alongside the substantial decline in cash balances.
- Track loan growth, charge-offs, nonperforming and potential problem loans, allowance adequacy, and the portfolio’s multifamily and PACE exposures.
- Monitor the final CECL adoption impact, particularly for PACE securities, and any changes in management’s stated expectations.
- Assess whether higher funding costs, liquidity needs, investment marks and operating expenses alter future margins and earnings; the filing does not provide formal forward guidance.