Amalgamated Financial Corp. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are with December 31, 2021. Amalgamated Financial is a bank holding company whose operations are primarily conducted through Amalgamated Bank. It provides commercial and consumer banking, trust, custody and investment-management services.
Financial performance and position
- Profit: Net income was $14.2 million, up 16% from $12.2 million a year earlier. Diluted EPS was $0.45, versus $0.39.
- Income and margins: Net interest income rose to $48.4 million from $41.8 million. Net interest margin declined to 2.76% from 2.85%; net interest spread declined to 2.61% from 2.73%. Non-interest income was $7.4 million, up from $4.0 million, while non-interest expense increased to $34.4 million from $32.8 million.
- Cash flow: Operating activities provided $16.8 million; investing activities used $584.8 million; financing activities provided $611.5 million. Cash and cash equivalents increased $43.6 million to $374.0 million.
- Balance sheet and liquidity: Total assets were $7.65 billion, up from $7.08 billion. Deposits rose to $6.97 billion from $6.36 billion, and net loans to $3.43 billion from $3.28 billion. Available-for-sale securities were $2.42 billion and held-to-maturity securities were $946.3 million. The Bank had no FHLB advances and reported $1.5 billion of remaining FHLB credit availability, plus approximately $69.6 million of Federal Reserve discount-window capacity.
- Credit and debt: The allowance for loan losses was $37.5 million, or 1.08% of loans. Nonperforming assets were $61.1 million (0.80% of assets), up from $54.6 million. Subordinated debt was $83.9 million; no FHLB advances were outstanding.
- Capital and securities marks: Stockholders’ equity declined to $526.8 million from $563.9 million, principally reflecting a $46.3 million after-tax securities-related loss in accumulated other comprehensive income. The Company and Bank reported capital ratios above applicable “well capitalized” thresholds.
Changes and management commentary
- Higher securities income drove most of the increase in net interest income. Management attributed lower net interest margin partly to deploying deposit growth into securities faster than loans; the average yield on earning assets fell eight basis points.
- Non-interest income improved mainly because equity-method solar investments produced a $0.4 million gain, compared with a $3.7 million loss in Q1 2021. Trust fees fell 8.8%, primarily due to the run-off of the ULTRA real estate fund.
- Expense growth was primarily associated with a $2.2 million increase in data-processing costs for modernization of the Trust Department, partly offset by lower professional fees.
- The loan portfolio grew overall, with residential real estate and consumer loans increasing; commercial loans declined. Nonperforming assets rose, partly due to a new $10.5 million multi-loan troubled debt restructuring. Management reported no COVID-related payment deferrals remaining at quarter-end.
Outlook, risks and unusual items
- The filing gives no specific earnings or revenue guidance. Management said CECL adoption is planned for January 1, 2023; its quantitative impact remains under evaluation, although management did not then expect a material impact.
- The planned acquisition of Amalgamated Investments Company and Amalgamated Bank of Chicago was abandoned after the Company withdrew its regulatory applications. AIC declared the merger agreement terminated on March 15, 2022. The Company identified possible litigation, reputational, market, customer and employee impacts; management separately said pending or threatened legal matters were not expected to have a material adverse effect.
- Interest-rate, credit, deposit and economic conditions are key risks. The filing’s modeled immediate +100-basis-point scenario showed year-one net interest income rising 8.7%, while a -100-basis-point scenario showed a 10.0% decline; results are hypothetical and depend on assumptions.
- The Company had $946.8 million of commitments to extend credit and standby letters of credit. It also reported an estimated $132.6 million remaining commitment to purchase PACE assessment securities through year-end 2022. PACE securities were a substantial portion of the held-to-maturity portfolio.
- Disclosure to reconcile: The securities note says management did not expect it would need to sell temporarily impaired securities before recovery, while the MD&A states that management believed it was more likely than not the Company would be required to sell them before full recovery. The filing text is inconsistent on this point.
Most important facts for investors to verify
- Whether the reported increase in earnings is sustainable given margin compression and the unusually favorable year-over-year comparison for solar equity-method investment results.
- The extent and duration of securities fair-value losses, the conflicting statements about potential forced sales, and their implications for capital and liquidity.
- Developments in nonperforming assets, troubled restructurings, potential problem loans and the allowance as loan balances and economic conditions change.
- Deposit stability and concentration, including political deposits of approximately $1.1 billion, and funding needs associated with the remaining PACE purchase commitment.
- Any litigation or other consequences arising from termination of the AIC/ABOC transaction, and the eventual CECL adoption impact.