Amalgamated Financial Corp. — Q1 2021 Form 10-Q
Business context and period. Unaudited results cover the three months ended March 31, 2021, compared with Q1 2020; balance-sheet comparisons are with December 31, 2020. The company completed a one-for-one holding-company reorganization on March 1, 2021, with Amalgamated Bank becoming its sole subsidiary. The bank operates in commercial and retail banking, trust, custody and investment management.
Key financial metrics
| Metric | Q1 2021 / March 31, 2021 | Prior comparable period |
|---|---|---|
| Net interest income | $41.8 million | $44.7 million in Q1 2020 |
| Non-interest income | $4.0 million | $9.1 million in Q1 2020 |
| Net income; diluted EPS | $12.2 million; $0.39 | $9.5 million; $0.30 in Q1 2020 |
| Net interest margin | 2.85% | 3.46% in Q1 2020 |
| Efficiency ratio | 71.53% | 59.97% in Q1 2020 |
| Total assets | $6.39 billion | $5.98 billion at Dec. 31, 2020 |
| Loans, net of allowance | $3.22 billion | $3.45 billion at Dec. 31, 2020 |
| Deposits | $5.72 billion | $5.34 billion at Dec. 31, 2020 |
| Cash and cash equivalents | $504.9 million | $38.8 million at Dec. 31, 2020 |
| Stockholders’ equity | $540.2 million | $535.8 million at Dec. 31, 2020 |
| Borrowings | No borrowed funds at quarter-end | No borrowed funds at Dec. 31, 2020 |
Net income rose $2.6 million year over year, primarily because the loan-loss provision shifted to a $3.3 million recovery from an $8.6 million expense. The allowance for loan losses declined to $36.7 million, or 1.13% of loans, from $41.6 million, or 1.19%, at year-end. Nonaccrual loans were $57.9 million, 1.78% of loans; nonperforming assets were $81.0 million, or 1.27% of assets.
Cash flow from operating activities was $12.1 million, investing activities provided $76.6 million, and financing activities provided $377.4 million. The increase in financing cash flow chiefly reflected $381.4 million of deposit growth. These are cash-flow statement figures for the quarter, not forecasts.
At March 31, the bank reported regulatory capital ratios of 14.74% total risk-based capital, 13.70% Tier 1 risk-based capital and 8.06% Tier 1 leverage. It said the company and bank were “well capitalized.” Liquidity included $1.5 billion of remaining FHLB credit availability and approximately $115.2 million of Federal Reserve discount-window capacity; neither amount is cash on hand.
Material changes and management commentary
- Net interest income declined $2.8 million year over year as lower loan balances and yields outweighed reduced deposit interest expense. Net interest margin fell 61 basis points to 2.85%; management cited lower rates, lower yields on originations and lower prepayment penalties.
- Non-interest income fell $5.1 million, including a $3.7 million equity-method investment loss and the absence of a $1.4 million gain on a branch sale recorded in Q1 2020. Trust fees also declined, partly because the bank’s real-estate fund wind-down eliminated related fees beginning in 2021.
- Non-interest expense increased $0.5 million to $32.8 million. Higher data-processing, professional-fee and compensation costs—including trust-department modernization, executive searches and the reorganization—partly offset lower occupancy expense following branch closures.
- Loans declined by $224.5 million from year-end while deposits rose by $381.4 million. The bank cited loan repayments and purchases in certain categories; it purchased $34.3 million of solar loans and $24.4 million of government-guaranteed commercial loans during the quarter.
- Q1 other comprehensive income was a $4.4 million loss, largely reflecting unrealized losses on available-for-sale securities. The filing attributes securities’ unrealized losses mainly to market-rate and credit-spread movements and says management did not intend to sell the affected securities.
Outlook, risks and contingencies
- The filing provides no formal earnings or revenue guidance. Management expected approximately $1.8 million of additional equity-method investment losses during the remainder of 2021, related to the timing of tax benefits recognized in 2020; future solar investments could affect the outcome.
- COVID-19 remained a material uncertainty. The bank reported $8.5 million of loans on payment deferral and still accruing interest, plus $4.7 million of accrued interest on COVID-related loans in deferral. Management warned of potential credit deterioration after deferrals, lower margins and weaker loan originations.
- Potential problem loans totaled $287.9 million. The filing also reports $57.9 million of nonaccrual loans and $20.6 million of nonaccrual troubled-debt-restructured loans; these categories should not be added without checking for overlap.
- Off-balance-sheet credit commitments were $609.6 million, including $593.6 million of commitments to extend credit. The bank had fulfilled $214.5 million of an agreement to purchase up to $300 million of PACE securities by Q4 2021, plus an additional obligation of up to $25 million for other PACE purchases. PACE assessments generally rank senior to first-lien mortgages.
- Interest-rate sensitivity modeling showed estimated first-year net interest income up 12.4% under an immediate 100-basis-point rise and down 14.4% under a 100-basis-point decline. Management cautioned that simulation assumptions are hypothetical and actual results may differ substantially.
- The bank expected branch closures to reduce non-interest expense by approximately $4.0 million annually once fully phased in; the related $8.3 million charge was recorded in 2020. The company authorized a new $10 million share-repurchase program effective April 13, 2021; repurchases are discretionary and not assured.
- Management said pending or threatened legal matters were not expected to have a material adverse effect. It reported no material change in previously disclosed risk factors and said disclosure controls were effective.
Important facts for investors to verify
- Whether deposit growth and elevated cash balances persist, and how the mix of political, municipal and other deposits affects funding stability.
- Whether loan quality, the $287.9 million of potential problem loans and post-deferral performance support the current allowance and future provision levels.
- Whether margin pressure continues as rates, deposit costs, loan yields and prepayment activity change.
- The expected timing and size of equity-method investment losses and tax benefits, and the bank’s remaining PACE purchase obligations and exposure.
- How the new holding-company structure, executive searches, repurchase authorization and branch-cost savings affect expenses, capital and shareholder returns.