Amalgamated Financial Corp. — Q3 2023 Form 10-Q
Business context and reporting period. This unaudited filing covers the quarter and nine months ended September 30, 2023, compared with the same 2022 periods; balance-sheet comparisons are to December 31, 2022. Amalgamated Financial is a bank holding company whose subsidiary offers commercial and consumer banking, trust, custody, and investment-management services. It reported $7.91 billion in assets, including $4.30 billion in net loans and $6.99 billion in deposits. Trust assets under custody were $39.60 billion and assets under management were $13.90 billion.
Financial performance and condition
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net interest income | $63.7 million | $67.6 million | $194.0 million | $172.5 million |
| Net income | $22.3 million | $22.9 million | $65.3 million | $56.7 million |
| Diluted earnings per share | $0.73 | $0.74 | $2.12 | $1.82 |
| Net interest margin | 3.29% | 3.48% | 3.40% | 3.11% |
| Non-interest income | $6.8 million | $5.0 million | $19.9 million | $19.7 million |
| Non-interest expense | $37.3 million | $36.3 million | $113.5 million | $105.0 million |
For the nine months, cash provided by operations was $101.9 million; investing activities used $52.5 million and financing activities provided $27.2 million. Cash and cash equivalents rose by $76.7 million to $140.2 million. Total stockholders’ equity was $546.3 million.
At September 30, 2023, deposits were $6.99 billion, up $395.8 million from year-end; net loans were $4.30 billion, up $235.9 million. Available-for-sale securities were $1.49 billion and held-to-maturity securities were $1.68 billion. Borrowings included $230.0 million under the Federal Reserve’s Bank Term Funding Program, $4.4 million in FHLBNY advances, and $70.4 million in subordinated debt. The Bank met the filing’s “well capitalized” designation; its total capital ratio was 14.98% and common equity tier 1 ratio was 13.73%.
Material changes versus comparable periods
- Q3 net income declined $0.6 million year over year as higher deposit and borrowing costs more than offset increased interest income and lower credit-loss provision. Net interest income fell 5.8%; net interest margin declined 19 basis points.
- Nine-month net income increased $8.6 million. Net interest income rose 12.5%, reflecting higher asset yields and balances, partly offset by substantially higher funding costs. The average cost of interest-bearing liabilities increased to 2.19% from 0.31%.
- Total deposits grew, but the mix shifted toward higher-cost funding: brokered CDs were $391.9 million at quarter-end, versus $74.3 million at year-end 2022. Non-interest-bearing deposits were 42% of average deposits in Q3 versus 56% a year earlier.
- The allowance for loan losses was $67.8 million, or 1.55% of loans, versus $45.0 million and 1.10% at year-end. The January 2023 adoption of CECL increased the allowance by $21.2 million and reduced retained earnings by $17.8 million after tax.
- Nonperforming assets rose to $36.5 million from $28.6 million at year-end, principally reflecting construction loans placed on nonaccrual. Nonaccrual loans were 0.79% of total loans; nine-month annualized net charge-offs were 0.27% of average loans.
Outlook, risks, contingencies, and unusual items
- The filing provides no specific earnings or balance-sheet guidance. Management said available liquidity sources were adequate for current and reasonably foreseeable needs.
- Management reported $3.2 billion of liquidity available within two days, including $2.6 billion of cash and borrowing capacity and $576.0 million of unpledged securities, covering 85% of estimated uninsured deposits of $3.76 billion. The Bank had $230.0 million outstanding under the BTFP.
- Banking-sector stress, deposit volatility, rising funding costs, rate sensitivity, economic deterioration, borrower and real-estate credit risk, and higher FDIC assessments are highlighted risks. Political deposits were $951.2 million and may fluctuate with election cycles.
- Available-for-sale securities had $128.8 million of net unrealized losses; held-to-maturity securities had $204.9 million of unrecognized losses. Management attributed temporary impairment primarily to interest rates and spreads, and said it did not intend or expect to be required to sell the securities before recovery. These marks may become realized if liquidity needs force sales.
- Nine-month provision for credit losses was $10.9 million. Management cited portfolio growth and individual reserves, partly offset by improved macroeconomic forecasts and releases on unfunded exposures. Solar-loan charge-offs were $5.6 million for the nine months.
- The company recorded $5.1 million of net securities-sale losses for the nine months, including a loss related to a Silicon Valley Bank corporate bond and strategic sales to reinvest in higher-yielding securities. It also recorded $1.4 million of gains on subordinated-debt repurchases.
- Commitments included $562.9 million of credit commitments and standby letters of credit, plus an estimated $69.3 million remaining commitment to purchase PACE securities through December 2023. Management said pending ordinary-course legal matters were not expected to have a material adverse effect.
Most important facts for investors to verify
- Whether deposit growth is sustainable and the cost of deposits, brokered CDs, and other borrowings continues to pressure margins.
- Trends in uninsured and political deposits, liquidity coverage, and reliance on BTFP or other wholesale funding.
- Credit performance in construction, commercial, and consumer solar loans, including nonaccrual balances, charge-offs, and adequacy of CECL reserves.
- Whether securities unrealized losses remain temporary and whether management can avoid sales that would crystallize losses.
- Capital ratios, regulatory requirements, and the effects of dividends and share repurchases on capital and liquidity.
- Reported comparisons should account for the adoption of CECL in 2023; prior-year figures use the earlier incurred-loss methodology.