Amalgamated Financial Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are with December 31, 2023. Financial statements are unaudited. Amalgamated Financial is a bank holding company whose bank offers commercial and consumer banking, trust, custody and investment-management services, with a values-oriented customer focus.
Financial performance and condition
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior year-end |
|---|---|---|
| Net interest income | $68.0 | $67.3 in Q1 2023 |
| Non-interest income | $10.2 | $5.2 in Q1 2023 |
| Net income; diluted EPS | $27.2; $0.89 | $21.3; $0.69 in Q1 2023 |
| Net interest margin | 3.49% | 3.59% in Q1 2023 |
| Net interest spread | 2.24% | 2.72% in Q1 2023 |
| Total assets | $8,136.7 | $7,972.3 at December 31, 2023 |
| Loans, net of allowance | $4,359.4 | $4,345.6 at December 31, 2023 |
| Deposits | $7,305.8 | $7,012.0 at December 31, 2023 |
| Cash and cash equivalents | $155.2 | $90.6 at December 31, 2023 |
| Stockholders’ equity | $616.9 | $585.4 at December 31, 2023 |
- Earnings and margins: Net income rose about 28% year over year. Net interest income increased modestly, but margin fell 10 basis points as funding costs rose faster than earning-asset yields. Average yield on earning assets increased to 4.97% from 4.53%; average rate on interest-bearing liabilities rose to 2.73% from 1.81%.
- Revenue mix: Non-interest income nearly doubled, driven mainly by higher deposit service charges, including ICS One-Way Sell income, and increased equity-method investment income. Trust fees were essentially flat. Total non-interest expense declined to $38.2 million from $38.6 million.
- Credit: Provision for credit losses was $1.6 million, versus $5.0 million in Q1 2023. The loan allowance was $64.4 million, or 1.46% of loans, compared with $65.7 million, or 1.49%, at year-end. Net charge-offs were $2.2 million; annualized net charge-offs were 0.20% of average loans.
- Cash flow: Operating activities provided $31.3 million; investing activities used $91.2 million; financing activities provided $124.6 million. Cash and cash equivalents increased $64.6 million during the quarter. Deposit growth and lower borrowings were significant financing flows.
- Funding and debt: Deposits grew $293.8 million; non-interest-bearing demand deposits were $3.18 billion. Other borrowings declined $165.3 million to $69.1 million, including $60.0 million outstanding under the Federal Reserve Bank Term Funding Program (BTFP), due in 2024, and $9.1 million of FHLBNY advances. Net subordinated debt was $70.6 million, with notes due in 2031.
- Liquidity and capital: Management reported $3.69 billion of immediately available funds and $3.86 billion of total liquidity within two days, including unpledged securities, representing coverage of 95% of estimated uninsured deposits. The Bank met applicable well-capitalized thresholds; its CET1 ratio was 14.48% and total capital ratio was 15.73% at quarter-end.
Material changes versus prior periods
- Compared with Q1 2023, net income increased $5.9 million. Higher loan, securities and bank-deposit interest income, improved non-interest income and lower credit-loss provision more than offset $11.2 million of additional interest expense and higher income taxes.
- Net interest margin declined from 3.59% to 3.49%; non-interest-bearing deposits fell to 44% of average deposits from 48% a year earlier. Total cost of deposits increased to 1.46% from 0.81%.
- Compared with December 31, 2023, deposits rose 4.2%, cash increased $64.6 million, and net loans increased $13.8 million. Available-for-sale securities increased to $1.53 billion; held-to-maturity securities declined to $1.67 billion.
- Uninsured deposits were estimated at $4.07 billion, versus $4.04 billion at year-end. Political deposits increased to approximately $1.44 billion from $1.19 billion; off-balance-sheet ICS deposits increased to $456.8 million from $303.1 million.
- Nonperforming assets were $34.0 million, or 0.42% of assets, broadly unchanged from $34.2 million, or 0.43%, at year-end. Potential problem loans totaled $88.4 million; management said $67.9 million were commercial loans in workout that it expects to rehabilitate.
Outlook, commentary and risks
- The filing provides no specific numerical earnings or financial guidance. Management says it intends to focus organic loan growth on C&I, multifamily, commercial real estate and residential mortgage lending, and views available liquidity as adequate for current and reasonably foreseeable needs.
- Rate sensitivity modeling estimates that an immediate 400-basis-point rate increase would reduce year-one net interest income by 10.5%; an immediate 100-basis-point increase would increase it by 0.6%. These are hypothetical model results, not forecasts, and actual outcomes depend on deposit repricing, balance-sheet mix, prepayments and other assumptions.
- Interest-rate risk remains significant: $94.7 million of unrealized losses were reported on available-for-sale securities, mostly on securities in a loss position for at least 12 months. Management attributed temporary impairment primarily to interest rates and spreads, said it did not intend or expect to need to sell the affected investments before recovery, and reported no credit-related impairment requiring an allowance.
- Multifamily loans were $1.18 billion, with 70% of exposure in New York City. Construction and land-development loans included $11.1 million on nonaccrual. Management cites borrower condition, CRE and multifamily market conditions, economic forecasts and interest rates as factors that could affect credit losses.
- The company had a remaining estimated commitment of $119.7 million to purchase PACE assessment securities through January 2025. PACE assessments are a substantial portion of securities holdings; valuation and credit outcomes depend on borrower performance, prepayments and other assumptions.
- An income-tax examination concluded in Q1, resulting in a $0.9 million tax expense adjustment. The reported effective tax rate was 29.2%; excluding the adjustment, management reported 26.9%. The quarter also included $2.8 million of net losses on securities sales.
- Management reported no material change in previously disclosed risk factors and no pending or threatened legal matter expected to have a material adverse effect. Risks highlighted in the filing include deposit outflows, uninsured-deposit concentration, liquidity and securities-sale losses, margin pressure, credit deterioration, regulatory changes, cyber and operational events, and scrutiny or opposition concerning ESG and DEI practices.
Most important facts for investors to verify
- Whether increased deposit-service-charge income, particularly ICS-related income, is sustainable and how deposit pricing affects future net interest margin.
- The composition, stability and concentration of uninsured, political and off-balance-sheet deposits, and the conditions underlying reported liquidity coverage.
- The BTFP borrowing’s 2024 maturity and the company’s repayment or replacement funding plan.
- Trends in multifamily, construction and other nonaccrual or potential problem loans, charge-offs, and the assumptions supporting the credit-loss allowance.
- PACE investment commitments, portfolio valuation inputs, and exposure to prepayment, credit and concentration risks.
- Whether securities unrealized losses remain temporary and whether management’s stated ability to hold investments through recovery continues to hold.