Amalgamated Financial Corp. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unless noted otherwise, figures below are in U.S. dollars; financial statement amounts stated in thousands have been converted to millions. Comparisons are with Q2 or first-half 2021 for income and cash flows, and December 31, 2021 for balance-sheet figures.
Business context
Amalgamated Financial Corp. is the holding company for Amalgamated Bank, providing commercial and consumer banking, trust, custody and investment-management services. The company focuses on socially responsible and mission-aligned customers. At quarter-end, the bank reported $38.9 billion of assets under custody and $12.9 billion under management.
Financial performance and position
| Metric | Q2 / June 30, 2022 | Comparable period / prior year-end |
|---|---|---|
| Net interest income | $56.5 million for Q2; $104.9 million for first half | Q2: $42.0 million; first half: $83.8 million |
| Net income | $19.6 million for Q2; $33.8 million for first half | Q2: $10.4 million; first half: $22.6 million |
| Diluted EPS | $0.63 for Q2; $1.08 for first half | Q2: $0.33; first half: $0.72 |
| Net interest margin | 3.03% Q2; 2.90% first half | 2.75% Q2; 2.80% first half |
| Total assets | $7.94 billion | $7.08 billion |
| Loans, net | $3.61 billion | $3.28 billion |
| Deposits | $7.29 billion | $6.36 billion |
| Stockholders’ equity | $498.0 million | $563.9 million |
Q2 provision for loan losses was $2.9 million, versus $1.7 million a year earlier. First-half provision was $5.2 million, compared with a $1.6 million recovery in first-half 2021. The allowance was $39.5 million, or 1.08% of loans, at June 30.
First-half operating cash flow was $68.1 million, investing cash outflow was $983.6 million, and financing cash inflow was $917.5 million. Cash and cash equivalents ended the period at $332.5 million, up $2.1 million from year-end. Financing inflows included a $934.9 million net increase in deposits; investing outflows included loan growth and securities purchases.
Interest-bearing debt consisted principally of $83.9 million of subordinated notes. The bank had no outstanding FHLB advances. Reported liquidity included $332.5 million in cash and equivalents, $2.1 billion of available-for-sale securities, $1.4 billion of remaining FHLB borrowing capacity and approximately $65.8 million of Federal Reserve discount-window capacity.
Material changes and drivers
- First-half net income rose $11.2 million year over year. Higher securities interest income was the primary driver; noninterest expense increased $4.5 million.
- Management attributed higher net interest income to larger average securities and loan balances and higher securities yields in the rising-rate environment. Q2 net interest margin increased 28 basis points year over year.
- Loans grew $332.5 million from year-end. Growth included residential real estate and consumer loans; commercial real estate loans declined. Deposits increased $934.9 million, including growth in political deposits, which are seasonal.
- Equity fell $65.8 million, primarily because of an $83.6 million after-tax decline in accumulated other comprehensive income, reflecting securities valuation losses. Net income partly offset the reduction.
- The company transferred securities with $277.3 million book value from available-for-sale to held-to-maturity during Q2. It recorded no transfer-date gain or loss. Available-for-sale securities had $88.8 million of gross unrealized losses at quarter-end; management attributed temporary impairment mainly to higher interest rates and credit spreads.
Outlook, risks and unusual items
The filing provides no specific earnings or balance-sheet guidance. Management said it believed available liquidity was adequate for current and reasonably foreseeable needs. Its interest-rate simulation estimated that an immediate +200 basis-point shift would increase year-one net interest income by 6.9%, while economic value of equity would decline 4.1%; a -100 basis-point shift was estimated to reduce year-one net interest income 6.6%. Management cautioned that these are hypothetical estimates and actual outcomes may differ.
- Nonperforming assets were $65.3 million, or 0.82% of assets, up from $54.6 million at year-end. Nonaccrual loans were $24.4 million; potential problem loans totaled $93.0 million. Management cited loan restructurings and new nonaccrual loans among the drivers.
- COVID-related payment deferrals or pending requests totaled $16.7 million. The allowance remains based on the incurred-loss model; CECL adoption is planned for January 1, 2023. Management did not expect CECL to have a material impact, while noting the assessment was ongoing.
- Interest-rate and market-value risk is significant given securities exposure: accumulated other comprehensive income moved from positive $5.4 million at year-end to a loss of $78.2 million. Management said it did not intend to sell temporarily impaired securities and expected contractual collections.
- The company had an estimated $91.6 million remaining commitment to purchase PACE securities through year-end 2022. It also reported $1.055 billion of off-balance-sheet credit commitments and letters of credit.
- Q2 noninterest income included a one-time BOLI beneficiary benefit; solar equity-method investments continued to generate losses, although those losses were smaller than a year earlier. Q2 included a $0.6 million securities-sale loss.
- Management reported no material change in previously disclosed risk factors and no pending or threatened legal matter expected to have a material adverse effect. Disclosure controls were reported effective, with no material change in internal control during the quarter.
Important facts for investors to verify
- Whether deposit growth is sustainable, particularly given the seasonal political-deposit component and potential changes in deposit pricing.
- Whether higher rates continue to support net interest income and margin, and how actual deposit and asset repricing compare with the filing’s simulations.
- Whether securities valuation losses remain temporary and whether the held-to-maturity transfer affects future liquidity flexibility.
- Credit quality trends, including the $93.0 million of potential problem loans, nonperforming assets, and the adequacy of the allowance as lending expands.
- The eventual quantitative effect of CECL adoption and the funding of remaining PACE commitments.
- Capital and shareholder-return developments: the company repurchased $8.8 million of stock in Q2 and paid $0.08 per share in dividends during the quarter.