Amalgamated Financial Corp. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited results. The company is a bank holding company; its March 1, 2021 reorganization placed Amalgamated Bank under the newly formed parent. Pre-reorganization periods reflect the Bank. The company reports one operating segment.
Financial performance and position
| Metric | Q2 2021 / June 30, 2021 | Comparable period / prior date |
|---|---|---|
| Net interest income | $42.0 million | $44.4 million in Q2 2020; down 5.5% |
| Net interest margin | 2.75% | 3.10% in Q2 2020 |
| Net income; diluted EPS | $10.4 million; $0.33 | $10.4 million; $0.33 in Q2 2020 |
| Six-month net income; diluted EPS | $22.6 million; $0.72 | $19.9 million; $0.64 in first-half 2020 |
| Six-month operating cash flow | $24.7 million | $17.7 million in first-half 2020 |
| Total assets | $6.56 billion | $5.98 billion at December 31, 2020 |
| Loans, net of allowance | $3.14 billion | $3.45 billion at December 31, 2020 |
| Deposits | $5.91 billion | $5.34 billion at December 31, 2020 |
| Cash and cash equivalents | $547.4 million | $38.8 million at December 31, 2020 |
| Stockholders’ equity | $548.2 million | $535.8 million at December 31, 2020 |
For the first half, net interest income was $83.8 million, down 5.9%, while non-interest income was $9.3 million, down 47.6%. Non-interest expense was $64.2 million, up 1.3%. The six-month improvement in net income primarily reflected an $18.4 million reduction in loan-loss provision, partly offset by lower net interest and non-interest income and higher expenses.
Q2 provision for loan losses was $1.7 million, versus $8.2 million a year earlier; first-half provision was a $1.6 million recovery, versus $16.8 million expense in first-half 2020. The allowance was $38.0 million, or 1.20% of loans, compared with $41.6 million, or 1.19%, at year-end. No borrowed funds were outstanding at June 30. The company reported regulatory capital ratios above applicable well-capitalized thresholds; consolidated total capital was 14.68% and common equity Tier 1 was 13.63%.
Material changes and management commentary
- Assets increased $577.6 million from year-end, principally from a $508.7 million increase in cash and a $415.3 million increase in securities, partly offset by a $309.9 million decline in net loans. Deposits grew $571.3 million during the first half.
- Management attributed lower net interest income to loan payoffs, lower average loan balances and lower asset yields; lower deposit costs and increased securities income partly offset the decline. Q2 average earning-asset yield was 2.85%, versus 3.28% a year earlier.
- Non-interest income fell partly because equity-method solar investments produced a $1.6 million Q2 loss, compared with a $1.3 million gain a year earlier; first-half equity-method investment loss was $5.2 million. Management expected minimal such losses in the remainder of 2021, excluding potential new investments.
- Nonperforming assets decreased to $71.0 million from $82.2 million at year-end. Nonaccrual loans were $51.9 million; potential problem loans were $283.1 million. COVID-19 payment deferrals still accruing interest totaled $4.0 million, mainly residential, with none in the commercial portfolio.
- The company held $2.45 billion in securities, including $545.8 million of PACE bonds. It had committed to purchase up to $375 million of PACE securities by Q4 2021 plus up to $100 million for other PACE-related purchases; $262.6 million of the obligations had been fulfilled by June 30.
Outlook, risks and contingencies
The filing gives no formal earnings or financial guidance. Management said COVID-19 effects, borrower credit quality, loan demand and historically low rates remain uncertain and could affect results, liquidity and capital. It cited possible higher credit costs after deferrals end, pressure on net interest margin and lower loan originations. The company had $621.2 million of commitments to extend credit and standby letters of credit, with a $1.1 million reserve for off-balance-sheet credit risk. Management reported no material pending or threatened legal matter and no material change to previously disclosed risk factors.
Interest-rate simulations estimated first-year net interest income increases of 13.3% under an immediate +100 basis-point shift and decreases of 13.7% under a -100 basis-point shift; these are hypothetical model results, not forecasts. Available-for-sale securities had $940.8 million pledged as collateral. Management considered securities impairments temporary, did not intend to sell the affected investments and expected contractual collections. The annual goodwill review found no impairment; future impairment remains possible if assumptions or market conditions change.
Important facts for investors to verify
- Whether deposit growth is durable, including the effects of politically related deposits and the company’s customer concentration.
- Loan portfolio trends, particularly multifamily and residential paydowns, commercial credit quality, the $283.1 million of potential problem loans, and losses or recoveries as COVID-related deferrals expire.
- Whether net interest margin stabilizes as asset yields, loan balances and deposit costs change.
- Performance and valuation of solar equity-method investments and the remaining PACE purchase commitments, including the credit and concentration exposure of PACE holdings.
- Cash-flow and capital implications of securities purchases, share repurchases, dividends and changes in accumulated other comprehensive income.
- Management’s expected adoption of CECL on January 1, 2023; the filing states that the eventual financial-statement impact was not yet determinable.