Amalgamated Financial Corp. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited consolidated results. The company is a bank holding company whose subsidiary offers commercial and consumer banking, trust, custody and investment-management services.
Financial performance and position
| Metric | Q2 2023 | Comparable period / balance |
|---|---|---|
| Net interest income | $63.0 million | Up 11.5% from Q2 2022 |
| Net interest margin | 3.33% | 3.03% in Q2 2022 |
| Net interest spread | 2.33% | 2.88% in Q2 2022 |
| Net income / diluted EPS | $21.6 million / $0.70 | $19.6 million / $0.63 in Q2 2022 |
| Provision for credit losses | $3.9 million | $2.9 million in Q2 2022 |
| Non-interest income / expense | $7.9 million / $37.5 million | $7.2 million / $34.3 million in Q2 2022 |
For the six months ended June 30, net interest income was $130.3 million, up 24.2%; net income was $43.0 million, versus $33.8 million; and diluted EPS was $1.39, versus $1.08. Six-month net interest margin was 3.46%, up from 2.90%. Increased asset yields and balances supported revenue, while higher deposit and borrowing costs partly offset the gains.
At June 30, total assets were $7.79 billion, net loans $4.18 billion, deposits $6.89 billion and stockholders’ equity $528.6 million. Loans net of allowance grew $123.3 million from year-end; deposits grew $299.6 million. The allowance for loan losses was $67.4 million, or 1.59% of loans. Cash and cash equivalents were $65.7 million.
Six-month cash from operating activities was $62.1 million, compared with $68.1 million in the first half of 2022. Investing activities provided $4.9 million, versus $983.6 million used, while financing activities used $64.8 million, versus $917.5 million provided. The filing reports ending cash, cash equivalents and restricted cash of $65.7 million, compared with $332.5 million at the end of the prior-year period.
The Bank reported June 30 capital ratios of 15.17% total capital to risk-weighted assets, 13.92% Tier 1 and common equity Tier 1 to risk-weighted assets, and 8.65% Tier 1 capital to average assets; it was categorized as well capitalized. These are Bank-level ratios, not the consolidated company’s.
Material changes and notable items
- Interest expense rose sharply as deposit pricing repriced and borrowings increased. Average interest-bearing deposit costs reached 2.00% in Q2, versus 0.18% a year earlier; non-interest-bearing deposits were 45% of average deposits.
- Uninsured deposits were estimated at $3.93 billion, down from $4.52 billion at December 31, 2022. Political deposits increased to $835.8 million from $643.6 million and may fluctuate with election cycles. Brokered CDs rose to $468.5 million from $74.3 million.
- The company adopted CECL on January 1, 2023, reducing retained earnings by $17.8 million after tax and increasing the loan allowance by $21.2 million. Prior-period results were not restated.
- Nonperforming assets increased to $35.3 million from $28.6 million at year-end. Nonaccrual loans were $33.7 million, including construction loans placed on nonaccrual; potential problem loans totaled $81.4 million.
- Available-for-sale securities had $128.1 million of net unrealized losses and held-to-maturity securities had $178.3 million of unrecognized losses. Management attributed temporary impairment primarily to market rates and spreads and said it did not intend, and did not expect to be required, to sell the securities before recovery.
- The company recorded a $1.2 million provision impairment on a Silicon Valley Bank corporate bond in Q1 and sold the bond in Q2, with an immaterial additional loss. First-half securities sales generated net realized losses of $3.4 million, primarily from strategic sales and the SIVB position.
Liquidity, outlook and risks
Following 2023 bank failures, management increased deposit monitoring and customer outreach, pledged additional loans and securities, raised its cash targets and increased brokered CD issuance. At June 30, the company had $230 million outstanding under the Federal Reserve’s Bank Term Funding Program (BTFP), no FHLBNY advances, and reported $1.99 billion of remaining FHLBNY credit availability. It reported $2.6 billion of immediately available cash and borrowing capacity, plus $758.3 million of unpledged securities available within two days—total two-day liquidity of $3.3 billion, covering 85% of estimated uninsured deposits. These liquidity figures depend on access to funding and collateral availability.
Interest-rate simulations showed estimated declines in both year-one net interest income and economic value of equity under every modeled immediate parallel shift, including rate increases and decreases. For example, a 100-basis-point increase was estimated to reduce year-one net interest income 2.3%; a 400-basis-point increase, 19.2%. Management cautions that simulations are hypothetical and actual results may differ.
The filing gives no specific earnings or financial guidance. Key risks include deposit outflows and concentration, higher funding costs, banking-sector instability, interest-rate and securities valuation risk, credit deterioration and real-estate collateral values, potential increased FDIC assessments, and possible effects of U.S. government fiscal or credit-rating developments. The company had a $132.4 million estimated remaining commitment to purchase PACE assessments through December 2023. Management said pending or threatened legal matters were not expected to have a material adverse effect.
Investor verification priorities
- Track uninsured, political, brokered and other concentrated deposits, as well as deposit pricing and outflows.
- Confirm liquidity availability, collateral encumbrance, BTFP repayment terms and the sustainability of wholesale funding access.
- Review nonaccrual and potential problem loans, especially construction, multifamily and consumer solar exposures, and the assumptions supporting the CECL allowance.
- Assess the effect of unrealized securities losses and any need to sell securities on earnings and capital.
- Monitor net interest margin as deposit costs reprice, and compare actual results with the filing’s adverse interest-rate sensitivity scenarios.
- Verify execution and funding of the remaining PACE purchase commitment and the resulting portfolio concentration.