Amalgamated Financial Corp. — Q1 2023 Form 10-Q
Business context and reporting period. The filing reports unaudited results for the three months ended March 31, 2023, with balance-sheet comparisons to December 31, 2022 and income-statement comparisons to Q1 2022. Amalgamated is a commercial and retail bank, with trust and custody services. At quarter-end it reported $7.84 billion in assets, and its trust business held $39.73 billion in assets under custody and $13.86 billion under management.
Key financial metrics
| Metric | Q1 2023 / March 31, 2023 | Comparison |
|---|---|---|
| Net income; diluted EPS | $21.3 million; $0.69 | Q1 2022: $14.2 million; $0.45 |
| Net interest income; net interest margin | $67.3 million; 3.59% | Q1 2022: $48.4 million; 2.74% |
| Provision for credit losses | $5.0 million | Q1 2022: $2.3 million |
| Non-interest income; non-interest expense | $5.2 million; $38.6 million | Q1 2022: $7.4 million; $34.4 million |
| Cash from operating activities | $34.9 million | Q1 2022: $17.1 million |
| Cash and cash equivalents | $130.9 million | December 31, 2022: $63.5 million |
| Loans, net of allowance; deposits | $4.13 billion; $7.04 billion | December 31, 2022: $4.06 billion; $6.60 billion |
| Equity; total borrowings | $519.2 million; $140.0 million other borrowings and no FHLBNY advances | December 31, 2022: $509.0 million; $580.0 million FHLBNY advances and no other borrowings |
Material changes and notable items
- Net income increased $7.2 million year over year. Higher loan and securities interest income supported results, partly offset by sharply higher deposit and borrowing costs, increased expenses, and lower non-interest income.
- Net interest margin rose 85 basis points year over year to 3.59%. Average yield on earning assets increased to 4.53% from 2.86%, while the average rate on interest-bearing liabilities rose to 1.81% from 0.27%.
- Deposits increased $446.3 million from year-end. Brokered CDs rose to $594.9 million from $74.3 million; non-interest-bearing demand deposits declined to $3.02 billion from $3.33 billion. Estimated uninsured deposits were $4.38 billion.
- Loans, net, grew $69.9 million from year-end, including 9.9% growth in multifamily loans. The allowance for loan losses rose to $67.3 million from $45.0 million; the quarter-end allowance-to-loans ratio was 1.61%.
- Adopting CECL on January 1, 2023 reduced retained earnings by $17.8 million after tax. The adoption added $21.2 million to the loan allowance and $0.7 million to the held-to-maturity securities allowance; prior-period results were not recast.
- Nonperforming assets increased to $38.7 million from $28.6 million at year-end. Nonaccrual loans were $30.0 million; management attributed the increase primarily to an SVB senior note and a construction loan placed on nonaccrual.
- Accumulated other comprehensive loss improved by $11.4 million during the quarter, mainly reflecting securities valuation changes. Available-for-sale securities had $116.9 million of gross unrealized losses at March 31; management attributed temporary impairment primarily to interest rates and spreads.
Outlook, risks, and contingencies
- The filing provides no specific earnings or balance-sheet guidance. Management said available liquidity was adequate for current and reasonably foreseeable needs.
- After banking-sector failures, the company described increased deposit monitoring, customer outreach, collateral pledging, brokered CD issuance, and higher target cash balances. At March 31, it reported $1.9 billion of cash and borrowing capacity and $2.7 billion of total liquidity available within two days, covering 62% of uninsured deposits. This included a $140 million Bank Term Funding Program borrowing.
- Key risks include deposit outflows, reliance on uninsured and potentially volatile political deposits, higher-cost replacement funding, interest-rate exposure, credit deterioration, and potential higher FDIC assessments. Political deposits were $678.1 million at quarter-end.
- Rate-sensitivity simulations estimated that an immediate 100-basis-point increase would reduce year-one net interest income by 2.2%; a 400-basis-point increase would reduce it by 18.4%. Management cautioned that these scenarios are hypothetical and actual results may differ.
- Q1 unusual items included a $1.2 million provision related to an SVB senior note, a $3.1 million loss on securities sales (including a $0.6 million loss on part of that note), and a $1.1 million multifamily loan charge-off. The company also reported a $0.8 million gain on repurchase of subordinated debt.
- The company had $614.8 million of commitments to extend credit and standby letters of credit, plus an estimated $112.0 million remaining commitment to purchase PACE securities through September 2023. Management said pending legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether deposit balances and funding costs remain stable, particularly given uninsured deposits, brokered CD growth, and political-deposit seasonality.
- How liquidity capacity, collateral availability, and use of the BTFP or other borrowings change after quarter-end.
- Whether credit quality, nonperforming assets, solar and multifamily charge-offs, and CECL allowance assumptions develop as expected.
- Whether securities-related unrealized losses or further sales affect earnings, liquidity, or capital.
- Whether deposit pricing and asset repricing sustain net interest margin amid changing rates.
- That the Bank reported capital ratios above “well capitalized” thresholds at March 31, 2023; confirm subsequent regulatory capital and FDIC assessment developments.