8-K: Amalgamated Financial Corp. Reports Strong Deposit Growth and Increased Net Interest Margin in Q4 2023

Amalgamated Financial Corp. announced positive fourth-quarter 2023 results, highlighted by significant deposit growth excluding brokered CDs and an expansion in net interest margin.

Summary

• Amalgamated Financial Corp. reported a net income of $22.7 million, or $0.74 per diluted share, for the fourth quarter of 2023, compared to $22.3 million, or $0.73 per diluted share, in the previous quarter.
• Core net income was $22.1 million, or $0.72 per diluted share, down from $23.3 million, or $0.76 per diluted share, in the third quarter.
• Total deposits increased by $21.1 million to $7.0 billion, which includes a $149.7 million decline in Brokered CDs.
• Excluding Brokered CDs, on-balance sheet deposits grew by $170.8 million, or 2.6%, to $6.8 billion.
• Political deposits saw a substantial increase of $236.1 million, or 24.8%, reaching $1.2 billion.
• Net interest income rose by $3.6 million, or 5.63%, to $67.3 million, and the net interest margin expanded by 15 basis points to 3.44%.
• Net loans receivable increased by $48.7 million, or 1.1%, to $4.3 billion.
• The company repurchased approximately 65,000 shares for $1.1 million, with $19.8 million remaining under its share repurchase program.
• For the full year 2023, net income was $88.0 million, or $2.86 per diluted share, an 8.0% increase from the previous year.
• Core net income for the full year was $90.5 million, or $2.94 per diluted share, a 3.8% increase year-over-year.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong deposit growth, improved net interest margin, and solid capital ratios, although there are some concerns about increased credit losses and expenses.

Positives

• The company experienced strong deposit growth, particularly in political deposits and excluding brokered CDs.
• Net interest margin expanded, indicating improved profitability from lending activities.
• The company maintains a strong capital position, exceeding regulatory requirements.
• Liquidity is robust, with significant cash and borrowing capacity.
• The company's share repurchase program is ongoing, returning value to shareholders.
• The company's full year results show an increase in net income and core net income.
• Nonperforming assets decreased by $2.3 million compared to the previous quarter.
• The company has a high level of super-core deposits with a long weighted average life of 16 years.

Negatives

• Core net income decreased slightly compared to the previous quarter.
• A tax adjustment of $3.3 million negatively impacted both GAAP and core net income.
• The average cost of deposits, excluding Brokered CDs, increased by 14 basis points to 125 basis points.
• Provision for credit losses increased to $3.8 million for the quarter, driven by a $4.7 million charge-off on a construction loan.
• Criticized or classified loans increased by $22.0 million during the quarter.
• The allowance for credit losses on loans decreased by $2.1 million to $65.7 million.

Risks

• The company faces uncertain conditions in the banking industry and national, regional, and local economies.
• There is a risk of deterioration in the financial condition of borrowers, potentially leading to increased loan losses.
• Deposit outflows and declines in liquidity could occur due to various factors, including lack of confidence in the banking system.
• Changes in interest rates and the yield curve could impact net interest margin.
• Potential deterioration in real estate collateral values could affect loan performance.
• Increased regulatory scrutiny and changes in legislation could impact the banking industry.
• The company faces competition from other financial institutions, which could lead to pricing pressures.
• There is a risk of failure or breach of operational or security systems.
• Increased political opposition to ESG and DEI practices could pose a risk.
• Physical and transitional risks related to climate change could impact the business.

Future Outlook

The company anticipates core pre-tax pre-provision earnings of $143 million to $148 million and net interest income of $268 million to $272 million for 2024, with a conditional balance sheet growth of approximately 3% in the second half of the year and a target of 8.5% Tier 1 leverage.

Management Comments

• Priscilla Sims Brown, President and Chief Executive Officer, stated, 'We are operating in an enviable position of managing deposit liquidity instead of searching for it.'
• She also noted, 'In today's highly constrained liquidity environment, we are punching well above our weight, giving us many options to deliver above peer returns.'

Industry Context

The results reflect a strong performance in a challenging banking environment, particularly in managing deposit liquidity and expanding net interest margin, which are key concerns for the industry.

Comparison to Industry Standards

• Amalgamated's deposit growth, excluding brokered CDs, is a positive sign compared to some regional banks that have struggled with deposit outflows.
• The net interest margin expansion of 15 basis points to 3.44% is a strong result compared to the industry average, which has been under pressure due to rising deposit costs.
• The Common Equity Tier 1 ratio of 12.98% is well above the regulatory minimum, indicating a strong capital position compared to many peers.
• The company's focus on mission-aligned lending and deposits, particularly in the political and non-profit sectors, differentiates it from traditional commercial banks.
• The company's super-core deposits, with a weighted average life of 16 years, are a significant advantage compared to banks with shorter-term deposit bases.

Stakeholder Impact

• Shareholders will benefit from the company's strong financial performance and share repurchase program.
• Employees will benefit from the company's continued growth and stability.
• Customers will benefit from the company's strong deposit base and lending activities.
• The company's focus on mission-aligned lending will benefit communities and organizations it serves.

Next Steps

• The company will continue to focus on deposit gathering and maintaining credit quality.
• The company will aim to achieve an 8.5% Tier 1 leverage target.
• The company will monitor macroeconomic factors and their impact on the business.

Key Dates

Keywords

deposits, net interest margin, capital ratio, loan growth, financial results, core net income, political deposits, share repurchase, liquidity, credit quality