Amalgamated Financial : Second Quarter 2021 Earnings Call Transcript

Second Quarter 2021 Earnings Call

Transcript

July 29, 2021

Amalgamated Financial - Second Quarter 2021 Earnings Call, July 29, 2021

C O R P O R A T E P A R T I C I P A N T S

Jason Darby, Chief Financial Officer

Priscilla Sims Brown, President and Chief Executive Officer

C O N F E R E N C E C A L P A R T I C I P A N T S

Alex Twerdahl, Piper Sandler

Janet Lee, J.P. Morgan

Brian Morton, Barclays

William Wallace, Raymond James

Chris O'Connell, KBW

P R E S E N T A T I O N

Operator

Good morning, ladies and gentlemen, and welcome to the Amalgamated Financial Corporation Second Quarter 2021 Earnings Conference Call.

I would now like to turn the call over to Mr. Jason Darby, Chief Financial Officer, please go ahead sir.

Jason Darby

Thank you, Operator, and good morning everyone.

We appreciate your participation in our second quarter 2021 earnings call. With me today is Priscilla Sims Brown, President and Chief Executive Officer.

As a reminder, a telephonic replay of this call will be available on the investors section of our website for an extended period of time. Additionally, the slide deck to complement today's discussion is also available on the investors section of our website.

Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution investors that actual results may differ from the expectations indicated or implied by any such forward-looking information or statements. Investors should refer to Slides 2 and 3 of our earnings slide deck as well as our 2020 10-K filed on March 15, 2021, for a list of risk factors that could cause actual results to differ materially from those indicated or implied by such statements.

Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in

1

Amalgamated Financial - Second Quarter 2021 Earnings Call, July 29, 2021

isolation, or as a substitute for results prepared in accordance with the U.S. GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measures can be found in our earnings release, as well as on our website.

Let me now turn the call over to Priscilla.

Priscilla Sims Brown

Thank you, Jason, and good morning, everyone. We appreciate your time and interest.

I would first like to thank Jason and his experienced team who have been invaluable in bringing me up to speed since I joined Amalgamated in early June. My initial excitement in joining the Company has only been heightened by witnessing the team's dedication to our mission and our commitment to excellence.

I'd also like to take a moment to acknowledge the terrific foundational work performed by Keith, and the previous management team in assembling a strong and deep senior leadership team improving the credit profile of the loan portfolio, reducing the expense structure, broadening our deposit gathering capabilities, and expanding into mission aligned products which continue to be an important growth driver for the Company; an example would be residential and now Commercial PACE Assessments.

This strong foundation can be seen in our second quarter results where our deposit franchise grew 13% annualized to $5.9 billion on a linked quarter basis, while maintaining one of the industry's lower cost of funds at 10 basis points. Our political franchise remain strong and stable and experienced steady growth following last year's election rising almost $100 million to $791.3 million as compared to the first quarter.

Our underwriting and credit management has positioned the Company to not only weather the recent dislocation from the pandemic, but also to position us to explore a range of mission aligned options. As we focus on organic growth, which I will touch a bit more on in a moment.

A continued challenge to our growth has been the tepid demand for loans that we in the industry has faced, combined with a low interest rate environment that is flush with liquidity. This has resulted in an elevated level of prepayments, which in turn has pressured both our loan portfolio and our earnings through the first six months of this year.

While we are seeing a slowing of prepayments combined with continued strength in both residential and Commercial PACE Assessments, we are cautious on loan growth through the second half of 2021. As a result, we are revising our full year pre-taxpre-provision earnings guidance this morning, which Jason will discuss in more detail after my commentary.

We believe, however, that we are in a good position from which to build as we think about the next chapter in Amalgamated's 100 year history. I have observed that we have a strong brand amongst those who know as well. Our clients who are game changers and social responsibility are fiercely loyal to us. We intend to build on that loyalty by leaning into our mission as American socially responsible bank. Growth at Amalgamated is a key priority, and I've been working diligently with our leadership team to comprehensively evaluate the way we do business, and determine opportunities that will deliver sustained and profitable long-term growth as we strive to maximize the franchise value of this Company.

Over my more than 30 year career in the U.S. and abroad, I've held a variety of roles in the insurance, banking and financial services sectors, and I am thrilled with the opportunity to lead Amalgamated building on the Company's history and its commitment to social and environmental responsibility. Having been in my position for two months, I would like to share six key observations with you, as the leadership team and I put together a plan to optimize the many opportunities that we have in front of us.

2

Amalgamated Financial - Second Quarter 2021 Earnings Call, July 29, 2021

First, I'm impressed with Amalgamated, as the Company was first to embrace the concept of banking for good, never wavering from their century long mission of empowering organizations and individuals to advance positive social change. What has changed is the economic and social landscape over the last two years, as companies and organizations are increasingly seeking socially responsible ways to run their businesses, while increasing their franchise value.

This is a story that is resonating with an increasing number of firms that are seeking a bank that shares not only their financial goals, but also wants to partner with them to support their mission and values. Amalgamated's mission is one that needs to be better told in a world that is increasingly receptive to hearing it.

Second, we really need to expand and grow the Amalgamated brand, as it will help us gain share and drive business. I believe companies are going to be increasingly evaluated by who they do business with, including their banking partners, which uniquely positions Amalgamated to succeed. As part of this, we are planning to effectively build our brand in the market, as well as utilize technology to improve our marketing to attract new customers.

Third, we have a terrific team of bankers who have created relationships and established themselves as experts in their segments, and I believe there are opportunities to further expand our platform. As I've met some of our key customers, I've learned that our brand resonates with those who do business with us. We can service them more from a lending perspective as well as deliver new avenues and products. I see more opportunities to properly expand our lending platform with products which fit our core mission, and which will deliver strong risk adjusted returns. PACE assessments are a good example where we can redeploy liquidity and earn attractive returns while at the same time funding projects that improve the environment.

Fourth, I've been impressed with the Company's underwriting and credit management practices. As we explore opportunities to grow the bank, we will maintain our underwriting discipline and ensure that we continue to earn appropriate risk adjusted returns on any new business that we enter. Credit quality will always be at the core of any growth strategy we pursue.

Fifth, we will continue to evaluate geographic expansion through both organic opportunities, like our Commercial Banking Office in Boston, and through M&A, like our successful acquisition of New Resource Bank in San Francisco.

Lastly, we will remain prudent stewards of capital and recognize the value of our shares. To that end, we have been actively buying back shares, having repurchase approximately 154,000 shares for $2.5 million of common stock under our $10 million share repurchase authorization during the second quarter. As you can see, I'm excited with the many opportunities that we have to profitably grow the bank and expand our platform. To achieve this, we will need to make investments into people, products, services and technology.

I will continue to rely on metrics and goals to ensure that the investments we make, meet our return hurdles and expand the franchise value of the Company, as well as ultimately translates to improve growth and profitability while remaining steadfastly true to the environmental and social governance that we've set as America's socially responsible bank.

To conclude, I would like to thank our Board of Directors for giving me the opportunity to lead Amalgamated and our senior management team who have worked diligently to help assist me in this exciting transition. Amalgamated is a much needed institution with a unique societal and environmental mission, and I'm very excited for the bank's future. We will continue to evaluate and determine how to optimize our brand and the ways in which we do business, including deepening our high value client relationships, expanding our customer base, accelerating organic loan growth and exploring M&A opportunities. I am looking forward to providing more details on our plan in our third quarter call.

Now, I'd like to turn the call over to Jason who will review our second quarter results in greater detail.

3

Amalgamated Financial - Second Quarter 2021 Earnings Call, July 29, 2021

Jason Darby

Thank you, Priscilla.

Net income for the second quarter of 2021 was $10.4 million or $0.33 per diluted share, compared to $12.2 million or $0.39 per diluted share for the first quarter of 2021, and $10.4 million or $0.33 per diluted share for the second quarter of 2020. The $1.8 million decrease for the second quarter of 2021 compared to the previous quarter, was primarily due to a $1.7 million provision for loan loss expense, compared to a $3.3 million release of provision for loan losses in the preceding quarter, partially offset by a $1.4 million decrease in non-interest expense and a $1.3 million increase in non-interest income.

Coordinate income a non-GAAP measure for the second quarter of 2021 was $10.2 million, or $0.32 per diluted share. Coordinate income for the second quarter of 2021 excluded $300,000 of non-interest income gains on the sale of securities.

Turning to Slide 7 deposits at June 30, 2021 were $5.9 billion, an increase of $190 million or 13.3% annualized as compared to $5.7 billion as of March 31, 2021. Non-interest bearing deposits represent 51% of average deposits and 50% of ending deposits for the quarter ended June 30, 2021, contributing to an average cost of deposits of 10 basis points in the second quarter of 2021, a one basis point decrease from the previous quarter.

As can be seen on Slide 8 deposits held by politically active customers, such as campaigns, PACs, advocacy based organizations, and state and national party committees were $791.3 million as of June 30, 2021, an increase of $99.6 million as compared to $691.7 million as of March 31, 2021.

Turning to Slide 10, our total loans at June 30, 2021 were $3.1 billion, a decrease of $85.4 million as compared to March 31, 2021. The decline in loans was primarily driven by a $52.1 million decrease in residential loans, and a $46.2 million decrease in commercial real estate and multifamily loans due to refinancing activity by our existing customers.

Our balance of PACE Assessments, which is reported in the held to maturity securities portfolio, increased by $94.2 million in the second quarter to $545.8 million as compared to the first quarter of 2021. The yield on our total loans was 3.82% compared to 3.83% in the first quarter of 2021. After adjusting for prepayment penalty fees, our loan yield was up one basis point in the second quarter as compared to the previous quarter.

On Slide 12, net interest margin was 2.75% for the second quarter of 2021, a decrease of 10 basis points from 2.85% in the first quarter of 2021 and a decrease of 35 basis points from 3.10% in the second quarter of 2020. The accretion of the loan mark from the loans we acquired and our new resource bank acquisition contributed two basis points to our net interest margin in second quarter of 2021, compared to two and three basis points in the first quarter 2021 and second quarter of 2020 respectively.

Prepayment penalties earned through loan income contributed three basis points to our net interest margin in the second quarter of 2021 compared to four basis points in the first quarter of 2021 and two basis points in the second quarter of 2020. We estimate that our excess liquidity this quarter from balance sheet growth has suppressed our NIM by 19 basis points.

Turning to non-interest income, it was $5.3 million for the second quarter of 2021 compared to $4 million in the linked quarter, and $8.7 million for the second quarter in 2020. The sequential increase of $1.3 million was primarily due to the expected decrease in equity method investment losses related to investments in solar initiatives partially offset by a decrease of $500,000 in trust department fees attributed to the low rate environment and pressure on fixed income bonds. The decrease of $3.4 million as compared to the year

4