Amalgamated Financial Corp. (AMAL) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Amalgamated Financial Corporation Third Quarter 2026 Earnings Conference Call. [Operator Instructions] A replay of the call and the accompanying slides are available on our Investor Relations website. Please review the forward-looking statements and non-GAAP disclosures on Slide 2. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Jason Darby, Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and good morning, everyone. We appreciate your participation in our earnings call. With me today is Priscilla Sims Brown, our President and Chief Executive Officer. Additionally, Sam Brown, our Chief Banking Officer, is here for the Q&A portion of today's call. We'll keep our prepared remarks brief to limit repeating details you've already reviewed in the earnings materials. I'll now turn the call over to Priscilla.

Good morning, everyone, and thank you for joining us. We delivered another strong quarter, and I'm very pleased with both our results and the continued progress we're making against our strategy. What stands out to me this quarter is not simply the level of performance, but the consistency of our execution and the way the different elements of our strategy are increasingly reinforcing one another. Our differentiated deposit franchise continues to provide a strong foundation for the bank. We are putting that funding and our capital to work deliberately, focusing on opportunities where we believe we can generate attractive risk-adjusted return while serving the customers and communities at the core of our mission. We saw that clearly in the balance sheet this quarter. On-balance sheet deposits increased $256 million during the quarter to $8.7 billion, while off-balance sheet deposits totaled $1.1 billion. Very notably, political deposits remained at approximately $2 billion while also moving beyond the peak of the prior presidential election cycle. Growth across our mission-aligned customer segments continue to demonstrate the strength, resiliency and diversity of our bank. We also maintained approximately $5 billion of cash, borrowing capacity and unpledged securities, providing substantial liquidity and strategic flexibility. That funding strength allowed us to deploy capital into nicely balanced opportunities across the balance sheet. Commercial loans increased approximately $93 million during the quarter and C-PACE assessments increased approximately $54.2 million. At the same time, lower-yielding residential mortgages and consumer solar balances declined through planned runoff, allowing us to redeploy that capital into higher-performing assets. This is a good example of how we expect to continue converting the strength of our pipeline into attractive deployment opportunities in the quarters ahead. Importantly, our focus remains on the quality and economics of that growth, not simply on adding assets. At the same time, we continue to invest for the future. During the quarter, we advanced several modernization initiatives -- we expanded the use of AI-enabled tools across the organization, and we continued building the technology foundation to support our long-term ambitions. These investments are designed to simplify how we operate, improve the customer and employee experience, strengthen our control environment and enable us to support more business without adding complexity at the same pace. Just as importantly, we continued investing in our people. We strengthened their capabilities to better serve our communities and our customers. Taken together, this is the strategy at work. We are putting our differentiated funding base and capital to work more effectively while building the capabilities that allow us to serve our customers better and sustain stronger performance over time. We're focused on creating greater value from the franchise we've built with the discipline and risk management that have always defined how we operate. Our strong balance sheet, differentiated deposit franchise, mission-driven customer base and disciplined execution give us the confidence in both where we are today and the opportunity ahead. With that, I'll turn the call over to Jason.

Thanks, Priscilla. Last quarter, we discussed harvesting the earnings power of the bank. And this quarter, I'll spend some time talking about how that earnings power is showing up in the numbers. The earnings profile of the company continues to strengthen. Core net income increased to a record $34.6 million or $1.14 per diluted share. Net revenue exceeded $100 million for the first time in the bank's history. Net interest income reached a record $87.9 million while maintaining a net interest margin of 3.77%. And core profitability metrics again improved to record levels as core return on average assets increased to 1.44% and core return on average tangible common equity increased to 16.57%. Collectively, these results demonstrate both strong and consistent performance. We reached our target balance sheet size of approximately $9.6 billion this quarter by adding $141 million of interest-earning assets across the lending, PACE and traditional securities portfolios. Runoff loan portfolios generated approximately $39 million of redeployed cash -- and while we believe our balance sheet is well optimized, we are considering ways to accelerate reduction of our consumer solar loan portfolio as we continue pursuing productive revenue generation and future profitability. The scalability of the bank is starting to show. Revenue growth allowed us to continue investments in our technology ecosystem and necessary talent and also absorb an expected increase in occupancy expense associated with our headquarters move. Our core efficiency ratio remained remarkably stable at approximately 49%, demonstrating the positive operating leverage embedded within the bank and providing a glimpse into the long-term value we believe is still ahead of us. Our key takeaway this quarter is that our outlook remains favorable. Credit performance remained stable overall. Pass rated loans continue to represent approximately 97% of the portfolio. Annualized net charge-offs declined to 20 basis points, and we continue actively managing the previously discussed multifamily relationship. As another election cycle concludes in Q4, we expect to run a neutral balance sheet. We are comfortable with our liquidity position and ability to limit both NII and margin volatility. With that, we are increasing our net interest income outlook for the year from a high end of $340 million to a range of $341 million to $342 million, but project modest margin compression in the fourth quarter related to the DDA, IBA deposit remix as the election cycle concludes. For core pretax pre-provision earnings, we are raising from the prior high-end target of $190 million to a new range of $193 million to $194 million, driven mainly by our strong Q3 performance. In upcoming quarters, you'll hear us talk about meaningful but responsible growth. This means growing in a way that strengthens the bank rather than simply enlarging it. We're not attempting to become a larger bank for the sake of size. We are building a more productive bank. The objective is to generate stronger earnings, efficient returns and increasing operating leverage with less inherent structural risk. Said differently, the objective is to derive more value from each incremental dollar of asset growth. We believe the strongest banks are not those that grow the fastest, but those that become more productive. That philosophy benefits all our stakeholders by requiring strong financial performance, expansion of our capacity to serve customers and scale a model for financial success and community impact. Ultimately, the point is, as Amalgamated grows, the voice and impact of the mission-driven communities we serve grows with us. And we're now ready for questions.

[Operator Instructions] Our first question comes from the line of David Konrad with KBW.

Going through the pleasantries there, but I wanted to talk to Jason a little bit about the guide. Maybe run through a little bit of the NII because that seems off of a strong quarter of kind of flat next quarter and then PPNR looks to be down a bit quarter-on-quarter. I don't know if that's maybe seasonal fourth quarter expenses. So maybe kind of highlight a little bit more of the guide.

So the fourth quarter is going to follow the natural cyclicality pattern that Amalgamated has just as election cycles conclude. And the NII probably will look very similar to the amount that we had in the third quarter as a result of really just the mix shifting that's going to happen through the funding base as the larger portion of DDA balances starts to decline to support the election conclusion. So the NII has no real ability to lift from this period unless we decide to grow the balance sheet, which we have indicated we're going to leave a neutral balance sheet because our main focus is really to serve the liquidity needs and limit any volatility that's rolling through the NII vis-a-vis borrowings. So that's really the NII guide as a flattening, but I don't think that's going to be the trajectory. I think when we start to get out into next year, we'll start to see NII lifting again, and we'll talk more about that when we get into the guidance issue that we'll give at the end of the fourth quarter. But I think this period coming up will be a little bit of the pause in the momentum of the growth in revenue in other areas of the bank while we get through the election conclusion. Then on the PPNR side, I think the PPNR largely the growth is fueled by the outperformance that we had in this quarter. We're being modest in our expectations for NII, as I said. I think expenses will be generally close to where we are here in the third quarter, maybe tick up slightly. And on the noninterest income side, I think we had an outsized quarter this quarter just as a result of a valuation adjustment from an equity investment we had. So all things equal, I think that's where we are sitting with the PPNR guide. Our hope is we'll overperform, but want to give you what we think is the most reasonable expectation.

Great. And then maybe with the Fed move and we did one in December as well, what are your thoughts on deposit betas given the remix and what you think that will be in the next couple of quarters?

Sure. So it's a little too early to tell just on this quarter alone how the deposit betas are behaving just because it happened such kind of late period at the end of this quarter and then there just wasn't a lot of movement from our pricing. If you look at our average posted rates, actually ticked slightly down from quarter-over-quarter. So I don't have a great lens on just what that beta is going to look like. But if I thought about the historical for Amalgamated and the last rising rate cycle, which was the fastest one we've had in 50 years or so, the interest-bearing deposit beta was just under 40% throughout the entire cycle. So I think the signal from us is that we're going to intend to be competitive on pricing. We're going to move with the market. Typically, we enjoy a lower beta just by natural flow than the market, but that doesn't mean we're trying to manage to that. And historically, I think we have been better than our beta assumptions. And I think that's an important thing, too. So when we talk about our NII guide, which we'll give at the end of the fourth quarter in January, typically, we have very conservative beta assumptions, but usually, we do better than that. And hopefully, that will give you an indication of how we're thinking about deposit costs going through the cycle and what our betas might look like. But absent the beta discussion, I still think you can count on Amalgamated to have a very stable cost of funds trajectory. And I still believe this is very much an asset yield story as we get out into 2027 for the opportunity for potential margin expansion to continue.

Got it. And then maybe the last question for me. You kind of talked about looking for avenues to further reduce the consumer solar. Is there an opportunity -- I mean, the PACE product has been kind of a stable growth. Is there an opportunity to accelerate maybe C-PACE growth rates in 2027?

Yes. I'm going to ask Sam to comment that in a moment, but I think that's exactly right. We are looking for ways to optimize our capital to move into PACE as a primary feature. There's other areas where we can deploy. But the consumer solar portfolio, just given the way it's behaving the way that our CECL model is driving economics both in this quarter and into the future, really makes us want to accelerate movement of that portfolio liquidity into a different asset class like PACE. Sam, you can talk about our expectations for growth.

Yes. Obviously, David, we're really excited about what we saw in PACE for this quarter with $54 million. I think this quarter was benefited from a lot of activity that I want to make sure we're being transparent about what the next quarter will look like. That was a very high mark. That said, we really like PACE for forward reasons because PACE historically has had a really good reaction in rising rate environments. And so we hope that our opportunities for origination will actually expand here as rates continue to move and feel like that's a win for us. We also saw a lot of great PACE production at both ends of the spectrum, both in large transactions but also in our small dollar program as well. So we're looking at ways we can continue to grow those opportunity sets and expand our origination partners. So we agree with you, we would love to be doing more and have that as a very strong target for us in terms of 3 legs of our asset generation stool.

I'll just underscore that point about the diversification of the PACE program this quarter, not only in terms of size, but also multiple geographies and property types. And I think a lot depends on regulatory support for clean energy investment. We think that, that will lend itself to sustainable C-PACE growth.

Our next question comes from the line of Steve Moss with Raymond James.

Nice quarter here. Maybe just following up here in terms of business activity. Just curious, given the rate volatility, how you guys are thinking about overall loan growth here going forward and wondering if you're seeing any impacts from higher rates with regard to multifamily or other commercial borrowers.

Yes. Steve, it's Sam. So look, we are obviously making sure we're being responsive to the change out there. For us, rising rate environment, we really look at this across our 3 asset areas. In multifamily, it's really about managing our refinance risk and making sure that we're managing our credit standards and focusing on lower leverage deals because we want to continue that efficient NII growth that we've demonstrated. And we think we've got a really high-quality pipeline to do just that. Certainly, looking out ensuring a long lead time on any maturities that are coming due, you've seen as we put that out, what that looks like in '27 and beyond. In C&I, specifically and in our focus areas, the biggest impact of higher rates have really been to -- they show up in the form of increased sponsor equity that's needed to get these deals done. And that's because in the C&I transactions, particularly in the energy space, these deals and these projects have to get finished because of the calendars that come from the tax credit expirations in '27 and '30. And so we view that as -- that's positive for us because, again, the acceleration to bring those projects forward is continuing. And then lastly, I just mentioned on PACE, I won't repeat myself, but historically, we've seen some tailwind activity on that in a rising rate environment. So you put all that together, we think we've got a diversified pipeline, a high-quality pipeline and it can adapt to what the needs are of the bank as we move forward.