Q2 2021 Amalgamated Bank Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the amalgamated Financial Corporation second quarter 2021earnings conference call. During today's presentation, all parties will be in a listen only mode.
Following the presentation the conference will be opened for questions.
Questions with instructions to follow at that time and.
As a reminder, this conference call is being recorded.
I'd now like to turn the call over to Mr. Jason Got Darby Chief Financial Officer. Please go ahead Sir.
Thank you operator, and good morning, everyone. We appreciate your participation and our second quarter 2021earnings call.
With me today.
Those same as 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, a 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.
He is pursuing 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.
Investors should refer to slides 2 and 3 of our earning slide deck as well as our 2020.
10-K filed on March 15th 'twenty, and 'twenty, 1 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.
Presentation of this additional information should not be considered and isolation.
And making for as a substitute for results prepared in accordance with 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.
Let me now turn the call over to per seller.
Thank you Jason and good morning, everyone. We appreciate your time and <unk>.
I would first like to thank Jason and his experienced team who have been invaluable and bringing me up to speed since I joined amalgamated and early June.
My initial excitement and joining the company has only been heightened by witnessing the team's dedication to our mission and a commitment to excellence.
I'd also like to take a moment.
For it knowledge the terrific foundational work performed by key and the previous management team and assembling a strong and deep senior leadership team improving the credit profile of the loan portfolio, reducing the expense structure.
Our deposit gathering capabilities and expanding into mission.
On the trade 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 and our second quarter results, where our deposit franchise grew 13% annualized debt.
5.9 billion.
And the liners on a linked quarter basis, while maintaining 1 of the industry and lower cost of funds at 10 basis points.
Our political franchise remains 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 and.
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 option.
And we focus on organic growth, which I will touch a bit more on.
And on that.
And it continued challenge to our growth has been the tepid demand for loans that we and the industry have 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 earning through the first.
And then more 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 'twenty 'twenty 1.
As a result, we are revising our full year pretax pre provision earnings guidance. This morning.
Jason will discuss in more detail after my commentary.
We believe however that we are in a good position from which to build and we think about the next chapter and amalgamated 100 year history.
I have observed that we have a strong bank brand amongst those who know us well our client.
Which and changes and social responsibility are fiercely loyal to us we.
We intend to build on that loyalty by leaning into our mission and America's socially responsible bank.
Gross at amalgamated is a key priority and I've been working diligently with our leadership team to comprehensively evaluate the way we do business.
We're again determine opportunities that will deliver sustained and profitable long term growth and we strive to maximize the franchise value of this company.
Over my more than 30 year career, and the U S and abroad and held a variety of roles and the insurance banking and financial services sectors and.
And I'm 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 2 months I would like to share 6 key observations with you and the leadership team and I put together a plan to optimize and many opportunities that we have in front of.
First I am impressed with amalgamated as the company was first to embrace the concept for 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 2 years.
And the 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.
Speaking of bank debt shares not only their financial goals, but also wants to partner with them.
And support their mission and values.
Amalgamated mission is 1 that needs to be better told and 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.
And we're going to be increasingly evaluated by who they do business with including their banking partners, which uniquely positions amalgamated succeed.
As part of this we are planning to effectively build our brand and 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 establish themselves with experts and their segments and I believe there are opportunities to further expand our platform and.
And I have met some of our key customers have learned that our brand resonates with those who do business with us.
And we can service them more.
And from a lending perspective, as well as deliver new avenues and products.
See more opportunities to thoughtfully expand our lending platform with products, which fit our core mission and which will deliver strong risk adjusted return pace assessments are a good example, where we can redeploy liquidity and.
At attractive returns while at the same time funding projects that improve the environment.
For 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.
They like our successful acquisition of new resource Bank and San Francisco.
Lastly, we will remain prudent stewards of capital and recognize the value of our shares to that and we have been actively buying back shares having repurchased approximately 154000 share.
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 and to.
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 translate to improved growth and profitability, while remaining steadfast and true.
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 and this exciting transition.
And to the amalgamated is a much needed institution with a unique societal and environmental mission and I'm very excited for the bank future.
We will continue to evaluate and determine how to optimize our brand and the way and which we do business, including deepening our high value client relationships and expanding our customer.
Accelerating organic loan growth and exploring M&A opportunities.
I am looking forward to providing more details on our plan and 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.
Thank you for.
Brazil.
Net income for the second quarter of 2021 was $10.4 million for 33 per diluted share compared to $12.2 million for 39 cents per diluted share for the first quarter of 2021 and $10.4 million for 33 per diluted share for the second quarter of 2020.
<unk> for $8 million decrease for the second quarter of 2021 compared to the previous quarter.
Primarily due to a $1.7 million provision for loan loss expense compared to a $3.3 million release of provision for loan losses, and the preceding quarter, partially offset by a $1.4 million decrease and noninterest expense and a $1.3.
For 1 our increase in noninterest income.
Okay.
Core net income and non-GAAP measure for the second quarter of 2021 was $10.2 million for 32 cents per diluted share.
Core net income for the second quarter of 2021 excluded $300000 of noninterest income gains on sales of securities.
3 million turning to slide 7 and deposits at June 32021 were $5.9 billion and increase of $190 million or 13, 3% annualized as compared to $5.7 billion as of March 31.2021.
Noninterest bearing deposits represented 51% of average deposits and 50% of ending.
For the quarter ended June 30 of 2021 contributing to an average cost of deposits of 10 basis points and the second quarter of 2021, a 1 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.
Deposits and National Party committees were $791.3 million as of June 32021, and.
And 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 32021 were $3.1 billion.
And state a decrease of $85.4 million as compared to March 31.2021.
And and loans was primarily driven by a $52.1 million decrease and residential loans and a $46.2 million decrease and commercial real estate and multifamily loans due to refinancing activity by our existing customers.
Our balance.
Assessments, which is reported and the held to maturity securities portfolio increased by $94.2 million and the second quarter to $545.8 million as.
Third for the first quarter of 2021.
The yield on our total loans was 382% compared to 383% from the first quarter.
A pay for any 1 after adjusting for prepayment penalty fees or loan yield was up 1 basis point and the second quarter as compared to the previous quarter.
On slide 12.
Net interest margin was $2.75 per cent for the second quarter of 2021, a decrease of 10 basis points from 2.85% and the first quarter of 2020.1.
2000, and a decrease of 35 basis points from $3, 1 zero percent and the second quarter of 2020.
The accretion of the loan Mark from the loans, we acquired and our New resource Bank acquisition contributed 2 basis points for our net interest margin and the second quarter of 2021 compared to 2 and 3 basis points and the first quarter of 2021 and second quarter.
2020, respectively.
Prepayment penalties earn through loan income contributed 3 basis points to our net interest margin and the second quarter of 2021 compared to 4 basis points and the first quarter 2021, and 2 basis points and the second quarter of 2020.
We estimate that our excess liquidity this quarter from balance sheet growth.
And Ah suppressed our NIM by 19 basis points.
Turning to noninterest income it was $5.3 million for the second quarter of 2021 compared to $4 million and the linked quarter and $8.7 million for the second quarter and 2020.
The sequential increase of $1.3 million was primarily due to the expected decrease.
Kris and equity method investment losses related to investments and solar initiatives, partially offset by a decrease of $500000 and <unk>.
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 ago quarter was primarily due to a loss of $1.6 million.
Related to equity investments and solar initiatives and the second quarter of 2021 compared to a $1.3 million gain and the second quarter of 2020.
We are primarily recognized the benefit of the tax credits in 2020, the initial year of the equity investments and expect minimal losses and equity method investments during the remainder of 2021.
These impacts do not include any benefits of new solar equity investments that we may make in the future.
Noninterest expense for the second quarter of 2021 was $31.4 million a decrease of $1.4 million from the first quarter of 2021, and an increase of $300000 from the second quarter of 2020 as outlined on slide 14.
The decrease of $1.4 million from the previous quarter was primarily due to a 1.1 million dollar charge for severance related to the modernization of our trust Department and the first quarter of 2021 and a decrease and professional service expense.
Turning to slide 16, nonperforming assets totaled $71 million or 1 point O 8 per cent a period.
And total assets at June 30 of 2021, a decrease of $10 million compared with $81 million or 1.27 per cent a period and total assets at March 31.2021.
The decrease and nonperforming assets was primarily driven by the pay off of $11.2 million of non accruing construction loans and a decrease of $2.4 million.
And of loans 90 days past due and accruing.
Provision for loan losses totaled an expense of $1.7 million for the second quarter of 2021 compared to a recovery of $3.3 million and the first quarter of 2021, and and expense of $8.2 million for the second quarter of 2020, respectively.
The expense and the second quarter of.
2021 was primarily driven by an increase and specific reserves for C&I loans countered modestly by net balance reductions.
Moving along to slide 17, our GAAP and core return on tangible average common equity for 7.6, and 7.7% respectively for the second quarter of 2021 <unk>.
Importantly, we.
Well capitalized to support our future growth initiatives.
Turning to slide 19, and as per Silicon rented we revised our outlook for 2020.1.
This revision assumes core pretax pre provision earnings of $66 million to $72 million, which excludes the impact of solar tax equity income or losses and net interest income for.
The remaining $68 million to $174 million, which includes prepayment penalty income.
Our revision recognizes the headwinds we've faced and our loan portfolio over the past 6 months.
We are encouraged by the potential for general economic expansion as we head into the second half of the year and we're excited about our prospects as we continue to strengthen our standing as America's.
100, and for responsible bank and with that I'd like to ask the operator to open up the line for any questions operator.
At this time and will be conducting a question and answer session.
And I can ask a question. Please press star 1 on your telephone keypad and confirmation tone will indicate your line is and the question queue you may.
Price starting to if you like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up on your handset before pressing the star keys.
1 moment, please while we poll for questions.
Our first question is from Alex taught out with Piper Sandler. Please proceed with your question.
Hey, good morning, everybody.
Good morning, Alex and good morning.
Nice to talk to you guys first.
First off for so I wanted to I recognize you knock on their rollout your strategy for amalgamated Bank until I think you said the third quarter earnings call, which is fair.
To give you a little bit of time to kind of get everything and.
Your line, but you talked a little bit about optimizing sustainable and profitable growth and I wanted to hone in on a little bit on the profitable piece of that and I was hoping maybe you could kind of discuss a little bit and your eyes, how important the profitability pieces it.
Is it is and the amalgamated story.
That's great.
And so on and I'm going to I'm going to actually.
And make an assumption here for stop me, if it's wrong, but but I think part of your question is is profitability.
Greater interest.
As compare to sort of the social responsibility or ESG.
And quite focused that you have.
And and I don't know if Thats, where you were really going but we do get that question a bit and so I wanted to just say that we actually think that it's really nice to have a model that allows for both in fact, we don't think 1 does well without the other so in other.
A word we are uniquely qualified we think and the 6 segments that we participate in.
To talk about growing through.
This socially responsible model and.
If you're not growing then the model doesn't work and.
For few are.
Competing on a different basis and other <unk>.
Area is if youre not focused and you don't get the profitability. So yes profitability is key.
Highly highly focused on the next year and what that looks like from a growth perspective.
We think there are lots of untapped potential within the 6 segments. We currently participate in and within the product suite that we currently have and we also think there's really good opportunity to expand our client base and also to look at additional products, where we're and uniquely qualified to assess.
And it.
Thank you for that and then just switching gears a little bit to the guidance that you guys are getting as I look at the guidance for NII It seems like.
For the next for I guess for the back half of the year. It implies that NII should be flat or actually maybe even a little bit higher than the second.
And talk a little bit about what's driving that NII growth for the remainder of the year.
Yes, so so I think the NII growth, it's modest at best but the pipeline for US we're fairly encouraged right I think there's a couple of things, Alex and and number 1.
Quarter.
Being without CEO or and transition for the past 6 months prior to <unk> arrival cause a little bit of install and momentum.
It's been refreshing since per soles arrive to sort of see the reinvigoration of the business and some of the things that we've.
And you'll see starting to flow through our <unk>.
And our lending approval process right. So in terms of growth and what's going to drive that and it's a volume game.
We like the prospects of our of our pipeline we feel like there is there is reasonable opportunity during the second half of the year to fuel and feel optimistic.
We've been able to make.
And that we're going to be on a little bit of an upward trajectory in terms of loan growth and then.
I think kind of going forward with with C pace and other areas of our business that we feel like we are experts and and leading and and starting to really get and understanding of how to perform and that market.
And.
And Theres, a great deal of opportunity to put on assets that have.
Coupons that will we will generate for us that would probably be in excess of and maybe some of the more traditional style lending debt.
And the bank had previously been engaged in.
That's great and can you just remind us under the flow agreements on the pay stuff what's left for this year.
And yes, so we have on the PFG and sorry on the on the flow side for our pace I was thinking of.
We have.
<unk>.
$60 million left to go.
We put on another 36 gross for this quarter and and our pace from our flow arrangement.
That net it down a little bit because we had the semiannual payments from the tax assessments that came through during the quarter.
But we feel pretty comfortable with our with our flow and being able to hit our $150 million target.
And we're working with our partner to accurately provide additional expansion of that agreement.
And and additional capacity, although there's not much more to report on that at the moment, but feel feel very good about maintaining our $150 million target for the year.
At roughly a $30 million to $35 million per clip heading into Q3 and Q4.
And then to sort of supplement that and we don't talk we haven't talked much about this but.
The commercial pace.
<unk> of our business is starting to show.
And some real opportunistic signs, we had about $80 million and bookings.
Through our commercial paper program that would be on top of Alex the flow arrangement that we have and our pace, so and that and that particular <unk>.
<unk> business, you know I think things look pretty bright and and and countable if you will.
And as you know we tend to view the.
Pay section of our business as complementary if not.
There are different lending channel, so we kind of view debt.
As a net positive overall for.
Our lendings are as well.
Great. So let me just to clarify to get this straight theres about $60 million left on the PFG flow agreement and then separately, there's a commercial pace piece, that's growing it's $80 million. So far that's already on the balance sheet and that could continue to grow for the remainder of this year and into next year.
That's correct and so when we think about our pipeline we call it tier based commercial pace.
<unk> up on more and more interesting and chunk of that.
And those deals function a lot more like like lending and style projects, but that's absolutely correct and how to think about our prospects and the pace environment.
Okay.
The C pace is that through a flow arrangement as well or is that being originated and and underwritten all in house.
Yeah, it's not through a flow arrangement, we do have partners that bring us deal opportunities. So we do work with referral sources.
But not under any contractual flow arrangement and the.
And.
The underwriting process is very similar to a credit style of underwriting but.
At the same time, the nature of the Pes assessment for commercial relative to retail is similar it's all based on the property tax.
Property tax liens and the relative business incentive that comes from having and energy efficient.
Based on your commercial project.
Okay, Great and then just final question on that point. The C. Paces that are held to maturity or security or is that and that.
Alone and the loan portfolio.
And it'll be treated the same way and bonded assessments so through held to maturity securities.
Fantastic Thanks for taking my questions.
And welcome Thanks, Alex.
And our next question is from Janet Lee with J P. Morgan. Please proceed with your question.
Hello, everyone.
Hum.
And it started off well for.
Let's just start off on your guidance I just want to clarify a few.
Bob.
So on the core PTC income of 66 to 72.
Million.
It's a change and your guidance just primarily from the Rockies Ala Carte NII on NII, given the excess liquidity or is there any expense.
And outlook that's also.
Point and to play and second on your net interest income guidance for 2020.1.
What level of cash are you assuming are you assuming your cash position comes down from your $5.50 million or any kind of assumptions that you're baking in.
Yeah. So.
And to answer the first part of the question. The there is no change to the for the expense outlook, it's really a volume game.
Relative to the loan portfolio and the revised guidance at the low and is really assuming a flat and loan book from this point and time.
We do expect to stay within.
Coming and get range of $30 million to $32 million on on operating expenses and on that basis.
For the the low end of the revised guidance would come from.
In terms of beating the higher end of the range, we built and very modest assumptions for net loan growth.
Yeah.
It probably call it and the low low to mid single digits and.
And we feel that that creates a pretty good target for us or the relative range of 66% to $72 million.
To the question on on cash volume.
And it's tricky right because.
And our toward the deposits are a pretty strong part of our of our.
Business proposition and balance sheet thesis, but at the same time, the excess liquidity drag is obviously noticeable.
We think that trading out of the cash portfolio into loans.
And maybe some of the shorter term duration securities is.
And probably the best way to go in terms of redeploying the cash.
When we model it out it's not a substantial drop.
And I would still expect us to be.
Carrying in excess of $100 million and cash as we get to the end of the year on an average basis, but thats really where.
That's really where we were trying to move.
And <unk>.
Moving the repositioning of the funding sources from the cash base to today, obviously, the earning personal loans.
Got it.
And just to clarify also apologies if you already talked about this but when.
And when you say you're more cautious about you know your.
You're you're still cautious about longer despite you know prepay slowing down from here and the second half of 2021, but then you're more optimistic about potential loan growth and the back of his as well are you, saying on a net basis, you would expect to see.
Loan growth and.
And the second half.
Is that just from like the grocery on excluding the prepay on it.
Yeah, I think cautiously.
Let's just parse the words for a moment so the cautious nature of this is it's hard to ignore the relative decline that we've had and our loan book over the past.
And.
Our past 6 months or so relative to the prepayment activity and and maybe the for lack of origination. So we don't want to get.
Further ahead of ourselves and then we'd be prudent just looking at sort of the historical results, but what we are optimistic about is is really what our pipeline looks like.
And if you pair that up with the sort of general expectation for economic expansion and Q3 and Q4, along with now having our CEO firmly seated and providing.
Guidance and direction on what we wanted to be able to do and what the what our pipeline should be trying to get pulled through.
And it.
It creates a lot more optimism going forward that we on a net basis could grow a little bit through the loan portfolio, that's kind of the way we're thinking about it.
Okay. That's very helpful and just on the de Novo expansion I know that for sure I was going to talk about and more detail on the third quarter, but where are we on the Boston.
De Novo expansion and also on the L. A I believe that the L. A de novo expansion was put on hold given the pandemic situation.
Where are we now and and and what's your plan around that.
We are very optimistic about the business and Boston, we have a team on the ground.
And everyone's officially going back into the office and September but they've been very active.
And in terms of Los Angeles, and actually any other.
The several large markets that we have been looking at.
We're really focused on those which will contribute to the lending strategy.
<unk> most of all.
And there are several good markets and across the country that we're looking at L. A is just 1 of them.
Got it if I can just squeezing 1 last question. So you talked about M&A is it something that you're and you're gonna be actively looking at.
And.
And can you talk about maybe some of the M&A and backward tangible book value dilution threshold that youre going to be.
And sticking to if you were to pursue 1.
Yeah.
But why don't I, just start by saying that yes, we are.
Certainly.
Often are looking at and considering opportunities there.
And they will be opportunities that fit within the strategy and so many of the things that we've been talking about.
And you heard about before I arrived and we will be continuing to talk about which is around lending.
Around.
Building both efficiency.
And effectiveness and our current strategy.
Places, where we have.
And unique.
Expertise and I think that we can.
Develop that and certainly geographical expansion like you referenced earlier and.
I would add to that yes sure.
And I'll add to that.
And the and the capital and sort of the tangible book value spectrum.
We're certainly going and looking for deals that are smartly price.
Obviously, we're going to look for meaningful levels of accretion will also.
So look for managed for the dilutive impacts with with appropriate for appropriate payback and and I think about dilutive impact.
And certainly recognizing our stock prices trading.
Bit lower than tangible book at the moment, but we do have.
A decent capital position to fund.
And Josh and we also would be.
Stablish meant of our holding company earlier and the first quarter. It has given us and access to public debt markets and other ways to raise capital, where we think we could we could do a smart deal that would have on and.
<unk> dilution dilutive effect with a proper payback period that is.
All part of the analysis.
And through coming through as we look at potential candidates and anybody that that fits what percentage just talked about we're certainly taking a look at and being prudent about it.
Okay. Thank you so much for all the color and I look for to working with you all.
Great. Thanks for the questions.
And our next question is from Brian Morton with Barclays. Please proceed with your question.
Good morning, and congratulations for the both of you.
Thank you.
I was just wanted to start on expenses. It seems no core expenses have been relatively well controlled the last couple of quarters.
But still you're kind.
And I'm seeing the efficiency ratio has creeped up a bit on.
And any plans for additional expense reductions and the near term or Alternatively are there any areas, where you see the need for additional investment.
So maybe I'll jump in on the on the core efficiency portion of that and then facility and the.
For investment so our core efficiency ratio, it's crept up a little bit of a function of the topline revenue.
Revenue shrinkage that we'd have been rolling through our through our net interest income.
So thats, partially a driver I think also.
The solar tax equity deals that.
Additionally, the effective does flow through our core efficiency ratio also so and this quarter alone there was a $1.6 million charge that flows through relative to tax credits that were recognized in the previous year. So it's a it's a expected event, but it does create.
And we do always within our core efficiency ratio. If you were to back out the impact of the solar tax equity for Q2 <unk>.
Improved core efficiency ratio by about 2 percentage points.
So that is a little bit helpful outs.
Outside of that I think we're not trying to cut to the bone.
And to be able to manage our business I think our 30% to $32 million target range on expenses at least for the for the next 2 quarters as we try to drive our business throughout the remainder of the year is a good target to consider and if we grow the top line that naturally will shrink our ratio down to a little bit more of a of a peer acceptable level at this time.
And then facility and want to chime in a little bit on the bad yes, we've talked a little bit about ex expansion, we've talked a little bit about.
Diving deeper into our core segments.
We've talked to them about branding and.
Just want to say that I think those.
And our activities, which we believe can be done within the current expense envelope and the short term now as we further develop the strategy. We will we'll have more to say on that and we'll see how that looks but Ah my emphasis would be on trying to grow into.
And those additional expenses.
Those to expand in the future and certainly that would be our hope and priority, but we will we'll have more to say on that as we complete the strategic work that's underway.
Okay.
Great. Thanks, and then you had a good start for the recent $10 million share repurchase authorization.
And this is kind of a pay for it you would expect to maintain and in near term.
Yes, I think Thats fair.
But we would we would look to continue.
Continue at around this pace to 2 <unk>.
Complete the authorization.
And I think we got we have $7.5 million remaining.
We're being prudent.
Bad debt and to <unk> point.
I would expect roughly the same quarterly pace.
Absent any significant change that we would make as it right now and I'm not seeing that.
So I would expect very similar type of patient.
Excellent.
On the loan portfolio and kind of noisy.
Seems on the consumer.
<unk> and others and gaining some traction even though off a small base.
Are there any particular products or segments that are driving that and any potential and to build on this momentum.
Yeah, that's a great observation and.
It's really our consumer solar.
And as we've gotten deeper and deeper into that space.
And especially as we've moved away from balance sheeting.
<unk>, 1% for style properties, we've definitely moved into deeper arrangements with providers.
For for for asset purchases relative to consumer solar we put on about $20 million of that on a on a net basis.
<unk> for the quarter and we're expecting to do more.
Great. Thanks, and then I guess for my last question I'm. Just wondering if you could provide a little more color on the increase and the allowance due to the specific reserves within the C&I portfolio.
Are you seeing anything there absolutely give you rise to additional concerns.
And yes, that's a great question and it really.
The answer to that is no in terms of what we see right now for 4 additional concerns the specific reserves buildup really is related to 2 C&I loans at work that are usual suspects for us they are part of our legacy.
And leveraged lending portfolio.
The reserve buildup is really just based on continued discussions with the borrowers and receiving.
Updated projections so on.
Our space and given kind of our history with these borrowers and also on our leveraged lending portfolio, we felt it prudent to.
And to buildup.
But more to support any potential losses that might occur with these particular borrowers.
We are in contact with them and.
It's a continuous process as we as we work with them.
And also back to the consumer solar part of the part of the build was also too.
And to up our provision.
And relative to potential losses on these consumer circles, and we want to get a little more aggressive we're putting those on loss rates are.
Becoming a little bit more clear to us as we gained some seasonality and the portfolios and so we built up a little bit at that level as well and I think it's also important to remember that.
And the.
The bank and meeting our bank, we have not yet adopted seasonal so we might be coming also from a little bit of on.
And the lower point relative to our peers in terms of reserves.
And I always look at sort of where we are and a total a triple L to loans ratio and even with our build we kind of come in at 1.2.
For the quarter, which I think puts us kind of right and the middle of the pack.
2 our total allowances.
Okay.
Thank you very much and Thats all my questions I have right now.
Thank you. Thank you.
Our next question is from William Wallace from Raymond James.
Please proceed with your question.
Alright. Thanks.
To me good to meet you both.
If I could.
And I also had some questions on the specific reserve builds is is this the same 2 C&I loans that we've been talking about off and on for the past.
6 quarters ago.
I believe so their usual suspects I can't recall, what we talked about specific names, but they are usual suspects yes.
Can you can you update us on the outstanding principal balance and where on the specific reserves are on these loans and stay on.
Today Yeah.
Yeah.
So 1 loan is $8.6 million and the other 2.3 and so their toll roughly roughly $11 million and.
And we're reserved now up to 1 third on each of those principal value at this time.
And are these both carried and the non accrual.
But they are on non accrual, yes, they're absolutely non accrual.
Okay.
And.
Are they paying.
Yeah.
They are they are working with US there is cash flow coming but it's not at a point, where I feel comfortable even.
And that there'd be moving off of a non accrual status.
Okay.
And and to that point, Priscilla and you talked about I believe the underwriting culture or something that's 1 of the 1 of the observations that you have and and I'm.
Sure he observed that the N P. A's are over 2%, which is well above the industry is there any opportunity that you see to us.
Hum.
And maybe be more aggressive and addressing the existing.
No stress on the on the loan portfolio to kind of rightsize it before we moved.
Move forward from a growth focus perspective.
You know I think I might phrase it slightly differently I think there's certainly opportunity to lean more into the areas, where we have expertise.
And Ken.
And probably see things that others might not.
And some of these deals and that's why you see you know C pace coming through and solar coming through and you might see more of that.
So I do think there's real opportunity.
I think the team would agree with that and I think.
And you'll start to see more of that as we.
Move forward.
And if I may add to that I think we are spending quite a bit of time, taking taking a hard look at some of our non performers and what we can do and that space.
We were able to even in the quarter alone we were able to move 1 of our <unk>.
Commercial Oreo properties off the books.
And $400000 loss on that debt that rolled through the non interest income portion of our income statement. This quarter, but we felt it was prudent management to try to move non performers.
And off balance sheet and clear as much as we can we also saw a nice payoff from 1 of our on 1 of our other construction and and lending loans.
We had about at that helped reduce some of that nonperforming asset ratio down to.
Closer to a more pure related average and.
And then theres opportunities certainly in our residential and consumer portfolio to move some of the legacy legacy problem assets off of our books and we're going to take a look at that relative to capital.
And the coming quarters.
It is important to note that as I look at some of the problem assets that remain on our books a lot of that really either ties back to our legacy lending leveraged lending portfolio that we spent a lot of time on earlier in 2017, and 2018 selling out of and these are some of the remainder of there.
And then we still have some of the remaining problem assets from some of the earlier.
Purchase pools.
And factor and the kind of the country wide origination days debt.
That was that we're actively trying to look to get rid of it. So that's to me are big drags and whats holds our numbers up high on the on the NPS and we're certainly cognizant of that and <unk>.
Taking a look and try and improve that ratio.
Okay. Thank.
Thank you I think it could also be a drag on the valuation.
And you mentioned.
You built up reserves on I think you said some of the consumer solar.
<unk> now and getting some better loss experience.
What's the what's the reserve that you're carrying against those pools now and what are what is the average yields on these loans.
Yes, so we're carrying about a 1% of portfolio reserve on on those and yields are anywhere there.
Different portfolios, but anywhere from $2.75 to 3.
And just kind of bring on for that.
And are these short duration I mean, do you feel like they're appropriately priced for potential 1 per cent loss rates there their short term duration.
And which is why there's a significant amount of churn and those in terms of there in terms of their pay offs.
And you know and maintaining the flow and sort of import.
But on the pricing side of things.
And I'd have to get back to you on what the what the relative return it to the reserve that we're carrying.
Okay.
And then you mentioned the weighing decisions around what to do with credit with keeping capital and mine and so.
And it seems like there's 3.
Choice choices that you have won is buyback stock 1 is M&A and then 1 is maybe aggressively address any any legacy credit issues. So at added 8%, TCE and and 8% leverage ratio and it doesn't seem like you have a lot of.
It kind of capital so I'd love to know the capital constraints that you guys are operating within internally in other words, what level would you be willing to take capital to if it were to be say and M&A opportunity and and then how do you. How are you going to make the choice to dilute tangible book value when you could.
Buy back your stock risk free.
Hum.
And with no dilution to tangible book value based on todays price.
Love to know kind of how you're how you're making the matrix of these decisions as you think about strategies moving forward.
Okay.
So you want to jump in and are okay. So so.
So I think you hit the entire Dart board of how we're thinking about and how we're thinking about capital you know I think when and when we when we kind of come to the buyback portion of it.
And I think that $10 million you know that we've put in place already is sort of an indication of our intent and desire to return capital and improve.
The relative book value a return on on the shares.
Youre right and the sense that we're at 8 or slightly below 8 right now, which makes options a little bit limited, but we've got call. It 750 and serve our Green zone right and so I don't think there'll be a tremendous amount of consternation to move.
Moving on with the leverage ladder, if it meant being able to support and opportunity that would drive.
Predictable returns right, so and I think that's the way we try to evaluate it and I wish I had a better answer for you at the moment, but anywhere where we're going to deploy capital, which would move us off of that 8% ratio and probably keep it within.
And that 750 ratio, we're looking at what the return is in terms of a payback period.
That would move our kind of outward facing metrics regarding tangible common equity or a return on tangible pemex, sorry, or a return on average assets and that's how we generally evaluate at the universe.
Down on what small when you when you kind of think of it that way, but we do think that there are smart opportunities and whether thats going to be cleaning up non performing assets on our books or funding and acquisition that would help us and some sort of expansion type of activity kind of remains to be seen and these are all things are going to be talking about during the second half of this year.
Okay Alright. Thank you for that and then just 1 last question for so this is for you and it's it's big picture I. Appreciate the observations that you gave and the first 1.
It is interesting to me because I agree, but I don't know how to frame. It. So I'm curious if you can maybe frame what you mean when you say that you think there is an opportunity.
We need to better tell the story the story of amalgamated can you can you expand on that a little bit and and just kind of.
Yeah, just to expand on on what that means to you sure sure yeah. Thank you for asking on.
I'll try to keep this short but.
And interest.
Opportunity I think there are really kind of too.
Interested groups to think about 1 is our current customers.
There, we not only enjoy obviously name awareness, but we have really high favorability.
Meaning that are currently.
In short tumors are quite committed.
And 2 amalgamated.
And that's that's seen and in the Factset.
Did not focus so much on.
And returns as they are on being aligned.
And so that's that.
And that's a great.
Group and includes.
Our income.
Corporate and and commercial customers, who are core to us and they typically live and work and our key cities.
And they typically fall into the 6 commercial segments that you've probably heard a lot about and you see them on our website.
And sort of individual change makers and they care about.
Things like climate, and sustainability and rights of immigrants from workers and all the things that we talk about.
And so our first job is to go.
Really deepen our relationship with those customers.
We're now synthesizing and analyzing customer data and feedback and we're fine tuning just our understanding of their needs.
And are concerns.
And they came to us because of the shared interest. So we have the opportunity to really as I say deepen our relationship there and solve more needs for them, including.
Socially responsible lending and asset management, so you've heard us talk a lot about C pace.
You may be aware.
Needs and their debt first quarter of next year, we're launching our.
What we call response and funds, which are essentially a socially responsible funds.
We think there'll be a great deal of interest and sort of the prelaunch phase and we're seeing that.
Interest.
Interest amount of core customers.
Then you've got these this group of individuals and.
Commercial entities that are not today, our customers don't know us very well, but still share some of these interests and passions and.
These are people who.
And our like our customers and that they could be early adopters and game changes and the space. We also think theres and emerging groups are more and more people are becoming interested in this space and for these these customers have or prospects have similar characteristics as our base.
And we think.
And we're uniquely qualified and focused on them and what we will be doing there is just leveraging external data, where we will identify them and then build and grow our presence just meeting them, where they are and in fact, often where we are.
Whether thats and social whether thats experiential or in other ways.
And what I think is excited about the exciting about this is that we're able to tell our stories to more companies that look like our current customers and it's not a monumental lift. So we don't think theres a significant investment to get closer to these customers and the short run and as I said, we will evaluate future brand.
Brand build outs over time as we build out the strategy.
Thank you very much I appreciate that and Paul.
Okay and.
And while I am sorry, I just want to.
And I apologize for give me a little bit of misinformation on the on the consumer solar yields are closer to 4 and 5% on those portfolios.
Okay. Thank you got from that sounds better.
[laughter] as I said and I'd like that's wrong.
Thanks Molly.
Thank you.
And just as a reminder, if anyone has any questions you May press star 1 on your telephone keypad.
Bill will ensure your spot in the.
For Q&A queue and our next question is from Chris O'connell with Keyw. Please proceed with your question.
Hi, good morning.
Morning.
Hyperscale.
Sorry, I guess and just wanted to start with.
But the trust revenues.
And then I was going to come down at some point and adjusted <unk>.
And kind of a good baseline run rate level.
Going forward and then maybe also with regards to the ESG response with volumes and that launching next quarter what.
If you could just give a little bit more color on the initiatives and what kind.
And of the revenue opportunity could provide over time.
Yes, absolutely so.
I think the trust revenue.
It's reaching a baseline rate and we're optimistic.
It's upward from here I think I think it was.
Heavily impact.
And by the low rate environment, and given that a majority of the current funds are placed and and bonds and bond products. So.
Uh huh.
Not incredibly concerned that there is and I would like to go in terms of revenue dropping.
And I also think that you know and that overall business. We spent a lot of time.
Impact optimizing it for profitability as well.
As we have shifted.
Administration to an outsourced model and what we heard paid for that last quarter.
And really kind of setting up our.
Our customer agreements to be more standardized for that theres not as much administration that's required to.
Time and manage individual relationships.
And I think more importantly is the point that you just picked up on is is the habit of that overall business to the new introduction of the response of funds that are for sale that was talking about those.
Those funds are now.
Up and ready I think theyre going to be.
Going live and the early first part of 2022.
And we've hired a.
A dedicated sales person to lead the effort in terms of not only generating a.
Business flow from from external customers, but also and a cross sell basis from our existing commercial relationships.
And to create opportunities for them to deploy their funds.
We're in for about $45 million of orders right now and Thats growing as we get further and further out there with them with the communication of the fund's existence right now so more and more to come really on that 1 that's sort of a TBD, but it's exciting.
These funds are now.
And ready to go and and customers have a have and ESG opportunity or alternative to investing with the bank on.
I'm, sorry, with our with our trust business that can and Kim.
Can really align with the with what they feel is most important to them and their mission and values.
Great.
Great that's helpful.
And then and I know, we'll probably get much more specific detail kind of what the third quarter update.
But if you could expand upon and I think there's a couple of bullets and.
A couple of comments on the opening remarks about expansion into new lending segments.
And just.
Maybe whats being considered or where you guys are looking at.
Thank you for Nick sell there.
So I think and the in the lending segment side of things.
Crisil and mentioned the segments that we were already operating.
<unk> and and I think there is an opportunity for us to deepen into particular segments. So 2 of them that come to mind right away is really to the commercial pace segment of our of our business operation and then also sustainability or energy efficient lending on it.
On a straight commercial basis, we have bankers.
<unk> that are extremely knowledgeable in this space and.
And part of the goal here is really to get them.
Very focused on pursuing opportunities in those segments.
And as opposed to maybe kind of pursuing a broader array of opportunities.
And that sense, I think thats where were going.
And start to meaningfully shift into segment development and I think from there you know there is a.
A couple of things number number 1.
We're really improving the interactive experience that customers and commercial prospects have with us that's for platform interaction.
And can be account openings transact.
Auctions whenever that's going to be basically and making investments there and then I think the other piece of that is introducing them to what else amalgamated has to offer.
And a lot of cases, we see customers that debt debt.
And that have deposit relationships right now with us that there arent either.
<unk> don't understand the investment alternatives that we have to offer so I think those are opportunities to serve bridges segment and cross sell product.
The only thing.
And would add to that because it's well said that we plan to move deeper into segments, where we feel we have expertise.
The only thing I'd say and addition to that is that we.
We also see and opportunity to improve the customer experience.
And we think that that will rise.
Result, in and customers being interested in <unk> and products across the spectrum.
And just to remind people of the segments.
We've been talking about they're really 6 of them and I I.
And if some of you are familiar with them but.
But we've got this whole sustainability and energy efficiency segue.
Segment, which has obviously done very well for us we've got political organizations, who even despite this being.
<unk>.
After a major election.
Political organizations are growing and.
And and deposits with US we think theres opportunities there is social enterprises.
And Theres nonprofit is.
There's labor and Theres philanthropies.
And in each 1 of.
There is a sort of a unique story to tell but but each 1 is a segment, where we have right now.
And some growth we've got some real experts and each of these segments people, who are talking to them every day and some cases come from these segments and.
And we just.
The real opportunity there and it just so just have deeper and more conversation.
And we also think that the segments are on.
Interested given all that's going on and the world.
<unk> are interested and perhaps thinking even where they're flushed with liquidity they may be thinking about.
And the opportunity to.
2.2.
Keep that sort of cash on the books, and then be thinking about how to leverage either real estate or other parts of their portfolio to 2.
On.
Hmm.
And in order to be best.
Prepared and protected during this period.
Got it thank you and non.
Uh huh.
If I heard right earlier.
It sounded like.
You know the goal under ideal circumstances, just to get kind of cash down to the $100 million.
<unk> level or so towards the end of the year.
And at least optimally and it'll be.
It will still be above $100 million regardless.
And Theres, a pretty wide gap between that and where the cash balances are now at period end.
And.
And assuming that the political deposits.
Our growth engine and kind of continues to.
Grow on pace for the next couple of quarters.
And given the comments around.
The pes initiatives.
And it seems like there's still going to be a good amount of.
Moving into the Securities book is that fair.
Yes, I think Thats still fair.
And you price you then on our numbers, we've been we've been fairly aggressive.
Deploying as much and excess funding as we can and too.
Interest, earning assets through the securities portfolio or a retail agreement.
And we think there are some opportunities and some of the repo markets take a little bit more of interest and puts some cash to work there.
On.
We've been a little bit more aggressive in the non agency space trying to pick up a little bit more interest there kind of also and making sure that we manage duration.
Not.
And not get over extended in that space. So.
To the extent that we're able to we reserved for portion of that cash to fund the C pace growth, which you can see can be blocky and come in and fairly decent chunks and then.
And obviously the remainder of that would hopefully for fuel some type of net loan growth through our more.
Traditional lending channels.
But back to the guaranteed piece.
Our target when we model out the drag on NIM, our target is $100 million of cash.
Do I feel like we're going to be there by the end of Q4, I mean, that's why I kind of said I think it's in excess.
But optimally, that's where we'd love.
Debate and we need to fees.
Pay close attention to those deposits flow that comes as a result of our political but also our adjusted general commercial business.
Other generating.
On business.
Got it and outside of the pace.
As far as the rest of the Securities book that you guys are putting on now.
Now.
What are you generally like the blended yields.
And what you're putting on.
Yeah. So I think when you when you when you strip out pace. The portfolio is probably about 1.5 years to 7% yield and total as we bring on.
Non agencies they are all.
And top of the capital stack and assets with with floating rates. So youre looking at probably 1 to $1.20 as ROI for those assets are coming on.
We're moving a little bit more sub debt onto the books and maybe a touch more on corporate bonds, which have some higher yields but.
That's.
That's generally the range of.
On the impact to the securities portfolio right now absent pay securities.
Okay, Great. That's all I had thank you.
Thank you. Thank you.
And we have reached the end of the question and answer session and I will now turn the call or 2 for.
And brown for closing remarks.
Thank you Shirley and thank you all for your interest today. These are great questions and.
For all really insightful in terms of.
Where we are going and thinking about the business and where.
Where you are so appreciate that confirmation.
Again I want to thank the management team I think a great Foundation has been laid.
Over the last couple of years and in particular in recent months I think I think this team has really.
<unk> kept.
Their head down and really tried to work through.
And what could have been a very difficult.
And tie in both externally and the environment and certainly.
In the interim with without a long term CEO.
And now I think we just have a wonderful foundation and move forward on and I'm really excited about.
The people we have on the team I am very excited about the opportunities in front of us have had a lot of conversations with customers.
And the last few weeks and and and.
Im hearing enthusiasm and real interest and when we start to talk about.
New ideas and expanding relationships with existing.
Our reception, we're getting is it's just been great. So.
Having now.
A real commitment to doing more of these kinds of conversations traveling quite a bit.
Happy to see people coming back into the office and the ability to talk to people face to face and and.
And it seems that there is a.
<unk> energy around where do we go from here so.
And I look forward to coming back to you next quarter and talking about the strategy more specifically.
And in the interim happy to take your calls and meet all of you as your time and schedules permit.
Thank you again for.
And and look forward to continuing the dialogue.
And this concludes today's conference and you may disconnect your lines at this time.
Thank you for your participation.
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Okay.
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