Q1 2024 Amalgamated Financial Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the amalgamated financial first quarter 'twenty 'twenty four earnings call.
During todays presentation, all parties will be in a listen only mode. Following the presentation. The conference will be opened for questions with instructions will follow at that time.
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.
Jason Darby: Thank you operator, and good morning, everyone. We appreciate your participation in our earnings call with.
Jason Darby: With me today is for Silicon Brown, our president and Chief Executive Officer.
Jason Darby: 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.
Speaker Change: And 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.
Speaker Change: We caution investors that actual results may differ from the expectations indicated or implied by any such forward looking statements or information.
Jason Darby: Investors should refer to slide two of our earnings slide deck as well as our 2023 10-K filed on March 7th 'twenty 'twenty four.
Jason Darby: For a list of risk factors that could cause actual results to differ materially from those indicated or implied by such statements.
Jason Darby: Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance.
Jason Darby: The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U S. GAAP.
Jason Darby: A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release as well as on our website.
Jason Darby: Let me now turn the call over to Priscilla.
Priscilla: Good morning, everyone and thank you for joining us.
Priscilla: It's great to be here today to discuss our first quarter results, which continue to show amalgamated as a banking industry leader highlighted by a 16% increase in core net income five basis points of net interest margin expansion.
Priscilla: Stellar deposit growth.
Priscilla: Despite continued turbulence in the banking sector during the quarter. This time centered around metropolitan real estate asset concerns. We proved once again that our unique and valuable business model is well positioned to thrive in varying economic conditions.
Priscilla: There's clearly separates amalgamated from our peers and affirms my incredible optimism for the future.
Priscilla: I used the word stellar a moment ago I didn't describe our deposit growth, but I'd like to put that into context. It goes without saying that the deposit gathering landscape remains a challenging environment higher interest rates have not abated in recent economic data has certainly muted sentiment for rate cuts throughout the remainder of the year.
Priscilla: The reality is that we cannot control any macroeconomic factors and so we must plan for variability.
Priscilla: I actually got often about our differentiated deposit gathering franchise and this is weird shine the brightest for the quarter on balance sheet deposits, excluding brokered Cds increased $374 million or five 5%.
Priscilla: We also moved approximately 154 million of deposits off balance sheet into our reciprocal network and we are now managing over $450 million of off balance sheet deposits.
Priscilla: In total we brought in over $480 million in new deposits. During the first quarter results that we considered to be seller in this environment.
Priscilla: Importantly, our deposit growth was broad based once again would strengthen our political our union, a nonprofit and our social advocacy segments.
Priscilla: Our political segment delivered $250 million in inflows as the presidential election continues to approach.
Priscilla: This growth is ahead of our cycle over cycle historical trend as a political deposits totaled $1 $4 billion at quarter end well above the prior peak of 1.3 billion during the midterm election cycle in 2022 and forecasted to match the continuous record setting fund raising.
Priscilla: We see each for the presidential election year.
Priscilla: While political deposit inflows have continued through April we expect outflows to begin toward the end of second quarter and into the third quarter as campaigns begin to spend more aggressively in the ramp up to november's election.
Priscilla: We also experienced deposit growth across our union nonprofit and social advocacy customer segments with inflows of $230 million, representing a mix of both new and existing customers.
Priscilla: Said before this is a challenging deposit gathering environment and amalgamated and had something very few banks have an undisputed reason to win the ties when they come up.
Priscilla: Okay.
Priscilla: Looking to the balance of the year, we remain focused on driving organic deposit growth across our core customer segments and we're very encouraged that the success. We have achieved will continue.
Priscilla: Our big opportunity is to offset the expected political deposit outflows with lower cost core deposits versus using higher cost borrowings.
Priscilla: Though we have been consciously expanding our loan portfolio through the first quarter given the environment that we're in we also remain optimistic that our socially responsible banking business will provide a source of growth over the balance of the year and beyond.
Priscilla: This is a market segment, where we have a dominant position and we expect significant investment over the next 10 years in order for the U S to achieve the goal of net zero emissions by 20 to 50.
Priscilla: The inflation reduction act as a catalyst as monies or earmarks of critical projects and the renewable infrastructure and water segments of the market.
Priscilla: In fact, I've been spending much of my time building and expanding relationships with the organizations that will benefit most from these funds of which the recipients are now being identified and who's funding is expected to begin flowing before year end.
Priscilla: With our impact lending model, we are well positioned to win this business and make a substantial impact on lowering emissions in the United States.
Priscilla: Wrapping up our results show that we are on a path to continue delivering solid earnings and growth in tangible book value for our shareholders, our quarterly results and optimism for the year would not be possible without the dedication and hard work of our very talented employees as well as our change maker partners and our customers.
Speaker Change: Do you all I say, congratulations and thank you Jason over to you.
Speaker Change: Yeah.
Speaker Change: Thanks for sure Hi, there and good morning, everyone.
Speaker Change: Before I get started I'd like to take a moment to note that we have revised the layout of our accompanying earnings presentation.
Speaker Change: We've streamlined the information to spend more time on key highlights and also to shorten the length of our prepared remarks.
Speaker Change: We've moved many of the traditional detailed slide to the appendix and have also created some new appendix slides such as a reconciliation of core deposits and a metrics index for each conveniently refer.
Speaker Change: I'm going to start off on slide three of the earnings deck, our 'twenty 'twenty four first quarter produced solid results.
Speaker Change: Net income was $27 $2 million or <unk> 89 cents per diluted share.
Speaker Change: And core net income, which is a non-GAAP measure was $25 $6 million or <unk> 83 cents per diluted share and ask for someone mentioned that was an increase of 16% from the previous quarter.
Speaker Change: Quarterly results also featured increased net interest income to $68 million.
Speaker Change: Five basis points of net interest margin expansion.
Speaker Change: A 22 basis point leverage ratio increase.
Speaker Change: A dividend increase announcement to 12 cents per share.
Speaker Change: Michigan growth in deposits across multiple segments, all of which I'll discuss in further detail.
Speaker Change: Taken as a whole we are very pleased with our core operating performance.
Speaker Change: Continuing to slide four we look at some of our key performance metrics during the first quarter.
Speaker Change: And our core revenue per diluted share was $2.48 for the first quarter essentially the same as last quarter.
Speaker Change: Moving across to stick a quick look at our returns.
Speaker Change: Core return on average equity was a very strong $17, one, 4%, which was a nice uptick from the prior quarter and in line with previous quarters in 2023.
Speaker Change: And also reflected the banks above peer net interest margin.
Speaker Change: We were especially pleased with our core return on average assets of one point to 7%.
Speaker Change: And while we know we have more work to do to develop noninterest income streams are core return on average assets shows the bank firing on most cylinders and our earnings potential becoming reality.
Speaker Change: Moving to capital as previously discussed we've been unwavering in our building our capital position and saw our tier one leverage ratio improve another 22 basis points to 8.29% and we are on track to achieve our 8.5% target by the end of the second quarter 2024.
Speaker Change: Our tangible common equity to tangible assets was 7.41% for the quarter in comparison to 7.16% from the previous quarter. Despite long term interest rates ticking up and we believe this nicely shows the result of us aggressively turning over our securities portfolio.
Speaker Change: As a reminder, we've sold more than $620 million of securities over the past eight quarters.
Speaker Change: Turning to slide five total deposits at March 31st 2024 was $7 $3 billion.
Speaker Change: An increase of $293.8 million from the linked quarter, but that's the only tells part of the story.
Speaker Change: On balance sheet deposits, excluding brokered Cds increased by $373.8 million or five 5% to $7 $1 billion.
Speaker Change: Though there were significant additional deposit growth during the quarter.
Speaker Change: Noninterest bearing deposits represent approximately 45% of average deposits and 45% of ending deposits excluding brokered Cds.
Speaker Change: Contributing to an average cost of deposits of 146 basis points in the first quarter 'twenty 'twenty four up.
Speaker Change: Up 11 basis points from the linked quarter.
Speaker Change: Additional details on this can be found in the metrics index of the appendix.
Speaker Change: I'm checking in on political deposits were up to approximately $1.4 billion as of March 31st 2024.
Speaker Change: An increase of $254 million on a linked quarter basis and through April 17th 2024, We've had a further 87 and a half a million dollars of political deposit inflows.
Speaker Change: Setting a new high watermark for our political deposit franchise.
Speaker Change: Where do you expect political deposits to begin flowing out towards the end of the second quarter, but balances have exceeded our expectations. So far.
Speaker Change: We also note there'll be classified political deposits raised during the election year non core deposits given their transactional nature.
Speaker Change: In keeping with our neutral balance sheet strategy. We are now managing $456 $8 million of deposits off balance sheet comprised primarily of transactional political deposits and certain transitional deposit scheduled for our trust business.
Speaker Change: Our continued deposit strength is also allowing us to reposition our balance sheet for sustainable profitability and returns.
Speaker Change: During the quarter, we utilize our on balance sheet deposits to pay down our higher cost borrowings and broker Cds by a total of $250 million, which is faster than our expectations entering the year.
Speaker Change: This funding mix shift will help mitigate further cost pressure, especially if the recent rise in interest rates were to drive increased pressure on deposit costs.
Speaker Change: Jumping ahead to slide six and seven the book value of our traditional securities portfolio increased $3.3 million during the quarter, primarily as a result of $128 million in purchases, which were offset by $75 $5 million and strategic sales and $50.3 million in traditional secure.
Speaker Change: These paydowns.
Speaker Change: Net pace assessment growth was $10 $1 million.
Speaker Change: And we anticipate our pace production to increase to between 20 and $25 million in the second quarter as we add additional purchases.
Speaker Change: A pretax unrealized loss position in our traditional available for sale Securities portfolio was $94 1 million or six 1% of the total portfolio balance improving by $8 $6 million from the previous quarter largely as a result of our continued repositioning of our portfolio by strategically offsetting.
Speaker Change: For water security sales with income generated by our off balance sheet deposit strategy.
Speaker Change: Turning to slide eight net loans receivable at March 31, 'twenty 'twenty four for $4 4 billion, an increase of $13.8 million or 0.3% compared to the linked quarter.
Speaker Change: The increase in loans was primarily driven by $27 $3 million increase in multifamily loans.
Speaker Change: And a $3.1 million increase in commercial and industrial loans offset by a $9 $8 million decrease in consumer solar loans, and a $6 3 million dollar decrease in residential loans.
Speaker Change: The yield on our total loans increased eight basis points to 476% during the quarter.
Speaker Change: Loan yield increase was mainly attributed to the improved yield that new loans generated during the previous quarters and we saw increases across nearly all individual asset classes.
Speaker Change: Slides nine through 11 are new additions to our earnings deck to better illustrate our exposure to certain real estate asset classes.
Speaker Change: And as we've spoken about many times, we've been Derisking, our real estate portfolio for the past two plus years since our new real estate management team arrived.
Speaker Change: And as evidenced by an over $112 million improvement related classified and criticized assets.
Speaker Change: We think it is very important to stipulate that all bank metropolitan real estate portfolios are not the same as evidenced by our strong underwritten D S yards and our low ltvs.
Speaker Change: On slide 10 over the balance of the year, we have $174 million in maturing lower price commercial real estate and multifamily loans.
Speaker Change: We've already been working with all of the borrowers well in advance of maturity and feel comfortable with our plans traction relative risk and related allowance reserve coverage at this time.
Speaker Change: Spending a moment on slide 11, we have identified offer so many commercial real estate loans and multifamily loans subject to pre 1974, New York State rent stabilization rules as those with higher risk profiles within our total real estate portfolio.
Speaker Change: All that said, we recognize that our portfolio hold he's viewed as a percent of multiple categories nicely reflects the bank's diversification and asset classes and relatively benign exposure profile as our office only commercial real estate portfolio was $61 million.
Speaker Change: Comprised of all past grade credits and less than 23% of our multifamily portfolio had loans that units subject to free 1974 rent stabilization goals.
Speaker Change: On slide 13, the net interest margin was 349% for the first quarter of 2024, an increase of five basis points from 344% in the linked quarter.
Speaker Change: The increase is largely due to increased yields and average balances of interest, earning assets driven mainly by rising loan yields and securities purchases.
Speaker Change: Well, we are rather pleased with our margin expansion, we are acutely aware of continuing higher rate environment and the ongoing competition for deposits.
Speaker Change: Assuming no changes from the fed we expect to see asset yields continue to grow as we turn over our balance sheet.
Speaker Change: But we also believe deposit costs will continue to rise as well.
Speaker Change: Key offset for US is the retiring of more than $320 million of higher cost borrowings in 2024 that can be replaced with lower cost deposits $250 million of which occurred in the first quarter as I noted a few moments ago.
Speaker Change: On page 14.
Speaker Change: Core noninterest income, which is a non-GAAP measure was $8 $3 million compared to $8 $5 million in the linked quarter.
Speaker Change: The decrease was primarily related to lower bully income, partially offset by an increase from fees from our treasury investment services.
Speaker Change: As a reminder, we report noninterest income generated from our off balance sheet deposit strategy as noncore due to its temporary nature.
Speaker Change: Core noninterest expense also a non-GAAP measure was $38 $5 million, an increase of <unk> $8 million from the fourth quarter of 2023.
Speaker Change: And this was mainly driven by a $1.1 million increase in compensation and employee benefits expense due to select differential investment in employees as well as increased payroll taxes.
Speaker Change: Moving to slide 15, nonperforming assets totaled $34 million or four 2% of period end total assets at March 31, 2024, and our <unk>.
Speaker Change: Criticized assets decreased $9 million to $100.9 million on a linked quarter basis.
Speaker Change: The criticized or classified loans decrease was largely related to the pay off of $6 $6 million of commercial and industrial loans and the upgrade of $3 million of commercial and industrial loans.
Speaker Change: On slide 16, the allowance for credit losses on loans decreased $1.3 million to $64.4 million at March 31, 'twenty 'twenty four from $65 $7 million in the previous quarter.
Speaker Change: And the ratio of allowance to total loans was 1.46% a decrease of three basis points from 1.49% in the linked quarter.
Speaker Change: Provision for credit losses totaled an expense of $1 $6 million for the first quarter compared to an expense of $3 $8 million in the fourth quarter 2023.
Speaker Change: The expense in the first quarter is primarily driven by increases in required reserves and charge offs on the solar loan portfolio as well as the reserve build for our multifamily portfolio, which we deemed it prudent to reflect current market repricing conditions.
Speaker Change: It's not driven by any particular credits.
Speaker Change: These were partially offset by improvements in macroeconomic forecasts used and useful model.
Speaker Change: Turning to slide 17, we are modestly raising our full year 'twenty 'twenty four guidance too.
Speaker Change: Core pretax pre provision earnings of 145 million to $149 million.
Speaker Change: And net interest income of $270 million to $274 million.
Speaker Change: Which considers the effect of the forward rate curve for 'twenty 'twenty four.
Speaker Change: To conclude we will continue with our neutral balance sheet strategy through the second quarter as we continue to pursue our stated tier one leverage target of 8.5%.
Speaker Change: We will also be monitoring a number of macroeconomic factors to inform our decision, making and our credit quality metrics will be key as we determine whether to accelerate our balance sheet growth to 3% in second half of year.
Speaker Change: The most important factor will be the performance of our deposit gathering franchise, given the significant political deposit outflows that we would expect in the fourth quarter when the presidential election conclude and.
Speaker Change: And we remain optimistic with deposit growth have you been experiencing our core customer segments outside of political.
Speaker Change: Briefly looking at the second quarter, we are cautiously optimistic that our net interest margin can experience a possible two to three basis points of expansion.
Speaker Change: Correspondingly, we anticipate our net interest income to range between 68 and $70 million in the second quarter of 2024.
Speaker Change: And while we do not expect a fed rate cut in June we estimate an approximate $2.2 million decrease in annual net interest income for a parallel 25 basis point decrease in interest rates beyond what the forward curve currently suggests.
Speaker Change: So in closing, we're very happy with our Q1 results and we're cautiously optimistic for the remainder of the year well look forward to updating you all again with our second quarter results in July and with that I'd like to ask the operator to open up the line for any questions operator.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is in the question queue. You May Press Star two if you would.
Speaker Change: To remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Thank you. Our first question comes from the line of Alex <unk> with Piper Sandler. Please proceed with your question.
Speaker Change: Yeah.
Alex: Hey, good morning.
Alex: Good morning, good morning, Alex.
Alex: I wanted to start with.
Alex: With some of the comments that you made for sale on some of the dollars that are earmarked.
Alex: Our AG towards our sustainability initiatives and one that I was looking at recently was this greenhouse gas reduction fund, which seems like it's pretty new and and you know some substantial dollars that are earmarked towards various projects. I was wondering if you could just give us a little bit more color and thoughts on if you know how some of that money will actually flow.
Alex: And how amalgamated could actually play into into some of these types of projects and initiatives.
Speaker Change: Yeah. Thank you Alex that's a great question and great timing for US well first of all the distribution of funds could be down a number of ways, but and we don't know exactly how that's going to happen. We will know as of September <unk>.
Speaker Change: When that disbursement is intended to occur.
Alex: Or at least the announcement of how it's how it's going to be happening, but you know look we are well positioned to help organizations manage their receipt of those funds whether.
Alex: Whether it's for immediate use or whether the funds need to be placed in ways that will cause that used to occur over time.
Alex: This is not inconsistent with what we have done in the past, we moved large sums of money and ladder fashion for our union clients over the last year or.
Alex: Or more using different tranches and treasuries to maintain liquidity when the customer needed. It so in that sense. It's it's much like the work we've already done.
Alex: In addition to that you know the political group that we have developed came out of the white house and its been very tuned into the I R. A.
Alex: For quite some time now and I don't know.
Alex: The advantage we have is that we know most of the award is well either they are customers or they are part of our I will call them coalitions are groups, which have been formed and that group is a new one but.
Alex: But it is made up of a number of green banks, which with with them, which we've done that business. So an example of one that's been announced as a coalition of Brean capital.
Alex: They are the aggregator of green banks and again, that's a community we work well with.
Alex: And you know the advantages for US in addition to the fact that we.
Alex: No a lot of these clients that have been helpful to them as they've gone through this process.
Alex: We also you know we have a unique understanding of the renewable energy financing.
Alex: Our programs and and methods and so.
Alex: We would like to continue to advise them and we think we'll have.
Alex: A differential advantage in doing so.
Alex: Yeah.
Alex: So really excited like there's a lot of us we think it's we think it's going to be fun to.
Alex: To deploy these assets in ways that both fulfill the mission and help grow the bank.
Speaker Change: Okay. So it sounds like we got to really wait till September to find out some of the specifics.
Speaker Change: But I mean would you would you say that they can be balance sheet opportunities for amalgamated or is it mostly just you know partnership and yeah. Okay.
Speaker Change: No no no I think I think there's opportunities both in deposits depending on how.
Speaker Change: These funds are going to be dispersed.
Alex: As well as financing opportunities.
Alex: For us as well and you know, it's 20 billion that's been announced thus far there's another 7 billion to be announced and and as we go down the line there will be other activities.
Speaker Change: Okay, we'll wait to see how that progresses.
Speaker Change: And then I wanted to ask and maybe this is kind of a stupid question, but when you think when we think about the deposits that are off balance sheet, right now and kind of being the more transactional political deposits should we think of those as the first line of defense or the political deposit outflows that we expect in the second quarter so that.
Speaker Change: Maybe the political deposits start to decline towards the end of the second into the third quarter, but the actual deposits on an amalgamated balance sheets really aren't impacted.
Speaker Change: Okay.
Speaker Change: Why don't we both okay.
Speaker Change: Okay I'll take that first part of that you know one way to think about that as we have planned for this political deposit outflow and if you look at what's happened over the last couple of quarters, you'll see that you've seen oh.
Speaker Change: I'm, sorry deposits grow not only in political which we consider to be somewhat transactional, but also deposit growth in our core areas.
Speaker Change: Other parts of that business than in other segments.
Speaker Change: Yeah, and Alex I think you're thinking about it similar to the way we are in the sense that.
Speaker Change: The off balance sheet deposits likely would be the first line of defense for the inevitable outflow of these political deposits the closer we get to the conclusion of the election cycle that said, we still have the ability to time or advance some borrowings paydowns and we may choose to do that.
Speaker Change: At first in which case you can see deposits on balance sheet being used to support political outflow, but given the nature or the size of your off balance sheet deposits right now and the relatively low amount of wholesale funding that we would have able to be paid off here in the second quarter. It is.
Speaker Change: Very likely that the first line of defense will be the off balance sheet deposits to support the initial outflow of the political deposits.
Speaker Change: Okay. That's great and then just a final question just to dig a little bit more into the multifamily and I. Appreciate all the additional disclosure that you guys provided this quarter.
Speaker Change: When we think about sort of the mission aligned portion of multifamily you know can you help us think about that a little bit more in sort of maybe some of the factors that would differentiate what amalgamated has on its balance sheet and the types of new multifamily loans and amalgamated making today versus maybe the overall perception of what's happening in the market.
Speaker Change: Sure.
Speaker Change: The mission aligned nature of our business I think lends itself, mainly to relationships and our ability to really understand the clients that we're lending to that we're doing business with and being able to better understand also the.
Speaker Change: Financing requirements of these organizations now.
Speaker Change: At the same time, we've certainly identified.
Speaker Change: Asset classes that have less restriction relative to rent stabilization rules versus greater and we've spent a lot more of our time in the recent years lending into.
Speaker Change: For 'twenty, one a style buildings section as those that have greater abilities to have support for repayment streams and a little bit less so on some of the more onerous for 'twenty, one I'm, sorry, 2000, 1974 rent regulations, but two.
Speaker Change: Maybe maybe just roll the answer out more succinctly I, just think it's really relationship driven and knowing who your customer actually is knowing what the financing requirements are before getting into the transactions and being very acutely aware of where the regulation sensitivities are in trying to lend away from areas, where we have.
Speaker Change: Free market constrained some really stay more in the areas, where we have the ability to gain.
Speaker Change: The competitive market on our on a particular assets that we invest in.
Speaker Change: Okay. That's helpful. Thanks for taking my questions.
Speaker Change: Thanks, Thanks, Alex.
Speaker Change: Thank you. Our next question comes from the line of Janet Lee with J P. Morgan. Please proceed with your question.
Janet Lee: Good morning.
Janet Lee: Yeah.
Janet Lee: Appreciate all the comments on your multifamily portfolio, but if he can't go back to what happened in the first quarter can you just walk us through how much of your rent regulated multifamily portfolio.
Janet Lee: Might have come to you and got refinanced or paid off how much you had to modify and extend if any because they weren't getting refinanced.
Janet Lee: Sure.
Speaker Change: It wasn't an incredible amount I think it was under $25 million that came due in the first quarter, we've got about $63 million of the $319 74.
Speaker Change: Multifamily real estate assets that are going to come due between now and the rest of the year. So you know on average it's about $100 million or so per year, which is fairly consistent with the runoff chart that we've had in the past Janet there wasn't any significant concessions that we had to make in any of the refinances.
Speaker Change: That we made in this particular quarter it was fairly.
Speaker Change: Neutral in terms of being able to roll those assets over I like and I give a lot of credit to the fact that there was strong ltvs on the properties already borrowers had the ability to put cash into deals where needed and we have been in touch with borrowers long before the renewals were.
Speaker Change: To take place so there werent any surprises with regard to anything in the first quarter for us looking outward we see a very similar track we have identified individually all of the credits obviously that we're going to be renewing we've been in conversation with all of those borrowers where there is.
Speaker Change: <unk> stress in some of these deals we've been working on.
Speaker Change: Various arrangements to help the borrowers stay in their properties and keep the cash flow moving for the bank.
Speaker Change: And again I think were aided by just a really nice profile relative to as underwritten D S yards and lower ltvs maybe than than other peers.
Speaker Change: Peers are experiencing so overall I think we're in a pretty decent spot. We're certainly aware that there is risk and we're managing towards that and we did a little bit of reserve buildup in our multifamily portfolio just to account for the general environment relative to the multifamily or the real estate pro.
Speaker Change: While in general for Metropolitan banks, but none of our reserve build was really related to anything specific it was more just reaction to the general environment.
Speaker Change: Okay got it and so basically is it fair to say I mean, if I look at your criticized and classified balances only it looks like it's only 10 million no past due.
Speaker Change: Or N P Allison and that part of the portfolio and I mean, you you built reserves, but still at 38 basis points are you.
Speaker Change: Basically, saying this is just a reflection of higher rates for longer and and not not an expectation for like loss content coming.
Speaker Change: Not an expectation for loss content and I think your observation of the.
Speaker Change: The asset facts from our nonperforming and from our criticized asset in the past to your point of view are accurate. We just haven't really seen the loss rates in our actual portfolio, maybe that has been reflected in other reporting for other institutions and that said we also see.
Speaker Change: <unk> fairly stable.
Speaker Change: Past performance I think we did have a blip at the end of the fourth quarter and we had communicated that that was a documentation issue in that returned to current status and you see that in the first quarter number is but it's.
Speaker Change: Really just a.
Speaker Change: Reflection of the current market environment as you point out we think that the interest rate environment will probably remain in a higher state than maybe was originally being sort of earlier in this particular year and we just felt it would be prudent to have a little bit more reserve on our books at this particular time, but.
Speaker Change: We feel good about the assets that we have and we feel really good about what's coming due through the maturity schedule and that we have a good plan of action to be able to manage the assets appropriately.
Speaker Change: Okay great.
Speaker Change: And back to comment about bringing in lower cost core deposits to plug the hole as expected political deposit outflows in the second half.
Speaker Change: How much are we thinking here I mean tradition or are we thinking here I mean traditionally you guys have capped S. H L. B, what sort of gives you better confidence this time around and and besides political.
Speaker Change: Where specifically are you seeing growth momentum in deposits picking up of all the niche segments.
Speaker Change: Sure Oh I'll go in reverse for.
Speaker Change: For the questions John and forgive me if I Miss one of them I May ask you just refresh me on it but the growth in the other deposits, we see the social advocacy and not for profit really leading the charge in terms of new deposit attraction.
Speaker Change: We're also seeing some fairly substantial wins in our union based business, we saw a little of that last quarter and that had fairly sizable balances, but those tend to take a lot longer on the cycle for for new account generation. So I would expect we're going to see a tremendous amount.
Speaker Change: A new union deposits throughout the year that said, we are seeing increased balances as well from our existing union clients and so taken as a whole between social advocacy not for profit and Union, that's where we're seeing the majority of the non political deposit rose occurring.
Speaker Change: Forgive me Janet what was the first part of your question on the political just was it outflows and what we should expect to see.
Janet Lee: Yeah, I mean, how much are we thinking in terms of being able to plug that hole is of expected political deposit outflows that he like any way to quantify or in terms of like the magnitude.
Janet Lee: It's difficult to really predict it at this point in time, what I can say is a little bit about what we've seen in the past and really where we target generally speaking we target between 500 and $600 million of.
Janet Lee: Funding requirements in the fourth quarter of an election year to plug the hole. If you will for deposits that would lead to support these campaigns.
Janet Lee: And that really is a back end number that depends upon how well we did relative to our political targets to begin with in addition to how well or how close to plan. We are with our other non political deposit segments, where we are right. Now is we are ahead of plan Ferro.
Janet Lee: Early well for both the political deposit gathering and a nonpolitical right. So where we come in now are about a billion for maybe even a little bit over midway through April on political deposits that certainly exceeded what we expected where.
Janet Lee: Where we expect it to be at at this point.
Janet Lee: Probably me, we're going to end up having more outflow, but it's really again difficult to say how things are going to ultimately end up.
Janet Lee: But all that equal the other deposits. The non political deposits are also proceeding ahead of our plan as well now if we're able to stay on this particular pace. We would think it would be likely we would not need to use five or $600 million of wholesale funding to plug the deposit outflow. It maybe some number less.
Janet Lee: I don't really know generally don't have a good number to give you at that point in time, but it's also very much which factors into our conditional balance sheet growth strategy for the back half of the year. So as we get more clarity a little bit further into this year, we'll be able to communicate a little bit better than you might even see that end up in balance sheet growth a manifestation as well.
Janet Lee: <unk>.
Speaker Change: Got it and if I can add just.
Speaker Change: Final question. Since you guys are approaching that 8.5% tier one leverage target how should we think about buyback in the second half of 2024.
Speaker Change: Or stock buyback.
Speaker Change: It's yeah, I think it's always an arrow in our quiver.
Speaker Change: We.
Speaker Change: We will look at this situation as it presents itself relative to the market value of the stock at a particular point in time relative to the book value of the company.
Speaker Change: As we approach that 8.5% tier one leverage we're certainly seeing a corresponding increase in tangible book value.
Speaker Change: And we know that we're ready and able to step in and our stock wherever we feel that it's not appropriately valued our the other thing is we in our capital building plan, we do allow for a provision for stock buyback and so as we go to that eight 5% lever we're not.
Speaker Change: Constrained by any way in terms of being able to perform buybacks within a quarter and still try to achieve that target. So that's generally how we look at it and it's very much a as the world turns type of scenario.
Speaker Change: Alright, I'll step back thanks.
Speaker Change: Thanks, Dan Thanks Janet.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Chris O'connell with K B W. Please proceed with your question.
Chris O'connell: Hey, Brazil and Jason.
Speaker Change: Yeah.
Chris O'connell: Just wanted to quickly circle back to the you know multifamily.
Speaker Change: I appreciate all the commentary so far.
Speaker Change: It was you know there are some growth this quarter.
Speaker Change: Was that growth in you know rent regulated some segments or is that.
Speaker Change: I guess, you or what segment was it.
Speaker Change: Yeah, it's generally in the $4 21, a or the section eight housing I shouldn't even say generally its majority if not all in those particular sections.
Speaker Change: Whereas I mentioned earlier really trying to do.
Speaker Change: Navigate some of the free market restrictions with what the assets are that we put on the portfolio and so we're spending more time in our in the space, where we can get some some better market opportunity for ourselves and also for of course the borrowers.
Speaker Change: Got it.
Speaker Change: And to the extent that you're putting on growth in those segments going forward or maybe even just using the Q1 actuals.
Speaker Change: Actuals as an example, I mean, what are the credit general credit metrics that you're looking at target in terms of you know what's the yield on it and what's the debt service coverage ratio and you know what are the ltvs are they higher than they've been in the past given some of the stresses.
Speaker Change: Yeah I think.
Speaker Change: We certainly are looking at credits where they.
Speaker Change: Sharper eye and I think also we've been more conscious of what were allowing to make its way into our pipeline. So I don't think on balance we will have the same type of net loan growth numbers in our real estate portfolio. This year that we had in last year, but we still think that there's really good at.
Speaker Change: For communities to put on quality assets and so we talked a moment ago about doing some 421, a and in section eight style housing loans. There's also great opportunities in the industrial asset class as well thinking about L. T V's in D C ours, and we have a staff.
Speaker Change: <unk> four D. S E ours, and I would generally think of now as 1.3 is sort of a.
Speaker Change: A measuring stick for what we think makes it a good credit for the time being on market rates.
Speaker Change: We've said this multiple times, we really want to be at.
Speaker Change: Where market pricing actually is.
Speaker Change: We can see things in the six and a half range, we can see things maybe a little bit below if there is quality deposits that help US you know a hurdle a little bit better on in terms of our returns.
Speaker Change: And from an LTV point of view really thinking somewhere in that.
Speaker Change: You know 50, 555% range 60 per cent range somewhere in that range are the standards that we're really looking at today and those things can change over time, but right now given the environment, we're in and the way that the banks trying to protect its balance sheet and its risk profile. That's.
Speaker Change: Pretty much where we're where we're at in terms of new deal flow.
Speaker Change: That's helpful and.
Speaker Change: What are the market rates you know generally that you guys are seeing out there right now on that.
Speaker Change: We're seeing things, it's moved around a little bit, but we're seeing things between as low as six and we're seeing things in the 656, 7% range as well.
Speaker Change: Got it.
Speaker Change: And when you looked at these recent deals.
Speaker Change: And you've gotten like the updated appraisals just like generally you know.
Speaker Change: And do you have a sense of how much you know they were down from you know when.
Speaker Change: When they were alive surprised.
Speaker Change: Yeah.
Speaker Change: I don't have a great number to quote for you I mean, our overall average weighted average D C ours have risen a bit.
Speaker Change: Generally we used to be in the high forties to low Fifty's I think we're now up in the high Fifty's and low sixties in certain ltvs. So we still feel really good about our LTV profile, but maybe that gives you an indication of the erosion of ltvs from a market point of view at least from what we've seen.
Speaker Change: Great.
Speaker Change:
Speaker Change: And then I think you mentioned the pace production increase in Q2, 2020 to $20 million to $25 million.
Speaker Change: The increase over Q1 production or was that.
Speaker Change: Targeted total production to kill.
Speaker Change: Yeah.
Speaker Change:
Speaker Change: Well generally we are production is for.
Speaker Change: Right.
Speaker Change: One Q.
Speaker Change: Slightly lower than the mid thirties production, we typically had.
Speaker Change: But what's also different is that generally around five to 8 million I think Jason.
Speaker Change:
Speaker Change: Pay downs of those right and at this time I think it was up to around 17, yeah. So I think the difference the net number a difference that youre seeing reflects both sides.
Speaker Change: Right and to to talk about what you should see in Q2, Chris I think it would be around 2000 25 million net production not in addition to the 10 that we did in this particular quarter is Priscilla was mentioning a moment ago.
Speaker Change: The.
Speaker Change: The originations that we think Theres a couple of good opportunities for us to add some additional purchases outside our normal production provider to make sure over at our 2000 $25 million net target for Q2.
Speaker Change: And that's really on the our pace side, we still have good opportunities in our pipeline for C pace that we could see flowing through as well. So when I talk about those numbers and I think <unk> mentioned in her comments as well, we're really referring to the residential pace as though it was quoted volumes of $20 million to $25 million and anything from the C pace would be <unk>.
Speaker Change: Mental to that pace number that we just talked about.
Speaker Change: Great.
Speaker Change: And ER.
Speaker Change: You mentioned some of you know the securities movements in Q1.
Speaker Change: What what was the amount sold in purchase.
Speaker Change: Yeah. So we did about $128 million of purchases during the quarter.
Speaker Change: And we had that largely offset by sales of about 75 million, which is a little bit more aggressive than we normally do but we had the Ics income to offset that with and we also had our normal $50 million of Paydowns herself.
Speaker Change: We got a little bit more active in the securities market really to augment the loan production that was a little bit muted during the quarter and rightfully. So and I don't think is in is an outlier relative to any other bank, but we did want to make sure. We put some of the liquidity that we had to work.
Speaker Change: In shorter term securities, we have that really planned to largely.
Speaker Change: B either available to us through maturity or through sale by the end of this year to help with our cash flow needs relative to the political deposit outflows and more importantly, though just taking advantage of this really unique opportunity we have with the Ics income that's coming in through our off balance sheet.
Speaker Change: <unk> G to match off as much as we can on the securities portfolio for sales and repositioning and really help us work on our sensitivity to downgrade a downrate interest sorry down interest rate scenarios.
Speaker Change: Yeah makes sense and do you have the yields on what was purchased or sold.
Speaker Change: Yeah, let's.
Speaker Change: Let's see on the purchase word coming in roughly around 6% a little bit higher call. It six to six in a quarter, we largely focused on fixed rate assets again, I'm talking about that down rate sensitivity profile, but so we could've clipped a little bit more yield.
Speaker Change: On floaters, but in this particular environment, we really want to be in the fixed market and on the sales I don't have an exact number for you other than it had a nice impact on the unrealized mark that was going through the Iff's portfolio I think the yields.
Speaker Change: That's 495% somewhere in that range, Christopher the AR for the sales somewhere in that range.
Speaker Change: Okay great.
Speaker Change:
Speaker Change: That's helpful and then on the.
Speaker Change: On the specific reserve I think.
Speaker Change: Just $1.6 million increase in those provisions in the quarter.
Speaker Change: What was Oh, you know what.
Speaker Change: What types of loans were those related to.
Speaker Change: Really came through on two loans and the one loan was a construction loan that we had been watching for a bit.
Speaker Change: And we ended up taking about 850000 or so.
Speaker Change: On a on that particular credit it's her.
Speaker Change: <unk> had some issues we've been watching it we think there might even be another leg down on this that's coming up.
Speaker Change: So it's a little bit more to come but we took about a third of the principal balance in specific reserve.
Speaker Change: On that particular credit the other was a C&I loan that was for about $1 million in principal balance when we saw that one.
Speaker Change: Rather quickly move into a deteriorated state or we really couldn't find a good way out.
Speaker Change: And unfortunate credit, but small relative to our overall portfolio size and the upside on that as there isn't another credit at least that we've seen right now that's moving in that direction with that type of speed. So it's really those two credits and we felt it appropriate to put those reserves on.
Speaker Change: Great and then you mentioned.
Speaker Change: Other C&I loan that was upgraded and can you just walk us through the dynamics that played out there.
Speaker Change:
Speaker Change: Don't have a lot of specifics for that other than we are pretty active in our portfolio management and any credits that have made their way back into an upgrade.
Speaker Change: Generally speaking has not needed the bank to step into the deal and make a modification to say it doesn't it doesn't happen.
Speaker Change: Ever but in this particular case, it's really a question of the borrower.
Speaker Change: Working on their business the right way spending the adequate amount of time to generate the cash flows necessary to.
Speaker Change: Meet our reporting metrics and putting enough time into that level of performance, where the bank is comfortable with an upgrade.
Speaker Change: What I can say, specifically, though as we take upgrades very very seriously as I hope most banks do it's not an easy process for our for us to upgrade a credit because we have a lot of expectations.
Speaker Change: On the borrowers to adhere to the covenants are to hear to the metric standards that have been put into the deal, but when the borrowers have reached those particular.
Speaker Change: Measures and they've been able to demonstrate history with meeting them I think we are very fair and being able to upgrade those in and we feel good about being able to report them as not only upgradable, but able to remain in an upgraded status.
Speaker Change: Awesome. Thanks for all the color great quarter.
Speaker Change: Thanks, Craig here.
Speaker Change: Thank you.
Speaker Change: There are no further questions at this time I'd like to turn the floor back over to Phil listen Brown for closing comments.
Priscilla Sims Brown: Thank you operator, and thank you all for your time today and your continued interest. We appreciate the questions. We know we're going to get a more after this call and we appreciate those in advance.
Priscilla Sims Brown: Because we enjoy talking about these first quarter results.
Priscilla Sims Brown: Because we they demonstrate the strength and competitive advantages that amalgamated enjoys as we've looked at the balance of the year.
Priscilla Sims Brown: This is an exciting time for amalgamated as we repositioned our balance sheet to drive margin expansion improved capital and a foundation for continued earnings growth. Our deposit franchise continues to deliver strong inflows across our key customer segments, where we are uniquely positioned to win importantly, we are optimistic.
Priscilla Sims Brown: And which could provide a source of margin upside as we look to the end of the year.
Priscilla Sims Brown: Additionally, we're beginning to see monies released from the inflation reduction act, which will provide growth opportunities for our sustainable lending franchise, where we are a leader.
Priscilla Sims Brown: As we replace older lower yielding loans and securities with higher yielding sustainable loans, we expect a powerful mix shift in our balance sheet and further improved profitability I couldnt be more excited with what the future holds for amalgamated our shareholders and our customers. Thank you again for your time today operator.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Okay.
Speaker Change: Mhm.
Speaker Change: [music].