Good morning, ladies and gentlemen, and welcome to the Amalgamated Financial Corporation First Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Jason Darby, Chief Financial Officer. Please go ahead, sir.

Thank you, Operator, and good morning, everyone. We appreciate your participation in our first quarter 2023 earnings call. With me today is Priscilla Sims Brown, President and Chief Executive Officer. As a reminder, a telephonic replay of this call will be available on the Investors section of our website for an extended period of time. Additionally, 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 may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution investors that actual results may differ from the expectations indicated or implied by any such forward-looking information or statements. Investors should refer to Slide 2 of our earnings deck as well as our 2022 10-K filed on March 9, 2023, 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 in isolation or as a substitute for results prepared in accordance with U.S. GAAP. 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. Let me now turn the call over to Priscilla.

Thank you, Jason. Good morning, everyone. We appreciate your time and your interest today. Well, certainly, a lot has happened since our last earnings release and conversation. The market turmoil that has ensued following the class of Silicon Valley Bank and Signature Bank in early March has been all consuming for markets the last 30 to 45 days. We are engaging employees, customers and investors to help them understand the financial stability of their bank of choice. This time investment was actually invaluable as a means for reinforcing the already strong connection with each of our stakeholders. I've been so impressed by our entire bank's ability to rise to this occasion. As I've mentioned before, I truly believe we have the right team in place to manage through difficult situations and position us for continued success. Amalgamated Bank is unique in that at just under $8 billion of total assets, we rate high among the 200 top publicly traded U.S. banks and total asset size, yet are also able to have our executive management team engage directly with our customers and our partners to reaffirm trust and confidence. Our customers were able to see executive management as an extension of their relationship banker and also witnessed the value they themselves directly bring to the bank, which only served to strengthen the long-standing ties we have with them. We are quite fond of reminding our stakeholders that we are the same bank that we were before the closures, a conservatively run financial institution that's a good steward of our customers' money. It's also not lost on us or our stakeholders that we turned 100 years old on March 16, 2023. In a strange bit of irony, our centennial birthday comes at a time when history and stability are at the forefront…

Thank you, Priscilla. Net income for the first quarter of 2023 was $21.3 million or $0.69 per diluted share compared to $24.8 million or $0.80 per diluted share for the fourth quarter of 2022. The $3.5 million decrease for the first quarter of 2023 was primarily a result of a $0.6 million loss related to the sale of a portion of the Silicon Valley Bank senior note we held, a $0.5 million increase in provision expense, a $3.0 million increase in non-interest expense and a $0.8 million increase in income tax expense, offset by a $1.6 million increase in non-interest income, which excludes the loss related to the Silicon Valley Bank senior note sale. Beginning on Slide 5, there were no exclusions related to solar tax equity investments for the first quarter of 2023. Because of the income statement volatility associated with the accounting for these investments, we believe metrics, excluding the timing impact of tax credits or accelerated depreciation is a helpful way to evaluate our current and historical performance. Core net income, excluding the impact of solar tax equity investments are non-GAAP measure. For the first quarter of 2023 was $23.0 million or $0.74 per diluted share compared to $27.2 million or $0.87 per diluted share for the fourth quarter of 2022. Turning to Slide 7. Deposits at March 31, 2023, were $7.0 billion, an increase of $446.4 million in the fourth quarter of 2022, while core deposits declined 1% to $6.6 billion, primarily related to pension customer timing, client diversification for yield or insurance and slowed new customer acquisition. Through April 21, 2023, total deposits decreased by approximately $206 million to $6.8 billion. Total deposits, excluding brokered CDs decreased by a modest $5 million and core deposits decreased by $12 million. Non-interest-bearing deposits represent 48% of average…

[Operator Instructions] Our first question comes from Alex Twerdahl with Piper Sandler.

First off, I was hoping you could give us a little bit more color on the moving parts in deposits and specifically kind of what you saw during the quarter with respect to the non-interest-bearing decline and sort of the re-shifting, if that's something that accelerated in March and the wake of what happened at some other banks? Or if that's something you saw over the course of the quarter? And then hoping you could give us the updated thoughts on deposit betas, just sort of given all the changes we saw over the last couple of months?

Sure, Alex. I'm happy to take that question for you. The shift in non-interest-bearing to interest-bearing, we had seen that starting to accelerate even in the fourth quarter of 2022, and we had been modeling in a shift in DDA to interest-bearing as part of our 2023 guidance when we last spoke to you. We did see a little bit more acceleration post the discussion around the bank seizures that occurred in early March. The bank, meaning us, we've had a reciprocal product that we've offered for quite some time, and we were sort of standing at the ready to make that product available to our customers in the moment when they were looking for insurance on some of their demand deposit bases. So the acceleration there, we think there was a fair amount of contribution that related to some insurance seeking. But at the same time, that's something that we have been modeling into our business, and we think that it's really important to be able to accommodate customers in that way. To your question on beta, I think we've been consistently saying that betas are increasing -- our assumptions anyway are increasing with each Fed increase, and we haven't changed that mode of thinking. I think for any upcoming rate increases that might occur, we're thinking of interest-bearing betas as being in the 50% -- mid-50% range at this point. What we think, we saw last quarter was excluding some of our consumer CD re-pricings beta of around 45% to 50% in the fourth quarter on interest-bearing as well. This is, of course, not factoring any deposit re-pricing that we've done on certain deposits either in this quarter or prior. But I think the important thing for us is, really to focus on customer need and making sure that we're in tune with what customers are thinking and really being defensive with our deposit portfolio for now and for the foreseeable future.

Okay. And then just kind of stepping back, just thinking about some of the constituencies that you guys bank and being some rely -- relying on donations and contributions and things like that, that maybe -- if we go into a recession, maybe people are less eager to donate to various causes. I'm just curious, how you think about managing the bank and how the business model needs to shift if we do go into a recession, if you see that kind of sort of thing happen? And how -- what you're thinking about to prepare for it?

That's a good question. And I think maybe what we could do in future quarters is help you understand more specifically some of those segments. You will see that some are more affected than others. You will also see that we are not only talking about charitable organizations that receive money, but also organizations that contribute that are donor-based organizations. There certainly is a cyclical nature to a lot of the deposits. They complement one another in the way they do that typically. And we've tried to give you a pretty good sense for those which have -- which are dependent, for example, on campaigns, elections and the like. If we look back to the period of recessions in the past, what we will see is that these deposits actually have grown over time. So we don't find ourselves feeling extremely vulnerable to a specific segment and a specific event that way.

Okay. That's helpful. And then just final question for me, I was hoping you could give us just a little bit more color on that construction loan that went into non-performing this quarter and if that was already included in [Indiscernible]?

Yes. That loan was a special mention in the -- actually, it was -- we had been thinking about that as a special mention. It did not make its way to special mention at the end of the previous quarter. So it was a move in -- it's actually structured in 2 parts. There's an A part and a B part. The A part is still performing. That's about $5.5 million. The B, we had to move that into non-accrual for this quarter. It is a partnership deal with a government entity. A little bit of this in my view or our view is timing related, the financial reporting requirements versus the -- maybe the funding cycle, don't always line up with one another. Ultimately, over time, and it probably will take a little bit of time. We feel pretty good about our opportunities for full repayment. There are some problems with the deal that we're still working through. But we feel pretty good about the overall collectability at this point, although it may take a little time, Alex, to realize that.

Our next question comes from Janet Lee with J.P. Morgan.

Congrats on your 100th year anniversary. I have a few questions. I just want to, I guess, start with deposits. So as part of the factors that you pointed to for decline in core deposits, excluding brokered CDs, you mentioned slow new customer acquisition. Was this driven by some of the recent events in March? Or is it more weighted towards customers looking for higher yields elsewhere outside of the bank? What led to that slower pace of client acquisition?

Janet, thanks for that question. I'll jump in and answer. I think really, that's slowed new customer acquisitions more, centered around post SVB and Signature announcements. We had seen some new deposit wins during the quarter. A lot of our pipeline sort of obviously took a little pause in terms of moving banking relationships as the events sort of unfolded. We feel reasonably good about what our pipeline still looks like, although it's going to take probably a little bit longer than we originally thought at the beginning of the year to get those conversations back going and see those customers start to move in our direction. But we did have some wins in the quarter, we felt pretty good about. A little bit of that was offset by some folks seeking yield, and we feel like we had a good treasury alternative. Deposits come off the balance sheet that way, but it remains sort of with the bank through our investment management arm and we get a little bit of a pickup probably in future quarters in non-interest income there. But in terms of people seeking yield, there really wasn't a reason for slowing of new customer growth. In fact, I think we did whatever we thought was necessary on certain exception pricing for key customers and anybody that was coming into the bank that was new. We think we found competitive pricing for them that matched up with what their fiduciary needs were.

The only thing I'll add to that is that the fact that we had new commercial customers coming into the bank at a rate that's comparable to prior years. And as we look at our pipeline, albeit a paused one, we do expect that over the course of the year, the projections we've given are sound and good.

Okay. Great. And in terms of your NII outlook, it says, adding corporates reduced outlook for deposit growth. Last quarter, I believe the guidance was average deposit balances up about 5% on a conservative side. Like how should we think about the updated outlook for deposit growth, excluding -- well, actually excluding brokered CDs?

Right. So yes, we're thinking that the same way, excluding brokered CDs. I'd probably say, it's somewhere in the range of about 2% versus the 5% that we talked about earlier. We still think there'll be an opportunity for average deposit growth over the course of the year. There's been some announcements in the political space that hopefully will start to jumpstart some of the fundraising that would occur for the presidential. And there is, as Priscilla mentioned, still a pipeline for us to be working through with regard to new customer attraction, and we feel okay about. But certainly, the pause, as I mentioned and Priscilla mentioned as well, has given us reason for us to reforecast on the deposit growth, and we think that 2% is probably a better number for the end of the year.

Right. And so that 2% is excluding brokered CDs, I know that you guys have reduced -- sorry, brokered CDs by $200 million already in April. So like is it your plan to lower broker CD balances as you get more customer deposits in the next couple of quarters? Or do you want to maintain those broker CD balances a little bit elevated for a little longer to maintain that liquidity? How should we think about the balance of brokered CDs over the near term?

So yes, to clarify, yes, the growth number I quoted to you was based on ex-brokered deposit balances. In terms of the brokered CD, yes, we are down a couple of hundred million, but I think that's just a timing related moment. We do think that the brokered market is a really good source of liquidity for us. I do think that we'll try to maintain brokered CD balances appropriate with our balance sheet and limit our need to use short-term borrowings, unless, of course, the pricing changes in some way that the brokers become a little bit more expensive. So I think you can think of the March 31 results as sort of a benchmark for how we'd like to see our funding mix relative to total deposits with brokered and any short-term borrowings. I think our idea also, as we pointed out in the revised guidance is to keep our balance sheet from a total assets point of view, neutral to where we finished the quarter, which basically is neutral from where we finished last year. And that ought to give you a good indication of how we'll try to manage the kind of the total liability side of the balance sheet in terms of our funding composition.

Got it. And on your CECL reserve build in the quarter for day 1 effect, which is $21 million. Can you walk through what reserve coverage ratio was assumed for your consumer solar loan portfolio and the dollar amount of reserves specific to that segment out of that $21 million?

I think the best way to characterize it is the majority of that CECL build was attached to the consumer solar portfolio. We had spoken a bit about this in the previous quarters. We knew that we were going to be adopting CECL at the end of the year, and we had filled up our consumer solar basket fairly -- not fairly, but within the 2022 year, so we don't really expect to be doing too much more of the consumer solar in 2023. But the primary portion of that CECL build really relates to the consumer. Solar side, I think when we look at the charge-off ratios that we've seen kind of throughout 2022, and the average life of that particular portfolio, it sort of indicates a need to have a further build. What we're hopeful for is the charge-offs and we've talked about this before. We have protections that have been built into some of these structures. We're starting to meet those, and we're starting to see some of the benefits from those. We're hopeful that the charge-off rates over time will actually come down a bit and therefore, have a little bit of benefit from the reserve that we put forth in the CECL model. So that's -- I think that's the way I would best characterize kind of the CECL impact relative to consumer solar.

Okay. So basically, can we assume that the total CECL reserve specific to consumer solar was sort of the net charge-off ratio that you guys have experienced in the recent quarters, but then obviously multiply that by like however, long the duration of that portfolio. Is that the right way to think about it?

I think so. If it helps from a consumer solar point of view, we think of those from a duration point of view as being similar or sharing similar characteristics to our residential 1 to 4 portfolio. So hopefully, that gives you a sense. And yes, the charge-off rate, but I wouldn't look at is just the charge-off rates we've seen in the more recent quarters, we've taken them over a longer life, which has a little bit of a lower implied rate. But again, if you take that sort of charge-off rate history and take that against a duration, it looks like a 1 to 4 family style property or style duration, that could give you a good indication of how we think of the modeling.

[Operator Instructions] The next question is from Chris O'Connell with KBW. Christopher O’Connell: I was hoping to start off on the expenses. I think, if I heard you're right, they should be trending down towards $36.75 million to $37 million run rate for the remainder of the year. Is that correct?

Yes. So what I've been referring to in my commentary was that we had thought we'd be in that $36.75 million to $37 million on a quarterly run rate going forward. And I was also making a comparison to the previous quarter. I think our expenses were a little bit lower optically as a result of some accrual releases and some sales tax refunds that we're able to recognize in the fourth quarter. So it kind of normalized last quarter to about $37 million. And I think $37 million is still a good quarterly run rate going forward on an average basis. We saw a little bit of an uptick in this particular quarter because of some timing. There was a third payroll that occurred in March, which saw some of our payroll tax expense and some other related compensation items, a little bit elevated from what it would probably look like on a quarter with one less payroll on a normal basis. I think we also had a little bit of temporary personnel expense that flowed through as we need to support a couple of areas in the business that have now had permanent hires and then some benefit increases that we saw in terms of premium expense in the quarter. But we think those are largely temporary and can be brought back to a more normalized number in coming quarters going forward. But we are seeing expense pressure. There's no question about it. And so holding that $37 million will be a challenge, but that's something that Priscilla and I are focused on. I don't know, Priscilla, if you want to add anything there?

No, I think you said it well. We certainly think that there are key areas to invest in across the business. These are not -- will not be surprising to you the things we've been talking about for as long as we've introduced the growth for good strategy. But as you've heard us say before, we will build into those investments in the business. And so you won't see discrete increases, incremental increases in expenses, you'll see offsets. Well, you'll see the net of offsets occurring in other parts of the business. Christopher O’Connell: Got it. That's helpful. And then on the office portfolio, can you just kind of go over the LTVs and what the reserves are held for the 2 on special mention? And then maybe how much of the office portfolio is coming due during 2023?

Sure. Yes, sure. So the -- I think we put some additional information in our deck to help everybody understand a little bit better. On the 2 special mention, there isn't a specific reserve on those particular properties, mainly because of the strong LTVs that are still there and the fact that they are still paying. I think the overall reserve coverage, and I don't have an exact quote for you, Chris, I can get back to you on that. But I think it's pretty solid relative to our reserve coverage in total as we carry. If you strip out kind of the CECL impact, we're somewhere around 110% or 115% in total reserve coverage and I think everything is appropriately distributed across the asset classes. But I think it's important to pick up in the CRE portfolio is that we report a GAAP number of $327 million. But when you disaggregate it, we're down to about $70 million of office only kind of investment-related credits that hopefully can take a little bit of the risk profile down for the overall portfolio. The LTV on that total group is about 38%. So we feel pretty good about the collateral that's associated with that -- sorry, with that portion of the portfolio. And then in terms of maturity, generally speaking, about 20% of the portfolio matures each year. I'd have to look specifically at the office portfolio itself, but I think 20% is the number that's where -- that's reasonable to assume. Christopher O’Connell: Got it. And do you know if either of the two special mentions mature this year?

Neither do I know that, but they're not long in the maturity table. Christopher O’Connell: Great. And then as far as loan growth for the remainder of the year, I know it's supposed to be relatively subdued on a net basis. But if you could go over what areas you are looking to add and that you see good demand and good risk reward relationships on versus some of the areas that might be pulling back on or kind of declining to offset that?

Yes, sure. Absolutely. I think high level, we have said that we expect our loan growth to be led by our commercial portfolios, mainly multifamily real estate and C&I, particularly in our sustainability segment for C&I. We'll probably do less in residential lending. We'll do less in consumer solar, as I mentioned before with Janet, we've sort of filled up our basket there, and we also have a really terrific alternatives for solar-based consumer lending with our residential PACE product, which we do expect to see some decent growth throughout the rest of this year. With regard to the CRE, I'm sorry, to the C&I and the multifamily, we didn't really show much growth in C&I, but I think that's a little misleading. We did about $47 million in originations during the quarter. Almost all of that were impact-related loans and a lot of it was climate-related particularly. We had a couple of pay downs that occurred kind of late in the quarter, and we also had one payoff, which wasn't a regardable loss. So I think that, that business is going to continue to be able to generate and contribute to our 2% to 3% sequential growth target for the upcoming quarters. And on the multifamily side, I think the team that we've built out is really strong, is really generating a lot of relationship-based business. And we're hopeful that not only will we continue to see some origination on the multifamily side to bolster our lending for the year within New York but also start to see some development in the Boston market and hopefully in the San Francisco market as we place some new real estate bankers, respectively, in those areas, Chris. Christopher O’Connell: Great. And if you have -- what the current origination yields are on loans? That would be great too.

Sure. Just give me one moment. The -- I think -- the kind of the bring on right now in the C&I, we're up in the kind of mid-6s 6.75% range. CRE, it's around 5%. And obviously, we want to think about total real estate around 5.75%, somewhere in that range. And then in PACE, it's -- again, it's in that probably 6.6%, 6.7% range as well. Christopher O’Connell: Great. And I know you guys are going to be lowering the pure securities book over the course of the year to help fund loans, but it sounds like there will be some resi pace growth. I think a net-net basis, I guess, how do you see those combined factors growing or declining over the course of the rest of the year?

Yes. So I think target-wise, let's just kind of go through our PACE. I think we've got about $85 million of capacity left on our flow arrangement with PFG. I think about $25 million a quarter in origination is probably an appropriate number, maybe a little bit more, but probably about $25 million per quarter in our PACE. That will be offset by some pay downs. The pay downs are running about $15 million a quarter, somewhere in there, sometimes it's higher, sometimes it's lower depending on the timing of the payments. probably do a little bit less in CPACE mainly because of the duration associated with some of those deals. So I don't see a lot of growth in CPACE but probably some. And then from there, I think we'll continue to let the securities portfolio amortize. It's amortizing at about $50 million a month on the traditional securities portfolio between AFS and HTM. And then we'll also continue to sell pools of securities to reduce our exposure, but also to do some funding. What that ultimately ends up with net-net, I think it will be still a decline overall in the total securities portfolio when you factor in PACE. But I don't have an exact number for you at that point. I think the way I kind of more look at this is, we're really looking to keep the balance sheet from a total assets point of view level and how we manage that mix will be a little bit of art and a little bit of science throughout the year. Christopher O’Connell: Great. And for the brokered CDs, what are you guys seeing for the rates there relative to the alternative funding from borrowings?

I think earlier on, we were seeing some really attractive rate spreads. We started getting into the brokered market towards the end of 2022 and then really accelerated our PACE in early 2023. We saw about a 40 basis point -- 40 basis point spread earlier on. I think that spread has been tightening a bit. I think really, at the end of the day, we're just taking a very close look at kind of where the rates are on those brokered CDs. We're doing a little bit of mixing between shorter-term brokers and longer-term. We've done some 5 years as well. And I don't really have a great empirical answer for you between how we're looking at the pricing between the short-term FHLBs and the brokerage, but we do take a close eye on kind of the pick on interest. And obviously, we want to make sure that we're able to deliver a good funding composition, but also maintain some level of NII benefit throughout the whole process. Christopher O’Connell: Great. And last one for me. Are you guys considering or thinking about at all utilizing share repurchases going forward as TC builds on a fairly tepid balance sheet growth?

Yes. We are and we did a little bit in the first quarter. We did about $2.4 million worth or somewhere around 80,000 shares. We have still $25 million or so $26 million of availability under our previously announced program. So it's certainly an option for us, Chris. And obviously, with where the stock is trading, it becomes more and more of an attractive by -- at least in our opinion, we think the stock is quite a bit undervalued at this point. It's probably a number of other banks as well. I think the balance here is capital. I'm very, very focused on capital. I do want to see our overall capital ratio continuing to improve throughout the year. And it will always be kind of a bit of a balance between earnings, whatever is flowing through the mark and what we can afford through dividend and capital repurchases to make sure that we're continuing to maintain our TCE levels and continuing to maintain a growing leverage level.

Thank you. At this time, I would like to turn the call over to Priscilla Sims Brown for closing comments.

Thank you. Thank you all for your questions, and thank you for your time and interest today. We appreciate all of that, and we know that we'll be continuing the conversation offline with some of you as well. We also feel that we hold an important place in the market by providing capital and services to our mission-aligned customers. And that's not only the right thing to do, but it also is something that is good for business, and we're grateful that your understanding that as well. I could not be more excited with what the future holds for the bank for Amalgamated, our shareholders and our customers. I also want to just mention that in this era of sort of focus on the short-term headwinds, the cycle that we're currently in. We feel it's our responsibility. We hope you have seen that we have for several quarters now, talked about TCE and conservative credit alignment and other things that we think are really important for the defense of our book and the protection of our shareholders as well as other stakeholders. But we continue to be really focused on the longer term as well and growing the business. So that as we come out of this cycle, we continue to benefit from the tailwinds that come from the continued focus on net 0 among many in the asset management and investment community and corporations more generally. And we stand ready to benefit from the return to a focus on these longer-term goals that businesses and communities have. So thanks again for your time today. We look forward to talking to you in the future as well.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.