Good morning, ladies and gentlemen, and welcome to the Amalgamated Financial First Quarter 2024 Earnings Call. [Operator's Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Jason Darby, Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and good morning, everyone. We appreciate your participation in our earnings call. With me today is Priscilla Brown, our 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. 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. We caution investors that actual results may differ from the expectations indicated or implied by any such forward-looking statements or information. Investors should refer to Slide 2 of our earnings slide deck as well as our 2023 10-K filed on March 7, 2024, for a list of risk factors that could cause actual results to differ materially from those indicated or implied by such statements. Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in 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.

Good morning, everyone, and thank you for joining us. 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, 5 basis points of net interest margin expansion and stellar deposit growth. 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. This clearly separates amalgamated from our peers and affirms my incredible optimism for the future. I used the word stellar a moment ago to 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 and recent economic data has certainly muted sentiment for rate cuts throughout the remainder of the year. The reality is that we cannot control any macroeconomic factors, and so we must plan for variability. I speak often about our differentiated deposit gathering franchise, and this is where it shines the brightest. For the quarter, our on-balance sheet deposits, excluding brokered CDs, increased $374 million or 5.5%. 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. In total, we brought in over $480 million in new deposits during the first quarter, results that we consider to be stellar in this environment. Importantly, our deposit growth was broad-based once again, with strength in our political, our union, our nonprofit and our social advocacy segments. Our political segment delivered $250 million of inflows as the presidential election continues to…

Thanks, Priscilla. Hi there, and good morning, everyone. Before I get started, I'd like to take a moment to note that we have revised the layout of our accompanying earnings presentation. We've streamlined the information to spend more time on key highlights and also to shorten the length of our prepared remarks. We've moved many of the traditional detailed slides to the appendix and have also created some new appendix slides such as a reconciliation of core deposits and a metrics index for you to conveniently refer. So I'm going to start off on Slide 3 of the earnings deck. Our 2024 first quarter produced solid results. Net income was $27.2 million or $0.89 per diluted share and core net income, which is a non-GAAP measure, was $25.6 million or $0.83 per diluted share. And as Priscilla mentioned, that was an increase of 16% from the previous quarter. The quarterly results also featured increased net interest income to $68 million, 5 basis points of net interest margin expansion, a 22 basis point leverage ratio increase, a dividend increase announcement to $0.12 per share and significant growth in deposits across multiple segments, all of which I'll discuss in further detail. Taken as a whole, we are very pleased with our core operating performance. Continuing to Slide 4, we look at some of our key performance metrics during the first quarter. Starting on the left, our tangible book value per share increased $0.99 or healthy 5.29% to $19.73 primarily driven by our quarterly earnings. And our core revenue per diluted share was $2.48 for the first quarter, essentially the same as last quarter. Moving across, let's take a quick look at our returns. Core return on average equity was a very strong 17.14% which was a nice uptick from the prior quarter…

Thank you. We will now be conducting a question-and-answer session. [Operator's Instructions] Our first question comes from the line of Alex Twerdahl with Piper Sandler.

I wanted to start with some of the comments that you made, Price, on some of the dollars that are earmarked in the IRA towards sustainability initiatives and one that I was looking at recently was the greenhouse gas reduction fund, which seems like it's pretty new and 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 and how Amalgamated could actually play into some of these types of projects and initiatives.

Yes. Thank you, Alex. It's a great question and great timing for us. Well, first of all, the distribution of funds could be done in a number of ways, but -- and we don't know exactly how that's going to happen. We will know as of September when that disbursement is intended to occur or at least the announcement of how it's going to be happening. But look, we are well positioned to help organizations manage the receipt of those funds, whether it's for immediate use or whether the funds need to be placed in ways that will cause the use to occur over time. This is not inconsistent with what we have done in the past. We moved large sums of money in laddered fashion for our union clients over the last year. or more using different tranches of treasuries to maintain liquidity when the customer needed it. So in that sense, it's much like the work we've already done. In addition to that, the political group that we have developed came out of the White House and has been very tuned into the IRA for quite some time now. And the advantage we have is that we know most of the awardees well, either they are customers or they're a part of, I would call them, coalitions or groups, which have been formed and that group is a new one, but it's made up of a number of green banks, which -- within which we've done business. So an example of one that's been announced is the coalition of Green Capital. They're the aggregator of Green banks. And again, that's a community we work well with. And the advantages for us, in addition to the fact that we know a lot of these clients and have been helpful to them as they've gone through this process. We also -- we have a unique understanding of the renewable energy financing programs and methods. And so we would like to continue to advise them, and we think we'll have a differential advantage in doing so. So really excited with the a lot -- we think it's going to be fun to deploy these assets in ways that both fulfill the mission and help grow the bank.

Okay. So it sounds like we got a really week till September to find out some of the specifics. But I mean, would you say that they could be balance sheet opportunities for amalgamated -- or is it mostly just partnership?

Yes. No, no, no. I think there's opportunities both in deposits, depending on how these funds are going to be dispersed as well as financing opportunities for us as well. And it's $20 billion that's been announced thus far. There's another $7 billion to be announced. And as we go down the line, there will be other activities.

Okay. Okay. We'll wait to see how that progresses. 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 like the first line of defense for the political deposit outflows that we expect in the second quarter so that maybe those political deposits start to decline towards the end of the second into the third quarter, but the actual deposits on Amalgamates balance sheets really aren't impacted.

Why don't we both -- I'll take that first part of that. One way to think about that is 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 -- I'm sorry, deposits grow not only in political, which we consider to be somewhat transactional, but also deposit growth in our core areas and other parts of the business and in other segments.

Yes. And Alex, I think you're thinking about it similar to the way we are in the sense that 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 first, in which case, you could see deposits on balance sheet being used to support political outflow. But given the nature or the size of the 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's very likely that the first line of defense will be the off-balance sheet deposits to support the initial outflow of the political deposits.

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. When we think about sort of the mission aligned portion of multifamily, can you help us think about that a little bit more and sort of maybe some of the factors that would differentiate what Amalgamated has on its balance sheet and the types of new multifamily loans that Amalgamates making today versus maybe the overall perception of what's happening in the market.

Sure. 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 financing requirements of these organizations. Now at the same time, we've certainly identified 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 421a style buildings, section 8, those that have greater abilities to have support for repayment streams and a little bit less on some of the more onerous 20- I'm sorry, pre-1974 rent regulations. But to maybe just roll the answer up more succinctly. I just think it's really relationship driven, 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 and trying to lend away from areas where we have free market constraints and really stay more in areas where we have the ability to gain competitive market on our particular assets that we invest in.

Our next question comes from the line of Janet Lee with JPMorgan.

I appreciate all the comments on your multifamily portfolio, but if we can go back to what happened in the first quarter, can you just walk us through how much of your rent-regulated multifamily portfolio might have come due and got refinanced or paid off, how much you have to modify and extend if any, because they weren't getting refinanced?

Sure. 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 pre-1974 multifamily real estate assets that are going to come due between now and the rest of the year. So 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 that we made in this particular quarter, it was fairly neutral in terms of being able to roll those assets over -- I give a lot of credit to the fact that there were strong LTVs on the properties already. The borrowers had the ability to put cash into deals where needed. And we have been in touch with borrowers long before the renewals were set to take place. So there weren't 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 potential stress in some of these deals we've been working on various arrangements to help the borrowers stay in their properties and keep the cash flow moving for the bank. And again, I think we're aided by just a really nice profile relative to as underwritten DSCRs and lower LTVs, maybe than other peers are experiencing. So overall, I think we're in a pretty decent spot. We're certainly aware that there's 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 profile in general for metropolitan banks. But none of our reserve build was really related to anything specific. It was more just a reaction to the general environment.

Okay. Got it. And so basically, is it fair to say, I mean, if I look at your criticized and classified balances only looks like it's only $10 million, no past due or NPLs in that part of the portfolio. And I mean you built reserves, but still at 38 basis points. Are you basically saying this is just a reflection of higher rates for longer and not an expectation for like lost content coming?

Not an expectation for loss content, and I think your observation of the the asset facts from a nonperforming and from a criticized asset and past due 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 seen fairly stable past-due 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, and that returned to current status and you see that in the first quarter numbers. But it's really just a 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 thought 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 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.

Okay. Great. And back to comment about bringing in lower cost for deposits to plug the whole of expected political deposit outflows in the second half. How much are we thinking here? I mean, tradition, are we thinking here? I mean, traditionally, you guys have tapped FHLB, what sort of gives you better confidence this time around and besides political, where specifically are you seeing growth momentum in deposits picking up of all the niche segments?

Sure. I'll go in reverse for the questions, Janet. And forgive me if I miss when 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 we're also seeing some fairly substantial wins in our union-based business. We saw a little bit of that last quarter, and that had fairly sizable balances, but those tend to take a lot longer on the cycle for new account generation. So I would expect we're going to see a tremendous amount of 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 nonpolitical deposit growth occurring. Forgive me to, what was the first part of the question on the political, just was it outflows and what we should expect to see?

Yes. I mean, how much are we thinking in terms of being able to plug that hole of expected political deposit outflows, any like any way to quantify or in terms of like the magnitude?

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 million and $600 million of 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. And that really is a back-in 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 nonpolitical deposit segments. Where we are right now is we are ahead of plan fairly well for both the political deposit gathering and the nonpolitical, right? So where we come in now, we're about $1.5 billion, maybe even a little bit over midway through April on political deposits, that certainly exceeded what we expected -- where we expected to be at, at this point. That will probably mean 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. But all that equal, the other deposits, the nonpolitical 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 $500 million or $600 million of wholesale funding to plug the deposit outflow it may be some number less. I don't really know, Janet, I 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 and you might even see that end up in balance sheet growth manifestation as well.

Got it. And if I can add just a final question. Since you guys are approaching that 8.5% Tier 1 leverage target, how should we think about buyback in the second half of 2024?

For stock buyback... I think it's... Yes, I think it's always an arrow in our quiver. We will look at the 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. As we approach that 8.5% Tier 1 leverage, we're certainly seeing a corresponding increase in tangible book value. And we know that we're ready and able to step in our stock wherever we feel that it's not appropriately valued. 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 8.5% lever, we're not 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 -- as the world turns type of scenario.

Our next question comes from the line of Chris O'Connell with KBW.

Just wanted to quickly circle back to the multifamily. I appreciate all the commentary so far. There was some growth this quarter. Was that growth in rent-regulated segments? Or is that, I guess, or what segment was it in?

Yes. It's generally in the 421a or the Section 8 housing, I shouldn't even say generally, it's majority, if not all, in those particular sections where I mentioned earlier, really trying to 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 the space where we can get some better market opportunity for ourselves and also for, of course, the borrowers.

Got it. And to the extent that you're putting on growth in those segments going forward or maybe even just using the Q1 actuals as an example, I mean what are the credit general credit metrics that you're looking to target in terms of what's the yield on it? And what's the debt service coverage ratio? And what are the LTVs? Are they higher than they've been in the past, given some of the stresses?

Yes, I think we certainly are looking at credits with a sharper eye. And I think also we've been more conscious of what we're allowing to make its way into our pipeline. So I don't think on balance, we'll have the same type of net loan growth numbers in the real estate portfolio this year that we had in last year. But we still think that there's really good opportunities to put on quality assets. And so we talked a moment ago about doing some 421-a and Section 8 style housing loans. There's also great opportunities in the industrial asset class as well. Thinking about LTVs and DSCRs and we have a standard for DSCRs, -- and I would generally think of now as 1.3 is sort of a a measuring stick for what we think makes a good credit for the time being. On market rates, we've said this multiple times. We really want to be at where market pricing actually is, we could see things in the 6.5% range. We can see things maybe a little bit below if there's quality deposits that help us hurdle a little bit better in terms of our returns. And from an LTV point of view, really thinking somewhere in that 55% range, 60% range, somewhere in that range are the standards that we're really looking at today. And those things could change over time. But right now, given the environment we're in and the way that the bank is trying to protect its balance sheet and its risk profile, that's pretty much where we're at in terms of new deal flow.

That's helpful. And what are the market rates generally that you guys are seeing out there right now on that?

We're seeing things -- it's moved around a little bit, but we're seeing things between as low as 6% and we're seeing things in the 6.5%, 6.7% range as well.

Got it. And when you've looked at these recent deals and you've gotten like the updated appraisals, just like generally, do you have a sense of how much they were down from when they were last appraised?

I don't have a great number to quote for you. I mean our overall average or weighted average DSCRs have risen a bit. Generally, we used to be in the high 40s to low 50s. I think we're now up in the high 50s and low 60s 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.

Great. And then I think you mentioned the PACE production increase in Q2. Is the $20 million to $25 million increase over Q1 production? Or was that the targeted total production in 2Q?

Yes. Generally, we are -- production is for slightly lower than the mid-30s production we typically had. But what's also different is that there was generally around $5 million to $8 million, I think, Jason, of paid down to those, right? And this time, I think it was up to around 17%. So I think the difference -- the net number difference that you're seeing reflects both sides.

Right. And to talk about what you should see in Q2, Chris, I think it would be around $20 million, $25 million net production, not in addition to the 10 that we did in this particular quarter, as Priscilla was mentioning a moment ago, the the originations. We think there's a couple of good opportunities for us to add some additional purchases outside our normal production provider to make sure we're at our $20 million, $25 million net target for Q2. And that's really on the ARPA side. We still have good opportunities in our pipeline for space that we could see flowing through as well. So when I talk about those numbers, and I think Priscilla mentioned it in her comments as well, we're really referring to the residential pace as those quoted volumes of $20 million to $25 million. And anything from the space would be incremental to that pace number that we just talked about.

Great. And you mentioned some of the securities movements in Q1. What was the amount sold in purchase?

Yes. So we did about $128 million of purchases during the quarter, and we had that largely offset by sales of about $75 million, which is a little bit more aggressive than we normally did, but we had the ICS income to offset that with. And we also had our normal $50 million of paydowns or so. 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 as 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 in shorter-term securities. We have that really planned to largely be either available to us through maturity or through sale by the end of this year to help with 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 strategy 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 re-down interest rate scenarios.

Yes, makes sense. And do you have the yields on what was purchased first sold?

On the purchase were coming in roughly around 6%, a little bit higher, call it, 6 to maybe 6.25%. We largely focused on fixed rate assets, again, talking about that down rate sensitivity profile. So we could have clipped a little bit more yield 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 AFS portfolio. I think the yields about 4.9%, 5% somewhere in that range, Chris, for the sales, somewhere in that range.

Okay. Great. That's helpful. And then on the specific reserve, I think there's $1.6 million increase in those provisions in the quarter. What was -- what types of loans were those related to?

Yes, really came through on 2 loans. And the one loan was a construction loan that we had been watching for a bit, and we ended up taking about $850,000 or so on that particular credit. It's had some issues. We've been watching it. We think there might even be another leg down on this that's coming up. So it's a little bit more to come. But we took about 1/3 of the principal balance in specific reserve on that particular credit. The other was a C&I loan that was for about $1 million in principal balance and we saw that one rather quickly move into a deteriorated state where we really couldn't find a good way out. So an unfortunate credit, but small relative to our overall portfolio size and the upside on that is 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 2 credits, and we felt it appropriate to put those reserves on.

Great. And then you mentioned another C&I loan that was upgraded. Could you just walk us through the dynamics that played out there?

I 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 generally speaking, have not needed the bank to step into the deal and make a modification, does say it doesn't happen ever. But in this particular case, it's really a question of the borrower working on their business the right way, spending their adequate amount of time to generate the cash flows necessary to meet our reporting metrics and putting enough time into that level of performance where the bank is comfortable with an upgrade. What I can say specifically, though, is we take upgrades very, very seriously. As I hope most banks do, it's not an easy process for us to upgrade a credit because we have a lot of expectations on the borrowers to adhere to the covenants or to here to the metric standards that have been put into the deal. But when the borrowers have reached those particular measures and they've been able to demonstrate history with meeting them. I think we are very fair in being able to upgrade those, and we feel good about being able to report them as not only upgradable but able to remain in an upgraded status.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Priscilla Brown for closing comments.

Thank you, operator, and thank you all for your time today and your continued interest. We appreciate your questions. We know we're going to get more after this call, and we appreciate those in advance because we they demonstrate the strength and competitive advantages that Amalgamated enjoys as we look to the balance of the year. This is an exciting time for Amalgamated as we reposition our balance sheet to drive margin expansion, improve 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 that inflows can mitigate the eventual outflows of our political deposits, which we discussed today and which could provide a source of margin upside as we look to the end of the year. 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. 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 couldn't be more excited with what the future holds for amalgamated, our shareholders and our customers. Thank you again for your time today. Operator?

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.