Good morning, ladies and gentlemen, and welcome to the Amalgamated Financial Third Quarter 2024 Earnings Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions with instructions to 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.

Thank you, operator, and good morning, everyone. We appreciate your participation in our earnings call. With me today is Priscilla Sims Brown, our President and Chief Executive Officer. 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 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. We will also discuss certain non-GAAP measures during today’s call, 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. Our third quarter financial results clearly demonstrate that Amalgamated remains positioned to achieve sustainable earnings and profitability. During the quarter, we delivered outstanding deposit and loan growth, strong profitability and returns and a growing capital base that positions us to invest in our strategic initiatives which will power our growth well into the future. This was another quarter of growth across customer segments as we continue to demonstrate a defensible business model that is positioned to thrive as the pace of investment and financing accelerates across politics, labor, sustainability and other impact areas. Our business is well diversified and not dependent on a single customer segment. It delivers robust growth regardless of which party is in control in Washington. In fact, we have seen broad based strength across our deposit franchise as our customers increasingly understand that their money can have a significant positive impact in the world when they bank with Amalgamated. Whether it’s addressing social issues, the climate crisis or a range of other topics that our customers are passionate about, they know that their money will be used in a way that aligns with their values. And we are still in the early innings of the societal shift, which presents a significant growth opportunity for the bank. To punctuate this, we have a new tagline that better reflects our impact with clients, the planet and the financial industry. Impact is in our DNA and our new tagline bank on impact shows both how mission meets performance and how you can rely on us to do well through good work. Our third quarter results clearly highlight our unique franchise and position as our deposit franchise once again outperformed the industry with $311 million in new deposits led by strength…

Good morning everyone. Starting off on Slide 3, we continued to produce solid results through the 2024 third quarter. Net income was $27.9 million or $0.90 per diluted share and core net income, which is a non-GAAP measure, was $28 million or $0.91 per diluted share, reflecting our carefully improved earnings base. The quarterly results also featured a continued surge in deposit growth with a low total cost of deposits of 158 basis points. Additionally, we saw $2.9 million of net interest income growth, a 21 basis point leverage ratio increase and a 5 basis point increase in our net interest margin. Now, as I previewed on our second quarter call, we expected to have a bit of noise again this quarter to flow through our margin and during the quarter, our loan income absorbed $1.3 million of an acceleration of deferred costs on certain loans. Excluding this impact, our net interest margin would have risen 2 basis points to 3.58% from the second quarter's adjusted level of 3.56%. Our neutral balance sheet strategy continues to drive our return metrics. Over the past seven quarters, we've been moving varying amounts of deposits off balance sheet to both maintain our focus on building capital and also advantageously generate off balance sheet income. We ended the quarter with $1.2 billion of deposits off balance sheet comprised of both transactional political deposits and other segment deposits, which generated approximately $8.1 million of non-core non-interest income. This deposit strength allows us great flexibility to structure our balance sheet for sustainable profitability and returns. And this quarter, in addition to selling another $51.9 million of underwater securities, we also agreed to sell $40.9 million of low yield residential loans. To the extent, we have off balance sheet deposits in the fourth quarter, we expect to…

Thank you. [Operator Instructions] And our first question comes from the line of Mark Fitzgibbon with Piper Sandler. Please proceed with your question.

Hey guys, good morning.

Good morning, Mark.

Hi, Priscilla. So, first question I had I know you all have talked a bit about your trust business and making strategic changes there. I wondered if you could share at a high level any of the kinds of things you're looking to do with that trust business.

Yes. Thanks for that question. We spend much of the year in – the last year focusing on just enhancing the quality of the revenue in that trust business. And that resulted in some turnover of clients. But at the midpoint of 2024, we brought in a new trust officer and he's really focused on just transforming the sales infrastructure. As part of the 2025 planning process we'll be making some investments in trust, but they'll be directed toward increased sales capacity, bringing on individuals with proven experience in the industry. And that digital acceleration that we've talked about will also benefit the trust business.

Okay. And then secondly, did I hear correctly that you, Priscilla, had said that the political deposit should end the year at about $850 million to $875 million, is that right?

That will – we expect that to be the trough? I did caution you that it's hard to pinpoint that exactly, particularly in a year where everything's a bit outsized in that segment.

And would you expect some additional runoff in the first quarter? Or do you think it'll flatten out as you start to see fundraising activity, mitigate some of the outward flows?

We think it will flatten out and then start to rebuild a bit. Sam, do you want to add any additional color to that?

Sure. Hey, Mark, nice to talk to you again.

Thanks.

Priscilla is exactly right. We usually see, if you go back to our historical trends, we really see that troughing at the beginning of the first quarter and start to see the rebuild kind of begin at the end of the first quarter, and if you go back to our slide on the political trend that is really held through cycle over cycle.

Okay, and then I think in the press release you mentioned that you had a charge off in the consumer solar space. Was that a PACE loan, I guess I was curious?

So, Mark. It's Jason. In the consumer solar, it's just our normal kind of homogenous loan pool consumer portfolio that has had a historical charge off run rate. There was a larger C&I charge up is that possibly what you're referring to because that was about $4.6 million, but that was a non-solar related charge off. It was a legacy leverage loan that had been in our NPA portfolio for quite some time, so we were able to exit that. But I want to make sure I'm answering your question correctly.

Yes, no, no, no, I wasn't referring to that. I just seen consumer solar and I thought it might be PACE related and obviously, you guys haven't had a charge off in that. So it kind of caught my attention is all?

Yes, sorry. No, that. No, no PACE charge offs. In fact, we haven't had any PACE charge offs since the history of that portfolio dating back to 2018. And the CECL reserve on that remains very small. I think it's about $600,000 on the total. But the charge offs that we're referring to the NCOs for consumer solar is in our traditional, call it lightly secured consumer solar portfolio. It's one that we've had a fair amount of charge offs over the past several quarters, particularly the rate environment has risen. But you'll probably also notice we did bump-up the reserve coverage on that portfolio as well. It moved to a coverage ratio of 7.68% as we did a early review of the baseline loss rates there to make sure that we had a proper coverage ratio relative to that portfolio. Given the consistency of the charge offs, we don't expect the charge offs to update anytime soon. Although we do think as rates continue to decline, there'll be more opportunities for houses to move again in the mortgage market. In which case we ought to have our fixture liens cleaned up as it relates to any charge off activity that we're having. But for now, we think that run rate would be fairly steady for the foreseeable future.

And then last question, Jason, on expenses, I apologize if I missed it. Any thoughts on sort of your expense growth outlook?

Yes. So a little bit of elevated expenses in this quarter, some of it I would characterize as one time in nature. I think we should expect to see a similar expense base for Q4 somewhere in that $40 million to $40.5 million range. I think again, it's grounded in the core efficiency band and we move forward a few investments into the current quarter that we'll see included in our run rate going forward that will look very similar to Q3. But again, given where we are at the core efficiency ratio, we feel pretty good about advancing those expenses. I don't have full year guidance for you next, I'm sorry for 2025, but I think looking at the Q3 and Q4 run rate, that's a good starting point and we'll refine it for you Mark, when we get to the full your outlook at the end of next quarter.

Great. Thank you.

You're welcome.

Thank you. [Operator Instructions] Our next question comes from the line of Chris O'Connell with KBW. Please proceed with your question.

Hey, good morning.

Good morning, Chris.

Hi, Chris.

I was just hoping to get some color on the loan pipeline. I know for fourth quarter expected 1% to 2%, but maybe just what the mix is generally and what some of the pipeline yields are there?

Hey Chris, it's Sam. We're really optimistic about our forward pipeline and you're right, we did mention that we're expecting to be back in our target range of between 1% and 2%, which you know, really, that reflects our risk balance approach to origination. We really like what we're doing on recycling the real estate portfolio. We've talked about that a lot and really seeing higher quality and higher yielding assets come on which is great and consistent with the neutral balance sheet strategy. And on the C&I space we are seeing a lot of pipeline growth there as well, which is really consistent with the increased energy demand and we like what we're seeing there. We are seeing some diversification between our commercial solar, our community solar and other asset types in that renewable space and feel like we're seeing strong yields and great credit quality. So we feel good about a forward basis.

Got it. And then any sense in general just around where the origination yields are coming on at?

So look, we're seeing yields going up as we are replacing what is coming off the balance sheet and feel pretty good about that.

Yes. Chris, I think probably the multifamily CRE side during that 6.25% to 6.5% range on bring on C&I would probably be in the upper 7%, 8% depending on which deal it is. That kind of has a little bit more variability to it. And then you didn't ask particularly on the loan pipeline. But if you're thinking about pace which we tend to add to our basket relative to loans, that's probably in the high 6% range, maybe even low 7% still as we think about the fourth quarter bring on yields.

Great. Thank you. And then thinking about the trajectory of the margin from here, I appreciate the $2 million annual hit on NAI with the parallel shift, but assuming the long end holds up pretty well around current levels. How are you guys thinking about the impact on just the short end coming down 25 basis points?

Yes. I think it's really already baked into that range we’ve given for Q4 coming in about $70 million, $72 million on NII. And we think the margin should hang in there pretty good assuming that we don’t have an unexpected shift in the mix of deposits from a political outflow. So all things equal, given the short end and the factoring from our model of two 25 [ph] basis point rate cuts in November and December, we think that will have a margin – close to a margin neutral impact assuming, like I said, we don’t have a unexpected change in the mix of deposit outflow relative to political. And going forward again, we haven’t given our full year guidance and we’ll do that at the end of next quarter. But we do factor the full effect of the forward rate curve through 2025. We still think there is opportunity for consistent NII growth and modest margin expansion throughout next year. But we’ll be able to dial in a little bit more for you when we get to Q4 and we do the full year guidance. But the one thing I would comment on to is that $2 million sensitivity that we gave you on a parallel basis above what the forward rate curve suggests. That’s sort of our secret to coder PIN [ph] for you to look at what variability might be. But I’ll point out that we use very conservative deposit beta assumptions when we put that number together. So I like to think of that as a pretty conservative assumption as to what that impact would be. And there’s potential for it to be better to the extent that our deposit betas are greater than how we model it.

Great. That’s helpful. And as far as the political deposits in the overall kind of off balance sheet strategy into Q4, I mean, obviously, this quarter that strategy yielded significant fees on the ICS side. Again, just based on the early look on the political outflows, do you still think that you’ll eke out a little bit more on the ICS fees over with that strategy in Q4?

I think so, Chris. We’re not banking on it being a contributor, not nearly to the extent that it was in Q3. And Q3 was a delightful surprise for us and we took full advantage of that opportunity by moving into a resi loan pool sale as well, which we were able to move off some pretty low yielding assets and create some good capacity for earn back. That said, what we’ll probably do is eke out, call it a third of what that number was for Q3 and we’ll look to probably match off securities losses again during this quarter. Going forward from there, I couldn’t really tell you exactly what the strategy is. We really need to see what’s going to happen with the final output of the political deposits. And as Sam pointed out earlier, we just don’t know yet what the expected rebuild will look like and what the pace will be. So there’ll be more to come on the ICS strategy as we get into the fourth quarter and we give our full year guidance for next year. But I think all things equal, we’ll probably have a little bit call it a third and we’ll match that off with potential securities losses as well in the fourth quarter.

Great. That’s helpful. And as far as just the securities low yielding, I mean, how much is left at this point to even kind of turn over given how short duration the portfolio is?

Yes. So happy to ask that question because we were literally talking about it this morning. We’ve turned over about $820 million of securities now since the first quarter of 2022 with a long strategy to protect our earnings. And that’s about 37% of the portfolio as it exists today. So the answer to your question is there isn’t that much more we need to do. We’re very happy with what we’ve been able to accomplish and even more happy that we were able to use a lot of this ICS related income to make that happen without having an impact to GAAP income. So that is a tremendous benefit that we feel very fortunate to have had. That said, we still will be opportunistic throughout next year as we continue to look at opportunities to improve the earnings profile of the bank. We’ll always do that with a mind’s eye of capital and what we have available from an earnings perspective. But I think the pace at which we’ve been doing these securities restructures will slow down as we get into next year and be a little less consistent and a bit more opportunistic.

Got it. Thanks. And then last one for me, just the updated kind of read on the Tier 1 leverage. You guys are above kind of what you want as your lower band target now, but kind of have like a medium term operating target to be around 9% level. Can I read that as probably hold off on any share repurchases until you hit that 9% level and then kind of reevaluate at that time and then I guess also any rough expected timeline that you guys think to get to that to 9%?

Sure. I’ll work in reverse on that question. We think with the pace that we’re building capital right now, we could be at that 9% leverage mark first quarter of 2025, at worst, second quarter of 2025. So it’s a very short runway between now and then. And the reason for the 9% is just based on the pace of that capital build and not because we’re trying to move the goalposts. The two things that we’re trying to service are our ability to handle just adverse stress scenarios. We want to make sure that we have the most regulator friendly balance sheet we can have so that we can continue to operate according to the growth plans that we want. And then in the spirit of growth, any addition to the capital base continues to allow us more room within our concentration limits to dive into the asset classes that we’re in. So that’s the fundamental concept around moving towards a 9%. I use the word eye in my prepared remarks, very specifically, eye towards 9%, because we do recognize return of capital as a priority, we do still have the $20 million remaining on our share buyback authorization. And while I don’t have a specific plan for you at this point during the call. I do expect we’ll be coming back to you in the fourth quarter with a return of capital plan that will encompass the entire year and give you something that you could model out.

Great. Really helpful. Thanks, Jason.

You’re welcome.

Thank you. We have reached the end of the question-and-answer session. I would like to turn the floor back to Priscilla Sims Brown for closing remarks.

Thank you, operator. And again, thank you all for your time today. We always appreciate your continued interest, whether it’s here on the NDRs or an Investor Day. Those opportunities to address your question gives us additional feedback as we factor in our plans. As always, I also want to thank our employees and our Board. The hard work and dedication to this bank has resulted in another stellar quarter for us and we don’t take that for granted at any point. That success would just not be possible without the commitment and determination of this talented team of people that we work with. I also just look forward to updating you on our progress both at our Investor Day, which is you’ve hopefully all received an invitation for December 3rd, and of course, always on our fourth quarter call. I asked Sam Brown to join us today so that your production questions could be directly addressed by the business. Sam and other leaders will continue to join us both on the Investor Day and in future calls. So thank you, Sam. This concludes our prepared remarks and Q&A and appreciate your time.

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