Amalgamated Financial Corp. (AMAL) Q3 2026 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Amalgamated Financial Corporation Third Quarter 26 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. A replay of the call and the accompanying slides are available on our investor Relations website. Please review the forward looking statements and non GAAP disclosures on slide 2. 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. Additionally, Sam D. Brown, our Chief Banking Officer, is here for the Q&A portion of today's call. We will keep our prepared remarks brief to limit repeating details you have already reviewed in the earnings materials. I will now turn the call over to Priscilla.

Good morning, everyone, and thank you for joining us. We delivered another strong quarter, and I am very pleased with both our results and the continued progress we are making against our strategy. What stands out to me this quarter is not simply the level of performance but the consistency of our execution and the way the different elements of our strategy are increasingly reinforcing 1 another. Our differentiated deposit franchise continues to provide a strong foundation for the bank. We are putting that funding and our capital to work deliberately. Focusing on opportunities where we believe we can generate attractive risk adjusted returns while serving the customers and communities at the core of our mission. We saw that clearly in the balance sheet this quarter. On balance sheet deposits increased $256 million during the quarter to $8.7 billion while off balance sheet deposits totaled $1.1 billion Very notably, political deposits remained at approximately $2 billion while also moving beyond the peak of the prior presidential election cycle. Growth across our mission aligned segments continue to demonstrate the strength, resiliency, and diversity of our bank. We also maintained approximately $5 billion of cash borrowing capacity and unpledged securities providing substantial liquidity and strategic flexibility. That funding strength allowed us to deploy capital into nice balanced opportunities across the balance sheet, Commercial loans increased approximately $93 million during the quarter, and C-PACE assessments increased approximately $54.2 million At the same time, lower yielding residential mortgages and consumer solar balances declined through planned runoff, allowing us to redeploy that capital into higher performing assets. This is a good example of how we expect to continue converting the strength of our pipeline into attractive deployment opportunities in the quarters ahead. Importantly, our focus remains on the quality and economics of that growth, not simply on adding assets. At the same time, we continue to invest for the future. During the quarter, we advanced several modernization initiatives. We expanded the use of AI enabled tools across the organization and we continued building the technology foundation to support our long term ambition. These investments are designed to simplify how we operate, improve the customer and employee experience, strengthen our control environment, and enable us to support more business without adding complexity at the same pace. Just as importantly, we continued investing in our people. We strengthened their capabilities to better serve our communities and our customers. Taken together, this is the strategy at work. We are putting our differentiated funding base and capital to work more effectively while building the capabilities that allow us to serve our customers better and sustain stronger performance over time. We are focused on creating greater value from the franchise we have built with a discipline in risk management that has always defined how we operate. Our strong balance sheet differentiated deposit franchise, mission driven customer base, and disciplined execution give us the confidence in both where we are today and the opportunity ahead. With that, I will turn the call over to Jason.

Thanks, Priscilla. Last quarter, we discussed harvesting the earnings power of the bank. In this quarter, I will spend some time talking about how that earnings power is showing up in the numbers. The earnings profile of the company continues to strengthen. Core net income increased to a record $34.6 million or $1.14 per diluted share. Net revenue exceeded $100 million for the first time in the bank's history. Net interest income reached a record $87.9 million while maintaining a net interest margin of 3.77%. And core profitability metrics again improved to record levels as core return on average assets increased to 1.44% and core return on average tangible common equity increased to 16.57% Collectively, these results demonstrate both strong and consistent performance. We reached our target balance sheet size of approximately $9.6 billion this quarter by adding $141 million of interest earning assets across the lending, PACE and traditional securities portfolios, 1-off loan portfolios generate $39 million of redeployed cash, And while we believe our balance sheet is well optimized, we are considering ways to accelerate reduction of our consumer solar loan portfolio as we continue pursuing productive revenue generation and future profitability. The scalability of the bank is starting to show. Revenue growth allowed us to continue investments in our technology ecosystem and necessary talent, and also absorb an expected increase in occupancy expense associated with our headquarters move. Our core efficiency ratio remained remarkably stable at approximately 49%, demonstrating the positive operating leverage embedded within the bank and providing a glimpse into the long term value we believe is still ahead of us. Our key takeaway this quarter is that our outlook remains favorable. Credit performance remains stable overall. Pass rated loans continue to represent approximately 97% of the portfolio. Annualized net charge offs declined to 20 basis points. And we continue actively managing the previously discussed multifamily relationship. As another election cycle concludes in Q4, we expect to run a neutral balance sheet. We are comfortable with our liquidity position and ability to limit both NII and margin volatility. With that, we are increasing our net interest income outlook for the year from a high end of $340 million to a range of $341 to $342 million but project modest margin compression in the fourth quarter related to the DDA/IBA deposit remix as the election cycle concludes. For core pretax pre provision earnings, we are raising from the prior high end target $190 million to a new range of $193 to $194 million driven mainly by our strong Q3 performance. In upcoming quarters, you will hear us talk about meaningful growth. And this means growing in a way that strengthens the bank rather than simply enlarging it. Not attempting to become a larger bank for the sake of size. We are building a more productive bank. The objective is to generate stronger earnings, efficient returns, and increasing operating leverage with less inherent structural risk. Said differently, the objective is to derive more value from each incremental dollar of asset growth. We believe the strongest banks are not those that grow the fastest, but those that become more productive That philosophy benefits all our stakeholders by requiring strong financial performance, expansion of our capacity to serve customers, and scale and model for financial success and community impact. Ultimately, the point is, as Amalgam grows, the voice and impact of the mission driven communities we serve grows with us. And we are now ready for questions. Thank you.

We will now be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question-and-answer queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, you may be necessary to pick up the handset before pressing the star keys. Our first question comes from the line of David Konrad with KBW. Please proceed with your question.

Hey. Good morning. Great quarter. Morning. You know, going through the pleasantries there, but I wanted to talk to Jason a little bit about the guide. Maybe run through a little bit of the NII because that seems although the strong quarter is kind of flat next quarter. And then PPNR looks to be down a bit quarter on the quarter. I do not know if that is maybe seasonal fourth quarter expenses. So maybe kind of highlight a little bit more of the guide.

Yeah. No problem. Hey, David. How are you? So the fourth quarter is going to follow the natural cyclicality pattern that Amalgamated has just as election cycles conclude and the NII probably will look very similar to the amount that we had in the third quarter. As a result of really just the mix shifting that is going to happen through the funding base as the larger portion of DDA balances starts to decline to support the election conclusion. So the NII has no real ability to lift from this period unless we decide to grow the balance sheet, which we have indicated we are going to leave a neutral balance sheet, because our main focus is really to serve the liquidity needs and limit any volatility that is rolling through the NII vis a vis borrowings. So that is really the NII guide as a flattening, but I do not think that is going to be trajectory. I think when we start to get out into next year, we will start to see NII lifting again. And we will talk more about that when we get into the guidance issue that we will give at the end of the fourth quarter. But I think this period coming up will be a little bit of pause in the momentum of the growth in revenue and other areas of the bank while we get through the election conclusion. Then on the PPNR side, I think the PPNR largely the growth is fueled by the outperformance that we had in this quarter. We are being modest in our expectations for NII, as I said. I think expenses will be generally close to where we are here in the third quarter, maybe tick up slightly. And on the noninterest income side, I think we had an outsized quarter this quarter just as a result of a valuation adjustment from an equity investment we had. So all things equal, I think that is where we are sitting with the PPNR guide Our hope is we will overperform, but want to give you what we think is the most reasonable expectation.

Great. And then and then maybe with the Fed move and we did see 1 in December as well, what are your thoughts on deposit betas given the remix and what you think that will be the next couple of quarters?

Sure. So it is a little too early to tell just on this quarter alone how the deposit betas are behaving just because it happened at such a late period in the end of this quarter and then they are just was not a lot of movement from our pricing. If you look at our average posted rates, it actually ticked slightly down from quarter over quarter. So I do not have a great lens on just what that beta is gonna look like. But if I thought about the historical for amalgamated and the last rising rate cycle, which was the fastest 1 we have had in 50 years or so, the interest bearing deposit beta was just under 40% throughout the entire cycle. So I think the signal from us is that we are going to intend to be competitive on pricing. We are going to move with the market. Typically, we enjoy a lower beta just by natural flow than the market, but that does not mean we are trying to manage to that. And historically, I think we have been better than our beta assumptions I think that is an important thing too. So when we talk about our NII guide, which we will give at the end of the fourth quarter, in January, we typically have very conservative beta assumptions, but usually, we do better than that. And, hopefully, that will give you an indication of how we are thinking about deposit costs going through the cycle and what our betas might look like But absent the beta discussion, I still think you can count on Amalgamated to have a very stable cost of funds trajectory I still believe this is very much an asset yield story. As we get out into 2027 for the opportunity for potential margin expansion to continue.

Got it. And then maybe the last question for me. You kind of talked about looking for you know, avenues to further reduce the consumer solar Is there an opportunity? I mean, the PACE product has been kind of a stable growth. Is there an opportunity to accelerate, maybe C-PACE growth rates? In 2027?

I yeah. I am going to ask Sam to comment on that in a moment, but I think that is exactly right. We are looking for ways to optimize our capital to move into PACE as a primary feature. there is other areas where we can deploy, but the consumer solar portfolio, just given the way it is behaving, the way that our CECL model is driving economics both in this quarter and into the future really makes us want to accelerate movement of that portfolio liquidity into a different asset class like PACE? Sam, you can talk about our expectations for growth.

Yeah. Obviously, David, we are really excited about what we saw in pace for this quarter with 54 million I think this quarter was benefited from a lot of activity that you know, I want to make sure we are being transparent about what the next quarter will look like. That was a very high mark. That said, we really like PACE for forward reasons because PACE historically has had a really good reaction in rising rate environments. And so, we hope that our opportunities for origination will actually expand here as rates continue to move and feel like that is a win for us. We also saw a lot of great PACE production at both ends of the spectrum, both in large transactions and also in our small dollar program as well. So we are looking at ways we can continue to grow those opportunity sets and expand our origination partners. So we agree with you. We would, you know, love to be doing more and, have that as a very strong target for us in terms of 3 legs of our asset generation stool.

I will just underscore that point about the diversification of the PACE program this quarter, not only in terms of size, but also multiple geographies and property types. And I think, you know, a lot depends on regulatory support for clean energy investment. We think that will lend itself to sustainable C-PACE growth.

Great. Thank you. I appreciate it.

Thank you. Our next question comes from the line of Steve Moss with Raymond James.

Good morning. Nice quarter. Maybe just following up here in terms of business activity, given the rate volatility, how you guys are thinking about overall loan growth here going forward and wondering if you are seeing impacts from higher rates with regard to multifamily or other commercial borrowers.

Yes. Steve, it is Sam. So look, we are obviously making sure we are being responsive to the change out there. For us, rising rate environment, we really look at this across our 3 asset areas. In multifamily, it is really about managing our refinance risk. And making sure that we are managing our credit standards and focusing on lower leverage deals. Because we want to continue that efficient NII growth that we have demonstrated. And we think we have got a really high quality pipeline to do just that. Certainly, looking out, ensuring a long lead time on any maturities that are coming due. You have seen as we put that out what that looks like in 2027 and beyond. In C&I specifically, and in our focus areas, the biggest impact of higher rates have really been to they show up in the form of increased sponsor equity that is needed to get these deals done. And that is because in the C&I transactions, particularly in the energy space, these deals and these projects have to get finished because of the calendars that come from the tax credit expirations in 2027 and in 2030. And so we view that as that is positive for us because, again, the acceleration to bring those projects forward is continuing. And then lastly, I just mentioned on page, I will not repeat myself. But historically, we have seen some tailwind activity on that in a rising rate environment. So you put all that together, we think we have got a diversified pipeline, a high quality pipeline, and it can adapt to what the needs are of the bank as we move forward.

Okay. Great. Appreciate that color there. And maybe just in terms of, you know, on the subject of multifamily, the borrower in DC, kind of curious if you can provide any update with regard to that credit.

Yeah. Steve, this is Jason. How are you? So the relationship that we have disclosed before in the DC area continues to work through a resolution process. Actually, this quarter, we did not really have any activity relative to the potential ability to dispose of any of those assets. Not that we were not working on it, but there was nothing that was recordable I think going forward, there is still an appetite to get something done to move some of those more degraded properties that we previously disclosed as nonaccrual at the end of last year. In some form of a note sale. Where that will end up, I am not exactly sure We are not really ready to move off of our provision forecast. I would still think a $5 million or a $5.5 million number for Q4 from a provision expense perspective is appropriate Hopefully, we will be able to find some resolution there. But the overall discussion has been constructive. The borrower is engaged. And the bank is continuing to look for all areas to preserve value. And we will have more to update as things unfold.

Okay. Appreciate that. And then on the margin here, you know, with higher rates, you guys historically run at a lower beta. That should obviously be, you know, pretty favorable for your margin trends over the next year or so if we stay up here. Just kind of curious, maybe a couple of things. Where are new PACE originations coming on? And you know, just as you think about maturities and repricing here and new loans on the books, you know, kind of how you are thinking about that margin trending beyond the short term compression we will see here in the fourth quarter? Any thoughts just given the shift in the rates in the last 90 days?

Yeah. Yeah. I think Sam pointed out quite nicely that PACE traditionally does pretty well in a higher rate environment just more consumers are in place and the construction projects or the capital projects that offer this additional slice that becomes very advantageous capital placement. For builders that are looking for improvements to projects. And so we think there is a good opportunity to keep building assets in that class as the rate environment potentially continues to rise. Where we brought things on in the quarter was around 7% across the broader PACE portfolio, and I would expect going forward it could be as high as 7.75. We could start approaching an 8 number as you look out into 2027. So the risk adjusted returns in that asset class are phenomenal. it is again why Sam and we have been forecasting or signaling for a while that we intend to move more aggressively into that asset class, not to diminish the impact of any of the other asset classes we have with the bank, but PACE is a particularly compelling opportunity for us. And then I think you are right on the point about the margin in that we will have a little compression probably here in the fourth quarter just as the election concludes and deposits have remixed. But as the DDA balances continue to build throughout 2027, that naturally has a mitigating impact on any rising cost of funds related to deposit beta activity. And the asset yield story still is an area where Amalgamated has a tremendous harvesting opportunity. And so we do not have our guidance ready for 2027, but we feel very comfortable that there should be a good margin expansion opportunity throughout the year as we look into the opportunities that lie ahead for us.

Right. Okay. Great. I appreciate all that color, and I will step back. Thank you very much. Thanks, dude.

Thank you. And our next question comes from the line of Justin Crowley with Piper Sandler. You may proceed with your question.

Maybe just to, to start with 1 for others. Sam or whomever. You know, it looks like you saw a little bit of the runoff on the political side, deposits side, maybe just a little earlier than the last election cycle. And you are obviously also close to it. So just curious if you would share any insights on what you have seen out of those deposit customers and maybe just any early thoughts. And I know it is tough to predict, just on how you think those flows could trend and then eventually rebuild over the next couple of quarters?

Yeah. Hey, Justin. it is Sam. So we were really pleased with the fact that we did end the quarter $2 billion which was flat from the prior quarter, which was the record for us. And then we do disclose in our deck, as you saw, that came down to about 1.7 that we disclosed as of 10/15, which really we want to indicate we are obviously in the spend down phase as we near Election Day here. I think the best kind of color I can give for you is to really look at that trend that we have demonstrated over the track record of how long we have been doing this and the chart, I think it is the right shape. I think that trend makes sense. But I would I would pivot also to just remind you that we are really pleased with the diversification we are seeing in all of our other deposit segments. Between the nonprofit and the labor, we were up about $4 million on the quarter. And that really comes through. And so I think it is all part of a bigger puzzle And we obviously, through all the strategic management we put in place in order to kind of understand what is coming from political runoff and be able to work around that to still deliver strong and efficient NII, we feel good that we have got our arms around it.

And then Justin, maybe I can just add some targets for you. I still in a very good place from an off balance sheet perspective at the end of the quarter as well. Over $1 billion there. So as the deposits are started to run off, we still feel very good about being able to handle the election conclusion without needing a borrowing position. So we are really trying to manage our liquidity from that perspective. But in terms of how it would flow through from a margin, if that is maybe where you are going, the target, at least, that we are looking at would be DDA was about 42% of total deposits at the end of the quarter. Probably going to be somewhere in the 36% range when we get to the end of the fourth quarter. And you can get a sense for the mix shift, obviously, as DDA starts to flow out, that will be replaced by interest bearing off balance sheet deposits, and that changes the funding mix and that changes the margin. So I talked a little bit about the margin compression that will happen here in the fourth quarter. But to Sam's point, the historical trend is a very good measure to look at in terms of how that political balance will rebuild. And we expect DDA will be a growing component of the deposit mix. Throughout 2027, which is giving some of the basis of the cost of funds level from my comments earlier about opportunistic margin expansion in 2027?

Okay. that is all super helpful. Guess just pivoting a little, just kind of going back to expenses. I know there is a little bloat from double rent. How much of that if you are able to quantify and the timing also of when that eventually falls out of the run rate and know you can probably get more specific on January, but maybe just some broader thoughts on expense levels, as we move out into next year.

Yep. Absolutely. So I think you are gonna see a little bit more of the impact of the double rent plus the building move costs in general. there is restoration costs we have to incur for the previous building that we have exited from. And so that will continue into the fourth quarter. Now we planned for that and I do not expect expenses to spike materially at all from where we are here in the third quarter But as I have said before, I am not also expecting as those expenses run off. For that to be thought of as a reduction in the overall expense run rate. The expenses that runoff will be replaced by deferred costs that have been put on the balance sheet related to technology investment infrastructure, other talent moves that we have been making to continue to augment the staff. So when we think about expenses out into the future, and I do not wanna get too far ahead I do think there is a natural continuation of amalgamated investing in its itself. But I think we will always follow our core constraints, which are typically searching for positive operating leverage making sure that revenues are in fact paying for the expenses that we are incurring so they become investments. And also making sure that core efficiency is start to become thought of as a very important and meaningful measurement for the bank. In terms of what we are doing with the spend itself. And if that gives you indication of how we are thinking about it for next year, hopefully, that will suffice. I am happy to talk a little bit more, answer any further follow-up questions or maybe Priscilla, if you have something you would like to add on that.

No. I think you said it very well. Agreed.

That is helpful. And then maybe just 1 last 1 on buybacks. You know, you got active again this quarter. I know the stocks moved pretty nicely which I am sure you are all happy about. But you continue to also have really strong capital levels generate solid earnings. So, just curious how you are thinking about that as capital return strategy as we look out here?

Sure. it is a component, for sure, of our shareholder return strategy. And obviously, we want to make sure that we are not only focused on capital building from an earnings perspective, so we have an obligation. But at the same time, we are investors in stock to the extent that we always feel it is got more value to go. I do not have a specific program that I am following or signaling with regard to what the buyback activity is. But I think you can recognize we increased the availability of the dividend of the repurchase authorization to $40 million before the beginning of the third quarter. We started utilizing that when the price receded a little bit in connection with the broader market moves. We feel that there is value in the stock. And I think you can generally look at what we did this quarter as an indicator, although I would not say it is going to be an absolute because I am not selling any specific program. I will continue just to buy the stock long as we think there is value to be had. And right now, we believe there is a lot of value left to run in the stock.

Got it. Thanks so much. I appreciate it.

Thank you. And we have reached the end of the question-and-answer session. Therefore, would like to turn the call back over to Priscilla Sims Brown for closing comments.

Thanks for those great questions, and thanks for your comments and notice on the quarter. Before we close, I just want to leave you with a couple of takeaways that I think you have heard loud and clear. Our strategy is working. We think the strength of this quarter reflects the deliberate choices we have made to build a differentiated franchise, deploy our capital with discipline and invest in our people and our capabilities. And that is how we are delivering stronger performance for our shareholders while remaining true to our mission. What is particularly gratifying is that these results reflect the strategy we laid out 5 years ago and that we refined 2 years ago and we are doing what we said we would do, you can increasingly see that execution reflected in our results. So I want to thank and congratulate our board for its leadership and stewardship. I want to thank the entire team for their tremendous partnership and execution. This progress is a direct result of their commitment to the strategy and to our customers, communities and shareholders. We enter the next phase from a position of strength with significant opportunities still ahead of us. I look forward to providing more guidance on that next quarter. Thank you for joining us.

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