Amalgamated's Origins and Transformation

Amalgamated Financial Corp (AMAL) is a uniquely positioned bank that has carved out a niche as a mission-driven financial institution, catering to a diverse array of socially conscious clients. With a rich history dating back to 1923, when it was founded by the Amalgamated Clothing Workers of America, the bank has evolved to become a leading player in the sustainable finance space, providing banking and investment services to advocacy-based non-profits, social welfare organizations, labor unions, political organizations, foundations, and environmentally-conscious businesses.

Amalgamated Bank was established in 1923 as the financial arm of the Amalgamated Clothing Workers of America, one of the country's oldest labor unions. Over the decades, the bank has adapted to the changing landscape, expanding its client base beyond its union roots to serve a broader range of mission-driven organizations and socially responsible businesses. In the 1990s and 2000s, Amalgamated Bank expanded its focus beyond just serving the labor movement, growing its commercial and retail banking operations and developing a national presence. It opened new branches in key markets like Washington D.C. and San Francisco to serve a broader customer base that shared the bank's values around social and environmental responsibility.

The bank faced a significant challenge in 2008 during the financial crisis, like many other institutions. However, Amalgamated weathered the storm and emerged stronger, doubling down on its mission-driven approach and developing new products and services to support sustainable and socially conscious businesses, non-profits, and political organizations. In 2020, the company underwent a corporate restructuring, forming Amalgamated Financial Corp as the holding company for Amalgamated Bank. This reorganization was undertaken to better position the organization for continued growth and to enhance its governance and regulatory framework.

Today, Amalgamated is the largest of 12 commercial financial institutions that are members of the Global Alliance for Banking on Values, a network of banking leaders committed to advancing positive change in the banking sector. The company has also obtained B Corporation certification, recognizing its commitment to rigorous standards of social and environmental performance, accountability, and transparency. Amalgamated holds governance positions in the United Nations-convened Net Zero Banking Alliance and the Global Partnership for Carbon Accounting Financials, and has an advisory role for the Glasgow Finance Alliance for Net Zero.

Diverse and Growing Client Base

Amalgamated's client base is diverse, spanning advocacy-based non-profits, social welfare organizations, labor unions, political organizations, foundations, and environmentally-conscious businesses. This diverse clientele has allowed the bank to weather political and economic cycles, as the ebb and flow of political fundraising and social movement activity has provided a steady stream of deposits.

As of September 30, 2024, the bank's total deposits stood at $7.6 billion, an increase of $145.6 million from the linked quarter. Notably, the bank's non-political deposits, which include deposits from social and philanthropic organizations as well as sustainable businesses, grew by $159 million during the quarter. This highlights the strength and resilience of Amalgamated's broader client relationships beyond its political deposit base.

Sustainable Lending and Investments

Amalgamated has positioned itself as a leader in sustainable finance, with a growing portfolio of loans and investments that support the transition to a clean energy economy. The bank's sustainable lending team has been actively involved in projects across the country, providing financing for renewable energy infrastructure, energy efficiency upgrades, and other environmentally-friendly initiatives.

In the third quarter of 2024, Amalgamated added industry experts to its sustainable lending team to lead the bank's efforts to successfully execute on the $27 billion Greenhouse Gas Reduction Fund, a federal program designed to spur investment in clean energy projects. This strategic move underscores Amalgamated's commitment to playing a pivotal role in the nation's clean energy transition.

Beyond its lending activities, Amalgamated's investment portfolio also reflects its sustainability focus. As of September 30, 2024, the bank's available-for-sale securities portfolio included $149.5 million in residential Property Assessed Clean Energy (PACE) assessments, which provide financing for energy-efficient home improvements.

Financials

Amalgamated's financial performance has been robust, with the bank delivering consistent earnings growth and improving profitability metrics. In the third quarter of 2024, the company reported net income of $27.9 million, or $0.90 per diluted share, representing a healthy increase from the prior-year period. The bank's net interest margin expanded to 3.51%, supported by a $78 million increase in net loans receivable and improved loan yields.

The bank's capital position also strengthened during the quarter, with its Tier 1 leverage ratio improving to 8.63% and its tangible book value per share growing 8.2% year-over-year to $22.29. This solid capital base provides Amalgamated with the flexibility to continue investing in its strategic priorities and weathering potential economic headwinds.

For the most recent fiscal year (2023), Amalgamated reported revenue of $285.71 million, net income of $87.98 million, operating cash flow of $117.22 million, and free cash flow of $115.75 million. In the most recent quarter (Q3 2024), the company achieved revenue of $81.869 million, net income of $27.942 million, operating cash flow of $36.059 million, and free cash flow of $36.511 million. Compared to Q3 2023, this represents year-over-year growth of 10.4% in revenue, 25.1% in net income, 33.3% in operating cash flow, and 32.6% in free cash flow.

The increase in revenue, net income, operating cash flow, and free cash flow was driven by higher net interest income due to an 11 basis point increase in loan yields and a $86.7 million increase in average loan balances. Additionally, the company had a $4.2 million gain on sale of loans and changes in fair value on loans held-for-sale, partially offset by a $3.2 million increase in losses on sale of securities.

Liquidity

Amalgamated's liquidity position remains strong, supported by its diverse deposit base and growing client relationships. The bank's total deposits of $7.6 billion as of September 30, 2024, provide a stable funding source for its lending and investment activities. The growth in non-political deposits during the quarter demonstrates the bank's ability to attract and retain core deposits from a wide range of socially conscious clients.

As of September 30, 2024, Amalgamated reported a debt-to-equity ratio of 0.098 and cash holdings of $90.57 million. The company is a member of the Federal Home Loan Bank of New York (FHLBNY) and had $2.11 billion in remaining credit availability as of the same date. This strong liquidity position provides Amalgamated with ample resources to support its ongoing operations and strategic initiatives.

Business Segments

Amalgamated Financial Corp. operates through two main business segments: Commercial Banking and Trust and Investment Management.

The Commercial Banking segment is the primary revenue driver, accounting for the majority of Amalgamated's loan portfolio and net interest income. This segment offers a range of commercial lending products, including commercial and industrial (CI) loans, multifamily mortgages, commercial real estate (CRE) mortgages, and construction and land development loans. As of September 30, 2024, the Commercial Banking segment's loan portfolio totaled $2.79 billion, representing 61.3% of Amalgamated's total loan book. The CI, multifamily, and CRE loan categories accounted for 23.3%, 28.4%, and 9.1% of total loans, respectively. During the first nine months of 2024, the multifamily and CRE loan portfolios grew by 12.5% and 17.4%, respectively, reflecting Amalgamated's strategic focus on these commercial lending verticals.

The Trust and Investment Management segment provides wealth management services, including asset safekeeping, corporate actions, income collections, proxy services, account transition, asset transfers, and conversion management. As of September 30, 2024, this segment had $35.43 billion in assets under custody and $14.55 billion in assets under management. During the first nine months of 2024, Trust Department fees totaled $11.21 million, representing a slight decrease compared to the same period in 2023.

Outlook and Guidance

Looking ahead, Amalgamated remains optimistic about its growth prospects, particularly in the sustainable finance space. The bank's focus on mission-driven clients and its leadership in the clean energy transition position it well to capitalize on the significant investment needed to achieve net-zero emissions by 2050.

For the full year 2024, Amalgamated has tightened its guidance for core pretax pre-provision earnings to $154 million to $156 million, and net interest income to $279 million to $281 million. The company expects its net interest margin to hold relatively steady in Q4 2024, with the possibility of a 1-2 basis point compression depending on political deposit outflow mix. Net interest income for Q4 2024 is projected to be in the range of $70 million to $72 million.

Amalgamated is maintaining its target balance sheet size for year-end 2024 at approximately $8.35 billion. The bank expects its Tier 1 leverage ratio to reach its minimum 8.5% goal and is now eyeing a 9% Tier 1 leverage ratio in the coming quarters. Despite the expected political deposit outflows in Q4 2024 as the presidential election concludes, Amalgamated does not anticipate needing wholesale funding support, although the pace of outflows has significantly increased in October.

Risks

However, the bank is not without its risks. Amalgamated's reliance on political deposits, which can be volatile and subject to election cycles, remains a potential vulnerability. Additionally, the bank's exposure to the commercial real estate and multifamily sectors could pose challenges if there are significant disruptions in those markets.

Moreover, the highly competitive nature of the banking industry, combined with the ongoing threat of cybersecurity breaches and stringent regulatory requirements, present ongoing challenges that Amalgamated must navigate effectively.

Conclusion

Amalgamated Financial Corp is a unique financial institution that has successfully carved out a niche as a mission-driven bank, catering to a diverse array of socially conscious clients. With its strong focus on sustainable finance and its robust financial performance, Amalgamated is well-positioned to continue delivering value to its shareholders while making a positive impact on the communities it serves. As the bank navigates the challenges and opportunities ahead, investors will closely monitor its ability to maintain its growth momentum and manage its risks effectively.