Amalgamated Financial (AMAL) - 2022 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION ITEM 1. Financial Statements Presents unaudited consolidated financial statements, including financial condition, income, comprehensive income, equity, and cash flows, highlighting increased net income and net interest income, higher loan loss provisions, and decreased stockholders' equity Consolidated Statements of Financial Condition Consolidated Statements of Financial Condition Highlights | Metric | Sep 30, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :------------------------------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Total Assets | $7,868,217 | $7,077,876 | $790,341 | 11.17% | | Loans receivable, net | $3,829,168 | $3,276,358 | $552,810 | 16.87% | | Held-to-maturity securities | $1,492,423 | $843,569 | $648,854 | 76.92% | | Total Liabilities | $7,380,479 | $6,514,001 | $866,478 | 13.30% | | Total Stockholders' Equity | $487,738 | $563,875 | $(76,137) | -13.50% | | Accumulated other comprehensive income (loss) | $(107,876) | $5,409 | $(113,285) | -2094.37% | Consolidated Statements of Income Consolidated Statements of Income Highlights | Metric | 3 Months Ended Sep 30, 2022 ($ thousands) | 3 Months Ended Sep 30, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :-------------------------------- | :---------------------------------------- | :---------------------------------------- | :------------------- | :--------- | | Net Income | $22,944 | $14,416 | $8,528 | 59.16% | | EPS - Diluted ($) | $0.74 | $0.46 | $0.28 | 60.87% | | Net Interest Income | $67,628 | $43,387 | $24,241 | 55.87% | | Provision for (recovery of) loan losses | $5,363 | $(2,276) | $7,639 | - | | Non-Interest Income | $5,003 | $6,702 | $(1,699) | -25.35% | | Non-Interest Expense | $36,258 | $33,034 | $3,224 | 9.76% | | Income Tax Expense | $8,066 | $4,915 | $3,151 | 64.11% | | | | | | | | Metric | 9 Months Ended Sep 30, 2022 ($ thousands) | 9 Months Ended Sep 30, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | Net Income | $56,722 | $37,013 | $19,709 | 53.25% | | EPS - Diluted ($) | $1.82 | $1.17 | $0.65 | 55.56% | | Net Interest Income | $172,494 | $127,223 | $45,271 | 35.58% | | Provision for (recovery of) loan losses | $10,568 | $(3,855) | $14,423 | - | | Non-Interest Income | $19,671 | $16,028 | $3,643 | 22.73% | | Non-Interest Expense | $105,001 | $97,223 | $7,778 | 8.00% | | Income Tax Expense | $19,874 | $12,870 | $7,004 | 54.42% | Consolidated Statements of Comprehensive Income Consolidated Statements of Comprehensive Income Highlights | Metric | 3 Months Ended Sep 30, 2022 ($ thousands) | 3 Months Ended Sep 30, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :------------------- | :--------- | | Total Comprehensive Income (Loss), net of taxes | $(6,764) | $10,078 | $(16,842) | -167.12% | | | | | | | | Metric | 9 Months Ended Sep 30, 2022 ($ thousands) | 9 Months Ended Sep 30, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | Total Comprehensive Income (Loss), net of taxes | $(56,563) | $31,214 | $(87,777) | -281.19% | | Net unrealized gains (losses) on securities | $(156,455) | $(7,781) | $(148,674) | -1910.79% | Consolidated Statements of Changes in Stockholders' Equity Consolidated Statements of Changes in Stockholders' Equity Highlights | Metric | Sep 30, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :---------------------------------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Total Stockholders' Equity | $487,738 | $563,875 | $(76,137) | -13.50% | | Other comprehensive income (loss), net of taxes (9 Months) | $(113,285) | $(5,799) | $(107,486) | -1853.53% | | Repurchase of common stock (9 Months) | $(12,478) | $(2,920) | $(9,558) | 327.33% | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows Highlights (9 Months Ended Sep 30) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :-------------------------------------------------- | :----------------- | :----------------- | :------------------- | :--------- | | Net cash provided by operating activities | $94,868 | $53,400 | $41,468 | 77.66% | | Net cash (used in) provided by investing activities | $(1,210,404) | $(275,790) | $(934,614) | 338.89% | | Net cash provided by financing activities | $851,274 | $873,867 | $(22,593) | -2.59% | | Increase (decrease) in cash, cash equivalents, and restricted cash | $(264,262) | $651,477 | $(915,739) | -140.56% | Notes to Consolidated Financial Statements 1. BASIS OF PRESENTATION AND CONSOLIDATION - The Company's accounting and reporting policies conform to GAAP and predominant practices within the banking industry[31] - The accompanying unaudited consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its majority-owned subsidiaries[32] - There have been no significant changes to the Company's accounting policies or estimates as described in the 2021 Annual Report[32] 2. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Net Change in Unrealized Gains (Losses) on Securities | Period | 3 Months Ended Sep 30, 2022 ($ thousands) | 3 Months Ended Sep 30, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :------------------- | :--------- | | Net change in unrealized gains (losses) on securities | $(29,751) | $(4,406) | $(25,345) | -575.24% | | | | | | | | Period | 9 Months Ended Sep 30, 2022 ($ thousands) | 9 Months Ended Sep 30, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | Net change in unrealized gains (losses) on securities | $(113,414) | $(5,657) | $(107,757) | -1904.93% | 3. INVESTMENT SECURITIES Investment Securities Portfolio Overview | Metric | Sep 30, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :-------------------------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Available for sale, at fair value | $1,957,486 | $2,113,410 | $(155,924) | -7.38% | | Held-to-maturity, at amortized cost | $1,492,423 | $843,569 | $648,854 | 76.92% | | Total Unrealized Losses on AFS Securities | $(129,823) | $(7,393) | $(122,430) | -1656.01% | | Total Unrealized Losses on HTM Securities | $(123,040) | $(1,883) | $(121,157) | -6434.25% | - The Company reassessed the classification of certain investments during the nine months ended September 30, 2022, transferring $277.3 million book value of securities from available-for-sale to held-to-maturity at a fair value of $260.1 million[48] - Management does not intend to sell temporarily impaired investments and expects to collect all amounts due according to contractual terms, thus not considering them other-than-temporarily impaired[61] 4. LOANS RECEIVABLE, NET Loans Receivable and Allowance for Loan Losses | Metric | Sep 30, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :-------------------------------------------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Total loans receivable, net of deferred loan origination costs (fees) | $3,871,290 | $3,312,224 | $559,066 | 16.88% | | Allowance for loan losses | $42,122 | $35,866 | $6,256 | 17.44% | | Non-accrual loans (excluding held for sale and restructured) | $7,499 | $14,722 | $(7,223) | -48.92% | | Troubled debt restructured loans - nonaccrual | $12,322 | $13,497 | $(1,175) | -8.71% | - The primary driver of the decrease in non-accrual loans from December 31, 2021, to September 30, 2022, was a $13.2 million transfer of non-accrual loans to loans held for sale[70] Loan Portfolio Composition (Sep 30, 2022) | Loan Type | Amount ($ thousands) | % of Total Loans | | :---------------------------------------- | :------------------- | :--------------- | | Commercial and industrial | $805,087 | 20.8% | | Multifamily mortgages | $884,790 | 22.9% | | Commercial real estate mortgages | $338,002 | 8.7% | | Construction and land development mortgages | $38,946 | 1.0% | | Residential real estate lending | $1,332,010 | 34.5% | | Consumer and other | $467,793 | 12.1% | 5. DEPOSITS Deposits Overview | Metric | Sep 30, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :---------------------------------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Total Deposits | $7,160,307 | $6,356,255 | $804,052 | 12.65% | | Non-interest bearing demand deposit accounts | $3,839,155 | $3,335,005 | $504,150 | 15.12% | | Weighted Average Rate on Total Deposits | 0.17% | 0.06% | 0.11% | 183.33% | - Political deposits totaled approximately $1.2 billion as of September 30, 2022, and $989.6 million as of December 31, 2021, primarily in demand deposits, exhibiting seasonality based on election cycles[250] 6. BORROWED FUNDS - The Company completed a public offering of $85.0 million of 3.250% Fixed-to-Floating Rate subordinated notes due 2031 on November 8, 2021[100] - The Company repurchased $3.25 million and $3.0 million of subordinated notes on July 26, 2022, and September 29, 2022, respectively[101] FHLB Advances | Metric | Sep 30, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | Change ($ thousands) | | :------------------- | :------------------------- | :------------------------- | :------------------- | | Outstanding FHLB advances | $75,000 | $0 | $75,000 | 7. EARNINGS PER SHARE Earnings Per Common Share | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic EPS ($) | $0.75 | $0.46 | $1.84 | $1.19 | | Diluted EPS ($) | $0.74 | $0.46 | $1.82 | $1.17 | 8. EMPLOYEE BENEFIT PLANS - The Company does not currently maintain an active stock option plan for issuing new options; all options are fully vested[109] - During the nine months ended September 30, 2022, the Company granted 222,109 restricted stock units (RSUs) to employees under the Equity Plan, including time-vesting and performance-based units[112] - As of September 30, 2022, there was $4.9 million of total unrecognized compensation cost related to non-vested employee RSUs, expected to be recognized over 2.1 years[117] - The Amalgamated Financial Corp. Employee Stock Purchase Plan (ESPP) was implemented on March 2, 2022, allowing employees to purchase common stock at a discount[118] 9. FAIR VALUE OF FINANCIAL INSTRUMENTS - Fair value measurements are categorized into a three-level hierarchy: Level 1 for quoted prices in active markets, Level 2 for observable inputs, and Level 3 for unobservable and significant inputs[122][123] Fair Value of Financial Instruments (Sep 30, 2022) | Financial Instrument | Total Fair Value ($ thousands) | Level 1 ($ thousands) | Level 2 ($ thousands) | Level 3 ($ thousands) | | :-------------------------------- | :----------------------------- | :-------------------- | :-------------------- | :-------------------- | | Available for sale securities | $1,957,486 | $8,015 | $1,949,471 | $0 | | Held to maturity securities | $1,369,383 | $0 | $578,876 | $790,507 | | Loans receivable, net | $3,438,967 | $0 | $0 | $3,438,967 | | Impaired loans (non-recurring) | $32,998 | $0 | $0 | $32,998 | 10. COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET RISK Off-Balance Sheet Credit Commitments | Metric | Sep 30, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :-------------------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Commitments to extend credit | $835,241 | $927,428 | $(92,187) | -9.94% | | Standby letters of credit | $21,536 | $18,752 | $2,784 | 14.85% | - The Company reserves for the credit risk inherent in off-balance-sheet credit commitments, with a reserve of approximately $1.6 million as of September 30, 2022[136] - The Company has an estimated remaining commitment of $45.0 million for the purchase of PACE assessment securities as of September 30, 2022[138] 11. LEASES Operating Lease Information (9 Months Ended Sep 30) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :------------------------------------------------------------------ | :----------------- | :----------------- | :------------------- | :--------- | | Operating lease cost | $6,765 | $6,679 | $86 | 1.29% | | Cash paid for amounts included in the measurement of Operating leases liability | $7,976 | $7,573 | $403 | 5.32% | | Weighted average remaining lease term on operating leases (in years) | 4.2 | 5.0 | -0.8 | -16.00% | | Weighted average discount rate used for operating leases liability | 3.25% | 3.26% | -0.01% | -0.31% | - The total operating leases liability as of September 30, 2022, was $43.2 million[146] 12. GOODWILL AND INTANGIBLE ASSETS - The carrying amount of goodwill was $12.9 million at both September 30, 2022, and December 31, 2021, with no impairment identified in the annual test as of June 30, 2022[150] Estimated Amortization Expense for Core Deposit Intangible | Year | Amount ($ thousands) | | :----------------- | :------------------- | | 2022 remaining | $261 | | 2023 | $888 | | 2024 | $730 | | 2025 | $574 | | 2026 | $419 | | Thereafter | $494 | | Total | $3,366 | 13. VARIABLE INTEREST ENTITIES - The Company invests in unconsolidated entities that construct, own, and operate solar generation facilities, generating returns through tax credits and operational distributions[154] - As of September 30, 2022, the Company's maximum exposure to loss from these variable interest entities was $35.1 million[154] Tax Benefits from Solar Generation VIE Investments (9 Months Ended Sep 30) | Metric | 2022 ($ thousands) | 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :---------------------------------------- | :----------------- | :----------------- | :------------------- | :--------- | | Tax credits and other tax benefits recognized | $2,004 | $1,479 | $525 | 35.50% | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes financial performance and condition for the three and nine months ended September 30, 2022, highlighting increased net interest income and net income, driven by asset growth and rising interest rates General - The discussion focuses on the consolidated financial condition as of September 30, 2022, compared to December 31, 2021, and results of operations for the three and nine months ended September 30, 2022 and 2021[159] - Historical results of operations and trends may not indicate results for any future periods[159] - The discussion includes forward-looking statements, with related cautionary disclosures provided[160] Overview - Amalgamated Financial Corp. serves as the holding company for Amalgamated Bank, offering commercial and retail banking, investment management, and trust and custody services[161][162] Company Financial Snapshot (Sep 30, 2022) | Metric | Amount ($ billions) | | :-------------------------- | :------------------ | | Total Assets | $7.9 | | Total Loans, net | $3.8 | | Total Deposits | $7.2 | | Stockholders' Equity | $0.4877 | | Assets under custody | $37.6 | | Assets under management | $12.5 | - The Bank is B Corporation certified and a member of the Global Alliance for Banking on Values, focusing on socially responsible and values-oriented clients[163][164] Critical and Significant Accounting Policies and Estimates - The consolidated financial statements are prepared based on GAAP and conform to general practices within the banking industry[165] - There have been no significant changes to the Company's critical and significant accounting policies or estimates as described in the 2021 Annual Report[165] Recent Accounting Pronouncements - The Company will adopt ASU 2016-13, 'Financial Instruments – Credit Losses (Topic 326)' (CECL), on January 1, 2023, and currently does not expect it to have a significant impact on operating results or financial condition[167][169] - ASU 2022-02, which eliminates the troubled debt restructuring (TDR) accounting model for CECL adopters, will also be applied upon CECL adoption[170] - ASU 2021-01, Reference Rate Reform, is not expected to have a material impact on the Company's operating results or financial condition[171] Results of Operations General Net Income Overview | Metric | 3 Months Ended Sep 30, 2022 ($ millions) | 3 Months Ended Sep 30, 2021 ($ millions) | Change ($ millions) | Change (%) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------ | :--------- | | Net Income | $22.9 | $14.4 | $8.5 | 59.0% | | | | | | | | Metric | 9 Months Ended Sep 30, 2022 ($ millions) | 9 Months Ended Sep 30, 2021 ($ millions) | Change ($ millions) | Change (%) | | Net Income | $56.7 | $37.0 | $19.7 | 53.2% | - The $19.7 million increase in net income for the nine months ended September 30, 2022, was primarily due to a $35.1 million increase in interest income on securities, partially offset by a $7.8 million increase in non-interest expense[174] Net Interest Income Net Interest Income and Margin | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Interest Income ($ millions) | $67.6 | $43.4 | +$24.2 (+55.8%) | | Net Interest Spread | 3.28% | 2.60% | +68 bps | | Net Interest Margin | 3.50% | 2.70% | +80 bps | | Yield on average earning assets | 3.66% | 2.79% | +87 bps | | Average rate on interest-bearing liabilities | 0.38% | 0.19% | +19 bps | | | | | | | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | Net Interest Income ($ millions) | $172.5 | $127.2 | +$45.3 (+35.6%) | | Net Interest Spread | 2.93% | 2.65% | +28 bps | | Net Interest Margin | 3.11% | 2.77% | +34 bps | | Yield on average earning assets | 3.24% | 2.86% | +38 bps | | Average rate on interest-bearing liabilities | 0.31% | 0.21% | +10 bps | - The increase in net interest income was primarily attributable to a strategic $1.0 billion increase in average securities and a 114 basis point increase in securities yield due to the rising rate environment, as well as a $605.9 million increase in average loan balances[178] Provision for Loan Losses Provision for Loan Losses | Metric | 3 Months Ended Sep 30, 2022 ($ millions) | 3 Months Ended Sep 30, 2021 ($ millions) | Change ($ millions) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :------------------ | | Provision for loan losses | $5.4 (expense) | $2.3 (release) | +$7.7 | | | | | | | Metric | 9 Months Ended Sep 30, 2022 ($ millions) | 9 Months Ended Sep 30, 2021 ($ millions) | Change ($ millions) | | Provision for loan losses | $10.6 (expense) | $3.9 (release) | +$14.5 | - The increase in provision for loan losses was primarily driven by loan growth, an increase in specific reserves on one loan in the CRE portfolio, and $1.6 million in charge-offs related to nonperforming loans transferred to held for sale[190][191] Non-Interest Income Non-Interest Income Overview | Metric | 3 Months Ended Sep 30, 2022 ($ thousands) | 3 Months Ended Sep 30, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :------------------- | :--------- | | Total Non-Interest Income | $5,003 | $6,702 | $(1,699) | -25.35% | | Gain (loss) on sale of securities | $(1,844) | $413 | $(2,257) | -546.49% | | Equity method investments | $(1,151) | $(483) | $(668) | 138.30% | | Trust Department fees | $3,872 | $3,353 | $519 | 15.48% | | | | | | | | Metric | 9 Months Ended Sep 30, 2022 ($ thousands) | 9 Months Ended Sep 30, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | Total Non-Interest Income | $19,671 | $16,028 | $3,643 | 22.73% | | Equity method investments | $(1,357) | $(5,720) | $4,363 | -76.28% | | Gain (loss) on sale of securities | $(2,264) | $755 | $(3,019) | -399.87% | - The decrease in Q3 2022 non-interest income was primarily due to a $1.8 million loss on sale of securities and a $1.2 million loss related to equity investments in solar initiatives[194] - The increase in YTD Q3 2022 non-interest income was primarily due to a reduced loss from equity investment projects, a $1.1 million increase in service charges on deposit accounts, and a $1.0 million increase in income from BOLI[196][197] Non-Interest Expense Non-Interest Expense Overview | Metric | 3 Months Ended Sep 30, 2022 ($ thousands) | 3 Months Ended Sep 30, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :------------------- | :--------- | | Total Non-Interest Expense | $36,258 | $33,034 | $3,224 | 9.76% | | Compensation and employee benefits | $19,527 | $17,482 | $2,045 | 11.70% | | | | | | | | Metric | 9 Months Ended Sep 30, 2022 ($ thousands) | 9 Months Ended Sep 30, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | Total Non-Interest Expense | $105,001 | $97,223 | $7,778 | 8.00% | | Data processing | $13,660 | $10,848 | $2,812 | 25.92% | | Compensation and employee benefits | $55,242 | $52,485 | $2,757 | 5.25% | - The increase in Q3 2022 non-interest expense was driven by a $2.0 million increase in compensation and benefits and a $0.9 million increase in professional fees[199] - The increase in YTD Q3 2022 non-interest expense was primarily due to a $2.9 million increase in data processing expense related to Trust Department modernization and a $2.7 million increase in compensation and benefits[200] Income Taxes Income Tax Expense and Effective Tax Rate | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income tax expense ($ millions) | $8.1 | $4.9 | +$3.2 (+65.3%) | | Effective tax rate | 26.0% | 25.4% | +0.6% | | | | | | | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | Income tax expense ($ millions) | $19.9 | $12.9 | +$7.0 (+54.3%) | | Effective tax rate | 25.9% | 25.8% | +0.1% | Financial Condition Balance Sheet - Total assets increased by $0.8 billion to $7.9 billion at September 30, 2022, from $7.1 billion at December 31, 2021[203] - The increase in total assets was primarily driven by a $492.9 million increase in investment securities and a $552.8 million increase in loans receivable, net[203] Investment Securities Investment Securities Portfolio | Metric | Sep 30, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :-------------------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Total securities | $3,449,909 | $2,956,979 | $492,930 | 16.67% | | Available for sale | $1,957,486 | $2,113,410 | $(155,924) | -7.38% | | Held to maturity | $1,492,423 | $843,569 | $648,854 | 76.92% | - At September 30, 2022, the Company had $3.3 billion of investment securities with unrealized losses, of which $9.5 million had a continuous unrealized loss position for 12 consecutive months or longer[207] - Management determined substantially all of the decline in value to be temporary and does not intend to sell these securities, anticipating full recovery of amortized cost[207] Loans - Total loans, net of deferred origination fees and allowance for loan losses, were $3.8 billion as of September 30, 2022, up from $3.3 billion at December 31, 2021[216][217] Loan Portfolio Composition | Loan Type | Sep 30, 2022 (% of total loans) | Dec 31, 2021 (% of total loans) | | :-------------------------- | :------------------------------ | :------------------------------ | | Commercial portfolio | 53.4% | 59.0% | | Retail portfolio | 46.6% | 41.0% | | Commercial and industrial | 20.8% | 22.0% | | Multifamily mortgages | 22.9% | 24.8% | | Commercial real estate mortgages | 8.7% | 11.2% | | Residential real estate lending | 34.5% | 32.2% | | Consumer and other | 12.1% | 8.8% | - In the third quarter of 2022, the Company purchased $62.3 million of residential loans, $5.2 million of home improvement loans, $49.6 million of consumer solar loans, and $10.7 million of commercial loans unconditionally guaranteed by the U.S. government[216] Allowance for Loan Losses Allowance for Loan Losses and Impaired Loans | Metric | Sep 30, 2022 ($ millions) | Dec 31, 2021 ($ millions) | Change ($ millions) | Change (%) | | :-------------------------- | :------------------------ | :------------------------ | :------------------ | :--------- | | Allowance for Loan Losses | $42.1 | $35.9 | $6.2 | 17.3% | | Impaired loans | $38.2 | $53.2 | $(15.0) | -28.2% | | Specific allowance for impaired loans | $5.2 | $5.1 | $0.1 | 1.96% | | Ratio of allowance to total loans | 1.09% | 1.08% | +0.01% | 0.93% | - The increase in the allowance was primarily due to increases in loan balances[237] Nonperforming Assets Nonperforming Assets Overview | Metric | Sep 30, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :---------------------------------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Total nonperforming assets | $54,291 | $54,586 | $(295) | -0.54% | | Nonperforming assets to total assets | 0.69% | 0.77% | -0.08% | -10.39% | | Nonaccrual loans to total loans | 0.51% | 0.85% | -0.34% | -40.00% | | Allowance for loan losses to nonaccrual loans | 212.51% | 127.10% | +85.41% | 67.20% | - The decrease in non-performing assets was primarily driven by the sale of $3.9 million of residential loans held for sale and the payoff of $5.8 million of commercial and industrial loans and one $3.5 million nonaccrual multifamily loan[245] - This decrease was almost entirely offset by the restructuring of $6.5 million in loans and two loans totaling $5.2 million that were moved to nonaccrual[245] - Potential problem loans totaled $84.9 million, or 1.1% of total assets, at September 30, 2022[246] Resell Agreements Resell Agreements Overview | Metric | Sep 30, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :-------------------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Resell agreements | $192,834 | $229,018 | $(36,184) | -15.80% | | Weighted interest rate | 3.69% | 1.21% | +2.48% | 204.96% | Deferred Tax Asset Deferred Tax Asset, Net | Metric | Sep 30, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :-------------------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Deferred tax asset, net | $64,046 | $26,719 | $37,327 | 139.70% | - The deferred tax asset is considered fully realizable with no valuation allowance held against the balance[248] Deposits - Total deposits were $7.2 billion at September 30, 2022, compared to $6.4 billion at December 31, 2021, representing an increase of $0.8 billion[249] - Political deposits amounted to approximately $1.2 billion at September 30, 2022, and $989.6 million at December 31, 2021, primarily in demand deposits[250] Evaluation of Interest Rate Risk Estimated Impact of Immediate Interest Rate Shifts (Sep 30, 2022) | Immediate Shift | Economic Value of Equity Change (%) | Economic Value of Equity Change ($ thousands) | Year 1 Net Interest Income Change (%) | Year 1 Net Interest Income Change ($ thousands) | | :-------------------- | :---------------------------------- | :-------------------------------------------- | :------------------------------------ | :---------------------------------------------- | | +400 basis points | -24.1% | $(349,850) | -7.0% | $(20,062) | | +300 basis points | -15.0% | $(218,710) | -1.5% | $(4,427) | | +200 basis points | -7.9% | $(114,645) | 1.5% | $4,271 | | +100 basis points | -2.0% | $(29,518) | 1.9% | $5,494 | | -100 basis points | -3.2% | $(46,575) | -3.7% | $(10,531) | - The simulation results are hypothetical and not indicative of expected operating results, as various factors could cause actual results to differ substantially[256] Liquidity - The Company's liquidity position is supported by liquid assets, liability management, and access to alternative funding sources like FHLB advances and the Federal Reserve's discount window[259][261] Cash and Equivalents | Metric | Sep 30, 2022 ($ thousands) | Dec 31, 2021 ($ thousands) | Change ($ thousands) | Change (%) | | :-------------------------- | :------------------------- | :------------------------- | :------------------- | :--------- | | Cash and equivalents | $66,223 | $330,485 | $(264,262) | -80.00% | | % of total assets | 0.8% | 4.7% | -3.9% | -82.98% | - At September 30, 2022, the Company had $75.0 million in FHLB advances and a remaining credit availability of $1.4 billion[261] Capital Resources - Total stockholders' equity decreased by $76.1 million to $487.7 million at September 30, 2022, primarily due to a $113.3 million decrease in accumulated other comprehensive income and $12.5 million in common stock repurchases, partially offset by $56.7 million of net income[262] Regulatory Capital Ratios (Consolidated, Sep 30, 2022) | Metric | Actual Ratio | Minimum for Capital Adequacy | Minimum for Well Capitalized | | :---------------------------------------- | :----------- | :--------------------------- | :--------------------------- | | Total capital to risk weighted assets | 14.43% | 8.00% | 10.00% | | Tier 1 capital to risk weighted assets | 11.91% | 6.00% | 8.00% | | Common equity tier 1 to risk weighted assets | 11.91% | 4.50% | 6.50% | - As of September 30, 2022, the Company and the Bank were categorized as 'well capitalized' under prompt corrective action measures and met the capital conservation buffer requirements[266] Contractual Obligations Contractual Obligations (Sep 30, 2022) | Obligation Type | Total ($ thousands) | Less than 1 year ($ thousands) | 1-3 years ($ thousands) | 3-5 years ($ thousands) | More than 5 years ($ thousands) | | :-------------------------- | :------------------ | :----------------------------- | :---------------------- | :---------------------- | :------------------------------ | | Subordinated Debt | $77,679 | $0 | $0 | $0 | $77,679 | | Operating Leases | $46,068 | $2,768 | $33,169 | $10,131 | $0 | | Purchase Obligations | $27,646 | $4,612 | $9,224 | $6,660 | $7,150 | | Certificates of Deposit | $183,011 | $62,249 | $118,645 | $1,765 | $352 | | Total | $334,404 | $69,629 | $161,038 | $18,556 | $85,181 | - Total contractual obligations decreased from $374.1 million at December 31, 2021, to $334.4 million at September 30, 2022[268][270] Investment Obligations - The Company has an estimated remaining commitment of $45.0 million for the purchase of PACE assessment securities until the end of 2022[271] - These commitments are anticipated to be funded by means of normal cash flows, a reduction in cash and cash equivalents, or by pay-downs and maturities of loans and other investments[271] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk from the 2021 Annual Report, with interest rate sensitivity detailed in the 'Evaluation of Interest Rate Risk' section of this Quarterly Report - No material changes in market risk as of September 30, 2022, from that presented in the 2021 Annual Report[273] - The interest rate sensitivity position is set forth in the 'Evaluation of Interest Rate Risk' table within Management's Discussion and Analysis of Financial Condition and Results of Operation[273] ITEM 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were evaluated and concluded to be effective as of September 30, 2022[274] - There was no change in internal control over financial reporting during the quarter ended September 30, 2022, that materially affected, or is reasonably likely to materially affect, internal control over financial reporting[275] PART II - OTHER INFORMATION ITEM 1. Legal Proceedings The company is subject to ordinary course legal proceedings, with management believing aggregate liabilities will not materially affect financial condition or results of operations - The Company is subject to certain pending and threatened legal proceedings that arise out of the ordinary course of business[277] - Management believes that the aggregate liabilities, if any, arising from such actions would not have a material adverse effect on the consolidated financial position or results of operations[277] ITEM 1A. Risk Factors Investing in common stock involves risks identified in the 2021 Annual Report on Form 10-K, with no material changes to previously disclosed risk factors - Investing in shares of the Company's common stock involves certain risks, including those identified in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[278] - There have been no material changes to the risk factors previously disclosed in the 2021 Annual Report[278] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 43,588 common shares at $21.78 average price, including tax-withheld shares and program purchases, with $28.1 million remaining under the $40 million repurchase program Issuer Purchases of Equity Securities (3 Months Ended Sep 30, 2022) | Period | Total number of shares purchased | Average price per share ($) | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value remaining under plans or programs ($) | | :-------------------------- | :------------------------------- | :-------------------------- | :------------------------------------------------------------------------------- | :----------------------------------------------------------- | | July 1 through July 31, 2022 | 19,756 | 20.48 | 14,656 | 28,553,565 | | August 1 through August 31, 2022 | 23,832 | 22.85 | 20,000 | 28,098,365 | | September 1 through September 30, 2022 | 0 | 0 | 0 | 28,098,365 | | Total | 43,588 | 21.78 | 34,656 | - | - The total number of shares purchased includes 8,932 shares withheld by the Company to pay taxes associated with the vesting of stock options[280] - The Company's Board of Directors approved an increase to the share repurchase program, authorizing the repurchase of up to $40 million of outstanding common stock, effective February 25, 2022[281] ITEM 6. Exhibits Lists exhibits filed with Form 10-Q, including CEO and CFO certifications, iXBRL data files, and references to previously filed corporate documents - Includes Rule 13a-14(a) Certifications of the Chief Executive Officer and Chief Financial Officer[284] - Includes Section 1350 Certifications[285] - Interactive data files for the Quarterly Report on Form 10-Q, formatted in iXBRL, are provided[285] Signatures The report is signed by Priscilla Sims Brown, President and CEO, and Jason Darby, CFO, on November 4, 2022, certifying its submission - The report was signed by Priscilla Sims Brown, President and Chief Executive Officer, and Jason Darby, Chief Financial Officer[289][290] - The signing date for the report was November 4, 2022[289][290]