Amalgamated Financial (AMAL) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and management's discussion and analysis for Amalgamated Financial Corp ITEM 1. Financial Statements This section presents the unaudited consolidated financial statements of Amalgamated Financial Corp. for the quarter ended March 31, 2022, including the statements of financial condition, income, comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial instrument details Consolidated Statements of Financial Condition This section provides a comparative overview of the company's assets, liabilities, and equity at March 31, 2022, and December 31, 2021 Consolidated Statements of Financial Condition (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | |:---|:---|:---| | Total Assets | $7,653,331 | $7,077,876 | | Total Liabilities | $7,126,569 | $6,514,001 | | Total Stockholders' Equity | $526,762 | $563,875 | - Total assets increased by $575.455 million (8.13%) from December 31, 2021, to March 31, 2022, primarily driven by increases in interest-bearing deposits in banks, available-for-sale securities, and loans receivable, net[12] - Total liabilities increased by $612.568 million (9.40%) over the same period, mainly due to a significant increase in deposits[12] - Total stockholders' equity decreased by $37.113 million (6.58%) from December 31, 2021, to March 31, 2022, largely influenced by a decrease in accumulated other comprehensive income (loss)[12] Consolidated Statements of Income This section presents the company's financial performance, detailing revenues, expenses, and net income for the three months ended March 31, 2022 and 2021 Consolidated Statements of Income (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | |:---|:---|:---|:---| | Total Interest and Dividend Income | $50,461 | $43,417 | +$7,044 | | Total Interest Expense | $2,093 | $1,573 | +$520 | | Net Interest Income | $48,368 | $41,844 | +$6,524 | | Provision for (recovery of) Loan Losses | $2,293 | $(3,261) | +$5,554 | | Total Non-Interest Income | $7,422 | $4,000 | +$3,422 | | Total Non-Interest Expense | $34,397 | $32,793 | +$1,604 | | Net Income | $14,165 | $12,189 | +$1,976 | | Earnings per Common Share - Basic | $0.46 | $0.39 | +$0.07 | | Earnings per Common Share - Diluted | $0.45 | $0.39 | +$0.06 | - Net income increased by $2.0 million (16.2%) year-over-year, primarily driven by higher interest and dividend income and increased non-interest income, partially offset by a shift from loan loss recovery to a provision for loan losses[14] - Total interest and dividend income saw a significant increase of $7.0 million (16.2%) YoY, mainly from securities[14] - Non-interest income increased by $3.4 million (85.6%) YoY, largely due to a gain from equity method investments in solar initiatives in 2022 compared to a loss in 2021[14] Consolidated Statements of Comprehensive Income This section outlines the components of comprehensive income, including net income and other comprehensive income, for the three months ended March 31, 2022 and 2021 Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | |:---|:---|:---|:---|\n| Net Income | $14,165 | $12,189 | +$1,976 | | Net Unrealized Gains (Losses) on Securities Available for Sale | $(63,869) | $(5,454) | $(58,415) | | Total Other Comprehensive Income (Loss), Net of Taxes | $(46,255) | $(4,365) | $(41,890) | | Total Comprehensive Income (Loss), Net of Taxes | $(32,090) | $7,824 | $(39,914) | - Total comprehensive income shifted from a gain of $7.8 million in Q1 2021 to a loss of $32.1 million in Q1 2022, primarily due to significant net unrealized losses on available-for-sale securities[17] Consolidated Statements of Changes in Stockholders' Equity This section details changes in the company's stockholders' equity, including net income, dividends, and other comprehensive income, for the three months ended March 31, 2022 and 2021 Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Metric | Balance at Dec 31, 2021 (in thousands) | Net Income (in thousands) | Dividends (in thousands) | Repurchase of Common Stock (in thousands) | Other Comprehensive Income (Loss) (in thousands) | Balance at Mar 31, 2022 (in thousands) | |:---|:---|:---|:---|:---|:---|:---| | Total Stockholders' Equity | $563,875 | $14,165 | $(2,490) | $(2,941) | $(46,255) | $526,762 | - Stockholders' equity decreased by $37.1 million from December 31, 2021, to March 31, 2022, primarily due to a $46.3 million decrease in accumulated other comprehensive income (loss) and $2.5 million in dividends paid, partially offset by $14.2 million in net income[21] Consolidated Statements of Cash Flows This section presents the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2022 and 2021 Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | |:---|:---|:---| | Net Cash Provided by Operating Activities | $16,829 | $12,142 | | Net Cash (Used in) Provided by Investing Activities | $(584,805) | $76,636 | | Net Cash Provided by Financing Activities | $611,534 | $377,376 | | Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $43,558 | $466,154 | - Net cash provided by operating activities increased by $4.687 million (38.6%) YoY, driven by higher net income and adjustments for non-cash items[24] - Investing activities shifted from providing $76.6 million in cash in Q1 2021 to using $584.8 million in Q1 2022, primarily due to significant net decreases in loans and increased purchases of available-for-sale and held-to-maturity securities[24] - Financing activities provided $611.5 million in Q1 2022, up from $377.4 million in Q1 2021, mainly due to a substantial net increase in deposits[24] Notes to Consolidated Financial Statements This section provides detailed explanations and supplementary information for the consolidated financial statements, covering accounting policies and specific financial instrument details 1. Basis of Presentation and Consolidation This note describes the company's formation as a holding company, its operating segment, and adherence to GAAP for financial reporting - Amalgamated Financial Corp. became the holding company for Amalgamated Bank on March 1, 2021, following a statutory share exchange transaction[28] - The Company operates as a single banking segment for financial reporting purposes, with substantially all operations occurring through the Bank[30] - Financial statements are prepared in accordance with GAAP and there have been no significant changes to accounting policies or estimates since the 2021 Annual Report[31][32] 2. Accumulated Other Comprehensive Income (Loss) This note details the components and changes in accumulated other comprehensive income (loss), primarily focusing on unrealized gains and losses on available-for-sale securities Accumulated Other Comprehensive Income (Loss) (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | |:---|:---|:---| | Balance as of January 1, 2022 | $5,409 | $17,176 | | Current Period Change | $(63,810) | $(5,811) | | Income Tax Effect | $17,555 | $1,446 | | Balance as of March 31, 2022 | $(40,846) | $12,811 | - Accumulated other comprehensive income (loss) shifted from a gain of $5.4 million at December 31, 2021, to a loss of $40.8 million at March 31, 2022, primarily due to significant unrealized holding losses on available-for-sale securities[37][38] 3. Investment Securities This note provides a breakdown of the company's investment securities, including available-for-sale and held-to-maturity categories, and their fair values Investment Securities (in thousands) | Security Type | March 31, 2022 Amortized Cost (in thousands) | March 31, 2022 Fair Value (in thousands) | December 31, 2021 Amortized Cost (in thousands) | December 31, 2021 Fair Value (in thousands) | |:---|:---|:---|:---|:---| | Available for Sale | $2,474,572 | $2,421,064 | $2,103,049 | $2,113,410 | | Held-to-Maturity | $946,347 | $921,395 | $843,569 | $849,704 | - Available-for-sale securities increased by $307.654 million (14.6%) in fair value from December 31, 2021, to March 31, 2022[46][49] - Held-to-maturity securities increased by $102.778 million (12.2%) in amortized cost over the same period[46][49] - As of March 31, 2022, available-for-sale securities had $55.951 million in gross unrealized losses, while held-to-maturity securities had $25.063 million in gross unrealized losses, primarily due to rising interest rates[46] 4. Loans Receivable, Net This note details the composition of the loan portfolio by category and the associated allowance for loan losses Loans Receivable, Net (in thousands) | Loan Category | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | |:---|:---|:---| | Commercial and industrial | $724,177 | $729,385 | | Multifamily | $813,702 | $821,801 | | Commercial real estate | $354,174 | $369,429 | | Construction and land development | $40,242 | $31,539 | | Residential real estate lending | $1,143,175 | $1,063,682 | | Consumer and other | $389,452 | $291,818 | | Total Loans Receivable | $3,464,922 | $3,307,654 | | Allowance for Loan Losses | $(37,542) | $(35,866) | | Total Loans Receivable, Net | $3,432,632 | $3,276,358 | - Total loans receivable, net, increased by $156.274 million (4.77%) from December 31, 2021, to March 31, 2022[66] - Residential real estate lending increased by $79.493 million (7.47%) and consumer and other loans increased by $97.634 million (33.46%), while commercial loan categories generally saw slight decreases[66] - The allowance for loan losses increased by $1.676 million (4.67%) to $37.542 million at March 31, 2022[66] 5. Deposits This note provides a breakdown of deposit types, their amounts, and weighted average rates, highlighting changes over the period Deposits (in thousands) | Deposit Type | March 31, 2022 Amount (in thousands) | March 31, 2022 Weighted Average Rate | December 31, 2021 Amount (in thousands) | December 31, 2021 Weighted Average Rate | |:---|:---|:---|:---|:---| | Non-interest bearing demand deposit accounts | $3,759,349 | 0.00% | $3,335,005 | 0.00% | | NOW accounts | $212,550 | 0.08% | $210,844 | 0.08% | | Money market deposit accounts | $2,416,201 | 0.12% | $2,227,953 | 0.12% | | Savings accounts | $386,253 | 0.11% | $375,301 | 0.11% | | Time deposits | $199,120 | 0.29% | $207,152 | 0.32% | | Total Deposits | $6,973,473 | 0.06% | $6,356,255 | 0.06% | - Total deposits increased by $617.218 million (9.71%) from December 31, 2021, to March 31, 2022, primarily driven by a $424.344 million increase in non-interest bearing demand deposit accounts[94] - The weighted average rate on total deposits remained stable at 0.06% despite changes in individual deposit categories[94] - Time deposits of $250,000 or more increased to $47.8 million at March 31, 2022, from $43.7 million at December 31, 2021[95] 6. Borrowed Funds This note details the company's borrowed funds, including subordinated notes and available credit facilities - The Company completed a public offering of $85.0 million in 3.250% Fixed-to-Floating Rate subordinated notes due 2031 on November 8, 2021[99] - The subordinated notes will mature on November 15, 2031, with a fixed rate until November 15, 2026, then a floating rate based on three-month term SOFR plus 230 basis points[99] - As of March 31, 2022, there were no outstanding FHLB advances, but the Bank had $1.5 billion in eligible assets pledged to the FHLB to secure potential advances and letters of credit[101] 7. Earnings Per Share This note presents the basic and diluted earnings per common share calculations for the three months ended March 31, 2022 and 2021 Earnings Per Share | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | |:---|:---|:---| | Net income attributable to Amalgamated Financial Corp. (in thousands) | $14,165 | $12,189 | | Weighted average common shares outstanding, basic (in thousands) | 31,107 | 31,082 | | Basic earnings per common share | $0.46 | $0.39 | | Weighted average common shares outstanding, diluted (in thousands) | 31,456 | 31,524 | | Diluted earnings per common share | $0.45 | $0.39 | - Basic earnings per common share increased by $0.07 (17.9%) YoY, and diluted earnings per common share increased by $0.06 (15.4%) YoY[105] - The Company had 0.2 million anti-dilutive shares as of March 31, 2022, compared to 0.4 million in the prior year[104] 8. Employee Benefit Plans This note outlines the company's employee benefit plans, including stock options and restricted stock units, and associated compensation costs - The Company does not currently maintain an active stock option plan for new issuances; all outstanding options were fully vested as of January 1, 2021[108] - As of March 31, 2022, 783,880 stock options were outstanding and exercisable, with a weighted average exercise price of $13.13 and an intrinsic value of $3.794 million[109] - During Q1 2022, the Company granted 152,795 restricted stock units (RSUs) to employees under the 2022 Equity Incentive Plan, comprising both time-vesting and performance-based units[110][111][112] - Unrecognized compensation cost related to non-vested RSUs was $4.4 million as of March 31, 2022, expected to be recognized over 2.2 years[116] 9. Fair Value of Financial Instruments This note explains the fair value hierarchy and provides a breakdown of financial instruments by their fair value measurement levels - Fair value measurements are categorized into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable significant inputs)[121][122] Fair Value of Financial Instruments (in thousands) | Financial Instrument | March 31, 2022 Fair Value (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | |:---|:---|:---|:---|:---| | Available for sale securities | $2,421,064 | $195 | $2,420,869 | $0 | | Held to maturity securities | $921,395 | $0 | $208,691 | $712,704 | | Loans held for sale | $2,490 | $0 | $0 | $2,490 | | Loans receivable, net | $3,316,115 | $0 | $0 | $3,316,115 | | Resell agreements | $180,150 | $0 | $0 | $180,150 | - A significant portion of held-to-maturity securities, loans held for sale, loans receivable, net, and resell agreements are valued using Level 3 inputs, indicating reliance on unobservable data and management's judgments[130] 10. Commitments, Contingencies and Off Balance Sheet Risk This note details the company's off-balance-sheet commitments, including credit extensions, standby letters of credit, and related risk reserves Commitments, Contingencies and Off Balance Sheet Risk (in thousands) | Commitment Type | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | |:---|:---|:---| | Commitments to extend credit | $928,527 | $927,428 | | Standby letters of credit | $18,261 | $18,752 | | Total | $946,788 | $946,180 | - Total credit commitments, including commitments to extend credit and standby letters of credit, remained stable at approximately $946.8 million at March 31, 2022[136] - The Company had an estimated remaining commitment of $132.6 million for the purchase of PACE assessment securities until the end of 2022[135] - A reserve for credit risk inherent in off-balance-sheet commitments amounted to $1.7 million at March 31, 2022, up from $1.5 million at December 31, 2021[133] 11. Leases This note provides information on the company's operating lease costs, cash payments, and future lease payment maturities Operating Lease Metrics (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | |:---|:---|:---| | Operating lease cost | $2,251 | $2,237 | | Cash paid for operating leases liability | $2,630 | $2,514 | | Weighted average remaining lease term (in years) | 4.6 | 5.5 | | Weighted average discount rate | 3.25% | 3.27% | - Operating lease costs remained stable YoY, with a slight increase in cash paid for lease liabilities[141] - The weighted average remaining lease term decreased from 5.5 years in Q1 2021 to 4.6 years in Q1 2022[141] Undiscounted Operating Lease Payments (in thousands) | Maturity | Undiscounted Operating Lease Payments (in thousands) | |:---|:---| | 2022 remaining | $8,115 | | 2023 | $11,285 | | 2024 | $11,310 | | 2025 | $10,574 | | 2026 | $9,176 | | Thereafter | $955 | | Total Undiscounted Operating Lease Payments | $51,415 | | Less: present value adjustment | $3,532 | | Total Operating leases liability | $47,883 | 12. Goodwill and Intangible Assets This note reports the carrying amount of goodwill and provides estimated amortization expenses for intangible assets - The carrying amount of goodwill remained at $12.9 million as of March 31, 2022, with no impairment identified in the annual test performed as of June 30, 2021[145] Estimated Amortization Expense (in thousands) | Year | Estimated Amortization Expense (in thousands) | |:---|:---| | 2022 | $785 | | 2023 | $888 | | 2024 | $730 | | 2025 | $574 | | 2026 | $419 | | Thereafter | $494 | | Total | $3,890 | - Accumulated amortization of the core deposit intangible asset was $5.2 million as of March 31, 2022[147] 13. Variable Interest Entities This note describes the company's investments in unconsolidated solar generation facilities and its maximum exposure to loss from these entities - The Company invests in unconsolidated entities that construct, own, and operate solar generation facilities, generating returns through tax credits and operational distributions[149] - As of March 31, 2022, the Company's maximum exposure to loss from these investments was $54.5 million[149] Variable Interest Entities (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | |:---|:---|:---| | Tax credit investments included in equity investments | $1,872 | $1,681 | | Loans and letters of credit commitments | $52,654 | $52,813 | | Funded portion of loans and letters of credit commitments | $15,352 | $15,512 | | Tax credits and other tax benefits recognized (Q1) | $668 | $343 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of Amalgamated Financial Corp.'s financial condition as of March 31, 2022, compared to December 31, 2021, and results of operations for the three months ended March 31, 2022, and 2021. It covers key financial metrics, recent developments including the terminated merger agreement, the ongoing impact of the COVID-19 pandemic, and discussions on critical accounting policies, net interest income, loan portfolio, non-interest income/expense, and capital resources Holding Company Reorganization This section outlines the formation of Amalgamated Financial Corp. as the holding company for Amalgamated Bank - Amalgamated Financial Corp. was formed on August 25, 2020, and became the holding company for Amalgamated Bank on March 1, 2021, through a statutory share exchange[154] General This section specifies the reporting periods covered in the management's discussion and analysis - The discussion focuses on the consolidated financial condition as of March 31, 2022, compared to December 31, 2021, and results of operations for the three months ended March 31, 2022, and March 31, 2021[156] Overview This section provides a high-level summary of the company's financial position, trust business, and strategic focus on socially responsible clients - As of March 31, 2022, the Company reported total assets of $7.7 billion, total loans (net) of $3.4 billion, total deposits of $7.0 billion, and stockholders' equity of $526.8 million[158] - The trust business held $39.7 billion in assets under custody and $15.1 billion in assets under management[158] - The Company offers commercial and retail banking, investment management, and trust/custody services, targeting socially responsible, values-oriented clients like non-profits, labor unions, and political organizations[159][160][162] Recent Developments This section highlights key recent events, including the termination of a merger agreement and a subordinated notes offering - The Merger Agreement to acquire Amalgamated Investments Company (AIC) and Amalgamated Bank of Chicago (ABOC) was terminated on March 15, 2022, due to an inability to obtain regulatory approval[163] - The Company completed a public offering of $85.0 million in 3.250% Fixed-to-Floating Rate subordinated notes due 2031 on November 8, 2021, for general business purposes[164] Continued Impact of the COVID-19 Pandemic on Our Business This section discusses the ongoing effects of the COVID-19 pandemic on the company's operations, loan portfolio, and economic outlook - The COVID-19 pandemic continues to disrupt the global economy, impacting the Company's clients, loan portfolio, and operations, with ongoing uncertainties regarding macro-economic effects like supply chain issues, inflation, and labor shortages[165] - The Company implemented payment deferral programs for customers, which were not considered troubled debt restructurings (TDRs) under CARES Act guidance for borrowers current before the pandemic[169] - As of March 31, 2022, no loans remained on COVID-19 related payment deferral programs[74] - Potential future impacts include increased allowance for loan losses, lower loan originations, and higher expenses due to talent turnover[170] Critical and Significant Accounting Policies and Estimates This section confirms the company's adherence to GAAP and the absence of significant changes to accounting policies since the last annual report - The Company's financial statements adhere to GAAP, and there have been no significant changes to critical accounting policies or estimates since the 2021 Annual Report[172] Recent Accounting Pronouncements This section outlines the company's plans for adopting new accounting standards, including CECL, and their expected impact - The Company will adopt ASU 2016-13, 'Financial Instruments – Credit Losses (Topic 326)' (CECL model), on January 1, 2023, utilizing the extended transition period for emerging growth companies[173][174] - Management is evaluating the quantitative and qualitative effects of CECL and does not currently expect a material impact on operating results or financial condition, despite it being a significant departure from current GAAP[175][176] - The adoption of ASU 2021-01, 'Reference Rate Reform (Topic 848): Scope,' is not expected to have a material impact due to the limited exposure to LIBOR-tied securities and commercial loans[177] Results of Operations This section analyzes the company's financial performance, including net income, interest income, and non-interest income and expenses General This section provides an overview of the company's net income and the primary drivers of its year-over-year change - Net income for Q1 2022 was $14.2 million ($0.45 diluted EPS), an increase from $12.2 million ($0.39 diluted EPS) in Q1 2021[179] - The $2.0 million increase in net income was primarily driven by a $7.1 million increase in total interest and dividend income (mainly from securities), partially offset by a $2.3 million provision for loan loss (compared to a $3.3 million recovery in Q1 2021) and a $1.6 million increase in non-interest expense[179] Net Interest Income This section analyzes the company's net interest income, spread, and margin, highlighting the impact of earning assets and interest-bearing liabilities Net Interest Income and Margin | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change (YoY) | |:---|:---|:---|:---| | Net Interest Income | $48.4 million | $41.8 million | +$6.6 million | | Net Interest Spread | 2.61% | 2.73% | -12 bps | | Net Interest Margin | 2.76% | 2.85% | -9 bps | | Yield on Average Earning Assets | 2.88% | 2.96% | -8 bps | | Average Rate on Interest-Bearing Liabilities | 0.27% | 0.23% | +4 bps | | Total Cost of Deposits | 0.09% | 0.11% | -2 bps | - Net interest income increased by $6.6 million (15.8%) YoY, primarily due to higher income on securities[184] - Net interest spread decreased by 12 basis points to 2.61%, and net interest margin decreased by 9 basis points to 2.76% YoY[185] - The yield on average earning assets decreased by 8 basis points to 2.88%, attributed to deploying strong deposit growth into investment securities at a higher pace than loans[185] Rate-Volume Analysis This section breaks down changes in net interest income into components attributable to volume and rate fluctuations Rate-Volume Analysis (in thousands) | Category | Change Due to Volume (in thousands) | Change Due to Rate (in thousands) | Net Change (in thousands) | |:---|:---|:---|:---| | Total Interest Income | $6,094 | $950 | $7,044 | | Total Interest Expense | $782 | $(262) | $520 | | Change in Net Interest Income | $5,312 | $1,212 | $6,524 | - The increase in net interest income was primarily driven by volume changes ($5.312 million) rather than rate changes ($1.212 million)[188] - Securities and FHLB stock contributed the most to interest income growth due to volume ($6.025 million)[188] - Other borrowings significantly increased interest expense due to volume ($691 thousand), reflecting the issuance of subordinated debt[188] Provision for Loan Losses This section details the provision for loan losses, explaining the shift from a recovery to an expense due to loan growth and charge-offs - The Company recorded a provision for loan losses of $2.3 million in Q1 2022, a significant shift from a $3.3 million recovery in Q1 2021[191] - This expense was primarily driven by higher loan balances and a $0.4 million charge-off related to a loan transferred to held for sale, partially offset by improved credit quality[191] Non-Interest Income This section analyzes the components of non-interest income, highlighting significant changes from equity method investments and loan sales Non-Interest Income (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | |:---|:---|:---|:---| | Trust Department fees | $3,491 | $3,827 | $(336) | | Service charges on deposit accounts | $2,447 | $2,178 | +$269 | | Bank-owned life insurance | $814 | $788 | +$26 | | Gain (loss) on sale of investment securities | $162 | $21 | +$141 | | Gain (loss) on sale of loans, net | $(157) | $707 | $(864) | | Equity method investments | $432 | $(3,682) | +$4,114 | | Other income | $233 | $161 | +$72 | | Total Non-Interest Income | $7,422 | $4,000 | +$3,422 | - Total non-interest income increased by $3.4 million (85.6%) YoY, primarily due to a $4.1 million swing from a loss to a gain in equity method investments (solar initiatives)[193] - This increase was partially offset by an $0.9 million decrease in gain on sale of loans, shifting from a gain in 2021 to a loss in 2022[193] - Trust Department fees decreased by $0.3 million (8.8%) YoY, mainly due to the run-off of the ULTRA real estate fund[194] Non-Interest Expense This section examines the changes in non-interest expenses, particularly the increase in data processing costs and decrease in professional fees Non-Interest Expense (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | |:---|:---|:---|:---| | Compensation and employee benefits, net | $17,669 | $18,039 | $(370) | | Occupancy and depreciation | $3,440 | $3,501 | $(61) | | Professional fees | $2,815 | $3,661 | $(846) | | Data processing | $5,184 | $3,005 | +$2,179 | | Office maintenance and depreciation | $725 | $655 | +$70 | | Amortization of intangible assets | $262 | $302 | $(40) | | Advertising and promotion | $854 | $597 | +$257 | | Other | $3,448 | $3,033 | +$415 | | Total Non-Interest Expense | $34,397 | $32,793 | +$1,604 | - Total non-interest expense increased by $1.6 million (4.9%) YoY, primarily driven by a $2.2 million increase in data processing expenses related to Trust Department modernization[197] - This increase was partially offset by an $0.8 million decrease in professional fees[197] Income Taxes This section reports the company's income tax expense and effective tax rate for the periods presented Income Taxes (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | |:---|:---|:---| | Provision for income tax expense | $4,935 | $4,123 | | Effective tax rate | 25.8% | 25.4% | - Income tax expense increased by $0.8 million (19.7%) YoY, with the effective tax rate slightly rising from 25.4% to 25.8%[198] Financial Condition This section provides an in-depth analysis of the company's balance sheet, including assets, liabilities, and equity, and their changes over time Balance Sheet This section summarizes the key changes in the company's total assets, cash, investment securities, and net loans receivable - Total assets increased by $0.6 billion to $7.7 billion at March 31, 2022, from $7.1 billion at December 31, 2021[199] - This growth was primarily driven by a $43.6 million increase in cash and cash equivalents, a $410.4 million increase in investment securities (including $96.2 million from PACE assessments), and a $158.0 million increase in net loans receivable[199] Investment Securities This section details the company's investment securities portfolio, its objectives, and changes in available-for-sale and held-to-maturity categories - The securities portfolio aims to provide liquidity, efficient investment return, manage interest rate risk, meet CRA goals, and offer collateral[200] - Available-for-sale securities increased by $307.7 million to $2.4 billion at March 31, 2022, primarily from purchases of asset-backed securities (ABS) and mortgage-related securities[202] - Held-to-maturity securities increased to $946.3 million at March 31, 2022, from $843.6 million at December 31, 2021, primarily consisting of PACE bonds, tax-exempt municipal securities, and ABS[203] - At March 31, 2022, $3.1 billion of investment securities had unrealized losses, but management determined the decline in value to be temporary, expecting full recovery by maturity[204] Loans This section reports the total loan portfolio, net of deferred origination fees and allowance for loan losses, and details recent loan purchases - Total loans, net of deferred origination fees and allowance for loan losses, increased to $3.4 billion at March 31, 2022, from $3.3 billion at December 31, 2021[213] - In Q1 2022, the Company purchased $3.0 million in commercial solar loans, $28.4 million in residential loans, $20.0 million in home improvement loans, $90.7 million in consumer solar loans, and $20.0 million in government-guaranteed commercial loans[213] Commercial Loan Portfolio This section provides a detailed breakdown of the commercial loan portfolio by category and its proportion of total loans Commercial Loan Portfolio (in thousands) | Loan Type | March 31, 2022 Amount (in thousands) | % of Total Loans (Mar 31, 2022) | December 31, 2021 Amount (in thousands) | % of Total Loans (Dec 31, 2021) | |:---|:---|:---|:---|:---| | Commercial and industrial | $724,177 | 20.9% | $729,385 | 22.0% | | Multifamily | $813,702 | 23.5% | $821,801 | 24.8% | | Commercial real estate | $354,174 | 10.2% | $369,429 | 11.2% | | Construction and land development | $40,242 | 1.2% | $31,539 | 1.0% | | Total Commercial Portfolio | $1,932,295 | 55.8% | $1,952,154 | 59.0% | - The commercial loan portfolio decreased from 59.0% to 55.8% of total loans between December 31, 2021, and March 31, 2022[215] - C&I loans decreased by 0.7% to $724.2 million, multifamily loans decreased by 1.0% to $813.7 million, and CRE loans decreased by 4.1% to $354.2 million during Q1 2022[216][217][218] Retail Loan Portfolio This section details the composition of the retail loan portfolio and its growth as a percentage of total loans Retail Loan Portfolio (in thousands) | Loan Type | March 31, 2022 Amount (in thousands) | % of Total Loans (Mar 31, 2022) | December 31, 2021 Amount (in thousands) | % of Total Loans (Dec 31, 2021) | |:---|:---|:---|:---|:---| | Residential real estate lending | $1,143,175 | 33.0% | $1,063,682 | 32.2% | | Consumer and other | $389,452 | 11.2% | $291,818 | 8.8% | | Total Retail Portfolio | $1,532,627 | 44.2% | $1,355,500 | 41.0% | - The retail loan portfolio increased from 41.0% to 44.2% of total loans between December 31, 2021, and March 31, 2022[219] - Residential real estate lending increased by 7.5% to $1.14 billion, and consumer and other loans increased by 33.5% to $389.5 million during Q1 2022[220][221] Maturities and Sensitivity of Loans to Changes in Interest Rates This section analyzes the maturity profile of the loan portfolio and its sensitivity to interest rate changes, distinguishing between fixed and floating rates Loan Maturities (in thousands) | Maturity Period | Total Loans (in thousands) | |:---|:---| | One year or less | $323,510 | | After one but within five years | $877,554 | | After 5 years | $2,263,858 | | Total Loans (March 31, 2022) | $3,464,922 | - A significant portion of the loan portfolio, $2.26 billion (65.3%), matures after five years, indicating a long-term asset profile[225] Loan Interest Rate Type by Maturity (in thousands) | Interest Rate Type | After one but within five years (in thousands) | After 5 years (in thousands) | Total (in thousands) | |:---|:---|:---|:---| | Fixed interest rates | $692,877 | $1,682,778 | $2,375,655 | | Floating or adjustable interest rates | $184,677 | $581,080 | $765,757 | | Total Loans (March 31, 2022) | $877,554 | $2,263,858 | $3,141,412 | - Fixed-rate loans constitute a larger portion ($2.38 billion) of loans maturing after one year compared to floating/adjustable rate loans ($0.77 billion)[226] Allowance for Loan Losses This section details the changes in the allowance for loan losses, including charge-offs, recoveries, and the provision for loan losses - The allowance for loan losses increased by $1.6 million to $37.5 million at March 31, 2022, from $35.9 million at December 31, 2021, primarily due to an increase in loan balances[234] - The ratio of allowance to total loans remained stable at 1.08% for both March 31, 2022, and December 31, 2021[234] Allowance for Loan Losses Activity (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | |:---|:---|:---| | Balance at beginning of period | $35,866 | $41,589 | | Total loan charge-offs | $1,323 | $2,389 | | Total loan recoveries | $706 | $723 | | Net (recoveries) charge-offs | $617 | $1,666 | | Provision for (recovery of) loan losses | $2,293 | $(3,261) | | Balance at end of period | $37,542 | $36,662 | Allocation of Allowance for Loan Losses This section presents the distribution of the allowance for loan losses across different loan categories Allocation of Allowance for Loan Losses (in thousands) | Loan Category | March 31, 2022 Allowance (in thousands) | % of Total Loans (Mar 31, 2022) | December 31, 2021 Allowance (in thousands) | % of Total Loans (Dec 31, 2021) | |:---|:---|:---|:---|:---| | Commercial and industrial | $12,169 | 20.9% | $10,652 | 22.0% | | Multifamily | $4,232 | 23.5% | $4,760 | 24.8% | | Commercial real estate | $6,840 | 10.2% | $7,273 | 11.2% | | Construction and land development | $654 | 1.2% | $405 | 1.0% | | Residential real estate lending | $9,336 | 33.0% | $9,008 | 32.2% | | Consumer and other | $4,311 | 11.2% | $3,768 | 8.8% | | Total Allowance for Loan Losses | $37,542 | | $35,866 | | - The allocation of allowance for loan losses increased for commercial and industrial, construction and land development, residential real estate lending, and consumer and other categories, while decreasing for multifamily and commercial real estate[237] Nonperforming Assets This section reports the total nonperforming assets, including nonaccrual and troubled debt restructured loans, and their ratio to total assets Nonperforming Assets (in thousands) | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | |:---|:---|:---| | Total Nonperforming Assets | $61,057 | $54,586 | | Nonaccrual loans | $28,942 | $28,219 | | Troubled debt restructured loans - nonaccrual | $18,107 | $13,497 | | Troubled debt restructured loans - accruing | $29,259 | $24,997 | | Nonperforming assets to total assets | 0.80% | 0.77% | | Allowance for loan losses to nonaccrual loans | 129.71% | 127.10% | - Total nonperforming assets increased by $6.5 million (11.8%) to $61.1 million at March 31, 2022, primarily due to a new multi-loan troubled debt restructuring of $10.5 million[243] - The ratio of nonperforming assets to total assets slightly increased from 0.77% to 0.80%[243] - Potential problem loans (special mention and substandard-accruing commercial loans, and 30-89 days past due loans) totaled $164.6 million at March 31, 2022[244] Resell Agreements This section details the company's resell agreements, their outstanding amounts, and weighted average interest rates - Resell agreements, backed by government-guaranteed loans, decreased to $180.2 million at March 31, 2022, from $229.0 million at December 31, 2021[245] - The weighted average interest rate on these agreements increased from 1.21% to 1.39% over the same period[245] Deferred Tax Asset This section reports the net deferred tax asset and management's assessment of its realizability - The net deferred tax asset increased to $46.1 million at March 31, 2022, from $26.7 million at December 31, 2021[247] - Management concluded that the entire amount of the deferred tax asset was fully realizable with no valuation allowance[247] Deposits This section discusses the growth in total deposits, including political deposits, and the maturity profile of time deposits - Total deposits increased to $7.0 billion at March 31, 2022, from $6.4 billion at December 31, 2021, driven by relationship-based banking and a mission-based strategy[248] - Political deposits, which exhibit seasonality, increased to approximately $1.1 billion at March 31, 2022, from $989.6 million at December 31, 2021[249] Time Deposit Maturities (in thousands) | Maturity | March 31, 2022 (in thousands) | |:---|:---| | Within three months | $45,823 | | After three but within six months | $46,023 | | After six months but within twelve months | $26,706 | | After twelve months | $10,337 | | Total | $128,889 | Evaluation of Interest Rate Risk This section describes the company's approach to assessing interest rate risk using simulation models for net interest income and economic value of equity - The Company uses simulation models to assess potential changes to net interest income (NII) and economic value of equity (EVE) under hypothetical rising and declining interest rate scenarios[252][253] Interest Rate Sensitivity Analysis | Immediate Shift | Estimated Increase (Decrease) in EVE (%) | Estimated Increase (Decrease) in EVE ($ in thousands) | Estimated Increase (Decrease) in Year 1 NII (%) | Estimated Increase (Decrease) in Year 1 NII ($ in thousands) | |:---|:---|:---|:---|:---| | +400 basis points | -3.9% | $(53,232) | 19.9% | $48,743 | | +300 basis points | 1.6% | $21,971 | 19.3% | $47,213 | | +200 basis points | 4.8% | $64,207 | 15.9% | $38,806 | | +100 basis points | 4.4% | $59,422 | 8.7% | $21,260 | | -100 basis points | -10.7% | $(143,837) | -10.0% | $(24,359) | - A 100 basis point increase in interest rates is estimated to increase Year 1 Net Interest Income by 8.7% ($21.26 million) and Economic Value of Equity by 4.4% ($59.42 million)[256] - A 100 basis point decrease in interest rates is estimated to decrease Year 1 Net Interest Income by 10.0% ($24.36 million) and Economic Value of Equity by 10.7% ($143.84 million)[256] Liquidity This section outlines the company's liquidity management strategy, including liquid assets, liabilities, and access to funding sources - Liquidity is managed through liquid assets, liabilities, and access to alternative funding sources, with customer deposits being the primary source of funds[257][258][260] - Cash and equivalents increased to $374.0 million (4.9% of total assets) at March 31, 2022, from $330.5 million (4.7% of total assets) at December 31, 2021[259] - Available-for-sale securities were $2.4 billion (31.6% of total assets) at March 31, 2022, up from $2.1 billion (29.9% of total assets) at December 31, 2021[259] - The Company had no FHLB advances and a remaining credit availability of $1.5 billion at March 31, 2022, along with $69.6 million in borrowing capacity at the Federal Reserve's discount window[260] Capital Resources This section details the company's capital resources, including stockholders' equity and regulatory capital ratios - Total stockholders' equity decreased by $37.1 million to $526.8 million at March 31, 2022, from $563.9 million at December 31, 2021, mainly due to a $46.3 million decrease in accumulated other comprehensive income[261] Capital Ratios | Capital Ratio | March 31, 2022 (Consolidated) | December 31, 2021 (Consolidated) | Minimum for Capital Adequacy | Minimum for Well Capitalized | |:---|:---|:---|:---|:---| | Total capital to risk weighted assets | 15.16% | 15.95% | 8.00% | 10.00% | | Tier 1 capital to risk weighted assets | 12.36% | 12.98% | 6.00% | 8.00% | | Tier 1 capital to average assets | 7.34% | 7.62% | 4.00% | 5.00% | | Common equity tier 1 to risk weighted assets | 12.36% | 12.98% | 4.50% | 6.50% | - As of March 31, 2022, both the Company and the Bank were categorized as 'well capitalized' under prompt corrective action measures and met capital conservation buffer requirements[266] Contractual Obligations This section outlines the company's contractual obligations, including subordinated debt, operating leases, purchase obligations, and certificates of deposit, by maturity Contractual Obligations (in thousands) | Obligation Type | Total (in thousands) | Less than 1 year (in thousands) | 1-3 years (in thousands) | 3-5 years (in thousands) | More than 5 years (in thousands) | |:---|:---|:---|:---|:---|:---| | Subordinated Debt | $83,870 | $0 | $0 | $0 | $83,870 | | Operating Leases | $51,415 | $8,115 | $22,595 | $19,750 | $955 | | Purchase Obligations | $30,169 | $4,612 | $9,224 | $7,883 | $8,450 | | Certificates of Deposit | $199,120 | $152,279 | $40,769 | $6,004 | $68 | | Total (March 31, 2022) | $364,574 | $165,006 | $72,588 | $33,637 | $93,343 | - The majority of subordinated debt ($83.87 million) matures in more than 5 years, while most certificates of deposit ($152.28 million) mature within one year[267] Investment Obligations This section describes the company's remaining commitment for PACE assessment securities and its funding strategy - The Company has an estimated remaining commitment of $132.6 million for the purchase of PACE assessment securities until the end of 2022, to be held in its held-to-maturity portfolio[270] - These commitments are anticipated to be funded through normal cash flows, reductions in cash and cash equivalents, or pay-downs and maturities of other investments[270] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes in the Company's market risk as of March 31, 2022, compared to the 2021 Annual Report, and refers to the 'Evaluation of Interest Rate Risk' table in the MD&A for details - No material changes in market risk were reported as of March 31, 2022, compared to the 2021 Annual Report[272] - Interest rate sensitivity position details are incorporated by reference from the 'Evaluation of Interest Rate Risk' table in the Management's Discussion and Analysis[272] ITEM 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of March 31, 2022, and reports no material changes in internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of March 31, 2022[273] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2022[274] PART II - OTHER INFORMATION This part provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and exhibits ITEM 1. Legal Proceedings This section states that the Company is involved in various legal proceedings in the ordinary course of business, but management believes that any aggregate liabilities from such actions would not have a material adverse effect on its consolidated financial position or results of operations - The Company is subject to pending and threatened legal proceedings arising from the ordinary course of business[276] - Management, in consultation with legal counsel, believes that the aggregate liabilities from these actions would not materially adversely affect the Company's financial position or results of operations[276] ITEM 1A. Risk Factors This section supplements the risk factors from the 2021 Annual Report, specifically highlighting the potential adverse effects of the recently terminated Merger Agreement with AIC and ABOC on the Company's business, results of operations, and financial condition - The termination of the Merger Agreement with AIC and ABOC due to inability to obtain regulatory approval could materially and adversely affect the Company[277][278] - Potential adverse effects include litigation, negative media attention, negative reactions from financial markets (stock price decline), and negative reactions from customers and personnel[278] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's common stock repurchases during the first quarter of 2022, including the number of shares purchased and the remaining authorization under its share repurchase program Common Stock Repurchases | Period | Total Number of Shares Purchased | Average Price Per Share | |:---|:---|:---| | February 1 through February 29, 2022 | 34,016 | $16.87 | | March 1 through March 31, 2022 | 140,576 | $17.33 | | Total (Q1 2022) | 167,572 | $17.26 | - The Company repurchased 167,572 shares of common stock during the first quarter of 2022 at an average price of $17.26 per share[282] - Effective February 25, 2022, the Board of Directors approved an increase to the share repurchase program, authorizing up to $40 million of outstanding common stock, with $2.9 million purchased in Q1 2022[283] ITEM 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Merger Agreement and its termination, organizational documents, certifications, and interactive data files - Exhibit 2.1 references the Agreement and Plan of Merger dated September 21, 2021[285] - Exhibit 2.2 references the Termination of a Material Definitive Agreement with Amalgamated Investments Company[286] - Includes certifications from the Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a)) and Section 1350 Certifications[290][291] Signatures This section contains the signatures of the Company's principal executive officer, principal financial officer, and principal accounting officer, certifying the filing of the report - The report is signed by Priscilla Sims Brown (President and CEO), Jason Darby (CFO), and Frank DeMaria (Chief Accounting Officer) on May 6, 2022[295]