Amalgamated Financial (NASDAQ:AMAL) Q2 2026 Earnings Call

0:00 Good morning, ladies and gentlemen, and welcome to the Amalgamated Financial Corporation Second Quarter twenty twenty six Earnings Conference Call. During today's presentation, all parties will be in a listen only mode with Q and A to follow. A replay of the call and the accompanying slides are available on our Investor Relations website. Please review the forward looking statements and non GAAP disclosures on slide two. As a reminder, this conference call is being recorded. I would now like to turn the call over to mister Jason Darby, chief financial officer. Please go ahead, sir.

0:33 Operator, and good morning, everyone. We appreciate your participation in our earnings call. With me today is Priscilla Sims Brown, our President and Chief Executive Officer. Additionally, Sam Brown, our Chief Banking Officer, is here for the Q and A portion of today's call. We look forward to your questions and try to limit repeating details you've already reviewed in the earnings materials. And I'll now turn the call over to Priscilla. Good morning, everyone. This quarter showcases the power of the franchise we've built. With the strongest balance sheet in our history and one of the most differentiated deposit franchises in banking, we're successfully converting balance sheet growth into record earnings, record profitability, and a scalable platform that bodes well for future top performance.

1:19 The bank has delivered outstanding results this quarter, including record net income of $34,800,000 core net income of $33,100,000 and profitability metrics that rank among the strongest in our history. Return on average assets exceeded 1.4%, return on tangible common equity exceeded 16%, and our core efficiency ratio remained below 50%. Clear evidence that we are harvesting the earnings power of the franchise and creating a lasting platform for continued growth. Revenue approached $100,000,000 and revenue per share exceeded $3 for the second consecutive quarter.

2:05 These results supported our decision to raise full year 2026 guidance. Over the past several years, we've strengthened the balance sheet, we've expanded our deposit franchise, built lending capabilities, enhanced our technology infrastructure, and invested in the people, processes, and systems needed to support growth. This quarter demonstrates that those investments are translating into greater earnings capacity, stronger profitability, increasing operating leverage, and ultimately shareholder value well into the future. Importantly, we achieved this growth while maintaining strong capital, liquidity, and credit discipline.

2:50 Our portfolio continues to perform well, and we remain focused on disciplined risk management as we grow. These results reflect not only the growth of the franchise, but the quality and the resilience of that growth. On balance sheet deposits increased $280,000,000 or 3.4% during the quarter to a record $8,500,000,000 highlighting the continued and differentiated performance of our deposit gathering franchise. Political deposits increased approximately $212,000,000 to $2,100,000,000 Labor increased 30,000,000 Social and philanthropy deposits increased 55,000,000 and off balance sheet deposits were over $1,000,000,000 This deposit led growth strategy provides unparalleled flexibility to shape our balance sheet.

3:51 That funding strength allowed us to continue optimizing the asset side of the balance sheet and deploying capital into an attractive mix of loans, PACE assessments, and securities. Total loans increased approximately $115,000,000 during the quarter, while loans in growth mode commercial lending increased approximately $155,000,000 or 4.5%. As we continue to optimize the balance sheet and redeploy liquidity into higher yielding assets, we believe there remains significant opportunity to further expand earnings power and operating leverage.

4:32 At the same time, we continue investing for the future. We continue to invest in our people alongside modernization initiatives across the organization, expanding our use of AI enabled tools and building the technology infrastructure necessary to support efficient and scalable long term growth. We believe these investments combined with the strength of our balance sheet and our franchise positions us well to deliver sustainable performance in the years ahead. With that, I'll turn the call over to Jason. Thanks, Priscilla. I'll keep my remarks focused on what I believe is the defining theme of the quarter, harvesting the earnings power of the bank. Over the past several quarters, we've bolstered our capital position, strengthened the balance sheet, invested in technology and positioned the bank for growth.

5:22 In short, we've carefully built a better bank. This quarter's results offer a preview of the earnings potential we believe still lies ahead for Amalgamated. The first key takeaway is that the earnings profile of the company continues to strengthen. As we've discussed over several quarters, our objective has never been growth for growth's sake. The objective has been to build a bank capable of generating higher and more sustainable earnings while maintaining strong capital, liquidity and credit discipline. The results this quarter provide further evidence the strategy is working. As Priscilla noted, revenue reached approximately $98,000,000 revenue per share was $3.18 and our core efficiency ratio was a well managed 49.15%, demonstrating the scalability potential of the bank as it grows. The second key takeaway is that deposit led balance sheet expansion is translating directly into earnings growth through continued improvement in asset optimization.

6:16 Combined with approximately $461,000,000 of average deposit growth with remarkably stable cost, commercial loans, PACE assessments and traditional securities totaling $276,000,000 were added at attractive yields, and non growth loan portfolios generated approximately 39,000,000 of redeployed cash through planned runoff. This repositioning will be ongoing and continue to convert into even stronger revenue generation and positive operating leverage. The third key takeaway is our outlook remains positive. Briefly addressing credit, overall portfolio performance was stable. Provision expense normalized following the reserve actions taken during the previous quarter. Criticizing classified balances declined by approximately $9,000,000 and pass rated loans continue to represent approximately 97% of the total portfolio.

7:04 We remain actively engaged in managing the previously discussed multifamily relationship and continue to believe our reserve position appropriately reflects current conditions and risk assessments. As a result, we are pleased to again raise guidance. For net interest income, we are increasing our outlook from the prior high end target of $333,000,000 to a new range of $338,000,000 to $340,000,000 For core pre tax pre provision earnings, we are increasing our outlook from the prior high end target of $185,000,000 to a new range of 188,000,000 to $190,000,000 These are meaningful increases that reflect our confidence in the bank, the momentum we're seeing across the balance sheet and our ability to convert growth into earnings and sustainable shareholder value appreciation.

7:50 We also believe we've lots of runway left to go. So I'll close with some thoughts on tech and scale. As we look ahead and underlying drivers of performance continue to strengthen, we continue to invest in scalability. This quarter, we've introduced a view of our enterprise use of AI tools across multiple business functions and the building blocks for the tech infrastructure necessary to support efficient future growth. We'll look forward to updating you in future quarters on our progress on AI adoption, utilization

8:17 and agentification as we move towards scalable efficiency. And now we're ready for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up their handset before pressing the star keys.

8:48 Our first question comes from the line of Justin Crowley with Piper Sandler. Please proceed with your question. Hey, good morning everyone. Good morning. Wanted to start out on the loan growth. Really impressive results here. And so just curious if you could talk through a little more just perhaps the balance between originations and payoffs And then just kind of how you're thinking about that trend over the next couple of quarters. Yeah. Hey, Justin. It's Sam. Thanks for the question. Look, we're really proud of what we're able to do in loan growth this year or excuse me, this quarter.

9:26 Look, a 115,000,000, great story, but the 155,000,000 in growth mode from our commercial production is is really fantastic. And we like that we were positive in all of our asset classes. I think it's also great though to show that we were able to take the 39,000,000 we're able to re harvest out of lower yielding assets and redeploy that into an even more optimized asset mix. And we look forward to having all the levers across all of our asset types between loan growth, between PACE, between the securities portfolio to continue driving that NII growth.

10:04 What we're continuing to invest in experts around the country to help support that origination effort and feel like we're really hitting our stride where we are seeing all the asset opportunity from bank really being able to be harvested here. I think I'll just add one or two other things, the target, we like the high end of our sequential growth rate, we've been saying 1.5 to 2% net loan growth on a quarterly basis, I

10:30 think we're gonna be closer to 2% for q three and q four. And to Sam's point, I think the momentum that's starting to build from some of the investments we made previously should really play into the 2027 theme, which will continue a balance sheet expansion and responsible deployment of assets across a variety of classes.

10:53 Okay. Great. That that's super helpful. And then I guess just to pivot then just on the margin. You called out the prepayment penalties at three basis points, but then I'm not sure if I missed it in the materials, but how big of an impact was that non accrual recovery in the period?

11:13 It was about the same amount. So the three basis points was probably a wash on the non accrual impact. We did not expect that recapture. It was very fortunate for us, but that was about the impact from the margin perspective on that recapture. And obviously, you saw the impact on the non accrual loans being improved and there was a bit of a recapture as well that happened through the provision in relation to that loan. Right. Okay. And so I guess, like, trying to put it all together, how are you thinking about the margin trajectory from here as we get through the back half of the

11:52 year? I know the average balance sheet may be impacted particularly in the fourth quarter. So just trying to square all that and just kind of how it gets you to the NII guide you provided. Sure. So I think the margin story is that there was an outperformance in the current quarter because of the speed at which we're able to deploy the asset generation that Sam was referring to earlier. And

12:21 we pulled forward, I think some margin NII into the current core that will stay with us throughout the year, but the margin ought to moderate as we get throughout the back half of the year. As you aptly pointed out, we have to take a more disciplined approach to the balance sheet from a growth perspective heading into an election cycle because we have to make sure that we're not requiring leverage to support the inevitable deposit outflows. But we think right now the margin is at a good inflection point. There might be some modest compression, as you've noted in the fourth quarter, because of the mix shift of deposits when the off balance sheet gets pulled back on to support the political deposit outflow. So all in, the NII ought to be pretty stable, modestly upward trajectory from here, margin also should be moderate,

13:13 possible compression in the fourth quarter, but the real key is to think about 2027 as the restarting of the growth engine, rebuilding of the deposit base, as the presidential election cycle will start to kick off, and therefore, should start to see improvements again or growth trajectory again in the NII, the earnings overall and the margin.

13:38 Okay. And then what is related to that? What's the right way to think about that balance sheet impact maybe on an average basis as we get towards the end of the year as you kind of use that off balance sheet source to kind of fill the hole, if you will? Yeah, so I think the way to think about the balance sheet, we have a target for $9,600,000,000 of assets that will continue to be funded through excess liquidity that typically would reside off balance sheet. We'll achieve that target by the third quarter and probably early in the third quarter that gives you an indication of how we're thinking about the average assets generating NII. And then the way to think about the remainder of the year,

14:26 we expect to leave off balance sheet that which we think would support the political deposit outflow requirements. And when we get to the end of the year, ideally, if we've optimally managed our balance sheet correctly, off balance sheet deposits would be near zero and leverage would be zero as well. So the timing of everything is difficult to predict because outflows can start earlier, they can happen a little bit later in the cycle, but the overall balance sheet we are targeting to be at $9,600,000,000 with very little off balance sheet and also very little to no debt or leverage.

15:04 Okay. So does that kind of imply that you try to like keep the average balance sheet?

15:10 I know on any given day or at quarter end, it can maybe swing around, but on an average basis, kind of keep it flat through that volatility? The average balance, yes. It should be flattish. I think there's still a little bit of growth and probably under 1% on an average basis in q three and in q four. But generally, that's the back half of the year. There's gonna be a flattish, much more stable trajectory on the balance sheet side, particularly on the averages, in anticipation of the deposit outflows at the end of the election cycle. And then you'll start to see growth in the average assets along the spot basis as we get into 2027.

15:53 Okay. Gotcha. That's super helpful. Thanks for walking through all that. Maybe just one last one quickly on expenses. I think you called out in the release elevated compensation costs and then some technology expense. Is there anything that comes back out of the run rate? Or are we talking more about just growth off current levels?

16:15 I think it's a little bit more of a ladder. It's growth off current levels. We do expect to see expenses continue to increase in Q3 and Q4. I would target $49,000,000 in each of those two quarters as a general benchmark for where we're trying to finish the year. That would naturally push up our total expense guidance from the 188,000,000 we've been talking about to around 190,000,000. But when I talk about what's going to

16:46 happen in the future quarters, there is going to be a little bit of trading out of one time expense for layered and recurring expense. So in the third quarter, the bill will largely be related to planned costs that we have as we move out of our existing headquarter building into a new facility, which we're very excited about. I think that'll be a great beacon for the bank going forward, but there will be an expense impact that we're expecting in the third quarter, I'm sorry. And in the fourth quarter, those expenses won't be with us anymore, but we'll continue to see layered expenses relative to the

17:23 build out we have in the technology infrastructure, our backlog assistance compliance, and also some additional compensation related expenses. So overall, I think the trajectory will continue to include, although it will be a little bit of trading between one timers in future quarters versus continued layered expenses. The only thing I just want to reiterate and add to that is that, as we think about expenses, our focus still remains on investing in the future, while just maintaining strong operating discipline that you've seen. So, we're not pursuing growth at any cost. These investments we're making in technology and modernization and talent and infrastructure we've discussed will provide scalability and efficiency over time. Okay, and so is this like, I'm sure, you know, some of it's direct, maybe some of it's indirect, but, you know, is any of this related to just gearing up for, you know, being a $10,000,000,000 bank at some point?

18:21 Well, actually, investments have been made over a long period of time. Been planning on $10,000,000,000 for quite some time. So there's nothing specific to that that's meaningful in the numbers. It's really what we talked about in the script. I mean, it's really that we are investing in technology, we're investing in people to move to our new office space, for example. That's really customer focused. I mean, we really are increasing our ability to allow customers to have forums and better ways to interact with them. So it's really just, as Jason mentioned earlier, all about building a better bank, continuing to invest for the future, remaining competitive in a continually growing digital environment, all of those good things. So nothing specific in the way of 10,000,000,000 or we've been investing in the risk areas of the bank now for quite some time.

19:24 Perfect. Really appreciate it. I'll leave it there. Thank you. Thank you. Our next question comes from the line of David Conrad with KBW. Please proceed with your question. Hey. Good morning, everyone. Jason, I have a question for you. I know there's so many moving parts in the next couple of quarters. But maybe taking a step back, there seems to be such a large runway of this balance sheet remix. I mean, have you ever given any thought to, like, what the normalized NIM could be for the company? I have, and I want to be careful because normally I'll give more guidance when we come out with a 2027 plan. But I do think a way to think about is what we were able to accomplish with the average asset growth we had this quarter.

20:17 So we brought on about $250,000,000 across the commercial lending, the PACE assets, and also our investment in traditional securities. And blended, we were able to bring that in about 5.7%, somewhere closer to 6% range. And when we apply a simple cost of funds to that, the yield was around four ten, 4.1%. So as I think about that, I can look forward and say that's very reflective of the asset turnover philosophy that we're deploying right now. And so I could see that as being something that we could reach over time as realistic as it Yeah. That makes sense. Okay.

21:04 And then maybe, Sam, you know, the world seems to be changing, this year quite a bit. I just maybe some thoughts high level on clean energy demand and, you know, is that increasing now in this environment and your thoughts there? Yeah, thanks, David. Great question. Certainly there is a lot of change out in the environment, but there's also a lot of consistency in the environment and that demand continues to increase and our role in financing that demand is still very strong. If you look around just a couple data points that kind of help set the table for what the market looks like, first of all, you've got, Deloitte put out a study that recently suggested a need of 30 to 66 gigawatts of renewable power generation by 2030, but the excuse me, of of production and renewables, but the the total need is estimated to be about 225 gigawatts.

21:59 And that really excludes even 105 that's already identified for retirement. So the fact remains that renewables and storage really does have a cost advantage over gas. And the reality is the country can't meet demand without all of it. And so we really view that landscape as wide open for us. We're going be very careful about the assets that we identify, ensuring we've got long term contracted revenues, investment grade counterparties, fixed rate amortizing debt. But we see a lot of runway ahead for us, and we continue to feel bullish on the space. Great. That'll do it for me. I have no questions on credit this quarter. Great, David. Thank you.

22:47 And we have reached the end of the question and answer session. I would like to turn the floor back to Priscilla Sims Brown for closing remarks. Great. Thank you all. Thank you for those thoughtful questions. I also want to, as always, thank our colleagues across the Bank for their continued focus and execution, and of course, our customers and our shareholders for your trust and partnership. Looking ahead, we believe Amalgamated is exceptionally well positioned. We have a strong balance sheet, a differentiated and growing deposit franchise, improving profitability, and a clear strategy for scaling the company through continued investments in people, technology, and AI enabled capabilities. The momentum we are seeing today reinforces our confidence in the future, We remain focused on delivering long term value for all stakeholders.

23:37 Thank you for your continued support, and we look forward to speaking with you in follow-up calls and in upcoming meetings. Have a great day. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and enjoy the rest of your day.