Amalgamated Financial Corp.

Good morning, ladies and gentlemen, and welcome to the Amalgamated Financial Corporation Fourth Quarter 2022 Earnings Conference Call. During today's presentation, all parties will be on a listen-only mode. Following the presentation, the conference will be open for questions with instructions to follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Jason Darby, Chief Financial Officer. Please go ahead, sir.

Thank you, Operator, and good morning, everyone. We appreciate your participation in our fourth quarter 2022 earnings call. With me today is Priscilla Sims-Brown, President and Chief Executive Officer. As a reminder, a telephonic replay of this call will be available on the Investors section of our website for an extended period of time. Additionally, a slide deck to complement today's discussion is also available on the Investors section of our website. Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution investors that actual results may differ from the expectations indicated or implied by any such forward-looking statements or information. Investors should refer to slide 2 of our earnings slide deck as well as our 2021 10-K filed on March 11, 2022 for a list of risk factors that could cause actual results to differ materially from those indicated or implied by such statements. Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release as well as on our website. Let me now turn the call over to Priscilla.

Thank you, Jason. Good morning, everyone. We appreciate your time and your interest today. This morning I will provide an update on the progress we have made on our Growth for Good strategic plan and my thoughts on the next leg of our strategy journey. Jason will then provide an in-depth review of our fourth quarter financial results. With 2022 concluded, culminating in our third consecutive quarter of record earnings, I feel good about what we've accomplished and confident that we can execute the next leg. Before discussing future plans, I'd like to spend some time on the quarterly and full year results. Starting off, we reported another record quarter of earnings at 80 cents per share, while we reported core earnings of 83 cents per share. For the full year 2022, we grew earnings per share 56% to $2.61. Also, we delivered 6.1% loan growth as compared to the linked quarter increasing nearly 24% or $785 million to $4.1 billion over the year. And our net interest income was $67 million for the quarter, an increase $66 million or 37.6% to $240 million over the year. I have spoken often about our commitment to credit quality and the efforts we have undertaken beginning over 18 months ago to better condition our balance sheet against future credit risk. Over the course of the year, non-accrual loans decreased to $22 million, or 0.5% of total loans, and equally as important, credit quality greatly improved. as classified or criticized assets declined by $125 million or 54.3% to $106 million. At the beginning of 2022, we set a macro target of a 1% return on average assets. While modest as an industry peer comparison, this target represented a 25% increase from our previous year performance. Given our improved profitability and earnings power, the return profile of the bank has markedly improved, and our return on average assets expanded 24 basis points to 1.05% by year end 2022. Before leaving our results discussion, I'd like to take a moment now to discuss our fourth quarter deposit metrics. Average deposits decreased by $576 million to $6.7 billion. largely due to the 513 million expected runoff of our political deposits following the congressional elections. The runoff during the quarter was at the high end of the estimate that we communicated during our third quarter call as this election cycle was highly competitive, evidenced by the thin margin of both majorities in Congress. We were very pleased that our political deposits grew to approximately $1.3 billion during the year, And our political deposit trends are interesting as both our high and our low balance points have grown over previous cycles. With another highly contested presidential election already in its early phase, political deposits have started to build already through January. We expect our political deposits to grow steadily throughout the year by approximately $250 million. Also during the quarter, we had some nice non-political deposit wins. and I am encouraged by our deposit pipeline. Although we expect our deposit base, including political, to be more rate-sensitive in 2023 based on a protracted, higher-rate environment, we believe our deposit-gathering franchise and mission-aligned thesis will be a differentiating competitive advantage. Over a year ago, we described the fundamentals of the first leg of our strategy were to accelerate loan growth and improve our profitability, managing our risk exposure prudently, and growing our positive impact on society. Underlying these fundamentals were a set of financial targets that focused on us being the most improved bank in the country for financial performance. The combination of credit profile improvement, lending execution, deposit retention strategies, and our core earnings strength positions us well for a changing economic environment and success as we are on the precipice of our second century as a US banking institution. As we celebrate our full first 100 years, I could not be more inspired by the team we have in place to propel this great bank into its next centennial. The expansion of our lending platform has been a priority for our management team. The lending and credit risk management teams we have built over the last six quarters should continue to deliver results in the segments of the market where we see opportunity to grow, including real estate, sustainability, and not-for-profit. In particular, we believe sustainable lending holds significant opportunity where it is estimated that $3 trillion will need to be invested in the United States to achieve net zero emissions by 2050. This is a significant market opportunity, which we believe will be less impacted by economic or cyclical factors. Our bankers are experts in sustainability and underwriting commercial loans across the sector, such as storage for solar energy, geothermal projects, and biodiesel projects. We also anticipate that the fee increases that we negotiated with our customers last year in the trust business will take effect in 2023. I'm confident that the rolling of our trust business under our chief banking officer will provide the unified customer focus needed to drive better results. Similar to our digital and customer strategy, we see substantial growth to cross-sell banking services to our trust customers and trust and asset management services to our banking customers. As mentioned on previous calls, we will be focused this year on executing our digital transformation. We see a tremendous opportunity to tie our commercial business into a reimagined consumer business and reach through our commercial customers to their members. For instance, if we're doing business with a large nonprofit, we want to attract their members and donors who are naturally aligned with Amalgamated. To be successful, we need to offer products and services that are competitive and meet their needs, as well as enhance the customer experience for both our commercial and consumer customers. To date, we have conducted an RFP for a digital plan, and we expect to make a selection during the first quarter. The combination of our efforts in both marketing and digital were reflected in the fourth quarter expense rate, and we expect to remain constant on those expenses through 2023. We recognize these investments need to be made. As was the case with our lending strategy, we will make disciplined choices funded through profitability with a requirement for timely returns. I am excited moving Amalgamated into its next centennial and the next leg of our growth for good strategy. Our supportive issues that are consistent with the social responsibility of a bank and importance to our employees, our customers, and the majority of Americans will always be core to our mission. I expect continued discussion around positions we have taken, and I understand this and encourage a sensible dialogue to build a better understanding of views. Ultimately, I believe our mission paired with our financial performance this year