Amalgamated Financial Corp.

Good morning, ladies and gentlemen, and welcome to the Amalgamated Financial Corporation fourth quarter and full year 2023 earnings conference call. During today's presentation, all parties will be in 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 2023 earnings call. With me today is Priscilla Sims-Brown, our president and chief executive officer. As a reminder, a telephonic replay of this call will be available on our investor section of our website for an extended period of time. Additionally, a slide deck to complement today's discussion is also available on the investor 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 information or statements. Investors should refer to slide 2 of our earnings deck, as well as our 2022 10-K, filed on March 9, 2023, or 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. 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, and good morning, everyone. I'm happy to discuss our fourth quarter results. I'm so thankful to our employees whose talents and dedication to our company and our mission make winning in difficult situations possible, and for our investors who who clearly see our differentiated business model that enables our ability to rise above peer returns. It is incredibly rewarding to see your belief in our bank reflected in the price appreciation of our stock during the recent months. Thinking about the eventful year of 2023, perhaps what I'm most grateful for is the stability and deep entrenchment we have with our loyal customers who support us when it matters most, like during the banking crisis earlier in the year. One of my favorite stories from that period was when one of our best customers simply told one of our bankers, we're good, and then immediately asked, how are you doing? That level of customer appreciation transcends the standard vocabulary of customer service and is the fabric that constitutes the high quality of our deposit franchise. That is what makes Amalgamated different, and it continues to shine through in our fourth quarter results. Looking at our results more closely, our deposit franchise is a clear competitive advantage as we delivered stellar deposit growth in the fourth quarter driven by our political but also our union and nonprofit segments. Because of our neutral balance sheet strategy, our on-balance sheet reported growth metrics of $171 million show only part of our deposit story. So I'll take a moment to elaborate on some details. Starting with our political deposits, we saw strong inflows of $236 million as the presidential election continues to unfold. This growth is ahead of our historical trends, and we're optimistic that we will continue to see political deposits build through the early fall of 2024. Moving to our nonprofit and union segments, we also experienced deposit strength, posting new to bank relationships of $203 million. Understanding that these sales cycles are long, we're seeing our pipeline grow and we're optimistic as we continue winning sizable relationships over time. In addition to the new-to-bank wins, we also saw nice growth in our existing relationships during this quarter. As we continue to grow, a portion of the new-to-bank deposits are transitional and staged to move to our trust business. Additionally, we are moving out of the accumulation phase for political deposits as we are within 12 months of the 2024 election, and we now treat newly raised political deposits as more transactional with a shorter duration. As a result, and in keeping with our neutral balance sheet strategy, we moved $303 million of transactional political deposits and transitional trust business deposits off balance sheets into our reciprocal network to mitigate the impact of their eventual outflow. We're earning a positive spread on these deposits, which is recorded in non-interest income, and which we expect to continue through the second quarter before these deposits begin to be utilized in the third and fourth quarters. To summarize, we had a strong deposit gathering performance during the quarter with well over $400 million in new deposits. While we recognize these deposit metrics reflect point-in-time balances, we nonetheless are operating in an enviable position of managing deposit liquidity instead of searching for it. In today's highly constrained liquidity environment, we're punching well above our weight, giving us many options to deliver returns that are above peers. And now I'd like to spend some time telling you about what we've been doing with our liquidity and how we are structuring our balance sheet for sustainable profitability and returns. During the quarter, we utilized our on-balance sheet deposits to reduce our much higher cost brokered CDs by nearly $150 million. As a reminder, we have more than $300 million in wholesale borrowings maturing through the first half of 2024, timed to coincide with our political deposit accumulation. This funding mix shift will help us to mitigate further deposit cost pressure and potentially provide modest margin expansion if deposit cost pressures begin to ease. On the other side of our balance sheet, we continue to fund loan growth predominantly from the runoff of our traditional securities portfolio, augmented by select securities sales. As we change the mix of our assets from securities to loans, Balance sheet health will benefit as the portfolio amortization will naturally reduce unrealized loss positions and replace those assets with loans at market rates. It is also worth a reminder that we have sold $550 million of total securities since the second quarter of 2022, and we have been pleased with the beneficial repositioning that has occurred within the last 18 months. Central to our prospective balance sheet structure is the repricing of lower-yielding loans that are maturing. During 2024, we have nearly $225 million in maturing lower-priced commercial real estate loans and a total of nearly $375 million in maturing loans. When paired with our impact lending business, this makes for a terrific opportunity to drive margin expansion and profitability. As discussed last quarter, our margins was reaching an inflection point, and I am pleased that our NEM expanded 15 basis points to 3.44% in the fourth quarter, helped by a 12 basis point increase in our loan yields to 4.68%. Broadly, I couldn't be more excited about our business space of social responsibility and banking. It is a space that we expect to thrive in the years to come, and one where we have a dominant position. As we said on prior calls, the market for climate risk alone is significant, with an estimated $3 trillion of investment needed over the next 10 years in order for the U.S. to achieve a goal of net zero emissions by 2050. The Inflation Reduction Act, signed by President Biden in 2022, is a catalyst as well, as monies are being funneled to critical projects in the renewables, infrastructure, and water segments of the market, all areas that will need additional capital as projects get underway. And this is capital that we are well suited to provide. When paired with our impact lending model, we have a potent ability to bring this specialization to life, accompanied by our deposit gathering performance. Our deposit franchise is truly unique and has stood up to the most difficult of tests with undoubted success, time and time again, and proven once more with some significant segment wins during the quarter. Our ability to perform also leads to sustainable profitability and returns, whether that's in the nonprofit segment where we have only a small share but see an opportunity to meaningfully grow, or in labor unions where we're well-known but still only have a small share of the nation's entire labor market. Amalgamated has something very few other banks have, an undisputed reason to win the ties. Wrapping up, I'm pleased with our results, and we are tracking according to our plan. As we build capital and earning space to strengthen our financial results and the visibility that we have for the year ahead provides real optionality for our management team as we review a wide range of possibilities to enhance our growth profile. That said, we recognize we are less than a year removed from the highly disruptive banking turmoil in early 2023, and we're cognizant of the higher for however long interest rate environment. Patience will be a key theme for us in 2024 as we execute our number one priority to be good stewards of our customers' money. As I always say, we're America's socially responsible bank. Jason, my friend and partner, over to you.