Good morning ladies and gentlemen and welcome to the Amalgamated Financial Corp. Third Quarter 2022 Earnings Conference Call. [Operator Instructions] 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 third quarter 2020 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 Slides 2 and 3 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 and good morning, everyone. We appreciate your time and interest today. This morning, I will provide an update on the success that we are achieving executing on our Growth For Good strategic plan, highlighted by our second consecutive quarter of record earnings. Jason will then provide a more in-depth review of our third quarter financial results. Core tenets of our strategy are to accelerate loan growth and improve our profitability while managing our risk exposure prudently and growing our positive impact on society. Coming into this year, I've spoken often of our desire to be the most improved bank in the country for financial performance metrics. I am proud to say that our quarterly results demonstrate that we are firmly on the right path. In a short few months, Amalgamated will celebrate its centennial anniversary as a U.S. banking institution and I couldn't be more inspired by the team we have in place to propel this great bank into its next centennial. Diving into our quarterly results, I have 4 key metrics to emphasize on today's call. First, we reported another record quarter of earnings, of $0.74 per share, an increase of $0.11 per share, or 17.5%, from the previous quarter, while core earnings increased by an even greater 17.9% from the linked quarter. Second, we delivered 6.1% loan growth as compared to the linked quarter, representing our fourth quarter in a row nearly at or above 5% growth. Additionally, PACE assessments increased $115 million, to $857 million, as compared to the linked quarter which when combined with our loan growth represents very strong asset growth in the quarter. Third, our average deposits increased by $191 million to $7.3 billion, reflecting a strong quarter for deposit attraction in an increasingly competitive deposit environment. And fourth, our strong…

Thank you, Priscilla. Net income for the third quarter of 2022 was a record $22.9 million, or $0.74 per diluted share, compared to $19.6 million, or $0.63 per diluted share, for the second quarter of 2022. The $3.3 million increase during the quarter was primarily driven by an $11.1 million increase in net interest income, partially offset by a $2.5 million increase in provision for loan losses, a $2.2 million decrease in noninterest income, a $1.9 million increase in noninterest expense and a $1.2 million increase in income tax expense related to our increased pretax income. Beginning on Slide 5, exclusions related to solar tax equity investments were a $1.3 million loss on accelerated depreciation for the third quarter of 2022. Because of the income statement volatility associated with the accounting for these investments, we believe metrics excluding the timing impact of tax credits or accelerated depreciation is a helpful way to evaluate our current and historical performance. Core net income, excluding the impact of solar tax equity investments, a non-GAAP measure, for the third quarter of 2022 was $24.8 million, or $0.80 per diluted share, compared to $20.9 million, or $0.67 per diluted share, for the second quarter of 2022. Turning to Slide 7, deposits at September 30, 2022, were $7.2 billion, a decrease of $130.9 million from the second quarter of 2022. However, average deposits for the third quarter increased nicely by $191.1 million, to $7.3 billion. The decline in spot balances was primarily related to the timing of our pension and benefit fund clients' normal payroll withdrawals as well as the first leg of political deposit runoff as the midterm election in early November nears. Noninterest-bearing deposits represent 56% of average deposits and 54% of ending deposits for the quarter ended September 30, 2022, contributing to an…

[Operator Instructions] Our first question is from Alex Twerdahl with Piper Sandler.

First off, I was just hoping, Jason, you can kind of just walk us through the moving parts in the balance sheet. We’re expecting the political deposits to flow out in the fourth quarter, as you said. Is the expectation to replace that with borrowings temporarily? Or do you have enough cash flow from the securities portfolio to offset at least some of that outflow?

Thanks, Alex, for that question and great to talk to you again. So yes, I think there'll be some level of uses of short-term borrowings. We still have a fair amount of cash to deploy. We've timed our resale agreements, there was roughly $200 million of that at the end of the quarter, to mature during the first half of the fourth quarter. And so we'll be using that to match off against the political deposit outflow. And then the spreads on the securities portfolio, they've certainly gotten wider which has made it a little bit tougher to sell at a place where we think is appropriate from a loss-taking point of view. So likely, we'll look to short-term borrowings to fill the gap while the political deposits exit the bank. And then if things go as we're hoping and expecting, as deposits begin to rebuild in the first quarter on the next political cycle we'll look to move the short-term borrowings off the balance sheet. So that’s pretty much kind of the direction on how we see the balance sheet working for the fourth quarter and what we think we’ll be doing heading into the first quarter.

I just want to add to that, Alex, I think you know this, I know you know this, political deposits continue to represent less than 17%. In fact, they declined slightly in the quarter. And in fact, as you look at net new deposits, net new nonpolitical deposits, we saw that across all of our customer segments but primarily in the sustainability area. So we do think there are also ways to offset that across other customer segments.

That’s great. Are you able to – with some of the lenders that you’ve brought on and presumably talking to new customers, is there a deposit opportunity presented through them as well?

Yes, that's right.

So the relationship bankers are exactly that. The idea really is not to be transactors. We're looking for key banking relationships. And ordinarily, we're looking for deposits to come along with lending opportunities. And also, just a reminder, we still have a fully built-out deposit-gathering franchise that focuses mainly on deposit-based customers as well. So the mix between the lenders and gathering-deposit relationships as well as our existing franchise should be in a really good spot to continue to drive deposits that are outside the political base that Priscilla is referring to.

That’s great. And then historically, your deposit betas have been pretty low. And I know you alluded to them possibly going higher, as we’re expecting from everybody. I’m just curious if you’re seeing anything or hearing anything different from your customers this cycle relative to the last cycle, just given how quickly rates have increased and maybe they’re a little bit more visible this time around.

Well, you know what, maybe I'll just start out by mentioning that DDA makes up about 56% of our deposits. So we still have a low sensitivity to rate rises relative to industry peers in the market. And as you know, Alex, back in the 2017-2018 period and the rate rises there, our deposit beta was only 3%, compared to the market at around 20%. So we don't see a reason currently why our betas should behave differently from past rate rise cycles, because our customer mix is essentially about the same.

And then I'll add to that, we poll our sales leadership, poll the customer-facing bankers on a regular basis. Our executive leadership is virtually daily now in touch with sales leadership regarding customer feedback and kind of sensitivity to rates. And so far, it's still been relatively benign. There hasn't been an incredible calling out for rising rates. Now that's sort of at the center. On the margins, there definitely have been some exception pricing that we've been thinking about in order to satisfy certain customers. But in general, we've tried to be proactive. So as rates have risen, we've done some repricing in each of the first and second quarters. And we think that that's been a nice offensive defensive move to make sure that customers don't feel like they're missing an opportunity elsewhere. And as rates continue to rise, we're anticipating being a little bit more aggressive in repricing strategies to continue to kind of follow the rates up and make sure our customers feel appropriately compensated for their deposits.

Great, that's excellent color. And then just my last question is just I think you alluded to in the press release and have talked in the past about how some of the commercial real estate success that you've had has been offset by allowing some loans that maybe were not fully to your liking to run off the balance sheet. And I'm just curious if that, the loans that are maybe ones that you didn't want to pursue for the refinancing, if we're to the point where maybe that piece of the pie is done.

We're getting much closer to that being done. And I think maybe I'll point out that we had another pretty decent sized quarter of what I kind of call treadmill effect, where we had increase in the -- like, take the multifamily portfolio, for example, we've had an increase in the net portfolio balances. But the reality of it is we had about $91 million of originations in the portfolio during the quarter to offset about $57 million, $58 million of payoffs or runoffs that we're allowing on select credits. So all of that you should be seeing in the corresponding criticized assets improvement. And we’re down to, the delta that we’re measuring, we’re down to about $70 million between what’s left in our classified and criticized versus our total nonaccruals in the commercial space. And within that, there still is an opportunity for continued improvement, although that margin is shrinking. So as we get a little bit further, probably out past the fourth quarter, I would expect that we’d be in a spot where originations would really be balance sheet opportunities for us. I think the one thing to also note is that because of the amount of opportunities we’re generating in the pipeline right now, we definitely have the opportunity here to be a little bit more choosy than we’ve been in the past. And so credit quality on an ongoing basis is extremely important to us and we’ll be managing our opportunities relative to the credit worthiness of the deal and maybe even a little bit closer than historical if the liquidity market continues to tighten up a little bit.

Our next question is from Chris O'Connell with KBW.

I wanted to start off on the margin here, given the political customer moves this quarter and the expectations for next quarter. Obviously, very strong NIM improvement in 3Q and good outlook on the overall kind of NII guide. But just given how large the flows are and some of the earlier questions, I was hoping you could provide a little bit of color around how you see the margin moving over the 4Q and into the 1Q environment.

I'm happy to take that, Priscilla, if that's okay. So in terms of margin, I think there's still room for expansion. I don't see margin expanding in a dramatic fashion like we had in this quarter, probably nowhere near that, heading into Q4. Mainly, I think you'll see top line improvement in the margin as we continue to benefit from the rate rises. We're modeling in another 125 basis points between the November and December Fed meetings. And so I think with our asset composition mix, we'll still see some margin improvement on the top side. But we are expecting some corresponding increase on the interest-bearing side simply because of what I was referring to earlier with Alex, that we'll probably end up looking a little bit more at short-term borrowings to fund some of the loan growth or some of the deposit outflows that will happen in the fourth quarter. And so I think, generally speaking, the impact will be fairly neutral to the margin, maybe a slight improvement overall. And I think NII would follow very similarly in the fourth quarter as well. Moving into Q1 and forward and we'll give more guidance for what 2023 looks like when we do our fourth quarter call when we normally give guidance but looking at Q1 and forward, again thinking a little bit about the political cycle, historically, there's been a nice rebuild of deposits that have started the first quarter after a significant election. And obviously, midterms would qualify as one of those. And therefore, if we're able to move some of that new liquidity against the borrowings, we should be able to see some margin expansion again in the first quarter of 2023. And then beyond that, I'll reserve until we update you on full year guidance in 2023.

Got it. And as far as the increasing betas in general on the deposit side, I mean, 25%, I think, was maybe what you were using for the full cycle before. Is that still similar to what you're thinking about now? And can you just remind us is that total deposit or interest-bearing beta?

So it was interest-bearing beta and, generally speaking, with a greater than 50/50 DDA to IBA mix or MMA mix. We typically on total cost of funds, just as a rule of thumb, say about half of that is our total cost beta. But 25% was on IBA. I think the rates have certainly risen very, very rapidly, maybe even more rapidly than we were thinking back when we gave our past guidance. So we're now looking at, on a model basis, about 33% beta going forward for the next at least 125 basis points of rate increases. Now again, that's just sort of a -- that's a number. Obviously, it will blend its way out. There's CD repricings and other things that need to occur. But that's sort of a top line number for beta as we're thinking about it.

Got it. And then on the loan portfolio, was there any residential mortgage purchases this quarter?

Yes, there were. Thanks for asking that. We had a decent amount of growth again in the resi portfolio but the majority of that, about $65 million, were purchased pools that had specific CRA credit qualification and specifically in markets that are outside of New York where the bank can use additional CRA credit. So we sort of opportunistically found pools. We had been working on them in the second quarter and we felt it was an appropriate time to make those asset purchases. I do not see us making any further purchases in the fourth quarter and we'll relook at what we're doing in the purchase side of our resi portfolio for 2023 and update you on that next quarter.

Got it. And then switching gears to the credit side, can you just talk a little bit about what you’re seeing in the solar lending portfolio and what kind of yield you’re getting there and just the overall outlook that you have in terms of credit quality and kind of risk-adjusted returns given this portion of the cycle? And just remind us, like, if that’s floating rate and maybe what the spread is there.

Absolutely. So I think we're now up to around and this is specifically in the consumer solar, we're up to about $420 million of consumer solar book balances. I think we're pretty close to where we want to be in that portfolio right now. I would expect to see that decline in terms of growth, certainly heading into Q4. Generally speaking, the consumer solar flow, we do that through now 3 different arrangements. 2 of those arrangements we've completed our quota. We pulled through as much as we could earlier on in the cycle so that we weren't buying into the fourth quarter. And then we still have some remainder with an additional provider that will be probably far less than what you've seen in terms of the volume that we put on throughout the first 3 quarters of the year. As they've been coming on right now they're about 6.75%, 6.50%, somewhere in there. I think it was a little bit lower as we brought them on during the quarter but the more recent purchases have been 6.75%. And we closely look at the charge-off rates on those portfolios. And generally speaking, it's been between 75 basis points and 1% on the charge-offs and we think that the risk-adjusted return is appropriate for those assets. The majority of the purchases are in a fixed-rate position. So as we buy them, obviously, they're locked in. But I think, in general, again, we're in a good spot relative to our consumer solar appetite right now. The charge-off trend has been pretty steady. If we look at it through the NCOs, it's been a very, very stable number over the past 4 quarters and we think we're adequately covered from an allowance point of view should anything else tick up on us.

Okay, great. And then on the expense moves this quarter, I guess, like, a little higher than I had anticipated. Wondering if you could go through any drivers there and if there's going to be any offsets into the fourth quarter here and just, in general, how you guys are thinking about expense growth, as I know you have a number of initiatives and kind of growth build-outs coming on over the next few quarters.

Happy to take that. I think, categorically, we were pretty tight quarter-over-quarter on most expense lines. The obvious drivers this quarter were really in our comp and benefits and in our professional fees. So I'll take a quick run through on the comp and benefit side and then I'll touch on professional. Comp and benefits, there was an expected increase, at least through our lens, coming in the third quarter as we've rounded out our executive hires, we did a bunch of hiring towards the end of the second quarter and on through the early part of the third quarter, as well as filling out the remainder of our staffing plan for 2022 which largely included the rest of the sales bankers. So we started to see the first full quarter of true salary expense flowing through. There are other elements that have gone through that I consider more transitory in nature. Some commission expense was a little bit higher, as it trailed on some of the mortgage production and the annual bonus accrual increased a little bit as well. There were also -- as part of our hiring processes, we've been -- as the markets kind of require, we've had some sign-on, some retention bonuses that have flowed through in the quarter. And so I think those 2 items, meaning, like, in the compensation or the incentive compensation and the sign-on and the recruiting bonuses, those to me are transitory and I don't see those kind of following us through. So the number that we're sort of at right now, I think that's a good number to look at for the fourth quarter as we kind of fill out any last remnants of our hiring practices into the fourth quarter. And then on professional fees, I think there's 2 things here. Number one, we've used some outsourced firms to help us finish up on some compliance and audit-related requirements as we get towards the end of the year. And additionally, we've stopped taking ABOC expenses as noncore, given this far away from that particular transaction. There was a little bit of tail expenses that pulled through that we've just got in the normal run rate that I wouldn't expect to see coming forward as well.

Okay, great. And then lastly, I may have missed it in the opening comments but was there any share repurchases this quarter? And can you just update us on how you're thinking about utilization, going forward?

There was a very small amount of share repurchases this quarter. We deployed about $700,000 in repurchase activity. We still have our share repurchase program and availability open. There’s still about $28 million on that. However, I think as we look out to the economic forecast and also look at some of the continued volatility that’s happened in the interest rate market, being a little bit prudent on capital deployment and making sure we have a balanced approach towards our tangible common equity I think has become a more important decision point for us. So not saying that we’re backing away from share repurchases at all or that we think our stock is expensive, that’s not the case. But again, looking at volatility and being unable to predict that and also knowing that we have CECL upcoming, we’ve been a little bit more cautious, or maybe I’ll use the word “prudent,” on capital in the quarter to make sure that we’re keeping ourselves in our target ranges of about 6% TCE and having appropriate capital available for a CECL build if market conditions worsen and then we need to deploy more capital against that when we adopt in 2023.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Priscilla for any closing comments.

Thank you, Operator. And most of all, thank you all on the line for your time today and for your continued interest in the bank. We really do appreciate your questions. We know that we'll be following up with some of you over the coming days. We are excited because we like talking about our optimism for the future of Amalgamated. We’re also thrilled to see the tangible results of our strategy translate to another quarter of record results. Importantly, we are not standing still and we remain excited with the many opportunities that lie ahead of us as we work to grow Amalgamated through $10 billion in assets. Thank you again for your time and we look forward to continuing the dialogue.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.