Amalgamated Financial Stock

Good morning, ladies and gentlemen, and welcome to the Amalgamated Financial Corporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions] 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 2. 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 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&A portion of today's call. We'll 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. The bank has delivered outstanding results this quarter, including record net income of $34.8 million, core net income of $33.1 million, 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 million and revenue per share exceeded $3 for the second consecutive quarter. 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.

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 million, or 3.4% during the quarter, to a record $8.5 billion, highlighting the continued and differentiated performance of our deposit-gathering franchise. Political deposits increased approximately $212 million to $2.1 billion. Labor increased $30 million. Social and philanthropy deposits increased $55 million. And off-balance sheet deposits were over $1 billion. This deposit-led growth strategy provides unparalleled flexibility to shape our balance sheet.

The 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 million during this quarter, while loans in growth mode commercial lending increased approximately $155 million, 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. 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. 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 of this quarter provide further evidence the strategy is working.

As Priscilla noted, revenue reached approximately $98 million, 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. Combined with approximately $461 million of average deposit growth with remarkably stable cost, commercial loans, PACE assessments, and traditional securities totaling $276 million were added at attractive yields and nongrowth loan portfolios generated approximately $39 million 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. Criticized and classified balances declined by approximately $9 million. And pass-rated loans continue to represent approximately 97% of the total portfolio. 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.

So 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 million to a new range of $338 million to $340 million. For core pre-tax pre-provision earnings, we are increasing our outlook from the prior high-end target of $185 million to a new range of $188 million to $190 million. 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. We also believe we've got 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 look forward to updating you in future quarters on our progress on AI adoption, utilization, and agentification as we move towards scalable efficiency.

And now we're ready for questions.

[Operator Instructions] Our first question comes from the line of Justin Crowley with Piper Sandler.

I 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.

Yes, 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 -- excuse me, this quarter. Look, $115 million, great story, but the $155 million in growth mode from our commercial production 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 million we were 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 securities portfolio to continue driving that NII growth. And look, 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 the bank really being able to be harvested here.

I think I'll just add 1 or 2 other things. The target, we like the high end of our sequential growth range. We've been saying 1.5% to 2% net loan growth on a quarterly basis, I think we're going to be closer to 2% for Q3 and Q4. 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.

Okay, great. That's super helpful. And then I guess just to pivot then, just on the margin, you called out the prepayment penalties at 3 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?

It was about the same amount. So, the 3 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 moment.

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 year? I know the average balance sheet may be impacted particularly in the fourth quarter. And 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 were able to deploy the asset generation that Sam was referring to earlier. And we pulled forward, I think, some margin and NII into the current quarter 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've 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 a pretty stable, modestly upward trajectory from here. Margin also should be moderate, 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 you should start to see improvements again or growth trajectory again in the NII, the earnings overall, and the margin.

Okay. And then what is kind of related to that, what's kind of the right way to think about that balance sheet impact, maybe on an average basis, you know, as we get towards the end of the year, as you kind of, you know, use that off-balance sheet source to kind of, you know, fill the hole, if you will.

Yes. So I think the way to think about the balance sheet, we have a target for $9.6 billion 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, 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 0 and leverage would be 0 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 $9.6 billion with very little off-balance sheet and also very little to no debt or leverage.

Okay, so does that kind of imply that you try to keep the average balance sheet? 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 to probably under 1% on an average basis in Q3 and in Q4. But generally, that's the back half of the year. There's going to be a flattish, much more stable trajectory on the balance sheet size, 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.

Okay. Got you. That's super helpful. 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?

I think it's a little bit more of the latter. It's growth off current levels. We do expect to see expenses continue to increase in Q3 and Q4. I would target $49 million in each of those 2 quarters as a general benchmark for where we're trying to finish the year, that would naturally push up our total expense guide from the $188 million we've been talking about to around $190 million.

But when I talk about what's going to 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 build 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. We think that'll be great beacon for the bank going forward, but there will be an expense impact that we're expecting in the fourth -- in 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 build-out we have in the technology infrastructure, our back office system and compliance, and also some additional compensation-related expenses. So overall, I think the trajectory will continue to include although there will be a little bit of trading between one-timers and future quarters versus continued layer of 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 is any of this related to just gearing up for being a $10 billion bank at some point?

Well, actually, those investments have been made over a long period of time. We've been planning on $10 billion 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. The 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 in 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 billion or we've been investing in the risk areas of the bank now for quite some time.

Our next question comes from the line of David Konrad with KBW.

Jason, I have a question for you. I know there's so many moving parts in the next couple 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. So we brought on about $250 million 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 4.10%, 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 can see that as being something that we could reach over time as realistic as it is.

Yes. That makes sense. Okay. And then maybe, Sam, the world seems to be changing this year quite a bit. Just maybe some thoughts, high level, on clean energy demand and, you know, is that increasing now in this environment and your thoughts there?

Yes, 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, you know, our role in financing that demand is still very strong. If you look around just a couple, I think 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 production in renewables. But the total need is estimated to be about 225 gigawatts. And that really excludes even the 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 of 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 to 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.

That will do it for me. I have no questions on credit this quarter.

Great, David.

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, and we remain focused on delivering long-term value for all stakeholders. 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.

Good morning, ladies and gentlemen, and welcome to the Amalgamated Financial Corporation's First Quarter 2026 Earnings Conference Call. [Operator Instructions] 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 2. 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 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&A portion of today's call. We'll look forward to your questions and try to limit repeating details you've already reviewed in the earnings materials. I'll now turn the call over to Priscilla.

Good morning, everyone, and thank you for joining us. I want to begin by thanking our colleagues across the bank as always for their continued focus and execution and our customers and shareholders for their trust and partnership. Overall, we delivered a very strong first quarter that underscores the strength of our balance sheet and purpose-driven model.

We grew net revenue by 9.7% to $93.4 million. We expanded net interest margin 9 basis points to 3.75%, increased on-balance sheet deposits, $229 million to $8.2 billion and maintain strong Tier 1 capital at above 9.3%. Before commenting on the additional reserves we took this quarter, I'd like to dive into our results just a bit deeper.

Our deposit franchise continued to perform exceptionally well with broad-based strength across our core segments. Political deposits increased $133 million to $1.9 billion as the midterm elections approach. The labor franchise generated $106 million of growth, and not-for-profit deposits grew $115 million. Deposit mix was also improved with average noninterest-bearing deposits increasing to 41% of total deposits.

Finally, super core deposits are approaching 60% of total on-balance sheet deposits, demonstrating the stable, durable funding that is unique to Amalgamated. We chose to keep more deposits on balance sheet this quarter to drive core net interest income as the portfolio repositioning from selling lower-yielding securities is largely behind us. We plan to manage through the midterm election cycle with sufficient off-balance sheet deposits to absorb expected political deposit outflows after the elections which should result in no borrowings post election.

Loan growth was solid with net loans up approximately $66 million or 1.3% led by strong commercial real estate lending production. Loans in our growth mode categories, C&I, commercial real estate and multifamily grew $109 million or 3.3%, reflecting solid originations, healthy mission-aligned demand and continued credit discipline.

Our PACE portfolio also expanded with total assessments of $15.8 million of 1.2% and bringing our PACE portfolio to approximately $1.3 billion.

Now let me briefly address the additional reserves we took in the quarter, and Jason will have some further details as well. Included in our results was an incremental $9.2 million provision tied to a single borrower multifamily relationship that moved to nonaccrual during the quarter. The underlying collateral supports our position, and we are aggressively pursuing resolution options to preserve and optimize value. We view this as an isolated event with one borrower, which does not change our performance outlook.

The reserve build impacted earnings per share by $0.23 and yet we delivered solid core earnings of $0.80 per share. With the momentum we saw in the quarter, we are focused on executing and delivering on our revenue and earnings targets over the balance of the year, and you will see our optimism when Jason discusses our guidance increase in just a few minutes.

Looking ahead, our strategy builds on who we are and why customers choose Amalgamated. Mission-focused organizations and individuals who seek confidence that their capital is responsibly aligned with a partner who shares their purpose. That focus resonates nationally with customers in every state enabling relationship-based banking and efficient growth within our model. We see real opportunity to expand thoughtfully and consolidate market share in our core segments as we continue investing in people, infrastructure and technology to support disciplined profitable growth, including progressing past $10 billion in assets.

Now I'll turn the call over to Jason.

Thank you, Priscilla. I'll keep things moving so we can get to Q&A.

On Slide 3, net income was $25.2 million or $0.84 per diluted share while core net income, a non-GAAP measure, was $24.1 million or $0.80 per diluted share. The GAAP to core difference was driven primarily by strong off-balance sheet income as ICS fee income increased $1 million versus the linked quarter. And we anticipate ICS fee income will be strong throughout 2026, and we also plan to keep more deposits on balance sheet to build the bank's core earnings power.

Net interest income increased 3% to $80.2 million, in line with our quarterly guidance. Additionally, our net interest margin expanded to 3.75% driven by higher-yielding commercial loan originations and modest reductions in overall funding costs, though, we expect our net interest margin to moderately decline in the second quarter related to balance sheet growth.

On Slide 4, core noninterest income increased $1.1 million to $11.2 million, primarily from higher commercial banking fees and also $0.7 million of discrete BOLI income. Noninterest income has continued to deliver solid growth over the past year, reflecting meaningful progress towards our 85/15 diversification objective. Expenses decreased $0.5 million, while core expenses increased $0.3 million to $45.3 million. The rise in core expenses was mainly due to branch renovation and relocation costs and professional fees partially offset by a decrease in advertising expenses.

Core expenses are tracking to our $188 million full year target. Our core efficiency ratio improved to 49.55% demonstrating profitable scale and keeping us on track to deliver our 2026 goals.

Now despite the reserve increase headwind, I'll address shortly, the quarter showed continued momentum and resilience across key metrics. Tier 1 leverage remained strong at 9.33% and revenue per share exceeded $3 for the first time in the bank's history. Illustratively, excluding the reserve build, return on average assets would have been 1.41% and return on tangible common equity, 15.76%. And while the setback is clear, we remain encouraged by our trajectory and the strength of the franchise value we've built.

Now let's go to Slide 10 and spend some time on credit quality. Last quarter, we discussed one borrower in our D.C. market that showed stress related to their use of the Section 8 Rapid Rehousing program resulting in increased reserves of $1.9 million across 3 loans and a related $10.3 million increase in nonaccrual multifamily loans. There were also another 3 loans totaling $26.2 million with this borrower and a minority interest sponsor that were moved to criticized status. At that time, we were working with this borrower and the minority sponsor to restructure this portion of their portfolio.

Before we closed the first quarter, the borrower indicated an expected default resulting in the classification of all 10 loans within the $78 million relationship, which included the 4 remaining performing loans of $41.5 million. Additional specific reserves of $9.2 million were established across the relationship at varying levels based on loan level assessments, including consideration of collateral values reflected in third-party appraisals, occupancy and in-place cash flows. Reserves on this borrower relationship now total $11.1 million.

We are evaluating resolution alternatives, which may include foreclosure, note sales or other exit strategies, and while the bank has not historically taken title to foreclosed properties, it is prepared to do so if necessary, and we'll engage an experienced third-party property manager to preserve and maximize value prior to disposition.

As a result, nonperforming assets rose to $99.3 million or 1.08% of total assets, while criticized and classified loans increased $51.6 million primarily related to downgrades on the single borrower, I just discussed. The allowance for credit losses increased to $68.2 million, representing 1.35% of total loans, providing appropriate reserve coverage.

Excluding the provision increase discussed above, the provision expense would have been $4.2 million, primarily driven by expected consumer charge-offs and adding a specific reserve on a multifamily loan that moved to nonaccrual status during the quarter, offset by credit losses releases due to lower required reserves on C&I and consumer loans.

In keeping with our practice of helpful disclosure, we have added a slide on Page 12 illustrating our D.C. Metro area real estate exposure. We believe this situation to be borrower specific and we'll be happy to answer follow-up questions.

I'll wrap up by turning to guidance on Slide 13, where we are raising our targets. Net interest income target is raised to $333 million, and core pretax preprovision earnings target is raised to $183 million. This guidance raise is connected to our new annual balance sheet growth target of approximately 8% for 2026 as we derive more core earnings power from deposit gathering. We anticipate this to have a powerful and sustained positive impact on NII growth, and we estimate net interest income to increase to between $81 million to $83 million in the second quarter.

I do want to close on a positive note because we've accomplished a great deal. And even as we work through the specific challenge, our fundamentals are strong. We've delivered consistent revenue growth, exceptional deposit gathering, continued loan growth, disciplined cost management and solid capital, all of which keep us confident in our ability to deliver on our targets for the balance of the year and into the future.

We're now ready for questions. Operator?

[Operator Instructions] Our first question comes from the line of David Konrad with KBW.

I've got a few questions here. One on the credit, obviously. Just talk a little bit about -- I mean two questions here, a little bit about your comfort with loan-to-value of about 85% on this relationship and maybe closer to 60% on the rest of your D.C. exposure. So as you work through this, a, do you think you have enough margin here with that loan to value? And then, b, this is probably a more difficult question, but any idea on any thoughts on the strategy like timing of resolution, what we should expect over the coming quarters?

Sure. David, it's Jason. I'll answer the second question first and then talk a little bit more about the LTVs. From a resolution perspective, it's difficult to say because the news is fairly new to us, and there are ongoing negotiations with the borrower that have since been changed. So where this will end up from a resolution perspective, I don't have the best answer for you in terms of predictability. But what I can say is the reserving that we took for the current quarter was really designed to limit any volatility that you might see going through the P&L into future quarters.

And if I think about broadly how timing might play out, we talked last quarter about this borrower relationship and where it was heading and there were 3 loans that were classified as nonaccrual at that point in time, totaling about $10.3 million, those would probably be the most likely to resolve sooner. The other ones where there is better collateral value and the bank is considering pursuing foreclosure amongst other options, there may be a longer tail on that, but I am confident that the volatility through the P&L will be well contained with the amount of reserves that we put up in the current quarter.

And maybe that leads into the answer now on the valuation. And we think of this borrower relationship and we -- they are best to carve it out of that D.C. profile that we provided for investors in the earnings deck. So we think of this as a separate situation from a value perspective. If I look broadly across the relationship, it's 10 different loans that total $78 million, four them or $41 million were performing status before we received notification of the intent not to pay.

So the reserve that we put in place that now totals $11 million effectively gets us to that 85% valuation. And we think that we took a very conservative approach with that valuation at this point in time for the purpose of making sure that we accounted for cost to sell or other types of embedded expense that might be recognized in relation to the situation that we're going to have to deal with here for the next few quarters. But the reality of it is we think that, that reserve is pretty well contained at the moment.

I wouldn't say that it's evenly distributed across all the loans. I think it's more weighted towards some of the loans that we previously disclosed and what I also hope is that, that allows for us to have staged exits to the property situation as time unfolds.

Okay. That makes sense. Maybe moving to better news, the outlook -- the improved outlook. Net interest income for the full year, the net $331 million to $333 million range, just wondered, Jason, if you could break down a little bit on the guide in terms of how you think both NIM will progress through the year, but also the balance sheet side as well? I mean you talked a little bit about that going into next quarter.

Certainly. Yes, I think the balance sheet size, let's start there because that will be a key driver of how the margin will ultimately start to play out. But the balance sheet ought to end up on a spot basis at around $9.6 billion. It's potentially moved around a little bit, but that's moving up about $400 million from our original target. So we had originally targeted 5% growth going to $9.2 billion. We're now targeting $9.6 billion by the end of the year or around 8% growth.

Now we've gotten through a fair amount of that in the first quarter or the first quarter alone, the balance sheet grew to about $9.2 billion, and that was about $400 million of growth right there -- I'm sorry, $300 million of growth right there. So we're going to start to see the benefit of that asset expansion rolling through NII. We've projected $81 million to $83 million of NII for the second quarter, and we expect that to ramp upward as we continue to go throughout the year.

And so as I think about the margin, we will see a little bit of compression when we get into the second quarter. There'll be a little bit of nonaccrual impact from the loans that we've just discussed that we'll have to bake into the margin. But as we continue to move throughout the year, we're expecting to see it expand and expand modestly from where we are today. I wouldn't expect it to be materially different, but I do expect it to expand to be modestly above where we are today after accounting for a slight reduction or compression in margin in the second quarter. I don't know if I got everything there. Was there a follow-on you wanted to ask you on the guidance?

No, no. That was perfect. And maybe the last one for me is just the fee income outlook as well with some of the changes there.

Yes, fee income. We're actually quite happy about that. It's been gradually but noticeably growing. I think where we are throughout the rest of the year is going to be ratable to what we saw in the first quarter on a core basis with modest improvement. The GAAP number was a little bit higher because of the fact that we had nice ICS income, and we had a little bit of BOLI that was discrete benefit that we received. But overall, I think we're looking at just about $9.8 million to $10 million per quarter in fee interest income, and that will be evenly distributed across nice growth in Commercial Banking and continued acceleration of trust-related revenue as well.

Our next question comes from the line of Justin Crowley with Piper Sandler.

Just wanted to go back to the multifamily relationship that migrated in the quarter. Can you give a little more detail on what was so unique or isolated about the situation and with this borrower, and just what gets you to a point where you're feeling good about risk in the rest of the portfolio?

Justin, we're going to be somewhat limited, obviously, as we are in the midst of negotiations with this borrower on talking about it in too much detail, though, I'm sure you'd love to know more. You can understand where we are on that. I guess I'll just start by reiterating some of the points we've made, which is this reserve build and nonaccrual increase is driven by this one single borrower event primarily. And what happened was pretty clear. It was a notice of intent to default which occurred after the quarter, but before we closed the books.

There was no broad portfolio weakness. The notice triggered an accounting requirement that moved additional previously performing loans into nonaccrual. And then the borrower does have ties to D.C. Rapid Rehousing and Section 8 programs as well, but management really wants you to clearly understand that this was the borrower's behavior and financial condition as the driver, not the subsidy program itself. We reviewed the exposure across Rapid Rehousing more broadly. We looked at exposure across the broader D.C. Metro profile. And when I say that, I mean not just D.C. directly, but the states surrounding it.

So we really, really looked carefully at that whole kind of Metro area to see whether there were any other sort of similar characteristics. We also, as you know, have provided quite a lot of detail on our New York portfolio in the past. That's still there. We looked at that real carefully. We looked at California, albeit a smaller portfolio. We found very little, and we certainly see no -- we see limited migration just outside of this relationship in any of these other areas besides what we've disclosed.

I would also just say that the reserves were established conservatively upfront to limit future P&L volatility. But we also want to retain flexibility to pursue an exit, an accelerated resolution, if that proves to be the right thing for preserving value for shareholders. Sam and Jason, I don't know if there's anything you want to add to that?

Okay, this was -- I mean -- yes. I mean -- so this -- it wasn't specific to the Section 8 housing program. This was more borrower specific in terms of what has driven the weakness in the situation.

Rapid Rehousing and Section 8 are different. Section 8 is a federal program. Rapid Rehousing is a city program which is established to take people generally off the street and give them housing temporarily under a year. And that's what we looked at really carefully. We looked again at all of the Rapid Rehousing relationships we have. This borrower certainly had an overdependence on the program. But the issues here were specific to the borrower himself, his own behaviors and his own financial condition.

Okay. Got it. And then I guess, shifting gears a little. On political deposits, you saw the increase for the quarter, a little bit of a slowdown from last quarter, but still moving higher. Just wondering if you could provide some color on what you're seeing there and how you think that trends as we head into the midterms later this year?

Yes, [ Sam ], I'll ask you to address that, but what I will say is, Justin, as you've observed and you've seen it in our deck, there's a general trend that continues to follow on each cycle, which is it builds over time, each trough is bigger than the trough before it. So they keep climbing, the low point's bigger than the low before and the high point is bigger than the high point before. And we don't see any indication that this will be different. And Sam, I don't know if you have any other...

Yes. Justin, it's Sam. I would just add a couple of quick points. I think you're exactly right that we see these political deposits very much on track with prior trend. We're very pleased with our ability to have demonstrated all the way back to 2018, the predictability and the repeatable nature of how those deposits come in and out. And at $133 million, certainly excellent growth, that would also just point you to the really strong diversified growth across all of our segments that contributed to this. Certainly, same political, labor, nonprofit, all contributing over $100 million to our base, really smooths those ins and outs out and have contributed to quarter after quarter, how our great team has been able to continue to grow the book.

That's a great point, Sam, because it's been the trend for quite a while now. We really are seeing strength not only in additional deposits to existing clients, but also new clients across segments.

Okay. Got it. I appreciate that. And then just on loan growth. A lot of that once again coming from the multifamily side, is that like -- is that an area that you think continues to drive loan growth from here? What's the right way to think about that complexion as we get through the year?

Yes. Great question, Justin. We're really pleased with the pipeline we've got ahead of us. Certainly, at 250% RBC, we still have a lot of availability under a concentration limit. The pipeline has a lot of -- there's plenty of exposure for market rate from strong mission-aligned subsidy programs like those that benefit from 421-a in New York, all with really tightly underwritten financial metrics, ratios and also, we've got a lot of addition of enhanced structural protections that reflect our elevated standards as we continue to grow the company.

So I think you'll see strong growth, strong risk metrics, and we're going to continue to keep going in all the ways you would want to see us perform.

Yes. So I'll just quickly add. I think the targets that we set out about 1.5% to 2% sequential loan growth in the net book, we're prepared to stay with those targets. We think they're very appropriate. Obviously, we're balancing between our growth in those portfolios and those that are running off. So we'll expect to see a little bit higher growth rate just in the portfolios of C&I, multifamily and CRE versus the net book. And then we still have our PACE portfolio targets as well, Justin.

So you should think of those as complementary from a growth perspective on the asset side, and the opportunity for the bank to continue to have balance in loan generation is something that we are very focused on. So we did have a nice quarter with multifamily. We expect to see a little bit more balance between our C&I and multifamily portfolios as we move throughout the balance of the year to help meet those targets.

Okay. Great. And you mentioned on the PACE side as you continue to add to that portfolio. And I think in the past, you talked a lot about a lot of potential, specifically in the CPACE area. So -- and I think you have talked at length about the partnership that you're in. So just curious how you're thinking about growing that book as that business ramps higher?

Yes. Justin, it's Sam again. CPACE has been really tremendous for us. You obviously saw a really nice number in the last quarter. You saw more growth this quarter. We really like the pace at which those assets are coming on, no pun intended. That announcement of that partnership with Electrify in October has been very strong. We're seeing a lot of contribution to the pipeline for that. And I think you're going to see this continue to be a strong component of how we're going to grow the asset base, and we're picking up some nice yield growth over the quarter as well.

We have no further questions at this time. Ms. Sims Brown, I'd like to turn the floor back over to you for closing comments.

Thank you, operator, and thank you all for listening in. As we step back and think about the quarter, we feel that it was a very strong quarter. We delivered solid execution across the franchise, which allowed us to favorably revise our guidance. We're building on a consistent pattern of quarterly outperformance. Our financial and capital position remains strong. Our balance sheet is built to withstand adverse scenarios and at the same time, we're well positioned for accelerated disciplined growth.

And just as importantly, this quarter reinforces our risk discipline. When we identified an issue, we acted early, we acted conservatively. We expanded the disclosure to you and we confirm that the impact is contained without losing momentum anywhere else in the business. That combination of performance, discipline and capital strength is exactly how we are positioning the bank for the long term.

We thank you for your support, and we look forward to answering your questions after this call.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Good morning, and welcome to the Amalgamated Financial Corporation Fourth Quarter 2025 Earnings Call. [Operator Instructions] A replay of the call and accompanying slides are available on our Investor Relations website. Please review the forward-looking statements and non-GAAP disclosures on Slide 2. 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 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&A portion of today's call. We will be continuing with shorter prepared comments this quarter to get to your questions faster and avoid repeating details you've already reviewed in the earnings materials.

I'll now turn the call over to Priscilla.

Good morning, everyone, and thank you for joining us. 2025 is in the books and Amalgamated shine brightly. I have to start by expressing my deep praise and gratitude to all my amazing colleagues at the bank. You are builders, creators and advances of our mission to help those who do good, do better. We offer unwavering support to our customers. We admire your courage and conviction to serve, and we feel privileged to be your banking partner. And to our shareholders, thanks for believing in us and in our business model. You are the capital engine that makes us go and grow. I'll get to more on growth in a couple of minutes, but first, I want to start by recapping another excellent quarter for Amalgamated.

Core earnings was $0.99 per diluted share, again showing the consistency of our earnings power and teeing us up to deliver consistent, growing returns on tangible common equity. We had a record-breaking quarter for deposit gathering, generating nearly $1 billion of new deposits, absolutely incredible and not even in an election year. This matches our previous record set way back in Q2 of 2020 during the peak run-up to the presidential election. Our net interest margin expanded again, and we booked almost $170 million in net new loans, one of our best quarters ever. A lot to like there so let's dive in a bit more.

Deposit gathering was on fire. On balance sheet deposits grew $179 million to $7.9 billion, and our off-balance sheet deposits increased $789 million to $1.1 billion. Our political deposits increased $287 million to $1.7 billion as our share of the fundraising taking place ahead of November's midterm elections continues to grow. It's important to note that all of our customer segments experienced deposit growth again this quarter. Not for profit grew an eye-popping $388 million, [ Social ] and Philanthropy grew $122 million, and our Climate and Sustainability segment grew $77 million. This across-the-board strength demonstrates submission aligned differentiated competitive advantage that only Amalgamated possesses.

Turning to loans. We delivered strong growth with loans increasing $167 million or 3.5% to $4.9 billion. Loans in our growth mode portfolios, which include multifamily, CRE and C&I increased by 7% or $218 million, a nice acceleration from the 3.3% growth achieved in the third quarter and 2.1% growth achieved in the second quarter. We continue to benefit from the addition of several C&I experts that we added to our team, and we expect to deliver more growth in 2026 as we continue to expand our reach on the West Coast.

Our PACE portfolio also saw a nice acceleration with total assessments growing $38 million or 3% to $1.3 billion in the fourth quarter, the strength came from over $27 million in growth in C-PACE where there's a range of opportunities. We continue to ramp up with the new originator partnership we discussed with you last quarter. The question now is where is all of this leading? We believe Amalgamated is ready to grow significantly. We're ready to cross $10 billion in assets and have made and will continue to make the necessary investments in people and technology. The business model is a winner, and we have exceptional proven management team that can carry the bank into its next phase.

While Amalgamated has seen its fair share of specific challenges during our 4.5 years as a team, banks broadly have been operating through extraordinary environmental challenges. From the pandemic and inflation shock to sharp swings in growth, asset prices and deposit behavior, all of which transformed credit demand and risk.

In the U.S., we have experienced the fastest rate hike environment in 60 years, the longest inverted yield curve in 40 years and the largest Fed-driven liquidity drain on record. Thinking of these things really helps put into context the success Amalgamated Bank announced today compared to 5 years ago. Through these massive challenges, our bank has grown from $6 billion to nearly $9 billion, has become one of the most reliably profitable banks in the country, now employs nearly 500 people and is making a bigger and longer-lasting impact than ever.

Our outstanding management team navigated what was arguably the most difficult banking conditions in modern memory with a steady hand and adherence to a clear strategy. Our expectations for growth and performance in the future will be bold for sure, and Jason will outline some of this in its 2026 guidance in just a few moments. Our team's demonstrated track record provides a clear precedent for future achievement as Amalgamated Bank advances toward its full potential.

Jason, take it from here.

Thanks, Priscilla. The big theme we've been communicating this morning is growth. As Priscilla noted, we have taken the right steps to position the bank for responsible expansion and our 2026 guidance outline some of our plans. But this quarter also marks a milestone as 2025 concludes the fifth fiscal year since Priscilla joined the bank and it's worth briefly reflecting on that progress.

Slide 3 illustrates Amalgamated remarkable growth across multiple metrics during this era. And beyond the numbers, the strategy guiding this progress is clear. Profitability is a North Star and extricably tied with mission purpose. A capital base to match the size of the balance sheet. The balance sheet as a source of strength and asset quality consistent with well-run peers. And when we got started 4.5 years ago, our first priority was to rebuild trust. Today, we can confidently say we did what we set out to do. We now look forward to driving the next phase of Amalgamated's growth, building on this solid foundation.

Before we get to guidance, let's review the quarter. In addition to the market as Priscilla mentioned, here are some other key highlights. Net income was $26.6 million or $0.88 per diluted share and core net income to the non-GAAP measure, was $30 million or $0.99 per diluted share. The spread between GAAP and core earnings per share was almost entirely related to a $41.9 million sale of performing residential loans with sub-3% coupons that resulted in a $3.8 million pretax loss. GAAP and core earnings were bolstered by the recognition of a $1.5 million tax credit, which I'll talk about more in a moment. Excluding that benefit, core net income would have been a solid $27.5 million or $0.91 per diluted share on par with the prior quarter.

Our net interest income grew by 1.8% to $77.9 million, which exceeded the high end of our guidance range. Additionally, our net interest margin increased 6 basis points to 3.66% driven by a 16 basis point decline in our cost of funds as we benefited from the Fed's recent rate cuts. Core noninterest income was solid at $10.1 million, continuing its steady improvement over the past 4 quarters driven primarily by trust income and banking fees. It now represents 11.4% of core revenue, reflecting meaningful progress towards our [ 85/15 ] revenue diversification objective.

Expenses ticked up a bit during the quarter, largely related to noncore severance costs in our residential lending unit. Core expense of $44.9 million was right in line with our annual target of $170 million. We are very happy with our core efficiency ratio of 51.13% and as expenses have risen as expected, revenue growth kept pace and sets us up well for 2026.

So overall, it was another solid quarter with continued strength across our key performance metrics. Most notably, tangible book value per share rose $0.87 or 3.4% and Tier 1 leverage was strong at 9.36%. We returned capital to shareholders through buybacks of $8.7 million and our $0.14 quarterly dividend. And earlier this week, we announced a $0.03 dividend increase to $0.17 based on our confident outlook for 2026 earnings.

Now just a quick note on the tax credit I mentioned earlier. This quarter's credit reflects a new tax planning approach that runs credits through the tax provision instead of noninterest income. And because of this change, past tax credit recognition will no longer be classified as noncore and credits recognized under this new approach will be considered core. We've added a slide on Page 7 to explain the change, and we'll keep it in for a bit to help clarify any tax line volatility as we build our inventory of credits. The key point, we're reducing noncore adjustments to make our financials simpler to understand.

Asset quality metrics remain solid overall, but there were some credit turbulence during the quarter. We marked for sale to nonaccrual multifamily asset identified in Q3, which contributed to an elevated charge-off ratio and added approximately $0.8 million to provision expense. In our D.C. market, 1 borrower showed stress related to the rapid rehousing program restructuring, resulting in increased reserves of $1.9 million and a related $7.5 million increase in nonaccrual multifamily loans. This also was the source of the entire increase in multifamily criticized or classified assets during the quarter. We are currently working with this borrow to restructure portions of their portfolio and we believe we are adequately reserved at this time on the nonaccruing loans.

The other loans with this bar that moved into classified and criticized for the quarter benefit from additional equity partners to support ongoing rightsizing activities. And while this development is unfortunate, our total exposure to [ DC's ] rapid rehousing program beyond this relationship is low with all loans graded past as of the quarter end.

Now let's move to full year 2025 performance. We've updated our targets to actual results for easier comparison and what began as a very challenging year. We exceeded all our key performance goals and maintained consistent upward momentum issuing 2 guidance increases during the year and ultimately exceeding those projections.

Looking ahead to 2026, I'll wrap up my comments where Priscilla started, talking about growth. We believe our business model will deliver reliable growth across multiple dimensions. With our full year 2026 guidance, we aim to hit the following revenue and profitability ranges. Net interest income of $327 million to $331 million or roughly 10% to 11% growth and core pretax pre-provision earnings of $180 million to $183 million or 9% to 10% growth.

For performance targets, we aim to deliver core return on average assets growth to 1.35%. Core return on tangible common equity growth to 15% and balance sheet growth of approximately 5%. And for expense discipline targets, we aim to deliver a return to core positive operating leverage of between 3% and 4%. Growth in technology spend of about 18% to continue to scale the business and annual core OpEx growth to $188 million.

Now underpinning these targets as quarterly net loan growth of 1.5% to 2%, that builds on the momentum we established in the back half of 2025 and considers the effect of our runoff portfolios. This guidance reflects our commitment to disciplined execution and value creation. We enter 2026 with clarity, confidence and intent to deliver quality returns on tangible common equity consistently.

Closing with the lens in the first quarter of 2026, based on its target average balance sheet size at approximately $8.7 billion. We estimate net interest income to increase to between $79 million and $81 million, and we also expect our net interest margin to rise from the fourth quarter primarily from increased yields from the loan growth that came on late in the quarter.

We're now happy to take your questions. So operator, please open up the line for Q&A.

[Operator Instructions] Our first question comes from the line of Mark Fitzgibbon with Piper Sandler.

So first question I had, I was curious how you're thinking about the outlook for the provision in 2026 based on what you see today from a credit perspective? Would you expect credit cost to generally be a little bit lower than what we saw in 2025? Just curious on macro thoughts on that as well as the effective tax rate for the new year.

Yes. Great. Mark, it's Jason. The provision outlook for the coming year is roughly the same from an actual perspective as we've recognized for 2025 maybe a little bit of improvement there, but I wouldn't -- on the margin, say, it's very significant. I think the reason for that is more rooted than just the normal charge-off activity we've seen through the consumer solar portfolio. And we don't expect that to abate very much in the coming year, albeit it would be nice if that came through in a more recovered fashion that will benefit through the provision line. And then we're just keeping a more conservative approach to the overall provisioning, just given some of the bumps that we went through in the current year.

That said, we still think that the provision expense overall is a very manageable number relative to the core earnings progress that the bank will show and it actually will not detract from the earnings per share growth that we're looking forward to in the coming year.

From an effective tax rate perspective, this is an area I think we've spent a decent amount of time focusing new tax strategy on. We have the opportunity to make more inroads on our effective tax rate. We're targeting to start off at 26.5% ETR, and that takes into account a small inventory of tax credits related to this new strategy we've deployed. We also think there's potential upside on the ETR throughout the year as we work to build up more of these tax provision related credits as we go. And hopefully, we'll be able to show a lower ETR. But for now, we're modeling out 26.5%.

Okay. Great. And then since you guys are so close to it, I'm curious how you're thinking about political deposits over the next couple of quarters. I think you peaked prior to the presidential election in the third quarter last year at about $2 billion. Given where you -- I think you're $1.7 billion today in total on and off-balance sheet deposits. Do you think we'll see that by the third quarter soar past that $2 billion level? Are you based on what you see today is a pipeline fundraising strong? Any thoughts there would be appreciated.

I'll ask Sam to address that, Mark. But I will say we have been pleasantly surprised, as you know, every cycle in that our projections or our actuals from the prior cycle have been surpassed. So you're right on the $1.7 billion, and we certainly expect to build through to the election.

And Sam, do you have more thoughts on that?

Yes, Mark, I'll just say that you're exactly right that we're really pleased with about our 20% growth quarter-over-quarter in political. That has certainly been right on trend with what we've put out in disclosure. You're exactly right that, that political balance usually peaks about a month before the election actually happens, and then we see that wind down. You've seen since we've been putting out data since 2018, there's a little bit of a kind of inflationary impacts cycle over cycle, just as the contribution limits get larger each year and we certainly see that as well.

But I think if you look at the trend, you look at the performance quarter-over-quarter, I think it's a good kind of straight line dashboard to where we think this will head and very consistent with prior quarter's performance -- prior election cycle performance.

Okay. Great. And the last question I had. It looked like you had really strong multifamily growth this quarter. I was curious -- I assume it probably wasn't in New York City or was it across other parts of your footprint? Just any thoughts there would be appreciated.

Yes. We were really proud of that. Obviously, it's a great quarter for multifamily. I think really exciting that slightly under half of that actually came outside of New York City, which is really good geographic diversification for us. Proud to see multifamily and all of our physical footprint locales. And so we think that, that is also bolstered by pipeline going forward. And so we think that we will definitely continue to see good geographic representation in multi.

Our next question comes from the line of David Konrad with KBW.

I had a question. I thought the NIM expansion was really impressive in a down rate quarter really. Just wanted to follow up on the commercial loan yields and the impact on NIM. What are the yields that you're booking now in the pipeline and kind of the mix of [ X ] versus floating?

David, it's Jason. So yes, the NIM for the fourth quarter was really nice. We were still able to see some baseline loan yield expansion despite the fact that we had some contraction on the posted numbers, but that relates to the item that we talked about last quarter, which had that onetime recapture flowing through the interest income line.

So on the whole, loan yields were rising, but we also had quite a bit of benefit from the rate cuts in our deposit betas being higher than we modeled. And I think that bodes well for how we would set up for margin expansion heading into 2026.

The bring on rates, we are looking at probably somewhere in the 5.9% to 6% range for C&I, for multifamily CRE is probably in the 5, 70% range. So the overall rates are, I think, in line with where market generally is, especially for quality credits. But as we've talked about before, the real advantage for the bank is going to be in the repricing of the older real estate loans. And those are coming off this year in the 4.30 range. So we're going to get a decent clip there in terms of just the overall repricing benefit. Obviously, we still have the PACE portfolio, which comes on at higher rates in that high 6s, even close to 7% range. So the ability to add yield is pretty strong there. And then just looking outward, I think the bank is really in a great place to steadily have margin expansion throughout the year.

Great. And maybe with all the deposit growth, just following up on the PACE portfolio and the outlook for growth there? And is there any limitations that you look out a few years in terms of percentage of the securities book or percentage of capital with that portfolio because it seems like such a strong yield?

Yes. From a concentration perspective, we have lots of on our balance sheet to add C-PACE. So no real restriction there in terms of the ability to add assets in a meaningful way from a growth perspective. I'll ask Sam to talk a little bit more about the prospects of growth in just a moment. But the opportunity for C-PACE yield is very, very strong as we've seen. The risk-adjusted returns are excellent, and there's a green space that's continuing to develop in the C-PACE market as more and more municipalities throughout the United States added to the capital stack.

So the bank's ability to be first mover in that area is going to be really good. We're going to be taking advantage of a partnership that we've established that drives lower dollar value C-PACE but more volume, which we think will add a lot of opportunity for us. And going forward, C-PACE is going to be an opportunity to trade down on our traditional securities portfolio.

So from a balancing perspective, we still feel overweight on traditional securities. You saw a little bit of this movement this quarter where we traded down on traditional securities to the tune of about $200 million to fund the combination of loan growth and C-PACE, and I expect you'll see more of that. as we continue to move out into 2026.

Sam, do you want to talk about growth potential?

Sure. So I think one of the great things about the quarter was really just realization that something we've talked about in the past about increasing the percentage of C-PACE to [ resi-PACE ]. And as you saw our origination in the quarter, 3/4 of that came from the commercial side, which is really something that we've been focused on, and we see that going forward as a real source of income for us. I think that $27 million number on commercial PACE is certainly something that we see as kind of based on where we want to be going forward and feel good about that number as a supplement to the loan activity. And I think you can continue to expect to see more of that.

Thank you. And we have reached the end of the question-and-answer session. I would like to turn the floor back over to Priscilla Brown for closing remarks.

Thank you, operator, and thank you for those good questions. Amalgamated Bank has delivered strong, consistent performance through one of the most challenging operating environments in modern banking growing earnings, expanding margin and improving capital while many peers struggled with deposit volatility, credit concerns and rate shock. Over the last several years, it is combined disciplined balance sheet management including appropriate commercial real estate concentration, high on-balance sheet and contingent liquidity and above-peer capital ratios with a focused value-aligned client franchise that has continued to attract mission-driven deposits.

Looking forward, Amalgamated is well positioned because our business model sits at the intersection of resilient market opportunities and powerful secular trends where we've already established deep relationships and differentiated capabilities. This team's track record of mission meets performance combined with a flexible balance sheet and multiple earnings levers provide a strong platform for sustainable growth and outsized relevance as the industry continues to evolve.

I look forward to updating you on our progress on our first quarter call and accepting your questions in between. Thank you again for your time today.

And 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.

Good morning, ladies and gentlemen, and welcome to the Amalgamated Financial Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] A telephonic replay of this call and the presentation slides to complement today's discussion is available on the Investors section of our website. Please also refer to the disclaimers on Slide 2 of our presentation concerning forward statements and non-GAAP financial measures. As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Mr. Jason Darby, Chief Financial Officer.

Please go ahead, sir.

Thank you, 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&A portion of today's call. First, I want to note that we are introducing shorter prepared comments this quarter. By condensing this section of the call, we hope to transition to your questions faster and avoid repeating details you've already reviewed in the earnings materials. Let me now turn the call over to Priscilla.

Good morning, everyone, and thank you for joining us. Well, it was another good quarter. Amalgamated delivered core earnings per share of $0.91 in the third quarter, and we experienced strength on both sides of our balance sheet, highlighted by across-the-board share gain in our deposit franchise, coupled with accelerating loan growth as our new lenders are already having an impact. Amalgamated has now delivered $2.66 year-to-date core earnings per share, which is about 3% growth, making our case for an implied value of our stock well above where we have been trading recently. One thing I'd like to remind us is that we are coming off of a 2024 year where we grew core EPS by over 18%, far exceeding most banks. So what we're doing in 2025 is just that much more remarkable comparatively speaking.

So for Q3, what stands out to me, mainly that we keep delivering great results. And the quality and sustainability of our earnings allows us to handle problem situations with ease. Last quarter, Jason discussed a $10.8 million syndicated commercial and industrial business loan to an originator of consumer loans for renewable energy efficiency improvements that was under stress. I'm happy to report the quick, successful and final resolution of this loan during this quarter with the final impact all absorbed within our core earnings. I use the word successful to reflect on the decisive action we took to exit a problem credit, negotiate what we felt to be the best near-term recovery value and put the problem behind us so that our investors can see our overall credit portfolio quality with clarity. While, of course, we're not happy to absorb a loan loss every quarter charge-off, the flip side to that is a nice improvement to our nonperforming assets and overall credit quality metrics.

Nonperforming assets decreased $12.2 million or 34.6% to $23 million or 0.26% of total assets and credit quality improved nearly $19 million to $79.2 million or 1.67% of total loans, which is our best ratio since I've been here. All that said, we recognize that the credit cycle is still in process, and we are acutely aware of some of the big reserves and charge-offs taken by some super regional banks recently. The best thing I can say is that you can be sure Amalgamated will be early in disclosure and decisive in our resolution. Now let's move on to some more fun stuff. Back in the first quarter with the change in administration, we said we were built for this moment, built to thrive. Nothing has changed there. We still are. Our mission, brand and values resonate with our customers, which can be seen in how our production team performed this quarter. Loans grew by $99 million across our growth mode portfolios of multifamily, CRE and C&I, about 3.3% growth, a nice acceleration from the second quarter's growth rate of 2.1%.

This was in line with our quarterly targets and benefited from the addition of some C&I experts that added to our origination team in the second quarter. Our PACE portfolio also saw an acceleration as total assessments grew $27.4 million. The strength came from over 8% growth in C-PACE, where there is a rapidly growing range of opportunity and to capitalize on our new originator partnership. And then there's our deposit franchise. Wow, these folks are amazing. We just keep taking market share in our deposit gathering as all of our segments saw growth during the quarter, driving over $415 million of new deposit generation. Very few banks our size can do what we do. Looking at our segments, political was a standout with deposits increasing $235 million or 19% to $1.4 billion as fundraising begins to accelerate looking to the midterm elections, which are now only a year away.

Our Climate and Sustainability segment was also a standout as deposits increased $86 million or 21%. Not-for-profit also grew $42 million. Labor grew $26 million. And overall, it was just another great quarter for our deposit gathering team. For the most part, I like what we see. We still have some work to do, no doubt, but the bank is firing on most cylinders, which provides real optimism as we look to the future. To support our growth and to ensure we efficiently scale our operations, we have been investing in a fully integrated digital modernization program, which will drive improved productivity, provide a holistic view of our customers to better understand their needs, provide more customized solutions and ultimately deliver more revenue growth. This platform went live in the third quarter, and we're already seeing the benefits across our organization as we continue to manage the business to key metrics.

To close, I could not be more excited with what the future holds for Amalgamated. Our ability to deliver balanced and predictable contribution from our lending channels is starting to show, and I'm happy that we have geographic diversity, which will help us manage future loan growth targets. We are keeping a close eye on the policy debate playing out in New York City. But regardless, we feel very good about our current rent stabilization exposure. We've added some more disclosure for you this quarter in the presentation on Slide 14, and we're happy to take your questions on that. There's also more I could talk about, but we want to get to your questions sooner this time. So let me turn the call over to Jason.

Thanks, Priscilla. Starting off with some key highlights on Slide 3. Net income was $26.8 million or $0.88 per diluted share, while core net income, a non-GAAP measure, was $27.6 million or $0.91 per diluted share. Our net interest income grew by 4.9% to $76.4 million, which exceeded the high end of our guidance range, bolstered a bit by the recapture of some loan interest income from the payoff of one of our legacy problem assets. Additionally, our net interest margin increased 5 basis points to 3.6%. Margin expansion was partially offset by a 5 basis point rise in our cost of funds as we carried a higher average balance of interest-bearing deposits in the quarter. It's worth noting that our average spot rate paid on deposits declined 8 basis points after we repriced our deposits following the Fed's 25 basis point rate cut in September.

Deposits were strong. Excluding $112.3 million of temporary pension funding deposits, total on-balance sheet deposits increased $149 million or 1.9% to $7.6 billion. We also held $265 million of deposits off balance sheet at the end of the quarter. Continuing to Slide 4, we look at some of our key performance metrics during the third quarter. Starting on the left, our tangible book value per share increased $0.98 or 4% to $25.31 and has grown over 46% since September '21, which was Priscilla's first full quarter as CEO. Tangible book value is a key component of management's long-term equity incentives, which tightly aligns management with our shareholders.

Our leverage ratio was managed well at 9.18%. During the quarter, we used capital to improve our TCE ratio to 8.79%, absorbed $4.5 million of losses to improve our credit quality metrics, returned capital to shareholders through approximately $10.4 million in share repurchases and to pay our $0.14 quarterly dividend. Looking forward, we expect to continue our buybacks over the coming quarters until our share price rises to a level that we feel realistically reflects our forward earnings projection.

Our core revenue per diluted share was $2.84, a $0.17 increase from the prior quarter. This increase was due to a combination of higher net interest income and the effect of our share repurchases. Importantly, this metric shows our balance sheet optimization and commitment to positive operating leverage. We're laser-focused on driving this message to the top of the broader industry peer group. Jumping ahead to Slide 9. Core noninterest expense was $43.4 million, an increase of $2.9 million from the linked quarter. This was mainly driven by a $2.2 million increase in employee compensation expense as well as an expected $0.5 million increase in technology spend due to continued investment in digital transformation development. Overall, we were pretty much right where we want to be with expense management, and we're able to add some additional compensation accruals for full year performance that is starting to look pretty promising.

I'm also really happy with our core efficiency ratio of 50.17%, which places Amalgamated on average at the top of the pack from banks in the $5 billion to $10 billion range as well as banks in the $10 billion to $100 billion range. We'll continue to keep our target of approximately $170 million for annual OpEx, though there may be some upside to that number. Hopping to Slide 10. Net charge-offs were 0.81% of total loans. Obviously, this is an elevated number, but there is some good news within this metric. First, as Priscilla mentioned, was the final resolution of the problem C&I credit we talked about in the second quarter. That resulted in a $5.4 million charge-off, but the P&L impact this quarter was only $3.1 million due to prior period reserves. This credit situation is done. And thankfully, we don't have to speculate about it any further. Another bit of good news was the note sale of a legacy nonperforming leveraged loan.

This resulted in a $1.5 million charge-off, but also a small recovery of $0.6 million that flowed through our net provision expense during the quarter. The remainder of the charge-offs related to normal activity from our consumer solar and business banking portfolios, although each showed some modest improvement from the prior quarter. One thing we thought would be interesting to note is the bank received a revised outlook to positive from KBRA during our annual credit rating surveillance report completed during the quarter as well. Turning to Slide 11. The allowance for credit losses on loans decreased $2.5 million to $56.5 million. The ratio of allowance to total loans was 1.18%, a decrease of 7 basis points from 1.25% in the prior quarter.

The decrease was primarily the result of a $2.3 million net reserve release related to the resolution of the loan I just discussed and also by a $2.1 million reserve release related to the resolution of a legacy leverage loan credit. This was partially offset by a $1.6 million increase in reserves related to one $2.8 million multifamily loan that went nonaccrual in the quarter and a $0.2 million reserve increase for a nonperforming construction loan. Finishing on Slide 16, turning to our outlook. Today, we are raising our full year 2025 core pretax pre-provision earnings guidance to $164 million to $165 million and tightening our 2025 net interest income guidance to $295 million to $296 million, which considers the effect of the forward rate curve of 2025. Additionally, we estimate an approximate $2.2 million decrease in annual net interest income for a parallel 25 basis point decrease in interest rates beyond what the forward curve currently suggests.

Briefly looking at the fourth quarter of 2025, we target average balance sheet size at approximately $8.65 billion and our net interest income to range between $75 million and $76 million. We expect our net interest margin to stay near flat relative to our Q3 mark as we believe our loan yields will drop due to repricing as we model the Fed to cut rates again by a total of 50 basis points in Q4. Based on these targets, we've gone ahead and done the implied full year math on the guidance page, so you can easily compare it to our 2024 results as well as our baseline 2025 performance targets. We're now happy to take your questions. Operator, please open up the line for Q&A.

[Operator Instructions] Our first question comes from Mark Fitzgibbon with Piper Sandler.

First question I had, I was curious in the slide deck on Page 11, you mentioned that there was a $1.9 million specific reserve. What is that against?

Mark, this is Jason. The specific reserve that was built is related to one of our multifamily properties that we had an appraisal put against. It's one of the properties that we had already been through a refinance or a renewal about a year ago. It had a little bit of an equity infusion. We did a modification of terms. It had been paying and then we received an updated appraisal as part of our normal process for evaluating substandard credits that are real estate oriented and the valuation didn't look appropriate for the value of the property that we had originally been carrying on the books. So the reserve was put in place to effectively account for a change in the LTV.

As of right now, the credit is moving to a nonaccrual status, and we're trying to figure out a path forward with that particular deal. But the [indiscernible] is pretty good at the moment. We just felt the reserve was appropriate. And as we've said before, when we see problems in the portfolio, you'll see our coverage ratios move, and that has been reflected also in the overall coverage for the portfolio moving up to 30 basis points from the 20 we had it at previously.

Okay. And then, Priscilla, you had mentioned before your comments about changes to the rent-regulated multifamily market in New York and you guys feeling comfortable with that. I guess I'm curious, in the event that we do have a [ Mamdani ] and he freezes rents through the rent guidelines Board, would that change your outlook for that rent-regulated multifamily business? Is it likely that you'd sort of slow down growth in it or maybe exit and sell some of the portfolio?

No. Thank you, Mark, for the question. I'm sure it's on the minds of a number of people, certainly those watching New York politics. By the way, this is why we're giving more disclosure. You see it on Page 13 and 14, and we'll continue to monitor the situation closely and update you as we learn more. But we don't expect that we're going to see impact in the next 18 to 24 months, certainly based on those changes.

I do think it's important to think about the fact that, that's one tool, and it's one that's talked about quite a lot, this notion of rent freezes or stabilization. But there are other tools as well, zoning reform, public-private partnerships, community land trust, which Mamdani has spoken about, and certainly, office to residential conversion, social housing, all those things. And so keep in mind that there's real potential upside if a balanced approach leads to creation of more housing in New York, and that's one of the things we're looking at as well.

Okay. And then sort of unrelated, it seems like we read every day that the Department of Energy is canceling or pulling funding from green energy projects. I think the Department of Energy has canceled something like $8 billion worth of projects and pulled funds back. And I know in the past, you guys have sort of said the funds were allocated, so you weren't concerned. But now that the administration is pulling those dollars back, I guess I'm wondering if you're concerned about any of your various projects related to that and how those are likely to sort of play out if federal funding evaporates.

Mark, it's Sam. I'll jump in on that one. So look, in the existing portfolio, we feel totally great about where we are. Those projects are already in the ground. And as we've talked about in the past, their funding streams, including their tax credit provisions, including any federal contribution is locked in. The other thing I'll mention is we talked about back in the second quarter call, the acceleration of projects and transactions in order to hit that deadline that will happen in 18 and 24 months. You certainly saw some of that pull-through happen in our C&I growth for the quarter, which we are very pleased about.

And we're also seeing that in pipeline as well. The other thing I'll add just on the broader market spectrum, as you mentioned, about what does that mean kind of in general, as things change, you've heard us talk a lot about growing energy demand, citing a bunch of stats and figures from various well-respected authorities. Kind of the best thing I would throw out is this -- there is a new kind of base case assumption about what renewable energy deployment looks like being only 4% less than what it was before the budget was passed last year.

So again, we feel good about that. And when you couple that with how energy demand is expected to continue to rise between 2.5% and 3.5% per year, getting up to 25% by 2030, 78% by 2050, the demand here dictates that there is going to be a need to finance these projects. And so while, yes, federal capital contribution might change, the reality is this industry is alive and well and is going to have a lot of participants in the financing these projects for years to come.

It's hard to believe, Sam, that none of the projects you're involved in the fund -- federal funds have been pulled back from. And it's also -- it's hard to believe that if you don't have federal funding, the projects still pencil out financially. I guess I'm curious, just from the outside looking in, reading the media every day with money evaporating, it just seems a stretch to understand that.

Yes. And I think a lot of what is out there, Mark, is funds being pulled back for projects that haven't started yet. For example, I know that there was the largest project in Nevada was certainly a big headline recently. In our portfolio, everything we financed is already underway, has -- in an operating state, those projects are not in jeopardy because they are underway. Where there are projects that are still in pre-dev, I think that is a completely valid concern. That is not something we have present on our balance sheet and not an area we focused on as we've built out our portfolio.

Okay. Last question I had. I guess I'm curious, we're in kind of unusual times with what's going on in Washington and all this sort of conversation around debanking. I know you guys have been written about in some articles in the journal and elsewhere. I guess I'm curious, how can you best position Amalgamated so that you don't become a target for the regulators given their aggressive debanking efforts?

Thank you, Mark. Yes, there's a lot of noise in the news, and we certainly see it all as well, and we know you do. I guess the best way I can address that is to say we continue to be a bank that just follows all laws and regulations, and we always will. We focus on risk management, and we focus on solid, consistent performance. Organizations that manage with appropriate KYC and BSA requirements, they know we're open for business. And you've seen that on both sides of the balance sheet consistently since these concerns started to be manifested in the last -- this year, certainly.

If you look at the core deposit growth, it's phenomenal. We continue to see growth across all of our segments, not just some. And so that -- those solid returns and strong profitability is really our best answer to what you're hearing. And we don't expect to see any material risk to our business model or our customer base based on the fact that we are a bank first and foremost.

Our next question comes from [ Mark Shutley ] with KBW.

So on expenses, you mentioned you still target the $170 million a year, I think, but expenses came in a little higher than we were expecting in the third quarter. I know you've got the digital transformation underway. And so it sounds like a better run rate for quarterly expenses is probably somewhere in between this quarter and last quarter. Just trying to think about the moving pieces of the PPNR guide.

Yes. Sure, Mark. I'll take it. This is Jason. So on expenses, I think this quarter came in very much what we were expecting in terms of our overall progression towards our $170 million annual OpEx guidance. And we have been talking about for a couple of quarters, the ramping in expenses that was going to happen as we got to the back half of the year. And we were in a better spot than I was really expecting at the end of the second quarter. Here in the third quarter, we also did very, very well on the expense side. Now we were able to book a little bit of accrual in this quarter for some compensation-related expense that would be tied to year-end performance as it's becoming clearer and clearer that we're going to have a pretty strong year. So that really was the top off on maybe the expense expectation you had versus where we came in at about $43.3 million for the quarter. But if you look at it year-to-date, we're $125 million versus an average target of $127.5 million. So we're doing better there.

The core efficiency is still really, really strong. And to your comment about what the fourth quarter ought to look like, I would expect it to look very similar to Q3. Now we've said that $170 million is still the target, but there's some potential upside there. If we hit expenses that looked a lot like Q3, we'd probably have some upside beat on our $170 million target. But we sort of leave that out there as a conservative marker because in the fourth quarter, occasionally, things pop up that require some additional expense to cure year-end processes relative to audits or other types of things that pop up towards the end of the year. So all things equal, I like a run rate of very similar to what we had for the third quarter as the projection for the fourth quarter. And in theory, if we hit that, there's some upside potential to the $170 million overall target.

Okay. That's helpful. And then maybe switching gears. You mentioned the loan yields. I think you expect that to come down next quarter. Obviously, those saw a nice increase this quarter and kind of drove the NIM. But with a couple of rate cuts expected, I totally get that. But I was just wanting to dig in a little bit more and see maybe what new originations were coming on at in the quarter and sort of any additional color you have there?

Yes. Perfect. Great question. Let me start off with the loan yield and the decline. I think, obviously, picked up on our projection of the 50 basis points of the total rate cuts, and that's obviously going to have an impact on some of the variable pricing we have in the C&I portfolio. And also, I did make a comment there was a bit of a one-timer that flowed through with the recapture of some interest income for a very long-dated problem credit that we have had on our books that we were able to get a full payoff from recovery on. So that accounted for about 9 basis points of loan yield in this quarter. So most of the drop will probably be just tied to the resetting of net interest income -- I'm sorry, noninterest income -- net interest income for the quarter, absent that onetime effect for the current period.

Now in terms of the bring on, we had a pretty decent quarter in terms of overall bring on. I think where we were on the C&I side was in the high 6s, maybe even crossing to low 7s in certain places for the quarter. The real estate portfolio came in just above 6%, which are pretty strong yields given the credit quality that we're seeking. And then going forward for the fourth quarter, we're pretty much saying it's going to be about 30 to 50 basis points lower just as a result of the repricing. So figure somewhere in the 6.50% to maybe 6.75% range on your C&I deals and maybe close to 6%, maybe 5.75%. I'm kind of getting a little bit wrong there, probably about 25 basis point decline in the bring on yields from the current quarter. And then the only other thing to point out is that we still have a very strong origination on the PACE side, which drives a yield of about 7%. Now we'll see probably a little bit of erosion there, but those coupons are pretty strong, and they really help the margin from a rollover perspective on the yield side.

We have reached the end of the question-and-answer session. I would like to turn the call back over to Priscilla Sims Brown for closing comments.

Thank you, and thank you for those very good questions. I'm sure they will continue as we follow up today and in the future around the quarter. But I want to just take a second again, as we do every quarter, to thank our employees for their hard work and the dedication to the bank and our customers. We know our success would not be possible without the commitment and the determination of our talented team of bankers.

To conclude, I'm very pleased with our third quarter results, which demonstrates our lending -- sorry, our leading deposit franchise, which is unique in the industry and when you combine that with our lending platform, which I also believe is unique, we are at an important inflection point. Taken together, we're poised to deliver continued organic growth as we further build the earnings power of the bank and as we focus on delivering long-term value for shareholders. I look forward to updating you on our progress on the fourth quarter call and taking your calls in the meantime.

Thank you.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation. Enjoy the rest of your day.