Amalgamated Financial Corp. [AMAL] Filings

10-Q 1 amal-20230930.htm 10-Q amal-20230930

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number: 001-40136

Amalgamated Financial Corp.

(Exact name of registrant as specified in its charter)


Delaware						85-2757101
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

275 Seventh Avenue, New York, NY 10001

(Address of principal executive offices) (Zip Code)

(212) 255-6200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	AMAL	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☒

As of November 3, 2023, the registrant had 30,393,605 shares of common stock outstanding at $0.01 par value per share.

TABLE OF CONTENTS


		Page
Cautionary Note Regarding Forward-Looking Statements		ii

PART I – FINANCIAL INFORMATION

ITEM 1.	Financial Statements (unaudited)

	Consolidated Statements of Financial Condition as of September 30, 2023 and December 31, 2022	1
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022	2
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022	3
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022	4
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	8
	Notes to Consolidated Financial Statements	10

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	45

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	68

ITEM 4.	Controls and Procedures	68

PART II - OTHER INFORMATION

ITEM 1.	Legal Proceedings	69

ITEM 1A.	Risk Factors	69

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	71





ITEM 5.	Other Information	72

ITEM 6.	Exhibits	73

Signatures		74

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Unless the context indicates otherwise, references to “we,” “us,” “our” and the “Company” refer to Amalgamated Financial Corp. and Amalgamated Bank. References to the “Bank” refer to Amalgamated Bank.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are not statements of historical or current fact nor are they assurances of future performance and generally can be identified by the use of forward-looking terminology, such as “may,” “will,” “anticipate,” “aspire,” “intend,” “could,” “should,” “would,” “believe,” “project,” “plan,” “goal,” “target,” “potential,” “pro-forma,” “seek,” “contemplate,” “expect,” “estimate,” and “continue,” or the negative thereof as well as other similar words and expressions of the future. These forward-looking statements include, but are not limited to, statements related to our projected growth, anticipated future financial performance, and management’s long-term performance goals, as well as statements relating to the anticipated effects on results of operations and financial condition from expected developments or events, or business and growth strategies, including anticipated internal growth.

Forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict as to timing, extent, likelihood and degree of occurrence, which could cause our actual results to differ materially from those anticipated in or by such statements. Potential risks and uncertainties include, but are not limited to, the following:

•uncertain conditions in the banking industry and in national, regional and local economies in our core markets, which may have an adverse impact on our business, operations and financial performance;

•deterioration in the financial condition of borrowers resulting in significant increases in credit losses on loans and provisions for those losses;

•deposit outflows and subsequent declines in liquidity caused by factors that could include lack of confidence in the banking system, a deterioration in market conditions or the financial condition of depositors;

•changes in our deposits, including an increase in uninsured deposits;

•unfavorable conditions in the capital markets, which may cause declines in our stock price and the value of our investments;

•continued fluctuation of the interest rate environment, including changes in net interest margin or changes that affect the yield curve on investments;

•fiscal challenges facing the U.S. government which may impact the government entities which we do business with, and the value of our investments in GSEs;

•potential deterioration in real estate collateral values;

•changes in legislation, regulation, public policies, or administrative practices impacting the banking industry, including increased regulation and FDIC assessments in the aftermath of recent bank failures;

•the outcome of legal or regulatory proceedings that may be instituted against us;

•our inability to maintain the historical growth rate of the loan portfolio;

•changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments;

•the impact of competition with other financial institutions, including pricing pressures and the resulting impact on our results, including as a result of compression to net interest margin;

•any matter that would cause us to conclude that there was impairment of any asset, including intangible assets;

•increased competition for experienced members of the workforce including executives in the banking industry;

•a failure in or breach of our operational or security systems or infrastructure, or those of third party vendors or other service providers, including as a result of unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches;

•downgrade in our credit rating;

•increased political opposition to Environmental, Social and Governance practices;

•recessionary conditions;

•physical and transitional risks related to climate change as they impact our business and the businesses that we finance; and

•descriptions of assumptions underlying or relating to any of the foregoing.

We caution readers that the foregoing list of factors is not exclusive, is not necessarily in order of importance and readers should not place undue reliance on any forward-looking statements, which should be read in conjunction with the other cautionary statements that are included elsewhere in this report. Additional factors that may cause actual results to differ materially from those contemplated by any forward-looking statements may be found in our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC and available at the SEC’s website at https://sec.gov. Further, any forward-looking statement speaks only as of the date on which it is made and we do not intend to and, except as required by law, disclaim any obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, unless required to do so under the federal securities laws.

iii


Part I Item 1. – Financial Statements Consolidated Statements of Financial Condition (Dollars in thousands except for per share amounts)
	September 30, 2023		December 31, 2022
Assets	(unaudited)
Cash and due from banks	$	5,494	$	5,110
Interest-bearing deposits in banks	134,725		58,430
Total cash and cash equivalents	140,219		63,540
Securities:
Available for sale, at fair value	1,491,450		1,812,476
Held-to-maturity, at amortized cost:
Traditional securities, net of allowance for credit losses of $55 at September 30, 2023	612,026		629,424
Property Assessed Clean Energy ("PACE") assessments, net of allowance for credit losses of $670 at September 30, 2023	1,069,834		911,877
	1,681,860		1,541,301

Loans held for sale	2,189		7,943
Loans receivable, net of deferred loan origination costs	4,364,745		4,106,002
Allowance for credit losses	(67,815)		(45,031)
Loans receivable, net	4,296,930		4,060,971

Resell agreements	—		25,754
Federal Home Loan Bank of New York ("FHLBNY") stock, at cost	4,389		29,607
Accrued interest and dividends receivable	47,745		41,441
Premises and equipment, net	8,428		9,856
Bank-owned life insurance	105,708		105,624
Right-of-use lease asset	22,907		28,236
Deferred tax asset, net	63,322		62,507
Goodwill	12,936		12,936

Intangible assets, net	2,439		3,105
Equity method investments	11,813		8,305
Other assets	17,397		29,522
Total assets	$	7,909,732	$	7,843,124
Liabilities
Deposits	$	6,990,854	$	6,595,037
Subordinated debt, net	70,427		77,708
FHLBNY advances	4,381		580,000
Other borrowings	230,000		—
Operating leases	33,242		40,779
Other liabilities	34,537		40,645
Total liabilities	$	7,363,441	$	7,334,169

Stockholders’ equity
Common stock, par value $0.01 per share (70,000,000 shares authorized; 30,736,141 and 30,700,198 shares issued, respectively, and 30,458,781 and 30,700,198 shares outstanding, respectively)	$	307	$	307
Additional paid-in capital	287,579		286,947
Retained earnings	368,420		330,275



Accumulated other comprehensive loss, net of income taxes	(105,294)		(108,707)
Treasury stock, at cost (277,360 and zero shares, respectively)	(4,854)		—
Total Amalgamated Financial Corp. stockholders' equity	546,158		508,822
Noncontrolling interests	133		133
Total stockholders' equity	546,291		508,955
Total liabilities and stockholders’ equity	$	7,909,732	$	7,843,124

See accompanying notes to consolidated financial statements (unaudited)


Consolidated Statements of Income (unaudited) (Dollars in thousands, except for per share amounts)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
INTEREST AND DIVIDEND INCOME
Loans	$	49,578	$	38,264	$	139,744	$	103,157
Securities	39,971		31,580		118,989		75,087

Interest-bearing deposits in banks	1,687		971		3,360		1,701
Total interest and dividend income	91,236		70,815		262,093		179,945
INTEREST EXPENSE
Deposits	23,158		2,491		55,809		5,374
Borrowed funds	4,350		696		12,292		2,077
Total interest expense	27,508		3,187		68,101		7,451
NET INTEREST INCOME	63,728		67,628		193,992		172,494
Provision for credit losses	2,014		5,363		10,913		10,568
Net interest income after provision for credit losses	61,714		62,265		183,079		161,926
NON-INTEREST INCOME
Trust Department fees	3,678		3,872		11,613		10,842
Service charges on deposit accounts	2,731		2,735		7,897		8,008
Bank-owned life insurance income	727		785		2,054		2,882
Losses on sale of securities	(1,699)		(1,844)		(5,052)		(2,264)
Gains (losses) on sale of loans, net	26		(367)		30		(32)

Equity method investments income (loss)	550		(1,151)		1,261		(1,357)
Other income	767		973		2,127		1,592
Total non-interest income	6,780		5,003		19,930		19,671
NON-INTEREST EXPENSE
Compensation and employee benefits	21,345		19,527		64,525		55,242
Occupancy and depreciation	3,349		3,481		10,184		10,378
Professional fees	2,222		3,173		7,211		8,733
Data processing	4,545		4,149		13,176		13,660
Office maintenance and depreciation	685		807		2,130		2,316
Amortization of intangible assets	222		262		666		785

Advertising and promotion	816		795		3,431		2,410
Federal deposit insurance premiums	1,200		1,014		3,018		2,440
Other expense	2,955		3,050		9,154		9,037
Total non-interest expense	37,339		36,258		113,495		105,001
Income before income taxes	31,155		31,010		89,514		76,596
Income tax expense	8,847		8,066		24,230		19,874
Net income	$	22,308	$	22,944	$	65,284	$	56,722


Earnings per common share - basic	$	0.73	$	0.75	$	2.13	$	1.84
Earnings per common share - diluted	$	0.73	$	0.74	$	2.12	$	1.82

See accompanying notes to consolidated financial statements (unaudited)


Consolidated Statements of Comprehensive Income (unaudited) (Dollars in thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022

Net income	$	22,308	$	22,944	$	65,284	$	56,722
Other comprehensive income (loss), net of taxes:



Change in total obligation for postretirement benefits, prior service credit, and other benefits	49		60		146		178
Net unrealized gains (losses) on securities:
Unrealized holding gains (losses) on securities available for sale	(2,338)		(43,422)		(1,920)		(159,460)
Reclassification adjustment for losses realized in income	1,699		1,831		5,052		2,248

Accretion of net unrealized loss on securities transferred to held-to-maturity	479		548		1,433		757
Net unrealized gains (losses) on securities	(160)		(41,043)		4,565		(156,455)
Other comprehensive income (loss), before tax	(111)		(40,983)		4,711		(156,277)
Income tax benefit (expense)	31		11,275		(1,298)		42,992
Total other comprehensive income (loss), net of taxes	(80)		(29,708)		3,413		(113,285)
Total comprehensive income (loss), net of taxes	$	22,228	$	(6,764)	$	68,697	$	(56,563)

See accompanying notes to consolidated financial statements (unaudited)

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

(Dollars in thousands)


	Three Months Ended September 30, 2023
	Number of Shares of Common Stock Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss, net of income taxes		Treasury Stock, at cost		Total Stockholders' Equity		Noncontrolling Interest		Total Equity
Balance at July 1, 2023	30,572,606	$	307	$	286,877	$	349,204	$	(105,214)	$	(2,693)	$	528,481	$	133	$	528,614
Net income	—	—		—		22,308		—		—		22,308		—		22,308

Repurchase of common stock	(141,748)	—		—		—		—		(2,647)		(2,647)		—		(2,647)
Common stock issued under Employee Stock Purchase Plan	7,918	—		(2)		—		—		138		136		—		136
Dividends declared on common stock, net, $0.10 per share	—	—		—		(3,092)		—		—		(3,092)		—		(3,092)
Exercise of stock options, net of repurchases	5,272	—		(91)		—		—		—		(91)		—		(91)
Restricted stock units vesting, net of repurchases	14,733	—		(390)		—		—		348		(42)		—		(42)
Stock-based compensation expense	—	—		1,185		—		—		—		1,185		—		1,185
Other comprehensive loss, net of taxes	—	—		—		—		(80)		—		(80)		—		(80)
Balance at September 30, 2023	30,458,781	$	307	$	287,579	$	368,420	$	(105,294)	$	(4,854)	$	546,158	$	133	$	546,291


	Nine Months Ended September 30, 2023
	Number of Shares of Common Stock Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss, net of income taxes		Treasury Stock, at cost		Total Stockholders' Equity		Noncontrolling Interest		Total Equity
Balance at January 1, 2023	30,700,198	$	307	$	286,947	$	330,275	$	(108,707)	$	—	$	508,822	$	133	$	508,955
Cumulative effect of adoption of ASU No. 2016-13	—	—		—		(17,825)		—		—		(17,825)		—		(17,825)
Balance at January 1, 2023 adjusted for change in accounting principle	30,700,198	307		286,947		312,450		(108,707)		—		490,997		133		491,130
Net income	—	—		—		65,284		—		—		65,284		—		65,284

Repurchase of common stock	(409,513)	—		—		—		—		(7,229)		(7,229)		—		(7,229)
Common stock issued under Employee Stock Purchase Plan	37,672	—		(30)		—		—		680		650		—		650
Dividends declared on common stock, net, $0.30 per share		—		—		(9,314)		—		—		(9,314)		—		(9,314)
Exercise of stock options, net of repurchases	11,903	—		(182)		—		—		—		(182)		—		(182)
Restricted stock units vesting, net of repurchases	118,521	—		(2,581)		—		—		1,695		(886)		—		(886)
Stock-based compensation expense	—	—		3,425		—		—		—		3,425		—		3,425
Other comprehensive income, net of taxes	—	—		—		—		3,413		—		3,413		—		3,413
Balance at September 30, 2023	30,458,781	$	307	$	287,579	$	368,420	$	(105,294)	$	(4,854)	$	546,158	$	133	$	546,291


	Three Months Ended September 30, 2022
	Number of Shares of Common Stock Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss, net of income taxes		Treasury Stock, at cost		Total Stockholders' Equity		Noncontrolling Interest		Total Equity
Balance at July 1, 2022	30,684,246	$	307	$	286,901	$	288,868	$	(78,168)	$	—	$	497,908	$	133	$	498,041
Net income	—	—		—		22,944		—		—		22,944		—		22,944

Repurchase of common stock	(34,656)	(1)		(744)		—		—		—		(745)		—		(745)
Common stock issued under Employee Stock Purchase Plan	7,461	—		168		—		—		—		168		—		168
Dividends declared on common stock, net, $0.10 per share	—	—		—		(3,069)		—		—		(3,069)		—		(3,069)



Exercise of stock options, net of repurchases	20,220	1		(502)		—		—		—		(501)		—		(501)
Restricted stock units vesting, net of repurchases	(4,968)	—		—		—		—		—		—		—		—
Stock-based compensation expense	—	—		608		—		—		—		608		—		608
Other comprehensive loss, net of taxes	—	—		—		—		(29,708)		—		(29,708)		—		(29,708)
Balance at September 30, 2022	30,672,303	$	307	$	286,431	$	308,743	$	(107,876)	$	—	$	487,605	$	133	$	487,738


	Nine Months Ended September 30, 2022
	Number of Shares of Common Stock Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock, at cost		Total Stockholders' Equity		Noncontrolling Interest		Total Equity
Balance at January 1, 2022	31,130,143	$	311	$	297,975	$	260,047	$	5,409	$	—	$	563,742	$	133	$	563,875
Net income	—	—		—		56,722		—		—		56,722		—		56,722

Repurchase of common stock	(669,176)	(7)		(12,471)		—		—		—		(12,478)		—		(12,478)
Common stock issued under Employee Stock Purchase Plan	25,333	—		516		—		—		—		516		—		516
Dividends declared on common stock, net, $0.26 per share	—	—		—		(8,026)		—		—		(8,026)		—		(8,026)

Exercise of stock options, net of repurchases	81,196	3		(1,541)		—		—		—		(1,538)		—		(1,538)
Restricted stock units vesting, net of repurchases	104,807	—		(2)		—		—		—		(2)		—		(2)
Stock-based compensation expense	—	—		1,954		—		—		—		1,954		—		1,954
Other comprehensive loss, net of taxes	—	—		—		—		(113,285)		—		(113,285)		—		(113,285)
Balance at September 30, 2022	30,672,303	$	307	$	286,431	$	308,743	$	(107,876)	$	—	$	487,605	$	133	$	487,738

See accompanying notes to consolidated financial statements (unaudited)


Consolidated Statements of Cash Flows (unaudited) (Dollars in thousands)










	Nine Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES


Net income	$	65,284	$	56,722
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,647		2,683
Amortization of intangible assets	666		785
Deferred income tax expense	5,523		5,665

Provision for credit losses	10,913		10,568
Stock-based compensation expense	3,425		1,954
Net amortization on loan fees, costs, premiums, and discounts	238		1,324
Net amortization on securities premiums, discounts, net unrealized loss on securities transferred to held-to-maturity, and subordinated debt	1,546		3,625
OTTI gain recognized in earnings	—		(16)
Net (income) loss from equity method investments	(1,261)		1,357
Net loss on sale of securities available for sale	5,052		2,264
Net (gain) loss on sale of loans	(30)		32


Net gain on redemption of bank-owned life insurance	(371)		(1,369)
Proceeds from sales of loans held for sale	15,829		17,635
Originations of loans held for sale	(12,962)		(8,276)
Increase in cash surrender value of bank-owned life insurance	(1,683)		(1,513)
Net gain on repurchase of subordinated debt	(1,417)		(617)
Increase in accrued interest and dividends receivable	(6,304)		(5,947)
Decrease in other assets	16,625		13,521



Decrease in accrued expenses and other liabilities	(1,813)		(6,146)
Net cash provided by operating activities	101,907		94,251
CASH FLOWS FROM INVESTING ACTIVITIES


Net increase in loans	(264,555)		(588,730)

Purchase of securities available for sale	(69,382)		(672,142)
Purchase of securities held-to-maturity	(211,211)		(508,097)
Proceeds from sales of securities available for sale	249,971		132,105
Maturities, principal payments and redemptions of securities available for sale	123,175		281,244
Maturities, principal payments and redemptions of securities held-to-maturity	70,100		111,632
Decrease in resell agreements	25,754		36,184
Increase in equity method investments	(2,247)		(2,184)

Decrease (increase) in FHLBNY stock, net	25,218		(3,162)
Purchases of premises and equipment, net	(1,219)		(1,487)
Proceeds from redemption of bank-owned life insurance	1,941		4,233



Net cash used in investing activities	(52,455)		(1,210,404)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits	395,817		804,052

Net increase in other borrowings	230,000		—


Net (decrease) increase in FHLBNY advances	(575,619)		75,000
Repurchase of subordinated debt	(6,047)		(5,633)


Common stock issued under Employee Stock Purchase Plan	650		516

Repurchase of shares	(7,229)		(12,478)
Dividends paid	(9,277)		(8,026)
Payments related to repurchase of common stock for equity awards	(1,068)		(1,540)


Net cash provided by financing activities	27,227		851,891
Increase (decrease) in cash, cash equivalents, and restricted cash	76,679		(264,262)
Cash, cash equivalents, and restricted cash at beginning of year	63,540		330,485
Cash, cash equivalents, and restricted cash at end period	$	140,219	$	66,223
Supplemental disclosures of cash flow information:
Interest paid during the period	$	59,104	$	6,909
Income taxes paid during the period	7,381		2,431



Loans transferred from held-for-sale	4,664		—
Loans transferred to held-for-sale	3,581		24,043
Securities available for sale transferred to held-to-maturity	—		260,112

See accompanying notes to consolidated financial statements (unaudited)


Notes to Consolidated Financial Statements (unaudited)

1. BASIS OF PRESENTATION AND CONSOLIDATION

Basis of Accounting and Changes in Significant Accounting Policies

In this discussion, unless the context indicates otherwise, references to “we,” “us,” “our” and the “Company” refer to Amalgamated Financial Corp. and Amalgamated Bank. References to the “Bank” refer to Amalgamated Bank.

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America, or GAAP and predominant practices within the banking industry. The Company uses the accrual basis of accounting for financial statement purposes.

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The annualized results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results of operations that may be expected for the entire fiscal year. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). All significant inter-company transactions and balances are eliminated in consolidation. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and the results of operations as of the dates and for the interim periods presented have been included. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes appearing in the Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”). A more detailed description of our accounting policies is included in the 2022 Annual Report, which remain significantly unchanged except for the Allowance for Credit Losses ("ACL") policy, resulting from the adoption of the Accounting Standard Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and its amendments, (“ASU No. 2016-13”) as of January 1, 2023, as well as the addition of accounting policies related to treasury stock:

Treasury stock - Treasury stock is carried at cost. Shares issued out of treasury are valued based on the weighted average cost.

There have been no other significant changes to our accounting policies, or the estimates made pursuant to those policies as described in our 2022 Annual Report.

Recently Adopted Accounting Standards

ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments

The Company adopted ASU No. 2016-13 inclusive of subsequent amendments as of January 1, 2023. ASU No. 2016-13 amends guidance on reporting credit losses for assets held on an amortized cost basis and available-for-sale debt securities, as well as off balance sheet credit exposures. For assets held at amortized cost, ASU No. 2016-13 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The amendments in ASU No. 2016-13 replace the incurred loss impairment methodology with a methodology that reflects the measurement of expected credit losses based on relevant information about past events, including historical loss experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses will be presented as an allowance rather than as a write-down. For the Company, the amendments affected loans, debt securities, off-balance sheet credit exposures, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

The Company adopted ASU No. 2016-13 on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the adoption date and, accordingly, the Company recorded a net of tax decrease of $17.8 million to retained earnings as of January 1, 2023. The results for prior period amounts continue to be reported in accordance with previously applicable GAAP.

The below table illustrates the impact of the adoption of ASU 2016-13.


Notes to Consolidated Financial Statements (unaudited)


	January 1, 2023
	Gross Adjustment		Tax Impact		Net Adjustment to Retained Earnings
Assets:
Allowance for credit losses on held-to-maturity securities	$	668	$	(184)	$	484
Allowance for credit losses on loans	21,229		(5,849)		15,380

Liabilities:
Allowance for credit losses on off-balance sheet credit exposures	2,705		(744)		1,961

Total Day 1 Adjustment for Adoption of ASU 2016-13	$	24,602	$	(6,777)	$	17,825

Allowance for Credit Losses - Available for Sale Securities: Any available for sale security in an unrealized loss position is assessed for Management's intent to sell, or if it is more likely than not that it will be required to sell before the recovery of its amortized cost basis. If either criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. Accrued interest receivable is excluded from the estimate of expected credit losses, as accrued interest receivable is reversed for securities placed on nonaccrual status. Securities issued by U.S. government entities are either explicitly or implicitly guaranteed by the U.S. government, and are highly rated by major ratings agencies and have a long history of no credit losses. For debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from expected credit losses or other factors in making this assessment. Management considers the extent in which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows is expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. There was no allowance for credit losses for available for sale securities as of January 1, 2023.

Allowance for Credit Losses - Held-to-maturity Securities: Management measures expected credit losses on held-to-maturity securities on a collective basis by security type. The Company’s methodology to measure the allowance for credit losses incorporates both quantitative and qualitative information to assess lifetime expected credit losses. The calculation is based on projected annual default rates, loss severities, and prepayment rates. Expected credit losses are estimated over the contractual term of the securities, adjusted for forecasted prepayments when appropriate.

Accrued interest receivable is excluded from the estimate of expected credit losses, as accrued interest receivable is reversed for securities placed on nonaccrual status. The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods:

Mortgage-backed - Certain residential securities held by the Company are issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the U.S. government, and are highly rated by major rating agencies and have a long history of no credit losses.

Non-GSE residential and commercial mortgage-backed securities held by the Company are secured by pools of commercial or residential certificates.

Asset-backed securities ("ABS") - ABS held by the Company are secured by pools of consumer products such as student loans, consumer loans, and consumer residential solar loans.

Property assessed clean energy ("PACE assessments") - PACE assessments held by the Company are secured low loan to value long-term funding for energy efficient and renewable energy projects for residential or commercial projects.


Notes to Consolidated Financial Statements (unaudited)

Other securities - Other securities held by the Company include corporate securities, municipal securities and small investments community reinvestment act investments secured by loans.

Allowance for Credit Losses - Loans: The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of a financial asset or a group of financial assets so that the balance sheet reflects the net amount the Company expects to collect. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts, and deferred fees and costs. Accrued interest receivable on loans is excluded from the estimate of expected credit losses, as accrued interest receivable is reversed for loans placed on nonaccrual status. Subsequent changes (favorable and unfavorable) in expected credit losses are recognized immediately in net income as a credit loss expense or a reversal of credit loss expense. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Management calculates the estimation of the allowance for credit losses on loans on a quarterly basis. The Company’s methodology to measure the allowance for credit losses incorporates both quantitative and qualitative information to assess lifetime expected credit losses at the portfolio segment level. The quantitative component of the allowance model calculates future loan level balances by considering the loan segment baseline loss rate based on a peer group and severity rate. Expected credit losses are estimated over the contractual term of the loans, adjusted for forecasted prepayments when appropriate. The baseline loss rate is adjusted for relevant macroeconomic variables by loan segment that consider forecasted economic conditions. The adjusted loss rate is calculated for an eight quarter forecast period then reverts to the historical loss rate on a straight-line basis over four quarters. The loan level cash flows are discounted at the effective interest rate to calculate a loan level allowance which is aggregated at the loan segment level to arrive at the estimated allowance.

Economic parameters are developed using available information relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit experience provides the basis for the estimation of expected credit losses, with qualitative adjustments made to loan segments for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency levels and terms, as well as for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors.

The allowance for credit losses on loans is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the following portfolio segments and measures the allowance for credit losses using the methods described above.

Commercial and Industrial Loans - Loans in this classification are made to businesses and include term loans, lines of credit, and senior secured loans to corporations. Generally, these loans are secured by assets of the business and repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased consumer and/or business spending, will have an effect on the credit quality in this loan class.

Multifamily Mortgage Loans - Loans in this classification include income producing residential investment properties of five or more families. Loans are made to established owners with a proven and demonstrable record of strong performance. Repayment is derived generally from the rental income generated from the property and may be supplemented by the owners’ personal cash flow. Credit risk arises with an increase in vacancy rates, property mismanagement and the predominance of non-recourse loans that are customary in the industry.

Commercial Real Estate Loans - Loans in this classification include income producing investment properties and owner-occupied real estate used for business purposes. The underlying properties are located largely in the Company’s primary market area. The cash flows of the income producing investment properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on credit quality. In the case of owner-occupied real estate used for business purposes, a weakened economy and resultant decreased consumer and/or business spending will have an adverse effect on credit quality.

Construction and Land Development Loans - Loans in this classification primarily include land loans to local individuals, contractors and developers for developing the land for sale or for the purpose of making improvements thereon. Repayment is derived primarily from sale of the lots/units including any pre-sold units. Credit risk is affected by market conditions, time to sell at an adequate price and cost overruns. To a lesser extent, this class includes commercial development projects that the Company finances, which in most cases are interest only during construction, and then convert to permanent


Notes to Consolidated Financial Statements (unaudited)

financing. Construction delays, cost overruns, market conditions and the availability of permanent financing, to the extent such permanent financing is not being provided by the Bank, all affect the credit risk in this loan class.

Residential Real Estate Loans - Loans in this classification are generally secured by owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. Loans in this class are secured by both first liens and second liens. The overall health of the economy, including unemployment rates and housing prices, can have an effect on the credit quality in this loan class.

Consumer Solar Loans - Loans in this classification may be either secured or unsecured. This portfolio is comprised of residential solar loans. Repayment is dependent on the credit quality of the individual borrower and, if applicable, sale of the collateral securing the loan. Therefore, the overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this loan class.

Consumer and Other Loans - Loans in this classification may be either secured or unsecured. This portfolio is comprised of student loans and other consumer products. Repayment is dependent on the credit quality of the individual borrower and, if applicable, sale of the collateral securing the loan. Therefore, the overall health of the economy, including unemployment rates and housing prices, will have an effect on the credit quality in this loan class.

Loans that are determined to have unique risk characteristics are evaluated on an individual basis by Management. Loans evaluated individually are not included in the collective evaluation. Factors that may be considered are borrower delinquency trends and nonaccrual status, probability of foreclosure or note sale, changes in the borrower’s circumstances or cash collections, borrower’s industry, or other facts and circumstances of the loan or collateral.

Individually Evaluated Loans with an ACL: For collateral-dependent loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral, less the estimated costs to sell, and the amortized cost basis of the loan as of the measurement date. The fair value of real estate collateral is determined based on recent appraised values. The fair value of non-real estate collateral, may be determined based on an appraisal, net book value per the borrower’s financial statements, aging reports, or by reference to market activity, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the borrower and its business. For non-collateral dependent loans, ACL is measured based on the difference between the present value of expected cash flows and the amortized cost basis of the loan as of the measurement date.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures: The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company for its security and loan portfolios. The allowance for credit losses on off-balance sheet credit exposures is recorded in other liabilities on the consolidated statements of financial condition, and adjusted through the credit loss expense which is recorded in the provision for credit losses on the consolidated statements of income. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which is the same as the expected loss factor as determined based on the corresponding portfolio segment. At January 1, 2023, the Day 1 adjustment to allowance for credit losses on off-balance sheet credit exposures was $2.7 million, of which $2.6 million related to obligations on the loans portfolio, and $0.1 million related to obligations on the securities portfolio.

ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) - Troubled Debt Restructurings and Vintage Disclosures

On March 31, 2022, the Financial Accounting Standards Board ("FASB") issued ASU 2022-02, which eliminates the troubled debt restructuring ("TDR") accounting model for creditors that have adopted Topic 326, “Financial Instruments – Credit Losses.” Specifically, rather than applying the recognition and measurement guidance for TDRs, this ASU requires entities to evaluate receivable modifications, consistent with the accounting for other loan modifications, to determine whether a modification made to a borrower results is a new loan or a continuation of the existing loan. In addition, under the new ASU, entities are no longer required to use a discounted cash flow ("DCF") method to measure the ACL as a result of a modification or restructuring with a borrower experiencing financial difficulty. If a DCF method is used, the post-modification-derived effective interest rate is to be used, instead of the original interest rate as stipulated under the current GAAP. This ASU also enhances the disclosure requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. This ASU


Notes to Consolidated Financial Statements (unaudited)

amends the guidance on “vintage disclosures” to require the disclosure of current-period gross write-offs by year of origination. The Company adopted ASU 2022-02 on January 1, 2023 on a prospective basis. The adoption of the standard did not have a material impact on the financial statements. Refer to the Loans receivable, net footnote for updated disclosures for the three and nine months ended September 30, 2023.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the current year presentation, however such reclassifications did not change stockholders' equity or net income.

2. ACCUMULATED OTHER COMPREHENSIVE LOSS

The following is a summary of the accumulated comprehensive loss balances, net of income taxes:


	Balance as of January 1, 2023		Current Period Change		Income Tax Effect		Balance as of September 30, 2023
(In thousands)
Unrealized gains (losses) on benefits plans	$	(1,652)	$	146	$	(40)	$	(1,546)



Unrealized gains (losses) on available for sale securities	(95,539)		3,132		(863)		(93,270)
Unaccreted unrealized loss on securities transferred to held-to-maturity	(11,516)		1,433		(395)		(10,478)

Total	$	(108,707)	$	4,711	$	(1,298)	$	(105,294)


	Balance as of January 1, 2022		Current Period Change		Income Tax Effect		Balance as of September 30, 2022
(In thousands)
Unrealized gains (losses) on benefits plans	$	(2,102)	$	178	$	(49)	$	(1,973)



Unrealized gains (losses) on available for sale securities	7,511		(140,062)		38,531		(94,020)
Unaccreted unrealized loss on securities transferred to held-to-maturity	—		(16,393)		4,510		(11,883)

Total	$	5,409	$	(156,277)	$