Amalgamated Financial (AMAL) Q2 2023: Political Deposits Surge $158M, Fueling Deposit Base Stability
AMAL’s Q2 saw a decisive $158 million political deposit inflow, spotlighting the bank’s resilience amid sector volatility. With SuperCore deposits anchoring stability and sustainable lending continuing to reshape asset yields, the company is leveraging its mission-driven model for future margin expansion. Management remains focused on balance sheet discipline, capital build, and a mix shift toward higher-yielding climate loans as election-related deposit momentum builds into 2024.
Summary
- Political Deposit Accumulation: Election cycle inflows are rebuilding non-interest-bearing funds, reinforcing funding cost advantages.
- Sustainable Lending Mix Shift: Higher-yielding climate and multifamily loans are replacing legacy assets, setting up margin expansion.
- Capital and Liquidity Discipline: Leadership is prioritizing capital ratios and liquidity coverage to buffer against sector uncertainty.
Business Overview
Amalgamated Financial Corporation is a mission-driven commercial bank focused on socially responsible banking, with a legacy in union and values-based relationships. The company’s revenue model centers on net interest income from loans (including sustainable lending, multifamily, and commercial real estate), deposit services (with a unique strength in political and SuperCore deposits), and fee-based non-interest income such as trust and treasury services. Major segments include core deposit banking, sustainable commercial lending, and investment securities, with a growing emphasis on climate-aligned lending and political banking services.
Performance Analysis
Q2 results demonstrated notable resilience in deposit stability and a clear shift in asset mix. The bank’s core deposit base remained solid, with non-interest-bearing deposits at 46% of ending balances, underpinned by a $158 million linked-quarter increase in political deposits as the election cycle ramps. This trend is critical for AMAL, as political funds are typically low-cost and non-interest-bearing, providing a structural funding edge versus peers.
Loan growth was modest at 1.3% QoQ, reflecting selectivity in new originations and a deliberate pivot toward higher-yielding climate and multifamily assets. The company’s SuperCore deposits—customers with over five years’ tenure—comprise 54% of core deposits, with average relationships spanning 17 years, further reinforcing deposit stickiness. Margin compression was evident, driven by rising deposit costs and a temporary dip in loan yields from consumer solar runoff, but management expects this to reverse as legacy loans roll off and climate lending scales.
- Political Deposit Inflows Accelerate: $158 million growth in Q2, with additional momentum into July, as the election cycle drives new balances.
- SuperCore Deposits Anchor Stability: $3.6 billion, or 54% of core deposits, with exceptionally long relationship tenure.
- Loan Yield Blip: Temporary dip in loan yield due to consumer solar runoff, with a positive outlook as higher-yielding loans are added.
Liquidity coverage improved materially, with immediate liquidity now covering 85% of uninsured deposits, up from 79% last quarter. The company’s capital position also strengthened, with Tier 1 leverage ratio rising to 7.78% and a continued focus on building to 8% or higher by year-end.
Executive Commentary
"Our super core deposits come from loyal customers that have banked with Amalgamated for more than five years and cumulatively represent approximately $3.6 billion or 54% of our core deposits at the end of the second quarter. These customer relationships have been with us for more than 17 years on average. When thinking about a bank's deposit stability, our super core deposits are an incredible advantage."
Priscilla Sims‐Brown, President and Chief Executive Officer
"Our political franchise is a big contributor of non-interest bearing deposits as funds are largely in DBA accounts given their life cycle. And this helps to mitigate the rise in deposit costs and adds flexibility for us as some of our customers' deposits move off balance sheet into our treasury investment services, where they seek higher yields in the current rate environment."
Priscilla Sims‐Brown, President and Chief Executive Officer
Strategic Positioning
1. Political Deposit Franchise as a Structural Funding Advantage
The political banking segment, built over a decade, provides significant non-interest-bearing funding, especially during election cycles. As the 2024 presidential race heats up, AMAL expects continued inflows, which will help offset sector-wide deposit cost inflation and provide a stable, low-cost funding base.
2. Sustainable Lending Drives Future Margin Expansion
The bank is actively shifting its loan mix toward climate and sustainable lending, where yields are 6.75% to 7%, compared to 3.5% to 4% for legacy multifamily and commercial loans. Management sees this as a multi-year earnings lever, with climate lending expected to drive asset yield expansion as legacy loans roll off over the next 12 to 18 months.
3. Balance Sheet Discipline and Capital Build
Leadership is prioritizing capital strength, targeting an 8% Tier 1 leverage ratio by year-end to ensure flexibility and resilience. Securities portfolio runoff is being used to fund loan growth, while liquidity coverage of uninsured deposits has improved, reflecting a conservative stance amid sector volatility.
4. SuperCore Deposits Enhance Relationship Banking Moat
SuperCore deposits (customers with >5 years tenure) are not only sticky but also largely uninsured, reducing run risk and providing a stable funding foundation that competitors with more transactional customer bases may lack.
5. Selective Growth in Multifamily and Impact Lending
Multifamily loan growth is focused on workforce and mission-aligned housing, balancing yield and impact. The bank remains cautious on commercial real estate, especially office exposure, but is open to select opportunities with strong collateral and deposit relationships.
Key Considerations
This quarter’s results highlight AMAL’s unique positioning in the banking sector, leveraging its values-driven model for both funding and lending differentiation.
Key Considerations:
- Election Cycle Tailwind: Political deposit inflows are expected to build through 2024, supporting low funding costs and deposit stability.
- Mix Shift to Higher-Yielding Loans: Asset yield expansion is likely as legacy loans are replaced by climate and sustainable lending originations.
- Margin Pressure Remains Near-Term: Deposit cost escalation and temporary loan yield softness may continue to compress NIM before the mix shift fully materializes.
- Capital and Liquidity Focus: Management is disciplined about capital ratios and liquidity coverage, providing a cushion against sector shocks.
- Mission Alignment as a Differentiator: Deep customer relationships and a values-based approach drive both deposit stickiness and lending opportunity.
Risks
Rising deposit costs and sector-wide competition for funding remain a risk, especially if political deposit inflows do not match expectations or if rate pressures persist. While the bank’s office CRE exposure is low and well-collateralized, broader commercial real estate market stress could still pose asset quality challenges. Additionally, the sustainability of consumer solar loan performance and the pace of legacy asset runoff will impact the timing of margin recovery.
Forward Outlook
For Q3 2023, Amalgamated guided to:
- Net interest income of $61 to $62 million, reflecting modest margin compression from deposit cost pressures.
- Non-interest expense expected to trend in line with Q2 levels.
For full-year 2023, management maintained guidance:
- Core pre-tax pre-provision earnings (ex-SOLAR) of $133 to $140 million
- Net interest income of $248 to $255 million
Management cited continued political deposit inflows, a deliberate balance sheet mix shift, and a focus on capital build as key drivers for the remainder of the year.
- Anticipates further election-driven deposit growth into 2024
- Expects NIM to compress 5 to 10 basis points near term before stabilizing
Takeaways
AMAL’s differentiated funding base and climate lending focus provide a structural advantage as the sector navigates higher-for-longer rates and deposit competition.
- Deposit Stability is a Core Strength: SuperCore and political deposits are anchoring funding costs and enabling strategic asset rotation.
- Margin Recovery Hinges on Loan Mix Shift: The pace of legacy asset runoff and new climate loan origination will determine how quickly margin expands.
- Election Cycle is a Unique Catalyst: Investors should monitor political deposit flows as a leading indicator for funding cost trajectory and balance sheet growth.
Conclusion
Amalgamated’s Q2 underscores the power of its mission-driven, relationship banking model, with political and SuperCore deposits providing rare stability and climate lending setting up for future earnings growth. The company’s focus on capital discipline and selective asset growth positions it well for the coming election cycle and sector headwinds.
Industry Read-Through
AMAL’s deposit base performance and capital discipline offer a playbook for regional banks facing funding cost escalation and sector volatility. The bank’s success in leveraging political cycles for deposit growth is unique but highlights the value of niche franchises and relationship-based banking in a commoditized sector. The accelerating mix shift toward sustainable lending also signals broader industry momentum around climate finance, with implications for yield, asset quality, and regulatory scrutiny across the sector. As election cycles lengthen and sustainable investment grows, banks with specialty franchises and strong customer loyalty will be best positioned to weather macro and sector-specific shocks.