KBRA Affirms Ratings for Amalgamated Financial Corp.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Amalgamated Financial Corp. (NASDAQ: AMAL) (“the company”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for the subsidiary, Amalgamated Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings reflect AMAL’s unique and defensible corporate strategy focused on a niche client base with ample growth opportunities. With the CEO and CFO now in their seats for over two years, we view the collective executive team as highly capable and disciplined, with a clear strategic vision in place to expand the franchise and augment operating performance over time through leaning deeper into mission aligned opportunities. As such, earnings have demonstrated incremental improvement, with ROAA of ~1.10% in 2022 and 1H23, which also benefited from the rising rate environment. Also key to the ratings is an attractive, low-cost deposit base (1.02% cost of deposits in 1H23 versus the rated peer group’s 1.53%), which fully funds loans. The LTD ratio has, most recently, been in the mid to low-60% range allowing for flexibility within the deposit base. In its contemporary form, AMAL reflects a lower credit risk profile relative to peers, evidenced by a RWA density in the low to mid-60% range. While we view AMAL’s strategy as defensible, we note organic loan growth has been supplemented by other channels, including select, albeit conservatively underwritten, portfolio purchases. Historical loss content has been contained, in part, due to a benign credit environment, though also management’s credit-focused culture since its 2014 de-risking. Meanwhile, moderately above peer levels of NPAs in recent periods have included legacy run-off loans, while the occasional uptick in NCOs, including those experienced during 2020 and 2021, were also derived from these portfolios. Consolidated capital ratios are adequate in the context of a low risk profile and, when combined with LLR/loans (1.59%) and solid earnings, offer a solid cushion to absorb potential credit losses.

Rating Sensitivities

A ratings upgrade is not expected in the near term. Over the longer term horizon, earnings and credit performance in line with higher rated peers, along with appropriately managed capital and maintenance of a healthy funding profile, would be viewed positively. Furthermore, unexpected credit quality issues or significant losses, aggressive capital management, or a material shift in risk appetite could pressure ratings negatively.

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