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 attractive, low-cost deposit base (1.52% cost of deposits in 1H24 versus the rated peer group’s 2.45%), which has supported NIM durability in the higher rate environment. The lower deposit costs are aided by a meaningful amount of NIB accounts comprising 46% of total deposits. Furthermore, the deposit franchise fully funds loans with a loan-to-deposit ratio of 60%, allowing for a degree of funding flexibility. While AMAL maintains a lower yielding loan portfolio given a higher concentration of mortgage and multifamily portfolios, along with a comparatively lower loan to earning asset mix, the company's NIM is also supported by the higher yielding securities portfolio, which includes its PACE asset class. Since 2022, AMAL has repositioned $750 million lower-yielding securities supporting a 178-bps increase in average securities yields to 5.07% for 2Q24 compared to 3.00% for peers. 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. While NPAs track moderately above peers, loss content remains manageable. Consolidated capital ratios have tracked well above peers with CET1 tracking more than 200 bps above peers at 13.5% as of 2Q24, and when combined with LLR/loans (1.42%) and solid earnings, offer a solid cushion to absorb potential credit losses. The ratings are also supported by the company’s unique and defensible corporate strategy focused on a niche client base with ample growth opportunities. We view the collective executive team as highly capable with a clear strategic vision in place to expand the franchise and augment operating performance over time through mission aligned opportunities.

Rating Sensitivities

A ratings upgrade is not expected in the near term. However, continued growing earnings capacity and credit quality outperformance, along with maintenance of sufficient capital levels and 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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