Yahoo Finance

Jason Darby

Good morning, everyone. When considering this was an election cycle conclusion quarter, I'm particularly proud of the solid results we produced as usually, this is a tougher quarter for us financially. As slide 3 shows, net income was $24.5 million or $0.79 per diluted share, and core net income, a non-GAAP measure, was $28 million or $0.90 per diluted share, $0.01 below our prior quarter record, reflecting the power and sustainability of our earnings.
And while the quarter does show the large but also expected decline in political deposit balances, which peaked at a record $2 billion during October, we also beat our expectations with $1 million of net interest income growth, a 43 basis points leverage ratio increase, an 8 basis points increase in our net interest margin and loan growth of nearly 4%.
Looking a little more closely, the NII increase was aided by our ability to call our above market brokered CDs early in the quarter, enabled by the higher political deposit balances and by our interest-bearing deposits repricing nicely in response to the movement in the Fed rate. We did have a significant remix of our deposits as our DDA to IBA ratio declined from 50% to 40% and yet our margins still improved as our cost of funds lowered and we were able to shrink the balance sheet a little bit by selling securities at a nominal gain to fund our loan growth. Overall, we were quite pleased with our core financial performance.
Now the GAAP EPS was lower, but this reflects our continued work on restructuring the lowest-yielding part of our loan portfolio by marking and moving to held for sale another $32 million of performing residential loans at a $4 million pre-tax loss. This loss brings the full year 2024 difference between non-core off-balance sheet deposit income and non-core security sales losses and non-core fair value marks on residential loans held for sale to nearly zero.
Additionally, we agreed to sell $3.9 million of no-performing residential loans and sell the note for $2.3 million non-performing multifamily loan. Taken as a whole, all of this work was done to strengthen our balance sheet, which we believe is the number one driver of bank valuation.
Continuing to slide 4, we look at some of our key performance metrics during the fourth quarter. Starting on the left, our tangible book value per share increased $0.31 or 1.4% to $22.60. And our core revenue per diluted share was $2.67 for the fourth quarter, a $0.05 increase from the prior quarter.
Moving across to our returns. Core return on average equity was 15.8%. This decline has been expected as we added over $120 million of organic capital during the year. That said, we remain near the top of the pack and well-positioned to return more capital to shareholders, as Priscilla previously mentioned. Our core return on average assets was 1.34%, demonstrating our earnings optimization at our current asset size.
Regarding capital, our CET1 ratio is at an industry-leading 13.9%, demonstrating the strength of our balance sheet and the conservative risk-based allocation of our capital while still generating top-level earnings. Tier 1 leverage improved another 43 basis points to 9.06%, showing the momentum that Amalgamated now builds capital. As a result, our Board of Directors authorized a 17% increase to our dividend to be paid in February and we repurchased approximately $845,000 in shares in the fourth quarter.
Going forward, we are targeting a quarterly 20% to 25% total payout ratio, which includes both dividends and share repurchases. Our tangible common equity to tangible assets was 8.41%, representing the ninth consecutive quarter of improvement. This reveals the impact of selling over $835.7 million of underwater securities since March of 2022.
Moving to slide 5. Total deposits at December 31, 2024, were $7.2 billion, a decrease of $414 million from the linked quarter. On-balance sheet deposits, excluding brokered CDs, decreased by $311.9 million or 4.2% to $7.2 billion. Additionally, our non-interest bearing deposits decreased to approximately 44% of average deposits and 40% of ending deposits, excluding brokered CDs in relation to political deposit outflows. Importantly, our average cost of deposits, excluding brokered CDs, held relatively steady at 152 basis points in the fourth quarter as compared to 151 basis points in the linked quarter.
As noted, we borrowed $250.7 million of short-term funds to cover the year-end outflows, where we're already seeing reduced borrowing levels as cyclical pension deposits returned to the balance sheet. And while our political deposit balance has not changed much since year-end, we expect balances to steadily increase in the coming months as we begin the accumulation phase of what should be a highly spirited 2026 mid-term election.
Jumping ahead to slide 8. Net loans receivable at December 31, 2024, were $4.6 billion, an increase of $126.4 million or 2.8% compared to the linked quarter. The yield on our total loans increased 21 basis points to 5% during the quarter. The increase in loan income and yield was primarily due to $126.2 million increase in average loan balances as well as the recognition of a $1.3 million acceleration of deferred costs on certain loans in the prior quarter.
Adjusted for this discrete item, loan interest income increased by $2.6 million in the quarter and yields increased 9 basis points. Importantly, our loan growth in the quarter was well balanced with $56.5 million in commercial real estate and $117.1 million in C&I. For 2025, we target around 2% loan growth per quarter with similar balance between commercial real estate and C&I.
Moving to slides 9, 10 and 11. Looking at the real estate portfolio, we have $297 million in lower-priced commercial real estate and multifamily loans maturing over the course of 2025 and another $148 million in 2026. During the quarter, we renewed one $5.4 million credit with pre-1974 exposure via combination of cash infusion and amortizing terms in exchange for modest rate concessions.
In 2025, we have just $28 million of pre-1974 loans maturing. And perhaps most notably, we reduced our allowance coverage ratio on our multifamily portfolio to 21 basis points, reflecting our confidence in the portfolio asset quality after selling the note for a rapidly deteriorating credit.
Moving to slide 14. There were a fair amount of puts and takes in our criticized assets during the quarter. While our total criticized assets modestly increased $7.3 million to $95.9 million, there were downgrades to four commercial and industrial loans totaling $38.2 million to substandard and accruing as well as downgrades to one $5.4 million performing multifamily loan and an additional $0.9 million of small business loans. These movements were mostly offset by other payoffs or upgrades along with charge-offs that reflect our decisive action on problem assets.
Finishing on slide 15, we are introducing full year 2025 guidance of core pre-tax pre-provision earnings of $159 million to $163 million and net interest income of $293 million to $297 million, which considers the effect of the forward rate curve of 2025. Additionally, we estimate an approximate $1.7 million decrease in annual net interest income for a parallel 25 basis points decrease in interest rates beyond what the forward curve currently suggests.
Briefly looking at the first quarter of 2025, our net interest margin may compress 2 basis points to 3 basis points from our Q4 mark while our political deposits rebuild and we pay down our short-term borrowings from year-end. As a result, we expect our net interest income to range between $70 million and $71 million in the first quarter.
Rounding out 2025 full year guidance, our plan shows solid growth in revenue and core pre-tax pre-provision earnings, albeit at a more normalized pace compared to our stellar growth rates in 2024. 2025 will be a transformative year where we make necessary investments for the purpose of significantly growing revenue in 2026 and infrastructure preparations for becoming larger in the years to come.
With that said, we have appropriate constraints in our plan that prioritize performance metrics and shareholders. Wrapping up, we are delighted to deliver record results for our shareholders in 2024 and look forward to opportunities to grow the bank in the years and years ahead.
And now, operator, please open up the line for any questions. Operator?

Question and Answer Session

Operator

(Operator instructions)
Mark Fitzgibbon, Piper Sandler.

Mark Fitzgibbon

First question, Jason, just to clarify something you said before. I think you said you expect 2% loan growth per quarter in 2025, but your guidance in the slide for balance sheet growth is only about 3%. So should we assume the securities book is going to shrink a bunch this year?

Jason Darby

Yeah, Mark, that's exactly the play. The balance sheet is going to work in concert with movement in the securities portfolio, and we do expect to shrink the traditional securities portfolio to support the loan growth that we're talking about. 2% is probably going to be our outer range in terms of growth for the quarter. If it's something less than that, we'll still be in a good spot to meet the balance sheet targets that we've set out. But to answer your question specifically, yeah, we would see the securities portfolio do the funding for a decent portion of that loan growth that would be in that 2% target.

Mark Fitzgibbon

Okay. Great. And then secondly, I wondered if you could share any color with us on the loan pipeline, maybe size, complexion, average rate, things like that.

Sam Brown

Mark, it's Sam. Thanks for joining us. We're optimistic about the pipeline. It's definitely got good diversified components between C&I and the multifamily and CRE book. We're seeing rates coming on the pipeline on the CRE side in the kind of mid- to high six on the C&I side, higher than that in the kind of low to mid-seven. Also seeing some good activity coming on in the C-PACE portfolio, which we're pretty happy about. So I think all in all, between pipeline and the maturity schedule, we feel really good about being able to hit that 2% per quarter range.

Mark Fitzgibbon

Okay. Great. And then I wondered if you could share any comments with us on the four C&I loans that caused that uptick in criticized and classified?

Jason Darby

You want to go ahead?

Sam Brown

Sure. Yeah. So Mark, a lot of that comes from -- there's just a lot of puts and takes in the C&I book from the effects of the higher for longer interest rate environment. We feel very good about the structures on those loans. And those are the puts and takes you see in the criticized bucket and carrying those through so that there's never any surprises. We also feel very good about the conversations we're having with those borrowers and getting what we need when we talk to them through things like equity infusions into those projects and feel like those structures are in a good spot, and we feel good about the trajectory of those.

Jason Darby

I think and add to that, just we're pretty conservative, Mark, in terms of how we put our risk rating together. And if things are marginal on performance metrics, we'll move to classify them in a manner that we think is appropriate for investors to understand what the credits look like. But it's important to note that all of them are an accruing standard and none of them have missed payments at this point in time. It's just our look at the most recent financials and how we view presentation to investors for conservative purposes.
But on the flip side, we've done that for several other credits throughout the year that have returned to favorability, and that's what drove that relatively minor overall increase in the criticized and classified is that other credits have a similar type of grading earlier in the year did return to a performing status during the quarter as well.

Mark Fitzgibbon

Okay. And then lastly, something you and I talked about previously, Jason, I was curious, any impact on the PACE credits related to the California wildfires?

Jason Darby

There have been no impact in our portfolio. There might be one very small credit that was affected by it. It's very immaterial, but we've done a review of the portfolio by Zip Code, and we feel very good about the quality of the portfolio and the risk that were there. There's nothing in our commercial portfolio as well.
So all in, while it's a horrific situation, the credit distribution that we have was able to escape that particular issue. Obviously, the fires are still ongoing. So we'll see how everything plays out, but we've not made any moves in our portfolio or have we made any additional coverages through the ACL to account for anything related to the fires.

Operator

Chris O'Connell, KBW.

Chris O'Connell

Just wanted to start off, I may have missed it. Did you mention an expense guide for '25?

Jason Darby

We did not put a specific reference in the guidance relative to expenses, but we're targeting about $170 million for the year. So it's about a 6% lift from where we're closing out 2024, and it takes into account a number of what we feel are necessary investments to be able to grow revenue both towards the end of this year and into the future.
In terms of the $170 million, I don't have a ratable distribution. I think what you'll see will be very similar, maybe a little bit elevated in Q1 relative to our Q4 number. And then it will slowly ramp as we get through the year because most of the expense lift is going to be in the form of additional hiring for production purposes or for technology-related investments that will start to come on to the P&L towards the back half of the year.

Chris O'Connell

Okay. Great. And is that kind of 6% PACE, do you think that continues, obviously, very early, but more or less into 2026? And are these this kind of PACE inclusive efforts and preparations towards getting to the $10 billion mark?

Jason Darby

Difficult to say what the PACE of expense will be in 2026. But what I can comment on is the investments now are a little bit ahead of the revenue growth because we know that we need to have assets put in place to be able to continue to drive revenue growth above where the expense growth will be in the coming years. So we intend to get back to a positive operating leverage model in 2026 and the extent to which revenues are going to grow would really dictate what the expense PACE will grow as well.

Priscilla Brown

Yeah. This is Priscilla. Thanks for the question. I absolutely would underscore that this is a little bit different than what we've talked about for the last three years around sort of putting revenue ahead of expense. In this instance, what we're telling you is that we recognize that some technology investments, some investments both in trust and other parts of the sort of sales areas, would benefit us over the long run, and you will start to see that revenue toward the end of '25 or certainly by the beginning of '26.

Chris O'Connell

Okay. And then just circling back to the balance sheet, I appreciate the overall growth color on the loan side. How are you guys thinking about the level of PACE growth into next year?

Jason Darby

Yeah. I think we're targeting about $20 million a quarter in residential PACE. I think there's also -- that's on a net basis, Chris, sorry. And I think there's also a basket to fill on commercial PACE somewhere in that $60 million to $75 million range. We're not constrained by that at all. I think we have capacity to grow. We see our pipeline having a lot of really good opportunities, particularly on the commercial side.
But PACE is still going to be an important asset class for us. And we think if we can put on between the two tranches of our PACE and C-PACE somewhere around $150 million net, that would be a good number for us for the year. And with the rates being somewhere in that low 7% range on both of those asset tranches, that's a really good way for us to drive fixed yield and also continue to keep our CET1 in a really strong place.

Chris O'Connell

Okay. Great. And then on the deposit side, can you talk about maybe some of the timing and the impact that you guys had towards the end of the quarter of the outflows that I think were more than just related to the political outflows? And do you see that building back fairly quickly in the first quarter of '25 or more of a steady ramp over time?

Priscilla Brown

I think it's probably best to do two things. First of all, think about it over the course of the year where you saw the growth in deposits and almost -- well, in each of our segments. But as you look at what happened in the fourth quarter if you think about the political piece, I think you've got the bar chart and you've heard us talk all year about what the cycle would look like and particularly in the quarter of the election, you would see the money being spent. That's also true about the ecosystem around it.
So we saw that a little bit in each of the other in not-for-profit and other segments sort of where spending and investments were taking place in the fourth quarter in anticipation of a new administration. And then I think the labor cycle is pretty predictable every year as well. The end of every you know, the last part of every quarter, there's usually a little downturn. And in the fourth quarter, in particular, there's usually some spending. And we've seen some of that come back already.
Sam, you may have more color on that?

Sam Brown

Yeah, that's right, Chris. I think what happened in the labor bucket is very seasonal, very demonstrated through AMAL's history over many, many years. And just as Priscilla said on page 5, where we showed what has already come back just in the first few weeks of the year, very much focused in the labor space.
There was in our social and philanthropic bucket, a number of investments that were made at the end of the year that drove a lot of that. We were happy in the actual not-for-profit section. Those were relatively flat quarter-over-quarter. But we are bolstered by what we're seeing in pipeline and activity and just again, what is already rebuilding as we enter the replenishment phase in the first quarter here in '25.

Jason Darby

So Chris, if you don't indulge me, maybe I'll just add one last part to this answer for you, which hopefully is fulsome. The way that we've modeled the rebuild though for the first quarter has been quite slow and steady, right? So to Sam and Priscilla's point, we do expect to see this move back in, not just with political, but across all of our segments throughout the year.
But the way that we see the first quarter shaping up, and that's why we said we might have a little margin compression and might see NII be down a little bit is that we're going to be working through the short-term borrowing position that we ended up with at the end of the year. And because we are operating from a significantly higher place in terms of interest-bearing accounts versus non, we've moved from 50% DDA to IBA down to 40%, you'll see us have to reaccumulate those lower or DDA-related deposits to see the NII start to lift, and that will probably start to happen again into Q2, Q3 and Q4. So you'll see a little bit of dip in NII probably in Q1 and then margin expansion, NII expansion as we move throughout the rest of the year in relation to the answers that Sam and Priscilla both gave.

Priscilla Brown

And not to belabor the point, there's just one other thing I think is important to note that I mentioned in the beginning that you should really think about this really pretty stellar year against a system or an industry that had negative deposit growth, we grew 5%.
And if you look at our super cores, we continue to grow there at 200 basis points year-over-year, which really just shows the continued migration of newer relationships to follow suit and our longer-term sticky relationships. So yes, the build will be slow because there will continue to be investments made by these sectors. But we absolutely think of this as cyclical, pretty predictable and feel very optimistic about the pipeline.

Chris O'Connell

Great. Yeah. I appreciate all the detail. And I know you guys are following the forward curve in the NII guide, but just to be a bit more specific, would you mind disclosing how many Fed cuts you have in there and just the timing?

Jason Darby

Sure. We are modeling two rate cuts in the NII guide right now. The timing generally is March and then December, although we don't have it specifically marked on those particular months. We're just sort of following what we think the cut will be. It's a little bit more blended, but I would call it weighted more towards the second half of the year than the first, but those two cuts, 50 basis points in total, and that's where we've come up with our NII projections.
And we think they're pretty conservative assumptions too, relative to betas and things of that nature. I think we always try to give you our most conservative view on what NII will look like, especially this early in the year, and you can probably expect us to refine our guidance targets throughout the year as we get a little bit more view and certainty as to what's going to happen with the rate environment and the overall macroeconomic environment as well.

Chris O'Connell

Perfect. And then just last couple for me. On the credit side, it seems like this quarter had a couple of cleanups with the sales of some non-performers and otherwise, it's been trending in a pretty good direction here. Have you seen the consumer solar, do you think that continues to migrate downwards where it's been -- it looks pretty similar in the last couple of quarters, but down from earlier. Do you think that continues to migrate lower in terms of charge-offs into 2025? And how are you thinking about, I guess, a more normalized net charge-off levels into next year?

Jason Darby

Sure. So on the consumer solar, really difficult to predict just given the historical performance of the portfolio and also the fact that the rate environment is probably going to remain in an elevated place. So the longer that goes on, the more stress it place on certain types of consumers.
With all that said, we model charge-offs for this year similar to what we experienced last year, trying to take a conservative approach on that. But we've also been working very hard, and I've talked about this a little bit before, we've been working very hard behind the scenes to control our destiny a little bit better on the collection side. As you probably know, Chris, the consumer solar portfolios are all serviced by other and the bank has been active in acquiring those servicing rights so that we can perform our own collections.
Now we're not at a place to say where we are exactly with that acquisition. But at the same time, we feel pretty good that if we are able to get a hold of the servicing rights that we'll be able to drive more recoveries through the process, which would ultimately have a beneficial impact on that NCO. But as of right now, we're modeling it to look similar to last year with the hopes that this will be the peak in terms of elevation levels and that we'll be able to drive that number lower going forward.
I don't know if I got the whole question there, but that was the consumer solar part. Was there something else, Chris, that I didn't answer for you?

Chris O'Connell

No, no, that was great. No, I was just going to say last is just what's a good go-forward tax rate here?

Jason Darby

I'm sorry, can you talk about tax rate?

Sam Brown

Tax rate, I'll start with that. Yeah. We're looking at 26.85% as an effective tax rate coming up. So if you're there, 27%, I think that's a good model estimate for the coming year. And we feel pretty good that we've been able to move most of the discrete items off of the provision inventory and have a pretty clean tax base going forward, which will hopefully reduce a lot of the volatility that we've had in past years.

Chris O'Connell

Great. I appreciate the time. Thanks for taking my questions.

Operator

Thank you. There are no further questions at this time. I would like to hand the floor back over to Priscilla Brown for any closing comments.

Priscilla Brown

Thank you, operator, and thank you for those questions and your continued interest. We appreciate the time. We love talking about our results, and we believe that they continue to demonstrate the strength and competitive advantages that Amalgamated has.
I'd like to thank our employees, as usual, for their hard work and dedication to the bank. It's been a stellar year, and our success would not be possible without the commitment and determination of every one of our talented team members, many of whom are on this call.
And to conclude, I just would say that we couldn't be more excited about the opportunities that lay ahead for the company. The bank continues to operate at a high level with a strong earnings base and multiple avenues to drive further growth and returns. And we look forward to updating you on our progress on the first quarter call. Thank you again for your time today.

Operator

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.