KBRA Publishes Rating Report for Amalgamated Bank
On October 27, 2020, Kroll Bond Rating Agency (KBRA) assigned senior unsecured debt and deposit ratings of BBB+, a subordinated debt rating of BBB, and short-term debt and deposit ratings of K2 to New York, New York-based Amalgamated Bank (NASDAQ: AMAL)(“Amalgamated” or “the bank”). The Outlook for the long-term ratings is Stable.
The ratings reflect Amalgamated’s clear and defensible corporate strategy focused on a niche client base with ample growth opportunity. Skilled leadership has been instrumental in de-risking AMAL post-2014. While the current CEO recently announced his pending departure, the collective executive team is highly capable, and we do not expect a shift in core strategy. In its contemporary form, AMAL reflects a lower credit risk profile relative to peers, evidenced by a low RWA density (mid-60% range). While we view AMAL’s strategy as defensible, we note that organic loan growth generated by its niche client base has been supplemented by other channels, including select, albeit conservatively underwritten, portfolio purchases. A moderately above peer level of NPAs includes legacy run-off loans. However, recent year loss content has been negligible, in part, due to favorable credit conditions prior to 1Q20, though also the management team’s credit-minded culture. KBRA notes AMAL’s below peer exposure to ‘at-risk’ industries, which accounts for 3% of loans. Also key to the ratings is AMAL’s attractive, low-cost deposit base (cost of deposits of 14 bps as of 3Q20), which fully funds loans (LTD ratio typically trending below 80% in recent periods) and has supported NIM durability, prior to challenging conditions arising in 1Q20. Reported earnings are somewhat below peers, though AMAL’s risk-adjusted return profile is solid (RORWA of 1.45% in 2019) and has demonstrated incremental improvement over time. Capital ratios are adequate in the context of a low risk profile, and when considered in conjunction with reserve coverage (ALL/loans ratio of 1.34% as of 3Q20) and earnings, offer a solid cushion to absorb potential credit losses through the current down cycle.
KBRA continues to monitor the potential direct and indirect effects of the coronavirus on the banking sector, among others. Please refer to our publication U.S. Bank 2Q 2020 Ratings Compendium for our latest thoughts.
The ratings are based on KBRA’s Bank & Bank Holding Company Global Rating Methodology published on October 16, 2019.
Further information on key credit considerations, sensitivity analyses that consider what factors can affect these credit ratings and how they could lead to an upgrade or a downgrade, and ESG factors (where they are a key driver behind the change to the credit rating or rating outlook) can be found in the full rating report referenced above.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the U.S. Information Disclosure Form located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the U.S. Information Disclosure Form referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
KBRA is a full-service credit rating agency registered as an NRSRO with the U.S. Securities and Exchange Commission. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe is registered with ESMA as a CRA.