Q1 2024 The Bancorp Inc Earnings Call
Operator: Good day, and welcome to the Bancorp Incorporated Q1 2024 earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. Please note, today's call will be recorded, and I'll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Andres Viroslav. Please go ahead.
Good day and welcome to the Bancorp incorporated Q1 2024 earnings Conference call.
At this time all participants are in a listen only mode.
Later, you will have the opportunity to ask questions. During the question and answer session.
You May register to ask a question at any time by pressing star one on your telephone keypad.
Please note today's call will be recorded and I'll be standing by if you should need any assistance.
Speaker Change: It is now my pleasure to turn the conference over to Andre Spirits Law. Please go ahead.
Andres Viroslav: Thank you, operator. Good morning, and thank you for joining us today for the Bancorp's first quarter 2024 financial results conference call. On the call with me today are Damian Kozlowski, Chief Executive Officer, and Paul Frenkiel, our Chief Financial Officer. This morning's call is being webcast on our website at www.thebancorp.com. There will be a replay of the call available via webcast on our website beginning at approximately 12 p.m. Eastern Time today. The dial-in number for the replay is 1-800-938-2241 with a confirmation code of Bancorp.
Speaker Change: Thank you operator, good morning, and thank you for joining us today for the Bancorp's first quarter 2024 financial results conference call on the call with me today are Damian Kozlowski, Chief Executive Officer, and Paul Frankel, Our Chief Financial Officer. This mornings call is being webcast on our website at www dot the Bancorp dotcom there'll be a replay of the call available via webcast on our web.
Speaker Change: Beginning at approximately 12 P M eastern time today, but the island for the replay is one 809 3822 for one with a confirmation code of Bancorp before I turn the call over to Damian I would like to remind everyone that when using this conference call. The words believes anticipates expects and similar expressions are intended to identify forward.
Andres Viroslav: Before I turn the call over to Damian, I would like to remind everyone that when used in this conference call, the words believes, anticipates, expects, and similar expressions are intended to identify forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995. Such statements are subject to risks and uncertainties, which could cause actual results, performance, or achievements to differ materially from those anticipated or suggested by such statements. For further discussion of these risks and uncertainties, please see Bancorp's filings with the SEC.
Damian M. Kozlowski: Looking statements within the meaning of the private Securities Litigation Reform Act like an owner.
Damian M. Kozlowski: Such statements are subject to risks and uncertainties, which could cause actual results performance or achievements to differ materially from those anticipated or suggested by such statements for further discussion of these risks and uncertainties. Please see the bancorp's filings with the SEC listeners are cautioned not to place undue reliance on these forward looking statements, which speak only as of the date hereof the bank.
Andres Viroslav: Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Bancorp undertakes no obligation to publicly release the results of any revisions to forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Now I would like to turn the call over to Bancorp's Chief Executive Officer, Damian Kozlowski. Okay, Damian? Thank you.
Corp undertakes no obligation to publicly release results of any revisions to forward looking statements, which may be made to reflect events or circumstances. After the date hereof or to reflect the occurrence of unanticipated events I would like to turn the call over to the Bancorp's Chief Executive Officer, Damian Kozlowski Damian.
Damian M. Kozlowski: Thank you, Andres. Good morning, everyone.
Damian M. Kozlowski: Thank you Andres good morning, everyone. The Bancorp earned $1 six a share with revenue growth of 8%, while expenses were 3% lower than first quarter of 'twenty three.
Damian M. Kozlowski: The Bancorp earned $1.06 a share with revenue growth of 8% while expenses were 3% lower than the first quarter of 2020. ROE was 28%, NIM was 5.15 compared to 2.0. 5.26 a quarter, mostly due to an increase in fed funds sold, and 467 year over year.
Damian M. Kozlowski: ROE was 28% NIM was 515 compared to two point.
Damian M. Kozlowski: Five to six quarter over quarter, mostly due to the increase in fed funds sold.
Damian M. Kozlowski: 467 year over year, and the efficiency ratio improved from 42% in the first quarter of 23% to 38% and 24.
Damian M. Kozlowski: And the efficiency ratio improved from 42% in the first quarter of 23 to 38% in 24. The fintech solutions group continued to expand relationships and show continued progress. GDV increased 12% year over year, and total fees from all fintech activities increased by seven. After adjustment for a client termination fee and the realization of $22 revenue in the first quarter of 23 due to a processing delay, fee growth was 16% year over year.
Fintech solutions group continued to expand relationships and showed continued progress GDP increased 12% year over year and total piece from Wolfe Fintech activities increased seven after adjustment for our client termination fee and the realization of 22 revenue in the first quarter of 'twenty three due to a processing delay fee growth was 16% year over year.
Damian M. Kozlowski: We continue to add new partners to expand our product capabilities with existing partners. Some of the highest growth areas of our our our Fintech Neo bank portfolio and corporate payments, we're pleased to announce block as a new partner to our Fintech solutions ecosystem.
Damian M. Kozlowski: We continue to add new partners and expand our product capabilities with the existing partners. Some of the highest growth areas are our fintech neobank portfolio and corporate payments. We're pleased to announce Block as a new partner in our fintech solutions ecosystem. The addition of this new relationship, as well as the continued organic growth of the current portfolio, should result in meaningful increases to the ACH card and other processing fees line item. In a regulatory environment where many of our competitors have come under significant scrutiny, our focus continues to be helping our partners innovate their product sets while maintaining a rigorous approach to meeting regulatory requirements and improving the robustness of our ecosystem.
Damian M. Kozlowski: <unk> of this new relationship as well as the continued organic growth of the current portfolio should result in meaningful increases to the HTH card and other processing fees line item.
Damian M. Kozlowski: In a regulatory environment, where many of our competitors have come under significant scrutiny. Our focus continues to be helping our partners to innovate the product sets, while maintaining a rigorous approach to meeting regulatory requirements and improving the robustness of our ecosystem.
<unk> side, we had growth across the portfolio of 2% quarter over quarter, while our institutional book decreased quarter over quarter by three 6% the rate of decrease was less than in the past year. It was more than offset by growth.
Damian M. Kozlowski: And other higher yielding.
Damian M. Kozlowski: Categories, which are mostly fixed lastly, with continued strong growth in our Fintech solutions group and growth across our lending portfolio. We are reaffirming our guidance of 425, a share without the impact of 50 million per quarter of share buybacks in 'twenty, four and the additional second quarter buyback.
Damian M. Kozlowski: On the lending side, we had growth across the portfolio of 2% quarter over quarter. While our institutional book decreased quarter over quarter by 3.6%, the rate of decrease was less than in the past year. It was more than offset by growth in other higher yielding categories, which are mostly fixed. Lastly, with continued strong growth in our fintech solutions group and growth across our lending portfolio, we are reaffirming our guidance of 425 a share without the impact of 50 million per quarter of share buybacks in 24 and the additional second quarter buyback of 50 million. I now turn the call over to Paul Frenkiel for more color on the first quarter.
Damian M. Kozlowski: $50 million.
Damian M. Kozlowski: I'll now turn the call over to Paul Frankel for more color on the first quarter.
Paul Frenkiel: Thank you Damian as.
Paul Frenkiel: As a result of its variable rate loans and securities Bancorp performance continues to benefit from the cumulative impact of batteries or rate increases in April 2020 for the bank purchased approximately 900 million of fixed rate U S Government Agency Securities.
Paul Frenkiel: <unk> reduced exposure to future Federal reserve rate decreases at an estimated average 5.11% yield.
Paul Frenkiel: Purchases have modest impact on current income while significant prepayment protection is reflected an estimated eight year weighted average lives.
Paul Frenkiel: Additionally, the bank continues to emphasize fixed rate loans to continue to further reduce its exposure to rate changes to modest levels in.
Paul Frenkiel: As a result of its variable rate loans and securities, Bancorp performance continues to benefit from the cumulative impact of Federal Reserve ratings. In April 2024, the bank purchased approximately $900 million of fixed-rate U.S. government agency securities to significantly reduce exposure to future Federal Reserve rates, at an estimated average 5.11% yield. Such purchases have a modest impact on current income.
Paul Frenkiel: In addition to the impact of the Federal reserve rate increases the company benefited from loan growth with what with decreases in S block and I block significantly offset by increases in other higher yielding lending categories. Accordingly, while S block and I back loans decreased $782 million in the past.
Paul Frenkiel: <unk> months other loan growth had approximately offset those reductions by March 31, 2024 at which state total loans amounted to $5 5 billion.
Paul Frenkiel: While significant prepayment protection is reflected in estimated eight-year weighted average lives, additionally, the bank continues to emphasize fixed-rate loans to further reduce its exposure to rate changes to modest levels. In addition to the impact of the Federal Reserve rate increases, the company benefited from loan growth with decreases in S-block and I-block loans, significantly offset by increases in other higher-yielding lending categories. Accordingly, while S-block and I-block loans decreased $782 million in the past 15 months, other loan growth had approximately offset those reductions by March 31, 2024, at which date total loans amounted to $5.5 billion.
Paul Frenkiel: The impact of the aforementioned federal reserve rate increases on variable rate loans and securities growth in higher yielding loan categories and lesser increases in deposit rates was reflected in a 10% increase in net interest income in Q1 2024 compared to Q1 2023 as a result in Q1.
Paul Frenkiel: 2020 for the yield on interest, earning assets had increased to seven 4% from six 6% in Q1, 2023 or an increase of 8% the cost of deposits in those respected respective periods increased by only <unk>, 3% to $2 four per se.
Paul Frenkiel: Those factors are reflected in the 5.15% NIM in Q1 2024.
Paul Frenkiel: The impact of the aforementioned Federal Reserve rate increases on variable rate loans and securities growth in higher yielding loan categories and lesser increases in deposit rates was reflected in a 10% increase in net interest income in Q1 2024 compared to Q1 2023. As a result, in Q1 2024, the yield on interest earning assets increased 7.4% from 6.6% in Q1 2023, an increase of 0.8%. The cost of deposits in those respective periods increased by only 0.3% to 2.4%.
Paul Frenkiel: The provision for credit losses was $2 2 million in Q1, 2024 compared to $1 9 million in Q1 2023.
Paul Frenkiel: Provision for credit losses in Q1, 2024 reflected the impact of 919000 of leasing charge offs, primarily in long haul and local trucking and related activities for which total exposure was approximately $39 million at March 31 2024.
Paul Frenkiel: Non performers increased during the quarter by $7 million for leasing and SPL, but mostly as a result of an apartment building loan for $39 4 million.
Paul Frenkiel: Compares to September at September 23, independent as is appraisal of $47 $8 million or an 82% as is L. T V with additional potential collateral value as rehabilitation progresses and units are released at stabilized rents.
Paul Frenkiel: Those factors are reflected in the 5.15% NIM in Q1 2024. The provision for credit losses was $2.2 million in Q1 2024 compared to $1.9 million in Q1 2023. The provision for credit losses in Q1 2024 reflected the impact of $919,000 of leasing charge-offs, primarily in long-haul and local trucking and related activities, for which total exposure was approximately $39 million at March 31, 2024. Non-performers increased during the quarter by $7 million for leasing and SBL, but mostly as a result of an apartment building loan for $39.4 million, which compares to September 23 an independent as-is appraisal of $47.8 million, or an 82% as-is LTV, with additional potential collateral value as rehabilitation progresses and units are released at stabilized rental rates.
Paul Frenkiel: Bill rates for.
Paul Frenkiel: For the 2.1 billion dollar apartment bridge lending portfolio as a whole the weighted average original.
Paul Frenkiel: Originated date as is LTV is 70% based on third party appraisals.
Paul Frenkiel: Are there the weighted average origination date as stabilized L. T V, which measures the estimated value of the apartments. After the rehabilitation is complete may provide even greater protection.
Paul Frenkiel: The origination that origination date as stabilized L. T V based on the third party appraisals for the portfolio was 61%.
Paul Frenkiel: But the banks rebel loans classified as substandard recent third party appraisals of those loans reflect a weighted average as is loan to value ratio of 79% and an as stabilized LTV of 76% accordingly, even with higher interest rate environment and other stress.
Paul Frenkiel: We believe L. T V's based upon third party appraisals continue to provide significant protection against potential loss.
Paul Frenkiel: Noninterest expense for Q1, 2024 was $46 7 million, which was 3% lower than Q1, 2023% to 2% increase in salaries and benefits was more than offset by decreases in other categories, including a $1.3 million decrease in other real estate owned.
Paul Frenkiel: For the $2.1 billion apartment bridge lending portfolio as a whole, the weighted average origination date, as is the LTV, is 70% based on third-party appraisal. Further, the weighted average origination date as stabilized LTV, which measures the estimated value of the apartments after the rehabilitation is complete, may provide even greater protection. The origination, that origination date as stabilized LTV based on the third-party appraisals for the portfolio, was 61%. For the bank's REBL loans classified as substandard, recent third-party appraisals of those loans reflect a weighted average as-is loan-to-value ratio of 79% and an as-stabilized LTV of 76%.
Paul Frenkiel: Related charges.
Paul Frenkiel: Book value per share at quarter end increased 19% to $15.63 compared to $13.11 a year earlier, reflecting the impact of retained earnings.
Paul Frenkiel: In summary, the bank's balance sheet has a risk profile enhanced by the special nature of the collateral supporting its low niches and related underwriting those loan niches have contributed to increased earnings levels, even during periods in which markets have experienced various economic stresses real estate.
Paul Frenkiel: Accordingly, even with the higher interest rate environment and other stresses, we believe LTVs based upon third-party appraisals continue to provide significant protection against potential loss. Non-interest expense for Q1 2024 was $46.7 million, which was 3% lower than Q1 2023. A 2% increase in salaries and benefits was more than offset by decreases in other categories, including a $1.3 million decrease in other real estate owned related charges. Book value per share at quarter end increased 19% to $15.63 compared to $13.11 a year earlier, reflecting the impact of retained earnings.
Paul Frenkiel: Bridge lending is comprised of workforce housing, which we consider to be working class apartments at more affordable rental rates in selected states. We believe that underwriting requirements provide significant protection against loss as supported by LTV ratios based upon third party appraisals as black and <unk>.
The black loans are respectively, collateralized by marketable securities and the cash value of life insurance, while SBA loans are either S. Sat SBA seven loans that come with significant government related guarantees where S. P. A four or five loans that are made at 50% to 60% Ltvs.
Paul Frenkiel: Additional details regarding our loan portfolios are included in the related tables in our press release as are the earnings contributions of our payments businesses, which further enhances our risk profile the risk profile inherent in the company's loan portfolios payments funding sources and earnings levels may present at.
Damian M. Kozlowski: In summary, the bank's balance sheet has a risk profile enhanced by the special nature of the collateral supporting its loan niches and related underwriting. Those loan niches have contributed to increased earnings levels, even during periods in which markets have experienced various economic stress. Real estate bridge lending is comprised of workforce housing, which we consider to be working class apartments at more affordable rental rates in selected states. We believe that underwriting requirements provide significant protection against loss as supported by LTV ratios based upon third-party appraisal.
Paul Frenkiel: <unk> to further increase shareholder value, while still prudently maintaining capital levels such opportunities include the recently increased planned share repurchases of $100 million for second quarter 2022.
Paul Frenkiel: From the original $50 million I'll now turn the call back to Damien.
Damien: Thank you Paul operator could you. Please open the line for questions.
Paul: Yes, Sir at this time, if you would like to ask a question. Please press the star and one on your telephone keypad.
Speaker Change: You may remove yourself at any time by pressing star two.
Speaker Change: Once again, if you would like to ask a question. Please press star one.
Speaker Change: Our first question will come from David Feaster with Raymond James. Please go ahead.
David Pipkin Feaster: Hi, good morning, everybody.
Damian M. Kozlowski: S Block and I Block loans are respectively collateralized by marketable securities and the cash value of life insurance, while SVA loans are either SVA 7A loans that come with significant government-related guarantees or SVA 405 loans that are made at 50-60% LTV. Additional details regarding our loan portfolios are included in the related tables in our press release, as are the earnings contributions of our payments businesses, which further enhances our risk profile. The risk profile inherent in the company's loan portfolios, payments funding sources, and earnings levels may present opportunities to further increase shareholder value while still prudently maintaining capital levels. Such opportunities include the recently increased planned share repurchases of $100 million for the second quarter of 2022, up from the original $50 million. I'll now turn the call back to Damian.
David Pipkin Feaster: Good morning, David.
David Pipkin Feaster: Maybe let's just start with the elephant in the room and touch on on this rebel credit.
It looks like you all took that into Oreo. This month and are planning to finish the rehab yourself could you could you maybe just talk about what led you to that decision rather than just selling it today and any specifics that you can with with this credit you know what you need to do the expenses, maybe that'll come from that just the timeline of when.
David Pipkin Feaster: And you think it can be stabilized and sold that you know no losses.
Speaker Change: Okay, So yeah and situate yes.
Speaker Change: Yes go ahead.
Speaker Change: Well, it's their choice.
Speaker Change: Like that.
Speaker Change: In situations like this.
Speaker Change: We go through a process.
Speaker Change: And when the sponsor.
Speaker Change: In this case has.
Speaker Change: And then an ability to raise more additional capital finish the project and they've already put additional land.
Speaker Change: And so it goes through a process of whatever it needs to be fixed over the next six to 12 months in order to lease up the entire property. So.
Damian M. Kozlowski: Thank you, Paul. Operator, could you please open the line for questions?
Speaker Change: We were working with the property manager, where I have a project plan in place and.
Operator: Yes, sir. At this time, if you would like to ask a question, please press star and one on your telephone keypad. You may remove yourself at any time by pressing star 2. Once again, if you would like to ask a question, please press star one. Our first question will come from David Feaster with Raymond James. Please go ahead.
Speaker Change: We'll finish it as quickly as possible during that entire process, we're not looking to monetize it for a gain so if somebody would you know we're in discussions with people about taking over the property and completing the projects. So that's ongoing Paul.
Paul: Yeah, So I would add the construct we actually added the acted immediately to preserve the value and that's really important because you want to keep the construction going get the apartments released as quickly as possible construction has already begun the rehabilitation has already begun.
David Pipkin Feaster: Hey, good morning everybody. Good morning, David. Maybe we should just start with the elephant in the room and touch on this rebel credit. It looks like you all took that into Oreo this month and are planning to finish the rehab yourself. Could you maybe just talk about what led you to that decision rather than just selling it today and any specifics that you can with this credit, you know, what you need to do, the expenses, maybe that'll come from that, just the timeline of when you think it can be stabilized and sold with, you know, no losses? Okay.
Paul: There is a little bit of construction involved as part of the rehabilitation and it's difficult to estimate, but it'll take at least several quarters.
Paul: For that to happen.
Speaker Change: Okay, and any estimates on on capital that you might have or reserves that you've already got against this that you could use the funded just kind of curious you know.
That side of it.
Speaker Change: Well if you look at the at the L. T V. As is on which you would base potential losses the value continues to be there.
Damian M. Kozlowski: Okay, so in situa- Yeah, go ahead. Well, in situations like this...
Speaker Change: So that's why we're going to finish up the.
Damian M. Kozlowski: In situations like this, we go through a process, and when the sponsor, in this case, has an inability to raise more additional capital to finish the project, and they've already put in more, it goes through a process of whatever needs to be fixed over the next 6 to 12 months in order to lease up the entire property. So, you know, we were working with the property manager; we have a project plan in place, and we'll finish it as quickly as possible. During that entire process, we're not looking to monetize it for a gain. So if somebody would, you know, we're in discussions with people about taking over the property and completing the project. So that's ongoing. Paul.
Speaker Change: The construction ourselves and preserve that value and actually potentially increase the value as the as that property get stabilized.
Speaker Change: Okay.
Speaker Change: Could you maybe touch on the rebel book, maybe more broadly are you anticipating more issues like this one are you hearing similar pressures from other borrowers and maybe just touch on how that service and Ltvs are are broadly on this book and maybe what gives you confidence in.
Speaker Change: In the remainder of the portfolio okay.
Speaker Change: First the.
Speaker Change: There was a bit of a.
Speaker Change: Why.
Speaker Change: I would characterize as a wave.
Speaker Change: That you see in our numbers today and this was originated mostly from the 'twenty, one and 'twenty two vintage of loans. So.
Speaker Change: We restarted this we've been in this business since 2016, we've had very good performance, we even issued securities.
And.
Speaker Change:
Paul Frenkiel: Yeah, so I would add that we actually acted immediately to preserve the value. And that's really important because you want to keep the construction going, get the apartments released as quickly as possible. Construction has already begun, the rehabilitation has already begun. There is a little bit of construction involved as part of the rehabilitation, and it's difficult to estimate, but it'll take at least several quarters for that to happen.
Speaker Change: What happened was there were a couple of shocks that happened we had the big inflation shocks.
Speaker Change: And we also had this interest rate shock now the inflation shock obviously for the business plans that people doing these deals.
Speaker Change: Changed.
Speaker Change: How much they had.
Speaker Change: Pay for the materials in order to go into.
Speaker Change: Upgrade these apartments and generally people worked with that some people got off plan for people.
Speaker Change: Added additional capital.
Speaker Change: And then you had this interest rate shock, so where that came in it wasn't the takeout is it take out even though it's maybe less sales of these properties. It's it's still there's the GSC, where youre going to have a refined.
David Pipkin Feaster: Okay, and any estimates on capital that you might have or reserves that you've already got against this? Used to fund it? Just kind of curious, you know, that side of it.
Paul Frenkiel: Well, if you look at the LTV as is, on which you would base potential losses, the value continues to be there. So that's why we're going to finish up the construction ourselves and preserve that value and actually potentially increase the value as the property appreciates.
Speaker Change: Refining rates in the 6% it was where if you got into trouble with your project because of the inflation shock you hadn't raised more money you probably did it once or twice.
Speaker Change: It's at the higher interest rate level, it became very expensive.
To add more capital to.
Damian M. Kozlowski: Could you maybe touch on the Rebel book more broadly? Are you anticipating more issues like this one? Are you hearing similar pressures from other borrowers? And maybe just touch on how debt service and LTVs are broadly in this book, and maybe what gives you confidence? in the remainder of the portfolio. Okay, first, there was a bit of what I would characterize as a wave that you see in our numbers today. And this originated mostly from the 21 and 22 vintage of loans. So we restarted this. We've been in this business since 2016. We've had very good performance. We even issued securities.
Speaker Change: <unk> finished the projects so that's where we've been working with our borrowers in order to help them with their business plans.
Speaker Change: And make sure the property get stabilized.
Speaker Change: And then can be refinanced.
Speaker Change: So we that wave has kind of come through there might be some more we haven't experienced a second wave. So there is some stabilization taking place place Paul.
Paul: Yeah, I would add that if you look at the substandard loans classified as substandard, which means they have some kind of an issue.
Paul: Even after all the stresses the Damien just went through.
Paul: Given the extra equity and other than the original.
Paul: And the original Ltvs that the the updated and current more current appraisals still show an LTV as is a 79% and slightly better as stabilized. So again, we have significant protection against loss.
Damian M. Kozlowski: What happened was there were a couple of shocks that happened. We had the big inflation shock. And then we also had this interest rate shock. Now the inflation shock, obviously, for the business plans of people doing these deals, you know, changed how much they had to pay for the materials in order to go into upgrading these apartments. And generally, people worked with that some people got off the plan because they added additional capital.
Speaker Change: That's extremely helpful and maybe let's switch gears to maybe the core business.
Speaker Change: Great to hear the new partnership with block that's huge could you touch a little bit.
Speaker Change: I'll elaborate what that relationship consists of.
Damian M. Kozlowski: And then you had this interest rate shock. So where that came in, it wasn't a takeout, it's a takeout, even though there are maybe less sales of these properties, there's still a GFC where you're going to have refining rates in the 6% range. It was where if you got into trouble with your project because of the inflation shock, you had to raise more money; you probably did it once or twice; but at the higher interest rate level, it became very expensive to add more capital to finish the project.
Speaker Change: When do you expect it to start contributing to growth and maybe also just touch on the pipeline of new partners and how that's trending just given the regulatory challenges in the space and your position I suspect Youre seeing more partners look towards you all I'm just curious if that's the case and maybe how the pipeline shaping up.
Speaker Change: So that's rapid funds ecosystem, that's where.
Speaker Change: Our relationship with block is so that we haven't we've had a small fraction of that volume come into the first quarter less than 15%, so you'll see that.
Speaker Change: Rollout over the next couple of quarters.
Damian M. Kozlowski: So that's where we've been working with our borrowers, in order to help them with their business plans and make sure the property gets stabilized, and then can be refined. So we, that wave has kind of come through. There might be some more. We haven't experienced a second wave yet. So there is some stabilization taking place.
Speaker Change: Pipeline is extremely strong very exciting things going on across our portfolio and like we've said in the past will be announcing these things when appropriate just as we have balanced block will continue to announce these.
Speaker Change: Partnerships as it becomes appropriate but.
Speaker Change: It's very strong it's only with very large.
Paul Frenkiel: Paul?
Paul Frenkiel: Yeah, I would add that if you look at the substandard loans classified as substandard, which means they have some kind of an issue, even after all the stresses that Damian just went through, given the extra equity and other and the original and the original LTVs, they still show an LTV as is of 79% and slightly better as stabilized. So again, we have significant protection against loss.
Speaker Change: Providers today have significant volumes. So when we do add three or four partners a year up to five partners year. They bring a lot of economics of the table.
Speaker Change: And they're very accretive so.
Speaker Change: Isn't changed last few years, it's been like this that scrutiny on the industry is obviously <unk>.
Speaker Change: Laos us to get visibility on almost all.
Speaker Change: Hum.
Speaker Change: Programs that are looking to maybe changed your provider. So it continues to be.
David Pipkin Feaster: That's extremely helpful. And maybe we should switch gears to maybe the core business. Great to hear about the new partnership with Block. That's huge. Could you touch a little bit on what that relationship consists of, when you expect to start contributing to growth, and maybe also just touch on the pipeline of new partners and how that's trending? Just given the regulatory challenges in the space, and in your position, I suspect you're seeing more partners look towards y'all. I'm just curious if that's the case, and maybe how the pipeline is shaping up.
Speaker Change: The prospects of the business.
Speaker Change: Continue to be very strong.
Speaker Change: That's great glad to hear it thanks everybody.
Speaker Change: Thank you. Our next question will come from Tim Switzer with K B W. Please go ahead.
Tim Switzer: Good morning, Thank you for taking my questions.
Tim Switzer: I had a I had a follow up on.
Tim Switzer: The road portfolio's credit performance, we've seen there is.
Tim Switzer: The increase in NPA theres another it looks about 6 million that moved into nonperforming.
Tim Switzer: That $39 million loan could you provide us some color on what also drove the increase beyond that and then.
If there is any other kind of notable.
Tim Switzer: Loans that have stopped paying but not yet in non accrual or showing up in other credit metrics. Yet can you provide some color there. Please.
Damian M. Kozlowski: So, that's the Rapid Funds ecosystem. That's where our relationship with Block is. So, we haven't had a small fraction of that volume come in during the first quarter, less than 15%. So, you'll see that roll out over the next couple of quarters. The pipeline is extremely strong, very exciting things going on across our portfolio. And, you know, like we've said in the past, we'll be announcing these things when appropriate, just as we have announced Block. We'll continue to announce these partnerships as it becomes appropriate, but it's very strong.
Tim Switzer: So.
The $6 million that you're referencing is comprised of a variety of of leasing and small business loan.
Tim Switzer:
Tim Switzer: Various industries, we have we do have a lot of diversification.
Tim Switzer: The issue we've had Ah it is primarily in terms of charge offs is primarily.
Tim Switzer: Are they a trucking and long haul transportation.
Tim Switzer: You know I think they just happened to hit like a.
Damian M. Kozlowski: It's only very large providers that today have significant volumes. So, when we do add, you know, three, four partners a year, up to five partners a year, they bring a lot of economics to the table, and they're very acquisitive. So, it hasn't changed in the last few years. It's been like this. But scrutiny on the industry obviously allows us to get visibility on almost all, you know, major programs that are looking to maybe change your provider. So, it continues to be, and the prospects of the business continue to be very strong. That's great!
Tim Switzer: Several of them just happened to hit this quarter, we're not expecting.
Tim Switzer: We don't really have knowledge of anything systemic that should increase those the SPL and the leasing a nonperforming.
Tim Switzer: Farmers, but we obviously scrutinize that portfolio very carefully and we will provide more detail in the 10-Q and in the tables that are required.
Speaker Change: Okay, Great appreciate the color there and it was good to see you guys starting to purchase the securities $900 million in April.
Speaker Change: How much do you plan to do more I think last quarter, you guys said anywhere between one to one 5 billion is that still kind of the target and what's your new asset sensitivity as you are.
David Pipkin Feaster: That's great. Glad to hear it. Thanks, everybody.
Operator: Thank you. Our next question will come from Tim Switzer with KBW. Please go ahead.
Speaker Change: We're trying to close the gap to that 60% deposit beta.
Okay. Okay.
Timothy Jeffrey Switzer: Morning. Thank you for taking my question. I had a follow up on the increase in MPA, there's another, it looks like about 6 million that moved into non-performing loans above that $39 million loan. Could you provide us some color on what also drove the increase beyond that? And then, you know, if there's any other kind of notable loans that have stopped paying but aren't yet accruing or showing up in other credit metrics yet. Can you provide some color there, please?
Speaker Change: Okay. So it is very these are broad strokes.
Speaker Change: And remember, we run models and things to get to our.
Speaker Change: What we think the asset sensitivity is in different environments, but having said that if you're in very broad terms. If you remember we opened our balance she hadn't bought a bond and we got all the way down to about 25% fixed.
Speaker Change: And then when the interest rate increases happened, obviously it had a dramatic.
Speaker Change: Affect on our profitability now with since the beginning of last year, putting on fixed rate assets.
Paul Frenkiel: So, the six million that you're referencing is comprised of a variety of leasing and small business loans, just various industries; we have, we do have a lot of diversification, the The issue we've had is primarily, in terms of charge-offs, primarily trucking and long-haul transportation. You know, I think they just happened to hit, like several of them just happened to hit this quarter. We're not expecting, or we don't really have knowledge of anything systemic that should increase. Those, the SBL, and the leasing non-performers, but we obviously scrutinize the portfolio very carefully, and we will provide more detail in the 10-Q in the tables that are required.
Speaker Change: And then the $900 million in bond purchases, we were about 50% fixed right. So we've closed that gap substantially and originally we were trying to get to 60%.
Speaker Change: Fixed rate because our deposit beta was 40 somewhat with totally offset our asset sensitivity. So we've made great progress in doing that so if you think about it once again very broad strokes, we were about seven or 8% for net interest income for 100 basis points move down exposed and we've lowered that.
Speaker Change: Two or 3% that's the magnitude that we've lowered our asset sensitivity now.
Speaker Change: We we obviously wait very long time to buy these purchases we had been looking at a broad set of indicators and they just recently went very green for us and.
Timothy Jeffrey Switzer: Okay, great. I appreciate the color there.
Timothy Jeffrey Switzer: And it's good to see you guys starting to purchase the securities for $900 million in April. How much do you plan to do more? I think last quarter you guys said anywhere between $1 to $1.5 billion. Is that still kind of the target? And what's your new asset sensitivity as you're trying to close the gap to that 60% deposit beta?
Speaker Change: We started by into the CPI print, because we thought that might actually be a little higher than forecast and there would be an overreaction in the market, which they're kind of was but that CPI print, obviously was mostly due to housing and insurance. So when you look at broad indicators are.
Damian M. Kozlowski: Okay. Okay. So it's very, these are broad strokes. And remember, we run models and things to get to our
Speaker Change: Indicators the economy is definitely slowing and you saw that in the GDP print. The other day. So we think interest rates are kind of.
Damian M. Kozlowski: What we think the acid sensitivity is in different environments, but having said that, in very broad terms, if you remember, we opened our balance, she hadn't bought a bond, and we got all the way down to about 25% fixed. Andres Viroslav, Paul Frenkiel, Andres Viroslav, Paul Frenkiel, Andres Viroslav, Paul Frenkiel, Andres Vir Right. So we've closed that gap substantially. And originally, we were trying to get to 60%. Andres Viroslav, Paul Frenkiel, Damian Kozlowski, David Feaster, Michael Perito, We obviously waited a very long time to make these purchases.
Speaker Change: You know on their highest they could go higher and that's why we're still asset sensitive and if they did go into the.
Speaker Change: 10 year Treasury, and the 5% range, we probably would by additional $500 million.
Speaker Change: More like Treasury Securities and that would close your gap almost in its entirety.
Speaker Change: If we don't do that over the next six months with the products that we have are.
Speaker Change: Our originating in the alone.
Speaker Change: And are some of the new credit sponsorship products that we're building on our balance sheet youre going to close that gap meaningfully without the purchase of additional securities. So we think once again, we werent trying to make the most money.
Speaker Change: We're trying not to be greedy, we thought it was the right time to take the majority of the asset sensitivity off the table and Thats, what we did with the $900 million in purchases.
Speaker Change: Great. Thanks, David Thats, very clear strategy I'll I'll jump back in the queue.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question will come from Frank Schiraldi with Piper Sandler. Please go ahead.
Damian M. Kozlowski: We have been looking at a broad set of indicators, and they just recently went very green for us. And we started buying into the CPI print because we thought that might actually be a little higher than forecast, and there would be an overreaction in the market, which there kind of was. But that CPI print obviously was mostly due to housing and insurance. So when you look at broad indicators, the economy is definitely slowing. And you saw that in the GDP print the other day. So we think interest rates have kind of, you know, gone their highest, and they could go higher.
Frank Joseph Schiraldi: Hey, good morning.
Frank Joseph Schiraldi: Just wondering if you can you know going back to the fee income growth some of the noise year over year and and the GDP growth year over year. Given pipelines are you still comfortable in that you know generally youre going to be putting up gross dollar volume growth in the 15 per.
Frank Joseph Schiraldi: <unk> plus range or given some of these partnerships in other areas as growth coming more outside that that Gee.
Frank Joseph Schiraldi: GDP framework at this point.
Frank Joseph Schiraldi: GDP is very hard to predict any one quarter. So we do think we still think that it'll be above trend above the 15% now the fee growth.
Frank Joseph Schiraldi: Was 60% is very high if your GDP growth is 12, and that's exactly what you said, it's an ancillary businesses like the rapid funds environment. So we're seeing more of those ancillary revenues. So would I, obviously, I would rather have 16% fee growth than 16%.
Damian M. Kozlowski: And that's why we're still asset sensitive. And if they did go into the 10 year treasury in the 5% range, we probably would buy an additional $500 million of more like treasury securities, and that would close your gap almost in its entirety. If we don't do that over the next six months with the products that we have originating in the loan and some of the new credit sponsorship products that we're building on our balance sheet, you're going to close that gap meaningfully without the purchase of additional securities.
Frank Joseph Schiraldi: GDP growth.
We were predicting more of the other way around 16, GDP, 12% fee growth, but we got.
Frank Joseph Schiraldi: The inverse which is.
You know obviously better for profitability, so, but we still think it will trend upwards and what well, especially with the addition of new partnerships like block youre going to see enhanced fee growth.
Frank Joseph Schiraldi: Realization on J D V and it surprised me to see it actually above GDP, but that's because of the growth of the product set and especially in areas like rapid funds.
Damian M. Kozlowski: So we think once again, we weren't trying to make the most money. We're trying not to be greedy. We thought it was the right time to take the majority of the asset sensitivity off the table. And that's what we did with the $900 million in purchases.
Frank Joseph Schiraldi: And then just on the rapid funds and on the block partnership sorry.
Speaker Change: Just just curious if you can provide a little more color on what is the timing it usually I know it takes a while to get these partnerships up and running after announcements. So is this more of a 2025, maybe incremental boost to our revenue growth to block partnerships.
Timothy Jeffrey Switzer: Great. Thanks, Damian. That's a very clear strategy. I'll jump back in the queue.
Operator: Thank you. Our next question will come from Frank Schiraldi with Piper Sandler. Please go ahead.
Speaker Change: This is now <unk>.
Speaker Change: 10% or less of the transactional volume was in the first quarter and it's been ramping up so you'll see an impact in this quarter and it will build.
Frank Joseph Schiraldi: Hey, good morning. I'm just wondering if you could, you know, going back to the fee income growth, some of the noise year over year, and the DDV growth, year over year. Given pipelines, are you still comfortable in that, you know, generally, you're going to be putting up gross dollar volume growth in the 15% plus range, or given some of these partnerships and other areas, is growth coming more outside that, you know, GDV framework at this point?
Speaker Change: Throughout the year.
Speaker Change: But this is remember black as a large obviously a large leading fintech with already significant volume this is not.
Speaker Change: This is the adaption of them into our ecosystem and then their continued growth.
Speaker Change: Gotcha, Okay, and you said some of that revenue was actually in the first quarter or are you, saying in an order now.
Speaker Change: First quarter, there was a small amount of that revenue and yes.
Speaker Change: Okay.
Speaker Change: And then just just on the the rebel book you know, obviously, bringing that loan it's non formers supposed to be expected.
Damian M. Kozlowski: GDV is very hard to predict for any one quarter. So we do think we still think that'll be above trend, above the 15%. Now the fee growth was 16%, very high if your GDP growth is 12. And that's exactly what you said; it's in ancillary businesses like the rapid funds environment. So we're seeing more of those ancillary revenues. So would I, you know, obviously, I would rather have 16% fee growth than 16% GDP growth.
Speaker Change: Now in Oreo and you talked about stable.
Speaker Change: Stabilizing it over some time.
Speaker Change: You know I guess just curious why obviously you know your as you noted you are open to bids. If you you know if you can move faster you move it faster.
Speaker Change: Just curious given the LTV on an as is basis.
Why you don't think it doesn't sound like you believe that's the more likely scenario to sell in the near term before completing the improvements if you could just kind of talk us through that a little bit.
Damian M. Kozlowski: You know, we were predicting more the other way around 16 GDV and 12% fee growth, but we got the reverse, the inverse, which is, you know, obviously better for profitability. So, but we still think it will trend upwards and will, especially with the addition of new partnerships like Block, you're going to see enhanced fee growth realization on GDV. And it's surprising to see it actually above GDV, but that's because of the growth in the product set and especially in areas like rapid funds.
Speaker Change: We go down all paths, so obviously things like this.
Speaker Change: We've done obviously loans since 2016, we've had.
Speaker Change: Virtually no.
Speaker Change: Issues that were similar to this this happened because of the the.
Speaker Change: The shocks that were experienced in 2000.
Speaker Change: 21, and 'twenty, two and the markets are at higher rates. So the buyers out there might not be as.
Frank Joseph Schiraldi: And then just on the Rapid Funds and on the Block Partnership, sorry, just curious if you can provide a little more color on what the timing is. Usually, I know it takes a while to get these partnerships up and running after announcement. So is this more of a 2025, maybe, incremental boost to revenue growth, the Block Partnership?
Speaker Change: As numerous as they were in the past, but definitely where we go down all tracks.
Speaker Change: So there is interest in the assets.
That we have.
Speaker Change: And if we can effect a reasonable sale, we will but we can't wait for that we have to.
We want to protect that.
Speaker Change: Value of the property and monetize it as quickly as possible and so in these situations when they do occur you have to go very quickly to preserve the property you get in there immediately and complete the work remember this is a project that's been got into a little trouble, but it's fairly.
Damian M. Kozlowski: No, this is now 15% or less of the transactional volume that was in the first quarter, and it's been ramping up. So you'll see an impact in this quarter, and it'll build throughout the year. But this is remember, Block is a large, obviously a large leading FinTech with already significant volume. This is not this is the integration of them into our ecosystem. And then
Speaker Change: Far along there.
There's some work that needs to be completed.
Speaker Change: It's unfortunately, we'd never want to get into situations, where we want our borrowers and our sponsors to be able to complete the project, obviously and monetize the property either through a sale or through refinancing with a bank or the gse's and so we need to step in if it's in the.
Damian M. Kozlowski: Okay, you said some of that revenue was actually in the first quarter, or are you saying it's in the quarter now? The first quarter is a small amount of that revenue, I guess. Okay, and then just on the rebel book, you know, obviously, bringing that loan into non-former students was to be expected.
Speaker Change: The last third of the project, we need to finish it and monetize it if we can do it earlier thread sale, we'd be happy to do that.
Frank Joseph Schiraldi: And now in Oreo, and you talked about stabilizing it over some time. You know, I guess I'd just curious why, obviously, you know, you're, as you know, you're open to bids, if you can move it faster, you move it faster. Just curious, given the LTV on an as-is basis, why you don't think it doesn't sound like you believe that's the more likely scenario to sell in the near term before completing the improvements. If you could just kind of talk us through that a little bit.
Speaker Change: Okay.
And as you stabilize as you finished.
Speaker Change: Finish improvements how does the how are the costs. There how is that expense actually for that you know the construction for the improvement the carrying cost of the building how is that accounted for in any sort of expectations.
Speaker Change: Along those lines of what those numbers could look like.
Damian M. Kozlowski: We go down all paths. So obviously, things like this. You know, we've done loans since 2016. We've had virtually no issues that were similar to this. This happened because of the shocks that were experienced in 2021 and 22.
Speaker Change: Okay, Paul Yes, so we have a budget.
Paul: Detailed budget. So we have the estimated cost and in fact.
Paul: Even after those expenditures that 82%.
Paul: Loan to value will be preserved so the costs are they.
Damian M. Kozlowski: And the markets are at a higher rate. So the buyers out there might not be as numerous as they were in the past, but definitely, we go down all tracks. So there is interest in the assets that we have. And if we can affect a reasonable sale, we will. But we can't wait for that.
Get capitalized.
Paul: There are some reserves available so it won't be dollar for dollar.
Paul: But as I said that the the LTV will still be maintained and as Damian said as construction as construction has rehabilitation progresses as units are released.
Damian M. Kozlowski: We have to, you know, we want to protect the value of the property and monetize it as quickly as possible. And so in these situations, when they do occur, you have to act very quickly to preserve the property. You get in there immediately and complete the work.
Paul: The value to perspective buyers increases dramatically.
Paul: That's that's how we will we're planning to dispose of the property.
Speaker Change: Okay. So are you, saying just given.
Damian M. Kozlowski: Remember, this is a project that's got into a little trouble, but it's fairly far along. There's some work that needs to be completed. It's unfortunate. But we never want to get in a situation where we want our borrowers and our sponsors to be able to complete the project, obviously, and monetize the property either through a sale or through refinancing with a bank or the GSEs.
Speaker Change: Capital expenditures budget that the reserves that are still there and that are in that.
Speaker Change: Plan that you know, we really shouldnt expect to see a pick up anywhere else in terms of the carrying cost.
Speaker Change: There'll be some increase to the amount we have on the books because those expenses will get capitalized to the extent, we don't have reserves, but it's not going to be disproportionately large it'll be.
Damian M. Kozlowski: And so, you know, we need to step in. It's, you know, the last third of the project. We need to finish it and monetize it. If we can do it earlier through a sale, we'd be happy to do that.
Speaker Change: At most it'll be under 10%.
Speaker Change: Yeah, and remember as you lease up obviously, the cap or the LTV actually goes down because as you expand your release units and they kind of offset each other.
Frank Joseph Schiraldi: Okay, and as you stabilize, as you, you know, finish improvements, how do the costs there compare? How is that expense actually for that, you know, the construction for the improvement, the carrying costs of the building? How is that accounted for, and any sort of expectations along those lines of what those numbers could look like?
Speaker Change: Right. Okay. So by the time, you're done you actually end up with this is why these portfolios are so good because when they do get it's not like the first day that these loans have an issue they're going to have an issue at the end of the project at the beginning of the project. So obviously, if we if we get in a position. After a couple of years have to actually step in there is probably a lot of.
Paul Frenkiel: Okay.
Paul Frenkiel: Yes, so we have a budget, a detailed budget. So we have the estimated cost. And in fact, even after those expenditures, the 82% [inaudible] But as I said, the LTV will still be maintained. And as Damian said, as construction, as construction, as rehabilitation progresses, as units are released, the value to prospective buyers increases dramatically, and that's how we're planning to discuss it.
Speaker Change: Work, that's been completed right there might've been some problems, but then also the sponsors probably put additional capital in already and now has a problem raising additional capital so usually when we're stepping in it's not necessarily.
Speaker Change: We don't want to do that we want our borrowers and sponsors to renovate these are very important units to the economy. These are workforce housing. This is they're very hard to replace these units. So this rehabilitation process is essential to occur whether it's through us or the government or through one of the third part.
Paul Frenkiel: Okay, so are you saying just given the capital expenditure budget, the reserves that are still there in that plan, that we really shouldn't expect to see a kick-up anywhere else in terms of the carrying costs? There'll be some increase to the amount we have on the books because those expenses will get capitalized to the extent we don't have reserves, but it's not going to be disproportionate; at most, it'll be under 10%.
Speaker Change: Government agencies. So it's it's a it's an important part for us to be and we think as a bank to be involved in and we want our sponsors to be successful. So they can go on and rehab. Other buildings. It's unfortunate we have to step in but we don't think we're going to take we we look we scrutinize our portfolio. We do not think there are losses in the <unk>.
Speaker Change: Portfolio.
Speaker Change: And then just lastly on that front.
Frank Joseph Schiraldi: Yeah, remember, as you lease up, obviously, the LTV actually goes down because as you expend, you release units, and they kind of offset each other. Right? Okay.
Speaker Change: Obviously, we'll get more information in the Q, which is.
Speaker Change: It's a little ways out but.
Speaker Change: In terms of any any specifics you can give us on the rebel book in terms of any other additional delinquencies.
Damian M. Kozlowski: So by the time you're done, you actually end up with this is why these portfolios are so good, because when they do get, it's not like the first day that these loans have an issue; they're going to have an issue at the end of the project at the beginning of the project. So obviously, if we get a position after a couple of years and have to actually step in, there's probably a lot of work that's been completed, right, there might have been some problems. But then also, the sponsors probably put additional capital in already, and now it has a problem raising additional capital. So usually, when we're stepping in, it's not necessarily, you know; we don't want to do that.
Speaker Change: Seeing in that book that would pop up in your numbers in the Q and any guy.
Speaker Change: Guide or any sort of detail.
Speaker Change: All you can give us around criticized classified balances quarter over quarter. So like I was saying before and I'll, let Paul speak to it too, but we had like a way it was like a wave right and it was originating from the from the shocks I talked about.
Speaker Change: And you know this is towards the.
Speaker Change: More of the last third of these projects where people were the takeout is not the problem because gse's.
Damian M. Kozlowski: We want our borrowers and sponsors to renovate. These are very important units to the economy. You know, these are workforce housing. This is why it's very hard to replace these units.
Speaker Change: Taking out these loans in the 6% range, a little bit above that now but.
Speaker Change: So the takeout financing isn't the problem it was the it.
Damian M. Kozlowski: So this rehabilitation process is essential to occur, whether it's through us or the government or through one of the third-party government agencies. So you know, it's an important part for us to be involved in, we think as a bank. And we want our sponsors to be successful so they can go on and rehab other buildings. It's unfortunate that we have to step in. But we don't think we're going to take We look, we scrutinize the portfolio; we do not think there are losses in the portfolio.
Speaker Change: It was the inflation shock and the problem raising money at a higher interest environment, especially when you've already raised additional capital to make up for that interest rates.
Speaker Change: For that inflation shocks, so that wave has subsided substantially so there may be a second wave of course, but.
Speaker Change: It should while we might have some more credit migration it should come it should come down as we complete these projects and.
Speaker Change: Monetize these assets Paul would you like to add anything yeah, yeah, So Frank that the once a day.
Frank Joseph Schiraldi: And then, just lastly on that front, obviously, we'll get more information in the queue, which is a little ways out. But in terms of any specifics you can give us on the rebel book, in terms of any other additional delinquencies you're seeing in that book that, you know, will pop up in numbers in the queue, and any guide or any sort of detail you can give us about criticized classified.
Paul: Once the loans that are obviously, the concern or the sub standard they have some issue and so forth and so what we do is if if there is an issue we get an updated appraisal.
Paul: And as I said before the LTV on our substandard loans based on the updated appraisal still 79%.
Paul: As is 76%.
Damian M. Kozlowski: So like I was saying before, and I'll let Paul speak to that too, but we had a way, a way. Right.
Paul: As stabilized so again, we have significant protection against loss.
Damian M. Kozlowski: And it originated from the shocks I talked about. And, you know, this is towards the last third of these projects where people were saying, the takeout is not the problem because GFC is still taking out these loans in the 6% range, you know, a little bit above that now, but, you know, so the takeout financing isn't the problem. It was the inflation shock and the problem raising money in a higher interest environment, especially when you've already raised additional capital to make up for that interest rate, for that inflation shock.
Paul: And our experience and the experience of others in these portfolios and if you look at the statistics you do see in.
Paul: In difficult times and difficult stressed economies do you do see issues arise where you do have some increases in classified loans increases in delinquencies, but the losses.
Paul: You don't have to take our word for it just look at the at the third party appraisals, they're still retained their value and this is the portfolio like if you look at of what commercial real estate.
Paul: Gonna be stress, but still come out of this while it's certainly not going to be office buildings, and so forth, but if you just think that it's think about workforce housing the housing shortages.
Damian M. Kozlowski: So that wave has subsided substantially. So there may be a second wave, of course, but it should, while we might have some more credit migration, it should come, it should calm down as we complete these projects and, you know, monetize these assets. Paul, would you like to add anything?
Paul: The fact that these rents are very reasonable compared to obviously higher higher end rents. This is one that we believe this is the category that we chose purposely to be and two to resist losses and provide protection against losses, even in these times.
Paul Frenkiel: Yeah, so Frank, the ones that are obviously the concern are the substandard loans. They have some issues and so forth.
Paul Frenkiel: And so what we do is, if there is an issue, we get an updated appraisal. And as I said before, the LTV on our substandard loans, based on the updated appraisal, still as is 76%, as stabilized. So again, we have significant protection against loss and our experience and the experience of others in these portfolios. And if you look at the statistics, you do see in difficult times and difficult stressed economies, you do see issues arise where you Andres Viroslav, Paul Frenkiel, Damian Kozlowski, David Feaster, Michael Perito, Unknown Executive, Andres Viroslav, Paul Frenkiel, Damian Kozlowski, David Feaster, Michael Perito, Andres Viroslav, This is one that we believe, this is the category that we chose purposefully to be in to resist losses and provide protection against losses, even in these times.
Paul: And you don't have to take our word for it where we've always been very open with the ltvs that portfolio as a whole we have been for years disclosing that that LTV is at.
Paul: At origination of 70% and even now with the stresses. It's on these on the the substandard loans, it's still been sustained at a 79% LTV.
Speaker Change: So that's our that's why we believe that as Damian said that we don't see losses in the portfolio Yeah. No I certainly appreciate it I guess, just you know obviously N P. A migration that's something people pay attention to.
Speaker Change: And so people are going to start wondering what NPA balances could look like next quarter and so you know.
Speaker Change: Delinquencies today could turn into NPA is tomorrow. So I'm just trying to get a sense. If there's any any large you know obviously last.
Paul Frenkiel: And you don't have to take our word for it. We've always been very open about the LTVs, the portfolio as a whole. We've been for years disclosing that LTV is... Andres Viroslav, Paul Frenkiel, David Feaster, Michael Perito,
Speaker Change: You had this large delinquency.
Speaker Change: And now it's into N P is which makes sense and so I'm just curious if theres anything bulky in that book.
Speaker Change: To call out that's delinquent now when you think could potentially fall into nonperforming slash Oreo status next quarter.
Frank Joseph Schiraldi: Yeah, no, I certainly appreciate it. I guess, you know, obviously, NPA migration is something people pay attention to. And so, you know, people are going to start wondering what NPA balances could look like next quarter. And so, you know, delinquencies today could turn into NPAs tomorrow. So, I'm just trying to get a sense if there's any large, obviously, last decay, you had this large delinquency, and now it's into NPAs, which makes sense. And so, just curious if there's anything bulky in that book that you can call out that's delinquent now and you think, you know, could potentially fall into not performing slash Oreo status next quarter Well, there's one.
Well the the $39 4 million is the big one so and where we've been discussing that and.
Speaker Change: And you have like all the information I think that are that we have.
Speaker Change: To to ascertain that that there is not loss, indicating and that property yeah.
Speaker Change: Okay. So I guess, we'll get you know what the criticized classified the delinquency numbers will get that with the Q.
Speaker Change: Of course, not to guess and then just lastly on.
Speaker Change: It just buybacks, obviously you double D. The authorization for this quarter just kind of curious how you think about buybacks going forward any sort of.
Speaker Change: Color on you know.
Speaker Change: I guess it seems to me like the plan right now is to return to the more normalized $50 million in the third and fourth quarters, but just wanted to see if there's any color around your thoughts around our repurchases.
Paul Frenkiel: Well, the $39.4 million is the big one, and we've been discussing that, and you have all the information I think that we have to ascertain that there is no loss indicated in that property.
So we.
Speaker Change: You, obviously, we have very robust.
Speaker Change: The ability to generate capital.
Speaker Change: And our ratios have been moving up even with the enhanced buyback. So it became we're very as you know very into the systematic approach, where we kind of give it to a third party and they buy the shares on a rigorous daily basis that doesn't distort the market, but it became clear to us.
Frank Joseph Schiraldi: Okay, so I guess we'll get, you know, what the criticized classifieds, the linquency numbers, we'll get that with the queue. Yeah, of course.
Frank Joseph Schiraldi: And then just lastly, on just buybacks, obviously, you doubled the authorization for this quarter. Just kind of curious how you think about buybacks going forward, any sort of color on, you know, it's seen. I guess it seems to me like the plan right now is to return to the more normalized 50 million in the third and fourth quarters. But I just want to see if there's any color around your thoughts there about repurchases. Yeah.
Speaker Change: We had enough capital.
Speaker Change: We've had a significant increase in our metrics ROE and so it doesn't we don't think it aligns our p/e ratio being today under 10.
Speaker Change: ROE being 28% and.
Speaker Change: Obviously, our efficiency ratio at 38% of our OE at 3%. It just doesn't historically reflect a P E.
Ratios at this profitability. So it became very enticing, we think for our shareholders too.
Speaker Change: Increased our buyback and we have plenty of capital room, So and where we are.
Damian M. Kozlowski: Yeah, so we, you obviously have a very robust business. Unknown Executive, Damian Kozlowski, David Feaster, Michael Perito, Unknown Executive. We had enough capital, we've had a significant increase in our metrics, ROE, and so we don't think it aligns. Our P.E. ratio is today under 10, and our ROE is 28%. Obviously, our efficiency ratio at 38%, and our OA at 3%, it just doesn't historically reflect PE ratios at this profitability. So it became very enticing, we think, for our shareholders to increase our buyback, and we had plenty of capital room.
Speaker Change: With an even with the $900 million of additional share repurchase and the growth in our balance sheet.
Speaker Change: We will have enough cash.
Speaker Change: Capital, even with this buyback to have healthy.
Speaker Change: Capital ratios. So it became kind of obvious for us. It was the right thing to do even though we generally don't do.
Speaker Change: One offs, but it seemed very.
Speaker Change: Appropriate to do it this quarter.
Speaker Change: Okay, alright, thanks for the color.
Speaker Change: Thank you at this time I would like to turn the call back to Damian kozlowski for any additional or closing remarks.
Damian M. Kozlowski: And even with the $900 million of additional share repurchase and the growth in our balance, we will have enough capital, even with this buyback, to have healthy capital ratios. So it became kind of obvious for us that it was the right thing to do, even though we generally don't do One-offs, but it seems very appropriate to do it this quarter.
Damian M. Kozlowski: Thank you operator, thank you everyone for joining us today, operator, you can disconnect the call.
Damian M. Kozlowski: This does conclude the bancorp.
Damian M. Kozlowski: Q1, 'twenty four earnings conference call you may disconnect. Your line at this time and have a wonderful day.
Damian M. Kozlowski: Yeah.
Damian M. Kozlowski: Hum.
Damian M. Kozlowski: Mhm.
Damian M. Kozlowski: [music].
Frank Joseph Schiraldi: Okay. All right. Thanks for the caller.
Damian M. Kozlowski: Hum.
Damian M. Kozlowski: Thank you. At this time, I would like to turn the call back to Damian Kozlowski for any additional or closing remarks.
Damian M. Kozlowski: Uh huh.
Damian M. Kozlowski: [music].
Operator: Thank you, operator. Thank you, everyone, for joining us today. Operator, you can disconnect the call.
Damian M. Kozlowski: Hum.
Damian M. Kozlowski: Hum.
Damian M. Kozlowski: [music].
Damian M. Kozlowski: Okay.
Damian M. Kozlowski:
Operator: This does conclude the Bancorp Q124 earnings conference call. You may disconnect your line at this time and have a wonderful day.
Damian M. Kozlowski: Uh huh.
Damian M. Kozlowski: [music].
unknown: Andres Viroslav, Paul Frenkiel, Michael Perito, Andres Viroslav, Paul Frenkiel, David Feaster, [inaudible] ?? ?? ?? ?? ??