That will probably mean we’re going to end up having more outflow, but it’s really, again, difficult to say how things are going to ultimately end up. But all that equal, the other deposits, the nonpolitical deposits are also proceeding ahead of our plan as well. Now if we’re able to stay on this particular pace, we would think it would be likely we would not need to use $500 million or $600 million of wholesale funding to plug the deposit outflow it may be some number less. I don’t really know, Janet, I don’t have a good number to give you at that point in time. But it’s also very much which factors into our conditional balance sheet growth strategy for the back half of the year. So as we get more clarity a little bit further into this year, we’ll be able to communicate a little bit better and you might even see that end up in balance sheet growth manifestation as well.
Janet Lee: Got it. And if I can add just a final question. Since you guys are approaching that 8.5% Tier 1 leverage target, how should we think about buyback in the second half of 2024?
Jason Darby: For stock buyback, I think it’s — yes, I think it’s always an arrow in our quiver. We will look at the situation as it presents itself relative to the market value of the stock at a particular point in time relative to the book value of the company. As we approach that 8.5% Tier 1 leverage, we’re certainly seeing a corresponding increase in tangible book value. And we know that we’re ready and able to step in our stock wherever we feel that it’s not appropriately valued. The other thing is we — in our capital building plan, we do allow for a provision for stock buyback. And so as we go to that 8.5% lever, we’re not constrained by any way in terms of being able to perform buybacks within a quarter and still try to achieve that target. So that’s generally how we look at it, and it’s very much — as the world turns type of scenario.
Janet Lee: All right. I’ll step back. Thanks.
Jason Darby: Thanks, Janet.
Priscilla Sims Brown: Thanks, Janet.
Operator: Thank you. Our next question comes from the line of Chris O’Connell with KBW. Please proceed with your question.
Christopher O’Connell: Hey Priscilla and Jason. Just wanted to quickly circle back to the multifamily. I appreciate all the commentary so far. There was some growth this quarter. Was that growth in rent-regulated segments? Or is that, I guess or what segment was it in?
Jason Darby: Yes. It’s generally in the 421a or the Section 8 housing, I shouldn’t even say generally, it’s majority, if not all, in those particular sections where I mentioned earlier, really trying to navigate some of the free market restrictions with what the assets are that we put on the portfolio. And so we’re spending more time in the space where we can get some better market opportunity for ourselves and also for, of course, the borrowers.
Christopher O’Connell: Got it. And to the extent that you’re putting on growth in those segments going forward or maybe even just using the Q1 actuals as an example, I mean what are the credit general credit metrics that you’re looking to target in terms of what’s the yield on it? And what’s the debt service coverage ratio? And what are the LTVs? Are they higher than they’ve been in the past, given some of the stresses?
Jason Darby: Yes, I think we certainly are looking at credits with a sharper eye. And I think also we’ve been more conscious of what we’re allowing to make its way into our pipeline. So I don’t think on balance, we’ll have the same type of net loan growth numbers in the real estate portfolio this year that we had in last year. But we still think that there’s really good opportunities to put on quality assets. And so we talked a moment ago about doing some 421-a and Section 8 style housing loans. There’s also great opportunities in the industrial asset class as well. Thinking about LTVs and DSCRs and we have a standard for DSCRs, — and I would generally think of now as 1.3 is sort of a measuring stick for what we think makes a good credit for the time being.
On market rates, we’ve said this multiple times. We really want to be at where market pricing actually is, we could see things in the 6.5% range. We can see things maybe a little bit below if there’s quality deposits that help us hurdle a little bit better in terms of our returns. And from an LTV point of view, really thinking somewhere in that 55% range, 60% range, somewhere in that range are the standards that we’re really looking at today. And those things could change over time. But right now, given the environment we’re in and the way that the bank is trying to protect its balance sheet and its risk profile, that’s pretty much where we’re at in terms of new deal flow.
Christopher O’Connell: That’s helpful. And what are the market rates generally that you guys are seeing out there right now on that?
Jason Darby: We’re seeing things — it’s moved around a little bit, but we’re seeing things between as low as 6% and we’re seeing things in the 6.5%, 6.7% range as well.
Christopher O’Connell: Got it. And when you’ve looked at these recent deals and you’ve gotten like the updated appraisals, just like generally, do you have a sense of how much they were down from when they were last appraised?
Jason Darby: I don’t have a great number to quote for you. I mean our overall average or weighted average DSCRs have risen a bit. Generally, we used to be in the high 40s to low 50s. I think we’re now up in the high 50s and low 60s in certain LTVs. So we still feel really good about our LTV profile, but maybe that gives you an indication of the erosion of LTVs from a market point of view, at least from what we’ve seen.
Christopher O’Connell: Great. And then I think you mentioned the PACE production increase in Q2. Is the $20 million to $25 million increase over Q1 production? Or was that the targeted total production in 2Q?
Priscilla Sims Brown: Yes. Generally, we are — production is for 1Q slightly lower than the mid-30s production we typically had. But what’s also different is that there was generally around $5 million to $8 million, I think Jason, of paid down to those, right? And this time, I think it was up to around 17%. So I think the difference — the net number difference that you’re seeing reflects both sides.
Jason Darby: Right. And to talk about what you should see in Q2, Chris, I think it would be around $20 million, $25 million net production, not in addition to the 10 that we did in this particular quarter, as Priscilla was mentioning a moment ago, the originations. We think there’s a couple of good opportunities for us to add some additional purchases outside our normal production provider to make sure we’re at our $20 million, $25 million net target for Q2. And that’s really on the RPA side. We still have good opportunities in our pipeline for C-PACE that we could see flowing through as well. So when I talk about those numbers, and I think Priscilla mentioned it in her comments as well, we’re really referring to the residential pace as those quoted volumes of $20 million to $25 million. And anything from the C-PACE would be incremental to that PACE number that we just talked about.
Christopher O’Connell: Great. And you mentioned some of the securities movements in Q1. What was the amount sold in purchase?
Jason Darby: Yes. So we did about $128 million of purchases during the quarter, and we had that largely offset by sales of about $75 million, which is a little bit more aggressive than we normally did, but we had the ICS income to offset that with. And we also had our normal $50 million of paydowns or so. We got a little bit more active in the securities market really to augment the loan production that was a little bit muted during the quarter and rightfully so, and I don’t think as an outlier relative to any other bank. But we did want to make sure we put some of the liquidity that we had to work in shorter-term securities. We have that really planned to largely be either available to us through maturity or through sale by the end of this year to help with cash flow needs relative to the political deposit outflows.
And more importantly, though, just taking advantage of this really unique opportunity we have with the ICS income that’s coming in through our off-balance sheet strategy to match off as much as we can on the securities portfolio for sales and repositioning and really help us work on our sensitivity to down interest rate scenarios.
Christopher O’Connell: Yes, makes sense. And do you have the yields on what was purchased versus sold?
Jason Darby: On the purchase were coming in roughly around 6%, a little bit higher, call it, 6% to maybe 6.25%. We largely focused on fixed rate assets, again, talking about that down rate sensitivity profile. So we could have clipped a little bit more yield on floaters, but in this particular environment, we really want to be in the fixed market. And on the sales, I don’t have an exact number for you other than it had a nice impact on the unrealized mark that was going through the AFS portfolio. I think the yields about 4.9%, 5% somewhere in that range, Chris, for the sales, somewhere in that range.
Christopher O’Connell: Okay. Great. That’s helpful. And then on the specific reserve, I think there’s $1.6 million increase in those provisions in the quarter. What was — what types of loans were those related to?
Jason Darby: Yes, really came through on two loans. And the one loan was a construction loan that we had been watching for a bit, and we ended up taking about $850,000 or so on that particular credit. It’s had some issues. We’ve been watching it. We think there might even be another leg down on this that’s coming up. So it’s a little bit more to come. But we took about a third of the principal balance in specific reserve on that particular credit. The other was a C&I loan that was for about $1 million in principal balance and we saw that one rather quickly move into a deteriorated state where we really couldn’t find a good way out. So an unfortunate credit, but small relative to our overall portfolio size and the upside on that is there isn’t another credit, at least that we’ve seen right now that’s moving in that direction with that type of speed. So it’s really those two credits, and we felt it appropriate to put those reserves on.
Christopher O’Connell: Great. And then you mentioned another C&I loan that was upgraded. Could you just walk us through the dynamics that played out there?
Jason Darby: I don’t have a lot of specifics for that other than we are pretty active in our portfolio management and any credits that have made their way back into an upgrade generally speaking, have not needed the bank to step into the deal and make a modification, does say it doesn’t happen ever. But in this particular case, it’s really a question of the borrower working on their business the right way, spending their adequate amount of time to generate the cash flows necessary to meet our reporting metrics and putting enough time into that level of performance where the bank is comfortable with an upgrade. What I can say specifically, though, is we take upgrades very, very seriously. As I hope most banks do, it’s not an easy process for us to upgrade a credit because we have a lot of expectations on the borrowers to adhere to the covenants or to adhere to the metric standards that have been put into the deal.
But when the borrowers have reached those particular measures and they’ve been able to demonstrate history with meeting them. I think we are very fair in being able to upgrade those, and we feel good about being able to report them as not only upgradable but able to remain in an upgraded status.
Christopher O’Connell: Awesome, thanks for all the color. Great quarter.
Jason Darby: Thanks, Chris.
Priscilla Sims Brown: Thank you.
Operator: Thank you. There are no further questions at this time. I’d like to turn the floor back over to Priscilla Sims Brown for closing comments.
Priscilla Sims Brown: Thank you, operator, and thank you all for your time today and your continued interest. We appreciate your questions. We know we’re going to get more after this call, and we appreciate those in advance because we enjoy talking about these first quarter results because they demonstrate the strength and competitive advantages that Amalgamated enjoys as we look to the balance of the year. This is an exciting time for Amalgamated as we reposition our balance sheet to drive margin expansion, improve capital and a foundation for continued earnings growth. Our deposit franchise continues to deliver strong inflows across our key customer segments where we are uniquely positioned to win. Importantly, we are optimistic that inflows can mitigate the eventual outflows of our political deposits, which we discussed today and which could provide a source of margin upside as we look to the end of the year.
Additionally, we’re beginning to see monies released from the Inflation Reduction Act, which will provide growth opportunities for our sustainable lending franchise where we are a leader. As we replace older, lower-yielding loans and securities with higher yielding sustainable loans, we expect a powerful mix shift in our balance sheet and further improved profitability. I couldn’t be more excited with what the future holds for Amalgamated, our shareholders and our customers. Thank you again for your time today. Operator?
Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
