Damian Kozlowski: Yes, 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.
Frank Schiraldi: Right. Okay.
Damian 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, 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 that will has a problem raising additional capital. So usually, when we’re stepping in, it’s not necessarily, 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. 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 party government agencies. So 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 look — we scrutinize the portfolio. We do not think there are losses in the portfolio.
Frank Schiraldi: And then just lastly, on that front, obviously, we’ll get more information in the Q, 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 will pop up in numbers in the Q. And any guide or any sort of detail you can give us around criticized, classified balances quarter-over-quarter?
Damian Kozlowski: So like I was saying before, and I’ll let Paul speak to it too, but we had like a wave — it was like a wave, right? And it was originating from the shocks I talked about. And this is towards the, more the last third of these projects where people were — the takeout is not the problem because GSEs are still taking out these loans in the 6% range, a little bit above that now. 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. 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 calm down as we complete these projects and monetize these assets. Paul, would you like to add anything?
Paul Frenkiel: Yes. So Frank, the ones, the loans that are obviously the concern are the substandard. They have some issue and so forth. 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 79% 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 do have some increases in classified loans, increases in delinquencies. But the losses, you don’t have to take our word for it. Just look at the third party appraisals, they’re still retained their value.
And this is the portfolio, like if you look at what commercial real estate is going to be stressed, but still come out of this. Well, it’s certainly not going to be office buildings and so forth. But if you just think about workforce housing, the housing shortages, the fact that these rents are very reasonable compared to obviously higher end rents, 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. And you don’t have to take our word for it. We’ve always been very open with the LTVs, the portfolio as a whole. We’ve been for years disclosing that that LTV is at origination is 70%. And even now with the stresses, it’s on the substandard loans it’s still been sustained at a 79% LTV.
So that’s why we believe that, as Damian said, that we don’t see losses in the portfolio.
Frank Schiraldi: Yes. No, I certainly appreciate it. I guess just, obviously, NPA migration is something people pay attention to. And so people are going to start wondering what NPA balances could look like next quarter. And so delinquencies today could turn into NPAs tomorrow. So I’m just trying to get a sense if there’s any large, obviously less decay, you had this large delinquency, and now it’s into NPAs, which makes sense. And so I’m just curious if there’s anything bulky in that book, to call out, that’s delinquent now, and you think could potentially fall into non-performing/OREO status next quarter?
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 not loss indicated in that property.
Frank Schiraldi: Okay. So I guess we’ll get, with the criticism classified, the delinquency numbers, we’ll get that with the Q?
Paul Frenkiel: Yes.
Frank Schiraldi: Yes. And then just lastly, if 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? I guess it seems to me like the plan right now is to return to the more normalized $50 million in third and fourth quarters. But just want to see if there’s any color around, your thoughts there around repurchases?
Damian Kozlowski: Yes. So we, obviously, we have very robust ability to generate capital. 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, we had enough capital, we’ve had a significant increase in our metrics, ROE. And so it doesn’t — we don’t think it aligns. Our PE ratio being today under 10%, and our ROE being 28%, and obviously, our efficiency ratio at 38%, ROA 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.
So, and we, even with the $900 million of additional share repurchase and the growth in our balance sheet, we will have enough capital, even with this buyback to have healthy capital ratios. So it became kind of obvious for us, it was the right thing to do, even though we generally don’t do one-offs, but it seemed very appropriate to do it this quarter.
Frank Schiraldi: Okay. All right. Thanks for the color.
Operator: Thank you. At this time I would like to turn the call back to Damian Kozlowski for any additional or closing remarks.
Damian Kozlowski: Thank you, operator. Thank you everyone for joining us today. Operator, you can disconnect the call.
Operator: This does conclude the Bancorp Q1, 2024 earnings conference call. You may disconnect your line at this time and have a wonderful day.
