Q1 2024 Amalgamated Bank Earnings Call

Participants

Jason Darby; Chief Financial Officer, Senior Executive Vice President; Amalgamated Bank

Priscilla Brown; President, Chief Executive Officer, Director; Amalgamated Bank

Alex Twerdahl; Analyst; Piper Sandler Companies

Janet Lee; Analyst; JPMorgan

Chris O'Connell; Analyst; Keefe, Bruyette & Woods, Inc.

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Amalgamated financial first quarter 2024 earnings call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Jason Darby, Chief Financial Officer. Please go ahead, sir.

Jason Darby

Thank you, operator, and good morning, everyone. We appreciate your participation in our earnings call. With me today is Priscilla Brown, our President and Chief Executive Officer. As a reminder, a telephonic replay of this call will be available in the Investors section of our website for an extended period of time. Additionally, a slide deck to complement today's discussion is also available on the Investors section of our website.
Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution investors that actual results may differ from the expectations indicated or implied by any such forward-looking statements or information.
Investors should refer to slide 2 of our earnings slide deck as well as our 2023 10-K filed on March 7, 2024, for a list of risk factors that could cause actual results to differ materially from those indicated or implied by such date.
Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe are useful in evaluating our performance presentation of this, additional information should not be considered in isolation or as a substitute for results prepared in accordance with US GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release as well as on our website.
Let me now turn the call over to Priscilla.

Priscilla Brown

Good morning, everyone, and thank you for joining us. It's great to be here today to discuss our first quarter results, which continue to show amalgamated as a banking industry leader, highlighted by a 16% increase in core net income, 5 basis points of net interest margin expansion and stellar deposit growth.
Despite continued turbulence in the banking sector during the quarter, this time centered around Metropolitan Real Estate Asset concerns. We proved once again that our unique and valuable business model is well positioned to thrive at varying economic conditions this clearly separates amalgamated from our peers and affirms my incredible optimism for the future.
I used the word stellar a moment ago to describe our deposit growth, but I'd like to put that into context, it goes without saying that the deposit gathering landscape remains a challenging environment. Higher interest rates have not abated, and recent economic data has certainly muted sentiment for rate cuts throughout the remainder of the year.
The reality is that we cannot control any macroeconomic factors, and so we must plan for variability. I speak often about our differentiated deposit gathering franchise, and this is where it shines the brightest for the quarter, our on-balance sheet deposits, excluding brokered CDs, increased $374 million or 5.5%.
We also moved approximately $154 million of deposits off balance sheet into our reciprocal network, and we are now managing over $450 million of off-balance sheet deposits. In total, we brought in over $480 million in new deposits during the first quarter results that we consider to be stellar in this environment.
Importantly, our deposit growth was broad-based once again with strength in our political union, our non-profit and our social advocacy segments. Our political segment delivered $250 million of inflows as the presidential election continues to approach.
This growth is ahead of our cycle over cycle historical trend as our political deposits totaled $1.4 billion at quarter end well above the prior peak of $1.3 billion during the midterm election cycle in 2022 and forecasted to match the continuous record-setting fundraising, we see each for presidential election year.
While political deposit inflows have continued through April, we expect outflows to begin toward the end of second quarter and into the third quarter as campaigns begin to spend more aggressively in the ramp up to November's election.
We also experienced deposit growth across our union, nonprofit and social advocacy customer segments with inflows of $230 million, representing a mix of both new and existing customers. As I've said before, this is a challenging deposit gathering environment and amalgamated has something very few banks have an undisputed reason to win the ties when they come up.
Looking to the balance of the year, we remain focused on driving organic deposit growth across our core customer segments, and we're very encouraged that the success we have achieved will continue a big opportunity is to offset the expected political deposit outflows with lower cost core deposits versus using higher-cost borrowings.
We are ahead of our deposit plan through the first quarter, which puts us on track to consider our conditional growth target for the second half of the year, though we have been cautiously expanding our loan portfolio through the first quarter.
Given the environment that we're in, we also remain optimistic that our socially responsible banking business will provide a source of growth over the balance of the year and beyond.
This is a market segment where we have a dominant position and we expect significant investment over the next 10 years in order for the US to achieve the goal of net zero emissions by 2050. The inflation reduction act as a catalyst as monies are earmarked for critical projects in the renewables, infrastructure and water segments of the market.
In fact, I've been spending much of my time building and expanding relationships with the organizations that will benefit most from these funds, of which the recipients are now being identified as this funding is expected to begin flowing before year end. With our Impac lending model, we are well positioned to win this business and make a substantial impact on lowering emissions in the United States.
Wrapping up, our results show that we are on a path to continue delivering solid earnings and growth in tangible book value for our shareholders. Our quarterly results and optimism for the year would not be possible without the dedication and hard work of our very talented employees as well as our change maker partners and our customers to you all, I say congratulations, and thank you.
Jason, over to you.

Jason Darby

Thanks Priscilla. Hi there and good morning, everyone. Before I get started, I'd like to take a moment to note that we have revised the layout of our accompanying earnings presentation, we've streamlined the information to spend more time on key highlights and also to shorten the length of our prepared remarks. We move many of the traditional detail slides to the appendix.
And I've also created some new appendix slides, such as a reconciliation of core deposits and the metrics index for each conveniently refer. I'm going to start off on slide 3 of the earnings deck, our 2024 first quarter produced solid results.
Net income was $27.2 million or $0.89 per diluted share. And core net income, which is a non-GAAP measure, was $25.6 million or $0.83 per diluted share. And as Priscilla mentioned, that was an increase of 16% from the previous quarter.
Quarter results also featured increased net interest income to $68 million, 5 basis points of net interest margin expansion, a 22 basis point leverage ratio increase, a dividend increase announcement to $0.12 per share and significant growth in deposits across multiple segments, all of which I'll discuss in further detail taken as a whole we are very pleased with our core operating performance.
Continuing to slide 4, we look at some of our key performance metrics during the first quarter. Starting on the left, our tangible book value per share increased $0.99 or a healthy 5.29% to $19.73, primarily driven by our quarterly earnings. And our core revenue per diluted share was $2.48 for the first quarter, essentially the same as last quarter.
Moving across, let's take a quick look at our returns. Core return on average equity was a very strong 17.14%, which was a nice uptick from the prior quarter and in line with previous quarters in 2023 and also reflective of the bank's above-peer net interest margin.
We are especially pleased with our core return on average assets of 1.27%. And while we know we have more work to do to develop noninterest income streams. Our core return on average assets shows the bank firing on most cylinders and our earnings potential becoming reality.
Moving to capital as previously discussed, we've been unwavering in our building our capital position and saw our Tier one leverage ratio improve another 22 basis points to 8.29%. And we are on track to achieve our 8.5% target by the end of the second quarter of 2024.
Our tangible common equity to tangible assets was 7.41% for the quarter in comparison to 7.16% from the previous quarter, despite long-term interest rates ticking up. And we believe this nicely shows the result of us aggressively turning over our securities portfolio. As a reminder, we've sold more than $620 million of securities over the past eight quarters.
Turning to slide 5, total deposits at March 31, 2024, were $7.3 billion, an increase of $293.8 million from the linked quarter. But this only tells part of the story. On-balance sheet deposits, excluding brokered CDs, increased by $373.8 million or 5.5% to $7.1 billion though there were significant additional deposit growth during the quarter.
Noninterest-bearing deposits represent approximately 45% of average deposits and 45% of ending deposits, excluding brokered CDs, contributing to an average cost of deposits of 146 basis points in the first quarter of 2024, up 11 basis points from the linked quarter. Additional details on this can be found in the metrics index of the appendix.
And checking in on political deposits were up to approximately $1.4 billion as of March 31, 2024, an increase of $250.4 million on a linked quarter basis. And through April 17, 2024, we had a further $87.5 million of political deposit inflows, setting a new high watermark for our political deposit franchise. We do expect political deposits to begin flowing out towards the end of the second quarter but balances have exceeded our expectations so far.
We also note that we classify political deposits raised during the election year and noncore deposits, given their transactional nature. In keeping with our neutral balance sheet strategy, we are now managing $456.8 million of deposits off balance sheet comprised primarily of transactional political deposits and certain transitional deposits scheduled for our trust business.
Our continued deposit strength is also allowing us to reposition our balance sheet for sustainable profitability and returns. During the quarter, we utilized our on-balance sheet deposits to pay down our higher-cost borrowings and brokered CDs by a total of $250 million, which is faster than our expectations entering the year. This funding mix shift will help mitigate further cost pressure, especially if the recent rise in interest rates were to drive increase pressure on deposit costs.
Jumping ahead to slide 6 and 7, the book value of our traditional securities portfolio increased $3.3 million during the quarter, primarily as a result of $128 million of purchases, which were offset by $75.5 million in strategic sales and $50.3 million in traditional securities paydowns.
Net pace assessment growth was $10.1 million, and we anticipate our paced production to increase to between $20 million and $25 million in the second quarter as we add additional purchases. Our pretax unrealized loss position in our traditional available-for-sale securities portfolio was $94.1 million or 6.1% of the total portfolio balance, improving by $8.6 million from the previous quarter, largely as a result of our continued repositioning of our portfolio by strategically offsetting underwater security sales with income generated by our off-balance sheet deposit strategy.
Turning to slide 8. Net loans receivable at March 31, 2024, or $4.4 billion, an increase of $13.8 million or 0.3% compared to the linked quarter. The increase in loans was primarily driven by $27.3 million increase in multifamily loans and a $3.1 million increase in commercial and industrial loans, offset by a $9.8 million decrease in consumer solar loans and a $6.3 million decrease in residential loans.
The yield on our total loans increased eight basis points to 4.76% during the quarter the loan yield increase was mainly attributed to the improved yield of new loans generated during the previous quarters, and we saw increases across nearly all individual asset class.
Slides 9 through 11 are new additions to our earnings deck to better illustrate our exposure to certain real estate asset classes. As we've spoken about many times, we have been de-risking our real estate portfolio for the past two plus years since our new real estate management team arrived and is evidenced by an over $112 million improvement in related costs.
Why did crystallize that we think it is very important to stipulate that all bank Metropolitan Real Estate portfolios are not the same as evidenced by our strong underwritten DSCR and our low LTVs.
On slide 10, over the balance of the year, we have $174 million in maturing, lower priced commercial real estate and multifamily loans. We've already been working with all of the borrowers well in advance of maturity and feel comfortable with our plans traction relative risk and related allowance reserve coverage at this time.
Spending a moment on slide 11, we have identified office only commercial real estate loans and multifamily loans, subject to pre-1974 New York State rent stabilization rules as those with higher risk profiles within our total real estate portfolio.
All that said, we recognize that our portfolio holdings viewed as a percent of multiple categories nicely reflects the bank's diversification in asset classes and relatively benign exposure profile as our office only commercial real estate portfolio was $61 million, comprise of all pass grade credits and less than 23% of our multifamily portfolio had loans with units subject to pre-1974 rent stabilization rules.
On slide 13, the net interest margin was 3.49% for the first quarter of 2024, an increase of 5 basis points from 3.44% in the linked quarter. The increase is largely due to increased yields and average balances of interest-earning assets driven mainly by rising loan yields and securities purchases.
While we are rather pleased with our margin expansion, we are acutely aware of continuing higher rate environment and the ongoing competition for deposits, assuming no changes from the Fed. We expect to see asset yields continue to grow as we turn over our balance sheet.
But we also believe deposit costs will continue to rise as well, a key offset for us is the retiring of more than $320 million of higher cost borrowings at 2024 that can be replaced with lower-cost deposits $250 million of which occurred in the first quarter.
As I noted a few moments ago on page 14, core noninterest income, which is a non-GAAP measure, was $8.3 million compared to $8.5 million in the linked quarter. The decrease was primarily related to lower book income, partially offset by an increase from fees from our treasury investment services.
As a reminder, we report noninterest income generated from our off-balance sheet deposit strategy as noncore due to its temporary nature core noninterest expense. Also a non-GAAP measure was $38.5 million, an increase of $0.8 million from the fourth quarter of 2023. This was mainly driven by a $1.1 million increase in compensation and employee benefits expense due to select differential investment in employees as well as increased payroll taxes.
Moving to Slide 15. Nonperforming assets totaled $34 million or 0.42% of period-end total assets at March 31, 2024. And our criticized assets decreased $9 million to $100.9 million on a linked quarter basis, criticized or classified loans decrease was largely related to the payoff of $6.6 million of commercial and industrial loans and the upgrade of $3 million of commercial and industrial loans.
On slide 16, the allowance for credit losses on loans decreased $1.3 million to $64.4 million at March 31, 2024, from $65.7 million in the previous quarter. And the ratio of allowance to total loans was 1.46%, a decrease of 3 basis points from 1.49% in the linked quarter.
Provision for credit losses totaled an expense of $1.6 million for the first quarter compared to an expense of $3.8 million in the fourth quarter of 2023. The expense in the first quarter is primarily driven by increases in required reserves and charge-offs on the solar loan portfolio as well as reserve build for our multifamily portfolio, which we deemed prudent to reflect current market repricing conditions and was not driven by any particular credits. These were partially offset by improvements in macroeconomic forecast used in the C4 model.
Turning to slide 17, we are modestly raising our full year 2024 guidance to core pretax pre-provision earnings of $145 million to $149 million and net interest income of $270 million to $274 million, which considers the effect of the forward rate curve for 2024.
To conclude, we will continue with our neutral balance sheet strategy through the second quarter as we continue to pursue our stated Tier one leverage target of 8.5%. We will also be monitoring a number of macroeconomic factors to inform our decision making and our credit quality metrics will be key as we determine whether to accelerate our balance sheet growth of 3% in the second half of the year.
The most important factor will be the performance of our deposit gathering franchise, given the significant political deposit outflows that we'll expect in the fourth quarter when the presidential election concludes.
And we remain optimistic with deposit growth that we've been experienced in our core customer segments outside of political briefly looking at the second quarter, we are cautiously optimistic that our net interest margin can experience a possible 2 basis points to 3 basis points of expansion.
Correspondingly, we anticipate our net interest income to range between $68 million and $70 million in the second quarter of 2024. And while we did not expect a Fed rate cut in June, we estimate an approximate $2.2 million decrease in annual net interest income for a parallel 25 basis point decrease in interest rates beyond what the forward curve currently suggests.
So in closing. We're very happy with our Q1 results and we're cautiously optimistic for the remainder of the year. We'll look forward to updating you all again with our second quarter results in July.
And with that, I'd like to ask the operator to open up the line for any questions. Operator?

Question and Answer Session

Operator

(Operator Instructions)
Alex Twerdahl, Piper Sandler.

Alex Twerdahl

Hey, good morning.

Priscilla Brown

Morning.

Jason Darby

Morning, Alex.

Alex Twerdahl

I wanted to start with some of the comments that you made Priscilla on some of the dollars that are earmarked in the IRA towards sustainability initiatives and one that I was looking at recently was this greenhouse gas reduction fund, which it seems like it's pretty new and some substantial dollars that are earmarked towards various projects.
And as I was wondering if you could just give us a little bit more color and thoughts on if you know how some of that money will actually flow and how amalgamated could actually play into some of these types of projects and initiatives?

Priscilla Brown

Yes. Thank you, Alex. It's a great question and great timing for us. Well, first of all, the distribution of funds could be done a number of ways. But and we don't know exactly how that's going to happen. We will know as of September when that disbursement is intended to occur or at least the announcement of how it's how it's going to be happening.
But, you know, look, we are well positioned to help organizations manage the receipt of those funds, whether it's for immediate use or whether the funds need to be placed in ways that will cause the used to occur over time. And this is not inconsistent with what we have done in the past. We move large sums of money and laddered fashion for our union clients over the last year or more using different traunches of treasuries to maintain liquidity when the customer needed it.
So in that sense, it's much like the work we've already done. In addition to that, you know, the political group that we have developed came out of the White House, and that's been very tuned into the IRA and for quite some time now.
And the advantage we have is that we know most of the awardees well, either they are customers for the part of I will call them coalitions or groups which have been formed. And that group is a new one, but it's made up of a number of green banks, which with them which we've done that business. So an example of one that's been announced as a coalition of Green Capital, they are the aggregator of green banks.
And again, that's a community we work well with and you know, the advantages for us in addition to the fact that we know a lot of these clients that have been helpful to them as they've gone through this process. And we also know we have a unique understanding of the renewable energy financing programs and methods.
And so we would like to continue to advise them. And we think we'll have a differential advantage in doing so. So really excited like I like to think it's we think it's going to be fun to try to deploy these assets in ways that both fulfill the mission and help grow the bank.

Alex Twerdahl

Okay. So it sounds like and we got to really wait till September to find out some of the specifics and but I mean, would you would you say that they could be balance sheet opportunities for amalgamated? Or is it mostly just that partnership and --

Priscilla Brown

Yes.

Alex Twerdahl

Yeah. Okay.

Priscilla Brown

No, no, no, I think I think there's opportunities both in deposits depending on how these funds are going to be dispersed as well as financing opportunities for us as well. And, you know, it's $20 billion that's been announced thus far, there's another $7 billion to be announced. And as we go down the line, there will be other activities.

Alex Twerdahl

Okay. We'll wait to see how that progresses.
And then I wanted to ask and maybe this is kind of a stupid question, but when you think when we think about the deposits that are off balance sheet, right now and kind of being the more transactional political deposits, should we think of those as the first line of defense for the political deposit outflows that we expect in the second quarter.
So that maybe those political deposits start to decline towards the end of the second into the third quarter. But the actual deposits on amalgamated balance sheets really aren't impacted.

Priscilla Brown

Why don't we both address? I'll take that first part of that. You know, one way to think about that is we have planned for this political deposit outflow. And if you look at what's happened over the last couple of quarters, you'll see that you've seen deployable I'm sorry, deposits grow not only in political, which we consider to be somewhat transactional, but also deposit growth in our core areas and in other parts of the business and in other segments.

Jason Darby

Yes. And Alex, I think you're thinking about it similar to the way we are in the sense that the off balance sheet deposits likely would be the first line of defense for the inevitable outflow, these political deposits, the closer we get to the conclusion of the election cycle.
That said, we still have the ability to time or advance some borrowings paydowns, and we may choose to do that first, in which case you could see deposits on-balance sheet being used to support political outflow. But given the nature or the size of the off-balance sheet deposits right now and the relatively low amount of wholesale funding that we would have able to be paid off here in the second quarter. It's very likely that the first line of defense will be the off-balance sheet deposits to support the initial outflow of the political deposits.

Alex Twerdahl

Okay, that's great. And just a final question, just to dig a little bit more into the multifamily and appreciate all the additional disclosure that you guys provided this quarter. When we think about sort of the mission aligned portion of multifamily, can you help us think about that a little bit more and sort of maybe some of the factors that would differentiate what amalgamated has on its balance sheet and the types of new multifamily loans that Amalgam is making today versus maybe the overall perception of what's happening in the market?

Jason Darby

Sure. The mission aligned nature of our business, I think lends itself mainly to relationships and our ability to really understand the clients that we're lending to that we're doing business with and being able to better understand also the financing requirements of these organizations.
Now, at the same time, we've certainly identified asset classes that have less restriction relative to rent stabilization rules versus greater. And we've spent a lot more of our time in the recent years, lending into 421A style buildings section 8, those that have greater abilities to have support for repayment streams and a little bit less on some of the more onerous 421 -- sorry, pre-1974 rent regulations.
But to maybe just roll the answer up more succinctly. I just think it's really relationship driven knowing who your customer actually is knowing what the financing requirements are before getting into the transactions and being very acutely aware of where the regulation sensitivities are and trying to lend away from areas where we have free market constraints and really stay more in areas where we have the ability to gain a competitive market on our particular assets that we invest in.

Alex Twerdahl

Okay. That's helpful. Thanks for taking my questions.

Priscilla Brown

Thanks, Alex.

Jason Darby

Thanks, Alex.

Operator

Thank you. Janet Lee, JPMorgan.

Janet Lee

Yes, morning.

Jason Darby

Hey Janet.

Janet Lee

And I appreciate all the comments on your multifamily portfolio, but if we can go back to what happened in the first quarter. Can you just walk us through how much of your rent and regulated multi-family portfolio it might have come due and got refinanced or paid off how much you had to modify and extend if any, because they weren't getting refinanced?

Jason Darby

Sure. There wasn't very credible known. I think it was under $25 million that came due in the first quarter, we've got about $63 million of the pre-1974 on multifamily real estate assets that are going to come due between now and the rest of the year. So on average, it's about $100 million or so per year, which is fairly consistent with the runoff chart that we've had in the past.
Janet, there wasn't any significant concessions that we had to make in any of the refinances that we made in this particular quarter. It was fairly neutral in terms of being able to roll those assets over, like I like and I give a lot of credit to the fact that there are strong LTVs on the properties already.
The borrowers have the ability to put cash into deals where needed. And we have been in touch with borrowers long before the renewals were set to take place. So there weren't any surprises with regard to anything in the first quarter for us looking outward, we see a very similar track.
We have identified individually all of the credits, obviously that we're going to be renewing. We've been in conversation with all of those borrowers where there is potential stress in some of these deals, we've been working on various arrangements to help the borrowers stay in their properties and keep the cash flow moving for the bank. And again, I think we're aided by just a really nice profile relative to as underwritten DSCR.s and lower LTVs.
Maybe then than other peers are experiencing. So overall, I think we're in a pretty decent spot. We're certainly aware that there is risk and we're managing towards that. And we did a little bit of reserve build up in our multifamily portfolio, just to account for the general environment relative to the multifamily or the real estate profile in general for metropolitan banks. But none of our reserve build was really related to anything specific. It was more just reaction to the general environment.

Janet Lee

Okay. Got it. And so basically, is it fair to say I mean, if I look at your criticized and classified balances only, it looks like it's only $10 million, no past due or NPLs in that part of the portfolio. And I mean, you build reserves, but still at 38 basis points. Are you basically saying this is just a reflection of higher rates for longer and not an expectation for like lost content coming not an expectation for loss content.

Jason Darby

And I think your observation of the asset facts from a non-performing and from a criticized asset and past-due point of view, are accurate we just haven't really seen though the loss rates in our actual portfolio, maybe that has been reflected in other reporting for other institutions.
And that said, we also seen fairly stable past-due performance. I think we did have a blip at the end of the fourth quarter and we had communicated that that was a documentation issue and that return to current status and you see that in the first quarter numbers, but it's really just a reflection of the current market environment.
As you point out, we think that the interest rate environment will probably remain in a higher state than maybe was originally being thought of earlier in this particular year. And we just felt it would be prudent to have a little bit more reserve on our books at this particular time. But we feel good about the assets that we have and we feel really good about what's coming due through the maturity schedule and that we have a good plan of action to be able to manage the assets appropriately.

Janet Lee

Okay, great. And come back to comment about bringing in lower cost deposits to plug the hole of expected political deposit outflows in the second half. How much are we thinking here mean tradition? Are we thinking here? I mean, traditionally, you guys have tapped FHLB. What sort of gives you better confidence on this time around? And besides political, where specifically are you seeing growth momentum in deposits picking up of all of the niche segments?

Jason Darby

Sure. I'll go in reverse for the questions and forgive me if I missed, why don't I may ask you just refresh me, but the growth in the other deposits, we see the social advocacy and not-for-profit really leading the charge in terms of new deposit attraction. We are also seeing some fairly substantial wins in our union base business.
We saw a little bit of that last quarter and that had fairly sizable balances. But those tend to take a lot longer on the cycle for sure for new account generation. So I would expect we're going to see a tremendous amount of new union deposits throughout the year.
That said, we are seeing increased balances as well from our existing union clients. And so taken as a whole between social advocacy, not-for-profit and Union. That's where we're seeing the majority of the nonpolitical deposit growth occurring on.
Forgive me, Jack, what was the first part of question on the political just was it outflows and what we should expect to see?

Janet Lee

Yes. I mean, how much are we thinking in terms of being able to plug that hole of one of expected political deposit outflows, any like any way to quantify or in terms of like the magnitude?

Jason Darby

It's difficult to really predict that at this point in time. What I can say is a little bit about what we've seen in the past and really where we target generally speaking, we target between $500 million and $600 million of funding requirements in the fourth quarter of an election year to plug the hole, if you will, for deposits, that would be to support these campaigns.
And that really is a back in number that depends upon how well we did relative to our political targets to begin with, in addition to how well or how close to plan. We are with our other nonpolitical deposit segments where we are right now is we are ahead of plan fairly well for both the political deposit gathering and the non-political rate.
So where we come in now are about [$1.4 billion] maybe even a little bit over midway through April on political deposits. That's certainly exceeded what we expected where we expected to be at this point. 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 non-fiber deposits are also proceeding ahead of our plan as well. Now if we're able to stand this particular pace, we would say 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, 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 on final question. Since you guys are approaching that 8.5% Tier one leverage target, how should we think about buyback in the second half of 2024.

Jason Darby

For stock buyback?

Janet Lee

Yes.

Jason Darby

I think it's always an arrow in our quiver. We we'll 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 one 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 and 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 trying to achieve that target. So that's generally how we look at it and it's very much a as the world turns type of scenario.

Janet Lee

I'll step back. Thanks.

Jason Darby

Thanks.

Priscilla Brown

Thanks, Janet.

Operator

Thank you. Chris O'Connell, KBW.

Chris O'Connell

Hey Priscilla and Jason.

Priscilla Brown

Hi.

Jason Darby

Hi.

Chris O'Connell

Just wanted to quickly circle back to the multifamily. I appreciate all the commentary so far. Was there some growth this quarter, was that growth in rent regulated some segments?

Jason Darby

Or is that I guess what segment was it and 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 do 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 in the space where we can get some better market opportunity for ourselves and also for, of course, the borrowers.

Chris 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 one and actuals as an example, 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 no 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. I 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 421A and Section 8 style housing loans. There's also great opportunities in the industrial asset class as well.
Thinking about LTVs and DSCR.s, and we have a standard for DSCR.s. And I would generally think of now $1.3 million 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 is quality deposits that help us hurdle a little bit better on in terms of our returns.
And from an LTV point of view, really thinking somewhere in that 55% -- 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 banks trying to protect its balance sheet and its risk profile. That's pretty much where we're where we're at in terms of new deal flow.

Chris O'Connell

That's helpful. And you 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.

Chris O'Connell

And while you've looked at these recent deals, you've gotten like the updated appraisals, just like generally, how do you have a sense of how much they were down from and when they are allowed to produce?

Jason Darby

I don't have a great number to call for you. I mean, our overall average weighted average DSCR is 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.

Chris O'Connell

Great. And then I think you mentioned the pace production increasing Q2 is $20 million to $20 million , -- $20 million to $25 million, an increase over Q1 production or was that target total production in 2Q?

Jason Darby

Yeah.

Priscilla Brown

Generally we our production is on for 1Q, slightly lower than the mid-30s production we typically had. But what's also different is that there is generally around $5 million to $8 million, I think, Jason, of pay downs of those rights. And this time, I think it was up to around $17 million .

Jason Darby

Yes.

Priscilla Brown

So I think the difference, the net number difference th1at 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 to $25 million net production, not in addition to the $10 million that we did in this particular quarter. As Priscilla was mentioning a moment ago.
The originations that we think there's a couple of good opportunities for us to add some additional purchases outside our normal production provider to make sure over 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-BASS that we could see flowing through as well. So when I talk about those numbers, and I think Brazil mentioned in her comments as well. We're really referring to the residential pace as those quoted volumes of $20 million, $25 million and a thing from a C pace would be incremental to that pace number that we just talked about.

Chris 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 do, 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 Amazon is 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 the 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 rate down range-- sorry, down interest rate scenarios.

Chris O'Connell

Yes, makes sense. And do you have the yields on what was purchased or sold?

Jason Darby

On the purchased were coming in around 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. But yes, 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 are about 4.95%, somewhere in that range, Chris, for the for the sales, somewhere in that range.

Chris O'Connell

Okay, great. And that's helpful. And then on the on the specific reserve, I think a $1.6 million increase in those provisions in the quarter from what was a what kind of what types of loans were those related to?

Jason Darby

Yes, it really came through on two loans in 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 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.

Chris O'Connell

Great. And then you mentioned another C&I loan that was upgraded. Can 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 stepped into the deal and make a modification.
Does it doesn't all 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 an 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 here to the metric standards that have been put into the deal.
But when the borrowers have reached those particular and measures and they've been able to demonstrate history with the meeting, then I think we are very fair and being able to upgrade those and we feel good about being able to report them not only upgradable but able to remain in an upgraded status.

Chris O'Connell

Awesome. Thanks for the color. Great quarter.

Jason Darby

Thanks Chris.

Priscilla 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 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 we 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, improved 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 discuss 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.