Bancorp Inc

Recent Developments

As noted in our second quarter press release, the Company entered into a purchase and sale agreement for an apartment property acquired by its wholly-owned subsidiary The Bancorp Bank, National Association, (the “Bank”) through foreclosure in connection with a real estate bridge lending (“REBL”) loan. At September 30, 2024, the related $40.3 million balance, comprised the majority of our other real estate owned. Subsequent to the previously reported $125,000 earnest money deposit in July 2024, the purchaser has made additional earnest money deposits of $250,000 bringing the total of such deposits to $375,000 in 2024. Additional required deposits are projected to total $500,000 prior to the December 31, 2024 closing deadline. The sales price is expected to cover the Company’s current other real estate owned balance plus the forecasted cost of improvements to the property. There can be no assurance that the purchaser will consummate the sale of the property, but if not consummated, earnest money deposits would accrue to the Company.

While real estate bridge loans classified as either special mention or substandard increased during the quarter, we believe that such classifications are at or near their peak. That conclusion is based, at least in part, on an independent review of a significant portion of the REBL portfolio performed during the third quarter by a firm specializing in such analysis. Additionally, the 50 basis point Federal Reserve rate reduction may provide immediate cash flow benefits to borrowers, while the further declining forward yield curve should support further liquidity benefits, as fixed rates decline. Moreover, respective weighted average “as is” and “as stabilized” loan-to-values ratios (“LTVs”) of 77% and 68%, respectively, based upon appraisals in the past twelve months, continue to provide significant protection against loss. Underlying property values as supported by such independent LTVs, continue to facilitate the recapitalization of certain loans from borrowers experiencing cash flow issues, to borrowers with greater financial capacity. At September 30, 2024, real estate bridge loans classified as special mention and substandard respectively amounted to $84.4 million and $155.4 million compared to $96.0 million and $80.4 million at June 30, 2024. Each classified loan was evaluated for a potential increase in the allowance for credit losses (“ACL”) on the basis of the aforementioned third-party appraisals of apartment building collateral. On the basis of “as is” and “as stabilized” LTVs, increases to the allowance were not required. The current allowance for credit losses for REBL, is primarily based upon historical industry losses for multi-family loans, in the absence of significant charge-offs within the Company’s REBL portfolio. However, as noted in our second quarter press release, as a result of increasing amounts of loans classified as special mention and substandard, the Company evaluated potential related sensitivity for REBL in the third quarter. Such evaluation is inherently subjective as it requires material estimates that may be susceptible to change as more information becomes available. As a result, the Company added the aforementioned new qualitative factor to its quarterly ACL with a cumulative after-tax impact of approximately $1.5 million ($2.0 million pre-tax).