Blue Foundry Bancorp Q4 2024 Earnings Call Transcript

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Operator

Good morning, and welcome to Blue Foundry Bancorp's 4th Quarter 2024 Earnings Call. Comments made during today's call may include forward looking statements, which are based on management's current expectations and are subject to uncertainty and changes in circumstances. BlueFoundry encourages all participants to refer to the full disclaimer contained in this morning's earnings release, which has been posted to the Investor Relations page on bluefoundrybank.com. During the call, management will refer to non GAAP measures, which exclude certain items from reported results. Please refer to today's earnings release for reconciliations of these non GAAP measures.

Operator

As a reminder, this event is being recorded. Your line will be muted for the duration of the call. After the speakers' remarks, there will be a question and answer session. I will now turn the call over to President and CEO, Jim Nesi.

James Nesci
James Nesci
CEO & President at Blue Foundry Bancorp

Thank you, operator, and good morning, everyone. Thank you for joining us for our Q4 earnings call. I am joined by our Chief Financial Officer, Kelly Piperaro, who will discuss the company's 4th quarter financial results in detail after I provide an update on our operations. Earlier this morning, we reported a quarterly net loss of $2,700,000 and a quarterly pre provision net loss of $3,000,000 Levels increased by $32,000,000 predominantly in our commercial portfolios. Deposits grew $25,000,000 the majority of which came in core growth, including a 17% increase in non interest bearing accounts.

James Nesci
James Nesci
CEO & President at Blue Foundry Bancorp

Despite the net loss, we were able to maintain tangible book value and both capital and credit quality remains strong. Additionally, our balance sheet remains well positioned for the current environment. We are encouraged by the improvement in our yield on interest earning assets as well as our cost of interest bearing liabilities, as this may indicate an inflection point in our net interest margin going forward. Continuing our transformation into becoming a more commercially oriented institution, my management team and I have set forth the strategic plan intent on attracting the full banking relationship of small to medium sized businesses in our marketplace. Our bank has industry leading frictionless products and we are focused on developing new relationships and deepening our current relationships within the communities we serve.

James Nesci
James Nesci
CEO & President at Blue Foundry Bancorp

All employees have a portion of their compensation aligned with achieving our strategic objectives. We funded $59,000,000 of loans during the quarter, yielding approximately 7.5%. We have executed letters of intent totaling over $60,000,000 for predominantly commercial credits at yields of approximately 7.7%. Given our demonstrated high pull through rate, we expect to deliver continued balance sheet and interest income growth over the coming quarters, all while remaining disciplined in our underwriting standards. During the quarter, we repurchased 481,000 shares at a weighted average share price of $10.49 Repurchasing shares at this price continues to improve shareholder value.

James Nesci
James Nesci
CEO & President at Blue Foundry Bancorp

To date, we have repurchased 6,900,000 shares at a weighted average cost of $10.16 Tangible book value per share remained flat at $14.74 this quarter. Our bank and holding company remained well capitalized with capital levels that are among the strongest in the banking industry. Tangible equity to tangible common assets is 16.1%. Blue Foundry continues to operate with robust liquidity and a low concentration risk to any single depositor. At the end of the 4th quarter, we had $408,000,000 in untapped borrowing capacity and our unencumbered available for sale securities and unrestricted cash provided another $211,000,000 of liquidity.

James Nesci
James Nesci
CEO & President at Blue Foundry Bancorp

This liquidity is 4.2 times larger than our uninsured and uncollateralized deposits to customers, which represent only 11% of our deposit balances. With that, I'd like to turn the call over to Kelly and then we will be delighted to answer your questions. Kelly?

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

Thank you, Jim, and good morning, everyone. The net loss for the Q4 was $2,700,000 compared to a net loss of $4,000,000 during the prior quarter. This improvement was driven by an increase in net interest income, a decrease in expenses and a release of provision for credit losses compared to a build in the prior quarter. Net interest income increased by $386,000 leading to a 7 basis point improvement in net interest margin. Interest income expanded $253,000 while interest expense declined $133,000 We expect our net interest margin to improve as we close loans at current rates and reprice deposits lower.

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

Yield on loans improved by 4 basis points to 4.57% as the improvement from originations was partially offset by the reduction in yields on construction loans due to the decrease in the prime rate. The yield on all interest earning assets improved by 5 basis points to 4.37%. Cost of funds decreased 6 basis points to 2.93%. The cost of interest bearing deposits decreased 10 basis points to 2.90 percent, while borrowing costs increased 13 basis points to 3.26%. Expenses improved by $386,000 Compensation expense was lower this quarter, driven by the lower than projected variable compensation expenses.

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

As you will remember, we began releasing variable compensation accruals earlier this year when the achievement of some goals became less probable. Our annual cash incentive plan has a potential payout of up to 150%. The planned payout is approximately 60% to 70% of target as the company did not achieve all corporate goals this year. While we continue to promote expense discipline, we expect operating expenses to return to the mid to high $13,000,000 range as bonus accruals reset to 100% achievement, merit raises are realized and normal inflationary consideration impact other contracts. For the Q4, we had a $301,000 release in the provision for credit losses.

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

The majority of this release was in the allowance for commitments and unused lines as much of our loan growth this quarter came from loans that were commitments at the end of last quarter. The economic forecast scenarios as well as the duration of our construction portfolio contributed to a slight relief in the allowance for credit losses on loans. We also had a small release in the allowance for credit losses on held to maturity securities. As a reminder, the majority of our allowance for credit loss is derived from quantitative measures and our allowance methodology still places greater weighting on the baseline and adverse forecast. Moving on to the balance sheet, gross loans increased by $32,500,000 during the quarter, predominantly in owner occupied commercial real estate and to a lesser extent commercial industrial and multifamily loans.

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

Only approximately 2% of our loan portfolio is in office space and none is in New York City. Our available for scale security portfolio with a duration of 4.2 years increased $6,200,000 This increase was driven by the purchase of $44,500,000 of securities at current yields, partially offset by $20,000,000 of maturing lower yielding treasuries, dollars 13,800,000 of amortization and a $4,500,000 deterioration in the unrealized loss position. Deposits grew by $24,700,000 We saw growth of $18,600,000 in core accounts across all categories. Non interest bearing deposits grew $3,700,000 checking accounts grew $12,100,000 and savings accounts grew $2,800,000 Time deposits grew $6,100,000 as we replaced promotional customer time deposits with $30,000,000 of broker deposits. Borrowing decreased by $9,000,000 as the company funded loan growth with deposit growth and cash on hand.

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

Finally, asset quality remains strong in the current environment. Non performing assets declined modestly due to a slight improvement in non accrual loans. Both non performing assets to assets and non performing loans to loans remains relatively flat at 25 basis points and 33 basis points respectively. Our allowance coverage ratios remained relatively flat as well at 83 basis points to total loans and 2 54% of non performing loans. And with that, Jim and I are happy to take your questions.

Operator

Thank you. Our first question comes from the line of Justin Crowley with Piper Sandler. Please go ahead.

Justin Crowley
Justin Crowley
Research Analyst at Piper Sandler Companies

Hey, good

Justin Crowley
Justin Crowley
Research Analyst at Piper Sandler Companies

morning. Just want to start off on your commentary on loan growth. That 1% to 4% and then multifamily bucket have been kind of the 2 areas that have been a drag on net growth for the past couple of years now. Is the expectation that that will continue to be the case looking forward?

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

Yes. I think from a strategic perspective, Justin, we're really looking at growing the commercial book, both in C and I, as well as owner occupied space. The decline in our residential book has been somewhat intentional, although quicker than we had envisioned. In multifamily, we believe we have a large concentration there. So we're watching our concentration limits on the multifamily space.

Justin Crowley
Justin Crowley
Research Analyst at Piper Sandler Companies

Okay, got it. And then you mentioned the $60,000,000 pipeline. I can't remember where maybe that stood last quarter. I'm not sure if you shared that. But just curious your just broader thoughts on just where activity stands and you see things starting to pick up as we head through the New Year and perhaps maybe more certainty following the election?

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

Yes. I definitely think the pipeline has improved from where we were last quarter. And as we mentioned, we did see some pull through of those that we had commitments on at the end of Q3. As Jim mentioned in his remarks, we have about $60,000,000 of commercial loans that we had letters of intent out at a rate of around $750,000,000 So we are seeing some improvement in the pipeline and look for that to continue.

Justin Crowley
Justin Crowley
Research Analyst at Piper Sandler Companies

Okay, got it. And then on the margin, I'm just looking to get a sense for how you're thinking about deposit cost progression over the course of the year. How much have you been able to move rates lower so far, following 100 basis points and cuts out of the Fed? And to what extent is that reflected in the 4Q margin?

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

So I think we did see improvement in deposit costs as we mentioned to 2.9% yield on that book. There's been pressures, Justin, on repricing. We have been able to bring prices down or costs down somewhat on that book. We do have probably $500,000,000 $500,000,000 coming into the first half. We've intentionally kept our CV short.

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

So we look for that with pricing and hope that we can get benefits as rates trend lower.

Justin Crowley
Justin Crowley
Research Analyst at Piper Sandler Companies

Okay. And on that $500,000,000 do you have the rate that that's coming off of and where that will reset at?

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

Yes. So the rate currently on the Q1 is probably around 4.75%. So we're looking our promotional rate that we have out there right now is a 4% yielding CD. So we're hoping to realize some improvement as those reprice. And then in the second half or the second quarter, we're seeing a little bit lower of a yield on that, both probably around the $450,000,000 and hope that that can reprice as well.

Justin Crowley
Justin Crowley
Research Analyst at Piper Sandler Companies

All right. That's helpful. And then just another input as far as the margin on the asset side. With average loan yields around that mid-four level, is the expectation that that continues to move higher regardless of whether we get another cut or 2, just given where new production is coming on at combined with back book repricing?

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

Yes. I think we do anticipate that to trend higher as things are coming on at market rates, and we have the amortization of our book at the lower rates. There are some challenges as well though on the construction book. So I think it's fair to say while construction will reprice lower if prime rate goes down, we will see improvement as those other asset classes are being put on the books.

Justin Crowley
Justin Crowley
Research Analyst at Piper Sandler Companies

Okay, great. I'll leave it there. Thanks so much for taking the questions.

James Nesci
James Nesci
CEO & President at Blue Foundry Bancorp

Thank you.

Operator

The next question comes from Chris O'Connell with KBW. Please go ahead, Chris.

Christopher O'Connell
Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Hey, yes. Good morning. Just wanted to follow-up on the margin discussion. I was wondering if you guys had the spot margin handy for December at the end of the quarter?

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

I think we were around 190 from a margin perspective at the end of the quarter, a little bit higher, like 190,192.

Christopher O'Connell
Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Okay, great. And just given the dynamics here on the balance sheet, I mean, it seems like things are now moving in the right direction on the margin. And I'm sure a lot of it depends on how much growth on the loan portfolio side that you guys are able to put on over the course of the year. But any sense of the magnitude of expansion that you could see over the course of 2025?

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

I think as we look at 2025, of course, we're looking to grow. We're looking at probably high single digit loan growth at this point, given where we have some maturities coming in as well as the pipeline, so factoring that in.

Christopher O'Connell
Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Okay. And do you think like the margin do you expect it can kind of pace over the course of the year at a similar expansion rate that you saw in the Q4? Or is that a little bit higher or lower than what you think you're going to achieve going forward?

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

I think at this point, we're anticipating a similar pace. Again, it's all dependent upon the timing of putting those credit signs and also the ability to reprice deposits

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

lower.

Christopher O'Connell
Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Okay. Thanks. And then for the expense guide back to the mid to high $13,000,000 range, Is the expectation that that holds as a pretty good level for the remainder of 2025 after Q1? Or do you expect to see growth thereafter?

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

Yes. I think we're looking at that mid to high $13,000,000 range across the quarters. Again, as we look at our achievement in variable compensation and how we're attaining throughout the year, but that's where we're seeing things pull out for 2025.

Christopher O'Connell
Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Okay. And then I guess on as far as like the variable compensation goes, is there like what are the specific metrics for 2025 to hit that 100%?

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

So the goals that the our compensation committee and Board have agreed to really align to our growth and it ties to loan growth, also deposit growth, loan cost deposit growth and our net interest margin really growing the balance sheet in a mindful way.

Christopher O'Connell
Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Okay. Thanks. And then you mentioned the construction portfolio being potentially really the only headwind here on the loan yields. Like what are the yields coming off on that portfolio? And what are the new origination yields there?

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

So the yields on the portfolio are Climb plus is either 50 basis points to 100 basis points within that range. So it's dependent upon where Climb rate is. The construction book is right around $85,000,000 right now, and we see some of the pipeline as those are maturing, coming on. So, we have some of the construction in the pipeline.

James Nesci
James Nesci
CEO & President at Blue Foundry Bancorp

Yes, I think that book is constantly recycled is the way to look at it. If construction project gets finished up, that loan pays off, a new one comes on board. We've got a good pipeline of construction loans. Got it.

Christopher O'Connell
Director - Equity Research at Keefe, Bruyette & Woods (KBW)

And then on the share repurchases, is it fair to assume that that can progress at a kind of similar pace over the course of 2025 from here?

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

Yes. I think as we look at share repurchases, we think it's a good use of capital at these levels. So we'll continue to be active in the market, again, always looking at the best use of capital as we move forward.

Christopher O'Connell
Director - Equity Research at Keefe, Bruyette & Woods (KBW)

Great. Thanks, Jim. Thanks, Kelly. Appreciate the time.

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

Great.

James Nesci
James Nesci
CEO & President at Blue Foundry Bancorp

Thank you.

Kelly Pecoraro
Kelly Pecoraro
Executive VP & CFO at Blue Foundry Bancorp

Thanks, Chris.

Operator

Thank you for your questions. I will now turn the call back over to Jim Nesi for closing comments.

James Nesci
James Nesci
CEO & President at Blue Foundry Bancorp

Thank you, operator. We'd like to thank everybody for participating today, and we look forward to updating you next quarter. Thanks so much.

Operator

Thank you, everyone, for joining us today. This concludes your call and you may now disconnect your lines.

Executives
    • James Nesci
      James Nesci
      CEO & President
    • Kelly Pecoraro
      Kelly Pecoraro
      Executive VP & CFO
Analysts
Earnings Conference Call
Blue Foundry Bancorp Q4 2024
00:00 / 00:00

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