Q1 2024 Blue Foundry Bancorp Earnings Call

Participants

James Nesci; President & Chief Executive Officer; Blue Foundry Bancorp

Kelly Pecoraro; Chief Financial Officer, Executive Vice President; Blue Foundry Bancorp

Justin Crowley; Analyst; Piper Sandler

Christopher O’Connell; Analyst; KBW

Presentation

Operator

Good morning, and welcome to Blue foundries Bancorp's First 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. Blue foundry encourages all participants to refer to the full disclaimer contained in this morning's early earnings release, which has been posted to the Investor Relations page on Blue foundry bank.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. 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. And I will now turn the call over to President and CEO, Jim Lyski. Please go ahead.

James Nesci

Thank you, operator. Good morning, everyone, and welcome to our first quarter earnings call. I'm joined by our Chief Financial Officer, Kelly eCERA, and I'm going to provide a strategic update and then Kelly will discuss the company's first quarter financial results in detail. We continue to focus on executing against our strategy and delivering value for all of Blue Foundry's stakeholders. Paramount to our success is our ability to leverage the Company's strong capital position to fund assets and deposit growth. The first quarter was a promising step in the right direction. During the quarter, we grew deposits by 46 million. This growth was driven by the execution of our strategic initiatives and resulted in a reduction in our loan-to-deposit ratio by 500 basis points. Continued deposit growth will allow us to generate interest earning assets and expand revenue while maintaining an appropriate amount of leverage. Given our strategy to become a more commercially oriented institutions, we have been selective in originating real estate loans while building our commercial pipeline, we expect to see production and commercial credits pickup as we move through 2024. As always, we are disciplined in underwriting strong credits for us.
All of our loan brand-new offerings.
We are committed to continue being good stewards of capital. Our stock, along with many of our peers, is trading at a discount to tangible book value. We believe that repurchasing shares at these levels is a prudent use of capital. In the first quarter, our Board approved another repurchase program or Forum in less than two years under our repurchase programs, we repurchased 532,000 shares at a weighted average share price of $9.49 during the quarter. These repurchases, coupled with an improvement to our AOCI. health increased tangible book value per share by $0.11 to $14.60. Our bank and holding company remain well capitalized with capital levels that are among the highest in the banking industry. Tangible equity to tangible common assets was 17.25% as of March 31st. Blue Fin Re continues to operate with a low percentage of uninsured deposits and a low concentration risk to any single depositor. Our insured and uncollateralized deposits from customer accounts for 133 million at March 31st. This is approximately 10% of the Company's total deposits. At the end of the first quarter, we had 418 million in untapped borrowing capacity and our unencumbered available for sale securities provided another 251 million of liquidity. We had 54 million of cash on the balance sheet, of which 30 million was unrestricted Additionally, our available liquidity covers 5.3 times our uninsured and uncollateralized deposits customers.
With that, I'd like to turn the call over to Kelly so that we would be delighted to answer your questions. Kelly?

Kelly Pecoraro

Thank you, Jim, and good morning, everyone. The net loss for the first quarter was $2.8 million compared to a net loss of 2.9 million during the prior quarter. This improvement was driven by our release in the provision for credit losses and an improvement in net interest margin, partially offsets by increasing expenses which was guided to last quarter.
Our asset quality continues to remain strong in the current environment. During the quarter, we had a release of provision for credit losses of $535,000, driven by forecasted improvements to the economic drivers used to model. Our credit losses for release occurred in all three categories, loans off balance sheet commitments and held to maturity securities. As a reminder, the majority of our allowance for credit loss is derived from quantitative measures and our allowance methodology places greater weighting on the baseline and adverse forecast, while nonaccrual loans increased $793,000 due to a single small business credit. Nonperforming assets to total assets remained low, increasing four basis points to 36 basis points. Our allowance to total loans decreased three basis points, two, 88 basis points due to the decrease in the allowance for credit losses on loans and our allowance to nonaccrual loans decreased to 205% from 240% the prior quarter due to the increase in nonaccrual loans, coupled with a decrease in allowance for credit losses on loans, net interest income increased by $221,000, leading to an eight basis point expansion in net interest margin. Interest income expanded $507,000 and interest expense increased $286,000. We may experience slight margin pressure over the next couple of quarters, depending on interest rate activity and our ability to generate asset growth given the current macro economic environment, yield on loans increased by 16 basis points, 4.45% and yield on all interest earning assets increased by 19 basis points, 4.25%. Cost of funds increased 11 basis points to 2.81%. We continued to remain competitive in deposit pricing. This resulted in the cost of interest-bearing deposits increasing 22 basis points, 2.74%. Conversely, borrowing costs decreased 14 basis points, so 3.24% as we paid off higher-cost short term wholesale borrowings expenses increased by $699,000, primarily driven by compensation and benefits, while compensation and benefits increased as a result of variable compensation bonus accruals resetting for new performance targets in 2024. Our headcount remained stable throughout the quarter. We continue to explore opportunities to optimize our expense base and we expect operating expenses for the second quarter of 2024 to be in the mid to high 13 million range.
Moving on to the balance sheet, gross loans declined by $6.6 million during the quarter as amortization and payoffs outpaced new loan fundings. As a reminder, less than 2% for $22 million of our loan portfolio is in office space and none is in New York City. Our debt securities portfolio has a duration of 4.8 years as a result of maturities call and scheduled paydowns. This portfolio was reduced by $18.6 million during quarter. Deposits increased by 46.3 million were 3.7% during the quarter, our frontline staff were able to grow retail time deposits by $15.2 million and grow core deposits by approximately $500,000. This growth was partially offset as we allow wholesale deposits to mature. Our focus remains on attracting the full banking relationship of small to medium-sized businesses. We offer an extensive suite of low cost deposit products to our business customers during the quarter, commercial account balances increased $18.5 million or 10% as a result of our strong deposit growth and cash flow from the loan and securities portfolios. We were able to pay down $55 million of higher cost short term borrowings.
And with that, Jim and I are happy to take it question if you'd like to queue for a question, you can do so by pressing star one on your telephone keypad. And if for any reason you'd like to remove your question, you can press star two again the queue for question, please press star one. We'll pause here briefly as questions are registered.

Question and Answer Session

Operator

(Operator Instructions) Justin Crowley, Piper Sandler.

Justin Crowley

Hey, good morning, guys. On just wanted to start off on the margin was nice to see some inflection in the quarter. You know, as I think about your balance sheet, lower rates would, of course, be helpful on. But as we face in the idea of higher for longer, was wondering if you could just unpack a little more what drives perhaps just the commentary on and then pressure looking ahead versus what you saw in the current quarter?

Kelly Pecoraro

And thank you, Justin, and good morning. So if we look, we were very pleased with the quarter's expansion in. And we are mindful though, within our portfolio, we have about 230 million of time deposits that will reprice. So currently they're at about a 47, 70 rate. And given the pressure on deposit pricing in the market, that will probably reset to a higher price level given the current rates. So depending upon that, we could see some pressure and deposit costs to go even higher.

Justin Crowley

Okay. Got you.
That's helpful.
And then just as far as that deposit gathering side was obviously a good quarter to start off the year, but how are you thinking about deposit generation going forward versus having to rely on more wholesale funding channels? Obviously, you're able to reduce that in the quarter. Just curious on your thoughts there, obviously at the competitive environment still.

James Nesci

Morning, Justin, it's Chip. We are out in the marketplace shaking all the bushes working on small business and putting our people power surrounding ourselves on the commercial side as much as possible. I think we have strong products and we're going to keep driving towards organic growth on the deposit side as much as possible as opposed to wholesale funding. The organic growth boost will be CO2. They'll lead us to a better market going forward.

Justin Crowley

Okay.
I appreciate that.
And then just on credit. You touched on it, but look quite lean once again. And you mentioned a small tick up in nonperformers, but obviously you're able to release some reserves in the quarter. Seems just more of the world we live in with CECL, but what are you seeing under the hood when you look at your book in terms of any early signs of stress and if any at all?

Kelly Pecoraro

Yes, Justin, we are pleased with our level of nonperforming. While we did tick up from, we do look forward to some resolution of some nonperforming that are on our books. There's nothing right now at this point that's concerning besides what we disclosed in the nonperforming. So we're pleased with the credit metrics. We have strong underwriting and that has served us well.

Justin Crowley

Okay.
Tom.
And then I guess just my obligatory question on buybacks. But we think the desire to step in is still there based on what we saw during the quarter where capital levels stand? And then just where activity got done at versus where the stock is now. Just curious, any updated thoughts there if there's possibly room to get even more active balance sheet continues to kind of shrink in size or at least stay roughly where it is?

James Nesci

Yes, he said, because of the Board and I and Kelly, we all strongly believe in buyback. I think you'll see us there remain active in buybacks. I don't know that there's any further comments that we have at this time, but we believe of buybacks before directors, believe in buybacks. And we do believe, Tom, it works given where the price of the shares are today.

Justin Crowley

Okay, great.
Thanks.
Jim Kelly, on I appreciate it.
I'll leave it there.

James Nesci

Thanks so much and is it.

Operator

Our next question is from Chris O'Connell with KBW. Your line is now open.

Christopher O’Connell

Hey, good morning.
So my I just want to start off with on the on the loan side and how that pipeline is doing and you know where you guys are thinking about in terms of, you know, we're reaching growth for the full year of 2024, of course.

Kelly Pecoraro

So as you saw, we had a slight reduction in our loan portfolio this quarter. And really that's driven by a couple of things, competition for loans. But we are, as Jim noted, being very selective and the assets that we're putting on our books. So we look at our the shift. We are pleased with the reduction in our multifamily and residential and the growth within the C&I and other commercial real estate and line item. So we're looking to be prudent as we put those assets on and our pipeline right now, where we sit at about $40 million in our pipeline and those are in those asset classes that we're looking to focus on Dominic, but I think it has been driving what we think on yield and the pipeline deals and the pipeline is just right around 7.7 points.

Christopher O’Connell

Yes, great.
Okay.
Got it. And as you know, absent any rate change impacts as you're looking out the next couple of quarters with the new pressure, any sense as to where you could see is the level of bottoming.

Kelly Pecoraro

I don't think we have a level where we bottom, you know, it's very dependent upon the repricing of being able to gather and put on the higher yielding assets. But we are mindful, as I had mentioned, with some of the repricing our deposit book this quarter, we benefited from our borrowing thing, T. down both higher costs and being able to replace them with deposits.
So is that continues and where is where are those CDs that the $230 million, where do you see them repricing to.
But right now they're on the books at about a fourth 70 and our current promotional rates out there are about five 25.

Christopher O’Connell

Okay, great. That's helpful. And then just more broadly are in or strategically thinking, I mean, how are you guys thinking about the pace or the movement toward kind of positive profitability? Is there any incentive targets that are linked to that. And these do you see that happening over the course of the next few quarters? Do you think you need the yield curve to change?

James Nesci

What's the pathway there because I'll start and I'll let Kelley finish. The goal is always to become profitable and to continue to improve the financials for the Company and for its shareholders. The expense side?
Well, we continue to look for any expenses that we can cut or reduce are being more strategic about how we continue to consolidate vendors whenever possible. We are very mindful of our staffing and our salaries and benefits. So I think there's a lot being done when you look at the Company over the course of the last three years, much has been accomplished, but the curve, as you indicate it has changed and it's changed dramatically over the last 18, 24 months, and it's become more difficult for us. It's a liability-sensitive bank to produce a name that's efficient. We will continue to look for more mechanics, retail deposits, and we're also more focused on commercial commercial and industrial type loans to get a higher yielding asset onto the books. We think all of those things in time lead to greater profitability.
That's the focus.
That's the strategy. The compensation, I think it was a question you're asked about our metrics are tied to things that lead to greater profitability in the long haul. But every employee at Lou factory bank is focused on these items we talk about them frequently. We have town halls, every employee's invested in this company. So yes, it's that's top of mind for all of us.
I appreciate the question, but I don't know if Kelly wants to add anything to it.

Kelly Pecoraro

And I think generally you covered off and we're looking in on those strategic initiatives and compensate relative to those targets as well, we'll look to profitability.

Christopher O’Connell

Great. And along those lines, I mean, is there anything that you've mapped out and that maybe you don't you don't have quite as hard numbers around on the expense side as you get through the year and into 2025 and any projects or anything that you think you can you cut out any significant costs?

James Nesci

I don't have any additional guidance at this time. I don't know of any, but I don't have any guidance in any of that on that topic.
I would tell you right now is we're trying to be as lean as possible and to create a better, a better bank every single day.

Christopher O’Connell

Great.
Appreciate the time. Thanks for taking my questions.

James Nesci

Thank you.
That have a great day.

Operator

We have no further questions at this time, so I'll pass the call back to the management team for any closing remarks.

James Nesci

Thank you, operator. And to everyone who is listening today.
Thank you very much for your interest in Blueknight.
We think we look forward to speaking to you again in the next quarter.
Have a great day.

Operator

That concludes today’s call and thank you all for your participation. You may now disconnect your lines.