Q3 2022 Blue Foundry Bancorp Earnings Call
Good morning, and welcome to Blue Foundry Bancorp's third quarter 2022 earnings call. My name is Carrie and I'll be your conference operator today.
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.
New foundry encourage all participants to refresh the full disclaimer contained in this morning's earnings release, which has been posted to the Investor Relations page on <unk> foundry bank its outcome.
During the Covid management will refer to non-GAAP measures, which exclude certain items from reported results. Please refer to today's earnings release 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.
I would now like to turn the corner of its president and CEO Jim messy.
Thank you operator.
Everyone and welcome to our third quarter earnings call I'm joined by our Chief Financial Officer, Kelly Pecoraro. After my opening remarks, Kelly will share the company's financial results.
Earlier. This morning, we reported third quarter net income of $1 2 million or <unk> <unk> per diluted share and a pre provision net revenue of $1.1 billion.
This was largely driven by continued growth in commercial loans or lending team had another remarkable quarter originating $172 million of loans during the quarter. We focused on production on the multifamily segment, which we feel is a stable asset class during times of potential economic uncertainty, while our retail mark.
<unk> are beginning to show higher deposit costs, our loan growth has helped to expand net interest income by 5%.
As of September 30 loans totaled $1 49 billion up $67 million from the prior quarter. This represents loan growth of 5% quarter over quarter. The fourth consecutive quarter, we grew our loan portfolio by more than 4%.
While our loan pipeline remains healthy given supply and the current environment, we do not expect to continue growing at this record pace.
We decreased our reliance on certificates of deposit by $65 million for the quarter, while growing our core deposits by $35 million core deposit growth remained strong across both consumer and business segments.
I'll focus on attracting the full banking relationship of small to medium sized businesses led to an increase in business accounts by 4%.
Business related deposits increased 7% to $179 million.
Additionally, the company added $18 million and consumer core deposits.
Beginning in August we repurchased 600 at 67000 shares at a weighted average cost of $11 67.
A significant discount to tangible book value.
This represents 23% of the approved stock repurchase program. Additionally, last week the board of directors approved stock option grants or officers of the company.
Not only will these grants helped us to retain top talent that will further align our officers with long term interest of our shareholders.
These options granted have a strike price of $11 69.
And we will vest ratably over the next seven years.
Behalf of our board of directors and the officers of our company I would like to thank our shareholders for their support and approval of the Blue Foundry Bancorp 2022 equity incentive plan.
With that I'd like to turn the call over to Kelly and then we'd be delighted to answer your questions.
Okay.
Thank you Jim and good morning, everyone.
Our financial results were highlighted by net income of $1 2 million compared to 40000 during the quarter.
This improvement was largely related to pre provision net revenue, which increased 586000.
Despite funding pressures from the rising rate environment net interest margin remained relatively flat expanding one basis point to 2.84%.
Interest income increased $1 5 million and net interest income increased 5% or 653000, driven by a $96 million increase in average loan balances.
Remaining competitive in pricing, we have increased rates offered on select depository products.
This coupled with an increase in short term borrowings.
Cost of funds to 66 basis points.
The 19 basis point increase compared with the prior quarter.
We expect pressure on our margin due to our balance sheet being liability sensitive.
During the quarter, we released provision of loan losses of 419000 and increased our provision for commitments by 170000 due to a change in mix of our loan portfolio.
Our asset quality remained strong.
During the quarter, our allowance to total loans decreased seven basis points to 91 basis point.
This was partially driven by the change in mix of our portfolio as well as the improvement in our credit metrics.
Nonperforming loans to total loans decreased 14 basis points to 56 basis points.
Our allowance to non accrual loans increased to 162% from 141% the prior quarter.
As a reminder, we are currently operating under the incurred loss model and are on track to adopt Cecil by the required implementation date.
In terms of expenses, excluding our provision for commitments, we saw a $372000 increase.
This is due to a combination of director equity grants.
An increase in working days.
Nonrecurring expenses from investor related activity and the potential branch sale.
As Jim mentioned in his remarks.
Stock option grants for officers were approved last month.
We expect these grants to a quarterly expense of approximately 300000.
We will continue to closely manage our operating expenses.
Moving on to the balance sheet gross loans excluding PPP.
Grew by 68 million or four 8% sequentially.
Driven by originations of 172 million, primarily in the multifamily segment.
During the quarter. The bank also purchased $15 million of high quality residential loans in our principal market, which were originated two Fannie Mae standards.
With a duration of four one years, our securities portfolio continues to provide cash flow that is being used to fund loans.
$17 6 million of the decline in the securities portfolio was attributed to maturities, Paul and scheduled pay downs.
We continue to grow our core deposits to a variety of initiatives.
During the quarter core deposits increased 4% or $35 million and now represents 71% of total deposits.
Additionally, during the quarter borrowing increased $19 million.
Tangible book value declined 34.
To $14 nine per share driven primarily by the negative impact that interest rates had on our available for sale securities portfolio.
Given our current tax position most of the change in fair value flows through to equity with little tax benefit for the <unk>.
A realized loss.
Therefore, the rising rate environment has a more profound impact on our equity than would have if we were operating with a more normalized tax position.
As we mentioned last quarter, we currently intend to hold these securities through their contractual maturity.
Which will allow us to recoup the unrealized losses, we have experienced to date.
As Jim mentioned earlier, we repurchased shares at a discount which had a positive impact on tangible book value.
And with that Jim and I are happy to take your questions.
Thank you and as a reminder, please dial star one if you would like to ask a question.
And our first question today comes from the line of Laurie Hunsicker Compass point. Your line is now open.
Great Hi, Thanks, Kevin Kelly good morning.
I'm just hoping we could start we could start with the buyback. So I know you know in your release, you're saying 670.
667000 at 11 67, what was some of that for the benefit plans.
Or was that all young being retired I guess I'm just yeah go ahead.
No sorry, Laurie good morning, Yeah.
Yes, so we did use to.
299000 of those shares to fund the equity portion of the directors Brent.
Great perfect.
And then.
Just in terms of your loan growth can you help us think a little bit about.
About you know how loan growth will look going forward and then specifically that that multifamily jumped by almost $100 million.
Just where that multifamily is located any details you can give us the ltvs on that growth, but just how youre thinking about that.
Thanks.
Sure Larry Yes, we had strong growth in the multifamily segment this quarter, which we think is a.
Good asset class for us to be in at this point from an overall perspective, the majority of that about 60% is in the New Jersey space.
32% is in the New York space not in the Manhattan area.
And the Ltvs are.
60% around 60% LTV.
Sure.
Okay, and then when you when you think about growth going forward.
How how are you looking at at that book.
The multifamily book or just commercial real estate then yeah.
Exactly at the multifamily book because your you know your growth was 69% annualized this quarter and that that's on the path of your loan book. So just how should we be thinking about that.
Going forward I think.
Youll continue to see growth in the multifamily, it's starting to slow down in the marketplace.
We will continue to look at industrial real estate as well.
But the market is definitely tightening up from what we're seeing.
Okay, Okay and was that multifamily was that purchase or.
Your team of Richard.
Direct directly originated.
Okay.
Okay, Great and then I'm thinking about about you know Kelly in your comments on margin pressure can you talk a little bit.
Just about the funding side.
What you're seeing there in terms of price pressure just help us think about that a little bit and then just specifically kind of a cleanup item you know within your net interest income I know there was a probably a very very small amount of P. P. P forgiveness.
Do you have that figure.
Yes, Laurie so the PPP for this quarter represented about one basis point as you said that really has come down.
In the recent quarters, we only have approximately a half a million less in PPP loans with about 30000 of fee income to be amortized, which we will not be meaningful.
Move forward. So this quarter was one basis point attributed to the NIM.
NIM.
Okay.
Alright.
No go ahead.
Okay.
To move on as yet another question on that I was going to move on to the funding pressure question.
Yesterday yesterday it thanks, Thanks Colin.
Yeah.
We have a number of initiatives going on at the institution I think not unlike others, we are experiencing pressure on our funding sources and.
We are pleased with our shift to core deposits.
Realize you know as our growth has outpaced our deposit growth you know we continue to see pressure on those funding. So we're hopeful that some of our initiatives and shifting the funding sources will be successful, but we're looking at a compression in the margin.
Yeah.
No no.
I guess when I.
Sorry Laurie.
What we're really focused on is introducing new customers to the bank. So most of those initiatives will be focused on bringing new funds to the bank new customer new customer money that's the focus.
Got it got it okay.
Yeah, and so just just obviously stripping out the P. P. P. C. So your headline margin contact or you know your headline margin widened basis point, but if I strip out the P. P. P fees youre actually four basis points wider.
So I guess, putting everything together in terms of margin contraction can you help us think about that a little bit more.
With what you're seeing on the funding side.
Yeah, I think you know.
We had said last quarter, we benefited from some.
Deposit growth in Q2 that was fully realized in Q3.
So that did help to expand the core margin a little more than you were seeing from the overall pace of the.
The financial number.
But again you know as you took a look we do have currently increased borrowings which in the current rate environment is putting pressure on those assets that we put on in the spreads were realized.
Got it okay.
Okay, and then non interest income obviously, it's a nice little jump there in your fees and service charges can you remind us how much of that 650000 as prepay income.
Okay.
Yeah. So approximately 300 to 350 is prepay an exit fee loan related.
Income that was realized during the quarter.
Got it Okay and then on expenses you mentioned in your press release, you mentioned in your prepared comments too that the one time charges.
So the one time charges really include.
Legal expenses primarily.
<unk> had some.
Charges, there as well as an increase in the we had a branch that we anticipate selling.
That was recognized there so in total about 240000 of the expenses for the quarter, we believed to be nonrecurring.
Okay.
Okay, and then on unexpected.
Maybe just help us put it together a little bit obviously you had your <unk>.
Equity incentive plan for only part of this quarter.
Really fully phased.
That adds another call. It 213000, plus your directors plan of 300000.
So even even netting out that to 40 help us help us think about expenses and especially as we look to next year.
What's that what that figure will look like and maybe also Jim if you could comment in terms of how you're thinking about.
De novo's and any expenses around that just to refresh on that.
Trying to put together.
No no no no.
Kelly just to ask the board of numbers together for you.
As far as de Novo branches in 2023.
We continually look in the marketplace for areas that makes sense for our bank to de Novo.
I would not be surprised if we added two to four branches in 2023 with that said the process to add a branch takes months.
Lease negotiation takes quite a few months these days.
It takes months so while we may have a plan to put somebody in 2023 I don't think most of the expense will be incurred in the first or second quarter of 2023.
Guessing that they were forecasting that most of it is in Q3 or Q4, so I don't think theres going to be a pull through a whole lot of expense for de Novo branching next year.
Yeah.
Okay, Great and then just.
Okay.
Now I'll turn it over to Kelly for the second part of your question Great. Thanks, Tim.
Yes on the expense front.
From the equity awards on an annualized basis for those that have been granted to date, we're looking at around $242 5 million in expense on an annualized basis.
You know as I look at next quarter as you mentioned, we had a partial quarter of the equity grants for the directors.
And this quarter, we will have a partial.
For the equity grants that were granted to management so.
So you know we're.
We're looking at about a.
13.6 in terms of expense run rate for Q4 inclusive of those new grass.
Yeah.
Okay.
Okay, and then I guess looking at looking ahead into the March quarter.
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Maybe I'll put it just if you could comment on on the new the new branch expense I mean that your new branches are probably five to $600000.
Costs, just how are you.
How you think about that.
I think you know as Jim mentioned Lorie those expenses, we don't anticipate coming in until later in the year and currently based upon our.
Grants that had been granted provided that guidance. There is no. Other guidance you know relative to an expense spend as we look forward, we're going through the process of looking at our budget now and.
And dressing some of those initiatives does it seems will embark too.
Really be mindful of the operating expenses in the environment, we're operating in.
Okay. Okay, and then just last one just housekeeping that the a M C I am well.
What was the actual Aoc I figure that was intangible common equity or a O C L.
Yeah, Yeah, so let's see.
Actual loss.
So the loss is up 27 5 million. The majority of that is made up of the loss in the securities portfolio. The unrealized loss in that portfolio is around $43 million, we do have a positive impact for the.
Mark on the swap portfolio.
But we are in an unrealized accumulated loss position.
Okay got it great. Thank you for taking my question.
Thank you Laurie and thanks for staying engaged with US we really appreciate the questions every quarter.
Okay.
Thank you and we have no further questions have been my pleasure to hand back to Mr. Yu for any closing remarks.
Thank you operator and to all of you who participated on the call today. Thank you for your interest in our company and I look forward to speaking with all of you again in the fourth quarter, Thanks and have a great day.
Okay.
Thank you to everyone who has joined US today. This concludes Cohen you may now disconnect your lines.
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