Q4 2022 Blue Foundry Bancorp Earnings Call
Operator: Thank you. Good morning, and welcome to Blue Foundry Bangkok's fourth quarter 2022 earnings call. My name is Glenn, and I will 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.
Speaker 3: Jim neessie.
Jim Nesci: Thank you, operator. Good morning, everyone, and welcome to our fourth quarter earnings call. I am once again, joined by our Chief Financial Officer, Kelly Pecoraro. After my opening remarks, Kelly will share the company's financial results.
Jim Nesci: Earlier this morning, we reported a fourth-quarter net income of $562,000, or two cents per diluted share, and a pre-provision net revenue of $299,000.
Speaker 6: Our performance was largely driven by continued growth in commercial loans. Our lending team originated 68 million of loans, primarily in nonresidential and multifamily.
Speaker 7: While this origination activity was not as robust as in previous quarters, net loan growth remained strong as payoff slowke.
Jim Nesci: In 2022, we generated a net income of $2.4 million, or $9 per diluted share, and pre-provision net revenue of $1.4 million.
Speaker 9: These financial results reflect the execution of our strategic priorities.
Jim Nesci: Our lending team produced $594 million in loans, which drove 20% net loan growth during the year.
Speaker 11: Core deposit growth remained strong. In 2022, core deposits grew by 99 million more a 13%.
Speaker 12: Our focus on attracting and retaining the full banking relationship of small to medium-sized businesses led to an increase in core business deposits.
Speaker 13: Business balances increased by 56%.
Jim Nesci: As of December 31, loans totaled $1.54 billion, up $51 million from the previous quarter. This represents a loan growth of 3% quarter-over-quarter.
Speaker 15: Deposits totaled $1.29 billion, increasing $22 million sequentially.
Speaker 16: While the competitive rate environment in our primary market has put pressure on our ability to retain deposits, we are committed to attracting low-cost core deposits within our customer-friendly suweiteter consumer and business products.
Jim Nesci: We continue to repurchase stock at a discounted tangible book value. During the fourth quarter, we repurchased 632,000 shares at a weighted average cost of $12.40.
Speaker 18: We have now repurchased a total of one point two nine nine million shares, which is approximately 46% of the apcruved stock repurchase program.
Speaker 19: angible book value per share was $14 in 28 cents a year-end. This increased 19 cents during the quarter as the aforementioned share repurchases were executed at a discount potential book.
Speaker 20: This increased 19 cents during the quarter as the aforementioned share repurchases were executed at a discount potential book.
Jim Nesci: With that, I'd like to turn the call over to Kelly, and then we will be delighted to answer your questions. Kelly? Kelly?
Kelly Pecoraro: Thank you, Jen, and good morning, everyone. Our financial results were highlighted by net income of five hundred and sixty-two thousand. Compared to one point two million during the link quarter. This reduction was largely related to funding pressures from the competitive rate environment.
Speaker 23: Our financial results were highlighted by net income of five hundred and sixty-two thousand.
Speaker 24: Compared to one point two million during the link quarter.
Speaker 25: This reduction was largely related to funding pressures from the competitive rate environment.
Kelly Pecoraro: While we realized a $1.2 million expansion in interest income, our interest expense also increased by $2.1 million.
Speaker 27: Resulting in an 888 thousand reduction in net interest income.
Kelly Pecoraro: Yield on loans increased by 9 basis points to 3.80%, and yields on all interest-bearing assets increased by 18 basis points to 3.55%.
Speaker 29: Remaining competitive in deposit pricing, the cost of interest-bearing deposits increased 36 basis points.
Speaker 30: The 82 basis points.
Speaker 31: This coupled with an increase in short-term borrowings.
Speaker 32: Drove the cost of funds to 1%.
A 51 basis point increase compared with the prior quarter.
Kelly Pecoraro: With that pressure on our margins continuing due to the liability-sensitive nature of our balance sheet.
During the quarter we released 224 thousand from the allowance for loan losses.
And 203 thousand from the ount for commitments due to positive credit metrics and the continued change in the mix of our loan portfolio.
Kelly Pecoraro: Our asset quality continues to remain strong in the current environment. During the quarter, non-performing loans to total loans decreased 6 basis points to 50 basis points, primarily driven by a reduction in non-performing loans. While our allowance to total loans decreased 4 basis points to 87 basis points, our allowance to non-accrual loans increased to 173% from 162% the prior quarter due to a reduction in non-accrual loans. As a reminder, we are currently operating under the incurred loss model and will adopt CECL as of January 01, 2023.
During the quarter, nonperforming loans to total loans decreased six basis points.
The 50 basis point.
Primarily driven by a reduction in nonperforming loans.
While our allowed to total loans decreased four basis points.
To 87 basis points.
Are allowance to nonaccrol loans increased.
To 173% from 162% the prior quarter.
Fe to a reduction in nonaco loans.
As a reminder, we are currently operating under the incurrent loss model and will adopt ceccl as of January first 20 and twenty-three.
Kelly Pecoraro: Expenses, excluding our provision for commitments, declined $427,000. Management continues to be focused on expense management. This quarter, we reduced our reliance on temporary personnel and consultants, continued to focus on our advertising spend and successfully negotiated a credit for technology services. As we move into 2023, we will continue to explore opportunities to save to offset the pressure we expect from inflation.
Management continues to be focused on expense management.
This quarter we reduced our reliance on temporary personnel consums.
Continue to focus on our advertising spend and successfully negotiated a credit for technology services.
As we move into 2023, we will continue to explore opportunity to save to offset the pressure. We expect some inflation.
Kelly Pecoraro: Moving on to the balance sheet, gross loans grew by $51 million or 3.4% sequentially.
Driven by origination of Sixty eight million.
Primarily in the nonresidential and multifamily setence.
During the quarter, the bank also purchased 18 million of high-quality residential loans in our principal market, which were originated to banning may standards.
Kelly Pecoraro: With a duration of 4.3 years, our security portfolio continues to provide cash flow that is being used to fund loans.
nine point three million of the quarterly decline in the securities portfolio was attributed to maturities calls and scheduled paydown.
Kelly Pecoraro: Funding our balance sheet has been challenging as rates continue to rise. While we experienced an outflow of $28 million from non-maturity accounts, we more than offset this with $51 million of growth in time deposits through both retail and wholesale channels. This drove an increase in total deposits of $22 million during the quarter. Additionally, during the quarter, borrowings increased $15 million to help fund loan growth.
While we experienced an outflow of 28 million from nonmaturity accounts.
We more than offset this with 51 million of growth in time deposits.
Through both retail and wholesale channels.
This drove an increase in total deposits of 22 million during the quarter.
Additionally, during the quarter, borrowings increased 15 million to help fund loan growth.
Kelly Pecoraro: And with that, Jim and I are happy to take your questions.
Operator: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star, followed by one on your telephone keypad now. When preparing to ask your question, please ensure your phone is unmuted.
S.
Ladies and gentlemen, if you D like to ask a question, please press ST followlo ban one UH telephone key back now.
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Operator: We have our first question coming from Christopher O'Connor from KVW. Christopher, your line is now open.
Christopher O'Connell: Hi morning. So, just wanted to start off on some of the margin components. I guess first, where are you guys originating loan yields at in recent weeks or periods?
So just want what you start up on some of the margin components.
I guess first, where are you guys originating loan yields de?
In recent, you know weeks or periods.
Kelly Pecoraro: In recent periods, our loan originations have been in the high sixes.
In our tepeline me high sixick.
Christopher O'Connell: I guess I'm just surprised. It seems like the, I mean, you guys have put on quite a bit of loan growth the past, you know, two to three quarters. Uh, and really, you know, I mean, the loan yields have gone up, you know, less than 20 basis points over that time period. Um, any particular reason for that or anything that's, you know, we're you guys.
Kelly Pecoraro: I think if you look at what we put on in the second and third quarters, they were at a lower rate. Also, you know, at the beginning of the quarter, our originations lagged a little bit in terms of pricing.
Christopher O'Connell: Okay. And then, as far as the deposit side of the business, I mean, how are you guys thinking about kind of overall deposit growth over the next couple of quarters? And how much of that can be generated by core deposits versus reliance on more wholesale funding channels?
And then, as far as you know, the deposits side of the business, I mean.
How are you guys thinking about kind of overall deposit growth over the next couple of quarters and how much of that can be generated by core deposits versus reliance on more wholesale funding chanls?
Kelly Pecoraro: Quickly, in this market, we are definitely experiencing pressure in attracting deposits and retaining them on our balance sheet. We are very focused on driving the business relationship into the bank and hope that it will be...
Christopher O'Connell: What are you guys targeting for your deposit beta over the course of this cycle?
Multiple: Over the course of the cycle, it's difficult to say where we're going to be based on the pressures that we're seeing in the market. From an industry perspective, data are around 30 percent as we look forward. Will they be more difficult to manage at that level? They could be. We need to be responsive to our market.
sideor. You know the overall kind of funding efforts well. Would that change? You know your loan growth outlook at all as as you move through 23 I mean, I think you guys are generally targeting kind of you know double digit, you know low double digit, you know a pace on loans.
Does that change if it becomes increasingly difficult on the funding side?
Kelly Pecoraro: Yeah, Chris, I think you're right. That does change our outlook. We should be cognizant of how we fund our balance sheet, looking for those core deposits to help fund it. You know, as we look forward, we don't envision loan growth to be as robust as it was this year at a 20% growth rate.
We are taagging low high single to low double-digit loan growth for 2023, knowing that there were other pressures on the deposit side.
Multiple: [Christopher O'Connell] Got it. And I guess just kind of putting it all together on the margin outlook, I think you mentioned in the commentary some continued compression expected. Any way to frame that or kind of characterize that in any type of range even just over the near term, the next quarter or two, given how big the jump was this quarter? [Kelly Pecoraro] Yes. I think as we look out to Q1, we're looking for the range to be in the low 2.50% range from a NIM perspective. Definitely challenges. We don't have any guidance for any further out than that, but we continue to closely monitor and manage -- try to manage that NIM.
And I guess just kind of putting it all together. You know, on the margin outlook, you know I think you mentioned in the commentary some continued, you know, compression expected, know any way to frame that or kind of characterize that in any type of range.
From a NIM perspective definitely challenges. We don't have any guidance for any further outse on that but we continue to closely monitor or manage, trying to manage that NIM.
Christopher O'Connell: Okay, great. I'll step it up for now. Thank you.
Multiple: Thank you Chris. Thank you Chris.
Operator: We have our next question; it comes from Laurie Hansinger at Compass Point. Laurie, your line is open.
Laurie Hunsicker: Yeah, hi, thanks, Jim and Kelly. Good morning. Just wanted to say where Chris was thinking about margin here. You mentioned on the funding side thinking about alternatives. I assume you were talking Federal Home Loan Bank. Can you…
Can you take us through a little bit I mean obviously we saw an increased. There can you take us through a little bit of how you're thinking about adding in that category and just also you know also from the standpoint that that your your mix is shifting and we're seeing this challenge across the Board but.
You know, as as funding headwinds continued wegh on deposits, it does maybe help us think a little bit about that and certainly, certainly appreciate the the guy that you gave for the first quarter margin. But thinking a little bit further out, just trying to put all of those pieces together.
Jim Nesci: Sure, Laurie. Maybe I'll try my best to answer that. We're looking at things other than just FHLB straight borrowings now. We've looked at swaps. Right now, the swap market has a positive spread to a straight up FHLB borrowing. Those are coming in the mid-3s for instance. We will look at corporate deposits from time to time, listing agencies that we can buy, what I'll call, wholesale CDs. There's a lot of different funding sources. And then, we're exploring some of the digital avenues for opportunities where we may be able to find some wholesale funding at lower cost. But there's a multitude of options that we are working through and we're always focused on what's our best source of funding and trying to get the mix correct obviously.
We've looked at swaps. Right now. The swap Mark has.
A posive spread to a straight up fhlp borrowing. Those are coming in in the mid- 3, for instance. We will look at berkford deposits from time to time, listing agencies that we can buy what I'll call wholesale CDs.
There's a lot of different funding sources, and then we're exploring some of the digital avenues for opportunities where we may be able to find some wholesale funding at lower cost, but there's a there's a multitude of options that we are working through.
And we're always focused on what's our best source of funding and trying to get the mix correct obviously.
Laurie Hunsicker: Okay, and then your brokerage CDs, I had that at 5.7 million last quarter. Do you have a current number on that?
Kelly Pecoraro: That is up this quarter to 75 million.
Laurie Hunsicker: Okay, great. And then can you share with us where your spot margin is for the month of December?
Kelly Pecoraro: Lori, we normally don't share monthly guidance. However, we've provided what we think the outlook is going to be for Q1.
Laurie Hunsicker: Okay. And then, on expenses, obviously, with CECL, that provision for letters of credit moves up. So, obviously, thinking about that, adding that back, we're already over $13 million in a quarterly run rate for noninterest expenses. Can you help us think about how that's going to look for 2023? And then, specifically, can you remind us in terms of the benefit plan expense, is that all fully baked for this quarter? Or is there anything still that's going to come online on the expenses there?
And then.
On expense, on expenses, obviously with CECL, that that provision for letters of credit moves up.
You know. So obviously, thinking about that, adding that back, you know we're already over thirteen million.
In a quarterly run rate for noninterest expenses. Can you help us think about how that going to look?
For 2023? And then specifically, can you remind us in terms of the benefit plan expense, is that all fully baked for this quarter or is there? Is there anything still that that's going to come online on the expenses there?
Kelly Pecoraro: So, from the equity plan perspective, Q4 was shy by about $50,000, knowing that the management awards went out late in October. A full quarter, we're looking at right around $590,000 in equity plan expense for what's been issued to date. We're looking at the equity plan, which is about $50,000 in equity plan expense for what's been issued to date. So, from the equity plan perspective, Q4 was shy by about $50,000 knowing that the management awards went out late in October.
Kelly Pecoraro: Relative to the overall range of what we're looking at from an operating expense, we're looking at the
Of what we're looking at from an expense on non or an operating expense. We're looking at the.
Mid to highide 13 range.
As we continue to look at avenues to optimize our business model and being later focused on managing those operating expenses.
Laurie Hunsicker: Okay. And was there anything outside non-recurring and noninterest expense? In other words, did you have embedded in there, I don't know, CECL professional fee help? Or is there anything that potentially is coming out of that $12.9 million reported number outside of the provision recovery on letters of credit?
Outside non recurring and noninterest expense. In other words, did you have embedded in there, I don't know, Cecil professional fee help or is there anything that potentially is? Is coming out of that T nine thousand reported number outside of the the provision recovery on letters of credit.
Kelly Pecoraro: While there are some professional fees that will be reduced next quarter, there are always additional initiatives. So, the guidance that we provided includes those ins and outs related to our professional fees.
Laurie Hunsicker: Got it. Okay. And then, on provision, maybe you could just help us think a little bit about that, more generally, your reserves to loans sitting here at 87 basis points. Obviously, you'll be at CECL. Just any color you can give us there would be super helpful.
Maybe you could just help us think a little bit about that. You know more generally your reserves to loans sitting here at 87 basis points. Obviously you'll be at dil. Just any, any color you can give us there would be super helpful.
Just any, any color you can give us there would be super helpful.
Kelly Pecoraro: Yeah, I think, Lori, you know, under the incurred methodology, we came in at an 87 basis point coverage ratio. We're looking, as we adopt CECL, for there to be an adjustment, not material. We're looking at a couple of basis points increase in the reserve coverage. Again, forward-looking at CECL is...
Into account the current pate actics but.
Any other.
Not of material change that will come through equity.
Laurie Hunsicker: Okay. And then, maybe, Kelly, can you comment a little bit the outsized loan growth that we saw in commercial real estate? It looks like 17%. This quarter, 67% annualized is a really big number. Can you help us think about what's in that? And then, I know some of the hot button loan categories you really had de minimis exposure to, but if you could provide a refresh on what you've got in office, in hotel, and in restaurants, that would be super helpful. And any color you could give us around those, if you have LTVs or whatever detail you've got would be great. Thanks.
outsidez loan growth that we saw in commercial real estate looked like 17%.
This quarter, 67% annualized- the really big number. Can you help us think about what's than that? And then I know some of the hot button loan categories you really had the minimist exposure to. But if you could provide a refresh.
On what you've got in office, in hotel and in restaurant.
That would be super helpful in in any color you could give us around those. If you have LT V's or or whatever do youtail you got would be great, Thank.
Kelly Pecoraro: Sure, Charlie. So yes, we had one of the originations of 68 million this quarter, which was strong. 24 of that was in the multi-family space.
35 was in the CRE space. Again, there were two large credit in there that are in retail anchored by investment grid 10, So feel comfortable relative to that exposure in regards to office.
Our portfolio, our commercial loan portfolio, contains around 3% of office. None of that office is in New York City and the ltdss on that portfolio are around fifty.
Percent on LTV. We have no host hotel in our portfolio and have no direct exposure to restaurants.
Laurie Hunsicker: Great, okay, and just to clarify, the 3%, it's the 3% of commercial real estate that's in office or 3% of all loans? Yes, less than of our total portfolio.
Multiple: So it's 3% of the commercial portfolio. OK, and then for the commercial portfolio, are you adding multifamily and CRE together, or just the straight 3% of the CRE only, the 216 million?
Kelly Pecoraro: No, it's the combination.
Laurie Hunsicker: The combination. Okay. Great. Okay. Love seeing the buybacks. I assume with the stock here, you're still thinking about it the same way, Jim, or any forward comments on that?
Great, great. Okay. Love seeing the buybacks. I assume with the stock here you're still thinking about it the same way, Jim, or any forward comment on that.
Jim Nesci: Sure, I mean, as we're trading today, I think everyone around table is thinking about exactly the same way.
That's about all the guidance they can provide. But yes, we.
about all the guidance they can provide, but yes, we believe in stock buybacks, so yes.
Laurie Hunsicker: Okay, okay, great. And then just one last question, assuming you're profitable, even-
Minimally profitable next year? How should we be thinking about the tax rate and then pick it through if you're not profitable, what that may look like?
Kelly Pecoraro: So for minimal profitability, our tax rate we're paying at the 10 to 12% as we are able to utilize the valuation allowance as we have earning. If we are in a loss position, there is no tax benefit recorded.
Kelly Pecoraro: So, for minimal profitability, you know, our tax rate, we're pegging at the 10 to 12 percent as we are able to utilize the valuation allowance as we have earnings. If we are in a loss position, there is no tax benefit recorded or tax expense recorded.
Multiple: Great. Great. Tim and Kelly, thanks for taking my questions. Thank you, Laura. It's a great day.
Operator: Thank you, Laurie. We have no further questions on the line. I will now hand back for Jim -- to Jim for closing remarks.
We have no further questions on the line. I will now hand back for Jim -- to Jim for closing remarks.
Jim Nesci: Thank you very much, operator. I'd like to thank everybody who joined us today on our call. Look forward to speaking to everybody next quarter. Thanks, and have a great day.
Operator: Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.