Q3 2024 Blue Foundry Bancorp Earnings Call
Good morning, and welcome to play Foundry Bancorp's third 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 circumstance.
Foundry encourages participants to refer to the full disclaimer contained in this morning's earnings release, which has been posted to the Investor Relations page on <unk> Foundry Bank dotcom.
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.
Speaker Change: As a reminder, this event is being recorded your line will be muted for the duration of the coal.
Speaker Change: After the Speakers' remarks, there will be a question and answer session.
Speaker Change: I will now turn the call over to the President and CEO Jim Murphy.
Jim Murphy: Thank you operator, and good morning, everyone. Thank you for joining us for our third quarter earnings call.
Jim Murphy: Joining me are Chief financial Officer.
Jim Murphy: Paul will discuss the company's third quarter financial results in detail after I provide an update on our operations.
Jim Murphy: Earlier. This morning, we reported a quarterly net loss of $4 million.
Jim Murphy: In a quarterly pre provisioned net loss of $3 $8 million deposits increased by $7 5 million and loans grew $3 $6 million.
Jim Murphy: We're able to deliver tangible book value per share grew well.
Jim Murphy: Capital and credit quality remained strong.
Jim Murphy: Additionally, we have a positive outlook for both the fourth quarter and for the next year.
We have a healthy commercial loan pipeline and believe we will deliver sustained loan growth in the coming quarters.
Jim Murphy: Other based on how we position the balance sheet, we expect the federal Reserve's recent 50 basis point rate cut and any subsequent rate cuts have a positive impact on our net interest income.
Jim Murphy: With our industry, leading consumer friendly products, we continue to focus on developing new relationships and deepening our current relationships within the communities we serve.
Jim Murphy: Typically we are dedicated to attracting the full banking relationship of small to medium sized businesses in our market. So.
Jim Murphy: So far this year. This strategy has resulted in an 11% increase in commercial deposits and our branch network has delivered a 7% increase in consumer deposits.
Jim Murphy: These successes have allowed us to reduce our reliance on wholesale deposits by 4% and improves our loan to deposit ratio.
Jim Murphy: Given our strategy to become a more commercially oriented institution, we have been selective in originating real estate loans, while building our commercial pipeline.
Jim Murphy: Pipeline of commercial credits at attractive yields continues to expand and this should drive an expansion in our interest income and loan yield.
We remain disciplined in underwriting strong credit across all of our long product offerings.
Jim Murphy: During the quarter, we repurchased 522000 shares at a weighted average price of $10 52 sets right.
Jim Murphy: Repurchasing shares at these levels continues to improve shareholder value.
Jim Murphy: Tangible book value per share increased by five to $14.74.
Jim Murphy: Our bank and holding company remained well capitalized with capital levels that are among the strongest in the banking industry Banco.
Jim Murphy: A little equity to tangible common assets was 16, 5% as of September 30th Blue.
Jim Murphy: Blue foundry continues to operate with robust liquidity and a low concentration risks to any single depositor at the end of the third quarter, we had $334 million in untapped borrowing capacity.
Jim Murphy: Our unencumbered available for sale securities and unrestricted cash provided another $300 million of liquidity.
Speaker Change: This liquidity is four times larger than our uninsured and uncollateralized deposits to customers, which represents only 12% of our deposit balances with that I'd like to turn the call over to Kelly and then we'd be delighted to answer your question Kelly.
Kelly: Thank you Jim and good morning, everyone.
Kelly: The net loss for the third quarter was $4 million.
Kelly: Parents or a net loss of $2 $3 million during the prior quarter.
Kelly: This change was driven by itself.
Kelly: Credit losses.
Kelly: Particularly on the <unk>.
Kelly: Quarter.
Kelly: Additionally, the increase in on time without pain.
Kelly: Interest expense.
Speaker Change: During the quarter, we originated $22 million of commercial lines of credit.
Speaker Change: Our unused lines of credit increased by $12 $8 million and we.
Speaker Change: $26 million.
Speaker Change: This funded commitments at the end of the quarter.
Speaker Change: This drove a $248000 increase in the car.
Speaker Change: Vision for credit losses.
Speaker Change: 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.
Speaker Change: Asset quality remains strong in the current environment.
Speaker Change: Nonperforming assets declined by one $1 million due to improvement in non accrual loans.
Speaker Change: This resulted in a five basis point reduction.
Speaker Change: Putting assets to total assets.
Speaker Change: Seven basis point reduction in nonperforming loans to total loans.
Speaker Change: Our allowance to total loans remained flat at 84 basis points.
Speaker Change: Our allowance to non accrual loans increased 253%.
Speaker Change: 210% the prior quarter due to the improvement in non accrual loans.
Speaker Change: Net interest income decreased by $486000, leading to a 14 basis point reduction.
Speaker Change: For smartphone.
Interest income expanded $240000, but interest expense increased $726000.
Speaker Change: We expect our net interest margin to improve as we closed loan and reprice deposits flower.
Speaker Change: Yield on loans contracted by three basis points.
Speaker Change: 453%.
Speaker Change: And meals on all interest, earning assets decreased by five basis points.
$4 three 2%.
Speaker Change: Cost of funds increased 10 basis points to 299%.
Speaker Change: Cost of interest bearing deposits increased 10 basis points to 3%.
Speaker Change: Borrowing costs increased four basis points to 313% as longer dated borrowings at lower interest rates mature.
Speaker Change: In addition, foreign balances increased slightly as the company took action to lock in longer term funding at attractive rates.
Speaker Change: Expenses were essentially flat to prior quarter.
Speaker Change: Compensation expense was lower this quarter, driven by lower salaries and variable compensation accruals.
Speaker Change: This was offset by idiosyncratic items on professional services and small increases in data processing and other expenses.
Speaker Change: We continue to promote expense discipline.
Speaker Change: We expect that.
Speaker Change: For the fourth quarter 2024 to be in the mid to high $13 million range.
Speaker Change: Moving onto the balance sheet gross loans increased by $3 $6 million during the quarter.
Speaker Change: As a reminder.
Speaker Change: Approximately 2% of our loan portfolio is in office space and that is in New York City.
Speaker Change: Our available for sale securities with the duration of four four years decreased $7 million.
Speaker Change: This decrease was driven by $16 million of amortization, partially offset by an $8 $6 million or 27% improvement.
Speaker Change: Unrealized loss position.
Speaker Change: Our frontline staff was able to grow customer deposits by $15 $4 million.
Speaker Change: This growth was offset by $7 $5 million, resulting from a reduction in wholesale deposits and the decrease in the asset held for cashless seats as collateral for our swap position.
Speaker Change: Borrowings increased by $6 million.
Speaker Change: Company far ahead of anticipated long funding to lock in term rate at attractive levels.
Speaker Change: And with that Jim and I are happy to take your questions.
Speaker Change: Thank you.
Speaker Change: You would like to ask a question the company remained well capitalized with capital levels that are among the strongest in the banking industry tangible equity to tangible common assets was 16, 5% as of September 30th.
Speaker Change: Traffic continues to operate with robust liquidity and a low concentration risk to any single depositor.
Speaker Change: Thank you.
Speaker Change: I would like to ask a question today. Please do so now by pressing star one number one on your telephone keypad.
Speaker Change: You change your mind I would like to be removed from the Keith Please press star and then K.
Speaker Change: Our first question today comes from Justin <unk> with Piper Sandler.
Speaker Change: Justin Please go ahead.
Justin: Hey, good morning.
Just wanted to start on the NIM for the quarter.
Speaker Change: And then just like even looking at some of the inputs on loan yields specifically, which were down in the quarter just curious what drove that dynamic.
Speaker Change: Good luck.
Speaker Change: Justin.
Speaker Change: Yes, if you looked at NIM for the quarter, what we saw on the loan yields coming in it has to do with the <unk>.
Speaker Change: Timing of the funding that are taking place on some of our loan products.
Speaker Change: We look to diversify and become more commercial like a lot of those fundings don't take place immediately and are done over the life of football.
Speaker Change: So that's on the loan front on some of the other components that drove the decrease in first quarter. We did see some of the repricing of our deposits earlier in the quarter to higher levels.
Speaker Change: Any anticipation I'm sure of the Red.
Speaker Change: Rate cut we had some individuals lock in with.
Speaker Change: With our higher priced Cds.
Speaker Change: During the quarter, our TCE rate, our ICB rates that we were offering was at 525. So we did see some reprice into that product which drove that.
Speaker Change: Okay got it and then I was about to hit on that Max but as far as lowering deposit rates from here.
Speaker Change: I suppose specifically promotional theater CD rates, just looking at that 437 months compared to that the $5 25, you had alluded to I'm not sure how much of that might be a pull forward, but just curious.
Speaker Change: As we continue to get further rate decreases.
Speaker Change: Think about being able to move rates lower.
Speaker Change: And things like I guess, the loan to deposit ratio and just the competitive environment.
Speaker Change: Yeah, So where we are looking at the competitive rate environment and we need.
Speaker Change: Quickly with our teams we've been just as we did lower our our offerings down to the $4 40 on RCC well look to see the impact that has from a funding perspective being cognizant of that loan to deposit ratio, but we're also trying to shift our customers back into core products, which gives us.
Speaker Change: Ability to move rates up.
At different paces.
Speaker Change: Okay got it thats helpful.
Speaker Change: And then I guess, just shifting gears, a little as far as some of the loan purchases in the quarter I guess, specifically on the consumer participation.
Speaker Change: Can you give us a sense of what exactly that type of lending consists of and.
And I'm not sure if youre able to provide anything like average FICO FICO scores or whatever else might be relevant.
Speaker Change: So we had an opportunity to take advantage of participating in a.
Speaker Change: <unk> loan pools during the quarter.
Speaker Change: We did look at that from a credit perspective, and we do have credit enhancements on that.
Speaker Change: We don't have right off the top of my head the average FICO, but they are strongly underwritten credits that our team looked at.
Speaker Change: And they were an attractive rate. So we took advantage of that opportunity.
Speaker Change: Okay, and so I guess that with the <unk> purchases, we've seen that before but just back to the consumer or is that something.
That you would continue to look at just to what extent would that be a tool going forward to supplement growth.
Speaker Change: I think what it will take a look at all opportunities.
Speaker Change: In the market and if that's something that it has the appropriate credit.
Speaker Change: That we're comfortable with as well as rate Steve will take a look at every opportunity that comes before us.
Okay understood.
Speaker Change: And then here guys my buyback question, but it was nice to see activity in the quarter could this be a pace that you sustainably run at just considering share liquidity or is it perhaps room to get even more active with the stock trading below where repurchases got down in the quarter.
Speaker Change: So just as you are aware.
Speaker Change: Our hold it to the SEC.
Speaker Change: On buybacks so we.
Speaker Change: We are buying as much as we can based upon the average trading volume.
Speaker Change: Metrics.
Speaker Change: We don't control how much did the data that's available to us that we're buying on a daily basis.
Speaker Change: Great Alright ill leave it there I appreciate it.
Speaker Change: Okay.
Speaker Change: The next question comes from Chris O'connell with <unk>.
Speaker Change: Please go ahead.
Speaker Change: Good morning.
Speaker Change: Just wanted to start off just on those.
Speaker Change: On the loan side.
Speaker Change: Maybe just.
Speaker Change: Are the pipelines how are they looking relative to last quarter.
Speaker Change: About the same or the.
Speaker Change: And then.
Speaker Change: What the origination yields are coming on.
Speaker Change: Yes.
Speaker Change: Okay. Yeah. So the pipeline, we're seeing is a little bit stronger than where we were or where we ended Q2 again remember we're transitioning to the balance sheet to more commercial like so.
Speaker Change: Some of those fundings are immediate so the pipeline stood at just over $60 million.
Speaker Change: Rates of around eight 7% again the funding.
Speaker Change: It depends upon the needs of the bar.
Speaker Change: Okay got it.
Speaker Change: And going forward.
Speaker Change: On the funding side.
Speaker Change: Assuming this growth kind of begins to pick up from here on the loan side of things.
Speaker Change: Cds I think are now just over half of the deposit base is there a level that you guys wanted to cap that at or Youre comfortable.
Speaker Change: Bringing that higher.
Speaker Change: It really depends on what's happening in the marketplace and consumer preference.
Speaker Change: And the last time, we saw a cycle like this a few years ago Cds get up to a higher level and then we start moving into savings or money market products with them moving back down variable was having a little bit more control over pricing and I think that's where the marketplace will go.
Speaker Change: <unk> got built out our hydro rates savings product and I believe our customers and future customers will start moving into that.
Speaker Change: Savings product that we haven't built out.
Speaker Change: Part of the cycle or at least that's how we see it.
Speaker Change: Got it and then.
Speaker Change: On the deposit side.
Speaker Change: The dropdown in the CD rate.
Speaker Change: It was obviously.
Attracts had been a positive for the remainder of the interest bearing portion of the book.
Speaker Change: Have you guys move deposit rates.
Speaker Change: On that yet and if so maybe.
Speaker Change: What what portion of that book.
Speaker Change: We've looked at a little bit.
Speaker Change: We frequently our alco team in pricing.
<unk> very regularly and where where there is an opportunity to move that pricing down, but we do.
Speaker Change: Most of the core products don't have really high pricing and it could be.
So it's really the repricing of the CD book and our.
Speaker Change: No.
Speaker Change: Our more institutional borrowings with federal home loan bank as they come down in price I think you're starting to see pick up it starts to become constructed.
Speaker Change: Got it.
Speaker Change: And as far as the margin.
Speaker Change: Maybe as of today or.
Speaker Change: 930, or whatever the most recent data as you guys have spot margin.
Speaker Change: So we normally don't provide that margin what I can say is some of the.
Speaker Change: Could it be later in the quarter.
Speaker Change: As well as.
Speaker Change: Actions were taken in the fourth quarter we're.
Speaker Change: We're seeing improvement.
Speaker Change: Coming in the low 190 range for the fourth quarter based upon.
Speaker Change: Shift in deposit costs as well as the fundings on our loan book.
Speaker Change: Got it that's helpful.
Speaker Change: It is.
Speaker Change: As you guys kind of look out in <unk>.
Speaker Change: If we move to a situation, where we're getting more normal 25 basis point type of cuts here.
Speaker Change: Any sense of how much you guys think the margin will benefit on a per account basis.
Speaker Change: So that'd be the way.
We're looking at it as the curve gets back to what I would describe as more normal.
Speaker Change: Thanks.
Speaker Change: <unk> tend to improve that we're waiting to see how fast can we ship from Cvs to core products.
Speaker Change: The commercial customers start utilizing those lines.
Speaker Change: It's it's the economy right. That's what it's based on what our bank is well positioned for a drop in rates from the fed so we're trying to position.
Speaker Change: Make sure we're there for our customers and I think we'll be able to show additional value to our shareholders.
Speaker Change: Got it.
Speaker Change: Do you guys have assumptions around.
Speaker Change: Either the interest bearing or the total deposit beta for.
Speaker Change: Cutting cycle.
Speaker Change: For the coming cycle is as we're looking as Jim mentioned, it will be dependent upon our customers and meeting those needs being responsive to the competition in the market as well so.
Speaker Change: Okay.
Speaker Change: To fund the balance sheet.
Speaker Change: Well be.
Speaker Change: Pricing appropriately.
Speaker Change: What I would add not so much data, but our customer base has been a very loyal customer base to the bank.
Speaker Change: So I believe they will stay with the bank and they will continue to move into different products with us reshape.
Speaker Change: Historically shifted with us from CBS to high rate.
Speaker Change: Money market, but that into savings accounts.
That's been with us for a very long time.
Speaker Change: Great.
Speaker Change: Hi.
Speaker Change: Last one for me just.
Speaker Change: Do you guys have the next couple of quarters is how much of the CD portfolio is.
Speaker Change: So to turn it over to Richard.
Richard: So we have kept the portfolio short.
Speaker Change: From a.
Speaker Change: Inver and brokered.
Speaker Change: <unk>, we're looking at about 300 million will reprice.
Speaker Change: The fourth quarter.
Speaker Change: And just think about our specialized in seven months. So we keep building that seven months special CD. It burns off rather quickly when you look at it.
Speaker Change: Great.
Speaker Change: That's all I had thanks for taking my questions.
Speaker Change: Thank you.
Speaker Change: We have no further questions.
Speaker Change: I appreciate everybody joining us today for our third quarter earnings call. We look forward to speaking to you again after the fourth quarter, Thanks and have a great day.
Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].