Blue Foundry Bancorp (NASDAQ:BLFY) Q1 2024 Earnings Call Transcript April 24, 2024
Blue Foundry Bancorp beats earnings expectations. Reported EPS is $-0.13, expectations were $-0.2. BLFY isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to Blue Foundry 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 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. 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 Nesci. Please go ahead.
James Nesci: Thank you, operator. Good morning, everyone, and welcome to our first quarter earnings call. I am joined by our Chief Financial Officer, Kelly Pecoraro. 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 stakeholders. Paramount to our success is our ability to leverage the company’s strong capital position to fund asset 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 institution, we have been selected in originating real estate loans while building our commercial pipeline. We expect to see production and commercial credits pick up as we move through 2024. As always, we are disciplined in underwriting strong credits for all of our loan product offerings. We are committed to continue being good stewards of capital. Our stock, along with many of our peers, is trading at a discounted tangible book value, we believe that repurchasing shares at these levels is a good use of capital. In the first quarter, our Board approved another repurchase program [indiscernible] in less than two years.
Under our repurchase program, 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 helped increase tangible book value per share by $0.11 to $14.60. Our banking holding company remained 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 31. Blue Foundry continues to operate with a low percentage of uninsured deposits and a low concentration risk to any single depositor. Uninsured and uncollateralized deposits from customer accounts for $133 million at March 31. 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 $38 million was unrestricted. Additionally, our available liquidity covers 5.3x our uninsured and uncollateralized deposits to customers. With that, I’d like to turn the call over to Kelly, and then 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 a release in the provision for credit losses and an improvement in net interest margin partially offset by an increase in 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 improvement to the economic drivers used to model our credit losses. Our 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 ratings on the base line in adverse forecast.
While non-accrual loans increased $793,000 due to a single small business credit, non-performing assets to total assets remained low, increasing 4 basis points to 36 basis points. Our allowance to total loans decreased 3 basis points to 88 basis points due to the decrease in the allowance for credit losses on loans. And our allowance to non-accrual loans decreased to 205% from 240% the prior quarter due to the increase in non-accrual loans coupled with the decrease in allowance for credit losses on loans. Net interest income increased by $221,000 leading to an 8 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 macroeconomic environment.
Yields on loans increased by 16 basis points to 4.45% and yield on all interest earning assets increased by 19 basis points to 4.25%. Cost of funds increased 11 basis points to 2.81%. We continue to remain competitive in deposit pricing. This resulted in the cost of interest-bearing deposits increasing 22 basis points to 2.74%. Conversely, borrowing costs decreased 14 basis points to 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 funding. As a reminder, less than 2% or $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, calls and scheduled paydowns, this portfolio was reduced by $18.6 million during the quarter. Deposits increased by $46.3 million or 3.7% during the quarter. Our frontline staffs were able to grow retail time deposits by $50.2 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 your questions.
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