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spk02: Good morning and welcome to Blue Foundry Bancorp's second quarter 2024 earnings call.
spk00: Good morning and welcome to Blue Foundry Bancorp's second 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. 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 speaker's remarks, there will be a question and answer session. I will now turn the call over to President and CEO, Jim Nessie.
spk06: Thank you, Operator, and good morning, everyone. Thank you for joining us for our second quarter earnings call. I am joined by our Chief Financial Officer, Kelly Pecoraro. will discuss the company's second quarter financial results in detail after I provide an update on our operations. We are pleased by the progress we made in the second quarter and thus far in 2024. Despite the competitive environment and inverted yield curve, deposit growth continued in the second quarter and net interest margin expanded for a second consecutive quarter. This, coupled with our expense discipline, helped to improve by $268,000 versus last quarter. Our focus on attracting the full banking relationship of small to medium-sized businesses has resulted in a 9% increase in commercial deposits this year. Additionally, our branch network has delivered a 6% increase in consumer deposits. These successes have allowed us to reduce our reliance on wholesale deposits by 4% this year. This deposit growth has improved our loan to deposits ratio. Given our strategy to become a more commercially oriented institution, we have been selective in originating real estate loans while building our commercial pipeline. We now have a healthy pipeline of commercial credits at attractive yield that will allow us to continue to expand our interest income and loan yield. We expect to continue to build this pipeline in the second half of the year. As always, We are disciplined in underwriting strong credits across all our loan product offerings. During the quarter, we repurchased 386,000 shares at a weighted average share price of $8.84. Repurchasing shares at these levels continues to improve shareholder value. Tangible book value per share increased by 9 cents to $14.69. 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 16.9% at June 30th. BlueFactory continues to operate with robust liquidity and a low concentration risk to any single depositor. At the end of the second quarter, we had $394 million in untapped borrowing capacity and are unencumbered available for sale securities unrestricted cash provided another $298 million of liquidity. This liquidity is 4.8 times larger than our uninsured and uncollateralized deposits to customers. These deposits represent only 12% for our deposit balances. With that, I'd like to turn the call over to Kelly, and then we'd be delighted to answer your questions. Kelly.
spk01: Thank you, Jim, and good morning, everyone. The net loss for the second quarter was $2.3 million, compared to a net loss of $2.8 million during the prior quarter. This improvement was driven by an expansion of net interest income, an increase in non-interest income, and a release in the provision for credit losses. Our asset quality remains strong in the current environment. During the quarter, we had a release of provision for credit losses of $762,000 driven by forecasted improvement to economic drivers used to model our credit losses. A 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 losses is derived from quantitative measures and our allowance methodology places greater weighting on the baseline and adverse forecast. Nonperforming assets declined by $1.1 million due to the scale of our only real estate-owned property and a $483,000 improvement to non-equal loans. This resulted in a six basis point reduction in nonperforming assets to total assets and a three basis point reduction in non-performing loans to total loans. Our allowance to total loans decreased four basis points due to the decrease in the allowance for credit losses on loans. However, our allowance to non-equal loans increased to 210% from 205% the prior quarter as the impact from the improvement in non-equal loans outweigh the reduction in the allowance for credit losses on loans. Net interest income increased by $156,000, leading to a four basis point expansion in net interest margin. Interest income expanded $450,000, while interest expense only increased $294,000. we expect our net interest margin to stabilize around these current levels for the remainder of the year. However, it could move moderately in either direction depending on interest rate activity and our ability to generate asset growth given the current macroeconomic environment. Yield on loans increased by 11 basis points to 4.56% and yields on all interest earning assets increased by 12 basis points to 4.37 percent. Cost of funds increased only 8 basis points to 2.89 percent. The cost of interest-bearing deposits increased 16 basis points to 2.90 percent. Conversely, RRN costs decreased 15 basis points to 3.09 percent as average balances declined due to the payoff of higher-cost, short-term wholesale barring during the prior quarter. Expenses were substantially flat to prior quarter, with minor variances in each category. We continue to promote expense discipline, and we expect operating expenses for the third quarter of 2024 to be in the mid to high $13 million range. Moving on to the balance sheet, gross loans declined by $6.8 million during the quarter. While amortization and payoffs outpaced new loan funding, our new fundings are yielding 8.6%, and that will benefit loan yields in future quarters. As a reminder, only approximately 2% of our loan portfolio is in office space and none is in new york city available for sale securities increased 32.6 million dollars during the quarter we purchased 45 million dollars of securities with a weighted average yield of 5.8 percent our frontline staff were able to grow time deposits by 29.1 million dollars this was partially offset by a $9.1 million outflow in core deposits, resulting in an increase in net deposits of $20 million or 1.5% during the quarter. Borrowings remained flat during the quarter as we funded the security purchases with deposit growth and cash flow from our lending and securities portfolios. And with that, Jim and I are happy to take your questions.
spk00: Thank you. If you would like to ask a question today, please do so now by pressing start followed by the number one on your telephone keypad. If you wish to be removed from the queue, you can do so by pressing start followed by two. Our first question today comes from the line of Justin Crowley with Piper Sandler. Justin, your line is now open. Please go ahead.
spk05: Hey, good morning. You know, I wanted to start off on the margin for the quarter. You know, it looks like funding pressures continue to slow, and so wondering how you expect that to trend moving forward as you try to continue to grow deposits and move the loan to deposit ratio lower.
spk01: Good morning, Justin. Yes, thank you. We were pleased with the margin expansion that we had this quarter. We believe we'll be stable in this range as we work through the rest of the year. However, that could be impacted moderately by interest rate environment and asset classes that we put on the balance sheet.
spk05: Okay. And then what's embedded in that sort of guide for a stable margin in terms of like Fed rate cut activity this year?
spk01: So, as we looked from a Fed rate perspective, we were not factoring in any cuts until later in the fourth quarter.
spk05: Okay, gotcha. And then as far as the other inputs into that sort of outlook, you know, thinking about cuts, you know, how soon after the first 25 basis points do you envision being able to lower deposit rates? You know, not sure if you've tested this already, but just given, you know, the focus on, you know, keeping the loan to deposit ratio in check.
spk01: Yeah, I think as we look at the shift and the ability to move deposit costs lower, we're going to need to look at the activity in the market and the competition in our marketplace. As you know, there's strong competition for deposits. I'm not sure whether or not the market will respond similar to how it has in the past, but we will be monitoring that closely.
spk04: Okay, thanks.
spk05: That's helpful. And then as far as overall growth, we're looking to get a sense of how loan origination activity looked in the quarter. You know, I know you're being maybe a bit more selective, but, you know, what would need to happen or change to start thinking about net growth again?
spk01: Right. So I think if you look at it for the quarter, we had fundings probably about $20 million in fundings came on. We're looking for that to pick up in the latter half of the year. So our pipeline right now sits at about $32 million in our commercial pipeline. We're continuing to focus, as Jim noted, being strategic in the credits that we're putting on and mindful of the environment we're operating in, the economic and the regulatory environment.
spk05: Okay. And then on credit, you had the reserve release for the second straight quarter here. You know, as underlying trends continue to look better, looking at things like non-accruals, curious if you could share a bit more on what you're seeing beneath the surface, you know, particularly when you're seeing things like commercial real estate credit maturity or repricing.
spk01: Right. So as we look at our repricing, we don't have a significant amount of repricing activity that will take place through At the end of the year, we probably have about $30 million in repricing through the end of 2024, so not significantly impacted by that. From a reserve perspective, again, our allowance methodology is primarily quantitative in nature and really are impacted by the forecast, and our portfolios benefited from having those drivers being favorable for the outlooks.
spk04: Okay, great. I'll leave it there. Thanks so much for taking the questions.
spk02: Thanks, Justin.
spk04: Thank you, Justin.
spk02: Our next question comes from the line of Chris O'Connell with KBW.
spk00: Please go ahead. Your line is now open.
spk03: Hey, good morning. Good morning. I wanted to follow up on the NIM conversation. As far as the rest of the year and where CDs are being priced at now, if you have the current offering rates and how much has left to reprice that hasn't really already repriced the market rate so far?
spk01: So our current offering is a 525 rate, a seven year, a seven month maturity, not seven year. And a lot of that book has already repriced into the higher rates. We do still have some that will be coming due, but it's a smaller portion.
spk03: Okay, got it. And then as far as the, you know, FHLB advances, How much of that that's on balance sheet right now is overnight? And then maybe, you know, if it is laddered out, just kind of a general sense of the maturity schedule?
spk01: So we currently don't have any overnight. We've been keeping them short in terms of, you know, within a month. We have approximately, I would say, $30 million in shorter duration within the month to three-month term. And then some longer dated within the portfolio.
spk03: Got it. And as far as is there a hedging impact, you know, on against the FHLB advances, or is it just the fact that they're longer dated that is able to keep the cost pretty low?
spk01: Well, we do have the hedges out there. We have 204 million of those borrowings hedged. So that doesn't have an impact necessarily on some of the longer dated because it's locked in. You know, we do have about a three year maturity on our swap book.
spk03: Got it. I guess what I'm getting at is, you know, the borrowing rates, you know, fairly low right now. And, you know, based on the maturity schedule, you know, How much do you think that is going to move up over the course of the back half of the year closer to market rates, absent any major change in the level of borrowings?
spk01: Moving up to market rates. So there's not a tremendous amount that will move up to market rates. Again, we do have some of the $20 million to $30 million that's there that are maturing at the back end of the year at a lower rate. But we'll continue to manage through that and look at funding as we bring on deposits.
spk03: Got it. And then, you know, as far as the asset generation, it seems like, you know, a little bit bullish relative to the first half of the year and the second half of the year on loan growth. You know, if loan growth is still slower to materialize, would you look to do any more securities purchases? uh or you know no because you know trying to keep kind of the loan deposit ratio and and funding profile intact chris i think we're always going to be strategic on how we grow the balance
spk06: That's how I answer that.
spk03: Got it. And then you guys have come in below the expense guide and kept things pretty contained relative to expectations year to date. Anything in particular that's shifting the expense level up a bit for the back half of the year relative to where you guys have been for the first couple quarters?
spk01: Yeah, I think the primary driver will be some, hopefully, increases in compensation that would be tied to some of our variable plans as we execute on our goals, and also some hiring that might impact that line as well.
spk06: Yeah, I think the way to think about that, the more success we see, bring in deposits. So again, we're happy to pay for performance. That's the focus. Keep bringing in loans, keep bringing in deposits. And yes, the couple, but it's supposed to help with net interest margin and growing the balance sheet in a profitable manner. So we're all looking forward to seeing that happen.
spk03: Got it. And what areas are you guys looking to make hires at this point? I'm sorry, for a second.
spk06: I think you said, what area are we hiring?
spk03: You said you were doing some hiring in the back half of the year.
spk06: Sure. Deposit gathering, C&I producers, producers of loans, commercial deposit gatherers. We're looking for people that will help move the balance sheet forward. And then we're always being cognizant of regulatory requirements, making sure we have adequate staff. constantly training people to come up through the ranks as needed.
spk03: Great. And then, you know, the pace of buyback has slowed a bit over the past couple quarters on an incremental basis. I mean, how are you guys feeling about, you know, the level of share repurchases going forward comparative to, you know, the past two or three quarters?
spk06: Chris, the volume recently has picked up, and Kelly will give you a more clear answer, but it's based on volume.
spk01: Yeah, so, you know, we strongly believe in buybacks. However, you know, as you're aware, we're held to some rules. It's based upon the prior month average daily trading volume, as well as some additional SEC rules for the amount that we can purchase. But we are in the market every day looking to buy back as much as we can.
spk03: Got it. So nothing like strategic decision, just a volume-based kind of outcome there.
spk06: We still, Kelly got it right, we still believe in buybacks.
spk03: Great. That's all I had for now. Thanks for taking my questions.
spk04: Thank you. Have a great day.
spk00: We have no further questions, so I'll turn the call back to the management team for any closing remarks.
spk06: Thank you, operator. We appreciate everyone's attendance and interest in our company, and we look forward to speaking with you again in the third quarter. Thanks, and have a wonderful day.
spk00: Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your line.
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