Earnings call transcript: Blue Foundry Bancorp Q4 2024 shows narrower EPS loss

Blue Foundry Bancorp (BLFY) reported its fourth-quarter 2024 earnings on January 29, revealing a narrower-than-expected loss. The company posted an earnings per share (EPS) of -$0.13, beating the forecasted -$0.17. Revenue, however, fell short of expectations at $9.83 million against a forecast of $10.24 million. Despite the earnings beat, the stock price declined by 1.63% in pre-market trading.

Key Takeaways

• Blue Foundry Bancorp reported a narrower EPS loss than forecasted.
• Revenue missed expectations, coming in lower than anticipated.
• Stock price fell 1.63% in pre-market trading following the earnings announcement.
• The company is focusing on expanding its commercial banking operations.
• Anticipates high single-digit loan growth in 2025.

Company Performance

Blue Foundry Bancorp showed resilience by narrowing its net loss compared to expectations, although it faced challenges in meeting revenue forecasts. The company is undergoing a strategic transformation to enhance its commercial banking services, particularly targeting small to medium-sized businesses. This shift is part of a broader industry trend where banks are diversifying their portfolios to mitigate risks associated with residential lending.

Financial Highlights

• Revenue: $9.83 million, below the forecast of $10.24 million.
• Earnings per share: -$0.13, better than the forecasted -$0.17.
• Net interest income increased by $386,000.
• Net interest margin improved by 7 basis points.

Earnings vs. Forecast

Blue Foundry Bancorp’s EPS of -$0.13 exceeded the anticipated -$0.17, marking a positive surprise of approximately 23.5%. However, the revenue shortfall of $410,000 represents a miss of about 4%. This mixed performance highlights the company’s ongoing efforts to stabilize its financial position amidst challenging market conditions.

Market Reaction

Despite the positive EPS surprise, Blue Foundry Bancorp’s stock fell by 1.63% in pre-market trading, reflecting investor concerns over the revenue miss and broader market volatility. The stock closed at $9.79, down from its previous close, and remains below its 52-week high of $11.48.

Outlook & Guidance

The company projects high single-digit loan growth in 2025 and expects operating expenses to stabilize in the mid-to-high $13 million range. Blue Foundry is optimistic about continued balance sheet and interest income growth, with a similar pace of net interest margin expansion anticipated as seen in Q4 2024.

Executive Commentary

CEO Jim Nesi expressed optimism, stating, "We are encouraged by the improvement in our yield on interest earning assets." CFO Kelly Piperaro added, "We’re looking at probably high single digit loan growth at this point," highlighting the company’s strategic focus on enhancing loan yields and expanding its commercial lending portfolio.

Q&A

During the earnings call, analysts inquired about the company’s strategic shift away from residential and multifamily lending. Executives confirmed an improved loan pipeline and anticipated a decrease in deposit costs with potential Federal Reserve rate cuts. Variable compensation will be tied to key performance metrics such as loan growth and net interest margin.

Risks and Challenges

• Potential volatility in interest rates could impact net interest margins.
• Challenges in achieving projected loan growth amidst economic uncertainties.
• Competition in the commercial banking sector may pressure profit margins.
• Regulatory changes could affect operational strategies.
• Dependence on small to medium-sized businesses might increase exposure to economic downturns.

Full transcript - Blue Foundry Bancorp (BLFY) Q4 2024:

Operator/Moderator: Good morning, and welcome to Blue Foundry Bancorp’s 4th 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. BlueFoundry 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 Nesi.

Jim Nesi, President and CEO, Blue Foundry Bancorp: Thank you, operator, and good morning, everyone. Thank you for joining us for our Q4 earnings call. I am joined by our Chief Financial Officer, Kelly Piperaro, who will discuss the company’s 4th quarter financial results in detail after I provide an update on our operations. Earlier this morning, we reported a quarterly net loss of $2,700,000 and a quarterly pre provision net loss of $3,000,000 Levels increased by $32,000,000 predominantly in our commercial portfolios. Deposits grew $25,000,000 the majority of which came in core growth, including a 17% increase in non interest bearing accounts.

Despite the net loss, we were able to maintain tangible book value and both capital and credit quality remains strong. Additionally, our balance sheet remains well positioned for the current environment. We are encouraged by the improvement in our yield on interest earning assets as well as our cost of interest bearing liabilities, as this may indicate an inflection point in our net interest margin going forward. Continuing our transformation into becoming a more commercially oriented institution, my management team and I have set forth the strategic plan intent on attracting the full banking relationship of small to medium sized businesses in our marketplace. Our bank has industry leading frictionless products and we are focused on developing new relationships and deepening our current relationships within the communities we serve.

All employees have a portion of their compensation aligned with achieving our strategic objectives. We funded $59,000,000 of loans during the quarter, yielding approximately 7.5%. We have executed letters of intent totaling over $60,000,000 for predominantly commercial credits at yields of approximately 7.7%. Given our demonstrated high pull through rate, we expect to deliver continued balance sheet and interest income growth over the coming quarters, all while remaining disciplined in our underwriting standards. During the quarter, we repurchased 481,000 shares at a weighted average share price of $10.49 Repurchasing shares at this price continues to improve shareholder value.

To date, we have repurchased 6,900,000 shares at a weighted average cost of $10.16 Tangible book value per share remained flat at $14.74 this quarter. Our bank and holding company remained well capitalized with capital levels that are among the strongest in the banking industry. Tangible equity to tangible common assets is 16.1%. Blue Foundry continues to operate with robust liquidity and a low concentration risk to any single depositor. At the end of the 4th quarter, we had $408,000,000 in untapped borrowing capacity and our unencumbered available for sale securities and unrestricted cash provided another $211,000,000 of liquidity.

This liquidity is 4.2 times larger than our uninsured and uncollateralized deposits to customers, which represent only 11% of our deposit balances. With that, I’d like to turn the call over to Kelly and then we will be delighted to answer your questions. Kelly?

Kelly Piperaro, Chief Financial Officer, Blue Foundry Bancorp: Thank you, Jim, and good morning, everyone. The net loss for the Q4 was $2,700,000 compared to a net loss of $4,000,000 during the prior quarter. This improvement was driven by an increase in net interest income, a decrease in expenses and a release of provision for credit losses compared to a build in the prior quarter. Net interest income increased by $386,000 leading to a 7 basis point improvement in net interest margin. Interest income expanded $253,000 while interest expense declined $133,000 We expect our net interest margin to improve as we close loans at current rates and reprice deposits lower.

Yield on loans improved by 4 basis points to 4.57% as the improvement from originations was partially offset by the reduction in yields on construction loans due to the decrease in the prime rate. The yield on all interest earning assets improved by 5 basis points to 4.37%. Cost of funds decreased 6 basis points to 2.93%. The cost of interest bearing deposits decreased 10 basis points to 2.90 percent, while borrowing costs increased 13 basis points to 3.26%. Expenses improved by $386,000 Compensation expense was lower this quarter, driven by the lower than projected variable compensation expenses.

As you will remember, we began releasing variable compensation accruals earlier this year when the achievement of some goals became less probable. Our annual cash incentive plan has a potential payout of up to 150%. The planned payout is approximately 60% to 70% of target as the company did not achieve all corporate goals this year. While we continue to promote expense discipline, we expect operating expenses to return to the mid to high $13,000,000 range as bonus accruals reset to 100% achievement, merit raises are realized and normal inflationary consideration impact other contracts. For the Q4, we had a $301,000 release in the provision for credit losses.

The majority of this release was in the allowance for commitments and unused lines as much of our loan growth this quarter came from loans that were commitments at the end of last quarter. The economic forecast scenarios as well as the duration of our construction portfolio contributed to a slight relief in the allowance for credit losses on loans. We also had a small release in the allowance for credit losses on held to maturity securities. As a reminder, the majority of our allowance for credit loss is derived from quantitative measures and our allowance methodology still places greater weighting on the baseline and adverse forecast. Moving on to the balance sheet, gross loans increased by $32,500,000 during the quarter, predominantly in owner occupied commercial real estate and to a lesser extent commercial industrial and multifamily loans.

Only approximately 2% of our loan portfolio is in office space and none is in New York City. Our available for scale security portfolio with a duration of 4.2 years increased $6,200,000 This increase was driven by the purchase of $44,500,000 of securities at current yields, partially offset by $20,000,000 of maturing lower yielding treasuries, dollars 13,800,000 of amortization and a $4,500,000 deterioration in the unrealized loss position. Deposits grew by $24,700,000 We saw growth of $18,600,000 in core accounts across all categories. Non interest bearing deposits grew $3,700,000 checking accounts grew $12,100,000 and savings accounts grew $2,800,000 Time deposits grew $6,100,000 as we replaced promotional customer time deposits with $30,000,000 of broker deposits. Borrowing decreased by $9,000,000 as the company funded loan growth with deposit growth and cash on hand.

Finally, asset quality remains strong in the current environment. Non performing assets declined modestly due to a slight improvement in non accrual loans. Both non performing assets to assets and non performing loans to loans remains relatively flat at 25 basis points and 33 basis points respectively. Our allowance coverage ratios remained relatively flat as well at 83 basis points to total loans and 2 54% of non performing loans. And with that, Jim and I are happy to take your questions.

Operator/Moderator: Thank you. Our first question comes from the line of Justin Crowley with Piper Sandler. Please go ahead.

Justin Crowley, Analyst, Piper Sandler: Hey, good

Chris O’Connell, Analyst, KBW: morning. Just want to start off on your commentary on loan growth. That 1% to 4% and then multifamily bucket have been kind of the 2 areas that have been a drag on net growth for the past couple of years now. Is the expectation that that will continue to be the case looking forward?

Kelly Piperaro, Chief Financial Officer, Blue Foundry Bancorp: Yes. I think from a strategic perspective, Justin, we’re really looking at growing the commercial book, both in C and I, as well as owner occupied space. The decline in our residential book has been somewhat intentional, although quicker than we had envisioned. In multifamily, we believe we have a large concentration there. So we’re watching our concentration limits on the multifamily space.

Chris O’Connell, Analyst, KBW: Okay, got it. And then you mentioned the $60,000,000 pipeline. I can’t remember where maybe that stood last quarter. I’m not sure if you shared that. But just curious your just broader thoughts on just where activity stands and you see things starting to pick up as we head through the New Year and perhaps maybe more certainty following the election?

Kelly Piperaro, Chief Financial Officer, Blue Foundry Bancorp: Yes. I definitely think the pipeline has improved from where we were last quarter. And as we mentioned, we did see some pull through of those that we had commitments on at the end of Q3. As Jim mentioned in his remarks, we have about $60,000,000 of commercial loans that we had letters of intent out at a rate of around $750,000,000 So we are seeing some improvement in the pipeline and look for that to continue.

Chris O’Connell, Analyst, KBW: Okay, got it. And then on the margin, I’m just looking to get a sense for how you’re thinking about deposit cost progression over the course of the year. How much have you been able to move rates lower so far, following 100 basis points and cuts out of the Fed? And to what extent is that reflected in the 4Q margin?

Kelly Piperaro, Chief Financial Officer, Blue Foundry Bancorp: So I think we did see improvement in deposit costs as we mentioned to 2.9% yield on that book. There’s been pressures, Justin, on repricing. We have been able to bring prices down or costs down somewhat on that book. We do have probably $500,000,000 $500,000,000 coming into the first half. We’ve intentionally kept our CV short.

So we look for that with pricing and hope that we can get benefits as rates trend lower.

Chris O’Connell, Analyst, KBW: Okay. And on that $500,000,000 do you have the rate that that’s coming off of and where that will reset at?

Kelly Piperaro, Chief Financial Officer, Blue Foundry Bancorp: Yes. So the rate currently on the Q1 is probably around 4.75%. So we’re looking our promotional rate that we have out there right now is a 4% yielding CD. So we’re hoping to realize some improvement as those reprice. And then in the second half or the second quarter, we’re seeing a little bit lower of a yield on that, both probably around the $450,000,000 and hope that that can reprice as well.

Chris O’Connell, Analyst, KBW: All right. That’s helpful. And then just another input as far as the margin on the asset side. With average loan yields around that mid-four level, is the expectation that that continues to move higher regardless of whether we get another cut or 2, just given where new production is coming on at combined with back book repricing?

Kelly Piperaro, Chief Financial Officer, Blue Foundry Bancorp: Yes. I think we do anticipate that to trend higher as things are coming on at market rates, and we have the amortization of our book at the lower rates. There are some challenges as well though on the construction book. So I think it’s fair to say while construction will reprice lower if prime rate goes down, we will see improvement as those other asset classes are being put on the books.

Chris O’Connell, Analyst, KBW: Okay, great. I’ll leave it there. Thanks so much for taking the questions.

Jim Nesi, President and CEO, Blue Foundry Bancorp: Thank you.

Operator/Moderator: The next question comes from Chris O’Connell with KBW. Please go ahead, Chris.

Justin Crowley, Analyst, Piper Sandler: Hey, yes. Good morning. Just wanted to follow-up on the margin discussion. I was wondering if you guys had the spot margin handy for December at the end of the quarter?

Kelly Piperaro, Chief Financial Officer, Blue Foundry Bancorp: I think we were around 190 from a margin perspective at the end of the quarter, a little bit higher, like 190,192.

Justin Crowley, Analyst, Piper Sandler: Okay, great. And just given the dynamics here on the balance sheet, I mean, it seems like things are now moving in the right direction on the margin. And I’m sure a lot of it depends on how much growth on the loan portfolio side that you guys are able to put on over the course of the year. But any sense of the magnitude of expansion that you could see over the course of 2025?

Kelly Piperaro, Chief Financial Officer, Blue Foundry Bancorp: I think as we look at 2025, of course, we’re looking to grow. We’re looking at probably high single digit loan growth at this point, given where we have some maturities coming in as well as the pipeline, so factoring that in.

Justin Crowley, Analyst, Piper Sandler: Okay. And do you think like the margin do you expect it can kind of pace over the course of the year at a similar expansion rate that you saw in the Q4? Or is that a little bit higher or lower than what you think you’re going to achieve going forward?

Kelly Piperaro, Chief Financial Officer, Blue Foundry Bancorp: I think at this point, we’re anticipating a similar pace. Again, it’s all dependent upon the timing of putting those credit signs and also the ability to reprice deposits

Justin Crowley, Analyst, Piper Sandler: lower. Okay. Thanks. And then for the expense guide back to the mid to high $13,000,000 range, Is the expectation that that holds as a pretty good level for the remainder of 2025 after Q1? Or do you expect to see growth thereafter?

Kelly Piperaro, Chief Financial Officer, Blue Foundry Bancorp: Yes. I think we’re looking at that mid to high $13,000,000 range across the quarters. Again, as we look at our achievement in variable compensation and how we’re attaining throughout the year, but that’s where we’re seeing things pull out for 2025.

Justin Crowley, Analyst, Piper Sandler: Okay. And then I guess on as far as like the variable compensation goes, is there like what are the specific metrics for 2025 to hit that 100%?

Kelly Piperaro, Chief Financial Officer, Blue Foundry Bancorp: So the goals that the our compensation committee and Board have agreed to really align to our growth and it ties to loan growth, also deposit growth, loan cost deposit growth and our net interest margin really growing the balance sheet in a mindful way.

Justin Crowley, Analyst, Piper Sandler: Okay. Thanks. And then you mentioned the construction portfolio being potentially really the only headwind here on the loan yields. Like what are the yields coming off on that portfolio? And what are the new origination yields there?

Kelly Piperaro, Chief Financial Officer, Blue Foundry Bancorp: So the yields on the portfolio are Climb plus is either 50 basis points to 100 basis points within that range. So it’s dependent upon where Climb rate is. The construction book is right around $85,000,000 right now, and we see some of the pipeline as those are maturing, coming on. So, we have some of the construction in the pipeline.

Jim Nesi, President and CEO, Blue Foundry Bancorp: Yes, I think that book is constantly recycled is the way to look at it. If construction project gets finished up, that loan pays off, a new one comes on board. We’ve got a good pipeline of construction loans. Got it.

Justin Crowley, Analyst, Piper Sandler: And then on the share repurchases, is it fair to assume that that can progress at a kind of similar pace over the course of 2025 from here?

Kelly Piperaro, Chief Financial Officer, Blue Foundry Bancorp: Yes. I think as we look at share repurchases, we think it’s a good use of capital at these levels. So we’ll continue to be active in the market, again, always looking at the best use of capital as we move forward.

Justin Crowley, Analyst, Piper Sandler: Great. Thanks, Jim. Thanks, Kelly. Appreciate the time.

Kelly Piperaro, Chief Financial Officer, Blue Foundry Bancorp: Great. Thank you. Thanks, Chris.

Operator/Moderator: Thank you for your questions. I will now turn the call back over to Jim Nesi for closing comments.

Jim Nesi, President and CEO, Blue Foundry Bancorp: Thank you, operator. We’d like to thank everybody for participating today, and we look forward to updating you next quarter. Thanks so much.

Operator/Moderator: Thank you, everyone, for joining us today. This concludes your call and you may now disconnect your lines.

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