Blue Foundry Bancorp Q1 FY2024 earnings call

Strategic Focus

• Focus on executing strategy to deliver value, leveraging strong capital position for asset and deposit growth.
• Grew deposits by $46 million, reducing loan-to-deposit ratio by 500 basis points.
• Moving towards a more commercially oriented institution, expecting production and commercial credits to pick up in 2024.

Capital and Repurchases

• Board approved repurchase program, repurchased 532,000 shares at $9.49 weighted average price, increasing tangible book value per share by $0.11 to $14.60.
• Bank and holding company well capitalized, tangible equity to tangible common assets 17.25% as of March 31.

Deposit and Balance Sheet

• Deposits grew by $46.3 million, with retail time deposits up $50.2 million and commercial account balances up $18.5 million. Paid down $55 million of higher-cost short-term borrowings.

In the first quarter, the net loss was $2.8 million compared to $2.9 million in the prior quarter. Deposit growth was $46 million, reducing the loan-to-deposit ratio by 500 basis points. Net interest income increased by $221,000, leading to an 8 basis point expansion in net interest margin. There was a release of $535,000 in the provision for credit losses. Nonperforming assets to total assets increased to 36 basis points. The allowance to total loans decreased to 88 basis points.

Forward-Looking

• Expect production and commercial credits to pick up in 2024.
• Mindful of $230 million of time deposits that will reprice, which may impact deposit costs.
• Focus on organic deposit growth and attracting commercial deposits to improve margin.
• Continued focus on strategic initiatives to drive profitability.

Risks

• Potential pressure on deposit costs due to repricing of time deposits.
• Macro-economic environment impact on net interest margin.
• Uncertainty around resolution of nonperforming assets and early signs of credit stress.

Q: Just wanted to start off on the margin. It's nice to see some inflection in the quarter. As I think about your balance sheet, lower rates would, of course, be helpful. But as we face the idea of higher for longer, I was wondering if you could just unpack a little more what drives perhaps -- just a commentary on NIM pressure looking ahead versus what you saw in the current quarter?

A: Thank you, Justin, and good morning. So as we look, we were very pleased with the quarter's expansion in NIM. We are mindful though, within in our portfolio, we have about $230 million of time deposits that will reprice. So currently, they're at about 4.70% rate. And given the pressure on deposit pricing in the market, that will probably reset to a higher price level given the current rates. So depending upon that, we could see some pressure on deposit costs to go even higher.

Q: Okay. Got you. That's helpful. And then just as far as that deposit gathering side, obviously, a good quarter to start off the year, but how are you thinking about deposit generation going forward versus having to rely on more wholesale funding channels. Obviously, you're able to reduce that in the quarter. Just curious your thoughts there. Obviously, it's the competitive environment, so.

A: Justin, this is Jim. We are out in the marketplace shaping all the bushes, working on small business and putting our people forward surrounding ourselves on the commercial side as much as possible. I think we have strong products and we're going to keep driving towards organic growth on that deposit side as much as possible as opposed to wholesale funding. The organic growth is what we hope to lead us to a better margin going forward.

Q: Okay. I appreciate that. And then just on credit, you touched on, but it looks quite clean once again. And you mentioned a small tick up in nonperformers. But obviously, you were able to release some reserves in the quarter. It seems just more of the world we live in with CECL. But what are you seeing under the hood when you look at your book in terms of any early signs of stress, if any at all?

A: Yes. Justin, we are pleased with our level of nonperforming. While we did tick up, we do look forward to some resolution of some nonperforming that are on our books. There's nothing right now at this point that's concerning besides what we've disclosed in the nonperforming. So pleased with the credit metrics. We have strong underwriting and that has served us well.

Q: Okay. And then I guess just my obligatory question on buybacks. But we think the desire to stay active is still there based on what we saw during the quarter, where capital levels stand? And then just where activity got done versus where the stock is now. Just curious, any updated thoughts there if there's possibly room to get even more active in the balance sheet continues to kind of shrink in size or at least stay roughly where it is.

A: The Board and I and Kelly, we all strongly believe in buyback. I think you'll see us to remain active in buybacks. I don't know that there's any further comments that we have at this time. But we believe the buybacks, the Board of Directors believe in buybacks, and we do believe it works given where the price of the shares are today.

Q: So I just want to start off on the loan side and how the pipeline is doing and where you guys are thinking about in terms of reaching growth for the full year of 2024.

A: Chris. So as you saw, we had a slight reduction in our loan portfolio this quarter. And really, that's driven there a couple of things. Competition for loans, but we are, as Jim noted, being very selective in the assets that we're putting on our books. So we look at our -- the shift, we are pleased with the reduction in our multifamily and residential and the gross within the C&I and other commercial real estate line item. So we're looking to be prudent as we put those assets on. And our pipeline right now while we sit at about $40 million in our pipeline, those are in those asset classes that we're looking to focus on, the domino effect.

Q: And what's yield in this pipeline?

A: The yields in the pipeline is just right around 7.5%, 7.6%.

Q: Great. And absent any rate change impacts, as you're looking at the next couple of quarters with the NIM pressure, any sense as to where you could see the level of bottoming?

A: I don't think we have a level where we bottom. It's very dependent upon the repricing, us being able to gather and put on the higher-yielding assets. But we are mindful, as I had mentioned, with some of the repricing of our deposit book. This quarter, we benefited from our borrowing PMTs down, both higher costs and being able to replace them with deposits. So it's just continuing.

Q: And where are those CDs, the $230 million? Where do you see them repricing to?

A: Well, right now, they're on the books at about 4.70% and our current promotional rates out there are about 5.25%.

Q: Okay. Great. That's helpful. And then just more broadly or strategically thinking, I mean, how are you guys thinking about the pace or the movement toward kind of positive profitability. Is there any incentive targets that are linked to that? And do you see that happening over the course of the next few quarters? Do you think you need the yield curve to change? What's the pathway there?

A: So, I'll start and I'll let Kelly finish. The goal is always to become profitable and to continue to improve the financials for the company and for its shareholders. The expense side, we continue to look for any expenses that we can cut or reduce or be more strategic about. We continue to consolidate vendors whenever possible. We're very mindful of our staffing and our salaries and benefits. So I think there's a lot being done when you look at the company over the course of the last 3 years, much has been accomplished. But the curve, as you indicate, is changed. It's changed dramatically over the last 18, 24 moments, and it's become more difficult for us as a liability-sensitive bank to produce a NIM that's sufficient. We will continue to look for more organic retail deposits. And we're also more focused on commercial and industrial type loans to get a higher yielding asset onto the books. We think all of those things in time lead to greater profitability. That's the focus. That's the strategy. The compensation, I think, was a question you asked about. Our metrics are tied to things that lead to greater profitability in the long haul. That every employee at Blue Foundry Bank is focused on these items. We talk about them frequently. We have town halls. Every employee has invested in this company. So yes, it's top of mind for all us. I appreciate the question, but I don't know if Kelly wants to add anything to it.

Q: And along those lines, I mean, is there anything that you've mapped out that maybe you don't quite have hard numbers around on the expense side as you get through the year and into 2025. And any projects or anything where you think you can cut out any significant costs?

A: I don't have any additional guidance at this time. I don't know of any, but I don't have any guidance in any event on that topic. I would tell you right now it's -- we're trying to be as lean as possible and, two, create a better bank every single day.