Blue Foundry Bancorp Q2 FY2024 earnings call

• Despite competitive environment and inverted yield curve, deposit growth continued in Q2 with 9% increase in commercial deposits and 6% in consumer deposits, reducing reliance on wholesale deposits by 4%.
• Net interest margin expanded for the second consecutive quarter, PPNR improved by $268,000 vs prior quarter. Selective in real estate loans while building commercial pipeline with healthy credit pipeline.
• Repurchased 386,000 shares at $8.84, tangible book value per share increased to $14.69. Well capitalized with strong liquidity and low concentration risk.
• Net loss improved due to net interest income expansion, noninterest income increase, and provision for credit losses release. Asset quality strong with nonperforming assets declining.
• Net interest income increased $156,000, net interest margin expanded 4 basis points. Yields on loans and interest-earning assets increased, cost of funds increased 8 basis points. Expenses substantially flat, expecting Q3 operating expenses in mid to high $13 million range.

Net loss for the second quarter was $2.3 million compared to a net loss of $2.8 million in the prior quarter. Net interest income expanded, noninterest income increased, and there was a release in the provision for credit losses. Deposit growth continued with commercial deposits up 9% and consumer deposits up 6% year-to-date, reducing reliance on wholesale deposits by 4%. Gross loans declined by $6.8 million during the quarter, while available-for-sale securities increased $32.6 million. Net deposits increased by $20 million or 1.5% during the quarter. Revenue contribution details: Net interest income expansion contributed to margin growth, provision release impacted credit metrics, deposit growth and securities purchases affected balance sheet composition.

• Net interest margin expected to stabilize around current levels for remainder of year, could move moderately with interest rate activity.
• Operating expenses for Q3 2024 expected in mid to high $13 million range.
• New loan fundings yielding 8.6% will benefit future loan yields. Expect to build commercial credit pipeline in second half of the year.

• Competitive environment and inverted yield curve posing challenges.
• Interest rate activity impacting net interest margin movement.
• Potential changes in deposit costs due to market competition.
• Regulatory environment affecting loan origination decisions.
• Impact of economic drivers on credit loss forecasts.

Q: Wanted to start off on the margin for the quarter. 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?

A: 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.

Q: 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, it hasn't really already repriced to the market rate so far?

A: Our current offering is about 5.25 rates, a 7-month maturity, not 7-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.

Q: And as far as the FHLB advances, how much of that, that's on balance sheet right now is overnight? And then maybe if it is laddered out just kind of a general sense of the maturity schedule?

A: So we currently don't have any overnight. We've been keeping them short in terms of within a month. We have approximately, I would say, $30 million in shorter duration within the month to three months term and then some longer-dated within the portfolio.

Q: And as far as the asset generation, it seems like a little bit bullish relative to the first half of the year and the second half of the year on loan growth. If loan growth is still slower to materialize, would you look to do any more securities purchases or no? Because trying to keep kind of the loan-to-deposit ratio and funding profile intact.

A: Chris, I think, we're always going to be strategic on how we grow the balance sheet. If there's an opportunity to make a loan that's our first priority. And if that opportunity is not there, we certainly look to supplement with securities that makes sense for the balance sheet, looking at duration, credit quality and the yields that are available in the marketplace. But, yes, we're looking at a little bit dynamic fashion to answer that.

Q: And then you guys have come in below the expense guiding 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 of quarters?

A: Yes. 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.

Q: And what areas are you guys like looking to make hires at this point?

A: I'm sorry, Chris, I didn't. James Nesci: I think he said, what areas are you hiring? Christopher O'Connell: You said, you were bringing some hiring in the back half of the year? James Nesci: 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 and backup for all things related to regulation. So making sure that we're constantly training people to come up further ranks as needed.

Q: The pace of buyback has slowed a bit over the past couple of quarters on an incremental basis. I mean how are you guys feeling about the level of share repurchases going forward comparative to the past two or three quarters?

A: Chris, the volume recently has picked up, and Kelly will give you a more clear answer, but it's based on volume. Kelly Pecoraro: Yes. So we strongly believe in buybacks. However, as you're aware, we're held to some rules 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.