8-K: Blue Foundry Bancorp Reports Net Loss in Third Quarter 2024 Despite Deposit Growth and Improved Credit Quality

Blue Foundry Bancorp reported a net loss of $4.0 million for the third quarter of 2024, despite growth in deposits and a 17% improvement in non-performing loans.

Summary

• Blue Foundry Bancorp reported a net loss of $4.0 million, or $0.19 per diluted share, for the third quarter of 2024, which is worse than the $2.3 million loss in the previous quarter and the $1.4 million loss in the same quarter of the previous year.
• Despite the loss, the company saw a $7.5 million increase in deposits to $1.32 billion compared to the prior quarter.
• The company's loan portfolio saw growth in construction and commercial and industrial loans, while residential and multifamily loans decreased.
• Non-performing loans improved by 17%, and the allowance for credit losses covers non-performing loans by over 2.5 times.
• The net interest margin decreased by 14 basis points from the prior quarter to 1.82%.
• The company repurchased 521,685 shares at a weighted average price of $10.52 per share.
• The tangible book value per share increased to $14.74.

Sentiment

Score: 4

Explanation: The sentiment is negative due to the reported net loss and declining net interest margin, despite some positive aspects like deposit growth and improved credit quality. The overall financial performance is concerning.

Positives

• The company experienced deposit growth of $7.5 million in the third quarter.
• Non-performing loans decreased by 17%, indicating improved credit quality.
• The allowance for credit losses provides strong coverage for non-performing loans, exceeding 2.5 times.
• The company successfully executed a share repurchase program, buying back 521,685 shares.
• Tangible book value per share increased to $14.74.
• The company's construction and commercial loan portfolios saw growth.

Negatives

• The company reported a net loss of $4.0 million for the third quarter of 2024.
• The net interest margin decreased by 14 basis points to 1.82% compared to the previous quarter.
• Net interest income decreased to $9.1 million compared to $9.6 million in the previous quarter.
• Non-interest expense increased by $52 thousand compared to the previous quarter.
• The company did not record a tax benefit due to a full valuation allowance on deferred tax assets.

Risks

• The company is experiencing a decrease in net interest margin, which could impact future profitability.
• The company is facing increased competition for deposits in the northern New Jersey market.
• The company's reliance on time deposits has increased, which may be more sensitive to interest rate changes.
• The company's full valuation allowance on deferred tax assets indicates potential challenges in generating future taxable income.
• The company's non-interest expenses are increasing, which could impact profitability.

Future Outlook

The company continues to focus on diversifying its lending portfolio by growing its commercial portfolios and attracting the full banking relationship of smallto medium-sized businesses through an extensive suite of deposit products.

Management Comments

• The Company continues to maintain its strong capital position and access to liquidity.
• We executed on our share repurchase program and increased our tangible book value to $14.74 per share.
• Deposit growth continued in the third quarter.
• Increases in our construction and commercial and industrial portfolios drove loan growth during the third quarter as we remain focused on growing our commercial portfolio.
• Credit quality remained strong highlighted by a 17% improvement in non-performing loans.

Industry Context

The results reflect the challenges faced by regional banks in a rising interest rate environment, where deposit costs increase faster than loan yields, impacting net interest margins. The focus on commercial lending and deposit growth is a common strategy to improve profitability and diversify risk.

Comparison to Industry Standards

• The net interest margin of 1.82% is below the average for many US banks, which have been closer to 3% in recent quarters, indicating potential challenges in profitability compared to peers.
• The company's efficiency ratio of 140.04% is high compared to the industry average, suggesting higher operating costs relative to revenue.
• The improvement in non-performing loans is a positive sign, but the overall loss indicates that the company is still facing challenges in the current economic environment.
• Compared to larger national banks, Blue Foundry's reliance on time deposits and the impact of interest rate changes on its net interest margin are more pronounced, as larger banks have more diversified funding sources and loan portfolios.
• Companies like New York Community Bancorp (NYCB) and Valley National Bancorp (VLY) are regional banks that have also reported challenges with net interest margins and deposit costs, indicating a broader trend in the industry.

Stakeholder Impact

• Shareholders will be negatively impacted by the reported net loss and the decrease in shareholder equity.
• Employees may be concerned about the company's financial performance and its potential impact on job security.
• Customers may be reassured by the deposit growth and improved credit quality, but may also be concerned about the company's overall profitability.
• Creditors may be concerned about the company's net loss and its impact on its ability to repay debts.

Next Steps

• The company will hold a conference call on October 23, 2024, to discuss the third quarter 2024 earnings.
• The company will continue to focus on growing its commercial loan portfolio and attracting smallto medium-sized business deposits.

Key Dates

Keywords

financial results, net loss, deposit growth, loan portfolio, credit quality, share repurchase, net interest margin, non-performing loans, tangible book value, commercial loans