Blue Foundry Bancorp

Good morning, my name is Daisy and I'll be your conference operator today. I would like to welcome everyone to the Blue Foundry Bancorp Q4 2021 earnings call. Today's call will include forward-looking statements, including statements about Blue Foundry's future financial and operating results, outlook, business strategies and plans, as well as other opportunities and potential risks that management foresees. Such forward-looking statements reflect management's current estimates or beliefs and are subject to known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements. Listeners are referred to the disclosures set forth under the captioned forward-looking statements in the earnings press release, as well as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission for more information about such risk and uncertainty. Any forward-looking statements made during this call represent management views and estimates only as of today. While the company may elect to update forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so, even if management's views or estimates change. And should you not rely on such statements as representing management views as of any date subsequent to today. During the call, the company 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. Please note this event is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a Q&A session for which you can press star one on your telephone keypad to register a question. Thank you. I'll now turn the call over to Jim Nessie, the President and CEO. Jim, please go ahead.

Great. Thanks, Operator, and good morning to everyone. Thank you for joining us for Blue Foundry's fourth quarter earnings call. And joined today by our controller and interim chief financial officer, Alex Agnoletto. He will share the company's financial results and participate in the Q&A segment of the call. 2021 was a year marked by change and progress. In January 2021, we announced our intention to convert from a mutual holding company, and in March we released our prospects. In April, we participated in the third round of PPP, originating over $40 million of new loans. In May, we opened our new administrative headquarters in Parsippany and welcomed our employees back to utilize the nearly 40,000 square feet of state-of-the-art office space and technology. In June, we released our first 10Q, and in July, we completed our conversion and initial public offering, which provided proceeds of over $277 million. In Q3, we announced our intention to withdraw from our pension plan and the extinguishment of $49.3 million of FHLB borrowings. And in Q4, the pension was exited and an additional $62.1 million of FHLB debt was prepaid. In total, we extinguished $111.4 million worth of borrowings. The pension exit, debt pay down, and building sale removed over $4.5 million from the annual expense base as we headed to 2022. On the retail front, we closed two branches in Ridgewood and opened new branches in Chatham, Ridgewood, and Jersey City, and redesigned branches in Lyndhurst and Glenrock. More than 40% of our branches are new or have been refreshed to meet our customers' changing needs. These changes to our retail franchise position us to win new customers and enhance our brand exposure. Half of our ATMs are now operational as interactive teller machines. This allows us to have a secure video interaction with our customers from a centralized location. We can now provide a live banker for more hours at lower cost. Our digital marketing campaigns were seen over 80 million times and generated far above average click-through rates. We have been able to acquire new customers through digital advertising at a cost of roughly $68 per deposit account when advertising is paired with new branch openings. Moving to lending efforts, our team onboarded over $411.2 million of new loans in 2021. Looking back over the last decade, I believe this represents a record for the bank. Unfortunately, prepayments of $336.7 million continue to weigh on loan growth throughout the year. Excluding PPP, loan growth came in at a net of $40 million. Our focus remains to originate high-quality assets and produce net loan growth for the bank in residential, commercial, C&I, and SBA areas. Despite all the changes we've experienced this year, our management team increased net interest income year over year by over $3.9 million, or 9.9%, and grew core deposits by over $134 million. We also continue to see a meaningful reduction in total funding costs, which will contribute to our expansion of net interest margin. 2021 was a landmark year for Blue Foundry Bank, and we are eager to carry the momentum into 2022. I'd now like to turn the call over to Alex Agnoletto to discuss the company's financial results. Alex?

Thank you, Jim, and good morning, everyone. We've tried to provide information that we think will be useful to assess our earnings going forward, and we encourage everyone to read our disclosures, including the non-GAAP tables at the back of the earnings release. Quarter over quarter, net interest income increased 1.2 million, or 11% to 12.3 million. This increase was driven primarily by the continued reduction in our cost of funds, which was 48 basis points as of December 31st. This represents a 58% or 65 basis point reduction year over year. Our net interest margin increased by 48 basis points to 2.63% for the three months ended December 31st, 2021, as compared to the prior quarter. Net interest margin increased by 10 basis points The exit of the pension was completed in the fourth quarter. The bank incurred a $2 million expense in addition to the amount approved in the prior quarter for a total exit cost of $11.2 million. This is $800,000 lower than the low side of the range estimated in our S-1, which noted $12 to $22 million. completed in the quarter, which incurred a modest $60,000 loss, which was driven by closing settlement costs. As disclosed in our 8K issued on October 22nd, we announced an additional pay down of roughly $62.1 million of FHLB borrowings. The bank incurred a $754,000 prependent penalty. The combination of these items created $2.8 million in one-time expenses this quarter, The company also recorded a $16.7 million valuation allowance on its deferred tax assets, driven by the company's three-year cumulative net loss. As the company returns to profitability, it will continue to evaluate the timing of the removal of the valuation allowance and the reporting of any tax benefits associated with that removal. These items contributed to our gap net loss for the quarter of $19.6 million, or $0.75 per share. pre-provisioned net revenue, or PPNR, better demonstrates our core sustainable earnings compared to our GAAP results. Our adjusted PPNR was a loss of $1.4 million to the quarter, compared to a loss of $647,000 in the prior quarter. These results were impacted by the challenged labor market, which resulted in utilizing temporary and more costly personnel, as well as the continued investments in technology, which will prove accretive as we scale. Additionally, due to the timing of the IPO, the quarter reflected roughly $350,000 of additional expense related to the ESOP, which will not be reflected in future periods. We look forward to returning to profitability in the first half of 2022. Interest income increased by $162,000, or 1.2% during the quarter, which was driven primarily by a $313,000 increase in interest from loans. partially offset by a $151,000 decrease in interest from securities and cash. Interest expense decreased significantly from last quarter by 36%, or $1.1 million. This decrease was driven primarily by anticipated maturities of time deposits as well as reduced FHLV borrowing balances. Quarter over quarter, total loans excluding PPP primarily due to strong origination performance across our CRE portfolios, coupled with the continuation of the residential loan purchase program. Total loans, including PPP, increased by 31.6 million, or 2.5%, which was weighed down by continued PPP loan forgiveness. Currently, we have $16.8 million of PPP loans remaining on our books and $600,000 of fees left to be realized. As of December 31st, no loans remain on forbearance due to the pandemic. Our total pipeline was over $130 million as of December 31st, with an average yield of 3.4%. Our residential portfolio grew through a mixture of organic originations and the continuation of the loan purchase program that was enacted in July. During the quarter, the bank purchased $60.8 million of high-quality residential loans in our principal market. This purchase program is expected to continue through the first half of 2022 to offset higher than average prepayment levels and to assist with deployment of excess liquidity into interest-earning assets. The loan purchase program allows us to obtain yields that are approximately 40 basis points higher than comparable mortgage-backed securities. The program also allows us to select individual loans from a pool already underwritten to Fannie Mae standards. We note we have reduced cash from $316.4 million at the end of last year to $193.4 million as of December 31st. Currently, the bank has 10% of its assets in cash, 19% in investments, and 67% in loans. Our securities portfolio grew by $7.9 million during the fourth quarter, which was the result of utilizing some of our excess liquidity to capture incremental yield. We plan to continue to reinvest excess liquidity into a mixture of loans and shorter duration securities over the coming quarters. We have been reinvesting in securities at a yield of roughly 1.1% over the past quarter, and as rates rise, we plan to put more excess liquidity to work. We view our asset quality as stable. During the quarter, our allowance to total loans decreased nine basis points from 1.22% to 1.13% as the economy continues to stabilize and improve. And our non-performing loans to total loans decreased six basis points from 1% to 0.94%. As a reminder, we expect Now I'd like to turn it back to Jim for closing remarks.