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spk02: Good morning and welcome to Blue Foundry Bank Corp's third quarter 2022 earnings call. My name is Harry and I'll be your conference operator today. 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. Blue Foundry 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 from 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 speaker's remarks, there will be a question and answer session. I'd now like to turn the call over to President and CEO Jim Nessie.
spk01: Thank you, Operator. Good morning, everyone, and welcome to our third quarter earnings call. I am joined by our Chief Financial Officer, Kelly Pecoraro. After my opening remarks, Kelly will share the company's financial results. Earlier this morning, we reported third quarter net income of $1.2 million, or five cents per diluted share, and a pre-provision net revenue of $1.1 million. Our performance was largely driven by continued growth in commercial loans. our lending team had another remarkable quarter, originating 172 million of loans. During the quarter, we focused on production on the multifamily segment, which we feel is a stable asset class during times of potential economic uncertainty. While our retail markets are beginning to show higher deposit costs, our loan growth has helped to expand net interest income by 5%. As of September 30th, loans totaled $1.49 billion, up 67 million from the prior quarter. This represents loan growth of 5% quarter over quarter. The fourth consecutive quarter, we grew our loan portfolio by more than 4%. While our loan pipeline remains healthy, given supply and the current environment, we do not expect to continue growing at this record pace. We decreased our reliance on certificates of deposit by 65 million for the quarter, while growing our core deposits by 35 million. Core deposit growth remained strong across both consumer and business segments. A focus on attracting the full banking relationship of small to medium-sized businesses led to an increase in business accounts by 4%. Business-related deposits increased 7% to $179 million. Additionally, the company added $18 million in consumer core deposits. Beginning in August, we repurchased 667,000 shares at a weighted average cost of $11.67, a significant discount to tangible book value. This represents 23% of the approved stock repurchase program. Additionally, last week, the Board of Directors approved stock option grants for officers of the company. Not only will these grants help us to retain top talent, that will further align our officers with the long-term interests of our shareholders. These options, granted, have a strike price of $11.69 and will vest radibly over the next seven years. On behalf of our board of directors and the officers of our company, I would like to thank our shareholders for their support and approval of the Blue Foundry Bancorp 2022 Equity Incentive Plan. With that, I'd like to turn the call over to Kelly, and I would be delighted to answer your questions. Kelly?
spk03: Thank you, Jim, and good morning, everyone. Our financial results were highlighted by net income of $1.2 million compared to $40,000 during the length quarter. This improvement was largely related to pre-provision net revenue, which increased $586,000. Despite funding pressure from the rising rate environment, net interest margin remained relatively flat, expanding one basis point to 2.84%. Interest income increased $1.5 million, and net interest income increased 5%, or $653,000, driven by a $96 million increase in average loan balances. Remaining competitive in pricing, we have increased rates offered on select suppository products. This, coupled with an increase in short-term borrowings, drove cost of funds to 66 basis points. a 19 basis point increase compared with the prior quarter. We expect pressure on our margin due to our balance sheet being liability sensitive. During the quarter, we released provision of loan losses of $419,000 and increased our provision for commitments by $170,000 due to a change in the mix of our loan portfolio. Our asset quality remains strong. During the quarter, our allowance to total loans decreased seven basis points to 91 basis points. This was partially driven by the change in mix of our portfolio, as well as the improvement in our credit metrics. Non-performing loans to total loans decreased 14 basis points to 56 basis points. Our allowance to non-accrual loans increased to 162% from 141 percent the prior quarter. As a reminder, we are currently operating under the incurred loss model and are on track to adopt CECL by the required implementation date. In terms of expenses, excluding our provision for commitment, we saw a $372,000 increase. This is due to a combination of director equity grants, an increase in working days, and non-recurring expenses from investor-related activity and a potential branch sale. As Jim mentioned in his remarks, stock option grants for officers were approved this month. We expect these grants to add quarterly expense of approximately $300,000. We will continue to closely manage our operating expenses. Moving on to the balance sheet, Gross loans, excluding PPP, grew by 68 million, or 4.8% sequentially, driven by originations of 172 million, primarily in the multifamily segment. During the quarter, the bank also purchased 15 million of high-quality residential loans in our principal market, which were originated to Fannie Mae standards. With a duration of 4.1 years, our securities portfolio continues to provide cash flow that is being used to fund loans. 17.6 million of the decline in the securities portfolio was attributed to maturities, calls, and scheduled pay downs. We continue to grow our core deposits through a variety of initiatives. During the quarter, Core deposits increased 4%, or 35 million, and now represent 71% of total deposits. Additionally, during the quarter, borrowing increased 90 million. Tangible book value declined 34 cents to $14.09 per share, driven primarily by the negative impact that interest rates have on our available for sale securities portfolio. Given our current tax position, most of the change in fair value flows through to equity with little tax benefit for the unrealized loss. Therefore, the rising rate environment has a more profound impact on our equity than it would have if we were operating with a more normalized tax position. As we mentioned last quarter, we currently intend to hold these securities through their contractual maturity, which will allow us to recoup the unrealized losses we have experienced to date. As Jim mentioned earlier, we repurchased shares at a discount, which had a positive impact on tangible bulk value. And with that, Jim and I are happy to take your questions.
spk02: Thank you. And as a reminder, please, I'll start by one if you would like to ask a question. And our first question of the day comes from the line of Laurie Hunsaker of Compass Point. Laurie, your line is now open.
spk04: Great. Hi, thanks, Jim and Kelly. Good morning. Just hoping actually we could start with the buyback. So I know, you know, in your release you're saying $675. 667,000 at 1167. Was some of that for the benefit plans? Or was that all too retired? I guess I'm just... Yeah, go ahead.
spk03: No, sorry, Lori. Good morning. Yes, so we did use 299,000 of those shares to fund the equity portion of the director's grant.
spk04: Great, perfect. Okay, and then... Just in terms of your loan growth, can you help us think a little bit about, you know, how loan growth will look going forward and then specifically that multifamily jump by almost 100 million, just where that multifamily is located, any details you can give us, LTVs on that growth, just how you're thinking about that. Thanks.
spk03: Sure, Laurie. Yes, we had strong growth in the multifamily segment this quarter, which we think is a you know, a good asset class for us to be in at this point. From an overall perspective, the majority of that, about 60% is in the New Jersey space. 32% is in the New York space, not in the Manhattan area. And the LTV are, you know, about 60%, around 60% LTV.
spk04: Okay. And then when you think about growth going forward, How are you looking at that book?
spk01: At the multifamily book or just commercial real estate?
spk04: Yeah, exactly. At the multifamily book because your growth was 69% annualized this quarter, and that's almost half your loan book. So just how should we be thinking about that going forward?
spk01: I think you'll continue to see growth in the multifamily. It's starting to slow down. in the marketplace. We'll continue to look at industrial real estate as well. But the market is definitely tightening up from what we're seeing. Okay.
spk04: Okay. And was that multifamily, was that purchased or your team originated it?
spk01: It was all directly originated. Okay.
spk04: Okay, great. And then I'm thinking about, about Kelly, in your comments on margin pressure, can you talk a little bit just about the funding side, what you're seeing there in terms of price pressure? Just help us think about that a little bit. And then just specifically kind of a cleanup item within your net interest income. I know there was probably a very, very small amount of PPP forgiveness. Do you have that figure? Yes.
spk03: Yes, Lori. So the PPP for this quarter represented about one basis point. As you said, you know, that really has come down in the recent quarters. We only have approximately a half a million left in PPP loans with about $30,000 of fee income to be amortized, which will not be meaningful, you know, as we move forward. So this quarter was one basis point attributed to the NIM. In terms of funding pressure... Sorry.
spk04: Yeah, go ahead.
spk03: Okay. No, I was going to move on. If you have another question on that, I was going to move on to the funding pressure question.
spk04: No, yes, please. Yes, please. Thanks. Thanks, Ellen.
spk03: So we have a number of initiatives going on at the institution. I think that unlike others, we are experiencing pressure on our funding sources. We are pleased with our shift to core deposits. but realize as our growth has outpaced our deposit growth, we continue to see pressure on those fundings. So we're hopeful that some of our initiatives in shifting the funding sources will be successful, but we're looking at compression in the margin.
spk01: Okay. Sorry, Laura. So most of those initiatives will be focused on bringing new funds to the bank, new customer, new customer money. That's the focus.
spk04: Got it. Got it. Okay. Yeah. And so just, just obviously stripping out the PPP fees. So your headline margin contract or, you know, your headline margin wind to basis point. But if I strip out the PPP fees, you are actually four basis points wider. Okay. So I guess putting everything together in terms of margin contraction, can you help us think about that a little bit more with what you're seeing on the funding side?
spk03: Yeah, I think, you know, as we had said last quarter, we benefited from some late deposit growth in Q2 that was fully realized in Q3. So that did help to expand the core margin a little more than we were seeing from the overall, you know, face of the project. the financial number. But again, you know, if you took a look, we do have currently increased borrowings, which in the current rate environment is putting pressure on those assets that we put on and the spreads we're realizing.
spk04: Got it. Okay. Okay. And the non-interest income, obviously saw a nice little jump there in your fees and service charges. Can you remind us how much of that $650,000 is prepay income?
spk03: Yeah, so approximately, you know, 300 to 350 is prepay and exit fee, loan-related income that was realized during the quarter.
spk04: Got it. Okay. And then on expenses, you mentioned in your population, you mentioned in your prepare comments to the one-time charges. I just didn't see how much the one-time charges were this quarter. What was that figure? And can you tell us what's in that number?
spk03: So the one-time charges really include legal expenses. Primarily, you know, we had some charges there as well as an increase in the, we had a branch that we anticipate selling that was recognized there. So in total, about 240,000 of the expenses for the quarter we believe to be non-recurrent.
spk04: Okay. Okay, and then on expenses, maybe just help us put it together a little bit. Obviously, you had your equity incentive plan for only part of this quarter, so really fully phased. You know, that adds another, call it $213,000 plus. Your director's plan of $300,000. So even netting out that 240, help us think about expenses and especially as we look to next year, what that figure will look like. And maybe also, Jim, if you could comment in terms of how you're thinking about de novos and any expenses around that, just to refresh on that. Just trying to put together.
spk01: I'm going to flip it over and I'll tell you a chance to pull our numbers together for you. As far as de novo branches in 2023, we continually look in the marketplace for areas that make sense for our bank to de novo. I would not be surprised if we added two to four branches in 2023. With that said, the process to add a branch takes months. Lease negotiation takes quite a few months these days. fit out, takes months. So while we may have a plan to put them on in 2023, I don't think most of the expense will be incurred in the first or second quarter of 2023. I'm guessing that we're forecasting that most of it is in Q3 or Q4. So I don't think there's going to be a pull-through of a lot of expense for de novo over-entering next year.
spk04: Okay, great. And then just... Okay.
spk01: I'll turn it over to Kelly for the second part of your question.
spk03: Great. Thanks, Jim. Yes, Laurie. On the expense front, you know, from the equity awards on an annualized basis for those that have been granted to date, we're looking at around 2.4, 2.5 million in expense on an annualized basis. You know, as I look at next quarter, as you mentioned, we had a partial quarter of the equity grants for the directors. And this quarter we will have a partial for the equity grants that were granted to management. So, you know, we're looking at about a, you know, a 13.6 in terms of expense run rate for Q4, inclusive of those new grants.
spk04: Okay. And then I guess looking at, looking ahead into the March quarter, And maybe also just if you could comment on the new branch expense. I mean, your new branches are probably $500,000, $600,000 in cost. Just how you think about that.
spk03: I think, you know, as Jim mentioned, Laurie, those expenses we don't anticipate coming into later in the year. And currently, you know, based upon our – grants that had been granted, you know, provided that guidance. There's no other guidance, you know, relative to an expense spend as we look forward. We're going through the process of looking at our budget now and addressing some of those initiatives that the teams will embark to, you know, really be mindful of the operating expenses in the environment we're operating in.
spk04: Okay. Okay. And then just last one, just housekeeping, the AMCI, What was the actual AOCI figure that was intangible common equity or AOCL?
spk03: What's the actual loss there? So the loss is at $27.5 million. The majority of that is made up of the loss in the securities portfolio. The unrealized loss in that portfolio is around $43 million. We do have a positive impact for the mark on the swap portfolios. but we are in an unrealized, accumulated loss position.
spk04: Okay, got it. Great. Thank you for taking my question.
spk01: Thank you, Laurie. Thanks for being engaged with us, and we really appreciate the questions every quarter.
spk02: Thank you, and we have no further questions, so it would be my pleasure to hand back to Jim Nessie for any closing remarks.
spk01: Thank you, Operator, and to all of you who participated on the call today, thank you for your interest in our company. And I look forward to speaking with all of you again in the fourth quarter. Thanks and have a great day.
spk02: Thank you to everyone who has joined us today. This concludes the call and you may now disconnect your lines.
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