Blue Foundry Bancorp

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.

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?

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.