Blue Foundry Bancorp

Good morning and welcome to Blue Foundry Bancorp's first quarter 2023 earnings call. My name is Lauren and I will 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 for 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 will now turn the call over to President and CEO Jim Nessie.

Thank you, Operator. Good morning, and welcome to our first quarter earnings call. I'm joined by our Chief Financial Officer, Kelly Pecoraro, who will share the company's financial results in greater detail after my opening remarks. Our management team continues to monitor the macroeconomic environment and liquidity challenges being experienced throughout the banking industry. We remain steadfast in maintaining our strong capital and liquidity positions. Both our bank and holding company remain more than well-capitalized. At the end of the first quarter, we had $736 million in liquidity sources, including $336 million in untapped borrowing capacity and $400 million in cash and securities. 90% of our debt securities portfolio is held as available for sale and therefore marked to market as of March 31st. Our bank subsidiary, had uninsured deposits to customers totaling $180 million, representing 14% of total deposits. Our liquidity sources at quarter end were 3.9 times larger than our uninsured deposits to customers. Only 1.7 million, or 4% of our deposit outflows for the quarter were experienced in March. We are able to offer our customers enhanced FDIC coverage through intrafis, CD, and cash suite programs. These programs provide over $100 million in additional FDIC insurance coverage. Our performance during the quarter reflects the pressure that the competitive rate environment in northern New Jersey has had on both our deposit and borrowing costs. We have been actively implementing measures to reduce the funding pressure and the uncertain rate environment. For example, we enacted a second interest rate swap program during the quarter where we executed 100 million of interest rate hedges with duration ranging between three and five years. This allowed us to reduce our reliance on short-term advances while lowering interest expense. We are still active in the lending markets, During the first quarter, we originated 65 million in loans, which resulted in loan growth of $41 million. We still maintain our conservative underwriting standards that have resulted in strong credit quality. Tangible book value was $14.06 per share at quarter end. We continue to repurchase stock at a discounted tangible book value. During the first quarter, we repurchased 871,000 shares at a weighted average cost of $10.71. As of March 31st, we have repurchased a total of 2,169,000 shares, which is approximately 76% of the approved initial stock repurchase program. Last week, the Board approved the company's second stock repurchase program, authorizing the repurchase of up to at the conclusion of the initial stock repurchase program. This will allow us to repurchase an additional 1.3 million shares. We believe this program represents a prudent use of capital, and we are pleased to be able to continue to return value to shareholders. And with that, I'd like to turn the call over to Kelly, and then we will be delighted to answer your questions. Kelly.

Thank you, Jim. And good morning, everyone. The net loss for the first quarter was 1.2 million compared to net income of $562,000 during the linked quarter. This reduction was largely related to funding pressures from the competitive rate environment and seasonal deposit outflows. While we realized a $1.3 million expansion in interest income, our interest expense also increased by $2.2 million, resulting in a $1 million reduction in net interest income. Yield on loans increased by 27 basis points to 4.07% and yield on all interest-bearing assets also increased by 27 basis points to 3.82%. Remaining competitive in deposit pricing, the cost of interest-bearing deposits increased 56 basis points to 1.38%. This coupled with an increase in short-term borrowing drove the cost of funds for the quarter to 1.73%, a 56 basis point increase compared with the prior quarter. We expect pressure on our margin to continue due to the liability sensitive nature of our balance sheet. The company adopted the current expected credit loss methodology for accounting for credit losses, effective January 1st, 2023. The adoption increased the reserve on loans by $660,000, decreased the reserve for commitments and letters of credit by $811,000, and established a $170,000 reserve on health and maturity securities. As a result, the CESA adoption drove a net decrease of $18,000 in retained earnings. During the quarter, we recorded a net release of provision for credit losses of $23,000, driven by a reduction in commitments at quarter ends, partially offset by growth in our commercial portfolios. Our asset quality continues to remain strong in the current environment. During the quarter, non-performing loans to total loans decreased three basis points to 47 basis points. primarily driven by a reduction in non-performing loans. Our allowance to total loans increased two basis points to 89 basis points, and our allowance to non-accrual loans increased to 189% from 173% the prior quarter due to a reduction in non-accrual loans. Expenses, excluding the provision for commitments increased $585,000 driven by expenses related to stockholder approved equity awards, the absence of a technology services credit, and an increase in legal fees. We continue to explore opportunities to save to help offset the top line and inflationary pressures. Moving on to the balance sheet, gross loans grew by $41 million or 2.7% sequentially, driven by originations of 65 million, primarily in the non-residential, multifamily, and CNI segments. During the quarter, the bank also purchased 7 million of high-quality residential loans in our principal market, which were originated to Fannie Mae standards. With a duration of 5.1 years, Our debt securities portfolio continues to provide cash flow that is being used to fund loans. These securities declined $9.4 million due to maturities, calls, and scheduled pay zams. Funding our balance sheet has been challenging in this environment. Deposits declined 3% during the quarter. While we experienced an overall outflow with deposits for the quarter, primarily in savings accounts, our focus on attracting the full relationship of small to medium-sized businesses resulted in a 3% or $6 million increase in business account balances. Additionally, we were able to attract and retain maturing CDs, resulting in a $7 million increase in retail time deposits. Borrowings during the quarter increased by $112 million to help fund loan growth and replace the deposit outflow. As Jim mentioned earlier, we enacted a SWOT program in the first quarter. We were able to execute 100 million of interest rate hedges with maturities ranging from three to five years. These hedges allowed us to fund the balance sheet at a lower cost than short-term borrowings and also help reduce our exposure to changes in interest rates. And with that, Jim and I are happy to take your questions.