Blue Foundry Bancorp

Good morning and welcome to the Blue Foundry Bancorp's second quarter 2023 earnings call. My name is Carla 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 Nesse.

Thank you, Operator. Good morning, everyone, and welcome to our second quarter earnings call. I am joined by our Chief Financial Officer, Kelly Pecoraro, who will share the company's financial results in greater detail after my opening remarks. The competition for deposits from both depository and non-depository institutions, along with the inverted yield curve, continues to have an adverse impact on our margin and cost of funds. Despite this top-line pressure, we have been pleased to see our investments in technology results and productivity saves. Quarter over quarter, our operating expenses declined $689,000, or 5.1%, driven primarily by lower compensation and benefits expense. 2022, and employees have increased productivity by optimizing redundant tasks through the use of technology, allowing them to focus on more impactful projects. Additionally, we have been keenly focused on managing down variable expenses. We have reduced our reliance on consultants and our advertising costs were 71% below 2022's quarterly average. During the second quarter, We repurchased 1,892,000 shares at a weighted average cost of $9.68, a discount to tangible book value. This helped tangible book value per share increase 29 cents to $14.35 at June 30th. We continue to believe that share repurchase programs represent accrued use of capital. We are still active in the lending market. During the second quarter, we originated $41 million in loans, primarily in our commercial portfolios. Our underwriting standards remain conservative, and our credit quality remains strong. Our management team continues to monitor the macroeconomic environment and liquidity challenges being experienced throughout the banking industry. We remain steadfast in maintaining strong capital and liquidity positions, both our bank of the second quarter, we had over $395 million in uncapped borrowing capacity. Additionally, our available for sale securities portfolio, which represents 90% of the debt securities we hold, provided an additional $301 million of liquidity. Blue Foundry continues to operate with a low percentage of uninsured deposits and low concentration risk to any single depositor. Our bank subsidiary, had uninsured deposits totaling approximately $293 million at the end of the second quarter. This total includes approximately $69 million of deposits from the Blue Foundry Bank Corp., $20 million of deposits from its subsidiary, Blue Foundry Investment Company, and $32 million of municipal deposits, which are insured under New Jersey's Governmental Unit Deposit Protection Act. Excluding these three items, Uninsured deposits from customer accounts represented only 13.6% of the bank's total deposits. This improved from the prior quarter as some of our larger relationships took advantage of the increased FDIC coverage that we provide through our ICS and Cedars-Sweep account products. Additionally, our available liquidity covers 4.4 times our uninsured and uncollateralized deposits to customers. With that, I'd like to turn the call over to Kelly, and then we'd be delighted to answer your questions.

Thank you, Jim, and good morning, everyone. The net loss for the second quarter was $1.8 million, compared to net loss of $1.2 million during the prior quarter. This change was largely related to funding pressures from the competitive rate environment. While we realized a $933,000 expansion in interest income, our interest expense increased $2 million, resulting in a reduction of $1 million in net interest income. Yield on loans increased by 11 basis points to 4.18%, and yield on all interest bearing assets also increased by 11 basis points to 3.93%. Remaining competitive in deposit pricing the cost of interest-bearing deposits increased 35 basis points to 1.73%. This, coupled with an increase in average short-term borrowings, drove the cost of funds to 2.15%, a 42 basis point increase compared with the prior quarter. While the increase in the cost of interest-bearing liabilities and cost of funds has slowed since last quarter, We still expect pressure on our margin to continue due to competition for deposits, the current rate environment, and the liability-sensitive nature of our balance sheet. During the quarter, we recorded a provision for credit loss of $143,000 for the quarter ended June 30th, 2023, driven by an increase in the allowance for loans, partially offset by a decrease in the allowance for commitments. Our asset quality remains strong in the current environment. During the quarter, non-performing loans to total loans increased two basis points to 49 basis points, primarily driven by a slight increase in non-accrual loans. Our allowance to total loans increased two basis points to 91 basis points, and our allowance to non-accrual loans decreased to 186%. from 189% the prior quarter, also due to the slight increase in non-accrual loans. Expenses declined $689,000, largely driven by a reduction in compensation and benefit expense. This reduction was driven by a full quarter of sustained lower headcount and a reduction in variable compensation. We continue to explore opportunities to reduce our expense base. Additionally, while there were one-time items in operating expenses this quarter, they largely offset each other. Therefore, we expect operating expenses for the remainder of the year to remain relatively in line with the second quarter. Moving on to the balance sheet, gross loans declined by $4.6 million as amortization and payoffs outpaced loan funding. As a reminder, less than 2% of our loan portfolio is in office space and none is in the New York City market. With a duration of 4.8 years, our debt securities portfolio continues to provide cash flow that is being used to fund loans. These securities declined 8.2 million due to maturities calls, and scheduled takedowns. Funding our balance sheet has been challenging in this environment. Deposits increased $23 million, or 1.8% during the quarter. We were able to increase retail time deposits by $48 million, and we executed $50 million of new brokered CDs. This growth in time deposits was partially offset by an outflow of $75 million from non-maturity accounts. Our focus remains on attracting the full banking relationship of small to medium-sized businesses. We offer an extensive suite of low-cost deposit products to our business customers. Despite the competition for deposits, we were able to grow both business balances and the number of business accounts by 2% during the second quarter. For the six months ended June 30, 2023, balances were up 8% and accounts were up 5%. During the quarter, borrowings decreased $23 million as we replaced short-term borrowing with time deposits. And with that, Jim and I are happy to take your questions.