Blue Foundry Bancorp

Hello everyone and welcome. My name is Drew and I'll be your conference operator today. At this time, I would like to welcome everyone to the Blue Foundry Bancorp fourth quarter and year-end 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, please press start followed by one on your telephone keypad. To withdraw your question, please press start followed by two. I will now turn the call over to your host, Jim Nuffie. Please go ahead.

Thank you, Operator. Good morning and Happy New Year to everyone. Welcome to our fourth 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. 2023 was a challenging year, especially for financial institutions. We navigated bank failures, a slowing economy, and the impact of rate hikes at historic speed. When we entered the year, Economists predicted a mild recession, but 2023 showcased economic resilience despite higher interest rates. Higher rates caused a flight of deposits out of depository institutions across the United States. Our markets were not excluded from this trend. While this was tough to circumvent throughout the year, our fourth quarter proved to be a promising step in the right direction. Deposits did decline $8 million during the quarter, But this was largely driven by a $7 million reduction in cash collateral tied to our SWOT program and a $5 million reduction in wholesale deposits. Deposits within our retail network increased modestly, 1.3%, on an annualized basis during the quarter. In 2024, we are focused on leveraging our capital to grow our balance sheet and funding it through organic deposit acquisition. We continue to be disciplined in our underwriting strong credits and bringing efficiency to the institution. Given the liability-sensitive nature of our balance sheet, we are encouraged by the potential improvements in short-term rates. To us, our capital is king. Both our bank and holding companies have capital levels that are among the highest in the banking industry. all of our capital ratios are more than two times higher than the regulatorily defined well-capitalized levels. Tangible equity to tangible common assets was 17.4% at December 31st. We continue to execute on our share repurchase program. During the quarter, we repurchased 657,000 shares at a weighted average cost of $8.72, a discount to tangible book value. These repurchases, coupled with the improvement in our AOCI, helped increase tangible book value per share by $0.25 to $14.49 at December 31st. To date, we have repurchased over 5 million shares, which represents nearly 18% of the shares issued during our conversion. Over the course of 2023, our capital was adversely impacted by the unprecedented speed FOMC rate hikes or accumulated other comprehensive loss position currently accounts for approximately 93 cents per share. To reiterate, while the securities in an unrealized loss position are held as available for sale, we currently intend to hold them until their contractual maturity and realize the reversal of the unrealized loss as the securities get closer to maturity. we have maintained significant liquidity throughout the year. At the end of the fourth quarter, we had over $354 million in untapped borrowing capacity and our unencumbered available for sale securities provided another 278 million of liquidity. Additionally, we had $46 million of cash on the balance sheet of which $36 million was unrestricted. BlueFoundry continues to operate with a low percentage of uninsured deposits and a low concentration risk to any single depositor. Uninsured and uncollateralized deposits from customer accounts were $131 million at December 31st. This is approximately 10% of the company's total deposits. Additionally, our available liquidity covers 5.1 times our uninsured, uncollateralized deposits to customers. And with that, I'd like to turn the call over to Kelly, and then we'd be delighted to answer your questions. Kelly?

Thank you, Jim, and good morning, everyone. The net loss for the fourth quarter was $2.9 million, compared to net loss of $1.4 million during the prior quarter. This deterioration was largely driven by NIM contraction and an increase in the provision for credit losses. Our asset quality continues to remain strong in the current environment. During the quarter, we had a provision for credit loss of $156,000. Although our loan portfolio declined slightly during the quarter, the impact of prepayments flowing, partially offset by improvements in our forecast, resulted in allowance for credit losses on loans of $298,000. Partially offsetting the increase in the provision for credit losses on loans was a reduction in the provision for credit losses on off-balance sheet commitments and held to maturity securities of $132,000 and $10,000 respectively. As a reminder, the majority of our allowance for credit loss is derived from quantitative measures, and our allowance methodology places greater weighting on the baseline an adverse forecast. Nonperforming assets to total assets decreased one basis point to 32 basis points, primarily driven by a decline in nonaccrual loans. Our allowance to total loans increased three basis points to 91 basis points due to the increase in the allowance for credit losses on loans. And our allowance to nonaccrual loans increased to 240% from 226% the prior quarter due to the decline in non-accrual loans and the increase in allowance for credit losses on loans. While we realized a $162,000 expansion in interest income, our interest expense increased $842,000 resulting in a reduction of $680,000 in net interest income. While still unfavorable, we are pleased to see the quarter-over-quarter contraction slow. Yield on loans increased by eight basis points to 4.29%, and yields on all interest-bearing assets increased by nine basis points to 4.06%. Cost of funds increased 23 basis points to 2.69%. Remaining competitive in deposit pricing, the cost of interest-bearing deposits increased 27 basis points to 2.52%, and borrowing costs increased 11 basis points to 3.38%. We still expect pressure on our margin to continue due to competition for deposits and the current rate environment. Expenses increased modestly by $149,000 driven by compensation and benefit expense, partially offset by a reduction to other expenses. The increase to compensation and benefits expense was driven by the absence of adjustments to variable compensation that we recorded in the third quarter. We continue to explore opportunities to optimize our expense base. we expect operating expenses for the first quarter 2024 to be below $14 million. Moving on to the balance sheet, gross loans declined by $10.3 million during the quarter as amortizations and payoffs outpaced new loan funding. As a reminder, less than 2% or $22 million of our loan portfolio is in office space, and none is in New York City. Our guest securities portfolio increased slightly. Given the limited benefit, considering the company's current tax position, we sold the majority of our obligations issued by U.S. states and their political subdivisions at a slight gain. We used these proceeds and excess cash to purchase $15.5 million of higher yielding securities, picking up approximately 5% in yields. Additionally, during the quarter, our unrealized loss position improved by $11.2 million, or 27%. And with a duration of 4.5 years, our debt securities portfolio continues to provide cash flow that is used to invest in higher yielding assets. Deposits decreased by $8.2 million, or 0.7% during the quarter. As Jim mentioned earlier, we were able to modestly increase our retail deposits by approximately $4 million, which allowed us to slightly reduce our reliance on wholesale funding. Additionally, cash held as collateral tied to our response program declined $7 million. 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 the number of business accounts by 1% during the fourth quarter. The number of business accounts is up 8% for the full year. During the quarter, borrowing decreased by $5 million. And with that, Jim and I are happy to take your questions.