Blue Foundry Bancorp

Good morning and welcome to Blue Foundry Bancorp's third quarter 2024 earnings call. 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 circumstance. 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, and good morning, everyone. Thank you for joining us for our third quarter earnings call. I am joined by our Chief Financial Officer, Kelly Pecoraro, who will discuss the company's third quarter financial results in detail after I provide an update on our operations. Earlier this morning, we reported a quarterly net loss of $4 million and a quarterly pre-provision net loss of $3.8 million. Deposits increased by $7.5 million. and loans grew $3.6 million. We were able to deliver tangible book value per share growth, while capital and credit quality remained strong. Additionally, we have a positive outlook for both the fourth quarter and for the next year. We have a healthy commercial loan pipeline and believe we will deliver sustained loan growth in the coming quarters. Further, based on how we positioned the balance sheet We expect the Federal Reserve's recent 50 basis point rate cut and any subsequent rate cuts to have a positive impact on our net interest income. With our industry-leading, consumer-friendly products, we continue to focus on developing new relationships and deepening our current relationships within the communities we serve. Specifically, we are dedicated to attracting the full banking relationship of small to medium-sized businesses in our markets. So far this year, this strategy has resulted in an 11% increase in commercial deposits and our branch network has delivered a 7% increase in consumer deposits. These successes have allowed us to reduce our reliance on wholesale deposits by 4% and improved our loan to deposit ratio. Given our strategy to become a more commercially oriented institution, we have been selective in originating real estate loans while building our commercial pipeline. Our pipeline of commercial credits at attractive yields continues to expand, and this should drive an expansion in our interest income and loan yield. We remain disciplined in underwriting strong credits across all of our loan product offerings. During the quarter, we repurchased 522,000 shares at a weighted average price of $10.52. Repurchasing shares at these levels continues to improve shareholder value. Tangible book value per share increased by $0.05 to $14.74. Our bank and holding company remain well capitalized with capital levels that are among the strongest in the banking industry. Tangible equity to tangible common assets was 16.5% as of September 30th. Blue Foundry continues to operate with robust liquidity and a low concentration risk to any single depositor. At the end of the third quarter, we had $334 million in untapped borrowing capacity and our unencumbered available for sale securities and unrestricted cash provided another $300 million of liquidity. This liquidity is four times larger than our uninsured and uncollateralized deposits to customers, which represents only 12% of our deposit balances.

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 third quarter was four million dollars compared to a net loss of 2.3 million dollars during the prior quarter this change was driven by a build in the provision for credit losses compared to a release in the prior quarter additionally The increase in interest income was outpaced by the increase in interest expense. During the quarter, we originated $22 million of commercial lines of credit. Our unused lines of credit increased by $12.8 million, and we had $26 million of unfunded commitments at the end of the quarter. This drove the $248,000 increase in the provision for credit losses. 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 and adverse forecast. Asset quality remains strong in the current environment. Non-performing assets declined by $1.1 million due to improvement in non-accrual loans. This resulted in a five basis point reduction in non-performing assets to total assets and a seven basis point reduction in non-performing loans to total loans. Our allowance to total loans remained flat at 84 basis points, while our allowance to non-accrual loans increased to 253% from 210% the prior quarter due to the improvement in non-accrual loans. Net interest income decreased by $486,000, leading to a 14 basis point reduction in net interest margin. Interest income expanded $240,000, but interest expense increased $726,000. We expect our net interest margin to improve as we close loans and reprice deposits lower. Yield on loans contracted by three basis points to 4.53% and yield on all interest earning assets decreased by five basis points to 4.32%. Cost of funds increased 10 basis points to 2.99%. The cost of interest bearing deposits increased 10 basis points to 3%. Borrowing costs increased four basis points to 3.13% as longer dated borrowings at lower interest rates matured. In addition, borrowing balances increased slightly as the company took action to lock in longer term funding at attractive rates. Expenses were substantially flat to prior quarter. Compensation expense was lower this quarter, driven by lower salaries and variable compensation accruals. This was offset by idiosyncratic items in professional services and small increases in data processing and other expenses. We continue to promote expense discipline, and we expect operating expenses for the fourth quarter of 2024 to be in the mid to high $13 million range. Moving on to the balance sheet, gross loans increased by $3.6 million during the quarter. As a reminder, Only approximately 2% of our loan portfolio is in office space and none is in New York City. Our available for sale securities with a duration of 4.4 years decreased $7 million. This decrease was driven by $16 million of amortization, partially offset by an $8.6 million or 27% improvement to the unrealized loss position. Our frontline staff was able to grow customer deposits by $15.4 million. This growth was offset by $7.5 million resulting from a reduction in wholesale deposits and the decrease in the deposit held for cash received as collateral for our swap position. Borrowings increased by $6 million as the company borrowed ahead of anticipated loan funding to lock in term rates at attractive levels. And with that, Jen and I are happy to take your questions.