Blue Foundry Bancorp

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 fourth quarter earnings call. I'm joined by our Chief Financial Officer, Kelly Pecoraro. Earlier this morning, we reported a quarterly net loss of $2.7 million and a quarterly pre-provision net loss of $3 million. Loads increased by $32 million, predominantly in our commercial portfolios. Deposits grew $25 million, the majority of which came in core growth, including a 17% increase in non-interest-bearing accounts. Despite the net loss, we were able to maintain tangible book value, and both capital and credit quality remained strong. Additionally, our balance sheet remains well-positioned for the current environment. We are encouraged by the improvement in our yield on interest-earning assets, as well as our cost of interest-bearing liabilities, as this may indicate an inflection point in our net interest margin going forward. Continuing our transformation into becoming a more commercially oriented institution, my management team and I have set forth a strategic plan intent on attracting the full banking relationship of small to medium-sized businesses in our marketplace. Our bank has industry-leading, frictionless products, and we are focused on developing new relationships and deepening our current relationships within the communities we serve. a portion of their compensation aligned with achieving our strategic objectives. We funded $59 million of loans during the quarter, yielding approximately 7.5%. We have executed letters of intent totaling over $60 million for predominantly commercial credits at yields of approximately 7.7%. Given our demonstrated high pull-through rate, we expect to deliver continued balance sheet and interest income growth over the coming quarters, all while remaining disciplined in our underwriting standards. During the quarter, we repurchased 481,000 shares at a weighted average share price of $10.49. Repurchasing shares at this price continues to improve shareholder value. To date, we have repurchased 6.9 million shares at a weighted average cost of $10.16. Tangible book value per share remains flat at $14.74 this quarter. 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 is 16.1%. Blue Foundry continues to operate with robust liquidity and a low concentration risk to any single depositor. At the end of the fourth quarter, we had $408 million in untapped borrowing capacity and our unencumbered available for sale securities and unrestricted cash provided another $211 million of liquidity. This liquidity is 4.2 times larger than our uninsured and uncollateralized which represent only 11% of our deposit balances. 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 fourth quarter was $2.7 million, compared to a net loss of $4 million during the prior quarter. This improvement was driven by an increase in net interest income a decrease in expenses, and a release of provisions for credit losses compared to a build in the prior quarter. Net interest income increased by $386,000, leading to a seven basis point improvement in net interest margin. Interest income expanded $253,000, while interest expense declined $133,000. we expect our net interest margin to improve as we close loans at current rates and reprice deposits lower. Yield on loans improved by four basis points to 4.57% as the improvement from originations was partially offset by the reduction in yield on construction loans due to the decrease in the prime rate. The yield on all interest earning assets improved by five basis points to 4.37%. Cost of funds decreased six basis points to 2.93%. The cost of interest-bearing deposits decreased 10 basis points to 2.90%, while borrowing costs increased 13 basis points to 3.26%. Expenses improved by $386,000. Compensation expense was lower this quarter, driven by the lower than projected variable compensation expenses. As you will remember, we began releasing variable compensation accruals earlier this year when the achievement of some goals became less probable. Our annual cash incentive plan has a potential payout of up to 150%. The planned payout is approximately 60% to 70% of target, as the company did not achieve all corporate goals this year. While we continue to promote expense discipline, we expect operating expenses to return to the mid to high $13 million range as bonus accruals reset to 100% achievement, merit raises are realized, and normal inflationary considerations impact other contracts. For the fourth quarter, we had a $301,000 relief in the provision for credit losses. The majority of this relief was in the allowance for commitments and unused lines, as much of our loan growth this quarter came from loans that were commitments at the end of last quarter. The economic forecast scenarios as well as the duration of our construction portfolio, contributed to a slight relief in the allowance for credit losses on loans. We also had a small relief in the allowance for credit losses on health and maturity securities. As a reminder, the majority of our allowance for credit loss is derived from quantitative measures, and our allowance methodology still places greater weighting on the baseline and adverse forecast. Moving on to the balance sheet, gross loans increased by $32.5 million during the quarter, predominantly in owner-occupied commercial real estate, and to a lesser extent, commercial industrial and multifamily loans. Only approximately 2% of our loan portfolio is in office space, and none is in New York City. are available for sales security portfolio with a duration of 4.2 years increased $6.2 million. This increase was driven by the purchase of $44.5 million of securities at current yields, partially offset by $20 million of maturing lower yielding treasuries, $13.8 million of amortization, and a $4.5 million deterioration in the unrealized loss position. Deposits grew by $24.7 million. We saw a growth of $18.6 million in core accounts across all categories. Non-interest bearing deposits grew $3.7 million. Checking accounts grew $12.1 million. and savings accounts grew $2.8 million. Time deposits grew $6.1 million as we replaced promotional customer time deposits with $30 million of broker deposits. Borrowings decreased by $9 million as the company funded loan growth with deposit growth and cash on hand. Asset quality remains strong in the current environment. Non-performing assets declined modestly due to a slight improvement in non-accrual loans. Both non-performing assets to assets and non-performing loans to loans remained relatively flat at 25 basis points and 33 basis points respectively. Our allowance coverage ratios remained relatively flat as well at 83 basis points to total loans and 254% of non-performing loans. And with that, Jim and I are happy to take your questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please do so now by pressing Start followed by the number 1 on your telephone keypad. Please ensure that your device and your microphone are unmuted locally before proceeding with your question. Our first question comes from the line of Justin Crowley with Piper Sandler. Please go ahead.

Hey, good morning. Just want to start off on your commentary on loan growth. You know, that one to four and then multifamily bucket have been kind of the two areas that have been a drag on net growth for the past couple of years now. Is the expectation that that'll continue to be the case looking forward?

Yeah, I think from a strategic perspective, Justin, we're really looking at growing the commercial book, both in CNI as well as owner-occupied space. The decline in our residential book has been somewhat intentional, although quicker than we had envisioned. And multifamily, we believe we have a large concentration there, so we're watching our concentration limits on the multifamily space.

Okay, got it. And then you mentioned the $60 million pipeline. I can't remember where maybe that stood last quarter. I'm not sure if you shared that, but just curious. Just broader thoughts on just where activity stands and if you see things starting to pick up as we head through the new year and perhaps maybe more certainty following the election.

Yeah, I definitely think the pipeline has improved from where we were last quarter. And as we mentioned, we did see some pull through of those that we had commitments on at the end of Q3. As Jim mentioned in his remarks, you know, we have about 60 million of commercial loans that we have letters of intent out at a rate of around 750. So we are seeing some improvement in the pipeline and look for that to continue.

Okay, got it. And then on the margin, I'm just looking to get a sense for how you're thinking about deposit cost progression over the course of the year. you know, how much have you been able to move rates lower so far following the 100 basis points and cuts out of the Fed? And, you know, to what extent is that reflected in the four-cube margin?

So I think we did see improvement in deposit costs, as we mentioned, to 2.9% yield on that book. There have been pressures, Justin, on repricing. We have been able to bring prices down or – Emily Early- cost down somewhat on that book, we do have probably half a million half a billion dollars 500 million coming into the first half we've intentionally kept our CD short, so we look for that with pricing and hope that we can get benefits this rich trend lower.

Justin Fields , REL Appalachia, Okay, and on that half a billion do you have the rate that that's coming off of and where that will reset at.

Yeah, so the rate currently on the first quarter is probably around $4.75. So we're looking, our promotional rate that we have out there right now is a 4% yielding CD. So we're hoping to realize some improvement as those reprice. And then the second half or the second quarter, we're seeing a little bit lower of a yield on that. So it's probably around the $4.50 and hope that that can reprice as well.

All right, that's helpful. And then just another input as far as the margin on the asset side with, you know, average loan yields around that mid-four level. Is the expectation that that continues to move higher, you know, regardless of whether we get another cut or two, just given where new production is coming on at combined with back book repricing?

Yeah, I think we do anticipate that to trend higher as things are coming on at market rates. And we have the amortization of our book at the lower rates. There are some challenges as well, though, on the construction book, so I think it's fair to say while construction will reprice lower if prime rate goes down, we will see improvement as those other asset classes are being put on the books.

Okay, great. I'll leave it there. Thanks so much for taking the questions.

Thank you.

The next question comes from Chris O'Connell with KBW. Please go ahead, Chris.

Hey, yeah. Good morning. Just wanted to follow up on the margin discussion. I was wondering if you guys had, you know, the spot margin handy for December at the end of the quarter?

I think we were around 190 from a margin perspective at the end of the quarter. A little bit higher, like 190, 192.

OK, great. And just given the dynamics here on the balance sheet, I mean, it seems like things are now moving in the right direction on the margin. And I'm sure a lot of it depends on how much growth on the loan portfolio side that you guys are able to put on over the course of the year. But any sense of the magnitude of expansion that you could see over the course of 2025?

I think as we look at 2025, of course, we're looking to grow. We're looking at probably high single-digit loan growth at this point. given where we have some maturities coming in as well as the pipeline. So factoring that in.

Okay. And do you think like the margin, you know, do you expect it can, you know, kind of, you know, pace over the course of the year at a similar expansion rate that you saw in the fourth quarter? Or is that, you know, a little bit higher or lower than what you think you're going to achieve going forward?

I think at this point we're anticipating a similar pace. Again, it's all dependent upon the timing of putting those credits on and also the ability to reprice deposits lower.

Okay, thanks.

And then for the expense guide back to the mid to high $13 million range is the expectation that holds as a pretty good level, you know, for the remainder of 2025 after Q1? Or do you expect to see, you know, growth thereafter?

Yeah. I think we're looking at that, the mid to high $13 million range across the quarters. Again, as we look at our achievement and variable compensation and how we're attaining throughout the year, But that's where we're seeing things fall out for 2025.

Okay. And then, you know, I guess as far as like the variable, you know, compensation, you know, goes, is there, you know, like what are the specific metrics, you know, for 2025, you know, to hit that 100%?

So the goals that our compensation committee and board have agreed to really align to our growth, and it ties to loan growth, also deposit growth, loan cost deposit growth, and our net interest margin, really growing the balance sheet in a mindful way.

Okay. Thanks. And then, you know, you mentioned, you know, the construction portfolio. know being you know potentially really the only you know headwind here on the loan yields um like what are the yields coming off on that portfolio and you know what are uh you know the newer origination yields there so the yields on a portfolio or a prime fund is either 50 basis points to 100 basis points within that range so it's dependent upon um where crime rate is um the

Construction book is right around $85 million right now. And we see some of the pipeline as those are maturing coming on. So we have some of the construction in the pipeline.

That book is constantly recycled is the way to look at it. If a construction project gets finished up, that loan pays off. A new one comes on board. We've got a good pipeline of construction loans.

And then, you know, on the share repurchases, is it fair to assume that, you know, that can progress at a kind of similar pace, you know, over the course of 2025 from here?

Yeah, I think that we will get share repurchases. capital at these levels. So we'll continue to be active in the market. Again, always looking at the best use of capital as we move forward.

Great. Thanks, Jim. Thanks, Kelly. Appreciate the time.

Great. Thank you. Thanks, Greg.

Thank you for your questions. I will now turn the call back over to Jim Nessie for closing comments.

Thank you, operator. We'd like to thank everybody for participating today and we look forward to updating you next quarter. Thanks so much.

Thank you everyone for joining us today. This concludes your call and you may now disconnect your lines.