Good morning, and welcome to Blue Foundry Bancorp's Second Quarter 2022 Earnings Call. My name is Melissa, 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. After the speakers’ remarks there will be a question-and-answer session. I will now turn over the call to president and CEO, Jim Nesci.

Thank you, operator. Good morning, everyone, and welcome to our second quarter earnings call. Today, I'm joined for the first time by our newly appointed Chief Financial Officer, Kelly Pecoraro. Kelly comes to us from Investors Bank, where she was Executive Vice President and Chief Accounting Officer. Since Kelly's arrival in early May, we have benefited from her leadership, and we are excited to leverage her experiences and knowledge to help guide Blue Foundry. After a few opening remarks, Kelly will share the company's financial results. I am encouraged by the progress we have made in our core operating results. Earlier this morning, we reported second quarter net income of $40,000 and a pre-provision net revenue of $529,000. During the quarter, we had significant growth in both our lending and retail franchises. At June 30, we reported total loans of $1.42 billion, up $88 million from the prior quarter. This represents loan growth of 6.6% quarter-over-quarter. This is the second consecutive quarter we grew our loan portfolio by more than 4%. Our lending team onboarded $175 million of new loans during the quarter. Organic originations totaled $147 million, the largest quarterly originations achieved in Blue Foundry's history. This record growth came from strong production in multifamily and commercial real estate. Our loan pipeline remains robust in the near-term, totaling $223 million with a weighted rate of 4.4% as of June 30. We expect to continue with healthy originations in the third quarter, but given economic uncertainties later this year, our longer-term outlook is more conservative. Deposit growth remains strong, especially with our business customers. Our retail team grew core deposits by $28 million during the quarter. Business accounts drove $25 million of that growth. To attract and retain customers, our retail team is constantly exploring new initiatives to best serve our clients. During the quarter, we relaunched our mobile application with a simplified, modern, user-friendly interface. We've partnered with a financial services technology company to initiate the implementation of an online channel for opening business accounts, and we enhanced our cash management product suite to allow business customers to initiate foreign wires. We opened our 18th branch in Hoboken's historic district in May. This branch exemplifies our vision to open inviting environmentally conscious and architecturally efficient branches located in the center of town. The second quarter evidenced the positive impact that the successful execution of our strategy has already had on our franchise. Additionally, July 15 marked the one-year anniversary of our initial public offering. And last week, our Board of Directors authorized a share repurchase program of 10% or up to 2.8 million shares. We feel strongly that a repurchase program allows us to return capital to shareholders in an economically rational manner, and we plan to begin execution of this plan once our blackout period concludes. 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. I am thrilled to have joined Blue Foundry at such a pivotal juncture in their extensive history. And I'm equally excited to work alongside the management team and Jim to help guide the company through its bright and inviting future. Our financial results were highlighted by pre-provision net revenue of $529,000 for the quarter, an improvement of $1 million compared to the linked quarter. Income was positive for the quarter at $40,000 of net income. However, tangible book value declined $0.29 per share for the quarter to $14.43. The entire decline was due to the higher rate environment, which had a negative impact on our available-for-sale securities portfolio, partially offset by our interest rate swap position, which is reflected in other comprehensive income. Since September 30, 2021, the first reported quarter after going public, tangible book value has declined $1.27 per share. Ninety-seven percent or $1.23 of this reduction is primarily related to items that we believe to be primarily temporary in nature. Breaking it down further, $0.64 is due to temporary unrealized losses reflected in AOCI and $0.59 is from the valuation allowance established on our deferred tax assets. While the majority of our securities are held as available for sale, requiring mark-to-market adjustments, we currently do not intend to sell those securities. Therefore, we expect to receive the full value of the securities as principal payments are received. And with sustained profitability, we expect to be able to continue reversing the majority of the previously established valuation allowance. During the quarter, net interest margin expanded 21 basis points versus the trailing quarter to 2.83%, despite funding pressure from the rising rate environment. Throughout the quarter, we successfully deployed our excess cash through the substantial loan growth Jim highlighted earlier. Net interest income increased $1.2 million or 10.2% to $13.2 million as loan balances grew quarter-over-quarter. While interest expense increased $61,000 compared to the prior quarter, our cost of funds remained flat at 46 basis points. We have benefited from a shift in our liability mix as our time deposits continue to run off. In regards to expenses, we continue to closely manage our operating expenses, which resulted in a sequential decline of 1.9% or $259,000 to $13.1 million, excluding the impact of the provision for commitments and letters of credit, variable expenses within professional services and advertising drove the decline. Gross loans, excluding PPP, grew by $94.3 million or 7.1% sequentially. Our commercial real estate portfolios experienced strong growth in the quarter, driven by originations of $140 million. During the quarter, the bank also purchased $28 million of high-quality residential loans in our principal market, which were originated to Fannie Mae standards, compared to $46 million of purchases in the previous quarter. We will selectively use the purchase program in the near-term to supplement residential originations. Our securities portfolio is well-positioned to provide supplemental cash flow that will be used to fund loans as demand remains high. During the quarter, the portfolio declined by $23.4 million due to maturities, calls, scheduled pay downs, and mark-to-market adjustments. Our asset quality remains strong as non-performing loans to total loans decreased 8 basis points to 70 basis points. During the quarter, our allowance to total loans decreased 2 basis points to 98 basis points. However, our allowance to non-accrual loans increased to 140.5% from 128.5% the prior quarter. As a reminder, we are currently operating under the incurred loss model and are on track to adopt CECL by the required implementation date. And with that, Jim and I are happy to take your questions.

Good morning. Thanks for having the call. Two questions, could you discuss your average duration or the average maturity of your investment held for sale? That's my first question, please. Thank you.

Sure, Ross. This is Kelly Pecoraro. The average duration is right around four years, 4.5 years on our held-for-maturity portfolio.

And what portion of the portfolio is mortgage backs? And have they been extending, and could that four years, if you do have a lot, extend that quite a bit further beyond the four years? Thank you.

Give me a moment. I'm just looking for the breakout on the mortgage backs in the held-for-maturity portfolio. So they're all in our available-for-sale.

And I guess the question is, could that be extending? And could that four years end up being 5% or 6% because of the amount of mortgage backs you have in that held-for-sale?

As we look at the interest rate environment, I think the extension that we're seeing are short-lived investments. So there's a potential for extension, but we're not projecting it to be very material at this point.

Again, those are the mortgage backs in the held-for-sale, and that's the average is the four years for the held-for-sale? I just want to clarify that.

Yes. Now they are held-for-sale, to remove available-for-sale, so they are mortgage-backed securities, yes.

Okay, okay. Thank you very much.

Great. Hi. Thanks. Good morning. And Kelly, welcome. Hoping that we can go back, Jim, to the comments that you made in the prepared remarks when you talked about the longer-term outlook for loan growth. Can you help us quantify that? Obviously, as you referenced, very, very strong growth overall — just how we should be thinking about that as we look to next year? And then I have another question related to that, too.

So Laurie, it's Kelly. Thank you very much for welcoming me. I'm very happy to be here at Blue Foundry. If we look at our pipeline as of 6/30, we have about $220 million in the pipeline as we went into Q3. We believe loan growth is strong as demonstrated in Q2. We hope and believe that it will continue to be strong in Q3. We're not prepared at this point to provide really any guidance on Q4 as we continue to look at the market.

Okay. Let’s delve a bit deeper into your categories here. Your multifamily loan portfolio is at $579 million, showing significant growth of 48% on an annualized basis this quarter. Can you tell me whether any of that was acquired from outside sources, or was it originated by your internal team? Similarly, regarding commercial real estate, there’s substantial growth there as well at 52% annualized. Can you clarify if you are involved in that, or how you are achieving those numbers?

So in the multifamily space, all originations are from our team. They've been working really hard and succeeding in that market. We think the multifamily product is a good product. It diversifies our cash flow risk as we're looking at the portfolio. In terms of our CRE, it was 100% direct as we saw growth within that portfolio.

Are you making any additions within the office categories? Can you clarify your current position regarding office? I recall you mentioned minimal exposure before, especially in the more active sectors like hotel, restaurant, retail, and office. Are you beginning to include any of those more prominent categories, or what is contributing to your growth?

So no. Really, our office portfolio, Laurie, as of 6/30 sat at 3% of our commercial book. So really, we have about $24 million in exposure in the office. We don't have really concerns about that. They're all performing. If you look at our pre-growth this quarter, we did have one large credit that was to a retail space that was anchored with quality tenants and investment grade and borrowers that we were very comfortable with.

Okay, okay. And then just switching over to the income statement. Net interest margin, obviously, very strong and your PPP loans are almost done. Do you have within your $13,162 million of net interest income, how much of that was the PPP forgiveness?

So in the PPP for the quarter, it was about $170,000 included what's in the net interest income. $80,000 was in the fees that are remaining on that book. It is a very small book that's remaining on the PPP.

Okay, okay. All right. So 4 basis points on your margin versus 7, that works. So tremendous, obviously, core margin expansion. And it looks like on the funding side, you're really holding your cost to deposits down. How should we be thinking about margin here as we look out to the next two quarters?

So Laurie, I think, you know, as you will notice, within the quarter, we were able to deploy our excess cash that we had on our balance sheet that was responsible for us, partially responsible for us keeping that cost of funds down. And then also having the shift in the CDs, we do anticipate increased pressure on the margin as we move into the third and fourth quarter with the continued increase in interest rates.

Okay, okay. Great, and then on the expense side, obviously, the 18th branch was added, how should we be thinking both about how you're going to grow core expenses, any framework you can give us there? And then also, Jim, maybe any comments on de novo branch plans as we look forward? Thanks.

So maybe I'll take the de novo branch question first. We continue to experience really strong loan growth. Obviously, that has to be funded. Our business plan, we stay focused on our small business customer, which we'll keep building smaller branches. I think the large branches of yesteryear are not in our future. We'll keep our size probably 2,000 square feet and less in highly populated dense areas filled with lots of small businesses. As we mentioned earlier in the call, we find that customer to be really good for our bank. We're able to provide a lot of service to that customer, and they provide back low-cost funds to us. So it's working really well. We're not trying to grow by five branches a year, but I think it's a couple of few branches and very strategically placed. We look at rents, we look at location. We look at a lot of demographic studies. We try to be as strategic as possible when picking a new branch. So that's what I can give you on the branches, but I'll turn it back to Kelly.

Thanks, Jim. Yes, Laurie, in terms of expense spend, as we move forward, we're very conscious about our expense then trying to keep that in line. We were very pleased with the reduction in our use of professional services, which led to a lot of decline within the quarter. I think as we look forward, we're looking at staying within that $13.5 million quarterly run rate from an expense spend perspective.

Okay. And does that $13.5 million guide, does that include the benefit plan expense, which presumably is going to start in the fourth quarter? Or is that exclusive of that?

So currently, that includes what had been disclosed in our proxy, if approved, the expense rate that we would have for the quarter based upon the awards disclosed. Currently, no.

Okay, great. Loving the buyback. I’ll leave it there. Thanks for taking my questions.

Thanks for your time today. I appreciate, Laurie advice for the questions. It's been an interesting, fun quarter. It's been really busy. And before we leave, I know I have a lot of employees listening to the call today. I'd like to thank all of our employees and all of their hard work should be acknowledged, a tremendous effort put forth to the goal of loan growth and all the deposit gathering. So thank you very much. And to our shareholders, thanks for sticking with us, and we appreciate all of your support. We will be back online with you next quarter and look forward to reporting some more great news to you. Thanks again.

Thank you. This concludes the call today. You may now disconnect your lines.