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. [Operator Instructions] 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 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 as 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. 97% 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…

Thank you. [Operator Instructions] We will take our first question today from Ross Haberman of RLH Investors.

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 health and 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 health and maturity portfolio. So they're all in our available for sale.

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

As we look at the interest rate environment, I think the extension that we're seeing these 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.

We'll take our next question today from Laurie Hunsicker of Compass Point. Laurie, please go ahead.

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 [Technical Difficulty] 7% overall 26% annualized 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, okay. And then just drilling down a little bit into your buckets here. Your multifamily book sitting at $579 million, huge growth in the quarter, 48% annualized. Was any of that purchased? Or was that your own team originating? And then same question on the CRE, huge growth in that 52% annualized, same thing. Was that -- are you participating in that? Or how are you getting that booked? What is that?

So in the multifamily space, all originations are from our team. They've been working really hard and crushing it 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.

Okay. And are you adding within the categories of office? Or can you just remind us where you guys sit in terms of office today? I know, I mean, I know you said de minimis exposure previously and sort of the hotter categories of hotel, restaurant, retail, and office. But to note if -- are you starting to add in any of those hotter higher categories? Or what's in that 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 were very comfortable with.

Okay, okay. And then just switching over to the income statement. Net interest margin, obviously, very, 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 business. 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. Love ssing the buyback. I’ll leave it there. Thanks for taking my questions.

Thanks for your time today. I appreciate, Laurie advice for the questions.

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Thank you, operator. 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.