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 speakers remarks there will be a question-and-session. [Operator Instructions]. I will now turn the call over to your host, Jim Nesci. 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 swap program and a $5 million reduction in the wholesale deposits. Deposits within our resell 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 2 times higher than the regulatorily defined well-capitalized levels. Tangible equity to tangible common assets was 17.4% at December 31. We continue to execute on our share repurchase program. During the quarter, we…

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 slowing, 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, with 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 waiting on the baseline and adverse forecast. Nonperforming assets to total assets decreased 1 basis point to 32 basis points, primarily driven by a decline in nonaccrual loans. Our allowance to total loans increased 3 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 nonaccrual 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 8 basis points to 4.29% and yields on all interest-bearing assets increased by 9 basis points to 4.06%. Cost of funds…

Thank you. We will now start today’s Q&A session. [Operator Instructions] Our first question today comes from Justin Crowley from Piper Sandler. Your line is now open. Please go ahead.

Hey, good morning. Wanted to start off on the net interest margin. It seems like things are leveling off to a degree on the funding side. Curious if you could speak to that side of things and how we should be thinking about the NIM trajectory through at least the first half of the year? And then maybe just a little detail on how if and when we get rate cuts, how that plays into the margin as we head into the back half of 2024?

Yes. Great. Thanks, Justin. We worked through this quarter, as I said, with the slowdown in the contraction on the NIM. We do look for that trend to continue as we head into the first half of the year. We are mindful, though, that we do have a book of CDs that have some repricing that will come in the quarter. So after some cuts, we might see a slight uptick in the cost of CDs. But again, those are short maturity, about five months' maturity. So we look -- with rate cuts, we look to benefit from that if we're able to reset those lower.

Okay. And you're able to quantify just how much of those CDs are coming due?

So there is a weighted average maturity of five months, and it's about $460 million of retail CDs, which excluding brokerage.

Okay. Got it. And then just maybe more thematically, when we do get rate cuts, how quickly do you think you'll be able to move rates lower? I'm not sure if you have any embedded beta assumptions on the way down?

No. I think, Justin, it's going to be an interesting market. We will look to reduce those rates, of course, but we're mindful of the competition within our market and also the pressures from the national and regional players for that funding.

Okay. Got it. Appreciate that. And then just wondering if you could detail expense expectations a little further. I mean, that sub-$14 million you alluded to for the first quarter, what drives the pickup there? And what's the right way to think about growth through the duration of the year?

Yes. I think the primary driver for that pickup is in our compensation line item. As we talked about during this year, we had eliminated our variable compensation expense due to the current environment and where we were in aligning to our targets. So that came in at zero for 2023. As we head into 2024, we reset those variable comp plans. So that increase $1 million -- quite around $1 million of that is driven by the reset of those plans. Again, we reevaluate that on a quarterly basis. So we're baking in a full 100% achievement, but that gets adjusted as we go through the year and where we are in our targets.

Okay. I appreciate it. And then lastly for me on buybacks. I saw a nice pickup of activity in the quarter. How would you describe the appetite here, shares back around that $10 level, with what's left on the existing authorization? And then also just, Jim, alluding to your comments at the top, just leveraging capital through growing the balance sheet. How do you weigh those two against each other?

Good morning. What I think about is, what's the best opportunity for the bank and its capital. We're trading below tangible book value. We continue to believe in the buyback, and we'll continue to execute against the buyback. With that said, I think there's opportunity to make loans. We're looking to shift more into C&I, for instance, and we believe we can gain good return on our capital there as well. Kelly, I don't know if you want to add anything.

Yes. No, I think we are a firm believer in buybacks and continue to buy back what we can in the market.

Okay. And then just as far as the balance sheet, so is net growth a decent expectation maybe beyond sort of what you saw this year, some of the mix shift within the loan portfolio?

Yes. I think on both fronts, we will look to continue to shift. As Jim mentioned, into C&I, some higher-yielding assets, we are looking for growth probably in the mid-single digit at this point. But again, we will respond to the market and the availability to continue on our strategy.

Okay. Perfect. I will leave it there. Thanks so much for taking my questions.

Our next question today comes from Chris O'Connell. Your line is now open. Please go ahead. Chris O’Connell: Hey, good morning. Maybe just following back on the loan growth. How are the pipelines compared quarter-over-quarter? And what is like the blended origination yield that you guys are putting on?

So I think, at 12.31%, our pipeline was strong. We had about $25 million in our pipeline, $20 million of that in the C&I space, which we were pleased with. The yield on that is just around 8%, 8.2% on that pipeline. Chris O’Connell: Great. And so, for the mid-single-digit loan growth, are you expecting that to be more back weighted and for the pipeline to pick up over the course of the year?

I think as we look at it, having $25 million in our pipeline right now, we continue to respond to the market and what's available to meet the strategy of shifting to C&I. So if deals become available, we're actively looking at that. We are hoping to have the growth come in sooner as we benefit from that throughout the year, but we will be cautious in terms of extending our price. Chris O’Connell: Got it. And for the securities portfolio, I appreciate the color on the duration. For the next few quarters, do you think that you'll let that run off to the extent that you have stuff maturing? Or do you expect to keep it fairly stable from here?

I think there's a couple of opportunities in the marketplace with some higher-yielding securities as some of our securities roll off due to maturities. We are seeing some opportunities to reinvest at higher rates sort of letting the natural maturity to take place and then reinvesting as I said, in a higher interest rate. Chris O’Connell: Okay. Great. [Multiple Speakers] Sorry. Go ahead.

We look for opportunities and look for the highest and best use of the proceeds as they mature where we can put them into higher yielding, is it going to be securities? Or is it going to be loans. Chris O’Connell: Got it. And as far as gain on sale going forward, given the level of resi that you guys have been producing, I mean, do you expect that to tick down a little bit near term? Or do you think it could stay in a relatively similar range?

Well, I think we'll be in a similar range. The majority of that gain on sale was in the [FDA] (ph) product, not in the resi product. And as we look to the future, depending on what the markets do, we will look to be an active participant when the opportunity is present. Chris O’Connell: Great. And on the expenses for the sub-$14 million, just to start off the first quarter. I know you guys have been kind of looking for efficiencies and ways to help keep that relatively contained. How do you think overall expenses will play out over the course of the year? Do you think it will be fairly flattish from that sub-$14 million after the first quarter? Or...

Yes, Chris, we think that $14 million is probably or just below $14 million is a good run rate number from a fully baked in. We continue to look at our contracts, professional fees, where we're spending money and driving the institutions being efficient. Chris O’Connell: Okay. And then asset quality seems pretty stable, quiet this quarter. Anything that you guys are seeing within your portfolio that gives you any concern?

Not at this juncture. We keep coming through it. And so far, it's been very good. Nothing has popped up as of today, everything looks good. Chris O’Connell: Great. That’s all I had. Thanks for taking my questions.

Thank you.

Thanks, Chris.

That concludes the Q&A portion of today's call. I'd now like to turn the session back over to Jim Nesci for any closing remarks.

Thank you, operator, and I'd like to thank all of our shareholders and customers who have joined us today. I look forward to speaking with you again next quarter. Thanks, and have a great day.

That concludes today's Blue Foundry Bancorp Fourth Quarter and Year-End 2023 Earnings Call. You may now disconnect your line.