Blue Foundry Bancorp

Good morning and welcome to the Blue Foundry Bancorp's first quarter 2025 earnings call. Comments made today 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. 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, Jem Nessie, to begin. Please go ahead, Jim.

Thank you, operator, and good morning, everyone. We appreciate you joining us for our first quarter earnings call. As always, I'm joined by our Chief Financial Officer, Kelly Pecoraro, who will review our financial performance in detail following my remarks. Our strategic priorities for 2025 remain focused on driving loan growth and higher yielding asset classes, maintaining strong credit quality, and continuing to grow and diversify low-cost funding sources. I am pleased to report that our first quarter results reflect solid progress on all fronts. We achieved 3% loan growth during the quarter, while improving the yield on our loan portfolio by 15 basis points. This was supported by $44 million in deposit growth, accompanied by a 14 basis point reduction in our cost of deposits. Together, these results contributed to a 27 basis point expansion in our net interest margin, an important milestone in our efforts to enhance earnings. While we reported a net loss for the quarter, we successfully increased tangible book value per share, supported by share repurchases and prudent capital management. Our capital and credit quality remains strong, and we are encouraged by the momentum in both our lending and deposit gathering activities. Low production totaled $90 million during the quarter at a weighted average yield of approximately 7.1%. This included $33 million in commercial real estate loans, primarily collateralized by owner-occupied properties, along with production of $9 million in residential mortgages and $7 million in construction loans. We also purchased $35 million in credit-enhanced consumer loans at attractive yields. As we continue to execute our strategy of portfolio diversification, we are deliberately emphasizing asset classes that deliver higher yields and better risk-adjusted returns. The growth in commercial real estate, particularly owner-occupied properties and construction lending, reflects our ability to support local businesses while managing credit exposure. Our investment in credit-enhanced consumer loans enables us to capture attractive returns while maintaining a strong risk management framework. These shifts in portfolio composition support our broader objective of enhancing earnings and bringing long-term franchise value. Our loan pipeline remains healthy with executed letters of intent totaling more than $40 million. primarily in commercial lending with anticipated yields above 7%. Tangible book value per share increased to $14.81, up 7 cents from the prior quarter. During the quarter, we repurchased 464,000 shares at a weighted average price of $9.52, a significant discount to tangible book value and adjusted tangible book value. These repurchases continue to enhance shareholder value. Both the bank and holding company remain well capitalized with tangible equity to tangible common assets at 15.6%, among the highest in the industry. Liquidity remains robust with $413 million in untapped borrowing capacity and an additional $208 million in liquidity from unencumbered Importantly, this liquidity position is 3.9 times greater than our uninsured and uncollateralized deposits, which represent just 11% of our total deposits, demonstrating our strong liquidity coverage and low concentration risk. With that, I'll turn the call over to Kelly for a deeper look at our financials. After her remarks, we'll be happy to take your questions. Kelly?

Thank you, Jim, and good morning, everyone. For the first quarter, we reported a net loss of $2.7 million, or 13 cents, per diluted share. While the bottom line result was similar to the prior quarter, we were encouraged by meaningful improvement in net interest income. This top line trend was offset by the increase in non-interest expense that we guided to last quarter, as well as a provision bill related to loan growth. Net interest income increased by $1.3 million, or 13.4%, driven by a 27 basis point expansion in our net interest margin. Interest income rose $928,000, primarily due to loan growth, while interest expense declined by $343,000, reflecting lower deposit costs that more than offsets the impact of 3% deposit growth. The yield on loans increased by 15 basis points to 4.72%, and the yield on total interest earning assets improved by 14 basis points to 4.51%. Our cost of funds declined by 8 basis points to 2.85%, The cost of interest-bearing deposits decreased 15 basis points to 2.75%, while the cost of borrowings rose 13 basis points to 3.39%. Non-interest expense increased by $748,000, driven by higher compensation and benefits. As discussed on our last call, this increase was expected and primarily reflects two factors. First, merit-based salary adjustments, which had last inflation in prior periods. And second, the reset of our variable compensation accruals. Last year's annual incentive compensation did not pay out of target as the company did not fully meet its performance target. For the first quarter, We accrued variable incentive compensation assuming target performance in line with our expectations to meet those goals this year. While we remain committed to expense discipline, we expect operating expenses to stay in the high 13 million to low $14 million range. We recorded a provision for credit losses of $201,000 for the quarter attributable to loan growth and shift in loan categories. The allowance for credit losses on off-balance sheet commitments and health and maturity securities declined slightly. As a reminder, the majority of our allowance is derived from quantitative models, and our methodology continues to assign greater weight to the baseline and adverse economic scenarios. Turning to the balance sheet, gross loans increased $42.2 million during the quarter, primarily in owner-occupied and non-owner-occupied commercial real estate, as well as construction loans. As Jim mentioned, we also purchased $35 million in credit-enhanced consumer loans and supplemented our residential production with $6.6 million in residential loan purchases. Our exposure to office space is limited, just 2% of the loan portfolio, and none of it is located in New York City. Our available for sale securities portfolio, which has a duration of 4.3 years, declined by $10.4 million due to maturities, calls, and pay down. This was partially offset by a $4.1 million improvement in unrealized losses. Deposits increased by $43.9 million, or 3.2%. We experienced $24.4 million, or 3.8% of growth in core deposit count. Importantly, growth in core deposits was fueled by full banking relationships with commercial customers. validating our strategic focus on deepening client engagement in a competitive market. Time deposits increased $19.6 million as we strategically repriced promotional CDs and backfilled runoff with $50 million in broker deposits at lower rates. Borrowings decreased slightly as loan growth was primarily funded through deposit growth. Lastly, asset quality remains strong. Non-performing assets increased by $619,000 due to a slight rise in non-accrual loans. Non-performing assets to total assets and non-performing loans to total loans each increased by two basis points, but remained low at 27 basis points and 35 basis points respectively. Allowance coverage decreased slightly with the allowance for credit losses to total loans declining by two basis points, the 81 basis points. And the ratio of allowance for credit losses to non-performing loans decreased from 254% to 230%. With that, Jim and I are happy to take your questions.