Blue Foundry Bancorp

Good morning and welcome to the Blue Foundry Bancorp's third quarter 2025 earnings call. 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-gap 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 hand over to President and CEO Jim Nessie to begin.

Thank you, Operator. Good morning, and welcome to our third quarter earnings call. I'm joined today by our Chief Financial Officer, Kelly Pecoraro. She will provide a detailed financial review after I share updates on our strategy and recent progress. Earlier this morning, we reported a quarterly net loss of $1.9 million and a quarterly pre-provision net loss of $1.3 million. Both metrics have improved compared to the prior quarter. During the third quarter, we advanced our core objectives of growing core deposits, diversifying our loan portfolio to enhance risk-adjusted returns, and expanding our net interest margin. The progress against these strategic initiatives better positions us for continued growth and long-term value creation. Deposits increased by $77.1 million, loans grew by $41.9 million, and net interest margin expanded by six basis points. Capital remained strong, and we were able to increase tangible low value per share. Our loan growth was driven by continued expansion in our commercial real estate and consumer loan portfolios. Our commercial portfolio grew by $7.2 million, reflecting strong origination activity of $81.3 million, including approximately $40 million in owner-occupied CRE and CMS, offset by $66.8 billion in payoffs. Our consumer loan portfolio increased by $38 million in the third quarter, supported by purchases of unsecured consumer loans with credit reserves. This growth allows us to improve yields while maintaining crude credit risk. Our loan pipeline remains healthy with over $41 million in executed letters of intent, primarily in commercial lending, with anticipated weighted average rates above 7%. Year-to-date, our relationship-driven approach has enabled us to grow core deposits by over 10% and commercial deposits by over 17%. Our net interest margin expanded by six basis points to 2.34%, supported by a nine basis point increase in asset yields and a four basis point reduction in the cost of liability. Net interest income was $12.2 million, up $551,000 from the prior quarter. We remain focused on disciplined capital management and enhancing shareholder value. Tangible book value per share increased to $15.14 per share. During the quarter, we repurchased over 837,000 shares at a weighted average price of $9.09 per share, well below our tangible book value. Since instituting share repurchases, we have repurchased 8.65 million shares. Liquidity and capital remain strong. At the end of the third quarter, we had $423 million in borrowing capacity and an additional $178 million in unencumbered securities. Tangible equity to tangible assets stood at 14.58%, and we remained well capitalized with capital ratios among the highest in the industry. With robust capital, ample liquidity, and a focus on deepening commercial relationships, We believe Blue Foundry is positioned for continued growth. We expect downward rate movements, which will benefit our funding costs, and anticipated repricing in our loan portfolio to have a favorable impact on our net interest margin over time. With that, I'll turn the call over to Kelly for a deeper look at our financials. Kelly?

Thank you, Jim, and good morning, everyone. As Jim mentioned, we reported a net loss of $1.9 million for the third quarter, or 10 cents per diluted share. This compares favorably to the $2 million loss in the prior quarter. This improvement was driven by an increase in net interest income, partially offset by an increase in provision for credit losses and an increase in operating expenses. Net interest income increased by $551,000 first prior quarter to $12.2 million, driven by $693,000 of additional interest income, representing an 11.8% annualized increase. The yield on average interest earning assets rose to 4.67% while the cost of average interest-bearing liabilities declined to 2.72%. These improvements contributed to a six basis point expansion in our net interest margin. Non-interest expense increased by $347,000, primarily due to higher compensation and benefit expense and higher professional services expenses. The increase in compensation and benefits is due to day counts and the prior quarter having higher forfeitures of equity grants. We recorded a provision for credit loss of $589,000, primarily driven by deterioration in economic forecasts. Our allowance methodology continues to place greater weight on baseline and adverse economic scenarios. The allowance for credit loss was 0.81% of gross loans, up one basis point from the prior quarter, primarily reflecting changes in economic forecasts, while charge-offs remained minimal at $25,000. Credit quality remained sound overall, and we continued to manage risk with discipline. During the quarter, a $5.3 million multifamily loan was added to non-performing loans. Currently, we do not believe that there is a risk of loss of principles associated with this credit. Total non-performing loans was $11.4 million, or 66 basis points of total loans on September 30th, up from $6.3 million, or 38 basis points, at the prior quarter end, reflecting the increase in nonperforming loans. Moving on to the balance sheet, we saw total loan growth of $41.9 million for the quarter. We continue to focus on optimizing our portfolio composition, and we are encouraged by the growth in owner-occupied commercial real estate and commercial and industrial loans this quarter. are available for sale securities portfolio with a modified duration of approximately 3.9 years decreased by $10.3 million, primarily due to calls and maturity partially offset by an improvement in the unrealized loss position. Deposits grew by $77.1 million with core deposits increasing by $18.6 million. Brokered deposits increased $50 million, helping us manage funding costs and support loan growth. Borrowings decreased by $42 million as we allowed them to roll off and replace them with brokered deposits. With that, Jim and I are happy to take your questions.

Thank you very much. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. In preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Justin Crowley from Piper Sandler. Your line is open, Justin. Please go ahead.

Hey, good morning. Good morning. I have to start off I want to start off on the margin here. You know, saw continued progress with the lag from cuts we got last year. You know, with the cut that we got late this quarter, very likely another one today, and, you know, more to follow. Can you talk a little bit about how you've already maybe responded on the deposit side and, you know, just what your expectations are for matching the Fed as rates continue to come down?

Yes, Justin. Good morning. You know, as we look at where the market's been and the rate cuts, we did take advantage during the quarter of putting on another brokerage deposit. And while we're trying to manage funding costs with that, we were able to swap that and get that in at a lower rate. As we look at customer deposits as we move forward, a lot in our market is dependent upon competition. We've actively worked with our customers on core deposit growth. de-emphasizing CDs from a customer perspective. And we continue to look at lowering those costs that we are paying on deposits. But again, being responsive to market and looking to see where our customers are and what's going on.

To reinforce it a little bit, I think you'll see more shift from the CD to the money market product at Blue Boundaries.

Okay, got it. And so I guess with that, the emphasis of new CDs, in terms of the back book and, you know, what kind of benefit you could get as stuff comes up for repricing, and, you know, I'm sure the book's relatively short, can you quantify what that might look like over the coming quarters in terms of magnitude and, you know, yield pickup?

You know, as we're looking from a perspective of the customer deposits for the CDs, we do have – you know, durations out there of five months, some birth specials have been five months to shorten that life of the CD. So we don't necessarily anticipate a tremendous pickup in Q4 with any rate movement as those will be rolling off a little bit later, probably in January, February, we see more of the roll off of those. So we see benefit in 2026 from that. Again, we'll be looking from managing the core deposit component of that and lowering those rates as we move forward through the quarter.

Justin, part of the cycle we've seen is as you get to year end, the cost of deposits seems to tick up. So we try to position ourselves not to end at 1231. Obviously, we prefer to have some of that duration go out to January, February to reposition as opposed to just kind of stop at year end.

Okay. And then, so what would sort of be your near or medium term expectations just for the margin? You know, I think you've talked before about how multifamily repricing, you know, how that really starts to become more of a tailwind next year. Can you remind us what that looks like in terms of magnitude, yield pickup, and then just anything else on the asset side and how that could inform, you know, benefiting the margin in lieu of maybe deposit costs not coming down as quickly?

Yeah, I think as we look forward from a forecast perspective, we anticipate fourth quarter to be relatively flat, given where we are, and that we do see that repricing activity pick up, specifically the first half of 26. We have probably around $45 million coming in. That's sub-4% from a repricing perspective, maturity and repricing. And then the latter half, we have about another 35, 40 million that's really sub 375 that will be repricing. So we really are looking for the 2026 pickup in net interest margin.

I know it's hard to say, but could that pick up in net interest margin next year? You know, could it look like on a quarterly basis what you got this quarter? Would your bias be towards, you know, greater How do you see that?

I think it's going to be a combination, Justin, right? So while we have repricing, we also have new products or new production that we're looking to put on. So depending upon what the market does and how we're able to execute will really drive that. So it's hard to say exactly where as we're going through our strategic planning now and looking at our initiatives.

Okay. And then, you know, on the commercial loan growth, you know, I know it's just one quarter, you know, but saw net growth in multifamily for the first time in a little while, and then some solid growth in Cree, including the owner-occupied you mentioned, Jim. I mean, talk a little on opportunities you're seeing there, how the pipeline looks, which I might have missed that, and just how you expect that could trend as rates continue to come down.

Yeah, so obviously we've tried to de-emphasize the multifamily When we do multifamily, while we're adding multifamily assets, they're usually pretty strategic. Working with borrowers that we've worked with before, coupons are attractive to us. So again, I think you'll see us back off of the multifamily a little bit, unless there's a strategic reason. The C&I is where we try to focus, pulling in the it's really on that business banking side or commercial assets that are really driving that business loan to go through.

And just to re-emphasize, sorry, Justin, just to re-emphasize, you know, the pipeline, as we discussed, we have over 41 million letters of intent out there with rates above 7%. In that, in that, there's less than 6 million of multifamily. So really de-emphasizing that asset class. And as Jim said, it's really got to be relationship driven for us to be engaged in asset class.

Okay. And then just one last one quickly for me, you know, on expenses, I'm not sure if I missed it. I'm not sure if you gave guide for the fourth quarter or not, but between that and just as we look out to next year and, you know, I guess you'll see the normal merit increases, et cetera, you know,

again between the fourth quarter but you know 26 as well what do you think is a reasonable level of expense growth uh to expect for for the company so i think at this point for fourth quarter as we look we're going to be in that high 13 low 14 range again you know as you noted expenses were a little bit elevated some on the compensation front um And then also, as we look at the professional services, there's always initiatives that we're doing here. So those don't come in smooth over a time period. It all depends on what we're doing at the institution. And we are, you know, not really prepared at this time to give guidance on 26 as we're working through our initiatives and our strategic planning process.

Okay, got it. Very helpful. I will leave it there. Thanks so much.

Thank you.

Our next question comes from David Conrad from KBW. Your line is open, David. Please go ahead.

Yes, thank you. Good morning. Just a couple quick questions. One on the follow-up, just on the loan growth outlook. You did have some really good loan growth in the kind of the structured consumer loan book. I think you're around 7% of loans. Is 7% to 8% kind of still the range that you're thinking about for that portfolio?

Yes, David.

Okay. And then capital remains really strong. You're trading below tangible books. So, you know, real good buyback activity. Is this a pretty good run rate for us to think of going forward? Or how do you think about the buyback now?

We had a transaction that we called out in the quarter. So, I don't think that's a usable run rate. I don't think you're going to see us put up another number at that level. But, you know, Kelly?

Yeah, and I think as you look at, you know, we definitely believe the buyback could have been a very good use of capital as we're looking at our structure here. We did at the end of the quarter still have another 730,000 shares under our current plan to repurchase.

Okay, thank you. Appreciate it.

We currently have no further questions, so I'd like to hand back to Jim for some closing remarks.

Thank you, and thank you for the question, David. Appreciate it. I want to thank all of our shareholders, our employees, for signing in today, and all of the communities that listened in to our call. We appreciate it, and we look forward to speaking to you again soon in the next quarter. Thank you.

This concludes today's call. We thank everyone for joining. You may now disconnect your lines.