Blue Foundry BancorpBLFYNASDAQ
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Operator: 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-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 speaker's remarks, there will be a question-and-answer session. I will now hand over to President and CEO, Jim Nesci to begin.
James Nesci: 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 6 basis points. Capital remains strong, and we were able to increase tangible book 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 C&I offset by $66.8 million 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 prudent 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 about 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 6 basis points to 2.34%, supported by a 9 basis point increase in asset yields and a 4 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 remained 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 remain 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?
Kelly Pecoraro: Thank you, Jim, and good morning, everyone. As Jim mentioned, we reported a net loss of $1.9 million for the third quarter or $0.10 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 versus 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 grew to 4.67%, while the cost of average interest-bearing liabilities declined to 2.72%. These improvements contributed to a 6 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 count 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 1 basis point from the prior quarter, primarily reflecting changes in economic forecast. While charge-offs remain minimal at $25,000. Credit quality remained sound overall, and we continue to manage risk with discipline. During the quarter, a $5.3 million multifamily loan was added to nonperforming loans. Currently, we do not believe that there is a risk of loss of principles associated with this credit. Total nonperforming loans was $11.4 million or 66 basis points of total loans on September 30, 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. Our available for sale securities portfolio with a modified duration of approximately 3.9 years decreased by $10.3 million, primarily due to calls and maturities, partially offset by an improvement in the unrealized loss position. Deposits grew by $77.1 million with core deposits increasing by $18.6 million. Broker deposits increased $50 million, helping us manage funding costs and support loan growth. Borrowings decreased by $42 million as we allow them to roll off and replace them with broker deposits. With that, Jim and I, are happy to take your questions.
Operator: [Operator Instructions] Our first question comes from Justin Crowley from Piper Sandler.
Justin Crowley: I wanted to start off on the margin here. I saw continued progress with the lag from cuts we got last year. With the cuts that we got late this quarter, very likely another one today and more to follow. Can you talk a little bit about how you've already maybe responded on the deposit side? And just what your expectations are for matching the Fed as rates continue to come down?
Kelly Pecoraro: Yes, Justin. So as we look at where the market has been and the rate cuts, we did take advantage during the quarter of putting on another broker deposit. And while we're trying to manage funding costs with that, we were able to swap that and get that into 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, deemphasizing 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.
James Nesci: And to reinforce it a little -- you'll see more shift from the CD to the money market product at Blue Foundry.
Justin Crowley: Okay. Got it. And so I guess with the deemphasis of new CDs in terms of the back book and what kind of benefit you could get as stuff comes up for repricing. And I'm sure the book is relatively short. Can you quantify what that might look like over the coming quarters in terms of magnitude and yield pickup?
Kelly Pecoraro: As we're looking from a perspective of the customer deposits for the CDs, we do have durations out there of 5 months, some of our specials has been 5-month CD 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 booking from managing the core deposit component of that and lowering those rates as we move forward through the quarter.
James Nesci: Justin part of the cycle we've seen is as you get to year-end, the cost of deposit seems to tick up. So we try to position ourselves not to end at 12/31. 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.
Justin Crowley: Okay. And then so what would sort of be your near or medium-term expectations just for the margin? I think you've talked before about how multifamily repricing, 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 benefiting the margin in lieu of maybe deposit costs not coming down as quickly?
Kelly Pecoraro: Yes. 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 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 in the latter half, we have about another $35 million, $40 million. That's really [sub-3.75]. That will be repricing. So we really are looking for the 2026 pickup in net interest margin.
Justin Crowley: I know it's hard to say, but could that pick up in net interest margin next year, could it look like on a quarterly basis, what you got this quarter? Would your bias be towards greater expansion? How do you see that?
Kelly Pecoraro: Yes. 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.
Justin Crowley: Okay. And then on the commercial loan growth, I know it's just 1 quarter, but saw a net growth in multifamily for the first time in a little while and then some solid growth in CRE, including the owner occupied, you mentioned, Jim. Can you 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?
James Nesci: Yes. So obviously, we've tried to deemphasize 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 full relationship. So we get the deposit along with the asset. But that's where the team is focused right now. It's really on that business banking side or commercial assets that are really driving that business loan to go through.
Kelly Pecoraro: And just to reemphasize...
Justin Crowley: Okay...
Kelly Pecoraro: Sorry, Justin, just to reemphasize, the pipeline, as we discussed, we have over 41 million letters of intent out there with rates above 7%. In that bucket, there is less than $6 million of multifamily. So really deemphasizing that asset class. And as Jim said, it's really got to be relationship driven for us to be engaged in asset class.
Justin Crowley: Okay. And then just one last one quickly for me. On expenses, I'm not sure if I missed it. I'm not sure if you gave a guide for the fourth quarter or not. But between that and just as we look out to next year, and I guess, you'll see the normal merit increases, et cetera, again, between the fourth quarter, but '26 as well. What do you think is a reasonable level of expense growth to expect for the company?
Kelly Pecoraro: 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, as you noted, expenses were a little bit elevated some on the compensation front. And then also as we look at the professional services, there's all these 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 not really prepared at this time to give guidance on '26 as we're working through our initiatives and our strategic planning process.
Operator: Our next question comes from David Konrad from KBW.
David Konrad: Just a couple of 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 the -- still the range that you're thinking about for that portfolio?
Kelly Pecoraro: Yes, David.
David Konrad: Okay. And then capital remains really strong. You're trading below tangible book. So 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?
James Nesci: 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, Kelly...
Kelly Pecoraro: Yes. And I think as you look at we definitely believe the buybacks 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.
Operator: We currently have no further questions. So I'd like to hand back to Jim for some closing remarks.
James Nesci: Thank you. And thank you for the question, David. Appreciate it. I want to thank all of our shareholders, our employees for dialing in today and all of the communities that listen into our call. We appreciate it, and we look forward to speaking to you again soon in the next quarter. Thank you.
Operator: This concludes today's call. We thank everyone for joining. You may now disconnect your lines.