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DATE
Wednesday, July 30, 2025 at 12:00 a.m. ET
CALL PARTICIPANTS
President & Chief Executive Officer — James Nesci
Chief Financial Officer — Kelly Pecoraro
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TAKEAWAYS
Net Loss—$2 million, or 10¢ per diluted share, representing a $735,000 improvement from the prior quarter.
Net Interest Income—Increased by $896,000, or 8.3%, driven by a 12 basis point expansion in net interest margin.
Loan Growth—Gross loans rose by $47.4 million, with approximately 3% growth, including a $22 million increase in commercial and industrial loans and a $12 million increase in construction loans year to date.
Core Deposit Growth—Core deposits expanded by nearly 4%, or $25.2 million, contributing to total deposit growth of $29.1 million; time deposits increased $3.9 million, offset by a $20 million increase in brokered deposits at lower rates.
Yield on Loans—Increased by eight basis points to 4.8%; yield on total interest-earning assets improved by seven basis points to 4.58%.
Cost of Deposits—Decreased by 13 basis points to 2.62%; cost of funds also fell 13 basis points to 2.72%.
Noninterest Expense—Declined by $90,000 from the prior quarter, primarily due to seasonal occupancy factors.
Provision for Credit Losses—$463,000 provision recorded, mainly for reserves on unfunded commitments scheduled to close.
Purchased Loan Activity—$45 million in credit-enhanced consumer loans and $19 million in residential loans were added to the balance sheet; consumer loans up by $76 million year to date through June 30, 2025.
Net Interest Margin Expansion—Net interest margin increased by 12 basis points, marking the third consecutive quarterly improvement.
Tangible Book Value Per Share—Rose by 6¢ to $14.87, up from the prior quarter.
Share Repurchases—406,000 shares repurchased at a weighted average price of $9.42, below tangible book value.
Capital Ratios—Tangible equity to tangible common assets at 15.1%, among the highest in the industry, according to management.
Asset Quality—Nonperforming assets and loans both increased by three basis points, reaching 30 basis points and 38 basis points of total assets and loans, respectively.
Allowance Coverage—Allowance for credit losses to total loans dropped one basis point; allowance to nonperforming loans fell to 211% from 230% sequentially.
Loan Pipeline—Letters of intent exceeded $40 million at quarter-end, mainly for commercial lending with anticipated yields above 7%.
Consumer Loan Strategy—CFO Pecoraro said, "We are comfortable going to about 7% to 8% of the loan portfolio over the next couple of quarters" for credit-enhanced consumer loans.
Expense Outlook—Noninterest expenses are expected to remain in the "mid to high $13 million range" over the next several quarters, with potential modest increases for variable compensation in the second half of the year.
Margin Guidance—CFO Pecoraro said, "We are only looking at a couple of basis point expansion probably in the third quarter," suggesting limited net interest margin expansion in the second half of 2025.
SUMMARY
Blue Foundry Bancorp(BLFY -1.13%) reported a sequential improvement in net loss and continued progress on strategic objectives, including portfolio diversification and disciplined capital management. Management emphasized the focus on higher-yielding asset classes, such as owner-occupied commercial real estate and credit-enhanced consumer loans, to drive returns and manage risk. Deposit growth was attributed to deepening commercial banking relationships and new product strategies in a competitive rate environment. Adjustments in deposit pricing, including the introduction of short-duration and eight-month CDs, were aimed at balancing funding cost and customer retention. Share repurchases were executed below tangible book value, and capital ratios remain among the highest in the industry. Asset quality metrics remain stable, with only modest increases in nonperforming assets and loans on a low base.
CFO Pecoraro detailed the future repricing schedule, noting approximately $75 million of loans set to reprice in 2026 at a current rate of 3.75% and $23 million scheduled to reprice in the remainder of 2025.
Purchased credit-enhanced consumer loans carry a 3% reserve, affecting allowance methodology.
CEO Nesci affirmed continued focus on operating efficiency, stating, "We are looking at everything. Constantly, especially expenses," and highlighted ongoing efforts to leverage technology and optimize staffing to control expenses.
Management highlighted strategic efforts to grow core deposits through comprehensive client relationship management, particularly within commercial banking.
INDUSTRY GLOSSARY
Core Deposits: Stable, non-brokered, typically lower-cost customer deposits considered more reliable during market disruptions.
Credit-Enhanced Consumer Loans: Consumer loans structured or purchased with additional protective features, such as third-party guarantees or reserves, to reduce loss risk.
Tangible Book Value: Book value of equity excluding intangible assets, frequently used to assess a financial institution's shareholder value and capital strength.
Full Conference Call Transcript
James Nesci: Thank you, Operator. And good morning, everyone. We appreciate you joining us for our second quarter earnings call. As always, I am joined by our Chief Financial Officer, Kelly Pecoraro, who will review our financial performance in detail following my update. Earlier today, we reported a net loss of $2 million or 10¢ per diluted share. We are pleased with the progress made toward our strategic objectives in the second quarter, and thus far in 2025. Despite the competitive environment, we are able to grow core deposits and the net interest margin for the third consecutive quarter.
This, coupled with our expense discipline of approximately $1 million versus last quarter, our strong capital liquidity position continues to support our transformation into a more commercially focused institution. This quarter's increase in core deposits reflects the deepening of our relationships with the businesses and communities we serve and marks continued progress. We achieved approximately 3% loan growth during the quarter while improving the yield on our loan portfolio by eight basis points. This was supported by $29 million in deposit growth, including an almost 4% increase in core deposits and a 13 basis point reduction in our cost of deposits. Together, these results contributed to a meaningful 12 basis point expansion in our net interest margin.
Loan production year to date totaled $180 million with $90 million produced during the second quarter at a weighted average yield of approximately 7%. Year to date, our diversification efforts have led to a $22 million increase in commercial and industrial loans, including owner-occupied commercial real estate. Additionally, construction loans increased $12 million while we thoughtfully decreased our multifamily portfolio by $37 million. We also saw a $76 million increase in consumer loans through June 30, primarily driven by purchases of credit-enhanced consumer loans at attractive yields. As we continue to execute our strategy of portfolio diversification, we remain focused on prioritizing asset classes that deliver higher yields and better risk-adjusted returns.
Growth in our owner-occupied commercial real estate and construction lending reflects our disciplined approach to supporting local businesses while managing credit exposure. Additionally, our investment in credit-enhanced consumer loans further enhances returns while maintaining a strong risk management framework. These portfolio shifts are aligned with our goal of driving earnings and long-term value creation. Our loan pipeline remains healthy, with executed letters of intent totaling more than $40 million at quarter-end, primarily in commercial lending with anticipated yields above 7%. We expect this momentum to continue in the coming quarters. Tangible book value per share increased to $14.87, up 6¢ from the prior quarter. We remain committed to enhancing shareholder value through disciplined capital management.
During the quarter, we repurchased 406,000 shares at a weighted average price of $9.42, a significant discount to our tangible book value and adjusted tangible book value. Both the bank and holding company remain well-capitalized, with tangible equity to tangible common assets among the highest in the industry at 15.1%. Our capital position and credit quality remain strong, and we are encouraged by the sustained momentum across both lending and deposit fronts. We believe these efforts will continue to support balance sheet and income growth in the coming quarters. With that, I will turn the call over to Kelly for a deeper look at our financials. After her remarks, we will be happy to answer your questions. Kelly?
Kelly Pecoraro: Thank you, James. And good morning, everyone. Net loss for the second quarter was $2 million. This is a $735,000 improvement to the prior quarter. We are encouraged by the positive momentum in net interest income, driven by unfunded loan commitments. Net interest income increased by $896,000 or 8.3%, driven by a 12 basis point expansion in our net interest margin. Interest income expanded $725,000, primarily due to loan growth. Interest expense declined by $101,000, reflecting lower deposit costs. The yield on loans increased by eight basis points to 4.8%, and the yield on total interest-earning assets improved by seven basis points to 4.58%. Our cost of funds declined by 13 basis points to 2.72%.
The cost of interest-bearing deposits decreased 13 basis points to 2.62%, and the cost of borrowings decreased nine basis points to 3.3%. Noninterest expense decreased by $90,000 compared to the prior quarter, driven primarily by seasonal occupancy expense. We are pleased that expenses have remained relatively stable over the past several quarters and continue to expect them to stay within the mid to high $13 million range. As we progress toward our growth targets and achieve corporate goals, we anticipate a modest increase in compensation expense in the second half of the year due to higher variable compensation costs.
For the quarter, we recorded a provision for credit losses of $463,000, primarily attributed to reserves required on unfunded commitments that are scheduled to close. As a reminder, in Q3, the majority of our allowance is derived from quantitative models, and our methodology continues to assign greater weight to the baseline and adverse economic scenario. From a balance sheet perspective, gross loans increased $47.4 million during the quarter. Organic growth was primarily in owner-occupied commercial real estate and construction. We also purchased $45 million in credit-enhanced consumer loans and $19 million in residential loans to support our residential portfolio. Our available-for-sale securities portfolio, with a duration of 4.1 years, declined by $2.4 million due to maturities, calls, and paydowns.
This was partially offset by purchases and a $1.7 million improvement in unrealized loss. Deposits increased $29.1 million or 2%. We experienced $25.2 million or approximately 4% growth in core deposit accounts. Importantly, growth in core deposits was fueled by full banking relationships with commercial customers, emphasizing our strategic focus on deepening client engagement in a competitive market. Time deposits increased $3.9 million as we strategically repriced promotional thinking and backfilled runoff with $20 million in broker deposits at lower rates. Borrowings increased slightly to help fund loan growth. Lastly, asset quality remains strong. Nonperforming assets increased due to a slight rise in nonaccrual loans.
Nonperforming assets to total assets picked up by three basis points, and nonperforming loans to total loans also ticked up by three basis points. Both remain low, at 30 basis points and 38 basis points, respectively. Allowance coverage decreased slightly, with the allowance for credit losses to total loans declining by one basis point, and the ratio of allowance for credit losses to nonperforming loans decreased from 230% to 211%. With that, James and I are happy to answer your questions.
Operator: Thank you very much. To ask a question, please ensure your device is unmuted locally. Our first question comes from Justin Crowley from Piper Sandler. Your line is open. Please go ahead.
Justin Crowley: Hey, good morning. Just wanted to start off on the margin and some of the drivers as you look ahead here. Can you quantify for us what loan repricing looks like through the back half of this year and then as you get into 2026? Just any detail on volume and then what the rate pickup looks like. I think you have mentioned previously that it is really next year when you see a lot of that multi-portfolio start to turn, but just wondering if you could put the numbers around that for us.
Kelly Pecoraro: Yeah. Sure. No problem, Justin. You are right. 2026 is really where we see a lot of the repricing taking place. In '26, we have about $75 million that is standing at a rate of about 3.75%. That is due to reprice not exactly equally during the year, but spread over the year in '26. For the remainder of '25, we have just about $23 million that is today at a rate of that is sitting at a rate of 75 that is going to reprice. Important to keep in mind throughout Q3 and Q4, we also have maturities that are coming in. Those maturities, the majority of them sit in the construction portfolio.
And there are current market rates while we have a nice pipeline of construction coming in, as you know, do not fund all upfront. So we will see a little lag in terms of the construction portfolio having maturities.
Justin Crowley: Okay. Got it. And then, I guess, on the CD side and maybe just assuming flat rates for a moment, through year-end. Who knows what we will get out of the Fed? But, you know, has the pricing opportunity there largely grown its course? And so would it really just take lower rates from here to see funding costs move appreciably lower? What is the thinking there?
Kelly Pecoraro: Well, from a CD perspective, we were keeping the book relatively short right around that three-month time frame. But we did introduce an eight-month CD that has extended that maturity. So we will not see that repricing of that book until January or February, as those CDs will mature.
James Nesci: Justin, I think there is also a market component to that question. It depends on what our competitors do in the marketplace. So we are obviously working through the market competition like everybody else, and we are keeping an eye on our deposit base and trying to make sure we produce products that our customers are interested in purchasing.
Justin Crowley: Okay. Helpful. And I guess just sort of putting it all together, obviously, a decent step up in the NIM through the first half of this year. Given kind of all the puts and takes, would you kind of expect expansion to be more limited through the back half of this year with 2026 really being when we start to see kind of more significant improvements in margin?
Kelly Pecoraro: Yeah. Justin, you have it absolutely right. We are only looking at a couple of basis point expansion probably in the third quarter. And then when we get to the fourth quarter, you know, that will depend upon pipeline and what is coming on and what happens in the market. But the expansion will be limited in the back half of the year.
Justin Crowley: Okay. I appreciate that. And then in terms of the consumer purchases, I know in the past, you said there is not necessarily a magic number in mind. But, you know, with the book at 5% of loans today, can you just give us a sense for thinking on adding to that portfolio from here, how that fits in?
Kelly Pecoraro: Yeah, Justin. So right. The it is right now, we are comfortable going to about 7% to 8% of the loan portfolio over the next couple of quarters.
Justin Crowley: Okay. And then can you just remind us that, you know, as far as the credit enhancements that come along with those, can you just boil down the exact structure of these credits and how much in the way of potential loss you are protected from?
Kelly Pecoraro: Right. So these come with a 3% reserve against these credits. So, you know, they do run through our normal allowance calculation. We look to see if there is any additional exposure there. But they are we have a 3% credit reserve against.
Justin Crowley: Okay. And then maybe just one last on a bigger picture question. You know, profitability is obviously still strained here, but at least moving closer to being in the black and, you know, it seems like, particularly next year, there are some margin tailwinds that will help over time. But, you know, is there anything else behind the scenes that you are looking into or weighing, whether that be from an expense standpoint? I know you gave guidance there. So either there or just wherever that could help accelerate that progress?
James Nesci: So what I would tell you is we are looking at everything. Constantly, especially expenses. And I noticed some of the early notes mentioned, you know, expense discipline. Kelly and I are very focused on looking for any dollars we can find. It is expensive to run a bank in today's age. It just takes people to run the bank. We have kept a close eye on our headcount. We have our people working as efficiently as we can. But with AI, we are always looking to gain new efficiencies. So those are the things that we are working through. What else can we do with fewer people and getting a greater output from our existing staff?
So those, I cannot give you a timing of when that happens, but I can tell you that is the type of stuff that we are constantly looking at.
Justin Crowley: Okay. Got it. Well, I appreciate everything. I will leave it there. Thanks so much.
James Nesci: Thanks, Justin.
Kelly Pecoraro: Thanks, Justin.
Operator: Our next question comes from David Conrad from KBW. Your line is open. Please go ahead.
David Conrad: Yes. Hey, good morning. Justin kind of went through the quarter pretty good there. So really just kind of have a very longer-term picture question. Kind of looking regarding, you know, the asset generation, but also kind of tied to the noninterest-bearing deposit levels. You know? I think it is kind of early days on C&I, but are you kind of thinking about, you know, how can we get that mix up and thinking about what type of assets you can generate maybe to grow the noninterest-bearing deposits?
James Nesci: Well, good morning, David. Thank you for joining our call today. Good morning. Yes. We are looking at it. The noninterest-bearing is obviously a key point for us to focus on. So we are not just looking at C&I. We are looking at our commercial real estate borrowers and we are trying to make sure that we get a full relationship from all borrowers, regardless of what asset class they may be borrowing in. And that has been working really well. We believe by providing good products to our customers, commercial or consumer, that we will get more of that core type deposit. And, again, it seems to be working. We are encouraged by that pathway.
And we will keep reaching out to our existing customers on the loan side to say, we really like your full banking relationship. So, yes, that is clearly part of the strategy, and we think it is working and will continue to work going forward.
David Conrad: Great. Perfect. Thank you.
Operator: We currently have no further questions. I would like to hand back to James Nesci for some closing remarks.
James Nesci: Thank you, Operator. I want to thank everybody who dialed in today to listen to the earnings call. Again, we are encouraged by the quarter and what we are starting to see, and it all stems from our dedicated employees out on the line working hard every single day. I want to acknowledge all of our customers and shareholders that have been with us. Some of you for a very long time have been shareholders that have stuck with us as we recreate our strategy and try to drive towards profitability. With that, I just want to say thanks again, and hope to speak with all of you again next quarter. Thank you.
Operator: This concludes today's call. We thank everyone for joining. You may now disconnect your lines.