Blue Foundry (BLFY) Earnings Call Transcript

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DATE

Wednesday, October 29, 2025 at 11 a.m. ET

CALL PARTICIPANTS

President & Chief Executive Officer — James D. Nesci

Executive Vice President & Chief Financial Officer — Kelly Pecoraro

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RISKS

Nonperforming Loans — Total nonperforming loans rose to $11,400,000, or 0.66% of total loans, up from $6,300,000, or 0.38% at the end of the prior quarter, driven by the addition of a $5,300,000 multifamily credit added to nonperforming loans.

Provision for Credit Losses — Provision for credit loss increased to $589,000 for Q3 2025 primarily due to deterioration in economic forecasts, as highlighted by Pecoraro.

Noninterest Expense — Noninterest expense grew by $347,000, with higher compensation and professional services expenses noted as primary drivers, which management attributes to day count and varied project initiatives.

TAKEAWAYS

Net Loss -- Net loss was $1,900,000, or 10¢ per diluted share for Q3 2025, representing an improvement over the prior quarter.

Net Interest Income -- Net interest income increased by $551,000 sequentially to $12,200,000, attributable to an $693,000 gain in interest income (an 11.8% annualized increase) versus the prior quarter.

Net Interest Margin -- Net interest margin rose six basis points to 2.34%, reflecting a nine basis point rise in asset yields and a four basis point reduction in liability costs.

Deposits -- Deposits increased by $77,100,000, with $50,000,000 growth from brokered deposits and $18,600,000 from core deposits.

Loan Growth -- Loans grew $41,900,000, led by $7,200,000 in commercial segment growth and $38,000,000 growth in consumer loans (component figures clarifying total movement context).

Pipeline & Pricing -- The active loan pipeline includes more than $41,000,000 in executed letters of intent, primarily commercial, with anticipated rates above 7%.

Allowance for Credit Losses -- Allowance for credit losses stood at 0.81% of gross loans, up one basis point due to worsened economic forecasts.

Capital and Liquidity -- Tangible equity to tangible assets was 14.58% at the end of the quarter, borrowing capacity was $423,000,000 at the end of the quarter, and unencumbered securities totaled $178,000,000 at the end of the quarter.

Tangible Book Value -- Tangible book value per share increased to $15.14, with over 837,000 shares repurchased at an average of $9.09 per share.

Expense Outlook -- Pecoraro guided noninterest expenses for Q4 2025 to a high-$13 million to low-$14 million range, with no 2026 guidance due to ongoing strategic planning.

CRE & Multifamily Strategy -- Nesci stated, "tried to deemphasize the multifamily," noting future emphasis on commercial and industrial loans and core business relationships.

Funding Strategy -- Brokered deposit growth and a shift from CDs to money market accounts are being undertaken to manage funding costs and respond to rate cuts.

SUMMARY

Blue Foundry Bancorp (NASDAQ:BLFY) reported a sequentially reduced net loss for Q3 2025, supported by net interest margin improvement and higher net interest income versus the prior quarter. Led by increased brokered funding and consumer loan purchases, while commercial real estate loans, particularly owner-occupied, saw sustained origination activity. The company emphasized ongoing share repurchases below tangible book value, tangible book value per share increased to $15.14 compared to the prior quarter, and maintenance of strong capital ratios. Higher noninterest expense and a worsened economic outlook raised the provision for credit losses and increased nonperforming loans, with a notable rise in multifamily nonperformers. Management highlighted a strategic pivot toward commercial assets and business banking, continued reduction in CD reliance, and sees margin tailwinds from expected loan repricing and lower funding costs in 2026.

Kelly Pecoraro said brokered deposits and competitive pricing management helped reduce liability costs for the quarter.

Management confirmed the consumer loan book is anticipated to remain in the 7%-8% range of total loans.

There are 730,000 shares remaining under the current buyback authorization as of the end of the quarter.

James D. Nesci clarified this quarter's share repurchase volume included a specific transaction, not to be considered a future trend.

INDUSTRY GLOSSARY

Core Deposits: Stable customer deposits, excluding brokered and high-rate promotional funds, used to fund lending reliably.

Brokered Deposits: Funds brought in via third-party channels, often at higher rates or shorter terms, used for rapid liquidity access.

Net Interest Margin: The ratio of net interest income to average earning assets, measuring profitability of core banking operations.

Tangible Book Value Per Share: Equity less intangible assets divided by outstanding shares, indicating real liquid book value available to shareholders.

CRE: Commercial Real Estate; includes lending secured by income-producing properties or occupied by business owners.

Full Conference Call Transcript

James D. Nesci: Thank you, Operator. Good morning. 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 $1,900,000 and a quarterly pre-provision net loss of $1,300,000. 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 $77,100,000, loans grew by $41,900,000, and net interest margin expanded by six basis points. Capital remained 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 $7,200,000, reflecting strong origination activity of $81,300,000, including approximately $40,000,000 in owner-occupied CRE and CMS, offset by $66,800,000,000 in payoffs. Our consumer loan portfolio increased by $38,000,000 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 $41,000,000 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 liabilities. Net interest income was $12,200,000, 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 8,650,000 shares. Liquidity and capital remained strong. At the end of the third quarter, we had $423,000,000 in borrowing capacity and an additional $178,000,000 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, James. Good morning, everyone. As James mentioned, we reported a net loss of $1,900,000 for the third quarter, or 10¢ per diluted share. This compares favorably to the $2,000,000 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 the prior quarter to $12,200,000, 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.

Noninterest expense increased by $347,000, primarily due to higher compensation 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 one basis point from the prior quarter, primarily reflecting changes in economic forecasts. While charge-offs remained minimal, at $25,000, credit quality remains sound overall, and we continue to manage risk.

During the quarter, a $5,300,000 multifamily loan was added to nonperforming loans. Currently, we do not believe that there is a risk of loss of principal associated with this credit. Total nonperforming loans were $11,400,000, or 66 basis points of total loans on September 30, up from $6,300,000, 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 $41,900,000 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 $10,300,000, primarily due to calls and maturity, partially offset by an improvement in the unrealized loss position. Deposits grew by $77,100,000, with core deposits increasing by $18,600,000. Broker deposits increased by $50,000,000, helping us manage funding costs and support loan growth. Borrowings decreased by $42,000,000 as we allowed them to roll off and replace them with brokered deposits. With that, James and I are happy to take your questions.

Operator: Thank you very much. Our first question comes from Justin Frank Crowley from Piper Sandler. Your line is open, Justin. Please go ahead.

Justin Frank Crowley: Hey, good morning. Morning. I have to start off on the margin here. Saw continued progress with the lag cuts we got last year. With the cut 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 Match the Fed as rates continue to come down?

Kelly Pecoraro: Yes, Justin. Good morning. So, you know, as we look at where the market's been in 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're able to swap that and get that in at a lower rate. As you 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 are and what's going on.

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

Justin Frank Crowley: Okay. Got it. And so I guess with that 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, 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 yield pickup?

Kelly Pecoraro: You know, as we are looking from a perspective of the customer deposits for the CDs, we do have durations out there of five months. Some of our specialists have been five months. PD, 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 of that and lowering those rates as we move forward through the quarter.

James D. 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 Frank 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, 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: Yeah. I think as we look forward from a forecast perspective, we anticipate the fourth quarter to be relatively flat. Given where we are and that we do see that repricing activity pick up specifically in 2026. We have probably around $45,000,000 coming in that sub 4% from a repricing perspective, maturity, and repricing. And then the latter half, we have about another $35,000,000 to $40,000,000. That's really sub 3.75%. That will be repricing. So we really are looking for the 2026 pickup in net interest margin.

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

Kelly Pecoraro: I think it's gonna 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, we'll 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 Frank Crowley: 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 CRE, including the owner-occupied, you mentioned, James. 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 D. Nesci: Yeah. 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. 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, you know, the pipeline as we discussed, we have over $41,000,000 letters of intent out there. With the rates above 7%. In that bucket, there's less than $6,000,000 of multifamily. So really deemphasizing that asset class, and as James said, it's really got to be relationship-driven for us to be engaged in that class.

Justin Frank Crowley: Okay. 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 guidance 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, etcetera, you know, 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 the 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 on the compensation front. 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 not really prepared at this time to give guidance on 2026, as we're working through our initiatives and our strategic planning process.

Justin Frank Crowley: Okay. Got it. Very helpful. I will leave it there. Thanks so much.

Operator: Thank you. Our next question comes from David Joseph Konrad from KBW. Your line is open, David. Please go ahead.

David Joseph Konrad: Yes. Thank you. Good morning. 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 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?

Kelly Pecoraro: Yes, David.

David Joseph Konrad: Okay. And then, capital remains really strong. You're trading below tangible book. So real good buyback activity. It's just a pretty good run rate for us to think of, going forward? Or how do you think about the buyback?

James D. 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 gonna see us put up another number at that level. But you know, Kelly?

Kelly Pecoraro: Yeah. And I think if you look at, you know, we definitely believe the buyback has 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.

David Joseph Konrad: Okay. Thank you. Appreciate it.

Operator: We currently have no further questions. So I'd like to hand back to James for some closing remarks.

James D. Nesci: Thank you, and thank you for the question, David. Appreciate it. 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. Thank everyone for joining. You may now disconnect your lines.

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