EDGAR 10-K Filing

Company CIK: 1846017
Filing Year: 2023
Filename: 1846017_10-K_2023_0001628280-23-009940.json

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ITEM 1. BUSINESS
Item 1. Business

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
At December 31, 2022, the Company and the Bank conducted business through 18 full-service branch offices, located in northern New Jersey, and the Company’s administrative offices located at 7 Sylvan Way, Parsippany, New Jersey. The Company’s principal executive office is located at 19 Park Avenue, Rutherford, New Jersey.
We own six properties and lease 12 properties at December 31, 2022. Three branches are expected to open in 2023, increasing the number of leased properties to 15. One owned branch office is expected to cease operations and the building sold during the second quarter of 2023, decreasing the properties owned to five. The aggregate net book value of premises and equipment was $29.8 million at December 31, 2022.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
Periodically, we are involved in claims and lawsuits, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. At December 31, 2022, we were not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company’s common stock is listed on the Nasdaq Global Select Market under the trading symbol “BLFY.” Trading in the Company’s common stock commenced on July 16, 2021. As of December 31, 2022, there were 1,254 stockholders of record. Certain shares of Blue Foundry Bancorp are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.
The Company has not declared any dividends to holders of its common stock and we do not currently anticipate paying dividends on our common stock in the near future. Our Board of Directors has the authority to declare dividends on our shares of common stock, and may determine to pay dividends in the future, subject to financial condition, results of operations, tax considerations, industry standards, economic conditions, statutory and regulatory requirements that affect the payment of dividends by the Bank to the Company, and other relevant factors. No assurances can be given that any cash dividends will be paid or that, if paid, will not be reduced or eliminated in the future.
Issuer Purchases of Equity Securities
The following table reports information regarding repurchases of our common stock during the quarter ended December 31, 2022 and the stock repurchase plans approved by our Board of Directors.
Period Total Number of Shares Purchased (1) Average Price paid Per Share As part of Publicly Announced Plans or Programs Yet to be Purchased Under the Plans or Programs (1)
October 223,436 $11.79 223,436 1,962,125
November 228,515 12.70 228,515 1,733,610
December 180,122 12.78 180,122 1,553,488
Total 632,073 12.40 632,073
(1) On July 20, 2022, the Company adopted a program to repurchase up to 2,852,250 shares, or 10%, of its outstanding common stock. This program has no expiration date and has 1,553,488 shares yet to be repurchased as of December 31, 2022.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section is intended to assist in the understanding of the financial performance of the Company and its subsidiary through a discussion of our financial condition as of December 31, 2022, and our results of operations for the years ended December 31, 2022 and 2021. This section should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements that appear at the end of this report.
COVID Update
The COVID-19 pandemic has had, and may continue to have, an adverse impact on the Company, its clients and the communities it serves. Given its dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business.
Business Strategy
The Company’s goal is to position ourselves to prosper in an evolving financial services landscape and enhance our position as one of the leading community banking institutions in our market. We intend to continue to provide a broad array of banking and other financial services to retail, commercial and small business customers while growing our presence in our markets and expanding our franchise. In recent years, we have focused on, and invested heavily in, our technology and infrastructure to improve our delivery channels and create competitive products and services, a strong workforce and an enhanced awareness of our banking brand in our market area.
As a result, we believe we are well positioned to capitalize on the opportunities available in our market by focusing on the following core strategies.
Repositioning our Business Mix: Focus on building commercial and small-business relationships. We focus on understanding our customers’ and potential customers’ financial needs and providing a wide variety of high-quality products and solutions through a collaborative approach that intends to create long-term relationships. Our goal is to continue to evolve from a traditional savings bank focusing on residential lending to a full-service commercial bank with an emphasis on providing products and services to commercial and small businesses in our market area. We believe pursuing this strategy will allow us to both grow and diversify our business mix while providing us with the best opportunities to drive strong financial returns. We intend to pursue these commercial relationships through the lending, retail branch, and the retail business development personnel that we have recruited and continue to recruit, who have the experience and relationships necessary to build this business as well as through cultural changes that have been made across the organization that emphasize our goal of pursuing this strategy. Further, our investment in technology is intended to facilitate the delivery of consumer and business solutions without the need for traditional sales channels.
We are approved by the SBA to provide loans under the 7(a) Loan Program, the SBA’s most common loan program. We believe providing 7(a) loans as well as traditional commercial and industrial loans and lines of credit will allow us to provide needed funding to our business communities, which will increase deposits. These borrowers often also keep deposits at their loan providers.
Growing our Business: Developing new customer relationships and deepening existing relationships. We seek to expand our market share in existing and contiguous markets by leveraging our distinctive brand and delivering high-quality solutions through a collaborative, relationship-based approach. Our relationship-based approach has enabled us to achieve disciplined organic growth, and we expect this trend to continue. Building our customer relationships around low and no cost products is part of our relationship expansion strategy. Our “Blue” products, including Blue Axis® Checking, Blue Axis Connect®, Blue Axis® Savings, Blue Axis Edge™ Savings, Blue Axis® Club Savings, Blue Carbon® Business Checking. Blue Carbon Edge™ Business Checking, Blue Carbon® Business Money Market, and Blue Carbon® Business Savings, are designed to be low cost to the consumer or business, while providing us with lower interest rate deposits. Our consumer deposit products are designed to be easy to open in person or online. Our commercial deposit products include many features without fees that would customarily be charged.
Leverage technology to enhance customer experience and drive operating efficiencies. We have made significant investments in our technology infrastructure to deliver high-quality, innovative products and services to our customers. For example, we continue to enhance our mobile banking platform for both consumer and commercial customers. New services, such as Early Pay, same day ACH, and “sweep” functionality, continue to be introduced to increase convenience and meet evolving customer financial needs. In addition, we have invested in our new commercial lending origination system and platform, and we intend to continue to improve our consumer lending origination platform. We are committed to continue investing in technology and data analytics. We believe these investments will differentiate us with our target customers, which will generate significant operating leverage as we grow.
Continuing to invest and optimize our facilities and expand our branch network through selective de novo branching. We have been enhancing and optimizing both our facilities and branch network. We have optimized our branch footprint though the utilization of a new forward-thinking branch model and intend to continue this strategy in 2023 to broaden our existing branch network by expanding into new markets and extending our geographic footprint. In 2022, we opened a new branch in Hoboken, continuing our strategy of operating in high density areas with vibrant commercial corridors and main streets. Additionally, we renovated three existing locations, modernizing their appearance and upgrading their functionalities. New branches feature modern design elements focused on open and efficient use of space.
Branch efficiency has been built into our locations. All branches currently employ new multifunction automated teller machines that are designed to be compatible with new services as they become available. Further, all branches utilize teller cash recycling machines to further enhance efficiency.
Pursue opportunistic acquisitions and partnerships. We intend to prudently pursue opportunities to acquire banks in our existing and contiguous markets that create attractive financial returns. Our focus will primarily be on franchises that enhance our funding profile, product capabilities or geographic density, while maintaining an acceptable risk profile. We believe the vital need to make increasingly significant technological investments has greatly amplified the importance of scale in banking. In addition, we believe that the current economic climate will increase the rate of consolidation in the banking industry. We will evaluate potential partnerships with FinTech companies or other fee income generating businesses that align with our business strategy and are consistent with our desire to stay ahead of technological developments that we believe will continue to cause the banking industry to evolve.
Critical Accounting Policies
Certain of our accounting policies are important to the presentation of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances that could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers. The Company has identified the allowance for loan losses and income taxes to be a critical accounting policy. These accounting policies and our significant accounting policies are discussed in detail in Note 1 to our Consolidated Financial Statements included in Part II, Item 8.
Comparison of Operating Results for the Years Ended December 31, 2022 and 2021
General. Net income was $2.4 million for the year ended December 31, 2022, compared to a net loss of $36.3 million for the year ended December 31, 2021. The increase was driven by an increase of $8.9 million in net interest income and by the absence in the 2022 period of non-recurring expenses incurred in 2021 consisting of the establishment of a $16.7 million valuation allowance on the Company’s deferred tax assets, an $11.2 million loss related to the withdrawal from the multi-employer defined-benefit pension plan, a $9.0 million contribution of cash and common stock of the Company to the Blue Foundry Charitable Foundation, and $2.2 million in debt extinguishment costs.
Interest Income. Interest income increased $6.4 million, or 11.3%, to $62.4 million for the year ended December 31, 2022 from $56.1 million for the year ended December 31, 2021. The increase was due to an increase of $3.6 million in interest income from loans and an increase of $2.9 million in interest income from cash and securities. The average balance of securities and loans increased $89.1 million and $132.6 million, respectively, while the average balance of cash decreased $267.8 million. Interest income and average balances of loans for the year ended December 31, 2022 as compared to the 2021 period increased due to growth in the multifamily and non-residential mortgage portfolios. The yield on average interest-earning assets increased 40 basis points to 3.28% for the year ended December 31, 2022 from 2.88% for the year ended December 31, 2021. PPP fees recognized in interest income totaled $568 thousand and $2.8 million for the years ended December 31, 2022 and 2021, respectively.
Interest Expense. Interest expense decreased $2.5 million, or 19.3%, to $10.6 million for the year ended December 31, 2022 compared to $13.1 million for the year ended December 31, 2021. The decrease in interest expense was driven by a decrease of $2.1 million in interest expense on deposits, coupled with a decrease of $388 thousand in interest expense on borrowings. The average balance of interest-bearing deposits and FHLB advances decreased $61.6 million and $45.4 million, respectively. A decrease of $197.4 million in the average balance of higher cost time deposits partially offset by an increase of $135.8 million in the average balance of interest-bearing core deposits (checking, savings and money market accounts) drove a 12 basis point decrease in the cost of total deposits and a 8 basis point decrease in the cost of funds. The cost of average interest-bearing liabilities decreased 12 basis points to 0.72% for the year ended December 31, 2022 from 0.84% for the year ended December 31, 2021.
Net Interest Income and Margin. For the year ended December 31, 2022 net interest income was $51.8 million, an increase of $8.9 million or 20.7%, compared to $42.9 million for same period in 2021.
Net interest margin for the year ended December 31, 2022 increased by 53 basis points to 2.73% from 2.20% for the year ended December 31, 2021. The yield on average interest earning assets increased by 40 basis points as cash was invested into higher yielding loans and securities during the year ended December 31, 2022 while the overall cost of average interest bearing liabilities decreased 12 basis points for the year ended December 31, 2022.
Provision for Loan Losses. Provisions for loan losses are charged to operations to establish an allowance for loan losses at a level necessary to absorb potential losses inherent in our loan portfolio that are both probable and reasonably estimable at the date of the consolidated financial statements. In evaluating the level of the allowance for loan losses, management analyzes several qualitative loan portfolio risk factors including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses.
After an evaluation of these factors, the Company recorded a release of provision for loan losses of $1.0 million for the year ended December 31, 2022 compared to a release of $2.5 million for the year ended December 31, 2021. The release for the year ended December 31, 2022 was primarily due to shifts in the loan portfolio driven
by declines in balances within the construction portfolio partially offset by growth in the multifamily and non-residential portfolios and a generally improving economic environment, as well as improved credit metrics and low net charge-offs.
2022 and 2021 saw continued strengthening of credit quality, as seen in the declining delinquency rates and balances of non-performing loans. Total non-performing loans decreased by $4.2 million to $7.8 million at December 31, 2022 compared to $12.0 million at December 31, 2021.
Non-interest Income. Non-interest income of $2.7 million for the year ended December 31, 2022 represented an increase of $184 thousand, or 7.4%, from $2.5 million for the year ended December 31, 2021. The fluctuations in non-interest income for the year ended December 31, 2022 were primarily related to loan prepayment fee activity. Prepayment fees increased $239 thousand to $982 thousand from $743 thousand for the year ended December 31, 2022. Additionally, fees earned from point of sale transactions totaled $502 thousand during the year ended December 31, 2022 compared to $476 thousand for the 2021 period, income from bank owned life insurance totaled $490 thousand during the year ended December 31, 2022 compared to $476 thousand for the 2021 period, and overdraft fees recognized during the year ended December 31, 2022 totaled $255 thousand compared to $234 thousand for the 2021 period. Beginning in November 2022, the Company ended its practice of charging overdraft fees to customers.
Non-interest Expense. Non-interest expense was $52.8 million, a decrease of $21.9 million driven by the absence in 2022 of non-recurring expenses of: a $11.2 million loss on pension withdrawal, a $9.0 million charitable contribution, and $2.2 million in debt extinguishment costs. Excluding these non-recurring items, non-interest expense increased $464 thousand. An increase of $3.5 million in compensation and benefits costs was driven by salary increases, hiring of additional staff, an increase in cash incentive compensation expense, and costs associated with equity grants made under the shareholder-approved equity incentive plan. In addition, the costs associated with being a public company increased $1.0 million in 2022. These increases were partially offset by a reduction of $1.3 million in advertising and $1.2 million in data processing, and a lower provision for commitments and letters of credit of $1.0 million.
Income Tax Expense. For the year ended December 31, 2022, the Company recorded income tax expense of $338 thousand compared to $9.6 million for the year ended December 31, 2021. The effective tax rate of 12.4% reflects the reversal of the valuation allowance from the usage of the federal and state net operating loss deferred tax assets to the extent permissible. The Company had previously established and continues to maintain a full valuation allowance on its deferred tax assets. Although the Company had a loss before income tax in the prior year, the tax expense recorded in that year reflects the impact of the initial recognition of the full valuation allowance on the Company’s deferred tax assets.
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the rates of interest earned on such assets and paid on such liabilities.
Average Balances and Yields. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Non-accrual loans are included in average balances only. Loan origination fees are included in interest income on loans and are not material.
Year Ended December 31,
2022 2021
Average Balance Interest Average
Yield/Cost Average Balance Interest Average
Yield/Cost
(Dollar in thousands)
Assets:
Loans (1) $ 1,407,502 $ 52,279 3.71 % $ 1,274,885 $ 48,719 3.82 %
Mortgage-backed securities 190,540 3,934 2.06 % 154,882 2,908 1.88 %
Other investment securities 203,002 4,820 2.37 % 147,853 3,237 2.19 %
FHLB stock 12,629 587 4.65 % 14,373 744 5.17 %
Cash and cash equivalents 88,703 793 0.89 % 356,458 445 0.12 %
Total interest earning assets 1,902,376 62,413 3.28 % 1,948,451 56,053 2.88 %
Non-interest earning assets 64,786 87,443
Total assets $ 1,967,162 $ 2,035,894
Liabilities and shareholders' equity:
NOW, savings, and money market deposits $ 812,473 2,959 0.36 % $ 676,697 1,091 0.16 %
Time deposits 412,734 2,779 0.67 % 610,092 6,793 1.11 %
Interest bearing deposits 1,225,207 5,738 0.47 % 1,286,789 7,884 0.61 %
FHLB advances 235,589 4,832 2.05 % 280,985 5,220 1.86 %
Total interest bearing liabilities 1,460,796 10,570 0.72 % 1,567,774 13,104 0.84 %
Non-interest bearing deposits 44,029 106,033
Non-interest bearing other 47,707 47,560
Total liabilities 1,552,532 1,721,367
Total shareholders' equity 414,630 314,527
Total liabilities and shareholders' equity $ 1,967,162 $ 2,035,894
Net interest income $ 51,843 $ 42,949
Net interest rate spread (2) 2.56 % 2.04 %
Net interest margin (3) 2.73 % 2.20 %
(1) Average loan balances are net of deferred loan fees and costs, premiums and discounts, and includes non-accrual loans.
(2) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average interest-earning assets.
Rate/Volume Table
The following table sets forth the effects of changing rates and volumes on net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments excluded from this table.
Years Ended December 31,
2022 vs. 2021
Increase (Decrease) Due to
Volume Rate Net
(In thousands)
Interest income:
Loans $ 5,068 $ (1,508) $ 3,560
Mortgage-backed securities 669 357 1,026
Other investment securities 1,207 376 1,583
FHLB stock (91) (66) (157)
Cash and cash equivalents (334) 682 348
Total interest-earning assets $ 6,519 $ (159) $ 6,360
Interest expense:
Deposits $ (1,977) $ (169) $ (2,146)
FHLB advances (843) 455 (388)
Total interest-bearing liabilities (2,820) 286 (2,534)
Net increase in net interest income $ 9,339 $ (445) $ 8,894
Comparison of Financial Condition at December 31, 2022 and December 31, 2021
Total Assets. Total assets increased $129.1 million to $2.04 billion at December 31, 2022 from $1.91 billion at December 31, 2021. During 2022, the Company utilized liquidity raised in the 2021 public offering to continue growing its balance sheet through loan production.
Cash and cash equivalents. Cash and cash equivalents decreased $152.3 million, or 78.7%, to $41.2 million at December 31, 2022 from $193.4 million at December 31, 2021. The decrease in cash and cash equivalents was due to the deployment of cash primarily into higher yielding loans and securities.
Securities Available-For-Sale. Securities available-for-sale decreased $10.6 million, or 3.3%, to $314.2 million at December 31, 2022 from $324.9 million at December 31, 2021. During the year ended December 31, 2022, purchases of securities were more than offset by the fair value decline in the portfolio, as well as amortization and calls. The rising rate environment in the second half of 2022 contributed to a $37.3 million decline in the net unrealized position of the portfolio. No securities were sold during the year ended December 31, 2022.
Securities Held-To-Maturity. Securities held-to-maturity increased $10.4 million, or 44.8%, to $33.7 million at December 31, 2022 from $23.3 million at December 31, 2021. The increase is due to purchases of corporate bonds in 2022.
Other investments. Other investments increased $5.9 million, or 57.8%, to $16.1 million at December 31, 2022 from $10.2 million at December 31, 2021. The increase is related to the purchases of Federal Home Loan Bank of New York stock made in conjunction with borrowings in the second half of 2022.
Gross Loans. Gross loans held for investment increased $261.1 million, or 20.37%, to $1.542 billion at December 31, 2022 from $1.281 billion at December 31, 2021. The most significant drivers were net increases in multifamily and non-residential loans. Multifamily loans increased $175.0 million, non-residential real estate loans increased $74.8 million, and residential loans increased $33.5 million. Originations totaled $488.2 million, including originations of $285.4 million in multifamily loans, $128.7 million in non-residential real estate loans, and $44.1 million in construction loans. In addition, $106.1 million of conforming residential mortgages in New Jersey were purchased during the period.
The following table presents loans allocated by loan category:
December 31, 2022 December 31, 2021
(In thousands)
Residential one-to-four family $ 594,521 $ 560,976
Multifamily 690,278 515,240
Non-residential 216,394 141,561
Construction and land 17,990 23,419
Junior liens 18,477 18,464
Commercial and industrial (1) 4,682 21,563
Consumer and other 38 87
Total gross loans 1,542,380 1,281,310
Deferred fees, costs and premiums and discounts, net 2,747 6,299
Total loans 1,545,127 1,287,609
Allowance for loan losses (13,400) (14,425)
Loans receivable, net $ 1,531,727 $ 1,273,184
(1) At December 31, 2022 and 2021, PPP loans totaled $477 thousand and $16.8 million, respectively, net of unearned deferred fees.
The table below presents the balance of non-performing assets on the dates indicated:
December 31, 2022 December 31, 2021
(In thousands)
Residential one-to-four family $ 7,498 $ 10,805
Multifamily 182 139
Non-residential - 857
Construction and land - -
Junior liens 52 182
Commercial and industrial (1) 35 -
Total $ 7,767 $ 11,983
Other real estate owned - -
Total non-performing assets $ 7,767 $ 11,983
(1) PPP loans 90 days past due and accruing totaled $61 thousand and $116 thousand at December 31, 2022 and 2021, respectively. These PPP loans were not reported in non-performing loans as they carry the federal guarantee of the SBA.
Other Assets. Other assets increased $13.6 million, or 158.0%, to $22.2 million at December 31, 2022 from $8.6 million at December 31, 2021. This increase was primarily driven by the increase in fair value of the Company’s interest rate swap agreements. See Note 10, Derivatives, of Notes to Consolidated Financial Statements in “Part II, Item 8 - Financial Statements.”
Total Deposits. Total deposits increased $41.8 million or 3.4% to $1.29 billion at December 31, 2022 compared to $1.25 billion at December 31, 2021 as the Company executed its strategy to allow high-cost time deposits to mature. Time deposits decreased $57.5 million, or 12.1%, to $416.3 million with a weighted average rate of 1.79% at December 31, 2022 from $473.8 million with a weighted average rate of 0.58% at December 31, 2021. The decrease in time deposits was partially offset by an increase in checking, savings, and money market accounts. These accounts increased $99.4 million, or 12.85%, to $872.6 million at December 31, 2022 from $773.2 million at December 31, 2021. This shift resulted in the ratio of core deposits to total deposits increasing from 62.0% at December 31, 2021 to 67.7% at December 31, 2022.
The following table presents the totals of deposit accounts by account type, at the dates shown below:
December 31, 2022 December 31, 2021
(In thousands)
Non-interest bearing deposits $ 37,907 $ 44,894
NOW and demand accounts (1)
410,937 363,419
Savings (1)
423,758 364,932
Time deposits 416,260 473,795
Total Deposits $ 1,288,862 $ 1,247,040
(1) Money market accounts are included within the NOW and demand accounts and Savings captions.
Borrowings. The Company had $310.5 million of borrowings at December 31, 2022, an increase of $125.0 million, or 67.4%, from $185.5 million at December 31, 2021. The increase is related to the execution of short-term borrowings during the second half of 2022 to support loan growth. Our borrowings consisted solely of Federal Home Loan Bank of New York advances. $109.0 million of which are associated with longer-dated swap agreements. See Note 10, Derivatives, of Notes to Consolidated Financial Statements in “Part II, Item 8 - Financial Statements.”
Total Shareholders’ Equity. Total shareholders’ equity decreased by $35.8 million, or 8.3%, to $393.7 million at December 31, 2022 compared to $429.5 million at December 31, 2021. The decrease was primarily driven by a $24.3 million reduction in accumulated other comprehensive income reflecting the net impact that the interest rate environment had on the Company’s available-for-sale securities and the swap agreements used in its cash flow hedges. The Company also repurchased 1,298,762 of its shares at a cost of $15.6 million. 299,481 of the shares repurchased were used to fund the shareholder-approved restricted stock grants. These decreases were partially offset by net income of $2.4 million.
Liquidity and Capital Resources
Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities, borrowings from the FHLB and securities sold under agreements to repurchase. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, calls of investment securities and borrowed funds and prepayments on loans are greatly influenced by general interest rates, economic conditions and competition. Additionally, deposit flows are impacted by general deposit behavior. Our primary use of funds is for the origination and purchase of loans and the purchase of securities.
Management regularly adjusts our investments in liquid assets based upon an assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our interest-rate risk and investment policies.
The Bank is subject to various regulatory capital requirements administered by the NJDOBI and the FDIC. At December 31, 2022, the Bank exceeded all applicable regulatory capital requirements, and was considered “well capitalized” under regulatory guidelines. See “Item 1. Business-Supervision and Regulation-Federal Banking Regulation-Capital Requirements” and Note 17 of the Notes to the Consolidated Financial Statements.
The Bank has entered into derivative financial instruments to reduce risk associated with interest rate volatility by matching repricing terms of assets and liabilities. These derivatives had an aggregate notional amount of $109.0 million as of December 31, 2022. See Note 10 of the Notes to the Consolidated Financial Statements.
At December 31, 2022, we had outstanding commitments to originate loans of $8.0 million and unused lines of credit of $80.0 million. We anticipate that we will have sufficient funds available to meet our current loan origination commitments. Certificates of deposit that are scheduled to mature in less than one year from December 31, 2022 totaled $294.9 million. Management expects, based on historical experience, that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. Available borrowing capacity at December 31, 2022 was $328.1 million with FHLB. We also had a $30.0 million available line of credit with a correspondent bank and a $2.5 million available line of credit with the Federal Reserve Bank of New York at December 31, 2022. Additionally, almost all of the Bank’s investment securities are unencumbered and could be used as collateral for additional borrowing capacity.
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to originate loans, unused lines of credit and standby letters of credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss is represented by the contractual amount of the instruments. We use the same credit policies in making commitments that we do for on-balance sheet instruments. Management believes that our current sources of liquidity are more than sufficient to fulfill our obligations as of December 31, 2022 pursuant to off-balance-sheet arrangements and contractual obligations.
Blue Foundry Bancorp is a separate legal entity from Blue Foundry Bank and must provide for its own liquidity to fund dividend payments, stock repurchases, and other corporate risk factors. The Company’s primary source of liquidity is issuance of stock and the receipt of dividend payments from the Bank in accordance with applicable regulatory requirements. At December 31, 2022, Blue Foundry Bancorp (unconsolidated) had liquid assets of $98.5 million.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Qualitative Analysis. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our ALCO/Investment Committee, which consists of members of management, is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our Board of Directors. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors.
We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk: growing target deposit accounts; utilizing our investment securities portfolio and interest rate swaps as part of our balance sheet asset and liability and interest rate risk management strategy to reduce the impact of movements in interest rates on net interest income and economic value of equity, which can create temporary valuation adjustments to equity in Accumulated Other Comprehensive Income; continuing the diversification of our loan portfolio by adding more commercial loans, which typically have shorter maturities and/or balloon payments.
By following these strategies, we believe that we are better positioned to react to increases and decreases in market interest rates.
Other than cash flow hedging on interest expense, we generally do not engage in hedging activities such as engaging in futures or options, or investing in high-risk mortgage derivatives such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.
The Bank has entered into derivative financial instruments to reduce risk associated with interest rate volatility by matching repricing terms of assets and and liabilities. These derivatives had an aggregate notional amount of $109.0 million as of December 31, 2022.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. Most tenors of LIBOR will cease being published on June 30, 2023, although some tenors ceased at the end of 2021. The Bank has not been materially impacted by the partial LIBOR cessations on December 31, 2021. The Alternative Reference Rates Committee has proposed that the Secured Overnight Financing Rate is the rate that represents best practice as the alternative to USD-LIBOR for use in financial contracts that are currently indexed to USD-LIBOR. The Company has approximately $11.1 million in loans, $24.6 million in investments and $109.0 million notional of derivatives which are indexed to USD-LIBOR for which it is monitoring the activity and assessing the related risks. The Company is monitoring and developing transition plans to address potential revisions to documentation, as well as customer management and communication, internal training, financial, operational and risk management implications, and legal and contract management. When LIBOR rates are no longer available and we are required to implement substitute indices for the calculation of interest rates, we may incur expenses in effecting the transition, we may suffer a loss in the conversion to a new rate because the new rate may not be equal to what we were being paid on the LIBOR rate, and may be subject to disputes or litigation with customers and security holders over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on our results of operations.
Quantitative Analysis. We compute amounts by which the net present value of our cash flow from assets, liabilities and off-balance sheet items would change in the event of a range of assumed changes in market interest rates. The net present value (“NPV”) analysis estimates the change in the NPV of assets and liabilities and off-
balance sheet contracts over a range of immediate rate shock interest rate scenarios. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 200 basis points in 100 basis point increments. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100-basis point increase in the “Basis Point Change in Interest Rates” column below.
The following table sets forth, at December 31, 2022, the calculation of the estimated changes to the Bank’s net interest income, at the Bank level, that would result from the specified immediate changes in the United States Treasury yield curve. For purposes of this table, 100 basis points equals 1%.
Net Interest Income
Change in Interest Rates (basis points) Amount Change Percent
(Dollars in Thousands)
+200 $ 55,277 (3,499) (6.0) %
+100 57,113 (1,663) (2.8)
0 58,776 - -
-100 59,223 447 0.8
-200 58,605 (171) (0.3)
The following table sets forth, at December 31, 2022, the calculation of the estimated changes in our NPV, at the Bank level, that would result from the specified immediate changes in the United States Treasury yield curve. For purposes of this table, 100 basis points equals 1%.
NPV
Change in Interest Rates (basis points) Estimated NPV Estimated Increase (Decrease) NPV as a Percent of Portfolio Value of Assets
Amount Percent NPV Ratio Change
(Dollars in thousands)
+200 $ 45,317 $ (84,778) (65.2) % 2.2 % (4.1)
+100 87,038 (43,057) (33.1) 4.3 (2.1)
0 130,095 - - 6.4 -
-100 169,745 39,650 30.5 8.3 1.9
-200 206,652 76,557 58.8 10.1 3.7
The table above indicates that at December 31, 2022, in the event of an instantaneous 100 basis point increase in interest rates, we would experience a 33% decrease in NPV. In the event of an instantaneous 100 basis point decrease in interest rates, we would experience a 30% increase in NPV.
Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The above tables assume that the composition of our interest sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular point in time, the data does not reflect any actions we may take in response to changes in interest rates. In addition, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our NPV and will differ from actual results.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following are included in this item:
A. Report of Independent Registered Public Accounting Firm
B. Consolidated Financial Statements:
(1) Consolidated Statements of Financial Condition as of December 31, 2022 and 2021
(2) Consolidated Statements of Operations for the years ended December 31, 2022 and 2021
(3) Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022 and 2021
(4) Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2022 and 2021
(5) Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021
(6) Notes to Consolidated Financial Statements
C. Blue Foundry Bancorp Condensed Financial Statements:
(1) Condensed Statements of Financial Condition as of December 31, 2022 and 2021
(2) Condensed Statements of Comprehensive Loss for the years ended December 31, 2022 and 2021
(3) Condensed Statements of Cash Flows for the years ended December 31, 2022 and 2021
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors
Blue Foundry Bancorp:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial condition of Blue Foundry Bancorp and subsidiary (the Company) as of December 31, 2022, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company's auditor since 2022.
Short Hills, New Jersey
March 30, 2023
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and the Board of Directors of Blue Foundry Bancorp
Rutherford, New Jersey
Opinion on the Financial Statements
We have audited the accompanying consolidated statement of financial condition of Blue Foundry Bancorp (the "Company") as of December 31, 2021, the related consolidated statement of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for the year then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Crowe LLP
New York, New York
March 14, 2022
BLUE FOUNDRY BANCORP
Consolidated Statements of Financial Condition
(In thousands, except share data)
December 31, 2022 December 31, 2021
ASSETS
Cash and cash equivalents
$ 41,182 $ 193,446
Securities available for sale, at fair value 314,248 324,892
Securities held to maturity (fair value of $29,115
at December 31, 2022 and $22,849 at December 31, 2021)
33,705 23,281
Other Investments 16,069 10,182
Loans receivable, net of allowance of $13,400 at December 31, 2022 and $14,425 at December 31, 2021
1,531,727 1,273,184
Interest and dividends receivable 6,893 5,372
Premises and equipment, net 29,825 28,126
Right-of-use assets 25,906 25,457
Bank owned life insurance 21,576 21,662
Other assets 22,207 8,609
Total assets $ 2,043,338 $ 1,914,211
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits $ 1,288,862 $ 1,247,040
Advances from the Federal Home Loan Bank 310,500 185,500
Advances by borrowers for taxes and insurance 9,302 9,582
Lease liabilities 27,324 26,696
Other liabilities 13,632 15,922
Total liabilities 1,649,620 1,484,740
Shareholders’ equity
Preferred stock, $0.01 par value, 10,000,000 authorized; none issued
- -
Common stock $0.01 par value; 70,000,000 shares authorized; 28,522,500 shares issued at December 31, 2022 and December 31, 2021; 27,523,219 and 28,522,500 shares outstanding at December 31, 2022 and December 31, 2021, respectively.
285 285
Additional paid-in capital 279,454 282,006
Retained earnings 171,763 169,457
Treasury Stock, at cost: 999,281 shares at December 31, 2022
(12,072) -
Unallocated common shares held by Employee Stock Ownership Plan (20,993) (21,905)
Accumulated other comprehensive loss (24,719) (372)
Total shareholders’ equity 393,718 429,471
Total liabilities and shareholders’ equity $ 2,043,338 $ 1,914,211
See accompanying notes to the consolidated financial statements.
BLUE FOUNDRY BANCORP
Consolidated Statements of Operations
(Dollars in thousands)
For the year ended December 31,
2022 2021
Interest income:
Loans $ 52,279 $ 48,719
Taxable investment income 9,678 6,821
Non-taxable investment income 456 513
Total interest income 62,413 56,053
Interest expense:
Deposits 5,738 7,884
Borrowed funds 4,832 5,220
Total interest expense 10,570 13,104
Net interest income 51,843 42,949
Release of provision for loan losses (1,001) (2,518)
Net interest income after release of provision for loan losses 52,844 45,467
Non-interest income:
Fees and service charges 2,156 1,975
Gain (loss) on securities, net 14 (1)
Other income 494 505
Total non-interest income 2,664 2,479
Non-interest expense:
Compensation and benefits 29,247 25,755
Loss on pension withdrawal - 11,206
Occupancy and equipment 7,625 7,929
Data processing 5,754 6,933
Debt extinguishment costs - 2,155
Advertising 1,061 2,390
Professional services 4,117 4,528
(Release of) provision for commitments and letters of credit (311) 689
Federal deposit insurance 381 494
Contribution to Blue Foundry Charitable Foundation - 9,000
Other expense 4,900 3,591
Total non-interest expense 52,774 74,670
Income (loss) before income tax expense 2,734 (26,724)
Income tax expense 338 9,618
Net income (loss) $ 2,396 $ (36,342)
Basic and diluted earnings (loss) per share $ 0.09 $ (2.99)
Weighted average shares outstanding-basic 26,165,841 12,171,050
Weighted average shares outstanding-diluted 26,270,864 12,171,050
See accompanying notes to the consolidated financial statements.
BLUE FOUNDRY BANCORP
Consolidated Statements of Comprehensive Loss
(In thousands)
Year Ended December 31,
2022 2021
Net income (loss) $ 2,396 $ (36,342)
Other comprehensive (loss) income, net of tax (1):
Unrealized loss on securities available for sale:
Unrealized loss arising during the period (37,260) (3,118)
Reclassification adjustment for (gain) loss included in net income (14) 1
(37,274) (3,117)
Unrealized gain on cash flow hedge:
Unrealized gain arising during the period 11,693 2,733
Reclassification adjustment for (gain) loss included in net income (356) 1,007
11,337 3,740
Post-Retirement plans:
Net benefit arising from plan amendment (2) 504 -
Net gain (loss) arising during the period 858 (115)
Reclassification adjustment for amortization of:
Net actuarial loss 228 151
1,590 36
Total other comprehensive (loss) income, net of tax (1): (24,347) 659
Comprehensive loss $ (21,951) $ (35,683)
(1) Includes a deferred tax valuation allowance equal to the net tax benefit.
(2) Benefit arising from plan amendment approved in June 2022
See accompanying notes to the consolidated financial statements.
BLUE FOUNDRY BANCORP
Consolidated Statements of Changes in Shareholders’ Equity
Year Ended December 31, 2022 and 2021
(In thousands, except share data)
Common
Stock Additional
Paid-In
Capital Retained
Earnings Treasury Stock Unallocated Common Stock Held by ESOP Accumulated
Other
Comprehensive
Income (Loss) Total
Shareholders’
Equity
Shares Par Value
(In thousands, except share data)
Balance at January 1, 2021 100,000 $ 10 $ 822 $ 205,799 $ - $ - $ (1,031) $ 205,600
Net loss - - - (36,342) - - - (36,342)
Other comprehensive income - - - - - - 659 659
Proceeds of stock offering and issuance of common shares (net of issuance costs of $4.8 million)
27,672,500 268 273,330 - - - - 273,598
Issuance of common shares donated to the Blue Foundry Charitable Foundation 750,000 7 7,493 - - - - 7,500
Purchase of common shares by the ESOP (2,281,800 shares)
- - - - - (22,818) (22,818)
ESOP shares committed to be released (91,272 hares)
- - 361 - - 913 - 1,274
Balance at December 31, 2021
28,522,500 $ 285 $ 282,006 $ 169,457 $ - $ (21,905) $ (372) $ 429,471
Net income - - - 2,396 - - - 2,396
Other comprehensive loss - - - - - - (24,347) (24,347)
Purchase of Treasury stock (1,298,762) - - - (15,618) - - (15,618)
Treasury stock allocated to restricted stock plan 299,481 - (3,456) (90) 3,546 - - -
Compensation cost for stock options and restricted stock - - 664 - - - - 664
ESOP shares committed to be released (91,272 shares)
- - 240 - - 912 - 1,152
Balance at December 31, 2022
27,523,219 $ 285 $ 279,454 $ 171,763 $ (12,072) $ (20,993) $ (24,719) $ 393,718
See accompanying notes to the consolidated financial statements.
BLUE FOUNDRY BANCORP
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2022 2021
Cash flows from operating activities
Net income (loss) $ 2,396 $ (36,342)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of premises and equipment 2,662 2,347
Change in right-of-use asset 2,550 2,618
(Accretion) amortization of:
Deferred loan fees, costs, premiums and discounts, net
(655) 1,107
Premiums and discounts on securities, net 1,065 893
Change in deferred taxes, net of valuation allowance - 8,733
Release of provision for loan losses (1,001) (2,518)
(Gain) loss on sales and calls of securities (14) 1
Increase in BOLI cash surrender value (490) (476)
Issuance of common shares donated to Blue Foundry Charitable Foundation - 7,500
ESOP and stock-based compensation expense 1,816 1,274
(Increase) decrease in interest and dividends receivable (1,521) 377
Increase in other assets (2,247) (1,945)
Decrease in other liabilities 590 4,325
Change in lease liability (2,372) (2,036)
Net cash provided by (used in) operating activities 2,779 (14,142)
Cash flows from investing activities
Net (originations) repayments of loans receivable (152,847) 86,975
Purchases of residential mortgage loans (104,040) (91,635)
Proceeds from sale of Real Estate Owned - 618
Purchases of securities available for sale (80,039) (164,958)
Purchases of securities held to maturity (10,600) (23,362)
Proceeds from calls of securities held to maturity - 7,000
Proceeds from sales and calls of securities available for sale 4,659 14,216
Principal payments and maturities on securities available for sale 47,875 65,002
Purchases of other investments (150) -
Purchase of Federal Home Loan Bank stock (30,863) -
Redemption of Federal Home Loan Bank stock 25,133 6,678
Proceeds from Assets held for sale - 6,034
Purchases of premises and equipment (5,364) (11,902)
Net cash used in investing activities (306,236) (105,334)
Cash flows from financing activities
Net change in deposits 41,822 (109,144)
Proceeds from advances from Federal Home Loan Bank 1,423,000 583,600
Repayments of advances from Federal Home Loan Bank (1,298,000) (727,500)
Net increase in advances by borrowers for taxes and insurance (280) (1,259)
Purchase of treasury stock (15,349) -
Net proceeds from issuance of common shares - 250,780
Net cash provided by (used in) financing activities 151,193 (3,523)
Net decrease in cash and cash equivalents (152,264) (122,999)
Cash and cash equivalents at beginning of period 193,446 316,445
Cash and cash equivalents at end of period $ 41,182 $ 193,446
BLUE FOUNDRY BANCORP
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2022 2021
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 10,714 $ 12,836
Income taxes 190 150
Supplemental noncash disclosures
Transfers of assets to held for sale $ 917 $ 892
Lease liabilities arising from obtaining right-of-use assets 2,999 3,197
Purchase of common shares by the ESOP - 22,818
See accompanying notes to the consolidated financial statements.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Blue Foundry Bancorp (the “Company”), and its wholly owned subsidiary, Blue Foundry Bank (the “Bank”), and the Bank’s wholly owned subsidiaries, Blue Foundry Service Corp., Rutherford Center Development Corp., Blue Foundry Investment Company (collectively, the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. Blue Foundry Bancorp owns 100% of the common stock of Blue Foundry Bank.
Business
The Company provides a wide range of banking services to individual and business customers through branch offices in New Jersey. The Company is subject to competition from other financial institutions and to the regulations of certain federal and state agencies, and undergoes periodic examinations by those regulatory authorities.
On July 15, 2021, the Company became the holding company for the Bank when Blue Foundry, MHC completed its conversion into the stock holding company form of organization. In connection with the conversion, the Company sold 27,772,500 shares of common stock at a price of $10 per share, for gross proceeds of $277.7 million. The Company contributed 750,000 shares of common stock and $1.5 million in cash to Blue Foundry Charitable Foundation, Inc. and established an Employee Stock Ownership Plan (“ESOP”) acquiring 2,281,800 shares of common stock. Shares of the Company’s common stock began trading on July 16, 2021 on the Nasdaq Global Select Market under the trading symbol “BLFY.”
Basis of Financial Statement Presentation
The consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles. The audited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of financial condition and revenues and expenses for the period. Actual results could differ from those estimates. Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity. The results of operations and other data presented for the year ended December 31, 2022 are not necessarily indicative of the results of operations that may be expected for subsequent periods.
Cash and Cash Equivalents
Cash and cash equivalents include cash and deposits with other financial institutions with maturities fewer than 90 days.
Securities
Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities to be held for indefinite periods of time and not intended to be held to maturity are classified as available for sale and carried at fair value. Unrealized holding gains and losses on securities available for sale are excluded from earnings with unrealized holding gains and losses reported in other comprehensive income, net of tax adjusted for deferred tax valuation allowances, until realized. Securities available for sale are those which management intends to use as part of its asset/liability management strategy and which may be sold in response to changes in interest rates, resultant prepayment risk and other factors related to interest rate risk. Gains and losses on sales are recognized on a trade-date basis using the specific identification method.
Premiums on securities are amortized to income using the level yield method over the remaining period to the earliest call date or contractual maturity, adjusted for anticipated prepayments. Discounts on securities are accreted to income over the remaining period to the contractual maturity, adjusted for anticipated prepayments. Interest income is recognized on an accrual basis.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Management evaluates securities for other-than-temporary impairment (“OTTI”) on, at least, a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For debt securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.
Derivatives
The Company uses derivative financial instruments as components of its market risk management, principally to manage interest rate risk. At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company’s intentions and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. For both types of hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income. As of December 31, 2022, and December 31, 2021 the Company’s derivatives are all cash flow hedges.
Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.
The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to a specific firm commitments or forecasted transactions.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings.
The Company is exposed to losses if a counterparty fails to make its payments under a contract in which the Company is in the net receiving position. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements. All the contracts to which the Company is a party settle monthly or quarterly. In addition, the Company obtains collateral above certain thresholds of the fair value of its hedges for each counterparty based upon their credit standing and the Company has netting agreements with the dealers with which it does business.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Fair Value of Financial Instruments
GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Other Investments
Other investments consists primarily of membership and activity-based shares in the FHLBNY. Members are required to own a certain amount of stock based on the level of borrowings and other factors. FHLBNY stock is carried at cost, which approximates fair value, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. Other investments also consists of, to a much lesser extent, an investment in a financial technology fund carried at net asset value (“NAV”) and shares in a cooperative that provides community banking core technology solutions carried at cost. The fair value of the financial technology fund investment is estimated using the NAV of the Company’s ownership interest in partners’ capital, which approximates fair value. Increases or decreases in NAV are recorded in other income.
Loans Receivable
Loans receivable are stated at unpaid principal balance, net of deferred fees, costs, and discounts, and the allowance for loan losses. Interest on loans is recognized based upon the principal amount outstanding. Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized in interest income using the level yield method over the contractual life of the individual loans, adjusted for actual prepayments.
For all loan classes, the accrual of income on loans, including impaired loans, is generally discontinued when a loan becomes 90 days delinquent or when certain factors indicate reasonable doubt as to the ability of the borrower to meet contractual principal and/or interest obligations. Loans on which the accrual of income has been discontinued are designated as nonaccrual loans. All previously accrued interest is reversed and income is recognized subsequently only in the period received, provided the remaining principal balance is deemed collectible. A nonaccrual loan is not returned to an accrual status until principal and interest payments are brought current and factors indicating doubtful collection no longer exist.
Principal and interest payments received on non-accrual loans for which the remaining principal balance is not deemed collectible are applied as a reduction to principal and interest income is not recognized. If the principal balance on the loan is later deemed collectible and the loan is returned to accrual status, any interest payments that were applied to principal while on non-accrual are recorded as an unearned discount on the loan, classified as deferred fees, costs and discounts, and are recognized into interest income using the level-yield method over the remaining contractual life of the individual loan, adjusted for actual prepayments.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance for probable and reasonably estimable incurred credit losses in the loan portfolio as of the balance sheet date. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required for all portfolio segments using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.
The allowance consists of specific and general components. The specific component of the allowance relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession and for which the
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDR”) and classified as impaired.
Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.
Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance (generally $400,000 or less) homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment. Impaired loans also include all nonaccrual non-residential, multifamily and construction and land loans, and troubled debt restructurings.
Troubled debt restructured loans are those loans whose terms have been modified such that a concession has been granted because of deterioration in the financial condition of the borrower. Modifications could include extension of the terms of the loan, reduced interest rates, and forgiveness of accrued interest and/or principal. Once an obligation has been classified a troubled debt restructuring, it continues to be considered a troubled debt restructuring and is individually evaluated for impairment until paid in full. For a cash flow dependent loan, the Company records an impairment charge equal to the difference between the present value of the estimated future cash flows under the restructured terms discounted at the loans original effective interest rate, and the original loan’s carrying amount. For a collateral dependent loan, the Company records an impairment when the current estimated fair value of the property, net of estimated selling costs, that collateralizes the impaired loan is less than the recorded investment in the loan.
The general component of the allowance covers non impaired loans and is based on historical loss experience adjusted for current qualitative factors. The historical loss experience is a quantitative factor determined by portfolio segment and is based on the actual loss history experienced by the Company. The qualitative factors include consideration of the following:
•Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.
•Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments.
•Changes in the nature and volume of the portfolio and in the terms of loans.
•Changes in the experience, ability, and depth of lending management and other relevant staff.
•Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans.
•Changes in the quality of the institution's loan review system.
•Changes in the value of underlying collateral for collateral-dependent loans.
•The existence and effect of any concentrations of credit, and changes in the level of such concentrations.
•The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution's existing portfolio.
The loan portfolio is categorized according to collateral type, loan purpose, lien position, or borrower type (i.e., commercial, consumer). The categories used include residential one-to-four family, multifamily, non-residential, construction and land, junior liens, commercial and industrial, and consumer and other.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Premises and Equipment
Premises and equipment, including leasehold improvements, are generally stated at cost less accumulated depreciation, amortization and fair value adjustments. Depreciation and amortization is computed primarily using the straight-line method over the estimated useful lives of the assets or leases. Repair and maintenance items are expensed and major improvements are capitalized. Upon retirement or sale, any gain or loss is credited or charged to operations. Construction in process represents costs incurred to develop properties for future use.
Leases and Lease Obligations
The Company enters into leases in the normal course of business primarily for financial centers, administrative and office operations locations, and information technology equipment. The Company’s leases have remaining terms ranging from less than one to 15 years, some of which include renewal or termination options to extend the lease for up to 10 years. The Company’s leases do not include residual value guarantees or covenants. The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to account for any non-lease components in its real estate leases as part of the associated lease component. The Company has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company’s balance sheet.
Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets (“ROU”) and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.
The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments when the rate implicit in a lease is not known. The Company’s incremental borrowing rate is based on the FHLB advance rate, adjusted for the lease term and other factors.
Bank Owned Life Insurance
The Company has purchased life insurance policies on certain key individuals. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.
Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The Company evaluates the realizability of deferred tax assets at least annually in accordance with ASC 740-10-30-5(e), and may determine that it is more-likely-than-not that a portion, or all, of the assets would require a valuation allowance. During the fourth quarter of 2021, the Company recorded a valuation allowance on all outstanding deferred tax assets in the amount of $16.8 million.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced by a valuation allowance for the amount of the deferred tax asset that is more likely than not to be realized.
A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
The Company recognizes interest and/or penalties related to income tax matters in other operating expenses.
Retirement Benefits
Effective January 1, 2020 the Defined Benefit Plan adopted by the Company was amended to freeze the plan, eliminating all future benefit accruals. In August, 2021, the Company announced its intent to withdraw from the DB Plan, effective September 30, 2021. The withdrawal was completed on December 1, 2021. The Company recorded a termination expense of $11.2 million.
The Company provides certain healthcare benefits, subject to certain limitations, to eligible retirees, based upon years of service and a retirement date prior to January 1, 2019. The Company also provides supplemental retirement benefits to certain directors. The Company measures the cost of these benefits based upon various estimates and assumptions. Costs are recognized as directors render service.
Employee Stock Ownership Plan
The cost of shares issued to the ESOP, but not yet allocated to participants, is shown as a reduction of shareholders’ equity. Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares reduce the ESOP’s debt and accrued interest.
Share Based Compensation
The Company maintains an equity incentive plan under which restricted stock and stock options may be granted to employees and directors.
The Company recognizes the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards in accordance with ASC 718, “Compensation-Stock Compensation”. The Company estimates the per share fair value of option grants on the date of grant using the Black-Scholes option pricing model using assumptions for the expected dividend yield, expected stock price volatility, risk-free interest rate and expected option term. These assumptions are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision. The Black-Scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public markets.
The per share fair value of options is highly sensitive to changes in assumptions. In general, the per share fair value of options will move in the same direction as changes in the expected stock price volatility, risk-free interest rate and expected option term, and in the opposite direction as changes in the expected dividend yield. For example, the per share fair value of options will generally increase as expected stock price volatility increases, risk-free interest rate increases, expected option term increases and expected dividend yield decreases. The use of different assumptions or different option pricing models could result in materially different per share fair values of options.
The Company recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards. The Company’s accounting policy is to recognize forfeitures as they occur.
Comprehensive Income (Loss)
Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on both securities available for sale and derivatives, net of the related tax effect. Also included are changes in the unfunded status of the Company’s defined benefit plans, net of the related tax effect, which are recognized as separate components of shareholders’ equity.
Loss Contingencies
Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the consolidated financial statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Earnings per share
Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. ESOP shares committed to be released are considered to be outstanding for purposes of the earnings per share computation. ESOP shares that have not been legally released, but that relate to employee services rendered during an accounting period (interim or annual) ending before the related debt service payment is made, are considered committed to be released. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options awards and are determined using the treasury stock method. When applying the treasury stock method, we add: (1) the assumed proceeds from option exercises and (2) the average unamortized compensation costs related to unvested shares of restricted stock and stock options. We then divide this sum by our average stock price to calculate shares repurchased. The excess of the number of shares issuable over the number of shares assumed to be repurchased is added to basic weighted average common shares to calculate diluted EPS.
Treasury Stock
Repurchases of Company common stock are classified as treasury stock shares carried at cost and presented as a reduction of shareholders’ equity. Treasury stock are not considered outstanding for share count purposes and are excluded from average common shares outstanding for basic and diluted earnings per share. Reissued treasury stock at an amount greater (less) than paid to repurchase the shares will result in a gain (loss) on the reissuance of the shares. The gain or loss will be recognized in shareholders’ equity. A gain on the reissuance of treasury shares are credited to additional paid-in capital. A loss on the reissuance of treasury shares are debited to additional paid-in capital to the extent previous net gains from the same class of stock are included in additional paid-in capital. Losses in excess of gains in additional paid-in capital are charged to retained earnings.
Segment Reporting
The Company operates as a single operating segment for financial reporting purposes.
Adoption of New Accounting Standards
No new accounting standards were adopted during the year ended December 31, 2022.
Accounting Standards Not Yet Adopted
As an “emerging growth company” as defined in Title 1 of the Jumpstart Our Business Startups (JOBS) Act prior to December 31, 2019, the Company elected to use the extended transition period to delay the adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements were made applicable to private companies.
The FASB issued, but the Company has not yet adopted, ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” to replace the incurred loss model for loans and other financial assets with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held-to maturity debt securities. It also applies to off-balance sheet credit exposures that are not unconditionally cancelable and not accounted for as insurance (undisbursed lines of credit, loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases recognized by a lessor. In addition, the amendments in Topic 326 require credit losses on available-for-sale securities to be presented as a valuation allowance rather than a direct write-down on the basis of the securities. The Company adopted this standard on January 1, 2023.
The change from an incurred loss model to an expected loss model represents a fundamental shift from existing GAAP and may result in a material change to the Company's accounting for credit losses on financial instruments. To prepare for implementation of the new standard the Company established a cross functional steering committee comprised of members from different disciplines including finance, credit, risk management, internal audit, lending, and operations, among others. The Company has also engaged a third-party consultant to assist with
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
model development, data governance and operational controls to support the adoption of this ASU. A detailed implementation plan was developed which included assessing the processes, portfolio segmentation, model development and validation, and system requirements and resources needed.
The new credit loss models will include additional assumptions used to calculate credit losses over the estimated life of the financial assets and will include the impact of forecasted macroeconomic conditions. The Company has a system provider for modeling. Upon the Company's adoption of CECL, the change from the incurred loss model to the CECL model will be recognized through an adjustment to retained earnings. The future impact of CECL on the Company’s allowance for credit losses, and provision expense, subsequent to initial adoption, will depend on changes in the loan and HTM securities portfolios, economic conditions, and refinements to key assumptions including forecasting and qualitative factors. Furthermore, the adoption of ASU 2016-13 will necessitate that we establish an allowance for expected credit losses for certain debt securities and other financial assets, however we do not expect these allowances to be significant.
Our CECL models will include the following major items as of the ASC 326 adoption date:
-a historical loss period, which represents a full economic credit cycle utilizing loss experience including peer historical loss data
-a reasonable and supportable forecast period of one year, based on management’s current review of macroeconomic factors and the reliability of extended forecasts
-a reversion period (after the reasonable and supportable forecast period) of one year using a straight-line method
-expected prepayment rates based on our historical experience and benchmark assumptions where internal data is limited; and
-incorporation of qualitative factors not captured within the modeled results.
The Company adopted ASU 2016-13 on January 1, 2023. The adoption of ASU 2016-13 is not expected to have a significant impact on our financial statements or regulatory capital ratios.
In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The amendments provide expedients and exceptions for applying GAAP to contracts or hedging relationships affected by the discontinuance of LIBOR as a benchmark rate to alleviate the burden and cost of such modifications. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments also provide a one-time election to sell and/or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform. The update is in effect for a limited time from March 12, 2020 through December 31, 2022. The Company continues to evaluate its financial instruments indexed to USDLIBOR for which Topic 848 provides expedients, exceptions and elections. The Company is monitoring and assessing if transition plans are necessary and if it is appropriate for the Company to utilize transition relief. The Company continues to assess the expected impact of LIBOR cessation on the Company’s Consolidated Financial Statements.
In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope”. The update specifically addresses whether Topic 848 applies to derivative instruments that do not reference a rate that is expected to be discontinued but that instead use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform, commonly referred to as the “discounting transition.” This ASU extends certain optional expedients provided in Topic 848 to contract modifications and derivatives affected by the discounting transition. The amendments in ASU 2021-01 may be applied under a retrospective approach as of any date from the beginning of an interim period that includes or is after March 12, 2020 or prospectively to new modifications made on or after any date within the interim period including January 7, 2021. The update is in effect for a limited time from March 12, 2020 through December 31, 2022. The update is not expected to have a material impact on the Company’s Consolidated Financial Statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”. The amendments in this ASU were issued to (1) eliminate accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty; (2) require disclosures of current period gross write-offs by year of origination for financing receivables and net investments in leases. For entities that have adopted the amendments in ASU 2016-13, Measurement of Credit Losses on Financial Instruments, this update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2022. Early adoption is permitted. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, where there is an option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The Company is currently evaluating the impact of this standard to the Consolidated Financial Statements.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 2 - SECURITIES
Debt Securities
The amortized cost of securities available for sale and their estimated fair values at December 31, 2022 and 2021 are as follows:
Amortized
Cost Gross Unrealized Gains
Gross Unrealized Losses Estimated
Fair
Value
(In thousands)
Available for sale
December 31, 2022
U.S. Treasury Notes $ 46,937 $ - $ (3,178) $ 43,759
Corporate Bonds 81,725 4 (5,431) 76,298
U.S. Government agency obligations 16,367 - (944) 15,423
Obligations issued by U.S. states and their political subdivisions
16,559 49 (340) 16,268
Mortgage-backed securities:
Residential one-to-four family
164,843 - (24,657) 140,186
Multifamily
19,475 - (1,317) 18,158
Asset-backed securities 4,525 - (369) 4,156
Total available-for-sale $ 350,431 $ 53 $ (36,236) $ 314,248
December 31, 2021
U.S. Treasury Notes $ 36,933 $ 4 $ (105) $ 36,832
Corporate Bonds 86,118 1,791 (290) 87,619
U.S. Government agency obligations 23,462 46 (179) 23,329
Obligations issued by U.S. states and their political subdivisions
19,172 1,152 - 20,324
Mortgage-backed securities:
Residential one-to-four family
116,166 140 (1,905) 114,401
Multifamily
35,412 598 (94) 35,916
Asset-backed securities 6,538 3 (70) 6,471
Total available-for-sale $ 323,801 $ 3,734 $ (2,643) $ 324,892
During the year ended December 31, 2022, proceeds from calls of securities available for sale totaled $4.7 million, resulting in gross realized gains of $14 thousand and no gross realized losses. During the year ended December 31, 2021, proceeds from calls of securities available for sale totaled $14.2 million, resulting in no gross realized gains and gross realized losses of $1 thousand. There were no securities sold during the years ended December 31, 2022 and 2021.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
The amortized cost of securities held-to-maturity and their estimated fair values at December 31, 2022 and 2021, are as follows:
Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Estimated
Fair
Value
(In thousands)
Held-to-maturity
December 31, 2022
Asset-backed securities $ 15,105 $ - $ (2,309) $ 12,796
Corporate bonds 18,600 - (2,281) 16,319
Total held-to-maturity $ 33,705 $ - $ (4,590) $ 29,115
December 31, 2021
Asset-backed securities $ 15,281 $ - $ (373) $ 14,908
Corporate bonds 8,000 - (59) 7,941
Total held-to-maturity $ 23,281 $ - $ (432) $ 22,849
At December 31, 2022 and 2021, the held to maturity securities portfolio was comprised of investment grade credit ratings.
Securities pledged at December 31, 2022 and December 31, 2021, had a carrying amount of $4.2 million and $9.1 million, respectively, and were pledged to secure borrowings, public deposits and derivatives, as needed.
The amortized cost and fair value of debt securities are shown below by contractual maturity. Expected maturities on mortgage and asset-backed securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. Securities not due at a single maturity are shown separately:
December 31, 2022
Amortized Cost Estimated Fair Value
(In thousands)
Available-for-sale
Due in one year or less $ 13,089 $ 12,707
Due from one year to five years 90,415 85,755
Due from five to ten years 42,212 38,836
Due after ten years 15,872 14,450
Mortgage-backed and asset-backed securities 188,843 162,500
Total $ 350,431 $ 314,248
Held-to-maturity
Due from one year to five years $ - $ -
Due from five to ten years 18,600 16,319
Due after ten years - -
Mortgage-backed and asset-backed securities 15,105 12,796
Total $ 33,705 $ 29,115
The following tables summarize available-for-sale securities with unrealized losses at December 31, 2022 and 2021, aggregated by major security type and length of time in a continuous loss position.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Less than 12 Months 12 Months or More Total
Unrealized Losses Estimated
Fair Value Unrealized Losses Estimated
Fair Value Unrealized Losses Estimated
Fair Value
(In thousands)
December 31, 2022
Available for sale
U.S. Treasury Note $ (1,342) $ 28,670 $ (1,836) $ 15,089 $ (3,178) $ 43,759
Corporate Bonds (3,608) 58,509 (1,823) 15,522 (5,431) 74,031
U.S. Government
agency obligations (5) 696 (939) 14,727 (944) 15,423
Obligations issued by
U.S. states and their
political subdivisions (65) 5,641 (275) 1,568 (340) 7,209
Mortgage-backed
securities:
Residential one-to-four
family (8,273) 60,986 (16,384) 79,189 (24,657) 140,175
Multifamily (1,166) 17,689 (151) 469 (1,317) 18,158
Asset-backed securities - - (369) 4,156 (369) 4,156
Total available-for-sale $ (14,459) $ 172,191 $ (21,777) $ 130,720 $ (36,236) $ 302,911
December 31, 2021
Available for sale
U.S. Treasury Note $ (105) $ 16,814 $ - $ - $ (105) $ 16,814
Corporate Bonds (290) 17,183 - - (290) 17,183
U.S. Government
agency obligations (49) 9,951 (130) 7,980 (179) 17,931
Obligations issued by
U.S. states and their
political subdivisions - - - - - -
Mortgage-backed
securities:
Residential one-to-four
family (1,761) 104,805 (144) 3,009 (1,905) 107,814
Multifamily - - (94) 910 (94) 910
Asset-backed securities (70) 4,458 - - (70) 4,458
Total available-for-sale $ (2,275) $ 153,211 $ (368) $ 11,899 $ (2,643) $ 165,110
There were no other-than-temporary impairment (“OTTI”) charges on available for sale securities for the years ended December 31, 2022 or 2021. The number of available for sale securities in an unrealized loss position at December 31, 2022 totaled 105, compared with 44 at December 31, 2021. The increase in the number of securities in an unrealized loss position at December 31, 2022 was due to higher current market interest rates compared to rates at December 31, 2021. Of the 105 available for sale securities in an unrealized loss position at December 31, 2022, 64 are comprised of U.S. Government agency obligations, Treasury notes, and mortgage-backed securities. These securities were all issued by U.S. Government-sponsored entities and agencies, which the government has affirmed its commitment to support. There were also 8 municipal bonds, 31 investment grade corporate bonds and two asset-backed securities in an unrealized loss position. The Company does not consider these securities to be other-than-temporarily impaired due to the decline in fair value being attributable to changes in interest rates and liquidity, not credit quality. The Company also does not intend to sell these securities, nor does it foresee being required to sell them before the anticipated recovery (maturity).
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
The following table summarizes held-to-maturity securities with unrecognzed losses at December 31, 2022, aggregated by major security type and length of time in a continuous loss position. The Company did not have any held- to- maturity securities in an unrecognized loss position for more than twelve months at December 31, 2021.
Less than 12 Months 12 Months or More Total
Unrecognized Losses Estimated
Fair Value Unrecognized Losses Estimated
Fair Value Unrecognized Losses Estimated
Fair Value
(In thousands)
December 31, 2022
Held-to-maturity
Corporate Bonds $ (1,177) $ 10,423 $ (1,104) $ 5,896 $ (2,281) $ 16,319
Asset-backed securities - - (2,310) 12,796 (2,310) 12,796
Total held-to-maturity $ (1,177) $ 10,423 $ (3,414) $ 18,692 $ (4,591) $ 29,115
There were no other-than-temporary impairment (“OTTI”) charges on held-to-maturity securities for the years ended December 31, 2022 or 2021. The number of held-to-maturity securities in an unrecognized loss position at December 31, 2022 totaled 11, compared with four at December 31, 2021. The increase in the number of securities in an unrecognized loss position at December 31, 2022, was due to higher current market interest rates compared to rates at December 31, 2021. Of the 11 held-to-maturity securities in an unrecognized loss position at December 31, 2022, two are asset-backed securities and nine are investment grade corporate bonds. The Company does not consider these securities to be other-than-temporarily impaired due to the decline in fair value being attributable to changes in interest rates and liquidity, not credit quality. The Company also does not intend to sell these securities, nor does it foresee being required to sell them before the anticipated recovery (maturity). At December 31, 2021, held to maturity securities in an aggregate unrecognized loss position for less than twelve months included two asset-backed securities with total fair value of $14.9 million in an aggregate unrecognized loss position of $373 thousand and two investment grade corporate bonds with total fair value of $6.9 million in an aggregate unrecognized loss position of $59 thousand.
Other Investments
At December 31, 2022, other investments primarily consisted of investments in FHLB stock, and to a much lesser extent, investments in a financial technology fund and a community banking core provider cooperative. Other investments carried at fair value totaled $15.9 million and $10.2 million at December 31, 2022 and 2021, respectively. Other investments carried at NAV totaled $157 thousand at December 31, 2022. The Company recorded a net increase in the NAV of $7 thousand for the year ended December 31, 2022 as a component of other income. The Company's unfunded commitments related to the financial technology fund totaled $850 thousand.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 3 - LOANS RECEIVABLE, NET
A summary of loans receivable, net is as follows:
December 31, 2022 December 31, 2021
(In thousands)
Residential one-to-four family $ 594,521 $ 560,976
Multifamily 690,278 515,240
Non-residential 216,394 141,561
Construction and land 17,990 23,419
Junior liens 18,477 18,464
Commercial and industrial (1) 4,682 21,563
Consumer and other 38 87
Total gross loans 1,542,380 1,281,310
Deferred fees, costs and premiums and discounts, net 2,747 6,299
Total loans 1,545,127 1,287,609
Allowance for loan losses (13,400) (14,425)
Loans receivable, net $ 1,531,727 $ 1,273,184
(1) At December 31, 2022 and 2021, PPP loans totaled $477 thousand and $16.8 million, respectively, net of unearned deferred fees.
The portfolio classes in the above table have unique risk characteristics with respect to credit quality:
•Payment on multifamily and non-residential mortgages is driven principally by operating results of the managed properties or underlying business and secondarily by the sale or refinance of such properties. Both primary and secondary sources of repayment, and value of the properties in liquidation, may be affected to a greater extent by adverse conditions in the real estate market or the economy in general.
•Properties underlying construction loans often do not generate sufficient cash flows to service debt and thus repayment is subject to ability of the borrower and, if applicable, guarantors, to complete development or construction of the property and carry the project, often for extended periods of time. As a result, the performance of these loans is contingent upon future events whose probability at the time of origination is uncertain.
•Commercial and industrial (“C&I”) loans include C&I revolvers, term loans, SBA 7a loans and to a lesser extent, PPP loans. Payment on C&I loans are driven principally by the cash flow of the business and secondarily by the sale or refinance of any collateral securing the loan. Both the cash flow and value of the collateral in liquidation may be affected by adverse general economic conditions.
•The ability of borrowers to service debt in the residential one-to-four family, junior liens and consumer loan portfolios is generally subject to personal income which may be impacted by general economic conditions, such as increased unemployment levels. These loans are predominately collateralized by first and second liens on single family properties. If a borrower cannot maintain the loan, the Company’s ability to recover against the collateral in sufficient amount and in a timely manner may be significantly influenced by market, legal and regulatory conditions.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
The following tables present the activity in the Company’s allowance for loan losses by class of loans for the years ended December 31, 2022, and 2021:
Residential
One-To-Four
Family Multifamily Non-Residential Construction
and Land Junior Liens Commercial and Industrial Consumer
and Other Unallocated Total
(In thousands)
Year Ended December 31, 2022
Allowance for loan losses
Beginning balance $ 2,822 $ 5,263 $ 2,846 $ 2,678 $ 636 $ 51 $ 38 $ 91 $ 14,425
Charge-offs - - - - - - (58) - (58)
Recoveries 30 - - - - - 4 - 34
(Release of) provision for loan losses (588) 228 511 (981) (185) (4) 16 2 (1,001)
Total ending allowance balance $ 2,264 $ 5,491 $ 3,357 $ 1,697 $ 451 $ 47 $ - $ 93 $ 13,400
Year Ended December 31, 2021
Allowance for loan losses
Beginning balance $ 3,579 $ 5,460 $ 3,244 $ 3,655 $ 916 $ 2 $ 48 $ 55 $ 16,959
Charge-offs - - - - - - (16) - (16)
Recoveries - - - - - - - - -
(Release of) provision for loan losses (757) (197) (398) (977) (280) 49 6 36 (2,518)
Total ending allowance balance $ 2,822 $ 5,263 $ 2,846 $ 2,678 $ 636 $ 51 $ 38 $ 91 $ 14,425
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
The following table represents the allocation of allowance for loan losses and the related recorded investment (including deferred fees and costs) in loans by loan portfolio segment disaggregated based on the impairment methodology at December 31, 2022 and December 31, 2021:
Residential
One-To-Four
Family Multifamily Non-Residential Construction
and Land Junior Liens Commercial and Industrial Consumer
and Other Unallocated Total
(In thousands)
December 31, 2022
Allowance for loan losses:
Individually evaluated
for impairment $ 27 $ - $ - $ - $ - $ - $ - $ - $ 27
Collectively evaluated
for impairment 2,237 5,491 3,357 1,697 451 47 - 93 13,373
Total $ 2,264 $ 5,491 $ 3,357 $ 1,697 $ 451 $ 47 $ - $ 93 $ 13,400
Loans receivable:
Individually evaluated
for impairment $ 8,418 $ 516 $ 2,671 $ - $ 52 $ - $ - $ - $ 11,657
Collectively evaluated
for impairment 588,836 690,174 213,390 17,799 18,579 4,653 39 - 1,533,470
Total $ 597,254 $ 690,690 $ 216,061 $ 17,799 $ 18,631 $ 4,653 $ 39 $ - $ 1,545,127
December 31, 2021
Allowance for loan losses:
Individually evaluated
for impairment $ 31 $ - $ - $ - $ - $ - $ 37 $ - $ 68
Collectively evaluated
for impairment 2,791 5,263 2,846 2,678 636 51 1 91 14,357
Total $ 2,822 $ 5,263 $ 2,846 $ 2,678 $ 636 $ 51 $ 38 $ 91 $ 14,425
Loans receivable:
Individually evaluated
for impairment $ 10,169 $ 684 $ 4,577 $ - $ 55 $ - $ 37 $ - $ 15,522
Collectively evaluated
for impairment 556,314 515,884 136,957 23,420 18,495 20,966 51 - 1,272,087
Total $ 566,483 $ 516,568 $ 141,534 $ 23,420 $ 18,550 $ 20,966 $ 88 $ - $ 1,287,609
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
The following table presents information related to impaired loans by class of loans as of December 31, 2022 and December 31, 2021. The recorded investment in impaired loans includes deferred fees, costs and discounts. For purposes of this disclosure, the unpaid principal balance of impaired loans is not reduced for partial charge-offs.
Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment Interest
Income
Recognized Cash Basis Interest Recognized
(In thousands)
December 31, 2022
With no related allowance recorded:
Residential one-to-four
family $ 7,368 $ 7,669 $ - $ 7,711 $ 119 $ 116
Multifamily 516 516 - 652 17 15
Non-residential 2,834 2,671 - 3,168 118 108
Construction and land - - - - - -
Junior liens 52 52 - 54 3 3
Commercial and
Industrial (including PPP) - - - - - -
10,770 10,908 - 11,585 257 242
With an allowance recorded:
Residential one-to-four
family 743 749 27 546 29 26
Multifamily - - - - - -
Non-residential - - - - - -
Construction and land - - - - - -
Commercial and
Industrial (including PPP) - - - - - -
Consumer and other - - - - - -
743 749 27 546 29 26
Total $ 11,513 $ 11,657 $ 27 $ 12,131 $ 286 $ 268
December 31, 2021
With no related allowance recorded:
Residential one-to-four
family $ 8,744 $ 9,108 $ - $ 9,534 $ 75 $ 75
Multifamily 684 684 - 1,170 26 24
Non-residential 4,725 4,577 - 4,869 210 196
Construction and land - - - - - -
Junior liens 55 55 - 57 3 3
Commercial and
Industrial (including PPP) - - - - - -
14,208 14,424 - 15,630 314 298
With an allowance recorded:
Residential one-to-four
family 1,062 1,061 31 1,243 50 46
Multifamily - - - - - -
Non-residential - - - - - -
Construction and land - - - - - -
Commercial and
Industrial (including PPP) - - - - - -
Consumer and other 37 37 37 41 2 2
1,099 1,098 68 1,284 52 48
Total $ 15,307 $ 15,522 $ 68 $ 16,914 $ 366 $ 346
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
The total recorded investment of loans whose terms have been modified in TDRs was $4.8 million and $5.4 million as of December 31, 2022 and December 31, 2021, respectively. The Company has allocated $27 thousand and $68 thousand, respectively, of specific reserves to TDR loans as of December 31, 2022 and December 31, 2021. The modification of the terms of TDR loans may include one or a combination of the following: a reduction of the stated interest rate of the loan, short-term deferral of payment, or an extension of the maturity date. The Company is not committed to lend any additional amounts to customers with outstanding loans that are classified as TDRs as of December 31, 2022.
A TDR loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no TDRs for which there was a payment default within twelve months following the modification during the periods ended December 31, 2022 and December 31, 2021.
New TDRs during the year ended December 31, 2022 totaled $453 thousand. There were no new TDRs during the year ended December 31, 2021. The Company implemented modification programs to provide its borrowers relief from the economic impacts of COVID-19. In accordance with the CARES Act, the Company elected to not apply TDR classification to COVID-19 related loan modifications. Accordingly, these modifications are exempt from TDR classification under U.S. generally accepted accounting principles (“U.S. GAAP”) and were not classified as TDRs.
The Company had $4.5 million and $790 thousand in consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process at December 31, 2022 and 2021, respectively
The following table presents the recorded investment in non-accrual loans and loans past due 90 days or more still on accrual as of December 31, 2022 and December 31, 2021:
Nonaccrual Loans Past Due
90 Days and Still Accruing
12/31/2022 12/31/2021 12/31/2022 12/31/2021
(In thousands)
Residential one-to-four family $ 7,498 $ 10,805 $ - $ -
Multifamily 182 139 - -
Non-residential - 857 - -
Construction and land - - - -
Junior liens 52 182 - -
Commercial and industrial (1) 35 - 61 116
Total $ 7,767 $ 11,983 $ 61 $ 116
(1) PPP loans 90 days past due and accruing totaled $61 thousand and $116 thousand at December 31, 2022 and 2021, respectively. These PPP loans were not reported in non-performing loans as they carry the federal guarantee of the SBA.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
The following table presents the recorded investment in past due and current loans by loan portfolio class as of December 31, 2022 and December 31, 2021:
30-59
Days
Past Due 60-89
Days
Past Due 90 Days
and Greater
Past Due Total
Past Due Current Total
Loans
Receivable
(In thousands)
December 31, 2022
Residential one-to-four family $ - $ 845 $ 6,738 $ 7,583 $ 589,671 $ 597,254
Multifamily - 182 182 690,508 690,690
Non-residential - - - 216,061 216,061
Construction and land - - - 17,799 17,799
Junior liens - - 52 52 18,579 18,631
Commercial and Industrial - 96 96 4,557 4,653
Consumer and other - - - 39 39
Total $ - $ 845 $ 7,068 $ 7,913 $ 1,537,214 $ 1,545,127
December 31, 2021
Residential one-to-four family $ 1,736 $ 457 $ 8,936 $ 11,129 $ 555,354 $ 566,483
Multifamily - - - 516,568 516,568
Non-residential - 381 381 141,153 141,534
Construction and land - - - 23,420 23,420
Junior liens 53 182 235 18,315 18,550
Commercial and Industrial 11 57 116 184 20,782 20,966
Consumer and other - - - 88 88
Total $ 1,747 $ 567 $ 9,615 $ 11,929 $ 1,275,680 $ 1,287,609
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
The Company categorizes loans into risk categories based on relevant information about the quality and realizable value of collateral, if any, and the ability of borrowers to service their debts such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed whenever a credit is extended, renewed, or modified, or when an observable event occurs indicating a potential decline in credit quality, and no less than annually for large balance loans, defined as $1 million for an individual exposure or $1.5 million for group exposure. The Company used the following definitions for risk ratings for loans rated other than Pass:
Special Mention - Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the Company’s credit position at some future date.
Substandard - Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor, or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment and liquidation of the debt. They are characterized by distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.
Loss - Assets classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.
The following table presents the risk category of loans by class of loans based on the most recent analysis performed as of December 31, 2022 and December 31, 2021:
Pass Special
Mention Substandard Doubtful /
Loss Total
(In thousands)
December 31, 2022
Residential one-to-four family $ 589,137 $ 247 $ 7,870 $ - $ 597,254
Multifamily 689,277 897 516 - 690,690
Non-residential 214,981 1,080 - - 216,061
Construction and land 17,799 - - - 17,799
Junior liens 18,579 - 52 - 18,631
Commercial and Industrial 4,653 - - 4,653
Consumer and other 8 - 31 - 39
Total $ 1,534,434 $ 2,224 $ 8,469 $ - $ 1,545,127
December 31, 2021
Residential one-to-four family $ 555,184 $ - $ 11,299 $ - $ 566,483
Multifamily 510,815 5,069 684 - 516,568
Non-residential 140,377 144 1,013 - 141,534
Construction and land 23,420 - - - 23,420
Junior liens 18,368 - 182 - 18,550
Commercial and Industrial 20,966 - - - 20,966
Consumer and other 88 - - - 88
Total $ 1,269,218 $ 5,213 $ 13,178 $ - $ 1,287,609
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 4 - PREMISES AND EQUIPMENT
Premises and equipment, net, at December 31, 2022 and 2021, are summarized as follows:
Land $ 3,058 $ 3,793
Buildings and improvements 18,456 14,583
Leasehold improvements 10,888 10,174
Furnishings and equipment 10,080 9,325
Construction-in-Progress 716 1,618
43,197 39,493
Accumulated depreciation and amortization (13,372) (11,367)
$ 29,825 $ 28,126
Construction-in-progress consists of deposits made related to the construction of branch improvements and the purchase of furnishings and equipment.
Depreciation and amortization of premises and equipment was $2.7 million and $2.3 million for the years ended December 31, 2022 and 2021 respectively.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 5 - LEASES
The Company leases certain office space, land and equipment under operating leases. These leases have original terms ranging from one year to 40 years. Operating lease liabilities and ROU assets are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term.
The Company had the following related to operating leases:
December 31,
(Dollars in thousands)
Right-of-use assets $ 25,906 $ 25,457
Lease liabilities 27,324 26,696
Weighted average remaining lease term for operating leases 11.3 years 12.2 years
Weighted average discount rate used in the measurement of lease liabilities 2.19 % 1.97 %
The following table is a summary of the Company’s components of net lease cost for the year ended December 31, 2022 and 2021. The variable lease cost primarily represents variable payments such as common area maintenance and utilities.
Year Ended December 31,
(In thousands)
Operating lease cost $ 3,137 $ 3,034
Finance lease cost 23 19
Variable lease cost 228 219
Total lease cost $ 3,388 $ 3,272
The following table presents supplemental cash flow information related to operating leases:
Year Ended December 31,
2022 2021
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases $ 3,100 $ 2,721
Operating lease liabilities arising from obtaining right-of-use assets (non-cash):
Operating leases $ 2,999 $ 3,197
For the year ended December 31, 2022, the Company added two new lease obligations related to the Company’s retail division in Hackensack and Union, New Jersey and one lease modification for an existing retail office.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2022 are as follows:
(In thousands)
2023 $ 3,057
2024 3,040
2025 2,657
2026 2,657
2027 2,548
Thereafter 17,093
Total undiscounted lease payments 31,052
Less: imputed interest (3,728)
Total $ 27,324
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 6 - DEPOSITS
Deposits at December 31, 2022 and December 31, 2021, are summarized as follows:
December 31, 2022 Weighted Average Rate December 31, 2021 Weighted Average Rate
(In thousands) (In thousands)
Non -interest bearing deposits $ 37,907 - % $ 44,894 - %
NOW and demand accounts 410,937 0.92 % 363,419 0.13 %
Savings 423,758 0.85 % 364,932 0.16 %
Time deposits 416,260 1.79 % 473,795 0.58 %
Total $ 1,288,862 1.15 % $ 1,247,040 0.31 %
Money market accounts are included within the NOW and demand accounts and savings captions. Included in time deposits are brokered deposits totaling $75.0 million at December 31, 2022. There were zero brokered deposits at December 31, 2021.
Time deposits mature as follows for the year ending December 31:
(In thousands)
2023 $ 294,912
2024 103,810
2025 10,891
2026 4,352
2027 2,295
$ 416,260
Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2022 and 2021, were $43.1 million and $47.3 million, respectively. As of December 31, 2022 and 2021, the Company had $2.2 million and $2.4 million respectively, in related party (principal officers, directors, and their affiliates) deposits.
Interest expense on deposits is summarized as follows (in thousands):
Year Ended December 31,
2022 2021
(In thousands)
NOW and demand accounts $ 1,344 $ 519
Savings 1,615 572
Time deposits 2,779 6,793
Total $ 5,738 $ 7,884
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 7 - ADVANCES FROM THE FEDERAL HOME LOAN BANK OF NEW YORK (“FHLB”)
Advances from the FHLB are fixed-rate, term borrowings with remaining maturities ranging from one month to 25 months. FHLB advances totaled $310.5 million and $185.5 million at December 31, 2022 and 2021, respectively. Each advance is payable at its maturity date with a prepayment penalty if repayment is made prior to the maturity date. During the year ended December 31, 2021, the Bank extinguished $111.4 million in FHLB borrowings incurring a prepayment penalty of $2.2 million. There were no extinguishments of debt during the year ended December 31, 2022. Advances are secured by loans pledged at the FHLB totaling $638.6 million and $319.9 million as of December 31, 2022 and 2021, respectively.
Advances mature as follows for the year ended December 31, 2022.
Maturity Rate Range Weighted Average Rate Amount
2023 0.70% - 4.82% 4.37% $ 252,000
2024 1.60% - 1.94% 1.80% 38,000
2025 1.50% - 1.60% 1.58% 20,500
3.87% $ 310,500
At December 31, 2021, FHLB advances totaled $185.5 million with a weighted average fixed rate of 0.92%.
See Note 10 for further disclosure around Derivatives activities related to FHLB advances.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 8 - BENEFIT PLANS
Defined Benefit Pension Plan
The Company had been a participant in the Pentegra Defined Benefit Plan for Financial Institutions (the “Pentegra DB Plan”), a tax-qualified defined benefit pension plan. Effective January 1, 2020, this plan was frozen to all existing plan participants, eliminating all future benefit accruals. The Company elected to withdraw from the Pentegra DB Plan in August 2021, and recognized an $11.2 million expense associated with the exit from the plan. The withdrawal was completed on December 1, 2021.
401(k) Plan
The Company has a savings plan under Section 401(k) of the Internal Revenue Code, which covers substantially all employees upon employment who have attained the age of 18. Under the plan, employee contributions are partially matched by the Company at its sole discretion. Company contributions for the years ended December 31, 2022 and 2021 were $857 thousand and $701 thousand, respectively.
SERPs, Directors’ Plan and Other Postretirement Benefits Plan
The Company maintains an Executive Supplemental Income Retirement Plan (“SERP”) for certain employees and a Director Retirement Plan (“DRP”). As the SERP and DRP plans are unfunded, there are no plan assets associated with these plans. During 2022, the DRP plan was amended to curtail the plan to the current participants and to establish fixed payments to the participant in the plan.
The Company provides certain health insurance benefits for retired employees and directors meeting plan eligibility requirements. Effective January 1, 2019, the employee postretirement health benefit plan was curtailed, leaving only 12 retired participants and beneficiaries remaining in the plan. Active participants who met certain requirements received payments in lieu of future benefits. The plans are unfunded as of December 31, 2022 and 2021, and the obligation is included in other liabilities as an accrued postretirement benefit cost.
The following table sets forth the change in benefit obligation, change in plan assets and a reconciliation of the unfunded status and the assumptions used in determining the net periodic cost included in the accompanying consolidated financial statements for the Company’s post retirement plans. The measurement date for the post retirement plans were December 31 for each year presented.
SERP and DRP Post Retirement
2022 2021 2022 2021
(In thousands)
Change in benefit obligation:
Projected benefit obligation at beginning of year $ 3,941 $ 4,102 $ 1,613 $ 1,881
Service cost 98 201 1 1
Interest cost 87 79 39 38
Actuarial (gain) loss (469) (100) (488) (215)
Benefits paid (339) (341) (93) (92)
Plan amendments (504) - - -
Projected benefit obligation at end of year 2,814 3,941 1,072 1,613
Reconciliation of plan assets:
Fair value of plan assets at beginning of year - - - -
Actual return on plan assets - - - -
Employer contributions 339 341 93 92
Benefits and Settlements paid (339) (341) (93) (92)
Fair value of plan assets at end of year - - - -
Unfunded status $ 2,814 $ 3,941 $ 1,072 $ 1,613
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Amounts recognized in accumulated other comprehensive income at December 31, ignoring tax effects, consist of:
SERP and DRP Post Retirement
2022 2021 2022 2021
(In thousands)
Unrecognized net actuarial loss (gain) $ 279 $ 1,073 $ (671) $ (189)
Unrecognized prior service cost 20 333 - -
Total accumulated other comprehensive loss (gain) $ 299 $ 1,406 $ (671) $ (189)
The weighted average assumptions used in the determination of benefit obligations as of December 31 were as follows:
SERP and DRP Post Retirement
2022 2021 (1)
2022 2021
Discount rate 4.81 % 2.31 % 4.91 % 2.53 %
Rate of compensation increase* N/A 6.25 % N/A N/A
(1) Rate of compensation increase applicable to DRP only.
The weighted-average assumptions used in the determination of net periodic benefit cost were as follows:
SERP and DRP Post Retirement
2022 2021 (1)
2022 2021
Discount rate 2.31 % 1.82 % 2.59 % 2.18 %
Expected rate of return on plan assets N/A N/A N/A N/A
Rate of compensation increase* N/A 6.25 % N/A N/A
(1) Rate of compensation increase applicable to DRP only.
The components of net periodic benefit cost and other amounts recognized in other comprehensive income were as follows for the years ended December 31, 2022 and 2021:
SERP and DRP Post Retirement
2022 2021 2022 2021
(In thousands)
Service cost $ 98 $ 201 $ 1 $ 1
Interest cost 87 79 39 38
Amortization:
Past service liability - - - -
Net loss (gain) 134 213 (6) (3)
Net periodic benefit cost $ 319 $ 493 $ 34 $ 36
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
The components of net periodic benefit cost other than the service cost component are included in “other non-interest expense” in the Statement of Operations. The estimated net loss and prior service cost for the post-retirement plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2023 are $(85) thousand and $5 thousand, respectively.
The benefits expected to be paid in each of the next five years and the aggregate for the five years thereafter are as follows:
SERP and DRP Post- Retirement
(In thousands)
2023 $ 272 $ 77
2024 255 79
2025 257 80
2026 241 80
2027 227 81
Years 2028 - 2032 996 399
Employee Stock Ownership Plan
The Company maintains the Blue Foundry Bank ESOP, a tax-qualified plan for the benefit of all Company employees designed to invest primarily in the Company’s common stock. The ESOP provides employees with the opportunity to receive a funded retirement benefit from the Bank, based primarily on the value of the Company’s common stock.
The ESOP borrowed funds from the Company to purchase 2,281,800 shares of stock at $10 per share. The loan is secured by the shares purchased, which are held until allocated to participants. Shares are released for allocation to participants as loan payments are made. Loan payments are principally funded by discretionary cash contributions by the Bank, as well as dividends, if any, paid to the ESOP on unallocated shares. When loan payments are made, ESOP shares are allocated to participants at the end of the plan year (December 31) based on relative compensation, subject to federal tax law limits. Participants receive the shares at the end of employment. Dividends on allocated shares, if any, increase participants accounts.
At December 31, 2022, the principal balance on the ESOP loan is $21.2 million. Contributions to the ESOP during the years ended December 31, 2022 and 2021, totaled $615 thousand and $1.0 million, respectively. ESOP compensation expense is recognized over the service period and represents the fair value of shares allocated during the year. For the years ended December 31, 2022 and 2021, ESOP compensation expense was $1.2 million and $1.3 million respectively.
Shares held by the ESOP were as follows:
December 31, 2022
December 31, 2021
(Dollars in thousands)
Shares allocated to participants 182,544 91,272
Unallocated shares 2,099,256 2,190,528
Total ESOP shares 2,281,800 2,281,800
Fair value of unallocated shares $ 26,975 $ 32,047
The fair value of the unallocated shares was computed using the closing trading price of the Company’s common stock on each date.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Equity Incentive Plan
At the annual meeting held on August 25,2022, stockholders of the Company approved the Blue Foundry Bancorp 2022 Equity Incentive Plan (“Equity Plan”) which provides for the granting of up to 3,993,150 shares (1,140,900 restricted stock awards and 2,852,250 stock options) of the Company’s common stock.
Restricted shares granted under the Equity Plan generally vest in equal installments, over a service period between five and seven years beginning one year from the date of grant. Additionally, certain restricted shares awarded can be performance vesting awards, which may or may not vest depending upon the attainment of certain corporate financial targets. The vesting of the awards accelerate upon death, disability or an involuntary termination at or following a change in control. The product of the number of shares granted and the grant date closing market price of the Company’s common stock determine the fair value of restricted shares under the Equity Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period.
Stock options granted under the Equity Plan generally vest in equal installments, over a service period between five and seven years beginning one year from the date of grant. The vesting of the options accelerate upon death, disability or an involuntary termination at or following a change in control. Stock options were granted at an exercise price equal to the fair value of the Company’s common stock on the grant date based on the closing market price and have an expiration period of 10 years.
The fair value of stock options granted are estimated utilizing the Black-Scholes option pricing model. The weighted average assumptions used for the options granted during the year ended December 31, 2022 are: expected life of 6.9 years years, risk-free rate of 3.94%, volatility of 29.41% and a dividend yield of 0.88%. Due to the limited historical information of the Company’s stock, management considered the weighted historical volatility of the Company and similar entities for an appropriate period in determining the volatility rate used in the estimation of fair value. The expected life of the stock option was estimated using the simplified method. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The Company recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards. Upon exercise of vested options, management expects to draw on treasury stock as the source for shares.
The following table presents the share-based compensation expense for the year ended December 31, 2022. There was no share-based compensation expense for the year ended December 31, 2021.
Year ended December 31, 2022
(In thousands)
Stock option expense $ 422
Restricted stock expense 242
Total share-based compensation expense $ 664
The following is a summary of the Company’s stock option activity and related information for the year ended December 31, 2022:
Number of Stock Options Weighted Average Grant Date Fair Value Weighted Average Exercise Price Weighted Average Remaining Contractual Life (years)
Outstanding - December 31, 2021 - $ - $ - -
Granted 2,610,563 4.12 11.65 9.8
Forfeited (19,500) 4.25 11.69 9.8
Outstanding -December 31, 2022 2,591,063 $ 4.12 $ 11.65 9.8
Exercisable - December 31, 2022 -
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Expected future expense relating to the non-vested options outstanding as of December 31, 2022 is $10.3 million over a weighted average period of 6.3 years.
The following is a summary of the Company’s restricted stock shares activity and related information for the year ended December 31, 2022:
Number of Shares Awarded Weighted Average Grant Date Fair Value
Outstanding - December 31, 2021 - $ -
Granted 299,481 11.54
Outstanding - December 31, 2022
299,481 $ 11.54
Expected future expense relating to the non-vested restricted shares outstanding as of December 31, 2022 is $3.2 million over a weighted average period of 4.7 years.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 9 - INCOME TAXES
Income tax expense for the years ended December 31, 2022 and 2021, consists of the following:
Current Deferred Total
(In thousands)
December 31, 2022
Federal $ 299 $ - $ 299
State 39 - 39
$ 338 $ - $ 338
December 31, 2021
Federal $ 140 $ 5,810 $ 5,950
State - 3,668 3,668
$ 140 $ 9,478 $ 9,618
A reconciliation between the actual income tax expense and the expected federal income tax expense (computed by multiplying income before income tax expense times the applicable statutory federal income tax rate) for the years ended December 31, 2022 and 2021, is as follows:
2022 2021
(In thousands)
Income (loss) before income tax expense (benefit) $ 2,734 $ (26,724)
Applicable statutory federal income tax rate 21.00 % 21.00 %
Computed “expected” federal income tax expense (benefit) $ 574 $ (5,612)
Increase (decrease) in federal income tax expense resulting from:
State income taxes, net of federal benefit 244 (1,614)
Valuation Allowance (414) 16,719
Tax-exempt income (96) (108)
Bank owned life insurance (103) (100)
Non-deductible compensation 54 -
ESOP fair market value adjustment 50 76
Stock compensation 27 -
CARES Act - Carryback expense - 247
Other items, net 2 10
Total $ 338 $ 9,618
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2022 and 2021, are as follows:
December 31,
2022 2021
Deferred tax assets: (In Thousands)
Allowance for loan losses and REO $ 4,242 $ 4,617
Net unrealized losses on securities available for sale 9,529 -
Net unrealized losses on derivatives - 69
Accrued postretirement benefits 1,195 1,217
Accrued interest receivable 187 179
Accrued bonus 730 506
Stock compensation 150 -
Premises and equipment 109 -
Finance lease liability 7,681 7,504
Charitable contribution carryover 2,729 2,709
Unrealized actuarial loss on post retirement benefits - 342
Federal net operating loss carryforward 5,417 6,648
State net operating loss carryforward 1,879 2,392
Other - 37
Total gross deferred tax assets 33,848 26,220
Valuation allowance (22,570) (16,868)
Gross deferred tax assets after valuation allowance 11,278 9,352
Deferred tax liabilities:
Net unrealized gains on securities available for sale - 327
Net unrealized gains on derivatives 3,118 -
Deferred loan fees, net 772 1,198
Unrealized actuarial gains on post retirement benefits 105 -
Premises and equipment - 489
Finance lease ROU asset 7,282 7,156
Other 1 182
Total gross deferred tax liabilities 11,278 9,352
Net deferred tax asset $ - $ -
Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.
On the basis of this evaluation, for the year ended December 31, 2022, a valuation allowance of $22.6 million has been maintained. The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth. Net deferred tax assets are included in other assets.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
At December 31, 2022, the Company had federal net operating loss (“NOL”) carryforwards of $25.8 million with no expiration date. Under the provisions of the 2017 Tax Cuts and Jobs Act, use of our federal NOL carryforwards will be limited to 80% of taxable income in future periods. The Company also had New Jersey net operating loss carryforwards of $26.4 million, the majority of which expire in 19 years. We believe it is more likely than not the benefit from both the federal and state NOL carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $7.3 million on the deferred tax assets related to the NOL carryforwards. The Company contributed $9.0 million to the Blue Foundry Charitable Foundation in 2021, and the deferred benefit has a 5 year carryforward limitation.
Retained earnings at December 31, 2022 and 2021, includes approximately $14.6 million, for which no provision for income tax has been made. This amount represents an allocation of income to bad debt deductions for tax purposes only. Events that would result in taxation of these reserves include the failure to qualify as a bank for tax purposes, distributions in complete or partial liquidation, stock redemptions and excess distributions to stockholders.
The Company and its subsidiary are subject to U.S. federal income tax as well as state income taxes, primarily New Jersey. The Company is no longer subject to examination by Federal taxing authorities for tax years before January 1, 2019, and State taxing authorities for tax years before January 1, 2018. Currently, the Company is not under examination by any taxing authority. The Company's New Jersey state tax returns for the tax years ended December 31, 2015 through 2018 were audited during 2021. The completion of this examination did not have a material impact on the Company's effective tax rates and financials.
On August 16, 2022, the Inflation Reduction Act of 2022 was signed into legislation. The Act includes provisions that extend the expanded Affordable Care Act health plan premium assistance program through 2025, impose an excise tax on stock buybacks, increase funding for IRS tax enforcement, expand energy incentives, and impose a corporate minimum tax. The Corporation has evaluated such provisions and determined that the impact of the Inflation Reduction Act of 2022 on the income tax provision and deferred tax assets of 12/31/2022 was not material.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 10 - DERIVATIVES
The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.
Interest rate swaps with notional amounts totaling $109.0 million at December 31, 2022 and December 31, 2021, were designated as cash flow hedges of certain FHLB advances and were determined to be highly effective during all periods presented. The Company expects the hedges to remain highly effective during the remaining terms of the swaps.
Summary information about the interest-rate swaps designated as cash flow hedges as of period-end is as follows:
December 31, 2022 December 31, 2021
(Dollars in thousands)
Notional amounts $ 109,000 $ 109,000
Weighted average pay rates 1.46 % 1.46 %
Weighted average receive rates 4.61 % 0.17 %
Weighted average maturity (in years) 4.2 5.3
Gross unrealized gain included in other assets $ 11,091 $ 1,313
Gross unrealized loss included in other liabilities - 1,559
Unrealized gains (losses), net $ 11,091 $ (246)
At December 31, 2022, the Company held $11.5 million as cash collateral pledged from the counterparty for these interest-rate swaps. At December 31, 2022, the Company had no securities pledged to the counterparty. At December 31, 2021, securities pledged as collateral for these swaps totaled $5.6 million.
Interest income (expense) recorded on these swap transactions is reported as a component of interest expense on FHLB advances. Interest income (expense) for the years ended December 31, 2022 and 2021 totaled $356 thousand and $(1.4) million, respectively. At December 31, 2022, the Company expected $3.8 million of the unrealized gain to be reclassified as a reduction to interest expense during 2023.
Cash Flow Hedge
The effect of cash flow hedge accounting on accumulated other comprehensive income for the years ended December 31, 2022 and 2021 are as follows:
Amount of Gain (Loss) Recognized in OCI on Derivative (1)
Location of Gain (Loss) Reclassified from OCI into Income/(Expense)
Amount of Gain (Loss) Reclassified from OCI to
Income/(Expense)
(In thousands)
Year Ended December 31, 2022
Interest rate contracts $ 11,337 Interest Expense $ 356
Year Ended December 31, 2021
Interest rate contracts $ 3,740 Interest Expense $ (1,427)
(1) For the years ended December 31, 2022 and 2021, there is no tax effect due to the deferred taxes valuation allowance. See Note 9 for information related to the deferred taxes valuation allowance.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 11 - ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income represents the net unrealized holding gains on securities available-for-sale, derivatives and the funded status of the Company’s benefit plans, as of the consolidated balance sheet dates, net of the related tax effect.
The following table presents the components of other comprehensive (loss) income both gross and net of tax, inclusive of a deferred tax valuation allowance, for the periods indicated.
Year Ended December 31,
2022 2021
Before Tax Tax
Effect (1) After
Tax Before Tax Tax
Effect After
Tax
(In thousands)
Components of Other Comprehensive (Loss) Income:
Unrealized loss on securities available for sale:
Unrealized loss arising during the period $ (37,260) $ - $ (37,260) $ (4,626) $ 1,508 $ (3,118)
Reclassification adjustment for (gains) losses included in net income (14) - (14) 1 - 1
Total (37,274) - (37,274) (4,625) 1,508 (3,117)
Unrealized gain on cash flow hedge:
Unrealized gain arising during the period 11,693 - 11,693 3,871 (1,138) 2,733
Reclassification adjustment for (gains) losses included in net income (356) - (356) 1,427 (420) 1,007
Total 11,337 - 11,337 5,298 (1,558) 3,740
Post-Retirement plans:
Net benefit arising from plan amendment (2) 504 - 504 - - -
Net gain arising during the period 858 - 858 315 (430) (115)
Net actuarial loss 228 - 228 210 (59) 151
Total 1,590 - 1,590 525 (489) 36
Total other comprehensive (loss) income: $ (24,347) $ - $ (24,347) $ 1,198 $ (539) $ 659
(1) The 2022 period includes a deferred tax valuation allowance.
(2) Benefit arising from plan amendment approved in June 2022.
The following is a summary of the changes in accumulated other comprehensive income by component, net of tax, inclusive of a deferred tax valuation allowance, for the periods indicated:
Unrealized Gains and (Losses) on Cash Flow Hedges Unrealized Gains and (Losses) on Available-for-sale Securities Post- Retirement Plans Total
(In thousands)
Balance at December 31, 2021
$ (246) $ 1,091 $ (1,217) $ (372)
Other comprehensive income (loss) before reclassification 11,693 (37,260) 1,362 (24,205)
Amounts reclassified from accumulated other comprehensive income (356) (14) 228 (142)
Net current period other comprehensive gain (loss) 11,337 (37,274) 1,590 (24,347)
Balance at December 31, 2022
$ 11,091 $ (36,183) $ 373 $ (24,719)
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Unrealized Gains and (Losses) on Cash Flow Hedges Unrealized Gains and (Losses) on Available-for-sale Securities Post-Retirement Plans Total
(In thousands)
Balance at December 31, 2020
$ (3,986) $ 4,208 $ (1,253) $ (1,031)
Other comprehensive income (loss) before reclassification 2,733 (3,118) (115) (500)
Amounts reclassified from accumulated other comprehensive income 1,007 1 151 1,159
Net current period other comprehensive gain (loss) 3,740 (3,117) 36 659
Balance at December 31, 2021
$ (246) $ 1,091 $ (1,217) $ (372)
The following table presents information about amounts reclassified from accumulated other comprehensive income (loss) to the consolidated statements of operations for the periods indicated:
Details about Accumulated Other Comprehensive Income Components Year Ended December 31, Affected Line Item in the Statement Where Net Income is Presented
2022 2021
(In thousands)
Unrealized gain (loss) on securities available for sale:
Realized gains (losses) on securities available for sale $ 14 $ (1) Gain (loss) on sales and calls of securities
Gains and (losses) on cash flow hedges:
Interest rate contracts 356 (1,427) Interest income (expense)
Amortization of benefit plan items:
Net actuarial loss (228) (210) Compensation and benefits
Total tax effect - 479 Income tax expense
Total reclassification for the period, net of tax $ 142 $ (1,159)
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 12 - FAIR VALUE OF ASSETS AND LIABILITIES
Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1 - Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2 - Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 - Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The Company used the following methods and significant assumptions to estimate fair value:
Securities: For securities available-for-sale and equity securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third party data service providers or dealer market participants with which the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input as defined by ASC 820, is a mathematical technique used principally to value certain securities to benchmark or comparable securities. The Company evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. The Company also holds equity securities and debt instruments issued by the U.S. government and U.S. government sponsored agencies that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs.
Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). The Company’s derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.
Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.
Assets Held for Sale: Nonrecurring adjustments to certain non-residential properties classified as assets held for sale are measured at fair value, less costs to sell. Fair values are based on contracts / letters of intent.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
The following table summarizes the fair value of assets and liabilities as of December 31, 2022:
Fair Value Measurements at December 31, 2022, Using
Quoted Prices
in Active
Markets for
Identical Assets Significant Other
Observable
Inputs Significant
Unobservable
Inputs
Total (Level 1) (Level 2) (Level 3)
(In thousands)
Measured on a recurring basis:
Financial assets
Securities available for sale:
U.S. Treasury Notes $ 43,759 $ 43,759 $ - $ -
Domestic Corporate Bonds 76,298 - 76,298 -
U.S. Government agency obligations 15,423 11,295 4,128 -
Obligations issued by U.S. states and their political subdivisions 16,268 - 16,268 -
Mortgage-backed securities:
Residential one-to-four family 140,186 - 140,186 -
Multifamily 18,158 - 18,158 -
Asset-backed securities 4,156 - 4,156 -
Total securities available for sale 314,248 55,054 259,194 -
Derivatives $ 11,091 - 11,091 -
Total financial assets measured on a recurring basis $ 325,339 $ 55,054 $ 270,285 $ -
Financial Liabilities
Derivatives $ - $ - $ - $ -
Measured on a nonrecurring basis:
Nonfinancial assets
Assets held for sale $ 917 $ - $ 917 $ -
In September 2022, a branch office was designated as held for sale, which resulted in a write-down from book value to fair value. The impairment recorded on the premises was $71 thousand which resulted in a remaining book value of $917 thousand that was reclassified from premises to assets held for sale. The $71 thousand impairment is included in other expenses and the asset held for sale is included in other assets.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
The following table summarizes the fair value of assets and liabilities as of December 31, 2021:
Fair Value Measurements at December 31, 2021, Using
Quoted Prices
in Active
Markets for
Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs
Total (Level 1) (Level 2) (Level 3)
(In thousands)
Measured on a recurring basis:
Financial assets
Securities available for sale
U.S. Treasury Notes $ 36,832 $ 36,832 $ - $ -
Domestic Corporate Bonds 87,619 - 87,619 -
U.S. Government agency obligations 23,329 17,617 5,712 -
Obligations issued by U.S. states and their political subdivisions 20,324 - 20,324 -
Mortgage-backed securities: -
Residential one-to-four family 114,401 - 114,401 -
Multifamily 35,916 - 35,916 -
Asset-backed securities 6,471 - 6,471 -
Total securities available for sale 324,892 54,449 270,443 -
Derivatives 1,313 - 1,313 -
Total financial assets measured on a recurring basis $ 326,205 $ 54,449 $ 271,756 $ -
Financial Liabilities
Derivatives $ 1,559 $ - $ 1,559 $ -
There were no assets or liabilities measured at fair value on a non-recurring basis at December 31, 2021. The assets held for sale and REO were sold in December 2021, resulting in a net loss of $104 thousand and $6 thousand for assets held for sale and REO, respectively.
Other Fair Value Disclosures
Fair value estimates, methods and assumptions for the Company’s financial instruments that are not recorded at fair value on a recurring or non-recurring basis are set forth below.
Securities held-to-maturity: The Company’s debt securities held-to-maturity portfolio is carried at amortized cost. The fair values of debt securities held-to-maturity are provided by a third-party pricing service. The pricing service may use quoted market prices of comparable instruments or a variety of other forms of analysis, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker quotes.
Loans, net: Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories. Estimated fair value of loans is determined using a discounted cash flow model that employs an exit discount rate that reflects the current market pricing for loans with similar characteristics and remaining maturity, adjusted for estimated credit losses inherent in the portfolio at the balance sheet date.
Time Deposits: The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using rates for currently offered deposits of similar remaining maturities.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Federal Home Loan advances: The fair value of borrowings is based on securities dealers’ estimated fair values, when available, or estimated using discounted cash flow analysis. The discount rates used approximate the rates offered for similar borrowings of similar remaining terms.
The following tables present the book value, fair value, and placement in the fair value hierarchy of financial instruments not recorded at fair values in their entirety on a recurring basis on the Company’s balance sheet at December 31, 2022 and 2021. The fair value measurements presented are consistent with Topic 820, Fair Value Measurement, in which fair value represents exit price.
These tables exclude financial instruments for which the carrying amount approximates fair value. Financial instruments for which the carrying amount approximates fair value include cash and cash equivalents, other investments, non-maturity deposits, overnight borrowings, and accrued interest, and are excluded from the table below.
The carrying amounts and fair value of financial instruments not carried at fair value, at December 31, 2022 and December 31, 2021 are as follows:
Fair Value Measurements at December 31, 2022, Using
Quoted Prices
in Active
Markets for
Identical Assets Significant
Other
Observable
Inputs Significant
Unobservable
Inputs
Book Value (Level 1) (Level 2) (Level 3)
(In thousands)
Financial assets
Securities held-to-maturity $ 33,705 $ - $ 29,115 $ -
Loans, net 1,531,727 - - 1,332,882
Financial liabilities
Time Deposits 416,260 - 408,904 -
Federal Home Loan advances 310,500 - 318,688 -
Fair Value Measurements at December 31, 2021, Using
Quoted Prices
in Active
Markets for
Identical Assets Significant
Other
Observable
Inputs Significant
Unobservable
Inputs
Book Value (Level 1) (Level 2) (Level 3)
(In thousands)
Financial assets
Securities held-to-maturity $ 23,281 $ - $ 22,849 $ -
Loans, net 1,273,184 1,266,799
Financial liabilities
Time Deposits 473,795 - 470,732 -
Federal Home Loan advances 185,500 - 182,795
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company extends credit to meet the financing needs of its customers through commitments and lines of credit. In addition we routinely enter into other commitments in the normal course of business.
The following commitments exist at December 31, 2022 and 2021, which are not reflected in the accompanying consolidated financial statements:
As of December 31,
2022 2021
(Dollars in Thousands)
Origination of mortgage loans:
Fixed rate $ 626 $ 1,847
Variable rate 7,344 14,456
Undisbursed home equity credit lines 34,814 33,265
Undisbursed construction credit lines 43,708 17,700
Undisbursed commercial credit lines 1,476 1,792
Performance standby letters of credit 671 671
Overdraft protection credit lines 20,022 19,038
Commitments to purchase investments 850 1,000
These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. The Company uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet loans. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company has no exposure to credit loss if the customer does not exercise its rights to borrow under the commitment. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower.
The Company issues financial standby letters of credit that are within the scope of ASC 460, Guarantees. These are irrevocable undertakings of the Company to guarantee payment of a specified financial obligation. Most of the Company’s standby letters of credit arise in connection with lending relationships and generally have terms of one year or less, or are issued in lieu of security deposits. The maximum potential future payments the Company could be required to make equals the contract amount of the standby letters of credit.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 14 - REVENUE FROM CONTRACTS WITH CUSTOMERS AND OTHER INCOME
All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income in the Statement of Operations.
The following table presents the Company’s sources of revenue from contracts with customers for the years ended December 31, 2022 and 2021, respectively.
Year Ended December 31,
2022 2021
(In thousands)
Non-interest income
Service charges on deposits $ 992 $ 954
Interchange income 43 33
REO gain - 6
Total Revenue from Contracts with Customers $ 1,035 $ 993
Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in the time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees were recognized at the point in time the overdraft occurred. Beginning in November 2022, the Company ended its practice of charging overdraft fees to customers. Service charges on deposits are withdrawn from the customer’s account balance.
Interchange Income: The Company earns interchange fees from debit/credit cardholder transactions conducted through a payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.
Gain/loss on sale of Real Estate Owned (“REO”): The Company records a gain or loss from the sale of REO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of REO to the buyer, the Company assesses whether the buyer is committed to perform its obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the REO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company may adjust the transaction price and related gain (loss) on sale if a significant financing component is present.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 15 - STOCK REPURCHASE PROGRAM
On July 20, 2022, the Company's Board of Directors adopted a stock repurchase program of up to 2,852,250 shares, approximately 10%, of its outstanding common stock. Under the stock repurchase program, the Company is authorized to repurchase shares in open market or private transactions, through block trades or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. The timing and amount of any repurchases will depend on a number of factors, including the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, the Company’s liquidity, and the Company’s financial performance. Open market purchases will be made in accordance with Rule 10b-18 of the Securities and Exchange Commission and other applicable legal requirements. Repurchased shares will be held as treasury stock and will be available for general corporate purposes. The repurchases may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. These factors may also affect the timing and amount of share repurchases. The Company is not obligated to repurchase any particular number of shares or any shares in any specific time period.
During the year ended December 31, 2022, the Company repurchased 1,298,762 shares of its common stock outstanding at an average price of $12.03 for a total of $15.6 million pursuant to the stock repurchase program. This program has no expiration date and has 1,553,488 shares yet to be repurchased as of December 31, 2022.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 16 - EARNINGS PER SHARE
Basic earning per share (“EPS”) represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common shares (such as stock options) were exercised or converted into additional common shares that would then share in the earnings of the entity. Diluted EPS is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period, plus the effect of potential dilutive common share equivalents.
Shares held by the ESOP not allocated to employees in accordance with the terms of the ESOP, referred to as “unallocated ESOP shares”, are not deemed outstanding for earnings per share calculations.
For the Year ended December 31,
(Income In thousands)
Net income (loss) applicable to common shares $ 2,396 $ (36,342)
Shares
Average number of common shares outstanding (1) 28,310,389 13,206,308
Less: Average unallocated ESOP shares 2,144,548 1,035,258
Average number of common shares outstanding used to calculate basic earnings per common share 26,165,841 12,171,050
Common stock equivalents 105,023 -
Average number of common shares outstanding used to calculate diluted earnings per common share 26,270,864 12,171,050
Earnings per common share
Basic $ 0.09 $ (2.99)
Diluted $ 0.09 $ (2.99)
(1) For December 31, 2021, the average number of common shares outstanding was calculated using zero shares outstanding prior to the conversion on July 15, 2021.
Excluded from the earnings per share calculation are anti-dilutive equity awards for the year ended December 31, 2022 totaling 159,000. There were no securities or other contracts that had a dilutive effect during the year ended December 31, 2021.
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 17 - REGULATORY CAPITAL REQUIREMENTS
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines, and additionally for the Bank, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off balance sheet items calculated under regulatory accounting practices. Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Company. The Bank has not paid dividends to the Company in the past. Capital amounts and classifications are also subject to qualitative judgements by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. As of December 31, 2022, the Bank meets all capital adequacy requirements to which they are subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2022 and 2021, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.
The following table presents the regulatory capital, assets and risk based capital (common equity Tier 1, Tier 1 and Total capital) ratios for the Bank at December 31, 2022 and 2021 (in thousands, other than ratios):
Bank Actual Minimum Capital Adequacy Minimum Capital Adequacy With Capital Buffer For Classification as Well Capitalized
Amount Ratio Amount Ratio Amount Ratio Amount Ratio
December 31, 2022
Common equity tier 1 $ 298,132 20.85 % $ 64,348 4.50 % $ 100,097 7.00 % $ 92,947 6.50 %
Tier 1 capital 298,132 20.85 % 85,797 6.00 % 121,546 8.50 % 114,396 8.00 %
Total capital 313,221 21.90 % 114,396 8.00 % 150,145 10.50 % 142,995 10.00 %
Tier 1 (leverage) capital 298,132 14.61 % 81,611 4.00 % N/A N/A 102,013 5.00 %
December 31, 2021
Common equity tier 1 $ 293,349 25.74 % $ 51,292 4.50 % $ 79,787 7.00 % $ 74,088 6.50 %
Tier 1 capital 293,349 25.74 % 68,389 6.00 % 96,885 8.50 % 91,186 8.00 %
Total capital 307,624 26.99 % 91,186 8.00 % 119,681 10.50 % 113,982 10.00 %
Tier 1 (leverage) capital 293,349 15.00 % 78,201 4.00 % N/A N/A 97,752 5.00 %
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 18 - CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY
The condensed financial statements of Blue Foundry Bancorp (parent company only) are presented below:
Condensed Statements of Financial Condition
At December 31,
2022 2021
(In thousands)
Assets:
Cash and cash equivalents $ 98,494 $ 114,331
Investment in banking subsidiary 274,211 293,414
ESOP loan receivable 21,222 21,837
Other investments 157 -
Other assets 1,101 245
Total Assets $ 395,185 $ 429,827
Liabilities and Stockholders’ Equity:
Total liabilities $ 1,467 $ 356
Total stockholders’ equity 393,718 429,471
Total Liabilities and Stockholders’ Equity $ 395,185 $ 429,827
Condensed Statements of Comprehensive Loss
Year Ended December 31,
2022 2021
(In thousands)
Income:
Interest on ESOP loan receivable $ 710 $ 343
Other income 19 23
Total income 729 366
Expenses:
Contribution to Blue Foundry Charitable Foundation - 9,000
Other expenses 2,384 719
Total expenses 2,384 9,719
Loss before income tax benefit (1,655) (9,353)
Income tax benefit (41) (59)
Loss before undistributed earnings of subsidiary (1,614) (9,294)
Equity in undistributed earnings of banking subsidiary 4,010 (27,048)
Net income (loss) $ 2,396 $ (36,342)
Comprehensive income (loss):
Net income (loss) $ 2,396 $ (36,342)
Other comprehensive (loss) income (24,347) 659
Comprehensive loss $ (21,951) $ (35,683)
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Condensed Statements of Cash Flows
Twelve Months Ended December 31,
2022 2021
(In thousands)
Cash flows from operating activities:
Net income (loss) $ 2,396 $ (36,342)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Equity in undistributed earnings of subsidiary (4,010) 27,048
Issuance of common shares donated to Blue Foundry Charitable Foundation - 7,500
ESOP and stock-based compensation expense 682 361
Increase in other assets (863) (82)
Increase in other liabilities 842 237
Net cash used by operating activities (953) (1,278)
Cash flows from investing activities:
Capital contribution to banking subsidiary - (136,481)
Purchase of other investments (150) -
Loan to ESOP - (22,818)
Repayment of ESOP loan 615 981
Net cash provided by (used in) investing activities 465 (158,318)
Cash flows from financing activities:
Purchase of treasury stock (15,349) -
Proceeds from issuance of common shares 273,598
Net cash (used in) provided by financing activities (15,349) 273,598
Net (decrease) increase in cash and cash equivalents (15,837) 114,002
Cash and cash equivalents at beginning of year 114,331 329
Cash and cash equivalents at end of year $ 98,494 $ 114,331
BLUE FOUNDRY BANCORP
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
NOTE 19 - SUBSEQUENT EVENTS
As defined in FASB ASC 855, “Subsequent Events”, subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or available to be issued. Financial statements are considered issued when they are widely distributed to stockholders and other financial statement users for general use and reliance in a form and format that complies with U.S. GAAP.
Stock Repurchase Program
On July 20, 2022, the Company adopted a program to repurchase up to 2,852,250 shares, or 10%, of its outstanding common stock. As of March 28, 2023, 2,037,579 shares totaling $23.7 million had been acquired under the repurchase plan at an average price per share of $11.61.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on criteria established in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management, including our Principal Executive Officer and Principal Financial Officer, concluded that our internal control over financial reporting was effective and met the criteria of the “Internal Control - Integrated Framework (2013)” as of December 31, 2022.
(c) Attestation Report of the Registered Public Accounting Firm
Not applicable because the Company is an emerging growth company.
(d) Changes in Internal Controls
There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated herein by reference to the Proxy Statement for the Company’s 2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the Company’s fiscal year end.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the Proxy Statement for the Company’s 2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the Company’s fiscal year end.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference to the Proxy Statement for the Company’s 2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the Company’s fiscal year end.
Securities Authorized for Issuance Under Equity Compensation Plans
Set forth below is information as of December 31, 2022 regarding equity compensation plans categorized by those plans that have been approved by the Company's stockholders. There are no plans that have not been approved by the Company's stockholders.
Plan Number of Securities to be Issued Upon Exercise of Outstanding Options and rights (1) Weighted Average Exercise Price (2) Number of Securities Remaining Available for Issuance Under Plan (3)
2022 Equity Incentive Plan 2,591,063 $ 11.65 1,102,606
Total 2,591,063 $ 11.65 1,102,606
(1) Consists of outstanding stock options to purchase 2,591,063 shares of common stock granted under the Company’s stock-based compensation plans.
(2) Represents the weighted average exercise price of stock options granted in 2022.
(3) Represents the number of available shares that may be granted as stock options and other stock awards under the Company’s stock-based compensation plans.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference to the Proxy Statement for the Company’s 2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the Company’s fiscal year end.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Our independent registered public accounting firm is KPMG LLP, Short Hills, New Jersey, Auditor Firm ID: 185.
The information required by this item is incorporated herein by reference to the Proxy Statement for the Company’s 2023 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days of the Company’s fiscal year end.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following exhibits are either filed as part of this report or are incorporated herein by reference:
(a)(1) Financial Statements
The following financial statements are included under Part II, Item 8 of this report:
1. Report of Independent Registered Public Accounting Firm.
2. Consolidated Statements of Financial Condition as of December 31, 2022 and 2021.
3. Consolidated Statements of Operations for the Fiscal Years Ended December 31, 2022 and 2021.
4. Consolidated Statements of Comprehensive Loss for the Fiscal Years ended December 31, 2022 and 2021.
5. Consolidated Statements of Changes in Shareholders’ Equity for the Fiscal Years Ended December 31, 2022 and 2021.
6. Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 2022 and 2021.
7. Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedules
No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or related notes.
(a)(3) Exhibits
3.1
Certificate of Incorporation of Blue Foundry Bancorp (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-254079)
3.2
Bylaws of Blue Foundry Bancorp (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-254079)
Form of Common Stock Certificate of Blue Foundry Bancorp (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-254079)
4.2
Description of Blue Foundry Bancorp’s Securities (Incorporated by reference to the Registrant’s Annual Report om Form 10-K dated December 31, 2021 (File No. 001-40619)
10.1
Employment agreement between Blue Foundry Bank and James Nesci
10.2
Blue Foundry Bank Executive Deferred Compensation Agreement for James Nesci
10.3
Change in Control Agreement between Blue Foundry Bank and Kelly Anne Pecoraro
10.4
Change in Control Agreement between Blue Foundry Bank and Elizabeth Miller
10.5
Change in Control Agreement between Blue Foundry Bank and Jason Goldberg
10.6
Blue Foundry Bank Restated Director Retirement Plan for Kenneth Grimblas
10.7
Amendment to the Blue Foundry Bank Restated Director Retirement Plan for Kenneth Grimblas
10.8
Blue Foundry Bank Restated Director Retirement Plan for J. Christopher Ely
10.9
Amendment to the Blue Foundry Bank Restated Director Retirement Plan for J. Christopher Ely
10.10
Blue Foundry Bank Director Retirement Plan II
10.11
Amendment to the Blue Foundry Bank Director Retirement Plan II
10.12
Blue Foundry Bancorp 2022 Equity Incentive Plan (Incorporated by reference to Appendix A to the Proxy Statement for the 2022 Annual Meeting of Stockholders (File No. 001-40619))
Subsidiaries of Blue Foundry Bancorp (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-254079)
23.1
Consent of KPMG LLP (Independent Registered Public Accounting Firm)
23.2
Consent of Crowe LLP (Independent Registered Public Accounting Firm)
31.1
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101 The following materials from the Company’s Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Financial Condition; (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)