Blue Foundry Bancorp 10Q 2022 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-40619

BLUE FOUNDRY BANCORP

(Exact name of the registrant as specified in its charter)

Delaware

86-2831373

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification Number)

19 Park Avenue,

Rutherford,

New Jersey

07070

(Address of principal executive offices)

(Zip Code)

(201) 939-5000

(Registrant’s telephone number, including area code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	BLFY	The NASDAQ Stock Market LLC

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging Growth Company

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of August 11, 2022 there were 28,522,500 shares issued and 28,416,741 shares outstanding of the Registrant’s Common Stock, par value $0.01 per share,

BLUE FOUNDRY BANCORP

FORM 10-Q

Index

Part I Financial Information

ITEM 1. FINANCIAL STATEMENTS

BLUE FOUNDRY BANCORP

Consolidated Statements of Financial Condition


	June 30, 2022		December 31, 2021
	(Unaudited)		(Audited)

	(In thousands)
ASSETS
Cash and cash equivalents	$	54,806	$	193,446
Securities available for sale, at fair value	352,183		324,892


Securities held to maturity (fair value of $26,928 at June 30, 2022 and $22,849 at December 31, 2021)	29,794		23,281
Other investments	11,337		10,182
Loans receivable, net of allowance of $14,050 at June 30, 2022 and $14,425 at December 31, 2021	1,414,223		1,273,184

Interest and dividends receivable	5,945		5,372
Premises and equipment, net	30,684		28,126
Right-of-use assets	24,163		25,457

Bank owned life insurance	21,892		21,662
Other assets	19,023		8,609
Total assets	$	1,964,050	$	1,914,211

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits	$	1,296,674	$	1,247,040
Advances from the Federal Home Loan Bank	205,500		185,500
Advances by borrowers for taxes and insurance	10,126		9,582
Lease liabilities	25,461		26,696
Other liabilities	13,996		15,922
Total liabilities	1,551,757		1,484,740

Shareholders’ equity
Common stock $0.01 par value; 70,000,000 shares authorized; 28,522,500 shares issued and outstanding	285		285
Additional paid-in capital	282,154		282,006
Retained earnings	170,050		169,457
Unallocated common shares held by ESOP	(21,449)		(21,905)
Accumulated other comprehensive loss	(18,747)		(372)
Total shareholders’ equity	412,293		429,471
Total liabilities and shareholders’ equity	$	1,964,050	$	1,914,211

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

	(Dollars in thousands)
Interest income:
Loans	$	12,444	$	12,056	$	24,100	$	24,318
Taxable investment income	2,320		1,618		4,137		3,163
Non-taxable investment income	114		128		235		263
Total interest income	14,878		13,802		28,472		27,744
Interest expense:
Deposits	950		2,379		1,832		5,197
Borrowed funds	766		1,515		1,539		3,039
Total interest expense	1,716		3,894		3,371		8,236
Net interest income	13,162		9,908		25,101		19,508
Provision (recovery of provision) for loan losses	594		(553)		(358)		(1,361)
Net interest income after provision for loan losses	12,568		10,461		25,459		20,869
Non-interest income:
Fees and service charges	365		537		1,165		1,063
Gain on sales and calls of securities available for sale	14		—		14		—

Loss on premises and equipment	—		(86)		—		(86)


Other	115		169		242		310
Total non-interest income	494		620		1,421		1,287
Non-interest expense:
Compensation and employee benefits	7,008		6,369		13,932		12,391

Occupancy and equipment	1,914		2,043		3,795		3,996
Loss on assets held for sale	—		—		—		21
Data processing	1,393		1,885		2,871		3,652

Advertising	349		521		868		991
Professional services	976		546		2,267		1,943
Directors fees	126		136		262		277
Recovery of provision for commitments and letters of credit	(108)		(473)		(278)		(704)
Federal deposit insurance	99		129		177		254


Other	1,262		645		2,341		1,351
Total non-interest expenses	13,019		11,801		26,235		24,172
Income (loss) before income tax expense (benefit)	43		(720)		645		(2,016)
Income tax expense (benefit)	3		283		52		(268)
Net income (loss)	$	40	$	(1,003)	$	593	$	(1,748)
Basic and diluted earnings per share	$	—	n/a		$	0.02	n/a
Weighted average shares outstanding	26,366,324		n/a		26,354,979		n/a

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

	(In thousands)
Net income (loss)	$	40	$	(1,003)	$	593	$	(1,748)
Other comprehensive (loss) income, net of tax (1):
Unrealized (loss) gain on securities available for sale:
Unrealized (loss) gain arising during the period	(10,805)		1,321		(26,544)		(1,433)
Reclassification adjustment for gains included in net income	(14)		—		(14)		—
	(10,819)		1,321		(26,558)		(1,433)

Unrealized gain (loss) on cash flow hedge:
Unrealized gain (loss) arising during the period	2,214		(1,149)		7,451		1,922
Reclassification adjustment for losses included in net income	146		254		468		497
	2,360		(895)		7,919		2,419
Post-Retirement plans:
Net benefit arising from plan amendment (2)	164		—		164		—


Reclassification adjustment for amortization of:

Net actuarial loss	52		37		100		74
	216		37		264		74

Total other comprehensive (loss) income, net of tax (1):	(8,243)		463		(18,375)		1,060
Comprehensive loss	$	(8,203)	$	(540)	$	(17,782)	$	(688)

(1) The 2022 period tax is inclusive of a deferred tax valuation allowance.

(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

Six Months Ended June 30, 2022 and 2021

(Unaudited)


	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Unallocated Common Stock Held by ESOP		Total Shareholders’ Equity

	(In thousands)
Balance at January 1, 2021	$	10	$	822	$	205,799	$	(1,031)	$	—	$	205,600
Net loss	—		—		(745)		—		—		(745)
Other comprehensive income	—		—		—		597		—		597
Balance at March 31, 2021	$	10	$	822	$	205,054	$	(434)	$	—	$	205,452
Net loss	��		—		(1,003)		—		—		(1,003)
Other comprehensive loss	—		—		—		463		—		463
Balance at June 30, 2021	$	10	$	822	$	204,051	$	29	$	—	$	204,912




Balance at January 1, 2022	$	285	$	282,006	169,457		$	(372)	$	(21,905)	$	429,471
Net income	—		—		553		—		—		553
Other comprehensive loss	—		—		—		(10,132)		—		(10,132)
ESOP shares committed to be released (22,818 shares)	—		94		—		—		228		322
Balance at March 31, 2022	$	285	$	282,100	$	170,010	$	(10,504)	$	(21,677)	$	420,214
Net loss	—		—		40		—		—		40
Other comprehensive income	—		—		—		(8,243)		—		(8,243)
ESOP shares committed to be released (22,818 shares)	—		54		—		—		228		282
Balance at June 30, 2022	$	285	$	282,154	$	170,050	$	(18,747)	$	(21,449)	$	412,293

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,
	2022		2021

	(In thousands)
Cash flows from operating activities
Net income (loss)	$	593	$	(1,748)
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization of premises and equipment	1,280		1,028
Change in right-of-use asset	1,294		1,346
(Accretion) amortization of: Deferred loan fees, costs, and discounts, net	(265)		(1,954)
Premiums and discounts on securities	566		377

Deferred income tax benefit	52		—


Recovery of provision for loan losses	(358)		(1,361)
Gain on sales and calls of securities	(14)		—
Loss on assets held for sale	—		21
Gain on premises and equipment	—		86

Increase in BOLI cash surrender value	(230)		(237)

ESOP expense	604		—

(Increase) decrease in interest and dividends receivable	(573)		242
Increase in other assets	(4,056)		(198)
Decrease in other liabilities	(102)		(227)
Change in lease liability	(1,235)		(939)
Net cash used in operating activities	(2,444)		(3,564)

Cash flows from investing activities
Net (increase) decrease in loans	(68,711)		29,253
Purchases of residential mortgage loans	(71,703)		—

Purchases of securities available for sale	(80,039)		(91,349)

Purchases of securities held to maturity	(6,600)		—

Proceeds from calls of securities held to maturity	—		4,000
Proceeds from sales and calls of securities available for sale	2,408		4,000
Principal payments and maturities on securities available for sale	23,264		35,326
Purchases of other investments	(150)		—

Purchase of Federal Home Loan Bank stock	(2,130)		—
Redemption of Federal Home Loan Bank stock	1,125		833

Purchases of premises and equipment	(3,838)		(7,312)
Net cash used in investing activities	(206,374)		(25,249)

Cash flows from financing activities
Net increase in deposits	49,634		651,883

Proceeds from advances from Federal Home Loan Bank	268,000		319,000
Repayments of advances from Federal Home Loan Bank	(248,000)		(333,000)
Net increase (decrease) in advances by borrowers for taxes and insurance	544		(424)



Net cash provided by financing activities	70,178		637,459
Net (decrease) increase in cash and cash equivalents	(138,640)		608,646
Cash and cash equivalents at beginning of period	193,446		316,445
Cash and cash equivalents at end of period	$	54,806	$	925,091

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

Consolidated Statements of Cash Flows

(Unaudited)





Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	3,335	$	8,197
Income taxes	120		150

Supplemental noncash disclosures
Transfers of assets to held for sale	$	—	$	892
Lease liabilities arising from obtaining right-of-use assets	—		2,168

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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., and 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.

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 also 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. Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for the preparation of the Quarterly Reports on Form 10-Q and with Regulation S-X. The interim unaudited 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 three and six months ended June 30, 2022 are not necessarily indicative of the results of operations that may be expected for subsequent periods or the full year results. These financial statements should be read in conjunction with the annual financial statements and notes thereto included in Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed on March 14, 2022.

The accounting policies of the Company conform to U.S. GAAP and to general practice within the financial services industry. A discussion of these policies can be found in Note 1, Summary of Significant Accounting Policies, included in the Company’s 2021 Annual Report on Form 10-K. There have been no changes to the Company’s significant accounting policies since December 31, 2021.

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 three and six months ended June 30, 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 not accounted for as insurance (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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 is required to adopt this standard by 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 increase to the Company's accounting for credit losses on financial instruments. To prepare for implementation of the new standard the Company has 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 model development, data governance and operational controls to support the adoption of this ASU. A detailed implementation plan has been developed which includes assessing the processes, portfolio segmentation, model development and validation, and system requirements and resources needed. The Company has begun to evaluate the effect that this ASU will have on its financial statements and related disclosures. The Company expects the new credit 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 portfolio, 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.

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 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. 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.

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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

NOTE 2 – SECURITIES

The amortized cost of securities available for sale and their estimated fair values at June 30, 2022 and December 31, 2021 are as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

	(In thousands)
June 30, 2022
Available for sale
U.S. Treasury Note	$	46,938	$	—	$	(2,304)	$	44,634
Corporate Bonds	85,092		55		(3,852)		81,295
U.S. Government agency obligations	22,036		24		(745)		21,315
Obligations issued by U.S. states and their political subdivisions	17,195		68		(350)		16,913
Mortgage-backed securities: Residential one-to-four family	173,406		3		(17,234)		156,175
Multifamily	27,509		—		(832)		26,677
Asset-backed securities	5,527		—		(353)		5,174
Total available-for-sale	$	377,703	$	150	$	(25,670)	$	352,183


December 31, 2021
Available for sale
U.S. Treasury Note	$	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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The amortized cost of securities held-to-maturity and their estimated fair values at June 30, 2022 and December 31, 2021, are as follows:


	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value

	(In thousands)
June 30, 2022
Held-to-maturity
Corporate bonds	$	14,600	$	—	$	(1,037)	$	13,563

Asset-backed securities	15,194		—		(1,829)		13,365
Total held-to-maturity	$	29,794	$	—	$	(2,866)	$	26,928



	(In thousands)
December 31, 2021
Held-to-maturity
Corporate bonds	$	8,000	$	—	$	(59)	$	7,941
Asset-backed securities	15,281		—		(373)		14,908

Total Held-to-maturity	$	23,281	$	—	$	(432)	$	22,849

Proceeds from sales and calls of securities available for sale totaled $2.4 million, resulting in gross realized gains of $14 thousand and no gross losses realized during the three and six months ended June 30, 2022, respectively. During the three and six months ended June 30, 2021, proceeds from sales and calls of securities available for sale totaled $4.0 million, resulting in no gain or loss realized.

Securities pledged at June 30, 2022 and December 31, 2021, had a carrying amount of $4.5 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-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.


	June 30, 2022
	Amortized Cost		Estimated Fair Value

	(In thousands)
Available-for-sale
Due in one year or less	$	4,538	$	4,542
Due from one year to five years	100,219		96,386
Due from five to ten years	50,184		48,033
Due after ten years	16,320		15,196
Mortgage-backed and asset-backed securities	206,442		188,026
Total	$	377,703	$	352,183

Held-to-maturity

Due from one year to five years	$	18,645	$	17,164
Due from five to ten years	11,149		9,764

Total	$	29,794	$	26,928

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize available-for-sale securities with unrealized losses at June 30, 2022 and December 31, 2021, aggregated by major security type and length of time in a continuous loss position.


	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)
June 30, 2022
Available for sale
U.S. Treasury Note	$	(1,424)	$	38,604	$	(880)	$	6,030	$	(2,304)	$	44,634
Corporate Bonds	(3,379)		67,385		(473)		4,858		(3,852)		72,243
U.S. Government agency obligations	(437)		9,562		(308)		6,524		(745)		16,086
Obligations issued by U.S. states and their political subdivisions	(350)		6,172		—		—		(350)		6,172
Mortgage-backed securities:
Residential one-to-four family	(10,349)		109,118		(6,885)		46,963		(17,234)		156,081
Multifamily	(697)		26,121		(135)		556		(832)		26,677
Asset-backed securities	(168)		3,832		(185)		1,342		(353)		5,174
Total available-for-sale	$	(16,804)	$	260,794	$	(8,866)	$	66,273	$	(25,670)	$	327,067

	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, 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

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 0 other-than-temporary impairment (“OTTI”) charges for the three and six months ended June 30, 2022 or June 30, 2021, respectively. The number of available for sale securities in an unrealized loss position at June 30, 2022 totaled 96, compared with 44 at December 31, 2021. The increase in the number of securities in an unrealized loss position at June 30, 2022 was due to higher current market interest rates compared to rates at December 31, 2021. Of the 96 available for sale securities in an unrealized loss position at June 30, 2022, 59 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 5 municipal bonds, 29 investment grade corporate bonds and 3 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).

The Company did not have any held to maturity securities in an unrecognized loss position for more than twelve months at June 30, 2022 and December 31, 2021. The number of held to maturity securities in an unrecognized loss position at June 30, 2022 totaled 9, compared with 4 at December 31, 2021. The increase in the number of securities in an unrecognized loss position at June 30, 2022, was due to higher current market interest rates compared to rates at December 31, 2021. At June 30, 2022, held to maturity securities in an aggregate unrecognized loss position for less than twelve months included 2 asset-backed securities with total fair value of $13.4 million in an aggregate unrecognized loss position of $1.8 million and 7 investment grade corporate bonds with total

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

fair value of $13.6 million in an aggregate unrecognized loss position of $1.0 million. At December 31, 2021, held to maturity securities in an aggregate unrecognized loss position for less than twelve months included 2 asset-backed securities with total fair value of $14.9 million in an aggregate unrecognized loss position of $373 thousand and 2 investment grade corporate bonds with total fair value of $6.9 million in an aggregate unrecognized loss position of $59 thousand.

NOTE 3 – LOANS RECEIVABLE, NET

A summary of loans receivable, net at June 30, 2022 and December 31, 2021, is as follows:


	June 30, 2022		December 31, 2021

	(In thousands)
Residential one-to-four family	$	590,151	$	560,976
Multifamily	579,183		515,240
Non-residential	211,683		141,561
Construction	21,010		23,419
Junior liens	16,421		18,464
Commercial and industrial (including PPP)	5,957		21,563
Consumer and other	47		87
Total gross loans	1,424,452		1,281,310
Deferred fees, costs and premiums and discounts, net	3,821		6,299
Total loans	1,428,273		1,287,609
Allowance for loan losses	(14,050)		(14,425)
Loans receivable, net	$	1,414,223	$	1,273,184

The commercial and industrial portfolio is comprised of general commercial and industrial loans, including Small Business Administration (“SBA”) and Paycheck Protection Program (“PPP”) loans. At June 30, 2022, PPP loans totaled $2.0 million, 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 Loans consist of SBA Paycheck Protection Program loans and other loans that are originated or purchased. This program originated from the Coronavirus Aid Relief and Economic Security (“CARES”) Act. The SBA will forgive loans if all employee retention criteria are met, and the funds are used for eligible expenses.

•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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following tables presents the activity in the Company’s allowance for loan losses by class of loans based on the most recent analysis performed for the three and six months ended June 30, 2022, and 2021:


	Residential One-To-Four Family		Multifamily		Non-Residential		Construction		Junior Liens		Commercial and Industrial (including PPP)		Consumer and Other		Unallocated		Total

	(In thousands)
Three Months Ended June 30, 2022
Allowance for loan losses
Beginning balance	$	2,610	$	4,776	$	3,465	$	1,905	$	549	$	71	$	—	$	89	$	13,465
Charge-offs	—		—		—		—		—		—		(9)		—		(9)
Recoveries	—		—		—		—		—		—		—		—		—
(Recovery of) provision for loan losses	(28)		363		175		189		(81)		(29)		9		(4)		594
Total ending allowance balance	$	2,582	$	5,139	$	3,640	$	2,094	$	468	$	42	$	—	$	85	$	14,050

Six Months Ended June 30, 2022
Allowance for loan losses
Beginning balance	$	2,822	$	5,263	$	2,846	$	2,678	$	636	$	51	$	38	$	91	$	14,425
Charge-offs	—		—		—		—		—		—		(19)		—		(19)
Recoveries	—		—		—		—		—		—		2		—		2
(Recovery of) provision for loan losses	(240)		(124)		794		(584)		(168)		(9)		(21)		(6)		(358)
Total ending allowance balance	$	2,582	$	5,139	$	3,640	$	2,094	$	468	$	42	$	—	$	85	$	14,050

Three Months Ended June 30, 2021
Allowance for loan losses
Beginning balance	$	3,342	$	5,748	$	3,145	$	2,928	$	813	$	7	$	44	$	123	$	16,150
Charge-offs	—		—		—		—		—		—		(4)		—		(4)
Recoveries	—		—		—		—		—		—		—		—		—
(Recovery of) provision for loan losses	(424)		(398)		98		257		(55)		(3)		2		(30)		(553)
Total ending allowance balance	$	2,918	$	5,350	$	3,243	$	3,185	$	758	$	4	$	42	$	93	$	15,593

Six Months Ended June 30, 2021
Allowance for loan losses
Beginning balance	$	3,579	$	5,460	$	3,244	$	3,655	$	916	$	2	$	48	$	55	$	16,959
Charge-offs	—		—		—		—		—		—		(5)		—		(5)
Recoveries	—		—		—		—		—		—		—		—		—
(Recovery of) provision for loan losses	(661)		(110)		(1)		(470)		(158)		2		(1)		38		(1,361)
Total ending allowance balance	$	2,918	$	5,350	$	3,243	$	3,185	$	758	$	4	$	42	$	93	$	15,593

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 June 30, 2022 and December 31, 2021:


	Residential One-To-Four Family		Multifamily		Non-Residential		Construction		Junior Liens		Commercial and Industrial (including PPP)		Consumer and Other		Unallocated		Total

	(In thousands)
June 30, 2022
Allowance for loan losses:
Individually evaluated for impairment	$	30	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	30
Collectively evaluated for impairment	2,552		5,139		3,640		2,094		468		42		—		85		14,020
Total	$	2,582	$	5,139	$	3,640	$	2,094	$	468	$	42	$	—	$	85	$	14,050

Loans receivable:
Individually evaluated for impairment	$	9,179	$	659	$	3,595	$	—	$	54	$	—	$	—	$	—	$	13,487
Collectively evaluated for impairment	584,384		579,401		207,834		20,762		16,483		5,875		47		—		1,414,786
Total	$	593,563	$	580,060	$	211,429	$	20,762	$	16,537	$	5,875	$	47	$	—	$	1,428,273


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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents information related to impaired loans by class of loans as of June 30, 2022, June 30, 2021 and December 31, 2021:


	June 30, 2022						Six Months Ended June 30, 2022
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized

	(In thousands)
With no related allowance recorded:
Residential one-to-four family	$	7,771	$	8,054	$	—	$	8,088	$	61	$	58
Multifamily	659		659		—		671		13		10
Non-residential	3,755		3,595		—		3,645		89		78
Construction	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Junior liens	54		54		—		55		1		1
	12,239		12,362		—		12,459		164		147
With an allowance recorded:
Residential one-to-four family	1,122		1,125		30		743		23		20
Multifamily	—		—		—		—		—		—
Non-residential	—		—		—		—		—		—
Construction	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—
	1,122		1,125		30		743		23		20
Total	$	13,361	$	13,487	$	30	$	13,202	$	187	$	167

	June 30, 2021						Six Months Ended June 30, 2021
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized

	(In thousands)
With no related allowance recorded:
Residential one-to-four family	$	9,362	$	9,608	$	—	$	11,578	$	6	$	5
Multifamily	1,675		1,048		—		1,562		24		21
Non-residential	4,881		4,718		—		5,696		114		101
Construction and land	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Junior liens	57		57		—		67		1		1
	15,975		15,431		—		18,903		145		128
With an allowance recorded:
Residential one-to-four family	1,077		1,077		36		1,626		37		33
Multifamily	—		—		—		—		—		—
Non-residential	—		—		—		—		—		—
Construction and land	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Consumer and other	41		41		41		50		1		1
	1,118		1,118		77		1,676		38		34
Total	$	17,093	$	16,549	$	77	$	20,579	$	183	$	162

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	December 31, 2021						Twelve Months Ended December 31, 2021
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized

	(In thousands)
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	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Junior liens	55		55		—		57		3		3
	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	—		—		—		—		—		—
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

The recorded investment in loans includes deferred fees, costs and discounts. For purposes of this disclosure, the unpaid principal balance is not reduced for partial charge-offs.

The total recorded investment of loans whose terms have been modified in TDRs was $4.9 million and $5.4 million as of June 30, 2022 and December 31, 2021, respectively. The Company has allocated $30 thousand and $68 thousand, respectively, of specific reserves to TDR loans as of June 30, 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 June 30, 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 June 30, 2022 and June 30, 2021.

TDRs during the three and six months ended June 30, 2022 totaled $453 thousand, respectively. There were no TDRs during the three and six months ended June 30, 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. At December 31, 2021, there were no deferrals related to the Cares Act.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the recorded investment in non-accrual loans and loans past due 90 days or more still on accrual as of June 30, 2022 and December 31, 2021:


	Nonaccrual				Loans Past Due 90 Days and Still Accruing
	June 30, 2022		December 31, 2021		June 30, 2022		December 31, 2021

	(In thousands)
Residential one-to-four family	$	9,268	$	10,805	$	—	$	—
Multifamily	—		139		—		—
Non-residential	676		857		—		—
Construction	—		—		—		—
Commercial and industrial (including PPP)	—		—		—		116
Junior liens	54		182		—		—
Total	$	9,998	$	11,983	$	—	$	116

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the recorded investment in past due and current loans by loan portfolio class as of June 30, 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)
June 30, 2022
Residential one-to-four family	$	1,012	$	449	$	7,797	$	9,258	$	584,305	$	593,563
Multifamily	—		—		—		—		580,060		580,060
Non-residential	—		—		216		216		211,213		211,429
Construction	—		—		—		—		20,762		20,762
Junior liens	—		—		54		54		16,483		16,537
Commercial and Industrial (including PPP)	—		—		—		—		5,875		5,875
Consumer and other	—		—		—		—		47		47
Total	$	1,012	$	449	$	8,067	$	9,528	$	1,418,745	$	1,428,273

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	—		—		—		—		23,420		23,420
Junior liens	—		53		182		235		18,315		18,550
Commercial and Industrial (including PPP)	11		57		116		184		20,782		20,966
Consumer and other	0		—		—		—		88		88
Total	$	1,747	$	567	$	9,615	$	11,929	$	1,275,680	$	1,287,609

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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. The Company used the following definitions for risk ratings for loan classification:

Pass – Loans classified as pass are loans performing under the original contractual terms, do not currently pose any identified risk and can range from the highest to pass/watch quality, depending on the degree of potential risk.

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. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset even though partial recovery may be effected in the future.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the risk category of loans by class of loans based on the most recent analysis performed as of June 30, 2022 and December 31, 2021:


	Pass		Special Mention		Substandard		Doubtful / Loss		Total

	(In thousands)
June 30, 2022
Residential one-to-four family	$	583,851	$	266	$	9,446	$	—	$	593,563
Multifamily	579,534		—		526		—		580,060
Non-residential	209,442		1,011		976		—		211,429
Construction	20,762		—		—		—		20,762
Junior liens	16,483		—		54		—		16,537
Commercial and Industrial (including PPP)	5,875		—		—		0		5,875
Consumer and other	47		—		—		—		47
Total	$	1,415,994	$	1,277	$	11,002	$	—	$	1,428,273

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	23,420		—		—		—		23,420
Junior liens	18,368		—		182		—		18,550
Commercial and Industrial (including PPP)	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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – LEASES

Leases and Lease Obligations:

The Company leases certain office space and equipment under operating leases. These leases have original terms ranging from one year to 40 years. Operating lease liabilities and right-of-use assets are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term.

As of June 30, 2022, the Company had the following related to operating leases:


	June 30, 2022				December 31, 2021

	(In thousands)
Right-of-use assets	$	24,163			$	25,457
Lease liabilities	25,461				26,696
Weighted average remaining lease term for operating leases			11.9 years		12.2 years
Weighted average discount rate used in the measurement of lease liabilities			1.99	%	1.97		%

The following table is a summary of the Company’s components of net lease cost for the three and six months ended June 30, 2022 and 2021. The variable lease cost primarily represents variable payments such as common area maintenance and utilities.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

	(In thousands)
Operating lease cost	$	770	$	765	$	1,540	$	1,512
Finance lease cost	6		6		12		12
Variable lease cost	59		67		113		93
Total lease cost included as a component of occupancy and equipment	$	835	$	838	$	1,665	$	1,617

The following table presents supplemental cash flow information related to operating leases:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

	(In thousands)
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases	$	768	$	852	$	1,525	$	1,258
Operating lease liabilities arising from obtaining right-of-use assets (non-cash):
Operating leases	$	—	$	2,168	$	—	$	2,168

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Future undiscounted lease payments for operating leases with initial terms of one year or more as of June 30, 2022 are as follows:


Through June 30,	(In thousands)
2023	$	2,939
2024	2,710
2025	2,499
2026	2,310
2027	2,227
Thereafter	16,177
Total undiscounted lease payments	28,862
Less: imputed interest	(3,401)
Total	$	25,461

NOTE 5 – DEPOSITS

Deposits at June 30, 2022 and December 31, 2021, are summarized as follows:


	June 30, 2022		December 31, 2021

	(In thousands)
Non-interest bearing deposits	$	52,036	$	44,894
NOW and demand accounts	455,776		363,419
Savings	358,166		364,932
Time deposits	430,696		473,795
Total	$	1,296,674	$	1,247,040

Money market accounts are included within the NOW and demand accounts and savings captions. Included in time deposits are brokered deposits totaling $12.0 million at June 30, 2022. There were no brokered deposits at December 31, 2021.

Time deposits mature as follows for the years ending December 31:


	(In thousands)
Remainder of 2022	$	201,843
2023	174,784
2024	36,405
2025	10,607
2026	5,564
2027	1,493
	$	430,696

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - EMPLOYEE STOCK OWNERSHIP PLAN

The Company maintains an 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 in a suspense account for allocation among 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 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 increase participants accounts.

At June 30, 2022, the principal balance on the ESOP loan is $21.8 million. There were no contributions to the ESOP during the three and six months ended June 30, 2022, as loan payments are made annually during the fourth quarter of each year. ESOP shares are committed for release from unallocated and compensation expense are recognized over the service period. For the three months ended June 30, 2022, 22,818 shares were committed to be released from unallocated and ESOP compensation expense totaled $282 thousand. For the six months ended June 30, 2022, 45,636 shares were committed to be released from unallocated and ESOP compensation expense totaled $604 thousand. There was no ESOP compensation expense for the three and six months ended June 30, 2021.

Shares held by the ESOP were as follows:


	June 30, 2022
	(Dollars in thousands)

Allocated to participants	91,272
Unallocated	2,190,528
Total ESOP shares	2,281,800

Fair value of unallocated shares at June 30, 2022	$	26,264

The fair value of the unallocated shares at June 30, 2022 was computed using the closing trading price of the Company’s common stock on June 30, 2022.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – DERIVATIVES AND HEDGING ACTIVITIES

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 June 30, 2022 and December 31, 2021, were designated as cash flow hedges of certain Federal Home Loan Bank 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:


	June 30, 2022			December 31, 2021

	(Dollars in thousands)
Notional amounts	$	109,000		$	109,000
Weighted average pay rates	1.4577		%	1.4577		%
Weighted average receive rates	1.5944		%	0.1742		%
Weighted average maturity	4.7 years			5.3 years

Gross unrealized gain included in other assets	$	7,672		$	1,313
Gross unrealized loss included in other liabilities	—			1,559
Unrealized gains (losses), net	$	7,672		$	(246)

At June 30, 2022, the Company held $8.4 million as cash collateral pledged from the counterparty for these interest-rate swaps. At June 30, 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 expense recorded on these swap transactions is reported as a component of interest expense on FHLB advances. Interest expense during the three months ended June 30, 2022 and 2021 totaled $146 thousand and $353 thousand, respectively. Interest expense for the six months ended June 30, 2022 and 2021 totaled $468 thousand and $690 thousand, respectively. At June 30, 2022, the Company expected $435 thousand of the unrealized gain to be reclassified as a reduction to interest expense during the remainder of 2022.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Cash Flow Hedge

The effect of cash flow hedge accounting on accumulated other comprehensive income for the three and six months ended June 30, 2022 and June 30, 2021 is as follows:


	Amount of Gain (Loss) Recognized in OCI (Net of Tax) 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)
Three months ended June 30, 2022
Interest rate contracts	$	2,360	Interest Expense	$	(146)

Three months ended June 30, 2021
Interest rate contracts	$	(895)	Interest Expense	$	(353)

Six Months Ended June 30, 2022
Interest rate contracts	$	7,919	Interest Expense	$	(468)

Six months ended June 30, 2021
Interest rate contracts	$	2,419	Interest Expense	$	(690)
(1) Net of tax, adjusted for deferred tax valuation allowance, at June 30, 2022. There was no deferred tax valuation allowance at June 30, 2021.

NOTE 8 – 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 post-retirement plans, as of the consolidated balance sheet dates, net of the related tax effect.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.


	Three Months Ended June 30,
	2022						2021
	Before Tax		Tax Effect		After Tax		Before Tax		Tax Effect		After Tax

	(In thousands)
Components of Other Comprehensive (Loss) Income:
Unrealized (loss) gain on securities available for sale:
Unrealized (loss) gain arising during the period	$	(10,808)	$	3	$	(10,805)	$	1,888	$	(567)	$	1,321
Reclassification adjustment for gains included in net income	(14)		—		(14)		—		—		—
Total	(10,822)		3		(10,819)		1,888		(567)		1,321
Unrealized gain (loss) on cash flow hedge:
Unrealized gain (loss) arising during the period	2,214		—		2,214		(1,598)		449		(1,149)
Reclassification adjustment for losses included in net income	146		—		146		353		(99)		254
Total	2,360		—		2,360		(1,245)		350		(895)
Post-Retirement plans:
Net benefit arising from plan amendment (1)	164		—		164		—		—		—
Reclassification adjustment for amortization of:

Net actuarial loss	52		—		52		52		(15)		37
Total	216		—		216		52		(15)		37
Total other comprehensive (loss) income:	$	(8,246)	$	3	$	(8,243)	$	695	$	(232)	$	463

(1) Benefit arising from plan amendment approved in June 2022.


	Six Months Ended June 30,
	2022						2021
	Before Tax		Tax Effect		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	$	(26,596)	$	52	$	(26,544)	$	(1,753)	$	320	$	(1,433)
Reclassification adjustment for gains included in net income	(14)		—		(14)		—		—		—
Total	(26,610)		52		(26,558)		(1,753)		320		(1,433)
Unrealized gain on cash flow hedge:
Unrealized gain arising during the period	7,451		—		7,451		2,676		(754)		1,922
Reclassification adjustment for losses included in net income	468		—		468		690		(193)		497
Total	7,919		—		7,919		3,366		(947)		2,419
Post-Retirement plans:
Net benefit arising from plan amendment (1)	164		—		164		—		—		—
Reclassification adjustment for amortization of:

Net actuarial loss	100		—		100		104		(30)		74
Total	264		—		264		104		(30)		74
Total other comprehensive (loss) income:	$	(18,427)	$	52	$	(18,375)	$	1,717	$	(657)	$	1,060

(1) Benefit arising from plan amendment approved in June 2022.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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	7,451		(26,544)		164		(18,929)
Amounts reclassified from accumulated other comprehensive income	468		(14)		100		554
Net current period other comprehensive gain (loss)	7,919		(26,558)		264		(18,375)
Balance at June 30, 2022	$	7,673	$	(25,467)	$	(953)	$	(18,747)





Balance at December 31, 2020	$	(3,986)	$	4,208	$	(1,253)	$	(1,031)
Other comprehensive income (loss) before reclassification	1,922		(1,433)		—		489
Amounts reclassified from accumulated other comprehensive income	497		—		74		571
Net current period other comprehensive gain (loss)	2,419		(1,433)		74		1,060
Balance at June 30, 2021	$	(1,567)	$	2,775	$	(1,179)	$	29

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	Three Months Ended June 30,				Six Months Ended June 30,				Affected Line Item in the Statement Where Net Income is Presented
	2022		2021		2022		2021

	(In thousands)
Unrealized gains on securities available for sale: Realized (losses) gains on securities available for sale	$	14	$	—	$	14	$	—	(Loss) gain on sales and calls of securities
Losses on cash flow hedges:
Interest rate contracts	(146)		(353)		(468)		(690)		Interest (expense) income

Amortization of post-retirement plan items:
Net actuarial loss	(52)		(52)		(100)		(104)		Compensation and employee benefits
Total tax effect	—		114		—		223		Income tax expense
Total reclassification for the period, net of tax	$	(184)	$	(291)	$	(554)	$	(571)

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – 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, 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 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.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the fair value of assets and liabilities as of June 30, 2022:


			Fair Value Measurements at June 30, 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 Note	$	44,634	$	44,634	$	—	$	—
Domestic Corporate Bonds	81,295		—		81,295		—
U.S. Government agency obligations	21,315		16,417		4,898		—
Obligations issued by U.S. states and their political subdivisions	16,913		—		16,913		—
Mortgage-backed securities:
Residential one-to-four family	156,175		—		156,175		—
Multifamily	26,677		—		26,677		—
Asset-backed securities	5,174		—		5,174		—
Total securities available for sale	352,183		61,051		291,132		—
Derivatives	7,672		—		7,672		—

Total financial assets measured on a recurring basis	$	359,855	$	61,051	$	298,804	$	—

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 Note	$	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	$	—

Financial Liabilities
Derivatives	$	246	$	—	$	246	$	—

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 June 30, 2022 and December 31, 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, which are excluded from the table below.


			Fair Value Measurements at June 30, 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	$	29,794	$	—	$	26,928	$	—
Loans, net	1,414,223		—		—		1,330,052

Financial liabilities

Time Deposits	430,696		—		420,751		—
Federal Home Loan advances	205,500		—		200,675		—


			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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – 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 three and six months ended June 30, 2022 and 2021, respectively.


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

	(In thousands)				(In thousands)
Noninterest income
Service charges on deposits	$	267	$	266	$	496	$	459


Interchange income	10		9		19		16
Total Revenue from Contracts with Customers	$	277	$	275	$	515	$	475

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 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 are recognized at the point in time that the overdraft occurs. 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.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - EARNINGS PER SHARE

Basic earnings 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.

There were no securities or other contracts that had a dilutive effect during the three and six months ended June 30, 2022, and therefore the weighted-average common shares outstanding used to calculate both basic and diluted EPS are the same. Shares held by the Employee Stock Ownership Plan (“ESOP”) that have not been 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. Earnings per share data is not applicable for the three and six months ended June 30, 2021 as the Company had no shares outstanding.


	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
	(Income In thousands)
Net income applicable to common shares	$	40	$	593

Average number of common shares outstanding	28,522,500		28,522,500
Less: Average unallocated ESOP shares	2,156,176		2,167,521
Average number of common shares outstanding used to calculate basic earnings per common share	26,366,324		26,354,979
Common stock equivalents	—		—
Earnings per common share basic and diluted	$	—	$	0.02

NOTE 12 - 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 announced it had adopted a program to repurchase up to 2,852,250 shares, or 10%, of its outstanding common stock. As of August 11, 2022, 105,759 shares totaling $1.2 million had been acquired under the repurchase plan at an average price per share of $11.69.

ITEM 2. 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 June 30, 2022, and our results of operations for the three and six month periods ended June 30, 2022 and 2021. This section should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto of the Company appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q that are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and are intended to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements, which are based on certain current assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of the words “may,” “will,” “should,” “could,” “would,” “plan,” “potential,” “estimate,” “project,” “believe,” “intend,” “anticipate,” “expect,” “target” and similar expressions.

Forward-looking statements are based on current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: conditions related to the global coronavirus pandemic that has and will continue to pose risks and could harm our business and results of operations; general economic conditions, either nationally or in our market areas, that are worse than expected; changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for loan losses; our ability to access cost-effective funding; fluctuations in real estate values and both residential and commercial real estate market conditions; demand for loans and deposits in our market area; our ability to implement and change our business strategies; competition among depository and other financial institutions; inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make; adverse changes in the securities or secondary mortgage markets; changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums; changes in monetary or fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; changes in the quality or composition of our loan or investment portfolios; technological changes that may be more difficult or expensive than expected; a failure or breach of our operational or security systems or infrastructure, including cyber-attacks; the inability of third party providers to perform as expected; our ability to manage market risk, credit risk and operational risk in the current economic environment; our ability to enter new markets successfully and capitalize on growth opportunities; our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related there to; changes in consumer spending, borrowing and savings habits; changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board; our ability to retain key employees; the ability of the U.S. Government to manage federal debt limits; and changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results could differ from these estimates. The Company has identified the allowance for loan losses to be a critical accounting policy. This accounting policy is discussed in Note 1 to our Consolidated Financial Statements included in Part I, Item 1.

COVID-19 Pandemic

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 ongoing and dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business.

Comparison of Operating Results for the Three and Six Month Periods Ended June 30, 2022 and 2021

General. Net income was $40 thousand for the three months ended June 30, 2022 compared to a net loss of $1.0 million for the three months ended June 30, 2021. Net income was $593 thousand for the six months ended June 30, 2022 compared to a net loss of $1.7 million for the six months ended June 30, 2021.

Interest Income. Interest income increased $1.1 million, or 7.8%, to $14.9 million for the three months ended June 30, 2022 from $13.8 million for the three months ended June 30, 2021, driven by an increase of $723 thousand in interest income from securities and $388 thousand from loans. The average balance of securities and loans increased $125.8 million and $83.6 million, respectively, while the average balance of cash decreased $333.9 million. The yield on average interest-earning assets increased 42 basis points to 3.19% for the three months ended June 30, 2022 from 2.77% for three months ended June 30, 2021.

Interest income increased $728 thousand, or 2.6%, to $28.5 million for the six months ended June 30, 2022 from $27.7 million for the six months ended June 30, 2021, primarily due to an increase of $1.1 million in interest income from securities partially offset by a decrease of $218 thousand in interest income from loans. The average balance of securities and loans increased $117.9 million and $34.1 million, respectively, while the average balance of cash decreased $223.3 million. Interest income and average balances of loans for the six months ended June 30, 2022 as compared to the 2021 period was lower driven by elevated PPP fee income in the prior periodo. The yield on average interest-earning assets increased 20 basis points to 3.09% for the six months ended June 30, 2022 from 2.89% for six months ended June 30, 2021.

Interest Expense. Interest expense decreased $2.2 million, or 55.9%, to $1.7 million for the three months ended June 30, 2022 compared to $3.9 million for the three months ended June 30, 2021, driven by a decrease of $1.4 million in interest expense on deposits, coupled with a decrease of $749 thousand in interest expense on borrowings. The average balance of interest-bearing deposits and FHLB advances decreased $111.2 million and $131.7 million, respectively. An increase of $120.7 million in the average balance of interest-bearing core deposits partially offset by a $231.9 million decrease in the average balances of higher cost time deposits drove a 33 basis point decrease in the cost of deposits and a 39 basis point decrease in the cost of funds. The cost of average interest-bearing liabilities decreased 46 basis points to 0.48% for the three months ended June 30, 2022 from 0.94% for three months ended June 30, 2021.

For the six months ended June 30, 2022, interest expense decreased $4.9 million, or 59.1%, to $3.4 million for the six months ended June 30, 2022 compared to $8.2 million for the six months ended June 30, 2021, driven by a decrease of $3.4 million in interest expense on deposits, coupled with a decrease of $1.5 million in interest expense

on borrowings. The average balance of interest-bearing deposits and FHLB advances decreased $122.1 million and $135.5 million, respectively. An increase of $116.3 million in the average balance of interest-bearing core deposits partially offset by a $238.4 million decrease in the average balance of higher cost time deposits drove a 44 basis point decrease in the cost of deposits and a 47 basis point decrease in the cost of funds. The cost of average interest-bearing liabilities decreased 51 basis points to 0.48% for the six months ended June 30, 2022 from 0.99% for six months ended June 30, 2021.

Net Interest Income. For the three months ended June 30, 2022 net interest income was $13.2 million, an increase of $3.3 million, or 33%, compared to $9.9 million for the same period in 2021. Net interest spread increased 88 basis points to 2.71% and net interest margin increased 84 basis points to 1.83%.

For the six months ended June 30, 2022 net interest income was $25.1 million, an increase of $5.6 million, or compared to $19.5 million for same period in 2021. Net interest spread increased 73 basis points to 2.62% and net interest margin increased by 69 basis points to 1.88%.

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 provision for loan losses of $594 thousand for the three months ended June 30, 2022 compared to a release of $553 thousand for the three months ended June 30, 2021. The provision for the three month period ended June 30, 2022 was driven by growth in the multifamily and non-residential portfolios. For the six months ended June 30, 2022, the Company recorded a release of provision for loan losses of $358 thousand compared to a release of $1.4 million for the six months ended June 30, 2021. The release for the six month period ended June 30, 2022 was driven by significant pay downs within the construction portfolio during the three months ended March 31, 2022 coupled with a generally improving economic environment partially offset by the growth in the multifamily and non-residential portfolios.

Total non-performing loans decreased by $2.0 million to $10.0 million at June 30, 2022 compared to $12.0 million at December 31, 2021.

Non-interest Income. Non-interest income decreased $126 thousand, or 20.3%, to $494 thousand for the three months ended June 30, 2022 from $620 thousand for the three months ended June 30, 2021, and increased $134 thousand, or 10.4%, to $1.4 million for the six months ended June 30, 2022 compared to $1.3 million for the six months ended June 30, 2021. The fluctuations in non-interest income for the three and six month periods ending June 30, 2022 were primarily related to prepayment fee activity. Prepayment fees decreased $163 thousand for the three months ended June 30, 2022 to $44 thousand from $207 thousand for the three months ended June 30, 2021. For the six months ended June 30, 2022, prepayment fees increased $175 thousand to $562 thousand from $387 thousand for the six months ended June 30, 2021. Overdraft fees recognized during the three and six months ended June 30, 2022 totaled $69 thousand and $138 thousand, respectively, compared to $52 thousand and $100 thousand for the 2021 periods. Account maintenance fees recognized during the three and six months ended June 30, 2022 totaled $16 thousand and $33 thousand, respectively, compared to $20 thousand and $40 thousand for the 2021 periods.

Non-interest Expense. Non-interest expense increased $1.2 million, or 10.3%, to $13.0 million for the three months ended June 30, 2022 from $11.8 million for the three months ended June 30, 2021 and increased $2.1 million, or 8.5%, to $26.2 million for the six months ended June 30, 2022 from $24.2 million for the six months ended June 30, 2021. For the three months ended June 30, 2022, the increase was driven by increased compensation and benefits costs as the Company continued to hire and retain talent, an increase in fees for professional services due to higher

audit, compliance and CECL implementation costs, an increase in other expenses for additional cost related to being a publicly held company and a lower recovery in the provision for commitments and letters of credit. These increases were partially offset by a decrease in data processing costs. The increase in the six month period was also driven by the items described above for the three month period.

Income Tax Expense. The Company recognized income tax expense of $3 thousand for the three months ended June 30, 2022 compared to an income tax expense of $283 thousand for the three months ended June 30, 2021, and income tax expense of $52 thousand for the six months ended June 30, 2022 compared to an income tax benefit of $268 thousand for the six months ended June 30, 2021. The increase in tax expense for the 2022 periods was driven by the $763 thousand and $2.7 million increase in pre-tax income for the three and six months ended June 30, 2022, respectively. The effective tax rate for the six months ended June 30, 2022 and 2021 was 8.1% and (13.3)%, respectively.

At December 31, 2021, the net deferred tax asset totaled $16.8 million. Management assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax asset. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2021. 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, 2021, a valuation allowance of $16.8 million was recorded.

During the six months ended June 30, 2022, the deferred tax asset, net of the deferred tax liability, increased $4.7 million to $21.5 million. The increase is related to net unrealized losses that arose during the period within Accumulated Other Comprehensive Income (“AOCI”). These losses are primarily due to higher current market interest rates compared to rates at December 31, 2021. The Company recorded an additional valuation allowance of $4.7 million through AOCI during the six months ended June 30, 2022 for total valuation allowance of $21.5 million at June 30, 2022.

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. The net deferred tax asset is included in other assets.

Average Balances and Yields

The following tables present 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 fees are included in interest income on loans and are not material.


	Three Months Ended June 30,
	2022						2021
	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost

	(Dollar in thousands)
Assets:
Loans (1)	$	1,369,389	$	12,444	3.64	%	$	1,285,835	$	12,056	3.76	%
Mortgage-backed securities	205,387		1,066		2.08	%	155,566		761		1.96	%
Other investment securities	208,958		1,144		2.20	%	132,949		726		2.19	%
FHLB stock	10,121		116		4.60	%	16,102		192		4.79	%
Cash and cash equivalents	74,242		108		0.58	%	408,162		67		0.07	%
Total interest-bearing assets	1,868,097		14,878		3.19	%	1,998,614		13,802		2.77	%
Non-interest earning assets	68,003						74,211
Total assets	$	1,936,100					$	2,072,825
Liabilities and shareholders' equity:
NOW, savings, and money market deposits	$	800,918	312		0.16	%	$	680,262	289		0.17	%
Time deposits	431,813		638		0.59	%	663,707		2,090		1.26	%
Interest-bearing deposits	1,232,731		950		0.31	%	1,343,969		2,379		0.71	%
FHLB advances	187,698		766		1.64	%	319,367		1,515		1.90	%
Total interest-bearing liabilities	1,420,429		1,716		0.48	%	1,663,336		3,894		0.94	%
Non-interest bearing deposits	48,763						161,804
Non-interest bearing other	46,688						43,569
Total liabilities	1,515,880						1,868,709
Total shareholders' equity	420,220						204,116
Total liabilities and shareholders' equity	$	1,936,100					$	2,072,825
Net interest income			$	13,162					$	9,908
Net interest rate spread (2)					2.71	%					1.83	%
Net interest margin (3)					2.83	%					1.99	%

(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.


	Six Months Ended June 30,
	2022						2021
	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost

	(Dollars in thousands)
Assets:
Loans (1)	$	1,325,134	$	24,100	3.67	%	$	1,291,048	$	24,318	3.80	%
Mortgage-backed securities	188,742		1,788		1.91	%	146,861		1,439		1.98	%
Other investment securities	203,756		2,164		2.14	%	127,732		1,453		2.29	%
FHLB stock	10,032		232		4.66	%	16,282		402		4.98	%
Cash and cash equivalents	131,158		188		0.29	%	354,429		132		0.08	%
Total interest-bearing assets	1,858,822		28,472		3.09	%	1,936,352		27,744		2.89	%
Non-interest earning assets	72,945						72,912
Total assets	$	1,931,767					$	2,009,264
Liabilities and shareholders' equity:
NOW, savings, and money market deposits	780,609		548		0.14	%	664,293		593		0.18	%
Time deposits	444,889		1,284		0.58	%	683,324		4,604		1.36	%
Interest-bearing deposits	1,225,498		1,832		0.30	%	1,347,617		5,197		0.78	%
FHLB advances	186,605		1,539		1.66	%	322,063		3,039		1.90	%
Total interest-bearing liabilities	1,412,103		3,371		0.48	%	1,669,680		8,236		0.99	%
Non-interest bearing deposits	46,213						89,116
Non-interest bearing other	47,482						45,588
Total liabilities	1,505,798						1,804,384
Total shareholders' equity	425,969						204,880
Total liabilities and shareholders' equity	$	1,931,767					$	2,009,264
Net interest income			$	25,101					$	19,508
Net interest rate spread (2)					2.62	%					1.88	%
Net interest margin (3)					2.72	%					2.03	%

(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.

Comparison of Financial Condition at June 30, 2022 and December 31, 2021

Total Assets. Total assets increased $49.8 million, or 2.6%, to $1.96 billion at June 30, 2022 from $1.91 billion at December 31, 2021.

Cash and cash equivalents. Cash and cash equivalents decreased $138.6 million, or 72%, to $54.8 million at June 30, 2022 from $193.4 million at December 31, 2021 as the Company deployed cash into higher yielding loans and securities.

Securities Available-For-Sale. Securities available-for-sale increased $27.3 million, or 8.4%, to $352.2 million at June 30, 2022 from $324.9 million at December 31, 2021 as the Company invested primarily in residential mortgage-backed securities. The investment purchases were partially offset by a decline of $26.6 million in the net unrealized gains/loss position of the portfolio due to the continuing rising interest rate environment during the six months ended June 30, 2022 .

Gross Loans. Gross loans held for investment increased $143.1 million, or 11.2%, to $1.42 billion at June 30, 2022 from $1.28 billion at December 31, 2021. Non-residential loans increased $70.1 million, multifamily loans increased $63.9 million and residential loans increased $29.2 million. Organic originations totaled $248.5 million, including originations of $131.1 million in multifamily loans and $86.3 million non-residential real estate loans. In addition, $73.4 million of conforming residential mortgages in New Jersey were purchased during the period.

The following table presents loans at June 30, 2022 and December 31, 2021 allocated by loan category:


	June 30, 2022		December 31, 2021

	(In thousands)
Residential one-to-four family	$	590,151	$	560,976
Multifamily	579,183		515,240
Non-residential	211,683		141,561
Construction	21,010		23,419
Junior liens	16,421		18,464
Commercial and industrial (including PPP)	5,957		21,563
Consumer and other	47		87
Total gross loans	1,424,452		1,281,310
Deferred fees, costs, premiums and discounts, net	3,821		6,299
Total loans	1,428,273		1,287,609
Allowance for loan losses	(14,050)		(14,425)
Loans receivable, net	$	1,414,223	$	1,273,184

The commercial and industrial portfolio includes PPP loans, net of deferred fees, totaling $2.0 million at June 30, 2022 and $16.8 million at December 31, 2021.

The table below presents the balance of non-performing assets on the dates indicated:


	June 30, 2022		December 31, 2021

	(In thousands)
Residential one-to-four family	$	9,268	$	10,805
Multifamily	—		139
Non-residential	676		857
Construction	—		—
Commercial and industrial (including PPP)	—		—
Junior liens	54		182


Total non-performing assets	$	9,998	$	11,983

Total Deposits. Total deposits were $1.30 billion at June 30, 2022. Deposits increased $49.6 million, or 4.0% from December 31, 2021. Checking and savings accounts increased $92.7 million, or 12.0%, to $866.0 million at June 30, 2022 from $773.2 million at December 31, 2021. This increase was offset by a decrease in time deposits of $43.1 million, or 9.1%, to $430.7 million at June 30, 2022 from $473.8 million at December 31, 2021. These changes resulted in the ratio of core deposits to total deposits increasing to 66.8% at June 30, 2022 compared to 62.0% at December 31, 2021.

The following table presents the totals of deposit accounts by account type, at the dates shown below:


	June 30, 2022		December 31, 2021

	(In thousands)
Non-interest bearing deposits	$	52,036	$	44,894
NOW and demand accounts (1)	455,776		363,419
Savings(1)	358,166		364,932
Core deposits	865,978		773,245

Time deposits	430,696		473,795
Total deposits	$	1,296,674	$	1,247,040

(1) Money market accounts are included within the NOW and demand accounts and Savings captions.

Borrowings. The Company had $205.5 million of borrowings at June 30, 2022, an increase of $20.0 million, or 10.8% from $185.5 million at December 31, 2021. Our borrowings consisted solely of Federal Home Loan Bank of New York advances. Of that total, $109.0 million are associated with longer-dated swap agreements. See Note 7, Derivatives and Hedging Activities, of Notes to Consolidated Financial Statements in “Item 1- Financial Statements.”

Total Shareholders’ Equity. Shareholders’ total equity decreased by $17.2 million, or 4.0%, to $412.3 million at June 30, 2022 compared to $429.5 million at December 31, 2021. The rising rate environment adversely impacted the Company’s investment portfolio, driving a $18.4 million decline in accumulated other comprehensive income. The decrease was partially offset by net income of $593 thousand for the six months ended June 30, 2022.

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 Federal Home Loan Bank of New York 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.

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 New Jersey Department of Banking and Insurance (“NJDOBI”) and the Federal Deposit Insurance Corporation (“FDIC”). At June 30, 2022, the Bank exceeded all applicable regulatory capital requirements, and was considered “well capitalized” under regulatory guidelines.


	Actual				Minimum Capital Adequacy				For Classification With Capital Buffer				For Classification as Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio

	(Dollars in thousands)
June 30, 2022
Common equity tier 1	$	294,605	22.30	%	$	59,437	4.50	%	$	92,457	7.00	%	$	85,853	6.50	%
Tier 1 capital	294,605		22.30	%	79,249		6.00	%	112,269		8.50	%	105,665		8.00	%
Total capital	310,377		23.50	%	105,665		8.00	%	138,686		10.50	%	132,082		10.00	%
Tier 1 (leverage) capital	294,605		15.14	%	77,843		4.00	%	N/A		N/A		97,304		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	%

At June 30, 2022, we had outstanding commitments to originate loans of $70.0 million and unused lines of credit of $59.9 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 June 30, 2022 totaled $315.6 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 Federal Home Loan Bank of New York advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. Available borrowing capacity at June 30, 2022 was $49.0 million with Federal Home Loan Bank of New York. 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 June 30, 2022.

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 June 30, 2022 pursuant to off-balance-sheet arrangements and contractual obligations.

ITEM 3. 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 modeling program, 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.

We generally do not engage in hedging activities other than cash flow hedging on interest expense, 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 Company has entered into derivative financial instruments to reduce risk associated with interest rate volatility by matching asset maturities and liability maturities. These derivatives had an aggregate notional amount of $109.0 million as of June 30, 2022.

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intended 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 $42.4 million in loans, $30.8 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. If 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 economic value of equity (“EVE”) analysis estimates the change in the net present value (“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. Historically, the model estimated 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 400 basis points in 100 basis point increments. However, given the current level of market interest rates, an NPV calculation for an interest rate decrease of greater than 100 basis points has not been prepared. 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 June 30, 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)
+400	$	52,732	$	(4,833)	(8)	%
+300	54,098		(3,467)		(6)
+200	55,428		(2,137)		(4)
+100	56,595		(970)		(2)
0	57,565		—		—
-100	55,077		(2,488)		(4)

The following table sets forth, at June 30, 2022, the calculation of the estimated changes in our net portfolio value, 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%.


	EVE
Change in Interest Rates (basis points)	Estimated EVE		Estimated Increase (Decrease)				NPV as a Percent of Portfolio Value of Assets
			Amount		Percent		NPV Ratio		Change

	(Dollars in thousands)
+400	$	81,488	$	(150,869)	(65)	%	4	%	(8)	%
+300	117,085		(115,272)		(50)		6		(6)
+200	155,144		(77,213)		(33)		8		(4)
+100	194,293		(38,064)		(16)		10		(2)
0	232,357		—		—		12		—
-100	264,317		31,960		14		13		2

The table above indicates that at June 30, 2022, in the event of an instantaneous 100 basis point increase in interest rates, we would experience a 16% decrease in EVE. In the event of an instantaneous 100 basis point decrease in interest rates, we would experience a 14% increase in EVE.

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 table assumes 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, 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.

ITEM 4. 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. There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is not engaged in any legal proceedings of a material nature at the present time. The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s financial condition or results of operations.

ITEM 1.A RISK FACTORS

There were no material changes to the risk factors relevant to the Company’s operations as described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed on March 14, 2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not Applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

Not Applicable.

ITEM 6. EXHIBITS

The following exhibits are either filed as part of this report or are incorporated herein by reference:


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)
4			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)
10.1			Amendment to the Director Retirement Plan II
10.2			Amendment to the Restated Director Retirement Plan for Kenneth Grimbilas
10.3			Amendment to the Restated Director Retirement Plan for Christopher Ely
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-Q for the quarter ended June 30, 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)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BLUE FOUNDRY BANCORP

Dated:

August 12, 2022

By:

/s/ James D. Nesci

James D. Nesci

Chief Executive Officer

(Principal Executive Officer)

Dated:

August 12, 2022

By:

/s/ Kelly Pecoraro

Kelly Pecoraro

Chief Financial Officer

(Principal Financial Officer)

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Blue Foundry Bancorp (BLFY) 10-Q2022 Q2 Quarterly report

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