Blue Foundry Bancorp - Quarter Report: 2021 September (Form 10-Q)

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 September 30, 2021


☐			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 October 29, 2021 the registrant had 28,522,500 shares of common stock, par value $0.01 per share, issued and outstanding.

BLUE FOUNDRY BANCORP AND SUBSIDIARY

FORM 10-Q

Index

PAGE

PART I.

FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

ITEM 4.

CONTROLS AND PROCEDURES

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

ITEM 4.

MINE SAFETY DISCLOSURES

Part I Financial Information

ITEM 1. FINANCIAL STATEMENTS

BLUE FOUNDRY BANCORP AND SUBSIDIARY

Consolidated Statements of Financial Condition

September 30, 2021 (Unaudited) and December 31, 2020

(In thousands)


	September 30, 2021		December 31, 2020
	(In thousands)
ASSETS
Cash and cash equivalents	$	324,291	$	316,445
Securities available for sale, at fair value	314,146		244,587

Assets held for sale	6,117		5,295
Securities held to maturity (fair value of $23,147 at September 30, 2021 and $6,979 at December 31, 2020)	23,325		7,005
Restricted stock, at cost	12,976		16,860
Loans receivable, net of allowance of $15,248 at September 30, 2021 and $16,959 at December 31, 2020	1,238,975		1,267,114
Real estate owned, net	624		624
Interest and dividends receivable	5,706		5,749
Premises and equipment, net	26,648		19,569
Right-of-use assets	26,101		24,878

Bank owned life insurance	21,547		21,186
Other assets	23,877		13,234
Total assets	$	2,024,333	$	1,942,546

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits	$	1,265,617	$	1,356,184
Advances from the Federal Home Loan Bank	247,600		329,400
Advances by borrowers for taxes and insurance	10,165		10,841
Lease liabilities	27,293		25,535
Other liabilities	25,423		14,986
Total liabilities	1,576,098		1,736,946

Shareholders’ equity
Common stock $0.01 par value; 28,522,500 shares authorized; 28,522,500 shares issued and outstanding	285		10
Additional paid-in capital	281,786		822
Retained earnings	189,081		205,799
Unallocated common shares held by ESOP (2,281,800 shares)	(22,405)		—
Accumulated other comprehensive (loss) income	(512)		(1,031)
Total shareholders’ equity	448,235		205,600
Total liabilities and shareholders’ equity	$	2,024,333	$	1,942,546

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP AND SUBSIDIARY

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(Dollars in thousands)
Interest income:
Loans	$	12,044	$	13,412	$	36,362	$	41,577
Taxable investment income	1,901		1,578		5,064		5,385
Non-taxable investment income	128		147		392		487
Total interest income	14,073		15,137		41,818		47,449
Interest expense:
Deposits	1,651		3,796		6,848		12,611
Borrowed funds	1,318		1,712		4,357		5,090
Total interest expense	2,969		5,508		11,205		17,701
Net interest income	11,104		9,629		30,613		29,748
(Recovery of) provision for loan losses	(338)		1		(1,699)		2,754
Net interest income after (recovery of) provision for loan losses	11,442		9,628		32,312		26,994
Noninterest income:
Fees and service charges	347		399		1,410		1,319


Gain (loss) on premises and equipment	7		—		(79)		—

Write-down of real estate owned	—		—		—		(1,390)
Other	135		212		444		605
Total noninterest income	489		611		1,775		534
Noninterest expense:
Compensation and employee benefits	5,931		6,125		18,321		17,694
Loss on pension withdrawal	9,232		—		9,232		—
Occupancy and equipment	1,853		1,504		5,849		4,246
Loss on assets held for sale	—		—		21		12,765
Data processing	1,781		955		5,432		2,719
Prepayment fees	1,401		843		1,401		843
Advertising	603		1,090		1,595		1,738
Professional services	875		1,779		2,819		6,257
Directors fees	136		123		413		370
Provision for commitment and letters of credit	1,245		—		541		—
Federal deposit insurance	130		131		384		200
Goodwill impairment	—		—		—		15,460
Contribution to Blue Foundry Charitable Foundation	9,000		—		9,000		—
Other	931		452		2,282		1,469
Total noninterest expenses	33,118		13,002		57,290		63,761
Loss before income tax benefit	(21,187)		(2,763)		(23,203)		(36,233)
Income tax benefit	(6,217)		(1,098)		(6,485)		(6,489)
Net loss	$	(14,970)	$	(1,665)	$	(16,718)	$	(29,744)
Basic and diluted earnings per share	$	(0.68)	n/a		n/a		n/a
Weighted average shares outstanding	21,979,861		n/a		n/a		n/a

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP AND SUBSIDIARY

Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)
Net loss	$	(14,970)	$	(1,665)	$	(16,718)	$	(29,744)
Other comprehensive (loss) income:
Unrealized (loss) gain on securities available for sale:
Unrealized holding (loss) gain arising during the period	(1,501)		135		(3,254)		3,989

	(1,501)		135		(3,254)		3,989
Unrealized (gain) loss on cash flow hedge:
Reclassification adjustment for (gains) losses included in net income	(368)		(317)		(1,059)		(413)
Unrealized holding gain (loss) arising during the period	1,028		729		5,084		(5,721)
	660		412		4,025		(6,134)
Defined benefit plans:



Reclassification adjustment for amortization of:

Net actuarial gain (loss)	52		49		155		(195)
	52		49		155		(195)

Total tax effect	248		(272)		(407)		553
Total other comprehensive (loss) income	(541)		324		519		(1,787)
Comprehensive loss	$	(15,511)	$	(1,341)	$	(16,199)	$	(31,531)

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP AND SUBSIDIARY

Consolidated Statements of Changes in Shareholders’ Equity

Nine Months Ended September 30, 2021 and 2020

(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, 2020	$	10	$	822	$	237,306	$	(517)	$	—	$	237,621
Net loss	—		—		(11,334)		—		—		(11,334)
Other comprehensive loss	—		—		—		(2,931)		—		(2,931)
Balance at March 31, 2020	$	10	$	822	$	225,972	$	(3,448)	$	—	$	223,356
Net loss	—		—		(16,744)		—		—		(16,744)
Other comprehensive loss	—		—		—		820		—		820
Balance at June 30, 2020	$	10	$	822	$	209,228	$	(2,628)	$	—	$	207,432
Net loss	—		—		(1,665)		—		—		(1,665)
Other comprehensive income	—		—		—		324		—		324
Balance at September 30, 2020	$	10	$	822	$	207,563	$	(2,304)	$	—	$	206,091

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 income	—		—		—		463		—		463
Balance at June 30, 2021	$	10	$	822	$	204,051	$	29	$	—	$	204,912
Net loss	—		—		(14,970)		—		—		(14,970)
Proceeds of stock offering and issuance of common shares (net of issuance costs of $4.8 million)	268		273,330		—		—		—		273,598
Issuance of common shares donated to the Blue Foundry Charitable Foundation	7		7,493		—		—		—		7,500
Purchase of common shares by the ESOP (2,281,800 shares)	—				—		—		(22,818)		(22,818)
ESOP shares committed to be released	—		141		—		—		413		554
Other comprehensive (loss) income	—		—		—		(541)		—		(541)

Balance at September 30, 2021	$	285	$	281,786	$	189,081	$	(512)	$	(22,405)	$	448,235

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
	2021		2020
	(In thousands)
Cash flows from operating activities
Net loss	$	(16,718)	$	(29,744)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of premises and equipment	1,644		1,411
Change in right-of-use asset	1,974		946
Amortization (accretion) of: Deferred loan fees, costs, and discounts, net	492		(802)
Premiums and discounts on securities	624		208
Goodwill impairment	—		15,460
Deferred income tax benefit	(7,404)		(5,706)
Dividends on CRA fund	—		(15)

(Recovery) provision for loan losses	(1,699)		2,754
Loss on sales and calls of securities	—		119
Loss on assets held for sale	21		12,765
Loss on premises and equipment	79		—
Net loss on Real Estate Owned	—		1,390
Increase in BOLI cash surrender value	(362)		(460)
Issuance of common shares donated to Blue Foundry Charitable Foundation	7,500		—
ESOP expense	554		—
Expense on withdrawal from pension plan	9,232		—
Decrease (increase) in interest and dividends receivable	43		(672)
(Increase) decrease in other assets	(1,323)		886
Increase (decrease) in other liabilities	3,111		(125)
Change in lease liability	(1,439)		(654)
Net cash provided by operating activities	(3,671)		(2,239)

Cash flows from investing activities
Net decrease in loans	29,347		73,158

Purchases of securities available for sale	(134,927)		(96,148)

Purchases of securities held to maturity	(20,362)		—
Sales of equity securities	—		4,178
Proceeds from calls of securities held to maturity	4,000		—
Proceeds from sales and calls of securities available for sale	14,000		11,437
Principal payments and maturities on securities available for sale	47,533		67,609


Redemption (purchase) of Federal Home Loan Bank stock	3,884		(1,899)
Proceeds from Bank owned life insurance	—		275
Purchases of premises and equipment	(9,695)		(3,084)
Net cash used in investing activities	(66,220)		55,526

Cash flows from financing activities
Net (decrease) increase in deposits	(90,567)		28,541

Proceeds of advances from Federal Home Loan Bank	474,600		478,000
Repayments of advances from Federal Home Loan Bank	(556,400)		(435,500)
Net decrease in advances by borrowers for taxes and insurance	(676)		(247)

Net proceeds from issuance of common shares	250,780		—

Net cash provided by financing activities	77,737		70,794
Net increase in cash and cash equivalents	7,846		124,081
Cash and cash equivalents at beginning of period	316,445		124,034
Cash and cash equivalents at end of period	$	324,291	$	248,115

BLUE FOUNDRY BANCORP AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
	2021		2020
	(In thousands)
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	11,032	$	17,707
Income taxes	150		103

Supplemental noncash disclosures
Transfers of assets to held for sale	$	892	$	5,695
Lease liabilities arising from obtaining right-of-use assets	3,197		26,467
Purchase of common shares by the ESOP	(22,818)		—

See accompanying notes to the 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”, formerly Boiling Springs Bancorp), and its wholly owned subsidiary, Blue Foundry Bank (the “Bank”), and the Bank’s wholly owned subsidiaries, Blue Foundry Service Corp., Rutherford Center Development Corp., Blue Foundry Investment Company (collectively, the “Company”). The Company’s name change was effective July 1, 2019. All significant 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. Shares of the Company’s common stock began trading on July 16, 2021 on the Nasdaq Global Select Market under the trading symbol “BLFY.”

Basis of Financial Statement Presentation: The consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles. The financial statements were prepared in accordance with the instructions for Form 10-Q and with Regulation S-X and do not include information or footnotes necessary for a complete presentation of the financial condition, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”). 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 nine months ended September 30, 2021 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 prospectus, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) on May 21, 2021.

Loans Receivable: Loans receivable are stated at unpaid principal balance, net of deferred fees, costs, and discounts, and the allowance for loan losses. Interest on loans is recognized based upon the principal amount outstanding. Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized in interest income using the level yield method over the contractual life of the individual loans, adjusted for actual prepayments.

For all loan classes, the accrual of income on loans, including impaired loans, is generally discontinued when a loan becomes 90 days delinquent or when certain factors indicate reasonable doubt as to the ability of the borrower to meet contractual principal and/or interest obligations. Loans on which the accrual of income has been discontinued are designated as nonaccrual loans. All previously accrued interest is reversed and income is recognized subsequently only in the period received, provided the remaining principal balance is deemed collectible. A nonaccrual loan is not returned to an accrual status until principal and interest payments are brought current and factors indicating doubtful collection no longer exist.

Principal and interest payments received on non-accrual loans for which the remaining principal balance is not deemed collectible are applied as a reduction to principal and interest income is not recognized. If the principal balance on the loan is later deemed collectible and the loan is returned to accrual status, any interest payments that were applied to principal while on non-accrual are recorded as an unearned discount on the loan, classified as deferred fees, costs and discounts, and are recognized into interest income using the level-yield method over the remaining contractual life the individual loan, adjusted for actual prepayments.

Allowance for Loan Losses: The allowance for loan losses is a valuation allowance for probable and reasonably estimable incurred credit losses in the loan portfolio as of the balance sheet date. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required for all portfolio segments using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off.

The allowance consists of specific and general components. The specific component of the allowance relates to loans that are individually classified as impaired. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance (generally $400,000 or less) homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment. Impaired loans also include all nonaccrual non-residential, multifamily and construction and land loans, and troubled debt restructurings.

Troubled debt restructured loans are those loans whose terms have been modified such that a concession has been granted because of deterioration in the financial condition of the borrower. Modifications could include extension of the terms of the loan, reduced interest rates, and forgiveness of accrued interest and/or principal. Once an obligation has been classified a troubled debt restructuring, it continues to be considered a troubled debt restructuring and is individually evaluated for impairment until paid in full. For a cash flow dependent loan, the Company records an impairment charge equal to the difference between the present value of the estimated future cash flows under the restructured terms discounted at the loans original effective interest rate, and the original loan’s carrying amount. For a collateral dependent loan, the Company records an impairment when the current estimated fair value, net of estimated costs to sell when necessary, of the property that collateralizes the impaired loan is less than the recorded investment in the loan.

The general component of the allowance covers non impaired loans and is based on historical loss experience adjusted for current qualitative factors. The historical loss experience is a quantitative factor determined by portfolio segment and is based on the actual loss history experienced by the Company. These factors include consideration of the following:

• Changes in lending policies and procedures, including underwriting standards, collections, and internal loan review practices;

• Changes in the nature and volume of the portfolio – increase (decrease) in portfolio category;

• Changes in the volume and severity of past due loans – increase (decrease) in loans past due and on non-accrual;

• Changes in the volume and severity of past due loans – increase (decrease) in classified loans;

• Changes in the ratings for loans from Pass to Watch to Special Mention to Substandard;

• Management assessment based on historical Bank performance and peer market data for Probability-Driven Loss Given Default for each loan type, weighted by:

o State of the local economy, including regional economic conditions;

o Local and regional unemployment;

o Delinquency and foreclosure rates in the local market;

o Valuations and level of activity in the local housing market;

o Other factors, including local and federal government intervention in economic situations which could support or impair credit and valuation, and broader macroeconomic considerations, as well as evolving marketplace, regulatory and legal risk factors

The loan portfolio is categorized according to collateral type, loan purpose, lien position, or borrower type (i.e., commercial, consumer). The categories used include residential one-to-four family, multifamily, non-residential, construction and land, junior liens, commercial and industrial (consisting primarily of Paycheck Protection Program, or “PPP”, loans), and consumer and other.

Retirement Benefits: Effective January 1, 2020 the Defined Benefit Plan adopted by the Company has been amended to freeze the plan, eliminating all future benefit accruals. The plan was a noncontributory, defined benefit, multiemployer pension plan which covered employees who meet certain eligibility requirements of the plan. Pension plan costs, based upon actuarial assumptions of current and future benefits for employees, are charged to expense and are funded based on the maximum amount that can be deducted for federal income tax purposes. In August, 2021 the Company notified Pentegra of its intent to withdraw from the DB Plan, effective September 30, 2021. The Company recorded an accrued withdrawal liability for the estimated exit price of the defined benefit pension plan, in accordance with ASC 450. The withdraw is expected to close in the fourth quarter of 2021.

The Company provides certain healthcare benefits, subject to certain limitations, to eligible retirees, based upon years of service and a retirement date prior to January 1, 2019. The Company also provides supplemental retirement benefits to certain directors. The Company measures the cost of these benefits based upon various estimates and assumptions. Costs are recognized as directors render service.

In August, 2021 the Company notified Pentegra of its intent to withdraw from the DB Plan, effective September 30, 2021. The Company recorded an accrued withdrawal liability for the estimated exit price of the defined benefit pension plan, in accordance with ASC 450. The withdrawal is expected to close in the fourth quarter of 2021.

Employee Stock Ownership Plan: The cost of shares issued to the ESOP, but not yet allocated to participants, is shown as a reduction of shareholders’ equity. Compensation expense is based on the market price of shares as they are committed to be released to participant accounts. Dividends on allocated ESOP shares reduce retained earnings; dividends on unearned ESOP shares reduce the ESOP’s debt and accrued interest.

Earnings per share: Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. ESOP shares committed to be released are considered to be outstanding for purposes of the earnings per share computation. ESOP shares that have not been legally released, but that relate to employee services rendered during an accounting period (interim or annual) ending before the related debt service payment is made, are considered committed to be released. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options awards and are determined using the treasury stock method.

Adoption of New Accounting Standards: Effective January 1, 2020, the Company adopted ASU No. 2016-02, “Leases (Topic 842)” which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. The new standard permits entities to use an optional transition method

which allows an entity to continue to use guidance from ASC 840 in the comparative periods presented in the adoption year of ASC 842. The optional election also allows entities to utilize several practical expedients including the recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the adoption year. Since all leases at the Company were accounted for as operating leases under ASC 840 and are still considered to be operating leases under ASC 842, no adjustment was needed to retained earnings as of the beginning of the period. Other practical expedients utilized included:

–Carry over of historical lease determination and lease classification conclusions

–Carry over of historical initial direct cost balances for existing leases

–Accounting for lease and non-lease components in contracts in which the Company is a lessee as a single lease component

Adoption of the leasing standard resulted in the recognition of operating right-of-use assets of $6.0 million and operating lease liabilities of $6.0 million as of January 1, 2020. These amounts were determined based on the present value of remaining minimum lease payments, discounted using the Company’s incremental borrowing rate at the later of the date of adoption or the date of the lease. There was no material impact to the timing of expense or income recognition in the Company’s Consolidated Income Statements.

Accounting Standards Not Yet Adopted: 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 models, 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 costs, 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 amendments in Topic 326 require credit losses on available-for-sale 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 on January 1, 2023. At this time, the Company cannot reasonably estimate the impact that the adoption of CECL will have on the financial statements, but is in process of developing a methodology to implement the standard.

NOTE 2 – SECURITIES

The amortized cost of securities available for sale and their estimated fair values at September 30, 2021 and December 31, 2020 are as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)
September 30, 2021
Available for sale
U.S. Treasury Note	$	6,901	$	—	$	(128)	$	6,773
Corporate Bonds	86,169		2,038		(89)		88,118
U.S. Government agency obligations	25,311		73		(144)		25,240
Obligations issued by U.S. states and their political subdivisions	21,106		1,161		(3)		22,264
Mortgage-backed securities: Residential one-to-four family	123,930		237		(1,364)		122,803
Multifamily	41,497		790		(73)		42,214
Asset-backed securities	6,769		11		(46)		6,734
Total available-for-sale	$	311,683	$	4,310	$	(1,847)	$	314,146


December 31, 2020
Available for sale
U.S. Treasury Note	$	9,989	$	11	$	—	$	10,000
Corporate Bonds	57,478		1,863		—		59,341
U.S. Government agency obligations	19,787		89		(201)		19,675
Obligations issued by U.S. states and their political subdivisions	23,280		1,515		—		24,795
Mortgage-backed securities: Residential one-to-four family	71,773		951		(8)		72,716
Multifamily	56,563		1,499		(2)		58,060
Total available-for-sale	$	238,870	$	5,928	$	(211)	$	244,587

The amortized cost of securities held-to-maturity and their estimated fair values at September 30, 2021 and December 31, 2020, are as follows:


	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value
	(In thousands)
September 30, 2021
Held-to-maturity

Collateralized loan obligation	$	3,000	$	—	$	—	$	3,000

Asset-backed securities	15,325		—		(186)		15,139
Corporate bonds	5,000		8		—		5,008
Total held-to-maturity	$	23,325	$	8	$	(186)	$	23,147

	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value
	(In thousands)
December 31, 2020
Held-to-maturity

Collateralized loan obligation	$	7,005	$	—	$	(26)	$	6,979
Total Held-to-maturity	$	7,005	$	—	$	(26)	$	6,979

Proceeds from sales and calls of available-for-sale securities totaled $10.0 million and $14.0 million in the three and nine months ended September 30, 2021 and $6.5 million and $11.4 million in the three and nine months ended September 30, 2020, respectively.

There were no other-than-temporary impairment (“OTTI”) charges for the three and nine months ended September 30, 2021 or September 30, 2020, respectively.

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:


	September 30, 2021
	Amortized Cost		Estimated Fair Value
	(In thousands)
Available-for-sale
Due in one year or less	$	11,257	$	11,388
Due from one year to five years	91,243		93,410
Due from five to ten years	38,783		39,422
Due after ten years	4,973		4,909
Mortgage-backed securities	165,427		165,017
Total	$	311,683	$	314,146

Held-to-maturity
Due in one year or less	$	3,000	$	3,000
Due from one year to five years	11,084		11,067
Due from five to ten years	9,241		9,080

Total	$	23,325	$	23,147

The following tables summarize available-for-sale securities with unrealized losses at September 30, 2021 and December 31, 2020, 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)
September 30, 2021
Available for sale
U.S. Treasury Note	$	(128)	$	6,773	$	—	$	—	$	(128)	$	6,773
Corporate Bonds	(89)		17,415		—		—		(89)		17,415
U.S. Government agency obligations	—		—		(144)		8,680		(144)		8,680
Obligations issued by U.S. states and their political subdivisions	(3)		1,851		—		—		(3)		1,851
Mortgage-backed securities:
Residential one-to-four family	(1,364)		106,396		—		—		(1,364)		106,396
Multifamily	(73)		916		—		186		(73)		1,102
Asset-backed securities	(46)		1,713		—		—		(46)		1,713
Total available-for-sale	$	(1,703)	$	135,064	$	(144)	$	8,866	$	(1,847)	$	143,930

December 31, 2020
Available for sale
U.S. Treasury Note	$	—	$	—	$	—	$	—	$	—	$	—
Corporate Bonds	—		—		—		—		—		—
U.S. Government agency obligations	(54)		3,559		(147)		10,014		(201)		13,573
Obligations issued by U.S. states and their political subdivisions	—		—		—		—		—		—
Mortgage-backed securities:
Residential one-to-four family	(7)		3,228		(1)		115		(8)		3,343
Multifamily	(2)		738		—		313		(2)		1,051
Total available-for-sale	$	(63)	$	7,525	$	(148)	$	10,442	$	(211)	$	17,967

There was one collateralized loan obligation held to maturity security in an unrecognized loss position for more than twelve months at September 30, 2021. This collateralized loan obligation security had a fair value of $3.0 million, and was in a minimal unrecognized loss position, at September 30, 2021. The Company did not have any held to maturity securities in an unrecognized loss position for more than twelve months at December 31, 2020. There were two asset-backed held to maturity securities with total fair value of $15.1 million, in an aggregate unrecognized loss position for less than twelve months of $186 thousand, at September 30, 2021, and one collateralized loan obligation held to maturity security with a fair value of $3.0 million, in an unrecognized loss position for less than 12 months of $26 thousand, at December 31, 2020.

On September 30, 2021, three U.S. Government agency obligations, one U.S Treasury note, two obligations issued by U.S. states and their political subdivisions, and twenty-six mortgage-backed securities held by the Company were in an unrealized loss position in the available-for-sale portfolio. 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 seven investment grade corporate bonds and two asset-backed securities in an unrealized loss position. The Company does not consider these securities to be other-than-temporarily impaired due to the decline in fair

value being attributable to changes in interest rates and liquidity, not credit quality. The Company also does not intend to sell these securities, nor does it foresee being required to sell them before the anticipated recovery (maturity).

Securities pledged at September 30, 2021 and December 31, 2020, had a carrying amount of $9.8 million and $12.7 million, respectively, and were pledged to secure public deposits, Federal Home Loan Bank (“FHLB”) advances, repurchase agreements and derivatives.

NOTE 3 – LOANS RECEIVABLE, NET

A summary of loans receivable, net at September 30, 2021 and December 31, 2020, is as follows:


	September 30, 2021		December 31, 2020
	(In thousands)
Residential one-to-four family	$	522,213	$	611,603
Multifamily	511,408		427,436
Non-residential	130,823		128,141
Construction and land	21,337		33,691
Junior liens	19,540		23,814
Commercial and industrial (including PPP)	44,262		54,053
Consumer and other	80		99
Total loans	1,249,663		1,278,837

Deferred fees, costs and premiums and discounts, net	4,560		5,236
Allowance for loan losses	(15,248)		(16,959)
	(10,688)		(11,723)
Loans receivable, net	$	1,238,975	$	1,267,114

The commercial and industrial portfolio is comprised of $41.1 million of PPP loans as well as $3.2 million of general commercial and industrial loans, including Small Business Administration (“SBA”), as of September 30, 2021.

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 and land 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.

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 nine months ended September 30, 2021, and 2020:


	Residential One-To-Four Family		Multifamily		Non-Residential		Construction and Land		Junior Liens		Commercial and Industrial (including PPP)		Consumer and Other		Unallocated		Total
	(In thousands)
Three Months Ended September 30, 2021
Allowance for loan losses
Beginning balance	$	2,918	$	5,350	$	3,243	$	3,185	$	758	$	4	$	42	$	93	$	15,593
Charge-offs	—		—		—		—		—		—		(7)		—		(7)
Recoveries	—		—		—		—		—		—		—		—		—
(Recovery of) provision for loan losses	(43)		386		(116)		(556)		(54)		39		5		1		(338)
Total ending allowance balance	$	2,875	$	5,736	$	3,127	$	2,629	$	704	$	43	$	40	$	94	$	15,248

Nine Months Ended September 30, 2021
Allowance for loan losses
Beginning balance	$	3,579	$	5,460	$	3,244	$	3,655	$	916	$	2	$	48	$	55	$	16,959
Charge-offs	—		—		—		—		—		—		(12)		—		(12)
Recoveries	—		—		—		—		—		—		—		—		—
(Recovery of) provision for loan losses	(704)		276		(117)		(1,026)		(212)		41		4		39		(1,699)
Total ending allowance balance	$	2,875	$	5,736	$	3,127	$	2,629	$	704	$	43	$	40	$	94	$	15,248

Three Months Ended September 30, 2020
Allowance for loan losses
Beginning balance	$	3,691	$	4,776	$	2,742	$	4,823	$	1,067	$	—	$	53	$	99	$	17,251
Charge-offs	—		—		—		—		—		—		(2)		—		(2)
Recoveries	—		—		—		—		—		—		—		—		—
(Recovery of) provision for loan losses	(260)		117		(225)		(117)		(39)				(1)		526		1
Total ending allowance balance	$	3,431	$	4,893	$	2,517	$	4,706	$	1,028	$	—	$	50	$	625	$	17,250








Nine Months Ended September 30, 2020
Allowance for loan losses
Beginning balance	$	3,446	$	4,256	$	2,548	$	3,028	$	1,002	$	—	$	57	$	164	$	14,501
Charge-offs	—		—		—		—		—		—		(5)		—		(5)
Recoveries	—		—		—		—		—		—		—		—		—
(Recovery of) provision for loan losses	(15)		637		(31)		1,678		26				(2)		461		2,754
Total ending allowance balance	$	3,431	$	4,893	$	2,517	$	4,706	$	1,028	$	—	$	50	$	625	$	17,250

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 September 30, 2021 and December 31, 2020:


	Residential One-To-Four Family		Multifamily		Non-Residential		Construction and Land		Junior Liens		Commercial and Industrial (including PPP)		Consumer and Other		Unallocated		Total
	(In thousands)
September 30, 2021
Allowance for loan losses:
Individually evaluated for impairment	$	32	$	—	$	—	$	—	$	—	$	—	$	39	$	—	$	71
Collectively evaluated for impairment	2,843		5,736		3,127		2,629		704		43		1		94		15,177
Total	$	2,875	$	5,736	$	3,127	$	2,629	$	704	$	43	$	40	$	94	$	15,248

Loans receivable:
Individually evaluated for impairment	$	10,133	$	1,032	$	5,004	$	—	$	56	$	—	$	39	$	—	$	16,264
Collectively evaluated for impairment	516,698		511,847		125,846		21,290		19,576		42,661		41				1,237,959
Total	$	526,831	$	512,879	$	130,850	$	21,290	$	19,632	$	42,661	$	80	$	—	$	1,254,223


December 31, 2020
Allowance for loan losses:
Individually evaluated for impairment	$	49	$	26	$	—	$	—	$	—	$	—	$	46	$	—	$	121
Collectively evaluated for impairment	3,530		5,434		3,244		3,655		916		2		2		55		16,838
Total	$	3,579	$	5,460	$	3,244	$	3,655	$	916	$	2	$	48	$	55	$	16,959

Loans receivable:
Individually evaluated for impairment	$	11,829	$	1,721	$	5,084	$	—	$	58	$	—	$	46	$	—	$	18,738
Collectively evaluated for impairment	604,419		427,374		123,133		33,630		23,860		52,867		52		—		1,265,335
Total	$	616,248	$	429,095	$	128,217	$	33,630	$	23,918	$	52,867	$	98	$	—	$	1,284,073

The following table presents information related to impaired loans by class of loans as of September 30, 2021, September 30, 2020 and December 31, 2020:


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
	(In thousands)
September 30, 2021
With no related allowance recorded:
Residential one-to-four family	$	8,757	$	9,065	$	—	$	9,666	$	9	$	8
Multifamily	1,030		1,032		—		1,249		17		15
Non-residential	5,155		5,004		—		4,899		173		159
Construction and land	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Junior liens	56		56		—		57		2		2
	14,998		15,157		—		15,871		201		184
With an allowance recorded:
Residential one-to-four family	1,069		1,068		32		1,297		38		34
Multifamily	—		—		—		—		—		—
Non-residential	—		—		—		—		—		—
Construction and land	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Consumer and other	39		39		39		42		2		1
	1,108		1,107		71		1,339		40		35
Total	$	16,106	$	16,264	$	71	$	17,210	$	241	$	219

September 30, 2020
With no related allowance recorded:
Residential one-to-four family	$	6,399	$	6,508	$	—	$	473	$	97	$	96
Multifamily	1,216		1,226		—		405		45		41
Non-residential	6,006		5,812		—		2,410		207		201
Construction and land	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Junior liens	60		59		—		27		1		1
	13,681		13,605		—		3,315		350		339
With an allowance recorded:
Residential one-to-four family	1,519		1,521		108		679		53		47
Multifamily	353		352		28		157		11		10
Non-residential	—		—		—		—		—		—
Construction and land	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Consumer and other	49		48		48		23		1		1
	1,921		1,921		184		859		65		58
Total	$	15,602	$	15,526	$	184	$	4,174	$	415	$	397


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
	(In thousands)
December 31, 2020
With no related allowance recorded:
Residential one-to-four family	$	11,161	$	10,375	$	—	$	4,143	$	26	$	25
Multifamily	1,360		1,371		—		1,051		40		38
Non-residential	5,678		5,084		—		5,413		243		225
Construction and land	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Junior liens	58		58		—		60		3		3
	18,257		16,888		—		10,667		312		291
With an allowance recorded:
Residential one-to-four family	1,455		1,454		49		1,472		72		66
Multifamily	351		350		26		353		15		14
Non-residential	—		—		—		—		—		—
Construction and land	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Consumer and other	46		46		46		49		2		2
	1,852		1,850		121		1,874		89		82
Total	$	20,109	$	18,738	$	121	$	12,541	$	401	$	373

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 troubled debt restructurings was $5.5 million and $6.3 million as of September 30, 2021 and December 31, 2020, respectively. The Company has allocated $72 thousand and $95 thousand, respectively, of specific reserves to troubled debt restructured loans as of September 30, 2021 and December 31, 2020. The modification of the terms of troubled debt restructured includes one or a combination of the following: a reduction of the stated interest rate of the loan 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 troubled debt restructurings as of September 30, 2021.

A troubled debt restructuring (“TDR”) loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the periods ended September 30, 2021 and September 30, 2020.

The Company did not record any troubled debt restructurings during the three and nine months ended September 30, 2021 and 2020, as well as during the previous year.

The following table presents the recorded investment in non-accrual loans and loans past due 90 days or more still on accrual as of September 30, 2021 and December 31, 2020:


	Nonaccrual				Loans Past Due 90 Days and Still Accruing
	9/30/2021		12/31/2020		9/30/2021		12/31/2020
	(In thousands)
Residential one-to-four family	$	10,969	$	11,813	$	—	$	—
Multifamily	145		156		—		—
Non-residential	1,236		805		—		—
Construction and land	—		—		—		—
Commercial and industrial (including PPP)	—		—		—		—
Junior liens	114		82		—		—
Total	$	12,464	$	12,856	$	—	$	—

The following table presents the recorded investment in past due and current loans by loan portfolio class as of September 30, 2021 and December 31, 2020:


	60-89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans Receivable
	(In thousands)
September 30, 2021
Residential one-to-four family	$	542	$	9,233	$	9,775	$	517,056	$	526,831
Multifamily	—		145		145		512,734		512,879
Non-residential	191		1,262		1,453		129,397		130,850
Construction and land	—		—		—		21,290		21,290
Junior liens	51		56		107		19,525		19,632
Commercial and Industrial (including PPP)	—		—		—		42,661		42,661
Consumer and other	—		—		—		80		80
Total	$	784	$	10,696	$	11,480	$	1,242,743	$	1,254,223

December 31, 2020
Residential one-to-four family	$	3,151	$	10,075	$	13,226	$	603,022	$	616,248
Multifamily	—		156		156		428,939		429,095
Non-residential	—		805		805		127,412		128,217
Construction and land	3,000		—		3,000		30,630		33,630
Junior liens	—		—		—		23,918		23,918
Commercial and Industrial (including PPP)	—		—		—		52,867		52,867
Consumer and other	—		—		—		98		98
Total	$	6,151	$	11,036	$	17,187	$	1,266,886	$	1,284,073

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 loans classified other than Pass:

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the Company’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current sound worth and paying capacity of the obligor, or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the repayment and liquidation of the debt. They are characterized by distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions, and values, highly questionable and improbable.

Loss – Assets classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. 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 this basically worthless asset even though partial recovery may be effected in the future.

The following table presents the risk category of loans by class of loans based on the most recent analysis performed as of September 30, 2021 and December 31, 2020:


	Pass		Special Mention		Substandard		Doubtful / Loss		Total
	(In thousands)
September 30, 2021
Residential one-to-four family	$	515,423	$	—	$	11,408	$	—	$	526,831
Multifamily	507,027		4,820		1,032		—		512,879
Non-residential	129,306		146		1,398		—		130,850
Construction and land	21,290		—		—		—		21,290
Junior liens	19,519		—		113		—		19,632
Commercial and Industrial (including PPP)	42,661		—		—				42,661
Consumer and other	80		—		—		—		80
Total	$	1,235,306	$	4,966	$	13,951	$	—	$	1,254,223

December 31, 2020
Residential one-to-four family	$	604,167	$	—	$	12,081	$	—	$	616,248
Multifamily	411,369		16,648		1,078		—		429,095
Non-residential	127,089		154		974		—		128,217
Construction and land	33,630		—		—		—		33,630
Junior liens	23,837		—		81		—		23,918
Commercial and Industrial (including PPP)	52,867		—		—		—		52,867
Consumer and other	98		—		—		—		98
Total	$	1,253,057	$	16,802	$	14,214	$	—	$	1,284,073

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 1 year to 40 years. Operating lease liabilities and ROU assets are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term.

As of September 30, 2021, the Company had the following related to operating leases:


	As of
	September 30, 2021
	(In thousands)
Right-of-use assets	$	26,101
Lease liabilities	$	27,293

The following table is a summary of the Company’s components of net lease cost for the three and nine months ended September 30, 2021 and 2020:


	Three Months Ended				Nine Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020
	(In thousands)
Operating lease cost	$	751	$	505	$	2,264	$	1,111
Finance lease cost	6		6		17		10
Variable lease cost	58		23		161		66
Total lease cost	$	815	$	534	$	2,442	$	1,187

As of September 30, 2021, the weighted average remaining lease term for operating leases was 12.3 years and the weighted average discount rate used in the measurement of lease liabilities was 1.96%. Cash payments for lease liabilities totaled $653 thousand and $1.91 million, respectively for the three and nine months ended September 30, 2021 and $399 thousand and $1.15 million for the three and nine months ended September 30, 2020.

Future undiscounted lease payments for operating leases with initial terms of one year or more as of September 30, 2021 are as follows:


	(In thousands)
2022	$	2,971
2023	2,862
2024	2,708
2025	2,401
2026	2,321
Thereafter	17,821
Total undiscounted lease payments	31,084
Less: imputed interest	(3,791)
Total	$	27,293

NOTE 5 – DEPOSITS

Deposits at September 30, 2021 and December 31, 2020, are summarized as follows:


	September 30, 2021		December 31, 2020
	(In thousands)
NOW and demand accounts	$	396,487	$	362,169
Savings	347,620		276,584
Time deposits	521,510		717,431
Total	$	1,265,617	$	1,356,184

Included within the NOW and demand account caption, as well as the Savings caption above are money market accounts with varying transactional limits.

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


	(In thousands)
Remainder of 2021	$	128,516
2022	246,645
2023	113,255
2024	20,173
2025	6,801
2026	6,120
	$	521,510

NOTE 6 – DERIVATIVES

The Company utilizes interest rate swap agreements as part of its asset liability management strategy to increase net interest income and 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 $109,000,000 at September 30, 2021 and December 31, 2020, were designated as cash flow hedges of certain Federal Home Loan Bank advances and were determined to be fully effective during all periods presented. The Company expects the hedges to remain fully effective during the remaining terms of the swaps. The fair value of derivative instruments are presented in other assets and other liabilities.

Summary information about the interest-rate swaps designated as cash flow hedges as of period-end is as follows:


	September 30, 2021			December 31, 2020
	(Dollars in thousands)
Notional amounts	$	109,000		$	109,000
Weighted average pay rates	1.4577		%	1.4577		%
Weighted average receive rates	0.1241		%	0.2303		%
Weighted average maturity	5.5 Years			6.0 years
Unrealized losses	$	(1,520)		$	(5,545)

Interest income (expense) recorded on these swap transactions totaled $(368) thousand, $(1.1) million, $(317) thousand and $(413) thousand during the three and nine months ended September 30, 2021 and 2020, respectively, and is reported as a component of interest expense on FHLB advances. At September 30, 2021, the Company

expected $0.4 million of the unrealized loss to be reclassified as an increase to interest expense during the remainder of 2021.

Cash Flow Hedge

The effect of cash flow hedge accounting on accumulated other comprehensive income for the three and nine months ended September 30, 2021 and September 30, 2020 are as follows:


	Amount of Gain (Loss) Recognized in OCI (Net of Tax) on Derivative		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 September 30, 2021
Interest rate contracts	$	474	Interest Expense	$	(368)

Nine Months Ended September 30, 2021
Interest rate contracts	$	2,893	Interest Expense	$	(1,059)

Three months ended September 30, 2020
Interest rate contracts	$	296	Interest Expense	$	(317)

Nine months ended September 30, 2020
Interest rate contracts	$	(4,410)	Interest Expense	$	(413)

NOTE 7 – RETIREMENT PLANS

The Company has been a participant in the Pentegra Defined Benefit Plan for Financial Institutions (the “Pentegra DB Plan”), a tax-qualified defined benefit pension plan. There is no separate valuation of multi-employer plan benefits nor segregation of plan assets specifically for the Company because the Pentegra DB Plan is a multi-employer plan. The Pentegra DB Plan operates as a multi-employer plan for accounting purposes and as a multiple-employer plan under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. There are no collective bargaining agreements in place that require contributions to the Pentegra DB Plan. Benefits are based on years of service and compensation prior to retirement. Annually, Pentegra determines the contributions required to be made by each participating Company, and these contributions are expensed during the year they relate to. The benefits are based on years of service and employee’s compensation. Effective January 1, 2020 this plan was frozen to all current plan participants, eliminating all future benefit accruals. Employees affected by the Pentegra DB Plan amendments noted above will be automatically enrolled into the profit-sharing plan.

The Pentegra DB Plan is a single plan under Internal Revenue Code Section 413(c) and, as a result, all of the assets stand behind all of the liabilities. Accordingly, under the Pentegra DB Plan contributions made by a participating employer may be used to provide benefits to participants of other participating employers. The Company elected to withdraw from the Pentegra DB Plan in August 2021, and has recorded an associated $9.2 million accrued withdrawal liability. The withdrawal is expected to be finalized in the fourth quarter of 2021. The final exit price may vary from the amount originally estimated, as it is based on market pricing.

The Company has a savings plan under Section 401(k) of the Internal Revenue Code, which covers substantially all employees upon employment who have attained the age of 18. Under the plan, employee contributions are partially matched by the Company at its sole discretion.

The Company provides certain health insurance benefits for retired employees and directors meeting plan eligibility requirements. Effective January 1, 2019 the employee postretirement health benefit plan was curtailed, leaving only 10 retired participants and beneficiaries remaining in the plan. Active participants who met certain requirements received payments in lieu of future benefits. The plans are unfunded as of September 30, 2021 and 2020, and the obligation is included in other liabilities as an accrued postretirement benefit cost.

The Company maintains an Executive Supplemental Income Retirement Plan (“SERP”) for certain employees and a Director Retirement Plan (“DRP”). As the SERP and DRP plans are unfunded, there are no plan assets associated with these plans.

The components of net periodic benefit cost and other amounts recognized in other comprehensive income were as follows for the three and nine months ended September 30, 2021 and 2020:


	SERP and DRP
	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)				(In thousands)
Service cost	$	38	$	24	$	113	$	66
Interest cost	19		21		56		76

Prior Service Cost	17		17		51		51

Amortization:

Net loss (gain)	36		32		106		(135)
Net periodic benefit cost	$	110	$	94	$	326	$	58


	Post Retirement
	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)				(In thousands)
Service cost	$	—	$	—	$	1	$	1
Interest cost	$	10	$	12	$	29	$	41



Amortization:

Net loss (gain)	(1)		—		(2)		(111)
Net periodic benefit cost	$	9	$	12	$	28	$	(69)

The components of net periodic benefit cost other than the service cost component are included in the line item “other noninterest expense” in the Statement of Operations.

NOTE 8 – FAIR VALUE OF ASSETS AND LIABILITIES

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate fair value:

Securities: For securities available-for-sale and equity securities, fair value was estimated using a market approach. The majority of the Company’s securities are fixed income instruments that are not quoted on an exchange, but are traded in active markets. Prices for these instruments are obtained through third party data service providers or dealer market participants with which the Company has historically transacted both purchases and sales of securities. Prices obtained from these sources include market quotations and matrix pricing. Matrix pricing, a Level 2 input as defined by ASC 820, is a mathematical technique used principally to value certain securities to benchmark or comparable securities. The Company evaluates the quality of Level 2 matrix pricing through comparison to similar assets with greater liquidity and evaluation of projected cash flows. The Company also holds equity securities and debt instruments issued by the U.S. government and U.S. government sponsored agencies that are traded in active markets with readily accessible quoted market prices that are considered Level 1 inputs.

Derivatives: The fair values of derivatives are based on valuation models using observable market data as of the measurement date (Level 2). The Company’s derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Assets Held for Sale: Nonrecurring adjustments to certain non-residential properties classified as assets held for sale are measured at fair value, less costs to sell. Fair values are based on contracts / letters of intent.

REO: Nonrecurring adjustments to certain non-residential, construction and land, and residential one-to-four family real estate properties classified as real estate owned (“REO”) are measured at fair value, less costs to sell. Fair values are based on recent real estate appraisals. These appraisals may use 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. Adjustments that are based on contracts / letters of intent result in a Level 2 classification.

The following table summarizes the fair value of assets and liabilities as of September 30, 2021:


			Fair Value Measurements at September 30, 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	$	6,773	$	6,773	$	—	$	—
Domestic Corporate Bonds	88,118		—		88,118		—
U.S. Government agency obligations	25,240		19,318		5,922		—
Obligations issued by U.S. states and their political subdivisions	22,264		—		22,264		—
Mortgage-backed securities:
Residential one-to-four family	122,803		—		122,803		—
Multifamily	42,214		—		42,214		—
Asset-backed securities	6,734		$	—	6,734		—
	$	314,146	$	26,091	$	288,055	$	—

Financial Liabilities
Derivatives	$	(1,520)	$	—	$	(1,520)	$	—

Measured on a nonrecurring basis:
Nonfinancial assets
Assets held for sale	$	5,225	$	—	$	5,225	$	—
Real estate owned	624		—		624		—

In June 2021, certain REO was designated to held for sale and were transferred at cost basis in the amount of $892 thousand, and is therefore not included in the above table.

The following table summarizes the fair value of assets and liabilities as of December 31, 2020:


			Fair Value Measurements at December 31, 2020, 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	$	10,000	$	10,000	$	—	$	—
Domestic Corporate Bonds	59,341		—		59,341		—
U.S. Government agency obligations	19,675		12,417		7,258		—
Obligations issued by U.S. states and their political subdivisions	24,795		—		24,795		—
Mortgage-backed securities:
Residential one-to-four family	72,716		—		72,716		—
Multifamily	58,060		—		58,060		—
	$	244,587	$	22,417	$	222,170	$	—

Financial Liabilities
Derivatives	$	(5,545)	$	—	$	(5,545)	$	—

Measured on a nonrecurring basis:
Nonfinancial assets
Assets held for sale	$	5,295	$	—	$	5,295	$	—
Real estate owned	624		—		624		—

In March 2020, certain premises and REO were re-designated to held for sale, which resulted in a write-down from book value to fair value. The impairment recorded on the premises was $12.8 million which resulted in a remaining book value on those assets of $5.3 million that were reclassified from premises to assets held for sale. The impairment recorded on the REO was $1.4 million, which resulted in a remaining book value on those assets of $624 thousand.

The fair value measurements presented are consistent with Topic 820, Fair Value Measurement, in which fair value represents exit price. The carrying amounts and fair value of financial instruments not carried at fair value, at September 30, 2021 and December 31, 2020 are as follows:


			Fair Value Measurements at September 30, 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
Cash and due from banks	$	324,291	$	324,291	$	—	$	—
Securities held-to-maturity	23,325		—		23,147		—
Loans, net	1,238,975						1,235,172

Financial liabilities
Deposits other than time deposits	744,107		744,107
Time Deposits	521,510		—		521,294		—
Federal Home Loan advances	247,600				244,611


			Fair Value Measurements at December 31, 2020, 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
Cash and due from banks	$	316,445	$	316,445	$	—	$	—
Securities held-to-maturity	7,005		—		6,978		—
Loans, net	1,267,114		—		—		1,290,740

Financial liabilities
Deposits other than time deposits	638,753		638,753		—		—
Time Deposits	717,431		—		725,110		—
Federal Home Loan advances	329,400				336,377		—

NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income represents the net unrealized holding gains on securities available-for-sale, derivatives and the funded status of the Company’s benefit plans, as of the consolidated balance sheet dates, net of the related tax effect.

The following is a summary of the changes in accumulated other comprehensive income by component, net of tax, for the periods indicated:


	Gains and Losses on Cash Flow Hedges		Unrealized Gains and Losses on Available-for-sale Securities		Defined Benefit Pension Items		Total
	(In thousands)
Balance at December 31, 2020	$	(3,986)	$	4,208	$	(1,253)	$	(1,031)
Other comprehensive income (loss) before reclassification	3,071		(2,754)		—		317
Amounts reclassified from accumulated other comprehensive income	243		—		37		280
Net current period other comprehensive (loss) gain	3,314		(2,754)		37		597
Balance at March 31, 2021	$	(672)	$	1,454	$	(1,216)	$	(434)
Other comprehensive income (loss) before reclassification	$	(1,149)	$	1,321	$	—	$	172
Amounts reclassified from accumulated other comprehensive income	254		—		37		291
Net current period other comprehensive (loss) gain	(895)		1,321		37		463
Balance at June 30, 2021	$	(1,567)	$	2,775	$	(1,179)	$	29
Other comprehensive income (loss) before reclassification	$	209	$	(1,053)	$	—	$	(844)
Amounts reclassified from accumulated other comprehensive income	265		—		38		303
Net current period other comprehensive (loss) gain	474		(1,053)		38		(541)
Balance at September 30, 2021	$	(1,093)	$	1,722	$	(1,141)	$	(512)


	Gains and Losses on Cash Flow Hedges		Unrealized Gains and Losses on Available-for-sale Securities		Defined Benefit Pension Items		Total
	(In thousands)
Balance at December 31, 2019	$	(360)	$	916	$	(1,073)	$	(517)
Other comprehensive income (loss) before reclassification	(4,031)		1,070		—		(2,961)
Amounts reclassified from accumulated other comprehensive income	(1)		—		31		30
Net current period other comprehensive (loss) gain	(4,032)		1,070		31		(2,931)
Balance at March 31, 2020	$	(4,392)	$	1,986	$	(1,042)	$	(3,448)
Other comprehensive income (loss) before reclassification	$	(743)	$	1,701	$	—	$	958
Amounts reclassified from accumulated other comprehensive income	69		—		(207)		(138)
Net current period other comprehensive (loss) gain	(674)		1,701		(207)		820
Balance at June 30, 2020	$	(5,066)	$	3,687	$	(1,249)	$	(2,628)
Other comprehensive income (loss) before reclassification	$	68	$	(7)	$	—	$	61
Amounts reclassified from accumulated other comprehensive income	228		—		35		263
Net current period other comprehensive (loss) gain	296		(7)		35		324
Balance at September 30, 2020	$	(4,770)	$	3,680	$	(1,214)	$	(2,304)

The following is significant amounts reclassified out of each component of accumulated other comprehensive income (loss):


Details about Accumulated Other Comprehensive Income Components	Three Months Ended September 30,				Affected Line Item in the Statement Where Net Income is Presented
	2021		2020
	(In thousands)

Gains and (losses) on cash flow hedges:
Interest rate contracts	$	(368)	$	(317)	Interest (expense) income

Amortization of benefit plan items:
Net actuarial loss	(52)		(49)		Compensation and employee benefits
Total tax effect	118		103		Income tax expense
Total reclassification for the period, net of tax	$	(302)	$	(263)


Details about Accumulated Other Comprehensive Income Components	Nine Months Ended September 30,				Affected Line Item in the Statement Where Net Income is Presented
	2021		2020
	(In thousands)

Gains and (losses) on cash flow hedges:
Interest rate contracts	$	(1,059)	$	(413)	Interest (expense) income

Amortization of benefit plan items:
Net actuarial loss	(155)		$	195	Compensation and employee benefits
Total tax effect	341		61		Income tax expense
Total reclassification for the period, net of tax	$	(873)	$	(157)

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 noninterest income in the Statement of Operations. The following table presents the Company’s sources of revenue from contracts with customers for the three and nine months ended September 30, 2021 and 2020, respectively.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(In thousands)				(In thousands)
Noninterest income
Service charges on deposits	$	246	$	188	$	706	$	527


Interchange income	9		5		25		16
Total Revenue from Contracts with Customers	$	255	$	193	$	731	$	543

Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in the time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees 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.

NOTE 11 - EARNINGS PER SHARE

Basic 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 nine months ended September 30, 2021, 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 nine months ended September 30, 2020 as the Company had no shares outstanding.


	Three Months Ended September 30,
	2021
	(Income In thousands)
Net income applicable to common shares	$	(14,970)

Average number of common shares outstanding	23,872,092
Less: Average unallocated ESOP shares	1,892,231
Average number of common shares outstanding used to calculate basic earnings per common share	21,979,861
Common stock equivalents	—
Earnings per common share basic and diluted	$	(0.68)

All unallocated ESOP shares have been excluded from the calculation of basic and diluted EPS. The Company did not present earnings per share for the nine months ended September 30, 2021 because the year-to-date weighted average computation would present a figure that would not aid investors in understanding the Company’s financial results.

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.

Debt Repayment

On October 21, 2021, the Bank extinguished $62.1 million in borrowings from the Federal Home Loan Bank of New York. This repayment has enhanced the Bank’s overall net interest margin and reduced its wholesale funding ratio. These borrowings had a weighted average rate of 1.9% and a weighted average remaining life of 0.86 years. The Bank incurred a prepayment penalty of $755 thousand associated with the extinguishment of this debt.

NOTE 13 - ESOP

Employees participate in an Employee Stock Ownership Plan (ESOP). The ESOP borrowed funds from the Company to purchase 2,281,800 shares of stock at $10 per share. The Bank makes discretionary contributions to the ESOP, as well as paying dividends on unallocated shares to the ESOP, and the ESOP uses funds it receives to repay the loan. When loan payments are made, ESOP shares are allocated to participants based on relative compensation. Participants receive the shares at the end of employment. Dividends on allocated shares increase participants accounts.

There were no contributions to the ESOP during the first nine months of 2021, as the initial annual loan payment will be made during the fourth quarter. Expense recorded was $554 thousand during the first nine months of 2021, and is recognized over the service period.

Shares held by the ESOP were as follows:


	Nine Months Ended September 30,
	2021
	(Dollars in thousands)

Allocated to participants	41,290
Unallocated	2,240,510
Total ESOP shares	2,281,800

Fair value of unearned shares at September 30, 2021	$	30,897

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 September 30, 2021, and our results of operations for the three and nine month periods ended September 30, 2021 and 2020. 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. Our significant accounting policies are discussed in detail in the Company’s prospectus, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) on May 21, 2021. There have been no material changes to our critical accounting policies as compared to the critical accounting policies described in the Company’s prospectus.

Executive Summary

COVID-19 Pandemic

During the COVID-19 pandemic, economies throughout the world have been severely disrupted by the effects of quarantines, business closures, and the reluctance of individuals to leave their homes as a result of the outbreak of the novel coronavirus (COVID-19). Our primary market area of New Jersey became part of several epicenters of the COVID-19 pandemic. The full impact of the COVID-19 pandemic is unknown and evolving. The pandemic and any preventative or protective actions that the Company or its customers have taken or may take in respect of this virus may result in extended periods of disruption to the Company, its customers, service providers, and third parties. The Bank evaluated the potential range of impacts from COVID-19 on its significant estimates as of September 30, 2021. These impacts were reflected in the allowance for loan losses through qualitative and quantitative factors. In addition, the Bank’s capital ratios were in excess of all regulatory requirements. The extent to which the COVID-19 pandemic impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted.

Summaryof Results

During the third quarter of 2021, we continued to invest in our core business as general economic conditions continued to improve.

–We reported a net loss of $15.0 million for the three months ended September 30, 2021 compared to a net loss of $1.7 million for the three months ended September 30, 2020, and a net loss of $16.7 million for the nine months ended September 30, 2021 compared to a net loss of $29.7 for the nine months ended September 30, 2020. The increase in net loss for the three month comparative period was driven by an increase in non-interest expenses, particularly a liability recorded in connection with the Company’s withdrawal from a multi-employer defined-benefit pension plan, as well as an expense associated with the contribution of common shares to the Blue Foundry Charitable Foundation. The improvement in net loss for the nine month comparative period was largely driven by a decrease in non-interest expenses, in particular the reclassification of certain properties as held-for-sale and subsequent impairment in the first quarter of 2020 and goodwill impairment recorded in the second quarter of 2020. Those items were partially offset by the liability associated with the Company’s withdrawal from the multi-employer defined-benefit pension plan and the contribution of common shares to the charitable foundation.

–Net interest margin increased nine and decreased seven basis points for the three and nine months ended September 30, 2021, respectively, compared to the corresponding prior year periods.

–Gross loans decreased $29.2 million, or 2.28%, to $1.25 billion at September 30, 2021 from $1.28 billion at December 31, 2020.

–Total non-interest expense was $33.1 million for the three months ended September 30, 2021, compared to $13.0 million for the three months ended September 30, 2020. For the nine months ended September 30, 2021 non-interest expense was $57.3 million, compared to $63.8 million for the nine months ended September 30, 2020. The increase in non-interest expenses for the three month comparative period was related to a $9.2 million liability associated with the Company’s withdrawal from a multi-employer defined-benefit pension plan, as well as an expense of $9.0 million for the contribution of common stock of the Company to the Blue Foundry Charitable Foundation, Inc. The decrease in non-interest expenses for the nine month comparative period related to the designation of certain premises and real estate owned (“OREO”) as held for sale, and a subsequent write-down from book value to fair value, in the first quarter of 2020 resulting in an impairment of $12.8 million. In addition, the Company recorded goodwill impairment of $15.5 million during the second quarter of 2020. Those items were partially offset by the liabilities discussed above that impacted the three month comparative period.

–The provision for credit losses was a $0.3 million recovery for the three months ended September 30, 2021 compared to a provision of $1 thousand for the three months ended September 30, 2020, and a $1.7 million recovery for the nine months ended September 30, 2021 compared to a $2.8 million provision for the nine months ended September 30, 2020.

–Non-maturity deposits continued to rise, representing 59% of total deposits and approximately $744.1 million as of September 30, 2021, compared to 47% and approximately $638.8 million as of December 31, 2020.

–The cost of interest-bearing deposits decreased 66 and 62 basis points to 0.52% and 0.70% for the three and nine months ended September 30, 2021, respectively, compared to the three and nine months ended September 30, 2020.

–Non-accrual loans totaled $12.5 million as of September 30, 2021 compared to $12.9 million at December 31, 2020.

Comparison of Operating Results for the Three and Nine Month Periods Ended September 30, 2021 and 2020

General. Net income decreased $13.3 million, to a net loss of $15.0 million for the three months ended September 30, 2021, compared to a net loss of $1.7 million for the three months ended September 30, 2020, and increased $13.0 million, to a net loss of $16.7 million for the nine months ended September 30, 2021, compared to a net loss of $29.7 million for the nine months ended September 30, 2020. For the three month comparative period, the decrease was primarily due to the $9.2 million liability associated with the Company’s withdrawal from the multi-employer defined-benefit pension plan, as well as the expense of $9.0 million for the contribution of common shares to the Blue Foundry Charitable Foundation, Inc.

For the nine month period, the increase was due primarily to a $12.8 million valuation allowance as certain Bank property was reclassified to held for sale and subsequently written down to fair value, as well as a write down of $1.4 million of REO, in the first quarter of 2020, and goodwill impairment of $15.5 million recorded in the second quarter of 2020. The overall increase was partially offset by the liability associated with the Company’s withdrawal from the multi-employer defined-benefit pension plan, and the expense associated with the contribution of common stock of the Company to the Blue Foundry Charitable Foundation, Inc.

Interest Income. Interest income decreased $1.1 million, or 7%, to $14.1 million for the three months ended September 30, 2021 from $15.1 million for the three months ended September 30, 2020, and decreased $5.6 million, or 12%, to $41.8 million for the nine months ended September 30, 2021 from $47.4 million for the nine months ended September 30, 2020. For the three months ended September 30, 2021, the overall decrease was due to a decrease of $1.4 million in interest income from loans as the average balance of loans decreased $142.0 million to $1.25 billion and the average yield on loans remained consistent at 3.86%. For the nine months ended September 30, 2021, the decrease was due to a decrease of $5.2 million in interest income from loans as the average balance of loans decreased $142.0 million to $1.27 billion and the average yield on loans decreased 10 basis points to 3.82%.

Interest Expense. Interest expense decreased $2.5 million, or 46%, to $3.0 million for the three months ended September 30, 2021 compared to $5.5 million for the three months ended September 30, 2020, and decreased $6.5 million, or 37%, to $11.2 million for the nine months ended September 30, 2021 compared to $17.7 million for the nine months ended September 30, 2020. For the three months ended September 30, 2021, the decrease in interest expense was driven by a decrease of $2.1 million in interest expense on deposits, coupled with a decrease of $0.4 million in interest expense on borrowings. Average interest-bearing deposit balances decreased to $1.27 billion at a weighted average interest rate of 0.52% for the three months ended September 30, 2021, compared to $1.29 billion at a weighted average interest rate of 1.18% for the three months ended September 30, 2020.

For the nine months ended September 30, 2021, the decrease in interest expense was driven by a decrease of $5.8 million in interest expense on deposits, coupled with a decrease of $0.7 in interest expense on borrowings. Average interest-bearing deposit balances rose to $1.31 billion at a weighted average interest rate of 0.70% for the nine months ended September 30, 2021, compared to $1.28 billion at a weighted average interest rate of 1.32% for the nine months ended September 30, 2020.

Net Interest Income. For the three months ended September 30, 2021 net interest income was $11.1 million, an increase of $1.5 million compared to $9.6 million for the same period in 2020. For the nine months ended September 30, 2021 net interest income was $30.6 million, an increase of $0.9 million compared to $29.7 million for same period in 2020.

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 probable and incurred 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 recovery of provision for loan losses of $0.3 million for the three months ended September 30, 2021 compared to a provision of $1 thousand for the three months ended September 30, 2020, and a recovery of provision for loan losses of $1.7 million for the nine months ended September 30, 2021 compared to a provision of $2.8 million for the nine months ended September 30, 2020. The recovery for the three and nine month periods ended September 30, 2021 were driven by declining balances in portfolio segments with respectively higher applied loss rates, and declining non-performing assets.

As the pandemic emerged in March of 2020, the Company increased its allowance for loan losses by $1.5 million to $16.0 million as of March 31, 2020. As the economic effects of the pandemic continued to unfold, the Company increased its allowance by another $1.3 million as of June 30, 2020 to $17.3 million, where it remained through September 30, 2020 despite loan balances declining due to increased loan payoffs driven by record-low interest rates. Subsequently, credit quality continued to stabilize, and by December 31, 2020, the Company had reduced its allowance slightly, to $17.0 million. The first nine months of 2021 saw continued strengthening of credit quality, as seen in the declining delinquency rates and balances of non-performing loans. Total non-performing loans decreased by $0.4 million to $12.5 million at September 30, 2021 compared to to $12.9 million at December 31, 2020.

Non-interest Income. Non-interest income decreased $0.1 million, to $0.5 million for the three months ended September 30, 2021 from $0.6 million for the three months ended September 30, 2020, and increased $1.2 million, to $1.8 million for the nine months ended September 30, 2021 compared to $0.5 million for the nine months ended September 30, 2020. The primary driver of the increase for the nine months ended September 30, 2021 was the valuation allowance taken on the real estate owned component of the former administrative headquarters complex in 2020, which amounted to $1.4 million.

Non-interest Expense. Non-interest expense increased $20.1 million, or 155%, to $33.1 million for the three months ended September 30, 2021 from $13.0 million for the three months ended September 30, 2020, and

decreased $6.5 million, or 10%, to $57.3 million for the nine months ended September 30, 2021 from $63.8 million for the nine months ended September 30, 2020. The increase in non-interest expenses for the three month comparative period was primarily related to the $9.2 million liability associated with the Company’s withdrawal from a multi-employer defined-benefit pension plan, as well as the expense of $9.0 million for the contribution of common stock of the Company to the Blue Foundry Charitable Foundation, Inc. Also contributing to the increase in non-interest expense for the three month period was an increase in provisions for letters of credit and commitments of $1.2 million and data processing costs of $0.8 million.

The decrease in non-interest expenses for the nine month comparative period related to the designation of certain premises and real estate owned as held for sale, and subsequent write-down from book value to fair value, in the first quarter of 2020 resulting in impairment of $12.8 million. In addition, the Company recorded goodwill impairment of $15.5 million during the second quarter of 2020. Contributing to the decrease in non-interest expenses for the nine month comparative period was a reduction in professional services expenses of $3.4 million. Those items were largely offset by the $9.2 million liability associated with the Company’s withdrawal from the multi-employer defined-benefit pension plan, the $9.0 million expense relative to contribution of common shares to the charitable foundation, as well as an increase in data processing costs of $2.7 million due to continued investment in technology.

Income Tax Expense. The Company recognized an income tax benefit of $6.2 million for the three months ended September 30, 2021 compared to an income tax benefit of $1.1 million for the three months ended September 30, 2020, and an income tax benefit of $6.5 million for the nine months ended September 30, 2021 and 2020, respectively. This resulted in an effective tax rate for the nine months ended September 30, 2021 and 2020 of (27.9)% and (17.9)%, respectively.

Average Balances and Yields

The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. Average balances have been calculated using daily balances. Non-accrual loans are included in average balances only. Loan fees are included in interest income on loans and are not material.


		Three Months Ended September 30,
		2021					2020
		Average Balance	Interest	Average Yield/Cost			Average Balance	Interest	Average Yield/Cost
		(Dollar in thousands)
Assets:
Loans	$	1,251,343	12,044	3.86	%	$	1,393,319	13,412	3.86	%
Mortgage-backed securities		165,170	762	1.85	%		126,797	662	2.09	%
Other investment securities		163,393	871	2.14	%		127,338	755	2.38	%
FHLB stock		14,442	183	5.09	%		17,667	257	5.84	%
Cash and cash equivalents		473,797	213	0.18	%		206,606	51	0.10	%
Total interest-bearing assets		2,068,145	14,073	2.73	%		1,871,727	15,137	3.24	%
Non-interest earning assets		97,287					75,276
Total assets	$	2,165,432				$	1,947,003
Liabilities and shareholders' equity:
NOW, savings, and money market deposits		687,470	242	0.14	%		530,070	360	0.27	%
Time deposits		580,499	1,409	0.97	%		756,758	3,436	1.82	%
Interest-bearing deposits		1,267,969	1,651	0.52	%		1,286,828	3,796	1.18	%
FHLB advances		282,153	1,318	1.87	%		352,052	1,712	1.95	%
Total interest-bearing liabilities		1,550,122	2,969	0.77	%		1,638,880	5,508	1.35	%
Non-interest bearing deposits		176,045					45,581
Non-interest bearing other		42,907					55,506
Total liabilities		1,769,074					1,739,967
Total shareholders' equity		396,358					207,036
Total liabilities and shareholders' equity	$	2,165,432				$	1,947,003
Net interest income			11,104					9,629
Net interest rate spread (1)				1.96	%				1.91	%
Net interest margin (2)				2.15	%				2.06	%

(1) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.

(2) Net interest margin represents net interest income divided by average interest-earning assets.


		Nine Months Ended September 30,
		2021					2020
		Average Balance	Interest	Average Yield/Cost			Average Balance	Interest	Average Yield/Cost
		(Dollar in thousands)
Assets:
Loans	$	1,274,274	36,362	3.82	%	$	1,416,235	41,577	3.92	%
Mortgage-backed securities		153,031	2,201	1.92	%		125,535	2,148	2.29	%
Other investment securities		139,909	2,324	2.22	%		128,151	2,414	2.52	%
FHLB stock		15,662	585	5.00	%		17,539	728	5.54	%
Cash and cash equivalents		394,656	346	0.12	%		170,266	582	0.46	%
Total interest-bearing assets		1,977,532	41,818	2.83	%		1,857,726	47,449	3.41	%
Non-interest earning assets		84,360					71,222
Total assets	$	2,061,892				$	1,928,948
Liabilities and shareholders' equity:
NOW, savings, and money market deposits		663,581	835	0.17	%		493,467	1,045	0.28	%
Time deposits		648,672	6,013	1.24	%		782,001	11,566	1.98	%
Interest-bearing deposits		1,312,253	6,848	0.70	%		1,275,468	12,611	1.32	%
FHLB advances		308,614	4,357	1.89	%		348,950	5,090	1.95	%
Total interest-bearing liabilities		1,620,867	11,205	0.92	%		1,624,418	17,701	1.46	%
Non-interest bearing deposits		126,933					46,939
Non-interest bearing other		44,684					39,053
Total liabilities		1,792,484					1,710,410
Total shareholders' equity		269,408					218,538
Total liabilities and shareholders' equity	$	2,061,892				$	1,928,948
Net interest income			30,613					29,748
Net interest rate spread (1)				1.91	%				1.95	%
Net interest margin (2)				2.07	%				2.14	%

(1) Net interest rate spread represents the difference between the yield on interest-earning assets and the cost of interest-bearing liabilities.

(2) Net interest margin represents net interest income divided by average interest-earning assets.

Comparison of Financial Condition at September 30, 2021 and December 31, 2020

Total Assets. Total assets increased $81.8 million, or 4%, to $2.02 billion at September 30, 2021 from $1.94 billion at December 31, 2020. The increase was primarily due to purchases of investment securities as the Company’s available-for-sale and held-to-maturity portfolios increased by $69.6 million and $16.3 million, respectively.

Cash and cash equivalents. Cash and cash equivalents increased $7.9 million to $324.3 million at September 30, 2021 from $316.4 million at December 31, 2020. The increase was primarily due to cash received in connection with the initial public offering of the Company’s common stock which was largely offset by a decrease in time deposits, the repayment of FHLB borrowings, and purchase of investment securities.

Gross Loans. Gross loans held for investment decreased $29.2 million, or 2.28%, to $1.25 billion at September 30, 2021 from $1.28 billion at December 31, 2020. The decrease was due in large part to a net increase in multifamily loans being exceeded by net payoffs and amortization in residential one-to-four family and construction loans as well as the effect of the ongoing forgiveness programs within the commercial & industrial portfolio attributable to loans made pursuant to the Paycheck Protection Program. For the nine months ended September 30, 2021, there were $161.5 million in originations of multifamily loans partially offset by $77.5 million of payoffs and

amortization, and $43.9 million of originations in commercial & industrial (including PPP loans) more than offset by $53.7 million in payoffs/forgiveness and amortization. The decrease in one-to-four family loans was primarily driven by $139.0 million in payoffs and amortization, partially offset by $49.6 million of production, including $28.7 million in whole loan purchases from another financial institution.

The following table presents loans at September 30, 2021 and December 31, 2020 allocated by loan category:


	September 30, 2021		December 31, 2020
	(In thousands)
Residential one-to-four family	$	522,213	$	611,603
Multifamily	511,408		427,436
Non-residential	130,823		128,141
Construction and land	21,337		33,691
Junior liens	19,540		23,814
Commercial and industrial (including PPP)	44,262		54,053
Consumer and other	80		99
Total loans	1,249,663		1,278,837

Deferred fees, costs and premiums and discounts, net	4,560		5,236
Allowance for loan losses	(15,248)		(16,959)
	(10,688)		(11,723)
Loans receivable, net	$	1,238,975	$	1,267,114

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


	September 30, 2021		December 31, 2020
	(In thousands)
Residential one-to-four family	$	10,969	$	11,813
Multifamily	145		156
Non-residential	1,236		805
Construction and land	—		—
Commercial and industrial (including PPP)	—		—
Junior liens	114		82
Total	$	12,464	$	12,856
Other real estate owned	624		624
Total non-performing assets	$	13,088	$	13,480

Securities Available-For-Sale. Securities available-for-sale increased $69.6 million, or 28.4%, to $314.1 million at September 30, 2021 from $244.6 million at December 31, 2020. During the nine months ended September 30, 2021, purchases of residential mortgage-backed securities, agency bonds, and corporate bonds were executed as interest rates rose. No securities were sold or liquidated during the nine months ended September 30, 2021.

Total Deposits. Total deposits totaled $1.27 billion at September 30, 2021. Deposits decreased $90.6 million, or 7% from December 31, 2020. Checking and savings accounts increased $105.4 million, or 16%, to $744.1 million at September 30, 2021 from $638.8 million at December 31, 2020. This was offset by a decrease in time deposits of $195.9 million, or 27.3%, to $521.5 million at September 30, 2021 from $717.4 million at December 31, 2020. These changes resulted in the ratio of time deposits to total deposits decreasing from 52.9% at December 31, 2020 to

41.2% at September 30, 2021, and a decline in the blended deposit cost of funds to 0.35% at September 30, 2021 from 0.92% at December 31, 2020.

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


		September 30, 2021		December 31, 2020
		(In thousands)
NOW and demand accounts	$	396,487	$	362,169
Savings		347,620		276,584
Time deposits		521,510		717,431
Total Deposits	$	1,265,617	$	1,356,184

Included within the NOW and demand account caption, as well as the Savings caption above are money market accounts with varying transactional limits.

Borrowings. The Company had $247.6 million of borrowings at September 30, 2021, compared to $329.4 million of borrowings at December 31, 2020. 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. During the nine months ended September 30, 2021, $32.5 million of borrowings with a weighted average rate of 2.38% matured. Additionally, the Bank prepaid $49.3 million of borrowings with a weighted average yield of 2.55%.

Total Equity. Shareholders’ total equity increased by $242.6 million, or 118.0%, to $448.2 million at September 30, 2021 compared to $205.6 million at December 31, 2020. The increase was due primarily to the proceeds from the initial public offering of the Company’s common stock, partially offset by a net loss of $16.7 million for the nine months ended September 30, 2021.

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 September 30, 2021, 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)
September 30, 2021
Common equity tier 1	$	309,745	27.66	%	$	50,392	4.50	%	$	78,388	7.00	%	$	72,789	6.50	%
Tier 1 capital	309,745		27.66	%	67,190		6.00	%	95,186		8.50	%	89,586		8.00	%
Total capital	323,781		28.91	%	89,586		8.00	%	117,582		10.50	%	111,983		10.00	%
Tier 1 (leverage) capital	309,745		14.39	%	86,082		4.00	%	N/A		N/A		107,603		5.00	%

December 31, 2020
Common equity tier 1	$	206,258	19.93	%	$	46,578	4.50	%	$	72,455	7.00	%	$	67,279	6.50	%
Tier 1 capital	206,258		19.93	%	62,104		6.00	%	87,981		8.50	%	82,806		8.00	%
Total capital	219,262		21.18	%	82,806		8.00	%	108,682		10.50	%	103,507		10.00	%
Tier 1 (leverage) capital	206,258		10.72	%	76,934		4.00	%	N/A		N/A		96,168		5.00	%

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 September 30, 2021.

At September 30, 2021, we had outstanding commitments to originate loans of $27.8 million and unused lines of credit of $55.6 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 September 30, 2021 totaled $337.8 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 September 30, 2021 was $88.7 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 September 30, 2021.

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 September 30, 2021 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 third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk: growing target deposit accounts; utilizing our investment securities portfolio and interest rate swaps as part of our balance sheet asset and liability and interest rate risk management strategy to reduce the impact of movements in interest rates on net interest income and economic value of equity, which can create temporary valuation adjustments to equity in Accumulated Other Comprehensive Income; continuing the diversification of our loan portfolio by adding more commercial loans, which typically have shorter maturities and/or balloon payments.

By following these strategies, we believe that we are better positioned to react to increases and decreases in market interest rates.

We generally do not engage in hedging activities, such as engaging in futures or options, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. 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 $45.2 million in loans, $40.4 million in investments and $109 million notional of derivatives which are indexed to USD-LIBOR for which it is monitoring the activity and assessing the related risks.

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 September 30, 2021, 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)
+400bp	$	311,847	$	(31,343)	(9)	%	15	%	(2)	%
+300bp	318,527		(24,662)		(7)		16		(1)
+200bp	323,441		(19,749)		(6)		16		(1)
+100bp	330,050		(13,140)		(4)		16		(1)
0 bp	343,189		—		—		17		—
-100bp	388,824		45,635		13		19		2

The table above indicates that at September 30, 2021, in the event of an instantaneous 100 basis point increase in interest rates, we would experience a 4% decrease in EVE. In the event of an instantaneous 100 basis point decrease in interest rates, we would experience a 13% increase in net portfolio value.

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 September 30, 2021 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 Prospectus filed on May 21, 2021 beginning on Page 18, “Risk Factors.”

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)
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 September 30, 2021, 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:

November 5, 2021

By:

/s/ James D. Nesci

James D. Nesci

Chief Executive Officer

(Principal Executive Officer)

Dated:

November 5, 2021

By:

/s/ Alex Agnoletto

Alex Agnoletto

Interim-Chief Financial Officer

(Principal Financial Officer)