Blue Foundry Bancorp - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)


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

For the fiscal year ended December 31, 2022


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

For the transition period from to

Commission file number 001-40619

BLUE FOUNDRY BANCORP

(Exact name of 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

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

Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐ No ☒

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 (or for such shorter period that the registrant was required to file such reports); 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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” smaller reporting company,” and “emerging growth 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

As of March 28, 2023, there were 28,522,500 shares issued and 27,517,182 shares outstanding of the Registrant’s Common Stock, par value $0.01 per share.

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to price at which the common equity was last sold on June 30, 2022 was $312.3 million.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Registrant’s 2023 Annual Meeting of Stockholders. (Part III)

BLUE FOUNDRY BANCORP

FORM 10-K

INDEX

PAGE

Part I

Item 1.

Business

Item 1A.

Risk Factors

Item 1B.

Unresolved Staff Comments

Item 2.

Properties

Item 3.

Legal Proceedings

Item 4.

Mine Safety Disclosures

Part II

Item 5.

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Item 6.

Reserved

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Item 8.

Financial Statements and Supplementary Data

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

116

Item 9A.

Controls and Procedures

116

Item 9B.

Other Information

116

Item 9C.

Disclosure Regarding Foreign Jurisdiction that Prevent Inspections

116

Part III

Item 10.

Directors, Executive Officers and Corporate Governance

117

Item 11.

Executive Compensation

117

Item 12.

Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters

117

Item 13.

Certain Relationships and Related Transactions, and Director Independence

117

Item 14.

Principal Accounting Fees and Services

117

Part IV

Item 15.

Exhibits, Financial Statement Schedules

Item 16.

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. These forward-looking statements include, but are not limited to:


			•			statements of our goals, intentions and expectations;
			•			statements regarding our business plans, prospects, growth and operating strategies;
			•			statements regarding the quality of our loan and investment portfolios; and
			•			estimates of our risks and future costs and benefits.

These forward-looking statements are based on current beliefs and expectations of our 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. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of the Annual Report on Form 10-K.

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:


			•			inflation and changes in the interest rate environment that reduce our margins and yields, or reduce the fair value of financial instruments or reduce the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets;
			•			general economic conditions, either nationally or in our market areas, that are worse than expected;
			•			our ability to access cost-effective funding;
			•			our ability to meet applicable capital and liquidity requirements;
			•			our ability to manage market risk, credit risk and operational risk in the current economic conditions;
			•			changes in consumer demand, borrowing and savings habits;
			•			demand for loans and deposits in our market area;
			•			changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses;
			•			fluctuations in real estate values and both residential and commercial real estate market conditions;
			•			significant increases in our loan losses;
			•			our ability to implement changes in our business strategies;
			•			competition among depository and other financial institutions;
			•			adverse changes in the securities markets;
			•			changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
			•			changes in monetary or fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;
			•			our ability to enter new markets successfully and capitalize on growth opportunities;
			•			changes in accounting policies and practices, as may be adopted by 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;
			•			technological changes;
			•			cyber-attacks, computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information and destroy data or disable our systems;


			•			technological changes that may be more difficult or expensive than expected;
			•			the ability of third-party providers to perform their obligations to us;
			•			the ability of the U.S. Government to manage federal debt limits;
			•			changes in the financial condition, results of operations or future prospects of issuers of securities that we own;
			•			our ability to successfully integrate any assets, liabilities, clients, systems and management personnel we have acquired or may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;
			•			other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing products and services described elsewhere in this Annual Report on Form 10-K, and
			•			the disruption to local, regional, national and global economic activity caused by infectious disease outbreaks such as COVID-19, and the significant impact that such pandemics may have on our growth, operations, earnings and asset quality.

Because of these and other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

PART I

ITEM 1. BUSINESS

Blue Foundry Bancorp

Blue Foundry Bancorp (the “Company”) is a Delaware corporation which became the holding company for Blue Foundry Bank (the “Bank”) on July 15, 2021, following the completion of the mutual-to-stock conversion of Blue Foundry, MHC. In connection with the conversion, the Company sold 27,772,500 shares of common stock, par value $0.01 per share, 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.”

The Company owns all of the outstanding common stock of the Bank, and as such, is a bank holding company subject to regulation by the Federal Reserve Board.

Blue Foundry Bank

The Bank is a New Jersey-chartered stock savings bank that was organized in 1939 as Boiling Springs Savings & Loan Association by the combination of the Rutherford Mutual Loan and Building Association and the East Rutherford Savings, Loan and Building Association. In 1992, Boiling Springs Savings & Loan Association converted to a New Jersey-chartered mutual savings bank and became known as Boiling Springs Savings Bank. Boiling Springs Savings Bank’s name was changed to Blue Foundry Bank in 2019. At December 31, 2022, the Bank had assets of $2.04 billion, net loans of $1.53 billion and deposits of $1.39 billion.

Blue Foundry Bank’s principal business consists of originating one-to-four family residential, multi-family, and non-residential real estate mortgages, home equity loans and lines of credit, construction, and commercial and industrial loans in our principal market and surrounding areas. In addition, we often lend outside of our branch network in more densely populated and metropolitan areas, adding diversification to our loan portfolio. We attract retail deposits from the general public in the areas surrounding our banking offices, through our borrowers, and through our online presence, offering a wide variety of deposit products. We also invest in securities. Our revenues are derived primarily from interest on loans and, to a lesser extent, interest on mortgage-backed and other investment securities. Our primary sources of funds are deposits, principal and interest payments on loans, securities, and borrowings from the Federal Home Loan Bank of New York (“FHLB”).

Blue Foundry Bank is subject to comprehensive regulation and examination by the New Jersey Department of Banking and Insurance (“NJDOBI”) and the Federal Deposit Insurance Corporation (“FDIC”). Our website address is www.bluefoundrybank.com. Information on this website is not and should not be considered a part of this Annual Report on Form 10-K.

Market Area

Our market area is primarily northern New Jersey. As of December 31, 2022, the Bank operates 18 full service banking offices in New Jersey. The administrative offices of the Company and Bank are located at 7 Sylvan Way, Suite 200, Parsippany, New Jersey 07054. Our telephone number is (201) 939-5000.

The economy in our primary market area benefits from being varied and diverse, with a broad economic base. New Jersey, counted among the wealthiest states in the nation with an estimated population of 9.26 million, is considered one of the most attractive banking markets in the United States. Within our primary market areas, the Bank had less than 1% of bank deposit market share as of June 30, 2022, the latest date for which statistics are available.

We believe that we have developed products and services that meet the financial needs of our current and future customer base; however, we plan, and believe it is necessary to continuously evaluate our products and

service offerings in light of evolving expectations and make the appropriate enhancements to ensure we remain competitive in our market area. Our marketing strategies focus on the strength of our knowledge of local consumer and small business markets, as well as expanding relationships with current customers and reaching out to develop new, profitable business relationships.

Competition

We face significant competition for deposits and loans. Our most direct competition for deposits has come historically from the numerous financial institutions operating in our market area (including other community banks and credit unions), many of which are significantly larger than we are and have greater resources. We also face competition for depositor funds from other sources such as financial technology companies, online banks, brokerage firms, money market funds and mutual funds, as well as from securities offered by the Federal Government, such as Treasury bills. Additionally, money center banks, such as Bank of America, JP Morgan Chase, Wells Fargo and Citi, and large regional banks, such as TD Bank, M&T Bank and PNC Bank, have a significant presence in our market area.

Our competition for loans comes primarily from the competitors referenced above and from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from the increasing number of non-depository financial service companies participating in the mortgage market, such as insurance companies, securities firms, financial technology companies, specialty finance firms and technology companies.

We expect competition to remain intense in the future as a result of legislative, regulatory and technological changes and the continuing trend toward consolidation of the financial services industry. Technological advances, for example, have lowered barriers to entry, allowed banks to expand their geographic reach by providing services over the internet and made it possible for non-depository institutions, including financial technology companies, to offer products and services that traditionally have been provided by banks.

During 2022, the Federal Reserve took unprecedented action to contain inflation. The Federal Reserve raised the federal funds rate seven times ranging from 25 basis points to 75 basis points totaling 425 basis points or 4.25 percent. This showed its resolve to return inflation to its 2 percent target.

Further expected interest rate increases, persistently high inflation and geopolitical tensions have increased uncertainty and elevated the risk of recession in the US economy.

Historically, our lending activities have emphasized one-to-four family residential real estate loans and multifamily housing loans, and such loans continue to comprise the largest portion of our loan portfolio. Other areas of lending include non-residential mortgage loans and, to a lesser extent, construction loans, commercial and industrial loans, and junior liens and consumer loans, the latter of which consist primarily of home equity loans and lines of credit. Commercial and industrial (“C&I”) loans include C&I revolvers, term loans, and SBA 7a loans. Subject to market conditions and our asset-liability analysis, we expect to continue to focus on commercial real estate, multi-family and traditional C&I lending as part of our effort to diversify the loan portfolio and increase the overall yield earned on our loans. We compete for loans by offering high quality personalized service, providing convenience and flexibility, timely responses on loan applications, and by offering competitive pricing.

Loan Portfolio Composition. The following table sets forth the composition of the loan portfolio at the dates indicated.


	At December 31,
	2022					2021
	Amount		Percent			Amount		Percent

	(Dollars in thousands)
Residential one-to-four family	$	594,521		38.55	%	$	560,976		43.78	%
Multifamily		690,278		44.75			515,240		40.21
Non-residential		216,394		14.03			141,561		11.05
Construction and land		17,990		1.17			23,419		1.83
Junior liens		18,477		1.20			18,464		1.44
Commercial and Industrial (1)		4,682		0.30			21,563		1.68
Consumer and other		38		—			87		0.01
Total gross loans		1,542,380		100	%		1,281,310		100	%

Deferred fees, costs and discounts, net		2,747					6,299
Less: allowance for loan losses		(13,400)					(14,425)
Loans receivable, net	$	1,531,727				$	1,273,184

(1) At December 31, 2022 and 2021, commercial and industrial loans include Paycheck Protection Program (“PPP”) loans totaling $477 thousand and $16.8 million, respectively, net of unearned deferred fees.

Loan Maturity. The following tables set forth certain information at December 31, 2022 regarding the dollar amount of loan principal repayments becoming due during the periods indicated. The tables do not include any estimate of prepayments that significantly shorten the average loan life and may cause actual repayment experience to differ from that shown below. The amounts shown below include unearned loan origination fees and costs, and unamortized premium and discounts, net.



	At December 31, 2022
	Residential One-to- Four Family		Multifamily		Non- Residential		Construction and Land		Junior Liens		Commercial and Industrial		Consumer and Other		Total Loans

	(In thousands)
Amounts due in:
One year or less	$	794	$	20,645	$	162	$	3,551	$	21	$	120	$	12	$	25,305
More than one year through five years	7,290		78,930		39,777		14,131		521		2,423		10		143,082
More than five years through fifteen years	172,224		435,965		143,272		—		1,853		2,110		17		755,441
More than fifteen years	416,946		155,150		32,850		117		16,236		—		—		621,299
Total	$	597,254	$	690,690	$	216,061	$	17,799	$	18,631	$	4,653	$	39	$	1,545,127

Fixed vs. Adjustable Rate Loans. The following table sets forth the dollar amount of all loans at December 31, 2022 that are due after December 31, 2023 and have either fixed interest rates or floating or adjustable interest rates. The amounts shown below include unearned loan origination fees and costs, and unamortized premium and discounts, net.


	Fixed Rates		Floating or Adjustable Rates		Total

	(In thousands)
Residential one-to-four family	$	383,566	$	212,894	$	596,460
Multifamily		123,526		546,519		670,045
Non-residential		101,062		114,837		215,899
Construction and land		12,186		2,062		14,248
Junior liens		5,648		12,962		18,610
Commercial and Industrial		4,533		—		4,533
Consumer and other		27		—		27
Total	$	630,548	$	889,274	$	1,519,822

Residential Real Estate Loans. Our one-to-four family residential loan portfolio consists of mortgage loans that enable borrowers to purchase or refinance existing homes, most of which serve as the primary residence of the borrower. At December 31, 2022, one-to-four family residential real estate loans totaled $594.5 million, or 38.6% of our total loan portfolio, and consisted of $382.9 million of fixed-rate loans and $211.6 million of adjustable-rate loans.

We offer fixed-rate and adjustable-rate residential real estate loans with maturities up to 30 years. The one-to-four family residential mortgage loans we are currently originating are generally underwritten according to Fannie Mae and Freddie Mac guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed and adjustable-rate mortgage loans in amounts up to the maximum conforming loan limits. We currently originate loans above the conforming limits up to a maximum amount of $3.0 million, which are referred to as “jumbo loans.” We generally underwrite jumbo loans, whether originated or purchased, in a manner similar to conforming loans. At December 31, 2022, our largest one-to-four family residential loan totaled $4.0 million, is secured by a series of one-to-four family apartment units and was performing in accordance with its original terms.

Our adjustable-rate residential real estate loans have interest rates that are fixed for an initial period ranging from three to ten years. After the initial fixed period, the interest rate on adjustable-rate residential real estate loans is generally reset periodically based on a contractual spread or margin above the average yield on U.S. Treasury securities. Our adjustable-rate residential real estate loans have initial and periodic caps of up to 2.0% on interest rate changes, with a current cap on total increases of 6.0% over the life of the loan.

We originate one-to-four family residential mortgage loans with loan-to-value ratios of generally up to 80% to 90% of the appraised value, depending on the size of the loan. We may originate loans with loan-to-value ratios that exceed 90% depending upon the product type. Mortgage insurance is required for all mortgage loans that have a loan-to-value ratio greater than 80%. The required insurance coverage amount varies based on the loan-to-value ratio and term of the loan. We only permit borrowers to purchase mortgage insurance from companies that have been approved by Blue Foundry Bank.

We generally do not offer “interest only” mortgage loans on one-to-four family residential properties or loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. Additionally, we do not offer “subprime loans” (loans that are made with low down-payments to borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios) or Alt-A loans (defined as loans having less than full documentation).

Multi-Family Real Estate Loans. At December 31, 2022, we had $690.3 million in multi-family real estate loans, representing 44.8% of our total loan portfolio. Our multi-family real estate loans are secured primarily by apartment buildings having five or more units, most of which are located in our primary market area.

We generally originate multi-family real estate loans with maximum terms of 10 years based on amortization periods between 25 and 30 years. We generally limit loan-to-value ratios to less than 80% of the appraised value of the property for multi-family real estate loans. Our multi-family real estate loans are offered with fixed and adjustable rate interest terms. All multi-family real estate loans are subject to our underwriting procedures and guidelines. At December 31, 2022, our largest multi-family real estate loan totaled $23.3 million and was performing in accordance with its original terms.

We consider a number of factors in originating multi-family and non-residential real estate loans. We evaluate the qualifications and financial condition of the borrower (including credit history), profitability and expertise, as well as the value and condition of the mortgaged property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, we consider a number of factors, including the net operating income of the mortgaged property before debt service and depreciation, the debt service coverage ratio (the ratio of net operating income to debt service) to ensure that it is at least 1.25x, subject to certain exceptions, and the ratio of the loan amount to the appraised value of the mortgaged property. All loans are appraised by outside independent and qualified appraisers that are duly approved in accordance with Blue Foundry Bank policy. Loans are monitored on an ongoing basis, based on policy requirements, often requiring updated financials statements.

Non-Residential Real Estate Loans. At December 31, 2022, we had $216.4 million in non-residential real estate loans, representing 14.0% of our total loan portfolio. Our non-residential real estate loans are secured primarily by industrial facilities, retail facilities and other commercial properties, most of which are located in our primary market area.

Non-residential real estate loans are underwritten to asset specific guidelines in accordance to policy with the loan-to-value ratio limit generally being 75% of the appraised value of the property. At December 31, 2022, our largest non-residential real estate loan totaled $24.7 million and was secured by a grocery-anchored shopping center. At December 31, 2022, this loan was performing in accordance with its original terms.

Construction Loans. We make construction loans, primarily to contractors and builders of single-family homes and other commercial and industrial real estate projects as well as to individuals for the construction of their primary residences. At December 31, 2022, our construction loans totaled $18.0 million, representing 1.2% of our total loan portfolio. At December 31, 2022, our largest construction loan totaled $9.8 million and was secured by a first mortgage lien for the construction of a mixed-used building. At December 31, 2022, this loan was performing in accordance with its original terms.

Construction loan-to-value ratios for one-to-four family residential properties generally will not exceed 80% of the appraised value of the property on a completed basis. Once the construction project is satisfactorily completed, we look to provide permanent financing.

Junior Liens and Consumer Loans. We offer consumer loans to customers residing in New Jersey. Our consumer loans and junior liens consist primarily of home equity loans and lines of credit. At December 31, 2022, consumer loans totaled $18.5 million, or 1.2% of our total loan portfolio.

Home equity loans and lines of credit are multi-purpose loans used to finance various home or personal needs, where a one-to-four family primary or secondary residence serves as collateral. We generally originate home equity loans and lines of credit of up to $500,000 with a maximum loan-to-value ratio of 80% (75% if the loan is for a condo) and terms of up to 20 years. Home equity lines of credit have adjustable rates of interest that are based on the prime rate, as published in The Wall Street Journal. Home equity lines of credit are secured by residential real estate in a first or second lien position.

The procedures for underwriting consumer loans include assessing the applicant’s payment history on other indebtedness, the applicant’s ability to meet existing obligations and payments on the proposed loan, and the loan-to-value ratio of the collateral property. Although the applicant’s creditworthiness is a primary consideration, the underwriting process also includes a comparison of the value of the collateral, if any, to the proposed loan amount.

Commercial and Industrial Loans. We typically originate commercial business loans on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business, the experience and stability of the borrower’s management team, earnings projections, and the value and marketability of any collateral securing the loan. Business loans and lines of credit inherently have more risk of loss than real estate secured loans, in part because business loans may be more complex to underwrite than mortgages, and some of the loans or portions thereof may be unsecured. These loans are more likely to be reliant on the cashflow and solvency of the business. The value of collateral may not be adequate to cover the value of the loan and may be severely impacted by the performance of the business. If a decline in economic conditions or other issues cause difficulties for our business borrowers or we fail to evaluate the credit of the loan accurately when we underwrite the loan, it could result in delinquencies or defaults and a material adverse effect on our business, results of operations or financial condition. Commercial and industrial loans are generally secured by a variety of collateral, primarily accounts receivable, inventory and equipment. As a result, the availability of funds for the repayment of commercial and industrial loans may be substantially dependent on the success of the business itself and the general economic environment in our market area. Therefore, commercial and industrial loans that we originate have greater credit risk than one-to-four family residential real estate loans or, generally, consumer loans. In addition, commercial and industrial loans generally require substantially greater evaluation and oversight efforts.

The Bank is a certified Small Business Administration (“SBA”) lender and is a participant in SBA lending programs which provide guarantees of up to 75% of the principal on the underlying loans. We provide loans under the 7(a) Loan Program, the SBA’s most common loan program.

At December 31, 2022, we had $4.7 million of commercial and industrial loans. Commercial and industrial loans represent 0.3% of our total loan portfolio. We offer term loans, lines of credit and revolving lines of credit with varying maturity terms to small businesses in our market area to finance short-term working capital needs such as accounts receivable and inventory. Our commercial lines of credit are typically structured with variable rates. We generally obtain personal guarantees with respect to all commercial and industrial loans. At December 31, 2022, the average loan size of our commercial and industrial loans was $291 thousand, and our largest outstanding commercial and industrial loan balance was a $2.0 million SBA loan to an ecommerce company. This loan was performing in accordance with its repayment terms at December 31, 2022.

During 2020 and early 2021, the Company participated in the PPP. The PPP authorized financial institutions to make federally-guaranteed loans to qualifying small businesses and non-profit organizations. These loans carry an interest rate of 1% per annum and a maturity of five years if originated on or after June 5, 2020. The PPP provided that such loans may be forgiven if the borrowers meet certain requirements with respect to maintaining employee headcount and payroll and the use of the loan proceeds after the loan is originated. If not forgiven, these loans may be guaranteed by the SBA. All PPP loans are categorized as Commercial and Industrial Loans within the Company’s financial statements. At December 31, 2022 and 2021, PPP loans totaled $477 thousand and $16.8 million, respectively, net of unearned deferred fees.

Originations, Purchases and Participations of Loans

Lending activities are conducted by our loan personnel operating at our offices. We also obtain referrals from existing and former customers and from accountants, real estate brokers, builders and attorneys. All loans that we originate or purchase are underwritten pursuant to our policies and procedures, which, for residential loans, generally incorporate Fannie Mae and Freddie Mac underwriting guidelines to the extent applicable. We originate both adjustable-rate and fixed-rate loans. Our ability to originate fixed or adjustable-rate loans depends upon the relative customer demand for such loans, which is affected by current market interest rates as well as anticipated future market interest rates. Our loan origination and purchase activity may be adversely affected by a rising interest rate environment, which typically results in decreased loan demand.

During 2021, the Bank began a residential loan purchase program to utilize excess liquidity and to supplement originations. All loans purchased were within New Jersey and were underwritten to FNMA standards, a comparable underwriting standard as internally originated loans.

During the years ended December 31, 2022 and 2021, loan originations totaled $488.2 million and $321.7 million, respectively, all of which were retained by us. Loan purchases totaled $104.0 million and $91.6 million for the years ended December 31, 2022 and 2021, respectively.

We purchase whole loans and participate in loans originated by other institutions. Generally, our analysis for purchase and participation transactions follows underwriting policies as if we originated the loan directly. However, for loans that we participate in, we are subject to the lead financial institution’s policies and practices related to items such as, monitoring, collection and default.

At December 31, 2022 the outstanding balances of our loan participations where we are not the lead lender totaled $111.9 million, or 7.3% of our loan portfolio, all of which were commercial real estate loans. All such loans were performing in accordance with their original repayment terms at December 31, 2022.

Credit Policy and Procedures

Loan Approval Procedures and Authority. Our lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by management and approved by our Board of Directors. The Board of Directors has granted loan approval authority to certain officers up to prescribed limits, depending on the officer’s title, experience, and the type of loan.

Loan approval authorities are dictated by factors such as the loan type, loan size, cumulative credit exposure (to a particular relationship) and the presence of any policy exceptions. All loans are independently underwritten. Commercial loans are further reviewed and acknowledged by the Chief Credit Officer or designee. Loans are then presented for approval to the appropriate authority. Under our current policy, no loan may be approved by a single officer. At a minimum, two officers are required to approve a loan – typically consisting of the loan product manager and a member of the management Loan Committee. Depending upon certain factors, such as the size of the loan request, escalating loan approval authorities may be required. In such cases, approval by the Loan Committee or Loan Oversight Committee may be required. For commercial loans, a minimum of three approvals are required (two of which must include the Chief Lending Officer and Chief Credit Officer), with a third approval from any voting member of the Loan Committee.

Loans to One Borrower. Pursuant to New Jersey law, the aggregate amount of loans that the Bank is permitted to make to any one borrower or a group of related borrowers is generally limited to 15% of the Bank’s capital, surplus fund and undivided profits (25% if the amount in excess of 15% is secured by “readily marketable collateral”). At December 31, 2022 based on the 15% limitation, the Bank’s loans-to-one-borrower limit was approximately $47.0 million, our internal policy limit was $42.3 million, representing 90% of the 15% limit. On the same date, the Bank had no borrowers with outstanding balances in excess of this amount. At December 31, 2022, our largest loan relationship with a single borrower was for $35.0 million, which consisted of two loans secured by non-residential real estate and six loans secured by multifamily real estate, each of which was performing in accordance with its terms.

Delinquencies and Asset Quality

Delinquency Procedures. When a borrower fails to make a required monthly loan payment by the last day of the month, and upon expiration of any applicable grace period, a late notice is generated stating the payment and late charges due. Until such time as payment is made collection efforts continue with additional phone calls and escalating collection notices. Loan delinquencies more than 30 days past due are reported to the Board of Directors monthly.

If repayment is doubtful or not possible, a notice of intent to foreclose will be issued for residential loans, or an acceleration notice will be issued for commercial loans, and the account will be administered by our Asset Recovery Department with oversight and guidance from our counsel. Once issued for residential loans, the notice of intent to foreclose typically allows the borrower a period to cure the default. Once issued for commercial loans, a grace period may be granted in accordance with the loan’s terms. If payment is made and the loan is brought current, foreclosure proceedings are discontinued, and the borrower is permitted to continue to make payments. If the borrower does not respond, we will initiate foreclosure proceedings.

Loans Past Due and Non-Performing Assets. Loans are reviewed on a regular basis. Management determines that a loan is impaired or non-performing when it is probable at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral-dependent. When a loan is determined to be impaired, the measurement of the loan in the allowance for loan losses is based on present value of expected future cash flows, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral less selling costs. Non-accrual loans are loans for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual basis. All loans that become 90 days or more delinquent are placed on non-accrual status unless the loan is guaranteed or well secured and in the process of collection. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received on a cash basis or cost recovery method.

When we acquire real estate as a result of foreclosure or a deed-in-lieu transaction, the real estate is classified as real estate owned. The real estate owned is recorded at the lower of carrying amount or fair value, less estimated costs to sell. Soon after acquisition, we order a new appraisal to determine the current market value of the property. Any excess of the recorded value of the loan over the market value of the property is charged against the allowance for loan losses, or, if the existing allowance is inadequate, charged to expense of the current period. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell.

A loan is classified as a troubled debt restructuring if, for economic or legal reasons related to the borrower’s financial difficulties, we grant a concession to the borrower that we would not otherwise consider. This usually includes a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date and possibly a partial forgiveness of the principal amount due. Interest income on restructured loans is accrued after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six consecutive months.

Delinquent Loans. The following table sets forth our loan delinquencies, including non-accrual loans, by type and amount at the dates indicated.



	At December 31,
	2022						2021
	60-89 Days			90 Days or More			60-89 Days			90 Days or More
	Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance		Number of Loans	Principal Balance

	(Dollars in thousands)
Residential one-to-four family	4	$	845	9	$	6,738	2	$	457	14	$	8,936
Multifamily	—		—	1		182	—		—	—		—
Non-residential	—		—	—		—	—		—	2		381
Construction and land	—		—	—		—	—		—	—		—
Junior liens	—		—	1		52	1		53	2		182
Commercial and Industrial	—		—	7		96	4		57	10		116
Total	4	$	845	18	$	7,068	7	$	567	28	$	9,615

Non-Performing Assets. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated.


	At December 31,
	2022			2021

	(Dollars in thousands)
Non-Performing Assets:
Non-accrual loans:
Residential one-to-four family	$	7,498		$	10,805
Multifamily		182			139
Non-residential		—			857
Construction and land		—			—
Junior liens		52			182
Commercial and Industrial		35			—
Consumer and other		—			—
Total		7,767			11,983

Accruing loans past due 90 days or more:
Residential one-to-four family		—			—
Multifamily		—			—
Non-residential		—			—
Construction and land		—			—
Junior liens		—			—
Commercial and Industrial (1)		—			—
Consumer and other		—			—
Total		—			—
Total non-performing loans		7,767			11,983
Real estate owned		—			—
Other non-performing assets		—			—
Total non-performing assets	$	7,767		$	11,983

Troubled debt restructurings (accruing):
Residential one-to-four family	$	1,750		$	1,346
Multifamily		—			—
Non-residential		2,567			3,564
Construction and land		—			—
Junior liens		—			—
Commercial and Industrial		—			—
Consumer and other		—			37
Total troubled debt restructurings (accruing)	$	4,317		$	4,947

Total troubled debt restructurings (accruing) and total non-performing assets	$	12,084		$	16,930
Total non-performing loans to total loans		0.50	%		0.94	%
Total non-performing loans to total assets		0.38	%		0.63	%
Total non-performing assets to total assets		0.38	%		0.63	%
Total non-performing assets and troubled debt restructurings (accruing) to total assets		0.59	%		0.88	%

(1) PPP loans 90 days past due and accruing totaled $61 thousand and $116 thousand at December 31, 2022 and 2021, respectively. Such loans are not reported in non-performing loans as they carry the federal guarantee of the SBA.

Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss allowance is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management.

When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable accrued losses. General allowances represent loss allowances which have been established to cover probable accrued losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the establishment of additional general or specific loss allowances.

In connection with the filing of our periodic reports with the FDIC and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations.

The following table sets forth our amounts of special mention and classified loans as of December 31, 2022 and 2021.


	At December 31,
	2022		2021

	(In thousands)
Special mention	$	2,224	$	5,213
Substandard		8,469		13,178
Doubtful		—		—
Loss		—		—
Total	$	10,693	$	18,391

At December 31, 2022, special mention loans included one residential one-to-four family totaling $247 thousand, one multi-family real estate loan totaling $897 thousand and two non-residential real estate loan totaling $1.1 million. At December 31, 2022, substandard loans represent 20 loans totaling $8.5 million. At December 31, 2021, special mention loans included one non-residential real estate loan totaling $144 thousand and one multi-family real estate loan totaling $5.1 million. At December 31, 2021, substandard loans represent 33 loans totaling $13.2 million.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level which, in management’s judgment, is adequate to absorb probable and incurred credit losses inherent in the loan portfolio. The amount of the allowance is based on management’s evaluation of the collectability of the loan portfolio, including the nature of the portfolio, credit concentrations, trends in historical loss experience, specific impaired loans, and economic conditions. Allowances for loans that are individually classified as impaired are generally determined based on collateral values or the present value of estimated cash flows. The allowance is increased by a provision for loan losses, which is charged to expense and reduced by full and partial charge-offs, net of recoveries. Changes in the allowance relating to impaired loans are charged or credited to the provision for loan losses. Management’s periodic evaluation of the adequacy of the allowance is based on various factors, including historical loss experience, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of borrowers, results of internal loan reviews and other qualitative and quantitative factors which could affect potential credit losses.

In addition, the NJDOBI and the FDIC periodically review our allowance for loan losses and as a result of such reviews, they may require us to adjust our allowance for loan losses or recognize loan charge-offs.

The following table sets forth activity in our allowance for loan losses for the periods indicated.


	Year Ended December 31,
	2022			2021

	(Dollars in thousands)
Allowance for loan losses at beginning of period	$	14,425		$	16,959
Recovery of provision for loan losses		(1,001)			(2,518)
Charge-offs:
Residential one-to-four family		—			—
Multifamily		—			—
Non-residential		—			—
Construction and land		—			—
Junior liens		—			—
Commercial and Industrial		—			—
Consumer and other		58			16
Total charge-offs		58			16

Recoveries:
Residential one-to-four family		30			—
Multifamily		—			—
Non-residential		—			—
Construction and land		—			—
Junior liens		—			—
Commercial and Industrial		—			—
Consumer and other		4			—
Total recoveries		34			—
Net charge-offs		24			16
Allowance for loan losses at end of period	$	13,400		$	14,425

Allowance for loan losses to non-performing loans at end of period		172.52	%		120.38	%
Allowance for loan losses to total loans outstanding at end of period		0.87	%		1.13	%
Net charge-offs to average loans outstanding during period		(0.01)	%		—	%

Allocation of Allowance for Loan Losses. The following tables set forth the allowance for loan losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated. The allowance for loan losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.



	At December 31,
	2022								2021
	Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans			Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category to Total Loans

	(Dollars in thousands)
Residential one-to-four family	$	2,264		16.90	%		38.55	%	$	2,822		19.56	%		43.78	%
Multifamily		5,491		40.98			44.75			5,263		36.50			40.21
Non-residential		3,357		25.05			14.03			2,846		19.73			11.05
Construction and land		1,697		12.66			1.17			2,678		18.56			1.83
Junior liens		451		3.37			1.20			636		4.41			1.44
Commercial and Industrial		47		0.35			0.30			51		0.35			1.68
Consumer and other		—		0.00			0.00			38		0.26			0.01
Total		13,307		99.31			100.00			14,334		99.37			100.00
Unallocated		93		0.69			—			91		0.63			—
Total allowance for loan losses	$	13,400		100.00	%		100.00	%	$	14,425		100.00	%		100.00	%

Investment Activities

General. The goals of our investment policy are generally to provide liquidity, mitigate interest rate risk, ensure the safety of principal, provide earnings and meet pledging requirements. Subject to loan demand and our interest rate risk analysis, we may increase the balance of our securities portfolio .

Our investment policy was adopted and is reviewed annually by the Board of Directors. All investment decisions are made by senior management in accordance with board-approved policies. The Treasurer provides an investment schedule detailing the investment portfolio, which is regularly reviewed by the Board of Directors.

Our current investment policy permits, with certain limitations, investments in: U.S. Treasury securities; securities issued by the U.S. government and its agencies or government sponsored enterprises including mortgage-backed securities and collateralized mortgage obligations issued by Fannie Mae, Ginnie Mae and Freddie Mac; corporate and municipal bonds; private label mortgage-backed securities and privately issued asset-backed securities; certificates of deposit in other financial institutions; federal funds and money market funds.

At December 31, 2022, our securities portfolio consisted of debt securities issued by the U.S. Government, agencies of the U.S. Government or U.S. Government-sponsored enterprises, mortgage-backed securities and collateralized mortgage obligations issued and guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. Securities also included corporate bonds, municipal bonds, asset-backed securities, federal funds and deposits in other institutions.

At December 31, 2022, other investments primarily consisted of membership and activity-based shares in FHLB stock. As a member of FHLB, we are required to purchase stock in the FHLB, which stock is carried at cost and classified as other investment securities. Other investments also consists of, to a much lesser extent, an investment in a financial technology fund carried at net asset value (“NAV”) and shares in a cooperative that provides community banking core technology solutions, carried at cost.

At December 31, 2022, our securities portfolio consisted of approximately 60% high-quality liquid assets, with the remaining 40% consisting of corporate bonds, municipal bonds, privately issued asset-backed securities and other investment securities. Approximately 90% of our securities portfolio was classified as available for sale, with the remaining 10% classified as held to maturity.

Portfolio Maturities and Yields. The following table sets forth the stated maturities and weighted average yields of investment securities at December 31, 2022. Weighted average yields on tax-exempt securities presented exclude the tax equivalent yield due to the valuation allowance. Certain mortgage-backed securities have adjustable interest rates and will reprice at least annually within the various maturity ranges. These repricing schedules are not reflected in the table below. Weighted average yield calculations on investment securities available for sale do not give effect to changes in fair value that are reflected as a component of equity.


	At December 31, 2022
	One Year or Less				More than One Year to Five Years				More than Five Years to Ten Years				More than Ten Years				Total
	Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Weighted Average Yield		Amortized Cost		Fair Value		Weighted Average Yield

	(Dollars in thousands)
Available for sale:
U.S. Treasury Note	$	10,001	0.73	%	$	30,021	1.33	%	$	6,915	1.28	%	$	—	—	%	$	46,937	$	43,759	1.19	%
Corporate Bonds		2,263	3.96			47,962	2.50			25,500	4.19			6,000	3.75			81,725		76,298	3.16
U.S. Government agency obligations		—	—			10,171	0.50			2,076	2.03			4,120	0.82			16,367		15,423	0.77
State and Municipal obligations		825	4.94			2,261	3.20			7,721	3.20			5,752	3.54			16,559		16,268	3.40
Mortgage-backed securities: Residential one-to-four family		—	—			1,177	3.57			6,643	1.36			157,023	2.29			164,843		140,186	2.26
Multifamily		5,001	2.41			7,995	2.67			—	—			6,479	3.22			19,475		18,158	2.79
Asset-backed securities		—	—			3,000	1.03			1,525	1.17			—	—			4,525		4,156	1.08
Total Available for sale	$	18,090	1.79	%	$	102,587	1.96	%	$	50,380	3.09	%	$	179,374	2.38	%	$	350,431	$	314,248	2.33	%

Securities held-to-maturity:
Corporate bonds	$	—	—	%	$	—	—	%	$	18,600	2.89	%	$	—	—	%	$	18,600	$	16,319	2.89	%
Asset-backed securities		—	—			6,020	1.73			9,085	2.19			—	—			15,105		12,796	2.01

Total held-to-maturity	$	—	—	%	$	6,020	1.73	%	$	27,685	2.66	%	$	—	—	%	$	33,705	$	29,115	2.49	%

Sources of Funds

General. Deposits have traditionally been our primary source of funds for our lending and investment activities. We also use borrowings, primarily FHLB advances, to supplement cash flows, as needed. In addition, funds are derived from scheduled loan payments, securities maturities, loan prepayments, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and competition.

Deposit Accounts. The substantial majority of our deposits are from depositors who reside in our primary market area. We access deposit customers by offering a broad selection of deposit instruments for individuals and businesses.

Deposit account terms vary according to the minimum balance required, the time period that funds must remain on deposit, and the interest rate, among other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, our liquidity needs, profitability, and customer preferences. We generally review our deposit pricing on a monthly basis and continually review our deposit mix. Our deposit pricing strategy has been to offer competitive rates, but generally not the highest rates offered in the market, and to periodically offer special rates to attract deposits of a specific type or with a specific term. Deposit pricing is reviewed regularly as warranted by market conditions.

We may supplement customer deposits with listed and brokered deposits. Listed deposits totaled $40.4 million and $65.3 million at December 31, 2022 and 2021, respectively. At December 31, 2022, brokered deposits totaled $75.0 million. There were no brokered deposits at December 31, 2021.

The flow of deposits is influenced significantly by general economic conditions, changes in money market and other prevailing interest rates and competition. The variety of deposit accounts offered allows us to be competitive in obtaining funds and responding to changes in consumer demand. Based on experience, we believe that our deposits are relatively stable. However, the ability to attract and maintain deposits and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions.

The following table sets forth the distribution of total deposits by account type at the dates indicated.


	At December 31,
	2022					2021
	Amount		Percent			Amount		Percent

	(Dollars in thousands)
Non-interest bearing deposits	$	37,907		2.94	%	$	44,894		3.60	%
NOW and demand accounts		410,937		31.88			363,419		29.14
Savings		423,758		32.88			364,932		29.26
Time deposits		416,260		32.30			473,795		38.00
Total	$	1,288,862		100.00	%	$	1,247,040		100.00	%

As of December 31, 2022, the aggregate amount of uninsured deposits (deposits in amounts greater than or equal to $250,000, the maximum amount for federal deposit insurance) was $319.6 million, of which time deposits in excess of $250,000 (FDIC insurance limit) totaled $43.1 million.

The following table sets forth the maturity of time deposits in excess of $250,000 at December 31, 2022.


	At December 31, 2022
	(In thousands)
Maturity Period:
Three months or less	$	7,478
Over three through six months		4,415
Over six through twelve months		19,675
Over twelve months		11,564
Total	$	43,132

Borrowings. Our borrowings consist of advances from the FHLB. At December 31, 2022, we had the ability to borrow approximately $638.6 million under our credit facilities with the FHLB, of which $310.5 million was advanced. Borrowings from the FHLB are secured by our investment in the common stock of the FHLB and loans pledged at the FHLB. We also have the ability to participate in the Federal Reserve Bank’s recently created Bank Term Funding Program.

Subsidiary Activities

Blue Foundry Bancorp has one direct subsidiary, which is Blue Foundry Bank.

At December 31, 2022, Blue Foundry Bank has one active subsidiary, Blue Foundry Investment Company, a New Jersey corporation formed to manage and invest in securities. The Bank also has five inactive subsidiaries formed to hold certain real estate owned, of which two are New Jersey corporations: Rutherford Center Development Corp. and Blue Foundry Service Corporation and three are New Jersey limited liability companies: Blue Foundry, LLC, 116-120 Route 23 North, LLC, and TrackView LLC.

Employees and Human Capital Resources

At December 31, 2022 we employed 198 employees, nearly all of whom are full-time and of which approximately 63% are women. At December 31, 2021, we employed 175 employees. As a financial institution, approximately 40% of our employees are employed at our branch offices, and another 4% are employed at our customer care call center. The success of our business is highly dependent on our employees, who provide value to our customers and communities through their dedication to our mission, helping customers achieve financial security. Our workplace culture is grounded in a set of core values – a concern for others, trust, respect, hard work, and a dedication to our customers. We seek to hire well-qualified employees who are also a good fit for our value system. Our selection and promotion processes are without bias and include the active recruitment of minorities, women, individuals with disabilities and veterans, without regard to race, color, religion, sex, LGBTQ+, national origin, disability or protected veteran status.

We encourage and support the growth and development of our employees and, wherever possible, seek to fill positions by promotion and transfer from within the organization. Continual training and career development is advanced through regular performance discussions between employees and their managers, internally developed training programs, customized corporate training engagements and educational reimbursement programs. Reimbursement is available to employees enrolled in pre-approved degree or certification programs at accredited institutions that teach skills or knowledge relevant to our business. The Bank pays for seminars, conferences, and other training events employees attend in connection with their job duties. In addition to the investment in employee professional development, the Bank’s benefit and compensation programs are designed to ensure we recruit and retain top talent.

The Bank offers employees a comprehensive health benefits package and structures its bonus program to create meaningful performance-based incentives. To encourage retirement savings, the Bank provides a 401(k) match of up to 6% of an employee’s salary. Eligible employees are automatically enrolled in the plan and 3% of the employee’s total taxable compensation is withheld with annual 1% escalations up to 6%. Employees may opt out at any time. Our employees share in our financial success while preparing for retirement through the Employee Stock Ownership Plan (“ESOP”). The ESOP gives employees an opportunity to accumulate shares of our common stock and is 100% funded by the Company.

The safety, health and wellness of our employees is a top priority. We provide a safely distanced working environment for employees and employees are asked not to come to work when they experience signs or symptoms of a possible COVID-19 illness or any other upper respiratory infectious disease. On an ongoing basis, we further promote the health and wellness of our employees by strongly encouraging work-life balance, offering flexible work schedules, keeping the employee portion of health care premiums to a low amount and sponsoring various wellness programs. Our state-of-the-art administrative offices offer our employees access to an onsite gym at no cost. Our offices are equipped with stand-up desks, and the mindfulness room provides a place for employees to take a quiet break from their busy day. Nursing moms have access to a lactation room equipped with a refrigerator and sink for their privacy and convenience.

Supervision and Regulation

The Company and the Bank operate in the highly regulated banking industry. This regulation establishes a comprehensive framework of activities in which a bank holding company and New Jersey savings bank may engage and is intended primarily for the protection of the Deposit Insurance Fund and depositors.

Set forth below is a brief description of certain material regulatory requirements that are applicable to the Bank and the Company. The description is not intended to be a complete list or description of such statutes and regulations and their effects on the Bank and the Company.

Blue Foundry Bank

As a New Jersey-chartered savings bank, the Bank is subject to comprehensive regulation by the NJDOBI, as its chartering authority and, as a federally insured nonmember institution, by the FDIC. The Bank is a member of the FHLB and its deposits are insured up to applicable limits by the FDIC. The Bank is required to file reports with, and is periodically examined by, the FDIC and the NJDOBI concerning its activities and financial condition and must obtain regulatory approvals before entering into certain transactions, including mergers with or acquisitions of other financial institutions. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies regarding classifying assets and establishing an adequate allowance for loan losses for regulatory purposes.

New Jersey Banking Laws and Supervision

Activity Powers. The Bank derives its lending, investment and other activity powers primarily from the New Jersey Banking Act and its related regulations. Under these laws and regulations, savings banks, including Blue Foundry Bank, generally may invest in:

•real estate mortgages;

•consumer and commercial loans;

•specific types of debt securities, including certain corporate debt securities and obligations of federal, state and local governments and agencies;

•certain types of corporate equity securities; and

•certain other assets.

A savings bank may also make other investments pursuant to “leeway” authority that permits investments not otherwise permitted by the New Jersey Banking Act. Leeway investments must comply with a number of limitations on the individual and aggregate amounts of leeway investments. A savings bank may also exercise trust powers upon approval of the NJDOBI. New Jersey savings banks also may exercise those powers, rights, benefits or privileges authorized for national banks or out-of-state banks or for federal or out-of-state savings banks or savings associations, provided that before exercising any such power, right, benefit or privilege, prior approval by the NJDOBI by regulation or by specific authorization is required. The exercise of these lending, investment and activity powers is limited by federal law and regulations. See “—Federal Bank Regulation—Activities and Investments” below. Certain corporate transactions by a savings bank, such as establishing branches and acquiring other banks, require the prior approval of the NJDOBI.

Loan-to-One-Borrower Limitations. With certain specified exceptions, a New Jersey-chartered savings bank may not make loans or extend credit to a single borrower or to entities related to the borrower in an aggregate amount that would exceed 15% of the bank’s capital funds. A savings bank may lend an additional 10% of the bank’s capital funds if secured by collateral meeting the requirements of the New Jersey Banking Act. The Bank currently complies with applicable loan-to-one-borrower limitations.

Dividends. Under the New Jersey Banking Act, a stock savings bank may declare and pay a dividend on its capital stock only to the extent that the payment of the dividend would not impair the capital stock of the savings bank. In addition, a savings bank may not pay a dividend unless the savings bank would have a surplus of not less than 50% of its capital stock after the payment of the dividend or, alternatively, the payment of the dividend would not reduce the surplus. Federal law may also limit the amount of dividends that may be paid by the Bank. See “Federal Bank Regulation—Prompt Corrective Regulatory Action” below.

Minimum Capital Requirements. Regulations of the NJDOBI impose on New Jersey-chartered depository institutions, including the Bank, minimum capital requirements generally similar to those imposed by the FDIC on insured state banks. See “Federal Bank Regulation—Capital Requirements.”

Examination and Enforcement. The NJDOBI may examine the Bank as it deems advisable. It typically examines the Bank at least every two years, typically alternating exams with the FDIC such that the Bank is subject to regulatory examination every year. Regulated institutions are assessed for expenses incurred by the NJDOBI.

The NJDOBI has authority to enforce applicable law and prevent practices that may cause harm to an institution, including the issuance of cease and desist orders and civil money penalties and removal of directors, officers and employees. The NJDOBI also has authority to appoint a conservator or receiver for a savings bank under certain circumstances such as insolvency or unsafe or unsound condition to transact business.

Federal Bank Regulation

Supervision and Enforcement Authority. The Bank is subject to extensive regulation, examination and supervision by the FDIC as its primary federal prudential regulator and the insurer of its deposits. The regulatory structure gives the FDIC extensive discretion in connection with its supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of an adequate allowance for loan losses for regulatory purposes.

The Bank must file reports with the FDIC concerning its activities and financial condition. It must also obtain prior FDIC approval before entering into certain corporate transactions such as establishing new branches and mergers with, or acquisitions of, other financial institutions. There are periodic examinations by the FDIC to evaluate the Bank’s safety and soundness and compliance with various regulatory requirements.

The FDIC maintains substantial enforcement authority over regulated institutions. That includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove directors and officers. In general, enforcement actions may be initiated in response to violations of laws and regulations, breaches of fiduciary duty and unsafe or unsound practices. The FDIC may also appoint itself as conservator or receiver for an insured bank under specified circumstances, including: (1) insolvency; (2) substantial dissipation of assets or earnings

through violations of law or unsafe or unsound practices; (3) the existence of an unsafe or unsound condition to transact business; (4) insufficient capital; or (5) the incurrence of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance.

Capital Requirements. Under FDIC regulations, the Bank must meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio, a Tier 1 capital to risk-based assets ratio, a total capital to risk-based assets, and a Tier 1 capital to average total assets leverage ratio. The capital requirements are based on recommendations of the Basel Committee on Banking Supervision and certain requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).

The capital standards require the maintenance of common equity Tier 1 capital, Tier 1 capital and total capital to risk-weighted assets of at least 4.5%, 6% and 8%, respectively, and a Tier 1 leverage ratio of at least 4% of average total assets. Common equity Tier 1 capital is generally defined as common shareholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and Additional Tier 1 capital. Additional Tier 1 capital generally includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus Additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values. Institutions that have not exercised the AOCI opt-out have AOCI incorporated into common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). The Bank exercised the opt-out election regarding the treatment of AOCI. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.

In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, a bank’s assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests), are multiplied by a risk weight factor assigned by the regulations based on perceived risks inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one-to-four family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if an institution does not hold a “capital conservation buffer” of 2.5%, effectively resulting in the following minimum ratios: (1) a common equity Tier 1 capital ratio of 7.0%, (2) a Tier 1 to risk-based assets capital ratio of 8.5%, and (3) a total capital ratio of 10.5%.

Federal legislation enacted in 2018 required the federal banking agencies, including the FDIC, to adopt a rule implementing a simplified “community bank leverage” ratio alternative for institutions with assets of less than $10 billion that meet other specified criteria. Pursuant to federal legislation enacted in 2020, the community bank leverage ratio was set at 9% for 2022 and thereafter. A qualifying community bank that exercises the election and has capital equal to or exceeding the applicable percentage is considered compliant with all applicable regulatory capital requirements. Qualifying institutions may elect to utilize the community bank leverage ratio in lieu of the generally applicable risk-based capital requirements.

A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. As of December 31, 2022, the Bank has not opted into the community bank leverage ratio framework.

The FDIC also has authority to establish individual minimum capital requirements in appropriate cases upon determination that an institution’s capital level is, or is likely to become, inadequate in light of the particular circumstances.

At December 31, 2022, the Bank exceeded each of its capital requirements.

Standards for Safety and Soundness. As required by statute, the federal banking agencies have adopted final regulations and Interagency Guidelines Establishing Standards for Safety and Soundness. The guidelines set forth the safety and soundness standards the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. The guidelines address internal controls and information systems, internal audit systems, credit underwriting, loan documentation, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. The agencies have also established standards for safeguarding customer information. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard.

Activities and Investments. Federal law provides that a state-chartered bank insured by the FDIC generally may not engage as a principal in any activity not permissible for a national bank to conduct or make any equity investment of a type or in an amount not authorized for national banks, notwithstanding state law, subject to certain exceptions. For example, state-chartered banks may, with FDIC approval, continue to exercise state authority to invest in common or preferred stocks listed on a national securities exchange or the Nasdaq Market and to invest in shares of investment companies registered under the Investment Company Act of 1940. The maximum permissible investment is 100% of Tier 1 Capital, as specified by the FDIC’s regulations, or the maximum amount permitted by New Jersey law, whichever is less. Such grandfathered authority terminates upon a change in the institution’s charter or a change in control.

In addition, the FDIC is authorized to permit a state-chartered bank or savings bank to engage in state-authorized activities or investments not permissible for national banks (other than non-subsidiary equity investments) if it meets all applicable capital requirements and it is determined that the activities or investments involved do not pose a significant risk to the Deposit Insurance Fund. The FDIC has adopted procedures for institutions seeking approval to engage in such activities or investments. In addition, a nonmember bank may control a subsidiary that engages in activities as principal that would only be permitted for a national bank to conduct in a “financial subsidiary” if a bank meets specified conditions and deducts its investment in the subsidiary for regulatory capital purposes.

Interstate Banking and Branching. Federal law permits well capitalized and well managed bank holding companies to acquire banks in any state, subject to Federal Reserve Board approval, certain concentration limits and other specified conditions. Interstate mergers of banks are also authorized, subject to regulatory approval and other specified conditions. In addition, banks may establish de novo branches on an interstate basis at any location where a bank chartered under the laws of the branch location host state may establish a branch.

Prompt Corrective Regulatory Action. Federal law requires, among other things, that federal bank regulatory authorities take “prompt corrective action” with respect to banks that do not meet minimum capital requirements. For these purposes, the law establishes five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.

The FDIC has adopted regulations to implement the prompt corrective action legislation. An institution is considered “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a

Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%. An institution is “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets equal to or less than 2.0%. At December 31, 2022, the Bank was classified as a “well capitalized” institution.

At each successive lower capital category, an insured depository institution is subject to additional operating restrictions, including limits on growth and a prohibition on the payment of dividends and other capital distributions. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency. An undercapitalized bank’s compliance with a capital restoration plan must be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of possible additional restrictions, including an order by the FDIC to sell sufficient voting stock to become adequately capitalized, reduce total assets, cease receipt of deposits from correspondent banks, dismiss directors or officers, or limit interest rates paid on deposits, compensation of executive officers or capital distributions by the parent holding company. “Critically undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment of a receiver or conservator within 270 days after it is determined to be critically undercapitalized.

A bank that is classified as well-capitalized, adequately capitalized or undercapitalized may be treated as though it were in the next lower capital category if the FDIC, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment.

Transaction with Affiliates and Regulation W of the Federal Reserve Regulations/Loans to Insiders. Transactions between banks and their affiliates are governed by federal law. Generally, Section 23A of the Federal Reserve Act and the Federal Reserve Board’s Regulation W prohibit a bank and its subsidiaries from engaging in a “covered transaction” with an affiliate if the aggregate amount of covered transactions outstanding with that affiliate, including the proposed transaction, would exceed an amount equal to 10.0% of the bank’s capital stock and surplus. The aggregate amount of covered transactions outstanding with all affiliates is limited to 20.0% of the bank’s capital stock and surplus. Section 23B applies to “covered transactions,” as well as to certain other transactions, and requires that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as prevailing market terms for transactions with or involving a non-affiliate. The term “covered transaction” includes making loans to, purchasing assets from, and issuing guarantees to an affiliate, and other similar transactions. Section 23B transactions also include the bank’s providing services and selling assets to an affiliate. In addition, loans or other extensions of credit by a bank to an affiliate are required to be collateralized according to the requirements set forth in Section 23A of the Federal Reserve Act.

A bank’s loans to its executive officers, directors, any owner of 10% or more of its stock (each, an insider) and any of certain entities affiliated with any such person (an insider’s related interest) as well as loans to insiders of affiliates and such insiders’ related interests are subject to the conditions and limitations imposed by Section 22(h) of the Federal Reserve Act and its implementing regulations. Under these restrictions, the aggregate amount of the loans to any insider and the insider’s related interests may not exceed the loans-to-one-borrower limit applicable to national banks, which is comparable to the loans-to-one-borrower limit applicable to the Bank’s loans. See “New Jersey Banking Laws and Supervision—Loan-to-One Borrower Limitations.” All loans by a bank to all insiders and insiders’ related interests in the aggregate may not exceed the bank’s unimpaired capital and unimpaired surplus. Loans to an executive officer, other than loans for the education of the officer’s children and certain loans secured by the officer’s residence, may not exceed the lesser of (1) $100,000 or (2) the greater of $25,000 or 2.5% of the bank’s unimpaired capital and surplus. The regulations require that any proposed loan to an insider, or a related interest of that insider, be approved in advance by a majority of the Board of Directors of the bank, with any interested directors not participating in the voting, if that loan, combined with previous loans by the bank to the insider and his or her related interests, exceeds specified amounts. Generally, such loans must be made on substantially the same terms as, and follow credit underwriting procedures that are not less stringent than, those that

are prevailing at the time for comparable transactions with other persons. As of December 31, 2022 the Bank does not have a material balance of such loans.

The regulations contain a general exception for extensions of credit made pursuant to a benefit or compensation plan of a bank that is widely available to employees of the bank and that does not give any preference to insiders of the bank over other employees.

In addition, federal law prohibits extensions of credit to a bank’s insiders and their related interests by any other institution that has a correspondent banking relationship with the bank, unless such extension of credit is on substantially the same terms as those prevailing at the time for comparable transactions with other persons and does not involve more than the normal risk of repayment or present other unfavorable features.

The New Jersey Banking Act imposes conditions and limitations on the liabilities to a savings bank of its directors and executive officers and of corporations and partnerships controlled by such persons, that are comparable in many respects to the conditions and limitations imposed on the loans and extensions of credit to insiders and their related interests under federal law, as discussed above. The New Jersey Banking Act also provides that a savings bank that is in compliance with federal law is deemed to be in compliance with such provisions of the New Jersey Banking Act.

Federal Insurance of Deposit Accounts. The Bank is a member of the Deposit Insurance Fund, which is administered by the FDIC. Deposit accounts in the Bank are insured up to a maximum of $250,000 for each separately insured depositor.

The FDIC assesses all insured depository institutions. An institution’s assessment rate depends upon the perceived risk to the Deposit Insurance Fund of that institution, with less risky institutions paying lower rates. Currently, assessments for institutions of less than $10 billion of total assets are based on financial measures and supervisory ratings derived from statistical models estimating the probability of failure within three years. Assessment rates (inclusive of possible adjustments) ranged from 1.5 to 30 basis points of each institution’s total assets less tangible capital effective December 31, 2022.

The FDIC has authority to increase the range of assessments and adopted a final rule in October 2022 to increase initial base deposit assessment rates by two basis points beginning in the first quarterly assessment period of 2023. As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size will range from 2.5 to 32 basis points.

Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or regulatory condition imposed in writing. We do not know of any practice, condition or violation that might lead to termination of the Bank’s deposit insurance.

Federal Deposit Insurance Corporation Improvement Act (“FDICIA”). The Bank, having over $500 million in total assets, is subject to requirements of Section 112 of FDICIA (“FDICIA 112”). The primary purpose of FDICIA 112 is to provide a framework for early risk identification in financial management through an effective system of internal controls. Annual reporting requirements under FDICIA are as follows: (1) annual audited financial statements; (2) management report stating management's responsibility for preparing the institution's annual financial statements, establishing and maintaining an adequate internal control structure and procedures for financial reporting and for complying with laws and regulations, and assessment by management of the institution's compliance with such laws and regulations; and (3) for insured depository institutions with consolidated total assets over $1.0 billion or more, such as the Bank, the independent public accountant who audits the institution's financial statements shall examine, attest to, and report separately on the assertion of management concerning the effectiveness of the institution's internal control structure and procedures for financial reporting.

Privacy Regulations. Federal law generally requires that the Bank disclose its privacy policy, including identifying with whom it shares a customer’s “non-public personal information,” to customers at the time of establishing the customer relationship. In addition, financial institutions are generally required to furnish their

customers a privacy notice annually. However, a provision of the Fixing America’s Surface Transportation Act enacted in 2015 provides an exception from the annual notice requirement if a financial institution does not share non-public personal information with non-affiliated third parties (other than as permitted under certain exceptions) and its policies and practices regarding disclosure of non-public personal information have not changed since the last distribution of its policies and practices to its customers. In addition, the Bank is required to provide its customers with the ability to “opt-out” of having their personal information shared with unaffiliated third parties and to not disclose account numbers or access codes to non-affiliated third parties for marketing purposes.

Community Reinvestment Act. Under the Community Reinvestment Act, or “CRA,” as implemented by the FDIC, a state nonmember bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to help meet the credit needs of its entire community, including low- and moderate-income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the FDIC, in connection with its examination of each state non-member bank, to assess the institution’s record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by such institution, including applications to establish branches and acquire other financial institutions. The CRA requires the FDIC to provide a written evaluation of an institution’s CRA performance utilizing a four-tiered descriptive rating system. The Bank’s most recent FDIC CRA rating in March 2021 was “Satisfactory.”

Consumer Protection and Fair Lending Regulations. The Bank is subject to a variety of federal and New Jersey statutes and regulations that are intended to protect consumers and prohibit discrimination in the granting of credit. These statutes and regulations provide for a range of sanctions for non-compliance with their terms, including imposition of administrative fines and remedial orders, and referral to the Attorney General for prosecution of a civil action for actual and punitive damages and injunctive relief. Certain of these statutes, including Section 5 of the Federal Trade Commission Act, which prohibits unfair and deceptive acts and practices against consumers, authorize private individual and class action lawsuits and the award of actual, statutory and punitive damages and attorneys’ fees for certain types of violations. Federal laws also prohibit unfair, deceptive or abusive acts or practices against consumers, which can be enforced by the Consumer Financial Protection Bureau, the FDIC and state attorneys general.

Federal Home Loan Bank System

The Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Banks provide a central credit facility primarily for member institutions. The Bank, as a member of the FHLB, is required to acquire and hold shares of capital stock in the FHLB. The Bank was in compliance with this requirement at December 31, 2022.

Holding Company Regulation

Federal Holding Company Regulation. The Company is a bank holding company registered with the Federal Reserve Board and is subject to regulations, examination, supervision and reporting requirements applicable to bank holding companies. In addition, the Federal Reserve Board will have enforcement authority over the Company and its non-savings bank subsidiaries. Among other things, this authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings bank.

A bank holding company is generally prohibited from engaging in non-banking activities, or acquiring direct or indirect control of more than 5% of the voting securities of any company engaged in non-banking activities. One of the principal exceptions to this prohibition is for activities the Federal Reserve Board had determined to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Some of the principal activities that the Federal Reserve Board has determined by regulation to be so closely related to banking are: (1) making or servicing loans; (2) performing certain data processing services; (3) providing discount brokerage services; (4) acting as fiduciary, investment or financial advisor; (5) leasing personal or real property; (6) making investments in corporations or projects designed primarily to promote community welfare; and (7) acquiring a

savings and loan association whose direct and indirect activities are limited to those permitted for bank holding companies.

The Gramm-Leach-Bliley Act of 1999 authorizes a bank holding company that meets specified conditions, including that its depository institution subsidiaries are “well capitalized” and “well managed,” to opt to become a “financial holding company.” A “financial holding company” may engage in a broader range of financial activities than a bank holding company. Such activities may include insurance underwriting and investment banking. Blue Foundry Bancorp has no plans to elect “financial holding company” status at this time.

Capital. Federal legislation required the Federal Reserve Board to establish minimum consolidated capital requirements for bank and savings and loan holding companies that are as stringent as those applicable to their insured depository subsidiaries. However, subsequent federal legislation exempted from the applicability of the consolidated capital requirements holding companies with less than $3.0 billion in consolidated assets, such as the Company, unless otherwise advised by the Federal Reserve Board.

Source of Strength. Federal law provides that bank and savings and loan holding companies must act as a source of strength to their subsidiary depository institution. The expectation is that the holding company will provide capital, liquidity and other support for the institution in times of financial stress.

Stock Repurchases and Dividends. A bank holding company is generally required to give the Federal Reserve Board prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The Federal Reserve Board may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve Board order or directive, or any condition imposed by, or written agreement with, the Federal Reserve Board. There is an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.

Additionally, under the prompt corrective action laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized.

Notwithstanding the above, the Federal Reserve Board has issued a supervisory bulletin regarding the payment of dividends and repurchase or redemption of outstanding shares of stock by bank and holding companies. In general, the Federal Reserve Board’s policy is that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. The supervisory bulletin provides for prior consultation with and review of proposed dividends by the Federal Reserve Board in certain cases, such as where a proposed dividend exceeds earnings for the period for which the dividend would be paid (e.g., calendar quarter) or where the company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund a proposed dividend.

The supervisory bulletin also indicates that a holding company should notify the Federal Reserve Board, under certain circumstances, prior to redeeming or repurchasing common stock or perpetual preferred stock. The specified circumstances include where a holding company is experiencing financial weaknesses or where the repurchase or redemption would result in a net reduction, as of the end of a quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. Even outside of these circumstances, the Federal Reserve Board expects as a matter of practice to have notice and opportunity for non-objection before such an action is taken. The supervisory bulletin indicates that such notification is for purposes of allowing Federal Reserve Board supervisory review of, and possible objection to, the proposed repurchases or redemption. These regulatory policies could affect the ability of Blue Foundry Bancorp to pay dividends, engage in stock repurchases or otherwise engage in capital distributions.

Acquisition. The Change in Bank Control Act provides that no person may acquire control of a bank holding company, such as the Company, without the prior non-objection or approval of the Federal Reserve Board. Control,

as defined under the Change in Bank Control Act, means ownership, control of or the power, to vote 25% or more of any class of voting securities of the company. Acquisition of 10% or more of any class of a bank holding company’s voting securities constitutes a rebuttable presumption of control under certain circumstances, including where, as is the case with the Company, the issuer has registered securities under Section 12 of the Exchange Act.

In addition, the Bank Holding Company Act provides that no company may acquire control of a bank or bank holding company within the meaning of that statute without having first obtained the approval of the Federal Reserve Board. A company that acquires control of a bank or bank holding company for purposes of the Bank Holding Company Act becomes a “bank holding company” subject to registration, examination and regulation by the Federal Reserve Board.

New Jersey law establishes similar filing and prior approval requirements as to the NJDOBI for direct or indirect acquisitions of New Jersey chartered institutions.

Federal Securities Laws

The Company’s common stock is registered with the Securities and Exchange Commission. Blue Foundry Bancorp is subject to the information, proxy solicitation, insider trading restrictions and other requirements under the Exchange Act.

Emerging Growth Company Status. We are an emerging growth company. For as long as we continue to be an emerging growth company, we have elected to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As an emerging growth company, we also will not be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002, which would require that our independent auditors review and attest as to the effectiveness of our internal control over financial reporting. We have also elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. If the Company were to subsequently elect not to use this extended transition period, such election would be irrevocable. Due to our use of the extended transition period, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

A company loses emerging growth company status on the earlier of: (1) the last day of the fiscal year of the company during which it had total annual gross revenues of $1.07 billion or more; (2) the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities of the company pursuant to an effective registration statement under the Securities Act; (3) the date on which such company has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; or (4) the date on which such company is deemed to be a “large accelerated filer” under Securities and Exchange Commission regulations (generally, a “large accelerated filer” is defined as a corporation with at least $700 million of voting and non-voting equity held by non-affiliates).

Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act of 2002 was enacted to improve corporate responsibility, provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Company has policies, procedures and systems designed to comply with these regulations.

TAXATION

Federal Taxation

General. The Company and the Bank are subject to federal income taxation in the same general manner as other corporations, with some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a comprehensive description of the tax rules applicable to the Company and the Bank.

Method of Accounting. For federal income tax purposes, the Company currently reports its income and expenses on the accrual method of accounting and uses a tax year ending December 31 for filing its federal income tax returns.

Net Operating Loss Carryovers. Effective with the passage of the Tax Cuts and Jobs Act, net operating loss carrybacks are no longer permitted, and net operating losses are allowed to be carried forward indefinitely. Net operating loss carryforwards arising from tax years beginning after January 1, 2018 are limited to offset a maximum of 80% of a future year’s taxable income. At December 31, 2022, the Company had $25.8 million in net operating loss carryovers. The Company contributed $9.0 million to the Blue Foundry Charitable Foundation, and the deferred benefit has a 5 year carryforward limitation.

Capital Loss Carryovers. Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is grouped with any other capital losses for the year to which carried and is used to offset any capital gains. Any loss remaining after the five-year carryover period that has not been deducted is no longer deductible. At December 31, 2022, the Company had no capital loss carryovers.

Corporate Dividends. We may generally exclude from our income 100% of dividends received from the Bank as a member of the same affiliated group of corporations.

Audit of Tax Returns. The Company’s federal income tax returns have not been audited in the last three years.

State Taxation

New Jersey State Taxation. In 2014, tax legislation was enacted that changed the manner in which financial institutions and their affiliates are taxed in New Jersey. Taxable income is apportioned to New Jersey based on the location of the taxpayer’s customers, with special rules for income from certain financial transactions. The location of the taxpayer’s offices and branches are not relevant to the determination of income apportioned to New Jersey. The state of New Jersey applies a surtax based on the tax base within the state, applying a 6.5%, 7.5% or 9% rate. Given the Company has available net operating losses for the period, the statutory rate that would apply to the tax base in 2022 is 6.5%. An alternative tax on apportioned capital, capped at $5.0 million for a tax year, is imposed to the extent that it exceeds the tax on apportioned income. The New Jersey alternative tax rate was 0.05% for 2019, 0.025% for 2020 and was completely phased out as of January 1, 2021. Qualified community banks and thrift institutions that maintain a qualified loan portfolio are entitled to a specially computed modification that reduces the income taxable to New Jersey. The Company had New Jersey net operating loss carryforwards totaling $26.4 million, the majority of which will expire in 19.0 years years.

The Company’s New Jersey State income tax returns were subject to an audit for the years 2015 through 2018, which concluded in January 2022 without findings.

New York State Taxation. The Company files New York State tax returns on a calendar year basis. New York State imposes a corporate income tax, based on net income allocable to New York State at a rate of 6.5%. In April 2021, legislation increased the corporate franchise tax rate to 7.25% for tax years beginning on or after January

1, 2021 and before January 1, 2024 for taxpayers with a business income base greater than $5 million. In addition, the scheduled phase-out of the capital base tax was delayed. The rate of the capital base was to have been 0% starting in 2021. The legislation imposed a tax rate of 0.1875% for tax years beginning on or after January 1, 2021 and before January 1, 2024, with the 0% rate to take effect in 2024. New York State also imposes the Metropolitan Transportation Authority (“MTA”) Tax Surcharge allocable to business activities carried on in the Metropolitan Commuter Transportation District. The MTA surcharge rate for 2021 was 30.0%, and will remain at 30.0% for tax years beginning on or after January 1, 2022, and before January 1, 2023.

New York City Taxation. The Company is also subject to the New York City Financial Corporation Tax calculated, subject to a New York City income and expense allocation, on a similar basis as the New York State Tax, at a rate of 8.85%.

Pennsylvania State Taxation. The Bank is subject to Pennsylvania Mutual Thrift Institutions Tax imposed at the rate of 11.5% on net taxable income of mutual thrift institutions in Pennsylvania, including savings banks without capital stock, building and loan associations, savings and loan associations, and savings institutions having capital stock.

Delaware State Taxation. As a Delaware business corporation not earning income in Delaware, the Company is exempt from Delaware corporate income tax but is required to file an annual report with and pay franchise taxes to the state of Delaware.

Connecticut State Taxation. The Company is subject to Corporate Income Tax in Connecticut at a rate of 7.5% and is expected to be taxpaying in this jurisdiction.

Deferred Tax Valuation Allowance

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, a valuation allowance was established at December 31, 2021 for both federal and state net deferred tax assets. For the year ended December 31, 2022, a valuation allowance of $22.6 million has been maintained for deferred tax. The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

ITEM 1.A RISK FACTORS

Risks Related to Interest Rate Risk

Future changes in interest rates may reduce any future profits.

Like most financial institutions, whether we are profitable or not depends to a large extent upon our net interest income, which is the difference between our interest income on interest-earning assets, such as loans and securities, and our interest expense on interest-bearing liabilities, such as deposits and borrowed funds. Accordingly, our results of operations depend largely on movements in market interest rates and our ability to manage our interest-rate sensitive assets and liabilities in response to these movements. Factors such as inflation, recession and instability in financial markets, among other factors beyond our control, may affect interest rates. For the year ended December 31, 2022, we had net income of $2.4 million.

Our financial condition and results of operations are significantly affected by changes in market interest rates, and the degree to which these changes disparately impact short-term and long-term interest rates and influence the behavior of our customer base. Our results of operations substantially depend on our net interest income, which is the difference between the interest income we earn on our interest earning assets and the interest expense we pay on our interest-bearing liabilities. A flattening yield curve, or one that inverts, could negatively impact our net interest margin and earnings.

As the Federal Reserve continues to raise interest rates, our interest-bearing liabilities may be subject to repricing or maturing more quickly than our interest-earning assets. If short-term rates increase rapidly, we may have to increase the rates we pay on our deposits and borrowed funds more quickly than we can increase the interest rates we earn on our loans and investments, resulting in a negative effect on interest spreads and net interest income. In addition, the effect of rising rates could be compounded if deposit customers move funds into higher yielding accounts or are lost to competitors offering higher rates on their deposit products. Conversely, should market interest rates fall below current levels, our net interest income could also be negatively affected if competitive pressures prevent us from reducing rates on our deposits, while the yields on our assets decrease through loan prepayments and interest rate adjustments.

Changes in interest rates also affect the value of our interest-earning assets and in particular our securities portfolio. Generally, the value of securities fluctuates inversely with changes in interest rates. At December 31, 2022, our available for sale debt securities portfolio totaled $314.2 million with net unrealized losses of $36.2 million and are reported as a separate component of stockholders' equity. Therefore, decreases in the fair value of securities available for sale resulting from increases in interest rates could have an adverse effect on stockholders' equity. At December 31, 2022, our held-to-maturity debt securities portfolio totaled $33.7 million with net unrecognized losses of $4.6 million. The net unrecognized losses on our held-to-maturity securities are not reported in the financial statements until realized upon sale. The Company does not intend to sell held-to-maturity securities, nor does it foresee being required to sell them before the anticipated recovery (maturity).

Volatility and uncertainty related to inflation and the effects of inflation, which may lead to increased costs for businesses and consumers and potentially contribute to poor business and economic conditions generally, may also enhance or contribute to some of the risks discussed herein. For example, higher inflation, or volatility and uncertainty related to inflation, could reduce demand for the Company's products, adversely affect the creditworthiness of the Company's borrowers or result in lower values for the Company's investment securities and other interest-earning assets.

Any substantial change in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations. While we pursue an asset/liability strategy designed to mitigate our risk from changes in interest rates, such changes can still have a material adverse effect on our financial condition and results of operations. At December 31, 2022, our net portfolio value would decrease by $84.8 million if there was an instantaneous 200 basis point increase in market interest rates. For further discussion of how changes in

interest rates could impact us, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Risk.”

Risks Related to Lending Activities

Because we intend to increase our commercial real estate and commercial loan originations, our lending risk will increase.

Commercial real estate and commercial loans generally have more risk than residential mortgage loans. Because the repayment of commercial real estate and commercial loans depends on the successful management and operation of the borrower’s properties or related businesses, repayment of such loans can be affected by adverse conditions in the real estate market or the local economy. Commercial real estate and commercial loans may also involve relatively large loan balances to individual borrowers or groups of related borrowers. A downturn in the real estate market or the local economy could adversely impact the value of properties securing the loan or the revenues from the borrower’s business thereby increasing the risk of non-performing loans. Also, many of our multi-family and commercial real estate and commercial business borrowers have more than one loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss compared to an adverse development with respect to a residential mortgage loan. Further, unlike residential mortgages or multi-family and commercial real estate loans, commercial and industrial loans may be secured by collateral other than real estate, such as inventory and accounts receivable, the value of which may be more difficult to appraise, may be more susceptible to fluctuation in value at default, and may be more difficult to realize upon enforcement of our remedies. As our commercial real estate and commercial loan portfolios increase, the corresponding risks and potential for losses from these loans may also increase.

The implementation of the Current Expected Credit Loss accounting standard could require us to increase our allowance for credit losses and may have a material adverse effect on our financial condition and results of operations.

Accounting Standard Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments became effective for the Company on January 1, 2023. ASU No. 2016-13 replaced the incurred loss model with an expected loss model, which is referred to as the current expected credit loss model, or CECL. Under the CECL model, banks are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, and current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. This standard requires earlier recognition of expected credit losses on loans and certain other instruments. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under current generally accepted accounting principles (“GAAP”), which delays recognition until it is probable a loss has been incurred. The adoption of CECL can result in greater volatility in the level of the allowance for credit losses, depending on various factors and assumptions applied in the models, such as the forecasted economic conditions over the reasonable and supportable forecast period and loan payment behaviors. Any increase in the allowance for credit losses, or expenses incurred to determine the appropriate level of the allowance for credit losses, can have an adverse effect on the Company’s financial condition and results of operations.

Based on several analyses performed, as well as an implementation analysis utilizing existing exposures and forecasts of macroeconomic conditions at December 31, 2022, the adoption of ASU 2016-13 will result in a minimal change in our total allowance for loan losses and reserves for unfunded commitments, and an immaterial allowance for credit losses on held-to-maturity debt securities. Upon adoption, any impact to the allowance for credit losses on loans and held-to-maturity debt securities as of January 1, 2023, will be reflected as an adjustment, net of tax, to retained earnings.

If our allowance for loan losses is not sufficient to cover actual loan losses, our earnings and capital could decrease.

Lending is inherently risky and we are exposed to the risk that our borrowers may default on their obligations. A borrower’s default on its obligations may result in lost principal and interest income and increased operating expenses as a result of the allocation of management’s time and resources to the collection and work-out of the loan. In certain situations, where collection efforts are unsuccessful or acceptable work-out arrangements cannot be reached, we may have to charge-off the loan in whole or in part, or sell it at a discount. In such situations, we may acquire real estate or other assets, if any, that secure the loan through foreclosure or other similar available remedies, the amount owed under the defaulted loan may exceed the value of the assets acquired, and post-default remedies may be unavailable or unfeasible.

We make various assumptions and judgments about the collectability of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for our loans. In determining the amount of the allowance for loan losses, we review our loans and our loss and delinquency experience, and we evaluate other factors including, among other things, current economic conditions. If our assumptions are incorrect, or if delinquencies or non-performing loans increase, our allowance for loan losses may not be sufficient to cover probable and incurred losses inherent in our loan portfolio, which would require additions to our allowance, which could materially decrease our net income. Our allowance for loan losses was 0.87% of total loans and 172.52% of non-performing loans at December 31, 2022.

In addition, bank regulators periodically review our allowance for loan losses and, based on their judgments and information available to them at the time of their review, may require us to increase our allowance for loan losses or recognize further loan charge-offs. An increase in our allowance for loan losses or loan charge-offs as required by these regulatory authorities may reduce our net income and our capital, which may have a material adverse effect on our financial condition and results of operations.

If our non-performing assets increase, our earnings will be adversely affected.

At December 31, 2022, our non-performing assets, which consist of non-performing loans and other real estate owned, were $7.8 million, or 0.38% of total assets. Our non-performing assets adversely affect our net income in various ways:


•						we record interest income only on the cash basis or cost-recovery method for non-accrual loans and we do not record interest income for other real estate owned;
•						we must provide for expected loan losses through a current period charge to the provision for loan losses;
•						non-interest expense increases when we write down the value of properties in our other real estate owned portfolio to reflect changing market values;
•						there are legal fees associated with the resolution of problem assets, as well as carrying costs, such as taxes, insurance, and maintenance fees; and
•						the resolution of non-performing assets requires the active involvement of management, which can distract them from more profitable activity.

If additional borrowers become delinquent and do not pay their loans and we are unable to successfully manage our non-performing assets, our losses and troubled assets could increase significantly, which could have a material adverse effect on our financial condition and results of operations.

We are required to transition from the use of LIBOR.

We have material contracts that are indexed to the London Interbank Offered Rate (“LIBOR”). In 2017, the United Kingdom’s Financial Conduct Authority, a regulator of financial services firms and financial markets in the United Kingdom, announced that the publication of LIBOR would not be guaranteed after 2021. LIBOR will be discontinued after June 30, 2023 and will impact loans that have not yet matured or been refinanced by that date.

This announcement, and, more generally, financial benchmark reforms and changes in the interbank lending markets, have resulted in uncertainty about the interest rate benchmarks that will be used in the future. In the United States, efforts to identify a set of alternative U.S. dollar reference interest rates have been ongoing, and the Alternative Reference Rate Committee formally recommended the use of a Secured Overnight Funding Rate (“SOFR”). The March 2022 enactment of the Adjustable Interest Rate (LIBOR) Act and the Federal Reserve’s proposed implementing regulations are intended to address the discontinuation of LIBOR and establish a replacement benchmark, based on SOFR, that will automatically apply to agreements that rely on LIBOR and do not have an alternative contractual fallback benchmark. SOFR-based replacement benchmarks may also apply to contracts with fallback provisions that authorize a particular person to determine the replacement benchmark.

While the LIBOR Act and implementing regulations will help to transition legacy LIBOR contracts to a new benchmark rate, the substitution of SOFR for LIBOR may have potentially significant economic impacts on parties to affected contracts. SOFR is different from LIBOR in that it is a retrospective-looking secured rate rather than a forward-looking unsecured rate. These differences could lead to a greater disconnect between our and the Bank’s costs to raise funds for SOFR as compared to LIBOR. In addition to the discontinuance of LIBOR, there may be future changes in the rules or methodologies used to calculate SOFR or other benchmarks, which may have a material adverse effect on the value of or return on our financial assets and liabilities that are based on or are linked to LIBOR and other benchmarks. Once LIBOR rates are no longer available, and we are required to implement replacement reference rates for the calculation of interest rates under our loan agreements with borrowers, we may incur significant expense in effecting the transition and we may be subject to disputes or litigation with our borrowers over the appropriateness or comparability to LIBOR of the replacement reference rates. The uncertainty related to these changes may have an unpredictable impact on the financial markets and could adversely impact our financial condition or results of operations.

Risks Related to Loan Underwriting

Adjustable-Rate Loans. While we anticipate that adjustable-rate loans will better offset the adverse effects of an increase in interest rates as compared to fixed-rate loans, an increased monthly payment required of adjustable-rate loan borrowers in a rising interest rate environment could cause an increase in delinquencies and defaults. The marketability of the underlying property also may be adversely affected in a high interest rate environment. In addition, although adjustable-rate loans make our asset base more responsive to changes in interest rates, the extent of this interest sensitivity is somewhat limited by the annual and lifetime interest rate adjustment limits on adjustable-rate residential real estate loans. To help minimize the risks associated with rising interest rates, and the subsequent risk of default, we often perform a stress analysis during underwriting.

Multi-Family and Non-Residential Real Estate Loans. Loans secured by non-residential and multi-family real estate generally have larger balances and involve a greater degree of risk than one-to-four family residential real estate loans. Of primary concern in non-residential real estate and multi-family lending is the borrower’s creditworthiness and the feasibility and cash flow potential of the asset. Payments on loans secured by income producing properties often depend on the successful operation and management of the properties. As a result, repayment of such loans may be subject to adverse conditions in the real estate market or the economy to a greater extent than residential real estate loans. To monitor cash flows on income properties, we generally require borrowers and loan guarantors, if any, to provide annual financial statements on commercial real estate and multi-family loans. In reaching a decision whether to make a non-residential real estate or multi-family loan, we consider the net operating income of the property, the borrower’s expertise, credit history and profitability and the value of the underlying property. At times, we may also perform a global cash flow analysis of the borrower. We generally have required that the properties securing these real estate loans have debt service coverage ratios (the ratio of net operating income to debt service) of at least 1.25x. We require a Phase One environmental report on all commercial real estate loans in excess of $1.0 million or when we believe there is a possibility that hazardous materials may have existed on the site, or the site may have been impacted by adjoining properties that handled hazardous materials. Further in situations where environmental risks may be present, we utilize the services of an independent and qualified environmental consultant to assess any underlying risks.

Construction Loans. Our construction loans are based upon our estimates of costs to complete a project and the value of the completed project. Typically, said reviews are conducted by third party’s approved by the bank. Underwriting is focused on the borrowers’ financial strength, credit history and demonstrated ability to produce a quality product and effectively market and manage its operations.

Construction lending involves additional risks when compared to permanent residential lending because funds are advanced upon the collateral of the project, which is of uncertain value before its completion. Because of the uncertainties inherent in estimating construction costs, it is difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. In addition, generally during the term of a construction loan, interest may be funded by the borrower or disbursed from an interest reserve set aside from the construction loan budget. These loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project and the ability of the borrower to sell or lease the property or obtain permanent take-out financing, rather than the ability of the borrower or guarantor to repay principal and interest. If the appraised value of a completed project proves to be overstated, we may have inadequate collateral for the repayment of the loan upon completion of construction of the project and may incur a loss. We use a discounted cash flow analysis to determine the value of any construction project of five or more units. Our ability to continue to originate a significant amount of construction loans is dependent on the strength of the general real estate market in our market areas.

Junior Liens and Consumer Loans. Consumer loans may entail greater risk than residential mortgage loans, as they can be unsecured, subordinately secured or secured by assets that depreciate rapidly. Repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan and a resulting deficiency often does not warrant further substantial collection efforts against the borrower. Consumer loan collections depend on the borrower’s continuing financial stability, and therefore are likely to be adversely affected by various factors, including job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Commercial and Industrial Loans. Unlike residential real estate loans, which generally are made on the basis of the borrower’s ability to make repayment from his or her employment or other income, and which are secured by real property whose value tends to be more readily ascertainable, commercial and industrial loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flows of the borrower’s business and the collateral securing these loans may fluctuate in value. Our commercial and industrial loans are originated primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. Most often, collateral for commercial and industrial loans consists of accounts receivable, inventory and/or equipment. Credit support provided by the borrower for most of these loans is based on the liquidation of the pledged collateral and enforcement of a personal guarantee. Furthermore, collateral securing such loans may depreciate over time, may be difficult to appraise and may fluctuate in value. As a result, the availability of funds for the repayment of commercial and industrial loans may depend substantially on the success of the business itself.

Risks Related to Economic Conditions

Declines in value may adversely impact our investment portfolio.

As of December 31, 2022, the Company had approximately $348.0 million in its investment portfolio, with $314.2 million designated as available for sale and $33.7 million designated as held to maturity. For securities available for sale, ASU 2016-13 requires entities to determine if impairment is related to credit loss or non-credit loss. If an assessment of the security indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security, and if the present value of cash flows is less than the amortized cost basis, a credit loss exists and an allowance is created, limited by the amount that the fair value is less than the amortized cost basis. Held to maturity securities are evaluated under the allowance for credit losses model. Held to maturity securities are charged off against the allowance when deemed to be uncollectible and adjustments to the allowance are reported as a component of credit loss expense. If the credit loss

expense is significant enough it could affect the ability of Blue Foundry Bank to upstream dividends to the Company, which could have a material adverse effect on our liquidity and our ability to pay dividends to shareholders and could also negatively impact our regulatory capital ratios.

The geographic concentration of our loan portfolio and lending activities makes us vulnerable to a downturn in our local market area.

Our loan portfolio is concentrated primarily in New Jersey. This makes us vulnerable to a downturn in the local economy and real estate markets. Adverse conditions in the local economy such as unemployment, inflation, recession, a catastrophic event or other factors beyond our control could impact the ability of our borrowers to repay their loans, which could impact our net interest income. Decreases in local real estate values caused by economic conditions, recent changes in tax laws or other events could adversely affect the value of the property used as collateral for our loans, which could cause us to realize a loss in the event of a foreclosure. Further, deterioration in local economic conditions could drive the level of loan losses beyond the level we have provided for in our allowance for loan losses, which in turn could necessitate an increase in our provision for loan losses and a resulting reduction to our earnings and capital.

A worsening of economic conditions in our market area could reduce demand for our products and services and/or result in increases in our level of non-performing loans, which could adversely affect our operations, financial condition and earnings

Local economic conditions have a significant impact on the ability of our borrowers to repay loans and the value of the collateral securing loans. A deterioration in economic conditions, especially local conditions, as a result of COVID-19 or otherwise, could have the following consequences, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations, and could more negatively affect us compared to a financial institution that operates with more geographic diversity:


•						demand for our products and services may decline;
•						loan delinquencies, problem assets and foreclosures may increase;
•						collateral for loans, especially real estate, may decline in value, thereby reducing customers’ future borrowing power, and reducing the value of assets and collateral associated with existing loans; and
•						the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.

Moreover, a significant decline in general economic conditions caused by inflation, recession, acts of terrorism, civil unrest, an outbreak of hostilities or other international or domestic calamities, an epidemic or pandemic, unemployment or other factors beyond our control could further impact these local economic conditions and could further negatively affect the financial results of our banking operations.

Risks Related to Growth

A lack of liquidity could adversely affect our financial condition and results of operations.

Liquidity is essential to our business. We rely on our ability to gather deposits, make investments and effectively manage the repayment and maturity schedules of loans to ensure that there is adequate liquidity to fund our operations and pay our obligations. An inability to raise funds through deposits, borrowings, the sale and maturities of loans and securities and other sources could have a substantial negative effect on liquidity. Our most important source of funds is deposits. Deposit balances can decrease when customers perceive alternative investments as providing a better risk/return tradeoff, which are strongly influenced by external factors such as changes in interest rates, local and national economic conditions, the availability and attractiveness of alternative investments, and perceptions of the stability of the financial services industry generally and of our institution specifically. Further, the demand for deposits may be reduced due to a variety of factors such as demographic patterns, changes in customer preferences, reductions in consumers’ disposable income, the monetary policy of the Federal Reserve, or regulatory actions that decrease customer access to particular products. If customers move

money out of bank deposits and into other investments such as money market funds, we would lose a relatively low-cost source of funds, which would increase our funding costs and reduce net interest income. Any changes made to the rates offered on deposits to remain competitive with other financial institutions may also adversely affect profitability and liquidity.

Other primary sources of funds consist of cash flows from operations, maturities and sales of investment securities and borrowings from the FHLB of New York. We also have borrowing capacity through three correspondent banks and have the ability to participate in the Federal Reserve’s new Bank Term Funding Program as needed. Our access to funding sources in amounts adequate to finance or capitalize our activities, or on terms that are acceptable, could be impaired by factors that affect us directly or the financial services industry or economy in general, such as disruptions in the financial markets, changes in the value of investment securities, negative views and expectations about the prospects for the financial services industry, a decrease in our business activity as a result of a downturn in markets, or adverse regulatory actions against us.

Any decline in available funding could adversely impact our ability to originate loans, invest in securities, meet expenses, or to fulfill obligations such as repaying borrowings or meeting deposit withdrawal demands, any of which could have a material adverse impact on our liquidity, business, financial condition and results of operations.

Our business strategy includes growth, and our financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively.

Our business strategy includes growth in assets, deposits and the scale of our operations. Achieving our growth targets will require us to attract customers that currently bank at other financial institutions in our market, thereby increasing our share of the market, and to expand the size of our market area. Our ability to successfully grow will depend on a variety of factors, including our ability to attract and retain experienced bankers, the continued availability of desirable business opportunities, the competitive responses from other financial institutions in our market area and our ability to manage our growth. Growth opportunities may not be available or we may not be able to manage our growth successfully. If we do not manage our growth effectively, our financial condition and operating results could be negatively affected.

Building market share through de novo branching may cause our expenses to increase faster than revenues.

We are building market share by opening de novo branches in contiguous markets. There are considerable costs involved in de novo branching as new branches generally require time to generate sufficient revenues to offset their initial start-up costs, especially in areas in which we do not have an established presence. Accordingly, any new branch can be expected to negatively impact our earnings until the branch attracts a sufficient number of deposits and loans to offset expenses. We cannot assure you that new branches opened will be successful even after they have been established.

New lines of business or new products and services may subject us to additional risks.

From time to time, we may implement new lines of business or offer new products and services within existing lines of business. In addition, we will continue to invest in research, development, and marketing for new products and services. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services we may invest significant time and resources. Initial timetables for the development and introduction of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. Furthermore, if customers do not perceive our new offerings as providing significant value, they may fail to accept our new products and services. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, the burden on management and our information technology in introducing any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully

manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, financial condition and results of operations.

Severe weather, acts of terrorism, geopolitical and other external events could impact our ability to conduct business.

Weather-related events have adversely impacted our market area in recent years, especially areas located near coastal waters and flood prone areas. Such events that may cause significant flooding and other storm-related damage may become more common events in the future. Financial institutions have been, and continue to be, targets of terrorist threats aimed at compromising operating and communication systems and the metropolitan New York area, including New Jersey, remain central targets for potential acts of terrorism. Such events could cause significant damage, impact the stability of our facilities and result in additional expenses, impair the ability of our borrowers to repay their loans, reduce the value of collateral securing repayment of our loans, and result in the loss of revenue. While we have established and regularly test disaster recovery procedures, the occurrence of any such event could have a material adverse effect on our business, operations and financial condition. Additionally, financial markets may be adversely affected by the current or anticipated impact of military conflict, including the Russia and Ukraine war, terrorism or other geopolitical events.

Risks Related to Competition

Strong competition within our market area may limit our growth and profitability.

Competition in the banking and financial services industry is intense. In our market area, we compete with commercial banks, savings institutions, mortgage brokerage firms, credit unions, finance companies, mutual funds, insurance companies, and brokerage and investment banking firms operating locally and elsewhere. Some of our competitors have greater name recognition and market presence that benefit them in attracting business, and offer certain services that we do not or cannot provide. Our smaller asset size also makes it more difficult to compete, as many of our competitors are larger and can more easily afford to invest in the marketing and technologies needed to attract and retain customers. In addition, larger competitors may be able to price loans and deposits more aggressively than we do, which could affect our ability to grow and remain profitable on a long-term basis. Our profitability depends upon our continued ability to successfully compete in our market area. If we must raise interest rates paid on deposits or lower interest rates charged on our loans, our net interest margin and profitability could be adversely affected. For additional information see “Business of Blue Foundry Bank—Competition.”

The financial services industry could become even more competitive as a result of continuing legislative, regulatory and technological changes and continued industry consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Also, technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of our competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services than we can as well as better pricing for those products and services.

Risks Related to Operations and Security

Public health emergencies, like the COVID-19 outbreak, may adversely impact our business, results of operations, financial condition and capital levels.

The COVID-19 pandemic caused significant economic dislocation in the United States and had a significant economic impact on the communities in which we operate, our borrowers and depositors, and the national economy generally, including curtailment of business activity, increased levels of unemployment, and supply chain disruptions in the markets in which we operate. Given the dynamic nature of the pandemic, it is difficult to predict the full impact of the COVID-19 outbreak on our business. As a result of a public health emergency, including the COVID-19 pandemic, and the related adverse local and national consequences, and as a result of governmental,

consumer and business responses to any outbreak, we may be subject to the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, or results of operations: demand for our products and services may decline; if consumer and business activities are restricted, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could increase loan losses; our allowance for credit losses may have to be increased if borrowers experience financial difficulties; a material decrease in net income or a net loss over several quarters could affect our ability to pay cash dividends; cyber security risks may be increased as the result of an increase in the number of employees working remotely; critical services provided by third-party vendors may become unavailable; government actions and vaccine mandates in response to the pandemic may affect our workforce, human capital resources and infrastructure; and we may experience staffing shortages and unanticipated unavailability or loss of key employees, harming our ability to execute our business strategy.

We face significant operational risks because the nature of the financial services business involves a high volume of transactions.

We operate in diverse markets and rely on the ability of our employees and systems to process a high number of transactions. Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by employees or persons outside our company, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of our internal control systems and compliance requirements. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of operational deficiencies or as a result of non-compliance with applicable regulatory standards, adverse business decisions or their implementation, or customer attrition due to potential negative publicity. In the event of a breakdown in our internal control systems, improper operation of systems or improper employee actions, we could suffer financial loss, face regulatory action, and/or suffer damage to our reputation.

Cyber-attacks or other security breaches could adversely affect our operations, net income or reputation.

We regularly collect, process, transmit and store significant amounts of confidential information regarding our customers, employees and others and concerning our own business, operations, plans and strategies. In some cases, this confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf.

Information security risks have generally increased in recent years because of the proliferation of new technologies, the use of the Internet and telecommunications technologies to conduct financial and other transactions and the increased sophistication and activities of perpetrators of cyber-attacks and mobile phishing. Mobile phishing, a means for identity thieves to obtain sensitive personal information through fraudulent e-mail, text or voice mail, is an emerging threat targeting the customers of financial entities. A failure in or breach of our operational or information security systems, or those of our third-party service providers, as a result of cyber-attacks or information security breaches or due to employee error, malfeasance or other disruptions could adversely affect our business, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and/or cause losses.

If this confidential or proprietary information were to be mishandled, misused or lost, we could be exposed to significant regulatory consequences, reputational damage, civil litigation and financial loss.

Although we employ a variety of physical, procedural and technological safeguards to protect this confidential and proprietary information from mishandling, misuse or loss, these safeguards do not provide absolute assurance that mishandling, misuse or loss of the information will not occur, and that if mishandling, misuse or loss of information does occur, those events will be promptly detected and addressed. Similarly, when confidential or proprietary information is collected, compiled, processed, transmitted or stored by third parties on our behalf, our policies and procedures require that the third party agree to maintain the confidentiality of the information, establish and maintain policies and procedures designed to preserve the confidentiality of the information, and permit us to

confirm the third party’s compliance with the terms of the agreement. As information security risks and cyber threats continue to evolve, we may be required to expend additional resources to continue to enhance our information security measures and/or to investigate and remediate any information security vulnerabilities.

Risks associated with system failures, interruptions, or breaches of security could negatively affect our earnings.

Information technology systems are critical to our business. We use various technology systems to manage our customer relationships, general ledger, securities, deposits, and loans. We have established policies and procedures to prevent or limit the impact of system failures, interruptions, and security breaches, but such events may still occur and may not be adequately addressed if they do occur. In addition, any compromise of our systems could deter customers from using our products and services. Although we rely on security systems to provide the security and authentication necessary to effect the secure transmission of data, these precautions may not protect our systems from compromises or breaches of security.

In addition, we outsource a majority of our data processing to third-party providers. If these third-party providers encounter difficulties, or if we have difficulty communicating with them, our ability to adequately process and account for transactions could be affected, and our business operations could be adversely affected. Threats to information security also exist in the processing of customer information through various other vendors and their personnel.

The occurrence of any system failures, interruptions, or breaches of security could damage our reputation and result in a loss of customers and business, subject us to additional regulatory scrutiny or expose us to litigation and possible financial liability. Any of these events could have a material adverse effect on our financial condition and results of operations.

The inability to stay current with technological change could adversely affect our business model.

Financial institutions continually are required to maintain and upgrade technology in order to provide the most current products and services to their customers, as well as create operational efficiencies. This technology requires personnel resources, as well as significant costs to implement. Failure to successfully implement technological change could adversely affect the Company’s business, results of operations and financial condition.

Our operations rely on certain third party vendors.

We rely on certain external vendors to provide products and services necessary to maintain our day-to-day operations. These third party vendors are sources of operational and informational security risk to us, including risks associated with operational errors, information system interruptions or breaches and unauthorized disclosures of sensitive or confidential client or customer information. If these vendors encounter any of these issues, or if we have difficulty communicating with them, we could be exposed to disruption of operations, loss of service or connectivity to customers, reputational damage, and litigation risk that could have a material adverse effect on our business and, in turn, our financial condition and results of operations.

In addition, our operations are exposed to risk that these vendors will not perform in accordance with the contracted arrangements under service level agreements. While we have selected these external vendors carefully, we do not control their actions. The failure of an external vendor to perform in accordance with the contracted arrangements under service level agreements, because of changes in the vendor’s organizational structure, financial condition, support for existing products and services or strategic focus or for any other reason, could be disruptive to our operations, which could have a material adverse effect on our business and, in turn, our financial condition and results of operations. Replacing these external vendors could also entail significant delay and expense.

We depend on our management team, many of whom are new to the Bank, to implement our business strategy and execute successful operations and we could be harmed by the loss of their services.

We depend upon the services of the members of our senior management team to implement our business strategy and execute our operations. Over the last several years we have hired certain senior level management to implement the Bank’s new focus and direction. Our future success will depend, to a significant extent, on the ability of our new management team to operate effectively, both individually and as a group. We must successfully manage issues that may result from the integration of the new members of our executive management. Members of our senior management team and lending personnel who have expertise and key business relationships in our markets could be difficult to replace. The loss of these persons or our inability to hire additional qualified personnel, could impact our ability to implement our business strategy and could have a material adverse effect on our results of operations and our ability to compete.

Our cost of operations is high relative to our revenues.

Our non-interest expense totaled $52.8 million and $74.7 million for the years ended December 31, 2022 and 2021, respectively. We continue to analyze our expenses and achieve efficiencies where available. Although we strive to generate increases in both net interest income and non-interest income, our efficiency ratio remains high. For the year ended December 31, 2021, one-time expenses include an $11.2 million loss related to the withdrawal from the multi-employer defined-benefit pension plan and a $9.0 million contribution to the Blue Foundry Charitable Foundation. Our efficiency ratio was 96.82% and 164.37% for the years ended December 31, 2022 and 2021, respectively.

The cost of additional finance and accounting systems, procedures and controls in order to satisfy our new public company reporting requirements will increase our expenses.

As a result of the completion of the stock offering, we became a public reporting company. We expect that the obligations of being a public company, including the substantial public reporting obligations, will require significant expenditures and place additional demands on our management team. We have made, and will continue to make, changes to our internal controls and procedures for financial reporting and accounting systems to meet our reporting obligations as a public company. However, the measures we take may not be sufficient to satisfy our obligations as a public company. Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over financial reporting, starting with the second annual report that we would expect to file with the Securities and Exchange Commission. Any failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business. In addition, we may need to hire additional compliance, accounting and financial staff with appropriate public company experience and technical knowledge, and we may not be able to do so in a timely fashion. As a result, we may need to rely on outside consultants to provide these services for us until qualified personnel are hired. These obligations will increase our operating expenses and could divert our management’s attention from our operations.

We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so may materially adversely affect our performance.

We are a community bank and our reputation is one of the most valuable assets of our business. A key component of our business strategy is to rely on our reputation for customer service and knowledge of local markets to expand our presence by capturing new business opportunities from existing and prospective customers in our market area and contiguous areas. As such, we strive to conduct our business in a manner that enhances our reputation. This is done, in part, by recruiting, hiring and retaining employees who share our core values of being an integral part of the communities we serve, delivering superior service to our customers and caring about our customers. If our reputation is negatively affected by the actions of our employees, by our inability to conduct our operations in a manner that is appealing to current or prospective customers, or otherwise, our business and operating results may be materially adversely affected.

Our risk management framework may not be effective in mitigating risk and reducing the potential for significant losses.

Our risk management framework is designed to minimize risk and loss to us. We seek to identify, measure, monitor, report and control our exposure to risk, including strategic, market, liquidity, compliance and operational risks. While we use broad and diversified risk monitoring and mitigation techniques, these techniques are inherently limited because they cannot anticipate the existence or future development of currently unanticipated or unknown risks. Recent economic conditions and heightened legislative and regulatory scrutiny of the financial services industry, among other developments, have increased our level of risk. Accordingly, we could suffer losses if we fail to properly anticipate and manage these risks.

Risks Related to Regulatory Matters

Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.

We are subject to extensive regulation, supervision and examination by our banking regulators. Such regulation and supervision govern the activities in which a financial institution and its holding company may engage and are intended primarily for the protection of insurance funds and the depositors and borrowers of Blue Foundry Bank rather than for the protection of our shareholders. Regulatory authorities have extensive discretion in their supervisory and enforcement activities, including the ability to impose restrictions on our operations, classify our assets and determine the level of our allowance for credit losses. These regulations, along with the currently existing tax, accounting, securities, deposit insurance and monetary laws, rules, standards, policies, and interpretations, control the methods by which financial institutions conduct business, implement strategic initiatives, and govern financial reporting and disclosures. As a smaller institution, we are disproportionately affected by the ongoing increased costs of compliance with banking and other regulations. Any change in such regulation and oversight, whether in the form of regulatory policy, new regulations, legislation or supervisory action, may have a material impact on our operations. Further, changes in accounting standards can be both difficult to predict and involve judgment and discretion in their interpretation by us and our independent accounting firm. These changes could materially impact, potentially retroactively, how we report our financial condition and results of operations.

We are subject to stringent capital requirements, which may adversely impact our return on equity, require us to raise additional capital, or restrict us from paying dividends or repurchasing shares.

Federal regulations establish minimum capital requirements for insured depository institutions, including minimum risk-based capital and leverage ratios and define what constitutes “capital” for calculating these ratios. The regulations also establish a “capital conservation buffer” of 2.5%, effectively resulting in the following minimum ratios: (1) a common equity Tier 1 capital ratio of 7.0%, (2) a Tier 1 to risk-based assets capital ratio of 8.5%, and (3) a total capital ratio of 10.5%. An institution will be subject to limitations on paying dividends, repurchasing its shares, and paying discretionary bonuses, if its capital levels fall below the buffer amount.

Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.

Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and governance (“ESG”) practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, labor conditions and human rights. Increased ESG-related compliance costs could result in increases to our overall operational costs. Failure to adapt to or comply with regulatory requirements or investor or stakeholder expectations and standards could negatively impact our reputation, ability to do business with certain partners, and our stock price. New government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure.

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.

The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions, including restrictions on conducting acquisitions or establishing new branches. During the last year, several banking institutions have received large fines for non-compliance with these laws and regulations. The policies and procedures we have adopted that are designed to assist in compliance with these laws and regulations may not be effective in preventing violations of these laws and regulations.

Changes in management’s estimates and assumptions may have a material impact on our consolidated financial statements and our financial condition or operating results.

In preparing the periodic reports we file under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including our consolidated financial statements, our management is required under applicable rules and regulations to make estimates and assumptions as of specified dates. These estimates and assumptions are based on management’s best estimates and experience at such times and are subject to substantial risk and uncertainty. Materially different results may occur as circumstances change and additional information becomes known. Areas requiring significant estimates and assumptions by management include our evaluation of the adequacy of our allowance for credit losses, the determination of our deferred income taxes, and our fair value measurements.

Various factors may make takeover attempts more difficult to achieve.

Certain provisions of our certificate of incorporation and bylaws and state and federal banking laws, including regulatory approval requirements, could make it more difficult for a third party to acquire control of Blue Foundry Bancorp without our Board of Directors' approval. Under regulations applicable to the conversion, for a period of three years following completion of our stock offering and related transactions in July 2021, no person may acquire beneficial ownership of more than 10% of our common stock without prior approval of the Federal Reserve Board. Under federal law, subject to certain exemptions, a person, entity or group must notify the Federal Reserve Board before acquiring control of a bank holding company. There also are provisions in our certificate of incorporation and bylaws that may be used to delay or block a takeover attempt, including a provision that prohibits any person from voting more than 10% of our outstanding shares of common stock. Furthermore, shares of restricted stock and stock options that we may grant to employees and directors, stock ownership by our management and directors, shares held by the employee stock ownership plan and other factors may make it more difficult for companies or persons to acquire control of Blue Foundry Bancorp without the consent of our Board of Directors. Taken as a whole, these statutory provisions and provisions in our certificate of incorporation and bylaws could result in our being less attractive to a potential acquirer and thus could adversely affect the market price of our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

At December 31, 2022, the Company and the Bank conducted business through 18 full-service branch offices, located in northern New Jersey, and the Company’s administrative offices located at 7 Sylvan Way, Parsippany, New Jersey. The Company’s principal executive office is located at 19 Park Avenue, Rutherford, New Jersey.

We own six properties and lease 12 properties at December 31, 2022. Three branches are expected to open in 2023, increasing the number of leased properties to 15. One owned branch office is expected to cease operations and the building sold during the second quarter of 2023, decreasing the properties owned to five. The aggregate net book value of premises and equipment was $29.8 million at December 31, 2022.

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is listed on the Nasdaq Global Select Market under the trading symbol “BLFY.” Trading in the Company’s common stock commenced on July 16, 2021. As of December 31, 2022, there were 1,254 stockholders of record. Certain shares of Blue Foundry Bancorp are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.

The Company has not declared any dividends to holders of its common stock and we do not currently anticipate paying dividends on our common stock in the near future. Our Board of Directors has the authority to declare dividends on our shares of common stock, and may determine to pay dividends in the future, subject to financial condition, results of operations, tax considerations, industry standards, economic conditions, statutory and regulatory requirements that affect the payment of dividends by the Bank to the Company, and other relevant factors. No assurances can be given that any cash dividends will be paid or that, if paid, will not be reduced or eliminated in the future.

Issuer Purchases of Equity Securities

The following table reports information regarding repurchases of our common stock during the quarter ended December 31, 2022 and the stock repurchase plans approved by our Board of Directors.


Period	Total Number of Shares Purchased (1)	Average Price paid Per Share	As part of Publicly Announced Plans or Programs	Yet to be Purchased Under the Plans or Programs (1)
October	223,436	$11.79	223,436	1,962,125
November	228,515	12.70	228,515	1,733,610
December	180,122	12.78	180,122	1,553,488
Total	632,073	12.40	632,073

(1) On July 20, 2022, the Company adopted a program to repurchase up to 2,852,250 shares, or 10%, of its outstanding common stock. This program has no expiration date and has 1,553,488 shares yet to be repurchased as of December 31, 2022.

ITEM 6. [RESERVED]

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section is intended to assist in the understanding of the financial performance of the Company and its subsidiary through a discussion of our financial condition as of December 31, 2022, and our results of operations for the years ended December 31, 2022 and 2021. This section should be read in conjunction with the audited consolidated financial statements and notes to the consolidated financial statements that appear at the end of this report.

COVID Update

The COVID-19 pandemic has had, and may continue to have, an adverse impact on the Company, its clients and the communities it serves. Given its dynamic nature, it is difficult to predict the full impact of the COVID-19 pandemic on our business.

Business Strategy

The Company’s goal is to position ourselves to prosper in an evolving financial services landscape and enhance our position as one of the leading community banking institutions in our market. We intend to continue to provide a broad array of banking and other financial services to retail, commercial and small business customers while growing our presence in our markets and expanding our franchise. In recent years, we have focused on, and invested heavily in, our technology and infrastructure to improve our delivery channels and create competitive products and services, a strong workforce and an enhanced awareness of our banking brand in our market area.

As a result, we believe we are well positioned to capitalize on the opportunities available in our market by focusing on the following core strategies.

Repositioning our Business Mix: Focus on building commercial and small-business relationships. We focus on understanding our customers’ and potential customers’ financial needs and providing a wide variety of high-quality products and solutions through a collaborative approach that intends to create long-term relationships. Our goal is to continue to evolve from a traditional savings bank focusing on residential lending to a full-service commercial bank with an emphasis on providing products and services to commercial and small businesses in our market area. We believe pursuing this strategy will allow us to both grow and diversify our business mix while providing us with the best opportunities to drive strong financial returns. We intend to pursue these commercial relationships through the lending, retail branch, and the retail business development personnel that we have recruited and continue to recruit, who have the experience and relationships necessary to build this business as well as through cultural changes that have been made across the organization that emphasize our goal of pursuing this strategy. Further, our investment in technology is intended to facilitate the delivery of consumer and business solutions without the need for traditional sales channels.

We are approved by the SBA to provide loans under the 7(a) Loan Program, the SBA’s most common loan program. We believe providing 7(a) loans as well as traditional commercial and industrial loans and lines of credit will allow us to provide needed funding to our business communities, which will increase deposits. These borrowers often also keep deposits at their loan providers.

Growing our Business: Developing new customer relationships and deepening existing relationships. We seek to expand our market share in existing and contiguous markets by leveraging our distinctive brand and delivering high-quality solutions through a collaborative, relationship-based approach. Our relationship-based approach has enabled us to achieve disciplined organic growth, and we expect this trend to continue. Building our customer relationships around low and no cost products is part of our relationship expansion strategy. Our “Blue” products, including Blue Axis® Checking, Blue Axis Connect®, Blue Axis® Savings, Blue Axis Edge™ Savings, Blue Axis® Club Savings, Blue Carbon® Business Checking. Blue Carbon Edge™ Business Checking, Blue Carbon® Business Money Market, and Blue Carbon® Business Savings, are designed to be low cost to the consumer or business, while providing us with lower interest rate deposits. Our consumer deposit products are designed to be easy to open in person or online. Our commercial deposit products include many features without fees that would customarily be charged.

Leverage technology to enhance customer experience and drive operating efficiencies. We have made significant investments in our technology infrastructure to deliver high-quality, innovative products and services to our customers. For example, we continue to enhance our mobile banking platform for both consumer and commercial customers. New services, such as Early Pay, same day ACH, and “sweep” functionality, continue to be introduced to increase convenience and meet evolving customer financial needs. In addition, we have invested in our new commercial lending origination system and platform, and we intend to continue to improve our consumer lending origination platform. We are committed to continue investing in technology and data analytics. We believe these investments will differentiate us with our target customers, which will generate significant operating leverage as we grow.

Continuing to invest and optimize our facilities and expand our branch network through selective de novo branching. We have been enhancing and optimizing both our facilities and branch network. We have optimized our branch footprint though the utilization of a new forward-thinking branch model and intend to continue this strategy in 2023 to broaden our existing branch network by expanding into new markets and extending our geographic footprint. In 2022, we opened a new branch in Hoboken, continuing our strategy of operating in high density areas with vibrant commercial corridors and main streets. Additionally, we renovated three existing locations, modernizing their appearance and upgrading their functionalities. New branches feature modern design elements focused on open and efficient use of space.

Branch efficiency has been built into our locations. All branches currently employ new multifunction automated teller machines that are designed to be compatible with new services as they become available. Further, all branches utilize teller cash recycling machines to further enhance efficiency.

Pursue opportunistic acquisitions and partnerships. We intend to prudently pursue opportunities to acquire banks in our existing and contiguous markets that create attractive financial returns. Our focus will primarily be on franchises that enhance our funding profile, product capabilities or geographic density, while maintaining an acceptable risk profile. We believe the vital need to make increasingly significant technological investments has greatly amplified the importance of scale in banking. In addition, we believe that the current economic climate will increase the rate of consolidation in the banking industry. We will evaluate potential partnerships with FinTech companies or other fee income generating businesses that align with our business strategy and are consistent with our desire to stay ahead of technological developments that we believe will continue to cause the banking industry to evolve.

Critical Accounting Policies

Certain of our accounting policies are important to the presentation of our financial condition, since they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Estimates associated with these policies are susceptible to material changes as a result of changes in facts and circumstances. Facts and circumstances that could affect these judgments include, but are not limited to, changes in interest rates, changes in the performance of the economy and changes in the financial condition of borrowers. The Company has identified the allowance for loan losses and income taxes to be a critical accounting policy. These accounting policies and our significant accounting policies are discussed in detail in Note 1 to our Consolidated Financial Statements included in Part II, Item 8.

Comparison of Operating Results for the Years Ended December 31, 2022 and 2021

General. Net income was $2.4 million for the year ended December 31, 2022, compared to a net loss of $36.3 million for the year ended December 31, 2021. The increase was driven by an increase of $8.9 million in net interest income and by the absence in the 2022 period of non-recurring expenses incurred in 2021 consisting of the establishment of a $16.7 million valuation allowance on the Company’s deferred tax assets, an $11.2 million loss related to the withdrawal from the multi-employer defined-benefit pension plan, a $9.0 million contribution of cash and common stock of the Company to the Blue Foundry Charitable Foundation, and $2.2 million in debt extinguishment costs.

Interest Income. Interest income increased $6.4 million, or 11.3%, to $62.4 million for the year ended December 31, 2022 from $56.1 million for the year ended December 31, 2021. The increase was due to an increase of $3.6 million in interest income from loans and an increase of $2.9 million in interest income from cash and securities. The average balance of securities and loans increased $89.1 million and $132.6 million, respectively, while the average balance of cash decreased $267.8 million. Interest income and average balances of loans for the year ended December 31, 2022 as compared to the 2021 period increased due to growth in the multifamily and non-residential mortgage portfolios. The yield on average interest-earning assets increased 40 basis points to 3.28% for the year ended December 31, 2022 from 2.88% for the year ended December 31, 2021. PPP fees recognized in interest income totaled $568 thousand and $2.8 million for the years ended December 31, 2022 and 2021, respectively.

Interest Expense. Interest expense decreased $2.5 million, or 19.3%, to $10.6 million for the year ended December 31, 2022 compared to $13.1 million for the year ended December 31, 2021. The decrease in interest expense was driven by a decrease of $2.1 million in interest expense on deposits, coupled with a decrease of $388 thousand in interest expense on borrowings. The average balance of interest-bearing deposits and FHLB advances decreased $61.6 million and $45.4 million, respectively. A decrease of $197.4 million in the average balance of higher cost time deposits partially offset by an increase of $135.8 million in the average balance of interest-bearing core deposits (checking, savings and money market accounts) drove a 12 basis point decrease in the cost of total deposits and a 8 basis point decrease in the cost of funds. The cost of average interest-bearing liabilities decreased 12 basis points to 0.72% for the year ended December 31, 2022 from 0.84% for the year ended December 31, 2021.

Net Interest Income and Margin. For the year ended December 31, 2022 net interest income was $51.8 million, an increase of $8.9 million or 20.7%, compared to $42.9 million for same period in 2021.

Net interest margin for the year ended December 31, 2022 increased by 53 basis points to 2.73% from 2.20% for the year ended December 31, 2021. The yield on average interest earning assets increased by 40 basis points as cash was invested into higher yielding loans and securities during the year ended December 31, 2022 while the overall cost of average interest bearing liabilities decreased 12 basis points for the year ended December 31, 2022.

Provision for Loan Losses. Provisions for loan losses are charged to operations to establish an allowance for loan losses at a level necessary to absorb potential losses inherent in our loan portfolio that are both probable and reasonably estimable at the date of the consolidated financial statements. In evaluating the level of the allowance for loan losses, management analyzes several qualitative loan portfolio risk factors including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses.

After an evaluation of these factors, the Company recorded a release of provision for loan losses of $1.0 million for the year ended December 31, 2022 compared to a release of $2.5 million for the year ended December 31, 2021. The release for the year ended December 31, 2022 was primarily due to shifts in the loan portfolio driven

by declines in balances within the construction portfolio partially offset by growth in the multifamily and non-residential portfolios and a generally improving economic environment, as well as improved credit metrics and low net charge-offs.

2022 and 2021 saw continued strengthening of credit quality, as seen in the declining delinquency rates and balances of non-performing loans. Total non-performing loans decreased by $4.2 million to $7.8 million at December 31, 2022 compared to $12.0 million at December 31, 2021.

Non-interest Income. Non-interest income of $2.7 million for the year ended December 31, 2022 represented an increase of $184 thousand, or 7.4%, from $2.5 million for the year ended December 31, 2021. The fluctuations in non-interest income for the year ended December 31, 2022 were primarily related to loan prepayment fee activity. Prepayment fees increased $239 thousand to $982 thousand from $743 thousand for the year ended December 31, 2022. Additionally, fees earned from point of sale transactions totaled $502 thousand during the year ended December 31, 2022 compared to $476 thousand for the 2021 period, income from bank owned life insurance totaled $490 thousand during the year ended December 31, 2022 compared to $476 thousand for the 2021 period, and overdraft fees recognized during the year ended December 31, 2022 totaled $255 thousand compared to $234 thousand for the 2021 period. Beginning in November 2022, the Company ended its practice of charging overdraft fees to customers.

Non-interest Expense. Non-interest expense was $52.8 million, a decrease of $21.9 million driven by the absence in 2022 of non-recurring expenses of: a $11.2 million loss on pension withdrawal, a $9.0 million charitable contribution, and $2.2 million in debt extinguishment costs. Excluding these non-recurring items, non-interest expense increased $464 thousand. An increase of $3.5 million in compensation and benefits costs was driven by salary increases, hiring of additional staff, an increase in cash incentive compensation expense, and costs associated with equity grants made under the shareholder-approved equity incentive plan. In addition, the costs associated with being a public company increased $1.0 million in 2022. These increases were partially offset by a reduction of $1.3 million in advertising and $1.2 million in data processing, and a lower provision for commitments and letters of credit of $1.0 million.

Income Tax Expense. For the year ended December 31, 2022, the Company recorded income tax expense of $338 thousand compared to $9.6 million for the year ended December 31, 2021. The effective tax rate of 12.4% reflects the reversal of the valuation allowance from the usage of the federal and state net operating loss deferred tax assets to the extent permissible. The Company had previously established and continues to maintain a full valuation allowance on its deferred tax assets. Although the Company had a loss before income tax in the prior year, the tax expense recorded in that year reflects the impact of the initial recognition of the full valuation allowance on the Company’s deferred tax assets.

Analysis of Net Interest Income

Net interest income represents the difference between income on interest-earning assets and expense on interest-bearing liabilities. Net interest income depends on the relative amounts of interest-earning assets and interest-bearing liabilities and the rates of interest earned on such assets and paid on such liabilities.

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


	Year Ended December 31,
	2022						2021
	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost

	(Dollar in thousands)
Assets:
Loans (1)	$	1,407,502	$	52,279	3.71	%	$	1,274,885	$	48,719	3.82	%
Mortgage-backed securities	190,540		3,934		2.06	%	154,882		2,908		1.88	%
Other investment securities	203,002		4,820		2.37	%	147,853		3,237		2.19	%
FHLB stock	12,629		587		4.65	%	14,373		744		5.17	%
Cash and cash equivalents	88,703		793		0.89	%	356,458		445		0.12	%
Total interest earning assets	1,902,376		62,413		3.28	%	1,948,451		56,053		2.88	%
Non-interest earning assets	64,786						87,443
Total assets	$	1,967,162					$	2,035,894
Liabilities and shareholders' equity:
NOW, savings, and money market deposits	$	812,473	2,959		0.36	%	$	676,697	1,091		0.16	%
Time deposits	412,734		2,779		0.67	%	610,092		6,793		1.11	%
Interest bearing deposits	1,225,207		5,738		0.47	%	1,286,789		7,884		0.61	%
FHLB advances	235,589		4,832		2.05	%	280,985		5,220		1.86	%
Total interest bearing liabilities	1,460,796		10,570		0.72	%	1,567,774		13,104		0.84	%
Non-interest bearing deposits	44,029						106,033
Non-interest bearing other	47,707						47,560
Total liabilities	1,552,532						1,721,367
Total shareholders' equity	414,630						314,527
Total liabilities and shareholders' equity	$	1,967,162					$	2,035,894
Net interest income			$	51,843					$	42,949
Net interest rate spread (2)					2.56	%					2.04	%
Net interest margin (3)					2.73	%					2.20	%

(1) Average loan balances are net of deferred loan fees and costs, premiums and discounts, and includes non-accrual loans.

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

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

Rate/Volume Table

The following table sets forth the effects of changing rates and volumes on net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments excluded from this table.


	Years Ended December 31,
	2022 vs. 2021

	Increase (Decrease) Due to
	Volume		Rate		Net

	(In thousands)
Interest income:
Loans	$	5,068	$	(1,508)	$	3,560
Mortgage-backed securities		669		357		1,026
Other investment securities		1,207		376		1,583
FHLB stock		(91)		(66)		(157)
Cash and cash equivalents		(334)		682		348
Total interest-earning assets	$	6,519	$	(159)	$	6,360

Interest expense:
Deposits	$	(1,977)	$	(169)	$	(2,146)
FHLB advances		(843)		455		(388)
Total interest-bearing liabilities		(2,820)		286		(2,534)
Net increase in net interest income	$	9,339	$	(445)	$	8,894

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

Total Assets. Total assets increased $129.1 million to $2.04 billion at December 31, 2022 from $1.91 billion at December 31, 2021. During 2022, the Company utilized liquidity raised in the 2021 public offering to continue growing its balance sheet through loan production.

Cash and cash equivalents. Cash and cash equivalents decreased $152.3 million, or 78.7%, to $41.2 million at December 31, 2022 from $193.4 million at December 31, 2021. The decrease in cash and cash equivalents was due to the deployment of cash primarily into higher yielding loans and securities.

Securities Available-For-Sale. Securities available-for-sale decreased $10.6 million, or 3.3%, to $314.2 million at December 31, 2022 from $324.9 million at December 31, 2021. During the year ended December 31, 2022, purchases of securities were more than offset by the fair value decline in the portfolio, as well as amortization and calls. The rising rate environment in the second half of 2022 contributed to a $37.3 million decline in the net unrealized position of the portfolio. No securities were sold during the year ended December 31, 2022.

Securities Held-To-Maturity. Securities held-to-maturity increased $10.4 million, or 44.8%, to $33.7 million at December 31, 2022 from $23.3 million at December 31, 2021. The increase is due to purchases of corporate bonds in 2022.

Other investments. Other investments increased $5.9 million, or 57.8%, to $16.1 million at December 31, 2022 from $10.2 million at December 31, 2021. The increase is related to the purchases of Federal Home Loan Bank of New York stock made in conjunction with borrowings in the second half of 2022.

Gross Loans. Gross loans held for investment increased $261.1 million, or 20.37%, to $1.542 billion at December 31, 2022 from $1.281 billion at December 31, 2021. The most significant drivers were net increases in multifamily and non-residential loans. Multifamily loans increased $175.0 million, non-residential real estate loans increased $74.8 million, and residential loans increased $33.5 million. Originations totaled $488.2 million, including originations of $285.4 million in multifamily loans, $128.7 million in non-residential real estate loans, and $44.1 million in construction loans. In addition, $106.1 million of conforming residential mortgages in New Jersey were purchased during the period.

The following table presents loans allocated by loan category:


	December 31, 2022		December 31, 2021

	(In thousands)
Residential one-to-four family	$	594,521	$	560,976
Multifamily	690,278		515,240
Non-residential	216,394		141,561
Construction and land	17,990		23,419
Junior liens	18,477		18,464
Commercial and industrial (1)	4,682		21,563
Consumer and other	38		87
Total gross loans	1,542,380		1,281,310
Deferred fees, costs and premiums and discounts, net	2,747		6,299
Total loans	1,545,127		1,287,609
Allowance for loan losses	(13,400)		(14,425)
Loans receivable, net	$	1,531,727	$	1,273,184

(1) At December 31, 2022 and 2021, PPP loans totaled $477 thousand and $16.8 million, respectively, net of unearned deferred fees.

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


	December 31, 2022		December 31, 2021

	(In thousands)
Residential one-to-four family	$	7,498	$	10,805
Multifamily	182		139
Non-residential	—		857
Construction and land	—		—
Junior liens	52		182
Commercial and industrial (1)	35		—
Total	$	7,767	$	11,983
Other real estate owned	—		—
Total non-performing assets	$	7,767	$	11,983

(1) PPP loans 90 days past due and accruing totaled $61 thousand and $116 thousand at December 31, 2022 and 2021, respectively. These PPP loans were not reported in non-performing loans as they carry the federal guarantee of the SBA.

Other Assets. Other assets increased $13.6 million, or 158.0%, to $22.2 million at December 31, 2022 from $8.6 million at December 31, 2021. This increase was primarily driven by the increase in fair value of the Company’s interest rate swap agreements. See Note 10, Derivatives, of Notes to Consolidated Financial Statements in “Part II, Item 8- Financial Statements.”

Total Deposits. Total deposits increased $41.8 million or 3.4% to $1.29 billion at December 31, 2022 compared to $1.25 billion at December 31, 2021 as the Company executed its strategy to allow high-cost time deposits to mature. Time deposits decreased $57.5 million, or 12.1%, to $416.3 million with a weighted average rate of 1.79% at December 31, 2022 from $473.8 million with a weighted average rate of 0.58% at December 31, 2021. The decrease in time deposits was partially offset by an increase in checking, savings, and money market accounts. These accounts increased $99.4 million, or 12.85%, to $872.6 million at December 31, 2022 from $773.2 million at December 31, 2021. This shift resulted in the ratio of core deposits to total deposits increasing from 62.0% at December 31, 2021 to 67.7% at December 31, 2022.

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


	December 31, 2022		December 31, 2021

	(In thousands)
Non-interest bearing deposits	$	37,907	$	44,894
NOW and demand accounts (1)	410,937		363,419
Savings (1)	423,758		364,932
Time deposits	416,260		473,795
Total Deposits	$	1,288,862	$	1,247,040

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

Borrowings. The Company had $310.5 million of borrowings at December 31, 2022, an increase of $125.0 million, or 67.4%, from $185.5 million at December 31, 2021. The increase is related to the execution of short-term borrowings during the second half of 2022 to support loan growth. Our borrowings consisted solely of Federal Home Loan Bank of New York advances. $109.0 million of which are associated with longer-dated swap agreements. See Note 10, Derivatives, of Notes to Consolidated Financial Statements in “Part II, Item 8- Financial Statements.”

Total Shareholders’ Equity. Total shareholders’ equity decreased by $35.8 million, or 8.3%, to $393.7 million at December 31, 2022 compared to $429.5 million at December 31, 2021. The decrease was primarily driven by a $24.3 million reduction in accumulated other comprehensive income reflecting the net impact that the interest rate environment had on the Company’s available-for-sale securities and the swap agreements used in its cash flow hedges. The Company also repurchased 1,298,762 of its shares at a cost of $15.6 million. 299,481 of the shares repurchased were used to fund the shareholder-approved restricted stock grants. These decreases were partially offset by net income of $2.4 million.

Liquidity and Capital Resources

Liquidity is the ability to meet current and future financial obligations of a short-term and long-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, maturities and sales of securities, borrowings from the FHLB and securities sold under agreements to repurchase. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows, calls of investment securities and borrowed funds and prepayments on loans are greatly influenced by general interest rates, economic conditions and competition. Additionally, deposit flows are impacted by general deposit behavior. Our primary use of funds is for the origination and purchase of loans and the purchase of securities.

Management regularly adjusts our investments in liquid assets based upon an assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities, and (4) the objectives of our interest-rate risk and investment policies.

The Bank is subject to various regulatory capital requirements administered by the NJDOBI and the FDIC. At December 31, 2022, the Bank exceeded all applicable regulatory capital requirements, and was considered “well capitalized” under regulatory guidelines. See “Item 1. Business—Supervision and Regulation—Federal Banking Regulation—Capital Requirements” and Note 17 of the Notes to the Consolidated Financial Statements.

The Bank has entered into derivative financial instruments to reduce risk associated with interest rate volatility by matching repricing terms of assets and liabilities. These derivatives had an aggregate notional amount of $109.0 million as of December 31, 2022. See Note 10 of the Notes to the Consolidated Financial Statements.

At December 31, 2022, we had outstanding commitments to originate loans of $8.0 million and unused lines of credit of $80.0 million. We anticipate that we will have sufficient funds available to meet our current loan origination commitments. Certificates of deposit that are scheduled to mature in less than one year from December 31, 2022 totaled $294.9 million. Management expects, based on historical experience, that a substantial portion of the maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize FHLB advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. Available borrowing capacity at December 31, 2022 was $328.1 million with FHLB. We also had a $30.0 million available line of credit with a correspondent bank and a $2.5 million available line of credit with the Federal Reserve Bank of New York at December 31, 2022. Additionally, almost all of the Bank’s investment securities are unencumbered and could be used as collateral for additional borrowing capacity.

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to originate loans, unused lines of credit and standby letters of credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss is represented by the contractual amount of the instruments. We use the same credit policies in making commitments that we do for on-balance sheet instruments. Management believes that our current sources of liquidity are more than sufficient to fulfill our obligations as of December 31, 2022 pursuant to off-balance-sheet arrangements and contractual obligations.

Blue Foundry Bancorp is a separate legal entity from Blue Foundry Bank and must provide for its own liquidity to fund dividend payments, stock repurchases, and other corporate risk factors. The Company’s primary source of liquidity is issuance of stock and the receipt of dividend payments from the Bank in accordance with applicable regulatory requirements. At December 31, 2022, Blue Foundry Bancorp (unconsolidated) had liquid assets of $98.5 million.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Qualitative Analysis. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our ALCO/Investment Committee, which consists of members of management, is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our Board of Directors. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors.

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

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

Other than cash flow hedging on interest expense, we generally do not engage in hedging activities such as engaging in futures or options, or investing in high-risk mortgage derivatives such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.

The Bank has entered into derivative financial instruments to reduce risk associated with interest rate volatility by matching repricing terms of assets and and liabilities. These derivatives had an aggregate notional amount of $109.0 million as of December 31, 2022.

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. Most tenors of LIBOR will cease being published on June 30, 2023, although some tenors ceased at the end of 2021. The Bank has not been materially impacted by the partial LIBOR cessations on December 31, 2021. The Alternative Reference Rates Committee has proposed that the Secured Overnight Financing Rate is the rate that represents best practice as the alternative to USD-LIBOR for use in financial contracts that are currently indexed to USD-LIBOR. The Company has approximately $11.1 million in loans, $24.6 million in investments and $109.0 million notional of derivatives which are indexed to USD-LIBOR for which it is monitoring the activity and assessing the related risks. The Company is monitoring and developing transition plans to address potential revisions to documentation, as well as customer management and communication, internal training, financial, operational and risk management implications, and legal and contract management. When LIBOR rates are no longer available and we are required to implement substitute indices for the calculation of interest rates, we may incur expenses in effecting the transition, we may suffer a loss in the conversion to a new rate because the new rate may not be equal to what we were being paid on the LIBOR rate, and may be subject to disputes or litigation with customers and security holders over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on our results of operations.

Quantitative Analysis. We compute amounts by which the net present value of our cash flow from assets, liabilities and off-balance sheet items would change in the event of a range of assumed changes in market interest rates. The net present value (“NPV”) analysis estimates the change in the NPV of assets and liabilities and off-

balance sheet contracts over a range of immediate rate shock interest rate scenarios. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 200 basis points in 100 basis point increments. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100-basis point increase in the “Basis Point Change in Interest Rates” column below.

The following table sets forth, at December 31, 2022, the calculation of the estimated changes to the Bank’s net interest income, at the Bank level, that would result from the specified immediate changes in the United States Treasury yield curve. For purposes of this table, 100 basis points equals 1%.


	Net Interest Income

Change in Interest Rates (basis points)	Amount		Change	Percent

	(Dollars in Thousands)
+200	$	55,277	(3,499)	(6.0)	%
+100	57,113		(1,663)	(2.8)
0	58,776		—	—
-100	59,223		447	0.8
-200	58,605		(171)	(0.3)

The following table sets forth, at December 31, 2022, the calculation of the estimated changes in our NPV, at the Bank level, that would result from the specified immediate changes in the United States Treasury yield curve. For purposes of this table, 100 basis points equals 1%.


	NPV

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

	(Dollars in thousands)
+200	$	45,317	$	(84,778)	(65.2)	%	2.2	%	(4.1)
+100	87,038		(43,057)		(33.1)		4.3		(2.1)
0	130,095		—		—		6.4		—
-100	169,745		39,650		30.5		8.3		1.9
-200	206,652		76,557		58.8		10.1		3.7

The table above indicates that at December 31, 2022, in the event of an instantaneous 100 basis point increase in interest rates, we would experience a 33% decrease in NPV. In the event of an instantaneous 100 basis point decrease in interest rates, we would experience a 30% increase in NPV.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The above tables assume that the composition of our interest sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular point in time, the data does not reflect any actions we may take in response to changes in interest rates. In addition, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our NPV and will differ from actual results.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following are included in this item:

Report of Independent Registered Public Accounting Firm

Consolidated Financial Statements:

(1)

Consolidated Statements of Financial Condition as of December 31, 2022 and 2021

(2)

Consolidated Statements of Operations for the years ended December 31, 2022 and 2021

(3)

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2022 and 2021

(4)

Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2022 and 2021

(5)

Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021

(6)

Notes to Consolidated Financial Statements

Blue Foundry Bancorp Condensed Financial Statements:

(1)

Condensed Statements of Financial Condition as of December 31, 2022 and 2021

(2)

Condensed Statements of Comprehensive Loss for the years ended December 31, 2022 and 2021

(3)

Condensed Statements of Cash Flows for the years ended December 31, 2022 and 2021

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors

Blue Foundry Bancorp:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial condition of Blue Foundry Bancorp and subsidiary (the Company) as of December 31, 2022, the related consolidated statements of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company's auditor since 2022.

Short Hills, New Jersey

March 30, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and the Board of Directors of Blue Foundry Bancorp

Rutherford, New Jersey

Opinion on the Financial Statements

We have audited the accompanying consolidated statement of financial condition of Blue Foundry Bancorp (the "Company") as of December 31, 2021, the related consolidated statement of operations, comprehensive loss, changes in shareholders’ equity, and cash flows for the year then ended and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Crowe LLP

New York, New York

March 14, 2022

BLUE FOUNDRY BANCORP

Consolidated Statements of Financial Condition

(In thousands, except share data)


	December 31, 2022		December 31, 2021
ASSETS
Cash and cash equivalents	$	41,182	$	193,446
Securities available for sale, at fair value	314,248		324,892


Securities held to maturity (fair value of $29,115 at December 31, 2022 and $22,849 at December 31, 2021)	33,705		23,281
Other Investments	16,069		10,182
Loans receivable, net of allowance of $13,400 at December 31, 2022 and $14,425 at December 31, 2021	1,531,727		1,273,184

Interest and dividends receivable	6,893		5,372
Premises and equipment, net	29,825		28,126
Right-of-use assets	25,906		25,457

Bank owned life insurance	21,576		21,662
Other assets	22,207		8,609
Total assets	$	2,043,338	$	1,914,211

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits	$	1,288,862	$	1,247,040
Advances from the Federal Home Loan Bank	310,500		185,500
Advances by borrowers for taxes and insurance	9,302		9,582
Lease liabilities	27,324		26,696
Other liabilities	13,632		15,922
Total liabilities	1,649,620		1,484,740

Shareholders’ equity
Preferred stock, $0.01 par value, 10,000,000 authorized; none issued	—		—
Common stock $0.01 par value; 70,000,000 shares authorized; 28,522,500 shares issued at December 31, 2022 and December 31, 2021; 27,523,219 and 28,522,500 shares outstanding at December 31, 2022 and December 31, 2021, respectively.	285		285
Additional paid-in capital	279,454		282,006
Retained earnings	171,763		169,457
Treasury Stock, at cost: 999,281 shares at December 31, 2022	(12,072)		—
Unallocated common shares held by Employee Stock Ownership Plan	(20,993)		(21,905)
Accumulated other comprehensive loss	(24,719)		(372)
Total shareholders’ equity	393,718		429,471
Total liabilities and shareholders’ equity	$	2,043,338	$	1,914,211

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

Consolidated Statements of Operations

(Dollars in thousands)


	For the year ended December 31,
	2022		2021
Interest income:
Loans	$	52,279	$	48,719
Taxable investment income	9,678		6,821
Non-taxable investment income	456		513
Total interest income	62,413		56,053
Interest expense:
Deposits	5,738		7,884
Borrowed funds	4,832		5,220
Total interest expense	10,570		13,104
Net interest income	51,843		42,949
Release of provision for loan losses	(1,001)		(2,518)
Net interest income after release of provision for loan losses	52,844		45,467
Non-interest income:
Fees and service charges	2,156		1,975
Gain (loss) on securities, net	14		(1)



Other income	494		505
Total non-interest income	2,664		2,479
Non-interest expense:
Compensation and benefits	29,247		25,755
Loss on pension withdrawal	—		11,206
Occupancy and equipment	7,625		7,929

Data processing	5,754		6,933
Debt extinguishment costs	—		2,155
Advertising	1,061		2,390
Professional services	4,117		4,528

(Release of) provision for commitments and letters of credit	(311)		689
Federal deposit insurance	381		494

Contribution to Blue Foundry Charitable Foundation	—		9,000
Other expense	4,900		3,591
Total non-interest expense	52,774		74,670
Income (loss) before income tax expense	2,734		(26,724)
Income tax expense	338		9,618
Net income (loss)	$	2,396	$	(36,342)
Basic and diluted earnings (loss) per share	$	0.09	$	(2.99)
Weighted average shares outstanding-basic	26,165,841		12,171,050
Weighted average shares outstanding-diluted	26,270,864		12,171,050

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

Consolidated Statements of Comprehensive Loss

(In thousands)


	Year Ended December 31,
	2022		2021


Net income (loss)	$	2,396	$	(36,342)
Other comprehensive (loss) income, net of tax (1):
Unrealized loss on securities available for sale:
Unrealized loss arising during the period	(37,260)		(3,118)
Reclassification adjustment for (gain) loss included in net income	(14)		1
	(37,274)		(3,117)

Unrealized gain on cash flow hedge:
Unrealized gain arising during the period	11,693		2,733
Reclassification adjustment for (gain) loss included in net income	(356)		1,007
	11,337		3,740
Post-Retirement plans:
Net benefit arising from plan amendment (2)	504		—
Net gain (loss) arising during the period	858		(115)
Reclassification adjustment for amortization of:

Net actuarial loss	228		151
	1,590		36

Total other comprehensive (loss) income, net of tax (1):	(24,347)		659
Comprehensive loss	$	(21,951)	$	(35,683)

(1) Includes a deferred tax valuation allowance equal to the net tax benefit.

(2) Benefit arising from plan amendment approved in June 2022

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

Consolidated Statements of Changes in Shareholders’ Equity

Year Ended December 31, 2022 and 2021

(In thousands, except share data)


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

		(In thousands, except share data)
Balance at January 1, 2021	100,000	$	10	$	822	$	205,799	$	—	$	—	$	(1,031)	$	205,600
Net loss	—	—		—		(36,342)		—		—		—		(36,342)
Other comprehensive income	—	—		—		—		—		—		659		659
Proceeds of stock offering and issuance of common shares (net of issuance costs of $4.8 million)	27,672,500	268		273,330		—		—		—		—		273,598
Issuance of common shares donated to the Blue Foundry Charitable Foundation	750,000	7		7,493		—		—		—		—		7,500
Purchase of common shares by the ESOP (2,281,800 shares)	—	—		—		—		—		(22,818)				(22,818)



ESOP shares committed to be released (91,272 hares)	—	—		361		—		—		913		—		1,274




Balance at December 31, 2021	28,522,500	$	285	$	282,006	$	169,457	$	—	$	(21,905)	$	(372)	$	429,471



Net income	—	—		—		2,396		—		—		—		2,396
Other comprehensive loss	—	—		—		—		—		—		(24,347)		(24,347)
Purchase of Treasury stock	(1,298,762)	—		—		—		(15,618)		—		—		(15,618)
Treasury stock allocated to restricted stock plan	299,481	—		(3,456)		(90)		3,546		—		—		—
Compensation cost for stock options and restricted stock	—	—		664		—		—		—		—		664
ESOP shares committed to be released (91,272 shares)	—	—		240		—		—		912		—		1,152

Balance at December 31, 2022	27,523,219	$	285	$	279,454	$	171,763	$	(12,072)	$	(20,993)	$	(24,719)	$	393,718

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

Consolidated Statements of Cash Flows

(In thousands)


	Year Ended December 31,
	2022		2021


Cash flows from operating activities
Net income (loss)	$	2,396	$	(36,342)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of premises and equipment	2,662		2,347
Change in right-of-use asset	2,550		2,618
(Accretion) amortization of: Deferred loan fees, costs, premiums and discounts, net	(655)		1,107
Premiums and discounts on securities, net	1,065		893

Change in deferred taxes, net of valuation allowance	—		8,733


Release of provision for loan losses	(1,001)		(2,518)
(Gain) loss on sales and calls of securities	(14)		1



Increase in BOLI cash surrender value	(490)		(476)
Issuance of common shares donated to Blue Foundry Charitable Foundation	—		7,500
ESOP and stock-based compensation expense	1,816		1,274

(Increase) decrease in interest and dividends receivable	(1,521)		377
Increase in other assets	(2,247)		(1,945)
Decrease in other liabilities	590		4,325
Change in lease liability	(2,372)		(2,036)
Net cash provided by (used in) operating activities	2,779		(14,142)

Cash flows from investing activities
Net (originations) repayments of loans receivable	(152,847)		86,975
Purchases of residential mortgage loans	(104,040)		(91,635)
Proceeds from sale of Real Estate Owned	—		618
Purchases of securities available for sale	(80,039)		(164,958)

Purchases of securities held to maturity	(10,600)		(23,362)

Proceeds from calls of securities held to maturity	—		7,000
Proceeds from sales and calls of securities available for sale	4,659		14,216
Principal payments and maturities on securities available for sale	47,875		65,002
Purchases of other investments	(150)		—

Purchase of Federal Home Loan Bank stock	(30,863)		—
Redemption of Federal Home Loan Bank stock	25,133		6,678

Proceeds from Assets held for sale	—		6,034
Purchases of premises and equipment	(5,364)		(11,902)
Net cash used in investing activities	(306,236)		(105,334)

Cash flows from financing activities
Net change in deposits	41,822		(109,144)

Proceeds from advances from Federal Home Loan Bank	1,423,000		583,600
Repayments of advances from Federal Home Loan Bank	(1,298,000)		(727,500)
Net increase in advances by borrowers for taxes and insurance	(280)		(1,259)
Purchase of treasury stock	(15,349)		—

Net proceeds from issuance of common shares	—		250,780

Net cash provided by (used in) financing activities	151,193		(3,523)
Net decrease in cash and cash equivalents	(152,264)		(122,999)
Cash and cash equivalents at beginning of period	193,446		316,445
Cash and cash equivalents at end of period	$	41,182	$	193,446

BLUE FOUNDRY BANCORP

Consolidated Statements of Cash Flows

(In thousands)


	Year Ended December 31,
	2022		2021


Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	10,714	$	12,836
Income taxes	190		150

Supplemental noncash disclosures
Transfers of assets to held for sale	$	917	$	892
Lease liabilities arising from obtaining right-of-use assets	2,999		3,197
Purchase of common shares by the ESOP	—		22,818

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Blue Foundry Bancorp (the “Company”), and its wholly owned subsidiary, Blue Foundry Bank (the “Bank”), and the Bank’s wholly owned subsidiaries, Blue Foundry Service Corp., Rutherford Center Development Corp., Blue Foundry Investment Company (collectively, the “Company”). All intercompany accounts and transactions have been eliminated in consolidation. Blue Foundry Bancorp owns 100% of the common stock of Blue Foundry Bank.

Business

The Company provides a wide range of banking services to individual and business customers through branch offices in New Jersey. The Company is subject to competition from other financial institutions and to the regulations of certain federal and state agencies, and undergoes periodic examinations by those regulatory authorities.

On July 15, 2021, the Company became the holding company for the Bank when Blue Foundry, MHC completed its conversion into the stock holding company form of organization. In connection with the conversion, the Company sold 27,772,500 shares of common stock at a price of $10 per share, for gross proceeds of $277.7 million. The Company contributed 750,000 shares of common stock and $1.5 million in cash to Blue Foundry Charitable Foundation, Inc. and established an Employee Stock Ownership Plan (“ESOP”) acquiring 2,281,800 shares of common stock. Shares of the Company’s common stock began trading on July 16, 2021 on the Nasdaq Global Select Market under the trading symbol “BLFY.”

Basis of Financial Statement Presentation

The consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles. The audited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of financial condition and revenues and expenses for the period. Actual results could differ from those estimates. Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity. The results of operations and other data presented for the year ended December 31, 2022 are not necessarily indicative of the results of operations that may be expected for subsequent periods.

Cash and Cash Equivalents

Cash and cash equivalents include cash and deposits with other financial institutions with maturities fewer than 90 days.

Securities

Debt securities are classified as held to maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities to be held for indefinite periods of time and not intended to be held to maturity are classified as available for sale and carried at fair value. Unrealized holding gains and losses on securities available for sale are excluded from earnings with unrealized holding gains and losses reported in other comprehensive income, net of tax adjusted for deferred tax valuation allowances, until realized. Securities available for sale are those which management intends to use as part of its asset/liability management strategy and which may be sold in response to changes in interest rates, resultant prepayment risk and other factors related to interest rate risk. Gains and losses on sales are recognized on a trade-date basis using the specific identification method.

Premiums on securities are amortized to income using the level yield method over the remaining period to the earliest call date or contractual maturity, adjusted for anticipated prepayments. Discounts on securities are accreted to income over the remaining period to the contractual maturity, adjusted for anticipated prepayments. Interest income is recognized on an accrual basis.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

Management evaluates securities for other-than-temporary impairment (“OTTI”) on, at least, a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For debt securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

Derivatives

The Company uses derivative financial instruments as components of its market risk management, principally to manage interest rate risk. At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company’s intentions and belief as to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in current earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. For both types of hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as non-interest income. As of December 31, 2022, and December 31, 2021 the Company’s derivatives are all cash flow hedges.

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in non-interest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.

The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to a specific firm commitments or forecasted transactions.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings.

The Company is exposed to losses if a counterparty fails to make its payments under a contract in which the Company is in the net receiving position. The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements. All the contracts to which the Company is a party settle monthly or quarterly. In addition, the Company obtains collateral above certain thresholds of the fair value of its hedges for each counterparty based upon their credit standing and the Company has netting agreements with the dealers with which it does business.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

Fair Value of Financial Instruments

GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

Other Investments

Other investments consists primarily of membership and activity-based shares in the FHLBNY. Members are required to own a certain amount of stock based on the level of borrowings and other factors. FHLBNY stock is carried at cost, which approximates fair value, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. Other investments also consists of, to a much lesser extent, an investment in a financial technology fund carried at net asset value (“NAV”) and shares in a cooperative that provides community banking core technology solutions carried at cost. The fair value of the financial technology fund investment is estimated using the NAV of the Company’s ownership interest in partners’ capital, which approximates fair value. Increases or decreases in NAV are recorded in other income.

Loans Receivable

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

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

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

Allowance for Loan Losses

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

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

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDR”) and classified as impaired.

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

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

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

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

•Changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses.

•Changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the portfolio, including the condition of various market segments.

•Changes in the nature and volume of the portfolio and in the terms of loans.

•Changes in the experience, ability, and depth of lending management and other relevant staff.

•Changes in the volume and severity of past due loans, the volume of nonaccrual loans, and the volume and severity of adversely classified or graded loans.

•Changes in the quality of the institution's loan review system.

•Changes in the value of underlying collateral for collateral-dependent loans.

•The existence and effect of any concentrations of credit, and changes in the level of such concentrations.

•The effect of other external factors such as competition and legal and regulatory requirements on the level of estimated credit losses in the institution's existing portfolio.

The loan portfolio is categorized according to collateral type, loan purpose, lien position, or borrower type (i.e., commercial, consumer). The categories used include residential one-to-four family, multifamily, non-residential, construction and land, junior liens, commercial and industrial, and consumer and other.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

Premises and Equipment

Premises and equipment, including leasehold improvements, are generally stated at cost less accumulated depreciation, amortization and fair value adjustments. Depreciation and amortization is computed primarily using the straight-line method over the estimated useful lives of the assets or leases. Repair and maintenance items are expensed and major improvements are capitalized. Upon retirement or sale, any gain or loss is credited or charged to operations. Construction in process represents costs incurred to develop properties for future use.

Leases and Lease Obligations

The Company enters into leases in the normal course of business primarily for financial centers, administrative and office operations locations, and information technology equipment. The Company’s leases have remaining terms ranging from less than one to 15 years, some of which include renewal or termination options to extend the lease for up to 10 years. The Company’s leases do not include residual value guarantees or covenants. The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to account for any non-lease components in its real estate leases as part of the associated lease component. The Company has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company’s balance sheet.

Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets (“ROU”) and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments when the rate implicit in a lease is not known. The Company’s incremental borrowing rate is based on the FHLB advance rate, adjusted for the lease term and other factors.

Bank Owned Life Insurance

The Company has purchased life insurance policies on certain key individuals. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The Company evaluates the realizability of deferred tax assets at least annually in accordance with ASC 740-10-30-5(e), and may determine that it is more-likely-than-not that a portion, or all, of the assets would require a valuation allowance. During the fourth quarter of 2021, the Company recorded a valuation allowance on all outstanding deferred tax assets in the amount of $16.8 million.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred tax assets is reduced by a valuation allowance for the amount of the deferred tax asset that is more likely than not to be realized.

A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

The Company recognizes interest and/or penalties related to income tax matters in other operating expenses.

Retirement Benefits

Effective January 1, 2020 the Defined Benefit Plan adopted by the Company was amended to freeze the plan, eliminating all future benefit accruals. In August, 2021, the Company announced its intent to withdraw from the DB Plan, effective September 30, 2021. The withdrawal was completed on December 1, 2021. The Company recorded a termination expense of $11.2 million.

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

Employee Stock Ownership Plan

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

Share Based Compensation

The Company maintains an equity incentive plan under which restricted stock and stock options may be granted to employees and directors.

The Company recognizes the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards in accordance with ASC 718, “Compensation-Stock Compensation”. The Company estimates the per share fair value of option grants on the date of grant using the Black-Scholes option pricing model using assumptions for the expected dividend yield, expected stock price volatility, risk-free interest rate and expected option term. These assumptions are subjective in nature, involve uncertainties and, therefore, cannot be determined with precision. The Black-Scholes option pricing model also contains certain inherent limitations when applied to options that are not traded on public markets.

The per share fair value of options is highly sensitive to changes in assumptions. In general, the per share fair value of options will move in the same direction as changes in the expected stock price volatility, risk-free interest rate and expected option term, and in the opposite direction as changes in the expected dividend yield. For example, the per share fair value of options will generally increase as expected stock price volatility increases, risk-free interest rate increases, expected option term increases and expected dividend yield decreases. The use of different assumptions or different option pricing models could result in materially different per share fair values of options.

The Company recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards. The Company’s accounting policy is to recognize forfeitures as they occur.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on both securities available for sale and derivatives, net of the related tax effect. Also included are changes in the unfunded status of the Company’s defined benefit plans, net of the related tax effect, which are recognized as separate components of shareholders’ equity.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are such matters that will have a material effect on the consolidated financial statements.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

Earnings per share

Basic earnings per share represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Unallocated ESOP shares are not deemed outstanding for earnings per share calculations. ESOP shares committed to be released are considered to be outstanding for purposes of the earnings per share computation. ESOP shares that have not been legally released, but that relate to employee services rendered during an accounting period (interim or annual) ending before the related debt service payment is made, are considered committed to be released. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company relate to outstanding stock options awards and are determined using the treasury stock method. When applying the treasury stock method, we add: (1) the assumed proceeds from option exercises and (2) the average unamortized compensation costs related to unvested shares of restricted stock and stock options. We then divide this sum by our average stock price to calculate shares repurchased. The excess of the number of shares issuable over the number of shares assumed to be repurchased is added to basic weighted average common shares to calculate diluted EPS.

Treasury Stock

Repurchases of Company common stock are classified as treasury stock shares carried at cost and presented as a reduction of shareholders’ equity. Treasury stock are not considered outstanding for share count purposes and are excluded from average common shares outstanding for basic and diluted earnings per share. Reissued treasury stock at an amount greater (less) than paid to repurchase the shares will result in a gain (loss) on the reissuance of the shares. The gain or loss will be recognized in shareholders’ equity. A gain on the reissuance of treasury shares are credited to additional paid-in capital. A loss on the reissuance of treasury shares are debited to additional paid-in capital to the extent previous net gains from the same class of stock are included in additional paid-in capital. Losses in excess of gains in additional paid-in capital are charged to retained earnings.

Segment Reporting

The Company operates as a single operating segment for financial reporting purposes.

Adoption of New Accounting Standards

No new accounting standards were adopted during the year ended December 31, 2022.

Accounting Standards Not Yet Adopted

As an “emerging growth company” as defined in Title 1 of the Jumpstart Our Business Startups (JOBS) Act prior to December 31, 2019, the Company elected to use the extended transition period to delay the adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements were made applicable to private companies.

The FASB issued, but the Company has not yet adopted, ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” to replace the incurred loss model for loans and other financial assets with an expected loss model, which is referred to as the current expected credit loss (“CECL”) model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables and held-to maturity debt securities. It also applies to off-balance sheet credit exposures that are not unconditionally cancelable and not accounted for as insurance (undisbursed lines of credit, loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases recognized by a lessor. In addition, the amendments in Topic 326 require credit losses on available-for-sale securities to be presented as a valuation allowance rather than a direct write-down on the basis of the securities. The Company adopted this standard on January 1, 2023.

The change from an incurred loss model to an expected loss model represents a fundamental shift from existing GAAP and may result in a material change to the Company's accounting for credit losses on financial instruments. To prepare for implementation of the new standard the Company established a cross functional steering committee comprised of members from different disciplines including finance, credit, risk management, internal audit, lending, and operations, among others. The Company has also engaged a third-party consultant to assist with

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

model development, data governance and operational controls to support the adoption of this ASU. A detailed implementation plan was developed which included assessing the processes, portfolio segmentation, model development and validation, and system requirements and resources needed.

The new credit loss models will include additional assumptions used to calculate credit losses over the estimated life of the financial assets and will include the impact of forecasted macroeconomic conditions. The Company has a system provider for modeling. Upon the Company's adoption of CECL, the change from the incurred loss model to the CECL model will be recognized through an adjustment to retained earnings. The future impact of CECL on the Company’s allowance for credit losses, and provision expense, subsequent to initial adoption, will depend on changes in the loan and HTM securities portfolios, economic conditions, and refinements to key assumptions including forecasting and qualitative factors. Furthermore, the adoption of ASU 2016-13 will necessitate that we establish an allowance for expected credit losses for certain debt securities and other financial assets, however we do not expect these allowances to be significant.

Our CECL models will include the following major items as of the ASC 326 adoption date:

–a historical loss period, which represents a full economic credit cycle utilizing loss experience including peer historical loss data

–a reasonable and supportable forecast period of one year, based on management’s current review of macroeconomic factors and the reliability of extended forecasts

–a reversion period (after the reasonable and supportable forecast period) of one year using a straight-line method

–expected prepayment rates based on our historical experience and benchmark assumptions where internal data is limited; and

–incorporation of qualitative factors not captured within the modeled results.

The Company adopted ASU 2016-13 on January 1, 2023. The adoption of ASU 2016-13 is not expected to have a significant impact on our financial statements or regulatory capital ratios.

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”. The amendments provide expedients and exceptions for applying GAAP to contracts or hedging relationships affected by the discontinuance of LIBOR as a benchmark rate to alleviate the burden and cost of such modifications. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The amendments also provide a one-time election to sell and/or transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform. The update is in effect for a limited time from March 12, 2020 through December 31, 2022. The Company continues to evaluate its financial instruments indexed to USDLIBOR for which Topic 848 provides expedients, exceptions and elections. The Company is monitoring and assessing if transition plans are necessary and if it is appropriate for the Company to utilize transition relief. The Company continues to assess the expected impact of LIBOR cessation on the Company’s Consolidated Financial Statements.

In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope”. The update specifically addresses whether Topic 848 applies to derivative instruments that do not reference a rate that is expected to be discontinued but that instead use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform, commonly referred to as the “discounting transition.” This ASU extends certain optional expedients provided in Topic 848 to contract modifications and derivatives affected by the discounting transition. The amendments in ASU 2021-01 may be applied under a retrospective approach as of any date from the beginning of an interim period that includes or is after March 12, 2020 or prospectively to new modifications made on or after any date within the interim period including January 7, 2021. The update is in effect for a limited time from March 12, 2020 through December 31, 2022. The update is not expected to have a material impact on the Company’s Consolidated Financial Statements.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”. The amendments in this ASU were issued to (1) eliminate accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty; (2) require disclosures of current period gross write-offs by year of origination for financing receivables and net investments in leases. For entities that have adopted the amendments in ASU 2016-13, Measurement of Credit Losses on Financial Instruments, this update will be effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2022. Early adoption is permitted. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, where there is an option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. The Company is currently evaluating the impact of this standard to the Consolidated Financial Statements.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 2 – SECURITIES

Debt Securities

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


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

	(In thousands)
Available for sale
December 31, 2022
U.S. Treasury Notes	$	46,937	$	—	$	(3,178)	$	43,759
Corporate Bonds	81,725		4		(5,431)		76,298
U.S. Government agency obligations	16,367		—		(944)		15,423
Obligations issued by U.S. states and their political subdivisions	16,559		49		(340)		16,268
Mortgage-backed securities: Residential one-to-four family	164,843		—		(24,657)		140,186
Multifamily	19,475		—		(1,317)		18,158
Asset-backed securities	4,525		—		(369)		4,156
Total available-for-sale	$	350,431	$	53	$	(36,236)	$	314,248


December 31, 2021
U.S. Treasury Notes	$	36,933	$	4	$	(105)	$	36,832
Corporate Bonds	86,118		1,791		(290)		87,619
U.S. Government agency obligations	23,462		46		(179)		23,329
Obligations issued by U.S. states and their political subdivisions	19,172		1,152		—		20,324
Mortgage-backed securities: Residential one-to-four family	116,166		140		(1,905)		114,401
Multifamily	35,412		598		(94)		35,916
Asset-backed securities	6,538		3		(70)		6,471
Total available-for-sale	$	323,801	$	3,734	$	(2,643)	$	324,892

During the year ended December 31, 2022, proceeds from calls of securities available for sale totaled $4.7 million, resulting in gross realized gains of $14 thousand and no gross realized losses. During the year ended December 31, 2021, proceeds from calls of securities available for sale totaled $14.2 million, resulting in no gross realized gains and gross realized losses of $1 thousand. There were no securities sold during the years ended December 31, 2022 and 2021.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

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


	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value

	(In thousands)
Held-to-maturity
December 31, 2022

Asset-backed securities	$	15,105	$	—	$	(2,309)	$	12,796
Corporate bonds	18,600		—		(2,281)		16,319
Total held-to-maturity	$	33,705	$	—	$	(4,590)	$	29,115

December 31, 2021

Asset-backed securities	$	15,281	$	—	$	(373)	$	14,908
Corporate bonds	8,000		—		(59)		7,941
Total held-to-maturity	$	23,281	$	—	$	(432)	$	22,849

At December 31, 2022 and 2021, the held to maturity securities portfolio was comprised of investment grade credit ratings.

Securities pledged at December 31, 2022 and December 31, 2021, had a carrying amount of $4.2 million and $9.1 million, respectively, and were pledged to secure borrowings, public deposits and derivatives, as needed.

The amortized cost and fair value of debt securities are shown below by contractual maturity. Expected maturities on mortgage and asset-backed securities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. Securities not due at a single maturity are shown separately:


	December 31, 2022
	Amortized Cost		Estimated Fair Value

	(In thousands)
Available-for-sale
Due in one year or less	$	13,089	$	12,707
Due from one year to five years	90,415		85,755
Due from five to ten years	42,212		38,836
Due after ten years	15,872		14,450
Mortgage-backed and asset-backed securities	188,843		162,500
Total	$	350,431	$	314,248

Held-to-maturity

Due from one year to five years	$	—	$	—
Due from five to ten years	18,600		16,319
Due after ten years	—		—
Mortgage-backed and asset-backed securities	15,105		12,796
Total	$	33,705	$	29,115

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

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021


	Less than 12 Months				12 Months or More				Total
	Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value
	(In thousands)
December 31, 2022
Available for sale
U.S. Treasury Note	$	(1,342)	$	28,670	$	(1,836)	$	15,089	$	(3,178)	$	43,759
Corporate Bonds	(3,608)		58,509		(1,823)		15,522		(5,431)		74,031
U.S. Government agency obligations	(5)		696		(939)		14,727		(944)		15,423
Obligations issued by U.S. states and their political subdivisions	(65)		5,641		(275)		1,568		(340)		7,209
Mortgage-backed securities:
Residential one-to-four family	(8,273)		60,986		(16,384)		79,189		(24,657)		140,175
Multifamily	(1,166)		17,689		(151)		469		(1,317)		18,158
Asset-backed securities	—		—		(369)		4,156		(369)		4,156
Total available-for-sale	$	(14,459)	$	172,191	$	(21,777)	$	130,720	$	(36,236)	$	302,911

December 31, 2021
Available for sale
U.S. Treasury Note	$	(105)	$	16,814	$	—	$	—	$	(105)	$	16,814
Corporate Bonds	(290)		17,183		—		—		(290)		17,183
U.S. Government agency obligations	(49)		9,951		(130)		7,980		(179)		17,931
Obligations issued by U.S. states and their political subdivisions	—		—		—		—		—		—
Mortgage-backed securities:
Residential one-to-four family	(1,761)		104,805		(144)		3,009		(1,905)		107,814
Multifamily	—		—		(94)		910		(94)		910
Asset-backed securities	(70)		4,458		—		—		(70)		4,458
Total available-for-sale	$	(2,275)	$	153,211	$	(368)	$	11,899	$	(2,643)	$	165,110

There were no other-than-temporary impairment (“OTTI”) charges on available for sale securities for the years ended December 31, 2022 or 2021. The number of available for sale securities in an unrealized loss position at December 31, 2022 totaled 105, compared with 44 at December 31, 2021. The increase in the number of securities in an unrealized loss position at December 31, 2022 was due to higher current market interest rates compared to rates at December 31, 2021. Of the 105 available for sale securities in an unrealized loss position at December 31, 2022, 64 are comprised of U.S. Government agency obligations, Treasury notes, and mortgage-backed securities. These securities were all issued by U.S. Government-sponsored entities and agencies, which the government has affirmed its commitment to support. There were also 8 municipal bonds, 31 investment grade corporate bonds and two asset-backed securities in an unrealized loss position. The Company does not consider these securities to be other-than-temporarily impaired due to the decline in fair value being attributable to changes in interest rates and liquidity, not credit quality. The Company also does not intend to sell these securities, nor does it foresee being required to sell them before the anticipated recovery (maturity).

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

The following table summarizes held-to-maturity securities with unrecognzed losses at December 31, 2022, aggregated by major security type and length of time in a continuous loss position. The Company did not have any held- to- maturity securities in an unrecognized loss position for more than twelve months at December 31, 2021.


	Less than 12 Months				12 Months or More				Total
	Unrecognized Losses		Estimated Fair Value		Unrecognized Losses		Estimated Fair Value		Unrecognized Losses		Estimated Fair Value

	(In thousands)
December 31, 2022
Held-to-maturity
Corporate Bonds	$	(1,177)	$	10,423	$	(1,104)	$	5,896	$	(2,281)	$	16,319
Asset-backed securities	—		—		(2,310)		12,796		(2,310)		12,796
Total held-to-maturity	$	(1,177)	$	10,423	$	(3,414)	$	18,692	$	(4,591)	$	29,115

There were no other-than-temporary impairment (“OTTI”) charges on held-to-maturity securities for the years ended December 31, 2022 or 2021. The number of held-to-maturity securities in an unrecognized loss position at December 31, 2022 totaled 11, compared with four at December 31, 2021. The increase in the number of securities in an unrecognized loss position at December 31, 2022, was due to higher current market interest rates compared to rates at December 31, 2021. Of the 11 held-to-maturity securities in an unrecognized loss position at December 31, 2022, two are asset-backed securities and nine are investment grade corporate bonds. The Company does not consider these securities to be other-than-temporarily impaired due to the decline in fair value being attributable to changes in interest rates and liquidity, not credit quality. The Company also does not intend to sell these securities, nor does it foresee being required to sell them before the anticipated recovery (maturity). At December 31, 2021, held to maturity securities in an aggregate unrecognized loss position for less than twelve months included two asset-backed securities with total fair value of $14.9 million in an aggregate unrecognized loss position of $373 thousand and two investment grade corporate bonds with total fair value of $6.9 million in an aggregate unrecognized loss position of $59 thousand.

Other Investments

At December 31, 2022, other investments primarily consisted of investments in FHLB stock, and to a much lesser extent, investments in a financial technology fund and a community banking core provider cooperative. Other investments carried at fair value totaled $15.9 million and $10.2 million at December 31, 2022 and 2021, respectively. Other investments carried at NAV totaled $157 thousand at December 31, 2022. The Company recorded a net increase in the NAV of $7 thousand for the year ended December 31, 2022 as a component of other income. The Company's unfunded commitments related to the financial technology fund totaled $850 thousand.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 3 – LOANS RECEIVABLE, NET

A summary of loans receivable, net is as follows:


	December 31, 2022		December 31, 2021
	(In thousands)
Residential one-to-four family	$	594,521	$	560,976
Multifamily	690,278		515,240
Non-residential	216,394		141,561
Construction and land	17,990		23,419
Junior liens	18,477		18,464
Commercial and industrial (1)	4,682		21,563
Consumer and other	38		87
Total gross loans	1,542,380		1,281,310

Deferred fees, costs and premiums and discounts, net	2,747		6,299
Total loans	1,545,127		1,287,609
Allowance for loan losses	(13,400)		(14,425)
Loans receivable, net	$	1,531,727	$	1,273,184

(1) At December 31, 2022 and 2021, PPP loans totaled $477 thousand and $16.8 million, respectively, net of unearned deferred fees.

The portfolio classes in the above table have unique risk characteristics with respect to credit quality:

•Payment on multifamily and non-residential mortgages is driven principally by operating results of the managed properties or underlying business and secondarily by the sale or refinance of such properties. Both primary and secondary sources of repayment, and value of the properties in liquidation, may be affected to a greater extent by adverse conditions in the real estate market or the economy in general.

•Properties underlying construction loans often do not generate sufficient cash flows to service debt and thus repayment is subject to ability of the borrower and, if applicable, guarantors, to complete development or construction of the property and carry the project, often for extended periods of time. As a result, the performance of these loans is contingent upon future events whose probability at the time of origination is uncertain.

•Commercial and industrial (“C&I”) loans include C&I revolvers, term loans, SBA 7a loans and to a lesser extent, PPP loans. Payment on C&I loans are driven principally by the cash flow of the business and secondarily by the sale or refinance of any collateral securing the loan. Both the cash flow and value of the collateral in liquidation may be affected by adverse general economic conditions.

•The ability of borrowers to service debt in the residential one-to-four family, junior liens and consumer loan portfolios is generally subject to personal income which may be impacted by general economic conditions, such as increased unemployment levels. These loans are predominately collateralized by first and second liens on single family properties. If a borrower cannot maintain the loan, the Company’s ability to recover against the collateral in sufficient amount and in a timely manner may be significantly influenced by market, legal and regulatory conditions.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

The following tables present the activity in the Company’s allowance for loan losses by class of loans for the years ended December 31, 2022, and 2021:


	Residential One-To-Four Family		Multifamily		Non-Residential		Construction and Land		Junior Liens		Commercial and Industrial		Consumer and Other		Unallocated		Total
	(In thousands)
Year Ended December 31, 2022
Allowance for loan losses
Beginning balance	$	2,822	$	5,263	$	2,846	$	2,678	$	636	$	51	$	38	$	91	$	14,425
Charge-offs	—		—		—		—		—		—		(58)		—		(58)
Recoveries	30		—		—		—		—		—		4		—		34
(Release of) provision for loan losses	(588)		228		511		(981)		(185)		(4)		16		2		(1,001)
Total ending allowance balance	$	2,264	$	5,491	$	3,357	$	1,697	$	451	$	47	$	—	$	93	$	13,400

Year Ended December 31, 2021
Allowance for loan losses
Beginning balance	$	3,579	$	5,460	$	3,244	$	3,655	$	916	$	2	$	48	$	55	$	16,959
Charge-offs	—		—		—		—		—		—		(16)		—		(16)
Recoveries	—		—		—		—		—		—		—		—		—
(Release of) provision for loan losses	(757)		(197)		(398)		(977)		(280)		49		6		36		(2,518)
Total ending allowance balance	$	2,822	$	5,263	$	2,846	$	2,678	$	636	$	51	$	38	$	91	$	14,425

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

The following table represents the allocation of allowance for loan losses and the related recorded investment (including deferred fees and costs) in loans by loan portfolio segment disaggregated based on the impairment methodology at December 31, 2022 and December 31, 2021:


	Residential One-To-Four Family		Multifamily		Non-Residential		Construction and Land		Junior Liens		Commercial and Industrial		Consumer and Other		Unallocated		Total
	(In thousands)
December 31, 2022
Allowance for loan losses:
Individually evaluated for impairment	$	27	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	27
Collectively evaluated for impairment	2,237		5,491		3,357		1,697		451		47		—		93		13,373
Total	$	2,264	$	5,491	$	3,357	$	1,697	$	451	$	47	$	—	$	93	$	13,400

Loans receivable:
Individually evaluated for impairment	$	8,418	$	516	$	2,671	$	—	$	52	$	—	$	—	$	—	$	11,657
Collectively evaluated for impairment	588,836		690,174		213,390		17,799		18,579		4,653		39		—		1,533,470
Total	$	597,254	$	690,690	$	216,061	$	17,799	$	18,631	$	4,653	$	39	$	—	$	1,545,127


December 31, 2021
Allowance for loan losses:
Individually evaluated for impairment	$	31	$	—	$	—	$	—	$	—	$	—	$	37	$	—	$	68
Collectively evaluated for impairment	2,791		5,263		2,846		2,678		636		51		1		91		14,357
Total	$	2,822	$	5,263	$	2,846	$	2,678	$	636	$	51	$	38	$	91	$	14,425

Loans receivable:
Individually evaluated for impairment	$	10,169	$	684	$	4,577	$	—	$	55	$	—	$	37	$	—	$	15,522
Collectively evaluated for impairment	556,314		515,884		136,957		23,420		18,495		20,966		51		—		1,272,087
Total	$	566,483	$	516,568	$	141,534	$	23,420	$	18,550	$	20,966	$	88	$	—	$	1,287,609

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

The following table presents information related to impaired loans by class of loans as of December 31, 2022 and December 31, 2021. The recorded investment in impaired loans includes deferred fees, costs and discounts. For purposes of this disclosure, the unpaid principal balance of impaired loans is not reduced for partial charge-offs.


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment		Interest Income Recognized		Cash Basis Interest Recognized
	(In thousands)
December 31, 2022
With no related allowance recorded:
Residential one-to-four family	$	7,368	$	7,669	$	—	$	7,711	$	119	$	116
Multifamily	516		516		—		652		17		15
Non-residential	2,834		2,671		—		3,168		118		108
Construction and land	—		—		—		—		—		—
Junior liens	52		52		—		54		3		3
Commercial and Industrial (including PPP)	—		—		—		—		—		—
	10,770		10,908		—		11,585		257		242
With an allowance recorded:
Residential one-to-four family	743		749		27		546		29		26
Multifamily	—		—		—		—		—		—
Non-residential	—		—		—		—		—		—
Construction and land	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—
	743		749		27		546		29		26
Total	$	11,513	$	11,657	$	27	$	12,131	$	286	$	268

December 31, 2021
With no related allowance recorded:
Residential one-to-four family	$	8,744	$	9,108	$	—	$	9,534	$	75	$	75
Multifamily	684		684		—		1,170		26		24
Non-residential	4,725		4,577		—		4,869		210		196
Construction and land	—		—		—		—		—		—
Junior liens	55		55		—		57		3		3
Commercial and Industrial (including PPP)	—		—		—		—		—		—
	14,208		14,424		—		15,630		314		298
With an allowance recorded:
Residential one-to-four family	1,062		1,061		31		1,243		50		46
Multifamily	—		—		—		—		—		—
Non-residential	—		—		—		—		—		—
Construction and land	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Consumer and other	37		37		37		41		2		2
	1,099		1,098		68		1,284		52		48
Total	$	15,307	$	15,522	$	68	$	16,914	$	366	$	346

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

The total recorded investment of loans whose terms have been modified in TDRs was $4.8 million and $5.4 million as of December 31, 2022 and December 31, 2021, respectively. The Company has allocated $27 thousand and $68 thousand, respectively, of specific reserves to TDR loans as of December 31, 2022 and December 31, 2021. The modification of the terms of TDR loans may include one or a combination of the following: a reduction of the stated interest rate of the loan, short-term deferral of payment, or an extension of the maturity date. The Company is not committed to lend any additional amounts to customers with outstanding loans that are classified as TDRs as of December 31, 2022.

A TDR loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no TDRs for which there was a payment default within twelve months following the modification during the periods ended December 31, 2022 and December 31, 2021.

New TDRs during the year ended December 31, 2022 totaled $453 thousand. There were no new TDRs during the year ended December 31, 2021. The Company implemented modification programs to provide its borrowers relief from the economic impacts of COVID-19. In accordance with the CARES Act, the Company elected to not apply TDR classification to COVID-19 related loan modifications. Accordingly, these modifications are exempt from TDR classification under U.S. generally accepted accounting principles (“U.S. GAAP”) and were not classified as TDRs.

The Company had $4.5 million and $790 thousand in consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process at December 31, 2022 and 2021, respectively

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


	Nonaccrual				Loans Past Due 90 Days and Still Accruing
	12/31/2022		12/31/2021		12/31/2022		12/31/2021
	(In thousands)
Residential one-to-four family	$	7,498	$	10,805	$	—	$	—
Multifamily	182		139		—		—
Non-residential	—		857		—		—
Construction and land	—		—		—		—
Junior liens	52		182		—		—
Commercial and industrial (1)	35		—		61		116
Total	$	7,767	$	11,983	$	61	$	116

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

The following table presents the recorded investment in past due and current loans by loan portfolio class as of December 31, 2022 and December 31, 2021:


	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans Receivable
	(In thousands)
December 31, 2022
Residential one-to-four family	$	—	$	845	$	6,738	$	7,583	$	589,671	$	597,254
Multifamily			—		182		182		690,508		690,690
Non-residential			—		—		—		216,061		216,061
Construction and land			—		—		—		17,799		17,799
Junior liens	—		—		52		52		18,579		18,631
Commercial and Industrial			—		96		96		4,557		4,653
Consumer and other			—		—		—		39		39
Total	$	—	$	845	$	7,068	$	7,913	$	1,537,214	$	1,545,127

December 31, 2021
Residential one-to-four family	$	1,736	$	457	$	8,936	$	11,129	$	555,354	$	566,483
Multifamily			—		—		—		516,568		516,568
Non-residential			—		381		381		141,153		141,534
Construction and land			—		—		—		23,420		23,420
Junior liens			53		182		235		18,315		18,550
Commercial and Industrial	11		57		116		184		20,782		20,966
Consumer and other			—		—		—		88		88
Total	$	1,747	$	567	$	9,615	$	11,929	$	1,275,680	$	1,287,609

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

The Company categorizes loans into risk categories based on relevant information about the quality and realizable value of collateral, if any, and the ability of borrowers to service their debts such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed whenever a credit is extended, renewed, or modified, or when an observable event occurs indicating a potential decline in credit quality, and no less than annually for large balance loans, defined as $1 million for an individual exposure or $1.5 million for group exposure. The Company used the following definitions for risk ratings for loans rated other than Pass:

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

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

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

Loss – Assets classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted.

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


	Pass		Special Mention		Substandard		Doubtful / Loss		Total
	(In thousands)
December 31, 2022
Residential one-to-four family	$	589,137	$	247	$	7,870	$	—	$	597,254
Multifamily	689,277		897		516		—		690,690
Non-residential	214,981		1,080		—		—		216,061
Construction and land	17,799		—		—		—		17,799
Junior liens	18,579		—		52		—		18,631
Commercial and Industrial	4,653		—		—				4,653
Consumer and other	8		—		31		—		39
Total	$	1,534,434	$	2,224	$	8,469	$	—	$	1,545,127

December 31, 2021
Residential one-to-four family	$	555,184	$	—	$	11,299	$	—	$	566,483
Multifamily	510,815		5,069		684		—		516,568
Non-residential	140,377		144		1,013		—		141,534
Construction and land	23,420		—		—		—		23,420
Junior liens	18,368		—		182		—		18,550
Commercial and Industrial	20,966		—		—		—		20,966
Consumer and other	88		—		—		—		88
Total	$	1,269,218	$	5,213	$	13,178	$	—	$	1,287,609

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 4 – PREMISES AND EQUIPMENT

Premises and equipment, net, at December 31, 2022 and 2021, are summarized as follows:



	2022		2021
Land	$	3,058	$	3,793
Buildings and improvements	18,456		14,583
Leasehold improvements	10,888		10,174
Furnishings and equipment	10,080		9,325
Construction-in-Progress	716		1,618
	43,197		39,493
Accumulated depreciation and amortization	(13,372)		(11,367)
	$	29,825	$	28,126

Construction-in-progress consists of deposits made related to the construction of branch improvements and the purchase of furnishings and equipment.

Depreciation and amortization of premises and equipment was $2.7 million and $2.3 million for the years ended December 31, 2022 and 2021 respectively.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 5 – LEASES

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

The Company had the following related to operating leases:


	December 31,
	2022			2021
	(Dollars in thousands)
Right-of-use assets	$	25,906		$	25,457
Lease liabilities	27,324			26,696
Weighted average remaining lease term for operating leases	11.3 years			12.2 years
Weighted average discount rate used in the measurement of lease liabilities	2.19		%	1.97		%

The following table is a summary of the Company’s components of net lease cost for the year ended December 31, 2022 and 2021. The variable lease cost primarily represents variable payments such as common area maintenance and utilities.


	Year Ended December 31,
	2022		2021
	(In thousands)
Operating lease cost	$	3,137	$	3,034
Finance lease cost	23		19
Variable lease cost	228		219
Total lease cost	$	3,388	$	3,272

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


	Year Ended December 31,
	2022		2021


Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases	$	3,100	$	2,721
Operating lease liabilities arising from obtaining right-of-use assets (non-cash):
Operating leases	$	2,999	$	3,197

For the year ended December 31, 2022, the Company added two new lease obligations related to the Company’s retail division in Hackensack and Union, New Jersey and one lease modification for an existing retail office.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2022 are as follows:


	(In thousands)
2023	$	3,057
2024	3,040
2025	2,657
2026	2,657
2027	2,548
Thereafter	17,093
Total undiscounted lease payments	31,052
Less: imputed interest	(3,728)
Total	$	27,324

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 6 – DEPOSITS

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


	December 31, 2022		Weighted Average Rate		December 31, 2021		Weighted Average Rate
	(In thousands)				(In thousands)
Non -interest bearing deposits	$	37,907	—	%	$	44,894	—	%
NOW and demand accounts	410,937		0.92	%	363,419		0.13	%
Savings	423,758		0.85	%	364,932		0.16	%
Time deposits	416,260		1.79	%	473,795		0.58	%
Total	$	1,288,862	1.15	%	$	1,247,040	0.31	%

Money market accounts are included within the NOW and demand accounts and savings captions. Included in time deposits are brokered deposits totaling $75.0 million at December 31, 2022. There were zero brokered deposits at December 31, 2021.

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


	(In thousands)
2023	$	294,912
2024	103,810
2025	10,891
2026	4,352
2027	2,295
	$	416,260

Time deposits that meet or exceed the FDIC insurance limit of $250,000 at December 31, 2022 and 2021, were $43.1 million and $47.3 million, respectively. As of December 31, 2022 and 2021, the Company had $2.2 million and $2.4 million respectively, in related party (principal officers, directors, and their affiliates) deposits.

Interest expense on deposits is summarized as follows (in thousands):


	Year Ended December 31,
	2022		2021
	(In thousands)
NOW and demand accounts	$	1,344	$	519
Savings	1,615		572
Time deposits	2,779		6,793
Total	$	5,738	$	7,884

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 7 – ADVANCES FROM THE FEDERAL HOME LOAN BANK OF NEW YORK (“FHLB”)

Advances from the FHLB are fixed-rate, term borrowings with remaining maturities ranging from one month to 25 months. FHLB advances totaled $310.5 million and $185.5 million at December 31, 2022 and 2021, respectively. Each advance is payable at its maturity date with a prepayment penalty if repayment is made prior to the maturity date. During the year ended December 31, 2021, the Bank extinguished $111.4 million in FHLB borrowings incurring a prepayment penalty of $2.2 million. There were no extinguishments of debt during the year ended December 31, 2022. Advances are secured by loans pledged at the FHLB totaling $638.6 million and $319.9 million as of December 31, 2022 and 2021, respectively.

Advances mature as follows for the year ended December 31, 2022.


Maturity	Rate Range			Weighted Average Rate	Amount
2023	0.70%	—	4.82%	4.37%	$	252,000
2024	1.60%	—	1.94%	1.80%	38,000
2025	1.50%	—	1.60%	1.58%	20,500

				3.87%	$	310,500

At December 31, 2021, FHLB advances totaled $185.5 million with a weighted average fixed rate of 0.92%.

See Note 10 for further disclosure around Derivatives activities related to FHLB advances.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 8 – BENEFIT PLANS

Defined Benefit Pension Plan

The Company had been a participant in the Pentegra Defined Benefit Plan for Financial Institutions (the “Pentegra DB Plan”), a tax-qualified defined benefit pension plan. Effective January 1, 2020, this plan was frozen to all existing plan participants, eliminating all future benefit accruals. The Company elected to withdraw from the Pentegra DB Plan in August 2021, and recognized an $11.2 million expense associated with the exit from the plan. The withdrawal was completed on December 1, 2021.

401(k) Plan

The Company has a savings plan under Section 401(k) of the Internal Revenue Code, which covers substantially all employees upon employment who have attained the age of 18. Under the plan, employee contributions are partially matched by the Company at its sole discretion. Company contributions for the years ended December 31, 2022 and 2021 were $857 thousand and $701 thousand, respectively.

SERPs, Directors’ Plan and Other Postretirement Benefits Plan

The Company maintains an Executive Supplemental Income Retirement Plan (“SERP”) for certain employees and a Director Retirement Plan (“DRP”). As the SERP and DRP plans are unfunded, there are no plan assets associated with these plans. During 2022, the DRP plan was amended to curtail the plan to the current participants and to establish fixed payments to the participant in the plan.

The Company provides certain health insurance benefits for retired employees and directors meeting plan eligibility requirements. Effective January 1, 2019, the employee postretirement health benefit plan was curtailed, leaving only 12 retired participants and beneficiaries remaining in the plan. Active participants who met certain requirements received payments in lieu of future benefits. The plans are unfunded as of December 31, 2022 and 2021, and the obligation is included in other liabilities as an accrued postretirement benefit cost.

The following table sets forth the change in benefit obligation, change in plan assets and a reconciliation of the unfunded status and the assumptions used in determining the net periodic cost included in the accompanying consolidated financial statements for the Company’s post retirement plans. The measurement date for the post retirement plans were December 31 for each year presented.


	SERP and DRP				Post Retirement
	2022		2021		2022		2021

	(In thousands)
Change in benefit obligation:
Projected benefit obligation at beginning of year	$	3,941	$	4,102	$	1,613	$	1,881
Service cost	98		201		1		1
Interest cost	87		79		39		38
Actuarial (gain) loss	(469)		(100)		(488)		(215)
Benefits paid	(339)		(341)		(93)		(92)


Plan amendments	(504)		—		—		—
Projected benefit obligation at end of year	2,814		3,941		1,072		1,613
Reconciliation of plan assets:
Fair value of plan assets at beginning of year	—		—		—		—
Actual return on plan assets	—		—		—		—
Employer contributions	339		341		93		92
Benefits and Settlements paid	(339)		(341)		(93)		(92)
Fair value of plan assets at end of year	—		—		—		—
Unfunded status	$	2,814	$	3,941	$	1,072	$	1,613

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

Amounts recognized in accumulated other comprehensive income at December 31, ignoring tax effects, consist of:


	SERP and DRP				Post Retirement
	2022		2021		2022		2021

	(In thousands)
Unrecognized net actuarial loss (gain)	$	279	$	1,073	$	(671)	$	(189)
Unrecognized prior service cost	20		333		—		—
Total accumulated other comprehensive loss (gain)	$	299	$	1,406	$	(671)	$	(189)

The weighted average assumptions used in the determination of benefit obligations as of December 31 were as follows:



	SERP and DRP						Post Retirement
	2022			2021 (1)			2022			2021
Discount rate		4.81	%		2.31	%		4.91	%		2.53	%
Rate of compensation increase*		N/A			6.25	%		N/A			N/A

(1) Rate of compensation increase applicable to DRP only.

The weighted-average assumptions used in the determination of net periodic benefit cost were as follows:



	SERP and DRP						Post Retirement
	2022			2021 (1)			2022			2021
Discount rate		2.31	%		1.82	%		2.59	%		2.18	%
Expected rate of return on plan assets		N/A			N/A			N/A			N/A
Rate of compensation increase*		N/A			6.25	%		N/A			N/A

(1) Rate of compensation increase applicable to DRP only.

The components of net periodic benefit cost and other amounts recognized in other comprehensive income were as follows for the years ended December 31, 2022 and 2021:


	SERP and DRP				Post Retirement
	2022		2021		2022		2021
	(In thousands)
Service cost	$	98	$	201	$	1	$	1
Interest cost	87		79		39		38



Amortization:
Past service liability	—		—		—		—
Net loss (gain)	134		213		(6)		(3)
Net periodic benefit cost	$	319	$	493	$	34	$	36

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

The components of net periodic benefit cost other than the service cost component are included in “other non-interest expense” in the Statement of Operations. The estimated net loss and prior service cost for the post-retirement plans that will be amortized from accumulated other comprehensive income into net periodic benefit cost during 2023 are $(85) thousand and $5 thousand, respectively.

The benefits expected to be paid in each of the next five years and the aggregate for the five years thereafter are as follows:


	SERP and DRP		Post- Retirement

	(In thousands)
2023	$	272	$	77
2024	255		79
2025	257		80
2026	241		80
2027	227		81
Years 2028 - 2032	996		399

Employee Stock Ownership Plan

The Company maintains the Blue Foundry Bank ESOP, a tax-qualified plan for the benefit of all Company employees designed to invest primarily in the Company’s common stock. The ESOP provides employees with the opportunity to receive a funded retirement benefit from the Bank, based primarily on the value of the Company’s common stock.

The ESOP borrowed funds from the Company to purchase 2,281,800 shares of stock at $10 per share. The loan is secured by the shares purchased, which are held until allocated to participants. Shares are released for allocation to participants as loan payments are made. Loan payments are principally funded by discretionary cash contributions by the Bank, as well as dividends, if any, paid to the ESOP on unallocated shares. When loan payments are made, ESOP shares are allocated to participants at the end of the plan year (December 31) based on relative compensation, subject to federal tax law limits. Participants receive the shares at the end of employment. Dividends on allocated shares, if any, increase participants accounts.

At December 31, 2022, the principal balance on the ESOP loan is $21.2 million. Contributions to the ESOP during the years ended December 31, 2022 and 2021, totaled $615 thousand and $1.0 million, respectively. ESOP compensation expense is recognized over the service period and represents the fair value of shares allocated during the year. For the years ended December 31, 2022 and 2021, ESOP compensation expense was $1.2 million and $1.3 million respectively.

Shares held by the ESOP were as follows:


	December 31, 2022		December 31, 2021
	(Dollars in thousands)

Shares allocated to participants	182,544		91,272
Unallocated shares	2,099,256		2,190,528
Total ESOP shares	2,281,800		2,281,800

Fair value of unallocated shares	$	26,975	$	32,047

The fair value of the unallocated shares was computed using the closing trading price of the Company’s common stock on each date.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

Equity Incentive Plan

At the annual meeting held on August 25,2022, stockholders of the Company approved the Blue Foundry Bancorp 2022 Equity Incentive Plan (“Equity Plan”) which provides for the granting of up to 3,993,150 shares (1,140,900 restricted stock awards and 2,852,250 stock options) of the Company’s common stock.

Restricted shares granted under the Equity Plan generally vest in equal installments, over a service period between five and seven years beginning one year from the date of grant. Additionally, certain restricted shares awarded can be performance vesting awards, which may or may not vest depending upon the attainment of certain corporate financial targets. The vesting of the awards accelerate upon death, disability or an involuntary termination at or following a change in control. The product of the number of shares granted and the grant date closing market price of the Company’s common stock determine the fair value of restricted shares under the Equity Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period.

Stock options granted under the Equity Plan generally vest in equal installments, over a service period between five and seven years beginning one year from the date of grant. The vesting of the options accelerate upon death, disability or an involuntary termination at or following a change in control. Stock options were granted at an exercise price equal to the fair value of the Company’s common stock on the grant date based on the closing market price and have an expiration period of 10 years.

The fair value of stock options granted are estimated utilizing the Black-Scholes option pricing model. The weighted average assumptions used for the options granted during the year ended December 31, 2022 are: expected life of 6.9 years years, risk-free rate of 3.94%, volatility of 29.41% and a dividend yield of 0.88%. Due to the limited historical information of the Company’s stock, management considered the weighted historical volatility of the Company and similar entities for an appropriate period in determining the volatility rate used in the estimation of fair value. The expected life of the stock option was estimated using the simplified method. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The Company recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards. Upon exercise of vested options, management expects to draw on treasury stock as the source for shares.

The following table presents the share-based compensation expense for the year ended December 31, 2022. There was no share-based compensation expense for the year ended December 31, 2021.


	Year ended December 31, 2022
	(In thousands)
Stock option expense	$	422
Restricted stock expense	242
Total share-based compensation expense	$	664

The following is a summary of the Company’s stock option activity and related information for the year ended December 31, 2022:


	Number of Stock Options	Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)
Outstanding - December 31, 2021	—	$	—	$	—	—
Granted	2,610,563	4.12		11.65		9.8

Forfeited	(19,500)	4.25		11.69		9.8

Outstanding -December 31, 2022	2,591,063	$	4.12	$	11.65	9.8
Exercisable - December 31, 2022	—

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

Expected future expense relating to the non-vested options outstanding as of December 31, 2022 is $10.3 million over a weighted average period of 6.3 years.

The following is a summary of the Company’s restricted stock shares activity and related information for the year ended December 31, 2022:


	Number of Shares Awarded	Weighted Average Grant Date Fair Value
Outstanding - December 31, 2021	—	$	—
Granted	299,481	11.54


Outstanding - December 31, 2022	299,481	$	11.54

Expected future expense relating to the non-vested restricted shares outstanding as of December 31, 2022 is $3.2 million over a weighted average period of 4.7 years.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 9 – INCOME TAXES

Income tax expense for the years ended December 31, 2022 and 2021, consists of the following:


	Current			Deferred			Total
		(In thousands)
December 31, 2022
Federal		$	299		$	—		$	299
State		39			—			39
		$	338		$	—		$	338

December 31, 2021
Federal		$	140		$	5,810		$	5,950
State		—			3,668			3,668
		$	140		$	9,478		$	9,618

A reconciliation between the actual income tax expense and the expected federal income tax expense (computed by multiplying income before income tax expense times the applicable statutory federal income tax rate) for the years ended December 31, 2022 and 2021, is as follows:


	2022			2021
	(In thousands)
Income (loss) before income tax expense (benefit)	$	2,734		$	(26,724)
Applicable statutory federal income tax rate	21.00		%	21.00		%
Computed “expected” federal income tax expense (benefit)	$	574		$	(5,612)
Increase (decrease) in federal income tax expense resulting from:
State income taxes, net of federal benefit	244			(1,614)
Valuation Allowance	(414)			16,719
Tax-exempt income	(96)			(108)
Bank owned life insurance	(103)			(100)
Non-deductible compensation	54			—
ESOP fair market value adjustment	50			76
Stock compensation	27			—

CARES Act – Carryback expense	—			247
Other items, net	2			10
Total	$	338		$	9,618

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2022 and 2021, are as follows:


		December 31,
	2022			2021
Deferred tax assets:		(In Thousands)
Allowance for loan losses and REO		$	4,242		$	4,617

Net unrealized losses on securities available for sale		9,529			—
Net unrealized losses on derivatives		—			69
Accrued postretirement benefits		1,195			1,217
Accrued interest receivable		187			179
Accrued bonus		730			506
Stock compensation		150			—

Premises and equipment		109			—
Finance lease liability		7,681			7,504
Charitable contribution carryover		2,729			2,709
Unrealized actuarial loss on post retirement benefits		—			342
Federal net operating loss carryforward		5,417			6,648
State net operating loss carryforward		1,879			2,392
Other		—			37
Total gross deferred tax assets		33,848			26,220

Valuation allowance		(22,570)			(16,868)
Gross deferred tax assets after valuation allowance		11,278			9,352

Deferred tax liabilities:
Net unrealized gains on securities available for sale		—			327
Net unrealized gains on derivatives		3,118			—
Deferred loan fees, net		772			1,198
Unrealized actuarial gains on post retirement benefits		105			—
Premises and equipment		—			489
Finance lease ROU asset		7,282			7,156
Other		1			182
Total gross deferred tax liabilities		11,278			9,352
Net deferred tax asset		$	—		$	—

On the basis of this evaluation, for the year ended December 31, 2022, a valuation allowance of $22.6 million has been maintained. The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth. Net deferred tax assets are included in other assets.

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

At December 31, 2022, the Company had federal net operating loss (“NOL”) carryforwards of $25.8 million with no expiration date. Under the provisions of the 2017 Tax Cuts and Jobs Act, use of our federal NOL carryforwards will be limited to 80% of taxable income in future periods. The Company also had New Jersey net operating loss carryforwards of $26.4 million, the majority of which expire in 19 years. We believe it is more likely than not the benefit from both the federal and state NOL carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $7.3 million on the deferred tax assets related to the NOL carryforwards. The Company contributed $9.0 million to the Blue Foundry Charitable Foundation in 2021, and the deferred benefit has a 5 year carryforward limitation.

Retained earnings at December 31, 2022 and 2021, includes approximately $14.6 million, for which no provision for income tax has been made. This amount represents an allocation of income to bad debt deductions for tax purposes only. Events that would result in taxation of these reserves include the failure to qualify as a bank for tax purposes, distributions in complete or partial liquidation, stock redemptions and excess distributions to stockholders.

The Company and its subsidiary are subject to U.S. federal income tax as well as state income taxes, primarily New Jersey. The Company is no longer subject to examination by Federal taxing authorities for tax years before January 1, 2019, and State taxing authorities for tax years before January 1, 2018. Currently, the Company is not under examination by any taxing authority. The Company's New Jersey state tax returns for the tax years ended December 31, 2015 through 2018 were audited during 2021. The completion of this examination did not have a material impact on the Company's effective tax rates and financials.

On August 16, 2022, the Inflation Reduction Act of 2022 was signed into legislation. The Act includes provisions that extend the expanded Affordable Care Act health plan premium assistance program through 2025, impose an excise tax on stock buybacks, increase funding for IRS tax enforcement, expand energy incentives, and impose a corporate minimum tax. The Corporation has evaluated such provisions and determined that the impact of the Inflation Reduction Act of 2022 on the income tax provision and deferred tax assets of 12/31/2022 was not material.

100

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 10 – DERIVATIVES

The Company utilizes interest rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.

Interest rate swaps with notional amounts totaling $109.0 million at December 31, 2022 and December 31, 2021, were designated as cash flow hedges of certain FHLB advances and were determined to be highly effective during all periods presented. The Company expects the hedges to remain highly effective during the remaining terms of the swaps.

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


	December 31, 2022			December 31, 2021

	(Dollars in thousands)
Notional amounts	$	109,000		$	109,000
Weighted average pay rates	1.46		%	1.46		%
Weighted average receive rates	4.61		%	0.17		%
Weighted average maturity (in years)	4.2			5.3

Gross unrealized gain included in other assets	$	11,091		$	1,313
Gross unrealized loss included in other liabilities	—			1,559
Unrealized gains (losses), net	$	11,091		$	(246)

At December 31, 2022, the Company held $11.5 million as cash collateral pledged from the counterparty for these interest-rate swaps. At December 31, 2022, the Company had no securities pledged to the counterparty. At December 31, 2021, securities pledged as collateral for these swaps totaled $5.6 million.

Interest income (expense) recorded on these swap transactions is reported as a component of interest expense on FHLB advances. Interest income (expense) for the years ended December 31, 2022 and 2021 totaled $356 thousand and $(1.4) million, respectively. At December 31, 2022, the Company expected $3.8 million of the unrealized gain to be reclassified as a reduction to interest expense during 2023.

Cash Flow Hedge

The effect of cash flow hedge accounting on accumulated other comprehensive income for the years ended December 31, 2022 and 2021 are as follows:


	Amount of Gain (Loss) Recognized in OCI on Derivative (1)		Location of Gain (Loss) Reclassified from OCI into Income/(Expense)	Amount of Gain (Loss) Reclassified from OCI to Income/(Expense)

	(In thousands)
Year Ended December 31, 2022
Interest rate contracts	$	11,337	Interest Expense	$	356

Year Ended December 31, 2021
Interest rate contracts	$	3,740	Interest Expense	$	(1,427)

(1) For the years ended December 31, 2022 and 2021, there is no tax effect due to the deferred taxes valuation allowance. See Note 9 for information related to the deferred taxes valuation allowance.

101

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 11 – ACCUMULATED OTHER COMPREHENSIVE INCOME

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

The following table presents the components of other comprehensive (loss) income both gross and net of tax, inclusive of a deferred tax valuation allowance, for the periods indicated.


	Year Ended December 31,
	2022						2021
	Before Tax		Tax Effect (1)		After Tax		Before Tax		Tax Effect		After Tax

	(In thousands)
Components of Other Comprehensive (Loss) Income:
Unrealized loss on securities available for sale:
Unrealized loss arising during the period	$	(37,260)	$	—	$	(37,260)	$	(4,626)	$	1,508	$	(3,118)
Reclassification adjustment for (gains) losses included in net income	(14)		—		(14)		1		—		1
Total	(37,274)		—		(37,274)		(4,625)		1,508		(3,117)
Unrealized gain on cash flow hedge:
Unrealized gain arising during the period	11,693		—		11,693		3,871		(1,138)		2,733
Reclassification adjustment for (gains) losses included in net income	(356)		—		(356)		1,427		(420)		1,007
Total	11,337		—		11,337		5,298		(1,558)		3,740
Post-Retirement plans:
Net benefit arising from plan amendment (2)	504		—		504		—		—		—
Net gain arising during the period	858		—		858		315		(430)		(115)


Net actuarial loss	228		—		228		210		(59)		151
Total	1,590		—		1,590		525		(489)		36
Total other comprehensive (loss) income:	$	(24,347)	$	—	$	(24,347)	$	1,198	$	(539)	$	659

(1) The 2022 period includes a deferred tax valuation allowance.

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

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


	Unrealized Gains and (Losses) on Cash Flow Hedges		Unrealized Gains and (Losses) on Available-for-sale Securities		Post- Retirement Plans		Total

	(In thousands)
Balance at December 31, 2021	$	(246)	$	1,091	$	(1,217)	$	(372)
Other comprehensive income (loss) before reclassification	11,693		(37,260)		1,362		(24,205)
Amounts reclassified from accumulated other comprehensive income	(356)		(14)		228		(142)
Net current period other comprehensive gain (loss)	11,337		(37,274)		1,590		(24,347)
Balance at December 31, 2022	$	11,091	$	(36,183)	$	373	$	(24,719)

102

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021


	Unrealized Gains and (Losses) on Cash Flow Hedges		Unrealized Gains and (Losses) on Available-for-sale Securities		Post-Retirement Plans		Total

	(In thousands)
Balance at December 31, 2020	$	(3,986)	$	4,208	$	(1,253)	$	(1,031)
Other comprehensive income (loss) before reclassification	2,733		(3,118)		(115)		(500)
Amounts reclassified from accumulated other comprehensive income	1,007		1		151		1,159
Net current period other comprehensive gain (loss)	3,740		(3,117)		36		659
Balance at December 31, 2021	$	(246)	$	1,091	$	(1,217)	$	(372)

The following table presents information about amounts reclassified from accumulated other comprehensive income (loss) to the consolidated statements of operations for the periods indicated:


Details about Accumulated Other Comprehensive Income Components	Year Ended December 31,				Affected Line Item in the Statement Where Net Income is Presented
	2022		2021

	(In thousands)
Unrealized gain (loss) on securities available for sale:
Realized gains (losses) on securities available for sale	$	14	$	(1)	Gain (loss) on sales and calls of securities
Gains and (losses) on cash flow hedges:
Interest rate contracts	356		(1,427)		Interest income (expense)
Amortization of benefit plan items:
Net actuarial loss	(228)		(210)		Compensation and benefits
Total tax effect	—		479		Income tax expense
Total reclassification for the period, net of tax	$	142	$	(1,159)

103

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 12 – FAIR VALUE OF ASSETS AND LIABILITIES

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

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

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

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

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

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

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

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

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

104

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

The following table summarizes the fair value of assets and liabilities as of December 31, 2022:


			Fair Value Measurements at December 31, 2022, Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

	(In thousands)
Measured on a recurring basis:
Financial assets
Securities available for sale:
U.S. Treasury Notes	$	43,759	$	43,759	$	—	$	—
Domestic Corporate Bonds	76,298		—		76,298		—
U.S. Government agency obligations	15,423		11,295		4,128		—
Obligations issued by U.S. states and their political subdivisions	16,268		—		16,268		—
Mortgage-backed securities:
Residential one-to-four family	140,186		—		140,186		—
Multifamily	18,158		—		18,158		—
Asset-backed securities	4,156		—		4,156		—
Total securities available for sale	314,248		55,054		259,194		—
Derivatives	$	11,091	—		11,091		—
Total financial assets measured on a recurring basis	$	325,339	$	55,054	$	270,285	$	—

Financial Liabilities
Derivatives	$	—	$	—	$	—	$	—

Measured on a nonrecurring basis:
Nonfinancial assets
Assets held for sale	$	917	$	—	$	917	$	—

In September 2022, a branch office was designated as held for sale, which resulted in a write-down from book value to fair value. The impairment recorded on the premises was $71 thousand which resulted in a remaining book value of $917 thousand that was reclassified from premises to assets held for sale. The $71 thousand impairment is included in other expenses and the asset held for sale is included in other assets.

105

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

The following table summarizes the fair value of assets and liabilities as of December 31, 2021:


			Fair Value Measurements at December 31, 2021, Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

	(In thousands)
Measured on a recurring basis:
Financial assets
Securities available for sale
U.S. Treasury Notes	$	36,832	$	36,832	$	—	$	—
Domestic Corporate Bonds	87,619		—		87,619		—
U.S. Government agency obligations	23,329		17,617		5,712		—
Obligations issued by U.S. states and their political subdivisions	20,324		—		20,324		—
Mortgage-backed securities:	—
Residential one-to-four family	114,401		—		114,401		—
Multifamily	35,916		—		35,916		—
Asset-backed securities	6,471		—		6,471		—
Total securities available for sale	324,892		54,449		270,443		—
Derivatives	1,313		—		1,313		—
Total financial assets measured on a recurring basis	$	326,205	$	54,449	$	271,756	$	—

Financial Liabilities
Derivatives	$	1,559	$	—	$	1,559	$	—

There were no assets or liabilities measured at fair value on a non-recurring basis at December 31, 2021. The assets held for sale and REO were sold in December 2021, resulting in a net loss of $104 thousand and $6 thousand for assets held for sale and REO, respectively.

Other Fair Value Disclosures

Fair value estimates, methods and assumptions for the Company’s financial instruments that are not recorded at fair value on a recurring or non-recurring basis are set forth below.

Securities held-to-maturity: The Company’s debt securities held-to-maturity portfolio is carried at amortized cost. The fair values of debt securities held-to-maturity are provided by a third-party pricing service. The pricing service may use quoted market prices of comparable instruments or a variety of other forms of analysis, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates, prepayment speeds and non-binding broker quotes.

Loans, net: Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as residential mortgage and consumer. Each loan category is further segmented into fixed and adjustable rate interest terms and by performing and non-performing categories. Estimated fair value of loans is determined using a discounted cash flow model that employs an exit discount rate that reflects the current market pricing for loans with similar characteristics and remaining maturity, adjusted for estimated credit losses inherent in the portfolio at the balance sheet date.

Time Deposits: The fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using rates for currently offered deposits of similar remaining maturities.

106

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

Federal Home Loan advances: The fair value of borrowings is based on securities dealers’ estimated fair values, when available, or estimated using discounted cash flow analysis. The discount rates used approximate the rates offered for similar borrowings of similar remaining terms.

The following tables present the book value, fair value, and placement in the fair value hierarchy of financial instruments not recorded at fair values in their entirety on a recurring basis on the Company’s balance sheet at December 31, 2022 and 2021. The fair value measurements presented are consistent with Topic 820, Fair Value Measurement, in which fair value represents exit price.

These tables exclude financial instruments for which the carrying amount approximates fair value. Financial instruments for which the carrying amount approximates fair value include cash and cash equivalents, other investments, non-maturity deposits, overnight borrowings, and accrued interest, and are excluded from the table below.

The carrying amounts and fair value of financial instruments not carried at fair value, at December 31, 2022 and December 31, 2021 are as follows:


			Fair Value Measurements at December 31, 2022, Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Book Value		(Level 1)		(Level 2)		(Level 3)

	(In thousands)
Financial assets

Securities held-to-maturity	$	33,705	$	—	$	29,115	$	—
Loans, net	1,531,727		—		—		1,332,882

Financial liabilities

Time Deposits	416,260		—		408,904		—
Federal Home Loan advances	310,500		—		318,688		—

			Fair Value Measurements at December 31, 2021, Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Book Value		(Level 1)		(Level 2)		(Level 3)

	(In thousands)

Financial assets

Securities held-to-maturity	$	23,281	$	—	$	22,849	$	—
Loans, net	1,273,184						1,266,799

Financial liabilities

Time Deposits	473,795		—		470,732		—
Federal Home Loan advances	185,500		—		182,795

107

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 13 – COMMITMENTS AND CONTINGENCIES

The Company extends credit to meet the financing needs of its customers through commitments and lines of credit. In addition we routinely enter into other commitments in the normal course of business.

The following commitments exist at December 31, 2022 and 2021, which are not reflected in the accompanying consolidated financial statements:


	As of December 31,
	2022			2021

		(Dollars in Thousands)
Origination of mortgage loans:
Fixed rate		$	626		$	1,847
Variable rate		7,344			14,456
Undisbursed home equity credit lines		34,814			33,265
Undisbursed construction credit lines		43,708			17,700
Undisbursed commercial credit lines		1,476			1,792
Performance standby letters of credit		671			671
Overdraft protection credit lines		20,022			19,038
Commitments to purchase investments		850			1,000

These instruments involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated financial statements. The Company uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet loans. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company has no exposure to credit loss if the customer does not exercise its rights to borrow under the commitment. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower.

The Company issues financial standby letters of credit that are within the scope of ASC 460, Guarantees. These are irrevocable undertakings of the Company to guarantee payment of a specified financial obligation. Most of the Company’s standby letters of credit arise in connection with lending relationships and generally have terms of one year or less, or are issued in lieu of security deposits. The maximum potential future payments the Company could be required to make equals the contract amount of the standby letters of credit.

108

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 14 – REVENUE FROM CONTRACTS WITH CUSTOMERS AND OTHER INCOME

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income in the Statement of Operations.

The following table presents the Company’s sources of revenue from contracts with customers for the years ended December 31, 2022 and 2021, respectively.


	Year Ended December 31,
	2022		2021
	(In thousands)
Non-interest income
Service charges on deposits	$	992	$	954


Interchange income	43		33
REO gain	—		6
Total Revenue from Contracts with Customers	$	1,035	$	993

Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in the time the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees were recognized at the point in time the overdraft occurred. Beginning in November 2022, the Company ended its practice of charging overdraft fees to customers. Service charges on deposits are withdrawn from the customer’s account balance.

Interchange Income: The Company earns interchange fees from debit/credit cardholder transactions conducted through a payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

Gain/loss on sale of Real Estate Owned (“REO”): The Company records a gain or loss from the sale of REO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of REO to the buyer, the Company assesses whether the buyer is committed to perform its obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the REO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company may adjust the transaction price and related gain (loss) on sale if a significant financing component is present.

109

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 15 - STOCK REPURCHASE PROGRAM

On July 20, 2022, the Company's Board of Directors adopted a stock repurchase program of up to 2,852,250 shares, approximately 10%, of its outstanding common stock. Under the stock repurchase program, the Company is authorized to repurchase shares in open market or private transactions, through block trades or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. The timing and amount of any repurchases will depend on a number of factors, including the availability of stock, general market conditions, the trading price of the stock, alternative uses for capital, the Company’s liquidity, and the Company’s financial performance. Open market purchases will be made in accordance with Rule 10b-18 of the Securities and Exchange Commission and other applicable legal requirements. Repurchased shares will be held as treasury stock and will be available for general corporate purposes. The repurchases may be suspended, terminated or modified at any time for any reason, including market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities, liquidity, and other factors deemed appropriate. These factors may also affect the timing and amount of share repurchases. The Company is not obligated to repurchase any particular number of shares or any shares in any specific time period.

During the year ended December 31, 2022, the Company repurchased 1,298,762 shares of its common stock outstanding at an average price of $12.03 for a total of $15.6 million pursuant to the stock repurchase program. This program has no expiration date and has 1,553,488 shares yet to be repurchased as of December 31, 2022.

110

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 16 - EARNINGS PER SHARE

Basic earning per share (“EPS”) represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common shares (such as stock options) were exercised or converted into additional common shares that would then share in the earnings of the entity. Diluted EPS is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period, plus the effect of potential dilutive common share equivalents.

Shares held by the ESOP not allocated to employees in accordance with the terms of the ESOP, referred to as “unallocated ESOP shares”, are not deemed outstanding for earnings per share calculations.


	For the Year ended December 31,

	2022		2021

	(Income In thousands)
Net income (loss) applicable to common shares	$	2,396	$	(36,342)

Shares
Average number of common shares outstanding (1)	28,310,389		13,206,308
Less: Average unallocated ESOP shares	2,144,548		1,035,258
Average number of common shares outstanding used to calculate basic earnings per common share	26,165,841		12,171,050
Common stock equivalents	105,023		—
Average number of common shares outstanding used to calculate diluted earnings per common share	26,270,864		12,171,050

Earnings per common share
Basic	$	0.09	$	(2.99)
Diluted	$	0.09	$	(2.99)

(1) For December 31, 2021, the average number of common shares outstanding was calculated using zero shares outstanding prior to the conversion on July 15, 2021.

Excluded from the earnings per share calculation are anti-dilutive equity awards for the year ended December 31, 2022 totaling 159,000. There were no securities or other contracts that had a dilutive effect during the year ended December 31, 2021.

111

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 17 – REGULATORY CAPITAL REQUIREMENTS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines, and additionally for the Bank, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off balance sheet items calculated under regulatory accounting practices. Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Company. The Bank has not paid dividends to the Company in the past. Capital amounts and classifications are also subject to qualitative judgements by regulators. Failure to meet capital requirements can initiate regulatory action. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. As of December 31, 2022, the Bank meets all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2022 and 2021, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

The following table presents the regulatory capital, assets and risk based capital (common equity Tier 1, Tier 1 and Total capital) ratios for the Bank at December 31, 2022 and 2021 (in thousands, other than ratios):



	Bank Actual				Minimum Capital Adequacy				Minimum Capital Adequacy With Capital Buffer				For Classification as Well Capitalized
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
December 31, 2022
Common equity tier 1	$	298,132	20.85	%	$	64,348	4.50	%	$	100,097	7.00	%	$	92,947	6.50	%
Tier 1 capital	298,132		20.85	%	85,797		6.00	%	121,546		8.50	%	114,396		8.00	%
Total capital	313,221		21.90	%	114,396		8.00	%	150,145		10.50	%	142,995		10.00	%
Tier 1 (leverage) capital	298,132		14.61	%	81,611		4.00	%	N/A		N/A		102,013		5.00	%

December 31, 2021
Common equity tier 1	$	293,349	25.74	%	$	51,292	4.50	%	$	79,787	7.00	%	$	74,088	6.50	%
Tier 1 capital	293,349		25.74	%	68,389		6.00	%	96,885		8.50	%	91,186		8.00	%
Total capital	307,624		26.99	%	91,186		8.00	%	119,681		10.50	%	113,982		10.00	%
Tier 1 (leverage) capital	293,349		15.00	%	78,201		4.00	%	N/A		N/A		97,752		5.00	%

112

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 18 - CONDENSED FINANCIAL STATEMENTS OF PARENT COMPANY

The condensed financial statements of Blue Foundry Bancorp (parent company only) are presented below:


Condensed Statements of Financial Condition
	At December 31,
	2022		2021
	(In thousands)
Assets:
Cash and cash equivalents	$	98,494	$	114,331
Investment in banking subsidiary		274,211		293,414
ESOP loan receivable		21,222		21,837
Other investments		157		—
Other assets		1,101		245
Total Assets	$	395,185	$	429,827
Liabilities and Stockholders’ Equity:
Total liabilities	$	1,467	$	356
Total stockholders’ equity		393,718		429,471
Total Liabilities and Stockholders’ Equity	$	395,185	$	429,827


Condensed Statements of Comprehensive Loss
	Year Ended December 31,
	2022		2021
	(In thousands)
Income:
Interest on ESOP loan receivable	$	710	$	343
Other income		19		23
Total income		729		366
Expenses:
Contribution to Blue Foundry Charitable Foundation		—		9,000

Other expenses		2,384		719
Total expenses		2,384		9,719
Loss before income tax benefit		(1,655)		(9,353)
Income tax benefit		(41)		(59)
Loss before undistributed earnings of subsidiary		(1,614)		(9,294)
Equity in undistributed earnings of banking subsidiary		4,010		(27,048)
Net income (loss)	$	2,396	$	(36,342)

Comprehensive income (loss):
Net income (loss)	$	2,396	$	(36,342)
Other comprehensive (loss) income		(24,347)		659
Comprehensive loss	$	(21,951)	$	(35,683)

113

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021


Condensed Statements of Cash Flows
	Twelve Months Ended December 31,
	2022		2021
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$	2,396	$	(36,342)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Equity in undistributed earnings of subsidiary		(4,010)		27,048
Issuance of common shares donated to Blue Foundry Charitable Foundation		—		7,500

ESOP and stock-based compensation expense		682		361
Increase in other assets		(863)		(82)
Increase in other liabilities		842		237
Net cash used by operating activities		(953)		(1,278)

Cash flows from investing activities:
Capital contribution to banking subsidiary		—		(136,481)
Purchase of other investments		(150)		—
Loan to ESOP		—		(22,818)
Repayment of ESOP loan		615		981
Net cash provided by (used in) investing activities		465		(158,318)

Cash flows from financing activities:
Purchase of treasury stock		(15,349)		—
Proceeds from issuance of common shares				273,598
Net cash (used in) provided by financing activities		(15,349)		273,598
Net (decrease) increase in cash and cash equivalents		(15,837)		114,002
Cash and cash equivalents at beginning of year		114,331		329
Cash and cash equivalents at end of year	$	98,494	$	114,331

114

BLUE FOUNDRY BANCORP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022 and 2021

NOTE 19 - SUBSEQUENT EVENTS

As defined in FASB ASC 855, “Subsequent Events”, subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or available to be issued. Financial statements are considered issued when they are widely distributed to stockholders and other financial statement users for general use and reliance in a form and format that complies with U.S. GAAP.

Stock Repurchase Program

On July 20, 2022, the Company adopted a program to repurchase up to 2,852,250 shares, or 10%, of its outstanding common stock. As of March 28, 2023, 2,037,579 shares totaling $23.7 million had been acquired under the repurchase plan at an average price per share of $11.61.

115

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

(b) Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on criteria established in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management, including our Principal Executive Officer and Principal Financial Officer, concluded that our internal control over financial reporting was effective and met the criteria of the “Internal Control — Integrated Framework (2013)” as of December 31, 2022.

Not applicable because the Company is an emerging growth company.

(d) Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS

Not applicable.

116

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Securities Authorized for Issuance Under Equity Compensation Plans

Set forth below is information as of December 31, 2022 regarding equity compensation plans categorized by those plans that have been approved by the Company's stockholders. There are no plans that have not been approved by the Company's stockholders.


Plan	Number of Securities to be Issued Upon Exercise of Outstanding Options and rights (1)	Weighted Average Exercise Price (2)		Number of Securities Remaining Available for Issuance Under Plan (3)
2022 Equity Incentive Plan	2,591,063	$	11.65	1,102,606
Total	2,591,063	$	11.65	1,102,606

(1) Consists of outstanding stock options to purchase 2,591,063 shares of common stock granted under the Company’s stock-based compensation plans.

(2) Represents the weighted average exercise price of stock options granted in 2022.

(3) Represents the number of available shares that may be granted as stock options and other stock awards under the Company’s stock-based compensation plans.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Our independent registered public accounting firm is KPMG LLP, Short Hills, New Jersey, Auditor Firm ID: 185.

117

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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

(a)(1) Financial Statements

The following financial statements are included under Part II, Item 8 of this report:

1. Report of Independent Registered Public Accounting Firm.

2. Consolidated Statements of Financial Condition as of December 31, 2022 and 2021.

3. Consolidated Statements of Operations for the Fiscal Years Ended December 31, 2022 and 2021.

4. Consolidated Statements of Comprehensive Loss for the Fiscal Years ended December 31, 2022 and 2021.

5. Consolidated Statements of Changes in Shareholders’ Equity for the Fiscal Years Ended December 31, 2022 and 2021.

6. Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 2022 and 2021.

7. Notes to Consolidated Financial Statements.

(a)(2) Financial Statement Schedules

No financial statement schedules are filed because the required information is not applicable or is included in the consolidated financial statements or related notes.

118

(a)(3) Exhibits


3.1			Certificate of Incorporation of Blue Foundry Bancorp (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-254079)
3.2			Bylaws of Blue Foundry Bancorp (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-254079)
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)
4.2			Description of Blue Foundry Bancorp’s Securities (Incorporated by reference to the Registrant’s Annual Report om Form 10-K dated December 31, 2021 (File No. 001-40619)
10.1			Employment agreement between Blue Foundry Bank and James Nesci
10.2			Blue Foundry Bank Executive Deferred Compensation Agreement for James Nesci
10.3			Change in Control Agreement between Blue Foundry Bank and Kelly Anne Pecoraro
10.4			Change in Control Agreement between Blue Foundry Bank and Elizabeth Miller
10.5			Change in Control Agreement between Blue Foundry Bank and Jason Goldberg
10 .6			Blue Foundry Bank Restated Director Retirement Plan for Kenneth Grimblas
10 .7			Amendment to the Blue Foundry Bank Restated Director Retirement Plan for Kenneth Grimblas
10.8			Blue Foundry Bank Restated Director Retirement Plan for J. Christopher Ely
10.9			Amendment to the Blue Foundry Bank Restated Director Retirement Plan for J. Christopher Ely
10.10			Blue Foundry Bank Director Retirement Plan II
10.1 1			Amendment to the Blue Foundry Bank Director Retirement Plan II
10.12			Blue Foundry Bancorp 2022 Equity Incentive Plan (Incorporated by reference to Appendix A to the Proxy Statement for the 2022 Annual Meeting of Stockholders (File No. 001-40619))
21			Subsidiaries of Blue Foundry Bancorp (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-254079)
23.1			Consent of KPMG LLP (Independent Registered Public Accounting Firm)
23.2			Consent of Crowe LLP (Independent Registered Public Accounting Firm)
31.1			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101			The following materials from the Company’s Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Financial Condition; (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

ITEM 16. FORM 10-K SUMMARY

Not applicable.

119

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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:

March 30, 2023

By:

/s/ James D. Nesci

James D. Nesci

Chief Executive Officer

(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated

By:

/s/ James D. Nesci

By:

/s/ Kelly Pecoraro

James D. Nesci

Kelly Pecoraro

Chief Executive Officer

Chief Financial Officer

(Principal Executive Officer)

(Principal Financial Officer)

Dated:

March 30, 2023

Dated:

March 30, 2023

By:

/s/ Patrick H. Kinzler

By:

/s/ J. Christopher Ely

Director

Dated:

March 30, 2023

Dated:

March 30, 2023

By:

/s/ Robert T. Goldstein

By:

/s/ Kenneth Grimbilas

Director

Dated:

March 30, 2023

Dated:

March 30, 2023

By:

/s/ Jonathan M. Shaw

By:

/s/ Margaret Letsche

Director

Dated:

March 30, 2023

Dated:

March 30, 2023

By:

/s/ Mirella Lang

By:

/s/ Elizabeth Varki Jobes, Esq.

Director

Dated:

March 30, 2023

Dated:

March 30, 2023

120