Blue Foundry Bancorp - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


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

For the quarterly period ended September 30, 2022


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

Commission File Number 001-40619

BLUE FOUNDRY BANCORP

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

Delaware

86-2831373

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification Number)

19 Park Avenue,

Rutherford,

New Jersey

07070

(Address of principal executive offices)

(Zip Code)

(201) 939-5000

(Registrant’s telephone number, including area code)

Not Applicable

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

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


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

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

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

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

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging Growth Company

☒

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

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

As of November 7, 2022 there were 28,522,500 shares issued and 27,881,922 shares outstanding of the Registrant’s Common Stock, par value $0.01 per share,

BLUE FOUNDRY BANCORP

FORM 10-Q

Index

PAGE

PART I.

FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ITEM 2.

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

ITEM 4.

CONTROLS AND PROCEDURES

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

ITEM 4.

MINE SAFETY DISCLOSURES

Part I Financial Information

ITEM 1. FINANCIAL STATEMENTS

BLUE FOUNDRY BANCORP

Consolidated Statements of Financial Condition


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

	(In thousands)
ASSETS
Cash and cash equivalents	$	57,324	$	193,446
Securities available for sale, at fair value	321,320		324,892


Securities held to maturity (fair value of $26,344 at September 30, 2022 and $22,849 at December 31, 2021)	30,749		23,281
Other investments	15,432		10,182
Loans receivable, net of allowance of $13,600 at September 30, 2022 and $14,425 at December 31, 2021	1,480,837		1,273,184

Interest and dividends receivable	6,431		5,372
Premises and equipment, net	29,992		28,126
Right-of-use assets	25,537		25,457

Bank owned life insurance	22,012		21,662
Other assets	22,284		8,609
Total assets	$	2,011,918	$	1,914,211

LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Deposits	$	1,266,497	$	1,247,040
Advances from the Federal Home Loan Bank	295,500		185,500
Advances by borrowers for taxes and insurance	10,926		9,582
Lease liabilities	26,875		26,696
Other liabilities	14,782		15,922
Total liabilities	1,614,580		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 September 30, 2022 and December 31, 2021; 28,155,292 and 28,522,500 shares outstanding at September 30, 2022 and December 31, 2021, respectively.	285		285
Additional paid-in capital	278,861		282,006
Retained earnings	171,201		169,457
Treasury stock, at cost: 367,208 shares at September 30, 2022	(4,235)		—
Unallocated common shares held by Employee Stock Ownership Plan	(21,220)		(21,905)
Accumulated other comprehensive loss	(27,554)		(372)
Total shareholders’ equity	397,338		429,471
Total liabilities and shareholders’ equity	$	2,011,918	$	1,914,211

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(Dollars in thousands)
Interest and dividend income:
Loans	$	13,692	$	12,044	$	37,792	$	36,362
Taxable investment income	2,571		1,901		6,708		5,064
Non-taxable investment income	109		128		344		392
Total interest income	16,372		14,073		44,844		41,818
Interest expense:
Deposits	1,424		1,651		3,256		6,848
Borrowed funds	1,133		1,318		2,672		4,357
Total interest expense	2,557		2,969		5,928		11,205
Net interest income	13,815		11,104		38,916		30,613
Release of provision for loan losses	(419)		(338)		(777)		(1,699)
Net interest income after provision for loan losses	14,234		11,442		39,693		32,312
Non-interest income:
Fees and service charges	650		347		1,815		1,410
Gain on securities, net	—		—		14		—




Other income	149		142		391		365
Total non-interest income	799		489		2,220		1,775
Non-interest expense:
Compensation and benefits	7,302		5,931		21,234		18,321
Loss on pension withdrawal	—		9,232		—		9,232
Occupancy and equipment	1,921		1,853		5,716		5,849

Data processing	1,559		1,781		4,430		5,432
Debt extinguishment costs	—		1,401		—		1,401
Advertising	125		603		993		1,595
Professional services	1,012		875		3,279		2,819
Directors fees	131		136		393		413
Provision (release of provision) for commitments and letters of credit	170		1,245		(108)		541
Federal deposit insurance premiums	98		130		275		384

Contribution to Blue Foundry Charitable Foundation	—		9,000		—		9,000
Other expense	1,351		931		3,692		2,303
Total non-interest expenses	13,669		33,118		39,904		57,290
Income (loss) before income tax expense (benefit)	1,364		(21,187)		2,009		(23,203)
Income tax expense (benefit)	123		(6,217)		175		(6,485)
Net income (loss)	$	1,241	$	(14,970)	$	1,834	$	(16,718)
Basic and diluted earnings (loss) per share	$	0.05	$	(0.68)	$	0.07	n/a
Weighted average shares outstanding - basic	26,128,851		21,979,861		26,278,775		n/a
Weighted average shares outstanding - diluted	26,246,039		21,979,861		26,318,267		n/a

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

Consolidated Statements of Comprehensive (Loss) Income

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(In thousands)
Net income (loss)	$	1,241	$	(14,970)	$	1,834	$	(16,718)
Other comprehensive (loss) income, net of tax (1):
Unrealized loss on securities available for sale:
Unrealized loss arising during the period	(12,968)		(1,053)		(39,512)		(2,486)
Reclassification adjustment for gain included in net income	—		—		(14)		—
	(12,968)		(1,053)		(39,526)		(2,486)

Unrealized gain on cash flow hedge:
Unrealized gain arising during the period	4,294		210		11,745		2,132
Reclassification adjustment for (gain) loss included in net income	(198)		264		270		761
	4,096		474		12,015		2,893
Post-Retirement plans:
Net benefit arising from plan amendment (2)	—		—		164		—


Reclassification adjustment for amortization of:

Net actuarial loss	65		38		165		112
	65		38		329		112

Total other comprehensive (loss) income, net of tax (1):	(8,807)		(541)		(27,182)		519
Comprehensive loss	$	(7,566)	$	(15,511)	$	(25,348)	$	(16,199)

(1) The 2022 periods include a deferred tax valuation allowance.

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

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

Consolidated Statements of Changes in Shareholders’ Equity

Nine months ended September 30, 2021

(Unaudited)


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Unallocated Common Stock Held by ESOP		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	—	—		—		(745)		—		—		—		(745)
Other comprehensive income	—	—		—		—		—		597		—		597
Balance at March 31, 2021	100,000	$	10	$	822	$	205,054	$	—	$	(434)	$	—	$	205,452
Net loss	—	—		—		(1,003)		—		—		—		(1,003)
Other comprehensive income	—	—		—		—		—		463		—		463
Balance at June 30, 2021	100,000	$	10	$	822	$	204,051	$	—	$	29	$	—	$	204,912
Net loss	—	—		—		(14,970)				—		—		(14,970)
Other comprehensive loss	—	—		—		—		—		(541)		—		(541)
Proceeds of stock offering and issuance of common shares	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 (41,290 shares)	—	—		141		—		—		—		413		554
Balance at September 30, 2021	28,522,500	$	285	$	281,786	$	189,081	$	—	$	(512)	$	(22,405)	$	448,235

See accompanying notes to the consolidated financial statements.



BLUE FOUNDRY BANCORP
Consolidated Statements of Changes in Shareholders’ Equity
Nine Months Ended September 30, 2022
(Unaudited)
	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Unallocated Common Stock Held by ESOP		Total Shareholders’ Equity
	Shares	Par Value

	(In thousands, except per share data)
Balance at January 1, 2022	28,522,500	$	285	$	282,006	169,457		$	—	$	(372)	$	(21,905)	$	429,471
Net income	—	—		—		553		—		—		—		553
Other comprehensive loss	—	—		—		—		—		(10,132)		—		(10,132)
ESOP shares committed to be released (22,818 shares)	—	—		94		—		—		—		228		322
Balance at March 31, 2022	28,522,500	$	285	$	282,100	$	170,010	$	—	$	(10,504)	$	(21,677)	$	420,214
Net income	—	—		—		40		—		—		—		40
Other comprehensive loss	—	—		—		—		—		(8,243)		—		(8,243)
ESOP shares committed to be released (22,818 shares)	—	—		54		—		—		—		228		282
Balance at June 30, 2022	28,522,500	$	285	$	282,154	$	170,050	$	—	$	(18,747)	$	(21,449)	$	412,293
Net income	—	—		—		1,241		—		—		—		1,241



Other comprehensive loss	—	—		—		—		—		(8,807)		—		(8,807)
Purchase of Treasury stock	(666,689)	—		—		—		(7,781)		—		—		(7,781)
Treasury stock allocated to restricted stock plan	299,481	—		(3,456)		(90)		3,546		—		—		—
Compensation cost for stock options and restricted stock	—	—		125		—		—		—		—		125
ESOP shares committed to be released (22,818 shares)	—	—		38		—		—		—		229		267

Balance at September 30, 2022	28,155,292	$	285	$	278,861	$	171,201	$	(4,235)	$	(27,554)	$	(21,220)	$	397,338

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
	2022		2021

	(In thousands)
Cash flows from operating activities
Net income (loss)	$	1,834	$	(16,718)
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization of premises and equipment	1,973		1,644
Change in right-of-use asset	1,943		1,974
(Accretion) amortization of: Deferred loan fees, costs, and discounts, net	(451)		492
Premiums and discounts on securities	819		624

Change in deferred taxes	175		(7,404)


Release of provision for loan losses	(777)		(1,699)
Gain on sales and calls of securities	(14)		—



Increase in BOLI cash surrender value	(350)		(362)
Issuance of common shares donated to Blue Foundry Charitable Foundation	—		7,500
ESOP and stock-based compensation expense	996		554
Expense on withdrawal from pension plan	—		9,232
(Increase) decrease in interest and dividends receivable	(1,059)		43
Increase in other assets	(2,261)		(1,223)
Decrease in other liabilities	483		3,111
Change in lease liability	(1,844)		(1,439)
Net cash provided by (used in) operating activities	1,467		(3,671)

Cash flows from investing activities
Net (originations) repayments of loans receivable	(120,056)		29,347
Purchases of residential mortgage loans	(86,369)		—

Purchases of securities available for sale	(80,039)		(134,927)

Purchases of securities held to maturity	(7,600)		(20,362)

Proceeds from calls of securities held to maturity	—		4,000
Proceeds from sales and calls of securities available for sale	2,408		14,000
Principal payments and maturities on securities available for sale	40,828		47,533
Purchases of other investments	(150)		—

Purchase of Federal Home Loan Bank stock	(12,548)		—
Redemption of Federal Home Loan Bank stock	7,493		3,884

Purchases of premises and equipment	(4,841)		(9,695)
Net cash used in investing activities	(260,874)		(66,220)

Cash flows from financing activities
Net change in deposits	19,457		(90,567)

Proceeds from advances from Federal Home Loan Bank	646,000		474,600
Repayments of advances from Federal Home Loan Bank	(536,000)		(556,400)
Net increase (decrease) in advances by borrowers for taxes and insurance	1,344		(676)
Purchase of treasury stock	(7,516)		—
Net proceeds from issuance of common shares	—		250,780

Net cash provided by financing activities	123,285		77,737
Net (decrease) increase in cash and cash equivalents	(136,122)		7,846
Cash and cash equivalents at beginning of period	193,446		316,445
Cash and cash equivalents at end of period	$	57,324	$	324,291

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

Consolidated Statements of Cash Flows

(Unaudited)





Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	5,974	$	11,032
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	2,023		3,197
Common shares purchased by the ESOP	—		(22,818)

See accompanying notes to the consolidated financial statements.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

Basis of Financial Statement Presentation: The consolidated financial statements of the Company have been prepared in conformity with U.S. generally accepted accounting principles. Certain information and note disclosures usually included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for the preparation of the Quarterly Reports on Form 10-Q and with Regulation S-X. The interim unaudited consolidated financial statements reflect all normal and recurring adjustments, which are, in the opinion of management, considered necessary for a fair presentation of the financial condition and results of operations for the periods presented. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of financial condition and revenues and expenses for the period. Actual results could differ from those estimates. Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders’ equity. The results of operations and other data presented for the three and nine months ended September 30, 2022 are not necessarily indicative of the results of operations that may be expected for subsequent periods or the full year results. These financial statements should be read in conjunction with the annual financial statements and notes thereto included in Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed on March 14, 2022.

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

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.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Adoption of New Accounting Standards: No new accounting standards were adopted during the three and nine months ended September 30, 2022.

Accounting Standards Not Yet Adopted: As an “emerging growth company” as defined in Title 1 of the Jumpstart Our Business Startups (JOBS) Act prior to December 31, 2019, the Company elected to use the extended transition period to delay the adoption of new or reissued accounting pronouncements applicable to public companies until such pronouncements were made applicable to private companies.

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

The change from an incurred loss model to an expected loss model represents a fundamental shift from existing GAAP and may result in a material change to the Company's accounting for credit losses on financial instruments. To prepare for implementation of the new standard the Company has established a cross functional steering committee comprised of members from different disciplines including finance, credit, risk management, internal audit, lending, and operations, among others. The Company has also engaged a third-party consultant to assist with model development, data governance and operational controls to support the adoption of this ASU. A detailed implementation plan has been developed which includes assessing the processes, portfolio segmentation, model development and validation, and system requirements and resources needed. The Company has begun to evaluate the effect that this ASU will have on its financial statements and related disclosures.

The Company expects the new credit models will include additional assumptions used to calculate credit losses over the estimated life of the financial assets and will include the impact of forecasted macroeconomic conditions. The Company has a system provider for modeling. Upon the Company's adoption of CECL, the change from the incurred loss model to the CECL model will be recognized through an adjustment to retained earnings. The future impact of CECL on the Company’s allowance for credit losses, and provision expense, subsequent to initial adoption, will depend on changes in the loan 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:

–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 managements current review of macroeconomic factors and the reliability of extended forecasts

–a reversion period (after the reasonable and supportable forecast period) using a straight-line approach

–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 expects to adopt ASU 2016-13 with an effective date at or before the required implementation date. The adoption of ASU 2016-13 is not expected to have a significant impact on our 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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 – SECURITIES

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


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value

	(In thousands)
September 30, 2022
Available for sale
U.S. Treasury Note	$	46,938	$	—	$	(3,366)	$	43,572
Corporate Bonds	84,033		—		(5,587)		78,446
U.S. Government agency obligations	18,380		—		(907)		17,473
Obligations issued by U.S. states and their political subdivisions	16,716		1		(762)		15,955
Mortgage-backed securities: Residential one-to-four family	168,656		—		(26,250)		142,406
Multifamily	19,974		—		(1,330)		18,644
Asset-backed securities	5,234		—		(410)		4,824
Total available-for-sale	$	359,931	$	1	$	(38,612)	$	321,320


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

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


	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value

	(In thousands)
September 30, 2022
Held-to-maturity
Corporate bonds	$	15,600	$	—	$	(1,998)	$	13,602

Asset-backed securities	15,149		—		(2,407)		12,742
Total held-to-maturity	$	30,749	$	—	$	(4,405)	$	26,344



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

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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

There were no proceeds from sales and calls of securities available for sale for the three months ended September 30, 2022. Proceeds from sales and calls of securities available for sale totaled $2.4 million, resulting in gross realized gains of $14 thousand and no gross losses realized during the nine months ended September 30, 2022. During the three and nine months ended September 30, 2021, proceeds from sales and calls of securities available for sale totaled $10.0 million and $14.0 million, respectively, resulting in no gain or loss realized for both 2021 periods.

Securities pledged at September 30, 2022 and December 31, 2021, had a carrying amount of $4.6 million and $9.1 million, respectively, and were pledged to secure borrowings, public deposits and derivatives as needed.

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


	September 30, 2022
	Amortized Cost		Estimated Fair Value

	(In thousands)
Available-for-sale
Due in one year or less	$	935	$	936
Due from one year to five years	104,905		99,383
Due from five to ten years	44,093		40,630
Due after ten years	16,134		14,497
Mortgage-backed and asset-backed securities	193,864		165,874
Total	$	359,931	$	321,320

Held-to-maturity

Due from one year to five years	$	6,032	$	5,282
Due from five to ten years	24,717		21,062

Total	$	30,749	$	26,344

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


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

	(In thousands)
September 30, 2022
Available for sale
U.S. Treasury Note	$	(2,121)	$	37,905	$	(1,245)	$	5,667	$	(3,366)	$	43,572
Corporate Bonds	(3,710)		65,036		(1,877)		13,410		(5,587)		78,446
U.S. Government agency obligations	(717)		11,407		(190)		6,066		(907)		17,473
Obligations issued by U.S. states and their political subdivisions	(762)		14,511		—		—		(762)		14,511
Mortgage-backed securities:
Residential one-to-four family	(9,686)		67,513		(16,564)		74,876		(26,250)		142,389
Multifamily	(1,184)		18,165		(146)		480		(1,330)		18,645
Asset-backed securities	(174)		3,534		(236)		1,290		(410)		4,824
Total available-for-sale	$	(18,354)	$	218,071	$	(20,258)	$	101,789	$	(38,612)	$	319,860





December 31, 2021
Available for sale
U.S. Treasury Note	$	(105)	$	16,814	$	—	$	—	$	(105)	$	16,814
Corporate Bonds	(290)		17,183		—		—		(290)		17,183
U.S. Government agency obligations	(49)		9,951		(130)		7,980		(179)		17,931

Mortgage-backed securities:
Residential one-to-four family	(1,761)		104,805		(144)		3,009		(1,905)		107,814
Multifamily	—		—		(94)		910		(94)		910
Asset-backed securities	(70)		4,458		—		—		(70)		4,458
Total available-for-sale	$	(2,275)	$	153,211	$	(368)	$	11,899	$	(2,643)	$	165,110

There were no other-than-temporary impairment (“OTTI”) charges for the three and nine months ended September 30, 2022 or September 30, 2021, respectively. The number of available for sale securities in an unrealized loss position at September 30, 2022 totaled 112, compared with 44 at December 31, 2021. The increase in the number of securities in an unrealized loss position at September 30, 2022 was due to higher current market interest rates compared to rates at December 31, 2021. Of the 112 available for sale securities in an unrealized loss position at September 30, 2022, 61 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 15 municipal bonds, 33 investment grade corporate bonds and three 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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes held-to-maturity securities with unrealized losses at September 30, 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
	Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value

	(In thousands)
September 30, 2022
Held-to-maturity
Corporate Bonds	(1,998)		13,602		—		—		(1,998)		13,602
Asset-backed securities	—		—		(2,407)		12,742		(2,407)		12,742
Total held-to-maturity	$	(1,998)	$	13,602	$	(2,407)	$	12,742	$	(4,405)	$	26,344

There were no other-than-temporary impairment (“OTTI”) charges for the three and nine months ended September 30, 2022 or September 30, 2021, respectively. The number of held-to-maturity securities in an unrecognized loss position at September 30, 2022 totaled 10, compared with four at December 31, 2021. The increase in the number of securities in an unrecognized loss position at September 30, 2022, was due to higher current market interest rates compared to rates at December 31, 2021. Of the 10 held-to-maturity securities in an unrealized loss position at September 30, 2022, two are asset-backed securities and eight 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.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 – LOANS RECEIVABLE, NET

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


	September 30, 2022		December 31, 2021

	(In thousands)
Residential one-to-four family	$	591,728	$	560,976
Multifamily	679,474		515,240
Non-residential	185,450		141,561
Construction	12,981		23,419
Junior liens	16,653		18,464
Commercial and industrial (including PPP) (1)	4,738		21,563
Consumer and other	39		87
Total gross loans	1,491,063		1,281,310
Deferred fees, costs and premiums and discounts, net	3,374		6,299
Total loans	1,494,437		1,287,609
Allowance for loan losses	(13,600)		(14,425)
Loans receivable, net	$	1,480,837	$	1,273,184

(1) - At September 30, 2022, and December 31, 2021, PPP loans totaled $557 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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


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

	(In thousands)
Three Months Ended September 30, 2022
Allowance for loan losses
Beginning balance	$	2,582	$	5,139	$	3,640	$	2,094	$	468	$	42	$	—	$	85	$	14,050
Charge-offs	—		—		—		—		—		—		(33)		—		(33)
Recoveries	—		—		—		—		—		—		2		—		2
(Recovery of) provision for loan losses	(35)		920		(536)		(813)		—		6		31		8		(419)
Total ending allowance balance	$	2,547	$	6,059	$	3,104	$	1,281	$	468	$	48	$	—	$	93	$	13,600

Nine Months Ended September 30, 2022
Allowance for loan losses
Beginning balance	$	2,822	$	5,263	$	2,846	$	2,678	$	636	$	51	$	38	$	91	$	14,425
Charge-offs	—		—		—		—		—		—		(52)		—		(52)
Recoveries	—		—		—		—		—		—		4		—		4
(Recovery of) provision for loan losses	(275)		796		258		(1,397)		(168)		(3)		10		2		(777)
Total ending allowance balance	$	2,547	$	6,059	$	3,104	$	1,281	$	468	$	48	$	—	$	93	$	13,600

Three Months Ended September 30, 2021
Allowance for loan losses
Beginning balance	$	2,918	$	5,350	$	3,243	$	3,185	$	758	$	4	$	42	$	93	$	15,593
Charge-offs	—		—		—		—		—		—		(7)		—		(7)
Recoveries	—		—		—		—		—		—		—		—		—
(Recovery of) provision for loan losses	(43)		386		(116)		(556)		(54)		39		5		1		(338)
Total ending allowance balance	$	2,875	$	5,736	$	3,127	$	2,629	$	704	$	43	$	40	$	94	$	15,248

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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table represents the allocation of allowance for loan losses and the related recorded investment (including deferred fees and costs) in loans by loan portfolio segment disaggregated based on the impairment methodology at September 30, 2022 and December 31, 2021:


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

	(In thousands)
September 30, 2022
Allowance for loan losses:
Individually evaluated for impairment	$	33	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	33
Collectively evaluated for impairment	2,514		6,059		3,104		1,281		468		48		—		93		13,567
Total	$	2,547	$	6,059	$	3,104	$	1,281	$	468	$	48	$	—	$	93	$	13,600

Loans receivable:
Individually evaluated for impairment	$	8,452	$	651	$	3,159	$	—	$	53	$	—	$	—	$	—	$	12,315
Collectively evaluated for impairment	586,343		679,530		181,988		12,791		16,725		4,149		596		—		1,482,122
Total	$	594,795	$	680,181	$	185,147	$	12,791	$	16,778	$	4,149	$	596	$	—	$	1,494,437


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

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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


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

	(In thousands)
With no related allowance recorded:
Residential one-to-four family	$	7,027	$	7,327	$	—	$	7,346	$	74	$	71
Multifamily	652		651		—		666		19		15
Non-residential	3,320		3,159		—		3,220		107		97
Construction	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Junior liens	53		53		—		54		2		2
	11,052		11,190		—		11,286		202		185
With an allowance recorded:
Residential one-to-four family	1,116		1,125		33		857		33		29
Multifamily	—		—		—		—		—		—
Non-residential	—		—		—		—		—		—
Construction	—		—		—		—		—		—
Commercial and Industrial (including PPP)	—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—
	1,116		1,125		33		857		33		29
Total	$	12,168	$	12,315	$	33	$	12,143	$	235	$	214

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

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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


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

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

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

The total recorded investment of loans whose terms have been modified in TDRs was $4.9 million and $5.4 million as of September 30, 2022 and December 31, 2021, respectively. The Company has allocated $33 thousand and $68 thousand, respectively, of specific reserves to TDR loans as of September 30, 2022 and December 31, 2021. The modification of the terms of TDR loans may include one or a combination of the following: a reduction of the stated interest rate of the loan, short-term deferral of payment, or an extension of the maturity date. The Company is not committed to lend any additional amounts to customers with outstanding loans that are classified as TDRs as of September 30, 2022.

A TDR loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no TDRs for which there was a payment default within twelve months following the modification during the periods ended September 30, 2022 and September 30, 2021.

There were no TDRs during the three months ended September 30, 2022. TDRs during the nine months ended September 30, 2022 totaled $453 thousand. There were no TDRs during the three and nine months ended September 30, 2021. The Company implemented modification programs to provide its borrowers relief from the economic impacts of COVID-19. In accordance with the CARES Act, the Company elected to not apply TDR classification to COVID-19 related loan modifications. Accordingly, these modifications are exempt from TDR classification under U.S. generally accepted accounting principles (“U.S. GAAP”) and were not classified as TDRs. At December 31, 2021, there were no deferrals related to the Cares Act.

The Company had $4.5 million and $792 thousand in consumer mortgage loans secured by residential real estate properties for which foreclosure proceedings are in process at September 30, 2022 and December 31, 2021, respectively.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


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

	(In thousands)
Residential one-to-four family	$	7,907	$	10,805	$	—	$	—
Multifamily	—		139		—		—
Non-residential	449		857		—		—
Construction	—		—		—		—
Commercial and industrial (including PPP) (1)	—		—		56		116
Junior liens	53		182		—		—
Total	$	8,409	$	11,983	$	56	$	116

(1) Loans 90 days past due and accruing are comprised of PPP loans which carry the federal guarantee of the

SBA.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the recorded investment in past due and current loans by loan portfolio class as of September 30, 2022 and December 31, 2021:


	30-59 Days Past Due		60-89 Days Past Due		90 Days and Greater Past Due		Total Past Due		Current		Total Loans Receivable

			(In thousands)
September 30, 2022
Residential one-to-four family	$	195	$	864	$	7,332	$	8,391	$	586,404	$	594,795
Multifamily	321		186		—		507		679,674		680,181
Non-residential	—		—		—		—		185,147		185,147
Construction	—		—		—		—		12,791		12,791
Junior liens	—		—		53		53		16,725		16,778
Commercial and Industrial (including PPP)	—		—		56		56		4,093		4,149
Consumer and other	52		10		—		62		534		596
Total	$	568	$	1,060	$	7,441	$	9,069	$	1,485,368	$	1,494,437

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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

Loss – Assets classified as loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the asset even though partial recovery may be effected in the future.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	Pass		Special Mention		Substandard		Doubtful / Loss		Total

	(In thousands)
September 30, 2022
Residential one-to-four family	$	586,252	$	257	$	8,286	$	—	$	594,795
Multifamily	678,742		917		522		—		680,181
Non-residential	183,594		1,102		451		—		185,147
Construction	12,791		—		—		—		12,791
Junior liens	16,725		—		53		—		16,778
Commercial and Industrial (including PPP)	4,149		—		—				4,149
Consumer and other	596		—		—		—		596
Total	$	1,482,849	$	2,276	$	9,312	$	—	$	1,494,437

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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – LEASES

Leases and Lease Obligations:

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

The Company had the following related to operating leases:


	September 30, 2022				December 31, 2021

	(Dollars in thousands)
Right-of-use assets	$	25,537			$	25,457
Lease liabilities	26,875				26,696
Weighted average remaining lease term for operating leases			11.5 years		12.2 years
Weighted average discount rate used in the measurement of lease liabilities			2.11	%	1.97		%

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(In thousands)
Operating lease cost	$	777	$	751	$	2,317	$	2,264
Finance lease cost	6		6		18		17
Variable lease cost	56		58		169		161
Total lease cost included as a component of occupancy and equipment	$	839	$	815	$	2,504	$	2,442

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(In thousands)
Cash paid for amounts included in the measurement of operating lease liabilities:
Operating cash flows from operating leases	$	747	$	653	$	2,272	$	1,915
Operating lease liabilities arising from obtaining right-of-use assets (non-cash):
Operating leases	$	2,023	$	1,029	$	2,023	$	3,197

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


Through September 30,	(In thousands)
2023	$	2,981
2024	2,931
2025	2,628
2026	2,553
2027	2,427
Thereafter	16,987
Total undiscounted lease payments	30,507
Less: imputed interest	(3,632)
Total	$	26,875

NOTE 5 – DEPOSITS

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


	September 30, 2022		December 31, 2021

	(In thousands)
Non-interest bearing deposits	$	59,636	$	44,894
NOW and demand accounts	385,334		363,419
Savings	455,979		364,932
Time deposits	365,548		473,795
Total	$	1,266,497	$	1,247,040

Money market accounts are included within the NOW and demand accounts and savings captions. Included in time deposits are brokered deposits totaling $5.7 million at September 30, 2022. There were no brokered deposits at December 31, 2021.

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


	(In thousands)
Remainder of 2022	$	98,707
2023	217,029
2024	32,623
2025	10,339
2026	5,119
2027	1,731
	$	365,548

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - STOCK-BASED COMPENSATION

Employee Stock Ownership Plan

The Company maintains an ESOP, a tax-qualified plan 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 September 30, 2022, the principal balance on the ESOP loan is $21.8 million. There were no contributions to the ESOP during the three and nine months ended September 30, 2022, as loan payments are made annually during the fourth quarter of each year. ESOP shares are committed to be released from unallocated and compensation expense are recognized over the service period. For the three months ended September 30, 2022, 22,818 shares were committed to be released from unallocated and ESOP compensation expense totaled $266 thousand. For the nine months ended September 30, 2022, 68,454 shares were committed to be released from unallocated and ESOP compensation expense totaled $870 thousand. Shares committed to be released from unallocated and ESOP compensation expense totaled 41,290 shares and $554 thousand, respectively, for both the three and nine months ended September 30, 2021.

Shares held by the ESOP were as follows:


	September 30, 2022		December 31, 2021
	(Dollars in thousands)

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

Fair value of unallocated shares	$	24,424	$	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 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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. For the nine months ended September 30, 2022, the Company granted 299,481 shares of restricted stock awards under the Equity Plan.

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. For the nine months ended September 30, 2022, the Company granted 748,713 stock options under the Equity Plan.

The fair value of stock options granted are estimated utilizing the Black-Scholes option pricing model using the following assumptions: an expected life of 6.5 years, risk-free rate of 3.15%, volatility of 29.74% 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 three and nine months ended September 30, 2022. There was no share-based compensation expense for the three and nine months ended September 30, 2021.


	Three and Nine Months Ended September 30, 2022
	(In thousands)
Stock option expense	$	57
Restricted stock expense	69
Total share-based compensation expense	$	126

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of the Company’s stock option activity and related information for the nine months ended September 30, 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	748,713	3.80		11.54		9.8



Outstanding - September 30, 2022	748,713	$	3.80	$	11.54	9.8
Exercisable - September 30, 2022	—

Expected future expense relating to the non-vested options outstanding as of September 30, 2022 is $2.8 million over a weighted average period of 4.8 years.

The following is a summary of the status of the Company’s restricted shares as of September 30, 2022 and changes therein during the nine months ended:


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


Outstanding - September 30, 2022	299,481	$	11.54

Expected future expense relating to the non-vested restricted shares outstanding as of September 30, 2022 is $3.4 million over a weighted average period of 4.8 years.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 – DERIVATIVES AND HEDGING ACTIVITIES

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

Interest rate swaps with notional amounts totaling $109.0 million at September 30, 2022 and December 31, 2021, were designated as cash flow hedges of certain Federal Home Loan Bank advances and were determined to be highly effective during all periods presented. The Company expects the hedges to remain highly effective during the remaining terms of the swaps.

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


	September 30, 2022			December 31, 2021

	(Dollars in thousands)
Notional amounts	$	109,000		$	109,000
Weighted average pay rates	1.4577		%	1.4577		%
Weighted average receive rates	3.0723		%	0.1742		%
Weighted average maturity	4.5 years			5.3 years

Gross unrealized gain included in other assets	$	11,769		$	1,313
Gross unrealized loss included in other liabilities	—			1,559
Unrealized gains (losses), net	$	11,769		$	(246)

At September 30, 2022, the Company held $11.5 million as cash collateral pledged from the counterparty for these interest-rate swaps. At September 30, 2022, the Company had no securities pledged to the counterparty. At December 31, 2021, securities pledged as collateral for these swaps totaled $5.6 million.

Interest income (expense) recorded on these swap transactions is reported as a component of interest expense on FHLB advances. Interest income (expense) during the three months ended September 30, 2022 and 2021 totaled $198 thousand and $(368) thousand, respectively. Interest income (expense) for the nine months ended September 30, 2022 and 2021 totaled $(270) thousand and $(1.1) million, respectively. At September 30, 2022, the Company expected $498 thousand of the unrealized gain to be reclassified as a reduction to interest expense during the remainder of 2022.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Cash Flow Hedge

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


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

	(In thousands)
Three months ended September 30, 2022
Interest rate contracts	$	4,096	Interest Expense	$	198

Three months ended September 30, 2021
Interest rate contracts	$	474	Interest Expense	$	(368)

Nine Months Ended September 30, 2022
Interest rate contracts	$	12,015	Interest Expense	$	(270)

Nine months ended September 30, 2021
Interest rate contracts	$	2,893	Interest Expense	$	(1,059)
(1) Net of tax, adjusted for deferred tax valuation allowance, at September 30, 2022. There was no deferred tax valuation allowance at September 30, 2021.

NOTE 8 – ACCUMULATED OTHER COMPREHENSIVE INCOME

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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	Three Months Ended September 30,
	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	$	(13,091)	$	123	$	(12,968)	$	(1,501)	$	448	$	(1,053)


Unrealized gain on cash flow hedge:
Unrealized gain arising during the period	4,294		—		4,294		292		(82)		210
Reclassification adjustment for (gain) loss included in net income	(198)		—		(198)		368		(104)		264
Total	4,096		—		4,096		660		(186)		474
Post-Retirement plans:

Reclassification adjustment for amortization of:

Net actuarial loss	65		—		65		52		(14)		38

Total other comprehensive (loss) income:	$	(8,930)	$	123	$	(8,807)	$	(789)	$	248	$	(541)

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


	Nine Months Ended September 30,
	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	$	(39,687)	$	175	$	(39,512)	$	(3,254)	$	768	$	(2,486)
Reclassification adjustment for gains included in net income	(14)		—		(14)		—		—		—
Total	(39,701)		175		(39,526)		(3,254)		768		(2,486)
Unrealized gain on cash flow hedge:
Unrealized gain arising during the period	11,745		—		11,745		2,966		(834)		2,132
Reclassification adjustment for losses included in net income	270		—		270		1,059		(298)		761
Total	12,015		—		12,015		4,025		(1,132)		2,893
Post-Retirement plans:
Net benefit arising from plan amendment (2)	164		—		164		—		—		—
Reclassification adjustment for amortization of:

Net actuarial loss	165		—		165		155		(43)		112
Total	329		—		329		155		(43)		112
Total other comprehensive (loss) income:	$	(27,357)	$	175	$	(27,182)	$	926	$	(407)	$	519

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

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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


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

	(In thousands)
Balance at December 31, 2021	$	(246)	$	1,091	$	(1,217)	$	(372)
Other comprehensive income (loss) before reclassification	11,745		(39,512)		164		(27,603)
Amounts reclassified from accumulated other comprehensive income	270		(14)		165		421
Net current period other comprehensive gain (loss)	12,015		(39,526)		329		(27,182)
Balance at September 30, 2022	$	11,769	$	(38,435)	$	(888)	$	(27,554)





Balance at December 31, 2020	$	(3,986)	$	4,208	$	(1,253)	$	(1,031)
Other comprehensive income (loss) before reclassification	2,132		(2,486)		—		(354)
Amounts reclassified from accumulated other comprehensive income	761		—		112		873
Net current period other comprehensive gain (loss)	2,893		(2,486)		112		519
Balance at September 30, 2021	$	(1,093)	$	1,722	$	(1,141)	$	(512)

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


Details about Accumulated Other Comprehensive Income Components	Three Months Ended September 30,				Nine Months Ended September 30,				Affected Line Item in the Statement Where Net Income is Presented
	2022		2021		2022		2021

	(In thousands)
Unrealized gains on securities available for sale: Realized (losses) gains on securities available for sale	$	—	$	—	$	14	$	—	(Loss) gain on sales and calls of securities
Losses on cash flow hedges:
Interest rate contracts	198		(368)		(270)		(1,059)		Interest (expense) income

Amortization of post-retirement plan items:
Net actuarial loss	(65)		(52)		(165)		(155)		Compensation and employee benefits
Total tax effect	—		118		—		341		Income tax expense
Total reclassification for the period, net of tax	$	133	$	(302)	$	(421)	$	(873)

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – FAIR VALUE OF ASSETS AND LIABILITIES

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

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

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

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

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

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

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

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

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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


			Fair Value Measurements at September 30, 2022, Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

	(In thousands)
Measured on a recurring basis:
Financial assets
Securities available for sale:
U.S. Treasury Note	$	43,572	$	43,572	$	—	$	—
Domestic Corporate Bonds	78,446		—		78,446		—
U.S. Government agency obligations	17,473		12,789		4,684		—
Obligations issued by U.S. states and their political subdivisions	15,955		—		15,955		—
Mortgage-backed securities:
Residential one-to-four family	142,406		—		142,406		—
Multifamily	18,644		—		18,644		—
Asset-backed securities	4,824		—		4,824		—
Total securities available for sale	321,320		56,361		264,959		—
Derivatives	11,769		—		11,769		—

Total financial assets measured on a recurring basis	$	333,089	$	56,361	$	276,728	$	—
Financial Liabilities
Derivatives	$	—	$	—	$	—	$	—

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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


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

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

Financial Liabilities
Derivatives	$	246	$	—	$	246	$	—

Other Fair Value Disclosures

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

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

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

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

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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the book value, fair value, and placement in the fair value hierarchy of financial instruments not recorded at fair values in their entirety on a recurring basis on the Company’s balance sheet at September 30, 2022 and December 31, 2021. The fair value measurements presented are consistent with Topic 820, Fair Value Measurement, in which fair value represents exit price. These tables exclude financial instruments for which the carrying amount approximates fair value. Financial instruments for which the carrying amount approximates fair value include cash and cash equivalents, other investments, non-maturity deposits, overnight borrowings, and accrued interest, which are excluded from the table below.


			Fair Value Measurements at September 30, 2022, Using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Book Value		(Level 1)		(Level 2)		(Level 3)

	(In thousands)
Financial assets

Securities held-to-maturity	$	30,749	$	—	$	26,344	$	—
Loans, net	1,480,837		—		—		1,341,805

Financial liabilities

Time Deposits	365,548		—		355,395		—
Federal Home Loan advances	295,500		—		288,373		—


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

	(In thousands)

Financial assets

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

Financial liabilities

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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 – REVENUE FROM CONTRACTS WITH CUSTOMERS AND OTHER INCOME

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income in the Statement of Operations. The following table presents the Company’s sources of revenue from contracts with customers for the three and nine months ended September 30, 2022 and 2021, respectively.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021

	(In thousands)				(In thousands)
Noninterest income
Service charges on deposits	$	255	$	246	$	752	$	706


Interchange income	12		9		31		25
Total Revenue from Contracts with Customers	$	267	$	255	$	783	$	731

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

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

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - EARNINGS PER SHARE

Basic earnings per share (“EPS”) represents income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common shares (such as unexercised stock options and unvested restricted stock) 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 Employee Stock Ownership Plan (“ESOP”) that have not been allocated to employees in accordance with the terms of the ESOP, referred to as “unallocated ESOP shares”, are not deemed outstanding for earnings per share calculations. The Company did not present earnings per share for the nine months ended September 30, 2021 as the year-to-date weighted average computation presented a figure that would not aid investors in understanding the Company’s financial results for the period.


	Three Months Ended September 30,				Nine Months Ended September 30, 2022
	2022		2021

	(Income In thousands)
Net income applicable to common shares	$	1,241	$	(14,970)	$	1,834

Shares
Average number of common shares outstanding	28,262,210		23,872,092		28,434,783
Less: Average unallocated ESOP shares	2,133,359		1,892,231		2,156,008
Average number of common shares outstanding used to calculate basic earnings per common share	26,128,851		21,979,861		26,278,775
Common stock equivalents	117,188		—		39,492
Average number of common shares outstanding used to calculate diluted earnings per common share	26,246,039		21,979,861		26,318,267

Earnings per common share
Basic	$	0.05	$	(0.68)	$	0.07
Diluted	$	0.05	$	(0.68)	$	0.07

Excluded from the earnings per share calculation are anti-dilutive equity awards for the three and nine months ended September 30, 2022, totaling 98,000 and 33,000, respectively.

BLUE FOUNDRY BANCORP

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12 - SUBSEQUENT EVENTS

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

Stock Repurchase Program

On July 20, 2022, the Company adopted a program to repurchase up to 2,852,250 shares, or 10%, of its outstanding common stock. As of November 7, 2022, 940,059 shares totaling $11.0 million had been acquired under the repurchase plan at an average price per share of $11.74 .

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section is intended to assist in the understanding of the financial performance of the Company and its subsidiary through a discussion of our financial condition as of September 30, 2022, and our results of operations for the three and nine month periods ended September 30, 2022 and 2021. This section should be read in conjunction with the unaudited interim condensed consolidated financial statements and notes thereto of the Company appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Forward-Looking Statements

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

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

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

made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies and Estimates

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

COVID-19 Pandemic

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

Comparison of Operating Results for the Three and Nine Month Periods Ended September 30, 2022 and 2021

General. Net income was $1.2 million for the three months ended September 30, 2022 compared to a net loss of $15.0 million for the three months ended September 30, 2021. Net income was $1.8 million for the nine months ended September 30, 2022 compared to a net loss of $16.7 million for the nine months ended September 30, 2021.

Interest Income. Interest income increased $2.3 million, or 16.3%, to $16.4 million for the three months ended September 30, 2022 from $14.1 million for the three months ended September 30, 2021, driven by an increase of $1.6 million in interest income from loans and $652 thousand from securities. The average balance of loans and securities increased $213.8 million and $73.3 million, respectively, while the average balance of cash decreased $424.6 million. The yield on average interest-earning assets increased 64 basis points to 3.37% for the three months ended September 30, 2022 from 2.73% for three months ended September 30, 2021.

Interest income increased $3.0 million, or 7.24%, to $44.8 million for the nine months ended September 30, 2022 from $41.8 million for the nine months ended September 30, 2021, primarily due to an increase of $1.7 million in interest income from securities and an increase of $1.4 million in interest income from loans. The average balance of securities and loans increased $102.7 million and $98.0 million, respectively, while the average balance of cash decreased $291.1 million. Interest income and average balances of loans for the nine months ended September 30, 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 35 basis points to 3.18% for the nine months ended September 30, 2022 from 2.83% for nine months ended September 30, 2021.

Interest Expense. Interest expense decreased $412 thousand, or 13.9%, to $2.6 million for the three months ended September 30, 2022 compared to $3.0 million for the three months ended September 30, 2021, driven by a decrease of $227 thousand in interest expense on deposits, coupled with a decrease of $185 thousand in interest expense on borrowings. The average balance of interest-bearing deposits and FHLB advances decreased $31.0 million and $38.5 million, respectively. A $174.7 million decrease in the average balances of higher cost time deposits partially offset by an increase of $143.7 million in the average balance of interest-bearing core deposits drove a two basis point decrease in the cost of total deposits and a two basis point decrease in the cost of funds. The cost of average interest-bearing liabilities decreased eight basis points to 0.69% for the three months ended September 30, 2022 from 0.77% for three months ended September 30, 2021.

For the nine months ended September 30, 2022, interest expense decreased $5.3 million, or 47.1%, to $5.9 million for the nine months ended September 30, 2022 compared to $11.2 million for the nine months ended September 30, 2021, driven by a decrease of $3.6 million in interest expense on deposits, coupled with a decrease of $1.7 million in interest expense on borrowings. The average balance of interest-bearing deposits and FHLB advances decreased $80.8 million and $102.8 million, respectively. A decrease of $216.9 million in the average balance of higher cost time deposits partially offset by an increase of $136.2 million in the average balance of interest-bearing core deposits drove a 30 basis point decrease in the cost of total deposits and a 33 basis point decrease in the cost of funds. The cost of average interest-bearing liabilities decreased 37 basis points to 0.55% for the nine months ended September 30, 2022 from 0.92% for nine months ended September 30, 2021.

Net Interest Income. For the three months ended September 30, 2022 net interest income was $13.8 million, an increase of $2.7 million, or 24.4%, compared to $11.1 million for the same period in 2021. Net interest spread increased 72 basis points to 2.68% and net interest margin increased 69 basis points to 2.84%.

For the nine months ended September 30, 2022 net interest income was $38.9 million, an increase of $8.3 million, or 27.1%, compared to $30.6 million for same period in 2021. Net interest spread increased 73 basis points to 2.64% and net interest margin increased by 69 basis points to 2.76%.

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 $419 thousand for the three months ended September 30, 2022 compared to a release of $338 thousand for the three months ended September 30, 2021. The release of provision for the three month period ended September 30, 2022 was driven by declines in balances within the construction portfolios, partially offset by growth in the multifamily and non-residential portfolios. For the nine months ended September 30, 2022, the Company recorded a release of provision for loan losses of $777 thousand compared to a release of $1.7 million for the nine months ended September 30, 2021. The release for the nine month period ended September 30, 2022 was driven by the same factors as the three month period.

Total non-performing loans decreased by $3.6 million to $8.4 million at September 30, 2022 compared to $12.0 million at December 31, 2021.

Non-interest Income. Non-interest income increased $310 thousand, or 63.4%, to $799 thousand for the three months ended September 30, 2022 from $489 thousand for the three months ended September 30, 2021, and increased $445 thousand, or 25.1%, to $2.2 million for the nine months ended September 30, 2022 compared to $1.8 million for the nine months ended September 30, 2021. The fluctuations in non-interest income for the three and nine month periods ending September 30, 2022 were primarily related to loan prepayment fee activity. Prepayment fees increased $302 thousand for the three months ended September 30, 2022 to $385 thousand from $83 thousand for the three months ended September 30, 2021. For the nine months ended September 30, 2022, loan prepayment fees increased $477 thousand to $947 thousand from $470 thousand for the nine months ended September 30, 2021. Overdraft fees recognized during the three and nine months ended September 30, 2022 totaled $79 thousand and $218 thousand, respectively, compared to $60 thousand and $161 thousand for the 2021 periods. Account maintenance fees recognized during the three and nine months ended September 30, 2022 totaled $17 thousand and $51 thousand, respectively, compared to $20 thousand and $61 thousand for the 2021 periods.

Non-interest Expense. Non-interest expense decreased $19.4 million, or 58.7%, to $13.7 million for the three months ended September 30, 2022 from $33.1 million for the three months ended September 30, 2021 and decreased

$17.4 million, or 30.3%, to $39.9 million for the nine months ended September 30, 2022 from $57.3 million for the nine months ended September 30, 2021. For the three months ended September 30, 2022, the decrease was driven by the absence in the 2022 period of non-recurring expenses incurred in 2021 consisting of the $9.2 million loss on pension withdrawal, $9.0 million charitable contribution, and the $1.4 million debt extinguishment cost. Also contributing to the decrease in non-interest expense for the three month period was a decrease in provision for commitments and letters of credits of $1.1 million. The decreases for the three month period were partially offset by an increase of $1.4 million in compensation and benefits costs as the Company continued to hire and retain talent. For the nine months ended September 30, 2022, the decrease was also driven by the 2021 non-recurring expenses described above for the three month period as well as a decrease in data processing of $1.0 million. The decreases for the nine month period were partially offset by an increase of $2.9 million in compensation and benefits costs.

Income Tax Expense. The Company recognized income tax expense of $123 thousand for the three months ended September 30, 2022 compared to an income tax benefit of $6.2 million for the three months ended September 30, 2021, and income tax expense of $175 thousand for the nine months ended September 30, 2022 compared to an income tax benefit of $6.5 million for the nine months ended September 30, 2021. The increase in tax expense for the 2022 periods was driven by the $22.6 million and $25.2 million increase in pre-tax income for the three and nine months ended September 30, 2022, respectively. The effective tax rate for the nine months ended September 30, 2022 and 2021 was 8.7% and (27.9)%, respectively.

At December 31, 2021, the net deferred tax asset totaled $16.8 million. Management assessed the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax asset. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2021. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, for the year ended December 31, 2021, a valuation allowance of $16.8 million was recorded.

During the nine months ended September 30, 2022, the deferred tax asset, net of the deferred tax liability, increased $7.0 million to $23.8 million. The increase is related to net unrealized losses that arose during the period within Accumulated Other Comprehensive Income (“AOCI”). These losses are primarily due to higher current market interest rates compared to rates at December 31, 2021. The Company recorded an additional valuation allowance of $6.8 million through AOCI during the nine months ended September 30, 2022 for total valuation allowance of $23.6 million at September 30, 2022.

The amount of the deferred tax asset considered realizable could be adjusted if estimates of future taxable income increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence, such as our projections for growth. The net deferred tax asset is included in other assets.

Average Balances and Yields

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


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

	(Dollar in thousands)
Assets:
Loans (1)	$	1,465,114	$	13,692	3.71	%	$	1,251,343	$	12,044	3.86	%
Mortgage-backed securities	197,406		1,055		2.12	%	165,170		762		1.85	%
Other investment securities	204,506		1,230		2.39	%	163,393		871		2.14	%
FHLB stock	13,141		139		4.20	%	14,442		183		5.09	%
Cash and cash equivalents	49,163		256		2.07	%	473,797		213		0.18	%
Total interest-bearing assets	1,929,330		16,372		3.37	%	2,068,145		14,073		2.73	%
Non-interest earning assets	61,264						97,287
Total assets	$	1,990,594					$	2,165,432
Liabilities and shareholders' equity:
NOW, savings, and money market deposits	$	831,191	759		0.36	%	$	687,470	242		0.14	%
Time deposits	405,823		665		0.65	%	580,499		1,409		0.97	%
Interest-bearing deposits	1,237,014		1,424		0.46	%	1,267,969		1,651		0.52	%
FHLB advances	243,647		1,133		1.84	%	282,153		1,318		1.87	%
Total interest-bearing liabilities	1,480,661		2,557		0.69	%	1,550,122		2,969		0.77	%
Non-interest bearing deposits	49,869						176,045
Non-interest bearing other	48,103						42,907
Total liabilities	1,578,633						1,769,074
Total shareholders' equity	411,961						396,358
Total liabilities and shareholders' equity	$	1,990,594					$	2,165,432
Net interest income			$	13,815					$	11,104
Net interest rate spread (2)					2.68	%					1.96	%
Net interest margin (3)					2.84	%					2.15	%

(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.


	Nine Months Ended September 30,
	2022						2021
	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost

	(Dollars in thousands)
Assets:
Loans (1)	$	1,372,306	$	37,792	3.68	%	$	1,274,274	$	36,362	3.82	%
Mortgage-backed securities	191,662		2,842		1.98	%	153,031		2,201		1.92	%
Other investment securities	204,009		3,395		2.22	%	139,909		2,324		2.22	%
FHLB stock	11,080		371		4.48	%	15,662		585		5.00	%
Cash and cash equivalents	103,526		444		0.57	%	394,656		346		0.12	%
Total interest-bearing assets	1,882,583		44,844		3.18	%	1,977,532		41,818		2.83	%
Non-interest earning assets	69,008						84,360
Total assets	$	1,951,591					$	2,061,892
Liabilities and shareholders' equity:
NOW, savings, and money market deposits	799,762		1,323		0.22	%	663,581		835		0.17	%
Time deposits	431,724		1,933		0.60	%	648,672		6,013		1.24	%
Interest-bearing deposits	1,231,486		3,256		0.35	%	1,312,253		6,848		0.70	%
FHLB advances	205,828		2,672		1.74	%	308,614		4,357		1.89	%
Total interest-bearing liabilities	1,437,314		5,928		0.55	%	1,620,867		11,205		0.92	%
Non-interest bearing deposits	45,338						126,933
Non-interest bearing other	47,691						44,684
Total liabilities	1,530,343						1,792,484
Total shareholders' equity	421,248						269,408
Total liabilities and shareholders' equity	$	1,951,591					$	2,061,892
Net interest income			$	38,916					$	30,613
Net interest rate spread (2)					2.64	%					1.91	%
Net interest margin (3)					2.76	%					2.07	%

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

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

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

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

Total Assets. Total assets increased $97.7 million, or 5.1%, to $2.01 billion at September 30, 2022 from $1.91 billion at December 31, 2021.

Cash and cash equivalents. Cash and cash equivalents decreased $136.1 million, or 70%, to $57.3 million at September 30, 2022 from $193.4 million at December 31, 2021 as the Company deployed cash into higher yielding loans and securities.

Securities Available-For-Sale. Securities available-for-sale decreased $3.6 million, or 1.1%, to $321.3 million at September 30, 2022 from $324.9 million at December 31, 2021 as purchases were offset by a decline of $39.7 million in the net unrealized gains/loss position of the portfolio due to the continuing rising interest rate environment during the nine months ended September 30, 2022.

Gross Loans. Gross loans held for investment increased $209.8 million, or 16.4%, to $1.49 billion at September 30, 2022 from $1.28 billion at December 31, 2021. Non-residential loans increased $43.9 million, multifamily loans increased $164.2 million and residential loans increased $30.8 million. Organic originations totaled $420.0 million, including originations of $261.2 million in multifamily loans, $93.3 million non-residential real estate loans and $42.3 million in construction loans. In addition, $88.4 million of conforming residential mortgages in New Jersey were purchased during the period.

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


	September 30, 2022		December 31, 2021

	(In thousands)
Residential one-to-four family	$	591,728	$	560,976
Multifamily	679,474		515,240
Non-residential	185,450		141,561
Construction	12,981		23,419
Junior liens	16,653		18,464
Commercial and industrial (including PPP) (1)	4,738		21,563
Consumer and other	39		87
Total gross loans	1,491,063		1,281,310
Deferred fees, costs, premiums and discounts, net	3,374		6,299
Total loans	1,494,437		1,287,609
Allowance for loan losses	(13,600)		(14,425)
Loans receivable, net	$	1,480,837	$	1,273,184

(1) The commercial and industrial portfolio includes PPP loans, net of deferred fees, totaling $557 thousand at September 30, 2022 and $16.8 million at December 31, 2021.

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


	September 30, 2022		December 31, 2021

	(In thousands)
Residential one-to-four family	$	7,907	$	10,805
Multifamily	—		139
Non-residential	449		857
Construction	—		—
Commercial and industrial (including PPP)	—		—
Junior liens	53		182


Total non-performing assets	$	8,409	$	11,983

Other assets. Other assets increased $13.7 million to $22.3 million at September 30, 2022 from $8.6 million at December 31, 2021, driven by the increase in fair value of the Company’s interest rate swap agreements. See Note 7, Derivatives and Hedging Activities, of Notes to Consolidated Financial Statements in “Item 1- Financial Statements.”

Total Deposits. Total deposits were $1.27 billion at September 30, 2022. Deposits increased $19.5 million, or 1.56% from December 31, 2021. Checking and savings accounts increased $127.7 million, or 16.5%, to $900.9 million at September 30, 2022 from $773.2 million at December 31, 2021. This increase was offset by a decrease in time deposits of $108.2 million, or 22.8%, to $365.5 million at September 30, 2022 from $473.8 million at December 31, 2021. These changes resulted in the ratio of core deposits to total deposits increasing to 71.1% at September 30, 2022 compared to 62.0% at December 31, 2021.

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


	September 30, 2022		December 31, 2021

	(In thousands)
Non-interest bearing deposits	$	59,636	$	44,894
NOW and demand accounts (1)	385,334		363,419
Savings (1)	455,979		364,932
Core deposits	900,949		773,245

Time deposits	365,548		473,795
Total deposits	$	1,266,497	$	1,247,040

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

Borrowings. The Company had $295.5 million of borrowings at September 30, 2022, an increase of $110.0 million, or 59.3% from $185.5 million at December 31, 2021. Our borrowings consisted solely of Federal Home Loan Bank of New York advances. Of that total, $109.0 million are associated with longer-dated swap agreements. See Note 7, Derivatives and Hedging Activities, of Notes to Consolidated Financial Statements in “Item 1- Financial Statements.”

Total Shareholders’ Equity. Total Shareholders’ equity decreased by $32.1 million, or 7.5%, to $397.3 million at September 30, 2022 compared to $429.5 million at December 31, 2021. The decrease was primarily driven by a $27.2 million reduction in accumulated other comprehensive income reflecting the net impact the interest rate environment had on the Company’s available-for-sale securities and the swap agreements used in our cash flow hedges. Also contributing to the decrease was the Company’s repurchase of $7.8 million of treasury shares, of which $3.5 million were allocated to fund shareholder-approved equity grants. These decreases were partially offset by net income of $1.8 million for the nine months ended September 30, 2022.

Liquidity and Capital Resources

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

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

The Bank is subject to various regulatory capital requirements administered by the New Jersey Department of Banking and Insurance (“NJDOBI”) and the Federal Deposit Insurance Corporation (“FDIC”). At September 30, 2022, the Bank exceeded all applicable regulatory capital requirements, and was considered “well capitalized” under regulatory guidelines.


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

	(Dollars in thousands)
September 30, 2022
Common equity tier 1	$	296,377	21.41	%	$	62,284	4.50	%	$	96,886	7.00	%	$	89,966	6.50	%
Tier 1 capital	296,377		21.41	%	83,045		6.00	%	117,647		8.50	%	110,727		8.00	%
Total capital	311,869		22.53	%	110,727		8.00	%	145,329		10.50	%	138,409		10.00	%
Tier 1 (leverage) capital	296,377		14.75	%	80,347		4.00	%	N/A		N/A		100,434		5.00	%

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

At September 30, 2022, we had outstanding commitments to originate loans of $19.6 million and unused lines of credit of $83.1 million. We anticipate that we will have sufficient funds available to meet our current loan origination commitments. Certificates of deposit that are scheduled to mature in less than one year from September 30, 2022 totaled $298.2 million. Management expects, based on historical experience, that a deposit relationship will be retained with a substantial portion of certificate holders. However, if a substantial portion of these deposits is not retained, we may utilize Federal Home Loan Bank of New York advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense. Available borrowing capacity at September 30, 2022 was $206.0 million with Federal Home Loan Bank of New York, $30.0 million line of credit with a correspondent bank and $2.5 million line of credit with the Federal Reserve Bank of New York.

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to originate loans, unused lines of credit and standby letters of credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss is represented by the contractual amount of the instruments. We use the same credit policies in making commitments that we do for on-balance sheet instruments. Management believes that our current sources of liquidity are more than sufficient to fulfill our obligations as of September 30, 2022 pursuant to off-balance-sheet arrangements and contractual obligations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

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

By following these strategies, we believe that we are 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 Company has entered into derivative financial instruments to reduce risk associated with interest rate volatility by matching asset maturities and liability maturities. These derivatives had an aggregate notional amount of $109.0 million as of September 30, 2022.

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. Most tenors of LIBOR will cease being published on June 30, 2023, although some tenors ceased at the end of 2021. The Bank has not been materially impacted by the partial LIBOR cessations on December 31, 2021. The Alternative Reference Rates Committee has proposed that the Secured Overnight Financing Rate is the rate that represents best practice as the alternative to USD-LIBOR for use in financial contracts that are currently indexed to USD-LIBOR. The Company has approximately $27.3 million in loans, $27.8 million in investments and $109.0 million notional of derivatives which are indexed to USD-LIBOR for which it is monitoring the activity and assessing the related risks. The Company is monitoring and developing transition plans to address potential revisions to documentation, as well as customer management and communication, internal training, financial, operational and risk management implications, and legal and contract management. 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 economic value of equity (“EVE”) analysis estimates the change in the net present value (“NPV”) of assets and liabilities and off-balance sheet contracts over a range of immediate rate shock interest rate scenarios. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. 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 September 30, 2022, the calculation of the estimated changes to the Bank’s net interest income, at the Bank level, that would result from the specified immediate changes in the United States Treasury yield curve. For purposes of this table, 100 basis points equals 1%.


	Net Interest Income

Change in Interest Rates (basis points)	Amount		Change		Percent
	(Dollars in Thousands)
+200	$	58,832	$	(3,765)	(6)	%
+100	60,797		(1,800)		(3)
0	62,597		—		—
-100	62,342		(255)		—
-200	60,581		(2,016)		(3)

The following table sets forth, at September 30, 2022, the calculation of the estimated changes in our net portfolio value, at the Bank level, that would result from the specified immediate changes in the United States Treasury yield curve. For purposes of this table, 100 basis points equals 1%.


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

	(Dollars in thousands)
+200	92,843	(87,783)	(49)	5	(4)
+100	136,101	(44,525)	(25)	7	(2)
0	180,626	—	—	9	—
-100	220,934	40,308	22	11	2
-200	257,387	76,761	42	13	4

The tables above indicates that at September 30, 2022, in the event of an instantaneous 100 basis point increase in interest rates, we would experience a 25% decrease in EVE. In the event of an instantaneous 100 basis point decrease in interest rates, we would experience a 22% increase in EVE.

Certain short comings 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 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective. There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1.A RISK FACTORS

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

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

The following table reports information regarding repurchases of our common stock during the quarter ended September 30, 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)
July	—	$0.00	—	2,852,250
August	434,266	11.79	434,266	2,417,984
September	232,423	11.45	232,423	2,185,561
Total	666,689	11.67	666,689

(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 2,185,561 shares yet to be repurchased as of September 30, 2022.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

The prior year’s Annual Meeting of Stockholders was held on August 25, 2022. The date scheduled for the next Annual Meeting of Stockholders, to be held following the year ending December 31, 2022, has been set for May 18, 2023. In accordance with SEC rules, the Company has established December 18, 2022 as the deadline for the receipt of stockholder proposals submitted pursuant to SEC Rule 14a-8. In order to be eligible for inclusion in the proxy materials for the Company’s 2023 Annual Meeting of Stockholders, any stockholder proposal submitted pursuant to SEC Rule 14a-8 must be received at Blue Foundry Bancorp’s executive office, 19 Park Avenue, Rutherford, New Jersey 07070 no later than December 18, 2022.

Under the Company’s advance notice bylaw provision, the deadline for a stockholder to submit notice of an intent to make a proposal for new business or to nominate a candidate for election as a director at an annual meeting is no less than 120 days prior to the date of the Company’s proxy materials for the preceding year’s annual meeting, provided that if the date of the annual meeting is advanced more than 30 days prior to the anniversary of the preceding year’s annual meeting, the notice must be delivered no later than the close of business on the 10th day following the date on which public announcement (including by means of an SEC periodic report) of the meeting is first made. Thus, under the Company’s bylaws, notice by a stockholder of an intent to make a proposal for new business or to nominate a candidate for election as a director at the May 18, 2023 Annual Meeting of Stockholders is due November 20, 2022. However, the Company has determined that it will deem any such notice to be timely if it is received by the Company by December 18, 2022.

ITEM 6. EXHIBITS

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


3.1			Certificate of Incorporation of Blue Foundry Bancorp (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-254079))
3.2			Bylaws of Blue Foundry Bancorp (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-254079))
4			Form of Common Stock Certificate of Blue Foundry Bancorp (Incorporated by reference to the Registrant’s Registration Statement on Form S-1 (File No. 333-254079))
10.1			B lue Found ry Ban corp 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))
31.1			Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101			The following materials from the Company’s Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of Financial Condition; (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Shareholder’s Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to Consolidated Financial Statements.
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

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

BLUE FOUNDRY BANCORP

Dated:

November 10, 2022

By:

/s/ James D. Nesci

James D. Nesci

Chief Executive Officer

(Principal Executive Officer)

Dated:

November 10, 2022

By:

/s/ Kelly Pecoraro

Kelly Pecoraro

Chief Financial Officer

(Principal Financial Officer)