Blue Foundry Bancorp(BLFY) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents Blue Foundry Bancorp's unaudited consolidated financial statements and management's analysis ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS This section presents Blue Foundry Bancorp's unaudited consolidated financial statements and detailed accounting notes Consolidated Statements of Financial Condition This section presents the company's assets, liabilities, and shareholders' equity at specific reporting dates | Metric (In thousands) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | ASSETS | | | | Cash and cash equivalents | $324,291 | $316,445 | | Securities available for sale, at fair value | $314,146 | $244,587 | | Loans receivable, net | $1,238,975 | $1,267,114 | | Total assets | $2,024,333 | $1,942,546 | | LIABILITIES | | | | Deposits | $1,265,617 | $1,356,184 | | Advances from the Federal Home Loan Bank | $247,600 | $329,400 | | Total liabilities | $1,576,098 | $1,736,946 | | SHAREHOLDERS' EQUITY | | | | Total shareholders' equity | $448,235 | $205,600 | | Total liabilities and shareholders' equity | $2,024,333 | $1,942,546 | - Total assets increased by $81.8 million (4%) from December 31, 2020, to September 30, 2021, primarily driven by purchases of investment securities[165] - Total shareholders' equity significantly increased by $242.6 million (118.0%) to $448.2 million at September 30, 2021, primarily due to proceeds from the initial public offering of common stock, partially offset by a net loss[176] Consolidated Statements of Operations This section details the company's revenues, expenses, and net loss over specific reporting periods | Metric (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Interest income | $14,073 | $15,137 | $41,818 | $47,449 | | Interest expense | $2,969 | $5,508 | $11,205 | $17,701 | | Net interest income | $11,104 | $9,629 | $30,613 | $29,748 | | (Recovery of) provision for loan losses | $(338) | $1 | $(1,699) | $2,754 | | Total noninterest income | $489 | $611 | $1,775 | $534 | | Total noninterest expenses | $33,118 | $13,002 | $57,290 | $63,761 | | Loss before income tax benefit | $(21,187) | $(2,763) | $(23,203) | $(36,233) | | Income tax benefit | $(6,217) | $(1,098) | $(6,485) | $(6,489) | | Net loss | $(14,970) | $(1,665) | $(16,718) | $(29,744) | | Basic and diluted earnings per share | $(0.68) | n/a | n/a | n/a | - Net loss for the three months ended September 30, 2021, increased to $(14.97) million from $(1.67) million in the prior year, primarily due to a $9.2 million pension withdrawal liability and a $9.0 million charitable contribution[142][145] - Net loss for the nine months ended September 30, 2021, improved to $(16.72) million from $(29.74) million in the prior year, largely due to a decrease in non-interest expenses from 2020 impairments, partially offset by the 2021 pension and charitable contribution liabilities[142][146] Consolidated Statements of Comprehensive (Loss) Income This section presents the company's net loss and other comprehensive income components, leading to total comprehensive loss | Metric (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(14,970) | $(1,665) | $(16,718) | $(29,744) | | Unrealized holding (loss) gain on securities available for sale | $(1,501) | $135 | $(3,254) | $3,989 | | Unrealized holding gain (loss) arising during the period (cash flow hedge) | $1,028 | $729 | $5,084 | $(5,721) | | Total other comprehensive (loss) income | $(541) | $324 | $519 | $(1,787) | | Comprehensive loss | $(15,511) | $(1,341) | $(16,199) | $(31,531) | - Total other comprehensive (loss) income for the three months ended September 30, 2021, was $(541) thousand, a decrease from $324 thousand in the prior year, primarily due to unrealized losses on available-for-sale securities[12] - For the nine months ended September 30, 2021, total other comprehensive income was $519 thousand, a significant improvement from a loss of $(1,787) thousand in the prior year, driven by unrealized gains on cash flow hedges[12] Consolidated Statements of Changes in Shareholders' Equity This section details the changes in each component of shareholders' equity, including net loss, stock offerings, and ESOP activities | Metric (In thousands) | Balance at Jan 1, 2021 | Net Loss | Other Comprehensive Income (Loss) | Proceeds of Stock Offering and Issuance of Common Shares (net) | Issuance of Common Shares Donated to Charitable Foundation | Purchase of Common Shares by ESOP | ESOP Shares Committed to be Released | Balance at Sep 30, 2021 | | :-------------------- | :--------------------- | :------- | :-------------------------------- | :------------------------------------------------------------- | :--------------------------------------------------------- | :-------------------------------- | :----------------------------------- | :---------------------- | | Common Stock | $10 | — | — | $268 | $7 | — | — | $285 | | Additional Paid-In Capital | $822 | — | — | $273,330 | $7,493 | — | $141 | $281,786 | | Retained Earnings | $205,799 | $(16,718) | — | — | — | — | — | $189,081 | | Accumulated Other Comprehensive Income (Loss) | $(1,031) | — | $519 | — | — | — | — | $(512) | | Unallocated Common Stock Held by ESOP | — | — | — | — | — | $(22,818) | $413 | $(22,405) | | Total Shareholders' Equity | $205,600 | $(16,718) | $519 | $273,598 | $7,500 | $(22,818) | $554 | $448,235 | - Shareholders' equity increased significantly from $205.6 million at January 1, 2021, to $448.2 million at September 30, 2021, primarily driven by $273.6 million in proceeds from a stock offering and issuance of common shares[14] - The company recorded a net loss of $(16.7) million and recognized $519 thousand in other comprehensive income during the nine months ended September 30, 2021[14] - The Employee Stock Ownership Plan (ESOP) purchased $22.8 million in common shares, which is reflected as a reduction in shareholders' equity, while ESOP shares committed to be released added $554 thousand[14] Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities | Metric (In thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $(3,671) | $(2,239) | | Net cash used in investing activities | $(66,220) | $55,526 | | Net cash provided by financing activities | $77,737 | $70,794 | | Net increase in cash and cash equivalents | $7,846 | $124,081 | | Cash and cash equivalents at end of period | $324,291 | $248,115 | - Net cash used in investing activities significantly increased to $(66.2) million for the nine months ended September 30, 2021, compared to $55.5 million provided in the prior year, primarily due to increased purchases of securities[16] - Net cash provided by financing activities increased to $77.7 million for the nine months ended September 30, 2021, from $70.8 million in the prior year, largely driven by net proceeds from the issuance of common shares[16] - Cash and cash equivalents at the end of the period increased to $324.3 million, up from $316.4 million at the beginning of the period, but the net increase in cash and cash equivalents was significantly lower than the prior year[16] Notes to the Consolidated Financial Statements This section provides detailed disclosures on accounting policies, financial instruments, and other significant financial information NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the company's key accounting policies, including loan accounting, ESOP, EPS, and new accounting standard adoptions - On July 15, 2021, Blue Foundry, MHC completed its conversion into a stock holding company, with the Company selling 27,772,500 shares of common stock at $10 per share, generating gross proceeds of $277.7 million[20] - The Company contributed 750,000 shares of common stock and $1.5 million in cash to Blue Foundry Charitable Foundation, Inc. in connection with the conversion[20] - The Company adopted ASU No. 2016-02, 'Leases (Topic 842)' effective January 1, 2020, resulting in the recognition of operating right-of-use assets and operating lease liabilities of $6.0 million each, with no material impact on expense or income recognition[38][40] - The Company is required to adopt ASU No. 2016-13, 'Financial Instruments – Credit Losses (Topic 326)' (CECL model) on January 1, 2023, and is currently developing a methodology to implement the standard, though the impact cannot yet be reasonably estimated[41] NOTE 2 – SECURITIES This note details the company's securities portfolio, including available-for-sale and held-to-maturity, fair values, and unrealized gains or losses | Security Type (In thousands) | Sep 30, 2021 Amortized Cost | Sep 30, 2021 Estimated Fair Value | Dec 31, 2020 Amortized Cost | Dec 31, 2020 Estimated Fair Value | | :--------------------------- | :-------------------------- | :-------------------------------- | :-------------------------- | :-------------------------------- | | Available-for-sale | | | | | | U.S. Treasury Note | $6,901 | $6,773 | $9,989 | $10,000 | | Corporate Bonds | $86,169 | $88,118 | $57,478 | $59,341 | | U.S. Government agency obligations | $25,311 | $25,240 | $19,787 | $19,675 | | Mortgage-backed securities | $165,427 | $165,017 | $128,336 | $130,776 | | Total available-for-sale | $311,683 | $314,146 | $238,870 | $244,587 | | Held-to-maturity | | | | | | Collateralized loan obligation | $3,000 | $3,000 | $7,005 | $6,979 | | Asset-backed securities | $15,325 | $15,139 | — | — | | Corporate bonds | $5,000 | $5,008 | — | — | | Total held-to-maturity | $23,325 | $23,147 | $7,005 | $6,979 | - Proceeds from sales and calls of available-for-sale securities totaled $14.0 million for the nine months ended September 30, 2021, compared to $11.4 million for the same period in 2020[45] - At September 30, 2021, available-for-sale securities had total unrealized losses of $(1,847) thousand, primarily in U.S. Treasury Notes, Corporate Bonds, and Mortgage-backed securities, which the Company does not consider other-than-temporarily impaired due to interest rate changes and no intent to sell[43][50][51] NOTE 3 – LOANS RECEIVABLE, NET This note details the loan portfolio composition, allowance for loan losses, and information on impaired and non-accrual loans | Loan Type (In thousands) | Sep 30, 2021 | Dec 31, 2020 | | :----------------------- | :----------- | :----------- | | Residential one-to-four family | $522,213 | $611,603 | | Multifamily | $511,408 | $427,436 | | Non-residential | $130,823 | $128,141 | | Construction and land | $21,337 | $33,691 | | Junior liens | $19,540 | $23,814 | | Commercial and industrial (including PPP) | $44,262 | $54,053 | | Consumer and other | $80 | $99 | | Total loans | $1,249,663 | $1,278,837 | | Allowance for loan losses | $(15,248) | $(16,959) | | Loans receivable, net | $1,238,975 | $1,267,114 | - The allowance for loan losses decreased to $15.2 million at September 30, 2021, from $17.0 million at December 31, 2020, reflecting a recovery of provision for loan losses of $1.7 million for the nine months ended September 30, 2021[54][60] Impaired Loans (In thousands) | Impaired Loans (In thousands) | Sep 30, 2021 Recorded Investment | Sep 30, 2021 Allowance for Loan Losses Allocated | | :---------------------------- | :------------------------------- | :--------------------------------------------- | | With no related allowance recorded | $15,157 | $0 | | With an allowance recorded | $1,107 | $71 | | Total | $16,264 | $71 | Non-Accrual Loans (In thousands) | Non-Accrual Loans (In thousands) | Sep 30, 2021 | Dec 31, 2020 | | :------------------------------- | :----------- | :----------- | | Residential one-to-four family | $10,969 | $11,813 | | Multifamily | $145 | $156 | | Non-residential | $1,236 | $805 | | Junior liens | $114 | $82 | | Total | $12,464 | $12,856 | NOTE 4 – LEASES This note provides information on the company's operating leases, including right-of-use assets, lease liabilities, and associated costs Metric (In thousands) | Metric (In thousands) | Sep 30, 2021 | | :-------------------- | :----------- | | Right-of-use assets | $26,101 | | Lease liabilities | $27,293 | Lease Cost (In thousands) | Lease Cost (In thousands) | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | | :------------------------ | :------------------------------ | :----------------------------- | | Operating lease cost | $751 | $2,264 | | Finance lease cost | $6 | $17 | | Variable lease cost | $58 | $161 | | Total lease cost | $815 | $2,442 | - As of September 30, 2021, the weighted average remaining lease term for operating leases was 12.3 years, and the weighted average discount rate used was 1.96%[80] NOTE 5 – DEPOSITS This note summarizes the Company's deposit balances by type and provides a maturity schedule for time deposits Deposit Type (In thousands) | Deposit Type (In thousands) | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------- | :----------- | :----------- | | NOW and demand accounts | $396,487 | $362,169 | | Savings | $347,620 | $276,584 | | Time deposits | $521,510 | $717,431 | | Total | $1,265,617 | $1,356,184 | - Total deposits decreased by $90.6 million (7%) from December 31, 2020, to September 30, 2021, primarily due to a $195.9 million decrease in time deposits, partially offset by a $105.4 million increase in NOW and demand accounts and savings[83][171] Time Deposit Maturities (In thousands) | Time Deposit Maturities (In thousands) | Amount | | :------------------------------------- | :----- | | Remainder of 2021 | $128,516 | | 2022 | $246,645 | | 2023 | $113,255 | | 2024 | $20,173 | | 2025 | $6,801 | | 2026 | $6,120 | | Total | $521,510 | NOTE 6 – DERIVATIVES This note describes the Company's use of interest rate swap agreements as cash flow hedges to manage interest rate risk - The Company uses interest rate swap agreements with notional amounts totaling $109.0 million at September 30, 2021, designated as cash flow hedges for Federal Home Loan Bank advances[86][87] Metric | Metric | Sep 30, 2021 | Dec 31, 2020 | | :----- | :----------- | :----------- | | Notional amounts (In thousands) | $109,000 | $109,000 | | Weighted average pay rates | 1.4577 % | 1.4577 % | | Weighted average receive rates | 0.1241 % | 0.2303 % | | Weighted average maturity | 5.5 Years | 6.0 years | | Unrealized losses (In thousands) | $(1,520) | $(5,545) | - Unrealized losses on these swaps decreased to $(1,520) thousand at September 30, 2021, from $(5,545) thousand at December 31, 2020[87] NOTE 7 – RETIREMENT PLANS This note details the Company's retirement plans, including its withdrawal from the Pentegra Defined Benefit Plan and associated liabilities - The Company elected to withdraw from the Pentegra Defined Benefit Plan in August 2021 and recorded an accrued withdrawal liability of $9.2 million, with the withdrawal expected to finalize in Q4 2021[92] Net Periodic Benefit Cost (In thousands) | Net Periodic Benefit Cost (In thousands) | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | | :------------------------------------- | :------------------------------ | :----------------------------- | | Service cost | $38 | $113 | | Interest cost | $19 | $56 | | Prior Service Cost | $17 | $51 | | Amortization: Net loss (gain) | $36 | $106 | | Total net periodic benefit cost | $110 | $326 | NOTE 8 – FAIR VALUE OF ASSETS AND LIABILITIES This note explains the fair value measurement hierarchy and summarizes the fair values of financial and non-financial assets and liabilities Asset/Liability (In thousands) | Asset/Liability (In thousands) | Sep 30, 2021 Total Fair Value | Level 1 | Level 2 | Level 3 | | :----------------------------- | :---------------------------- | :------ | :------ | :------ | | Recurring Basis | | | | | | Securities available for sale | $314,146 | $26,091 | $288,055 | $0 | | Derivatives | $(1,520) | $0 | $(1,520) | $0 | | Nonrecurring Basis | | | | | | Assets held for sale | $5,225 | $0 | $5,225 | $0 | | Real estate owned | $624 | $0 | $624 | $0 | Financial Instrument (In thousands) | Financial Instrument (In thousands) | Sep 30, 2021 Book Value | Sep 30, 2021 Fair Value | | :---------------------------------- | :---------------------- | :---------------------- | | Cash and due from banks | $324,291 | $324,291 | | Securities held-to-maturity | $23,325 | $23,147 | | Loans, net | $1,238,975 | $1,235,172 | | Deposits other than time deposits | $744,107 | $744,107 | | Time Deposits | $521,510 | $521,294 | | Federal Home Loan advances | $247,600 | $244,611 | NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE INCOME This note summarizes changes in accumulated other comprehensive income (AOCI) by component, including cash flow hedges and available-for-sale securities AOCI Component (In thousands) | AOCI Component (In thousands) | Balance at Dec 31, 2020 | Net Current Period Other Comprehensive (Loss) Gain | Balance at Sep 30, 2021 | | :---------------------------- | :---------------------- | :------------------------------------------------- | :---------------------- | | Cash Flow Hedges | $(3,986) | $474 | $(1,093) | | Available-for-sale Securities | $4,208 | $(1,053) | $1,722 | | Benefit Pension Items | $(1,253) | $38 | $(1,141) | | Total | $(1,031) | $(541) | $(512) | - Accumulated other comprehensive income (loss) improved from $(1,031) thousand at December 31, 2020, to $(512) thousand at September 30, 2021, primarily due to a net current period other comprehensive gain of $597 thousand in Q1 2021 and $463 thousand in Q2 2021, partially offset by a loss of $(541) thousand in Q3 2021[114] NOTE 10 – REVENUE FROM CONTRACTS WITH CUSTOMERS AND OTHER INCOME This note details the Company's noninterest income from customer contracts, specifically service charges on deposits and interchange income Noninterest Income (In thousands) | Noninterest Income (In thousands) | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Service charges on deposits | $246 | $188 | $706 | $527 | | Interchange income | $9 | $5 | $25 | $16 | | Total Revenue from Contracts with Customers | $255 | $193 | $731 | $543 | - Total revenue from contracts with customers increased to $255 thousand for the three months ended September 30, 2021, from $193 thousand in the prior year, and to $731 thousand for the nine months ended September 30, 2021, from $543 thousand in the prior year[120] NOTE 11 – EARNINGS PER SHARE This note outlines the calculation of basic and diluted earnings per share (EPS), confirming no dilutive effects for the periods presented Metric (In thousands, except EPS) | Metric (In thousands, except EPS) | Three Months Ended Sep 30, 2021 | | :-------------------------------- | :------------------------------ | | Net income applicable to common shares | $(14,970) | | Average number of common shares outstanding | 23,872,092 | | Less: Average unallocated ESOP shares | 1,892,231 | | Average number of common shares outstanding used to calculate basic earnings per common share | 21,979,861 | | Earnings per common share basic and diluted | $(0.68) | - Basic and diluted earnings per share for the three months ended September 30, 2021, was $(0.68), with no dilutive effect from securities or other contracts[125][126] NOTE 12 – SUBSEQUENT EVENTS This note discloses significant events after the balance sheet date, specifically the extinguishment of Federal Home Loan Bank borrowings - On October 21, 2021, the Bank extinguished $62.1 million in borrowings from the Federal Home Loan Bank of New York, incurring a prepayment penalty of $755 thousand[129] - This debt repayment is expected to enhance the Bank's overall net interest margin and reduce its wholesale funding ratio[129] NOTE 13 – ESOP This note provides details on the Employee Stock Ownership Plan (ESOP), including shares purchased, allocation, and recognized expense - The ESOP borrowed funds to purchase 2,281,800 shares of stock at $10 per share[130] ESOP Shares (In thousands) | ESOP Shares (In thousands) | Nine Months Ended Sep 30, 2021 | | :------------------------- | :----------------------------- | | Allocated to participants | 41,290 | | Unallocated | 2,240,510 | | Total ESOP shares | 2,281,800 | | Fair value of unearned shares | $30,897 | - An expense of $554 thousand was recorded during the first nine months of 2021 related to ESOP shares committed to be released[131] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the Company's financial performance, condition, liquidity, and capital resources Forward-Looking Statements This section discloses inherent uncertainties and contingencies that could cause actual results to differ materially from expectations - Forward-looking statements are subject to significant business, economic, and competitive uncertainties and contingencies, many beyond the Company's control[136] - Key factors that could cause actual results to differ include general economic conditions, changes in loan delinquencies and write-offs, access to cost-effective funding, fluctuations in real estate values, and changes in the interest rate environment[136] - Other risks include changes in laws or government regulations, technological changes, operational or security system failures (including cyber-attacks), and the ability to retain key employees[136] Critical Accounting Policies and Estimates This section states that there have been no material changes to the Company's critical accounting policies and estimates - There have been no material changes to the Company's critical accounting policies as compared to those described in the Company's prospectus filed on May 21, 2021[139] Executive Summary The executive summary provides a high-level overview of the Company's financial performance, highlighting key trends and impacts - The Company reported a net loss of $15.0 million for the three months ended September 30, 2021, compared to a net loss of $1.7 million for the same period in 2020, primarily due to increased non-interest expenses from a pension withdrawal liability and a charitable foundation contribution[142] - For the nine months ended September 30, 2021, the net loss improved to $16.7 million compared to $29.7 million in the prior year, largely due to a decrease in non-interest expenses from 2020 impairments, partially offset by 2021 liabilities[142] Key Financial Metrics | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Interest Margin (bps change) | +9 | | -7 | | | Gross Loans Change (vs Dec 31, 2020, %) | -2.28% | | | | | Gross Loans Change (vs Dec 31, 2020, In millions) | -29.2 | | | | | Total Non-interest Expense (In millions) | 33.1 | 13.0 | 57.3 | 63.8 | | (Recovery of) Provision for Loan Losses (In millions) | -0.3 | 0.001 | -1.7 | 2.8 | | Non-maturity Deposits Change (vs Dec 31, 2020, In millions) | +105.3 | | | | | Non-maturity Deposits as % of total | 59% | | | | | Cost of Interest-Bearing Deposits (%) | 0.52 | 1.18 | 0.70 | 1.32 | | Cost of Interest-Bearing Deposits (bps change) | -66 | | -62 | | | Non-accrual Loans (In millions) | 12.5 | | | | | Non-accrual Loans Change (vs Dec 31, 2020, In millions) | -0.4 | | | | Comparison of Operating Results for the Three and Nine Month Periods Ended September 30, 2021 and 2020 This section compares the Company's operating results, analyzing changes in net income, interest, and non-interest items for the periods presented General Net income decreased for the three-month period due to significant non-interest expenses, while it improved for the nine-month period - Net loss for the three months ended September 30, 2021, was $15.0 million, a $13.3 million decrease compared to a $1.7 million net loss in the prior year, driven by a $9.2 million pension withdrawal liability and a $9.0 million charitable contribution[145] - Net loss for the nine months ended September 30, 2021, was $16.7 million, a $13.0 million increase (improvement) compared to a $29.7 million net loss in the prior year, primarily due to a $12.8 million valuation allowance and $1.4 million REO write-down in Q1 2020, and $15.5 million goodwill impairment in Q2 2020[145][146] Interest Income Interest income decreased for both periods, primarily due to a reduction in interest income from loans and lower average loan balances - Interest income decreased by $1.1 million (7%) to $14.1 million for the three months ended September 30, 2021, and by $5.6 million (12%) to $41.8 million for the nine months ended September 30, 2021[147] - The decrease was mainly due to a $1.4 million reduction in interest income from loans for the three-month period, as average loan balances decreased by $142.0 million to $1.25 billion[147] - For the nine-month period, the decrease was due to a $5.2 million reduction in interest income from loans, with average loan balances decreasing by $142.0 million to $1.27 billion and average yield on loans decreasing by 10 basis points to 3.82%[147] Interest Expense Interest expense significantly decreased for both periods, driven by lower interest expense on deposits and borrowed funds - Interest expense decreased by $2.5 million (46%) to $3.0 million for the three months ended September 30, 2021, and by $6.5 million (37%) to $11.2 million for the nine months ended September 30, 2021[149][150] - For the three-month period, the decrease was driven by a $2.1 million reduction in interest expense on deposits and a $0.4 million reduction on borrowings[149] - Average interest-bearing deposit balances for the three months ended September 30, 2021, were $1.27 billion at a weighted average interest rate of 0.52%, down from $1.29 billion at 1.18% in the prior year[149] Net Interest Income Net interest income increased for both periods, benefiting from a larger decrease in interest expense compared to interest income - Net interest income for the three months ended September 30, 2021, was $11.1 million, an increase of $1.5 million compared to $9.6 million for the same period in 2020[151] - Net interest income for the nine months ended September 30, 2021, was $30.6 million, an increase of $0.9 million compared to $29.7 million for the same period in 2020[151] Provision for Loan Losses The Company recorded a recovery of provision for loan losses for both periods, driven by declining balances and improving credit quality - The Company recorded a recovery of provision for loan losses of $0.3 million for the three months ended September 30, 2021, compared to a provision of $1 thousand in the prior year[153] - For the nine months ended September 30, 2021, a recovery of $1.7 million was recorded, compared to a provision of $2.8 million in the prior year[153] - The recovery was driven by declining balances in portfolio segments with higher applied loss rates and declining non-performing assets, which decreased by $0.4 million to $12.5 million at September 30, 2021[153][154] Non-interest Income Non-interest income slightly decreased for the three-month period but significantly increased for the nine-month period due to a prior year valuation allowance - Non-interest income decreased by $0.1 million to $0.5 million for the three months ended September 30, 2021, from $0.6 million in the prior year[155] - For the nine months ended September 30, 2021, non-interest income increased by $1.2 million to $1.8 million, compared to $0.5 million in the prior year, primarily due to a $1.4 million valuation allowance on real estate owned in 2020[155] Non-interest Expense Non-interest expense significantly increased for the three-month period due to specific liabilities, while decreasing for the nine-month period due to prior year impairments - Non-interest expense increased by $20.1 million (155%) to $33.1 million for the three months ended September 30, 2021, primarily due to a $9.2 million pension withdrawal liability and a $9.0 million charitable contribution[156][157] - For the nine months ended September 30, 2021, non-interest expense decreased by $6.5 million (10%) to $57.3 million, compared to $63.8 million in the prior year[157] - The nine-month decrease was mainly due to $12.8 million in premises/REO write-downs and $15.5 million in goodwill impairment recorded in 2020, and a $3.4 million reduction in professional services, partially offset by the 2021 pension and charitable contribution liabilities and a $2.7 million increase in data processing costs[158] Income Tax Expense The Company recognized an increased income tax benefit for the three-month period and a consistent benefit for the nine-month period - The Company recognized an income tax benefit of $6.2 million for the three months ended September 30, 2021, compared to $1.1 million in the prior year[159] - For the nine months ended September 30, 2021, the income tax benefit was $6.5 million, consistent with the prior year[159] - The effective tax rate for the nine months ended September 30, 2021, was (27.9)%, compared to (17.9)% in the prior year[159] Average Balances and Yields This section presents tables detailing average balances of interest-earning assets and interest-bearing liabilities, with corresponding yields and costs Average Balances and Yields (Three Months Ended Sep 30) | Metric | 3 Months Ended Sep 30, 2021 Average Balance (In thousands) | 3 Months Ended Sep 30, 2021 Interest (In thousands) | 3 Months Ended Sep 30, 2021 Yield/Cost | 3 Months Ended Sep 30, 2020 Average Balance (In thousands) | 3 Months Ended Sep 30, 2020 Interest (In thousands) | 3 Months Ended Sep 30, 2020 Yield/Cost | | :-------------------------------- | :----------------------------------------- | :---------------------------------- | :--------------------- | :----------------------------------------- | :---------------------------------- | :--------------------- | | Loans | $1,251,343 | $12,044 | 3.86 % | $1,393,319 | $13,412 | 3.86 % | | Total interest-bearing assets | $2,068,145 | $14,073 | 2.73 % | $1,871,727 | $15,137 | 3.24 % | | Interest-bearing deposits | $1,267,969 | $1,651 | 0.52 % | $1,286,828 | $3,796 | 1.18 % | | FHLB advances | $282,153 | $1,318 | 1.87 % | $352,052 | $1,712 | 1.95 % | | Total interest-bearing liabilities | $1,550,122 | $2,969 | 0.77 % | $1,638,880 | $5,508 | 1.35 % | | Net interest income (In thousands) | | $11,104 | | | $9,629 | | | Net interest rate spread | | | 1.96 % | | | 1.91 % | Average Balances and Yields (Nine Months Ended Sep 30) | Metric | 9 Months Ended Sep 30, 2021 Average Balance (In thousands) | 9 Months Ended Sep 30, 2021 Interest (In thousands) | 9 Months Ended Sep 30, 2021 Yield/Cost | 9 Months Ended Sep 30, 2020 Average Balance (In thousands) | 9 Months Ended Sep 30, 2020 Interest (In thousands) | 9 Months Ended Sep 30, 2020 Yield/Cost | | :-------------------------------- | :----------------------------------------- | :---------------------------------- | :--------------------- | :----------------------------------------- | :---------------------------------- | :--------------------- | | Loans | $1,274,274 | $36,362 | 3.82 % | $1,416,235 | $41,577 | 3.92 % | | Total interest-bearing assets | $1,977,532 | $41,818 | 2.83 % | $1,857,726 | $47,449 | 3.41 % | | Interest-bearing deposits | $1,312,253 | $6,848 | 0.70 % | $1,275,468 | $12,611 | 1.32 % | | FHLB advances | $308,614 | $4,357 | 1.89 % | $348,950 | $5,090 | 1.95 % | | Total interest-bearing liabilities | $1,620,867 | $11,205 | 0.92 % | $1,624,418 | $17,701 | 1.46 % | | Net interest income (In thousands) | | $30,613 | | | $29,748 | | | Net interest rate spread | | | 1.91 % | | | 1.95 % | Comparison of Financial Condition at September 30, 2021 and December 31, 2020 This section compares the Company's financial condition, detailing changes in assets, liabilities, and equity between reporting dates Total Assets Total assets increased, primarily driven by purchases of investment securities - Total assets increased by $81.8 million (4%) to $2.02 billion at September 30, 2021, from $1.94 billion at December 31, 2020[165] - The increase was primarily due to purchases of investment securities, with available-for-sale and held-to-maturity portfolios increasing by $69.6 million and $16.3 million, respectively[165] Cash and cash equivalents Cash and cash equivalents saw a modest increase, influenced by IPO proceeds and offsetting activities - Cash and cash equivalents increased by $7.9 million to $324.3 million at September 30, 2021, from $316.4 million at December 31, 2020[166] - The increase was primarily due to cash received from the initial public offering, largely offset by a decrease in time deposits, repayment of FHLB borrowings, and purchase of investment securities[166] Gross Loans Gross loans decreased due to payoffs and amortization in residential and construction loans, and PPP forgiveness, partially offset by multifamily loan originations - Gross loans held for investment decreased by $29.2 million (2.28%) to $1.25 billion at September 30, 2021, from $1.28 billion at December 31, 2020[167] - The decrease was largely due to net payoffs and amortization in residential one-to-four family loans ($139.0 million) and construction loans, as well as ongoing forgiveness programs within the commercial & industrial portfolio (PPP loans, $53.7 million in payoffs/forgiveness)[167][169] - Multifamily loan originations of $161.5 million partially offset these decreases[167] Non-Performing Assets Total non-performing assets experienced a slight decrease Non-Performing Assets (In thousands) | Non-Performing Assets (In thousands) | Sep 30, 2021 | Dec 31, 2020 | | :----------------------------------- | :----------- | :----------- | | Residential one-to-four family | $10,969 | $11,813 | | Multifamily | $145 | $156 | | Non-residential | $1,236 | $805 | | Junior liens | $114 | $82 | | Total non-performing loans | $12,464 | $12,856 | | Other real estate owned | $624 | $624 | | Total non-performing assets | $13,088 | $13,480 | - Total non-performing assets decreased to $13.088 million at September 30, 2021, from $13.480 million at December 31, 2020[170] Securities Available-For-Sale Securities available-for-sale increased significantly due to strategic purchases - Securities available-for-sale increased by $69.6 million (28.4%) to $314.1 million at September 30, 2021, from $244.6 million at December 31, 2020[170] - The increase was driven by purchases of residential mortgage-backed securities, agency bonds, and corporate bonds as interest rates rose during the nine months ended September 30, 2021[170] Total Deposits Total deposits decreased, marked by a significant shift from time deposits to checking and savings accounts, leading to a lower blended deposit cost of funds - Total deposits decreased by $90.6 million (7%) to $1.27 billion at September 30, 2021, from December 31, 2020[171] - Checking and savings accounts increased by $105.4 million (16%) to $744.1 million, while time deposits decreased by $195.9 million (27.3%) to $521.5 million[171] - The ratio of time deposits to total deposits decreased from 52.9% to 41.2%, and the blended deposit cost of funds declined from 0.92% to 0.35%[172][173] Borrowings Borrowings, consisting solely of Federal Home Loan Bank advances, decreased due to maturities and prepayments - Total borrowings decreased to $247.6 million at September 30, 2021, from $329.4 million at December 31, 2020[175] - During the nine months ended September 30, 2021, $32.5 million of borrowings matured, and an additional $49.3 million were prepaid[175] Total Equity Total shareholders' equity saw a substantial increase, primarily driven by the proceeds from the Company's initial public offering - Total shareholders' equity increased by $242.6 million (118.0%) to $448.2 million at September 30, 2021, compared to $205.6 million at December 31, 2020[176] - The increase was primarily due to the proceeds from the initial public offering of the Company's common stock, partially offset by a net loss of $16.7 million[176] Liquidity and Capital Resources This section discusses the Company's ability to meet financial obligations, primary funding sources, and compliance with regulatory capital requirements - Primary sources of funds include deposit inflows, loan repayments, maturities and sales of securities, and borrowings from the Federal Home Loan Bank of New York[177] - The Bank exceeded all applicable regulatory capital requirements at September 30, 2021, and was considered 'well capitalized' under regulatory guidelines[179] Capital Ratio | Capital Ratio | Sep 30, 2021 Actual Ratio | Dec 31, 2020 Actual Ratio | | :-------------------- | :------------------------ | :------------------------ | | Common equity tier 1 | 27.66 % | 19.93 % | | Tier 1 capital | 27.66 % | 19.93 % | | Total capital | 28.91 % | 21.18 % | | Tier 1 (leverage) capital | 14.39 % | 10.72 % | - Available borrowing capacity at September 30, 2021, included $88.7 million with FHLB, a $30.0 million line of credit with a correspondent bank, and a $2.5 million line of credit with the Federal Reserve Bank of New York[182] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK This section addresses the Company's exposure to market risk, primarily interest rate risk, through qualitative and quantitative analyses Qualitative Analysis The Company identifies interest rate risk as its most significant market risk and employs strategies to mitigate this risk - Interest rate risk is the Company's most significant form of market risk, managed by the ALCO/Investment Committee[185] - Strategies to manage interest rate risk include growing target deposit accounts, utilizing investment securities and interest rate swaps, and diversifying the loan portfolio with more commercial loans[186] - The Company is monitoring the LIBOR transition, with approximately $45.2 million in loans, $40.4 million in investments, and $109 million notional of derivatives currently indexed to USD-LIBOR[188] Quantitative Analysis The quantitative analysis uses an Economic Value of Equity (EVE) model to estimate sensitivity to interest rate changes Economic Value of Equity (In thousands) | Change in Interest Rates (basis points) | Estimated EVE (In thousands) | Estimated Increase (Decrease) Percent | NPV as a Percent of Assets | | :-------------------------------------- | :--------------------------- | :------------------------------------ | :------------------------- | | +400bp | $311,847 | (9)% | 15 % | | +300bp | $318,527 | (7) | 16 | | +200bp | $323,441 | (6) | 16 | | +100bp | $330,050 | (4) | 16 | | 0 bp | $343,189 | — | 17 | | -100bp | $388,824 | 13 | 19 | - At September 30, 2021, an instantaneous 100 basis point increase in interest rates would result in a 4% decrease in EVE, while a 100 basis point decrease would lead to a 13% increase in net portfolio value[193] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - The Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures were effective as of September 30, 2021[196] - There were no material changes in the Company's internal control over financial reporting during the quarter ended September 30, 2021[196] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits ITEM 1. LEGAL PROCEEDINGS The Company is not currently involved in any material legal proceedings, and existing actions are not expected to have a material adverse effect - The Company is not engaged in any legal proceedings of a material nature at the present time[199] - Management believes that the resolution of various legal actions arising in the normal course of business is not expected to have a material adverse effect on the Company's financial condition or results of operations[199] ITEM 1A. RISK FACTORS There were no material changes to the risk factors previously disclosed in the Company's Prospectus filed on May 21, 2021 - There were no material changes to the risk factors relevant to the Company's operations as described in the Company's Prospectus filed on May 21, 2021[200] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This item is not applicable to the current report - Not Applicable[200] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This item is not applicable to the current report - Not Applicable[200] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the current report - Not Applicable[200] ITEM 5. OTHER INFORMATION This item is not applicable to the current report - Not Applicable[200] ITEM 6. EXHIBITS This section lists the exhibits filed as part of or incorporated by reference into the Form 10-Q, including organizational documents and certifications - Exhibits include the Certificate of Incorporation, Bylaws, Form of Common Stock Certificate, Certifications of Principal Executive and Financial Officers (Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL financial statements and notes[201]