Blue Foundry Bancorp(BLFY) - 2022 Q2 - Quarterly Report

ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION This section presents the Company's consolidated financial position, highlighting key asset, liability, and equity balances at June 30, 2022, compared to December 31, 2021 Consolidated Statements of Financial Condition (June 30, 2022 vs. December 31, 2021) | Metric | June 30, 2022 (In thousands) | December 31, 2021 (In thousands) | Change (In thousands) | % Change | | :------------------------------------- | :--------------------------- | :------------------------------- | :-------------------- | :--------- | | ASSETS | | | | | | Cash and cash equivalents | $54,806 | $193,446 | $(138,640) | -71.67% | | Securities available for sale | $352,183 | $324,892 | $27,291 | 8.40% | | Loans receivable, net | $1,414,223 | $1,273,184 | $141,039 | 11.08% | | Total assets | $1,964,050 | $1,914,211 | $49,839 | 2.60% | | LIABILITIES | | | | | | Deposits | $1,296,674 | $1,247,040 | $49,634 | 3.98% | | Advances from the Federal Home Loan Bank | $205,500 | $185,500 | $20,000 | 10.78% | | Total liabilities | $1,551,757 | $1,484,740 | $67,017 | 4.51% | | SHAREHOLDERS' EQUITY | | | | | | Total shareholders' equity | $412,293 | $429,471 | $(17,178) | -4.00% | CONSOLIDATED STATEMENTS OF OPERATIONS This section details the Company's financial performance for the three and six months ended June 30, 2022, compared to the same periods in 2021 Consolidated Statements of Operations (Three Months Ended June 30, 2022 vs. 2021) | Metric | 3 Months Ended June 30, 2022 (In thousands) | 3 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | % Change | | :---------------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------- | :--------- | | Total interest income | $14,878 | $13,802 | $1,076 | 7.80% | | Total interest expense | $1,716 | $3,894 | $(2,178) | -55.93% | | Net interest income | $13,162 | $9,908 | $3,254 | 32.84% | | Provision (recovery of provision) for loan losses | $594 | $(553) | $1,147 | -207.41% | | Total non-interest income | $494 | $620 | $(126) | -20.32% | | Total non-interest expenses | $13,019 | $11,801 | $1,218 | 10.32% | | Income (loss) before income tax expense (benefit) | $43 | $(720) | $763 | -106.00% | | Income tax expense (benefit) | $3 | $283 | $(280) | -98.94% | | Net income (loss) | $40 | $(1,003) | $1,043 | -104.00% | | Basic and diluted earnings per share | $0.00 | n/a | n/a | n/a | Consolidated Statements of Operations (Six Months Ended June 30, 2022 vs. 2021) | Metric | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | % Change | | :---------------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------- | :--------- | | Total interest income | $28,472 | $27,744 | $728 | 2.62% | | Total interest expense | $3,371 | $8,236 | $(4,865) | -59.07% | | Net interest income | $25,101 | $19,508 | $5,593 | 28.67% | | Provision (recovery of provision) for loan losses | $(358) | $(1,361) | $1,003 | -73.69% | | Total non-interest income | $1,421 | $1,287 | $134 | 10.41% | | Total non-interest expenses | $26,235 | $24,172 | $2,063 | 8.53% | | Income (loss) before income tax expense (benefit) | $645 | $(2,016) | $2,661 | -132.00% | | Income tax expense (benefit) | $52 | $(268) | $320 | -119.40% | | Net income (loss) | $593 | $(1,748) | $2,341 | -133.92% | | Basic and diluted earnings per share | $0.02 | n/a | n/a | n/a | CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME This section presents the Company's comprehensive loss, which includes net income (loss) and other comprehensive income (loss) components, primarily unrealized gains and losses on securities available for sale and cash flow hedges Consolidated Statements of Comprehensive (Loss) Income (Three Months Ended June 30, 2022 vs. 2021) | Metric | 3 Months Ended June 30, 2022 (In thousands) | 3 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | | :------------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :-------------------- | | Net income (loss) | $40 | $(1,003) | $1,043 | | Other comprehensive (loss) income, net of tax | $(8,243) | $463 | $(8,706) | | Comprehensive loss | $(8,203) | $(540) | $(7,663) | Consolidated Statements of Comprehensive (Loss) Income (Six Months Ended June 30, 2022 vs. 2021) | Metric | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | | :------------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :-------------------- | | Net income (loss) | $593 | $(1,748) | $2,341 | | Other comprehensive (loss) income, net of tax | $(18,375) | $1,060 | $(19,435) | | Comprehensive loss | $(17,782) | $(688) | $(17,094) | CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY This section outlines the changes in the Company's shareholders' equity for the six months ended June 30, 2022, compared to 2021 Consolidated Statements of Changes in Shareholders' Equity (Six Months Ended June 30, 2022 vs. 2021) | Metric | June 30, 2022 (In thousands) | June 30, 2021 (In thousands) | Change (In thousands) | | :------------------------------------ | :--------------------------- | :--------------------------- | :-------------------- | | Balance at January 1 | $429,471 | $205,600 | $223,871 | | Net income (loss) | $593 | $(1,748) | $2,341 | | Other comprehensive (loss) income | $(18,375) | $1,060 | $(19,435) | | ESOP shares committed to be released | $604 | $0 | $604 | | Balance at June 30 | $412,293 | $204,912 | $207,381 | CONSOLIDATED STATEMENTS OF CASH FLOWS This section presents the Company's cash flow activities for the six months ended June 30, 2022, compared to 2021 Consolidated Statements of Cash Flows (Six Months Ended June 30, 2022 vs. 2021) | Cash Flow Activity | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :-------------------- | | Net cash used in operating activities | $(2,444) | $(3,564) | $1,120 | | Net cash used in investing activities | $(206,374) | $(25,249) | $(181,125) | | Net cash provided by financing activities | $70,178 | $637,459 | $(567,281) | | Net (decrease) increase in cash and cash equivalents | $(138,640) | $608,646 | $(747,286) | | Cash and cash equivalents at end of period | $54,806 | $925,091 | $(870,285) | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS This comprehensive section provides detailed disclosures and explanations for the Company's financial statements, covering significant accounting policies, specific asset and liability categories, equity components, and other financial instruments NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Blue Foundry Bancorp became the holding company for Blue Foundry Bank on July 15, 2021, following its conversion into a stock holding company, selling 27,772,500 shares at $10 per share for $277.7 million[22] - The Company operates as a single operating segment for financial reporting purposes[24] - The Company is required to adopt the CECL model by January 1, 2023, which is expected to result in a material increase to the Company's accounting for credit losses on financial instruments[29][30] - The Company is evaluating the impact of LIBOR cessation on its financial instruments and developing transition plans, with the update in effect until December 31, 2022[31][32] NOTE 2 – SECURITIES Securities Available for Sale (June 30, 2022 vs. December 31, 2021) | Metric | June 30, 2022 (In thousands) | December 31, 2021 (In thousands) | Change (In thousands) | % Change | | :------------------------------------- | :--------------------------- | :------------------------------- | :-------------------- | :--------- | | Amortized Cost | $377,703 | $323,801 | $53,902 | 16.65% | | Gross Unrealized Gains | $150 | $3,734 | $(3,584) | -96.06% | | Gross Unrealized Losses | $(25,670) | $(2,643) | $(23,027) | 871.24% | | Fair Value | $352,183 | $324,892 | $27,291 | 8.40% | Securities Held to Maturity (June 30, 2022 vs. December 31, 2021) | Metric | June 30, 2022 (In thousands) | December 31, 2021 (In thousands) | Change (In thousands) | % Change | | :------------------------------------- | :--------------------------- | :------------------------------- | :-------------------- | :--------- | | Amortized Cost | $29,794 | $23,281 | $6,513 | 27.98% | | Gross Unrecognized Losses | $(2,866) | $(432) | $(2,434) | 563.43% | | Estimated Fair Value | $26,928 | $22,849 | $4,079 | 17.85% | - The number of available-for-sale securities in an unrealized loss position increased from 44 at December 31, 2021, to 96 at June 30, 2022, primarily due to higher market interest rates. The Company does not consider these to be other-than-temporarily impaired[47] NOTE 3 – LOANS RECEIVABLE, NET Loans Receivable, Net (June 30, 2022 vs. December 31, 2021) | Loan Type | June 30, 2022 (In thousands) | December 31, 2021 (In thousands) | Change (In thousands) | % Change | | :------------------------------------------ | :--------------------------- | :------------------------------- | :-------------------- | :--------- | | Residential one-to-four family | $590,151 | $560,976 | $29,175 | 5.20% | | Multifamily | $579,183 | $515,240 | $63,943 | 12.41% | | Non-residential | $211,683 | $141,561 | $70,122 | 49.54% | | Construction | $21,010 | $23,419 | $(2,409) | -10.29% | | Commercial and industrial (including PPP) | $5,957 | $21,563 | $(15,606) | -72.37% | | Total gross loans | $1,424,452 | $1,281,310 | $143,142 | 11.17% | | Allowance for loan losses | $(14,050) | $(14,425) | $375 | -2.60% | | Loans receivable, net | $1,414,223 | $1,273,184 | $141,039 | 11.08% | Allowance for Loan Losses Activity (Six Months Ended June 30, 2022 vs. 2021) | Metric | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :-------------------- | | Beginning balance | $14,425 | $16,959 | $(2,534) | | Charge-offs | $(19) | $(5) | $(14) | | Recoveries | $2 | $0 | $2 | | (Recovery of) provision for loan losses | $(358) | $(1,361) | $1,003 | | Total ending allowance balance | $14,050 | $15,593 | $(1,543) | Non-Accrual Loans (June 30, 2022 vs. December 31, 2021) | Loan Type | June 30, 2022 (In thousands) | December 31, 2021 (In thousands) | Change (In thousands) | % Change | | :------------------------------------------ | :--------------------------- | :------------------------------- | :-------------------- | :--------- | | Residential one-to-four family | $9,268 | $10,805 | $(1,537) | -14.22% | | Multifamily | $0 | $139 | $(139) | -100.00% | | Non-residential | $676 | $857 | $(181) | -21.12% | | Junior liens | $54 | $182 | $(128) | -70.33% | | Total non-accrual loans | $9,998 | $11,983 | $(1,985) | -16.56% | NOTE 4 – LEASES Operating Lease Information (June 30, 2022 vs. December 31, 2021) | Metric | June 30, 2022 (In thousands) | December 31, 2021 (In thousands) | Change (In thousands) | % Change | | :------------------------------------------ | :--------------------------- | :------------------------------- | :-------------------- | :--------- | | Right-of-use assets | $24,163 | $25,457 | $(1,294) | -5.08% | | Lease liabilities | $25,461 | $26,696 | $(1,235) | -4.63% | | Weighted average remaining lease term | 11.9 years | 12.2 years | -0.3 years | -2.46% | | Weighted average discount rate | 1.99% | 1.97% | 0.02% | 1.02% | Total Lease Cost (Six Months Ended June 30, 2022 vs. 2021) | Metric | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | % Change | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :-------------------- | :--------- | | Operating lease cost | $1,540 | $1,512 | $28 | 1.85% | | Finance lease cost | $12 | $12 | $0 | 0.00% | | Variable lease cost | $113 | $93 | $20 | 21.51% | | Total lease cost | $1,665 | $1,617 | $48 | 2.97% | NOTE 5 – DEPOSITS Deposits (June 30, 2022 vs. December 31, 2021) | Deposit Type | June 30, 2022 (In thousands) | December 31, 2021 (In thousands) | Change (In thousands) | % Change | | :------------------------------------------ | :--------------------------- | :------------------------------- | :-------------------- | :--------- | | Non-interest bearing deposits | $52,036 | $44,894 | $7,142 | 15.91% | | NOW and demand accounts | $455,776 | $363,419 | $92,357 | 25.41% | | Savings | $358,166 | $364,932 | $(6,766) | -1.85% | | Time deposits | $430,696 | $473,795 | $(43,099) | -9.09% | | Total deposits | $1,296,674 | $1,247,040 | $49,634 | 3.98% | - Brokered deposits totaled $12.0 million at June 30, 2022, with no brokered deposits at December 31, 2021[93] NOTE 6 - EMPLOYEE STOCK OWNERSHIP PLAN - The ESOP borrowed funds to purchase 2,281,800 shares of stock at $10 per share[98] - At June 30, 2022, the principal balance on the ESOP loan was $21.8 million[99] ESOP Compensation Expense (Six Months Ended June 30, 2022 vs. 2021) | Metric | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | ESOP compensation expense | $604 | $0 | NOTE 7 – DERIVATIVES AND HEDGING ACTIVITIES - The Company uses interest rate swap agreements with notional amounts totaling $109.0 million at June 30, 2022 and December 31, 2021, designated as cash flow hedges for FHLB advances[104] Interest Rate Swaps Designated as Cash Flow Hedges (June 30, 2022 vs. December 31, 2021) | Metric | June 30, 2022 | December 31, 2021 | | :-------------------------- | :------------ | :---------------- | | Notional amounts (in thousands) | $109,000 | $109,000 | | Weighted average pay rates | 1.4577% | 1.4577% | | Weighted average receive rates | 1.5944% | 0.1742% | | Weighted average maturity | 4.7 years | 5.3 years | | Unrealized gains (losses), net (in thousands) | $7,672 | $(246) | Interest Expense on Swap Transactions (Six Months Ended June 30, 2022 vs. 2021) | Metric | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Interest expense on swap transactions | $468 | $690 | NOTE 8 – ACCUMULATED OTHER COMPREHENSIVE INCOME Components of Other Comprehensive (Loss) Income (Six Months Ended June 30, 2022 vs. 2021) | Component (After Tax) | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | | :------------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :-------------------- | | Unrealized (loss) gain on securities available for sale | $(26,558) | $(1,433) | $(25,125) | | Unrealized gain on cash flow hedge | $7,919 | $2,419 | $5,500 | | Post-Retirement plans | $264 | $74 | $190 | | Total other comprehensive (loss) income | $(18,375) | $1,060 | $(19,435) | Changes in Accumulated Other Comprehensive Income (Net of Tax) | Metric | Balance at Dec 31, 2021 (In thousands) | Net Current Period OCI (Loss) (In thousands) | Balance at June 30, 2022 (In thousands) | | :------------------------------------------------ | :--------------------------------------- | :------------------------------------------- | :-------------------------------------- | | Unrealized Gains and (Losses) on Cash Flow Hedges | $(246) | $7,919 | $7,673 | | Unrealized Gains and (Losses) on Available-for-sale Securities | $1,091 | $(26,558) | $(25,467) | | Post-Retirement Plans | $(1,217) | $264 | $(953) | | Total | $(372) | $(18,375) | $(18,747) | NOTE 9 – FAIR VALUE OF ASSETS AND LIABILITIES - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs), and Level 3 (significant unobservable inputs)[121][122] - The majority of the Company's securities are valued using Level 2 inputs (matrix pricing), while U.S. government securities use Level 1 inputs. Derivatives are valued using Level 2 inputs. Impaired loans are generally valued using Level 3 inputs based on real estate appraisals[123][124][125] Fair Value of Financial Assets Measured on a Recurring Basis (June 30, 2022) | Asset Type | Total Fair Value (In thousands) | Level 1 (In thousands) | Level 2 (In thousands) | Level 3 (In thousands) | | :------------------------------------------ | :------------------------------ | :--------------------- | :--------------------- | :--------------------- | | Securities available for sale | $352,183 | $61,051 | $291,132 | $0 | | Derivatives | $7,672 | $0 | $7,672 | $0 | | Total | $359,855 | $61,051 | $298,804 | $0 | NOTE 10 – REVENUE FROM CONTRACTS WITH CUSTOMERS AND OTHER INCOME Revenue from Contracts with Customers (Six Months Ended June 30, 2022 vs. 2021) | Revenue Source | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | % Change | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :-------------------- | :--------- | | Service charges on deposits | $496 | $459 | $37 | 8.06% | | Interchange income | $19 | $16 | $3 | 18.75% | | Total Revenue from Contracts with Customers | $515 | $475 | $40 | 8.42% | - Service charges on deposits are recognized at the time of transaction or over the month for account maintenance. Overdraft fees are recognized when the overdraft occurs[142] - Interchange income from debit/credit cardholder transactions is recognized daily, concurrently with transaction processing services[143] NOTE 11 - EARNINGS PER SHARE Earnings Per Share Calculation (Six Months Ended June 30, 2022) | Metric | 6 Months Ended June 30, 2022 | | :------------------------------------------------ | :--------------------------- | | Net income applicable to common shares (in thousands) | $593 | | Average number of common shares outstanding | 28,522,500 | | Less: Average unallocated ESOP shares | 2,167,521 | | Average number of common shares outstanding used to calculate basic earnings per common share | 26,354,979 | | Common stock equivalents | — | | Earnings per common share basic and diluted | $0.02 | - There were no securities or other contracts that had a dilutive effect during the three and six months ended June 30, 2022, and therefore the weighted-average common shares outstanding used to calculate both basic and diluted EPS are the same[147] NOTE 12 - SUBSEQUENT EVENTS - On July 20, 2022, the Company announced it had adopted a program to repurchase up to 2,852,250 shares, or 10%, of its outstanding common stock[150] - As of August 11, 2022, 105,759 shares totaling $1.2 million had been acquired under the repurchase plan at an average price per share of $11.69[150] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward-Looking Statements This section highlights that the report contains forward-looking statements based on management's current beliefs and expectations, which are inherently subject to significant business, economic, and competitive uncertainties - This section contains forward-looking statements based on current management assumptions, subject to significant business, economic, and competitive uncertainties[153][154] - Factors that could cause actual results to differ materially include general economic conditions, changes in loan delinquencies, funding access, real estate values, interest rate fluctuations, regulatory changes, technological changes, and the ongoing impact of the COVID-19 pandemic[154] Critical Accounting Policies and Estimates This section emphasizes that the Company's financial statements are prepared in accordance with U.S. GAAP, requiring management to make estimates and judgments - The Company's financial statements are prepared in accordance with U.S. GAAP, requiring management to make estimates and assumptions that could differ from actual results[157] - The allowance for loan losses is identified as a critical accounting policy, discussed in Note 1 to the Consolidated Financial Statements[157] COVID-19 Pandemic This section acknowledges the ongoing adverse impact of the COVID-19 pandemic on the Company, its clients, and communities, noting the difficulty in predicting its full effects due to its dynamic nature - The COVID-19 pandemic has had, and may continue to have, an adverse impact on the Company, its clients, and the communities it serves, with the full impact difficult to predict[158] Comparison of Operating Results for the Three and Six Month Periods Ended June 30, 2022 and 2021 This section provides a detailed comparison of the Company's operating results, highlighting a significant improvement in net income from a loss position in the prior year Interest Income Interest Income Performance | Metric | 3 Months Ended June 30, 2022 (In thousands) | 3 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | % Change | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :-------------------- | :--------- | | Total interest income | $14,878 | $13,802 | $1,076 | 7.8% | | Interest income from securities | $2,464 | $1,779 | $685 | 38.5% | | Interest income from loans | $12,444 | $12,056 | $388 | 3.2% | | Yield on average interest-earning assets | 3.19% | 2.77% | 0.42% | 15.16% | | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | % Change | | Total interest income | $28,472 | $27,744 | $728 | 2.6% | | Interest income from securities | $4,372 | $3,426 | $946 | 27.6% | | Interest income from loans | $24,100 | $24,318 | $(218) | -0.9% | | Yield on average interest-earning assets | 3.09% | 2.89% | 0.20% | 6.92% | Interest Expense Interest Expense Performance | Metric | 3 Months Ended June 30, 2022 (In thousands) | 3 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | % Change | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :-------------------- | :--------- | | Total interest expense | $1,716 | $3,894 | $(2,178) | -55.9% | | Interest expense on deposits | $950 | $2,379 | $(1,429) | -60.1% | | Interest expense on borrowed funds | $766 | $1,515 | $(749) | -49.4% | | Cost of average interest-bearing liabilities | 0.48% | 0.94% | -0.46% | -48.9% | | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | % Change | | Total interest expense | $3,371 | $8,236 | $(4,865) | -59.1% | | Interest expense on deposits | $1,832 | $5,197 | $(3,365) | -64.8% | | Interest expense on borrowed funds | $1,539 | $3,039 | $(1,500) | -49.4% | | Cost of average interest-bearing liabilities | 0.48% | 0.99% | -0.51% | -51.5% | Net Interest Income Net Interest Income Performance | Metric | 3 Months Ended June 30, 2022 (In thousands) | 3 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | % Change | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------- | :--------- | | Net interest income | $13,162 | $9,908 | $3,254 | 33.0% | | Net interest rate spread | 2.71% | 1.83% | 0.88% | 48.1% | | Net interest margin | 1.83% | 1.83% | 0.00% | 0.0% | | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | % Change | | Net interest income | $25,101 | $19,508 | $5,593 | 28.7% | | Net interest rate spread | 2.62% | 1.88% | 0.74% | 39.4% | | Net interest margin | 1.88% | 1.88% | 0.00% | 0.0% | Provision for Loan Losses Provision for Loan Losses | Metric | 3 Months Ended June 30, 2022 (In thousands) | 3 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | | :------------------------------------------ | :---------------------------------------- | :---------------------------------------- | :-------------------- | | Provision (recovery of provision) for loan losses | $594 | $(553) | $1,147 | | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | | Provision (recovery of provision) for loan losses | $(358) | $(1,361) | $1,003 | - The provision for Q2 2022 was driven by growth in multifamily and non-residential portfolios. The six-month recovery was due to significant paydowns in the construction portfolio and an improving economic environment, partially offset by growth in other portfolios[168] - Total non-performing loans decreased by $2.0 million to $10.0 million at June 30, 2022, from $12.0 million at December 31, 2021[169] Non-interest Income Non-interest Income Performance | Metric | 3 Months Ended June 30, 2022 (In thousands) | 3 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | % Change | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------- | :--------- | | Total non-interest income | $494 | $620 | $(126) | -20.3% | | Prepayment fees | $44 | $207 | $(163) | -78.7% | | Overdraft fees | $69 | $52 | $17 | 32.7% | | Account maintenance fees | $16 | $20 | $(4) | -20.0% | | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | % Change | | Total non-interest income | $1,421 | $1,287 | $134 | 10.4% | | Prepayment fees | $562 | $387 | $175 | 45.2% | | Overdraft fees | $138 | $100 | $38 | 38.0% | | Account maintenance fees | $33 | $40 | $(7) | -17.5% | Non-interest Expense Non-interest Expense Performance | Metric | 3 Months Ended June 30, 2022 (In thousands) | 3 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | % Change | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------- | :--------- | | Total non-interest expenses | $13,019 | $11,801 | $1,218 | 10.3% | | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | % Change | | Total non-interest expenses | $26,235 | $24,172 | $2,063 | 8.5% | - The increase in non-interest expense for both periods was driven by higher compensation and benefits, increased professional services fees (audit, compliance, CECL implementation), and other public company-related costs, partially offset by lower data processing costs[171][173] Income Tax Expense Income Tax Expense (Benefit) | Metric | 3 Months Ended June 30, 2022 (In thousands) | 3 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------- | | Income tax expense (benefit) | $3 | $283 | $(280) | | 6 Months Ended June 30, 2022 (In thousands) | 6 Months Ended June 30, 2021 (In thousands) | Change (In thousands) | | Income tax expense (benefit) | $52 | $(268) | $320 | | Effective tax rate | 8.1% | -13.3% | 21.4% | - The increase in tax expense for 2022 periods was due to increased pre-tax income. An additional valuation allowance of $4.7 million was recorded through AOCI during the six months ended June 30, 2022, for a total valuation allowance of $21.5 million, related to net unrealized losses from higher interest rates[174][176] Average Balances and Yields This section provides a detailed breakdown of the Company's average balances for assets and liabilities, along with the resulting annualized average yields and costs for the three and six months ended June 30, 2022 and 2021 Average Balances and Yields (Three Months Ended June 30, 2022 vs. 2021) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Average interest-earning assets (in thousands) | $1,868,097 | $1,998,614 | | Yield on interest-earning assets | 3.19% | 2.77% | | Average interest-bearing liabilities (in thousands) | $1,420,429 | $1,663,336 | | Cost of interest-bearing liabilities | 0.48% | 0.94% | | Net interest income (in thousands) | $13,162 | $9,908 | | Net interest rate spread | 2.71% | 1.83% | | Net interest margin | 1.83% | 1.83% | Average Balances and Yields (Six Months Ended June 30, 2022 vs. 2021) | Metric | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------------ | :--------------------------- | :--------------------------- | | Average interest-earning assets (in thousands) | $1,858,822 | $1,936,352 | | Yield on interest-earning assets | 3.09% | 2.89% | | Average interest-bearing liabilities (in thousands) | $1,412,103 | $1,669,680 | | Cost of interest-bearing liabilities | 0.48% | 0.99% | | Net interest income (in thousands) | $25,101 | $19,508 | | Net interest rate spread | 2.62% | 1.88% | | Net interest margin | 1.88% | 1.88% | Comparison of Financial Condition at June 30, 2022 and December 31, 2021 This section compares the Company's financial condition at June 30, 2022, against December 31, 2021, detailing changes in total assets, cash, securities, loans, deposits, borrowings, and shareholders' equity Total Assets - Total assets increased by $49.8 million, or 2.6%, to $1.96 billion at June 30, 2022, from $1.91 billion at December 31, 2021[183] Cash and cash equivalents - Cash and cash equivalents decreased by $138.6 million, or 72%, to $54.8 million at June 30, 2022, from $193.4 million at December 31, 2021, as the Company deployed cash into higher yielding loans and securities[183] Securities Available-For-Sale - Securities available-for-sale increased by $27.3 million, or 8.4%, to $352.2 million at June 30, 2022, from $324.9 million at December 31, 2021, primarily due to investments in residential mortgage-backed securities[184] - This increase was partially offset by a $26.6 million decline in net unrealized gains/losses due to the rising interest rate environment[184] Gross Loans Gross Loans Held for Investment (June 30, 2022 vs. December 31, 2021) | Loan Type | June 30, 2022 (In thousands) | December 31, 2021 (In thousands) | Change (In thousands) | % Change | | :------------------------------------------ | :--------------------------- | :------------------------------- | :-------------------- | :--------- | | Residential one-to-four family | $590,151 | $560,976 | $29,175 | 5.2% | | Multifamily | $579,183 | $515,240 | $63,943 | 12.4% | | Non-residential | $211,683 | $141,561 | $70,122 | 49.5% | | Total gross loans | $1,424,452 | $1,281,310 | $143,142 | 11.2% | - Organic originations totaled $248.5 million, including $131.1 million in multifamily loans and $86.3 million in non-residential real estate loans. Additionally, $73.4 million of conforming residential mortgages in New Jersey were purchased[185] - PPP loans, net of deferred fees, decreased from $16.8 million at December 31, 2021, to $2.0 million at June 30, 2022[188] Total Deposits Total Deposits (June 30, 2022 vs. December 31, 2021) | Deposit Type | June 30, 2022 (In thousands) | December 31, 2021 (In thousands) | Change (In thousands) | % Change | | :------------------------------------------ | :--------------------------- | :------------------------------- | :-------------------- | :--------- | | Total deposits | $1,296,674 | $1,247,040 | $49,634 | 4.0% | | Checking and savings accounts | $865,978 | $773,245 | $92,733 | 12.0% | | Time deposits | $430,696 | $473,795 | $(43,099) | -9.1% | | Core deposits to total deposits ratio | 66.8% | 62.0% | 4.8% | 7.7% | Borrowings - Total borrowings, consisting solely of Federal Home Loan Bank of New York advances, increased by $20.0 million, or 10.8%, to $205.5 million at June 30, 2022, from $185.5 million at December 31, 2021[190] - Of the total borrowings, $109.0 million are associated with longer-dated swap agreements[190] Total Shareholders' Equity - Total shareholders' equity decreased by $17.2 million, or 4.0%, to $412.3 million at June 30, 2022, from $429.5 million at December 31, 2021[190] - This decrease was primarily due to an $18.4 million decline in accumulated other comprehensive income, driven by the rising interest rate environment impacting the investment portfolio, partially offset by net income of $593 thousand[190] Liquidity and Capital Resources This section discusses the Company's ability to meet its financial obligations and its regulatory capital position - The Company's 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[191] - At June 30, 2022, the Bank exceeded all applicable regulatory capital requirements and was considered 'well capitalized' under regulatory guidelines[193] Regulatory Capital Ratios (June 30, 2022 vs. December 31, 2021) | Capital Ratio | June 30, 2022 Actual Ratio | December 31, 2021 Actual Ratio | Minimum for Well Capitalized | | :-------------------------- | :------------------------- | :----------------------------- | :--------------------------- | | Common equity tier 1 | 22.30% | 25.74% | 6.50% | | Tier 1 capital | 22.30% | 25.74% | 8.00% | | Total capital | 23.50% | 26.99% | 10.00% | | Tier 1 (leverage) capital | 15.14% | 15.00% | 5.00% | - Available borrowing capacity at June 30, 2022, included $49.0 million with Federal Home Loan Bank of New York, a $30.0 million available line of credit with a correspondent bank, and a $2.5 million available line of credit with the Federal Reserve Bank of New York[195] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Qualitative Analysis This section describes the Company's qualitative approach to managing market risk, primarily interest rate risk - The most significant market risk is interest rate risk, managed by the ALCO/Investment Committee to limit exposure of financial condition and results of operations to interest rate changes[198] - Strategies include growing target deposit accounts, utilizing investment securities and interest rate swaps, and diversifying the loan portfolio with more commercial loans[199] - The Company has approximately $42.4 million in loans, $30.8 million in investments, and $109.0 million notional of derivatives indexed to USD-LIBOR, and is monitoring and developing transition plans for LIBOR cessation[202] Quantitative Analysis This section provides a quantitative assessment of the Company's interest rate risk using Economic Value of Equity (EVE) and Net Interest Income (NII) sensitivity models - The Company uses Economic Value of Equity (EVE) analysis to estimate changes in the net present value (NPV) of assets and liabilities under various interest rate shock scenarios[204] Estimated Changes to Net Interest Income (June 30, 2022) | Change in Interest Rates (basis points) | Net Interest Income Change (In thousands) | Percent Change | | :-------------------------------------- | :---------------------------------------- | :------------- | | +400 | $(4,833) | (8)% | | +300 | $(3,467) | (6)% | | +200 | $(2,137) | (4)% | | +100 | $(970) | (2)% | | 0 | $0 | 0% | | -100 | $(2,488) | (4)% | Estimated Changes in Net Portfolio Value (EVE) (June 30, 2022) | Change in Interest Rates (basis points) | Estimated EVE (In thousands) | Estimated Increase (Decrease) (In thousands) | Percent Change | | :-------------------------------------- | :--------------------------- | :------------------------------------------- | :------------- | | +400 | $81,488 | $(150,869) | (65)% | | +300 | $117,085 | $(115,272) | (50)% | | +200 | $155,144 | $(77,213) | (33)% | | +100 | $194,293 | $(38,064) | (16)% | | 0 | $232,357 | $0 | 0% | | -100 | $264,317 | $31,960 | 14% | ITEM 4. CONTROLS AND PROCEDURES Controls and Procedures Effectiveness This section confirms that the Company's management, including its Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of disclosure controls and procedures as of June 30, 2022, concluding they were effective - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2022[211] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2022[211] ITEM 1. LEGAL PROCEEDINGS Legal Proceedings Status This section states that the Company is not currently involved in any material legal proceedings - The Company is not engaged in any legal proceedings of a material nature at the present time[213] - Management believes the resolution of current legal actions is not expected to have a material adverse effect on the Company's financial condition or results of operations[213] ITEM 1A. RISK FACTORS Changes to Risk Factors This section confirms that there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 - 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[214] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Unregistered Sales of Equity Securities and Use of Proceeds This item is marked as not applicable for the reporting period, indicating no unregistered sales of equity securities or related use of proceeds to disclose - Not Applicable[214] ITEM 3. DEFAULTS UPON SENIOR SECURITIES Defaults Upon Senior Securities This item is marked as not applicable for the reporting period, indicating no defaults upon senior securities to disclose - Not Applicable[214] ITEM 4. MINE SAFETY DISCLOSURES Mine Safety Disclosures This item is marked as not applicable for the reporting period, indicating no mine safety disclosures are required - Not Applicable[214] ITEM 5. OTHER INFORMATION Other Information This item is marked as not applicable for the reporting period, indicating no other information requiring disclosure - Not Applicable[214] ITEM 6. EXHIBITS Exhibits Filed This section lists all exhibits filed as part of the Form 10-Q report, including corporate organizational documents, amendments to director retirement plans, certifications from executive officers, and financial data formatted in Inline XBRL - Exhibits include the Certificate of Incorporation, Bylaws, Form of Common Stock Certificate, amendments to Director Retirement Plans, certifications of Principal Executive and Financial Officers (Sarbanes-Oxley Act), and Inline XBRL financial data[216]