Blue Foundry Bancorp(BLFY) - 2023 Q4 - Annual Report

Part I Business Blue Foundry Bank, a New Jersey-chartered savings bank, focuses on originating real estate and commercial loans, primarily funded by retail deposits, with a strategic shift towards commercial lending - Blue Foundry Bank's core business involves originating real estate mortgages and commercial loans, primarily funded by retail deposits in northern New Jersey[12][13] - The company is strategically shifting from residential loans to commercial real estate, multifamily, and C&I lending to diversify and increase yields[15] Key Financial Metrics (as of December 31, 2023) | Metric | Amount (Billions) | | :--- | :--- | | Total Assets | $2.04 | | Net Loans | $1.55 | | Deposits | $1.24 | Lending Activities The bank's loan portfolio totaled $1.56 billion as of December 31, 2023, with a strategic shift towards commercial-type lending, despite a significant decrease in originations Loan Portfolio Composition (December 31, 2023 vs 2022) | Loan Type | 2023 Amount ($ thousands) | 2023 Percent | 2022 Amount ($ thousands) | 2022 Percent | | :--- | :--- | :--- | :--- | :--- | | Residential one-to-four family | 550,929 | 35.30% | 594,521 | 38.55% | | Multifamily | 682,564 | 43.74% | 690,278 | 44.75% | | Non-residential | 232,505 | 14.90% | 216,394 | 14.03% | | Construction and land | 60,414 | 3.87% | 17,990 | 1.17% | | Junior liens | 22,503 | 1.44% | 18,477 | 1.20% | | Commercial and Industrial | 11,768 | 0.75% | 4,682 | 0.30% | | Total gross loans | 1,560,730 | 100.00% | 1,542,380 | 100.00% | - Loan originations significantly decreased to $119.6 million in 2023 from $488.2 million in 2022, with loan purchases also declining[21] - The bank's largest single borrower relationship was $34.3 million, remaining below internal policy and legal limits[44] Asset Quality Asset quality improved in 2023, with non-performing assets decreasing to $6.7 million (0.33% of total assets) and classified loans also declining Non-Performing Assets (December 31, 2023 vs 2022) | Category | 2023 ($ thousands) | 2022 ($ thousands) | | :--- | :--- | :--- | | Non-accrual loans | 6,118 | 7,767 | | Accruing loans past due 90+ days | — | 61 | | Total non-performing loans | 6,118 | 7,828 | | Real estate owned | 593 | — | | Total non-performing assets | 6,711 | 7,828 | | Total non-performing assets to total assets | 0.33% | 0.38% | Classified Loans (December 31, 2023 vs 2022) | Classification | 2023 ($ thousands) | 2022 ($ thousands) | | :--- | :--- | :--- | | Special mention | 1,567 | 2,224 | | Substandard | 6,118 | 8,469 | | Doubtful | — | — | | Loss | — | — | | Total | 7,685 | 10,693 | Allowance for Credit Losses The company adopted CECL in 2023, increasing the allowance for credit losses (ACL) to $14.15 million, significantly improving the ACL to non-performing loans ratio to 231.35% - The company adopted ASU 2016-13 (CECL) on January 1, 2023, requiring measurement of expected credit losses[79] Allowance for Credit Losses on Loans Activity | Description | 2023 ($ thousands) | 2022 ($ thousands) | | :--- | :--- | :--- | | Balance at beginning of period | 13,400 | 14,425 | | Impact of adopting ASU 2016-13 | 668 | — | | Provision for credit losses | 146 | (1,001) | | Net charge-offs | (60) | (24) | | Balance at end of period | 14,154 | 13,400 | | ACL to total loans | 0.91% | 0.87% | | ACL to non-performing loans | 231.35% | 172.52% | Sources of Funds Primary funds sources are deposits and FHLB borrowings, with total deposits decreasing to $1.24 billion and a notable shift to higher-cost time deposits Deposit Composition (December 31, 2023 vs 2022) | Deposit Type | 2023 Amount ($ thousands) | 2023 Percent | 2022 Amount ($ thousands) | 2022 Percent | | :--- | :--- | :--- | :--- | :--- | | Non-interest bearing | 27,739 | 2.23% | 37,907 | 2.94% | | NOW and demand accounts | 361,139 | 29.01% | 410,937 | 31.88% | | Savings | 259,402 | 20.84% | 423,758 | 32.88% | | Time deposits | 596,624 | 47.92% | 416,260 | 32.30% | | Total | 1,244,904 | 100.00% | 1,288,862 | 100.00% | - As of December 31, 2023, the company had $397.5 million in FHLB advances and an additional $320.0 million borrowing capacity[91] - Uninsured deposits totaled $245.9 million, or 0.02% of total deposits, including company and municipal funds[89] Supervision and Regulation The company and its bank subsidiary operate under comprehensive regulation by NJDOBI, FDIC, and the Federal Reserve, consistently exceeding capital requirements - The Bank is comprehensively regulated by the NJDOBI and the FDIC[63] - As of December 31, 2023, the Bank exceeded all minimum capital standards and was classified as "well capitalized"[65][98][131] - As a bank holding company, the Company is regulated by the Federal Reserve Board and must serve as a financial strength source for its subsidiary bank[69] - The Company qualifies as an "emerging growth company," benefiting from reduced reporting and extended accounting standard transition periods[104] Risk Factors The company faces significant risks from interest rate volatility, increased credit risk from commercial lending, liquidity challenges, operational failures, and regulatory compliance costs - Profitability is highly sensitive to market interest rates; a 200 basis point increase would decrease net portfolio value by $73.9 million[141] - Increased commercial real estate and commercial loan originations elevate lending risk due to their inherently higher risk profile compared to residential mortgages[113][142] - Significant liquidity risk arises from volatile customer deposits, influenced by market conditions and competition[121][149][151] - Operational risks are significant due to high transaction volumes and third-party vendor reliance, with exposure to cyber-attacks impacting operations and reputation[155][156][160] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - There are no unresolved staff comments[197] Cybersecurity The company's cybersecurity program, based on the NIST framework and overseen by the Board, manages incidents without material business impact to date - The cybersecurity program is designed around the NIST Cybersecurity Framework and managed by the Chief Information Security Officer[169] - Oversight is provided by the Board's Enterprise Risk Committee, receiving regular reports on program effectiveness and incidents[201] - A Cyber Incident Response Procedure provides a framework for responding to cybersecurity incidents, evaluated at least annually[170] Properties The company operates 20 full-service branch offices in northern New Jersey, with a net book value of premises and equipment totaling $32.5 million - The company operates 20 full-service branch offices, owning five properties and leasing sixteen[205] - The net book value of premises and equipment was $32.5 million at December 31, 2023[205] Legal Proceedings As of December 31, 2023, no pending legal proceedings are expected to have a material adverse effect on the company's financial condition or operations - At December 31, 2023, no legal proceedings were expected to materially affect the company's financial condition, operations, or cash flows[172] Mine Safety Disclosures This item is not applicable to the company - Not applicable[202] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "BLFY"; no dividends are anticipated, and 657,162 shares were repurchased in Q4 2023 - The Company's common stock is listed on the Nasdaq Global Select Market under the symbol "BLFY"[203] - The Company has not declared and does not anticipate paying dividends on its common stock in the near future[203] Issuer Purchases of Equity Securities (Q4 2023) | Period | Total Shares Purchased | Average Price Paid Per Share | Shares Remaining for Repurchase | | :--- | :--- | :--- | :--- | | October | 148,810 | $7.87 | 947,399 | | November | 283,300 | $8.37 | 664,099 | | December | 225,052 | $9.71 | 439,047 | | Total | 657,162 | $8.72 | 439,047 | Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported a $7.4 million net loss in 2023, driven by a 19.1% decrease in net interest income and a 64 basis point compression in net interest margin, while assets remained stable Comparison of Operating Results (2023 vs 2022) | Metric | 2023 ($ thousands) | 2022 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net (Loss) Income | (7,397) | 2,396 | (408.7%) | | Net Interest Income | 41,919 | 51,843 | (19.1%) | | Total Interest Income | 79,105 | 62,413 | 26.7% | | Total Interest Expense | 37,186 | 10,570 | 251.8% | | Non-interest Income | 1,805 | 2,664 | (32.2%) | | Non-interest Expense | 51,562 | 52,774 | (2.3%) | - The net interest margin decreased by 64 basis points to 2.09% in 2023, due to a faster increase in the cost of funds[328] - The business strategy focuses on growing core deposits, diversifying into commercial lending, and improving operating leverage and efficiency[295] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, managed through balance sheet diversification and swaps, with a 100 basis point rate increase projected to decrease Net Portfolio Value by 41.8% - The company's most significant market risk is interest rate risk, managed through balance sheet diversification and interest rate swaps[318] Net Portfolio Value (NPV) Sensitivity Analysis (as of Dec 31, 2023) | Change in Interest Rates (bps) | Estimated NPV ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | +200 | 15,293 | (73,921) | (82.9)% | | +100 | 51,896 | (37,318) | (41.8)% | | 0 | 89,214 | — | — | | -100 | 126,976 | 37,763 | 42.3% | | -200 | 165,462 | 76,248 | 85.5% | Net Interest Income (NII) Sensitivity Analysis (as of Dec 31, 2023) | Change in Interest Rates (bps) | Estimated NII ($ thousands) | Change ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | +200 | 45,392 | (1,012) | (2.2)% | | +100 | 45,929 | (475) | (1.0)% | | 0 | 46,404 | — | — | | -100 | 48,977 | 2,573 | 5.5% | | -200 | 51,187 | 4,783 | 10.3% | Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2023 and 2022, including balance sheets, statements of operations, and detailed notes - The company adopted ASU 2016-13 (CECL) on January 1, 2023, increasing the allowance for credit losses on loans by $668 thousand[375] - The Bank exceeded all regulatory capital requirements as of December 31, 2023, and was considered "well capitalized" under the prompt corrective action framework[225][526] - The company repurchased 3.7 million shares for $36.0 million during 2023 across three stock repurchase programs[221] Consolidated Balance Sheets Total assets were $2.045 billion as of December 31, 2023, with total liabilities increasing to $1.689 billion and shareholders' equity decreasing by 9.7% Consolidated Balance Sheet Highlights (as of Dec 31) | Account | 2023 ($ thousands) | 2022 ($ thousands) | | :--- | :--- | :--- | | Total Assets | 2,044,963 | 2,043,338 | | Loans receivable, net | 1,546,576 | 1,531,727 | | Securities (AFS & HTM) | 317,020 | 347,953 | | Total Liabilities | 1,689,323 | 1,649,620 | | Deposits | 1,244,904 | 1,288,862 | | FHLB Advances | 397,500 | 310,500 | | Total Shareholders' Equity | 355,640 | 393,718 | Consolidated Statements of Operations The company reported a net loss of $7.4 million for 2023, or ($0.31) per share, primarily due to a decline in net interest income Consolidated Statement of Operations Summary (Year Ended Dec 31) | Account | 2023 ($ thousands) | 2022 ($ thousands) | | :--- | :--- | :--- | | Net Interest Income | 41,919 | 51,843 | | Release of Provision for Credit Losses | (441) | (1,001) | | Non-interest Income | 1,805 | 2,664 | | Non-interest Expense | 51,562 | 52,774 | | (Loss) Income Before Tax | (7,397) | 2,734 | | Net (Loss) Income | (7,397) | 2,396 | | Basic and Diluted (Loss) EPS | ($0.31) | $0.09 | Notes to Consolidated Financial Statements The notes detail accounting policies, including CECL adoption, portfolio composition, credit losses, funding structures, and regulatory capital, confirming single business segment operation - The company adopted ASU 2016-13 (CECL) on January 1, 2023, increasing the allowance for credit losses on loans by $668 thousand and establishing a $170 thousand reserve on held-to-maturity securities[375] - The Bank exceeded all regulatory capital requirements as of December 31, 2023, and was considered "well capitalized" under the prompt corrective action framework[225][526] - The company repurchased 3.7 million shares for a total cost of $36.0 million during 2023 across three stock repurchase programs[221] Changes in and Disagreements With Accountants on Accounting and Financial Disclosures The company reports no changes in or disagreements with its accountants on accounting and financial disclosures - None[531] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no attestation report required for the emerging growth company - Management concluded the company's disclosure controls and procedures were effective as of the report period end[230] - Management concluded the company's internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework[230] Other Information The company reports no other information for this item - Not applicable[561] Disclosure Regarding Foreign Jurisdiction that Prevent Inspections This item is not applicable to the company - Not applicable[231] Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference to the Proxy Statement for the Company's 2024 Annual Meeting of Stockholders[232] Executive Compensation Information for this item is incorporated by reference from the company's definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference to the Proxy Statement for the Company's 2024 Annual Meeting of Stockholders[247] Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference to the Proxy Statement for the Company's 2024 Annual Meeting of Stockholders[233] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference to the Proxy Statement for the Company's 2024 Annual Meeting of Stockholders[563] Principal Accounting Fees and Services Information for this item is incorporated by reference from the company's definitive Proxy Statement for the 2024 Annual Meeting of Stockholders - Information is incorporated by reference to the Proxy Statement for the Company's 2024 Annual Meeting of Stockholders[570] Part IV Exhibits, Financial Statement Schedules This section lists financial statements and exhibits filed with the Form 10-K, including corporate documents, agreements, and certifications - This section lists all financial statements and exhibits filed with the Form 10-K, including certifications pursuant to the Sarbanes-Oxley Act[536][571] Form 10-K Summary This item is not applicable - Not applicable[537]