10-Q: Blue Foundry Bancorp Narrows Losses, Boosts Net Interest Income

Blue Foundry Bancorp reported a reduced net loss and increased net interest income for the second quarter and first half of 2025, driven by loan growth and higher interest-earning asset yields.

Summary

• Blue Foundry Bancorp recorded a net loss of $1.96 million for the three months ended June 30, 2025, an improvement from a $2.34 million net loss in the same period of 2024.
• For the six months ended June 30, 2025, the net loss was $4.65 million, down from $5.18 million in the first half of 2024.
• Total interest income increased by $2.15 million (10.1%) to $23.44 million for the second quarter of 2025, and by $4.02 million (9.5%) to $46.15 million for the six months ended June 30, 2025, compared to prior year periods.
• Net interest income rose to $11.64 million for the second quarter of 2025, up from $9.57 million in Q2 2024, and increased to $22.38 million for the first half of 2025, from $18.99 million in the first half of 2024.
• The company recorded a $463 thousand provision for credit losses in Q2 2025, a shift from a $762 thousand release of provision in Q2 2024.
• Non-interest income decreased to $405 thousand in Q2 2025 from $536 thousand in Q2 2024, partly due to a gain on sale of real estate owned in 2024 that did not recur.
• Total assets increased to $2.13 billion at June 30, 2025, from $2.06 billion at December 31, 2024.
• Gross loans held for investment grew by $89.6 million to $1.67 billion at June 30, 2025, with significant increases in consumer, commercial real estate, and construction loans.
• Total deposits increased by $73.0 million (5.4%) to $1.42 billion at June 30, 2025, with core deposits representing 48.4% of total deposits.
• Brokered deposits increased to $225.0 million at June 30, 2025, from $155.0 million at December 31, 2024.
• Total shareholders' equity decreased by $10.9 million (3.3%) to $321.3 million at June 30, 2025, primarily due to share repurchases and the net loss.
• The company maintains a full valuation allowance of $25.6 million on its deferred tax assets at June 30, 2025.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive. While the company continues to report a net loss, the significant reduction in losses, strong growth in net interest income, and expansion of the loan portfolio are positive indicators. The increase in core deposits and robust capital position are also favorable. However, the shift to a provision for credit losses, increased operating expenses, and reliance on brokered deposits present areas of concern that temper a higher score.

Positives

• Net loss significantly narrowed for both the three-month ($1.96 million vs. $2.34 million) and six-month ($4.65 million vs. $5.18 million) periods compared to the prior year.
• Net interest income increased substantially, rising by $2.07 million (21.6%) in Q2 2025 and $3.39 million (17.9%) for the first half of 2025.
• Net interest margin improved by 32 basis points to 2.28% in Q2 2025 and by 28 basis points to 2.22% for the first half of 2025.
• Total assets grew to $2.13 billion, indicating balance sheet expansion.
• Gross loans held for investment increased by $89.6 million, reflecting strong loan origination and purchases, including $80.4 million in consumer loans from BHG.
• Core deposits increased by $49.6 million and now represent a higher percentage of total deposits (48.4% at June 30, 2025 vs. 47.3% at December 31, 2024).
• Unrealized losses on available-for-sale securities improved by $5.51 million.
• The Bank remains well-capitalized, exceeding all applicable regulatory capital requirements.
• Available borrowing capacity is robust at $256.1 million with FHLB, $110.3 million with Federal Reserve Bank, and $30.0 million unsecured line of credit, totaling 2.4x uninsured and uncollateralized deposits.
• The company adopted a new share repurchase program on June 18, 2025, authorizing repurchase of up to 1,082,533 shares.

Negatives

• The company continues to report a net loss, despite the reduction.
• A shift occurred from a $762 thousand release of provision for credit losses in Q2 2024 to a $463 thousand provision in Q2 2025, indicating increased expected credit losses.
• Non-interest income decreased by $131 thousand in Q2 2025 and $188 thousand for the first half of 2025, partly due to non-recurring gains in the prior year.
• Non-interest expenses increased by $324 thousand in Q2 2025 and $711 thousand for the first half of 2025, driven by higher compensation, data processing, and advertising costs.
• Total shareholders' equity decreased by $10.9 million, primarily due to share repurchases and the ongoing net loss.
• Brokered deposits significantly increased by $70.0 million, which can be a more expensive and less stable funding source.
• The company did not record a tax benefit for the losses incurred due to a full valuation allowance on its deferred tax assets.

Risks

• Changes in the interest rate environment may reduce margins and yields, impact loan originations, or increase defaults, losses, and prepayments on loans.
• Adverse changes in the securities or secondary mortgage markets could negatively affect asset values.
• Changes in monetary or fiscal policies of the U.S. Government, including the U.S. Treasury and Federal Reserve Board, could impact operations.
• General economic conditions, nationally or in market areas, that are worse than expected, including potential recessionary conditions, could affect financial performance.
• Changes in the amount and trend of loan delinquencies and write-offs, and changes in estimates and methodology for calculating the allowance for credit losses, pose financial risk.
• The ability to access cost-effective funding is crucial for liquidity and growth.
• Fluctuations in real estate values and both residential and commercial real estate market conditions could impact loan collateral and asset quality.
• Competition among depository and other financial institutions could affect market share and profitability.
• Changes in laws or government regulations or policies affecting financial institutions, including regulatory fees, capital requirements, and insurance premiums, could increase operational costs.
• Technological changes may be more difficult or expensive to implement than expected.
• A failure or breach of operational or security systems or infrastructure, including cyber-attacks, could lead to financial losses or reputational damage.
• The inability of third-party providers to perform as expected could disrupt operations.
• The ability to manage market risk, credit risk, and operational risk in the current economic environment is critical.
• Changes in consumer spending, borrowing, and savings habits could impact deposit and loan growth.
• The current or anticipated impact of military conflict, terrorism, or other geopolitical events could create economic instability.

Future Outlook

The company expects to recognize the effects of the recently enacted 'One Big Beautiful Bill' (OBBB) in the third quarter of 2025, but based on preliminary assessment, does not currently expect it to have a material impact on its financial statements. Management anticipates having sufficient funds to meet current loan origination and lines of credit commitments. The company does not intend to sell securities with unrealized losses, nor does it foresee being required to sell them before anticipated recovery or maturity.

Management Comments

• The net loss for the three months ended June 30, 2025, was $2.0 million, an improvement from $2.3 million for the same period in 2024.
• The provision for credit losses was primarily driven by an increase in unfunded loan commitments and a shift in the composition of the loan portfolio.
• A tax benefit for the loss incurred was not recorded due to the full valuation allowance required on deferred tax assets.
• Management expects, based on historical experience, that a deposit relationship will be retained with a substantial portion of certificate holders.
• Current sources of liquidity are believed to be more than sufficient to fulfill obligations related to off-balance-sheet arrangements and contractual obligations.
• There have been no material changes in risk factors from those identified in the Annual Report on Form 10-K for the year ended December 31, 2024.
• The company is not engaged in any legal proceedings of a material nature at the present time.

Industry Context

The company operates in an interest rate-sensitive environment, utilizing interest rate swap agreements to manage risk. Its performance reflects broader trends in the banking sector, including the impact of interest rate changes on net interest income and the need to manage credit risk in a changing loan portfolio. The increase in brokered deposits suggests a competitive funding environment, while growth in core deposits indicates success in attracting stable customer funds. The continued net loss, despite improvement, highlights ongoing challenges faced by some financial institutions in the current economic climate.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results for direct comparison to global benchmarks or industry standards.
• The company's net interest margin of 2.28% for Q2 2025 and 2.22% for YTD Q2 2025 represents an improvement over prior periods, but without industry benchmarks, it's difficult to assess its competitiveness.
• The Bank's capital ratios (e.g., Common equity tier 1 at 18.11%) significantly exceed the 'well capitalized' regulatory guidelines (6.50%), indicating strong capital adequacy relative to regulatory minimums.

Legal Proceedings

• The company is not engaged in any legal proceedings of a material nature at the present time.
• The company is subject to various legal actions arising in the normal course of business, but management expects their resolution not to have a material adverse effect on financial condition or results of operations.

Stakeholder Impact

• Shareholders: Experienced a decrease in total equity due to net loss and share repurchases, but the reduced net loss and share repurchase program could be seen as positive for per-share metrics.
• Customers (Depositors): Benefit from increased core deposit offerings and potentially competitive rates, though the increase in brokered deposits might suggest less favorable retail rates.
• Customers (Borrowers): Benefit from continued loan origination and expansion of loan types.
• Employees: Compensation and benefits expenses increased, suggesting stable or growing employee costs, potentially indicating continued investment in human capital.
• Creditors (FHLB, etc.): The company's strong capital ratios and liquidity position indicate a low credit risk for lenders.

Next Steps

• The company will recognize the effects of the 'One Big Beautiful Bill' (OBBB) in the third quarter of 2025.
• The company will continue to manage its interest rate risk using strategies such as growing target deposit accounts, utilizing its investment securities portfolio, and interest rate swaps.
• The company plans to continue diversifying its loan portfolio by adding more commercial and consumer loans.
• The company will continue its share repurchase program, with 1,073,129 shares yet to be purchased under the plan as of June 30, 2025.

Key Dates

Recommendation

The company is showing signs of improvement with a reduced net loss and increased net interest income, indicating progress in its core banking operations. Loan growth and an increase in core deposits are positive trends. However, the shift to a provision for credit losses, increased operating expenses, and a growing reliance on brokered deposits introduce uncertainties. While the share repurchase program is supportive, the company is still operating at a loss. A 'hold' recommendation is appropriate as the company navigates these mixed signals, requiring further observation for sustained profitability and risk management effectiveness before a stronger recommendation can be made.

Keywords

Banking, Financial Services, SEC Filing, 10-Q, Quarterly Report, Net Loss, Net Interest Income, Loan Growth, Deposits, Credit Losses, Interest Rates, Share Repurchase, Capital Ratios, Liquidity, New Jersey