10-Q: Blue Foundry Bancorp Narrows Q3 Loss, Boosts Net Interest Income

Blue Foundry Bancorp reported a reduced net loss for the third quarter and first nine months of 2025, driven by strong net interest income growth and increased loan balances.

Summary

• Net loss significantly narrowed for both the three-month ($1.9 million vs. $4.0 million) and nine-month ($6.5 million vs. $9.2 million) periods ended September 30, 2025, compared to the prior year.
• Net interest income increased by $3.1 million to $12.2 million for Q3 2025 and by $6.5 million to $34.6 million for the nine months, primarily due to higher rates on interest-earning assets and increased loan balances.
• Total assets grew to $2.16 billion at September 30, 2025, from $2.06 billion at December 31, 2024.
• Gross loans held for investment increased by $131.4 million to $1.71 billion, with significant growth in consumer and commercial real estate loans.
• Total deposits increased by $150.1 million to $1.49 billion, with brokered deposits rising to $275.0 million from $155.0 million to fund loan originations and replace retail time deposits.
• Non-performing loans increased to $11.4 million (0.7% of total loans) at September 30, 2025, from $5.1 million (0.3%) at December 31, 2024, primarily due to one $5.3 million commercial credit.
• The company repurchased $16.3 million of common stock during the nine months ended September 30, 2025, and adopted a new program to repurchase up to 1,082,533 shares (5% of outstanding common stock).
• Interest rate hedges (swaps) increased to a notional amount of $526.0 million from $349.0 million to manage interest rate risk.

Sentiment

Score: 4

Explanation: While the company significantly reduced its net loss and improved net interest income, it continues to operate at a loss. The notable increase in non-performing loans and the reliance on higher-cost brokered deposits are concerns, despite strong capital ratios and active risk management. The overall financial health shows improvement but remains challenged.

Positives

• Net loss significantly reduced for both the quarter and year-to-date periods.
• Strong growth in net interest income, net interest rate spread, and net interest margin.
• Total assets and gross loans increased, indicating business expansion.
• Total deposits increased, demonstrating funding growth.
• Unrealized loss position on available-for-sale securities improved by $8.0 million.
• The Bank remains 'well capitalized' under regulatory guidelines, with strong capital ratios.

Negatives

• The company continues to report a net loss for both the quarter and year-to-date periods.
• Provision for credit losses increased significantly to $589 thousand for Q3 2025 and $1.3 million for the nine months, compared to a release in the prior year.
• Non-performing loans more than doubled to $11.4 million, primarily due to one commercial credit.
• Total shareholders' equity decreased by $17.8 million, partly due to share repurchases and the net loss.
• Brokered deposits increased substantially, which can be a more expensive and potentially less stable funding source.

Risks

• Changes in the interest rate environment may reduce margins and yields, the fair value of financial instruments, the level of loan originations, or increase the level of defaults, losses, and prepayments on loans.
• Adverse changes in the securities or secondary mortgage markets.
• Changes in monetary or fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board.
• General economic conditions, either nationally or in market areas, that are worse than expected, including potential recessionary conditions.
• Changes in the amount and trend of loan delinquencies and write-offs and changes in estimates and the methodology for calculating the allowance for credit losses.
• Ability to access cost-effective funding.
• Fluctuations in real estate values and both residential and commercial real estate market conditions.
• A failure or breach of operational or security systems or infrastructure, including cyber-attacks.
• The increase in non-performing loans, particularly the $5.3 million multifamily loan, despite management's current assessment that principal is not at risk.
• Exposure to New York City multifamily loans with rent stabilization/control, totaling approximately $87.0 million, or 5.07% of total loans.

Future Outlook

The company expects its interest rate hedges to remain highly effective during the remaining terms of the swaps. Management anticipates having sufficient funds to meet current loan origination and lines of credit commitments. The One Big Beautiful Bill (OBBB) legislation is not expected to have a material impact on the company's financial statements.

Management Comments

• We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates.
• We have implemented strategies to manage interest rate risk, including growing target deposit accounts, utilizing investment securities and interest rate swaps, and diversifying our loan portfolio with more commercial and consumer loans.
• We believe that we are positioned to react to increases and decreases in market interest rates.
• Management does not believe any principal is at risk for the $5.3 million multifamily loan for which legal proceedings have commenced.
• Management believes that our current sources of liquidity are more than sufficient to fulfill our obligations as of September 30, 2025 pursuant to off-balance-sheet arrangements and contractual obligations.

Industry Context

The banking industry continues to navigate a dynamic interest rate environment. Blue Foundry Bancorp's increased net interest income and margin suggest effective management of its asset-liability mix in a rising rate environment, though the overall net loss indicates ongoing challenges. The increase in non-performing loans, particularly a commercial credit, highlights potential vulnerabilities in specific real estate segments, which is a broader concern across the banking sector given economic uncertainties. The reliance on brokered deposits for funding growth also reflects competitive pressures for deposits.

Comparison to Industry Standards

• NA

Legal Proceedings

• The company is not engaged in any legal proceedings of a material nature at the present time, but is subject to various legal actions arising in the normal course of business.
• Foreclosure proceedings were in process for $3.7 million in consumer mortgage loans secured by residential real estate properties at September 30, 2025.
• Legal proceedings have commenced for a $5.3 million multifamily loan, with the company seeking the appointment of a rent receiver.

Stakeholder Impact

• Shareholders: Reduced net loss and improved EPS are positive, but continued losses and decreased total shareholders' equity (partly due to repurchases) are concerns. Share repurchase program could support share price.
• Employees: ESOP and Equity Incentive Plan provide retirement benefits and compensation.
• Customers (Borrowers): Loan growth indicates continued lending activity. Loan modifications offered to borrowers experiencing financial difficulty.
• Customers (Depositors): Increased deposit balances, but also increased reliance on brokered deposits, which may indicate competitive pressure on retail deposit rates.
• Creditors (FHLB): Decreased FHLB advances, indicating reduced reliance on this funding source.

Next Steps

• Continue managing interest rate risk through deposit growth, investment portfolio adjustments, and interest rate swaps.
• Diversify the loan portfolio with more commercial and consumer loans.
• Monitor the performance of modified loans to borrowers experiencing financial difficulty.
• Pursue legal proceedings for the $5.3 million multifamily loan to seek appointment of a rent receiver.
• Execute the sixth share repurchase program for up to 1,082,533 shares.

Key Dates

Recommendation

Blue Foundry Bancorp demonstrated significant improvements in its net loss and net interest income, indicating better operational efficiency and interest rate management. However, the company continues to report a net loss, and the notable increase in non-performing loans, particularly a large commercial credit, introduces credit quality concerns. While capital ratios remain strong and management is actively addressing risks, the overall financial performance is still in a recovery phase. A 'hold' recommendation is appropriate as the company shows signs of improvement but faces ongoing challenges that warrant continued monitoring before a more bullish stance can be taken.

Keywords

Blue Foundry Bancorp, BLFY, SEC Filing, 10-Q, Quarterly Report, Financial Results, Net Loss, Net Interest Income, Loan Growth, Deposits, Credit Quality, Non-performing Loans, Share Repurchase, Interest Rate Risk, Banking, Financial Services, New Jersey