Blue Foundry Bancorp, the holding company for Blue Foundry Bank, has been undergoing a strategic transformation to become a more commercially-oriented institution. Founded in 1939, the company has navigated the banking industry's evolving landscape, repositioning itself to better serve the needs of small and medium-sized businesses in its New Jersey market.

Business Overview and History

Blue Foundry Bancorp was originally established in 1926 as Boiling Springs Savings and Loan Association, a mutual savings and loan institution based in Rutherford, New Jersey. For nearly a century, the company operated as a mutual institution, primarily focusing on residential mortgage lending and deposit gathering in its local market.

In 2020, Blue Foundry Bancorp faced significant challenges, reporting a net loss of $31.5 million. This loss was largely driven by a $15.5 million impairment charge related to the company's legacy branch network and $12.8 million in other special charges, which eroded a significant portion of the company's capital and prompted a major strategic shift.

A pivotal moment in the company's history came in 2021 when Blue Foundry Bancorp completed its mutual-to-stock conversion, raising $250 million in gross proceeds through an initial public offering. This conversion marked a significant milestone, providing Blue Foundry with the necessary capital and flexibility to expand its commercial banking capabilities and diversify its product offerings beyond its traditional residential mortgage focus.

Following the successful completion of its IPO, Blue Foundry Bancorp began investing in talent, technology, and infrastructure to transform itself into a more commercially-oriented institution. This included recruiting a new management team with experience in commercial banking, upgrading core systems, and opening new branch locations to expand its geographic footprint.

Despite these efforts, the company continued to face challenges, reporting net losses in 2021 and 2022 as it worked to integrate these changes. Historically high levels of non-performing assets and credit costs weighed on the company's financial performance during this period of transition.

Under the leadership of President and CEO, James D. Nesci, who joined the company in 2019, Blue Foundry has been actively repositioning its business model. The company's focus has shifted towards building a more commercially-oriented institution, with a targeted emphasis on attracting and servicing the full banking relationships of small and medium-sized businesses in its market area.

This strategic shift is evidenced by the company's recent financial performance and balance sheet composition. As of the latest reported quarter (Q4 2024), commercial and industrial loans, as well as owner-occupied commercial real estate loans, have become a more significant portion of the overall loan portfolio, increasing to $14.23 million and $241.71 million, respectively, compared to $11.77 million and $232.50 million at the end of 2023.

Financials

Blue Foundry Bancorp reported a net loss of $11.9 million, or $0.55 per diluted common share, for the full year 2024, compared to a net loss of $7.4 million, or $0.31 per diluted common share, in 2023. The company's quarterly performance has been mixed, with a net loss of $2.7 million, or $0.13 per diluted common share, in Q4 2024, compared to a net loss of $4.0 million, or $0.19 per diluted common share, in Q3 2024.

For the most recent fiscal year, Blue Foundry reported annual revenue of $43.72 million, with an annual net loss of $7.40 million. The company's annual operating cash flow was negative $12.12 million, and its annual free cash flow was negative $17.69 million. In the most recent quarter, revenue stood at $9.47 million, with a net loss of $4.04 million.

Despite the recent net losses, Blue Foundry's balance sheet and capital position remain strong. As of December 31, 2024, the company had total assets of $2.06 billion, with a tangible equity to tangible common assets ratio of 16.1%. The bank and holding company are well-capitalized, with capital levels that are among the strongest in the banking industry.

Liquidity

Liquidity is also a key strength for Blue Foundry. The company has $408 million in untapped borrowing capacity and $211 million in unencumbered available-for-sale securities and unrestricted cash, which is 4.2 times larger than the company's uninsured and uncollateralized deposits to customers, representing only 11% of total deposits.

As of the most recent quarter, Blue Foundry had $46.02 million in cash and cash equivalents. The company also had $255.70 million in available borrowing capacity, including a $30 million line of credit with a correspondent bank and a $48.20 million line of credit with the Federal Reserve Bank of New York. The company's debt-to-equity ratio stands at 1.10, indicating a relatively balanced capital structure.

Transformation and Strategic Initiatives

Blue Foundry's strategic transformation is centered on becoming a more commercially-focused institution. The company has set forth a plan to attract the full banking relationships of small and medium-sized businesses in its market area, leveraging its industry-leading frictionless products and a dedicated focus on developing new relationships and deepening existing ones.

To support this initiative, the company has implemented a compensation structure that aligns all employees with the achievement of strategic objectives, including loan growth, deposit growth, and net interest margin expansion. This approach is designed to incentivize the organization to execute on the company's commercial banking strategy.

During the fourth quarter of 2024, Blue Foundry funded $59 million in loans, with a yield of approximately 7.5%. Additionally, the company has executed letters of intent totaling over $60 million for predominantly commercial credits at yields of approximately 7.7%. The company's demonstrated high pull-through rate on these commitments suggests continued balance sheet and interest income growth in the coming quarters, while maintaining disciplined underwriting standards.

Blue Foundry has also been active in returning capital to shareholders through share repurchases. During the most recent quarter, the company repurchased 481,000 shares at a weighted average price of $10.49. Year-to-date, Blue Foundry has repurchased 6.9 million shares at a weighted average cost of $10.16, demonstrating its commitment to improving shareholder value.

Risks and Challenges

While Blue Foundry Bancorp's strategic transformation presents opportunities, the company also faces inherent risks and challenges. The highly competitive environment in the company's New Jersey market area, particularly for small and medium-sized business relationships, could make it challenging to execute on the commercial banking strategy and achieve the desired growth.

Additionally, the company's sizable multifamily loan portfolio, which represented 43% of total loans as of December 31, 2024, could pose risks if the commercial real estate market experiences headwinds. The company has indicated that it is monitoring its multifamily concentration levels and may look to reduce exposure in this segment over time.

The company's recent net losses, while partially attributable to the strategic repositioning efforts, also highlight the need for continued expense discipline and the successful execution of the commercial banking strategy to drive sustainable profitability.

Future Outlook and Guidance

Looking ahead, Blue Foundry expects to deliver continued balance sheet and interest income growth over the coming quarters while remaining disciplined in their underwriting standards. The company anticipates improvements in net interest margin as they close loans at current rates and reprice deposits lower. For 2025, Blue Foundry is targeting high single-digit loan growth and expects a similar pace of net interest margin expansion as seen in Q4 2024, subject to the timing of loan originations and deposit repricing.

On the expense side, Blue Foundry expects operating expenses to return to the mid to high $13 million range as bonus accruals reset, merit raises are realized, and normal inflationary considerations impact other contracts. The company plans to continue being active in the share repurchase market, viewing it as a good use of capital at current levels.

Conclusion

Blue Foundry Bancorp's transformation into a more commercially-focused institution represents a significant strategic shift for the company. While the company has faced some near-term challenges, reflected in its recent net losses, the strong capital position, ample liquidity, and focused execution of the commercial banking strategy suggest that Blue Foundry is well-positioned to navigate the evolving banking landscape and capitalize on opportunities in its market area.

The company's ability to successfully execute its commercial banking strategy, maintain disciplined underwriting, and manage risks associated with its multifamily loan portfolio will be critical to its long-term success. As Blue Foundry continues to implement its strategic initiatives and work towards sustainable profitability, investors will closely monitor its progress in achieving its strategic objectives and delivering value to shareholders.