STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2022

Share-Based Payment Arrangement [Abstract]

Employee Stock Ownership Plan

The Company maintains an ESOP, a tax-qualified plan designed to invest primarily in the Company’s common stock. The ESOP provides employees with the opportunity to receive a funded retirement benefit from the Bank, based primarily on the value of the Company’s common stock.

The ESOP borrowed funds from the Company to purchase 2,281,800 shares of stock at $10 per share. The loan is secured by the shares purchased, which are held until allocated to participants. Shares are released for allocation to participants as loan payments are made. Loan payments are principally funded by discretionary cash contributions by the Bank, as well as dividends, if any, paid to the ESOP on unallocated shares. When loan payments are made, ESOP shares are allocated to participants at the end of the plan year (December 31) based on relative compensation, subject to federal tax law limits. Participants receive the shares at the end of employment. Dividends on allocated shares, if any, increase participants accounts.

At September 30, 2022, the principal balance on the ESOP loan is $21.8 million. There were no contributions to the ESOP during the three and nine months ended September 30, 2022, as loan payments are made annually during the fourth quarter of each year. ESOP shares are committed to be released from unallocated and compensation expense are recognized over the service period. For the three months ended September 30, 2022, 22,818 shares were committed to be released from unallocated and ESOP compensation expense totaled $266 thousand. For the nine months ended September 30, 2022, 68,454 shares were committed to be released from unallocated and ESOP compensation expense totaled $870 thousand. Shares committed to be released from unallocated and ESOP compensation expense totaled 41,290 shares and $554 thousand, respectively, for both the three and nine months ended September 30, 2021.

Shares held by the ESOP were as follows:


	September 30, 2022		December 31, 2021
	(Dollars in thousands)

Allocated to participants	91,272		91,272
Unallocated	2,190,528		2,190,528
Total ESOP shares	2,281,800		2,281,800

Fair value of unallocated shares	$	24,424	$	32,047

The fair value of the unallocated shares was computed using the closing trading price of the Company’s common stock on each date.

Equity Incentive Plan

At the annual meeting held on August 25,2022, stockholders of the Company approved the Blue Foundry Bancorp 2022 Equity Incentive Plan (“Equity Plan”) which provides for the granting of up to 3,993,150 shares (1,140,900 restricted stock awards and 2,852,250 stock options) of the Company’s common stock.

Restricted shares granted under the Equity Plan generally vest in equal installments, over a service period between five and seven years beginning one year from the date of grant. Additionally, certain restricted shares awarded can be performance vesting awards, which may or may not vest depending upon the attainment of certain corporate financial targets. The vesting of the awards accelerate upon death, disability or an involuntary termination at or following a change in control. The product of the number of shares granted and the grant date closing market price of the Company’s common stock determine the fair value of restricted shares under the Equity Plan. Management recognizes compensation expense for the fair value of restricted shares on a straight-line basis over the requisite service period. For the nine months ended September 30, 2022, the Company granted 299,481 shares of restricted stock awards under the Equity Plan.

Stock options granted under the Equity Plan generally vest in equal installments, over a service period between five and seven years beginning one year from the date of grant. The vesting of the options accelerate upon death, disability or an involuntary termination at or following a change in control. Stock options were granted at an exercise price equal to the fair value of the Company’s common stock on the grant date based on the closing market price and have an expiration period of 10 years. For the nine months ended September 30, 2022, the Company granted 748,713 stock options under the Equity Plan.

The fair value of stock options granted are estimated utilizing the Black-Scholes option pricing model using the following assumptions: an expected life of 6.5 years, risk-free rate of 3.15%, volatility of 29.74% and a dividend yield of 0.88%. Due to the limited historical information of the Company’s stock, management considered the weighted historical volatility of the Company and similar entities for an appropriate period in determining the volatility rate used in the estimation of fair value. The expected life of the stock option was estimated using the simplified method. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The Company recognizes compensation expense for the fair values of these awards, which have graded vesting, on a straight-line basis over the requisite service period of the awards. Upon exercise of vested options, management expects to draw on treasury stock as the source for shares.

The following table presents the share-based compensation expense for the three and nine months ended September 30, 2022. There was no share-based compensation expense for the three and nine months ended September 30, 2021.


	Three and Nine Months Ended September 30, 2022
	(In thousands)
Stock option expense	$	57
Restricted stock expense	69
Total share-based compensation expense	$	126

The following is a summary of the Company’s stock option activity and related information for the nine months ended September 30, 2022:


	Number of Stock Options	Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)
Outstanding - December 31, 2021	—	$	—	$	—	—
Granted	748,713	3.80		11.54		9.8



Outstanding - September 30, 2022	748,713	$	3.80	$	11.54	9.8
Exercisable - September 30, 2022	—

Expected future expense relating to the non-vested options outstanding as of September 30, 2022 is $2.8 million over a weighted average period of 4.8 years.

The following is a summary of the status of the Company’s restricted shares as of September 30, 2022 and changes therein during the nine months ended:


	Number of Shares Awarded	Weighted Average Grant Date Fair Value
Outstanding - December 31, 2021	—	$	—
Granted	299,481	11.54


Outstanding - September 30, 2022	299,481	$	11.54

Expected future expense relating to the non-vested restricted shares outstanding as of September 30, 2022 is $3.4 million over a weighted average period of 4.8 years.