STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2023

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 March 31, 2023, the principal balance on the ESOP loan is $21.2 million. There were no contributions to the ESOP during the three months ended March 31, 2023, 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 and are recognized over the service period. At March 31, 2023 and December 31, 2022, there were 2,099,256 unallocated shares and 182,544 shares allocated to participants. The fair value of unallocated shares at March 31, 2023 and December 31, 2022 was $20.0 million and $27.0 million, respectively, computed using the closing trading price of the Company’s common stock on each date.

The following table presents ESOP compensation expense for the shares committed to be released from unallocated for the three months ended March 31, 2023 and March 31, 2022.


	Three months ended March 31,
		2023		2022
		(Dollars in thousands)
ESOP compensation expense		$	262	$	322

Shares committed to be released from unallocated		22,818		22,818

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.

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 ten years.

There were no stock options granted during the three months ended March 31, 2023. The fair value of stock options granted during 2022 were estimated utilizing the Black-Scholes option pricing model using the following assumptions: an expected life of 6.9 years, risk-free rate of 3.94%, volatility of 29.41% 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 months ended March 31, 2023. There was no share-based compensation expense for the three months ended March 31, 2022.


	Three Months Ended March 31, 2023
	(In thousands)
Stock option expense	$	399
Restricted stock expense	269
Total share-based compensation expense	$	668

The following is a summary of the Company’s stock option activity and related information for the three months ended March 31, 2023:


	Number of Stock Options	Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)
Outstanding - December 31, 2022	2,591,063	$	4.12	$	11.65	9.8
Granted	—	—		—		0

Forfeited	(61,000)	4.25		11.69		9.5

Outstanding - March 31, 2023	2,530,063	$	4.12	$	11.65	9.8
Exercisable - March 31, 2023	—

Expected future expense relating to the non-vested options outstanding as of March 31, 2023 is $9.6 million over a weighted average period of 6.0 years.

On March 6, 2023, the Company granted to employees, under the 2022 Equity Incentive Plan, 372,540 restricted stock awards with a total grant-date fair value of $4.5 million. Of these grants, 12,300 vest one year from the date of grant and 360,240 vest in equal installments over a seven-year period beginning one year from the date of grant. The Company also issued 360,240 performance-based restricted stock awards to its officers with a total grant date fair value of $4.3 million. Vesting of the performance-based restricted stock units will be based on achievement of certain levels of loan growth, deposit growth and net interest margin and will convert to seven-year time vest after the one-year measurement period ending December 31, 2023. At the end of the performance period, the number of actual shares to be awarded may vary between 0% and 100% of target amounts.

The following is a summary of the status of the Company’s restricted shares as of March 31, 2023 and changes therein during the three months ended:


	Number of Shares Awarded	Weighted Average Grant Date Fair Value
Outstanding - December 31, 2022	299,481	$	11.54
Granted	732,780	12.00


Outstanding - March 31, 2023	1,032,261	$	11.87

Expected future expense relating to the non-vested restricted shares outstanding as of March 31, 2023 is $11.7 million over a weighted average period of 6.2 years.