Employee Stock Ownership Plan

12 Months Ended

Dec. 31, 2020

Retirement Benefits [Abstract]

Employee Stock Ownership Plan

Employee Stock Ownership Plan

The Bank maintains an Employee Stock Ownership Plan (“ESOP”). All full-time employees are eligible to participate in the ESOP after they attain age 21 and complete one year of service during which they work at least 1000 hours. ESOP shares are allocated among participants on the basis of compensation earned during the year. Employees are fully vested in their ESOP account after the completion of five years of credited service or completely if service was terminated due to death, retirement, disability or change in control of the Company. ESOP participants are entitled to receive distributions from the ESOP account only upon termination of service, which includes retirement and death except that a participant may elect to have dividends distributed as a cash payment on a quarterly basis.

The ESOP originally borrowed $13.4 million from the Company to purchase 2,013,137 shares of common stock. On May 12, 1998, the initial loan agreement was amended to allow the ESOP to borrow an additional $8.2 million in order to fund the purchase of 633,750 shares of common stock. At the same time, the term of the loan was extended from the initial twelve years to thirty years. On May 1, 2018, the loan agreement was amended to allow the ESOP to borrow an additional $8.4 million in order to fund the purchase of 292,592 shares of common stock. At the same time, the fixed interest rate of the loan was reduced from 8.25% to 3.25%. The amended loan is to be repaid from contributions by the Bank to the ESOP trust. The Bank is required to make contributions to the ESOP in amounts at least equal to the principal and interest requirement of the debt.

The Bank’s obligation to make such contributions is reduced to the extent of any dividends paid by the Company on unallocated shares and any investment earnings realized on such dividends. As of December 31, 2020 and 2019, contributions to the ESOP, which were used to fund principal and interest payments on the ESOP debt, totaled $1.5 million. During 2020 and 2019, $313,000 and $357,000, respectively, of dividends paid on unallocated ESOP shares were used for debt service. At December 31, 2020 and 2019, the loan had an outstanding balance of $8.1 million and $9.3 million, respectively, and the ESOP had unallocated shares of 394,080 and 459,711, respectively. At December 31, 2020, the unallocated shares had a fair value of $7.3 million. The unamortized balance of the ESOP is shown as unallocated common stock held by the ESOP and is reflected as a reduction of stockholders’ equity.

For the year ended December 31, 2020, the Bank recorded compensation expense related to the ESOP of $1.1 million including $80,000 representing a decrease in compensation expense to reflect the decrease in the average fair value of shares committed to be released and allocated shares below the Bank’s cost. For the years ended December 31, 2019 and 2018, the Bank recorded compensation expense related to the ESOP of $1.6 million, and $1.6 million, respectively, including $366,000, and $596,000,

respectively, representing additional compensation expense to reflect the increase in the average fair value of shares committed to be released and allocated shares in excess of the Bank’s cost. As of December 31, 2020, 2,477,663 shares had been allocated to participants and 65,631 shares were committed to be released.