Note L – Employee Benefit Plans -

The Bank has established a 401(k) retirement savings plan that covers substantially all employees. Participants may contribute a portion of their compensation, up to the federal limitations, with the Bank matching the participant’s contribution up to 4% of their compensation. Employer contributions expensed were $49,000 and $44,000 to the plan in 2019 and 2018, respectively.

The Bank has established a deferred compensation agreement with certain directors, past directors and officers. The expense incurred for these agreements for the years ended December 31, 2019 and 2018 amounted to approximately $45,000 and $22,000, respectively. The accrued liability for these agreements at December 31, 2019 and 2018 amounted to approximately $727,000 and $704,000, respectively.

To finance the benefits under this plan, the Bank has entered into an arrangement to provide for the cost of split-dollar life insurance policies on the lives of the certain of the Bank’s current and former members of the Board of Directors.

As part of the Company’s stock conversion, an employee stock ownership plan (“ESOP”) for eligible employees was established. The leveraged ESOP is accounted for in accordance with the requirements of ASC 718, Compensation – Stock Compensation. All employees of the Bank meeting certain tenure requirements are entitled to participate in the ESOP.

Shares were purchased by the ESOP with a loan from Heritage NOLA Bancorp, Inc. The ESOP acquired 132,250 shares of the Company’s common stock in the conversion. During the years ended December 31, 2019 and December 31, 2018, 5,290 shares were allocated to ESOP plan participants each year, leaving 116,380 and 121,670 unallocated shares in the ESOP at December 31, 2019 and December 31, 2018, respectively. Compensation expense related to the ESOP was $72,000 for the year ended December 31, 2019 and $66,000 for the year ended December 31, 2018.

The stock price at the formation date was $10.00. The aggregate fair value of the 116,380 unallocated shares was $1,490,000 based on the $12.80 closing price of the common stock on December 31, 2019.

Under ASC 718, unearned ESOP shares are not considered outstanding and are shown as a reduction of shareholders’ equity as unearned compensation. Dividends on unallocated ESOP shares are considered to be compensation expense. The Company recognizes compensation cost equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Company’s ESOP shares differ from the cost of such shares, the differential is credited to shareholders’ equity. The Company receives a tax deduction equal to the cost of the shares released. As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a Company liability.

The compensation expense resulting from the release of the common stock from the suspense account and allocation to plan participants results in a corresponding reduction in the earnings of Heritage NOLA Bancorp.

In August 2018, the Company’s stockholders appoved the 2018 Heritage NOLA Bancorp, Inc. Equity Incentive Plan (the “2018 Plan” or the “Plan”). No more than 231,437 shares of the Company’s common stock may be issued under the Plan, of which a maximum of 165,312 may be issued pursuant to the exercise of stock options and 66,125 may be issued pursuant to restricted stock awards, restricted stock units and unrestricted share awards. Stock options awarded to employees may be incentive stock options or non-qualified stock options. The shares that may be issued may be authorized but unissued shares or treasury shares. The Plan permits the grant of incentive awards in the form of options, stock appreciation rights, restricted share and share unit awards, and performance share awards. The 2018 Plan contains limits on certain types of awards to individual participants.

Awards may vest or become exercisable only upon the achievement of performance measures or based solely on the passage of time after award. Stock options and restricted stock awards provide for accelerated vesting upon death, disability or if there is an involuntary termination of service following a change in control (as defined in the Plan).

On August 16, 2018, the Company made grants of restricted shares and stock options for 16,530 and 41,325 shares, respectively, to non-employee members of the Board of Directors. The awards vest over a five-year period and the stock options have a ten-year period to expiration. Each option has an exercise price of $12.48, as determined on the grant date.

On September 18, 2018, the Company made grants of restricted shares and stock options for 49,581 and 104,500 shares, respectively, to certain members of management and staff. The awards vest over either a five- or seven-year period and the stock options have a ten-year period to expiration. Each option has an exercise price of $12.45, as determined on the grant date.

Stock Options

The table below represents the stock option activity for the period shown:


		Weighted
		Average
	Options	Exercise Price

Options outstanding at January 1, 2019	145,825	$	12.46
Granted	—		—
Exercised	—		—
Forfeited	—		—
Expired	—		—

Options outstanding at December 31, 2019	145,825	$	12.46

As of December 31, 2019, the Company had $409,000 of unrecognized compensation expense related to stock options, having recognized $103,000 of compensation expense for the year ended December 31, 2019. The cost of stock options will be amortized in monthly installments over the five-year and seven-year vesting periods. The aggregate grant date fair value of the stock options granted in 2019 was $544,000. The options outstanding at December 31, 2019, were granted on August 16, 2018 and September 18, 2018. There are 27,537 options currently exercisable.

The fair value of the Company’s stock options granted in 2018 were $3.69 and $3.75 for the options granted on August 16, 2018 and September 18, 2018, respectively, and they were determined using the Black-Scholes option pricing formula. The following assumptions were used in the formula:


	Stock Options			Stock Options
	Granted			Granted
	August 16, 2018			September 18, 2018

Expected volatility		12.44	%		11.94	%
Risk-free interest rate		2.87	%		3.05	%
Expected dividend yield		—	%		—	%
Expected life (in years)		10			10
Exercise price for the stock options	$	12.48		$	12.45

Expected volatility - Based on the historical volatility of share price for the Company.

Risk-free interest rate - Based on the U.S. Treasury yield curve and expected life of the options at the time of grant.

Dividend yield – Heritage NOLA Bancorp, Inc. does not anticipate a quarterly dividend per share.

Expected life - Based on the average of the vesting period and the ten year contractual term of the stock option plan.

Exercise price for the stock options - Based on the closing price of the Company’s stock on the date of grant.

Restricted Shares

Restricted shares are accounted for as fixed grants using the fair value of the Company’s stock at the time of the grant. Unvested restricted shares may not be disposed of or transferred during the vesting period.

The table below presents the restricted stock award activity for the period shown:


		Weighted Average
	Restricted	Fair Value at
	Stock Awards	Grant Date

Non-vested at January 1, 2019	66,111	$	12.46

Granted	—		—
Vested	(12,419)		12.46
Forfeited	—		—

Non-vested at December 31, 2019	53,692	$	12.46

As of December 31, 2019, the Company had $621,000 of unrecognized compensation expense related to restricted shares, having recognized $155,000 of compensation expense for the year ended December 31, 2019. The cost of the restricted shares will be amortized in monthly installments over the five and seven-year vesting periods.