NOTE I – Equity Incentive Plan

In August 2018, the Company’s stockholders authorized the adoption of the 2018 Heritage NOLA Bancorp, Inc. Equity Incentive Plan (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. 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 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, 2020	145,825	$	12.46
Granted	—		—
Exercised	—		—
Forfeited	—		—
Expired	—		—

Options outstanding at March 31, 2020	145,825	$	12.46

As of March 31, 2020, the Company had $384,000 of unrecognized compensation expense related to stock options, having recognized $26,000 of compensation expense for the three month period ended March 31, 2020. 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 2018 was $544,000. The options outstanding at March 31, 2020 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, 2020	53,692	$	12.46

Granted	—		—
Vested	—		—
Forfeited	—		—

Non-vested at March 31, 2020	53,692	$	12.46

As of March 31, 2020, the Company had $582,000 of unrecognized compensation expense related to restricted shares, having recognized $39,000 of compensation expense for the three month period ending March 31, 2020. The cost of the restricted shares will be amortized in monthly installments over the five and seven-year vesting periods.