UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K/A

AMENDMENT NO.
1



xANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the year ended December 31, 2017.

OR



 ̈TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from _______________ to
_______________.



Commission file number: 000-55817



HERITAGE
NOLA BANCORP, INC.

(Exact name of registrant as specified in
its charter)



|Maryland                                                               |  | 82-0688069                                     
|---------------------------------------------------------------------- |  | -----------------------------------------------
|(State or other jurisdiction of
        incorporation or organization) |  | (I.R.S. Employer
        Identification Number)



|205 North Columbia Street, Covington, Louisiana |  | 70433     
|----------------------------------------------- |  | ----------
|(Address of principal executive offices)        |  | (Zip Code)



Registrant's telephone number, including
area code: (985) 892-4565



Securities registered pursuant to Section
12(b) of the Act:        None



|(Title of each class to be registered) |  | (Name of each exchange on which
        each class is to be registered)
|-------------------------------------- |  | -----------------------------------------------------------------------



Securities registered pursuant to Section
12(g) of the Act:



Common Stock, par value $0.01 per
share



Indicate by check mark if the Registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. YES  ̈     NO
x



Indicate by check mark if the Registrant is not required to
file reports pursuant to Section 13 or Section 15(d) of the Act. YES  ̈     NO
x



Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. YES x     NO  ̈



Indicate by check mark whether the Registrant has submitted
electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit
and post such files). YES x     NO  ̈



Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. x



Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions
of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.



|Large accelerated filer   ̈                    | Accelerated filer   ̈        
|--------------------------------------------- | ----------------------------
|                                              |                             
|Non-accelerated filer   ̈                      | Smaller reporting company  x
|(Do not check if a smaller reporting company) |                             



Emerging growth company x



If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act.  ̈



Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Act). YES  ̈   NO
x



There was no outstanding voting common equity of the Registrant
as of June 30, 2017. The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant,
computed by reference to the last sale price on July 13, 2017 ($12.22), the first date of trading in the common stock, was approximately
$17.4 million.



As of March 24, 2018, there were 1,653,125 issued and outstanding
shares of the Registrant’s Common Stock.



DOCUMENTS INCORPORATED BY REFERENCE:



None.
























Explanatory Note



This Amendment No. 1 to the Annual Report
of Heritage NOLA Bancorp, Inc. on Form 10-K/A, or this Form 10-K/A, amends our Annual Report on Form 10-K for the year ended December
31, 2017, which was originally filed with the Securities and Exchange Commission (“SEC”), on March 30, 2018 (the “Original
Form 10-K”). This Form 10-K/A is being filed for the sole purpose of correcting disclosure in the following items:



The Average Deposits Table on page 26 (contained
within Item 1 of the Original Form 10-K);



The “Deposits” paragraph contained on
page 46 (contained within Item 7 of the Original Form 10-K);



The “Off-Balance Sheet Arrangements” Paragraph
on page 53 (contained within Item 7 of the Original Form 10-K); and



Inclusion of Exhibit 23, Consent of Auditor.



Except as expressly noted herein, this Form
10-K/A does not modify or update in any way the disclosures made in the Original Form 10-K and does not reflect events occurring
after the filing of the Original Form 10-K.













TABLE OF CONTENTS



|ITEM 1.  | BUSINESS                                                                              | 1 
|-------- | ------------------------------------------------------------------------------------- | --
|         |                                                                                       |   
|ITEM 7.  | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 42
|         |                                                                                       |   
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                                            | 66















| | ITEM 1. | Business
| | ------- | --------



FORWARD-LOOKING STATEMENTS



This annual report contains forward-looking
statements, which can be identified by the use of words such as “estimate,” “project,” “believe,”
“intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,”
“will,” “may,” “should,” “indicate,” “would,” “believe,”
“contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements
include, but are not limited to:



| | · | statements of our goals, intentions and expectations;
| | - | -----------------------------------------------------



| | · | statements regarding our business plans, prospects, growth and operating strategies;
| | - | ------------------------------------------------------------------------------------



| | · | statements regarding the asset quality of our loan and investment portfolios; and
| | - | ---------------------------------------------------------------------------------



| | · | estimates of our risks and future costs and benefits.
| | - | -----------------------------------------------------



These forward-looking statements are based
on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties
and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions
with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any
obligation to update any forward-looking statements after the date of this annual report.



The following factors, among others, could
cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:



| | · | our ability to manage our operations under the economic conditions in our market area;
| | - | --------------------------------------------------------------------------------------



| | · | adverse changes in the financial industry, securities, credit and national and local real estate markets (including real estate
values);
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| | · | significant increases in our loan losses, including as a result of our inability to resolve classified and non-performing assets
or reduce risks associated with our loans, and management’s assumptions in determining the adequacy of the allowance for
loan losses;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and in our
allowance for loan losses and provision for loan losses;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the use of estimates in determining fair value of certain of our assets, which may prove to be incorrect and result in significant
declines in valuations;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | competition among depository and other financial institutions;
| | - | --------------------------------------------------------------



| | · | our success in increasing our one- to four-family residential real estate lending and commercial real estate lending;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | our ability to attract and maintain deposits and to grow our core deposits, and our success in introducing new financial products;
| | - | ----------------------------------------------------------------------------------------------------------------------------------



1







| | · | our ability to maintain our asset quality even as we continue to grow our commercial real estate and commercial business loan
portfolios;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------



| | · | changes in interest rates generally, including changes in the relative differences between short-term and long-term interest
rates and in deposit interest rates, that may affect our net interest margin and funding sources;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | fluctuations in the demand for loans;
| | - | -------------------------------------



| | · | changes in consumer spending, borrowing and savings habits;
| | - | -----------------------------------------------------------



| | · | declines in the yield on our assets resulting from the current low interest rate environment;
| | - | ---------------------------------------------------------------------------------------------



| | · | risks related to a high concentration of loans secured by real estate located in our market area;
| | - | -------------------------------------------------------------------------------------------------



| | · | the results of examinations by our regulators, including the possibility that our regulators may, among other things, require
us to increase our allowance for loan losses, write down assets, change our regulatory capital position, limit our ability to borrow
funds or maintain or increase deposits, or prohibit us from paying dividends, which could adversely affect our dividends and earnings;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | changes in the level of government support of housing finance;
| | - | --------------------------------------------------------------



| | · | our ability to enter new markets successfully and capitalize on growth opportunities;
| | - | -------------------------------------------------------------------------------------



| | · | changes in laws or government regulations or policies affecting financial institutions, including the Dodd-Frank Act and the
JOBS Act, which could result in, among other things, increased deposit insurance premiums and assessments, capital requirements,
regulatory fees and compliance costs, particularly the new capital regulations, and the resources we have available to address
such changes;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards
Board, the Securities and Exchange Commission and the Public Company Accounting Oversight Board;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | changes in our compensation and benefit plans, and our ability to retain key members of our senior management team and to address
staffing needs in response to product demand or to implement our strategic plans;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | loan delinquencies and changes in the underlying cash flows of our borrowers;
| | - | -----------------------------------------------------------------------------



| | · | our ability to control costs and expenses, particularly those associated with operating as a publicly traded company;
| | - | ---------------------------------------------------------------------------------------------------------------------



| | · | the failure or security breaches of computer systems on which we depend;
| | - | ------------------------------------------------------------------------



| | · | the ability of key third-party service providers to perform their obligations to us;
| | - | ------------------------------------------------------------------------------------



| | · | changes in the financial condition or future prospects of issuers of securities that we own; and
| | - | ------------------------------------------------------------------------------------------------



| | · | other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and
services described elsewhere in this annual report.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2







BUSINESS OF HERITAGE NOLA BANCORP



Heritage NOLA Bancorp, Inc. (the “Company”)
was incorporated in Maryland on February 13, 2017 as part of the mutual-to-stock conversion of Heritage Bank of St. Tammany (“Heritage
Bank” or the “Bank”), for the purpose of becoming the savings and loan holding company of Heritage Bank. Since
being incorporated, other than holding the common stock of Heritage Bank, retaining approximately 50% of the net cash proceeds
of the stock conversion offering and making a loan to the employee stock ownership plan of Heritage Bank, we have not engaged in
any business activities to date.



The Company is authorized to pursue business
activities permitted by applicable laws and regulations, which may include the acquisition of banking and financial services companies.
See “Supervision and Regulation – Holding Company Regulation” for a discussion of the activities that are permitted
for savings and loan holding companies. We currently have no understandings or agreements to acquire other financial institutions,
although we may determine to do so in the future. We may also borrow funds for reinvestment in Heritage Bank.



Our cash flow depends on earnings from the
investment of the net proceeds we retained from our initial public stock offering that was consummated in July 2017, and
any dividends we receive from Heritage Bank. We neither own nor lease any property, but pay a fee to Heritage Bank for the use
of its premises, equipment and furniture. At the present time, we employ only persons who are officers of Heritage Bank who also
serve as officers of Heritage NOLA Bancorp. We use the support staff of Heritage Bank from time to time and pay a fee to Heritage
Bank for the time devoted to Heritage NOLA Bancorp by employees of Heritage Bank. However, these persons are not separately compensated
by Heritage NOLA Bancorp. Heritage NOLA Bancorp may hire additional employees, as appropriate, to the extent it expands its business
in the future.



BUSINESS OF HERITAGE BANK OF ST. TAMMANY



General



We conduct our business from our main office
in Covington, Louisiana, and our branch office in Slidell, Louisiana, both of which are located in St. Tammany Parish, within the
metropolitan area of New Orleans. Additionally, on October 31, 2017, the Bank purchased from the FDIC a closed banking facility
in Madisonville, Louisiana and we are establishing a branch facility at this location, which we expect to open in the second quarter
of 2018.



Covington is the Parish Seat of St. Tammany
Parish, which is located on the north shore of Lake Pontchartrain which separates St. Tammany Parish from New Orleans. Our primary
market area is St. Tammany Parish. To a lesser extent, we also originate loans in the greater New Orleans metropolitan area and
the parishes and counties contiguous to St. Tammany Parish.



Our business consists primarily of taking
deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family
residential real estate loans, including non-owner-occupied properties and home equity lines of credit, and commercial real estate.
We also originate land, construction and multifamily loans, and to a much lesser extent, originate consumer loans and purchase
commercial business loans. At December 31, 2017, $65.8 million, or 73.1% of our total loan portfolio, was comprised of one- to
four-family residential real estate loans, $12.4 million of which were non-owner-occupied loans. While we originate conforming
one- to four-family residential real estate loans that we sell to Freddie Mac, we also originate a substantial amount of non-conforming
loans that we retain in our portfolio. Since the consummation of our stock offering, we have hired two experienced commercial lenders
and intend to increase our emphasis on the origination of commercial real estate loans.



3







We offer a variety of deposit accounts,
including noninterest-bearing demand deposit accounts, savings accounts, NOW accounts and certificates of deposit. We utilize advances
from the FHLB-Dallas for asset/liability management purposes. At December 31, 2017, we had $14.1 million in advances outstanding
with the FHLB-Dallas.



In recent years we have accepted wholesale
certificates of deposit through National CD Rateline, an on-line service, and directly from other federally insured institutions.
Pursuant to our business strategy, we are seeking to increase our core deposits, which we define as demand deposit, NOW and statement
savings accounts, by aggressively marketing and pricing these deposit products and by growing our commercial lending relationships,
and reduce our reliance on wholesale certificates of deposit as a funding source.



Heritage Bank of St. Tammany is subject
to comprehensive regulation and examination by its primary federal regulator, the Office of the Comptroller of the Currency (“OCC”).



Our executive and administrative office
is located at 205 North Columbia Street, Covington, Louisiana 70433, and our telephone number at this address is (985) 892-4565.
Our website address is www.heritagebank.org. Information on our website is not incorporated into this annual report and
should not be considered part of this annual report.



Market Area



We conduct our business from our main office
in Covington, Louisiana, and our branch office in Slidell, Louisiana, both of which are located in St. Tammany Parish, within the
greater metropolitan area of New Orleans. Additionally, on October 31, 2017, the Bank purchased from the FDIC a closed banking
facility in Madisonville, Louisiana and we are establishing a branch facility at this location, which we expect to open in the
second quarter of 2018.



Covington is the Parish Seat of St. Tammany
Parish, which is located on the north shore of Lake Pontchartrain which separates St. Tammany Parish from New Orleans. Our primary
market area is St. Tammany Parish, and to a lesser extent, the parishes contiguous to St. Tammany Parish. Our business is dependent
on the local economy in southeastern Louisiana which includes the petrochemical industry, port activity along the Mississippi River,
healthcare and tourism. Service jobs, primarily in healthcare, education and construction and development, represent the largest
employment sector in St. Tammany Parish.



According to the United States census, the
estimated July 2015 population of St. Tammany Parish was 250,000, representing an increase of 7.0% from the 2010 census population
of 234,000. During this same time period, the New Orleans City population is estimated to have grown by 13.3%, the Louisiana population
grew by an estimated 3.0% and the United States population grew by an estimated 4.1%. From 2011 through 2015, the median household
income for St. Tammany Parish was $62,000, compared to median household incomes of $54,000 and $45,000 for the State of Louisiana
and for the United States, respectively.



4







Competition



We face vigorous competition both in making
loans and attracting deposits due to a high concentration of financial institutions within our market area. Additionally, we are
much smaller than the majority of depository institutions in our market area. The financial resources of these larger competitors
permit them to pay higher interest rates on their deposits and to be more aggressive in new loan originations. Our competition
includes commercial banks, savings institutions, mortgage banking firms, consumer finance companies and credit unions and, with
respect to deposits, from money market funds, brokerage firms, mutual funds and insurance companies. As of June 30, 2017, based
on the most recent available FDIC data, there were 25 FDIC-insured financial institutions with offices in St. Tammany Parish, of
which we ranked 10th, with a market share of deposits of 1.5%. We do not have a significant market share of either deposits or
residential lending in any other parish in Louisiana.



Lending Activities



General.Our principal lending
activity is originating one- to four-family residential real estate loans, including non-owner-occupied loans and home equity lines
of credit, and commercial real estate loans. We also originate land, construction and multifamily loans, and to a much lesser extent,
we originate consumer loans.



Historically a significant amount of the
loans that we have originated are non-conforming loans, and we have retained these loans in our portfolio. Generally, we sell most
of the conforming conventional, fixed-rate one- to four-family residential real estate loans that we originate to Freddie Mac on
a servicing-retained basis. In 2017 and 2016, approximately 71% and 50% of the owner-occupied, one-to four-family residential real
estate loans that we originated, respectively, were retained in our portfolio.



While commercial real estate loans have
not historically comprised a significant portion of our total loan portfolio, we increased our portfolio of these loans significantly
in 2017, mostly through participation purchases. These participations were purchased from other financial institutions that are
secured by properties within our market area of St. Tammany Parish and in the parishes contiguous to St. Tammany Parish. We intend
to continue to purchase these types of participations, and since the consummation of our conversion and stock offering we have
hired two commercial lenders in an effort to increase our origination of commercial real estate loans.



In 2016, we began purchasing loans from
the Bankers Healthcare Group, a nationally recognized lender to healthcare professionals. Consistent with our business plan to
grow our loan portfolio while managing our interest rate risk, subject to market conditions, we may increase our holdings of these
types of commercial business loans in the future.



However, we expect that one- to four-family
residential real estate lending will continue to be the core of our lending operations in the future.



5







Loan Portfolio Composition.The
following table sets forth the composition of our loan portfolio, by type of loan, at the dates indicated.



|                                 |  | At December 31,        |       
|-------------------------------- |  | ---------------------- | ------
|                                 |  | 2017                   |       
|                                 |  | Amount                 |       
|                                 |  | (Dollars in thousands) |       
|                                 |  |                        |       
|Real estate:                     |  |                        |       
|One- to four-family residential: |  |                        |       
|Owner-occupied                   |  |                        | 50,863
|Non-owner-occupied               |  |                        | 12,405
|Home equity lines of credit      |  |                        | 2,487 
|Commercial real estate           |  |                        | 16,364
|Land                             |  |                        | 2,605 
|Construction                     |  |                        | 1,703 
|Multifamily                      |  |                        | 1,665 
|Commercial                       |  |                        | 1,392 
|Consumer                         |  |                        | 451   
|                                 |  |                        |       
|Total loans receivable           |  |                        | 89,935
|                                 |  |                        |       
|Deferred loan costs (fees)       |  |                        | (443  
|Loans in process                 |  |                        | (701  
|Allowance for loan losses        |  |                        | (756  
|                                 |  |                        |       
|Total loans receivable, net      |  | $                      | 88,035



6







Loan Portfolio Maturities.The
following table summarizes the scheduled repayments of our loan portfolio at December 31, 2017. Demand loans, loans having no stated
repayment schedule or maturity, and overdraft loans are reported as being due in the year ending December 31, 2018. Maturities
are based on the final contractual payment date and do not reflect the impact of prepayments and scheduled principal amortization.



|                                         |  | One- to four- family residential real estate |        |  | Commercial real estate |   |        | Land |  |   | Construction |  |  | Multifamily |       |  | Consumer |   |       | Commercial business |  |   | Total | 
|---------------------------------------- |  | -------------------------------------------- | ------ |  | ---------------------- | - | ------ | ---- |  | - | ------------ |  |  | ----------- | ----- |  | -------- | - | ----- | ------------------- |  | - | ----- | 
|                                         |  |                                              |        |  |                        |   |        |      |  |   |              |  |  |             |       |  |          |   |       |                     |  |   |       | 
|Due During the Years Ending December 31, |  |                                              |        |  |                        |   |        |      |  |   |              |  |  |             |       |  |          |   |       |                     |  |   |       | 
|2018                                     |  | $                                            | 26     |  |                        | $ | 40     |      |  | $ | 16           |  |  | $           | 142   |  |          | $ | ―     |                     |  | $ | 27    | 
|2019                                     |  |                                              | 27     |  |                        |   | 114    |      |  |   | 125          |  |  |             | ―     |  |          |   | ―     |                     |  |   | 16    | 
|2020                                     |  |                                              | 413    |  |                        |   | 59     |      |  |   | 43           |  |  |             | ―     |  |          |   | 983   |                     |  |   | 11    | 
|2021 to 2022                             |  |                                              | 651    |  |                        |   | 375    |      |  |   | 674          |  |  |             | ―     |  |          |   | ―     |                     |  |   | 397   | 
|2023 to 2027                             |  |                                              | 4,774  |  |                        |   | 6,223  |      |  |   | 799          |  |  |             | ―     |  |          |   | 212   |                     |  |   | ―     | 
|2028 to 2032                             |  |                                              | 27,141 |  |                        |   | 1,514  |      |  |   | 948          |  |  |             | ―     |  |          |   | ―     |                     |  |   | ―     | 
|2033 and beyond                          |  |                                              | 32,723 |  |                        |   | 8,039  |      |  |   | ―            |  |  |             | 1,561 |  |          |   | 470   |                     |  |   | ―     | 
|                                         |  |                                              |        |  |                        |   |        |      |  |   |              |  |  |             |       |  |          |   |       |                     |  |   |       | 
|Total                                    |  | $                                            | 65,755 |  |                        | $ | 16,364 |      |  | $ | 2,605        |  |  | $           | 1,703 |  |          | $ | 1,665 |                     |  | $ | 451   | 





7







The following table sets forth the scheduled
repayments of fixed- and adjustable-rate loans at December 31, 2017 that are contractually due after December 31, 2018.



|                                 |  | Due After December 31, 2018 |       
|-------------------------------- |  | --------------------------- | ------
|                                 |  | Fixed                       |       
|                                 |  | (In thousands)              |       
|Real estate:                     |  |                             |       
|One- to four-family residential: |  |                             |       
|Owner-occupied                   |  | $                           | 45,137
|Non-owner-occupied               |  |                             | 11,228
|Home equity lines of credit      |  |                             | ―     
|Commercial real estate           |  |                             | 8,833 
|Land                             |  |                             | 1,426 
|Construction                     |  |                             | 1,561 
|Multifamily                      |  |                             | 1,195 
|Consumer                         |  |                             | ―     
|Commercial business              |  |                             | 1,392 
|Total                            |  | $                           | 70,772



Loan Approval Procedures and Authority.
Our lending is subject to written, non-discriminatory underwriting standards and origination procedures. Decisions on loan applications
are made on the basis of detailed applications submitted by the prospective borrower and property valuations. Our policies require
that for all real estate loans that we originate with a principal balance of greater than $100,000, property valuations must be
performed by outside independent state-licensed appraisers approved by our board of directors. The loan applications are designed
primarily to determine the borrower’s ability to repay the requested loan, and the more significant items on the application
are verified through use of credit reports, financial statements and tax returns. We will also evaluate a guarantor when a guarantee
is provided as part of the loan.



Pursuant to applicable law, the aggregate
amount of loans that we are permitted to make to any one borrower or a group of related borrowers is generally limited to 15% of
Heritage Bank of St. Tammany’s unimpaired capital and surplus (25% if the amount in excess of 15% is secured by “readily
marketable collateral” or 30% for certain residential development loans). At December 31, 2017, our largest credit relationship
consisted of one loan which totaled $1.5 million and was secured by two adjacent commercial office buildings. Our second largest
relationship at this date consisted of a $1.4 million loan participation secured by a grocery store. At December 31, 2017, these
loans were performing in accordance with their repayment terms.



We have a loan committee comprised of the
Chairman of the Board, the Chief Credit Officer and five outside directors. A majority of our loan committee must approve any loan
over $100,000 which we will retain in our portfolio. Any loan originated for sale must be approved by at least two members of the
loan committee. Loans which are secured by certificates of deposits or savings accounts may be approved by any officer of the Bank
up to 90% of the amount of the collateralized account.



Generally, we require fire and extended
coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property,
depending on the type of loan. In addition, we require flood insurance (where appropriate) and may require escrow for property
taxes and insurance on our one- to four-family residential loans.



One- to Four-Family Residential Real
Estate Lending. At December 31, 2017, $50.9 million, or 56.6% of our total loans, was secured by owner-occupied, one- to
four-family residential real estate. At this date, we had an additional $12.4 million, or 13.8% of our total loan portfolio, secured
by non-owner-occupied, one- to four-family residential real estate loans. We originate both fixed- and adjustable-rate one- to
four-family residential real estate loans, and at December 31, 2017, these types of loans were comprised of 89% fixed-rate loans,
and 11% adjustable-rate loans.



8







We generally limit the loan-to-value ratios
of our owner-occupied, one- to four-family residential real estate loans to 89% of the purchase price or appraised value, whichever
is lower, and to 80% of the lower of the purchase price or appraised value, for non-owner-occupied, one- to four-family residential
real estate loans. In addition, we may make one- to four-family residential real estate loans with loan-to-value ratios above 89%
of the purchase price or appraised value, whichever is less, where the borrower obtains private mortgage insurance.



We originate one- to four-family residential
real estate loans for retention in our portfolio as well as for sale in the secondary market. Loans originated for sale are underwritten
according to Freddie Mac guidelines, typically with terms of up to 30 years. We generally retain the servicing on loans we sell
to Freddie Mac. Additionally, we originate a substantial amount of non-conforming, one- to four-family residential real estate
loans that we retain in our portfolio. These loans might be nonconforming as a result of the loan to value of the appraised property
securing the loan, or the debt to income ratio or the credit score of the borrower, or other nonconforming aspects of the credit.
Fixed rate loans that we currently offer and retain in our portfolio at December 31, 2017 had a maximum fixed-rate term of 20 years.



At December 31, 2017, approximately 90%
of our one- to four-family residential real estate loans were secured by properties located in our market area. On a limited basis
we have purchased or originated one- to four-family residential real estate loans from outside of our market area.



Our adjustable-rate, one- to four-family
residential real estate loans generally have fixed rates of interest for initial terms of three and five years, and adjust thereafter
every three and five years, respectively, at a margin, which in recent years has been between 3.00% and 4.00%, depending on the
amortization schedule, over the Federal Cost of Funds Index. Our adjustable-rate loans with a three-year fixed rate have had a
maximum lifetime adjustment of 5% above the initial rate of the loan, and the maximum amount by which the interest rate may be
increased is generally 2% per adjustment period. Our adjustable-rate loans with a five-year fixed rate have had a maximum lifetime
adjustment of 6% above the initial rate of the loan, and the maximum amount by which the interest rate may be increased is generally
3% per adjustment period.  Our adjustable-rate loans carry terms to maturity of up to 30 years.



We also originate fixed-rate and adjustable-rate
non-owner-occupied, one- to four-family residential real estate loans. These fixed-rate loans have terms of up to 15 years. Our
adjustable-rate loans have terms and amortization schedules of up to 20 years.



Although adjustable-rate one- to four-family
residential real estate loans may reduce our vulnerability to changes in market interest rates because they periodically reprice,
as interest rates increase, the required payments due from the borrower also increase (subject to rate caps), increasing the potential
for default by the borrower. At the same time, the ability of the borrower to repay the loan and the marketability of the underlying
collateral may be adversely affected by higher interest rates. Upward adjustments of the contractual interest rate are also limited
by the maximum periodic and lifetime rate adjustments permitted by our loan documents. As a result, the effectiveness of adjustable-rate
one- to four-family residential real estate loans in compensating for changes in market interest rates may be limited during periods
of rapidly rising interest rates.



We do not offer “interest only”
mortgage loans on permanent one- to four-family residential real estate loans (where the borrower pays interest for an initial
period, after which the loan converts to a fully amortizing loan). We also do not offer one- to four-family residential real estate
loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less
than the interest owed on the loan, resulting in an increased principal balance during the life of the loan. We generally do not
offer “subprime loans” on one- to four- family residential real estate loans (i.e., loans to borrowers with
weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers
with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios), or “Alt-A” (i.e.,
loans to borrowers with better credit scores who borrow with alternative documentation such as little or no verification of income).



9







Home Equity Lines of Credit.
We offer home equity lines of credit on owner-occupied homes, which are secured by first or second mortgages on residences. We
generally offer these loans with a maximum total loan-to-value ratio (including senior liens on the collateral property) of up
to 89%. Our home equity lines of credit are interest-only revolving lines of credit with a draw period of up to 10 years. Generally,
the rates on our home equity lines of credit are tied to the prevailing Prime Rate as published in The Wall Street Journal.
Our home equity lines of credit require additional underwriting criteria, including that the loan must be in the borrower’s
personal name and generally that the borrower must have a deposit relationship with the Bank. At December 31, 2017, we had $2.5
million of home equity lines of credit, representing 2.8% of our total loan portfolio. At December 31, 2017, we had no home equity
lines of credit that were 60 days or more delinquent.



The majority of our home equity lines of
credit are secured by properties in which we hold or service the first mortgage. However, home equity lines of credit may have
greater risk than one- to four family residential real estate loans secured by first mortgages. Our interest is generally subordinated
to the interest of the institution holding the first mortgage. Even where we hold the first mortgage, we face the risk that the
value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and costs of foreclosure and we
may be unsuccessful in recovering the remaining balance from those customers.



Commercial Real Estate Lending.In addition to one- to four-family residential real estate lending, we also originate and purchase, and intend to increase
our emphasis on the origination and purchase of, commercial real estate loans. At December 31, 2017, $16.4 million, or 18.2% of
our total loan portfolio, was comprised of commercial real estate loans.



Our commercial real estate loans are fixed-rate
loans or adjustable rate loans with amortization schedules of not more than 20 years. The maximum loan-to-value ratio of our commercial
real estate loans made on improved property is generally 80% of the lower of the purchase price or appraised value of the property
securing the loan, and is 75% on land development and vacant lots. Our commercial real estate loans are typically secured by retail,
service or other commercial properties.



Set forth below is information regarding
our commercial real estate loans at December 31, 2017. At December 31, 2017, $4.7 million of our commercial loans were secured
by non-owner-occupied properties.



|Type of Loan          |  | Number of Loans |    |  | Balance                |  
|--------------------- |  | --------------- | -- |  | ---------------------- | -
|                      |  |                 |    |  | (Dollars in thousands) |  
|                      |  |                 |    |  |                        |  
|Retail                |  |                 | 10 |  |                        | $
|Office                |  |                 | 22 |  |                        |  
|Restaurants           |  |                 | 4  |  |                        |  
|Boat Storage Facility |  |                 | 1  |  |                        |  
|Other                 |  |                 | 4  |  |                        |  
|Total                 |  |                 | 41 |  |                        | $



10







At December 31, 2017, our largest outstanding
commercial real estate loan had a balance of $1.5 million and was secured by two adjacent commercial office buildings. This loan
was performing in accordance with its original repayment terms at December 31, 2017.



We consider a number of factors in originating
commercial real estate loans. We evaluate the qualifications and financial condition of the borrower, including project-level and
global cash flows, credit history, and management expertise, as well as the value and condition of the property securing the loan.
When evaluating the qualifications of the borrower, we first consider the financial resources of the borrower, then value of the
property, the borrower’s experience in owning or managing similar property and the borrower’s payment history with
us and other financial institutions. In evaluating the property securing the loan, the factors we consider include the net operating
income of the mortgaged property before debt service and depreciation, the ratio of the loan amount to the appraised value of the
mortgaged property and the debt service coverage ratio (the ratio of net operating income to debt service). We generally require
a debt service ratio of at least 1.20 times.



Commercial real estate loans entail greater
credit risks compared to one- to four-family residential real estate loans because they typically involve larger loan balances
concentrated with single borrowers or groups of related borrowers. In addition, the payment of loans secured by income-producing
properties typically depends on the successful operation of the property, as repayment of the loan generally is dependent, in large
part, on sufficient income from the property to cover operating expenses and debt service. Changes in economic conditions that
are not in the control of the borrower or lender could affect the value of the collateral for the loan or the future cash flow
of the property. Additionally, any decline in real estate values may be more pronounced for commercial real estate than residential
properties. There may be additional risk on commercial rentals, where the borrower is not the occupant of the collateral property.
If we foreclose on a commercial real estate loan, our holding period for the collateral is typically longer than for one- to four-family
residential real estate loans because there are fewer potential purchasers of the collateral. Further, our commercial real estate
loans generally have relatively large balances to single borrowers or related groups of borrowers. Accordingly, if any of our judgments
regarding the collectability of our commercial real estate loans prove incorrect, the resulting charge-offs may be larger on a
per loan basis than those incurred with respect to one- to four-family residential loans.



Multifamily Real Estate Loans.At
December 31, 2017, multifamily real estate loans were comprised of three lending relationships and totaled $1.7 million, or 1.8%
of our total loan portfolio.



We originate a variety of fixed- and adjustable-rate
multifamily real estate loans with balloon and amortization terms up to 20 years. Multifamily real estate loan amounts generally
do not exceed 80% of the property’s appraised value at the time the loan is originated. Aggregate debt service ratios, including
the guarantor’s cash flow and the borrower’s other projects, have a guideline minimum income to debt service ratio
of 1.20x. We require multifamily real estate loan borrowers with loan relationships in excess of $150,000 to submit annual financial
statements and/or rent rolls on the subject property. We may request such information for smaller loans on a case-by-case basis.
These properties may also be subject to annual inspections with pictures as evidence appropriate maintenance is being performed.



At December 31, 2017, our largest multifamily
real estate loan totaled $983,000 and was a participation that we purchased that is secured by a 58-unit property located in our
market area. At December 31, 2017, this loan was performing in accordance with its terms.



11







Construction and Land Lending.
At December 31, 2017, we had $1.7 million, or 1.9% of our total loan portfolio, in construction loans, all of which were secured
by owner-occupied, single-family residences, except for one loan with a principal balance of $142,000 which was secured by a single-family
residence being built on speculation. At this date we had an additional $2.6 million, or 2.9% of our total loan portfolio, in land
loans. We offer loans for the construction of owner-occupied residential properties as well as non-owner occupied residential and
commercial properties. At December 31, 2017, our largest construction loan was a $332,000 loan secured by an owner-occupied, one-
to four-family residential real estate loan. This loan was performing in accordance with its original repayment terms at December
31, 2017.



Our residential construction loans generally
have initial terms of 12 months (subject to extension), during which the borrower pays interest only. Upon completion of construction,
these loans convert to conventional amortizing mortgage loans. We do not extend credit if construction has already commenced, except
in unique circumstances and upon the approval of the President and Chief Executive Officer or the loan committee and if title insurance
is obtained. Our residential construction loans have rates and terms comparable to residential real estate loans that we originate.
The maximum loan-to-value ratio of our residential construction loans is generally 85% of the lesser of the appraised value of
the completed property or the total cost of the construction project. Residential construction loans are generally underwritten
pursuant to the same guidelines used for originating permanent residential mortgage loans.



Raw land loans have terms of not more than
15 years. The maximum loan-to-value of these loans is 65% of the lesser of the appraised value or the purchase price of the property.



Construction and land lending generally
involves greater credit risk than long-term financing on improved, owner-occupied real estate. Risk of loss on a construction or
loan depends largely upon the accuracy of the initial estimate of the value of the property at completion of construction compared
to the estimated cost (including interest) of construction and other assumptions. If the estimate of construction cost is inaccurate,
we may be required to advance additional funds beyond the amount originally committed in order to protect the value of the property.
Moreover, if the estimated value of the completed project is inaccurate, the borrower may hold a property with a value that is
insufficient to assure full repayment of the construction loan upon the sale of the property. Construction and land loans also
expose us to the risk that improvements will not be completed on time in accordance with specifications and projected costs. In
addition, the ultimate sale or rental of the property may not occur as anticipated. Land loans pose additional risk because the
property generally does not produce income and may be relatively illiquid.



Commercial Business Lending.
In 2016, we began purchasing loans from the Bankers Healthcare Group, a nationally recognized lender to healthcare professionals.
At December 31, 2017, we had $1.4 million of commercial business loans, all of which were loans to healthcare professionals secured
by personal guarantees from the borrower, purchased from Bankers Healthcare Group, representing 1.5% of our total loan portfolio.
Consistent with our business plan to grow our loan portfolio while managing our interest rate risk, subject to market conditions,
we may increase our holdings of these types of commercial business loans such that the aggregate outstanding balance of these loans
would equal our regulatory loans to one borrower limitation. We anticipate originating other types of commercial business loans
upon hiring a commercial lender.



Consumer Lending.At December
31, 2017, we had $451,000, or 0.5% of our loan portfolio, in consumer loans. Our consumer loans are primarily secured by savings
accounts or certificates of deposit, and are interest-only loans. These loans have either a variable or fixed-rate of interest
for a term of up to five years, depending on when the loan was originated. All recent consumer loans are variable rate, tied to
the Wall Street Journal prime rate.



12







Loan Originations, Participations, Purchases
and Sales



We originate real estate and other loans
through employee marketing and advertising efforts, our existing customer base, walk-in customers and referrals from customers.
In recent years, we hired two residential real estate lenders and we intend to pursue hiring experienced commercial lenders to
increase our loan originations.



Consistent with our growth strategy, we
have purchased loans and participations in loans secured by both one- to four-family residential and commercial real estate. For
the year ended December 31, 2017, one- to four-family secured loans accounted for $2.2 million in purchased loans and participations
and commercial real estate accounted for $10.1 million in purchased loans and participations. Additionally, we may increase our
holdings of loans to healthcare professionals through Bankers Healthcare Group. We originate one-to four-family residential real
estate loans that conform to Freddie Mac guidelines for sale into the secondary market. In 2017 and 2016, we originated for sale
and sold $3.4 million and $6.6 million, respectively, of one- to four-family residential real estate loans.



13







The following table sets forth our loan
origination, purchase, sale and principal repayment activity during the periods indicated.



|                                                             |  | Years Ended December 31, |       
|------------------------------------------------------------ |  | ------------------------ | ------
|                                                             |  | 2017                     |       
|                                                             |  |                          |       
|Total loans, at beginning of period                          |  | $                        | 76,661
|                                                             |  |                          |       
|Loans originated:                                            |  |                          |       
|Real estate:                                                 |  |                          |       
|One- to four-family residential:                             |  |                          |       
|Owner-occupied                                               |  |                          | 11,740
|Non-owner-occupied                                           |  |                          | 1,656 
|Home equity lines of credit                                  |  |                          | 1,666 
|Commercial real estate                                       |  |                          | 1,826 
|Land                                                         |  |                          | 433   
|Construction                                                 |  |                          | 1,691 
|Multifamily                                                  |  |                          | 219   
|Consumer                                                     |  |                          | 55    
|Total loans originated                                       |  |                          | 19,286
|                                                             |  |                          |       
|Loans purchased:                                             |  |                          |       
|Real estate:                                                 |  |                          |       
|One- to four-family residential:                             |  |                          |       
|Owner-occupied                                               |  |                          | 984   
|Non-owner-occupied                                           |  |                          | 1,186 
|Commercial real estate                                       |  |                          | 10,055
|Multifamily                                                  |  |                          | 475   
|Commercial business                                          |  |                          | 1,235 
|Total loans purchased                                        |  |                          | 13,935
|                                                             |  |                          |       
|Loans sold:                                                  |  |                          |       
|Real estate:                                                 |  |                          |       
|One- to four-family residential:                             |  |                          |       
|Owner-occupied                                               |  |                          | 3,393 
|Total loans sold                                             |  |                          | 3,393 
|                                                             |  |                          |       
|Other:                                                       |  |                          |       
|Principal repayments, etc                                    |  |                          | 16,554
|                                                             |  |                          |       
|Net loan activity                                            |  |                          | 13,274
|Total loans, including loans held for sale, at end of period |  | $                        | 89,935



14







Delinquencies, Classified Assets and Nonperforming
Assets



Delinquency Procedures.When
a borrower fails to make a required monthly payment on a residential real estate loan, after 60 days the delinquent loan is reported
to the board of directors and is placed on a watch list. After 90 days delinquent the loan is transferred to the appropriate collections
or risk management personnel. Our policies provide that a late notice be sent when a loan is 15 days past due, and continuing with
late notices sent after 30, 60 and 90 days. In addition, we may call the borrower when the loan is 30 days past due, and we attempt
to cooperate with the borrower to determine the reason for nonpayment and to work with the borrower to establish a repayment schedule
that will cure the delinquency. Once the loan is considered in default, generally at 90 days past due, a letter is generally sent
to the borrower explaining that the entire balance of the loan is due and payable, the loan is placed on non-accrual status, and
additional efforts are made to contact the borrower. If the borrower does not respond, we generally initiate foreclosure proceedings
when the loan is 120 days past due. If the loan is reinstated, foreclosure proceedings will be discontinued and the borrower will
be permitted to continue to make payments. In certain instances, we may modify the loan or grant a limited exemption from loan
payments to allow the borrower to reorganize his or her financial affairs.



When we acquire real estate as a result
of foreclosure or by deed in lieu of foreclosure, the real estate is classified as other real estate owned until it is sold. The
real estate is recorded at estimated fair value at the date of acquisition less estimated costs to sell, and any write-down resulting
from the acquisition is charged to the allowance for loan losses. Subsequent decreases in the value of the property are charged
to operations. After acquisition, all costs in maintaining the property are expensed as incurred. Costs relating to the development
and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell.



Delinquent commercial real estate, multifamily,
construction and land loans are handled in a similar fashion. Our procedures for repossession and sale of consumer collateral are
subject to various requirements under applicable laws, including consumer protection laws. In addition, we may determine that foreclosure
and sale of such collateral would not be cost-effective for us.



Troubled Debt Restructurings.We
occasionally modify loans to extend the term or make other concessions to help a borrower stay current on his or her loan and to
avoid foreclosure.  We consider modifications only after analyzing the borrower’s current repayment capacity, evaluating
the strength of any guarantors based on documented current financial information, and assessing the current value of any collateral
pledged. We generally do not forgive principal or interest on loans, but may do so if it is in our best interest and increases
the likelihood that we can collect the remaining principal balance. We may modify the terms of loans to lower interest rates (which
may be at below market rates), to provide for fixed interest rates on loans where fixed rates are otherwise not available, to provide
for longer amortization schedules, or to provide for interest-only terms. These modifications are made only when there is a reasonable
and attainable workout plan that has been agreed to by the borrower and that is in our best interests. At December 31, 2017, we
had no loans which were classified as troubled debt restructuring.



15







Delinquent Loans. The following
table sets forth our loan delinquencies by type and amount at the dates indicated.



|                                 |  | Loans Delinquent For   |    |  |                  |  
|-------------------------------- |  | ---------------------- | -- |  | ---------------- | -
|                                 |  | 30-89 Days             |    |  | 90 Days and Over |  
|                                 |  | Number                 |    |  | Amount           |  
|                                 |  | (Dollars in thousands) |   
|                                 |  |                        |    |  |                  |  
|At December 31, 2017             |  |                        |    |  |                  |  
|Real estate:                     |  |                        |    |  |                  |  
|One- to four-family residential: |  |                        |    |  |                  |  
|Owner-occupied                   |  |                        | 13 |  |                  | $
|Non-owner-occupied               |  |                        | —  |  |                  |  
|Home equity lines of credit      |  |                        | —  |  |                  |  
|Commercial real estate           |  |                        | 1  |  |                  |  
|Land                             |  |                        | 2  |  |                  |  
|Construction                     |  |                        | —  |  |                  |  
|Multifamily                      |  |                        | —  |  |                  |  
|Consumer                         |  |                        | 2  |  |                  |  
|Commercial business              |  |                        | —  |  |                  |  
|Total                            |  |                        | 18 |  |                  | $
|                                 |  |                        |    |  |                  |  
|At December 31, 2016             |  |                        |    |  |                  |  
|Real estate:                     |  |                        |    |  |                  |  
|One- to four-family residential: |  |                        |    |  |                  |  
|Owner-occupied                   |  |                        | 11 |  |                  | $
|Non-owner-occupied               |  |                        | —  |  |                  |  
|Home equity lines of credit      |  |                        | 6  |  |                  |  
|Commercial real estate           |  |                        | 1  |  |                  |  
|Land                             |  |                        | 1  |  |                  |  
|Construction                     |  |                        | —  |  |                  |  
|Multifamily                      |  |                        | —  |  |                  |  
|Consumer                         |  |                        | 3  |  |                  |  
|Commercial business              |  |                        | —  |  |                  |  
|Total                            |  |                        | 22 |  |                  | $



Classified Assets. Federal
regulations provide that loans and other assets of lesser quality should be classified as “substandard,” “doubtful”
or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth
and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized
by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies
are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,”
with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of
currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss”
are those considered “uncollectible” and of such little value that their continuance as assets without the establishment
of a specific allowance for loan losses is not warranted. Assets that do not currently expose the insured institution to sufficient
risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special
mention.” At December 31, 2017, we had no loans designated as “special mention.”



When an insured institution classifies problem
assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover
losses that were both probable and reasonable to estimate. General allowances represent allowances which have been established
to cover accrued losses associated with lending activities that were both probable and reasonable to estimate, but which, unlike
specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets
as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the
asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and
the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the establishment
of additional general or specific allowances.



16







In connection with the filing of our periodic
regulatory reports and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio
to determine whether any loans require classification in accordance with applicable regulations. If a problem loan deteriorates
in asset quality, the classification is changed to “special mention,” “substandard,” “doubtful”
or “loss” depending on the circumstances and the evaluation. Generally, loans 90 days or more past due are placed on
nonaccrual status and classified “substandard.”



The following table sets forth our amounts
of classified assets as of the dates indicated. Amounts shown at December 31, 2017 and 2016 include approximately $390,000 and
$518,000 of nonperforming loans, respectively. The related specific valuation allowance in the allowance for loan losses for such
nonperforming loans was $38,000 and $38,000 at December 31, 2017 and 2016, respectively.



|                        |  | At December 31, |    
|----------------------- |  | --------------- | ---
|                        |  | 2017            |    
|(Dollars in thousands)  |  |                 |    
|Substandard assets      |  | $               | 859
|Doubtful assets         |  |                 | ―  
|Loss assets             |  |                 | ―  
|Total classified assets |  | $               | 859



17







Nonperforming Assets.The
table below sets forth the amounts and categories of our non-performing assets at the dates indicated.



|                                                     |  | At December 31,        |     
|---------------------------------------------------- |  | ---------------------- | ----
|                                                     |  | 2017                   |     
|                                                     |  | (Dollars in thousands) |     
|                                                     |  |                        |     
|Non-accrual loans:                                   |  |                        |     
|Real estate:                                         |  |                        |     
|One- to four-family residential:                     |  |                        |     
|Owner-occupied                                       |  | $                      | 225 
|Non-owner-occupied                                   |  |                        | ―   
|Home equity lines of credit                          |  |                        | ―   
|Commercial real estate                               |  |                        | 131 
|Land                                                 |  |                        | 16  
|Construction                                         |  |                        | ―   
|Multifamily                                          |  |                        | ―   
|Consumer                                             |  |                        | ―   
|Commercial
    business                              |  |                        | ―   
|Total                                                |  |                        | 372 
|                                                     |  |                        |     
|Accruing loans 90 days or more past due:             |  |                        |     
|Real estate:                                         |  |                        |     
|One- to four-family residential:                     |  |                        |     
|Owner-occupied                                       |  |                        | ―   
|Non-owner-occupied                                   |  |                        | ―   
|Home equity lines of credit                          |  |                        | ―   
|Commercial real estate                               |  |                        | ―   
|Land                                                 |  |                        | 18  
|Construction                                         |  |                        | ―   
|Multifamily                                          |  |                        | ―   
|Consumer                                             |  |                        | ―   
|Commercial
    business                              |  |                        | ―   
|Total
    accruing loans 90 days or more past due    |  |                        | 18  
|                                                     |  |                        |     
|Total non-performing loans                           |  |                        | 390 
|                                                     |  |                        |     
|Real estate owned                                    |  |                        | 84  
|                                                     |  |                        |     
|Total non-performing assets                          |  | $                      | 474 
|                                                     |  |                        |     
|Accruing troubled debt restructurings:               |  |                        |     
|Real estate:                                         |  |                        |     
|One- to four-family residential:                     |  |                        |     
|Owner-occupied                                       |  | $                      | ―   
|Non-owner-occupied                                   |  |                        | ―   
|Home equity lines of credit                          |  |                        | ―   
|Commercial real estate                               |  |                        | ―   
|Land                                                 |  |                        | ―   
|Construction                                         |  |                        | ―   
|Multifamily                                          |  |                        | ―   
|Consumer                                             |  |                        | ―   
|Commercial
    business                              |  |                        | ―   
|Total                                                |  | $                      | ―   
|                                                     |  |                        |     
|Ratios:                                              |  |                        |     
|Total non-performing loans to total loans            |  |                        | 0.43
|Total non-performing assets to total assets          |  |                        | 0.43
|Total non-performing loans and TDRs to total loans   |  |                        | 0.43
|Total non-performing assets and TDRs to total assets |  |                        | 0.43



18







For the year ended December 31, 2017, gross
interest income that would have been recorded had our non-accruing loans been current in accordance with their original terms was
immaterial. Interest income recognized on such loans for the year ended December 31, 2017 was immaterial.



Other Loans of Concern.At
December 31, 2017 and 2016, there were $487,000 and $374,000, respectively, of other loans, all of which were classified as substandard,
that are not already disclosed in the nonperforming assets and troubled debt restructurings table above where there is information
about possible credit problems of borrowers that caused management to have serious doubts about the ability of the borrowers to
comply with present loan repayment terms and that may result in disclosure of such loans in the future.



Allowance for Loan Losses



Analysis and Determination of the
Allowance for Loan Losses. Our allowance for loan losses is the amount considered necessary to reflect probable incurred
losses in our loan portfolio. We evaluate the need to establish allowances against losses on loans on a quarterly basis. When additional
allowances are necessary, a provision for loan losses is charged to earnings.



Our methodology for assessing the appropriateness
of the allowance for loan losses consists of two key elements: (1) specific allowances for identified impaired loans; and (2) a
general valuation allowance on the remainder of the loan portfolio. Although we determine the amount of each element of the allowance
separately, the entire allowance for loan losses is available for the entire portfolio.



We identify loans that may need to be charged
off as a loss by reviewing all delinquent loans, classified loans, and other loans about which management may have concerns about
collectability. For individually reviewed loans, the borrower’s inability to make payments under the terms of the loan as
well as the shortfall in collateral value could result in our charging off the loan or the portion of the loan that was impaired.



Among other factors, we consider current
general economic conditions, including current housing price depreciation, in determining the appropriateness of the allowance
for loan losses for our residential real estate portfolio. We use evidence obtained from our own loan portfolio as well as published
housing data on our local markets from third party sources we believe to be reliable as a basis for assumptions about the impact
of housing depreciation.



Substantially all of our loans are secured
by collateral. Loans 90 days past due and other classified loans are evaluated for impairment and general or specific allowances
are established. Typically for a nonperforming real estate loan in the process of collection, the value of the underlying collateral
is estimated using either the original independent appraisal if it is less than 12 months old, adjusted for current economic conditions
and other factors, or a new independent appraisal, and related general or specific allowances for loan losses are adjusted on a
quarterly basis. If a nonperforming real estate loan is in the process of foreclosure and/or there are serious doubts about further
collectability of principal or interest, and there is uncertainty about the value of the underlying collateral, we will order a
new independent appraisal if it has not already been obtained. Any shortfall would result in immediately charging off the portion
of the loan that was impaired.



Specific Allowances for Identified
Problem Loans. We establish a specific allowance when loans are determined to be impaired. Loss is measured by determining
the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral less estimated
selling expenses. Factors in identifying a specific problem loan include: (1) the strength of the customer’s personal or
business cash flows; (2) the availability of other sources of repayment; (3) the amount due or past due; (4) the type and value
of collateral; (5) the strength of our collateral position; (6) the estimated cost to sell the collateral; and (7) the borrower’s
effort to cure the delinquency. In addition, for loans secured by real estate, we consider the extent of any past due and unpaid
property taxes applicable to the property serving as collateral on the mortgage.



19







General Valuation Allowance on the
Remainder of the Loan Portfolio. We establish a general allowance for loans that are not classified as impaired to recognize
the inherent losses associated with lending activities, but which, unlike specific allowances, has not been allocated to particular
problem assets. This general valuation allowance is determined by segregating the loans by loan category and assigning allowance
percentages based on our historical loss experience, delinquency trends and management’s evaluation of the collectability
of the loan portfolio. The allowance may be adjusted for significant factors that, in management’s judgment, affect the collectability
of the portfolio as of the evaluation date. These significant factors may include changes in lending policies and procedures, changes
in existing general economic and business conditions affecting our primary market area, credit quality trends, collateral value,
loan volumes and concentrations, seasoning of the loan portfolio, recent loss experience in particular segments of the portfolio,
duration of the current business cycle and bank regulatory examination results. The applied loss factors are re-evaluated quarterly
to ensure their relevance in the current real estate environment.



20







The following table sets forth activity
in our allowance for loan losses for the years indicated.



|                                                                 |  | At or For the Years Ended December 31, |       
|---------------------------------------------------------------- |  | -------------------------------------- | ------
|                                                                 |  | 2017                                   |       
|                                                                 |  | (Dollars in thousands)                 |       
|                                                                 |  |                                        |       
|Balance at beginning of year                                     |  | $                                      | 692   
|                                                                 |  |                                        |       
|Charge-offs:                                                     |  |                                        |       
|Real estate:                                                     |  |                                        |       
|One- to four-family residential:                                 |  |                                        |       
|Owner-occupied                                                   |  |                                        | ―     
|Non-owner-occupied                                               |  |                                        | ―     
|Home equity lines of credit                                      |  |                                        | ―     
|Commercial real estate                                           |  |                                        | 16    
|Land                                                             |  |                                        | ―     
|Construction                                                     |  |                                        | ―     
|Multifamily                                                      |  |                                        | ―     
|Consumer                                                         |  |                                        | ―     
|Commercial
    business                                          |  |                                        | ―     
|Total charge-offs                                                |  |                                        | 16    
|                                                                 |  |                                        |       
|Recoveries:                                                      |  |                                        |       
|Real estate:                                                     |  |                                        |       
|One- to four-family residential:                                 |  |                                        |       
|Owner-occupied                                                   |  |                                        | ―     
|Non-owner-occupied                                               |  |                                        | ―     
|Home equity lines of credit                                      |  |                                        | ―     
|Commercial real estate                                           |  |                                        | ―     
|Land                                                             |  |                                        | ―     
|Construction                                                     |  |                                        | ―     
|Multifamily                                                      |  |                                        | ―     
|Consumer                                                         |  |                                        | ―     
|Commercial
    business                                          |  |                                        | ―     
|Total recoveries                                                 |  |                                        | ―     
|                                                                 |  |                                        |       
|Net charge-offs                                                  |  |                                        | 16    
|Provision for loan losses                                        |  |                                        | 80    
|                                                                 |  |                                        |       
|Balance at end of year                                           |  | $                                      | 756   
|                                                                 |  |                                        |       
|Ratios:                                                          |  |                                        |       
|Net charge-offs to average loans outstanding                     |  |                                        | 0.02  
|Allowance for loan losses to non-performing loans at end of year |  |                                        | 193.85
|Allowance for loan losses to total loans at end of year          |  |                                        | 0.84  



21







Allocation of Allowance for Loan Losses.The following table sets forth the allowance for loan losses allocated by loan category, the total loan balances by category,
and the percent of loans in each category to total loans at the dates indicated. The allowance for loan losses allocated to each
category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance
to absorb losses in other categories. At the dates indicated, we had no unallocated allowance for loan losses.



|                                |  | At December 31,        |    
|------------------------------- |  | ---------------------- | ---
|                                |  | 2017                   |    
|                                |  | Amount                 |    
|                                |  | (Dollars in thousands) |    
|                                |  |                        |    
|Real estate:                    |  |                        |    
|One- to four-family residential |  | $                      | 545
|Commercial real estate          |  |                        | 94 
|Land                            |  |                        | 56 
|Construction                    |  |                        | 8  
|Multifamily                     |  |                        | 4  
|Consumer                        |  |                        | 1  
|Commercial business             |  |                        | 48 
|Total allowance for loan losses |  | $                      | 756



At December 31, 2017, our allowance for
loan losses represented 0.8% of total loans and 193.9% of nonperforming loans, and at December 31, 2016, our allowance for loan
losses represented 0.90% of total loans and 133.6% of nonperforming loans. There were $16,000 and $80,000 in net loan charge-offs
during the years ended December 31, 2017 and 2016, respectively.



Although we believe that we use the best
information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary
and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making
the determinations. Because future events affecting borrowers and collateral cannot be predicted with certainty, the existing allowance
for loan losses may not be adequate and management may determine that increases in the allowance are necessary if the quality of
any portion of our loan portfolio deteriorates as a result. Furthermore, as an integral part of its examination process, the OCC
will periodically review our allowance for loan losses. The OCC may have judgments different than management’s, and we may
determine to increase our allowance as a result of these regulatory reviews. Any material increase in the allowance for loan losses
may adversely affect our financial condition and results of operations.



Investment Activities



General. Our investment policy
is established by the board of directors. The objectives of the policy are to: (i) ensure adequate liquidity for loan demand and
deposit fluctuations, and to allow us to alter our liquidity position to meet both day-to-day and long-term changes in assets and
liabilities; (ii) manage interest rate risk in accordance with our interest rate risk policy; (iii) provide collateral for pledging
requirements; (iv) maximize return on our investments; and (v) maintain a balance of high quality investments to minimize risk.



Our executive officers meet monthly to assess
our asset/liability risk profile and this group is responsible for implementing our investment policy, subject to the board of
director’s approval of the investment strategies and monitoring of the investment performance. The Chief Financial Officer
has the overall responsibility for managing the investment portfolio and executing transactions. The board of directors regularly
reviews our investment strategies and the market value of our investment portfolio.



22







We account for investment and mortgage-backed
securities in accordance with Accounting Standards Codification Topic 320, “Investments - Debt and Equity Securities.”
Accounting Standards Codification 320 requires that investments be categorized as held-to-maturity, trading, or available-for-sale.
Our decision to classify certain of our securities as available-for-sale is based on our need to meet daily liquidity needs and
to take advantage of profits that may occur from time to time.



Federally chartered savings institutions
have authority to invest in various types of assets, including government-sponsored enterprise obligations, securities of various
federal agencies, residential mortgage-backed securities, certain certificates of deposit of insured financial institutions, overnight
and short-term loans to other banks, corporate debt instruments, debt instruments of municipalities and Fannie Mae and Freddie
Mac equity securities. At December 31, 2017 and 2016, our investment portfolio consisted of mortgage-backed securities.



Mortgage-Backed Securities.
At December 31, 2017, we had mortgage-backed securities with a carrying value of $6.2 million, which constituted 100.0% of our
securities portfolio. Mortgage-backed securities are securities issued in the secondary market that are collateralized by pools
of mortgages. Certain types of mortgage-backed securities are commonly referred to as “pass-through” certificates because
the principal and interest of the underlying loans is “passed through” to investors, net of certain costs, including
servicing and guarantee fees. Mortgage-backed securities typically are collateralized by pools of one- to four-family or multifamily
mortgages, although we invest primarily in mortgage-backed securities backed by one- to four-family mortgages. The issuers of such
securities pool and resell the participation interests in the form of securities to investors such as Heritage Bank of St. Tammany.
The interest rate of the security is lower than the interest rates of the underlying loans to allow for payment of servicing and
guaranty fees. All of our mortgage-backed securities are either backed by Ginnie Mae, a United States Government agency, or government-sponsored
enterprises, such as Fannie Mae and Freddie Mac.



Residential mortgage-backed securities issued
by United States Government agencies and government-sponsored enterprises are more liquid than individual mortgage loans because
there is an active trading market for such securities. In addition, residential mortgage-backed securities may be used to collateralize
our borrowings. Investments in residential mortgage-backed securities involve a risk that actual payments will be greater or less
than the prepayment rate estimated at the time of purchase, which may require adjustments to the amortization of any premium or
accretion of any discount relating to such interests, thereby affecting the net yield on our securities. Current prepayment speeds
determine whether prepayment estimates require modification that could cause amortization or accretion adjustments.



Other Securities. We hold
common stock of the FHLB-Dallas in connection with our borrowing activities. The FHLB-Dallas common stock is carried at cost and
classified as restricted equity securities. It is not practicable to determine the fair value of FHLB-Dallas stock due to restrictions
placed on its transferability. We may be required to purchase additional FHLB-Dallas stock if we increase borrowings in the future.
We also hold stock in First National Bankers Bank, (FNBB), a correspondent bank, as well as in our data service provider, Financial
Institutions Service Corporation.



23







The following table sets forth the amortized
cost and fair value of our investment securities portfolio, at the dates indicated.





|                            |  | At December 31, |      
|--------------------------- |  | --------------- | -----
|                            |  | 2017            |      
|                            |  | Amortized Cost  |      
|                            |  | (In thousands)  |      
|                            |  |                 |      
|Available for sale:         |  |                 |      
|Mortgage-backed securities  |  | $               | 5,514
|                            |  |                 |      
|Held to maturity:           |  |                 |      
|Mortgage-backed securities  |  |                 | 651  
|                            |  |                 |      
|Total investment securities |  | $               | 6,165



24







Portfolio Maturities and Yields.The
composition and maturities of the investment securities portfolio at December 31, 2017 are summarized in the following table. Maturities
are based on the final contractual payment dates, and do not reflect the impact of prepayments or early redemptions that may occur.



|                                |  | One Year or Less       |   |  | More than One Year
    through Five Years |  |   | More than Five Years
    through Ten Years |  |   | More than Ten Years        |  |  | Total Securities   |     
|------------------------------- |  | ---------------------- | - |  | ----------------------------------------- |  | - | ------------------------------------------ |  | - | -------------------------- |  |  | ------------------ | ----
|                                |  | Amortized
    Cost     |   |  | Weighted
    Average
Yield                |  |   | Amortized
    Cost                         |  |   | Weighted
    Average Yield |  |  | Amortized
    Cost |     
|                                |  | (Dollars in thousands) |  
|Securities available for sale:  |  |                        |   |  |                                           |  |   |                                            |  |   |                            |  |  |                    |     
|Mortgage-backed
    securities  |  |                        | ― |  |                                           |  | 0 | %                                          |  |   | 4                          |  |  |                    | 1.82
|                                |  |                        |   |  |                                           |  |   |                                            |  |   |                            |  |  |                    |     
|Securities held to-to-maturity: |  |                        |   |  |                                           |  |   |                                            |  |   |                            |  |  |                    |     
|Mortgage-backed
    securities  |  |                        | ― |  |                                           |  | 0 | %                                          |  |   | ―                          |  |  |                    | 0   
|                                |  |                        |   |  |                                           |  |   |                                            |  |   |                            |  |  |                    |     
|Total
    securities            |  | $                      | ― |  |                                           |  | 0 | %                                          |  | $ | 4                          |  |  |                    | 1.82



25







Sources of Funds



General. Deposits, scheduled
amortization and prepayments of loan principal, amortization payments from mortgage-backed securities, proceeds from loan sales,
maturities and calls of securities and funds provided by operations are our primary sources of funds for use in lending, investing
and for other general purposes. We also use borrowings, primarily FHLB-Dallas advances, to supplement cash flow needs, lengthen
the maturities of liabilities for interest rate risk purposes and to manage the cost of funds.



Deposits. We offer deposit
products having a range of interest rates and terms. We currently offer noninterest-bearing demand accounts, savings accounts,
NOW accounts and certificates of deposit. In recent years we have accepted financial institution jumbo certificates of deposit
through National CD Rateline, an on-line service. Pursuant to our business strategy, we are seeking to increase our core deposits
by aggressively marketing and pricing these deposit products and by growing our commercial lending relationships, and reduce our
reliance on certificates of deposit as a funding source.



The flow of deposits is influenced significantly
by general economic conditions, changes in market and other prevailing interest rates and competition. Our deposits are primarily
obtained from areas surrounding our offices.



The following table sets forth the distribution
of our average total deposit accounts, by account type, for the years indicated.



|                            |  | For the Years Ended December 31, |       
|--------------------------- |  | -------------------------------- | ------
|                            |  | 2017                             |       
|                            |  | Average Balance                  |       
|                            |  | (Dollars in thousands)           |       
|Deposit type:               |  |                                  |       
|Statement savings           |  | $                                | 15,489
|Non-interest bearing demand |  |                                  | 4,812 
|NOW                         |  |                                  | 3,469 
|Certificates of deposit     |  |                                  | 50,734
|                            |  |                                  |       
|Total deposits              |  | $                                | 74,504



As of December 31, 2017, the aggregate amount
of our outstanding certificates of deposit in amounts greater than or equal to $100,000 was approximately $30.0 million. The following
table sets forth the maturity of those certificates as of December 31, 2017.





|                                     |  | At December 31, 2017 |       
|------------------------------------ |  | -------------------- | ------
|                                     |  | (In thousands)       |       
|                                     |  |                      |       
|Three months or less                 |  | $                    | 2,648 
|Over three months through six months |  |                      | 2,934 
|Over six months through one year     |  |                      | 6,354 
|Over one year to three years         |  |                      | 11,453
|Over three years                     |  |                      | 6,247 
|                                     |  |                      |       
|Total                                |  | $                    | 29,636



The following table sets forth all our certificates
of deposit classified by interest rate as of the dates indicated.



26







|                |  | At December 31, |       
|--------------- |  | --------------- | ------
|                |  | 2017            |       
|                |  | (In thousands)  |       
|                |  |                 |       
|Interest Rate:  |  |                 |       
|Less than 1.00% |  | $               | 1,085 
|1.00% - 1.99%   |  |                 | 38,245
|2.00% - 2.99%   |  |                 | 8,367 
|3.00% - 3.99%   |  |                 | 1,805 
|4.00% - 4.99%   |  |                 | ―     
|5.00% - 5.99%   |  |                 | ―     
|                |  |                 |       
|Total           |  | $               | 49,502



Borrowings. We may obtain
advances from the FHLB-Dallas upon the security of our capital stock in the FHLB-Dallas and our one- to four-family residential
real estate portfolio. We utilize these advances for asset/liability management purposes and for additional funding for our operations.
Such advances may be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities.
To the extent such borrowings have different terms to reprice than our deposits, they can change our interest rate risk profile.
At December 31, 2017, we had $14.1 million in outstanding advances from the FHLB-Dallas. At December 31, 2017, based on available
collateral and our ownership of FHLB-Dallas stock, and based upon our internal policy, we had access to additional FHLB-Dallas
advances of up to $22.9 million.



In addition, Heritage Bank of St. Tammany
has the ability to borrow up to $3.0 million on a line of credit with First National Bankers’ Bank. At December 31, 2017,
there was no balance on this line of credit.



The following table sets forth information
concerning balances and interest rates on our borrowings at and for the periods shown:





|                                                |  | At or For the Years Ended December 31, |       
|----------------------------------------------- |  | -------------------------------------- | ------
|                                                |  | 2017                                   |       
|                                                |  | (Dollars in thousands)                 |       
|                                                |  |                                        |       
|FHLB:                                           |  |                                        |       
|Balance at end of period                        |  | $                                      | 14,064
|Average balance during period                   |  |                                        | 15,771
|Maximum outstanding at any month end            |  |                                        | 20,088
|Weighted average interest rate at end of period |  |                                        | 1.55  
|Average interest rate during period             |  |                                        | 1.29  





Expense and Tax Allocation Agreements



Heritage Bank has entered into an agreement
with Heritage NOLA Bancorp to provide it with certain administrative support services, whereby Heritage Bank is compensated at
not less than the fair market value of the services provided. In addition, Heritage Bank and Heritage NOLA Bancorp have entered
into an agreement to establish a method for allocating and for reimbursing the payment of their consolidated tax liability.



27







Employees



As of December 31, 2017 we had 22 full-time
equivalent employees. Our employees are not represented by any collective bargaining group. Management believes that we have a
good working relationship with our employees.



28







REGULATION AND SUPERVISION



General



As a federal savings bank, Heritage Bank
is subject to examination and regulation by the OCC, and is also subject to examination by the FDIC. This regulation and supervision
establishes a comprehensive framework of activities in which an institution may engage and is intended primarily for the protection
of the FDIC’s deposit insurance fund and depositors, and not for the protection of security holders. Heritage Bank also is
a member of and owns stock in the FHLB-Dallas, which is one of the 11 regional banks in the Federal Home Loan Bank System.



Under this system of regulation, the regulatory
authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities
and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments;
govern the classification of assets; determine the adequacy of loan loss reserves for regulatory purposes; and establish the timing
and amounts of assessments and fees. Moreover, as part of their examination authority, the banking regulators assign numerical
ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors.
The receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators
against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as Heritage Bank
of St. Tammany or its holding company, from obtaining necessary regulatory approvals to access the capital markets, pay dividends,
acquire other financial institutions or establish new branches.



In addition, we must comply with significant
anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending
laws and regulations. Government agencies have the authority to impose monetary penalties and other sanctions on institutions that
fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability
to acquire other financial institutions or expand our branch network.



As a savings and loan holding company, Heritage
NOLA Bancorp is required to comply with the rules and regulations of the Federal Reserve Board. It is required to file certain
reports with the Federal Reserve Board and is subject to examination by the enforcement authority of the Federal Reserve Board.
Heritage NOLA Bancorp is also be subject to the rules and regulations of the Securities and Exchange Commission under the federal
securities laws.



Any change in applicable laws or regulations,
whether by the OCC, the FDIC, the Federal Reserve Board or Congress, could have a material adverse impact on the operations and
financial performance of Heritage NOLA Bancorp and Heritage Bank.



Set forth below is a brief description of
material regulatory requirements that are applicable to Heritage Bank and Heritage NOLA Bancorp. The description is limited to
certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes
and regulations and their effects on Heritage Bank and Heritage NOLA Bancorp.



Federal Banking Regulation



Business Activities.A federal
savings association derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and applicable
federal regulations. Under these laws and regulations, Heritage Bank of St. Tammany may invest in mortgage loans secured by residential
and commercial real estate, commercial business and consumer loans, certain types of debt securities and certain other assets,
subject to applicable limits. Heritage Bank may also establish subsidiaries that may engage in certain activities not otherwise
permissible for Heritage Bank, including real estate investment and securities and insurance brokerage.



29







Capital Requirements. Federal
regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1
capital to risk-weighted assets ratio of 4.5%, a Tier 1 capital to risk-weighted assets ratio of 6.0%, a total capital to risk-weighted
assets of 8.0%, and a 4.0% Tier 1 capital to adjusted average total assets leverage ratio. These capital requirements were effective
January 1, 2015 and are the result of a final rule implementing recommendations of the Basel Committee on Banking Supervision and
certain requirements of the Dodd-Frank Act.



In determining the amount of risk-weighted
assets for purposes of calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g.,
recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk-weight factor assigned by the regulations
based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed
to present greater risk. Common equity Tier 1 capital is generally defined as common stockholders’ equity and retained
earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital
includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated
subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital.
Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative
preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated
debt. Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted
assets and, for institutions that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive
Income, up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.
Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing
an institution’s capital adequacy, the OCC takes into consideration not only these numeric factors, but qualitative factors
as well, and has the authority to establish higher capital requirements for individual institutions when deemed necessary.



In addition to establishing the minimum
regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management
if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital
to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The capital conservation
buffer requirement was phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing each year until fully
implemented at 2.5% of risk-weighted assets on January 1, 2019.



At December 31, 2017, Heritage Bank’s
capital exceeded all applicable requirements.



Loans-to-One Borrower. Generally,
a federal savings association may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of
unimpaired capital and surplus. An additional amount may be loaned, equal to 10% of unimpaired capital and surplus, if the loan
is secured by readily marketable collateral, which generally does not include real estate. As of December 31, 2017, Heritage Bank
was in compliance with the loans-to-one borrower limitations.



Qualified Thrift Lender Test.
As a federal savings association, Heritage Bank must satisfy the qualified thrift lender, or “QTL,” test. Under the
QTL test, Heritage Bank of St. Tammany must maintain at least 65% of its “portfolio assets” in “qualified thrift
investments” (primarily residential mortgages and related investments, including mortgage-backed securities) in at least
nine months of the most recent 12-month period. “Portfolio assets” generally means total assets of a savings association,
less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets, and the value of property
used in the conduct of the savings association’s business.



30







Heritage Bank of St. Tammany also may satisfy
the QTL test by qualifying as a “domestic building and loan association” as defined in the Internal Revenue Code of
1986, as amended. This test generally requires a savings association to have at least 75% of its deposits held by the public and
earn at least 25% of its income from loans and U.S. government obligations. Alternatively, a savings association can satisfy this
test by maintaining at least 60% of its assets in cash, real estate loans and U.S. Government or state obligations.



A savings association that fails the qualified
thrift lender test must operate under specified restrictions set forth in the Home Owners’ Loan Act. The Dodd-Frank Act made
noncompliance with the QTL test subject to agency enforcement action for a violation of law. At December 31, 2017, Heritage Bank
satisfied the QTL test.



Capital Distributions. Federal
regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases and
other transactions charged to the savings association’s capital account. A federal savings association must file an application
with the OCC for approval of a capital distribution if:



| | · | the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income
for that year to date plus the savings association’s retained net income for the preceding two years;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | the savings association would not be at least adequately capitalized following the distribution;
| | - | ------------------------------------------------------------------------------------------------



| | · | the distribution would violate any applicable statute, regulation, agreement or regulatory condition; or
| | - | --------------------------------------------------------------------------------------------------------



| | · | the savings association is not eligible for expedited treatment of its filings, generally due to an unsatisfactory CAMELS rating
or being subject to a cease and desist order or formal written agreement that requires action to improve the institution’s
financial condition.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Even if an application is not otherwise
required, every savings association that is a subsidiary of a savings and loan holding company, such as Heritage Bank of St. Tammany,
must still file a notice with the Federal Reserve Board at least 30 days before the board of directors declares a dividend or approves
a capital distribution.



A notice or application related to a capital
distribution may be disapproved if:



| | · | the federal savings association would be undercapitalized following the distribution;
| | - | -------------------------------------------------------------------------------------



| | · | the proposed capital distribution raises safety and soundness concerns; or
| | - | --------------------------------------------------------------------------



| | · | the capital distribution would violate a prohibition contained in any statute, regulation or agreement.
| | - | -------------------------------------------------------------------------------------------------------



31







In addition, the Federal Deposit Insurance
Act provides that an insured depository institution may not make any capital distribution if, after making such distribution, the
institution would fail to meet any applicable regulatory capital requirement. A federal savings association also may not make a
capital distribution that would reduce its regulatory capital below the amount required for the liquidation account established
in connection with its conversion to stock form.



Community Reinvestment Act and Fair
Lending Laws. All federal savings associations have a responsibility under the Community Reinvestment Act and related regulations
to help meet the credit needs of their communities, including low- and moderate-income borrowers. In connection with its examination
of a federal savings association, the OCC is required to assess the federal savings association’s record of compliance with
the Community Reinvestment Act. A savings association’s failure to comply with the provisions of the Community Reinvestment
Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on
its activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in
their lending practices on the basis of characteristics specified in those statutes. The failure to comply with the Equal Credit
Opportunity Act and the Fair Housing Act could result in enforcement actions by the OCC, as well as other federal regulatory agencies
and the Department of Justice.



The Community Reinvestment Act requires
all institutions insured by the Federal Deposit Insurance Corporation to publicly disclose their rating. Heritage Bank received
a “satisfactory” Community Reinvestment Act rating in its most recent federal examination.



Transactions with Related Parties.
A federal savings association’s authority to engage in transactions with its affiliates is limited by Sections 23A and 23B
of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under common control
with, an insured depository institution such as Heritage Bank. Heritage NOLA Bancorp is an affiliate of Heritage Bank because of
its control of Heritage Bank of St. Tammany. In general, transactions between an insured depository institution and its affiliates
are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a savings association
from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from
purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with
safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution
as comparable transactions with non-affiliates.



Heritage Bank’s authority to extend
credit to its directors, executive officers and 10% shareholders, as well as to entities controlled by such persons, is currently
governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board.
Among other things, these provisions generally require that extensions of credit to insiders:



| | · | be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent
than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk
of repayment or present other unfavorable features; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits
are based, in part, on the amount of Heritage Bank’s capital.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, extensions of credit in excess
of certain limits must be approved by Heritage Bank’s board of directors. Extensions of credit to executive officers are
subject to additional limits based on the type of extension involved.



32







Enforcement. The OCC has primary
enforcement responsibility over federal savings associations and has authority to bring enforcement action against all “institution-affiliated
parties,” including directors, officers, shareholders, attorneys, appraisers and accountants who knowingly or recklessly
participate in wrongful action likely to have an adverse effect on a federal savings association. Formal enforcement action by
the OCC may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of
the institution and the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions,
and range up to $25,000 per day, unless a finding of reckless disregard is made, in which case penalties may be as high as $1 million
per day. The FDIC also has the authority to terminate deposit insurance or recommend to the OCC that enforcement action be taken
with respect to a particular savings association. If such action is not taken, the FDIC has authority to take the action under
specified circumstances.



Standards for Safety and Soundness.Federal law requires each federal banking agency to prescribe certain standards for all insured depository institutions.
These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit
underwriting, interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency
deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to
identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking
agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution
to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards,
the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement
such a plan can result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil
money penalties.



Interstate Banking and Branching.Federal law permits well capitalized and well managed holding companies to acquire banks in any state, subject to Federal
Reserve Board approval, certain concentration limits and other specified conditions. Interstate mergers of banks are also authorized,
subject to regulatory approval and other specified conditions. In addition, among other things, recent amendments made by the Dodd-Frank
Act permit banks to establish de novo branches on an interstate basis provided that branching is authorized by the law of
the host state for the banks chartered by that state.



Prompt Corrective Action.Federal
law requires, among other things, that federal bank regulators take “prompt corrective action” with respect to institutions
that do not meet minimum capital requirements. For this purpose, the law establishes five capital categories: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. The applicable OCC regulations
were amended to incorporate the previously mentioned increased regulatory capital standards that were effective January 1, 2015.
Under the amended regulations, an institution is deemed to be “well capitalized” if it has a total risk-based capital
ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common
equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital
ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common
equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio
of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier
1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based
capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common
equity Tier 1 ratio of less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a
ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.



33







At each successive lower capital category,
an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions
on interest rates paid on deposits, restrictions or prohibitions on payment of dividends, and restrictions on the acceptance of
brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it
is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee
the performance of that plan. Based upon its capital levels, a bank that is classified as well capitalized, adequately capitalized,
or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency,
after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants
such treatment. An “undercapitalized” bank’s compliance with a capital restoration plan is required to be guaranteed
by any company that controls the “undercapitalized” institution in an amount equal to the lesser of 5.0% of the institution’s
total assets when deemed “undercapitalized” or the amount necessary to achieve the status of “adequately capitalized.”
If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.”
“Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including
but not limited to an order by the Federal Reserve Board to sell sufficient voting stock to become adequately capitalized, requirements
to reduce total assets, cease receipt of deposits from correspondent banks or dismiss directors or officers, and restrictions on
interest rates paid on deposits, compensation of executive officers and capital distributions by the parent holding company. “Critically
undercapitalized” institutions are subject to additional measures including, subject to a narrow exception, the appointment
of a receiver or conservator within 270 days after it obtains such status.



At December 31, 2017, Heritage Bank met
the criteria for being considered “well capitalized.”



Insurance of Deposit Accounts.The
Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured financial institutions such as Heritage Bank of St. Tammany.
Deposit accounts in Heritage Bank of St. Tammany are insured by the FDIC generally up to a maximum of $250,000 per separately insured
depositor. The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund.



Under the FDIC’s risk-based assessment
system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels
and certain other risk factors. Rates are based on each institution’s risk category and certain specified risk adjustments.
Institutions deemed to be less risky pay lower rates while institutions deemed riskier pay higher rates. Assessment rates (inclusive
of possible adjustments) currently range from 2.5 to 45 basis points of each institution’s total assets less tangible capital.
The FDIC may increase or decrease the scale uniformly, except that no adjustment can deviate more than two basis points from the
base scale without notice and comment rulemaking. The FDIC’s current system represents a change, required by the Dodd-Frank
Act, from its prior practice of basing the assessment on an institution’s deposits.



The Dodd-Frank Act increased the minimum
target Deposit Insurance Fund ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC must
seek to achieve the 1.35% ratio by September 30, 2020. Insured institutions with assets of $10 billion or more are supposed
to fund the increase. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC,
which has exercised that discretion by establishing a long range fund ratio of 2%.



The FDIC has authority to increase insurance
assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of Heritage
Bank. We cannot predict what assessment rates will be in the future.



34







Insurance of deposits may be terminated
by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not
know of any practice, condition or violation that may lead to termination of our deposit insurance.



In addition to the FDIC assessments, the
Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the FDIC, assessments for
anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the former Federal
Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter ended
December 31, 2017, the annualized FICO assessment was equal to 0.54 basis points of total assets less tangible capital.



Privacy Regulations.Federal
regulations generally require that Heritage Bank of St. Tammany disclose its privacy policy, including identifying with whom it
shares a customer’s “non-public personal information,” to customers at the time of establishing the customer
relationship and annually thereafter. In addition, Heritage Bank is required to provide its customers with the ability to “opt-out”
of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes
to non-affiliated third parties for marketing purposes. Heritage Bank currently has a privacy protection policy in place and believes
that such policy is in compliance with the regulations.



USA Patriot Act.Heritage
Bank of St. Tammany is subject to the USA PATRIOT Act, which gives federal agencies additional powers to address terrorist threats
through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money
laundering requirements. The USA PATRIOT Act contains provisions intended to encourage information sharing among bank regulatory
agencies and law enforcement bodies and imposes affirmative obligations on financial institutions, such as enhanced recordkeeping
and customer identification requirements.



Prohibitions Against Tying Arrangements.
Federal savings associations are prohibited, subject to some exceptions, from extending credit to or offering any other service,
or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some
additional service from the institution or its affiliates or not obtain services of a competitor of the institution.



Other Regulations



Interest and other charges collected or
contracted for by Heritage Bank are subject to state usury laws and federal laws concerning interest rates. Loan operations are
also subject to state and federal laws applicable to credit transactions, such as the:



| | · | Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public
officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community
it serves;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending
credit;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| | · | Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies; and
| | - | -------------------------------------------------------------------------------------------------------------------



35







| | · | Rules and regulations of the various federal and state agencies charged with the responsibility of implementing such federal
and state laws.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



The deposit operations of Heritage Bank
also are subject to, among others, the:



| | · | Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes
procedures for complying with administrative subpoenas of financial records;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,”
such as digital check images and copies made from that image, the same legal standing as the original paper check; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from
deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic
banking services.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Federal Reserve System



The Federal Reserve Board regulations require
depository institutions to maintain noninterest-earning reserves against their transaction accounts (primarily NOW and regular
checking accounts). The Federal Reserve Board regulations generally require that reserves be maintained against aggregate transaction
accounts as follows: for that portion of transaction accounts aggregating $103.6 million or less (which may be adjusted by the
Federal Reserve Board) the reserve requirement is 3.0% and the amounts greater than $103.6 million require a 10.0% reserve (which
may be adjusted annually by the Federal Reserve Board between 8.0% and 14.0%). The first $14.5 million of otherwise reservable
balances (which may be adjusted by the Federal Reserve Board) are exempted from the reserve requirements. Heritage Bank is in compliance
with these requirements.



Federal Home Loan Bank System



Heritage Bank of St. Tammany is a member
of the Federal Home Loan Bank System, which consists of 11 regional Federal Home Loan Banks. The Federal Home Loan Bank provides
a central credit facility primarily for member institutions. Members of the Federal Home Loan Bank are required to acquire and
hold shares of capital stock in the Federal Home Loan Bank. Heritage Bank was in compliance with this requirement at December 31,
2017. Based on redemption provisions of the FHLB-Dallas, the stock has no quoted market value and is carried at cost. Heritage
Bank reviews for impairment, based on the ultimate recoverability, the cost basis of the FHLB-Dallas. As of December 31, 2017,
no impairment has been recognized.



Holding Company Regulation



Heritage NOLA Bancorp is a unitary savings
and loan holding company subject to regulation and supervision by the Federal Reserve Board. The Federal Reserve Board has enforcement
authority over Heritage NOLA Bancorp and its non-savings institution subsidiaries. Among other things, this authority permits the
Federal Reserve Board to restrict or prohibit activities that are determined to be a risk to Heritage Bank.



36







As a savings and loan holding company, Heritage
NOLA Bancorp’s activities are limited to those activities permissible by law for financial holding companies (if Heritage
NOLA Bancorp makes an election to be treated as a financial holding company and meets the other requirements to be a financial
holding company) or multiple savings and loan holding companies. A financial holding company may engage in activities that are
financial in nature, incidental to financial activities or complementary to a financial activity. Such activities include lending
and other activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, insurance and
underwriting equity securities. Multiple savings and loan holding companies are authorized to engage in activities specified by
federal regulation, including activities permitted for bank holding companies under Section 4(c)(8) of the Bank Holding Company
Act.



Federal law prohibits a savings and loan
holding company, directly or indirectly, or through one or more subsidiaries, from acquiring more than 5% of another savings institution
or savings and loan holding company without prior written approval of the Federal Reserve Board, and from acquiring or retaining
control of any depository institution not insured by the FDIC. In evaluating applications by holding companies to acquire savings
institutions, the Federal Reserve Board must consider such things as the financial and managerial resources and future prospects
of the company and institution involved, the effect of the acquisition on and the risk to the federal deposit insurance fund, the
convenience and needs of the community and competitive factors. A savings and loan holding company may not acquire a savings institution
in another state and hold the target institution as a separate subsidiary unless it is a supervisory acquisition under Section
13(k) of the Federal Deposit Insurance Act or the law of the state in which the target is located authorizes such acquisitions
by out-of-state companies.



Savings and loan holding companies historically
have not been subject to consolidated regulatory capital requirements. The Dodd-Frank Act requires the Federal Reserve Board to
establish minimum consolidated capital requirements for all depository institution holding companies that are as stringent as those
required for the insured depository subsidiaries. However, legislation was enacted in December 2014 that required the Federal Reserve
Board to amend its “Small Bank Holding Company” exemption from consolidated holding company capital requirements to
generally extend its applicability to bank and savings and loan holding companies of up to $1.0 billion in assets. Regulations
implementing this amendment were effective May 15, 2015. Consequently, savings and loan holding companies of under $1.0 billion
in consolidated assets remain exempt from consolidated regulatory capital requirements, unless the Federal Reserve determines otherwise
in particular cases.



The
Dodd-Frank Act extended the “source of strength” doctrine to savings and loan holding companies. The Federal Reserve
Board has promulgated regulations implementing the “source of strength” policy that require holding companies to act
as a source of strength to their subsidiary depository institutions by providing capital, liquidity and other support in times
of financial stress.



The
Federal Reserve Board has issued a policy statement regarding the payment of dividends and the repurchase of shares of common
stock by bank holding companies and savings and loan holding companies. In general, the policy provides that dividends should
be paid only out of current earnings and only if the prospective rate of earnings retention by the holding company appears consistent
with the organization’s capital needs, asset quality and overall financial condition. Regulatory guidance provides for prior
regulatory consultation with respect to capital distributions in certain circumstances such as where the company’s net income
for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the
company’s overall rate of earnings retention is inconsistent with the company’s capital needs and overall financial
condition. The ability of a holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized.
The policy statement also states that a holding company should inform the Federal Reserve Board supervisory staff prior to redeeming
or repurchasing common stock or perpetual preferred stock if the holding company is experiencing financial weaknesses or if the
repurchase or redemption would result in a net reduction, as of the end of a quarter, in the amount of such equity instruments
outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred. These regulatory policies
may affect the ability of Heritage NOLA Bancorp to pay dividends, repurchase shares of common stock or otherwise engage in capital
distributions.



37







In order for Heritage NOLA Bancorp to be
regulated as savings and loan holding company by the Federal Reserve Board, rather than as a bank holding company, Heritage Bank
of St. Tammany must qualify as a “qualified thrift lender” under federal regulations or satisfy the “domestic
building and loan association” test under the Internal Revenue Code. Under the qualified thrift lender test, a savings institution
is required to maintain at least 65% of its “portfolio assets” (total assets less: (i) specified liquid assets
up to 20% of total assets; (ii) intangible assets, including goodwill; and (iii) the value of property used to conduct
business) in certain “qualified thrift investments” (primarily residential mortgages and related investments, including
certain mortgage-backed and related securities) in at least nine out of each 12 month period. At December 31, 2017, Heritage Bank
maintained 75.6% of its portfolio assets in qualified thrift investments and was in compliance with the qualified thrift lender
requirement.



Federal Securities Laws



Heritage NOLA Bancorp common stock is registered
with the Securities and Exchange Commission. Heritage NOLA Bancorp is subject to the information, proxy solicitation, insider trading
restrictions and other requirements under the Securities Exchange Act of 1934.



The registration under the Securities Act
of 1933 of shares of common stock issued in Heritage NOLA Bancorp’s public offering does not cover the resale of those shares.
Shares of common stock purchased by persons who are not affiliates of Heritage NOLA Bancorp may be resold without registration.
Shares purchased by an affiliate of Heritage NOLA Bancorp will be subject to the resale restrictions of Rule 144 under the Securities
Act of 1933. If Heritage NOLA Bancorp meets the current public information requirements of Rule 144 under the Securities Act of
1933, each affiliate of Heritage NOLA Bancorp that complies with the other conditions of Rule 144, including those that require
the affiliate’s sale to be aggregated with those of other persons, would be able to sell in the public market, without registration,
a number of shares not to exceed, in any three-month period, the greater of 1% of the outstanding shares of Heritage NOLA Bancorp,
or the average weekly volume of trading in the shares during the preceding four calendar weeks. In the future, Heritage NOLA Bancorp
may permit affiliates to have their shares registered for sale under the Securities Act of 1933.



Sarbanes-Oxley Act of 2002



The Sarbanes-Oxley Act of 2002 is intended
to improve corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded
companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities
laws. We have policies, procedures and systems designed to comply with these regulations, and we review and document such policies,
procedures and systems to ensure continued compliance with these regulations.



Change in Control Regulations



Under the Change in Bank Control Act, no
person may acquire control of a savings and loan holding company such as Heritage NOLA Bancorp unless the Federal Reserve Board
has been given 60 days prior written notice and has not issued a notice disapproving the proposed acquisition, taking into consideration
certain factors, including the financial and managerial resources of the acquirer and the competitive effects of the acquisition.
Control, as defined under federal law, means ownership, control of or holding irrevocable proxies representing more than 25% of
any class of voting stock, control in any manner of the election of a majority of the institution’s directors, or a determination
by the regulator that the acquiror has the power, directly or indirectly, to exercise a controlling influence over the management
or policies of the institution. Acquisition of more than 10% of any class of a savings and loan holding company’s voting
stock constitutes a rebuttable determination of control under the regulations under certain circumstances including where, as will
be the case with Heritage NOLA Bancorp, the issuer has registered securities under Section 12 of the Securities Exchange Act of
1934.



38







In addition, federal regulations provide
that no company may acquire control of a savings and loan holding company without the prior approval of the Federal Reserve Board.
Any company that acquires such control becomes a “savings and loan holding company” subject to registration, examination
and regulation by the Federal Reserve Board.



TAXATION



Federal Taxation



General. Heritage NOLA Bancorp
and Heritage Bank of St. Tammany are subject to federal income taxation in the same general manner as other corporations, with
some exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income
tax matters and is not a comprehensive description of the tax rules applicable to Heritage NOLA Bancorp and Heritage Bank of St.
Tammany.



Method of Accounting. For
federal income tax purposes, Heritage Bank of St. Tammany currently reports its income and expenses on the cash method of accounting
and uses a tax year ending December 31 for filing its federal income tax returns. The Small Business Protection Act of 1996 eliminated
the use of the reserve method of accounting for bad debt reserves by savings institutions, effective for taxable years beginning
after 1995.



Minimum Tax. The Internal
Revenue Code of 1986, as amended, imposes an alternative minimum tax at a rate of 20% on a base of regular taxable income plus
certain tax preferences, less an exemption amount, referred to as “alternative minimum taxable income.” The alternative
minimum tax is payable to the extent tax computed this way exceeds tax computed by applying the regular tax rates to regular taxable
income. Net operating losses can, in general, offset no more than 90% of alternative minimum taxable income. Certain payments of
alternative minimum tax may be used as credits against regular tax liabilities in future years. At December 31, 2017, Heritage
Bank had no minimum tax credit carryforward. [confirm]



Net Operating Loss Carryovers.
Generally, a financial institution may carry back net operating losses to the preceding two taxable years and forward to the succeeding
20 taxable years. At December 31, 2017, Heritage Bank had no federal net operating loss carryforwards and no Louisiana state net
operating loss carryforwards available for future use.



Capital Loss Carryovers. Generally,
a financial institution may carry back capital losses to the preceding three taxable years and forward to the succeeding five taxable
years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As
such, it is grouped with any other capital losses for the year to which carried and is used to offset any capital gains. Any undeducted
loss remaining after the five-year carryover period is not deductible. At December 31, 2017, Heritage Bank had no capital loss
carryover.



Corporate Dividends. We may
generally exclude from our income 100% of dividends received from Heritage Bank as a member of the same affiliated group of corporations.



39







Audit of Tax Returns.Heritage
Bank’s federal income tax returns have not been audited by the Internal Revenue Service in the most recent five-year
period.



State Taxation



Heritage NOLA Bancorp is subject to the
Louisiana Corporation Income Tax based on our Louisiana taxable income. The Corporation Income Tax applies at graduated rates from
4% upon the first $25,000 of Louisiana taxable income to 8% on all Louisiana taxable income in excess of $200,000. For these purposes,
“Louisiana taxable income” means net income which is earned by us within or derived from sources within the State of
Louisiana, after adjustments permitted under Louisiana law, including a federal income tax deduction. In addition, Heritage Bank
will be subject to the Louisiana Shares Tax which is imposed on the assessed value of Heritage Bank’s capital. The formula
for deriving the assessed value is to apply the applicable rate to the sum of:



| | (1) | 20% of our capitalized earnings, plus
| | --- | -------------------------------------

| | (2) | 80% of our taxable stockholders’ equity, minus
| | --- | ----------------------------------------------

| | (3) | 50% of our real and personal property assessment.
| | --- | -------------------------------------------------



Various items may also be subtracted in
calculating a company’s capitalized earnings.



As a Maryland business corporation, Heritage
NOLA Bancorp files an annual report with and pays personal property taxes to the State of Maryland.



Availability of Annual Report on Form 10-K



This Annual Report on Form 10-K is available
on our website at www.heritagebank.org. Information on the website is not incorporated into, and is not otherwise considered
a part of, this Annual Report on Form 10-K.





40









|ITEM 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



This discussion and analysis reflects our
financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition
and results of operations. The information in this section has been derived from the audited financial statements, which appear
beginning on page F-1 of this annual report. You should read the information in this section in conjunction with the business and
financial information regarding the Company and Heritage Bank provided in this annual report.



Overview



Our business consists primarily of taking
deposits from the general public and investing those deposits, together with funds generated from operations, in one- to four-family
residential real estate loans, including non-owner-occupied properties and home equity lines of credit, and commercial real estate
loans. We also originate land, construction and multifamily loans, and to a much lesser extent, we originate consumer loans and
purchase commercial business loans. At December 31, 2017, $65.8 million, or 73.1% of our total loan portfolio, was comprised of
one- to four-family residential real estate loans, $12.4 million of which were non-owner-occupied loans. While we originate conforming
one- to four-family residential real estate loans that we sell to Freddie Mac, historically we have also originated a substantial
amount of non-conforming loans that we retain in our portfolio. Since the consummation of our stock offering, we have hired two
experienced commercial lenders and intend to increase our emphasis on the origination of commercial real estate loans.



In 2016, we began purchasing loans from
the Bankers Healthcare Group, a nationally recognized lender to healthcare professionals. Consistent with our business plan to
grow our loan portfolio while managing our interest rate risk, subject to market conditions, we may increase our holdings of these
types of commercial business loans in the future.



We offer a variety of deposit accounts,
including noninterest-bearing demand accounts, savings accounts, NOW accounts and certificates of deposit. We utilize advances
from the FHLB-Dallas for asset/liability management purposes. At December 31, 2017, we had $14.1 million in advances outstanding
with the FHLB-Dallas.



In recent years we have accepted jumbo financial
institution certificates of deposit through National CD Rateline, an on-line service. Pursuant to our business strategy, we are
seeking to increase our core deposits by aggressively marketing and pricing these deposit products and by growing our commercial
lending relationships, while reducing our reliance on certificates of deposit as a funding source.



42







Our current business strategy includes continuing
our disciplined underwriting practices to maintain our strong asset quality, continuing our emphasis on originating one- to four-family
residential real estate loans, increasing our emphasis on the origination of commercial real estate loans and enhancing core earnings
by increasing lower-cost transaction and savings accounts.



Heritage Bank is subject to comprehensive
regulation and examination by its primary federal regulator, the OCC.



Our executive and administrative office
is located at 205 North Columbia Street, Covington, Louisiana 70433, and our telephone number at this address is (985) 892-4565.
Our website address is www.heritagebank.org. Information on our website is not incorporated into this annual report and
should not be considered part of this annual report.



Business Strategy



Our principal objective is to build long-term
value for our stockholders by operating a profitable community-oriented financial institution dedicated to meeting the banking
needs of our customers by emphasizing personalized and efficient customer service. Highlights of our current business strategy
include:



| | · | Continuing to focus on one- to four-family residential real estate lending, including our
practice of originating for retention in our portfolio, nonconforming long-term loans.We have been, and will continue
to be, primarily a one- to four-family residential real estate lender for borrowers in our market area. As of December 31, 2017,
$65.8 million, or73.1% of our total loan portfolio,
consisted of one- to four-family residential real estate loans, including $12.4 million, or13.8% of non-owner-occupied loans, and $2.5 million,
or2.8% of home equity lines of credit. While we intend to increase our focus on the origination
and purchase of commercial real estate lending in an effort to increase yield, we expect that one- to four-family residential real
estate lending will remain our primary lending activity.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Increasing commercial real estate lending and commercial business lending.In order to increase the yield on
our loan portfolio and reduce the term to maturity of our loan portfolio, we intend to increase our emphasis on the origination
and purchase of commercial real estate loans, while maintaining conservative underwriting standards. As part of this strategy,
we have hired two experienced commercial lenders. The additional capital raised in the initial stock offering which was consummated
in July 2017 increased our commercial lending capacity by increasing our loans to one borrower limit and we believe will enable
us to originate more loans.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Maintaining our strong asset quality through conservative loan underwriting. As
we seek to diversify our loan portfolio, we intend to maintain strict, quality-oriented loan underwriting and credit monitoring
processes. In recent years, management and the board of directors have focused on improving the Bank’s asset quality by implementing
such policies and procedures. At December 31, 2017, nonperforming assets totaled $474,000, or0.4%
of total assets, down from $611,000, or 0.6% of total assets at December 31, 2016.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Attracting and retaining customers in our market area and increasing our “core” deposits consisting of demand,
NOW and savings accounts. We are attempting to increase our core deposits, including noninterest-bearing transaction accounts,
and decrease our dependence on certificates of deposit.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



43







| | · | Remaining a community-oriented institution and relying on high quality service
to maintain and build a loyal local customer base. We were established in 1924 and have been operating continuously
in and around Covington, Louisiana since that time. Through the goodwill we have developed over years of providing timely, efficient
banking services, we believe that we have been able to attract a solid base of local retail customers on which we hope to continue
to build our banking business.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Expanding our banking franchise as opportunities arise through de novo branching and/or branch acquisitions.
We currently operate from our two full-service banking offices. We believe there are branch expansion opportunities in our primary
market area. We intend to evaluate branch expansion opportunities, including through establishing a de novo branch and/or
branch acquisitions as such opportunities arise. Consistent with this strategy,on
October 31, 2017, the Bank purchased from the FDIC a closed banking facility in Madisonville, Louisiana and we are establishing
a branch facility at this location, which we expect to open in the second quarter of 2018.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Critical Accounting Policies



The discussion and analysis of the financial
condition and results of operations are based on our financial statements, which are prepared in conformity with generally accepted
accounting principles used in the United States of America. The preparation of these financial statements requires management to
make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities,
and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting
policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed
to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions,
resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of
operations.



The JOBS Act contains provisions that, among
other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company”
we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are
made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly,
our financial statements may not be comparable to companies that comply with such new or revised accounting standards.



The following represent our critical accounting
policies:



Allowance for Loan Losses.The
allowance for loan losses is the estimated amount considered necessary to cover inherent, but unconfirmed, credit losses in the
loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses which is charged against
income. In determining the allowance for loan losses, management makes significant estimates and has identified this policy as
one of our most critical accounting policies.



Management performs a quarterly evaluation
of the allowance for loan losses. Consideration is given to a variety of factors in establishing this estimate including, but not
limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying
collateral, the financial strength of the borrower, results of internal loan reviews and other relevant factors. This evaluation
is inherently subjective as it requires material estimates that may be susceptible to significant change.



44







The analysis has two components, specific
and general allowances. The specific percentage allowance is for unconfirmed losses related to loans that are determined to be
impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans,
the fair value of the collateral, adjusted for market conditions and selling expenses. If the fair value of the loan is less than
the loan’s carrying value, a charge is recorded for the difference. The general allowance, which is for loans reviewed collectively,
is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment history. We also analyze
historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis
establishes historical loss percentages and qualitative factors that are applied to the loan groups to determine the amount of
the allowance for loan losses necessary for loans that are reviewed collectively. The qualitative component is critical in determining
the allowance for loan losses as certain trends may indicate the need for changes to the allowance for loan losses based on factors
beyond the historical loss history. Not incorporating a qualitative component could misstate the allowance for loan losses. Actual
loan losses may be significantly more than the allowances we have established which could result in a material negative effect
on our financial results.



Fair Value Measurements.The
fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation sale. The Bank estimates the fair value of a financial instrument
and any related asset impairment using a variety of valuation methods. Where financial instruments are actively traded and have
quoted market prices, quoted market prices are used for fair value. When the financial instruments are not actively traded, other
observable market inputs, such as quoted prices of securities with similar characteristics, may be used, if available, to determine
fair value. When observable market prices do not exist, the Bank estimates fair value. These estimates are subjective in nature
and imprecision in estimating these factors can impact the amount of gain or loss recorded. A more detailed description of the
fair values measured at each level of the fair value hierarchy and the methodology utilized by the Bank can be found in Note Q
of the Financial Statements “– Fair Value of Financial Investments.”



Mortgage Servicing Rights.We
sell all of our conforming conventional one- to four-family residential real estate loans on a servicing-retained basis to Freddie
Mac. When we acquire mortgage servicing rights through the origination of mortgage loans and sale of those loans with servicing
rights retained, we allocate a portion of the total cost of the mortgage loans to the mortgage servicing rights based on their
relative fair value. At December 31, 2017, we were servicing loans sold to Freddie Mac totaling $30.0 million, and we were servicing
an additional $11.1 million of loans held by Habitat for Humanity. We amortize capitalized mortgage servicing rights as a reduction
of servicing fee income in proportion to, and over the period of, estimated net servicing income by use of a method that approximates
the level-yield method. We periodically evaluate capitalized mortgage servicing rights for impairment using a model that takes
into account several variables including expected prepayment speeds and prevailing interest rates. If we identify impairment, we
charge the amount of the impairment to earnings by establishing a valuation allowance against the capitalized mortgage servicing
rights asset. The primary risk of material changes to the value of the servicing rights resides in the potential volatility in
the economic assumptions used, particularly the prepayment speed. We monitor this risk and adjust the valuation allowance as necessary
to adequately record any probable impairment in the portfolio. Management believes the estimation of these variables makes this
a critical accounting policy. For purposes of measuring impairment, the mortgage servicing rights are stratified based on financial
asset type and interest rates. In general, the value of mortgage servicing rights increases as interest rates rise and decreases
as interest rates fall. This is because the estimated life and estimated income from a loan increase as interest rates rise and
decrease as interest rates fall.



45







Comparison of Financial Condition at December 31, 2017
and December 31, 2016



Total Assets. Total assets
increased $12.0 million, or 12.2%, to $110.0 million at December 31, 2017 from $98.0 million at December 31, 2016. In our initial
stock offering which was consummated on July 12, 2017, the Company received net proceeds of $15.4 million and these funds were
utilized, together with increased Federal Home Loan Bank advances, to increase our loan portfolio through originations and purchased
participations. Net loans increased $13.3 million, offset in part by a decrease of $1.8 million in mortgage-backed securities.



Cash and Cash Equivalents.
Cash and cash equivalents increased $606,000, or 17.7%, to $4.0 million at December 31, 2017 from $3.4 million at December 31,
2016. The increase was due primarily to the Bank not renewing certificates of deposit in other banks that had matured.



Net Loans.  Net loans
increased $13.3 million, or 17.8%, to $88.0 million at December 31, 2017 from $74.7 million at December 31, 2016. During the year
ended December 31, 2017, we originated $19.3 million of loans, $15.1 million of which were one- to four-family residential real
estate loans, $1.8 million of which were commercial real estate loans and the remaining $2.4 million were land, consumer and construction
loans. During 2017, one- to four-family residential real estate loans increased $5.9 million, or 9.9%, to $65.7 million at December
31, 2017, from $59.8 million at December 31, 2016, commercial real estate loans increased $9.2 million, or 126.2%, to $16.4 million
at December 31, 2017 from $7.2 million at December 31, 2016. At December 31, 2017, purchased loans and participations accounted
for $10.0 million of our commercial real estate loans.Construction loans decreased $1.8 million, or 51.4%, to $1.7
million at December 31, 2017 from $3.5 million at December 31, 2016. These increases were consistent with our business strategy
to increase our asset size and deploy the net proceeds from the offering into loans.



In 2017, we sold $3.4 million of loans,
all of which were one- to four-family residential real estate loans, on both a servicing-retained and servicing-released basis.
Management intends to continue this sales activity in future periods to generate gain on sale revenue and servicing fee income.



Securities.  The balance
of our securities available-for-sale and held-to-maturity, which consist entirely of government-sponsored mortgage-backed securities,
decreased to $6.2 million at December 31, 2017 from $8.0 million at December 31, 2016. This decrease was due to normal repayments
and prepayments of the loans securing the securities.



Premises and Equipment. Premises
and equipment increased $393,000, or 10.6%, to $4.1 million at December 31, 2017 from $3.7 million at December 31, 2016. The increase
resulted primarily from the purchase of a small bank branch in Madisonville, Louisiana for $520,000, partially offset by depreciation
of $174,000.



Deposits.  Deposits decreased
$3.6 million, or 4.9%, to $70.6 million at December 31, 2017 from $74.2 million at December 31, 2016. Time deposits decreased $1.5
million, or 3.0%, to $49.5 million at December 31, 2017 from $51.0 million at December 31, 2016 and savings accounts decreased
$546,000, or 3.5%, to $15.1 million at December 31, 2017 from $15.6 million at December 31, 2016. The decrease in time deposits
was due in part to maturities of certificates of deposit owned by other financial institutions that were not renewed. The decrease
in the balance of savings accounts and other account types was due primarily to the closing of accounts by out of state investors
following the consummation of the conversion and offering. Management continues to focus on increasing core deposits.



Borrowings. Borrowings, consisting
entirely of Federal Home Loan Bank advances, totaled $14.1 million at December 31, 2017 compared to $13.3 million at December 31,
2016. The increase in borrowings was attributable to management utilizing advances as a funding source for loan originations and
purchases, as opposed to utilizing certificates of deposits. At December 31, 2017, the aggregate cost of outstanding advances from
the Federal Home Loan Bank was 1.55%, compared to 1.00% for our certificates of deposit and 1.20% for the Bank’s cost of
deposits at that date.



46







Total Shareholders’ Equity. 
Total shareholders’ equity increased $14.7 million, or 154.7%, to $24.2 million at December 31, 2017 from $9.5 million at
December 31, 2016. This increase was the result of net proceeds of $15.4 million from the conversion and stock offering in July
2017, combined with the net income of $549,000 for the year ended December 31, 2017.



Comparison of Operating Results for the Years Ended December
31, 2017 and December 31, 2016



General.  We had net
income of $549,000 for the year ended December 31, 2017, compared to net income of $158,000 for the year ended December 31, 2016,
an increase of $391,000, or 247.5%. The increase in net income resulted primarily from an increase in interest income of $443,000
and a decrease of $100,000 in provision for loan losses, offset in part by a $157,000 increase in income tax expense.



Interest Income.Interest
income increased $443,000, or 10.8%, to $4.5 million for the year ended December 31, 2017 from $4.1 million for the year ended
December 31, 2016. The increase in interest income resulted primarily from the increase in the balance of our loan portfolio in
2017, including the purchase of $2.2 million of one-to four-family residential real estate loans, $10.1 million of commercial real
estate participations and loans, and $1.2 million in commercial business loans. The average balance of loans increased $10.5 million,
or 14.4%, to $83.2 million for the year ended December 31, 2017 from $72.7 million for the year ended December 31, 2016, while
the average yield on loans decreased 19 basis points to 5.11% during 2017 from 5.30% during 2016. The average balance of other
interest-earning assets increased $1.1 million, or 11.8%, to $10.4 million for the year ended December 31, 2017 from $9.3 million
for the year ended December 21, 2016 and the average yield on these assets increased 37 basis points to 1.37% for 2017 from 1.00%
for 2016. The largest increase in this category was in the Federal Reserve Excess Balance account maintained at First National
Bankers Bank.



Interest Expense.Total
interest expense increased $29,000, or 2.9%, to $1.0 million for the year ended December 31, 2017 from $993,000 for the year ended
December 31, 2016. The increase was primarily due to an increase of $43,000, or 26.9%, in the interest expense on FHLB advances,
offset by a decrease in interest expense on deposits of $14,000. The average balance of interest-bearing deposits decreased $1.2
million, or 1.69%, to $69.7 million for the year ended December 31, 2017 from $70.9 million for the year ended December 31, 2016.
The average cost of interest-bearing deposits was unchanged at 1.18% for both 2017 and 2016. The average balance of FHLBs advances
increased $3.5 million, or 28.5%, to $15.8 million for the year ended December 31, 2017 compared to $12.3 million for the year
ended December 31, 2016, while the average cost of these advances decreased one basis point to 1.29% during 2017 from 1.30% during
2016. The increase in the average balance of FHLB advances is due to management utilizing advances as a funding source for loan
originations and purchases.



Net Interest Income. 
Net interest income increased $414,000, or 13.4%, to $3.5 million for the year ended December 31, 2017 from $3.1 million for the
year ended December 31, 2016. Our interest rate spread decreased to 3.29% for the year ended December 31, 2017 from 3.37% for the
year ended December 31, 2016, although our net interest margin increased three basis points to 3.48% for the year ended December
31, 2017. The decrease in interest rate spread was primarily a result of the yield on loans decreasing 19 basis points to 5.11%
for 2017 from 5.30% for 2016.



47







Provision for Loan Losses.We
recorded a provision for loan losses of $80,000 for the year ended December 31, 2017, compared to a $180,000 provision for the
year ended December 31, 2016. The decrease in the provision for loan losses in 2017 compared to 2016 resulted from our analysis
of the factors described in “Critical Accounting Policies – Allowance for Loan Losses.” The allowance for loan
losses was $756,000, or 0.84% of total loans, at December 31, 2017, compared to $692,000, or 0.90% of total loans, at December
31, 2016. Classified (substandard, doubtful and loss) loans decreased to $859,000 at December 31, 2017 from $892,000 at December
31, 2016. Total non-performing loans decreased to $390,000 at December 31, 2017 from $518,000 at December 31, 2016. Net charge-offs
for 2017 were $16,000, a decrease of $64,000 from 2016.



Noninterest Income.Noninterest
income decreased $34,000, or 9.7%, to $317,000 for the year ended December 31, 2017 from $351,000 for the year ended December 31,
2016. The decrease was primarily due to a decrease in gains on the sale of loans of $48,000 and a decrease in loan servicing income
of $36,000 in 2017. These decreases were partially offset by an increase in the gains (losses) on the sale of foreclosed real estate.



Noninterest Expense.Noninterest
expense decreased $68,000, or 2.3%, to $2.9 million for 2017 from $3.0 million for 2016. The decrease was due primarily to a decrease
of $90,000, or 100%, in write-downs of foreclosed real estate, a decrease in FDIC and OCC expenses of $34,000 and a decrease in
foreclosed real estate expenses of $27,000 in 2017. These decreases were partially offset by an increase in salaries and employee
benefits of $66,000, or 4.1%, to $1.7 million in 2017 from $1.6 million in 2016, and an increase in other expenses of $23,000,
or 5.5%, primarily due to additional accounting, attorney fees and other fees related to becoming a public company following consummation
of the conversion and stock offering in July 2017.



Income Tax Expense.Income tax expense increased $157,000, or 142.7%, to $267,000 in 2017 compared to $110,000 in 2016.  The primary reason
for the increase in income tax expense in 2017 was the increase in income before income tax expense of $548,000, or 204.5%, to
$816,000 in 2017 compared to $268,000 in 2016.  In addition, income tax expense increased in 2017 as a result of a re-measurement
charge of $12,000 of the Company’s net deferred tax asset (“DTA”) related to the recently enacted Tax Cuts and
Jobs Act of 2017 (the “Tax Act”).  The Tax Act reduced the federal corporate tax rate and necessitated a re-measurement
of the Company’s DTA reflecting lower future tax benefits due to the lower corporate tax rate.



48







Average balances and yields.
The following table sets forth average balance sheets, average yields and costs, and certain
other information at and for the years indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not
material. All average balances are daily average balances. Nonaccrual loans were included in the computation of average balances,
but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred
fees, discounts and premiums that are amortized or accreted to interest income or interest expense.



|                                                                   |  | For the Year Ended December 31, |        
|------------------------------------------------------------------ |  | ------------------------------- | -------
|                                                                   |  | 2017                            |        
|                                                                   |  | Average Outstanding Balance     |        
|                                                                   |  |                                 |        
|Interest-earning assets:                                           |  |                                 |        
|Loans, net                                                         |  | $                               | 83,187 
|Investment securities                                              |  |                                 | 7,139  
|Other interest-earning assets                                      |  |                                 | 10,426 
|Total interest-earning assets                                      |  |                                 | 100,752
|Noninterest-earning assets                                         |  |                                 | 7,503  
|Total assets                                                       |  | $                               | 108,255
|                                                                   |  |                                 |        
|Interest-bearing liabilities:                                      |  |                                 |        
|Interest-bearing demand                                            |  | $                               | 3,469  
|Savings accounts                                                   |  |                                 | 15,489 
|Certificates of deposit                                            |  |                                 | 50,734 
|Total interest-bearing deposits                                    |  |                                 | 69,692 
|Borrowings                                                         |  |                                 | 15,771 
|Total interest-bearing liabilities                                 |  |                                 | 85,463 
|Other non-interest bearing liabilities                             |  |                                 | 6,393  
|Total liabilities                                                  |  |                                 | 91,856 
|Equity                                                             |  |                                 | 16,399 
|Total liabilities and equity                                       |  | $                               | 108,255
|                                                                   |  |                                 |        
|Net interest income                                                |  |                                 |        
|Net interest rate spread (1)                                       |  |                                 |        
|Net interest-earning assets (2)                                    |  | $                               | 15,289 
|Net interest margin (3)                                            |  |                                 |        
|Average of interest-earning assets to interest-bearing liabilities |  |                                 | 117.89 










| | (1) | Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average
interest-bearing liabilities.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
| | --- | -------------------------------------------------------------------------------------------------------------

| | (3) | Net interest margin represents net interest income divided by total interest-earning assets.
| | --- | --------------------------------------------------------------------------------------------



49







Rate/Volume Analysis



The following table presents the effects
of changing rates and volumes on our net interest income for the years indicated. The rate column shows the effects attributable
to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in
volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this
table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on
the changes due to rate and the changes due to volume.



|                                   |  | Years Ended December 31, 2017 vs. 2016 |    
|---------------------------------- |  | -------------------------------------- | ---
|                                   |  | Increase (Decrease) Due to             |    
|                                   |  | Volume                                 |    
|                                   |  | (In thousands)                         |    
|                                   |  |                                        |    
|Interest-earning assets:           |  |                                        |    
|Loans                              |  | $                                      | 557
|Investment securities              |  |                                        | (7 
|Other interest-earning assets      |  |                                        | 11 
|                                   |  |                                        |    
|Total interest-earning assets      |  |                                        | 561
|                                   |  |                                        |    
|Interest-bearing liabilities:      |  |                                        |    
|Interest-bearing demand            |  |                                        | 1  
|Savings accounts                   |  |                                        | (2 
|Certificates of deposit            |  |                                        | (9 
|Total deposits                     |  |                                        | (10
|                                   |  |                                        |    
|Borrowings                         |  |                                        | 45 
|                                   |  |                                        |    
|Total interest-bearing liabilities |  |                                        | 35 
|                                   |  |                                        |    
|Change in net interest income      |  | $                                      | 526



Management of Market Risk



General. Our most significant
form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive
to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure
of our financial condition and results of operations to changes in market interest rates. Our Asset/Liability Committee is responsible
for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate,
given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent
with the policy and guidelines approved by our board of directors.



Our asset/liability management strategy
attempts to manage the impact of changes in interest rates on net interest income, our primary source of earnings. Among the techniques
we may use to manage interest rate risk are:



| | · | originating and purchasing commercial real estate loans, and, to a lesser extent, originating construction, multifamily and
land loans and purchasing commercial business loans, all of which tend to have shorter terms and higher interest rates than one-
to four-family residential real estate loans, and which generate customer relationships that can generate noninterest-bearing checking
accounts which are less interest rate sensitive;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



50







| | · | selling substantially all of our conforming, conventional longer-term, fixed-rate one- to four-family residential real estate
loans and retaining the non-conforming and shorter-term, fixed-rate and adjustable-rate one- to four-family residential real estate
loans that we originate, subject to market conditions and periodic review of our asset/liability management needs;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | reducing our dependence on certificates of deposit to support lending and investment activities and increasing our reliance
on core deposits, including checking accounts and savings accounts, which are less interest rate sensitive than certificates of
deposit; and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | lengthening the weighted average maturity of our liabilities through longer-term funding sources such as fixed-rate advances
from the FHLB-Dallas with terms to maturity of seven to 10 years.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our board of directors is responsible for
the review and oversight of our executive management team and other essential operational staff which are responsible for our asset/liability
analysis. These officers act as an asset/liability committee and are charged with developing and implementing an asset/liability
management plan, and generally meet monthly to review pricing and liquidity needs and assess our interest rate risk. We currently
utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates,
given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent
with the guidelines approved by the board of directors.



We do not engage in hedging activities,
such as engaging in futures, options or swap transactions, or investing in high-risk mortgage derivatives, such as collateralized
mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage backed
securities.



Economic Value of Equity and Changes
in Net Interest Income. We monitor interest rate risk through the use of a simulation model that estimates the amounts
by which the fair value of our assets and liabilities (our economic value of equity or “EVE”) would change in the event
of a range of assumed changes in market interest rates. The quarterly reports developed in the simulation model assist us in identifying,
measuring, monitoring and controlling interest rate risk to ensure compliance within our policy guidelines.



The tables below set forth, as of December
31, 2017, the estimated changes in our EVE that would result from the designated instantaneous changes in market interest rates.
Computations of prospective effects of hypothetical interest rate changes are based on numerous assumptions including relative
levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results.



51







| | December 31, 2017        | 
| | ------------------------ | 
| | Change in Interest Rates | 
| | (basis points) (1)       | 
| | (Dollars in thousands)   | 
| |                          | 
| | +300                     | 
| | +200                     | 
| | +100                     | 
| | ―                        | 
| | (100)                    | 










| | (1) | Assumes an instantaneous uniform change in interest rates at all maturities.
| | --- | ----------------------------------------------------------------------------

| | (2) | EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts
| | --- | -------------------------------------------------------------------------------------------------------------------



The tables above indicate that at December
31, 2017, in the event of a 100 basis point decrease in interest rates, we would have experienced a 6.0% increase in EVE. In the
event of a 200 basis point increase in interest rates at December 31, 2017, we would have experienced a 13.1% decrease in EVE.



In addition to modeling changes to our EVE,
we also analyze estimated changes to net interest income (“NII”) for a prospective twelve-month period under the interest
rate scenarios set forth above. The following tables set forth our NII model as of December 31, 2017.



| | Change in Interest Rates (Basis Points) |  |  | Estimated Net Interest Income (1) |       |  | Increase (Decrease) in Estimated Net Interest Income | 
| | --------------------------------------- |  |  | --------------------------------- | ----- |  | ---------------------------------------------------- | 
| |                                         |  |  |                                   |       |  |                                                     
| | +300                                    |  |  | $                                 | 3,479 |  |                                                      | 
| | +200                                    |  |  |                                   | 3,533 |  |                                                      | 
| | +100                                    |  |  |                                   | 3,587 |  |                                                      | 
| | —                                       |  |  |                                   | 3,640 |  |                                                      | 
| | –100                                    |  |  |                                   | 3,676 |  |                                                      | 










| | (1) | The calculated changes assume an immediate shock of the static yield curve.
| | --- | ---------------------------------------------------------------------------



Certain shortcomings are inherent in the
methodology used in the above interest rate risk measurement. Modeling changes in EVE and NII require making certain assumptions
that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard,
the EVE and NII tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning
of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected
uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although
the EVE and NII tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements
are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on EVE and NII and
will differ from actual results.



EVE and NII calculations also may not reflect
the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans,
deposits and borrowings.



Liquidity and Capital Resources



Liquidity describes our ability to meet
the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and
deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are
deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from maturities
of securities. We also have the ability to borrow from the FHLB-Dallas. At December 31, 2017, we had $14.1 million outstanding
in advances from the FHLB-Dallas, and had the capacity to borrow approximately an additional $22.9 million from the FHLB-Dallas
and an additional $3.0 million on a line of credit with First National Bankers’ Bank, Baton Rouge, Louisiana at this date.



52







While maturities and scheduled amortization
of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general
interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments including interest-bearing
demand deposits. The levels of these assets are dependent on our operating, financing, lending, and investing activities during
any given period.



Our cash flows are comprised of three primary
classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating
activities was $850,000 and $446,000 for the years ended December 31, 2017 and 2016, respectively. Net cash used in investing activities,
which consists primarily of net change in loans receivable, net change in investment securities and proceeds from the sale of loans,
was ($11.5 million) and ($2.1 million) for the years ended December 31, 2017 and 2016, respectively. Net cash provided by financing
activities, consisting primarily of net proceeds from the stock offering and the activity in deposit accounts and Federal Home
Loan Bank advances, was $11.3 million and $1.3 million for the years ended December 31, 2017 and 2016, respectively.



We are committed to maintaining a strong
liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet
our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant
portion of maturing time deposits will be retained. We also anticipate continued participation in the National CD Rateline, an
on-line source of certificates of deposit, and continued use of FHLB-Dallas advances.



At December 31, 2017, we exceeded all of
our regulatory capital requirements with a Tier 1 leverage capital level of $17.7 million, or 16.2% of adjusted total assets, which
is above the well-capitalized required level of $5.5 million, or 5.0%; and total risk-based capital of $18.4 million, or 28.6%
of risk-weighted assets, which is above the well-capitalized required level of $6.4 million, or 10.0%. At December 31, 2016, we
exceeded all of our regulatory capital requirements with a Tier 1 leverage capital level of $9.4 million, or 9.79% of adjusted
total assets, which is above the well-capitalized required level of $4.8 million, or 5.0%; and total risk-based capital of $10.1
million, or 18.59% of risk-weighted assets, which is above the well-capitalized required level of $5.4 million, or 10.0%. Accordingly,
Heritage Bank was categorized as well-capitalized at December 31, 2017 and 2016. Management is not aware of any conditions or events
since the most recent notification that would change our category.



Off-Balance Sheet Arrangements.At
December 31, 2017, we had outstanding commitments to originate loans of $1.8 million and lines of credit of $2.3 million. We anticipate
we will have sufficient funds available to meet our current loan originations commitments. Certificates of deposit that are scheduled
to mature in less than one year from December 31, 2017 total $22.5 million. Management expects that a substantial portion of the
maturing certificates of deposit will be renewed. However, if a substantial portion of these deposits is not retained, we may utilize
FHLB-Dallas advances or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest
expense.



53







Recent Accounting Pronouncements



For a discussion of the impact of recent
accounting pronouncements, see Note A of the notes to our financial statements beginning on page F-1 of this annual report.



Impact of Inflation and Changing Prices



The financial statements and related data
presented herein have been prepared in accordance with generally accepted accounting principles in the United States of America
which require the measurement of financial position and operating results in terms of historical dollars without considering changes
in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected
in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution
are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s
performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices
of goods and services.





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|ITEM 15. | Exhibits and Financial Statement Schedules
|-------- | ------------------------------------------





| | 23 | Consent of Auditor
| | -- | ------------------





| | 31.1 | Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------



| | 31.2 | Certification required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
| | ---- | ---------------------------------------------------------------------------------



| | 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------



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Signatures



Pursuant to the requirements of Section
13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



|                    |     | Heritage NOLA Bancorp, Inc.                                                                             
|------------------- | --- | --------------------------------------------------------------------------------------------------------
|                    |     |                                                                                                         
|Date: April 4, 2018 | By: | /s/ W. David Crumhorn                                                                                   
|                    |     | W. David Crumhorn
        President and Chief Executive Officer
        (Duly Authorized Representative)